Probable Disinvestments post FY10

As the Government is likely to dilute ~10-15% of its stake in companies, the CPSE with 90% or more holding may be the first candidate for disinvestment after OIL, NHPC, MMTC and NMDC.

Below is a list of probable companies that are likely to attract the Government's attention for disinvestment.

Overview Disinvestment of the Government’s equity stake in Central Public Sector Enterprises (CPSE) started in FY92, with the sale of minority shareholding in 30 CPSEs to LIC, GIC, and UTI. Later on, MTNL (FY98), VSNL (FY97 and FY99), and GAIL (FY00) used the GDR route to raise capital. Over the years, the policy for disinvestment has evolved, particularly through the budget speeches of Finance Ministers. In December 1999, the Department of Disinvestment was established to focus on all matters related to disinvestment including implementation of disinvestment decisions. Following are the key objectives behind the Government's disinvestment plans: Decrease the government's restructuring spending to support financially weak CPSEs Induct a strategic investor with a proven record of technical, marketing, and managerial expertise Raise funds Induce operational and financial discipline through investors’ scrutiny Till date, the Government has raised more than Rs. 510 bn by disinvesting its stakes in companies including IPCL, VSNL, MTNL, CMC, Hindustan Zinc, BALCO, Maruti Udyog, and ITDC. Current Scenario The re-elected United Progressive Alliance (UPA) is likely to move decisively on the disinvestment front. As the UPA has a clear mandate and the obstructive left-front is not a part of the government, there are chances of limited political resistance pertaining to disinvestment. Moreover, as the Government’s fiscal deficit is expected to balloon to more than 10% of the GDP for FY10 due to the fiscal stimulus packages, farm-loan waiver, and the pay revision for government employees, the Government is looking at disinvestment as a viable option to improve its finances. Proposed Disinvestments in FY10 The Government has identified unlisted Oil India Ltd. (OIL) and National Hydroelectric Power Corporation Ltd. (NHPCL) for its disinvestment plans in FY10. These companies are likely to proceed with their IPOs before September 2009 as their regulatory approvals for listing lapse on September 12 and September 15, respectively. According to draft red hearing prospectus, the government may dilute 11% of its stake in OIL and 13.5% stake in NHPCL. Besides, the government has proposed to dilute its stake in Mineral & Metals Trading Corporations (MMTC) and National Mineral Development Corporation (NMDC) in the current fiscal, according to a preliminary draft of the disinvestment road map prepared by the Finance Ministry. OIL: Oil India Ltd (OIL) was incorporated on Feb 18, 1959, to expand and develop the oil fields of Naharkatiya and Moran in the north-east of India. In 1981, the Government of India became a wholly-owned stakeholder of OIL by taking over Burmah Oil Company Ltd’s 50% equity stake. OIL is engaged in the exploration, development, and production of crude oil and natural gas, transportation of crude oil, and production of LPG. OIL’s exploration activities are spread over the onshore areas of Ganga Valley and Mahanadi. OIL also has participating interest in the New Exploration Licensing Policy (NELP) exploration blocks in Mahanadi Offshore, Mumbai Deepwater,

and Krishna Godavari Deepwater, as well as various overseas projects in Libya, Gabon, Iran, Nigeria and Sudan. Source: Company data In FY09, OIL produced 3,468 million tonnes of crude oil, 2,268 mmscum of natural gas and 47,610 tones of LPG. The Company’s net sales stood at Rs. 72.41 bn, PAT at Rs. 21.62 bn, and EPS at Rs. 101 for FY09. NHPC: National Hydroelectric Power Corporation Ltd. (NHPC) was incorporated in 1975. The Company develops hydroelectric power projects. Presently, NHPC is engaged in the construction of 11 projects aggregating to a total installed capacity of 4,622 MW, including 520 MW under implementation by Narmada Hydroelectric Development Corporation (NHDC). The Company has added 1970 MW during the 10th Plan period. NHPC has 10 projects aggregating to a total capacity of 6871 MW that are awaiting clearances/Government approval for their implementation. Source: Company data

In FY09, the Company’s net sales stood at Rs. 26.72 bn, PAT at 10.4 bn, and EPS at Rs. 0.96. MMTC: Mineral & Metals Trading Corporations (MMTC) was established in 1963 and is the largest international trading company of India. MMTC trades in non-ferrous metals such as copper, aluminium, zinc, lead, tin, asbestos, and nickel, and bullion like gold and silver. Besides, it trades in fertilizers and fertilizer raw materials. Its international trade network spans almost all countries in Asia, Europe, Africa, Oceania and the Americas, providing MMTC a wide global market coverage. With its comprehensive infrastructural expertise to handle minerals and metals, the Company provides logistic support including procurement, quality control, and guaranteed timely deliveries from different ports around the world. Source: Company data In FY09, the Company’s net sales stood at Rs. 369.04 bn, PAT at Rs. 1.65 bn, and EPS at Rs. 33.08. NMDC: National Mineral Development Corporation (NMDC), incorporated in 1958, is engaged in the exploration of a wide range of minerals including iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, and beach sands. It is India’s single largest iron ore producer and exporter; the Company currently produces 30 million tons of iron ore from three fully-mechanised mines at Bailadila Deposit-14/11C, Bailadila Deposit-5,10/11A, and Donimalai. Because of its excellent chemical and metallurgical properties, the calibrated ore from Bailadila deposits has substituted the iron ore pellets in sponge iron making and hence, became an important raw material for major gas-based sponge iron steel producers like Essar Steel, Ispat Industries and Vikram Ispat. NMDC is also venturing into the development of high-value minerals such as gold and diamond, through joint ventures with companies based in African countries.

Source: Company data In FY 09, the Company’s net Sales stood at Rs. 75.6 bn, PAT at Rs. 43.7 bn, and EPS at Rs. 11.03.

ONGC top profit making PSU in India

PTI reported that ONGC and the newly incorporated National Aviation Company of India Ltd were placed on the extremes in a recent survey of central PSUs, with the oil firm making the highest profits and the aviation giant incurring the biggest losses.

