What is NET ASSET VALUE ?
The Term Net Asset Value (NAV) is used by investment companies to measure net assets. It is calculated by subtracting liabilities from the value of a fund's securities and other items of value and dividing this by the number of outstanding shares. Net asset value is popularly used in newspaper mutual fund tables to designate the price per share for the fund.
The value of a collective investment fund based on the market price of securities held in its portfolio. Units in open ended funds are valued using this measure. Closed ended investment trusts have a net asset value but have a separate market value. NAV per share is calculated by dividing this figure by the number of ordinary shares. Investments trusts can trade at net asset value or their price can be at a premium or discount to NAV.
Value or purchase price of a share of stock in a mutual fund. NAV is calculated each day by taking the closing market value of all securities owned plus all other assets such as cash, subtracting all liabilities, then dividing the result (total net assets) by the total number of shares outstanding.
Calculating NAVs - Calculating mutual fund net asset values is easy. Simply take the current market value of the fund's net assets (securities held by the fund minus any liabilities) and divide by the number of shares outstanding. So if a fund had net assets of Rs.90 lakhs and there are one lakh shares of the fund, then the price per share (or NAV) is Rs.90.00.
Wednesday, January 30, 2008
What are dividends?
If you've ever owned stocks or held certain other types of investments, you might already be familiar with the concept of dividends.
Even those people who have made investments that paid dividends may still be a little confused as to exactly what dividends are, however… after all, just because a person has received a dividend payment doesn't mean that they fully appreciate where the payment is coming from and what its purpose is.
If you have ever found yourself wondering exactly what dividends are and why they're issued, then the information below might just be what you've been looking for.
Defining the Dividend
Dividends are payments made by companies to their stockholders in order to share a portion of the profits from a particular quarter or year. The amount that any particular stockholder receives is dependent upon how many shares of stock they own and how much the total amount being divided up among the stockholders amounts to. This means that after a particularly profitable quarter a company might set aside a lump sum to be divided up amongst all of their stockholders, though each individual share might be worth only a very small amount potentially fractions of a cent, depending upon the total number of shares issued and the total amount being divided. Individuals who own large amounts of stock receive much more from the dividends than those who own only a little, but the total per-share amount is usually the same.
When Dividends Are Paid
How often dividends are paid can vary from one company to the next, but in general they are paid whenever the company reports a profit. Since most companies are required to report their profits or losses quarterly, this means that most of them have the potential to pay dividends up to four times each year. Some companies pay dividends more often than this, however, and others may pay only once per year. The more time there is between dividend payments can indicate financial and profit problems within a company, but if the company simply chooses to pay all of their dividends at once it may also lead to higher per-share payments on those dividends.
Why Dividends Are Paid
Dividends are paid by companies as a method of sharing their profitable times with the stockholders that have faith in the company, as well as a way of luring other investors into purchasing stock in the company that is paying the dividends. The more a particular company pays in dividend payments, the more likely it is to sell additional common stock… after all, if the company is well-known for high dividend payments then more people will want to get in on the action. This can actually lead to increases in stock price and additional profit for the company which can result in even more dividend payments.
Getting the Most Out of Your Dividends
In order to get the most out of the dividends that you receive on your investments, it is generally recommended that you reinvest the dividends into the companies that pay them. While this may seem as though you're simply giving them their money back, you're receiving additional shares of the company's stock in exchange for the dividend. This will increase future dividend payments (since they're based upon how much stock that you own), and can set you up to make a lot more money than the actual dividend payment was for since increases in stock prices will affect the newly-purchased stock as well
Even those people who have made investments that paid dividends may still be a little confused as to exactly what dividends are, however… after all, just because a person has received a dividend payment doesn't mean that they fully appreciate where the payment is coming from and what its purpose is.
If you have ever found yourself wondering exactly what dividends are and why they're issued, then the information below might just be what you've been looking for.
Defining the Dividend
Dividends are payments made by companies to their stockholders in order to share a portion of the profits from a particular quarter or year. The amount that any particular stockholder receives is dependent upon how many shares of stock they own and how much the total amount being divided up among the stockholders amounts to. This means that after a particularly profitable quarter a company might set aside a lump sum to be divided up amongst all of their stockholders, though each individual share might be worth only a very small amount potentially fractions of a cent, depending upon the total number of shares issued and the total amount being divided. Individuals who own large amounts of stock receive much more from the dividends than those who own only a little, but the total per-share amount is usually the same.
When Dividends Are Paid
How often dividends are paid can vary from one company to the next, but in general they are paid whenever the company reports a profit. Since most companies are required to report their profits or losses quarterly, this means that most of them have the potential to pay dividends up to four times each year. Some companies pay dividends more often than this, however, and others may pay only once per year. The more time there is between dividend payments can indicate financial and profit problems within a company, but if the company simply chooses to pay all of their dividends at once it may also lead to higher per-share payments on those dividends.
Why Dividends Are Paid
Dividends are paid by companies as a method of sharing their profitable times with the stockholders that have faith in the company, as well as a way of luring other investors into purchasing stock in the company that is paying the dividends. The more a particular company pays in dividend payments, the more likely it is to sell additional common stock… after all, if the company is well-known for high dividend payments then more people will want to get in on the action. This can actually lead to increases in stock price and additional profit for the company which can result in even more dividend payments.
Getting the Most Out of Your Dividends
In order to get the most out of the dividends that you receive on your investments, it is generally recommended that you reinvest the dividends into the companies that pay them. While this may seem as though you're simply giving them their money back, you're receiving additional shares of the company's stock in exchange for the dividend. This will increase future dividend payments (since they're based upon how much stock that you own), and can set you up to make a lot more money than the actual dividend payment was for since increases in stock prices will affect the newly-purchased stock as well
Premium Issure?
Generally, most shares have a face value (i.e. the value as in a balance sheet) of Rs.10 though not always offered to the public at this price. Companies can offer a share with a face value of Rs.10 to the public at a higher price.
The difference between the offer price and the face value is called the premium. As per the SEBI guidelines, new companies can offer shares to the public at a premium provided :
1.The promoter company has a 3 years consistent record of profitable working.
2.The promoter takes up at least 50 per cent of the shares in the issue.
3.All parties applying to the issue should be offered the same instrument at the same terms, especially regarding the premium.
4.The propectus should provide justification for the propose premium. On the other hand, exisiting companies can make a premium issue without the above restrictions.
A company’s aim is to raise money and simultaneously serve the equity capital. As far as accounting is concerned, premium is credited to reserves and surplus and it does not increase the equity. Therefore, a company which raises Rs.100 crores by way of shares at say Rs.90 premium per share increases its equity by only Rs.10 crores, which is easier to service with an investment of Rs.100 crores.
Thus the companies seek to make premium issues. As well shall see later, a premium issue can increase the book value without decreasing the EPS. In a buoyant stock market when good shares trade at very high prices, companies realize that it’s easy to command a high premium.
The difference between the offer price and the face value is called the premium. As per the SEBI guidelines, new companies can offer shares to the public at a premium provided :
1.The promoter company has a 3 years consistent record of profitable working.
2.The promoter takes up at least 50 per cent of the shares in the issue.
3.All parties applying to the issue should be offered the same instrument at the same terms, especially regarding the premium.
4.The propectus should provide justification for the propose premium. On the other hand, exisiting companies can make a premium issue without the above restrictions.
A company’s aim is to raise money and simultaneously serve the equity capital. As far as accounting is concerned, premium is credited to reserves and surplus and it does not increase the equity. Therefore, a company which raises Rs.100 crores by way of shares at say Rs.90 premium per share increases its equity by only Rs.10 crores, which is easier to service with an investment of Rs.100 crores.
Thus the companies seek to make premium issues. As well shall see later, a premium issue can increase the book value without decreasing the EPS. In a buoyant stock market when good shares trade at very high prices, companies realize that it’s easy to command a high premium.
Gujrat NRE Coke Ltd
Gujarat NRE Coke (GNCL) the largest non-captive metallurgical coke producer of the country with plants located in Gujarat and Karnataka also owns three coal mines in Australia. The company has coke manufacturing capacity of 1 million tonne which it plans to increase to 1.33 million tonne in a phased manner from April 2008. The company also has a steel unit of 0.3 million tonne p.a. capacity in Gujarat. Improving coke realizations on the back of strong demand from the domestic steel and cement industries as well as favorable global dynamics are likely to drive future growth in the company. Moreover, captive power generation capabilities and ownership of high quality coking coal mines in Australia are likely to improve the margins as well as ensure supply of quality raw material over the long term. Presently, Gujarat NRE Coke trades at a FY09E PE of 14.9, Market cap to sales ratio of 5.0 and Price to Book ratio of 3.6. We expect improving realizations and sustained availability of power and quality raw material at cheaper prices should drive growth for the company in the future.
Industry
Global steel industry has been in an uptrend with steel production growing at a CAGR of 6.54% during the six year period ending 2006. Iron and steel production is further expected to grow at 6-7% p.a. for the next 5-7 years on the back of robust demand from the rapidly growing BRIC (Brazil, Russia, India and China) countries. World crude steel production is on track to grow by 8% in 2007 having already grown at 8.1% yoy in the ten month period Jan-Oct 2007. Though declining consumption in North America and moderating trends in Europe have led to deceleration in global demand growth in 2007, robust consumption in rapidly expanding emerging economies, especially in Asia, is seen counterbalancing the loss in demand. Indian consumption, too, is increasing at a double-digit pace leading to rapid capacity expansion. From being the 7th largest producer of steel in the world in 2006, India has become the 5th largest in 2007 (till Oct 07). Global steel production is dependent on coal – around 68% of total global steel production relies directly on coal inputs as about 0.6 tonnes of coke are required to produce 1 tonne of steel. Expected growth in steel production would ensure a sustained growth and demand for coke in the near future.
Domestic coke scenario: Rapid expansion of steel manufacturing capacity in India is expected to put pressure on coking coal reserves. India is already a net importer of coking coal as the one available in India is high in ash content (18-22%) as against the coking coal found in Australia & New Zealand (ash content – 10-12%). Indian coke producers have thus embarked on a coal mine buying spree, buying mines in Australia, the largest producer of coking coal in the world in order to ensure regular supply and to protect themselves from rapid price fluctuations. India is expected to emerge as the second largest coke producer, next only to China over the next decade as coke manufacturing units get increasingly relocated to Asia amid shut down of obsolete capacities in OECD countries due to environmental constraints and high replacement costs. Coke is manufactured by a number of producers in India, primarily for captive consumption. As a result, the Indian coke industry is dominated by integrated steel plants that possess captive coking facilities.
India's growing demand for coking coal is presently addressed through imports as there is a shortage of coke capacity in India. In the long term, India is expected to remain dependent on imports. It is estimated that the total coke availability in India will be 21 million tonnes in 2007-08. The domestic demand for coke in the same period is expected at 26 million tonnes. The national shortage of coke is estimated at 5 million tonnes for the year 2007-08. The demand for steel in the Indian domestic market is likely to be buoyant as a result of sustained growth of major steel-consuming sectors like infrastructure and automobile and overall industrial growth. Also important is the fact that the domestic per capita steel consumption currently stands at 39 kg, whereas the global average is 150 kg and that of developed countries is 400-650 kg. Even if a conservative estimate of reaching the world average by 2020 is taken, India's demand must burgeon to 194 million tonnes of steel at a CAGR of 10% over the same period on a higher production base. The strategic decision of Gujarat NRE coke to focus on quality business has resulted in Company becoming a significant player in the industry globally, inspite of dominance of China in the global coke market. China dominates the global coke market due to the fact that the country, besides being the largest steel producer and consumer, is also the largest producer, consumer and an exporter of coke.
Company
Gujarat NRE Coke, engaged in the business of coal processing, manufactures low-ash metallurgical coke (LAMC). LAMC, mainly used in soda-ash plants, cast iron and brass foundries and the blast furnaces of steel plants, is largely imported into India. Gujarat NRE coke is the first company to acquire coking coal mines in Australia. The total reserves of the two mines acquired is 374mn tons.
The company has also made strategic investment in Pike River Coal Company Ltd. in New Zealand from where it will get low-ash premium quality coking coal. These acquisitions have added great value to the company and also insulates it from adverse price movements in both coke and coal markets. Adding further to the improved coke realization, input prices have also come down paving way for significantly better margins in coming times. Internationally the coking coal prices have come down from $115/ton to $90/ton. Company has seen aggressive growth in the last few years which was derived through a robust five-year expansion programme which more than five-folded the company's coke making capacity from 1.30 lakh MTPA in 2001-02 to 6.82 lakh MTPA in 2006-07. With the additional capacity of 3.24 lakh MTPA created at Dharwad, under its subsidiary, Bharat NRE Coke Limited (BNCL), the Company now controls around 1 million tonne of coke capacity. With the Indian economy now expected to report a sustainable annual growth beyond 8%, the demand for coke from core industries - steel and cement - is expected to increase sharply, creating a wide foreseeable gap between supply and demand. Gujarat NRE Coke is also in the process of commissioning two captive 15-MW power plants for generating power from waste heat, emanating from its coke plants situated in Bhachau and Dharwad (BNCL)
Key Investment Arguments
Gujarat NRE coke has a market cap of Rs. 3393.4cr, average daily volume of 1382200 shares for the last six months and net sales of Rs. 672.77cr during the trailing twelve months ended Dec 31, 2007.
It’s EBITDA and Net profit margins were at 19.9% and 10.8% resp. in FY07 and at 35.6% and 21.3% resp. in the nine months ended Dec 31, 2007.
The company has achieved a 5½-year CAGR of 49.4% in revenues, 46.4% in EBITDA and 60.2% in Net Profits.
Gujarat NRE coke trades at a PE multiple of 21.7 based on trailing twelve month (TTM) earnings, Price to Book ratio of 3.6 on FY07 book-value and Price to Sales ratio of 5.0 based on TTM net sales.
Debt-equity ratio of the company was at 1.2 in FY07. However, its interest coverage ratio stands at a comfortable 3.8 in FY07.
Expansion plan: GNCL plans to increase its overall coke manufacturing capacity to 1.25 mtpa by Q1FY09 from the current capacity of 1 mtpa. This capacity expansion is planned at its Dharwad plant. It also plans to increase its coking coal mining capacity from current 1 mtpa to 4 mtpa by 2011-12. The company is also setting up 45MW waste heat recovery plant which will help reduce cost. The total capex planned for this expansion is about $40 million.
Improved Coke Realizations: Coke prices have moved from $160/ton in Q2FY07 to $270/ton in Q2FY08. Going forward the company is expecting coke realizations to range from $300 to $340 per tonne for remaining two quarters.
Proposed merger of two Australian subsidiaries: Gujarat NRE Coke owns three coking coal mines in Australia through its listed subsidiaries India NRE Mineral and Gujarat NRE Resources Pty. The three mines: NRE No.1 colliery, NRE Avondale colliery and Elouera mines have a combined reserve of 456 million tones. The company has recently proposed a merger of its two subsidiaries, which will substantially improve valuations. The company also has strategic investments in Ray Resources and Pluton Resources in Australia and Pike River Resources, New Zealand. This vast captive source also acts as a buffer against coking coal price volatilities which is mainly determined by Chinese demand and supply. Currently the captive coking coal cost for the company is $ 90-100 CIF whereas for other players it is around $ 120-130 CIF.
The increasing demand from India has been the main driver of the coke market in 2007. With new steel capacities announced the demand is going to increase more within the country. China initially was keeping the coke prices lower than the fair value but now Chinese players have preferred to keep the coke prices firm.
Key Concerns
The demand for coke is directly linked to the fortunes of the steel industry. Any slowdown in the steel industry can affect the fortunes of the company. However, the growth in steel-making capacities is expected to be the highest in Asia, particularly China and India. Besides, the Government of India expects India to emerge as the world's second largest steel producer by 2016 with a production volume of around 120 million tonnes. This will adequately cover the demand for coke over the foreseeable future. Though coke prices are determined by China, the largest coke producer in the world, the Company endeavours to maximize margins and profitability through a steadfast focus on minimizing the cost of production.
The principal raw material in the manufacture of coke is coking coal, whose availability is critical for sustaining production. Coking coal prices have moved up recently amid huge demand and limited supplies. To ensure its availability, the company possesses a prudent sourcing mix of captive mines as well as other suppliers. The Company intends to meet 100% of its coking coal demand from its captive mines by 2008-09.
