Monday, August 25, 2014

The volatility check

It was observed of late that there were episodes of rash sell-offs of shares of mid caps and small cap companies which compelled RBI to tighten the noose norms related to the loan against the shares and this will only redirect the promoters of these companies to find new sources of funding. Its a usual practice that if the investor wants to buy a stock than he has to put a part of money and the remaining balance will be borrowed by him from the lender .

 Normally the investor or the promoter avail the loan against the shares by just pledging the shares funded, the power of attorney given to lender allowing him to sell the shares to recover the amount, as per the present rules the stock broker is allowed to fund only 50% of the transaction value and so also against the type of shares besides disclosing their position to the stock exchanges but there is no constraint on the margin funding by NBFCs, and naturally the lenders sell off the shares if the stock price falls at the undesired levels and so the client is not able to meet the margin call. So the new circular states that Non Banking Financial Sector (NBFC) cannot lend more than 50% of the value of the shares pledged as collateral while giving loan of Rs 5 lakhs and above.

NBFCs with an asset size of Rs 100 crore can accept only group 1 securities as collateral and will also have to disclose details of the shares pledged with them .And this move is very significant by the central bank which will be instrumental in checking risks of unwanted volatility in the equity markets as the market is too hyper bullish. The National stock exchange (NSE) has 694 stocks and the Bombay Stock Exchange has 817 scripts under the group 1. So many midcaps and small caps will be deprived of funding by NBFC , because for whatever reasons the manner or purpose the money is lent against the shares the default by the borrowers leads to the offloading of the shares in the market by the NBFC and thereby creating avoidable volatility in the market. Although it will be a bit difficult for the traders as their leverage positions get reduced significantly.

Tuesday, August 12, 2014

The investment opportunities ahead-- Petroleum and Natural Gas

The Petroleum and Natural Gas sector will have focus on implementation of infrastructure network for transportation of gas and for this the focus is on to lay the extensive pipeline of 15,000 Kms and gas grid network through the PPP model all across the country .The most to be benefited are GAIL and Engineers India Limited (EIL) besides these other private players are also to be benefited directly .as this sector will be widely open for the private companies once the PPP model comes into the picture even the deregulation plans of diesel will provide a big booster needed for this sector although the deregulation is of the Kerosene and LPG is also in the offing and is expected soon which will have dual benefit on the financial health as well as the oil PSUs also. Even the oil exploration companies have been directed to revive old as well as closed wells , some companies like ONGC as well as Oil India has been stagnant during the past few years .All these factors will revive the stressed oil and gas sector which is on the go !!!!!!!!!!!

Monday, August 11, 2014

The investment opportunities ahead -- Infrastructure & Reality

Focus on infrastructure could be the telling factor in getting the Indian economy back on track because any investment in infrastructure multiplies ten folds. Manufacturing and the infrastructure sector are both of paramount importance .Even the banks now can offer the ailing infrastructure projects without any regulatory notions such as CRR and SLR on priority as per the lending norms .Newer projects of roads and sixteen new ports ,SEZ,100 smart cities ,efforts in these areas will also not only generate employment opportunities but also consolidate the Indian economy in the long term.

Even the reality sector was getting drumming due to the burden of debt as well as sluggish sales of volume and these two factors created a quicksand for most of the players causing cash crunch now the built up area and capital conditions for FDI would be reduced from 50,000 to 20,000 sq meters and from USD 10 million to USD 5 million for the development of the smart cities which would attract more FDI into the reality sector providing the much needed liquidity .

Sunday, August 10, 2014

The investment opportunities ahead--Power Sector

This is one sector to be watched keenly only because our country is going through the power crises and this is one of the sector which requires complete overhaul. Just because of the coal shortage  even the stalwarts like NTPC and other power generators are feeling the brunt .The focus is clearly on this sector for example the focus is on Ultra Mega Solar Power Projects (UMSPP) in the states of Andrapradesh ,Laddakh,Tamil Nadu ,Gujrat and Rajasthan.The focus is also on solar power driven agriculture pump sets as well as water pumping stations which will directly affect and boost these companies like CRI, BHEL, Suzlon, Moser Baer, Indo solar , Jain Irrigatoin, Indowind and other such companies related to solar power panel manufacturing.

 Another upcomming project is Ultra Modern Super Critical Coal Based Thermal Power Technology which will affect these companies like NTPC and BHEL. Tata Power, Torrent Power, NHPC, Power Grid and Reliance Power .So I will call it a Power doom to a Power Dhoom story all the way .

Thursday, July 31, 2014

Investors smelling bull going berserk

Over the past one year the trends are shifting remarkably as the analysts are valuing companies in the traditional cyclical sectors like auto as well as auto ancillaries ,logistics and cement as they are tweaking their business models in line with the domestic consumption theme. There is high earning, grand balance sheets, remarkable expansions of their capacities and great expansions of product line is very convincing for us to value highly these companies such as Maruti Suzuki , Motherson, sumi, Gati and Ultratec cement as consumption companies and this implies that price to earnings is multiple of these companies would eventually increase and thereby would offer more value for investors. 

