Long-Term Power Surge

Power Finance Corporation (PFC)—a non-banking financial company focused solely on the funding needs of the power and related sectors—almost a year back, when it was at a level of Rs 200. Considering that PFC’s business has run in a stable manner in a difficult economic environment and it has future earnings visibility, at a price of Rs 276 today, the stock has gained 38 per cent in a year. We are re-recommending it as a long-term buy. 

Business performance. PFC is a Navratna public sector unit that finances power generation, transmission and distribution projects. It is also the nodal agency, selected by the government of India, to facilitate development of power projects with capacity of over 4,000 megawatts, also called ultra mega power projects or UMPP. Although PFC’s consulting business contributes little to its total income, it does give a diverse mix to the company’s product portfolio.

PFC’s business has grown at a healthy pace over time. The compounded annual growth rate (CAGR) of loan assets in last five years is 22 per cent. In FY10, PFC’s loan book expanded by 24 per cent, which is higher than overall growth in bank credit. The commendable part is that despite high loan growth, the asset quality is impeccable. The net non-performing asset is just Rs 6 crore, or 0.01 per cent of loan assets.

PFC faces competition in the lending business from banks, but the nature of its capital gives it advantage over them. First, banks face asset-liability management challenge in financing long-term power projects, as it uses short-term deposits to give long-term loans. On the other hand, PFC has the advantage of raising funds by issuing long-term bonds to fund long-term assets. Second, there is a cap on lending by banks to any sector, whereas there is no such restriction for PFC, giving it a free hand to meet large funding demand from the power sector.

Financial performance. Its five-year (FY05-FY10) CAGR of total income is 19 per cent. In FY10, company’s total income grew by over 22 per cent, while profit grew by 19.5 per cent. The net interest margin has moved to 4 per cent. Several factors help PFC maintain its margin. It raises a major portion of its debt at a fixed cost and has the flexibility to price its loans. Therefore, it is not impacted much by interest rate fluctuations. PFC’s credit rating, equivalent to sovereign debt rating, also helps it raise fund at low costs. Unlike many other PSUs, the company maintains a lean cost structure, which boosts its margin.

Investment rationale. India, being a power-deficient nation, will need huge investment in this sector. The government too realises this, and work on several ultra mega power projects (UMPPs) has already started. Even if capital becomes easily available, not all the investment in the power sector will be funded through equity. This is evidenced in the current debt-equity ratio of around 3:1 for an average power project. So, clearly, the demand for debt will exist and PFC is well positioned to take advantage of this opportunity. It also has an edge over banks.

Besides financing power projects directly, it has also started financing power companies’ purchase of raw materials. Another initiative is to finance power sector equipment manufacturers. Combined, these give visibility to PFC’s future earnings. Its track record in maintaining quality assets is another plus. Considering these, PFC’s stock at Rs 276, or 13.45 times FY10 earnings per share, is attractively priced and will be a long-term bet for you in the sector.

http://money.outlookindia.com/article.aspx?265548

Stocks provide low risk high returns in long run

Time is money, is a one-liner that says it all when it comes to investing in stocks! Timing your investment is extremely crucial. But, does it really matter in the long run? What is the return that you can expect to make by investing in stocks over 1 year, 3 years, 5 years or 10 and more years?

In terms of investment ‘time’ perspective, in the short run the performance of equity shares is driven more by market sentiment than by company fundamentals. The correct time perspective for investment in stocks would be one that allows you as an investor to participate in and benefit from company’s growth. Keeping this in mind the ideal period to stay invested should preferably be greater than 5 years.

One would learn that in the long run, the relevance of the right price diminishes. If you choose the right company and have the right time perspective, in the longer term, it does not really matter too much whether you bought the share at the lowest price or not. This is because as long as the company is growing and you hold on to your investment, the Power of Compounding will multiply the value of your investment at a rate that will make the initial investment price insignificant. This makes a real mantra for wealth creation.

Taking the longer term perspective of staying invested for a period of 10 years and or more, you can expect stocks to yield returns ranging between 15% and 20% annually.

As unbelievable it may sound, an overview of the performance of Stock Markets over last three decades (see table below) confirms the same.

Historic Performance : Returns generated by Sensex over last 30 years

The table also shows the relationship between the period of investment and chances of loss. For instance, had you invested in the Sensex for any one year between 1979 and 2009, in 11 out of 30 times you would have lost money. However, if you would have stayed invested for more than 10 years your chances of loss would be almost zero. That too making a handsome average return of around 17% annually!

Conclusion

You may argue that this is historic performance of Sensex and it can not be taken as a measure to predict the future performance. Agreed, although future performance is not always dependent on the past performance, but there is no denying that it provides a track record of Stock Market performance over last 30 years. We can clearly see that as the time of investment holding increases the risk becomes lower and returns are higher than most of ’safe’ investment avenues.

