Indian Stock market Information, analysis, advice, tips and stock recommendations.

Where are the opportunities?

2010-10-03T08:30:00.000+05:30

M.V.S. Santosh Kumar

Stocks of non-banking finance companies (NBFC), which took a massive hit during the credit crisis, have rebounded smartly from their lows in March 2009. Taking stock today, which segments of the business appear overheated and which offer further investment opportunities? Our analysis suggests that while infrastructure financing NBFCs offer growth opportunities and their housing finance counterparts may deliver stable growth, investors should also book profits in some of the segments that have run up too far.

Benign liquidity conditions, regulatory support by RBI , revival in the economic activity boosting credit demand and improving asset quality benefited NBFCs immensely. Additionally, the capital raised over the last year and a half also helped some of them reduce leverage .

Apart from rising economic activity, banks' wariness to lend to some segments of borrowers worked in favour of these NBFCs. Securitisation also revived, augmenting their fund raising base.

Our analysis showed that 24 NBFCs with a market capitalisation of more than Rs 1,000 crore, gained between 123 to 1400 per cent from the March 2009 lows, with the majority of stocks trebling in value and almost the entire universe outperforming the broader market.

However, investment companies such as Tata Investment Corp, JSW Holdings and Network 18 Media, given the underlying stocks' under- performance, continue to trade below their January peaks. Here, we review NBFCs spread across three major segments (infrastructure, mortgageand asset financing) and take a look at their stock performance vis-a-vis business growth, current valuations and growth prospects.

Infrastructure financing Power Finance Corporation (PFC), REC and IDFC are the largest listed players in the infrastructure financing space and are among the better performing stocks as the demand for credit from infrastructure did not cool off over the last two years despite overall slowdown in capex activities. The stock of IDFC, however, hasn't gone back to its January 2008 peak levels, as its loan book grew the slowest and has very high business linkages with equity markets which hasn't entirely revived.

The loan books of IDFC, PFC and REC grew at annual rate of 10 per cent, 24 per cent and 30 per cent respectively over the two-year period ended March 2010, leading to an annual net profit growth of 22 per cent, 39 per cent, and 52 per cent respectively. Apart from rising loan book, fall in interest rates, shrinking corporate spreads and high liquidity also led to cost declines and consequent improvement in margins for these NBFCs.

As of June 2010, cumulatively, these three NBFCs' loan books grew at 7.5 per cent sequentially, indicative of the high demand for infra-loans. The current price-to-book value of PFC, REC and IDFC are close to three times, re-rated from the March 2009 lows of 1.1-1.5.During this period, IDFC and REC raised capital, despite which they are trading at such a high price-book value. Going forward, with a major chunk of Rs 20,00,000 crore of funding requirements yet to be met in the 11th Five Year Plan (2007-12) and another Rs 41,00,000 crore projected to be spent in the 12th Plan , the loan book growth may continue to be spectacular. The asset-liability management of these NBFCs will also be better in future as they are allowed to raise long-term resources at lower costs thanks to their infrastructure financing status. In our view, investors can hold on to these stocks with a two-three year horizon for good returns.

Mortgage financing

Among the housing finance company stocks, HDFC, LIC Housing Finance, Dewan Housing and Gruh Finance have all climbed above their January 2008 peaks. To revive the housing loan segment, regulations such as re-financing and interest subvention were introduced and, as the economy revived, housing demand improved steadily, especially as property prices and rates of interest were low.Housing finance companies maintained their market share over the last two years despite stiff competition from banks. The total loan book of major housing finance companies expanded by 20 per cent annually in 2008-10, when scheduled commercial banks' home loan growth was in single digits.This may come as a surprise as many banks came up with teaser loans, but the growth in the loan books of some banks led to fall in the others, reducing the pressure on housing finance companies. They also maintained margins despite pressure on yields (due to teaser loans) as they brought down operating costs and cost of funds.

Even as HDFC saw its price-book value expand from 2.5 to 5 times, it was LIC HF, Dewan Housing and Gruh Finance that enjoyed the highest re-rating. The re-rating of LIC Housing and Dewan Housing was due to their non-metro focus, which improved their market share in the total loan book. Loan book growth was at 31 per cent and 45 per cent compounded annually over the two years ended March 2010. Over the years, not only have the volumes increased, but also the ticket size of loans, boosting the overall loan book size of the housing finance companies.Going forward, the demand for loans may improve given the 2.47-crore unit shortfall in housing expected in Eleventh Plan. According to Crisil estimates, mortgage loans from NBFCs and banks will grow at 14.7 per cent compounded annually over the five years ending FY15.

Our preferred picks in this segment are HDFC (diversified business income across various segments of finance) and Dewan Housing (low valuation and improving presence , thanks to tie-up with banks). Investors can book profits in LIC Housing and Gruh Finance, which are trading at stiff valuations, limiting the upside.

Asset-Financing

Auto financing companies were hit the most during the fall, because of their high dependence on growth in vehicle sales, which headed south during the latter half of FY-09 and early FY-10. However, the rebound also has been spectacular, thanks to stimulus efforts. Sundaram Finance, Bajaj Auto Finance and Mahindra Financial Services benefited from the revival in the vehicle sector.

Commercial vehicle (CV), two-wheeler and car volumes grew 38 per cent, 26 per cent, and 26 per cent for the year ended March 2010 after a muted performance a year ago. Bajaj Auto Finance saw its loan book grow by 94 per cent in the last 15 months after a slowdown in 2008-09.Similarly, Sundaram Finance and Mahindra Financial, which saw moderation in 2008-09, have improved their loan book growth for the year-ended March 2010.The current price-to-book value of Mahindra Finance, Bajaj Finance and Sundaram Finance stands at 2.2 to 3.5 times, up from 0.3 and 1.4 times the value in March 2009.The Society of Indian Automobile Manufacturers estimates that car and utility vehicle sales will grow at 13 per cent in the current year with CV sales growth moderating to 19 per cent and two-wheeler sales increasing to 9-10 per cent as the base effect kicks in. With the rate of growth getting normalised, the upside in these stocks may moderate. Investors can hold on to Sundaram Finance and Bajaj Finance.

Rising competition

Shriram Transport Finance (STFC), Manappuram General Finance and the recently listed SKS Microfinance are all trading at a high valuation premium to other NBFCs due to lack of peers for such businesses in the listed space.These three have a presence in very high margin (albeit risky) businesses and make margins of more than 8 per cent.STFC is a commercial vehicle financier but predominantly finances used vehicles, in which it is almost a monopoly in the organised space.SKS and Manappuram, despite facing competition from their peers have advantages of scale as well as a first-mover edge in certain geographies, helping them attract more borrowers and keeping the high growth rates ticking.

STFC is up 218 per cent since its March 2009 lows and 92 per cent from the January 2008 market peak, while Manappuram ended up being the star performer amongst the large NBFCs, with more than 900 per cent in gains since March 2009 and 777 per cent gains from market peaks. SKS, which listed in August, has already gained 35 per cent in the last 45 days.The current price-to-book values of STFC, Manappuram, and SKS are 4.2, 7 and 5.5 times respectively.The loan book growth for STFC, Manappuram and SKS during the last two-year period was 22 per cent, 222 per cent and 101 per cent respectively.Given their current valuations they have to clock exceptionally high growth in earnings over the next few years to justify these prices.Despite huge untapped potential left in these segments, competition is also on the rise.In addition, there are individual business risks relating to vulnerability to a downturn and asset quality due to a low-income focus. Therefore, it is safer for investors to stay away from these stocks at this juncture.Overall, we continue to be bullish on infrastructure financing companies, thanks to their growth prospects, and on investment companies such as Bajaj Holdings, Tata Investment Corp, JSW Holdings as they are trading at significant discounts to their investment book value.

Seven out of top 10 Asian small-cap funds are Indian

2010-10-02T18:39:00.000+05:30

ndian funds have grabbed seven out of the top 10 spots in the league table of leading small-cap funds across , thanks to some canny stock-picking amid growing investor appetite for cheap with potential to deliver multi-bagger returns.

An analysis of nearly 300 Asian small-cap schemes shows leading the charge, delivering an 82% return over the past year. Managed by Vinit Sambre, who has been with DSP BlackRock for a little over three years, this fund has also soundly beaten the 58% rise of BSE’s Small-Cap Index since August 2009. The 30-share benchmark Sensex has gained 20% during this period while the wider BSE 500 Index is up 27%.

The other six schemes — and ING Vysya CUB — have given investors returns between 44% and 57% on a trailing 12-month basis. These schemes manage anywhere between `46 crore and `954 crore.

Four of these funds were launched during the peak of the previous bull run between January 2007 and March 2008, and investors in them have also had to endure a massive erosion in their initial investment in the downturn that followed.

Mutual fund tracking firm Value Research called the DSP fund as an impressive product in the entire “small-cap universe”, noting that the stocks held by it were “credible, known names and there is a marked absence of momentum in the portfolio”. The fund’s holding includes companies with a high return on equity and strong leadership niches in their industries.

Value Research CEO Dhirendra Kumar said the closed-ended nature of some of these funds helped them weather the turbulence. “These funds did not face redemption pressures through the declining phase. This, in turn helped them invest for the longer term,” he said.

The DSP fund became open-ended in June this year and fund manager Mr Sambre has kept nearly 10% of his `311-crore corpus in cash to meet potential redemptions and to latch onto any opportunity in the market.

There are 10 small-cap funds in India, which manage roughly `3,450 crore in stocks. These account for just 2% of the total AUM under equity schemes.

Market experts say that as many large-cap stocks became fully priced and relatively unattractive over the past year, the rally shifted to small caps. Stocks such as cooler maker Symphony and luggage maker VIP Industries have led the small-cap charge in the market. Ahmedabad-based Symphony has surged 830% while VIP has risen 548% in the past 12 months. In comparison, top two gainers on the Sensex — Tata Motors and Tata Consultancy Services — are up 135% and 61%, respectively.

“Many small caps with excellent businesses were trading at a pathetically low valuations — many were trading below book value and at dividend yields of 5-7%,” says Deven Choksey, chief executive officer at KR Choksey Shares & Securities. “They just got purchased heavily.”

Even though small-cap funds have delivered solid returns in the past one year, experts say that investors must be cautious and have just 10-15% of their equity exposure in such funds or companies. This is largely because of the volatile nature of their stock performance.

“Investors should have a strong stomach and the ability to

withstand substantial declines in such funds,” says Mr Kumar at Value Research.

Multibagger-Delta Corp - Target 250-300 in long term

2010-10-02T18:18:00.000+05:30

Mehraboon Irani, Sr. VP - Equity, FCH – Centrum Wealth Managers Ltd , in a chat with ET Now talks about the favourite buys for long term.

ET Now: What is it that you would buy right now, a couple of names may be?

Another company we like as my old favourite, a stock, which I have been following from 2003, which of late virtually anybody and everybody in the street has started talking about, it is a company called Delta Corp, which once upon a time was known as Arrow Webtex. I have been following this company and owning this stock from 2003. We have a target of over Rs 250-300 for this stock over the next 18 months. A whole lot of things are happening in this company. There is a preferential allotment taking place today. Big investors have started entering the stock and now virtually everybody is talking about this particular company, it is in the niche segment called casinos and the gaming business and virtually commands the entire casinos in the country right now and is planning to set up similar casinos in three other places in India besides Sri Lanka, that’s what we understand, so we feel Delta Corp even at the present level is a great buy and virtually it could be a multi-bagger even from here over the next 1.5 years.

Undervalued Penny Stocks – 10 Qualities Of Companies With Undervalued Stock

2010-10-02T10:51:00.000+05:30

Undervalued Penny Stocks CAN make you loads of cash. However, if you want to become rich from penny stock trading you cannot cut corners when trying to find the right penny stock picks. Time invested in research about the company is the answer to finding undervalued penny stocks. And undervalued stock is the solution to making HUGE profits. They can double or even triple your gains. BUT, you must be able to determine which penny stocks are accurately undervalued and which are better left alone. Below is a list of 10 characteristics of companies with undervalued stock.

1. The company is NOT in the midst of a financial scandal.

2. The company has stable earnings.

3. A low price-to-earnings ratio is NOT due to a major decline in profits.

4. A low price-to-earnings ratio is NOT due to profits realized from capital gains.

5. The company’s price-to-earnings ratio is below its average price-to-earnings ratio for the last 10 years.

6. The company IS selling at a price lower than its tangible asset value.

7. The company’s products are NOT in high-technology that can become obsolete overnight.

8. The company’s trailing 3-years earnings has risen over the past 10 years.

9. The company did not have a loss during the last recession.

10. The company’s credit rating is AAA, AA, or A.

Researching these characteristics can take time. Sounds like a lot of work? It is! Having invested in the stock market for over 12 years, it has really simplified my life to use a stock trading program to pick my stocks. They are pros at finding undervalued stocks, which saves me time. Bottom line this service allows me to spend more time with my family. You might want to look into using one as well. You can click here for more information. They really help in taking the risk out of investing, especially for people who do not have the experience or the time needed to thoroughly do the research.

Spotting Undervalued Stocks: A SIMPLE APPROACH

2010-10-02T10:49:00.000+05:30

There are lot of proven companies like Reliance Industries, Bajaj Auto, Infosys technologies and so on. But they might be fully valued. The whole market is watching their business activities and news relating to any change that may be positive or negative for those companies. Market quickly reacts to such information and as such their value would reflect their perceived business prospects at any given point of time.
The prices of such stocks may take a random walk on the basis of certain general news which affects the overall market sentiments but having no effect on their prospects. Those kind of situations give opportunity to get into such great stocks at a price below the normal valuations. Such events and news won't often come. Even if they occur also how will one know what is the right price to enter a stock. Volumes have been written on how to value stocks and volumes remain to be written on the subject. This is because the circumstances keep on changing and new valuation parameters are designed and employed to meet changing circumstances.

Methodology Issue
Though there are many complex valuation methods we need to have a holistic analysis that the company is doing well on all counts and not just valuation. Let us try to look into a methodology which can help an investor adjust the limits of his parameters based on his overall outlook. The methodology is more of quantitative in nature to eliminate subjectivity and requires good amount of past data regarding their balance sheet,
profit and loss account and cashflows to pinpoint undervalued stocks. This step by step approach can help you try and find a few good undervalued stocks. But sometimes you may not find one also. Yes finding
undervalued stocks are like finding oyster pearl from deep inside the sea! The analysis involves 5 basic factors and selects only those which satisfy all the parameters used for each

Stability
Stability can be attributed to the stable income generation capacity of the company and its potential to grow. The current sales should be more than a particular limit. For e.g. let us say that the current sales should be more than Rs.100 crores. This kind of limit is required as many companies won't be able to grow fast unless they achieve a critical mass in revenues. They need enough money to expand rapidly and revenues are the primary source for that. Hundreds of small companies remain small because after meeting the regular business expenses they won't be left with enough cash flow to grow. The second parameter is that the sales should be growing continuously. If the sales are up in one year, down in another and the pattern is repeated then there is some serious problem in the overall management of the business or the nature of the business. It is better not to buy shares of such companies. The growth in sales shows the demand for the products and services of the company and its continuity represents either the growth in market for the company's products or services or the company's ability to stay on top of competition. Reasonably you should look for a company whose sales are growing above 20% year on year.

Profitability factor. It is up to you whether to relax a parameter because some other parameter is so good so that it will negate the weakness of the other parameter. The 5 factors to analyse the stocks in the market are Stability, Profitability, Capital Structure, Management and Valuation. The first 4 factors except Management are quantitative factors and Management is qualitative factor.
Profitability means different things to different people. For a lender the total cash flow generated out of operation is very important. But for an equity investor the Net Profit Margin (NPM) is more important.
Because his cash flows in terms of dividend or increase in investment value through creating additional reserves can be done through the net profit only. If the NPM is very low like 2-3% then a small negative change in the sales would see that the company turns into red. Ideally you should look for companies which can generate NPM of 10% or more, continuously. The continuity factor is very important because it shows that the company is not growing at the expense of margins. NPM is calculated as Net Profit After Taxes divided by the Net Income. When we consider the stability factor also into account the minimum Earning Per Share (EPS) of double the face value would be ideal. This shows that the company is able to generate good money for the shareholders. The higher EPS reflects the fact that the company is in the business for long and the resources are under full utilization. The company should also give a reasonable Return on the Networth (RONW). This is nothing but the share capital plus reserves. The consistency or continuous growth of the RONW signifies that the assets are employed in good manner. The more the RONW the better the business is doing. It would be good to look around for a company which gives RONW above the expected equity returns.

Capital Structure
Capital Structure needs to be analyzed in 2 ways. One is with respect to the equity and debt combination and the other is in terms of the share holding pattern. Companies used to borrow money for expansion of business in order to grow. Ideally a company should not have more than 2 times the equity capital as debt. The advantage of borrowing is that the company expects to earn a higher return than the cost of interest thus increasing the net profit available to the shareholders. But if the borrowing is too high, in a down market company when margins are under pressure the company will find it difficult to generate enough profit to be shared with the shareholders. Before deducting interest and taxes, if the company's profits are more than 5 time the interest liability then we can fairly assume that the company is fairly placed. More the interest coverage ratio, better the ability of the company to survive in adverse conditions. The interest coverage ration is calculated as Profit Before Interest and Taxes divided by the Interest Paid. Secondly you have to see whether the promoters have substantial stake in the company and also whether any institutional investment is there. If the total of promoters and institutions as shareholders is more than 50% it may be considered as good.

Management
Management's integrity, accountability and honesty to shareholders and other stake holders should play a vital role in deciding whether to select the stock or not. There are notorious promoters who siphon out money through accounting juggleries and also take decision on diluting equity without considering the interest of other shareholders. The existing shareholders would not get any benefit in such scenarios. If a company pays good dividends, issues bonus shares or rights shares to existing shareholders it can be fairly considered as investor friendly. Also the management's approach to the labour force, promptness in meeting regulatory requirements, relationship with vendors and customer satisfaction are factors to be looked into. As this is a subjective analysis you should be trying to get as much news material on the company by surfing the internet or going through old business news papers or business magazines.

Valuation
By going through all the above steps you may find few good companies but now you need to find their valuation also. Here the simple way is to check the Price to Earnings (P/E) Ratio and the Price to Earnings Growth (PEG) Ratios. P/E ratio should be ideally below 14.2 if the opportunity cost is 7%. This means that if you can get a return of 7% from bank deposit which you are foregoing by investing in the stock, the stock should minimum generate earnings which would equal to the bank interest. P/E is calculated as Price per share divided by EPS. But P/E does not reflect the earnings growth over the future years and hence is very conservative. So you need to also look into the PEG Ratio. PEG ratio is calculated as P/E divided by the Annual Earnings Growth. So if you expect the net profits to grow by 30% then the PEG ratio for a stock with P/E of 14.2 will be 14.2/30 = 0.473 (You should not take the percentage into account in calculating this). A PEG ratio of less than 0.5 is a good sign of undiscovered value. There are a lot of methods for valuation. You can also calculate the discounted value of the free cash flows over the expected time horizon of your investment. But most of these involve tedious calculations. Many of the things like sectoral outlook or business model analysis are not considered in this methodology. But it is sure that there won't be many stocks which could qualify on all counts. So you need not worry about it. The stocks you find can be considered as stable with growth prospects, having good profitability, with low default risk, having good investor participation, fair management and at a price which is intrinsically higher than its currently quoted price.

