one of my all-time fav movies - Wall Street...njoy the snippet

Links: US equities continue declining, Marc Faber....

> US Equities declined further on Friday, extending the week's losses to over 5%. Read a bloomberg article on this here.

> Marc Faber's view on the drop in equities in the US and on sub-prime woes.

> Asian markets feel the tremors of a decline in the US. Read here.

> Map detailing the break-up / flow of the residential mortgage market in the US.

> Turmoil in the markets by the Economist.

Sea of Red on Stock Markets across the globe

Almost a no-brainer that the Indian equity juggernaut will receive a jolt today. Equity markets in India held on nicely in the last two days. That, I think was primarily because of yesterday's expiry on the F&O market. As the top traded options were primarily put options they had to expire worthless and they did. Read my previous blog entry on this.

But with the new expiry beginning today, markets are quite vulnerable to global shocks....and today is likely to one of those days. Hang on to your seats as we see volatility take centre stage over the next few sessions.

Where will Nifty end on expiry, can we guage from the Options market?

Have read on many occasions in the past that most of the options in the F&O market expire worthless. However, I dont have any data to support / test this claim. But, suppose if were to go by this claim and were to assume that most of the options do end being worthless, what can be guaged from this?

The first question that we need to ask is: Who are the sellers in the Options market?

I don't think its the retail investor. I think most of the option sellers are the supposedly smart investors. If that is the case, then it makes an interesting reading of the Options market, a day before the expiry.

Lets then try to build a hypothesis, based on the above:

1. Most of the Options on the F&O market expire worthless

2. Most of the Options are written by smart investors

3. Thus, we can say that Smart Investors write most of the options, which also happen to expire worthless

4. We know that every trade has a buyer and a seller. Thus, options with highest volumes are also the ones which have maximum Smart Investor interest, since they are the ones who write most options.

5. Since Smart Investor interest is the highest in top traded options, they must be on the sell-side, since it is highly unlikely for retail investors to sell options, in any case, and that too on the penultimate day.

6. Thus, top traded options on the penultimate day reflect Smart Investor's outlook for the market, the following day.

The top traded options on 25-July-07 (for July expiry) were:

1. CE 4600 (SP) - 36,802 contracts
2. PE 4600 (SP) - 29,542
3. PE 4500 (SP) - 16164
4. PE 4550 (SP) - 13023
5. CE 4300 (SP) - 11669

Put contract dominate Call contracts by a margin of around 10,000 contracts. If looked at more closely, between the SP range of 4,500-4,600, there are close to one lac contracts traded with close to 60k on the put side. Thus, it is quite likely that most of these contract will expire worthless, i.e. Nifty will end above 4,600. Infact, almost all these contracts will expire worthless if the Nifty closes exactly at 4,600 today.....we will see that in about 15 hrs from now....

contradictions / contributions, as always are most welcome !!

Readings: Bill Gross and Gavekal

> Interesting note on the subprime debacle and its 'possible' effect on equities by Gavekal. (Got the link from Kaushik Gala's blog.)

> Investment Outlook by the bond king - Bill Gross of Pimco.

JK Lakshmi Cements: Robust Jun'07 numbers...

JK Lakshmi Cements came out with its first quarter performance today. The company reported robust numbers. The company's profit performance is far better than many of its listed peers. A brief look at the numbers:

> Sales growth (volume) - 18%
> Production growth - 16%
> Sales growth (value) - 43%
> Operating profit - 47%
> Profit after tax - 77%
> EPS - 57%

> 12M trailing EPS - 36.7
> At a price of Rs.151, the stock trades at a P/E of a mere 4.1 times, one of the lowest among its other listed peers.

The company's results in the next few quarters are expected to be equally robust, given firm prices and higher volume growth (on the back of capacity expansions that were completed by the end of the Mar'07 qtr). The Sep'07 quarter is likely to be particularly good. This is because Sep'06 was a poor quarter for the company, owing to heavy rains which affected both production and despatches.


Thus, with a low base, the Sep'07 numbers are expected to look phenomenal. More important will be the expansion in the 12M trailing EPS, which now stands at Rs.36.7 per share. I expect that to go up to around Rs.42 to a share. At that kind of an EPS, the scrip will trade at an EPS of around 3.5 times. Ridiculous levels to be trading at, I think.

I have written about this company twice in the past. You can read it here and here.

Links: IPO Analysis - Omaxe & Alpa Labs.

Read insightful IPO analysis notes on:

> Omaxe Ltd and
> Alpa Laboratories,

here and here.

Buy Saw Pipe companies says Religare Securities....