Stick To Stronghold

Never be in a hurry to collect quick profits, holding on to stocks might help:

Last week, a reader commented to me about his own investment behaviour—“While I often find good stocks to invest in, when I look back, I find that I usually exit them too early. How do I prevent this?”

In my reply, I told him this behaviour is not uncommon, and usually happens under one of two circumstances:

1. Many investors exit a share when it dips sharply downwards, whether due to a disturbance across equity markets, or due to a disruption in the company’s profits, as reported in its quarterly numbers. The former problem is easily dealt with—market sell-offs give one an opportunity to buy into companies one favours. When it is the latter, one needs to assess whether it is an early warning of some deep problem in the company’s business, or a one-off problem. Normally, it is the one-off incidents that cause prices to dip or spike sharply. Deeper problems tend to surface slowly, and give the investor several quarters to decide whether he wants to remain in the share or get out. In other words, sharp drops in the price of a share are a time to re-look at the company’s performance, not necessarily a time to react by getting out.

2. Equally common, an investor says—“I bought this share for Rs x, it has now reached my target of Rs. 2x (or whatever target he has). Let me take my profit and exit”.

This is bad! Not because I have anything against price targets, but because such targets need to be related to the performance of a company, and not to the price at which the share was purchased. The moment one starts thinking this way, one’s price target for the company should change at least every quarter, when the company presents its report card. If the company’s performance is likely to be affected by any external changes, such as commodity prices, interest rates, or governmental regulation, then changes in these must cause one to reframe the price target, too.

I try to slot every share I am following into one of these three categories—‘BUY’, ‘SELL’, and ‘HOLD’. Sharp price changes and quarterly results are compulsory reasons to examine every share, and check whether it needs a category change.

If a share suddenly shifts into ‘SELL’ category, because the price has risen sharply, or circumstances have changed, that’s the easiest thing to deal with!

One-off incidents cause prices to dip or spike sharply. Deeper problems tend to surface gradually

If a share I own moves into ‘BUY’ zone, say because its price has dropped, that’s actually a wonderful place to be in—one has been holding the share a while; hopefully one understands the business a bit better than when one first bought it; and now it is available for less. It’s like a discount on your favourite flavour of ice-cream. Time to order two scoops, rather than one. Or, worse, start thinking, “must be something wrong with strawberry ice-cream, if they’re discounting it. Better stick to that boring vanilla.”

And shares in the ‘HOLD’ band? I love shares which coast in this band for years—even if my broker doesn’t. If I bought them at a good price, and the company’s earnings keep rising steadily, their price rises too, without sending price-earnings ratios into the ‘SELL’ zone. As long as the bulk of one’s shares are in the ‘HOLD’ zone, one’s portfolio can be very responsive to new opportunities: since one does not look at such shares as screaming ‘BUY’s, one is not too unhappy about exiting such shares to invest in new opportunities one sights, when an attractive, fresh opportunity presents itself.

In the absence of such events, don’t be in a hurry to take your profits. “HOLD”, if I might coin a cheesy phrase, “IS GOLD”.

Long Term Investment Management & Strategy - Does it always Succeed?

I came across a nice article on web which explains how long term investment strategy could fail in current sitution!! If you have invested in index benchmarked mutual funds or investment schemes with such mutual funds, it could fail in long term. This article is from USA based stock market research publication house, but since global economies are more or less integrated with each others and that a small event in big economies can prove trigger (positive or negative) for our markets, this is a good read.

How the mutual fund industry has sold you a bill of goods, how you can get your money back and make a fortune on top of it.
You’ve heard it all before: A serious-sounding actor on TV will tell you that the way to get rich and secure your retirement is to “invest in a well-diversified mutual fund and hold for the long term.” Sure, he has a nice suit and a trustworthy face, but the cold, hard fact is he is lying to you. If you invested in the S&P 500 14 years ago – back when I started in this business – you would have about the same amount of money you have now.

S&P 500: 14-Year Chart

In fact, given the current suckers’ rally, I would hazard a guess that we haven’t seen the worst.

Why are mutual fund companies lying to you? It’s simple. They make money off of “cash under management.” It is in their best interest that you give them your money so they can hold onto it for decades.

Sure, there have been unique periods when stocks went up over long periods of time, such as the years following the Great Depression and World War II. But those days are over, and may never return in our lifetime. Right now, the U.S. market is analogous to what happened in Japan after its massive real estate bubble popped 20 years ago.

If you remember back in 1990, the “Japanese miracle” was on a roll. Japanese companies such as Toyota, Nintendo and Sony were invading the world. There was lots of hand-wringing because Japanese investors bought up Rockefeller Center in New York City.

At the time, real estate had gotten so expensive in Japan (due to crazy mortgage policies) that one square block in Tokyo was worth more than the
entire state of California!

