Stock Market Research by the Indian Bull

Jan 2008 - May 2006 revisited

2008-01-25T01:11:00.000+05:30

May 2006 Revisited

Boy! Its been quite some action on the Dalal Street in the past couple of days. It brought back memories of my first correction May 2006 and this correction has been a mirror copy of the action in May 06, only that all the action has been played out in a much narrower time span.

We plunged from a height of 21K+ to depths of 15.5K and today we have closed at 17.2K levels. I had expected a 2007 closing level of around 16.5K [ Link]. However the bull run beat me up fair and square and we ended the year close to 20K levels. The valuations had run ahead of the fundamentals and a correction was due, the Reliance Power IPO and the US recession fears only precipitated what was surely overdue.

So what did I learn from this correction?

There is an old saying - When everyone starts talking about the market its time to get out of the market. Reliance Power IPO came and everybody was talking about the stock markets. It should have been a signal to any seasoned investor to get out. However, not many heeded with greed taking precedence over safety. This is my lesson learned from this correction.

How was Jan 2008 different from May 2006 for me?

May 2006 saw me lose almost 30% of my invested capital and the entire profits. I had to take recourse to borrowed money to shore up my positions. Jan 2008 has been much kinder to me and spared me just by taking away my unbooked profits. May be two years in the markets has improved my stock picking or perhaps its just been that my long term investments have saved me.

2008- The Year Ahead

Now that the corrections have finally tested the levels of 16.5K which is what I felt should have been the 2007 year end levels, I feel its time now to take a fresh guard for the year ahead. The sensex stocks are expected to post an EPS of around 1100 rupees for the current financial year. This is a healthy 30% increase from the expectations of an earnings of close to 810 for the year gone by. This strong earning growth is what should save the Indian stock market bulls run even in this year. ( Please note that there has been some changes in the composition of Index stocks over the last year which would have lead to further increase the earnings estimate compared to the last year).

If we manage to close at around 20 times the FY08-09 earning expectation, we should close at around 22-22.5K. From the present levels of 17.2K, this represents a healthy return of nearly 30%.

So what are you waiting for ? The present correction is a God-sent opportunity to do some value buying. Would the US economy go in a recession? I don't feel so. The Fed rate cuts should do enough to kick start the US economy again. And if indeed we go into a recession, then nothing is going to save us - even not investing in the stock is not going to help us! So if indeed we have to go down, why not go down all guns blazing?

It might be a tough year but remember some great long term investments are made when there is panic in the market.

All the best for the year 2008!

Consolidated Finvestment Limited

2008-01-04T01:49:00.000+05:30

CMP :103

Consolidated Finvest & Holdings Ltd has informed BSE that the Board of Directors of the Company at its meeting held on January 03, 2008, has considered and approved de-merger of its business of investments in group Companies (Business Holding division) in to a new Company i.e. Jindal India Finvest & Holdings Ltd (JIFHL) and amalgamation of Jindal India Powertech (JIPL) with Consolidated Finvest & Holdings Ltd.

The salient features of proposed scheme of Arrangement and Amalgamation is under:

1. Appointed Date for the scheme of Arrangement and Amalgamation is April 01, 2008.

2. De-merger of Business Holding Division in to new Company i.e. Jindal India Finvest & Holdings Ltd (JIFHL) to be listed at National Stock Exchange of India Ltd & Bombay Stock Exchange Ltd.

3. Issue of one equity share as fully paid of Jindal India Finvest & Holdings Ltd for every one equity share of Consolidated Finvest & Holdings Ltd (CFHL) to the existing shareholders of CFHL.

4. Amalgamation of Jindal India Powertech (JIPL) with Consolidated Finvest & Holdings Ltd.

5. Issue of one equity share of CFHL as fully paid up to the equity share holders of JIPL for every one fully paid up equity share held by them and to issue one CFHL partly paid up equity share of same value for every one partly paid equity share held in the capital of JIPL.

6. Alteration in the Main Objects of Consolidated Finvest & Holdings Ltd.

7. Change of name of Jindal India Finvest & Holdings Ltd to Consolidated Finvest & Holding Ltd and change of name of Consolidated Finvest & Holdings Ltd to Jindal India Powertech Ltd.

The valuation of the holding company itself happened to be around 450 rupees per share way back in 2005: Refer Article

The fresh share of Jindal India Powertech Ltd. is going to be an added bonus !

Panoramic Universal - Great Expansion Plans

2007-12-27T10:56:00.000+05:30

CMP: 120

"Panoramic Universal Ltd is poised to make a splash in the Indian hotel industry. The flagship company of the Panoramic group plans to acquire 20 properties in the country over the next three years as part of a total investment of Rs 1,000 crore in the hospitality sector. "

This was what the Hindubusiness Line had to say almost an year ago about the company.
HinduBusinessLine Article

Nearly an year down the line, the financial performance of the company has grown better and better, however the stock price has lagged behind probably because of huge exposure to the US markets.

Panoramic Universal Ltd is the flagship company of the Panoramic Group. The group has business interests in Hotels and Information Technology. Panoramic Universal owns and operates five hotels in the US, one in New Zealand and three hotels in India at Goa, Shirdi and Malvan, i.e.

* Holiday Inn, Hudson, Ohio, USA 239 rooms USD 6.5 mn
* The Georgian Resort, New York, USA 164 rooms USD 7.5 mn
* Quality Inn, New York, USA 142 rooms 4.25 mn
* Comfort Inn, North Carolina, USA 126 rooms USD 3.95 mn
* United Inn, North Carolina, USA 125 rooms USD 2.8 mn
* Sai Motels, New Zealand 22 rooms USD 3.5 mn
* Hotel Sai Sahavas, Shirdi, India 46 rooms USD 2 mn
* Graciano Cottages, Goa, India 22 rooms, USD 1 mn
* Hotel Sagar Kinara, Malvan, India 16 rooms USD 0.75 mn

The value of the above mentioned Hotels turns out to be nearly Rs 85 per share.

Add to it, the company plans to invest nearly 1000 crores by 2009 in the hospitality sector, which turns out to be nearly 750 rupees per share. Add to this the IT segment of the company which contributed an EPS of nearly Rs 5 per share last year.

Following is the Annual Report of the company: Annual Report 06-07,
The company has been posting good results consistently with a good divident record.

In 3-4 years, the stock has the potential to give atleast 5-6 times returns.

Asian Electronics Ltd

2007-12-13T01:04:00.000+05:30

CMP: 471

Another good fundamental play that can turn into a multibagger.

Prabhudas Lilladher has initiated coverage on Asian Electronics

AEL is expected to report revenue CAGR of 59.3% over FY07-10E and PAT CAGR of 83.4% over the same period. At the CMP of Rs460, the stock trades at 23.2x FY08E and 10.8x FY09E earnings of Rs19.8 and Rs42.6. We have factored in revenues from sale of power plants using fuel from plastic and have not yet factored in anything from refineries. If commercially successful, this would have a huge potential and there could be a significant upside to our current estimates.

Considering the potential of the business, we believe that the stock should trade at much higher valuations. We initiate coverage on AEL with a BUY rating and a target price of Rs 638 (15x FY09E earnings), an upside of 39% from current levels.

Recommended in Business standard of 10 Dec too.
http://www.business-standard.com/smartinvestor/storypage.php?leftnm=0&subLeft=8&chklogin=N&autono=306952&tab=r

Nava Bharat Ventures Ltd

2007-12-10T00:04:00.000+05:30

CMP: 262

Nava Bharat Ventures (NBVL) is into diversified business with interests in power generation, ferro alloys, sugar and its down stream products and infrastructure. Nava Bharat is a leading producer / exporter of ferro alloys with 200,000 TPA (tonnes per annum) in overall manufacturing capacity.

The company is planning to invest close to Rs.700 crores in Nava Bharat Power, an SPV implementing 3 x 350 MW aggregating 1,050 MW for Rs.4,700 crores in Orissa. This amount shall get mobilized from divestment of its stake in IT SEZ SPV.

The company has 51% stake in Brahmani Infratech, an SPV implementing SEZ in Hyderabad on 250 acres of land and company made an investment of Rs.55 crores. The company is open to divest this stake, on which huge gain of over Rs.1,000 crore, can be made. This amount would get deployed by the company for its power projects.

As the company is getting into power business, its dependence on ferro alloys business will come down and contribution of revenue from power business is expected to go up to 47% from the current 37% in the next 2 years.

This value shift will enable the company to improve its bottomline. Huge value in land holding NBVL is venturing into infrastructure business in a big way through the SPV route. It has bid for the metro rail projects (MRTS) in Hyderabad, a national highway project in Madhya Pradesh and an industry specific special economic zone (SEZ) project.

The recorded an EPS of over 16 in the First half of this financial, this stock is available at quite a low P/E multiple. On a conservative basis, the company is expected to an FY08E - Rs 25.9 and FY09E - Rs 36.3.

The stock is consolidating in price range of 250-300 since the last 2 months. I expect the stock to trade at somewhere around 500 ( 20 times FY08E ) in an year's time.

KEI Industries

2007-12-07T01:44:00.000+05:30

KEI Industries
CMP: 94.5

03-12-2007: Kei Industries Limited has informed the Exchange that: "The Company has inaugurated its New Plant for manufacturing of HT and LT Power cable at Chopanki near Bhiwadi, Distt. Alwar (Rajasthan). The New Plant has production capacity of 10,000 Kms and will generate revenue of approximately Rs. 300 crores annually, at its fully productivity."

The stock had been trying to move up from the 80s but nearly every day the stock failed to consolidate on its upward move and used to close at nearly the same level as the previous day. The reason why this stock was not being able to move in the last few days seems to HSBC Global Fund which had been dumping this stock.

This is quite interesting indeed because the promoters have been raising their stake through Open Market Purchase. It really baffles me why a fund would sell a stock that is about to launch a new factory and is one of the major producers of Power cables. After all Power Infrastructure is going to witness huge investments soon.

The stock finally managed to close up 10% at 94.5 today though in my opinion there has been some fund selling today too. The stock was locked in the upper circuit in the initial trading session before some big time dumping saw it come down to just about 2% up, before it picked picking up again to close on the upper circuit. No doubt some bigger party was out there today buying in full strength because 52.69 delivery percentage does suggest some delivery based buying.

Did HSBC fund managers get impatient by seeing a stock sit idle in a moving markets and miss this stock?

