Friday, December 31, 2010

Corporate Governance and Equity Markets in India

One of the most talked about subjects in equity markets particularly in India is corporate governance and often for wrong reasons. Many of the greedy and brittle promoters collude with brokers and some independent individuals to manipulate the share prices and still claim that they follow accepted international (Not just Indian) standards in corporate governance. Once in a blue moon, they get caught only to claim their innocence in media and to SEBI. I would get surprised only if these things are not happening and not the other way around.


The Reasons for Weak Corporate Governance

Promoters start the company and work really hard to bring success to the new venture in spite of unbearable bureaucratic struggles. Almost all the promoters bribe officials along the way to get things done and this is not an unknown territory to any of us. Bribe and flexibility has become part of our lives and it is natural for human beings (Promoters) to feel that it is legitimate to subvert the system to make some money as they are the ones who have done all the hard work to bring the company to this level. It is another matter that they were able to achive this kind of success because of shareholder money and also they took home exorbitant amount of money as CEO Salary and perks. But how many people are ready to get satisfied with that when our porous laws allow them to make some easy money? Manipulating the share prices does not involve too much risk as in the case of some serious frauds and scams but brings easy money to everyone involved.

The probability to get caught is very minimal in India and if they get caught, it takes lifetime to prove the wrong doing. Even if they are guilty of wrong doing, they have already made enough money for few generations anyway. We do not have the "Working" system (Laws are there) to punish the individuals and prevent such things happening. Most importantly our tolerance level is the highest in the world and we forget things within few weeks and in fact we accept these things very easily. Don't we vote for criminals? Don't we vote for candidates who make false promises? These things have become usual in our country where even Poolan Devi was a MP. How many investors stopped investing in stocks just because there was share manipulation? In fact Foreign Institutional Investors bought more this week than the Domestic Institutional Investors. The reason is that they know these things have been there for many years and only few people and companies get caught. So, the reality is we need to live with all these manipulations, scams and frauds to make money in stock market.

Bank managers take money to approve loans in India since the days of Akbar and Babur and it is funny that our Central Bureau of Investigation (CBI) came to know about this only now. Almost each and every individual who is getting loan is bribing officials and they name it as 'Commission'. LIC Housing Finance Scam came to the lime light only because “Money Matter Financial” was doing this as a business, else it would have been business as usual. So, corporates need to evolve as real corporates and not family run businesses to expect good corporate governance and we are far away from it. Until that happens we need to invest in equity markets assuming that most of the companies do some kind of manipulation in financial statements, tax returns, contracts and share price. I would get surprised only if a company does not do any of these things in India. Not that I am supporting it but I am accepting to live with the reality else I will face the risk of swimming against the tide.


Recent Corporate Governance Issues and Market Volatility

As we have witnessed, there was a housing finance scam as well as share price manipulation issues in some companies. Markets reacted as if these were not expected in a country where Harshad Mehta kind of scams are possible almost everyday. Many stocks belonging to good growth sectors fell steeply and some fell as much as 50-60%. Shrewd investors should have taken this opportunity to invest in good stocks as things will only become normal in a matter of couple of months.

Below are some of the stocks that came down steeply (Many of them recovered swiftly within few days).

ARSS Infrastructure

Parekh Aluminex

Arshiya International

Hanung Toys

Gitanjali Gems

LIC Housing Finance

BGR Energy

Reliance Infrastructure

Bajaj Corp

HDIL

Anantraj Industries

JSW Energy

SKS Microfinance

Sunil Hitech Engineers

Aban offshore

Indiabulls Real Estate

Indiabulls Financial Service

Central Bank

Amar Remedies

IFB Industries

Gandhimathi Appliances

Videocon Industries

Bajaj Electricals

Patel Engineering

Godrej Consumer Products

Hitachi Home and Life Sciences etc...

I can name many more stocks that gave good opportunities during this period. For example, I bought BGR Energy when it came down to Rs. 560 because of negative news flow and the next day it went up to Rs.700 and still trades in that range. I took a calculated risk as I thought BGR has a good management and they would deal these things appropriately.

Parekh Aluminex came down to Rs.215 from Rs.600 and I do now know how many people took that risk of buying at Rs.215. This stock moved up swiftly and now it is trading at Rs.330 and if someone offers me 50% within a week, I will take it any day.

Arshiya International also moved up significantly and it came down for no reason I believe. So, it is up to us to take calculated risks if we find ourselves in situations like the ones we have witnessed recently. Only thing we need to remember is that time has answers for all the problems and our markets survived even bigger threats in the past and came out only with renewed vigour. My suggestion is to accumulate good stocks, Get rid of bad ones and stay invested. Pressing the panic button only erases your wealth in stock market.

Note: The above mentioned stocks came down significantly during the recent scam announcements but most of them appreciated since then. So, please use your judgment if you are considering to invest in any of those. As you know the price at which you buy the stock is one of the most important things that will decide your returns.


Kumaran Seenivasan

www.stockanalysisonline.com

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Sunday, September 19, 2010

Semantic Noise in Financial Journalism

Equity investment requires lot of hard work to read and gather financial information and related things so that investors stay informed about the history as well as day to day happenings. Like many I am also one of the people who invest time (Or Money value of that time) to read anything related to stock investment and I must say that I spend 40% of my time to gather information and 60% time to verify if the gathered information is true or not and decide what to believe and what not. Many people who come to stock market do so or at least get influenced by the information that they can make millions by just starting with a capital of Rs. 1000. We can’t find fault with them because the information available both in the print and online media say that Yogesh Chabria started with a capital of Rs.750 and Rakesh Jhunjhunwala started with a capital of Rs. 5000. I too read all these but I always had a feeling that these statements in the media mislead people or people misunderstand what is reported.

