Sunday, December 28, 2008
- Inflation (rising, and rapidly to historic highs 12-14%).
- Ballooning import bill (thanks to crude oil rallying to USD 140 a barrel)
- Rapidly deteriorating Corporate India's earnings quality
- Cost of financing shooting through the roof, thanks to the RBI
- Slowly, but surely drying up of domestic liquidity, owing to the Global Financial Crisis.
- Last but not the least, historically high valuations and euphoria on Dalal Street
Result: Sensex & Nifty posted their single largest peak-to-valley drop of close to 60%.
Flash-forward to the last week of Dec'08 and we NO LONGER have the problem of:
- inflation, which is soon expected to drop below 5%
- a ballooning import bill due to rising crude oil prices thanks to a 70% drop in intl. prices of crude oil
- high cost of financing, thanks to a sharp interest cuts seen in the past few weeks
- easing of domestic liquidity, thanks again to RBI's cuts in the CRR, SLR, et al.
And yet: The Sensex and the Nifty continue to struggle. They are now threatening to breach / kiss their October lows. They may, they may not. But, that doesn't matter. What matters is the fact that we are NO longer staring at an ever worsening macro economic situation. And, that to my mind is a big "Go-Ahead" in itself to make investments for the long haul.
One important factor that is still worsening is Corporate India's performance. Dec'08 numbers are likely to one of the worst we've seen in recent history. But, then as the broader macro-economic variables like interest rates, inflation, easing of liquidity, etc. keep improving, performance of companies will surely follow suit, albeit with a small lag. And, as we all know, markets are forward-looking, so maybe we may soon (even if painstakingly slowly) be out of the woods.
What I've not accounted for in this note is a possible war breakout btwn India & Pakistan or a Third Front taking centre stage in India politics in the coming general elections. Both are highly unlikely, but not impossible...
Sunday, December 21, 2008
Consider the following:
- With a real GDP growth of around 5% over the next decade (a pessimistic estimate) and an inflation of around 5% we are looking at Nominal GDP growing at the rate of "atleast" 10%, which will also reflect in Corporate India's earnings.
- We are still way behind in terms of our physical infrastructure, be it Roads & Highways, Ports, Airports, Hospitals, etc. , when compared some of the other developing nations like CHina, Korea, etc. The investment boom in India has only begun and right now we are only seeing a temporary slowdown.
- Unlike many economies in the West, we will have no bank/insurance company going down under, we have no housing crisis (except for within the developers, and well, they deserve it!), we have no over-leveraged consumers that live beyond their means, we have a corporate sector that is leveraged within a comfortable range whichever one looks at them - Debt to Equity or Interest Coverage, we have a huge middle class building up that will lead to massive explosion in demand for consumer goods over the next decade, the list is really endless...
Growth will not be a problem so far as India as an investment destination is concerned, its the price that one pays for the investment that will determine returns over the next decade. And it is this factor that is now in the favour of the long term investor...
Dr. Ajay Shah has similar views [link]
I agree with him 100% on the fact that 2009 will indeed be a stock pickers market. It's time to work @ 150% capacity utilization :)
Tuesday, December 16, 2008
The bottom line is the bulk of equity price declines are behind us, but the equity market is unlikely to recover quickly as a whole. Returns will come from stock picking not market timing or asset allocation decisions. But be aware that while in the past markets were overly optimistic, ignoring any bad news, we are currently in a position where markets are pessimistic and they appear to be ignoring an important bit of good news from the oil markets. So study your stocks now and creep back in, very, very slowly. Add to positions, no faster than 5% per week. The best traders are good averagers.
I concur with the author of this article and am of a firm belief that markets hereon will indeed be a stock pickers heaven given that a large part of price destruction is already done with, nevertheless, on the whole I am not as bearish.
The entire article can be read here [link]
Sunday, December 14, 2008
I am trying to get hold of Sensex data prior to 1991, which might indicate whether we've been _here_ before (in terms of volatility) for such an extended period of time. However, it is quite clear from the post that bull-markets have begun only after a prolonged period of low volatility (as was the case in 1998-99) or during (2002-03). So the next bull market may only come about when we witness a dramatic drop in volatility, that too over an extended period of time. Even in December we've had days of sharp moves, both on the upside and on the downside.
The bigger question is: whether this is an opportune time to make long term investments?
Inspired by series of such threads initiated by:
Dr.Ajay Shah: Crisis Watch
Kaushik Gala: Daily Dose of Deflation
I am initiating a new thread "Time to Invest: Dec'08-Jun'09". This is because, I personally believe that this indeed is a good time to make long term investments. Markets may come back to re-test the lows of Oct 27, or it may have already bottomed out. But, we are surely not looking at another bull run for sometime now. However, that's the advantage one has, if one is looking to make long term investments.
Thursday, November 13, 2008
But, will we embrace the sharp the drop in inflation or will we discard it and follow stock markets across-the-globe to sink further?
Wednesday, November 12, 2008
Sunday, November 02, 2008
- Domestic Non-bank credit is as good as gone
- Overnight rates are on an average higher than 3-yr Fixed Deposits
- A sharp slowdown in the overall economy, led by the mfg sector
- Slowing sales and rapidly deteriorating profits and profitability
- Thanks to higher interest rates, rapidly deteriorating corporate India's performance, consumer demand too remains poor and is expected to only worsen hereon
- Stock markets continue their rapid journey down-south
- Serial bomb-blasts taking place across-the-nation, city after city
- National & a host of assembly elections coming up with no certainty or clue of who will form the new government
- Disputes amongst state politicians over jobs & reservations (Mah, Bihar, & Assam)
Testing times (that's quite an understatement) for the Prime Minister, the Finance Minister and the RBI.
However, as an investor, how should one see and behave in such a scenario? Is this a threat or an opportunity of a lifetime to invest?
