Is OnMobile Global for sale?

A few weeks back, there was a rumour in the market that TCS was looking at the possibility of buying OnMobile Global. That remained a rumour and did not become news. Those who may have bought the stock on the basis of the rumour may be waiting for an opportunity to sell.

That opportunity may not be far away. As per a recent article in Business India magazine, OnMobile Global is on the block and the latest suitor is Idea Cellular (of the Aditya Birla group). Apparently, Idea is ready to buy a 60% stake in the company at a price of Rs 100 – which is 33% higher than today’s closing price of Rs 74.40.

If this rumour turns out to be true, then investors may be able to pocket a neat gain if they enter at the current market price. Acquisition of a 60% stake – or even a lower stake - will trigger an open offer to existing shareholders.

In a post on the telecom sector a couple of months back, it was observed that the OnMobile stock was trying to form a bottom by consolidating within a rectangular band between 54 and 73. It was suggested that the stock could be a contrarian bet, but with a strict stop-loss at 52.

In Jan ‘12, the stock crossed above the rectangular consolidation zone, rose to an intra-day top of 84 on Feb 15 ‘12 and briefly breached its falling 200 day EMA. It has now pulled back to the top of the rectangular band. An upward bounce can be used to add/enter.

What if the rumour about Idea‘s stake buy remains a rumour – like it happened in the case of TCS? The company is fundamentally strong, and its overseas businesses, which contribute nearly half of its total revenues, are supposedly doing well. Domestic business is under pressure. Q3 results showed 12% top line growth but a 11% dip in the bottom line.

With smart phones becoming cheaper by the day and 3G service roll-outs in progress, OnMobile’s expertise in value-added software services should see growing demand. Even if the stake sale doesn’t go through, it may be worth holding on to the stock. A buy-back by the management, with a ceiling at Rs 85, is currently in progress.

IT Sector stocks – time to change the game plan?

Recently, Sabeer Bhatia (of Hotmail fame) was in Calcutta/Kolkata for a little R&R-cum-business. (December and January are the two most pleasant months in the city, and attracts NRIs by the hordes.) Along with spending quality time with his in-laws and playing golf, Sri Bhatia indulged in promoting his latest venture (JaxtrSMS - free SMS through the Internet), hobnobbing with the Chief Minister and giving press interviews and speeches at IT industry gatherings.

One of the important points he raised was that Indian IT companies are over-dependent on selling services through hiring out consultants to overseas clients. Successful Indian software products are conspicuous by their absence. Apparently, JaxtrSMS has been totally designed and created by Indian software engineers sitting in India. It is time that other companies follow his lead.

Certainly the 10 chart patterns of Indian IT companies attached below indicate that Sabeer Bhatia may be right – it is time to change the game plan from services to products if the Indian IT sector wishes to retain its position in the global pecking order. Already, Philippines and East European countries are taking away IT-enabled service contracts from India.

HCL Tech

HCL Tech formed a double-top reversal pattern during Apr ‘11 to Jul ‘11 and dropped sharply into a bear market. The chart is looking weak and the price can dip to test the Aug ‘11 low. Switch to Wipro.

Infosys

The recent changes in management seem to have robbed Infosys of whatever little aggression it had. The recent attempts at getting back into a bull market have fizzled out. The stock is looking oversold, and can bounce up towards the blue up-trend line. That will be a selling opportunity.

KPIT Cummins

After touching a peak in Jul ‘11, KPIT Cummins is making a bearish pattern of lower tops and lower bottoms, and is in a bear market. The chart is looking weak, and the stock can test and break the Dec ‘11 low. Sell.

Mindtree

Ashok Soota’s departure from the helm of affairs hurt the market sentiment badly. The Mindtree stock is trying to extricate itself from a strong bear grip – with some degree of success. The stock is making a bullish rounding bottom pattern, and can be added on dips (but with strict stop-loss).