Then, Japan’s real estate bubble broke. The Nikkei 225 index fell from almost 40,000 to 15,000, and has been bouncing like a ball down the stairs ever since.


Japanese experts and politicians did what U.S. experts and politicians are doing now. They cut their interest rates to zero and started spending money.
They built bridges that no one used, and highways that went nowhere. They spent and spent.

According to numbers from Bloomberg, Japan’s debt-to-GDP will be 147% this year. It now must use 65% of its tax revenue just to make interest payments
on its staggering 20 trillion yen in public debt.

Does any of this sound familiar?
The U.S. is exactly one decade behind Japan in its path to self-destruction. And this is Japan we are talking about – a country full of smart, motivated people. These guys make the Lexus. If it can happen there it can happen here.

And it will… heck, it already is… According to John F. McManus in the New American:

Look at what America’s experts have done in response to our nation’s recession. In every detail, they did exactly what Japan has been doing for 17 years. They cut interest rates, launched public works programs, handed outbusiness loans and bailouts, and created stimulus packages, while the Fed manufactured trillions out of thin air. The result: our nation remains mired in our own slowdown.What happened in Japan is being repeated here (in USA).
Source: Article sent to me in e-Mail by Taipan Publishing Group

India Cements presents an opportunity for long-term investors

Chennai-based India Cements seems to have missed out the current rally on the Dalal Street. It gained just 27.5% since the beginning of March
’09, compared with a nearly 101% jump in the Sensex during this period. The ET Cement Index had also gained 74.2% during this period.
India Cements is now one of the cheapest stocks under various valuation metrics — be it price-to-book value, price-to-earnings multiple. For instance, India Cements trades at just 1.2 times its book value. In contrast, Shree Cements with a focus on northern markets, trades at 4.6 times its book value, while UltraTech cement, which also has a presence in the south, trades at 2.85 times its book value. Also, the dividend yield of India Cements at 1.6%, is higher than that of Shree Cement and UltraTech cement.

The Street has been concerned that south-based players like India Cements could grapple with weakening price realisations in future. That’s because the cement capacity in the region is expected to rise from 78 million tonnes in FY 09 to nearly 120 million tonnes in FY 12, and demand growth is expected to be much slower. During the monsoon season there was strong price correction in some southern markets.

However, India Cements has been attempting to diversify its presence beyond the southern markets, and in April 09, it had brought on stream a one million tonne cement grinding unit capacity in Maharashtra. The company is expected to add nearly Rs 350 crore to its net sales in FY 10 from this plant. Long- term investors have recognised this shift in the strategy and there has been a steady increase in delivery trades.

CAPACITY& CAPEXPLANS:

India Cements’ installed capacity at the end of FY 09 was 12.95 million tonnes compared with 8.81 million tonnes a year earlier. As part of this expansion during FY 08, a grinding unit with a capacity of one million tonnes at Chennai was completed in August 2008.

In last two years, the company had invested nearly Rs 1,960 crore in capacity expansion. This expansion has been funded largely through internal accruals. India Cements is expected to end FY10 with a capacity of 14.3 million tones. In the first quarter, it commissioned additional grinding capacity at its Malkapur facility and is working on the upgradation of its kiln at Chilamakur, Andhra Pradesh. And despite this capex programme, its debt to equity ratio was at 0.68 at the end of FY 09, compared with 0.96 a year earlier. It had cash flows of Rs 706 crore in FY 09 and Rs 1,017 crore in FY 08. The company is also building two captive power plants of 50 MW each, at its facilities in Tamil Nadu and Andhra Pradesh, at a cost of nearly Rs 500 crore.

Recently, the company along with its wholly-owned subsidiary, ICL Financial Services, had launched an open offer for Indo Zinc, a loss-making zinc producer. Indo Zinc was implementing a project for setting up a cement plant in Rajasthan with a capacity of 1.5 million tonnes, but this project will now be implemented by India Cements. The cost of setting up this plant in the north along with captive power facilities, is estimated at Rs 600 crore. India Cements had recently raised Rs 592.5 crore via a QIP for its expansion plans. India Cements also owns an IPL team and has a presence in the shipping industry, with small vessels operating in the dry bulk segment. However, the contribution of the non–cement business was very small to its total net sales.

FINANCIALS:

During the June 09 quarter, India Cements operating profit margin declined 500 basis points y-o-y to 30.5% and that’s despite a 9.6% y-o-y growth in its net sales to Rs 960.25 crore. Pressure on its operating profit margins was due to its power & fuel costs that rose nearly 21.4 % y-o-y to Rs 1,011 per tonne, and it offset the 7.8 % growth in cement realisations on per tonne basis.

VALUATIONS:

At Rs 123.7, India Cements trades at a P/E of 7.6 and investors could take a position in this stock with a long-term outlook. Other south-based players like Madras Cement trades at a P /E of 7, while for UltraTech cement it is at 9.1 times.

