10 stocks to buy on correction

Analysts are hard put to dispute that markets will be volatile this year. And volatility means opportunities to buy at dips. We are not recommending banking on short-term bets or day trading. You can be a long-term investor and still benefit from short-term market corrections. However, for this to happen, you need to do your homework and know the price at which to pick a stock that looks overvalued.

There are several such stocks in the market and the correction has already begun. The BSE 500 Index lost 8.5 per cent and the Sensex fell 10 per cent in January due to concerns about tightening liquidity and withdrawal of stimulus measures. While the rise in stock prices had factored in the corporate earnings rebound, it overlooked the effect of possible stimulus withdrawal and rising interest rates. These could lead the markets to react negatively and provide enough opportunities to pick stocks at low prices. "Though we don't expect a fall similar to the one in 2008-9, we expect a realistic correction. Last year, the markets appreciated by almost 100 per cent and a correction in the next couple of months can easily lead to a 10-15 per cent fall," says D.D. Sharma, senior vice-president, research, Anand Rathi Financial Services.

The opportunity may not last too long as analysts expect the market uptrend to resume once the issues of stimulus withdrawal and tightening liquidity are sorted. To help you pick the right companies, we spoke to stock market analysts, who have listed 10 stocks to buy at a 15-20 per cent correction in share prices.

JP Morgan | Target price: Rs 1,000

• Loan sanctions picked up, especially in infrastructure segment. This can translate to a robust loan growth.
• We see ICICI Bank's balance sheet growing again; expect an annual growth of around 25 per cent in 2010-12.

Angel Securities | Target price: Rs 1,155

• The bank is decisively executing a credible strategy of consolidation that should improve operating metrics.

India Infoline | Target price: Rs 992

• Gross, non-performing loans, in absolute terms, have been declining. In the third quarter, non-performing loans declined by 5.8 per cent.

Angel Securities | Target price: Rs 1,965

• Rural markets are expected to create a new demand, which is likely to help Bajaj Auto maintain its growth.
• The company is poised to reclaim some of its lost market share with multiple, new launches.

IDFC SSKI | Target price: Rs 2,060

• The impact of rising raw material costs will be partially offset by better operating leverage of the company.

Sharekhan | Target price: Rs 2,129

• At the current market price, the stock is trading at an attractive valuation of 11 times its 2011-12 estimated earnings.We maintain a 'buy' rating on the stock.

Ambit Capital | Target price: Rs 1,400

• The earnings momentum is expected to pick up; 2010-11 earnings are expected to grow at 164 per cent.
• With a revenue cover of 60-75 per cent for 2010-11 and 2011-12, the visibility of earnings is good.

EMKAY | Target price: Rs 1,325

• We expect Aban's earnings to gain significant momentum. The stock is trading at an attractive valuation of six times the 2010-11 estimated earnings.

Citigroup gloabal markets| Target price: Rs 1,650

• The stock appears attractively poised and could outperform as de-leveraging gathers pace. News on contract fixtures will be a positive trigger.

Macquarie | Target price: Rs 206

• The earnings growth is back on track, with the management expecting big orders from Q4.
• The stock is attractively priced at 9.3 times the 2010-11 estimated earnings, a great opportunity to accumulate.

Ambit Capital | Target price: Rs 185

• We believe that the stock has multiple triggers in the medium term and retain a 'buy' rating.

Angel Securities | Target price: Rs 186

• Order inflow has been strong; the management expects the roads segment to drive order booking in the future.
• Valuations are attractive considering the growth opportunities and overall positive outlook for the sector.

BoA Merrill Lynch | Target price: Rs 1,330

• Expect M&M's core business, autos, to see faster growth, thanks to product success in utility vehicles.
• The commercial vehicle business can register an average annual growth of around 37 per cent in 2009-12.

Kotak Securities | Target price: Rs 1,265

• We raise the earnings per share estimates for 2010-11 from Rs 64 to Rs 77 while assuming growth in volumes.

Angel Securities | Target price: Rs 1,238

• Fears of a significant decline in tractor volumes are exaggerated as the demand remains firm.
• High growth potential of M&M's subsidiaries is expected to result in value in the next few years.

India Infoline | Target price: Rs 314

• The company got Rs 300 crore worth of orders in Q3. The total order book now stands at Rs 6,600 crore.
• It will witness a higher order inflow as most fresh orders are given in the first quarter of a calendar year.

First Global | Target price: NA

• The current oil prices justify investment in oil & gas infrastructure and will lead to a higher demand for pipes.

Macquarie | Target price: Rs 360

• The Q3 earnings were 10 per cent more than our expectations and the margins were also much stronger.
• The company expects at least 1 million tonnes of pipe orders by March 2010.

Prabhudas Lilladher | Target price: Rs 1,150

• There has been a slowdown in Axis Bank's business growth, but we expect it to pick up in the future.
• We continue to favour Axis Bank; the stock is currently trading at a significant discount to its larger peers.

ICICI Securities | Target price: Rs 1,228

• The bank will benefit from an increase in corporate credit growth, which is expected to materialise soon.

Angel Securities | Target price: Rs 1,450

• We are positive on the bank; it deserves premium valuations on account of its attractive CASA (current account and savings account) franchise.