Stocks to scoop up when the market falls

2010-10-02T10:41:00.000+05:30

The stock market may be poised for a significant correction. Keep your powder dry. Look to buy these stocks at lower prices

Indian stock markets have remained stuck in a narrow range for some time now, as if undecided on the correct direction in which to move. While the economy as a whole is putting its best foot forward, the bulls look tired. Since January this year, when the Sensex opened at 17,473, the bellwether index has ebbed and flowed-touching a low of 15,652 in February and hitting a high of 18,475 in August. The Sensex is now hovering around the 19,900 mark. We had advised readers earlier not to have huge expectations from the equity markets this year, against the backdrop of the spectacular 88% rally of the preceding 12 months. We had cautioned, "...if stocks keep rising in the second year, they would do so in a much more muted fashion... The market will go through multiple twists and turns during the year and, in the end, may deliver small gains." The gains over the past 8 months in the Sensex? Just 3%.

So where will the markets go from here? At current valuations, the market is quite expensive. The Sensex is now trading at a price-earnings (PE) multiple of nearly 21. Various fundamental and macro factors suggest that the market is now ripe for a correction. For one, corporate India churned out disappointing numbers for the June quarter, belying the market's expectations. While revenues of the top 100 BSE companies witnessed a strong 22% aggregate growth, operating profits barely budged an inch, rising by a mere 1%. This fell short of the market's expectations; it was anticipating a 20% growth in operating profit for the entire FY10-11. The latest quarterly performance may not bode well for the rest of the year. It is obvious that, since profit growth is lagging so far behind revenue growth, companies are reeling under severe cost pressures.

If India Inc continues to display such indifferent results heading into the second quarter of this fiscal, it may be a strong enough cue for investors to lose confidence and offload, for now.

Another strong indicator of the downside risk to the market is the current huge position in the equity futures segment at the National Stock Exchange (NSE). The open interest in the equity futures at NSE recently zoomed to Rs68,200 crore. With this, the ratio of total traded value of open interest in stock futures and index futures has crossed 70:30 - the level it had reached before the market's freefall in 2008 - clearly underlining the risk of a correction. In the recent past, whenever the ratio of open interest in stock futures and index futures has crossed 70:30, the NSE Nifty has usually corrected by around 10%-12%. The Nifty had corrected 10.16% (around 534 points) on 15th January, when the ratio had crossed this level. It happened again on 26th April, when the Nifty slumped by 9.71% (around 1,722 points) after the ratio touched 70:30 again.

Also, the India Volatility Index (VIX), which captures the expected market volatility over the short term, recently slipped to a low of 16.15 - its lowest on a closing basis since its launch. Volatility rarely goes up in a rising market, especially in a strong bull market; it usually coincides with a fall in the market.

For all these reasons, we believe that the market is set for a drop of at least 10%-12%, (see box) translating into a correction of around 1,800-2,000 points. This is the very opportunity most investors would be looking for - to enter the market and get great deals at bargain prices. Here are a few such stocks which are worth considering once the correction takes place. Apply the standard stop-loss of 20% below purchase price or from the highest daily closing price, if the stock has rallied more than 50%.

Stocks for a Rainy Day

Textiles may be boring bets but they have given terrific returns, if bought at the right price. We had earlier recommended Shri Lakshmi Cotsyn in October 2009. The stock is up 54%. Some select textiles stocks are still good bets. Indian domestic consumption of textiles is growing fast, at 15% annually, and is driving the revenues of companies like TT Ltd (TTL). Additionally, textiles companies garner substantial money from exports. TTL is the flagship company of the 58-year-old TT group, a household name in textiles with its popular TT brand. Earlier known as Tirupati Texknit, it is now a vertically integrated textiles manufacturer, mainly producing cotton, yarn, fabric, garments and accessories.

Its processing units are located at Gajroula (Uttar Pradesh), Avinashi, Dharapuram, Dharampur and Tirupur (Tamil Nadu), Gondal and Rajula (Gujarat) with installed capacities of 60,000 metric tonnes per annum (mtpa) ginned cotton, two million kg knitted fabrics and 55,824 spindles as on 31 March 2010. It also has wind mills generating 3.75MW of electricity for captive use in Tamil Nadu and Gujarat. The company is planning to increase its presence in the 'clean energy' segment through a major foray in clean power generation in the coming years. Major export destinations for its products include Indonesia, Malaysia, Turkey, China, Mauritius, Egypt, Brazil, Europe and USA. The company expects to achieve about 40% growth in turnover and much higher profits for this fiscal. This marks a turnaround in the fortunes of the company which struggled during the slowdown of 2008-09. It has placed higher emphasis on domestic sales, reduced exposure to commodities business like raw cotton fibre, and focused on brand building and value-added products. It has also tied up with all major organised retail chains to establish its presence. Its financials have improved in the recent quarters. Over the past five quarters, sales and operating profit have risen 57% and 116%, respectively. Its operating margin stands at 10% but RoE is impressive at 27%.

Increased prosperity of Indians is leading to higher consumption and investments. As Indians look to borrow money to buy durables and put money in investment products, Indian financial services companies will do well, providing loans and channelling investments. One of the best known finance companies is Bajaj Finserv Lending (BFL). It started its operations by financing two-wheelers of Bajaj Auto. Over time, it has expanded its operations to finance consumer durables also. It now finances two-wheelers and other consumer durables, extends personal loans, small business loans, finances construction equipment, and provides loans against securities. It started construction equipment finance and loans against securities in June 2010.

The total size of construction equipment credit market is approximately Rs15,000 crore, dominated by banks and select non-banking finance companies (NBFCs). The infrastructure segment is a growth area and BFL should do well. Loans against securities is a Rs5,000-crore business which is dominated by private banks and NBFCs. It is not growing rapidly and BFL will take some time to gain a foothold in the business against established players.

With the substantial pick-up in auto sales volumes, the company's disbursements have grown at a rapid pace. Its loan book last year grew a whopping 87% to Rs4,585 crore compared with that in FY08-09, led by a 267% growth in mortgage-based lending. Two-wheeler loan disbursements grew by 74% in FY09-10, thanks to strong growth in two-wheeler demand throughout the country. With receivables of Rs4,026 crore, BFL is one of the leading, diversified NBFCs in the country. Its asset quality has also improved considerably-non performing assets (NPAs) have declined to 1.8% from its year-ago level, when they aggregated 4.5%.

BFL's strategy of focusing on 'mass affluent' customers and major dealerships has begun to yield significant benefits through lower operating costs and improved risk performance. The June 2010 quarter performance was impressive. Its revenues and operating profit surged 57% and 205%, respectively. The five-quarter average sales and operating profit growth stand at a robust 54% and 220%, respectively. Its operating margin is decent at 17%.

The tyre industry is expected to clock 7%-8% growth in this fiscal, thanks to strong volumes in the automobile industry. TVS Srichakra is one of the leading two- and three-wheeler tyre manufacturers in India rolling out over 11 million tyres per annum. It is one of the major suppliers to all leading original equipment manufacturers, namely, TVS Motors, Hero Honda, Bajaj Auto and Yamaha Motors and has a strong network of over 2,050 dealers and 23 depots to cater to the after-sales market. The company is a global player, exporting to USA, Europe, Africa, South America and South East Asia. For the export market, it manufactures industrial pneumatic tyres, farm & implements tyres, skid steer tyres, multipurpose tyres, floatation tyres, etc. It has a state-of-the-art manufacturing facility at Madurai in Tamil Nadu, spread over an area of 2.5 lakh sq m.

Last year, the company set up another plant in Pantnagar, Uttarakhand. As per the latest available figures, the company has an installed capacity for 12.21 million automotive tyres and 12.86 million automotive tubes.

During the June quarter, the company registered 43% growth in sales and 31% jump in operating profits. Over the past five quarters, its sales and operating profit growth have averaged 26% and 63%, respectively. Operating margin is around 9% and RoE is robust at 35%.

PI Industries is into agri-inputs, contract research and manufacturing services (CRAMS) for fine chemicals, polymers and engineering services. Founded in 1947, it was earlier known as Pesticides India and was renamed PI Industries in 1993 to reflect its new diversified businesses. Key products in agri-inputs include crop protection, specialty products, plant nutrients and seeds. One of the leading companies in CRAMS, the company has long-term tie-ups with leading chemicals companies across the globe for newly invented products. Its manufacturing facilities spread over 90,000 sq m are located at Udaipur (Rajasthan), Panoli (Gujarat), and Jammu (Jammu & Kashmir) with captive power generation facilities. It offers a one-stop shop for all customer requirements in fine chemicals ranging from process evaluation, bench-scale trials, kilo lab, pilot plant to commercial manufacturing for various multinational companies from Japan, USA and Europe. In the polymers segment, the company offers engineering compounds of a large number of polymers as also a large range of customised grades and special grades like high heat-resistant and impact-modified grades. It has also developed expertise in product development for automobiles, electrical & electronics appliances, white goods and other industries.

Impressed with PI's prospects, in November 2009, Standard Chartered Private Equity invested Rs50 crore. The company's sales and operating profit growth over five quarters have averaged 17% and 31%, respectively. Operating margin has averaged 16%. In the June quarter, sales grew 14% while operating profit was up 5% over the corresponding quarter last year.

Softening pulp prices and revival in demand for paper have boosted the volumes and margins of paper companies like Tamil Nadu Newsprint & Papers Ltd (TNPL). Established by the government in the early 1980s, its product range includes business stationery, classical writing, computer stationery, newsprint, premium printing and quality printing. TNPL has the largest bagasse-based plant in the world, which will have an installed capacity of 400,000 tonnes per annum (tpa) by October 2010. The addition of 155,000tpa capacity involves installation of a state-of-the-art paper machine, backward integration of chemical bagasse pulp elemental chlorine free (ECF) bleach plant and a new high pressure multifuel boiler at a total outlay of Rs1,000 crore. The company is a market leader in stationery and the largest exporter of wood-free paper. TNPL had implemented farm forestry and captive plantation in 37,556 acres and 2,735 acres, respectively, up to March 2009. It has planned to increase the plantation area by about 15,000 acres every year to reach the target of 100,000 acres by 2012-13. TNPL also plans to install a captive de-inked pulp line of 300tpa capacity at a capital outlay of Rs174 crore, a project expected to be completed by December 2011. TNPL's June quarter performance was stellar. Its sales and operating profit zoomed 62% and 77%, respectively, over the corresponding quarter last year. Its operating margin has averaged a healthy 29% over the past five quarters. Expect a jump of 40% in net profit for 2011 and another 30%-40% next year.

Symphony Comfort Systems (SCS) is the world's largest manufacturer of portable air-coolers. Its range of products includes portable coolers, desert coolers, air-conditioners, ventilation fans, room heaters, water heaters and water purifiers. The company has a sizeable presence in the export market which reduces the seasonality factor of its business in the domestic market. Its products are exported to over 25 countries including Dubai, Burundi, Namibia, Bahrain, Nepal, Senegal, Oman, Sudan, Saudi Arabia, Tanzania, Switzerland, Sri Lanka, etc. In order to establish its products in European countries, SCS successfully obtained CE certification for two of its models, viz., Sumo and Mini Kaizen. It has, over the years, built on its core strengths to become a leader in air-coolers. The company has a world-class facility located at Thol, near Ahmedabad (Gujarat). SCS is looking to expand its distribution network within the country to cater to the rising demand for air-coolers. It recently acquired a 49% stake in Singapore-based Sylvan Holdings, which has a majority holding in Mexico-based IMPCO, a manufacturer of a variety of industrial and small coolers. This investment is expected to benefit SCS through strategic market penetration with an increased range aided by IMPCO's established relationships with renowned and well-known large-format stores. Over the past five quarters, the company's sales and operating profit growth has averaged 119% and 233%, respectively. Its operating margin has also averaged a strong 21%. RoE is spectacular at 84%.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security).

Mutual funds: Why hold is better than sold now

2010-10-02T10:36:00.000+05:30

It’s a pity that investors are withdrawing money from mutual funds. Most new funds launched in the past year have outperformed their benchmarks

The stock markets have see-sawed intermittently in the past year, even as the mutual fund industry has faced its toughest battle for survival against the blizzards unleashed by market regulator Securities and Exchange Board of India (SEBI). These trying times witnessed the launch of several new mutual fund schemes.

Remarkably, a majority of these schemes have outperformed their respective benchmarks over the short duration of their existence. This feat has been achieved by 10 of the 13 new equity diversified schemes launched in this period. The Canara Robeco FORCE Fund stood out with an exceptional performance. Launched in September 2009, this Fund has delivered stellar returns (36%), as against its benchmark, the S&P Nifty, which gained only 13% over this period. The Fund invests primarily in companies in the finance, retail and entertainment sectors. Its top holdings as on 31st August were HDFC Bank, State Bank of India, Punjab National Bank, Sun TV Network and Pantaloon Retail.

Another strong performer was the Sahara Star Value Fund, which clocked 23% returns since its launch in September 2009. Its benchmark, the BSE 200, gained only 13% over the period. The Fund seeks to generate capital appreciation through select companies based on specific value parameters. Mid-cap stocks like Mirc Electronics, Suprajit Engineering, United Phosphorus, Artson Engineering and Accentia Technologies are among its top picks.

Similarly, Religare Business Leaders Fund and Kotak Select Focus Fund have done well since their launch. Religare's Fund has managed to deliver 19% returns since its launch in late August last year, as compared with its benchmark, the S&P Nifty, which registered 14% growth over the period. As the name suggests, this Fund invests mainly in companies that are leaders in their respective industries. Infosys Technologies, Reliance Industries, Larsen & Toubro, ICICI Bank and HDFC form the largest chunk of its portfolio, although RIL would have dragged its performance down.

Kotak Select Focus Fund has managed to post a gain of 18% as against its benchmark, the S&P Nifty, which gained 12% since the Fund's launch in September 2009. This Fund, which invests in companies in sectors like finance, energy, healthcare and FMCG, has among its top holdings ONGC, SBI, Glaxo Consumer Healthcare, Axis Bank and Infosys Technologies.

The Religare PSU Equity Fund and Fidelity India Value Fund are also among the outperformers. Launched in November 2009, Religare PSU Equity Fund has clocked a 13% return, with its benchmark (the BSE PSU index) managing 7% gains over the same period. The Fund invests only in public sector enterprises and has sizeable holdings in ONGC, Oil India, NTPC, Indian Oil Corporation and BHEL. Fidelity India Value Fund recorded 12% appreciation since its launch in January 2010, while its benchmark (the BSE 200) moved up by 4%. Its corpus has already touched Rs193 crore. The Fund focuses on undervalued stocks and can also invest in foreign securities in international markets. Among its top picks are Reliance Industries, HDFC Bank, Tata Consultancy Services, Corporation Bank and Ahluwalia Contracts.

Among other outperformers are Axis Equity Fund (up 9%), Mirae Asset Emerging Bluechip Fund, Birla Sun Life India Reforms Fund (each up 6%) and SBI PSU Fund (up 3%).

However, a couple of new funds have disappointed. The Shinsei Industry Leaders Fund has yielded 12% returns since its launch in September last year, while its benchmark (the BSE 100) gained 14% over the same period. Surprisingly, DSP BlackRock Focus 25 Fund also underperformed its benchmark, though only marginally. Launched in June this year, the Fund has struggled to deliver returns amidst a relatively flat market over the past three months. Still, the Fund has generated considerable interest and its corpus has touched nearly Rs736 crore in just three months! Its portfolio has exposure to companies that are among the top 200 by market capitalisation. Among its top holdings are Kotak Mahindra Bank, Tata Motors, BPCL, LIC Housing Finance and Mphasis.

Land deals picking up; real-estate rally likely: Citi

2010-10-02T10:31:00.000+05:30

A Citi report says land transactions are picking up in pace and price across the country. A rally in real estate stocks may be round the corner

Real-estate stocks have been some of the worst performers of this year and most of them have lagged behind badly in this rally from 17,000 to 20,000 as well. Is it possible that real-estate companies could get a shot in the arm now that stock markets have done so well? A Citi report says that land transactions are picking up in pace and price across the country and "This highlights the buoyancy in the ground markets, where the developers are going back to buying land in order to create potential pipelines for future development, as they foresee strong sustained demand. Could this be a precursor to a rally in real-estate stocks?

The brokerage firm says that Rs76 billion worth of land transactions involving more than 570 acres have gone through year to date. In the Mumbai Metropolitan Region alone, transactions worth Rs62 billion for almost 370 acres have taken place and it is expected that around 130 acres are still on the block which could fetch Rs72 billion.

It lists a few record Mumbai land deals:

60-yr-old south Mumbai bungalow sold for Rs3 billion
Kalpataru to buy Clariant land in Thane - Rs80 million/acre
Borosil sells 18 acres for Rs8.3 billion - Rs461 million/acre
Borivili: Rs0.15 million/sq ft for commercial purposes
Bharat Mill fetches record Rs15.05 billion - Rs1,800 million/acre
Marol industrial plot sold for Rs8.75 billion
Poddar Mill land sold for Rs4.74 billion, Central Mumbai - Rs1980 million/acre
Sunteck Realty buys land in Mumbai suburb Goregaon for Rs1.5 billion -Rs250 million/acre

The report points out that development rights also seems to be back in flavour in Mumbai with deals such as DB Realty bagging the right to redevelop a large chunk of the 100-acre government colony in Bandra (East) along the Western Express highway. Several deals are in the pipeline - Mafatlal Industries' Rs10 billion (expected) deal by selling a seven-acre plot on the edge of the Byculla zoo and the 105-acre land plot owned by Bayer CropScience on the block in Thane.

The report says that transactions are picking up in Delhi and Bengaluru as well - Supertech recently launched a 100-acre project called UpCountry along the expressway with independent plots priced at around Rs12,000/sq mt; Yamuna Expressway Industrial Development Authority is selling land parcels to real-estate developers at nearly 14 times the acquisition cost; New York-based firm Brahma has struck a Rs6 billion-Rs6.5 billion deal for aggregating a 152-acre land parcel in Gurgaon; 1-acre plot on MG Road in central Bengaluru was sold to an undisclosed buyer for close to Rs1 billion.

The stocks, meanwhile, have hardly moved compared with other sectors. DLF has risen from a low of Rs300 at the beginning of September to ~Rs370 now. Unitech has risen from Rs75 to Rs85+, HDIL from Rs250 to Rs270 levels, and Indiabulls has gone up from Rs165 to around Rs177.

A rise in the stock market generally tends to coincide with a rise in property buying across the country and investors put in some of the gains from the market into property. In a recent television interview, Anuj Puri, chairman and country head at Jones Lang Lasalle India, said that the greed for real estate had returned in Indian metros.

Real-estate companies do seem to be in a buoyant mood. Indiabulls, among other big real-estate companies, is coming out regularly with full page advertorials in newspapers touting its past and future projects - this trend was missing for quite a few months now. Godrej Properties' chairman Adi Godrej recently told the media that he expects revenue to jump more than 50% per cent in FY11 as rising incomes will boost demand for housing. He said he will announce about five new projects this year in addition to five that have already been announced.

Domestic funds are believed to have put in around $864 million in 22 realty deals since January this year while foreign funds have invested only $126 million in three deals - mostly because the Indian property market does not appear to be in the value zone for foreign funds which have better opportunities in South-east Asia.

Stocks that would perform in the next rally: A Merrill Lynch analysis

2010-10-02T10:15:00.000+05:30

In a recent strategy report BoA-ML says given the speed of the rally, markets are vulnerable to correction and in this situation stocks that have underperformed and are undervalued may perform better than stocks that are expensive and already run up

With the market whooshing past in a frenzy in the last few thousand points, it is very possible that many investors missed the bus. Even if they haven't, the question on most investors' minds is, what now? In a recent strategy report to its institutional investors, BoA-ML says that it might be better to invest in undervalued stocks now since the pace of the rise suggests that a correction might be imminent. Even if there is no correction, and the market uptrend continues, the outperformers may see some rotation.

