Archive for January, 2008
The bears, who stormed the ring this morning with weak global markets backing them up strongly, remain relentless around noon. Reeling under the sustained onslaught, several large, medium and small cap stocks have declined sharply and the market breadth has turned very weak once again.
Realty, oil, metal, information technology, capital goods and power stocks are among most prominent losers. Auto, bank, FMCG and healthcare stocks have not fared any significantly better either.
The Sensex, which showed some signs of a recovery after a disastrous start, has plunged deep down into the red now. At 17,475.95, a few points off a low of 17,443.29 it had touched a few minutes ago, the Sensex has lost as much as 885.71 points or 4.82%.
The Nifty has lost 5.66% or 304.60 points at 5078.75.
SAIL has crashed to Rs 206, down 10.7% from its previous closing price, on sustained selling at the counter. Dr. Reddy’s Laboratories has lost nearly 9%. Unitech is down with a big loss of 8.65%. Nalco, Cairn India, Reliance Communications, HCL Technologies, VSNL, Suzlon Energy, Infosys Technologies, Hindustan Unilever, NTPC, Reliance Petroleum, ONGC, ABB, Sterlite Industries, HDFC Bank, Tata Consultancy Services, BPCL, Bharti Airtel, Siemens, Idea Cellular, Reliance Industries, Wipro and Larsen & Toubro are all down with big losses.
Source:sify.com
January 28th, 2008
When investors lose as much money as they did last week, they feel crushed. What follows that despair is anger. “Someone” has to be responsible for the debacle. Fingers are pointed at the government, at stock exchanges, at the market regulator, at stockbrokers and at the media. Since it is difficult to own up responsibility for a massacre of such proportions, the “system” is blamed. The administration, on its part, perhaps only to duck public ire, often responds by announcing witchhunts. Hunts to identify “who” was behind such a crash. Sadly, such witchhunts always end empty, as they have to. The reality is that those wounds are self-inflicted.
Let’s face it: we are a nation of speculators. We love to get carried away. Very few people in this country approach the stock market with a constructive, long term capital building mindset. A fact which perhaps explains why such a small percentage of our population “invest” in the stock market. In mature stages of a roaring bull market, speculators rush in by the hordes to make a quick buck, do it for a while, often create a temporary market top and vanish, having sacrificed all their gains in a market meltdown. It has happened in the past and will happen again. The only difference this time was that speculators had more fire to play with, in the form of a destructive toy called stock futures. Derivatives are a very intrinsic part of a developed capital market but in a market dominated by extreme speculative fervour, it can be dynamite — as we saw last week. Now,the temptation will be to throw the baby out with the bathwater but that’s not a clever thing to do. That won’t change anything, people will find some other ways. What needs to change is the attitude.
Having said this, could some things have been done differently this time? Oh, sure. Maybe brokers got carried away with the amount of easy margin they extended to clients, maybe exchanges were not as vigilant with their margin and risk assessment systems as they could have been. But that is not the central reason for the crash, it is at best a catalyst. The reason is pure, unadulterated greed. Greed which led people to ignore every basic tenet of financial logic, believe every crazy dream that was articulated and go out on a limb. My heart bleeds for people who have been financially crippled in this fall. Yet they have none to blame but themselves. There’s an old saying “Burnt children fear the fire.”I hope that holds true for Indian stock market investors.
Source:hindustantimes.com
January 28th, 2008
During the past few months, Indian market continued to create history by crossing one milestones after other. In last few days, the Indian market again created history, but surely not in way the investors wished to. During January 14-22 period, the Indian benchmark index, Sensex crashed 4,100 points thus incurring a loss of Rs 16,000 billion for the investors.
Reasons for the meltdown in the Indian market ranged from the correction which was expected in Indian market to obscure superstition like a placement of bronze bull in front of stock exchange.
The bearish movement in the market may largely be due to following reasons:
a) When Nifty futures turned into discount, it created a lot of short positions.
b) FII Selling: During the week ended Jan. 25, 2008, FII`s was in the negative in each of the five trading days, selling equities worth a whopping USD 2.451 billion.
c) Weak Global cues: All major indexes over the world were in negative on speculation the world`s biggest market was heading for a recession.
However, if one looks at the reason closely, it may observe that almost all of the above reasons were also present when the sub prime mortgage crises hit the U.S market. Despite the presence of above reasons the Indian market defied all rules of the game and staunchly moved ahead. The major difference between the sub prime mortgage crises and now is the inflow of cash into the market by the Indian investors.
During the sub prime mortgage crises, when the FIIs went on a selling spree, the Indian retail investors infused money in the Indian market and helped it regain composure. The same assistance by the Indian investors was sorely missed by the Indian market in the past few days. A major part for the lack of liquidity may be credited to the launch of two new IPO`s viz. Reliance Power and Future Capital.
