Two Power Stocks to watch out for and that may Lighten up for a Brighter Diwali this year…Both also begin F & O Trading from Today

Adani Power at Rs 128…..Private Sector Power Player…..IPO was a year ago at Rs 100 in July/August 2009…so we see a 28% gain already…Permitted Lot in F & O is 2000 shares and the August 2010 Call Option for Strike Price of Rs 130 is quoted @ Rs 3

NHPC at Rs 32…..PSU….IPO was a year ago at Rs 36 in August 2009…..so we see a drop of over 10%….Permitted Lot Size in F & O is 8000 shares and the August 2010 Call Option for Strike Price of Rs 32.50 is being quoted below Rs 1…so one can take a 8000 shares position for Rs 260000 for a Premium of Rs 8000…..by end August if NHPC climbs past Rs 33.50 you start making a Profit…or else you stand to lose just Rs 8000…..If you buy 8000 shares of NHPC in the Spot you would have to pay @ Rs 260000….Instead for one month you get a similar leverage by paying just Rs 8000 !….and Government is planning a Mega IPO for PSU Giant Coal India around Diwali this year…..will not look good if another listed last year PSU like NHPC is below it’s IPO Price of Rs 36!

Think about it….Cheers !   

Several Times I had strongly recommended IFCI as a multibagger….. starting at Rs 16 in December 2006….It raced to Rs 130 levels as the Government called for bids to sell a Strategic Stake in it….A Joint Bid by Sterlite and Morgan fell through as the Government was not transparent on Conversion of Institutional Debt to Equity ……this would significantly have affected the Shareholding Break Up and diluted the Winning Bidders Holding…there was also Government reluctance to transfer Management Control

The Finance  Minister at the time,Mr Chidambaram had bravely stated that he will certainly revist IFCI strategic Stake sale at a later time and get even a higher Bid than the Rs 80-Rs 90 that was achieved at the time

IFCI quickly sunk and reached levels of even Rs 20 in the October 2008 and March 2009 Lows…this retracement wiped off Notional Gains build up in the Scrip….It has since moved up past Rs 45 levels and has surged in recent times….and is Rs 58 today….Can easily double from here too in the next six months on positive developments

The Interest in IFCI is now being revived….the key reason is that they are planning to apply to become a Bank once the new guidelines are announced…expected this month….The last to get permission were Yes Bank and Kotak Mahindra in 2002

In fact IFCI had pursued this route to convert to a bank way back in the 1990s along with IDBI,ICICI ,HDFC and UTI (now Axis Bank)….except for IFCI,all others had been given the green signal

IFCI was plagued for years with a high level of Non Performing Assets that had threatened to erode the Networth….In 2005/6 the NPA levels disclosed were Rs 3950 crs…I had even given it the Notorious Acronym of ‘I F….. the Country of India’ !

But in 2006/7 the revival and turnaround became clear…Real Estate,Investments and Recoveries spearheaded this…NPAs were brought down to a level of Rs 1366 crs….that’s why and when I recommended IFCI at Rs 16 as a SS 1 Scriptech Stock Select…It was beginning to turn around fast

Look at the latest Financials…..As at March 31,2010,the Equity (FV Rs 10) stands at Rs 738 crs ….The Networth is Rs 3152 crs giving a Book Value of near Rs 43…Standalone PAT is Rs 671 crs giving an EPS of Rs 9…a Dividend of 10% has been declared…so at Rs 58,it’s at a 6 + Earnings Multiple and a 1.3 Book Multiple…not expensive by any stretch

If it is successful in converting to a Bank…government would hold a soft corner this time around for many reasons…IFCI will easily flare to a 10 + earnings multiple and a 2 Book Multiple….this would mean that from the current Rs 58 the share Price will move to near and possibly over Rs 100 in the coming months…Assuming FY 11 PAT is even maintained at FY 10 levels it should take the Book Value past Rs 50

Aggressive Players can consider playing IFCI in the F & O segment too…The Lot size is 4000 Shares….If you are averse to paying Margins then choose to Buying Call Options rather than going long on Futures….. there is a 5% sunk cost for doing this as a near month July 29,2010 Call Option Premium at Strike Price of Rs 57.50 was last quoted on NSE at Rs 3….that’s a sunk cost of 5% or  Rs 12000 for a position of 4000 shares aggregating Rs 230000…your payoff begins when IFCI crosses Rs 60.50 in this month…this is very likely as Banking Guidelines are expected to be announced this month…..You can always rollover postions

Cheers !   

