Money Bol » Equity

IPO Note – SRS LIMITED

Guest — Mon, 22 Aug 2011 05:32:35 +0000

I have generally observed that during a bear phase in the market, companies defer their fund raising plans. I was going through the IPO column of NSE and came across 3 companies. Two of them had already announced their plans however, one, SRS Limited’s IPO will open on August 23. I found this company a bit interesting and hence thought of doing some research on the same. Here is what I found.

Company and business

SRS Limited is a diversified company with a business portfolio which includes cinema exhibition, food & beverages, retail & manufacturing and retailing of jewellery. SRS Limited was incorporated in August 2000 with the objective of becoming a FMCG company. Initially it came as SRS Commercial Company Limited and was later renamed to SRS Entertainment Limited in January 2005. The retail arm of the group is consolidated under two brands namely SRS Value Bazaar and SRS Fashion Wear. The Company has 23 retail stores in North India. SRS cinema operates in six cities with 11 properties having 30 screens and 7608 seats. SRS Food court runs under the SRS 7 dayz brands under the name “Punjabi Haandi” which runs 11 food courts across north and Central India.

Sectors’ summary

Film Exhibition has a huge scope of expansion. As per an industry survey, the screen density in India is less than 12 screens per million which is quite low compared to other developed countries.

Food & Beverage industry has grown significantly over the years. According to the industry source estimates, the industry will reach by $300-350 billion by 2015 from an estimated $150-200 billion in 2006-2007.

Retail Sector industry in India has grown at a CAGR of 10-12 per cent. Apart from this the industry was impacted by economic condition. In coming days it is expected to revive from the slowdown.

Gems & Jewellery market is one of the leading contributors to India’s export revenues. The Indian jewellery retail market was estimated to be about Rs. 973 billion in 2009-10. Gold jewellery accounts for around 80 per cent of the Indian jewellery market.

Objective of the issue

The company aims to raise Rs 203-227 crore through the issue of 3.5 crore equity shares of face value Rs 10 each with an issue price of Rs 58-65. Expansion across business segments being the primary aim. Various expansion plans are-

Setting up movie screens in 15 locations across India with 51 screens and approximately 13,840 seating capacity
Setting up of 29 new Retail stores in various locations across India
Setting up of 17 new jewellery retail outlets by the end of 2013
Setting up of 33 additional food & beverages outlets with an estimated area of 181,500 square feet by the end of 2013.

Risk factors

SRS Limited has had negative cash flow in the past three years. The Company’s cash flows from operating activities have been negative in the financial years ended 2009, 2010 and 2011 mainly because of increase in the Company’s operations which have resulted in substantial increase in working capital required by it. The promoters of the company are involved in certain proceedings which could affect the business. As per the financial statement as on 31 March 2011 of the company it has some contingent liabilities which may adversely affect the financial position of the company.

Key financials

Cash flow of the company for last three years:

Profit and Loss Summary of Last two years :

IPO GRADING

SRS Limited grading is done by ICRA and has been assigned ICRA IPO grade of ‘3’ to the proposed IPO reflecting average fundamentals.

OVERALL VIEW

It is advisable to subscribe to the IPO as there are huge expansion plans of the company. The company is clear about its objective and good scope of diversified sector gives a positive signal. Despite the negative cash flow, company earns a huge profit after tax which further puts a SUBSCRIBE to IPO.

Author: Satish Tayal, MBA (ISBM), is a intern at Kredent Group.

Beginner’s Guide for Stock Market

Praveen Bajaj — Fri, 10 Jun 2011 22:58:31 +0000

I recently come across many freshers who have heard people talking about share markets and movement in equity prices but they do not understand what exactly stock market is and what goes on there. I thought of answering some of the basic questions through this post.

What are shares or stocks or equity?
In simple terms share or stock is a certificate issued by the company, which entitles its holder to be one of the many owners of the company. We can also say that its a part of the capital of the company which is invested by its holder. The holder gets the voting rights in certain company’s issues. The benefits of owning a share is capital gains by selling off the shares and dividends generated.

What is share market?
Stock market or equity market is a place which, might or might not have a physical existence, for trading of stock at an agreed price. There are two types of market which can be classified as: Primary market and Secondary market.

What is primary and secondary market?
An investor can get shares from both primary and secondary market. Primary market is a market where the securities are bought by way of public issue directly from the company. In this market form, only companies can issue share to the investors. The issue is commonly termed as Initial Public Offering (IPO) or Follow-on Public Offering (FPO).

