Before getting involved in the stock trading, you should be well versed with its concept as this will help you in achieving success every time you trade. When you purchase a stock, you become a shareholder in the company. Now this invested money by the shareholder or investor will be used up by the company in expanding the business to earn profits.
These profits will be observed in the rising prices of the stock. Now the investors owning the stocks in the company can sell that growing stock in order to make profit as they will get more amount than they invested originally. The same concept is there behind the losses prnewswire trading that is after investing in stocks of a particular company if the company starts going in loss or the rate of that particular stock begins to decrease, the investors are also in the category of loss.
The stock trading has become very interesting and easy because of the discovery of internet. If you are interested in trading stock online, then press write an online account through any online brokerage firm. It is always recommended to select a venerable and renowned brokerage firm so that you should not get into wrong hands.
For example, Ameritrade and ETrade Financial are most renowned in the stock industry. Now, the brokerage firms will create your an online account through the company. By using your account, you can trade stock online by setting financial goals, buying and selling stocks, etc.
Benefits Of Trading Stock Online
The discovery of internet has occupied its own space in the industry of stock market. There are numerous advantages by trading stock online:
1 - The most advantageous aspect of trading online is the immediate access to the account and one can easily be updated with the latest stock information and news of the company in which you have invested or want to invest.
2 - In this method of trading stock online, the charges of the brokers are also minimal which are around $7 to $10 per trade.
3 - There is a proper check over the portfolios by using the accounts opened through brokerage firms in online stock trading.
4 - The other most important benefit of the online trading is that the company permits the investor to chart the profitable stocks and to update the investor with latest news and updates of the stock market.
5 - Online stock investing has helped a lot in saving time and money by enjoying the thrill of trade at your convenience in the ambience of your home.
6 - There is another facility provided by the online brokerage firms to contact the other trained brokers and investment counselors for the guidance if required while trading.
7 - The online stock investors also enjoy liberty to decide the things in their own way. Therefore, it is the right method to invest money with complete freedom
U.S. Economy: Consumer Sentiment Drops to 26-Year Low (Update2)
By Courtney Schlisserman
April 11 (Bloomberg) -- Confidence among U.S. consumers fell to a 26-year low after employers fired workers and gasoline prices surged, threatening the spending that accounts for more than two thirds of the economy. The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2 this month, the weakest level since 1982, when the jobless rate approached 11 percent, the worst since the Great Depression. In other figures released today, the Labor Department reported that the cost of imported goods climbed 14.8 percent in March from a year ago, led by oil. The reports validate concern among Federal Reserve officials that the economy will shrink in the first half of the year, and traders now anticipate the central bank will lower its benchmark interest rate by another half point on April 30. General Electric Co., the world's third-largest company by market value, also said today that its profit fell for the first time since 2003. ``The pocketbook issues are striking home,'' Richard DeKaser, chief economist at National City Corp., said in an interview with Bloomberg Television in Washington. ``People seemed here to be more focused on things like the rising unemployment rate, persistently high gas prices.'' Treasuries, which had risen earlier in the day after General Electric reported a 12 percent drop in earnings, stayed higher. Ten-year note yields fell to 3.47 percent at 5 p.m. in New York, from 3.54 percent late yesterday. Job Losses
Americans are confronting the loss of 232,000 jobs so far this year, along with higher food and energy costs and overall weakening in the economy. Consumer spending in the first half will advance at the weakest rate in 17 years, according to economists surveyed by Bloomberg News. Democratic presidential candidates Hillary Clinton and Barack Obama have focused on the weakening economy to press the case that Republicans, led by their presumptive nominee Senator John McCain, can't be trusted with another four years in the White House. In a speech in Indianapolis today, Obama, citing a poll, said ``folks are now more downbeat about their futures than they've been in nearly fifty years.'' Import prices rose 2.8 percent in March after a 0.2 percent gain the prior month, the Labor Department said. Expenses excluding fuels jumped 0.9 percent, the most since records began in 2001.
Import prices were forecast to rise 2 percent, according to the median estimate of 52 economists in a Bloomberg News survey. ``People will be a little less confident about the inflation outlook now than they were before the report,'' said Michael Feroli, an economist at JPMorgan Chase & Co. in New York, who had forecast a 2.6 percent gain. ``The Fed's going to ease, but they'd feel better about it if these numbers had come in lower. The risk remains that higher import and commodity prices may get passed on to the consumer.'' Economists had forecast the consumer sentiment gauge would fall to 69, from 69.5 in March, according to the median of 64 projections in a Bloomberg News survey. ``The consumer's feeling increasingly hemmed in,'' said Brian Bethune, director of financial economics at Global Insight Inc. in Lexington, Massachusetts. ``They've got higher energy bills, higher gasoline bills, higher food bills and obviously the employment markets are nowhere near as strong as they were.''
``This kind of another down-leg does not augur well for consumption in the second quarter,'' Bethune added. Fairfield, Connecticut-based GE also cut the profit forecast that Chief Executive Officer Jeffrey Immelt once told investors was ``in the bag'' for 2008. ``We hate disappointing investors,'' Immelt said in an interview on the company-owned CNBC television network. ``It's not part of the company. It's not part of the culture. We take accountability for that.'' The Reuters/University of Michigan's index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, fell to 53.4, the lowest reading since November 1990, from 60.1 last month. The U.S. retail market ``will remain challenging this year,'' Patrick Bousquet-Chavanne, group president of Estee Lauder Cos., said April 9 in an interview at the World Retail Congress.
Consumer spending will rise at an average annual pace of 0.5 percent in the first half of the year, economists surveyed by Bloomberg News earlier this month forecast. That would be the smallest two-quarter gain since purchases fell in the six months ended March 1991. The economy will not expand at all the first six months of this year, according to the Bloomberg survey taken from April 2 to April 8. A majority of those polled also projected the world's largest economy is, or will soon be, in a recession. Job losses may continue into this month. The government said yesterday that the number of people remaining on unemployment-benefit rolls rose to the highest level in almost four years. Consumers polled in today's survey said they expect an inflation rate of 4.8 percent in a year, compared with 4.3 percent projected last month. Higher energy costs have weighed on consumers' outlooks in recent months. The average price of crude oil futures traded on the New York Mercantile Exchange in March jumped to $105.42 a barrel, from $95.01 a month earlier.
Gasoline reached a record $3.332 a gallon in the week ended April 7, according to the Energy Information Administration. The administration, which is the Energy Department's statistical arm, forecast on April 8 that gasoline will cost an average of $3.54 a gallon between April and September. Fed officials last month anticipated the economy will shrink in the first half of the year, and some expressed concern about ``a prolonged and severe economic downturn'' as they cut interest rates, according to minutes of their most-recent policy-setting meeting, which were released April 8. ``Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,'' the Fed said in the minutes of the March 18 Federal Open Market Committee meeting. The Fed has cut its benchmark overnight lending rate by 3 percentage points since September to try to avert a recession. Last month, Chairman Ben S. Bernanke also invoked rarely used authority to provide emergency financing for investment banks and rescued Bear Stearns Cos. from bankruptcy. Send instant messages to your online friends http://uk.messenger.yahoo.com
Cluster: Apple Green
Price target: Rs280C
urrent market price: Rs235
Price cut to combat competition
Hindustan Unilever Ltd (HUL) has reduced the prices of three of its soap brands ?Lux, Hamam and Rexona?to pass on the benefits of excise duty cut in soaps to the consumers. It has reduced the price of Lux 100gm soap to Rs16 from Rs17 and of Lux 45gm soap to Rs5 from Rs6. HUL's soap volumes grew by just 1.5% in CY2007. With the recent price cut, the company expects the volumes to improve for some of its strong brands.
In view of the rising palm oil prices, the price cut by HUL seems to be out of place, however this seems to be the right strategy to counter the recent launches in soaps from its major competitor?ITC.We believe in spite of the steps taken by the government to control inflationary pressures, edible oil prices would settle at higher levels for the near term. However, we sense that the price cut in some of the soap brands by HUL is a short-term phenomena to combat the competition from the new soap launches by ITC, as surging input cost will pressurise the soap margins. Going forward, we expect HUL to drive its growth by expanding its presence in high-margin premium personal care and food segments.
At the current market price of Rs235, the stock trades at 25.2x its CY2008E earning per share (EPS) of Rs9.30. We maintain our Buy recommendation with price target of Rs280.
LANCO Infratech (LITL) secured two super critical power projects with an installed capacity of 3,300 MW in Uttar Pradesh. The bids called by the Uttar Pradesh Government for development of the two thermal power projects viz., Prayagraj of 1,980 MW (3x660 MW) and Sangam of 1,320 MW (2x660 MW) were opened on Apr. 11, 2008 at the office of Uttar Pradesh Power Corporation which conducted the competitive bidding process on behalf of the government. As per the terms of the bids, while 90% of power generated through the projects must be sold to the government of Uttar Pradesh, the remaining 10% could be sold by the successful bidder through the merchant market.
LITL has won both the projects by outbidding other top players like Reliance Power, NTPC and Jindal Steel & Power. The projects include all the required infrastructure linkages like road, water, fuel and rail.
If you're raring to have a go at stock trading but you don't know a thing about it, start learning with a free stock market game online application. A stock market game, or stock simulator, is an online program or client application that duplicates some aspects of a live stock market so you can practice trading stocks without the risk. There are basically two kinds of free stock market game online applications. Read on and know more about these games.
