India Equity Analysis, Reports, Recommendations, Stock Tips and more!
Search Now
Recommendations
Monday, October 23, 2006
Merrill Lynch - Reliance Industries
Strong operating performance but modest 2Q earnings rise
Reliance (RIL) has achieved yet another strong operating performance in 2Q as reflected in the 23% YoY jump in EBITDA and 18% YoY rise in EBIT. The strong operating performance has been driven mainly by a 38% YoY jump in petrochemical EBIT. Strong petrochemical margins and volume growth boosted EBIT. Despite strong operating performance, 2Q net profit was up just 9% YoY due to a steep decline in other income and a sharp rise in depreciation, interest and income tax.
2Q earnings higher than MLe; surprise mainly in refining
RIL’s 2Q net profit growth at 9% YoY is higher than MLe and consensus by 5%. The earnings surprise is mainly attributable to refining EBIT being higher than expected. RIL has not accounted discount on sale of LPG and kerosene to oil PSUs of Rs2.0bn in 2Q as expected by us, which explains the higher EBIT.
Download here
Sunday, October 22, 2006
The Next YouTubes
After Google's deal, dotcoms are bubbling hot. What you need to know about Web 2.0
For budding internet entrepreneurs, the moral of Google's $1.65 billion purchase of video start-up YouTube is simple: Build a real, functioning company, then sell it to a bigger one. During the dotcom bubble of the late 1990s, garage innovators could peddle imaginary businesses in initial public offerings. If an idea seemed as if it might make money someday (remember Pets.com?) that was good enough. Today's upstarts are more fully formed and are often led by wealthy veterans of the first boom. They know Google's not the only shopper. Yahoo! has spent close to $100 million for start-ups Flickr and Jumpcut, among others. Facebook may be next, with Yahoo! said to be mulling a $1 billion offer. With investors on track to inject $500 million into new Net firms this year--twice last year's total, according to a Dow Jones VentureOne report--this may be the start of a golden hunting season.
Read more at TIME
How to invest in stocks WITHOUT any risk
Via Moneycontrol.com
Everyone knows that investing in equity is risky. However, the risk taking abilities of investors vary. Some don't think twice before investing everything, including the kitchen sink, in equities.
And yet there are the risk averse others who cannot bear losing even a rupee of their capital. Most of us are somewhere in between.
But what if one could invest in equities with the guarantee of not losing capital? In other words, what if you could have your cake and eat it too? I know, most of you must be thinking such a thing isn't possible--- such a Utopia doesn't exist.
Through this article, I will introduce the readers to precisely such a Utopia. And I am not even talking about the capital guaranteed schemes that are soon going to be launched by various mutual funds.
These schemes apart from being close-ended will invest a large proportion of funds in fixed income instruments, thereby making the return comparable at best with a well-to-do MIP scheme.
Instead, I am referring to pure unadulterated equity pleasure without taking a single iota of risk as far as loss of capital is concerned. To know how, read on.
Here's what must you do. Invest Rs 6 lakh (Rs 600,000) in the Post Office Monthly Income Scheme (POMIS). POMIS gives interest at the rate of 8% p.a., which means per year you would receive Rs 48,000.
As it is a monthly income scheme, the interest per month works out to Rs 4,000. Now, this is fully taxable. Assuming you are in the 30% tax bracket, the net balance after tax left with you would be Rs 2,800.
Now, enter into an SIP (Systematic Investment Plan) with this amount of Rs 2,800. POMIS is a six-year scheme. So basically, you would invest Rs 2,800 per month for six years.
At the end of six years, you would receive the market value of your mutual fund investment and also the capital amount of Rs 6 lakh invested in POMIS.
Consequently, while you have kept your capital intact, you still have taken on equity with all its associated risk.
To see how this strategy can actually work out, we ran some numbers. Say, you started your POMIS account in September 2000. The monthly interest was invested in Franklin Templeton Prima Fund on an SIP basis.
By adopting this simple structure, at the end of six years, the investor would have received around Rs 9.45 lakh (Rs 945,000) just on account of the mutual fund investment. Add to it the capital amount of Rs 6 lakh of POMIS and the total investment would net a cool Rs 15 lakh (Rs 1.5 million). And this is after tax and without an iota of risk.
So who needs capital guaranteed funds?
Anyway, the point that I continuously make through my write-ups is that mutual fund investing is all about the long term.
We have seen how an SIP of Rs 2,800 per month has grown to a phenomenal Rs 9.45 lakh. However, the key here is that the investor kept up his investments for all of the six years, month after month, year after year.
