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Spice joins race to buyout Satyam

2009-02-01T20:48:00.001+05:30

The first hint that there was a new company that is pitching for Satyam came in late evening yesterday but the name at that point of time was not confirmed; subsequently we picked up from Spice sources that they have put in an expression of interest. However, at that stage they did not name Satyam but I have now learned that this is indeed the case and this would mean that there are at least three known bidders to have come out.

We know about L&T and it has infact expressed interest formally, it has also opted to take management control. We know about Essay, their BPO business wanting to acquire some parts of Satyam's related businesses and now Spice Corp which essentially is a telecom and services company. The exact contours are not known but it is clear that this expression of interest would have to be made to the board and at the same time to the government because Satyam is a government administered company.

The dynamics of the acquisition are something that we will try and find out but at this point of time it is clear that there is a third bidder in the race.

Courtesy: Moneycontrol.com

Markets near capitulation on -ve news flows

2008-06-24T10:47:00.002+05:30

Dismal global cues and the possibility of a rate hike wreaked havoc with the markets. The Nifty closed at 4,266 down 81 points, while the Sensex shut shop at 14,293 down 278 points. Selling was seen in capital goods, metal, power, realty, auto, oil, pharma, and banking stocks.

Sangeeta Purushottam, Head-Institutional Business, Religare Securities, said the markets are heading toward some level of capitulation on negative news flows.

On money flows, she said there is no major redemption pressure in domestic mutual funds. "They are sitting on the sidelines. FIIs are putting off incremental fund raising, while insurance companies are buying."

According to Purushottam, crude is the key sentiment driver. "Domestic inflation is another worry. Good Q1 FY09 results may help sooth sentiment to some extent."

Sudarshan Sukhani of Technical Trends said we are in a current bear market. “The next support level for the Nifty could be anywhere between 3,600 and 4,200, which is very wide. So, it is not possible to make a call and say that the Nifty is going to find support here or there. But based on current momentum, we will certainly break 4,000 and then see where we stop. At this point, there is no sense in going and buying.”

Excerpts from CNBC-TV18’s exclusive interview with Sangeeta Purushottam and Sudarshan Sukhani:

Q: The markets nearly lost 10%, does it look there is more pain left in the near-term?

Purushottam: It is certainly not looking pretty at all. The flow of the negative news continues. The market does seem to be heading towards a certain level of capitulation, which is something that a lot of players have been talking about. Many people did expect the markets to re-test its earlier lows, and head a little lower than where we hit in January. That does seem to be playing out right now. It is also a little hard to call where the bottom is going to be, unless and until we see some turn in newsflow itself.

Q: What’s going to turn it, because flows are weak from global guys? With crude sort of cooling down dramatically, can you think of something in the near-term which can turn sentiment aside of the small short covering rallies which we see from time to time?

Purushottam: Crude is key. It remains to be seen whether we are going to see crude come down in the short-term. That is the most visible trigger. So, if crude shows some respite then that could help the markets.

The markets are also watching the inflation number very closely these days. It is certainly going to turn down in the next few weeks.

The other piece of news, which is likely to come out about two weeks from now, is the results season. Expectations have been toned down over the last few quarters. If for any reason that turns out to be a little better than what people expect to support the market, then that could turn bring some level of respite.

However, it’s what lies around the horizon, apart from crude, which is going to be the major trigger.

Q: Where does one see the end to the pain in banks because they get hammered before and after the news? When do start buying them?

Purushottam: Banks are beginning to look quite attractive in terms of valuations. The uncertainty about the market is preventing buying from coming in. One is not really sure whether they going to get cheaper. But if one takes a look at the banking sector as a whole, you tend to perform broadly inline with the market over the long-term. The good time to buy banking stocks is when they have gone through a huge bout of underperformance, which is what we are really seeing right now. That’s seems to be one sector which is in a way capitulating first.

We may see some meaningful bounce backs. It is a little hard to say whether it is completely bottomed out, till we get a sense about the overall market. But valuations on prices to book are beginning to look quite cheap. Many of them have actually come to the bottom of their 4-5 year trading ranges.

Q: What about infrastructure? L&T dashed very quickly to Rs 2,400 and BHEL is languishing. What are the fears, which are pegging infrastructure stocks down so much?

Purushottam: In infrastructure, the concern really hasn’t been so much on demand, because most of these companies are sitting on healthy order books. There is reasonable revenue visibility over the next couple of years, even if we assume that there is some slowdown in order inflows in the next few quarters. The bigger concern really there is on margins. How much will inflation actually hit margins? How many companies will be able to pass on the cost increases? Many of these orders were taken a few years earlier and they may not have completely passed through escalation clauses. That is really the bigger fear as far as the infrastructure sector is concerned. Part of the fall actually was a correction of fairly excessive valuations. Some of the stocks had become very expensive. The second concern really is the impact on margins.

Q: What's your take on liquidity after speaking to your institutional clients from both the FII perspective, which has been a continuous sell, and from mutual funds who have just sitting on quite a bit of cash but don’t seem to be in any tearing rush to deploy it?

Purushottam: Domestically, most people tell us that they haven’t really seen huge redemption pressures. Cash flow positions are fairly comfortable, so there is a fair amount of liquidity actually waiting under the sidelines, which is the silver lining. Whenever the news flow does turn, we would probably have a fairly strong rally. But as of now, there is really a lack of conviction in terms of what is the right time to get back into the market.

The international flow obviously has been negative for the last several months. We do hear of clients that some people are facing redemption pressures or putting off implemental fund raising. The liquidity picture there doesn’t look as comfortable. In fact, domestic liquidity has been better. The insurance sector has actually been buying consistently. So in times like these, they do come in and accumulate. Domestic liquidity overall has been lot more comfortable than the international one.

Q: How are you mapping the Nifty from hereon?

Sukhani: We have already broken down from that significant support level of 4,400. We are in a bear market and therefore we should not be surprised when prices fall, because that is what a bear market is all about. Once 4,400 is broken, what is the next level that we should be looking for? Unfortunately, there is a free fall after that.

The levels could be anywhere between 3,600 and 4,200, which is very wide. So, it is not possible to make a call and say that the Nifty is going to find support here or there. But based on current momentum, we will certainly break 4,000 and then see where we stop. At this point, there is no sense in going and buying. We are still trying to catch falling knives, but traders must be careful. These sharp vicious bear market rallies come and they wipe off all their short profits. One of them is likely to come tomorrow.

Q: If you get higher levels on the Nifty in some short covering rally, would you consider shorting that rally or is that dangerous as well?

Sukhani: It is not dangerous because this is a bear market. When the Nifty goes towards 4,400, you have to wait patiently for the rally to give signs of exhaustion. But once those signs start coming in, it will be a short selling candidate again, based on the current technical picture of the market. Short sellers should be rewarded repeatedly.

Q: Do you think we will see sub-4,000 levels in this leg of the downside?

Sukhani: Yes. I hope I am wrong. But it does appear that 4,000 will break down.

Q: What are you seeing on the charts of some of the heavyweights which are coming off very sharply like Reliance and SBI?

Sukhani: SBI has been underperforming, so the charts are telling us that the underperformance will continue. If the Nifty makes another decline, then we are likely to see banks go below Rs 1,000. The Reliance and Nifty are going hand in hand. So, any weakness in the Nifty tells us that Reliance will also fall.

Q: What about L&T which has collapsed to Rs 2,400?

Sukhani: L&T has broken support levels. There is a free fall and nothing to hold it. I am not saying it will reach there, but there is nothing to hold it before Rs 1,500-1,600. So, it can stop wherever it wants.

Source: Moneycontrol.com

Expect risk re-pricing to begin

2008-06-16T21:32:00.001+05:30

Arindam Ghosh of Mirae Asset Management expects the risk re-pricing to begin. If crude prices stay at current levels, he thinks there would be under -recoveries to the level of USD 60 billion. The consumption of commodities will go up considerably, he added.

Excerpts from CNBC-TV18’s exclusive interview with Arindam Ghosh:

Q: What might we do for the foreseeable future? Is the worst of the pressure behind us you think?

A: The worst is behind us. Clearly we are getting to see some kind of a pullback, which is now starting to happen even in the US markets. There is a strong case for reprising now to start happening and over a one-year period the risk reward definitely looks good for the Indian market.

Having said that there are definitely challenges in the short-term, the macro economic conditions have been worsening at the margin in the short-term. But clearly one needs to look beyond and needs to take a long-term view on Indian market. The core is very much intact and whilst you have these factors like inflation, oil and interest rates and typically these are all global influences now which are playing a big role and impact on the Indian market. But one needs to look beyond and essentially follow market neutral strategic.

Q: How is the mood of the global investor towards India and Japanese but across the region. We have seen exodus of money. Are people looking for further underweight their India position over the next few months?

A: We have seen some amount of unwinding positions in the past but these investors do have a long-term view on Indian market. Essentially people are ready to pay a certain premium for the Indian market largely because we are a diversified economy; our dependence on exports is much lower. Typically from US perspective our view is that money has to ultimately find its place and money has to move to markets which are relatively attractive now.

In the past we have seen the US markets to be relatively much more attractive and therefore typically we have seen a period of complete risk aversion when money has actually stayed in that market. But the sense we are trying to get now from the west is that probably we would see a certain amount of risk reprising starting to happen and therefore allocation, our belief is that it’s going to increase to the emerging markets including India.

Q: Can you take a sanguine call on the Indian equity market or does it have to be a call on crude as well because Gastrom over the weekend is talking about USD 250 crude. Would any of your fundamental assumptions hold if crude were to indeed go up to between USD 150-200 or essentially that is a call you need to take, to take a call on equities in India over the next one year?

A: Crude will continue to play a big role in the short-term movements of the Indian market. Currently our view is that if the prices stay at current levels, we would probably see under recoveries to the extent of about USD 60 billion.

What worries on the crude side is if one would analyse - one will see that while the move up has been almost by about USD 60-70 per barrel but a large part of this has been on the back of weakening dollar. But surprisingly in the recent past whilst the dollar has been kind of strengthening a little but inspite of that the crude price have continued to be inching up. There is a lot of speculative position which is been building up in the oil futures. And probably if we get to see some unwinding of these speculative positions happening we may see a cooling off to happen on crude prices.

Geopolitical tensions in the past - we do not look at that has one of the big drivers. We have seen some of the Gulf Cooperation Council (GCC) countries now announcing their policies of kind of trying to boost supply. But overall our view is that probably the impact on prices going to be negligible. So more of speculative build-up and unwinding of that would probably help to correct the situation of the imbalances which now exists. But if one has to look at different asset classes, we feel that commodity which includes crude is the hot asset class. And that is because most of the other asset classes have been showing negative trend and that is something we believe is going to continue in the immediate foreseeable future.

Q: Is that something you would translate into the equity market as well, change your portfolio around a bit to lean towards commodities, whether it is oil or metals or even soft commodities?

A: We are coming out with the commodity stock fund clearly because we believe that the demand-supply mismatch is going to continue for a certain period of time. And on the strength of that, we believe that consumption is going to increase as developing economies go up the curve. Also as income levels go up in the developing economies, the consumption is going to go up. So whether it is crude, food grain or even your consumption of textiles would ensure that commodity prices continue to stay up.

So for this particular fund that we are going to be coming out of with of course it is going to be largely across both hard and soft commodities. As far as our existing funds are concerned, we have been seeing a certain amount of rotation of sector but that is largely because I think by and large everyone has been taking a kind of momentum approach to investing rather than long-term investing. Because if you look at the last six months nothing has really changed in terms of sectors but in spite of that many sectors, which were kind of looking very hot prior to January 21 has suddenly come off. So I think if one looks at one year horizon and makes right investment decisions and not decisions, which are guided more by momentum, I would imagine that even some of the sectors which are now looking negative over a one-year perspective are going to be long-term drivers of growth.

Disclosures: It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.

Source: Moneycontrol.com

Stay away from mkts

2008-06-16T21:31:00.000+05:30

The markets got off to a strong start today on the back of strong global cues from Asia, and a strong close on Wall Street on Friday, but profit booking at higher levels kept gains in check, and the indices closed with gains of a little over a percentage point. The Nifty closed at 4,573 up 55 points, while the Sensex shut shop at 15,396 up 206 points.

Dipan Mehta, Member, BSE & NSE, feels the kind of relentless selling, which was being seen in the market, seems to have subsided. “There is a bit of institutional support coming in at lower levels, which is a positive. A lot of market players are in a wait and watch mode, and all eyes are on crude oil, which has seen a correction over there. The key trigger for the markets to trade higher from these levels would be a further correction in oil prices to maybe below USD 130 per barrel. If that situation were to occur then one could see the markets trade significantly higher.”

Mehta feels there is enough money on the sidelines waiting to be invested. “At the same time, there are adequate short positions also which could get covered, if there is even a slightest bit of good news coming on the oil front and from other global markets. At the end of the day, investors have to realize that whatever price moves are going to be there, they are going to be quite narrow. Stop losses have to be put in place and followed quite strictly, only then would one survive in a market like this. It’s a bit of a confusing picture at this point in time. It would be better to stay away, there is no necessity to trade."

E Mathew, Director, Mathew Easow Fiscal Services, said the markets are disappointed because 4,630 or 4,650 couldn’t be crossed decisively. “It would be much better if one had a labored sort of a view. This is because the sharp spikes undoubted are not sustainable. It is important that we sustain above the five-day moving average, which is around 4506. The Nifty needs to keep its head above 4,506. It should slowly and gradually try once again to make an attempt to cross 4,630-4,650 and then head towards 4,750. Only after the Nifty consistently maintains above 4,750, can we say that at least the short-term trend is changing for the better. I would like to re-iterate that sharp spikes would not help. It will just help in a little bit of a bear covering, but a slow labored sort of an upmove would be much better for the health of this market.”

