GalaTime

Posted by guest blogger and virtual Portfolio Manager Arjun Ashar, a Chartered Accountant and founder of Arjun Ashar Capital Management. He can be contacted at arjun.ashar@gmail.com. Do check out his 5L Virtual Portfolio.

On this platform, I do not wish to burden the reader with information about the company like its financial statements, shareholding pattern, corporate announcements etc which should be easily available from the company’s or NSE/BSE website. I assume the reader has already read and understood the annual report of the company along with the quarterly results and has preliminary information about the company that can be easily obtained from the company website/ annual reports.

I would only discuss my views on certain aspects, which I feel are important.

The best information about any listed company is all publicly available on its website, annual reports, stock exchange filings etc. That is all one needs to make a reasonably informed investment decision.

My outlook for Parekh Aluminex

Optimism

• The product range of the company (ie aluminum foil containers) is gaining widespread usage as mobility of people increases and also due to changing lifestyles.
• The valuations of the company are attractive with a Price-Earnings ratio of less than 3 at the current market price of ~ Rs.68.
• The company has a low debt equity ratio of 0.33 as at 31st March 08.
• The company seems to have expanded capacity over the years in a prudent manner and utilisation of installed capacity has improved over the past 3 years. In my view, the increase in installed capacity and sales which was achieved while keeping the debt equity ratio low is commendable.

Caution

• A prolonged recession could mean lower sales for the industry if railways, airlines, takeaway restaurants witness a further slump in passengers and patrons respectively.
• The capex plans of the company need to execute smoothly in terms of getting operational and witnessing optimum utilisation. The low debt equity ratio would enhance margin of safety in this regard.

DISCLAIMER: The author is not a registered stockbroker nor a registered advisor. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.

[Kaushik Gala: To add to Arjun's disclaimer above, this is not a recommendation to buy or sell. Moreover, given that this stock is relatively illiquid, extra caution is necessary.]

Posted by guest blogger and virtual Portfolio Manager Arjun Ashar, a Chartered Accountant and founder of Arjun Ashar Capital Management. He can be contacted at arjun.ashar@gmail.com. Do check out his 5L Virtual Portfolio.

CHI Investments Limited

Please check the above link which gives out the information about this company. The information memorandum therein contains very important information about this company.

Identified below are the some of the factors which influence the inclusion of this stock in the virtual portfolio:

1. The market capitalization of this stock as compared to the quoted market value of some of the investments held by Chi.
2. The dividend income that might be received by Chi in the future from the investments held by it.

The information memorandum also gives details about certain investments of Chi which are pledged to financial institutions and about non disposal undertaking given to certain financial institutions for certain investments held by Chi.

DISCLAIMER: The author is not a registered stockbroker nor a registered advisor. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.

Today being February F&O expiry, it’s time to decide what to do with my F&O positions in the 5 lakh virtual portfolio.

Here’s the trades:

• Closed the other leg of the Nifty call spread - expires worthless.
• Closed the India Cements short @ 99.
• Continue the MCX Gold short.

Portfolio is down ~5% y-t-d. Not bad compared to the Nifty (down ~ 9% y-t-d), but not at all good on an absolute returns basis.

A few days earlier, I mentioned my thoughts on putting on a short position in gold for the 5 lakh Virtual Portfolio. I will officially initiate the position today, thus:

• Short April 2009 Gold Mini future @ 14040.
• Tradable at the MCX.
• Contract value (GOLDM = 100 gms) is ~ Rs 1.4 lakh.
• Margin needed is ~ Rs 10000; I’ve allocated Rs 70000 (2x leverage) to be conservative.

Here is a ’stream of consciousness’ style dump of my thoughts re: gold -

• Very bullish sentiment, more than I’ve seen in the past few years; see here, here, and here.
• Anecdotes: talk of mutual fund salesmen aggressively pushing gold funds, analysts calling for a new high of Rs 16000 per 10 gms in India soon,
• Gold-oil ratio, Dow-gold ratio, gold-silver ratio
• Seasonality
• Sensex vs. gold
• Risks to traditional sources of demand: China, India, US
• Potential for a turnaround in the rupee:dollar rate to ~ 45, putting a lid on the upside in Indian gold

Beware: I do think there’s a chance of an upward spike (blowoff) in gold to over $1000/oz (Rs 15000 per 10 gms or more). Given the global interest in the precious metal, a $100 move can happen in a matter of days. This position might be a few weeks/months too early.

Posted by guest blogger and virtual Portfolio Manager Arjun Ashar, a Chartered Accountant and founder of Arjun Ashar Capital Management. He can be contacted at arjun.ashar@gmail.com. Do check out his 5L Virtual Portfolio.

On this platform, I do not wish to burden the reader with information about the company like its financial statements, shareholding pattern, corporate announcements etc which should be easily available from the company’s or NSE/BSE website. I assume the reader has already read the annual report of the company along with the quarterly results and has preliminary information about the company that can be easily obtained from the company website/ annual reports.

