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Archive for June, 2012

FII flows into Indian mkt likely by July: Asit C Mehta

Posted by sandhyaravii on June 22, 2012

Given the rupee weakness, Prakash Diwan, Head – Institutional Clients Group, Asit C Mehta Investment believes that there will be a scramble for safety with investors opting for defensive plays such as pharmaceuticals and FMCG counters.

However, he feels that once the local and global issues come to rest by July, there could be a lot of money coming to emerging markets and particularly the Indian market.

Below is an edited transcript of his interview. Also watch the accompanying video.

Q: Cement stocks have already lost anywhere between 3-5%. Do you expect further weakness in the likes of a JP Associates, ACC, Ambuja Cements and what would you do with these?

A: What we have seen with the cement stocks is the initial kneejerk reaction of the downward sentiment thanks to yesterday’s outcome. But once the cement companies get in a position to challenge this particular order and start looking at it from a different angle, the Supreme Court and Appellate Tribunal will definitely take some time to give their final verdict on this.

Meanwhile, there could be some value buying that could step in; cement, after all, is not such a bad sector. In fact, it’s difficult to figure out in terms of what could be the outcome post this order in terms of the pricing and realizations. But given the demand supply gap, it doesn’t seem to be very attractive from a valuation perspective. But I think lower levels that we are seeing now after this order could probably make some sort of nibbling happen at some juncture.

Q: Where are valuations and prospects attractive at this point in time? Do you stick with the defensives, consumers or would you now start looking at oil refiners or autos because of the obvious commodity advantage?

A: Given the sudden weakness that the rupee has attracted for itself, there will be a scramble for some sort of safety, some sort of defensive element in the portfolio. So I think very clearly, it will be back to the pharmaceuticals and well run FMCGs. But again, from a valuation perspective, is it the right time to pay that kind of huge premium? My answer to that is probably not because the moment the government starts getting into some sort of an action, there will be enough – last time also, I mentioned there is enough on the infrastructure side, enough on the aviation and retail side, the power sector side that could be done within its means.

So if that would happen now, this is a level which is so attractive for foreign investors to actually come in. Let the dust settle in the US, let them get their act together and I am sure come July, there could be a lot of money coming to emerging markets and particularly our markets. So I won’t pay too much of a premium getting into the FMCGs. I would separately look at these low value stocks, which have been oversold specially from the cap goods, retail, engineering side. So that’s a huge opportunity that exists –very stock specific at this point in time.


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Fall in rupee: An opportunity for investors?

Posted by sandhyaravii on June 22, 2012

The Indian market delivered a show of resilience despite global pressure. After trading for most of the day with deep cuts, the Nifty closed with just a 19 points loss at 5,146. The Sensex lost 60 points to close at 16,792.

Even for the week, the market closed with gains of 0.2%. This is the third straight week of gains for the market.

With the slippage in crude prices, Dipan Mehta, member, BSE and NSE says, India could become a better investment opportunity for the rest of the year. “Oil has been the biggest problem for India over the past two-three years or so. With oil prices correcting, automatically the macros of the Indian economy start to look up,” he adds.

According to him, the only major problem remains the rupee. Today, the rupee fell further and tested 57 to the dollar mark on strong dollar demand from oil importers and concerns over the global economic slowdown.

However, Mehta says, fall in rupee is certainly an opportunity for the investors. “With the rupee being at these levels, the entire export oriented sector comes into play. Typically software, pharmaceuticals, auto ancillaries, textiles look quite interesting. Investors should be positioning their portfolio such that they are overweight in some of the export oriented sectors. Investors can go for some of the tech companies or the large and mid size pharma companies,” he suggests.

Also read: Nirmal Jain Says it is good time to buy ; bets 3 sectors

Below is the edited transcript of his interview on CNBC-TV18. Also watch the accompanying videos.

Q: A lot of global brokerages and global experts are pointing out that because of the slippage in crude, emerging markets like India could become a better investment opportunity for the rest of the year. Would you concur with that?

