8 really, really scary predictions

This is from CNN.
8 really, really scary predictions

Promoters Buying

One of the better gauge of confidence in stocks is whether promoters are buying stocks of their own organization.

In this meltdown, management of these companies are buying stocks in their own organization.

1. C&C construction.
2. OPTCIRCUIT
3. AMD Industries
4. NIITLTD
5. GITANJALI GEMS
6. Man Industries
7. Jai Balaji
8. Mastek
9. GATI
10. Blue Bird
11. Aptech


This gives a sense what kind of buy opportunity we have in the current scenario.

Nuclear Power

Good article on why India needs Nuclear Energy
http://outlookbusiness.com/inner.aspx?articleid=1878&subcatgid=885&editionid=49&catgid=2

How to control inflation

I found this interesting link on How to control inflation?

I bought two mutual funds

Last week I bought following two mutual funds.

1. ICICI Pru Infrastructure Fund.
This is primarily a large cap fund, so I get a exposure to quite a few index stocks.
More details about the fund can be found at ICICIPRU

2. DSP ML India T.I.G.E.R Fund.
This fund has good exposure to banking sector.
Details about the holding are at DSPML.

This is what I am doing

This is my strategy for investment in stock market (especially in uncertain period).

I have target of investing of Rs 48000(48K) every year(at least for next 10 yrs).
48000 is just an example. I have divided 48k into 4 parts. For 2 parts i.e. 24K,
I have bought 2 SIP of Rs 1K each of Fidelity Equity Fund and HDFC Top 200 Fund.
Remaining is 24K. I have divided this 24K into parts of 12K each. I invest first 12K when markets crash by at least 15% and next 12K I invest when there is extreme pessimism all around.
This strategy in not full proof and some time I have to be patient for long long time before I get opportunity to invest. But then, I am not in hurry.

Quote from book Art of War

It does not take much strength to lift a hair, it does not take sharp eyes to see the sun and moon, it does not take sharp ears to hear a thunderclap.

What to do ?

Yesterday, my friend asked me that with risk of US Recession looming large, what to do in Indian stock market? Is it time to sell or buy or to do nothing?

Before giving my views on the above question let me give some background.

US sub-prime crisis fear impacted US and world wide stock markets in Aug 2007 and consequently BSE also fell to 14000 in Aug 07. However, BSE bounced back and touched an all time high of 21206.80 on Jan 10, 2008. As of today (Feb 08,2008) BSE is at 17526.93 , that means a drop of around 17.5% from peak. Drop of 17.5% is misleading as majority of the stocks have corrected more than 30%.

What has changed in last 1 month that has triggered this stock market correction/crash?
Many factors, few of them are

1. Heavy speculation was going in market. Companies with no fundamentals or profits were hitting new highs everyday. One of such example is Reliance Petroleum. At 52 week high price of Rs 294, it had market cap of Rs 130,000 Crs. Amazing isn't. A company with no profits and assets under construction was valued so high.

2. US economy has slowed down for sure and there is divided opinion that US is already in recession . Meaning business in US has tough present and future(for some time at least).

3. Growth rate in India has been revised downwards. Refer to this BBC link.

All this means that profit growth rate for Indian Companies will slow down.


Coming back to the original question, what should a investor do?
Again, before answering let me say something more.

There are two types of retail investors in Indian stock market.

First type are the ones who want to make quick money in market. They want to follow every move of the market and are largely driven by the news around. They do not have perspective beyond few months or at max 1-2 years. (Majority falls in this type)

Second type are the ones who are in market for long haul (5-10 years or more). They do not follow market much , but they invest consistently for years. The whole idea of the market for them is long term wealth creation. They know market behave erratically in short term but logically in long term. They do not panic when their portfolio is down by 20 -30%.
They treat stock market investment just like a PF or a recurring bank deposit. Most important, they realize that big money in stock market can be made by remaining invested and it is impossible to time the market. However, they do churn their portfolio from time to time.

Ask your self what type of investor you are or what type you want to be and you'll get the answer of the question asked in this post.

Recession come and recession go, that is the nature of economy but stock market remains and thus remains the money making opportunity.
One more thing, in stock market optimism is max at top and pessimism is max at bottom.

KEC International

KEC Buy Report from economic times

KEC International
CMP: Rs 730.15
Target price: Rs 870

HSBC has reiterated an ‘overweight’ recommendation on KEC International due to factors like strong order backlog and improvement in EBITDA margin. “KEC International has a Rs 50.5-billion order backlog with international orders contributing 68%, which includes the Middle East, Africa, and Commonwealth of Independent States (CIS),” says the report.

The foreign brokerage has increased its EBITDA margin forecast to 13% for FY08E and FY09E after the company reported an improvement in EBITDA margin for the first nine months of the current fiscal. However, an increase in interest costs has led to a marginal impact on net profit, it adds. The brokerage also notes that the high court has given its approval for the merger between the two group companies, RPG Transmission and NITEL. HSBC believes that the company has continuously improved its EBITDA margin and is currently either above or in line with peers. “Thus, we expect the valuation discount to peers like Jyoti Structures and Kalpataru Power to narrow,” it adds.

You can see this report at ET
too.

Arbritrage opportunity in RPG Trans and KEC

RPG Transmission is getting merged into KEC international.
Swap Ratio is 4 shares of KEC for every 9 shares of RPG Trans.
CMP of KEC is 700 and of RPG is 280.
Going by swap ratio if you buy 9 shares of RPG @ 280 the you'll get 4 shares of KEC and effective price of KEC per share will come to 9*280/4 = 650, that is almost 8 % discount to current market price of KEC. Assuming whole process takes 2 months and KEC price remains stable , you can get neat 8 % return in two months. More over KEC has declared good 3rd quarter results and this stock will remain in demand.

