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October 23, 2012

Scrip LTP Return % P/E P/B Div. Yield %

JK Laxmi cement		 127 235 8.2 1.3 1.6
JK cement 277 179 9.9 1.5 1.8
Heidelberg Cement 50 93 31.1 1.4 NA
KCP Limited 45 90 9.4 1.7 3.4
Madras Cement 187 82 10.9 2.2 1.3
OCL India Ltd. 159 80 12.4 1 1.3
JP Associates 95 80 26.6 1.6 0.5
Burnpur Cement 11 78 29.4 0.8 NA
Gujarat Sidhee cements 13 76 10 1.7 NA
Ultratech Cement Co. 2022 75 19.7 4.3 0.4
Orient Paper & Industries 82 66 8.3 1.5 2.4
Chettinad Cement Corp. 815 53 16.8 2.9 0.9
India Cement 98 47 11.9 0.7 2
Grasim Industries 3400 41 27.5 3.4 0.7
Dalmia Bharat Enterprise Ltd. 164 39 43.6 2.6 0.9
Prism Cement 53 39 NA 2.3 1
Rain Commodities 39 30 38.3 3.5 2.8
Ambuja Cement 203 30 22.5 3.9 1.6
ACC Limited 1404 23 20.4 3.7 2
Birla Corporation 274 2 10 1 2.2
Barak Valley Cements Ltd. 10 -9 NA 0.3 NA
Mangalam Cement Ltd. 8 -19 6.4 1.1 3.5
Andhra Cement Ltd. 9 -20 152 0.7 NA


NB: Returns are YTD   year-to-date




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October 22, 2012
masterandstudent-hdfc
HDFC Equity Fund, from one of the leading mutual fund house HDFC, was launched in 1995 and since then it has been one of the top performing fund in the multi-cap category. While there are many funds that have been performing over short and medium term, we look at this fund because of its excellent performance over longer period of time.

Snapshot of the fund:

HDFC Equity fund is relatively a large fund managing assets worth US$ 2b( about 10000cr), with S and P CNX 500 index as the benchmark. This fund is basically a multi-cap fund having financials and energy as the top sector holdings. The top holdings include State Bank of India, Icici Bank, ITC, Infy and Tatamotor DVRs. The fund has both dividend and growth option.

Performance:

The fund has given stupendous returns of 21% per annum since inception and its past 3 year and 5 year returns stand at 7% p.a. and 10% p.a. respectively, while the market has gone nowhere in the past 5 years. The 10-year Systematic Investment
Plan (SIP) has given returns of about 24% p.a and one couldn't ask for better performance.

Disciplined Systematic Investment in this fund has certainly generated very good  returns, for a passive investor. For the active investor, investments in this fund when markets are down sharply or during bearish phases will give you spectacular returns. It is one of the best funds to be in, for the long term.There is another equally good performing fund, HDFC Top 200 Fund and you can read more about it here HDFC Top 200 Fund

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October 19, 2012


Soaring TBZL Shares
TBZL(Tribhovandas Bhimji Zaveri-Ltd.) shares managed to close at its life-time high price of almost Rs. 200 today. This stock has more than doubled than its lowest close price of Rs. 89 Rs. TBZL shares were issued at Rs. 120 in the IPO.
This stock started soaring after the news of its foray into Kolkata besides anticipation of higher sales during coming festival season. TBZL plans to open 43 new stores across India by 2015 and allocated Rs. 1200 crore for the same. India ratings, a Fitch group company, have recently affirmed TBZL’s rating at ‘IND BB+’ with a stable outlook.
TBZL’s fundamentals are not much satisfactory with its net profit margin (NPM) and current ratio below 5 and 1 respectively.  TBZL has been benefited by rising gold prices and the same is reflected in its sales.
Presently this stock is trading at a price to earnings multiple of 23.5 against the industry average of 10 and hence value investors should stay wary of this luring rally.
for more details IPO analysis of TBZL may be referred. 
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October 16, 2012

The Last time I discussed NBCC was during its IPO period and since then many new events have been unfolded.

First, NBCC has been conferred a Miniratna status- a title given by the government of India to Public Sector Companies for their excellence which gives them more autonomy to grow- Miniratna status is lower in statute than Navrtana and Maharatna status.

