This is discussion with few analyst on stock- Visaka Industries on valueinvestor forum on facebook.
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Vishwa Sharan: Hi, Thanx for the analysis. Hope you’ll agree on the point that looking at financials it is available at the cost of dust. The controversy is on business dynamics on which I slightly differ from your view point.
It is difficult to conclude ......that Visaka Industries or Hyderabad industries took a hit because of inflation alone until and unless we have a long regression analysis. The inflation during the year FY 2007-08 was actually around 4-5% which any developing economy would have and is not high rather moderate. Besides, the Pune facility of Visaka closed for few months as it was undergoing capacity expansion. [However, I’m not sure of the time period.]
THREAT
Now Visaka deals in asbestos which allegedly causes cancer. There is a huge protest against banning it in several countries including India. After going through the excerpts of the Supreme Court ruling and BIS and several articles I came to conclusion that the blue asbestos is completely banned while regulated use of white asbestos was allowed in India. Around 80-85% of business comes from this segment therefore any government decision on banning asbestos completely will hit the company badly.
OPPORTUNITY
The company deals in V-board and V-panel where I see the future. If I remember correctly last year this segment grew by 69%. These boards are fire, termite and water proof. Recently, I’ve observed that it is widely used in corporate because of being cost effective and decreases the time of construction. I forsee a huge market for such boards which is used as false ceiling in building. The uniqueness of product with lot of utility will bound to have demand.
Disclaimer: This is my personal view point. I'm neither a professional stock analyst nor attached any way to broking community rather work independently. the view point is based on limited articles and financials available to me. I strongly recommend not to follow my viewpoints, these are merely for discussion purpose.
Valueinvestorindia thats true ..its a multitude of factors. however 2008 saw a rise in inflation. so that was one of the contributing factor. also there are indirect effects from inflation, such as increase in interest rates, slow down in real estate due to t...hat etc.
on opportunity, yes there is a lot of growth, but it remains to be seen if the companies will money off it. if there is consolidation, then yes, otherwise we can have the situation of a cement or sugar industry where the return on capital over a business cycle is not great
Vishwa Sharan Thanx for the analysis and response. Actually I recently “invested” in Visaka Inds. therefore just re-confirming my analysis. For my part I wanted to enter into infra, realty where I see huge growth but couldn't find a single company meetin...g my criteria. Visaka's growth came mostly from rural India. I personally believe any company whose (export/sales) ratio is less i.e depended on india's growth story would do well. What do you...???
I do not 've a perfect answer on inflation front but Raw material/ total cost has hardly changed in last 5 years. However indirect impact of inflation mentioned by you cannot be ruled out. Further, I believe if Visaka develops V-board and V-panel as big brand in the industry there can be two benefits. Branded product demands premium on price and secondly increased cost by inflation could easily be passed on to the customers.
You were absolutely right in stating that if they can money off it. if i remember correctly management expects break even in this segment in next year. I’ll observe how the segment performs in coming quarters and will decide the future course.
Thanx once again would like to hear more of analysis from your side.
Samir Arora I had hyderabad industries and had bought at 391 in 2009, held it right through 2010 , not selling at it even 700 but was lucky enough to sell it off couple of months back for 491, so not a total loss, it turned out to be.
Question now is, w...hat should be done with hyderabad industries now, with its next technical resistance on the downside at 135 ??? or is it ripe to pick up at 360-370?
Vishwa Sharan Hi Samir,
I've absolutely no idea of technical analysis but surely can share my observation based on fundamental analysis. I don't believe in technical analysis as it is largely speculation.
When I analyzed Visaka vs hydrabad industries I fou...nd Hyd Inds to be a fundamentally good company with management in the able hand of CK Birla group. It's trading at mouth watering valuation at very low PE, high ROE, low D/E ratio. The company has not done well in last two quarters so are other infra based stocks. However, I preferred Visaka Industries bcoz Visaka was trading at much below it's book value per share compared to Hyd indst. Looking at these financial ratios it seems to be good stock but beyond this I've not analyzed Hyd Inds.
Disclaimer: This is my personal view point. I'm neither a professional stock analyst nor attached any way to broking community rather work independently. the view point is based on limited articles and financials available to me. I strongly recommend not to follow my viewpoints, these are merely for discussion purpose.See More
Sunday, April 10, 2011
Saturday, March 6, 2010
In reponse to article Bihar's growth Miracle
Apropos of the article Bihar's Growth article" published on 28th feb 2010. [ http://www.bihartimes.com/Newsbihar/2010/Feb/Newsbihar28Feb3.html]
Below is my analysis of the article which got published as comment in Bihar Times.
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Rome was not built in a day nor will be Bihar.
I congratulate you Mr. Bhattacharya for coming out with such a bold and illusionary article either with an intention to disparage the credentials of a Bihar or to gain political mileage by showing the other politician “ Nitish” down.
Generally conclusion follows research. However, in your article it seems that you formed ex-ante notion of performance of Bihar accordingly fed statistics as per need to meet the malicious objective.
No I’m not supporting that the miracle was brought completely by Nitish and Bihar as a whole performed well. At the same time the picture portrayed of Bihar by you too seems to be pregnant with mala fide intentions. The accuracy of 11% doesn’t matter much to me what was more important was there a serious effort of Biharis to grow the state economy.
Below is my analysis based on the article mentioned:
1) CSO is the central body in India maintaining all statistics. In order to arrive at your analysis I’m sure you’ve dig the figures from CSO or any other source whose ultimate source was CSO.
