Stock Analysis Online

AAA Stocks

2011-11-18T20:49:00.005-05:00

I regret the fact that I did not write anything for sometime albeit with some valid reasons. Several stocks are at March 2009 levels (thanks to the European debt crisis) even though SENSEX and NIFTY are reasonably holding because of few good stocks. In my previous articles I have mentioned about 2011 being a year of opportunities and sure it turned out that way. If anybody had the feeling of missing out in 2009, here is another opportunity to buy some quality stocks at reasonable prices. Personally I made some grave mistakes of trying to find "Undervalued" stocks when the SENSEX was at 20000 levels and bought some ordinary stocks like Lakshmi Energy, IVRCL Infra, NCC etc. Its true that most of the stocks have crashed to 52 week lows, but the fall associated with some of these stocks like KS Oils, Educomp Solutions, Everonn Education etc. would have happened in any case irrespective of the market conditions.

The past 3 years have provided enough opportunities to learn a lot (though hard lessons) and one lesson that I learned for sure is not to invest in stocks with dubious corporate governance no matter what and how big the potential is. Most of the market participants including the Foreign Institutional Investors ignore the corporate governance in a bull market, but as soon as markets reverse direction and situation gets tough, governance issues comes to the light and stocks of the respective companies are dumped like a trash of worthless securities.

Mid caps and small caps of course offer multibagger opportunities but at the same time companies in this segment are the ones involved in illegal practices and we fall victim to these unfair practices whenever the news comes out. So it is better to invest in companies with good management, good corporate governance, low debt, no pledged shares and fundamentally strong business even if these stocks demand higher price. The reason is that we can confidently average on these stocks in times of market crash and expect to get a good return over long term. With this in mind, I have given AAA rating to selected stocks which I will share below.

I was not able to buy all of these stocks as these stocks traded at higher prices, but they are all available at reasonable prices now. Buying these stocks currently and accumulating more on every dip will be a good option for everyone who expect reasonable returns. One reader commented that I am giving here the list of stocks but a good analyst is the one who gives few multibaggers. My answer is very simple that those readers are welcome to listen to an analyst who give multibagger recommendations. If anyone can predict multibaggers that precisely, then he / she would have made millions already and would not be in the business of giving recommendations. I am neither suggesting to buy anything nor giving multibagger recommendations. All I am trying to do here is to share my experiences, learning, opinion and educate people who does not have enough knowledge in equity markets to get the basics in the process and get a decent return of about 15-20% CAGR.

Things I learned in 2011

1. Don't buy stocks which look cheap when the market is ruling high without extensive research.

2. Don't buy any company with dubious corporate governance.

3. Avoid companies with high debt and high percentage of pledged shares which are very bad combination's.

4. Avoid companies with fluctuating revenues unless they are industry leaders (Example: Infrastructure companies, Real Estate Companies).

AAA Stocks

I have assigned AAA rating to the following stocks because of their past history of good corporate governance, strong brand image, good fundamental business and future growth. All these stocks are trading at reasonable prices. If we buy these stocks now, then we should be prepared to average in case the prices come down. Of course there are many other AAA stocks but I am not listing them as they are trading at outrageously high valuations even now. (Example: HDFC Bank, Page Industries, Titan Industires, Asian Paints etc.).

Banks and Financial Companies

1. Axis Bank
2. ICICI Bank
3. State Bank of India
4. Yes Bank
5. Indusind Bank
6. Allahabad Bank
7. Andhra Bank
8. Shriram Transport Finance
9. GRUH Finance
10. Mahindra Finance
11. Indiabulls Financial Service (Excellent Dividend History)
12. Cholamandalam Finance

Pharmaceuticals / Chemicals

1. Torrent Pharmaceuticals
2. Cadila Healthcare
3. IPCA Labs
4. United Phosphorus
5. Gujarat State Fertilizer Corporation

Gas

1. GAIL
2. Indraprasatha Gas
3. Petronet LNG
4. Gujarat State Petronet

Diversified / Others

1. Godrej Industries
2. Tube investments / EID Parry
3. Mundra Port
4. Essar Port
5. Adani Enterprises
6. Savita Oil Technology
7. Bajaj Finserv
8. Hindalco
9. Exide industries
10. Opto circuits
11. SRF Limited
12. Torrent Power
13. Larsen & Toubro
14. PTC India

By just looking at this list, most of the readers would understand where I am getting at. Quality of the management, corporate governance and the underlying business is what drives growth and all the companies that I have mentioned have shown good practices in the past and hope they continue to do so in future too.

Kumaran Seenivasan
www.stockanalysisonline.com

What Should Retail Investors do?

2011-08-27T00:21:00.007-04:00

It has been more than a month since I posted in the blog. Oh boy I did not utter anything, otherwise whatever I wrote would have gone wrong. Markets have brought back the 2008 ghosts to remind us that the western debt will continue to haunt our life time. Only strong willed investors can survive these situations and emerge stronger than before. The rules are simple but very difficult to follow and with little bit of understanding, anyone can make up their mind to stay invested and buy more while the market continues to fall.

It’s true that the market has fallen and the portfolio of retail investors are down by 30% minimum. But some experts and analysts are trying to act very smart that they have predicted this long back. Actually it is not. The investments went down not only to retail investors but also the big businessmen like Mukesh Ambani and Kalanithi Maran. I will attempt to compare the real life investments made by Ambani and Maran recently and how we can learn from this to remain calm and come back stronger.

Investment by Mukesh Ambani - EIH Limited (Operates Oberoi Hotels)

Exactly in August 2010, Mukesh Ambani bought 5.54 crore shares (14.12% stake) in EIH Limited for 1,021 crore rupees that is to Rs. 184 per share. Immediately after he bought this stake, EIH announced the rights issue of 5 shares for every 11 shares held at Rs.65 per share. So, Ambani was eligible for additional 2.52 crore shares taking his investment to 1183 crores. The final price per share comes out to be Rs. 146 per share.

EIH Limited is trading at Rs.86 now (August 26, 2011) and his investment in down by 41%. Do you think a businessman like Ambani did not do his due diligence before investing? Of course he did. But the truth is, no matter who you are and how you analyze, uncertainty and stock market are inseparable. People often argue that some guys make money irrespective of the market. If that is true, why did great investors like Raj Rajaratnam (Founder of Galleon Group) and Rajat Gupta (Former Managing Director of McKinsey) were involved in insider trading? I agree some guys make money irrespective of the market, but only with the help of unscrupulous practices.

So the point I am making here is, you can be Ambani and still will not be able to predict what’s going to happen in the market. Do you think Ambani would have bought EIH Shares at Rs.146 if he knew market would fall? If he knew then, he would have of course waited for the market fall and bought the same stake for less than 800 Crores and might have saved 500 crores in the process. But what’s the lesson here? Even though his investment has declined in value, he remains calm and does not panic and sell. Once the market reverses the trend, he not only gets back his investment but generates decent return over investment as well. All he does is to remain invested and ride out the volatility. Why can’t a retail investor do the same thing? It is possible if you stop looking at your portfolio every day.

Investment by Kalanithi Maran – Spicejet Limited

Kalanithi Maran entered into an agreement in June 2010 to buy 37.75% stake in Spicejet Airlines at Rs.47.25 per share (16% discount to the market price of Rs.56 at that time) spending 940 crore rupees. He would not have bought it at that price, had he predicted the Western Debt problems or Inflation and interest rate issues in India or Market fall around the world. He invested as he honestly thought that it was a good investment at that point of time because 10 years down the line most of the people would be using Airlines for travel in India.

But Spicejet is trading at Rs.21 now and his investment is down by 55% in one year (His 940 Crore investment is worth 423 Crore now). But he does not react to these developments and remains invested. So retail investors also can remain invested during the market turmoil and can get back the money when the situation becomes normal as long as investment is in decent companies. If you happen to be very unlucky, then you can also lose money just like how Azim Premji lost Rs.230 crores in Subhiksha Retail.

Market Scenario as of August 26, 2011

I posted an article titled “2011 – Year of Opportunity or Disaster” on March 19, 2011 and suggested to keep accumulating stocks throughout this down turn. Market has become far more attractive now and this is definitely a great opportunity for the people who have missed out in 2008 – 2009 market crash. Forget about where SENSEX is trading now. Experts can say whatever they want (14 times EPS or 12 times EPS etc.). SENSEX is at 16000 because of few stocks that are trading at high valuations even now. But most of the midcaps are trading at life times lows or 52 week lows.

If you are not buying now and wait for bottom fishing, you will get only poor quality fish later on. Good stocks move up faster than others when the market recovers. Look at the following stocks for example. Most of them are trading at attractive valuations and can be bought now and can be accumulated at every fall for sure. But patience is the key here. One should not panic if the stock price goes down from your purchase price. Believe in your investment and keep averaging the good stocks. We need to take calculated risk in order to be successful in anything let alone the stock market.

Power Finance Corporation (Rs.133) – Trading at less than Book Value

Dhanlaxmi Bank (Rs.68) – Less than Book Value

Allahabad Bank (Rs.168) – One of the PSU Banks that came up with very good June 2011 quarter results, but trading at less than Book Value.

Rural Electrification Corporation (Rs.166) – Attractive valuation

United Phosphorus (Rs. 135)

ICICI Bank (Rs.820)

Axis Bank (Rs.999)

State Bank of India (Rs.1880) or Union Bank of India (Rs. 231) or Bank of India (Rs. 297)

GVK Power and Infrastructure (Rs.16)

Hindalco (Rs.140)

Jindal Steel & Power (Rs.462)

GIC Housing Finance (Rs.85) – Dividend itself 6% at current market price.

HCL Technologies (Rs.362)

Ess Dee Aluminium (Rs. 205)

I have just given few examples. You can pick any of the front line stocks now and you will get good returns in next 3 years time.

Conclusion:

Stocks are available at very good valuation and investors who follow the disciplined investment process can reap rich rewards in next few years time. All you need to do is the following.

Select good stocks.

Don’t chase Multibaggers. Because, off late most of the so called “multibagger” candidates are involved in unscrupulous practices. Example: Educomp, KS Oils, IRB Infrastructure

Keep buying in batches

Don’t panic if the stock price goes below the purchase price

Follow the principle of rupee cost averaging

Believe in your investment

Kumaran Seenivasan

www.stockanalysisonline.com

Graham Stock - Polyplex Corporation

2011-07-15T19:44:00.004-04:00

Last post was all about Graham and his book "Security Analysis". In this post, I am taking one step further explaining methods which Graham recommended to unearth the so called "Undervalued" stocks with an example. In general Graham talks about the following rules.

1) Book Value of Less than 1

2) PE Ratio of Less than 10

3) Debt Equity Ratio of Less than 1

4) Good Dividend Policy

If the stock fits all the above said criteria, then Graham applies his famous "Margin of Safety" principle (Stock Price trading at a Huge Discount to Book Value) to decide if a particular stock is worth buying. Most of the articles that quote him throw some light on said rules. But what they have not written about is his strong views on "Net Current Assets". More than Book Value, Graham considers "Net Current Asset" value as the very important one to consider when analyzing a stock. This is due to the fact that Book Value lost its significance because of the following two things.

1) The Value of the Fixed Assets as stated bore no relationship to the actual cost.

2) Fixed Asset value bore no relationship to the figure at which they would be sold.

Net Current Asset

Net Current Asset is what we get if we deduct the Current Liabilities from Current Assets. Current Assets section consist of the following in most of the balance sheets.

1) Inventory (Goods not Sold)

2) Receivables or Sundry Debtors ( Goods sold but payments not received)

3) Cash and Bank Balance

4) Loans and Advances

Graham recommends to take Cash and Bank Balances as it is (100%), Receivables at 80% of what is stated in the balance sheet and Inventory at 50% of what is stated (Because it needs to be sold). Calculating the Current Assets by this revised rules will reduce the actual stated value in the balance sheet to a new "Current Asset" value. Then Current Liabilities stated in the balance sheet needs to be deducted from the newly calculated "Current Asset Value" to get the "Net Current Assets".

The next step is to calculate the "Net Current Asset" per share by dividing the "Net Current Asset" by total number of outstanding shares. If the current price is huge discount to "Net Current Asset" per share, then that particular stock is the one which he terms it as "Undervalued" because he sees no reason for a company to trade below the "Liquid" value. Market imperfections lead to undervalued stocks and Graham believes sooner or later, Market will value the stock at the original or fair price. One such stock I identified currently (July 15, 2011) is Polyplex Corporation and will explain why this stocks fits the Graham criteria.

Polyplex Corporation (Current Price : Rs. 194)

Polyplex Corporation is the Indian multinational Polyester film company having operations in India, Thailand, Turkey and USA. The products are used in Packaging, Industrial & Electrical applications, Magneteic Media and imaging applications.

Please download the latest (2010-2011) results and balance sheet from the following link in order to understand the explanations.

http://www.polyplex.com/img/investor/q4.pdf

Lets calculate the usual Graham figures. (From Consolidated Figures)

1 ) Book Value (Reserves & Surplus + Capital / Total Shares) = Rs. 501 (1605 / 3.2)

2) PE Ratio = 1.5 ( 195 / 130)

Note: Removed Exceptional Item (630 Crores from Net Profit) to calculate the EPS.

3) Debt Equity Ratio = 0.48 (771 / 1605)

4) Continuous dividend from 1997. Rs. 14 in 2010 and Rs. 7 (As of now) in 2011.

So, Polyplex satisfies all the usual Graham stuff and in fact trading more than 60% discount to the Book Value. Lets take this further and calculate the "Net Current Asset" value in Graham Method.

1) Inventory = Rs. 218 Crores ( 436 * 0.50)

2) Receivables = Rs. 265 Crores (332 * 0.80)

3) Cash and Bank Balance = Rs. 860 Crores

4) Loans and Advances = Rs.171 Crores

Adding all this we get Rs. 1514 Crores. From the balance sheet we understand that the current liabilities are about Rs. 364 Crores.

Net Current Assets = 1514 - 364 = Rs. 1150 Crores.

Net Current Asset Value per Share = 1150 / 3.2 = Rs. 359

Current Market Price of Rs. 194 is 46% discount to the "Net Current Asset" value per share.

If you look at closely, you are in for a more shock. Cash and Bank Balance itself is Rs.860 Crores and that translates into Rs. 269 per share. So the current market price is 28% discount to the Cash and Bank balance per share alone. Even if we were to assume that they have decided to pay all the debt (Rs. 771 Crores), still we are left with Rs. 379 Crores of Net Current Assets apart from Rs.1500 Crore Fixed Asset Value.

So, from my point of view, this stock has no business trading at this price and (Market Cap of Rs. 620 Crores when the Cash in Book itself Rs.860 Crores) is "Undervalued". Considering the fact that they generated Rs. 2433 Crore revenue last year makes this stock all the more interesting. Only negative thing I see in this stock is, it is "Cyclical". But that does not warrant this huge discount and my belief is that market will recognize this sooner than later.

Kumaran Seenivasan
www.stockanalysisonline.com

Security Analysis - Book Review

2011-06-24T23:39:00.005-04:00

Security Analysis by Graham and Dodd is widely considered to be the best book on investment ever written and this is the second time I read this book (1934 Classic Edition). I got the feeling that more you read, more you like each and every sentence in the book. I don't know if I read it superficially in the first time, but I spent considerable amount of time this time around and I highly recommend that everyone who has aspirations to invest in stock market should read this before playing with your hard earned money.

The book offers timeless advice on investment principles, valuation methods, income statement analysis and balance sheet analysis. If you don't have an accounting or economics background / interest, this book could be bit of a hard read but for people who have basic understanding of economics / accounting / capital markets and instruments would find it relatively easy. The book extensively deals with the bond and senior security investments in the second and third chapter of the book and if you are someone racing against the time, then you can skip it. But all other chapters are very important ones and Graham discusses the mental and psychological aspect of stock investments at considerable length and to me that's where the success of this book lies. He has also allocated one chapter each for income statement analysis and balance sheet analysis where he explains each and every concept lucidly with real examples and tables. He has also touched upon corporate governance issues and various loopholes in accounting practices which we can easily correlate with present. Overall it teaches the reader to have very good understanding about the following;

1. Mental and Psychological aspect of stock investments
2. Established standards of Common stock investment
3. Corporate Governance and Loopholes
4. Income Statement and Balance sheet analysis
5. Asset valuation
6. Capital Markets

I have liked each and every sentence of the book but I want to give here some of the excerpts that I liked the most and hope that you will find it very useful as well.

