Alternative To Equity (Stock Market) Investment

As we know the stock market has been butchered including domestic as well as the international market. The mutual funds are also performing very bad with constant reducing NAV.As the clues in the market remain such that immediate or bull run in short to medium term could not be expected.In such case we must focus on the alternatives present in the market , who are the best substitute for investment of our hard earned money.

1. Fixed Deposit
The first best alternative to equity market would be certainly Fixed Deposit , as the rate of return in the F.D is attractive and rising constantly.We should focus on the cause of rising interest rate:

1. If we look at the market inflation rate , which is near about 12% (appx.) ,whereby the interest rate on deposits at banks were about 8.5% to 9% , which is giving a negative revenue for us to meet or give a match to the inflation. In other words due to rising inflation our expense is rising by 12% p.a while our income on deposit is generated @9% making a deficit of 3% (appx.) .
thereby forcing the bank to offer there customer higher rate of interest to prevent premature redemptions.


2. In order to check inflation RBI under its credit policy issued from time to time is adopting measure to control liquidity in the market thereby hiking the lending rates and thus automatically the deposit rate get hiked.


2. Gold & Silver

It would be great to accumulate raw gold and silver in this festive season. The prices are going to soar in near to medium-long term.These metals are going to break there high in short term and will make new highs one after another , making it out of reach of general person and rewarding the investors generously.

These two alternative are the best amongst the various variants available in the market and would help investor to get generous return out of there investment.One can allocate there funds among the various options considering the two above as per there needs , funds , time of investment etc.

STOCKS TO FOCUS.

Present Scenario

At present times when the market is volatile , inflation is breaking records , interest rate are high , U.S economy is
under recession heading towards bankruptcy , Indian elections ahead , Soaring Crude Prices are all a matter of great concern.

In such unstable and volatile market , it becomes very difficult to decide the sector and the counter to enter.

Negative Counters

Reality sector will not get response soon.Among them the worst hit would be Unitech & DLF. Though Unitech has been under performing and was beaten up from long time due to sale of stake from Lehman Brothers. The counter is not expected to get well soon.

Regarding Banks , if a fresh entry is needed then preference should be given to Axis Bank. Sound company with minimum exposure in U.S market and is building up well.

INDIAN STOCK MARKETS AHEAD

A small rally is expected very recently near about the festive season , especially Deepawali.
But the rally will be for very short period where investors will get a chance to get out of the stocks , in which they have been stuck for long period of time.

Soon after this rally a severe fall is awaiting ahead , which will provide a wonderful opportunity for the traders & investors with cash in hand to invest there accumulated funds.

Technicals

In case of Nifty there is strong resistance at 4400 , 4600 and 4800 respectively. In order to cross 4400 levels it must close for atleast 4 trading session to confirm its stability. Though there may be an intra day achievements of targets but unless the stability is confirmed it is not going to cross next resistance levels.

Regarding Sensex a strong resistance at 15000 level is waiting ,so highest levels for sensex in near term is about 15000 levels and 16000, 17000 thereafter respectively.

Positive Clues To cause Rally

1. Finalization of Nuclear deal with India.

2. Sanction of 700 million dollars loan for U.S from world bank will improve liquidity and help the US govt to overcome the crisis problem in the economy for intermediate term.

MY VIEW ON GRASIM

Introduction of the company

Grasim Industries is one of the favorite stock of the traders. The brand is under the leadership of Adity Birla Group.

Financials

The financial performance of Grasim for the first quarter ended 30^th June 2008 has been flat. The high cost of raw materials and the overall slowdown in the economy seems to have taken a toll.The company’s revenues for the quarter were at Rs. 4,430 crore (Rs. 4,060 crore). Net profit was marginally higher at Rs. 672 crore (Rs. 670 crore).

Caustic soda volumes were higher by 11% and realizations were up by 30% at Rs. 22,352 per ton. Though the production and sales of cement was up at an average of 3%, margins were under pressure due to continuous rise in coal prices along with higher freight, employee and packing costs. Cement production and dispatches for the month of August 2008 stood at 21.19 lakh mt and 21.88 lakh mt, registering a decline of 8.87% and 5.39% on a YoY basis.

The Viscose Staple fibre (VSF) performance during the quarter was muted. Production was curtailed due to lower off-take. The liquidation of accumulated inventory in the value chain, substitution of VSF with other fibres on account of high VSF prices and general slowdown of the economy impacted the performance. Margins were depressed due to the record increase in sulphur prices and higher prices of other key inputs like pulp and caustic. Margins are likely to remain under pressure in the short to medium term.

Subsidiary

The performance of UltraTech Cement Limited, a subsidiary of Grasim, improved marginally. Domestic cement sales were higher by 4% but exports were affected due to the ban imposed by the Govt for six months.Though Profit margin was flat.

The production of sponge iron was lower by 27% due to planned maintenance shutdown and sales volumes declined by 35%. Realizations were high by 62%. The company is planning to hive off this division on a slump sale basis.

In current Q2, margins are expected to remain under pressure but if the company manages to sell off its sponge iron business, this one time gain would help bolster the performance.