The Public Enterprises Survey 2007-08 said that fiscal year 2007-08 was a good year for the Oil and Natural Gas Corp, which earned a profit of INR 16,702 crore, almost thrice its nearest rival Steel Authority of India Limited.

On the other extreme was National Aviation Company, formed as a holding company after the merger of Air India and Indian Airlines in 2007, incurred a loss of INR 2,226 crore during the year. The other big loss making Central enterprises were National Textile Corporation INR 1,515 crore and Eastern Coalfields INR 1,004 crore.

In addition to ONGC and SAIL, the other state run firms that posted impressive profits during the year were NTPC INR 7,415 crore, Indian Oil Corporation INR 6,963 crore and National Mineral Development Corporation INR 3,251 crore.

In terms of overall ranking, NMDC was placed on the top followed by Mangalore Refinery, SAIL and Manganese Ore Ltd.

The India government survey said that the number of profit making CPSEs went up to 159 from 154 a year ago and also their profits to INR 91,140 crore from INR 89,578 crore during the period.

Name of the Enterprises Net Profit (Rs. in Crores)

1. Oil & Natural Gas Corpn. Ltd. 12983.05

2. Bharat Sanchar Nigam Ltd 10183.29

3. Steel Authority of India Ltd. 6816.97

4. National Thermal Power Corporation Ltd. 5807.01

5. Indian Oil Corporation Ltd. 4891.38

6. Rashtriya Ispat Nigam Ltd. 2008.09

7. Gail (India) Ltd. 1953.91

8. Nuclear Power Corpn. of India ltd. 1704.59

9. Shipping Corporation of India Ltd. 1419.91

10. Coal India Ltd. 1324.92

Best Indian Stocks – Defensive Investors

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

Who are Defensive Investors?

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

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

Banking / Finance

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

Pharmaceuticals

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

Software / Services

Tata Consultancy Services
Infosys Technologies
Educomp Solutions

Shipping / Offshore

Great Eastern Shipping
Shipping Corporation of India Limited
Great Offshore


FMCG

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

Power

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


Agriculture / Fertilizer / Chemicals

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

Diversified / Cement

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


Engineering / Electronics / Telecom

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

Bharti Airtel

Tata Communications

Oil / Gas / Steel

Reliance Industries Limited
ONGC
Indian Oil Corporation
HPCL
BPCL
GAIL

Tata Steel
Indian Hume Pipe Company

Others

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

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

Kumaran Seenivasan

www.stockanalysisonline.com

Buy and Hold Approach by Kumaran Seenivasan

The Title "Buy and Hold" has been the buzz word in most of the stock market books, articles and related speeches. I am sure many people have reservations about it and I would like to share my personal experience regarding this. Does this approach make sense? Does it really give decent returns?. My answer to the above two questions is a resounding Yes. Like most of the retail investors, I have read many books and articles and each one contained approaches starting from technicals and trading to speculation and fundamentals. But the legends who have made billions always advise investors to buy good stocks and hold for a long term.

We all know that SENSEX reached 21000 in Jan 2008. But all of a sudden, the market euphoria started to recede and markets reversed the trend. In the current phase, I started investing when the SENSEX came down to 17000 thinking that the markets would not go down below 15000 or 16000. This time it was different and we have witnessed one of the worst recessions in history. Many companies which were once considered to be invincible’s have ceased to exist. People panicked and economic activity came to a halt. SENSEX started reaching new lows every day.

Since, I have invested some money when the SENSEX was at 17000, I had no other option but to average the stocks I had by buying continuously as stock prices reached new lows. But what I made sure was to buy the stocks that I believed would perform well over a long term.

Readers might ask why the hell I did not sell all those at that time and buy when the SENSEX came down to 10000 levels repeatedly. Of course I would have done that, had I got the Wisdom of Solomon. Unfortunately I did not and in fact never wanted to predict the impossible. Because, if there are 10 individuals involved in the market, then it is not that difficult to sense the mood of the people and act accordingly. But the stock market is a place where millions of individuals buy and sell and I do not think anyone can predict what would or what would not happen. So, I continued to buy stocks and backed my stock selection as well as the "Buy and Hold" approach.

So, I invested in good companies and waited for appreciation. I sticked with my portfolio of stocks and continued to accumulate but I stopped investing at 13000 as I feared that markets would go down further. It in fact came down to 8000 levels couple of times. During the downtrend, some of my stocks declined even 75 % but I believed that it would eventually go up and at least reach my cost value. I started buying some stocks again at 9000 levels but that’s a separate portfolio. I always wanted to check the performance of my old portfolio. In short I started buying at 17000 and continued to average till 13000. My portfolio was down almost 50 % when the SENSEX was around 8000. Still I believed in full recovery.

Finally the time came. Recession started slowing or at least people believed that way. Bad economic news stopped coming and markets made a rebound. Indian general Elections gave the verdict that markets and investors were looking for. People started buying in heaps and Foreign Institutional Investors pumped in as if there is no tomorrow. All the stocks in my old portfolio started moving up. It has now given a 20% return which means, the portfolio has registered 120% growth from 8000 levels. So, the verdict is "Buy and Hold" approach definitely works and it will give me good returns in next 5 years.

Alternative Approach

There are still people out there to question my wisdom. Of course I too know that I could have stopped buying at 16000 and invested all my money when the SENSEX was 8000 or I could have sold all my stocks at 13000 to limit my losses and ploughed back that money at 8000 levels. There are so many ifs and buts. But according to me, if you are not sure then just hold all your stocks. Never sell stocks for a loss if you believe in those stocks. If you think you have made a mistake in stock selection, then it makes sense to sell it and buy other good stocks. Otherwise it is always good to keep rather than register a loss.

There might be a select few who could have sold at 16000 levels and invested again at 8000 levels and by now they could have made millions. But the percentage of people who does that will not even reach 0.0001 %. So, why bother about them. Just believe in your stock selection and continue to accumulate irrespective of market movements. Hold it till you get the decent returns and sell it as soon as it reaches your expected returns. If not at least we should have the ability to sense the downtrend and sell it before that.

