Track portfolio for better returns

The domestic investors are increasingly realising that it takes a combination of timing, patience and probably little bit of luck to make money from the stock markets.

Those who missed the opportunity of booking profits during the earlier boom run are regretting, and even those who made an entry less than a year ago are not a happy lot. That is sure to make many wonder what it takes to be an investor in the stock markets. Check out if you have these traits.

Risk appetite

Equity sure lets you earn more money but not all your investments can turn into a goldmine. This is particularly true when you bet on stocks. As a result, an equity investor needs to have the ability to take risks which could be in the form of negative returns.

While the prospects of loss of capital are much lower when the investment horizon is long, there are chances that some stocks may not recover even in the long term due to a change in their business prospects. In such cases, 'stop loss' becomes a strategy and investors may be forced to settle for loss of capital.

As a result, equity is definitely not an option for those who can't see negativity in their portfolio.


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Time to monitor

If you are one of those jetsetting professionals with little time on your hands for managing money, equity investing is not the option for you. The stock markets are all about volatility and hence need careful analysis and monitoring.

When you take the direct stock route, investment decisions need to be reviewed regularly. Gone are the days when you could invest in a stock and relax. Today, even market leaders are faced with the challenge of business cycles and hence, investors have to keep a tab on macro and micro factors.

For those who don't have the energy and time for regular monitoring, mutual funds may be a better option as the money you invest is managed by professional managers. Since mutual funds also take care of the diversification aspect because of their larger portfolios , the investor gets the benefit of better returns.

Though in the short term, direct equity investing may prove beneficial, history has shown that mutual funds have the ability to generate higher returns over the long term because of diversified portfolios. Also, mutual funds have the advantage of holding on to cash unlike individual investors

Stick to your conviction

It may sound contradictory but equity investors need a combination of conviction and nimble footedness to maximise gains. While the ability to book profits at regular intervals is an integral part of equity investing , an investor also needs the discipline to think longterm with his investments.

For instance, if you have chosen the equity option for building wealth over a period of 10 years, the aberrations in the short term should not be a constraint. Again, for long-term goal fulfilment, systematic investment plans (SIPs) in equity can do a better job when compared with direct stocks as stocks may not retain the same level of potential over a long term.

On the other hand, the SIP form of investing through mutual funds can be more rewarding and less cumbersome .

While these are some traits which can help investors tide over the uncertainties of equity, the basic principle of wealth creation is discipline. Irrespective of your choice of product, be focused with your goals and the means you choose.

Analysts' corner

RESEARCH CALLS
S I Team / Mumbai August 25, 2008, 3:07 IST

Balaji Telefilms
Reco price: Rs 173
Current market price: Rs 157.45
Target price: Rs 220
Upside: 39.7%
Brokerage: Kotak Securities

Balaji Telefilms (BT) and the Star group have ended the four-year long exclusivity contract under which the Star group had the right of first refusal, on content produced by BT and BT could not air any other content on the rival channels during the time when its shows were being aired on Star Plus.

Content exclusivity relaxation will prove to be a positive for BT, in the longer term. The entry of a slew of new channels in the general entertainment channel space- Colors, 9X and NDTV Imagine are a source of opportunity for popular content players like BT. The company’s ability to capitalise on the same and ramp up volumes profitably will be the key issue to watch out for.

The company is expected to counter multiple headwinds of lower realisations from a key client-STAR, waning popularity of its content and expenses towards new show launches.

BT is now hoping to address them through different programming formats, expected releases in the near term, outcome of which will be critical for renewed financial performance. At Rs 173, the stock trades at a reasonable 13.1x FY09E earnings. Maintain Buy with a price target of Rs 220 (Rs 225 earlier).

Lloyd Electric & Engineering
Reco price: Rs 90
Current market price: Rs 83.70
Target price: Rs 142
Upside: 69.7%
Brokerage: Emkay Global Financial Services

One of India's largest air conditioner coil manufacturer, Lloyd Electric & Engineering (LEE) witnessed muted growth of 6 per cent year-on-year (y-o-y) in topline to Rs 187.1 crore during Q1 FY09.