Then why is that data related to rosy picture of Bihar “alone” is blamed to be tainted? Sir, you’re not attacking your political rival Nitish’s work rather you are giving a bad face to Bihar’s economic growth which you know would hit inbound investment. Which should not happen intentionally or unintentionally when this changed image is really needed by this state?
2) Your statement that the NSDP of Bihar is paltry again to me sounds ridiculous. We know that Bihar doesn’t have industries which drive the economy. Now most of the bread earners are not living in Bihar. GSDP of Bihar is not capturing the accurate receipt of all the income generated by the Biharis. People like me is drawing salary and filing return in other state which certainly is not getting captured in GSDP of Bihar rather in other state. Above all Bihar has more unorganized sector as compared to other state which results in under-reporting of receipt of income.
It is not important that GSDP is low as compared with other state which certainly will be due to several years of mis-governance. What is more important is that in spite of all odds Bihar dared to grow from Rs. 66,040 crore in 2004 to nearly Rs. 1,19,443 crore in 2008–09.
3) Noted your point that there was stagnation in agriculture during 2005-06 because of which growth seemed brilliant. However, there also was Koshi crisis, less cold storage and blight in potato, these problems were not with Maharasthra, Gujarat or Pondicherry. A state which is depended on agriculture and 1,20,000 hectares of land went under water affecting 22 districts apart from other problems mentioned supra. If Bihar still manages a GSDP growth from 66,040 crore in 2004 to nearly Rs. 1,19,443 crore in 2008–09 it is simply commendable.
Besides, if 1,20,000 hectares went under water and agriculture still manages to grow 4.5% must have come from higher productivity ( i.e higher crop coming from decreased arable land). I salute the Bihari farmers for giving extra-ordinary performance and boosting productivity at a time when it was most needed.
4) I admit and admire centre’s role in construction of Bihar but I cannot comment whether central assistance to Bihar as compared to other state was higher, as the article is silent of similar centre’s assistance given to other state. May be statistics was not supporting your ill-conceived theory.
However I was going through economic survey of Bihar which states that in Bihar, the total road length in 2008 was 82,959 kms. which constituted National Highways (4.50 percent). For the sake of repetition, merely 4.5% of NH is in Bihar.
Were national highways, bridges in other state made without central allocation? The statement that Bihar grew of because of central assistance cannot be held to be conclusive.
5) We are a learned people and let’s not find taboo in liquor industry as long as it bring growth and is a source of employment. And mind it every protest of people is not reasonable simply because a bunch of people think in a different way it doesn’t make them right.6) Now few statistics from Economic survey of Bihar FY 2008-09 which seems you overlooked while doing research which I believe is worth mentioning.
a) Among all States and union territories, Bihar with a crime rate of 118 stood at 28th position in the country. There has been a sharp decline of around 50 percent or more in the cases of dacoity, kidnapping, road dacoity and bank robbery in 2008 over 2001. Pondicherry of which you were boosting in this article topped the rank of highest number of crime followed by Chandigarh.
b) The number of motor vehicles in Bihar has increased by 239 percent in 2007.
c) The total number of GSM subscribers in November 2008 registered a phenomenal increase to 1.24 crore, compared to only 9.70 lakh subscribers in 2004-05.
Let’s assume for the time being that Bihar didn’t do well and it’s performance is mere statistical illusion even then I congratulate Bihar for marketing it’s economic growth out of nothing and compelled economists across India to discuss this case.
My intention is not to communicate that Bihar performed exceptionally well but to pin point that it was not as bad as portrayed by the you Sir.
--------------------------------
Disclaimer: I've tried my best to include the correct facts and statistics. However, readers are discouraged from quoting this anywhere and apply their intelligence. Kindly also go through the disclaimer of blog which applies here
Below is my analysis of the article which got published as comment in Bihar Times.
-------------------------------------------------------------------------------------------------------------------------------------------------------------------
Rome was not built in a day nor will be Bihar.
I congratulate you Mr. Bhattacharya for coming out with such a bold and illusionary article either with an intention to disparage the credentials of a Bihar or to gain political mileage by showing the other politician “ Nitish” down.
Generally conclusion follows research. However, in your article it seems that you formed ex-ante notion of performance of Bihar accordingly fed statistics as per need to meet the malicious objective.
No I’m not supporting that the miracle was brought completely by Nitish and Bihar as a whole performed well. At the same time the picture portrayed of Bihar by you too seems to be pregnant with mala fide intentions. The accuracy of 11% doesn’t matter much to me what was more important was there a serious effort of Biharis to grow the state economy.
Below is my analysis based on the article mentioned:
1) CSO is the central body in India maintaining all statistics. In order to arrive at your analysis I’m sure you’ve dig the figures from CSO or any other source whose ultimate source was CSO.
Then why is that data related to rosy picture of Bihar “alone” is blamed to be tainted? Sir, you’re not attacking your political rival Nitish’s work rather you are giving a bad face to Bihar’s economic growth which you know would hit inbound investment. Which should not happen intentionally or unintentionally when this changed image is really needed by this state?
2) Your statement that the NSDP of Bihar is paltry again to me sounds ridiculous. We know that Bihar doesn’t have industries which drive the economy. Now most of the bread earners are not living in Bihar. GSDP of Bihar is not capturing the accurate receipt of all the income generated by the Biharis. People like me is drawing salary and filing return in other state which certainly is not getting captured in GSDP of Bihar rather in other state. Above all Bihar has more unorganized sector as compared to other state which results in under-reporting of receipt of income.
It is not important that GSDP is low as compared with other state which certainly will be due to several years of mis-governance. What is more important is that in spite of all odds Bihar dared to grow from Rs. 66,040 crore in 2004 to nearly Rs. 1,19,443 crore in 2008–09.
