India Investment Ideaz

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What to do in this painful market ?

noreply@blogger.com (Guru) — Thu, 16 Aug 2007 21:03:00 +0000

I am writing this note amidst the turmoil in the US Market and its consequent effect on Global Markets. Amazing is the global integration which is existing in the current operation of financial market. Few of the veterans had experienced it during Asian Crisis where Long Term Capital Management got busted but the impact was seen less in the Indian Market because of the fact that India was still going through some transformational changes in terms of investment cycles.

Everything started with Sub Prime Mortgages. You would think why there are repercussions of the same in financial market. Financial instruments created in last one decade allow you to leverage a financial institution to a large extent. It’s like me lending you money backed by Assets. I, in turn, go with an instrument called mortgaged security to the market and ask for money so that I can run my business by lending more. This was leveraged to such an extend that the ripple effect of the same is found in Timbaktu too.

Where do we go from here?

Last week, there was fear that large financial institutions would be impacted to a large extent. But it was not believable. There was good analysis provided by a writer in Yahoo Finance who mentioned that the mortgage market is miniscule to impact the financial market. And I guess he was right to a large extent. There are mortgages of the nature of Jumbo, Sub Prime etc. The impact was from the Sub Prime Mortgages where housing loans were provided to a category of Ninja Borrowers. NINJA here means NO INCOME, NO JOB and NO ASSET. If you try to logical think over it, it would be really a small market out of the large pool of asset based mortgages.

Well, I would think that this should settle down soon, now that the biggest Mortgage Lender – Countrywide Financials looks as troubled and there would be someone to bail them out or it would get busted.

Where do we go from here as far as Emerging Markets, especially India, are concerned?

There would a bounce back early next week but there would be one more pain day in the market globally. The Indian Market should settle somewhere between 13500 – 14000. I am not God to accurately predict that but this is my gut feeling based on the emotional play in the market. Moreover, India is fundamentally going through an investment phase where the money has been borrowed a@ LIBOR + 1 % in case of most of the big corporate. So, there is no dearth of money for the Corporate. Fundamentally, the profit growth can be somewhere between 15 % -18 % for the next 5 years and if it holds true, it can really a good steady market growth for the next 5 years where market can go to 25000 too.

So, hold on to your investments and let this emotional play settle down and enjoy the Bull Run in the market.

Instl biz attracts global brokerages, local firms on toes

noreply@blogger.com (Guru) — Wed, 06 Jun 2007 16:51:00 +0000

Look out for Indiainfoline, Prime Securities and Emkay.

There is a war brewing on the . The entry of foreign firms in the institutional broking business may put domestic brokers on the backfoot, reports CNBC-TV 18.

It is a business that is too important to ignore or resist any longer. Rs 200 crore every day is the giant institutional broking market for you and what with unprecedented foreign and domestic mutual funds flow.

The lure of this lucre is undeniable. And that is why after exiting his institutional broking joint venture with Morgan Stanley, Nimesh Kampani told CNBC TV18 he was willing to rent an institutional broker until he rebuilt his business.

Nimesh Kampani, Chairman, JM Financial, said "If you can not build it you can always rent it. If I have a corporate client, I can say I do not wanna lose you. I want to work with you and will rent someone in the time being. I could rent Morgan Stanley, CLSA, UBS, Credit Suisse; I could say this deal work with me."

Not just rent, a few months later Kampani was also looking to acquire. Rumour mills pointed at a deal with institutional broking house - SSKI. Nothing has happened yet but SSKI is surely up for sale. And, it should attract bees like honey. After all leading global players like Goldman Sachs, Credit Suisse , Lehman Brothers and BNP Paribas are taking quick steps to launch their institutional business in India.

Frederic Amoudru, Chief Executive and Country Manager, BNP Paribas, says "Clearly, we want to have a strong focus on institutional business. In East Asia we have good franchise and we are big. We want to replicate that in India using our strong connection and deep penetration with FII clients across the region."

As more foreign institutions leverage that 'connection' they could to eat into the business of many domestic brokers who focus on trading shares for the institutional clients.

A precursor to consolidation some would say, but yet others believe that with the pie getting bigger everyone can join the party.

V Gopinath, MD, SBICAP Securities, says "It is a function of the Sensex. But I would say a 30%-35% growth can be taken for granted."

But there is no denying that smaller Indian brokerages could lose foreign clients to the new foreign brokers in town. All this competition is also telling on margins. That is why many domestic brokers are fast adding more products and services like realty advisory and cross border transacting to their portfolio. After all how long can you depend on the Dalal Street.

Timing the Market

noreply@blogger.com (Guru) — Sun, 13 May 2007 08:42:00 +0000

People often glibly issue warnings against "timing the market" without thinking about the underlying assumptions. What is "timing the market"? It is usually taken to mean buying (selling) when you think a share is due for immediate appreciation/depreciation. However, we all buy (sell) only when we expect gains inside a time frame we consider acceptable. And time frames can be very flexible.

To a day-trader, "immediate" is the next 15 minutes. For a position-trader, it could mean within the same derivative settlement -that may be several weeks. For a medium-term investor, it is a deal that incurs short-term capital gains – that is, within the same year. For a long-term investor, it may mean a full business cycle– that could be several years.

The flexibility of time frames is partly personal convenience. You find it most convenient to oversee your investments on a weekly or monthly basis. So, you choose a month or week as your time frame.

But there is also a sound mathematical reason why investment time frames are flexible. Share prices are fractal. Like other fractal quantities, they fluctuate indistinguishably across different time frames.

The easiest way to understand this is to examine price trends across different time frames. Say you take printouts of 5-minute bars, daily bars, weekly bars and monthly bars. Now black out the price values and timestamps. It's impossible to say which time-series represents what periodicity. This is typical fractal behaviour. Another example is a map of a physical location such as a coastline. If you don't know the scale, the same map could represent a continental coastline or five metres of beach.

The fractal nature of share prices means that, if you pick the right direction, across your chosen time frame, you make money. It doesn't matter what time frame you choose; you must pick the right direction. That means, you have to "time the market", whatever your chosen time frame.