How many of us have invested in a mutual fund six years back? And more importantly, how many of us still remain invested? The answer would most probably be none.
The reason in all probability is because we invest and disinvest based on what happens in the world around us. In other words, we react to world events.
Though I am not much of a crystal ball gazer, here's what I think will happen in the next six years:
The US Fed will raise interest rates. The US Fed will lower interest rates. Oil prices will rise and oil prices will fall. Commodity prices will fall. Commodity prices will rise. FIIs will intermittently pull out of Indian markets only to fall over themselves to get in once again. (Did someone say that this was smart money?) There will be terror strikes. There will be political upheavals, both nationally and internationally.
These things have taken place before our times, during our times and will take place after our times also. For, that is the way of the world. In the meanwhile, your personal net worth will solely depend upon how you react or more appropriately don't react to these events.
In another piece, we will discuss the reasons one should sell one's mutual fund. But none of the same appear in this article.
You want to win in the markets. Take the following words of Calvin Coolidge to heart: "Nothing in this world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent."
A six-year SIP was persistent enough. And look how much money it made.
Saturday, October 21, 2006
Blue Star : In full bloom
Blue Star is India’s largest central air-conditioning and commercial refrigeration company, with over six decades of experience in providing expert cooling solutions. Its business also includes import, distribution and maintenance of professional electronic and industrial equipment and systems. These include turnkey engineered solutions in the areas of banking, telecom, healthcare, defence, pharmaceuticals, manufacturing and R&D.
Blue Star primarily focuses on the corporate and commercial markets. These include institutional, industrial and government organizations as well as commercial establishments such as showrooms, restaurants, banks, hospitals, theatres, shopping malls and boutiques.
The central air-conditioning business saw 26% growth in FY 2006 and continues to be the key growth driver for Blue Star’s revenue as it contributes nearly 70% of its revenues. Blue Star remains the undisputed market leader in this segment with a market share of 30%. The demand for centralised air-conditioning business is set to grow at healthy pace of more than 25% considering the pace of growth of its user industry, which includes the retail, IT/ITES, healthcare, hospitality, entertainment, telecom, banking and other service sectors. In the June 2006 quarter, the segment grew 36% to Rs 186.37 crore, and profit before interest and tax (PBIT) 46% to Rs 15.07 crore.
The cooling segment represents 23% of Blue Star’s revenue and grew 29% in FY 2006. The cold chain business is expected to register a dramatic increase in the next few years. The Central government’s intention to enhance production and export of vegetables and fruits to raise agricultural income has resulted in large industrial houses announcing plans for contract farming and branded exports. This will necessitate precoolers, bulk cold storages, transport refrigeration and perishable cargo complexes.
Further, retailing of agricultural produce — both raw and processed — is expected to undergo a massive transformation in the big cities with the emergence of supermarket chains. Multinational supermarket chains are also waiting in the wings. These high quality supermarkets, regardless of size, will require a lot of refrigeration equipment for storing and showcasing food produce. The supermarkets will also drive growth of bulk cold storages.
In the June 2006 quarter, the segment’s net sales advanced 36% to Rs 111.76 crore, and PBIT 32% to Rs 7.82 crore.
For over five decades, Blue Star’s professional electronics and industrial equipment
division has been the exclusive distributor in India for many internationally renowned manufacturers of hi-tech professional electronic equipment and services as well as industrial products and systems. The company has carved out profitable niches for itself in most of the specialised markets it operates such as analytical instruments, medical electronics, data communication products, material testing, and test and measuring instruments. In the June 2006 quarter, net sales of this division moved up 5% to Rs 14.16 crore, and PBIT 6% to Rs 1.36 crore.
Blue Star has four modern, state-of-the-art manufacturing facilities at Thane in Maharashtra, Bharuch in Gujarat; Dadra, a Union territory near Gujarat; and Kala Amb in Himachal Pradesh. The expansion at Uttranchal is going on according to plan. The first phase was operational in June 2005; the second phase was supposed to be operational from August 2006, while the third by end of Q4 (March ending) of FY 2007. The overall capacity of refrigeration at Uttranchal is more than 1.25 lakh units. However, the actual production will depend on product mix and the number of shift that the company will operate.
The outstanding order book position on 30 June 2006 was up 25% to Rs 688 crore as against Rs 550 crore on 30 June 2005. Furthermore, the company received Rs 75-crore orders in July 2006.
In FY 2007, we expect Blue Star to register net sales and net profit of Rs 1582 crore and Rs 65.51 crore. This gives an EPS of Rs 7.3 on a face value of Rs 2 per share. At the current market price of Rs 138, the scrip is available at a PE of 19, leaving scope for decent returns.