An increase in shipping freight rates on the one hand and suboptimal utilization of bulks on the other could escalate costs. Gujarat NRE coke has entered into long term contracts for charter of vessels at very competitive rates to guard itself from this.
Latest Developments
Gujarat NRE Coke has completed the acquisition of Elouera mine from BHP Billiton, a part of the Illawarra Coal Business located in New South Wales, Australia. The acquisition was made by Gujarat NRE Resources NL (Gujarat), the Australian subsidiary of Gujarat NRE Coke. In view of a global surge in demand for coal, the acquisition is expected to benefit the company. Post-transfer, the mine would be re-christened NRE Wongawilli. Large reserves of coking coal exist in the combined Wongawilli and Avondale leases that would provide over 20 years of mine life. _ Gujarat NRE Resources intends to start mining from February 2008, with development work on the first of the three blocks commencing with immediate effect.
Conclusion
On the basis of research, we feel that this is a good stock to buy at the current market price of Rs. 109.7. If everything goes well, the price is likely to appreciate to Rs. 157.0, within 12 months, translating into a gain of about 47%.
Industry
Global steel industry has been in an uptrend with steel production growing at a CAGR of 6.54% during the six year period ending 2006. Iron and steel production is further expected to grow at 6-7% p.a. for the next 5-7 years on the back of robust demand from the rapidly growing BRIC (Brazil, Russia, India and China) countries. World crude steel production is on track to grow by 8% in 2007 having already grown at 8.1% yoy in the ten month period Jan-Oct 2007. Though declining consumption in North America and moderating trends in Europe have led to deceleration in global demand growth in 2007, robust consumption in rapidly expanding emerging economies, especially in Asia, is seen counterbalancing the loss in demand. Indian consumption, too, is increasing at a double-digit pace leading to rapid capacity expansion. From being the 7th largest producer of steel in the world in 2006, India has become the 5th largest in 2007 (till Oct 07). Global steel production is dependent on coal – around 68% of total global steel production relies directly on coal inputs as about 0.6 tonnes of coke are required to produce 1 tonne of steel. Expected growth in steel production would ensure a sustained growth and demand for coke in the near future.
Domestic coke scenario: Rapid expansion of steel manufacturing capacity in India is expected to put pressure on coking coal reserves. India is already a net importer of coking coal as the one available in India is high in ash content (18-22%) as against the coking coal found in Australia & New Zealand (ash content – 10-12%). Indian coke producers have thus embarked on a coal mine buying spree, buying mines in Australia, the largest producer of coking coal in the world in order to ensure regular supply and to protect themselves from rapid price fluctuations. India is expected to emerge as the second largest coke producer, next only to China over the next decade as coke manufacturing units get increasingly relocated to Asia amid shut down of obsolete capacities in OECD countries due to environmental constraints and high replacement costs. Coke is manufactured by a number of producers in India, primarily for captive consumption. As a result, the Indian coke industry is dominated by integrated steel plants that possess captive coking facilities.
India's growing demand for coking coal is presently addressed through imports as there is a shortage of coke capacity in India. In the long term, India is expected to remain dependent on imports. It is estimated that the total coke availability in India will be 21 million tonnes in 2007-08. The domestic demand for coke in the same period is expected at 26 million tonnes. The national shortage of coke is estimated at 5 million tonnes for the year 2007-08. The demand for steel in the Indian domestic market is likely to be buoyant as a result of sustained growth of major steel-consuming sectors like infrastructure and automobile and overall industrial growth. Also important is the fact that the domestic per capita steel consumption currently stands at 39 kg, whereas the global average is 150 kg and that of developed countries is 400-650 kg. Even if a conservative estimate of reaching the world average by 2020 is taken, India's demand must burgeon to 194 million tonnes of steel at a CAGR of 10% over the same period on a higher production base. The strategic decision of Gujarat NRE coke to focus on quality business has resulted in Company becoming a significant player in the industry globally, inspite of dominance of China in the global coke market. China dominates the global coke market due to the fact that the country, besides being the largest steel producer and consumer, is also the largest producer, consumer and an exporter of coke.
Company
Gujarat NRE Coke, engaged in the business of coal processing, manufactures low-ash metallurgical coke (LAMC). LAMC, mainly used in soda-ash plants, cast iron and brass foundries and the blast furnaces of steel plants, is largely imported into India. Gujarat NRE coke is the first company to acquire coking coal mines in Australia. The total reserves of the two mines acquired is 374mn tons.
The company has also made strategic investment in Pike River Coal Company Ltd. in New Zealand from where it will get low-ash premium quality coking coal. These acquisitions have added great value to the company and also insulates it from adverse price movements in both coke and coal markets. Adding further to the improved coke realization, input prices have also come down paving way for significantly better margins in coming times. Internationally the coking coal prices have come down from $115/ton to $90/ton. Company has seen aggressive growth in the last few years which was derived through a robust five-year expansion programme which more than five-folded the company's coke making capacity from 1.30 lakh MTPA in 2001-02 to 6.82 lakh MTPA in 2006-07. With the additional capacity of 3.24 lakh MTPA created at Dharwad, under its subsidiary, Bharat NRE Coke Limited (BNCL), the Company now controls around 1 million tonne of coke capacity. With the Indian economy now expected to report a sustainable annual growth beyond 8%, the demand for coke from core industries - steel and cement - is expected to increase sharply, creating a wide foreseeable gap between supply and demand. Gujarat NRE Coke is also in the process of commissioning two captive 15-MW power plants for generating power from waste heat, emanating from its coke plants situated in Bhachau and Dharwad (BNCL)
Key Investment Arguments
Gujarat NRE coke has a market cap of Rs. 3393.4cr, average daily volume of 1382200 shares for the last six months and net sales of Rs. 672.77cr during the trailing twelve months ended Dec 31, 2007.
It’s EBITDA and Net profit margins were at 19.9% and 10.8% resp. in FY07 and at 35.6% and 21.3% resp. in the nine months ended Dec 31, 2007.
The company has achieved a 5½-year CAGR of 49.4% in revenues, 46.4% in EBITDA and 60.2% in Net Profits.
Gujarat NRE coke trades at a PE multiple of 21.7 based on trailing twelve month (TTM) earnings, Price to Book ratio of 3.6 on FY07 book-value and Price to Sales ratio of 5.0 based on TTM net sales.
Debt-equity ratio of the company was at 1.2 in FY07. However, its interest coverage ratio stands at a comfortable 3.8 in FY07.
Expansion plan: GNCL plans to increase its overall coke manufacturing capacity to 1.25 mtpa by Q1FY09 from the current capacity of 1 mtpa. This capacity expansion is planned at its Dharwad plant. It also plans to increase its coking coal mining capacity from current 1 mtpa to 4 mtpa by 2011-12. The company is also setting up 45MW waste heat recovery plant which will help reduce cost. The total capex planned for this expansion is about $40 million.
Improved Coke Realizations: Coke prices have moved from $160/ton in Q2FY07 to $270/ton in Q2FY08. Going forward the company is expecting coke realizations to range from $300 to $340 per tonne for remaining two quarters.
Proposed merger of two Australian subsidiaries: Gujarat NRE Coke owns three coking coal mines in Australia through its listed subsidiaries India NRE Mineral and Gujarat NRE Resources Pty. The three mines: NRE No.1 colliery, NRE Avondale colliery and Elouera mines have a combined reserve of 456 million tones. The company has recently proposed a merger of its two subsidiaries, which will substantially improve valuations. The company also has strategic investments in Ray Resources and Pluton Resources in Australia and Pike River Resources, New Zealand. This vast captive source also acts as a buffer against coking coal price volatilities which is mainly determined by Chinese demand and supply. Currently the captive coking coal cost for the company is $ 90-100 CIF whereas for other players it is around $ 120-130 CIF.
The increasing demand from India has been the main driver of the coke market in 2007. With new steel capacities announced the demand is going to increase more within the country. China initially was keeping the coke prices lower than the fair value but now Chinese players have preferred to keep the coke prices firm.
Key Concerns
The demand for coke is directly linked to the fortunes of the steel industry. Any slowdown in the steel industry can affect the fortunes of the company. However, the growth in steel-making capacities is expected to be the highest in Asia, particularly China and India. Besides, the Government of India expects India to emerge as the world's second largest steel producer by 2016 with a production volume of around 120 million tonnes. This will adequately cover the demand for coke over the foreseeable future. Though coke prices are determined by China, the largest coke producer in the world, the Company endeavours to maximize margins and profitability through a steadfast focus on minimizing the cost of production.
The principal raw material in the manufacture of coke is coking coal, whose availability is critical for sustaining production. Coking coal prices have moved up recently amid huge demand and limited supplies. To ensure its availability, the company possesses a prudent sourcing mix of captive mines as well as other suppliers. The Company intends to meet 100% of its coking coal demand from its captive mines by 2008-09.
An increase in shipping freight rates on the one hand and suboptimal utilization of bulks on the other could escalate costs. Gujarat NRE coke has entered into long term contracts for charter of vessels at very competitive rates to guard itself from this.
Latest Developments
Gujarat NRE Coke has completed the acquisition of Elouera mine from BHP Billiton, a part of the Illawarra Coal Business located in New South Wales, Australia. The acquisition was made by Gujarat NRE Resources NL (Gujarat), the Australian subsidiary of Gujarat NRE Coke. In view of a global surge in demand for coal, the acquisition is expected to benefit the company. Post-transfer, the mine would be re-christened NRE Wongawilli. Large reserves of coking coal exist in the combined Wongawilli and Avondale leases that would provide over 20 years of mine life. _ Gujarat NRE Resources intends to start mining from February 2008, with development work on the first of the three blocks commencing with immediate effect.
Conclusion
On the basis of research, we feel that this is a good stock to buy at the current market price of Rs. 109.7. If everything goes well, the price is likely to appreciate to Rs. 157.0, within 12 months, translating into a gain of about 47%.
Primary & Secondary Market
There are two ways for investors to get shares from the primary and secondary markets. In primary markets, securities are bought by way of public issue directly from the company. In Secondary market share are traded between two investors.
PRIMARY MARKET
Market for new issues of securities, as distinguished from the Secondary Market, where previously issued securities are bought and sold.
A market is primary if the proceeds of sales go to the issuer of the securities sold.
This is part of the financial market where enterprises issue their new shares and bonds. It is characterised by being the only moment when the enterprise receives money in exchange for selling its financial assets.
SECONDARY MARKET
The market where securities are traded after they are initially offered in the primary market. Most trading is done in the secondary market.
To explain further, it is Trading in previously issued financial instruments. An organized market for used securities. Examples are the New York Stock Exchange (NYSE), Bombay Stock Exchange (BSE),National Stock Exchange NSE, bond markets, over-the-counter markets, residential mortgage loans, governmental guaranteed loans etc.
PRIMARY MARKET
Market for new issues of securities, as distinguished from the Secondary Market, where previously issued securities are bought and sold.
A market is primary if the proceeds of sales go to the issuer of the securities sold.
This is part of the financial market where enterprises issue their new shares and bonds. It is characterised by being the only moment when the enterprise receives money in exchange for selling its financial assets.
SECONDARY MARKET
The market where securities are traded after they are initially offered in the primary market. Most trading is done in the secondary market.
To explain further, it is Trading in previously issued financial instruments. An organized market for used securities. Examples are the New York Stock Exchange (NYSE), Bombay Stock Exchange (BSE),National Stock Exchange NSE, bond markets, over-the-counter markets, residential mortgage loans, governmental guaranteed loans etc.
Tuesday, January 29, 2008
RBI's decision disappoints investors
| The market witnessed a free fall on RBI's decision to keep key interest rates unchanged and the Sensex slipped 61 points at close. | ||
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| levels. The Sensex took a cue from positive Asian indices in early trades and resumed firm at 18,346, up 193 points on expectations that the Reserve Bank of India may cut the interest rate following its US counterpart. But, the RBI's decision to keep key interest rates unchanged did not go down well with the market. All the rate sensitive sectors like auto, bank, and realty were hit hard as the central bank kept the rates unchanged. The Sensex touched the intra-day low of 17,928, down 225 points from the last close. However, the Sensex recovered some losses towards the close and ended the session at 18,092, down 61 points, while the Nifty moved up by seven points to close at 5,281. The market breadth was neutral. Of the 2,793 stocks traded on the Bombay Stock Exchange (BSE), 1,395 stocks advanced, 1,355 stocks declined and 43 stocks ended unchanged. Barring a few most of the indices closed in the green. The BSE Bankex index lost sharply and declined by 3.48% followed by the BSE Realty index (down 2.70%), the BSE PSU index (down 0.97%) and the BSE CG index (down 0.90%). However, BSE FMCG index surged 2.67% and the BSE IT index gained 1.93%. Several index heavyweights managed to recover from their steep losses. HLL led the pack and shot up by 3.96% at Rs207. Hindalco soared 3.42% at Rs180, Cipla surged 3.33% at Rs191, Infosys flared up by 3.20% at Rs1,493, Tata Steel jumped by 2.55% at Rs716, HDFC added 2.47% at Rs2,851, and ITC advanced by 2.42% at Rs201. However, ICICI Bank tumbled by nearly 4.19% at Rs1,220, SBI dropped 3.58% at Rs2,225, HDFC Bank slumped 3.36% at Rs1,532, Bajaj Auto shed 2.82% at Rs2,390 and Bharti Airtel lost 2.22% at Rs850. |
Monday, January 28, 2008
SUPPORT AND RESISTANCE
SUPPORT is that area where buying interest exceeds selling interest,and therefore a previous decline gets halted at this area and turns back up again.It is marked by drawing a horizontal line connecting two or more bottoms.
RESISTANCE is that area where selling pressure exceeds buying interest.It is an area where previous rallies get halted and turn down again.It is marked by drawing a horizontal line connecting two or more tops.
Support and Resistance are not absolute points.They are areas.
When Support breaks to the downside,we call that a Down Side Breakout or Breakdown.When Resistance breaks to the upside,we call that a Breakout.
When we get a breakdown below support,that area of support now becomes an area of resistance.Have a look at the JNPR charts below.That area of support broke down and that same area is now acting as Resistance.
A breakout above Resistance,and that same area of resistance now becomes a new Support.
These are important areas for every trader,either as an entry point or an area to take profits.
RESISTANCE is that area where selling pressure exceeds buying interest.It is an area where previous rallies get halted and turn down again.It is marked by drawing a horizontal line connecting two or more tops.
Support and Resistance are not absolute points.They are areas.
When Support breaks to the downside,we call that a Down Side Breakout or Breakdown.When Resistance breaks to the upside,we call that a Breakout.
When we get a breakdown below support,that area of support now becomes an area of resistance.Have a look at the JNPR charts below.That area of support broke down and that same area is now acting as Resistance.
A breakout above Resistance,and that same area of resistance now becomes a new Support.
These are important areas for every trader,either as an entry point or an area to take profits.
Trends Pivot
TREND :PIVOTS
Okay,now that we know that a higher high is when the previous bar's high is crossed,and a higher low is when the low is higher than the previous bar's low,and that a series of higher highs and lows make an uptrend........we retrace a bit and change things around a bit.
Just higher highs and lows alone do not make an uptrend.Yes we have an up-move but an up-move doesn't mean we are in an uptrend.Higher highs and lows form a rally.Lower highs and lows form a decline.
We can have declines in an uptrend.We can have rallies in a downtrend.So now that we know that a series of higher highs is called a RALLY,how then do we define an Uptrend?An UPTREND on a particular time frame is a series of higher pivot highs and lows on that time frame.What then is a downtrend?Nothing but a series of lower pivot highs.
So what then is a Pivot?Okay,we are back to the "Hand" example.Whisk out your right hand again,once again with your right palm facing you.We have our little finger.The ring finger makes a higher high and low as compared to the little finger.The middle finger is higher high and low as compared to the ring finger.We therefore have a RALLY.The index finger makes lower highs and lows as compared to the middle finger.The thumb makes lower highs and lows as compared to the index finger.We therefore have a DECLINE.The middle finger with two lower highs on both sides(ring and index)now forms a PIVOT.
