Panic bottom signals a trend change?

Lehmann Bros. filed for bankruptcy today and the global markets have tumbled. The Indian markets are no exception. The price of crude is now below $ 100, yet our markets have not rallied. The reason for that is the unusually fast depreciation of the Indian Rupee against the US Dollar. The USD has risen from Rs. 40 to Rs. 46 in just a few months. The rise has been very sharp since the day Derivatives trading in Forex was launched in India. So such a sharp move in the USD-Indian Rupee exchange rate was sort of expected on the back of heavy speculation. The rise of the dollar against the rupee has almost nullified the fall in Crude Oil price.

But such bankruptcies in the US financials can actually be good news for the markets, in the sense that all the bad news is finally getting out in the open. Also consider the fact that the bell weather stock of India, Reliance Industries has finally taken a pounding. During the entire bear market phase of 2008, RIL was the last man standing coz it hadn't fallen much as compared to the mid-caps. It was sort of holding the fort above Rs. 2000 levels. But today it has broken down to a low of Rs.1832. To my mind, this is a sure sign that we are finally close to a trend change and the end of the extended bear phase. RIL will soon form its bottom and then usher in a rally for the Diwali-Christmas season. Most of the midcap stocks may have bottomed out already and it makes sense to go out and buy such beaten down value stocks in bulk. I think we are on track for a rally around Diwali which could last upto Christmas. So keep your shopping list ready.

Cheers!

Are we getting ready for Diwali Fireworks?

The first eight months of 2008 have been quite dismal for stock market investors. But with crude oil coming down to $109 levels there is a ray of hope. As explained in one of my earlier blogs, since the beginning of this year, money flowed from the equity markets to Crude and other select commodities like Gold. It seems that the cycle is now turning in favor of the equity markets. If crude goes below $100, the Nifty will climb above 5000 effortlessly. And if it goes below $80, we can expect to see fireworks! FIIs are coming back into the Indian markets and the rate of inflation is likely to peak out (or has already peaked out) soon.

The IPO market is also seeing a revival with Resurgere Mines & Minerals India Ltd doubling on the first day of listing. Another IPO is being listed today which is AUSTRAL COKE & PROJECTS LIMITED. This is a group company of Gremach Infrastructure Equipments & Projects Ltd and a positive listing of Austral Coke today will have a great positive impact on the share price of Gremach Infra also.

Cheers!

Hot Stock Ideas

Ok. The markets have played out exactly like I had previously opined. Crude Oil has come down to $ 120s again and I reckon it could go lower. That can only mean good news for the Indian Stock Market. The political uncertainty is also out of the way with Manmohan Singh's govt. winning the Trust vote. Mars is leaving Saturn on 10th August. Time to buy.

I have been receiving repeated requests about suggesting some stocks for investment now. Here are a few of my Top Picks:

1. GREMACH INFRA (BSE CODE : 532836) - This stock used to be the darling of the markets just six months ago. Having seen highs of over Rs. 500, this share is now trading at a mere Rs. 88. The diluted EPS for FY 2007-2008 was Rs. 23.74, which means this once highly rated Infrastructure stock is trading at a PE of just 3.7. I will buy this stock.

2. GODAWARI POWER & ISPAT LTD (GPIL) : This stock has come out with a stellar performance in the 1st quarter, despite the slowdown in the rest of the market. It posted a diluted EPS of Rs. 13.09 in the June qtr. With an expected annualized EPS of Rs. 55, and cmp of just Rs. 204, this super stock is trading at a PE of a mere 3.7. I will buy this stock.

3. CREW BOS : This stock has a one year high of Rs. 163, and currently available at a throw away price of just Rs. 33. Having posted a diluted EPS of Rs. 2.4, with an annualized EPS of Rs. 10, this stock is trading at a PE of a mere 3.3. I will buy this stock.

Cheers !

Analyze this!

India's economic miracle is certainly not over, it's just started. The complete turnaround in the Stock Market from the euphoria of 21000 to the present gloom of 13000 is the handiwork of a newly bred species called Hedge Funds. These people move fast. Quick money is their mantra. The Futures market is their play area. If I was a Hedge Fund Manager with unlimited resources at my command (resources include huge amounts of money, control over the print and electronic media, financial analysts and politicians across the globe on my pay-roll etc.), this is what I would have done.