Secondary market is a market where the securities are traded after they are initially offered in the public market. Secondary market is the huge market and most of the trading is done in the secondary market. It can also be said as organised market for used securities. This market form is known as Stock exchange where buyers and sellers of securities transact among each other. Most popular stock exchanges in India are Bombay Stock Exchange (BSE) and National Stock Exchange (NSE).

How to trade in stock market?
Trading in stock market involves taking a call on the future prices of the securities that you decide to trade on. This call can be taken with the help of n-number of ways which comprise of various forms of analysis like fundmental analysis, technical analysis, quantitative analysis and so on. You can do any/all of this either yourself or listen to many finance gurus who advise you on this matter.

Trading in a stock market consists of certain hassle-free procedure. Every transaction is carried out the licensed member called broker. An investor can trade in any of the stock exchanges to which his broker provides access to. The brokers have a network of sub-brokers who provide the order to the brokers. The retail investors should identify a sub-broker for regular trading in shares and can place his order of purchase and sale through the sub-broker. The order will be transferred to the main broker for execution. Since these transactions are carried on electronically, the time gap between placing orders by investors and the order reaching the market servers is of fraction of a second. In order to operate through a broker or sub-broker, investor need to have a demat account.

What is a demat account?
Demat account means dematerialised account. Nowadays it is essential to open a demat account if you want to buy or sell stocks. Opening an Individual Demat Account is a two-step process: It is obvious that you have to open a bank account to make cheque payment etc. You approach a DP which you can get from the list of NSDL and CDSL and fill up the account opening booklet. You will then need to fill up an account-opening booklet. You will then receive an account-opening number and DP ID number for the account. Now you can trade easily in stock market.

Is there any difference between Investment and Trading?
Many people confuse between trading and investment but fact is they are not same. While purchasing any stocks your aim behind purchasing must be clear. A question needs to be ask before purchasing a stock “Do you want short term benefit or long term gains.” It is nothing but the difference of the length of the time you hold onto the assets.

Investors are generally interested in the long-term gain and less concerned about short-term fluctuations in prices. An investor relies mostly on Fundamental Analysis and adopts a “buy and hold” approach for his investment which means buys the shares for the long terms.

Trader on the other hand, is interested in attempting on profit on just short term price fluctuations. The amount of time an active trader holds an asset is very short, it can be some days, in many cases minutes or sometimes even seconds.

I hope this answers a lot of the basic queries of the un-initiated. Would update you with more articles related to basics of securities markets through future posts.

Author: Satish Tayal, MBA (ISBM), is an intern at Kredent Group.

Aanjaneya Lifecare Limited

Praveen Bajaj — Wed, 11 May 2011 11:00:42 +0000

Overview- Company and business

Aanjaneya Lifecare limited was incorporated in 2006. The company is a research based pharmaceutical company with manufacturing and marketing capabilities in APIs (Active Pharmaceutical Ingredients) mainly focus on anti-malarial and (Finished Dosage Forms) FDFs. Company is the largest manufacturers if quinine salts in the world. The company started its manufacturing activities in the year 2007. The company also have a small R&D block in Mahad, Maharashtra. Company have a product portfolio of Anti malarials, Animal Health Product and Anti-cancer. The manufacturing facilities have been approved by various regulatory authorities and are ISO 9001-2008 and WHO GMP certified.

Industry Analysis

World pharmaceuticals industry is growing by leaps and bounds and India is showing the most promising signs in the industry with generics constituting a significant portion of Indian pharmaceuticals industry. The Indian generics business is getting special attention and

respect from all major leading pharmaceuticals companies across the world. The

pharmaceutical industry in India is estimated to be worth about US$ 10 bn, growing at an annual rate of 9%. The global pharmaceutical market grew by 4.8% to reach USD 773 billion in 2008 from USD 715 billion in 2007. The

CAGR for the period 2001-2007 was 10.5%. The two largest markets, the US and Europe

, which contributed almost 72.3% to the global market in 2008, achieved growth rates of 1.4% and 5.8% respectively. The European market is expected to grow with a CAGR of 2-5% for 2008–2013.

Objective of the issue

The company aims to raise around Rs 120 crore through the issue of 50 lakh equity shares at higher end of price band of Rs 228-240 a share. The company has decided to utilise Rs. 26.56 crore in for the setting up of the Anti Cancer facility at our existing location in Mahad, which is expected to commence commercial production in April, 2012.