These companies are catching the attention of potential investors to play next domestic consumption theme of India. Moreover the S&P 500 is expected to climb higher up from its current levels .And there is just a little hitch is the valuation which is holding the investors’ enthusiasm .

At the moment the markets are fairly valued and  not excessively expensive .If S&P 500 earns $125 by 2014 .Its as simple as that if the economy grows at the rate of mere 3% during the remaining months of the financial year and the inflation rate is at 2% than the growth rate is expected to be at just around a fair 5% and if the productivity increases consistently and share buy backs so the S&P 500 would show improvement up to 7% .As there is good cash on corporate’s balance sheets the share buy backs will continue triggering the gun and setting the bull go on rampage .

Wednesday, July 30, 2014

Swing Trading: BTST/STBT Trading

Swing Trading: BTST/STBT Trading


A) 1 month plan @ INR 20K [Basic Plan for investor/trader]
B) 3 months plan @ INR 30K [Affordable Plan]

Swing trading combines best of the two worlds- the volatility of the stock and the momentum of the trend. Swing traders use technical analysis to look for stocks with short-term price momentum. These traders aren't interested in the fundamental or intrinsic value of stocks, but rather in their price trends and patterns.

One such technique of Swing trading is BTST/STBT. BTST/STBT takes Advantage of brief price swings in volatile stocks to ride the momentum along with the flow of the orders. 

To find situations in which a stock has the extraordinary potential to move in such a short time frame, the trader must act quickly. Therefore, swing trading is mainly used by at-home and day traders. Large institutions trade in sizes too big to move in and out of stocks quickly. The individual trader is able to exploit such short-term stock movements without having to compete with the major traders.

Using a set of mathematically based objective rules for buying and selling is a common method for swing traders to eliminate the subjectivity, emotional aspects, and labor-intensive analysis of swing trading. The trading rules can be used to create a trading algorithm or "trading system" using technical analysis or fundamental analysis to give buy and sell signals.

Risks in swing trading are commensurate with market speculation in general. Risk of loss in swing trading typically increases in a trading range, or sideways price movement, as compared to a bull market or bear market that is clearly moving in a specific direction.

In order to increase the accuracy of profit, the number of swing calls or BTST/STBT calls are very limited. You will get maximum 3 calls in a month.

Tuesday, July 29, 2014

Getting rid of greed and fear while trading

It’s just too difficult for the investor to be right always because there are always these nagging set of numbers and ratios before they draw a concrete decisive conclusion and to top it its the confusion created by the towering claims by the advisory firms of sure shot call, jackpot call, premium calls bumper call and the grandest claims are the 80% to 100% accuracy calls. And the investor wades away through the whirlpool of various sets of numbers and ratios only adding to his confusion.

How so ever here VPS advisory stands apart because we work on the research and we have a strong base because of it. We say that only two parameters helps the investors that is return on capital employed (RoCE) and return on equity(RoE).Because these are the two prime decisive factors on which if the company is sound than hundred percent those companies command premium valuations. As these two measures clearly reflect how much is the profitability of the company in terms of the investments made in it and also how efficiently those companies are using its resources .

Actually the RoCE measures the profitability against the entire capital  that is the debt and the equity invested in the business where as on the other hand the RoE measures the return to the equity share holders .So these two parameters take both things into account that companies capital structure as well as the operating performance and so are more comprehensive .Also what we take into consideration is that companies past performances, promises, overheads ,outstanding and break even points usually any company worth is more than 1500 crore only indicates that it has a very sound management and vision of the company ,keeping into the account the lot size, price ,open interest, premium, sellers ,buyers, open price ,closing prices ,highs and lows ,spread ,volume and various technical parameters ,candle stick chart ,moving averages. direction etc.

The return ratio averages basically is suggestive of how much is the company is earning on the investments made by it in the business and if these ratios and valuation ratios such as price to earnings and price to book value is consistent .Obviously any company with a high return ratio will get a higher valuation and conversely if a company with low return ratio will get a jaded red underline lower valuation .Roughly generally speaking we say that a company with a 20%  plus return ratios can comfortably get around 15 times P/E  valuation subject to the other numbers and parameters aligned altogether .moreover identifying of bse  500 companies if they are trading at the relatively lower valuations against their competitors in spite of have same or better RoCE and RoE ,so after analyzing all these factors we identify exact cause of there under performance and thus make the decision to give advice to the investors for the investment decision .

Timely identifying and targeting which small cap will become midcap and move on to become a largecap is the key to become a successful advisor and investor in the long term where the association with the clients are life long ,new clients pouring in and retaining the old clients in a healthy prosperous mutual business relationship .