Page 3 : "By mathematical law more speculators must lose than can profit".

Page 21 : "Security analysis must proceed on the assumption that the past record afford at least a rough guide to the future. The more questionable this assumption, the less valuable is the analysis."

Page 35: "Corrective forces are usually set in motion which tend to restore profits where they have disappeared, or to reduce them where they are excessive in relation to capital."

Page 54 : "An investment operation is one which, upon thorough analysis promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative."

My Example : Buying State Bank of India at current price (Rs. 2200 a piece) can be considered as an investment. Buying Jubilant Food works at Current price (Rs.800 a piece) can be termed as Speculative.

Page 303: "The function of analysis was to primarily search for elements of weakness in the picture. If the earnings were not properly stated; if the balance sheet revealed a poor current position, or the funded debt was growing rapidly; if the physical plant was not properly maintained; if dangerous new competition was threatening ; or if the company was losing ground in the industry; if the management was deteriorating or was likely to change for the worse; if there was reason to fear for the future of the industry as a whole – any of these defects, or some other one, might be sufficient, to condemn the issue from the standpoint of cautious investor."

Page 305 : "Buying common stocks viewed as taking a share in a business."

Page 310 : "The notion that the desirability of common stock was entirely independent of its price seems incredibly absurd. Yet the new era theory led directly to this thesis. If a public utility stock was selling at 35 times its maximum recorded earnings, instead of 10 times its average earnings, the conclusion to be drawn was not that the stock was now too high, but merely the standard of value had been raised. Instead of judging the market price by established standards of value, the new era based its standards of value upon market price. Hence all upper limits disappeared, not only upon the price the stock could sell, but even upon the price at which it would deserve to sell."

Note : He refers 1931 as New Era.

Page 317 : Canon of common stock investment.

1. Purchase price must have rational basis

2. Past record of primary importance

3. Approximations to insurance principle and practice

4. Purchase of a single stock not an investment

5. Group purchase may constitute an investment operation

6. Price an integral part of every investment decision (In theory, you only need to follow the old and trite policy of buying when prices are low and selling out when prices are high. No advice could be easier to give or more difficult to follow. High prices and low prices are not marked with distinguished signals like red and green traffic lights. Not only “high” and “low” always relative terms, but in wall street their meaning is mainly retrospective)

7. Analytical techniques essential to intelligent common stock investment

Page 317. "Policy of withholding dividend questionable"

Note: Seems he thought not paying dividend every year out of profits was not a good corporate governance. Current corporate governance practices in India would make Graham roll over in his graveyard.

Page 432 : "Classical formula for “Beating the stock Market” – Obviously it requires strength of character in order to think and to act in opposite fashion from the crowd; and also patience to wait for opportunities which may be spaced years apart."

Page 453 : "People who habitually purchase common stocks at more than about sixteen times their average earnings are likely to lose considerable money in the long run."

Page 499 : "When a common stock sells persistently below its liquidating value, then either the price is too low or the company should be liquidated."

My Example : Temptation Foods or Country Club India. These companies are not offering any value to the shareholders. According to Graham, shareholders will be better off selling the business rather than running it.

Page 504: "Common stock which : a) are selling below liquid asset values; b) are apparently in no danger of dissipating these assets; and c) have formerly shown a large earning power on the market price, may be said truthfully to constitute a class of “Investment Bargains”.

Conclusion: If you read the book and follow the principles exactly as given, you will see the following happening automatically.

1. You will not buy stocks when you are not supposed to buy (100% sure) or you will not buy a stock which a sensible investor is not supposed to buy.

2. You will buy more often than not at a sensible or right price.

3. You will know the right time to exit.

What else you are looking for?

Kumaran Seenivasan

www.stockanalysisonline.com

Portfolio Construction

2011-05-06T21:45:00.010-04:00

It has been more than a month since I posted my last article and so much has happened in the market since then. I listed several stocks that were beaten down at that time in the last article and most of them went up by 15% – 25% within a month only to come down again. Short term investors who buy in every dip and sell in a pullback tend to make money when the market is moving sideways like this and over the long term, long term investors should match them in terms of returns if not beat them. But to remain invested for a long time, it is important to build a portfolio of stocks that will catapult your returns (20% CAGR) while protecting your capital. Though it looks simple, it is easier said than done. Constructing a good portfolio takes lot out of you in terms of time and money while precise understanding of market dynamics, changing environments and guts to make tough decisions are prerequisites. I have tried to construct a good portfolio and have done reasonably well although I made lot of mistakes along the way and I thought of sharing some of the finer points that I learnt in the process.

Long Term Portfolio

The reason that many leading investors recommend to keep stocks for a longer term is to allow the stocks enough time to create the kind of earnings that support your cost price plus expected returns. For example, if you have bought Axis Bank in the month of November 2010, you would have certainly paid Rs.1500 – 1600 a stock. Market has been declining since then and Axis Bank is down by 20-25% from that level. In order to recover your capital and make at least 25% of returns out of it, you need to allow enough time, may be a year or two, so that the earnings catch up the valuation at which you bought the stock plus the 25% of return you expected. Looks simple, isn’t it? Not so simple though. Not all the stocks recover in the expected lines let alone making returns. That’s where your skill in constructing a portfolio comes into play. It is not without a reason that fund managers are getting paid well.

There is a myth that you have to buy only midcap and small cap stocks to beat the index returns but it is far from the truth. You can in fact build a portfolio from SENSEX or NIFTY stocks and still beat the index returns hands down by a big margin. How? The most important thing in building a portfolio is not only the selection of stocks but also the proportion of money that you allocate to each and every stock in your portfolio. Let’s see how this works with some practical examples.

Assume you had 15 Lakhs to invest during the month of June 2010 and you constructed a portfolio selecting 15 stocks from the SENSEX scrip’s. Assume that you selected the following 15 stocks to form an Index and named the index as STAR15.

HDFC Bank, ICICI Bank, Mahindra and Mahindra, Tata Motors, Bajaj Auto, Hindalco, Bharti Airtel, Cipla, Hindustan Unilever, Tata Consultancy services, Reliance Industries, BHEL, NTPC, L&T, DLF

Even for the illustration purpose I have opted for the most diversified list of stocks to avoid any bias to a particular sector.

Let’s see three scenarios and how it would have made a difference in returns.

Scenario 1: You had 15 Lakhs and you allocated 1 Lakh each on the 15 stocks. From June 2010 to May 2011, the return would have just mimicked the returns of the Index STAR15 that you assumed.

Scenario 2: You had 15 Lakhs and you decided to allocate 10 lakhs for the following 8 stocks since you thought they would perform well.

Reliance Industries, L&T, BHEL, Cipla, ICICI Bank, Bajaj Auto, NTPC and DLF.

You have invested the rest 5 Lakhs in HDFC Bank, Tata Motors, Hindalco, Hindustan Unilever, Tata Consultancy services, Mahindra & Mahindra and Bharti Airtel.

What do you think your returns would be? The returns would be sub optimal and in fact lagged the Index (STAR15) by a considerable margin.

Scenario 3: You invested 10 Lakhs in HDFC Bank, Tata Motors, Hindalco, Tata Consultancy services, Mahindra & Mahindra, Bharti Airtel and Hindustan Unilever and another 5 Lakhs in Reliance Industries, L&T, BHEL, Cipla, ICICI Bank, Bajaj Auto, NTPC and DLF.

Result: Your returns would have beaten the Index (STAR15) by a big margin and in fact you could have got more than 50% returns if you have allocated more money to Hindalco, HDFC Bank, Mahindra & Mahindra and Tata Consultancy Services.

So the point I am making here is, proportion of money that we allocate to a particular stock is as important as the stock selection and in fact more important than the stock selection sometimes. I don’t think you could have gained 50% return either from the portfolio of midcap stocks or the complete list of Index stocks from the assumed period. The notion that only midcap and small cap stocks can give Index beating returns is far from the truth though there is an element of truth in it. For example if you have invested all 15 Lakhs in TTK Prestige, you would have gained 300% returns by now. But it is very difficult to take that kind of a risk in a single stock. We can only make educated guesses and rational decisions. May be we can take those decisions if we sit in the board like some other big investors.

Stocks for the Next Decade

I am tracking a list of stocks which is enough to create a good portfolio. I went with the safety first approach where I gave more importance to the fundamentals and future direction they might take. May be if interested, you can pick few from the list as well. The list contains good mix of established and emerging companies.

Banks

Axis Bank (Fast Growing and entered into investment banking through ENAM Deal Recently)

ICICI Bank (Has Fast Growing Subsidiaries and global presence)

State Bank of India (Largest Bank in India with unmistakable track record)

Canara Bank (One of the largest PSU banks available at good valuation)

Andhra bank (Very good midcap PSU with attractive dividends)

Indusind Bank (Fast Growing Bank with retail client focus)

Yes Bank (Fast Growing Bank with Corporate Client focus)

Non Banking Finance Companies

Rural Electrification Corporation (Focus on Power Infrastructure Financing)

LIC Housing Finance (Growth area of housing finance with a backing from LIC)

Indiabulls Financial Service (Housing Finance company with good dividend History)

Dewan Housing Finance (Growing Housing Finance company focusing middle and lower income)

Magma Fincorp (Growing NBFC Focusing vehicle loans)

Shriram Transport Finance (Established NBFC in Used Commercial Vehicle space)

Bajaj Finance (Turnaround NBFC in Consumer Loans)

Mahindra Finance (Strong Parent and Presence in all kind of loan segment)

Infrastructure

Adani Enterprises (Next SENSEX Company)

L&T (Best Infrastructure Company)

BGR Energy (Growing EPC & BOP Service Provider in the power space)

IL&FS Transportation Networks (Very good road portfolio with good mix of annuity and toll projects)

IRB Infrastructure (Good road portfolio with huge order book)

Power / Energy

Coal India (Near Monopoly in Coal assets)

Adani Power (Growing Power Major with strong fuel security)

Torrent Power (Very good company present in the entire value chain of production & distribution)

Crompton Greaves (Excellent company in power systems space+consumer durables)

Diamond Power & Infrastructure (Growing small cap company in the power cable business)

Left out JSW Energy due to the fact that they have failed to get adequate fuel security amid falling merchant rates. If you are invested for 10 years in this stock, then it can give serious returns.

Left out Reliance Infrastructure due to the fact it is headed by Ambani scion and they get involved everything except business these days.

I have invested in both of these stocks, but will not make additional investment. Lesson learned. But both can give good returns over long term. It is just they don’t deserve to be in the core portfolio.

FMCG / Consumer Goods

ITC (Best in the FMCG Business if bought at the right price)

Godrej Consumer Products (Very good management & inorganic growth)

Titan Industries (Excellent performance in the past, Valuation is the concern)

Asian Paints (Leader in Paint Business)

Amar Remedies (Growing Small Cap FMCG Company)

Bajaj Corp (Very good fundamentals)

IFB Industries (Can tap the growing demand for consumer electronics)

McLeod Russel (Best Company in Tea Business)

Gitanjali Gems (Fast growing Jewelry Company)

Shree Ganesh Jewelry House (Undervalued)

Auto

Bajaj Auto (In best position to tap the two wheeler market)

Mahindra & Mahindra (Tractor & SUV Specialists and good management)

Tata Motors (Strong Performance off late)

Ahmednagar Forgings (Growing Small cap auto parts company)

Realty

Godrej Properties (Strong Management and good land bank)

Oberoi Realty (Zero Debt company with premium product)

Anantraj Industries (Low debt and Presence in National Capital Region)

Steel

JSW Steel

Sesa Goa

Pharma / Healthcare

Aurobindo Pharma (Good Pharma company available at reasonable valuations)

IPCA Labs (Evergreen Pharmaceutical Company)

Lupin (Strong performance in the past)

Apollo Hospitals (Largest Hospital chain and excellent brand value)

Jubilant Life Sciences (Reasonable Valuation)

Opto Circuits (Unique in its space)

Only problem in the Pharmaceutical space is the high valuation and it can go up from here or people might book profit sending the stock prices crashing.

Packaging

Bilcare (Major Player in pharmaceutical packaging)

Ess Dee Aluminum (Growing Pharmaceutical and FMCG Packaging Company)

Parekh Aluminex (Good Business & Stable Customers)

SRF Limited

Agriculture

Rallis India (Strong Parent and best performance)

United Phosphorus (Very good fundamentals)

Jain Irrigation (Major Player in Micro Irrigation)

Gujarat State Fertilizer Corporation (Undervalued)

Coromandel International (Strong Presence in South India and good Capex Plans)

Left out Lakshmi Energy & Food because I don't really know why it is under performing in spite of good fundamentals. I have made investments but will not make additional investments.

Leather Products

Bata India (Strong Brand Image)

Mirza International (Very Good Small cap company with good brands)

Superhouse Limited (Good Fundamentals)

Relaxo (Good Product line)

We can definitely create a decent portfolio from the above list but it is not the rule either. If we spot a very good opportunity in other stocks, we should be ready to grab it as well. For example, if Muthoot Finance goes down to Rs.125 in a correction. There is no point wasting time. They are in very good business of gold loan and their future looks promising. So it makes sense to invest in that. Likewise there could be many other opportunities and we just need to have open mind.

Angel Broking is projecting FY13 EPS of Rs.1488 for SENSEX and the consensus SENSEX EPS for FY13 is Rs.1400. If that turns out true, the SENSEX can reach 25000 levels within next 2 years and investors who build a good portfolio this year will stand to benefit a lot.

Kumaran Seenivasan

www.stockanalysisonline.com

2011 – Year of Opportunity or Disaster

2011-03-19T00:02:00.012-04:00

The first three months of this New Year 2011 has given enough headaches not only for retail investors but also for politicians and business men alike. The ruling congress government is one of the worst governments in recent times and in all probability should sit in the opposition benches if the electorates think prudently during the next general elections. The Congress government has failed in every aspect of governance and their only achievement so far seems to be signing the nuclear deal by buying MP’s and getting involved in scams almost every day. Congress is known for buying MP’s since the days of Narasimha Rao and it is no wonder they bought the MP’s again to save their face in Nuclear Deal. It is ridiculous on the part of prime minister to say that he did not authorize cash for vote to get the MP’s. No head of the government legally authorizes illegal acts and he has lost his credibility as a man of integrity. To make the matters worse, Wikileaks is releasing nasty information every minute and it seems US is just dictating how the governments are run around the world. I have never seen this many scams happening in such a short period of time and it looks like we need to either bribe officials or politicians to lead a normal life or become aborigines.

Impact on Market

Analysts blame Foreign Institutional Investors (FII’s) for whatever happens in stock market and it is high time they acknowledge the shoddy governance both at Government and Corporate level. No investor will invest billions of dollars confidently in such an environment and certainly not at a time when the companies in the western economies are doing well. FII’s started investing in emerging markets even though they knew how bad the corporate governance is just because the return in their own countries could not even beat the 1.5% inflation they currently experience. So for them it makes sense to invest and get out even with less than 10% gains in short durations and they don’t mind corruption or something else.

Nobody would have imagined these three months where governments in Arab nations are thrown around, Politicians are getting arrested in India, Businessmen are getting caught in scams, Oil and commodity cost is rising, Wikileaks is embarrassing all the governments, and even Mother Nature is causing damage in Japan. In fact markets have shown remarkable resilience for all these negative news flow because of the correction that has happened already.