Starting at the start of Financial Year 2007-2008, first I would have pumped in money in the emerging stock markets, with a view of cashing out within six-nine months. So after creating a frenzy for stocks in Nov-Dec, 2007 and building up a Crescendo, I cash out at the peak in early January, 2008. But since markets don't fall on their own, I have to orchestrate a fall. I do that by shorting the Nifty in huge quantities. The other smaller players have no choice but to follow suit. It's like playing poker......have you ever played poker? :) The guy with the most chips pretty much decides what happens at the table. Ok, back to the market. So now that I've shorted the Nifty, how do I convince other people to sell their stocks too, so that I can make profits on my shorts? I start circulating pessimistic stories in the media about an ensuing recession. But since just two-three months ago, my people had circulated bullish stories in the media......how do I now do a volte-face? So, my propaganda has to be backed by some change in the fundamentals. And how do I change the fundamentals of any economy? I fiddle with the price of oil, which is the most important factor in any country's economy, specially the emerging markets. So, having made my money in the stock markets, I now start pulling out all my money from there and start buying Crude Oil Futures. So, as I push Crude Oil prices up by my relentless buying, the rising prices of oil play havoc with the economies of most countries and their stock markets come crashing down!

So this was what happened until now. What happens next? Surely, from a price of just $55 two and a half years ago to almost touching $150 now, the actual demand for oil has not tripled in this short span of time. The prices went up due to huge Speculation in the Futures market. So, when prices reach unrealistic levels, they become unsustainable. To my mind, that point would be reached somewhere around $171 levels and and the price of Crude would then crash back to around $110-115 levels. Correspondingly, a surge in the stock markets will then be seen. I think this turning point would be reached some time before the end of July, 2008, which is this month itself or latest by August. So, my guess is that from August onwards, the stock markets would again start going up.

I am actually praying for an early election. An early election would mean that the politicians who have amassed huge wealth in the last four years of power will open their purse strings and start to SPEND. All political parties will start to SPEND their money for electioneering, which will generate lot of employment and business across the country.

Contrary to popular belief that the fall of the UPA Govt. will bring instability and uncertainty, my reading is that a fall of the govt. will actually END the instability and uncertainty which is currently prevailing in the country and specially the stock markets.

Cheers!

Will JK Lakshmi Cement be a takeover target?

As I said in my earlier post, that it is unlikely that I'd have the time to blog regularly or answer individual queries. The stock markets have been trending down since the start of this year and have been pretty depressing on the whole. As some of you know I have other interests like Astrology, Films etc. and have been pursuing those interests. Was in Bangkok couple of weeks ago to attend the IIFA Awards. Watch out for Akshay Kumar's dare-devil act in the show, in the television telecast on Star Plus on the 29th of June.

Coming back to the markets, u may recall that I had named the IT and Pharma sectors as the Outperformers of the market this year, at the start of the year itself. That call has come true. You may also recall my call given on Kohinoor Foods last year when it was trading below Rs. 50 levels. At that time, that stock was available at low single digit PEs. Even during the market crash, Kohinoor Foods was trading at Rs. 120 levels in March, 2008. Today there is news in the papers that Kohinoor Foods has become a hostile take-over target. A Bombay based company Temptation Foods along with Consortium consisting of names such as Morgan Stanley, DSP Merril Lynch among others have acquired nearly 30% of the shares of the company during the last six-seven months. Even after the total market collapse, Kohinoor is trading around Rs. 100 today......a good 100% gain over the price when I gave my buy call on it, in less than a year.

A similar fate may await JK LAKSHMI CEMENT LTD. I feel at PE levels of a mere 2.3 at current price of 89 odd, JK LAKSHMI CEMENT LTD. may become an attractive take-over target for bigger players in the cement sector. The Promoters themselves have increased their stake from 41.52% last year to 45.60% on 31st March, 2008 taking advantage of the weakness in the stock price. I suspect the Promoter share may have gone further up since then. If there is one sector in this beaten down market which deserves a buy currently, then to my mind, it is the Cement sector. My Best picks in this sector are ACC, Ambuja and ofcourse, JK Lakshmi Cement.

About my current market outlook, I feel that the price of Crude Oil is the most important factor in deciding where the markets are headed from here. Then ofcourse, there is the ensuing general elections in the country. I think the price of Crude may go as high as $171 per barrel in the next couple of months before settling down to $115-$120 levels in the medium term.

You may also recall that I had given an explicit Sell call on over-hyped and over-heated stocks like JP Associates, GMR Infra , Punj Lloyd etc. much before the others. Look at how much they've fallen in the last six months. Even the Real Estate stocks have fallen nearly 50% from their highs, and to my mind, they are likely to fall further. While there has been a downward correction to the tune of 50% in the price of Real Estate stocks, Real estate prices on the ground themselves are yet to fall by that percentage. People thinking of buying a residential/commercial property should wait for the next six months to get them at much cheaper prices.

Investors like me would accumulate JK Lakshmi Cement in the current market weakness.

Cheers!

Why doesn't the Govt. control Realty Prices??

