Monday, December 28, 2009
The rally took the market to 5178. How are we placed technically. Lets take a look at few of the Technicals which could give us a clue about the markets.
1. The lower end of the Bollinger Band was touched and at around 4950 and then the markets rebounded. The Bollinger bands had narrowed and now they have started widening. The upper end has moved to 5208 from 5181 and the width was around 230 points when the bands were narrow. This could mean a rally till 5310.
2. The markets took support from around the 50 EMA, and I have observed whenever the markets take support around this level, they do not touch the 50 EMA again for at least 2-3 weeks. The supports are at 5062 and 5001.
3. The trend line joining the tops from June gives a Target of around 5400.
4. On the weekly charts, the supports are at 5159 and 5076.
5, If we take a 5 wave up move from 4539, wave 1 ended at 5181, wave 2 at 4807, wave 3 at 5182, wave 4 at 4944. Wave 3 is never the shortest of 1,3 and 5. So, it should be less than wave 3 and end before 5319.
Alternatively, if this count is wrong, we could go higher.
Friday, December 25, 2009
It was a Bear Trap nicely set by having huge OI built at 5000 and 5100 calls. This is the third month running that OI has been used to mislead the punters.
The Markets rallied as anticipated from 4944, key support areas. They retraced all the losses made in 5-6 sessions in a couple of sessions. The Faster retracement theory states that this is a fresh up move.
The FIIs made huge purchases on both Wednesday and Thursday thus debunking that they are on vacations.
The FM came out with rosy GDP projections which proved to be trigger. Remember the Government has massive disinvestment to be made while the going is good. Expect more such noises.
The Dollar Index rallied from 74 to 78. It may retrace a few of the gains made. This rally in Indian equities has some more steam left.
The famous December - April effect will now come into play. I will post more on that later.
The US markets look all set to rally to their next pivot point of S&P 1166. That is a good 4 pc more up-move.
5300-5350 seems to be the next target areas based on both fundamental and technical factors.
I continue to SIP in Gold.
Remember while enjoying the present, on must plan for the future. What 2010 holds is a different post altogether. Lets use these holidays to plan for 2010.
Enjoy your Investing.
One could play this up-move by buying Reliance at CMP with strict stop losses.
Sunday, December 20, 2009
1. The Nifty broke the support line from the November lows. The support at the trend line joining the lows from July comes to around 4860. This is a very crucial support line, breach of which means the rally from March lows may be over.
2. The 50 EMA at 4990 and 20 EMA at 5056 have been breached. The 50 EMA is a very strong support and the markets may bounce up from current support levels. The Markets had bounced from 50 EMA in August.
3. The 61.8% of the rise from 4807 to 5182 comes to around 4950 a key support level.
4. The 5 week low ema which the market had taken support during the Dubai crisis comes to around 4940.
5. The maximum open interest in Puts is at 4900 and in calls is at 5100 and 5200. The next week is a truncated week and volumes would be light.
6. The inflation is running away and the government would have to raise Interest Rates. It would not help much as this is Supply Side inflation not Demand side inflation.
7. The Dollar Index rising would lead to Dollar Carry trade unwinding and also commodities becoming cheaper. Good time to SIP in Gold.
8. The Bollinger band top is at 5181 and bottom is at 4960. The Bands have narrowed so a breakout on either sides would give additional 200 points. This means 4750 or 5380. The index does not stay out of the band too long. So, the markets may bounce in a day or two. If they do not, then indices would decline further.
9. I would go long on break of 5038 on closing basis. Stop loss for shorts would be 5025.
Saturday, December 12, 2009
The Nifty made a triple top at 5182. So does this mean the rally has ended?
There just might be juice left for 1 final blow out rally upto 5350 or 18000 sensex. For that to happen, the indices may need to dip a bit.
1. The max open interest is at 5200 call for December series and 4900-5000 puts.This means lots of people have interests (Option writers are usually big institutions) to cap this up move at current levels for this month.
2. The Bollinger bands are at 4980 at the lower side and 5184 on the upper side. The Bollinger bands are mostly respected by the indices. The Bollinger bands are narrowing down implying a big down or up move is coming (+- 500 nifty points)
2a. The RSI is making a negative divergence. First time nifty hit 5181, it was at 63, then 59 and now 55. Price usually follows the indicators.
