Archive for the 'IPOs' Category

Market Matrix : Listing of Reliance Power and also FII equity sell

February 12, 2008

By krsna Khandelwal – A veteran market analyst

Friends,

Market has fallen by a wide margin in two days after the listing of Reliance Power and Nifty has closed at 4835 points and discounts the earnings at just 20 PE. Reliance Power itself has lost 20% over its issue price and clearly speaks of the weakness of the merchant bankers while dealing with the issues of big groups which have over powering influence on all concerned. The public has had to suffer for its gullibility while Indian financial press kept feeding the wrong sort of information. My feeble attempt at asking to keep away from the Reliance Power issue was not supposed to have any effect over masses as the viewer ship is still small. Any way what has happened has happened and let us look at the possibilities ahead in the market.

The Nifty PE ratio will get well under 20 by the end of current quarter and this level should supposed to be quite comfortable considering India has still a good rate of expected growth i.e. over 8% , to which even the pessimists agree.

This fall has further closed doors for the FIIs to be able to get out of the market. Market plunged badly when they just sold equities worth Rs 1200 crs. Any further attempt will make them loose value of the portfolio without even selling a part of it hence they would stick with the investments for a longer period and get out only slowly . The Indian saving will keep pouring in regularly through direct investment, through MFs and further through the insurance companies which have proved to be most resilient source of equity investment. This is time to get invested too. Each of the well managed companies has a potential to double, even treble capacities. As for the bottom line, it may fluctuate but it is immaterial so long as the cash is not being lost.

I have a doubt that an Indian ‘babu’ is creating platform for the bulls to ride and get off when the interest rates will be eventually be brought down.

In the end I may , based on my personal opinion , suggest that its time to pick equities and more safely as per the recommendation under ‘panch-tattva’.

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

Market Matrix: Investors should read between the lines spoken by on TV Stock Analyst

January 20, 2008

By krsna Khandelwal – A veteran market analyst

Friends,

Friday,18 Jan 08, saw a precipitous fall of round 3.5% and Nifty closed 5705 points and Sensex at 19013 points. They say it is IPO related fund needs of investors that has been responsible for the sell off. In fact , this is true in part, the other part was that the values were stretched and there is yet another contributor in the form of negative advices from around the world .You may add another dimension of possibility of some more downward movement back here under pressure of rising rupee and pressure on metal prices on LME. The political situation in India may worsen. The period after Olympic year may make markets in China go down due to lesser spending on infrastructure projects and some diversion of interest from business. Chinese effort will be directed towards showcasig China for the tourists.

Coming back to IPOs, I would remind you here that industrialists tend to raise capital when thy see difficult times ahead , why would they make you partner in a business which is going to flourish in short run. Haven’t Tatas sold TCS equity to public when the IT sector had been exploited to the hilt. Is SBI not ready with a demand of Rs.1590/- for a share which by the way is for five-six times of its price in 2002-03. Has SBI’s business seen such expansion in business or such rise in profits. You, the investor, will be lured in many ways to part with your money. When you suffer a fall you will be left licking your wounds. This has happened many times in the past with a certain regularity. The secondary market goes up with support of unabsorbed liquidity and there come the people who grab the benefit out of the conditions ideal for fund raising due to higher preference to equity stock investments and the free funds in hand. It is estimated that some Rs.75000 crs worth of paper would be introduced in Indian markets over the year. Only during the recent years the public holding in the Indian companies had been reduced to a figure of less than 10% , now the same public would go for the new equity purchase. Its only good at least that they can’t be lured in to buying the same stuff for higher prices than the price they sold it out for to the smart FIIs and smart operators and promoters. This only has always been the bane of Indian bull operators. These operators have been successful for a limited period and could not cash out their benefits . It , therefore , can be said that profit taking is the necessary part of investment exercise. Our ‘panch-tattva’ takes care of this in a beautiful manner without any temptation offered by rising markets hindering the process.