The company has proposed to use Rs. 14.79 crore for the establishment of a cGMP block for manufacturing APIs at our existing location which is expected to commence operations in the September, 2011. The company also propose to use Rs. 8.67 lacs for the establishment of a multipurpose block for manufacturing APIs at our existing location which is expected to commence operations in the April, 2012.

The Research and Development team at, Maharashtra is engaged in improving the processes for existing products thereby improving the cost efficiencies. The company will utilise Rs.19.08 crore for the expansion of our existing R & D centres for lab scale development work.

These are the major money to be utilised after the issue.

Risk Factor

There are several risk factor related to the company which must be kept in mind before investing. The company is involved in certain outstanding proceedings which are pending. Any adverse outcome of the above can harm the smooth running of the business.

The Company entered into a Working Capital Consortium Agreement with State Bank of India and The Shamrao Vithal Cooperative Bank Limited whereby raising a term loan of Rs. 115.07 crore. This entails substantial leverage on the part of the company and increases the financial risk of the company considerably.

The company also have the negative cash flow during the year. If they are not able to generate sufficient cash flows, it may adversely affect our business and financial operations.

			(IN CRORE)
Particulars	2008	2009	2010

Cash flow for operating activity	(2.34)	(21.93)	0.48

Cash flow for financing activity	(10.69)	(2.97)	(38.8

Ipo Grading

Aanjaneya Lifecare limited grading is done by CRISIL. CRISIL Equities has assigned a CRISIL IPO grade of ‘1/5’ to the proposed IPO. The assigned grade reflects the weaker fundamentals and company’s limited corporate governance practices.

Key Financials

			(IN CRORE)
Particulars	2008	2009	2010

TOTAL INCOME	22.38	91.15	169.35
TOTAL EXPENDITURE	17.31	80.24	139.56
PAT	2.31	5.1	15.07

Overall view

It is not advisable for the subscriber to subscribe for the IPO. The cash flow of the company is negative which is a warning signal. Moreover the company’s financials are not strong. The price of the issue is quite high as compared to the company’s strength. The company have many object and fund allocation plans which seems risky.

Author: Satish Tayal, MBA (ISBM) is an intern with Kredent Group

Muthoot Finance- Follow up note

Praveen Bajaj — Sat, 07 May 2011 11:59:21 +0000

Muthoot Finance Limited, the second IPO in the year 2011 listed at a premium on debut on both NSE and BSE. At NSE Muthoot Finance Limited opened at Rs. 196.60, a premium of 12.34% against the issue price. The issue price was Rs. 175 a share. The script had touched the high price of Rs. 198.90 with a total turnover value of Rs. 1,067.4 crore. Subsequently it had touched an intraday low of Rs. 161.40. MFL finally closed at 172.40 on NSE registering a decline of 1.3% from the issue price.

The issue opened for subscription 18-Apr and closes on 21-Apr with 100% book building process. The price band of the issue of the IPO was Rs. 160-175 and size of the IPO was Rs. 901.25 crore through the issue of 5.15 crore equity shares. The IPO was oversubscribed 24.55 times.

The Way forward for gold loan market

As per the red herring prospectus of the company gold loan market is expected to grow at between 35% to 40% over the next couple of years. Moreover the market is yet not penetrated. It is expected that Gold market will provide enough opportunity for portfolio expansion and retain attractive margin to NBFCs, banks and new entrants. As we know that gold loan market is a huge market in India and it is always in the secure zone. The company had also decided to use the available issue funds to meet future capital requirements to provide for funding of loans to customer.

The Way forward for MFL

Muthoot enjoys the dominant position in the niche gold loan market generating net interest margin of over 10 per cent, return on equity of over 30 percent with huge growth potential and low default risk. MFL is already a largest gold financing firm with a market share of 18-20 per cent.

The closest competitor of MFL is Manappuram which is one-third of Muthoot’s size in the gold loan market. Therefore MFL is the flagship in gold loan market.

The net worth of the company has shown an increasing trend. In 2006 net worth of the company was Rs. 90.43 crore which has increased to Rs. 584.19 crore in 2010. The shows the strength of the company and its growing market. Moreover it is also expected that its net profit will reach great heights in coming two years. Net profit of the company has increased from Rs 26.88 crore in the year 2006 to 228.51 crore in 2010.

What should you do now??