3. The 50 ema is at 4978, the 5 week low ema is at 4920. Usually these levels are respected by the indices.
4. Its the Christmas season and foreign brokerages will soon do some profit booking and go on vacation. I expect the usual December Jan rally to kick in for 1 final swing. But this should happen in the next series.
5. The US markets are rage bound and S&P is oscillating between 2 pivots 1091 and 1106. It needs to convincingly break either these 2 for a breakout or breakdown.
6. The Dollar Index is at 2 months high and this means commodities like gold, oil will become cheaper. The sovereign debts of countries like Greece and Spain are i question. December 14th is a key date for Nakheel bond repayment.
7. The dollar index may retrace its current up move before a final swing up. I would watch the 77-77.5 levels closely.
To summarize, I feel a dip to 4900-4950 is most likely with a final blow out rally of 1500-2000 points on the sensex.
Saturday, November 28, 2009
The markets tanked on Thursday and Friday. The markets lost about 6.46% to hit a low of 4806 before recovering to close at 4942. The Dubai World inability to pay the loan raising the possibility of sovereign default.
Dubai World is a wholly owned subsidiary which has interests in businesses across the world. It has a stake in Dubai Ports. Its real estate arm is called Nakheel which is developing Dubai.
Contrary to public perception, only 6% of Dubai's revenue comes from oil and natural gas. Most comes from Trade (16%) and real Estate (22%). The Dubai World is asking for interest holiday on their loans. The loans total to almost 64 billion dollars.
Dubai was being developed on the US model of taking huge debt and developing another Las Vegas.
So what does this present crisis imply?
First of all, the speed with which it is resolved will decide the course of the global markets. Most likely the cash rich Abu Dabhi Emirate may step in. A lot of UK Banks have exposure to this debt. This crisis will send alarm bell rings across the globe. A flight to safety and risk aversion may mean the dollar index strengthening.
In March 09, the dollar index hit a high of 89 when the emerging markets hit a bottom.A 17 % dip in dollar index has led to emerging markets doubling.
The FIIs sold 1050 crores on Friday and they have been selling the whole week.
If there is a flight to safety, the dollar index will strengthen and the dollar carry trade will unwind.
The dollar strengthening means commodities becoming cheaper. Gold prices eased on Friday hitting 1155$ dollar to a ounce at one point of time.
This could be a good point to add gold at lower rates. The Dubai crisis how it pans out will decide the future course of the markets.
Also, the India diaspora working in the Middle east will be hit if employment opportunities go down. A large Forex boost for India is the inward remittances from Indians employed there.
The government has a lot to think about.
Saturday, November 21, 2009
It was a Friday second half rally which took everyone by surprise. It looks like the previous high of 5182 for this calendar year could be taken out. So how do we play this upmove?
First there are several confirmations we need to wait for:
1. The fall from 5182 to 4539 was retraced in slower time than the fall. Retracement in slower time could mean that the rise was just a retracement to the fall. The pullback could be 80% of the fall in extreme cases, which in this case would be 5054 +- 30 points for whipsaws. We have already seen a high of 5079. The market corrected to 4933 (a weekly pivot). This fall was 27 pc of the up move from 4539.
2. The trend line joining the lows from 4539 comes to 5083 approx. The index needs to close above this for the uptrend to sustain. Weekly supports come around 5016-5022.
3. The 89% retracement comes to 5111. Beyond this level it is clear that this up move is more than just a retracement.
4. Reliance is 1 stock which has a record date of 1:1 bonus on 27th November. Typically stocks tend to move up after the ex-bonus date. This is also especially because of the perception in people's mind that the stock has become cheap. Reliance is currently trading at Rs 2125. If we look at the charts, it has broken the trend line joining the lows from Oct (Nifty 4539). If it moves up above 2150, it would also break the trend line joining the highs from October. Next would be a first target of Rs 2300.
5. Reliance formed a bullish engulfing pattern on the charts on Friday and also negating the highly bearish 3 black crow pattern.
4. Another advantage of playing Reliance is that if the market tanks, its a solid stock in one's portfolio.
5. The dollar index is strengthening. This could lead to FII unwinding. This needs to be watched. The next week is a shortened week in the US due to Thanksgiving. With our expiry on Thursday, the trend would be clear by Wednesday.
Saturday, November 14, 2009
Airports are the new gateways to the world. Every big city in India has just 1 airport or maybe in future to have 2 airports. Airports require lots of land and its a monopoly business.
I took a look at the major airports in India. GMR Infra has Delhi and Hyderabad airports under its belt. GVK Power had Mumbai and now a 12 pc stake in Bangalore airport.
