panch-tattva talk…sugar scrips flare up

Friends,

Only on the 14th Dec 2008 I had given you all any idea that sugar sector scrips have tremendous potential and you should get fully invested in those scrips. I am sure , the ones who have faith would have surely made hansome gains as the average surge in sugar scrips since than is pt no pot less than over 60pc. Such gains in such short period do bring back the smile on faces of people who have had to suffer unduly for the unpredictable changes in the world’s macro level environment.

The DoW at 8654 at this very moment is also saying that the year 2009 will be rewarding. The European markets have endorsed the same thing during the last trading day of the year 2009.The Indian scenario remains encouraging from the angle of crude prices (under 38 dollar/bbl) and rupee dollar parity at under 49. There is every possibility of further reliefs from RBI in CRR and repo/reverse repo rates . The BoE is reconciled to having nearly zero interest rate regime. The domestic banks are seeing the light of day and have started to bring down rates on advances to various catagories of borrowers. There is need to pass on relief of cheaper rates to the credit card borrowers too.this will hasten the pace of recovery in consumer durable markets . Needless to say the the auto sector will see demand surge as the cheaper auto loans will bring out a lot of pent up demand. When the closing prices of leading scrips on Indian bourses are seen against the back-drop of opening prices for the year 2008 , no body in senses can remain unmoved at the extreme treatment meted out to these respectable companies shares. By a thumb rule , I may invite you in to buying where ever you have understanding of the concerned sector of industry. This is not the time to invest in defensive sectors.

Wish all my readers a rewarding new year.

HariOm,
krsnaKhandelwal

panch_tattva talk…the bulls pervade

Friends,

The year has had tumultuous run. Most watchers have been aghast at the turn of events. I ,for one, wondered most at the extent of influence of USA’s troubles on the rest of the world. The only encouraging sign was the level of commitment and concern shown by the world’s various govts. All govts have tried to deal with the situation with fair degree of resolve. This has , in fact , paved the way for the next bull run which may prove to be very robust one. This would be due to the very substantial effect of the downing of the bench-mark interest rates and increase in money supply which for some reason has not had the kind of influence it normally should have had. Let us not be complecent about it, it will definitely make economic wheels turn faster than anticipated albeit with some time leg.

Todays Nifty closing in the vicinity of 3000 is better by 20pc over the lowest closing at 2500pts in the year. Supposing there is a further 20pc gain in the indices, we will notice that the percentage fall from high of 6100 will be equal to the percentage gain from lowest closing of 2500. This in a way saying that who averaged their holdings have been spared the hurt in any year so bad and would in fact will gain in the times of stability , in the year 2009. It can be said therefore that averaging is not a bad idea in times of too much fall in a sudden manner. Besides, who have been able to book gains and entered back at lower rates , will have made a fortune.

I would advise my readers to remain hopeful but alert.Needless to say that you will be duly guided by means of ‘panch-tattva’ evalueation , as and when the Oct-Dec results start to pour in.

HariOm,
krsnaKhandelwal

panch-tattva talk…the year 2008

Friends,

The year 2008 is nearing end and has taught many a lessons to govts, the bankers, the industrialists and most of all the investors. What has been proved beyond doubt is the importance of role of money supply and credit availability in ensuring the smooth running of economic activity . It is , in fact, a wonder that the some thing which is just a means of settling accounts and transferring purchasing power, has such an important place in scheme of things for conduct of business . Some how , it has such importance and we should have similar respect for it. Otherwise , the enterprises fail or flourish due to the managerial input and process efficiency and the like. Money stock and credit flow remaining the same , these very input will still be seeing the success or faileures of ventures. In this light we should forget the impact of monetary and credit conditions and should once again concentrate on picking stocks on the strength of just discussed parameters. There are plenty of such stocks and should in fact be picked up. The news flow is not so damning any more. The stability of markets is noticeable. If there is no further revelations of out of proportion type of misteries (as was the case of sub-prime mortgages), the markets are poised to show remarkable upward movements around the world , particularly after the doses of needed remedial measures. India stands best placed in all respects. The December series has ended with solid gains . The January series has already shown tilt towards bullishness. The results will be OK for some sectors and not Ok for some , for the Oct-Dec quarter but the prices have already discounted these expectations and the promise of future will shortly be the guiding investors .