The government's threats of price control to the steel & cement sectors have been keeping the prices of shares in these sectors down. If the govt. thinks that these sectors are behaving as a cartel, then there are bigger cartels in other industries. Why doesn't the govt. control prices of real estate? Buying a house has gone beyond the reach of the Indian middle class. Prices of housing have gone up threefold in the last two and and a half years. A flat in Mumbai which used to cost 50 lakhs two years ago, is now quoting at 1.5 crores! It's impossible to buy a 3BHK flat in any decent area of Mumbai for less than 1.5 crores. Can the Indian middle class afford that? To my mind, the whole vicious cycle of inflation started with the sky-rocketing prices of real-estate in India. Everything else followed. Has the govt. taken any action on the Builders' cartel?

There is another cartel in the Pvt. Banking space. The charges these banks are levying from their customers for demat transactions, maintenance and other services are exhorbitant. Has the govt. taken any action on them? There is another cartel in the Food sector. The prices of food items like grains, fruits, vegetables, milk etc. have gone up a lot in the last two years. Has the govt. issued a threat to them for bringing down their prices?

So why is the govt. singling out just the steel and cement sectors for price control? In an overall inflation scenario, which is across the board, such targeting of the steel & cement industries is ridiculous.

Cheers!

Market Outlook

Hi friends,

At the outset, let me apologize for not being as active on this blog as I used to be. It's just that I've been awefully busy lately. I'll try to answer individual queries (time permitting) but please feel free to answer each other's queries if you wish to.



Now for my current views on the Market situation. The market has seen a very nice bounce from the lows of this year in the last three weeks. But the big question is whether this move is sustainable or whether this is a dead cat bounce. My reading is that even if we have put the worst behind us, things are not going to be all hunky dory from now on for the rest of the year. The market may still take about 2-3 more months to stabilize and a positive, sustainable uptrend may be seen from August-September onwards. As predicted by me in my New Year blog, IT and Pharma Sector stocks have outperformed the market so far. The biggest concern for the Indian market right now is inflation and cement, steel sectors have been under threat by the govt. as being price control candidates. But my point of view on Cement is that it is a good time for long term investors to get into this sector as pressure from the govt. is only a temporary sentiment dampner. On the ground, the fact is that there is a very robust demand for Cement and business is good.



The bad news coming from the US may also take a few more months to end, and only after the US Markets stabilize will our market see a sustained positive move. This market is presenting an opportunity for long term investors to invest in high quality, low PE - high growth stocks. Unfortunately, there is not much to do for very short term traders right now. Traded volumes are very low and there is a lack of interest from the retail investors who were badly hit by the crash early in the year. At this point, the likely trading range for the Sensex for this year seems to be between 14500 and 21600.

Cheers!

About PE ratios and the right time to buy

I was asked an important question by Raghu, and I thought I'd blog it for everybody else also

Raghu said...
Hi Naveen.Today I read in TOI that the Sensex may breach 11000 levels which means there is still lot of downside left.In such scenario do you think it is a good time to open the positions? I am not talking about value stocks like JKL but some good stocks which have taken the beating along with junk stocks. Though I understand that an optimum PE Ratio for each co varied based on its future prospects can you pls advice as to is there any standard/PE for evaluating Small/ Medium and large scale firms respectively.Also I have noticed that after a bear phase market gives an excellent returns for the following next 2 -3 years. Is it true or just a co-incident. Just a curiosity question pls.

Hi Raghu, it is the nature of the market that the participants get overly optimistic when the times are good and overly pessimistic when the times are bad. There are excesses on the way up and also on the way down. A good player will choose his/her target company carefully and should be able to evaluate it both in relation to and independent of the Indices.

You've asked me what is the optimum PE ratio for various groups of companies. There is no standard PE ratio which will fit every stock. It will vary from industry to industry and from stock to stock. Take for example, a stock like Punj Lloyd. I gave a sell on that stock when it was trading around 500-550 levels. At the same time many so called 'Analysts' (the ones who regularly appear on certain TV channels) were singing praises of that stock and advising a buy. The stock today closed at 297. Most people would think it is a great opportunity to buy that stock because it has fallen 45% from its highs. But do you know what PE it is trading at even now for FY08? 27!! That means that it was trading at a PE of 50 when the price was at 550. Compare that with the the current PE of JK Lakshmi which is less than 2.5.