Update: 9th December 2007

As posted on the 7th, it seems that there were two big parties carrying out opposite trades in this counter and it has been confirmed by the Bulk Deal data . Taiwan Business Bank bought 1035000 shares at 101.96 on 7th Dec. The stock closed the day at Rs 100.10 per share.

Update: 15th December 2007

Sharekhan has come out with a research report with a target of 125 for the stock. Bajaj Capital has a target of 177 for the stock. The stock has closed the week at 99.8 per share.

Hindustan Oil Exploration

2007-12-03T11:13:00.000+05:30

CMP : 125
Target rocking ...

Trigger inclusion in F&0.

Ambanis: The money making machine

2007-11-28T02:44:00.000+05:30

When I started following stock market movements, I met two classes of people - one who would swear by the Ambanis and buy anything that Reliance offers and the other who would never touch a Reliance stock even if it was being given for free. The first class would buy anthing by the name of Reliance because it meant sure profit. The other class won't touch Reliance because they saw issues with ethics.

Two years into the stock market, I for the first time see how Reliance might have generated a huge portion of its wealth. Following is an example of how Reliance generates its wealth:

RIL's total investment in Reliance Petroleum Limited (RPL), including the stake it purchased during the initial public offering (IPO), is Rs8,280 crore in exchange for 3,600 million shares. Thus, its per share acquisition cost is just Rs23. The recent stake sale of 180 million shares into the open market was at an average price of Rs223, nearly 10 times its acquisition cost at the pretext of increasing the share supply into the market. Earlier, around the time of the IPO, Reliance had sold 225 million shares to Chevron Corp. for Rs1,350 crore. Adjusted for these two sale transactions, Reliance’s net investment in RPL is just Rs2,907 crore, or Rs9.10 per share; and it still has a 71% stake, which is worth Rs66,960 crore at current prices.

The rise in RPL's stock prices which saw the market cap of RPL topping the combined market capitalization of all the state owned oil marketing/refining companies combined was fueled by rumors of Chevron exercising its option to acquire additional 24% stake in the company. Chevron denied that it had any intentions to do so, how RIL kept quiet on the issue. Then came the news of the RPL stake sell by Reliance to unsuspecting retail investors.

What is most fishy is that Reliance used its contacts in the stock markets to make sure none of the stake sell could be captured by the Bulk deals reports, which is purely cheating the retail investors.

Also if RIL can hide such a huge selloff, the chances are very high that Reliance itself might have created some of the short positions in the F&O segment in RPL. And if it is so, you see how you create wealth more than the market capitalization of Infosys without spending anything from your side or producing even 1 rupee of product.

Today the newspaper were flush with stories that Chevron may not exercise the option to hike its stake in RPL and infact quit by selling off its 5% stake. And this piece taken from Business Standard would certainly make an interesting reading:

Chevron has an option to raise its stake to 29 per cent by July 2009 by buying 24 per cent from RIL at a 5 per cent discount to the prevailing market price.

If Chevron does buy the stake entirely from RIL, it means the latter’s holding will come down to 47 per cent. But it’s unlikely that RIL would want to hold less than 51 per cent in RPL.

If the RPL stock price stays at similar levels, the tab for Chevron would be a steep Rs 22,500 crore for the additional 24 per cent stake.

That is almost equal to the cost of the refinery. If Chevron does not exercise its option, RIL can buy back the 5 per cent stake at Rs 60 per share.

In that case, its stake will once again go up to 76 per cent. So, having sold a 4 per cent stake at about Rs 223, RIL can re-instate its holding at Rs 60 per share. That’s if Chevron stays away.

http://www.business-standard.com/opinionanalysis/storypage.php?leftnm=lmnu5&subLeft=3&autono=305519&tab=r

Quite smart of Reliance, isn't it?

Marg Constructions

2007-11-27T23:34:00.000+05:30

CMP: Rs 421 per share
First Target: 693

Today Mundra Port IPO listed at Rs 770 per share and closed at Rs 962 per share which is a decent listing for the IPO priced at Rs 440 per share, given the weak market sentiments today. This made me look for any other stock which might be constructing a port and I stumbled upon Marg Constructions. Following is some stuff copied from Moneycontrol Message Board about Ambit Research on this stock.

Marg Constructions (MARG), an emerging infrastructure and realty developer in South India, has business interests ranging development of ports, SEZ, townships, power plants etc. The company is currently involved in the development of the Karaikal Port, having a capacity of 10mn tonne and the 1st phase is expected to commence operations by December 2008. Additionally, it is developing 10.2mn sq.ft of realty space consisting of both residential and commercial projects. The company has acquired land directly and through certain other related entities to promote 2 SEZs totaling 612 acres, which would have ~31mn sq.ft of both processing and non processing area. We have done a first cut valuation exercise for the existing projects of the company on SOTP basis.

Karaikal Port to be commissioned by end 2008: MARG, through its 100% owned subsidiary Karaikal Port Pvt Ltd (KPPL), is executing an all-weather deep-water 10mt port on a Built-Operate-Transfer (BOT) basis with an estimated capital outlay of Rs10bn. As per the terms of the concession agreement, KPPL has been started as a Special Purpose Vehicle (SPV) to develop the port, which is for a period of 30 years, extendable by another 20 years on mutual consent.

The project is expected to be executed in phases, with the first phase being operational by Dec ’08. The second and the third phase, commencing on Jan ’09, would get completed by 2010. This phased expansion would see the capacity of the port increase from 4mt initially to 10mt. Given the fact that the Indian merchandise exports and imports is expected to register a CAGR growth of 12% over 2007-12, we expect the volume growth to be robust going forward. At a cost of equity of 13.4%, the DCF value of the port is Rs3.2bn or Rs156 per
share.

SEZ to be a significant value creator: In order to leverage on the opportunity posed by SEZs, MARG through its 100% subsidiary, New Chennai Township Private Limited (NCTPL), has ventured into development of two sector specific Special Economic Zones, at Seekinakuppam in Cheyyur Taluk of Kanchipuram District on 612 acres of land. One for Light Engineering Sector including auto ancillary on 312 acres and the other for Multi-Services on 300 acres. The former has received notification from the government whereas the latter one has been formally approved. We expect the SEZ commence operation in phases starting FY12. At a cost of equity of 13.4%, the DCF value of the SEZ is Rs4.8bn or Rs234 per share.

Other development projects to act as sweetener: Having developed ~1mn sq.ft in the past, the company through a mix of residential and commercial properties is looking at developing over 10.2mn sq. ft in the future. This includes a mall, service apartments, residential and luxury villa projects. At a cost of equity of 13.4% and a capitalization rate of 10%, the NPV of all other projects comes to Rs6.9bn or Rs333 per share.

TARGET : 156+234+333=693

Also Marg Constructions Ltd. has recently announced the arrival of its acquisition - A Cutter Suction Dredger named ‘MARG CAUVERY’. MARG CAUVERY with a dredging capacity of 2000 cubm/hour arrived in India on November 09, 2007 and would be immediately deployed in the dredging works of Karaikal Port which is currently being developed by the Company.

On 26th Merill Lynch Capital Funds Espana picked up a sizeable stake in the company at 420.25 per share.

The company has the potential to be a multibagger in the long term.

Suven Life Sciences

2007-11-08T02:31:00.000+05:30

Company : Suven Life Sciences
CMP: 32
Target Multibagger.

Hyderabad-based pharmaceutical company Suven Life Sciences has received three product patents from the Indian Patent Office (IPO) for new chemical entities (NCEs) for the treatment of disorders associated with neuro-degenerative disesaes. The patents are valid until 2022.

The granted claims of the patents include selective 5-HT compounds discovered by Suven and being developed by it as therapeutic agents for the treatment of disorders like Alzheimer's, attention deficient hyperactivity, Huntington's, Parkinson's and schizophrenia, the company stated in a press release today.

Suven has so far filed 25 product patents out of which 10 have been cleared by the IPO. These are the first product patents granted to the company during its four years of the drug discovery programme.

Update : 27th November 2007

Suven Life Sciences Ltd (Suven) on November 27, 2007 has announced that the European Patent Office (EPO) granted Two Patents, 1523486 and 1581538 to Suven and are valid until June 2022. The granted claims of the patent include the class of selective 5-HT compounds discovered by Suven and are being developed as therapeutic agents and are useful in the treatment of cognitive impairment associated with neurodegenerative disorders like Alzheimers, Attention deficient hyperactivity, Huntingtons disease, Parkinson & Schizophrenia

Suven has three (3) European Patents granted until now and all of them have been validated in all the 37 member countries of Europe including major markets like Germany, Switzerland, Denmark, Spain, France, United Kingdom, Italy, Netherlands, Poland, Sweden and Finland. There are several patent applications from Suven Discovery Research are in the pipeline that have completed the administrative and technical diligence from the patent offices from major countries and would be granted shortly.

Suven has already filed its first Investigational New Drug (IND) application with DCGI to conduct the clinical Phase-I study on their developmental candidate SUVN—502 and several candidates are in discovery pipeline undergoing GLP pre-clinical studies.

We continue to work on G-Protein coupled receptor (GPCR) targets to discover and develop molecules focusing on CNS disorders with unmet medical needs and high market potential, says Venkat Jasti, CEO of Suven.

Indotech Transformers

2007-11-05T10:27:00.000+05:30

CMP: 640
Target: Multibagger

About the Company

Indo Tech Transformers Ltd., an ISO 9001 Certified company, is the flagship of the Rs. 1000 million Indo Tech Group. It was established in 1976 and has since grown to be a prominent player in the Indian electrical Industry for Power & Distribution transformers. The Group has diversified into various related areas of business, manufacturing Electrical, Electronic & computer hardware related products, pre - stressed cement casting products in addition to various special application transformers, mobile sub-station transformers & sub - stations. Indo Tech has a list of over 3150 satisfied customers. Its strength is its commitment to quality and excellent customer service. [As taken from the company's website]

The company has a vision to be a 2000 million rupees company by 2008.

Sector Outlook

By the end of the 11th Five year plan about 100,000 MW of power generation capacity is likely to be added by 2012. For every 1MW of new capacity that comes up 7MVA transformers are used across generation, transmission and distribution segments.This implies a demand of 700,000 MVA of transformers unfolding. This implies a demand of about 140,000 MVA. Besides fresh demands over some replacement demand will alos come up as transformers usually have a life span of 20-30 years. As India ramps up its power infrastructure, the power transformer sector can expect strong steady order book positions over the next few years.