Second, NBCC's financial results for the year FY 12 were satisfactory.
NBCC is a debt-free infrastructure development and real estate company and by this date has given a whopping 34 % return on its issue price of Rs. 106.
This stock is presently trading at around 9 times its Price-to-Earnings multiple and 2.1 times its Price-to Book value. NBCC has a robust order book and a land bank of 54 lakh square feet with significant presence in NCR (National Capital Region).
Even a conservative target for this company shall be around Rs. 180 (which is a further appreciation of 28% from the present  level) and this target could be achieved in next 1-1.5 year provided overall market does not go in a tailspin.
Private 'Real Estate Companies' marred by the allegations of indulging in the fraudulent nexus with politicians augurs well for this company.
If this stock starts falling with the overall market, one may start accumulating it with a medium to long term view in mind.
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October 12, 2012
Karnataka bank topped the list private sector banks with a whopping return of 79 % year-to-date. this bank has recently bagged 'The IBA Technology Award'. The bank is desirous of doubling its business in coming 3 years with the help of BPR (business process re-engineering) and engaged KPMG Advisory for the same.
Even the stock of Dhanlaxmi bank saw a return of 13 % despite posting negative EPS.
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October 12, 2012

Life expectancy is increasing

Not only India's population is increasing but life-expectancy of citizens too increasing in tandem.
This means more senior citizens to take care of.
As most senior citizens don't work and their earnings is limited to pensions and savings only, providing them financial assistance and healthcare facilities is very necessary. Senior citizens are most hurt by the falling interest rates as they predominantly invest in debt instruments. But for a growing economy like ours 'low interest regime' is a sought-after thing, providing financial sops and tax reliefs to senior citizens especially during such period will be an inevitable task.


Indian cities may be abundant with doctors but doctors are difficult to locate rural areas as many a doctor refuse to practice in rural areas.
Health spending in India is supposed to become 1.58 % of the national GDP and time will tell, to what extent scarcity of doctors in rural areas shall be sorted out?









Food grain production is lagging behind the population growth and therefore serious 'farm sector reforms' will be necessary to feed the country population.





Indian economy runs on the imported crude. About 80 % of our oil needs are matched by the imported crude but domestic production is not increasing proportionally.
Faster capacity expansion approvals and less stringent laws for oil-exploration companies are need of the hour. Explorers are KG-D6 basin and Rajasthan should be encouraged to ramp up production.

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October 05, 2012

CRR and SLR are reserve ratios.

CRR: CRR stands for Cash Reserve Ratio. CRR is the amount of deposits that all Indian Scheduled Commercial Banks (SCB) need to keep with the RBI (Reserve Bank of India)-India’s central bank. CRR is expressed in percentage and any change in CRR is declared in basis-points. 
100 basis points are equivalent to a per cent.
There is no floor or ceiling  for CRR.

Example: A CRR of 5 % means, every scheduled commercial bank has to park 5 % of its deposit with the RBI and a reduction of 50 basis-points (or .5 %) in CRR shall result in new CRR rate as 4.5 %.

Demand deposits and time deposits are collectively called as DTL (Demand and Time Liability) - as deposits with banks are liabilities for banks.

Point to be noted is CRR is expressed as a percentage of total DTL.
The term deposit means all Demand and Time deposits. FDs and RDs are the most common forms of Time Deposit while current account deposits and savings account deposits fall under Demand Deposits. 
Presently no interest is paid on CRR deposits.

SLR: SLR stands or ‘Statutory Liquidity Ratio’ is the ratio of liquid assets to net DTL (Demand and Time Liability) which every Indian bank has to maintained on the ‘end of day’ basis.
Simply put, every Indian bank need to put a fixed proportion of its net DTL(Demand and Time Liability) in liquid assets like cash, gold and non-encumbered approved securities.
Treasury bills of GOI are a commonly used security for SLR requirement.
Point to be noted is that CRR is expressed as a percentage of total DTL (Demand and Time Liability) while SLR is calculated on net DTL.
Besides CRR, banks need to comply with the SLR obligation.
RBI can raise this ratio up to 40 % at the most.
Non-maintenance of SLR by a bank makes it liable for the penalty at the rate equal to Bank rate + 3% p.a.
By this date, CRR is 4.5 % and SLR is 23 %. This means banks can’t lend 27.5 % of their deposits which remains stuck in reserve ratio requirements.

Implications of Reserve Ratio changes:

The very purpose of Reserve Ratios is to keep banks liquid at any point of time.
A reduction in CRR releases money in the financial system and more money could reduce the prevailing interest rates. Lower interest rates are good for businesses and the banking sector.
To suck the excess liquidity (which generally results in higher inflation) out of the financial system, RBI often raises Reserve Ratios.
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October 05, 2012
The country's leading stock exchange NSE was halted for a few minutes due to a crash of 1000 points in the S&P CNX Nifty, hitting a low of 4888 intra-day. Many of the Nifty stocks were down anywhere between 15-20%. As per NSE India website the circuit breaker rules (upper circuit and lower circuit) are as follows:
Index-based Market-wide Circuit Breakers:
The index-based market-wide circuit breaker system applies at 3 stages of the index movement, either way viz. at 10%, 15% and 20%.In case of a 20% movement of the index, trading shall be halted for the remainder of the day.
Since the index showed a downward movement of about 20%, the nse was closed and rightly so. But surprisingly, the exchange was re-opened in few minutes, citing reasons of erroneous trades by one of the broker for about 650cr.