To arrive at a list of stocks which they believe could outperform from here on, BoA-ML ran some screens. It calculated the mean price to earnings ratio and price to book value of stocks from March 2005 onwards and compared it with their current PER and PBV multiples respectively (excluding stocks that have posted losses in between). The brokerage found that cheap or inexpensive stocks were trading at a discount or small premium to their mean values. Essentially what it found was that most auto, financials, consumers, and some cement names are trading expensive to historic valuations. Real estate, telecom, some pharma, commodity, media and engineering names are trading cheaper than historical valuations.

The report says that some of the large cap stocks that look attractive on this screen are Reliance, Zee, BHEL, Sterlite, Wipro and Maruti. Stocks that could be the most vulnerable in a correction could be SBI, ICICI Bank, HDFC Bank, HDFC, Bajaj Auto, Ambuja Cements, Bharti and ONGC. BoA-ML says that among the stocks that have lagged in the rally, Lupin Labs is one of its preferred stocks while it still continues to like stocks like Tata Motors and United Spirits that have been sharp outperformers in the rally.

Here are some more details from the report:

Stocks that have underperformed in the recent rally: Patni, Hero Honda, Maruti, India Cements, Reliance Industries, Zee, Sterlite, BHEL, JSPL, IVRCL, GMR Infra, Wipro.

Stocks that have outperformed in the recent rally: Tata Motors, Bajaj Auto, SBI, LIC Housing Finance, select PSU banks, DLF, ICICI Bank, Hindalco, Bharti, REC, Power Finance, Asian Paints, Godrej Consumers, Titan, M&M, Hindalco.

Stocks cheap relative to historic valuations: Real estate (like DLF, Purvankara, Omaxe, Anantraj etc.); software (Firstsource, Educomp, Wipro, Patni etc.); commodities (RIL, Sterlite); pharma (Biocon, Glenmark); telecom (Bharti, Idea), Zee and BHEL.

Stocks expensive relative to historic valuations: Autos (like Bajaj Auto, M&M); cement names (India Cement, Shree Cement); financials (LIC Housing Finance, REC, Shriram Transport, Federal Bank and select PSU banks); consumers (Asian Paints, Nestle, Dabur, Godrej); commodities (JSPL, NALCO, SAIL) and pharma ( Dr Reddy's, Cadila, Lupin).

Equity funds: In the roundtrip

2010-09-26T10:40:00.000+05:30

The Sensex may have scaled the 20k peak yet again, but have your mutual fund investments followed suit? An analysis of the performance of mutual funds reveals that one in two equity funds beat the Sensex in its round trip from January 15, 2008, when it last closed above 20,000, to September 21, 2010. Mutual funds returned an average of about 2.2 per cent in this period. The funds that outperformed were largely those that had limited NAV losses in the 2008 meltdown.The impressive performance of select sector funds, improving scorecard of mid-cap funds and a wide divergence in overall performance were among the other interesting insights.

Top performers: A good 90 (of the 178) equity funds beat the Sensex in its round trip, with sector-based funds figuring prominently in the list. Given that pharma, consumer goods, banks and auto stocks made the most of this rally, it wasn't a surprise to see funds focussed on these sectors deliver too.

Franklin Pharma, Reliance Pharma, SBI Magnum SFU–FMCG, UTI –Transportation & Logistics, Franklin FMCG and Reliance Banking were among the top five funds in this period. Among underperformers were funds such as Taurus Discovery, Principal Tax Saving and Fortis Future Leaders. Quite a few equity schemes from the JM Pack too were underperformers.Once bitten, twice shy: Most of the funds that had failed to limit their NAV losses during Sensex' down ride, lagged the index in its up turn too. Interestingly, infrastructure funds, which rode the rally last time around, are conspicuous laggards. Funds such as SBI Infrastructure, UTI Infrastructure, Tata Infrastructure and DSPBR T.I.G.E.R. are among the list. However, true to their nature, mid and small-cap funds, which were hit hard in the downturn, bounced back in style.

A score of funds – such as IDFC Premier Equity, Sundaram BNP Paribas S.M.I.L.E, DSP BR Small & Midcap, Sundaram BNP Paribas Select Midcap, Sahara Midcap, Birla Sun Life Midcap and UTI Midcap managed to beat the Sensex despite falling heavily in the downturn. Consistent players: Aside of pharma, auto and FMCG funds, others that fell less and rose more than the Sensex were dividend-yield funds such as Birla Sun Life Dividend Yield, ING Dividend Yield and UTI Dividend Yield.Others such as Quantum Long-Term Equity, HDFC Equity, HDFC Top 200, Franklin India Blue Chip and DSPBR Equity too outperformed in the bull and bear phases.

Precious metals glitter more than stocks on haven buying

2010-09-26T10:36:00.000+05:30

Nervous about Western economies, investors turn to gold, silver, platinum and palladium.

If you thought stocks were the best performing asset in the last one year, think again. Precious metals such as gold and silver have done even better. Spot prices of gold on the Multi Commodity Exchange of India have shot up from Rs 15,855 for 10 grams to Rs 19,175 now, notching up a 21 per cent return for one year. Prices of silver have done even better, gaining 23 per cent. The BSE Sensex has managed only 19 per cent return over one year.

Investment demand

Gold has benefitted from reviving jewellery sales in Asia as well as investment demand.

With well-heeled investors once again becoming nervous about the prospects of Western economies, particularly the recovery in the US, buying in precious metals has picked up as a ‘haven' for storing surplus wealth. Exchange-traded funds piggybacking on gold, silver and platinum have seen a spurt in investment interest. Metals such as silver have gained from industrial applications as well.

Global picture

While global gold prices ($1,298/ounce) are at a record high, silver, after a breathtaking rally in the last nine months, hit a 30-year high at $21/ounce on Friday. Platinum prices are at $1643/oz — a two-year high.

Palladium has been another surprise element, delivering an even bigger gain of 84 per cent; its status as a precious metal is supplemented by its usage in premium cars to reduce emissions. With global auto sales charting a sharp revival, palladium has been in demand for use in catalytic converters in high-end cars.

Rupee appreciation Gold has trounced stocks even more convincingly in the global markets, with the yellow metal price in dollar terms delivering a 28 per cent gain since September 2009.

However, for Indian buyers of precious metals, the rupee's appreciation in the last one year (from Rs 48/dollar in September 2009 to Rs 45.2 now) has eroded their effective returns.

Gold prices

Spot prices of gold on the MCX rose 21 per cent over the past year compared with the 28 per cent surge in global gold prices. Gold ETFs, such as GoldBeES, have managed a marginally lower return of 19 per cent matching the Sensex. Investors looking to buy precious metals have the option of buying gold ETFs or trading precious metal futures for gold, silver and platinum on the commodity exchanges.

Making sense of stock splits, bonus issues & share buybacks

2010-09-26T10:26:00.002+05:30

Housing Development Finance Corp Ltd (HDFC) has announced a stock split. Each share of a face value of Rs 10 would be split into five shares of face value of Rs 2 each. So what are the implications for investors? Does it indeed increase their wealth? Is a stock split similar to a bonus issue? What about the tax implications? Is their potential for tax planning? Today’s article seeks to address these and related issues.

Stock splits Stock splits are a relatively new phenomenon in the Indian context. It is important that investors understand the reasons that companies may split their shares and how a stock split is different from a bonus issue. In a stock split, the capital of the company remains the same whereas in a bonus issue the capital increases and the reserves decrease. However, in both actions (a stock split and a bonus) the net worth of the company remains unaffected.

Let’s take the HDFC 5 for 1 stock split. This means following the stock split, the company’s shares will start trading at one-fifth the price of the previous day. Consequently, you will own five times the number of shares that you originally owned and the company in turn will have five times the number of shares outstanding.Consider the following example.

The question that arises is if there is no difference to the wealth of the investor, then why does a company announce a stock split? Generally, stock splits are announced to make a scrip more liquid, more affordable to the average investor — since post the split, the share price adjusts proportionately to the split ratio.
Here, it has to be reiterated that the shares only appear to be cheaper, it makes no difference whether in the above example you buy one share for Rs 3,000 or five for Rs 600 each. However, earlier the minimum ticket size was Rs 3,000, now it is a more affordable Rs 600.

As far as the tax implications for stock splits are concerned, well, there aren’t any. A stock split, like a bonus issue, is tax neutral. However, when the shares are sold, the capital gains tax implications are different that what is applicable for bonus issues. Here, the original cost of the shares also has to be reduced. For instance, in the above example if the cost of the 100 shares at Rs 1,500 per share was Rs 1,50,000, after the split the cost of 500 shares would be reduced to Rs 300 per share, thereby keeping the total cost constant at Rs 1,50,000.

Bonus shares
Bonus shares are shares issued free of cost to the shareholders of a company. As this is essentially a book entry (reserves get capitalised), following a bonus issue, though the number of shares increase, the proportional ownership of shareholders does not change.

Also, post the bonus, the share price should fall in proportion to the bonus issue, thereby making no difference to the personal wealth of the share holder. However, more often than not, a bonus is perceived to be a strong signal given out by the company and the consequent demand push for the shares causes the price to move up.

As far as tax is concerned, since no money is paid to acquire bonus shares, these have to be valued at nil cost while calculating capital gains.

The originally acquired shares will continue to be valued at the price paid at the time of acquisition. An incidental tax planning benefit is that since the market price of the original shares falls on account of the bonus, there may arise an opportunity to book a notional loss on the original shares. This is known as bonus stripping. It may be noted here that through Section 94(8), the Income-Tax Act has introduced measures to curb bonus stripping, but strangely, the same are only applicable to mutual fund units and not to shares.

Share buybacks
Then there are share buybacks. Essar Oil, Reliance, Siemens and Infosys are some examples of companies that have bought back their shares.

Generally, companies buy back their shares when they perceive their own shares to be undervalued or when they have surplus cash for which there is no ready capital investment need.

Share buybacks also prevent dilution of earnings. In other words, a buyback enhances the earnings per share, or conversely, it can prevent an EPS dilution that may be caused by exercises of stock option grants etc.

Last but not the least, a buyback also serves as a substitute for dividend payments. This brings us to the crucial issue of tax implications of a buyback. A very important consideration is whether the amount paid on buyback is dividend or consideration for transfer of shares. If it is indeed considered to be dividend, the same will not be taxable in the hands of the investors. Also, to what extent, if at all, can the amount paid on buyback be taken as dividend? Is the entire amount paid dividend or is it only the premium paid over the face value?

In the case of Anarkali Sarabhai v CIT (1997) 90Taxman509 (SC) had laid down the principle that redemption of shares by the company which issued the shares (in this case preference shares) is tantamount to sale of shares by the shareholders to the company.

The Finance Act 1999 has reiterated this stand to remove confusion. Now, where any company purchases its own shares, then, the difference between the consideration received by the shareholder and the cost of acquisition will be deemed to be capital gains. Further, this will not be treated as dividend since the definition of dividend does not include payments made by company on purchase of its own shares.

Infosys, TCS, ITC in Forbes 2010 'Asia Fab 50' list

2010-09-25T11:23:00.000+05:30

Infosys, TCS, ITC and Mahindra and Mahindra are among the 16 Indian companies named in Forbes' magazine's 2010 compilation of the Asia-Pacific's 50 biggest listed companies.

India and China together account for 32 of the 50 companies in Forbes' sixth annual 'Asia's Fabulous 50 listed companies'. The other Indian companies making it to the list are Adani Enterprises, Axis Bank, Bharat Heavy Electricals, Dr Reddy's Laboratories, HCL Technologies, HDFC Bank, Hindalco Industries, Jindal Steel and Power, JSW Steel, Kotak Mahindra Bank, Larsen and Toubro and Sterlite Industries. When the list was first compiled in 2005, only five Chinese and three Indian outfits made the cut. "Economies around Asia bounced back last year and so did many of our Fabulous 50 companies. Earnings, revenues and stock prices soared almost across the board after a rocky time the previous year," Forbes said.

Among the Indian firms, Forbes specifically talks about Axis Bank and ITC.
"The two are leaders in their industry -- Axis Bank, India's third-largest non-state-owned bank, and ITC, led by Y C Deveshwar, who is determined to give ITC a life beyond tobacco.
"Axis, with USD 41 billion in assets and nearly 22,000 employees, is one of the fastest-growing companies in the country," Forbes said. Its revenues rose 29 per cent to hit USD 3.4 billion dollars in the year ended March 31, while net profit jumped 57 per cent to USD 553 million. "It's this performance that puts Axis on the Fab 50 for the second straight year. The bank is looking to add 200 branches this year to the 1,055 it already has," it noted.

Crediting Axis Bank Chief Executive Shikha Sharma for the bank's performance, Forbes said, "In the 15 months since she took charge, Sharma has teased out the bank's strengths - infrastructure finance, retail banking, processing payments and lending to small and medium-size enterprises." "She's also put more emphasis on risk management," it said, quoting Sharma as saying, "It's not about being the biggest. We want to grow our book sensibly. We want to do something that we are confident of executing well." In its profile of ITC and Chairman Y C Deveshwar, Forbes says, "In Deveshwar's era, ITC has clearly achieved more than a measure of progress. Today about half of its net revenues of USD 4.3 billion comes from cigarettes and the other half from hotels, paperboard, infotech, agribusiness and now increasingly, foods and personal care. "By the time Deveshwar is to step down in April, 2012, he will have spent more than 15 years as chairman of ITC. But that's not a sobriquet that Deveshwar really cares about. "For the past decade, he's been transforming ITC from a cigarette-maker to a fast-moving consumer goods company," Forbes added.

In the last three years, he has "upped the ante" and taken on a plethora of global and local rivals, including Unilever, Procter & Gamble, PepsiCo, Britannia, Nestlé and Parle Agro, all at one go.
The company's five-year plan envisions a nearly four-fold growth in revenues, Forbes said.
"In the consumer business, you need scale to build a franchise. It is a chicken-and-egg problem. We will infuse life into these businesses so that they can stand on their own legs," Forbes quotes Deveshwar as saying on his future plans for the company.

To compile the list, Forbes started with 936 companies that had at least USD 3 billion dollars in revenue or market capitalisation. It took into account these companies' revenue, operating earnings and return on capital over the past five years in order to rank them. It also considered the most recent results, share-price movements and outlook.

These 50 companies boast of "solid financial track records, coupled with great management and entrepreneurial skill," it said.

Other companies featured on the list are Australian materials giant Rio Tinto, Chinese technology firm Lenovo, Japanese technology company Nintendo, South Korea's Samsung Engineering and Taiwan's tech giants Acer and HTC. Only two companies boast of featuring in every edition of the list, Hong Kong's Li & Fung and India's Infosys Technologies, while five companies saw their streaks end this year, including Australia's BHP Billiton and India's Wipro.

China has 16 companies on the list, followed by Hong Kong and Taiwan (4 each), South Korea (3), Australia and Japan (2 each) and Indonesia, Singapore and Thailand (1 each).
In terms of industry, technology companies dominated the list this year, with 10 representatives.
The materials industry had the second largest representation through eight companies.

Source: The Indian Express

ICICI joins club of 10 most valuable companies

2010-09-25T11:15:00.000+05:30

The country's top private sector lender, ICICI Bank, made its entry into the list of the top-10 most valuable companies by market capitalisation this week, helped by a sharp rise in banking stocks.

With a market capitalisation (m-cap) of 1,28,016 crore, ICICI Bank now features at tenth rank in the list, knocking state-run BHEL out of the prestigious club. During the past week, ICICI Bank added Rs 10,809.4 crore to its m-cap. Analysts said a sharp rise in financial stocks during the past week pushed up the m-cap of most banks. "Banks led from the front on optimism that lending will pick up in a fast-growing Indian economy and that they are well capitalised," a broker said. Though the rush for banking stocks helped ICICI Bank make an entry into the top-10 club, its rival, HDFC Bank, is still lagging behind and is ranked at thirteenth, whereas mortgage lender HDFC is seventeenth in terms of market capitalisation. The past week was fabulous for equity investors and the shareholders of nine of the top-10 companies became richer by a whopping Rs 72,810.43 crore. Except MMTC, all the top-10 companies saw value addition, with the maximum contribution coming in from corporate leader Reliance Industries Ltd.

Enjoying the numero-uno position, RIL saw the addition of Rs 22,509.77 crore to its m-cap during the past week. At the end of trade on Friday, the Mukesh Ambani-led energy giant was valued at Rs 3,35,928.98 crore. During the week, RIL's shares rose by 7.1 per cent to regain the Rs 1,000-level for the first time in over a month. State-run ONGC continues to hold on to the second position, while SBI was third and TCS fourth. Infosys was at fifth, NTPC at sixth, MMTC at the seventh, Bharti Airtel at eight and ITC at ninth. Oil and gas major ONGC added Rs 9,207.84 crore to its kitty to take its m-cap to Rs 2,99,142.36 crore, while public sector lender SBI saw its valuation swell by Rs 7,080.14 crore to Rs 1,96,465.91 crore. IT giants TCS and Infosys Technologies together added Rs 12,698.12 crore to their combined m-cap. The valuation of these two companies stood at Rs 1,78,584 crore and Rs 1,70,683 crore, respectively. Power major NTPC enlarged its valuation by Rs 2,968.37 crore to Rs 1,69,815.25 crore, but trading firm MMTC saw its m-cap eroded by Rs 3,285 crore to Rs 1,36,930 crore.

The country's top telco, Bharti Airtel, added Rs 3,170.93 crore to take its m-cap to Rs 1,35,913.24 crore, while FMCG major ITC saw its valuation expand by Rs 4,365.86 crore to Rs 1,28,907.7 crore.
During the week, the BSE benchmark Sensex recorded a gain of 4.2 per cent and ended at 19,594.75 -- its best close since January 17, 2008.
Source: Business Standard

Punjab National Bank (PNB) - Stock that gained 64% in one year

2010-09-25T10:47:00.000+05:30

Published on Fri, Sep 24, 2010 at 17:45 | Updated at Fri, Sep 24, 2010 at 22:47 | Source : CNBC-TV18

The country's second largest public sector bank, Punjab National Bank (PNB) has seen a consistent rise in its stock price over the last one year. It has risen 64.5% in the last 52 weeks on the back of a strong performance in the last fiscal and its plans to increase its international footprint. It touched an intraday high today of Rs 1,300.25 and an intraday low of Rs 1,266.70. The share ended the day at Rs 1,285.15, up Rs 13.85, or 1.09%. There were pending buy orders of 445 shares, with no sellers available. The bank has a market capitalisation of Rs 40,521.10 crore.

Why the run-up?

With the economy projected to surpass 8.5% growth in GDP in the current fiscal, leading banks are expected to post higher profits on strong loan demand from the retail side as well as from corporates. A growing economy would also boost banks' asset quality while consumer defaults or bad loans are expected to fall. With well over 5,000 branches, PNB is well poised to take advantage of a growing India, after it reported a near 25% increase in net profit for the fiscal ended March 31, 2010, on the back of higher interest income.

The bank is also all set to build its footprint overseas. It has targetted to double its revenues from international operations by 2013. The bank plans to start a subsidiary in Canada to tap the country's significant punjabi population. It has foreign branches in Hong Kong, Kazakhstan, Shanghai, Singapore, Kabul and Dubai, as well as a subsidiary in the UK, and is expanding in more overseas markets. It also plans to upgrade its representative office in Norway into a full-fledged branch.

