Interesting Stocks in Indian Market

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Vikas Vishwakarma

Introduction

Keeping track of some of the most interesting events and counters in Indian stock market. Stock exchanges around the world have huge particpation from investors, professionals, institutions, analysts and others. Different people analyze stocks and news in different ways. This article keeps track of some genuine factors that affect stock prices using real world examples from Indian stock exchanges. The date of event, value on event date, closing date and closing value is decided based on the announcement made by the company or based on my own personal trading experience. The reasoning behind chosing these values will be explained in the event analysis section.

Crompton Greaves (CROMGREAV.EQ-IN) (21-March-2009): Buy Back

What's Interesting

Crompton Greaves board is scheduled to meet on 24-March-2009 to consider Buy Back of shares. The stock is currently trading at 126.95 down almost 50% from it's 52 Week high of 289.90. The company is also scheduled to announce a dividend in the board meeting as per the notification submitted to the exchange.^[1]

Event Analysis

The December'08 Shareholding pattern of Crompton Greaves Ltd shows that promoters hold around 39.38% shares in the company. Institutional investors hold another 37.48% shares. The company is mostly into Electrical Equipments used by power generating companies, another sector unaffected by the current recession and has posted excellent results in the last few quarters. Depending upon the size of Buy back and maximum price set for buyback this counter should see a spike in price around the date of announcement.

Closing Analysis

On the closing date of 24-April-2009 the stock was trading close to its maximum buyback price of Rs 170. This run up in the stock price was supported by a in general bullish market and expected positive results in the Mar'09 quarter for Crompton Greaves.

Unitech (UNITECH.EQ-IN) (21-March-2009): Stake Sale

What's Interesting

Unitech Ltd is a top real estate firm in India, however it got into trouble due to slowdown in real estate market with a consolidated outstanding debt of about Rs8,000 crore in its books. The stock was beaten down severely on Indian exchanges and is currently trading at 26.90 over 92% down from it's Jan'09 peak. One positive development that helped the company survive the ongoing slaughter was that it's telecom subsidary Unitech Wireless received spectrum for 21 of 22 circles to start GSM sservice offerings in India's fast growing telecommunications sector. Further on 28 October, 2008 Norwegan telecom giant also ranked as the world's 7th largest mobile operator agreed to partner with Unitech Wireless to start mobile services in India by acquiring a controlling interest (67.25%) in Unitech Wireless from the parent company Unitech Ltd^[2]

Event Analysis

Although both the news regarding Unitech's huge debt, tight cash flows and falling market as well as Unitech's stake sale in subsidary Unitech Wireless have been around in the market for months, the stock price has been on a continuous downward spiral. This could be because the bad news of high debt, high expense and falling profitability was certain however the Telenor deal was not certain especially after the deal got delayed from Jan'09 to March'09. But finally on Friday, 20th March Norway’s Telenor Group closed the deal by injecting the first tranche of Rs 1,250 crore in Unitech Wireless, for a 33.5 per cent stake. It was further announced that Telenor’s remaining investment of Rs 4,870 crore will be made in three tranches during 2009 and in all, Telenor will infuse Rs 6,120 crore of new equity into Unitech Wireless to acquire 67.25 per cent stake. This is surely a positive development over the uncertainity that was hovering over this deal and should boost investor confidence in Unitech Ltd.
Besides the closure of the above deal Unitech also announced possible sale of prime hotel, office & residential property in NCR (National Capital Region) region in near future for which it was in talks with various HNI's and multi-nationals. Unitech also announced launch of affordable housing projects to beat the current slowdown. Overall all the above positive developments in recent times should help push up the trading range in this counter.

Closing Analysis

Unitech Ltd rose over 18% after the Telenor deal was finalized. Closing this on today's price of 34.80 based on the conclusion that cash infusion from a foreign partner helped the stock gain smartly in an overall positive sentiment market.

