Oct 292008
 

Rummaging through the Rubble


ACTION TIME TO BUY


Filtered Stocks – Short & Long Term

What is more Important in stock markets – ENTRY or EXIT time?
This question has been nagging the minds of all investors ever since the stock market was
invented. There is no clear answer so far, although hundreds of books have been written on
stock markets. The simple answer is as under:

EXIT Time for Bull Market; ENTRY Time for Bear Market

Now that we are in a bear market by all means, the question is whether it is right time to enter in
this bear market or bulls are still being slaughtered? Whenever you try to buy, you become a bull
and when you try to sell, became a bear.

 

Whenever the market goes down, they call it “Profit Taking.” No one ever says “Loss taking.”
Right now, the damage is more like Katrina. Rubble, rubble everywhere. You have to find
something valuable available virtually free.
In investment, an Investor usually asks the following questions (some they are explicit, some
they ask within themselves)
  1. Is it right time to Buy?
  2. Will not the markets go down further?
  3. What should we buy?
  4. How long do we have to hold?
  5. How much we can possibly gain?
  6. What is the downside risk for the stock?
If above questions are answered, the investor loosens the purse and starts investing.
However, during this market collapse, especially in India, the investors have started asking the
following questions. Our comments are given immediately below in Blue.

 

1. Oh my god? How low the SENSEX will go to?

We are in worst ever credit crisis. It is specific to USA, and has spread to Europe and UK. It
is limited to a financial sector. No one knows how low will SENSEX go, so let us not involve
in prediction game. Further, we are going to invest into individual stocks, so why dwell too
much in the big talks like Index movement?

2. Are we finished or washed out with the market?

The market never gets finished or washed out completely. The market lives on. So use steep
correction as suitable investment opportunity

3. When will the market revive? Will it go to 21000 again?

Again, predictions game. Whether the market goes up or down, we are concerned whether
the stocks that we have invested in will give us suitable return. Yes, any sizable gain in a
short term will be a bonus. Focus on one to two year’s horizon. The target of 21000 is not
achievable in a medium term (next five years or so). The losses are so much, that the
investors will be keen to take profit, if the stock makes a gain of 10% to 30%. No one has
more patience now.

4. Will the market go to 5000?

When the market was at 21,000, the brokers were talking about the index going to 50,000 to
60000. Now that, the same brokers are talking about 5000, and if it goes to 5000, they will
talk about 3000. There is no end to it. To be quite honest, individual stocks do not
necessarily track indices. For instance, when the market was near 12000, Hotel Leela comes
down to Rs. 21.85 and with the present index of 8500 (35% down), same stock is trading at
Rs 26.50. You therefore better worry about the stock you are going to invest in rather than
talking about markets that will lead you nowhere.

5. How much we should invest? Should we invest all now?

It depends on your risk taking abilities. Do not invest more than you cannot afford to lose is
the principle of stock market investment. Not everything is going to zero. There are values in
the stocks when they are battered. The present opportunity is on a golden platter. So use it.
To give you an example, take Arvind Mill that has collapsed into Rs 13.10 today. Even a yard
of Arvind Mill fabric cost over Rs 30 to 45 per meter, or one shirt cost over Rs 150 to Rs 300.
With this amount one can buy about 10 to 20 shares of same Arvind Mill.

The stocks today are so cheap that even toilet paper often cost more. Do one exercise. Take
the inventory of items of your household that you have not used for more than 12 months.
Sell it out in open house or garage sale or sell it out to some hawkers who buy such stuff in
barter trade. Ask them to pay cash instead. Use that money to buy above quoted cheap
shares. You will be able to reduce dead inventory in your home; make enough space, clean
up the excesses and got some really valuable shares, that may double or triple in less than
one or two years. Please note that when the confidence returns in the marketplace, these
stocks multiply in less than five trading sessions.

If they have come down very fast, they will climb up with equal speed. Please be practical.

6. Is it not risky to invest now?

There is a risk everywhere. Even if one is healthy, he can be in bed if he meets some
accident. When one comes out of his home or office, there is no guarantee that he may not
be hurt by someone walking on the street or sidewalk. Do not ask such questions – they are
not worth even asking, where is the question of getting the answers?

You: Great, I now understand the game. I will take reasonable risk. So pick up some stocks for
me and advise me. I am buying on two year’s horizon at least
.

Me : That’s my boy. Now I will tell you what should you do. Remember, this is a stock market
and this time it is tough. If you are not made of steel, try to become one.

How to Buy in Washed Out Market?

There are two angles. One for domestic investors and other foreign investors or NRI. Following
is the consideration that governs my approach:

  1. Strength of Rupee (for International Investors including NRI)
    a. The stocks are cheaper by 50% to 80%, and the currency is cheaper by 20%
    (from Rs 39 to Rs 50). This makes the stocks very cheap if you decide to send
    more remittances to India (and you must)
    b. India may suffer in pace, but not in aim. The growth may be subdued somewhat,
    but will pick up in 12 month
    c. Current weakness in Rupee is due to manipulation in world market by USA and
    another, sudden fall in all markets have initiated margin calls even on funds facing
    redemption pressure. This is temporary event. The Rupee will regain its strength
    soon. The relative strength of dollar is more on weaker side. In fact it could
    collapse under its own weight.
  2. Strength of Economy (to all investors)
    a. The days of US supremacy is gone, That nation is heading towards disintegration
    slowly but surely.
    b. The days of consumptive society is also gone. The days are for savers who have
    preserved the wealth.
    c. Only those countries will prosper who have larger population. China and India
    head the pack but the India is ahead in domestic based growth whereas china
    rely on export led growth.
  3. Sectoral Growth (to all investors)
    a. A growing economy needs power, infrastructure, oil and gas, transportation,
    hotels, shipping, port developments. The info tech, pharmaceuticals,
    entertainment sectors will perform better.
  4. Regional Growth
    a. There will be more trades within Asia and South East Asia. The wealth has been
    transferred to Asia, South East Asia, Middle East and Far East. Africa is now on
    the verge of expansion.
  5. Commodity Growth
    a. Steel, Cement, Auto, Agriculture, Plastic, Chemicals will outperform. While world
    may be reeling in recession, India will be on expansion mode after present turmoil
    is fully played out
    b. Oil and Gas will outperform Coal; entertainment will outperform and dominate
    service sectors. Copper, Aluminium, Zinc, Tin, Stainless Steel and Carbon Steel
    will lead the sectors. These are most attractive sectors today
    c. Finance sector will take back seat, not because of its potential contribution but
    more due to risk aversion
    d. Agriculture sector will mushroom most. Sugar, Soybean, Coffee, Corn will
    outperform other soft commodities.
  6. Growth in Housing
    a. This will be engine for growth. Home Mortgage and Home finance industy will
    prosper as the default rate will be minimum.
    b. The sytem of mortgage in India is diametrically opposite to what is found in USA.
    They are incomparable
    c. Home furnishing industry will prosper.
  7. Precious Metals and Diamond
    a. Gold and Silver will outperform diamond industry for at least 2 to 4 years. Future
    currency regime in the West will be relatively gold and silver based. This will
    cause demand to outpace the supply.
    b. Growth in diamond demand depends on countries like USA, Japan, Europe and
    UK. The Japan will be major customer for diamond due to rise in Yen which will
    be perennial feature for next 7 years
  8. Banks and Financial Sector
    a. Banks will underperform especially private sector banks due to dearth of capital.
    b. Stock market will revive but still under perform.
    c.
    Debt market will prosper due to high interest rate.
    d. Insurance sector in India will be more stable than rest of the world.
    e. Much depends on Taxation policy. There is strong case for lower corporate tax
    and also personal taxation. Interest rate and CRR policy will take a back seat.
    However, these are politically dependent, so anything could happen.
  9. Growth inTextile and Garment sector
    a. They will be more domestic and Asia dependent.
    b. Garments will outperform textiles.
  10. Growth in Music and Entertainment industry.
    a. Music, TV, Video, Audio and multimedia industry will have huge growth for next
    decade.
    b. Bollywood will emerge as challenging center to Hollywood
  11. Growth in Sports industry
    a. Cricket as usual
    b. Followed by Football, Tennis and Gymnastics
    c. Sports related Advertisement industry will have maximum growth

Based on above concepts, the following is the basis of industry, sector and stock selection.

  1. Select The industry
  2. Narrow down to sectors within that industry
  3. Select companies having least debt
  4. Select Two top tier companies, One middle tier and One small cap with innovative
    technology.
  5. Select the popular companies. It is more like a fashion parade or beauty contest, where the
    most popular contestant wins.
  6. Stock selection will be on following basis:
    a. The defensive sector will under perform – like Food.
    b. The stocks that have dropped most will rise fastest.
    c. The stocks that have not fallen much (less than 30%) will under-perform.
    d. Mid Caps will outpace main Index stocks and also small caps.

What the Investors must do as preparatory steps?

  1. Avoid putting in new funds at the moment. The market is having strong negative bias.
  2. Reshuffle the portfolio for the time being. It is like raining heavy outside forcing you to stay
    home. So while you are at home, do something – clean up at least. Do not take a nap.
  3. Normally, I keep the list to 12 stocks,.Since many stocks have fallen over 80%, the list is
    expanded to 20 stocks at the maximum.
  4. Sell high PE stocks and raise the cash.
  5. Swap stocks from higher value to lower value. Never swap from lower value to higher value.
  6. Do not go for stocks for less than Rs 5 as there is chance that there will be reverse split or
    consolidation of shares. They may convert 10 shares into 1 share, for example.
  7. Make a recent inventory in your home. Chose the items that have not been used for last 12
    months. Sell them out and raise cash whatever the amount for buying some mid cap stocks
    that have become small caps.
  8. Be prepared to withdraw money from Provident fund (taking a loan), borrowing against Life
    Insurance policy and and Bank’s fixed deposits, and postal savings. That money will be used
    to buy new stocks when the market has almost stabilized or drops another 30% from current
    level. This may happen, do not be surprised.
    a. The thinking is that when the stocks rebound from very low base, they could have huge
    % returns. Some stocks may rise 4 to 5 times. (400% to 500%) in two years. Even if you
    part with higher deposit interest rate of 10% per annum or 20% in two years, the % gain
    of about 400% to 500% will more than compensate the loss of interest income.
    b. Do not go for stocks which have not fallen much. When the market recovers, these
    stocks will fall because the investors will go for stocks having fallen most.
    c. Under current environment, the stocks having moderate level of debt are more
    acceptable. Capital intensive stocks may not perform well.

