Post Result Advice - 27 Nov 2009

TATAPOWER @ 1315 (271109) : You may accumulate this for long term on days of declines (ref 983 : 1490/602 : 88/76 )

Tax refund to adjust losses

Friends,

The US Congress has passed a bill granting businesses to adjust losses incurred currently against profits made up to five years back and get refund of taxes paid. This is very remarkable gesture shown towards businesses and is in line with the job less claims allowed.

Our govt should also show such gesture towards business people who pay heavy taxes when going is good but have nothing to fall back on when in dire strait. This will make our coporates more honest as far as payment of taxes is concerned. There are innumerable business enterprises which paid taxed for ten of years and had to wind up when suffered losses due to change in environment on which they had no control.

Hari Om,
Krsna Khandelwal

BIRDINFO Stock Rx - A prescription for stock market

Trading in India was muted

Friends,

The trading in India was muted due mainly to the expiry of November 09 series. It may be attempted to keep in a narrow range as the people holding calls and puts in Nifty near money may benefit if there is strong movement either way and the profession writers of calls and put will then be put to loss. The closing for Nifty was only slightly up at 5109. There is however a possibility that would make Nifty push upwards as most markets around the world closed up ie Shanghai was up 2.07%,Nikkei 0.43%,Hang Seng 0.84%,FTSE 0.46%,CAC 0.51% and the US market may open better due to fall in jobless claims. This may force the Nifty jump up as otherwise the roll over will be strong and premium may be unduly up. There is big outstanding position in put and hence the fall may not precipitate tomorrow.

The PM's US visit is good for the markets here as both leaders have clearly shown inclination to give impetus to trade and business exchanges and not having stopped at just resolving political issues involving our neighbours.

Hari Om,
Krsna Khandelwal

BIRDINFO Stock Rx - A prescription for stock market

Post Result Advice - 25 Nov 2009

MPHASIS @ 668 (251109) : You should buy this medium/long term (ref 1095 : 796/138 : 10/2)

RECLTD @ 234 (251109) : This is OK for medium/long term purchase ( ref 1395 : 243/53 : 152/156)

Interest outgo for some of the big corporate houses

Friends,

There is an increase in interest outgo for some of the big corporate houses. It is higher in terms of percentage of sales for 08-09 then for 06-07. ADAG had to dole out 9.91% of sales as interest in 08-09 against 4.18% in 06-07, for Jindal Group it was 5.21% (4.25%),for Tata Group 3.31% (1.51%) and for Mukesh Ambani Group it was 1.23% (1.07%). The total interest outgo for 25 top industrial houses increased to Rs 21129 crs for 08-09 against Rs 10792 crs for 06-07. It is clear that there has been larger industrial activity on account of expansion etc. Since the equity market were low, the corporates were not finding it right to raise money through equity sale route. The scene has changed and those who had to borrow heavily to meet commitments are now raising money through equity related offerings which is at substantial premiums. This is a good development for on one hand it will reduce the interest burden and on the other will give basic support to markets from falling.

There is a further point that reassures us about the resilience of Indian stocks. The total debt of industrial houses went up to Rs 3.57 lac crs in 08-09 from Rs 1.95 lac crs in 06-07 but the debt equity ratio moved up to only 0.75 from 0.47. The higher sales at Rs 6.04 lac crs in 08-09 against Rs 4.41 lac crs may well further increase in 09-10 which would then be sufficient to take care of higher borrowings and higher interest. Needless to say that all this is ensuring needed depth of the Indian stock markets. The further support will come after the PSU stake dilution by govt.

Hari Om,
Krsna Khandelwal

BIRDINFO Stock Rx - A prescription for stock market

PSUs are not considered very liberal with salary payments

Friends,

The top ten pay masters amongst Indian companies, in terms of average salary(Rs in lacs) are the following:

Bharti Airtel: 12.02
Infosys Tech: 11.06
ONGC: 10.40
Gail: 10.09
Hero Honda: 8.92
Wipro: 8.85
Nalco: 7.87
NTPC: 6.97
Reliance Ind: 6.39
IOC: 6.25

Four of above happen to be PSUs and this is remarkable as PSUs are not considered very liberal with salary payments. The Tata and Birla Group companies are also absent. Oil related businesses have greater presence. Manufacturing sector is represented by just two. IT surprisingly has just two members and Infosys remains second while ONGC lost its number one position. It throws up very interesting observations and also tells that the companies with higher salary payments have neither shown poorer market performance nor better market performance as a rule. There is no industry-wise hegemony too. So, in fact it is reflection of management's decision as per its own philosophy and not due to any sort of compulsion.