The benefit of these 4 airports is that more than half of the nation's air traffic passes through these airports.
How do these folks make money?
1. Landing charges for aircraft, passenger fees which passengers pay when they take off from the airport.
2. Ground handling and baggage charges.
3.Non-Aero streams like rentals from shops, beverages, ATMs, car hire and airport amenities.
World wide about 70 pc revenues come from non - aero streams.
These operators have the airports on lease for about 50-60 years. I am particularly excited about Bangalore and Hyd airport because they are far away from the main city and the developers get huge parcels of land around the airport to develop for commercial use.
Remember 50 years back when current airports were built they too were on the outskirts of the city but now have become central airports.
Airports fall into the category of businesses which have high entry barriers. This is because no 2 airports can be built within a radius of 200 kms and current developer has first right of refusal.
The Noida airport has not taken off because of this same fact. The Navi Mumbai airport also will remain just on paper. This is because I have visited the site and seen for myself that lot of mangroves will get destroyed if they build the airport. This is precisely the reason it is stuck with the Environmental Ministry.
Even if the permission is given tomorrow, it will take at least 5 years for the airport to be operational.
Its difficult to find new investment ideas every day. This is 1 opportunity in front of us.
Next is valuations. That is as per individual appetite. These are real long term buys with great gestation periods. Both GMR and GVK are in power generation as well which would be hived off as separate companies.
Sunday, November 8, 2009
Are we then on our way to new highs?
The Corporate Results, by and large have been good to excellent. The bottom lines of the companies have grown more than the top lines. This shows companies are cutting costs, getting rid of the excess flab accumulated during the good times.
Autos, IT companies have done exceedingly well. At the same time, dangers lurk around the corner.
The food inflation is almost 13 pc. The SLR has been hiked and CRR are a matter of time. The early signs of revival are there, but they need to be on a sustainable basis once the crutches of stimulus are removed.
The government has come out with a disinvestment list. This bodes well for the economy and the stock markets. Governments should be in the business of running the country not businesses. This would increase the depth of Indian Markets as well as bridge the fiscal deficit.
Domestically things look good.
The catch is in the global economy. The UK government has extended bail-outs to the UK Banks. The US interest rates are almost close to zero yet again.
US risks going into a long period of no growth like the Japanese did in the mid-90s. Also, the current liquidity is leading to the Dollar carry trade like Yen carry trade.
Once, the US dollar strengthens, that is when the US Interest Rates rise on the back of Inflation, the pack of cards will collapse.
The US is the world leader. Unless US consumes, the rest of the world will not have a big audience for their exports. For all the talk of de-coupling, the global markets are still integrated.
The rise of Gold prices to 1100 dollars is seen as a flight to safety. Throughout history, Gold is the only asset to have existed for thousands of years.
Gold was Rs 6500 in 2005 and now is Rs 16500.
My preferred picks on declines would be Sugar, IT companies, Autos and Gold.
I would err on the side of caution now and stay light.
Technically speaking, the 4800-4900 is littered with resistances. We have the 5 week ema at around 4867, then the 20 and the 50 day emas in the same band. Also, the retracements for the entire fall from 5182 to 4539 falls from 4860-4936.
I would go long only on a decisive close above 4900 or short below 4700. Till then watch.
Sunday, November 1, 2009
1. The trend line joining the lows from March is broken decisively on weekly and daily basis.
2. The FIIs and DIIs were net net on the sidelines for the month of October. Both were almost net zero in terms of money pumped.
http://www.bseindia.com/mktlive/market_summ/categorywise_turnover.asp The BSE link from where I got the data.
This means that DII turned neutral to negative since August and now the FIIs have joined the same view. This makes November very critical.
3. Even though the market has corrected 7-8% from the tops, many stocks have lost much more, indicating a brutal market wide sell-off.
4. On the basis of 5 week Ema which comes to 4903, we have decisively broken it for the first time since March'09. This is the second weekly close below 5 week ema.
5. The 50 day ema was broken without much ado around 4850. The next support comes around 4600 odd levels.
6. The heartening thing to note was that both FII and DII were net buyers on Friday to the tune of 500 odd crores each. In spite of this the markets fell. Maybe a bear trap for shorters.
7. The Dow closed down 250 points on Monday nut it has also reached the oversold levels and a bounce is expected.
8. The RSI(14) is at 31. This is at lowest levels since March and in the oversold levels. A bounce ca be expected any month. Till 50 EMA is decisively taken out, I would use rallies to short.