It is advisable to hold the share for the long term profit because the company is focusing on long term benefit rather short term gains. The objective and plans of the company are clear. Moreover the industry is growing at a good pace and expected to rise in coming years. Investor may expect returns more than the market rate of return considering the good positioning in the sector and better financials of the company.

Author:Satish Tayal, MBA (ISBM) is an intern with Kredent Group.

Sanghvi Forging and Engineering Ltd

Praveen Bajaj — Fri, 06 May 2011 09:11:39 +0000

Overview- Company and business

Sanghvi Forging and Engineering Ltd is an ISO 9001-2008 certified company. The inception of the company was in 1990. It is a Vadodara based company. SFEL is engaged in manufacturing and marketing of forging product for the non-automotive sector. It manufactures stainless steel forged and Machine Subtends, Forged Flanges, Forged fitting and CNC Machined Forged parts for various industries oil & gas, fertilizers, power etc. The company also exports the products mainly at Europe, Middle East and Canada. The total installed capacity of forged flanges is 3600 MTPA. The company is an approved global vendor of General Electric (GE) and it has obtained an approval of Mazagaon Dock, a GOI enterprise manufacturing submarines and vessels for defence, and Kuwait National Petroleum Corporation.

Industry Analysis

The Indian Forging industry has now emerged as a major contributor to the manufacturing sector of the Indian economy. Forging industry is in the list of the industry type which grows with the GDP of the country and Indian GDP is at growing stage. Forging industry also enjoys the benefits of opportunity of huge exports. The SMEs form the backbone of the industry. The organized sector accounts for about 65-70% of the total forging production in the country. Moreover the industry is already transformed from labour-intensive to capital-intensive.

The Indian Forging industry has been growing at a CAGR of 29%. The capacity of the industry is estimated to be around 1.5 million tonnes. During the year 2007-2008, the overall production of forgings increased to about 1.2 million tonnes. India exports huge forgings. In 2007-2008 exported forgings value was about US$ 472 particularly to USA, Europe and China.

Objective of the issue

The size of the IPO is Rs. 36.90 crore with an issue price of Rs. 80-85 per equity shares through 100% book-building process. There are various objective of the company to raise money. The company is setting up a 15000 MTPA open die forging unit at Vadodara. The total estimated cost of the project is around Rs.120.39 crore including margin money which will be partly financed by this issue.

The total estimated issue expense of the company is 300 Lacs which is 7.05% of the issue size which includes legal fee, advertisement fee, registrar fee to name a few.

Remaining part of the project will be financed by means of term loans and internal loans to the extent of Rs 72 crore and through internal accruals of Rs 5.25 crore. The company has already availed a term loan of Rs. 50 crore from State Bank of India and Rs. 22 crore from Bank of Baroda.

Risk Factor

Weaknesses related to the new projects are highlighted in appraisal report which are mainly high cost estimation and delay in implementation. Currently the implementation is at a preliminary stage. The construction has acquired a leasehold right at Vadodara but the activity is yet to commence. This can increase the capital cost.

As per the financial statement 31 December 2010 the company has contingent liabilities of Rs. 454.86 lacs which may affect the financial condition.

Ipo Grading

The IPO grading of the company is graded by CARE. CARE has assigned a ‘CARE IPO GRADE 3’ to the company which is average. The grading is assigned on the scale of Grade 5 to Grade 1 where Grade 5 indicate strong fundamentals and Grade 1 indicate weak fundamentals.

Key Financials

			INR(IN LACS)
Particulars	2008	2009	2010

Total Income	2387.8	2952.83	2910.55
Total Expenditure	1852.83	2412.35	2305.47
PBT	396.87	350.75	416.06
PAT	252.35	232.38	274.09

Overall view

It is advisable for the investor to subscribe the issue of Sanghvi Forging and Engineering Ltd. The grading of the company is also average which indicates towards positive fundamentals. The company will begin manufacturing critical products like rotors for turbine, tube sheet for oil and gas, shafts for ship building and heavy engineering, which currently are being imported from Korea, Italy and Japan. There is also opportunity for growth and expansion as it has a huge scope for exporting the product.

Author: Satish Tayal (MBA ISBM) is undergoing his summer interhship at Kredent Group

Muthoot Finance IPO- Right Price, Right Opportunity, Right Time

Praveen Bajaj — Thu, 21 Apr 2011 08:43:51 +0000

Company and business

Muthoot finance Limited is Non-Banking Finance Company, headquarters in Southern India state of Kerala. MFL is a subsidiary of Muthoot Capital Service Ltd.

