Wish to buy a five in one company that gives a Dividend Yield of 4.25 per cent !

Today I am going to provide you guys with a limited review of a company that operates in five different segments : the name of the company is Prism Cement Limited.

Prism Cement Limited is an ISO 9001:2000 certified company promoted by Rajan R heja Group which has diverse business interests. It operates one of the largest single kiln cement plants in the country at Satna, Madhya Pradesh. Equipped with state-of-the-art machinery and technical support from F.L Smidth & Co A.S Denmark, the world leaders in cement technology, Prism Cement has successfully created a niche for itself in the Indian cement industry.

The company manufactures Portland Pozzollana Cement (PPC) as well as  Ordinary Portland Cement (OPC)  under  its brand name  ‘Champion’  and  both contribute  to a major junk to top line and bottom line growth of Prism.

The company caters mainly to markets of UP, MP and Bihar which are within the radius of 340-370 kms of its plant at Satna, MP. The company has strong marketing network with over 2000 dealers serviced from 46 stocking points without any wholesalers.

While cement manufacturing is Prism’s major business, around 24 per cent of its revenues are contributed by its Readymix Concrete business which gives the company a distinct advantage over other ready mix companies since the major input cement is assured on demand. Prism just needs to procure other inputs like sand, aggregates and micro silica. Thus, Prism Cements ready mix business is a strong money spinner since it can play with pricing whilst selling ready mix concrete.

Effective 1 April 2009, HR Johnson [ India ] Ltd and RMC Readymix [ India ] Pvt Ltd got amalgamated with Prism Cement

Besides, Prism Cements Ltd owns the following subsidiaries:

· Silica Ceramica Pvt. Ltd.
· Lifestyle
· Porselano Tiles Ltd.
· Raheja QBE General Insurance Co. Ltd.

Thus, Prism Cement operates in 5 distinct sectors namely cement, ready mix concrete, silica, tiles and finance sector.

For FY 2009-10, the consolidated Revenues and PAT stood at Rs.2900 crores and Rs.259 crores respectively. Corresponding figures for previous fiscal 2008-09 were Rs. 741 crores and Rs.96 crores respectively. Thus, in fiscal 2009-10 topline increased by just a bit over 291 per cent and bottom line increased by around 162 per cent over previous years outcome.

During FYQ1 ended 30 June 2010, total Revenues and PAT  stood at Rs.726.82 crores and Rs.55.90 crores respectively. For FYQ1 ended 30 June 2010 the corresponding numbers were Rs. 272.06 crores and  Rs.74.25 crores.

The company has a Market Cap of Rs.2962 crores, a low Debt Equity ratio of 0.44, a PE of 16.5 and it last paid a dividend of Rs.2.5 per share for fiscal 2009-10. At the LTP of Rs.58.85/share, the Dividend Yield works out to 4.25 per cent.

Going forward, one the one hand there is ongoing capacity additions taking place in the cement sector whilst on the other hand the infrastructure needs of India are pregnant with tremendous potential and hence one can take a  call on this stock on sharp corrections in order to seek reasonable capital gains and good dividend income.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Dare to profit from news

Every Tom, Dick, Harry, Amar, Akbar or Anthony know very well as to which are the best emerging bets in our markets which can give superlative returns in 3-5 years down the line – water management, power, waste management, leisure, education and perhaps nano technology. The Nano has hit the Indian roads with a big bang but entrepreneurs in Bharat may have to struggle hard to commercialize products emerging from the womb of  nano technology and investors may have to wait for several years in order to reap the fruits of their money and patience.   This is just an indicative list and there could be many more. Anyway, even if one has enviable sector knowledge about various sectors, it would require a hawks eye to spot companies in a bull phase which are  capable of gifting us with great returns. 