I am not saying that the information is wrong (With due credit to both Legends) but I contend that the information is only partially true (For the benefit of budding investors) and I am going to present the logic on why I believe so. Media reports that Yogesh Chabria started with a seed capital of Rs.750 and Rakesh Jhunjhunwala started with Rs.5000. Many budding investors think that the initial investment of Rs.750 and Rs.5000 has created the kind of wealth they have right now. Well, they might have said that when an interviewer asked how much they had when they started and they might have answered without elaborating. Here is what I believe. They might have started with Rs.750 and Rs.5000 respectively may be on the first day but they should have infused more capital shortly afterwards to achieve this kind of success. I don’t think they invested less than Rs.5000 and traded in the stock market to create working capital and then reinvested and that initial 5000 has grown in millions and billions. Let’s make assumptions on both cases to see the logic.

Let’s Assume we start with Rs.750 and I have no idea how it is possible to start investing with Rs.750 when account opening charges itself amounts to at least Rs. 1000 with majority of the brokerage houses if not all. Logic just doesn’t support this statement and only in movies we can see that and not in real life.

As I said, we can’t open a 3-1 account for Rs. 750. Let’s assume, we got the account opened for free. What all we can buy for Rs.750? Of course I am not that dumb to argue pathetically saying we can buy 0.25 SBI shares. Arguing honestly, we can buy may be 250 shares of FCS Software or similar companies which trade under 3 rupees. Then what? Based on their advice, we can’t trade. We can’t sit idle thinking that FCS will be a next Wipro. It is next to impossible for any common investor other than the promoter to just invest Rs.750 or Rs.5000 in a company and expect that the stock will return 200 crore’s 25 yrs later. There are various sources saying an investment of Rs.100 in 1981 in Infosys or Wipro could have given Rs.100 Crore or something, but they are all factual assumptions after these companies have become giants. Is there a source giving details about who invested Rs.100 in 1981 and held on to that stock for 29 years expecting Rs.100 Crore? Even if there is one, I just simply don’t believe that. ONLY PROMOTERS can hold like that.

I totally agree with the fact that Narayana Murthy started with a seed capital of Rs. 10000 and he has built an empire because he invested in a high growth business and Rs.10000 (Equal to Rs.72000 in 2010 if we assume 7% inflation) in 1981 is a significant amount. So, it is acceptable. But investing in stocks is a risky venture and starting with something like Rs. 750 or 1000 is illogical. May be this amount would have been enough when we got independence.

So, my thinking is he might have started with Rs.750 and slowly added outside capital to support his trading income or equity income whatever you call it to be in the position of where he is today.

Let’s assume we invest Rs.750 and we also assume that we are better than Warren Buffet and Charlie Munger and we manage to get 25% CAGR (4% higher than Warren Buffet) for next 30 Years. You know how much will be the amount after 30 Years? It will be mere Rs.6 Lakhs with which you will be able to pay one month rent in 2040. We will look at another way. We will start with Rs.750 and we aim to make Rs.10 Crores in next 15 Years thinking 10 Crore is a reasonable amount in 2025. You know what should be the CAGR for next 15 years? It should be 120%. For that to happen we need 2008 recession and 2009 pullback every year for next 15 years. So, things did not happen as it is reported in the media.

In case of Rakesh Jhunjhunwala, Wikipedia and many other reports say that he started with Rs.5000 in 1985. But it is also reported that he bought 5000 shares of Tata Tea for Rs.43 in 1986. To buy 5000 shares at Rs.43 you need Rs. 215,000 and I don’t think he earned over 2 lakhs from Rs.5000 stock investment within a year. Earning at the CAGR of 4200% (42 times) even for a year is very difficult. Again Wikipedia says that he earned Rs.20-25 lakhs between 1986 and 1989. It is very hard to believe as India was not even considered as a developing country during that period and there were no FII’s investing crazy money. One need to achieve 375% CAGR growth continuously for 4 years to create 25 lakhs from 5000 if that was true.

Let’s look at another way. SENSEX was at 150 in 1985 and it is trading at 19500 now. If we calculate the CAGR, it works out to be 21.50%. Rakeshji invested Rs.5000 in 1985 and it is reported that he has Rs.4000 Crore these days at a CAGR of whopping 89%. Achieving 89% CAGR for 25 Years in stock market is no joke. If this is completely true that Rakeshji created 4000 crores from Rs.5000, then Warren Buffet is no where near in terms of Compounded returns as he achieved only 21% CAGR beating S&P 500 by only CAGR 6 percentage points while RJ has got 89% CAGR beating SENSEX by CAGR 67% points. Do these numbers seem logical to you? It does not seem logical to me at least. So my point is, they infused more and more outside capital as they went on and did not really depend on the income generated from the initial investment of Rs.750 and Rs.5000 respectively.

My expectation is that financial journalists have to gather more information in detail during the interview so that they can report complete information regarding the success of legends so that the articles motivate budding investors.