A: Yes, absolutely. I think it’s a no-brainer. Oil has been the biggest problem for India over the past two-three years or so. With oil prices correcting, automatically the macros of the Indian economy start to look up. If the oil remains at these levels then it will make the task of the government as well as the RBI much easier, given that it has an effect on inflation, interest rates, fiscal deficit and a lot of other interrelated variables.

I think the main reason for the outperformance today for the market is the fact that Brent crude has also corrected. Also, the gap between WPI and Brent has  come down from about USD 15 per barrel, where it was about couple of weeks ago, to about USD 10-11 per barrel or so. So, these are very important positives for the country. The market is gradually reflecting it.

At this point of time, the only major problem remains the rupee. Despite the correction in oil prices, which will have a favorable effect on trade deficit, the rupee continues to drift lower and it’s again touched an all time low. That’s the only problem area for the market at this point of time.

Q: How ill investors approach India from a flow point of view? While relatively India might look better from a crude point of view, but the rupee is taking away all the benefits of that. How do you expect the flows to pan out from foreign institutional investors (FIIs)?

A: Crude and rupee are countering each other where crude is correcting, but rupee is depreciating. Although FIIs observe that the fundamentals are improving because of declining crude prices, but then their dollar returns are getting impacted because of depreciation of the rupee.

I think the real trigger for the market could be when the new finance minister takes over and what exactly the policies that he/she is going to follow and what the approach is going to be towards the managing the subsidies. Now that the task has been made a little bit easier, maybe it’s the right time to decontrol diesel prices. These are important cues which the market is looking forward to.

My sense is that if we see stable to sideways movement in the global markets, some amount of expectation will start getting built up as to who is going to be of the new FM and speculations start over there. There is a pretty good chance that the street will start expecting some kind of reforms be it on the pension side or even FDI into retail or for that matter the entire subsidy mechanism.

Q: With the way the crude is moving and with the way the rupee has moved, what kind of stocks would you be wary of right now either on the upside or on the downside?

A: With the rupee being at these levels, the entire export oriented sector comes into play. Typically software, pharmaceuticals, auto ancillaries, textiles look quite interesting, given that they would benefit from higher realisations or even if they have to pass on the rupee depreciation then they would gain by way of higher market share. The companies, which are to be negatively impacted, would be the ones who have very high borrowings in foreign currency or for that matter have huge imports. So, those names are also pretty much clear.

From an investor point of view, I think this is certainly an opportunity. Investors should be positioning their portfolio such that they are overweight in some of the export oriented sectors. Fortunately, there are a lot of good quality stocks with good managements, high levels of corporate governance standards, low capital requirement, and very little scope for equity dilution. So, this particular trend of rupee depreciation is certainly an opportunity that investors can take advantage of and go for some of the tech companies or the large and mid size pharma companies.


Q: How would you approach Reliance now? Some brokerages like Merrill Lynch have downgraded the stock. There have been worries with respect to Niko cutting down its gas reserve targets etc. Do you foresee more downsides for Reliance?

A: It could be a market performer at best. I think there are better stocks to invest at this point of time. With so much of uncertainty surrounding the stock, I think investors are best slightly underweight or atleast just about equal market weight on the stock. Maybe the triggers for Reliance would come when there is more clarity or when there is a scaling up of gas production.

Depending on how the rupee has impacted the performance, one would like to wait before making a more informed call on Reliance at this point of time. So, I would say that investors could avoid the stock at this point of time and focus on some of the clear beneficiaries of the rupee depreciation or devaluation as one would say so.

Q: How would you approach the cement stocks after the 3-5% cut that we have seen today?

A: It’s a bit difficult to call cement at this point of time. Fundamentally, certainly these stocks are quite attractive. There has been fantastic transition in the cement industry where they have been able to manage their costs better. They have been able to manage their bottom-line better. If you see all their various capital ratios in terms of return on capital employed, return on net worth, all of them have improved significantly over the past two-three years. They have become consistent performers as we have seen over the past few quarters or so.

The order of the CCI certainly soured the sentiment in the sector. I would just like to put the entire sector on hold for the time being and look for buying into these stocks only if there is a further 10-12% kind of a correction and there is greater clarification or atleast some further progress on the appeal. The fines are quite stiff and certainly they would affect the financials. Going forward, with this set back, how the industry will operate also needs to be seen. So, I would say that just wait and watch and look for buying into cement shares only if there is a further decline from these levels.

