NSE Nifty Returns over a period of time

The returns of NSE Nifty over a period of time as on 31st July, 2008 is as under:

• 3 Months: -16.12%
• 6 Months: -15.66%
• 1 Year: -4.31%
• 3 Years: 23.22%
• 5 Years: 29.55%

What is your learning out of this? Can you play the markets or the markets play with you?
Similar post on BSE Sensex is up here

Invest in a Company serious about CSR & Corporate Governance

CRISIL launched a 50 scrip index which tracks the top Indian companies on the basis of Corporate Governance, Ethics and Social responsibility. It's called the ESG Index. (Environment, Social, Governance)

This is what I was looking for when I am looking around for stocks to invest. Infosys, ITC was already in my radar and I am glad to see that they rank right on the top of the 50 scrips. The top ten companies by weight in the index are:

1. Infosys
2. ITC
3. Aditya Birla Nuvo
4. Dr.Reddy Labs
5. Wipro
6. Jubilant Organosys
7. Axis Bank
8. GTL
9. RIL
10. HUL

See Crisil website for all the details

Mint reports that the first sustainability index that was launched in Brazil in 2005 has given returns of 26%, higher than the 18% offered by the benchmark index of Brazil.

So investors would be rewarded and you also have the satisfaction of investing in a company aware of its social responsibility and scores high on corporate governance.

India's first online weekly onpersonal finance

Stock Markets Crash: Is there hope for small investors?

The darkest hours are the moments just before sunrise! So when there's stories of carnage on the stock markets abuzz, it's time to look for sane voices. Ajit Dayal comes out with an interview where he says that a 20% annual rate of return is possible in India.

He says,

[T]he risk for any investor is surrendering to his emotions. Investors are either blinded by greed at one extreme or are enveloped in fear at another extreme. The clueless investor is like a ship floating in a dark sea - with no lights, no navigation maps, and no stars to guide him. The poor fool will float with the tide and ride the waves of greed and fear. His survival is at risk. His only hope is to be rescued by a greater fool.
A knowledgeable investor makes sure he has a map, a torch, some idea of the stars to guide him when the lights go out, and an anchor to hold on to in rough seas. When the markets fall for some irrational reason and fear grips the markets, the disciplined investor will buy into this falling market. When markets rise for silly reasons and irrationally and greed set in, the disciplined investor will sell.

Go read the full interview

Hefty Losses of the past in Indian stock markets

So what comes down, goes up again and vice versa!
HEFTY LOSSES...
Date Close Prv Cls Chg % Chg
18-May-06 11391.43 12217.81 -826.38 -6.76

16-Aug-07 14358.21 15000.91 -642.70 -4.28

02-Apr-06 12455.37 13072.10 -616.73 -4.72

01-Aug-07 14935.77 15550.99 -615.22 -3.96

27-Jul-07 15776.31 15234.57 -541.74 -3.43

28-Feb-07 12938.09 13478.83 -540.74 -4.01

05-Mar-07 12415.04 12886.13 -471.09 -3.66

Source: Business Standard

25 Golden Rules to Investing: Part II

I wrote about the first 5 golden rules to stock investing yesterday. I'm actually put off by the number (25!) as well as the myriad qualities you must have to become a good investor. For example, you must have an eye for detail as well as have an overview of the entire business. Perseverance, patience, determination, rational action, discipline are high sounding theoretical words and look very daunting to me. And all of them in one single person!!

So I'm putting them all together here (6-25) since I promised. Academic interest only, since I don't expect you and me to be a bundle of all 25 qualities!!

6. Successful traders buy into bad news and sell into good news.
7. Successful traders are not afraid to buy high and sell low.
8. Continually strive for patience, perseverance, determination, and rational action.
9. Limit your losses - use stops!
10. Never cancel a stop loss order after you have placed it!
11. Place the stop at the time you make your trade.
12. Never get into the market because you are anxious because of waiting.
13. Avoid getting in or out of the market too often.
14. The most difficult task in speculation is not prediction but self-control. Successful trading is difficult and frustrating. You are the most important element in the equation for success.
15. Always discipline yourself by following a pre-determined set of rules.
16. Remember that a bear market will give back in one month what a bull market has taken three months to build.
17. Don't ever allow a big winning trade to turn into a loser. Stop yourself out if the market moves against you 20% from your peak profit point.
18. Expect and accept losses gracefully. Those who brood over losses always miss the next opportunity, which more than likely will be profitable.
19. Split your profits right down the middle and never risk more than 50% of them again in the market.
20. The key to successful trading is knowing yourself and your stress point.
21. The difference between winners and losers isn't so much native ability as it is discipline exercised in avoiding mistakes.
22. Speech may be silver but silence is golden. Traders with the golden touch do not talk about their success.
23. Dream big dreams and think tall. Very few people set goals too high. A man becomes what he thinks about all day long.
24. Accept failure as a step towards victory.
25. Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even quicker!