Error / Mistake in Quarterly Statements

We discussed about how media reports information and how we misinterpret the same regarding financial information in Media. It is also true with financial statements. I have seen quarterly results of many companies with blatant errors. I will give an example of the latest one I found before finishing up. I found SEL Manufacturing Company as a reasonable buy and started searching for the financial details. Latest quarterly result looked fine but Q4-2010 (Jan 2010-March 2010) quarterly result has an en error in Net Profit and EPS.

http://www.bseindia.com/qresann/detailedresult_cons.asp?scrip_cd=532886&qtr=65&compname=SEL%20MANUFACTURING%20COMPANY%20LTD.&quarter=MQ2009-2010&checkcons=55c

The statement reports net profit of about 95 Million rupees (9.5 Crores) and equity capital of about 303 Million rupees (30 Crores) and if we calculate the EPS, it should be 9.5 / 3 = 3.16 (30 Crore Equity capital means 3 Crores shares of Rs.10 face value). But I do not know how on earth they came up with an EPS of Rs.8.5. This is just one example and there are many out there which I want the budding investors to be careful about.

Here is the list of Stocks that I find interesting in terms of Valuation even at this heating market.

Lakshmi Energy and Food

SEL Manufacturing Company Limited

Geodesic Limited

Oil Country Tubular Limited

But please do your own research on all these before taking any call. The market is heating up without the adequate earnings growth and this is not a good sign for investors entering the market now. My vote is to stay on cash or buy the stocks that are available cheap.

Kumaran Seenivasan

www.stockanalysisonline.com

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Friday, September 10, 2010

Profit Realization – Disadvantages of Selling Early

Equity investment itself is a risky proposition and how about the factors that are adding fuel to it? For lack of better terminology I just do not know how to describe the reduced profit realization due to the early sale of stocks. Some might refer it as notional loss but I think notional loss is something which we do not realize but is on paper. I am talking about the profit we realized already but could have gained more if we waited a bit. Irrespective of what terminology one comes up with, the essence of this article is to describe my personal experience regarding how the stocks I sold ran up to newer highs on almost daily basis within few days / weeks of the sale transaction and how that impacted my profit realization.

Why I sold Stocks?

Having proclaimed myself as a long term investor, what made me to sell the stocks within a year of buying? The idea was to take advantage of the sideways moving market. Because the market was moving up and down and my overall portfolio value was dancing to the market tunes. I waited for few ups and downs and this scenario happened again and again. So, I thought of selling my portfolio when the market reached 17500 and wanted to buy them back when the market comes down again. You know what, this time the scenario I was talking about did not happen and I do not know if it will happen soon. Only scenario that happens constantly is Murphy’s Law. Market has been going up and up and more importantly Indian Market has been so resilient in the recent months. Even a 200 point decline in Dow Jones Industrial Average (USA) did not impact significantly (Once it did). I will give the specific examples after giving my opinion about why Indian Market has been so resilient.

Why the Indian Market is so resilient?

For the last two years we have seen the SENSEX behaving in line with Dow Index because the Foreign Institutional Investors (FII’s), Mutual Funds and Hedge Funds in USA were forced to exit Indian market due to domestic redemption of equity mutual funds. But more than two years have passed since the start of the recession and all the investors in USA (Most of them through 401 K Plans) have been sitting with Cash without any appreciation in the value. Banks give no interest and real estate is in shambles. So they are left with no option but to look for greener pastures. They understand the fact that growth in Western Economies is a past story and developing economies like India, China and Brazil hold the edge. The fear for equities that they developed during the market mayhem last year is eased out due to the fact that Indian companies have mostly shown positive results throughout this recession phase. Foreign Investors can’t sit idle for a long time and they have to make the money work and they see Indian equities as a better option than all possible domestic investment option. So, the fund flow into India is steady and it seems even a crash in Dow Index won’t impact SENSEX significantly. I do not have exact facts and figures to support my assertion but this is the opinion I have got and if the readers think of any other reasons, they are most welcome to share.

Profit Realization – Example 1: Parekh Aluminex

I believe I am one of the guys who spotted this gem early when it was Rs.50 last year. Even though I spotted it at Rs. 50, I started buying only when it reached Rs.65 and since then I had been slowly accumulating the stock till it reached Rs.135. This stock was in Rs.100 and Rs.135 range for about 6-7 months and I had the ultimate confidence all this while and suddenly it started moved up to Rs.160 and again came down to Rs.130. Then the stock reached Rs.340 and again came down to Rs.240. I did hold it all this time. But when it reached Rs. 300 again, I thought of selling it and buy it back again . So I sold it at Rs.300 with more than 120% return. But within 3 weeks of selling it, the stock moved up crazily in the past few days almost on daily basis and the present value is Rs.500. Though one can’t take all the profits and need to leave something for others, this is something that we need to be very careful about if we are very serious about making very good returns. Had I waited for a month, I could have got 300% return. My belief that the market would come down this time from 17400 levels did not materialize and that reduced my profit realization.

Example 2: Everonn Education

The same scenario happened again and I will just mention only the cost price and exit price. I bought it when it was Rs.375 and sold it at Rs. 530 thinking that I would be able to buy it back at a lower price again but that was not to be the case. It moved up and up and the present price is Rs.634.

Example 3: Mahindra Finance

Again this is one of the stocks that I have specifically mentioned for long term investment in one of my previous articles as part of Financial Stocks and bought it at Rs.410 and sold it at Rs.460. Present price is Rs.630.