The IPO of Reliance Power created history on lot of fronts such as biggest ever size of Rs 117 billion issue size and a record 4.7 million applications and highest demand of shares. The IPO blocked lot of cash of Indian retail investors, who make up 60% of India`s trading volume. Consequently, as the investors couldn`t meet margin calls on their futures contracts, the brokers were forced to sell in large numbers.
Source:myiris.com
January 28th, 2008
The recovery in stock prices this week has been almost as swift as the collapse that preceded it. To most investors, that sends out only one message: Buy into stocks at every decline. Yes, with the corrective phase trimming stock valuations almost across the board, there are a larger number of buying opportunities today than was the case a couple of weeks ago. But investors should exercise caution on the following counts while scouting for “buy” options in this market:
One, recent events have certainly proved that “decoupling” theory or not, the Indian stock market remains highly vulnerable to interruptions in foreign fund flows.
As no one can predict the direction of these flows, investors should brace for volatile phases and possible risk to their capital.
Market valuations, though cheaper than a couple of weeks ago, remain higher than long-term averages (see related story on Page 15). This cautions against investing a large lumpsum in the market or in individual stocks at this juncture. It also strengthens the case for adhering to a fixed equity allocation in your portfolio and taking periodic profits.
Second, while seeking investment opportunities, it may be better to look for stocks with strong moorings in fundamentals and good earnings prospects over a two-three year time frame.
Avoid chasing stocks that can deliver quick gains. Though momentum stocks (such as those from the sugar and fertiliser pack) that took a drubbing have recorded a swift recovery, they remain vulnerable to any fresh wave of profit-booking.
Three, uncertainties about the US economy suggest that companies and businesses focused on domestic themes may be the safer investment options at this juncture.
Stock ideas
Here are a few stock ideas, from across the market capitalisation range, for investors with a 2-3 year horizon.
It may be best to accumulate these stocks in lots, taking advantage of any further market volatility. Each of these companies relies mainly on domestic drivers for growth, has limited scope for negative earnings surprises, and has seen a material decline in PE multiples over the past month:
Petronet LNG : Driven by spot cargoes sourced for the the Dabhol project, Petronet is working at about 130 per cent capacity at its existing regasification plant in Dahej. The Dahej plant’s capacity will be doubling to 10 million tonnes by the end of this calendar year.
Worries remain in the medium term on the impact from Reliance’s domestic gas but the large unmet demand for gas in the country adds comfort.
Earnings grew 54 per cent in the third quarter and after the last week’s fall, the stock is available at a trailing price earnings multiple of 11; down from 16 earlier.
Marico : With a clutch of strong brands in FMCG segments such as hair care and edible oils, Marico is seeking higher growth through entry into new niche segments, overseas acquisitions and a ramp up in service offerings (skin care and fitness). These translate into strong earnings prospects for the next 2-3 years.
The company reported a 55 per cent growth (inorganic as well as organic) in earnings in the nine months ended December 2007. The recent reversal in stock price has trimmed the PE multiple for the stock from about 25 times expected earnings for 2008-09 to 20 times, a discount to peers.
CMC : The market decline has trimmed CMC’s PE multiple from about 20 to about 12 times its estimated FY09 earnings. CMC’s key business lines- customer services and system integration- handle IT solutions and manage turnkey projects across the entire gamut of IT infrastructure components.
CMC also has an ITES division, which handles back-office processes and an education and training division, which provides IT education services to college graduates and corporate professionals.
System integration and educational training are its relatively higher margin offerings. With an increasing contribution from system integration projects, opportunities from Government spend in IT infrastructure and synergies with TCS, CMC is well placed for revenue/margin expansion.
Sun TV : Sun TV turned in a splendid performance in the third quarter. Although the performance is not strictly comparable to the corresponding previous quarter, due to the merger of Gemini and Udaya channels, there is visible traction on advertisement rate hikes (one more round of hikes to be effective February) and subscription income.
That it continues to rule the top 100 shows suggests that concerns on the competition front, might have been overdone. Valuations are now more attractive, with the stock trading at 19 times FY09 earnings, as compared to 23, prior to the correction.
BEML : With metro rail projects likely to be rolled out in many cities, BEML’s presence in metro rail business offers huge potential for upside in earnings. Having already secured orders to supply coaches to Delhi Metro Rail Corporation, the company may now be well placed to supply metro coaches to similar projects in other cities.
Besides, the company’s unique exposure to construction and mining opportunities also presents significant potential for revenue growth over the long-term. Despite a sedate December quarter, the sharp decline in company’s PE multiple from about 33 times its expected FY09 earnings to about 26 times, presents an opportunity to accumulate the stock.
Source:thehindubusinessline.com
January 28th, 2008
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