There are two types of free stock market game applications: Financial and fantasy stock game simulators. A financial free stock market game online application allows you to generate a portfolio based on real stock entries, but using play money.
All of the current active financial free stock market game applications, or stock simulators, use a delayed data feed to ensure that the information and date may not be used to do actual stock trading using these information. Most American stock sites run on such a system; their free stock market game applications run on a delayed ticker their systems may not abused for illegal gain.
Some free stock market game online applications are also designed specifically for study, either as part of the syllabus program, or as additional instruction. These are targeted especially for business students who may be interested in taking up stock trading as a career. There are many free stock market game applications; there are some that are keyed to specific stock markets like in New York and London, as well as markets in various countries like Australia and India, among others.
A fantasy free stock market game application, or fantasy simulator, is another type that you can use to get used to the experience of stock trading. But unlike financial free stock market game applications, fantasy simulators work on a different level.
Fantasy free stock market game applications feature fantasy (Read: Unreal and imaginary) stocks that represent real items which, however, would never be traded in the real trading setting. Some items being traded in fantasy free stock market game applications would include longevity of certains books on the bestseller list, success of certain movies at the box office, antics of infamous celebrities, band breakups, and more.
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The purpose behind such a system is to let you practice stock trading with play money in a real-world stock market scenario. One of the many ready applications of the experience you can gain from free stock market game applications is being armed with the knowledge of stock trading, thus, enabling you to know more about what your broker is talking about. Who knows, by learning the ropes of stock trading with a free stock market game online application, you might even be able to do direct stock investing yourself.
Summary of Contents
THE STOCK IDEAS REPORT CARD
FROM SHAREKHAN'S DESK
At the crossroads Apart from global cues, forthcoming Q4 results and RBI's monetary response to surging inflation would determine the market's direction.
The going was not easy for the market last month. Besides having to grapple with the ever-deepening global financial market crisis, it also had to deal with a sudden surge in inflation in domestic economy and the unearthing of huge foreign exchange derivatives losses of Indian corporates. Poor macro numbers, especially a further drop in industrial production, compounded the market's misery no doubt. Liquidity was also hard to come by, what with foreign institutional investors (FIIs), the main drivers of the market in the current bull run, continuing to sell.
Sharekhan top picks
In the March 2008 issue, we had recommended the best 12 of our Stock Ideas as Sharekhan Top Picks. As on March 31, 2008 the basket of stocks declined by 2.6% during the month as volatility in the markets continued. The Sensex declined by 2.1% and the S&P CNX Nifty by 0.8% during the same period.
ACC Cluster: Apple GreenRecommendation: HoldPrice target: Under review Current market price: Rs810
ACC exits last of non-core businessesACC has sold its wholly owned subsidiary ACC Machinery Company Ltd (AMCL) for Rs45 crore to the HNG group.
Aditya Birla Nuvo Cluster: Apple GreenRecommendation: BuyPrice target: Rs2,035Current market price: Rs1,602
Price target revised to Rs2,035
The consolidated revenues of Aditya Birla Nuvo (ABN) in Q3FY2008 grew by 60% year on year (yoy) to Rs3,661.6 crore. The growth was driven by the solid performance of insurance business, which grew by whopping 185% yoy to Rs1,485 crore contributing 41% to the overall revenues. Garments, insulators, financial services, carbon black and telecom businesses also contributed well to the overall growth.
The share of high-growth businesses (garments, life insurance, business process outsourcing [BPO], software and telecom) to the total sales improved to 76% in Q3FY2008 as compared with 68% in the same period last year.
However, the operating profit margin (OPM) declined by 630 basis points to 6.8% on account of margin pressure in the key business segments and increased contribution of insurance division (which is still at its nascent stage). Consequently, the operating profit declined by 17.1% to Rs248 crore.
The segmental performance showed margin decline in all the businesses except telecom, insulators and software. Profit before interest and tax (PBIT) margin declined sharply in garments, rayon, BPO, fertilisers and life insurance businesses reducing the overall margins by 440 basis points to 3.3%.
The net profit after minority interest declined by 46.4% yoy to Rs30.2 crore due to higher depreciation costs and taxes as tax benefit from loss in insurance business is not fully reflected in the consolidated numbers.
The company continued to invest the cash generated from the value businesses into the growth businesses like life insurance and telecom. The company is also planning for aggressive retail expansion and joint venture for value added fabrics. Recently, the promoters have increased their stake by issuing warrants worth over Rs4,100 crore to themselves. At the current market price, the stock trades at a price/earnings ratio of 45.8x FY2009E consolidated earnings and enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 14.6x FY2009E. Based on the sum-of-the-parts valuation of the merged entity, we estimate the fair value of ABN to be Rs2,035 per share. We maintain a Buy recommendation on ABN with a 12-month revised price target of Rs2,035.
Alphageo India Cluster: Emerging Star Recommendation: BuyPrice target: Rs480Current market price: Rs385
Price target revised to Rs480
Q3FY2008 results of Alphageo India (Alphageo) have been disappointing due to foreclosure of one of its contracts and delay in the start of new contracts. The revenues during the quarter declined by 18.7% year on year (yoy) to Rs10.7 crore.
The company's order backlog at present is Rs65 crore including the two newly-bagged orders worth Rs42 crore during the current quarter. The company also has a strong order pipeline with bids for contracts worth over Rs100 crore.
The company is planning to enhance its execution capabilities through organic as well as inorganic route from the proceeds of preferential allotment to its promoters. The company is looking for overseas acquisition to add four-five crew to its team.
At the current market price, the stock trades at 15.7x FY2008 and 8.8x FY2009 estimated earnings. We maintain our Buy recommendation on the stock with a revised price target of Rs480 (11x FY2009 earnings).
Ashok Leyland Cluster: Ugly DucklingRecommendation: HoldPrice target: Rs43
Current market price: Rs35
Sales drop in February
Ashok Leyland's total vehicle sales during February 2008 declined by 6.7% to 7,501 units from 8,036 units in the same month a year ago. Sales in the domestic market declined by 7.2%, whereas exports were marginally down by 0.9% for the same month. On a month-on-month basis, the total sales declined by 17.7%, taking the year-till-date sales volume down by 2.7%.
Passenger or bus sales grew marginally by 1.1% year on year (yoy) to 1,690 vehicles. The growth has come from exports, which grew by 17.8% to 443 vehicles. Truck sales declined by 9.5% to 5,743 vehicles. The domestic sales declined by 8% yoy to 5,554 vehicles whereas exports dropped by 38% to 189 vehicles.
The decline in truck sales is attributed to the postponement of purchases in anticipation of an excise duty cut in the budget.
The management has decided to pass on the benefit of a reduction in the excise duty on buses from 16% to 12% and of the cut in the cenvat on trucks from 16% to 14%. Earlier, Ashok Leyland had announced a price hike of 2.5% in end February 2008. Subsequent to the pass-on of the benefit of the lower duty on trucks, the effective price increase will be only to the extent of 1%.
We maintain our volume estimate at 83,200 for FY2008. However, the management continues to be confident of closing the year with sales of 85,000 plus vehicles.
The outlook for the commercial vehicle industry is expected to be weak for one more quarter. From May/June onwards the base effect should come into play. We maintain Hold on the stock.
Bajaj Auto Cluster: Apple GreenRecommendation: HoldPrice target: Rs2,635
Current market price: Rs2,080
Scheme of demerger
The courts have approved Bajaj Auto Ltd (BAL)'s demerger. March 14, 2008 is the ex-date for the price adjustment and March 25, 2008 is the record date for finalisation of the list of shareholders to be allotted shares in the two other companies. From March 14 BAL would trade on the price attributed to Bajaj Holdings & Investments Ltd (BHIL; also the new name for BAL).
For every one share held in the existing BHIL, the shareholders would get one share of the new BAL of Rs10 each and one share of Bajaj Finserv Ltd (BFSL) of Rs5 each. The new BHIL will hold 30% stake in both the new BAL and BFSL, which are expected to get listed by May 2008.
From 14 March 2008 the price of the existing BAL will get adjusted to that of the existing BHIL. Our sum-of-the-parts (SOTP) calculation attributes a value of Rs1,044 per share to the existing BHIL.
We have fine-tuned our estimates for FY2008 and FY2009 on account of a change in the company's product mix, its higher other income and lower tax rate. The stock is currently trading at 16.6x its FY2009E earnings and 11.6x its enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (EBITDA). We continue to value the stock using the SOTP valuation method and maintain our Hold recommendation with a price target of Rs2,635.
Bharat Heavy Electricals
Cluster: Apple Green
Price target: Rs2,845
Current market price: Rs1,878
Conquering new frontiers
According to media reports Bharat Heavy Electricals Ltd (BHEL) has been awarded the order to supply boiler package for National Thermal Power Corporation (NTPC)'s 1,320-megawatt (MW) Barh stage-II supercritical power project in Bihar. The value of the order has not been disclosed. The breakthrough in the supercritical space would help address the concerns over the company's capability to secure supercritical orders and beat competition.
BHEL has a healthy order book. It has already won orders worth Rs10,583 crore or 3,345MW in Q4FY2008 so far. We expect the order inflow to remain buoyant especially for the projects based on the supercritical technology.
The company has brought on stream an additional manufacturing capacity of 4,000MW during the current quarter, taking its total installed capacity to 10,000MW. The timely expansion of its manufacturing capacity augurs well for the company considering the favourable demand outlook across the globe.
