Weekly Review - India Stock Market

Enthusiasm and volatility rule the market; investors cautioned!

According to media reports, the Union Finance Minister Palaniappan Chidambaram has cautioned retail investors at this stage. The BSE Sensex just fell short of 18000 mark as the enthusiasm among the market participants grew more.

Mr. Chidambaram was quoted as saying, “I doubt if retail investors are entering the market at this level. I would advise them caution. Apparently there is lot of interest from foreign institutional investors (in Indian shares). Why should we not welcome it? ”

The foreign institutional investors have huge amount of funds that can be invested at possible market tops as well as bottoms. They can hold the stocks for longer periods of time. The average retail investor though, has a very limited amount of money (usually hard earned) to invest in stocks. When the stock market begins to fall, retail investors buy at dips; but still market may go down. They realize that they could be trapped and this results in more panic selling.

Based on technical scenario, we had mentioned in our weekly review dated September 22, 2007 and monthly review dated September 29, 2007 that the market has entered an uncertain zone and investors need to be cautious.

The following table shows the points gained/lost by both Sensex and Nifty during the week.

Date	Nifty	Sensex
01-Oct-07	47.60	37.52
03-Oct-07	141.85	518.42
04-Oct-07	-2.15	-69.90
05-Oct-07	-22.80	-3.78

On Friday, Sensex touched a high of 17979 while the Nifty registered a high of 5261 on Wednesday.

The following table shows the Foreign Institutional Investors activity in capital market segment at both BSE and NSE for the week. These are provisional figures (in Rs. Crores) released by the stock exchanges.

Date	Net purchase/sale
01-Oct-07	2196.00
03-Oct-07	3161.50
04-Oct-07	575.00
05-Oct-07	948.06

On October 5, FII’s trading activity in derivative (Futures & Options) market is given below.

Contracts	Net purchase/sale
INDEX FUTURES	675.33
INDEX OPTIONS	17.02
STOCK FUTURES	-667.33
STOCK OPTIONS	-14.61

This gives us some idea of what they do. In the capital market segment they were net buyers; in stock futures they were net sellers. They have the flexibility to be long in one segment and short in the other. They can sell the stocks bought at lower levels; they can cover up their current short positions when market declines.

Over the last couple of days, volatility has been on the higher side. On Thursday Nifty opened at 5212. After hitting a high of 5233, it touched a low of 5126 and closed at 5209. Once again a ‘doji’ body was formed, indicating indecision. The long lower shadow indicates that there was strong buying at lower levels. The intraday chart of Nifty on October 5 is shown above. On Friday there was a long upper shadow, suggesting profit booking at higher levels.

Let us now discuss the daily chart of TATASPONGE.

We discussed about this stock in my previous article, “5 Reasons to Remain Bullish on India Stocks in the Short Term”. We can note the “Hanging Man” candlestick formations at the top of the uptrend. This signifies selling at higher levels. As a result the stock fell slightly. But, there was “bullish piercing line” pattern formation after the hanging man. A confirmation, with a green candle and higher close have appeared on the second day. The stock hit the 20% upper freeze in early trade on Friday; but due to some profit booking it closed slightly at 232.60, gaining 19.19%.

We may consider this as overenthusiastic since the stock has retraced more than 100% from a low of 90.15 in March 2007. It is not however, abnormal in a strong bull market. But this can be a trap to those who buy at higher levels. Also, if the piercing line pattern formation occurs after a steady downtrend it is more meaningful and reliable. At the market tops and in sideways movement it may not make much sense.

In the daily chart shown above, Nifty still has not shown any sign of reversal. So is the case with weekly charts. As I have mentioned in my previous articles, a confirmation is necessary in order to judge the trend reversal. The slow stochastics indicator has been moving above 80 over the last one month; though it is normal to be in overbought zones for a period of time, a correction is surely missing. Declines are healthy in a trending bull market. In the absence of such corrections/declines, the upmove becomes questionable.

It is suggested once again that the small and retail investors may approach the market with a cautious note at these levels. This however, does not mean that they should not trade. There will be few opportunities even in such uncertain markets. However, strict stop losses should be applied by day traders and short term investors.

Advance / Decline Ratio:

Date	Adv.	Dec.	Unch.
01-Oct-07	678	457	23
03-Oct-07	396	744	17
04-Oct-07	418	707	30
05-Oct-07	339	789	24

Interestingly, Nifty gained 141.85 points or 2.80% on October 3 but 64% of the stocks declined.

Top Gainers / Losers among Index stocks:

Scrip	% Gain	Scrip	% Loss
REL	20.12	ITC	5.82
SUZLON	13.70	SBIN	4.61
TATAPOWER	10.52	MTNL	3.98
LT	10.03	NATIONALUM	3.74
RCOM	10.01	HEROHONDA	3.49

Top Gainers / Losers in overall market:

Scrip	% Gain	Scrip	% Loss
TORNTPOWER	38.91	NIITLTD	18.19
NBVENTURES	33.85	MIRZAINT	15.11
TATASPONGE	33.41	SABERORGAN	14.29
GREAVESCOT	27.14	IFCI	13.62
INDOWIND	26.88	ZENITHINFO	13.02

Analysis of Everonn Systems India Limited IPO

Introduction:

Everonn Systems India Limited is a Chennai based information technology education and training company. There are other listed companies in this sector (Aptech and NIIT Limited). While Aptech specializes education in IT platforms such as Solaris, Java and Oracle, NIIT and Everonn have their presence among enterprises, educational institutions like schools and colleges, corporates and working professionals.

