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The Preferred Small Ones

Despite the turbulent market conditions, there have been a few small-cap stocks that have attracted mutual funds


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Eight months into the year and things aren’t any better than they were at the start, with the Indian stock markets, that is. The sob story continues. The Sensex shedding points during a day’s trade isn’t ‘breaking news’ anymore. While the 30-share BSE Sensex has been down by nearly 29 per cent (January 08, 2008 to August 08, 2008), it is the 488-share BSE Small-cap Index that has been burnt most severely, shedding nearly 48 per cent during the same period. When things turn bad, quite often those bringing up the bottom suffer the most.

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And quite naturally, fund managers have taken their hands off small-cap stocks through the decline as well. However, that’s not true for small-cap stocks, across the board. We mined the Value Research Portfolio Database to see if the fund managers bought any small-cap stocks during the year and we came out pleasantly surprised. In all, open-ended mutual funds added or bought fresh share of as many as 190 small-cap companies. Here is an insight into the prominent ten:

Zee News
Zee News, the news and regional entertainment network, was the funds’ top small-cap pick. The stock, after being split from Zee Entertainment Ltd, hit a peak of Rs 92.50 but has steadily slipped to Rs 44 now. 16 funds added the stock to their portfolios between January 2008 and July 2008, aggregating Rs 134 crore. At the end of July, 21 funds had exposure to Zee News. The company has been able to post some good returns for the quarter ended 30th June 2008, with a rise of 47 per cent in revenues taking them to Rs 110 crore and a nearly 50 per cent rise in operating profits amounting to Rs 15.2 crore.

Ipca Laboratories
Ipca Laboratories is a manufacturer of pharmaceutical formulations. The company gained attention of nine funds that amongst themselves bough share Rs 92 crore in the company between January and July. At the end of July, the number of funds holding Ipca Laboratories had doubled. The stock is down nearly 28 per cent from its peak in January and hurt by foreign exchange related losses, the company has reported a fall in net profits - that of 47 per cent for the June 2008 quarter over the corresponding quarter of the previous fiscal year.

3i Infotech
3i Infotech, a global provider of software products and IT services, has been a fancied pick of funds throughout the year. 16 funds have bought shares worth nearly Rs 65 crore in the company till July 2008. It appeared on the portfolio of 25 funds at the end of July. The stock went down 32 per cent from its peak in January to Rs 108 in July. However, the company has posted some robust numbers in the Quarter ended June 2008.

Bajaj Electricals
Bajaj Electricals has maintained buying interest in funds throughout the declining phase of the market. Six funds have together bought shares worth nearly Rs 62 crore in the company between January and July 2008. Nine funds held it on their portfolio at the end of July. The stock is down 42 per cent so far from its peak in January. The company reported a 75 per cent rise in net profit in the quarter ended March 2008 over the corresponding quarter in the previous year.

Voltamp Transformers
Voltamp Transformers had caught the interest of nine funds till July 2008, which together purchased shares worth nearly Rs 57 crore of the company. The number of funds holding this stock went up to 13 at the end of July. Although the stock price has slipped by nearly 60 per cent so far but the good news is that, the company has reported a sharp rise in its revenues and net profits in the fiscal year 2008 as compared to the previous year.

Techno Electric & Engineering
Techno Electric & Engineering, an executor of power projects, has had two funds buying Rs 45 crore of its shares between January and July 2008. Only these two funds held it on their portfolio at the end of July. The stock has slipped by nearly 60 per cent at the end of July from its peak in January. The company has reported a rise in its net profit and sales revenue in the June 2008 quarter over the corresponding quarter of previous year.

Texmaco
Texmaco, a company engaged in the business of heavy engineering and steel, has been bought by 16 funds throughout the market decline this year. These funds have together bought shares amounting to Rs 43 crore of the company till July 2008. At the end of July, 21 funds had the company on their portfolio. The stock was down nearly 36 per cent in July from its peak in January. Texmaco reported a significant rise in its sales revenues and net profits, both in the quarter ended June 2008 and the previous quarter over the results of the corresponding quarters of the last fiscal year.

Arvind
Denim and apparel maker Arvind has been bought by nine funds during the market turmoil this year. These funds have together bought shares worth nearly Rs 35 crore of the company between January and July 2008. The company appeared on the portfolio of 12 funds at the end of July. This stock price has also witnessed a steep fall of nearly 60 per cent so far this year. The company also reported a fall of 33 per cent in net profit for the quarter ended June 2008 over the result of the corresponding quarter in the previous fiscal year.

eClerx Services
Knowledge process outsourcing firm eClerx Services has been a favoured small cap pick of funds. 16 funds have bought shares worth Rs 30 crore of the company till July 2008. It appeared on 17 funds’ portfolio at the end of July. The stock has slipped by more than 50 per cent from its peak in January. However, the company has reported a significant rise in the net profit and sales revenue for the quarter ended June 2008.

Gujarat Alkalies & Chemicals
Gujarat Alkalies & Chemicals, a multi-product company, has maintained buying interest throughout the market turmoil. In all, 10 funds have bought shares worth nearly Rs 30 crore in the company between January and July 2008. At the end of July, 19 funds had the company on their portfolio. The stock price has slipped by nearly 40 per cent from its peak in January to Rs 160 in July.


Fancied Small Caps
    Change (%) over 2007        
Company  Sales  Net Profit  EPS  PE ‘08  52-Wk Hi-Low   Price*
Zee News  51.96 275.25 280.49 32.33 (92-38) 40.10
Ipca Laboratories  15.91 15.45 15.84 10.82 (760-451) 567.50
3i Infotech  34.57 56.26 15.79 12.63 (160-84) 110.20
Bajaj Electricals  26.02 89.72 -5.28 10.25 (740-280) 425.00
Voltamp Transformers  35.82 101.97 103.03 16.01 (1940-642) 841.05
Techno Electric & Engg.  21.81 75.09 70.10 25.90 (370-89) 136.50
Texmaco  97.81 142.59 142.60 21.71 (1966-950) 1282.20
Arvind  19.56 -77.12 70.77 34.07 (94-27) 35.80
eClerx Services  - - - - (516-176) 197.05
Gujarat Alkalies & Chem.  8.50 20.11 72.92 - (275-120) 165.50
Source: CMIE, *Price as on August 25, 2008
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