Business Today - The Battle of Two Portals
It's a battle that has largely remained invisible. Yet, two global portal giants are fighting it out for dominance in India's fledgling internet market. One reason why the battle between msn, the portal from software giant Microsoft, and Yahoo has gone unnoticed is because of the size of the Indian internet market. With total online advertising estimated at a paltry $50 million (Rs 230 crore), the Indian market is a mere 0.4 per cent of the $12.5-billion (Rs 57,500-crore) us online advertising market. But then what matters for internet businesses is not the here and now, but the future. The number of internet users in India-37 million-may not appear big, but a million new users are added to that base every month and by 2010, an estimated 78 million Indian users are expected to be surfing the web.
That's the sort of market Yahoo and msn are targeting and to do that both players have unveiled a flurry of India-focussed products to woo users. msn, with estimated Indian ad revenues of about $4.5 million (Rs 20.7 crore), celebrated its sixth anniversary in India recently by revamping its Indian site, adding four new channels on lifestyle, sports, news and entertainment, sfx advertising (a special effects advertising package that allows contextual targeting of surfers), and the launch of the portal in five regional languages-Hindi, Tamil, Telugu, Kannada and Malayalam.
Yahoo India (estimated ad revenues around $8 million or Rs 36.8 crore), which also completed six years in the country this year, has been equally aggressive with its India strategy. Last fortnight, it introduced Yahoo! Search Marketing, which enables advertisers to bid for priority placements in web search results that are served up in response to a user's search for a product or service. In a couple of months it will launch its instant messenger (IM) service (currently offered in English) in a host of regional languages.
In May this year, on a visit to India, Yahoo's CEO Terry Semel spoke of Yahoo's commitment to India and even hinted at big-ticket acquisitions that the company could be making in the Indian market. Says Yahoo's coo Daniel Rosensweig (who was in India last fortnight): "This is a market nobody can take lightly."
Tomorrow's Market
India's attraction is its size and potential-its population of over a billion people and growing numbers of internet users. But web strategies of both these portals (and of other Indian players) haven't targeted the really big numbers. Of the urban population of 250 million people, just 75 million are English speakers. And 37 million of them are internet users. Says Murugavel Janakiram, CEO of Bharat Matrimony, one of the largest Indian online matrimonial services sites: "It is predicted that in a couple of years, the internet will have captured the entire English speaking population and saturated the market." That's precisely why both Yahoo and msn are going local and launching sites, products and services in regional languages. Like Yahoo's IM in Indian languages, msn too will soon roll out its messenger service in five Indian languages-Hindi, Tamil, Telugu, Kannada and Malayalam.
By going regional, both expect to expand the market and capture a larger share of it. "The old misnomer that internet users are only English speaking has gone out of the window. The top end of internet users, the most affluent and well-do-to in India, are the language audiences," says V. Ramani, founder & ceo of Media Turf, a leading Indian internet advertising company.
For both portal giants, not to be in India is not a choice. Of the 500 million Yahoo users in the world today, half that number are in the us (population: 300 million), with the remaining coming from the rest of the world. Clearly, future growth will come from outside the us. And the biggest potential is in-yes, you guessed right-India and China. Says Rosensweig: "We see the biggest growth coming from outside the us and we see India as one of the biggest opportunities over the next 5-20 years."
Although India is the smallest market among the BRIC (Brazil, Russia, India and China) countries, it is the fastest growing. The smallness, explains Jaspreet Bindra, Country Manager, msn India, is not in terms of subscribers; it's in terms of average revenue per user (ARPU), which stands at 50 cents (Rs 23) a year in India. "Compare this with newspapers in India which monetise their readers at $25 (Rs 1,150) a year. That means I'm a one-50th of the newspapers," explains Bindra. In China, the online advertising market is $500 million (Rs 2,300 crore) and with about 100 million internet users, the ARPU works out to a better $5 (Rs 230). Yet, internet companies are excited about India. "One of the biggest reasons why companies are excited about India is because China is a controlled market, where there is censorship on the internet," says Bindra.