This was primarily on account of demand for air conditioner in North India getting impacted due to the early monsoon arrival this year. High depreciation and interest expenses impacted the net profit, which declined by 11.3 per cent y-o-y to Rs 14.6 crore during Q1 FY09.

The company recently acquired a Prague-based Czech company called Luvata Czech, a leading manufacturer of customised finned-pack heat exchanger coils in the world. LEE would be introducing refrigeration coil as a new product line, with technology transfer from Luvata Czech, which will help the company diversify its product portfolio.

Labour arbitrage and an opportunity to increase market share in Europe and Russia are the other benefits that would arise out of the acquisition. LEE will be investing Rs 20 crore in Luvata Czech in FY09 for brownfield expansion, which in turn will result into higher economies of scale. The stock currently trades at a P/E of 4x FY09E and 3x FY10E earnings.

Crompton Greaves
Reco price: Rs 253
Current market price: Rs 250.70
Target price: Rs 367
Upside: 46.4%
Brokerage: Sharekhan

During FY08, the overseas power system business of Crompton Greaves (CG) reported a 28 per cent y-o-y growth in revenues to Rs 2,959.7 crore (43.3 per cent of total revenue), aided by strong performance of its key subsidiaries Pauwels and Ganz. The power business continues to be the revenue driver for the company.

However, the revenue growth in the domestic power business was sedate, as the company faced manufacturing road blocks during the two quarters of FY08 (fire in a transformer plant in Q2 FY08 and logistical issues in Q3 FY08). Aided by steady revenue growth and improved operating performance, the net profit of the company grew by 43.7 per cent y-o-y to Rs 405 crore during the year.

The company’s order book stands at Rs 4,653 crore, up 14.4 per cent y-o-y. The company has increased the manufacturing capacity of the power division by 38 per cent.

The company has also installed nine assembly and test pads for power circuit breakers, which aided a 40 per cent increase in the production.

CG, now capable of providing a wide array of products and services, is well placed to exploit the opportunity arising out of the huge investments flows witnessed by the power transmission and distribution space. At Rs 253, the stock is quoting at a P/E of 15.9x its FY09E earnings.

Bharti Airtel
Reco price: Rs 792
Current market price: Rs 799.2
Target price: Rs 973
Upside: 21.7%
Brokerage: Prabhudas Lilladher

Bharti Airtel (Bharti) maintained its strong outlook on wireless subscriber net additions till 2010 and expects the overall wireless base to reach 500 million, implying a compounded annual growth rate (CAGR) of 15 per cent over the period. It has re-iterated its stance of sustaining a 25 per cent market share.

The company foresees competition to intensify further with the entry of new operators and renewed interest of global telecom operators to set-up operating footprint in one of the fastest growing telecom markets in the world.

But given the under-penetration in the market and the size and scale that Bharti has built over the years in terms of network coverage, wide distribution and innovative product offerings, the company is confident of taking full advantage of the market opportunity over the next 6-9 months.

However, mobile number portability can be a serious threat to Bharti, due to the inherent high churn in the GSM segment (about 5 per cent of overall subscriber every month). Faster access to 3G spectrum shall be the key trigger for the company in the foreseeable future. At Rs 792, the stock trades at a P/E of 15.5x and at an EV/EBITDA of 9x FY10E earnings.

Bharat Bijlee
Reco price: Rs 1,396
Current market price: Rs 1,400
Target price: Rs 1,603
Upside: 14.5%
Brokerage: India Infoline

Bharat Bijlee (BB) earns 70 per cent of its revenue from the transformer division and the rest from sale of motors. To tap the huge growth opportunity in transformers on the back of investments in the power sector, BB plans to expand its transformer capacity by 38 per cent, to 11,000 MVA by the end of Q2 FY09.

The company expanded its motors capacity to 1m horsepower (HP) in FY07 and plans to further expand it to 1.7m HP over the next two years. In addition to the capacity expansion, BB plans to reorganise its operations and has initiated major restructuring of its business portfolio.

BB is expected to register revenue and earnings CAGR of 17 per cent and 10 per cent respectively over FY08-10E on the back of increase in transformer volumes and new product launches.