Source: Moneycontrol.com

Long-term India growth story still attractive

2008-06-12T17:42:00.000+05:30

Devendra Nevgi, CEO & CIO of Quantum Asset Management Company Pvt Ltd said that it is very difficult to take a call on the market on a daily basis. He feels the Indian markets certainly looks attractive to the long-term FII investors. He said that 15% of the FY09 earnings looks attractive, if one believes in long-term India’s growth story.

Excerpts from CNBC-TV18’s exclusive interview with Devendra Nevgi:

Q: What is the call for the rest of this month, is this the worst you think that it can get or might we see lower levels?

A: I think it is very difficult to take a call on the market on a daily basis. I believe that FII flows to the tune of around USD 5 billion have gone out of the market. That maybe around some of the hard flows that had come in last year. The Indian markets look attractive to long-term FII investors. 15% of the FY09 earnings looks attractive if we believe in long-term India’s growth story. In the short-run there might be some negative moves caused by negative global cues that are there in the market. But the long run would be a good time to trade in the market.

Q: What about the interest rate situation because we have had an uptick yesterday, how are you positioning yourself in some of the interest rate sensitive sectors now like banks, autos, real estate?

A: I think the repo rate hike was more or less expected by the bond markets, maybe not fully by the equity markets because the bond markets have already reacted by 5-10 bps. I do not see any major rise because of the repo rate hikes in the interest rates on an immediate basis. But yes, I certainly see the Reserve Bank of India (RBI) showing some hawkish signs on the inflation. As and when the oil price hikes get factored into the inflation numbers, it might inch very close to double-digits.

The RBI would maintain its hawkish stance towards the interest rates and inflation for the simple reason that they might be able to give up a little amount of growth even if they have to control the inflationary expectations. I think banks and autos sectors will be impacted and I think that the hawkish stance has already been in the price of some of the banks and the auto sectors. So there is no point in reacting to these kinds of changes to churn the portfolio in the short run.

Q: You have got quite a bit allocated to energy as well as a space. What leg of energy do you like right now between power and oil and gas and within that is it upstream, downstream what you prefer?

A: If you look at the Quantum long-term equity fund portfolio, we have got exposure to the oil and gas upstream as well as oil and gas downstream. As far as upstream goes, we do hold Oil and Natural Gas Corporation (ONGC). On a longer-term basis ONGC being available at a P/E of around 10, looks reasonably attractive.

As far as the downstream goes, if you talk about the three major oil companies ie. Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL), there are problems now and these problems have cropped up because of the wrong policy adopted by the government as far as the oil prices are concerned.

The misallocation of resources within the economy from oil companies to fiscal deficit to consumers has created a lot of issues. But we believe that ultimately there will be a long-term solution to it and these stocks will continue to do well.

So we are holding onto the Quantum long-term equity fund. We have exposure to the oil and gas upstream as well as the downstream.

Q: Give us one word on HDFC, which is your second largest holding. Last we checked for the quantum long-term equity fund, the stock was down 7% on the interest rate concerns. How would you look at that stock in terms of valuations and prospects in this interest rate environment?

A: HDFC is in much better position than anyone in the country to understand the interest rate environment. A company with a strong business model, with fantastic people behind it and a very strong and knowledgeable treasury, they should be able to manage this interest rate risk via various options that are available in the markets. So we are not really worried about the 25 bps hike in the repo rate and how it will impact a company like HDFC in the long run a company. HDFC has probably seen interest rates going upto 15%-16% way back in 1998 and is still the same. The growth on the loan side and the advances side is still very strong. The margins on a Compound Annual Growth Rate (CAGR) basis in the long-term look reasonably good. So we really do not feel the need to act or react because we have value investors. We do not really react to a 25 bps hike, which may or may not translate into a significant and negative impact on HDFC’s bottomline.

Disclosures: My family, my fund and I may or may not have any personal holding in the stocks and sectors discussed.

Source: Moneycontrol.com

Market to trade ranged between 14,700 & 15,500

2008-06-11T22:13:00.000+05:30

After two days of gloom, traders were cheered by a strong relief rally. The indices got off to a robust start, and maintained the momentum through the session. The Nifty closed at 4,524 up 74 points, while the Sensex shut shop at 15,185 up 296 points..

Deven Choksey of KR Choksey Securities said investors should watch crude oil prices. "Crude oil prices are likely to soften going forward. If markets are going down from this level, probably we will not be able to sustain this rise. Currently, the markets are seeing short covering. Probably, between 15,200-15,500 we may find some amount of sell-off coming in the market, which may once again take it back to around 15,000 or a little below 15,000."

Investors will have to play this particular market very cautiously, he said. "If one has short-term positions, one will have to play really well as far as this market is concerned, because it is not in your control. It opens with a gap and hits you on both sides if you are committed on either side."

According to Choksey, global regulators are coming together to curb liquidity from the global market place, which means that the money will have to come out of the speculative asset class like commodities and oil. "It also means that some amount of softening is happening sooner than later, particularly in oil. Given that kind of scenario emerging, economic fundamentals, which otherwise started turning bad, may not get as bad going forward. If funds start coming out of commodities, and crude oil, then crude oil prices will start coming down. In such a situation some amount of optimism can happen in the market, with some amount of money flowing back into equity market. Equity markets, particularly in emerging markets, may get some amount of re-rating into stocks and that could probably stabilize the market going forward."

In the short-term, Choksey said, there is some amount of short covering leading to the upside in the market, which may not survive. "The markets will once again come down but this is the kind of trading range one will have to operate in till full stability comes in. The rangebound moment has not gone away. The Sensex may trade between 14,700 and 15,500 for the next few days. If it trades for at least the next few days and sustains in this band, probably we will have to wait for newer levels to emerge on either side, based on the development that takes place in the global markets."

Vijay Bhambwani of bsplindia.com said buying commitment needs to step up sharply before one can go and buy and hold something. "I would definitely like to start reducing my commitments on the long side. Yesterday, one saw approximately 55 lakh trades on the Nifty, with an average ticket size of almost Rs 25,000. That's is not the kind of ticket size or the number of trades I would have wanted to see on a day where the markets closed off the intra-day lows. Buying commitment needs to step up sharply before one can go out and buy something."

Source: Moneycontrol.com

Markets may see more pain

2008-06-11T21:48:00.002+05:30

Raamdeo Agrawal, Director and Co-Founder, Motilal Oswal Securities, said the recent sell-off in the markets was unnerving. "The markets are likely to see some more pain.

High crude prices remain a concern, he said. "This will create a lot of structural problems."

He however remains bullish on the markets. "A lot of cheap stocks are available. So, serious money can be made if one invests for 2-3 years."

Prashant Vaishampayan of Pharma Analyst, Kotak Securities said it makes sense for shareholders to tender at Rs 737 per share. He added that fundamentals will not change depending on the open offer. According to him, the generics business is not facing problems and may not be reason for a sell-off.

Excerpts from CNBC-TV18’s exclusive interview with Prashant Vaishampayan and Raamdeo Agrawal:

Q: Is it just a short covering pull back or do you think the worse is over for the moment?

Agrawal: This kind of pains lasts much longer and it does not get over in 15-20 days. So, the damage is quite deep and it is going to take some time before the market actually gets back to previous levels. Even if the index does not go down much, the pain will be there. Two-third of the market decline is over but only one-third of the pain is over. So, some more pain is ahead.

Q: What is making you apprehensive about this market setup now?

Agrawal: Oil prices are at USD 135 per barrel and still people are saying that it could be as high as USD 250 per barrel. You cannot be very right in oil prices. If the oil prices are to stay here or move around USD 120 to USD 150 per barrel, it is going to create a lot of structural problems for the local and global economy.

A lot of things will change. So, oil prices are not going to come down. The talk is how higher it can go. So, in that environment, it is looking very challenging.

Q: Would it be fair to say that the fundamentals or the environment for equities has worsened in the last 3-4 months? Are you feeling less bullish about equities for the foreseeable future?

Agrawal: I am more bullish about equities. I don’t know what is going to happen in 6 or 8 months. I am feeling more bullish purely because we can get stocks of our choice at our prices.

In equities, you can make serious money only if you buy it cheap. Four months back, it was almost impossible to buy anything worthwhile at reasonable prices. Today, you can see some values around where you can say that these are the prices in which you can make some serious money into the next 3-4 years.

Nobody knows whether in the next 6 months whether it will be down or flat. So, I am not talking about a 6-8 month scenario but a little longer-term. You need low prices in the stocks and that is what is there right now.

Q: What is your take on the deal? At Rs 737, does it make sense for shareholders to tender?

Vaishampayan: Yes, it does make great sense for shareholders to tender at Rs 737. It is a huge premium to the current market price and the acceptance ratio will be the thing that you will look at. They are going to make an offer for 20% of the company and the remaining 65% is the free float. So, the acceptance ratio is not going to be very high if everybody tenders.

Q: What about valuations for people who want to hold onto the stock beyond the open offer? What do Ranbaxy’s valuations look like? Is it wise to hold on at these valuations or better to tender an exit to the extent possible?

Vaishampayan: There are several conditions that have to be met and we really do not know what would be the exact number of shares. If there is very little response to the open offer, your shareholding remains only at 35%.

The fundamentals of the companies have not really changed; the topline and EBITDA margin analysis has not changed. Would the number of shares change dramatically because the stake has to go to 50.1? That would certainly mean a huge dilution and the per share value will go down.

If on the other hand, they get their 20% tender, there is no need for any further preferential issue which would have actually given Ranbaxy cash to do more acquisitions. So, we will have to take that call once we get to know how that offer is progressing.

Q: What did you make of the Ranbaxy deal? What would you do with the stock now?

Agrawal: I am actually surprised by the total sellout. Getting Sankyo as a partner was one thing, but this is completely a historical thing. A number one pharmaceutical company from India, which was completely homegrown, has sold out 100%.

I personally had some shares, which I have sold in the market. Right now, we have decided to exit at current prices.

Q: Do you take it as a signal that the management does not have great visibility for going forward into the next 2-3 years?

Agrawal: Somewhere the management must be thinking that either the Indian market opportunity is going to shrink significantly. Generics, per se, all over the world could be facing marginal squeeze. These could be the reasons and obviously they are not able to scale up their own R&D into the entities. Malvinder Singh must be seeing some problem. On his own, he may not be able to see how he can take the company forward from here and he is getting a good deal from Daiichi, so he took it.

Q: Is that a fair way to think for shareholders of Ranbaxy, that if the promoter himself is exiting then there is no point for the minority shareholder to hold on?

Vaishampayan: It is difficult to fault that argument in the short-term.

Q: Do you consider that the generics market is topping out?

Vaishampayan: At the previous earnings call, the management was extremely confident of growth and momentum building up. So, I don’t really see how things would have changed so dramatically in such a short time.

If you look at the quarterly numbers of other Indian companies, we are actually seeing a lot of profitability come back. Managements are becoming more and more confident. I don’t really think that generic business in India or in emerging markets and developed markets are facing that kind of a problem in the short-term.

Source: Moneycontrol.com

Markets may hit Aug '07 lows very soon

2008-06-10T21:57:00.001+05:30

Rajesh Jain, Director and CEO, Pranav Securities said, "One would expect some sort of a dead cat bounce, even a pullback accompanied by short covering, because there have been fresh shorts initiated over the last two days. A combination of all these three should give a Nifty an upmove of close to 150 points."

He believes that should the market find their feet around this point, then 150 point pullback on the Nifty is not ruled out. Markets will see value buying in this case across investor classes even if for a very brief 150-200 points on the Nifty. But should the market slip very sharply tomorrow morning, then expect the August 2000 lows much earlier than before, he warns.

Excerpts from CNBC-TV18's exclusive interview with Rajesh Jain:

Q: Can you expect a bit of a short covering pullback from these levels or do you think it is still headed down?

A: One would expect some sort of a dead cat bounce, even a pullback accompanied by short covering because there have been fresh shorts initiated over the last two days. A combination of all these three should give Nifty an upmove of close to 150 points.

Q: What are you hearing about the institutional activity today both domestic and foreign, has there been another spate of selling?

A: The foreign segment has been caught in a pincer on the currency and stock market tickers. There is a very sharp depreciation in their portfolios. It’s not surprising that they are probably looking to sell India and probably latch on to what is expected to be a good year for US equities in terms of our performance. That is explaining part of the huge selling we are seeing from the FII segment, but the domestic institutions and mutual funds have given two very positive clues. One - there isn’t too much of redemption pressure from retail. Investors have not been succumbing to panic and unwinding portfolios, which is a positive side on the domestic front. Two - the numbers are heading towards south because there is institutional buying going on in the Indian side even today.

Q: What do you see happening for the rest of this month, do you think we have put the worst behind us or is this going to shape up to be one of those January like months or worst?

A: We are at the tipping point. Should the markets really give away in a major way in the latter part of today or even early tomorrow morning maybe in sympathy with the Dow Jones or maybe in line with what the Asian markets do. We could be visiting August 2007 lows much sooner than we had expected. Currently the markets are at tipping point. Udayan Mukherjee began the show by saying that there has been a 50-point pullback on the Nifty and it would be interesting to watch the manner in which the markets close today.

Should the market find their feet around this point then 150-point pullback on the Nifty is not ruled out and you could see the visitation of value buying across investor classes in the market even if it is for a very brief 150-200 points on the Nifty. That is a crucial thing to watch, but should the markets slip very sharply tomorrow morning, then one can expect the August 2000 lows much earlier than before.

Q: What is your own gut feeling about where this will eventually end, even if you do get a pullback of 100-150 points on the Nifty, do you think that will signal the end of the problems or would that also get sold into?