The robust order inflow and timely capacity expansion provide visibility to the company's future earnings. We continue to remain positive on the stock and reiterate our Buy recommendation on it with a price target of Rs2,845.
We believe the recent correction in the stock and the concerns over the company's ability to secure supercritical orders are overdone. The stock's current valuations are extremely attractive. At the current market price it trades at 22.4x FY2009E and 16.5x FY2010E earnings. In terms of enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA), the stock trades at 15.5x and 11.1x its estimates for FY2009 and FY2010 respectively.
Cluster: Apple Green
Price target: Rs1,100
Current market price: Rs825
Key beneficiary of ADC phase-out
Telecom Regulatory Authority of India's (TRAI) move to phase out access deficit charge (ADC) is likely to benefit Bharti Airtel in the range of of Rs180 to Rs200 crore in FY2009. However, The company is likely to pass on the benefits accruing from the ADC removal to the end consumers by way of reduced tariffs or similar benefits.
Trai's move encompasses phasing out ADC from April 1, 2008. However, the component on the international incoming calls would be payable at a reduced rate of Rs0.50 (paise fifty only) for the period from April 1, 2008 to September 30, 2008. From October 1, 2008 this component of ADC would also stand phased out.
Bharti Airtel remains our top pick within the telecom space in view of its strong execution strength and economies of scale. At the current market price the stock trades at 23.5x FY2008 and 19.4x FY2009 estimated earnings. We reiterate our Buy recommendation with a price target of Rs1,100.
Esab India Cluster: Vulture's PickRecommendation: BuyPrice target: Rs575Current market price: Rs460
Buoyant demand to spur growth
For Q4CY2007, ESAB India reported a growth of 11.5% in the net sales to Rs87.7 crore, which was below our expectation.
The consumables division reported a growth of 14.3% year on year (yoy) to Rs62.6 crore. The profit before interest and tax (PBIT) for the division grew by 37.8% to Rs16.5 crore. The equipment division reported a dismal performance with revenues growing by only 5.2% to Rs25.1 crore, while the PBIT for the division grew by 13.2% to Rs4.7 crore.
The operating profit for the company grew by 33.2% to Rs19.2 crore. The operating performance of the company continues to be healthy and the margin reported an improvement of 350 basis points yoy to 21.9%.
The other income grew by 8.1% to Rs2.5 crore. The interest cost declined by 22.2% to Rs0.2 crore, while the depreciation charge rose by 13% to Rs1.6 crore. Consequently, the net profit grew by 31.4% to Rs13.3 crore.
For the full year, ESAB India reported a growth of 19.4% to Rs342.9 crore in the revenues. The operating profit grew by 23% to Rs80 crore resulting in an improvement of 70 basis points in the operating profit margin (OPM) to 23.3%.
The net profit for the year grew by 25.1% to Rs53.4 crore against our full year estimates of Rs57.4 crore.
We believe, the demand for welding products would continue to be buoyant due to the planned investments in core infrastructure sectors like roads, ports, airports, construction and the other industrial sectors in India. ESAB India, the market leader in welding products, is all set to tap this opportunity. Currently, we maintain our estimates for CY2008 and would bring our CY2009 estimates post the annual general meeting (AGM) of the company.
At the current market price, the stock trades at 10.3x its CY2008 earnings per share (EPS) and 5.2x enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA). We maintain our Buy recommendation with a price target of Rs575.
Genus Power Infrastructures
Cluster: Ugly Duckling
Price target: Rs643
Current market price: Rs385
Price target revised to Rs643Genus Power Infrastructure Ltd (GPIL) has bought a 6 mega watt (MW) power generation plant from Genus Power Products Ltd (GPPL). Subsequently, the shareholders of GPPL would receive one fully paid-up share of GPIL for every 60 fully paid-up shares of GPPL currently held by them.
Cluster: Apple Green
Price target: Rs280
Current market price: Rs231
Annual report review
The revenue of Hindustan Unilever Ltd (HUL) grew by 13.3% year on year (yoy) to Rs13,717.8 crore in CY2007 contributed by an increase in its volumes, a better product mix and price hikes effected during the year. Active cost-cutting measures across segments and prudent price hikes led to a 130-basis-point improvement in the company's operating profit margin (OPM) to 13.7%. The net profit of the company increased by 14.9% to Rs1,769.1 crore.
The home and personal care (HPC) business comprising soap & detergent and personal care products (contributing around 73% to the total revenue) continued to show a double-digit growth of 12.2% yoy to Rs10,046.4 crore.
The food business posted a strong growth of 20.4% yoy to Rs2,231.1 crore. The company's innovative and strong brand building capabilities have resulted in strong growth of 15.2%, 39.8% and 17.2% in its beverages, processed foods and ice cream sales respectively. Exports were affected by the appreciation of the rupee and grew by 5% in rupee terms as against a growth in excess of 15% in dollar terms. The company is rationalising its product portfolio by exiting from low-value businesses to improve the performance of the export business going forward.
HUL completed the buy-back of 3.02 crore shares from the open market at an average price of Rs207.13 per share, leading to an outflow of Rs626.27 crore in CY2007. The equity capital reduced by 1.37% to Rs217.7 crore. Total reserves declined from Rs2,502.81 crore to Rs1,221.49 crore in CY2007. This has led to a hefty improvement in the return ratios. While the return on capital employed (RoCE) improved from 72.6% to 102.2%, the return on net worth (RoNW) improved from 61.2% to 85.0% in CY2007.
Better business performance, efficiencies through cost savings across segments and an efficient collection system resulted in strong operating cash flows of Rs1,710.5 crore. Nitin Paranjpe (ex-executive director of the HPC segment) has been appointed as the managing director and chief executive officer (CEO) of the company.
We believe that in CY2008 HUL will continue to face intense competition across categories and high cost pressures. Thus the company would have the challenge of maintaining its market share and margins. We believe cost efficiencies along with measured price hikes are going to be the way forward to combat increased input costs to maintain the margins. At the current market price of Rs231, the stock trades at 24.8x its CY2008E earnings per share (EPS) of Rs9.3. We maintain our Buy recommendation on HUL with a price target of Rs280.
Cluster: Ugly Duckling
Price target: Rs622
Current market price: Rs643
Price target revised to Rs622
The board of directors of ICI India has approved divestment of its adhesives business for a total consideration of Rs260 crore to an Indian affiliate of Henkel group, subject to adjustments for actual working capital and cash balances.
This is in line with AKZO Nobel's (which has acquired 100% stake in ICI Plc, the parent company of ICI India) decision to divest ICI's global adhesives and electronic materials business to Henkel AG.
While ICI's global business is transferred to Henkel AG at a valuation of 2.1X its sales, the Indian adhesive business has fetched 2.3X its expected sales for FY2008. The deal will include transfer of portion of Thane manufacturing facility and about 120 employees currently working with the business and the company's shareholding in its subsidiary Polyinks to Henkel.
We remain positive on ICI India primarily on account of good prospects for paint industry going forward, synergies that would arise on concerted efforts of Akzo Nobel in growing ICI India's business and a huge pile of cash that opens up opportunities for organic and inorganic growth. Valuing the core business at 20X FY2009E earnings per share (EPS) of Rs17.8 (excluding other income) and adding the cash per share of Rs266, we arrive at a fair value of Rs622 for the stock. Thus we raise our price target to Rs622 and put a Hold recommendation. At the current market price of Rs643, the stock trades at 21X its FY2009E EPS of Rs30.9.
Cluster: Apple Green
Price target: Rs1,528
Current market price: Rs757
Clarification on difference in reported marginsWith a view to allay concerns over the difference in margins reported by ICICI Bank, India and the Prudential group UK, ICICI Bank had arranged a conference call to provide clarification.
International Combustion (India)
Price target: Rs519
Current market price: Rs423
Margins surprise positively
After the dismal performance in the second quarter, the Q3FY2008 results of International Combustion India Ltd (ICIL) were inline with our expectation with the revenues reporting a growth of 18.4% to Rs23.1 crore.
The material handling equipment (MHE) division reported a growth of 7.6% year on year (yoy) to Rs17.3 crore, while on a lower base the geared motor & geared box division (GMGBD) reported a growth of 61.5% to Rs5.9 crore. GMGBD revenues are expected to pick up from FY2009.
The operating profit grew by 35.4% to Rs5.2 crore. The operating profit margin (OPM) improved by 280 basis points yoy to 22.3% on account of operating leverage. The net profit was up 59.8% yoy to Rs3.1 crore, inline with our expectation.
The current order book of the company stands at Rs51 crore. Rs41 crore worth of orders are for the MHE division, while the balance Rs10 crore of orders are for the GMGBD. We expect the order inflow to pick up from FY2009 particularly in the GMGBD given the opportunity from the B-2000 series geared motors and geared boxes.
We have fine tuned our FY2008 estimates to factor in the first nine months performance of the company. We maintain our FY2009 estimates and our Buy recommendation with a price target of Rs519.
At the current market price, the stock trades at 9x FY2008E and 7.3x FY2009E. In terms of enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) the stock is quoting at 4.9x and 3.9x FY2008 and FY2009 estimates respectively.
Cluster: Apple Green
Price target: Rs247
Current market price: Rs206
Non-filter cigarette production halted
ITC has suspended the production of non-filtered cigarettes owing to the steep excise duty hike proposed on non-filter cigarettes in the 2008-09 Union Budget. The suspension of the production of non-filtered cigarettes is a temporary action and would be reviewed by the company in the coming months.