Stocks in the Dock:

I normally limit the selection of stock to 12 but due to heavy fall, many stocks have fallen to great
extent. I have therefore extended the list to 20. After some time, they will be whittled down to 12
after profit taking in some of the least prioritized stocks (last 8).

I have given the following 5 stocks as selection list. There will be 15 more that will be added on
daily basis @ 5 stocks per day.

Stock

IFCI

Sector

Finance

Market

India

Symbol

IFCI.NS

CMP 08/10/28

16.90

Target ST

39

Target LT

81

Year High

121.20

Year Low

15.40

ST Hold

9 m

LT Hold

18 m

Current PE

1.88

% Down Peak

-87%

Downside

-20%

Upside

400%

PE 2009

 

Div Yield% CMP

No Div

Buy Range

12~31

Sell Range

39~81

Comments

One of the cheapest finance stocks. Net Worth turned positive after many years. Swap from higher value banks such as SBI, HDFC, BOI, BOB, and UTI. Low P/E, good growth in loan books benefit.

Stock

LIC Hsg Finance

Sector

Finance

Market

India

Symbol

LICHF.NS

CMP 08/10/28

177.75

Target ST

360

Target LT

1,020

Year High

402.90

Year Low

164

ST Hold

9m

LT Hold

24m

Current PE

3.62

% Down Peak

-56%

Downside

-10%

Upside

300%

PE 2009

2.65

Div Yield% CMP

5.61%

Buy Range

140~180

Sell Range

360~480

Comments

If one can not buy this stock, he should retire from the stock market. Current fall in prices is related to problems in Home finance in USA, and other western countries. Indian is not related at all, but the funds are getting out of any housing finance related stocks. This fear is behind the fall. This is one of the finest stocks you can own, better than even IFCI. The company has access to large funds with parent LIC whereas other institutions have to borrow at higher prices, reducing their spread. This stock is better than even HDFC. It will overtake HDFC in 3 years time.. Take out your money from deposits or PPPF and invest here. Much safer than others. I would even switch by selling HDFC into this counter. Selling HDFC will get me nearly 8.5 shares of this counter. This will outperform every other sector in Housing Finance sector Swap from SBI, BOI, BOB, LT into this counter immediately

 

Stock

Bharat Petroleum Corp Ltd.

Sector

Oil/Refin

Market

India

Symbol

BPCL.NS

CMP 08/10/28

272

Target ST

360

Target LT

785

Year High

556

Year Low

206

ST Hold

9m

LT Hold

36m

Current PE

6.21

% Down Peak

-51%

Downside

-30%

Upside

185%

PE 2009

4.53

Div Yield% CMP

1.47%

Buy Range

187~257

Sell Range

360~450

Comments

DO NOT be guided by numbers. They are erratic, following wrong accounting practice. The lower profits mainly due to pending subsidies. GOI issued 8% Bonds but they accounted it as Investment rather than income. It is not BPCL liability. The properties held by company are highly undervalued. EPS in this authors estimate using proper accounting will be well over 120 placing this stock as absolute bargain. The time is coming for lifting of subsidies that may happen after election. On 5 years horizon and expecting normal accounting, the stock trade over 2400 in 5 to 6 years. Expect fat dividend when the company starts using proper accounting. Until such time the stock may remain under pressure. Only Long term investors may touch this stock . Please note that due to improper accounting standard, the company understates profit and may therefore have more downside risk

 

Stock

Hindustan Petroleum Corp Ltd

Sector

Market

India

Symbol

HPCL.NS

CMP 08/10/28

180

Target ST

360

Target LT

1800

Year High

405

Year Low

164.10

ST Hold

9m

LT Hold

36m

Current PE

5.38

% Down Peak

-56%

Downside

20%

Upside

800%

PE 2009

4.50

Div Yield% CMP

 

Buy Range

140~187

Sell Range

360 plus

Comments

Same as BPCL, but this company is better. I would personally like to invest into lower value shares, as large cap stocks see the exodus of funds due to crisis.

 

Stock

Ambuja Cements

Sector

Cement

Market

India

Symbol

Ambujacem

CMP 08/10/28

49.50

Target ST

92

Target LT

180

Year High

161

Year Low

43

ST Hold

9m

LT Hold

36m

Current PE

5.85

% Down Peak

-70%

Downside

-20%

Upside

265%

PE 2009

4.50

Div Yield% CMP

5%

Buy Range

41~60

Sell Range

108~135

Comments

This is one of the finest stock in Cement sector. It could be privatized too at above 100 price. Even the current dividend yield is over 5% on current price, from dividend alone. Swap from ACC into this counter. After

 

Do not be guided by Dow’s sucker rally of 889 points yesterday. There are two possibilities:

1. A massive rally is rigged a few days before the bad news come out. The stocks then retreat
but still stay above desired support level. For instance, if Dow had fallen before 8000 and the bad
news were released then, there could be massive fall. If the market is pushed by 1000 points, and
then the bad news released, the market will remain above key level and the collapse avoided.

2. There is really some good news, but none was released.

NOTE: If you want fully formated article, please use PDF 08-011-Action Time to Buy – in the sidebar Download center. Take a print out (colour preferred) and then read it well. I will go on adding 5 stocks per day until 31/10/2008. The PDF file will be revised every time it is changed, so that you will have latest update.

This strategy holds good for any market. Just the stock name changes, The players and tools remain same.

