Saturday, May 30, 2009

Best Indian Stocks – Defensive Investors

Last week, I posted a list of stocks for the investors who tend to follow Aggressive approach and have also mentioned about other risk profiles. In this article, I will list some of the good stocks for Defensive Investors.

Who are Defensive Investors?

Conventional definition defines defensive investor as the one who does not take undue risk to make money. But in stock market, no one is spared of risk and defensive investment therefore does not mean not taking risk at all. It just means taking affordable risks by following a conservative approach in stock selection to derive optimal returns. In many cases, defensive investors match the returns of aggressive investors and they do not lag behind significantly. They also invest in some growth stocks but their primary investment strategy revolves around “Conservative” stocks.


Branding stocks as growth stocks or conservative stocks heavily depends on perception. In fact some stocks might have given more than average returns but still would be branded as a defensive bet just because investors perceive it that way. Hence, considering all this I have come up with a list of stocks that can be considered by investors who follow conservative approach.

Banking / Finance

HDFC
State Bank of India
Bank of Baroda
Bank of India
Punjab National Bank
Federal Bank

Pharmaceuticals

Sun Pharmaceuticals
IPCA Labs
Dr Reddys Laboratories
Pfizer
Cipla
Cadila Healthcare
JB Chemicals and Pharmaceuticals / Piramal Healthcare

Software / Services

Tata Consultancy Services
Infosys Technologies
Educomp Solutions

Shipping / Offshore

Great Eastern Shipping
Shipping Corporation of India Limited
Great Offshore


FMCG

ITC Limited
Hindustan Unilever Limited
United Spirits
Asian Paints
Marico Limited
Colgate Palmolive
Britannia Industries Limited / Nestle India
Titan Industries

Power

NTPC
PTC
Power Grid Corporation
Tata Power Company
CESC Limited
Rural Electrification Corporation
Neyveli Lignite Corporation


Agriculture / Fertilizer / Chemicals

Monsanto India Limited
Bayer Crop science Limited
BASF India Limited
Gujarat State Fertilizer Corporation
Coromandal Fertilizers
Tata Chemicals

Diversified / Cement

Grasim Industries
Kesoram Industries Limited
Nava Bharath Ventures
Ambuja Cements
ACC Limited


Engineering / Electronics / Telecom

BHEL
ABB Limited
BEML
Bharath Electronics
Bharath Forge
Hawkins Cookers Limited
Blue Star
Crompton Greaves
Century Textiles and Industries
Siemens

Bharti Airtel

Tata Communications

Oil / Gas / Steel

Reliance Industries Limited
ONGC
Indian Oil Corporation
HPCL
BPCL
GAIL

Tata Steel
Indian Hume Pipe Company

Others

Dredging Corporation
Container Corporation
Bilcare
Blue Dart
Bannari Amman Sugars
Shree Renuka Sugars
MRF
Mahindra & Mahindra
Asian Hotels
Power Finance Corporation

I request the readers to share their list of stocks in the comments section.

Kumaran Seenivasan

www.stockanalysisonline.com

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Thursday, May 21, 2009

Best Stocks – Aggressive Investors

Sorry I was unable to write an article when the election results were out as I was in the process of moving into a New Job. Anyways, I have one for you now.
Though most of the retail investors analyze various factors and pick best stocks for the investments, many of them fail to consider their risk profile while selecting the stocks. A stock which looks great in my perspective might be a risky investment for someone else. So, I thought of giving a list of stocks based on my understanding about different risk profiles.

Aggressive Investors
Defensive Investors
Moderate Investors (Mixed Risk Profile)
Value or Contrarian Investors

Graham has given some methodologies to select stocks based on the risk profile in the book “Intelligent Investor”. I have included few of them in selecting this list along with my own inputs as the situation we are in is bit different from what he had experienced then.

Who are Aggressive Investors?

You can consider yourself as an Aggressive Investor if you have the following attitude(s).

1) Willing to take enough risk to realize greater returns even losing some principal in the process if things do not go in your way
2) Concentrating on stocks that have significant potential for growth
3) 80 – 90 % investments in Individual Stocks and Stock related Mutual Funds
4) Close to 70 % of investments in Growth Stocks

So, Aggressive Investors just love to through their hat to fight anything that come in their way and they sure know what they are risking.