The company earns an EBITDA margin of about 20 per cent, which is expected to reduce by 320 bps through FY08-FY10E, given escalating competition. The stock has corrected by 66 per cent from its peak on concerns of earnings remaining flat. These concerns are adequately priced in at the stock’s current P/E of 7.6x on FY10E earnings, adjusted for investment book.

(Current market price as on August 21, 2008.

Mid-caps turn hot picks as bulls charge

AHMEDABAD: The party is on for mid-caps , but not without a word of caution from the experts. The market is likely to stay bullish for small and mid-caps. On Friday, upper circuit was applied to as many as 239 mid-caps and small-cap counters, out of 2,732 scrips traded on the Bombay Stock Exchange during the day.

For retail investors, those who have been staying off the markets of late, there may be an opportunity. Market experts say that small and mid-cap shares can give good returns in the short-term , if one is ready to take some risks.

A positive market breadth was seen after a long time on the BSE. As many as 1,551 shares closed in the positive territory . Only 1,108 closed in the negative zone. The BSE Mid-cap and Small Cap Index rose by 1.35% and 0.97%, respectively.
"There is a clear buying indication in the mid and small-cap segment. After a seven-month long erosion in the valuation of the scrips in the two segments, the prices are down by almost 60 to 70% from their all-time (January) highs. So, for smart investors, here's an opportunity for bargain-hunting ," says stock analyst Paresh Gordhandas.

He added that cash-rich traders can have a field day as retail investors are staying away from the market. The traders are looking at accumulating a good number of shares at their lowest prices. The frenzy to buy mid-cap and small-cap shares will continue till Diwali.

On Friday, B group shares witnessed highest number, 140, of circuit filters, while the upper circuit was applied to only two scrips in the A group.

However, all analysts are not so optimistic about the buying opportunity in the mid-caps segment. While they agree that there could be short-term gains, they recommend that investors better stay off.

Says Arpit Agrawal of Arihant Capital Markets: "All the negative factors are discounted right now and the market is likely to move up gradually. However, one should still go for large caps as their valuations are reasonably good.
There can be a sharp rise in the short-term , but the risk is equally large in the mid-cap segment."

"With every rise, there is a selling pressure in the market. So, one should stick to fundamentally strong stocks only. During the fall, retail investors should grab the opportunity , but focus should still be on the large-caps ," says Pawan Jain, chairman Ashika Stock Broking
Source : the economic times dt. 3 8 2008

BULLS ON THE RAMPAGE

BULLS shrugged off the impact of the knock-out punch delivered on Tuesday by RBI, bouncing back strongly on the back of falling oil prices and firm global markets.
Concerns relating to the local economy, mainly inflation and rising interest rates, receded to the background as the 30-share Sensex ended Wednesday at 14 287, a gain of 495.67 points or 3.6% while the NSE Nifty rose 124 points or 3% to 4314. Wednesday’s rebound helped the market recoup a significant part of Tuesday’s losses caused by the steep hike in the benchmark — shortterm rate by 50 basis point. The Sensex had fallen 558 points and the Nifty by 142 points on Tuesday.
But there is a cautious undertone to the rally as according to brokers, the bounceback was more because of technical reasons than fundamentals at play. After pressing heavy sales during the last few days, traders rushed to cover their short positions ahead of the expiry of futures contracts on Thursday, said brokers.
Local institutional investors lent good support even while foreign portfolio investors who have so far sold over $6.8 billion worth of stock this year continued to be on a selling spree. Indian institutional investors bought equities worth Rs 672 crore while overseas investors were net sellers at Rs 628 crore on Wednesday.
“The rally was like a pullback from lower levels. We are yet to come out of the woods completely as the CRR hike was a big jolt to the market,” said Indiabulls Securities CEO Divyesh Shah. In the near term, the market will take a cue from the movement in oil prices and the weekly inflation numbers, he said.
On Wednesday, crude oil prices fell below $121 a barrel on reports that gasoline demand in Asia and the US may slow in the near term. Prices, in fact, have slipped more than $25 a barrel, or 17%, from their July 11 record levels.
Softening oil prices had its positive impact on global markets. In the US, the Dow Jones Industrial Average and Nasdaq Composite Index jumped 2.4% and 2.5% while key Asian markets led by Hong Kong rose between 0.7% and 2%. The global euphoria was also attributed to Merrill Lynch’s recent writedown, after which confidence among consumers appeared to have gone up.
Back home, brokers reckon that the market will take some time to absorb the shock of further monetary tightening. Analysts fear such measures would lead to a slackening of consumer demand and impact growth, particularly in interestsensitive sectors such as banking, auto and real estate.
These concerns took its toll on shares across sectors on Tuesday when the BSE Bankex plunged 8.3%, Realty 5.5% and Auto 4%. Wednesday, however, saw a reversal in the downtrend as the three indices bounced back 5.2%, 5% and 2.8%, respectively. Good buying was also observed in metal, IT, oil and gas and power stocks as the respective indices rose between 3.3% and 4.7%. Overall, the market breadth was positive with 1,784 gainers and 857 loser stocks on BSE on the day.
Source : the economic times dt 30 7 2008

