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Tuesday, March 06, 2007
Domestic bourses may track Asian recovery
The market is likely to recover today tracking recovery in Asia-Pacific markets. However, upside may be capped due to margin calls. Margin calls are normally triggered when markets show hyper volatility or witness abnormal slides.
Key benchmark indices in Hong Kong, China, Japan, Australia, South Korea, Singapore and Taiwan were up by between 0.3% to 1.4%.
Indian stocks had tumbled in the past few days due to sell-off in global markets and also due to disappointment from Union Budget 2007-08 announced on 28 February 2007. The fall was accentuated as margin calls were triggered.
Analysts attribute the sell-off in global markets over the past few days to worries pertaining to the US economy, volatile markets in China, and more frequently, the unwinding of yen carry trades, or when investors borrow the yen to take advantage of low interest rates in Japan, and then invest in higher-yielding assets.
Global markets will closely eye this week US economic data such as reports on employment, productivity, unit labor costs and factory orders. US stocks ended lower on Monday, undermined by rising concerns about defaults in the US subprime mortgage market. The Dow Jones industrial average fell 63.69 points, or 0.53%, to 12,050.41. The Standard & Poor's 500 index declined 13.05 points, or 0.94%, to 1,374.12. The Nasdaq composite index tumbled 27.32 points, or 1.15%, to 2,340.68.
FIIs were net buyers to the tune of Rs 324.90 crore on 2 March 2007. This was in contrast to their huge outflow of Rs 3080.80 crore in four trading sessions, from 26 February 2007 to 1 March 2007. The inflows had surged in early-February 2007 following an upgrade in India’s sovereign ratings by global rating agency, Standard & Poor's, (S&P) on 30 January 2007. The FII inflow was a robust Rs 2909.90 crore in five trading sessions, from 2 February 2007 to 8 February 2007.
Investsmart - Morning Call
Market Grape Wine :
In House :
Nifty at a support of 3420 levels with trend reversal above 3745 levels for
the Nifty .
Buy : ABB above 3343 s/l 3295
Buy : ZeeEnt above 219 target 234 s/l 209
Buy : Colgate & IciciBank in F&O
Out House :
Sensex at a support of 12400 & 12345 levels with resistance at 12595 &
12786 levels .
Markets to be very choppy and volatile with short covering at lower levels
not ruled out .
Buy : Maruti & M&M
Buy : RIL & RelCap
Buy : Aban & SesaGoa
Buy : Gacl & Grasim
Buy : JSWSteel & Sail
Buy : Praj & IFCI
Buy : INFY & Sayam
Dark Horse : RIL , JP , JSW , SesaGoa , ABB , Praj , IFCI , IBulls & Bharti
Emkay - Morning Notes, Budget Impact - Software
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An investment cookbook - Chetan Parikh
In a great book, Secrets of the Investment All Stars, the author, Kenneth A. Stern, writes about some steps for investment success.
“Being a successful investor requires skills similar to those of a successful chef. Every cookbook stresses that you need to read the entire recipe before beginning, make sure you have all the ingredients, and not deviate from the recipe until you have practiced it several times. This wonderful advice, if adhered to in investing, will virtually guarantee an improvement to your investment return.
- Be observant. I respect and admire the all-stars, but I don’t believe they are inherently superior people. They are simply savvy at observing life. They are very good at looking under rocks for opportunities, trends, and cultural shifts that the rest of us don’t see. Or, where we just see a rock, than anyone else. And they know which ones of these rocks will unveil value that should make a stock rise. They are always thinking investing. When they go shopping, they look at what is being bought. When they listen to the news or read the paper they are thinking, “How will this event affect my investments?’ When their kids come home and tell them they have to have a new pair of green canvas shoes, the all-stars instinctively begin to analyze how this new schoolyard craze might affect not just shoe manufacturers, but also the sellers of canvas, cotton, and green dye.
- Never think that being a successful investor is just picking stocks. Being a successful investor requires timing, proper asset allocation, and patience.