Ambit Capital | Target price: Rs 2,200

• We continue to remain positive on BEL based on a potential upside from offset orders.
• The next two financial years are likely to be equally good, with higher allocation for defence spending.

Firstcall | Target price: Rs 2,115

• BEL is looking to expand its product portfolio. It plans to concentrate on homeland security and railway business.

B&K Securities | Target price: Rs 2,127

• The company remains confident of achieving a target revenue of Rs 10,000 crore by 2012-13, implying a sales CAGR of 24 per cent over 2010-13.

Angel Securities | Target price: Rs 1,863

• Given its improving performance and strong business model, Lupin is one of the best players in generics.
• It's one of the few players to target the less competitive oral contraceptive market, and will bear fruit in 2-3 years.

First Global | Target price: NA

• It has multiple growth triggers—niche product launches in the US and an entry in EU, Japan and Australia.

EMKAY | Target price: Rs 1,742

• Improved product mix and reduction in costs have helped the company see a 49 per cent increase in EBITDA.

Ambit Capital | Target price: Rs 2,000

• Attractive return ratios and a largely internal accrual funded business model make it a worthy investment.
• We expect a 21 per cent growth in sales and 26 per cent in earnings in 2010-12; our estimates are 10 per cent more than the consensus.

EMKAY | Target price: Rs 1,763

• Expect sharp acceleration in jewellery business; favourable base effect can drive volume growth in the future.

First Global | Target price: NA

• Titan has a strong portfolio of lifestyle brands, which will benefit from rising consumer spending.

Investing for a lifetime

We, at Money Today, have always believed that actions speak louder than words. Whether we are recommending a stock or giving advice on an insurance policy, choosing a mutual fund or charting a financial plan, it is our endeavour to give you actionable advice with specific takeaways. So, the annual ranking of best mutual funds is an opportune time to launch the Money Today-Value Research Lifestage Model Fund Portfolios. The four model portfolios developed by Value Research can be replicated by readers at various stages of their investing lives.

It's worth noting that these portfolios are not designed to earn spectacular returns. So, don't expect chart-busting performances. The objective is to build a well-balanced basket of mutual funds that can help readers reach their financial goals, such as buying a house, funding their children's education or planning for retirement. This is because all the funds have predefined asset allocations and the fund manager shall periodically rebalance the portfolio to maintain the stipulated limits.

Apart from this rebalancing, the investor will not have to tinker around with the portfolio. Value Research has selected funds that require minimal intervention. Since the intention is to build a core equity holding, tactical funds have been avoided. This will also ensure tax and load efficiency. Every time you sell a fund, there's tax to be paid on the gains (unless it is an equity-oriented fund and you have held it for over a year). If you sell before a year, an exit load might be slapped on you.

Three of these model fund portfolios— Wealth Maximiser, Money Builder, Stable Growth—are for the accumulation stages of the investment cycle, while the fourth portfolio— Income Generator—is for the distribution stage. All investments in the three accumulation portfolios will be through systematic investment plans. Every month, Rs 5,000 will flow into each of the three portfolios in the proportion set by Value Research. On the other hand, Rs 5,000 a month will flow out from the Income Generator portfolio through systematic withdrawal plans in each fund.

We will track these four portfolios—our own fund of funds—and give monthly updates on their performance in these pages. Although the model portfolios have been designed with care, they may require some changes in the future. Any alteration in their composition will be explained to the readers who are following in the fund manager's footsteps. Happy investing!

The Sensex is fairly valued and could hit 25,000 in 2 years

Investing style
I focus on themes and companies that may not be popular, but have potential. In 2003, when the infrastructure theme was gaining momentum, I realised that the valuations for power stocks were cheap, but were being ignored. We recommended stocks of ABB, Siemens, Bhel, Cummins and Tata Power, and were proved right when ABB's share price rose from Rs 250 to Rs 4,800, in 2007.

Cardinal rule for investors
Buy low and sell high. It sounds simple, but investors find it difficult to implement it. Mostly, they begin investing when the froth starts to build. The key principles: invest in companies with strong fundamentals and quality management, and do it at the right price.

Emerging trend
There is a gradual realisation that one should invest in the stock market for long-term wealth creation. The investor base has enhanced substantially in the past few years.

Opinion about current valuations
At 17,500, the Sensex is fairly valued and the markets are showing intrinsic strength. If the monsoons don't play truant, the Sensex may scale 20,000 this year, but a weak monsoon could take the Sensex to 14,500-15,000.We expect the Sensex to hit 25,000 levels in two years.

Stock picks

• We are bullish on agriculture as a broad theme, with agrarian firms set to do well in the next few years. Our picks are Advanta, Rallis India, Finolex Industries, Mangalore Chemicals and Coromandel Fertilisers.
• Some small-caps can be multi-baggers. The five stocks we suggest are Atlas Cycles, Kohinoor Foods, Shanti Gears, GMM Pfaudler, Shrenuj & Co.

Company focus—ITC

• We are bullish on ITC and believe it has the potential to become a four-figure (Rs 1,000) stock in the next three years.
• Its e-choupals are expected to increase from the current 25,000 to 2 lakh.
• In the next five years, it's likely to focus on nontobacco businesses, which can attain critical scale and bring in high revenues.