“A recent report by CLSA (Asia-Pacific Markets) estimated that the private education market is worth around US$40 billion. The K-12 segment alone, which includes students from kindergarten to the age of 17, is thought to be worth more than US$20 billion. The market for private colleges (engineering, medical, business, etc.) is valued at US$7 billion while tutoring accounts for a further US$5 billion.”

Against the above background, I started searching for a company operating in the education sector which has reasonably good fundamentals and has been growing smartly over the years. And that’s when I zeroed in on Birla Shloka Edutech Ltd.

Yash Birla Group has always been instrumental in progressive fields of businesses and through Birla Shloka Edutech Ltd., it has forayed into the educational arena.

Birla Shloka Edutech Ltd.is one of the leading company in the field of educational services and has created its own niche through reliable, budget friendly and ethical approaches.

Today the company stands tall with the trust and confidence of its millions of delighted customers who form the backbone of the company’s new product innovations and researched.

Birla Shloka Edutech Ltd. Presently provides end to end solutions in sales and services of various educational products to various educational institutes and government organisations.


Birla Shloka Edutech Ltd have a Market Cap of just Rs.83 crores, came out with an IPO in January 2010 at Issue Price of Rs.50 per share and its quoting at a discount of 28.70 per cent as per today’s LTP of Rs.35.65/= share. The shares of the company are listed only on BSE as of now.


Top line growth for Birla Shloka Edutech Ltd seems to be very interesting – way back in fiscal 2005-06 the total Revenues stood at Rs.1.07 crores and soared to Rs.179.80 crores in 2009-10. Thus, top line CARG for five years ending fiscal 2009-10 stood at 178.42 per cent. Bottom line was not that impressive but was not too bad either –profits grew at a CARG for past 5 years was 75.61per cent. Whilst the company is hardly leveraged backed by reasonably good working capital management, the major problems is Net Profit margins of less than 3 per cent. If the margins improve steadily over years, then probably the company will really do well.

So, what makes you think that it is yet possible to get 50-100 per cent returns from such a scrip. Hard to believe that this is possible! Well, if you read on then perhaps you may very well consider taking a call on this scrip.


Birla Shloka Edutech Ltd has informed BSE that the Committee of the Board of Directors of the Company at their meeting held on October 12, 2010, have allotted 19,94,823 convertible equity share warrants to the below mentioned promoters of the Company, at an issue price of Rs. 68/- each determined in accordance to the SEBI (Issue of Capital and Disclosure Requirements), Regulations, 2009;

1. Name of the Promoter: Godavari Corporation Pvt. Ltd. - No. of Warrants: 7,00,000

2. Name of the Promoter: Nirved Traders Pvt. Ltd. - No. of Warrants: 7,00,000

3. Name of the Promoter: Shearson Investments & Trading Co. Pvt. Ltd.- No. of Warrants: 5,94,823

There warrants shall be convertible into equal number of Equity Shares within a period not exceeding eighteen months from the date of allotment of the warrants, in one or more tranches.

Now, since markets have a tendency to move much faster and ahead of the future which is way far away, I will not be shocked if the share priceof Birla Shloka Edutech Ltd were to cross Rs.68/= earlier than later. By the way, the shares of the company had peaked to a 52 week high of Rs. 94.95 on 29 June 2010.

In conclusion, as I see it, the educational sector is pregnant with tremendous potential and as such one can take calibrated risks in order to make good money by taking a call on Birla Shloka Edutech Ltd with a one year holding horizon in mind.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Confidence Petroleum – A titan amongst titans!

Talking about Titans, what you are seeing above is Prometheus at Rockefeller Centre. By the way, Prometheus was the Titan God of forethought and crafty counsel. Now, over to Titan Industries Limited, a stock that was picked up by none other than RJ, the bull of bulls when it was dirt cheap.

Watches and jewellery maker Titan Industries spurted 6.22% to Rs 3491.35 after net profit surged 64.7% to Rs 127.77 crore on 33.9% rise in net sales to Rs 1535.97 crore in Q2 September 2010 over Q2 September 2009. The company announced the second quarter results after trading hours on Monday, 25 October 2010.