| YAHOO: WHAT'S IN STORE? Bloggers, businesses all are welcome. Here's the lowdown: |
| Jobs search: Currently in beta, Yahoo's new job search service will allow users to search for a particular job profile. "The Yahoo job search will crawl through all the job sites in the world and throw up the relevant vacancies," explains George Zacharias, Managing Director, Yahoo India. Yahoo! 360: This is Yahoo's site for bloggers, which allows users to create their own pages with text and pictures. Currently in beta, the service is expected to be launched soon. Content: Yahoo will soon be launching several new channels of interest to the India audiences. "We want to bring all our international services to India," says Zacharias. Search engine platform codenamed Panama: Expected to be launched in the first quarter of next year, the new paid listing model will be more like Google's AdWords, where clickthroughs impact ranking. Yahoo Search Marketing: Based on the advertising model called Sponsored Search, it allows businesses to bid for highly visible placements in the search results that are served in response to a user's query for a specific product or service. |
| MSN LIVE: WHAT'S IN STORE? Everything from video uploads to social networking. Take a look: |
| Soapbox on MSN Video: The service lets people upload, share and discover videos within the Soapbox community and with people around the world. You can sign up to be wait-listed for the beta at http//soapbox.msn.com. Windows Live Messenger: It takes messaging to a new level, allowing users to easily have full-screen rich video conversations with people on their contact list, call their friends on their PC or phone, and share personal files instantly. Live Search and Live.com: Live.com customers can customize their home page content, create multiple pages, and add their favourite content from millions of sources of information. Windows Live Spaces: This (http://spaces.live.com) is a free, easy-to-use, customizable social networking and blogging service that provides you with a place to connect with your friends, and tell your story using blogs, photos and more. Windows Live Writer: Windows Live Writer combines the desktop editing tools found in Microsoft Word with a set of enhancements that will help bloggers posts in the style of their blog and easily include rich media assets such as photos, maps and videos. |
In For The Long Haul
Their bullishness notwithstanding, the two portal giants aren't the biggest players in India, at least not for now. According to industry ad revenue estimates, Yahoo is #4 and msn India #5. In the top two spots are Indian internet company, rediff.com with estimated ad revenues of $13.21 million (Rs 60.76 crore) and search giant Google with an estimated $10.44 million (Rs 48 crore). Indiatimes is a close third with an estimated $8.88 million or Rs 40.85 crore (see Click for Cash). Yet, their sheer global size enables them to pump resources that will put home-grown rivals in the shade. Yahoo's global revenues topped $5.25 billion (Rs 23,625 crore then) last year, while msn with $2.2 billion (Rs 9,900 crore then) in revenues, accounts for 5 per cent of Microsoft's sales of $44 billion (Rs 1,98,000 crore). In fact, it wouldn't come as a big surprise if either of these players made a play for some of the prominent Indian internet companies, provided they got them at a good price.
For both Yahoo and msn, the biggest share of revenues on the internet comes from advertising and the us with online ad spend valued at $12.5 billion (Rs 57,500 crore) in 2005 is the largest market for such advertising. In contrast, India's online advertising market is estimated at $50 million (Rs 230 crore). Why then are the two portal giants fighting over small beer? Says Ramani: "Business today is fragmented and only one-nth of what it can be in a couple of years. Monetisation per user is miniscule, but over a period of time, all investments will be justified." The Internet and Mobile Association of India estimates that the online advertising market will grow 35 per cent in the next year.
Besides launching products in regional languages, the two portals have also tied up with local players. While msn has tied up with shaadi.com, in August Yahoo, along with Canaan Partners, a global venture investor, announced a $8.65-million (Rs 39.79-crore) investment in Bharat Matrimony. "Yahoo's business model has always been to build, buy or partner the businesses we see potential in," says Rosensweig explaining the deal.
Increasingly, the two companies are launching products in India before they do so in the US. "There will be products we will launch only in India. You will see us very aggressive and very busy," says Rosensweig. MSN's Bindra too follows the same principle. "If I were talking to you a year back," he says, "I might have told you about various products and the fact that they are likely to come to India maybe three, two or one year down the line. Today, I can tell you that almost all our products are launched in India as soon as they are elsewhere, if not earlier. In fact, there are products being developed specifically for the Indian audience," he says, citing the example of user bots such as Munnabhai that have become a rage in India.
Challenges Galore
With India's mobile phone subscriber base slated to grow to 278 million (or nearly 24 per cent of the population) by 2010, Yahoo and msn are eyeing the wireless market. MSN is in talks with cellular service providers and handset manufacturers to provide its services in India on the mobile. Yahoo has already entered that market as have Indian players like Rediff and Indiatimes.
either Yahoo nor msn disclose revenue data or other financial information about their Indian operations, yet executives at both companies say they are satisfied with the progress of their businesses here. Only six years into the market, each claims to have garnered a sizeable slice of the pie. Industry estimates suggest Yahoo has about 15 per cent of the ad market, while msn has an 8.5 per cent share. Things aren't going to be easy, though. For one, ARPU is still low in India. Then, broadband costs are high and penetration is low. As is the usage of data on mobile phones. Says Rosensweig: "These are speed bumps rather than roadblocks."