Rajen Shah is Chief Investment Officer, Angel Broking
An engineer by qualification, Rajen Shah's foray into the stock market in 1989 had him hooked. The hobby turned into full-time profession in 1996, when a Gujarat-based media company requested him to bring out a 20-page stock market-related newspaper. In 2000, he joined Angel Broking to set up the company’s research wing.

Action on the bourse

Dalal Street has to keep its eyes and ears open for all announcements and news on inflation, crude oil prices and interest rate changes because they have a direct bearing on share prices. There is, however, another price-sensitive information that is keenly monitored by traders, investment experts, fund managers and retail investors. These are the “corporate actions” announced by companies regarding their equity.

Corporate actions, especially bonus and buyback announcements, can cause a sudden change in the price of a share. After the initial spurt due to speculative activity comes the real impact when the proposal is implemented. As an investor, you should know what the different corporate actions signify, what the tax implications are, how they can affect your returns and the information you should have to derive the maximum benefit from the changes in a company’s equity.

Bonus shares

CORPORATE ACTION TERMINOLOGY Record date or book closure: The cut-off date fixed by a company to determine who is eligible. You get the benefit only if you have shares in your demat account by this date. Ex date: The date on which the share price is adjusted for the corporate action on the stock exchange. Bonus and dividend stripping: Short-term losses after a bonus or dividend are not allowed by the taxman if the shares were bought less than three months before or sold less than three months after the issuance. First in, first out: What you buy first gets sold first. So, if you get bonus shares and sell some of your holdings, the original shares will be deemed to have been sold first. Information update: Websites of both the NSE and the BSE mention the corporate actions announced by a company.

If a company is doing well and its coffers are overflowing, it often rewards its shareholders with free—or bonus—shares. If a bonus of 1:2 has been announced, it means a shareholder will get one share for every two held by him. The issuance of these bonus shares increases the company’s equity capital as well as the number of shares. A part of the cash reserves are transferred to the equity capital of the company.

Such a move is indicative of the good prospects of a company. It shows that the management is confident of serving a large equity base in the coming years. That, and the lure of short-term gains, sends the share price shooting up after a bonus announcement. The price remains buoyant till the deadline (or ex-bonus date) set by the exchange. This is two days before the record date decided by the company to determine who is eligible for the bonus shares.

After the ex date, the price corrects to adjust for the bonus shares. Theoretically, the price should fall in proportion to the bonus ratio. But, in most cases, the market-adjusted price is at a premium to this price.

For tax purposes, the cost of the bonus shares is taken as zero and the ex-bonus date fixed by the company is considered the date of acquisition. If these shares are sold within a year, there is a 15% short-term capital gain tax on the proceeds. However, if the shares are kept for more than a year, there is no tax.

Rights issueWhen a company offers additional shares to its shareholders, it is called a rights issue. Companies do this to raise capital for funding expansion plans or acquisitions. Hindalco Industries, for instance, came out with a 3:7 rights offer (three share for every seven held) to raise nearly Rs 5,000 crore to finance its acquisition of Novelis. But these shares are not issued free of cost. The existing shareholders are given the right to purchase shares, usually at a discount to the prevailing market price, to make the offer attractive.

In a bull market, the announcement of a rights issue usually boosts the price of a share because investors get to purchase more shares at a discounted price. But in bear markets, such offers may not make a difference. In case of JK Tyres (see chart), the price actually fell. A rights issue is treated like any other purchase by the taxman. The date of allotment of rights shares is considered for determining whether such a sale attracts the 15% short-term capital gain tax.

Dividends
A dividend is a payment made to every shareholder of the company from its profits. It can be announced with any of the quarterly results. The dividends received by shareholders are tax-free. The dividend announced is linked to the face value of the company’s share. If the share has a face value of Rs 10 and the company announces a 50% dividend, the shareholders will get Rs 5 for every share that they hold. If the face value is Re 1, then a 200% dividend would translate to a payout of Rs 2 per share. While there is no limit on the number or quantum of dividends, there is no obligation on the part of the company to pay the dividend.

Buyback offers

If a company wants to delist its shares or the promoter simply wants to increase his stake, they offer to buy them back from the shareholders. The offer is usually at a significant premium to the existing market price to make it attractive to the shareholders. Buybacks cause the shares to shoot up temporarily.

But buyback offers can be tricky if you are entering at the wrong time. If a company plans to buy only 25% of the equity, it will reject applications once it has bought the required number of shares. So, an investor who bought the shares hoping to sell them to the company at a higher price, may end up seeing the value of his shares drop after the buyback offer closes.

If an investor sells his shares back to the promoter, the transaction is not routed through a stock exchange and no securities transaction tax is paid on it. Therefore, the investor is not eligible for the exemption available to equity investors who buy shares through a stock exchange. The short-term capital gain will be added to the income of the investor, while the longterm capital gain will be taxed at a flat 10% or 20% after indexation. The investor can opt for any one of these methods.

Mergers and acquisitions

Sometimes, two companies merge in order to gain from the possible mutual synergies. Mergers are generally perceived as a positive signal. In May, the market was abuzz with rumours of a possible takeover of Spice Communication. As a result, its share price shot up from about Rs 35 in April to about Rs 75 when it was finally taken over by Idea Cellular . If a company’s stake in another entity touches 15%, it has to make an open offer for an additional 20% of the stake. This ensures that small investors are not left out.