This is where investment philosophy breaks into several different schools. The "random walkers" say it doesn't matter what shares you pick, across what time frames. If the market is efficient, your return will be random. If you're lucky you will make lots of money and if you're unlucky, you'll lose a lot.

The value investors say that if you buy sound businesses cheap over long time frames, you beat the street. The technical analysts believe that if you study the specifics of price movements, and buy or sell when you can decode the trends, you beat the street.

All three schools boast spectacular successes. All three schools also boast spectacular failures. Any system which offers you personal comfort is more likely to work for you. There is another question where market philosophies differ. Let's say a stock is down across a given time frame but the underlying business isn't bankrupt. Should you buy or sell?

The random walkers would suggest tossing a coin – previous price should not influence future trends according to them. The value investors say buy. The business is sound; you're getting it cheap. The technical analysts say that you shouldn't buy until a trendreversal. In fact, you should sell to make profits on the downturn.

Both the value investment school and technical analysts have some logic on their side; both methods can work or fail. If the value-investor has misjudged the fundamentals, he loses. The technical analyst will, at the least, forego profits and he may lose heavily if he shorts at the wrong moment.

After all that philosophising, consider a specific case – the universe of Indian stocks, minus the 300 largest. Over the past year, this "sub-300" set has underperformed bigger stocks. Over the past three years, it has outperformed. And, this universe contains many sound businesses.

Pick the right ones and you're buying them cheap. Of course, they may lose some more ground so long as the current trend continues. But if you pick the right ones and then mix in a rough 2:1 ratio with bigger stocks, you're creating a low-risk portfolio with a decent upside. But it may take another three years or longer to generate good returns.

Can you do this and thus, time the market over a period of about three years? DSPML is betting that it can, by launching a new Micro Cap closed end fund which will aim to do precisely this. The Micro Cap Fund will turn open-ended three years later so that is the effective minimum time frame. I like the concept because just one ten-bagger will balance off several mediocre picks. And the sub-300 universe is a good place to look for ten-baggers.

DSPML Micro Cap Details:
Type of scheme: Close-ended equity scheme
NFO closes: May 25, 2007
Minimum investment: Rs 10,000
Cost per unit: Rs 10
Entry load: Nil during NFO
Exit load : 0%-4% (if held for more than 36 months or sold within 12 months of allotment)
Mandate: Stocks that are not part of the top 300 by market capitalisation will constitute 65%-100% of portfolio. Stocks in the top 300 will be allocated 0%-35% of portfolio.

Is this a Global Mania and if so when will this Global Mania End?

noreply@blogger.com (KKP Investor) — Sat, 05 May 2007 23:47:00 +0000

We all have a lot of money invested in the markets globally in one way, shape or form. Either we are working for companies that are dependent on the global players, or are invested in the stocks of the global companies, or are trading partners of these companies that trade across borders. Either way, we are 'invested' in them, and therefore dependent on the growth of their trade......

Is the Indian, Australian, Chinese, Hong Kong, Argentina, Brazil etc emerging markets going to continue it's growth and stock market mania or will 2007 show a topping formation that will take it all stumbling down. Neither of these markets when looked inside-out have any great reasoning to do so (i.e. future view is very bright), but it might not be any single country or market that will correct, but, it will be one feeding the other. We often call it a domino effect. As I was traveling from US to Asia in Apr'2006, I noticed this phenomenan.....So, if you have done homework to see how 2006 corrections started, and what happened, you will soon see that it was 'more' a correction of 'excesses' than a correction with logic, that started from one country, and was bleeding over to another, as if in a spiralling wave downward! If we have the same thing happen in 2007, we are starting at higher level across the board on all markets.

If you dip into the historical accounts of financial manias in classics like Extraordinary Popular Delusions and the Madness of Crowds, or even more contemporary accounts like Devil Take The Hindmost: A History of Financial Speculation , you are struck by one thing. The collective psychology of financial manias remain remarkably similar, no matter the time or place. The French were right: Plus ca change, plus ces't la meme chose. "The more things change, the more they stay the same." There are various forums analyzing and debating this same point. But, very few want to heed this advice, cause we are trained to be 'wanting to be on the train, rather than being left behind at the station' (smile now if you agree!!!!!).

Look at the Chinese markets.....It has been on a rocketing move and the mania in China's mainland has as much in common with the Tulipmania of the 17th century, as it does with the Internet boom of the late 1990s and early 2000's. In particular, the run-up of the Shanghai index is remarkably similar to the recent meteoric rise and collapse of the Arab markets -- down 70% since February 2006. Both took root in a country that had little or no experience with a stock market. And, a "this time it's different" atmosphere pervaded, a set of new fangled heroes drew in millions of unsuspecting small investors, and those who came late to the party ended up suffering devastating losses after the inevitable crash. Like the Arab markets, the Shanghai market is closed to foreign investors. But as the 9% drop in the Shanghai index on Feb. 27 shows, unlike the collapse in the Middle East, the impact of the Shanghai swoon can be felt all the way to Wall Street.

Even the biggest China Bulls around admit that China is in a bubble. The Shanghai Composite Index is now approaching 4,000 -- a rise of nearly 40% so far this year after a 130% increase in 2006. The Shanghai and Shenzhen exchanges now have a market cap of about 15 trillion yuan ($1.8 trillion). While that doesn't make it a big market globally -- the New York Stock Exchange had a total capitalization of $26.5 trillion as of Dec. 31 -- China's market places second in Asia, behind Japan, after surpassing Hong Kong just last month.

Every stock market rise leads to a level of pride not experienced before for the current investors (notice, I did not say happiness), but every stock market correction of any magnitude ends in tears -- as has every other mania in history.

With all the 'deeply engrained cultures from centuries', nothing prepares mankind in China or India or Hong Kong to handle the oncoming correction.....

You may call me bearish after all of the above, but, I am also waiting for that 'eternal' signal when I feel I will come out and side-step the correction with my investments in the US, India, China, and other Emerging markets. But, will I? More importantly, will you?

KKP

ps: Excerpts taken from SeekingAlpha as well as Yahoo to write the above article

Talk of India, China dominates Wharton summit

noreply@blogger.com (Guru) — Thu, 03 May 2007 15:10:00 +0000

India and China were the main topics of interest at The Wharton Economic Summit held last month by the University of Pennsylvania's The Wharton School in Philadelphia.