Fundamentals of the Company

Result Period 01-APR-2007 to 30-SEP-2007 (First Half)

Net Sales: Rs 907.500 million
Net Profit: Rs 171.400 million
EPS: Rs 16.14
EPS for the same period last year: Rs 7.36
Growth in EPS: 119%
Trailing 12 month P/E: 20
The outstanding Order Book as on November 07, 2007 is Rs 219.00 Crores.

Given the positive outlook for the power sector and the strong growth being shown in earnings by the company, Indotech Transformers seems all set to give good returns to the investors. Even if there is no P/E re-rating of the stock, the momentum in the earnings growth should see the prices double in an year's time frame.

According to a report published by Networth the company is expected to report an EPS of 33.2 in FY08E, Rs 48.8 in FY09E and Rs 56.9 in FY010E.

I would maintain a first target of 20*56.9 =1138 by March 2009. However I won't be surprised if we reach that target much earlier given the growth visible in the power sector.

IFCI Limited

2007-11-03T22:14:00.000+05:30

Company: IFCI
CMP: 82

Financial results : First Half FY07-08
EPS : 7.29 per share
EPS after Extra-ordinary items: 11.58 per share
Target : Rs270 per share

Hi all,

As I already stated that every thing in the market teaches a new lesson and that the prolonged bull run has taught me the lesson that no one can time the market and it is best to invest in the shares of fundamentally good companies showing good growth potential and yet trading at a low P/E multiple. With this lesson learned let me embark on my journey to look for "stocks for future".

The first stock that I would pick up in this series is IFCI. Now don't say that IFCI is a story long over and it would have been great if I had picked up that share at 10 and not now at 80 when it is already a 8-bagger. There is nothing to deny that but I do have my set of reasons for not going for IFCI when it was trading at something like 10 rupees per share. At that point there was no clarity about the future of this stock. They were not starting any new business. Rather it was the fortuitous turn of events in the Real Estate sector which made their Non-performing assets (NPAs) goldmines with sale of the Real Estate of projects gone horribly wrong.

You would ask what has suddenly changed now that I am recommending this stock when one bidder after another is abandoning this stock from the race of picking up 26% stake in this company. Yes, there is a reason why I would now go for this stock.

There is now a visible revenue stream as reflected in the financial results of this company. Also the company has now started its primary function of launching new funds. This is the main trigger for me to now look at this stock as it guarantees that IFCI is looking ahead at future.

Link to the new ventures:

IFCI Venture launching PE fund for auto sector : Read More
IFCI, German co setting up PE fund: Read More

The company has posted good results for the First Half of FY07-08. The EPS for this period stands at 7.29 per share. ( I am not considering EPS including extra-ordinary items as they may contain one time revenues which wouldn't add to the revenues in the subsequent years).

Arriving at a Price Target

The growth is obviously astounding as IFCI is a turnaround story. To determine the price target I would assume that IFCI would trade as similar multiples that its peer are commanding in the market at this point of time. ( This is a departure from the normal PEG ratio that I use to determine my price targets).

In my opinion IDBI is the closest one can find a peer for IFCI in the Indian Market. For the First Half of FY07-08 IDBI reported an EPS of 4.26. The current market price of IDBI stands at 158 per share. Given that IDBI reported a Net Profit of Rs 30862 lakhs ( 1 lakh =100,000), while IFCI reported a net profit of Rs 74415 lakh for the same period from normal activites, I see no reason why IFCI should not eventually command a similar valuation as IDBI.

A simple rough calculation gives me a First target of 7.29/4.26*158= Rs 270 per share in a time frame of 6 months. This would give IFCI a P/E multiple of around 18 based on Trailing 12 months earning.

Given that SBI is also trading at a similar P/E multiple (19) at this point of time, I think this would be a fair first target for IFCI. The path ahead would solely be determined by the acumen of the fund managers at IFCI, but a see a clear road ahead of IFCI - stake sell or no stake sell.

Am I being ambitious?

Talking Stock of the Situation -02 November07

2007-11-03T00:19:00.000+05:30

Hi all,

We are witnessing one of the strongest bull runs in the history of the stock market and there is a heady feeling in the markets that bulls would overcome all odds! Its a serious departure from the past where the Indian Stock Markets were closely linked to Global markets and the Dow closings used to influence the Indian closing the next day.

This de-coupling has one again been demonstrated in the last couple of days. The Citi downgrade had sent the Dow plunging but the Indian markets managed to hold out smartly in the face of adverse global cues today.

You always continue to learn in the stock markets. In May 2006 I had learned never to under-estimate global cues as Indian economy was closely linked to the global economy. Now I am learning a new lesson - continue looking for under-priced stocks showing good growth potential in Hot sectors and you would invariably earn money.

It doesn't make much sense being on the sidelines when the Sensex is making new highs.
However they say History repeats itself. That is the reason why I am not going to unlearn the lessons learned in the May 2006 crash. P/E, EPS and Earning growths would still continue to be my guiding principles and I am not going to chase stocks whose valuations , in my opinion, have reached obnoxious proportions. This bull run is still not over and a correction would inevitably come. It would only be post a correction in this rally, that I am going to unlearn, if anything, what I learned in the May 2006 crash.

Having learned my lessons let me embark onto my journey of picking up good stocks trading a low P/E multiple and showing good growth prospects.

Technical Analysis: 28September 2007

2007-09-28T23:35:00.000+05:30

Hi all,

The markets have breached the 17000 mark on the Sensex and 5000 mark on the Nifty and its a time to take a cautious look at the market. The liquidity driven rally that has seen the bulls make a new record for the faster 1000 point rise into unchartered domain is technically seeing signs of halting.

We had a Doji on the charts on 26th and today we have a Shooting Star sort of pattern. The market might see some profit booking soon.

Till then trade safe and be happy.

Market Update: 21st September 2007

2007-09-22T20:35:00.000+05:30

Hi all,

As the last post on this blog suggested, yesterday was a crucial day for the bulls and they came out all guns blazing and took out the bear citadel. The market was obviously helped by some intense buying in the Reliance group of stocks.

As of now, I don't see any threat "technically" to this bulls run and it seems all set to make newer highs on the Nifty. However this is where a word on caution comes in. Its in euphorias of this kind, that the seeds of the next crash are sown.

The star of the trading session on Friday surely was Reliance Natural Resource Limited (RNRL) which closed 35% higher at 76.5 rupees. How much of this amazing run is sustainable that time would only tell, but a closer look at the First Quarter results where the EPS almost trebled to Rs 0.10/share from Rs 0.3/share should have given shrewd investors enough signals to hoard this stock.

However all said and done to be frank I didn't expect the stock to zoom so much so soon. Theoretically the stupendous growth seen in the last Quarter makes the stock reasonably priced as long as it is below .10*4*233=Rs 93.2/share ( i.e PEG ratio remains less than 1). It would really be only Anil Ambani's magic that would be able to sustain the stock at current valuations , if it manages to sustain it, unless some concrete positive news soon comes out in favor of the stock.

Market Update : 20 September

2007-09-21T02:09:00.000+05:30

Technical Analysis : 20th September 2007

We had a good run for the bulls in the last couple of days and now its time to pause and have a look at the charts to see what it suggests. We have had the "3 Advancing white soldiers" pattern on the chart which a healthy sign for the bulls. However, the very small white body on the candlestick chart today shows the formation of a stalled pattern and suggests bulls are losing strength. Longs are advised to at least do partial profit booking. However shorting is yet not recommended.

Tomorrow is going to be a crucial day for the bulls. Somehow they would have to hold fort against the bear onslaught tomorrow. If they manage to do so, the market may enter into a period of consolidation for a bigger bull run, otherwise we might see a correction soon.

Recommendation Update: ITC

ITC hits target of 192 on 20th September as suggested on Jan05,2007 post on ITC where it was recommneded as a buy at 165 with a target of 192 in September 2007. [Link]

Technical Analysis : 16th August 2007.

2007-08-17T00:59:00.000+05:30

On the charts, one can spot a perfect evening Doji Star on 24-25 July 2007 and that was the start of the present correction. The hammer formed on the 7th August brought a relief rally of nearly 200 points on the Nifty and today again an Evening star has been formed on the Candlestick chart of the Nifty.

The 14-16th August Nifty candlestick chart shows a Evening star and this is just a symbol of the start of downfall.

For the first time I am trying to predict levels but in my opinion, the first support on Nifty is at 4113 and if that is taken out then next respite can come at 4070.

Don't be in a hurry to buy, the Technicals would show enough symbols of a reversal pattern and when you spot them start buying.

The following stuff reproduced here should help all of us in spotting when the market is about to reverse when we should start buying.

I was reading some literature on how to spot a change in the trend and I would be presenting the the crux of the matter before you. Its a battle between bulls and bears out there. So one has to wait for the signs of the bears finally losing strength and the bulls taking over. Now comes the moot quetion of how does one spot the signs of the reversal.

Case 1:Doji

The earliest sign can be a weak opening, followed by.markets plunging deep into red and then recovering to close at almost the same levels. This would show that bears put in their entire might but the bulls managed to establish an equlibrium. But the fight has to be continued the next day.
( In Japanese Candlestick charting pattern, this is known as a Doji).

Case 2:Piercing Pattern

A downward Gap Opening i.e open deep into Red for the markets followed by a strong pull back to end the day decisively into Green. This would show that bears put in their entire might but the bulls managed to overpower them.
( In Japanese Candlestick Charting terminology known as a Piercing Pattern).

Note: A Doji might just be an indicator of things reaching an equilibrium but a Piercing Pattern is a more sure sign of bulls having finally having won the battle.

Case 3: Morning Star

Day 1: A deep red closing which we are having almost daily.
Day 2: A deep gap opening in Red and almost a no loss close or a cose say down 10 points of so. (A Doji Pattern)
Day 3: A Big day in Green.

That would be the surest sign of reversals.

So people, thats all from me today. Take care and bbye.

Subprime Woes: Indian Bull's ethical take

2007-08-15T15:12:00.001+05:30

Hi all,

The world financial markets are bogged down by sub-prime credit related losses and as a consequence the stock markets round the globe are facing a downturn. At this point, let me take an ethical take on the whole situation but before that let me touch upon the definitions for the sake of myself and my readers, if any.