I wish you all a merry Cristmas.

HariOm,
krsnaKhandelwal

panch-tattva talk…mathod in madness

Friends,

I have noticed and you may have also. There have been a fully blown smear campaign against some managements/some groups , one after the other in a manner that can only suggest that it is organised by some quarters and on purpose. It was the case concerning affairs of ICICI Bank , Unitech , DLF , Tata Steel, Tata Motors and lastly Satyam. All these companies suffered considerable share price erosion and touched ridiculous lows. Then the share prices stabilised , jerked up and are continuously going up now. Is it that some groups are at work and create conditions when the gullible would sell in a panic and they buy , only to make quick buck safely. There have been cases of self damage by some company quarters and then the share prices go down beyond reasonable levels only to stabilise , jerk up and keep going up after words. I have given indication of such cases but would not name them now. There is there fore a definite mathod in madness.

Nifty did handsomely adding over 100 pts but DOW did poorly losing about 200 pts . This morning Asian stocks have been showing positive movements. The news flow is OK and mostlky positive like 10yr G-Sec yield is about 5.60pc , inflation number has come down to 6.87pc, the trading volume is at over Rs70K crs , the bears are runnning for cover, the advance tax payments have not been as low as was feared, the fear is giving way to hope and most of all for India’s relief the crude is down to 38 dollar/bbl.

I would repeat that you should be selecting sticks from the value angle and from the earnings angle for the present. I think if the 3600 Nifty mark is crossed in a rush , it should be a surprise. PC , however, speaks about more pain in store while saying all good thing about economic conditions. He was speaking on behalf of Manmohan Singh who kept finance portfolio under his direct charge while he brought PC to head Home Afaairs ministry.

HariOm,
krsnaKhandelwal

panch-tattva talk…the equity advantage

Friends,

We calculate the nominal return on equity on post tax basis while we talk of yield on debt funds on pre-tax basis, clearly equal nominal returns would be preferable. The equity-advantage does not end here. Consider the folloing which reflects return on Sensex in each decade since 1980 till now:

1980-90…+25pc p.a.

1990-00…+30pc p.a.

1998-08… 25pc p.a.

The yield on long-term G-Sec has ranged between 6pc to 10pc per-annum

The difference is clearly visible. Even if you have not timed your investment decision the return in equities has never been lower than 10pc after nursing stocks for a full 10 year period and the peak returns have been as much as +40pc p.a.(between 1982 to 1992)

Even the gold has never been able to exceed in gains in long term (over the equity investment).

Another observation is that the longer you stay in equity investment , the more stable returns are expected.

Also, if you invest after big crashes your returns are more handsome over the long period.

In this light the ULIPs are good for the period of investment is usually long for the young and middle aged people.

HariOm,
krsnaKhandelwal

panch-tattva talk…rally snapped

Friends,

The rally in Indian markets was snapped yesterday and Nifty closed down by 87 pts at 2954. This has happened due to losses in stocks which had gone up by wide margin quickly over the last fortnight and hence is not representative of any new weakness coming . The DOW also lost some ground after a grand rally on Tuesday , this too is normal change. Todays openings in Asian bourses is pretty OK and most are trading in green at the moment.

There is talk of second stimulus package under consideration of govt. There is a very large and striking gap in interest rate structure here and rest of the world. Shouldn’t it invite capital from all over the world here , particularly when Indian banking institutions have demonstrated that they have proper policies and due safe-guards to escape the kind of financial troubles that threaten the very existence (this is true this time but not too long ago govt’s political managers have been playing havoc with banks safe limits by asking to advance to un-safe sectors even without scrutiny. Such pressures had put the banks under strain in early years of this decade when the banks were armed with a law which itself is not in right spirit but did save the banks.)

