The results expected for the second half include a profit after tax of Rs 10.5 crore, and an earnings per share for the full year of Rs 60, the expectations of which should keep the stock buoyant, considering that the price-earning multiple on expected earnings is just eight times.

It may seem very unusual, but Revathi CP is also being rumoured to be a buyback candidate. The parent organisation, which is the Atlas Copco group, has a 40 per cent stake in Revathi CP through its group company Chicago Pneumatic India (CPI). Now the group has apparently decided to hike its stake in the company to 51 per cent using the buyback route, by purchasing the required quantity from the market.

Revathi CP has a very small equity base of Rs 3.2 crore, which meansthat there is hardly any trading depth in the stock, despite a 1:1 bonus issue last year, which was supposed to provide some liquidity. So, purchasing the stock from the market is going to be a near impossible task given the lack of liquidity.

A transaction of even 50 shares has the potential to move the stock by Rs 10 (the market price is Rs 375). Besides, the pricing of the buyback will have to be very attractive for shareholders to respond positively. But a buyback large enough to push the management's stake to 51 per cent will reduce the outstanding equity to almost Rs 2.51 crore, making it all the more illiquid.

In the recent past, the company has consistently looked for ways to improve returns on capital, and has consistently sought to improve shareholder value. In order to improve returns, it had reduced its working-capital cycles and crunched its balance sheet by reducing debt.

But now, with its debt at almost nil, and the company still following a very conservative approach as far as paying outdividends to shareholders is concerned, its only option is to reduce outstanding equity, which will also suit the overall purpose of the management. Market sources have pointed out that the company is very close to finalising its plans, and has shortlisted a leading broking firm to work out the buyback details before approaching its shareholders with a specific resolution.

However, despite persistent rumours here regarding the buyback, keeping in mind norms for effecting a buyback, where the value of the buyback cannot exceed 25 per cent of the net worth, it will not be possible for the company to push its stake up to 51 per cent in one go, as it will involve extinguishing close to seven lakh shares, or 21 per cent of the outstanding capital, and will exceed the value restrictions.

Reliance Industries

The force of selling in many stocks on Wednesday was unjustified, and the manner of trading seen was easily put down to skilled market operations by a group of brokers, who seemed to be setting upthe market for a rally. That is precisely what had happened on Thursday. The catalyst for the strong recovery was ostensibly large purchases of Reliance Industries' stock, which appeared to be more by design than by collective anticipation.

The rumour that sparked off the buying in Reliance Industries and in other popular stocks was that the company was close to announcing a buyback package. That news seemed to have been substantiated by the unusually large volumes traded, which at 20 million shares on the NSE alone and an additional 12 million shares on the BSE had to be amongst the largest in the stock.

The view being taken in market circles is that such large buying could come only from sources close to the management, or the management itself, and signals a major development, or an announcement such as a buyback. Some market views even went so far as to suggest that since there was a rising demand for Reliance's shares from foreign funds, this also could be a pre-emptive buying decision by circlesclose to the management.