It’s always a ‘Must’ read every year….Living Investment Guru,Warren E Buffett’s Annual Letter to his shareholders of Berkshire Hathaway….his insights,his ‘packing a punch’ at many issues,his confessions,his core heartwarming values,his demystifying the rationale for his investment decisions,his philosophy and his fabulous sense of humour…and he’s all of 79!

Warren E Buffett has never authored a Book…does he need to!…If ever there was a Nobel Prize for Financial Journalism,his Annual Letter would be the Winner every year !

Access his latest one of February 26,2010 below

 http://www.berkshirehathaway.com/letters/2009ltr.pdf

….and I’m sure you’ll want to become a Shareholder of BH to access the Annual Meet which Buffett himself bills as the ‘Woodstock of Capitalists’!…it’s traditionally held on the First Saturday in May….this year it’s on May 1,2010

Mind you it’s BH share is not cheap….One Original ‘A’ Common Stock is quoted at US $ 124080 !…that’s Rs 57 lakh or Rs 5.7 Million Rupees (US $ 1=Rs 46)….To make it affordable BH issues in 1996 the ‘B’ Common Stock which was prescribed by BH to be valued at 1/30th of the ‘A’ Share but carried only 1/200th of Voting Rights

Interestingly on November 3,2009,BH passed a resolution to splt the ‘B’ Share 50:1 ratio to facilitate small shareholders of Burlington Northern Santa Fe to get the BH ‘B’ share in the acquisition deal,should they opt for it…..This has resulted in the Share Quotation of the ‘B’ Share to be under US $ 83 yesterday (just Rs 3800)…this computes to a pre-split share price of US $ 4150 (Rs 1.91 lakhs)

In 1981,there were just 12 shareholders who attended the Omaha Meet…In 2009 there were 35000 who did !…This year they obviously expect much more….Both ‘A’ and ‘B’ Shareholders get the Annual Report and an Invite coupon attached with it for the Annual meet…they need to fill it and send it back to BH…and within a week their Credentials will arrive for the Meet…As I’ve said,the Meet is always held on the first Saturday in May…this year it’s May 1,2010…and the Report is send to shareholders as on Record Date ,which is normally 60 days before the Meet Date…It takes three days to register you as the shareholder from your date of purchase…so play it safe and buy the BH share by the third week of Feb if you intend attending the BH Meet that year…you will receive the Report early March and can initiate the process to attend the Meet

For a die hard Value Investor,Omaha is the ‘Mecca’…even for others,it would be an experience worth experiencing….So begin Planning to be in Omaha on Saturday May 7, 2011 now !

Cheers !

Imagine you’re aboard a Plane in Flight and hit turbulence…the Plane drops altitude…sometimes very sudden…..Sensex is akin to this situation…dropping 2.1% on Jan 21 and then near 3% today…Suddenly from reaching up for 18000 recently it is now poised to dive below 16000!…It closed at 16290 today…..and those who were proclaiming glory are quickly reversing opinions to predict a sharper fall ahead…some even to 12000 !…Remember the Nursey Rhyme “Ring a Ring a Roses….Pocket full of ……Hush ah Bush ah we all fall Down !…you gonna hold hands with those who are singing this,you will fall down !

Despite continuing World Economic and Political Turbulence, and intense FII selling past few days,Indian Equities remains in the best position to move up…20-X is going to see  a Sensex range that could extend down to 14000,maybe 13000, and up to 20000…so we are at 16000 right now…we are not going to test 8000 again,like we did in March 2009 and October 2008…so macro situations and large caps trends are going to be harder to read in 2010….It’s a bottom up low and mid cap approach that’s going to get you the Winners in 2010….So playing the Sensex or the Nifty or the Large Caps,either in Cash or Derivatives may cause you tense moments…like today

Concentrate and Focus on Specific Stocks in the Low and Mid Cap Range…..Most of Our Clients Portfolios over Rs Ten Lakhs are in 25% Cash at this time….New Clients have been advised to hold Cash and not be in any hurry to invest…..and at any given time we have @ 15 stock selections…..portfolios have from 3 to 10 scrips from this selection……one scrip was on upper circuit this morning and we reckon atleast three of our selections would be clear and minimum money doublers in 2010  

So we enjoy such falls in the Markets….gives us opportunities at lower prices

But if you’re a die hard macro and large cap player because of high volumes and liquidity,then do a simple exercise…Make a list of your Top Ten Sensex Scrips from the 30….Rewind to 2009 when the Sensex was 13000 and 14000 and 15000 and record what were the prices of these Ten scrips at those levels……will give you some sense of where these scrips can yet correct to !…and save you the agony of jumping in impulsively

Cheers !

