The activities in the Stock markets over the last week have been characterized by low turnovers. However what is noticeable is that the intraday volatility has gone down significantly. Investors could therefore invest or disinvest based on the trend indicated for the day. This sort of market is far more healthy for small investors than the market where the intraday swings are 200 points to 400 points strong. 

Just to understand how much the markets have become unrealistic in recent days, we shall look at one of the first annual results that have come out for the year 2000-2001. This is from a Company in the IT field which has recorded a  profit growth rate of around 50-55 % consistently every quarter and reported a whopping EPS of Rs 70 for the last year and a dividend of 60 %.  Investors would be surprised to know that the shares are quoted only at around Rs 72.

The share is Pentasoft technologies, the sister concern of Penta Media Graphics which is hailed as the world leader in its chosen area of specialization namely "Multi Media Graphic Software and related services ".

According to the results announced on April 6th , Pentasoft Technologies has posted a net profit of Rs 30.02 crore for the quarter ended  31March 2001 as compared to Rs 27.67 crore in the corresponding period last fiscal. The net profit for the year ended 31 March 2001 is at Rs 126.64 crore as compared to Rs 82.98 crore in FY 1999-2000 showing a growth of 53 %. The company has been growing at similar rates of around 50-55% in the earlier quarters also showing a "Consistent trend of positive growth" as indicated in the accompanying table.

The Company is engaged in development of software for Financial Services, Logistics & Supply Chain Solutions and E-business Solutions. It also has a training division which contributes to around 13 % of its income. During the year the company formed a subsidiary in Hong Kong to provide education & training & enterprise solutions to the China market.

With such a commendable track record, the only justification for the ridiculous price discounting is that the shares are not being fancied by the institutional investors for some reason. 

This is an indicator of the status of our stock markets today where performance is totally de-linked from the stock prices. It is only those scrips where the floating stock is low enough for the manipulators to manage huge swings which are fancied by the FIIs and their followers. The name of the game is "Fight on Cash Strengths". In this game of betting on the cash strengths,  whoever winks first is the loser. One who holds out longer is the winner. 

For a Committed investor, it would pay in the long run to be a contrarian. The rumors about a great "ICE meltdown in USA" are over exaggerated. Many of the Indian companies have already diversified out of US markets and have shifted attention to the Japanese and European markets. The future growth of IT industries in India will come from these markets besides out of the domestic market. Next week, Infosys, Satyam, Hughes software, Pentafour Media Graphics  and Wipro may come up with their annual results which will give a clear indication of the last year. Even if there is a decline in profitability compared to earlier years, they have not only been discounted, but are  also justifiable in the context of higher base figures and a change in the economic outlook in US because of the change in Government. 

Those investors who invest their own money should therefore take positions in the IT stocks mentioned above and they are bound to gain in the short run as well. Using borrowed money is walking into the trap of speculators. The small investors cannot fight with the speculators on the basis of funds. They should fight on the basis of "Holding Time". If a speculator can hold for one month, be prepared to hold for six months or even six years if need be. Then you are bound to gain at not less than 30 % p.a. which is three times the current maximum Bank interest. If you are lucky, you may also make 300 % p.a in one fortnight, but that cannot be the expectation.

Na.Vijayashankar
April 7, 2001