Stock Recommendations on the basis of Technicals

Hello Friends.

Posting here after a long time. Actually was busy studying markets from Technicals Perspective.

Here are few of my recommendations.

1)Geodesic

CMP = 111
TGT = 127
SL = 105

2) Alok Industries

CMP = 27.90
TGT = 36
SL = 25

3) Bank of Baroda

CMP = 937
TGT = 1000
SL = 905

Accumulate the above stocks on dips to get better Return Ratio.

Yet again the RBI raises Interest Rates to tame the shooting inflation

The Reserve Bank of India springs back to action to tackle the mounting inflation much before the upcoming credit policy on 27th of July 2010

The RBI raises the Repo Rate (the rate at which banks borrow money from RBI for an overnight period) from 5.25 to 5.5

It has also increased the Reverse Repo rate (the rate at which RBI sucks excess liquidity from the markets) from 3.75 to 4.

The RBI seems to have gone for the rate hike for the following reasons

1) Strong IIP numbers over couple of months especially in the capital goods sector.

2) Phenomenal growth in credit offtake for banks that has risen from 10% ( October 2009) to 20% (May 2010)

3) Unabated rise in inflation numbers.

The above move comes as a part of governments plan to move out of the expansionary policy in a calibrated manner.

At this juncture it would have not been prudent to raise Cash Reserve Ratio ie CRR as currently there is a liquidity crunch in the system. The banks are nearly short of 50,000 crs of funds as a lot of money on account of advance tax payments, 3G and BWA auctions had moved from the banks into coffers of the Government. However soon this will reverse as Government pays salaries and makes other payments.

Moreover today itself the Government did a bond auction worth Rs 10,000 crs and one more bond auction worth Rs 35,000 crs is scheduled for July 28.

Thus the liquidity in the system would soon become comfortable and our EMIs may not suddenly inch up at-least not before the upcoming credit policy.

The new base rate regime

Why did RBI banished the Benchmark Prime Lending rate, popularly known as BPLR and replaced it with the new Base Rate?

To start with, BPLR means the rate of interest that the banks would charge on the loans given to its best customers. However nobody quite understood how did the banks arrived at this rate and everybody used to get loans at sub PLR rates
Well this meant that something definitely was amiss.

This let to the introduction of the Base Rate.
Base Rate is the minimum rate that the banks incur.

Calculation of Base Rate

= Cost of deposits
+ Cost of running the bank.
+ Reasonable Return on its money

With its implication from 1st July itself, no bank can lend to its customers (except exempt categories as per RBI Guidelines) below its base rate.

The biggest public sector bank of India has set its Base Rate at 7.5%

Calculation of base rate for SBI

Cost of 6 month deposits = 5.4%
+ Negative Cost on CRR/SLR = 55 bps
+Unallocated Costs
(eg Running the bank)
+ Estimate profit margin
========================================
BASE RATE = 7.5%


All the other banks have followed the leader and have adjusted their base rate to be in the same range by playing around with either unallocated costs or estimated profit.

Below is the list of Banks with their respective base rates.



However before the regime of base rate, the AAA corporates used to get loans at around 6.5%. So will this affect the corporate borrowing. To deal with this the banks may lend money to AAA corporates through commercial paper or give them higher rate of interest on their deposits.

Geodesic A Screaming BUY

The company at CMP of 91 is looking an extremely lucrative BUY.

For the full year FY10 the company has posted an EPS of 26.88 Rs, which means it is trading at less than 3.5 PE. The company is trading below its book value of more than 100 Rs and has superior EBITDA Margins of around 53% and PAT margins close to 38%. ROCE is also fantastic at 20%.
To add to it, it enjoys zero tax rate for the next 3 yrs.
Moreover the Management is confident of delivering 22% in topline with margins maintained at the same level for the next yr.
Also compared to its peer set like sasken and bartronics it looks very cheap

The company has some solid products in its kitty like the

• Mundu Instant Messenger ( An integrated instant messenger that combines Yahoo, MSN and others)
• Mundu Radio ( It has been launched with Idea)
• Spokn ( VOIP application)
• Anti Piracy Software ( To stop online piracy of movies, the product has been tested for movie Houseful)
• Geoamida ( Worlds 1st integrated mobile handheld device)
• The company has also developed websites like the smartinvestor.in, edelweisiss.in and charts for moneycontrol.com

The best part is as an investor u can use and experience these products for yourself to check both the genuineness and ingenuious of them unlike many others.