Monday, July 28, 2008
ICICI Securities Ltd ("Manager to the Offer") on behalf of Ray Ban Indian Holdings Inc. ("RI Holdings" or "Acquirer"), has issued this Public Announcement ("PA") to the Equity shareholders of RayBan Sun Optics India Ltd ("Target Company"), under Clause 7 of the Securities and Exchange Board of India (Delisting of Securities) Guidelines, 2003, ("Guidelines") in respect of the proposed acquisition of the fully paid-up equity shares and delisting of the Company under the Guidelines, (the "Delisting Offer"). The Acquirer is the holding company of Target Company and holds 70.54% of the fully paid-up share capital of the Target Company.
The Delisting Offer:
The Acquirer is making this Public Announcement to the public holders of the equity shares of the Company ("Shareholders"), to acquire, in accordance with the Guidelines and on the terms and subject to the conditions set out in PA, up to 72,10,554 fully paid-up equity shares of the Company with a face value of Rs 10 each, representing approximately 29.46% of the fully paid-up share capital of the Company (the "Offer Shares") under the Guidelines. Consequently, the Acquirer seeks to delist the equity shares of the Company pursuant to the voluntary delisting procedures set out in the Guidelines.
The Board of Directors of the Acquirer has vide its resolution dated June 25, 2008, resolved to make a voluntary delisting offer to the Shareholders of the Company in accordance with the Guidelines. The Acquirer has vide letter dated June 25, 2008 expressed its intention to the Board of Directors of the Company to make a voluntary delisting offer to the public shareholders of the Company in accordance with the Guidelines in order to enhance operating flexibility of the Company and provide an exit opportunity to the public
shareholders of the Company. The Acquirer also requested the Board of Directors of the Company to convene an extraordinary general meeting of the shareholders of the Company to consider their proposal.
The approval of the shareholders of the Company is required in terms of Clause 6 of the Guidelines for voluntary delisting of the Company. The shareholders of the Company have granted their approval for a voluntary delisting of the equity shares of the Company from the Bombay Stock Exchange (BSE), by requisite majority, at an extra-ordinary general meeting held on July 25, 2008.
The equity shares of the Company are currently listed only on the BSE. The Acquirer is seeking to delist the equity shares of the Company from the BSE.
The Acquirer proposes to acquire the Offer Shares pursuant to a reverse book building process established by the Guidelines.
The Guidelines require the floor price for the Offer Shares to be acquired pursuant to the reverse book building process to be the "average of 26 weeks traded price quoted on the stock exchange where the shares of the company are most frequently traded preceding 26 weeks from the date of the public announcement." For the purposes of this calculation, the Acquirer has used the average of the weekly highs and lows of the closing prices of the Offer Shares as quoted on the BSE for the 26 weeks preceding the date of this Public Announcement, resulting in a floor price of Rs 82 per Share (the "Floor Price").
Shareholders may tender their Offer Shares at any time during the Bid Period (as defined below) and at any price at or above the Floor Price in accordance with the terms and subject to the conditions in the PA.
Schedule of Activities:
Resolution for delisting of equity shares passed by the shareholders of the Company - July 25, 2008
Public Announcement - July 28, 2008
Bid Letter expected to be dispatched to Shareholders - August 01, 2008
Bid Opening Date (10.00 am) - August 18, 2008
Bid Closing Date (3.00 pm) - August 22, 2008
Announcement of Exit Price / Rejection of Discovered Price - August 26, 2008
Final Settlement Date with the BSE for shares in dematerialized form** - August 27, 2008
Tender Offer for holders of physical certificates opens - August 28, 2008
Last day for Shareholders holding shares in Physical form to tender their Shares - September 11, 2008
Final Settlement Date for Shareholders holding Shares in Physical Form - September 19, 2008
** Subject to the announcement of an Exit Price by the Acquirer.
Wednesday, June 04, 2008
- If we spend that money at Wal-Mart, the money will go to China .
- If we spend it on gasoline it will go to the Arabs,
- if we purchase a computer it will go to India,
- if we purchase fruit and vegetables it will go to Mexico, Honduras, and Guatemala,
- if we purchase a good car it will go to Japan,
- if we purchase useless crap it will go to Taiwan and,
- none of it will help the American economy.
The only way to keep that money here at home is to buy prostitutes and beer, since these are the only products still produced in the US.
by Eliot Spitzer, ex-Governor of the New York Fed.
Friday, May 30, 2008
This is an Online Public Grievance Lodging and Monitoring System, wherein one can lodge a complaint against any government department, i.e. right from our BMC to the State Government or even MTNL for that matter.
The system also offers a way to monitor the status of the complaint.
Lest we all try, these things will never work. So go ahead, use your rights. Make the machinery Work !
Tuesday, April 01, 2008
Thursday, March 27, 2008
"Overall, the positives far outweigh the negatives. The company at its higher band is available at a price multiple of less than 20 times and market cap to sales of less than 4 times. A brief comparison with its listed peer suggests that the company is available at attractive valuations. Given that its future prospects appear encouraging, discerning investors could consider investment in the shares of TWL with a long-term view."
The full article can be accessed here.
The Union Railway Budget for 2008-09 had a host of announcements for the wagons manufacturing industry. Some of the excerpts from the Railway Minister's Budget speech are as follows:
- Modernization of Rolling Stock
While in 2003-04, 6,300 wagons were manufactured whereas in 2007-08, 15,000 wagons are expected to be manufactured. In 2008-09, manufacture of 20,000 wagons is planned which would be the highest level of wagon productions so far. Similarly, in 2008-09, 250 diesel and 220 electric locomotives will be manufactured which would be a record in itself. Production of new generation diesel and electric locomotives will also be stepped up substantially.
- Manufacture of new design wagons by wagon manufacturers
Till now, wagon manufacturers have been manufacturing wagons in accordance with standard designs prescribed by RDSO. As a result most of the wagons in use on Railways are of the design of 70s and 80s. We have formulated a new policy to promote induction of wagons with modern and new designs in the Railways. This policy makes adequate provision for simplifying the process of certifying and accepting the new wagon designs and protecting the intellectual property rights of the companies. Wagon manufacturers will now also be able to import technology from abroad to bring modern designs into the Indian Railways. This policy will facilitate continuous upgradation in the wagon technology.