How would you reconcile this anomaly? The truth is that the market does not always run on fundamentals. In fact, it seldom runs on fundamentals. More often than not, it runs purely on the will of the Operators and the Hype generated about that stock. But this is true only in the short to medium term. This is so because the vested interest parties cannot keep the price of a stock up or down as per their convenience beyond the medium term. In the long term the true fundamentals of a stock have to catch up. Punj Lloyd is just an example I am giving to elaborate my point. If you look closely, you will find that Punj Lloyd is still Up nearly a 100% from its year's low of 147 which was the prevailing price in April, 2007. But public memory is short, so they don't remember the figure of 147 attached with Punj Lloyd, they only remember the recent high price of 550. If you ask me, then the fair value of this stock should be between 150 and 175....................maximum 200. But the 'TV Analysts' would have you believe that it is a great buy even at 550!

At the peak of the recent Bull market, certain Power stocks were trading at PEs between 70 and 100. Thankfully, today many of them have come down to nearly half that. Though there is no thumb rule as to what should be the Optimum PE limit for any stock, I personally would be very uncomfortable in buying any stock over a PE of 25, no matter how good the company or the management, in the present scenario.

Coming to the last part of your question.........ofcourse bear markets give an excellent opportunity to buy good stocks at throwaway prices, but provided you buy the right stocks and for the long term. The simple basic rule of the market is to buy low and sell high. But it is ironical that most people actually end up doing the opposite.
Cheers!

JKLAKSHMI CEMENT : A GOLDEN OPPORTUNITY

The Nifty is down to 4764 at the time of writing this. Can it go down further? Yes, it can. The way I look at the current market scenario is like this. There are two different pockets in the market right now. One pocket consists of the frothy stocks which went up to crazy heights just a couple of months ago, without having any real earnings to justify their price rise. I am talking about stocks like REL, RIIL, Jai Corp, Unitech, JP Assoc, Punj Lloyd, GMR Infra etc. These stocks need to go down further.

Then the second pocket consists of stocks like JKLAKSHMI CEMENT which have gone down on very low volumes purely in sympathy with the overall negative sentiment in the market. They don't deserve to be at such prices. At today's low of 119, JKLAKSHMI is trading at a PE of 2.53. This is incredible for a company of this size and quality of management. JKLAKSHMI's PE is at a huge discount to its peers. The industry average PE used to be in the range of 10-14 which has now shrunk to between 8-12 after the January crash. If I was a Fund Manager I would be going all out to buy this stock in bulk at these prices. Capacity is going to be enhanced from the present 3.5MT to 5MT by October 2008 and to 10MT by 2011. Cement is going to be in demand due to the thrust on building new infrastructure in the country.

Considering all this, I would say that the market is giving a golden opportunity to buy gems like JKLAKSHMI at such throwaway prices.

Cheers!

BUDGET IMPACT on various sectors

Here is a brief compilation of the effect this Budget will have on various sectors :

1.AUTOMOBILES : POSITIVE
Excise on 2 and 3 wheelers, small passenger cars reduced from 16% to 12%.

2.BANKING : POSITIVE with a caveat
PSU Banks are expected to face pressure on their net interest margins until the subsidy for waiver of agricultural loans and one time settlement of loans is released from the govt.

3.CEMENT : NEUTRAL
The govt. has increased budgetary allocation for roads under NHDP. This coupled with the govt.'s focus on Infrastructure & Housing development will be key drivers for raising demand. Appointing of a Coal regulator is a postive move as it will facilitate timely and proper allocation of coal (a key raw material) blocks to the core sectors, cement being one of them. From a differential excise duty levied last year, the budget proposes a flat rate of Rs.400 per MT bulk cement or 14% ad valorem, whichever is higher and cement clinkers excise duty at Rs.450 per MT. This move will not have much impact because most cement manufacturers have set up grinding units so they don't have to source clinker.

4.ENGINEERING AND CAPITAL GOODS : POSITIVE
Reduced excise duty on manufacturing goods will boost demand. Custom duties on project imports lowered. Overall, a good budget for engineering.

5.FMCG : POSITIVE
Reduction in taxes and waiver of farm loans will boost consumer demand. Increased consumption to boost volumes.

6.INFORMATION TECHNOLOGY : NEUTRAL
Higher spend on education is good news for training providers. But the service tax on customised software is a negative for technology companies but it will be passed on to the clients.

7.INFRASTRUCTURE : POSITIVE
Continued thrust on Infrastructure spending is good news. Major developmental schemes get vastly increased allocations. But service tax on works contract raised from 2% to 4%.

8.MEDIA : POSITIVE
Cheaper set top boxes is good news for direct to home operators and will help in digitisation of the TV Industry. More money for I&B Ministry.

9.OIL & GAS : NEUTRAL
No reduction in custom duties for crude oil and petroleum products. Marginally negative for polymer industry as costlier Naptha will push its cost structure upwards.

