Did everybody make money last year?

The Sensex closed on 9 March 2009 at 8160.4 and yesterday at 16971.7, a gain of around 108% in less than a year. Has every investor made profit? Following table gives a list of some companies who made their investors cry:

Company Name	Closing Price 9-March-2009	Closing Price 4-March-2010	Return
Cranes Software	38.7	19.8	-48.84%
Northgate	31.35	19	-39.4
Tata Communications	409.75	290.7	-29.26%

Many advisors on CNBC were saying at that time to buy anything and you are bound to make money. The investors who bought these shares didn't make money.

Graham's advice to Retailers

We have seen the death of three retailers in India over the last two years, Subhiksha, Vishal Retail and Pyramid. Pyramid was acquired by Indiabulls and so it didn't face a death but we can say it got bailed out. The father of value investing in his 1934 edition of Security Analysis had following to say:

The chain-store grocery trade contained within itself many elements of relative stability, such as stable demand, diversified locations, and rapid inventory turnover. A typical large unit in this field, provided only it abstained from reckless expansion policies, was not likely to suffer tremendous fluctuations in its earnings.

Alas!!! People would listen to what others have said in the past!!!!

Indian Budget 2010-11

Indian Budget for the year 2010-11 was released on 26th February by Finance ministry. Besides the annual financial statement of Indian Government, there is a lot of statistical data available in the documents annexed to the budget.

Some Graham plays?

Following is the list of companies which Graham could have bought:

Company	Net Current Assets+Investments	Debt	Net Current Assets + Investments - Debt	Market Capitalization
Modern Shares	9.82+2.42	2.71	9.53	4
Medi Caps	4.11+44.67	0	48.78	18.16
Priya	42.8+3.62	23.11	23.31	5.64

Modern Shares is giving dividends for last ten years, at least, and MediCaps is giving for last six years. MediCaps has a big investment portfolio in Liquid Mutual funds while Modern Shares has most of its investments in fixed deposits. Priya's net current assets is mostly in debtors which needs more research.

Mutual Fund Mistakes

I have already talked about reckless investment practices of mutual fund here and here. One more example I got to know when I was analyzing a company named Shanthi Gears.

HDFC Mutual Fund holds a very large stake in this company through various mutual fund schemes. If you look at the block deals of the company, HDFC Long Term Equity Fund bought the shares at INR 78.5 on 26 April 2006. HDFC Prudence Fund bought the shares at INR 61.5 on 21 June 2006. This was a boom time for auto/capital goods industry. The stock price peaked in January 2008 at INR 115 and bottomed in March 2009 at INR 25. As can be seen today, the company's share price is hovering around INR 37 after three years and nine months.

Special Situation in Solvay Pharma

This is my first post on a special situation. Abbott of US announced to acquire pharmaceutical business of solvay group of Belgium for EUR 4.5 billion on 28 September 2009. Both Abbott and Solvay has listed subsidiaries in India. Since Solvay has a listed subsidiary in India, SEBI's takeover code comes into effect and the acquirer, which is Abbott in this case, needs to make an open offer. The open offer has been announced and the offer price is INR 3054.73. The last traded price of Solvay shares on BSE is INR 2879.85 on 17 Feb 2010. So how can a value investor take advantage of this opportunity?

Where are the lakhs?

I am talking about the missing lakhs from the results of Atul. The company has from the last three quarters started omitting lakhs from every item of its result and reporting everything in rounded "Crore" figure. One more company that follows the same practice is Infosys which started the practice from SEP 05 Quarter. It is surprising suddenly the company started doing business in round figures of "Crores" when the company's total yearly revenue is just around INR 1200 Crore. Infosys started doing it when its revenue went above INR 2000 Crore quarterly.

Sensex - Nifty EPS after Q3FY10

Sensex EPS stands at Value-16224.95/PE-20.11=INR 806.81 as per BSE on 4 February 2010. Nifty EPS stands at Value-4845.35/PE-20.84=INR 232.5 as per NSE. ACC and Ambuja results were still not counted so this may change a little bit.
S&P CNX 500 EPS stands at Value-4139.7/PE-18.6=INR 222.56. BSE500 EPS stands at Value-6484.64/PE-20.06=INR 323.26 while that of BSE SMALLCAP EPS stands at Value 8344.74/PE-16.02=INR 520.895.

The following table may summarize better:

Date	Sensex	Nifty	S&P CNX 500	BSE 500	BSE SMALLCAP
Jan 7, 2008	734.39	222.629	203.26	295.67	603.15
Mar 9, 2009	702.27	210.74	174.99	254.52	482.61
Feb 4, 2009	721.71	210.91	174.92	278.62	599.46
Today	806.81	232.5	222.56	323.26	520.895
Two Year CAGR	4.8%	2.19%	4.64%	4.56%	-7.07%

This shows that even though the profits of Indian companies may have risen by 20-25%, due to dilution of equity, the EPS has risen by 10-12% for Sensex and Nifty. The rise in EPS for broader indices like S&P CNX 500 and BSE500 is more due to the fact that they fell more too compared to Jan 7, 2008 levels. For all the indices, the EPS growth is less than 10% when compared to January 7, 2008 in two years, i.e. less than 5% compounded annually and negative for BSE SMALL CAP index. People are still optimistic and saying INR 1250 EPS for Sensex and INR 375 EPS for Nifty in FY12. Pretty stupid forecasting.