Edserv Softsystems (EDSERV.EQ-IN) (17-March-2009): IPO

What's Interesting

E-learning company EdServ Softsystems came with an initial public offering (IPO) at an issue price of Rs 60 a share on February 5, 2009 raising Rs 23.8 crore. The company offered 39.7 lakh shares, out of which 2 lakh shares were earmarked for employees. Meanwhile, two qualified institutional bidders (QIBs) were allotted 19.8 lakh shares or 50% of the issue size and India Max Investment Fund (sub account of FII named Rahn & Bodmer- a Zurich-based private bank) was allotted 8.12 lakh shares or 20.5% of the issue size. HS FII Investment, which is another sub account, was allotted 11.7 lakh shares or 29.5% of issue size. (sub account of FII named Hanover Square Capital (UK)). EdServ’s largest shareholder is a non-banking financial company(NBFC) called Kalpathi Investment. They were allotted around 11.3 lakh shares at approximately Rs 34 per shares. ^[3]

Event Analysis

There are so many IPOs which have seen this case, where 2-3 QIBs take most of the allotment, corner the shares. The share prices go up nearly 50-100% after listing. Afterwards when the QIB's start dumping the shares, the stock price falls below their issue price.
In the case of Edserv, out of the total issue, 50% went to only two QIBs. The total issue was subscribed 1.21 times. However, there was no application, which came from mutual funds. On listing the stock price more than doubled reaching a high of Rs 148 after which it started its downward journey on heavy QIB selling. The table below shows the data collected from Bulk Deals Info available on the exchange.

Besides the above bulk selling by QIB's there were several intra day bulk deals (selling at a higher value and buying at a lower price) by small investment companies driving the stock price lower ^[4]

Edserv was trading at 35.3 on 16-Mar-2009 almost at half the listing price. The wild stock movements from a listing price of 60 to a lifetime high of 147 and now lifetime low of 35 can be attributed to such bulk selling and intra day bulk deals by investors and traders making the stock price highly volatile before it settles down in some steady range. The above example demonstrates the possible risks in IPO game plays. However once the price settles down it can be a good investment opportunity for short term (and possibly long term) as the continuous selling pressure by QIB's will be over once they have dumped all their shares and the counter may attract fresh buying due to heavy discount over IPO price.
For Edserv CARE has assigned Grade 1, indicating poor fundamentals and FY09 estimated EPS is seen at Rs 3. However, S Giridharan, CEO of Edserv Softsystems, said the company’s FY09 and FY10 EPS is likely to be over Rs 15 per share. He said the company’s share base was 1.2 crore shares with topline around Rs 60 crore and the bottomline at over Rs 18 crore.
Considering the fact that the QIB dumping can go on for another 2-3 days at the rate of 200000 shares per day Edserv shares can fall annother 20% from current levels. However, since EdServ’s single largest shareholder Kalpathi Investment holds around 11.3 lakh shares at approximately Rs 34 per shares, it s quiet possible that the stock price will bottom somewhere around this level. A buy below 30 and sell below 34 can be a good trading strategy in such cases. (Please note this is just an example)

Closing Analysis

Open

Videocon Industries (VIDEOCON-BY) (14-March-2009): New Business

What's Interesting

Videocon Industries is a well diversified industrial group in India with interests in consumer durables, oil & gas and CRT glass manufacturing units. Recently the company has announced several new ventures like power backup business, DTH services, Semiconductor Manufacturing unit in Fab City, Andhra Pradesh and GSM mobile services through its subsidary Datacom. ^[5]

Event Analysis

All the new business forays announced by the company are well aligned with the current business of the company and shall help in considerable growth if implmented as expected. The company is coming up with innovative schemes like offering set top boxes packaged with Videocon TV sets in a combined offer that can help it gain a competitive edge over other leading players in the market like Tata, Airtel, Reliance and Dish TV.