What is sub-prime lending?

Subprime lending, also called B-Paper, near-prime, or second chance lending, is a general term that refers to the practice of making loans to borrowers who do not qualify for the best market interest rates because of their deficient credit history. Subprime lending is risky for both lenders and borrowers due to the combination of high interest rates, poor credit history, and murky financial situations often associated with subprime applicants. A subprime loan is offered at a rate higher than A-paper loans due to the increased risk. [Source: Wikipedia]

This makes something ring in the Indian Bull's mind...as flashback to the dark eras of Indian Economy when credit was scarce, the infrastructure minimal and the network of banks unheard in the villages. The villagers ( akin to the borrowers who don't qualify for the best markets credits) had to fall into the trap of the village moneylender ( akin to the sub-prime lenders) and take credit at exorbitant rates often mortgaging their land and chattel for the purpose of securing the credit. More often than not the poor farmer used to default on his loan and generations used to work as bonded laborers at the facilities of the moneylender to pay back te credit they or their ancestors once took from the cunning moneylender.

If the modern Capitalist society allows sub-prime lending at a higher interest rates even though the borrower has a deficient credit history which makes him ineligible for prime credits at lower interest rates, was the village moneylender wrong in taking a higher rate of interest for his services where the government was failing in its duty to provide credit to the needy?

Methodology of the sub-prime lenders

To access this increasing market, lenders take on the risks associated with lending to people with poor credit ratings. Subprime loans are considered to carry greater risk for the lender due to the aforementioned credit risk characteristics of the typical subprime borrower. Lenders use a variety of methods to offset these risks. In the case of many subprime loans, this risk is offset with a higher interest rate. In the case of subprime credit cards, a subprime customer may be charged higher late fees, higher over limit fees, yearly fees, or up front fees for the card. Subprime credit card customers, unlike prime credit card customers, are generally not given a "grace period" to pay late. These late fees are then charged to the account, which may drive the customer over their credit limit, resulting in over limit fees. Thus the fees compound, resulting in higher returns for the lenders. [Source: Wikipedia]

I can't find much difference between the methodology of the much reviled village moneylender and the so-called chic sub-prime lenders. Given the massive reverberations being felt in the global capital markets as a result of sub-prime credit related losses, I wonder if this is the stuff modern economy is made of?

Is Capitalism the game of making money at the expense of the needy? Or was the now-banned village moneylender practicing the most "sublime" form of capitalism?

Note: I had no Communist/socialist leanings but the ethical comparison of the situation does make it seem that Capitalism needs to evolve a human face too where it is not exploiting the needy.

Review Time-II in the face of a global Credit Market Crash

2007-08-11T14:26:00.000+05:30

Hi all,

The markets are going a turbulent time in the face of deep losses to the International Banking sector due to sub-prime credits related losses. At this point, I would like to complete the review of performance of the few stocks recommended on this blog.

1) Pratibha Industries recommended on this blog on 13th December at a market price of 210 for a target of 292 achieved the target and hit 300. This translates to a return of nearly 40% in 9 months. Given that the Sensex has returned just around 10% in the same period, this is outperforming the market 4 times, which is good enough in my opinion if one can do it on a consistent basis.

2) Ansal Housing and Construction Limited as recounted in my Review Part I has underperformed due to a policy change on the part of government and when the policy change was announced the investors should have exited the stock. One lesson which I learned from this stock recommendation was that a P/E upgrade is not an easy task and it requires consistent good performance before the market re-rates the P/E. The stock used to trade at an average P/E multiple of around 18. The recommendation considered that it would undergo a re-rating and would trade at a P/E multiple of around 22. If I would have calculated a target keeping the P/E multiple constant, then the target would have worked to around 18*22=396.

The stock did touch 400 before it turned around.

3) Nirlon continues to consolidate at around 67 levels up nearly 34% from the recommended price of 50.

4) Infosys Technologies:

This is in my opinion a good time to get this stock cheap while there are concerns due to rupee appreciation and global liquidity crunch. This company is sitting on a cash pile of over 1 billion dollars and the business is only growing more robust.

One year down the line when the results would come which would compare on a comparable rupee dollar conversion ratio as the rate today, this stock would again start surging. Even yesterday IT was the sole sector which managed to close in the green in spite of a general sell-off in the market.

Buy it and forget it for a generation is my recommendation.

Review Time!!

2007-05-24T13:34:00.000+05:30

The Nifty has made all time high and the market is poised for a correction. I might be wrong but the Nifty has been showing signs of intra-day lower tops and lower bottoms which signals of weakness in the market. Its advisable to liquidate 30-40% of your portfolio and wait for corrections to atleast 13700 levels to re-enter at lower valuations.

Much has changed since I last wrote something on this blog. The change in the Interest Rates have hit the Infrastructure stocks badly, so some of my recommendations have gone badly wrong. Its time for a review of the recomendations put forward in the last 6 months. In the first post of the review series, I would have a look at the infrastructure stocks recommended in this blog.

1)
Stock: Bindalagro ( Oswal Chemical and fertilizers Limited)
Recommendation Price: 41
CMP : 42
High Made since the recommendation: 45.

I would recommend holding the stock as the stock has been included last week in the derivative segments. This has driven up the volumes and the stock should test 50 levels provided the market doesn't see a drastic plunge.

Any fresh entry could be considered around the 36-37 levels during the corrections.

2)
Stock: Nirlon
Recommendation Price: 50
CMP: 67
High Made since the recommendation: 88.45

Continue holding. Fresh exposure may be made aorund 60 levels.

3)
Stock: Ansal Housing and Construction Limited
Recommendation Price 320
CMP: 238
High Made since the recommendation: 400

The stock was well on its way to meet the first target price of 424 but then the RBI went agead with its policy of tightening the liquidity supply. Higher interest rates on bank loans for the housing sector has badly hit the stock . One should have exited when the change in the monetry policy was announced. I think this tightening of the liquidity scenario would continue for some more time.

If one is considering any fresh exposure in this stock, one may enter around 225 levels for a target of 270 PROVIDED the market conditions are good.

4)
Stock: Pratibha Industries
Recommendation Price 210
CMP: 228
High Made since the recommendation: 280

This stock continues to be my long term favorite. It has been bagging prestigious projects from as varied sources as Airport Authority of India to BMC (Mumbai). The order book position has reached Rs 1600 crores against a turnover of around Rs300 crores this year. This stock seems to be a multi-bagger if one can be patient with this stock. In my opinion its time to accumulate this stock.

The next post in this series would have a look at the IT sector which has been badly hit by the appreciating rupee. Till then happy investing !

Bindalagro: Real Estate its New Business

2007-01-12T10:52:00.000+05:30

Company Name: Oswal Chemicals & Fertilizers Ltd
NSE Code: BINDALAGRO
EPS: 6.21
CMP: 41
Target 160

The company is to hold at Extra-ordinary General body Meeting (EGM) on the 29th January to get the approval to enter the Real Estate business.

The company is developing 66 acres of land in Chembur. This translates to about 30,00,000 square feet of land. With 3,250 square feet penthouses in Khar west costing upto Rs 4 crore, one may easily put the value of the land bank at around Rs 40,000 crores. Its a virtual goldmine for the company and the earnings can be much higher given the scarcity of land in and around Mumbai.

Also the company has informed the Stock Exchange that the sale agreement in respect of sale of the company's Urea Plant at Shahjanpur, U.P. to Kribhco Shyam Fertilizers Ltd.(KSFL) had been executed on March 31,2006 and with this the sale transaction in respect of Urea Plant has been finally completed on "as is where is basis" at Rs.1908 crores. This money is to be used for Real Estate development purposes. Also the company has purchased a prime real estate piece in Delhi for Rs 100 crores a couple of days ago.

Given that the number of outstanding shares stand at 125 crore, I would put the target at about 160, if the share starts to trade at around 50% of its Net Asset Value. A sure buy at these levels.

Update : 10 Nov07

SP Tulsian feels that this stock can move over 55 as presently the cash held by the company amounts to over Rs 70 per share. There could soon be an announcement from the company on the Real Estate front. Read more.

Infosys Technology: The Big Daddy Of Indian Sensex

2007-01-11T14:39:00.000+05:30

Infosys Technology
NSE Code: INFOSYSTCH
CMP: 2180
Target: 2650
EPS Guidance FY07: 66.67
Growth Rate:44%

The 3rd Quarter results of Infosys was out today and it posted a net profit of Rs 983 crore for the third quarter ended December 2006 translating into a growth of 51.5 per cent on y-o-y basis.The income for the quarter stands at Rs 3,655 crore representing y-o-y growth of 44.4 per cent. The Earnings Per Share (EPS) increased to Rs 17.64 from Rs 11.85 in the corresponding quarter last fiscal.

The company has delivered EPS of 49 in 3 quartes and is very much on target to meet its guidance of EPS of 66.67 inspite of rupee appreciation which impacted its rupee term profitability by over 3%. The company expects to have 50% of its revenues from American clients, 30% from European Clients and 20% from Asia-Pacific region clients in the days to come.

Inspite of its size, the 3 billion dollar revenue NASDAQ 100 company has posted a 44% year-on-year increase in revenue and marginally bettered most of the forcasts on the street. It had a net addition of 7 new clients in this year and the revenues from Finacle, its flagship banking sector software, grew by 25% Quarter-on-quarter basis. The company's centers in China are still in investment stage.

Today the share is available at 32xFY07 earnings. Considering the EPS Guidance of 66.67 for FY07 and the growth rate of 44%, the extreme case bullish target for Infosys stands at 17*4*44=2992.

However, the company is facing attrition pressures and plans a 13-15% salary hike to counter the attrition problem and boost employee retention. Considering the scenario, I expect the company to maintain a 30% Year-on-year growth in the EPS for the FY08. For this to come true, the company needs to maintain its 5.8% sequential Quarter on Quarter growth rate, which by Infosys standards shouldnot be a heavy task given that they managed to maintain this growth rate this quarter inspite of a 3% hit on its profitability due to Rupee-Dollar exchange rate firming up. On a conservative basis, this works out to a FY08 EPS of 86 rupees per share or a 31% growth in EPS for the FY07-08.

On a conservative basis, Infosys should have a year end price target of 31xFY08 earnings or 31*86=2660 which translates to a 22% return.

