RBI as expected has raised repo rate ( their lending rate to banks ) by 50 basis points and CRR by 25 basis points
What does this do ? CRR , Cash reserve ratio is the % age of cash that has to be maintained by the banks out of their total demand and time liabilities
This effectively eats in to the total lendable amount. Sucks out credit form the system. Making money a bot more difficult. Inflation countering measure
Repo rate , which is RBI lending rate to Banks, also makes cost of funds ( partly) of the banks more. banks will have to lend also at a slightly higher rate in the market
Imapct of this amongst the Banking Companies and real estate companies. This state of affairs can not be everlasting. Things have to change, may be after a year or two.
Bank and real estate stocks may recede and take a huge beating in fact. Buying in these shares after a few months may benefit one in the long run, say 2-3 years.As i am writing this, contrary to my expectations the Bank and realty stocks have gone up. May recede in a few days
They will turn out to be good buys for the medium term , that is 2-3 years
Markets generally take a short term view and react based on this kind of short or medium term factors. In fact when the tide turns around, market again reacts to favourable factors also the same way.
Wait and start accumulating bank and realty stocks. I don;t claim myself to be some kind of a bi
Tuesday, July 29, 2008
Monday, July 28, 2008
Sonata software a good buy
This is further to my earlier recommendastion on this share. Quarterly result for the Qtr ended 30 th Jun 2008 has been announced. Standalone profit is Rs 1.2 per share of Rs 1. Profits have gone up to Rs 13.3 Crs from I think Rs 10.5 Crs
Consoldiated revenues at Rs 456 Crs and net profiT of around Rs 18 Crs , EPS of almost Rs 1.8 per share, PE is around 4.5.
This share could give a decent return over a 2 years [eriod. I anticipate atleast 20-25 % compounded . They had taken over the travel back office ( for software and management of back office facilities and software ) of a German company TUI. The companty is diversified in terms of the currency exposure. They have USD as well as Euro exposures
Good buy in my view. I have some shares bought at Rs 35 a year back , I think. I though it hel value at that point of time. I think, it holds better value now
Consoldiated revenues at Rs 456 Crs and net profiT of around Rs 18 Crs , EPS of almost Rs 1.8 per share, PE is around 4.5.
This share could give a decent return over a 2 years [eriod. I anticipate atleast 20-25 % compounded . They had taken over the travel back office ( for software and management of back office facilities and software ) of a German company TUI. The companty is diversified in terms of the currency exposure. They have USD as well as Euro exposures
Good buy in my view. I have some shares bought at Rs 35 a year back , I think. I though it hel value at that point of time. I think, it holds better value now
Friday, July 25, 2008
Does one go for it -Sharing information on stocks
The markets bounced back , going up almost 1500 points after the steep fall for several days.There has been consecutive rise for the last 3 days except today when it has receded
One of the reasons , of course was the Government in India staying put, after winning the trust vote .
But have all the macro factors cleared, a firm no is the answer.The government staying put , fall in crude prices all gathered to give some hope to the market. It looks like it is one of those passing sparks in a depressed market.
To me it looks like that the market will stay put in these lower regions for some more time.
One funny thing is , some of the shares whose cause I have been espousing , are all moving ( not much of a trade ) in a narrow range.
If the prices come down further, I still feel it would be a good opportunity to buy some of the shares that I had earlier recommended and also stocking up on A Group shares would be good.
Macro condition is likely to improve in the next 1/2 years.
One should make staggered buying to average out and make the buying closer to the bottom.
Economy like India, with the kind of consumption possibilities , the local industries can not be struggling for growth. One thing that is bound to happen is that, the super profts that the early starters made could be a thing of the past. More competition will kick in and profits could get nromalised. Under these circumtances, one should look for Companies which have high internal competencies , rather than companies which have shown good results being early starter.
One idea before signing off, this could be way off the mark, but worth investing a small amount
Tyre companies are all quoting at very low PE s. They have hardly been trail blazing notwithstanding the fact that the Indian auto industry has been doing well
Some of them are quoting at abysmal Market Capitalisation. With the high crude prices , could hardly considered the future.
Fresh sale of vehicles may not come down much , there would be substantial replacements coming in another few years. This , notwithstanding the fact that the road condition has improved etc. With the increase in GDP , transportation has to atleast keep pace with the GDP growth .