3) Noted your point that there was stagnation in agriculture during 2005-06 because of which growth seemed brilliant. However, there also was Koshi crisis, less cold storage and blight in potato, these problems were not with Maharasthra, Gujarat or Pondicherry. A state which is depended on agriculture and 1,20,000 hectares of land went under water affecting 22 districts apart from other problems mentioned supra. If Bihar still manages a GSDP growth from 66,040 crore in 2004 to nearly Rs. 1,19,443 crore in 2008–09 it is simply commendable.
Besides, if 1,20,000 hectares went under water and agriculture still manages to grow 4.5% must have come from higher productivity ( i.e higher crop coming from decreased arable land). I salute the Bihari farmers for giving extra-ordinary performance and boosting productivity at a time when it was most needed.
4) I admit and admire centre’s role in construction of Bihar but I cannot comment whether central assistance to Bihar as compared to other state was higher, as the article is silent of similar centre’s assistance given to other state. May be statistics was not supporting your ill-conceived theory.
However I was going through economic survey of Bihar which states that in Bihar, the total road length in 2008 was 82,959 kms. which constituted National Highways (4.50 percent). For the sake of repetition, merely 4.5% of NH is in Bihar.
Were national highways, bridges in other state made without central allocation? The statement that Bihar grew of because of central assistance cannot be held to be conclusive.
5) We are a learned people and let’s not find taboo in liquor industry as long as it bring growth and is a source of employment. And mind it every protest of people is not reasonable simply because a bunch of people think in a different way it doesn’t make them right.6) Now few statistics from Economic survey of Bihar FY 2008-09 which seems you overlooked while doing research which I believe is worth mentioning.
a) Among all States and union territories, Bihar with a crime rate of 118 stood at 28th position in the country. There has been a sharp decline of around 50 percent or more in the cases of dacoity, kidnapping, road dacoity and bank robbery in 2008 over 2001. Pondicherry of which you were boosting in this article topped the rank of highest number of crime followed by Chandigarh.
b) The number of motor vehicles in Bihar has increased by 239 percent in 2007.
c) The total number of GSM subscribers in November 2008 registered a phenomenal increase to 1.24 crore, compared to only 9.70 lakh subscribers in 2004-05.
Let’s assume for the time being that Bihar didn’t do well and it’s performance is mere statistical illusion even then I congratulate Bihar for marketing it’s economic growth out of nothing and compelled economists across India to discuss this case.
My intention is not to communicate that Bihar performed exceptionally well but to pin point that it was not as bad as portrayed by the you Sir.
--------------------------------
Disclaimer: I've tried my best to include the correct facts and statistics. However, readers are discouraged from quoting this anywhere and apply their intelligence. Kindly also go through the disclaimer of blog which applies here
Sunday, February 21, 2010
What is expected from Budget....????
Budget Day
As was expected this year FM will stand to present the Budget on 26th. For me the day of Budget has always been an interesting day in Deloitte. People sit in group analyzing and printers are busy taking out print defying “IDEA” advertisement of Abhishek Bachaan. I never watched Live Budget before joining Deloitte rather relied on the Economic Times for complete synopsis. But Capital market taught me the importance of every jiffy.
We at Deloitte sit in front of big screen making synopsis, as in few hours time presentation has to be prepared for media and different business forums. If you think few hours is very less time to analyze the impact of Budget, think of investors which takes merely fraction of seconds to pour & suck crores of rupee.
Takeaway: If you don’t trust me and not noticed earlier, then have one eye on the lip movement of FM and other eye on movement on sensex/nifty.
Emotions
Every industry expects sops, reduction of tax and more tax friendly environment. Wish lists are invited from every industry and they have their huge expectations. But expectations are not necessarily meant to be culminated as per one’s whims and desires.
Takeaway: That’s the reason even an average Budget is perceived as bad budget and causing market to tumble down.
Fertiliser subsidy
Fertiliser is a political sensitive sector and historically the price has been supported by huge subsidy. Last week the government took U-turn by deciding to de-control prices of fertilisers. The subsidy now would be nutrient based instead of per bag basis which to me seems more logical. It would encourage farmers to buy more nutrient based which would be available at subsidized rate. However, this step is a bold decision from the government side and is a step further towards the economic reform process.
Takeaway: Remember, if Government has guts to kick start reform by de-controlling fertilizer none of the sector would be spared in this Budget.
The Politics
The congress led UPA government has been formed almost on its own therefore it needs not to fear from its allies pulling down the government. Further, in the first year of tenure every government takes bold decisions as they’ve to face the election only after 4 years now and public has very short memory. There might be few elections lined up which I’m not fully aware apart from Bihar state election in october. However, my experience has been that state elections deals mostly with regional and local issues. Each state minister writes it’s own fate and national level issues has not got major impact.
Takeaway: The Government would not be afraid of taking bold decisions in this Budget.
Fiscal Deficit
Fiscal deficit is the gap between government expenditures and government income. The fiscal deficit has been hovering around 10% of GDP which certainly is high at the time of recession due to increased spending. In general, High fiscal deficit is not good for economy. PM’s Economic Advisory Council (EAC) is insisting to reduce the fiscal deficit at least by 1%. Therefore, it is likely that if Government takes this suggestion seriously it will lead to withdrawal of stimulus package.
Takeaway: Government needs money to rein Fiscal deficit and is expected to withdraw stimulus packages. However, withdrawal of stimulus package should be an evolutionary instead of revolutionary.