For long-term gains, invest in India-focused firms: HDFC MF

In an interview, Prashant Jain, executive director and chief investment officer at HDFC Mutual Fund, gave his take on how much money foreign institutional investors (FIIs) have brought in over the last few months.

Udayan Mukherjee / CNBC-TV18

Mumbai: There has been talk about how much money foreign institutional investors (FIIs) have brought in over the last few months—the number has touched $11.2 billion (Rs53,760 crore) for the year—and many FIIs have been fairly bullish about the current momentum in global equity markets. How do domestic mutual fund houses view the scenario? In an interview, Prashant Jain, executive director and chief investment officer at HDFC Mutual Fund, gave his take. Edited excerpts:

Fair valuations: HDFC Mutual Fund executive director and chief investment officer Prashant Jain

How are you feeling about this spectacular rally?

We have a fairly balanced view of the markets right now and the markets are trading at close to where the P-E (price-earnings) multiples are appearing to be fair... In my opinion, if we take a two- to three-year view, we should make returns which are in line with earnings growth rates—between 15% and 20% CAGR (compounded annual growth rate).

Do you think that the kind of bearish phase that we had is over and have we entered a firm uptrend or a bullish phase?

I think it is very challenging and we rarely take a view on the short-term direction on the markets, not because we don’t want to but we find that equities as an asset class are not reliable when you take a short-term view on the markets.

To put things in perspective, the 20,000 index (the Sensex) one year back and also the 8,000 index last year—they were aberrations and many people are concerned that the rally has been too sharp from 8,000 to 16,000.

The rally has been sharp, but to be fair, that rally came after an equally sharp fall, and I think the fall was wrong and this rally merely corrected what led to a severe undervaluation.

When we spoke earlier, the index was below 10,000 and I had discussed that the index appears to be quite cheap and though you can’t time it where it would go in one year, you could focus on valuations.

At 8,000–10,000, we said the long-term returns would be significantly ahead of earnings growth and today we are saying that long-term returns would be in line with earnings growth. But I don’t think there are any reliable indicators as to where the markets are going in three-six months from now.

What kind of (earnings) growth could you pencil down for fiscal year 2010 and more importantly fiscal year 2011?

It is not fair or easy to talk about the average because the average would comprise of companies like Reliance Industries, ONGC, Tisco (Tata Steel), Hindalco, where earnings could be vastly different from what you build in today, depending upon commodity price movements. But for a moment, we remove the global cyclicals like refining and metals, basically, if you look at consumer companies like media, banks, pharmaceuticals, automobiles, we think earnings growth should be north of 15% per annum.

So how do you play this? Do you say: ‘There is uncertainty in global commodities and I don’t want to be in that basket’ and so take a very big underweight call and avoid those stocks and focus on India-specific stories?

That is how we have positioned our portfolio because we believe that at a very broad, at a very macro level, the global excesses have been so large and for so long that it is unlikely to correct in a few years’ time and therefore the Western economy should continue to grow, if at all, at very low growth rates.

We don’t have a definitive view on which way commodities are going and in any case, most commodities are prevailing at prices which are significantly ahead of the marginal cost of production. Some people are still positive because they believe the dollar will collapse, we don’t know. So basically, we are underweight the global cyclicals.

There is one other area of concern when you are trying to map earnings for the next couple of years and trying to discount the fact of interest rates, where increasingly we are hearing from more and more bankers that over the next three-four months, they would start climbing once again. Would that interfere with your (earnings) assumptions?

I don’t think so because if you look at the Sensex composition, the corporate leverage is actually very low and I don’t think companies would get hurt in any meaningful way because of the interest rate movements. On the contrary, banks are a very large component of the indices and I believe that higher interest rates should actually help banks maintain or even improve margins.

Is that the reason why your top sectoral holding is banking and that includes the largest public sector and the largest private sector banks?

Yes, we think that credit growth in India should continue to be ahead of the GDP (gross domestic product) growth rates because, one, banking is a very ingrained way to save—bank deposits are a very popular way for people to save money and we are focusing on banks which have a good deposit franchise and different interest rate regimes, whether low or high or medium interest rates, that banks in India have more or less maintained.

In general, do you expect a significant rise in interest rates throughout 2010?

I would not say anything with any high degree of certainty, but I don’t think interest rates should go materially higher because there is clearly excess liquidity and credit offtake is not happening, and because of what happened last year, the capex plans have been postponed or scaled down; companies are now focusing a lot more on cash generation or reducing working capital. So as and when credit growth picks up, by that time hopefully the government borrowing would also not grow because the current year should be a peak year for fiscal deficit and, next year onwards, one should expect a significant easing in fiscal deficit and that should compensate for higher borrowing...and that’s why we don’t think by and large that interest rates should go meaningfully higher.