MFL provide personal and business loan secured by gold jewellery or gold loans to individuals particularly to whom loans are not available at all. Muthoot Group is into diversified business which includes hospitality, health care, media, education, information technology, foreign exchange, insurance distribution and money transfer service. The company also operates three windmills in the state of Tamil Nadu but the same forms a very small segment, about 0.23% of the total revenue.

About Gold financing

Gold Finance is a personal and business loan secured by gold jewellery, or gold loans to the the individuals who have the jewellery but unable to access loans in short period. There are several schemes varying from company to company. Gold Loan market is the fastest growing loan finance market. The market grew 46% CAGR over FY07-10 driven by expansion. Gold loan market is expected to rise at 40% over the next three years, based on competitive landscape and changes in the trends. It is also expected that the gold loan market will welcome enough opportunities for portfolio diversification and expansion and can yield huge margins to NBFC. Among loan product basket lending against gold is the most favourable retail loan product. Du-point analysis reveals that gold finance business generated – 4% ROA in the past five years in India. It is believed that gold finance sector continues to rise and yield good margins.

Key highlights

Muthoot finance limited is the largest gold financing company in India in terms of loan portfolio. As on march 2010 Gold Loan portfolio comprised approx 2.8 million loan accounts in India. The company is also expecting to grow the gold loan book by another Rs.10000 cr in the next one year. Muthoot finance enjoys a 20% market share in the Rs.65000 cr organised gold market.

MFL has huge branch presence with 2611 branches across, except northeast. MPL is planning to set up at northeast after the IPO.

In financials, MFL has had an average return on net worth (RONW) of 39% which is far better than its competitor Manappuram having only 19.61%. MFL have higher scale in terms of gold loan portfolio of Rs.128.9 billion as compared to its peer Manappuram General Finance with 1800 branches and gold loan portfolio of 65 billion. Its assets under management (AUM) increased to Rs.74.38 billion as on March 31, 2010 from Rs.33.69 billion as on march 31, 2009. Net profit of the company is continuously rising and it has clear plans of branch expansion and improvement in the branch productivity. Net profit in FY08 was 63.1 crore which has increased to 291.5 crore in FY11.

Key Financials

Rs in crore	FY08	FY09	FY10	8MFY11
Net Interest income	178.1	296.5	603.7	706.8
PPP	97.7	148.9	347.7	442.4
Net Profit	63.1	97.9	228.5	291.5

Risk factors

Recently RBI circular have removed gold-loan from agricultural loan priority sector category. The removal of this priority sector benefit will marginally diminish the attractiveness of bank lending to this sector. The main impact of this regulatory change is that the borrowing cost of the gold loan player’s will adversely impact the Net interest margin and portfolio growth of the company. Apart from this, some of the bank had already entered into gold finance in recent past years. This competition can hamper the profit margin and return ratio.

One factor which is not consistent internally is that MFL pays higher compensation to the director. In 2010 it was Rs 192 million, which amounts to 8.4% of the net profit. It is far higher than peer company Manappuram General Finance pays 900,000 rupees , or 0.08% of its net profit as director’s compensation

IPO grading

The IPO has been graded by CRISIL Limited and ICRA limited. Muthoot Finance Limited has been assigned IPO GRADE 4/5 in their letters dated March 09, 2011 and March 07, 2011 respectively. According to the scale determined it indicates that the Issue are above average.

Overall view

It is advisable for the investor to subscribe the IPO of Muthoot Finance Limited keeping in mind its medium term benefits and reasonable price price ban fixed by the company. The credit rating assigned by CRISIL and ICRA is also above average which indicates the strong fundamentals of the company. Despite some regulatory issue it is advisable because reasonable price and industry growth balances the chart.

Author: Satish Tayal, MBA (1st year, ISBM), is an intern at Kredent Group which also undertakes various Share Market Related Courses.

10 Commandments of Successful Investing

Praveen Bajaj — Thu, 07 Apr 2011 18:51:13 +0000

Let me unveil the 10 commandments of successful investing today. These commandments strictly followed can make you a successful investor; make you richer. The successful legendary investors like Benjamin graham, warren buffet have followed these principles. So why not you…?

Decide your investment strategy and stick to it:

An investor may invest in SIP and when the market continues to fall he will discontinue his SIP. But market crash is the right time to continue your SIP. Because, during the market crash you will get more number of units and the averaging works out in your favour.