Example 4: Usher Agro

I have already mentioned what happened with this stock as part of the Short Term trading article. I bought it at Rs.40 and sold it at Rs.45. Present Price is Rs.90.

The situations like the ones I have mentioned above happened with many other stocks as well and now I know why the investors hold good stocks for a long time irrespective of the short term blips. Previously I knew this too but you learn the lesson very well when you experience it firsthand and I got the point now.

The point is "HOLD" on to the fundamentally good stocks for a long period of time and do not book profit thinking that you can buy it back again at lower levels. This will not happen when you sell it (Happens when you hold on to it).


Kumaran Seenivasan

www.stockanalysisonline.com

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Friday, August 6, 2010

Sector Watch – Gems & Jewellery

Gems and Jewellery sector has been outperforming the market in the last one month and I think this is one of the sectors that has bright prospects in the next decade or two. India is the world’s biggest gold buying nation and the value of gems and jewellery sector in India is currently estimated to be $ 45 Billion (202,500 Crore Rupees) out of which $25 billion (112,500 Crore Rupees) is exports. The domestic demand is expected to grow at the rate of 13% to reach $ 40 Billion by 2015 while the export is estimated to grow at a CAGR of 15% which will eventually reach $58 Billion by 2015. Also Indian retail sector is expected to grow at a faster clip and Diamond & Gold retailing is still in nascent stages with lot of fragmented players in the industry.

Why the sector will grow?

The reasons are obvious. India’s middle income population is raising so do the disposable income and people are expected to spend on luxury items more than ever before. Gold is also considered as an investment option both by rich and poor. Though Gold as an investment option has been in existence since the days of Adam, it has really picked up steam in recent years. Even specialized finance company like Mannapuram General Finance and Leasing has spread her wings solely thriving on gold loans because it offers the flexibility to assist all the sections of the population irrespective of the status while giving the company much needed security cover. So, I strongly believe that publicly traded companies in this sector might reward investors decently going forward.

Risk

Though there can be several risks to this sector, the major one that I can think of is Government policy and regulations. For example, Our Finance Minister Pranab Mukherjee announced in the budget that customs duty would increase for gold and silver which was a bad news for the sector. Policy decisions such as the above mentioned one might provide short term pains whenever the decision is made.

Companies in this Sector

Though there are many companies in this sector, I will list out some of the major ones below.

1. Rajesh Exports
2. Gitanjali Gems
3. Shree Ganesh Jewellers
4. Thangamayil Jewellery
5. Renaissance Jewellers
6. Asian Star
7. Su-Raj Diamonds


My Picks and Reasons

I have listed 7 stocks in this sector and if I were to pick the best 3 out of this list, I would go with Gitanjali Gems, Shree Ganesh Jewellers and Thangamayil Jewellery. Let’s see the important figures for these companies.

Gitanjali Gems

Gitanjali operates in Diamond, Gold and Luxury watch segment and they are also developing Gems and Jewellery SEZ’s across many regions. Among the companies in this sector, Gitanjali is the only company with strong retail presence (Excluding Titan). They also have retail stores in USA and China and this company is poised for good growth in coming years both in Jewellery and Real estate business.



Total Sales (2009-2010): 3354 Crores
Net Profit: 142 Crores (Net Profit margin of 4.2%)
Standalone Earnings Per Share (EPS): Rs.14.53 (Diluted)
Consolidated EPS: Rs.23
Debt / Equity Ratio: 0.22
Dividend: 20% (2 Rupees per share)

This stock has given 100% return in the last two months and one of the reasons is that the promoter has increased his stake by buying the shares in the open market. No wonder he is confident in the future of his company. I have already mentioned about this stock several times in my blog and I reiterate again.


Shree Ganesh Jewellery

Shree Ganesh was recently listed and its IPO price was Rs.260. But the stock price has plummeted to Rs.110 after the listing for unknown reasons and it has steadily increased since then to Rs.164. Among the pure play jewellery stocks, this is my best bet since I believe this stock is undervalued. They have also recently tied with National Spot Exchange Limited (NSEL) for e-selling of gold bars and this business is expected to add Rs.200 crore to the top line. Net profit margin of this company is the highest among the companies in this sector and they have projected Rs.4500 crore sales for the 2010-2011 financial year.


Total Sales (2009-2010): 2955 Crore’s
Net Profit: 168 Crores (Net Profit margin of 5.6%)
Earnings Per Share (EPS): Rs.36.39 (Pre IPO)
Debt / Equity Ratio: 0.87
Dividend: 20% (2 Rupees per share)

I do not have any idea why this particular stock has comedown this much immediately after the IPO, but I believe that’s where our opportunity lies and we need to grab it and in fact we should have grabbed it already when it was Rs.110.

Thangamayil Jewellery

Thangamayil Jewellery is involved in Manufacturing, trading and retailing of jewellery in Tamilnadu. They have opened 5 retail stores already and they have plans to open another 7 stores and they have already identified places for this expansion. This is also a recent IPO and it has good potential to grow in the coming years. Since it is a small cap with main concentration in retailing, it carries higher risk.


Total Sales (2009-2010): 451 Crore’s
Net Profit: 16 Crores (Net Profit margin of 3.6%)
Earnings Per Share (EPS): Rs.16
Debt / Equity Ratio: 1
Dividend: 40% (4 Rupees per share)

These are the three stocks that I am betting on in this sector and I am more positive on Shree Ganesh Jewellery in particular though it was recently listed.