- New Wagon Leasing Policy
In order to develop the wagon leasing market, we have prepared a new wagon leasing policy under which, rail customers and container operators will be able to take wagons on lease. For getting registered under the scheme, wagon leasing companies should have a minimum net worth of Rs. 250 cr and will have to deposit Rs. 5 cr as registration fee. Registration will be valid for 20 years and will be renewable for another 10 years on rendering satisfactory services. Leasing companies have been given full rights to choose or change their lessees. These companies will lease out special purpose wagons, high capacity wagons and container wagons.
- New Wagon Investment Scheme
The Wagon Investment Scheme announced in the year 2005-06 has been extremely popular amongs iron-ore customers. During the last three years, approval has been accorded for an investment of over Rs. 1,500 cr for procurement of 138 rakes. Against this, 42 rakes have been received so far at a cost of around Rs. 500 cr.The old Wagon Investment Scheme has not been popular with other than iron-ore customers. Therefore a new liberalized Wagon Investment Scheme has been prepared. Under this scheme, investments can be made for procurement or leasing of special purpose and high capacity wagons. Freight discounts at prescribed rates will be granted for investment in special purpose wagons and high capacity wagons.
- Container Business-Mission 100 MT
In the last three years, 15 operators have been given licenses for running container trains. Presently, 146 trains of Container Corporation and 44 container trains of other container operators are running. The number of trains run by other operators is expected to increase to 50-55 by the end of this year. The total container traffic is expected to be 26 million tonnes in 2007-08 including 2 million tonnes contributed by new operators. Presently 60 container depots are operational including three constructed by private parties. It is expected that eight container depots by Container Corporation and 40 by other operators would be developed in the coming years.Each of the aforesaid announcements are expected to boost demand for wagons substantially over the next few years.
Sunday, March 23, 2008
His article "Partying like It's 1929" can be read here.
A brief excerpt from the article ...
If Ben Bernanke manages to save the financial system from collapse, he will — rightly — be praised for his heroic efforts.
But what we should be asking is: How did we get here? Why does the financial system need salvation? Why do mild-mannered economists have to become superheroes? The answer, at a fundamental level, is that we’re paying the price for willful amnesia. We chose to forget what happened in the 1930s — and having refused to learn from history, we’re repeating it.
Contrary to popular belief, the stock market crash of 1929 wasn’t the defining moment of the Great Depression. What turned an ordinary recession into a civilization-threatening slump was the wave of bank runs that swept across America in 1930 and 1931. This banking crisis of the 1930s showed that unregulated, unsupervised financial markets can all too easily suffer catastrophic failure.
As the decades passed, however, that lesson was forgotten — and now we’re relearning it, the hard way.
Saturday, March 22, 2008
Annual gold production of 4 tonnes is significant. Here's a back of the envelope computation -
Assuming average realisation on Gold - Rs.8,500 per 10 gm (equivalent of a 'tola' in India)
1 kg = Rs.8.5 lac
1 tonne = Rs.85 crore
4 tonnes = Rs.340 crore
Most mining make anywhere between 25-30% profit at the net level, be it gold or iron ore or any other mineral. Eg. NMDC, GMDC, ONGC, Sesa Goa, etc.
At a production level of 4 tonnes, Deccan Gold stands to make around Rs.85-102 crore.
At the current market price of Rs.33.8 per share, the stock is quoting at a market capitalization of Rs.198 crore. Discounting the stock by around 10 times, renders it a value equal to Rs.1020 crore, resulting in a five times upside from the current levels.
That, over a period of 3 years !
The risk associated with this would be the following:
- Delay in mining operations
- Less than expected gold deposits
- Regulatory roadblocks
The risks associated with this stock have a significant probability of being realised. However, as I had mentioned in my previous post on Deccan Gold Mines, it should be seen more as a long term call option.
The news report that carried the article on Deccan Gold Mines is as follows:
India's Deccan Gold Mines Ltd expects to start gold production by end-2010 with the new mines policy likely to help the company speed up its exploration activity, a company official said on Wednesday.
"There has been a lack of adequate exploration in India because of regulatory issues," Sandeep Lakhwara, managing director of Deccan Gold, told Reuters in an interview.
"The new policy addresses these concerns and is a confidence building measure."
The company is targeting 4 tonnes of gold production annually, he said.
India's cabinet approved a long-delayed mining policy last week that could ease investment by foreign and domestic companies in the mining sector.
The policy could ease delays in grant of permits, guarantee a hassle-free move from prospecting to mining stage, and give a bigger time frame for exploration activity, Lakhwara said.
Currently, Deccan Gold, along with its associate mining companies, is awaiting the government's nod for 70 prospecting licences, 30 of which are for gold prospecting.
The company has been engaged in preliminary exploration since 2000 under reconnaissance permits from the government, Lakhwara said.
"Not all the 30 locations could have gold deposits. Even if we set up some mines it would be a huge success," he added.
With preliminary exploration focussed on Karnataka, Andhra Pradesh, Kerala and Rajasthan, Deccan Gold believes a target of 4 tonnes of gold production a year would be "feasible," Lakhwara said.
Deccan Gold, listed on the Bombay Stock Exchange, is owned by Rama (Mines) Mauritius Ltd, a company promoted by Australian individuals.
It expects some of its prospecting licences, that allow it to conduct detailed feasibility studies to ascertain gold deposits, within six months of the new mines policy coming into place.
At the next stage, that could take a year or two, the company could set up processing and production facilities, Lakhwara said.
India is believed to have rich deposits of gold, he said.
"Geologically, India is very similar to other countries where gold deposits have been found and on that basis, India should have a large quantum of gold," Lakhwara said naming Australia, Africa and Canada.
India's gold production is just a speck in the world's output of around 2,500 tonnes, the only producer being Hutti Gold Mines in Karnataka with about 3.5 tonnes of gold annually.