With deep pockets and a long-term approach to the Indian market, Yahoo and msn could make life difficult for portals like Rediff, Sify and the newly re-launched Indya.com. Particularly because some of these home-grown players still depend on revenues from other sources. Sify, for instance, with an estimated market share of 3.3 per cent, continues to depend on services such as access, enterprise services and data centres, which account for nearly 90 per cent of its revenues. Rediff, on the other hand, won't be a pushover for the portal giants. The company launched the new 'Lightning Fast Rediffmail' in 11 languages in July, ahead of the competition, and recently, its instant messenger, Rediff Bol, in Hindi. With 45 million registered users, Rediff targets Indians worldwide and closed last year with revenues of around $18.70 million (Rs 84.15 crore) for 2005-06, when it also posted a small profit ($1.21 million or Rs 5.4 crore) for the first time in its 10-year history. Says Manish Agarwal, Vice President (Marketing), Rediff: "Providing innovative services that are easy to use, have a high utility value and are able to solve a real world problem or substitute a real world need is a challenge for all online companies." That, incidentally, holds good even if you are the two largest internet portals in the world.
| Category/Top player Top of mind recall E-mail Matrimony Job search Search Ticketing Shopping Finance Mobile Downloads |
Top 10 Picks This Festive Season
Muhurat trading session for Samvat 2063 is a fortnight away, and the BSE Sensex has already gained 56 per cent since Samvat 2062. The new year, experts insist, will be buoyant. Business Today carried an opinion poll among five experts to identify 10 stocks that will earn returns in excess of 25-50 per cent over the next 12 months.
The Top 10
Crompton Greaves. Adjusted Stock Price: (September 27, 2006) Rs 249.55; Face Value: Rs 2 per share. The firm operates in three segments-industrial, consumer and transformer. In the domestic market all the three segments are expected to do well in the coming year. "Apart from the domestic market, the global expansion will reap benefits for the firm," says Khemani.
Mphasis BFL. Price: Rs 184.60; Face Value: Rs 10. Following the acquisition by EDs, the company has become a global player and is all set to move from the mid-cap league to the large-cap league. "The stock is all set for a re-rating," says Mudlapur. "And with eds wanting to acquire 100 per cent in the company, the stock will always be on an upswing."
ITC. Price: Rs 185.65; Face Value: Re 1. Cigarettes apart, experts are betting on the non-core businesses in the hotel, paper, consumer goods and retail spaces (including e-chaupal). Kejriwal expects the company's stock price in the next 12 months to surge by between 25 per cent and 40 per cent.
Larsen & Toubro. Price: Rs 2,589.20; Face Value: Rs 2. The company will benefit from the infrastructure boom.
Tata Steel. Price: Rs 515.65; Face Value: Rs 10. "From 5 million tonnes now, the company's capacity will zoom to 27 million in the next 6-7 years and will help increase shareholders value," says Kejriwal.
LG Balakrishnan. Price: Rs 27.95; Face Value: Re 1. LG Balakrishnan is a leading supplier of transmission chains catering to both the automobile and industrial segment. Being a leader in automotive transmission, it occupies a significant share in OEM supplies (it supplies to Bajaj Auto, Hero Honda and TVS Motors) as well as the replacement market. Also, its recent foray into metal forming and forging will lead to better revenue mix and margins going ahead.
Bartronics. Price: Rs 67.25; Face Value: Rs 10. Bartronics is a Hyderabad-based automatic identification and data capture solution provider. The company is the market leader in the domestic market. "It is one of the best retail proxy plays available," says Baliga.
Gateway Distriparks. Price: Rs 156.30; Face Value: Rs 10. Gateway Distriparks Ltd. (GDL) is a multi-location, port-related container freight station-cum-logistics company and stands to benefit significantly from the infrastructure and manufacturing boom.
Reliance Industries. Price: Rs 1,175.05; Face Value: Rs 10. "We expect the company to grow by 25-30 per cent on a year-on-year basis," says Baliga. "The benefit will be reaped following its steady growth in the refining business as well as due to its venture into retail."
Infosys Technologies. Price: Rs 1,835.50; Face Value: Rs 5. "Rising volume growth, consolidation and direct competition with global biggies will drive the growth in the company," says Sisodia.Travelling Light
Ever used your mobile phone to check airfares and book tickets? Well, the process is simple. You start by messaging the sector (say, fly del mum for a flight from Delhi to Mumabi) and the date (Oct 22, for October 22) to the concerned shortcode (4242 in the case of flightraja.com, a travel website). In 15 seconds, the service provider reverts with options, essentially the fares and the time of departure. Once you decide, you send a message saying fly book, and an executive calls you in a few minutes to help complete the transaction. Easy, isn't it? It isn't just the mobile phone and it isn't just air tickets. Similar services are available over the internet covering hotel bookings to holiday packages to car rentals.