ADDED TODAY (30-Oct-2008)

Stock

Essar Oil

Sector

Oil

Market

India

Symbol

EssarOIL

 CMP 08/10/29

76

Target ST

180

Target LT

480

Year High

360

Year Low

54

 ST Hold

9m

LT Hold

18m

Current PE

8 Est.

% Down Peak

-85%

Downside

20%

Upside

600%

PE 2009

>20 Est

Div Yield% CMP

NiL

Buy Range

61~92

Sell  Range

181~310

 Comments

This is the fastest growing stock in the Indian stock market. The company has come into production after 4 to 5 years. Its quarterly sales jumped from Rs 562 crores to Rs 9000 crores. For full year it may exceed the sales of Rs 36000 crores. This company is unique in that it is oil producer (like ONGC) and also a refiner (like BPCL, HPCL, MRPL), so its profitability will be higher than SOE Refiners and also MRPL. Its expansion plan will take hold in another 18 months. Since US does not have refining capacity, it may have to lease refiners like Essar and RPL. The potential of this company is simply huge. Yes, there were times when the Essar management wanted to privatize, but then dropped the idea. (After this author’s article on MMB). Even the management took new shares at Rs 200 plus. One may sell any share over Rs 600 and buy this share. The upside potential is simply outstanding. Buy with both hands. Risk of privatization is least now. Credit market is so tough that even the best borrowers do not have line of credit to pursue acquisitions. Do not wait – just grab it now and then buy more if it does come down. When oil prices rise, this stock benefits because it is also a producer. If Oil goes down, Essar as refiner benefits. This will become Index stock in 18 M

Stock

Essar Shipping

Sector

Shipping

Market

India

Symbol

ESSARSHIP

 CMP 08/10/29

31.90

Target ST

140

Target LT

360

Year High

252

Year Low

31.65

 ST Hold

9m

LT Hold

24m

Current PE

8.57

% Down Peak

-87%

Downside

15%

Upside

800%

PE 2009

2.5

Div Yield% CMP

NIL

Buy Range

31~43.50

Sell  Range

210~310

 Comments

This company is uniquely placed, so rise in oil prices will not affect it. It has youngest fleet and also many tankers. Since Essar Oil has come into production with expected revenue of Rs 36000 crores per year, this company will be prime beneficiary for transportation of oil – crude from middle east to India and from India to overseas. Its revenue could grow 4 fold in one year, and its profit will expand 4 times. With equity base very low, this will be the fastest rabbit on Indian stock arena. I would not be surprised, if the EPS reaches even Rs 16 to Rs 20 in less than 12 months. The stock is near 12 months low. It has some of the finest potential. Just grab it when the market opens.

Stock

India Hotels

Sector

Hotel

Market

India

Symbol

INDHOTEL

 CMP 08/10/30

45.80

Target ST

92

Target LT

180

Year High

163.80

Year Low

43

 ST Hold

9m

LT Hold

24m

Current PE

8.61

% Down Peak

-72%

Downside

15%

Upside

400%

PE 2009

6.85 Est

Div Yield% CMP

4.1%

Buy Range

39~60

Sell  Range

92~40

 Comments

Best blue chip hotel stock of Taj Group of Hotels with largest revenue base of 1600 crores. Have presence in all metro and tourist cities. Good Dividend yield of 4%, low PE and best management can make this stock highly favorite. It is perhaps life time opportunity to buy at cheap price

Stock

Taj GVK Hotel

Sector

 Hotel

Market

India

Symbol

TAJGVK

 CMP 08/10/30

44.95

Target ST

108

Target LT

160

Year High

205

Year Low

40.85

 ST Hold

9m

LT Hold

24m

Current PE

3.96

% Down Peak

-80%

Downside

18%

Upside

400%

PE 2009

3.35 Est

Div Yield% CMP

7%

Buy Range

38~45

Sell  Range

108~

 Comments

This is premier Mid Cap stock with lot of growth. Decent yield of 7% should make you think why not you withdrew bank deposits and invested here. Weak rupee helps, good management. This can shine more than its parents = Indian Hotels

Stock

Royal Orchid Hotel

Sector

Hotel

Market

India

Symbol

ROHLTD

 CMP 08/10/30

42.15

Target ST

81.

Target LT

180

Year High

174.60

Year Low

38.50

 ST Hold

9m

LT Hold

24m

Current PE

3.71

% Down Peak

-78%

Downside

15%

Upside

300%

PE 2009

3.50 Est

Div Yield% CMP

14.23%

Buy Range

35~45

Sell  Range

81~131

 Comments

One of the cheapest hotel stocks with dividend yield of 14%. -40% higher than bank deposits. Less Debt, good presence in Bangalore, Hyderabad, Pune, Mumbai (All info tech centers).Also Goa.  Weaker Rupee helps. Trading at 33% discount to Book Value. Most negative already discounted.

(ADDED 4-Nov-2008)

Stock

Hindalco

Sector

 

Market

India

Symbol

HINDALCO

 Px 08/11/04

64.40

Target ST

108

Target LT

180

Year High

202

Year Low

38

 ST Hold

9M

LT Hold

18M

Current PE

4.52

% Down Peak

-68%

Downside

40%

Upside

187%

PE 2009

6.00

Div Yield% CMP

2.88%

Buy Range

42~61

Sell  Range

108~180

 Comments

Looks very cheap stock, but it is more due to share splits that have seen the stock having face value coming down to Rs 1. At the same time, it lost the status of blue chip and reduced to penny stock. Unless the company does reverse split so as to bring the value of stock close to Rs 300, large funds buying may be restricted. Funds have sold it good time. On fundamental basis, I take the view that there would be massive inflation in less than 12 months that will push up commodity stocks very close to highest price seen recently. Weaker rupee may also help the stock in translating $ prices to rupee.