Quarterly results
India has already returned to 7%+ growth path, FM might think of gradually withdrawing stimulus package. Economy is showing signs recovery and economists are sanguine on above 7.5% GDP growth. Does it not mean that we should do away with few of the stimulus packages?
Government met huge resistance in Direct Tax Code (DTC) wherein it proposed minimum alternative tax (MAT) on 2% of gross assets. DTC might be modified to make it more acceptable. Government might also decide to increase indirect taxes in selected industries which were decreased as part of stimulus packages.
Takeaway: I expect, better the Q3 result shown by the Industries worst will the axe of FM will fall in budget in that industry. I expect government might increase few of the taxes as government need money.
In a nutshell, this week the market might see a good amount of correction in expectation of harsh budget. In case there is no correction in coming days then on the day of Budget I expect a bloodbath on Dalal street.
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Disclaimer: This article I’ve written based on the fact available at this spur of moment with me and based on my understanding and judgement. Facts change every moment so will the analysis. However, I won’t be able to update my analysis as frequently as the fact changes. Therefore readers are recommended to apply their judgement and seek professional advice before taking any decision based on the above article.
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As was expected this year FM will stand to present the Budget on 26th. For me the day of Budget has always been an interesting day in Deloitte. People sit in group analyzing and printers are busy taking out print defying “IDEA” advertisement of Abhishek Bachaan. I never watched Live Budget before joining Deloitte rather relied on the Economic Times for complete synopsis. But Capital market taught me the importance of every jiffy.
We at Deloitte sit in front of big screen making synopsis, as in few hours time presentation has to be prepared for media and different business forums. If you think few hours is very less time to analyze the impact of Budget, think of investors which takes merely fraction of seconds to pour & suck crores of rupee.
Takeaway: If you don’t trust me and not noticed earlier, then have one eye on the lip movement of FM and other eye on movement on sensex/nifty.
Emotions
Every industry expects sops, reduction of tax and more tax friendly environment. Wish lists are invited from every industry and they have their huge expectations. But expectations are not necessarily meant to be culminated as per one’s whims and desires.
Takeaway: That’s the reason even an average Budget is perceived as bad budget and causing market to tumble down.
Fertiliser subsidy
Fertiliser is a political sensitive sector and historically the price has been supported by huge subsidy. Last week the government took U-turn by deciding to de-control prices of fertilisers. The subsidy now would be nutrient based instead of per bag basis which to me seems more logical. It would encourage farmers to buy more nutrient based which would be available at subsidized rate. However, this step is a bold decision from the government side and is a step further towards the economic reform process.
Takeaway: Remember, if Government has guts to kick start reform by de-controlling fertilizer none of the sector would be spared in this Budget.
The Politics
The congress led UPA government has been formed almost on its own therefore it needs not to fear from its allies pulling down the government. Further, in the first year of tenure every government takes bold decisions as they’ve to face the election only after 4 years now and public has very short memory. There might be few elections lined up which I’m not fully aware apart from Bihar state election in october. However, my experience has been that state elections deals mostly with regional and local issues. Each state minister writes it’s own fate and national level issues has not got major impact.
Takeaway: The Government would not be afraid of taking bold decisions in this Budget.
Fiscal Deficit
Fiscal deficit is the gap between government expenditures and government income. The fiscal deficit has been hovering around 10% of GDP which certainly is high at the time of recession due to increased spending. In general, High fiscal deficit is not good for economy. PM’s Economic Advisory Council (EAC) is insisting to reduce the fiscal deficit at least by 1%. Therefore, it is likely that if Government takes this suggestion seriously it will lead to withdrawal of stimulus package.
Takeaway: Government needs money to rein Fiscal deficit and is expected to withdraw stimulus packages. However, withdrawal of stimulus package should be an evolutionary instead of revolutionary.
Quarterly results
India has already returned to 7%+ growth path, FM might think of gradually withdrawing stimulus package. Economy is showing signs recovery and economists are sanguine on above 7.5% GDP growth. Does it not mean that we should do away with few of the stimulus packages?
Government met huge resistance in Direct Tax Code (DTC) wherein it proposed minimum alternative tax (MAT) on 2% of gross assets. DTC might be modified to make it more acceptable. Government might also decide to increase indirect taxes in selected industries which were decreased as part of stimulus packages.
Takeaway: I expect, better the Q3 result shown by the Industries worst will the axe of FM will fall in budget in that industry. I expect government might increase few of the taxes as government need money.
In a nutshell, this week the market might see a good amount of correction in expectation of harsh budget. In case there is no correction in coming days then on the day of Budget I expect a bloodbath on Dalal street.
______________________________________________________________________
Disclaimer: This article I’ve written based on the fact available at this spur of moment with me and based on my understanding and judgement. Facts change every moment so will the analysis. However, I won’t be able to update my analysis as frequently as the fact changes. Therefore readers are recommended to apply their judgement and seek professional advice before taking any decision based on the above article.
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Sunday, January 10, 2010
The Rabbit is out
The rising of the Phoenix
What do you think is mind, just a bundle of thoughts? Well…!!! My mind has been innocent of any innovative thought which made my article seemed as rare as the proverbial phoenix. So was the stock market recently rising from its own ashes like the phoenix?
The Subprime crisis
All the major indices around the world were chopped down to “Davy Jones's Locker”. Under this subprime tsunami highly prestigious Investment Bankers went as dead as Dodo. Broker community was of the view that such financial crisis happens once in lifetime, what they were silent at, was that such opportunity to invest also comes once in a lifetime. You needed the eye of an eagle to identify gold in the stock market getting sold at the cost of dust. (Please refer my earlier article circulated to you in trailing mail for Subprime crisis).
