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S. Vaidya Nathan

BULLISH phases in the stock market have always elicited interest from investors, even if it comes rather late in the day for many of them. Just as interesting is the kind of effect that such a market condition has on the corporate sector. Quite a few companies appear to go the extra length in keeping up the flow of positive news, which could keep the momentum in stock prices going. This is especially true of mid- and small-cap companies.

Most of the large-cap firms are always adept at this game (a small number remain the same irrespective of the market). But as they are well-researched, and mostly in mature industries, such efforts do not have an outsized influence on stock prices. In the case of some mid-cap and small-cap companies, it is a different story and, in some of them, well-orchestrated as well.

Aspirations of unlisted: Such markets tend to lure well-established unlisted companies into pursuing capital mobilisation efforts. The views expressed by Shanta Bio-Tech's top management, a couple of weeks ago, is a good example. They want to list the company to capitalise on the ongoing bullish phase.

This approach appears unnecessary. The IPO market between late 2001 and now has shown that companies with healthy business models have had no problems in raising required sums comfortably.

Sprucing liquidity: Such options as bonus offers, high interim dividends and stock splits, have also been a favourite bull-market practice. In the ongoing phase, Madras Cements, TVS Motors and L. G Balakrishnan Brothers, well-known for their conservative approach, too have pursued such options. There is nothing amiss in such an approach, especially for companies of this set, whose stocks have suffered from low liquidity levels. But investors ought not to place much store by such moves, and should focus on the underlying growth prospects and management quality.

Private placements: Private placements with foreign portfolio investors and preferential offers to promoter groups and institutional investors also tend to figure prominently in bull markets. The recent efforts by Lupin and Aurobindo Pharma are good examples.

Lupin's equity placement with the US-based investment Newbridge Capital helped drive the stock up. But a few weeks after the announcement, the company called off the exercise. Investors may be better off not attaching importance immediately to such efforts.

For instance, the placement of equity at Rs 1,000 per share by Zee Telefilms with Goldman Sachs 2000-01. Pricing in most such offers provide little clue of the underlying value.

Weak IPOs: As the bull market has moved into higher orbits over the past couple of months, there are signs of IPOs of inferior quality making a return. The numbers are as yet sparse. Weal Infotech, a BPO aspirant with little of note that could merit investment support, is amongthe first such. View such capital offers with a high degree of scepticism.

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