List of Best Stocks – Aggressive Investors
I will list out the stocks based on the sector it belongs to. Though aggressive investors mostly opt for growth stocks, they also buy few defensive stocks. So, I will include few defensive bets as well. I certainly followed some rules in selecting these stocks, but I request everyone to analyze more about these stocks before making any decision on it.

Banking / Finance
HDFC Bank
ICICI Bank
Axis Bank
Yes Bank
Reliance Capital

Pharmaceuticals
Lupin Limited
Glenmark Pharmaceuticals
Divis Laboratories
Venus Remedies

Engineering / Electronics


Larsen & Toubro

Elecon Engineering

Lakshmi Machine Works

Bharat Bijlee

BGR Energy Systems

HEG Limited

Thermax

Sadbhav Engineering

Praj Industries

Titagarh Wagons


Software / Services

Wipro Limited
Oracle Financial Services
HCL Technologies

CMC Limited

Shipping / Offshore

ABG Shipyard
Aban Offshore
Shiv-vani Oil and Gas Exploration

Real Estate / Construction
DLF Limited
IVRCL Infrastructure
Jaiprakash Associates
HDIL


Power

Reliance Power
Reliance Infrastructure
Torrent Power

Agriculture / Fertilizers / Chemicals
Jain Irrigation
Kaveri Seeds
Rallis India Limited
Chambal Fertilizers and Chemicals
Deepak Fertilizers
Gujarat State Fertilizer Corporation
Clariant Chemicals or Savita Chemicals
Jindal Poly Films

Textiles / Retail

Pantaloon Retail
Shoppers Stop

Diversified / Cement
Adiya Birla Nuvo
Voltas
Sintex Industries
Ultratech Cement
Shree Cements


Steel

Welspun Gujarat Stahl Rohren
Sesa Goa Limited
Bhushan Steel


Telecom / Technology
Idea Cellular
Tulip Telecom
Financial Technologies


Others

Rajesh Exports
Gitanjali Gems
JVL Agro Industries
Cairn India Limited
Adani Enterprises
Ess Dee Aluminium Limited
Parekh Aluminex
Opto Circuits India
Aegis Logistics

I encourage the readers to share their ideas freely in the comments section.
Kumaran Seenivasan

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Saturday, May 9, 2009

Foreign Currency Convertible Bonds (FCCB)

Companies raise money in many different ways and one of the modern methods is issuing Foreign Currency Convertible Bonds (FCCB). All the money raising methods have some advantages and disadvantages and FCCB is not an exception. Though FCCB method has been in practice for a long time, it came in to prominence in India only in recent decades. Let’s discuss in detail about the FCCB and its advantages and limitations.


What is Foreign Currency Convertible Bond (FCCB)?

Most part of the answer exists in the name itself. Let’s build an explanation from the name.

We will start with Bond. In general Bond is an agreement between two parties. In finance, it’s an agreement (Debt Security) between the issuer (Company) and investors. What is the agreement? Company raises money by issuing bonds to the investors and in return, the company agrees to pay interest / coupon in periodic intervals along with the principal or the whole amount at a maturity date listed in the agreement.

A convertible bond simply means that investors have the option to convert their bonds into common stocks at a previously fixed price (Price is fixed when the bond is issued).

Foreign Currency Convertible Bond is just a convertible bond that is issued in Foreign Currency. So, we can define the FCCB as the following.

FCCB is a quasi-debt instrument that is issued in a currency different than the issuer’s domestic currency with options to either redeem it at maturity or convert it into issuing company’s stock. It gives two options. One is, to get the regular interest and principal and the other is to convert the bond in to equities. It is a hybrid between bond and stock.

Why do companies issue FCCB’s when they are several methods around to raise money?

Companies have following advantages if they raise the money by issuing FCCB.

1) It is a low cost debt as the interest rates given to FCC Bonds are normally 30-50 percent lower than the market rate because of its equity component.

2) Conversion of bonds into stocks takes place at a premium price to market price. Conversion price is fixed when the bond is issued. So, lower dilution of the company stocks.

3) Simple regulatory process

4) Investors are mostly non-residents or hedge fund arbitrators.

5) Mostly FCCB’s are issued to suit the company needs.

If the benefits exist only for the company, then of course the term FCCB would not even have existed by now. There are benefits for the investors as well and here are few.


What is in it for Investors?

1) Like any other debt instrument, capital protection by guaranteed payments to the bond.

2) Greater return potential if the stock price appreciates more than the previously fixed conversion price.

3) Redeemable at maturity if not converted.