Reviews, Tips, Calculators with an Indian perspective.

Golden Rules for Investing in Stocks

Nadeem Sama points out to the 25 golden rules of Investing in stocks. Is it possible for mortals like me to follow them? So instead of all the 25, I reproduce only 5 at one go!

1. Plan your trades. Trade your plan.
2. Keep records of your trading results.
3. Keep a positive attitude, no matter how much you lose.
4. Don't take the market home.
5. Forget your College degree and trust your instincts.

Pretty basic. But easier said than done, eh? I like the one about trusting your instincts!

I'll come back with 5 more in the next post about golden rules.



Reviews, Tips, Calculators with an Indian perspective.

ITC: Not just Cigarettes

As part of my MBA, I was asked to do a presentation on the BCG Matrix for a company of my choice. I chose ITC and made this presentation. It's been ages since I reviewed a stock which is part of the Sensex. So here it goes.....

Recently, ITC has won the National Award for Excellence in Corporate Governance 2006 from the Institute of Company Secretaries of India. ITC received the award for its commendable performance along the “triple bottom line”, its strong corporate governance model and its visionary leadership.

ITC is one of India's foremost private sector companies with a market capitalisation of over Rs 620,625 million and total revenues crossing Rs 100,000 million in 2006. Rated among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable Companies by Forbes magazine, among India's Most Respected Companies by BusinessWorld and among India's Most Valuable Companies by Business Today, ITC ranks third in pre-tax profit among India's private sector corporations.

ITC has a diversified presence in Cigarettes, Hotels, Paperboards & Specialty Papers, Packaging, Agri-Business, Packaged Foods & Confectionery, Information Technology, Branded Apparel, Greeting Cards, Safety Matches and other FMCG products.

While ITC is an outstanding market leader in its traditional businesses of Cigarettes, Hotels, Paperboards, Packaging and Agri-Exports, it is rapidly gaining market share even in its nascent businesses of Packaged Foods & Confectionery, Branded Apparel and Greeting Cards.

ITC commands around 70% of India's Rs 130 bn domestic cigarette market (value terms). Out of the top 10 cigarette brands in India, 6 belong to ITC.

ITC's paperboard unit at Bhadrachalam is the largest and most contemporary paperboards manufacturing facility in the country and accounts for over 80% of the company's total installed paperboard capacity of 325,000 tonnes.

ITC has emerged as the second largest player in the hospitality industry in India, behind Indian Hotels (The Taj Group). This division continues to benefit from capacity expansion as well as the upturn in the industry's occupancy rate. This division displayed a staggering CAGR growth of over 48% between FY02 and FY06

An important weapon in the company's arsenal, E-choupal's potential is unimaginable. E-choupal is a web-based initiative of ITC's International Business Division, that offers the farmers of India all information, products and services they need to enhance farm productivity, improve farm-gate price realisation and cut transaction costs. E-choupal also facilitates supply of high quality farm inputs as well as purchase of commodities at their doorstep.

However before you rush to buy the ITC scrip, ponder over these observations: The domestic cigarettes industry has been facing pressures in the spheres of taxation, and regulation of consumption and communication. Also, there are more chances of excise duty on cigarettes rising than falling, as is the case internationally. Hence, to that extent, the backbone of the company is under pressure.

Moreover, while ITC is moving in the right direction by de-risking its business model and entering new areas, the company's food business continues to eat into its profits currently.

Globally, tobacco companies are in the eye on storm over health related issues and have been on the receiving end of penal action for damage claims. Though Indian consumers are not active on the libel side currently, this is likely to change as consumer activism is on the rise.

Hoodibabaa!

Bajaj Auto is the second scrip in Sensex in alphabetical order and I try to understand the business here. India’s second largest manufacturer of two-wheelers has reported its second quarter and half-year ended September 2006 results on 18.10.2006.

Bajaj Auto Limited, with a market share of 32% in FY06 (23% in FY04), is the second largest player in the two-wheeler industry. In FY06, the sales mix (in volume terms) consisted of 82% motorcycles, 12% three-wheelers and the rest 9% step-thrus, ungeared scooters and geared scooters. Though the company has traditionally been a key player in the geared scooter segment, aggressive pricing coupled with a slew of new launches has resulted in a rise in market share in the motorcycle segment from 16% in FY00 to 32% in FY06. It has also entered into an agreement with Kawasaki for export of motorcycles to emerging markets

The Group has posted a Income attributable to consolidated group of Rs 2867.70 million for the quarter ended September 30, 2006 as compared to Rs 2631.30 million for the quarter ended September 30, 2005. Net Sales has increased from Rs 19695.70 million for the quarter ended September 30, 2005 to Rs 25388.60 million for the quarter ended September 30, 2006.