Several panelists across all sessions highlighted the underlying importance of the two Asian nations and the value they hold for companies to do business. Senior economists and top-level managers stressed the need for companies to look at China and India and their booming potential.

Their message was succinct — multinationals cannot encompass the concept of globalization without having set foot either in India or China.

In a lunch session, Wharton professor of finance Jeremy Siegel took this a step further in discussing some of his findings from closely monitoring China and India. According to his research, China and India will jump to the first and third positions, respectively, in terms of consumption of goods by 2050. The United States will be sandwiched between the two and he pointed out that companies should not view this Asian explosion as a threat, but should consider it an opportunity to target a population of almost 2 billion and the vast potential it holds.

Following Siegel's thoughts, panel sessions focusing on outsourcing and emerging markets drew some of the largest crowds of the summit.

In the session on emerging markets, Manuel Montero, the chief executive officer of SAFTPAY, a non-credit card company that offers a payment system allowing bank customers worldwide to make e-commerce transactions, said that 86 percent of the world population is part of emerging markets.

"Even though 86 percent of the world population comes from these emerging markets, they constitute only 23 percent of the world economies," Montero said. "So, it's very difficult to find the perfect partner country. You have to select the country and have to understand the culture and how the country functions. You have to make sure that you have a commitment and also a strong, close and continuous management."

Montero focused predominantly on the Latin American markets while Rohit Aggerwal, co-founder and managing director of RAS Capital Management, focused on India.

He laid out several favorable facts that would entice potential entrepreneurs to do business in India. A 13-year veteran of handling foreign investments in India, he said that the greatest asset of India was its human capital.

"The greatest asset that has India going is its population," Aggerwal said. "Fifty percent of the population is under 25 and that represents a large, potential workforce entering employment."
He attributed India's sudden spurt of growth to a favorable economic climate in the last 10 years.

"Between 1998 and 2007, cable subscribers have gone from 25 million to 85 million," Aggerwal said. "Cell phone users have gone from a million to 120 million. There has been a huge explosion in consumer service.

"The interest rate has come down from 40 percent to 10 percent," he said. "Inflation has fairly come under control. There is a strong flow of foreign investment and that has resulted in an increase in mergers and acquisitions."

Finally, Shiv Khemka, vice chairman of the Sun Group, summed it up when talking about choosing the perfect partner to do business with in emerging markets.

"You have to choose the right partner," Khemka, who spoke about the benefits of Russia, said. "Get the best human capital and have a long-term view in these emerging markets. These are the keys to succeed in these regions."

Rajat Gupta, senior partner at McKinsey & Co., was the keynote speaker of The Wharton Economic Summit. Panels throughout the two-day summit, held on April 12 and April 13 at the Pennsylvania Convention Center, covered a number of business topics, including the future of technology, "Wall Street meets Hollywood," sports business, real estate and security.

The summit also featured a focus on ethical issues confounding business organizations and on equity markets.

Cognizant's Growth Is Slowing Slightly More Than Expected

noreply@blogger.com (Guru) — Wed, 02 May 2007 23:56:00 +0000

When we previewed earnings for Cognizant Techonolgy Solutions (CTSH) we said “one of these days the growth will hit a wall, but probably not this day.” Today the company reported earnings:

Revenue for the first quarter increased to $460.3 million, up 8% from $424.4 million in the fourth quarter of 2006, and up 61% from $285.5 million in the first quarter of 2006. GAAP net income was $75.4 million, or $0.50 per diluted share, compared to $47.2 million, or $0.32 per diluted share, in the first quarter of 2006. GAAP operating margin for the quarter was 18.2%. Excluding stock based compensation expense of $7.4 million, non-GAAP operating margin was 19.8%, in-line with the Company’s targeted 19 to 20% range.

So far, so good as the consensus was expecting $0.48 on $451 million in sales. Likewise, next quarter’s consensus target of $0.51 on $496 million in sales appears to be in the bag. However, Cognizant’s full-year “at leasts” don’t quite make the cut of current estimates.

2007 Outlook - Second Quarter & Full Year Based on current visibility, the Company is now providing the following guidance: — Second quarter 2007 revenue anticipated to be at least $500 million.

– Second quarter 2007 diluted EPS expected to be $0.51 on a GAAP basis, and $0.56 on a non-GAAP basis, which excludes the impact of stock- based compensation expense of $0.05.

– Fiscal 2007 revenue now anticipated to be at least $2.07 billion.

– Fiscal 2007 diluted EPS expected to be at least $2.13 on a GAAP basis, and at least $2.34 on a non-GAAP basis, which excludes the impact of stock-based compensation expense of $0.21.

– Total headcount by end of 2007 expected to be approximately 55,000, reflecting the Company’s plan to increase utilization throughout the remainder of the year.

Let us first say that it is time for Cognizant to toss aside the “non-GAAP” adjustment for options. It sure looks like the estimates are GAAP-based, so why bother?

The company did not disclose net employee additions in the body of the press release, but the company description at the bottom says “Cognizant has more than 43,000 employees.” This compares to “over 40,000” at year-end. While we remain impressed that a company can add even 3,000 employees in three months, the pace is below the 4,500 added in Q4 and below the run rate to match last year’s 14,500 additions. Further, since the company is now larger the 3,000 additions represent a sequential growth rate of 7.5%, or approximately 33% annualized. This is not only below the current growth rate of 61% but also below the consensus 2008 revenue growth rate of 36.3%.

This is important because Cognizant is a consulting firm, and increasing headcount is the primary way such firms can increase future revenues. While 33% annual growth is indeed good, a trailing P/E multiple of 55x probably requires a bit more. With the growth slowing just a bit faster than expected, however, we still don’t believe that “this day” is “the day.”

Mumbai Investor Meet - Nishit Vadhavkar

noreply@blogger.com (Guru) — Tue, 01 May 2007 04:22:00 +0000

We had an interesting discussion on stock ideas this Sunday.