Closing Analysis

Videocon Industries recovered sharply from its 52 Week lows supported by a in general bullish market and positive result expectations in the Mar'09 quarter. Expected increase in TV set sales for IPL (Indian Premier League) could have also had a positive impact on the stock price. ^[6]

Rolta India (ROLTA.EQ-IN) (09-March-2009): Insider Trading

What's Interesting

There were some rumors in the market about major stake holders of Rolta India Ltd dumping huge number of shares of the company.The promoters of the company denied any such event in a clarification submitted to the exchange. However the stock tumbled over 50% within a month from Rs 95 per unit to Rs 43 per unit. ^[7] From the Insider Trading and bulk deal info submitted to the exchange it was clear that Credit Suisee Singapore and Fidelity Investments were selling huge chunks of these shares everyday in the open market which probably lead to the crash in stock price. However the promoters have begun buying shares from the open market that has provided some support to the stock price. ^[8]. What remains to be seen is how the stock moves from here on. This will largely depend on how many more shares the FI's are going to dump before they stop and how much of this can be absorbed by the promoters to keep the supply in check.

Event Analysis

The clarification submitted by the promoters to the exchange along with huge promoter buying in the open market, signals promoter confidence in the company who are better informed than normal investors. The sharp erosion of over 50% in the stock value seems to be more a case of market over reaction to a non-event. The stock price should stabilize and recover atleast partially once the FI's have finished dumping the stock. The promoters through their public announcements look visibly concerned about the fall in stock price and could take some proactive steps in near future to restore investor confidence.

Closing Analysis

Rolta picked up after touching a lifetime low of 40.7 and closed at 53.35 on 20-March-2009. Most of the gain was due to heavy promoter buying at lower levels (source: Prohibition of Insider Trading disclosures on NSE).

TV Today Network (TVTODAY.EQ-IN) (03-March-2009): Buy Back

What's Interesting

TV Today Network Ltd has announced buyback of fully paid up equity shares of the face value of Rs 5/- each up to 47,79,800 equity shares ("Maximum Offer Shares") and a minimum number of 2,00,000 equity shares ("Minimum Offer Shares") at a price not exceeding Rs 115 per Equity Share (the 'Maximum Offer Price"). The Buy-back will implemented by the Company through Open Market Purchase ^[9]
Date of Opening of the Buy-back: March 16, 2009
Last Date for the Buy-back: July 30, 2009

Event Analysis

Pursuant to the Buy-back of the maximum offer shares, the equity shareholding and voting rights of the Persons in Control will increase from the existing 55.68% to 60.68%. Promoter buying from the open market should firm up the demand in this counter. The price of the share should tend towards the Maximum Offer Price of 115 from the current value of 58 between Date of Opening of the Buy-back (March 16, 2009) and Last Date for the Buy-back (July 30, 2009).

Closing Analysis

After a few percentage point drop due to weak market conditions, TV Today stock was up 12% @ 60.70 on 13-Mar-2009 one trading day before the start of open market buyback purchase.
TV Today was up another 20% today (16-Mar-2009) closing at 72 per unit. This is just an example to demonstrate how open market purchase by promoters under buyback scheme can lead to profitable investments. Few things to note here are that the stock price drifted down on thin volumes even after the buyback announcement due to weak market conditions. The first jump in the stock price was seen just one trading day before the begining of the buyback exercise. The stock prce jumped considerably on the first day of buyback, this was aided by overall strong market sentiments with over 2% rise in Sensex.

References

1. ↑ Crompton Greaves Ltd - NSE Announcements.
2. ↑ Unitech Ltd - NSE Announcements.
3. ↑ Edserv Softsystems Ltd - NSE Announcements.
4. ↑ Moneycontrol - Bulk Deals.
5. ↑ Videocon Ind - NSE Announcements.
6. ↑ Videocon Ind - IPL Impact.
7. ↑ Rolta India - NSE Price Quote.
8. ↑ Rolta India - NSE Announcements.
9. ↑ TV Today Network Ltd - NSE Announcements.