9. The RBI credit policy with a hike of 100 basis points is a good step. RBI is ahead of the curve. Better pain now, that a bubble being created.
10. The US GDP growth of 3.5% is largely due to the cash for clunkers scheme and fiscal injections.
Conclusion: Those who have booked out, enjoy the fall and be ready to buy at lower levels. The rises can be used to get out. Those who have missed out the fall as a shorting opportunity, the first fall is always difficult to catch. I would wait for a confirmation of a second weekly close below 4900.
Saturday, October 24, 2009
First, the FIIs were huge sellers on last 3 days. They pulled out almost 1500 crores whereas DIIs pulled out 80 crores. I went back and checked. The DIIs have bee net sellers over August, Sept and Oct. In July they were marginal buyers.
This means the entire rally from July, post budget has been on FII flows. This week FII liquidation could be because of Galleon and Lehman forced liquidation or something else. If it was only a forced liquidation, then we should be ok.
Second, Nifty closed at 4997. The 5 week EMA was at 5000, and it has closed below it. This is only the second time in 7 months it has done so.Hence, for the bull run to continue we should close above 5000 next week. All the max open interest is at 5000 strike price for Oct expiry. So we should be somewhere around this by Thursday with a negative bias as there are more calls than puts written at 5000.
Thirdly, we have closed below 20 EMA from which we have taken support many times. 50 EMA comes at 4853 which becomes a key level to watch. Closing below this level for 3-4 sessions, then all bets are off.
UK recession continues. Longest recession since they started keeping records. In US, the corporate results were better than expected. The main thing is profits have increased but not the sales to the same extent. The increased profits come on the back of cost cutting measures. But you can cut costs only to an extent.
Lets see if the entire upmove from March is over and we begin the next leg of downmove or the uptrend is intact.
Over the longer term, I am bullish on sugar, gold and Telecom (Bharti).
Friday, October 16, 2009
Also, it is a time of caution, as P/E of nifty is around 23. A staggered buying approach would be good.
I would also like to thank Lakshmi Ramchandran for all the efforts and encouragement put in to make this presentation a reality.
Please check out the presentation here:
Sunday, October 11, 2009
Key events were the dumping of Telecom Stocks, Infy results and Reliance bonus announcement of 1:1. Reliance came out with a bonus issue which surprised the markets but there was no reaction from the markets. An intra- day spike of 6 pc and thats it.
The markets typically hail a bonus issue which is nothing but a sentiment booster for the Retail. Eventually after a month or so after the bonus announcement you get the stock cheaper. An example of this was the Siemens stock last year.
Infosys as usual delivered a good set of number. Their Eps of Rs 100 for this year puts it at a P/E of 22. Not cheap for a stock where there is no growth year on year. The P/E to growth ratio the thumb rule is that it should 1.
Fair P/E for Infy I would put it in the range of 15-17 giving it a valuation of 1500 to 1700.
The most shocking was the dumping of the Telecom sector stocks following a price war announced by Reliance and TRAI declaring a discussion per second billing. Bharti lost almost 25 pc to end around Rs 343. The institutions follow a herd mentality in dumping stocks. I would accumulate Bharti for the simple reason it has 110 million subscribers out of 443 million in India. It has submarine cables and landing stations i key cities.
Bharti is an integrated telecom player and with 3 G, data communications would be another major play. Voice would be just 1 plain vanilla low end offering to entice the customer. The idea is to lock in a subscriber and use his mobile to be his gateway for payments, accessing the net and even his supermarket.
I would not be surprised if free voice calls upto a limit are offered if an user goes in for data solutions from a vendor.
The FII flows seem to be pausing, with the dollar weakening. A weak dollar means for fresh inflows, 1 dollar can buy less amount of stocks. Good news for existing investors as they can exit the Indian stocks with more dollars.
Nifty ended at 4945. It has a cluster of supports. It is at the trend-line joining lows since March 2009. 20 EMA is at 4935. If it breaks this next support comes around 4750.
Nothing is impossible but next week it seems it would be tough to touch 4750. My reasoning is simple. A truncated week with a holiday on Tuesday. Indiabulls Power IPO closing on Thursday means the market will remain shored up at least till Wednesday afternoon or even Thursday.
