This is the hottest buzz going around in the Indian equity markets.
Information, Communications and Entertainment, popularly referred to as ICE has emerged as
the winning troika in the Indian capital markets. The ICE revolution in the Indian markets
has drawn a clear line of demarcation between the old economy sectors like cement, steel,
aluminum and banking and the new economy ICE sectors. Stars of yesteryears like ACC,
Tisco, Reliance, Telco and SBI have given way to the likes of Wipro, Infosys, Satyam and
Zee Telefilms.
Consider the startling returns
provided by some of these ICE stocks during the last six month period between September
15, 1999 and March 15, 2000. Himachal Futuristic, a telecom service company has provided a
raw return of 611% during this period. The net savvy Satyam Computers has provided a
whopping 510% return during this six month period. Global TeleSystems and Wipro have
provided returns in excess of 400% during the above period. Bourse darling Infosys and
media giant Zee Telefilms have provided returns in excess of 220% during the above period.
But the jokers in the pack have been ICICI Bank and HDFC Bank. These so-called unsexy
banking stocks have bucked the general old economy trend and provided fabulous stock
market returns. In fact, HDFC Bank has returned 180% returns on the bourses while ICICI
Bank has appreciated by a whopping 500% during the same six-month period.
The question then is whether this
old economy – new economy divergence is a myth? The answer is both yes and no.
Puritans of capital markets believe that the new economy is basically a support service
and obviously in the absence of a vibrant old economy it is doomed. There is a distinct
danger in this argument of missing the wood for the trees. The importance of the new
economy arises from the fact that new technology will force the old economy to change the
way it does business. The old economy stocks are faring badly on the bourses not because
they belong to the old economy because they are unwilling and incapable of adapting to the
dictates of the new economy. The imperative for the old economy is crystal clear. Adapt to
the technology revolution or be doomed. The choice is B2B or not to be.
It is in the above light that the
performance of ICICI Bank and HDFC Bank need to be understood. Despite being in a
commodity sector like banking, these two companies handsomely rewarded their shareholders.
The reasons are not far to seek. These two banks have been the fastest and savviest in
arranging the marriage of technology and finance. Being in the forefront of the technology
revolution, these two banks have managed to buck the old economy trend and handsomely
reward its shareholders.
ICICI Bank and HDFC Bank are
not just the exceptions to the old economy argument but the emerging paradigm to which the
old economy has to adapt. The clarion call for the old economy stalwarts like ACC, Tisco,
Telco, SBI and Reliance to change old-fashioned methods of doing business has come. If
they fail to heed this warning, they may end up like the US railroads, in a corporate
Jurassic park.