ITC has also decided against hiking the prices of filter cigarettes. This along with the reduced availability of the non-filter cigarettes would help the company to capture a large population of smokers shifting from non-filter cigarettes to filter cigarettes.
With no price increase expected in the regular filter cigarettes, we expect the volumes of regular filter cigarettes to increase by 5% to Rs5,408 crore in FY2009.
For Q4FY2008, we expect ITC to register a robust revenue growth of 14.8% year on year (yoy), driven by an improved performance of its non-cigarette fast moving consumer goods (FMCG) and hotel businesses.
At the current market price of Rs206, ITC trades at 20.6x its FY2009E earnings per share (EPS) of Rs9.80. We maintain our Buy call on the stock with a price target of Rs247.
Cluster: Ugly Duckling
Price target: Rs390
Current market price: Rs233
Stake sale in Jaypee Infratech
ICICI Bank buys 1% stake in Jaypee Infratech Ltd (JIL) for Rs250 crore, thereby valuing the company at Rs25,000 crore. This is largely in line with our estimates of Rs24,400 crore. JIL also obtains long term financing of Rs900 crore from ICICI Bank.
The stake sale and closure of long-term financing from ICICI Bank is a positive development both in terms of raising required resources and boosting investor confidence.
At the current market price, the stock is trading at 41x its estimated FY2009 earnings. We have revised the sum-of-the-parts (SOTP) based price target to Rs390 to reflect the de-rating of some of its businesses in line with the prevailing market conditions. We maintain our Buy call on the stock.
Cluster: Emerging Star
Price target: Rs451
Current market price: Rs307
Price target revised to Rs451
KSB Pumps' Q4CY2007 results were slightly ahead of our expectations, both on the top line and the profitability front. The net sales for the quarter rose by 21.7% to Rs131.8 crore. After a couple of disappointing quarters, the profitability improved substantially during this quarter as the overall margin improved by 60 basis points year on year (yoy) and by 770 basis points sequentially to 19.1%. On a segmental basis, the profit before interest and tax (PBIT) margin of the pump division rose to 15.6% (up 220 basis points yoy and 860 basis points sequentially) while that of the valve division stood at 25.1% (down 30 basis points yoy but up 610 basis points sequentially).
We believe that the profitability of the company improved on the back of higher contribution of the project business, which carries higher margins. We understand that the order book of the company in the project business is growing at about 40% yoy. Considering this, we continue to expect strong revenue booking in the subsequent quarters also.
A higher other income, stable interest and depreciation costs, and lower taxes led to a 62.1% growth in the net profit to Rs19.6 crore.
In view of the slower growth this year, particularly in the first nine months, we are downgrading our earnings estimate for CY2008 by 18.8% to Rs32.2. We shall introduce our CY2009 estimate in our subsequent update.
Considering the buoyancy in its user segments, particularly refineries and the power sector, we maintain our positive outlook on the company. At the current market price of Rs307, the stock is trading at 9.5x its CY2008E earnings and is available at an enterprise value (EV)/earnings before interest, depreciation, tax and amortisation (EBIDTA) of 5.2x. We maintain our Buy recommendation on the stock with a revised price target of Rs451.
Larsen & Toubro
Price target: Rs4,428
Current market price: Rs2,728
Hedging loss likely in Q4FY2008Larsen and Toubro (L&T) has indicated that its Middle-Eastern arm, LTFZE, is likely to report a foreign exchange (forex) loss on account of commodity hedging. LTFZE is a 100% subsidiary of the company and is the main investment arm for its international operations. It also undertakes commodity derivative transactions in order to hedge the group's commodity exposure. The forex loss could be to the tune of Rs150-200 crore against a gain of Rs130 crore last year.
Cluster: Apple Green
Price target: Rs70
Current market price: Rs63
Exiting from non-focus business
Marico has exited from its processed food business by divesting its brand Sil to Scandic Food Pvt Ltd, the Indian subsidiary of Good Food Group A/S.
Sil, the no.2 brand in jams (no.1 is Hindustan Unilever's Kissan) in India, has a market share of 8%. The brand was part of Marico's non-focus portfolio, contributing around 1% to the total turnover of the company.
The company is aiming at rationalising its portfolio, so that it can focus on the beauty and wellness segment. This divestment will help Marico to focus on its core beauty and wellness portfolio.
Marico's business model has multiple revenue drivers that make us bullish on the company's prospects. The company also has a strong foothold in the domestic haircare and edible oil markets. In the absence of details of the deal, we would revise our estimates as and when the details are available to us. We remain positive on Marico's businesses and maintain our Buy recommendation on the stock with a price target of Rs70. At the current market price of Rs63, the stock is trading at 18.9x its FY2009E earnings per share (EPS) of Rs3.34.
Maruti Suzuki India
Cluster: Apple Green
Price target: Rs1,230
Current market price: Rs940
Biggest beneficiary of the Budget
Maruti Suzuki Ltd (MSL) is expected to be the biggest beneficiary of the Union Budget FY2009, which has given a fillip to the automobile sector by cutting the excise duty on small cars from 16% to 12%.
The benefit of this reduction in the excise duty has already been passed on to the consumers by MSL. The company has reduced the price of six models that qualify for the lower excise duty by 3.5% each. The positive impact of this reduction should result in a higher demand and become visible in a couple of months, ie from April or May onwards.
The focus on increasing the disposable income in the hands of the consumer by rationalising the personal tax slabs and the recommendations of the Sixth Pay Commission scheduled for April 2008 are expected to spur spending on consumer goods and automobiles. The sedan version of Swift is slated for launch in the last week of March 2008. The "A star" compact car is planned to be launched in October 2008, simultaneously in the export and the domestic market. The success of these products could further fuel the volume growth for MSL. Going forward, we believe the passenger car segment will report a better volume growth compared with commercial vehicles (CVs) and two-wheelers on the back of an increase in the disposable incomes and changing demographics. We are fine-tuning our estimates for FY2008 (due to a slow growth in Q4FY2008) and revising our volume estimate for FY2009. We now expect MSL to report a volume growth of 12.7% for FY2009. At the current market price of Rs940, the stock trades at 12.2x its FY2009E earnings and 7.8x enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (EBITDA). We maintain our Buy rating on the stock and retain Maruti Suzuki as our top pick in the automobile space with a price target of Rs1,230.
Cluster: Apple Green
Price target: Rs620
Current market price: Rs319
Recent order win allays slowdown fearsA Punj Lloyd Ltd (PLL) led consortium with Malaysia's Dialog E & C Sdn Bhd and Petrosab Logistik Sdn Bhd has been awarded an order involving the engineering, procurement and construction (EPC) as well as commissioning of a 512-kilometre, 36-inch diameter onshore natural gas pipeline. The project is expected to commence immediately and be completed over the next 36 months. The order is valued at USD500 million. Though the exact quantum of work for PLL has not been disclosed, PLL is expected to carry out the EPC work of the complete contract. This, we believe, would help address the concerns of a slowdown in the order inflow for PLL.
Punjab National Bank
Cluster: Ugly Duckling
Price target: Rs675
Current market price: Rs508
Is PNB selling stake in PNB Gilts?It has been reported in certain sections of the media that Punjab National Bank (PNB) is planning to sale its stake in PNB Gilts. Currently, PNB holds a 74% stake in the gilt subsidiary whereas financial institutions and public shareholders hold the remaining 26%. Sale of stake is one of the options being considered by PNB for unlocking value of its investment in PNB Gilts. The other available options include a merger of PNB Gilts with PNB and a reduction of the capital base. According to media sources, PNB had decided to opt for merging the gilt subsidiary with itself and had offered to do so at book value. However, PNB Gilts' board of directors felt that the other options would offer better valuation.
Cluster: Apple Green
Price target: Rs558
Current market price: Rs446
Multiple triggers in the offing
Following the reversal of an earlier court ruling, Ranbaxy Laboratories (Ranbaxy) has lost a Canadian appeals court ruling against Pfizer on a patent protecting Lipitor in Canada due to expire in July 2010. Even though the above ruling is not likely to have an impact on Ranbaxy's timeline of launch of generic Lipitor in Canada, it is likely to have a sentimental impact on the stock.
Ranbaxy was the first to file a Para IV abbreviated new drug application (ANDA) with US Food and Drug Administration (USFDA), seeking approval to market Nexium in the USA, ahead of its patent expiry in 2018. Having already received a tentative approval from the USFDA for its generic version of Astra Zeneca's Nexium in February 2008, we expect the final approval to come through in April 2008, upon expiry of the 30-month stay period.
The final approval will allow Ranbaxy to launch the product "at-risk" in the USA with a 180-day exclusivity. Based on our calculations, we believe the Nexium opportunity could yield earnings of Rs21 per share for Ranbaxy. However, we do not believe Ranbaxy would launch the product "at-risk" in the USA. Ranbaxy could attempt to enter into an out-of-court settlement with Astra Zeneca for the launch of generic Nexium. We expect the news flow on the launch options of generic Nexium to act as a short-term trigger for the stock.
Ranbaxy has already announced four exclusivity opportunities until 2010. Based on our discounted cash flow (DCF) calculations, we believe the first-to-file (FTF) opportunities announced so far are collectively valued at Rs2,716 crore, translating into a per share value of Rs68. Further, Ranbaxy has in its kitty, 18 more Para IV filings with potential FTF status, representing a market size of about $27 billion. The company expects to monetise at least one FTF opportunity every year. We expect the news flow on Para IV challenges and associated exclusivity opportunities to continue.