It is also looking to benefit from business opportunities due to a growth in bilateral trade by planning a foray into African markets like South Africa and Ghana and the South Asian nation, Indonesia.

The bank has charted out plans to grow inorganically in Kazakhstan, with its decision to acquire 64% stake in JSC Dana Bank for USD 24 million.

For the quarter ended June 2010, the bank reported a net profit of Rs 1,068 crore versus Rs 832 crore, a growth of 28.37% on a year-over-year basis (YoY). Its net interest income (NII) rose 40.67% to Rs 2,619 crore from Rs 1,861.8 crore YoY.

Around 15 lakh Punjab National Bank shares got traded in BSE FII segment today at Rs 1,525 per share. The block deal was executed at 17% premium to its (current) market price of Rs 1,295 per share.

What experts say:

Technical Analyst Sudarshan Sukhani says PSU banks are on a roll and have a long story ahead. "Punjab National Bank is a very good bank and the sector is excellent." Sukhani feels a two-year time horizon to get any long-term gains is the right timeframe for investment in the bank. He expects the bank to outperform the banking index.

VK Sharma of HDFC Securities said PNB continues to be a robust PSU bank and recommends investors to hold on to the stock from a long-term perspective.

Peer comparison:

Company	Last Price	Market Cap.	Net Interest	Net Profit (Rs cr)	Total Assets (Rs cr)
Company	Last Price	(Rs. cr.)	Income (Rs cr)	Net Profit (Rs cr)	Total Assets (Rs cr)
SBI	3,141	199,478	70,994	9,166	1,053,414
PNB	1,285	40,527	21,467	3,905	296,633
Bank of Baroda	876	32,028	16,698	3,058	278,317
Bank of India	497	26,114	17,878	1,741	274,966
Canara Bank	574	23,514	18,752	3,021	264,741
Union Bank	385	19,460	13,303	2,075	195,162
Indian Bank	265	11,372	7,857	1,555	84,122
IDBI Bank	153	11,084	15,273	1,031	233,572
Oriental Bank	441	11,045	10,257	1,135	137,431
Allahabad Bank	228	10,194	8,369	1,206	97,648

Why you need to diversify your investments

2010-09-25T10:40:00.000+05:30

Published on Fri, Sep 24, 2010 at 13:08 | Updated at Fri, Sep 24, 2010 at 14:13 | Source : Moneycontrol.com

Reduce risk without compromising returns.
In our article Risk versus Return we highlight how every investment has a risk attached. And how the higher the risk, the higher should be the expected return from any investment. This probably then imply that if you want to reduce the risk in your portfolio, the only choice for you is to move your investments into low yielding investments. Right? Wrong.

Diversification across investments is another way to reduce the risk of your portfolio.
To understand how, look at this simple example (it involves some basic statistical concepts but don’t get turned off, its simple to understand and you can get into the calculations only if you want) - Say, there are two assets A and B. Both assets have a potential return of 10% and a standard deviation (a statistical measure which measures the variability (i.e. risk) of the potential returns) of 20%. Also, the returns of both these assets are uncorrelated i.e. the performance of Asset A is not dependent at all on the performance of Asset B.
Now assume you invest equally in both these assets. Your weighted potential return (0.5 * 10% + 0.5 * 10%) will equal 10% - this is the same return as that for the individual assets. However, due to the fact that you have now spread your risk over two uncorrelated assets, the standard deviation (i.e. risk) of your portfolio will be 14.1% (lower than the 20% for each individual asset). Refer to the supporting Statistical Analysis if you want to understand how.

It is important to understand what this means.

You would have been able to reduce the risk profile of you’re the returns on your portfolio to 14.1% (from 20% for an individual asset) without having to compromise on your returns, merely by diversifying. So, by choosing two assets whose returns are not correlated (this is important) like say Stock A which is a pharmaceutical company and Stock B which is a software company, you can reduce your risk while not necessarily having to reduce your returns.

In summary, there are two things that are important to keep in mind while planning your investments -
1. Every asset has a risk attached to it. And, the higher the risk, the higher should be its expected returns.
2. Don’t put all your eggs in one basket.

By diversifying across assets, you can reduce your risk without necessarily having to reduce your returns. You don’t have to get into calculating standard deviation of the return of your assets, you need to just be aware that if you diversify your portfolio, your overall portfolio risk will be lower.

To get the maximum benefit of reducing your risk through diversification spread your portfolio across different assets whose returns are not 100% correlated. Different assets should ideally span across different asset classes such as fixed income, equity, real estate, gold as well as different investment options within these asset classes e.g within equity shares, your exposure should be to companies in different sectors; or within fixed income investments, partly government risk and partly corporate risk.

As a thumb rule, diversify your investments across 15-20 different individual assets.

Risk versus Returns

2010-09-25T10:37:00.000+05:30

Published on Fri, Sep 24, 2010 at 13:19 | Updated at Fri, Sep 24, 2010 at 14:13 | Source : Moneycontrol.com

Every investment has an attached risk
'Just buy this blue-chip stock, there’s no risk at all.' For most people who invest in shares there is a good chance that you’ve heard someone say this before. For most people who just put their money away in bonds or deposits, one of your main reasons for this probably is -‘I don’t want to take any risk at all, I just want my money safe.’
Are these statements true? Is investing in bonds or deposits completely risk-free? Or investing in blue-chip stocks necessarily very low risk? NO.

Whenever more than one outcome is possible from an investment, there is always some amount of risk. Only the level of risk is different.

Use risk to analyse expected returns
While investing, risk is measured to evaluate the kind of returns you should expect from the investment. Or your return expectations should be based on the level of risk you can bear. In principle, the higher the risk, the higher the returns that should be required.
Empirically returns across various asset classes show that investment in equity shares give the highest level of returns in the long-term, followed by corporate bonds and deposits and lastly bank deposits and government debt. Not surprisingly, the level of risk is also in the same order.
You might be saying - how can debt be risky? It is.

Companies that run into financial trouble could delay your interest payments or even default on paying back your money. Even government debt has some amount of risk. How? Simply put, governments like companies also face the risk of financial problems. However, lack of funds for a company could result in the company defaulting on a loan repayment. But a government can always print more currency and repay its borrowings. So you will get your money back. BUT, there is a hidden cost (risk). Printing more currency is likely to lead to higher inflation and hence lower real returns on your investment (see our article Impact of Inflation to understand about real returns).

Agreed that the chances of governments or well-managed companies getting into serious financial troubles are low. But that is only difference in the level of risk. There is a risk attached, and that cannot be questioned.

Understanding risk vs return essential for good financial planning
You might ask - why is it so important to understand the risk versus return relationship? Because if you don’t, it is quite likely that your investment returns will not match your risk profile and consequently you are not managing your hard-earned money well. A wasted opportunity, as even a small difference in your investment returns (at the same level of risk) can make a BIG difference to your financial wealth (due to the astounding Power of Compounding).

To understand the importance of managing your money well read Guide To Financial Planning. This article highlights why financial planning is not as difficult as it sounds and how you can easily make your hard-earned money work for you.
Also you can use our Risk Analyser to understand your risk profile (both your risk-taking capacity and your risk tolerance level) and read The Need To Diversify to understand how you can increase your expected returns while not increasing your level of risk.

Common mistakes committed in the equity market

2010-09-25T10:35:00.000+05:30

Published on Tue, Sep 21, 2010 at 14:33 | Updated at Tue, Sep 21, 2010 at 14:37 | Source : Moneycontrol.com

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.

Relying on tips and hearsay is the first and most common mistake committed by most investors.
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.
Leverage in equity markets can have disastrous consequences not just on your financial health but on your physical health.
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.
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.
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.
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.
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.

Get rich. Do NOTHING!

2010-09-25T10:11:00.000+05:30

Published on Fri, Sep 24, 2010 at 15:00 | Updated at Fri, Sep 24, 2010 at 15:15 | Source : Moneycontrol.com

SOME guys have all the luck. A year ago, a friend of mine sold some ancestral property and hit the jackpot. He asked me, quite sensibly, to help him invest it in stocks.Being totally new to the stock market, he thought he would need to watch a business channel throughout the day, be on the phone and carry a laptop, so that he could trade all the time! I didn't ask him to do any of it. Instead, I told him to pursue a hobby, take a holiday, meet his family, start a business, do just about anything, as long as it was not trading.

Invest and wait
I believe investments are not meant to keep you busy. They are meant to make you rich. People who can't have their morning coffee without watching the stock prices don't know the real meaning of investing. The true investors select their stocks carefully and go fishing in Alaska. No, that's not bizarre. Staying diverted actually helps stay invested for a longer time and let the money grow along with the invested company. See how the power of compounding helps grow your money!

My friend took my advice. He invested the money in a few companies with strong fundamentals and a visible growth. In one year, his investments fetched around 95 per cent returns.

So, when you forget about your investments, you:

a. Save time

b. Save cost involved in the form of brokerage. The smart brokers who tell you to trade actively are only filling their own pockets.

c. Avoid fretting and the temptation to sell if the stocks prices fall by 10 per cent.

d. Avoid greed and the temptation to buy if it rose by 30 per cent.

e. Follow the Warren Buffet style of investment. Do you think the champion stockbroker would care if the stock markets closed for a whole year? And we all know how rich he is.

f. Give time for your seeds to sow. If you keep removing your seed and change soil every other day, your seed will remain a seed.

g. Enjoy your morning cup of coffee.

Remember, the people who check their stock price every 30 minutes don't become rich, they just become busy.

- Yogesh Chabria

The author dreams of making each and every Indian financially literate the Happionaire™ Way. His latest bestselling book, Happionaire’s Cash The Crash helps investors make the most of now, while sharing little known insider secrets. You can get in touch with him at yogesh.chabria@moneycontrol.com

Will it be bulls or bears?

2010-09-22T14:40:00.000+05:30

The bulls have clearly taken control of the market, with key indices spurting over three per cent in the last two days and scaling to their 32-month highs. The main reasons for this latest rally include strong foreign institutional investor (FII) flows, healthy Indian and Chinese manufacturing data as well as less than severe Basel-III norms.

But does the market have enough steam to keep the momentum going? The bulls may be in charge as of now on the back of a strong domestic performance, but the weak recovery in Western economies and India’s dependence on foreign flows make the domestic markets vulnerable to external shocks. Hence, the jury is still out on which of the two sentiments will prevail. We highlight the key macroeconomic parameters to keep in mind before participating or abstaining from this rally.

WHERE THE BULLS SCORE

Growth story intact
A 13.8 per cent growth in industrial production was the single biggest reason for the markets’ upmove and analysts expect the growth momentum to continue, given the upcoming festive season. Although industrial growth is likely to moderate towards the end of the year due to the high base, overall growth is likely to be robust and driven by consumer goods and, to a lesser extent, capital goods. GDP growth is also likely to be 8-8.5 per cent, driven by agriculture and industrial growth which, in turn, should result in a demand surge and benefit domestic market-focused companies.

Reforms on track
The government has scored reasonably well on long-pending reforms like gas price rationalisation, fuel price decontrol, tax reforms and relaxing of foreign direct investment (FDI) in media and retail. These are a key ingredient in ensuring faster growth, enabling such key sectors as roads, power and telecom able to get higher investments. So, expect growth to remain on track and also help bridge the fiscal deficit gap.

Monsoon
The cumulative rainfall, which was in deficit till July (by 13 per cent), has seen a good recovery and now – for the first week ended September – the deficit is just 0.6 per cent below the long period average (LPA). Better monsoon has not only improved sentiments for the Indian equity markets, but could also help in higher rural demand and lower agri-commodity prices in the near to medium term and, thus, improve demand for products and services.

Surge in FII inflows
FIIs have poured nearly Rs 64,000 crore into the Indian markets since January and – given the slow economic recovery back home and the sustainable domestic story – these are unlikely to abate in the near term. Still, while strong flows have led to the Sensex jumping 20 per cent over the last four months, investors need to keep in mind that FII flows are a double-edged sword, as was seen in the aftermath of the Lehman collapse (in 2008) and could be a source of worry if the tide turns.

WHEN BEARS MAY COME INTO PLAY

Interest rates & inflation
Backed by the strong economic growth, RBI continues to raise its key rates to curb inflation. Since January this year, it has increased the repo rate by 50 basis points to 5.25 per cent and cash reserve ratio by 100 basis points to six per cent. This has also led to banks raising their prime lending rates by about 50 basis points to 11.75-13.25 per cent.

More important, economists expect the rates to move up further by 50-75 basis points. Increase in interest rates could emerge as a threat for the markets and corporate earnings, which are in recovery mode currently.

External trade
Among other worries, the revival in the export markets is equally important as many large companies have an overseas exposure. However, the growth in exports is cooling down — the growth in July was only at 13.2 per cent, the slowest in the last nine months. This is due to slower-than-expected growth in demand from developed countries.

The situation is expected to prevail as demand in international markets, particularly in the US and Europe, remains weak. Also, the impact of withdrawal of stimulus benefits and lower demand from China has been felt on Indian exports.

Earnings growth & valuations
The June quarter results were disappointing with aggregate results of 3,000 companies in the manufacturing sector, reporting a decline of 6.43 per cent in net profit from last year. Some of the issues were higher commodity prices compared to last year, coupled with higher interest rates. Analysts are now apprehensive about earnings growth over the next two-three quarters.

The Sensex is currently trading 18 times 2010-11, which is marginally higher compared to historical valuations. In terms of valuations, Indian markets – currently trading at 20-30 per cent higher than key global indices – are amongst the most expensive globally. Some experts, though, justify the premium consequent to better growth rate and visibility vis-à-vis others.

5 Reasons to Believe in India's Bull Run

2010-09-22T14:39:00.000+05:30

India’s exchange traded funds are on a forward march, with the country’s benchmark index entering what some analysts believe to be a bull market. Can it stay there? Here are a few reasons why the answer may be yes.

    * The Bombay Stock Exchange’s Sensitive Index, or Sensex, crossed the 19,000 mark for the first time since Jan. 18, 2008, writes Hemal Savai for Bloomberg.

    * Industrial output, which grew 13.8% in July, is a major factor for growth in India. The double-digit output growth was much higher than the single-digit growth previously expected, comments James Lamont for The Financial Times.

    * Christopher Wood, strategist at CLSA Asia-Pacific Markets, predicts that the country’s annual economic growth may top 9% in the next five years, which would make the country the world’s fastest-growing major economy. The economy expanded 8.8% in the second quarter year-over-year.

    * India is seen as the only economy in Asia driven by domestic demand. India’s export gains fell more than 50% in July to 13.2% from the previous month.

    * The Reserve Bank of India is reducing its credit-tightening policies as inflation abates and companies signal a peak in short-term borrowing costs, reports Anil Varma for Bloomberg. The Central Bank estimates that inflation will drop to 6% by March 31, compared to an average 10.5% in the first seven months of the year. Bond yields have widened to 0.63% against swap rates since February.

Better-than-expected growth numbers may prompt the central bank to further adjust interest rates, but current monetary policies still favor growth over inflation.

RCom: Dropped calls

2010-09-22T14:29:00.000+05:30

While implementation of number portability and focus on profitability are positives, deleveraging the balance sheet is key.

The stock of Reliance Communications (RCom) is down seven per cent since August (as of September 17) on negative news flow related to the sale of its tower assets and on equity stake to a strategic investor. The decline looks worse when compared to the 10-16 per cent rise in the share price of Bharti Airtel and Idea Cellular. The company has for some time been wanting to sell its tower assets to help take care of its debt pile, which jumped post the 3G and BWA auctions. Most analysts have revised their price targets downwards but feel a re-rating is possible if RCom is able to cut its debt meaningfully.

RCom is sitting on a debt pile (net) of Rs 33,500 crore, five times its June quarter annualised Ebitda (earnings before interest, tax, depreciation and amortisation). Of this , a big part is repayable in next one year. An Anand Rathi report says that as of June, of the Rs 38,200 crore of gross debt, 44 per cent (Rs 16,600 crore) is due within the next year. In addition, FCCBs to the tune of Rs 1,600 crore and Rs 5,300 crore are to be redeemed by May 2011 and May 2012, respectively. While an estimated operating cash flow for the next two financial years in the region of Rs 11,000 crore is comforting, 3G-related capital expenditure (among others) would mean that raising additional capital to fund expansion would become necessary. It is in this context that the company would want to monetise its tower assets and sell a strategic stake. The company, however, says its capex on the rollout of 3G services will be minimal.

RCOM: BEST VALUE?
FY12 Estimates	Rcom	Bharti	Idea
Price/Earnings (x)	14.5	15.6	32.9
EV/Ebitda (x)	8.6	6.1	6.8
Price/Sales (x)	1.3	2.1	1.4
Price/Book (x)	0.8	2.4	1.9
Bloomberg consensus estimates All figures are as on September 17, 2010

Favourable macro environment
While competitive pricing continues in select markets, with players looking to increase their share, analysts believe that integrated telecom plays such as RCom and Bharti Airtel are best placed to survive this period of hyper-competition. An HSBC report says significant pressures on rates has led to average revenues per minute (ARPMs) for the sector declining by 23 per cent over the past year. Existing players have been able to maintain their market share in recent quarters and are expected to enhance margins a year hence, when the competitive intensity is likely to lessen. Analysts say that consolidation over the next 18 months will result in the number of national players halving to 7-8. Analysts at Elara Securities believe RCom will benefit the most from implementation of the mobile number portability regime. It is also one of only three companies to get licences in 13 of the 3G circles. While these are positives, analysts believe the major upside for the stock will happen once the deleveraging plan goes through.

STABILISING MARGINS
In Rs crore	FY10	FY11E	FY12E
Revenues	22,132	22,682	25,586
% chg y-o-y	-3.6	2.5	12.8
Ebitda	7,820	7,290	8,388
Ebitda (%)	35.3	32.1	32.8
Net profit	2,047*	2,116	2,484
Adjusted E: Estimates* Source: Company, analyst reports, Bloomberg consensus estimates

Profitability focus
RCom in the past couple of quarters has been focussing on improving its profitability by reducing its free minutes and improving paid minutes usage. For the June quarter, RComm reduced its free minutes by half. With this strategy, RComm, which saw its ARPM fall by about 30 per cent since March, is looking at stabilising its revenues per minute at 44-45 paise. It believes its current RPMs, at 44p, are in line with those of other players as compared to the situation a few quarters earlier, when its RPMs were about 10p less than the industry average.

Valuations
Despite a five per cent surge in its stock price each on Friday and Monday, the RCom stock is trading at a discount to its peers. This is likely to continue, say analysts, till the debt concerns persist. The stock is trading at a 15.2 times its 2011-12 earnings and can be considered from a two-year perspective.

Analyst's corner

2010-09-22T14:26:00.002+05:30

SBI
Reco Price: Rs 3,094,
Target Price: Rs 3,500

SBI has witnessed strong loan book expansion of 20 per cent last year. Key drivers have been robust branch addition in past three years and the new-found aggressiveness with respect to retail loans. IIFL estimates SBI’s advances to grow by 20 per cent in 2010-11. Its NIM would remain stable in the medium-term driven by a stronger credit demand.

The recent deposits and lending rate hike would have a net negligible impact. NPL (non-performing loans) risk is the highest for SBI with net NPLs comprising 16.5 per cent of networth. SBI requires additional provisioning of about Rs 2,800 crore to reach the stipulated 70 per cent by Sept 2011. It expects SBI’s balance sheet to witness 18.5 per cent CAGR growth over FY10-12. Maintain buy.