Opportunity or Disaster

After spending significant amount of time reading financial news and expert ideas, I have come to the conclusion that the so called “Experts” are jokers or they act like jokers on the outset only to make huge money by misleading retail investors. If the market goes up, they all predict 22,000 or 25,000 SENSEX and if the market goes down 10%, they come up with crazy numbers like 12,000 SENSEX. They do not understand that no prediction can be accurate in stock market and more so when the sentiment is pathetically pessimistic. It is very hard for me to believe that they make bizarre Buy or Sell recommendation even after spending decades in stock market. So my take is that they (Experts and Brokers) do so only to make money and become rich. For example IRB Infrastructure has been recommended by almost all the brokers and experts as a good buy from Rs.270 levels and the stock has been going down all the time and still people are recommending. I do not know how many people shorted this stock and made millions.

But the silver lining amidst all the ruins is that these things existed in the past and still our markets have kept investors around the world interested and I do believe it will be the case in future too. In fact even worse scams could happen or fraud could be unearthed and nothing is ruled out in India. But one thing is sure that the country is remarkably resilient to withstand all these shocks and I believe we will continue to grow at a decent pace. In that sense I strongly believe that 2011 could be a year of opportunity for equity investors if they carefully construct a good portfolio and continue to invest if the market corrects more.

Why 2011 is Year of Opportunities?

If nothing bad is happening and everything is as optimistic as ever, then there is no reason for investors to sell equities and we will never get an opportunity to buy. Stock prices come down only at times like these and this has to be viewed as an opportunity. After all the mantra for even highly acclaimed investors is to buy and hold until you reach your target. When do the targets get reached? Only something bad happens. Markets are believed to reach the peak when the earnings become stagnant and earnings become stagnant because of something bad. It could be due to rising input costs, Oil crisis, recession or bankruptcy due to fraud and there are millions of reasons. If our idea is to buy the stocks when it is cheap, then why not now? If not now, then when? Of course people would say that the bottom has not formed yet and NIFTY will test 4800 or 4500 or whatever. But the prudent approach in front of us is to buy good stocks and create a portfolio now and continue to accumulate if the prices go down. This way investors will not feel that the market let them down in sudden uptick.

Markets usually discount all the bad news before everything happens and move up strongly before all the good things flow out. So waiting for the bottom is not a good option always and that too considering the fact that Indian companies have been coming up with decent results in spite of the bad environment, it is not the right thing to do. Almost all the mid caps have come down more than 35% from their peak and to go down from here, it would need an extraordinary situation for sure and the chance of happening that is remote though we can’t say it is not on the cards. Stock investment itself is a risky thing to do and if we have decided to be part of that, then these are some calculated risks that we need to take in order to be successful. So buying now and accumulating at lower levels will give good returns in the next 2-3 years time for sure. In fact personally I would be happy if the whole of 2011 pans out like this so that I can accumulate good stocks at fair prices and I will stand to gain when the market moves up who knows in 2012 or 2013.

Stocks List

As I said before, almost all the midcaps have come down more than 35% and some have corrected more than 50%. I am listing below some of the good stocks.

Yes Bank

Andhra Bank

Central Bank

Manapuram General Finance

Power Finance Corporation

Rural Electrification Corporation

Canara Bank

CanFin Homes

GIC Housing finance

BGR Energy

Reliance Infrastructure

SRF Limited

Shiv Vani Oil and Gas

United Spirits

Jain Irrigation

Bajaj Corp

ARSS Infrastructure

Thermax

Pantaloon Retail

Mundra Port

Spicejet

Voltas

IRB Infrastructure

IL&FS Transportation Networks

JSW Steel

And the list can go on.

Conclusion: This is the right time to buy stocks. Because you stand to gain If the markets go up from here and you stand to gain even more If the markets go down by way of accumulating at even greater prices.

Kumaran Seenivasan

www.stockanalysisonline.com

Irrational Investors

2011-01-28T22:34:00.009-05:00

The New Year 2011 has not started well for the Emerging Markets while opposite is the case with Developed Markets particularly US. For the last couple of year’s stock markets around the world were moving in the same direction but that seems to have ended for now. US Market has been moving up in the New Year while Indian Market has been declining giving sleepless nights for the domestic investors. While there are many reasons for this including inflation, interest rate hike and commodity prices, lot was dependent on FII’s booking profit to invest in Western Markets. FII’s have sold equities worth about 8000 crores since the start of the New Year. If 8000 crore sell-off can create this much mayhem in the Indian Market, I shudder to think what can happen if they offload all the 30 Billion dollar investments they have made in the year 2010. Unless our market is influenced more by domestic investors and institutions, this situation is unavoidable.

The market correction has given the much needed opportunity for many people who either want to enter now or re-align the portfolio with better stocks. I was looking at the prices of some of the stocks and found how irrational investors are and how the investor behavior forms the market sentiment. I will discuss this with 4 real world examples.

Bajaj Holdings and Investments

Whether it is land or Grocery or Stock, we all want to buy at a price lesser than its real value. For example, if someone sells an article worth about Rs.2100 for a price of just Rs.750, will people buy? I would think so. But it does not happen always at least in stock market. Bajaj Holdings and Investment is a holding and investment company and it has 31.49% and 38.55% stake in Bajaj Auto Limited and Bajaj Financial Services Limited and also 24% in Maharashtra Scooters Limited. Apart from these, they have a 100% subsidiary called Bajaj Auto Holdings Limited and 1% stake in ICICI Bank Limited plus other equity investments.

Lets Calculate the per share worth of this company.

Value of Bajaj Auto and Bajaj Finserv stake = Rs.16500 Crores

Other Equity Investments Including ICICI Bank = Rs.3100 Crores

Value of Fixed Income Securities =Rs. 2576 Crores

So total value of these investments is Rs. 22176 Crores. Bajaj Holdings has the total outstanding shares of about 10.58 Crore Shares.

If you divide the total investment value of Rs.22176 crores by the total outstanding shares, you get the per share value of Rs.2100. But the current market price of Bajaj Holdings and investment is just Rs.735 which is 65% lesser than the actual investment value. Also, the businesses they have invested in (Bajaj Auto and Bajaj Finserv) are doing extremely well and future is very bright too. Even if we assume 25% holding company discount, the stock still has about 40% upside. I am sure many market analysts know this but I do not know why the stock price is hovering around Rs. 735. One interesting thing, this stock did trade at Rs.3100 in December 2007 / January 2008 during the previous market peak. So, is this an opportunity or irrational behavior of investors? Only time can answer.

Indiabulls Real Estate

Indiabulls group is one of the shareholder friendly ones that we can see today. You can better understand this if you look at the dividend of group companies Indiabulls Financial Service and Indiabulls Securities. Indiabulls Real Estate is the real estate arm of this group and they went for the IPO in 2007. They did not have any visible projects or cash flow in 2007 and 2008 but the stock was trading at Rs.840 and thereabouts. If the investors had that much of a hope in this company, I do not know why the same investors do not have that hope when the same company is actually making profits?

The stock is currently trading at Rs.120. In fact the value of the company is several times higher than what it was in 2007 and 2008 but the stock is trading several times down from the 2008 peak. The projected FY12 EPS for the Indiabulls Real Estate is around Rs.15 and they also have 58.5% stake in another listed company Indiabulls Power. Their land value itself would be higher than their market cap and adding the indiabulls power stake, the stock is available at a cheaper price than its real value and the only reason I see for this is Market Sentiment and irrationality. Otherwise why would someone buy a company at Rs.840 when there were no visible projects and why someone would not buy when the company is actually making good profits in addition to other serious investments?

Reliance Infrastructure

This is another company available at a cheaper price and I do not know if that is because of Anil Ambani. There was a time where people looked upon Ambani’s for good returns. But time has changed since then and these days investors are ready to invest in any company sans ‘Reliance’. Coming to the Reliance Infrastructure business, they operate in very good sector and have very stable business of power distribution.

They distribute power to two of the most important cities in India, New Delhi and Mumbai in addition to Metro Projects, toll roads, Airports and power generation. They do have internal Engineering Procurement and Construction (EPC) team which generates serious cash flow and the trailing 12 month EPS is Rs.52. FY 2010 EPS was Rs.67. But the most interesting fact is yet to come which is their 44.96% stake in Reliance Power. Reliance Infrastructure’s investment value on the basis of Current Market cap of Reliance Power is Rs. 605 per share. But all these things are available for Rs.725 currently and I again have no answers to this. By all means of rationality it should be trading somewhere around Rs.1200 but market is a place where people get opportunities and I do not know if this is one of those cases. But I am sure Reliance Power will be a very big company in next 5-6 years and Reliance Infrastructure stands to gain a lot from this investment alone. May be by 2015, Reliance Infra’s Rpower stake itself could be valued around Rs.2000-2500.

Adani Enterprises

Adani Group is one of the fastest growing business groups in India and they have interests in port infrastructure, power, coal trading, oil & gas and agro processing. They have 70.25% stake in Adani Power which is planning to generate around 20000 MW Power by year 2020 and they also have 67% stake in Mundra Port. As we did for other companies, if we calculate the per share investment value of Adani Enterprises, it comes out to be around Rs.340. Rest of the Adani Enterprise Business (coal trading, Agro Processing, Oil & gas) is available for Rs. 240 based on the current market price of Rs.580. Again the businesses they are in have the opportunity to grow multifold and they only stand to gain in the future.

Another example would be Mahindra and Mahindra, but I will let the readers do the research. These are some of the examples that I wanted to share to give better understanding about irrational investor behavior. I am sure there are several better stocks out there with similar hidden values and if the investors are able to cherry pick them, they would be better off down the line.

Kumaran Seenivasan

www.stockanalysisonline.com

Corporate Governance and Equity Markets in India

2010-12-31T19:44:00.016-05:00

One of the most talked about subjects in equity markets particularly in India is corporate governance and often for wrong reasons. Many of the greedy and brittle promoters collude with brokers and some independent individuals to manipulate the share prices and still claim that they follow accepted international (Not just Indian) standards in corporate governance. Once in a blue moon, they get caught only to claim their innocence in media and to SEBI. I would get surprised only if these things are not happening and not the other way around.

The Reasons for Weak Corporate Governance

Promoters start the company and work really hard to bring success to the new venture in spite of unbearable bureaucratic struggles. Almost all the promoters bribe officials along the way to get things done and this is not an unknown territory to any of us. Bribe and flexibility has become part of our lives and it is natural for human beings (Promoters) to feel that it is legitimate to subvert the system to make some money as they are the ones who have done all the hard work to bring the company to this level. It is another matter that they were able to achive this kind of success because of shareholder money and also they took home exorbitant amount of money as CEO Salary and perks. But how many people are ready to get satisfied with that when our porous laws allow them to make some easy money? Manipulating the share prices does not involve too much risk as in the case of some serious frauds and scams but brings easy money to everyone involved.

The probability to get caught is very minimal in India and if they get caught, it takes lifetime to prove the wrong doing. Even if they are guilty of wrong doing, they have already made enough money for few generations anyway. We do not have the "Working" system (Laws are there) to punish the individuals and prevent such things happening. Most importantly our tolerance level is the highest in the world and we forget things within few weeks and in fact we accept these things very easily. Don't we vote for criminals? Don't we vote for candidates who make false promises? These things have become usual in our country where even Poolan Devi was a MP. How many investors stopped investing in stocks just because there was share manipulation? In fact Foreign Institutional Investors bought more this week than the Domestic Institutional Investors. The reason is that they know these things have been there for many years and only few people and companies get caught. So, the reality is we need to live with all these manipulations, scams and frauds to make money in stock market.

Bank managers take money to approve loans in India since the days of Akbar and Babur and it is funny that our Central Bureau of Investigation (CBI) came to know about this only now. Almost each and every individual who is getting loan is bribing officials and they name it as 'Commission'. LIC Housing Finance Scam came to the lime light only because “Money Matter Financial” was doing this as a business, else it would have been business as usual. So, corporates need to evolve as real corporates and not family run businesses to expect good corporate governance and we are far away from it. Until that happens we need to invest in equity markets assuming that most of the companies do some kind of manipulation in financial statements, tax returns, contracts and share price. I would get surprised only if a company does not do any of these things in India. Not that I am supporting it but I am accepting to live with the reality else I will face the risk of swimming against the tide.

Recent Corporate Governance Issues and Market Volatility

As we have witnessed, there was a housing finance scam as well as share price manipulation issues in some companies. Markets reacted as if these were not expected in a country where Harshad Mehta kind of scams are possible almost everyday. Many stocks belonging to good growth sectors fell steeply and some fell as much as 50-60%. Shrewd investors should have taken this opportunity to invest in good stocks as things will only become normal in a matter of couple of months.

Below are some of the stocks that came down steeply (Many of them recovered swiftly within few days).

ARSS Infrastructure

Parekh Aluminex

Arshiya International

Hanung Toys

Gitanjali Gems

LIC Housing Finance

BGR Energy

Reliance Infrastructure

Bajaj Corp

HDIL

Anantraj Industries

JSW Energy

SKS Microfinance

Sunil Hitech Engineers

Aban offshore

Indiabulls Real Estate

Indiabulls Financial Service

Central Bank

Amar Remedies

IFB Industries

Gandhimathi Appliances

Videocon Industries

Bajaj Electricals

Patel Engineering

Godrej Consumer Products

Hitachi Home and Life Sciences etc...

I can name many more stocks that gave good opportunities during this period. For example, I bought BGR Energy when it came down to Rs. 560 because of negative news flow and the next day it went up to Rs.700 and still trades in that range. I took a calculated risk as I thought BGR has a good management and they would deal these things appropriately.

Parekh Aluminex came down to Rs.215 from Rs.600 and I do now know how many people took that risk of buying at Rs.215. This stock moved up swiftly and now it is trading at Rs.330 and if someone offers me 50% within a week, I will take it any day.

Arshiya International also moved up significantly and it came down for no reason I believe. So, it is up to us to take calculated risks if we find ourselves in situations like the ones we have witnessed recently. Only thing we need to remember is that time has answers for all the problems and our markets survived even bigger threats in the past and came out only with renewed vigour. My suggestion is to accumulate good stocks, Get rid of bad ones and stay invested. Pressing the panic button only erases your wealth in stock market.

Note: The above mentioned stocks came down significantly during the recent scam announcements but most of them appreciated since then. So, please use your judgment if you are considering to invest in any of those. As you know the price at which you buy the stock is one of the most important things that will decide your returns.

Kumaran Seenivasan

www.stockanalysisonline.com

Underperforming Stocks and Opportunity

2010-10-30T09:26:00.006-04:00

Stock Market in India is flooded with foreign inflow of funds and it will not be an over exaggeration to say that the Indian market is almost controlled by Foreign Institutional Investors. Domestic Institutional Investors and retail investors have been the net sellers for the past 2 months almost every day while Foreign Institutional Investors have been the net Buyers. FII’s have pumped in around 35 Billion Dollars both in Equity and Debt market which has resulted in resilient stock market.

As long as US Federal Bank has zero interest policy, this will continue to happen and I would not expect any major correction in our market. Also FII’s have invested significant amount of money at the higher end of SENSEX and I do not think they will exit without netting at least 15% profit. It looks like the scenario is set for another “retail investor fallout”. If the market continues to behave this way for a long time, then retail investors will be forced to buy stocks at higher levels thinking that market will move higher and FII’s will start booking profits leaving retail investors high and dry.

Recent Rally and the Pattern

The SENSEX has moved from 16000 to 20000 in 5 months’ time and if you see the pattern, some sectors outperformed the market and some have underperformed. Even in the sectors that performed decently, some stocks have underperformed. Close look into it tells you that Pharmaceuticals, IT, Metals and to an extent Infrastructure stocks outperformed the market in SENSEX’s move from 12000 to 16000. Banking sector was performing only relative to the market but Finance and Banking stocks have done exceedingly well in the SENSEX’s move from 16000 to 20000. I have posted an article back in April predicting that financial stocks will do well and all of them except one have given 100% return in just 6 months’ time. Here is the link for that article in case if one has not read it (I have also mentioned about Gems and Jewellery stocks, Gitanjali Gems and Shree Ganesh Jewelers in my recent posts and they have done exceptionally well too).

http://www.stockanalysisonline.com/2010/04/best-indian-stocks-finance.html

Mahindra Finance, Shriram Transport Finance, Mannapuram General Finance, Dewan Housing, Ganesh Housing, Magma fincorp, Indiabulls Financial service, Federal Bank, Central Bank, and United Bank, all have given 100% returns in the recent rally. But at the same time infra stocks like IVRCL, Nagarjuna Construction Company, Patel Engineering, and Simplex Infrastructure are underperforming the market because of their relatively poor quarterly results. Even in engineering and capital goods space, there are several stocks underperforming the market. Does this give an opportunity? I definitely think so. Though Banking and Financial stocks are performing very well now, it offers only limited upside. But if we are able to find fundamentally good stocks that are underperforming due to quarterly results but have the potential to do well in future, then those stocks will give good returns considering where the Market is now. But we need to go through lot of pain for the time being. Because when you invest in underperforming stocks you need to be mentally strong for two reasons.

