Equity · Investing

Tejas Network IPO

Open for Subscription till 16 June 2017

The company builds optical and data networking products for telecom companies, internet service providers, utility and defense companies, is asset light; the manufacturing is outsourced to reputed firms and has a 15% market share in the optical equipment market.

Goodies

Its customers are distributed across 60 countries while 63% of its revenues comes from India. The company is focused on countries with economies similar to India such as Latin America, South East Asia, and Africa.

  • R&D lies at the core of the firm; they have filed 300+ patents across the world while 56 have been granted. This acts like a wide moat.
  • The company is not using the IPO proceeds to clear debt
  • Revenue is growing at a CAGR of 24% for the last four years.
  • Telcos must ramp up their infrastructure as 3G/4G data speeds and consumption increases and 5G is rolled out.

Concerns

  • Client concentration: The company derives 58% of its revenue from just 5 customers.
  • Ongoing legal issues: the company has 40 tax proceedings against it for an amount of Rs 160 crores and another 19 crores in civil suits.
  • Currency risk: the company derives a third of its revenues in US dollars.

Our Take: We would recommend an investment in this IPO.

 

Equity · Investing

Are we near to a Market Correction?

timing-stock-market
Nifty/Markets are at all time high, and speculations are high on an imminent market correction as valuation are also said to be high. Does this mean we are close to a very near term correction in the markets?

Speculations are ripe for a market correction in the Indian market as Indian market tread through almost daily Nifty and BankNifty attempting to cross over an all time high new peak. Several experts have already predicted for a market correction and have been advising to reduce the equity exposure. Are we in a Bubble Market?

Global markets have also been rallying during last few months and have also made all time new highs. These are said to be driven by liquidity and same is also true to some extent for Indian market, apart from the fact that over last few months, masses have been choosing mutual funds for indirect investment in the markets as traditional FDs do not yield enough and there might not be enough avenues left for reasonable returns on the capital after government drive against black money.

Despite the fact that Indian markets are making new highs almost everyday, a closer look at relevant data, doesn’t suggest any bubble territory for Indian equities!

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Further, the data points suggests we may not settle lower even in the current series. Nifty Highest Put Open Interest at 9600/9500 and Call Open Interest at 9700, suggest a range bound movement of the Nifty to remain, atleast in the near term. Further, we may still have to discount the good monsoon and improving health of corporate balance sheets and supportive government policies. Also in view of the GST implimentation driven down cycle, we may also forsee a further rate cut in the next RBI policy in the month of August.

Market might have been betting on the explosive growth forward, after forming of the base, which the current government is trying hard and bring in the economic discipline and rationalization as per global standards, thus further attracting the global capital.

To add, the big bull of D-Street, Rakesh Jhunjhunwala said investors should not get worried about one day of correction as “we are far away from the peak“.  Nifty is more likely to double in the next 4-5 years.

The bull market will only eclipse when three factors are present — valuation froth, commitment froth and when there is bad news, he explained.

Elaborating on them, Jhunjhunwala said just by valuation froth, bull markets will not end. By commitment froth, it means that there is a lot of leverage buying, which is still not there. The third factor is bad news and when investors sell on the bad news, there is no buyer.

“There may be valuation froth right now, but there is no commitment froth. There is no bad news and when investors are selling, they are able to find buyers. So, I think, we are far away from a market top,” said Jhunjhunwala.

Uncategorized

How Rakesh Jhunjhunwala lost Rs.650 crores?

Image result for power of compounding rakesh jhunjhunwala house

In 2005, one of India’s most well known investor Rakesh Jhunjhunwala sold some shares of CRISIL for purchasing a house in Mumbai. The amount received on selling the shares was Rs 27 Crores. The house today might be worth Rs 50 to 60 Crores. This means a compounded annual growth of 7% to 9.5%.

Now what would have happened had he not sold his shares in the company?

Not sure if he purchased that house for living purposes or for investment. Had it been for living purposes, it’s possible that he would still be staying in a house on rent(!) And assuming he paid a rent of Rs 2 Lac a month, till now he would have paid close to Rs 2.1 crores as rent itself. Seems horrible… right?

But what happened to 27 Crores worth of shares then?

The shares are now worth a whopping Rs 700 Crores!! A growth rate of more than 43% every year!!

Now we are not experts like Jhunjhunwala or Buffett. We may not be able to find multibaggers like CRISIL. But we can find mutual funds which offers reasonable growths…isn’t it? Any reputed well diversified equity mutual fund scheme would have given returns in excess of 15% in last 10 years. And that is more than what real estate offers.

Now does it not make sense that early on in our financial lives, we should invest as much as possible in equities? If not directly, then through mutual funds? Returns are far more than what average real estate offers over the comparable longer term. And you also don’t have to remain stuck with paying EMIs for decades. Why not stay on rent and invest the remaining amount? ….(Only a food for thought, and we know its controversial and linked with human emotions! …but atleast we can think of having atleast some investment in Equities/Mutual Funds and wait to see the magic of compounding!)