- Learn basic accounting. Much of stock analysis is based on what companies are worth. To know the worth. To know the worth, you need to be able to read the financial statements and then be able to interpret them. Free cash flow, return on equity, price to earnings and sales ratios should be second nature to you. In the ‘Fundamental Analysis’ section of this book I provide a cursory overview of how to use accounting while evaluating a stock. While you don’t need to take an accounting class (accounting courses often don’t teach how to evaluate a company), I do recommend reading a book on accounting that focuses on how to use accounting to evaluate a company. Robert A. Cooke’s 36-Hour Course in Finance for Nonfinancial Managers (McGraw-Hill, 1993) is an excellent starting point.
- Learn basic charting. Charting will help you spot trends and time your purchases.
- Find out where to get information. We live in an information age. Just about anything you need to know is readily available on the World Wide Web and at your local library. Not only do you need to know where to get the information on the Web or in your library, you also will need to become proficient at sorting out useful information from noise.
- Have clear investment goals. What are you trying to accomplish? How long will this money be invested? What are the tax consequences? Never invest unless you have a plan, unless you know do you need to save? What return on your investment do you need to meet your goal and time frame? Too many people invest aggressively in a way that could lose them money, even though their plan said they didn’t need huge returns. Now they jeopardize their whole plan if they lose money, whereas they would have been fine if they would have taken the low-risk approach and stuck to the plan.
- Truly understand your risk tolerance. You and I have lied to ourselves about this before. You say you can stand risk, but only if you are making money, right? How will you feel if you invest $100,000 and the day after you write your investment check, your account drops 30% to $70,000? It happens fairly open. Are you really ready to weather such a market drop? Can you still follow your discipline? The bottom line is never invest without knowing the risk versus reward ratio. What are the chances of the investment going down and by how much? Embrace risk—without it there is no profit.
- Forget what the stock price was a year ago. Forgot what you paid for the stock. You will learn that if you are worrying about buying a stock because it’s too high, or you don’t want to sell a stock because it’s either not up enough, too far up, or down, you’re focusing on the wrong stuff. Evaluating a stock has no bearing on what it was worth a year ago, or what you paid for it.
- Stick to your discipline and don’t become emotional. This is easy to write, harder to say, and even tougher to do. However, maintaining a coolly disciplined, unemotional view of your investments will make you a better, richer investor. If you decide to be a value investor, stick with your value discipline through thick and thin. Understand, I am not recommending you chose only one discipline. Many investors use several disciplines. But what you should not do is become frustrated with the one-month or one-year return on your value investments, then switch willy-nilly to momentum investments. Time rewards your tenacity and discipline. In the words of Sir John Templeton: “Buy when the blood is in the streets, even if it is your own.”
Don’t invest in fads. You’ll continually hear new theories. For example, buy the lowest priced Dow Jones stocks with the highest dividends. If everyone begins to do this, the anomaly that might have existed is blown. Finally, don’t get emotional and don’t second guess yourself. The one time you second guess is the one time you’ll miss the “big one.’
- Level with yourself. You aren’t going to pick every winning stock. You can be right and wrong, because if you invest properly, you probably need to be right only 55% of the time. I remember being shocked at first when I interviewed Foster Friess and David Katzen (of Zweig and Associates). I asked what percentage of stocks they actually lost money on. They smiled and said sometimes 40% or more. I then asked how they could still maintain such an incredible track record. Their response was because the stocks that they lose on generally go down less than the gain on the stocks that go up. I used to beat myself up if I had one losing stock. I don’t anymore.
If you ever get to the point where you think you’ve figured out the market, cash in everything. You’ll never completely figure out the market. There is no single key to the market. It is ever changing and it is rarely logical. Did you ever see a stock that just had the greatest news, but it went down? Why? You will be given hints, but remember that no hard and fast rules exist. And never forget that every time you think you bought a winning stock, someone was willing to sell you that same stock.
