Saturday, 20 September 2008

IT all began with the sub-prime crisis.

If you lost your money in the market crash of January 2008, here's the route to your loss, in chronological order.

2001-2005: House prices in the US begin to rise rapidly. Banks lend aggressively and create a subprime industry.
Sub-prime lending refers to lending (at slightly higher interest rates) to people who may not be eligible for a loan under normal circumstances. Maybe they don't have a regular job or income, or have defaulted in the past.
Banks traditionally did not lend to such people due to high risk of default. But since these loans were mortgaged against property and property prices were rising continuously, banks started doing so. If customers defaulted, they good sell the mortgaged property.

2005: The booming housing market halted abruptly in many parts of the US.

2006: Prices are flat, home sales fall.

February 2007: Sub-prime industry collapses in the US; more than 25 sub-prime lenders declare bankruptcy, announce significant losses, or put themselves up for sale.
While they were lending, banks did not factor in the possibility of a fall in property prices. When the Federal Bank (the US equivalent of RBI) started increasing interest rates, the sub-prime borrowers started defaulting and banks started selling off the mortgaged properties. As more and more properties came into the market for selling, the property prices fell.

August 2007: Many leading mortgage lenders in the US filed for bankruptcy

March 2008: Bear Sterns falls.

September 2008: Lehman Brothers file for bankruptcy. Merrill Lynch sells off to Bank of America.

Between 2001 and 2006, the US financial markets had developed a new product - a bond securitised against the mortgages.
In simple terms it means that the mortgage banks borrowed money against the mortgages on the condition that they would repay to lenders as soon as they recovered their mortgages. The lenders in this case were financial institutions (like Bear Sterns, Lehman and Merrill Lynch) who in turn sold retail bonds to individuals.
Sadly, the repayment never happened. And institutions like Bear Sterns, Lehman, Merrill Lynch and AIG were the casualties. Since the mortgages were not honoured, the banks could not repay these financial institutions who in turn could not repay retail investors

ICICI Bank can rally upto Rs 625-630: Gujral

Technical Analyst, Ashwani Gujral is of the view that ICICI Bank can rally upto Rs 625-630.
Gujral told CNBC-TV18, "ICICI Bank hits a key support zone between Rs 500-550. The stock when it falls 10% on rumours of management selling, that is probably a good time to buy into that. It was at Rs 700 just seven days back. So, I think you could see a rally right up to Rs 625-630."
He further added, "Ranbaxy has seen a lot of bad news. Even Rs 350-360 is a good level from a medium-term perspective. It will take some time to recover. But you could get resistance around Rs 425-430."


Above Rs 400, ICSA has target of Rs 900: Agarwal

Sanjeev Agarwal of Globe Capital Market is of the view that above Rs 400, ICSA has target of Rs 900.
Agarwal told CNBC-TV18, "ICSA India is a good company; fundamentally it is in a right space. They are providing solutions to the electricity boards and they are in the power space. So a lot of reforms are getting in and all these electricity boards require these kinds of expertise, which opens up a huge market for this particular company."
He further added, "Technically this company has been outperforming and it has a sideways kind of a structure. Right now we are seeing a range between Rs 200 and Rs 400. Once it crosses Rs 400, we are looking at a target of somewhere around Rs 900 for that. So this seems to be an extremely bullish pattern, which is unfolding. The breakout of that is somewhere around Rs 395-400." Disclosure: Analyst doesn't hold the above stock but have recommended it to the clients.


Shiv Vani Oil has target of Rs 725: Gumashta

Abhishek Gumashta, Research Analyst of Sharekhan is of the view that Shiv Vani Oil & Gas Exploration Services has target of Rs 725.


Accumulate banking stocks: Choksey

According to Deven Choksey of KR Choksey Securities in falling market banking should be accumulated.
Choksey told CNBC-TV18, "For me I think bank is a good holding into the portfolio, so as far as the investment is concerned there is no question of looking back into the banking stocks. You would have such kind of jerks coming in because of what has happened to ICICI Bank but market has probably overdone most of the time in such kind of situation. Even in case of ICICI Bank, if one looks at it, I think if one has to factor the full Mark to Market (MTM) provision for whatever outstanding that they have into the overseas market, including Lehman's outstanding position, then I think also the maximum amount of loss per share for ICICI would be not more than Rs 8/share."
He further added, "If you see the loss of market capitalisation it is something very substantial. So I would say that in such situation, given the kind of merits with the banks like ICICI, I would venture into some kind of a buying at lower levels and not sell my portfolio, which I am holding into the baking stock particularly with the PSU banking stock like State Bank of India. So my position is very clear in falling market banking should be accumulated."
Disclosure: It is safe to assume that analyst and his clients may have an investment interest in the above stock/sector.