The Dust which got settled down
Every Bubble ends with a bust and the stock market acted in no way different. You will agree that everything in this world tends to move towards equilibrium. For instance, if some scrip is overvalued it must fall to reach the equilibrium i.e has to justify the right valuation and the vice versa.
When the choppy market goes hopeless and is of opinion that “ nothing can happen of this market”, or say “ market will now never rise”. This is when foundation for new Bull run is laid down. Which is based on simple premise that when people are most frustrated they sell like anything and market factors in all bad news in today’s price resulting in bottoming out? The dust settles down quietly and the right time to investment begins.
The gentleman and his promises
Like a true gentleman keeping all his promises, I followed the suit. In last article I promised I will talk on individual stock. And here it unfolds the story of Edserv.
In less than a year this scrip gave me 800% return. Let’s make it simpler what 800% stands for. If I would have kept my saving in Bank with 4% at Simple Interest, it would have taken 200 years to earn this. Mind it this is just one such stories in my kitty.
My Strategy for Edserv
The Valuation
I generally buy scrip with strong business model and where no investor is interested and in all respect can be called as undervalued scrip. I never heard of Edserv before but it simply met my parameters mentioned below:
P/E Ratio 10 means= You pay Rs 10 in order to earn one rupee. Do I need to say, Lower the ratio, better is the investment. I bought at around P/E of 7, today it is at around 70.
Book value per share= Value the shareholders would receive in liquidation. I bought almost at Book value.
D/ E ratio= At time of crisis, company with High debt gets the most hit. Besides, interest payment dips the EPS irrespective of profitability. Edserv is a debt free company.
Qualitative Analysis
Niche Market: The company is almost in niche market which means, it can demand higher profitability. It is in business of making software for educational institutions.
Education sector: Interesting sector which gets benefitted in almost all the budget for social cause. Long live the politicians.
Poor management: Share price plunged because of poor management apart from subprime crisis. The result was expected to be poor or average. This was what tempted me.
Stock Price: I knew stock price is present value of future cash flow. In this scrip, almost all future bad news seemed to be factored in today’s price. Now this involves risk which can be mitigated by analyzing that what is the probability of favourable outcome of an event to occur. The probability of downside movement in this company was limited as all bad news was already factored in but the probability of upside was tremendous.
I didn’t give a second thought. It was not about money, it was about conviction to stand by your decision. You’ll burn your fingers if you dare touching Edserv at such high valuation. It’s days are over now.
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Future is uncertain
First quarter of 2010 would be interesting. FIIs is returning in market after festive season. Q3 Results of companies are awaited and are expected to do well because of low base effect and robust advance tax collection numbers which increased by 22.72 per cent, contributed largely by automobiles, consumer goods and metal firms. 26th Feb is the expected date of Budget which will be an important determinant in setting trend. Government may withdraw stimulus package as economy is already back at growth path.
Beat the Inflation
I don’t know much about the principle of economics, what I know is that basket of goods get costlier than last year by say “x” factor. Some erudite creatures called Economist coined a term inflation for this “x” factor. Say what I bought last year at 100, because of inflation of say 5% I’ve to cough up 105 this year. While Rs 100 kept last year in Bank, became Rs105 (inclusive of 5 % interest). Real rate of return from bank after factoring in inflation would be nil.
It simply means my investment whether in Bank, Mutual Fund, Bond, Equity, Gold should give me a return at least higher than the inflation figure. For me Bank is the worst place to park my saving as it gives a return which can hardly beat inflation. In layman term Inflation erodes the purchasing power of the currency.
The tentacles of Inflation
Two important factors which will lead to inflation in near future are Liquidity and Incongruity of Demand and Supply.
Liquidity: When surplus money follows few goods it lead to inflation. Last year lot of stimulus package was given, the surplus money circulating in economy may lead to Inflation globally. In order to rein inflation, RBI or any Central Bank will be forced to suck liquidity through various measures which will result in market tumbling down. As Freidman and Anna Schwartz once said "inflation is always and everywhere a monetary phenomenon."
Incongruity of Demand and Supply: Incongruity in demand-supply leads to inflation. For instance, India’s agriculture which is poorly irrigated gets impacted due to poor or erratic monsoon. I believe the festive and marriage season will lead to shortage of key food items particularly sugar. Food prices which have higher weight age on Inflation will lead to its upward movement. Logically, Government should either import or discourage the export of sugar during these months.
Often do we hear strike of Bus, Auto, Taxi but recent strike of Trucks is little uncommon. A strike of Truck which is a cargo carrier will lead to severe gap in demand and supply and will have domino’s effect on economy as a whole. Disrupted supply will increase the price of essential goods or perishable goods leading to inflation. Similarly, an increase in price of petrol will hit pocket of common man but an increase in Diesel on which cargo industry depends will hit the economy badly. So, government is always biased in setting prices for Petrol and Diesel.
In a nutshell, I believe market is waiting for major correction and I don’t recommend buying at this level. Remember, I may go wrong as I’m no Warren Buffet.
The Rabbits
There are more rabbits lying in magician’s cap, wait for the next one to come out. Till then Happy Investing…!!!
What do you think is mind, just a bundle of thoughts? Well…!!! My mind has been innocent of any innovative thought which made my article seemed as rare as the proverbial phoenix. So was the stock market recently rising from its own ashes like the phoenix?
The Subprime crisis
All the major indices around the world were chopped down to “Davy Jones's Locker”. Under this subprime tsunami highly prestigious Investment Bankers went as dead as Dodo. Broker community was of the view that such financial crisis happens once in lifetime, what they were silent at, was that such opportunity to invest also comes once in a lifetime. You needed the eye of an eagle to identify gold in the stock market getting sold at the cost of dust. (Please refer my earlier article circulated to you in trailing mail for Subprime crisis).