What’s been your general approach towards the primary markets over the last six months, particularly the last three months? We have had some really big-sized issues such as NHPC Ltd, Adani Power Ltd being floated—not all of them have done very well after debuting—but at HDFC Mutual Fund. How have you approached them?

Exactly the way we approach secondary markets, and we will invest in the issue if it’s sensibly priced and if there is a reasonable return in it for us and if it’s a good quality company, and if it is not one, we will avoid it.

So have you had reason to avoid big issues over the last few months?

Yes, we have avoided some of them.

What’s your general take on the infrastructure space? L&T (Larsen and Toubro) is one of your top 5 holdings, you purchased some Punj Lloyd (shares) in August as well. Do valuations make you comfortable there or would you say they are on the expensive side?

Infrastructure is a very broad term, it would include cement, steel refining, power, power equipment, engineering. So I don’t think it is fair to comment on this whole world in one stretch, but by and large we think there will be a reasonable growth in the engineering and construction space and L&T is clearly one of the most—there is a big gap between L&T and the No. 2 player—so it will get good premium. It is not cheap but we think it offers quality and growth.

The same question for frontline IT (information technology firms). Infosys is one of your top 5 holdings, and the sector has outperformed significantly over the last six-odd months. Where do you see that whole IT story heading from here?

IT broadly, in my opinion, is quite fairly valued now again as the markets are and I don’t think there is any material upside to the P-E multiples as we see them, and we think it’s a very high-quality sector... However, there are risks to the sector as well, and if all continues to remain where it is or if it heads lower, and as and when we get more capital inflows, currency could start appreciating, which is again not good for this sector.

Balmer Lawrie: Long-term investment idea

Balmer Lawrie

Beta 0.89


Institutional holding 18.65%

Dividend Yield 4.5%

P/E 6.7

M-Cap Rs 728.5 cr

CMP Rs 447.2

The Rs 730-crore Balmer Lawrie (BLL), a staterun unit with mini-ratna status, is a mid-cap with long-term promise. Headquartered in Kolkata, BLL is a debt-free company with rising dividends every year. It has a healthy record of sales and profits growth, which makes it an ideal investment candidate for long-term investors.

Business:

BLL operates in eight distinct strategic business units including industrial packaging, greases & lubricants, logistics services, engineering & technology, logistics infrastructure, travels & tours, leather chemicals and tea.

The company is India's largest producer of metal drums used in packaging chemicals and lubricants. Travel & tours services bring in the major share of revenues, while the logistics services account for the highest profits. The company has a wholly-owned subsidiary in the UK carrying out logistics business.

Balmer Lawrie Investments (BLIL), which is 59.67% owned by the government of India, holds a 65.7% stake in the company. It was created in 2001 with a view to divest the government's stake in Balmer Lawrie. The new UPA government, which is considering selling stakes in profitmaking PSUs, may look at BLL as a divestment candidate as it is a non-core, but profitable, public sector firm.

Growth Drivers:

Balmer Lawrie is a debt-free , steadily growing company with strong presence in all the industries in which it operates. The company has plans to grow inorganically by acquisitions in the areas of travels & tours and logistics and has a budget of Rs 100 crore for this.

During the past five years, the company has grown at a cumulative annual growth rate of 12.6% at topline to Rs 2,007 crore for the year ended March 2009, with the PAT growing at a CAGR of 28.8%. BLL has a strong track record of paying dividends, and during the period its dividend payout has increased at a CAGR of 41.7%

Financials:

The global financial slowdown hasn’t left Balmer Lawrie untouched. Its operating performance stagnated in FY09 and the net profit was propped up by a spurt in nonoperative income. Revenues went up 13.7% in FY09 at Rs 2,007 crore and profits grew by 9.3% to bring in Rs 109 crore.

The services sector did well during the year with travels and tours posting 19% growth and logistics services growing at 21%. Both these businesses posted healthy improvement in profits as against a fall in profit for manufacturing businesses such as industrial packaging and lubricants.

With established businesses and very low annual capex, the company has maintained its return on employed capital to beyond 40% for last four years.

Valuations:

The company's current market capitalization of Rs 728.5 crore is just 6.7 times its annual profit of the year ended March 2009, out of which Rs 150 crore is represented by cash equivalent. The dividend yield works out to 4.5%. We expect the company to post an EPS of Rs 77 in FY10, which discounts the current market price by 5.7 times.

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.

Best 10 mid-cap stocks for long-term investors

Scratch a stock boom, you get a mid-cap. The ongoing bull ride in Indian stock market is no different. The current rally has taken Nifty from 2,573 on March 09 to 4,587 on June 05. And behind this surge too is a range of mid-cap stocks. The benchmark index for mid-cap companies CNX Midcap closed at 5,682 on last Friday, a whopping 94% up from March 09. Investor’s Guide has argued in its previous issues that only a handful of large-caps like Bharti Airtel and State Bank of India hold any long-term value for the investor.