My view

From above discussion I found the stock fundamentally strong and would advice the readers to stay invested.

Disclaimer : I do not have any personal holding in the stock.

Diversification

The Problem

The major problem our people of the country facing is the concentration of there savings and hard earned money.Their investment is too concentrated in one option, exposing them to the risks from lack of diversification. If for some reason, the business faces a downturn, many businessmen could run the risk of losing all that they had earned so far and redeployed into the business. This is particularly true of small sized enterprises that are closely held, that do not have an investment portfolio or a professionally managed treasury. It is also true of a number of small businesses run by individuals. Many of these wealthy individuals, who run a successful business, may be running the risk of concentrated investments, without being aware of it.They increase the risk of losing money, if the chosen investment goes bad.

Segment Facing The Problem

1. Businessman tend to invest most of their money back into their successful business with a justification that why seek another investment, when your own business provides a high return on capital and is also in need of funds?

2. Many investor have highest stock holding is in the stocks of their own companies. In these days of stock options and preferential allotments, many people tend to have a big chunk of their own company shares in their portfolio.

3. Many young professionals today invest a large sum of money in buying themselves a house. They save tax, and also get a house of their dreams.

4. Investors who made money in one stock, tend to like it so much, that they shift a large chunk to invest more in the same stock. These are some of the known ways in which portfolios are concentrated. Studies show that many small investors who indeed have a large number of stocks, tend to have some "dead" investments – those that were picked up on poor advice, gone sour and languish in the portfolios. Otherwise they have on an average about 6 stocks in which they have their money – not a very diversified portfolio

Solution To The Problem

Diversification is the key to keeping risks balanced. Good for your portfolio. Make sure that you don’t have more than 10% of your saving in any one asset – your business, your favourite theme or your favourite stock and perhaps not over 20% in your home. It can be painful when markets move up, but your wisdom will see you through when the markets move down. Moral of the story – make sure you diversify. It is the simplest way to make sure your portfolio is protected from risks it can do without.

ECB NORMS RELAXED

The Govt. of India has relaxed norms for External Commerical Borrowings (ECBs) for infrastructure projects. The companies engaged in building ports, airports, roads, bridges, power and telecom which could borrow only upto $100 million a year for rupee spending in India till yesterday can now borrow 5 times more ,the limit has been increased to $500 million per year.Projects with long gestation periods, mainly infra projects would be able to access these ECBs as these ECBs would have a minimum repayment period of seven years

For ECBs of three to seven years tenure, the borrowing rate has been left unchanged at 200 to 350 bps plus LIBOR. For borrowings between five-seven years, the all-in-cost ceiling has also been left unchanged at 350 bps while for those above seven years; the rate has been relaxed from 350 to 450 bps above LIBOR.

The news indicates that the Govt is going ahead with a good focus on reforms. Maybe in the current situation, where even companies with a strong balance sheet might find it difficult to get funding, for the long term, this is a positive move. The relaxation of the ECB norm, as experts say, might help bring down the dollar vis-à-vis the rupee. But probably, another way to look at it is that Govt is seeing the rupee at stronger levels in the months to come. So maybe right now, this news may not make much sense given the volatile rupee and dollar tussle. This, run up on the dollar, many say, is an aberration and once things settle down a bit, the rupee would also stabilize at better rates. So once that happens, this ECB relaxation will make a lot of sense.

Interest rates on the overseas markets would come at a much cheaper rate for large borrowings and for such long tenures would make more sense to borrow abroad than to borrow in India, where the interest rates would be higher.

The growth of India is still driven by the core sector, and with the impetus now being given to the Govt, the infra sector, which is expected to need around $500 billion by 2012 would find many takers for the ECBs.

The realty sector does not qualify for this increased ECB limit. The ECB ceiling for companies other than infrastructure companies stays unchanged at the previous $50 million. And taking a lesson or two from US, the Govt would not be in a hurry to relax this limit for realty companies any time soon.

This relaxation of the ECBs limit for infra is a step in the right direction but it will take some time to get to the desired destination.

My view On Pantaloon Retail

Financial Aspect

On a consolidated basis, the company reported a 64% rise in net sales at Rs.5840.54 crore, and despite a 66% rise in operating expense, the company managed to show a 43% rise in EBITDA at Rs.326.49 crore. But after this, it has been all downhill. Interest outgo rose 123% and depreciation was up 145%, with the company posting a loss before tax of Rs.15.30 crore as against a PBT of Rs.79.82 crore in June 07’ year ending. It posted a net loss of Rs.28.39 crore as against a net profit of Rs.79.90 crore last fiscal. This net loss would have been much higher at Rs.62.59 crore but for prior period adjustments added back at Rs.1.04 crore, goodwill written back at Rs.3.39 crore and the profit which it earned from sale of subsidiary at Rs.29.77 crore.

Then the company added back the minority interest earnings to the tune of Rs.51.22 crore and this catapulted the company back into the black, It ended 2007-08 with a net profit of Rs.21.93 crore , down 38% when compared with net profit of Rs.35.54 crore in 2006-07.

