Construction of this indicator is fairly simple. ROC is available in almost all Technical Analysis Software and hence modifying the existing ROC is not that difficult. In this method, we are going to add ROC(5), ROC(10) and ROC(15) and form a modified ROC indicator. Once this is constructed, we go long in the asset when the modified ROC moves above 4%. We exit the trade once the  modified ROC moves below 4%. Since momentum precedes price, as soon as the momentum on modified ROC begins to fade, we will exit the trade with whatever profits we have. The exit will be early since price is likely to move in the opposite direction only after momentum fades.

Results that we get after back testing the entry/exit criteria for modified ROC are very encouraging for Nifty futures trading.  When we use the standard ROC(15) parameter, we get results which are inferior to when we use a modified ROC. Under the standard parameters, though the profit factor and the payoff ratio is robust (1.95 & 3.2), the risk reward ratio and the K-ratio (o.06) are not favorable and the drawdown is 21%. However, when the results are tested for the modified ROC, the profit factor and payoff ratio increase to 2.8 and 3.8 respectively. Whats more important is that K-ratio for the same is 0.1225, which is considered extremely good. Drawdown witnessed in the same period is 9.6% (almost half than standard parameters) and the risk reward ratio improves to 1.81 compared to 0.8 with standard settings. Equity curve for both the techniques differs a lot. While the standard parameter produces a stable curve, the curve produced by the modified ROC is smooth and low on gyrations (as reflected by K-ratio).

The reason this simple strategy works is because entry in this method is based on slightest change in momentum and while the price runs up, if momentum falls, we tend to exit without giving away much profit. Tweaking around the parameters is definitely recommended as the parameters suggested here are purely based on observations and not optimization. Further research on this topic can also be conducted by following the work of Gerald Appel.

Equity Curve - Standard Parameters - More gyrations

Drawdowns are large with Standard parameters

Equity with Modified ROC - Stability and Smoothness

Modified ROC - Lower Draw Downs

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Net Sales and BVPS of Aarti Industries has consistently risen over a period of 5 years growing by CAGR 13% & 12% respectively. ROE and ROIC of the company have grown by 13-15% CAGR over the same period reflecting efficient cash utilization by the company.

Though Net sales has risen consistently, there remains a slippage in Net profit margins due to the high debt on company’s book. This has also led to the EPS of the company consolidating from the past few quarters. Recent quarters has shown some signs of debt coming under control, but overall the situation still remains a bit sticky.

Promoters of the company have consistently increased their stake in the company and have pledged no shares in the market. This remains a very positive sign for the stock. On the chart, the stock has corrected significantly and is forming a base near 44 – 50 levels. Stock can be accumulated at current levels as it is expected to do well going forward.

Aarti Industries Net Sales Increasing Consistently

Aarti Industries BVPS Increasing

Aarti Industries ROE Stable

Aarti Industries ROIC

Aarti Industries Falling NPM

Aarti Industries Debt remains a concern

Aarti Industries Chart

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Company has posted a Sales growth of 40% CAGR over a period of 5 years. During the same period, EPS has grown by 170% and the BVPS has seen growth at 22% CAGR. Net operating cash flow of the company has also witnessed a growth of 45% CAGR which indicates that the company is well financed to carry on its operations.

Margins of the company remain stable. From 2007 onwards, margins have increased substantially and that has been reflected in the performance of the stock. In difficult economic conditions, though stock has corrected so much, fundamental performance of the stock remains strong. One concern for the company was its mounting debt, which in recent quarters has seen signs of tapering off.

Technically, the stock has fallen from levels of 500 to 170. This move must have shaken out most of the investors in the stock and hence now seems to be a good time to start accumulating this stock. Currently the stock is forming a base around 150 levels and unless this level breaches, this stock remains a good buy.

