The Hindu Business Line : Riding the market boom with weak fundamentals

AS the stock market is booming, bulls don't seem to leave even stocks of companies with weak fundamentals. Share prices of such companies have seen sharp appreciation in the last month with price rising as much as 300 per cent in some stocks.

A look at some of the companies, whose stock price has seen sharp appreciation, shows that these companies have been making losses for several years and in many cases, the loss is more than sales for the latest financial year.

In a few cases, the company has not been in operation for more than a year.

Stocks of some non-banking finance companies whose licences were cancelled by the RBI are being traded.

Brokers and analysts see this as a very scary situation for investors. "Despite all the negative factors, stock prices of several companies have increased," said Mr V.K. Sharma, Head of Research, Anagram Stock Broking.

Citing the case of Autorider Finance, Mr Sharma said the stock has appreciated 5.5 times from the 52-week low of Rs 1.24 despite no income from the operation of the business. In the last one month, the stock price of the company has increased to Rs 6.63 on BSE.

Similarly, the stock price of Apple Finance has gained 30 per cent to close at Rs 6.19 on BSE.

The company had informed the stock exchange in February 2004 that it had surrendered its certificate of NBFC to the RBI as the business has been unviable.

Similarly, the RBI cancelled CFL Capital Finance Services certificate as NBFC in May 2004, but the stock price of the company has increased 38 per cent in the last one month.

For some manufacturing companies also, the situation is not different.

For instance, the stock price of Mintage Electro has increased 230 per cent in the last one month, but its financial performance is not very good. For April-September 2004 period (latest financial results available) on net sales of Rs 5 lakh, it had posted a loss of Rs 29.8 lakh.

Another interesting case is of Kay Pulp and Paper.

Its stock price has increased 215 per cent to Rs 11.25 on BSE in the last one month.

The company's operations have remained closed since December 15, 2003.

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Riding the market boom with weak fundamentals