Stock splits

If the price of a share becomes too high, its liquidity on the stock market goes down. To improve the liquidity, companies often split their shares into smaller denominations. This reduces the face value of the share and there is a corresponding change in its market value. A share with a face value of Rs 10 is split into five shares with a face value of Rs 2 each. If the share priced at Rs 360 is split into five, the new price should theoretically be Rs 72. However, stock splits inject more liquidity into a share, thus making it attractive. So the postsplit price could well be close to Rs 75-80.

A stock split is just an arithmetical exercise. The asset side of the balance sheet and the net worth of the company remain unchanged. The share capital of the company too remains unaffected. The taxman considers the date of buying the original shares as the date of acquisition. The gains from the shares are taxed in the same proportion as the split.

6 top mid cap picks from Angel Broking

10 GOOD stocks worth buying

In the long run, stockmarkets reflect the real economy. In the short run, they seem to have a life of their own. The factory worker who buys Tiger biscuits for his school-going daughter, or the call-centre employee who uses his first salary to make a deposit on his motorcycle, are not informed by the Nifty. But their purchase decisions determine the health of fast-moving consumer goods companies and packaging suppliers, of trucking companies and gear manufacturers. 

Even though the stockmarkets lost 10 per cent in one week in the last month, the Indian economy was still rolling along, propelled by the entrepreneurial energy of its people, and its ever-increasing openness to the rest of the world.

The sentiment in the stockmarket is driven not just by the sentiment in the economy but also various other factors. These factors are now increasingly globally controlled, rather than locally. So while markets flew over the last few years on increased buying by foreign investors, this same phenomenon is lending it increased volatility now.
Such downturns in the market can deepen or correct, they can last a week or a year. But they do throw up opportunities to buy good stocks cheap. Our own take is that this correction may be deep, but will not last long. An economy growing at nine per cent annually is going to find willing investors on an on-going basis.

Outlook Money crunched the numbers of companies in the 'A' and 'B1' lists of the Bombay Stock Exchange (a total of 925 companies). We looked for companies that exhibited consistent profit growth over the last four years. As a next step, we sifted down to companies that showed a net profit growth of at least 25 per cent, year-on-year (y-o-y), in results reported for Q3, FY07. Then, based on BSE closing prices on 7 March 2007, we zeroed in on companies that were available for less than 25 times earnings.

Such companies offer a price earning to growth of one or less, reasonable by any norm. Despite our exacting standards, we ended up with 112 companies - an indication of how much entrepreneurial activity is going on in India, as well as of the upside when markets recover. From this list, we culled out 10 companies, across five sectors, which show consistent growth, steady or improving profit margins, and low discounting. Take your pick!

Information technology
1. Geodesic Information Systems (Current Price: Rs 250 levels)
It is a software solutions company formed in 1999. Geodesic concentrates on software in the communications space. Its product 'Mundu Messenger' is a universal instant messaging service that facilitates collaboration across a host of Internet platforms, such as AIM, Google Talk, ICQ, MSN and Yahoo.
The company, which also offers software development in verticals such as publishing, banking, retail and healthcare, has attracted substantial overseas investment and now 51 per cent of its equity is held by foreign institutional investors.

2. NIIT Technologies (Current Price: Rs 450 levels)
It is the software solutions business, which was formed when the old NIIT split into two. Over the last year, it has demonstrated its willingness to make acquisitions to complement its organic growth; as a result, it is able to offer a mix of near-shore and off-shore IT solutions from operations in North America, Europe, Asia Pacific and Australia . The company has alliances with global IT majors, including Computer Associates, IBM, Microsoft [ Images ], Oracle and SAP.

3. Zenith Infotech (Current Price: Rs 275 levels)
Focuses on banking solutions and infrastructure management. As a product and solutions company, it has a high (and growing) profit margin - for the last quarter, the operating profit was 56 per cent of the turnover. The company's banking solutions business now has over 100 customers, with its Banc724 software product either implemented or being implemented in over 3,500 branches.
This large installed base helps steady the revenue stream, thanks to the demand for maintenance services. The SAAZ infrastructure management product has more than 140 customers.

Banking and financial services (BFSI)
4. Mahindra & Mahindra Financial Services (MMFSL) (Current Price: Rs 225 levels)
A subsidiary of the leading tractor and utility vehicles company, it began as a vehicle-financing arm of the parent. As the company expanded into semi-rural and rural areas, it became apparent that there was a latent demand for a whole host of financial services that were not being met in these areas.
Accordingly, MMFSL now distributes mutual funds, and offers financial advisory services through its network of branches, which numbered 398 as on 31 December 2006. In its core area of vehicle finance, the company has extended business to finance for used commercial vehicles.

Infrastructure
 5. Kalpataru Power Transmission (Current Price: Rs 1,090 levels)
One of the leading companies in the field of turnkey projects for EHV transmission lines up to 800 KV in India and abroad. It has emerged as a leading player in erecting high voltage transmission towers and lines.
Aside from India, where power generation and transmission has got to be an on-going infrastructural priority, the company has worked on projects through Asia, Africa, and as far afield as Australia and Latin America.
With an order book of over Rs 2,100 crore, the company has achieved a run rate of Rs 1,000 crore (Rs 10 billion) per annum. In the last reported quarter, the turnover was up 82 per cent y-o-y, and EPS 96 per cent.