Hari Om,
Krsna Khandelwal

BIRDINFO Stock Rx - A prescription for stock market

Reliance offer for overseas acquisition

Friends,

RIL has offered to buy controlling interest in Leondell Basell, the third largest producer of petrochemicals in the world. The deal size would be greater than so far the biggest deal by Tatas for acquisition of Corus. Yet another confirmation that the heart of large Indian houses lies outside India and not necessarily in the interest of the shareholders. However, if the deal is given a thumbs up by the market then the Reliance Ind share price should explode. The offer is yet a non binding offer only. Let us keep our fingers crossed.

Hari Om,
Krsna Khandelwal

BIRDINFO Stock Rx - A prescription for stock market

Retailing companies command higher PE discounting

Friends,

The consumer strength of the 300 million inhabitants of State Capitals and other hubs of activity (like of education,manufacturing,processing etc) around the country have attracted retailers. There are 700 malls in the offing and many of these will be in smaller towns. Retailing sector has potential to grow fast enough. As the incomes of people grow, the traditional shop system will not be able to cater to consumer needs. It can only be done in an organised manner. Also the price competitiveness can be ensured with large procurement, storage, distribution and retailing networks. Reliance Industries Ltd has presence in retail space and deep pocket. Retailing companies command higher PE discounting and hence there is some hidden value in Reliance scrip which is yet to go ex-bonus. You may buy it for medium/term.

Hari Om,
Krsna Khandelwal

BIRDINFO Stock Rx - A prescription for stock market

Dena Bank and Canara Bank merger

Friends,

There is buzz about Dena Bank and Canara Bank merger but there is no official version available. If it happens, it may well be some thing to be happy about. I have earlier on expressed the opinion that there is need to consolidate all the nationalised banks in four with regional head-quarters. This should be no problem for there is no particular contentious issue that may arise about fairness of valuations etc. If any special need is felt, State Bank of India may still be kept as separate because it already has pan-Indian presence.

Such consolidated banks may become banks of world size as the Indian economy grows. Also there will be lot of cost saving in operations and client servicing. There would be pressure on groups who have defaulted here and borrowed there, to be more particular about settling the accounts. There will be less of pressure on centralised cheque clearing system. The IT related expenses will be more manageable and the solutions would be more fit than it is now for each of the banks separately.

If this is done at some speed after a comprehensive study by some govt constituted team and under an act of parliament, it would be that much better. If there will be excuses, those will be lame excuses as when Mrs Indira Gandhi had nationalised no preparation was done although the banks had very differing characters. Compared to that this would be much simpler thing to do and with greater benefit. Let us see if the govt under control of Indira's daughter-in-law and headed by a one time chief banker to the nation and an economist, does act promptly.

Hari Om,
Krsna Khandelwal

BIRDINFO Stock Rx - A prescription for stock market

Means adopted by Jindal are better for India

Friends,

JSW Steel of India and JFE of Japan (second largest steel maker in Japan) have agreed to swap equity in their respective companies. Mr Sajjan Jindal confirmed this but left many questions unanswered. He said he does not know what will be the promoter stake after the exercise or what minimum level he would be comfortable with. The Japanese major may be contributing large equity funds in new projects of the company. The group is looking at final capacity of over 30 million tonnes under the fold and has come to be partnering with JFE in interest of quality steel production to cater to Indian auto sector requirements which in his opinion and JFE would be next booming auto market when China's production figures have touched 10 million automobile units per year (India is still at 2 million units). Definitely, Mr Jindal has not revealed all about the arrangement/understanding and we as investor can hardly judge the way JSW Steel going to behave in markets place. Half information is worse then no new information where a decision is to be arrived at about investing.

Here I draw your attention again to the phenomenon of large Indian Groups spreading their chips thin around the world and rather not confine it within the geographical boundaries. As for the ways of doing it, I think the means adopted by Jindal are better because in this case the capital does not go out of the country, rather its comes in, on one hand and the country gets industrialised on the other, needless to say the Indian promoter group has the stakes spread out side the country too. Such cross holdings will also make the relations in future at govt level and also at peoples level as more congenial and stable. I ask every one of you who are interested to ponder over the matter see more posts dealing similar issues on this site. If only the Tatas, Birlas and some others done their integration with the world's other markets in this way, we would have had about Rs 50000 to Rs 100000 crs invested more in India.