I think a JK Industries with a market cap of Rs 290 Crs , about 1/10 th its turnover could have a good upside with minimal downside. As of date , I don't have that in my portfolio, but am planning to do some buying.Safe buy would be TVS SriChakra
One of the reasons , of course was the Government in India staying put, after winning the trust vote .
But have all the macro factors cleared, a firm no is the answer.The government staying put , fall in crude prices all gathered to give some hope to the market. It looks like it is one of those passing sparks in a depressed market.
To me it looks like that the market will stay put in these lower regions for some more time.
One funny thing is , some of the shares whose cause I have been espousing , are all moving ( not much of a trade ) in a narrow range.
If the prices come down further, I still feel it would be a good opportunity to buy some of the shares that I had earlier recommended and also stocking up on A Group shares would be good.
Macro condition is likely to improve in the next 1/2 years.
One should make staggered buying to average out and make the buying closer to the bottom.
Economy like India, with the kind of consumption possibilities , the local industries can not be struggling for growth. One thing that is bound to happen is that, the super profts that the early starters made could be a thing of the past. More competition will kick in and profits could get nromalised. Under these circumtances, one should look for Companies which have high internal competencies , rather than companies which have shown good results being early starter.
One idea before signing off, this could be way off the mark, but worth investing a small amount
Tyre companies are all quoting at very low PE s. They have hardly been trail blazing notwithstanding the fact that the Indian auto industry has been doing well
Some of them are quoting at abysmal Market Capitalisation. With the high crude prices , could hardly considered the future.
Fresh sale of vehicles may not come down much , there would be substantial replacements coming in another few years. This , notwithstanding the fact that the road condition has improved etc. With the increase in GDP , transportation has to atleast keep pace with the GDP growth .
I think a JK Industries with a market cap of Rs 290 Crs , about 1/10 th its turnover could have a good upside with minimal downside. As of date , I don't have that in my portfolio, but am planning to do some buying.Safe buy would be TVS SriChakra
Tuesday, July 15, 2008
GDP growth- Mirage or real reflection of economic welfare
GDP, Gross domestic product is conventionally defined as the aggregate of goods /services produced over a period of one year. It is in a way the value of all consumption less the imported consumption plus the value of exports. The way this is calculated is at constant currency and constant prices rate to take out the changing value of money aspect.This is what is termd as Nominal GDP
GNP, Gross national product includes the income arising from investments abroad . It concerms itself with goods/ services produced by the country's nationals across the world
GNP, Gross national product includes the income arising from investments abroad . It concerms itself with goods/ services produced by the country's nationals across the world
For now, we will worry about GDP
Growth in GDP obviously means greater commercial activity . This also means greater consumption. Obvious conclusion is that there is greater welfare. There are a couple of other things, overall consumption increasing,esepcially in the Indian context could be due to higher per capita consumption or just an increased consumption due to increase in population. Per Capita GDP reflects in better measure the effectiveness of the economy an also is a better reflection of the welfare of the Individual.
This of course does not reflect truly the pattern of welfare or consumption. Greater disparity in Income will mean greater overall consumption but not quite well distributed consumption.
At a slightly philosophical level, can' we restrict consumption . After all, most of the consumption is of products on which there is some amount of value add on a naturally occurring mineral or substance.
When carefully looks around , there are so many areas of consumption which do not necessarily lead to higher satisfaction or convenience. Buying, using something and throwing after some use as against using the same longer , does not change the degree of enjoyment. While it increases overall consumption, increases production , it does that necessarily mean incremental consumption to cater to a genuine requirement of unfulfilled or incrementally satisfying need.Not in most cases. On a macro level may be 60 % of the increased production leads to possibly higher satisfaction. The balance could be wastefule consumption. Classic case is the automobile industry and public transportation. Private transportation, obviously means greater production of cars and greater economic activity. It also means high consumption of oil.
As against this, we go for more public transporation, the economic activity will be less. Oil cosnumption will be less. The functional aspect of transporting people from one place to another gets fulfilled. The intangible of comfort in travelling in one's own car is there, but may be for people going on a holiday. Not for daily office transportation.