The management has guided towards an impressive 18-20% top line growth in dollar terms in CY2008 and an expansion of the operating profit margin (OPM) to 17.5-18% in CY2008 from 15.1% in CY2007, resulting in a net profit growth of 20-25% in CY2008.
At the current market price of Rs446, Ranbaxy is trading at 20.9x its base CY2008E and 18.2x its base CY2009E earnings (excluding exclusivity opportunities). We maintain our Buy recommendation on the stock with the sum-of-the-parts price target of Rs558 (20x CY2009E earnings of base business plus Rs68 for exclusivity opportunities).
Cluster: Ugly Duckling
Price target: Rs273
Current market price: Rs146
SEAMEC Princess deployed at much higher charter rateSEAMEC has deployed its newly upgraded support vessel "SEAMEC Princess" with Sime Darby Engineering, Qatar at a charter rate of around US$110,000 per day. The charter rate is much higher than the expected rate of US$60,000. The contract has been signed for charter hire and diving operations for a period of six months with an option for extension. It has already become effective from March 01, 2008 and its total value for the firm period is USD19 million approximately.
Price target: Rs1,625
Current market price: Rs966
Capacity additions drive volume growthShree Cement has commissioned Unit VI of 1 million tonne per annum (MTPA) clinker capacity at Bangur, Rajasthan. Thereby the total clinker capacity of the company has increased to 6.5MTPA, while the grinding capacity stands at 9.1MTPA. In FY2008 the company added 2MTPA of clinker and 3.5MTPA of grinding capacity along with 36 mega watt (MW) captive power plants (CPPs) taking the total CPP capacity to 101MW. With the earnings before interest, tax, depreciation and amortisation (EBIDTA) per tonne being the highest in the industry, Shree Cement remains one of the most cost efficient player with a hefty cash flow. Thus out of the total capital expenditure (capex) of Rs850 crore, it funded Rs400 crore through debt while the balance Rs450 crore was funded through internal accruals. The entire capex of the company has now been completed. Even after the completion of the capex, it has cash and equivalents of about Rs800 crore, which we expect to increase to Rs1,500 crore by the end of FY2009.
Sun Pharmaceutical Industries
Cluster: Ugly Duckling
Price target: Rs1,475 Current market price: Rs1,252
Sun Pharmaceuticals (Sun) has received the final approval from the US Food and Drug Administration (USFDA) for its abbreviated new drug application (ANDA) to manufacture and market Amifostine injection 500mg, the therapeutic equivalent of MedImmune's Ethyol. Being the first to file an ANDA for generic Ethyol with a Para IV certification, Sun has been awarded a 180-day marketing exclusivity for the product. We do not exclude the possibility of an at-risk launch by Sun, in which case Sun could generate $14 million in revenues, leading to incremental earnings of Rs1. 4 per share.
The company has received tentative approval for generic Gemzar, for which it had filed an ANDA containing a Para IV certification. Gemzar, or generic gemcitabine injection, is Eli Lilly's anti-cancer drug with annual sales of $680 million in the USA. According to our calculations, the launch of generic Gemzar under exclusivity for 180 days could yield revenues and profits of $51 million and $25 million respectively, translating into incremental earnings of Rs4.8 per share for Sun.
In the last one month, Sun has received three final approvals from the USFDA--for benzonatate capsules, fosphenytoin sodium injection and torsemide tablets. Additionally, Sun has also received tentative approval for divalproex sodium delayed release tablet, which is the generic version of Abbott's anti-epileptic drug, Depakote, with annual sales of $755 million. We expect the final approval for generic Depakote to come through in July 2008, upon the expiry of the patent. However, the market for this product is crowded with numerous players already having tentative approvals and hence we expect the gains from this product to be limited.
There are two positive developments related to Sun's bid to acquire Taro Pharmaceuticals (Taro). On the one hand, Sun has acquired the 9.4% stake of Brandes, which is one of the major institutional investors in Taro and was opposing Sun's bid for Taro. Following the acquisition, Sun's stake in Taro has increased from 25% earlier to 34.4%. On the other hand, Taro, in its declaration of its preliminary unaudited financials for CY2007, has reported a very strong operating performance, which is positively surprising. The Taro acquisition is not part of our current estimate and will provide upside to our FY2010 earnings estimate, if Sun is successful in its bid.
With the base business performing well, clarity on the launch of generic Effexor XR under exclusivity, the receipt of USFDA approval for and the subsequent launch of generic Gemzar, the potential launch of generic Ethyol under exclusivity and the progress on the Taro acquisition will act as near-term triggers for the stock. At the current market price of Rs1,252, Sun is valued at 25.1x FY2008E and 19.4x FY2009E fully diluted earnings. We reiterate our Buy recommendation on the stock with a price target of Rs1,475.
Cluster: Apple Green
Price target: Rs792Current market price: Rs655
JLR deal negative in short term
Tata Motors has entered into a definitive agreement with Ford Motor Company (Ford) to buy the latter's utility vehicle brands Jaguar and Land Rover (JLR) for $2.3 billion (Rs9,200 crore) in an all-cash deal.
The agreement encompasses the two brands, three manufacturing plants and intellectual property rights. The transfer of ownership of the same to Tata Motors is expected to close by the end of the next quarter, subject to applicable regulatory approvals. Tata Motors will fund the purchase with a bridge loan arranged by banks and look to repay these loans by selling off some of its subsidiaries and associates and raising debt. Ford will contribute $600 million towards JLR pension plans.
We feel there is no synergy between Tata Motors' brands and JLR. JLR has a huge research and development (R&D) expenditure and with recession expected in the USA, turning around these luxury brands could be difficult.
This acquisition will have a negative impact on the balance sheet and earnings of Tata Motors in the short term. We would be in a position to revise our estimates only after getting the exact funding details and debt of JLR from the company. We maintain our Hold recommendation on the stock.
Q4FY2008 IT earnings preview
The frontline tech stocks are expected to show a sequential revenue growth of 5-8% during the fourth quarter ended March 2008. The sequential growth is likely to be driven by a 4-7% growth in the volumes aided by the depreciation of rupee by around 90 basis points over Q3FY2008. We expect Satyam Computer to continue with its strong growth momentum and outperform its frontline peers. On the other hand, Tata Consultancy Services (TCS) could lag behind due to customer specific issues, whereas HCL Technologies will face pressure on its earnings growth due to foreign exchange (forex) fluctuation.
Not much pain from yen
The Japanese Yen has appreciated against the US Dollar (USD) all the way to the 97 level. It has appreciated by about 6% during this month alone and is ~21% up from the last year's low touched in June 2007. Against the rupee also the yen has appreciated by 6.4% in the current month till date.
In light of the recent rally in the yen we have tried to assess the impact of the same on the companies under our coverage.
Sharekhan's top equity fund picks
We have identified the best equity-oriented schemes available in the market today based on the following 3 parameters: the past performance as indicated by the one and two year returns, the Sharpe ratio and Fama (net selectivity).
The past performance is measured by the one and two year returns generated by the scheme. Sharpe indicates risk-adjusted returns, giving the returns earned in excess of the risk-free rate for each unit of the risk taken. The Sharpe ratio is also indicative of the consistency of the returns as it takes into account the volatility in the returns as measured by the standard deviation.
FAMA measures the returns generated through selectivity, ie the returns generated because of the fund manager's ability to pick the right stocks. A higher value of net selectivity is always preferred as it reflects the stock picking ability of the fund manager.
Grasim and UltraTech to benefit from capacity addition
Aditya Birla group, comprising of Grasim Industries (Grasim) and UltraTech Cement (UltraTech) has commissioned 6.6 million tonne per annum (MTPA) clinker capacity, 1.3MTPA grinding capacity and a 23-mega watt (MW) thermal power plant. Post timely commissioning of the above mentioned capacities, the volumes will drive the earnings of Grasim and UltraTech. Grasim has commissioned 3.3MTPA clinker capacity at Sambhupura in Rajasthan along with 1.3MTPA grinding capacity at Panipat in Haryana. A 23MW thermal power plant has also been commissioned at Jawad in Madhya Pradesh.
UltraTech, in which Grasim holds 54.09% stake, has also successfully commissioned 3.3MTPA clinker capacity in Andhra Pradesh. UltraTech will also set up captive power plants (CPPs) aggregating to nearly 146MW, of which 96MW will be commissioned during the early part of Q1FY2009 and the remaining 50MW will be commissioned by August 2008. The added capacity will reduce the cost of power and fuel per tonne of cement by almost 6.7%.
Grasim will add another 4.5MTPA capacity at Kotputli in Rajasthan by September FY2009. Of the total cement capacity commissioned by Aditya Birla group, 4.4MTPA capacity is being added by Grasim in northern India, where we believe prices will remain firm until the entire planned capacity for the region for FY2009 comes on stream. Until such time, Grasim will enjoy better realisations coupled with higher volumes. UltraTech has added another 4.9MTPA capacity in south India, where the demand is favorable currently. However as huge capacities are in the pipeline, we believe the prices will soften in the region once the entire planned capacity for FY2009 comes on stream.
Aditya Birla group will benefit vis-a-vis its peers from early commissioning of its capacities, as the total capacity addition in the industry during H1FY2009 will be 25MTPA of which 13.8MTPA comes from Aditya Birla group. This implies that about 53% of the total capacity being commissioned in India during the first half of FY2009 will be that from Aditya Birla group. The group will benefit the most from the firm prices, which we believe will soften once the entire planned capacities for FY2009 come on stream. The remaining 12.2MTPA capacity addition announced by other manufacturers is planned capacity and will not be necessarily commissioned on schedule, which will put Aditya Birla group in an even sweeter spot.