Another investor may decide 50:50 as his debt:equity asset allocation ratio. When the market goes up he may want to invest more in equity and hence he may change his asset allocation to 30:70. Actually when the market goes up one need to reduce his equity exposure to bring the portfolio back to his predetermined asset allocation ratio.

Don’t change your strategies midway. You know what is best for you and this applies to deciding with foresight the ideal investment strategy for you. Once the strategy is set, do not fluctuate in your decision each time you decide to invest. This would only mean losses instead of profits.

Conduct your own research on stocks:

It is not advisable to just depend on hear say and decisions of your neighbor, friend, relative or tips from the media or your stock broker and invest in stocks. It may seem easy but could amount to gamble. Being an informed investor investing your hard-earned money needs you to ensure if the investment would meet your financial goal. This could be done through research from various sources.

Learn to overlook short term fluctuations:

If you want to be a successful investor, you need to understand that it is futile to be affected by short-term fluctuations of the stock market. Investing in good and reputed portfolio ensures good quality of your investment and capital appreciation in the long run. The short-term volatility of the share market has got nothing to do with the long term performance of your investments and achieving your financial goals.

Resist investing in penny stock:

Some investors have a common misconception that it is better to invest in penny stock than in high value stocks. This is wrong as whether you buy stock at Rs.5. You need to see the background of the company before looking at the price of the share.

Discard the losers and pamper the winners:

There is a tendency among investors to sell off appreciated stock and to hold on to depreciated stock in the hope that it would rise. It is wrong, as it is possible that the shares which are not doing well may continue to underperform and the shares that are doing well may continue to perform in the future.

It is better to acknowledge you went wrong, swallow your pride and discard the loser stocks and lessen your losses. Your decision lies in deciding to suffer a one-time loss for future long-term gains.

Look before you leap

Even good company shares bought at the wrong price can be a poor investment choice. So devise some strategies like SIP, asset allocation to avoid this mistake.

Adopt an open-minded investment strategy:

It may be advisable to consider investing in good companies, however it is wrong to overlook the point that small start-up companies would make losses. Even such companies with good strategies and growth plans could contribute to long-term capital appreciation. Always have an open mind in taking your investment decisions.

Base your investment strategy on the future:

Investment decisions based on past happenings may not always be right. It is better to consider the happenings, but give more importance to the present and future prospects of the investment. An informed decision based on the fundamentals and mission of the company helps in long-term wealth creation.

Consider tax friendly investments:

Making investment decisions based on tax considerations may prove counter-productive. However minimizing taxes and maximizing returns after taxation would help. The long term capital gain tax is nil. So if you invest for a time horizon of more than one year you will have better post tax return.

Adopt a long-term perspective:

Adopting a long term prospective is advisable if you want to be a successful investor. If you want to get short term results, then you will be able to cultivate only coriander leaves. If you want to grow a large banyan tree then you need to wait for years. So if you really want to be richer and create wealth, you need to be a long term investor.

You could have seen a lot of success stories of people, who bought a good stock 10 or 15 years back and accumulated a good amount of wealth now because of the appreciation of those stock prices. But have you ever heard of a person accumulating wealth by trading in the stock market or moving in and moving out of the market?

By trading in market you may make profits in a few transactions, but you will not be able to make profits forever. There is a lot of difference between making profit in a single transaction and being a successful investor forever.

Knowing Vs Doing

There is a huge difference between knowing what we should do and actually doing it. The knowledge piece appears quite sexy; being interested, learning something new, coming up with that cool idea. The doing part sounds comparatively like routine work, no matter how easy this work may be to do or how obvious that it should be done. Work towards a career in helping others invest their money, by doing your cfa training online.

Don’t fall into that “knowing Vs Doing gap”. Now you know the 10 commandments to successful investing and put it into practice to become richer.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

Avoid these two emotions and Be a successful Investor

Praveen Bajaj — Fri, 25 Mar 2011 12:38:43 +0000

Let’s start having a look:

An experienced long-term investor once told me that when he looked at his face after a share market fall he found despair and fear, while the same face showed enthusiasm and happiness with a share market appreciation. This made him realize that greed and fear were the 2 magnetic forces that caused confusion in investment goals. A balanced and objective approach would help him achieve his long-term financial goals.

Hindrances to positive and objective approach to investment decisions:

My close look at investment behavior has made me realize that fear and greed is not separate but complimentary emotions in an investor. Greed is merely a mental state born out of fear, with investors feeling the fear to lose money and then being unable to meet their family financial obligations. In addition, social pressures to earn in line with close relatives and friends and provide for benefits like higher education in a prestigious college, a grand marriage for children and a house with all modern amenities and furnishings leads to greed.