Carrying on the argument of greater economic activity , production of cars means putting more income in to the hands of a certain number of people.This is by transfer of income from some people to others who are involved in car production. The some people who have parted with money obviously will have less disposable income and possibly less savings in hands.This will deprive them of other comforts that they may have otherwise utilised this money for.
On the one side, we have GDP going up, both overall and per capital GDP also going up. We have transfer of income from set of people to partially other set of people .
On the other side , we have huge use of natural , non renewable resources like, Metals , oil etc.
Effectively we have on one side transfer of income within people, use of resourcses and on the whole very little additional comfort or satisfaction
We have a classic case of GDP growth with not significant incremental satisfaction and use of huge non renewable resources
If the trade off is using up of natural resources but substantial additional comfort or satisfaction to the consumers, it is understandable.
Economic activity which involves human effort and use of natural resources should result in additional satisfaction or comfort to the consumers.
Feeling of plenty gives rise to waste.
Point is , production/services should not merely be transfers of income, but should give rise to products /services which give rise to fulfilling genuine consumption requirements .
The write up is for one to get the general drift of the argument. May require some refining at a future date.
So to conclude for now,GDP growth may sometime be a mirage and sometimes be a real welfare measure
Very usefule link to Eco definitions.
Is it the right time to invest
People keep asking each other as well as themselves whether this is the right time to invest in stock markets. I am not sure whether it is the right time to put in all your money one shot in to stock markets, but I do think , it is time to start making staggered buys in good shares. Why buy risky ones, whene there is value buying possibility in good shares. Of course one needs one share /stock of luck .
When all over people are debating whether we have reacjed the bottom or is there some way to still go, the best would be to make staggered buys.This will protect you from getting in before the bottom at the sasme time give you a bit of saving in case bottom has already reached. It is a bit of a risk managment aspect .
It appears that the trend and the momnetum will carry it all the way down to may be 10k. Bernanke's none too optimistic, projections on inflation etc add credence to this
When all over people are debating whether we have reacjed the bottom or is there some way to still go, the best would be to make staggered buys.This will protect you from getting in before the bottom at the sasme time give you a bit of saving in case bottom has already reached. It is a bit of a risk managment aspect .
It appears that the trend and the momnetum will carry it all the way down to may be 10k. Bernanke's none too optimistic, projections on inflation etc add credence to this
Sub prime crisis, CDO et al
I am no expert by any stretch of imagination. I am just trying to capture the very basic and my understanding of the sub prime crisis ,CDO etc
Prime means the best. In Financial circles, this is nothing but the best credit risk is the prime customer. Sub prime as the name suggests is below par credit rating or high credit risk
There were few aspects of this. One was the loanee were all slightly high risk and the properties based on the backing of which the loans were given were valued at high rates , probably at the highest in the last several years. Property prices had reached new highs .
On top of it, I understand that the loans were extended at a low or no margin. Margin means fgetting some part of the cost met by the buyer ( loanee ) of the property.This acts as a kind of buffer or margin for the banker in terms of the security
The banks or mortgage companies which lent had in a number of cases bundled this is to a security, what is generally known as Collatterelised debt obligation (CDO) and sold it to in some cases banks and in some cases derivative investors like Goldman, Lehmann etc. They would have sold it a disocunt to the final maturity , that is , there would be an underlying interest.
The debt being high risk, the interest component also would have been high.
One also presumes that the risk would also have been substantiall passed to the buyer of CDO
The holder of CDO will be entitled to the maturity amount , worked out either in the form of a the monthly collections or a variation of it ( repayments from the loanees )
The bubble burst due to following reasons
1. US Economy floundered , due to high oil prices, high trade deficit , higher unemployments rates etc
2. Job losses were more. Ability of the loanees to repay was badly hit. Defaults started
3. Quite a few of the banks/ loan extenders would have tried closing the loan by trying to sell off the property. Quite a few would have come to the market around the same time leading to sharp decline in prices , to such an extent that the realisation would have been lower than the loan principal outstanding. Some of them could have taken interest income also, in which that also has ben written off
You have the sub prime crisis
I would be thankful and welcome refinement of my understanding in any way whatsover
Prime means the best. In Financial circles, this is nothing but the best credit risk is the prime customer. Sub prime as the name suggests is below par credit rating or high credit risk
There were few aspects of this. One was the loanee were all slightly high risk and the properties based on the backing of which the loans were given were valued at high rates , probably at the highest in the last several years. Property prices had reached new highs .