Religare Securities came out with a positive report on the Saw Pipes sector on 17-Jul-07. The companywise recommendation's are as follows:

> Man Industries, Target Price - 364, CMP - 287, Upside - 27%
> Jindal Saw, TP - 995, CMP - 684, Upside - 41%
> Maharashtra Seamless, TP - 778, CMP - 657, Upside - 18%
> PSL, TP - 436, CMP - 384, Upside - 14%

I wrote about Man Industries recently. You can read it here.

Why did Subros rise today?

Subros, an investment I made back in Jan'06, witnessed a spurt of close to 10% today. The rise was backed by a sharp jump in volumes (up from an avg of 14k to 95k), however, the percentage of shares delivered was quite low at around 27%.

Now, the news/announcement that followed a little later in the day was that of -

> a Board meeting to consider Stock Split and the Final Dividend for the year.

This hardly sounds like a reason to cheer the stock up by around 10%. Don't think the run-up is sustainable. Had the delivery percentage been higher, there would have been a hope for the rise to sustain itself.....but with a 27% delivery it doesn't look like it...will be watching the counter closely over the next few days.

Had written about this stock a few weeks ago, read it here.

News (17/7/7): To invest Rs.200 crore to double its capacity to 1.5 million units by 2012.

Bullish on Cement - DB. Take a look at JK Lakshmi

Deutsche Bank has come out with an insightful report on the Cement sector. It argues that the Cement story is pretty much intact, and the better days (in terms of profits and profitability) are still to be seen. It has forecast the cement party to continue till FY10.

The DB report is bullish on major cement companies like ACC, GACL, Grasim, India Cements, Ultratech Cement, and Shree Cement and has put out price targets that 20-39 per cent above the current levels.

I had invested in a company called - JK Lakshmi Cement back in March at around Rs.120 per share. The stock has since moved to Rs.132, a modest gain of 10%. However, I think there is a lot of steam left in this stock.

It is among the cheapest cement stocks with a price-to-earnings ratio of less than five times. It reported an EPS of Rs.32 per share for the year ended Mar'07. One of the plausible reasons why this company is trading at such ridiculously cheap levels could be its high leverage. I think it has Debt-to-equity ratio of over 2.5 times. Nevertheless, consider the following positives:

> the company recently expanded its capacity, thus growth in profits to not only come from higher prices but also from higher volumes

> the company is setting up a captive power plant, 36MW, which will pull down power costs that account for a third of cement companies operational costs...and maybe more in some cases..

Now, the DB report values the much larger and leaner cement companies at a P/E of around 14 times, discounting their FY09 earnings.

Even if JK Lakshmi Cements were to be valued at half that rate, ie. at 7 times. The target price of the scrip would be around Rs.210, a good 60% above its CMP of Rs.132. That on the basis of its current 12-month trailing EPS.

If the same is assumed to grow at around 30% over the next two years, which the DB report does given its price outlook, the EPS at the end of FY09 could be close to Rs.50 per share. A multiple of 7 times on the FY09 EPS would take the price target to Rs.350 per share, compared to its CMP of Rs.132.

Counter points / Contradictions ??

Inflation (WPI) up marginally at 4.27%....

The inflation numbers were released this noon. the Wholesale price index recorded an increase of 4.27%, slightly higher than the increase recorded in the previous week. The WPI, however, remains lower than the RBI "act_now_trigger" level of 5%.

Read a detailed note on today's inflation numbers from CMIE here.

When will I learn - "When to Sell Stocks"..???

I had invested in Ankur Drugs more than a year ago at around Rs.92 per share.....but sold out recently at around Rs.200 per share. Since then the damn thing has appreciated by a phenomenal 120% and is currently quoting at around Rs.440 per share :( :( :(

this has happend to me quite a few times in the past....more often than not i've ended up selling far too early.......a few examples -

> opto circuits - bought @ 150, sold out @ 250 (cum-bonus)
> indiainfoline - bought @ 87, sold out @ a marginal profit...dont remember the price...
> Union bank of india - bought @ IPO price, sold out at Rs.80 odd......

.....and a few more!!!

When Will I Learn, When to Sell ???????????

Pipe Gains....finally!!!!....(Man Industries)

I had invested in Man Industries over an year ago. Had invested at various prices, starting from Rs.188 to Rs.220. However, the stock remained stuck in a trading range for over an year now. Time has now come when the street is realising the fact that these companies merit attention, given the kind of investments pouring in the oil & gas segment, across-the-globe. Saw pipes sit right at the centre of oil & gas transportation.

Indian companies are fast gaining criticial size in this business, led by Jindal Saw, Welspun Gujarat, PSL and Man Industries. Each of these companies are sitting on order-books which twice the size of their current annual sales, rendering high visibility over the next 2-3 years. they are today where capital goods and construction companies were an year back......