The company has posted 644 crs of revenues and 248 crs of PAT for FY10, a tad below prev years earnings which were at 653 crs and 264.3 crs respectively due to pricing pressure.

However I feel its Anti Piracy Software and Geoamida are going to be revolutionary products and growth is imminent.

Some Other Points to keep in mind.

• The company has FCCBs to the tune of $111 M, which is the only debt.
• 95-98% of its sales is from export.
• The company is buying back shares to the tune of 5% for not more than Rs 150 per share.

Shareholding Pattern

Promoters =22.70
FIIs= 52.58%
Others=24.72.

A point of caution

The only niggling thing about this stock is that it has been battered continuously from levels of 150. This could be because of two reasons:- 1) Its 95 % sales are from exports and as we all know the situation in Europe and US looks grim. 2) The sentiment for all IT stocks is a bit negative.

However I feel that the stock has almost bottomed out and from here on, we can see a smart recovery.

There was squawk on the Dalal Street. The Nifty ended at 4919, below its 200 DMA.

There was squawk on the Dalal Street. The Nifty ended at 4919, below its 200 DMA.
We saw a global selloff today, with Asian indices tanking abt 1%. More pain was witnessed in the European Markets which plummeted about 2% after Greece banned naked short selling in Euro bonds and some 10 European banks.

However I see this as just a sentimental reaction and Indian markets should rise again from the current levels.
I think markets are overdoing the Greece crisis because India is least affected by it. Infact countries like Poland, Chez and Hungary are most affected as they carry a lot of trade with the EU nations.

Infact in this era of shrinking economies, overgrown debt burdens, fiscal imprudence and increasing unemployment of the biggies like the US, UK and Europe, India stands to gain the most. With near term concerns over China monetary tightening and Japans decade long deflation what seems to be shining brightest is India.

With consumption driven economy growing at 8%, inflation coming under control, coupled with stable government, strong & sound banking sector and credit growth picking up India is at the center stage of the world.

I think it is only in the short term that the FIIs are pulling their out their money as they are nervous and want to book their profits and emerging markets are the ones where they have made most of the profits. I think any further dips should be used to buy in the Indian markets as fundamentals are strong and valuations now getting cheap.

I place my bets on IRB (an infra play) and Reliance.

I also feel one should buy in Sesa Goa and Gujrat NRE Coke at every dip. Commodities have been overly bashed and you will see a overturn. With Chinese economy growing at 10% and inflation at 3% is not much a worry. China has already taken a few steps to tighten its monetary policy and so I dont see much concerns over Chinese economy as well.

Another lucrative long term buy is Cairn. Crude has temporary fallen to levels of 68 and it will bounce back any time.

Lets just hope that this time Monsoon does not play a spoil sport and we have adequate rainfall so that our economy can sustain growth of 8% and above.

Great Offshore surges to 475

I had suggested in my earlier post dated 13th April to buy Great Offshore at levels of 418-422.

The share had been languishing constantly in range of 400-420 levels since quite some time and break out at higher levels looked very likely.

The stock past two days is seeing a good rally of more than 5% and today it touched an intraday high of 475.80.

Interest rates not to rise immediately

The RBI has increased all its key policy rates by 25 bps.

Current Prev
Repo rate 5.25 5
Reverse Repo 3.75 3.5
CRR 6 5.75


The CRR hike coupled will Government borrowing plans will suck away some money from the system. However since there is enough liquidity in the markets, it doesnot look like bankers will immediately resort to raising interest rates.