The consensus amongst the members was that stock picking has indeed become difficult in current times. The market has now become very stock specific which underscores the need for more interactions amongst members.

Vipul our analyst with Edelwiss met the management of Crisil and was convinced of its long term potential. He also is strongly bullish on Pantaloon Retail.

Sunder Rajan sir was bullish on two off beat scrips Tripex and Sukhjit Starch.

I made a presentation on GE Offshore reccomended by Vijay Sir. We tried to understand the working of the company and the high entry barriers made it a compelling buy at lower levels.

Siddarth continues to remain very bullish on KLG Systel having closely studied the company.

FMPs were considered to be an attractive option offering in excess of 10 pc returns for a short period.

Vipul also provided a list of conference calls numbers where individuals could pose questions to managements.

Private Lables would dominate 50 % of Indian Retail

noreply@blogger.com (Guru) — Mon, 30 Apr 2007 22:18:00 +0000

Organised retail is on the threshold of a boom in India. But as companies line up to grab a bigger and bigger slice of the retail pie, another battle is likely to change the face of the industry — the one between the manufacturer brands and the retail chains’ private label brands, which are far from being just cheap generics. Worldwide experience shows that as retailers become more powerful, they have increasingly focused on their own brands at the expense of manufacturer brands.

Nirmalya Kumar, Professor of Marketing and Director of the Aditya Birla India Centre, London Business School, and co-author of Private Label Strategy, speaks to Govindkrishna Seshan on the new strategies for private labels that retailers are using and the challenges brand manufacturers face to develop an effective response. Kumar says private label brands, which occupy less than 5 per cent of the market in India now, are likely to corner 50 per cent of the market as the retail space opens up and matures.

He also says the following -

"Retailing in India is still very primitive. At the moment, private labels almost do not exist in the country. They are less than 5 per cent of the retail business and still have a long way to go. But Indian retail is extremely hot and it offers a proposition that can’t be seen anywhere else in the world. Only in China and India can retail chains have as many stores as they have in the US. In no other country can one imagine companies having 5,000-6,000 stores of their own.

Here’s a little calculation: in a few years, most retail chains will have close to 5,000 stores in India. A profit of, say, Rs 5 lakh a store a month would mean a profit of Rs 250 crore. Ten such companies would mean profits of Rs 2,500 crore with their combined turnover being more than Rs 25,000 crore.

In the next 20 years, the richest Indian or one of the top three richest people in India will surely be a retailer. Private labels will have a huge role to play in this. As much as 50 per cent of Indian retail will be occupied by private labels. The question is not whether this will happen, but when? If the government opens up retail, we would see it happen within the next 10 or 15 years.

ICICI banks on $320 bn Government infrastructural investment - Live Mint

noreply@blogger.com (Guru) — Mon, 30 Apr 2007 15:59:00 +0000

ICICI Bank Ltd.’s plan for the biggest share sale by an Indian company may prompt investors to sell its stock on concern it could dilute earnings of the nation’s largest lender by market value.

The bank plans to raise Rs200 billion ($4.9 billion) by selling stock in India and American Depositary Shares in June, Chief Executive K.V. Kamath said on 28 April. Its equity will increase 20%. Mumbai-based ICICI raised Rs80 billion in 2005 to meet demand for loans from companies and consumers in the world’s fastest-growing major economy after China.

`It may dilute the earnings per share in the short run and one could see some short-term negative performance on the stock from the weight of the fresh issuance,’’ said Rajiv Anand, who manages $3 billion at Standard Chartered Mutual Fund in Mumbai and owns shares in ICICI Bank. Still, `it’s a clear indication of the growth that ICICI can see for India.’

Prime Minister Manmohan Singh in October doubled his budgeted spending on roads, airports and ports to $320 billion by 2012 to support growth in an economy that expanded an estimated 9.2 % in the year ended 31 March. The benchmark Sensitive Index gained 65 % in the past two years amid record profits at companies such as Reliance Industries Ltd., India’s biggest.

`Over the next three years, we will likely see a doubling of infrastructure and manufacturing capacity in the country,’’ Kamath said in an interview in Mumbai. `There is an investment pipeline that runs into half a trillion dollars’’ in infrastructure and manufacturing.

Rivals Tata Steel

ICICI Bank’s proposal rivals that of Tata Steel Ltd., the world’s sixth-largest maker of the metal, which said on 18 April that it will sell $2.4 billion of shares in India and overseas to fund its purchase of Corus Group Plc.

Companies in India borrowed about 28 % more in the year ended 31 March. ICICI Bank’s loans increased 34 % that year, after surging 60 % the previous year. Bank lending in India grew more than an average 35 % in the year ended March 2006, and a year earlier, according to central bank data.

The Reserve Bank of India (RBI) last week told banks to maintain loan growth of about 25 % in the year to 31March.

`Assuming a systemic growth of 25 %, this capital should be good for the next three years,’’ Kamath said. `We have to prepare ourselves for market opportunities and given the economic environment in the country and prospects for the country, we thought it appropriate to raise capital and shore ourselves up for the opportunities going ahead.’

Funding Needs

Indian banks will need atleast Rs500 billion this year to bolster capital as lending expands, India’s banking secretary Vinod Rai said on 19 April in New Delhi. State Bank of India (SBI), the country’s largest lender, which needs Rs100 billion of capital this year, has not made any decision to sell shares.

The 50-year old Mumbai-based ICICI Bank received bids for seven times the stock offered at its 2005 share sale to local and international investors, including 40 overseas funds. Merrill Lynch & Co., Morgan Stanley and Nomura International (Hong Kong) Ltd. arranged the previous sale.

The bank sold shares at 525 rupees apiece in December 2005. The stock, which has risen 4.9 % this year against the benchmark’s 0.9 % increase, dropped 30.4 rupees, or 3.2 %, to 933.65 on the Bombay Stock Exchange on April 27.

China, India

`We believe in India’s growth,’’ Kamath said. `If you look at China in context, the size of their banks and the size they have grown over the last few years, we need to take this kind of a step change to meet the opportunity.’

Industrial & Commercial Bank of China Ltd. boosted the size of the world’s biggest initial public offering to $22 billion after increasing its Shanghai share sale 15 % last year.

