Archive for the 'Auto Sector' Category

Market Matrix – Nifty and Sensex lost 33 pc in Oct 08 series

October 29, 2008

Friends,

The Oct 08 series has closed today in a quiet manner but the losses seen by it are enormous. Market turnover is good for the day at Rs 69000 cr. The loss in a single month have been between 20 to 70 pc even for the leading corporates some of which by the way posted the best ever quarterly profits. The Nifty and Sensex lost 33 pc in Oct 08 series.

Unitech has arranged to sell 60 pc stake in its wireless business arm to Telenor through further issue of capital for Rs 6120 crs and will see debt of Rs 1900 cr paid back by the subsidiary.

US Fed is likely to cut rate by 50 bps and probably will follow up with another 50 bps later.

BoJ would consider cutting rate in its next Friday meeting.

China has cut rates by 27 bps on both ie deposits and advances.

SBI says it is receiving Rs 1000 crs a day as deposits for last 10 days.

Auto loan growth is 6 pc against 12 pc last year.

The European markets are trading higher but DAX is an exception.

HariOm,
Krsna Khandelwal

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix – Why then the markets should behave like the way they are behaving ?

April 12, 2008

By krsna Khandelwal – A veteran market analyst

Friends,

The Indian markets have been under pressure of perceived weakness in earning capacity of the companies in view of the slow down effect of the US economy. This part is not understood by me as if there is slow down in US the fund managers will look towards places where money can be still made and India happens to be an ideal place. Here the slow down is more in mind than in practice for in an economy that is on slow down path the job opportunities plummet. In India the biggest problem for the enterprises has come in the form of non-availability of workers (blue collar or white collar) and the experts . They have plans and are offering unheard of salaries here. It is now acknowledged fact that the salaries have gone up maximum here in India in percentage terms. So, the argument of the impending slow down is untenable.

Secondly, the commercial vehicle sales take a down turn right before the slow is noticed. This also yet not the case in India.The cap-goods industry suffers from dearth of orders and this too is not case here.The steel and cement are the sectors that show lack of demand and that too is not the case here.The prices of real estate get halved or so from the peak rather than adjusting only slightly to match the demand and supply for the time being. This too is not the case here.

Why then the markets should behave like they are behaving. I think this is mostly on account of the fatigue factor for the markets ran very fast , for far too long without respite . They had to take some breather. This came along with a combination of factors and some doses of downright misguidance from the so called analysts and technical chart readers. I have never seen the chartists to say rightly the impending mood of the market but have the explanation ready post fact. The juncture chosen for it is the intervening period between the two quarter where the results are absent for almost a month and a half.

There is no doubt that Indian economy has traditionally been suffering from slow down after every two and half to three and a half year of good run for half the period of slow down. This is not any more the case in view of the integration with world economies to a greater extent , IT initiative, new found confidence ( China taken as an example), the demographic factor ( of average younger population), reforms undergone, abundance of capital and the need to catch up with peers. Here, the entrepreneurship of the Indian businessmen also had chance to demonstrate to world that they are second to none. So the set cyclic pattern holds good no more.

The inflation has been termed as making market weaker but in fact it is the inflation that will prove to be its best friend. Why should a businessmen suffer by the higher inflation numbers only if he is not going o be taxed more. Another area where he has fear is his depreciation of plant and machinery not being covered fully (to the extent of replacement cost ) by the extra-profits generated. This is also not the case in India.

Supposing the profit growth does not remain as high as in recent past, it will still be very strong.

Now the question how low the prices of companies may go down. There is an interesting point to note. In case of commodities businesses we can apply thumb rule. It is that if a company is in to the metals and commodities and was set up prior to 1990, it can be safely valued at about eight times of book value. The only exception should be a company bleeding on account of losses year after year. Luckily there are no such companies in nifty fold. This valuation has become more concrete after the recent surge in cement and steel and other metal prices which go in to the construction of the manufacturing facility. This price improvement works as a barrier for the new entrants.

The FMCG companies also deserve to be valued at eight times of book value due to the brands owned by them . Here again the companies should be profitable and old established. We have number of such companies in nifty.

Thirdly, the banking and finance companies should have the valuation to the minimum extent of at par with book value and to the extent of up to four times of book value in case of companies with strong brand and with good growth rate. We have both types in nifty.