10.PHARMACEUTICALS : POSITIVE
Reduction in excise duty from the current 16% to 8% is a big positive for this industry. Increased allocation of funds for eradication of HIV/AIDS and polio and reduction in customs duty on certain life saving drugs from 10% to 5% is a positive for companies having product pipeline catering to these segments.

11.REAL ESTATE & CONSTRUCTION : NEUTRAL
Cut in peak CENVAT rate from 16% to 14% could benefit companies as raw material cost would come down. Increase in short term capital gains tax could increase tax liabilities for several companies.

12.RETAIL : NEUTRAL
Nothing specifically aimed at development of this sector. But Increase in threshold limit for personal income tax to result in a rise in disposable incomes thereby fuelling a growth in this sector.

13.TELECOM : NEUTRAL
Service tax, revenue sharing licence fee, spectrum charges unchanged. Cheaper data cards, convergence products. 1% excise duty on cellphones will make them more expensive.

14.TEXTILES : NEUTRAL TO POSITIVE
Integrated textile parks, upgradation gets a boost. Yarn banks on the anvil. Additional allocation to TUF to accelerate capital investment in the textile sector. Removal of National Calamity Contingent Duty (NCCD) of 1% on polyester filament yarn to benefit companies that have spinning capacities.

15.UTILITIES : NEUTRAL
Reduced 7.5% customs duty on project import to 5% to boost investments. Additional 4% duty of 4% withdrawn from power generation projects (other than mega power projects), transmission, sub-transmission and distribution projects, good for high voltage transmission projects.

Cheers!

HDFC BANK - CENTURION BANK OF PUNJAB MERGER

The Boards of both banks, HDFC and Centurion Bank of Punjab, have okayed a swap ratio of 1 share of HDFC Bank for every 29 shares of CboP, reports CNBC-TV18.
The merger ratio has come in favour of HDFC Bank at current market price.
HDFC Bank will make a preferential issue to HDFC after the merger to maintain 23.28% stake. The merger values CBoP at Rs 50.80 per share.

Visitors to my site may recall that in response to numerous recent queries about CBOP when it was trading above 70, I had given a SELL call on it. Today's closing price on the BSE was 48.25. My call stands vindicated.

Cheers!

Reliance Power Bonus ratio is 3:5

Reliance Power has today declared a Bonus issue in the ratio of 3:5 , which means 3 bonus shares for every 5 held. This bonus issue is only for Non-Promoters. Anil Ambani's personal stake will come down from 45% to 40%. This would bring down the cost price of retail investors in the Rel Power IPO to 269 and for others to 281. But Ex-Bonus, the price is expected to go down to adjust accordingly.

Cheers!

Reliance Power to issue Bonus Shares

In a move to compensate the retail investors who burnt their fingers in the Reliance Power IPO, Anil Ambani has announced a Bonus Issue. A board meeting will be held on the 24th Feb to discuss the Bonus ratio. Will this lift the share and the rest of the market tomorrow? We'll see.

There is a buzz in the market that a tussle is going on between the estranged Ambani Bros. for the title of the richest man in India, and there are vested interests involved in pushing & pulling the Reliance Power share price. The announcement of a bonus issue could be a smart move by Anil to salvage some market cap of the ADA group companies which have taken a dent after the Reliance Power listing price fiasco. He has two more IPOs lined up and this move is to resurrect his sagging goodwill among the Indian investors after the Rel Power let down.

It remains to be seen whether we'll see the start of a pre-budget rally next week. The global markets, led by the US markets, are still in a turmoil. If there is some semblance of stability in the global markets it would help the Indian market to do its pre-budget jig.

Cheers!

RELIANCE POWER LISTS BELOW ISSUE PRICE

The worst fears of the market have come true. In my last blog, I mentioned that if Reliance Power lists below its issue price, it will take the entire market down with it. That is exactly what happened today. The bell has tolled. Not only has the Reliance Power stock opened below its issue price, it has closed at a dismal Rs. 375.

Having said that, this current crash in the market presents a good opportunity to buy select good value stocks at prices you could only dream of till a couple of months back. Gems like JKLAKSHMI CEMENT, for example, are now available at throwaway prices. Long term investors can build their portfolios now.

Cheers!

Reliance Power IPO Listing : The Acid Test

The younger of the Ambani Bros. will ring the BSE bell tomorrow morning. But for whom the bell tolls? That is the big question. If the bears are able to hammer the price below or even close to the issue price then the bell will toll for the market. But I don't think that will happen. Even though the grey market premium, which started at 450-500 rupees when the issue had opened for subscription, has almost diminished to zero, I expect the stock to touch 700 at some point in time during the day tomorrow.

