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BUY What has NOT Fallen

rahuls — Wed, 22 Dec 2010 07:19:18 +0000

After hitting its year highs in November, the markets have corrected by almost 8% with the Mid-Cap index falling over by 10% and above.

The key reasons behind this fall could be:

Concerns regarding sovereign default in Europe

Rising inflation and a tightening monetary condition in China

Corruption charges on government agencies which brings down the attractiveness of India as an investment destination, and

Sell of in the mid-cap space because of SEBI’s allegation on many companies for insider trading

A lot of people whom I know including even market participants asked me to suggest them few stocks that were beaten down in the down turn. Then someone also suggested me as to why should you bother about the stocks which have fallen and BUY them just because they are cheap and why not focus on very few stock in the mid-cap space which despite this turmoil have not corrected.

The Idea I am trying to say is that “There is no Smoke Without Fire” there has to be some reason because of which most of the mid-caps had fallen and so why not focus on the good quality ones which stood firm in the sell off or on the ones in which you see absolutely no reason for a sell off, but have still fallen in the markets. Picking the latter one requires more analytical and reasoning skills compared to the former.

So to hunt for some good stocks I took NSE Mid-Cap index as my sample base and out of 100 stocks there are only 10 stocks which have not fallen from there highs of early November and of them some of the really good ones which I believe have a good business, good track record of operational performance and strong management areand should be given a thought are Indraprastha Gas, Glenmark Pharma, Exide Industries, Educomp Solutions and Areva T&D.

Its just like when you go to see a horse race you never bet on the loosing horse but on the winning one and so I believe the same logic should be applied in the Equity Space and the looser should not be chased as they will be the first ones to be hammered in the next leg of mid-cap selling.

Author:Rahul Sonthalia, VP, PMS Vertical, MPA

5 top picks of the year 2011

Praveen Bajaj — Tue, 14 Dec 2010 11:43:34 +0000

2010 has seen monstrous amount of wealth creation in India. Although most of the world has slipped into the Great Financial Crisis of 2008, India has found new enthusiasm to break out from this financial crisis. It has posted its highest 10year economic growth rate which is aided by the vision, execution capability and sheer persistent of some of the finest minds. This is also due to the ever growing needs of people and large swathes of population entering working and earning age.

Being in such a economic state there are 5 stocks which shows immense potential to give great returns in future.

HDFC Bank: HDFC Bank is one of the most widely respected banks of its time. The potential that HDFC Bank has shown with its faster than industry growth, asset quality retention and acquisition rate has ensured that it will climb to over 60% in the next 10 years thus making it one of the top picks for this year. Also the Current and Savings Account (CASA) ratio from the already difficult levels of about 40% this year. A higher CASA in the total deposits allows a bank to raise funds at a lower interest rate. This means a bank makes a higher margin when it lends money which again is one of reasons for its growth.

ITC: With the number of smokers growing every year by 20 million ITC has posted a small volume decline in cigarettes in FY10. But this did not stop the stock from delivering over 33% returns. This was due to the continued growth of product portfolio and volumes. But ITC even with its expanding hotels, foods, FMCG products the overall profits were getting capped by the decline in cigarettes. To avoid that ITC went out to grab all the bidi smokers. This increased the volume growth and due to this it is expected that the stock price will increase by a substantial amount.

Apollo Healthcare: Almost all Indian pharma companies looked like good stocks after Piramal ridiculously costly sell out to Abbot at nine times the sales. Indians also began demand for better hospitals and healthcare services. Within all these Apollo Healthcare looked the most promising as it has high capital intensity and low return ratios and commanded an undue premium. It is expected that it will give 10 times it returns in the next 10 years.

Reliance: The high expectations and rivalry between the siblings with a year of deflated performance has made Reliance one of the top picks. The recent discoveries of gasfields in the KG basin has helped and it is expected that it will grow seven times its present stock value.

Larsen & Toubro: LNT’s spectacular success in power generation equipment, nuclear power reactors, ship building, rig-building and defense equipment and having multiplied investors almost uniformly throughout has added to the growth of its stock and made it the most preferred stock of the year.

SRF Limited – A Good Value Pick

Praveen Bajaj — Fri, 16 Apr 2010 16:31:43 +0000

Through various articles in this (Stock Tips) category we are trying to answer one simple question – Where should you invest?

Our expert Rahul Sonthalia gives you a sound suggestion with strong background investment research for Value Investing

Growing at a 5 years CAGR of 22 per cent, huge capex lined up, 17 year dividend track record, high

dividend yield, and EV/EBITDA of mere 4x makes the company an attractive bet.The three business segments contribute the following amount to the total revenue:

Technical textile business: 50 per cent
Chemicals and polymers business: 34 per cent
Packaging film business: 16 per cent

The company has chalked out an impressive plan for future growth earmarking a capex of Rs 1,400

crore for expansion and backward integration which will be under the following heads

Setting up a 14,500 TPA polyester yarn at a cost of Rs 184 crore
Investing Rs 257 crore towards capacity enhancement
Investing Rs 40 crore for a dipping tyre cord plant
Investing Rs 92 crore for wind power project and Rs 60 crore for laminates

Apart from organic growth the company also isn’t shy of treading the inorganic route and has

recently completed major acquisitions and will look for further opportunities as well as a result of the acquisitions the company has become the 2nd largest player in the nylon tyre cord fabric (NTCF) segment which has good prospects considering the revival of the auto sector and the anti dumping duty imposed on NTCF being dumped in from China
What’s more to the company is the sale of carbon credits which is estimated to earn around Rs

271- 338 crore until 2014 which is an added bonus
Considering the financials the company trades at a P/E of 4.8x nd compared to Century Enka which

trades at a P/E of 6x and has given an interim dividend of Rs 7 having a dividend yield of around 7

per cent and thus makes it a good value buy.

Author: Rahul Sonthalia, Research Head, Kredent