A: It would be sold into because the problems, which have triggered off the FII selling, are not going to find solutions in a hurry. You may see some come off in the crude oil prices, interest rates could worsen for India, and inflation does not seem to be letting off. We should get some of the worst figures in a couple of weeks and even globally none of these parameters are expected to act in favour of the equity markets.

Bernanke has already signalled that one should not expect anymore relief on the interest rate side and the US dollar continues to yo-yo; even for India, the rupee is expected to continue to depreciate given the crude oil scenario. So, none of these problems are going to be solved in a hurry. If this is what has triggered off FII selling, there are number of strategists who are now saying that emerging markets like India could be a secondary destination for making money as compared to the developed US markets then you will see a reverse flow of funds. Any surge in the markets, 150 or 250 Nifty points will get sold into for sure.

Along with that, we are going to see a lot of mettle selling even from various segments of Indian investors. The worst will be the side market, the tier II and tier III stocks and the penny stocks, all these will find no takers. So you will have any number of investors, traders, speculators wanting to unwind positions and portfolios in such stocks and there will be no buyers practically. You will see a lot of the market at the site melt-away completely. So at every surge, we will face the threat of the fresh selling.

Q: Any thoughts on this whole pocket of capital goods like Lanco, GMR, Punj Lloyd and how things might shape up for them?

A: The entire capital goods sector and particular the stocks that you mentioned are suffering form twin factors. First, there is almost a confirmation that the investment cycle, which the economy was witnessing and benefiting from, is at the minimum likely to stall if not shrink. If that happens most of these stocks are going to see pruning of order books and even reductions in the margins.

Secondly, most of these stocks have seen tremendous run-ups. Until January, there was huge over ownership, the valuations were very steep and most of them had great order books but these are all discounted. We have seen couple of cases where orders have been reversed and because of this there has been significant selling in this sector. There is lot of profit waiting to be booked and so in a market which has fallen steeply a lot of FIIs, institutional investors would like to book gains on some of these stocks because they had run up vertically.

A combination of all these things had made most of these stocks untouchable and there is no fresh buying emerging despite the sharp fall.

Q: You have been hearing on Anil Manghnani is sounding pessimistic, are you as pessimistic or do you think there is a chance that we may actually bounce off and not go to the lows that people are fearing?

A: There are vestiges of truth in what Anil Manghnani has just mentioned. We could be getting into a 2001-2002 kind of situation when this market saw all buyers just disappear because the funds flow picture did not offer any positive signs.

You may still have had the Indian economy chugging along but what this market lacked in that bear phase or in that bad period was a complete absence of buyers. This market has already been a ‘do not buy’ market for a August 200simple reason that there is this noise all around that you could be visiting the August 2007 lows, so you are sure that you could be able to buy all the good stocks that you want to buy cheaper. The second aspect is because of three economic factors FIIs have resorted to selling. So, even the funds flow picture could turn negative.

In such a situation, Anil Manghnani could be proved to be right. The grass root demand, which has been the main attraction for equity investments into India, has just been dented but not totally destroyed. What we could discover at the end of the first half of the numbers for the current fiscal is that despite the interest rate, inflation scenario and the rising aspirations of the large Indian population, the availability of disposable surplus incomes could both give an unexpected demand picture which has been able to tide over inflation, interest rates and currency as cost push across sectors. If this picture emerges then 2001-2002 will not be revisited. A 65% probability to that despite the hugely negative scenario around us can be expected.

Q: You spoke about 150 points bounce on the Nifty, if you had to trade that what sectors would you latch on to now, the beaten down ones like banks and infrastructure or the ones which have been relatively stronger like IT and pharma?

A: A combination of the two would be good. Pharma is a little overdone, particularly Ranbaxy, on news expectations, but we have, a) plans to buy IT and b) we think oil had once again faced too much hammering over the last couple of days. We had recommended buy on oil marketing companies yesterday and that has got vindicated today. ONGC will give a Rs 100 push even from the current levels. Defensive sectors, which have greater upside, will also be looked at. ITC would be a great buy at this point.

A momentum play like realty even though it seems to be completely out of fashion now is also good because the cut there has been sharp and on pure trading momentum pullback basis buying some of the better realty stocks could give good dividends for the next three to four days.

Q: There are some of those very valuable stocks or at least hither to held blue-chips like an HDFC Bank and an Axis Bank which have seen such severe falls probably 2006 lows getting pierced or nearing those kinds of levels, you see value in any of these or would you also say that momentum has quite shifted away from this category of stocks?

A: The banking space is right now suffering from a host of uncertainty. You have the great inflation interest rate question mark, you do not know which way the interest rates are going to pan out going forward, we do not have as transparent a system as perhaps the Fed in the US. So how will the banks grapple with the interest and most specifically the interest margin scenario?

On the other hand, you are not even sure whether the credit offtakes will maintain the rosy picture that we had last year. Given the fact that the banking sector was also fairly over owned, we are continuing to see a spate of buying on banking. You will be able to get a better picture on banking in October that is after the first half numbers are known and you are closer to the next credit policy.

As far as realty, infrastructure and all these sectors are concerned, there is a complete lack of fancy. The valuations in most of these sectors had been overdone. The order books were almost as a rule greater than five years and these were hyper-discounted and there was a host of placement activity whether it was domestic or overseas, Foreign Currency Borrowing (FCBs), Foreign Currency Convertible Bonds (FCCBs), all these led to a bubble in terms of the valuation. So even though today at the grass root level, the demand for housing, roads, infrastructure and all is very robust, there is a complete negative fancy for these stocks and there are no fresh buyers and all the over ownership is resulting in terms of sustained selling.

So, the value argument even though at a base level could give you an attractive picture vis-à-vis the 52-week high, the absence of buyers is what makes these stocks less attractive at this point.

Disclosures: It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.

Source: Moneycontrol.com

Markets may fall 10-20% in coming weeks

2008-06-09T20:56:00.001+05:30

There is uncertainty over earnings and that is the single biggest risk for the Indian markets, Sid Khanna, Chairman and Managing Director of India Equity Partners, said. He believes that there could be a 10-20% fall possible for the market in the coming weeks.

He expects to see correction in real estate space.

Excerpts from CNBC-TV18's exclusive interview with Sid Khanna:

Q: What’s your take on the equity environment right now because there is a lot of fear which is visible?

A: I am not particularly surprised as this is certainly a period of global uncertainty which we have seen over the last few months, with events in the US and Europe. There was a considerable theory for a period of time that there was disconnect with India and the other markets. I didn’t believe in it. Some of that connect is coming through and that has combined with some local factors in terms of the uncertainty around the elections. For a considerable period of time, I was of the view that when the oil price normalization started happening there would be deep introspection in terms of industry and buying power. All of this is a period of correction and introspection about what results are going to be like for the next 12 months. I am not at all surprised actually in terms of turbulence that we see in the markets.

Q: We are also one of the worse performing equity markets, at any rate, until now. Are you seeing a specific or focused approach by money funds or money towards India right now? Is it being siphoned out only from India as market or is there generally risk aversion in the air?

A: This is a combination of factors. India was relatively the most expensive emerging market for some of the factors that I pointed out like elections. The oil price subsidy gradually is being removed. People are recognizing that India is going into a period of uncertainty over the next 12-15 months and therefore it is time to be cautious. People are asking whether this strong growth will continue at 9%, will it slip for a year or two to the 6-7% mark? These are questions in the air and therefore it’s time for global investors to be a little bit cautious about the extent of exposure.

Q: We have had 4-5 good years coming into 2008. How long do you think it would take to make the macro adjustments before we can resume the upward trajectory once again in India?

A: Growth is going to continue remain strong. One should not be too negative. In many countries, you are seeing 1-2% growth, so 9% is fantastic. If 9% comes to 7%, then it’s still a very strong showing. India will continue to grow very strongly in the next five years. The real question is going to be whether we going to restart the economic reform, are we really going to have a proper crack at infrastructure, and continue with privatization? Those are some big questions that need rapid resolutions and confidence building. If we can address them over the next 2-3 years, I really see no reason why we wouldn’t go back to the 9% or 10% grit. But if we don’t address them, I would see some slippage in growth rate.

Q: What do you think is the single biggest risk for India as a market? Is it what is happening with commodities globally or with our macros and the state of our fiscal deficit, or do you think its something else in the market or generally markets don’t have quite their eye on it right now?

A: From a market perspective, the single biggest risk today is the uncertainty in terms of where corporate earnings are headed in the next 12 months. One hears very mixed reports as you talk to corporations. Clearly their growths have lowered compared to last year. Are they going to be sharply lower or somewhat lower? As that unravels, you are going to see implications for the market. Over and above that, the macro factors about elections looming and the oil price adjustment will continue to raise a question mark for the next six months at least.

Q: The entire private equity space had kept a very close eye on real estate as an investment opportunity for the last couple of years. Now, that secondary market valuations have collapsed from a private equity perspective, how are you looking at that space?

A: From a real estate perspective, we just had those phenomenal rises going through both on land valuations as well as the uptick in commercial and residential spaces. Some of those valuations had gone considerably out of whack and this is a time for healthy correction. In that state, a large number of people were going out and looking to raise funds at relatively expensive rates from a debt perspective. These are early signs that we are going to see some correction there.

Q: The other pocket or space that got a lot of interest was infrastructure. How would you approach that whole pocket?

A: That whole sector is going to see phenomenal growth. There is a great shortage of power in India which is needed in terms of maintaining growth. A large number of private sector players are very happily coming into the sector, and have very significant expansion plans. Some of the funds which were raised in the sector earlier in the year were at valuations that were probably esoteric and not necessarily connected to market reality.

We are seeing many people now coming back to the market which are at much more realistic valuations. There is more room to go and as those projects get funded, I see very strong growth on the power generation side which will be great for India.

Q: From a market perspective, what is your view? Do you think it will get worse before it gets better here?

A: There is a probability, given the points I made earlier, that a 10-20% correction is still quite possible in the coming weeks.

Source: Moneycontrol.com

Stocks hit most in last 7 trading sessions

2008-06-09T20:53:00.001+05:30

The Indian equity markets have seen a heavy sell off during these last seven days. The Sensex and the Nifty have lost over 8% and are hovering around their psychological 15000 and 4500 levels respectively.

On the sectoral front in BSE, realty was the worst hit. It tumbled by nearly 22% in the last seven days. For the same period, Capital Goods plunged 13%, Power slipped 12%, and Metal and Banking indices slid nearly 10%.

The BSE Oil & Gas index was down 7%. Crude, trading at its peak is one of the reasons for the sectors underperformance. The BSE Auto and IT were also down by 5%, FMCG index also lost nearly 5%.The Pharmaceutical index was modestly impacted in this market mayhem; it was down nearly 2%.

In this markets free fall, stocks like Neyveli Lignite, Bombay Dyeing, UB Holdings, Lanco Infratech, Deccan Chronicle, BPCL, ABG Shipyard, Reliance Power, HPCL, HDIL, Ansal Properties and Unitech have all lost over 20% in last seven trading session (May 30, 2008 to June 09, 2008).