The Dust which got settled down
Every Bubble ends with a bust and the stock market acted in no way different. You will agree that everything in this world tends to move towards equilibrium. For instance, if some scrip is overvalued it must fall to reach the equilibrium i.e has to justify the right valuation and the vice versa.
When the choppy market goes hopeless and is of opinion that “ nothing can happen of this market”, or say “ market will now never rise”. This is when foundation for new Bull run is laid down. Which is based on simple premise that when people are most frustrated they sell like anything and market factors in all bad news in today’s price resulting in bottoming out? The dust settles down quietly and the right time to investment begins.
The gentleman and his promises
Like a true gentleman keeping all his promises, I followed the suit. In last article I promised I will talk on individual stock. And here it unfolds the story of Edserv.
In less than a year this scrip gave me 800% return. Let’s make it simpler what 800% stands for. If I would have kept my saving in Bank with 4% at Simple Interest, it would have taken 200 years to earn this. Mind it this is just one such stories in my kitty.
My Strategy for Edserv
The Valuation
I generally buy scrip with strong business model and where no investor is interested and in all respect can be called as undervalued scrip. I never heard of Edserv before but it simply met my parameters mentioned below:
P/E Ratio 10 means= You pay Rs 10 in order to earn one rupee. Do I need to say, Lower the ratio, better is the investment. I bought at around P/E of 7, today it is at around 70.
Book value per share= Value the shareholders would receive in liquidation. I bought almost at Book value.
D/ E ratio= At time of crisis, company with High debt gets the most hit. Besides, interest payment dips the EPS irrespective of profitability. Edserv is a debt free company.
Qualitative Analysis
Niche Market: The company is almost in niche market which means, it can demand higher profitability. It is in business of making software for educational institutions.
Education sector: Interesting sector which gets benefitted in almost all the budget for social cause. Long live the politicians.
Poor management: Share price plunged because of poor management apart from subprime crisis. The result was expected to be poor or average. This was what tempted me.
Stock Price: I knew stock price is present value of future cash flow. In this scrip, almost all future bad news seemed to be factored in today’s price. Now this involves risk which can be mitigated by analyzing that what is the probability of favourable outcome of an event to occur. The probability of downside movement in this company was limited as all bad news was already factored in but the probability of upside was tremendous.
I didn’t give a second thought. It was not about money, it was about conviction to stand by your decision. You’ll burn your fingers if you dare touching Edserv at such high valuation. It’s days are over now.
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Future is uncertain
First quarter of 2010 would be interesting. FIIs is returning in market after festive season. Q3 Results of companies are awaited and are expected to do well because of low base effect and robust advance tax collection numbers which increased by 22.72 per cent, contributed largely by automobiles, consumer goods and metal firms. 26th Feb is the expected date of Budget which will be an important determinant in setting trend. Government may withdraw stimulus package as economy is already back at growth path.
Beat the Inflation
I don’t know much about the principle of economics, what I know is that basket of goods get costlier than last year by say “x” factor. Some erudite creatures called Economist coined a term inflation for this “x” factor. Say what I bought last year at 100, because of inflation of say 5% I’ve to cough up 105 this year. While Rs 100 kept last year in Bank, became Rs105 (inclusive of 5 % interest). Real rate of return from bank after factoring in inflation would be nil.
It simply means my investment whether in Bank, Mutual Fund, Bond, Equity, Gold should give me a return at least higher than the inflation figure. For me Bank is the worst place to park my saving as it gives a return which can hardly beat inflation. In layman term Inflation erodes the purchasing power of the currency.
The tentacles of Inflation
Two important factors which will lead to inflation in near future are Liquidity and Incongruity of Demand and Supply.
Liquidity: When surplus money follows few goods it lead to inflation. Last year lot of stimulus package was given, the surplus money circulating in economy may lead to Inflation globally. In order to rein inflation, RBI or any Central Bank will be forced to suck liquidity through various measures which will result in market tumbling down. As Freidman and Anna Schwartz once said "inflation is always and everywhere a monetary phenomenon."
Incongruity of Demand and Supply: Incongruity in demand-supply leads to inflation. For instance, India’s agriculture which is poorly irrigated gets impacted due to poor or erratic monsoon. I believe the festive and marriage season will lead to shortage of key food items particularly sugar. Food prices which have higher weight age on Inflation will lead to its upward movement. Logically, Government should either import or discourage the export of sugar during these months.
Often do we hear strike of Bus, Auto, Taxi but recent strike of Trucks is little uncommon. A strike of Truck which is a cargo carrier will lead to severe gap in demand and supply and will have domino’s effect on economy as a whole. Disrupted supply will increase the price of essential goods or perishable goods leading to inflation. Similarly, an increase in price of petrol will hit pocket of common man but an increase in Diesel on which cargo industry depends will hit the economy badly. So, government is always biased in setting prices for Petrol and Diesel.
In a nutshell, I believe market is waiting for major correction and I don’t recommend buying at this level. Remember, I may go wrong as I’m no Warren Buffet.
The Rabbits
There are more rabbits lying in magician’s cap, wait for the next one to come out. Till then Happy Investing…!!!
Thursday, October 2, 2008
My Experience with Subprime crisis
Entrepreneurship
Not everybody can be an entrepreneur to start business from scratch. I took an alternative route to participate in business through equities, with one single motive to own 26 % stake, one day, in one of the good companies…….AMEN…!!!. I’m well aware of statistics that 80 % of the new venture fails but the figure is not big enough to stop me from investing.