 

On individual basis the Debt level is very high. The under subscription of rights issue results in heavy selling pressure from the sponsoring Merchant Bankers. The company may have to raise capital again in difficult market. There are better metal stocks. Still good to own at this price for short term trading until fresh capital is raised later. Trade and do not hold on longer term basis. Do not take up rights issue if given again. Do not chase the stock. Buy at your leisure.

Stock

Balaji TeleFilms

Sector

Media

Market

India

Symbol

Balajitele

 Px 08/11/04

70.75

Target ST

141

Target LT

420

Year High

388

Year Low

62.75

 ST Hold

9M

LT Hold

36M

Current PE

5.52

% Down Peak

-82%

Downside

15%

Upside

600%

PE 2009

4.20 My Est

Div Yield% CMP

4.95%

Buy Range

61~108

Sell  Range

172~420

 Comments

The stock dropped sharply due to Balaji’s break off with Star who will be the biggest loser in the deal. What attract me most is that this is the only company (after MTNL) which is completely debt free and that too in industry that is normally saddled with debt. This could be the reason for the strong management response to Star. Ekta Kapoor is extremely talented lady and her brother too is shaping up well. The Kapoor clan has broad range of talents in TV serials, movie and marketing. Since I am very bullish on the Media sector, that may even compete with Hollywood head on, there could not be a better stock than Balaji Telefilm. Expect rise in dividend payment after excluding Star. Go for it.

Stock

Dish TV

Sector

Media

Market

India

Symbol

DISHTV

 Px 08/11/04

17.50

Target ST

42

Target LT

108

Year High

106.40

Year Low

11.75

 ST Hold

12m

LT Hold

36m

Current PE

Negative

% Down Peak

-84%

Downside

-30%

Upside

+500%

PE 2009

Negative

Div Yield% CMP

NIL

Buy Range

14.10~23.50

Sell  Range

42~84

 Comments

May appear a risky stock, not for widow or salary earner but for businessmen.  Extra ordinary potential for this industry. Saddled with debt but also accompanied by creative talents of Zee Tele group. The promoters do not have financial acumen though. They do not know how to and when to raise money.

The company’s growth in sales (Over Rs 400 crores – third largest in industry) is major consideration for this author to suggest this crying baby. Their attempts to raise the capital failed two times. When they were in need, they fluttered with the pricing and now they have no choice – difficult market. Still the industry in very strong growing phase that will attract overseas media companies to India.

Hollywood on declining trend whereas Bollywood on upward climb. Quality of film making, sop opera, talents, technical finesse have improved beyond imagination. Literate and skilled software are invading into entertainment industry.

Ambani’s venture with Spielberg may create new dimension or confidence for Indian entertainment industry where millions of household will forego meal but watch the TV news, Cricket and sop operas. Sports (Cricket) are another major attraction for media. Further, losses of this company are academic by way of heavy depreciation. Real cash losses are not that significant. Once this company recovers, it will be on fast track. At the moment, risk of investing is average.

India’s susceptibility to vagaries of weather that results in flood and avalanche, necessitate use of satellite technology that is also indigenously produced at fraction of the cost. If the company can enter the broadband and other internet technology with greater emphasis, it will have major growth.

Oct 28, 2008 (Ref: 08-011-Action Time to Buy) – Updated till Nov 5, 2008

Stock

Guj State Petrochem Ltd.

Sector

GAS

Market

India

Symbol

GSPL

 Px 08/11/04

29.90

Target ST

56

Target LT

81

Year High

114.45

Year Low

28.40

 ST Hold

9m

LT Hold

18m

Current PE

15.84

% Down Peak

-75%

Downside

-15%

Upside

180%

PE 2009

13

Div Yield% CMP

2%

Buy Range

23.50~36

Sell  Range

61~81

 Comments

Gas stocks are the future. GSPL is mainly involved in transportation of Gas from producers to ultimate consumers, commercial, industrial or residential.

Supply side: The Gas production will be increased substantially in India – from Bombay high to Godavari basin – that requires an efficient distribution via Pipe line. HSPL has over 1100 km pipeline at its command, and more on the way in next 12 months. It will have compounded growth of over 20% for next 2 years and then 30% for following 3 years.

Gas prices are loosely controlled, so negative effect of controlled prices on the stock is less.

On Demand side, more and more public vehicles being converted into natural gas driven (LPG/CNG), the distribution via pipeline assume supreme importance. Larger housing colonies of future will install piped gas system. This is where GSPL and Petronet come in to play vital role in distribution. There is also a possibility that neighboring Pakistan may become its important customer when the things settled down politically there. No other company is better placed than GSPL to deal with Pakistan when the demand originates from there.

As Product, the gas is self lubricant and emits almost no smoke, so it is “Green” in nature.

Financially, the company is very liquid, profitable with excellent balance sheet. Large cash holding, earning good interest on Fixed deposits. Its EPS may rise to Rs 10/shr in 5 years based on higher demand, more pipelines, higher gas prices and realizations, and fresh demand from neighboring states like Maharashtra and Rajasthan.