So accumulate RPG Transmission at every opportunity.

Charts of Few Banks

I have mentioned before, stocks which correct less during crash have more potential to rise afterwards.

I am going to discuss 4 bank stocks here and based on their price movement will pick the ones to buy. I have used a key technical parameter 200 day EMA. Most of the times stock show strong support at its 200 day EMA price
All images are from finance.yahoo.com
Bank Of Baroda


BOB is 20% below its peak, but still above 200 EMA.









Union Bank Of India

UBI is also 20% below its peak but above its 200 EMA.










Central Bank Of India


This stock has breached 200 EMA hence is weakest of all four.











Indian Bank

Indian Bank has seen least correction among all, hence is the strongest.
52 week high: 241
CMP: 220
Less than 10% correction.
Out of these 4 Indian Bank shows maximum potential.

Stocks to buy

One of my favorite way to pick stocks is based on their behavior in extreme corrections/crash.
Some of the stocks which have not corrected much in this crash are

1. CCCL
2. RPG Transmission
3. Infosys
4. Sadbhav Engg.

You can find some more here.

CEO makes money no matter what

Our desi guy Vikram Pundit recently got 30 million USD stock options, despite
Citi bank announcing 9.8 billion USD losses.

Well top executives get paid no matter where their companies go.

Roger Bannister and Tata Nano

I know the obvious question you have is, who is Roger Bannister?

In athletics, the four-minute mile is the running of a mile (1,609.344 metres) in under four minutes.
It was once thought by some to be impossible, but since it was first achieved in 1954 by
Roger Bannister the 'four minute barrier' has been broken by many male athletes,
and is now the standard of all professional middle distance runners. In the last 50 years the mile record
has been lowered by almost 17 seconds. Still, four minutes remains the standard by which all male amateur milers
are measured.

I am hopeful that Tata Nano will do the same to auto industry what Roger did to athletics.
Already Renault has announce that it will produce a car to compete with Tata Nano.
Let's see if in years to come 1 lakh car would be in stable of every car maker.

Two defensive stocks

Here are three defensive stocks for this volatile market

1. Novartis(From outlook money)
CMP Rs 335
As per BSE site (As of 23-Jan-2008)
Azim Harsham Premji holds 935634(2.93 stake) shares of Novartis


2. Merck (From outlook money)

CMP Rs 375.

3. Infosys

CMP Rs 1420

To me it is a safe bet and below is another example of high level of ethics Infy practices.

Infosys CEO fined for violating stock-holding rules Bangalore, Jan 22 (PTI) Software major Infosys Technologies Ltd has imposed a fine on its CEO and Managing Director S Gopalakrishnan for not reporting within the stipulated time a change in his shareholding. On December 24 last year, Gopalakrishnan inherited 12,800 equity shares from his mother, the Bangalore-headquarted company, listed on NASDAQ, said in a filing with the US Securities and Exchange Commission. "Mr. Gopalakrishnan inadvertently failed to notify the company within one business day following the change in his shareholding, which failure was also a violation of the company's Insider Trading Rules", the filing said. On January 10 this year, the audit committee of the company's board of directors determined that Gopalakrishnan's failure to provide notification was a technical violation of the Insider Trading Rules, although it noted that it believed that he had no intention of contravening the Rules. "However, given the position of responsibility held by Mr. Gopalakrishnan in the company, the audit committee imposed upon him a penalty of Rs 5,00,000 (Rs five lakh), which Mr Gopalakrishnan was directed to donate to a charitable organisation of his choice", the filing said. Gopalakrishnan has made the donation as directed by the company's audit committee.

Time to Buy

In this tough phase of stock markets here are some words of hope/wisdom

“To buy when everyone is desperately selling and sell when everyone is buying requires the greatest fortitude but pays the highest rewards.”...Sir John Templeton

In stock market always sell hope and buy despair ... Anonymous


What happened in past few days was due from long time, and was not a new phenomenon but then we hardly ever learn from our mistakes.

Rupee has appreciated less than Yuan

Interesting Article from ET

CEOs and Chin

Interesting Conclusion

(From Business Week)

How CEOs Lead with Their Chins

A strong chin, that Hollywood staple, may also be a plus for aspiring CEOs. That's the conclusion of New York plastic surgeon Darrick Antell, who presented his highly anecdotal evidence at the recent 2007 World Congress on Liposuction Surgery and Advances in Cosmetic Surgery in Dubai. Antell drew a line from the nose tip to the chin on photos of 42 CEOs from 2005's top 50 Fortune 500 companies. Some 90% (including Carly Fiorina, then Hewlett-Packard's (HPQ) CEO) showed nonreceding-to-prominent chins, vs. 40% of the U.S. population. People equate such jawlines with confidence and character, says Antell, who performed 20 chin augmentations in 2007. (Topping out at $7,500, the surgery's a bargain compared with, say, a $92,000 MBA from Harvard.) Some dynamos have "deficient" chins, Antell admits. But most are entrepreneurs. When it's time to pick a top manager, the one with the Superman jaw gets the job.

—By Ben Levisohn, Edited by Deborah Stead

Is Rupee appreciation Really Impacting Jobs

Great Article by Swaminathan