—IIFL

JSW STEEL
Reco Price: Rs 1,197,
Target Price: Rs 1,372

By March 2011, the company’s consolidated debt-equity is expected to decline to 0.7:1 from 1.7:1 in March 2010. JSW has cut its 2010-11 crude steel volume guidance from 7 mt to 6.5 mt due to subdued demand from construction and real estate segments. Soft iron ore prices could lead to Ebitda per tonne of $180. Shipments of iron ore and coking coal from JSW’s Chile and US mines, respectively, are expected to begin in 2010-11.

The company has planned capex of Rs 12,000 crore to set up a 3 mt per annum greenfield HR steel capacity in West Bengal. Maintain buy.

—Edelweiss Securities

Time to be cautious

2010-09-22T14:23:00.000+05:30

Optimism prevails, but so do concerns.

The phrase most experts use to describe the current rally in the markets is: “Probably, this time will be different.” On Tuesday, the Sensex closed over the physiologically important 20,000-mark, which is just about 1,200 points away from its all-time high of January 2008. While there are fundamental reasons that justify the rally, there are concerns as well, especially about the pace of rally and its sustainability in the near term. Positively, there is a clear difference in the rally of 2008 and the current one, with the latter on solid ground. “In 2008, dreams were being bought. It was frenzied — people were jumping in as if there was no tomorrow. At this point, there are no bubbles. But the pace of the rise has been scorching, so it might correct a bit,” says Gul Teckchandani, an investment expert.

“In 2008, everything – commodity prices, global economy or the markets – were at peak. Now, these indicators are still showing a recovery,” says Swati Kulkarni, vice-president and fund manager, UTI Asset Management.

Fundamentals remain sound: The economic growth dipped to almost 5.8 per cent in the quarter ended December 2008, but it has again recovered to pre-crisis levels and grew by 8.8 per cent in the latest June quarter, which has resulted in renewed optimism among investors. Not only this, the double-digit growth in industrial activity, a better-than-expected monsoon, revival in industrial capex and improvement in corporate earnings have also helped. Next year, too, GDP growth is expected to be good at 8-8.5 per cent.

Liquidity: Liquidity is the single-largest factor driving the market. Fears of a double-dip and slow growth in the western world have put fast-growing emerging markets on top of the buying list of global investors. Year-till-date, FII investments in India have crossed Rs 1,00,000 crore, which is the highest ever. The sustainability of this will depend on India’s ability to maintain growth as well as global news flow.

THEN AND NOW
Valuations	31-Jan-08	20-Sep-10
Sensex level	21,000	20,000
PE (x)	25.8	19.0
P/B (x)	4.7	3.7
Market cap/GDP (x)	1.8	1.2
Liquidity
FII investments (Rs cr) *	54,565	109,307
SBI PLR (%)	12.75	12.25
Intrest rates (%)	14-15	12-13
Credit growth (%)	22.3	16.7
Money supply (%)	21.4	17.4
Fundamentals	FY08	FY11E
GDP growth (%)	9.2	8.0
Crude oil price ($/bbl)	82.2	75.0
Average WPI (%)	4.8	7.9
Export growth (%)	28.9	15.0
Capital formation (%)	37.7	35.0
Earnings growth (%) ^	16.0	30.0
E: Estimates; ^ For Sensex; 12 months to January 31, 2008 and 12 months to Sept 20, 2010; FII net figures in cash segment; WPI: Wholesale Price Index (inflation) Source: Bloomberg, Sebi, analyst reports*

Valuations, not cheap: Valuations, however, are not cheap anymore. This is also a reason that there could be higher volatility in the short term. The consensus earnings estimate for Sensex is Rs 1,046 for 2010-11 and Rs 1,257 for 2011-12. Based on 2011-12 earnings, the Sensex is available at about 16 times, which is slightly over its 10-year average valuation. But, at 19 times 2010-11 earnings’ estimate, it is expensive. “This is a sharp rally driven by liquidity, which is also a reason that valuations are getting stretched from the short-term perspective. There could be a correction, but when (timing) — we do not know,” says Ved Prakash Chaturvedi, MD, Tata AMC.

Outlook: While experts suggest that the outlook remains positive, there is also a need to be cautious due to the sharp rise in prices and the fact that markets have already started to factor in 2011-12 earnings. While they expect the near term to be choppy with bouts of volatility, a correction of 15-20 per cent is also likely. Although its timing is not easy to predict. The advice to investors is to keep an eye on liquidity (FII flows) and the need to be selective.

Says Gul Teckchandani, investment expert: “The broad outlook is positive. But, you have to be careful in selecting your stocks and, alternatively, brace for a 20-25 per cent correction.” He adds there are opportunities in select pockets, like power, infrastructure, oil & gas as well as select auto segments like commercial vehicles. These haven’t really participated in the rally.

On the other hand, Macquarie’s analysts are overweight on industrials, materials and healthcare.

“Invest right and then sit tight”

2010-09-22T09:26:00.001+05:30

Investors needn't worry about market valuations and macro events, provided they have the right sectors and stocks. - MOTILAL OSWAL, CMD, MOTILAL OSWAL FINANCIAL SERVICES

Srividhya Sivakumar

Buy right and sit tight is what Mr Motilal Oswal , CMD, Motilal Oswal Financial Services, advises retail investors. In an interview with Business Line, he shared his views on market valuations and the broking industry.

Markets have run up significantly in recent times. What's your advice for investors who are waiting to invest in the market?

Well, markets certainly aren't as cheap as they were earlier but a lot of stocks and sectors are still available at reasonable valuations. I would advise investors to look for stocks that are available at less than market valuations. . Investors just need to make sure their stock selection is right. Buy right and sit tight, is what I always tell retail investors. They needn't worry about market valuations and all the macro events, provided they have the right sectors and stocks. That said, investors need to diversify and not put too much money into too few sectors. So as long as the stock selection is good, anytime is good.

Our research says that overall corporate profit growth will be at 24-25 per cent over the next two years. GDP, even taking a pessimistic view, indicates an 8.5 per cent growth. So if you look at the 2012 earnings, the overall market does appear quite reasonable.

Trading volumes haven't really favoured brokerages so far. Do you think that has now changed?

Yes, I am already seeing an uptick in it. If . A lot of retail activity has increased in small- and mid-caps. So there is a definite revival in demand from retail investors. Besides, given the kind of volumes and price movement prevailing now, my sense is that retail activity is here to stay. The market consolidation stage of the last 8-9 months is over and the good times have begun. Even the delivery turnover is going up.

How difficult has it been to operate in a no load regime? Do you think this could impede (your) growth in the MF industry?

The ‘no load' regime has definitely slowed us down. But I am hopeful, as history tells us that whenever something has been done in the interest of the customer, it has always been rewarding in the long run. It may be too early to say, but I think stock exchanges will grow into a big platform to reach out to investors.

They are the best way to distribute MFs, IPOs and equities as they are not only cost-effective and convenient, but transparent too. It just will take us all time to stabilise. Besides, the kind of savings it has brought to investors is huge.

Besides, at a time when debt returns adjusted for inflation are negative, equities will attract a huge amount of money. As an asset class, equities have delivered a 17 per cent compounded returns over the last 30 years. Now, which asset class can beat that!

Equities combined with technology and convenience will continue to remain attractive. I am, therefore, quite optimistic on both the MF and broking businesses.

Do you see a continuous inflow of liquidity into our markets?

Well, as I said earlier, we have significant worth of annual savings now. Interest rates aren't too high so, to that extent, there is money available in the market. In terms of global developments, while there are fears of double-dip recession, my sense is that as long India, as an economy, is doing well, money will come. And if doesn't, we have lot of local money.

What kind of industry consolidation do you see going forward?

If you look at consolidation in terms of market volumes, the top 25 brokers' turnover hasn't changed much in the last couple of years. But consolidation is happening along the lines of brokerage bearing business. That is, if we overlook the proprietary volume share (about 35 per cent), and look at only the brokerage bearing quality volume, consolidation is definitely happening.

In terms of M&A activity, we still haven't seen it take off in a big way though there were a couple of transactions in recent times.

Q. But option volumes continue to be high. Are you specifically aligning your business development initiatives along similar lines?

Well, yes the market mix has changed in favour of options, which sees a lot of proprietary volume. But they typically are low brokerage yielding services and we do not do that kind of low brokerage. We do business at our own terms and do not believe in cutting the price. We, however, have a very strong advisory desk to help clients who want to transact in derivatives.

Q. How has your company's product and service offerings changed after the 2008 meltdown?

Firstly, I think the whole process of profiling customers based on their trading activities has fallen in place. We now profile customers based on their risk appetite, trading activities and advice requirement. In all the whole process of customer segmentation has grown in importance.

Second, a whole lot of new features are now available in our online broking service. These services have helped investors feel empowered. There also have been innovations in terms of coming up with product ideas that investors need. Our mutual fund offering - M50, which is India's first fundamentally weighted ETF, is a case in point. Besides that we are working on a couple of new MF products.

At service level, we add value by send portfolio valuations on SMS. We send our clients recommendations based on the stocks they hold. We also provide them with sector-wise allocation using pie charts in their DP statement.

Q. What is your view of algorithmic trading? Do you think it is justified to say that it could make Indian markets vulnerable to sudden falls just like how it happened in the US sometime back?

I think it's a good and a big move. Algorithmic trading is done mostly by institutional traders and is a great tool to bring more efficiency in price discovery. Besides, market falls happen irrespective of algos. It can happen even if a trader manually punches in the orders.

At 19k, market looks riskier than at 2008 peak

2010-09-22T09:23:00.000+05:30

With FII holdings forming almost 14 per cent of the total market cap of the BSE-500 Index, it is best investors exercise caution on stocks with high FII interest.

W ith the BSE Sensex breaking past 19000 after a long spell, the market ‘targets' are being busily upgraded to levels of 21000 plus, the previous market high. But did you know that the rally this time round has been underpinned by much lower earnings growth than in 2007-08?

The Sensex companies reported 10 per cent growth (all references to profits exclude the loss-making oil refiners, given that their size may skew the picture) in earnings in FY10, no better than the slowdown-impacted FY09 and far lower than the levels of FY07 and FY08. However, that is not the only thing that was different in this rally. Here we go:

Slower growth in earnings

In the last bull market between June 2006 and January 2008, the BSE Sensex rose by 131 per cent and in the current rally too, the Sensex has made a similar 139 per cent return.

The Sensex PE moved up from 18 times to 28 during the previous rally and from 14 times to 23 this time round. However, the PE re-rating in 2007-08 was underpinned by companies delivering strong profit growth even as the rally was on.

Sample this: In 2005-06, companies in the Sensex registered a 21 per cent earnings growth and followed this up with a 29 per cent growth in 2006-07 and 27 per cent in 2007-08.

In the current rally, the numbers aren't as encouraging, despite support from a low base. The rally that started in March-09 was on the backdrop of the Sensex companies reporting a 10 per cent growth in earnings for 2008-09. But, with rosy expectations of ‘forward earnings', the market had a breathtaking run.

In 2009-10, the Sensex companies delivered the same 10 per cent growth even as the market PE had already run up to 20 times by end-March-10. The companies in the BSE Smallcap basket, however, recorded a 73 per cent growth in earnings, rising from the low base of the previous year where their earnings fell by 40-odd per cent. The BSE Smallcap index's PE stands at 18 times now.

The first quarter of fiscal 2010-11 too has brought no reprieve from the rather moderate growth. The Sensex companies notched up just 4 per cent growth while the BSE-500 constituents grew 10 per cent. Unmindful of these, the market continues to head north, with the PE multiple of the Sensex rising from 20 times in March 2010 to 23 times now.

If earnings continue to disappoint, investors will eventually have to adjust their expectations downward, warranting a correction.

Smallcaps lead gains

Another differing feature of the recent rally is that the small-cap stocks beat the Sensex by a bigger margin than they did in 2007-08.

Though the Sensex was up by 139 per cent, the BSE Smallcap index has had a dream run over the last one-and-a-half years, appreciating 256 per cent.

In the previous bull market, Smallcap performance was actually much more muted, with a gain of 186 per cent higher than the Sensex return of 131 per cent. A probable correction at this point may dampen the premium valuations stocks in this space enjoy.

In end-January 2008, when the BSE Smallcap index was almost at the current level of 10300, it traded at a PEM of 16 times; the index's price-earning multiple currently is 18 times. The BSE Smallcap index's peak valuation in the last rally was 22 times. But do note that 95 of the 531 companies that constitute the BSE Smallcap index are at a valuation of above 30 times now. Investors may, however, breathe easier if they have mid-cap stocks in their portfolio.

At 21 times, the BSE Midcap index is far from its peak valuation of 27 times in December 2007.

Different sectors lead. The sectors that led this rally have differed too. Realty, infrastructure and power, the three sectors that were multi-baggers in the rally that ended in January ‘08, turned underperformers in the ensuing correction and fell to less than half their peak levels.

Going by this logic, consumer durables (up 385 per cent), fertilisers (up 383 per cent) and banks (up 272 per cent), the top performing sectors in this rally, may be most exposed to correction.

Infrastructure companies have been among the front-runners this time too, making a return of close to 270 per cent.

Investors, nevertheless, need to tread with caution — Unity Infra, the stock which rose close to 770 per cent in this rally, was the one that had corrected by 92 per cent in the fall of 2008-09.

It is FIIs all the way!

The 2006-08 rally was driven by a steady stream of inflows by domestic institutions in the stock market, but this time around they were not that active.

This rally was wholly fuelled by the money the foreign institutional investors poured in.

Between March ‘09 and now, the stock exchanges show that a total of Rs 55,000 crore has been the net purchases in the cash market by foreign institutional investors.

As a percentage of the BSE-500 index's total market-cap, FIIs hold 13.9 per cent now — higher than the December ‘08 level of 12.9 per cent.

That is a signal that any global ‘event' a la Lehman may have very dramatic consequences for the Indian markets, as foreign investors wind up positions here to setoff their losses in other markets.

For investors, this means that it is best to exercise caution on stocks with high FII interest.

Some stocks where there has been a sharp increase in FII holdings between March ‘09 and now are: Apollo Tyres, Dewan Housing, Unitech, HDIL, Sobha Developers, Indiabulls Real Estate, Hindustan Construction and Hindalco Industries.

Source: http://www.thehindubusinessline.com/iw/2010/09/19/stories/2010091950140500.htm

6 investing lessons the markets taught us

2010-09-22T09:07:00.000+05:30

Markets are a cycle, no rocket science there! But somehow we tend to believe that the market is uni-directional – irrespective of whether is it a bull run or a bear trend! When the markets were at 21000 levels D street was full of positive news that markets in a short term will touch 25000 levels, so much optimism turned to complete pessimism in less than a year when in Oct ’08 markets hit a low of 7.6k. But markets, they never grow tired of throwing surprises, which makes even the best of market pundits sit up and watch!

1. Stay cautious when markets turn euphoric

Date	Sensex	% Fall
Feb-00	6,150.69
Apr-03	2,904.44	*-52.78%*

Dec-03	5,920.76
May-04	4,227.50	*-28.60%*

May-06	12,671.11
Jun-06	8,799.01	*-30.56%*

Jan-08	21,206.77
Oct-08	7,697.39	*-63.70%*

Although the force of gravity is something that would apply pre-dominantly to physics, this holds true for equity markets as well. What goes up, comes down – if there is a steep run-up and valuations get expensive, then it is bound to make a turnaround and come down to moderate levels. Hence, it becomes important to stay cautious when the markets turn euphoric.

Since, October 2008, markets have not looked back; we scaled all the way up to 18k levels by July – 2010, it’s been a choppy ride over the past 21 months, with an upward bias. The P/E (price / earnings) which is a key indicator of whether the underlying instrument is overvalued or undervalued, was at 12 levels when the markets went all the way to 7.6k levels after it hit an all time peak at 21.2K levels in Jan-2008 when the P/E stood at 25.5 levels and markets were grossly overvalued.

At current levels, Indian economy is definitely healthy, however, at the rate the market is scaling new heights despite very moderate fundamental change, it definitely requires us to be cautious of a possible correction.

2. Avoid herd mentality

‘Buy low, sell high’, now how hard could that get! While we were young, we always wanted to have what the other person had. When it is the time to book some handsome profits and sit tight on cash, we end up entering the markets precisely then!

Source – AMFI, BSE India

This graph tells us how many times we have gone wrong and the best part is that we have never bothered to learn anything from the past. The past few months seem to have an inverse correlation where the markets have scaled up, possibly due to factors like change in regulations and thus may not be truly reflective of the state of affairs. Only time will tell if we have walked wiser from the experience we had during the 2008 fall.

3. Systematic Profit booking at market high

‘Just a little more and I promise to get out of the stock’, this approach really does not work – you will never get the peak or trough right! It is always advisable to exit from market in phases; a certain percentage of portfolio should be sold when markets breach a certain level. This not only helps to reduce the risk but also provides an opportunity if the markets move on further. In the whole bargain of ‘just a bit more’ we often see the returns completely erode and sometimes get into red! This infact is a dangerous preposition and hence, would make sense to fix the target and stick to it at all costs.

4. Get rid of penny stocks

Certain stocks see phenomenal rise may be more than 30%, however this rise is purely on rumours and such companies could be lacking sound fundamentals. Every time you will notice that the penny stock which was a hot pick in a bull run will be nowhere when the markets tank – they are the first ones to go down, infact they may even shut their businesses, so one should always get rid of such investments.

5. Fear and greed steal the show

When the markets were at 21k there was a sense of déjà vu, everybody was sure that the markets had formed a unidirectional pattern and it would simply keep moving northwards, however, the turnaround happened when least expected and when the markets did turn sharply, panic selling occurred which pulled down the markets sharply.

Fear and greed always have an upper hand in markets, during bull run markets are driven 70% by greed and 30% by fear whereas the same is reverse in case of bear phase. A contrarian strategy always helps, when people are fearful that the markets will come down be greedy to grab the stocks at a particular price, when people are greedy that the markets will climb further be fearful and start exiting from the markets.

6. Heady mix of debt & equity

Amidst all this hoopla, there is one thing that comes to rescue – Diversification. Too much into equities or too little – both are situations that you do not want be caught in. Statistics have proved that equity is one of the best asset class to invest in, global averages indicate that in the long term horizon it gives a return of atleast 15% p.a - however it is a game of patience and strategy which requires commitment from a medium to longer term frame. Also, it is important to de-risk your portfolio at regular intervals; this can happen only if we are stringently booking profits at relevant levels of the market.

It is probably the right time to evaluate your asset allocation and look at derisking your portfolio. For investors who are getting into the markets one needs to be cautious especially if one is making lumpsum investments. Systematic investments could be a better option at this time.
Since we are all euphoric about markets scaling new heights, this author may be accused of playing spoil sport, but all I want to say is ‘Tread with care!’

Mkts hit magical levels: Is there room for more upswing?

2010-09-22T09:04:00.000+05:30

After weeks of relentless rally, Sensex takes the leap and recaptures the magical 20,000 for the first time since January 15, 2008. Keeping up the momentum Nifty too touched the 6,000 mark. At the end of the day, Nifty closed up 28 points at 6,009 while Sensex is up 95 points shutting shop just above 20,000.

Though there is euphoria engulfed around Dalal Street on the back of the huge upswing seen on the bourses lead by heavy FII buying, the big question remians is there room for further upside movement on Indian indices?