Thursday, March 20, 2008
Wall Street, is one of my all-time favorite movies. The movie describes the human nature (and its attitude) towards money and capital in the most apt (& naked) form. It's a classic and a 'must watch' for anyone whose got anything to do with the capital markets.
The following are some of the quotes from the movie -
- It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.
- This painting here, I bought it 10 years ago for $60,000, I can sell it today for 600 [$600,000]; the illusion, has become real, and the more real it becomes, the more desperate they want it—capitalism at its finest.
- We make the rules, pal. The news, war, peace, famine, upheaval, the price of a paper clip. We pick that rabbit out of a hat while everybody sits around wondering how the hell we did it. Now you’re not naïve enough to think that we’re living in a democracy, are you, Buddy? It’s the free market, and you’re part of it.
- Ever wonder why fund managers can't beat the S&P 500? Because they're sheep, and sheep get slaughtered.
- Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms, greed for life, for money, for love, knowledge has marked the upward surge of mankind.
- First lesson in business, don't get emotional about a stock.
- What the hell is Cromwell doing giving a lecture tour when he's losing $60 million a quarter? Guess he's giving lectures in how to lose money. Jesus Christ, if this guy owned a funeral parlour no one would die!
Wednesday, March 19, 2008
JP Morgan Chase with the Federal Reserve's support has offered to buy Bear Sterns out at $2 a piece. This technically means that shares of Bear Sterns are worth nothing more than $2 per share, provided the deal goes through, which in all probability it will.
However, the Bear Sterns stock continues to trade above $ 5-6 a share. This more than 150% more than the JPM bid. Why is it trading at such a high level?
Barry Ritholz has an explanation -
There is a simpler explanation, one that might surprise you: BOND HOLDERS are buying up Bears loose stock. As much as they can get.
THEY WANT TO MAKE SURE THE DEAL GETS DONE!
Imagine your fund owned a one billion dollars worth of Bear bonds (mark to market = $800 million). Isn't it worth buying 10 million shares or so at $3 - 4 or so dollars a share? You will get $2 per share in JPM stock, so buying it a few bucks over the takeover price isn't all that risky. Remember, insiders own 30%, and Joe Lewis also owns about 10%.
So as mad as the accumulation appears, its actually quite rational -- IF YOU ARE A MAJOR BOND HOLDER, and are doing this to capture voting stock. (All the other idiots buying BSC are pretty much fucked).
[Link to the entire article]
Felix Salmon of portfolio.com also has a similar explanation -
In a nutshell: those shares are being bought by Bear's creditors, in the hope that the deal will go through and the stock will fall.
The big winners from the Bear Stearns acquisition are Bear's bondholders. They came close to an event of default this weekend; if all goes according to plan, they'll soon own nice safe debt from JP Morgan Chase. The only thing which can derail their glide path (if Krugman can mix his metaphors, so can I) would be if the deal doesn't go through at $2 as planned.
The main thing that needs to happen for the deal to go through is that shareholders vote in favor. And the only way that bondholders can ensure yes votes for the deal is to own those shares and vote them themselves. Says Neubert: "They will eat the difference between where they buy the equity and $2.00 in order to protect much higher numbers in debt."
[Link to the entire article]
> Is the US headed for Doomsday? - THINK NOT, says Dr. Ajay Shah.
> Will the 75 basis point cut help the US economy? MAYBE NOT, says the Economist.
> Treat the Federal Reserve as a Bank? And you want to Question their lending practices, says Hellasious
Tuesday, March 18, 2008
Rayban Sun Optics India Ltd has informed BSE that in line with the previous communication of Luxottica Group S.p.A. dated January 11, 2007 and following the release of the related Non Objection Certificate by the Company, the Board of Directors have received a communication from Luxottica Group S.p.A. vide their letter dated December 17, 2007 that the Luxottica Group has incorporated a wholly owned subsidiary in India by the name, Luxottica India Eyewear Pvt Ltd.
Luxottica Group S.p.A has further advised that with effect from January 2008, Luxottica India Eyewear Pvt Ltd plans to commence distribution of luxury and fashion brand eyewear, other than RayBan, on a wholesale cash and carry basis.
Ever since this announcement was made the stock has taken a big plunge. Take a look at the following chart:
Since the announcement was made, the stock has dropped by 52% as against a 25% decline in Sensex. Now a lot of stocks have dropped by as much as 50-60% (including the Ambani pack), but they were also amongst the ones which had run-up like there's no tomorrow. Infact, Rayban was a gross underperformer during a large part of the 'now-historical' bull run. So why is that the stock witnessed such a drop. The explanation lies in the notification released to the BSE and that included in the 'notes to accounts' section of the recently concluded quarter.
- Luxottica Group has incorporated a wholly owned subsidiary in India by the name, Luxottica India Eyewear Pvt Ltd.
- Luxottica Group S.p.A has further advised that with effect from January 2008, Luxottica India Eyewear Pvt Ltd plans to commence distribution of luxury and fashion brand eyewear, other than RayBan, on a wholesale cash and carry basis.
- The Board of Directors of the Company in their meeting held on December 21, 2007 noted the letter of December 17, 2007 received from Luxottica Group SPA Italy informing the company on their plan to transfer the business of distribution and sale of various luxury frames and sunglasses, other than RayBan brand to Luxottica India Eyewear Pvt Ltd a wholly owned subsidiary company of Luxottica Group SPA Italy. Accordingly, Luxottica Group SPA Italy discontinued supply of non RayBan brands to company [ Rayban Sunoptics, i.e.] with effect from February 2008. (Source: Notes to Accounts of the Dec'07 results).
Even though this business was less profitable as compared to the company's core business in India of selling branded eye wear stuff under the aegis of the Ray Ban brand, it accounted for more than 60% of its business. The company had in recent times launched internationally famous fashion products under the brand of Dolce and Gabana. A significant part of Rayban's topline growth in recent years can be attributed to such new launches.
All this will be gone, starting this year.
The listed company is therefore likely to witness a significant drop in sales & profits starting the Mar'08 quarter.