Motorcycle sales, which accounted for 91% of domestic sales and 70% of exports, continued with their dream run by notching up growth of 34% YoY and 105% YoY in the domestic and exports segments respectively. This is significantly higher than the industry growth rate of 15% YoY and 59% YoY in both the markets under consideration. The highlight of the company’s performance during the quarter was the inroads the company was able to make into the value segment of motorcycles.

On the three-wheeler front, Bajaj Auto continued to dominate the segment with a market share of 77%. The cargo segment continued to impress with a growth of 50% YoY during 2QFY07 as against the industry growth rate of 30% YoY.

Raw material costs as a percentage of sales have increased by 310 basis points (3.1%), and this is the primary reason why the company’s operating margins have contracted by 190 basis points.

Other stocks in the automobiles industry are Ashok Leyland, Eicher, Escorts, Hero Honda, Kinetic, LML, Mahindra, Tata and TVS.

Automobile majors increase profitability by selling more units. As number of units sold increases, average cost of selling incremental unit comes down when demand recovers. This is because the industry has a high fixed cost component. This is the key reason why operating efficiency through increased localization of components and maximizing output per employee is of significance.

In an interview, Sanjiv Bajaj, Executive Director, says that they are looking at building competetive advantage vis a vis Hero Honda and not just ape them. Time and customers will tell whether his efforts bear fruits or not.

Associated Cement Companies Ltd. (ACC)

As part of an attempt to understand the sensex scrips, let's take a look at ACC.

Associated Cement Companies (ACC) is the oldest cement manufacturer in the country. ACC (consolidated) has a total capacity of 18.1 million tonnes (12% of total Indian capacity) and is the second largest player in the Indian market after the Grasim-Ultratech combine (31 MT). With 14 units and a 9,000 strong dealer network, ACC is one of the few cement companies to have a pan India presence. It is particularly strong in the northern and the eastern regions.


The cement industry has over the last decade managed an 8% CAGR and this momentum is sustainable over the next 2 to 3 years. This is on the back of the fact that the housing constructions boom being witnessed in the country currently seems unlikely to subside anytime soon. Further, the developments in Budget 2005-06, which have been maintained in Budget 2006-07, that provide for a possible exemption of Rs 2.5 lakhs (Rs 1.5 lakhs interest and Rs 1 lakh against principle repayment) from the total taxable income is a big factor that would aid the growth of the housing sector. The importance of the housing sector in cement demand can be gauged from the fact that it consumes almost 75%-80% of the country's cement. Further, as per estimates, there is still a significant amount of unfulfilled demand (19 m) for dwelling units in the country, which would keep the demand for cement ticking.

The industry had an excess capacity of close to 26 MT (FY05), which has been considerably reduced from the near 33 MT in FY02. Further, with the lack of any significant greenfield capacity coming on stream over the next couple of years and the demand expected to grow at 8% per annum, the demand-supply dynamics is set for further improvement. Though 5 to 6 MT per annum of brownfield capacity is a reality, it is not sufficient to upset the demand-supply equation of the industry.

Gujarat Ambuja, in consortium with Holcim, has a 34% stake in ACC and as a result, ACC can benefit from Ambuja's expertise in manufacturing cement at a lower cost.

However, on account of company's poor operating margins (16% in FY05 as compared to 20%-25% achieved by its peers), the company is more susceptible to price fluctuations as compared to its peers in the industry.

The capex with respect to hiking its cement and power capacities is estimated to be about Rs 6-7 bn. The regular maintenance capex would be in the vicinity of about Rs 1 bn per annum. In FY05, the company had incurred a capital expenditure of nearly Rs 6 bn, which includes the purchase of the captive power plant from Tata Power (Rs 2.4 bn)

Cement is essentially a commodity where a mere 1% or 2% fall in demand can have a significant impact on prices. Therefore, it is imperative that the industry has a certain level of consolidation in order to prevent free fall in prices.

How much sense does it make? To buy or to sell??

Sensex Review

Here's the list of 30 scrips which form the Sensex. The purpose of noting them here is to be able to review each stock and learn why they are part of the sensex. And it tells me that one may not profit from the booming sensex if his/her investments are not in the right scrips. Investment bankers may be scoffing at this elementary post, but it's a learning process for me.

SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100.

1. A.C.C.
2. BAJAJ AUT
3. BHARTI TELEVENTURES
4. BHEL
5. CIPLA LTD.
6. DR.REDDY'S
7. GRASIM IND.
8. GUJARAT AMBUJA CEMENT
9. HDFC
10. HDFC BANK
11. HERO HONDA
12. HINDALCO
13. HINDUSTAN LEVER
14. ICICI BANK
15. INFOSYS TECHNOLOGIES
16. ITC LTD.
17. LARSEN & TOUBRO
18. MARUTI UDYOG
19. NATIONAL THERMAL POWER
20. ONGC
21. RANBAXY LAB.
22. RELIANCE
23. RELIANCE ENERGY
24. SATYAM COMPUTER
25. STATE BANK OF INDIA
26. TATA CONSULTANCY
27. TATA MOTORS
28. RELIANCE COMMUNICATIONS
29. TATA STEEL
30. WIPRO LTD.
    

SENSEX is regarded to be the pulse of the Indian stock market.

Sensex at 13000

The Bombay Stock Exchange's sensitive index of 30 scrips, popularly known as SENSEX has crossed a historical 13000 during intra day trading today, viz, 30th October, 2006.

For the premier Stock Exchange that pioneered the stock broking activity in India , 125 years of experience seem to be a proud milestone. A lot has changed since 1875 when 318 persons became members of what today is called "Bombay Stock Exchange Limited" by paying a princely amount of Re1.

Since then, the stock market in the country has passed through both good and bad periods. The journey in the 20th century has not been an easy one. Till the decade of eighties, there was no measure or scale that could precisely measure the various ups and downs in the Indian stock market. Bombay Stock Exchange Limited (BSE) in 1986 came out with a Stock Index that subsequently became the barometer of the Indian Stock Market.

SENSEX, first compiled in 1986 was calculated on a "Market Capitalization-Weighted" methodology of 30 component stocks representing a sample of large, well-established and financially sound companies. The base year of SENSEX is 1978-79. The index is widely reported in both domestic and international markets through print as well as electronic media. SENSEX is not only scientifically designed but also based on globally accepted construction and review methodology. From September 2003, the SENSEX is calculated on a free-float marke capitalization methodology. The "free-float Market Capitalization-Weighted" methodology is a widely followed index construction methodology on which majority of global equity benchmarks are based.

Come on India, Aa ya India!!

SBI Q2 Results

India's largest lender, State Bank of India, on Saturday posted a bigger than expected 2.6 percent fall in quarterly earnings but margins improved as loans yielded higher returns.

SBI, with access to cheap savings bank accounts through its more than 9,000 branches, said operating profit rose 24.7 percent to 24.73 billion rupees in line with the rest of the banking industry.

State-controlled SBI said profit in July-September, its fiscal second quarter, fell to 11.84 billion rupees from 12.15 billion rupees a year earlier, missing a forecast of 11.9 billion rupees in a Reuters poll of 10 analysts.

In the last year second quarter, SBI's net profit was boosted by the 6.5 billion rupees benefit from tax write-backs and absence of tax provisions.

Most banks have posted strong earnings growth in the July-September quarter due to loans growth as individuals borrowed to buy homes and cars, and corporates borrowed to expand capacities.

Banking sector's loans grew 31 percent in the July-September quarter, but the central bank has raised the short term rates 75 basis points this year in three phases to contain inflationary pressures.

The expectation that rates may not be raised further due to the Federal Reserve holding its rates, led to a fall in yields in the last quarter boosting the bond yields which added to banks' profits.

ICICI Bank, SBI's smaller rival, posted a 30 percent rise in July-September earnings, and the New York-listed HDFC Bank, reported a 32 percent rise in net profit earlier this month.

Analysts are expected to revise up their banking sector earnings estimates for the year to March 2007, if the central bank leaves interest rates unchanged during its meeting on Tuesday.

SBI, which employs around 200,000 staff, said its net interest margin grew to 3.32 percent in the September quarter, compared with 3.13 percent in the same period a year ago, as it increased lending rates during the quarter.

Net interest income for the quarter rose 8.07 percent to 38.99 billion rupees, from 36.08 billion rupees a year earlier.

Its net bad loans fell to 1.67 percent in July-September, from 2.27 percent a year earlier.

Shares in SBI rose 41.4 percent in the quarter, outpacing a 17 percent gain in the BSE's main index and a 39 percent gain in the banking sector benchmark.