On top of it, I understand that the loans were extended at a low or no margin. Margin means fgetting some part of the cost met by the buyer ( loanee ) of the property.This acts as a kind of buffer or margin for the banker in terms of the security
The banks or mortgage companies which lent had in a number of cases bundled this is to a security, what is generally known as Collatterelised debt obligation (CDO) and sold it to in some cases banks and in some cases derivative investors like Goldman, Lehmann etc. They would have sold it a disocunt to the final maturity , that is , there would be an underlying interest.
The debt being high risk, the interest component also would have been high.
One also presumes that the risk would also have been substantiall passed to the buyer of CDO
The holder of CDO will be entitled to the maturity amount , worked out either in the form of a the monthly collections or a variation of it ( repayments from the loanees )
The bubble burst due to following reasons
1. US Economy floundered , due to high oil prices, high trade deficit , higher unemployments rates etc
2. Job losses were more. Ability of the loanees to repay was badly hit. Defaults started
3. Quite a few of the banks/ loan extenders would have tried closing the loan by trying to sell off the property. Quite a few would have come to the market around the same time leading to sharp decline in prices , to such an extent that the realisation would have been lower than the loan principal outstanding. Some of them could have taken interest income also, in which that also has ben written off
You have the sub prime crisis
I would be thankful and welcome refinement of my understanding in any way whatsover
Thursday, July 3, 2008
He(a)rd mentality to the fore-Sock markets
Remember reading somewhere about how people react to what they hear in the stock market. It is both a herd as well as a heard mentality.It is a well established fact that , as far as the stock markets are concerned , periods of lucidity or reasonableness are lesser than periods of insanity. When the market is up everyone (not that yours truly is an exception ) look to catch the rally, anxious not to miss out . People can;t see a trace of negativity at all. There is talk of ,demographic dividend, large middle class market, unexplored and unexploited market, low per capita consumption which indicate that there is a huge untapped potentiel . lowe cost structure etc. Comparisons are drawn to the process and path taken by other Developed countries ,from the humble beginnings to stardom. People feel that India is in the early stages of take off. Experts make it sound that , investing in Indian markets is a no brainer. The general environment and arguments, news items are all so geared up that one easily gets trapped in the optimism to the extent that negative factors are almost invisible
I still feel that most of the factors hold good even now. For once most of the experts also feel so. Only exception is that most of these guys who struck their neck out and recommended buying of shares at rates almost twice the current prices are all advising investors to stay away from the maket. They feel that market has not bottomed out. All negative factors like high oil prices, high commodity prices, low growth rates of the developed economies have all taken the front pages of the newspapers. There is very little encouraging talk.While I don't claim to be an expert, what I still can't understand is inability of most experts to predict the reason for high commodity prices and also come out with a prognosis on the long term trend of commodity prices.
With the kind of data available on Mineral respurces available, projected population, experts did not have a clue just a few months back of the suddent spurt in commodity prices
Most of the retail investors go either towards follow the crowd either buying as if there is scarcity of shares and buying before inventory of shares vanishes or selling in panic. Typically maximum buying happens when there is maximum optimistic noise and maximum selling happens when there is pessimism all around.
In terms of the sheer number of Retail investtos , most of them land up with investments at the highest level and sell at the lowest level. Most affected are the retail investors. They get in quite late in to the market and get out almost the last.
They always take refuge under the relative , perceived safety of a crowd. Three reasons work, one is , our need to keep with the peers, when everyone is in the market , we also need to get in so that we are of part of the gang
Another one and more powerful, when so many people are optimistic and taking the plunge it has to be correct.
Third is that , we always feel safe when we move along with the crowd on the way up or down.
I am quite optimistic and would still recommend purchase of the shars that I have been recommending. A good option would be make gradual buying , almost structure it like a SIP ( Systematic Investment Planning ). By investing equal amounts one will get the advantage of keeping the weighted average prices closer to the lower end of the band
These are for medium term which in my lexicon is 2-3 years.