A sharp drop in the share price reflects this, or so i think.
At the current price - Buy/Sell?
Before we write-off the stock, here's a few data points to consider:
- Mcap at current price (Rs.61): Rs.150 crore
- Cash & Cash equivalents: Rs.88 crore (69.8 cr as per Dec'06 AR + 18 cr cash profit in CY07)
- Mcap_net of Cash: Rs.62 cr
- PAT_from the overall biz in '07: Rs.17 crore (treasury inc - 7 cr + trading - 3 cr [assuming a 5% margin in the trading business] + 7 crore in core business [assuming a 18-20% margin in the core business])
- P/E ratio_net of the trading biz and treasury: less than 10 times.
Not a bad investment if you think hard and do the back calculations. The stock provides significant margin of safety, but does it provide enough head room for growth ??? I am still exploring that !!
Comments / counter-points??
Monday, March 17, 2008
Email your friends, cousins, children in USA. Ask them to walk around their homes and make a list of all the things that they own. Request them to note down in which country that item was made. And what that item cost them. Add it up, get a total for all the “things” they have in their homes: the beds, the tables, the sofa, the chairs, the kitchen appliances, the TV, the stereo, their clothes, their shoes. Now ask them: how much of these “things” they own have a “Made in India” tag.
If the people you sent the email to are of Indian origin, chances are that they have some Indian furniture, the pressure cooker to make rice, and a few Indian paintings on the wall. The total value of “Made in India” products may be 5% of the value of all the things they have in their home. If the people you sent the email to are not of Indian origin, the chances are that the total value of “Made in India” products is likely to be zero.
India, as a country, is not an export-led economy.
India had nothing to benefit from the massive build out in new home construction in USA.
India should have nothing to lose from the massive decline in new home construction.
A recession in USA should have little impact on India’s economy.
Yet, the Indian stock market swoons and twists to every piece of news on the condition and health of the US economy. Blame our lust to Dance with the Devil for that.
----Read the entire article here [Link].
Friday, March 14, 2008
Funds mobility data for the month of February from the AMFI indicates a further addition of Rs.7,500 odd crores. This was largely on the back of NFOs (raising Rs.6,266 crore) and existing schemes adding about Rs.1266 crore (including ELSS) in Feb.
The cumulative cash available with domestic mutual funds in India, as of Feb'08, thus approximates Rs.24,000 crore.
Two important things to note here is that:
a). MFs are NOT facing redemption pressures, despite such a sharp fall since the beginning of the year.
2). And, despite sitting on such a large cash position (equivalent of around 12.5% of the total assets under management), MFs were net sellers in the secondary market (during the last two months).
Thursday, March 13, 2008
However, what strikes me is the price at which the rating has been put out - Rs.110 (on 7-Feb-08). This is the same price at which the firm had put a 'Reduce' rating on the stock, exactly seven days before, i.e. as on 31-Jan-08. Strange are the ways in which Stocks are being rated on Dalal Street.
As for my view, I think the stock is quite overvalued at current levels. Despite having an envious business model and a near monopolistic position in the power transmission business, I think the price just isn't right. At the current price (Rs.104 per share), the Power Grid Corpn stock is quoting at a P/E of around 28 times.
That for a stock which is unlikely to be able to expand its earnings (at the net level) by more than 20-25% over the next few years, that too providing its telecom towers biz does well. Further, and more importantly, Power Grid Corpn earns a fixed return on equity (as stipulated by the Government) of 14%, with v.limited upside, if any.
I would be comfortable buying it at around Rs.70-75, given its growth prospects and the near monopolistic status. At the current price, there's significant room for disappointment on the downside.
Sunday, March 09, 2008
Warren Buffett - Buffett is widely regarded as the most successful investor of all time, with a compound return of around 22.3% over 36 years.
T Rowe Price - Price published a sample family portfolio to show how he had turned $1,000 invested in 1934 into $271,201 by the end of 1972 - a compound return of about 15.4% over 39 years.
Philip A Fisher
Kenneth L Fisher
Peter Lynch - During his tenure at Magellan, Lynch averaged 29% compound over 13 years. This remains a record for funds of this size.
Ralph Wanger - The Acorn Fund returned 17.2% annually between 1970 and 1998, against a return from the S&P500 index of 14.4%.
William O'Neil - 'Neil's track record has had its ups and downs, particularly during and just after the 'go-go' years of the Sixties. But he is thought to have averaged an annual return of over 40% on his personal account in the ten years up to 1989
Sir John Templeton - From 1954-2000, the Templeton Growth Fund averaged gains of around 15% a year.
John Neff - The average annual total return from the Windsor Fund during Neff's 32-year tenure was 13.7%, against a return from the S&P500 index of 10.6%.
The entire article can be accessed here. Nice read.
Friday, March 07, 2008
Patel Integrated Logistics operates a fleet of around 1000 trucks and boasts of a pan-India presence. However, unlike many of the other leading players in the logistics space which provide all kinds of transport facilities - surface, air and sea-based, Patel offered only surface transport services.
It was more of a truck operator.
However, things seem to be changing for the good. The company is taking a lot of initiatives to offer full-fledged logistics services. These include - warehousing, FTL (full truck load), LTD (less than truck load), express delivery services (i.e. door-to-door, godown-to-door pick up and delivery, etc.), among others.
The company recently tied with Ashok Leyland to replace some of its old trucks and further induct new ones (225 trucks in toto). Further, it is also looking to fit vehicle tracking systems in all its trucks, thereby allowing it to track its fleet on a real time basis and optimally utilize trucks, in terms of route deployment and manpower. Each of these initiatives is likely to result in lower costs for the company in the years to come.
The single most important risk with Patel Integrated Logistics is the "Management's ability to Deliver".
However, given its reach and the scalability in the logistics space, Patel Integrated Logistics is an ideal takeover candidate. If the print media is to be believed, two major business houses (Mukesh Ambani-led RIL and the Future Group) were quite keen to takeover this company and the valuations on offer were in the vicinity of Rs.125-150 crore, a good 25-50% above the current levels.