- Invest for the long term. Attempting to guess short-term swings in individual stocks or the economy is a difficult, almost impossible, task for even the best stock pickers or economists.
- Remember, cash is king. Regardless of the market you’re in, cash is, and always will be, king. Even if you’re earning only 4% or 5%, you need to always have some cash. The cash is necessary to buy more stock, limit losses, and be ready for a good deal. Never be 100% invested in stocks.”
FIIs in buying mode
Net inflow of Rs 325 crore on 2 March 2007
FIIs were net buyers of equities on Friday (2 March 2007), the day when the market fell sharply.
FIIs were net buyers to the tune of Rs 324.90 crore on 2 March 2007. This was in contrast to their huge outflow of Rs 3080.80 crore in four trading sessions, from 26 February 2007 to 1 March 2007.
FII net inflow of Rs 324.90 crore on 2 March 2007 was a result of gross purchases worth Rs 3442.40 crore and gross sales of Rs 3117.50 crore. The Sensex had declined 273 points that day due to a sell-off towards the fag end of the trading session.
The inflows had surged in early-February 2007 following an upgrade in India’s sovereign ratings by global rating agency, Standard & Poor's, (S&P) on 30 January 2007. The FII inflow was a robust Rs 2909.90 crore in five trading sessions, from 2 February 2007 to 8 February 2007.
Sharekhan Investor's Eye dated March 05, 2007
ICI India
Cluster: Ugly Duckling
Recommendation: Buy
Price target: Rs550
Current market price: Rs435
ICI sells Quest International
Key points
- ICI India (ICI) on March 02, 2007 sold its 100% equity share holding in Quest International India to Givaudari (India) Pvt Ltd for Rs320 crore. The company had also received an interim dividend of about Rs31 crore prior to the sale of Quest International India. Further, it expects an additional consideration of about Rs35 crore for various agreed adjustments in the next quarter.
- At the current market price of Rs435, the stock trades at 14.7x its FY2008E earnings per share (EPS) of Rs29.7. We maintain our Buy recommendation on the stock with a price target of Rs550.
ICICI Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,240
Current market price: Rs820
New holding structure to unlock value
Key points
- Key investments in insurance and asset management businesses to be transferred: ICICI Bank has decided to transfer its 74% stake in the insurance and 51% stake in the asset management businesses to a separate wholly owned subsidiary company called ICICI Holdings. It plans to further list ICICI Holdings separately in CY2007. The independent listing should unlock significant value for its life insurance business and provide further visibility to its stock's valuation. The bank plans to transfer the investments at the current book value, which stands at Rs1,950 crore.
- Listing will provide insurance companies greater access to capital: The insurance business needs a huge amount of capital infusion and ICICI Bank could not have met the capital demands without having to go for another equity issue. The transfer of stakes to a holding company was done with the idea of providing insurance companies greater access to capital.
- Significant value to be unlocked in the insurance business: Currently there are no listed insurance companies in the Indian market and the valuation provided to certain stocks like ICICI Bank and Bajaj Auto based on the new business adjusted profit (NBAP) multiple varies across the analyst community. The analyst community has taken a cue from comparable valuations given to the Chinese insurers which in the past year had been re-rated to 30-40x NBAP multiples. The listing of the holding company will provide a valuation benchmark for these high-growth businesses of the bank and unlock significant value for the insurance businesses. We have valued the life insurance business at 21x FY2009E NBAP, which we feel is a fair multiple for such a high-growth business.
SECTOR UPDATE
Cement
ACC reports negative dispatch growth
The cement majors have recorded a dispatch growth of 3% year on year (yoy) to 5.62 million tonne in the month of February. Amongst the cement majors, Gujarat Ambuja continued to register a buoyant growth and grew by 9.7% yoy to 1.36 million tonne. The AV Birla group reported a growth of 6.8% yoy to 2.84 million tonne whereas ACC reported a negative growth of 7.2% yoy to 1.42 million tonne.
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