Imagine we have Area A.Rally starts from Area A which is followed by a decline to an area that is higher than Area A.We call this new area where the stock has declined to as Area B.So on so forth..Therefore Area B is higher than Area A,Area C is higher than Area B,so on so forth.We have therefore what is called an uptrend.These areas are pivotal areas where the stock stops its decline and rallies upwards.We refer to these turning points as pivots.
Therefore,in the above example,as each pivot is after a decline,and the pivot is the low after which the stock takes off again,we call them PIVOT LOWS.
Right the opposite in a downtrend.The stock declines from an area and then rallies to an area lower than the first,so on so forth.In this case every pivot is after a rally,and the pivot is that area after which the stock declines further to new lows.
As this pivot tells us of that high after which things go back to its declining ways,we call that a PIVOT HIGH.
So,in an uptrend,we have HIGHER PIVOT LOWS.How did we come to that?Each pivot low is higher than the previous pivot low.Therefore we call it higher pivot lows.
In a downtrend,we have LOWER PIVOT HIGHS.How did we come to that?Each pivot high is lower than the previous pivot high.Therefore we call it lower pivot highs.
In a sideways trend,we have nearly equal pivot highs and lows.
Basically didn't want to introduce the word "Pivots" very early on.......but there really is no other way to tell what a trend is all about.Will take some chewing,and digesting.The only way is to look at the charts and start to make out all the pivot highs and lows.
Okay,now that we know that a higher high is when the previous bar's high is crossed,and a higher low is when the low is higher than the previous bar's low,and that a series of higher highs and lows make an uptrend........we retrace a bit and change things around a bit.
Just higher highs and lows alone do not make an uptrend.Yes we have an up-move but an up-move doesn't mean we are in an uptrend.Higher highs and lows form a rally.Lower highs and lows form a decline.
We can have declines in an uptrend.We can have rallies in a downtrend.So now that we know that a series of higher highs is called a RALLY,how then do we define an Uptrend?An UPTREND on a particular time frame is a series of higher pivot highs and lows on that time frame.What then is a downtrend?Nothing but a series of lower pivot highs.
So what then is a Pivot?Okay,we are back to the "Hand" example.Whisk out your right hand again,once again with your right palm facing you.We have our little finger.The ring finger makes a higher high and low as compared to the little finger.The middle finger is higher high and low as compared to the ring finger.We therefore have a RALLY.The index finger makes lower highs and lows as compared to the middle finger.The thumb makes lower highs and lows as compared to the index finger.We therefore have a DECLINE.The middle finger with two lower highs on both sides(ring and index)now forms a PIVOT.
Imagine we have Area A.Rally starts from Area A which is followed by a decline to an area that is higher than Area A.We call this new area where the stock has declined to as Area B.So on so forth..Therefore Area B is higher than Area A,Area C is higher than Area B,so on so forth.We have therefore what is called an uptrend.These areas are pivotal areas where the stock stops its decline and rallies upwards.We refer to these turning points as pivots.
Therefore,in the above example,as each pivot is after a decline,and the pivot is the low after which the stock takes off again,we call them PIVOT LOWS.
Right the opposite in a downtrend.The stock declines from an area and then rallies to an area lower than the first,so on so forth.In this case every pivot is after a rally,and the pivot is that area after which the stock declines further to new lows.
As this pivot tells us of that high after which things go back to its declining ways,we call that a PIVOT HIGH.
So,in an uptrend,we have HIGHER PIVOT LOWS.How did we come to that?Each pivot low is higher than the previous pivot low.Therefore we call it higher pivot lows.
In a downtrend,we have LOWER PIVOT HIGHS.How did we come to that?Each pivot high is lower than the previous pivot high.Therefore we call it lower pivot highs.
In a sideways trend,we have nearly equal pivot highs and lows.
Basically didn't want to introduce the word "Pivots" very early on.......but there really is no other way to tell what a trend is all about.Will take some chewing,and digesting.The only way is to look at the charts and start to make out all the pivot highs and lows.
Trends 2
TRENDS(CONT.)
We had discussed yesterday that trend has three directions,that is : Uptrend, Downtrend,Sideways Trend.
An example I had given many times just has to be repeated here........Look at your right hand with the palm facing you.First we have the little finger.The Ring Finger takes out the high of the little finger and therefore makes a higher high and low as compared to the little finger.The middle finger makes a higher high and higher low as compared to the ring finger.We have therefore an uptrend.The index finger makes a lower high and a lower low as compared to the middle finger.The thumb makes a lower high and low as compared to the index finger.We have therefore a downtrend.
Just as trend can be classified according to the direction,so too can we categorise trends into 3 categories
MAJOR ,INTERMEDIATE and NEAR TERM TRENDS.
Simply put,major trends last for greater than 6 months.Intermediate trends last between 3 weeks to 6 months.Near term trends last from a few days to 3weeks.
From a charts perspective,the major trend is seen by looking at the monthly charts.The intermediate trend from the weekly charts,and the near term trend from the daily charts.
What is seen as a downtrend on the daily charts may be nothing but a pullback on the weekly charts,and is not even evident on the monthly charts.What is seen as a downtrend on the weekly charts and a catatrophic crash on the daily may be nothing but a monthly pullback.
It is important as traders to know these different time frames and trade accordingly.The practical aspects of profitting from this knowledge,we can come to later.
For now,we don't know much......but a step at a time for now.We have our charts.All we know is that in any chart of any time frame,we can have only 3 possibilities in direction,and only 3 possibilities in categorisation.The eye can only see what the brain knows........these early days are to be spent in teaching the brain so that the eye sees the pattern from a mile.Pour over your charts and train yourself in detecting which trend the stock is in currently.It is a first step but an important first step.
We can discuss Support and Resistance tomorrow.
We had discussed yesterday that trend has three directions,that is : Uptrend, Downtrend,Sideways Trend.
An example I had given many times just has to be repeated here........Look at your right hand with the palm facing you.First we have the little finger.The Ring Finger takes out the high of the little finger and therefore makes a higher high and low as compared to the little finger.The middle finger makes a higher high and higher low as compared to the ring finger.We have therefore an uptrend.The index finger makes a lower high and a lower low as compared to the middle finger.The thumb makes a lower high and low as compared to the index finger.We have therefore a downtrend.
Just as trend can be classified according to the direction,so too can we categorise trends into 3 categories
MAJOR ,INTERMEDIATE and NEAR TERM TRENDS.
Simply put,major trends last for greater than 6 months.Intermediate trends last between 3 weeks to 6 months.Near term trends last from a few days to 3weeks.
From a charts perspective,the major trend is seen by looking at the monthly charts.The intermediate trend from the weekly charts,and the near term trend from the daily charts.
What is seen as a downtrend on the daily charts may be nothing but a pullback on the weekly charts,and is not even evident on the monthly charts.What is seen as a downtrend on the weekly charts and a catatrophic crash on the daily may be nothing but a monthly pullback.
It is important as traders to know these different time frames and trade accordingly.The practical aspects of profitting from this knowledge,we can come to later.
For now,we don't know much......but a step at a time for now.We have our charts.All we know is that in any chart of any time frame,we can have only 3 possibilities in direction,and only 3 possibilities in categorisation.The eye can only see what the brain knows........these early days are to be spent in teaching the brain so that the eye sees the pattern from a mile.Pour over your charts and train yourself in detecting which trend the stock is in currently.It is a first step but an important first step.
We can discuss Support and Resistance tomorrow.
Trends in charts
Most important thing that we all have to remember,Trading is very simple.Our minds being complicated is the reason why we try to over complicate a simple thing.So as in anything simple,we try to leave it as simple as we can.
There are various types of charts :
Line Charts,
Bar Charts,
Japanese Candlesticks Charts..........
Basically your preference,whatever you are most comfortable with.I personally use the Candlestick charts,because it makes it more visually obvious to me.I have to strain to see the same in a bar chart.But basically upto you....
Whether we take a bar chart or a candlestick chart,each bar/candle tells us of the Open,Close,High and Low of that particular time frame.Therefore,in a daily chart,the high is the high of the day.The close being the close of that day.But in a 15min chart,each bar represents the trade in a 15minute time frame,therefore the high of that bar is of course the 15minute high...so on so forth.
We have three trends :
UPTREND,DOWNTREND,SIDEWAYS TREND
UPTREND :An uptrend on a chart of any time frame is nothing but a series of higher highs and higher lows.
DOWNTREND:A downtrend on a chart of any time frame is nothing but a series of lower highs and lower lows.
SIDEWAYS TREND :A sideways trend is nothing but relatively equal highs and lows.
TRENDLINES :
An UPTRENDLINE is nothing but a line that connects two or more LOWS,in a chart in an uptrend.The more points that meet up to this line,the stronger this line is.This trendline acts as support,as prices blast off,then pullback to this line before taking off again.Therefore,in an UPTRENDLINE,the 2nd point is always higher than the 1st point,and the 3rd higher than the 2nd.
A DOWNTRENDLINE is nothing but a line that connects two or more highs in a downtrend.Once again,the more number of points that connect,the stronger the line is.This downtrendline acts as resistance.Each down move is followed by a pullback rally to this trendline which acts as resistance only to be met with more selling and lower prices.In DOWNTRENDLINE,the 2nd point is always lower than the 1st,and the 3rd lower than the 2nd.
A break in the UPTRENDLINE signals a possible change in trend.So too with the break in the DOWNTRENDLINE.
There are various types of charts :
Line Charts,
Bar Charts,
Japanese Candlesticks Charts..........
Basically your preference,whatever you are most comfortable with.I personally use the Candlestick charts,because it makes it more visually obvious to me.I have to strain to see the same in a bar chart.But basically upto you....
Whether we take a bar chart or a candlestick chart,each bar/candle tells us of the Open,Close,High and Low of that particular time frame.Therefore,in a daily chart,the high is the high of the day.The close being the close of that day.But in a 15min chart,each bar represents the trade in a 15minute time frame,therefore the high of that bar is of course the 15minute high...so on so forth.
We have three trends :
UPTREND,DOWNTREND,SIDEWAYS TREND
UPTREND :An uptrend on a chart of any time frame is nothing but a series of higher highs and higher lows.
DOWNTREND:A downtrend on a chart of any time frame is nothing but a series of lower highs and lower lows.
SIDEWAYS TREND :A sideways trend is nothing but relatively equal highs and lows.
TRENDLINES :
An UPTRENDLINE is nothing but a line that connects two or more LOWS,in a chart in an uptrend.The more points that meet up to this line,the stronger this line is.This trendline acts as support,as prices blast off,then pullback to this line before taking off again.Therefore,in an UPTRENDLINE,the 2nd point is always higher than the 1st point,and the 3rd higher than the 2nd.
A DOWNTRENDLINE is nothing but a line that connects two or more highs in a downtrend.Once again,the more number of points that connect,the stronger the line is.This downtrendline acts as resistance.Each down move is followed by a pullback rally to this trendline which acts as resistance only to be met with more selling and lower prices.In DOWNTRENDLINE,the 2nd point is always lower than the 1st,and the 3rd lower than the 2nd.
A break in the UPTRENDLINE signals a possible change in trend.So too with the break in the DOWNTRENDLINE.
Asian Stocks fall fearing US Recession
Asian stocks fell for the first time in four days on concern a slowdown in the world's two largest economies will weaken consumer demand and drag on global growth.
Mitsubishi UFJ Financial Group Inc. led declines in Japan after Goldman, Sachs & Co. said the nation's economy is probably in a recession. Komatsu Ltd., Japan's largest maker of construction machinery, slid after CLSA Ltd. slashed its rating. Advantest Corp. slumped after Merrill Lynch & Co. advised investors to sell shares of the maker of memory-chip testers.
``The U.S. is either also close to a recession or already in it,'' Hans Goetti, chief investment officer of LGT Bank in Liechtenstein AG, which manages $10 billion, said in an interview with Bloomberg Television. ``The question is, is the U.S. consumer going to hold up.''
The MSCI Asia Pacific Index dropped 2.1 percent to 142.93 as of 11:59 a.m. in Tokyo, taking its losses so far this year to 9.4 percent. A measure of the benchmark's volatility jumped to 61, the highest since October 1998. About eight stocks retreated for each that advanced.
Japan's Nikkei 225 Stock Average lost 2.6 percent to 13,274.93. Benchmarks in other markets open for trading declined. Australia is closed for a holiday.
U.S. stocks slid on Jan. 25, sending the Standard & Poor's 500 Index lower for the first time in three days. European shares dropped, dragging the Dow Jones Stoxx 600 Index to its seventh straight weekly decline.
MSCI's Asian index plunged 10 percent in the first two days of trading last week on concern that a weakening U.S. will affect economies elsewhere. A rebound following the Federal Reserve's surprise interest-rate cut failed to offset earlier losses.
Banks Decline
Mitsubishi UFJ, Japan's largest publicly traded bank, slid 5.2 percent to 986 yen. Sumitomo Mitsui Financial Group Inc., the second-biggest, dropped 4.6 percent to 805,000 yen.
U.S. growth probably slowed to a 1.2 percent annual rate from October to December, a quarter of the previous three months' pace, according to the median estimate in a Bloomberg News survey. The GDP report is due on Jan. 30.
Japan's economy probably entered a recession amid ``a slump in domestic demand,'' Tetsufumi Yamakawa, Goldman Sachs chief Japan economist, said in a report today.
Kookmin fell 2.1 percent to 61,100 won. DBS Group Holdings Ltd., Southeast Asia's largest bank, slid 2 percent to S$18.56.
Komatsu dropped 6.3 percent to 2,460 yen. The shares were cut to ``underperform'' from ``buy'' by Takeaki Ueno, an analyst at CLSA.
Mitsubishi UFJ Financial Group Inc. led declines in Japan after Goldman, Sachs & Co. said the nation's economy is probably in a recession. Komatsu Ltd., Japan's largest maker of construction machinery, slid after CLSA Ltd. slashed its rating. Advantest Corp. slumped after Merrill Lynch & Co. advised investors to sell shares of the maker of memory-chip testers.
``The U.S. is either also close to a recession or already in it,'' Hans Goetti, chief investment officer of LGT Bank in Liechtenstein AG, which manages $10 billion, said in an interview with Bloomberg Television. ``The question is, is the U.S. consumer going to hold up.''
The MSCI Asia Pacific Index dropped 2.1 percent to 142.93 as of 11:59 a.m. in Tokyo, taking its losses so far this year to 9.4 percent. A measure of the benchmark's volatility jumped to 61, the highest since October 1998. About eight stocks retreated for each that advanced.
Japan's Nikkei 225 Stock Average lost 2.6 percent to 13,274.93. Benchmarks in other markets open for trading declined. Australia is closed for a holiday.
U.S. stocks slid on Jan. 25, sending the Standard & Poor's 500 Index lower for the first time in three days. European shares dropped, dragging the Dow Jones Stoxx 600 Index to its seventh straight weekly decline.
MSCI's Asian index plunged 10 percent in the first two days of trading last week on concern that a weakening U.S. will affect economies elsewhere. A rebound following the Federal Reserve's surprise interest-rate cut failed to offset earlier losses.
Banks Decline
Mitsubishi UFJ, Japan's largest publicly traded bank, slid 5.2 percent to 986 yen. Sumitomo Mitsui Financial Group Inc., the second-biggest, dropped 4.6 percent to 805,000 yen.
U.S. growth probably slowed to a 1.2 percent annual rate from October to December, a quarter of the previous three months' pace, according to the median estimate in a Bloomberg News survey. The GDP report is due on Jan. 30.
Japan's economy probably entered a recession amid ``a slump in domestic demand,'' Tetsufumi Yamakawa, Goldman Sachs chief Japan economist, said in a report today.
Kookmin fell 2.1 percent to 61,100 won. DBS Group Holdings Ltd., Southeast Asia's largest bank, slid 2 percent to S$18.56.
Komatsu dropped 6.3 percent to 2,460 yen. The shares were cut to ``underperform'' from ``buy'' by Takeaki Ueno, an analyst at CLSA.
What is Fundamental Analysis
Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of a business to determine its financial health and gives you an idea of the value its stock.
Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.
Earnings
It’s all about earnings. When you come to the bottom line, that’s what investors want to know. How much money is the company making and how much is it going to make in the future.