Hari Om,
Krsna Khandelwal

BIRDINFO Stock Rx - A prescription for stock market

Nifty corrected today to close at 4989

Friends,

The Nifty corrected today to close at 4989 and the future was trading at 5 point discount. The question is that should you be worrying for it. I think what you hold for long term should be kept and what you have bought/accumulated as per my recommendations may be sold in part to book profits and use the money to buy more of the stocks recommended for long term. I may reassure you here that any further fall will be giving you an opportunity to buy stocks. The cement and steel scrip that were advised for long term have been quite stable, they would remain good in coming times.

Ratan Tata has expressed possibility of Tata Group being headed by an expatriate. He says that it would not be improper because 65% revenue come from overseas. I have always maintained that the Tata's overseas love was with a strong desire to be based all over and be an Indian Group only, may be it was because of the political scenario here.

In fact this is not in interest of India as when we have jobless and poverty riddled population and crave for capital for variety of needs, Tatas thought it proper to do the reverse. It would have been OK in times when our economy was not able to absorb the capital like the western economies. They have so far had no tangible benefit from their foreign ventures which has been bought. Any way, we may give them some benefit of doubt about the real intentions in what they have in mind and still consider them for India if not in India so much.

Hari Om,
Krsna Khandelwal

BIRDINFO Stock Rx - A prescription for stock market

Nifty is on a bullish path

Friends,

The market was only slightly better today, that too only towards the end. Why is it that the down looking day also gets back to posting some gain for the day. To confirm that the underlying tone is bullish, please note the following:

Out of the universe of top 200 most traded stocks covered by Business Standard, as many as 20 were at 52W high on 17 Nov 09. Of these 20, as many as 11 were at 2 year high. HDFC, HDFCBANK, HEROHONDA, INFOSYSTCH, M&M, MARUTI, SBIN, and TCS are some of the Nifty stocks that are ready for crossing all time peak. In light of above, is it wrong to see that Nifty is on a bullish path.

We were ready to count as four as possible gains while there were only two in bush about two years back (PE discounting had crossed 27), today when there is two in hand we are not ready to count them as such (PE discounting is only 17 today as per projected earning for the financial year 09-10). I have called it as two in hand because not only the EPS for companies have gone bigger, the companies have added the retained profits for the two years to reserves and deployed them for creating assets for added production.

Hari Om,
Krsna Khandelwal

BIRDINFO Stock Rx - A prescription for stock market

Gold prices to create an inflationary pressure

Friends,

The US retail sales were up 1.4% and not to be left behind, Japan posted 4.8pc growth in the third quarter. China has rolled out more of goods out of the factory gates and we in India are seeing all-round improvement in sales and production. This is about the four largest economies of world, if not of today than at least of tomorrow or day after.

Has the world changed over the last twelve months? We must say that it has for it has been possible for the world's leaders to ward off the recession that was looking right in eye. The period like after 1930 has been avoided and this has been possible for the capacities of govt to resort to deficit financing. The deficit financing is not such menace in today’s world because the tax bases are much spread and most economies are organized economies. The steering is powered by the IT enablement. The meters read the temperature of the engines with much accuracy.

Now, let not the semblance makes us complacent about the change in environment fast enough the money supply access spoil the party. The need is to start reducing its quantum very gradually but in the calibrated manner. The only thing that may spoil the party is the break out of any major war anywhere in the world. The DOW celebrated by upping by 136 points and the occasion may have been the decision of GM to start returning the bankruptcy related relief money before the scheduled dates.

Our Nifty came closer to real value of market by about sixty points to close at 5058. I have said this because consider that the market has potential of advancing between 10 to 20% here. There are numerous analysts, which keep saying the stories about the possible correction all the while but fail to say the each step towards correction is making the ground beneath solid enough to take a huge leap forward.

The gold prices at over Rs 17000/10gm is almost get ripe to receive many scrape gold form deeper pockets in India. It had happened once when the silver shot through the roof in 1980 and could not come back to the same level for next 25 years. The high gold prices will create an inflationary pressure and would force the govt to act early rather than late in raising interest rates and contracting money supply.

Hari Om,
Krsna Khandelwal

BIRDINFO Stock Rx - A prescription for stock market