D-street is short on memories and long on greed. Thus, with the Sensex on a roll, penny and small-cap stocks have bounced back. This is the second time in six months that they are in the limelight; the last time was the period between August and September last year, and ended with the October correction that saw the Sensex fall by nearly 13 per cent over 18 trading sessions. Now, they're back.

"The only difference is that every raise brings along with it a new set of investors, as the ones who had entered in the earlier rally are still finding it difficult to exit," says Amit Rathi, Director, Anand Rathi Securities. "After making some good money in the past three months in large-cap stocks, operators are again back betting on small-caps stocks, that had been hammered since September-October last year," adds Ambareesh Baliga, Vice President, Karvy Stockbroking, adding that when everything looks expensive in frontline and select mid-cap counters at the current levels, it isn't surprising that small-cap stocks look cheap to investors. For instance, Facor Alloys, is trading at a price 86 per cent lower than its price on September 1, 2005.

In the past eight sessions (leading up to March 31), the BSE Small-Cap index has been the biggest gainer on the street, surging by nearly 6.63 per cent as compared to a 4.04 per cent increase in the Sensex and a 4.4 per cent one in the BSE Mid-Cap index. The gains, however, are recent; since the beginning of the year and till March 22, the BSE Small-Cap index gained a mere 0.6 per cent as compared to 14 per cent for the Sensex and 10.5 per cent for the Mid-Cap index.

Market analysts like Baliga aren't surprised by the surge in penny stocks. "Operators will generate interest in the stock," he says, adding that the fact that they (the operators) have made money on large-cap stocks mean that they can run more risk. "Then, the amount (required) to speculate and rig prices in small- cap stocks is also small."

With retail investors making a beeline for the markets (as they typically do, when it is near its peak), the operators can easily distribute the stock. At the current prices of large caps, few retail investors can afford them; they settle for small-caps, not realising that these are unlikely to boast the same strong fundamentals as large-caps.

Typically, the phenomenon of small-cap and penny stocks seeing a surge in prices and volumes happens in the run-up to a correction. In this case, although 384 of the 523 stocks that constitute the BSE Small-Cap index have witnessed a sharp rise in prices in the last eight sessions, 192 are still trading below their September 2005 peaks.

If the inherent mechanics of the stock market don't engender a correction soon, then small-cap stocks will continue to soar till gravity catches up with them.

-Mahesh Nayak

Late To The Party
Sanyo is a latecomer to India's booming market but hopes to make up for lost time.

Sanyo's Iue: Up against Samsung and LG

Toshimasa Iue, president and CEO, Sanyo Electric, would like it be known that the fact that this, the visit to India, is his first overseas trip after taking over the reins of the ailing Japanese electronics firm in 2005, means India is an important market for the company. "India is going to be a strong pillar of our future growth," he says. "That's the reason I chose to come here immediately after finalising our new investment and growth plans."

The operative word in that sentence is 'new'; Sanyo Electric, Japan's third-largest consumer electronics firm after Matsushita and Sony, is still in the midst of a financial crisis. In 2004-05, the company posted a loss of around $1.5 billion (Rs 6,750 crore); it has estimated that it will end 2005-06 with a loss of $2 billion (Rs 9,000 crore). All that, says Iue, will soon be a bad memory. Last year, the company managed to rope in Goldman Sachs and two other investors to fund a restructuring plan that includes reducing the workforce by 15 per cent, exiting non-core businesses, and enhancing the focus on solar power and energy-led businesses. Together, the three investors have pumped in $3 billion (Rs 13,500 crore) into the company; $100 million (Rs 450 crore) of this has been committed to Indian market.

In India, Sanyo plans to increase the scope of its business through its 50:50 joint venture with BPL India and its 100 per cent subsidiary Sanyo India. The first will mainly focus on colour television segment, although, given the synergies involved, especially at the trade level, it will also vend washing machines, refrigerators, audio-systems, microwave ovens and batteries. "We are aiming at a 17 per cent share in the CTV segment, 18 per cent in the fully-automatic washing machine and 12 per cent share in the refrigerator segment in the next three years," says Ajit G. Nambiar, Chairman and CEO, Sanyo-BPL. The company expects to touch revenues of Rs 2,000 crore by 2009. BPL India, the market leader in the colour TV segment till as recent as 2000, has had it tough since then with external problems posed by aggressive Korean competitors and internal ones relating to the financial woes of the BPL Group. "The past is long dead. Now onwards, it's a new journey," says Nambiar.

Another focus area for Sanyo in India will be the commercial and industrial electronic products business, which will be managed by the 100 per cent subsidiary. "We intend to bring in industrial air-conditioners, HEV (hybrid electric vehicle) batteries and other solar module-led heavy equipment for industrial consumers," says Keiji Oshima, President, Sanyo India, adding that, "this segment remains largely unexploited in India and we are aiming at a leadership position."

Will the two partners be able to make up for lost time? The Rs 25,000-crore Indian consumer electronics market is now dominated by Korean majors, LG and Samsung. Together, these companies boast an over 50 per cent share of the market. That, though, doesn't worry Iue and his team. "The consumer electronics industry has, historically, shown transformations every five year," says Ankur A. Sahu, Managing Director (Principal Investment Area), Goldman Sachs Japan. "Samsung was on the brink of bankruptcy around 1988 and then, a strong focus and a lean business model helped the company in reaching the top." "Sanyo with its superior technology and a better business focus will sure be able to turn around and be in the reckoning for leadership soon," adds Sahu (he represents Goldman Sachs on the board of Sanyo Electric).

On the advice of the bank, Sanyo has decided to restructure its business completely. "We plan to phase out our non-core businesses like financial services," says Iue. The company also plans to spin off its ailing semi-conductor unit; this was responsible for around 50 per cent of its loss. "Diversified businesses with no synergies have been the biggest reason for Sanyo's debacle in the past," says Iue, adding that going forward, "the focus will be on increasing depth rather than the width".

-Archna Shukla