1. The stocks you buy will not move up but the stocks you did not buy will move up crazily giving you the feeling that I am not able to describe.

2. When you are buying underperforming stocks, it will go down from your cost price and you should be ready to average it out.

If one is ready to face these challenges, then they are better equipped to invest in these stocks at current situation. I do see some stocks like that and I list them below so that readers can do more research.

Lakshmi Energy and Food

Lakshmi Energy and Food is a rice processing company that has significant exposure in husk based power generation (30 MW Capacity). It operates in a very good sector and is one of the top 3 rice processing companies with more than 1 Million tons of processing capacity. Trailing 12 month EPS is around Rs.14 and the book value is Rs.88. They don’t have debt as high as some of the peers in the industry like REI Agro and Usher Agro. Their debt / equity ratio is less than one and it offers comfort. They have significant expansion plans like retail foray, power capacity additions and basmati export. While so many things are in favor of this stock, I do not know why the stock has declined from Rs.170 in January 2010 to Rs.70 now.

It has been in a downtrend for so long and I do not see any reason for it. While searched online for the reasons, I was able to find 2 things. One is their higher dependency on Food Corporation of India and the recent accident in one of their plants killing 3 people. But these are unavoidable things and do not support the kind of price decline it has seen. If you look at the peers, Usher Agro is significantly smaller and do not match with Lakshmi Agro in any valuation parameter like EPS, D/E Ratio and Book Value but still trading at Rs.88. So, assuming all the numbers reported by Lakshmi Energy and Food is correct, this stock offers a great opportunity to double the investment in next 2 Years for sure. I can’t imagine a company with Rs.1000 crore revenues, Rs.14 EPS, Less than one D/E Ratio and Rs.88 book value fetching mere Rs.460 crore market cap.

IVRCL Infrastructure Limited

IVRCL is one of the largest Infrastructure developers with 26000 crore order book and they have 80% stake in IVRCL Assets and holdings and 55% stake in Hindustan Dorr-Oliver. All these businesses are in good sectors and they are poised for a big growth in the future when the infrastructure funding is increased.

EPS (TTM) – Rs.8, Book Value: Rs.70, Debt/ Equity Ratio: 0.82, Total Revenues in 2009-2010: Rs.5831 Crores.

On the negative side, they had poor Q1FY11 quarter and the situation will remain the same in second quarter too. But I have a feeling that this company will do very well in the next 2-3 years and the stock has the potential to give at least 50% returns in next 1 year or so.

Nagarjuna Construction Company

Nagarjuna Constrcution is in the same Infrastructure contractor category and they do have BOT (Build, Operate and Transfer Model) road projects and interests in upcoming power projects. Their order book stands at Rs.16000 crores and they have very good execution track record.

EPS (TTM): Rs.11.55, Book Value: Rs.87, Debt / Equity Ratio: 0.71, Total Revenues in 2009 – 2010: 5897 Crores.

In a way, both IVRCL and Nagarjuna Constrcution company are similar in many respects. So, I do expect this company do very well in future and the stock has the potential to return 50% return in next 1 year.

Patel Engineering

Patel operates in niche infrastructure space of Irrigation, hydro power construction and micro tunneling. They do have interests in roads, real estate and power. Patel Engineering has the order book of about Rs.10000 crores. Current EPS stands at Rs.33 and there is huge value unlocking potential in real estate and power businesses. They have land bank of 1100 acres in Bangalore, Mumbai and Delhi according to reports. So, current market price of Rs.365 is very attractive.

Blue Star

Blue Star is an Air Conditioning company with interests in Centralized Air Conditioning Projects, Split AC’s, Cold Storage set up and firefighting and Plumbing. They do have 30% stake in Blue Star Infotech. It’s a near debt free company operating in a raising sector. Considering the huge demand for Air Conditioning in Future among the middle income population, this company is poised for a big growth. Trailing Twelve month EPS is Rs. 23 and it is expected to go up significantly in next 2 years. At Rs.450, this stock is available at a good price. Accumulating in batches from current level can give potential upside of at least 25% in next 1 year.

Nitin Fire Protection

Again a Company operating in a niche segment of fire protection equipment’s and cylinder manufacturing offers good opportunity at the current price of Rs.330. This stock is trading at the PE of 10 based on current EPS of Rs.33 and they have also fixed the record date for stock split. Debt / Equity ratio is 0.20 and the total revenue for 2009-2010 stands at Rs.315 Crores. I would expect this stock to give 25% return in next 1 year time frame.

Dark Horses:

MBL infrastructure: This Company is in infrastructure space with trailing twelve month EPS of Rs.28. It was trading at Rs.280 last week and has come down significantly due to the recent raid in their offices in relation with Commonwealth games probe. This is a risky situation but if the company comes out clean from the probe, the stock price will shoot up to Rs.300 levels again.

Prakash Industries: This Company operates in steel, mining and power. The stock has been under the hammer due to the illegal mining investigation. But I am not sure how clean the investigation is going to be. If the promoter has good political links, the case will go to the dustbin for sure. At, Rs.144 it is available at a good price and can give super returns if things clear up.

Caution: Please use caution while investing in the above mentioned stocks. All these stocks might underperform for some more time until the negatives go away. The stock price of all the above mentioned stocks might go down from the current levels as well and the best option is to accumulate in batches at different prices. But they all offer good upside potential in future.

Kumaran Seenivasan

www.stockanalysisonline.com

Semantic Noise in Financial Journalism

2010-09-19T01:53:00.006-04:00

Equity investment requires lot of hard work to read and gather financial information and related things so that investors stay informed about the history as well as day to day happenings. Like many I am also one of the people who invest time (Or Money value of that time) to read anything related to stock investment and I must say that I spend 40% of my time to gather information and 60% time to verify if the gathered information is true or not and decide what to believe and what not. Many people who come to stock market do so or at least get influenced by the information that they can make millions by just starting with a capital of Rs. 1000. We can’t find fault with them because the information available both in the print and online media say that Yogesh Chabria started with a capital of Rs.750 and Rakesh Jhunjhunwala started with a capital of Rs. 5000. I too read all these but I always had a feeling that these statements in the media mislead people or people misunderstand what is reported.

I am not saying that the information is wrong (With due credit to both Legends) but I contend that the information is only partially true (For the benefit of budding investors) and I am going to present the logic on why I believe so. Media reports that Yogesh Chabria started with a seed capital of Rs.750 and Rakesh Jhunjhunwala started with Rs.5000. Many budding investors think that the initial investment of Rs.750 and Rs.5000 has created the kind of wealth they have right now. Well, they might have said that when an interviewer asked how much they had when they started and they might have answered without elaborating. Here is what I believe. They might have started with Rs.750 and Rs.5000 respectively may be on the first day but they should have infused more capital shortly afterwards to achieve this kind of success. I don’t think they invested less than Rs.5000 and traded in the stock market to create working capital and then reinvested and that initial 5000 has grown in millions and billions. Let’s make assumptions on both cases to see the logic.

Let’s Assume we start with Rs.750 and I have no idea how it is possible to start investing with Rs.750 when account opening charges itself amounts to at least Rs. 1000 with majority of the brokerage houses if not all. Logic just doesn’t support this statement and only in movies we can see that and not in real life.

As I said, we can’t open a 3-1 account for Rs. 750. Let’s assume, we got the account opened for free. What all we can buy for Rs.750? Of course I am not that dumb to argue pathetically saying we can buy 0.25 SBI shares. Arguing honestly, we can buy may be 250 shares of FCS Software or similar companies which trade under 3 rupees. Then what? Based on their advice, we can’t trade. We can’t sit idle thinking that FCS will be a next Wipro. It is next to impossible for any common investor other than the promoter to just invest Rs.750 or Rs.5000 in a company and expect that the stock will return 200 crore’s 25 yrs later. There are various sources saying an investment of Rs.100 in 1981 in Infosys or Wipro could have given Rs.100 Crore or something, but they are all factual assumptions after these companies have become giants. Is there a source giving details about who invested Rs.100 in 1981 and held on to that stock for 29 years expecting Rs.100 Crore? Even if there is one, I just simply don’t believe that. ONLY PROMOTERS can hold like that.

I totally agree with the fact that Narayana Murthy started with a seed capital of Rs. 10000 and he has built an empire because he invested in a high growth business and Rs.10000 (Equal to Rs.72000 in 2010 if we assume 7% inflation) in 1981 is a significant amount. So, it is acceptable. But investing in stocks is a risky venture and starting with something like Rs. 750 or 1000 is illogical. May be this amount would have been enough when we got independence.

So, my thinking is he might have started with Rs.750 and slowly added outside capital to support his trading income or equity income whatever you call it to be in the position of where he is today.

Let’s assume we invest Rs.750 and we also assume that we are better than Warren Buffet and Charlie Munger and we manage to get 25% CAGR (4% higher than Warren Buffet) for next 30 Years. You know how much will be the amount after 30 Years? It will be mere Rs.6 Lakhs with which you will be able to pay one month rent in 2040. We will look at another way. We will start with Rs.750 and we aim to make Rs.10 Crores in next 15 Years thinking 10 Crore is a reasonable amount in 2025. You know what should be the CAGR for next 15 years? It should be 120%. For that to happen we need 2008 recession and 2009 pullback every year for next 15 years. So, things did not happen as it is reported in the media.

In case of Rakesh Jhunjhunwala, Wikipedia and many other reports say that he started with Rs.5000 in 1985. But it is also reported that he bought 5000 shares of Tata Tea for Rs.43 in 1986. To buy 5000 shares at Rs.43 you need Rs. 215,000 and I don’t think he earned over 2 lakhs from Rs.5000 stock investment within a year. Earning at the CAGR of 4200% (42 times) even for a year is very difficult. Again Wikipedia says that he earned Rs.20-25 lakhs between 1986 and 1989. It is very hard to believe as India was not even considered as a developing country during that period and there were no FII’s investing crazy money. One need to achieve 375% CAGR growth continuously for 4 years to create 25 lakhs from 5000 if that was true.

Let’s look at another way. SENSEX was at 150 in 1985 and it is trading at 19500 now. If we calculate the CAGR, it works out to be 21.50%. Rakeshji invested Rs.5000 in 1985 and it is reported that he has Rs.4000 Crore these days at a CAGR of whopping 89%. Achieving 89% CAGR for 25 Years in stock market is no joke. If this is completely true that Rakeshji created 4000 crores from Rs.5000, then Warren Buffet is no where near in terms of Compounded returns as he achieved only 21% CAGR beating S&P 500 by only CAGR 6 percentage points while RJ has got 89% CAGR beating SENSEX by CAGR 67% points. Do these numbers seem logical to you? It does not seem logical to me at least. So my point is, they infused more and more outside capital as they went on and did not really depend on the income generated from the initial investment of Rs.750 and Rs.5000 respectively.

My expectation is that financial journalists have to gather more information in detail during the interview so that they can report complete information regarding the success of legends so that the articles motivate budding investors.

Error / Mistake in Quarterly Statements

We discussed about how media reports information and how we misinterpret the same regarding financial information in Media. It is also true with financial statements. I have seen quarterly results of many companies with blatant errors. I will give an example of the latest one I found before finishing up. I found SEL Manufacturing Company as a reasonable buy and started searching for the financial details. Latest quarterly result looked fine but Q4-2010 (Jan 2010-March 2010) quarterly result has an en error in Net Profit and EPS.

http://www.bseindia.com/qresann/detailedresult_cons.asp?scrip_cd=532886&qtr=65&compname=SEL%20MANUFACTURING%20COMPANY%20LTD.&quarter=MQ2009-2010&checkcons=55c

The statement reports net profit of about 95 Million rupees (9.5 Crores) and equity capital of about 303 Million rupees (30 Crores) and if we calculate the EPS, it should be 9.5 / 3 = 3.16 (30 Crore Equity capital means 3 Crores shares of Rs.10 face value). But I do not know how on earth they came up with an EPS of Rs.8.5. This is just one example and there are many out there which I want the budding investors to be careful about.

Here is the list of Stocks that I find interesting in terms of Valuation even at this heating market.

Lakshmi Energy and Food

SEL Manufacturing Company Limited

Geodesic Limited

Oil Country Tubular Limited

But please do your own research on all these before taking any call. The market is heating up without the adequate earnings growth and this is not a good sign for investors entering the market now. My vote is to stay on cash or buy the stocks that are available cheap.

Kumaran Seenivasan

www.stockanalysisonline.com

Profit Realization – Disadvantages of Selling Early

2010-09-10T22:55:00.014-04:00

Equity investment itself is a risky proposition and how about the factors that are adding fuel to it? For lack of better terminology I just do not know how to describe the reduced profit realization due to the early sale of stocks. Some might refer it as notional loss but I think notional loss is something which we do not realize but is on paper. I am talking about the profit we realized already but could have gained more if we waited a bit. Irrespective of what terminology one comes up with, the essence of this article is to describe my personal experience regarding how the stocks I sold ran up to newer highs on almost daily basis within few days / weeks of the sale transaction and how that impacted my profit realization.

Why I sold Stocks?

Having proclaimed myself as a long term investor, what made me to sell the stocks within a year of buying? The idea was to take advantage of the sideways moving market. Because the market was moving up and down and my overall portfolio value was dancing to the market tunes. I waited for few ups and downs and this scenario happened again and again. So, I thought of selling my portfolio when the market reached 17500 and wanted to buy them back when the market comes down again. You know what, this time the scenario I was talking about did not happen and I do not know if it will happen soon. Only scenario that happens constantly is Murphy’s Law. Market has been going up and up and more importantly Indian Market has been so resilient in the recent months. Even a 200 point decline in Dow Jones Industrial Average (USA) did not impact significantly (Once it did). I will give the specific examples after giving my opinion about why Indian Market has been so resilient.

Why the Indian Market is so resilient?

For the last two years we have seen the SENSEX behaving in line with Dow Index because the Foreign Institutional Investors (FII’s), Mutual Funds and Hedge Funds in USA were forced to exit Indian market due to domestic redemption of equity mutual funds. But more than two years have passed since the start of the recession and all the investors in USA (Most of them through 401 K Plans) have been sitting with Cash without any appreciation in the value. Banks give no interest and real estate is in shambles. So they are left with no option but to look for greener pastures. They understand the fact that growth in Western Economies is a past story and developing economies like India, China and Brazil hold the edge. The fear for equities that they developed during the market mayhem last year is eased out due to the fact that Indian companies have mostly shown positive results throughout this recession phase. Foreign Investors can’t sit idle for a long time and they have to make the money work and they see Indian equities as a better option than all possible domestic investment option. So, the fund flow into India is steady and it seems even a crash in Dow Index won’t impact SENSEX significantly. I do not have exact facts and figures to support my assertion but this is the opinion I have got and if the readers think of any other reasons, they are most welcome to share.

Profit Realization – Example 1: Parekh Aluminex

I believe I am one of the guys who spotted this gem early when it was Rs.50 last year. Even though I spotted it at Rs. 50, I started buying only when it reached Rs.65 and since then I had been slowly accumulating the stock till it reached Rs.135. This stock was in Rs.100 and Rs.135 range for about 6-7 months and I had the ultimate confidence all this while and suddenly it started moved up to Rs.160 and again came down to Rs.130. Then the stock reached Rs.340 and again came down to Rs.240. I did hold it all this time. But when it reached Rs. 300 again, I thought of selling it and buy it back again . So I sold it at Rs.300 with more than 120% return. But within 3 weeks of selling it, the stock moved up crazily in the past few days almost on daily basis and the present value is Rs.500. Though one can’t take all the profits and need to leave something for others, this is something that we need to be very careful about if we are very serious about making very good returns. Had I waited for a month, I could have got 300% return. My belief that the market would come down this time from 17400 levels did not materialize and that reduced my profit realization.