CMP - Rs.63
Mcap - Rs.100 crore (on a fully diluted basis)
TTM Sales - Rs.282 crore
TTM PAT - Rs.5.1 crore
Trailing P/E - 20 times.
Dec'07 sales (y-o-y % change) - 8%
Dec'07 PAT (y-o-y % change) - 38%
While on a relative basis the stock is not inexpensive, it does offer significant upside from current levels, provided the management delivers or sells out to someone like RIL or the Future Group. Even if neither happens, and the company continues to operate at current levels of profitability, the downside could be in the range of 20-25%.
Patel Integrated Logistics [link]
Patel Retail [link]
Patel Roadways [link]
Quarterly performance [link]
- Growth in demand for logistics services is directly correlated to the growth of the economy.
- Further, expenditure on logistics services in
- This is largely on account of a grossly underdeveloped infrastructure. With Government's thrust on Infrastructure and development of Roads, the expenditure in this segment is expected to remain robust.
- In its bid to improve this scenario, Government of India has chalked out plans to invest about USD 350 billion in upgrading and creating infrastructure in
- This augurs well for logistics service providers in
Wednesday, March 05, 2008
"In my view, we could also reduce preventable foreclosures if investors acting in their own self interests were to permit servicers to write down the mortgage liabilities of borrowers by accepting a short payoff in appropriate circumstances . For example, servicers could accept a principal writedown by an amount at least sufficient to allow the borrower to refinance into a new loan from another source. A writedown that is sufficient to make borrowers eligible for a new loan would remove the downside risk to investors of additional writedowns or a re-default. This arrangement might include a feature that allows the original investors to share in any future appreciation, as recently suggested, for example, by the Office of Thrift Supervision. Servicers could also benefit from greater use of short payoffs, as this approach would simplify the calculation of expected losses and eliminate the future costs and risks of retaining the troubled mortgage in the pool."
Link to the original article [click here]
This sounds so similar to what Mr.Chidambaram proposed in his Budget Speech for 2008-09. However, in this case, unlike the US, it is the taxpayers money that will be used to make good bank's losses.
The point really is - Are we setting poor precedents, when it comes to public borrowing?
While on this topic you may want to read two insightful articles by Dr.Ajay Shah [link] and Andy Mukherjee [link].
Sunday, March 02, 2008
Saturday, March 01, 2008
Nicco Corporation Ltd informed BSE that the Company has filed a Scheme of Arrangement with the Hon. High Court of Calcutta for transfer of its Cable business, to its wholly owned subsidiary Nicco Cables Ltd. This subsidiary will be convened to a Joint Venture with Prysmian (60% stake in the Joint Venture) a world leader in the energy and telecommunications cables industry with strong market position in higher-added value market segments.
Nicco will retain the remaining 40% in the Joint Venture and will receive a consideration price of Rs 133 crores (subject to adjustments) for the transfer of its cables division. The transaction will also result in, inter—alia, the debt relating to the cables business getting transferred from Nicco to the Joint Venture (subject to Hon. High Court, lenders and CDR approval).
Once the Scheme is implemented, Nicco Corporation Ltd will be a debt-free Company and will be able to employ the consideration from the transaction to aggressively grow its existing Project & Engineering Business in the Infrastructure, Petrochemical and Environmental areas. The current Order Book position of the Project Division is approximately Rs 300 crores and it has more orders in its pipeline, where it has emerged as the preferred L1 Bidder.
Sounds like a good deal for the existing shareholders. Given that Nicco Corporation, post the Scheme of Arrangement, will have the following characteristics:
- Debt free status
- an EPC business with an order book of over Rs.300 crore
- Cash infusion of Rs.130 crore
- Plenty of 'developable' land in Kolkata, that too are prime locations
Given that most Engg. companies are currently quoting at a Mcap / Sales ratio of anywhere between 2-3 times. If Nicco Corporation were to be quoting at anywhere near that number, the company's mcap could be quoting in the north of Rs.300-350 crore (primarily based on its Engg. business, compared to the current mcap of around Rs.250 crore). In addition, some value will be ascribed to its 40% holding in Nicco Cables (which will be owned and run by Prysmian as per the JV signed between the two companies a few months ago. Personally, I think, the Company is also looking to develop some of the large land it owns in Kolkata. That should provide a further filip to the stock price in the future.
Ofcourse, my argument is based on the following hypothesis:
- the Engg. will be profitable
- the Company will develop its land
- Prysmian will turn around and make Nicco Cables a profitable company
I've written about this company in the past [Link1, Link2 and Link3] and I hold shares of Nicco Corporation, bought at Rs. 24 per share, compared to the CMP of Rs.29.
However, during the comparable period (i.e. Apr'07-Feb'08), they raised assets approximating Rs.33,000 crore.
Result - a net inflow of Rs.16,000 crore. This is a large number considering the fact that equity MFs poured in an equivalent sum over a 11 month period. This provides (hopefully, i.e.) for some sort of cushion to the market on the downside given that global markets (especially the US) are still looking extremely nervous.
Notably, while this figure includes MF's secondary market operations in Feb'08 but does not include funds raised during the month of Feb'08 (by way of NFOs or sale of existing schemes). Further, it also does not include redemption numbers for the month of Feb'08.
I don't the redemption numbers are likely to be significantly large even though NFO figures may surprise on the upside. The NFOs for which data is not yet available are: Lotus Agile Fund, AIG Infrastructure & Economic Reform Fund and Reliance Natural Resources Fund.
Wednesday, February 27, 2008
1. I'm selling because the price is going down
Selling Morgan Stanley (NYSE: MS) or Bear Stearns (NYSE: BSC) because you think there will be more subprime pain to come -- pain not reflected in the current price -- is perfectly sensible. These companies created a mess for themselves, and their shareholders have been feeling the pain.