At the same time with the credit growth picking up ( around 20%) and deposits rising (17%), and the gap between supply and demand narrowing, we can see rise in interest rates inching up in next 5-6 months.

Great Offshore - A Good Buy at Current levels

The stock has been languishing in the range of 400-420 since a long time now. Breakout looks eminent, and when this happens stock would rise minimum upto 500.

The company is about to pass a special resolution to raise 1750 crs of funds.
It is expected that before this fund raising exercise begins share price will start shooting up.

Moreover ABG Shipyard has bought shares of the company at Rs 510 in open offer and Bharti Shipyard too in open offer has bought the shares at 590.

Bharti Shipyard which is the biggest shareholder in the company is continuously mopping up shares of the company at prices above the CMP in off market transactions.

Speaking from a fundamental perspective too, stock looks attractive. For FY10 it is expected to generate EPS of 50 Rs on a consolidated basis.
It is trading at PE of 8 and P/BV of 2.2.

Hence there is every reason for the stock to rise to higher levels from here.

The latest shareholding pattern is something like this :-
Bharti Shipyard-49.73%, ABG Shipyard - 12%, FIIs-6%, MFS/FIs/Insurance - 3%. Public 23%

Realty stocks once again in the limelight.

One of the flats in Mumbai(Worli) measuring approximately 3640 sqft in size was sold in auction at a whopping 37crs.

This one event has helped realty stocks that were sluggish past almost a year to shine again.

But this story will only last a couple of weeks/months as

1. Monsoons will set in next 2-2.5 months
2. In a rising interest rate scenario, realty will take a beating.
3. Housing sector has revived a bit but commercial property is still sluggish.
4. Volumes have not picked up yet.

Surely one can play this sector, but dont get greedy and book your profits early.

A Great Thumps Up for Bharti Airtel - Zain Deal

After two unsuccessful attempts at acquiring international telecom company (MTN), the efforts of Bharti this time has finally consummated into a deal with a Kuwatian telecom company called Zain.

As part of this deal Bharti would acquire Zain's operations in 15 African countries at the cost of $10.8B

In my view this acquisition will bode good for the company. The reasons are enlisted below

1. The competition in India is getting fierce with ARPUs in India show a declining trend and MOUs becoming inelastic relative to price. Voice has become a commodity. There is a compelling need for telecos to enter new markets and acquire new set of customers.
2. Zain is at No.1 in 10 countries and No.2 in 12 countries.
3. The competition in African part of the world is less as compared to our country. The no of operators in these countries is 3-4 as compared to India which has around 10-12 operators in each circle.
4. ARPUs are 60% higher than in India.
5. Teledensity in African countries is around35%.

However there a few caveats to this -

1. The acquisition is a liitle expensive
2. The infrastructure in Africa is poor which will necessitate capex
3. The operative costs in Africa is higher compared to India because of poor infrastructure and power shortage.

At a time when Bharti is gearing up for 3Gbidding, laying infrastructure in the hinterlands of India, strengthning Warid position this deal will be EPS dilutive for some years.

However given Bharti's strong management and capability of reproducing the minute model in Africa I see the deal though expensive should be good for the company.

Banking stocks will outperform

Banking stocks will be the leaders in the next bull run.
I strongly believe this because of the reasons listed below

Pick up in Credit growth

• -Strong GDP numbers
• -Strong IIP numbers
• -Expansion in capex because of utilization of excess capacity and pent up demand

Easing of NPAs

• Strong IIP nos suggests that corporates and retail will not defer from their loan payments
• Aiding to that benign political environment and gradually improving global scenario has helped in bringing larger FII money in India
  
• Due to which many companies have been able to raise equity from the markets and reduce the leverage on their books.

Margins would remain intact

• Base rate implementation will see many of the teaser home loans and such other loans vanish, which will help to ease the pressure on margins.
• Repricing of high cost liabilities and improving CD ratio