Kumaran Seenivasan
www.stockanalysisonline.com

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Monday, July 12, 2010

Stock Market: What is ahead?

Stock Markets around the world have been buoyant in the past week because of positive economic outlook and reduction in negative news flow. We have experienced the slowdown in economic activity for about 30 months now and I think there are enough indications that this is going to end very soon. Indian markets have outperformed other markets because of strong domestic growth and positive IMF Projections. IMF has projected 9.4% growth for India which is really significant. Lower IIP numbers not withstanding, the markets are consolidating with positive bias.

What is Ahead?

Indian economy is going to do very well in the next 2 decades and we need to grab this opportunity by buying good stocks on every dip. Though markets are trading with positive bias, 5-10% corrections are not ruled out as the Western Countries have not come out of the woods yet. Any negative news like Greece debt will bring our markets down and that should be an ideal entry point for long term investors. SENSEX EPS for 2011 is projected at Rs.1050 and for 2012, it is projected to be at Rs.1250. If we calculate the SENSEX Target based on this EPS and Historic PE Levels, then by the end of 2012, SENSEX should reach at least 27500 (22*1250). Again this is a conservative estimate and corporate earnings can surprise us either way and markets can reach crazy levels if bull market sets in. Most of the indicators point a strong Indian economy both at micro and macro level which will take the markets to new highs ahead of world markets in the coming years.

Personally I have sold most of my stocks for profit last week as the markets were consolidating in sideways and I do not know if my move is right or wrong. But I am waiting for another correction to enter again and even otherwise I might buy some stocks which are available at reasonable valuations now. Before that I want to report some interesting stocks that have been going up irrespective of what happened in the general market and if we are fortunate to have invested in those kinds of stocks, then early retirement is on the cards.



Stocks that defied General Market Trend

Hawkins Cooker
TTK Prestige
Asian Paints
FDC Limited
Cadila Healthcare
IPCA Labs
Bayer Crop Sciences
Supreme Infrastructure
BGR Energy
Fulford India Limited
Rallis India
Unity Infraprojects
Bank of Baroda
Clariant Chemicals

All the above mentioned stocks have shown continuous uptrend with only minor fluctuations even during the 3 major corrections in the past one year. We need to find such stocks for long term investment to make good returns. But all these stocks are very expensive now and I want to point out some of the stocks that are available at moderate valuations.


Hindalco
Mcleod Russel
Tech Mahindra
Prakash Industries
Mindtree
Mphasis
Aditya Birla Nuvo

But to be a successful long term investor, we need to find out good stocks and continue to invest on every dip. We need to follow this financial discipline and accumulate the stocks by applying the principle of rupee cost averaging. So, readers don’t need to alter their portfolio just because I have mentioned some stocks here. Every one needs to follow their own strategy.

Forbes List

Forbes has recently listed the top 20 stocks that one can have in the portfolio (At this point of time - July 12, 2010) and if you have not read it, here is the link.

http://www.moneycontrol.com/news/features/20-stocks-you-must-own_468158-1.html

I agree with most of the stocks they have mentioned but if you ask me to select the best 10 stocks out of this 20, then here is my list.

Andhra Bank
Yes Bank
BGR Energy
IVRCL Infrastructure
Crompton Greaves
Unity Infraprojects
Mphasis
HDIL
Asian Paints
Rural Electrification Corporation

Happy Investing !

Kumaran Seenivasan

http://www.stockanalysisonline.com/

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Wednesday, May 26, 2010

European Crisis: Market Volatility and Opportunities

As the title suggests, Market volatility brings us very good opportunities which we will not get otherwise. If we track the stock market history in the past, one or other bad news dragged the market down when pundits were more hopeful about the bull market and this time is no different. The latest “financial bomb” came from, again the so called “Developed” countries and the difference being the region, which turned out to be Europe.

In the name of infrastructure building, all these western countries pile up the external debt to unimaginable levels and then they try to plug that debt by either printing currency or again by external debt. It is really funny that they boast of their standard of living and annual per capita income of $25,000 when the country they belong to is in the verge of collapse. Please see below for the external debt level of few important “trouble makers”.

Luxembourg – 38 times the GDP (For every 1 Euro GDP they have 38 Euro Debt)
Netherlands – 4.7 times GDP (470%)
United Kingdom – 4.2 times GDP (420%)
Switzerland – 2.7 times GDP (270%)
Belgium – 2.6 times GDP (260%)
Portugal – 2.2 times GDP (220%)
Spain – 1.7 times GDP (170%)
Greece – 1.6 times GDP (160%)
United States of America – 0.98 times GDP (98%)
India – 0.18 times GDP (18%)
So, most of these countries have huge external debt. I have highlighted Greece and India to see the Paradox (Greece has less external debt than most Euro economies). Rich Countries have huge external debt and a country that is being termed as "Developing" has less debt and in fact nothing when compared to western countries. My argument is if we deduct the per capita debt from the per capita income of these western economies then I suspect they are no better than people in poor countries in terms of wealth! Among the large developed economies, USA is in much better position in terms of externeal debt compared to European counterparts not withstanding the recent credit crisis.