Mid-cap stocks, then, are the obvious choice, but it may not be an easy one. For starters, there are around 200 companies to choose from in mid-cap space. Hence the ET Intelligence Group went about the job to make yours easier. We made these companies pass through a three-step screening process, to zero in on the 10 best picks.

Check out the best 10 mid-cap stocks for long-term investors, when the valuations of large-cap seem to be over-stretched.

Balrampur Chini

One stock, which stands out as an odd man in our list, is Balrampur Chini. It is one of the largest and most efficient sugar manufacturers of the country. Its financials for the past two years may not be encouraging, but ETIG reckons that sugar as an agricommodity is one of the most cyclical industries. The reason why we are recommending this stock is because the outlook for sugar prices is buoyant as of now. Therefore, sugar companies are expected to do well in the course of next two years atleast. It also has diversified into alcohol and power generation, which together accounted for around 30% of Balrampur Chini’s revenue in March’ 09 quarter. These segments will help the company in tiding over the slowdown. Mid-caps tend to be more volatile than large-caps. However, the volatility is more in stock price than in fundamentals. We have taken care to select the stocks, with robust fundamentals. So, even if they get beaten in a stock market downtrend for some months, over long period, they are expected to bring gains to investors. Valuation at Discount: March 31 2005: 16.8 March 31 2006: 25.9 March 31 2007: 8.3 March 31 2008: -33.8 March 31 2009: 16.7

Blue Star

Blue Star is one of India's leading manufacturer and supplier of air-condition and climate control equipment. It also manufactures and markets a range of commercial refrigeration products and services catering to the industrial, commercial and hospitality sectors. The future of this company depends upon the performance of industries like financial services, construction, IT, ITES, hotel , healthcare, infrastructure such as airport. Most of these industries are expected to grow at high rates if Indian economy continues its growth trajectory. The company is far ahead of its competitors in terms of cash flows, as it has reported 60% CAGR in net cash from operations in the last four years much better than earning growth. Moreover, it has a track record of sustained high dividend payouts unmatched in the industry. Valuation at Discount: March 31 2005: 11.7 March 31 2006: 28.7 March 31 2007: 30.2 March 31 2008:27.2 March 31 2009:14.9

CRISIL

CRISIL, a market leader in research, rating and advisory businesses in India, also offers services like bond rating, rating for bank loans and industry reports. On the government side, it has an advisory segment, which helps agencies in infrastructure, policy and energy. Its business is less prone to the health of corporate India because most of its research products are subscription based. Valuation at Discount: March 31 2005: 22.5 March 31 2006: 42.0 March 31 2007: 48.3 March 31 2008:32.0 March 31 2009:17.5 Engineers India Engineers India provides engineering and technical services to petroleum refineries and other industries like highways and bridges, IT, airports, and ports and terminals. The company is likely to gain significantly from huge investments planned by the government in the oil and gas sector. As on March 31, 2008, the company had Rs 1,270 crore of cash in its balance sheet. This translates to cash per share of Rs 226 and accounts for more than a quarter of its stock price. Valuation at Discount: March 31 2005: 18.9 March 31 2006: 34.3 March 31 2007: 18.7 March 31 2008: 20.8 March 31 2009: 19.7

LIC Housing Finance

LIC Housing Financeare by far the most insulated companies in the banking and financial space. If there is one mortgage company to reckon with in India after the behemoth HDFC, it is LIC Housing Finance. The mortgage players are prone to slowdown to a certain extent as housing is a fundamental need and house-ownership levels are low in India. LIC Housing Finance has grown its mortgage portfolio by 23% per annum in last three financial years. Valuation at Discount: March 31 2005: 11.0 March 31 2006: 8.9 March 31 2007: 5.1 March 31 2008: 6.6 March 31 2009: 8.7

Opto Circuits

Opto Circuits is engaged in manufacture and export of invasive and noninvasive medical equipment like sensors, pulse oximeters, monitoring systems and stents among others. The company is a major supplier of sensors to large original equipment manufacturers. The company has used the inorganic route, especially overseas acquisitions, to grow at a rapid pace in the past few years enabling it to expand its product portfolio as well as enter new geographies. With its niche products, reach in foreign markets and aggressive growth, the company presents a promising growth story. Then come stocks that are more prone to the ups and downs of economy. However, ‘more’ does not imply that they are like crude oil, which came down from $147/bbl to $32/bbl in five months. It just indicates that the slowdown in economy is expected to have some bearing on their performance. Valuation at Discount: March 31 2005: 17.0 March 31 2006: 25.3 March 31 2007: 30.2 March 31 2008: 29.2 March 31 2009: 21.2