The cap-goods companies have to be valued lower than they actually trade for. Because their asset base is not all that strong , the brand does not matter so much and they are also competition prone.

The auto-manufacturers have asset base and the possession of valuable design and brand value. They how ever suffer heavily in times of slow down and hence should valued slightly conservatively and process has already been undergone by market.

Pharma companies should always be taken at the value offered in market because they can’t be rightly valued ever and historically have given returns better than the most sectors.

The previously given valuation parameters cover most of the spectrum of nifty companies. By these we can see that the chances of nifty drifting below by more than 7% is a remote possibility. The possibility of its advancing by 100% in next two to three years should however not be questioned. The inflation will have only two ways i.e. going up or going down. I don’t think there is problem either way. The sobering of the interest rates is a must in view of the recent lowering of interest by the BoE and BoJ. When the lowering of interest rates happens here the markets will have difficulty in staying range bound and will break out with a force.

There is one more matter supporting the market. It is of public new found love for Unit Linked Plans which garner about Rs.70000 crs every year. This finds way in to market without the fund manager having to say any thing, only a small portion goes in to debt securities.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix of Auto Sector as on 19 Feb 2008

February 20, 2008

By krsna Khandelwal – A veteran market analyst

Friends,

I would now give you an idea about the sector wise possibilities, one after the other, please keep referring to the site.

Auto companies had PE of over 500 in 2000 while in 2008 they have an PE of 10 to 15. Their share in total market capitalisation back in 2000 was much less than what it is at present. Since market cap share is higher now and the PE is lower, it may be said that these companies have had a dream run in respect of profits. This sector is under cloud for the fear of recession which in fact may not come and any change in mood here will see a good chance of making profits in auto sector investments. It is therefore advised you to stick with your investments in this sector.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix as on 11 Feb 2008

February 11, 2008

By krsna Khandelwal – A veteran market

Friends,

SEBI is considering reduction in disclosure requirements for the listed companies at the time of debt issuance so that the debt issues are done with ease and without too much time leg. Since banks are not reducing spreads why should not the most efficient platforms of stock exchanges be made use of for bringing the lenders and borrowers together and give the nation’s economy a boost, while not letting the portion of capital pie fall out of hands of savers and users of capital.

Indian MFs have maintained the quantum of AUM(Assets Under Management) in Jan ‘08 even though the Nifty suffered 16% fall. Of the 32 fund houses , 14 posted an increase in AUM in Jan ‘08 . Despite fall in January MFs bought Rs 7 K crs worth of equity, MFs had bought only Rs 3 K crs worth of equities in Dec ‘07. This speaks of the high savings rate in India and that too in hands of younger people largely who have no aversion to equity investment. The following is the table giving AUM of 5 top MFs:

Reliance Rs 77200 crs

ICICIPRU Rs 64100 crs

UTI Rs 52700 crs

HDFC Rs 43800 crs

Birla Sunlife Rs 36000 crs

IPOs are being called off due to slack response. Its is a pity that the IPOs are not being offered at prices attractive enough. The promoter greed is at its worse. There was a time when CCI (Controller of Capital Issues) used to fix premiums in a fashion where intrinsic value used to be much more but it used to be OK with CCI to give OK for the par issues and some tricky issuers used to cheat public of their money by being successful in raising money for dubious purposes. There has be a balanced approach and the merchant banker have a duty to discharge here.

Sixth Pay Commission may hike basic salaries of the Govt. Servants by over 150%. Basic pay for the Section Officer would rise to Rs 20000/month from Rs 8000/month. I think that the new salaries including allowances, will make govt. staffers more honest. They would have no room to complain about not making two ends meet comfortably. India therefore is about to enter an era where the corruption is less rampant.

SBI Rights issue is to open on 18th Feb ‘08. Govt. holds about 60% of SBI equity capital and would invest about Rs 10 K crs in acquiring right shares. My advice to SBI shareholders is to sell the share on ex-right basis without thinking twice.

It is once again that the Steel and Mines Minister has asked the steel companies to keep the steel prices low. It is pity that the same minister hasn’t done a thing to see the new capacity being brought at a better speed. I don’t understand when the ministers would understand their duties in right way.

UK’s growth rates has dwindled to 0.5% , a two year low.

Economists estimate US economy to grow just at 0.5% during Jan-Mar ‘08 quarter. Some say US economy is on the cusp of recession.

