But despite the speculative nature, there is some logic to the rally. One, most of the pharma companies have a December year ending and most of these results are expected to be good. Second, at the dip prior to this rally many of these stocks were once again trading at very attractive forward p/e multiples. And lastly, entering these stocks now made a lot ofsense owing to the fact that the announcement of annual results from companies with a December year ending will continue well into the next month thus retaining interest in these stocks.

Glaxo and Burroughs Wellcome are two of the leading contenders here. Both these firms will announce their annual results soon and these are expected to be good. Besides the financial performance, analysts and speculators are hoping that the merger ratio between the two companies will be announced in the current year. This expectation is being reflected in Glaxo's valuation. Analysts have cautioned that in case the merger does not take place in the current year it could hurt Glaxo's valuation badly. The reason is that Glaxo's earnings are being discounted after incorporating an additional 17 per cent contribution from Burroughs Wellcome.

But as far as earnings goes there will be additional growth simply from price revisions on many of its products. Close to 60 per cent of Glaxo's revenues come from products which arepresently under price control. The market is betting on a number of price revisions which will push up earnings.

A similar prognosis can be held for E Merck which also will be announcing its annual results soon. Increase in selling prices and a reduction in debt levels are the key to its current profits. It is expected to report an EPS of Rs 15 for 1998, which means that the stock is trading at a multiple of 30 times at present and its forward multiple (for 1999 earnings of Rs 21 per share) is just 21 times.

Further, in Novartis' case, third-quarter earnings are likely to be very good. Firstly, last year the third-quarter performance was weak and so, correspondingly, the current earnings should appear to be better. Secondly, one of its major products has come out of the purview of price control and the full impact of which should be seen in the current year, especially in the last quarter. And lastly, the company has introduced three new products the impact of which will be felt in the current year in theQ3 results. These facts have kept the market's interest alive in Novartis despite the rich current valuations and the high forward p/e multiple.

However, industry analysts warn that there is no reason for any earnings-linked surprises from these companies. Moreover, some leading analysts have pointed out that it is quite unlikely that any of these pharma MNCs will benefit a lot from the introduction of patent protection and exclusive marketing rights immediately.

Bajaj Auto; declining confidence

The Q3 performance of Bajaj Auto has not gone down well with the stock market. The stock has been on a steady decline, losing almost 16 per cent of its value -- crumbling from Rs 565 to Rs 475 in a matter of days, with the fall continuing even after the results were announced. Obviously, the sluggish scooter sales has taken everyone by surprise for the general expectation was one of a second-half revival. What makes matters worse is that the company has launched a range of new models, despite which itsperformance has been slackening. Obviously the competition has managed to stay one step ahead of Bajaj Auto.

LML also can be credited with some new product launches which has been well received in the market. LML has reported a better growth rate in volume sales than Bajaj Auto. However, the stock-market perception is negative for both the companies.