Grasim stands to benefit from both its standalone capacity addition of 8.9MTPA and the 4.9MTPA capacity added by its subsidiary UltraTech in which Grasim holds 54.09% stake. We maintain our Buy recommendation on Grasim with price target of Rs3,853 and UltraTech with price target of Rs1,100.
BKC auction indicates realty slowdownAs per media reports, the Mumbai Metropolitan Region Development Authority (MMRDA) had recently put five plots on auctions in the G-Block of the Bandra-Kurla Complex, comprising two commercial, two residential and a clubhouse. Out of the these five plots, the authority only managed to sell three plots for Rs1,322 crore. Of these three plots, the authority sold one commercial plot, spanning 24,000 square metre, to Jet Airways for Rs826 crore. This implies a selling price of approximately Rs32,000 per square feet (Rs314,467 per square metre) for the commercial plot. This selling price is at a 31.7% discount to the Wadhwa Builders' bid of Rs46,806 per square feet (or Rs503,636 per square metre). It is also interesting to note that Jet Airways was the sole bidder for the commercial plot in the recent auction.
Lakshmi Energy and Foods
Turning over a new Leaf Lakshmi Energy and Foods (Leaf), formerly Lakshmi Overseas Industries, is the largest manufacturer of non-basmati rice in India with a manufacturing capacity of 1.35 million tonne per annum (mtpa). The company has integrated plants of solvent extraction and a cattle feed mill, which along with the recently installed packaging plants will add value to its existing business. It has also implemented India's largest husk fueled power plant with a capacity of 30 megawatt (MW).
Tata Power Company
Bright futureTPC, one of the largest private utility companies, has a strong business model with presence in the power value chain from generation till distribution. The company is also looking at new opportunities by expanding its presence in T&D space and is further strengthening its position as an integrated power utility company. TPC has set a target to increase its capacity from 2,389MW at present to 12,861MW by FY2013. The target to grow five-six folds looks overwhelming, but in our view the target is achievable considering the progress in the projects currently under implementation by the company. One of the challenges for all the power generation utilities has been fuel linkages. TPC's stake in Indonesian coal mine and concession agreement with mines in India (Tubed, Mandakani and Ganeshpur) put it in a strong position on the fuel linkage front. The key risk however remains the highly regulated environment in which the company operates. At the current market price the stock trades at 33.2x FY2009E consensus estimates and 3.3x FY2009E Price/Book value.
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Tata Consultancy Services
Price target: Rs1,250
Current market price: Rs900
Deal flow continues
Tata Consultancy Services (TCS) announced that it has signed a new multi-year contract with Chrysler LLC. TCS will deliver IT application and maintenance support services to Chrysler LLC from various locations around the world. This will be in addition to the ~US$120 million deal the company has signed with Chrysler LLC in February 2008
The following is an interview with Hamid Varzi an economist and banker based in Tehran about the US economic crisis:
Q.Please tell us more about the 2007 subprime mortgage financial crisis and why, how and when it began?
A.The crisis began in 2000 with Bush Jr.'s election that re-established the irresponsible “Supply Side” and “trickle-down” economic policies of the Reagan years. We are wrong to focus only on the subprime crisis, which has been conveniently blown out of all proportion in order to create the convenient and comforting impression that this is a manageable problem solvable through a simple reduction in interest rates and a 90-day government mandated delay on foreclosures (Hillary's recommendation). The subprime crisis presages far greater problems down the road. It is already spreading to other forms of commercial paper, and even if the damage can be contained the relief will be only temporary because a much larger danger is looming on the horizon: The US economy has grown largely on the back of speculative credit derivatives that have risen exponentially to $ 35 trillion, which is more than double the size of the entire US economy! This is an approaching iceberg, and all you've seen (in the sub-prime scandal) is the tip. To return to your question, the first chart below proves that speculative commercial lending received a major boost with Bush's election, and soared with his re-election.
Credit derivative volumes continue to soar. The notional principal outstanding of credit default swaps (CDSs) grew 33% in the second half of 2006, rising from $26 trillion to $34.5 trillion, following 52% growth during the first half of 2006, according to industry body International Swaps and Derivatives Association (ISDA). (Global Finance, June 2007). The ECB confirms the HI 2006 figure of $ 26 trillion. As you will observe, actual growth has far exceeded even the rapid growth foreseen by the British Bankers' Association Credit Derivatives Report 2006 in which ambitious growth targets for 2008, forecasted below, have already been met. The bulk has been 'created' in and by the United States, and only a small portion of this speculative debt relates to subprime mortgage lending:
The Myth of Reaganomics and the Gratuitous Demonization of Clintonomics
The real root cause of the subprime crisis began with Ronald Reagan. Wall Street 'wisdom' hails Ronald Reagan as the last great saviour of US Capitalism. However, supporters of Ronald Reagan seem unable to explain the unprecedented exponential growth of stocks, during Clinton's presidency, on the back of equally unprecedented (= exploding) budget surpluses, a major decline in the Federal Debt and a major strengthening of the Dollar.
Bush raised fiscal irresponsibility to new highs. The charts below explain why the subprime crisis did NOT occur on Clinton's watch:
During Clinton's 8 years he turned a $ 135 billion Bush Sr. deficit into a $ 526 billion budget surplus, he significantly reduced the National Debt and simultaneously presided over a mind-boggling 240 % rise in the stock market. The perspective of strong fiscal discipline encouraged foreigners to invest in the US and the Dollar rose over 20 % as a result of a combination of the above 3 factors.
The US economy projected strength. Now the Dollar is tanking as a natural reaction to policies that totally reversed Clinton's fiscal and monetary discipline. America's fate is at the mercy of foreign investors (China, India, Russia and many others with around 10 % annual GDP growth) which are getting stronger by the day and represent the economies of the future.
Q.What was the role of investment banks and mortgage lenders in creating the crisis? Do you think any fraud had happened?
A. No, as far as the investment banks were concerned there was no fraud, just plain greed, ignorance, irresponsibility and stupidity. Even, the SocGen $ 7.2 billion scandal was simply due to the ambitions of one young man trying to make a name for himself by speculating with his Bank's money. Investment bankers tend to be 'cowboys' and 'gamblers' salivating at the prospect of gigantic bonuses when they succeed, and many of whom simply move on to the next bank when they fail (Nick Leeson of Barings Bank was an exception, but only because he actually bankrupted the bank! But I don't believe M. Kerviel has even been charged; he was arrested and then released!).
As for the US mortgage lenders, their 'irresponsibility' bordered on 'fraud', because they lent money to people who obviously couldn't pay, simply in order to earn higher commissions/fees. If you place a knife in the hand of a 2-year old child and it cuts itself it is you, and not the child, who has been criminally negligent, particularly if you have benefited from the child's discomfort as did the mortgage lenders.
Q. Have the world weathered the crisis? If not what are your predictions and prescriptions?
A.Yes, the world has indeed weathered the crisis, because the US sold only about 20 % of its economic toxic waste to the rest of the world. Most importantly, the nations which bought America's toxic waste have suffered financial losses only among their financial institutions, not among the general population which, in most industrialized countries, has to make a 30 % mortgage cash down-payment and provide solid evidence of regular financial income before being granted a mortgage. Not one home-owner in Germany or France or England faced foreclosure because of what happened in the US.
This actually demonstrates how quickly global economies are decoupling from the US economy. The US has a $ 9 trillion National Debt and a net $ 3 trillion foreign debt, so obviously any crisis is going to hit indebted countries far harder than nations flush with cash (Russia, China, India, Japan, the 'Tigers' and Western Europe). The US is in deep fundamental, historical trouble.
Q.What is its impact on the world economy?
A.Greater controls will be imposed by governments across the globe to discourage financial speculation, which is a 'good thing'. Banks will refocus on trade and export finance rather than on gambling. The world economy will cool off (which will reduce some of the speculative excesses such as the current oil and gold prices).
Q.How will it influence the life of ordinary people across the globe, especially those at the bottom of the economic ladder in the US and Europe?
A.Those at the bottom of the economic ladder in Europe are about 10 rungs above their counterparts in the US, so the effect will be negligible compared with the economic hardships to be faced continually by those at the bottom of the US economic ladder. Even setting aside the subprime crisis for a moment, US households are more in debt, generally, than at any time since the 1930s Great Depression. The US Wealth Gap and the US Household Savings rate are both at Great Depression extremes despite an extended period of global economic growth:
Here is the chart confirming a NEGATIVE savings rate, = - 1.5 %
Q. Do Asian economies including China, India, Malaysia and even Iran expect its ramifications?
A. As mentioned above, this is a US crisis because the US does not currently have the fiscal means, the monetary means or the political will to solve it: Nothing will improve unless and until fundamental measures are adopted by the next US Administration similar to those adopted by Bill Clinton (see charts above).
Q.Why has the US Dollar gone into a spiral of decline?
A.Mainly because it has to borrow $ 3 billions each and every day from foreigners to finance its massive current account deficit and its war machine. Foreign nations have become nervous at the annual 10 % deterioration in their Dollar holdings. Foreigners don't even need to reduce their Dollar reserves to precipitate a Dollar crisis; they can do so merely by refusing to increase their holdings, i.e., refrain from participating in further US Treasury auctions.