Even though both issuers and investors have advantages, there are some disadvantages as well in raising money through FCCB. What are they?

Limitations

1) FCC Bonds are ideal for the bull market scenario as the conversion occurs at a premium price lowering the dilution. But if the stock price plummet like what we are witnessing right now due to the economic downturn, then investors will not go for conversion and they go for redemption at maturity value. So, companies have to refinance to fulfill the redemption promise and refinancing is not that easy particularly in times like this with lot of credit crunch. Earnings will get hit because of the redemptions.

2) If the investors do not go for conversion, then companies will be forced to lower the conversion price (Previously Fixed) to entice the investors to go for conversion which will lead to higher dilution.

3) It will remain as debt in the balance sheet until conversion.

4) If the exchange rate goes up, then the issuer has to pay more to the investors. So, foreign exchange plays a role too.

5) If the stock price goes below the conversion price, then the issuer loses an opportunity to dilute at a higher price.

Example : Companies that have issued FCCB

Aurobindo Pharma
Hotel Leela
Orchid Chemicals
Tata Motors
Bharat Forge
Suzlon Energy
Amtek Auto
Ranbaxy and many more….

Link: There is a related article in "thehindubusinessline" dated May 10, 2009 and here is the link to get to know about FCCB buybacks.

http://www.thehindubusinessline.com/iw/2009/05/10/stories/2009051050320700.htm

Please share your views in the comments section.

Kumaran Seenivasan

www.stockanalysisonline.com










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Saturday, May 2, 2009

Strategies – Recent Rally and General Elections

The recent market rally in spite of bad economic news has left many experts off-guard let alone the retail investors. It is true that stock markets move up well before the economic upswing. But the gain in the recent rally has beaten many historical numbers hands down though the world economy remained very weak with disturbing future guidance at least in the short term. Indian markets have performed well so far and we have the general election results in two weeks which might play a crucial role in deciding the direction of the market. In this back drop, I would like to air my views regarding the strategies that can be followed in times like this.




Why the Recent Rally is so strong?

The markets have moved up about 25 – 40 % around the world in just 6 weeks time which qualifies for the “V” shaped recovery that people often talk about. But what is disturbing about this rally is its sustaining ability amid bad economic news. Let’s list some of the recent bad economic news.

Raising unemployment in US,
Raising credit default (Bank of America has allotted $ 13 Billion exclusively for this),
Master Card profit has declined,
US GDP contracted more than Expected in the First Quarter of 2009,
US Real Estate is still in Trouble,
US Stress Test of Banks concluded that some banks still need more capital,
Auto Companies are readying for Bankruptcy,
Consumer Spending decreased in March,
Many companies have reduced the guidance numbers,
Indian Software companies have announced bleak quarterly numbers,
Reliance and ICICI announced bad results,
RBI Says that economy has not improved,
General Elections around in India,


We can go on listing many things like that and I am sure if any of these happened just 2 months back, the markets would have seen devastating and unprecedented selling. But what happened in just 2 months that made people to believe in stock market? Here is some positive news that came around.

Many companies have announced better than expected results even if they have met with loses.

Federal Authorities in US have announced that Economy is weakening in slower pace

Experts have said that stimulus package has started giving some results

So, the positive news is that the economies around the world are showing signs of improvement but I still think bad news during the same period far out weigh the good news and still markets have out performed. Why? All to do with the money people have in hand right now. Mutual funds, insurance companies and Foreign Institutional investors are sitting in more cash than ever and stocks are available at cheaper valuations. So, they think that not investing now would be a big mistake and started pumping money back into the market. I strongly feel that this rally is more because of Mutual funds, insurance companies and Foreign Institutional Investors than retail investors. The questions in the minds of people are,

What retail investors should do now?
Whether the markets will move up or not?
What would be the impact of elections in the market?

While nobody knows the exact answers, we can try to analyze things and come up with a strategy that will help rather than harm. Because, anything can happen in the stock market these days and popular perception including me is some pullback in the market (May be 10 %). But market can prove us wrong and it can move up from here on and while that happens, it becomes history and a precedent.

What should we do now?

