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The rise and fall of the K-10 stocks

NetScribes/Rajiv Banerjee and Pallavi Rao

What's common to Himachal Futuristic Communication, Global Tele-Systems, Zee Telefilms, Satyam Computer, Sterlite, Aftek Infosys, Silverline Technologies, DSQ Software, Pentamedia Graphics and Ranbaxy?

Most of these belong to the infotech, communication and entertainment sector, but all of them have one thing in common: They are all influenced by the diktats of Big Bull II, Ketan Parekh, and form the so-called K-10 index.

These stocks have all plunged by about 90 per cent from their all-time highs scored in March 2000. And in the wake of the Sebi-Anand Rathi scuffle, the payment crisis at the Calcutta Stock Exchange and the possible financial trouble with Parekh, the market is not sure how these K-10 stocks are going to move.

A cross-section of analysts interviewed by NetScribes are of the view that most of these stocks should be kept on 'hold', while some maintain that these should be avoided completely now.

Whither hence, K-10?

Domestic brokerages Dalal & Broacha Stock Broking, Pranav Securities and KR Choksey say when it comes to these stocks, fundamentals are inconsequential. "Stocks like Himachal and Global Tele-Systems are operator-driven, and thus don't heed the fundamentals. Even the fundamentals do not reveal the true picture, as price rises are linked to a management play sometimes," says Dalal & Broacha analyst Milind Muchhala.

A KR Choksey analyst points out that not only are these stocks operator-driven, they are also favourites of foreign institutional investors and mutual funds. "Since these stocks are operator-driven, they are being favoured by FIIs and MFs. Entry and exit in these stocks are also easy due to higher liquidity," he says.

If one were to go by the basics of the stock market, one makes an entry at lower levels. But when it comes to these stocks, brokerages have either refrained from making a recommendation or have recommended a 'hold' on the scrips. An analyst from a leading brokerage outfit said that by the time the common investors decided to make an entry, Parekh would have exited, albeit after pushing the price upwards.

Manish Agrawal, analyst at Pranav Securities, says due to Parekh's alleged involvement, these stocks will continue to languish at lower levels.

The KR Choksey analyst advocates caution before investing in such speculative scrips. "We recommend a hold on Satyam, Himachal and Global Tele," he says.

The KP effect: What goes up…

In the first quarter of 2000, the picture was just the opposite: All the K-10 stocks were ruling at all-time highs. Today, most of these stocks are at their 52-week low.

From a mere Rs 77.20 in March 1999, Zee touched a peak of Rs 1,555.50 on February 24, 2000 at the Bombay Stock Exchange. Similarly, Himachal and Global Tele zoomed from Rs 68.75 and Rs 243 in March 1999 to Rs 2,415 and Rs 3,309.20 in March 2000, respectively.

K-10 stocks continued on their downward spiral on Friday too on the BSE: HFCL closed at Rs 326.95 (over its previous close of Rs 389.20), Global Tele at Rs 225.70 (Rs 267.30), and Zee at Rs 116.85 (Rs 129.35).

DSQ Software moved from around Rs 500 to its all-time high of Rs 2,631.65 in March 2000 and then crashed to Rs 212.35 in March 2001. Silverline Technologies, which was trading at Rs 273.60 in March 1999, soared to Rs 1,260 in March 2000, and then plummeted to Rs 100.55 in March 2001.

The trigger for the fall came from the US market. A series of profit warnings by major US tech companies, who were hit by a slowdown gripping the US economy, saw the sky-high valuations tumbling and the Nasdaq falling over 50 per cent from its high. Tech stocks in India also started falling as investors became wary of how the domestic software firms would face the slowdown in US -- the biggest export market by far.

And since many of these were momentum stocks, they fell as easily as they had risen. Lack of fresh buying support was also responsible. As the bears got wind of Parekh's possible financial trouble, they were hammered further. Hence, these stocks fell more than other tech stocks.

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