I was one among the common man who was watching the market silently but sounds from media and analyst’s everyday crossing decibels. Let me also contribute to that since I have some regular visitors to my site.
Remember it is market psychology that drives the market now and not rationals. When we are emotional we don’t think about what we do and simply utter words and the market is behaving in the same way.
As I always said don’t be a herd in the market. Have your own taste of success or failure in the stock market. If you really study the fundamentals of the company not by Ratios or High funda financial terms but by common knowledge it will form the basis first in most of the times.
First let me put my views on the market.
What’s the reason for Bull Run till now?
It’s simple. The value of Indian companies were reaching heights because we had investors buying from outside.
We have to agree that it was over valued to a certain extent because of the bullish mentality of FIIs and the credit availability terms they had like less interest rates etc.
What happened suddenly and markets became bearish?
When credit was tightened and interest rates were hiked in US most of the mortgage loans were on floating rate and many people defaulted.
- This led to liquidity crises for lenders.
- There arouse a demand for money in US market.
- FIIs so who needed money started to sell their investments in India to get back money for their livelihood and hence notional value of Indian stocks are going done.
- Indian economy is certainly insulated.
- Indian economy in terms of imports is not much dependent on US.
The good part of the story is that unlike China, which had an export oriented economy, the Indian economy was based on the domestic market. The India’s trade theory is changing a lot as it is turning out to be more of a manufacturing export oriented country. The net trade of services done by India accounts to about just 22% just reflecting the risk on trade services is tried to be minimized. Also in the current scenario the trade practices of India with US has decreased and on the other hand has relatively increased with China reflecting out that the risk of US recession has been deflected.
Also recent crisel research indicates
- Indian banks have limited vulnerability. (CRISIL RESEARCH).
- Indian banks’ global exposure is relatively small.
- International assets at about 6% of total assets.
- Even banks with international operations have less than 11% of their total assets outside India.
- The reported investment exposure of Indian banks to troubled international financial institutions of about $1 billion is also very small.
What’s Behind Indian Companies?
Indian companies’ notional value of its share prices has gone down but nothing like mortgage crises in US.
They are strong on the asset base and in terms of fundamentals.
Just take a company like HERO HONDA. Just let’s look from layman point of view. I had invested two years back and it never went up and it is going up now. In an average Indian mindset this bike is something very common. The availability of credit will impact the sales but it won’t have a drastic impact since it is almost a necessity as far as Indian market is concerned when compared to other industry. I am not saying blindly buy by this. Take this as core then do all fundamental and technical analysis and ponder on it.
Indian companies’ debt equity ratios are decent. Nothing like there is an internal failure in terms of technology or accounting malpractice.
Only thing is companies in IT sector got projects from US and when their economy is down no projects and hence no profit and its effect will be there in other industry as well.
So the basic thing is that there is money problem which Indian investors thought that their investments will go up but no one to buy their portfolios. Others who has gained some profit turned towards safer side seeing the risk in the market.
RBI measures will benefit banks on short run and companies on short run but the pumped in 1.4 lakh crores by CRR cut and others will be useful for stabilization if the companies gain back their money which they have as inventories before the money pumped by RBI is eroded as working capital.
This is a slow process and it will take nearly a year for the positive sentiment to gain back in the market but our companies are fundamentally strong with less overseas exposure in their investments in the collapsed financial institutions.
The following report will give you what can be the probable intrinsic value based on simple projected PAT which is arrived as percentage of projected sales for Mar 2009 for BIL.
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The following report will give you what is the price range for Brittania Industries Limited till August 2009. It is however based on simple average returns calculated from last three year traded prices.
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Company Overview
Renuka sugars was started in 1995 and by acquiring a sick sugar unit in AP in 1998 it gained a capacity of 1250 TCD.Then the unit was moved to munoli and its capacity was expanded to 2500 TCD.Commisioning and trial production took place in the year end of 1999.
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Company Overview
Britannia biscuit company was started in 1892 in kolkotta .In 1920 with the help of electricity it mechanised its operations. In 1921 it became first company to import electric ovens. During world war two they were the contractors to supply biscuits to armed forces.
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Here is another interesting financial ratio analysis of Jindal Steel with Tata Steel. I hope you will enjoy the report.
Download the report here.
Here is a research report which I have done as a part of my MBA academic career. It might interest to some of you.
In this report, you can see brief research about
- Introduction to Zee network
- Strategic Dimensions
- Porters Five Forces For Telemedia Industry
- Strategic Innovation By Zee And Its Current Threat And Suggestions
- Competitor Analysis
- Strategy Analysis
- Calculation Of Eva
Download the complete PDF report here – Zee Entertainment Enterprises – Research Report
Based on request by visitors I am writing this part. It is more of information for beginners.
