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Wipro: Ephemeral gains

S. Vaidya Nathan

THE Wipro stock, which has recovered from levels of around 55 per cent in the last seven trading sessions, may be subject to a high degree of volatility. The possibility of the ADR/GDR offering may have contributed to some of the upside and some gains in this context may still be in store.

But this may not be of a lasting kind till the proposal comes to a more specific stage and volatility may increase if the run-up to the ADR/GDR turns out to be long.

The company has, meanwhile, in a communication to the National Stock Exchange denied that it is contemplating a bonus offer of shares. It has also stated that the report of Morgan Stanley on restructuring its businesses has not been taken up by the boar d of directors.

J Prudent but...: The Bharat Forge stock continues to be on flat terrain despite some positive indications from the company. The board of directors has stated that a conscious decision has been taken to reduce its portfolio of financial assets by around Rs. 90 crores.

Though the company has stated that the objective of this exercise is to reduce borrowings, achieve better returns on capital employed and enhance shareholders value, the markets appear to have cold-shouldered the move.

Concerns over the mode of use of the resultant cash flows may also prompt a cautious market response to the company's move.

J Driven by buyback: The gains resulting from the sharp uptrend in the valuation of the Bajaj Auto stock may be held for some time to come as the specifics of the company's buyback proposal have become clear.

The company has proposed to buy back up to 15 per cent of its equity at a price of Rs. 450 per share. The outlay would be around Rs. 810 crores. The proposed offer price carries a premium of around 18 per cent to the current market price.

Any significant uptrend from the present levels may emerge only when the eligibility date for buyback is fixed. Till then, the stock may rule firm at around the current price level.

However, the buyback may not necessarily be good for investors who stay with the company. The terms of the buyback may not lead to any lasting improvement in the valuation of the stock due to the weak fundamentals underpinning it in an increasingly compe titive business.

For this aspect to emerge, there has to be a considerable enhancement in the competitive position of the company in the two-wheeler industry. The fundamentals point to price weakness once the buyback is out of the way.

J Evergo Capital is one more in a long list of companies that has changed business profile in the last six months to one year.

The company has been acquired and the open offer was at a price of Rs. 7.20 per share at a considerable discount to the market price. Now the acquirers have proposed the merger of Advent Business Machines Ltd (ABML) with the company. Twenty-five shares o f the company will be allotted for every two shares of Advent Business. Dematerialisation of shares, employee stock option scheme and a hike in the limit for FII investments from 30 per cent to 40 per cent have all been proposed by the board of directors .

These appear to be designed to attract market interest to the stock. But the stock has shed some of the gains posted in recent months. Whether the recast Evergo find its stock posting gains, as many other obscure companies with an IT/media/telecom linkag e have in recent months, remains to be seen.