Markets turn active again

NEW DELHI, May 16: The stock markets have once again turned into a hunting ground. The nuclear tests and the sanctions have opened yet anoth...

NEW DELHI, May 16: The stock markets have once again turned into a hunting ground. The nuclear tests and the sanctions have opened yet another opportunity for discerning investors to step in. Read with some excellent corporate performance, the valuations have turned once again attractive. Take Hero Honda Motors for instance. It announced a whopping 52 per cent increase in net profit for 1997-98. Coupled with the Rs 200 drop in its scrip price, the valuation now looks tempting again. The scrip is currently trading at a price to earning ratio of 27 as against a PE of 51.94 times on May 4. The scrip had peaked at Rs 1,310 on May 4 while it announced its results on May 9.

Hero Honda is not the only company in this category where the valuations have turned attractive after the company announced sterling performance for last fiscal. The results card and a fall of nearly 430 points in the Sensex from its peak level of 4286.84 since March 31, have set the ground for a fresh look at some of the pivotals. A look at ahandful cases show how these scrips could be identified as potential investments.

Take for instance the case of Reliance Industries. The scrip had peaked at Rs 204.9 on April 22 five days before the company announced a 25 per cent jump in net profit. At Rs 200 plus the scrip was enjoying a discounting of 14.26 times EPS for 1997 has been adjusted for 1:1 bonus. However, after the announcement of net profit of Rs 1,653 crore and the erosion in market sentiment, the scrip now is around Rs 179. The scrip currently enjoys a PE of 10.15 times against 14.26 times before the annoucement of the results.

However in some cases, especially info stocks the peak levels have been achieved after the results have been announced mainly due to the recent rally witnessed by the sector. Take for instance, Infosys Technologies, which announced its results on April 10. The scrip peaked at Rs 2458 on April 22. On April 10 the scrip was quoting at Rs 2230 discounted bonus adjusted by 96 times. After reporting 80 per centjump in the net profit the scrip is currently trading at Rs 2279.5, discounted by 60.5 times.

In the case of Satyam Computer and Pentafour Software also the scrips peaked after the announcement of results on April 13 and April 28 respectively. Other than info stocks even in the case of Videocon International the scrip peaked at Rs 124 level on the day the company announced the results.

In some cases a sharp drop in scrip prices has helped improve the valuations. For instance, IDBI has fallen from Rs 120 to Rs 83. With a 38.81 per cent increase in earnings, the discounting has improved from 7.58 to 3.72 times.

Similarly in the case of ICICI the scrip has fallen from Rs 125 to Rs 101 level improving its valuation to 4.45 times.