GSPL is still an adolescent. In 7 years it will be a very healthy adult earning substantially. This is a stock more like Provident Fund where you contribute regularly to earn large lump sum at the end of 10 to 15 years. Please note that it will not be a run away performer, but sure, steady and sound one.

SWAP

If you own the following stocks or slow movers, you may sell them to raise the cash and Buy the above stock. The idea is to enhance the potential return in short time frame. Please note that in down market, such swaps may worsen your position. However, if you are careful as well as lucky to have bought stocks near low, the SWAP will not only recover but also make handsome gain.

SELL

Insraprastha Gas (IGL), say 1000 @ 105 to realize or

GAIL (about 15%) of current holding say, 150@ 250 and

You are swapping stocks within same gas sector with a view to providing greater and faster return, retaining same sectoral advantage

OR you can sell any slow movers having higher value and SWAP them into this stock

+

+

105,000

37,500

BUY

GSPL , say  3,600 @ 29.30 from IGL proceeds or 1280 from  GAIL proceeds.

105,000
37,500

Kalidas, Hong Kong

Oct 252008
 
In today’s uncertain world, a few countries stand out on their own, of which India is one. There is everything one can think of finding – higher education, high savings rate, less papers or derivatives, huge population, efficient stock market, several millions of rich middle class wage earners, less debt, huge savings in real wealth like Gold and Silver, classy high tech manpower, world’s best design source, above average entrepreneurs, great creative and entertaining industry, least gambling resources, and a great democracy.

And yet, this giant dinosaur has been unable to find a single genuine pace bowler for its Cricket team, enough players to win the Olympic gold medals, really creative Prime Minister, Finance Minister, and Chief Operating Officers for SEBI (equivalent of SEC), and RBI (equivalent of FED in USA) from its thriving millions of population running across the country in every street and corner, sweating, smothering, bothering and yet smiling amid all odds against its existence.
What is wrong with this country? Its culture, Nay; Collectivism, partly; education, Nay; poverty, Nay; democracy, Nay; Contentment, yeah and lack of Killing Spirit – certainly Yes. Indians are notorious for self egoism, false patriotism and above all “eternal contentment” for whatever it has. Its desire for yearning is least. “Why do we need this? It is enough. We are happy with what we have” And that sets it apart from the rest of the dynamic western world.

 

India’s Info tech Glory and Visionary Jawaharlal Nehru

Indians have the extremely bad habit of not giving the credit where it is due. Take the example of its InfoTech Industry – now on the lips of every technocrat all around the world. It’s main creator and originator is forgotten as “Cause” and the “Result” is worshipped like a demi-god.

The seeds of high end Info tech were sawn by its first and most charming Prime Minister, Jawaharlal Nehru, a great visionary. With extremely limited sources at his command in early 50s, he maneuvered to obtain the great alliance with prestigious MIT in the United States, to set up 4 finest technical institutes – Indian Institute of Technology. And in remaining 60 years, the successive governments with almost 50 times monetary and ample human resources at their command could set up only 3 such institutes. He made the technical and engineering education so cheap and affordable, that India could produce talents at the cheapest cost.

His investment by way of subsidies in education, basic industries and oil refineries returned 100 times return in recent years. What he spent in millions on IIT brought in billions of dollars in Forex through thriving Info Tech industries. Even this author got 4 degrees for just Rs 4000 or $80 in 4 years.

When the British left India in 1947, they built 9 platforms at Bombay VT railway station when India’s population stood at 300 million; whereas in next 60 years, the successive Indian governments could build only 4 platforms at Bombay’s Church gate railway station with over 1 billion population! It is said that India is always on “Auto Pilot”. No one knows how it runs – it just walks in the wilderness.

Nehru dynasty gave leadership in the form of Jawaharlal Nehru itself, then Mrs. Indira Gandhi, Rajeev Gandhi (Son of Indira Gandhi) and now Mrs. Sonia Gandhi, head of ruling Congress party, and wife of Mrs. Gandhi’s elder son Rajeev Gandhi.

Even the Kennedy dynasty nowhere stands near the Nehru dynasty. The greatest contribution that Mrs. Indira Gandhi made was the green revolution and killing of all strength of pre-1947 Pakistan into two separate nations – Pakistan and Bangladesh.

And yet, all credits are given today to the likes of BJP Leader Vajpayee, the charismatic Prime Minister who merely exploded the Nuclear Bomb (It was built only with the vision of Nehru and Mrs. Indira Gandhi), Man Mohan Singh, the Prime Minister and P Chidambaram, the Finance Minister today for doing nothing substantially positive and lots of negative.

India has come a long way since 1950. Knowledge is no longer a power of a few. However, the kind of progress expected has not been achieved by India, and in fact, it is on the verge of losing major advantage if nothing is done now.

India’s disastrous policy measures in past, its effects and how that can be reversed with ease?

India’s de facto Central Bank – Reserve Bank of India – similar to FED in USA or Bank of England in UK, is a most revered institution in India. So also, Security and Exchange Board of India known as SEBI, equivalent of SEC in other countries, and stock exchanges like Bombay Stock Exchange – BSE and National Stock Exchange (NSE). They are given the status of demi-god by the admiring and ignorant semi educated urban class in India. The result is that these institutions, with possible exception of NSE in some cases, have become monolithic and inefficient organizations, with RBI leading the pack.