My Dreams
Stock Prices was almost at a kissing distance from the zenith with new zeniths being made everyday. I was just waiting to infuse my capital with a single dream of becoming Nouveau riche overnight. I overheard, now or never, this kind of bull market happens once in a life time.
Crisis Management
My little experience with stock market is that one need not to be a finance graduate, or a great economist, had this been the case LTCM (Long Term Capital Management) a US based Hedge Fund in 1990’s or more recent Lehman Brothers or Bear Stearns would have never failed. They have been picking graduates from best of B-schools and at high premium packages.
Discipline of Emotions
I know few consultants who have been recommending their client about impeccable business plans but fear to tread when it comes to investing their own capital, based on those plans. Great investors are not made with great education but with greater discipline of emotions. Always, invest in business that one understands well. The capital market is known to be greatly influenced by grapevines and speculation. Listen to everything but don’t react to everything. Sometimes to not act is to act.
The Beginning of the end
Last few years stock market was skyrocketing, wealth got multiplied as never before. My dream seemed nearby in the very next boulevard. Suddenly something hit the stock market and the wealth of investor’s got eroded in a big way. I called this crisis as financial tsunami but today it is more popularly called as Subprime crisis.
The Subprime Crisis begins
Low Interest rate regime
In retrospect, several years back when the American economy was in recessionary phase after 9/11 and dot com bubble burst. A challenge emerged in front of the then Governor of Fed Reserve Mr Alan Greenspan to drive economy out of slowdown. He introduced the monetary policy of low interest rates regime to boost economic growth. The idea was to infuse enough liquidity into the system. Reduced interest rate leads to enormous liquidity in the system resulting in increased lending and borrowing activities. Besides, low returns on other traditional instruments brought investors towards higher risky instruments to get better returns. The greed didn’t end here.
The Bubble
When greed comes they say it comes in jumbo packs. Companies in order to earn higher return extended loans to low credit worthiness people. This is what we termed as Subprime lending. In several instances, initial teaser interest rate was introduced which later was gradually increased. Besides the subprime borrowers had poor track record of repayment hence lenders gave loan at a higher interest rate to them. People with limited financial strength borrowed large sum of money which was readily available and invested in housing property. This lead to housing boom in US market.
It was taken for granted that the way asset price was inflating even the subprime borrowers can pay back the loans easily. Many Big Hedge Funds and Financial Institutions found the investment in sub-prime to be very lucrative and made big exposures.
The Fall of Giants
People bought assets beyond their means. Gradually interest rate once again started rising which raised the cost of borrowing capital. Housing supply was already surplus however demand got saturated, and the property price started plummeting. Due to increased interest rate number of defaulters increased. The property value dipped below the value of mortgage loan itself. The investment started turning bad. Companies like Bear Stearns, New Century Financial, Lehman Brothers and several others have to file for bankruptcy.
Government sponsored enterprises like the Fannie Mae and Freddie Mac role was to buy up mortgages and sell them as mortgage backed securities to investors. This secondary mortgage market which got created increased the liquidity for mortgages lending and hence for fresh home purchases.
They made profit from the differential in the interest rates homeowners pay and the investors. As per estimate, together they hold or guarantee $5.4 trillion of mortgages, about half of the USA's home loans.
Both the institutions were expected to make huge losses which could hit US market badly. Federal took over the control of both the institutions.
Indian market
So far there is no news of direct impact of subprime in Indian market. However, FIIs capital inflow which was one of the key factors for the recent bull market rally in India got hampered. With recent bankruptcy in USA liquidity seems to have evaporated. External factors will drive the India market down in short term, however India is a domestic demand driven economy and has long way to go.
Today’s market
Today US Senate passed the $700 billion bail out package which will bring some relieve in the Indian stock market. Besides, the US has approved the nuclear deal of India.
Even God doesn’t know the movement of stock pre-hand but probability of favourable outcomes seems to be good and we can see positive rally today.
Not everybody can be an entrepreneur to start business from scratch. I took an alternative route to participate in business through equities, with one single motive to own 26 % stake, one day, in one of the good companies…….AMEN…!!!. I’m well aware of statistics that 80 % of the new venture fails but the figure is not big enough to stop me from investing.
My Dreams
Stock Prices was almost at a kissing distance from the zenith with new zeniths being made everyday. I was just waiting to infuse my capital with a single dream of becoming Nouveau riche overnight. I overheard, now or never, this kind of bull market happens once in a life time.
Crisis Management
My little experience with stock market is that one need not to be a finance graduate, or a great economist, had this been the case LTCM (Long Term Capital Management) a US based Hedge Fund in 1990’s or more recent Lehman Brothers or Bear Stearns would have never failed. They have been picking graduates from best of B-schools and at high premium packages.
Discipline of Emotions
I know few consultants who have been recommending their client about impeccable business plans but fear to tread when it comes to investing their own capital, based on those plans. Great investors are not made with great education but with greater discipline of emotions. Always, invest in business that one understands well. The capital market is known to be greatly influenced by grapevines and speculation. Listen to everything but don’t react to everything. Sometimes to not act is to act.
The Beginning of the end
Last few years stock market was skyrocketing, wealth got multiplied as never before. My dream seemed nearby in the very next boulevard. Suddenly something hit the stock market and the wealth of investor’s got eroded in a big way. I called this crisis as financial tsunami but today it is more popularly called as Subprime crisis.
