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Future looks weak for 'K-10' stocks

Netscribes/Radha Ganesan

The euphoria is not set to last long. Despite a sharp upswing in prices for several of the 'K-10' stocks over the past two weeks - and some have risen by between 90-180 per cent - marketmen are still jittery about the future of the K-10 stocks.

A section of fund managers, FIIs and analysts NetScribes spoke to said that the shadow of Ketan Parekh loomed too large on the future of these stocks. The business strategies for some like Pentamedia, SSI and Silverline would be hit by the overall US slowdown.

The market is also sceptical also of where the buying interest is actually coming from. Most of the domestic private sector mutual funds are still keeping away from the K-10 stocks.

Despite upward movement witnessed in the last few days, a slide in the K-10 stocks is not too far. Global Tele-Systems and Zee Tele films are the only stocks that look fundamentally sound as compared to the other 8 stocks and could sustain further falls, say brokers and fund managers.

Even from the pure technical point of view, scrips like Zee, HFCL and Global have a limited upswing and could face resistance as they move up.

Most brokerages and fund houses are currently not investing in these stocks and they have recommended to their clients also to stay away.

"We do not want to enter these stocks as these are operator driven stocks. Even now, no funds are buying in these stocks despite which the scrips have moved up," said an analyst from Dalal & Broacha Securities.

According to an analyst at K R Choksey, a Bombay-based brokerage outfit, "These scrips are tainted in nature and operator driven, we are advising investors to stay away," said an analyst at KR Choksey.

A fund manager at Zurich India Mutual Fund said, "The business behind these stocks is fading and a slip in prices is expected soon," he said.

The overall outlook on companies and stocks including HFCL and DSQ Software is negative. "Based on the results announced by HFCL, the scrip might seem quite undervalued. But there is no proof of the financial figures reported by the company," said the Dalal & Broacha analyst.

However, analysts seem to be positive about Global Tele systems and Zee as compared to the rest of the lot. "Global Tele has a strong business model, on the basis of which my outlook is positive for the scrip," said one.

The analyst at Dalal & Broacha, who recently met the company's management, said that post-merger with Global Electronic Commerce and Services, the company is expected to do reasonably well. "We should see some buying interest at lower levels of Rs 130," he said.

Zee Telefilms is also expected to gain in the long run, especially after June 2001 when the channels would become pay channels.

However, concerns of the promoter would come to the surface time and again, say analysts.

The revamping of the programme strategy for Zee and the overall revenues slated to come in after Zee becomes a pay channel as positives for the stock.

The positive factor is that Zee has arrested its declining market share, which is good over the long term. SG Asia, one of the leading FII brokerage outfits has upgraded the Zee Telefilms scrip from sell to market underperformer. Further, the growth is seen coming not from the main channel but from subscription revenues and new ventures.

"We have upgraded your forecasts for Zee earning's from broadcasting, recognizing excessive pessimism in the past. We expect Zee to gain around Rs 10 billion, once the channel becomes a pay channel. However, we choose to wait for another 6 months, till the concerns and problems die out," said the fund manager at Zurich.

According to the analyst at Dalal & Broacha, a fall in the Zee scrip is more driven by sentiments and the 'K-10 stock' tag that the scrip carries.

"Zee would be a good investment at Rs 70-80 levels," he said.

As far as other K-10 stocks are concerned, most of them would fall a victim to the US slowdown, say analysts. "While big player like Infosys has announced a dip in growth, second rung companies including Pentamedia and Silverline are going to be under pressure," said the Zurich fund manager.

In fact, Pentamedia and Silverline have been among the first set of companies that had announced a profit warning owing to a slowdown in the US economy.

"Smaller the companies, higher the impact of the slowdown," said the Zurich fund manager.

Looking at pure technical trends, the HFCL, Global Tele-Systems, Pentamedia and Zee Telefilms stock seem to be corrective in nature in view of the sharp fall suffered by the scrips.

HFCL is expected to run into significant resistance at the Rs 200 level but the current recovery is expected to continue despite this resistance.

Zee is expected to run into significant resistance at the current level and also the Rs 150 level but the current recovery is expected to continue despite this resistance.

In Global's case, the scrip could decline to the Rs 225 levels and the current recovery is expected to continue despite this anticipated decline.

Pentamedia could decline to the Rs 95 level but the current recovery is expected to continue despite this anticipated decline.

In CMC's case, the current picture seems to be slightly hazy and unclear and even the mechanical oscillators are giving mixed signals.

The scrip roughly has support at the Rs 200 level and selling pressure could be expected from the Rs 275 level on the higher side, wait and watch should be the preferred option for the moment.

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