Earnings are profits. It may be complicated to calculate, but that’s what buying a company is about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular dividend.
When earnings fall short, the market may hammer the stock. Every quarter, companies report earnings. Analysts follow major companies closely and if they fall short of projected earnings, sound the alarm.
While earnings are important, by themselves they don’t tell you anything about how the market values the stock. To begin building a picture of how the stock is valued you need to use some fundamental analysis tools.
Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market.
Earnings per Share – EPS
Price to Earnings Ratio – P/E
Projected Earning Growth – PEG
Price to Sales – P/S
Price to Book – P/B
Dividend Payout Ratio
Dividend Yield
Book Value
Return on Equity
No single number from this list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become benchmarks to measure the worth of potential investments.
Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.
Earnings
It’s all about earnings. When you come to the bottom line, that’s what investors want to know. How much money is the company making and how much is it going to make in the future.
Earnings are profits. It may be complicated to calculate, but that’s what buying a company is about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular dividend.
When earnings fall short, the market may hammer the stock. Every quarter, companies report earnings. Analysts follow major companies closely and if they fall short of projected earnings, sound the alarm.
While earnings are important, by themselves they don’t tell you anything about how the market values the stock. To begin building a picture of how the stock is valued you need to use some fundamental analysis tools.
Fundamental Analysis Tools
These are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market.
Earnings per Share – EPS
Price to Earnings Ratio – P/E
Projected Earning Growth – PEG
Price to Sales – P/S
Price to Book – P/B
Dividend Payout Ratio
Dividend Yield
Book Value
Return on Equity
No single number from this list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become benchmarks to measure the worth of potential investments.
SRL Ranbaxy Plans IPO
SRL Ranbaxy Ltd plans to raise Rs 2-2.5 billion through an initial public offer of shares by September, a senior company official said on Wednesday.
SRL Ranbaxy, which operates a chain of pathology laboratories across India, is also in talks to sell up to 20 per cent stake to private equity firms ahead of the IPO, the official said on condition of anonymity.
"The meetings are on, we hope to close that in a month's time," the official said referring to the pre-IPO sale. The proceeds from the issue will be used to add to its network of about 35 laboratories across India, he added.
The company plans to have a network of 100 such labs in a few years. SRL is controlled by the promoters of Ranbaxy Laboratories Ltd.
Last May, Fortis Healthcare, another company controlled by the Ranbaxy promoters, went public with a Rs 4.97-billion IPO. This was followed by the listing of financial services arm, Religare Enterprises in November.
Indian companies are expected to raise up to $15.8 billion from new listings this year, nearly doubling from last year's record of $8.3 billion, according to Thomson Financial data.
SRL Ranbaxy, which operates a chain of pathology laboratories across India, is also in talks to sell up to 20 per cent stake to private equity firms ahead of the IPO, the official said on condition of anonymity.
"The meetings are on, we hope to close that in a month's time," the official said referring to the pre-IPO sale. The proceeds from the issue will be used to add to its network of about 35 laboratories across India, he added.
The company plans to have a network of 100 such labs in a few years. SRL is controlled by the promoters of Ranbaxy Laboratories Ltd.
Last May, Fortis Healthcare, another company controlled by the Ranbaxy promoters, went public with a Rs 4.97-billion IPO. This was followed by the listing of financial services arm, Religare Enterprises in November.
Indian companies are expected to raise up to $15.8 billion from new listings this year, nearly doubling from last year's record of $8.3 billion, according to Thomson Financial data.
Sunday, January 27, 2008
Investments
A) I never hold any large caps. That eliminates all the established blue chip from my portfolio. I am constantly in search for emerging blue chips and not the established ones. That is why I invest in small/midcap companies. I believe that you can get the next Infosys in a small cap only.
B) I hold at most between 3 and 5 companies in my portfolio. Yes only 3 to 5. Once I finish analyzing a company I ask myself one question “Is the company good enough to take 20% of my portfolio. When ever I get an answer as yes the next question is OK what can I replace it with. If I get another yes I would buy that stock. I prefer putting all my money into one company but just for the event risk I have divided it into 3 to 5.
Since I hold concentrated portfolios 3 to 5 companies I forecast a best case scenario with only the target price of 2 to 4 companies assuming that one will go bust and get me a zero value in the defined time span. If still the overall result looks exciting I would invest taking the mathematical premise that errors will cancel out each other (I do not know which one will under deliver and by how much).Robert Hagstorm the author of a book on Warren Buffet did a study where he found that concentrated portfolios give out better returns
I have lost many 30% to 100% returns by missing on opportunities because those companies did not fit my style of investing. But I have no regret because the ones I hold have more or less made up for that.
It takes me hardly one hour to analyze a company but making up my mind (the second part of B above) takes a few days or a even a few weeks at times. This is so because I believe in concentration.
C) This is how I like to zero down on a company.
1) I look at the management first. The management is the most important and lest talked about aspect of a company.
2) I like to know what business the company is into and then look at whether it is scalable. I prefer new sectors since the growth is highest there. I avoid cyclical because I cannot predict the peaks and troughs.
3) I then look at the market cap. If it is below Rs 1000 crores I think we could pay a higher PE to that company
4) I would then look at the RoE to see if the company is using its capital efficiently. RoCE is a better concept though because you could hike the RoE by using debt but not the RoCE
5) I would then compare the PE with the growth and the RoE. If there is a big difference between RoE and growth then the company does not merit investments. This is so because for a company to grow at higher rates of growth compared to its RoE it would have to dilute capital. That hurts
6) Dividend, book value is something that I look but do not base any of my decisions upon. I think that they tell you what the company has done and not what it will do.
D) Once a stock is bought and the price falls without any change in fundamentals and if I have the required cash I will buy at each fall.
Now I do not stop at step 1 of phase C above. I do look at steps 2,3,4 and 5 of phase C above but there is a difference in priority. That is all.
So it is just a matter of prioritizing the tools of analysis. No analysis is complete without putting all tools at work. In none of my reports will you find the valuation parameter missing because irrespective of the strategy you use the final objective is to make the stock price a slave of its earning. The question is which one are you more comfortable using when compared to the others i.e. prioritizing the tools.
B) I hold at most between 3 and 5 companies in my portfolio. Yes only 3 to 5. Once I finish analyzing a company I ask myself one question “Is the company good enough to take 20% of my portfolio. When ever I get an answer as yes the next question is OK what can I replace it with. If I get another yes I would buy that stock. I prefer putting all my money into one company but just for the event risk I have divided it into 3 to 5.
Since I hold concentrated portfolios 3 to 5 companies I forecast a best case scenario with only the target price of 2 to 4 companies assuming that one will go bust and get me a zero value in the defined time span. If still the overall result looks exciting I would invest taking the mathematical premise that errors will cancel out each other (I do not know which one will under deliver and by how much).Robert Hagstorm the author of a book on Warren Buffet did a study where he found that concentrated portfolios give out better returns
I have lost many 30% to 100% returns by missing on opportunities because those companies did not fit my style of investing. But I have no regret because the ones I hold have more or less made up for that.
It takes me hardly one hour to analyze a company but making up my mind (the second part of B above) takes a few days or a even a few weeks at times. This is so because I believe in concentration.
C) This is how I like to zero down on a company.
1) I look at the management first. The management is the most important and lest talked about aspect of a company.
2) I like to know what business the company is into and then look at whether it is scalable. I prefer new sectors since the growth is highest there. I avoid cyclical because I cannot predict the peaks and troughs.
3) I then look at the market cap. If it is below Rs 1000 crores I think we could pay a higher PE to that company
4) I would then look at the RoE to see if the company is using its capital efficiently. RoCE is a better concept though because you could hike the RoE by using debt but not the RoCE
5) I would then compare the PE with the growth and the RoE. If there is a big difference between RoE and growth then the company does not merit investments. This is so because for a company to grow at higher rates of growth compared to its RoE it would have to dilute capital. That hurts
6) Dividend, book value is something that I look but do not base any of my decisions upon. I think that they tell you what the company has done and not what it will do.
D) Once a stock is bought and the price falls without any change in fundamentals and if I have the required cash I will buy at each fall.
Now I do not stop at step 1 of phase C above. I do look at steps 2,3,4 and 5 of phase C above but there is a difference in priority. That is all.
So it is just a matter of prioritizing the tools of analysis. No analysis is complete without putting all tools at work. In none of my reports will you find the valuation parameter missing because irrespective of the strategy you use the final objective is to make the stock price a slave of its earning. The question is which one are you more comfortable using when compared to the others i.e. prioritizing the tools.
India v/s China
The rapid growth of the Indian and Chinese economies have transformed the two countries in recent years. But this prosperity has also brought other problems.
Heavy investment has turned Beijing into a modern city
I think it was in 2003, that the world suddenly woke up to China .
I am not sure what caused it to happen, what particular event or news story. I just remembered the phone in the BBC's Beijing Bureau started ringing and it has not stopped since.
Well now it is happening again and this time it is not China , it is India .
Every time you turn on the television or pick up a magazine, it is no longer the rise of China , it is now the rise of China and India .
The desire to make comparisons is understandable. Both have more than a billion people. Both are growing at 10% a year.
There are, I suspect, many who are hoping that India , with its freedom and democracy, will win this new race to become the next economic super power. I am not so sure.
I have spent the last eight years living in Beijing , and only four days in Delhi , so comparisons are difficult.
But the few days I recently spent in India made me look at China in a new light.
Over 15 million people live in Delhi
Delhi is an overwhelming experience. It is as if all of humanity has been squeezed into one city.
The streets groan under the weight of people. The air is filled with deafening noise and sumptuous smells.
Switch on the television and it is the same.
Between channels blasting out voluptuous Bollywood love stories and pop videos, an endless stream of news channels dissect the latest political scandals, and debauched lifestyles of the rich and famous.
Coming from China it is an almost shocking experience.
But after the initial delight at being in an open society, I started to notice other things.
The hotel was expensive and bad. In my room I searched for a high speed internet connection, a standard feature in any hotel in China . There was not one.
Then with the night-time temperature still well above 30C (86F) the power went out.
I lay for hours soaked in sweat trying, and failing, to get back to sleep and wishing I was back in Beijing where the lights never go out.
But getting back would not be easy.
Passenger queues
I looked at my plane ticket. Departure time 0315. Surely that could not be right.
I called the front desk. "That's correct sir," he said, "the airport is too small so many flights from Delhi leave in the middle of the night."
He was not joking.
My taxi struggled along the Jaipur road towards the airport.
The two-lane road was clogged by an endless convoy of lorries. Finally I arrived at Indira Gandhi International airport. Despite the hour it was teeming with people.
The queues snaked around the airport and back to where they had started.
Foreign tourists stared in bewilderment. Locals with the resigned look of those used to waiting.
"Is it always like this?" I asked a man in the queue ahead of me.
"Pretty much," he sighed.
I was finally shepherded aboard the flight to Shanghai .
Next to me sat a friendly looking Indian man in shorts and running shoes.
"Is this your first trip to China ?" he asked me.
"No," I replied, "I live there."
"Really," he said, his interest piqued, "what should I expect?"
"I think," I said, "you should expect to be surprised."
Jaw dropping
Six hours later, our plane taxied to a halt in front of the soaring glass and steel of Shanghai's Pudong International Airport
As we emerged into the cool silence of the ultra-modern terminal, my new companion's jaw slid towards his belly button.
"I was not expecting this," he said, his eyes wide in wonder. "Oh no, I definitely was not expecting this".
I also found myself looking at China afresh.
Later that day as I drove home from Beijing airport along the smooth six-lane highway I could not help feeling a sense of relief at being back in a country where things work.
And it was not just the airports and roads.
Driving through a village on the edge of Beijing I was struck by how well everyone was dressed.
In Delhi , I had been shocked to see thousands of people sleeping rough on the streets every night, nothing but the few rags they slept in to call their own. Even deep in China 's countryside that is not something you will see.
In Delhi I had been told of the wonders of India 's new economy, of the tens of thousands of bright young graduates churning out the world's latest computer software.
I thought of China 's new economy, of the tens of millions of rural migrants who slave away in factories, making everything from plimsolls to plasma televisions.
And of the same rural migrants, heading home to their villages at Chinese New Year festival loaded down with gifts, their pockets stuffed full of cash.
China is not a free society, and it has immense problems. But its successes should not be underestimated.
They are ones that India , even with its open and democratic society, is still far from matching.
Source
BBC
Heavy investment has turned Beijing into a modern city
I think it was in 2003, that the world suddenly woke up to China .
I am not sure what caused it to happen, what particular event or news story. I just remembered the phone in the BBC's Beijing Bureau started ringing and it has not stopped since.
Well now it is happening again and this time it is not China , it is India .
Every time you turn on the television or pick up a magazine, it is no longer the rise of China , it is now the rise of China and India .
The desire to make comparisons is understandable. Both have more than a billion people. Both are growing at 10% a year.
There are, I suspect, many who are hoping that India , with its freedom and democracy, will win this new race to become the next economic super power. I am not so sure.
I have spent the last eight years living in Beijing , and only four days in Delhi , so comparisons are difficult.
But the few days I recently spent in India made me look at China in a new light.
Over 15 million people live in Delhi
Delhi is an overwhelming experience. It is as if all of humanity has been squeezed into one city.
The streets groan under the weight of people. The air is filled with deafening noise and sumptuous smells.
Switch on the television and it is the same.
Between channels blasting out voluptuous Bollywood love stories and pop videos, an endless stream of news channels dissect the latest political scandals, and debauched lifestyles of the rich and famous.
Coming from China it is an almost shocking experience.
But after the initial delight at being in an open society, I started to notice other things.
The hotel was expensive and bad. In my room I searched for a high speed internet connection, a standard feature in any hotel in China . There was not one.
Then with the night-time temperature still well above 30C (86F) the power went out.
I lay for hours soaked in sweat trying, and failing, to get back to sleep and wishing I was back in Beijing where the lights never go out.
But getting back would not be easy.
Passenger queues
I looked at my plane ticket. Departure time 0315. Surely that could not be right.
I called the front desk. "That's correct sir," he said, "the airport is too small so many flights from Delhi leave in the middle of the night."
He was not joking.
My taxi struggled along the Jaipur road towards the airport.
The two-lane road was clogged by an endless convoy of lorries. Finally I arrived at Indira Gandhi International airport. Despite the hour it was teeming with people.
The queues snaked around the airport and back to where they had started.
Foreign tourists stared in bewilderment. Locals with the resigned look of those used to waiting.
"Is it always like this?" I asked a man in the queue ahead of me.
"Pretty much," he sighed.
I was finally shepherded aboard the flight to Shanghai .
Next to me sat a friendly looking Indian man in shorts and running shoes.
"Is this your first trip to China ?" he asked me.
"No," I replied, "I live there."
"Really," he said, his interest piqued, "what should I expect?"
"I think," I said, "you should expect to be surprised."
Jaw dropping
Six hours later, our plane taxied to a halt in front of the soaring glass and steel of Shanghai's Pudong International Airport
As we emerged into the cool silence of the ultra-modern terminal, my new companion's jaw slid towards his belly button.
"I was not expecting this," he said, his eyes wide in wonder. "Oh no, I definitely was not expecting this".
I also found myself looking at China afresh.
Later that day as I drove home from Beijing airport along the smooth six-lane highway I could not help feeling a sense of relief at being back in a country where things work.
And it was not just the airports and roads.
Driving through a village on the edge of Beijing I was struck by how well everyone was dressed.
In Delhi , I had been shocked to see thousands of people sleeping rough on the streets every night, nothing but the few rags they slept in to call their own. Even deep in China 's countryside that is not something you will see.
In Delhi I had been told of the wonders of India 's new economy, of the tens of thousands of bright young graduates churning out the world's latest computer software.
I thought of China 's new economy, of the tens of millions of rural migrants who slave away in factories, making everything from plimsolls to plasma televisions.
And of the same rural migrants, heading home to their villages at Chinese New Year festival loaded down with gifts, their pockets stuffed full of cash.
China is not a free society, and it has immense problems. But its successes should not be underestimated.
They are ones that India , even with its open and democratic society, is still far from matching.
Source
BBC
Lessons to learn
Just wanted to get your views on lessons learned from the brutal crash of Jan 08.