Q.There are two views about the impact of the dollar decline on the US economy: one holds that it would eventually benefit the US economy through boosting exports while others believe that it damage the US economy. What is your opinion?
A.The export view is sheer unadulterated nonsense. The Dollar has been in fundamental decline since the end of WWII, as has its trade deficit!!! A weak currency is not a panacea for economic health. It merely delays the inevitable drive to increase competitiveness, as demonstrated by Germany which has again become the world's No. 1 exporter despite an 80 % appreciation in the Euro since 2001! The drop in the Dollar has, on the contrary, caused only a minimal reduction of its annual $ 750 billion trade deficit, which proves that US lack of competitiveness is truly endemic and not a function of exchange rates.
A weak currency also boosts inflation as imports become more expensive. In America's case it represents a 'double whammy' because, while imports become more expensive they are unavoidable since the US doesn't produce many of the consumer goods it needs.
Q.Would the dollar's depreciation lead other countries to switch to other main currencies and given that the US Dollar is a fiat currency could such a move further fuel the dollar's decline?
A.They already have! Countries are realizing (ours a little late, but better late than never!) that the US Dollar is in fundamental imperial decline: From a peak of 121 shortly after Clinton left office the Dollar index has been swooning with no end in sight. Yes, Reagan boosted the Dollar temporarily, but only by raising the Prime Rate to a massive 21.5 % to attract foreign aid (sorry, foreign 'capital')! Here is another chart, this time of the Dollar's seemingly unstoppable decline against a basket of international currencies (trade-weighted index):
Q.What will be the impacts of the US dollar decline on Iran's economy?
A.Not much. Iran's own economic policies (or lack of)influence our nation's economic health far more significantly than the Dollar exchange rate.
Q. What will be the impacts of the US presidential elections on the US economy?
A.There will definitely be a massive change, with a return to the much maligned 'Clintonomics' if either Hillary or Obama wins, as I personally predict. The Dollar will strengthen, by which I mean that it will reverse some of its losses, but not that it will re-emerge as the fiat currency. The deterioration in the US fiscal and current account deficits will be stemmed as the US increases taxes, reduces budget wastage, redistributes wealth more fairly and severely reduces military spending on the back of a partial or withdrawal from Iraq which has already cost $ 2 trillion according to 2001 Nobel Economics Prize Winner Joseph Stiglitz.
If McCain wins, after a brief relapse the Euro will strengthen to $ 2.00 from its current rate of $ 1.48, because McCain will be just another Republican spendthrift unable to offload the party baggage (the “special interests”), no matter how 'fiscally responsible' he sounds on the surface. But I doubt he will win.
Q.Do you think the Iranian decision to cut its ties with the greenback and Tehran's call on its importers of crude to pay in non-dollar currencies have adversely contributed to the Dollar nosedive?
A.Definitely, because it was not so much the nominal sums involved, which are paltry by global comparison, but the psychological effect of the move which encouraged others to follow suit.
Q.Should one consider the US crisis as an opportunity for booming economies like India and China to assume a more important role in the world's markets?
A.They already have. The US is totally dependent on China's goodwill. If the US were to ban all imports from China tomorrow morning the US economy would suffer a heart attack as it would have to import those same goods more expensively from elsewhere. In retaliation, the Chinese would sell their surplus Dollar mountain and precipitate a global economic depression. The emerging economies would be better able to withstand such an Armageddon scenario because they are accustomed to hardship, while decadent US consumers are already bankrupt despite an environment of extended global economic growth. The US would probably suffer riots, internal conflict and starvation for the first time in 80 years. Emerging economies are used to economic hardship and even war. The US is much more fragile than its leaders and economic pundits admit. There is a huge fundamental and conceptual difference between a) going from recession to depression (the USA), and b) going from 10 % + economic growth to a more reasonable 3 % economic growth (Russia, India, China, ….).
Cluster: Ugly Duckling
Price target: Rs43
Current market price: Rs35
March sales not indicative of revival trend
Ashok Leyland's total vehicle sales during March 2008 grew by 26.7% to 10,698 units from 8,444 units in the same month a year ago. The sales in the domestic market grew by 20%, whereas exports were up by 128% for the month. The surge in sales can be attributed to the year-end push in domestic sales and pending export orders.
For FY2008 sales are at 83,309 vehicles, in line with our estimate of 83,200 units. For the same period, export sales have grown by 21% to 7,286 units whereas the domestic sales have declined by only 1.3% to 76,045 units leading to gain in the market share.
Ashok Leyland had announced a price hike of 2.5% in end February 2008 to offset the input price increase. Also, the management decided to pass on the benefit of a reduction in the excise duty on buses from 16% to 12% and of the cut in the cenvat on trucks from 16% to 14%. So, the effective price increase has been only to the extent of 1%. Ashok Leyland has recently concluded an external commercial borrowing programme of US$200 million. This is the largest ever loan taken by the company in a single transaction till date. The loan will partly fund the requirements of the company to meet its expansion plans and overseas investments.
Ashok Leyland has a huge capital expenditure (capex) plan of ~Rs2,000 crore for the next two to three years. It has planned capex to expand its existing capacity and to set up a new manufacturing facility at Uttarkhand. Further additional investment will be required for its light commercial vehicle joint venture with Nissan.
The stock price has corrected substantially, thereby providing decent upside to our price target of Rs43. However, we would review our recommendation afer the announcement of Q4FY2008 results, clarity on the investment in the joint venture with Nissan and impact of the higher raw material prices. Currently we are maintaining our Hold recommendation on the stock.
BHEL a good quality stock
CNBC-TV18’s Executive Editor, Udayan Mukherjee –
Somebody sold BHEL yesterday, offloaded large chunk of stock. Lot of reasons followed but I don’t think the reasons led the fall down, it was just demand supply mismatch. A lot of stock suddenly came into the market, may be one institutional player sold out, we keep hearing names but we don’t know, so we won’t say. But there have been 3-4 downgrades in BHEL over the last 1-1.5 months from influential brokerages and price target cuts.
I think people are a bit concerned about what happened in Q3, results were not good for BHEL and they are concerned that when they will come out with their provisional numbers later this week, there might be some what’s on the margin fronts because firstly of the raw material pressures and secondly metal prices have gone up significantly, and pay commission salary hikes. Legitimate fears too may be that margins will not be same as BHEL as they have enjoyed over the last couple of years and for which the stock is getting a mild derating. It’s not a cheap stock. It has fallen from Rs 2,900 to Rs 1,900 but even so it’s trading at Rs 22 times next years earnings and it is not the cheapest stock in the market, which is trading at 15 times. So I think it can lose another 10-15% if somebody is standing there to sell large blocks of stock without looking ridiculously cheaper but it’s a good quality stock probably there are concerns out there.
Axis Bank has corrected 45% from its peak Rs 1,300 to Rs 720, trades now at only 2.7 times book that’s a big come off from 4.5 times book it was trading at. Can it fall to 2.5 times book? That is another 10% which is quite possible in this kind of a market. But around that benchmark levels of 2.5 times price to book, you ought to be looking at some of these good quality private sector banks like Axis and HDFC Bank. So some people would be sniffing an opportunity out there, if the stock plunges below Rs 700, which is entirely possible in this kind of a market. But it is good to keep in perspective that valuations have adjusted quite significantly in Axis Bank.
Bulls unable to defend upmoves We had an apology of a rally today. After all the excitement of the morning when we walked in with nearly a 400-point Dow rally under our belt with most Asian markets leaping 3-4%, the way we closed today is so disappointing.
We started of course in grand fashion like the rest of Asia, leaping 600 points straightaway. The Nifty went up above 4900 in opening trade. It looked like we may be able to hold on to our gains as short covering kicked in later in the day, but it was not to be. It just tells you, how deep the lack of conviction in the market right now is. It doesn’t matter if we get good tailwinds from global markets, upmoves are just not lasting. People take profits at the smallest of gains, shorts get opened up at higher levels and the bulls are not able to defend any of these upmoves. So, it was a very disappointing end of the session today. For a session that started with a bang, it really ended with a bit of a whimper.
The Sensex finally closing around 15,700 barely 100 points up. The Nifty was almost flat, after starting the day nearly 200 points up. So, it went above 4900, just about managed to close around that 4750 mark.
The breadth was okay about 900 to 300, no complains there. But the midcap index could not strike out anything by way of gains. It was just about flat. Volumes were pathetic. Yesterday was Rs 44,000 crore; today it is about Rs 43,000 crore. Trade has really dipped in the last few sessions. On volatile days, on strong days, it doesn’t matter. Volumes are just completely absent.
A few stocks that stood out in weakness and might have dragged the market down were some of those metals once again, Tisco, SAIL, continuing to be under pressure with fears of government interference in pricing. BHEL had another very ordinary day out there. Reliance Energy did not look very strong today. Some of the FMCG heavyweights, Hindustan Unilever and ITC took the day off and Cairn wasn’t particularly strong, offset in part by some strength in stocks like ICICI, HDFC. A few of the technology stocks did not look too bad and neither did stocks like Hero Honda or Suzlon.
On the midcaps, we had a listing today from Indiabulls Securities. It did not list well at all and finally closed the day below the Rs 100 mark having started the day closer to the Rs 140-150 level. It is quite disappointing the way Indiabulls Securities listed. I think people would have expected more.