By some estimates, travel accounted for $151 million (Rs 694.6 crore) of the $262-million (1,205.2- crore) worth of online transactions completed in India in 2005-06. India's most successful e-commerce firm, Indian Railways Catering and Tourist Corporation, is owned by the government, and in 2005-06, sold tickets worth Rs 290 crore online. Travel, as numbers such as these would suggest, is the preferred destination then for entrepreneurs. "This is to ensure that there are a limited number of customer touch points," says Vinay Gupta, CEO, flightraja.com.
| Flying High And How Some of the popular websites offering a range of services. |
| makemytrip.com: Founded in 2000. In May 2005, Soft Bank Asia Infrastructure Fund (SBAIF) invested $10 million in it OFFERINGS: Flights, hotel bookings, holidays in India and elsewhere, car rental services USP (in the company's own words): The travel business is characterised by high-competition and volumes are a must. The only way to handle high volumes is by leveraging technology, which is the USP yatra.com: Began operations about two months ago. Has received funding from Reliance Capital, NWP and TV18 cleartrip.com: The investors in the company are Kleiner, Perkins, Caufield & Byers, and Sherpalo Ventures flightraja.com: Has gone live recently. Former Thomas Cook India CEO Ashwini Kakkar has recently joined as the Chairman of the board |
A Surprise Feast
Forget stocks, went a refrain popular with investors in India and elsewhere over the past 12 months-the act of forgetting, especially in India, was made all the more difficult by a stock market that was visibly on steroids-and look at commodities. Several sage investors followed that advice, and to good effect. With every brokerage worth its commission launching commodity broking services (there are some 120 commodities available for futures trading on three national and 22 regional commodity exchanges in India), the commodity market will likely soon witness the lemming effect that is more commonly seen on the stock market. Indeed, over the past year, the calls given by several commodity brokerages resulted in huge dividends for investors.
That was then (which, depending on the commodity in question can be as recent as May or June, this year). A quick recap: gold prices climbed up sharply from a five-year low of $255.95 (Rs 12,030 then) an ounce (28.34 gm) in April 2001 to a high of $725 (Rs 34,075 then) an ounce in May 2006; oil, from $23-24 a barrel (159 litres) to a high of $78.40 a barrel in July 2006. The yellow metal was predicted to touch $800 an ounce by end-2006; oil, $100. Since then, the prices of both commodities have headed south. Ajoy Pathak, Associate Vice President, Kotak Commodity Services, predicts that gold prices could now decline to $500 an ounce, maybe even $475, although he remains "bullish" on the commodity "in the longer run". And Pankil Shah, Associate Director, Angel Commodities, believes that there is no fundamental reason for crude prices to increase now. "The actual valuation of crude is $50-55 a barrel," he says. Today, gold trades at $585-590 an ounce and crude at around $60 a barrel.There is still money to be made in both commodities, just as there is money to be made in the commodity market in general. Only, things aren't as easy as they once were. There is no clear trend that indicates either an upturn or a downturn. Savvy investors say that the only way to make money now from commodities, is the only way to ever make money from commodities, play every emerging trend both ways. There are other nuances to investing in commodities as well, some similar to the tenets of prudent stock market investing-"Commodities have their own demand-supply factors and you need to study all the information before plunging in," says P. Patnaik, Associate Vice President, Kotak Commodity Services-and others different. "You have to pick the right exchange and the right commodity for safe investing (in commodities)," says a commodity analyst. That said, here are a few simple strategies to getting the most out of your investment in commodities.
Seven Strategies
1. Buy gold: Yes, this is, despite the bearish outlook on gold in the short-term, the safest commodity investment even today. Investors can buy gold from commodity exchanges the same way they buy it from neighbourhood jewellers or banks. "This is the safest and by far easiest way to enter the commodity market," says Kotak's Patnaik. "You are not only assured of the best quality, but also have the facility to keep the gold in demat (electronic) form." Indeed, the opinion among commodity brokers is that it is difficult to go wrong with gold. "Gold is inflation hedged," says Sumesh Parasrampuria, Head (Commodities), Motilal Oswal Commodities Brokers. "You will surely end up with decent returns."