Indian Tobacco Company: No longer just a Tobacco Company

2007-01-05T20:46:00.000+05:30

Company Name : ITC
Current Market Price : 168
EPS: 4.12 for First Half of FY07-08
Growth Rate expected: 20%
Rating : Under performer

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Current Market Price : 165
EPS: 3.55 for First Half of FY06-07
Growth Rate expected: 27%
Target September 07: 192

Hi all,

Welcome to the New Year with an important lesson in the Markets that there are no permanent darlings or villains in this market. Not many days ago ITC used to be every analyst's darling with "experts" announcing new targets for the stock when clearly the stock had over-run its fundamentals. Just before the May crash, ITC used to trade over 200 mark at a P/E multiple of nearly 30.

Today, nearly 8 months later, everybody in the market seems to be short on ITC and it is available at Rs 165/share. Now the question arises, should one buy ITC at this point or not. In my opinion this can be one of the safer Sensex stocks to own when the Sensex is trading at nearly its all time high. The last 8 months of cooling has given time for the fundamentals to do some catching up with the prices in the counter.

Segments of its Business

Tobacco
Quite contrary to what people believe, the Indian Tobacco Company is not just a Tobacco company, though Tobacco still contributed nealry 60% of its revenue for the First Half of FY06-07. However the share has greatly reduced from contributing nearly 72% of the revenues for the corresponding period last year. This segement continues to grow at a rate of nearly 12% p.a.

Agri-business
The Agri-business of ITC contributed nearly 20% of the revenues for the First Half of this financial Year, up from nearly 14% for the corresponding period last year. This segment of ITC's business showed a 62% growth in the topline for the corresponding period. ITC plans to expands its networks of e-chaupals in many more regions of the nation.

Hotel and Paper Business
Their Hotel business, which contributed just 4% of the revenues has shown a growth rate of nearly 30%. With greater emphasis on tourism, this segment of the business is expected to grow at even a faster rate. The paper business segment, contributing nearly 10% of the revenues grew at nearly 10% for the First Half of this Financial Year.

FMCG
I expect their other segment of FMCG business to grow with ITC trying to advertise its Sunfeast brand aggressively these days. This segment of the business grew by over 70% in the First Half of this Financial Year over the corresponding period last year. Its share in the revenues stood at nearly 8%, up from 5% for the same period last year.

Considering the growth dynamics of their business, I expect their revenues to grow at 60*.12 + 20*.62 + 4*.30 + 10*.1 + 8*.7= 27% over the next Year.

Considering the First Half EPS, which stood at 3.55 per share, I expect the price target to be 3.55*2*27 =192 around September 2007, which provides nearly 17% returns. Once the momentum is back in the stock, it may see higher levels.

Update : On 20 September 2007 , the target of 192 was hit.
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Update: Post Quarter 2 Results FY07-08

Contrary to the expectations of growth of around 27%, the company has managed to delivered a growth of just 20% on the revenues from in the First Half of FY07-08. Due to this slowdown in the earnings we would have to re-rate the stock. It registered an EPS of 4.12 in the first half of FY07-08 with sales. Only think which is holding the stock from plunging is the fact that it has been able to sustain its growth of around 17% in spite of turmoil being faced by the FMCG sector. Its peer HLL has infact seen a decrease in Profits in the corresponding period.

The stock in my opinion is fully-valued at 20*4.12*2=165 which is its current market price. If one is looking to get a return of around 16-17% per annum ( dividends included) only then one may have a look at this stock otherwise at this point of time there are other much better growth stories available in the market.

The Year Gone By, The Path Ahead

2006-12-28T01:35:00.000+05:30

Hi all,

We are closing in to the end of the Year 2006 and looking forward to a New Year in the midst of a Santa Clause rally which shoud ensure that the year ends on a happy note, poised to make new peaks the next year.

The Year that was: 2006

Its been an eventful year, an year which would be remebered for the great peaks scaled by the indices and the volatility which would have badly hurt many players of the game. The year started slightly below the magical 10K mark and soon scaled peak after peak to touch the 12K mark accompanied by great euphoria on the Dalal Street as many stocks made new 52 week and all time highs; and then came the mid-May crash which saw the Sensex tumble from the highs of 12600, breaching one support level after another. Trading had to be suspended for an hour on the 22 May at around 12:20 pm as the Sensex hit the lower circuit of 10% in 135 minutes of trade. The sheer steepness of the fall, accompanied by the fear on the D-Street, must have driven away many of the new investors. However the crash was sowing the seeds of a fresh round of Bull run and eventually the Sensex turned around from the last Fibonacci support level of 8800 being held on to by the bulls. We are looking forward to close the year at around 14K levels with the Sensex trading at 20.5xFY07 earnings, registering close to 40% growth in the Sensex for the year 2006.

The Path Ahead: 2007

The most important question before investors, as we step into the new Year, is whether the Sensex is overvalued at this point. In my opinion we are fairly valued at this point of time, if not undervalued. A major reason why our Sensex is trading at a higher PE compared to some of the other global markets is the composition of our Sensex stocks. In Russia and Brazil, the two other BRIC nations, the major components of the indices are oil and gas sector firms which historically trade at a lower PE compared to other sectors like the IT sector, which incidently forms a major chunk of our Sensex. Even in our case ONGC is trading at just 8xFY06 earnings. More than anything else, it is the composition of the Sensex where likes of Infy, TCS and Wipro form coupled with the telecom stocks Reliance Communication and Bharati which makes the Sensex trade at a higher PE compared to some of its other peers. Also the growth rates in the profits continues to justify the premium the Sensex is commanding today. A point to keep in mind would be that Nikkei trades at a P/E of close to 40 though the Japanese economy is showing signs of stagnation.

The expected EPS for the FY07 for the Sensex stands at around 685. The Advance Tax figures are showing healthy signs with the figures in the range of 40% above the Advance Tax figures of the previous year. The nation's GDP is expected to grow at a healthy rate of 8.7% p.a. Everything remaining fine, we should see a 18% growth in the EPS of the Sensex stocks leading to an expected FY08 EPS for the Sensex stocks at around 810. If we close the Year 2007 at 20x FY08 earnings, we should close the year at around 16.5K levels.

Am I being too optimistic?

The level 16 K may seem to be astronomical figure but in fact it would be a 14-15% return on the Sensex which shouldn’t be too high a figure given that we live in an economy where the bank pays you 8% to keep your money in a Fixed deposit. The risk-reward ratio would force the Mutual Funds and the other equity linked saving schemes (ELSS) fund managers to make sure that the Sensex manages atleast 15% returns; otherwise it might ring the death bells for this industry. Nobody would prefer to risk his money for modest gains if he can manage almost similar returns without losing his night's sleep with the gyrations of the Sensex. More psychological than anything, isn't it? But then it is psychology, more than fundamentals which decide the returns in this market and it was amply demonstrated in the May-June fall as well as the subsequent rise. Otherwise there would be no reason for a Unitech to trade above NAV and many of its poorer cousins trading at deep discount.

Sectors to look out for

1) Real Estate and Infrastructure

This should be the year when Fundamentals catch up with the valuations. Everybody says that a good IPO like that of the DLF would take the entire sector higher. What I feel is that with the good IPOs coming in, there would be a choice before the investors and the money would route its way into the fundamentally stronger picks leaving the weaklings behind. Days should be over when any Tom Dick or Harry stock with an Infra attached to its name used to hit upper circuit for days.

My picks for this sector with a 1-2 year time frame in mind would be Parsvnath Developer and Pratibha Industries ( a high risk scenario).

2) Retail

The retail sector is going to be the next BIG sector which should see a boom like the Telecom sector witnessed and is still witnessing. This sector is still in its nascent stage and the early movers like Reliance Industries should expect a healthy return in FY08. There is stiff competition with many global giants like Walmart and Tesco too entering the fray. However given the size of the Indian Middle Class and the increasing income levels, should the growth story of India remain intact, everybody should be able to have his fair share of the pie.

3) Sugar sector

It can either be one of the biggest wealth eraser of the year or a wealth creator. The odds are heavily stacked against the sector, with softening international prices and the booming production this year signalling a doom for the sector, but the mouth watering valuations at which the sugar stocks are available today, with the like of Dhampur Sugar available at just 4xFY06 earning, should perhaps be a reason to take a limited exposure to this sector.

One stock which I would keep an eye on is ITC. After underperforming for a major part of the year, I think the stock has given time for the fundamentals to catch up. The stock seems to be one of the safer bets at the current levels; and then remains the evergreen IT sector with Infy leading from the front. The current year should see no major upheavals though the slowing US economy may ultimately act as a party pooper.

Its time to usher in the New Year with hope in the air, an year when the Sensex should take a breather by its lofty standards yet manage handsome returns to keep people hooked to the twists and turns of the sensational Sensex. The year might witness extreme volatility as the Sensex swings from one end to the other; people would have to be nimble footed to latch on to the opportunities as and when created and perhaps regularly booking profits won't be a bad idea this year. Wish you all the best for the New Year.

Pratibha Industries: Slow and Steady steps towards future

2006-12-13T17:05:00.000+05:30

Name: Pratibha Industries Limited
NSE Symbol: PRATIBHA
CMP: 210
Target1:292

Target hit on 20th July. Reversed from intra-day high of 300.
Update 13 November 2007: Target 2: 410 in a six months time frame.
Update 15th December 2007 : Target 2 HIT and the stock closes the week at a strong 428 per share.

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Pratibha Industries Limited is engaged in infrastructure business with key focus on water segment. It is the flagship company of the Pratibha Group and promoted by Mr. Ajit Kulkarni. The company is seeking to lay increased emphasis on devising its business strategy on aggressive top line growth, a de-risked business model and increased operational efficiencies.

In the last week of November and first week of December this year, the company has announced that it has bagged two prestigious projects. It has informed the Exchange that the company has secured a contract from Airport Authority of India for Modular Expansion of Terminal Building at Amritsar Airport, Amritsar (Phase - II) in joint venture with Unity Infraprojects Ltd. The value of the contract is Rs.656 million, with Pratibha Industries being a junior partner with 25% stake. The project involves "civil construction for the new expansion area along with related electric and electronic installations". The project is required to be completed in ten months.

Also, the company has secured a contract worth Rs.245 million from Mumbai Metropolitan Region Development Authority (MMRDA) for Widening and Construction of Andheri-Kurla Link Road (Saki Naka to LBS Road and Jari Mari Road) to be completed within fifteen months. The project involves "widening and construction of Andheri-Kurla Link Road (Saki Naka to LBS Road and Jari Mari Road) (RCC)". Both these project should add a good amount to the topline of the company.