6. Bharat Heavy Electricals (Current Price: Rs 2,000 levels)
The largest engineering and manufacturing enterprise in India in the energy-related infrastructure sector today. The company manufactures over 180 products under 30 major product groups and caters to core sectors of the Indian economy like power generation and transmission, transportation, telecommunication and renewable energy.
Though government owned, Bhel has shown the ability to respond to a buoyant market, both in India, and in the world, with projects implemented in 60 countries, ranging from the US to New Zealand [ Images ].

Automobiles
7. FAG Bearings India (Current Price: Rs 580 levels)
A member company of the German FAG group, it is a leading player in the Indian bearings industry. The company manufactures a wide range of bearings across sectors - auto companies, railways, mechanical and electrical engineering industries. The parent company has identified FAG India as a sourcing base - this along with the growth of the Indian economy should help maintain buoyancy in the company's operations. It is currently growing at over 50 per cent, y-o-y.

8. Phoenix Lamps (Current Price: Rs 128 levels)
Specialises in automobile lamps sold under the Halonix brand name, though it has an extensive offering of over 500 different lighting products, including halogen lamps for general lighting and Compact Fluorescent Lamps. Last year, the private equity firm, Actis, bought out the promoters, who owned 40 per cent of the company, at Rs 152 per share with plans to aggressively invest in growth. Currently available at 12.83 times earnings, Phoenix's profits grew 46 per cent y-o-y in the last quarter.

FMCG
9. Ruchi Soya Industries (Current Price: Rs 330 levels)
It is the flagship company of the Ruchi Group of Industries and has come to occupy substantial shelf space in edible oils and soya foods across the country.
The Nutrela brand, which it owns, is the market leader in this space - with soya nuggets, granules, cooking oils, and soya flour. The company also manufactures and sells vanaspati and specialty fats to the bakery industry. Besides, Ruchi Soya is the largest exporter of soya meal and lecithin from India.

Pharmaceuticals
10. Elder Pharmaceuticals (Current Price: Rs 380 levels).
Now holds the 31st position in India's pharmaceutical industry (ORG-IMS). Relatively young, at 16 years, it is currently ranked the third-fastest growing Indian pharma business - which threw the company up in our search. In a sector that has been relatively quiet, Elder racked up a 36 per cent annual profit growth in the last quarter.
It has entered into a slew of licensing arrangements to manufacture and distribute products of international majors, while also building up an export market in some 37 countries.

Mohit Satyanand and Rajesh Kumar, Outlook Money

Trading Guide for Traders Call

01. Trade all calls. At a time 2/3 positions will be open, distribute your fund like this;

Total Fund (or margin)/3= Your actual fund allocation on a single trade.

Example: Total Fund (or Margin) is 1 lakh Rs. Then the actual trading amount in one trade would be 1 Lakh / 3 = 33k

 

02. Profit booking is an important part in a trade. Keep an eye on the follow up instructions. Buy at given rate & book at target, this is followed in most of the positions.

In some of the positions after a certain run, in a crucial level, we give book 50% & rest modify above buy. If you have say 100 shares, please book 50 share that time and rest 50, put sl above buy. This method is called win-win situation. When the script comes to the target, book the rest positions and by chance if the stock comes down from there we have already booked the profit.

 

03. SL, which is very rare, by chance if comes in a position, please close that trade. A trade is dead when Target or SL comes. Near the Target, in few positions we may give instruction that the Scrip may go more up to this level 'abcd'. If you are good in Trailing SL, then use that from there for more profit, & if you are not much friendly with Trailing SL then simply book at that Target, which came with the Call. Our Performance shows profit book at the Target only and not at those Day High / more spike etc.

 

04. In an average a 5% profit target we keep on total allocated fund per day. When in first 3 Trades profit booking is done, simply your Fund is freed, and we give again 2/3 positions, and this way we keep rotating same fund for 3 times. That means your 1 lakh Rs used to work 3 times a day and over bought position dosnt come.

 

05. We are discussing in long positions. Same thing is applicable in short positions as well.

 

06. A call is given at Current Market Price, by chance in any call if there is any price gap between the scrip's actual market price & in our given price, the call will not become active. Enter only at the given rate. In big shares like Reliance, Bhel, Educomp etc, maximum 1/2 Rs up/down entry can be considered.

 

06. During trade, try to avoid Tv/ Market Rumors/ Hot News etc. Control Greed & Fear.

 

07. During trade, in any trade position if you have any question, ask the Yahoo person or call us without hesitation.

 

 

Trading Guide for Sure Calls

 

01. Buy at given Rate and sell at Target.

 

02. Step by step thoroughly follow up is there, keep an eye on that.

 

03. Call us if you have any question regarding any position.

Tata Tea becomes Tata Global Beverages

Tea processing firm Tata Tea Ltd on Thursday said the company has been renamed Tata Global Beverages Ltd. The name change of the Tata Group Company is effective from July 2, Tata Tea said in a filing to the Bombay Stock Exchange.

The approval of the board of directors and its shareholders has already been sought by way of postal ballot in accordance with the provisions of Section 192 A of the Companies Act, 1956.