Stocks that lost over 20% in last 7 trading session : Source: Moneycontrol.com

Company Name	Group	Last Price	7 Days	% Chg
Spice Mobiles	S	19.40	29.40	-34.01
Joonktollee Tea	B2	214.90	325.55	-33.99
Guj Heavy Chem	B2	48.15	71.70	-32.85
Networth Stock	B2	50.80	74.90	-32.18
Kirloskar (W)	B2	8.10	11.84	-31.59
Resonance Speci	S	8.65	12.43	-30.41
Aishwarya Tele	B2	66.35	93.60	-29.11
Sita Shree Food	B2	26.35	37.15	-29.07
Stelco Strips	B2	30.60	43.00	-28.84
Contech Soft	B2	15.15	21.25	-28.71
Bajaj Auto Fin	B2	186.00	260.15	-28.50
Asian Electroni	B2	107.75	147.80	-27.10
Prajay Engineer	B2	159.90	217.55	-26.50
Suryajyoti Spg	S	34.00	46.25	-26.49
Pasari Spinning	B2	9.15	12.43	-26.39
Haryana Fibres	Z	62.90	85.44	-26.38
Brahmanand Him	B2	108.10	146.80	-26.36
IFB Agro	B2	58.40	79.25	-26.31
Tulsi Extrusion	B2	46.95	63.70	-26.30
Shreyas Interme	B2	31.95	43.35	-26.30
Micro Forge	Z	8.85	12.00	-26.25
Well Pack Paper	T	42.40	57.47	-26.22
Bafna Spinning	Z	4.05	5.47	-25.96
Sterling Inter	S	219.00	294.00	-25.51
Siddha Venture	B2	3.45	4.63	-25.49
Neyveli Lignite	A	106.55	142.60	-25.28
Goldstone Infra	B2	55.50	74.15	-25.15
Systematix Corp	B2	41.00	54.60	-24.91
Almondz Capital	B2	22.30	29.65	-24.79
Pratik Panels	T	1.82	2.42	-24.79
RDB Industries	B2	109.00	144.90	-24.78
Eastern Gases	B2	38.50	51.05	-24.58
Bombay Dyeing	A	671.10	888.90	-24.50
UB Holdings	A	548.55	725.95	-24.44
Piramal Life	B2	223.00	294.60	-24.30
Lumax Inds	B2	128.00	169.00	-24.26
Lanco Infratech	A	370.15	487.65	-24.10
Pudumjee Ind	B2	21.30	28.05	-24.06
Ascent Exim	B2	3.72	4.89	-23.93
Surana Ind	B2	125.25	164.50	-23.86
Guj Stat Fin	Z	5.26	6.90	-23.77
Sumeru Ind	B2	2.42	3.17	-23.66
Bihar Sponge	B2	21.65	28.35	-23.63
Tanu HealthCare	B2	3.99	5.22	-23.56
DeccanChronicle	A	102.50	134.05	-23.54
Almondz Global	B2	38.25	49.90	-23.35
Alfa Transforme	B2	47.60	62.00	-23.23
Gini Silk Mills	S	22.65	29.50	-23.22
Livewell HomeFi	B2	160.70	209.15	-23.17
Refnol Resin	B2	10.25	13.34	-23.16
Capman Financia	B2	3.00	3.90	-23.08
Ushdev Int	B2	81.50	105.95	-23.08
Gloster Jute	B2	283.05	367.70	-23.02
Indo Tech Trans	B2	377.95	489.15	-22.73
GSS America Inf	B2	292.65	378.50	-22.68
Hinduja Foundri	S	174.00	225.00	-22.67
Softbpo	Z	274.45	354.40	-22.56
Sujana Towers	B2	92.95	119.80	-22.41
Sturdy Ind	Z	28.95	37.30	-22.39
Gandhinagar Hot	B2	53.15	68.45	-22.35
Fortune Fin Ser	B2	150.40	193.65	-22.33
Ajcon Global	B2	13.05	16.80	-22.32
Mardia Samyoung	Z	8.39	10.80	-22.31
Adarsh Plant	B2	10.53	13.55	-22.29
APM Industries	S	17.45	22.45	-22.27
Puneet Resins	B2	4.63	5.95	-22.18
BPCL	A	278.40	357.70	-22.17
Shah Foods	Z	19.90	25.55	-22.11
ABG Shipyard	A	428.55	550.10	-22.10
VCK Capital	B2	6.13	7.86	-22.01
Williamson Mago	B2	40.00	51.25	-21.95
Nidhi Granites	Z	16.00	20.50	-21.95
Mundra Port	B2	614.00	786.45	-21.93
DCB	B2	59.85	76.60	-21.87
Gulshan Poly	B2	229.00	293.00	-21.84
BGR Energy	B2	269.40	344.60	-21.82
Shakti Pumps	S	110.00	140.60	-21.76
Deccan Bearings	B2	16.45	21.00	-21.67
Best and Crompt	T	26.40	33.70	-21.66
Aviva Industrie	B2	13.50	17.20	-21.51
Reliance Power	A	185.15	235.85	-21.50
IBN18 Broadcast	B2	90.15	114.80	-21.47
Integr Hitech	T	2.24	2.85	-21.40
Winsome Brew	B2	7.20	9.14	-21.23
Pratibha Ind	B2	255.00	323.70	-21.22
Promact Plastic	B2	2.81	3.56	-21.07
SGN Cable	B2	1.20	1.52	-21.05
HPCL	A	193.30	244.65	-20.99
Dollex Ind	B2	20.90	26.45	-20.98
Bk Of Rajasthan	B2	87.50	110.60	-20.89
Guj Intrux	S	28.30	35.75	-20.84
HDIL	A	573.65	724.45	-20.82
Karuna Cable	S	2.32	2.93	-20.82
Mahan Industrie	T	3.84	4.85	-20.82
Cat Technologie	B2	7.13	9.00	-20.78
Axon Infotech	B2	29.00	36.60	-20.77
B and A	B2	42.05	53.05	-20.74
Cranex	T	3.71	4.68	-20.73
Kernex Micro	T	126.30	159.25	-20.69
IOL Netcom	T	96.10	121.15	-20.68
Ansal Propertie	A	104.40	131.60	-20.67
ETC Networks	B2	187.60	236.15	-20.56
ACI Infotech	T	5.80	7.30	-20.55
Ashiana Ispat	B2	10.25	12.90	-20.54
Unitech	A	184.80	232.50	-20.52
Twinstar Soft	B2	2.35	2.95	-20.34
Kamat Hotels	B2	139.00	174.35	-20.28
Bodal Chemicals	B2	50.15	62.85	-20.21
Aekta	B2	16.20	20.30	-20.20
Kerala Ayur	B2	42.55	53.30	-20.17
Lotus Chocolate	B2	9.00	11.27	-20.14
FIEM Ind	B2	53.70	67.20	-20.09
Nicco Parks	S	45.20	56.55	-20.07
Hindoostan Spg	B2	26.00	32.50	-20.00

Markets may not look good for a while now: Experts

2008-06-09T20:49:00.002+05:30

SP Tulsian of sptulsian.com feels that considering the fall in the Asian markets, which is confined to about 2-2.5%; more or less it is in-line. For the remaining part of the day, he does not think that damage can aggravate from here on and it should remain more or less in the similar range.

Anil Singhvi of Notz Stucki said, "The headwinds are very heavy. We should not forget the fact that oil is at USD 150/bbl and rupee is again depreciating- depreciated by almost 10%. Trade deficit is earning at about USD 10 billion a month. From small to medium-term markets still look overvalued. Markets would correct further down because of all the external factors and internal factors. So I won't say that this is an opportunity on a day of when one should buy and the markets will look good, I don't think."

Excerpts from CNBC-TV18’s exclusive interview with SP Tulsian and Anil Singhvi:

Q: How have the traders approached the trade today and what are they talking about in terms of levels to watch from here?

Tulsian: For the last couple of days when I had been talking to them, obviously the fear was with the fall expected; the fall of about between 400-750 points on Sensex - I think more or less it is broadly on those lines. May be the fear was more to the extent of, as I said 700 points also. But considering the fall in the Asian markets, which is confined to about 2-2.5%; more or less in-line and we are down by about 3%. So I think for the remaining part of the day, I do not think that damage can aggravate from here on and it should remain more or less in the similar range.

Q: It’s been a rough start to this month what’s your sense of where we might be headed?

Singhvi: I am not surprised by this stock market move for the last couple of months. I think we are trying to now hide behind the oil prices and all that but I think our markets are overvalued. Let’s not lose the sight of that and the markets would correct further down because of all the external factors and internal factors. So I won’t say that this is an opportunity of when one should buy and the markets will look good; I don’t think. We have been in a self-denial mood for a very long time and it’s a high time that we take a call.

Q: How much more downside you think before valuations appear fair from an investor’s perspective?

Singhvi: The headwinds are very heavy. We should not forget the fact that oil is at USD 150 per barrel and rupee is again depreciating - depreciating almost about close to 10%; trade deficit is earning at about USD 10 billion a month. If you look at these broad parameters, the shape of the Indian economy doesn’t look all that good. Small to medium-term markets look to me still overvalued.

Q: You have been on both sides of the fence and the sense that a lot of analysts got after this time’s earnings was that we got away with minimal damage. Do you think in the next few quarters there might be significant pressure on earnings and margins for most corporates?

Singhvi: Inflation is a reality. I don’t think companies have been able to pass on all the increases that they have seen in last about three-six months. Maybe in March we didn’t feel so much of a heat in terms of cost of production going up because of inventories being there and you always have some squeeze of the cost of production.

Going forward, it will be a difficult call and margins will be contracted. I don’t expect that it can come out with the kind of performance what we saw in 2008, which is going to be repeated in 2009. I would be very surprised if we can post very good results in next 4-8 quarters.

Q: How long do you see this painful adjustment phase lasting out here? Do you have a sense of when things could start improving, the headwinds that you spoke about?

Singhvi: There are two factors. First of all this monster call oil prices and if the oil prices are going to remain because we are going to hit the summer now so it is going to be- until August I don’t see oil prices to correct because of summer. Its not again a demand-supply issue I think most of the money has flown into oil. When you do not see stock market doing well, don’t see currencies doing well, don’t see the bonds doing well I think oil has come as a savior for most of the investors.

It is going to remain for a while, oil prices remaining high. I don’t think India has really particularly come out well on this. We haven’t done anything for last five-years in terms of looking at the new sources of oil. We are going to face very difficult time and if we look at the whole political situation, it is deteriorating everyday. We can’t even take a small decision and deteriorate for a couple of months.

When you look at external factors, look at internal factors and not having a political will, I am right now of the opinion that will take a while before we can repair the damage and stock market can look for some very cheerful news, which to answer your short question, it is going to take at least six-eight months; if at all we can repair it.

Q: You run a fund as well and we have been hearing some disturbing reports of about how redemption pressures have suddenly kicked in for lot of these India specific funds, is that something that you are seeing or hearing as well?

Singhvi: It is not a disturbing news, I think it is a very natural phenomenon; people have made money in last three years and it is the right time to pull some money out of Indian markets. Because finally, let me put it very clearly that I don’t think money has any emotions. So long as you make money, so along as you think that fundamentally markets are looking strong you remain invested.

Today when you see that our corporate earnings are going to be low, markets don’t look fundamentally that strong, political will is not there - I don’t think money will remain here. So I am not disturbed, neither I am concerned about this. In fact, our advice to some of the fund investors was that they should pull money out of India.

Q: Which sectors do you see has the most or the highest possibility of valuations contracting further from here?

Singhvi: I think that those which are energy intensive; those which are labour intensive because they have increased the cost of wages to a very large extent and to some extent I think the manufacturing sector will be much more hit than the services sector. So across the board, I see manufacturing sector finding it very difficult going forward.

Infact we have become a very high cost economy. I think people have not paid attention to it, in the last two or three years because of the hype which was created, the cost of doing business has gone up many fold and if we do not have enough room to increase prices; I am sorry to say this but I think we are going to be completely caught up on a negative surprise.

Q: Didn’t mention real estate in that list?

Singhvi: Real estate of course you have been asking this question for all for almost about last one-year, I am not convincing a buy at all or ever on the real estate play. People were talking about NAVs, which were inflated NAVs and all that. Real estate is another class of asset, which will correct very sharply. I ‘want to put my neck’ on this that it will correct very sharply. There is a huge bubble building up there.

Q: What’s a fair kind of level for the market for you now, you think?

Singhvi: It will be difficult to put a number of 13,000 or 14,000; I will be stupid to put that call. But our markets need to be corrected little more before they come to a realistic level. Would they be coming to a level where it becomes very tempting to buy, my answer will be no. Because we need to see how six-eight months political situation pan out, oil prices pan out, trade deficit, which is becoming like a monster had not been the situation of last two-three years of a good economic growth, I think would have been into same situation of 1991.

Q: Lot’s of chhota (small) Initial Public Offering (IPOs) have opened the first one is the First Winner do you like the story there?

Tulsian: You have rightly put it that chhota IPOs (small IPOs) are coming because the badda IPOs (big IPOs) have no guts and courage to tap this capital market because of their plans of having or the drawing boards that they have done the calculation at a very stiff pricing.

Coming on the First Winner; it's a pure textile story. Their weaving capacity has gone on swing just last year and may be because of the working capital pressure, its entire capacity is being used on the job work basis and that too at a capacity utilization of close to 51% and it is very strange to see the companies going into further expansion. Right now they have about more than 100 handlooms and they are adding on about 60 handlooms further, they are also putting a stitching capacity of about 5,000 shirts per day. Already we have seen the fate of all the textile stocks, the leading one which are into the integrated, having their weaving capacity, processing, dyeing and all sort of things are not doing well. They are ruling at their IPO price of about may be 50% or may be 60% with a P/E (Price-Earnings ratio) multiple of 4 to 5.

I am not here to take a call on the P/E basis for this IPO, which would be any where about 25-30 times. So the call is that it is a very aggressively priced issue; no questions of giving any thoughts, clear skip for the issue.

Q: What about Sejal Architectural Glass. How do you rate that one?

Tulsian: I would say that project is very interesting. They are going into the float glass, which is on gas base; they have tied up the gas at USD 7.5 per million British thermal unit. They have this sand supply, which is a critical raw material they have this soda ash availability in the region because they are setting up their project in Dahej. See the promoter’s background - they have all along been into trading, they have been procuring float glass from outside executing the main direct contracts as well as the sub-contracts. Now they are setting up a project of Rs 480 crore of which about Rs 320 crore is debt with a clear-cut debt-equity ratio of 2:1. Definitely the listed peer is float glass, which is in fact their feedstock is naphtha so they are not able to make a good profit. Their profitability has been taking a hit. But unlisted stock the Gujarat Guardian Ltd they have been doing quite well.

When you compare with the listed peer definitely you get a scary picture for the industry inspite of having the good future ahead of this sector. Promoters capability could also come into the way because Rs 320 crore debts, Rs 160 crore financing of which about Rs 100 crore odd is coming from the IPO, I do not think that financial structuring is really very healthy. Any delay in execution or any non-establishment or not settling with the production could really spoil the financials of the company and even if they incur a loss of Rs 40-50 crore in the first year. The whole projects can start facing problems.

It’s a very risky venture inspite of having the project potential. But again the question comes is of the stiff valuation probably at Rs 60-70 share would have been an attractive investment leaving some room for the prospective investors who make money but not at Rs 100 or maybe at Rs 110.

Q: What about the third one Avon Weighing Systems?

Tulsian: I think the promoters have understood the present state of the market. So straight away they have gone with the price tag of at par, inspite of the book value of the share at Rs 120. The company has been all along marketing the electronic weighing scale of two Japanese manufacturers and having gained the marketing experience, having gained the feel of the market for the last six to seven years, now they have started or thought of venturing into the production of the weighing scale setting up a unit in Himachal Pradesh and it is a very small project of about Rs 40 crore.

But if you see the equity of about Rs 17 crore and the project financing, probably at par looking to the book value of Rs 20 as on today, and the experience of the promoter at least one could take a chance though the expectation should not be too high because this is a typically a macro-cap company with a expected marketcap of about Rs 30-40 crore. But if somebody has to see the downside, I do not think the share price can go below Rs 10, you can have the chances of making 20-30% profits on listing or may be even if you remain invested for couple of years into the stock.