Apart from all these adjustments, during the fourth quarter ended 30^th June 2008, it changed its method of valuation of finished goods from "Retail Price less Mark up" to "At lower of cost and Net Realizable Value". Consequent to this change, the value of inventories was lower by Rs.74.37 crore. The same has been adjusted (net of tax of Rs.25.28 crore) against brought forward balance in Profit & Loss Account.

No doubt the sales have increased but the bottomlines have shown pressure. Its retail space has increased from around 7.30 million square feet to around 7.90 million square feet during the quarter. And its aim is to increase it to 15-16 million sq-ft in the current fiscal from 11 million sq.ft last fiscal.

Regarding Stock

The stock has a low at Rs.283 and currently it is hovering in the range of Rs.300-305. The great Indian retail bazaar is undergoing a change but Pantaloon has the advantage of being amongst the first in the sector and is today too big.This is a good stock to invest in.

Elliot Wave Anlysis (Dated 22/09/2008)

Drop from ‘e’ (at 15107) appeared like a 3^rd extension Impulse on intra-day charts. Impulses do not get retraced by more than 61.8%. Also the 3^rd extension impulse should find it difficult to retrace beyond 2^nd wave of this Impulse (which is at 14046-14433).At the same time the impulses in the 5^th wave or c-wave positions do get fully retraced. A move sustaining beyond 61.8% correction level, i.e. above 14133-225 area, would, therefore, indicate that we are dealing with such a situation.

From this perspective, it would be pertinent to note that the current drop (from 15107 to 12558) achieved 161.8% ratio to the previous one (from 15580 to 14002). Such an event suggests some alternatives.They show that a-b-c formation from 15580 to 12558 could either be a-b-c of a Running Expanding Triangle, or “b” of Flat from 12514 (with its “a” at 15580).

If it is Expanding Triangle, then the current rally can go beyond 61.8% up to 15107 as “d” of ET, but may not cross 15107. Note that current “d” (if true) has become larger than “b”, and has overlapped with “b” as required within an Expanding Triangle.If it is “b” leg of Flat from 12514, then the current rally would be “c” of such a Flat, and could go beyond 15107, perhaps forming as a Terminal hereafter. The “a” of such Flat (if true) is from 12514 to 15580, and “b” was from 15580 to 12558.

The neckline joining 13727 and 14002, with the structure post-12514 appearing like a Head and Shoulders formation. A strong break below 14K breaks the neckline of this traditional H&S formation. This Neckline is now getting tested at around 14225. Sustaining above the Neckline cancels the assumption of H&S formation.

The current bear market rally would be the “b” leg of the second corrective, which I said, can occur despite the fact that the market remains open for a protracted bear phase as per the 8-year cycle.

As per the Wave logic, corrective phases should consume more time than the wave getting corrected. Corrective phase consuming lesser time is allowed only in Triangle / Terminal / Diametric, which are exceptions to virtually all rules. In our case, it would indicate 2^nd corrective (post-17054) developing as an Extracting Triangle or Diametric.

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5. Risk factors

Every investment involves some level of risk. In an OD, investors will find descriptions of the risks associated with investments in the fund. These help investors to refer to their own objectives and decide if the risk associated with the fund's investments matches their own risk appetite and tolerance. Since investors have varying degrees of risk tolerance, understanding the various types of risks in this section( eg credit risk, market risk, interest-rate risk etc.) is crucial.

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VIEW ON CHAMBAL FERTILISERS & CHEMICALS.

Fundamental Aspects of the company

In the private sector Chambal Fertilisers and Chemicals is India’s largest producer of Urea .It's on the northern and western part of the country and supplies urea to nine states. Uttam Veer is the company's brand name.It has three divisions - agri-inputs, shipping and textiles. It has two subsidiaries - one in the software business and the other in the infrastructure sector. Its two joint ventures are in the fields of financial services and manufacture of phosphoric acid.

The shipping division, operating under the name of India Steamship has three Aframax tankers with a fleet capacity of about dwt 3,00,000 MT. And the textile unit, known as Birla Textile Mills, has a state-of-the-art spinning unit with a capacity of 80,208 spindles located at Baddi, Himachal Pradesh.

Financial Aspects of the company

YoY, the net sales of the company rose 35.31% at Rs.805.27 crore. 62% of its sales came from the fertilizer division. Trading earned it Rs.185.59 crore, shipping Rs.56.58 crore and textile sales was at Rs.66.40 crore. Operating expenses rose 47%. This pulled down the margins.

The shipping venture showed an operating loss of Rs.48.34 crore, while the textiles division had an operating loss of Rs.1. 22 crore, small loss but loss nevertheless. And this affected the overall operating profit of the company. OPM was down from 26.03% to 16.28%. EBIDTA was down 15% at Rs.131.10 crore.

PBT was down 25.51 crore and the tax outgo of Rs.33.51 crore as against Rs.15.31 crore in Q1FY08 pulled down the PAT, it was down by a whopping 61.43% at Rs.23.80 crore. NPM was down at 2.96% as against 10.37%, YoY.

Our result

Rs.96 was the stock high in the month June, though it has not drowned in the correction phase.Currently good but existing holder may continue there interest but any additional buying in this stock is not recommended.