Here's what I learned
1. Take profits off the tables regularly
2. Keep at least 30% of cash in hand
3. Set your goals for entry and exit and stay very disciplined and true to your entry and exit goals.
4. Avoid buying at or close to 52 week high
5. Always use stop loss
6. Patience, discipline and a mid to long term view of the market.
7. Stay invested and not give up hope. Remember India is a growth story.
8. Dont fall in love with your scripps - reserve it for the ones you truly love
9. Analysts and brokers are as wrong as you are. Rely on your own self and draw conclusions from what your gut/expereience tells you
Kindly add your list/bullet points for the benefit of community - just writing down your thoughts helps to solidify the lessons in ones own mind too.
Happy Trading
Here's what I learned
1. Take profits off the tables regularly
2. Keep at least 30% of cash in hand
3. Set your goals for entry and exit and stay very disciplined and true to your entry and exit goals.
4. Avoid buying at or close to 52 week high
5. Always use stop loss
6. Patience, discipline and a mid to long term view of the market.
7. Stay invested and not give up hope. Remember India is a growth story.
8. Dont fall in love with your scripps - reserve it for the ones you truly love
9. Analysts and brokers are as wrong as you are. Rely on your own self and draw conclusions from what your gut/expereience tells you
Kindly add your list/bullet points for the benefit of community - just writing down your thoughts helps to solidify the lessons in ones own mind too.
Happy Trading
Saturday, January 26, 2008
Adive to new investors
My advice for these “innocent” investors:
1. Indian stock markets are not investment centres at current valuations. They became gambling centres in the recent days. Can anyone finally make money in gambling?
2. Do you what happened to the investors during Harshad Mehta days and IT boom time?
3. Do you know, like Ambanis now, Wipro’s Premji became the second richest man in the world for some days due to these stock markets? Anil Ambani will become the world richest man after Reliance Power listing. Do you think they can stay there?
4. Never believe in the words of CNBC analysts and broker’s words. They will change their words according to the market sentiment. Just analyse their statements by going through the archives of business newspapers or moneycontrol.com. Do you what they have said about Ispat Industries when it was at Rs 14?
5. Don’t lose your hard earned money in the stock markets by investing at these valuations. Stock markets already discounted 2009-10 earnings also. I know it is very difficult to control one after seeing the euphoric mood among your friends. Have patience. Better opportunities will come for investments at reasonable valuations.
6. Any government will take populist decisions before elections. Don’t expect significant industry helping decisions in the election year.
7. Accumulate more knowledge about various companies and businesses by regularly reading business newspapers and magazines.
8. Know basic fundamentals about stocks like P/E ratio, Book value, historical stock prices, when to buy/sell shares etc.
9. Day trading may give you some short term gains but long term investors are always the real winners in stock markets. Never indulge in day trading. Leave it for big brokers.
10. Never invest in stock markets just basing on tips of brokers and friends. Do your own research on the company and business and its growth prospects and valuations.
11. Never invest in Z, S and other unknown company shares with poor management. They may hit upper circuits in bull markets. You will finally left with some papers with no buyers. Biggest losers in any bull market are these kind of investors who may never able to sell their shares of those unknown companies.
12. Never enter into stock markets to make big money in small time. You need to work hard by doing enough research on companies before making big money. Long term investors in good companies will always become millionaires.
13. Compared to secondary markets, IPOs are safe in these times. Focus on primary markets by investing in good IPOs.
14. But sometimes, you need to follow herds as in Reliance Power IPO. We know it is not a good idea to invest in Reliance Power at such a steep price. But in bull markets, investors never follow caution and reason. So invest in Reliance Power and book profits on the day of listing.
15. United States is experiencing its worst recession after 2001. So better prepare for more bad news.
Why Indian stock markets are rising and falling?
Current steep rise in stock markets is not due to fundaments but just due to liquidity. Mutual funds and Insurance companies are providing domestic liquidity while foreign investors are gambling in Indian markets. Foreign money will move out of our country at any point of time. Stock exchanges are adding fuel to the fire by encouraging derivative market. We have to wait and watch when this mess will clear up and better senses will prevail.
Final advice: Don’t put your hard earned money in these gambling centres. BSE Sensex will oscillate between 18,000-21,000 points for some more time. New innocent investors should stay away from Indian stock markets until the emergence of clear picture. I am against investments even in mutual funds also. Most of these mutual fund managers are inexperienced ones as they have never managed funds in bear market. Sometimes patience will save you from catastrophes. Don't move your money into stock markets from bank deposits. Greed is not good for your financial health.
1. Indian stock markets are not investment centres at current valuations. They became gambling centres in the recent days. Can anyone finally make money in gambling?
2. Do you what happened to the investors during Harshad Mehta days and IT boom time?
3. Do you know, like Ambanis now, Wipro’s Premji became the second richest man in the world for some days due to these stock markets? Anil Ambani will become the world richest man after Reliance Power listing. Do you think they can stay there?
4. Never believe in the words of CNBC analysts and broker’s words. They will change their words according to the market sentiment. Just analyse their statements by going through the archives of business newspapers or moneycontrol.com. Do you what they have said about Ispat Industries when it was at Rs 14?
5. Don’t lose your hard earned money in the stock markets by investing at these valuations. Stock markets already discounted 2009-10 earnings also. I know it is very difficult to control one after seeing the euphoric mood among your friends. Have patience. Better opportunities will come for investments at reasonable valuations.
6. Any government will take populist decisions before elections. Don’t expect significant industry helping decisions in the election year.
7. Accumulate more knowledge about various companies and businesses by regularly reading business newspapers and magazines.
8. Know basic fundamentals about stocks like P/E ratio, Book value, historical stock prices, when to buy/sell shares etc.
9. Day trading may give you some short term gains but long term investors are always the real winners in stock markets. Never indulge in day trading. Leave it for big brokers.
10. Never invest in stock markets just basing on tips of brokers and friends. Do your own research on the company and business and its growth prospects and valuations.
11. Never invest in Z, S and other unknown company shares with poor management. They may hit upper circuits in bull markets. You will finally left with some papers with no buyers. Biggest losers in any bull market are these kind of investors who may never able to sell their shares of those unknown companies.
12. Never enter into stock markets to make big money in small time. You need to work hard by doing enough research on companies before making big money. Long term investors in good companies will always become millionaires.
13. Compared to secondary markets, IPOs are safe in these times. Focus on primary markets by investing in good IPOs.
14. But sometimes, you need to follow herds as in Reliance Power IPO. We know it is not a good idea to invest in Reliance Power at such a steep price. But in bull markets, investors never follow caution and reason. So invest in Reliance Power and book profits on the day of listing.
15. United States is experiencing its worst recession after 2001. So better prepare for more bad news.
Why Indian stock markets are rising and falling?
Current steep rise in stock markets is not due to fundaments but just due to liquidity. Mutual funds and Insurance companies are providing domestic liquidity while foreign investors are gambling in Indian markets. Foreign money will move out of our country at any point of time. Stock exchanges are adding fuel to the fire by encouraging derivative market. We have to wait and watch when this mess will clear up and better senses will prevail.
Final advice: Don’t put your hard earned money in these gambling centres. BSE Sensex will oscillate between 18,000-21,000 points for some more time. New innocent investors should stay away from Indian stock markets until the emergence of clear picture. I am against investments even in mutual funds also. Most of these mutual fund managers are inexperienced ones as they have never managed funds in bear market. Sometimes patience will save you from catastrophes. Don't move your money into stock markets from bank deposits. Greed is not good for your financial health.
Message to Young Investors
10 Qualities of a young Investor
Pre-requisites of a young investor:
1. Discipline – Most essential quality.
2. Ability to follow rules
3. Love for hard work.
4. Ability to identify mistakes and rectify them
5. An investor must be skilled in reading and understanding financial statements.
6. A trader should have good knowledge of technical analysis.
7. One must spend time on study, analysis and preparation of trading plans.
8. Youngsters should find good role models like Warren buffet, Mark Faber, Peter Lynch, Rakesh Jhunjhunwala etc.
9. Never hesitate when it comes to investing in knowledge.
10. Young investors would do well to make long term plans and goals and work towards achieving them.
Message to young investors:
1. Have a definitive goal in life and work towards it.
2. You should sacrifice some hobbies in order to achieve your goal.
3. Dissociate yourself from people who have a negative influence on you.
4. Dare to dream.
5. Do not afraid of failures.
6. Be open to change and in imbibing new ideas.
Pre-requisites of a young investor:
1. Discipline – Most essential quality.
2. Ability to follow rules
3. Love for hard work.
4. Ability to identify mistakes and rectify them
5. An investor must be skilled in reading and understanding financial statements.
6. A trader should have good knowledge of technical analysis.
7. One must spend time on study, analysis and preparation of trading plans.
8. Youngsters should find good role models like Warren buffet, Mark Faber, Peter Lynch, Rakesh Jhunjhunwala etc.
9. Never hesitate when it comes to investing in knowledge.
10. Young investors would do well to make long term plans and goals and work towards achieving them.
Message to young investors:
1. Have a definitive goal in life and work towards it.
2. You should sacrifice some hobbies in order to achieve your goal.
3. Dissociate yourself from people who have a negative influence on you.
4. Dare to dream.
5. Do not afraid of failures.
6. Be open to change and in imbibing new ideas.
Investing in stock market
Tips and advice for stock market investors:
1. You will never succeed in Share Markets if your investment decisions are based on tips from Brokers and friends. You should study the markets, analyze the trends, take calculated risks and then invest in stocks.
2. Learn lessons from failures. Even great investors like Warren Buffett suffered losses in his early days.
3. Identify your risk profile basing on your age, economical status, risk bearing capacity and future needs.
4. Never put all your money in single investment portfolio. Diversify them.
5. There are no shortcuts to earn money in share markets. You should work hard to make money in stocks as in other fields.
6. Never follow herd mentality. Buy valuable stocks when panic investors are selling them. Sell over valued shares when all are buying them. Never afraid to buy a fundamentally strong but undervalued stock. This is the key to the success of Warren Buffett. This is called Value investing.
7. Large caps are secure while midcaps give high returns. Identify the future sector and find the best stock in that sector. Accumulate those stocks. Power and Shipping are the future growth sectors in India.
8. Never invest in Z category stocks or rupee stocks just for the sake of high returns.
9. Never invest without stop loss and target. Never change them without any specific reason.
10. Read at least 2 business news papers and investment magazines.
Take care, happy investing!
1. You will never succeed in Share Markets if your investment decisions are based on tips from Brokers and friends. You should study the markets, analyze the trends, take calculated risks and then invest in stocks.
2. Learn lessons from failures. Even great investors like Warren Buffett suffered losses in his early days.
3. Identify your risk profile basing on your age, economical status, risk bearing capacity and future needs.
4. Never put all your money in single investment portfolio. Diversify them.
5. There are no shortcuts to earn money in share markets. You should work hard to make money in stocks as in other fields.
6. Never follow herd mentality. Buy valuable stocks when panic investors are selling them. Sell over valued shares when all are buying them. Never afraid to buy a fundamentally strong but undervalued stock. This is the key to the success of Warren Buffett. This is called Value investing.
7. Large caps are secure while midcaps give high returns. Identify the future sector and find the best stock in that sector. Accumulate those stocks. Power and Shipping are the future growth sectors in India.
8. Never invest in Z category stocks or rupee stocks just for the sake of high returns.
9. Never invest without stop loss and target. Never change them without any specific reason.
10. Read at least 2 business news papers and investment magazines.
Take care, happy investing!
Significant Views:
1. S&P included IT giants, Infosys, Wipro and Satyam, in Warren Buffett model portfolio.
2. Indian Stock Market is the most expensive one in Asia-Pacific region. India is the least attractive one for Investments – Citi Group.
Positive News:
1. JSW Steel acquired 2.5-acre property of Orbit Corporation in Mumbai for Rs 800 crore.
2. ONGC-Mittal won gas block in Trinidad-Tobago.
3. TTML won bid for coin operated telephones.
4. Government will sell 10% stake in Oil India to Oil refineries.
5. Wipro is in JV with Boeing MRO facility.
6. Government will announce new Aviation policy in this week.
7. Bisleri will enter into International markets by September.
Negative News:
1. More delay in Tata Motors 1-lakh car project due to problems in Singur project.
2. Hindustan Oil Exploration shut down well at PY-3 field.
Stock Market Analysis:
1. Central banks are pumping more money into the financial markets to save from liquidity and credit crisis in the short term but it will have negative implications in the medium to long term.
2. IFCI stake sale news will continue to give strength to this stock. Be cautious around Rs 68-69 level. IFCI should break its strong resistance level of Rs 68-69 for the future rally.
3. Reliance Communications will bounce back at any time. Accumulate this stock in SIP way.
4. Nifty may bounce back
5. Biggest problem is no one exactly knows the severity of Subprime market crisis. Unless this is solved, markets will continue this current volatile run. Domestic Financial Institutions are saving the market from collapse by buying in equities. Will this continue?
6. RNRL and JP Hydro will consolidate in the short term due to their vertical run-up.
7. Banking Stocks: Benefits of new ECB norms are nullified by Subprime crisis.
1. S&P included IT giants, Infosys, Wipro and Satyam, in Warren Buffett model portfolio.
2. Indian Stock Market is the most expensive one in Asia-Pacific region. India is the least attractive one for Investments – Citi Group.
Positive News:
1. JSW Steel acquired 2.5-acre property of Orbit Corporation in Mumbai for Rs 800 crore.
2. ONGC-Mittal won gas block in Trinidad-Tobago.
3. TTML won bid for coin operated telephones.
4. Government will sell 10% stake in Oil India to Oil refineries.
5. Wipro is in JV with Boeing MRO facility.
6. Government will announce new Aviation policy in this week.
7. Bisleri will enter into International markets by September.
Negative News:
1. More delay in Tata Motors 1-lakh car project due to problems in Singur project.
2. Hindustan Oil Exploration shut down well at PY-3 field.
Stock Market Analysis:
1. Central banks are pumping more money into the financial markets to save from liquidity and credit crisis in the short term but it will have negative implications in the medium to long term.
2. IFCI stake sale news will continue to give strength to this stock. Be cautious around Rs 68-69 level. IFCI should break its strong resistance level of Rs 68-69 for the future rally.
3. Reliance Communications will bounce back at any time. Accumulate this stock in SIP way.
4. Nifty may bounce back
5. Biggest problem is no one exactly knows the severity of Subprime market crisis. Unless this is solved, markets will continue this current volatile run. Domestic Financial Institutions are saving the market from collapse by buying in equities. Will this continue?
6. RNRL and JP Hydro will consolidate in the short term due to their vertical run-up.
7. Banking Stocks: Benefits of new ECB norms are nullified by Subprime crisis.
Severity of American crisis
Popular theory: Indian economy will less likely be affected by American economic crisis. So our stock markets are safe heavens for investments. Is it really correct?
My opinion: As they are saying, our economy is less dependent on American economy unlike Japan (Except sectors like IT and Pharma). But our stock markets are no longer representing our economy. They are the “bubbles” created due to irrational investments by foreign and domestic institutions. So they will be definitely affected by American financial crisis. Don’t believe in “decoupling theory”. If you believe in it, you will face the similar fate of BJP in 2004 elections (India Shining campaign).
Severity of American crisis:
1. US Federal is aiding in increasing American crisis as it did in 2001 by cutting interest rates. Instead of taking long term measures, it is opting for stop gap measures like rate cut which will further aggravate crisis.
2. When a company like “Apple” after announcing superb results gave cautious growth signs. It is a clear sign of future growth problems.
3. When a company like “Google” shed 30% of its stock price (good fundamentals, growth opportunities etc.), we should understand the severity of the problem.
4. Soros: "World is facing worst ever economic crisis after world war 2". When an experienced expert gave that statement, we should understand the problem.
5. United States housing sales fell first time in 25 years and prices are declined for the first time since 1929 great American depression.
Note: Stock Markets will see ups and downs until President George Bush comes with great relief package. These are more testing times for world stock markets due to lack of confidence in investors.
My advice: Indian stock markets (BSE SENSEX) will move between 14,500-18,500 points with extreme volatility. It is difficult for ordinary investors to plan their investments in such an extreme volatile situation.