Q: We are now hitting the lows for 2008 at 4,450 Nifty and 15,000 Sensex thereabouts. You speak to a lot of people in trading markets like Rajasthan, Jaipur etc. What’s the sense you are getting? Are traders beginning to lose hope? What feedback do you get from those markets?

Tulsian: In fact, in Gujarat and Rajasthan as you have rightly pointed out, they have all become more of the trading oriented. None of them have any investment appetite they are not prepared to hold the stock even for month also. If you have that kind of mind frame this is definitely not the time. On the contrary you become impulsive when you see these kinds of movements. They create the overnight position thinking that probably shares have touched their low they take a long position. But I do not think that here the problem is more of the trading or the leverage position because that has not been seen at a very high level. Of all these things are within the reach of the traders and all that they cut the losses very swiftly on an intra-day basis or a maximum on couple of days.

The problem lies more into the delivery-base selling which no one is able to take a call how much correction it can really cause to the share price. So even the traders are most confused. They are also sitting on the fence they trade into the market of a very low quantity because it has become compulsive for them to remain active in the market or compulsorily they feel that they have to trade something it is on a very low scale. So they are not losing as heavily as they have lost in the month of January.

Anil Singhvi Disclosure: It is safe to assume that my clients & I may have an investment interest in the stocks/sectors discussed.

SP Tulsian Disclosure: I do not have any interest in the IPOs commented upon.

Source: Moneycontrol.com

Sensex @ 14200 seems on cards in near future

2008-06-09T20:48:00.000+05:30

Amar Ambani, Vice President - Research, India Infoline has given his quote on todays markets turmoil. He said, "Global markets declined last Friday, reacting strongly to a price of US$138 for crude. With a break in crucial support levels in Indian equities and a close in the red on Friday, a heavy market cap loss during Monday came as no surprise. A sharp spike in oil prices stepped up fears of uncontrollable high inflation, already at 8% for India and predicted to rise to 9.5-10%, given recent fuel hikes."

He further added, "Expectations of a slowing economic growth, widening deficits, depreciating currency, high inflation and rise in interest rates describe the current macro economic environment of India. Further, loss of the ruling government in key states and its inability to manage growth-inflation trade-off are clear harbinger of upcoming political uncertainty. Given these factors, there is no astonishment as to why we are witnessing huge portfolio outflows from India. This along with disappearing retail investor participation has been trending the domestic market downward."

"If we discern the macro and political situation, then there is enough evidence to believe that we have entered an intermittent bearish phase. A move to 14,200 on the Sensex and 4,100 on the Nifty seems on the cards in the near future. We are underweight on interest rate sensitives like Automobiles, Real Estate and Banking. The only major risk to our view is a sharp reversal in oil prices in the near future, which appears unlikely", he said.

Source: Moneycontrol.com

2008 to be turbulent for markets

2008-06-09T20:35:00.000+05:30

It was one of those days at the markets when you know beforehand that things are going to be really bad. The US markets had tumbled on Friday after ugly unemployment data and record crude prices. The Asian markets followed suit, and soon it was India's turn.

The markets opened deep in the red, and slipped further to levels that were 2008's lowest as the session progressed. A mild recovery saw the indices close off the day's lows. Realty, technology, capital goods, power, and banking stocks saw heavy selling. The Nifty closed at 4,500.95, down 126.85. The Sensex, which was down around 700 points at one stage, recovered to close down 506 points at 15,066.

Sangeeta Purushottam of Religare Securities feels 2008 will be a turbulent year. "News flows are unlikely to reduce. There is limited downside as bad news is getting factored in."

According to Purushottam, crude and inflation are key worries. "It needs to fall for some relief."

On infrastructure, she said, there may be more downside from here as the sector was over-owned. "We have not yet reached levels where it looks an attractive buy."

Investors should be cautious about real estate, as bad news is not over yet, Purushottam said. Banks seem to be bottoming out, so sentiment can turn positive, she added.

Source: Moneycontrol.com

Inerview with Warren Buffett

2008-06-03T10:23:00.003+05:30

How does Warren Buffett gear up for his shareholders meet?

CNBC’s Becky Quick, in her special show, Warren Buffett: The Billionaire Next Door - All Access, CNBC spoke exclusively to Warren Buffett and took an "exclusive" look inside the Buffett's annual meeting with Berkshire Hathaway Shareholders; getting an unprecedented access into the world of one of the world’s most successful investors. Becky accompanied Buffet for three days and shares with us, her impressions of the tour...

Every year, Warren Buffett invites each and everyone of his shareholders here to his hometown for the granddaddy of all annual meetings. Over 30,000 of them will actually show up to the centre just to catch a glimpse of the 'Oracle of Omaha,' as Warren Buffet is called. Over the next three days, Warren Buffett will tirelessly answer questions from his shareholders. He will walk miles through this Convention Centre through all the back halls and he will catch up with old friends over a can of Coke or a game of bridge.

And for the first time, CNBC is with him every step of the way from setup to breakdown and everything in between.

It is the calm before the storm. Hundreds for Berkshire’s owner in town, building the exhibits that cover this 200,000 square foot floor. Tonight they get to meet their big boss, Warren Buffett.

It is Thursday evening and the Oracle of Omaha’s whirlwind weekend is just beginning. First he meets with the troops, employees from dozens of Berkshire’s companies, taking photos with each and everyone.

We are all heading to the Omaha Bridge studio to play with long time friend Carol Loomis, Editor at Large of Fortune Magazine.

Q: Tonight when you play bridge, what is your strategy?

Loomis: To win.

Buffett: We have probably played about eight years in a row and we come out on Thursday night always before the meeting to play.

Q: Have you done the last few years?

Buffett: I am glad you asked. I think about the eight times that we have played, we won about five in a row.

Q: There is like 30 teams or something?

Buffett: Yes. Then last year we came second.

Loomis: One year in between we were sixth or seventh or out of the money. I am not sure.

Q: If they voted now that you guys are in here, at this point?

Buffett: They have voted every place in the world, not because we were winning.

It is the first of many late nights for Buffett. This game goes on for more than three hours. Playing against the world’s richest man, doesn’t seem to intimidate his opponents.

Buffett and Loomis ultimately take home second place.

After spending Friday morning in the office, the oracle heads over to the Quest Center to check on the progress.

First stop, the Live Bulls representing Justin Boots. That was acquired by Buffett in July 2000. Then it is off to the collectors car, made by Marman Industries, which is a company that he started buying into late last year. These cars are worth over USD 1 million apiece.

But Buffett’s favourite stop may be the See’s Candeies display. He picked up that when Richard Nixon was President in 1972. Here he can size up the peanut butter and the chocolate fudge that he will be snacking on all through the meeting tomorrow.

Q: How many of these do you eat usually during the meeting? How many ounces?

Buffett: Fudge is probably USD 130 in the ounce. Certainly 8 ounces, that is USD 1000. The Coke is USD 150 for 12 ounces. There is almost 1 and half ounces of sugar in a 12-ounce can. Sugar is pure carbohydrates. So, three cokes is USD 450. And then you go to lunch.

Q: So how many calories do you consume on a day for the annual meeting?

Buffett: Plenty.

Q: How many dinners do you go to?

Buffett: I go to two dinners tonight and I go to two dinners tomorrow. But I won’t eat a lot during these necessarily. Dinners are not when I load up. I’ve already had peanuts and then a chocolate chip ice cream, and a Cherry Coke this morning. That is it. Now it is time for lunch.

Narration: Of course lunch is no low-cal affair. Buffett picks the menu for the special sit-down with managers of Berkshire’s 88 companies. His favourite foods are all here. Hotdogs, hamburgers and of course ice-cream sundaes. This is a unique event.

Buffett: We have no business arrangement at Berkshire where our managers have a meeting. We have one meeting for the CEOs and one for the CFOs. But I never call our managers here. So, they don’t even get to know each other except through this meeting.

Narration: He takes time to thank the managers and remind them what is important to Berkshire.

Buffett: Although we had like to have more money, we have got all the money we need and we don’t have an ounce more of reputation that we need and we never want to trade reputation for more money. Fortunately we don’t have to.

Narration: Back on the floor, Buffett puts the displays to the test climbing on Gus the Bull.

With 30,000 of his closest friends eager to hear his every word, Buffett makes sure his sound systems are up to par.

Buffett: The big news from Omaha is that Carol Loomis and Warren Buffett finished second last night in a local bridge tournament.

As dawn breaks on Saturday, the line to get into the Quest Center is growing by the minute. The Billionaire Next Door arrives at 6 am, just in time to see a portrait of himself being created that uses all Benjamin Moore paint, another Berkshire company. This one was acquired in January 2001.

In just eight minutes, Michael Israel creates a portrait of Buffett that will be auctioned off later this year to benefit Girl’s Inc, which is a favourite Buffett charity. Buffett goes into his usual routine, welcoming the media and taking a crowded spin around the floor.

But the crowds this year is bigger and more aggressive than ever before. After greeting the gecko (GEICO) and donning a leather biker jacket, Buffett finally seeks sanctuary backstage with his daughter Susie.

Q: Have you ever seen him as crazy as this before?

Susie Buffett: No he gets crazy every year. It is fun but crazy.

Q: Why do you think that is?

Susie Buffett: If I give back these sort of boring answer then I think it is true is that he truly is, he is this regular old guy who is doing what he does everyday and he is the most honest business person in the country. People love that, they need it, they want to hear it, they trust him and it causes more and more people to come.

The other piece of it I think is people hear about how fun it is; they want to be part of the party.

When Buffett takes to the stage he isn’t alone. By his side, as he has been for nearly 50-years longtime friend and Vice Chairman Charlie Munger.

Warren Buffett: Charlie and I need each other now. Charlie is 84, I am 77. So I can see and he can hear. So we have to work together even, I can remember his name most of the time.

Q: When you get up on stage you guys just gave each other a signal like you take this one and I will take this one?

Charlie Munger: Warren is the ringmaster. But the interesting thing about this is a normal corporation would not want the top executives out there for six hours taking questions on every subject. Imagine that the legal department would howl on some other corporations. But we don’t answer them.

Q: Have you ever had the lawyers trying to get you guys to not say so much or not write so much?

Buffett: We gave up a longtime ago. I said in my first annual report Berkshire Hathaway, Ropes & Gray were the attorneys for Berkshire and they have been there before and there is this ritual where they send the annual report to the attorney. The guy was a wonderful guy. But I sent it to him and he said, you have changed the basics. What the hell was that, he never saw it on the report.

Buffett is the ultimate showman. Every year he plans a surprise for the shareholders. This year the surprise is daytime soap star Susan Lucci. She has gamely agreed to come out and greet the crowd.

The show is about to begin to a standing room only audience. After five hours and over a 100 questions from shareholders Buffett and Munger spend another two and a half hours meeting each and everyone of Berkshire’s international shareholders.

Buffett: They have this autograph on the passport. That is one of the things that we get asked to autograph.

Q: Are you allowed to autograph passports?

Buffett: Apparently, I mean we have been autographing. If not, I’ll have to go with this protection programme after this dinner.

The day still isn’t over. Buffett goes to two dinners and gets about five hours of sleep. Sunday, he is right back at it, visiting the crowd shopping at his jewellery store at Borsheim’s and playing bridge with Berkshire Manager and some other friends.

After a three-hour press conference he heads to dinner at Gorat’s with his family and of course his friends including Berkshire Board Member, Bill Gates and celebrates.

Not many CEOs arrive at their annual meeting to roaring applause from their shareholders. But Berkshire Hathaway’s annual meeting got its start from much more humble beginnings.

Buffett says, “You would have to go way back. We used to hold them in New Bedford, Massachusetts, where Berkshire Hathaway started. I would go back there and there was me and somebody taking the minutes. We would have about anywhere between eight and 12 people for the next 10 or so years until about 1981. We held a luncheon at National Indemnity. So, it was a slow starter.”

Talking about how the event got bigger and gained momentum, Buffett says, “I think shareholders felt welcome, which is somewhat unusual. We welcomed their questions, we met with the people in lobbies and then we gradually added various little factors like some of the products that our companies sold.” He adds, “We liked talking about whatever questions our shareholders might ask.”

According to Buffett, his shareholders were real owners. “They want to learn more about the company. There are two different types, the very sophisticated type that want to ask sophisticated questions and also the type who put a good bit of their life savings in it.

Rob Sullivan, a Berkshire shareholder buying stocks since the 1970s calls Buffett the Michelangelo of investing. He says, “I advise everybody that there is never a better person to manage money than Warren Buffett. I’ve never met one. I don’t think I ever will meet one. He is the Michelangelo of investing. It is a six sigma event that we might not ever see again in the next 100-200 years.”

Sullivan adds, “At one point we had 550 A-shares, because we bought them at less than USD 200-300.” The average price for an A-share today is over USD 130,000.

Talking about his people and the business, Buffett says, “Some ticker symbol that moves around in a chart or something that gets recommended by some analyst, it is a real honest to god business that they have bought into and that they are going to part of for the rest of their lives.”

Warren Buffet is a man of numbers. He tracks everything from the investment he makes, down to the shareholders requests and the number of requests for tickets for his annual meeting. In the weeks leading to his meeting, his favourite game is guessing the number of requests that come in. Warren buffet laughs saying “ It’s like guessing the earning numbers.”

On the D-Day, the carefully decorated (Convention) Hall turns into a madhouse, with shareholders rushing through the door looking for seats in the front row. Warren Buffet recalls a time when he was standing near the entrance and people just rushed by him in search of seats in the front row to get a clear view him.