Some of the Realty sector shares also make sense like DLF. They are at a discount of more than 50 % to the issue price and are at sane levels now , I think around Rs 390
TN Newsprint ( Rs 88)
Seshasayee Paper( 148)
Sonata software (25)
HUL (196)
SBI(1110)
Union Bank of India(108)
Sundaram Finance(580)
Some sugar Companies
Some commodity sectors like Coffee /Tea could be a long shot- Personally I dn't have any tea/coffee company shares at this point of time.
Vardhman Textiles (98)
Kitex Garments ( long shot - Low priced , higher than normal risk being engaged in Garment exports , but have been continously reporting good profits, low PE.) (6.5)
Trent ( Retail sector, Tatas management,clean management and has shops on relatively low rentals )
Look for good logistics Companies
If one is averse to direct investment in shares, go fo equity oriented Mutual funds from Franklin Templeton , HDFC, Sundaram
I have investment in some of the above shares and hoping to accumulate more provided I have investible surplus
If the shares you are holding are good and you are not in a hurry, panic selling now is not recommended at all.
Today the BSE Index was 13 k , revisting after 6-12 months would be interesting
I still feel that most of the factors hold good even now. For once most of the experts also feel so. Only exception is that most of these guys who struck their neck out and recommended buying of shares at rates almost twice the current prices are all advising investors to stay away from the maket. They feel that market has not bottomed out. All negative factors like high oil prices, high commodity prices, low growth rates of the developed economies have all taken the front pages of the newspapers. There is very little encouraging talk.While I don't claim to be an expert, what I still can't understand is inability of most experts to predict the reason for high commodity prices and also come out with a prognosis on the long term trend of commodity prices.
With the kind of data available on Mineral respurces available, projected population, experts did not have a clue just a few months back of the suddent spurt in commodity prices
Most of the retail investors go either towards follow the crowd either buying as if there is scarcity of shares and buying before inventory of shares vanishes or selling in panic. Typically maximum buying happens when there is maximum optimistic noise and maximum selling happens when there is pessimism all around.
In terms of the sheer number of Retail investtos , most of them land up with investments at the highest level and sell at the lowest level. Most affected are the retail investors. They get in quite late in to the market and get out almost the last.
They always take refuge under the relative , perceived safety of a crowd. Three reasons work, one is , our need to keep with the peers, when everyone is in the market , we also need to get in so that we are of part of the gang
Another one and more powerful, when so many people are optimistic and taking the plunge it has to be correct.
Third is that , we always feel safe when we move along with the crowd on the way up or down.
I am quite optimistic and would still recommend purchase of the shars that I have been recommending. A good option would be make gradual buying , almost structure it like a SIP ( Systematic Investment Planning ). By investing equal amounts one will get the advantage of keeping the weighted average prices closer to the lower end of the band
These are for medium term which in my lexicon is 2-3 years.
Some of the Realty sector shares also make sense like DLF. They are at a discount of more than 50 % to the issue price and are at sane levels now , I think around Rs 390
TN Newsprint ( Rs 88)
Seshasayee Paper( 148)
Sonata software (25)
HUL (196)
SBI(1110)
Union Bank of India(108)
Sundaram Finance(580)
Some sugar Companies
Some commodity sectors like Coffee /Tea could be a long shot- Personally I dn't have any tea/coffee company shares at this point of time.
Vardhman Textiles (98)
Kitex Garments ( long shot - Low priced , higher than normal risk being engaged in Garment exports , but have been continously reporting good profits, low PE.) (6.5)
Trent ( Retail sector, Tatas management,clean management and has shops on relatively low rentals )
Look for good logistics Companies
If one is averse to direct investment in shares, go fo equity oriented Mutual funds from Franklin Templeton , HDFC, Sundaram
I have investment in some of the above shares and hoping to accumulate more provided I have investible surplus
If the shares you are holding are good and you are not in a hurry, panic selling now is not recommended at all.
Today the BSE Index was 13 k , revisting after 6-12 months would be interesting
Tuesday, July 1, 2008
The seven year itch of stock markets
I have been tracking the stock markets (the broad indices ) for close to 25 years. People talk of 7 year business cycles, seven year itch etc. One could see that in the case of stock markets , give or take 6-9 months
I remember ,the peaks of I think around 1985/86 , driven by Reliance, 1992-93 the peak driven by Harshad Mehta and subsquent burst of the bubble, peak of 2000-01 driven by tech stocks and subsequent burst. Now again after around 7 years, you have the 2008 downhill ride.