If you are a long term investor, invest in good companies which are less dependent on United States like Reliance Communications, Tata Motors, L&T, and Reliance Industries etc.
Stay away from penny stocks and overvalued stocks like RNRL, Ispat, and Essar Oil etc.
Save your money for upcoming wonderful IPOs like ATPL.
Long term investors should continue to accumulate good stocks and forget about them for 1-2 years. Speculators will bite the dust in these unpredictable times. Conservative investors should stay away from markets until “recession” fears are cleared.
My opinion: As they are saying, our economy is less dependent on American economy unlike Japan (Except sectors like IT and Pharma). But our stock markets are no longer representing our economy. They are the “bubbles” created due to irrational investments by foreign and domestic institutions. So they will be definitely affected by American financial crisis. Don’t believe in “decoupling theory”. If you believe in it, you will face the similar fate of BJP in 2004 elections (India Shining campaign).
Severity of American crisis:
1. US Federal is aiding in increasing American crisis as it did in 2001 by cutting interest rates. Instead of taking long term measures, it is opting for stop gap measures like rate cut which will further aggravate crisis.
2. When a company like “Apple” after announcing superb results gave cautious growth signs. It is a clear sign of future growth problems.
3. When a company like “Google” shed 30% of its stock price (good fundamentals, growth opportunities etc.), we should understand the severity of the problem.
4. Soros: "World is facing worst ever economic crisis after world war 2". When an experienced expert gave that statement, we should understand the problem.
5. United States housing sales fell first time in 25 years and prices are declined for the first time since 1929 great American depression.
Note: Stock Markets will see ups and downs until President George Bush comes with great relief package. These are more testing times for world stock markets due to lack of confidence in investors.
My advice: Indian stock markets (BSE SENSEX) will move between 14,500-18,500 points with extreme volatility. It is difficult for ordinary investors to plan their investments in such an extreme volatile situation.
If you are a long term investor, invest in good companies which are less dependent on United States like Reliance Communications, Tata Motors, L&T, and Reliance Industries etc.
Stay away from penny stocks and overvalued stocks like RNRL, Ispat, and Essar Oil etc.
Save your money for upcoming wonderful IPOs like ATPL.
Long term investors should continue to accumulate good stocks and forget about them for 1-2 years. Speculators will bite the dust in these unpredictable times. Conservative investors should stay away from markets until “recession” fears are cleared.
Value Picks is not easy
People go by the rumour of a company and starts accumulating stocks likr RNRL, Essar Oil, Hind Motors just based on pure speculation. I agree that these are the stocks which can give you high returns but always remember theses are the stocks which can give you a higher loss as well.
I recommend clients to invest in good companies with strong fundamentals which are trading at good levels...
Remember investors will continue to lose money in stock markets as long as they want to make big money in small time period without basic knowledge on companies.
I recommend clients to invest in good companies with strong fundamentals which are trading at good levels...
Remember investors will continue to lose money in stock markets as long as they want to make big money in small time period without basic knowledge on companies.
What is Short term trading?
Short Term Trading
Short term trading means a duration of around 2 to 3 months.
Short Term stock picking is a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the scrips movement.
Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.
Types of Moving Averages
1) Simple Moving Average (SMA)
SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.
2) Exponential Moving Average (EMA)
EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.
The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.
A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.
In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.
Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.
Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.
Short term trading means a duration of around 2 to 3 months.
Short Term stock picking is a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the scrips movement.
Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.
Types of Moving Averages
1) Simple Moving Average (SMA)
SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.
2) Exponential Moving Average (EMA)
EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.
The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.
A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.
In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.
Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.
Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.
Selling in Option
When you sell call/put and dont do anything till expiry following things can happen
1) If at the expiry spot rates are lower than sell rate ,you may get profit.
2)REVERSE is if the spot rates are lower you may loose
3)if the spot rate is lower/higher than strike rate,depending upon if it is a call or put you may loose entire money.
4)if the trade turn into opposite direction before expiry , and crosses your margin deposit ,exchange/broker will square off the deal and you may loose infinitely.
so if you sell options (which one should not do unless he is HNI or an expert) it requires to closely watch the movements and not go to sleep till expiry.
1) If at the expiry spot rates are lower than sell rate ,you may get profit.
2)REVERSE is if the spot rates are lower you may loose
3)if the spot rate is lower/higher than strike rate,depending upon if it is a call or put you may loose entire money.
4)if the trade turn into opposite direction before expiry , and crosses your margin deposit ,exchange/broker will square off the deal and you may loose infinitely.
so if you sell options (which one should not do unless he is HNI or an expert) it requires to closely watch the movements and not go to sleep till expiry.
Friday, January 25, 2008
Marico
Recommendation: Buy
Price target: Rs70
Current market price: Rs60
Q3FY2008 results: First-cut analysis
Result highlights
Marico's sales growth in Q3FY2008 was in line with our expectations. The company posted a strong top line growth of 23.7% year on year (yoy) in Q3FY2008 to Rs506.2 crore aided by an impressive performance across businesses. The impressive top line growth was a result of a 19% organic growth and a 5% inorganic growth.
Affected by a hefty 34% year-on-year increase in the staff cost and a higher than expected increase in the other expenses (up 32.9% yoy to Rs81.2 crore) the operating profit margin declined by 79 basis points to 12.68%. Thus, the operating profit grew by 16.4% yoy to Rs64.2 crore.
The raw material cost was under check as copra prices during the quarter were lower by about 10-12% yoy. However, the input cost for edible oils continued to rise and was up 20-30% across categories.
A much higher other income of Rs7.53 crore (against Rs0.33 crore in Q3FY2007) and a lower tax incidence aided a strong 81% rise in the adjusted net profit to Rs50.2 crore.
The company changed the method of charging depreciation on factory building that led to a one-time charge of Rs4.29 crore; after this the reported net profit stood at Rs45.9 crore, which was up 61.5% yoy.
Marico continues to implement its three-pronged growth strategy of enhancing the existing products, introducing new products and achieving inorganic growth through acquisitions. During the quarter it entered the South African ethnic hair care and health care markets by acquiring the consumer division of Enaleni Pharmaceuticals, which has an annualised turnover of ~Rs53 crore.
We remain positive on Marico's businesses and maintain our Buy recommendation on the stock with a price target of Rs70. At the current market price of Rs59.7 the stock trades at 17.9x our FY2009E earnings per share of Rs3.34.
Price target: Rs70
Current market price: Rs60
Q3FY2008 results: First-cut analysis
Result highlights
Marico's sales growth in Q3FY2008 was in line with our expectations. The company posted a strong top line growth of 23.7% year on year (yoy) in Q3FY2008 to Rs506.2 crore aided by an impressive performance across businesses. The impressive top line growth was a result of a 19% organic growth and a 5% inorganic growth.
Affected by a hefty 34% year-on-year increase in the staff cost and a higher than expected increase in the other expenses (up 32.9% yoy to Rs81.2 crore) the operating profit margin declined by 79 basis points to 12.68%. Thus, the operating profit grew by 16.4% yoy to Rs64.2 crore.
The raw material cost was under check as copra prices during the quarter were lower by about 10-12% yoy. However, the input cost for edible oils continued to rise and was up 20-30% across categories.
A much higher other income of Rs7.53 crore (against Rs0.33 crore in Q3FY2007) and a lower tax incidence aided a strong 81% rise in the adjusted net profit to Rs50.2 crore.
The company changed the method of charging depreciation on factory building that led to a one-time charge of Rs4.29 crore; after this the reported net profit stood at Rs45.9 crore, which was up 61.5% yoy.
Marico continues to implement its three-pronged growth strategy of enhancing the existing products, introducing new products and achieving inorganic growth through acquisitions. During the quarter it entered the South African ethnic hair care and health care markets by acquiring the consumer division of Enaleni Pharmaceuticals, which has an annualised turnover of ~Rs53 crore.
We remain positive on Marico's businesses and maintain our Buy recommendation on the stock with a price target of Rs70. At the current market price of Rs59.7 the stock trades at 17.9x our FY2009E earnings per share of Rs3.34.
Sanghvi Movers
Recommendation: Buy
Price target: 350
Current market price: Rs290
Q3FY2008 results: First-cut analysis
Result highlights
For Q3FY2008 Sanghvi Movers Ltd (SML) has reported a spectacular growth of 65.4% in its top line to Rs64.4 crore. The growth is above our expectation.
The operating profit of the company grew by 66.9% to Rs46.9 crore during the quarter. The operating profit margin improved by 60 basis points to 72.8% as against 72.2% in Q3FY2007.The operating profit margin for the company has been improving on the back of better capacity utilisation and lower maintenance cost.
The interest cost increased by 13.2% to Rs7.5 crore while, the depreciation charge was up 33.3% to Rs11.7 crore in Q3FY2008.
The profit after tax grew by a whopping 111.2% to Rs17.8 crore, which is way above our expectation. The robust top line growth and stable operating performance led to a strong growth in the profits of the company.
The company plans to acquire100 cranes at a total cost of Rs550 crore over the next 18 months. These will include 72 second hand cranes from the USA worth Rs160 crore, mainly for the use of the power sector.
Price target: 350
Current market price: Rs290
Q3FY2008 results: First-cut analysis
Result highlights
For Q3FY2008 Sanghvi Movers Ltd (SML) has reported a spectacular growth of 65.4% in its top line to Rs64.4 crore. The growth is above our expectation.
The operating profit of the company grew by 66.9% to Rs46.9 crore during the quarter. The operating profit margin improved by 60 basis points to 72.8% as against 72.2% in Q3FY2007.The operating profit margin for the company has been improving on the back of better capacity utilisation and lower maintenance cost.
The interest cost increased by 13.2% to Rs7.5 crore while, the depreciation charge was up 33.3% to Rs11.7 crore in Q3FY2008.
The profit after tax grew by a whopping 111.2% to Rs17.8 crore, which is way above our expectation. The robust top line growth and stable operating performance led to a strong growth in the profits of the company.
The company plans to acquire100 cranes at a total cost of Rs550 crore over the next 18 months. These will include 72 second hand cranes from the USA worth Rs160 crore, mainly for the use of the power sector.
Ipca Laboratories
Recommendation: Buy
Price target: Rs875
Current market price: Rs638
Results in line with expectations
Result highlights
Ipca Laboratories (Ipca) reported a 21.2% year-on-year (y-o-y) increase in its net sales to Rs281.8 crore in Q3FY2008. The sales growth was in line with our expectations and was driven by a 32% rise in the domestic business and a 14% growth in the exports.
After a subdued performance in Q2FY2008 (on account of lower sales of anti-malarials), Ipca's domestic formulation business resumed its strong momentum. The domestic formulation sales grew by an impressive 32.1% in Q3FY2008, clearly outpacing the industry growth of 12.3%. The strong performance was driven by increased traction seen in the chronic therapy segments of cardiovascular, diabetology and arthritis.
Ipca's formulation exports grew by 19.2% to Rs86.4 crore during the quarter. This was on the back of a strong performance in Europe, on account of new product approvals received during H1FY2008. The African, Asian and Commonwealth of Independent States (CIS) markets also performed well. The performance seems impressive when viewed in light of the ~12-13% appreciation in the rupee against the US Dollar.
Ipca's active pharmaceutical ingredient (API) business grew by 13.1% to Rs77.0 crore in Q3FY2008, driven by a 33.3% rise in the domestic API sales and a muted 6.6% growth in the export of APIs. Ipca's API exports have been under pressure over the last few quarters, due to the sharp appreciation in the rupee against the US Dollar. However, Ipca has now initiated the process of raising prices across some of the key products and remains confident of a much improved performance in the coming quarters, given the strong order visibility.
Ipca's operating profit margin (OPM) expanded by 40 basis points to 21.8% in the quarter. The expansion in the margin was driven by a 100-basis-point drop in the staff cost and a 150-basis-point reduction in the other expenses. Consequently, the operating profit grew by 23.7% to Rs61.6 crore in Q3FY2008.
Ipca's pre-exceptional net profit increased by 12.8% to Rs38.3 crore and was in line with our estimate. The growth in the net profit was restricted due to a sharp reduction in the other income. On the other hand, the net profit was boosted by an 80-basis-point drop in the tax incidence of the company.
At the current market price of Rs638, Ipca is discounting its FY2008E earnings by 10.6x and its FY2009E earnings by 8.7x. The valuations at these levels seem absolutely compelling when viewed in context of the strong growth potential that awaits the company. We retain our positive stance on the stock and maintain our Buy call with a price target of Rs875.
Price target: Rs875
Current market price: Rs638
Results in line with expectations
Result highlights
Ipca Laboratories (Ipca) reported a 21.2% year-on-year (y-o-y) increase in its net sales to Rs281.8 crore in Q3FY2008. The sales growth was in line with our expectations and was driven by a 32% rise in the domestic business and a 14% growth in the exports.
After a subdued performance in Q2FY2008 (on account of lower sales of anti-malarials), Ipca's domestic formulation business resumed its strong momentum. The domestic formulation sales grew by an impressive 32.1% in Q3FY2008, clearly outpacing the industry growth of 12.3%. The strong performance was driven by increased traction seen in the chronic therapy segments of cardiovascular, diabetology and arthritis.
Ipca's formulation exports grew by 19.2% to Rs86.4 crore during the quarter. This was on the back of a strong performance in Europe, on account of new product approvals received during H1FY2008. The African, Asian and Commonwealth of Independent States (CIS) markets also performed well. The performance seems impressive when viewed in light of the ~12-13% appreciation in the rupee against the US Dollar.
Ipca's active pharmaceutical ingredient (API) business grew by 13.1% to Rs77.0 crore in Q3FY2008, driven by a 33.3% rise in the domestic API sales and a muted 6.6% growth in the export of APIs. Ipca's API exports have been under pressure over the last few quarters, due to the sharp appreciation in the rupee against the US Dollar. However, Ipca has now initiated the process of raising prices across some of the key products and remains confident of a much improved performance in the coming quarters, given the strong order visibility.
Ipca's operating profit margin (OPM) expanded by 40 basis points to 21.8% in the quarter. The expansion in the margin was driven by a 100-basis-point drop in the staff cost and a 150-basis-point reduction in the other expenses. Consequently, the operating profit grew by 23.7% to Rs61.6 crore in Q3FY2008.
Ipca's pre-exceptional net profit increased by 12.8% to Rs38.3 crore and was in line with our estimate. The growth in the net profit was restricted due to a sharp reduction in the other income. On the other hand, the net profit was boosted by an 80-basis-point drop in the tax incidence of the company.
At the current market price of Rs638, Ipca is discounting its FY2008E earnings by 10.6x and its FY2009E earnings by 8.7x. The valuations at these levels seem absolutely compelling when viewed in context of the strong growth potential that awaits the company. We retain our positive stance on the stock and maintain our Buy call with a price target of Rs875.
UPCOMING IPO
J Kumar Infraprojects Ltd
Cords Cable Industries Ltd
OnMobile Global Ltd
KNR Constructions Ltd
Bang Overseas Ltd
Manjushree Extrusions Ltd
Emaar
Cords Cable Industries Ltd
OnMobile Global Ltd
KNR Constructions Ltd
Bang Overseas Ltd
Manjushree Extrusions Ltd
Emaar
ONGC: Scrip to Watch in 2008
1. It is no doubt that oil exploration companies are going to reap harvest by virtue of strengthening of oil price and it is being anticipated that oil may rule greater than $100 per barrel.
2. ONGC has interests in 85 domestic blocks including 52 offshore fields. It has to its credit 28 discoveries in past two years.
3. IPO of Oil India in next few months can provide a new valuation to ONGC.
4. Icing on cake is its interests in MRPL, Petronet LNG, GAIl and IOC. Invest to reap a good harvest.
2. ONGC has interests in 85 domestic blocks including 52 offshore fields. It has to its credit 28 discoveries in past two years.
3. IPO of Oil India in next few months can provide a new valuation to ONGC.
4. Icing on cake is its interests in MRPL, Petronet LNG, GAIl and IOC. Invest to reap a good harvest.
Caution Do NOT SELL
I am again insisting to you that do not trade in the market for time being. Wait for the market to get stabilized. I hope it will still go down - 5%. Hold on to your stocks, do not sell. May be the targets will arrive a little late, but it will definitely reach. Please do not PANIC. The key term here is "HOLD".