Conclusion

There are many approaches one can take but the approach which is safe with the potential of good return is "Buy and Hold". To do that we need to do couple of things. One is to make sure that we select stocks that are essential to the economy and livelihood with strong market presence and another is not to buy at peak valuation. If we do that, then most often than not, one can reap decent returns if not the best.

Kumaran Seenivasan

www.stockanalysisonline.com

How to Select Best Stocks?

I have already posted two posts; one with best stocks for long term investment and another with best small cap stocks. Although I have mentioned the criteria that I considered while selecting the stocks, I would like to describe in detail about those factors in this article.

As we all know, there are more than 5000 companies listed in the Bombay Stock Exchange (BSE) and in my view there are at least 500 decent companies to choose from. So, as an individual investor we need to develop or follow some sort of criteria to select the best possible stocks that suit everyone’s risk profile. I did follow few things to select the stocks that I have listed in my previous posts and would like to share with you.

Criteria to Select Stocks

1) Earnings Per Share (EPS) and PE Ratio

EPS and PE are probably the most used criteria around the world in selecting stocks and it’s not without any reason. EPS and PE values are arrived from important information and that’s why people tend to use it as a single significant factor. But I would actually start with EPS and PE Values and then go on to drill down more about other factors. There is no particular PE Value you can stick with. Lower the PE of a stock (when all other things remain good), better the value. But instead of looking at current year PE, I would suggest to take the average of 10 year PE (At least 5 Yrs) and make sure the stock price is not more than 25 times of that average PE Value. Also look at the forward PE ratios to get the sense of what lies ahead.

2) Book Value

Book Value per share is the total asset value of the firm divided by the total number of shares. Looking at this value might give some confidence about the firm’s worthiness. Also book value per share would be the amount shareholders might get if a company sells all the assets and distribute the proceeds for some reason. If you are able to get good stocks with a stock price less than the book value, it would be good. But make sure you do not pay more than 1.5 times of the book value unless you have some credible evidence about any particular company’s growth.

3) Debt / Equity Ratio

If you divide the total debt by the total equity value, you get this debt/ equity ratio and it gives you the sense of company’s indebtedness. If a company has less than 1 DE ratio, then you can say that the company is in a good financial condition. So, I prefer to invest in companies with less than 1 DE ratio.

4) Current Ratio

If you divide the current assets by the current liabilities, you get the current ratio and bigger this value, better the company among peers.Because current ratio indicates the company’s ability to meet short term financial dealings and we need to make sure that a firm is in a decent position in terms of short term financial needs.

5) Profit Margin

If you divide the net profit by revenue, what you get is the net profit margin and you can calculate net operating margin and other similar values in the same way. Better the margin, better the business and we need to make sure that any particular company earns a decent margin. Select the company with better margins among the peers.

6) Return on Capital Employed (RoCE) and Return on Equity

Return on Capital Employed and Return on Equity indicates the company’s profit making ability in return to the capital employed or the equity position. Again, better the value; better the company and its business. So, peer level comparison might be helpful to select better stocks.

7) Dividend History

If a company has paid dividends continuously over a long period of time, then you can be sure of its intention to share profit with you and also the better handling of the surplus cash available. Hence, looking at the dividend history is important and might help you to make a better decision.

8) Profit Growth

Consistent and decent profit growth over a long period of time is an important factor that we need to look into if we are going to stick with that stock for lengthy periods. There is no single number to think about but we can select the stock with consistent profit growth among peers.

9) Cash Flow Details

As I wrote in one of my previous articles, cash flow is as important as a balance sheet and looking into it gives you an idea about company’s financial health including cash inflow and cash outflow. Consistent growth in cash inflow and better use of it is essential to any company’s success. Hence, carefully look at the cash flow statements (including footnotes) if you are going to invest large amount of money.

10) Business Segment and Future Potential

In stock investments, it is very important to look at the business segment in which the company operates and also the future potential of that particular business as a whole. As you might have seen, a company might be good and if the business is not doing well, it makes little sense to invest in it. You also need to consider if the business is cyclical or non-cyclical or consumer oriented or government owned etc…to get real understanding about the risk of any particular stock. If you are interested in small cap stocks, this is most important factor that one needs to consider in my point of view.

11) Size of the Company

Size of the company is positively associated with the risk potential most of the times. Conservative investors prefer to invest in large cap stocks and risk taking investors who wants to make more money invest in mid cap stocks and also the so called “Multibagger” small cap stocks. So, it really depends on the individuals risk appetite as mid caps and small caps are the ones go down much during the bear phase and go up much during the bull market. Large cap stocks usually have economies of scale benefits and they always stand to gain the volume advantage. Hence lesser volatility.

12) Competitive Advantage

Competitive advantage in the market place is essential for consistent financial performance. If a company operates in a segment where barriers to entry are huge, then you can be sure of your capital at least and your margin of safety is more. Warren Buffet calls this as “Economic Moat” and no wonder he has been so successful.

13) Brand Value or Product Differentiation

Good brand value brings customers on a more consistent basis and that’s the reason FMCG companies command higher valuation all the time. If a company produces a product which is different from others and is difficult to replicate, then that particular company will always command better valuation as investors are confident about its survival over a long period of time.

14) Goodwill

This is an intangible asset companies create over a period of time and it is gained with help from media, political support and solid client base. It usually has some effect on investors.

15) Market Scenario

Finally market scenario comes into play and no matter how big the company is and which business segment it operates, the stock price move according to the market scenario and I am sure most of the people would have good idea about it as we are witnessing once in a life time situation these days.


These are the factors I considered or consider while selecting stocks and it is not necessary to analyze a stock through all of these parameters. You can leave out some criteria for a particular company or you can give more importance to a particular factor and things like that. You can be flexible based on your risk profile. For example, I give more importance to business segment and future potential along with market scenario while selecting small caps and individuals can follow similar patterns according to their skills and risk appetite.