Some investors (the institutional ones) raised a very big hue and cry for the Satyam board’s decision about Maytas take over. The Satyam management has since dropped the deal under pressure from investors. But this speaks of the management’s honest intentions. If the noise makers can affect the managements decisions without any good thought given to the issue , the governance will ne difficult. There have been aquisitions of, mergers with the group companies (Ambanis have been masters at it) quite routinely but the outsiders could not do any thing. The TM and TS takeovers have virtually transferred needed capital too out of India (I raised big hue and cry at that time but lacked listeners) and have damaged the health of Indian entities. No body could do anything. Satyam management has big cash in hand , is it not something that should be appreciated, afterall they only have earned it. If they have listened to outcries says that they have democratic disposition. Let’s give a thums up to Satyam by buying into it at such low rates and punish the noise makers.

Sugar scrip have come down slightly and offer an opportunity to those who have not yet boarded the bus. Afterall Maytas Infra is a listed company and it has a market determined value so nothing extraordinery would have happened. If the Satyam management was wrong in its approach then why not make law that any company with holdings of members of management team can not be looked at for merger and buy-outs. I condemn the jittery investors rather than the management. There very investors have shunned India’s best companies without any such development and have favoured investment in companies with dubious companies. I think the managements only become darlings of the manager of the institutional investors when they also manage the mood of the managers/advisers of these institutions. A move that could have stabilised a cash rich companies future through the diversification has been scuttled.

HariOm,
krsnaKhandelwal

panch-tattva talk…hell bent

Friends,

The US FED has in its latest move brought down the interest rates to target range of 0-0.25pc. It is now clear that the FED was hell bent to see the economy skips the woes of recession. The resultant market action has seen the DOW jump up by over 4pc to 8924 points. This is pretty decent level considering the challenges faced so far. The Saudi Arabia also has pruned rates by half a percent. Haven’t I raised this topic of interest rates and told you on umpteen occasions that the size of savings pool (call it capital formation) had become too huge and was meant for future consumption and therefore the high interest expectation on such kind of saving was it self at fault. Since the savers for pension benefits have no choice to use their money for present consumption but have to use it for future consumption , their prime concern should be preservation of value of savings and not expect earnings out of it. With is imperative to take care the pension funds should commit a large part of funds under their control in to bullion and other such assets which will maintain exchangeability with items necessary for daily living in future. I think this will now be done also. The subject is too complex to deal in detail just now so I leave it here for the time being.

Coming back to markets , the Asian markets have shown an inclination to move up but not in same degree as did USA’s yesterday. Indian market is bound to have positive move today and may be it is a good up-move. This is due to the expectation of further rate cut by RBI , the low inflation numbers allows it too. The PM’s relief package which was called as moderate by some, has been able to see a very positive impact on Indian market mood. It means that Indian economy is ready for the next bout of expansion. The world money has started to flow in and the rate of flow will improve in future. The only thing is that the govt puts in place the necessary mechanism for its absorption and control and also ensure that the reverse flow is manageable too. I think the ones willing to buy equity stakes in companies with lock in period should be encouraged in whatever way possible. Where large funding is involved , the risk element in debt and equity funding gets equalled , so, there would be no real hasitation and reservation by big investors in coming through equity route for investment.

One measure that may make them readily choose the equity route is to lower the corporate tax rate and tax the capital gains on equity investment at 10pc to compensate for the loss of tax.

There is an anamoly in tax structure in the sense that there is dividend distribution tax but no capital gain tax. This makes companies keep cash in excess of their present need which may get spoilt as it usually goes in to areas of investment divorced from the main business line of company.

Only yesterday Satyam Computers announced buy out of an infrastructure company for an outlay of over a billion dollars. This was unrelated aquisition and was resisted by the investors by and large. The Satyam ADR lost more than 50pc value in last session and the management called off the plan to aquire.Evidently the corporates do have distorted view about the way surpluses should be dealt.