]]> http://www.poweryourinvestment.com/featured/polyplex-corporation-positive-outlook-ahead/feed/ 0 http://www.poweryourinvestment.com/featured/polyplex-corporation-positive-outlook-ahead/ http://feedproxy.google.com/~r/PowerYourInvestment/~3/pCSWuAlsWr0/ http://www.poweryourinvestment.com/featured/ashok-leyland/#comments Tue, 17 Jan 2012 07:45:36 +0000 Super Trader http://www.poweryourinvestment.com/?p=865 Ashok Leyland

Buy

CMP – 25

Stop – 20

Ashok Leyland is the second largest manufacturer of medium and heavy commercial vehicles in India and has 26% market share. It mainly  manufactures buses, trucks, defense & special vehicles and engines. The company also supplies its buses to State Transport Undertakings (STUs) and Defense. It has its operations in more than 40 countries. The company has 58% market share in the bus segment in the domestic market and has seven manufacturing plants. It currently has an installed capacity of 1.5 lakh units across its seven plants.

Ashok Leyland has been performing well. There was a period between 2008 – 2009 when the performance of the company got severely impacted. But, in the last few quarters there are signs of the company beginning to improve on its performance. Net Sales of the company has risen at 16% CAGR over the period of 5 years. During the same period, EPS has grown at a healthy 14% CAGR. ROIC & ROE of the company had seen a dip in 2008 – 2009, but over the past 2 years, this has started to improve gradually.

Despite Economic uncertainties, company has been able to maintain its margin to a large extent. YoY margins (OPM & NPM) have both improved. This is a positive sign as the economy during this period (2010 onwards) struggled a bit due to high interest rate policy by the Reserve bank. One area of concern which the company has to address is that of high debt. Hopefully, this situation will change once the reserve bank decides to cut interest rates. On charts as well, Ashok Leyland is forming a nice base around the 20′s level. Unless the broader market collapses, the odds of this level being breached remain low.

Mundra Port is a fundamentally strong company. It has been consistently growing on sales front at 35% CAGR over a period of 5 years. Company is also well financed as the Net operating cash flow is consistently rising at 34% CAGR over the period of 5 years. Over the same period the EPS has grown at 55% CAGR and the ROIC has improved over the past 2 years. Margin wise, company has been able to maintain steady OPM’s and NPM’s despite challenging macro environment. ROE of the company is in the range of 22 -24% which is a reflection of how well the management and the company on the whole have performed.

One concern which the company had over the previous years was its high debt on the balance sheet. Over the period of time, debt has reduced substantially and if the interest rate cycle reverses, Mundra Port is one stock which can do exceedingly well.

On charts, Mundra Port is in the process of forming a bottom. Range of 110 – 120 remain a very strong support and for those looking to invest in the stock, can look at this range as a reasonable stop loss level.

Mundra Port Net Sales

Mundra Port Net Operating Cash Flow

Mundra Port EPS

Mundra Port NPM

Mundra Port Debt Equity

Mundra Port ROE

Mundra Port Chart

In recent times, company has run into trouble with mounting debt and lack of policy action on the government front. This has impacted the company adversely. With Power Sector of India being down graded by most of the rating agencies, Power Grid is one stock within the sector which looks poised to deliver high returns over a period of time. Power Sector of India will prosper without doubt. India cannot manage to progress unless the Power Sector meets with the country’s power demand. Currently, Coal import is hurting this sector the most and hence this is precisely the time to invest in stocks within the sector which show signs of strength and stability.

Power Grid has been expanding its transmission network leading to rise in sales and subsequent rise in profits in recent times. Over the period of 5 years, net sales, EPS and BVPS have shown growth at CAGRs of 21.7%, 15.3% and 10.7% respectively. Though the company remains laden in debt, it has utilized its debt well as the average ROIC over a period of 5 years is close to 12%. Net Sales of the company has been rising steadily over a period of 5 years at 21% CAGR. Despite of debt problems, company has consistently managed to keep up with the OPM’s and NPM’s. Over the years numbers are stable and have hardly slipped.

When compared to its peers, Power Grid has one of the highest NPM’s. On valuation parameters it is marginally expensive as it trades at 2 times book value and has a PE multiple of close to 16. Rest of the Government backed Power companies are relatively cheaper but lack the consistent performance based on ROE, ROIC and sustainability of margins.