Business overview:

The company’s business is based on two main strategies viz.

Institutional Education and IT Infrastructure Services (IEIS) and

Virtual and Technology Enabled Learning Solutions (VITELS)

The company aims at setting up the necessary infrastructure for IT education / training, creating learning content that is relevant to the current needs of industry and identifying learning opportunities. The company targets to educate 5 million students by 2010.

Institutional Education and IT Infrastructure Services:

Everonn provides computer education services to 8 state governments in India. It has so far trained about 1.2 million students and has about 1900 computer laboratories. The company educates students from schools and colleges on a contractual basis. The services include:

• Supply of hardware, software and other infrastructure needed for IT education;
• Teach the students in English and local language if required;
• Provide stationary and consumables;
• Appoint faculty members at the institutions;
• Train the teachers at the institutions;
• Prepare study materials in English and local language.

The company enters into long term contracts with schools and colleges on a BOOT basis (Build, Own, Operate and Transfer). The assets shall belong to the company till the contract expires and later these shall be transferred to the respective institutions.

The following table shows the number of schools covered:

State	Schools
Andaman	12
Andhra Pradesh	183
Delhi	267
Goa	238
Jharkand	206
Karnataka	216
Uttar Pradesh	223
West Bengal	555
Total	1900

Recently, the company has signed a Memorandum of Understanding with Gujarat Council of Primary education to train 5400 teachers. It will implement computer aided learning in about 1250 schools in the state.

The company has successfully completed providing computer education solutions to all the higher secondary schools in Tamil Nadu as well as in Pondicherry.

Virtual and Technology Enabled Learning Solutions:

This essentially means live interactive learning process. VSAT (Very Small Aperture Terminal) technology is used for interaction between the faculty and the students. An instructor presents the lecture to students through the computer and LCD projector via the VSAT receiver. The instructor and the students can see and interact with each other as if they are in a regular class room. Therefore, a single instructor is able to teach hundreds of students all over the country at the same time, without compromising the quality of learning process. These may be considered as the virtual classrooms.

The above technology is available at more than 200 locations. The focus is on institutions, corporates and retail segments of learning.

The company offers certificate programmes in bioinformatics, software testing and networking for institutions. Retail segment targets franchisees. Corporate initiatives include training and placement.

Comparison between NIIT and Everonn:

Both companies focus on IT education and learning. NIIT has presence in 2000 Government schools in the states of Andhra Pradesh, Tamil Nadu, West Bengal and Karnataka where as Everonn has managed to spread the operations to 10 states (including Tamil Nadu and Pondicherry). NIIT also executes turnkey projects in IT education and infrastructure viz. systems handling, facility management, training etc.

In the stock market, NIIT Limited has performed well. It closed at 179.45 on 31.12.04. On 29.06.07 it closed at 1005. In other words, the stock has appreciated 5.6 times in about 2.5 years which is very good. We will have to see how Everonn performs in the market.

NIIT Limited has a book value of 148.39, diluted EPS of 28.06 and P/E ratio of 25 as on 31.03.07. It reported a net profit of Rs.57.30 crores for the financial year 2006 – 07. Everonn, had a book value of 42.41 and diluted EPS of 5.63. P/E works out to 24.87 at the upper end of the price band Rs.140. There is not much difference in terms of P/E ratio.

Financial performance in the past:

Item	2007	2006	2005	2004	2003
Income	4,304.46	3,093.03	1,942.95	1,616.42	1,601.54
Expenditure	2,541.16	1,655.54	946.79	799.25	868.98
PBIDT	1,763.30	1,437.48	996.16	817.18	732.56
Adjusted net profit	485.64	490.93	151.13	60.59	40.84

All figures in rupees lakhs. PBIDT = Profit before interest, depreciation and tax.

IPO Details:

Issue Period: July 05, 2007 to July 11, 2007

Issue Size: (.) Equity Shares aggregating Rs. 50 crores

Issue Type: 100% Book Building

Face Value: Rs. 10/-

Price Range: Rs.125/- to Rs.140/-

Market Lot: 50 shares

Minimum Order Quantity: 50 shares

Retail Investor cap: Rs.100,000

Application form is available from this link.

Red Herring Prospectus is available at this link.

Conclusion:

Though the company may be smaller compared to NIIT it is also in the same business and has presence in several states. NIIT has a worldwide network of centres and offices, from the United States to Fiji, apart from several locations in India whereas Everonn is primarily an Indian player. However, they may also diversify into other locations in future. In fact, Everonn has plans to set up offices in Dubai and Singapore. NIIT has done reasonably well in the stock market in the last two and a half years; we may expect the same from Everonn. So long term investors may invest in Everonn IPO with the expectation that it would perform well.