A spot on the floor of the display areas at the venue of the Meeting is difficult to get. Buffet says that it is difficult to decide amongst Berkshire’s 88 companies, whom to let in. When Berkshire’s shareholders come in for the meeting, the whole city of Omaha benefits. The city’s hotel rooms book up fast. Furniture shops, jewellery stores offer discounts to visiting shareholders. One retailer describes the event – the Berkshire weekend as the ‘Grand Slam’ of all retailing. Big spenders come in private jets. Buffett says that people are in a mood to buy.

Source: Moneycontrol.com

Stocks to watch: NTPC, Sujana Towers, Bharti Shipyard

2008-06-03T10:18:00.000+05:30

The markets got off to a shaky start for the week as weak global cues dented sentiment and pulled the indices into the red. The Nifty closed at 4,740 down 131 points, while the Sensex shut shop at 16,063 down 352 points.

Sudarshan Sukhani of Technical Trends is not surprised at the ease and swiftness with which the Nifty has broken past these levels. "For the last 10 days, we have been in an intermediate downtrend. When the trend is down, then clearly the pressure can be on the downside. The only question is of timing as to when that down move will come. That can come anytime but since the move is expected, the decline by itself is not surprising at all. I would also suggest that this is probably not the end of a down move. The chances are very strong that we are going to go and test earlier February lows, somewhere around 4,450. If we test them and find support there, we should be very lucky."

Technical Analyst Sudarshan Sukhani of Technical Trends is positive on NTPC.

Here’s how Sudarshan Sukhani views the stocks on board:

On Unitech and NTPC:
You must avoid Unitech because you need to stay away form real estate stocks. They are going to get exhausted and finally give buying opportunities. But we don’t know when, so just stay away.

NTPC has been in a long-term uptrend. This is a sharp correction. An investor who doesn’t want to time the market could simply say, ‘let me nibble at this share and buy a small lot’.

Sudarshan Sukhani's Disclosure: I have neutral positions in the Nifty and invest in shares.

Vikas Sethi, MD, Sethi Finmart, is bullish on Ruchi Soya Industries, Bharati Shipyard, and Sujana Towers from the midcap space.

Here's how Vikas Sethi views the stocks on board:

On Sujana Towers:
Sujana Towers is the manufacturer of power transmission and telecom towers. It also undertakes heavy structural works for railway electrification, which has got good demand and potential. All the three sectors, which it is catering to, have been seeing very strong demand and this could lead to significant growth for the company in the future. At the current market price of around Rs 115, this stock is quoting at only nine times FY08 earnings of Rs 13 per share. This stock should achieve a target price of Rs 200 in about 9-12 months time.

On Ruchi Soya:
Ruchi Soya is the flagship of the Ruchi Group. It is one of the largest agri-business companies in India. It crushes about 25% of the total soya crop in India and is scouting for palm cultivation in Malaysia and Indonesia. Agriculture as a sector looks very promising in the long run. This stock is also currently trading at around 10 times FY09 earnings and 7.5 times FY10 earnings. I would expect the stock to be touching around Rs 175 in about 12 months time.

On Bharti Shipyard:
Bharti Shipyard has a very strong order book position and aggressive capex plans. The company has recently announced the commencement of a shipyard at Dabhol and has also tied up with the Apeejay Group in West Bengal to set up a very large shipbuilding yard along the country's eastern coast. It is expected to be growing at a CAGR of 50% over the next two-years. At the current market price, it is quoting at a multiple of 11 times FY08 and around 8 times FY09 earnings, which is quite attractive. This stock should reach a target of Rs 900 in about 12 months time.

Vikas Sethi's Disclosure: I personally do not hold any of these stocks but would have recommended them to my clients and friends.

Source: Moneycontrol.com

Sensex below 16000 mark in opening trade

2008-06-03T10:10:00.000+05:30

The markets have opened on a weaker note following weak global cues as credit crisis fear is not over yet. Selling seen in capital goods, realty, power, banking and oil stocks. The Sensex started trading below 16000 mark while the Nifty broken support of 4700 and trading below that levels. Market breadth is negative, adv:dec ratio nearly 1:7. Midcap and small cap stocks hammered a lot.

At 9:56 am, the Sensex was down 225 points at 15,838 and the Nifty down 63 points at 4676.

Among frontliners, Rel Petro, Unitech, HDFC Bank, BHEL, Rel Infra, Power Grid, Tata Power, L&T, HCL Tech, Tata Comm, Bharti, DLF, SBI, GAIL and Hero Honda slipped further.

Asian markets were trading weak. China's Shanghai Composite slipped 0.46% or 15.94 points at 3,443.10. Japan's Nikkei plunged 1.51% or 218.35 points at 14,221.79. Hong Kong's Hang Seng dropped 1.49% or 370.25 points at 24,461.11. Taiwan's Taiwan Weighted tumbled 0.84% or 73.33 points at 8,651.14. Singapore's Straits Times declined 0.96% or 30.60 points at 3,157.45. South Korea's Seoul Composite fell 1.17% or 21.64 points at 1,825.89.

US markets kicked off June on a low note. The stocks slid on renewed fears that the credit crunch is yet to run its course after S&P downgraded debt ratings of three big securities companies.The Dow Jones industrial average plunged 134.50, or 1.06%, to 12,503.82. The S&P 500 index slipped 14.71 points, or 1.05%, to 1,385.67. The Nasdaq composite index was down 31.13 points, or 1.23%, to 2,491.53.

Market cues:
* FIIs net buy $63.1 mn in equity on May 30: SEBI
* Govt restores tax benefits under DEPB to cement exports
* NSE F&O Open Int up by Rs 1611 crore at Rs 63871 crore

F&O cues:
* Futures Open Int down by Rs 63 crore, Options Open Int up by Rs 1674 crore
* Nifty Futures add 20 lakh shares in Open Int, at 19-point discount
* Nifty Open Int Put-Call ratio at 1.70 Vs 1.86
* Nifty Puts add 9.5 lakh, Calls add 18 lakh shares in Open Int
* Nifty 4800 Put sheds 2.5 lakh shares in Open Int
* Nifty 4700 Put adds 2.8 lakh shares in Open Int
* Nifty 4600 Put adds 1.6 lakh shares in Open Int
* Nifty 5000, 4700, 4800 Calls add 3 lakh shares each in Open Int
* Stock Futures shed marginal Open Int

Source: Moneycontrol.com

Reliance Power to trade around Rs 230-270 in 3-6 months

2008-06-01T23:26:00.000+05:30

SP Tulsian of sptulsian.com SP Tulsian of sptulsian.com said Reliance Power could hover between Rs 230-270 in the next 3-6 months. He added that the adjustment of shares will happen in the same way as it happens for any other bonus.

Excerpts from CNBC-TV18’s exclusive interview with SP Tulsian:

Q: Does it surprise you that Reliance Power is trading at Rs 245?

A: It is not surprising at all. The only surprising part is that there has been some confusion. Certain analysts are divided with the opinion that it will get listed at around Rs 380 or Rs 390. That is mainly on the premise that the adjustment for the ex-bonus will happen on the market cap criteria since the bonus is only being given to the non-promoter.

We have been categorically maintaining that the adjustment will happen with respect to the shares in the same way as it happens for any other bonus. It is for the simple reason that only the non-promoted shares are presently traded on the stock exchange. Though the entire share capital is listed on the stock exchange but the entire promoter holding is locked in.

So, any adjustment has to take place the way it has been happening in any other bonus. It was very clear from our side that the ex-bonus price would be anywhere around Rs 260 and the adjustment cannot take place on the basis of the market capitalization criteria.

Q: While the adjustment is done, it is more difficult to put some market cap or valuation to the stock. What kind range do you see the stock holding because the actual bonus shares come in about 30 days down the line?

A: That is right because no bonus shares would get credited on or before June 30 because you need to have the listing permission from the exchanges for the new issues. Only after that can the shares come to the respective Demat account of the investors.

Coming on the valuation part, some 1,500 mw to 2,000 mw of the power project would be operational in the next three years or so.

If you take a broad call and consider 30,000 mw capacity, the present market cap of the company is around Rs 60,000 crore. They will be leveraging their balance sheet to the extent of Rs 1,00,000 crore as debt to create the entire capacity of 30,000 mw.

So, if I take a call four years down the line on the position of the company, my enterprise value works out to Rs 1,60,000 crore, which is justifying the capacity of 30,000 mw which gets added.

If I take a broader call mainly on the power generation capacity, which is getting created by the company, the present market capitalization of Rs 60,000 crore seems reasonable. It will not get too much swing on either side.

So, if one wants to take a range for the next 3-6 months or so and if I do not factor in any other positive or negative developments into the stock, it could hover between Rs 230-260 or maybe Rs 240-270 with a mean or median price of Rs 250.

Q: What about the technicals of the stock, in terms of demand-supply for people who bought ahead of the ex-event? Do you think most of them would have liquidated? Do you expect any fresh supply of this stock coming in from traders who were trying to do a bit of an arbitrage?

A: If you see the share-holding pattern, at the time of the allotment and when we got the share holding of the company as of March 31, practically all the top guys or institutional investors have all exited from the stock. There has been a reduction in the retail category by about 1.5 lakh to 2 lakh. Earlier, it was said that probably 4-5 lakh investors have got out of the stock. It may have happened that 4-5 lakh original allotting may have sold the stock but new retail investors have also entered into.

Now, the share is well distributed among the 40 lakh investors. In the next six months or so, there will not be any appetite from the institutional investors because there is no point in having such a long gestation when you have a similar stock available in the sector.

So, the appetite purely of a trading nature could be more from the retail investors as they will keep entering and exiting with a view to have trading on the stock in a price range of Rs 20 to Rs 30. So, this could be the investor’s attitude towards the stock in the next 3-6 months.

Q: What would you do if you got the stock from the IPO. You held expecting to see a bounce once it goes ex-bonus, which hasn’t happened. Would you sell it at Rs 250 or would you hold on?

A: We have been advising whoever has got their allotment if they are getting their cost price, which is Rs 430 in case of retail category and Rs 450 in case of the other investors. At some point of time, they have been getting that price. But now, the share is effectively working at around Rs 400 to Rs 410.

So, if somebody gets a price of maybe Rs 430 or Rs 440 that is the right level to exit. I am factoring the bonus value also. So, that means on ex-bonus, it is advised to exit from the stock at around Rs 270-275.

One could again re-enter into the stock if it is available at Rs 230 because you have got a tight range of Rs 230 to Rs 270. At Rs 230, one could safely buy and at Rs 270 one could safely exit because of movement beyond these two limits.

Q: IFCI seems to be opening the bids once again and that is the deduction they seem to be working towards. How will it work out this time? What would you do with this stock?

A: If you see the earlier bid, I do not think that was attractive because there has been too many confusions. At that time, the conversion of the shares had not happened when the bid was invited. The employee strength was 450 at that time which has now been rationalized and reduced to about 250. There was no clarity in regard to the grant which was to be received by IFCI from the government. In this accounting, they have written off that grant that it will not be available from the government of about Rs 400 crore.

So, a lot of rationalization happened in IFCI and that will definitely be attractive to any prospective bidder. Earlier also, we have seen 8 bids for IFCI but thereafter 7 of them withdrew. Now, it has become very attractive.

My earlier call was that it has a fair valuation of about Rs 75 or Rs 80. But if I take all these rationalizations, this improves the valuation and this would attract bidding by more people.

On a fundamental basis, one could take a fair valuation at around Rs 90 now hereon. So, taking the controlling premium element, there too the bidding could be anywhere at Rs 100 plus. Even at the earlier bid of Rs 110, I found that to be a bit aggressive. But I do not know the desperation on the part of a prospective bidder. If I take a fundamental valuation call, it is about Rs 85 to Rs 90. You need to add a controlling premium of about 20% there. That could be the fair valuation when the bidding will come.

Source: Moneycontrol.com

Stocks to watch: 3i Infotech, Sasken Comm

2008-06-01T23:22:00.000+05:30

The mixed cues from the economy front kept the investors on their toes. The markets cheered the strong GDP numbers but surge was contained by inflation worries. The Nifty closed at 4,870 up 35 points, while the Sensex shut shop at 16,416 up 99 points.

“The single drag on the Nifty has been Reliance Industries. This stock slowly and steadily has been gradually grinding downwards and right from around 2,700 it has been a slow and steady progress downward. Reliance is close to major support levels and is looking a little oversold. So, if the Nifty is to go up, Reliance has to get the lead and it would be amply supported by stocks like ITC which are already doing fairly well,” said E Matthew.

E Mathew, Director of Mathew Easow Fiscal Services is negative on DLF and Unitech.

Here’s how E Mathew views the stocks on board:

On SBI & Reliance:
The biggest drag on the Nifty has been State Bank of India, the banking pack and Reliance to some extent. SBI is now critically poised. Around Rs 1,410 to Rs 1,412 there seems to be reasonable support. But if that breaks, we could see further downside all the way to Rs 1,350-1,360.

It is imperative for the banking sector and State Bank of India to show some sort of bottoming out pattern or at least give some sort of a signal that it is trying to stem the fall so that the Nifty can stabilise. If the State Bank and the banking pack continues to fall like this, surely it would have a effect on the Nifty.

On DLF and Unitech:
If one looks at the charts of something like Unitech or DLF, there still seems to be some more downside.

Disclosure: It is sage to assume that my clients and I may have an interest in the stocks/sectors discussed.

Source: Moneycontrol.com

Markets may see March lows, but won't crash right now

2008-05-28T20:26:00.001+05:30

Ved Prakash Chaturvedi, MD at Tata Mutual Fund said that because of crude, inflation and pressure growth rates markets, may not recover right now. He believes that the market will see some of the lows seen earlier. He does not anticipate a huge crash right now as he expects a consolidation phase. And here the markets may probably see the levels of index seen in March, again, Chaturvedi added.