Keeping aside the Reliance Power listing, the markets are still rattled by the recession in the US. The US market is pulling down the whole world's markets with it. But that said, the Indian markets are still cushioned by the robust domestic growth and should perform better than the rest of the world over a one year period. The budget is also round the corner and a pre-budget rally is also expected. Such crashes, as the one we saw on Black Monday, can be expected to happen at least once a year and present a good opportunity to cherry pick at lower levels. Even at the beginning of the year I had predicted a big correction around the end of January, which came two weeks earlier than expected.

So what should be the strategy of a prudent investor now? Firstly, I would use any rally in the market fancied stocks which are quoting at PE ratios of anything between 50 - 100 to exit those stocks. Such high valuations are not sustainable in the long run. In these uncertain times I would rather play safe and invest in stocks which I would be comfortable holding for a minimum of a one year time frame. If you are a short term or day trader, then these are very difficult times for you. Simply because the volatility is too high. Markets are so choppy right now that you can get chopped both ways if you get it wrong.

Here's hoping that a pre-budget rally starts soon.

Cheers!

My response to Udayan Mukherjee's post on Moneycontrol

Hi Udayan,

While I appreciate your intention of assuaging the feelings of the Indian Investors whose fingers have been badly burnt, I do not agree with the content of your post.

What 'mistake' did people who are long term investors make who were holding stocks with less than 10 PE or in some cases stocks with even less than 5 PE? You would be right in saying that those who were chasing overpriced and over-hyped stocks like RNRL, RPL, Ispat, Essar Oil, Reliance Energy etc. were overcome by their greed and that's why they had to pay for their 'sins'. It is completely understandable if you were admonishing people who were in such stocks for their 'mistake'.

But what mistake did a person who was holding a JK LAKSHMI CEMENT LTD., for example, make?

*That stock was trading at a PE of 3.7 at the price of 172 just one week ago. It was available at 109 today and the PE shrunk to 2.4!!

*The company has a confirmed annualized EPS of 47 for FY2007-2008.

*It has been posting spectacular results for the last six quarters in a row.

*Capacity enhancement from 3.5 million tonnes to 5 million tonnes on schedule.

*Captive Power Plant of 36 MW fully stabilized. Annualized savings of approx. Rs.30 crores.

*High cost debts of Rs. 325 crores replaced.

*Interim dividend of 10%. Record date is 30th Jan, 2008.

The point I'm making here, dear Udayan, is that NOT EVERYBODY WHO WAS INVESTED IN THE INDIAN STOCK MARKET MADE A 'MISTAKE'. IT WAS A SYSTEMIC FAILURE. People were FORCED to sell even their good stocks by their brokers. Why did this forced selling take place? What exactly was wrong with the system of Margin Calls which led to this bloodbath?
Instead of just writing off the Indian Investors' intelligence as a 'mistake', you should use your good offices to find out the REAL CULPRITS BEHIND THIS BLOODBATH. To me, this bloodbath reeks of a scam, which should be investigated.

No cheers!
Superstar

Udayan's post on Moneycontrol titled: Lessons to be learnt from Jan 2008

Posted by: Udayan Mukherjee on ( 22-Jan-08 14:43 )

The thing about life is that one makes mistakes. Many mistakes were made in the second half of 2007 and those sins have to be washed away by blood, such is the way of financial markets. Some participants will go down under and never be able to get back to the market again but most will survive. The pain will linger for many months, maybe years but lessons have to be learnt. Every such debacle has lessons for us and the sooner we forget them the more we suffer.

The first lesson is not to let stock price performance become the sole reason for buying, a mistake which was made in abundance in the last 3 months. What couldn't be explained by fundamentals was credited to liquidity. The present lost all relevance as people chose to focus on the distant future, perhaps simply because the present could never justify those ticker prices; only a hazy dream of the future could. Traders and investors had no time for fundamental analysts, in many cases they were labelled "cribbing fools". Chartists became the most celebrated tribe on the street as only they could see and predict the one way run to glory for many of the hot stocks even as fundamental watchers cringed at valuations....till the music stopped. Don't get me wrong, charts do work in trending markets but once stock prices veer away completely from fundamental value, people need to get careful. But they never are. Now that the blinkers are off, people should ask themselves why stocks like RNRL, Ispat, RPL, Essar oil and Nagarjuna fertilisers have lost 50-70% of their value. It is simply because their stock prices had snapped all connection with underlying business fundamentals, earnings and value. Their stock prices became the only reasons for buying them which works for a while but not forever.