`If one looks at it from the perspective of the Chinese banks, and on a global perspective, a $5 billion sale is not very big,’’ said Anand of Standard Chartered Mutual Fund. `It should get taken quite comfortably.’

Anand said he will consider investing in the new ICICI Bank shares depending on their price.

The bank said that the money will also be used to conform to Reserve Bank of India (RBI) regulations that stipulate increased capitalization levels for consumer and other loans.

Nishit Vadhavkar's Analysis on GE Offshore

noreply@blogger.com (Guru) — Mon, 30 Apr 2007 15:55:00 +0000

A new posting is available under Nishit Vadhavkar's Stock Analysis on GE Offshore.

This company belongs to the erstwhile GE Shipping Group handling Offshore business for Shipping Industry. It got listed separately last year and has been underperforming for sometime now.

Charter Rates having been on an uptrend, it also provides an impetus to the charter rate for the offshore rigs and vessels.

Do visit the presentation for more information.

Tata Tea Growing Up AGAIN.....KKP Investor

noreply@blogger.com (KKP Investor) — Thu, 26 Apr 2007 03:07:00 +0000

Tata Tea has a similar profile to Tata Steel that we talked about last week. How, you say? Well, the Tata's have figured out that grabbing market share throughout the globe is what is going to have a huge impact on each of it's kingdoms over the long term. If you are also a visionary thinker as the Tatas have been, then you will also agree that buying Eight O'Clock coffee, Tetley, JEMCO and Good Earth will be impactful to the top and bottom line of TataTea. Then you get to Glaceau where Tata's have been doing tremendous marketing, but in the end, it is going to help net margins. Now Coca Cola and Tata Tea are working together to decide what to do with the partial ownership that Tat has of the vitaminized water bottler, Glaceau.

Once upon a time, we used to be water drinkers with each of our meals - no exceptions. The Western world used to drink Coke or Pepsi and that was the 'in' thing to do. Today, on a global level it has become a real fad (fashion) to be walking around with bottled water instead of Bull or Coke or 7-Up or Mountain Dew or even Coffee for that matter, or for that matter to order bottled water at a restaurant, or be served only bottled water at your 'working-lunch-session' (you can tell I'm in constantly in sales meetings!). Chai is another big hit for non-Asian folks. Asians do not go for it at Starbucks since it costs $3.98 per medium cup of Tea (and Coffee is $2!). It is this fad that is Tata Tea does not want to give up with Glaceau, or for that matter by staying 'national only', and it is very likely that we will get some new developments from the Coca Cola <> Tata Tea discusions that are currently on-going.

Let's look at the chart of Tata Tea (not attached here).....It was riding high at around Rs 1000 before the big acquisition. It took a hit all the way down from Rs 1000 to Rs 550 (in the Feb/Mar low). All due to the weight of all the debt and dilution of acquisitions. The chart is forming a great pattern seen typically in a stock that is about to bottom, and start moving up (higher high and higher lows). Volume during updays has not been in a 'blow out' category, but it not 'in the groove' as yet. Early buyers should consider buying this fundamentally solid company with 1/3rd position at this time and additional positions later. Tata Tea seems to have a 'zinger' (catalyst) in place now. Basically, folks, Dalal Street memory is starting to fade about why it was a bad idea to hold Tata Tea (in last 3-6 months), we are getting renewed buying that will start breaking resistance levels (1st one already broken). All this time the Promoter, FI and MF holdings have been pretty well intact, but now this Global Brand is about to start showing it colors.

The stock currently trades at 9.9x FY08E earnings estimates. Its strong operating performance partly offset interest concerns in the upcoming nine months. It should continue to exhibit strong revenue growth over the next two years. Also, it will utilize the proceeds from the recent issue of shares to repay debt and, thereby, reduce the decretive impact of interest on earnings. The stock is well on it's way to a price target of Rs1000.

Good luck ya'al......

KKP_Investor

ps: I am a long long term holder of Tata Tea

Is Tata Steel following performance of Mittal Steel (KKP Investor)

noreply@blogger.com (KKP Investor) — Sat, 21 Apr 2007 05:54:00 +0000

Steel companies have been on an acquisition binge around the world. There are companies in North America, Europe and Asia that are buying to get bigger to demand a larger percent of the global demand. Global demand for steel? Imagine that for a moment. Steel is a highly dense material that takes a lot to produce, and then your globalize it, it does not take an simple email package to email that material out. In the mid-80's steel city was Pittsburgh, the primary provider of steel to make the GM, Ford and Chrysler cars, who had a combined 50%+ market share of the world. Now it has gone global. It takes a lot of logistics, ships and loading zone to take it from A to B. But, yet, we are today in the mania of Buy-Outs and M&A's. Tata's decision to buy-out Corus seemed awefully ambitious, esp. in light of the fact that they kept bumping up their prices to gain % of votes to have the merger approved. Well, now there are doubts of funding this huge deal....But wait, we have an answer for that too - Let's get those funds from the market.

The Tata's who were clearly incapable of funding this deal alone, have decided to fund this mega-deal through a combination of domestic rights, preference shares and overseas equity. They are going for an almost 50% equity dilution, which should raise over Rs 15,000 crore. Starting with a 1:5 rights issue at a price of Rs 300 a share, it would finance the Corus acquisition to the extent of almost Rs 3700 crore.

There is a lot of bearishness surrounding this dilution that is about to happen. That is rightfully so. Even after announcing this dilution, the press releases from the company is eluding to the factor that EPS will not be affected due to these additional shares today, or when the preferential shares are converted over to common stocks.

Only time will tell how this is going to work out, but, if we take the example of Mittal Steel and what has happened to it, we should be totally inclined to pick up any and all shares during the current sell-off or if you own the shares now, then get the most number of rights issues that you can. Of course, you got to have staying power during the sell-off, or to buy the rights issues, and then wait for a year or so when the short term memory of Dalal Street will once again kick in and it will start to look forward to the market share that it has gained, the additional margin points that it has gained with the Corus absorption, and finally, the bullishness back into the Indian and Chinese markets. Check out http://finance.yahoo.com/q/bc?s=MT&t=5y&l=on&z=m&q=l&c= on yahoo to see how Mittal has performed.