In the recent correction of markets in 2011, Power Grid has shown tremendous resilience by not falling much. Technically this is one of the first signs of accumulation of the stock. Stock has also formed a base near the 90 level and can be used as a stop loss for those looking to invest in the counter.

Net Sales Power Grid

Power Grid ROE

Power Grid Operating Cash Flow

Power Grid ROIC

Power Grid EPS

Power Grid BVPS

Power Grid NPM

Power Grid Debt

Power Grid Base Formation Chart

]]> http://www.poweryourinvestment.com/featured/power-grid-corporation-time-to-accumulate/feed/ 0 http://www.poweryourinvestment.com/featured/power-grid-corporation-time-to-accumulate/ http://feedproxy.google.com/~r/PowerYourInvestment/~3/eGg0cyoO1os/ http://www.poweryourinvestment.com/featured/zee-entertainment-enterprises/#comments Wed, 11 Jan 2012 10:56:22 +0000 Super Trader http://www.poweryourinvestment.com/?p=821 Zee Entertainment Enterprises Ltd is the leader of satellite broadcasting in India. It has diversified into cable TV distribution and DTH services, film distribution. It has an estimated reach of 500 million viewers in over 162 countries.

Zee Entertainment is witnessing a new wave of resurgence. Group’s GRP are improving and company has huge cash reserves to carry forward operations without any trouble. Net sales of the company over the period of 3 years have grown at 28%. Company has also seen a huge increase in Net Operating Cash flow, which gives it enough room to invest the cash wisely or to expand the business further. Debt of the company has steadily fallen over the period of few years and currently the company is entirely debt free.

Operating profit margins of the company have remained stable over the years. However, Net Profit Margins have seen some slippages in the previous quarter. This remains less of a concern as this is expected to improve going forward in the next quarter. ROE and ROIC for the company stand at a robust 20%. EPS of the company remains inconsistent but is likely to move towards more stability going forward.

When compared to its peers, Sun TV emerges out to be the main competitor of Zee. Sun TV is facing many issues at the moment and is more or less likely to get impacted by the political battle in TN. Zee Entertainments Profits and ROCE hold up well against its competitors (equal market cap companies) and is likely to benefit due to the Sun TV situation. Based on valuation parameters (P/E & P/B), stock does look relatively expensive when compared with other stocks, but it is also one of the few stocks within its Industry which do not exhibit the kind of risks some of the other stocks do.

Technically this stock is trading within a symmetrical triangle and can breakout in any direction. Given the way the fundamentals are shaping up, there is high probability for the breakout to happen on the upside. In case the stock breaks down of the pattern, stop of Rs. 100 on weekly basis should be used as an opportunity to exit.

Net Sales Zee

ZEE Net Op Cash Flow

Zee NPM

Zee Debt

Zee ROE

Zee ROIC

Zee Peer Review - Net Margin ROCE

Zee Peer Review - PE PB

Zee Entertainment Chart

Tata Motors Sales

Tata Motors ROIC

Net sales of  Tata Motors has grown by 24% in the past 10 years and BVPS has grown at 16.5%. ROI and ROIC remains stable at a 5 year average of 25% and 23%. OPM remain at 9.7% in March 2011 down from 11.5% in 2010. High debt remains a cause of concern as the Debt/Net profit remains at 8.3. This has certainly improved if compared with 2009 & 2010, but the current level continues to remain high and worrisome. In case the interest rate cycle has reached its peak and rate cuts can trickle down from March 2012, Tata Motors could benefit significantly as the Macro situation would improve and the management would be able to manage its costs and debts better.

Tata Motors BVPS

 Tata Motors EPS

On Charts, stock is showing very initial signs of bottoming out. This is in sync with expectations of interest rate cuts in the future. Stock is forming patterns of higher highs and lower lows and that too in a market where corrections are very frequent and market remains volatile.

Tata Motors Chart

With the expectation of Macro environment improving, Tata Motors can be looked in at this stage. With strong fundamentals and improving technical picture, this stock can be bought on pullbacks and corrections. For investment purpose, one must keep 167 & 160 as a stop loss depending on risk profile.