Both, Dipan Mehta Member of NSE and BSE as well as Ajay Parmar, Head of Institutional Equities at Emkay Global Financial Services expect a correction so that the markets stabilise.

However Mehta is quick to add that in case the FII flows and Nifty futures keep up the present trend, the rally can continue “because there is no idea as to how much short position is there in the options market nor as to the appetite or the extent of funds which FII’s can invest in our markets”.

The correction call

When will the supposed correction happen? Strong FII flows that have been pushing the markets up, experts say need to be watched. “If you had to make a guess as to when this rally would sputter and move sideways or correct then there are two data points you need to watch out for—the Nifty future premium and the FII flow. The futures premium has to come down, maybe go into negative and the FII flow needs to slowdown or at least come to a more reasonable level.”

The money which is chasing more on the macro India stories because of which the largecaps have moved up will continue, says Parmar. To which Mehta adds should there be a slowdown over there then that could be a negative signal.

How much can we tweak?

One should look at 600-700 points correction on the Nifty, says Mehta, “but that’s not going to happen in matter of two or three trading sessions; it would be a gradual process. Of course the first wave could be a bit sharp and there after you could see some consolidation and maybe further down move as and when the correction does take place.”

Trading strategy

Technical analyst Rahul Mohindar of viratechindia.com feels the approach now should be keeping a stop at 5,940 and maintaining long positions. “My sense is we would probably head to about 6,120 in terms of a price target in the near term.”

But to Parmar, this market does not give an alarming signal that he should reduce my position yet. “I should move from smaller cap stocks to midcap stocks and midcap stock to largecap stocks. I should reduce my risk levels and maybe churn my portfolio from one sector to the other. Otherwise I would put the same weightage in cash versus equities.”

9 cues that will decide whether market goes on rallying or not

2010-09-22T09:00:00.000+05:30

In the US, markets gave back most of their afternoon gains as investors digested news that the Fed would be willing to provide 'additional accommodation' to the US economy.

The Federal Reserve left short-term rates unchanged, as expected. The central bank said they had no immediate plans to begin quantitative easing. However, Fed members indicated they are concerned about the economy's sluggish growth and low inflation, and are ready to provide support to the US economy. Here's a detailed report of how trade panned out on Wall Street.

And in economic data, US housing starts rose 10.5%, the biggest boost since November, to a seasonally adjusted annual rate of 598,000, which was more than expected. Meanwhile, August permits for new construction surged 1.8% to a 569,000-pace, after a 4.1% drop in July.

European markets slipped, though gains in construction stocks after strong US housing data limited losses. Meanwhile, the Asian markets were trading with moderate gains.

In the currency space, the dollar slipped broadly against major currencies, while the euro rallied more than 1% against the greenback, rising to a six-week high.

In the commodity space, fell for crude the fifth time in six days, wilting amid high oil inventories and the Federal Reserve’s continued concern about sluggish economic recovery. Gold, meanwhile, climbed to a fourth consecutive record high closer to 1,300 dollar mark.

Back home, for our markets, the two and half year-long wait was finally over. The markets continued their stellar run and the Sensex breached the all-important 20,000 mark in trade yesterday. The nifty too was in fine form, closing above 6,000 mark for the first time since January 2008. The broader indices however closed in the red. Here's what experts had to say about trade.

Levitt and Moros families have reached an agreement with Sun Pharma. The agreement facilitates immediate transfer of interest in Taro to Sun. Transfer in accordance with option agreement signed in May 2007.

Nord Imperial, the Russian subsidiary of Oil and Natural Gas Corporation (ONGC) has entered the fray to bid for the Trebs and Titov deposits, the largest un-allotted hydrocarbon fields remaining in Russia. Also, check out some other Stocks In News.

Hot stocks which are under the institutional investors' radar

2010-09-12T14:04:00.000+05:30

“The institutional investor remains the bigger influence on individual trades simply because he has more money to support the order and that will have more of an impact on the stock.” The words of a noted Wall Street commentator underline the clout of institutional investors in the equity market. With an easy access to best minds and methods in investment research, institutional investors tend to be ahead of the curve when it comes to identifying the next multi-bagger.

Further, these investors, in most cases, hold on to their positions for a longer term. This makes it a worthwhile exercise to check which stocks institutions are buying into and the stocks which are not in their radar. While retail investors need to exercise caution and do their homework before taking an investment decision, a look at institutional activity can help considerably in providing the basic investment idea.

Institutional investors broadly encompass mutual funds, insurance and pension providers. Institutional interest in Indian equities has been rising over the years. In the eight months ended August 2010, they invested a net Rs 59,724 crore according to market regulator Securities and Exchange Board of India (Sebi) data. This is 48% more than the figure in the corresponding period last year. Typically, they have a strong focus on research and a medium-to-long investment horizon. This indicates that the stocks they invest in have reasonably strong growth prospects over the medium term.

A retail investor may not be familiar with sophisticated investment techniques, such as discounted cash flows (DCF) from a company’s future operations. Hence, tracking investment patterns of institutions may be a simpler alternative to long-term investing. “Mirroring institutional investment patterns could be one of the strategies employed by an individual investor. However, one need not blindly follow this strategy,” says Dhirendra Kumar, CEO of Value Research Online, a firm that tracks mutual funds and equities.

Investor Returns

Our analysis of the BSE 100 index has brought into focus 18 stocks, in diverse sectors such as automobiles, infrastructure, banks and IT where both FIIs and domestic institutions have simultaneously raised their stakes during period September 2009 quarter to the first quarter of FY10. A recent report by a brokerage house on mutual fund activity, also listed out several stocks which are currently the most popular picks of mutual fund equity managers and which also match our list in several cases. These include stocks such as Tata Motors, Reliance Industries and SBI amongst others.

The analysis indicates that 12 stocks in our study provided a positive return though it needs to be noted that the returns from mirroring the investment patterns of institutions are not guaranteed. Among these stocks, there were several picks from diverse sectors that easily outperformed the mere 6.4% rise in the broader Sensex, from the end of the September 2009. However, investors need to make their own independent decisions, as there is no guarantee of generating similar returns on these stocks in the future.

Menu for investors

The analysis brought into focus several stocks in diverse sectors that could be considered for investment on a long-term basis. Take for instance, Tata Motors. FIIs have been bullish on this stock, given the turnaround in the operation of its key overseas brands, Jaguar and Land Rover (JLR). This company on a consolidated basis posted a net profit (excluding extra-ordinary items) of Rs 1,495.1 crore for the year ended March 31, 2010, against a net loss of Rs 2,808.4 crore a year earlier. This was due to a pick up in global demand for its marquee brands such as Jaguar and Land Rover. In addition, the cost-cutting measures implemented by the company also helped. This strong growth momentum has continued even in the first quarter of the current financial year, with the company reporting
a consolidated net profit (excluding extra-ordinary items) of Rs 2,012.3 crore, against a net loss in the previous year. This stock trades with a P/E of 11.8 times on a consolidated basis and trailing four-quarter basis, and appears reasonably valued.

Similarly, State Bank of India, the country’s largest bank, has seen a turnaround in its performance in the June 2010 quarter. The bank was growing at a high rate till FY09, when it posted a 36% year-on-year growth in profit at Rs 9,121 crore. Its growth trajectory, however, came to a halt in FY10, as its net profit remained flat. In fact, its loan book growth dipped to a mere 8% in the March 2010 quarter.

Analysts were worried whether the bank would be able to match the industry’s growth. The bank’s performance in the June 2010 quarter has put those concerns to rest. With a 21% growth in loan book and a 25% growth in net profit at Rs 2,914 crore, the bank is back to its earlier growth track. This stock is currently trading at a P/E of 18 times (on a standalone basis), well short of its P/E of 25, at the peak of the last boom in January 2008. The UPA government’s emphasis on expanding infrastructure facilities across the country has once again highlighted the potential of stocks in this sector. A case in point is Adani Enterprises-controlled Mundra Port and Special Economic Zone (MPSEZ), which is a leading private sector player in its sector. It has benefited from a shift in port traffic to Gujarat, given a shorter distance between the company and user industries in the North.

The financial performance of MPSEZ over the past few years has been significantly better than its peers operating in Gujarat, like Gujarat Pipavav Port, as the company’s operational income grew at a CAGR of 36.6 % to Rs 1,495.5 crore during the period March 2007 to March 2010. Also, MPSEZ’s net profit grew at a CAGR of 53.4% during this period.

No doubt, Mundra Port trades at more than 40 times on a trailing fourquarter basis, but given the strong growth expected over the next few years, investors could consider this stock. Similarly, Adani Enterprises, which is aggressively ramping up its presence in power generation, and its recent decision to buy a major stake in Indonesian coal mines, should help it drive its sales and net profits significantly over the next 2-3 years. And while this stock trades at a consolidated P/E of 33 times, considering its growth prospects, it could be a reasonable buy for the long term.

Of course, there are well-tracked stocks in our list, like Reliance Industries, which currently trades at a P/E of 17.3 times on a trailing basis, and is quite an expensive stock. This stock has also underperformed the market over the past three months over concerns of fall in gross refining margins (GRMs) industry-wide. The company had earlier aggressively grown its net sales by 86.7% in the first quarter of FY10, considerably quicker than the pace of FY10, helped by the ramp-up in operations of the erstwhile Reliance Petroleum.

However, net profit growth of 32% in the current financial year, lagged the growth in its sales in the quarter under review. However, considering RIL’s widening footprint in the global oil sector through recent acquisition of shale gas fields in North America, it could be a value buy for a long-term investor.

And with the exploration sector in the country witnessing rapid expansion, it also makes stocks like Welspun Corp attractive, which supplies submerged arc welded pipes to the oil sector. This stock is attractively valued at 8.5 times on a trailing basis.

Another stock worth mentioning is HCL Technologies, a top-tier IT services company in the country. The company has seen institutional buying in recent times following the robust growth in its volumes in the past two quarters. The company is expected to maintain the tempo given its plans to revamp its BPO operations and the benefits of its inorganic strategy (see stock idea on page 2). Thus an individual investor could consider some of the stocks that large, institutional investors are betting on and hope to earn descent returns over the long term.

How we did it

We selected the companies in the BSE 100 index for the analysis since it covers nearly two thirds of daily trading volumes on the Street and over 90% of BSE's total marketcapitalisation. We pulled out the shareholding pattern of stocks from the index. As there are several stocks in this index that are listed only over the past 12-15 months, we limited our analysis to the September 2009 quarter and the latest available quarter. We then identified stocks in which both FIIs and domestic institutional investors have both simultaneously increased their stake during our period.

Some fundamentals to help you pick stocks

2010-09-12T13:59:00.001+05:30

Rather than judging a stock by its price movements alone, a fundamental analysis delves deeper into a company's actual business, economic well-being and future prospects.

It includes a study of quantitative measures like earnings, growth, revenue and finance statement, and qualitative parameters like CEO or key executive's performances and strategy. A fundamental analysis aims at gauging the true intrinsic value of the stock.

Here are a few values that can help investors base their decisions on:

Price to earnings (P/E) ratio :

This is a popular formula that looks at the relation between a stock's price and the company's earnings. P/E is a stock's price divided by the earnings per share.

The ratio indicates what the market is ready to pay for the company's earnings. A high P/E suggests that investors are expecting higher earnings' growth in the future compared to companies with a lower P/E.

A low P/E ratio can suggest that a stock may be under-valued , or that investors expect poor future earnings.

Price to sales (P/S) ratio:

Some companies have no history of earnings. But investors cannot afford to over-look these young, budding companies. A price to sales (P/S) ratio looks at the current stock price relative to the total sales per share.

A P/S ratio is the stock's price divided by the sales price per share.

The lower the P/S ratio, the better is the stock valued . However, this ratio must not be viewed in isolation when deciding on a nascent company.

Price to book ratio:

This is calculated by dividing the share price by the book value per share. Price to book (P/B) ratio is of great importance to value investors who are on a constant search for under-valued and ignored stocks.

A P/B ratio is the share price divided by the book value per share. Book value is the sum of all of a company's assets minus its liabilities.

A manufacturing company that requires more assets will generally post a drastically lower P/B ratio in comparison to a consulting firm providing some service. A company trading at a low P/B ratio, in comparison to others in same sector, is perceived as under-valued relative to its share price.

Projected growth in earnings ratio:

A projected growth in earnings (PEG) ratio gives an insight into the future earnings growth.

A PEG ratio is the P/E divided by projected growth in earnings .

The lower the PEG ratio, the better the value, as the investor will be paying less for each unit of earnings growth. A lower ratio is considered cheaper and a higher ratio is expensive. Since this relies heavily on projections, the conclusions may not always be accurate.

Dividend payout ratio:

This ratio is obtained by dividing the annual dividends per share by the earnings per share.
It is a measure of a company's payouts to investors in the form of dividends versus its earnings per share.
It also an indicator of how sustainable the dividends are, especially for investors looking for passive income.

Split Bonus and Gains

2010-09-12T13:37:00.000+05:30

It is surprising but yet it is true, divide a corporate pie into different slices and the sum of these slices will be larger than the original. Yes, we are talking about the corporate actions such as split and bonus announced by the company, wherein the number of shares increases in the hands of existing shareholders though their proportionate ownership remains unchanged. In theory, these actions should not leave the share-holders any better than pre-announcements of these corporate actions. But it has been observed that in most of the cases there is an increase in the investor’s wealth after these announcements. Now let us check how these actions by the company have made the investors wealthier. Before arriving at any conclusion, we analysed data of all such split and bonus announced by the companies, since the start of year 2009.

Split
Stock split is a process under which high face value shares are split into lower face value shares. Some of the popular way of splitting shares is splitting share of Face Value Rs 10 each to Rs 1 Rs 10 to Rs 2 (10:2), etc. In total of 78 splits announcements made since January 1, 2009, the most common split was 10:1; almost 50 per cent or 37 companies announced splits in this ratio, followed by 10:2, which was announced by 23 companies. If we consider the performance of these companies post-announcement, we find that out of total 78 companies, there are 61 companies whose scrips are trading above the price prevailing on the date of announcement of split in shares.

For example, one of the highest gainer is KGN Industries that announced split in the ratio of 10:1 on June 09, 2009 when it was trading at Rs 457.5. The CMP (April 13, 2010) of the scrip is Rs 367 and if we adjust this CMP for the split ratio we get price of Rs 3670, which is 702 per cent above the price when split in shares was announced. Of course, one should not forget that there is a big question mark on the fundamentals of KGN Industries. The median gain in the scrip prices after their announcement till today is 39 per cent. But some may argue that even the market has doubled since low of March 2009. Therefore we compared scrip return with the market returns (Sensex) in the same duration. We found that on 54 counts the scrip returns beat the market returns. The median excess return of scrip over market was 23 per cent. Now let us check how companies declaring bonus have performed.

Bonus
Bonus issue that is also known as stock dividend in many parts of the world is nothing but capitalization of reserves. The shareholders receive additional shares on the proportionate basis of the original holding but the ownership remains unchanged. Earlier, it was believed that a company announces bonus issue only if it is confident of maintaining the dividend rates. This would have been received positively in the market about the company’s performance and hence prices would increase. Other logic was that bonus issue would increase the float of stocks and hence the liquidity of the shares. Since the start of January 2009 there were 51 companies, which have rewarded their shareholders by issuing bonus shares. There is no particular ratio in which companies issue bonus shares, it all depends upon the existing outstanding shares and the reserves a company has.

If we analyse the returns of these 51 bonus issuing companies, 42 companies are trading above the prices prevailing on announcement dates. The median gain for these companies is 28 per cent for the same period. One of the highest gainers is Linkson International, which announced bonus issue in the ratio of 2:1 on May 8, 2009 and price that pravailed then was Rs 58.85, but at CMP (April 13, 2010) of Rs 148.8 and adjusting it for the bonus the return for a shareholder is a whopping 659 per cent. Let us now check how they have fared against the market returns. The median return of the market is nine per cent, whereas for the returns given by these scrip is 28 per cent.

Split Plus Bonus
Now there are certain companies who have announced both split and bonus and it seems that average stock returns of these companies have beaten the returns of the companies in earlier two categories, that is split and bonus. There are altogether 17 companies that have announced both split and bonus since the start of January 2009. Out of these, 13 companies are quoting above the price on the date of announcement. The median returns of these companies are 49 per cent, well above the median market return of 17 per cent for the same period. For example, one of the highest returns is given by the Avance Technologies, which announced bonus issue in the ratio of 4:1 and split their shares in the ratio of 10:1. After adjusting for the prices for the bonus and split the stock return is an astounding 776 per cent.

Invest with Caution
From the above discussion it seems that investing in companies, which have announced a bonus and split makes sense since these companies offered returns better than the market returns, but there are certain caveats.

In case of splits, it has been observed that it is primarily momentum stocks that announce split and hence one needs to be vigilant while picking these shares because one might find getting caught on the wrong side of the price movement and may lose money. For example, Austral Coke & Projects, one of the momentum stocks, which announced split in the ratio of 10:1, has given negative return of 70 per cent since the date of announcement of splits.

It is not that only momentum stocks are giving negative returns, Bharti Airtel and Mahindra & Mahindra, also have given negative returns after split of the shares. Similarly, a company giving bonus issue also does not guarantee better returns. A case in point is Jaiprakash Associates, which has underperformed the Sensex by 19 per cent since the date of announcement of bonus. Therefore it is clear that there is no easy way of making quick money in the stock market without taking that extra risk and one should take all the precaution of picking stock, albeit taking into account these corporate actions with due diligence.

Turnaround Candidates

2010-09-12T13:34:00.000+05:30

Will these companies come out of the eclipse this year?

Despite volatility, the Sensex is testing higher levels and is up by almost 94 per cent from the lows it reached in March this year. Investors too are making the most of this opportunity by sticking to fundamentally strong counters and keeping the investment strategy simple. But, on second thought, doesn’t it also make sense to be different from the rest and still chalk out a different investment strategy and pick stocks that the markets have ignored due to the companies currently incurring losses, but having potential to catch investors’ fancy sooner rather than later.

In keeping with this strategy, we, at Dalal Street Investment Journal, have selected turnaround candidates from a host of loss-making companies. It might sound a bit odd, but it does make sense at this point of time to go for such companies which despite odds are thinking out of the box to pull themselves out of the quick sand and turn themselves profitable. The ‘Turnaround Candidates’ story is an annual exercise for DSIJ, where we find such hidden gems which are currently making losses but have the potential to turn around during the year and give better returns to the investors. It is easier to pick such stocks when the economy is on the upturn and everything is hunky dory, but in a gloomy scenario when the uncertainty increases, selecting such stocks becomes tougher.

The one trend that we have seen since 2004 is that the number of loss-making companies has declined drastically after the economy started to pick up pace. It should be noted that there were about 1082 loss-making companies in 2004. This number came down by 30 per cent to 755 companies in 2005 and further fell by 38 per cent to 469 companies in 2006. In 2007, when the economic growth was at its peak, the loss-making companies fell to just 249 companies. But it was in 2008 that economies across the world, including India, felt the jitters of the global financial crisis. Result: the number of loss-making companies increased to 349. While the global economy is yet to come out of the woods completely, many would expect this number only to increase. On the contrary, what’s heartening to know is that India Inc has showed strong resilience in FY09 and this number has actually declined by as much as 50 per cent to just 173 companies! If we dissect the 2009 numbers further, we see that the loss-making companies have declined drastically in the B group, S group and – to our own amazement – the Z group! Thus, while in B group the number of loss-making companies has come down to 69 from 128 companies previously, in the S group the number has fallen to 7 from 18 previously and in Z group the number is a mere 5 from 124 previously (refer table). This, according to us, is quite an achievement considering that FY09 has not been too kind on India Inc. Besides, we also believe better cost management initiatives and the amendments to the AS 11 could be the reason for this drastic drop in loss-making companies in FY09.