Look at the put-call spreads, 5000 is a key pivot. Almost same number of puts and calls have been written around this mark. So, its in the interest of the option writers that the markets revolves around 5000. Thats what has been happening last week, and option writers have been eating the premiums.
4800 and 4900 have huge OI in Puts ad would act as strong supports. They will not break easily. 5100 and 5200 calls have good OI build which would be resistance points.
Looks to be a range bound week.
Sunday, October 4, 2009
Often, when a country is on its way to becoming a economic superpower, it is reflected in the Sports Arena. By this, I mean consistent performances, not a few flashes in the pan, moments of individual brilliance.
Lets take the 1992 Barcelona Olympics. During those games, Soviet Union was at the top with 45 golds followed by USA and Germany. China was just making a small splash in the pool with about 16 golds.
In the 2000 Games, USA had 36 golds, followed by Russia with 32 and China 28 golds. The gap between China and the the top powers was coming down.
Cut forward to the 2008 Games and the performance reflects the new order in the world. China has got 51 gold, USA 36 golds followed by Russia.
There are several reasons for sports mirroring the economic strength of a country. As a country grows prosperous, the surplus funds grow and its citizens get better facilities. Athletes and other sportsmen get world class facilities to practice and are taken care of by the corporates.
China hosted the 2008 Olympics and it was making a statement to the world. We have arrived. We have the best facilities in the world. Our Sportsmen are the best in the world.
As the economic clout of a country grows so do its allies. Brazil was able to edge out even the mighty Obama backed Chicago. Speaks a lot about where USA is heading.
We have the 2010 Commonwealth Games. Lets see what message we send out to the world.
ps: Sometimes, its fun to ignore the markets and look at other angles associated with economics.
Friday, October 2, 2009
The Nifty P/E is at 22.89 as of 01st October.
It has exceeded these levels only during the bubble crashes of 2000 and 2008. In 2004, it briefly flirted above this level before falling.
We have 2 scenarios now:
1. It keeps rising to about 28 creating a bubble like scenario. It would break the previous high or thereabouts and the a mega fall.
2. Correct from anywhere here to 5200 zone. Every time it corrects, it comes down to a P/E of 14-16 which would be equivalent to 3200-3600 range.
Right now, the liquidity is gushing with FIIs pumping in 1000 crores daily. I have not seen even in the earlier bull run.
We have the dollar carry trade like the yen carry trade with hedge funds borrowing at low interest rates in the US and leveraging these dollars in India.
These positions will be unwound when the dollar strengthens, (it would take more rupees to buy the same dollars invested) or interest rates rise in the US.
The dollex is showing some signs of rebound on Bernanke comments. Interest rates rising in US will take some more time.
Troubles in China or at home in US could reverse the flows.
Time not to invest aggressively and keep taking profits with trailing stop losses. I would keep a stop loss of 4900 for my investments.
Sunday, September 27, 2009
1. Nifty has been 6.34% up as compared to 31st august
2. FIIs have pumped in 10,854 crores in September and DIIs have put in 518 crores in September.
3.For the year from Jan'09, FIIs have put 16300 crores and DIIs have put 23535 crores.
The above Stats say a lot. Out of a total of about 40000 crores pumped in 9 months,11300 crores have come in September which amounts to roughly about 26 pc of inflows yet the market moves up only 300 points as compared to 2400 points from the bottom.
So now in spite of so much buying the market is not moving means someone is selling. The Smart Money is moving out of the Markets.
The FIIs display a herd mentality.Now, if this FII flow were to disappear then there would a stampede towards the exit doors.
The cheap dollar and low interest rates in the US are fueling this fascination for emerging markets. FIIs tend to churn the money around.
China down 18 pc from its peak value, Hong Kong about 4 pc and the Indian markets 1.58 % from the peak.
India story is looking good domestically, the only thing which can spoil the party is global triggers.
The Best option is to keep a trailing stop loss for positions at the 50 EMA which comes at 4658.
Monday, September 21, 2009
5 EMA, 20 EMA and 50 EMA are key support levels. The Bollinger band tops are key resistance levels
BBtop 15, 20 5039, 5000
5DEMA - 4984
5 EMA - 4928
3 EMA - 4956
7 EMA - 4902
10 EMA - 4866
20 EMA -4777
50 EMA -4601
STochs - Buy
MACD - Buy
Saturday, September 19, 2009
Lets check out the fundamentals. Domestically, the things have improved definitely. Forget the IIP numbers which are overcooked by the government anyway. I look at the Auto Sales numbers as a key measure. Maruti is producing at peak capacity. They are now only constrained by Production limitations.
