Valuation of dotcom companies is arrived at, not by deploying traditional methods of share valuation. Historical or future, projected performance is given high weightages in traditional methods of share valuation. Some companies are valued high because of their technological superiority/ competence or financial strength to takeover other IT companies. P/E ratio appears to be immaterial for IT companies since the company valuation is not bound by this arithmetical formula. Valuation of IT stocks is an upward exponential of the imagination/an idea which cannot be quantified with a set formula or with P/E multiples.

For instance, a few months back Satyam Infoway acquired India World's portals for about Rs 500 crore. If Satyam sells these portals it may fetch a higher price. Microsoft has taken over `www.hotmail.com' at $240 millions from Shabbir Bhatia. Now it is valued at more than US $1 billion and may even get more if sold! So infotech/dotcom shares are to be valued based on their brand equity, utility value and contents of its web-site, global coverage/tie-ups, netizen-hits-per-day, number of subscribers (if a paid service), ad revenues and acquisition price such company can command, if put on sale as a going concern.

Mark Mobius recently said that his mutual fund invested in emerging markets (Thailand) and waited for nearly `twenty years' to get decent returns on their portfolio. Instead, he might as well take a plunge in dotcom companies like all others, to make most of the current boom in the emerging IT sector rather than impatiently wait for long years for his portfolio to grow. At the most, he may think of balancing his portfolio with some commodity stocks for hedging usual portfolio risks but certainly he would like to participate in the IT boom.

Some investors buy IT stocks for holding it like a `hot potato.' Entry in and exit out of such stocks are almost on a daily basis. Hence, extreme volatility is noticed in IT stocks. However, it is illogical to surmise generally that infotech companies are overvalued.

Since IT sector is an emerging sector, its high P/E multiples indicate that such companies are growing at a rate which commodity stocks could not achieve even with their long distinguished history. However, investors should be cautious that fly-by-night operators may dupe them in the name of dotcom companies.

-- Bharat Momaya, Thane (W)