The fact of the matter is that investors need to see the advantages of holding a turnaround candidate. Firstly, when other companies would be doing business as usual, managements of turnaround candidates would be busy thinking out of the box to bring their companies into profits. Thus, this is the time when management initiatives would be at their best, with the management coming up with innovative ways to drive the topline and manage the costs. Secondly, with the worst already being discounted in the price of these companies, there may be very limited downside risk in these companies. Thus, even if the market corrects for some reason, there is a good probability that these counters would fall the least. In fact, if these companies start showing signs of turning around, they could turn investors’ favourites and might end up giving fantastic returns. The best example of this would be the performance of our last year’s recommendations, which have given an average return of 44 per cent, while the Sensex gave returns of 3.73 per cent during the same period. But, when these companies turn around into profits, the return is even better. For example we had identified Crompton Greaves as one of the turnaround candidates in 2002, which was then trading at Rs 51. This company not only turned around, but has also given fantastic appreciation considering the fact it is currently trading at Rs 1,535 (after adjusting for splits). As in the past, this year too we have gone through the painstaking process and selected five turnaround candidates which we feel would do well in the coming 18-24 months. We reckon that these companies would not only turn around, but also give good returns on the bourses if investors continue to be patient with these counters.

Order Book Getting Stronger
Artson Engineering
BSE CODE: 522134 CMP: RS 48.65

Artson Engineering (AEL), which is in the business of developing products and systems in fuel handling and tankage construction activities in the refinery sector, is a perfect example of how a series of events can take the company to abyss levels. It was a chain of events that resulted into AEL incurring losses in FY09. While AEL was already reeling under pressures in FY08 and was referred to the Board for Industrial and Financial Restructuring (BIFR) on account of shrinking topline as well as bottomline, the general economic slowdown

further reduced the contractual work, thus impacting its topline.

The delays in receipt of client-supplied materials worsened the problems and resulted in contractual time extensions. These contractual extensions eventually contributed to unexpected over-run expenses. So in FY09, the company posted a topline of Rs 34.40 crore and a loss of Rs 17.14 crore as compared to Rs 52.03 crore and Rs 12.33 crore respectively in FY08 (18 months). But there are certain factors which are now indicative of a revival of positive forces in the company. The current order book of the company is around Rs 248 crore which is around seven times of its FY09 revenues. The strong backing of Tata Projects’ management (after it acquired a 75 per cent stake in AEL in January 2008) also provides comfort to the investors and last but not the least, the company has posted good topline and a decent bottomline in Q1FY10 (See table of last five quarters). The impact of TPL is vindicated from the fact that AEL’s current order book stands at Rs 248 crore.

Of the total order book position, Rs 191 crore belongs to HPCL and the Mittal Bhatinda Refinery which is to be completed by June 2010. So the topline does not seem to be any problem going ahead. The margins too are expected to be better in these orders. Although there are these many positives in the company, it may not turn around in FY10 as the higher interest cost and brought forward losses may impact its bottomline. But we expect the company to turn black in 2011. We foresee a decent capital appreciation from the counter and one can therefore look at the counter with a 15-18 months’ perspective.

Holding The Reins Tight
Finolex Cables
BSE CODE: 500144        CMP: RS 43.00

Finolex Cables (FCL) a manufacturer of copper-based electric and communication cables looks a perfect

turnaround candidate. Slump in demand and a sharp fall in copper prices globally forced FCL to undersell its products by 35 per cent in FY09. Thus, with realisations dropping, revenues took a hit along with the operating profits getting squeezed further. A sharp jump in interest and the depreciation cost coupled with forex derivative transaction losses pushed FCL into losses of around Rs 35.49 crore - its first in the last ten years. But the fortunes for FCL are changing, the primary reason being the escalation in demand for its products. Though FCL was not able to quantify this in terms of order book in our discussion with the management, they assured that currently whatever is produced is being sold in the market. Secondly, FCL has already increased its product prices by 15 per cent and with copper prices in an uptrend, FCL wouldn’t hesitate to increase its prices further. Besides, its new electric cable plant at Roorkee is strategically placed to cater to the strong demand of the northern markets. That apart, FCL has also implemented a cost rationalisation drive, and tight control on its manpower and energy cost. While its manpower cost increased only 7 per cent in FY09 compared to 38 per cent in FY08, FCL brought down its energy usage by 7-8 per cent. Besides, with a tight control on its working capital requirements, it is now saving on interest cost. Explains M. Viswanathan, Director & CFO: “At the end of FY09 the receivables position or inventory are all at lower levels than the previous year, thus enabling us to squeeze that much cash flow out of the balance sheet, which results in lower interest cost.” But FCL’s strategy to move up the value chain will make all the difference from the coming fiscals with it now focusing on manufacturing high voltage cables up to 66 KV and CFLs. Though a very negligible contribution to the revenues today, it will help FCL to place its sales growth in a different trajectory altogether. With its market cap to sales of just 0.50x, FCL looks an attractive bet. What will sweeten it further are the liquid investments worth Rs 143 crore, which is almost 22 per cent of its market cap.

A Strong Dose Of Vitamins
Ranbaxy
BSE CODE: 500359        CMP: RS 335.35

Ranbaxy, which snapped its four consecutive quarters of losses this quarter (Q2FY09), is one of the companies that we feel will turn around and will continue its performance going forward. The slide of one of the biggest pharmaceutical companies of India from its top position can be attributed to factors like banning of 34 products by USFDA due to non-compliance with their norms and appreciation of the dollar by 22.9 per cent last year. All this was enough to hammer the price of the company’s share by 40 per cent compared to a 33 per cent fall in BSE HC in CY08. However, things are changing for good now. Daiichi Sankyo, the majority owner of the Ranbaxy, has overhauled the management of the company giving a new thrust to resolve the issue with the US FDA. The rupee has largely remained stable and is not appreciating. Last but not the least, the company has submitted a corrective operation action plan to the US FDA for its Paonta Sahib facility and has sent a request for the re-inspection of its Dewas manufacturing facility. The management is hopeful that it will start exporting from the Dewas facility by December 2009. Early signs of revival are clearly visible in the com-pany’s Q2CY09 results. Its net revenue on a consolidated basis for Q2CY09 declined on a YoY basis by 0.7 per cent and was Rs 1,879.2 crore but witnessed good improvement sequentially and was up by 19.2 per cent. The net profit for the company declined by 55.7 per cent and was Rs 65 crore before any exceptional item. Nevertheless, if we take the exceptional item the fall is just 1.9 per cent. What is comforting is that the company has returned into operating profit after two quarters. We feel that the management action will start yielding results and will give good capital appreciation for its shareholders.

Keeping Good Health
Fresenius Kabi Oncology
BSE CODE: 532545       CMP: RS 72.65

Not many would have heard the name Fresenius Kabi Encology as this is the new avatar of Dabur Pharma. The company was taken over by the Germany-based player Fresenius Kabi in 2008 and that should help it post good growth in the coming quarters due to strong parent reach and product profile. The company has set its vision statement to be a ‘world leader in Oncology Genercis’ and is moving in that direction. Till now the company has been more focused on the semi-regulated and unregulated markets but as a part of the growth strategy it wants to focus aggressively on the regulated markets of the US, Europe and Japan.

Currently, the company gets 70 per cent of its revenue from exports and we believe that this would continue to dominate the company’s revenue stream even in the future. Last year, the company posted a loss of Rs 77.7 crore on sales of Rs 274.1 crore. One of the reasons for suffering this huge loss was due to a change in management control wherein the company settled ESOPs in cash and thus cancelled them out. At the same time the company also terminated the previous distribution agreement by paying termination charges. It also commissioned its second manufacturing unit at Baddi which resulted in higher depreciation and operational costs. We feel that these are expenses which are one time in nature and hence a recurrence of the same may not be there in the next balance sheet. The effect of the turnaround is visible on the company’s first quarter numbers wherein it reported sales of Rs 102.57 crore with a profit of Rs 26.81 crore. We are expecting the company to report net profit in the region of Rs 100 crore for the full year. With equity capital of Rs 15.82 crore (FV of Re 1), the EPS for FY10 would be Rs 6.32. The CMP of Rs 72.60 gives a P/E of 11.48 times. We feel the company should offer at least 30 per cent capital appreciation in the next six months with a price target of Rs 95.

Steering It Well
Sona Koyo Steering Sys
BSE CODE: 520057        CMP: RS 12.20

Sona Koyo Steering Systems (SKSS) is largest manufacturer of steering in India for passenger cars and utility vehicles. It slipped into red and posted loss of Rs 31.03 crore (profit of 25.19 crore in FY08) against sales of Rs 693.13 crore for FY09. The reason for such fall in profit was due to increase in cost of raw material and interest expenses Nevertheless, things have improved now, price of commodity has come down, and interest rate has eased. Even there has been revival in the down stream companies who use company’s product. Apart from this company has launched Profitability Improvement Programme (PIP) to improve the profitability. SKSS took steps like working capital management, increasing localization, customer negotiation, employee cost restructuring and reduction in sales and administration cost. These steps have clearly shown its result in Q1FY10 results. SKSS posted profit of Rs 0.86 crore against loss of Rs 1.63 crores during the corresponding period of the previous year. Overall sales increased by 20 per cent in the same time. Total sales posted for Q1FY10 was Rs 187.08 crore. What is remarkable is improvement in EBIDTA it increased by 57.6 per cent in absolute terms and as margin it increased by 200 basis points and stands at 8.8 per cent now. What makes us believe that this company will give good capital appreciation to the investors is company’s good clientele that includes Maruti, Hyundai etc and future order from Tata Motors for its 'Nano' car. Furthermore, company’s couple of plants will start production from November 09 adding more to their topline.

50 cash rich companies

2010-09-12T13:28:00.000+05:30

What is cash rich company?Cash and bank balances indicate the amount of cash that a company has on its books at a specific point in time. The position of cash and bank balances net of debt is one of the indicators of financial strength and liquidity of the company. Cash and bank balances include balance with bank, term deposit with banks and cash in hand/others.

Importance of cash rich companyAnalysts suggest that a cash rich company is a sign of financial strength while a small cash position is a possible caution or warning sign. The cash rich companies have an edge over cash strapped companies as cash can be used to fund operations and acquisitions, to buyback shares and to repay debt. It also helps the company to survive in torrid times of recession. A dark side of cash rich company is that too large of a cash position can often signal waste of funds as the funds are placed idle or produce very modest return.

Data CoverageWe have taken all the listed companies on the Bombay Stock Exchange. We have taken only those companies whose cash value net of debt is greater than Rs 300 crore and sorted the top 50. We have not taken the investment value into consideration since some companies have invested in government bonds or group companies.

Interestingly, 8 companies out of top 10 cash rich companies by value were PSU companies.

* All figures (Rs in Cr)

Company	Investments	Cash and	Total	Net	Market
		Bank Bal.	Debt	Cash	Cap
BHEL	6	10329	167	10163	111713
SAIL	37	18486	8666	9820	73108
NMDC	72	9740	-	9740	144910
Infosys	-	9695	-	9695	137855
M T N L	465	4803	-	4803	5868
Rajesh Exports	385	5537	1951	3587	2066
Natl. Aluminium	896	2869	-	2869	23440
MMTC	399	6022	3209	2814	168240
Hind.Zinc	6929	2719	9	2710	34645
Bharat Electron	-	2658	2	2656	11450
Cairn India	171	6527	4356	2171	49854
TCS	1614	2698	563	2135	117598
Engineers India	151	1921	-	1921	6326
Container Corpn	168	1767	49	1718	14742
Oracle Fin.Serv.	1	1549	-	1549	15173
Sun Pharma.	1859	1669	179	1490	24953
Hind. Unilever	288	1864	434	1430	58484
Siemens	245	1322	11	1311	18836
Neyveli Lignite	722	5482	4210	1272	22909
Maruti Suzuki	3277	1987	759	1228	47938
ITC	2507	1318	187	1132	88101
Eicher Motors	6	1260	166	1094	1527
PTC India	533	1052	20	1032	2597
Edelweiss Cap.	270	1721	762	959	3387
HCL Technologies	1377	1011	55	956	22947
Glaxosmit Pharma	730	957	6	951	12694
Bosch	867	1071	264	806	13153
Lak. Mach. Works	104	627	-	627	1766
Hinduja Global	1	665	87	578	1038
India Infoline	315	627	52	575	4248
Ambuja Cem.	328	852	289	563	15192
Pfizer	1	544	-	544	2492
Motil.Oswal.Fin.	49	543	0	543	2444
Tech Mahindra	435	538	-	538	11108
Ingersoll-Rand	0	515	-	515	1038
ACC	517	991	482	509	15905
Aventis Pharma	5	497	-	497	3405
GlaxoSmith C H L	-	471	-	471	4867
Apar Inds.	0	611	161	450	497
Anant Raj Inds	309	626	210	416	4295
Hind.Copper	-	529	113	415	21132
JM Financial	603	525	134	391	3203
Thermax	144	373	4	369	6642
Alstom Projects	-	368	1	367	3820
Indiabulls Sec.	52	462	112	350	1348
A B B	61	348	0	348	16987
Bajaj Finserv	6595	642	311	331	4271
Heidelberg Cem.	0	338	10	328	1015
Dredging Corpn	30	332	6	326	1409
Info Edg.(India)	18	322	0	322	1914

Source: Capitaline

Disclaimer: Datawatch is purely intended to reveal interesting statistics. Moneycontrol sources all price information from BSE/NSE and company information from Religare Technova. Moneycontrol is not responsible for inaccuracy/non-updation of data. There is no intention whatsoever to arrive at any conclusion or recommend any stocks or sectors. Please consult your financial advisor before taking any investing decisions.

Take a fresh look at defensive stocks

2010-09-12T13:23:00.000+05:30

Investors usually look to defensive stocks to protect their portfolios from damage during market falls. However, defensive sectors such as FMCG and healthcare have actually proved good bets in a rising market as well. Had you picked some of the pharma stocks or consumer goods stocks in March last year, your portfolio returns would have skyrocketed by now.

Lupin, Dr Reddy's Laboratories, GlaxoSmithKline Consumer Healthcare, ITC, Colgate-Palmolive, and Dabur India have all touched their life-time highs this month. Marico hit its new high in April. The BSE Healthcare index has delivered 100 per cent return since March last year, against the Sensex's 83 per cent. The BSE FMCG index has returned close to 60 per cent in the period; the returns would have been even higher reckoning without Hindustan Unilever, which has been an underperformer (up just 8 per cent).

In the previous bull market rally, the FMCG and Healthcare indices underperformed the Sensex by a vast margin (between 2006 and 2007 Sensex return was up 116 per cent; the BSE FMCG index recorded a return of 35 per cent and the BSE Healthcare index delivered 42 per cent). What is different this time? Have the earnings outlook improved? Do the stocks remain defensive bets?

The high returns from stocks in these ‘defensive' sectors have resulted from robust earnings growth as well as a re-rating of valuations, a sign of improving investor confidence. However, for some of the ‘defensive' stocks, this has been accompanied by a rising Beta and investors may need to exercise caution from here on.

Part of the reason why ‘defensive' sectors such as consumer goods or pharma have outperformed in a rising market stems from their fundamentals.

Earnings picture

Consumer goods and pharma companies have fared much better than the BSE-500 companies in sales and profit growth in FY10. While the BSE-500 companies reported an average 5 per cent growth in sales, the BSE FMCG companies saw sales rising 7 per cent. Sans Hindustan Unilever, the growth stands at an even higher 16 per cent. The consumer goods companies have been growing on robust demand growth in the hair-care, skin-care, foods and detergents segments, following an expansion in urban and rural spends. Lower commodity prices too aided margins in some segments. Net profit has grown by 19 per cent (sans HUL it was 33 per cent) for the BSE FMCG index constituents, far higher than the growth of the last two years.

For the pharma companies, improved domestic demand, new product launches and increasing preference for generics in the US helped good sales growth. The companies of the BSE Healthcare index reported 11 per cent growth in sales (consolidated) while profits more than doubled, thanks to a fall in crude oil prices and the favourable rupee-dollar exchange rate.

Re-rating of valuations

Pharma players have seen a good year pass by. With a substantial amount of outstanding FCCBs being bought back (by players such as Aurobindo Pharmaceuticals, Lupin, Orchid Chemicals, Jubilant Organosys) during the year, the mark-to-market losses arising from exchange rate fluctuations, declined for many. Also, as the rupee continued to be weak against the dollar for most of the year, some pharma companies even made forex gains on their overseas trade.

The above developments apart, a revival in the merger and acquisition deals within the sector also helped valuations in many cases. The interest evinced by foreign drug majors in Indian pharma companies (Pfizer-Aurobindo Pharmaceuticals; Pfizer-Strides Arcolab; Hospira Inc-Orchid Chemicals), the attractive valuation at which the injectibles business of Orchid Chemicals and Pharmaceuticals was sold to Hospira Inc. (at $400 million for a business that turned revenue of $90 million), a host of new product launches and the robust growth in profits, saw the domestic pharma stocks getting re-rated.

From a PE band of 15-20 times last year, pharma stocks are now valued at around 25-35 times. Cadila Healthcare, Divi's Laboratories, GlaxoSmithKline Pharmaceuticals and Lupin have all moved to the PE band of 25-30 times. The re-rating in valuations has inflated stock returns.

FMCG companies saw PE multiples expand as their profit growth trajectory picked up. Godrej Consumer Products, Dabur India, Nestle India, Marico and Emami have moved to a PE multiple of 35-40 times from around a band of 25-28 times last year.

Who has bought them?

Were rising multiples and stock price returns for the ‘defensive' sectors backed by institutional interest in these stocks? Comparing data on shareholding pattern of the BSE FMCG and BSE Healthcare index constituents shows that while domestic institutions did not significantly hike their stakes in these stocks, foreign institutional investors have been active in doing so.

Aurobindo Pharmaceuticals, Mcleod Russel, Opto Circuits, Lupin, Dabur India and Colgate-Palmolive have all seen an over five percentage point increase in FII holding between March-09 and March-10.

FII holding in United Spirits has increased to 46.3 per cent from 30.6 per cent in March last year. Domestic mutual funds and retail investors have mostly been exiting these sectors and selling to FIIs in this period.

Rising Beta?

If FMCG and pharma stocks have traditionally enjoyed a ‘defensive' stock status in the markets, has there been a role reversal now? Having outperformed the market and with significant increase in purchases by FIIs, are consumer goods and healthcare stocks prone to higher volatility now? This may not hold good for all stocks.

Beta, the measure which indicates the sensitivity of the stock price to index changes, has risen significantly only for a few of them. For example, Glaxo SmithKline Consumer Healthcare's beta has risen to 0.6 now from 0.2 in the period between 2008 and March-2009 (the stock fell 5 per cent as Nifty corrected 50 per cent).

The other stock whose beta rose sharply is United Spirits. The stock's beta is 0.9. In the healthcare space, Sun Pharma, Biocon, Ranbaxy Laboratories, Orchid Chemicals and Pharmaceuticals, Aurobindo Pharma and Strides Arcolab are in the 0.6-0.9 beta band now.