There were a few howlers like GSS America, which collapsed 20% after all the run-ups of the last couple of days. A few infrastructure stocks did not look too bad today, whether it is Lanco or JP Associates or GMR or Punj Lloyd, they managed to strike out some modest gains. A few financial stocks like Indiabulls Finance and Reliance Capital did okay and a few sparklers like HOEC (Hindustan Oil Exploration), the oddHDIL or India Cement. But otherwise, it was a forgettable session completely for the market. It has been more disappointing than encouraging despite the 100-point gain that you see on the Sensex.
Famous quotes of Dhiru Bhai Ambani
From beginning Dhirubhai was seen in high-regard. His success in the petro-chemical business and his story of rags to riches made him a cult figure in the minds of Indian people. As a quality of business leader he was also a motivator. He gave few public speeches but the words he spoke are still remembered for their value.
"" With the force of 3million investors RIL will reap the title "World's Biggest Company"
*"Tax is for the poor or the stupid people."
*"I am deaf to the word "no"."
"Growth has no limit at Reliance. I keep revising my vision. Only when you dream it you can do it."
"Think big, think fast, think ahead. Ideas are no one's monopoly"
"Our dreams have to be bigger. Our ambitions higher. Our commitment deeper. And our efforts greater. This is my dream for Reliance and for India ."
"You do not require an invitation to make profits."
"If you work with determination and with perfection, success will follow."
"Pursue your goals even in the face of difficulties, and convert adversities into opportunities."
"Give the youth a proper environment. Motivate them. Extend them the support they need. Each one of them has infinite source of energy. They will deliver."
"Between my past, the present and the future, there is one common factor: Relationship and Trust. This is the foundation of our growth"
"We bet on people."
"Meeting the deadlines is not good enough, beating the deadlines is my expectation."
"Don't give up, courage is my conviction."
"We cannot change our Rulers, but we can change the way they Rule Us."
"Dhirubhai will go one day. But Reliance's employees and shareholders will keep it afloat. Reliance is now a concept in which the Ambanis have become irrelevant."
The stock market is like a gregarious, uncertain beast – you can never predict which turn it's going to take or which direction it is headed for. Having said that, let us also admit that the stock market is one of the most exciting markets in the world that can make your fortunes if you play it right.
And, if you want to play the stock market right, you have to figure out how it ticks. Here then are basics and fundamentals of a stock market that will clue you on:
What Is A Stock Market?
A stock market is a trading place where you can buy and sell stock (shares) issued by a company. Alternatively, you can also trade in several derivative products, which are basically financial instruments in the form of contracts, where the parties to the contract agree to exchange payments based on the value of a share at a future date.
Stock Market Trading Explained
Many individuals and entities trade in the stock market. Small investors, day traders who square up their transactions on the same day, investment/financial companies, banks, hedge funds, individuals with a high net worth, institutions, mutual funds – all are involved in stock market trading.
These individuals and entities place their buy or sell orders through a market intermediary, called the stockbroker. Majority of the transactions are routed through a network of computers that execute orders in a matter of seconds.
Stock Market Strategies
In the stock market, you can buy and sell the stocks you own. Besides this, there are several strategies such as short-selling, which means you do not own the stock, but sell it nevertheless (by borrowing it from your broker at a fee) because you feel its price is going to drop – and when the price does drop, you buy it back. Plus, you can buy or sell stocks at a future date if you trade in the derivatives market. Then, you can also indulge in margin buying, which in simple terms means you borrow money to buy stocks, thereby exposing yourself to debt.
Stock Market Index
The stock market index is a value, determined by the stock exchange authorities, that reflects the market's movement. This value is based on a handful of high-volume and reputed stocks – these are weighed and a number is given to them. This number or value fluctuates according to the movement in the prices of these stocks and this is what indices such as the Dow Jones, the NASDAQ, the S & P (Standard & Poor) are all about.
Methods That Influence Investment Decisions
There are two methods that can influence investment decisions in a stock market: (i) Fundamental analysis is a method, wherein the companies past and current performance is analyzed along with the factors that will affect its future profitability. Medium-long term investors invest on the basis of fundamental analysis. (ii) Technical analysis is another method that studies the correlation of price and volumes over a span of time and then gives a buy or a sell signal on the basis of this correlation.
There, those were basics of the stock market. If you want to trade successfully, then you have to understand how the stock market works, because there is no other way, no other shortcut. Happy trading.
The return that a stock can provide is often predicted with the help of technical analysis. Stock market trading tips are based on technical analysis of various parameters.
Stock market analysis is science of examining stock data and predicting their future moves on the stock market. Investors who use this style of analysis are often unconcerned about the nature or value of the companies they trade stocks in. Their holdings are usually short-term - once their projected profit is reached they drop the stock.
The basis for stock market analysis is the belief that stock prices move in predictable patterns. All the factors that influence price movement - company performance, the general state of the economy, natural disasters - are supposedly reflected in the stock market with great efficiency. This efficiency, coupled with historical trends produces movements that can be analyzed and applied to future stock market movements.
Stock market analysis is not intended for long-term investments because fundamental information concerning a company's potential for growth is not taken into account. Trades must be entered and exited at precise times, so technical analysts need to spend a great deal of time watching market movements. Most stock tips and recommendations are based on stock analysis methods.
Investors can take advantage of these stock analysis methods to track both upswings and downswings in price by deciding whether to go long or short on their portfolios. Stop-loss orders limit losses in the event that the market does not move as expected.
There are many tools available for stock market technical analysis. Hundreds of stock patterns have been developed over time. Most of them, however, rely on the basic stock analysis methods of 'support' and 'resistance'. Support is the level that downward prices are expected to rise from, and Resistance is the level that upward prices are expected to reach before falling again. In other words, prices tend to bounce once they have hit support or resistance levels.
Stock Analysis Charts & Patterns
Stock market analysis relies heavily on charts for tracking market movements. Bar charts are the most commonly used. They consist of vertical bars representing a particular time period - weekly, daily, hourly, or even by the minute. The top of each bar shows the highest price for the period, the bottom is the lowest price, and the small bar to the right is the opening price and the small bar to the left is the closing price. A great deal of information can be seen in glancing at bar charts. Long bars indicate a large price spread and the position of the side bars shows whether the price rose or dropped and also the spread between opening and closing prices.
A variation on the bar chart is the candlestick chart. These charts use solid bodies to indicate the variation between opening and closing prices and the lines (shadows) that extend above and below the body indicate the highest and lowest prices respectively. Candlestick bodies are coloured black or red if the closing price was lower than the previous period or white or green if the price closed higher. Candlesticks form various shapes that can indicate market movement. A green body with short shadows is bullish - the stock opened near its low and closed near its high. Conversely, a red body with short shadows is bearish - the stock opened near the high and closed near the low. These are only two of the more than 20 patterns that can be formed by candlesticks.
When glancing at charts the untrained eye may simply see random movements from one day to the next. Trained analysts, however, see patterns that are used to predict future movements of stock prices. There are hundreds of different indicators and patterns that can be applied. There is no one single reliable indicator, but these stock analysis methods when taken into consideration with others, investors can be quite successful in predicting price movements.
One of the most popular patterns is Cup and Handle. Prices start out relatively high then dip and come back up (the cup). They finally level out for a period (handle) before making a breakout - a sudden rise in price. Investors who buy on the handle can make good profits.
Another popular pattern is Head and Shoulders. This is formed by a peak (first shoulder) followed by a dip and then a higher peak (the head) followed again by a dip and a rise (the second shoulder). This is taken to be a bearish pattern with prices to fall substantially after the second shoulder.
Other Stock Market Analysis Methods
Moving Average - The most popular indicator is the moving average. This shows the average price over a period of time. For a 30 day moving average you add the closing prices for each of the 30 days and divide by 30. The most common averages are 20, 30, 50, 100, and 200 days. Longer time spans are less affected by daily price fluctuations. A moving average is plotted as a line on a graph of price changes. When prices fall below the moving average they have a tendency to keep on falling. Conversely, when prices rise above the moving average they tend to keep on rising.
Relative Strength Index (RSI) - This indicator compares the number of days a stock finishes up with the number of days it finishes down. It is calculated for a certain time span - usually between 9 and 15 days. The average number of up days is divided by the average number of down days. This number is added to one and the result is used to divide 100. This number is subtracted from 100. The RSI has a range between 0 and 100. A RSI of 70 or above can indicate a stock which is overbought and due for a fall in price. When the RSI falls below 30 the stock may be oversold and is a good time to buy. These numbers are not absolute - they can vary depending on whether the market is bullish or bearish. RSI charted over longer periods tend to show less extremes of movement. Looking at historical charts over a period of a year or so can give a good indicator of how a stock price moves in relation to its RSI.
Money Flow Index (MFI) - The RSI is calculated by following stock prices, but the Money Flow Index (MFI) takes into account the number of shares traded as well as the price. The range is from 0 to 100 and just like the RSI, an MFI of 70 is an indicator to sell and an MFI of 30 is an indicator to buy. Also like the RSI, when charted over longer periods of time the MFI can be more accurate as an indicator.
Bollinger Bands - This indicator is plotted as a grouping of 3 lines. The upper and lower lines are plotted according to market volatility. When the market is volatile the space between these lines widens and during times of less volatility the lines come closer together. The middle line is the simple moving average between the two outer lines (bands). As prices move closer to the lower band the stronger the indication is that the stock is oversold - the price should soon rise. As prices rise to the higher band the stock becomes more overbought meaning prices should fall. Bollinger bands are often used by investors to confirm other indicators. The wise technical analyst will always use a number of indicators before making a decision to trade a particular stock.
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- ► April (29)