Indian IT companies are again bagging orders. The freeze is beginning to thaw. Domestically, things are beginning to look bright. My sense is that the next downward trigger will not come domestically unless its a Mumbai style Terrorist Attack. This time, India will not be expected to give a muted response.
Globally, things are seemingly looking up. The US and so the world markets are at new 2009 highs. It seems pumping in cash has done the trick. I will keep a watch at China. They are often the leading indicators of things to come. It seems a dichotomy that Chinese Markets are tanking when Global Markets are partying.
How does China become so important?
They hold a large amount of US Treasury bills, they are largest purchasers of US debt and FIIs for BRIC countries look at China for direction.
The US data looks towards a stabilizing of the job markets. The rate of decline has reduced.
The nifty has gone up 6.75 % in September. This has primarily been due to FII inflows of almost 8000 crores. DIIs have put in just 800 crores. The Party will continue till liquidity keeps pouring.
The FII or the so called smart investors often so a herd mentality. When they stampede towards the exit they do not give an opportunity to exit.The Nifty is at a P/E of 22.31. This is historically where it takes a dip to at least 19.
So what should you as an investor do?
If you are already invested and looking to book profits, keep booking at every rise of say 200 nifty points or keep a trailing stop loss of 20 EMA which stands at 4777 as of yesterday.
If you want to invest money look for dips to buy. Again, one could look at dips to 50 EMA to buy which comes to 4601.
Remember, if the crash comes it will be swift and brutal. So, you will know that it is not time to enter.
The markets had come 50 EMA levels last around 18-19th August, nifty 4353 which was a buying opportunity.
Sunday, September 13, 2009
The global markets are interlinked for all the talk of decoupling. The Chinese markets are supposed to be a advance indicator of what is going to happen in other emerging markets.
In Oct 07 when are markets were hitting new highs, the Chinese market corrected sharply.They were 21 pc down from their peak in 2 months.Then recovered 13 pc before the Jan 2008 meltdown.
This time, they corrected even more sharply in July down about 23 pc from its peak when our markets were hitting new peaks. They have now rallied back about 13 pc again.
Last time, it took about 3 months for the fall, rise and then the big fall. This time, it has been faster. The fall and the rise have consumed about 7 weeks.
Will history repeat itself?
Domestically, now the cues have been factored. The next positive triggers could be the half year results in October unless we have some unforseen event globally
Friday, August 28, 2009
2 of the most important and basic analytic ratios are Price/Earnings and Price/Book Ratio. Lets us explore how they have behaved over the past 9 years.
Price to Earning ratio in layman's words is how many times the share trades to its profit made.
Infosys if it trades at Rs 2000 and Profit (Earning per share or EPS) is Rs 100, its P/E ratio is 20.
Price to Book value ratio states the number of times the company is trading to its book value. Book value is nothing but the assets of the company. If the company's assets are sold off tomorrow and money distributed to shareholders how much each shareholder will get per share. IT companies typically have high P/B ratios.
If we look at the past 10 years in graph above, we have add 2 bubbles in 2000 and 2008.In such extraordinary times, the P/E can go to even 28. We do not have bubbles every other year.
So in other times?
Market has corrected sharply when P/E is between 21 and 23.If you see the May 03 to May 04 period market has corrected sharply almost to hit the bottom again in P/E terms. Remember it would not be exact bottom because the earnings would have increased by then ( In 1 Year).
This has happened almost 4-5 times in last 10 years that market has reacted from P/E 21-23.
Also, historically it makes a bottom around P/E 11.
During the dot com bubble it made a top of 5 and 2008 of around 6.5. This time it made a higher top because there are companies in the Nifty like RPl and Reliance Petro who have low book value along with the IT pack.
What is interesting is the lows it made.It has bounced 3 times when price is just 2 times the book value.
What do the above 2 graphs tell us?
Correction could be round the corner. If we take P/E of 23 as top, then 5159 could be near the top on Nifty. Whenever it corrects from this level it can goto P/E 11 to 15 range.
This could be in Nifty terms 2600-3400 range. It makes sense to take profits off the table if you go by the P/E historical data.
One caveat, companies in the Nifty change, but we take nifty as a broad barometer of the Indian Market.Hence, everything evens itself out.
Lets see if history repeats itself this time.