Buy ICICI Bank on dips: E Mathew

Technical Analyst, E Mathew is of the view that one should buy ICICI Bank on dips.
E Mathew told CNBC-TV18, "At a cursory glance, ICICI Bank just looks like a squeeze but I should say chaotically there is still quite a long way to go though it has been a magnificent move up today. I think, it could be a buy on dips strategy now for ICICI Bank and an important bottom has been made in place. If one has got a heart especially if one could get the stock somewhere round about Rs 590-595 zone, this stock could provide great opportunity not only for traders but as well as investors. The target for this move is surely somewhere round about Rs 685-700 zone."
Disclosure: It is safe to assume that analyst & his clients may have an investment interest in the stocks/sectors discussed.


Bannari Amman Sugars: Buy

The sugar cycle is on the verge of an upturn, with the sharp contraction in sugarcane acreage pointing to lower sugar output and tighter supply over the next couple of years. With sugar prices already beginning their ascent, producers can look forward to a sharp improvement in realisations and profitability over the next couple of years.
The stock of Bannari Amman Sugars (Rs.824), offers a good investment opportunity for those looking to take advantage of the likely earnings momentum in the sugar sector. Facilities located mainly in Karnataka and Tamil Nadu and a history of good relations with farmers ensure that Bannari Amman Sugars enjoys access to adequate quantities of cane even in a deficit year.
Hindu BusinessLine

Shree Cement: Buy

Hindu BusinessLine have put a buy rating on Shree Cement. The sharp de-rating of cement stocks, due to concerns about limited pricing power, has trimmed valuations for producers such as Shree Cement.
Investors who bought the stock on our earlier recommendation should hold on, given the prospect of upside linked to better valuations. The stock can be accumulated by investors willing to hold on for a 3-year time frame.

PINC puts 'buy' on Everest Kanto for target Rs 385

MUMBAI: PINC Research has initiated ‘buy’ on Everest Kanto Cylinder for a target price of Rs 385. The company is a leading manufacturer of high pressure seamless cylinders for both industrial and compressed natural gas (CNG) uses. Besides serving domestic market, it also exports to countries across S.Asia, M.East and CIS.

Economic Times

IT stocks could be preferred investors' choice: analysts

MUMBAI: IT stocks could be the preferred investors' choice due to rupee depreciation and hopes of improvement in global market sentiment after the intervention of the US Federal Reserve for rescuing insurance giant AIG, according to market analysts. The persistent global financial turmoil is likely to ease following prompt efforts by the US government. And coupled with rupee’s weakness against the greenback, this can be seen as a positive trigger for IT stocks as the sector's revenue visibility is expected to improve, HDFC Securities, Head Retail Research, Deepak Jasani said. “The US financial crisis may be coming to end temporarily and sales orders would be visible for the IT companies in the near future,” he said. A weaker rupee would also help the sector earn more margins on their future orders, Jasani added. Echoing similar sentiments, an analyst with a leading broking house said this is the right time to enter the market and IT sector could be one of the better options as yields are more or less based on company profile in the current scenario. However, SBI Capital Securities’ Head of Research, Anil Advani, said, "Market is yet to come out of the adverse global financial crisis but the companies having less exposure can be a better option for the investors." Most of the IT stocks, on Wednesday, surged during the day on fresh buying, despite a down trend in the market, after a sharp fall in rupee and reports of softening credit crisis. Early buying also emerged in the tech counters on hopes that a weaker rupee would help the sector regain some of the lost sheen. IT sectoral index on BSE was one of the least affected indices that ended with a marginal negative gap. However, it moved up over 2 per cent in the afternoon and most of the IT stocks traded with a comfortable positive gap for most of the time during the session. Wipro was the top gainer ending up 2.04 per cent at Rs 399.75. Infosys Technologies ended up 0.75 per cent at Rs 1576.00, after moving up 3.6 per cent at Rs 1,612.10. However, Satyam Computer Services closed 1.91 per cent down and TCS down by 2.77 per cent. Continuous depreciation of rupee, to nearly 47.00 level on Tuesday, has raised hopes of improvement in IT stocks, which were hit badly in the last couple of years when the Indian unit kept on appreciating, according to market analysts. The partially convertible Indian currency fell to 46.98 against the dollar--its weakest level since July 24, 2006, on increasing demand from banks earning arbitrage between domestic and offshore markets amidst fluctuating sentiments in the stock market. Sustained high demand from oil companies and the banks indulged in non-deliverable forward contracts resulted in a sharp depreciation of rupee against the greenback this year due persisting global financial crisis but has raised hopes for companies much dependent on rupee movement, marketmen observed.
Economic Times