From the following table you can check out the lows of index and other nifty stocks below: There were many stocks in the nifty down as much as 15-20% , all were actual trades done during normal market hours and no freak trades which would happen in small-cap or penny stocks.

masterandstudent-nifty


Such a crash had happened in nifty futures a few months ago, for which the reason attributed was algo trading, but this one was a manual execution of orders. Considering market at these higher levels, big selling could be anticipated, if not such a big one. Traders should be aware of such events and get themselves protected using proper risk management systems. Had the markets been frozen, it would have been a black swan event and if you wonder what's this black swan is all about, you can read about it here at Black Swan Theory.


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October 03, 2012

Repo Rate and Reverse Repo Rate are key policy rates.

Repo Rate: Repo Rate is the annualized interest rate at which central bank lends to other commercial banks.
Reserve Bank of India (RBI) is the central bank of India. This should not be confused with the CBI (Central Bank of India) - which is just a commercial bank and not a central bank. Central bank acts as banker’s bank.
When commercial banks need funds they have an option to borrow from the central bank at the Repo Rate.
One thing to note is -this lending is done against collaterals. This means commercial banks have to deposit government dated securities, corporate bonds, money market securities, treasury bills or equity (shares) as collateral (as security).

In the USA, commercial banks borrow from the Federal Reserve (The name of USA’s central bank) at Federal Discount Rate (similar to repo rate of India).

Central banks use repo rate to control the supply of money in the system. Repo rate influences overall interest rates in a country and the consequent inflation.
To lower the supply of money in the financial system, Central banks hike the repo rate as it makes borrowing expensive  for commercial banks and as a result banks keep their lending rates high that discourages businesses and individuals to borrow and thus money supply in the system is constrained.
To curb rising inflation central banks often raise the Repo Rate. Higher Repo rate results in higher short term lending rates while lower Repo Rate translates into lower short term lending rates.

Reverse Repo Rate: Banks park excess money with the central bank and  central bank pays interest on it. This annualized rate of interest is called Reverse Repo Rate.
In Indian context, Reverse Repo Rate is the rate at which RBI borrows money from commercial banks of India.Reverse Repo Rate is also termed as a mirror image of the Repo Rate.

One basis point is .01 %. This means 100 basis point is 1 %.
Central banks use Reverse Repo Rate to absorb the liquidity from the financial system.
When banks park money with the RBI, they get collaterals (government dated securities, money market securities, treasury bills etc) in return.
Earlier RBI would  Reverse Repo Rate to suck the excess liquidity from the system (and the vice versa.) but now Reverse Repo Rate should be necessarily 100 basis points lower than the Repo Rate.
This means Reverse Repo Rate now moves in tandem with the Repo Rate.

Present rates as on 3/10/2012
Repo Rate
8%
Reverse Repo Rate
7%
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October 02, 2012

What is Mutual Fund?

Mutual Funds (MF) are the investment schemes managed by professionals who collect money from investors and invest the pool money into securities. Returns achieved on such investments are distributed among investors in proportion of their investment amount.
Simply put, mutual funds invest on investors behalf so that even an uninitiated person without any expertise can invest judiciously.

Advantages of MF

(1) Mutual funds are beneficial for people with no knowledge of capital markets but desirous of investing in it.

(2)Investors get the benefit of diversification even if they invest small amounts

(3)Transparency of the investing procedure

(4)Low cost (this cost is generally the expenses incurred in running the scheme)

(5) MFs are professionally managed.

(6)Tax benefits-some MF schemes (ELSS) give tax benefits under section 80 c. These benefits could be taken away with the implementation of DTC (Direct Tax Code).


What is the best time to invest in mutual Funds?


General rule of thumb is-

As far as equity MF's are concerned, the best time to buy is down market. During down market NAVs are low and more units can be bought for a specific amount.
When recovery comes, much appreciation is seen.

Best time for buying debt MF's is when interest rates are at its peak.
Generally higher interest rates are unfavourable for growing stock markets.

As it is very difficult to time the market correctly, best option is to invest through SIP (Systematic Investment Plan).

Why one should invest in equity?
Though debt instruments are more secure and offers sure returns in comparison to its equity counterpart but returns on debt is relatively less.

Also these returns are affected by Real Interest Rates in the hands of investors.

What is Real Interest Rate?

Real interest rate of an investment is the difference between nominal interest rate subtracted by the rate of inflation.

If an investment gives the interest return of 8 % per annum while inflation rate is 10% per annum, then resultant Real Interest Rate is -2%.