But selling a stock for no other reason than that the price is declining? That's plain dumb. If you hadn't factored into your valuation Bear's subprime exposure, then sure, sell it. Fast. But if you did, and are just fidgeting at the sight of red ink, you're forgetting that you're selling part of a living, breathing business -- not trading a slip of abstract paper.
2. I'm selling because someone told me the market is going lower
If you're selling off stocks because you read in a newspaper that a recession is now inevitable, or that the subprime crisis was only going to get worse, or that a multitude of "experts" predict that a bear market is nigh, then you're overlooking the trees for the forest.
See, as a retail investor, you have no control over the direction of the economy. Get used to it and deal with it. You do have control over the companies in your portfolio. If you've bought quality companies at reasonable prices, short-term economic movements should have little effect on the long-term returns of those businesses.
3. I'm selling and buying back in when the market bottoms
In the short term, no one knows which direction the stock market is going to move, or by how much. Trying to pick the bottom of the market is an utterly futile task. In a recent article, Foolish colleague Tim Hanson cited a study that illustrates exactly how futile market-timing is:
[IESE Business School professor Javier] Estrada studied 15 major global stock markets for periods ranging from 31 to 79 years, with the full data encompassing more than 160,000 trading days. What he found is "less than 0.1% of the days considered" actually matter to long-term returns, which means that "the odds against successful market timing are staggering."
The entire article can be read here.
BEEN THERE, DONE THAT......"whats worse".......sometimes still do it (but now only in case of instance 3).
Sunday, February 24, 2008
Can one trade (with the benefit of hindsight) or take a position to earn alpha returns based on this event?
[A month after the announcement of the Union Budget, the benchmark indices (BSE Sensex and NSE Nifty) closed below the pre-Budget levels on seven of the last ten occasions and of the total 17 instances they ended in the red 12 times]
- Undertake straddle trades, which means an investor buys both the at-the-money call and at-the-money put with at least two to three months left to expiration. However, the stock price must move significantly in order for the investor to make a profit, but the downside remains restricted to the amount of premium paid.
Exactly two years ago, I had done a small study on this. [Link]
Hypothesis: Buy stocks of companies that have declared a bonus or split.
We obtained several insights into how stocks perform before & after corporate actions such as a bonus or split. Here are the salient ones:
- Bonus stocks
- If you invest an equal amount in every bonus stock on the effective date of the bonus (aka Ex-Date), you would not beat the index (Nifty-50), whether you held it for one day, one week or one year.
- If you invest an equal amount in bonus stocks - but only the large cap ones - you would be better than investing in the small cap ones; yet you would barely match the index returns in the short term; but have to take twice as much risk (drawdown) as the index.
- This is true regardless of the historical time periods tested (bull markets, bear markets, etc.).
- This is true even if you bought the stock as soon as the corporate action was announced - usually 3-4 weeks before the Ex-Date.
- The best scenario is when large-cap stocks are bought as soon as the bonus is announced and are held for 9 months or longer.
- Split stocks
- The same conclusions as for the bonus stocks hold here as well; except that for large cap stocks, the strategy comes close to beating the index in the short term.
While at event studies you might want to look at some of the event studies that I had undertaken in the past. These are:
1). How to play the markets a week prior to the Union Budget. [Link] ...to be updated for more recent data soon !
2). Does one gain by investing in stocks to be included in the Sensex ? [Link]
Friday, February 22, 2008
Monday, February 18, 2008
The notification is as follows:
Reliance Power Ltd on February 17, 2008 has announced that a meeting of the Board of Directors of the Company will be held on February 24, 2008.
The Reliance Power Board will, inter alia, consider a proposal for issuing free bonus shares to all categories of shareholders, excluding the promoter group (comprising of Reliance Energy Ltd. and the ADA Group), and / or other measures, which will result in reduction of the cost of Reliance Power Ltd, shares below the IPO price of Rs 430 per share for retail investors, and Rs 450 per share for institutional and other categories of investors. [I think shareholders who were given 17 shares during the IPO will get an additional 3-4 shares, which will result in a significant drop in their acquisition cost, to around Rs.350 per share. This compares well with the current market price of Rs.415 per share].
Reliance Power's IPO closed on January 18, 2008, receiving an overwhelming and record breaking response, with commitments of nearly Rs 7,50,000 crore (US$ 190 billion), from nearly 500 institutional investors across the globe, and 5 million retail investors. The sheer scale and unprecedented magnitude of the response clearly reflected the pricing of the IPO as being in line with prevailing valuation benchmarks and market sentiments.
However, subsequent to the closing of the IPO, the global and Indian equity markets have suffered an extra-ordinary meltdown, with all benchmark indices down 15% - 20%, and leading Indian stocks down by an even greater range of 20% - 40%.
In line with this global trend, the Reliance Power stock price has closed below the IPO price, since listing on February 11, 2008.
From the time of opening of the Reliance Power IPO on January 15, 2008, the Sensex is down 13%, while the Reliance Power stock is down 11% from the IPO price for retail investors, and 15% for other categories of investors.
The decline in the Reliance Power stock price has been compounded by:
- a vicious and orchestrated campaign of market manipulation and market abuse
- unleashed by unscrupulous rival corporate interests
- to hammer down all Reliance ADA group stocks
- in an attempt to undermine our fair name and reputation, and
- cause losses to millions of genuine investors.
Reliance Power has formally written to SEBI seeking an investigation into the same.
Equity shares, by their very nature, are risk-bearing instruments, and there is no obligation on behalf of any issuer to insure investors against possible losses.
However, in keeping with the Reliance ADA Group's fundamental and over-riding philosophy of creating value for genuine long term investors, the Board of Directors of Reliance Power will be meeting as above, to consider appropriate one-time measures which will result in reduction of the cost of Reliance Power shares below the IPO price.
This will include, inter alia, consideration of a proposal for issuing free bonus shares to all categories of shareholders, excluding the promoter group (comprising of Reliance Energy Ltd. and the ADA Group), thereby protecting investors even from notional short-term losses on their shareholdings.