Example 2: Everonn Education

The same scenario happened again and I will just mention only the cost price and exit price. I bought it when it was Rs.375 and sold it at Rs. 530 thinking that I would be able to buy it back at a lower price again but that was not to be the case. It moved up and up and the present price is Rs.634.

Example 3: Mahindra Finance

Again this is one of the stocks that I have specifically mentioned for long term investment in one of my previous articles as part of Financial Stocks and bought it at Rs.410 and sold it at Rs.460. Present price is Rs.630.

Example 4: Usher Agro

I have already mentioned what happened with this stock as part of the Short Term trading article. I bought it at Rs.40 and sold it at Rs.45. Present Price is Rs.90.

The situations like the ones I have mentioned above happened with many other stocks as well and now I know why the investors hold good stocks for a long time irrespective of the short term blips. Previously I knew this too but you learn the lesson very well when you experience it firsthand and I got the point now.

The point is "HOLD" on to the fundamentally good stocks for a long period of time and do not book profit thinking that you can buy it back again at lower levels. This will not happen when you sell it (Happens when you hold on to it).

Kumaran Seenivasan

www.stockanalysisonline.com

Sector Watch – Gems & Jewellery

2010-08-06T19:28:00.003-04:00

Gems and Jewellery sector has been outperforming the market in the last one month and I think this is one of the sectors that has bright prospects in the next decade or two. India is the world’s biggest gold buying nation and the value of gems and jewellery sector in India is currently estimated to be $ 45 Billion (202,500 Crore Rupees) out of which $25 billion (112,500 Crore Rupees) is exports. The domestic demand is expected to grow at the rate of 13% to reach $ 40 Billion by 2015 while the export is estimated to grow at a CAGR of 15% which will eventually reach $58 Billion by 2015. Also Indian retail sector is expected to grow at a faster clip and Diamond & Gold retailing is still in nascent stages with lot of fragmented players in the industry.

Why the sector will grow?

The reasons are obvious. India’s middle income population is raising so do the disposable income and people are expected to spend on luxury items more than ever before. Gold is also considered as an investment option both by rich and poor. Though Gold as an investment option has been in existence since the days of Adam, it has really picked up steam in recent years. Even specialized finance company like Mannapuram General Finance and Leasing has spread her wings solely thriving on gold loans because it offers the flexibility to assist all the sections of the population irrespective of the status while giving the company much needed security cover. So, I strongly believe that publicly traded companies in this sector might reward investors decently going forward.

Risk

Though there can be several risks to this sector, the major one that I can think of is Government policy and regulations. For example, Our Finance Minister Pranab Mukherjee announced in the budget that customs duty would increase for gold and silver which was a bad news for the sector. Policy decisions such as the above mentioned one might provide short term pains whenever the decision is made.

Companies in this Sector

Though there are many companies in this sector, I will list out some of the major ones below.

1. Rajesh Exports
2. Gitanjali Gems
3. Shree Ganesh Jewellers
4. Thangamayil Jewellery
5. Renaissance Jewellers
6. Asian Star
7. Su-Raj Diamonds

My Picks and Reasons

I have listed 7 stocks in this sector and if I were to pick the best 3 out of this list, I would go with Gitanjali Gems, Shree Ganesh Jewellers and Thangamayil Jewellery. Let’s see the important figures for these companies.

Gitanjali Gems

Gitanjali operates in Diamond, Gold and Luxury watch segment and they are also developing Gems and Jewellery SEZ’s across many regions. Among the companies in this sector, Gitanjali is the only company with strong retail presence (Excluding Titan). They also have retail stores in USA and China and this company is poised for good growth in coming years both in Jewellery and Real estate business.

Total Sales (2009-2010): 3354 Crores
Net Profit: 142 Crores (Net Profit margin of 4.2%)
Standalone Earnings Per Share (EPS): Rs.14.53 (Diluted)
Consolidated EPS: Rs.23
Debt / Equity Ratio: 0.22
Dividend: 20% (2 Rupees per share)

This stock has given 100% return in the last two months and one of the reasons is that the promoter has increased his stake by buying the shares in the open market. No wonder he is confident in the future of his company. I have already mentioned about this stock several times in my blog and I reiterate again.

Shree Ganesh Jewellery

Shree Ganesh was recently listed and its IPO price was Rs.260. But the stock price has plummeted to Rs.110 after the listing for unknown reasons and it has steadily increased since then to Rs.164. Among the pure play jewellery stocks, this is my best bet since I believe this stock is undervalued. They have also recently tied with National Spot Exchange Limited (NSEL) for e-selling of gold bars and this business is expected to add Rs.200 crore to the top line. Net profit margin of this company is the highest among the companies in this sector and they have projected Rs.4500 crore sales for the 2010-2011 financial year.

Total Sales (2009-2010): 2955 Crore’s
Net Profit: 168 Crores (Net Profit margin of 5.6%)
Earnings Per Share (EPS): Rs.36.39 (Pre IPO)
Debt / Equity Ratio: 0.87
Dividend: 20% (2 Rupees per share)

I do not have any idea why this particular stock has comedown this much immediately after the IPO, but I believe that’s where our opportunity lies and we need to grab it and in fact we should have grabbed it already when it was Rs.110.

Thangamayil Jewellery

Thangamayil Jewellery is involved in Manufacturing, trading and retailing of jewellery in Tamilnadu. They have opened 5 retail stores already and they have plans to open another 7 stores and they have already identified places for this expansion. This is also a recent IPO and it has good potential to grow in the coming years. Since it is a small cap with main concentration in retailing, it carries higher risk.

Total Sales (2009-2010): 451 Crore’s
Net Profit: 16 Crores (Net Profit margin of 3.6%)
Earnings Per Share (EPS): Rs.16
Debt / Equity Ratio: 1
Dividend: 40% (4 Rupees per share)

These are the three stocks that I am betting on in this sector and I am more positive on Shree Ganesh Jewellery in particular though it was recently listed.

Kumaran Seenivasan
www.stockanalysisonline.com

Stock Market: What is ahead?

2010-07-12T19:42:00.003-04:00

Stock Markets around the world have been buoyant in the past week because of positive economic outlook and reduction in negative news flow. We have experienced the slowdown in economic activity for about 30 months now and I think there are enough indications that this is going to end very soon. Indian markets have outperformed other markets because of strong domestic growth and positive IMF Projections. IMF has projected 9.4% growth for India which is really significant. Lower IIP numbers not withstanding, the markets are consolidating with positive bias.

What is Ahead?

Indian economy is going to do very well in the next 2 decades and we need to grab this opportunity by buying good stocks on every dip. Though markets are trading with positive bias, 5-10% corrections are not ruled out as the Western Countries have not come out of the woods yet. Any negative news like Greece debt will bring our markets down and that should be an ideal entry point for long term investors. SENSEX EPS for 2011 is projected at Rs.1050 and for 2012, it is projected to be at Rs.1250. If we calculate the SENSEX Target based on this EPS and Historic PE Levels, then by the end of 2012, SENSEX should reach at least 27500 (22*1250). Again this is a conservative estimate and corporate earnings can surprise us either way and markets can reach crazy levels if bull market sets in. Most of the indicators point a strong Indian economy both at micro and macro level which will take the markets to new highs ahead of world markets in the coming years.

Personally I have sold most of my stocks for profit last week as the markets were consolidating in sideways and I do not know if my move is right or wrong. But I am waiting for another correction to enter again and even otherwise I might buy some stocks which are available at reasonable valuations now. Before that I want to report some interesting stocks that have been going up irrespective of what happened in the general market and if we are fortunate to have invested in those kinds of stocks, then early retirement is on the cards.

Stocks that defied General Market Trend

Hawkins Cooker
TTK Prestige
Asian Paints
FDC Limited
Cadila Healthcare
IPCA Labs
Bayer Crop Sciences
Supreme Infrastructure
BGR Energy
Fulford India Limited
Rallis India
Unity Infraprojects
Bank of Baroda
Clariant Chemicals

All the above mentioned stocks have shown continuous uptrend with only minor fluctuations even during the 3 major corrections in the past one year. We need to find such stocks for long term investment to make good returns. But all these stocks are very expensive now and I want to point out some of the stocks that are available at moderate valuations.

Hindalco
Mcleod Russel
Tech Mahindra
Prakash Industries
Mindtree
Mphasis
Aditya Birla Nuvo

But to be a successful long term investor, we need to find out good stocks and continue to invest on every dip. We need to follow this financial discipline and accumulate the stocks by applying the principle of rupee cost averaging. So, readers don’t need to alter their portfolio just because I have mentioned some stocks here. Every one needs to follow their own strategy.

Forbes List

Forbes has recently listed the top 20 stocks that one can have in the portfolio (At this point of time - July 12, 2010) and if you have not read it, here is the link.

http://www.moneycontrol.com/news/features/20-stocks-you-must-own_468158-1.html

I agree with most of the stocks they have mentioned but if you ask me to select the best 10 stocks out of this 20, then here is my list.

Andhra Bank
Yes Bank
BGR Energy
IVRCL Infrastructure
Crompton Greaves
Unity Infraprojects
Mphasis
HDIL
Asian Paints
Rural Electrification Corporation

Happy Investing !

Kumaran Seenivasan

http://www.stockanalysisonline.com/

European Crisis: Market Volatility and Opportunities

2010-05-26T11:34:00.004-04:00

As the title suggests, Market volatility brings us very good opportunities which we will not get otherwise. If we track the stock market history in the past, one or other bad news dragged the market down when pundits were more hopeful about the bull market and this time is no different. The latest “financial bomb” came from, again the so called “Developed” countries and the difference being the region, which turned out to be Europe.

In the name of infrastructure building, all these western countries pile up the external debt to unimaginable levels and then they try to plug that debt by either printing currency or again by external debt. It is really funny that they boast of their standard of living and annual per capita income of $25,000 when the country they belong to is in the verge of collapse. Please see below for the external debt level of few important “trouble makers”.

Luxembourg – 38 times the GDP (For every 1 Euro GDP they have 38 Euro Debt)
Netherlands – 4.7 times GDP (470%)
United Kingdom – 4.2 times GDP (420%)
Switzerland – 2.7 times GDP (270%)
Belgium – 2.6 times GDP (260%)
Portugal – 2.2 times GDP (220%)
Spain – 1.7 times GDP (170%)
Greece – 1.6 times GDP (160%)
United States of America – 0.98 times GDP (98%)
India – 0.18 times GDP (18%)

So, most of these countries have huge external debt. I have highlighted Greece and India to see the Paradox (Greece has less external debt than most Euro economies). Rich Countries have huge external debt and a country that is being termed as "Developing" has less debt and in fact nothing when compared to western countries. My argument is if we deduct the per capita debt from the per capita income of these western economies then I suspect they are no better than people in poor countries in terms of wealth! Among the large developed economies, USA is in much better position in terms of externeal debt compared to European counterparts not withstanding the recent credit crisis.

Why Greece?

If you look at the above facts, most of the large economies in Europe have higher external debt than Greece. Then why Market is in fear of Greece? As I read and understood somewhere, Greece has the habit of cooking the books and I am not sure if Ramalinga Raju took training from them or they took training from him as Greece manipulated the books way back in 1994. So, any bad news in these times will pull the market down. Some of them are genuine and some of them are silly. For example, no one knows what the underlying truth with Greece is. If they default, then it would be pretty bad and I see some reason for people panicking. But if couple of policemen roams in the North Korean border, I don’t know why people should sell stocks. I thank Bush for spreading “Bush Mania” to the world as he was the one who went to Iraq war to eliminate Saddam for having few fire crackers. It is good that he did not know about Sivakasi and our Fire cracker industry. In fact we send “Rockets” during Diwali that could hit either Washington or Alaska. Anyways, against this backdrop I want to air my views regarding the stock markets and what strategy I follow.

Market Volatility

For anyone who believes in Fundamentals, Fundamentals of Indian economy in General and Indian Companies in particular are strong and most of the companies have announced robust growth and quarterly numbers in spite of the bad global scenario. So, the downside we see in the market has nothing to do with domestic issues. Foreign Institutional Investors are dumping the stocks and that’s coupled with reduced inflow of money will bring down any market let alone Indian market. No one knows what is going to happen. All the talk of SENSEX at 9000 or SENSEX at 22000 will get breached when investors panic. What I mean from this statement is, finding either the peak or bottom is next to impossible. All these “Experts” throw some numbers and 1 out of 10 gets a correct call purely based on luck. May be we can give credit to him for his assumptions based on which he predicted that. Talking about current situation, Market can go down from here or go up from here or stay where it is. This can be a bottom or the bottom will never come. Only thing that we can surely tell at this point of time is India in 2015 or 2010 is going to be much more developed and stronger so do most of the companies. So as a prudent person I would think that Investors (Both Foreign & Domestic) will be hard pressed to invest in Indian equities and SENSEX will be definitely higher than what it is today. At what level? I wish I know that. It can be at 22000 or it can be at 30000 or it can be at 40000. Anything is possible. The sure thing is our returns will be very good in 5 or 10 years down the line if we invest in good companies now and continue to invest in those companies prudently taking advantage of the market volatility.

Companies that are Relatively Cheap

Again we can tell only relatively whether a particular company is cheap or not as we do not know what price is cheap for a particular stock with 100 % accuracy. So, my strategy here is to select “relatively” cheap stocks and invest now. If the market goes down, I will continue to average as long as the company is announcing good results. When we do that, we lower the average cost price and increase the number of stocks and the result will be known when the stock market rebounds. I am listing below some of the stocks that are relatively cheap now which can be considered for Investment.

Note: Again I am listing the companies that are cheap now as there is no point in investing in HDFC kind of companies that are already expensive.

Infrastructure

Patel Engineering
Gammon India
GMR Infrastructure
Jaiprakash Associates
IVRCL Infrastructure

Education

Educomp Solutions
Everonn Education
Edserv Soft Systems

Finance / Brokerage

Mahindra Financial Services
India Infoline
GIC Housing Finance
Yes Bank
South Indian Bank
Indiabulls Financial Services
Reliance Capital

Power

JSW Energy
Adani Power
Reliance Power

Software / Technology

3i Infotech
Tech Mahindra
Rolta India
ICSA India
Bartronics

Retail / Home Appliances

Aditya Birla Nuvo
Brandhouse Retails
Koutons Retail
Videocon Industries

Real Estate

Indiabulls Real Estate
Anandraj Industries
HDIL

Others

Gitanjali Gems
Shree Ganesh Jewellery
Hanung Toys and Textiles
Amtek Auto Limited
Arshiya International
Fortis Healthcare
Lakshmi Energy and Food Limited

Please add your observations in comments.

Kumaran Seenivasan

http://www.stockanalysisonline.com/

Best Indian Stocks – Finance

2010-04-23T14:46:00.003-04:00

To start with, I take immense pleasure and pride in telling the readers that some of my recent recommendations have given exceptional returns over the last 2 months and the fact that these stocks are going to give even more returns in future further adds spice to it.

I have recommended Parekh Aluminex, Usher Agro and Brandhouse retail in my last two articles(http://www.stockanalysisonline.com/2010/02/best-indian-stocks-for-short-medium.html) and all these three stocks have given more than 70% returns in the last two months. In fact Brandhouse is up 89% followed by Usher agro (85%) and Parekh Aluminex (75%). I have invested in these stocks and have made some money and I do not know how many who read my blog invested in it. But if you have invested and made money, I am happy for you.

As a sequel to my last two posts, I am giving here some of my thoughts regarding financial stocks that can be bought at this period of time (April 23, 2010). I am not going to recommend stocks like HDFC, State Bank of India and HDFC Bank as all these top stocks are trading at higher valuations than peers. But I am going to tell few stocks that are trading at relatively cheaper levels compared to other private banking peers.