Saturday, August 22, 2009
L&T Finance is coming out with a NCD issue. The issue opens 18th August and closes September 04th. Should the retail investors invest or not?
What are Non-Convertible Debentures?
NCDs are instruments which enable the borrower to borrow money against some collateral. The collateral in this case would be the company’ assets. L&T Finance would also be creating a Debenture Redemption Reserve to take care of payments for the NCD. (To the extent of 50% of value of NCD)
Debenture holders stand a greater right to the assets than shareholders in case the company goes bust. The assets are sold and shareholders are the last to receive anything, once all debtors are paid.
How safe is this issue?
L&T Finance is 100% owned subsidiary of Larsen and Toubro. So, if you can buy L&T shares you can buy these NCDs. It has received high credit rating from the rating agencies.
How good are the returns?han shareholders in case the company goes bust. The assets are sold and s
They are offering returns from 9.5 to 10.25% as per the table below. A government 10 year bond is yielding 7.3% as of yesterday.
What if I need the money early?
These bonds will be listed on the NSE, and they will be available in your Demat account.So you can exit anytime you want. Tata capital NCDs which came out in Feb are traded on NSE and there is adequate liquidity. You will get the money in 3 days time from the time you sell.
Is there something more I can expect?
There is a reservation of 35% for the retail. The Retail quota is almost never oversubscribed so you get full allotment. The HNI and Insitituins oversubscribe. Ur They will want to buy it from you on listing.
If the issue on listing, trades at 9 pc, your bond will yield you Rs 1030 (0.6 pc gain per year for next 5 years).
The Tata Cap NCD issued at Rs 1000 is now trading at Rs 1122.So if the rates go down, the value of your bond increases, if it goes up, keep holding the NCD and enjoy 9.65 pc interest for next 5 years.
Should I wait for the last day for investing?
Allotment is on first cum first serve basis. The issue may close earlier also.
I would recommend invest in this issue under the retail section.
Option I II III IV Interest Payment Quarterly Semi-annual Cumulative Semi-annual Minimum Application (Rs.) 10,000/-(Retail) 1,01,000/-(NIIs & QIBs) 10,000/-(Retail) 1,01,000/-(NIIs & QIBs) 10,000/-(Retail) 1,01,000/-(NIIs & QIBs) 10,000/-(Retail) 1,01,000/-(NIIs & QIBs) Multiples (Rs.) 1,000/- 1,000/- 1,000/- 1,000/- Face Value (Rs.) 1,000/- 1,000/- 1,000/- 1,000/- Mode of Interest Payment Through various modes available* Through various modes available* Through various modes available* Through various modes available* Coupon Rate 9.51% p.a. 9.62% p.a. 9.95% p.a. compounded annually 10.24% p.a. Yield on Redemption 9.85% 9.85% 9.95% 10.50% Tenor 60 months 60 months 88 months 120 months Redemption Date / Maturity Period 60 months from the deemed date of allotment 60 months from the deemed date of allotment 88 months from the deemed date of allotment 120 months from the deemed date of allotment Redemption Amount Face value plus any interest that may have accrued payable on redemption. Face value plus any interest that may have accrued payable on redemption Rs.2,005/-per NCD Face value plus any interest that may have accrued payable on redemption
Minimum Application (Rs.)
10,000/-(Retail) 1,01,000/-(NIIs & QIBs)
10,000/-(Retail) 1,01,000/-(NIIs & QIBs)
10,000/-(Retail) 1,01,000/-(NIIs & QIBs)
10,000/-(Retail) 1,01,000/-(NIIs & QIBs)
Face Value (Rs.)
Mode of Interest Payment
Through various modes available*
Through various modes available*
Through various modes available*
Through various modes available*
9.95% p.a. compounded annually
Yield on Redemption
Redemption Date / Maturity Period
60 months from the deemed date of allotment
60 months from the deemed date of allotment
88 months from the deemed date of allotment
120 months from the deemed date of allotment
Face value plus any interest that may have accrued payable on redemption.
Face value plus any interest that may have accrued payable on redemption
Face value plus any interest that may have accrued payable on redemption
Saturday, August 15, 2009
That is the key question these days. I feel it is not so. Some of my reasoning for why it is not so.
I have been talking of a W-shaped recovery since April now. Well, here are some more people talking about the same. Pual Krugman is a Nobel Laureate in Economics. Here is what he has to say.