It is interesting to observe our brains dwell in the middle of negative emotions like fear, disappointment and greed, and these emotions influence our investment decisions, creating confusion in investment decisions. So we as investors start looking for security and confidence in our investments.

This makes me highlight 2 powerful influences on investor behavior namely

1) An investment portfolio based on ones personality

2) The follow the flock policy.

Basing investment portfolios on ones personal likes and dislikes are the first of the powerful influences, it is like investing in cars and fancy gadgets just because you love them. Investing on shares just because you think they are smart or flashy is ambiguous, for they could sink in the long run. It is better instead to invest in profitable ventures that pay in the long run. It is true; our investment fancies make us pay a heavy price.

The follow the flock for fear of being the black sheep policy makes you as an investor to believe in following others in the share markets. You would then be playing a vital role when the going is good and exiting never to return when the share market goes down. The pitfalls of group behavior lead us to buying high and selling less.

It is also true that follow the flock behavior leads to unbalanced investment emotions of black or white (wrong or right) with no shades of objectivity and rationality. In addition, group behavior leads to extreme situations of profit or loss and price swings in the share market that is highly undesirable. Buying high and selling low has made many investors suffer heavy losses in the long run.

A look at positive investment behavior:

Aim at lower returns for market forces play a very vital role in deciding the price. It is good to be investment smart with humility and lower aspirations that makes achievement of financial goals a reality. I have never known of any high return investments that did not have high risks.

Patience over a lifetime and being able to assume stress helps in aiming for long term positive returns and contributes to assuming less financial stress after retirement.

Positive investment behavior requires balanced moods, one of neither elation nor panic. Neither selling in a panic due to share market positions or adverse world or country conditions is advisable, nor is a reaction of extreme financial prosperity, both can destroy a lifetime of healthy investment. A long-term investor needs to realize that neither despairing nor elation of situations in civilization proves worthy for long term financial portfolios.

Let’s just sum up:

I am sure you would be congratulating yourself with all the knowledge gained and would neither allow emotions, group behavior nor your personal likes and dislikes to influence your long term financial goals. It is true you would have also realized that patience, humility and appetite for stress could contribute to long-term achievement of your financial goals.

The author is Ramalingam K, an MBA (Finance) and Certified Financial PlannerHe is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

How & Why Should you invest in Stock Markets Even After Your Retirement?

Praveen Bajaj — Thu, 17 Mar 2011 10:26:15 +0000

Inflation and Retirement

Most Retirees feel great getting a bulk sum as provident fund and gratuity, and wish they knew a magician, who could spin their money 2 to 3 times in just 5 years, in addition to ensuring a regular return for their day to day expenses. It is true we all want it to keep up with the inflation rate in the market. I know of no such magicians, and it is practically not possible to multiply your money 2 to 3 times in just 5 years. But I definitely know of smart investment planning and investment advisors that could help you to beat inflation.

A step by step look at your considerations to come out with smart calculated investment decisions:

Post-retirement, you know that you would no longer earn a regular income and would have to stay on your savings, provident fund, gratuity, and other benefits that have been given to you. You would definitely want more good returns on your investments, but your appetite for risk is low, for you would not want to lose your precious savings. So you would prefer to shift your portfolio of investment from risky ones to safer ones like fixed deposits in banks and good rated companies.
However your need for more income, capital gains to keep up with inflation, and rates of interest on fixed deposits decreasing each year may make you puzzled about coping up with the increased financial needs. You, as a senior citizen are lucky to be getting additional interest, however taxes leave you with not much more. However you are not prepared to subject your savings to the volatile bullish and bearish trends of the share market of over-confidence and pessimism.

You retire at 60, considering 5% is the rate of inflation annually, with life span as 85, and spending Rs.20000 per month, you would require a retirement corpus of Rs.42,00,000 if the return rate was 8%, while you would require Rs.47,00,000 if the return rate was only 7%. I am sure you would invest smart, reducing your retirement corpus by 10.5% by just investing for 1% more return.