Why Greece?
If you look at the above facts, most of the large economies in Europe have higher external debt than Greece. Then why Market is in fear of Greece? As I read and understood somewhere, Greece has the habit of cooking the books and I am not sure if Ramalinga Raju took training from them or they took training from him as Greece manipulated the books way back in 1994. So, any bad news in these times will pull the market down. Some of them are genuine and some of them are silly. For example, no one knows what the underlying truth with Greece is. If they default, then it would be pretty bad and I see some reason for people panicking. But if couple of policemen roams in the North Korean border, I don’t know why people should sell stocks. I thank Bush for spreading “Bush Mania” to the world as he was the one who went to Iraq war to eliminate Saddam for having few fire crackers. It is good that he did not know about Sivakasi and our Fire cracker industry. In fact we send “Rockets” during Diwali that could hit either Washington or Alaska. Anyways, against this backdrop I want to air my views regarding the stock markets and what strategy I follow.

Market Volatility

For anyone who believes in Fundamentals, Fundamentals of Indian economy in General and Indian Companies in particular are strong and most of the companies have announced robust growth and quarterly numbers in spite of the bad global scenario. So, the downside we see in the market has nothing to do with domestic issues. Foreign Institutional Investors are dumping the stocks and that’s coupled with reduced inflow of money will bring down any market let alone Indian market. No one knows what is going to happen. All the talk of SENSEX at 9000 or SENSEX at 22000 will get breached when investors panic. What I mean from this statement is, finding either the peak or bottom is next to impossible. All these “Experts” throw some numbers and 1 out of 10 gets a correct call purely based on luck. May be we can give credit to him for his assumptions based on which he predicted that. Talking about current situation, Market can go down from here or go up from here or stay where it is. This can be a bottom or the bottom will never come. Only thing that we can surely tell at this point of time is India in 2015 or 2010 is going to be much more developed and stronger so do most of the companies. So as a prudent person I would think that Investors (Both Foreign & Domestic) will be hard pressed to invest in Indian equities and SENSEX will be definitely higher than what it is today. At what level? I wish I know that. It can be at 22000 or it can be at 30000 or it can be at 40000. Anything is possible. The sure thing is our returns will be very good in 5 or 10 years down the line if we invest in good companies now and continue to invest in those companies prudently taking advantage of the market volatility.

Companies that are Relatively Cheap

Again we can tell only relatively whether a particular company is cheap or not as we do not know what price is cheap for a particular stock with 100 % accuracy. So, my strategy here is to select “relatively” cheap stocks and invest now. If the market goes down, I will continue to average as long as the company is announcing good results. When we do that, we lower the average cost price and increase the number of stocks and the result will be known when the stock market rebounds. I am listing below some of the stocks that are relatively cheap now which can be considered for Investment.

Note: Again I am listing the companies that are cheap now as there is no point in investing in HDFC kind of companies that are already expensive.

Infrastructure


GMR Infrastructure
Jaiprakash Associates
IVRCL Infrastructure

Education

Educomp Solutions
Everonn Education

Finance / Brokerage

Mahindra Financial Services
GIC Housing Finance
Yes Bank
South Indian Bank
Indiabulls Financial Services

Power

CESC
Adani Power
Reliance Power


Retail / Home Appliances

Aditya Birla Nuvo
Shoppers Stop

Real Estate

Indiabulls Real Estate
Anandraj Industries
HDIL

Others

Gitanjali Gems
Rajesh Exports
Hanung Toys and Textiles
Ahmadnagar Forgings
Arshiya International
Fortis Healthcare

Please add your observations in comments.
Kumaran Seenivasan

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Friday, April 23, 2010

Best Indian Stocks – Finance

To start with, I take immense pleasure and pride in telling the readers that some of my recent recommendations have given exceptional returns over the last 2 months and the fact that these stocks are going to give even more returns in future further adds spice to it.

I have recommended Parekh Aluminex, Usher Agro and Brandhouse retail in my last two articles(http://www.stockanalysisonline.com/2010/02/best-indian-stocks-for-short-medium.html) and all these three stocks have given more than 70% returns in the last two months. In fact Brandhouse is up 89% followed by Usher agro (85%) and Parekh Aluminex (75%). I have invested in these stocks and have made some money and I do not know how many who read my blog invested in it. But if you have invested and made money, I am happy for you.

As a sequel to my last two posts, I am giving here some of my thoughts regarding financial stocks that can be bought at this period of time (April 23, 2010). I am not going to recommend stocks like HDFC, State Bank of India and HDFC Bank as all these top stocks are trading at higher valuations than peers. But I am going to tell few stocks that are trading at relatively cheaper levels compared to other private banking peers.

Why Financial Stocks?

The recession that haunted us for the last two years is slowly giving way for prosperity. Financial companies are going to be playing a huge role in shaping our economy through high domestic consumption and discretionary spending. Disposable income of the middle income population is increasing and that’s going to be the trend for the next 2-3 decades which will highly influence the discretionary spending. People will go for Auto loans, Home loans, Personal loans and they might also invest in stocks and other financial instruments. All these activities are directly linked with the financial companies one way or other and that is a good enough reason to think about financial stocks. No brainer !!!



Mahindra & Mahindra Financial Services

This is a Non Banking Financial Company (NBFC) involved in Auto loans (primarily to Mahindra vehicles), Home loans, Rural financing and Personal loans. They also accept deposits. If you look at the numbers, Mahindra Finance clearly outsmarts other similar peers and is trading at far lesser valuations considering the potential. It has announced bumper result for the Q4 FY10 quarter and EPS for the current year stands at Rs.35. The stock is trading at Rs.425 with a PE Multiple of only 12.5 which is huge discount to other financial stocks like Shriram Transport Finance, Kotak Mahindra Bank, Yes Bank, Axis Bank and Indusind Bank. Only public sector banks trade at lesser valuations. They might also apply for banking license in the coming years and the company has huge potential to tap the Indian domestic consumption. I believe this stock can give multifold returns in the next 5 years.