Following the operational integration of its five beverage businesses announced last year, Tata Global Beverages would unite all the beverage interests, marking another step in its transformation to become a global leader.

The purpose of the restructuring is to have a cohesive enterprise.All companies in the Tata Tea group would eventually become individual brands. Thus, the new company would be one big cohesive group of brands. Tata Tea would become a brand in the new scheme of things along with Eight O Clock Coffee, Tetley, Himalayan, Tata Coffee.Shares of the company closed at Rs 120.50, up 0.25 per cent from the previous close on the BSE.

Investor, Know Thyself

 

These are turbulent times once again. With bad news trickling in from Europe, the US, China and now the two Korean nations, the markets are reacting and stocks are coming down. Investors are experiencing a fall in their portfolios and memories of the 2008 meltdown have come alive once again.

So, now, it is time to check our own behavioural biases. It is important to understand our feelings when we are confronted with losses and how those feelings can affect our behaviour and distort decision-making. As far as our feelings towards losses are concerned, we tend to suffer from two strong behavioural biases: loss aversion and sunk cost fallacy.

Loss aversion. It has been proved that the pain of loss is three times more than the pleasure of an equal amount of gain. While loss becomes terrifying over time, pleasure becomes boring. This loss aversion has a direct bearing on our investment decisions. However, if one is aware of these biases, they can be used to one’s advantage. Loss-averse investors are prone to the following behaviour.

1. When markets crash, they sell stocks and flee to safety. Or, they buy fixed income securities.
2. They sell winners and hold on to losers. Their portfolios normally have a couple of winners followed by a long list of losers.
3. They take profits very early.
4. They take more risks when threatened with a loss. This is the Gambler’s Fallacy.
5. They are tax-averse. They hate to pay taxes and for that, they are even willing to forego profits.

From their behaviour, it is evident that such investors are not risk-averse but loss-averse. Evidence shows that such investors will increase their risk to avoid the smallest
probability of loss.

Sunk cost fallacy. You increase your commitment to justify your past actions. Averaging the cost of purchases by buying more when you have gone wrong on your stock selection, or spending indefinitely on repairs when the asset needs replacement are glaring examples of sunk cost fallacy. Banks are a good case in point. They lend to undeserving, old borrowers as they have already lent them. The question they should be asking themselves is: “Is the business viable enough to merit a further loan?” However, sunk cost fallacy makes them think: “If we have already lent them, we should do so again.” Good money goes after bad money.

Not looking at gains and losses in isolation will give you a lot of much-needed psychological comfort

God forbid, should the monsoon be delayed, markets could see more turbulence. This could lead to high loss aversion. Investors need to understand that with the Indian growth story intact and very few investment opportunities available to foreign institutional fund managers, India is still the most preferred destination. Such times could offer great investment opportunities. So, refrain from the impulsive flight to security of fixed income instruments.

On the contrary, if stocks are falling, your money should go towards buying the right ones. Stocks are your best hedge against inflation.Don’t sell your winners on the fear that markets will tank. And, do not hold on to your losers in the hope that prices will go up. When you sell your non-performers, the loss is adjusted against your profits. Re-frame losses as gains and have wholesome portfolio vision. Not looking at gains and losses in isolation will give you a lot of psychological comfort. Finally, do not track your investments as if they mean the world to you. There is no need to worry if you have made the right decisions and are guided by the right portfolio manager. To have a thorough understanding of loss aversion, please visit www.ppfas.com and under ‘Understanding Behavioral Biases’ go to ‘Feelings Towards Losses’.

Time To Reap Fruits

 

Though the economy is doing well, one needs to look out for selling opportunities:

Two years after the storm broke across the financial world, the India growth story continues to roll. Despite some disturbances, our GDP has reverted to an average growth rate of over 8 per cent per annum, and our corporates turned in stellar numbers last quarter.

In response, the stockmarket has held up well.Since Diwali, the Nifty has held the 5000 mark, with only a few short dips.

The private sector is being forced to reduce its debt levels, so one needs to be wary of firms with a lot of debt

Yet, there is a certain nervousness in the stockmarkets, of which India VIX, a volatility index, is the best indicator. On 26 May, the India VIX hit its high for the year at 35.86 and closed at 34.52. The India VIX levels do tend to peak on the last Thursday of the month when futures & options (F&O) accounts are settled. However, earlier this year, in April, volatility peaked at 23.15; in March, at 20.27; even in February, despite the uncertainty regarding the recommendations of the Union Budget, volatility was relatively low, peaking at 32.14.

At the same time, it must be said that the India VIX has been much higher: in mid-October 2009, it crossed 60, and the uncertainty triggered a sharp drop in the Nifty, from 5175 on 17 October to 4687 on the last trading day of the month.

In other words, although the European debt crisis has troubled our markets a fair deal, the reaction has been muted, both in terms of the index level and volatility.

What’s on the cards? On the positive side, commodity prices are falling—of both ‘soft’ goods (such as wheat, sugar and milk powder), as well as of industrial goods such as metals and crude oil. This will have a favourable impact on a wide range of companies, whether fast-moving consumer goods (FMCG), consumer durables, or the auto sector. The latter, though, will also have to deal with a gradual increase in fuel prices as the government tries to lower subsidies. Gas prices have already risen, and both diesel and petrol will move towards decontrol, though we can hope that the price of crude oil will drop to a level where the government can free product prices without having to raise them.