2. Go vanilla: The world of commodities and commodities trading may appear strange to the newbie investor. Such investors would do well to adopt the plain vanilla trading strategy, simply because it is easiest to understand (although pulling it off requires hard work and a bit of luck). This simply involves taking a directional call on the market, bullish or bearish, as in "I expect prices of gold to increase" or "I expect prices of copper to decline". Investors who seek to adopt this strategy should observe price trends, and those of most commodities tend to move in cycles. "You have to get your cycle right before you start investing in commodities," says Motilal Oswal's Parasrampuria.
3. Follow the leader: There is another easy way to make money in commodities. "Ride the trend," says Kotak's Pathak. So, in a futures market, all investors will need to do is follow the trend, irrespective of whether it is bullish or bearish.
4. Set a stop-loss: "Keep a stop-loss if the actual market is going against your initial call," says Angel Commodities' Shah. A stop-loss is a predetermined amount of loss an investor is willing to incur, and at which, he or she exits the commodity. The underlying logic: there is no point in hanging on to a commodity if the price is going against your initial call. "You are only bound to lose money if you try to average it out," adds Shah.
5. Seek an expert: Don't try to invest in commodities on your own; seek and retain the services of a professional brokerage. "Unlike equity, commodities require in-depth knowledge of international price movements, demand and supply positions, and other economic variables," explains Shah. Remember, despite all their research, analysts, even international ones, didn't see the sudden drop in gold and oil prices coming.6. Play spreads: The difference in price between one futures contract and another is called a spread. Investors can play spreads to their advantage. For instance, to leverage a bull spread they would have to simply simultaneously buy and sell futures contracts in the same commodity (or related ones) with the aim of benefiting from a rise in prices while limiting losses if the call happens to be wrong (usually achieved by buying the futures contract with a shorter or closer delivery and selling the one with a longer one). Leveraging a bear spread, similarly, involves an attempt to benefit from a decline in prices while limiting losses should prices rise (usually achieved by selling the futures contract with a shorter or closer delivery and buying the one with a longer one).
7. Go systematic: Systematic investment plans (sips) have become very popular with mutual fund investors. A similar strategy could pay off in the commodity market too. Essentially, investors keep buying a commodity every month, month after month. "After a certain period, one can take the physical delivery and pledge it with the exchange," says Kotak's Patnaik. This product is the safest and holds the potential of the highest return. Better still, investors do not need to track the market on a daily basis.
A Fund For All Seasons
With the sensex hovering over 12,000 as this magazine goes to press (12,366.91 on September 27), late starters like Sudharshan Nambiar (name changed) are not too sure about investing in mutual funds (MFs). "Is this the right time to invest in a fund?" ask Nambiar and his ilk. "And if yes, then which fund should we pick?"
"Anytime is a good time to invest in mutual funds," says Hemant Rustagi, CEO, Wiseinvest Advisors. "Investors cannot and should not try to time the market; they should discipline themselves and invest regularly to build wealth." The man is right: the sooner you start, the longer your money can work for you. And regularity helps: a systematic investment plan (SIP) is light on the wallet, ensures that the investor isn't timing the market and comes with the added benefit of rupee cost averaging. Still, the original question remains: what are the funds an investor should target?
Business Today trawled the MF firmament for funds that investors can invest in at any point in time, irrespective of how the market moves. These funds are perfect not just for investors like Nambiar, but also for high net worth individuals (HNIs) who aren't exactly new to the game. "They are dream funds," says Dhirendra Kumar, CEO, Valueresearch. "They rise more than their peers in a rising market and fall lower than others in a falling market."
Before we get on to these funds, some preliminaries: investors, especially first-time ones who aren't exactly acquainted with the basics, need to go through a few steps (recommended not mandatory). One, they need to determine their financial goals and time-lines (how soon they want to achieve these). Two, they need to understand their risk profiles and arrive at a debt:equity mix for the investments. For instance, a long-term investor who is not averse to risks should always pick equities: in the long term, returns from equity exceed those from any other investment option. In the third step, investors should shortlist the funds (which is what bt has done). There are significant risks involved in doing things the other way around. As a final step, investors should review the prospectus of all funds from the shortlist, and pick those that meet their financial goals and match their risk-profiles. "Choosing a fund is the last step in mutual fund investing," says Rustagi. Even after matching investment goals and risk profiles, there are things investors should look for. "Opt for a performer fund house that has given consistent returns across many schemes and whose management style, systems and processes have evolved and established credentials over a period of time," says R. Swaminathan, Associate Vice President and National Head (MFs), IDBI Capital Market. "Then, go for schemes from such a firm." The key mantras: consistency of performance, allocation to large-cap and mid-cap stocks, flexibility (changing fund allocation according to market dynamics) and balanced exposure to various sectors.