This is the persisting problem with majority of debt instruments, that’s why opportunities in equity instruments should be searched.

Types of Mutual Funds

By structure Mutual Funds are of two types-

(1)Open Ended MF Schemes: This type of MF schemes remain available for subscription and re-purchase on continuous basis. These funds don’t have fixed maturity period. There is no restriction on amount of units that fund house shall issue. Such funds also buy-back shares when investors wish to sell.
The majority of Mutual funds are open ended schemes.
The key feature of such schemes is liquidity.
New investor can directly invest in these schemes by directly approaching to MF companies (or third party distributors) to buy units at applicable NAV (Net Asset Value).
Simply put, investor can enter of exit in such MF schemes at any time even after the NFO (New Fund Offer) period.

(2) Close Ended MF Schemes: Fund house raises fixed amount of capital through NFO (New Fund Offer). Unlike open ended MF schemes raise prescribed amount of capital once through NFO.
Fund house repurchases units from investors through periodic repurchases.
The fund units are then listed on stock exchanges and traded like stocks.
After the expiry of NFO period, investors can by the fund units from secondary market. When units of a mutual fund scheme trade on stock exchanges fund is termed as an ETF (Exchange Traded Fund).

According to investment objective, Mutual Fund schemes could be mainly classified into following categories-

(1)Equity Oriented Schemes: The aim of such schemes is capital appreciation. Such schemes predominantly invest in equities. Due to this, such schemes bear greater risk.

Such MF schemes provide 3 different options-

(A) Capital Appreciation or pure Growth Plan: No dividend is paid to investors and therefore value of investment (NAV) increases.

(B)Dividend Payout Plan:As the name suggests, dividend is paid through dividend warrant (or ECS) to the investors.

(C) Dividend Re-investment Plan: In this plan dividend is used to issue new units of the scheme at prevailing NAV.

Note: NAVs of (B) and (C) options increase much slower than the option (A) and this is normal.
A few examples of equity funds are Diversified EquityFunds, Sector Funds, Thematic Funds and ELSS (EquityLinked Saving Schemes).

(2) Income or Debt Oriented Schemes: The aim of such MF schemes is to provide regular income to investors. Such scheme invests in debt instruments like bonds, debentures, government securities and money market instruments.
Such schemes carry much lower risk in comparison to equity schemes but chances of capital appreciation are also limited.
If interest rates rise, NAVs of such schemes decreases while when interest rates fall NAVs soar. Long term investor is not bothered much by such fluctuations.
Some example of debt funds are Gilt funds, Fixed maturity Plans (FMP), Floating Rate Funds and Liquid Schemes.

(3) Hybrid or Balanced Schemes: Such schemes are a judicious blend of both equity and debt schemes. These schemes are useful for investors seeking moderate growth.
Though such schemes are affected by share price fluctuations but are less volatile in comparison with equity schemes.

(4) Gold Funds: Gold Funds invest in Gold and gold related financial products.
Investment is this category can be done in two formats-
Gold ETF and Gold Sector Funds (Such funds invest in gold mining and processing companies ).
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October 01, 2012


Indian Rupee (INR) today managed to close at 52.5 levels against the US dollar, which is 5-month high. Earlier I had discussed reasons for the rupee depreciation against the USA dollar.

Now let’s have a look into various factors that helped rupee to appreciate –

     (1)    Weakness in Dollar: Recently US Federal Reserve came out with its third round of the quantitative easing under which $ 40 billion of bonds shall be purchased every month until job situation improves.
Simply put, Federal Reserve increased the dollar in the financial system and as per the demand-supply rule, dollar depreciated against other global currencies. This weakness is also reflected by the dollar-index chart.

Weak dollar helped Indian rupee to appreciate against it.

      (2)    Increased capital flows in India: Indian government once accused of policy paralysis came up with a slew of economic reforms which restored the global investors’ confidence in India-story and foreign capital started flowing in aggressively . Dollar funds inflow fortified the Indian rupee (again according to demand and supply rule).

     (3)    Heavy dollar selling by exporters: Surging rupee spooked exporters and other dollar hoarders and they oozed out dollars fearing value erosion.As rupee gets stronger rupee-value of dollar-fund diminishes and due to this dollar-hoarders sell it.

   (4)    Falling crude prices: Diminishing crude prices ensured reduced dollar outflow and lower current account deficit resulting in stronger rupee.

   (5)    Due to Past Government measures: Imports of Gold, silver and crude expend lots of dollars. To curb the outflow of dollars, Government had hiked the import duty on gold and silver. Higher import duty discouraged the imports to some extent and helped rupee to strengthen.
Besides this RBI had curbed the currency speculation by withdrawing the facility to cancel and re-book the forward contracts by residents and foreign investors.
These earlier steps too seem to be showing their effects.
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