The other big lesson, one which should have been driven in earlier in May 2006, is the danger of overextending oneself in the futures market. The lure of stock futures is easy to understand. Put in some margin, take a big exposure on a fast moving stock, make a killing when prices shoot up. Repeat exercise. Just that people forgot that prices may also come down and at a pace which noone can even imagine, maybe their friendly stockbrokers forgot to tell them that part of the story. The result : unbridled speculation that ran into lakhs of crores, excesses that we are paying for today. Even this fall will not cure investors of their love for futures speculation but if at least some amount of caution is injected it would have been a worthwhile learning. Futures are not toys for amateurs, they are time bombs in the hands of inexpert and inexperienced traders, it's only a matter of when the fuse runs out.

The other learning which I hope will play out in the future, as it has in the past, is that it pays to be brave in times of panic such as these. If I was allowed to invest myself , which I am not, I would have no hesitation in deploying serious money into the market today, knowing fully well that prices may fall more tomorrow. And I would be standing there tomorrow to buy more of the same, till my money ran out. India is going to be a terrific stock market story for many years to come, even an intermediate bearish patch cannot shake that conviction of mine. At best, one will have to wait a bit for the returns to follow. That's alright. You are happy to put money in a bank FD and then wait for one full year to collect that measly 8%, aren't you? Then why does the stock market need to give you 20% every month? In the last one year, I haven't seen so many good stocks trade at such mouth watering levels. Forget trading, avoid the duds which were fuelled up by operators, just go out and buy those bluechips. They will deliver, even if there is a global market meltdown for a while, and if you are a bit patient you will be rewarded. But do remember January 2008, as history will repeat itself again in the future. Just that our memories tend to be too short and our greed too much.

NOTE: This column was written at 2pm, even as the markets were trading.

-Udayan Mukherjee, Executive Editor, TV18

Blood on the Street

5450 came on the Nifty and went. 5150 came and went. Even 5000 came and went. It was a day of high drama when stocks fell left, right and centre. Almost a knockout punch was levelled by the basket selling which came in today afternoon. According to information available, today's panic selling happened because of Margin calls. The exchanges called for margins and the brokers had to sell their leveraged positions forcibly to avoid having their terminals shut down.

In a sense, it is good that most of the poison has been spewn out of the system in one day ( I hope so). The faster this correction gets over, the faster we'll be back on our feet.


What a day! No cheers!

Guest Tips Here : Part II

Hi friends,

Starting a new thread for Guest Tips here as the old one was full to the brim and the page was taking a long time to load. Use this new thread to post your tips and queries. I will try to answer as many as possible, whenever I can. But you people can answer each other also, if you can. If you are addressing your question to me then please restrict your queries to a maximum of TWO Stocks at a time.

Cheers!

CURRENT MARKET OUTLOOK

As you all know that the global stock markets are very weak right now and there are recessionary fears in the United States. The stock markets the world over are falling like nine pins. Only the Indian and Chinese Stock markets have so far withstood the storm relatively well. Simply because of the high economic growth these two countries enjoy. But every year, there are at least two occasions when the markets correct severely across the board. I had predicted about a correction in the overall market around the end of January on my website in my New Year Blog but it has happened two weeks earlier than I expected.

This correction is giving us and opportunity to cherry pick good value stocks at cheap prices. You can also use this correction to exit pure momentum stocks and get into high quality stocks which you always wanted to own but could not afford to because of their high prices. This is a good time to churn your portfolio and move from low quality stocks to high quality stocks. So keep an eye on the new picks I've given here and pick them up on dips.

There are two possible scenarios in the overall market:

A) That we are almost near the end of tunnel and markets should start recovering from next week itself.

B) This is the start of a bigger correction in the overall markets and things may get worse before they get better. Remember what happened in May 2006 and March 2007. Every year this happens that the markets have to go through one or two deep corrections. This may be the first big correction this year. The levels to be watched on the Nifty are 5850, if we close below that then next support is at 5700, if we breach that also then there is a possibility of the Nifty going to even 5500 or 5450.

I am hoping that scenario A plays out and not scenario B. Long term, India is still in a bull market and will make higher tops on the indices. It is just that we should be prepared to face a few road blocks on the way.

Cheers!

JK LAKSHMI CEMENT LIMITED : MULTIBAGGER

JK LAKSHMI CEMENT LIMITED has been posting stellar results for the last five quarters in a row. The nine months Cash EPS till December, 2007 stands at 43.21 as against 27.57 for the same period previous year. At current price of 171, this stock is trading at a PE of a mere 3.6!!! The fair value of this stock should be three times the current market price at least. Long term investors can look forward to targets of 500 plus in the next one year. The company has also declared an interim dividend of 10% and record date for that is 30th Jan, 2008. If ever there was an undervalued share in the stock market, this is the one. Must Buy.