Excerpts from CNBC-TV18's exclusive interview with Ved Prakash Chaturvedi:

Q: Will we get away with these sort of levels or do you think that the March lows are now looming large over us?

A: Given the context of what is happening to crude prices worldwide and inflation in India; pressures on growth rates etc, it is difficult to be extremely sanguine about a recovery from here. I expect that we will see some of the lows seen earlier. But I don’t anticipate a huge crash. I think gradually there would be a consolidation phase where we may probably see the levels of the Index that we have seen in March again.

Q: How are you reading the political turf right now after the results of Karnataka elections and the kind of noises you have been hearing, do you think we should expect things to be sticky, politically from a stock market perspective?

A: You are absolutely right. I have been seeing this for some time - that as we move towards December and the election period, I think the noise from the electoral politics will start dominating. We have seen some early signs of that. As it happens many times in the market, good and adverse news comes at the same time. But at this point of time, most of the adverse news is coming together. The good thing out of all this is that most probably the markets will bottom out before say the newsflow or the economy does. We will have to anticipate that and keep our faith and advice investors to get invested at an appropriate time.

Q: What about the kind of actions that are being considered because of what has happened with crude prices? From a market perspective, how would you read this stock of a cess on taxes?

A: Any of this will certainly not be positive for earnings and hence for the market. So I would suspect that markets would show some concern. There is enormous concern about the fact that the recent almost doubling of crude prices has not been passed onto consumers in India. There is a deficit bubble building up there which at some point of time will have to get passed on and will cause its own dynamics. So as I said earlier, it is very difficult to be sanguine in this scenario.

Also what we will have to look forward and wait for is this entire increase in crude prices to have an impact on economic growth of the world. As economic growth slows down, crude prices will come down. Also the US elections and our own elections towards maybe early part of next year will be behind us. We can hope for a good period then.

Q: What about the sector that has got punished the most - banking? Do you see value there or do you think the headwinds will peg these stocks back further?

A: The value is certainly emerging there. But also the reality of the situation right now is that this is a sector unlikely to come back into focus right away; primarily because there is going to be an upward bias in interest rates if inflation trend remains where they are and which is likely.

There will remain enormous pressure on prices in the sector, which is a delight for value stock-pickers. But we will have to wait for sometime for this value to get unlocked. This year will go down as a year when the market consolidates and digests some of the bad news that came in the way. As we move towards early part of next year, we can hope for a period of good cheer for banking and the other sectors.

Q: How would you approach cement, now that the export ban has been scaled back to a certain quantity and only for one State - but as a sector how are you feeling about it?

A: We feel that prices are bottoming out. We are positive on construction-oriented sectors and we are long-term positive on this sector.

Q: What is the biggest risk to this market according to you from all the factors that you outlined? Is it global, is it inflation, is it politics, what is the single biggest factor that probably can knock us to levels even lower than March and January?

A: The good thing in this entire period has been the resilience that the domestic investor has seen. I can say for our own and for the industry that almost through this entire period of volatility, the investors have still been putting money. That resilience is certainly very important and has lent some stability to the market. The headwind has really come from overseas and that is where the real risk lies.

Oil prices keep going up or if they do not come down from here, if inflation continues to go up, if there is a cascading impact of all that in developed world and in emerging economies, it may lead to a significant slowdown of economic growth. Hence a loss of risk logs a pullout of money; we have seen some early signs of that already. All these will not be very positive for emerging economies in general and certainly for India. The real risk lies there and that is what we have to keep eye out on for the moment.

Disclosure: It is safe to assume that Tata Mutual Funds or I personally may have positions in the stocks/sectors discussed today.

Source: Moneycontrol.com

Market may see 4-5% bounce back in short term

2008-05-28T20:23:00.001+05:30

Anish Damani of Emkay Stock Brokers said that this years lows may be retested but in the short term we may see a slight bounce back of 4%-5%. He rues that, with SBI increasing their deposit rates, others may have to follow suit and compromise a bit on the NIMs. He sees a slow down in infrastructure and construction spaces due to the rising crude prices.

Excerpts from CNBC-TV18's exclusive interview with Anish Damani:

Q: What is your gut feeling going by the macroeconomic fundamentals at this point in time? The price of crude is a little softer than what it was yesterday but it still looks ugly. The staring fiscal deficit, the oil bonds and of course the potential pressure on inflation and interest rates. Does it look that the year’s lows will be retested?

A: If this continues for some more time you might see the lows retested. But in the very short-term we might actually look in for a bounce back of about 4-5% where you might take a fresh view and still see if those same factors continue to persist.

Q: Sectorally where will the bounce come? What about banks? The bank index has taken the worst knock if you compare it across sectors?

A: In banking, there are couple of things that have happened. One is the fact that oil bonds are sucking out some of the liquidity from the system. Secondly the State Bank of India (SBI) has raised its deposit rates post the Cash Reserve Ratio (CRR) hike. All other banks were looking at cutting down on deposit rates to compensate further increase cost of funding. This will put a pressure on Net Interest Margin (NIM). So we were looking at a kind of a scenario where NIMs would have remained constant or improved. But now, with SBI increasing their deposit rates, others may have to follow suit and compromise a bit on the NIMs.

Q: What is your view on the infrastructure and construction space? Basically any space dependent on government orders with the current fiscal pressure. Do you expect any slowdown in your orders going forward in these spaces?

A: There is a possibility, with the way the crude prices are heading. Firstly, there is the issue of the deficit on the oil account and the inaction of the government to pass it on. Secondly the fertiliser subsidy and thirdly, the additional farm loan waiver. So there is a lot of pressures on the fiscal side and there could be some crowding out of the investments which could result in a slowdown, should these factors continue for some more time.

Q: Your view on these two sectors fertiliser and cement they have been in the news lately due to government action?

A: If you look at fertilisers the new policy has been talked about several times over the last one-year. So we will wait to see as to what would happen there. What kind of a price jump will it entail if that comes in for the farmers. It will take some more time before the cost could come down for a lot of them. It’s positive for a sector over a longer timeframe but we need to see that policy come in really.

Q: What will you buy now? Or will you not but at all?

A: I will still buy telecom, some of the IT stocks, Pharmaceuticals, FMCG and a sprinkling of stocks in the infrastructure sector and banks.

Source: Moneycontrol.com

Which are the stocks to watch out for?

2008-05-23T19:13:00.002+05:30

The markets ended the week on a weak note. Selling pressure erased early gains and the markets closed deep in the red. Nifty closed at 4,949 down 77 points, while the Sensex shut shop at 16,650 down 257 points.

E Mathew, Director, Mathew Easow Fiscal Services said, “We are just clutching on to the last straws and it is important that we close above the higher bottom formation, which is at 4,950 actually. It is important that we close above that level. It is essential that we do not create an intra-day low below 4,913. This uptrend would certainly be vitiated if your stop loss unfortunately is around 4,800. Below 4,800, one can just forget about this uptrend. But there is still a glimmer of hope if we close above 4,950. During this week, we had so many negative factors from crude to inflation figures, etc. The market is taking a toll on the technicals as well. Bull markets are born amidst a tremendous fear and they thrive on pessimism. So let us hope that this is part of that”, he stated.
E Matthew is negative on Reliance Capital and ITC.

Here's how E Matthew views the stocks on board:

On ITC:
ITC has been one of the biggest culprits for the fall. Yesterday’s closing was at Rs 223. By Monday, it will possibly head towards a 10% fall. If ITC closes decisively below Rs 213 today, it has the potential of going down to as low as Rs 202.

On Cairn:
Cairn is not looking so weak. It is a profit-taking stock and has run up substantially. In this correction, one should deem it as normal. If Cairn comes down as low as Rs 292-295, that should not be taken as a sign of weakness. But, all these moments have their impact on the Nifty.

On Reliance Capital:
This stock is not looking as weak as some of its peers from the same sector. But it is not clear what sort of a trading stop loss one would keep on this stock. The nearest support looks like Rs 1,260. So, with that sort of a strong support zone, a buy would not be initiated but may be on declines one could look at this with a very tight stop loss of around Rs 1,250 or Rs 1,260. As of now, its best to avoid this. Those who are holding this stock may sell out now and try to repurchase it.

Disclosures: It is safe to assume that I may be discussing stocks in which my associate company or clients may have trading positions.

Source: Moneycontrol.com

Sell Reliance Capital

2008-05-23T19:13:00.001+05:30

Technical Analyst, E Mathew is suggests to sell Reliance Capital.

Mathew told CNBC-TV18, "Reliance Capital is not looking as weak as some of its peers from the same sector. But honestly I don’t know what sort of a trading stoploss one would keep in this. That is the difficult point because to me the nearest support looks like about Rs 1260, so with that sort of a strong support zone, at least I wouldn’t initiate a buy but maybe on declines one could look at this with a very tight stoploss of around Rs 1250 or Rs 1260. But as of now its best to ignore this and those who are holding this stock may sell out now and try to repurchase it."

Disclosure: It is safe to assume that in the above stock analyst's associate company/clients/I may have trading positions.

Source: Moneycontrol.com

Markets consolidating, not heading downward

2008-05-23T19:12:00.001+05:30

Eoin Treacy, Global Strategist, Fullermoney.com, said both the Sensex and Nifty have re-tested their March supports. "They certainty haven't led on the upside as has been the case in the past. It looks like that this is just going to be a longer consolidation. I continue to believe that the January and March lows will hold but the recovery or convalescence is going to take a little bit longer on this occasion. It is just a case of time rather than that an extension pattern before the market moves lower."

Excerpts from CNBC-TV18’s exclusive interview with Eoin Treacy:

Q: Where do you see the Sensex and Nifty headed?

A: Both the Sensex and Nifty have re-tested their March supports. This has been a bit of a slow-burn recovery for the Indian markets. They certainty haven't led on the upside as has been the case in the past. It looks like that this is just going to be a longer consolidation. I continue to believe that the January and March lows will hold but the recovery or convalescence is going to take a little bit longer on this occasion.

A number of other markets in Asia have successfully tested their January lows and are trading well above those levels. They have gone onto make further highs, i.e above their February highs, and India hasn't quite done that yet. So, it is lagging. I do believe that it is just a case of time rather than that an extension pattern before the market moves lower.

Q: What about global markets? We have seen quite a bit of retracement in Dow and some of the other emerging markets this week. Do you think the rally of the last couple of months is stalling there or is this just a pullback?

A: This is probably just a pullback. We have definitely seen that particularly with the Dow, S&P and Nasdaq, the pullback over the last three days has been really quite sharp. So, it has capped the advance in the short-term.

We are probably in for a couple of weeks of consolidation here. The price of oil is on everyone’s lips at the moment and oil remains very consistent. As long as oil prices continue to push upward, that is going to be headwind for stock markets globally.

Q: What do you see on the charts for crude?

A: Crude remains remarkably consistent. When you look at the charts there you see a remarkable staircase and a step sequence. No step has dipped back into the other. The trend is starting to pick up pace. We cannot say when this move is going to end. But we know that we are approaching an ending because it is picking up pace.

It is looking like we are going to see further acceleration in the oil price and it would really need quite a sizable downward reaction to offset scope for that to move significantly higher.

Source: Moneycontrol.com

Experts see markets trading volatile, rangebound

2008-05-23T19:08:00.001+05:30

The markets ended the week on a weak note. Selling pressure erased early gains and the markets closed deep in the red. The Nifty closed at 4,949 down 77 points, while the Sensex shut shop at 16,650 down 257 points.

This Week, the Sensex and Nifty ended down 4.5% and 4.1% respectively. On a weekly basis, the major lossers are Jaiprakash Associates down 12%, and HCC sown 11%.

Deven Choksey of KR Choksey Securities said the market would trade rangebound between 16,000 and 17,500 next month. "As long we are at 16,000, it would be comfortable. If it goes below16,000, we are heading for bigger trouble. The range from 16,000-17,500 would be the broader range for the market next month. There is also some amount of softening in crude oil prices that would take place. So, the upside would be around 17,300 on the Sensex. The downside would probably be around 16,300.”

If crude oil starts cooling down, we will see lot of confidence coming back into the market, he said. “There is a lack of trust or faith in the market and not much of participation. It is practically a dull market as of now for us and there is not much volume.”

Rahul Mohindar of viratechindia.com said with 5,070 broken, it sets a negative trend, and with 5,010-5,020 zone also breaking intraday, it further adds to the turmoil. “On the downside, the short-term charts indicate that we would possible head to 4,920 and below that to 4,830. We are not coming to any major conclusion. We are going to attempt a re-test of previous lows. I don’t think this is heading in for that unless it really breaks about 4,830 levels. A short-term trader would be trying to trade the downside now.”

According to Mohindar, a Nifty trader should definitely exit if one has any long positions in the short-term. “If one is attempting anything, certainly try and stay light and short.”

He sees support reemerging around 4,930-4,940 on the Nifty. “It is just the short-term turmoil. There is some nervous pressure, which obviously is going to be there. We will be locked with this volatility till then.”

E Mathew, Director, Mathew Easow Fiscal Services, said it was important for the Nifty to close above 4,950. "This uptrend would certainly be vitiated if your stop loss unfortunately is at around 4,800. Below 4,800, one can just forget about this uptrend. But even now there is still a glimmer of hope. There is still hope because this week we had so many negative factors from crude to inflation and even the drama, which is going on at the petroleum ministry etc. All that together is taking a toll on the technicals of the market too. But I do not know whether this fits into this technical show. I would just like to say that bull markets are born amid tremendous fear and they thrive on pessimism. So, let us hope that this is part of that."