The four funds listed below (based on a survey of four experts; see Evergreen Funds) have a long history of picking winners and have earned consistent returns over time. "Superior returns compared to the average return of the peer group; lower probability of returns from the fund falling below risk-free returns; less concentration on a particular industry or company; investment in stocks with ample liquidity; and the size of the corpus are the key elements that make these funds an ideal part of every portfolio," says Vidur Verma, Country Investments Director, Citigroup.
HDFC Equity
Investment Objective: To provide capital appreciation through investments predominantly in equity-oriented securities.
Launch Date: December 24, 1994
Corpus: Rs 3,273.46 crore (on August 31, 2006)
Net Asset Value: Rs 131.653 (on September 22, 2006)
Investment Style: A mix of large-caps, mid-caps and small-caps.
Performance: In the last one year, delivered nearly 52 per cent return, compared to a 35.5 per cent return of diversified funds.
Portfolio Allocation: Top six stocks accounts for 40 per cent (Rs 1,306.4 crore) of the total portfolio of 30 stocks.
Investment Rationale: It is the only diversified equity fund that has outperformed the average return of such funds every year for the past eight years. It is a consistent performer and focuses largely on larger cap stocks. A combination of low risk and above-average returns makes this a compelling investment option.
DSP Merrill Lynch Opportunities Fund
Investment Objective: The primary one is to generate long-term capital appreciation; the secondary one is income generation and distribution of dividend, from a portfolio constituted of equity and equity related securities.
Launch date: April 10, 2000
Corpus: Rs 1,145.34 crore (on August 31, 2006)
Net Asset Value: Rs 48.96 (on September 22, 2006)
Investment Style: A well diversified portfolio dominated by large-caps, with ample representation of mid-caps and small-caps.
Performance: In the last one year, delivered 47 per cent return, compared to a 35.5 per cent return of diversified funds.
Portfolio Allocation: Top 10 stocks are large cap stocks that account for 35 per cent (Rs 402 crore) of the total portfolio of 59 stocks.
Investment Rationale: The fund is projected as a tactical fund that will maximise returns by investing predominantly in certain sectors and stocks. Its focus is to respond to the dynamically changing Indian economy by moving its investments amongst different sectors, such as lifestyle, pharmaceuticals, cyclicals and technology as prevailing trends change. Today, it has a well-diversified portfolio dominated by large-caps, with ample representation of mid- and small-cap stocks.
SBI Magnum Contra Fund
Investment Objective: To invest in under-valued stocks that may be currently out of favour, but are likely to show attractive growth in the long term.
Launch Date: July 3, 1999
Corpus: Rs 1,253 crore (on August 31, 2006)
Net Asset Value: Rs 32.91 (on September 22, 2006)
Investment Style: A well diversified portfolio dominated by large-caps and mid-caps.
Performance: In the last one year, delivered 51 per cent return, compared to a 35.5 per cent return of diversified funds.
Portfolio Allocation: Top 10 stocks are large cap stocks that account for 39 per cent (Rs 488 crore) of the total portfolio of 45 stocks.
Investment Rationale: It's the oldest among contrarian funds and has a proven track record. The fund focuses on investing in fundamentally sound companies that are overlooked by the market and are waiting for their value to be discovered. With equity markets at all-time highs, contrarian investing will help investors diversify and create wealth over the medium to long term.
Franklin India Bluechip Fund
Investment Objective: To achieve a high degree of capital appreciation through investments in well-established, large size blue-chip companies.
Launch Date: November 30, 1993
Corpus: Rs 2,313.2 crore (on August 31, 2006)
Net Asset Value: Rs 116.27 (on September 22, 2006)
Investment Style: Portfolio dominated by large-caps.
Performance: In the last one year, delivered 45.3 per cent return, compared to a 35.5 per cent return of diversified funds.
Portfolio Allocation: Top 10 stocks are large cap stocks that account for 54 per cent (Rs 1,251 crore) of the total portfolio of 32 stocks.
Investment Rationale: The fund focuses on steady and consistent growth by predominantly investing in well established large cap stocks.
There could be other good funds that do all that these four do and more. bt is not suggesting that investors should opt only for these four funds. Indeed, a mix of some of these funds, and others not named here could form part of an investor's portfolio, as long as it is in keeping with his or her financial goals and risk profile. However, those investors who are not very sure where to invest would do well to opt for these four, existing funds all, and with sound track records. Remember, the key to successful MF investment is those oft-repeated rules: define investment objectives, decide asset allocation on the basis of risk profile, and give each fund (and fund manager) time to perform.
Subscribe to:
Posts (Atom)