Buy stocks in small quantities and have a profit/loss trigger to exit

The markets rallied over the last few days and there was a bounce back. The market sentiments improved due to a drop in the rate of inflation, rate cut by the Reserve Bank of India (RBI), fuel prices cut, financial stimulus package announced by the government and some positive news from global markets.

Currently, a rally in many beaten down sectors like banks, real estate and some select mid-cap stocks is on. Most of the stocks in these sectors have bounced back 20 to 30 percent from their yearly lows. However, analysts believe this rally is just a technical pull-back rally in a bear market. There are no clear and decisive signals that economic and business conditions are improving. Current, the rally is based on cuts and packages announced by the government and the RBI, and expectations that more measures will be announced.

Analysts believe the relief measures announced by the government are too small to handle the slowdown and investors should not expect something very dramatic from government in the coming days as they have limited options. Therefore, small investors should exercise extreme caution in the current market conditions.

Some strategies for investors:

A) Short-term investors

Investors willing to ride the short-term market rallies should be very careful and attentive to market news. They should track market movements closely and maintain a tight stop loss and book-profit level for their open positions. Since the markets are quite volatile, overnight open positions could be very dangerous, especially in the futures and options markets.

Short-term investors should remain in continuous touch with the markets. It is advisable for them to watch the market closely, especially if they are holding any open positions.

B) Medium and long-term investors

The market conditions are changing quite rapidly. It is very important for medium and long-term investors to have patience, and analyse the market and business conditions before making investment decisions. The next six weeks are expected to be quite crucial for the markets. Also, some data on the impact of the current monetary policy cuts announced by the RBI and stimulus packages announced by government will be in.

Existing investors who entered at lower levels should look at selling partially and booking some profits as the markets have gone up. Analysts believe the current market is just a bear market rally and it will fizzle out once the market rumors settle down. Therefore, investors can liquidate some positions and wait for better investment opportunities in the market.

Investors trapped on under-performing stocks should look for exit opportunities in the current market and switch to other stocks and sectors. Investors looking at investing should buy large-cap (index companies) and large mid-cap companies only.

Since the markets are quite volatile with a negative bias, it is important to accumulate in short quantities. Investors should buy or sell in small lots so that they can get a good average entry (or exit) price.

Since investments in market instruments come with a risk of loss, investors with a low risk appetite should either stay away from stocks or invest through equity mutual funds.

Factors investors need to track that have a bearing on stock market movements in the near term

The stock markets had been in a bearish phase since the last few quarters. However, the previous quarter's stock market indices registered a positive closing (up 1.5 percent). This is due to the sharp rally seen last month in the markets. Some experts are of the opinion that the markets have bottomed out. According to them the current rally has some steam left to take the markets upwards from the current levels. On the other hand, there are analysts who argue the current rally is just based on some initial data of economic recovery in the global markets and investors should watch further data points and market trends cautiously before assuming a bottom out in the markets. There are some important factors investors should track closely in the next few weeks.

1) Relevant global issues:

• Economic growth in developed economies

The overall economic growth numbers of developed countries will be an important issue. Many large economies confirmed negative economic growth over the last couple of quarters. It will be interesting to watch the results in the last quarter (first quarter of 2009).

• FII investments

Foreign institutional investors (FIIs) have been the key drivers of markets here during the last few years. They have been selling equity in emerging markets and withdrawing funds since last year. FIIs turned net buyers in the domestic markets last month and the markets are going up again. Investors should watch FII movements in the markets.

• Corporate results

The slowdown in the housing and financial sectors gripped the other sectors during the last quarter. Investors should track the first quarter results of large multi-national companies (especially companies in retail, auto, insurance etc) closely.

• US consumer data

The trigger of the current slowdown was the US housing sector. The US government has announced several relief packages and rebates for home buyers. It will be interesting to watch the monthly and quarterly sales numbers of new houses. Also, the tax relief given by the government is expected to drive other consumer activities. It will be good to track the US consumer data over the next few months. It is important to watch the trends as just one data point might give a wrong indication.

2) Relevant domestic issues:

• Results and annual guidance

This is the annual results season for the first quarter of financial year 2009-10. The annual results of this year will be quite interesting as the overall economic condition was challenging for many companies. It is interesting to watch the annual numbers and listen to the company managements on the next year's business prospects.

• Fiscal deficit

The fiscal deficit has gone haywire this year due to the lower corporate tax collection, discretionary government spending on account of fiscal stimulus, and lower inflows from foreign institutions. Some large rating companies have expressed concern on the worsening situation of fiscal deficit. It would be interesting to watch how FIIs and global investors react to any downward revision in the investment ratings.

• RBI action

The Reserve Bank of India (RBI) has softened the monetary policy quite significantly during the last six months. Since inflation has dropped down to virtually zero percent, analysts are expecting a further cut in the key policy rates and reserve ratio by the RBI. Investors should keep a track of RBI's moves in this regard.

Portfolio - Deep Value Stocks

THEY are believed to carry hidden treasure on Dalal Street. While investors call them the low-lying unpolished gems of the stock market, brokers say there are big bucks to be made if you can identify these stocks early. No prizes for guessing this, we are talking about deep value stocks which can do wonders to one's portfolio when market re-assesses them.

According to analysts, a deep value stock can be defined as something which is low priced in relation to the margin of safety the stock provides, to limit losses when a mistake is made. Lets get some insight into how to identify these stocks, what should be your ideal portfolio allocation and reasons behind their low valuations in the market.

SLEEPING GIANTS

They are like any other stock traded on the exchange, but there is no hypothetical understanding of them. A section of traders on the Bombay Stock Exchange even call these stocks as 'sleeping giants'.

There are two ways in which you can identify a deep value stock.

First, what Benjamin Graham recommends for the defensive investors in his 1949 classic - that the stock price should not be more than 15 times its average earnings per share over the past three years and the overall PE of the portfolio should not be more than 13. Or

Second, the stock should be trading below its 10-year median PE. The other things to be kept in mind is to stick with companies that have a long history of consistent profit growth and steady dividend payouts and the fact that not every cheap stock would turn out to be a bargain. He believes that PSU banks like Oriental Bank of Commerce, which is trading at a PE of 5.6 with book value of Rs 240 for FY09, is a perfect example of a deep value stock. "In a growing economy like India, banks should do well as the GDP expands," he reasons.