It is true that stocks and shares gave an annual compounded return of 17 to 18% in the last 15 years, with long term stocks giving a compounded returns of about 15 to 18% annually. However you have not appetite for risky and volatile investments, and may want to play safe with low or moderate risk to capital and in not putting all your eggs in one basket or to divide your risk.
After your retirement you would do best to follow the advice of financial experts and invest no more than 10 to 20% of your retirement corpus in shares and stocks. A novice to the share market, or lack of time, inclination or shrewdness may not prove right to deal in the share market, and most financial advisors advice senior citizens to invest in mutual funds. These companies have experienced fund managers and researchers with in-depth knowledge of various industries and valuation principles and also offer diversified investment options in shares in companies, debt instruments and government securities.
The choice of retirees should be to invest in big cap funds, funds investing in huge paid-up capital companies, while mid cap funds suit those who do not mind medium risk-taking. However small cap funds, invested mostly in start-up companies are to be avoided, being highly volatile in nature.
Time plays a vital role in investment in mutual funds, and a good investment advisor would advice you appropriately. The best option for senior citizens would be to first invest a lump sum in a debt based funds that promise good, safe and regular return. This could be followed up by a systematic investment/transfer plan of investing or transferring through ECS regularly a fixed amount for units of a mutual fund. This definitely proves beneficial to take advantage of the volatility of the market, as buying different number of units each month helps to spread the risk also.

A Final Thought:

However your smart calculated investment choice of mutual funds requires evaluating every 3 to 6 months. This would help switching between mutual funds at the right time. My last but most important advice again especially to senior citizens is never go in for stock trading in a big way without proper knowledge and inclination and lose due to volatility of stock and share market.

(The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners(www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

Fantastic Four Stocks of India – Stock 2 Suzlon Ltd

rahuls — Wed, 09 Mar 2011 07:07:50 +0000

Suzlon is the second of the 4 stocks in our series of India’s Fantastic Four Stocks – read about the first stock at worst stocks to buy

It is among the four stocks that are probably most widely held by retail/HNI investors from the days of previous Bull Run in anticipation that they will at least come back to the price at which they have invested in them.

However, I strongly believe that given its extremely weak business model the chances of Suzlon coming back to its 2007 high of around Rs. 470 and rising around 850% is quite remote.

It is perhaps one of the most talked about stocks across all the business news channels and there exists a support and resistance theory at every Rs 5-10 level just trapping investors at every fall and compelling them to average more and more. Moreover, a lot of institutions, fund managers and analysts rate the company as one of the Gen-X stocks in the sunshine sector and thus trapping the investors even further with the glittering story.

Why Suzlon is a Fantastic Stock?

Despite being in the SUNSHINE wind energy segment its standalone net sales has fallen from something around Rs. 7000 crs in FY08 to Rs. 3500 crs in FY10
PAT has fallen form a level of around Rs. 1200 crs to a LOSS of around Rs. 1400 crs
The reason for this fall in sales coupled with even more fall in profits is the faulty blades which Suzlon produces and moreover spends huge sums to repair the same.

[A very interesting Google search with the key words “Suzlon, Blade and Problems” will highlight the core problem in Suzlon’s business and reason for its continuous stream of losses and poor performance]

Total Debt has increased from around Rs. 9000 crs in to around Rs. 13,000 crs in order to execute expense acquisitions of international subsidiaries and paying hefty goodwill
Total Goodwill in FY10 has increased to a level of around Rs. 6100 crs from the levels of Rs. 1400 crs in FY08, in fact there has being no addition in its gross block for plant and machinery, a capital intensive company is actually not adding real capital
For FY10 for Suzlon around 100% of its Networth is Goodwill, so its tangible Networth is actually negative
Current Higher interest rate scenario in India would hurt the margins further and added to already existing losses
Its corporate governance policies given even more reason for an investor to disown this stock because in the past it has announced series of rights issues, QIPs, other equity raising instruments, precisely at the times its stock price had taken a major hit because of a bad market conditions
A negative trailing 4Q EPS of Rs. (8.15) gives the stock a meaning less P/E and hence no compassion could be made for its valuations

To summarize I would say that Suzlon is like a fancy stock in a fancy industry which is just playing with the investors and continuously eroding their wealth. It’s better to avoid such a stock since market offers far better investment opportunities at the current levels rather than buying or even continuing to hold Suzlon.

In this Fantastic Four series you already know the first two i.e. DLF and Suzlon. The other 2 members of this team of Fantastic Four will follow soon…

Happy Investing…!!!

The author of this article Rahul Sonthalia, is currently working with MPA Group and he is the Vice-President of its Portfolio Management Services Vertical. He loves writing and is a regular contributor to MoneyBol.com.