The LTP of Titan today 26 October on BSE was Rs.3491.35, up by Rs.204.40 or 6.22 per cent. Guess day traders who bet on opening might have slept happily and peacefully on closing instead of taking a nap.

On 4 January 2010, the stock was quoting at Rs1420.75 and today it closed at Rs.3491.35 which translates into the stock being a 2.45 bagger in about 10 months.

If you were to do a simple back of the envelope calculation, you would have realized that even our stock recommendation of Confidence Petroleum [ CP ] which was certainly a value buy at Rs.8-9 levels would have given you more returns.

On 4 January 2010, CP was quoting at Rs. 9.21 and today 26 October it closed at Rs.22.95 and that very well, my friend, translates into CP turning out to be a 2.49 bagger.

Yes, we sure didn’t recommend companies like Titan which is from the house of Tata’s but in terms of matching the might of Titans we sure did recommend something of great value like CP which has given our investors nothing less than Titan! As a matter of fact, investors would have been much better off buying CP as they would have got a bigger bang for their bucks considering the extremely high delta between the two scrips.

Agreed, the business model and other aspects of the two companies are poles apart but at the end of the day we want to see money on the table and not money flying off the table! And, I believe and hope you agree that we at HBJ Caps have been doing just that since inception and our subscribers are winning all the way in every way.

Cheers!

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Why bear the burden of more baggage and then apply balm – why, my friend why?

Friends, Indians and my countrymen, are we mortals not burdened with lots of problems that we need to embrace more burden? Why do investors keep buying stocks of baggage companies as if folks out there will buy new baggage every time they change the way they travel – Aritocrat whilst travelling by a Luxury Bus, a Delsey while travelling by Train and a Carlton while travelling by air? Sure, guys may do that if they have inherited wealth or money enough to burn but no man or woman of sane mind will keep buying suitcases and baggages off and on as if it were a wardrobe. Yeah, I am talking of VIP Industries Limited. The company manufactures plastic moulded suitcases, handbags, briefcases, vanity cases and luggage. It has acquired UK luggage brand Carlton in 2004. It provides travel products, hard and soft-sided luggage, bags, backpacks, duffels, shoulder bags, waist pouches, sling bags, duffel trolleys, vanity cases, office bags and satchels, suitcases, and briefcases. The company offers its products primarily under the VIP, Carlton, Delsey, Footloose, Alfa, Aristocrat, Skybags, and Buddy brands. It also manufactures molded furniture under the Moderna brand.
VIP Industries has a Market Cap of Rs.1768 crores, a PE of around 25 plus and a Book Value of Rs.60.92. The company generated a turnover of Rs.646 crs and Net Profit of Rs.57 crores in fiscal 2009-10. Face Value of its shares is Rs.10 and though the company paid dividend of 50 percent for fiscal 2009-10, there is no reason why anyone should HOLD or BUY a scrip like VIP Industries Ltd when price of scrip is hovering around Rs.618.05/per share.[ today’s closing price on BSE ] For half this price, you can buy much much better scrips that has potential to double/triple your money in 1 or 2 years time. So, those holding or thinking of buying VIP Industries, do think again. Yeah, if you are planning to go on a honey moon, shell out money over and above Rs.618.05 and buy a Carlton to impress your other half but just forget buying a stock that’s quoting > 10 times its Book Value. I just keep wondering who’s holding and buying such stocks! Anyway, those who already have VIP Industries Ltd can ride the ongoing bull market momentum and get out on obtaining the pre set profit target.

But anyway, thanks to companies like VIP Industries, the mightest survivors on planet earth who could not and cannot ever be destroyed by the mightest armies in the world, can thankfully find a cozy place to dwell in these luxury baggages, if the owner fails to chuck napthalin balls into it whilst the baggage lies idle until the next journey!