These stocks generally remain neglected by the stock markets. The best (or you may call it worst) part is that people know it's a great story but still they don't want to touch it. If one saw the real estate boom in India five years back and bought into Unitech, his portfolio returns would have multiplied phenomenally.

As far as portfolio allocations are concerned, analysts feel that an investor could invest 80% in growth stocks and 20% in value stocks (after keeping some cash balance or investments in fixed income instruments). In case of a pure deep value investor, that typically 80% the investment of investible funds should be in these stocks and 20% of the funds should be kept aside for fixed income instruments or cash balance. "However, a hybrid investor should follow a strategy in between the two. The basic principle followed is the Pareto's principle - the 80/20 rule.

SOW TO REAP

Though opinions differ on an ideal investment horizon, most analysts agree that it should not be less than a year and which could extend up to three to five years to reap big dividends. The first thing an investor needs to do is to ask himself whether he is a speculator or an investor. "If he is a speculator, then there is no chance for him to stay in these stocks. If he is an investor, a time period of three to five years is what makes sense. However, if the stock does not give the required return even after holding for three years, there is something more than one 's own understanding about the stock. In such a scenario, you could sell the stock and move to something else. However, if there are compelling reasons, you could continue holding the stock.

On why these stocks have ridiculously low valuations the market sometimes tends to overlook an industry. And usually these stocks are not popular with brokers. Apart from that, analysts explain that there could be reasons such as high transaction impact costs (small caps can have transaction impact costs as high as 30-50% ) and fear of uncertain events or adverse macro environment conditions such as rise in oil and interest rates, government policies, etc. You must also understand that fear always resides in the near term. And that's why there is lower visibility of the future even though the broad picture remains intact in these cases.

UNPOLISHED GEMS

Here are some deep value stocks which experts feel have great potential

ONGC - The stock is in a sector which is very strategic in nature, has a history of good profitability and dividends and trading at ridiculous valuations.

MAHINDRA & MAHINDRA AND MARUTI - The industry is in a growth phase in India as opposed to a saturation phase in the western world - trading at a PE of around 10 for FY09

LIC HOUSING FINANCE - A company growing at 25-30% available at a PE of 7x for FY09 and EPS of Rs 55. Book value of the company in FY09 would be Rs 260 and ROE would be 20% (Assuming no dilution)

BIRLA CORPORATION AND INDIA CEMENTS - Trading at single digit price multiples for FY09. Overall infrastructure spending is close to $500bn in the 12th five year plan and that we are nowhere close to capacities that exist in China

HDIL - It is trading at a considerable discount. The infrastructure sector has strong revenue visibility, and growth opportunity in the target markets with possible value unlocking opportunity.

SBI - The stock is trading at single digit multiple for FY10E. Apart from holding largest land bank holdings, it has an x-factor too - human resource valuation

How to Make Money Consistently Trading the Stock Market

There are many ways to approach the stock market in a profitable way, so it will be up to you how you go about it.

Indeed, if you are not a seasoned trader and you do not have a deep knowledge of the stock market technicals and fundamentals, you need ways to determine what is going to happen next and what entry point would be a good one for a particular stock.

This is easier said than done, because determining when a stock is going up or down can be a tricky business. I have been trading for quite a while now and I use many tools to help me read the markets and make informed decisions.

The use of these tools, combined with the will to understand to the fullest what is going on around me has meant the difference between painful losses and consistent profits.

However, even with reliable tools in you hand, you must never see the stock market as some sort of a jackpot, in fact, greed should remain out of the picture, and all of your decisions must be based on cold and calculated analysis, whether it is you or a trading tool doing that analysis.

You must never make a decision based on the money you need, or based on how much you want to make. Yes it is advisable to have targets in place, but those targets must be set based on the technical or fundamental analysis of the market. Remember, your main goal always has to be protecting your investment, so you should only enter and exit the market according to a set of rules, leaving out any gut feeling or hunch.

This task can be very difficult because we all have emotions and it is our money at stake, so unless you are a highly seasoned trader, the best way to diminish the margin for error is to make use of trading tools and services with the ability to read the markets and advise you what to buy or sell and when, two crucial elements of the trading equation.

There is nothing like being an expert to trade the stock market, but while you become one, you can definitely make money trading stocks with the help of reliable software and services designed to point you in the right direction.

How to Spot Stock Market Trends

Like a boxer, the stock market usually tells you what it’s going to do before it happens if you pay attention to the signs.

A boxer will jab with the left hand several times, forcing the opponent to dodge away to their left, and then the boxer will come across with a big right hand punch.

Okay, it’s not a great analogy, but the stock market will send you signals about what direction it is heading if you pay attention.

Most, but not all, stocks move with the overall trend of the market. I’m not talking necessarily about one-day bumps, but general upward and downward trends – bull markets and bear markets.

Market Direction

For this reason, it’s important to have an idea what the general trend of the market seems to be and what the market is telling us about future trends.

You can get a good idea of where the market is headed with just two pieces of information: Price and volume. When you put these two together, you get a picture that tells whether there are more sellers in the market or buyers.

Volume tells you whether there is movement in the market and price tells you which direction.

We use the big three indicators: the Dow, the S&P 500 and the Nasdaq, to provide one of the indicators – price - to help us decide whether the market is going to continue its current trend or trying to reverse course. For more information on these leading market indexes, see this article.

Volume Indicator

The volume indicator comes from the daily sales volume. Both of these indicators are available online from many different sites including: Yahoo! Finance.

If the market has a high-volume day and prices (of the indexes) are up, you are probably looking at mutual funds and institutional investors buying, which is a sign of an up market trend.

On the other hand, a high-volume day with lower prices could mean a downward trend with the big players backing out of the market.