The Subprime Crisis begins
Low Interest rate regime
In retrospect, several years back when the American economy was in recessionary phase after 9/11 and dot com bubble burst. A challenge emerged in front of the then Governor of Fed Reserve Mr Alan Greenspan to drive economy out of slowdown. He introduced the monetary policy of low interest rates regime to boost economic growth. The idea was to infuse enough liquidity into the system. Reduced interest rate leads to enormous liquidity in the system resulting in increased lending and borrowing activities. Besides, low returns on other traditional instruments brought investors towards higher risky instruments to get better returns. The greed didn’t end here.
The Bubble
When greed comes they say it comes in jumbo packs. Companies in order to earn higher return extended loans to low credit worthiness people. This is what we termed as Subprime lending. In several instances, initial teaser interest rate was introduced which later was gradually increased. Besides the subprime borrowers had poor track record of repayment hence lenders gave loan at a higher interest rate to them. People with limited financial strength borrowed large sum of money which was readily available and invested in housing property. This lead to housing boom in US market.
It was taken for granted that the way asset price was inflating even the subprime borrowers can pay back the loans easily. Many Big Hedge Funds and Financial Institutions found the investment in sub-prime to be very lucrative and made big exposures.
The Fall of Giants
People bought assets beyond their means. Gradually interest rate once again started rising which raised the cost of borrowing capital. Housing supply was already surplus however demand got saturated, and the property price started plummeting. Due to increased interest rate number of defaulters increased. The property value dipped below the value of mortgage loan itself. The investment started turning bad. Companies like Bear Stearns, New Century Financial, Lehman Brothers and several others have to file for bankruptcy.
Government sponsored enterprises like the Fannie Mae and Freddie Mac role was to buy up mortgages and sell them as mortgage backed securities to investors. This secondary mortgage market which got created increased the liquidity for mortgages lending and hence for fresh home purchases.
They made profit from the differential in the interest rates homeowners pay and the investors. As per estimate, together they hold or guarantee $5.4 trillion of mortgages, about half of the USA's home loans.
Both the institutions were expected to make huge losses which could hit US market badly. Federal took over the control of both the institutions.
Indian market
So far there is no news of direct impact of subprime in Indian market. However, FIIs capital inflow which was one of the key factors for the recent bull market rally in India got hampered. With recent bankruptcy in USA liquidity seems to have evaporated. External factors will drive the India market down in short term, however India is a domestic demand driven economy and has long way to go.
Today’s market
Today US Senate passed the $700 billion bail out package which will bring some relieve in the Indian stock market. Besides, the US has approved the nuclear deal of India.
Even God doesn’t know the movement of stock pre-hand but probability of favourable outcomes seems to be good and we can see positive rally today.
Saturday, September 13, 2008
Atlas Shrugged....!!!
Reluctantly, I admit that I'm not untouched with the contagious disease affecting Bulls and Bears originating from some place at Mumbai called Dalal Street .Oft repeated cliché " Black Hole of Dalal street siphoning innocent money", bothered me a lot but I don't remember when it happened .......I knew, I heard, I saw and I was conquered.
-Period-
In Year 2005, shrill sound of vehciles, vociferous urchins, hooting vendors.....Cannaught Place at Delhi has always been cacophonous......but there was just one thing which was silently falling in love with equities. This was my first job at CMIE. My Profile allowed me to interact with several brokers. Gradually I started inculcating the dynamics of Capital Market.
A year later I entered Deloitte, one of the leading Consulting Company of the world. But the passion for equity was always there. Sub prime crisis in USA provided me with ample opportunity; this was the time when I made my first investment in TCS. I thought market has bottomed-out but I learned, search for bottom has always been like metaphorical Mirage. Dalal Street has always been known to punish the people not doing thorough research and I was no different.
I’m not easily influenced by every Tom, Dick & Harry. But more I read about Warren Buffett, more I submitted myself to him. If Ekalavya can from Guru Dronacharya, so did me from Warren. Oops...!!! of late I remember Guru Drona asked for thumb of Ekalavya.............any idea what Warren looks for............I wish it's my thumb and not RPL Shares from my portfolio............ I learned my first lesson of stock broking from him and perhaps the last lesson will also come from him. I owe a lot to him. The Warren Buffett Way and Warren Buffett portfolio and few articles were enough to drag me in this world.
There were several people who dissuaded me from entering Dalal Street but……………………………… Atlas Shrugged……..!!!!!!
-Period-
In Year 2005, shrill sound of vehciles, vociferous urchins, hooting vendors.....Cannaught Place at Delhi has always been cacophonous......but there was just one thing which was silently falling in love with equities. This was my first job at CMIE. My Profile allowed me to interact with several brokers. Gradually I started inculcating the dynamics of Capital Market.
A year later I entered Deloitte, one of the leading Consulting Company of the world. But the passion for equity was always there. Sub prime crisis in USA provided me with ample opportunity; this was the time when I made my first investment in TCS. I thought market has bottomed-out but I learned, search for bottom has always been like metaphorical Mirage. Dalal Street has always been known to punish the people not doing thorough research and I was no different.
I’m not easily influenced by every Tom, Dick & Harry. But more I read about Warren Buffett, more I submitted myself to him. If Ekalavya can from Guru Dronacharya, so did me from Warren. Oops...!!! of late I remember Guru Drona asked for thumb of Ekalavya.............any idea what Warren looks for............I wish it's my thumb and not RPL Shares from my portfolio............ I learned my first lesson of stock broking from him and perhaps the last lesson will also come from him. I owe a lot to him. The Warren Buffett Way and Warren Buffett portfolio and few articles were enough to drag me in this world.
There were several people who dissuaded me from entering Dalal Street but……………………………… Atlas Shrugged……..!!!!!!
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