He is talking about a W-shaped recovery for the US. We are 1 half through. We are just at the point of the 2nd leg up, from where if the recovery continues it will be a V-shaped recovery or 3rd leg down before the final recovery. The 2nd leg down may not be very bad in terms of economic impact, but the markets have risen up on the assumption that the recession is over. If it’s a W-shape, I expect the Dow to touch 4500-6000 levels by end of the year.
Second point I am making, is of the effect of the drought. The government has said the economy will grow at 5.8-6 pc this year. The government forecast is always beaten on the lower side never on the upper side (Government being the most optimistic entity around). Now, if the impact of drought hits the economy GDP can be shaved of 1-2 pc. Again I am quoting CMIE
This is without factoring any global weakness. If we grow at 3-4 pc (back to the Hindu rate of growth), do we justify P/E multiples of 20+. We are at P/E of 20.72.
Third point I would like to make is of Bear Market Rallies. The current rally bears an uncanny resemblance to the Bear market rally of the Great Depression 1928-1932.
Look at the chart below:
There was a similar rally like these times, with similar time frame.
The 1929-1930 equity ‘rally’ lasted 147 days and shares gained 46%. The rally off the March 6th low this year has been 145 days and gains of 46% have been made.
There have been 23 occasions going back to 1950 when the UK market rose at least 10 days in a row and every time it has been said it was a confirmed bull market.
This reminds me of my favourite quote:”Those who forget history are destined to repeat it.”
The folks who come on CNBC and other channels have a vested interest. They have to sell stocks to people. So they talk about Green shoots and stuff. Naina Lal Kidwai of HSBC in a moment of great honesty said the other day. “ I believe the recovery would be skittish. Government and other private companies should be greedy. They should raise funds while the going is good.”
That is why you will see such mega IPOs. The markets may not crash overnight. There is large scale distribution going on ever since we hit 4693. We are rising on lower volumes and falling on larger volumes.Classical case of strong hands distributing stuff to retail.
To sum up , China wall is alredy cracking. Here is what my favourite writer Yelnick has to say, http://yelnick.typepad.com/
We may well hit 16500 on the sensex before beginning the leg down.Remember the markets can retrace a fall by 61.8%.
All in all, definitely no new buying, and look to book profits.
Saturday, August 8, 2009
IPOs are a magnet for the retail investors. The question which begs to be asked is to invest or not to invest? The NHPC IPO is ongoing.
Lets try and understand why companies come up with an IPO?
Companies need capital to grow their businesses. The capital can be in the form of equity or debt. The companies cannot keep taking debts. There is a ratio known as Equity to Debt ratio. This means the money put in by investors as against loan taken by the company. The cost of debt is high. One has to pay interest on the loans taken. Companies usually come up with an IPO when the market is bullish. The idea is to raise the maximum amount of money by diluting the least amount of equity.
Where does the Retail investor feature in here?
A fixed portion of the IPO is reserved for the retail investor. IPOs bring in new businesses to list on the markets. The problem with IPOs is retail getting very little allotment.
1. New businesses like, retail, power, infra get listed and the investors get a chance to invest.
2. Get a share in the business at a price lower than what the market price would be.
3. Entry point for a long term investor.
4. Assured allotment (If you invest for 1 Lakh)
1. Even if one invests the maximum 1 lakh, if the IPO is heavily oversubscribed one gets only shares worth Rs 10000, which may become Rs 15000 on listing.
2. The amount of shares got is so negligible that it makes no difference to one’s portfolio
3. If one is looking for listing gains your blocked money gives you a gain of 5 % on the 1 lakh locked. Investing it in say a blue chip may give you more amounts in same time. (Remember it’s a bull market)
4. If it’s a mega IPO. Market may tank while listing (Remember R Power)
5. The valuations are absurd. (There is no free lunch anywhere in the world)
The best strategy would be to make a note of such companies and buy them during market corrections at lower than IPO prices. Stocks IDFC, Yes Bank, Mundhra Port was available at below IPO prices later on.
NHPC IPO, I read that EPS is Rs 1 giving a P/E of 33-36. I would avoid investing in it. The power companies are currently the darlings of the stock market. This is because there is a power shortage in India. So every MW you generate will find a buyer. 3 years later on when all the power comes online, we would eventually be a power surplus country. That time the tariffs would fall down. So all the projections go for a toss.
IPOs could be treated as a entry point into a company. Get a small quantity allotted, and then eventually add to the stock during market corrections.
Personally, I usually avoid all IPOs.