Lastly, the sugar scrip are keeping up their upward march but I may tell you that there is room for more than 100pc rise from present levels in case of most sugar stocks in the medium term.If you can withstand intermediate hick ups , you should keep buying sugar stocks. The sales to market cap ratio should be your thumb rule for choosing which one to buy. I would not mind if you book profits when you have 100pc return in hand but do it only partly.

HariOm,
krsnaKhandelwal

panch-tattva talk…home loans cheaper

Friends,

The banks have announced that home loans upto Rs 5 lacs will attract interest at the rate of 8.5pc and for loans upto Rs 20 lacs it will be 9pc. Banks have clerified that processing charges etc will not be applied to these loans. This is good turn for the small borrowers but banks say that the rates will be fixed for upto five years and than it will be converted to floating rate. Small industries also have been given about 100bps relief on loans.

The sugar scrips did perform very well yesterday as the rise was for all sugar scrips and ranged between 5 to 17pc. I may tell you that it is bound to be a continuous rise for some months. The simple equation is that most sugar stocks are selling below book values and the sugar prices have firmed up in open market and are about 35pc up over last one year. Low interest rates will further help the industry as it has to depend heavily on bank finance for carry over of stocks which are sold as per the monthly releases announced by govt.

The Chinese market is at about one third of its peak and the Indian market is at about one half of its peak. The performance in 2009 will tell as to who really has an edge. I would say India has a better chance (but political stability should remain as a pre-condition).

The world markets have been slightly lower since close of business in India yesterday. I can’t surely say as to what side Indian market will decide to open or close today for there is no cue available. The medium to long term view remains positive for me. While most sectors were better yesterday , the IT was in poor shape. I may add here that if you decide to invest in IT scrips (leading ones) at todays prices , you will not have to repent. The dividend yields are going to be very decent in respect of IT companies and it would be a great advantage.

HariOm,
krsnaKhandelwal

panch-tattva talk…double your money

Friends,

The Asian markets have dramatically moved up this morning on back of some downward revision of benchmark interest rate by Taiwan and Korea. This will surely see Indian markets opening gap up.

Now, I give you, the small investor to have best returns under a strategic plan.It is seen that when the rest of the market is bullish the sugar scrips do not paricipate fully because of the low market caps. When the rest of market is lying low , the sugar scrips gain lost ground. In this light , when today the leading stocks rise, you may pick up sugar stocks and get fully invested. After you have picked up the sugar stocks and converted your investible cash in to equity, it will be time to patiently wait. Please remember not to sell back the sugar scrips unless you have had more than 50pc return within 3 months or 100pc within 6 months . You may consider completely going out of these stocks when you have made more than 200pc as profits. This is possible for a small investor because only he can pick sugar stocks or get out without unduly influencing the price levels. You must take advantage of your smallness and gain handsomely out of a situation that has thrown up a grand opportunity which can be availed with very favourable risk-reward ratio.

HariOm,
krsnaKhandelwal

panch-tattva talk…stock prices to firm up

Friends,

During past few weeks I told you that none of the sector has room for further erosion in stock values and also told that Manmohan’s relief measures would see stocks jump between 10 to 20pc. To my satisfaction the representative stocks belonging to the respective sectors have in fact shown prices moving up during the week gone by as per the anticipation.

There are reports that 132 billion dollars worth fo US treasury bills have been auctioned for negative yield and full demnd could not be stisfied. This is a very important development and may result in sudden big rises in stock prices around the world.

As for India , I am not going to discuss cold facts about the state of markets and economy at this time but I do have an inkling that a bout of rising stock prices will be surprising people who still have a negative bias. Some have been saying all is not well with economy while I have to say that all is well. Such diverse openions are rarely noticed but intend to stick to my words. Let the time tell whether despair rules or hope is rewarded.

Ford says that auto-bailout will will not be reflecting on its Indian plans whether favourable or unfavourable.

The sugar prices have improved a lot lately. This sould be reason enough to stay invested in sugar stocks.

HariOm,
krsnaKhandelwak