MPhasis

Not sure what MPhasis is doing currently, but the chart pattern shows that it is not doing it well. The stock is deep inside a bear market and likely to fall further. Avoid.

Oracle Financials

The stock of Oracle Financials peaked out in Jul ‘11 by making a small double-top reversal pattern, and is in a bear market. The stock is expected to resume its fall soon as both the RSI and the slow stochastic are showing overbought conditions. Sell.

Tata Elxsi

Tata Elxsi seems to have lost its way, and is sliding in a bear market. The current rally has been on falling volumes and both the RSI and the slow stochastic are looking overbought. Avoid.

TCS

Despite its gap-down fall below the blue up-trend line – probably in sympathy with the Infosys stock – TCS is technically in a bull market. Both the RSI and the slow stochastic are looking oversold, and a pullback towards the blue trend line is on the cards. Use the opportunity to book partial profits. Q3 results may not be as bad as some are expecting.

Tech Mahindra

Tech Mahindra is another stock that peaked out in Jul ‘11 and quickly slipped into a bear market. The next leg of the down move may start soon. Get out.

Wipro

Wipro has recovered very smartly after a short spell in a bear market. The ‘golden cross’ of the 50 day EMA above the 200 day EMA will confirm a bull market. Change of CEO has brought in new direction and aggressiveness that was lacking earlier. Use dips to buy.

Related Post

In which IT Sector stocks should you invest?

Why Japan’s calamity can hurt the global economy and stock markets

There is an English proverb: Misfortune never comes alone. In Japan’s case, misfortune seems to be coming in droves. Before the stoic and resilient people from the island country could recover from the horrendous calamity of the massive earthquake and devastating tsunami, the explosions and radiation leaks from the ageing Fukushima nuclear power plant has sent shock waves through the entire global economy.

Oil prices dipped on the assumption that demand from Japan will diminish as the economic growth may stall while the nation reconstructs the severe damage to life and property. Japan is the third largest oil consumer in the world, and there may be a drop in demand in the near term.

But global demand for oil may increase. Many countries, including the USA, depend on oil for their energy requirements – unlike India where coal-fired power generation is the norm. The US-India civilian nuclear treaty was supposed to be a win-win agreement for both. New nuclear power plants built with US technology was supposed to alleviate India’s perennial power shortage, and boost the demand for US-made equipment and consultancy services. The crisis in Japan’s nuclear power plant, built with equipment and technology from the US giant General Electric, will now put nuclear power as an alternative energy source on the back burner.

Japan also happens to be a large market for luxury goods, with more than 10% of world sales. Any further slowdown of an already slowing Japanese economy will seriously affect the businesses of luxury goods makers the world over. Many of these luxury goods – whether Gucci bags or parts for BMW cars – are actually manufactured in Asian countries.

With the Japanese Nikkei index taking a beating, investors are likely to pull out of Japanese funds that invest in global stock markets to cover their losses. As per a CNBC report, more than US $7 Billion has been invested by Japanese funds in Indian markets – and that is less than 20% of their total investments in emerging markets as a whole. The Sensex dropped 18% when FIIs recently pulled out US $2 Billion. Any Japanese withdrawal can cause a much bigger correction. Already, European indices have felt the heat.

Many Indian companies have built up their Japanese bases over a long period of time. Infosys and TCS are among them. There is talk of repatriation of Indian employees. It remains to be seen what effect that may have on the bottom lines of Indian companies.

Unlike the rise in oil prices, which every one expects to moderate in the near term as the unrest in North Africa and the Middle East gets quelled with firm hands, the crisis in Japan isn’t going to end soon. A melt-down in a nuclear reactor in a populated area can have serious long-term repercussions. Operations of many global companies will be disrupted because of damaged roads and ports, and shutdown of manufacturing facilities.

Indian investors need not sell in a panic. Corrections due to ‘black swan’ events, like the one in Japan, provide buying opportunities. Be patient and stay prepared for a deeper correction.