Rain Commodities under funds radar

CALCINED Petroleum Coke (CPC) major Rain Commodities is under the radar of several funds after its recent inclusion in mid-cap index. It has risen by around 14% in the past one week. According to brokers, it is witnessing sustained buying by funds like Swiss Finance Corporation and Morgan Stanley, among others. The interest has emerged after it reported a PAT of Rs 94 crore in this quarter. Going forward, this is expected to go up substantially as average realisation of CPC was $355 per tonne for the second quarter and may go up to over $550 per tonne in the third quarter as it has recently booked some orders at $700 per tonne. Further, the series of rate cuts in the US is likely to save around Rs 60-crore interest every year as interest cost alone, which would be utilised for putting up a co-gen power plant in the US. According to analysts tracking the counter, the company is expected to report an EPS of nearly Rs 90-100 for Calendar Year 2008. Due to increasing consolidation and limited supplies, CPC may remain sellers market for next 4-5 years. The stock price closed at Rs 215, up 2% on Wednesday.
Source : the Economic times dt. 30 7 2008

Is the pull-back rally over?

MUMBAI: Constraining economic factors and fall of equities from all-time highs of 21,200 to recent lows of 12,514 leaves us in no doubt that we are in the midst of a bear market.

The recent rally in the market is being seen as a typical bull-run in the bear market. In just five days, the Sensex has rallied 2,366 points after which profit booking set in.

So is the short-term rally over? Economictimes.com spoke to marketmen to find out.

Chief Technical Analyst, Sandeep Waghle of Angel Stock Broking:

“Today’s (July 29) correction was event based which got discounted. It can’t be said that the rally is over. Buying can still emerge at these levels, the trend is still bullish. Top has been formed for some time at 15,200. The bottom of 12,500, which was formed some two weeks backs, will not be violated. We may see buying at 13,200-13,300 levels.”

Manas Jaiswal, Senior Technical analyst, Emkay Global Financial Services

“Nifty has already corrected 50 per cent of its recent rally from 3,790 to 4,539. If it remains below 50 per cent retracement level of 4,164, it can touch the recent low of 3,790. At a higher level, if it trades above 4,220 then the uptrend will continue and it can again come in the range of 4,350-4,400. Wednesday would be a critical day as it will decide the market trend.”
Arun Mewawalla, AVP-Alternative Research, ULJK Securities

“The recent short-term rally is over, as it was based on short-covering. We expect the market to be in consolidation phase between 4,000 and 4,500. Until July series expiry settlement, we could see volatility in the range of 4,100-4,250.”

Ram Chandran Iyer, head of institutional sales, at Kantilal Chhaganlal Securities

“The entire pull-back rally from 12,600 to 15,100 was event based, as traders covered shorts on expectations of UPA winning the vote of confidence in parliament. Soon after the survival of the government, selling emerged at 15,000 levels. Despite the fact that crude is around $123-125 per barrel, inflation is at an acceptable two-digit mark and earnings of most companies were not bad. However, investor confidence is missing. Unless foreign funds cease selling and there is renewed buying interest from domestic institutions, every rally will be sold off. Liquidity will be the main driving force for the market. We expect the market to consolidate near term. 12,600 will be a good buying opportunity to enter quality stocks with a two-three year perspective.”
Source : the economic times dt. 30 7 2008

Real estate prices in bubble zone

The question that bothers a lot of prospective home buyers is whether they will miss the bus if they wait any further. However, the right question should be: Can I afford to buy a house today? Even if you are one of those blessed ones, the thought should be: Is it a fair price for the house? Your house might not be an investment, but does that mean you should pay any price for it?