Despite the uptrend for some stocks, ‘beta' remains below the crucial level of 1 for most companies in the two sectors. Stocks of Dabur India, Colgate-Palmolive, Hindustan Unilever, Marico, Godrej Consumer Products, Britannia, Cipla, Dr Reddy's Laboratories and Lupin are still below a beta of 0.6 despite their sharp stock price increases. Though it cannot be said with certainty that high-beta stocks will suffer when the broader market suffers a setback, it may be better for conservative investors to have a limited exposure in high beta stocks.

Cash-rich cos back to investing in liquid MFs

2010-09-12T13:19:00.000+05:30

India Inc seems to be taking a more active approach to managing its surplus cash, going by the increase in the amounts that it invests in liquid mutual funds. Consider this: Infosys Technologies, which had no investments in liquid mutual funds as of March 2009, had Rs 2,518 crore invested in liquid funds by March 2010.

The story is similar with Patni Computer, which has seen its investments in liquid mutual funds more than double to Rs 1,605 crore by March this year.

Other cash-rich companies outside of the IT sector such as ITC, Reliance Industries and Ambuja Cements have also seen sharp (48-357 per cent) increases in the sums parked with liquid mutual funds.

But deposits with banks still remain the most preferred mode of holding surpluses for the larger companies, accounting for over half their cash balances. For companies such as Infosys, Crompton Greaves,Ambuja Cements, Polaris and MindTree, the proportion of their cash and investments parked in liquid mutual funds has risen 5-17 percentage points.

Others in the IT pack, such as Wipro and TCS, too have seen increased investments in mutual funds, though not to the same extent. The key attraction may be that liquid mutual funds allow companies to withdraw at any time. They are also more tax-efficient than bank deposits. Speaking to Business Line, Mr R. Srikanth, Chief Financial Officer of Polaris Software, said, “Liquid mutual funds and fixed maturity plans (FMPs) give a (post-tax) yield of 5.5-6.78 per cent, which is much higher than fixed deposits.” He added that going forward, the company would invest more in liquid mutual funds and FMPs and only then, would consider bank deposits.

Asked about the concerns (in late 2008 and early 2009) over the credit risk attached to the portfolios of fixed maturity plans, Mr Srikanth said, “Indian AMCs are well regulated and structured and they take informed decisions based on ratings of bonds and debentures; so, there is very limited risk on that front.”

Government bonds Even as some companies have opted to shift their surpluses from banks to more actively managed options such as mutual funds, multinationals seem to be continuing to take a conservative stance. Companies such as GSK Pharma and Siemens preferred to invest their surplus mainly in bank deposits during 2009-10.

Apart from deposits, other key investments for corporate treasuries were debentures and bonds, usually from Government entities or PSUs, where larger companies have more than doubled allocations. Companies such as ITC, RIL and GSK Pharma invested in bonds of Nabard, Indian Railway Finance Corporation, IIFCL, HDFC and LIC Housing Finance. Reliance Industries also invests in the debentures of global financial institutions based in India. There are also one-off cases such as TCS subscribing to Rs 1,000 crore worth debentures from Tata Sons, while Reliance Industries invested Rs 700 crore in optionally convertible preference shares of Shinano Retail.

6 cash rich companies

2010-09-12T13:17:00.000+05:30

Following are the 6 cash rich companies from BSE 100, BSE Midcap and BSE small cap indices. The cash rich companies reflect the levels of cash they are sitting on as on Mar. 31, 2009.

1) Reliance Industries (RIL):

Market capitalization: Rs 3,578,062.53 million
Index: Sensex
1-year return of RIL (as on Dec. 31, 2009): 77.10%
Sensex return for 1-year (as on Dec. 31, 2009): 81.03%
Price earnings (P/E) ratio: 24.57
Price to book ratio (P/B): 2.52

Reliance Industries (RIL), India`s largest private sector enterprise, with businesses in the energy and materials value chain is the No. 1 company with the highest cash levels of around Rs 221,765 million as on Mar. 31, 2009. On January 4, the company announced it has raised nearly Rs 26.75 billion for the same by selling treasury shares held by Petroleum Trust at an average price of about Rs 1,035 a share. In September 2009, it raised around Rs 31 billion by selling 15 million treasury shares held by Petroleum Trust.

2) Steel Authority of India (SAIL):

Market capitalization: Rs 1,029,502.2 million
Index: BSE 100
1-year return of SAIL (as on Dec. 31, 2009): 210.71%
BSE100 return for 1-year (as on Dec. 31, 2009): 85.03%
Price earnings (P/E) ratio: 19.33
Price to book ratio (P/B): 6.04

The largest integrated iron and steel producer in India, Steel Authority of India`s (SAIL) cash levels stood at Rs 182,285 million as on Mar. 31, 2009. It reported 32% growth in sales at 1.3 million tons in December 2009. The sales in the third quarter ended December 2009 grew by 23% over the corresponding period last year due to increase in sale of products consumed by the construction industry.

3) Mahanagar Telephone Nigam (MTNL):

Market capitalization: Rs 53,014.5 million
Index: BSE 100, BSE Midcap
1-year return of MTNL (as on Dec. 31, 2009): -6.71%
BSE 100 return for 1-year (as on Dec. 31, 2009): 81.03%
BSE Midcap return for 1-year (as on Dec. 31, 2009): 107.66%
Price earnings (P/E) ratio: NA
Price to book ratio (P/B): 0.47

Mahanagar Telephone Nigam (MTNL), a leading telecom service provider has cash position of Rs 48,027.98 as on Mar. 31, 2009. MTNL offers a complete range of telecommunication services including dial-up, broadband, home and mobile telephony, ISDN and leased line services. Recently, the Prime Minister`s IT advisor Sam Pitroda said the government is not planning to merge MTNL and BSNL. ``There is no move to merge BSNL and MTNL,`` he said.

4) Shipping Corporation of India (SCI):

Market capitalization: Rs 68,239.55 million
Index: BSE Midcap
1-year return of SCI (as on Dec. 31, 2009): 85.22%
BSE Midcap return for 1-year (as on Dec. 31, 2009): 107.66%
Price earnings (P/E) ratio: 12.64
Price to book ratio (P/B): 0.89

Shipping Corporation of India (SCI), owned by government of India, operates and manages vessels that services both national and international lines has cash of Rs 26,728.30 million as on Mar. 31, 2009. SCI plans to acquire three new container ships in 2010 along with its existing JV partner Mediterranean Shipping Company (MSC) and has set aside USD 200-225 million to fund these purchases.

5) JSL:

Market capitalization: Rs 19,934.49 million
Index: BSE Small cap
1-year return of JSL (as on Dec. 31, 2009): 248.37%
BSE Small cap return for 1-year (as on Dec. 31, 2009): 126.91%
Price earnings (P/E) ratio: NA
Price to book ratio (P/B): 1.23

JSL, a multi-billion, multi-national and multi-product steel conglomerate has cash positions of Rs 6,572.19 million as on Mar. 31, 2009. JSL is likely to increase stainless steel manufacturing capacity to about 2.5 MT by March 2014 on the back of a 1.6 MT greenfield plant it would set up in Orissa, making it the largest producer in India.

6) Ingersoll-Rand (India)

Market capitalization: Rs 11,312.39 million
Index: BSE Small cap
1-year return of Ingersoll-Rand (as on Dec. 31, 2009): 49.80%
BSE Small cap return for 1-year (as on Dec. 31, 2009): 126.91%
Price earnings (P/E) ratio: 24.31
Price to book ratio (P/B): 2.55

Ingersoll-Rand (India) focused on the major global markets of climate control, industrial technology, infrastructure development and security and safety has cash levels of Rs 5,148.95 million as on Mar. 31, 2009. Recently, the company has launched several models in its reciprocating air compressor line, extending its offering of Type-30 air compressors.

Top 100 Stocks with a lowest P/E

2010-09-12T13:14:00.000+05:30

The list is generated as on 29th August 2010

But at the same time it should be remembered that P/E is not only a single factor that should be checked or considered while purchasing a stock, there are other factors involved too such as the YoY profits of the company, EPS, etc..

1 Kutch Salt & Al P/E 0.12
2 Bhagyodaya Mark P/E 0.24
3 Shree Rani S P/E 0.27
4 Guj Poly AVX P/E 0.3
5 Coromandel Agro P/E 0.42
6 Centennial Sutu P/E 0.48
7 Ras Propack Lam P/E 0.52
8 Combat Drugs P/E 0.53
9 Rose Investment P/E 0.54
10 Hind Composites P/E 0.55
11 Hindustan Udyog P/E 0.6
12 Apte Amalgam P/E 0.75
13 Shalimar Wires P/E 0.76
14 Polar Ind P/E 0.78
15 Siddhartha Tube P/E 0.8
16 Rubfila Int P/E 0.8
17 Bombay Cycle P/E 0.98
18 Crystal Softwar P/E 0.99
19 Blue Circle Ser P/E 1
20 Mansi Financ P/E 1.06
21 JMDE Packaging P/E 1.07
22 Winro Commercia P/E 1.16
23 Eastern Sugar P/E 1.17
24 Zicom Security P/E 1.21
25 Compac Disc P/E 1.34
26 21st Cen Mgt P/E 1.35
27 Temptation Food P/E 1.46
28 Samtel Color P/E 1.48
29 Parekh Platinum P/E 1.55
30 Triveni Glass P/E 1.62
31 Sand Plast P/E 1.64
32 Sri Ramakrishna P/E 1.74
33 Morgan Ventures P/E 1.81
34 Zodiac Ventures P/E 1.96
35 Pioneer Embroi P/E 2.01
36 Rama Phosphates P/E 2.01
37 Pasupati Acrylo P/E 2.04
38 Adarsh Deriv P/E 2.05
39 Hytone Synth P/E 2.07
40 Remi Elektrotec P/E 2.08
41 Promact Plastic P/E 2.1
42 Benzo Petro Int P/E 2.12
43 Audichem P/E 2.19
44 Apollo Finvest P/E 2.23
45 Amal Products P/E 2.24
46 Euro Finmart P/E 2.31
47 Omnitex Ind P/E 2.33
48 Ponni Sugars(E) P/E 2.37
49 Taparia Tools P/E 2.39
50 Indian Acrylics P/E 2.39
51 Wallfort Fin P/E 2.41
52 Signet Ind P/E 2.41
53 DCM P/E 2.41
54 Sakthi Sugars P/E 2.42
55 Mazda P/E 2.44
56 JK Synthetics P/E 2.52
57 Cybele Ind P/E 2.59
58 Rana Sugars P/E 2.63
59 Punj Woolcomber P/E 2.78
60 Amraworld P/E 2.79
61 Uniroyal P/E 2.81
62 Spenta Inter P/E 2.84
63 Southern Ispat P/E 2.85
64 Oswal Overseas P/E 2.91
65 Vikas WSP P/E 2.93
66 Nidhi Granites P/E 2.98
67 Jaysynth Dyestu P/E 3.01
68 Nila Housing P/E 3.05
69 Hariyana Ship P/E 3.06
70 Aditya Forge P/E 3.09
71 National Steel P/E 3.1
72 Nakoda Textiles P/E 3.12
73 Flawless Diamon P/E 3.13
74 Ashiana Ispat P/E 3.15
75 Gowra Leasing & P/E 3.15
76 Rama Pulp P/E 3.17
77 Sambandam Spin P/E 3.2
78 Ankur Drugs P/E 3.21
79 Tarai Foods P/E 3.25
80 Machino Plastic P/E 3.28
81 Euro Leder P/E 3.3
82 Katwa Udyog P/E 3.32
83 Toshika Chemica P/E 3.33
84 Sanraa Media P/E 3.33
85 RPG Cables P/E 3.34
86 Venus Ventures P/E 3.34
87 Raasi Finance P/E 3.35
88 Inducto Stl P/E 3.37
89 Dhoot Ind Fin P/E 3.37
90 Gomti Finlease P/E 3.38
91 Consolidated Se P/E 3.38
92 Jam Shri Ranjit P/E 3.41
93 Thiru Arooran P/E 3.42
94 Subex P/E 3.43
95 Pochiraju Ind P/E 3.44
96 Orchid Chemical P/E 3.46
97 Avon Corporatio P/E 3.46
98 National Plasti P/E 3.47
99 Ficom Industrie P/E 3.48
100 Tamil JaiBharat P/E 3.5

Top 100 Stocks with a highest P/E

2010-09-12T13:12:00.000+05:30

Following is the list of stocks having the maximum P/E (PE). The list is generated as on 29th August 2010. But at the same time it should be remembered that P/E is not only a single factor that should be checked or considered while purchasing a stock, there are other factors involved too such as the YoY profits of the company, EPS, etc..

1 Geefcee Fin P/E 7,200.00
2 Raghav Ind P/E 6,400.00
3 GMR Infra P/E 5,820.00
4 KGN Industries P/E 3,929.17
5 Shree Global Tr P/E 3,750.00
6 Gujarat Natural P/E 6,440.00
7 Padam Cotton P/E 3,050.00
8 SV Electricals P/E 2,707.50
9 Nikki Global Fi P/E 3,400.00
10 Kailash Ficom P/E 2,135.00
11 Sterlite Projec P/E 1,800.00
12 Dhanprayog Inv P/E 1,652.50
13 Kappac Pharma P/E 1,468.75
14 Incap Financial P/E 1,425.00
15 Paran P/E 1,371.43
16 Guj Capital Ven P/E 1,492.22
17 Kadamb Construc P/E 1,675.00
18 Veritas P/E 2,166.19
19 Sterling Inter P/E 6,787.50
20 Splash Media P/E 1,226.67
21 Sigrun Holdings P/E 1,205.00
22 Interlink Petro P/E 1,364.00
23 Avance Tech P/E 1,017.00
24 Mahan Industrie P/E 897
25 New Bombay Mill P/E 855
26 Oregon Commerci P/E 876.32
27 Dalal Street In P/E 801.62
28 Tatia Global P/E 771.67
29 Shricon Ind P/E 867.5
30 Unisys Soft P/E 763
31 Rockon Fintech P/E 745
32 Mefcom Agro Ind P/E 700
33 Shri Ganesh Spi P/E 697
34 Spectacle Ind P/E 719.29
35 Prabhav Indust P/E 755
36 Sunteck Realty P/E 661.05
37 Jai Hind Synth P/E 732.5
38 Devine Impex P/E 800
39 Rajath Finance P/E 630.61
40 MMTC Ltd P/E 586.15
41 Moongipa Capita P/E 1,242.50
42 Urja Global P/E 533.33
43 Robinson World P/E 2,545.00
44 Rich Capital P/E 693.64
45 Nilchem Capital P/E 500
46 Jindal Capital P/E 2,980.00
47 Virgo Global P/E 486
48 Prraneta Ind P/E 483.33
49 NCL Research P/E 633.33
50 JMD Telefilms P/E 462.96
51 Parichay Invest P/E 389.23
52 Poonam Pharma P/E 386
53 Well Pack Paper P/E 1,023.57
54 Akanksha Finves P/E 350
55 PFL Infotech P/E 783.75
56 Sanket Internat P/E 540
57 SVC Resources P/E 336.33
58 Kalpena Plastik P/E 418.75
59 Monnet P/E 2,280.00
60 Essar Sec P/E 317.39
61 Cubical Fin Ser P/E 354.38
62 Blue Blends Fin P/E 311.5
63 Indiabulls Real P/E 357.29
64 Shristi Infra P/E 329.67
65 Subuthi Finance P/E 553.85
66 Shree Nath Comm P/E 280
67 Siddha Venture P/E 269
68 Farmax India P/E 266.67
69 Dazzel Confi P/E 346.5
70 Pressure Sen Sy P/E 257
71 GVK Power P/E 243.42
72 Jaybharat Texti P/E 801.82
73 NovaGold Petro P/E 233.5
74 Ken Financial P/E 337.73
75 Escorts Finance P/E 906
76 Libord Sec P/E 221.67
77 IRB Infra P/E 218.46
78 Dunlop India P/E 523.08
79 Le Waterina Res P/E 216.5
80 Swarna Securite P/E 290.71
81 Pharmasia P/E 686.86
82 Linear Poly P/E 200
83 Bio Whitegold P/E 192
84 Zenu Infotech P/E 284.38
85 Hind Copper P/E 205.98
86 Sampada Chem P/E 184.39
87 Birla Capital P/E 182.5
88 Shri Krishna P/E 242.78
89 Longview Tea P/E 181.88
90 Upsurge Invest P/E 349.33
91 Sarthak Global P/E 296.79
92 Arihant Super P/E 171.99
93 MP Agro P/E 170
94 Arihant Tournes P/E 165.8
95 Amani Trading & P/E 161.29
96 Shree Rang Mark P/E 159.67
97 Karuturi Global P/E 187.73
98 Artillegenc Bio P/E 154
99 TRC Finance P/E 303.33
100 Intellivate Cap P/E 150.43

RIL 2nd among world’s largest value creators

2010-09-12T13:10:00.000+05:30

Mukesh Ambani-led Reliance Industries has been ranked second in the list of world’s 10 biggest ’sustainable value creators’, companies that have been successful in creating the most shareholder value over the last decade, prepared by Boston Consulting Group.The list compiled by the global management consulting firm names Brazil-based mining and materials giant Vale as the top value creator worldwide for the 2000-2009 period.”One side effect of the Great Recession has been to accelerate the ascent of companies from rapidly developing economies to the top ranks of the world’s creators of shareholder value,” BCG said in the report titled ‘Threading the Needle: Value Creation in a Low-Growth Economy’.

The ranking identifies large global companies with a market capitalisation of at least $35 billion that have been the “most successful at sustaining superior value creation over 10 years.”

BCG says a decade is the minimum time frame necessary to evaluate the staying power of a company’s value creation performance.The report has also listed companies industry-wise for creating the most value for their shareholders from 2005 to 2009. Starting from a database of more than 4,000 companies worldwide, the report presents detailed analyses of the Total Shareholder Return (TSR) at 712 companies across 14 major industries for the five-year period.

Of the top 142 companies included in this year’s global and industry rankings, 81 are located in developing economies. In a further indication of how emerging economies are pulling ahead of developed countries, the top 10 value creators in the 712-company sample are all from Asia- five companies listed on stock exchanges in China, two in Hong Kong, and one each in India, Indonesia, and South Korea.Similarly, seven of the top ten large-cap value creators (those with market valuations of more than $35 billion) are listed on stock exchanges in rapidly developing economies of Brazil, Hong Kong, India, Mexico and South Korea.

“Most developing economies are rebounding relatively quickly to their precrisis growth levels. In contrast, developed economies are entering an extended period of below-average growth with profound implications for how companies create value and which companies come out on top,” report co-author Daniel Stelter said.

Indian mining and materials giant Jindal Steel and Power occupies the number two spot in the BCG list of the ‘Global Top 10′ value creator companies for the 2005-2009 period.Reliance Industries again comes second in the ‘Large Cap firms’ for 2005-2009 of 112 global companies with a market valuation of more than 35 billion dollars.

In industry-specific rankings, auto major Mahindra and Mahindra occupies the fourth spot among 38 automotive companies that created most value for shareholders in 2005-2009 period followed by Hero Honda Motors at sixth and Maruti Suzuki India at the seventh spot.In the chemicals industry, Reliance Industries has been named the second biggest value creator of 53 global firms during the period behind South Korea’s OCI.

In the consumer goods category, ITC ranks sixth among the top 10 companies, while Larsen and Toubro (sixth) and Bharat Heavy Electricals (seventh) are among the 77 companies that have created the most shareholder value in the machinery and construction segment.Telecom company Bharti Airtel and Infosys Technologies occupy the seventh and ninth spot respectively in the Technology and Telecommunications category for the 2005-2009 period.

source: Business-Standard