Have you ever surprised at the wrong sort of noises on TV and papers by experts trying to convince about India Growth Story at this late stage. Are they guided by some invisible authority to speak in such unison manner while the reverse happens. Why suddenly the concrete numbers are not talked about . Why is it that a rosier picture is being drawn up for sectors like realty, power, infrastructure, finance, media and retail . Why these sectors command fancy discounting and have no relation to possible ROCE, to possible CARG and to possible room for growth at macro level. These are some of the inexplicable things but I may assure you ‘panch-tattva’ would keep you in good stead.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix as on 20 Jan 2008

January 20, 2008

By krsna Khandelwal – A veteran market analyst

Friends,

Reliance Power creates history by getting subscribed by 72.58 times and leaving no room for any better gain than nominal interest. With the cost of funds involved the investor has become vulnerable but the bankers to the issue would have the last laugh if they lend the collected funds even for a few days in over night call market. If the promoters/issuing company have any understanding of sharing the interest earned by the banks then they have hit a jack pot. Back of envelop calculation suggests that the cost of buying a share would be more than Rs.100 per share in terms of interest cost alone.

Indian railways will be helped by China in it effort to run trains faster on track. Our Shatabdi’s run at 150 km/hr speed while in China they have top speed of 275 km/hr.

Work on golden quadrilateral, including four lanes of 5846 km of the national highways connecting four metros , is nearing completion with work only on 217 km still unfinished.

After Britain , Australia has urged opening of the banking and insurance sectors to enable entry of its majors in the Indian space where financial services sphere is estimated to be $50 bn .

A tranch of Rs11256.92 crs has been released by govt. for the benefit of oil marketing companies.

Bernanke, US Fed Chief, is exploring the possibilities of bringing USA out of the possible fall in to recessionary pit. He may lower interest rates, may want to enable higher spending but also knows that only monetary policy initiative may not save the day. Greater spending will require transfer of incomes from the rich pockets to poor pockets . This road however has many impediments. Such thing to happen will require changes in law/rules. To do it in short time is difficult and further the result of attempts may be just the reverse of desired goals. The electronics and IT enabled communication and control has benefited the rich (employer class) and made it stronger but also with a softer belly. No easy answers therefore.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix as on 19 Jan 2008

January 19, 2008

By krsna Khandelwal – A veteran market analyst

Friends,

FIIs are reported to have increased their holding in leading IT companies like Infosys, TCS and Wipro etc. during Q3 Dec 07. After having suffered fall in values in 2007 by about 30% to 40% from their peak levels, these stocks offer good values to FIIs as they now have pretty reasonable discounting while their future prospects are not all that bleak. Who then is supplying stock is the question that comes to mind. As earlier mention on these columns , the promoters are selling as also the ESOP holders. I recommend regularly buying in to Indian IT sector and would you believe that I have for the first time since 1998 have had the courage to recommend IT stock buying in general.

Muthuraman of Tata Steel is a worried man. He expects the steel imports of 5 m/t this year. According to him the raw material sources of the country are just enough to give 10 kg steel per capita to Indians and India is wrongly perceived to be raw material rich country. He said Brazil and Australia have the capacity to offer 333 tonnes and 2000 tonnes to their citizens on per capita basis. This is an interesting piece of information and suggests that before long India will have to import iron ore and other raw material and minerals.

Nagpur and Kunnur airports have been given green signal by govt to commence work . Nagpur Airport will be international passenger and cargo hub.

A new research by Institute of International Finance says that the assets of gulf countries will rise to $2000 bn in 2008 which added $215 bn in 2007 and would add $250 bn in 2008. These assets are mostly managed by sovereign wealth funds.

Reliance Energy has just 1000 mw capacity at present and its 50% subsidiary will set up projects of 28000 mw capacity for which the IPO has just been brought out.

SBI would offer right shares at a price of 1590/- each to shareholders on in the ratio of one to five, the proceeds of Rs.16500 crs will raise its Tier-I capital to 11% by Mar 08.

National Housing Board has suggested to govt to give 5% subsidy on interest for five years to urban poor on loans for purchase of houses. It has also suggested to provide houses of 25 sq mtrs plinth area in cities to poor at Rs one lac cost. These ideas are in right direction and reflect my thinking too.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market