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Buyback: The winners and losers

Aarati Krishnan

WITH the markets in uncertain territory, the stocks which feature on the gainers' list over the past fortnight appear to have been driven largely by company-specific announcements.

*Indian Rayon's acquisition of a controlling 50.35 per cent stake in PSI Data Systems from Groupe Bull of France, appears to have depressed both the stocks on the bourses.

While the PSI Data Systems stock has plunged from Rs 171 to Rs 130 levels, Indian Rayon displayed flat trends over this period. The acquisition price of Rs 186.6 per share was initially perceived as lower than expected from the point of view of PSI Data shareholders.

This depressed valuation for the stock on the bourses. However, the subsequent open offer announcement at the same price could perk the stock in the near term.

*As for Indian Rayon, the stock has lost ground after making some initial gains, after the company announced its decision to defer the previously announced buyback programme. The company felt that it would ned to conserve cash to finance the acqusition o f PSI Data Systems.

*Among the small cap stocks, both IVP and John Fowler have seen increased trading interest after they announced buyback programmes. This is despite the fact that the trems of the buybcak are not too enthusing.

John Folwer whose stock was infrequently traded on the bourses announced a buyback at a maximum price of Rs 62.50 per share and has since seen its stock move up from Rs 40 to Rs 60 levels.

However, since the buyback is slated to be routed through the secondary market, there is no guarantee that shareholders will indeed get the indicated maximum price of Rs 62.50 for the buyback.

*In IVP's case, the mode of the buyback has not been indicated. However, the buyback price of Rs 22 is just a shade above the current market price of Rs 21.75 for the stock. Since these buybacks are for just a part of the equity capital, not all sharehol ders will be in a position to exit through the buybcak. Therefore, investors may be better off using the recent surge in prices to exit these stocks, since the price rise is likely to be temporary.

* Nestle India has been among the strong gainers of the past fortnight. The company has recently indicated that given the tough macro economic conditions, maintaining high levels of profitability, would be quite difficult in the near term.

However, the possibility of a stake hike by the parent through a stock buyback appears to be supporting the stock price on the bourses.