The auto sector may also be impacted by interest rate hikes, which seem inevitable, although sales are on such a roll that they seem unstoppable. Concerns about interest rate hikes seem to be affecting the real estate sector more, though I suspect that the worries are more about the huge debt burdens that firms are carrying.

It is at this level that our linkages with the rest of the world are deep—between the years 2003 and 2007, many Indian firms grew rapidly thanks to the easy availability of capital overseas. As debt becomes due, it is becoming more difficult for most firms to roll it over at attractive terms. As a result of this, the world over, the private sector is being forced to reduce its debt levels, so one needs to be wary of companies that are carrying a lot of debt on their books.

At the aggregate level, the Nifty is priced at 21 times its historical earnings. This is far from cheap. It is below 22—above which lies the Bubble Land. In other words, we are now at a level where the lights are amber. Cash in on stocks that are over-priced; if you have made money on them, so much the better.

And do not be afraid to hold cash—at the current levels, international disturbances are likely to provide the retail investor with several buying opportunities.

Packing A Punch - Dilip Piramal & Family VIP & WINDSOR MACHINES Worth: Rs 334 cr

VIP

Headquarters: Mumbai
Market Cap: $ 24.062 million
Revenue: $ 116.363 million
Earnings: $ 4.334 million


Second behind to Samsonite as the world's largest manufacturer of luggage, VIP Industries is India's biggest name in suitcases. Its brands include VIP, Alfa, Footloose, and Buddy. It also has distribution rights in India for Delsey products.

Dilip Piramal & Family
VIP & WINDSOR MACHINES Worth: Rs 334 cr

When ace investor Rakesh Jhunjhunwala picks up stake in a company, you are likely to seriously consider investing in it and, more often than not, you will hit the bull’s eye. Of late, the stock of VIP Industries has been making headlines for the interest shown by investors such as Jhunjhunwala and Ramesh Damani. Last month, Jhunjhunwala added 1.34 per cent stake to take his total holding in VIP Industries to about 6 per cent. “They saw potential in our company and invested, and are extremely happy today,” says Dilip Piramal, chairman of VIP Industries, whose stock price jumped 10-fold over the past 16 months — from Rs 33.80 on 31 March 2009 to Rs 365.30 on 12 July 2010. During the same period, Piramal’s personal wealth also swelled from Rs 41 crore to Rs 450 crore.


 

Piramal says this stellar growth is the result of a strategy shift last year. “We had increased prices of our mass premium product (VIP brand); the strategy didn’t work. In fact the competition ate into our market share. Last year we repositioned our brands, which gave us very good results,” he says.

The results were tangible. VIP overtook Samsonite’s American Tourister last year in the mid-segment market. The company’s revenues and profits also improved. It reported a net profit of Rs 50 crore in FY2009-10 against Rs 9 crore in the previous year, and revenues of Rs 636 crore against Rs 525 crore. “In any given year, if the sales go up by 15 per cent with the overheads remaining the same, the net margin can increase by 30-45 per cent,” says Piramal, who credits the company’s growth to his daughter Radhika, who took over as managing director on 1 May 2010. “Long-term planning, adapting to situations and the ability to carry managers along with her have been her strong points,” says Piramal, a music buff who is now busy selecting 100 songs for Saregama for a collection of CDs to be launched this Diwali.


By this year-end, VIP plans to become debt-free. Last year, it brought down debt from Rs 135 crore to Rs 85 crore and in the first quarter of FY2011, it further reduced it to Rs 35 crore. The company earns 90 per cent of its revenues from the domestic market, with the major chunk coming from the mass segment. It has 350 exclusive retail outlets, of which 125 are company-owned. “Our approach has been mostly through the franchise model. But if dealers aren’t willing to open franchises in certain regions, we open our own stores,” says Piramal.


Despite buying premium luggage maker Carlton of the UK six years ago, VIP had not launched the brand in India as it was offering Delsey at the top-end. “The premium segment being quite small, we felt it did not make sense to have two brands,” says Piramal. “But with the termination of the contract with Delsey, we plan to introduce Carlton in India.”


Piramal hints at getting into other lines of business, but doesn’t give details. However, the market seems to have already sensed it. No wonder the stock is still attractive despite trading at a PE (price-to-earnings) multiple of 21 times on a one-year trailing basis. Jhunjhunwala seems to have got this one right, too.

(This story was published in Businessworld Issue Dated 26-07-2010)

The Right Prescription

YOGESH AGARWAL & FAMILY
AJANTA PHARMA Worth: Rs 142 cr

Many may still recall Bollywood’s Jumping Jack Jeetendra endorsing male ‘energiser’ Thirty Plus on national television in the 1990s. But few will remember Mumbai’s Ajanta Pharma as the company behind the product. Ajanta, it appears, is only too happy for that to be the case. For it has moved on. And Ajanta’s founding family scion Yogesh Agarwal is making sure there’s no looking back.