The turnover of the company in the FY06 stood at around Rs 1570 million. With the company bagging these two new projects, the orderbook position stands at around Rs7910 million. The EPS of the company stands at Rs14.4 per share as per the results available on the NSE website for the FY06. The Second Quarter September 06, EPS showed a Quarter on Quarter growth of 28% when compared to last year and stood at 2.6.

Thus the price target should stand at 2.6*28*4=292 /share. A good Quarter Three result should take the targets even higher. The reason why this company is trading at a low price is that currently the stock is categorised in the Trade-to-trade (BE) segment of the market and intra-day trading is not allowed in this stock. The shifting of the security back to the normal segment should send the prices soaring. Also the company needs to demonstrate that it has the punch to graduate to the big league by completing the projects it has on time.

The company stands on the verge of making it big, given its growth plans, healthy orderbook position and increased stress on bettering the infrastructure in the country.

Update: Jan08, 2007

Pratibha Industries has secured a Contract worth Rs. 331.65 crore from the Public Health Engineering Department, Government of Rajasthan for Nagpur Lift Canal Project, which is the single largest contract received by the company. With this contract, the order book size currently has reached Rs 1200 crore or Rs 12000 million.

In the previous few days, 2 brokerages have come out with research reports on this firm. Motilal Oswal has recommended a BUY on this firm with a target of 550 over the next two years at 20xFY08 earnings. Broking house Pranav Securities has recommended a BUY with a target of 337.

In view of the latest developments, the price target may be hiked with the 3rd Quarter results.

Update: Nov 2007

Pratibha Industries has bagged some more prestigious projects in the month of November 2007 :

It has secured a contract for design and construction of storm water pumping station at Irla, Andheri West, Mumbai from Municipal Corporation of Greater Mumbai. The project is in joint venture with Grundfos Pumps Private Limited, Chennai and Keum Jung Industrial Company Limited. Seoul, Korea The total value of the contract is Rs.70.07 crores. The project involves "design and construction of storm water pumping station including supply, delivery, erection, commissioning of mechanical, electrical, instrumentation and automation works and comprehensive operation, maintenance of pumping plant at Irla, Andheri West, Mumbai. The project is to be executed in 12 months.

Also it have secured a contract for construction of Residential Complex of four High Rise Towers of 49 floors from Vijay Associates (Wadhwa) Constructions Pvt. Ltd. The total area to be constructed is about 25 lakhs sq. ft. The total value of the contract is Rs.58.92 crores excluding cost of material. The completion period of the project is 33 months.

The icing on the cake is however in my opinion the contract that it has secured for construction / expansion of domestic arrival terminal of Indira Gandhi International Airport, New Delhi from Delhi International Airport (P) Limited (a GMR group company). The project is in joint venture with Pratibha Pipes & Structural Ltd., a group company. The total value of the contract is Rs. 41.35 crores. The project involves "construction and expansion of the domestic arrival terminal at Indira Gandhi International Airport at New Delhi".

This clearly shows that the company has arrived in the big league. Also the First Half FY07-08 results have been god and the EPS has surged to Rs 8.92 per share up nearly 70% on an Y-o-Y basis.

In view of the strong order book, continued growth we expect the share to trade at 23*2*8.92=408 in six months time. Any re-rating of the P/Es and a strong Full Year result can take the target price up to 500 in an year's time frame.

Nirlon: The new kid on the real estate block

2006-12-03T23:21:00.002+05:30

Nirlon Ltd

BSE Script Code: 500307
MP at the time of writing the post: 50
CMP: 58.2
NAV: Rs 200/share

This is a company mainly in Textiles, Manmade fibers and Nylon which was recently refered to the the Board for Industrial Restructuring (BFIR) to turn it around from a sick company. However the buzz which has sent its share prices soaring is the move to develop Real Estate on the vast land bank it holds in Goregaon Mumbai.

The K. Raheja Developers group is said to be developing the Real Estate, and they have picked up 4% stake in the company though the stock market route during the May crash at throwaway prices. Also Videocon International has already bought 3.35 per cent stake in the company.

According to the corporate announcements of the company, the company has confirmed that it is no longer a sick company as per the provision of the Sick Company as per the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). Also it has confirmed media reports that it is developing real Estate on the company's land banks.

The value of these developments comes around Rs 1000 crores which suggests a target of around Rs 200/Share in the months to come. The stock has been hitting upper circuits continously in its rise from 20s and 30s and into the 50s now.

Company Report filed with SEBI: Click Here [Courtsey:Lavs]

Update 02Nov07: The stock hit a high of 92 per share and is consolidating in the range of around 80 per share.

Ansal Housing and Construction Limited

2006-12-03T22:54:00.000+05:30

The current heartthrob of the market is the Real Estate sector and the prices of almost every and any stock bearing any remote connection with the real Stock sector is shooting through the roof. However in the days to come, only the strong ones would survive while the weaklings would get weeded out. There has been a slew of good IPOs of Infrastructure related stocks and soon the limited liquidity is going to park itself in the stocks which show the greatest growth potential.

The stocks like Mahindra Gesco and Unitech command dizzy valuations which would make any Fundamental analyst go dizzy.

My pick for the sector is:

Ansal Housing and Construction Limited

NSE Code: ANSALHSG
Price at the time of writing this post: 345
Current Market Price: 320
EPS for the First Half'07 : 11
Last Quarter on Quarter growth in EPS: 22%.
The profits doubled when compared to the same quarter of the last year.
Current P/E Ratio: 17.1
Price target for it going forward based purely on earning: 22*22= 484.
(and this target shouldnot make any Fundamental Analyst uncomfortable given that the PEG ratio remains 1).

To add to it, it plans to invest over 2000 crores in the Real Estate projects in times to come...the valuations can only go up. More about it at this Financial Express Story. Also for those who look at where the FIIs and high network investors are parkinh their money, the news is that Citigroup has picked up some 2.5 lakh shares in the company at prices between 298 and 324.

Value of Land Bank as per Kushagra Ansal, President at Ansal Housing and Constructions : Rs 900 Crore [Source: Link]
No. Of Outstanding shares: 1.492 crores.
Value of land bank works out to be around Rs 600/share.

If one considers the value of the landbank and its plans of investments the price target could work out to be around 1000 with a year's time frame.

Global Cues, Spineless Investors, Sensex Journeys and the Blame Game- Reproduced here from my previous blog written on June 18,2006

2006-12-03T22:49:00.000+05:30

Hi all,

We have been witnessing one of the toughest times for the markets in our lifetime ( especially most of us who are new). One thing that I have noticed is that when the sensex starts going up, people forget every limts and they predict only one way NORTH. When we see a crash an entirely new breed comes in and predicts scary depths, as if the world is about to come to an end.

In the last few days we all have been latching onto the global cues like anything, a tinge of GREEN in DOW sends us 600 points up and a tinge of RED sends us tumbling down. Is it because of lack of confidence in Indian Investors about the growth potential of India?

Everybody has been blaming the FIIs for the crash. But nobody would nothice that in the initial phase, when the FIIs sold, the MFs bought almost everything..the actual ratio of FII selling and MF buying being 8 : 7.7. So who brought about the crash? It was the FII of the other type Foolish Indian Investor, who started selling as if there was no tommorrow.

In the second half of the crash, when we were around 9000 levels, the FIIs started to buy and MFs started to sell. Again it was the panicky Indian Investor who caused the markets to tumple from 9500 levels to 8800 levels. It was here that the FIIs started aggressive buying in the markets. The FII figures for the last 2 days suggest heavy buying- to the tune of over 600 crore on the last Friday which revived the markets by alomst 900 points in 2 days. The panicky Indian Investor would prefer to wait for the sensex to be again 11K before he starts buying. I fail to understand one thing, if the Sensex has to go back to 11K why not invest when the Sensex is at 9K?

Everybody including CNBC has been latching on 2 two reports- Nomura and Marc Faber to predict a doomsday scenario.

Now Nomura even when predicting 7000 was bullish on one counter Thermax. Is Thermax the best performing Indian Company that it would do well even when the Sensex was heading for abysmal Depths? A little bit of look at Nomura's tryst with Indian markets would show that they entered the Indian Markets when the sensex was at 9000 levels. Why did they enter the market in the first place at 9000 if they felt that markets had to go down to 7000? The initial Nomura Report suggested that 8800 is the limit for correction and then seeing the markets falls they started giving out levels like 7000 without any justification. Our TV networks did the rest with a depressed looking so-called-equity-reseach-specialists-cum-program-hosts broadcasting the doomsay report all day.

Then there was another guru Marc Faber. He gave a 6000-8000 target. Nobody saw 8000 but everybody latched on to the 6000 figure. Anyways I fail to understand couldn't the guru have given a wider rager ....say 0-13000? It makes no logic to give a rage with a 33% swing.

Ofcourse in the madness everybody forgot the rational voices of DSP Meryl Lynch and others which suggested that markets would swing in the range of 9-11K.

Everybody discounted George Soros-one of the most successful Investors ever born, who was on CNBC, saying that the emerging markets have become over sold.

Everybody has been blaming the FIIs, but the truth is that FIIs were buyers of Rs 1,682 cr in June thus far. Domestic mutual sold shares worth Rs 1,715 crore in June thus far. So I guess its time to stop blaming the FIIs for the crash. Its a shame on us that foreigners trust the India story more than we Indians do.

The purpose of writing all this is suggest to you all that stop latching on the this report and that and apply your own brains. Do you see India slowing down? Do you see Indian Economy slowing down? If yes, then perhaps all the doomsday scenario is true otherwise, you know its all vested interests giving all the ranges for the sensex. Apply your own mind and take rational decisions.

One Month into the Stock Market-Reproduced from o3 28April06

2006-12-03T21:03:00.000+05:30

Market Update 3:30 pm,28th April 2006: After the initial plunge the markets recovered and there was no undue madness on the Dalal Street. The markets infact ended in green, unscathed from the IPO scam turmoil turmoil, and it is a a sure sign that Indian Markets have matured and indeed retail investors can leave their money in the market without losing sleep over it. It is no bubble out there and the fundamentals are in place. Stock Market dream is here to stay.