A forward contract is one where two parties one agreeing to buy and other agreeing to sell, enter into an agreement. One party agrees to sell a particular amount of quantity of any commodity at a particular price determined at present but at a future o date. The other party agrees to buy the same.
Let’s take an example. A farmer who expects price to go down in near future enters into an agreement with another party that he will supply certain quantity of rice on certain price today’s price after three months. The party will agree to this contract only if his perception about price change is exactly opposite that of the farmer. That is the counter party will either expect the price to go up and so he agrees for current price which is prescribed by the farmer. With this type of agreement counter party’s default risk is more say it rained and so farmer cant supply the rice and so he defaults or the prices may fall and so the buyer may say I may not buy at the current price. To avoid this counter party risk a third party is necessary and that is where the exchange plays a role and it is called as futures.
What is a future contract?
Since the necessity for third party is here the exchange plays a role. It is same as forward contract but here it is up to the individual to buy or sell the commodity. Here it’s a notional commitment and there is no obligation to buy. Both can bet on an agreed price and trade.
How futures work?
Let us take rice futures. One party agrees to buy 100kg of rice at 20rs per kg on 3 months from today’s date and other sells it. Here both the parties have to pay an initial margin to the exchange. It will be 10 to 20% of the contract value in case of stocks and within 10% in case of commodities. When the next day if price goes up than the agreed price the buyer will be credited by the extra amount in his account and the sellers account will be detected. Say if price goes upto 25 the buyers account will be credited with 25rs per kg and sellers will be deducted. This will be reverse if prices go down.
When deduction is reaching close to maintenance margin which is less than initial margin which will be determined by the exchange amount a call will be given to the deducted party to maintain the margin amount .this is called margin call. At the end of maturity date he can execute to buy the underlying asset or just come out by writing of and the margin will also be repaid if he has made profits.
Stock futures
Say an individual is agreeing to buy 100 share of RPL at 195 rs per share on (if today is a day in April), May (near month contract) and margin is 10 percent. He has to pay 1950 as his margin. If price next day becomes 200 his account will be credited with 5*100 =500 rupees and the sellers will be deducted Rs. 500. Like that it goes on as long the buyer wished to hold. This is called mark to market. Everyday the profit or loss is added to the account according to the price that day. This minimizes the counter party risk.
Reliance Petroleum, RPL, is entered into the capital market on April 13 with a public issue of 135 crore equity shares of Rs 10 each for cash at a premium to be decided through 100% book building route.
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It is lending to people who are less capable of repaying (More credit risk; Less credit worthiness).In US some institutions has lend loans like this to such people(less capability to repay). Since they are high risk loans interest rate will be high. These institutions also adopt a process called securitization (conversion of these loans into tradeable securities).
In simple terms the institutions says that i will earn repayment every month from these borrowers and institutions will trade this loan as bonds and investors will invest in it. As most of the housing loans were traded like this in us these borrowers didn’t pay back.
So it led to non-performing assets in banks balance sheet. So investors in these bonds started selling their bonds which pull down the us stock market. Everyone wanted to take their money in these bonds as loans are not repaid.
It had an impact on Indian stock market as well some people who lost their money also wanted to compensate their loss by selling shares they holded in Indian companies, this pulled back Indian stock market also for a while.
Note: stock market will come down when sellers are more (bearish). It will go up when buyers are more (bullish)
What did US GOVERNMENT DO to minimize this risk? They cut down the interest rates so that people will borrow at lesser rate and invest. But this helped Indian market also because they borrowed in us at lesser rate and invested in Indian market which is bullish now.thats is why our market adjusted very quickly.
Rupee appreciation
It means i am able to but dollar at a cheaper rate.
That is for a particular amount of rupee I can buy more dollars.
When it happens. When we have sufficient amount of dollars in hand we don’t need more. When US depends on Indian goods they have to pay in rupees and they exchange their dollars for rupees with RBI and hence we have more dollars. When investments from US come into India also this exchange takes place and hence we have more dollars and rupee appreciates.
Right now because of last reason our rupee has appreciated.
When rupee appreciated it is bad for exporters because say for every one dollar product they sell in US they will get less rupees.It is good for importers because for a particular amount of rupee in hand they can get more 1 dollar products and sell in India.
But some domestic manufacturers who manufacture and sell in India will get affected by substitute import products because they become cheaper.
What RBI has done to curb appreciation is open up investment opportunities for Indians in US. That means they allow them to invest more in us there by more dollars will be demanded by them to invest and dollar demand will raise and rupee appreciation will come down.
But critics also comment on these that when US market is not good who will invest outside and hence this didn’t have much impact on curbing the appreciation.