Shree Cement

Shree Cements is one of the fastest growing cement companies of India. Its net profit has jumped by over 20 times in last four years. Its plants are at one location, which helps in reducing overheads and makes it one of most efficient cement producers in the country. The company now plans to invest Rs 1,000 crore in capacity expansion in a year’s time. The stock has almost doubled since the start of current rally but historically speaking, it is trading at very low valuations. Moreover, at current valuations, it trades at huge discount from the valuations of larger players. Valuation at Discount: March 31 2005: 26.7 March 31 2006: 51.1 March 31 2007: 15.5 March 31 2008: 23.1 March 31 2009: 6.3

Shriram Transport Fin

Shriram Transport Finance is by far the most insulated companies in the banking and financial space. Growing at even higher rates is Shriram Transport Finance, which posted a CAGR of 47% in its assets under management in same period. The company provides finance for the purchase of used commercial vehicles. This makes it insulated, as unlike new commercial vehicle segment, which is highly cyclical, the demand for this kind of financing depends upon exchange of existing commercial vehicle and not capacity expansion. Valuation at Discount: March 31 2005: 6.5 March 31 2006: 18.7 March 31 2007: 11.4 March 31 2008: 19.9 March 31 2009: 9.7 Sintex Industries Sintex Industries is a leading manufacturer of plastic products which includes pre-fabricated building materials, monolithic structures and custom moulded products. It has already acquired seven companies in a short span of 2 years and is currently looking out for more. Its pre-fabricated building materials and monolithic construction material are finding great demand in low cost housing projects and rural schools or healthcare shelters. Valuation at Discount: March 31 2005: 18.3 March 31 2006: 29.1 March 31 2007: 20.0 March 31 2008: 26.7 March 31 2009: 11.8 Tulip Tulip Telecom provides solutions in the space of corporate data connectivity and network integration. It caters to both government and corporate sector and has a strong client base across both the segments. Tulip has undertaken capital expenditure to strengthen its presence in the VPN (virtual private network) space. It is laying fiber optic network to provide high bandwidth last mile connectivity to its enterprise customers in 10 major cities. This along with government’s thrust on rural connectivity is expected to keep Tulip’s growth momentum going. Valuation at Discount: March 31 2005: NA March 31 2006: 23.6 March 31 2007: 22.9 March 31 2008: 16.2 March 31 2009: 10.1

Multibagger Stock Picks for Long Term

The Indian markets have gone up almost 100% from the lows it made in March 2009. There is suddenly more optimist about the global economic recovery. There are also hopes of major economic reforms in India and talks of disinvestment and oil price deregulation are already on. With all these factors, the optimist in the markets is much more then it was in the past 1 year and more.

So is this the time to buy equities?

I would say that at 8000 levels the risk return balance was more in favor of high returns. Big companies were trading at amazingly low valuations. However, currently if one makes an investment the risk factor is high. The reason being that there are several stocks that have gone up more then 2-3 times from its March lows. In my opinion these stocks can easily correct 30-40% from their current levels.

Correction or Crash Coming?

Its always difficult to take a call on the markets. However, in my opinion I dont see a major crash in the markets in the near term. The reason is not that the fundamentals of the economy are improving very fast. The reason is that, even in a bad economic scenario, there is plenty of liquidity in the hands of market participants. So markets can remain relatively stable even on bad economic news.

So after a near 100% rise on the Sensex and Nifty, we should see some correction. In my opinion it would not be surprising to see the markets go back to 12k type of levels in the near term. This will happen mainly because of the realization that the global economy will not recover so fast as it is now being expected.

Multibagger Stocks for Long Term Investors

If the markets correct 30-40%, then it would be a good time for long term investors to buy some equity. I am not sure if the markets will go back to 8000 levels. But what I am sure about is that if one slowly accumulates equities on corrections, then he/she will make big money in the next 5-10 years.

Accordingly I have listed down some sectors and stocks I personally feel will outperform in the long term.

Sector - Agriculture

Stocks

1. Karuturi Global Ltd.
2. Jain Irrigation Ltd.

Sector - Industrial Commodities

Stocks

1. Sterlite Industries Ltd.
2. Maithan Alloys Ltd.
3. JSW Steel Ltd.
4. Hindustan Copper Ltd.

Sector - Education

Stocks

1. Everonn Systems India Ltd.
2. NIIT Ltd.

Sector - Oil and Gas Exploration

Stocks

1. Oil & Natural Gas Corporation Ltd.
2. Reliance Industries Ltd.
3. Reliance Natural Resources Ltd.

Sector - Logistics

Stocks

1. Container Corporation of India Ltd.
2. Gateway Distriparks Ltd.

Sector - Infrasturcture

Stocks

1. Hindustan Construction Company Ltd.
2. Subhash Projects & Marketing Ltd.

Sector - Security Systems

Stocks

1. Honeywell Automation India Ltd.

Sector - Banks

Stocks

1. ICICI Bank Ltd.
2. YES Bank Ltd.

I my later posts I will try and take up all these stocks individually and give a detailed analysis on why I feel these stocks would outperform in the long term.