Markets are on fire today..Sensex is up 400 points past 16800 as Reliance gallops yet again past a cum 1:1 Bonus Rs 2100

But what was interesting is the arbitrage available in SESA GOA

Spot Price has surged to Rs 354 as Company announced during market hours that FII,Templeton had increased their stake….. and the Futures Price is Rs 338…….that’s a price differential of 4.5%

Futures Market Lot is 1500 shares for Sesa Goa

So all those holding atleast 1500 shares of SESA GOA can take this arbitarge….Sell in Spot at Rs 354 and Buy in the Futures at Rs 338….Net of Transaction Costs,you’ll reducing holding cost by atleast 4% as the favourable differential on each contract lot of 1500 shares is over Rs 20000….so if you hold 7500 shares,that’s five futures lots,you’ll be able to bring in over Rs 100000 and reduce your holding cost of Sesa Goa….If your holding has been for the long term,there will also not be any tax payable on the Capital Gains when you sell in Spot 

So what’s the Risk ?….that this differential will remain for some time yet…so you can always roll over and square of when there is an insignificant differential….and this will happen…such huge arbitrage opportunities don’t remain for too long 

Looks very Tempting 

The Trafiic Signals are clearly at work in these Three Sectors….It’s Green for Sugar,Red for Telecom and Orange for IT

Sugar Stocks are at just 3 Million tonnes…that’s going to last  a month and a half…India consumes 2 million tonnes a month….Last year we produced a record low ! of below 15 million tonnes and had to import…This year our production will be marginally higher at 16 million…we will yet have to import…half of the imports have gone through…half remain….so sugar prices will have to come to import parity and then remain in the Rs 32 to Rs 35  per kilo range for the coming year….if not more !….the sector is on a roll

Telecom is facing Intense competition….margins are going to drop significantly as cheaper and cheaper schemes get announced…great for the consumer…not so great for the Company…and companies hope to make it up by increased volumes….there remains a big question mark on this strategy…..Bharti ,Rel Com scrip prices are justifiably dropping

IT….Rupee to the US Dollar was Rs 52…now Rs 48…expected Rs 42 in the next six months….so expect continuing dollar depreciation to impact IT Scrips…Tomorrow Infosys begins the Q2 Earnings Announcement Season….let’s see what their Gurus say

Human memory is very Short…..In November 2008, one of India’s leading Investment and Merchant Banking and Broking Outfit strongly advised it’s clients to sell off their whole Equity Portfolio…I had blogged it too as it was extreme advice from a Leader..rare in itself

http://www.gauravblog.com/?p=360

• A Rare Technical Report from a leading Securities Entity has studied the Sensex trends for the last 30 years and made a call that the Sensex shows weakness as it has breached earlier in 2008 a five year support line and in early October has breached the 50 months average….Sensex has now entered a structural bear market….It will fall to a range of 5720-6750,eventually finding support in the range 6150-7150…Pull Back Rally can first take it to 11500 before it resumes the fall again…This is their BOLD STRATEGY recommended

               Only Trade and do not Invest

                         Do not average purchases

                                  Aggressively Sell off Portfolio

                                         Short the Market at Higher Sensex Levels

                                                Trade Long on further 10%-20% upside with Strict StopLoss

Since then the Sensex sought a low of 8000 again in early March 2009 and then has simply doubled inside six months…It never dived below 7000 and 6000…so there was no finding support and stabilising at levels of 6150-7150

If you had followed this extreme advice,you’d have booked all your losses and never had an opportunity through an equity portfolio to recoup the loss…quicker by averaging purchases…..worse you could have shorted a rising market and hit by a double whammy !…At 8000 you were seeking a further fall to bottom of 20% which never happened and you missed the 100% run

But Human Memory is very Short….This Entity is now ‘revisting it’s assumptions’ but it retains leadership position in the Investment and Merchant Banking Field and continues influencing many Investors…While flexing it’s Money Muscle it needs to flex it’s Mind Muscles too,especially before offering such extreme advice !