The only difference this time was that the ride up was not as mad as the last two occassions. The last two occassions were quite steep and brought down a lot of retail investors. Tales of huge riches and tales of huge losses were broader on the earlier occassions. This time, the impact sems to have touched a fewer people , an indication that the retail participation in the ride up was not quite wide.
Earlier occassions , it was a contagious virus infection , which spread across quickly. Man on the street and quite a number of retail investors rushed in the final stages , that is closer to the top not wanting to be left out of the gold rush. This time, the downhill ride has played out better.
May be this depression will last a year, but this is bound to be followed by a decent period of reasonable pricing . In the immediate aftermath of a burst, there is always a sane period, bear run being fresh in the memory. Madness usually sets in 4-5 years after the bottom
I am not sure whether in the current run down from 21 k to the present 12.9 k, whether bottom has been hit. It is quite possible that bottom is still some distance away.But one thing , atleast in the Indian market is that every subsequent bottom from 1985 and every subsequent peak has been higher than the earlier bottom and peak. Of course , to some extent , inflation would account for that. While I have not exactly calculated, I would think that even if one were to neutralise inflation, the tops and bottoms would be slightly higher. Being stock specific would make sense. Buying has to be gradual . Follow the system that one follows in a Systematic investment planning. With equal amounts of investment , at lower prices , the weighted average of per share cost will always be closer to the lower band rather than the top band of buying.
One other major difference could be that , this bear market seems to be driven by Global factors like Oil prices, high commodity prices across , lower employment rates in US & Europe.
I don;t have much knowledge of the Commodities market. One thing which is disturbing is that , the same mineral wealth has to be shared by more number of people. World popultaion has gone up by almost 5 times in the last 100 years, I understand. That is a bit worrying. Of course one does not know whethere all the mineral sources have been located .
May be some other day and some other time to dwell upon the concept and need for Economic growth . After all grwoth is a function of consumption. Where do we draw the line ? Rest in next.
I remember ,the peaks of I think around 1985/86 , driven by Reliance, 1992-93 the peak driven by Harshad Mehta and subsquent burst of the bubble, peak of 2000-01 driven by tech stocks and subsequent burst. Now again after around 7 years, you have the 2008 downhill ride.
The only difference this time was that the ride up was not as mad as the last two occassions. The last two occassions were quite steep and brought down a lot of retail investors. Tales of huge riches and tales of huge losses were broader on the earlier occassions. This time, the impact sems to have touched a fewer people , an indication that the retail participation in the ride up was not quite wide.
Earlier occassions , it was a contagious virus infection , which spread across quickly. Man on the street and quite a number of retail investors rushed in the final stages , that is closer to the top not wanting to be left out of the gold rush. This time, the downhill ride has played out better.
May be this depression will last a year, but this is bound to be followed by a decent period of reasonable pricing . In the immediate aftermath of a burst, there is always a sane period, bear run being fresh in the memory. Madness usually sets in 4-5 years after the bottom
I am not sure whether in the current run down from 21 k to the present 12.9 k, whether bottom has been hit. It is quite possible that bottom is still some distance away.But one thing , atleast in the Indian market is that every subsequent bottom from 1985 and every subsequent peak has been higher than the earlier bottom and peak. Of course , to some extent , inflation would account for that. While I have not exactly calculated, I would think that even if one were to neutralise inflation, the tops and bottoms would be slightly higher. Being stock specific would make sense. Buying has to be gradual . Follow the system that one follows in a Systematic investment planning. With equal amounts of investment , at lower prices , the weighted average of per share cost will always be closer to the lower band rather than the top band of buying.
One other major difference could be that , this bear market seems to be driven by Global factors like Oil prices, high commodity prices across , lower employment rates in US & Europe.
I don;t have much knowledge of the Commodities market. One thing which is disturbing is that , the same mineral wealth has to be shared by more number of people. World popultaion has gone up by almost 5 times in the last 100 years, I understand. That is a bit worrying. Of course one does not know whethere all the mineral sources have been located .
May be some other day and some other time to dwell upon the concept and need for Economic growth . After all grwoth is a function of consumption. Where do we draw the line ? Rest in next.
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