For the better part of this decade, Yogesh, 38, has presided over a strategic overhaul of the firm that has seen it shift focus away from over-the-counter (OTC) products such as Thirty Plus (no longer available in India, though exported) to speciality prescription drugs in ophthalmology, dermatology and cardiology in the Indian market. The company also pared down exposure to high-risk markets such as Russia and strengthened its presence in South-east Asia, Africa, and West Asia with a similar product focus. “The specialty focus was a measure to restructure our Indian operations,” says Yogesh. “We firmly believed that Ajanta had the ability to make this transition and become a player focusing on key therapeutic areas.”

With good result, it appears. Total income has more than doubled to Rs 384 crore on a standalone basis from five years ago. In 2009-10, the company grew total income by 18 per cent while net profit rose 33 per cent to Rs 28.54 crore. In the last fiscal, its shares on the Bombay Stock Exchange almost tripled to Rs 182. Some of that also factored in a buyback that the company launched a year ago. “Yogesh is responsible for our tunaround and reorientation,” says Arvind Agarwal, chief financial officer of Ajanta and a spokesperson for the company.


The founding family of Ajanta, the Agarwals, are Marwaris from Bansod village in Maharashtra. Ajanta was founded in 1973 by Yogesh’s uncle Purushottam Agarwal, a pharmacist by training. The company, and Purushottam’s extended family, shifted to Mumbai in 1989.


Starting with ‘Pinkoo’ brand of baby’s gripe water, the company built a portfolio of OTC products. But it lacked the resources to make a big enough splash because OTC products need sustained marketing support. While it spotted the export opportunity early, it burnt its fingers in Russia during the ruble crisis.


Under Yogesh, an MBA from the Johnson & Wales University, US, who joined Ajanta over seven years ago, the company changed its avatar. It began looking at prescription drugs where the doctor is the company’s immediate customer and chose less-competitive areas such as ophthalmology. The company invested in research and development (R&D) of differentiated formulations such as a once-daily version of a thrice-daily tablet to improve patient compliance. “The challenge was to introduce products that are not ‘me-too’,” says Yogesh. “We could tide over that with our R&D efforts.” A majority of the products that it launched in the past three years in the Indian market, for instance, were new drug delivery systems.


In spite of its smart rebound under Yogesh, the company just cannot afford to rest on its laurels. For one, Ajanta Pharma is still undersized in an industry where the largest company Ranbaxy tops a billion dollars in revenues. Two, it is now making plans to enter the US market, which can be an expensive exercise. Three, it needs to keep churning out new products in a tighter drug patent regime. Against this backdrop, will the company continue to demonstrate its fitness and vitality well into its 40s?

(This story was published in Businessworld Issue Dated 26-07-2010)

Netting Broadcasting Gains

Sameer Manchanda is a football buff, so it is no surprise that he is rather taken by Paul the octopus and its uncanny forecasting skills. “An investment banker told me that all MBAs and finance guys should leave their jobs, and hire an octopus to determine what stock to invest in,” he jokes. Of course, Manchanda, chairman and managing director of Den Networks, a cable distribution company, has done well for himself without the help of a forecaster. His 53.70 per cent stake in the company (plus his investments in IBN18) — worth Rs 1,469 crore as on 31 March 2010 — has already made him a rupee billionaire many times over.

A qualified chartered accountant, Manchanda’s association with the media started in the mid-1980s when he joined NDTV, serving on the board of directors. In 2005, he along with Rajdeep Sardesai, Raghav Bahl and Harish Chawla set up IBN18. He continues to serve as joint managing director of IBN18.

The launch of Den Networks in 2007 was the result of Manchanda’s observation of the transformation of television viewing in India from one staid, state-run channel (Doordarshan) to a bewildering array of private channels over two decades. “While the market was exploding, distribution was lacking in pace of growth and reforms,” he says. It took a long time to put thought into action, though, and it was only in 2007 that he launched Den Networks along with Bahl and IL&FS as early investors with an initial funding of Rs 300 crore. In a space of three years, Den has established operations in 75 cities by acquiring existing small MSOs (multi system operators), and claims a subscriber base of 11 million, which is 13 per cent of the 85 million cable and satellite homes in India. Den offers analogue as well as digital cable services (the latter offered under the brand name Digitelly).

What helped push growth was Den’s 50:50 joint venture with Star India, set up in January 2008, called Star Den Media. This is a content aggregator that leverages Den’s distribution network and distributes leading channels of the Star TV Group and other broadcasting houses. This tie-up, and the commission that comes with distributing Star’s channels, has helped Den improve financials. Revenues rose from Rs 719 crore in FY2008-09 to Rs 926 crore in FY2009-10, and net profit doubled to Rs 30 crore. Den Networks’s IPO in November 2009 mopped up Rs 350 crore.

Manchanda has interesting plans. “In the next two years, we want to digitise our 11 million analogue subscriber base, and increase those numbers to 20 million,” he says. The shift to digital is being pushed by competition from direct-to-home (DTH) players, which have been gaining ground on the basis of better quality broadcasts and competitive pricing. Manchanda acknowledges the threat, but is firm in his belief that cable TV will prosper. “I am a strong believer in cable,” he says. “It has lots more to offer, lots of services yet to come in.”

Even on the cable front, Den Networks is up against more established companies such as Wire and Wireless, Hathway, Incablenet and Sumangali Cable, which continue to draw in subscribers. Manchanda, 49, will have his hands full in keeping the growth engine going.

(This story was published in Businessworld Issue Dated 26-07-2010)