Q: How worried would you be about the monsoon situation? Today, the IMD cut its forecast just a tad bit. How much of a sentiment dampener do you think that could be, if the monsoon doesn’t play out as expected for the market?

A: We have had a decent monsoon last year. So, to that extent, I think the damage caused by slightly deficient monsoon may not be as much. In any case, as far as food grains are concerned, I think the granaries are over flowing. So that will act as counter pressure and would reduce the effect on atleast food grain prices. But it affects the sentiment in the rural areas. as far as consumption is concerned, the rural economy has been driving over the past couple of years. So, I would say that investors could factor in that aspect, when they look at the consumer oriented stocks which have benefited from rising demand from the rural sector.

By and large, I think that even a slightly deficient monsoon, the market would take it in its stride. Our sense is that it could be worse than 96%. The street also is expecting that it would be rather a deficient monsoon, much more than what IMD is predicting at this point of time, unless we see major revival in the rains over the next few weeks or so. So, I would say that it’s something which needs to be watched quite closely, but the damage may not be as much. I think, to an extent, it’s already got discounted in the market.


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Sensex rises 100 pts; banks, capital goods, FMCG lead

Posted by sandhyaravii on June 21, 2012

Indian equity benchmarks bounces back led by further buying interest in banks, capital goods and FMCG stocks, even after weak global cues. The Indian rupee too recovered from record low of 56.53 a dollar to 56.37, down 22 paise over previous close.

The BSE benchmark rose 98.33 points to 16,994.96 and the NSE benchmark moved up 31.70 points to 5,152.25.

The Bank Nifty gained 1.5% as country’s largest private sector lender ICICI Bank rallied 2.2% while its rivals State Bank of India and HDFC Bank climbed 1.4% each.

Engineering and construction major by sales Larsen & Toubro too extended upmove, rising over 2% and state-owned power equipment manufacturer BHEL was up more than 3%.

Housing finance company HDFC, state-owned oil & gas producer ONGC and top commercial vehicle maker Tata Motors jumped 1% each.

Even the market breadth improved; advancing shares outnumbered declining by 829 to 532 on the National Stock Exchange.


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Best Buy and Target (Recommendation)

Posted by sandhyaravii on June 21, 2012

LT – Larsen and Tourbo- Market is moving towards 5200. If it reaches then LT Target is 1380. If you are a short term buyer right time.


Kingfisher Airlines – KLA- Current Price – 14rs. Target 25rs (3months to 6months duration)


Suzlon – Current Price – 17.50Rs. Target – 30rs (3months to 6months duration)



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Reliance Market Lens_20th June 2012

Posted by sandhyaravii on June 20, 2012

Domestic Equity Outlook – Shifting hopes onto
global monetary stimulus now…
In what could be called a reasonably volatile day of trade, the Sensex
swung wildly in a near 200 points range intra-day yesterday, to finally
end the session higher by just under 1%. The Nifty too displayed a similar
pattern. The action was largely concentrated in the large-caps as the
mid-cap and the small-cap indices ended almost flat. The
advance-decline ratio was even on the BSE with the combined traded
turnover on both the exchanges at over Rs2 lakh crore owing to the
volatility. Sectorally, the Oil & Gas stocks witnessed considerable positive
action with most of the oil stocks gaining between 2-6%. The oil marketing
companies were in particular favour on hopes of partial deregulation in
diesel prices soon. Notably, yesterday’s market performance was despite
continued weakness of the Rupee against the USD as the former slid
below the Rs56 mark, but managing a close at…

(click to read more)