You are now getting my general direction of this article-----> Bullishness on Tata Steel basing the pattern on a similar large purchase, dilution, and market share gain by our own Senior Mittal and his son. As of this writing, Tata Steel opened at Rs 464 and closed at Rs 544.

www.relianceretail.com to go live...

noreply@blogger.com (Guru) — Fri, 20 Apr 2007 03:33:00 +0000

Reliance Retail is readying itself to take the online route as it unfurls major plans for its e-commerce business. According to sources, the Mukesh Ambani-owned retail venture, has already set up a separate team to kick-start an online retail channel to go alongside its physical stores. There are plans to set up depots at various locations which will serve as a delivery point once the orders are placed through the internet.

Industry observers say that increasingly, retail bigwigs will strengthen their online presence as they witness real estate pressures and growth in broadband penetration in the country. When contacted, an RIL spokesperson declined to comment. Sources confirming the plan, however, told ET, “In the next 2-3 years, a significant 5-6% of Reliance Retail’s overall revenues will be generated through the e-commerce network.” The company will gradually use the e-commerce platform to link its front-end retail with the back end logistics.

“The e-commerce business will thrive on a two-pronged strategy, B2B as well as B2C. It will also help the company strengthen its logistics network,” a source said. Industry experts say that with the organised retail pie getting bigger, e-commerce will become an important part of business strategies. “e-commerce will become a significant part of the overall format mix for retailers.

For Reliance Retail it makes a lot of sense to introduce an e-commerce arm as they have the advantage of physical stores already being present. Having physical delivery stores always add to the convenience and success of the online business model for retailers,” says Arvind Singhal, chairman of Technopak Advisors.

Reliance Retail is also looking at having co-branded credit cards and consumer financing schemes, which will enable the company to further strengthen its e-commerce venture. For the same, it has roped in the head of credit card at American Express. Internationally, all the retail giants including Tesco, Wal-Mart and Best Buy have a huge online presence.

Monsoon to be below normal this year says IMD

noreply@blogger.com (Guru) — Fri, 20 Apr 2007 03:23:00 +0000

The country’s monsoon may be weaker than normal this year, according to India's Meteorological Department.The rain is expected to be 95% of the long-term average, said P.S. Goel, Secretary at the Ministry of Earth Sciences in New Delhi today.

Earlier, a report quoting B.N. Goswami, director of Indian Institute of Tropical Meteorology, said the rains would be more than normal.

Property prices in Hyderabad set to fall...

noreply@blogger.com (Guru) — Fri, 20 Apr 2007 03:21:00 +0000

Hyderabad may now be the country's second largest city. But the city's big growth could actually mean property prices falling, reports CNBC-TV18.

The Municipal Corporation of Hyderabad is now 450 sq km larger, second only to the National Capital Region (NCR). The additional areas will have all infrastructure and basic amenities that the center of the city enjoys. The project will require a total investment of Rs 28,000 crore from the government. Officials said the new supply would cause prices of residential property in the city to fall

Jayesh Canjan, Vice-Chairman of Huda said, “Property developers will be able to open up many more areas for residential purposes and the availability of housing in terms of supply will go up and because of that the prices will come down."

Hyderabad has seen an increase of % over the last two years because of the large gap between demand and supply of residential property. Real estate consultants expect the fresh land supply coupled with rising interest rates to lead to a 15% correction in property prices

Besides this, the Hyderabad urban development jurisdiction has been increased from 2,000 to 6,000 sq km and the authority is doubling its expenditure to Rs 2,000 crore a year to develop the area.

“We will announce a number of projects like new townships, as well as specialised area developments like medical tourism areas, eco tourism, health city, pharma city and so on," Canjan said.

Over the last year, the local Government has been accused of driving up real estate prices in the city unnaturally through highly priced land auctions with a huge amount of land set to hit the market all that could change, leaving consumers happy.

Mcnally Bharat Engineering

noreply@blogger.com (Guru) — Fri, 20 Apr 2007 03:12:00 +0000

Mehraboon Irani of Darashaw & Company is of the view that Mcnally Bharat Engineering is a very safe bet at present level.

Irani told CNBC-TV18, "McNally Bharat is a company, which is an expert in a way in providing turnkey solutions and has provided over 250 plants on a turnkey basis. It had a very good growth of 41% in the last three years but what we are confident of McNally Bharat doing is we are seeing it achieve exponential growth over the next 4-5 years, a big beneficiary of infrastructure growth."

He further added, "As far as the earnings go we are looking at the company showing an EPS of around 7.2 in the current year 2006-07 and results should be coming sometime in the next week but what is interesting is the orders in hand which is of Rs 1300 crore which should get executed over the next 12-18 months. 2007-08 we are looking at a topline of Rs 775 crore and a bottomline of Rs 49 crore."

"Assuming that there is going to be no further dilution of equity we are looking at an EPS of around Rs 19. Rs 19 even if we consider conservative multiple of just 15 this should be quoting at over and around Rs 325-330. For the present level that provides a great opportunity in the market in which we are seeing a lot of volatility off late, so big beneficiary of what is going to happen to this company in terms of the order execution over the next 12-18 months. McNally Bharat is a very safe bet at the present level with atleast 100% appreciation possible over the next 12-18 months."

Wal-Mart selling a feel-good image

noreply@blogger.com (Guru) — Fri, 20 Apr 2007 02:28:00 +0000

The Beast of Bentonville has finally broken its silence. CEO designate for India Raj Jain on Thursday attempted to set the record straight on a host of controversies surrounding the Wal-Mart-Bharti alliance announced late last year.

In an e-mail to ET, Mr Jain asserted that his company aims at establishing a relationship with the Indian small business community by partnering them and helping them lower costs and increase profits.

He also traced Wal-Mart’s “strong history’’ with India, stating that the company sources goods worth over $600 million directly from suppliers in India. In a bid to appease critics, he also held out the carrot of increasing direct sourcing from the region.