Thursday, January 24, 2008
Hope - Ray of Life
There are 51 out of 100 people in the market currently telling the bears will rule the roost this year 2008. But again understanding the working, economics of India, I do not see any such possibility, as i have already stated that this year will surely be a year of volatility, and not a performing year for F & O segments for the retail investors. But again this year will reap more than 25% - 45% returns to Investors in Deliveries and a scrip hold period of more than 6-12 months.
I conclude by saying we will be touching levels of Nifty to 6500 by March. No one can stop this.
Regards,
Yatish
I conclude by saying we will be touching levels of Nifty to 6500 by March. No one can stop this.
Regards,
Yatish
Grey Market Prices for New IPOs
Future Capital (11 Jan - 16 Jan) - Rs. 450 - Rs 470
Reliance Power (15 Jan- 18 Jan) - Rs. 220 - Rs. 260
J Kumar Infra (18 Jan- 23 Jan) - Rs. 12- Rs. 15
Cord Cables (21 Jan- 24 Jan) - Rs. 16- Rs. 20
Reliance Power (15 Jan- 18 Jan) - Rs. 220 - Rs. 260
J Kumar Infra (18 Jan- 23 Jan) - Rs. 12- Rs. 15
Cord Cables (21 Jan- 24 Jan) - Rs. 16- Rs. 20
A new phase of the Stock Market in India
Hi Guys
Sorry for not posting during the difficult time
This is A new phase of the Stock Market in India , and i am damn sure bout that.
THe market for the year will be volatile for sure, but 25 Jan 2008 is the day, mark my words friends, this is the day when you will have the full oppurtunity to go out there in the market and buy any share of your liking, and we gaurantee you more than 25% returns.
Some of the share we reccomend are
Alok
Arvind Mills
Adlabs
RPL
RNRL
Dena Bank
IDBI
Vijaya Bank
Sasken
Infosys
ISpat
Hind Motors
RIL
Rel Infra
Brigade
Ranbaxy
SBI
Icici
Balaji Telefilms
Avon
In Foils
IFCI
Moserbear
These scrips will rock 2008
Sorry for not posting during the difficult time
This is A new phase of the Stock Market in India , and i am damn sure bout that.
THe market for the year will be volatile for sure, but 25 Jan 2008 is the day, mark my words friends, this is the day when you will have the full oppurtunity to go out there in the market and buy any share of your liking, and we gaurantee you more than 25% returns.
Some of the share we reccomend are
Alok
Arvind Mills
Adlabs
RPL
RNRL
Dena Bank
IDBI
Vijaya Bank
Sasken
Infosys
ISpat
Hind Motors
RIL
Rel Infra
Brigade
Ranbaxy
SBI
Icici
Balaji Telefilms
Avon
In Foils
IFCI
Moserbear
These scrips will rock 2008
Monday, January 21, 2008
Biggest Fall of Indian Stock Market
Sensex fell over 1300 points in a single biggest fall of the Indian Sensex Market. Most of the shares were in the negatives and were 10-30% down. Nifty closed at about 5250
Invest in commodities to maximise gains
Material Girl Madonna, may perhaps have been right in crooning that we are living in a material world, way back in 1985. With the prices of most commodities escalating in ’07, it looks like the lyrics have finally touched base.
“Commodities are so pervasive that you cannot be a successful investor in stocks, bonds or currencies without understanding commodities,” says Jim Rogers in his book ‘Hot Commodities’. And indeed, truth couldn’t have been any different. 2007 showed how wild gyrations in commodity prices can hit the bottomlines of companies, prompt governments to change trade policies and even make money for a truly diversified investor.
Several commodities like gold, crude oil, wheat, soya bean and palm oil hit all-time high price levels in ’07. Leading global commodity indices have generated faster returns (in some cases more than double) in the past one year, against gains made over the past five years.
For instance, the S&P Commodities index returned 32.5% last year, against a gain of only 11.7% over the past five years. In this edition, IG takes stock of the eventful year gone by and tries to peer into what ’08 holds for the hot commodity market.
The Agri Sector : The bullish performance in the past two years has ensured that agri-commodities won their due place in a fund manager’s portfolio. ’07 can clearly be called the year of agri-commodities, as prices of most commodities, including wheat, soya bean, corn, soya oil and palm oil, soared to more than 20-year highs. Barring sugar, most of the widely consumed commodities delivered handsome gains to their investors. Increased liquidity finally forced fund managers across the globe to discover undervalued assets in this sector.
Wheat: The prices of wheat — one the world’s most consumed grains — doubled to $10 per bushel in the past one year on the Chicago Board of Trade (CBOT). A fall in production in major producing countries, accompanied by rising demand, has been one of the major reasons for its meteoric rise. Besides the demand-supply mismatch, the role of hedge funds in pushing up prices cannot be undermined.
Global climate change has had an adverse effect on agri produce. Droughts in Australia and dry weather in the corn and wheat-growing belts of the US and South America have led to a fall in output of feed grains like wheat, corn and sorghum.
Economic prosperity in emerging economies gradually leads to increased consumption of starch-based items like breads and cakes due to the rise in purchasing power. Supply in these countries lags demand, fuelling the rally in wheat prices. To encourage production, countries like India have increased the minimum support price (or subsidy) of wheat to Rs 1,000 per quintal.
The situation isn’t likely to improve immediately, as it takes at least a couple of crop cycles for supply to catch up with the demand. Consequently, the rally in wheat is likely to continue this year.
Although trading in wheat futures has been banned in India, any rise in prices spells bad news for companies in the food industry, as wheat is an important raw material in most food products. Packaged food producers including Britannia, ITC and Nestle, for whom wheat and wheat-based products are the basic raw materials, face a direct hit on their bottomlines due to any big jump in wheat prices.
Source : Economic Times, 21 Jan 2008
“Commodities are so pervasive that you cannot be a successful investor in stocks, bonds or currencies without understanding commodities,” says Jim Rogers in his book ‘Hot Commodities’. And indeed, truth couldn’t have been any different. 2007 showed how wild gyrations in commodity prices can hit the bottomlines of companies, prompt governments to change trade policies and even make money for a truly diversified investor.
Several commodities like gold, crude oil, wheat, soya bean and palm oil hit all-time high price levels in ’07. Leading global commodity indices have generated faster returns (in some cases more than double) in the past one year, against gains made over the past five years.
For instance, the S&P Commodities index returned 32.5% last year, against a gain of only 11.7% over the past five years. In this edition, IG takes stock of the eventful year gone by and tries to peer into what ’08 holds for the hot commodity market.
The Agri Sector : The bullish performance in the past two years has ensured that agri-commodities won their due place in a fund manager’s portfolio. ’07 can clearly be called the year of agri-commodities, as prices of most commodities, including wheat, soya bean, corn, soya oil and palm oil, soared to more than 20-year highs. Barring sugar, most of the widely consumed commodities delivered handsome gains to their investors. Increased liquidity finally forced fund managers across the globe to discover undervalued assets in this sector.
Wheat: The prices of wheat — one the world’s most consumed grains — doubled to $10 per bushel in the past one year on the Chicago Board of Trade (CBOT). A fall in production in major producing countries, accompanied by rising demand, has been one of the major reasons for its meteoric rise. Besides the demand-supply mismatch, the role of hedge funds in pushing up prices cannot be undermined.
Global climate change has had an adverse effect on agri produce. Droughts in Australia and dry weather in the corn and wheat-growing belts of the US and South America have led to a fall in output of feed grains like wheat, corn and sorghum.
Economic prosperity in emerging economies gradually leads to increased consumption of starch-based items like breads and cakes due to the rise in purchasing power. Supply in these countries lags demand, fuelling the rally in wheat prices. To encourage production, countries like India have increased the minimum support price (or subsidy) of wheat to Rs 1,000 per quintal.
The situation isn’t likely to improve immediately, as it takes at least a couple of crop cycles for supply to catch up with the demand. Consequently, the rally in wheat is likely to continue this year.
Although trading in wheat futures has been banned in India, any rise in prices spells bad news for companies in the food industry, as wheat is an important raw material in most food products. Packaged food producers including Britannia, ITC and Nestle, for whom wheat and wheat-based products are the basic raw materials, face a direct hit on their bottomlines due to any big jump in wheat prices.
Source : Economic Times, 21 Jan 2008
TCS Update
Tata Consultancy Services
Research: Citigroup
Rating: Buy CMP:Rs 904
Tata Consultancy Services’ (TCS) third-quarter revenues of $1.5 billion were below the expectation of $1.53 billion, but net profit at Rs 1,330 crore was higher than the expectation of Rs 1,300 crore. The company’s EBIT margins were up 33 basis points (basis) q-o-q. Its revenue growth comprises 5.3% volume growth and 0.5% pricing increase q-o-q. TCS’ North American revenues increased 1% q-o-q. With a challenging macro-environment, this remains the key investor concern. Banking, financial services and insurance (BFSI) revenues increased 7% q-o-q — higher than the company average. BFSI revenues have grown better than the company average for both Infosys Technologies and TCS. TCS hired 8,000 employees in the quarter (lower than the indicated number of 9,000). However, the management maintained its earlier guidance for full-year hiring at 32,500 and indicated that budget discussions with clients do not indicate any weakness in demand. TCS is pursuing around 25 large deals. However, given the negative macro news, it continues to monitor its outlook and has a cautiously positive view on demand. The slowing US economy and its impact on demand for IT services continue to pose concerns for investors. Citigroup continues to believe that Tier-1s are better-placed. TCS stock trades at 15x FY09E.
Research: Citigroup
Rating: Buy CMP:Rs 904
Tata Consultancy Services’ (TCS) third-quarter revenues of $1.5 billion were below the expectation of $1.53 billion, but net profit at Rs 1,330 crore was higher than the expectation of Rs 1,300 crore. The company’s EBIT margins were up 33 basis points (basis) q-o-q. Its revenue growth comprises 5.3% volume growth and 0.5% pricing increase q-o-q. TCS’ North American revenues increased 1% q-o-q. With a challenging macro-environment, this remains the key investor concern. Banking, financial services and insurance (BFSI) revenues increased 7% q-o-q — higher than the company average. BFSI revenues have grown better than the company average for both Infosys Technologies and TCS. TCS hired 8,000 employees in the quarter (lower than the indicated number of 9,000). However, the management maintained its earlier guidance for full-year hiring at 32,500 and indicated that budget discussions with clients do not indicate any weakness in demand. TCS is pursuing around 25 large deals. However, given the negative macro news, it continues to monitor its outlook and has a cautiously positive view on demand. The slowing US economy and its impact on demand for IT services continue to pose concerns for investors. Citigroup continues to believe that Tier-1s are better-placed. TCS stock trades at 15x FY09E.
Petronet LNG Research:Credit
Petronet LNG Research:Credit suisse
RAting:Underperform
CMP:Rs 102
Credit Suisse maintains ‘underperform’ rating on Petronet LNG. The company’s third-quarter earnings were ahead of expectations due to income on sales to Ratnagiri Gas and Power (RGPPL, erstwhile Dabhol). While Petronet LNG imposes re-gasification tariff on the 5 million tones (mt) from RasGas, it has a fixed price contract for the supply of 1.5 mt of re-gasified LNG to RGPPL till December ’08, with the ability to keep any upside due to lower procurement costs and efficiency. Of the 1.5 mt committed, 1.25 mt will be sourced from RasGas, while the rest will be sourced on spot — this 0.25 mt is where Petronet LNG sees benefits of lower sourcing costs. Total regasified volumes declined 3.5% quarter-on-quarter (q-o-q), but earnings per share (EPS) increased by 13%. The momentum in earnings is likely to continue. Increase in regasification capacity at Dahej and the new facility at Kochi are likely to contribute to growth in earnings. However, with significant new domestic gas discoveries, utilisation levels may fall, without which, current valuations seem stretched. Petronet LNG aims to diversify into power generation, but this has not been finalised as yet.
RAting:Underperform
CMP:Rs 102
Credit Suisse maintains ‘underperform’ rating on Petronet LNG. The company’s third-quarter earnings were ahead of expectations due to income on sales to Ratnagiri Gas and Power (RGPPL, erstwhile Dabhol). While Petronet LNG imposes re-gasification tariff on the 5 million tones (mt) from RasGas, it has a fixed price contract for the supply of 1.5 mt of re-gasified LNG to RGPPL till December ’08, with the ability to keep any upside due to lower procurement costs and efficiency. Of the 1.5 mt committed, 1.25 mt will be sourced from RasGas, while the rest will be sourced on spot — this 0.25 mt is where Petronet LNG sees benefits of lower sourcing costs. Total regasified volumes declined 3.5% quarter-on-quarter (q-o-q), but earnings per share (EPS) increased by 13%. The momentum in earnings is likely to continue. Increase in regasification capacity at Dahej and the new facility at Kochi are likely to contribute to growth in earnings. However, with significant new domestic gas discoveries, utilisation levels may fall, without which, current valuations seem stretched. Petronet LNG aims to diversify into power generation, but this has not been finalised as yet.
Tata Steel Update
Tata Steel
Research:Merrill lynch
RAting:buy
CMP:Rs 782
Merrill Lynch estimates that Tata Steel is trading at 7.8x FY09E. This is at a 38% discount to Steel Authority of India (SAIL), its closest Indian peer, and in line with Arcelor Mittal, its closest European peer. Tata Steel’s stock price already discounts Corus’ lack of raw material integration, but it ignores the potential upside from synergy benefits which will unfold over the next 12-18 months. Steel prices are likely to rise 6-7% in FY09 in India and Europe.
This will be just about adequate to pass on the higher iron ore and coking coal costs. Notwithstanding fears of a US slowdown, recent positives such as inventory restocking in the US, expectations of higher export taxes in China and continuing strong demand in China and India may boost steel price outlook. Merrill Lynch estimates that a 1% change in steel price may increase Tata Steel’s EPS by 9%. Tata Steel’s high risk profile (owing to lack of raw material integration) is cushioned by potential synergies to some extent. Merrill Lynch has built in synergy benefits of $150 million in FY09E.
This amounts to 3% of the group EBITDA. The management has indicated synergy benefits of over $450 million over the next three years. There is potential for upside on the synergy benefit. However, the key risk is that steel prices may increase less than Merrill Lynch’s forecast of 6-7%. In addition, recent media reports indicate that iron ore prices may increase by 70%.
Research:Merrill lynch
RAting:buy
CMP:Rs 782
Merrill Lynch estimates that Tata Steel is trading at 7.8x FY09E. This is at a 38% discount to Steel Authority of India (SAIL), its closest Indian peer, and in line with Arcelor Mittal, its closest European peer. Tata Steel’s stock price already discounts Corus’ lack of raw material integration, but it ignores the potential upside from synergy benefits which will unfold over the next 12-18 months. Steel prices are likely to rise 6-7% in FY09 in India and Europe.
This will be just about adequate to pass on the higher iron ore and coking coal costs. Notwithstanding fears of a US slowdown, recent positives such as inventory restocking in the US, expectations of higher export taxes in China and continuing strong demand in China and India may boost steel price outlook. Merrill Lynch estimates that a 1% change in steel price may increase Tata Steel’s EPS by 9%. Tata Steel’s high risk profile (owing to lack of raw material integration) is cushioned by potential synergies to some extent. Merrill Lynch has built in synergy benefits of $150 million in FY09E.
This amounts to 3% of the group EBITDA. The management has indicated synergy benefits of over $450 million over the next three years. There is potential for upside on the synergy benefit. However, the key risk is that steel prices may increase less than Merrill Lynch’s forecast of 6-7%. In addition, recent media reports indicate that iron ore prices may increase by 70%.
Sensex Update - Caution
Weak hearted Please exit... as the market will see very heavy volatility.....
OPen hearted stay invested. All stop losses must be triggered, if not exited stay for atleast 2 months for this recovery to happen...
OPen hearted stay invested. All stop losses must be triggered, if not exited stay for atleast 2 months for this recovery to happen...
Cni Economist sets Sensex target 30 K in 2008
Endorsing our economists view that interest rate cut is really harmful for US currency, a Chinese finance official wrote in a commentary Thursday in an official newspaper that Further cuts in U.S. interest rates would have a "harmful effect" on the dollar and the international finance system.
