However, even after the I-T authorities' clarifications, the markets responded only with a 65-point rise the next day. Furthermore, the tremendous mid-day rally at Nasdaq on Tuesday should also have eventuated in better sentiments at the local bourses. The major reason why markets fall at a faster rate is the result of fear, which apart from greed is the major factor that moves stock prices. The all-round panic that ensues after the slightest of fears is set in the minds of investors and traders sometimes seem to have no stopping. Besides, the calls for upfront margins and the like by brokers causes traders to either unwind positions or sell some other stock to meet the margin requirements, which only aggravates the situation.

Comments Bhavesh Doshi, chief dealer at Mukesh Babu Securities on the recent fall in technology shares, "Just as a bridge built using cheap inputs is bound to fall down, the abnormally hiked up prices of these shares based on false hopes were bound to come down". Indeed, any fall in technology shares is going to be steep considering the absolutely extravagant valuations of some of these stocks. Ironically, these stocks still appear overvalued and more so considering the high level of volatility that accompanies that accompanies these stocks.

Sri Adhikari Brothers
Media entertainment company Sri Adhikari Brothers Television Network (SABTNL) has announced a joint venture with Silicon Valley-based IT solutions company, ETIAM Emedia Inc for developing animation software. ETIAM Emedia, the joint venture company, in which SABTNL will hold 26 per cent equity and ETIAM Group the rest, will set up a state-of-the-art studio in India to undertake development of animation graphics, animated cartoons and animated feature films.

According to rough estimates, movie production studios in US spend about one third of the total expenses on computer generated graphics and special effects. For instance, over $41 million were spent on computer generated special effects for production of the movie Titanic alone. Globally, this translated to a business opportunity of about $20 billion in the year 1999. Moreover, the domestic demand for animation software has been fuelled by extensive usage of special effects and graphics in film industry, advertisements and television serials (especially the mythological serials). With a large pool of talented professionals and the lower production cost in India, the post-production business of dubbing, digital imaging & graphics etc. is increasingly being sub-contracted to the domestic players.

Recently, a number of companies with convergence theme have been lured by the enormous earning potential of the animation and special effect business. For instance, HFCL has tied up with Kerry Packer's Consolidated Press Holdings for its foray in the animation software business. Whereas, Crest Communication has strengthened its position in the business by acquiring Rich Animations of US. However, with a dedicated workforce of 1,500 professionals, Pentamedia Graphics is the leading and biggest domestic player in the country. Some of the domestic players are believed to be toying with the idea of producing an entire movie and/or cartoon films than merely focussing on the sub-contracted business.

The proposed joint venture, ETIAM Emedia Ltd, also intends to focus on 2D and 3D imaging for content and film production. But according to industry experts, there is an acute scarcity of trained professionals especially in the field of 2D imaging. As a matter of fact, UTV has made significant investments to set up an in-house training institute. Moreover, experts believe that training and retaining quality professional will be one of the biggest challenge faced by the domestic players.

Cerebra Integrated Technologies
This time it's Cerebra Integrated Technologies Limited (CITL), a Bangalore-based company, which is trying to cash in the IPO boom with an issue at Rs 60 aggregating Rs 8.87 crore. CITL is primarily engaged in the manufacturing of PCs and servers, networking, trading of peripherals and software development. The company is also into trading of desktops, peripherals and notebooks etc.

The hardware manufacturing and trading is the backbone of the company, which can be gauged by the fact that these contributed Rs 9.63 crore and Rs 11.45 crore for the years 1998 and 1999 respectively. For the first nine months of the current year it contributed Rs.13.96 crore. The sales from manufacturing and trading account for over 95 per cent of the total income for the years 1998 and 1999 and about 91 per cent for the current year's first nine months.The software division of the company is into development and sale of customised software since 1997-1998. It contributed Rs 1.56 crore which is about 8 per cent of the total sales as compared to roughly 2 per cent in the last two years.

The total income of the company increased from Rs 13.41 crore in 1998 to Rs 19.55 crore in the year 1999 and for the first nine months of the current fiscal the income is Rs 19.55 crore. The net profit of the company has risen from 24.2 lakh in 1998 to 60.88 lakh in the 9 months of year 2000, rising by 64 per cent and 74 per cent respectively. The EPS of the company was 6.05 in 1997-98, 8.32 in the year 1999 and the annualised EPS for the current year is 6.85. The price-earnings ratio will be 7.21 based on the current issue price and CITL must earn a minimum return on a net worth of 5.35 per cent to maintain the pre-issue EPS at Rs 8.32.

Although, the company has a brand name and presence in the domestic hardware segment, it has a long way to go in the software business. The profit margin for the company in the last three years has been 2 to 3 per cent which is quite low and hence the software attempt. In the third year of it's operation the software business has contributed a mere 8 per cent (Rs 1.56 crore) to the total income of the company. The above factors thus makes one feel that the premium may be a bit too high.

(with contributions from Mobis Philipose, Gaurav Dua and Sachchidanand Shukla)