Friday, October 31, 2008

Are stock markets efficient?

I would like to describe story of a company named Gulf Oil Corporation. The company had following consolidated profit/loss account in the last 5 years:


At the height of 2003-2008 bull run in May 2006, the market capitalization of the company was around 3385 Cr, the same is around 231 Cr after a split of 5:1 and price correcting to INR 30. What the f**k? I don't know if any real estate is involved in this. The same is the case for MMTC. MMTC hardly had profits of around 200 Cr last year but its market capitalization was 2.84 lakh Cr (more than ONGC which earned profits of 20000 Cr last year) in November 2007. Even today it has a market cap of around 65000 Cr, this is more than ITC which earned 3200 Cr as profits last year. If the market has overpaid for these stocks on upside, it is bound to underpay for many other stocks on the downside. Be ready to buy those.
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Monday, October 27, 2008

Something out of the box

There is gloom and doom everywhere. In this kind of time, I want to stick my neck out and say Sensex will touch 12500 (Nifty 3800) in the next 9 months, i.e. by July 2009.
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Sunday, October 19, 2008

Will history repeat - Part II ?

On May 22, 2008 I wrote an article about past Nifty levels with respect to its P/E (Will history repeat?). The fact is that I assumed that the bottom for the market would be reached in a span of 18 months but this correction came out to be much severe than anticipated. It has been only 10 months and the Nifty has reached a P/E of 13.15 on 19 October at a level of 3074.35, EPS being 233.79. If past is any indication and this quarter's earnings do not give much boost to Nifty EPS, than the bottom may come at around 2450-2535 at a P/E of 10.48/10.85. Past is just an indicator and history may be re-written, i.e. Nifty may go below P/E of 10 and reach 2000. Panic situation has started to appear on the faces of investors, brokers and analysts. People have started thanking God that they sold some stocks at 15-20K on Sensex. Everybody has started predicting new low levels for Sensex ranging from 7K to 8.5K. There is blood everywhere. I remember at this stage a statement made by Mr. Buffett in an interview with Forbes magazine in 1973 when Dow went to a P/E of 6-7. When asked how he feels right now, Buffett replied, "An oversexed guy in a whorehouse". Every value investor should feel the same right now in India.
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Friday, October 17, 2008

Industrial Recession

Some days back when the IIP numbers for August 2008 came in at 1.1%, one of the economist in GOI (Government of India) said that it is an industrial recession. It seems that stock prices of Industrial Companies are reflecting that. See the table below:

StockPriceEarnings Last YearP/E
Amara Raja51173
Ashapura Minechem44202.2
Asian Electronics29291
Graphite India3694
JK Lakshmi Cement28370.7
KEI Industries2073
Lakshmi Machine Works6402003.2
Tata Steel250902.5

The list covers most of the industrial sectors from batteries to mining to steel to transformers to power cables to housing to cement to textiles. I am not saying this companies are worth buying at this point of time, some of them will go bankrupt in the next 2 years. I don't know which ones.
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Strange things happen in stock markets

I created a portfolio of stocks which I think were good in December 2006 when the Sensex was at around 13500-14000 and Nifty was around 3700-4000. During December 2006 and October 2008, Most of the companies increased their profits except NALCO. NALCO's profit went down from 2006 December TTM (Trailing Twelve Months) of around 2000 Crore to 2008 October TTM of around 1700 Cr. The L&Ts, RILs, HDFCs, Bhartis and many others increased their profits by around 50% in these two years. Guess what happened to NALCO's stock price. It outperformed all the stocks till 16th October 2008. Which genius thought of this happening?
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Tuesday, October 7, 2008

Where are those reckless mutual funds?

On May 29, I wrote about reckless investments by mutual funds. I am comparing the NAV of these mutual funds, then and now, with Sensex as well as BSE-500.

SensexBSE-500Tata InfraTata Indo Global

Most of the outperformance is attributed to cash holdings. Tata Indo Global is a new fund and they started investing with these kinds of stocks. I don't know what will happen to Indian investors!!!!!!!
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Nifty P/E below 16 after a long time

As per NSE website, Nifty P/E is below 16 now after a long time. Last time it was below a P/E of 16 was on 12-Jun-2006, after the May 2006 Stocks meltdown. Before that Nifty P/E went below a P/E of 16 on 21-Nov-2005, after the October 2005 stocks carnage. Statistically, Nifty has remained below P/E of 16 for 38% of the time in the last 10 years (NSE provides data only upto 1-Jan-1999). So the odds are 3.8:6.2, i.e. if you buy nifty today, chances are that it will be above this level 62% of the time in the next ten years, provided the earnings do not go down. Let's see.
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