HOT STOCK : GODREJ INDUSTRIES

GODREJ INDUSTRIES stands to gain immensely from the recent repeal of Urban Land Ceiling Act of Maharashtra. It holds a large piece of land in Vikhroli, a central suburb of Mumbai which it can now develop. After development, the rental income alone could be over 100 crores annually. According to sources, the company is holding 82.88% stake of Godrej Properties P. Ltd. which is holding 51% of Godrej Realty P. Ltd. and 100% of Godrej Waterside Properties P. Ltd. These companies are developing an IT Park at Kolkatta and a Residential Project at Thane. There is also a buzz in the market that Godrej Poperties will be coming out with a public issue soon. This and the company's foray into real estate in a big way will result in huge value unlocking for Godrej Industries.

At the time of writing this, the stock was trading at the lows of 359.40. It can turn out to be a Multibagger investment for long term investors.

Cheers!

Watchlist of Potential Winners

Hi friends,

The current lull in the market and the ongoing correction in the mid-small caps will give rise to buying opportunities in several stocks which can be potential Winners. You could keep them in your watchlist and buy them on dips. Apart from my favorites CYBERMATE INFOTEK and JAYASWAL NECO, here are some more names which can be potential multibaggers in the long run:

1. Jay Ushin Ltd.
2. Jay Bharat Maruti Ltd.
3. South Asian Petrochem Ltd.
4. Aurobindo Pharma.
5. Unichem Labs
6. Agro Dutch
7. Su-raj Diamonds
8. Alps Industries
9. FCS Software
10.Shri Lakshmi Cotsyn
11.Suven Pharma
12.IKF technologies
13.Spicejet
14.Shakti Metdor

Cheers!

How to cope with the current market mayhem

Hi friends,

I am inundated with your queries! But before I start answering them individually, I thought I would write a general note on what you people might be going through with the current sudden downward move of the overall market. First advice to you is : DO NOT PANIC!

The times we live in demand from us that we should be able to think on our feet and take quick decisions. But the decisions we take must be well considered and should not be impulsive. DO NOT ACT IN PANIC. There has been a great run in the small and midcap universe in the last one month or so without a break. So it is but natural that profit booking has to come in at some point. And in raging bull market like ours, corrections will always be swift and sudden.

Look at the bright side of these corrections. These corrections show you which are the stocks which are showing strength even when the market sentiment turns weak. They separate the wheat from the chaff. I would say that this is a good time for you to get out of weak stocks which were running purely on momentum and get into strong stocks which are backed by solid fundamentals. For example, if you were holding junk stocks with no EPS figures to talk about, then sell them and enter LOW PE stocks like Cybermate Infotek, Jayaswal Neco etc. in the small cap section, Aurobindo Pharma in the large caps, Unichem Labs in the midcaps. These are only a few examples of stocks you can buy in the current overall market weakness, there can be many more such stocks out there which will turn out to be big winners in the medium to long term.

I hope you get my drift.

Guest Tips Here

Hi friends,

As I've always believed in the power of team-work and collective wisdom, I'm introducing this thread which is open to all the visitors to this site. I have always tried to incorporate good suggestions into my site. So all of you are welcome to post your latest stock tips here and discuss them amongst you.

To just give a few pointers to those of you who are new in the stock markets, here are a few factors which make stocks go up. A stock may go up if one or more of the following factors hold true for it:

1) If it is fundamentally sound and posting good profits consistently and if it has a low PE as compared to its peers.

2) If it is technically on the verge of an upward breakout or is in a confirmed uptrend. Learn to read the technical charts to be able to predict price movements effectively.

3) If there is some Corporate Action coming up in a stock like a bonus or a stock split or a merger/demerger, for example.

4) If the stock is in news and if some big operators/fund houses/brokerages have taken position in it.

5) A combination of all the above factors will make a stock simply irresistible and then one should not hesitate to go ahead and buy.


Happy blogging and Cheers!

PS: A link for posting tips for guests was provided earlier also (see the link GUEST STOCK TIPS on the right side of the main page), but very few people are using it. Some of the tips posted there by guests have also risen very sharply over the last few months. Instead of scattering your tips all over this site, it is much better to centralize all guest stock tips at one place for more convenience.

Happy New Year

Wish all of you a very Happy & Prosperous New Year. While the star sector of 2007 was the Power & Energy sector. The sectors which I think will perform well in 2008 will be IT, Telecom, Pharma, Agri and select Metals & Mining along with select Energy stocks. The markets are likely to go higher before they go down. We might see a tearing bull rally in January. Corrections may come either around the end of January or around the end of April. But an end of the year target of 25000 on the Sensex is what I expect from this year. While the indices may give moderate returns, there will be plenty of action in the mid and small caps in the coming year.

Hope everyone prospers in this New Year.

Cheers!