Why Financial Stocks?

The recession that haunted us for the last two years is slowly giving way for prosperity. Financial companies are going to be playing a huge role in shaping our economy through high domestic consumption and discretionary spending. Disposable income of the middle income population is increasing and that’s going to be the trend for the next 2-3 decades which will highly influence the discretionary spending. People will go for Auto loans, Home loans, Personal loans and they might also invest in stocks and other financial instruments. All these activities are directly linked with the financial companies one way or other and that is a good enough reason to think about financial stocks. No brainer !!!

Mahindra & Mahindra Financial Services

This is a Non Banking Financial Company (NBFC) involved in Auto loans (primarily to Mahindra vehicles), Home loans, Rural financing and Personal loans. They also accept deposits. If you look at the numbers, Mahindra Finance clearly outsmarts other similar peers and is trading at far lesser valuations considering the potential. It has announced bumper result for the Q4 FY10 quarter and EPS for the current year stands at Rs.35. The stock is trading at Rs.425 with a PE Multiple of only 12.5 which is huge discount to other financial stocks like Shriram Transport Finance, Kotak Mahindra Bank, Yes Bank, Axis Bank and Indusind Bank. Only public sector banks trade at lesser valuations. They might also apply for banking license in the coming years and the company has huge potential to tap the Indian domestic consumption. I believe this stock can give multifold returns in the next 5 years.

Indiabulls Financial Service

Indiabulls Financial Service provides Home loans, Vehicle loans, Personal loans and Consumer Credit and is one of the fastest growing companies in India. Once the economy improves and the real estate market picks up, Indiabulls is better positioned to take advantage of the huge discretionary spending. As a parent company Indiabulls Financial Service has stakes in subsidiaries as well. The stock is trading at Rs.130 with a PE Multiple of 13 (EPS – Rs.10) and considering the huge potential in this sector, this can give excellent returns over the long term.

India Infoline

India Infoline covers the entire financial services spectrum which includes brokerage, home loans, auto loans, personal loans, Asset management, wealth management and commodity trading. Brokerage business is going to pick up soon (Once the market improves and people start investing in equities) and they distribute loans through moneyline brand which might get listed in future. Financial position of the company is good and considering the many businesses that are under, this company can give very good returns in another 5 years. Currently this stock is trading at Rs.115 with a PE Multiple of 16.5 (EPS – Rs.7).

GRUH Finance

Promoted by HDFC, this company has announced very good Q4 FY10 result. GRUH again involved in Housing finance but primarily cater to the rural population. GRUH is trading at Rs.253 at a PE Multiple of 13 (Rs.19.86 *13). HDFC has 61% holding in GRUH and considering the parent company success, GRUH can give serious returns over the long term.

Apart from the above mentioned companies, there are few more good ones which I am giving below.

LIC Housing Finance
GIC Housing Finance Limited
Dewan Housing Finance company

I am not saying that people should invest in all the above stocks. But based in the risk appetite, one can choose 1 or 2 stocks among the above mentioned ones and start accumulating. Once the market improves and Bull Run sets in, you will not repent your decision.

Kumaran Seenivasan
http://www.stockanalysisonline.com/

Short Term Trading

2010-03-13T00:46:00.003-05:00

In my last post I have mentioned about the stocks that could be good for short / medium / long term investments. Though long term investment is the right option to go with, shrewd investors often do not sit and watch particularly when the stocks market moves sideways. If one plays the card well, 100% return is not impossible in a year. But, let’s be conservative and say that our strategy would give the return of around 50%. I do not think there are many investments that would give 50% in a year. At the same time, one needs to remember that we need to work hard and read as much as possible in the subject to gain knowledge so that our stock selection is spot on. If we fail to do that, then loss 0f 50% in a year is also possible. Another interesting number we need to remember is that the highest Compounded Annual Growth Rate (CAGR) ever achieved by a long term investor is 21.9% (Warren Buffet, since 1965). In the midst of this discussion, let me describe few strategies to maximize returns through short term trading.

Though I have bought stocks for the long term previously, I just wanted to indulge myself in short term trading to take advantage of this sideways moving market these days. I bought all the below mentioned stocks within the last 3 weeks (18/02/2020 – 10/03/2010) and have gained significant return for such a short period.

Usher Agro

I bought X number of this stock at Rs.40 and sold the stock at Rs. 45. Return of 12.5 % within a 3 week period is definitely not bad. But I could have gained 25% had I waited for few more days as this stock eventually reached Rs.51 in the same period. But these things happen in short term trading and we need to accept whatever comes in our way. So, 1 Lakh invested in Usher agro within this three week period would have returned minimum profit of Rs.10000 and maximum profit of Rs.25000.

ICSA India Limited

I entered at Rs.131 and sold the stock at Rs.143 which gave me the return of about 9% again within the same 3 week period. But what one needs to remember in this case is, the stock came down again to Rs.131 – Rs.132 range immediately. Had I not sold at Rs.143, then I would not have gained anything. So, that’s where we need to be very careful with this short term trading. As soon as you gain a minimum of 5%, you need to sell it.

Parekh Aluminex

Bought X number of stocks at Rs.133 and sold at Rs.155. Return of 16.5 % is something which I will take any day. Even some stocks that I have bought for long term have not given 16% return over one year period, but this stock has given me 16.5% in three week period. Ex. I bought NTPC Long time back at Rs.175 and right now it is trading at Rs.200, which is about 14% return. It is another matter that I could have sold NTPC at Rs. 240 and gained more sometime back. That’s something we need to consider as well. There are so many dynamics in stock market which are really interesting to dig into.

ABG Shipyard

Bought this stock at Rs.244 and exited at Rs. 267 again in the same 3 week period to gain about 9% profit. Had I entered at Rs.240 (It was selling at Rs.240 within this period), my return could have been more. Just a thought. But we can’t be that accurate all the time.

Though I have gained significant return in all the above stocks, I also failed in one particular stock in the same period and did not gain anything in another stock. Here are the details.

Amtek Auto

I bought this stock at Rs. 173 and sold at Rs.173. I bought this stock at the beginning of this three week period I have mentioned and the stock went down to Rs.160’s. I waited for few days only to exit at Rs.173 to make sure I do not encounter any loss.

Bharathi Shipyard

Entered at Rs.283 and have not sold it yet. Because, since the day I bought this stock, it has been going down and never moved above my purchase price. Now it is trading at Rs. 261, a loss of 7.5%. But I still have not sold it because I follow the simple Buffet’s rule of “Never lose money”. Of course if the stock is very bad, then we should be ready to book the loss but Bharathi Shipyard is a good stock.

Strategy

As I discussed above, except Bharathi shipyard, all other stocks that I have purchased within this three week period have given good returns especially Usher agro and Parekh aluminex. Let’s assume that I got 10% (Though I have achieved more) on an average for this three week period. It is ridiculous to assume that we will have this kind of “three week” period throughout the year. But it makes sense to assume that we will have 6 such “three week” periods per year. In that rate, we can achieve a return of about 60% annually which is good enough to beat many other investment options. If someone is very smart to identify a similar short term trading strategy at least once in a month, then that would give a return of around 100 - 120% per year. But this will happen more often in a market which moves sideways rather than falling market. But even then, one can still make money in falling market too because of the huge volatility though it is fraught with higher risk.

Kumaran Seenivasan

www.stockanalysisonline.com

Best Indian Stocks for Short / Medium / Long Term Gains

2010-02-05T19:07:00.005-05:00

Some of the (Sometimes most of the) stock market experts and retail investors believe in grouping the stocks into Trading stocks, Short term stocks and Medium / Long term stocks. It is in fact contrary to what Warren Buffet believes. He has mentioned in multiple forums that if you are not comfortable owning a particular stock for another 10 years, then do not own it. Of course he can go to that extreme as he is investing in Billions and buying the entire business. But as retail investors we can still try adopting that with little bit of modifications to suit our own expectations and requirements. It is true that some stocks are really volatile and give short term trading opportunities, but if you are a real investor who wants to build a nice portfolio then you still need to research about stocks that you can own for at least 3-5 years time. I sort of tried to see if there are stocks that can be considered for good gains irrespective of the time period and eventually I did see some stocks that can be considered at this point of time (February 5, 2010) for reasonable gains through short / medium / long term. I have listed these stocks in this article.

Indian Market Outlook

We saw the SENSEX trading at 17,700 just a fortnight back and has comedown 11% since then. It is a significant decline and it can decline some more too. But rather than trying to outwit the market, it is better to realize the opportunities we have and try to grab it in both the hands. Sure, the market has declined. But honestly I do not think this has anything to do with performance of some of the companies. Mostly the Q3 (December 2009 Quarter) earnings of various Indian companies have been good and definitely not to the tune of how the markets reacted. It is purely because of the bad global cues and Foreign Institutional Investors (FII’s) selling in heaps. I really believe that India’s growth is very strong and we have to take advantage of all the opportunities that come in our way. Almost all the studies starting from IMF and World Bank to our own domestic institutions predict at least 7% growth this year and even more in the coming years for India. What more do we need? A reasonable growth, increasing middle income population thus the disposable income and favorable investment outlook for FII’s do auger well for Indian equities in the coming years and who ever takes advantage of this will not rue their decision later on for sure.

Stock Suggestions

I have selected these stocks because I believe that these stocks offer good value over short, medium and long term. Some of these stocks are even good for trading.

Videocon Industries

An electronics conglomerate with Rs. 10,000 crore revenue, expected EPS of about Rs.25 and book value close to Rs.300 is just trading at Rs.210. There are not many stocks that offer greater value than this and I personally believe that this stock will give serious returns if one holds it for another 3- 5 year period. Some experts believe that Videocon’s oil business itself would fetch the Rs.210 Valuation. Just my thoughts!

Educomp Solutions

This company is an education solution provider and was commanding valuation of about Rs.5000 per stock just 3 months back. Even accounting for stock split (Had stock split of 5:1 in Nov 2009), this should be trading at Rs.1000 if one considers that kind of valuation. But the stock has come down significantly and it is trading at Rs.650 now. This stock is particularly good for short term gains as you can see from the price volatility. 15-20% gain is always on the cards even at this price over a shorter time period.

Brandhouse Retail / Koutons Retail

Indian middle class population has started spending on branded items and both of these apparel retailers have huge potential to deliver good returns for investors. Both are undervalued when compared with Pantaloon Retail.

Surya Pharmaceuticals

An emerging Pharmaceutical player with interests in education and healthcare, this company is undervalued for sure. Revenue of around Rs.800 crore and an expected EPS of Rs.50 would definitely fetch more than the current stock price of Rs.148.

Venus Remedies

Another emerging Pharmaceutical company with good numbers and has the potential to give good returns.

ICSA India Limited

A software solution provider for the power, oil and natural gas industry, this company’s revenue stands at Rs.1100 – 1200 crore per year. This is trading at Rs.140 right now and can give good returns over any period of time.

Praj Industries

Very good short term stock. If you look at the price volatility chat, you can’t count how many times it came down to Rs.80 and then went up to Rs.110 only to come down later. This has the potential for long term returns too.

Bartronics India Limited

This Smart Card manufacturer has been experiencing rapid growth and has bagged several government orders recently. Definitely worth more than what it is trading now.

Amar Remedies

Company is an ayurvedic and herbal product manufacturer. If you look at the number and do a bit of research, you will understand why I have listed it here.

Usher Agro / REI Agro

Both the companies are involved in processing and marketing Basmati and other rice varieties. Can give good returns.

Parekh Aluminex

I have mentioned this stock in many of my previous posts. This is a serious money spinner over the long term.

Micro Technologies

This company provides security solutions and is currently undervalued for its potential. How undervalued? Some of your research time will tell you that.

Adani Power

If you believe in India power story, do believe in this stock for serious gains over the long term. I know it does not have long operating history. But that’s the risk we need to take if you need a multibagger. Think about this way. Any company worth Rs.23000 crores does not go down that easily and more over it is not a financial institution. This is a power producer with own coal trading ability and own transmission lines.

I have listed all these stocks as I thought the market has given some opportunity to buy. Even if the market goes down and the prices of these stocks go down, I honestly think that one can accumulate more and more. India at 2015 or 2020 is going to be lot better than what it is now. So, believe in that.

Note: I know there are some better stocks than some of the stocks mentioned here. But they do not fit into short term category. The stocks I have mentioned fit into all these categories and it is a real help in someways. For example, you are buying one of these stocks strictly for short term purpose and for some reason it started going down. You can keep for more time for sure to make some gain. Some might say, Reliance Communication offers great value. Well, it might offer long term value, but over the short term, just show your back. It has been under Rs.200 for almost 5 months. So, the stocks I have listed here are what I thought fit into all three categories (Short / Medium / Long Term).

Kumaran Seenivasan
http://www.stockanalysisonline.com/

Stocks and Women

2010-01-17T07:40:00.004-05:00

Sorry friends that I am unable to write regularly these days, but will continue to post articles whenever I get time. Some of my recent recommendations that came in August 2009 (http://www.stockanalysisonline.com/2009/08/market-watch-opinion-piece.html)
are doing pretty well and I am reasonably sure others stocks mentioned in that post will also follow suit if you stick with them for another 3-5 years. Parekh Aluminex, Genesys International Corporation and Madras cement from that list are doing pretty good and in fact Genesys has given 175% return from the date of posting. In the recent days, not so much has happened in the market front but whenever something of significance happens (in terms of investment) I will post my views for sure.

I always wondered why women’s participation in stock markets is way lesser when compared to other industries and I think stocks and women, both have too much in common, so it seems Men are supposed to chase them down. This article is written in a lighter vein and I hope whoever reads it enjoys the comparison and have fun. But I assume that this article might require some very good understanding from the reader as well as things are not very explicit and there are endless possibilities to correlate every point to many things.

What are common between them?

Both are “unpredictable”. Too many people are chasing too few items and you never know whether you will come out successful.

Day to day “Fluctuations” are very common even though fluctuation in women does not happen tick by tick as in the case of stocks, but when that happens it could be more than what the stocks experience.

Good ones and Bad ones are there for the taking in both the cases. Your destiny leads you which one you end up picking. Pick the wrong one and you are done!

Men love both. Probably that’s the reason, “Value” increases for both and sometimes it is sudden as well particularly when the “Earnings” go up.

“Hidden Gems” are found in both and you need to do some research to identify. People who are great in spotting them often buy the ones whose “intrinsic value” and “Margin of Safety” is higher.

Some are “Very Expensive” and some are “Less Expensive” in both the cases. Buy the expensive one and more often than not your return is subnormal. But buying the “Less Expensive” one also does not guarantee you the supernormal profit. The answer is it depends, may be on your fate.

Note: I did not post the pictures to show you any symbolic depiction. BELIEVE ME! Now you definitely know why they are so many companies on the street, so do the stocks!

Both are “very risky” and “extremely volatile”. If you do not play your game well, you will end up losing everything. Both have the capability to erase your entire wealth. You will never get back what you have lost, but can be substituted sometimes.

“Board room” fighting’s are very common in both and often times the Chairman is forced to accept the decision of members. Otherwise board room coup is on the cards.

“Splits” are very common in both and 1:1 and 1:2 are more common than 1:5.

“Bonus” issues can happen depending on the timings.

It will be “Heart Breaking” when you lose in both.

You can definitely experience a “Crazy Peak” and “Unnerving Fall” in both the cases. Peak is always followed by a fall and the cycle happens all the time as long as you are dealing with them. Sometimes all these happen with reason and sometimes not.

If you are in search of them, you need to consider on a “Consolidated” basis and not on “Standalone” basis in both the cases. Because there could be some “Hidden Risk” or
“Hidden Value” on a consolidated basis. If it is a "Hidden Risk" then forget about the comeback.

Both have “Maturity” period and you need to wait for it.

Men become attached to both can’t get rid of it even when your life becomes miserable.

What are not so common?

You can have many stocks legally and unfortunately you can’t have many women legally. “Illegal Holdings” are fraught with danger.