You need to use some common sense when watching these indicators. For example, if you have three or four days of high volume and rising prices, it is not unusual to hit a high-volume day where the prices fall off.

You’ll usually hear the talking heads on television refer to this as “profit taking.”

Change Coming

If you begin to see the down days too frequently in a market that has been moving up, it may be a sign that it is about to reverse course or stall.

Mutual funds and institutional investors are the volume buyers and sellers that move the market. When they began moving in a direction, that’s where the market goes and you can see it in the price and volume numbers.

A market that shows sharp price movements in either direction without corresponding volume increases is sending false messages that should be watched carefully.

What does this mean to you? Don’t swim upstream. The obvious forces of supply and demand (except when something extraordinary occurs) drive the market. When there are more buyers (higher prices on higher volume) than sellers, the market is trending up.

When there are more sellers (lower prices on higher volume) than buyers, the market is trending down.

Watch for signs that the market is changing course (different price and volume than the prevailing trend), if you see more than a few of these, prepare for a change.

Conclusion

Reading the market from one day to the next may not be helpful, but you can watch the general direction of the market and with some study spot the warning signs that a change is coming.

Stock market traders types

Stock market traders can be quite profitable. But there are a lot of different trading types out there. Each new person looking to make money in the market should decide for themselves which type of trader they are and perfect that strategy.

Below is detailed view of the 6 major trading types. By reading all you can figure out which one fits your personality the best.

1. Option seller: Instead of being one of the many people gambling by buying stock options these traders become the house. They take advantage of the fact that 80% of options expire worthless by selling out of the money option. No other traders have as high of a probability of being right as they do and they take advantage of it. Their goal is to make a consistent 5-10% a month off of their money.

2. Swing traders : These are traders who are looking for quick moves in the market. They have the fast profit mentality, get in get out. There is no limit to how much a swing trader can make, especially if you use options. However with such a short timeframe these traders will have many wins and losses. They need to be strict on risk management and having a good risk to reward ratio to be successful.

3. Trend traders: These are traders that can have a longer term approach to trading. They will try to find a great up trending stock buy it and ride it until the trend changes. After all if a stock keeps going up wouldn’t it be great to just buy it and let it double, triple, do what it does.

Because up trending stocks go through stages of higher highs and higher lows these traders should have a loose stop and should not be worried about outside factors such as their stock being overextended, as long as the stock is still going up.

4. Day traders: Every day the markets move. Up or down. The job of a day trader is to capture a big part of the move. They want to make money no matter what it happens. In fact a day where the markets crashed can be a good day for a day trader because it made a big move which gave them a chance to make a bigger profit.

Markets do have a tendency to gap in between days. That is why it is considered a strategy to exit all of their trades before the day ends.

5. Break out traders: are people who are looking for strong stocks. They buy when a stock has just broke out and follow it up. Because breakouts on high volume are normally a strong buy signal especially in bulls markets these traders can sometimes find stocks that move astonishing amounts in short periods of time.

These traders often have their own set rules to help determine if a breakout trade is a false signal or a great buy. They may decide to add fundamental analysis or other indicators to help weed out breakouts that produce false signals.

6. Fundamental traders: These are traders who try to predict the near term movements of the stock based on how the company is doing. They may try to buy strong stocks after a pullback and vice versa. While fundamental analysis can be a great long term approach to the market it loses its strength in the short term. These traders may decide it is best to combine fundamentals with one of the other strategies like breakout trading or trend trading.

Steps To Become Great Stock Trader

Many people believe they can become a great trader overnight. They also believe that it will not take that much work. This is simply not true. There are many steps you must take in order to become a great stock market trader. Here is a step by step way to become a great trader.

1. You must first learn how the stock market works. Whatever you are using to trade the stock market, fundamentals, technical analysis or something else, you should first learn about it. Learn how you can decide if a stock is a good buy. To do this you should read websites and books that are written by people who are already making money in the stock market. See what they think is important and try using their systems yourself.

2. After you have a firm understanding of how the stock market works it is time to develop your own system. Make a set of rules for you to follow when trading. Buy when a stock does this, sell when a stock does that. These rules need to be precise so you will not have any trouble down the road.

3. After you have developed a set of rules for yourself the next step is to open a paper trading account. Practice trading with your rules in your paper trading account. Follow your rules strictly. If you make money in your paper trading account, great, it's time to move on to step 4. If you haven't been able to make money with your rules go back to step 2 and develop a new system. Keep doing this until you are making money.

4. If you have a system that is making money in your paper trading account it is time to trade real money. Be careful when trading real money. Most traders will let their emotions control them when they are trading with real money. If you want to make money you have to get in and out when your system tells you to. It might be good to start trading with just a small amount of your portfolio until you can trade your system without letting emotions get in the way.

What is Long Term Investing, and Why Long term Investment is Good?

You go through live hearing that it is a good idea to invest that you need to buy stocks. You always hear that you will benefit from the markets if you put your effort into them, but you rarely hear why this is a good idea. This is a strategy to get people to invest without much investigation. You need to investigate everything that you are putting your money into. Before you give into these advertisements and media saying that you need to invest, you need to research and develop a strategy that can help you benefit from them markets.

Some of the strategies that you read about claim to be the best, they claim that they can’t lose. If this was true, you would think that a lot more people would know about and use this strategy themselves. Don’t get stuck in just one strategy, learn about them all. This will eventually help you develop your own that is perfect for you.

A tip on investing is from the records of mutual fund investors, the investors that help their positions longer than three years had a better outcome than those who held their positions for less time. The long-term investors did better that the short-term investors. Also, keep in mind that short-term investment comes with a greater risk than long-term.

Ultimately, your profits will all depend on the company that you are investing in. Make sure you pick the right company and the right amount of shares before you worry about when to sell them. Do research on the company and how they have performed in the past, what do their charts look like? If something looks good, don’t make a mistake and sell all of your other stocks to purchase this one because you think it will do well. You should first do enough research that you are certain it will work. Make sure that you do not decide on a good stock because others made so much money on it before. Usually, if a stock has already made so much money for others then it is going to change directions soon. Be careful because way too many investors make this mistake and end up losing their money. Even if you are lucky enough to get the end of the profit making off of this stock, usually the mistake is made of holding the stock too long and you will end up losing money in the end. It is better to leave these stocks alone.