Eoin Treacy, Global Strategist, Fullermoney.com, said both the Sensex and Nifty have re-tested their March supports. "They certainty haven’t led on the upside as has been the case in the past. It looks like that this is just going to be a longer consolidation. I continue to believe that the January and March lows will hold but the recovery or convalescence is going to take a little bit longer on this occasion. It is just a case of time rather than that an extension pattern before the market moves lower."

Source: Moneycontrol.com

Avoid tea stocks

2008-05-22T19:44:00.001+05:30

Technical Analyst, Ashwani Gujral is of the view that one can ignore tea stocks.

Gujral told CNBC-TV18, "I would avoid tea stocks because they tend to have these sporadic moves but generally there is very little follow through. I think the best spaces remain oil and gas and technology that have a basic macro figure, which is driving these stocks."

Source: Moneycontrol.com

Stay away from Axis Bank, Kotak Mahindra

2008-05-22T19:43:00.002+05:30

Technical Analyst, Ashwani Gujral is of the view that one can stay away from Axis Bank, Kotak Mahindra. They are underperforming; most of them are below their 200 Exponential Moving Average (EMA). So basically these stocks are sideways. Kotak Mahindra Bank is range bound between Rs 600 and Rs 850, Axis Bank is range bound between Rs 800 and Rs 950.

Gujral told CNBC-TV18, "Axis Bank, Kotak Mahindra are underperforming; most of them are below their 200 Exponential Moving Average (EMA). So basically these stocks are sideways. Kotak Mahindra Bank is range bound between Rs 600 and Rs 850, Axis Bank is range bound between Rs 800 and Rs 950. So all these inflation link stocks are probably stocks that people need to keep away from, they still need a lot more bottoming out and right now the spaces to be in is oil & gas and probably technology."

Source: Moneycontrol.com

Sensex to trade in 15k-17k range

2008-05-22T19:41:00.000+05:30

Nirav Sheth of Brics Securities expects the Sensex to trade rangebound between 15,000 and 17,000. " We believe the Sensex could evolve between 15,000 to about 17,000. This is obviously based on our static view in terms of no abnormal movements in the prices of oil."

Excerpts from CNBC-TV18’s exclusive interview with Nirav Sheth:

Q: How are you feeling about the banking space and the kind of nervousness that has come in especially for some of the private sector banks?

A: The banking space remains a very good secular story. But there are some genuine concerns in terms of what could happen in the short-term, given the worst that you are seeing in crude oil. If you try and run through some basic numbers in terms of the impact on fiscal deficit, you will need some incremental USD 70-80 million of funding that is required to be there. Suddenly, that opens a sort of a pandora because how do you start funding this kind of gaps. Eventually, you have to go back to banks in terms of higher Statutory Liquidity Ratio and therefore you start extrapolating.

Just about six months back, you are in a position where you could have presumed that you would look at SLRs coming down. Now, we will start speculating whether SLRs can actually increase because who is going to fund the fiscal deficits. There are some tactical issues as far as the banks are concerned. The fact to the matter is that no one has a clue in terms of where the run up in oil is going to end.

Q: Where do you stand on Cairn and the big run there?

A: We did some calculations and the implied valuations in Cairn tells you that you will have to assume a price of about USD 140 over the life of the reserve. To me, that is building or trying to see too much out into the future. I would hazard a guess that probably the stock is overvalued and right now it seems to be a good hedge against rising oil prices.

Q: The inflation figure comes in tomorrow. What’s keeping the markets most nervous right now between all those moving parts of inflation, currency, and crude?

A: The underlying factor, which is driving almost all of these things together, seems to be crude oil. Due to the leg up, eventually there is a tendency to filter into inflation, be it the headline inflation numbers. If you try and look at the core inflation figures, excluding maybe food and energy, then there is not a serious reason to get worried about it.

Also, the fact that credit growth has slowed down. I am not really worried as far as interest rates are concerned. This assumes a static scenario in which oil doesn’t overshoot and get into some abnormal territory. If that happens then with the lead or leg, we will have to see their problems. This time around, there seems to be a great disconnect in terms of how oil is moving and now the economies globally are performing.

Almost every country globally like China, India, US, Europe, among others is decelerating. Therefore, it seems slightly hard to explain the pace of rise in crude oil. I would also tend to believe at some point of time that it will itself start acting as a regulating factor. Probably, crude oil at some point of time will reach a price which will start chocking growth itself. We will probably be getting into an area where growth is going to slow down, and the headline inflation is going to remain strong. Those would remain headwinds for the equity markets in general going forward.

Q: What’s a range that you are working with right now for the Nifty?

A: We believe the Sensex could evolve between 15,000 to about 17,000. This is obviously based on our static view in terms of no abnormal movements in the prices of oil. We would tend to believe that earnings growth will decelerate going into the second half, which would be offset by a very strong blow up sometime into FY10. A lot of things will change if you try and look one year out. I would expect the current PE to only origin at about 15 to 16 times. Again this is based on the view that interest rates by and large would remain stable. So, we are looking at a fairly tight range going forward over the next one-year or so.

Disclosure: It is safe to assume that we have got a vested interest in the stocks or sectors discussed.

Source: Moneycontrol.com

See strength in mkts; worst may be behind

2008-05-21T19:14:00.001+05:30

Rajiv Anand of Standard Chartered Mutual Fund said there seems to be some strength in the markets. Wall Street experts seem to be indicating that the worst may be behind us.

The move on the rupee has been vicious, he opines. Fundamentally, the fairly large oil demand has pushed the rupee up. Given that, the monetary policy needs to be tight. The balance between growth and inflation is what one is contending.

Excerpts from CNBC-TV18’s exclusive interview with Rajiv Anand:

Q: What do you think? Is the global rally about to snap or are we still on a nice little uptrend for all global equities including ours?

A: There seems to be some strength. When you mean global, I would imagine you are talking about the Dow here. If one looks at the anecdotal numbers around the Dow, one is seeing that there is strength, VIX (Volatility Index) is at ten months lows, the transportation index, which is typically the frontrunner to the economy, in a sense is seeing significant strength. Of course, the financial services still continues to remain below the 200-day moving average. So put together, there seems to be some strength in the Dow.

If we hear the so called experts on the Wall Street, they seem to be indicating that “the worst seems to be behind us” and therefore to that extent, the only pall of gloom is coming not so much from commodities any more but oil because most of the other commodities around us have corrected fairly significantly especially within the soft commodity basket. So the only dampener is oil.

Q: Currency has been quite dramatic as well. There is hurried-scurried move towards the 43 to a dollar mark. Are you surprised by what’s happened in the money market and has that changed your call on some sectors in the equity market?

A: I think the move on rupee is been vicious; in the same manner the market didn’t quite see it going down 39.25 to a dollar. I think the move back up from 39 to a dollar-odd to almost 43 to a dollar today was also quite unexpected. Fundamentally speaking the fact that there is not too much of inflows coming in and on the other side fairly large oil demand is pushing the rupee up.

I think the problem within the money market is the fact that inflation is at 7.8% odd but actually the numbers are probably closer to 8.5% and given that the bias is for the monetary policy to be tight. The balancing act there is how to control inflation but given the fact that the growth numbers are not looking as exciting any more the balance between growth and inflation is what one is contending.

So I don’t think one can be too bearish on interest rates at this point in time because on side incremental inflation is beginning to come off albeit oil being where it is but remember there isn’t too much of pass through of that and growth which is weakening. So one cannot be too bearish on interest rates but on the other side inflationary expectation and the current RBI policy cannot get you too bullish on interest rate either.

Q: How would you approach something like a Cairn amongst the entire energy basket?

A: If you look at the private sector guys, it is a pure play on where crude is going. But even within the public sector space I think clearly the problem is quite large at this point in time, they are all trading well below - they are all classic value stocks. I think the incremental problem is not going to get resolved by issuance of oil bonds etc. So I think it is a reasonably good bet to play for some policy action on especially the public sector guys because on the margin they cannot survive at the way things have been going on over the last couple of years. So something needs to be done and I think that is something that one can clearly play for.

Q: Which of these sectors, which have got beaten quite a bit, does it make sense to take a contrarion trade in right now; cement, banks or real estate?

A: Among those three, if I were to put my money, it would be banks and cement in that order. I think in banks, there has been a fair amount of negative news, inflation, the noise about the credit cycle is also beginning to increase the case in point about farm loans yesterday. But I think much of that is in the price. Most of the public sector banks are trading at about one-time book; so to that extent, fairly beaten down and worth looking at. Similarly the cement side as well - perhaps cement prices could get capped but even if they do get capped, the EBITDA numbers that you are looking at are still very attractive, many of them are trading now at below replacement cost. So I think cement and banking financials are two sectors that one could look at.

Q: For the next month or two, what kind of a range do you see the market in from here?

A: I think a fairly tight range, the global cues are going to ensure that this market does not fall off too much and local macro-issues are going to really ensure that this market is not going to go up too much either.

So it is going to be a fairly tight range, maybe 5%-7% on either side.

Q: How do you approach the capital goods space? Some of those numbers are yet to come and we have seen weakness in stocks like JP Associates, BHEL over the last few sessions. Are you a buyer in that space or circumspect?

A: I think we are in the circumspect camp. What is happening is that hitherto, capital goods stocks were being valued on a multiple of order books and growth of order books. I think we are back to looking at boring things like profits and stuffs like and within that space, we are seeing that there is raw material pressure, there is pressure on margins etc and in the early ‘90s and thereabouts we have seen the ability of order books to vanish; we have seen that happen I am not for a moment saying that that’s something that could happen this time. But I think there is an element of skepticism at this point in terms of the order books etc. So we are little circumspect within the capital goods space at this point in time.

Q: What about the whole metal pack. How have you read the interest alternating first for steel and then for the base metal universe and anything that you will start buying there?

A: I think we hold a whole basket within the metal space both ferrous and non-ferrous. I think there is interest within that space both from a fundamental perspective whether it is copper or steel; I think there is story there. We are also seeing given the weakness of dollar and the concomitant impact on commodities especially the hard commodities and crude I think it’s a good place to be at this point in time.

Disclosure: It is safe to assume that my clients & I may have an interest in the stocks/sectors discussed.

Source: Moneycontrol.com

Common mistakes committed in the equity market

2008-05-18T15:17:00.000+05:30

Throughout your investing career, it is likely that you will be guilty of committing a lot of mistakes. There is no one today who has not committed costly financial mistakes including the legendary Warren Buffet. However it is the ability to recognize and learn from your mistakes that will determine whether you are able to achieve your investment objectives. It is thus paramount to commit as few mistakes as possible. Failure is often the best teacher provided you allow yourself to be taught.

The last three months have exposed investors to several such mistakes. Here we highlight eight of the common ones.

1. Relying on tips and hearsay is the first and most common mistake committed by most investors.
2. Expecting Big Gains fast. Very few people have the mindset and patience required to invest in equity. A common expectation is to make big gains quickly. There is no focus on the risk the investment exposes your portfolio to. A classic example of recent times was the Power sector. Any stock that had the name ‘Power’ in it was considered sacrosanct. People did not even care about risk involved in taking exposure to such stocks. Instant gratification is injurious to your wealth.
3. Leverage in equity markets can have disastrous consequences not just on your financial health but on your physical health.
4. It’s not easy to always make money in equities and there could be periods of negative returns. Though over time, returns can even out, in the short run there could be sizeable downside. So don’t be surprised by it. Understand, expect corrections and be realistic.
5. Have reasonable expectations from equity. As an asset class equity should technically deliver returns in line with corporate earnings. However we do not invest in a utopian stock market but a market that drives on hope, greed and fear. Hence you are bound to see eras of excesses and exuberance and those of pessimism.
6. It’s all easy to know ‘Buy low and sell high’, but majority of people would end up doing exactly the opposite. Most investment banks, brokerages, hedge funds, FIIs, domestic investors, gurus and analysts are super confident in a bullish market when highs are torn apart every other day. Things suddenly change for them when the market corrects and no one is ready to put even their thumb in the market. Learn to embrace market sell offs. People who could not earlier invest had an excellent opportunity to invest at 14000 to 15000 levels but I do not know too many people who had the gut to really invest.
7. When the market corrects, do not put all your eggs immediately. Corrections that happen after very sharp rallies tend to extend themselves over a few months. One of the strategies that can be adopted is to invest in a staggered fashion. You should start investing if the market has corrected by more than 15-20% and go higher when it crosses 30-35%. There is no way to know what the bottom could be and I don’t know how people come up with their holy predictions on how lower can the index go. When the going is bad, all one hears is bad news and it’s very important to grow beyond these daily projections. Investing is certainly not a poker game and you would be harming your economic interests by following what a bunch of unknown people are doing.
8. Don’t keep looking at your portfolio because things are not going to change even if you see it many times. A quarterly or semi annual review should be good enough for most people. Looking daily is harmful to your overall thought process and can urge you to take emotional decisions whether on the way up or way down.

This is the time to take stock of what you actually have. The first step is to understand the various investments in your portfolio and how they fit within the overall scheme of things.

Most people would like to see their investments grow right from day one. For a long term investor, it should not matter if prices do not rise right away. Infact if investment values indeed go down, you should be happy to see your buying happening at lower levels. Eventually when the market recovers, you are bound to get much higher returns because of these inefficiencies in a turbulent market. The only time your stock prices should be up is when you need to sell.

Currently one sees lower volumes in the market due to fear and several other factors. The increase in STT (securities transaction tax) and short term capital gains tax also has had some impact on volumes. There is a lack of clarity on the direction of the market. However just because this is the case, there is no need to change your investment strategy. Continue to buy in a staggered fashion and just stay put if you already have.

Source: Moneycontrol.com