After months of silence, his e-mail comes at a time when the Bharti-Wal-Mart joint venture is expected to be announced finally. But more importantly, it comes on the eve of anti-Wal-Mart activist Wade Rathke’s India visit, which ET reported on April 14. Mr Rathke, chief organiser of the Association of Community Organisations for Reform Now, is famous in the US for spoiling Wal-Mart’s party. He is known to have mobilised public opinion against the retail behemoth in South Korea and Germany, the two markets from where Wal-Mart subsequently withdrew, said a source.

Mr Jain said there have been a number of media reports about Wal-Mart that do not reflect the facts, and “for this very reason I thought I should proactively send you certain information about Wal-Mart”. First on Mr Jain’s list is clearing the anti-mom-and-pop-store image the retail giant has acquired, especially in view of the protests in India following the announcement of the Bharti-Wal-Mart JV.

He has clarified that the JV for wholesale cash-and-carry business will sell quality goods to retailers, including small store owners. Not only that, the venture’s wholesale supply chain would link farmers and small manufacturers, thus minimising wastage of fresh foods and vegetables and helping control inflation, Mr Jain says in his e-mail. He also clarified that the front-end retail venture would be a separate wholly-owned and managed Bharti venture.

Infamous for its labour policies? No way. The missive would have everyone know that Wal-Mart is the largest employer in the US and its jobs are “sought-after because of the investment we make in our associates and opportunities we provide them”. In fact, Wal-Mart’s average hourly wages in the US are more than double the federal minimum wage.

China's Q1 GDP: Too hot for comfort

noreply@blogger.com (Guru) — Fri, 20 Apr 2007 02:23:00 +0000

Is there such a thing as too much of a good thing, well if the reaction to China's latest GDP figures is anything to go by, it surely is. But there are major fears of the dragon over heating.The bustle on China's streets reflects the boom in its economy with its people spending more, but it might be growing too fast and that's the fear of the government.

China's GDP in the first quarter of this year grew faster than expected at 11.1 per cent supported by consumption growth at 3.3 per cent against its Central Bank's target of 3 per cent.The county's trade surplus doubled to $46 billion taking the foreign currency reserves to all time highs.

Meanwhile inflation also touched is at two-year highs.

Worried central bank

While the Dragon is racing too fast beating all the expectations for its own good Central Bank is worried. And when China comes out of a binge the entire world gets a hangover.

With fears of overheating engulfing China's markets that government might clamp down by raising the interest rates China's market indices tanked nearly 5 per cent creating global fears.

Hong Kong's Hang Seng and Singapore's Strait Times lost 2.3, 3.2 per cent while Jakarta closed down by 2.1 per cent.

Markets are afraid that raising interest rates could threaten China's weak banking system or by letting the Yuan appreciate would hurt export growth.But everyone around the world is hoping that the dragon's landing is a soft one and not a thud that shakes all other markets.

Govt says BHEL can’t deliver, to invite global tenders for project

noreply@blogger.com (Guru) — Fri, 20 Apr 2007 02:16:00 +0000

Stating that Bharat Heavy Electricals Limited would not be able to deliver in time, the West Bengal government has decided to invite global tenders for a project to enhance power output by 2012.

Power minister Mrinal Banerjee said the commissioning of the Santaldih Thermal Power Project, slated for March 2007, is already behind schedule because of delay in manufacture of the main plant package by BHEL. He said the government would not like to have a similar experience again.

Banerjee was talking to Newsline during a conference organised by the Indian Electrical and Electronic Equipment Manufacturers’ Association here.

However, BHEL Director (Power) K Ravi Kumar said although the company has an order book bulging with projects, it is still capable of executing projects in time. “The country has adopted an aggressive time frame for capacity addition but there are infrastructure lacunae to match such schedules,” he said.

“At most, delays caused by BHEL extend to three to four months. But lack of proper ports, roads and other infrastructure must also be taken into account for such delays,” he said.
Kumar said BHEL would apply for the project if global tenders are floated.

In 2006-07, BHEL had orders worth Rs 50,000 crore, of which Rs 28,000 crore was the power sector’s share. Out of this, West Bengal government’s orders alone are worth Rs 5,300 crore.

As part of the 10th Five Year Plan, West Bengal was supposed to add 2,670 MW to its output of power from thermal plants. Though the plan ended this March, the state is to start enhancing power generation from around July.

While BHEL has been responsible for supplying the 250 MW main plant package for the Santaldih project, Itochu of Japan has done it for the Bakreswar plant and a Chinese firm for the Sagardihi project.

Although BHEL’s orders for 2006-07 were worth Rs 50,000 crore, orders worth Rs 55,000 crore were still lying pending at the end of the year.

SEBI fiat: Fixed maturity plans, liquid, floating funds may have to act fast

noreply@blogger.com (Guru) — Wed, 18 Apr 2007 01:10:00 +0000

The recent SEBI circular on exposure to short term bank deposits by mutual funds will require the asset management industry to rationalise its investments in such deposits, a measure that not all concerned can take immediately.

While there are no definite indications as to how much is exactly at stake, it is believed that liquid funds, floating rate funds and fixed maturity plans will be immediately impacted by the move initiated by the regulator.

At the heart of the matter is SEBI's definition of `short term' for parking of funds, `short term' will relate to a period not more than 91 days. Such a period, notes Mr A.P. Kurian, Chairman of Association of Mutual Funds in India, may be a bit short for a section of the industry, especially players, which are into longer term deposits.

Reliance open offer for TV Today

noreply@blogger.com (Guru) — Wed, 18 Apr 2007 00:45:00 +0000

Reliance Capital is making an open offer for 20 per cent equity in TV Today, the company that runs a clutch of TV channels including Aaj Tak, Headlines Today and Tez.

The Reliance Anil Dhirubhai Ambani group (R-ADAG) company has offered to buy the shares at Rs 130.50 (approximately Rs 150 crore in all), a 7 per cent discount on today's market price of Rs 140.20

Reliance Capital has already increased it stake in the TV company from 12 to 15 per cent through secondary market operations. Under Securities and Exchange Board of India guidelines, any party that buys more than 15 per cent in a company has to make an open offer.

Confirming the development, an R-ADAG spokesperson said, "We see this as an investment and it would not affect the management or control of the company."