Stocks are highly regulated (can be regulated) and traded on the exchange and you don’t want to do the same for Women. If you do that, Ambani’s, ND Tiwari, Mallaya and Tiger Woods will win and you lose! You don’t stand a chance. If you think you can get at least the bad one, there comes Lakshmi Mittal, who has the habit of taking the bad ones and converting them in to great asset.

So many things are very common between them and you might think great investors and stock market kings can master women too and you can’t be more WRONG! Simply impossible to anyone. But the reverse could be true. If you have mastered women, then you might become successful in stocks.

How to handle?

Patience is the key in both the cases. You have to wait for a long time to reap the benefits and when that happens, the society might feel you have achieved something but you might not!

“Long Term Investment” works better in both the cases and they perform better overtime. So some sort of “Fundamental” analysis is very much needed.

“Short Term Investment” is more risky in both the cases and only very few people have mastered and that too not because of their brilliance. Some kind of “Technical Analysis” might help you to gain in a short term and definitely it will be temporary. The performance can’t be repeated.

Stay away from “Day Trading” as it has very serious consequences.

Hope you all enjoyed the fun comparison and if you are a women reader, you are welcome to post the comment like "Stocks and Men". It will be really interesting to see your perspective.

Kumaran Seenivasan.

www.stockanalysisonline.com

Why I will invest in Power Stocks?

2009-12-12T01:50:00.011-05:00

Energy and Power security plays very important role in international politics let alone its importance to India’s growth. In fact it was one of the important reasons for the recent Iraq invasions and is widely and openly accepted as well. Stephen Leeb, Author of the Book “The coming economic collapse: How you can thrive when the oil costs $200 a barrel” predicted few things that turned out to be true during the recent economic collapse but more unnerving thing is yet to come. He says that the energy resources are reasonably adequate at this point of time, but it is going to be a scarce commodity in the near future and the countries will fight each other to get the share. Advanced countries with more muscle power will win that war eventually. But to be considered as an “Advanced country” India needs to produce at least 15 times of what they produce right now. In this context I feel private sector has a huge opportunity to cash in the demand.

Major Players

Majority of the India’s power generation is controlled by public sector undertakings notably National Thermal Power Corporation (NTPC), National Hydroelectric Power Corporation (NHPC) and Nuclear Power Corporation of India (NPCI). But there are number of private players like Tata Power, Reliance Infrastructure, CESC, Torrent Power and Jindal Power. Few other companies like Adani Power, Reliance Power and Indiabulls Power have generated huge amount of money through IPO Route recently to setup power plants with ambitious projection capacities and I do think there might be few more players joining the club.

Numbers Game

Usually the power sufficiency is understood by per capita usage and India is way behind the other leading economies. Canada leads the nations with the per capita power consumption of around 17500 Kilowatt Hrs followed by USA (13500 KWh), Australia (11500 KWh), Japan (8500 KWh), France (8000 KWh), Germany (7500 KWh), UK (6500 KWh), Russia (6000 KWh) and Italy (5800 KWh) while India’s per capita stands at mere 620 KWh. Even among the so called BRIC countries (BRAZIL, RUSSIA, INDIA, CHINA), India’s position in terms of power production and usage is last. Power consumption is so unequal within the country that Gujarat’s per capita is 1300 KWh while the per capita for Bihar is 90 KWh. So in that sense, India needs to catch up with other countries in order to meet the power requirement for her industrial growth and economic prosperity. Residential consumption is also so low that more than 40% of rural households do not have access to electricity and even for the population, who does have access, power cuts are very common and that’s how India is remembered in western countries.

India currently has the installed capacity of 147,000 MW, out of which 93500 MW comes from thermal power plants and the remaining capacity from Hydro Power (36500 MW), Renewable Power (13000 MW) and Nuclear Power (4000 MW). But this demand is going to increase by 10, 00,000 MW by 2030 according to many projections and the government has in fact already planned to increase the installed capacity by 80000 MW by 2012. The government has also set some ambitious plans like 20000 MW solar power and 30000 MW Nuclear Power by 2020 and it is different matter whether it will be executed as planned or not, but at least they do understand the importance of power generation and are taking some steps towards that direction. Wind power is the major renewable power source and that’s where wind turbine manufacturers like Suzlon Energy has a huge role to play and the stock price for that particular company has been staying in expectation of that. Of course the stock price plummeted in recent times due to huge debt, but in the long term, Suzlon will come out of it for sure. Even companies like Elecon Engineering who produces parts and accessories will do well in the future.

Market Players

Tata Power is the largest private power producer in the country and they produce only 2700 MW. Others such as CESC, Reliance Infrastructure and Torrent Power produce less than 1000 MW each and that’s precisely the reason Reliance Power and Adani Power has ambitious plans to generate more than 20000 MW each by 2020. Realizing the opportunity in the power sector, players like Indiabulls who does not even have any background or past reputation in the power business have entered the market. So, looking at all these facts and figures, I strongly believe that Power Sector Stocks will give excellent returns over the long term as the gestation period for power investments is significantly lengthy. Even companies associated with power sector like Power Grid, Power Trading Corporation, Rural Electrification Corporation, Elecon Engineering and GVK power will stand to gain.

List of Power Sector Stocks

I am just giving here list of potential companies in this sector, but there are lot of other associated companies like Bharat Bijlee, EMCO and Transformers and Rectifiers which I am not listing here to keep this article short.

NTPC
NHPC
TATA POWER
CESC
RELIANCE INFRASTRUCTURE
RELIANCE POWER
ADANI POWER
TORRENT POWER
NEYVELI LIGNITE CORPORATION
CROMPTION GREAVES
ELECON ENGINEERING
POWERGRID CORPORATION
POWER TRADING CORPORATION
RURAL ELECTRIFICATION CORPORATION
JINDAL POWER (IPO)
GVK POWER AND INFRASTRUCTURE
INDOWIND ENERGY

Kumaran Seenivasan

www.stockanalysisonline.com

Stocks (Market) that puzzle

2009-11-20T22:28:00.005-05:00

The relation between stock price and its earnings is well known and most of the investors believe that stock price is the function of earnings. But there also exists some “other” phenomenon which I do not have clear idea about and I am sure many people are in the same boat. The stocks that I am going to mention about are trading relatively with huge volumes these days. I do know that stocks of some of the companies with good growth opportunities are fully priced in well before the “so called” earnings are realized. But what I do not understand is the fact that some of these companies have not even announced the opportunities that exist but are hot favorites in the market. Let’s see one by one.

BF Utilities (Price: Rs.1356)

This is the company promoted by Kalyani Group to meet their own power requirement. The total capacity of the power plants is 19 MW according to their website. Sales per year stand at mere 20 crores and the EPS is around 1.5 rupees. Book value is Rs.60. Just a month back, this stock was trading at Rs.752 (Nov 3, 2009) and I have not read any path breaking corporate announcements since then. But the stock is trading now at Rs. 1356 (PE Ratio of 1100), whopping 80% increase within 40 days. In fact over 2.5 lakh shares were traded on Friday (Nov 20, 2009). Market cap stands at 5100 crores.

The only reason that I can think of for this huge unbelievable valuation is that they have set up wind farms to generate power and people might be thinking that they would venture into wind power industry. Even with that scenario, the stock price is not justified. As of now it is a captive power plant for kalyani group which is the truth. If anyone understands better or have more information, please share in the comments section.

Shree Global Tradefin Ltd

Price: Rs.428
Market Cap: 8800 Crores
Revenue/Year: 307 Crores

EPS and thus PE ratio is in the negatives. Book Value can’t be mentioned here. What kind of growth opportunities investors foresee in a company like this is not well understood. In the earlier days, companies like Airtel and Praj Industries had to prove their worth to command higher valuations. But the days have changed where companies attract huge investor base just based on the “assumed” opportunities which is not a healthy sign for a real investor. It might well turn out to be true that this company might become a giant and reward the share holders handsomely but my point is, would Warren Buffet invest in a company like this? Would Benjamin Graham spend a minute to look at the financials of this stock? I strongly suspect that happening. Even if the traders and investors found something special in these companies, how did they come up with the earnings projections that command these valuations?

Kwality Dairy

Price: Rs. 1197
EPS: Rs.5.26
PE: 227
Book Value: Rs. 11
Sales/Year: Rs.583 Crores

Even though I knew about this stock for a long time, I never bothered to look it up. But one of my blogging friend’s Shabu mentioned this stock in his blog and I wondered what on earth increased this stock price from mere Rs.20 in Nov, 2008 to Rs.1200 in Nov, 2009. The price has increased 60 times in a year (You are right, 6000% return in a year) but I do not know if the investors realized the increase in sales or earnings have not grown anywhere near. I wish I have the ability to spot this speculative trend so that I do not need to work anymore!!! To find few more stocks like this, you can go to the following link.

http://www.stockinfos.in/2009/10/magic-stocks-or-mad-recent-multibaggers.html

Likewise there are several other companies commanding very high valuations based on the “Assumed” or “Projected” growth opportunities and I have mentioned some of them below as these stocks have been in the limelight more in the past week.

Jai Corp
Dynamatic Technologies Ltd
Edserv Soft systems

I have mentioned my points based on what I have read, but there could have been some reasons for which the companies are commanding high valuation that I might have missed. If anyone knows about that, please comment on it.

Kumaran Seenivasan

www.stockanalysisonline.com

Correction in Stock Markets

2009-10-30T22:58:00.005-04:00

“Correction” is a relatively well known word in stock market circles and for someone who does not understand clearly what it stands for, this article might help finding what it is.

Deriving the Definition / Meaning

The definition for “Correction” lies in the word itself, but one just needs to associate that with stocks markets. The standard dictionary meaning for the correction is,

- an action to rectify something
- an action to set right (Correct) the anomaly
- to set right an error or misunderstanding

So, if rectifying something is termed as correction, many would be wondering what went wrong in stock markets to rectify. Here is my explanation.

Stock prices usually discount the future earnings into its present price. People buy stocks at a particular price expecting that the company’s earnings (EPS) would stand at a specific level which they call it as forward earnings. Sometimes they buy based on the present valuation as well. SENSEX levels just imbibe the same concept. Let me explain in detail.

Consider SENSEX as a company just like State Bank of India. Usually SENSEX trades around the PE ratio of 21 -22 at peak valuations (SENSEX PE is calculated by adding the 4 quarter earnings of all the 30 SENSEX companies) and sometimes in a crazy bull market it even goes above 25.

People expected that the Financial Year 2009 (FY2009) SENSEX EPS would stand around Rs.850 – 900. If we multiply the PE and EPS (21*850), we get 17850 and that’s the SENSEX target Indian Stock market was trying to achieve. So, stock prices shoot up from the March lows of 8000 to 17100 and we had a sharp rally based on the prediction that SENSEX EPS for FY2009 would be about Rs.850 - Rs.900.

Had the companies announced good second quarter results, there would have been no problem and the SENSEX might have moved up and even the FII’s (Dawood Ibrahim’s of Indian Stock Market) would have been confident about the India growth story. But since companies by and large announced muted and negative results, market realized that the FY2009 EPS would not be what they actually thought (Rs. 850) and it would be less than that. So, market realized the mistake that it took the SENSEX too far (Ahead of Earnings) and wanted to rectify the mistake or error which we call it as “Correction”. We can see number of corrections happening in the Indian Markets since 2002 in the following graph.

Foreign Institutional Investors (FII) started selling the equities (Domestic instituations followed and will follow as well) and market has declined to the SENSEX level of 15896 as of 30/10/2009. It would correct itself till what market decides the right EPS and PE in the short term. Please see the following graph to understand the relationship between net inflows from the FII's and SENSEX.

So the “correction” can be termed as a self provoked mechanism by which market automatically rectifies the errors or excesses committed by its participants. Historically if the decline is 10 percent or less then people term it as “corrections” otherwise it would qualify for a “Market Crash”.

My Opinion (31/10/2009)

Based on the BSE website, the current EPS is Rs.786 and PE is 20.21. But what they calculate is trailing 4 quarter earnings and not the FY 2009 EPS. So, let us reduce our expectation of FY2009 EPS of Rs.850- Rs.900 to Rs.800 - Rs.850. US market is trading around the PE of 14-15 and so does other developed markets. If we assume the same PE, then multiplying the PE of 15 with our new assumed EPS of Rs.800 to Rs.850 gives you the SENSEX level of 12000 to 12750. But India being a fast developing country with a growth rate of around 6 percent for the time being (Growth Rates might increase to the levels of 8 if all the parameters combine well), Investors are ready to put a premium on our scrips and hence we need to take that into account. So, we need to add that premium and there is no hard and fast rule to do that and I just personally assume the PE of 3 - 4 for the “India Growth” Premium and adding another 2400 to 3200, the SENSEX would stand at 14400 to 15200 to make sense.

We can also cross check this number by another method. Corrections are called Corrections if they decline by 10 percent or less historically. It just depends on who is calling it. Some people call it corrections even if the decline is 20 percent. But we will take it as 10 percent. So 10 percent of 17000 is 1700 and if we deduct that from the SENSEX level of 17000 which we had just a week back, then the SENSEX would stand around 15300 and SENSEX level of around 15000 seems to make sense. I am not into any technical analysis or any predictions but just looking at these numbers tells me that the SENSEX level of 15000 makes sense for our markets for the time being and I thinks thats where market is heading to. Anything less than that would be an undervalued market and anything more than that would be an over valued market. If the outlook for the earnings increases, then we might be forced to revise our assumptions and markets might head up. But the overall long term uptrend is intact particularly in case of our Indian Markets and I have no doubt that all these corrections are just aberrations in long term growth story and also an opportunity for the investors to accumulate good stocks.

Some Recent Major Single Day falls in SENSEX

1. January 21, 2008 - 1408 Points
2. October 24, 2008 - 1070 Points
3. March 17, 2008 - 951 Points
4. July 6, 2009 – 870 Points
5. January 22, 2008 - 858 Points
6. February 11, 2008 – 833 Points
7. May 18, 2006 – 826 Points
8. October 10, 2008 – 800 Points
9. March 13, 2008 – 770 Points
10. December 17, 2007 – 769 Points

Am I expecting a fall like this in near future?? Hell no hopefully. But anything can happen in these markets.

Kumaran Seenivasan

www.stockanalysisonline.com

Best Mutual Funds in India - 2009

2009-10-19T21:55:00.007-04:00

Since I started writing this blog, all my posts have been about individual stocks and stock markets oriented information. But there are people who can’t invest in individual stocks due to resource constraints or who would not like to get involved in the stock market directly. Mutual Funds are an option for them and I will discuss in detail about the same.

What are Mutual Funds / Why Mutual Funds?

As we know, lot of retail investors enters into the stock market and only the ones who have the knowledge and skill come out with good returns and other people return not only empty handed but with huge burden due to lack of even some basic knowledge. Also there are people who can’t afford to buy individual stocks or invest anywhere else (Like land or gold) as their monthly savings is in meager amounts. They will have very low risk appetite and ideally they would want to invest in companies like State Bank of India, Reliance Industries, Infosys Technologies, BHEL and L&T but to buy a single stock in any of these companies, one would require about Rs. 2000 and not everyone can afford it. To address the above discussed problems, Mutual Funds originated way back during the start of the 20 th century in USA. Here is my definition of a Mutual Fund.

“Mutual Fund is a pool of money collected from investors and managed by a professional fund manager to invest in stocks, bonds and money market instruments and the net profit is shared among the unit holders or investors based on their proportion of investment”. The diagram below explains in simple terms.

So, Mutual Funds collect the money from investors and funds usually generate anywhere between 1 Crore to 10000 Crore Indian rupees and is professionally managed by fund managers who have the required knowledge in the stocks markets. These managers invest the pooled money mostly in stocks and bonds and based on the performance of the fund’s investment portfolio, unit price is decided on daily basis. Unlike stocks, small investors can even buy the units in fractions and they can redeem it anytime just like stocks. Hence, Mutual Funds offer small and unknowledgeable investors a chance to invest in the stock market indirectly and get benefited without knowing anything about it and more importantly they can invest any amount.