And those who are yet holding VIP Industries Ltd must be quite sick for not selling it near the peak of Rs.801/share. Result: Frustration followed by headache. And to make matters worse, just think if the guy who owns VIP Industries Ltd also happens to own Amrutanjan Healthcare Ltd. This guy had it. Just in jest, I believe the simple reason being : the 28 year old Zandu Balm is the hottest selling stuff as folks who return home after seeing Dabaang have the sheared movie ticket in one pocket and Zandu Balm in another pocket. Now, who’s going to buy Amrutanjan Pain Balm except perhaps the shareholders of Amrutanjan! Munni in Dabaang has done her magic and now folks holding on to Amrutanjan Healthcare Ltd need to perform their magic by just dumping the stock on obtaining their pre set profit target and investing the proceeds in much better scrips. Amrutanjan did sales in range of Rs.75 to 93 crores in last 5 years and profits were in range of Rs.6 to 14 crores and that too erratic. Where is the growth and what sort of growth can you expect from such a company going forward and what makes you think the share price will grow from current levels. The LTP of this scrip was Rs. 761.30/share. And guys still holding on to Amrutanjan must be kicking themselves for not selling it at near peak of Rs.1345/share!

With due respect to the sentiments of the holders and prospective buyers of above two scrips, I would not be shocked to know if these folks are applying balm on their foreheads under a moonlit sky – then it doesn’t matter whether it’s Zandu Balm or Amrutanjan Balm! Those who are holding onto one or both these scrips may probably be applying balm whilst praying for the price to reach its previous high. And those who are contemplating buying one/both these scrips may be wondering whether they should at all buy such scrips at such high prices whilst applying balm!

Moral : 'Munni Badnam Hui' but for Heaven’s sake “ you no badnaam hui” by holding on to or aspiring to buy VIP Industries Limited and Amrutanjan Healthcare Ltd.

For a change, let me know if you folks liked this post. I would love to hear from you folks.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Bullish India

Time after time, over and over again, I have been telling you all folks to start betting on the Great Indian story that has started happening quite some time back. But, unfortunately, first timers really seem to be shying away from the bourses like a newly wed bride – come on folks, be a man, roll up your sleeves and take the bull by its horns even if you have bled before, even if you have burnt your fingers by relying on stock tips and buying stuff that was bound to rust. When you befriend HBJ Caps, you befriend the best ever stocks available on the bourses and that too much much before the masses die to hug and kiss the stocks that we recommend based on sound in depth ruthless and impartial research, so to say.

I have been burning the midnight oil for quite some time in order to present a very simple and clear cut evidence about the Great Indian story. After browsing relentlessly through various websites like FICCI, RBI, IMF, Stock Exchange websites, Wall Street Journal, Reuters etc I was bombarded by such complex articles, data etc that it was becoming increasingly difficult to convince my sixth sense that the ongoing Great Indian Story is going to make HBJ Cap subscribers millionaires in the next five years.

Tired and exhausted and my eyes virtually burning with pain from the noxious rays of my PC screen, I raised my hands and cried to the Gods to help me find a way out but neither the Gods nor the Goddesses seem to be listening to my ardent prayers until one fine day what seemed to be extremely complex suddenly became very simple to comprehend as if some magical force made its way into my grey cells!

In order to understand how different India would be in 2015 let us take a quick look at how India was just 5 years ago.

India’s GDP in 2005 was about US$785 billion which shot up to almost US$ 1400 billionin 2010. Experts predict that our GDP will cross US$2000 billion by 2015.

In simple words what this means is that there will be unprecedented opportunities and greater challenges for those ready and willing to seize the blessings of the Gods.