However, Anil Mehra, director, TV Today, said, "We have not heard that Reliance Capital has increased its stake from about 12 per cent to 15 per cent, so we cannot comment. They should make their intent clear. If it's only an investment, we have no problems." Living Media, which also owns the India Today group of publications, controls 55.69 per cent of the TV company.

TV Today has a market capitalisation of only Rs 812.87 crore, against Rs 3,729.94 crore for TV18 (which runs CNBC) and Rs 2,037 crore for NDTV. Reliance Capital has equity in a clutch of media and entertainment entities which include TV18, NDTV, GBN, Zee Telefilms and even the Deccan Chronicle.

It made its big entry in the entertainment sector by acquiring a majority stake in Adlabs, which makes films, and has a bevy of multiplexes across the country.

It also recently picked up a majority equity stake in Synergy Communications, a TV production house which makes the popular game show Kaun Banega Crorepati 3.

Telecom user base swells to 189.92 mn in Q3

noreply@blogger.com (Guru) — Tue, 17 Apr 2007 23:56:00 +0000

Boom time for the communications continued non-stop with India adding 20.08 million wireless subscribers in the quarter ended December 2006, taking the gross telecom subscriber base to 189.92 million.

Ironically the growth has also brought in less average revenues for the operators with tariffs touching low levels.

The all India blended ARPU (Average Revenue Per User) per month for GSM services has declined by 6.2 per cent from Rs 337 in the previous quarter to Rs 316 in the December quarter.

The wireless market grew at 15.5 per cent in the quarter ending December 2006 by adding 20.08 million subscribers.

The gross subscriber base of the wire-line and wireless services together reached 189.92 million in the quarter ending December, 2006 from 170.02 million as on September 2006, showing an increase of 11.70 per cent, said the TRAI's quarterly performance indicator.

Internet subscribers base reached 85.47 lakhs in the quarter by registering a growth of 5.9 per cent and broadband subscriber base reached 20.19 lakhs in the quarter by registering a growth of 11.12 per cent.

Calper wants and gets more from India

noreply@blogger.com (Guru) — Tue, 17 Apr 2007 23:25:00 +0000

The government may still have reservations over allowing pension funds in stock markets, but retirement savings worth a billion dollars of more than one million Americans have already been invested in Indian equities and this is likely to rise further this year.

California Public Employees’ Retirement System (Calpers), the largest pension fund in the US, has recognised India as one of the best performers among all the emerging markets in its investment policy report for 2007, approved by its board on Monday. Currently, Calpers has investments of about $1 billion in over 55 Indian stocks, which represents a whopping over 260% return since the purchase of these stocks.

Market experts feel Calpers would be looking to expand its exposure to Indian stock market, as it has given impressive returns ever since the world’s second-largest pension fund with assets worth around $240 billion began investing here in 2004. India has remained on Calpers’ permissible list of emerging markets for investments since its entry in 2004.

For 2007, Calpers board has decided it might invest in 20 emerging markets including Argentina, Brazil, India, Israel, Malaysia, South Korea, Taiwan, Thailand and Turkey. The decision was based on a report from its consultant Wilshire Associates, which reviewed country and financial market factors such as political stability, transparency and labour practices of 27 emerging markets, Calpers said in a statement.

According to the report, India and the Philippines made the biggest improvement in 2006, while a total of 10 markets improved their scores, two (Hungary and Poland) moved down the ranks and 15 kept their scores unchanged during the year.

Calpers, however, would not be permitted public equity investments in China, Colombia, Egypt, Pakistan, Russia, Venezuela, and Sri Lanka.

The pension fund, which provides retirement and health benefits to about 1.5 million state and local public employees and their families, had about $5.2 billion invested in emerging markets as of December 31, 2006.

While announcing its annual report last year, it had disclosed investments in 55 Indian companies at a book value of about $277 million, whose market value stood at over $353 million on June 30, 2006 itself.

It had recorded a total return of about 12% on its investments during the one-year period ended June 30, while marking the third straight year of double-digit returns.

The cumulative current market value of these investments today stand close to $860 million, while the fund has further expanded its investment portfolio since the end of its last accounting year, which ends in June. Indian companies in Calpers’ portfolio include blue-chips like Reliance Industries, Tata Steel, TCS, Tata Motors, SBI, Satyam, Reliance Energy, Reliance Communications, Maruti, Ranbaxy, M&M, Infosys, L&T, IPCL, ICICI Bank, HLL, HDFC Bank, Bharti Airtel, Bajaj Auto, Cipla and Dr Reddy’s Labs.

Other Indian companies where it has invested are ABB, Allahabad Bank, Arvind Mills, Asian Paints, Aventis Pharma, Bajaj Hindusthan, Bharat Forge, Biocon, Cadila, Gail, Gujarat Ambuja, HCL Tech, PNB and Sun Pharma.

Infosys a Safe bet for next 1 year - Nishit Vadhavkar

noreply@blogger.com (Guru) — Tue, 17 Apr 2007 02:12:00 +0000

The Infosys results have been declared and the annual ritual of the next year guidance also has been given.

The guidance for the next year has been pegged at rs 82-83.

Infosys always beats its own guidance by a long margin. Taking a minimum 1 year view of the stock, at this time next year, a price target of Rs 3000 looks very realistic. That is assuming Infosys gives Fy09 guidance at 20 pc.

20 pc guidance for next year should not be too difficult for a company like Infosys which has moved into Consulting, its china operations have broken even.

Infosys may not be hot stock it once was, but as long as it continues delivering steady numbers, it should occupy a a sizeable chunk of one's portfolio.

I flex yesterday touched Rs 2360, a far cry from the open ofer price of Rs 2100. As I mentioned earlier, I flex is like opening a fixed deposit, there is virtually no down side.

In last week of December when recommended to to convert major part of portfolio into I-Flex it was trading at Rs 1880. A gain of 25 pc risk free.

The easy days of the bull market are over now. It is a stock pickers market. Over the next 1 year, its time to be very cautious.

I am still bearish on the markets and would wait at sidelines with i flex and cash and wait for the UP election results to come through. 1 more CRR hike seems to be on the anvil.