ICICI Q2 Results

ICICI Bank has declared its second quarter results. ICICI Bank's Q2 net profit up 30% at Rs 755 crore from Rs 580.05 crore. Its Net Interest Income (NII) was up 47% at Rs 1,577 crore from Rs 1,070 crore. The bank's retail assets were up by 57%, deposits were up 57%, YoY. Tthe bank's CASA ratio has improved to 23% and the fee income has grown by 62% .

ICICI has changed the banking scene in India over the last few years. We expect robust credit growth this year too. About 69% of the Bank's assets are contributed by the retail bank about 10% of the assets are contributed by the international bank and the balance by the domestic corporate bank with about 7% coming from the rural and agricultural business.

Looking at credit to GDP ratio in India it is indeed quite low. When you compare consumer credit to GDP in India for a country of our size is just about 10-12%. So there is a crying need for credit to fund consumption, to fund infrastructure, to fund a whole lot of capital expenditure and therefore one would expect a robust credit growth in the current year across the banking segment.

Way to go, ICICI!

HDFC Q2 Results

Housing Development Finance Corporation Ltd (HDFC) has reported a 23 per cent growth in net profit for the quarter ended September 30, 2006.

Net profit for the quarter stood at Rs 368 crore, against Rs 298.9 crore in the corresponding year-ago quarter. The net profit for the fiscal half-year ended September 30 amounted to Rs 664.84 crore, a rise of 22 per cent year-on-year.

The net interest margin for the quarter has been maintained at 2.16 per cent, Mr Keki Mistry, Managing Director, HDFC, said.

On real estate prices, Mr Mistry said that there had been some correction in prices in certain pockets of the country. But there was still demand for home loans. "The middle-income segment is driving the home loan growth. There is genuine demand from end-users as affordability has increased," said Mr Mistry

HDFC's total income for the second quarter increased to Rs 1,456 crore (Rs 1,048 crore), a growth of 39 per cent. Total expenditure rose by 48.6 per cent to Rs 982 crore for the quarter (Rs 660 crore). Of this, interest and other charges amounted to Rs 914 crore (Rs 607 crore). Gross profit (after interest and before depreciation and taxation) rose by 23 per cent to Rs 470.11 crore (Rs 382.83 crore).

Loan approvals for the first six months of the fiscal amounted to Rs 14,729 crore, growing 28 per cent over Rs 11,543 crore in the corresponding period last year. Loan disbursements during the same period increased by 27 per cent to Rs 11,280 crore (Rs 8,910 crore).

Income from interest on loans for the half year grew to Rs 2,218 crore (Rs 1,603 crore).

The housing loan portfolio (including loans outstanding, deposits and investments in preference shares and debentures for financing real estate related projects) as on September 30, 2006, amounted to Rs 51,332 crore, an increase of 25 per cent over a year ago.

HDFC's capital adequacy ratio stood at 13.5 per cent of the risk weighted assets against the minimum requirement of 12 per cent.

Equity Investment Basics

When you buy a share of a company you become a shareholder in that company. Shares are also known as Equities. Equities have the potential to increase in value over time. It also provides your portfolio with the growth necessary to reach your long term investment goals. Research studies have proved that the equities have  outperformed  most other forms of  investments in the long term

This may  be illustrated with the help of following examples: 
a)  Over a 15 year period between  1990 to 2005, Nifty has given an annualised return of 17%.
 
b)  Mr. Raj invests in Nifty on January 1, 2000 (index value 1592.90).The Nifty value as of end December 2005 was 2836.55.  Holding this investment over this period Jan 2000 to Dec 2005 he gets a return of 78.07%.  Investment in shares of ONGC Ltd for the same period gave a return of 465.86%, SBI 301.17% and Reliance 281.42%

Therefore, Equities are considered the most challenging and the rewarding, when compared to other investment options. Research studies have proved that investments in some shares with a longer tenure of investment have yielded far superior returns than any other investment.
 
However, this does not mean all equity investments would guarantee similar high returns. Equities are high risk investments. One needs to study them carefully before investing. 

Broadly there are two factors: (1) stock specific and (2) market specific. The stock-specific factor is related to people's expectations about the company, its future earnings capacity, financial health and management, level of technology and marketing skills.  The market specific factor is influenced by the investor's sentiment towards the stock market as a whole. This factor depends on the environment rather than the performance of any particular company.

In the investment world we come across terms such as Growth stocks, Value stocks etc. Companies whose potential for growth in sales and earnings are excellent, are growing faster than other companies in the market or other stocks in the same industry are called the Growth Stocks. These companies usually pay little or no dividends and instead prefer to reinvest their profits in their business for further expansions.   While looking for "Value Stocks" the task is to look for stocks that have been overlooked by other investors and which may have a 'hidden value'.

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