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Market Lens

Posted by sandhyaravii on June 20, 2012

Domestic Equity Outlook – Negative start to
the week
Indices snapped out of five days winning streak after rating agency
Standard & Poor’s cautioned that India could lose its investment grade
status because of its worsening economic fundamentals. Up move that
started last Monday came to a sudden halt after S&P CNX NIFTY
registered an intraday high of 5,124 post strong opening at 5,097 mark
yesterday. Unfortunately, sell off in late noon trades post S&P warning
saw indices moving below previous close of 5,068 only to register a
fresh low of 5,041 mark. By end of the day, indices closed with loss of
14 points at 5,054 mark. Sectorally, except for CNX FMCG index, all the
sectoral indices closed on a weak note. CNX Pharma emerged as top
loser with sector losing 1.5% in single trading session. Market breadth
fortunately remained in favor of Bulls with 770 stocks advancing as
compared to 693 stocks declining. Both Mid-cap and Small-cap indices
outperformed the broader markets although closed on a negative note.

(Click to read more)


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FIIs not too pessimistic on Indian equities: Samir Arora

Posted by sandhyaravii on June 19, 2012

Despite all the negative news pouring in from the economy, foreign investors have not washed their hands off the Indian market yet, which leads Samir Arora of Helios Capital to believe that they may not be overly pessimistic on India.

In an exclusive interview to CNBC-TV18, Arora points out that Indian markets have not fallen drastically in 2012. “In rupee terms we have gone up 8-9% and 3-4% in dollar terms, so the fact that you haven’t lost a lot of money is being felt by investors,” he said.

He goes on to say that the world is currently in a forgiving mood because investors have not been pained much by equities.

However, he agrees that it is high time the government takes a step towards reforms and making policy decisions which will help the economy, because reasons for the market to rally are running out.

The Reserve Bank of India has indicated that the ball is now in the government’s court to help boost the economy. Rating agencies S&P and Fitch have also put out warnings. Arora says “the government in some sense is getting it from every quarter, but they are not getting it in the end themselves as to what they should do.”

For the short-term, he believes it is a make or break situation for the country and the market, but has a more optimistic view for the long term.


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Buy South Indian Bank; target Rs 30.2: Aditya Birla Money

Posted by sandhyaravii on June 18, 2012

Aditya Birla Money has retained `Buy` on South Indian Bank (SIB) with a price target of Rs 30.2 as against the current market price (CMP) of Rs 24 with upside potential 25.8% in its report dated June 13, 2012. The broking firm gave following investment rationale on the stock:

We estimate SIB to report an EPS CAGR of 19.0% over FY12-FY14E. ABV is estimated to grow at 19.3% CAGR during the same period.

The stock currently trades at 0.9x FY14E ABV and 4.8x FY14E EPS. Going forward, we expect the bank’s margins to come under slight pressure given the bank’s increased focus towards low yielding corporate segment.

We expect the bank to deliver healthy net interest income growth (CAGR 22.3% over FY12-14E) and earnings growth (CAGR 19.0% over FY12-14E) driven by strong traction in business growth and stable asset quality going forward.

We retain our Buy rating on the stock with a target price of 30.2 (1.15x FY14E ABV), thus giving an upside potential of 25.8% from current levels.


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The 5 Best Ways to Invest in Gold

Posted by sandhyaravii on June 13, 2012

The ultimate dollar hedge investment will always be gold. Investing in gold through ownership of the metal itself, mutual funds, or gold mining stock provides the most direct counter to the dollar. As the dollar falls, gold will inevitably rise. In a moment, we’ll provide you with many ways for positioning your portfolio to profit from a bull market in gold. For now, we emphasize the high probability of gold’s future. The real potential forprofits in the coming years and decades is not going to be found in the traditional American blue chip industry. That is a financial dinosaur that can no longer compete in the world market.

The future growth is going to be seen in gold. The world economy may remain off the gold standard, but ultimately the tangible value of gold as the basis for real value-whether acknowledged by central banks or not-will never change. Historically, this has always been the case, and it always will be. In other words, we are on a “gold standard” in spite of the popularity of fiat.

You have many choices.

In the following paragraphs, you’ll discover five ways to invest in gold. Based on your level of market experience and familiarity with products, one of these will be appropriate for you.