Everyone, including long-term investors have down times when it comes to investing. Long-term investing seems like a better idea that any other type of investing, but make sure that it is right for you. It needs to fit your lifestyle as well. It would not be logical to think that a certain type of investing will always bring you a good outcome. It is important to keep this in mind as well as to realize that a strategy can be a good one and good for you and still not constantly bring your profits. Any kind of global news, national news or company news can affect the market. The market fluctuates all the time. If you are a short-term investor, these fluctuations due to news can have a big impact on your outcome. If you are a long-term investor, these events will most likely subside before it is time for you to sell.

When you are short-term investing, it is very hard to predict what the outcome will be because you the market fluctuates so much in a short time. A long-term investor can just ignore any fluctuations from short-term events. To understand long-term investing better, look at any company’s long-term chart. Usually, the chart either moves up gradually or down. There are not many peaks and fluctuations.

In investment, anything can happen and you won’t always come out on top, but try and chose a strategy that will increase your chances. To help you, you can set a goal for yourself and base your strategy on reaching that goal. Always be logical and do research before investing anything. Never make a decision on impulse.

A lot of investors are very successful with short-term, but before you decide which way you want to invest, think about what would be right for you and your lifestyle. The stock market can bring you great wealth if you play it right, but if not, you can end up losing everything as well. All in all, long-term investing has a lot less risk involved and causes less stress while still bringing in profits.

Future of India – Will the Indian Stock Market still Boom?

India just keeps getting better and better. The economy is growing rapidly surpassing some of Asia’s biggest economies. India is now becoming the third largest country in Asia economically. It has grown so much and is expected to continue to grow like this for a long time. The Indian Government is doing everything it can do to propel the growth rates in the Indian Industry, primarily in: India Stock Market, Indian Companies, India’s manufacturing index, India Business Sector, India’s Company sector and other India investment industries.

The yearly salaries are rising and the command to buy is under the command to spend. The Investment GDP ratio is at a high. It is now over 30 percent and between the years 1990 and 2004 the average was only 25 percent. It has been said that, once it reaches 30 percent, it is going to take off rapidly. So India is expected to move rapidly.

The down side to India’s big movement is that there is a limit to how high it can go. India has grown so much, making the costs of everything go up so frequently. It can turn into the most expensive country in the world. The companies are now working above their finest ability.

A lot of professionals say that this is a problem, but that people over-exaggerate while talking about it. Their main worry about India is that the roads are so bad in India and the amount of terrible roads may increase, but the government is addressing this issue. The prices of cement, used to make good roads, have also gone up a lot with the prices of everything else. There are so many road related projects that need to be done soon.

A lot of people try to People undervalue India’s accomplishment in growth. The growth rates are very good and it wouldn’t be wrong for people to overvalue it. India has created the best growth story that happen over a long time. Although India is growing, there can still be corrections in the market. No matter how well a country is doing, there is always something that can be fixed. Some say that they would like to wait until the market is fixed to invest.

Don’t let short-term concerns put you off from Investing in India:

When things happen in the news, it affects the market. Sometimes it is good for the market and sometimes it is bad. Just remember that the things that happen in the news, are not permanent and the market will increase or decrease with the next thing. The India market is not that strong because the rupee is getting smaller and the effect oil has. Also, recently, the uncertainty of what will happen between India and Pakistan and all of the bombings have affected the market and made others not want to invest.

When thinking about all of the bad things in the news that can affect the market in a negative way, think about the things that affect it in a positive way as well. The growth rates are substantial and that yearly exports are bringing in a lot of money. The export market has increased because other countries are in demand. India is not relying on just a few countries anymore. It is now dealing with the countries that are said to have the fastest growth rate within the next few years. You need to look at a market in the long-term. When seeing it in the short-term every market will look bad due to recent news. An investor needs to look past that. It is never guaranteed that you will make a lot of money when investing in any market, including an emerging one. However, India is said to be number one in the world right now for investment opportunities.

Indian Bull Story is not over in the India’s Share Market.

India stocks are not happy with the celebration of India’s independence. All of the commotion brought the market down six percent. But this is just another story that will be fixed in the long-term. India has a demographic outline greater than China’s outline and they don’t have to rely on global trade. Consumption is increasing a lot and the middle class is growing as well. In India, every month about six million people get a mobile phone. This is more than China. Corporate companies and firms have a very high return as well in India.

It is said that the Reserve Bank of India come up with a way that the domestic credit cycle can last for an extensive time. This credit cycle and the investment cycle, of course, will keep India in the bull market for a long time. They stopped/slowed the growth of the bank credit. The bank is taking control of the credit and loans very well so that India stays on the right track.

Remember, that even with India doing so well, there are always going to be flaws in the market, just like every market. Many things can happen in which India can lose the things it relies on. Any news related event that happens in any country will affect that countries market and sometimes other countries as well. India, having a very rapid growing economy is also a very expensive country in Asia. Many have high hopes for India and if investors invest in India, they would be buying into a country that has an excellent opportunity to make money over long-term.

Why You Should Invest In Stocks And How To Start Investing

You get more return for the money invested in a stock over a period of time. Usually, a fixed deposit account in India may not yield more than 10% returns in a year but in stock market, it can happen in a single trading day. Reverse is also true, it can wipe out 10% of the investment in a single day.

For example, Infosys Technologies Limited has appreciated nearly 330 times since 1994. This is just impossible with any other type of business.

Having said that, stock prices simply do not always go upwards. They do fall. Sometimes the fall can be so heavy that it erodes investor wealth by more than 5 or 10% in a session.