It’s your Monies at Stake…Think Rationally…Don’t Follow Advice Blindly…particularly extreme advice 

Honestly,I too was bearish at the time but held back such extreme advice because,as I told clients,once you sell all,you’ll never buy again for a long time !…and the markets after seeking bottoms will recover…such bottoms are great buying and averaging opportunities…Clients were pressing to adopt a strategy to sell and buyback on lower bottoms and I was holding them back saying what if your bottom never comes  and the market recovers !…This is exactly what has happened 

Clearly One should have averaged purchases and not have Sold or Shorted…clearly this was contrary to the extreme advice given by this Financial Powerhouse

Minister of State for Science & Technology,Mr Prithviraj Chavan,just announced the second Forecast for this years Monsoon…the Picture is not good

• The First Forecast in April had predicted 96 % of Normal Long Term Average Rainfall….This Second Forecast lowers this to 93%  
• It’s the El Nino effect now playing with our Monsoons
• North-West India will get only 81% of Normal Rainfall
• Southern Peninsula will get 93% of the Normal Rainfall
• Central India will get 99% of Normal Rainfall

These projections are based on sophisticated statistical models and based on Input from Indian and International Monitoring Outfits and the Minister says he is confident of the accuracy of this forecast 

The Economic Implications will be announced by the Agricultural Ministry and other concerned Ministries later on…..Serious Worries are now arising on possibilities of Drought Conditions in certain Areas of India…This will seriously dent the Purchasing Power of Rural India

There is already a escalating crisis on Water Shortage in many States with delayed Monsoons…We are in the last week of June and the rains have just about hit Mumbai and are yet to hit Delhi

65% of the Kharif Crop depends on Monsoons,rather than irrigation….so expect prices of agricultural commodities to move northwards as production falls short….For example,the Ministry of Agriculture has already announced that in FY 10 the Sugar Production will be @17 million tonnes…and because of delayed monsoons,sugarcane would be diverted towards fodder and jaggery

Montek Singh Ahluwalia tells us that Finance Minister,Pranab Mukherjee’s Union Budget on July 6,2009 will be a popular one

Should really be interesting to see how !…given the backdrop of a High Fiscal Deficit,continuing Global Crisis,Declining Exports,Price Volatility in Currencies and Commodities and now a significantly below normal Monsoon forecast for this year !

In FY 09,it was Agricultural Growth that propped up GDP Growth with Manufacturing floundering…In FY 10, we should see both these sectors struggling now…and don’t expect the Services Sector to save the Show  

So for the Union Budget to be popular,it has to be really spectacular…for all…Intent may be there but the circumstances will constraint the ability

So what should we expect from this Budget ?…..Export Sops,Infrastructure Boost,Specific Solutions for Capital Formation,Direct and Indirect Tax Reliefs and Rebates for Individuals and all Business Entities,Disinvestment in specific PSUs and other major reforms……   

Sensex is holding on to +14000 levels pre-budget in expectations of the Budget and continuing high FII Inflows…but ‘El Nino’ is holding our Monsoons to ransom….and thus by consequence even our FM !

Sensex is walking a tightrope in the short term…if you are not convinced to reduce exposure to stocks or reduce trading activities,atleast delay further buying for a fortnight till after a post budget review…and hedging your holdings would not be a bad idea at all too !…An aggresive strategy would be to go short…but be warned you’re up against liquidity and momentum here…sensible to hedge and wait out the variables

Sensex gained a sensational 2000 Points overnight when Congress got a sensational clear mandate in the General Elections…But their Union Budget may not repeat such a rise overnight…Though Markets are living in Hope that it will !

July and August are critical as 76% of the rains occur in these two months with June and September accounting for the remaining 24%…so there is more risk of a downside staring at us in the short term with this Worrying Monsoon Forecast….a strong chance that the Sensex will slide below 12000 again on Poor Monsoons given the fact that even at 14000 levels currently the Sensex is at 16 times both past FY09 and projected flat FY 10 earnings…not exactly cheap……Poor Monsoons will impact Earnings and Impacted Earnings will affect the Sensex

This Poor Monsoons Forecasting today has influenced this Forewarning 

At 11.55 am,The BSE and NSE reopened after a two hour cooling period after hitting circuits on opening at 9.55 am

I’m not even in Mumbai…in Ahmedabad and feeling the Heat in more ways than One !