In order to get a rough idea and a feel about how fast our economy is growing, just look at the type of growth in just the following four sectors in 2005, 2010 and 2015. [ courtsey Business Standard of 23 October 2010 ]

Four Wheelers : 1.1 mn, 2 mn, 4 mn
Smart Phones : 100000, 25 mn, 225 mn
Internet : 25 mn, 75 mn, 250 mn
Multiplexes : 250, 800, 2000

I am silent on population growth because for obvious reasons – we Indians excel on this count even if we are No.2 after our Chinese brethren. And we should thank our stars for such honours because that’s precisely why we have been growing and why we will continue growing to the envy of the world at large..

If we just think of how many cars and two wheelers will ply on the road in 2015, then just imagine the infrastructure spending that will be happening in the next few years down the road. And if doesn’t happen, then expect to wait for hours whilst filling your tank and then getting stranded in torturous traffic jams for hours or even days at a stretch.

Imagine the type of job opening that will sprout in the months to come as all sectors compete to attract the best brains and those less fortunate will also manage to get jobs because that will be the need of the hour. Hire and Fire and Do or Die will continue to haunt the corporate world. None the less, the opportunities will be there and the challenges too. And all this will mean – new bank accounts, new mobiles, new PC’s, new laptops, new two wheelers, new cars, new apartments, more gas, more fuel, more mineral water and lots and lots of waste. And this reminds me – all along the way there may be one Enron or two Lehman’s but the real winners will be those companies dealing with waste, water, waistlines and wisdom.

At this juncture I would like to reveal my deepest thoughts that has been silently hiding in the deep caverns of my soul - this is the thought.While God is all too pleased to bless India with such fascinating gifts, the masses it seems are not eager to partake in such blessings. The masses still believe that they can become millionaires and realize all their dreams by investing money in mutual funds, post office savings, bonds, fixed deposits etc. It is like saying that we are excavating gold from the crust of our land only to see ships taking it all away from our shores by the foreigners! And my heart and soul bleed to see that my brethren lack confidence and unfortunately cannot muster the courage to play the markets even by relying on expert and proven advise of organizations like HBJ Caps.

Now, after reading the above if any one of you guys think that I am frequently urging you folks to become HBJ Cap subscribers just in order to hit my sales targets or whatever then you are dead wrong. I have more important things to do than urge you folks, especially the ones who are not our subscribers, to join HBJ Caps family.

And the reason is clear – India is destined to be a very strong economic power and that’s precisely the bulls will eat the bears raw year after year and I want you folks to join the Bull Party and see to it that you become rich beyond your dreams and beyond our dreams. As an Indian citizen, nothing in this world can give me greater joy than seeing my fellow citizens enjoying the wealth and prosperity that the Gods have so willingly promised to bestow on all Indians. Remember, HBJ Caps will not get richer and more prosperous just because a few more folks agree to become our subscribers. But rest assured, you will get wealthier and prosperous by becoming our subscriber – that’s my word and my word is my bond.

Do you think that the thousands of folks who are our subscribers are fools to part away with a few thousand bucks as if they have money to burn – NO. Absoultely NO. Our subscribers are the smartest guys on this planet since they have talent to recognize talent – instinct stronger than reason told them that if they sail with HBJ Caps then their journey to the Land of Wealth and Riches is rest assured – sooner than later. And with each passing year, they are coming closer and closer to the shore of their love – MONEY. That’s what we love, that’s what the world loves. And if somebody says they hate money – then let that guy be elected to be the Greatest Liar in this World and or rather let his/her name appear in the Guinness Book of World Records. True, money cannot buy happiness but then that depends on how you define happiness.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd



Playing the Stock Market Puzzle

Even if the above ten guys were to be the smartest guys in the world, I’ll bet one to million that they cannot crack the stock market puzzle and make you a crorepati in this lifetime of yours – perhaps  you will stand a better chance becoming a crorepati playing fastest finger first and sitting face to face playing “Kaun Banega Crorepati” with Big B!  And yes, we at HBJ Caps don’t make grandiose  promises to make you a crorepati. We are plain simple folks on this planet  making an earnest effort to bring financial joy and happiness to the masses by recommending wealth creating stocks. Think of this as  our singular  mission and  our singular  Vision – to make you rich beyond your dreams and beyond our dreams. Why beyond our dreams ?  Because when w"e send you our fascinating stock recommendations we have no way to know how much you are investing in the particular stock that we have recommended. And maybe, you  loved our recommendation a lot and bought truckloads of it  and that has indeed delighted us when our stocks proved to be great picks just like S.E. Investments, Camson Biotech, Compucom Software, Confidence Petroleum etc..

