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Tuesday, March 10, 2009

Avoid the trap of operators

1)Scripscan:Good Luck Steel Tubes Ltd

Story:The company manufactures electric arc-welded steel tubes and also galvanised steel sheets. For 2007-08, it had made a profit of Rs8.96 crore on an equity of Rs3.69 crore. The scrip was listed on the BSE last year and the share price had gone up to Rs500. It had a PE ratio of 20 when the market was hot. Subsequently, the stock declined to Rs100 as the results for the December quarter were poor; profits crashed by 50% to Rs1.76 crore. However, a group of operators has spread the rumour that they will ensure that the scrip continuously hits the upper circuit right up to Rs350. Investors are advised to stay away from this stock. One day, the operators would offload their entire quantity and the scrip will begin its lower circuit journey like RTS Power.

3)Scripscan:Remi Metals Gujarat Ltd

Story:Till today, the BSE has not made public its rules which govern the changes in circuit filter and what determines shifting of scrips to ‘T’ group. This allows the BSE to take arbitrary decisions. It is common market knowledge that certain promoters and a majority of operators have ‘connections’ in the BSE for whom the rules relating to circuit filter and shifting to ‘T’ group are regularly flouted. Normally, the circuit filter is set at 10%, if any scrip hits the 20% circuit filter for two consecutive days. However, Remi Metals continues to have a 20% circuit and its price has gone up by 150% in one week from Rs18.55 to Rs46. Neither has the circuit been reduced nor has the scrip shifted to ‘T’ group, although volumes have soared to four lakh shares. A low delivery ratio of 15%-20% is an indication that it is in the grip of speculators; but there is no action from the BSE.The company has a rotten track record. Remi Metals is supposed to be a producer of seamless tubes but a majority of its turnover comes from billet sales. For the quarter-ended December 2008, the company has made a loss of Rs19.80 crore.Recently, the promoters and some other group of investors have been allotted 4.58 crore shares at par which will increase its equity to Rs122 crore. Again, the same group of investors must have mopped up the scrip from the open market at low levels and will now sell at mind-boggling profits.

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