Once again I would like to point out the fact that you can never be sure about the markets. It might go up to 21,000 also or fall again to 8,000. But in my opinion if one is looking to invest with a time horizon of 5-10 years then getting into great stocks at any levels between 8,000 and 12,000 would be the best option.

Comments are invited on more sector and stock picks. Investors should note that in my opinion these are good stocks and should do well. Thus, everyone should do their own research before arriving at an investment decision.

Best Indian Stocks for LongTerm Investment - By Kumaran Seenivasan.

As I mentioned in the last post, I have identified 40 companies which can give promising returns in the long term if we stick with it. In fact one can do more research on this list to construct a well balanced portfolio based on the individual risk potential. If we continue to invest from current price levels irrespective of whether the market goes down or up, there is a strong chance to get above average returns over the 5 year period.

What I have considered while selecting these Stocks?

1. Book Value
2. Current and Past EPS and PE Ratio
3. Debt / Equity Ratio
4. Current Ratio
5. Future Potential(Main reason for Selecting Commodity Stocks)
6. Size of the Company

7. Comparative Advantage or Uniqueness

I have listed the companies group/sector wise and I request the readers to do more research on these stocks to make their own judgement.

SENSEX STOCKS

1.State Bank of India
2.Larsen&Toubro
3.Reliance Infrastructure
4.NTPC
5.ONGC
6.BHEL
7.Reliance Communications(At current price) or Bharti Airtel(If less than Rs.550)
8.ICICI Bank
9.Tata Steel

Outside Sensex

Banks

10.Axis Bank
11.Punjab National Bank
12.Yes Bank or Bank of India

Power

13.Reliance Power
14.CESC Limited

Agriculture

15.Jain Irrigation
16.Chambal Fertilizers
17.Tata Chemicals
18.Gujarat State Fertilizer Corporation
19.Kaveri Seed Company

Pharmaceutical

20.IPCA Laborotaries
21.Lupin

Finance

22.Reliance Capital

Commodities/Diversified

23.Kesoram Industries or Nava Bharath Ventures(Cement and Sugar) or Ultratech Cement(If less than Rs.400)

24.Sesa Goa

25.Welspun Gujarat

26. Indian Hume Pipe Company

Engineering and Infrastructure

27.IVRCL Infrastructure

28.Hindustan Dorr Oliver Limited

29.Punj Lloyd

30.Elecon Engineering or Lakshmi Machine Works

Technology

31.Rolta India

32.Tulip Telecom

33.Geodesic Information Systems(If you believe in VAS)

34.Compact Disc India (Small Cap) or Crompton Greaves (Mid Cap)

35.Jindal Photo (Small Cap) or Siemens (Mid Cap)

Others

36.GAIL

37.GE Shipping

38.Bilcare

39.Mundra Port and Special Economic Zone

40.Aditya Birla Nuvo or Clariant Chemicals

Note: I have included Technology Sector for the people who believe in it. Because, I have a feeling that the stocks in this sector can be affected by innovation and new entry very easily than others. But we can have few selected stocks from this sector as it has high growth potential. One might have a feeling that I have left out few good companies. But if we continue to feel like that then we might end up with 100 good companies and never be able to construct a well diversified portfolio.Hence, I tried my best to limit the number of companies to 40.

Tips to Construct a Good Portfolio:

1. Select atleast 7 SENSEX Stocks from this list.

2. Spend 50 percent of your investment in the SENSEX stocks that you have selected.

3. Select 10-15 companies outside of SENSEX from this list or the companies that fit into your scheme of things.

4. Spend another 30 percent in the Large/Midcap stocks you selected.

5. Spend the rest (20 percent) in Small Caps that you selected.

6.Continue investing from current levels irrespective of the Market ups and downs.

7.If the Bull market sets in, then stop investing when the SENSEX gains 75 percent from the current levels (Around 16000). This is for the long term investors only.

8.Do not reconstruct your portfolio unless SATYAM like situation arises for any of your stocks.

9.Never get swayed by any stocks outside of your portfolio once you have selected the best companies after careful research.

10. Just sit and enjoy when the Bull market sets in and book the profit when you reach the desired (Very Important) returns.

Sectors that I am interested in:

1.Banking

2.Power & Energy

3.Agriculture

4.Engineering & Infrastructure

5.Pharmaceuticals and

6.Commodities(For long term)

Conclusion: I have selected the stocks based on my own intuition and I request the readers to do more research to pick the stocks that best suit individual interests. I have also listed a 10 point rule to construct a well balanced portfolio based on what I am certainly going to do. But individuals can change the rule according to their liking without any major modifications (Only if they are interested to construct a long term portfolio). I sincerely request everyone who read this to share their views about these stocks or other stocks they believe in.