;So, the Sensex rested today 20 October 2010 at 19872.15, shedding off 110.98 points without whinning – that’s the nature of the markets. Just when you were thinking that the market will rise for sure you get proved wrong again and again as the sensex keeps sliding to your dismay and my happiness. And just when you pray that the markets should go downhill so that you can buy your favourite scrip, the dreaded thing happens for you as well as me – the markets rise , rise and rise as if to kiss the Mt.Everest also known as  Peak XV. And you thought that playing the trend game can get you quick returns and what do you do – you buy  into the rising trend and pick up a  fundamentally good stock only to see the pricing sliding and sliding downwards just as if there is an invisible monster watching your moves and is waiting on the sidelines to fleece you instead of you making an instant killing. Nope – its not that easy. The markets are merciless and you need nerves of steel to become a  millionaire in the stock markets which is  embedded with complex puzzles that can spin the head of  even Nobel Laureates!

"Learning to figure out the stock market puzzle is an education that could take years and is fraught with the possibility of making expensive investing mistakes. Who hasn't taken a plunge without first getting pertinent research and/or sound advice and regretted it later?"

"Trends, trends, trends. What's good now and what isn't? Is now the time to buy either banking or tech stocks? Why or why not? Do you have the knowledge and resources to weed through the graphs, tables, profit and loss statements and other statistics necessary to make a sound buy or sell decision?" I have the time, inclination and passion of  researching stocks and yes I am paid to do something that I love – my passion is my job and the prime motive of my job is to ensure that I recommend good value buys to my clients – after all my clients prosperity is my prosperity.

So, friends, if you believe like me that the Stock Markets are like the complex  puzzle  of life and creation itself, then it would be to your advantage if you were to subscribe to the Bargain Stock Package from IVI’s unit of HBJ Caps. Take your own time to think it over – the markets have been alive and will be alive till eternity but I for one can never guarantee how long the MRP of  the Bargain Stock Package will be available for Ten Thousand bucks! The money is yours, the choice is yours but the stock recommendations are ……….

  

Remember : the stock market is the toughest puzzle to crack in this world - if it were a simple puzzle I woudn't be writing this but instead I would be having  dinner at a plush joint in Paris having delicious French food whilst looking at the Eiffel Tower and admiring its magnificence.

  

And as I sign off,  I would like to say that if any mortal cracks the stock market puzzle to become a trillionaire or a billionaire then such mortal will become immortal and will be branded as a Financial God or Goddess as the case may be!  So, rise to the occassion and start cracking the stock market puzzle  armed with sharp  intelligence and cool  patience o so as to create wealth and happiness for you and your loved ones.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

 

Nu Tek India Ltd - Embrace it for reasonable returns

Nu Tek India Ltd having a Market Cap of  Rs. 144 crores  is in the business of  integrated telecom-infrastructure related services for operators and equipment manufacturers.

The company  came out with an IPO in  August 2008 with a price band of Rs.192 / share, Face Value being Rs. 10/share. Today the same shares are quoting at Rs.40.60/share and that’s a deep discount of  around 58  per cent to its issue price[ face value now  being Rs.5 ].. 

Just think over it – in a bull market when most stocks are available at a premium [ justified or not is a different question ]  it makes sense to pick up stocks which are available at a discount to its IPO price especially so when the PE is not very stretched – it’s around 11.29 and that’s OK for a company which is operating in the ever growing telecom sector.