I would only discuss my views on certain aspects, which I feel are important.

The best information about any listed company is all publicly available on its website, annual reports, stock exchange filings etc. That is all one needs to make a reasonably informed investment decision.

My Outlook for PNB Gilts

Optimism

• Stock trading at a price which is substantially less than its book value.
• Its less levered as compared to a PSU bank like PNB or SBI (as on 31st March 2008, as per its annual report for FY 2007-08).
• It may benefit in a scenario of interest rates being lowered, though it may also mean lower yields in the future.
• Its CMP is Rs. 20.9. It last declared a dividend of Rs.1.5 per share. Look at the dividend yield and compare it to a post tax return on an FD. I am NOT comparing this stock to a Fixed Deposit. Both are very different in terms of risks involved and nature of returns.

Caution

• It may suffer losses incase of an unlikely scenario of rise in interest rates (why rule that possibility out).
• Exposure to derivatives.
• Need for greater voluntary disclosure of information on a quarterly basis in addition to current quarterly disclosure on derivatives that is being made in segment results.

Though the company does disclose information on interest rate swaps in its annual report, a similar periodic quarterly disclosure of such activities/positions on the derivatives front would go a long way in terms of better standards of transparency. It would be great if information like the one disclosed on page 46 of FY08 Annual report (notes to accounts) is also disclosed on quarterly basis.

Read below the excerpt from the MD&A section on page 9 of the company’s 2007-08 annual report:

During the year, company significantly trimmed exposure in the interest rate derivatives. The gross outstanding in interest rate swap contracts declined from Rs. 9550 crore to Rs. 7200 crore.

Also read pages 42 and 46 of the annual report for FY 2007 08 for better understanding of certain derivative positions as at 31st March 2008.

Indifference

There seems to be some tomfoolery going on for a long time regarding hiving off PNB Gilts to an interested buyer or merging it with PNB. But at present, one would dismiss all this as mere speculation which has been going on for a long time anyway. This should not play a significant role in influencing assessment of this stock.

What appeals to me regarding PNB Gilts is the steep discount in the stocks market price as compared to its book value and the expected dividend yield in the future considering its last dividend, its recent financial performance as per quarterly disclosures and the current trend in interest rate movements.

DISCLAIMER: The author is not a registered stockbroker nor a registered advisor. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity, index or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. The author recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and that you confirm the facts on your own before making important investment commitments.

Today being January F&O expiry, it’s time to decide what to do with my F&O positions in the 5 lakh virtual portfolio.

Here’s the plan:

• One leg of the Nifty call spread (Short Jan 3000 call) will expire worthless today.
• The other leg (Long Feb 3000 call) will be carried forward as is.
• The India Cements short looks good for a rollover - the position has been break-even on average, and I don’t see things getting any better for the cement sector anytime soon.
  • Buy back India Cements Jan future @ 105.5
  • Short India Cements Feb future @ 105

As for new positions, I am considering a short on gold (via MCX gold futures). Let’s see.

Most global equity markets are in a correction phase after the mid-Dec to early-Jan rally. They are likely to continue rolling down over the next few days - there’s no shortage of bad economic, financial & Ponzi news anywhere in the world.

However, I remain in a bullish camp as far as Indian indices are concerned, and think that the Nifty-50 index has a good shot at ~ 3500 over the next few months.

Note that the EPS for the index as a whole has dropped from a peak of almost 240 to 228. The upcoming earnings season is bound to do serious damage to this figure, and I would not be surprised to see a Nifty EPS of ~ 180 by late 2009 / early 2010.

Inspite of deteriorating economic fundamentals, I think the Nifty-50 could head higher until mid-year, driven by optimism on all sorts of bailout packages, interest rate cuts, FII/FDI flows, regulatory changes, etc. Of course, that optimism is unlikely to survive until December 09 - reality will intrude and we’ll have to accept sub-par GDP growth for longer than we like.

I have added a position in my 5 lakh Virtual Portfolio to reflect my short-term bearishness and intermediate term bullishness. I picked a Nifty Calendar Spread, thus:

• Sell Nifty January 3000 call @ 85
• Buy Nifty February 3000 call @ 155

The maximum risk (loss) on this trade is 155 - 85 = 70 points; for a lot size of 50, that works out to Rs 3500 per contract. I have assigned a position size of 5 contracts of each call option, for a total risk of Rs 17,500.

Given that the NSE SPAN margin system allows us to offset the short call vs. the long call, and given that the portfolio is short the January call (no risk of a naked option position), the margin requirement should be ~ Rs 30000 per spread. For 5 contracts, that works out to Rs 1.5 lakh (150K).

This is likely to be a rolling position in some form until my hypothesis is invaldiated or the Nifty continues to rise but hasn’t hit 3500 yet.