 

Equity · Invesment Basics · Mutual Funds

Eighth Wonder of the World

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”     ― Albert Einstein

If you believe in the power of compounding, then equity market offers you the best tool to harness this strong force via the mutual fund route, which can let create good long-term wealth.

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Compounding interest separates the haves from the haven’ts. Compounding is the first step towards long-term wealth creation. When you buy a mutual fund, compounding allows you to earn interest on your principal and on the interest that you reinvest. It helps you build a large corpus over time with the smallest of initial investment.

The prerequisite for creating serious wealth is to start early, have patience and not get swayed by daily market movement. Give your investment some time to yield fruits, say experts.

You don’t have to be rich to create wealth. Many salaried people have been able to create wealth just with the magic of compounding and by following a disciplined approach towards investing.

Ask Warren Buffett for the single most powerful factor behind his investing success, and he’d respond “compound interest” — without skipping a beat.

He’s been preaching this for six decades, and it’s made him a billionaire. And it’s something every investor can copy.

Using his typical wit and easy-to-understand style, he started his first lesson on compound interest to the inventors in his partnership by humorously calling into question the soundness of Queen Isabella’s decision to fund Christopher Columbus’s expedition to find a new route to Asia. “Aside from the psychic income associated with discovering the New World,” he wrote in a letter in 1963, “it wasn’t exactly another IBM (a stock that was doing very well at the time).”

As he figured, had the queen opted instead to invest the $30,000 at 4% instead, it would be worth over $7 trillion today!

His second story on compound interest takes a look at King Francis’ decision to commission the Mona Lisa in 1516. The math works out to show that Ferdinand’s $20,000 would be worth well over a $1 quadrillion if he’d only manage to invest it at a 6% annual rate instead.

The biggest thing that investors should appreciate about compounding is the enormous value of time. As your returns themselves start earning, and then the returns on those returns themselves start earning, the profit starts piling up at an enormous pace.

The graph below illustrates the example above and shows this clearly. The green line starts rising slowly, but as compounding takes over, the extra time means a lot more income.

Translated into a human lifetime, it means that starting to save at the age of 35 instead of 50 can mean retiring with four times the wealth. The graph shows this clearly. If one has time to learn just one thing about investing, then it should be this.

Therefore, one of the best thing you can think of leaving for your child, could also be a SIP or a MF portfolio, which is sure to yield more than anything else by the time your child is grown up!

Equity Stocks · Investing

NIFTY WEEKLY CLOSING @ LIFETIME HIGH

With new weekly lifetime high closing of Nifty @9653, it could be a time to tread cautiously in view of the following upcoming events :

  • 2nd Bimonthly RBI policy review meeting on 7th June
  • GST implementation next month, which can impact growth negatively in the short term
  • US Fed review meeting next month, which may increase the rates, in view of better than expected US job data
  • Monsoon, which as on date is predicted to be favourable

It would be interesting to watch in case RBI reduces the interest rates in view of other three events, and if it does, market may continue to tread higher, else there might be some pause and wait and watch moments.

Algo Trading · Equity Stocks

Algorithm controversy: Sebi issues show-cause notices

(The move is expected to bring more transparency in the time to come and further evolution and expanding of a futuristic Algorithmic Trading Market)

Capital market regulator Securities and Exchange Board of India (Sebi) has issued show causes notices (SCNs) to the National Stock Exchange (NSE) and 14 individuals as a part of probe against the exchange in the ‘unfair access’ controversy.

All you need to know about the case:

The case dates back to 2015 when the market regulator received three complaints letters highlighting flaws in NSE’s algorithm trading systems. The letters also made allegations of “unfair access” to certain brokers at the exchange’s collocation facility.
According to the letter, between 2011 and 2014, the set up at NSE allowed certain brokers (who connected first to the exchange’s system) received data ahead of others and thus were able to react to information before anybody else.

Following the letters, Sebi sets up a team to do fact-finding of the complaints in late 2015. Based on the preliminary finding, the Technical Advisory Committee (TAC) of Sebi constituted a committee to further examine the allegations against the country’s largest stock exchange.

In March 2016, the expert committee submitted its report to The committee makes critical observations against the bourse stating it violated norms of fair access by allowing some brokers to benefit. It also alleged that the exchange didn’t immediately initiate any steps to check possibility of collusion between its staff and brokers. The expert committee also highlighted that NSE’s systems were prone to manipulation and as a result one OPG Securities was able to exploit its systems.