The company generated revenues of Rs.185.98 during FY 2009-10 as against Rs 159.09 in FY2008-09.. Net Profit was Rs. 15.87 crores in FY 2009-10 as compared to Rs.14.48 croes in previous year. .

Promotors stake n the company stands at 43.73 per cent and that of  the  FII’s  is  8.50 per cent. Nu Tek India closed at Rs.40.60/share today 19 th October, after consolidated net profit surged 70.34% to Rs 8.04 crore on 27.06% fall in net sales to Rs 39.28 crore in Q2 September 2010 over Q2 September 2009.

The stock had hit a 52-week high of Rs 65 on 7 October 2010 and a 52-week low of Rs 29 on 25 May 2010.

One may consider buying Nutek India Ltd on sharp corrections in order to optimize returns which could be in the range of 40 to 50 per cent considering time horizon of 1 to 3 months.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

QE 2

If you take one look at the above picture, courtesy Reuters,  just ask yourself one question – why should you see something like this in the US when Mr Bernanke the  money printer is very well alive and kicking. That guy, [ I mean the one in the picture  ]  could simply borrow cash and then forget to pay back, as US banks love to write off loans knowing very well that President Obama and Fed Chairman Bernanke are more than willing to bail  out banks that are on the way to going bust.  If pronunciation of the Fed Chief's name is a problem then just call him QE - that's pretty simple, cool and true.

What precisely is QE -  the term means quantitative easing and it has been going around lately in the US in a big way. It is a big term, but it’s meaning is pretty straightforward: to artificially increase the money supply. The increase in the money supply is an attempt to inject liquidity into the economy. The idea is that the liquidity will spark investment and consumption amongst the population.

How Effective Was Last Year’s QE 1?

The Fed purchased $1.25 trillion in mortgage assets last year. The theory was that injecting money into the economy would cause banks to take that money and lend it, jump-starting the economy and bringing us back into a normal recovery

So, what happened to the trillion-plus dollars?… It went back onto the balance sheet of the Federal Reserve, i.e. banks put it back into the Fed… If banks are not lending now, with what seems like lots of reserves, then what is to make us think that another $2 trillion in QE2 will make them feel like they have too much money in their vaults? But we folks should understand one thing very clearly :businesses don’t want to borrow all that much because of the uncertain times, will easy money make that any better? As someone said, “I don’t need more credit, I just need more customers.”

QE2. -  Many on Wall Street were hoping for the Fed to announce a plan to buy up to a trillion dollars in government bonds, or at least make mention of it. Others hoped nothing would be said and that the idea of QE2 will begin to fade away.

The Fed released this statement concerning pumping more money into the economy, “The committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”

Though a second round of stimulus will make the stock market go higher, politically it isn’t beneficial for President Obama or the Democratic Party to implement it. Americans are tired of the stimulus packages and don’t want the Fed to print more dollars. With November elections around the corner I believe the Fed will hold off in doing anything unless the economic numbers significantly weaken in the next two months.

And by the way, I won't be shocked if you have already started wondering whether the Sensex will  kiss 25000 if QE2 happens.

  

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Junk Stocks

We belong to the age of the great Junk.

Junk food

Junk email

Junk thoughts

Junk music

Junk household articles

Junk activities

Junk News in TV

And of course, there are a lot of junk stocks out there – may be hundred and thousands out there. You need to be very careful when buying stocks with your hard earned money.

Don’t ever allow the markets to swindle you.

To my mind Junk Stocks exhibit the following characteristics :

1. Negative Net Worth
2. Declining or  no Operating Revenue
3. Declining Profit or mounting losses on a q-o-q basis / annual basis
4. High D/E  ratio which would drive such company closer to bankcruptcy
5. Questionable management or doubtful long term business potential.
6. Promotors holding is less than 10 per cent [ exceptions are always there and does this really matter when you know a stock is junk because of one or mix of the above 5 factors.]