Investors will ideally want to buy a stock when demand is about to pick up for the stock and sell when it slowly disappears. But that has to be estimated using some analytical techniques. These are called fundamental analysis and technical analysis. Fundamental analysis focuses on company’s business model, earnings forecast, demand and supply scenario for the company’s products and services and so on. Technical analysis uses price and volume analysis for predicting future price movements.

Procedures for investing in India:

An Indian resident, a non-resident Indian or person of Indian origin (PIO) can invest or trade in Indian stock markets. The rules are slightly different for NRI’s and PIO’s.

Prior to 2001, securities were being traded in physical form i.e. paper certificates were in use. This resulted in delays, loss in transit, signature mismatch, theft etc. With the online trading system, shares are held in electronic form very much like money is held in a bank. This is called a ‘demat’ account. (Demat stands for dematerialization.) It is now compulsory for all securities to be traded under demat segment only. The IPO’s or the initial public offerings insist that the applicant needs to have a demat account.

There are two depositories in India, National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL). They hold the equity shares for a fee.

All transactions in the stock exchanges are through brokerage houses only. Some of them offer internet trading facility too.

Demat Account:

This accounts holds the shares in electronic form. Sold shares will be debited by the Depository Participant (DP). Similarly, bought / bonus shares will be credited to this account.

To open an Indian resident demat account, one has to approach a brokerage house. The person(s) will have to:

Fill out demat account opening form
.

Fill out demat account opening form
Provide PAN (Permanent Account Number) card issued by Income Tax department
Provide proof of identity (such as passport, driving license etc.)
Provide proof of residence (such as passport, telephone bill, etc.)
Provide a working savings bank account number for credit of dividends

It may take approximately 2 to 5 working days for opening a demat account. The broker may also issue depository instruction slips which should be filled when stocks are bought or sold. Both client and broker need to have account with the same DP in order to transact. In case of online trading, no such slips are needed; in some cases, depository participant and trading member (broker) may be the same.

Trading Account:

A trading account monitors the cash transactions of the client. Based on his delivery/intraday transactions, the broker will debit/credit the amount due in his trading account. If a client wants to purchase stocks for which he needs funding from broker (also known as margin) he needs to enter a margin trading agreement with broker. The broker may allow purchase of securities depending upon the market value of clients’ holding and cash balance. In case of delivery (i.e. buying from the market and holding it for sale later) the broker needs to be paid within settlement date i.e. two working days from trade date. However, some brokers may allow a day or two extra.

The procedure for opening a trading account is similar to opening a demat account. A POA (Power of Attorney) agreement needs to be signed by the client and broker. In case the client fails to pay the margin, the broker at his descretion, may square off the transaction.

Introduction:-Money, market and the man

Everyone who comes to stock market, comes to make money, comes to build wealth, to make fortune. My reason becoming there in the stock market was not any exception. I have been associated with the Stock market for about 7 years now and despite a very big bull run in the Indian stock market for more than 5 years I have not made money there.

During this very long period I have truly made a lot of experiments with my investment decisions and have acquired knowledge about what should be done and what should not be done in the Stock market. I have a lot of failures in stock market and now I know very well how to lose money there.

By now I have gained my 100 pillars of failures and now I wait for nothing less than success in the stock market. I have much to tell about my experiences which I would like to share with you.

Money is very important. We need a lot of them to spend and lot more we need to keep them as reserve for meeting our future expenses. Money is that apple which we want to eat and have it intact at a time. And we dream of having ample money to fulfill our desires. Desires are unlimited and we need unlimited money. We need money to fulfill our dreams, whatsoever.

Stock Market shows us the opportunities of acquiring unlimited wealth and we reach there with a lot of dreams and expectations. Initially we look at the market with fear and respect. We try to acclimatize ourselves with the environment of the market and try to learn market language.

Soon we become so obsessed with market activities that all other works appear less important. We become much involved both monetarily and emotionally. Friends who do not deal with stocks appear less friendly.

Slowly we become so much passionate about stock market that we start neglecting our health. We now consume more electricity and telephone bills and pay handsome bills for our internet connections. Eventually we forget to keep account of these losses while calculating our possible profits.

Man as such is a very important component of stock market. The thrill and excitement of dealing with stock is almost unparallel. For me, I could compare this with my passion for the girl I madly loved in my teen.

I entered into the market at my 40 years of age when I was already father of two children and I had a lot of social responsibilities to take care of. Had I not been there in the market I’m sure I could take better care for my responsibilities. Market consumes a lot of time in studies exploring opportunities. I almost devoted myself to learn more about market. For years together I remained pasted with my computer forgetting the world around me. Sometime I thought a lifetime is not time enough to understand various components of stock market.

Reading up to here you may feel that I am repenting for my earlier decision of getting involved with the market but I’m not. The message I intend to send you here is we need be very judicious about our expectations and limitations. We need be aware that market has the potential to give us very lucrative returns and also it has equal potential to take our last coin from us dragging us into the deep financial miseries as well.

I want to send you the message that first of all we need invest time to learn more about different activities going on in and around stock market while I reiterate that the depth of market is almost unfathomable and we should not be under false notion that I’ve learned too much of it to take immediate control.

This is no surprise that almost every new comer in the market falls into the false notion of having learned it all within very short period of time. With due honor to one’s individual merit and intelligence I reiterate that market is not an entity to learn within very short spell because true return from the market do not come from day trading kind of activities. Rather a rich harvest of wealth is reaped only after expiry of reasonably very long gestation period. Stay invested for a long term kind of advice is not uncommon in financial websites. I do only endorse the concept of investing with a long term perspective after experiencing the taste of investing otherwise.

In true sense, putting some money in a stock for a short while and selling it off after 30-40% profit once or twice is quite common happening in the market but this is something like a game even not worth saying investing.

Even if you wish to call it as the game of money making (and not investing) I’ll reiterate that investing is the best Game market has to offer you. There are certain things which one can not truly learn without experiencing.

We are all in search of the best way to acquire more gains from the stock market being subjected to minimum possible damage to our financial abilities. As such when we will encourage ourselves saying more risk more Gain kind of sentence we must be aware of our capacity to bear “More risk more Loss” kind of possible outcome.