Indiabulls Financial Service

Indiabulls Financial Service provides Home loans, Vehicle loans, Personal loans and Consumer Credit and is one of the fastest growing companies in India. Once the economy improves and the real estate market picks up, Indiabulls is better positioned to take advantage of the huge discretionary spending. As a parent company Indiabulls Financial Service has stakes in subsidiaries as well. The stock is trading at Rs.130 with a PE Multiple of 13 (EPS – Rs.10) and considering the huge potential in this sector, this can give excellent returns over the long term.


India Infoline

India Infoline covers the entire financial services spectrum which includes brokerage, home loans, auto loans, personal loans, Asset management, wealth management and commodity trading. Brokerage business is going to pick up soon (Once the market improves and people start investing in equities) and they distribute loans through moneyline brand which might get listed in future. Financial position of the company is good and considering the many businesses that are under, this company can give very good returns in another 5 years. Currently this stock is trading at Rs.115 with a PE Multiple of 16.5 (EPS – Rs.7).






GRUH Finance

Promoted by HDFC, this company has announced very good Q4 FY10 result. GRUH again involved in Housing finance but primarily cater to the rural population. GRUH is trading at Rs.253 at a PE Multiple of 13 (Rs.19.86 *13). HDFC has 61% holding in GRUH and considering the parent company success, GRUH can give serious returns over the long term.

Apart from the above mentioned companies, there are few more good ones which I am giving below.

LIC Housing Finance
GIC Housing Finance Limited
Dewan Housing Finance company

I am not saying that people should invest in all the above stocks. But based in the risk appetite, one can choose 1 or 2 stocks among the above mentioned ones and start accumulating. Once the market improves and Bull Run sets in, you will not repent your decision.

Kumaran Seenivasan
http://www.stockanalysisonline.com/

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Saturday, March 13, 2010

Short Term Trading

In my last post I have mentioned about the stocks that could be good for short / medium / long term investments. Though long term investment is the right option to go with, shrewd investors often do not sit and watch particularly when the stocks market moves sideways. If one plays the card well, 100% return is not impossible in a year. But, let’s be conservative and say that our strategy would give the return of around 50%. I do not think there are many investments that would give 50% in a year. At the same time, one needs to remember that we need to work hard and read as much as possible in the subject to gain knowledge so that our stock selection is spot on. If we fail to do that, then loss 0f 50% in a year is also possible. Another interesting number we need to remember is that the highest Compounded Annual Growth Rate (CAGR) ever achieved by a long term investor is 21.9% (Warren Buffet, since 1965). In the midst of this discussion, let me describe few strategies to maximize returns through short term trading.


Though I have bought stocks for the long term previously, I just wanted to indulge myself in short term trading to take advantage of this sideways moving market these days. I bought all the below mentioned stocks within the last 3 weeks (18/02/2020 – 10/03/2010) and have gained significant return for such a short period.


Usher Agro

I bought X number of this stock at Rs.40 and sold the stock at Rs. 45. Return of 12.5 % within a 3 week period is definitely not bad. But I could have gained 25% had I waited for few more days as this stock eventually reached Rs.51 in the same period. But these things happen in short term trading and we need to accept whatever comes in our way. So, 1 Lakh invested in Usher agro within this three week period would have returned minimum profit of Rs.10000 and maximum profit of Rs.25000.



ICSA India Limited

I entered at Rs.131 and sold the stock at Rs.143 which gave me the return of about 9% again within the same 3 week period. But what one needs to remember in this case is, the stock came down again to Rs.131 – Rs.132 range immediately. Had I not sold at Rs.143, then I would not have gained anything. So, that’s where we need to be very careful with this short term trading. As soon as you gain a minimum of 5%, you need to sell it.



Parekh Aluminex

Bought X number of stocks at Rs.133 and sold at Rs.155. Return of 16.5 % is something which I will take any day. Even some stocks that I have bought for long term have not given 16% return over one year period, but this stock has given me 16.5% in three week period. Ex. I bought NTPC Long time back at Rs.175 and right now it is trading at Rs.200, which is about 14% return. It is another matter that I could have sold NTPC at Rs. 240 and gained more sometime back. That’s something we need to consider as well. There are so many dynamics in stock market which are really interesting to dig into.


ABG Shipyard

Bought this stock at Rs.244 and exited at Rs. 267 again in the same 3 week period to gain about 9% profit. Had I entered at Rs.240 (It was selling at Rs.240 within this period), my return could have been more. Just a thought. But we can’t be that accurate all the time.

Though I have gained significant return in all the above stocks, I also failed in one particular stock in the same period and did not gain anything in another stock. Here are the details.




Amtek Auto

I bought this stock at Rs. 173 and sold at Rs.173. I bought this stock at the beginning of this three week period I have mentioned and the stock went down to Rs.160’s. I waited for few days only to exit at Rs.173 to make sure I do not encounter any loss.

Bharathi Shipyard

Entered at Rs.283 and have not sold it yet. Because, since the day I bought this stock, it has been going down and never moved above my purchase price. Now it is trading at Rs. 261, a loss of 7.5%. But I still have not sold it because I follow the simple Buffet’s rule of “Never lose money”. Of course if the stock is very bad, then we should be ready to book the loss but Bharathi Shipyard is a good stock.