I personally request all investors to be very careful whilst investing  your hard earned money in the markets as the Sensex is driving up prices of  stocks higher and higher – the sensex does not for that matter know whether a stock is GOOD, BAD OR UGLY but you are supposed to know and if you don’t then you are doomed.  Just as ignorance of law is no excuse, similarly ignorance of stocks is no excuse for embracing a stock that can literally choke you to death financially. If you are unable to differentiate a junk stock from a good stock then ask somebody who can guide you. Of course, you can always count on HBJ Caps to show you the way so that you don’t end up rusting your hands holding a junk stock.

 

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd

Declaring Bonus Shares – It’s a Corporate Birthright

Diwali is fast approaching and both private sector and public sector employees start gossiping and speculating one month in advance about the likelihood of getting a fatter bonus pack this time around. After all, how your wife, kids and in-laws are going to treat you during ensuing Diwali largely depends on the large [ or small ] heart of your employer.

And as far as the owners of the company are concerned [ read shareholders ] the story is a bit different. There are three aspects of bonus shares that may be of interest to you as a shareholder of a company.

Indication of higher future profits

In simple terms, if say a company declares a 1 : 1 bonus, the total number of outstanding shares simply doubles but PAT remains the same because of which the EPS gets slit into half. Hence, sound financial logic would dictate that a company issues bonus shares only if it is reasonably sure of doubling/trebling its profits so as to ensure that earnings don’t get diluted.

Future dividend may increase:

A company would normally not declare bonus shares if a company is not too sure of increasing the dividend rate. Even, if the company retains the pre bonus dividend rate in tact, yet the overall cash outflow on this count will simply double in say a 1:1 bonus case.

So, a company should be able to churn out more profits to pay dividends on an enlarged equity base whilst taking care of its capex requirements.

Psychological value:

The declaration of the bonus issue may have a favourable psychological effect on shareholders. The receipt of bonus shares gives them a chance to sell the shares to make capital gains without impairing their principal investment. They also associate it with the prosperity of the company. Because of these positive aspects of bonus issue, it is usually received positively by the market. The sale of the shares, received by way of the bonus shares, by some shareholders widens the distribution of the company’s shares. This tends to increase the market interest in the company’s shares; thus supporting or raising its market price.

Following is a list of some companies that have declared Bonus recently. The list is indicative and contains only those companies whose record date occurs in current month only. .

Name of Company Ratio Record Date CMP Rs.

Savera Industrie	1 : 1	26-Oct-10	107.05
Birla Power Sol.	1 : 5	21-Oct-10	1.82
Indsil Hydro	2 : 3	18-Oct-10	102.75
Gold Rock Inves.	2 : 1	13-Oct-10	37.85
Tulive Developer	4 : 1	08-Oct-10	165.9
Baba Arts	1 : 1	01-Oct-10	11.06
B.L.Kashyap	1 : 1	01-Oct-10	39.7
Birla Cotsyn	1 : 5	01-Oct-10	0.88

I have my own doubts about the financial robustness of above companies except perhaps Indsil Hydro. The less spoken about Tulive Developers which has no Sales/Revenue to speak off and yet it generated profit in fiscal 2009-10 and now it declares bonus shares and that too in the ratio of 4:1 – now that really spins my head!

Never invest pre-bonus or post bonus cases unless you check the fundamentals of the company besides trying to gauge the future prospects of the company in question. That’s easier said then done.

And by the way, if your employer refuses to give you Diwali Bonus citing global turmoil and recession as the main culprit then do consider selling your bonus shares if you don’t wish to be treated as a stranger whilst dropping in at your in-laws place during the ensuing Festival of Lights!

Anyway, Happy Investing.

Kishor S. Khot, [Kishor@hbjcapital.com], Equity Strategist, HBJ Capital Services Pvt Ltd