1. Direct ownership. There is nothing like gold bullion, the ultimate expression of pure value. Historically, many civilizations have recognized the permanence of gold’s value. For example, Egyptian civilizations buried vast amounts of gold with deceased pharaohs in the belief that they would be able to use it in the afterlife. Great wars were fought, among other reasons, to pillage stores of gold. Why the allure? The answer: Gold is the only real money, and its value cannot be changed or controlled by government fiat-the underlying reason for governments to go off the gold standard, unfortunately.Gold’s value will rise based on the pure forces of supply and demand, no matter what Mr. Greenspan decrees regarding interest rates or greenbacks in circulation. The big disadvantage to owning gold is that it tends to trade with a wide spread between bid and ask prices. So don’t expect to turn a fast profit. You’ll buy at retail and sell at wholesale, so you’ll need a big price jump just to break even. However, you should not view gold as a speculative asset, but a defensive asset for holding value. Since your dollars are going to fall in value, gold is the best place to preserve value. The best forms for gold ownership are through minted coins: one-ounce South African Krugerrands, Canadian Maple Leafs, or American Eagles.

2. Gold exchange-traded funds. The recent explosion in exchange traded funds (ETFs) presents an even more interesting way to invest in gold. An ETF is a type of mutual fund that trades on a stock exchange like an ordinary stock. The ETF’s exact portfolio is fixed in advance and does not change. Thus, the two gold ETFs that trade in the United States both hold gold bullion as their one and only asset. You can locate these two ETFs under the symbol “GLD” (for the streetTRACKS Gold Trust) and “IAU” (for the iShares COMEX Gold Trust). Either ETF offers a practical way to hold gold in an investment portfolio.

3. Gold mutual funds. For people who are hesitant to invest in physical gold, but still desire some exposure to the precious metal, gold mutual funds provide a helpful alternative. These funds hold portfolios of gold stocks-that is, the stocks of companies like Newmont Mining that mine for gold. Newmont is an example of a senior gold stock. A senior is a large, well-capitalized company that has been around several years and has a profitable track record. They tend to own established mines that produce known quantities of gold each year. For many investors, selection of such a company is a more moderate or conservative play (versus picking up cheap shares in fairly young companies).

4.  Junior gold stocks. This level of stock is more speculative. Junior stocks are less likely to own productive mines, and may be exploration plays-with higher potential profits but also with greater risk of loss. Capitalization is likely to be smaller than capitalization of the senior gold stocks. This range of investments is for investors whose risk tolerance is broader, and who accept the possibility of gold-based losses in exchange for the potential for triple-digit gains.

5.  Gold options and futures. For the more sophisticated and experienced investor, options allow you to speculate in gold prices. But in the options market, you can speculate on price movements in either direction. If you buy a call, you are hoping prices will rise. A call fixes the purchase price so the higher that price goes, the greater the margin between your fixed option price and current market price. When you buy a put, you expect the price to fall. Buying options is risky, and more people lose than win. In fact, about three-fourths of all options bought expire worthless. The options market is complex and requires experience and understanding. To generalize, options possess two key traits-one bad and one good. The good trait is that they enable an investor to control a large investment with a small, and limited, amount of money. The bad trait is that options expire within a fixed period of time. Thus, for the buyer time is the enemy because as the expiration date gets closer, an option’s “time value” disappears. Anyone investing in options needs to understand all of the risks before they spend money. The futures market is far too complex for the vast majority of investors. Even experienced options investors recognize the high risk nature of the futures market. Considering the range of ways to get into the gold market, futures trading is the most complex and, while big fortunes could be made, they can also be lost in an instant.

We cannot know, predict, or even guess, when the demise of the dollar is going to occur, or how quickly it will take place. But we do know it is going to occur. The tragic mismanagement of monetary policy by the Fed over many years has made this inevitable.

Removing the U.S. monetary system from the gold standard was not merely a decision of short-term effect. Nixon may have seen the move as a means for solving current economic problems, but it had long-lasting impacts: trade deficits, growing federal debt, and the ability to print money endlessly and build a new credit-based economy. Internationally, the decision by the United States virtually forced all other major currencies to also go off the gold standard.

Any investor who views the economic situation broadly-both domestically and internationally-can see that trouble lies ahead. We have delayed the inevitable because China is a partner in our monetary woes.