Strategy

As I discussed above, except Bharathi shipyard, all other stocks that I have purchased within this three week period have given good returns especially Usher agro and Parekh aluminex. Let’s assume that I got 10% (Though I have achieved more) on an average for this three week period. It is ridiculous to assume that we will have this kind of “three week” period throughout the year. But it makes sense to assume that we will have 6 such “three week” periods per year. In that rate, we can achieve a return of about 60% annually which is good enough to beat many other investment options. If someone is very smart to identify a similar short term trading strategy at least once in a month, then that would give a return of around 100 - 120% per year. But this will happen more often in a market which moves sideways rather than falling market. But even then, one can still make money in falling market too because of the huge volatility though it is fraught with higher risk.

Kumaran Seenivasan

www.stockanalysisonline.com

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Sunday, January 17, 2010

Stocks and Women

Sorry friends that I am unable to write regularly these days, but will continue to post articles whenever I get time. Some of my recent recommendations that came in August 2009 (http://www.stockanalysisonline.com/2009/08/market-watch-opinion-piece.html)
are doing pretty well and I am reasonably sure others stocks mentioned in that post will also follow suit if you stick with them for another 3-5 years. Parekh Aluminex, Genesys International Corporation and Madras cement from that list are doing pretty good and in fact Genesys has given 175% return from the date of posting. In the recent days, not so much has happened in the market front but whenever something of significance happens (in terms of investment) I will post my views for sure.

I always wondered why women’s participation in stock markets is way lesser when compared to other industries and I think stocks and women, both have too much in common, so it seems Men are supposed to chase them down. This article is written in a lighter vein and I hope whoever reads it enjoys the comparison and have fun. But I assume that this article might require some very good understanding from the reader as well as things are not very explicit and there are endless possibilities to correlate every point to many things.

What are common between them?

Both are “unpredictable”. Too many people are chasing too few items and you never know whether you will come out successful.

Day to day “Fluctuations” are very common even though fluctuation in women does not happen tick by tick as in the case of stocks, but when that happens it could be more than what the stocks experience.

Good ones and Bad ones are there for the taking in both the cases. Your destiny leads you which one you end up picking. Pick the wrong one and you are done!

Men love both. Probably that’s the reason, “Value” increases for both and sometimes it is sudden as well particularly when the “Earnings” go up.

“Hidden Gems” are found in both and you need to do some research to identify. People who are great in spotting them often buy the ones whose “intrinsic value” and “Margin of Safety” is higher.


Some are “Very Expensive” and some are “Less Expensive” in both the cases. Buy the expensive one and more often than not your return is subnormal. But buying the “Less Expensive” one also does not guarantee you the supernormal profit. The answer is it depends, may be on your fate.

Note: I did not post the pictures to show you any symbolic depiction. BELIEVE ME! Now you definitely know why they are so many companies on the street, so do the stocks!
Both are “very risky” and “extremely volatile”. If you do not play your game well, you will end up losing everything. Both have the capability to erase your entire wealth. You will never get back what you have lost, but can be substituted sometimes.

“Board room” fighting’s are very common in both and often times the Chairman is forced to accept the decision of members. Otherwise board room coup is on the cards.

“Splits” are very common in both and 1:1 and 1:2 are more common than 1:5.

“Bonus” issues can happen depending on the timings.

It will be “Heart Breaking” when you lose in both.

You can definitely experience a “Crazy Peak” and “Unnerving Fall” in both the cases. Peak is always followed by a fall and the cycle happens all the time as long as you are dealing with them. Sometimes all these happen with reason and sometimes not.

If you are in search of them, you need to consider on a “Consolidated” basis and not on “Standalone” basis in both the cases. Because there could be some “Hidden Risk” or
“Hidden Value” on a consolidated basis. If it is a "Hidden Risk" then forget about the comeback.

Both have “Maturity” period and you need to wait for it.

Men become attached to both can’t get rid of it even when your life becomes miserable.

What are not so common?

You can have many stocks legally and unfortunately you can’t have many women legally. “Illegal Holdings” are fraught with danger.

Stocks are highly regulated (can be regulated) and traded on the exchange and you don’t want to do the same for Women. If you do that, Ambani’s, ND Tiwari, Mallaya and Tiger Woods will win and you lose! You don’t stand a chance. If you think you can get at least the bad one, there comes Lakshmi Mittal, who has the habit of taking the bad ones and converting them in to great asset.

So many things are very common between them and you might think great investors and stock market kings can master women too and you can’t be more WRONG! Simply impossible to anyone. But the reverse could be true. If you have mastered women, then you might become successful in stocks.

How to handle?

Patience is the key in both the cases. You have to wait for a long time to reap the benefits and when that happens, the society might feel you have achieved something but you might not!

“Long Term Investment” works better in both the cases and they perform better overtime. So some sort of “Fundamental” analysis is very much needed.

“Short Term Investment” is more risky in both the cases and only very few people have mastered and that too not because of their brilliance. Some kind of “Technical Analysis” might help you to gain in a short term and definitely it will be temporary. The performance can’t be repeated.

Stay away from “Day Trading” as it has very serious consequences.
Hope you all enjoyed the fun comparison and if you are a women reader, you are welcome to post the comment like "Stocks and Men". It will be really interesting to see your perspective.
Kumaran Seenivasan.

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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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