At 11.55 am the Sensex hit it’s second Upper Circuit at 14272.63,up 2099.21 points from Friday’s closing….up 17.24%

The Nifty hit 4308.05,up 636.40 from Friday…up 17.33%

As is the Policy ,the Markets have been now halted for Trading for the Day…This is unprecedented in our Market History

In seconds the Volumes had hit Rs 3000 crs…..My Heart goes out to all of those who had shorted the Nifty or  stocks in Futures…They have not yet been able to cover and are facing massive losses and therefore serious margin issues…They may need to sell part of their portfolios to pay off brokers…Short Sellers have been Shorted !..and How !

Tomorrow Sell at these Strong Sensex Levels….15000 +?…so quick…so soon…so much of euphoria !…it’s like the Markets were drying with the drought of 2008 and had began to recover…now the recovery is with such wet vengence on election results and  with the onset of monsoons now !…There is a GOD above…..but he’s now beginning to tell us to “Sell” !  

On September 27,2008,seven months ago the Sensex was 13000 and I had put up a contrarion blog http://www.gauravblog.com/?tag=contrarion-investment-strategy

I had said the Sensex is moving towards a Distress Zone and will break below 10000 to provide a great opportunity to build wealth over the coming years…so one should bring in Fresh funds to top up their portfolios and not sell 

Just a month later,on October 27,2009 the Sensex dropped below 8000,having begun the month at 13000 levels….from there,six months later on May 4,2009 it is kissing 12000,a rise of 50 % !

Yes of course,there was a problem end October 2008 with both,Cash and Conviction….. most were simply just too reluctant and resistant to add to their Eroded Equity Portfolios,lacking either one or both….but some who did,have reaped good returns…Their portfolios have recovered faster than those who just stayed put.

For example a portfolio that had eroded 50 % from Rs One crore to Rs 50 lakhs in 2008 by October 2008,infused fresh funds of Rs 25 lakhs…The portfolio would be currently, having crossed Rs One Crore,  moving towards Rs 1.25 crs,thus recovering the full portfolio erosion…If this fresh infusion was not made the erosion would yet be 25% in the portfolio,whose value would have climbed but only to @ Rs 75 lakhs…In fact many scrips that had a brilliant 2007,like IFCI that touched Rs 130,have barely recovered from their 2008 crash…IFCI has moved just from Rs 16 to Rs 27…yet a far cry from Rs 130 !…making the recovery process that much more difficult…Unitech is another prime example…

However there is great Historic precedence in the Belief that Long Term Investors should never exits Shares of Core,Strong Growing Companies…..Reliance,Larsen,BHEL…..instead on significant declines like we witnessed in 2008,fresh funds should be infused to top up portfolios…the recovery is that much faster

As I end this Blog past 1 pm,the Sensex has crossed 12000 having  surged 607 points and 5%,while the Nifty is just a shade below 3650

As I blogged last week….don’t short this market…you’re up against Momentum and Liquidity….However do blend Optimism with Caution at these levels….Our General Elections Results will be out on Saturday,May 16,2009……You get a Hung Parliament….Expect the Sensex to Hang too !

The Jury is yet out on whether this is merely a strong Bear Market Rally that may last a few months…Commodity Guru,Jim Rogers thinks so…..or it is the confirmation of a new Bull Market…Mark Mobius of Templeton,Abbey Cohen of Goldman Sachs and even Fidelity’s Head think so

There is an old saying…the Market will remain irrational longer than you can remain solvent !…so make the Trend your Friend when Trading…..don’t be tempted to short ,nor be tempted to enter at these levels…if you missed this surge,don’t worry…these are equity markets and they will give you opportunities in the future too !…Let’s now get the Elections and Earnings uncertainties out of the Way…Oh ! and we need some more clarity on the impact and Intensity of this  Swine H1N1 Flu too !

They poetically say that ” Sell in May…and Go Away”….What I say is that assess your Risk Profile…and stay true to it under any market condition !…use these surges to reduce Equity Exposure,if you’ve sweated bad in 2008 and cannot bear to have seen such portfolio erosions

Buying a Protected Nifty Put would also not be a bad idea to protect your portfolio value and keep the upside open…Right Now the Prremium for the  May 28,2009 Nifty Put of Strike Price of 3600 is Rs 151…So for each contract size of Rs 1.80 lakhs ,you will be paying just over 4% premium,Rs 7550…High, but worth it in such volatility and with election results coming up mid May….So for a Rs Ten lakh Portfolio,assuming Beta of 1,you’ll need to buy atleast Five contracts for a near total hedge….That will set you back near Rs 40000 as a premium for just one month,inclusive of Brokerage….A Hedge worth considering