The proposal will result in dilution of the promoter group's shareholding in Reliance Power, which they have indicated they will accept in the broader interest of protecting and enhancing value for over 4 million institutional and retail investors.
Reliance Power has the world's largest shareholder family of nearly 500 overseas and domestic institutional investors, and over 4 million retail investors.
Reliance Power has a market capitalization of Rs 87,000 crores (US$ 22 billion) - among India's 10 most valuable private sector Companies, and a net worth of nearly Rs 14,000 crore (over US$ 3.5 billion) - among the top 5 private sector Companies in India on this parameter.
Reliance Power is implementing power projects with aggregate capacity of over 28,000 MW, by far the largest development pipeline in the country.
theIPOguru has a nice article on the Reliance Power bonus issue. The article can be read here.
Sunday, February 17, 2008
Q). Core projects has been growing very rapidly since last couple of years. What is your perception about the current numbers and what would be your company's short term and long term strategy in next 2 to 3 years?
Ans.Our current year's guidance for top line is at Rs. 450 crs on a consolidated basis with a bottom line of about Rs. 80 crs. Our international business will grow at about 30 percent organically. On the
Q). What growth and profitability do you expect for current and next fiscal? Which segment would contribute maximum to the revenues?
Ans. We should be doubling our revenue every year for the next three years. Education is expected to contribute about 87% revenues in FY 10.
....read the full interview here.
Saturday, February 16, 2008
the chart depicts indexed movement in the P/E and the EPS of NSE's Nifty index...it is quite a useful chart to monitor...
Thursday, February 14, 2008
Future Capital Holdings Ltd: Hold
Mundra Port: Hold
Read the full article here.
Wednesday, January 30, 2008
The trouble is that even if the fed funds rate is cut by 50 basis points, what do stock market participants do - given that the same has already been factored in...
looks like being in cash and taking some of the profits off the table on days of sharp bounce-backs or the so-called relief rallies (provided they are there for the taking, which is most likely to be the case with people who have been in the markets for over a year now)
A few more things may have also changed in the past few weeks -
- new found respect for words like "risk & return"
- sharp drop in investor expectations
- importance of asset allocation, etc.
Saturday, January 26, 2008
|1. TEMPERANCE.|| |
Eat not to dullness; drink not to elevation.
|2. SILENCE.||Speak not but what may benefit others or yourself; avoid trifling conversation.|
|3. ORDER.||Let all your things have their places; let each part of your business have its time.|
|4. RESOLUTION.||Resolve to perform what you ought; perform without fail what you resolve.|
|5. FRUGALITY.||Make no expense but to do good to others or yourself; i.e., waste nothing.|
|6. INDUSTRY.||Lose no time; be always employ'd in something useful; cut off all unnecessary actions.|
|7. SINCERITY.||Use no hurtful deceit; think innocently and justly, and, if you speak, speak accordingly.|
|8. JUSTICE.||Wrong none by doing injuries, or omitting the benefits that are your duty.|
|9. MODERATION.||Avoid extreams; forbear resenting injuries so much as you think they deserve.|
|10. CLEANLINESS.||Tolerate no uncleanliness in body, cloaths, or habitation.|
|11.TRANQUILLITY.||Be not disturbed at trifles, or at accidents common or unavoidable.|
|12. CHASTITY.||Rarely use venery but for health or offspring, never to dulness, weakness, or the injury of your own or another's peace or reputation.|
|13. HUMILITY.||Imitate Jesus and Socrates.|
Wednesday, January 23, 2008
BSE Sensex: -17.6%
BSE Midcap: -27.5%
BSE Smallcap: -26.7%
Most retail portfolios (cash folios) are down by anywhere between 25-40%. F&O traders that were long would have lost their shirts though.
Who did what during this period:
|Cum. MF||Cum. FIIs||Sensex|
Clearly, global market cues and a concurrent pull out by FIIs have had a big impact on the markets. So far they have pulled out more than 2.5 billion dollars, that too in five straight trading sessions. However, a pull out of a mere USD 2.5 billion dollars is really small when one considers the overall inflows and the total market cap of Indian markets.
Where to now?
US Federal Reserve in an extreme step reduced the overnight federal funds rate by a sharp 75 basis points, to 3.25%. This has had a positive impact on most emerging markets with Brazil and Mexico recording over 5% gains overnight. Some of the major Asian markets open in the green too. Each of the three major indices - Nikkei, Hang Seng and Shanghai are currently up by anywhere between 2-5%.
Indian markets are therefore expected to open in positive territory this morning. However, will the gains sustain over the next few days? Maybe not. Given the kind of drop we've seen in the past few days, a lot of people would be looking to exit on rallies, simply to balance our their positions which are currently tottering deep in the red.
theIPOguru has a nice and apt article on "Greed and Fear". Here's the article ...
It was flattering to receive all those calls and SMS’s yesterday and again, this morning, after the stock-market did the ‘Humpty-Dumpty’ act.
Most of those of you who called had seen my article titled ‘A Sense of Déjà vu’ which appeared in the HT ( Delhi and Mumbai edition ) and was also posted on the blog.
Call it premonition, or simply the wisdom that comes with hair turning grey over the years spent at the bourses, but at the end of the day, that’s what I have believed investing is all about. Its all about Asset Allocation, Re-Balancing and lots of Common Sense.
Fundamentals cannot be ignored . As good old Abe Lincoln once said ‘ You can fool all the people, some of the time; Some of the People, all the time; But you can never fool all the people, all the time’.
Will the markets rebound after this hammering ? They certainly will. When ? Ask the FIIs ( or should it be the world’s richest brothers ? ).
Like I mentioned, fundamentals cannot be ignored forever.
So my friends, keep the faith, consider buying at successive declines and play the waiting game. The rewards will come.
Patience, like I often mention, is a great virtue.
Here's the link to the entire article.
As for me, I've been buying (with whatever little money I have...) some of the stocks that I'm bullish on:
- Crest Animation
- Monsanto India
- Dish TV
- Patel Integrated Logistics