The dollar's fall against many currencies has prompted investors to sell dollar-denominated assets, Hu Xiaolian, director of the State Administration of Foreign Exchange, wrote in the Financial News, a newspaper published by the central bank.
"If the (U.S.) federal funds rate continues to fall, this will certainly have a harmful effect on the U.S. dollar exchange rate and the international currency system," Hu wrote.
Financial markets closely watch official Chinese comments on the dollar because Beijing keeps a large portion of its $1.4 trillion in reserves in U.S. Treasury securities and any change in China's investment strategy could affect exchange rates.
Despite his warning, Hu wrote, "the U.S. dollar's dominant position in international currency markets is unlikely to change in the near term."
The U.S. Federal Reserve has lowered its federal funds rate, the interest that banks charge each other for overnight loans, to 4.25 percent, a full percentage point lower than it was in September, to ease a credit crunch in the U.S. financial system.
Chinese officials have said that cutting the rate could encourage investors to move money to Asia or elsewhere in search of better returns, which could depress the dollar.
We therefore continue to believe that Rupee is heading to 35 in next 12 months hence avoid going long in tech stocks. This view has now been echoed by a foreign broking house siting rupee peg rate at 33 in 12to 18 months. It is well known in the industry circles that Infosys, TSC and Wipro have fully geared up to tackle with rupee 33 levels which tosses the probability of in favour of at least 35.
This is more significant to assess the destination of Indian capital market. If rupee is slated to rise to 35 levels and foreign funds started to believe this then the flow of funds in the coming months will exceed 2007’s flow by at least 3 times.
The precise reasons for expecting huge inflow are ……
Thailand not doing well and the unrest in Pakistan gives rise to the oil tensions and as result there will be flight of capital from GULF regions which is cash flush.
US economy though for sure has bottomed out and heading for 16000 DOW in just next 3 to 6 months, will not give as much returns as India is giving and hence FII would pull in more money in India.
The FUND psychology is that invest in stock which has outperformed rather than performing one similarly invest in a country which has outperformed rather in performing one. India fits in that category. Though Sensex has performed smartly the individual stocks have really out numbered the performance of Sensex.
There will be first time departure of huge allocation to India which will be 50% higher than earlier years from the funds which were hugely affected by sub prime in US. The ROI in India is so great that the hopes of mitigating entire losses only from India is not ruled out.
Apart from the same, on domestic front 2 losses in Gujarat and Himachal Pradesh and a probable loss in Rajasthan makes Indian politics a good case of stability. Ruling party as well as LEFT would stay cool for the remainder period which offers a good platform for 2008.
The reflection of good monsoon will start visible from JAN and very soon the GDP projections of 10% will feel visible like the way the revenue targets set by the Indian Finance Minister. Farm growth is likely to exceed 5% by March 08 and Budget will find more provisions to target the same at 6% next year. The day is not far when we can see 7 to 8% farm growth. This will lead to more GDP re rating.
The huge inflow have opened the flood gates of infrastructure in India which will lead a massive rise in per capital income at macro level which in turn give boost to savings as well as domestic consumption cycle.
We have reasons to believe that funds expected to creep in this fiscal could be as high as 35 bn USD which is sufficient to take the Sensex to 30 K even on expanded base of 20 K.
The statistics suggest that only 1% of Indian population invest in equity so far which we think will rise to at least 3% by 2010 which means the savings will travel into capital market from every nook and corner. We had predicted 2 years back that daily turnover will ride over Rs 1 lac crs which has now become realty and we pledge on the volumes rising to 2 lac crs in another 2 years which is just not possible if the 3% criteria is not met. In fact, this is the reason the broking is getting huge valuations which is really unprecedented but fact remains. Investors should really look at investment opportunities portals such as travel, finance, marketing, retail, c to c and b to b which will give stunning returns in next 3 years.
The level of domestic consumption is becoming aristocrat tipping point which is making all MNC especially US and Japanese to go ahead and sign with Indian partner however small he is because they have learn only one thing that there is no way to capture Indian market on its own in the shortest possible time and hence enter through vehicles.
This is boosting the confidence level of Indian industrialists which is visible from huge capex lined up in various sectors. The impact of the capex is yet to be felt.
The bottom line is if 20 K was the answer of 2007 30 K could be of 2008 and the sectors will be capital goods, power, power equipments, civil aviation, auto, auto ancillary, metal, mining, media, print media, research firms, insurance , internet content firms , realty, glass, education, gas distribution, road and port logistics, seeds, fertiliser, sugar etc
Sectors to avoid are cement, tech, textile, only export dependent cos.
Pros and cons of RELP issue.....
Saturday, January 19, 2008
REL Power subscribed 72 times as per official records till yesterday though the final call could be 80 times after the upcountry collections are counted. This has garnered close to never seen before historical Rs 10 lac crores. The issue was for Rs 11900 crs and the issue price as Rs 450 per share.
The equity capital as on March 2007 was Rs 200 crs as on Sept 2007 was Rs 2000 crs and post IPO will be Rs 2260 crs.
What is interesting to note that the corporate action will require 26 days whereas the funds garnered will vest with banks on behalf of the co for at least 21 days which is entitled for short term interest. Assuming that the short term interest rate is 7% co will get close to 3000 crs only as interest which is Rs 13 per share.
The premium in the gray market collapsed from Rs 450 pre IPO to Rs 290 yesterday which is giving an indication of listing price of Rs 825 to 850 band. Those who have heavily traded in the gray market will have to report all the trades on the first day of listing. The listing day can’t generally favour the traders in gray market and therefore even at Rs 825 levels they will lose money.
Alternatively the costing of IPO too comes very close to Rs 800 and hence most of the investors in the IPO will be looking for a desperate exit on listing day between Rs 825 to Rs 850 which given a return of 3 to 5%.
Though this is the flip side, there is also a big positive.
Apart from interest factor, the refund of close to 9 lac crores will be redeployed in the market either for buying RELP shares or any other value shares which is available to FII due recent crash of over 10% in the Sensex.
Even if it is assumed that fresh new money has entered for this issue, this simply represents the fresh allocation for India through back door. This hot money will go back and will remain for the disposal of the capital market. This will also help the immediate issues lined up such as SBI in FED plus accumulation through open market route.
We had seen this happening in ONGC the then biggest issue then in DLF where nobody even believed that it would touch Rs 600 and the stock price went on to touch Rs 1200 due to the hot money allocated by FII.
In all fairness the correction is a welcome sign and if market falls by another 500 points it could more ideals but it seems it never happens in market.
To time the market is the most unpredictable job and when market falls like this all wait for further fall which never happens. The liquidity is fairly large and as seen the RELP refund could add 150 to 180 bn USD liquidity to the capital market which is sufficient to take SENSEX past 30K. This will mitigate partially the losses of sub prime written down overseas.
The study of past three years suggests, FII could enter markets at the bottoms because of the mental block and human psychology. They tried at 8900 but failed, they tried at 12300 again failed they tried at 14000 again failed the only lesson they learn after 15000 from where they took it t0 18000 in shortest possible time.
This time too if they do not come of caves and take a bold call on stocks of their choice, we are sure they will come back at 22000 to invest heavily in this very market.
Facts and figures in derivatives suggest that nothing serious has happened for investors and barring profit booking in bits and pieces, they exit has been made from India. It is also unlikely for next couple of years and hence this correction is similar to all previous corrections ( V shaped ) which require not to boil your blood in haste.
If you have digested the pain of 2000 odd points, be prepared for another 500 points at the most and then see the BRIGHT sun shine coming back to fore. This is the best time smart investors who take huge call on select stocks should come out in open without waiting actions from FII and start calling their shots.
This is the first severe correction of 2008. There could be many more which suggest investors should go overboard to the extent of only 50% in normal markets and 100% in times like this.
Sunday, January 20, 2008
Understanding Futures & Options trading
Technicians utilize a three dimensional approach to market analysis which includes a study of price, volume and open interest. Of these three, price is the most important. However, volume and open interest provide important secondary confirmation of the price action on a chart and often provide a lead indication of an impending change of trend.Volume represents the total amount of trading activity or contracts that have changed hands in a given futures market for a single trading day. The greater the amount of trading during a market session the higher will be the trading volume. As mentioned earlier, a higher volume bar on the chart means that the trading activity was heavier for that day. Another way to look at this, is that the volume represents a measure of intensity or pressure behind a price trend. The greater the volume the more we can expect the existing trend to continue rather than reverse. Technicians believe that volume precedes price, meaning that the loss of upside price pressure in an uptrend or downside pressure in a downtrend will show up in the volume figures before presenting itself as a reversal in trend on the bar chart.Open Interest is the total number of outstanding contracts that are held by market participants at the end of each day. Where volume measures the pressure or intensity behind a price trend, open interest measures the flow of money into the futures market. For each seller of a futures contract there must be a buyer of that contract. Thus a seller and a buyer combine to create only one contract. Therefore, to determine the total open interest for any given market we need only to know the totals from one side or the other, buyers or sellers, not the sum of both.Each trade completed on the floor of a futures exchange has an impact upon the level of open interest for that day. For example, if both parties to the trade are initiating a new position ( one new buyer and one new seller), open interest will increase by one contract. If both traders are closing an existing or old position ( one old buyer and one old seller) open interest will decline by one contract. The third and final possibility is one old trader passing off his position to a new trader ( one old buyer sells to one new buyer). In this case the open interest will not change. By monitoring the changes in the open interest figures at the end of each trading day, some conclusions about the day’s activity can be drawn. Increasing open interest means that new money is flowing into the marketplace. The result will be that the present trend ( up, down or sideways) will continue. Declining open interest means that the market is liquidating and implies that the prevailing price trend is coming to an end. A knowledge of open interest can prove useful toward the end of major market moves. A levelling off of steadily increasing open interest following a sustained price advance is often an early warning of the end to an uptrending or bull market.
Market is Strengthening - Possible BottomBy monitoring the price trend, volume and open interest the technician is better able to gauge the buying or selling pressure behind market moves. This information can be used to confirm a price move or warn that a price move is not to be trusted.
Futures & Options
FuturesIn finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. The future date is called the delivery date or final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price.A futures contract gives the holder the obligation to buy or sell, which differs from an options contract, which gives the holder the right, but not the obligation. In other words, the owner of an options contract may exercise the contract. Both parties of a "futures contract" must fulfill the contract on the settlement date. The seller delivers the commodity to the buyer, or, if it is a cash-settled future, then cash is transferred from the futures trader who sustained a loss to the one who made a profit. To exit the commitment prior to the settlement date, the holder of a futures position has to offset his position by either selling a long position or buying back a short position, effectively closing out the futures position and its contract obligations.Futures contracts, or simply futures, are exchange traded derivatives. The exchange's clearinghouse acts as counterparty on all contracts, sets margin requirements, etc.Futures traders are traditionally placed in one of two groups: hedgers, who have an interest in the underlying commodity and are seeking to hedge out the risk of price changes; and speculators, who seek to make a profit by predicting market moves and buying a commodity "on paper" for which they have no practical use.Hedgers typically include producers and consumers of a commodity.For example, in traditional commodities markets, farmers often sell futures contracts for the crops and livestock they produce to guarantee a certain price, making it easier for them to plan. Similarly, livestock producers often purchase futures to cover their feed costs, so that they can plan on a fixed cost for feed.OptionsOptions are financial instruments that convey the right, but not the obligation, to engage in a future transaction on some underlying security. For example, buying a call option provides the right to buy a specified amount of a security at a set strike price at some time on or before expiration, while buying a put option provides the right to sell. Upon the option holder's choice to exercise the option, the party who sold, or wrote, the option must fulfill the terms of the contract.The theoretical value of an option can be determined by a variety of techniques, including the use of sophisticated option valuation models. These models can also predict how the value of the option will change in the face of changing conditions. Hence, the risks associated with trading and owning options can be understood and managed with some degree of precision.Exchange-traded options form an important class of options which have standardized contract features and trade on public exchanges, facilitating trading among independent parties. Another important class of options are employee stock options, which are awarded by a company to their employees as a form of incentive compensation.Contract OptionEvery financial option is a contract between the two counterparties. Option contracts may be quite complicated; however, at minimum, they usually contain the following specifications:* whether the option holder has the right to buy (a call option) or the right to sell (a put option)* the amount and class of the underlying asset(s) (e.g. 100 shares of XYZ Co. B stock)* the strike price, also known as the exercise price, which is the price at which the underlying transaction will occur upon exercise* the expiration date, or expiry, which is the last date the option can be exercised* the settlement terms, for instance whether the writer must deliver the actual asset on exercise, or may simply tender the equivalent cash amount.The value of an option can be estimated using a variety of quantitative techniques, although most commonly through the use of option pricing models such as Black-Scholes and the binomial options pricing model. In general, standard option valuation models depend on the following factors:* The current market price of the underlying security,* the strike price of the option, particularly in relation to the current market price of the underlier,* the cost of holding a position in the underlying security, including interest and dividends,* the time to expiration together with any restrictions on when exercise may occur, and* an estimate of the future volatility of the underlying security's price over the life of the option.
Market is Strengthening - Possible BottomBy monitoring the price trend, volume and open interest the technician is better able to gauge the buying or selling pressure behind market moves. This information can be used to confirm a price move or warn that a price move is not to be trusted.
Futures & Options
FuturesIn finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. The future date is called the delivery date or final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price.A futures contract gives the holder the obligation to buy or sell, which differs from an options contract, which gives the holder the right, but not the obligation. In other words, the owner of an options contract may exercise the contract. Both parties of a "futures contract" must fulfill the contract on the settlement date. The seller delivers the commodity to the buyer, or, if it is a cash-settled future, then cash is transferred from the futures trader who sustained a loss to the one who made a profit. To exit the commitment prior to the settlement date, the holder of a futures position has to offset his position by either selling a long position or buying back a short position, effectively closing out the futures position and its contract obligations.Futures contracts, or simply futures, are exchange traded derivatives. The exchange's clearinghouse acts as counterparty on all contracts, sets margin requirements, etc.Futures traders are traditionally placed in one of two groups: hedgers, who have an interest in the underlying commodity and are seeking to hedge out the risk of price changes; and speculators, who seek to make a profit by predicting market moves and buying a commodity "on paper" for which they have no practical use.Hedgers typically include producers and consumers of a commodity.For example, in traditional commodities markets, farmers often sell futures contracts for the crops and livestock they produce to guarantee a certain price, making it easier for them to plan. Similarly, livestock producers often purchase futures to cover their feed costs, so that they can plan on a fixed cost for feed.OptionsOptions are financial instruments that convey the right, but not the obligation, to engage in a future transaction on some underlying security. For example, buying a call option provides the right to buy a specified amount of a security at a set strike price at some time on or before expiration, while buying a put option provides the right to sell. Upon the option holder's choice to exercise the option, the party who sold, or wrote, the option must fulfill the terms of the contract.The theoretical value of an option can be determined by a variety of techniques, including the use of sophisticated option valuation models. These models can also predict how the value of the option will change in the face of changing conditions. Hence, the risks associated with trading and owning options can be understood and managed with some degree of precision.Exchange-traded options form an important class of options which have standardized contract features and trade on public exchanges, facilitating trading among independent parties. Another important class of options are employee stock options, which are awarded by a company to their employees as a form of incentive compensation.Contract OptionEvery financial option is a contract between the two counterparties. Option contracts may be quite complicated; however, at minimum, they usually contain the following specifications:* whether the option holder has the right to buy (a call option) or the right to sell (a put option)* the amount and class of the underlying asset(s) (e.g. 100 shares of XYZ Co. B stock)* the strike price, also known as the exercise price, which is the price at which the underlying transaction will occur upon exercise* the expiration date, or expiry, which is the last date the option can be exercised* the settlement terms, for instance whether the writer must deliver the actual asset on exercise, or may simply tender the equivalent cash amount.The value of an option can be estimated using a variety of quantitative techniques, although most commonly through the use of option pricing models such as Black-Scholes and the binomial options pricing model. In general, standard option valuation models depend on the following factors:* The current market price of the underlying security,* the strike price of the option, particularly in relation to the current market price of the underlier,* the cost of holding a position in the underlying security, including interest and dividends,* the time to expiration together with any restrictions on when exercise may occur, and* an estimate of the future volatility of the underlying security's price over the life of the option.
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