US rescue plan seeks $700 bn to buy bad mortgages

WASHINGTON: The Bush administration is asking Congress to let the government buy $700 billion in toxic mortgages in the largest financial bailout since the Great Depression, according to a draft of the plan obtained on Saturday by a news agency. The plan would give the government broad power to buy the bad debt of any US financial institution for the next two years. It would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue. The proposal does not specify what the government would get in return from financial companies for the federal assistance. "We're going to work with Congress to get a bill done quickly," President Bush said at the White House. Without discussing details of the plan, he said, "This is a big package because it was a big problem." The White House and congressional leaders hoped the developing legislation could pass as early as next week. Administration officials and members of Congress were to negotiate throughout the weekend. The plan is designed to let faltering financial institutions unload their bad debt on the government, and in turn the taxpayer, in a bid to avoid dire economic consequences.

Economic times

Comeback, and How!

The market rallied sharply, up 726 points, to close marginally above the 14,000 mark due to sharp appreciation in realty and information technology stocks.

After a subdued trend in the last few sessions, the market staged a solid comeback today. The bulls were back in action after closing flat yesterday.
Taking lead from buoyant international markets, the Sensex started the day at 13,764 (448 points above its previous close) on the back of strong buying in heavyweights, realty, information technology, Teck, oil & gas, power and banking stocks. At its day's high of 14,097 by afternoon, the Sensex closed the session 727 points higher at 14,042 and Nifty advanced 207 points to close at 4,245.
The market breadth was highly positive, Of the 2,700 stocks traded on the BSE, where 1,888 stocks advanced only 740 stocks declined. 72 stocks ended unchanged. All the sectoral indices notched up significant gains. BSE Realty index was the biggest gainer and soared 7.59% followed by BSE IT index (up 6.67%), BSE Teck index (up 5.86%), BSE Oil & Gas index (up 5.52%), BSE Power index (up 5.16%), BSE Bankex (up 5.03%) and the BSE CD index (up 4.72%).
Barring few, all the stocks in the Sensex basket ended at higher levels. Satyam Computer Services led the upsurge and flared 10.48% at Rs370.10. Among the other major gainers ICICI Bank surged 9.07% at Rs628.10, HDFC Bank moved up by 8.32% at Rs2308.45 and Tata Power advanced 8.30% at Rs1,027.30. DLF vaulted 7.78% at Rs426.90, ONGC shot up by 7.30% at Rs1072.10, Infosys Technologies added 6.59% at Rs1,623.85 and Tata Consultancy Services rose 6.37% at Rs766. However, HDFC Bank, BHEL, Reliance Industries, Jaiprakash Associates and Reliance Communications ended with gains of over 4-5% each.
Realty stocks were the stars of the day. Ansal Properties & Infrastruture soared 18.36% at Rs89.95, Indiabulls Realestate jumped 17% at Rs224.05, Akruti City added 11.52% at Rs908.20 and Peninsula Land gained 5.65% at Rs50.50.
Over 1.48 crore JP Associates shares changed hands on the BSE followed by Reliance Natural Resources (1.33 crore shares), IFCI (1.27 crore shares), Sesa Goa (1.12 crore shares) and Kohinoor Broadcasting Corporation (0.75 crore shares).

- Sharekhan

DISCLAIMER: The author is not a registered stockbroker nor a registered advisor and does not give investment advice. 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.