Hi all,

Tommorrow, it would be one month since I actively started tracking stocks and their price movements. I have learnt a few lessons which make me believe that stock market is more of a combination of acting on rumors and news flows mixed with some fundamentals. This is a summary of some of the lessons I have learnt.

1) Never try to go against the trend. You are just a small fish, and the game is played by the big boys, you just have to swim alongside them.

2) Keep away from petty stocks/stocks which don't have their fundamentals in place. This is because as you would have noticed in the first point, you are just a small fish. If the big fish decide to turn on you there would be no escape for you if the company doesn't have its fundamentals in place. Like in the case of HFCL,in the height of Harshad Mehta's scandal the big boys had pushed up the prices to over Rs1200 per share. Today this stock trades at Rs 30 per share having recovered from the single digit lows. Those who got into the stock at the height of the scam and waited for the stock to turn back would have lost huge money with no hope of any recovery.

3) In the words of Jim Rogers Buy on rumors and sell on fact. For example there were rumors of MphasisBFL being taken over by EDS and the stock sored to something like 270 rupees per share levels. When the news was out, it became public that the deal was carried out at 205 rupees per share and since then the share had dipped down to 190 levels before touching back 200 levels . Those who had bought on the rumor and had sold when the news came out would have made a cool profit. And obviously if the news is very good, make more profits!

4)As in the words of John Manyard Keynes there is nothing as disastrous as a rational investment policy in an irrational World. Therefore always check out the volumes of the stock before getting into the stock. Unless the stock is on traders and investors' radar, you would needs loads and loads of patience before your stock prices would begin to move in the forward direction.

5)Never try to put in more money into a losing stock because it would only lock your good money in a bad stock for quite sometime.

6) Patience is a gold mine. If your stock is losing some serious money and forget about that stock because every stock turns back provided it has its fundamentals in place.( Hopefully you would have kept the point 2 in mind).

7) Keep strict stop losses and don't get emotionally attached to a stock. This way you would prevent your stock from going deep into losses.

8) When a stock becomes the talk of the town its time to move to another stock. Well there are certain exceptions like Infosys but most of the time, by the time everybody is talking about that stock, the stock is already over-valued.

9) Update courtsey Priyaji: Buy dividend paying companies only. If the company is a dividend paying company, it shows the commitment of the company to share its profits with the shareholders and also assures a fixed retun in case of stable markets where the prices don't appreciate much.

So pals if you are looking to get into stocks, keep these points in mind, do a bit of research on the companies fundamentals and keep your self in sync with news flows, afterall an ounce of news is worth more than a pound of fundamentals in the stock market which is driven mostly by emotions, news and rumors mixed with some fundamentals. All comments invited.

By the way, tommorrow would be my first opportunity to witness the madness ( which most probably should strike) on the bourses in wake of the SEBI carckdown in the IPO scam against 22 brokerages including Karvy and Indiabulls.

Stock Market: Fundamental Analysis Of a Stock

2006-12-03T20:44:00.000+05:30

There are 2 types of analysis of stocks: Fundamental Analysis and Technical Analysis.

The Fundamental Analysis of a stock is the process to determine the “intrinsic value“(not to be confused with the intrinsic value of an option) of a stock which Technical Analysis is the process to determine the future course of the stock based on its past performance and charting.

What is intrinsic value?

It is the actual value of the security which might or might not be equal to its market value. There is no fixed way to calculate the intrinsic value of a company and it is the value of the secuirty/stock based upon the perceived value of assets which includes variables/intangibles like its trademark, brandname, goodwill, copyrights etc.

Importance of Intrinsic Value

Nowadays, in the knowledge driven economy these intangible assets like the copyrights, patents, intellectual property etc right have started to have great value in the valuation of a company than its tangible assets. That is why news flows affect the stock markets so much these days where though fundamentally the company might not have done too badly yet a bad news hammers down the stock especially in the New Economy stocks.

How can intangible assets generate revenue?

Return on Asset (ROA)=Profit / Asset in the Balance Sheet. The concept is furthur explained by the example given below of comparison between Tata Steel and SAIL.

In the last financial year with an Assets of 493,500 lakhs Tata Steel earned a profit of Rs 595,602 lakhs before tax in the year ending Decmeber2005.We get a 120% rate of Return on Assets (ROA).

Compared to Tata Steel, SAIL has a Asset of Rs1418,700 lakhs yet it earned a profit of just 997,000 lakhs giving a 70% rate of Return on Assets (ROA). We have assumed SAIL to be the industry average for the Steel Industry.

Now what causes Tata Steel to have this fantastic ROA over the industry average? It is the value of its intangible assets like Brand name and goodwill, which donot show on the balance sheet, that generates this sort of revenue.

How large can the intangible value of assets be?

The excess ROA in Tata Steel over SAIL (or the industry average) is about 50%. This is caused only due to the intangible assets of the Tata Steel, which brings in profit of the range of Rs 246,500 lakhs for Tata Steel.
Substract Tax from it @33% and hence the Net Return due to the intangible assets abouts to about Rs 165,170 lakhs.
If we consider the rate of return on the intangibles to be 10%, the value of intangible assets of Tata Steel is a whopping Rs 1,651,700 lakhs. This intangible value must reflect in the stock price.

Note: The value of intangible assets depends upon the evaluators' perception. I took the rate of return on the intangibles to be 10%, somebody may take it 15% still other 8% coming out with a different value for the intangible.

What is the Total Value of the company?

Thus from an investor's point of view, the total intrinsic value of a company is sum of the Asset in the balance Sheet and the value of intangible assets.

Intrinsic Value = Fixed Assets in Balance Sheet + Value of Intangible Assets.

Calculating the EPS and P/E

Now we saw that the annual profit of Tata Steel is Rs 595,602 lakhs before taxes.
Therefore Total Profit after taxes at 33% = 393,097 lakh.
Total Number of Tata Steel Stocks = 5535 lakh.
EPS ( Earning Per Share) = Total Profit / Total No. Of Stocks =70.
P/E Ratio= Current Stock Price / EPS .
P/E Ratio at today's Tata Steel's Closing Price of 542 works out to be roughly 542/70 =8.

Fixing a Price Target

The total valuation of a company Intrinsic Value =Tangible Assets + Intangible Assets.
Price Target= Intrinsic Value / Total Number of Outstanding Shares.

On a conservative estimate as on December 2005,

Intrinsic Value of Tata Steel = Rs 493,500 lakhs+ Rs 1,651,700 lakhs = Rs 2,145,200 lakhs.
Price Target= 2145200/5535 =Rs 388.

How can a normal Investor fundamentally analyse the stock?

Normal investors take a look at the P/E Ratio to determine if a stock is fairly valued, valued cheaply or valued expensively. A P/E ratio of 13 in a stable industry is considered to be a fair value while in a growing sector for a growing compnay a P/E ratio of 28 is considered to be a fair value. However the fair value P/E ratio varies from industry to industry and a general P/E ratio cannot be applied across board. Other Factors like EPS should also be kept under consideration.

PS:

1) The data taken from the Balance Sheets of SAIL and Tata Steel available at their website. I took the data of just one year. In actual practise an average asset over the last 3 years is considered for the assets of the company.The calculations are all rough calculations.

2)The Price of Tata Steel as on December 2005 was indeed Rs 379, fairly accurate for a rough back of the envelope calculate done on this post. To determine the future prices of a stock we generally rely upon the Estimated Revenue Targets that the companies issue.

Hope that this post is going to be useful to you all to value the companies and make wise investment decisions.Your take pals.

Options Trade: An overview

2006-12-03T20:38:00.000+05:30

History of Options

Mortgage borrowers had the option either to forfeit the mortgage or pay back to get back the mortgage. Aristotle wrote that Thales bought option to buy olive presses during harvest season.

What are Options?

An option is a contract which gives the the buyer of the contract the right but NOT the obligation to buy or sell the underlying asset at the specific price on or before a certain date. For this right to buy or sell, the buyer pays a “price/premium“ which is forfeited in case the buyer choses not to exercise the option.

The basic difference between the Options and Futures is that in case of Futures, there is the obligation on part of the buyer of the contract to buy or sell the underlying asset on the settlement date, but in the Options market there is no obligation on part of the buyers of the contract to go ahead with the buy or sell of the asset.

Types of Options

A call option gives the holder the right to buy an asset at a certain price within a specific period of time. Buyers of calls hope that the stock will increase substantially before the option expires. It is similar to having a long position on a stock.

A put option gives the holder the right to sell an asset at a certain price within a specific period of time. Buyers of puts hope that the price of the stock will fall before the option expires. It is similar to having a short position on a stock

Seller of the option who collects the premium from the buyer is called the writer of the option. Simple puts and calls discussed above are known as plain vanilla options. There are non-standard options which allow the type of option to change before the expiration date. Such tyes of options are known as exotic options.

American Options are options which can be execrcised any day before the expiration date while European Options can be exercised only on the expiration date. In India we have American Options only.

Types of Players

1. Buyer of calls (holder of call option)
2. Seller of calls (writer of the call option)
3. Buyer of puts (holder of put option)
4. Seller of puts ( writer of the put option)

The writer has the obligation to honor the option whereas the holder has the right but not the obligation to buy or sell.

The price at which an underlying stock can be purchased or sold is called the strike price. If the spot price a stock price goes above (for call options) or go below (for put options) the strike price before the expiration date, which is usually the third Friday of the month( for ex. a March Option expires on the 3rd Firday of March), a profit can be made. An option is said to be in-money if a profit can be made. The amount of profit is the intrinsic vlaue of the option. The price of the option is the premium on the option, which has to be paid by the buyer of the option to the seller of the option.

Bid Price is the price/premium at which a person is willing to buy an option while Ask Price is the price/premium at which a person is willing to sell an option.

How to make money in this game?

Suppose today you buy a April call option on Reliance at the strike price of Rs780 at a premium of Rs 8. If any day between today and 3rd Friday of April ( which is the expiration date), Reliance share prices goes above 780+8=788 ( called the break-even point which is equal to the sum of Strike Price and the Premium), you can exercise the option and book your profits. Now suppose on the 10th April Reliance trades at Rs 800 per share, you can close your position making a profit of Rs 20 per share. Note that your initial investment is just the premium i.e Rs 8 per share. Hence your Rs 8 grew into 20 rupees in just a month's time, making a huge 150% profit.