The Chinese are building their own debt on the dubious foundation of the U.S. dollar, and other Asian economies have been forced to go along for the ride. When the dollar falls, many other countries will suffer as well. The offset, logically, is found in commodities. Investing in oil stocks makes sense, for example, because the price of oil is rising and as it becomes more difficult to drill oil those companies that own drilling and exploration operations will benefit. It makes sense to invest in other commodities as well.

The tangible asset play is clearly where future value is going to lie. With China’s never-ending need for coal, iron ore, tungsten, copper, oil, and other metals, the future of tangible markets is the bright spot in the gloomy financially based economics of the world.

Leading the charge is gold. It is ironic that monetary policy follows a predictable pattern.

Governments overprint money and their currency crashes. Inevitably, they always return to gold, but often at great expense and with considerable suffering. We find ourselves in another one of those moments in time where irresponsible monetary policy has put us at risk. But we don’t have to simply hold on and wait for the demise of the dollar; we can take action now because that demise is great for your portfolio-if you position yourself in tangible assets rather than in empty fiat promises and the bizarre economic premise of U.S. monetary policy.

Goods and services can be paid for only with goods and services. Currency is nothing but an IOU, a promissory note that is not backed up with any tangible value. Once we reach our national credit limit, monetary policy will be forced to retreat. When that happens, traditional investors and their savings accounts are going to be hit hard. The beneficiary of the falling dollar will be the investor whose holdings emphasize tangible value of goods: resources and precious metals.

Every danger to one group of people is invariably an opportunity to another. It all depends on where you position yourself. Those investors positioned in dollar-based investments are going to suffer the loss of purchasing power when the dollar’s value disappears. Those who have moved their investments to higher ground will benefit from the change.

Read more: The 5 Best Ways to Invest in Gold http://dailyreckoning.com/the-5-best-ways-to-invest-in-gold/#ixzz1xgiHyHsQ

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Balance both for goodness of life

Posted by sandhyaravii on June 13, 2012

An oft repeated adage — health is wealth — is true to label in all aspects. Be it health or wealth, both need to be carefully nurtured to enjoy and experience a good life. While a sound health keeps us fit, a sound wealth plan can help an individual meet his/her financial goals and help him/her remain stress free.
If we closely observe, there are many more commonalities between the two (see chart When health is wealth).
In today’s fast-paced life, people are conscious about their health but awareness about creating long-term wealth is negligible. Individuals fail to follow the five-step financial planning process — risk profiling, goal analysis, asset allocation, product selection and portfolio monitoring.
Since the various aspects of a sound health and wealth are similar, an investor just needs to know the ingredients to put together a diet/financial plan that is right for him or her.
Just like we have a ‘food pyramid’ that helps us identify the proportion of carbohydrates (bread, cereals, pasta), vitamins (fruits and vegetables) and proteins (meat, legumes, dairy products) for a healthy ecosystem, a ‘wealth pyramid’ must be followed for a ‘wealthy ecosystem’. This includes the asset classes and products that can be mapped according to one’s risk profile (see pic of The wealth pyramid).
Mutual funds can be a convenient and effective way to achieve long-term financial goals and investors can diversify their assets through investments in various classes like equity, debt, gold, etc.
Regular checkups
Be it a health plan or a financial plan, both change according to the individual’s physical and financial health, his/her age and other situational parameters. Hence, a regular review of an individual’s health as well as wealth profile is very important. For investments, at a young age, people can focus on risky investment products such as equity. But as they near their retirement age, they can move to debt investments to provide security and stability to their retirement income.
While the importance of a good health can never be underestimated, it is equally important to maintain a financially healthy life with the help of disciplined investment planning. Having the right balance between a health plan and a wealth plan is the key. What physical trainers/dieticians are for physical fitness and health, financial advisors are the equivalent for wealth creation as both health and wealth need expert advice. Regular check-ups can ensure a stress-free life.
Thus, for an individual, while being healthy is not an option but a way of life, following a financial plan is not a luxury but a necessity of life.
The author is senior director (capital markets), Crisil Research
COMMON GOAL: The wealth pyramid

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