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Monday, October 13, 2008

Indian Share markets: News, views and results

Indian stock market investors suffered worst ever losses in history in the last week. BSE Sensex suffered biggest weekly fall in 18 years. Worst IIP numbers further disturbed the sentiment despite good GDP projection by IMF. Unless Indian Government along with RBI will take serious measures to improve liquidity and confidence, it is difficult for Indian stocks to escape from the current slide despite reasonable valuations. According to sources, Indian Government is planning to go to any extent to prevent the liquidity crisis in the financial system- that is good news for investors but global clues are still in negative zone.

Indian economy has been slowed down:

You need not be an economist to understand about the slowdown in the consumption power of people. Just compare the current shopping scenario with last Diwali. There is a serious visible slow down in the consumption. India's Industrial production numbers hit 14-year low and the business confidence is at all time low. Banks are cautious in giving personal loans. IT employees are not splurging. People have decreased their spending due to erosion in their investments.
Bad sentiment:
1. "We have a negative outlook on India's sovereign rating because its public finance is weak, and its growth story is getting weaker very quickly" – Fitch Ratings.

2. Hindalco rights issue is undersubscribed.

Stock market news and views:

1. Kalindee Rail Nirman: Larsen and Toubro (L&T) bought 4.2% of stake in Kalindee Rail Nirman from open market through L&T Capital. According to rumors, L&T will hike stake in this Company to 15%. Stock fell by more than 25% in just one week after the purchase of stake by L&T. Kalindee Rail Nirman is a "safe buy" for long term investors.

2. Satyam is in big trouble: Satyam was banned from offshoring work with World Bank as some of its employees violated security norms. World Bank was not renewed its 5-year contract with Satyam Computers. Company may announce buyback to curtail the sliding in its stock price. My entry price for Satyam was below 200.

3. Maytas Infra is in trouble: Maytas Infra need to announce financial closure by March, 2009 for its Hyderabad Metro Rail. According to AP Government officials, it may fail to do so. Source: Andhrajyothy Telugu daily.

4. Indian Airlines sector is the first industry to seek an official bailout plan in India. Hospitality industry will also suffer due to economic slow down.

5. Jewellery exporters will feel the heat due to recession fears in America and European Union.

6. ICICI Bank bankruptcy: It is too early to comment on these baseless rumours. ICICI Bank will not bankrupt due to "American subprime crisis" but it may land in trouble due to "Indian Subprime crisis" which will occur in the next 3-4 months. Investors and depositors should not worry about this Company. If necessary, RBI will rescue the deposit holders as it did in the case of Global trust bank. Bank size will not help it much when it lost the confidence of investors and depositors. I hope that things will not become that much worse.

ICICI Bank stock is the worst performer among financial stocks in Asia on Friday. ICICI Bank stock lost 70% of its value from January. According to Mint, A large Indian bank borrowed Rs 1,000 crore from another bank at an interest rate of more than 20% this week, the highest rate charged for a 45-day loan between Indian banks since the mid-1990s. Which bank is it? Who will reveal facts? Why is this hide and seek game? Biggest problem with this bank is lack of transparency. Why don't they come out with complete details and allay investors's fears? Just sending a SMS is not enough. ICICI Bank has strong management but will they overcome this crisis in confidence. Investors who enter into ICICI Bank stock at these levels will get either bumper profits or shattering losses. Take your call!

Significant statements:

A. ICICI Bank has no sub-prime risk - Moddy's.

B. Capital adequacy ratio of ICICI Bank is better than SBI and HDFC Bank - RBI.


7. Read this good article published in DNA about various investment opportunities for Indian investors.

8. Falling inflation and crude oil prices are the positive news. Inflation will fall to below 8% by March, 2009.

9. According to a study, 90% Indian mobile users don't like to change their mobile operator. Good news for Bharti Airtel which will once again announce good results in this quarter.

10. Reliance Power and ONGC saw the maximum number of shareholder exits while Sesa Goa saw the maximum number of shareholder entries along with IDFC, L&T and Reliance Industries.

Analysis of Q2 results and estimates:

1. Infosys announced good results and gave cautious guidance. Analysts may downgrade technology stocks due to poor guidance by Infosys Technologies. Both Satam and Infosys announced hiring plans. Is it an overconfidence or new business strategy?

2. Sintex Industries announced wonderful results in the September quarter. Sintex India announced 86% increase in net profit in the September quarter. Company announced 78% increase in net profit in the first six months of FY09. Wonderful performance. Keep it up!

Sintex India quarterly results:

Q2 FY08 Net profit: Rs 45 crore; Q2 FY09 Net profit: Rs 83.8 crore.

Q2 FY08 Net income: Rs 389.3 crore; Q2 FY09 Net income: Rs 719.8 crore.

CMP: 195.6  ;   P/E: 12

3. Garware Offshore and Aban Offshore are expected to announce good quarterly results. But falling crude oil prices may mar sentiment in these scrips. These companies may not be affected much due to their long term contracts.

4. As expected, brokerage firm Motilal Oswal announced disappointing results. Geojit announced worst results. More pain to come in this segment.

5. According to estimates, metal stocks like Navbharat Ventures and Rohit Ferro Tech are set to announce outstanding results in September quarter. Closely follow these battered stocks. It is becoming very difficult to take a call on Metal stocks until we know that whether it is a cyclical downturn or temporary slowdown.

6. Mundra Port and SEZ is expected to announce good results and future is also looking bright for this company. This stock is a "buy" for long term investors.

7. Construction companies like Punj Lloyd and Nagarjuna Construction may see pressure in their margins in the September quarter results.

8. You will see so many negative surprises in this quarter. According to estimates, even good companies like Thermax will announce disappointing results in this quarter.

9. Keep an eye on Triveni Engineering which is expected to announce good results.

10. Sun Pharma will once again announce superb results in this quarter along with Lupin. Both are safe buys for medium to long term investors. Cipla and Ranbaxy may disappoint investors.

Which stocks are better for accumulation?

Large caps are trading at an average P/E of 13 and are at October, 2005 levels while Midcaps are trading at an average P/E of 8 and are trading at June, 2003 levels. Large caps will participate in the early rally followed by mid and small caps. Large caps have more downside risk than midcaps at current valuations. Midcaps will give better returns over long term while large caps are ideal for short term if rally occurs. If market turmoil continues, large caps will lose more value than midcaps. Is it too confusing? Go through pros and cons and decide yourself.

Biggest positive aspect: Unlike in 1929 depression, all countries and central banks are taking aggressive measures to control the losses. That's the only hope. 3G auction (if it occurs) will help to improve the financial position of the Government. Will it take place?

BBC website published a good map to get an idea about how credit is affecting various countries.

Stunning statistic: The Dow Jones Industrial Average lost 91% in 3 years from July 9, 1929 to July 9, 1932. That's the effect of Great Depression. Corporate profits fell by 49% and Industrial production was down by 52% in those 3 years.

Lesson: Share markets always over react to either positive or negative news
Source: Stock Market Guide
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