The prices currently being quoted are simply atrocious. From a time, not too long ago, when people talked about loans of Rs 10 lakh to Rs 50 lakh, today the average loan size is substantially higher.

A simple 2-bedroom house in Malad can cost up to Rs 1.2 crore (including stamp duty and registration charges). This is the price that sellers expect, but this does not mean they are actually getting it. The cost of a similar flat 4 years ago was close to Rs 30 lakh.

The entire real estate boom took off in 2003 on the back of very low interest rates and low prices. However, the situation has changed now with realty prices going up 3-4 times, while interest rates are 60-70% higher. Incomes have certainly not grown four-fold in the past four years. Today, even if you are earning Rs 25 lakh annually, it is extremely difficult to buy a 2-bedroom house in the suburbs.

Even if you make a down payment of Rs 20 lakh, you will still end up borrowing close to Rs 1 crore. This would mean an EMI of close to Rs 1 lakh per month. So, after tax and EMIs, a person with Rs 25 lakh gross income will be left with just Rs 5-6 lakh as disposable income for lifestyle and living expenses. Once you take EPF contributions, you will just be left with Rs 4 lakh annually.

Source : The Economic times dt. 30 7 2008


Lifestyle inflation (driving a car, visiting malls, eating out & entertainment), which is much higher than normal living expenses, eats up a significant portion of one’s income. Hence, it is just not possible even for someone earning Rs 30 lakh to service an EMI of Rs 1 lakh every month. Even if you do manage to do it, you will be left with no savings.

So, what should you do? Should you buy a house today? Real estate prices, though location-specific, have been witnessing a slowdown in demand. One might argue that luxury accommodations might not be impacted by this. However, there is a visible slowdown in real estate and prices are down on an average by 10-15% in places like Mumbai.

Unlike the stock market, there is no index for the real estate market and no price-discovery mechanism. In fact, the price discovery is very subjective and identical properties in the same building can go for two different prices.

If one had a real estate index, it would have had given details on number of transactions. Thus, enabling one to witness the slowdown that has started last year itself.

There have been several reports of builders borrowing at very high interest rates and some defaulting on their interest payouts. In fact, real estate stocks have been hammered the most and the basic assumptions on which their landbanks were valued are a matter of debate now.

I believe the stock market here is one leg ahead of the realty market and there is a lot more pain to come in the residential segment. One is also witnessing a lot of projects being delayed and redevelopment schemes being postponed.

Speculators have started to exit since late last year and investors trying to exit now are unable to get the price they could dictate some time back. With rising interest rates, demand should come down. However, location still rules and some premium commercial property could still fetch good money.

Not that it is any indicator, but if you look at the price-to-rent ratio (PR Ratio) similar to PE ratio, one can clearly see that the prices are in the bubble territory.


Since there are no margin calls in the realty space, the holding capacity of an investment can be substantially higher than a leveraged exposure in stock market, where margin calls have to be attended immediately. Hence, real estate prices generally do not fall drastically.

Small builders are cash-starved and are not getting into new projects. This is the case with mid-size developers. However, big builders with access to IPO funds and PE funds can wait for an extended period of time before cutting prices.

One can clearly see that the discounts offered in the form of stamp duty waivers or furnishings are nothing but a desperate attempt to get end-users.

Like in the stock market, it pays to be patient in the real estate market too. For realty market to sustain itself, there should be a steady inflow of end-users. Speculators and investors can only take it to a certain level. End-users can only come when prices are affordable and for that at least 30% correction is a must.

If you have been eyeing a property for some time, don’t just think twice, think several times before you sign on the dotted line. Be patient for the next 12-18 months and you are bound to come out as a winner.
Amar Pandit, Director of My Financial Advisor.