In November 2016, NSE appointed Deloitte to conduct the forensic investigation.
NSE submitted Deloitte’s report to Sebi on December 23, 2016. The key report also suggested NSE’s systems were prone to manipulation. It also says there was lack of documented policies and protocols on dissemination of data, data retention among other things.
In January, Sebi directed NSE to submit a comprehensive action plan to address the issues and findings raised in the forensic report. It also asks the bourse to submit a roadmap and action plan in two weeks to address issues raised in the report and details on technological and procedural changes required at NSE. The exchange submitted a comprehensive report to Sebi on the new systems and process put in place.
In February, Sebi said the majority of directions issued have been implemented by NSE, while some are yet to be implemented.
In March, Sebi directed NSE to conduct carry out an audit on its currency derivatives and cash segment to check whether the systems used in these categories are also prone to manipulation. The exchange appointed EY to carry out the said audit.
In April, Sebi Chairman Ajay Tyagi had said co-location issue will take a few months time to get addressed.
Equity Stocks · Investing · Mutual Funds

Initiate SIPs in Pharma and IT Sectoral funds

It could be a prudent contrarian idea to start a SIP under Pharma and IT sectoral funds. These have been in a downtrend from quite a significant time and during past few days after Q417 results, there seems to be some buying coming back into pharma and IT stocks and hence its expected that these SIPs (or direct buy during dips over next 6-12 months), either directly into selected stocks or via Mutual funds can reap rich rewards in the medium to longer term.

(Disclaimer: Mutual Funds and Securities investments are subject to market risks and there is no assurance or guarantee that the intended objectives will always be achieved.)
Equity Stocks · Invesment Basics

To find hidden gems, track PE ratio!

Companies which have a low P/E multiple compared to industry P/E have given exceptional returns of up to 280 percent.

There are a lot of methods which can help you pick the right kind of stocks for trading, but for investment, focus on few parameters which could help you to pick winning bets.

A small analysis run on BSE 500 companies on return on capital employed (RoCE) and Price-earnings (P/E) ratio threw many companies which have outperformed Sensex returns in the last one year. These companies have either more than doubled or nearly doubled in the last one year.

Companies which have a low P/E multiple compared to industry P/E have given exceptional returns of up to 280 percent in the last one year, which includes names like Escorts, Avanti Feeds, Caplin Point, REC, Hindalco, Jk Tyres, Gujarat Narmada, Sun TV, IOC, Navneet Education etc. among others, Capitaline data showed.

PE is one of the important and mostly used price multiples for valuation. A higher PE indicates better operating performance. It is the most common, and widely available indicator available to investors.

PE ratio

It is a very common and important valuation ratio used to measure the company. The standard rule is — the lesser the PE better the stock and vice versa. However, that might not apply to growth companies.

If PE of a stock is lesser than the industry PE or its peers then it gives a sense of confidence to buy the stock. However, when the company is in a growth phase, then a higher PE is justified for those stocks, which will not make that stock look overvalued, suggest experts.

“As market discounts in forward, companies which might have to add on benefits over its peers in terms of margin expansion, monopoly, less leverage etc., such stocks will quote higher PE and we might still see good returns,” Achin Goel, Head of Wealth Management and Financial Planning, Bonanza Portfolio told Moneycontrol.

“Companies Like India Cement, Navneet Education, Federal Bank, Dewan Housing etc. have very good fundamentals and are available at lower PE which makes the stock looks attractive,” he said.

Goel further added that stocks like Escorts, Sun TV also have very good fundamentals but are trading at exceptionally high PE where investors should book profit because markets have already discounted growth factor and might not rally at the same pace as it did in the past.

However, PE should not be the only parameter used for evaluating a stock. If you are not seasoned investor, chances are that you might make a mistake. Novice investor presumes when any company is trading around or below industry PE it is trading at a lower valuation.

“When it comes to investing, PE ratios aren’t everything and should not be looked isolated. One must also study growth potential, future profitability and superior corporate governance practice,” Jaikishan Parmar, Sr. Equity Research Analyst, Angel Broking Pvt Ltd told Moneycontrol.

“There are two types of valuation methods, relative and absolute. Relative valuation looks at the valuation methods such as P/E, EV/EBITDA, P/B, EV/Sales, etc. These relative methods compare the valuation multiples against that of the sector and comparable peers,” he said.

Parmar further added that the absolute valuation method, however, is independent in nature and methods like DCF take a long-term view on the future cash flows to value the company.

The general theory is companies which have strong fundamentals such as healthy balance sheet and good return ratios, should get premium PE valuation compared to the companies with poor future growth rate, or weak balance sheet, suggest experts.

ROCE is also important

Return on Capital Employed or RoCE is another ratio which investors can use when making their investment decisions. Usually, a figure over 12 percent is good for any company.

Almost 75 percent of the companies mentioned in the list have a ratio above 12%. The data is calculated based on March 2016 balance sheet numbers, Capitaline data showed.

“ROCE is a good indicator to check operating performance and balance sheet health. Therefore, any company with ROCE better than 12% is good. Navneet Education is one such quality name with better ROCE and comfortable P/E,” Tushar Pendharkar, Head of Research, Right Horizons Investment Advisory Services told Moneycontrol.

“In addition, there are few exceptions in this list where the ROCE is low; however, they have strong business outlook, such as – Hindalco Industries Ltd, and Indian Oil Corp Ltd,” he said.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

(Source: Moneycontrol)