Suppose you chose not to close the position in anticipation of greater profits and on the expiration date, the price fell to Rs 770. Then the holder of call option may chose to forfeit the call limiting his loss to just the initial premium paid. Thus we see how with a fixed downside a huge upside can be made in the options market.

NOTE: For starters its risky to be writers of options because they then have the obligation to buy or sell as per the option they write because in that case the downside can be unlimited if the stock crashes in case of the call option or stock zooms up in case of put option. So until and unless you are sure of the game, its better not to be a writer of the option.

Futures Trade: An Overview

2006-12-03T19:47:00.000+05:30

1. History of Futures Market

In the mid-nineteenth century, central grain markets were established where farmers used to sell their commodities either for immediate delivery ( spot trading) or for forward delivery whcih came to be known as forward contracts. Those forward contracts were the forerunners to todays's futures contracts.

2. Difference between futures and forwards

The primary difference between the futures and the forwards is that futures are traded on futures exchnages while forwards are traded over the counter. In a futures transaction there is no direct transaction between the buyer and seller, but the buyer and seller separately transact with the exchange or the clearinghouse which executes all the contracts.Both the parties have no legal obligations to each other but both their legal obligations are to the exchange's clearning house. On the other hand the forwards are privately negotiated by the concerned parties.

3. Going short or long

Going long means entering into a contract with the obligation to buy and receive delivery of the underlying at a price set today.Going short means entering into a futures contract with the obligation to sell and deliver the underlying at a price set today.

4. The Players in the Game

The players in the futures market are broadly classified into Hedgers and Speculators.
Hedgers are those people who buy or sell at the futures market to secure the future price of a good to be transacted at a future date in order to minimise risks against price fluctuations.(This is just one aspect of hedging). Speculators on the other hand, try to make profits out of the price changes against which the hedgers seek to protect themselves.
Then there is the clearinghouse or the market regulator. All future contracts are made to and settled by the clearinghouse.

5. Trading Strategies

An entity A needs a certain quantity of crude oil 2 months down the line. He may enter into a futures contract by going long, to procure crude oil at 55$ per barrel two months down the line. So if 2 months down the line the price of crude oil is 60 $ per barrel, yet A has secured his supply at 55 $ per barrel. This is what is hedging. Similarly the seller of the crude oil has secured a guaranteed delivery for his produce by going short 2 months in advance. If the prices would have fallen, the seller would have suffered losses against which he hedged himself by entering into a futures contract.

However if the prices were to decline, then perhaps A would have been better off without the futures contract and similarly if the prices had advanced the seller could have made extra profits.

This uncertainty in the price is what the speculators try to cash in upon. If a speculator feels the price of a stock is going to decline in future he goes short at today's price and at the end of the period he can make profit by repurchasing the good at a lower price.If he feels the prices are going to advance, he can go long and at the end of the period he gets the stock at a lower price and he can sell the stock at the prevailing higher prices making a profit.

Spreads

There is another way to make money out of the futures trade. This is via price differences in the futures contract of the same commodity over different exchanges or dates which is known as spreads.

Inter-Exchange Spread: If the futures contract of a commodity is trading at different prices in two different Exchanges, a person can buy at one and sell at the other exchange, thus making money out of the price differnce. There are other types of spreads like Intermarket Spreads and Calander Spreads too. Though a conservative means of trading, it is risk free and assures guaranteed income very much like the arbitrage on the spot markets.

Note: In every futures contract, everything is specified: the quality and quantity of the commodity, the specific price per unit, the date of delivery and method of delivery.The price is the agreed upon price of the commodity on which both parties have agreed. Also the futures exchange is different from the spot exchange. The BSE Sensex and the NSE Nifty are the spot markets while the Nifty Futures is a futures index.

6. Why is the futures trade so attractive?

One can enter the futures market only through registered brokers. To enter into a futures contract you only need to deposit the margin, i.e an initial deposit of good faith, which is used to settle any day-to-day losses. This minimum-level margin determined by the exchanges is usually 5-10% of the value of the futures contract. When the contract is liqudated, you are refunded the initial margin plus or minus any gains or losses that occur over the span of the futures contract. Maintenance Margin is lowest amount an account can reach before it needs to be replinished.If you balance dips below the maintenance margin while settling day to day losses, the brokers are required to make a margin call and request you to make additional deposits to bring the margin back to initial amount. Any failure to meet the margin call on your part may give the broker the right to liquidate your positions to make up for the loss.
That was the downside but if your call is right, by investing just 5-10% of the contract's worth you can make a profit equivalent to investing the total amount of the contract. This controlling of a large cash value of commodity by investing a very small capital is known as leverage.

Caution: Futures trade can produce huge amounts of losses if you have a large leverage position and you made a wrong investment decision. Use only the capital which you can afford to lose because the risks can be real high.

For more on how to trade in the Futures Market refer http://www.investopedia.com/university/futures/

Some Stock Market Terminologies

2006-12-03T19:41:00.000+05:30

Before I move ahead, I guess it would be wise to put down some terminologies used in the Market. This is purely what I have gathered from reading on the Net and the newspapers. If you feel I am wrong do correct me and if you feel I have missed some common terms do add to my knowledge base.

Capital: The inital money put into the business is the Capital of the business. There is a basic principle of Accounts which calls for the separation of the business from the propreitor. So the promoter or the propreitor is not the owner of the capital but merely a manager of the same.

Stock: It is the capital raised by the corporations through the issuance and sale of shares. A share is like a piece of ownership of the corporation. You may not take away some part of the business in lieu of your share, like if you hold a share you cannot take away an equivalent amount of nuts and bolders from the plant,but it certainly gives you a vote in the General Meeting of Shareholders and a vote in the election of the Board of Directors.You also also get a right to bring up issues of concern before the Board of Directors and potentially a share in the profits in the form of dividends.

Why Issue Stocks?
Now every business needs some capital to start with. A part of it is the propreitor's own money, part of it financed on debt and some part of the capital may be raised through issuance of shares in form of IPOs. A share makes you a part-owner of the business. The propreitor has to pay off the debt in case the business fails but he has no obligation to pay back the shareholders. However if the business comes good, the shareholders may smile all the way to the banks. One needs to be careful to pick up the right businesses when entering an IPO, otherwise you may end up losing your money.

IPO or Inital Public Offerings:The issuance of stocks to general public to either raise capital to start or expand the business is known as an IPO. A good IPO watcher may make a kill because many IPOs open at a significant Premium. However there are even more IPOs which trade at considerable discounts on listing. So the key is to look for a good IPO and not just any IPO.

Premium and discount: If the price of the offer is more than the face value of the stock, it is said to be offered at a premium otherwise it is at a discount. For example, if the stocks of a company A of a face value of Rs 10/share are offered at a price of Rs 25/share, it is said to be offered at a premium of Rs15/share.

Contract: A contract is a promise or an agreement that is enforced and recognised by law. In the stock exchanges there are clearing corporations which see to it that the parties do not default on their promises. If a party defaults the clearing corporation fulfills the promise on behalf of the defaulter but the price may be too high to pay for a default as the clearing corporation may ban the defaulting party forever from trading and confiscate his security deposit.

Futures: A futures contract is a contract traded on a futures exchange, to buy or sell a certain commodity or stock at a certain date in the future, at a pre-set price. The future date is called the delivery date or final settlement date. Generally the last trading Monday (or is it Friday ??) of the month is the delivery date for the the futures contract of that month. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price. The futures price, naturally, converges towards the settlement price on the delivery date.

Options: An option is a contract whereby one party (the holder or buyer) has the right but not the obligation to exercise a feature of the contract (the option) on or before a future date (the exercise date or expiry). The other party (the writer or seller) has the obligation to honour the specified feature of the contract. Since the option gives the buyer a right and the seller an obligation, the buyer has received something of value. The amount the buyer pays the seller for the option is called the option premium.

Futures and Options together make the F&O Segment of the market.

These are merely definitions and as such may or maynot make much sense to many people (These definitions especially F&O certainly made no sense to me when I first heard them but later on I was explained the meanings of these terms and the unlying principles which made trade possible, when they started to make some sort of sense to me). This is not even scratching the tip of the ice-berg but then the post has gone too long already. See you all soon with the next post in this series for some more terms.

Introduction- Reproduced from my o3 blog -Dated March 16, 2006

2006-12-03T19:31:00.000+05:30

Hi all,

This blog is an attempt by me to understand the play of the big boys. The facinationation started to take real shape only after I attended a guest lecture on Stock Markets and Derivatives Trade at my college. Then not many days ago, I wrote a blog about the Mittal -Arcelor row on my Political Blogs. I came across many big words like Mergers and Aquisitions, Takeovers, Poison Pills etc during the course of my research for the post. Then began my attempt to understand the science behind this play of money.

Stock markets may seem chaotic and an easy way to make money from the outside, but once you are into it, you know its a whirlpool out there. Its addictive and the temptation to trade more and more is irresistable. The nature of the market is such that most casual investors make some decent money to begin with but once you start thinking you have understood the basics of the market and put in some serious money after doing some “research“ you often tend to lose some. Its of utmost importance not to panic at this stage but its really a tough job to see your picks going down and other scripts climbing the chart. Most small investors panic at this juncture and lose some of their hard earned money in the process.

You would be seeing the markets scale new heights every day, Sensex at peaks like 11,890 and Nifty above 3230. But a closer look would show that the rally is not across board. Only the Blue Chips are moving and the advance -decline ratios are pretty much in the favor of the Declines. The Midcap and the Small Caps are declining. Basically its two different kind of Market out there... one of the Sensex stocks/the Big Boys or the Large Caps which are going up day by day and the other the Small Caps and the Mid Caps, most of which are hitting towards the lower levels now. Even in stocks of similar Cap there are different sectoral stocks...like the Sugar stocks are on fire but the Steel Stocks may be lagging behind. In all you need to need to be very careful and study the market before you enter the market.

Right now the safest bet would be to go with the Big Boys, Sensex heavy weights like Reliance Pack, GAIL, SBI etc but then with all the talks of a correction round the corner, these stocks are gonna be the hardest hit if and when the correction comes about. In all a very dicey situation. Seems all like the Shaadi kaa ladoo, jo khaaye wo bhi pachtaiye aur jo naa khaaye wo bhi....you need to be fully informed to ride the BULL otherwise you are gonna end up flat on your face.

************************************************************************************
Well that was a long time ago, today the sensex has not only recovered but scaled new highs.