The officials of these bodies do not have experience in global money market, how certain powers manipulate the word market with ease, and therefore are very dogmatic in their views. They blindly follow the theories and practices of western and eastern world. As result, the economic, monetary and social policies fell far short of desired goals in last 50 years.

They do not realize that if certain standards with reference to which their policies are tailored are not yielding desired result, the standard itself must be wrong. As result, the measures initiated to adjust the imbalance often fail. Let us see the measures that failed India:

Belief, Policy Measures, Expectations and Final Result with Causes

Actuator: Finance Ministry, Reserve Bank of India, SEBI

Policy: Exchange Rate

BELIEF & PARADOX (In Blue prints)

1. Weaker Rupee helps exports and earns FOREX

2. Domestic Industries are protected against excessive and expensive imports

3. Jobs in domestic industries are protected and also promoted

4. Foreign Debt reduces due to FOREX earnings out of exports

POLICY MEASURES: Switch ON

Weaken Rupee by all means

1. RBI: Reduce NRE deposit rates – pay them much less than domestic deposit rates (6% less)

Even if NRI came to the country’s rescue in 1992 FOREX crisis, when India had to pledge Gold to Bank of England. NRI were treated like disposable towel

2. RBI: Do not let FII to buy Rupee from the market. Let them come to RBI directly to reward them with much higher rupee rate as enticement not to go to the market.

Even if it costs national exchequer hundreds of crores of rupees

3. FM, RBI: Sterilize any rise in the market by buying back dollar against rupee

Even at the cost of higher money supply leading to inflation

4. FM, RBI: Allow Indian Businessmen to invest overseas so that they buy dollars and sell rupee to cause it weaker and weaker.

While Foreign Investors were keen to invest in India, India was telling its businessmen NOT to invest in India but invest overseas, as though India had become one of the richest countries in the world. Even China after receiving almost $500 billion never thought of stopping the inward money flow and permitted Chinese to invest overseas

5. FM, RBI: Allow Indian citizens to remit overseas US$ 100,000 without RBI approval, so that pressure on rupee is reduced by letting them sell rupee and buy dollars.

While permission was not given to individual foreign investor to invest into Indian stock market as logical step further to widen the Indian markets or for direct investment, domestic Indians were asked to invest overseas, even when India was facing dearth of capital for building power plants, ports, Airports, national artery roads, sewerage, water filtration plants to reach every nook and corner of the country

6. SEBI, RBI: They introduced P-Note measures to scare away the foreign investors from India so that upward pressure on rupee is diminished.

7. SEBI: introduced arbitrary circuit breakers for market and individual stocks in the name of maintaining order which again scared the foreign investors who were faced with illiquidity in the invested counters. Some stocks had 5, 10, 15 or 20% up or down circuits that were fixed arbitrarily.

SEBI forgot main principle of free market that every investor has right to invest or disinvest in any stock at any time without hindrance. Even in market crash such as now, and in January 2008, the foreign and domestic investors were not able to sell the stocks at market because there was no market.

8. FM, RBI, SEBI: prohibited short selling on selected counters to arrest the market fall

If there were no restrictions on Long Buying of any stock, that lead to huge rise in Sensex from 2800 to 21000 (over 700%) in 5 years, why should there be ban on Short Selling of stocks or index?

Dogmas, False Policies and Misplaced Priorities

I have said often that if certain policies do not work with reference to standard for long time, there is something wrong with the standard itself. Such erroneous standard has to be abandoned. However, most of the policy makers and economists have been groomed in high end business schools that rely on outdated textbooks. These guys are not wise men but guys, who never worked on the front line, gained first hand experience, always sat behind the back bench, followed the books in full literary sense, and almost forgot that they too have common sense that was distributed by the God equally regardless of class, religion or nationality.

Why Rupee should be allowed to appreciate?

The weaker rupee policy did not work for 60 years, and yet the Prime Ministers, Finance Ministers, Reserve Bank of India’ Governors, followed the same policy 247365 or 24 hours a day, 7 days a week and 365 days a year for over 60 years. Rupee was devalued from Rs 4/$ to Rs 50/$ today with no tangible result.

Currency is an Ambassador of a Nation – it has to be strong

Currency is the first sign of strength of any country. Currency is a child of the nation by which a nation is recognized, same way the parents are recognized by their own children. Ask your self – Do you want strong children or weak children? You always say my son is this; my son is that, my daughter did well here; my children became engineer, doctor or MBA who will get us decent life from their earnings.

And what the same guys are doing while in charge of the country? They want their currency Rupee weak, so that it earns less, expends more, exports undersells country’s assets, imports overpays for the good, and the external debt soars only because of depreciation of the currency. These smart guys in RBI, SEBI, Finance Ministry and Prime Minister’s office know nothing, absolutely nothing. They are monkeys imitating blindly the western world, who want your national currency weaker so that they can buy cheaper from you and keep their inflation in check.

Weaker Rupee may help Exports, what about Imports?

Oh no, it will hurt exports! Really? What about imports? Are you not overpaying for the gigantic oil bill. Are you not overpaying for debt servicing? If Rupee is at Rs 45 and foreign debt is $100 billion, the national external debt is Rs 450,000 crores. If the rupee goes to Rs 39 as it did, the national debt reduces to Rs 390,000 crores. If rupee was allowed onward journey, it would have gone to Rs 26, and in that case, national debt would have come down to Rs 260,000 crores. You therefore saved Rs 190,000 crores just by letting the Rupee getting stronger.