Advantages of Mutual Funds

Professional Management: This makes the life easier for people who does not have any knowledge in stock markets or who does not have enough time to do the research on their own.

Diversification: The funds invest in large number (30 – 100) of stocks thus minimizing the risk of losing the entire capital. The idea behind diversification is to invest in a large number of stocks so that a loss in any particular stock is minimized by gains in others.

Low Cost: Since the fund buys and sells in large amounts, the cost is spread out among all the investors which brings the per head transaction cost low.

Simplicity: Anyone can invest and any amount can be invested.

Liquidity: Can be redeemed at any time.

Disadvantages:

The same advantages which I listed above can turn out to be a disadvantage as well. For example, professional management is a very vague concept and many a times, people with common sense beat the fund managers in terms of returns as fund managers have to go through lot of regulations and sometimes they lack flexibility as well. So, performance of the fund managers is a key here and most of them are closely watched. Also, there might be hidden costs which investors should be careful about. Mutual Funds do not operate as a non profit organization and they are primarily in business to make money.

Stocks or Mutual Funds

The answer should vary depending on individuals. If you are someone who have the adequate knowledge in stock market and do not panic in tough times, then stock investment can be an option for you. But if you are someone who does not know what stock is all about and fear losing money, then individual stock is not for you and better go for Mutual Funds. Mutual Fund is good even for someone who has knowledge in stocks but do not have enough time to do research and buy stocks. Hence, Mutual Funds are an option for everyone irrespective of knowledge and skill but stock is for ONLY knowledgeable investors.

What returns one can expect?

Good Mutual Funds return compounded annual return of anywhere from 10% to 30% depending on the fund manager's performance. Some selective high performance funds report even more than that. For example, DSPBR Top 100 Equity Fund has returned 38% annually since its launch in 2003. HDFC Top 200 fund has returned 32% annually in the last 5 years. If you are someone who will be happy with an average return of about 20% without spending much of your time, then Mutual Funds can be an option.

HDFC Top 200 Fund Summary (Till June 2009)

Best Mutual Funds in India

Large Cap Funds: These funds invest only in blue chip companies and large corporations.

DSPBR Top 100 Equity Fund
HDFC Top 200 Fund
Franklin India Blue Chip Fund
HSBC Equity Fund
Sundaram BNP Paribus Select Focus
Birla Sunlife Top 100 Fund
Kotak 30

Diversified Equity Funds: Money is invested in all the companies based on the growth opportunity irrespective of the size of the company.

Birla Sunlife Frontline Equity Fund
DSP BlockRock Equity Fund and DSPBR T.I.G.E.R Fund
Templeton India Growth Fund
Reliance Growth Fund
SBI Magnum Contra Fund
Fidelity Equity Fund
HDFC Equity Fund

Small and Mid Cap Funds: Money is invested in small and medium sized companies.

Sundaram BNP Paribus SMILE Fund
Birla Sunlife Midcap Fund
Sundaram BNP Paribus Select Midcap Fund
Franklin India Prima Fund
DSP BlockRock Small and Midcap Fund
Reliance Regular Savings Fund
Tata Growth Fund or Tata Midcap Fund

Kumaran Seenivasan

www.stockanalysisonline.com

When to Sell a Stock?

2009-10-06T20:00:00.003-04:00

The most intriguing question in the stock market has always been “When to Sell a Stock? This is in fact as much important as “When to Buy a Stock?” The selling point depends on what kind of investor you are. I just leave out the day traders as they have to sell it on the same day and group other investors into

Short Term Investors
Medium / Long term Investors

The selling point for the short term investors sometime differs from the Medium / Long term investors. If we consider 5 years or more as “Long Term”, then we would experience several corrections (over 5 year period) which would be very significant and each one of the troughs could be a selling point and one can sell at the troughs and then buy back the same stock at a lower price.

Short Term Example:

If you are a short term investor, it is better to fix a selling price or return percentage while you buy the stock and sell it as soon as the stock hits the target price. Because, often times price decline happens apparently for no reason and may be that’s the reason technical analysis was born in the first place.

Example: Venus Remedies

This stock was trading at Rs.210 in July 2009 and company has good fundamentals. In the recent rally, the stock reached the short term peak of Rs.310 (50% returns) and started declining and is available now for Rs.220. There was no change in the company fundamentals and nothing has changed since July. So, if one had set the “Target Price” in the first place, he / she could have profited significantly and can buy the same stock now at a lower price. Hence, setting a “Target Price” is one way of identifying the selling point.

Long Term Example

Long Term selling point should ideally be a “Maturity” value for your investments and it is one of the most difficult things to come up with. Again setting up a “Target Price” would be very helpful for the long term investment as well, but it is one of the very difficult things that I can think of. Because, in the short term, one can set 50% return as the target price. But it can’t be the “Selling Point” for the long term investment. If the company is really good and you fix the “Target Price” as 50% return, then you could potentially miss the multibagger. So, my suggestion would be to keep invested as long as the fundamental does not change significantly and market sentiment is positive. If you feel the market is reaching unsustainable levels, then just sell it even before peaking. Two things can be done to sell the long term investment.

1. Identifying the Market Peak and sell
2. Sell when the stock is heating way above the company fundamentals

Example: Reliance capital

Reliance Capital was trading at Rs.2875 on Jan 10, 2008 and the expected earnings per share for the full year at that time was about Rs.45 (PE Multiple of 64). Even if you have failed in identifying the “Unsustainable market” levels (SENSEX breached 21000 during that time), you could have certainly predicted that valuation for reliance capital at Rs.2875 was stretched for its fundamentals. Again it is a risk we need to take. Sometimes you might sell the stock thinking that the stock has reached the peak, but market sentiment or over optimism may drive up the stock price to unbelievable levels. But it is better to take profits rather than become a slave to the market crash.

General Guidelines to sell a Stock

The following points needs to be considered to sell a stock irrespective of the duration of investment. But, it is important to remember that you can’t get the “Selling Point” right all the time. Selling signals can come either from company itself or from the market.

Company Related Changes

Change in Fundamentals is the most important thing that one needs to consider while selling a stock. Certainly the following are the ones that come to my mind.

1. Earnings stop growing or Decline in earnings
2. Slow growth of Operating Cash Flow
3. Decline in Market Share
4. Negative Regulatory action specific to the company
5. No New Products or Enhancements
6. Decline in research spending
7. Change in Top Management
8. Increase in Debt without any expansion plans
9. Decline in the same store sales
10. Acquiring seemingly unrelated companies or relying on it for expansion
11. Increase in raw material cost
12. Patent Expirations
13. Cutting costs as a way of keeping the earnings

Market Related Changes

1. Stock is heating up way above the fundamentals
Ex: PE of company A is 60 without any specific reason while the peers are trading at the PE of 20.

2. Market in general is reaching new highs signaling over optimism
3. Insider Selling or even no insider buying
4. Increased competition
5. Negative Regulation for the entire industry
Ex: Just Yesterday (Oct 06, 2009) we saw TRAI announcing per second tariff plan and all the telecom stocks declined by 10%.

These are some of the points that I could come up with to identify the “Selling Point” but there could be others specific to the situation. I expect more discussions in the comments section related to this post as it would help everyone to learn few things in terms of selling a stock.

Kumaran Seenivasan.
http://www.stockanalysisonline.com/

When to Buy a Stock?

2009-09-12T12:58:00.003-04:00

The success in stock markets depends heavily on when we buy the stock and when we sell it. In the next couple of articles, I will write about when to buy a stock and when to sell the same. Though there is no specific time to buy a particular stock and can be purchased at any time when the fundamentals of a particular company is better than the stock price, there are few situations where we can take advantage of the market. Let me list out the opportune times for buying stocks and explain it with examples.

1. Fundamental's Vs Stock Price Analysis
2. Market Melt Down or Market Crash
3. Market Reaction to Company's own Action
4. Market Reaction to Regulatory Action or External Influence

1. Fundamental Vs Stock Price Analysis

As we all know, it is very difficult to time the market. Undervalued stocks are available at all times and we should manage to find such companies. We should research with all the available quantitative tools to find a stock which is trading at a low price but the respective company has great fundamentals. Hence, the take away here is, when we find a stock where the fundamental does not support such a low price, then we should go ahead and purchase it.

Example:

JVL Agro Industries:This company sells vanaspati in North and Central Indian market and has a significant market share particularly in Bihar and UP where it commands 30 % market share. They are also planning to setup a SEZ and have already got approval. EPS stands at Rs.45 per share and the book value is Rs. 110. Debt position is not bad at all. The recent quarter sales of course was down than the previous years but they managed to reduce the cost as well. So, I think the company has good fundamentals but it is trading at Rs. 117 and the fundamentals command better price than that even at this level. It is not moving up as small caps tend to do well only when all other blue chips in peak valuation. People can consider this stock for long term investment.

Likewise, you can look at the fundamentals of Parekh Aluminex, Compact Disc India, Koutons Retail, Canara Bank and Reliance Communication.

2. Market Melt Down or Market Crash

This situation happens in every few years time and we should be able to make up our minds to buy some wonderful companies at dirt cheap prices. We in fact witnessed such an opportunity in September / October, 2008 and March, 2009. Times like this do not come often and we should have grabed that opportunity with both hands to accumulate for the long term or even for short term gains. Market crash happens for various reasons including global scenario, financial mesh up, GDP decline or inflation, but that affect many companies with strong fundamentals as well.

Example:

Grasim Industries: It’s true that market crashed and earnings reduced world over. But the overall sales increased for Grasim and it’s in a diversified business including viscose staple fiber, textiles, cement and chemicals. Present 12 month EPS stands at Rs. 175 and the previous year EPS stood at Rs. 243. Grasim has been giving dividends for a long period of time and more than 200 percent since 2006. It was available at Rs.850 – 900 ranges for couple of months in Nov/ Dec, 2008 period and it was hugely undervalued for its fundamentals due to market sentiment. One should have bought this blue chip at that time and if not, we should take this as a lesson for the future situations. No wonder this stock is trading at Rs. 2650 these days.

Other Examples: Larsen & Toubro, BHEL, Aban Offshore, Axis Bank, Sterlite Industries, Wipro and to name many.

3. Market Reaction to Company’s own Action

This type of situation happens when a particular company does something for its own benefit but the market does not respond kindly to that. Market sentiment brings the stock price down very significantly with an assumption that the specific action would bring down the fundamental quality but it turns out to be false often times.

Example:

Crompton Greaves: This Company is involved in manufacturing light bulbs, transformers, gears, motors, engineering products and home appliances with good fundamentals. This company entering into an agreement and buying a stake in a power company does make sense and it should be a beneficial thing. But market viewed it differently only to realize the folly later. Crompton greaves was trading at Rs. 138 on March 24, 2009 and it bought a stake in a power company on March 25, 2009. Market reacted sharply and brought down the stock price by 26% to Rs.100. I do not know how many people realized this and bought this stock at that time. But the stock increased to Rs. 170 within 15 days to give 70% return, huge by any standards. It is trading at Rs. 305 these days. Imagine the percentage returns if you had bought it on March 25, 2009 for Rs. 100.

ICICI Bank invested some money (a small amount for its size) in mortgage backed securities that brought down the stock to Rs. 250 and it was trading at that Rs.300 range for a long time due to the market reaction. Larsen & Toubro raised the stake in Satyam computers (Bad Investment at that time) that brought down the stock of this Engineering giant to a dirt cheap price of Rs. 560. These kinds of opportunities come and go now and then and one should find a way to get into it.

4. Market Reaction to Regulatory Action or External Influence

Sometimes a government or a regulatory body takes actions that affect the related companies significantly.

Example:

Sun Pharmaceutical Industries: This Company is one of the major drug producers in India and has very good fundamentals. This is evident from the fact that its 52 week low is Rs. 953 and the market melt down did not affect this company as much as it did for others. Sun Pharmaceuticals was trading at Rs. 1350 in July and FDA issued a regulatory notice to its US Arm for safety standards. The stock came down to Rs.1075 within couple of days as the market reacted sharply. It is trading at Rs.1200 these days.

Titagarh Wagons: This Company manufactures wagons for Indian railways and has good fundamentals. But the Indian Railways minister’s budget did not have enough expansion plans which affected this stock significantly. Titagarh was trading at Rs. 440 in July and the budget announcement brought the stock down to Rs. 280 eventually and it has not moved up significantly still then. This stock is available at Rs.310 even now and people can consider it for long term investment.

Similar things happened with Ranbaxy Laboratories as well.

Conclusion: I have explained four scenarios where we should buy stocks. Not that these are the only times where we have to buy stocks, but buying stocks at the above said situations will bring greater returns for our investments both in short and long terms. Readers can comment their applicable experiences in the comments section.

I will meet you soon with “When to Sell the Stock” post.

Kumaran Seenivasan
http://www.stockanalysisonline.com/

Stockanalysisonline.com: Performance Review

2009-09-04T23:03:00.001-04:00

I started writing this blog in February, 2009 and have already posted 35 articles. I just wanted to review few of those where I have predicted few significant developments that were to occur after that. In the meantime, the blog has attracted 125 readers which encourages me to keep writing. After all you need someone to read your articles else my time and energy would be a waste.

Significant Predictions

1. “Stock Markets and Business Cycles” on March 1, 2009.

http://www.stockanalysisonline.com/2009/03/stock-markets-and-business-cycles.html

In that article, I discussed about business cycles and its association with stocks markets and tried to predict when the recession would end. If you read the conclusion, I have clearly indicated that bottom would be formed by June, 2009 and it turned out to be that way. Markets bottomed out in March and by June we made sure that there was no retesting of lows.

I also indicated that economy might improve by first quarter of 2010 and again at this point of time, I think it is a reasonable prediction. It’s true that stock market has bounced back, but that does not mean economy has improved. World Economy is still struggling and it will take another 6 months to give some sort of definite relief.

2. “My Portfolio and Historical Perspective” on March 11, 2009

http://www.stockanalysisonline.com/2009/03/my-portfolio-and-historical-perspective.html

I have listed my portfolio of stocks which I had at that time and also included two historical graphs indicating that my portfolio would recover soon. I am delighted to inform you that my portfolio has not only recovered but also has given 26% overall returns. This is a significant thing considering that I started investing when the SENSEX came down to 18000 levels from 21000 levels.

3. “Best Indian Stocks for Long Term Investment” on March 14, 2009

http://www.stockanalysisonline.com/2009/03/best-indian-stocks-for-longterm.html

Stock prices were so cheap that I was so confident back in March second week that market has bottomed out. I immediately posted the above named article with a list of stocks for long term investment and I do not need to tell you the rest. You can best understand the impact of that article if you calculate the returns for all those stocks I have mentioned.

4. “Best Small Cap Stocks – India 2009” on March 18, 2009

http://www.stockanalysisonline.com/2009/03/best-small-cap-stocks-india-2009.html

On March 18, 2009 I again came up with another list of stocks where I have included only small cap stocks and as I said earlier, most of the stocks I had mentioned then are multibaggers now.

5. “Best Stocks – Aggressive Investors” on May 21, 2009

http://www.stockanalysisonline.com/2009/05/best-stocks-aggressive-investors.html

I posted the above article on May 21, 2009 with list of aggressive stocks and who ever invested in those stocks might have become rich by now.

6. “Best Stocks – Defensive Investors” on May 30, 2009

http://www.stockanalysisonline.com/2009/05/best-indian-stocks-defensive-investors.html

This list of defensive stocks was posted on May 30, 2009 and those who did not invest in March had another chance to invest at least in May, 2009. Again almost all the stocks have given impressive returns.

Significant Failure

1. "Strategies – Recent Rally and General Elections" on May 2, 2009

http://www.stockanalysisonline.com/2009/05/strategies-recent-rally-and-general.html

I posted this article on May 2, 2009 in which I discussed about general election and I believed that government formation would be difficult. I thought that no one would have majority to form the government and I was wrong. Election results came as a surprise to everyone including our PM Manmohan Singh and Sonia Gandhi. Apart from this, I think I have done a reasonable job in terms of market prediction and stock selection.

Please share your views in the comments section.

Kumaran Seenivasan
www.stockanalysisonline.com