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
Monday, June 9, 2008
Sensex @ 14200 seems on cards in near future
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
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
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
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
Tuesday, June 3, 2008
Inerview with Warren Buffett
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
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
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
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
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
Sunday, June 1, 2008
Reliance Power to trade around Rs 230-270 in 3-6 months
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
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
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