And I do not say that manipulate rupee to get stronger (the way US does for dollar). What I want to say is that let it find its own level. Do not intervene when there is natural tendency to get stronger. Do not sterilize its rise. The sterilization operation is antibiotic. Continued practice of sterilization will kill its natural power to grow and get stronger. It is more like a person not wanting a child uses condom or birth control pill to sterilize the fertility for over 10 years. finds difficult to have child when he wants to, because the body has become immune to its natural power to produce. Treat economy like a body, and RBI’s sterilization and SEBI’s P-Note measures like birth control pills, and you will understand complex economics in a flash.

A person in a gym uses all equipments and tools to make every part of his muscle beautifully contoured and in shape. He then takes in healthy food, without which entire body will not respond to various form of physical exercise. Consider body as economy, policy measures as various tools for exercise and Rupee as lifeline food. If the food is weak or debilitating, the whole body is destroyed. It is a job of Finance Minister to imitate that practice to make every section of the economy well contoured and strong. The currency policy should be conceived and directed as suitable to the national needs, not international or IMF demand.

How External Debt gets reduced by Stronger Rupee?

If you want to earn Rs 190,000 crores by way of FOREX earnings out of exports, and if the export margin is 10%, the exports have to be additional 1,900,000 crores, provided none of the debt going bad. Further, if rupee had gone higher, Government could have reduced the external debt by simply selling rupee, buying dollars and liquidating the debt say, $ 15 billions.

False Praise leads to Wholesale Destruction

Often the names of financial officials in the country were mentioned on the top covers of magazines like Forbes, Fortune, International Banker, IFR, IMF Review etc. Whenever their names appear on such magazines, take for granted that they are least qualified for that post. Those who do not get proper jobs in their own country lend up at world Bank and IMF, where decisions were never taken and such posts were official retirement with full pay every month. It is a warehouse of inefficient. That resume however works in India.

India is a country that believes in enormous adulation. Gods, Goddesses, Gurus, Cricketers, Hollywood actors, high court judges, politicians and officials in RBI, SEBI, NSE and BSE are all elevated to the extreme status. Gods and Goddesses never listen, Gurus always need bhakta jan to wash their feet and drink that holy water, Cricketers and Actors are easy pass time, and inefficient judges in various courts who have been caging justice for over 20 years, take 3 times vacation, larger than your own children, never deliver justice in time prompting citizens to approach for alternative judiciary of Mafias or Bhais to give them “Supari”, politicians like Advani go on blurting about building Ram Temple, instead of building mass housing for the poor Indians, and officials in RBI go on having “condom sex” with economy by sterilizing operation, and officials in SEBI go on inventing rules like P-Notes how to drive out the Foreign Investors. When they were coming, they were asking why you are coming, and when they are going, they are asking why they are leaving. What the hell do you want, you fickle minded babus?

Indians never saw Lower Oil Prices at Rs 10/ltr when Oil fell all time low to $10/brl

Due to consistent weaker rupee, the petrol prices always rose like mercury in thermometer. When the oil fell all time low to $10 per barrel or Rs 400 per 159 liters or Rs 2.33 per liter, Indian never saw petrol or diesel prices falling to Rs 10 per liter. This is what the misguided Rupee policy did for Indian consumers

Currency (Rupee) Never Remain at Same Level – like Water, it finds its own level

The currency movement is always dynamic. The sum total of entire economy is represented by currency. If it does not go down, it goes up; and if it does not go up, it goes down.

During BJP administration, Rupee was allowed to appreciate to Rs 43 from Rs 48. It continued to Rs 39 when the officials in RBI and Finance Ministry were alarmed. SEBI started talking about Rupee when it was none of its business. These are fiscal and monetary matters, not stock market that is the domain of RBI and Finance Ministry. They invented P-Note related measures that were the harbinger of downward movement of Rupee. It just dropped from Rs 39 to Rs 50 yesterday, when Indian economy was supposed to be having highest growth in the world, Forex reserve at over $300 billions, and every sector of the economy was on four cylinders.

These wise guys applied screeching brake with the result that money simply evaporated, stock markets crashed, rupee crashed, interest rates rose, inflation rose to over 13%, oil subsidies went through the roof, and many other countless collateral damage such as recession, lower home prices, higher food prices, and what not.

If Islamic punishment of stoning to death was allowed in India, the officials in finance Ministry, Reserve Bank of India and SEBI fully deserved that capital punishment. They destroyed vibrant economy; they dealt death blow to the aspirations of Indian people, they sank India into deeper external debt (by additional at least Rs 60,000 crores), they caused Oil bill to rise by Rs 16000 crores due to depreciation effect of the Rupee, they caused first time home owners life miserable by increasing their EMI by over 6% per year or Rs 3000 per month per Rs 100,000 of mortgage loan, they raised the borrowing cost of almost all business enterprises by minimum 3% , cost of energy rose by 20%, and only the life of human (Made in India) became cheaper.

Due to single most reason – Weaker Rupee

(To be continued further that will be appended here. Full article will then be converted into PDF file for download)

Kalidas, Hong Kong

Ref: 08-010 – India’s ON and OFF policy

25-Oct-2008
Note: Due to problem with the WordPress software, the article can not be properly formatted earlier. It has been withdrawn and substituted with this one. The comments associated with the previous one may not be available here, but I will try to put them if possible.