Warren Buffet sees ‘poetic justice’ for bankers who designed and sold complex investment instruments that have gone sore and have made the banks themselves suffer a lot.

Inflation has inched up to 4.11% , a high for 6 months.

Govt. unreserved 79 item from the list of Small Scale Sector exclusive domain and only 35 items remain there. This is step in right direction. There are areas where small scale survives better and in other areas it is not cost efficient. The natural market forces act and keep overall industrial competitiveness of India alive , if only the RBI Chief looks at the economy’s needs from the angle of an entrepreneur and reduces interest rates. It is a pity that the people in the business and industry have no say in the making of monetary policy as a bureaucrat may never understand the imperatives of finance policy. There concern gets over with control of inflation which the govt. itself usually is not serious about.

Auto component industry has lowered the export target for 07-08 to Rs 14460 crs against earlier estimate of Rs 15172 crs due to strong rupee and lower custom duties. I am sure the auto component industry would do better in coming years due mainly to the low cost manufacturing base in India, only the govt. has to make the capital available at the international interest rates and bring the long overdue labour reforms.

‘NANO’ may have to be priced higher by Tats eventually but it has put a cap on other category car prices for years to come. Nobody would dare keep the price gap higher and risk loosing market.

Automobile Industry declined to 829569 units in Jan ‘08 from 89844 units in Jan ‘07. It was passenger car segment that kept the tempo up and it grew to 113899 unit in Jan ‘08 (104501 units in Jan ‘07).

Scooters account for 20% of total two-wheeler sales in India.

Nifty closed the week on 8th Jan ‘08 at 5120 points.

India now officially claims to be member of $ one trillion economy club of the world, it is fact no small achievement for India.

Southern chain of stores ‘Subhiksha’ is to raise Rs 500 crs through IPO shortly.

George Soros has acquired 3% of Reliance Entertainment, a wholly owned company of Anil Ambani. He spent $100 million for this much stake in the company.

America’s $20 bn generic market is awaiting entry by Indian players . Some of the largest selling drugs in US are going off patent shortly.

Interest rate differential has been responsible for giving a philip to Indian markets when it kept coming down during 2002 tp 2007 from a peak difference of 5% in 2002 to a low of under 1% at a point in 2007. Now it has gone back to 4% in a sudden move and has unnerved the markets. This co relationship may easily be seen. People think that the capital will flow to India but since the cheaper interest would open doors of more investment in US why would the capital move in to India and be at risk of exchange parity changing for disadvantage. Secondly , if the cheap capital flows in to India the established companies may have face competition from newly created capacities at lesser capital costs. For the time being the interest differential has opened doors for the sharp shooting business houses to have free lunches which is being ensured by the RBI by keeping the rupee value under leash. The 90 day rate here is 7.2% while in US it is under 2%. Would not the schemers take advantage , it is hardly understandable why the RBI Chief is keeping this artificial pocket of making money thriving. Is there sinister connection somewhere, only time will tell.

Mumbai’s Nariman Point has 2 million sq ft of office space while Bandra-Kurla has 12 million sq ft of office space. On top of it there is going to be additional office spaces coming up in Mumbai’ suburbs. This additional office space would be no less than 10 million sq ft and would come up in an year’s time. I have a feeling that the rentals for office space in Mumbai would be far lower than prevailing rates.

Tata Chemicals has acquired US based soda ash company for $ one billion. Tata Chem would become second largest manufacturer in its line of business behind only the FMC Chemicals of US. As told to you many times earlier Tatas theme remains to housed more out of India than in side India. Seems Tatas have fear of Indian politicians who have since independence given sleepless nights to the Tatas. Indira once had threatened the senior Tata with her sword of nationalisation on some pretext or the other and the brave men still did not bow to her wishes. Naturally when the govt. today has made the exiting of capital possible for the business house why would they not secure their future. If need be they may bring back the capital as foreign owned which would at least be treated in a better way.

GDP growth at 9.6% in 06-07 has been the highest in 18 years . This translates in to Rs 1700/- additional per capita income which now stands at 22552/-.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

EXIDEIND @ 79 as on 6 Feb 08 after Q3 results

February 7, 2008

EXIDEIND @ 79 (06/02/08) gets 906 panch-tattva points and you may buy this for long term on declines.

Previous Recommendations:

@67 (12/10/07) :923-Buy for long term on declines.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market