Although Market has moved up 40 % and several stocks have moved up 100%, still many stocks are available at discounted prices to what they were valued when the SENSEX was around 21000. Some good stocks have not gained that much in the recent rally. For example, Bank of Baroda has gained 80 % in the recent rally (Moved from Rs. 180 to Rs. 327), while Bank of India has registered only 28 % (Moved from Rs. 180 to Rs. 235). Bank of India stock is as good as Bank of Baroda if not better. Some people even think that Bank of India stock is better than Bank of Baroda and many other banks for that matter. But still it is undervalued and we retail investors should target that kind of stocks. Asian Hotels and CESC Limited are other examples that are pretty much undervalued. So the point here is, buy undervalued stocks that have not performed well in this rally and wait for the market to recognize them.

Essence of the strategy

Do some research and select “Good” undervalued stocks that have not performed well in this rally. Invest some money on those stocks. Examples: Bank of India, Asian Hotels, CESC Limited and Parekh Aluminex.

Some stocks have performed well but have come down significantly during this rally and are still available at cheaper prices than what they were fetching once.

Examples

Rolta India
Aegis Logistics
ABG Shipyard
Bartronics India
MIC Electronics
Lakshmi Machine Tools
Bilcare

Invest some 50 % of money on stocks that fit into this category and retain the other 50 % for opportunistic investments. If the markets move up, then you can take heart from the fact that you have invested some money and might not feel that you are left out. If the markets go down, then you still have 50 % money to buy more of the same stocks and average it and you will stand to gain when the markets move up again. Simply sitting and watching for a pullback might not work and I think this is the strategy that might help us over the long term. Let’s go over a bit about general elections.

General Elections

We will have the results of General Elections in two weeks time and that’s going to be really messy. No party is going to garner enough seats to form a government and that’s for sure. There are only three situations.


Congress party forming the government with the help of regional parties or
BJP Forming the government with the help of regional parties or
Regional parties in alliance to form the government

While the first two options look to be very much on the cards for now, the third option can’t be ruled out either. After all India is a country where we had Deve Gowda and I.K. Gujral as Prime Ministers in no time just in the name of consensus and we even have a lame duck president just because everyone has disliked the other candidate. So, anything can happen in our country and worst thing that I fear the most is Mayawati or Mulayam Singh or Prakash Karat kind of politicians (Few more people are there in this kind) coming to the power. Then Amar Singh will even give Bharat Ratna and Padma Awards to Bacchan family dogs.

It is ridiculous on the part of government to give these awards to film personalities. What kind of contributions they have made to India? Are they entertaining Indian people for Free? If that’s the case at least there is some merit. You have National Awards, Dadasaheb Phalke Award and many more awards for film personalities and why the hell Government is equating these idiots along with people like Abdul Kalam, C.Subramaniam, Sardar Vallabhai Patel, B.R. Ambedkar and J.R.D Tata. Lets leave this nonsense here itself.

So, I have a feeling that forming a government itself might become a headache this time around. Even though BJP and Congress have regional alliances, alliance partners have been coming up with different names for the PM post and I think it will take significant amount of time to agree on a consensus (!!!) candidate. The worst thing to partner with regional parties is that they withdraw the support even if the party leader is not invited to Delhi for some meeting or there is some problem in the water tank of Jayalalitha’s house.

So, forming a government is one thing and saving it is another thing and future PM will definitely need Amar Singh’s help. Will all these things have any effect on Stock Markets? The answer is difficult to predict. The market might shrug of the bad election result just like it has ignored many above said bad news or it might eventually drop significantly thinking enough is enough.

But if anyone other than BJP or Congress becomes the PM, then definitely it will have a significant negative effect on stock market. If BJP forms the government, then it will be a boost to stock markets. Not that they will do miraculous things but the media and analysts around the world believe that BJP is a reform oriented party and they will not interfere with investments. If congress comes to power, then market might almost remain the same. So, as retail investors we can only do what is in our hands and the strategy which I explained above might help to alleviate our concerns a bit over the long term.

I request the readers to share their opinions in the comments section.

Kumaran Seenivasan

www.stockanalysisonline.com


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Disclaimer

This is a blog about stock market investments, investment strategies, and related topics. Any statement made in this blog is merely an expression of concerned authors opinion, and in no case should it be interpreted as an investment advice to buy stocks, sell stocks, or for that matter advice for any other issues be it money related or not. By using this blog you agree to (i) not take any investment decision, or any other important decisions based on any information, opinion, suggestion or experience mentioned or presented in this blog (ii) verify any information mentioned here, independently from your own reliable sources (for e.g. a registered investment advisor) and thereby check for possible inaccuracies. This blog is to create investment wisdom among general population and the authors are not responsible for
any decisions that you make based on the information provided here.
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