Sunday, 17 February 2019

Q3 Earnings Review


The Nifty 50 companies missed the average estimate for the quarter ended December, dragged by the loss of Tata Motors Ltd.—the biggest in India’s corporate history. The combined earnings per share of the benchmark index constituents missed the consensus estimate by 19 percent, according to BloombergQuint’s calculations. That’s when 41 of the 50 companies have either met or beat estimates—the highest in at least six quarters. Of this, 20 companies beat estimates, and 21 reported numbers in line with expectations.

The companies reported a combined earnings per share of Rs 97 for the three months ended December. That compares with the Rs 119 estimated as on Jan. 9 when the earnings season kicked off with IndusInd Bank Ltd. reporting its numbers.

While almost all automakers missed estimates, corporate-facing banks and oil and gast firms aided overall earnings in the reporting quarter. Here’s how the sectors have fared this quarter:


Agriculture
UPL Ltd. reported strong double-digit growth in all geographies, barring India.
 It closed the Arysta LifeScience acquisition.

Automobile
All automakers missed estimates in the third quarter.
Raw material costs and weak demand impacted financials.
Muted outlook by managements.
Tata Motors Ltd. loss weighed on Nifty EPS.

Cement
UltraTech Cement Ltd. met estimates, but the management’s outlook was weak.
Subdued pricing impacted earnings.
Realisations and utilisations were lower-than-estimated in the third quarter.
Construction
Larsen & Toubro Ltd. set sales guidance higher at 12-15 percent.

Consumer Stocks
Volume growth surprised, but margin pressure remained.
Continued  to see resilient top line and volume growth.
Commodity input prices dragged gross margin.
Titan Company Ltd. beat estimates, led by the jewellery segment.

Oil & Gas
Reliance Industries Ltd. showed strong performance across segments.
Hindustan Petroleum Corporation Ltd. and Bharat Petroleum Corporation Ltd. beat estimates on higher refining margins.
Gas trading aided GAIL (India) Ltd.’s financials during the quarter.

Financial Institutions
Infrastructure Leasing & Financial Services Ltd. concerns continued to weigh on private sector banks.
Corporate banks outperformed retail-focused lenders.
State Bank of India beat estimates on account of better asset quality and lower slippages. Margins remained stable for banks.
Cautious stance on lending by housing finance companies.

Information Technology
Tech Mahindra Ltd. outperformed peers on the back of strong deal wins.
All other IT companies reported numbers in line, but margin remained weak.
Metals
Metal stocks met estimates.
JSW Steel Ltd.’s India business reported strong numbers, but it remained weak for Tata Steel Ltd.

Pharmaceuticals
U.S. sales improved but outlook remained cautious.
Domestic markets continued to drag.
Sun Pharmaceutical Industries Ltd. beat estimates on the back of one-time adjustments related to deferred tax.

Telecom
Average revenue per user of mobile operators grew for the first time in last 10 quarters.
 Bharti Infratel Ltd. beat estimates on the back of cost cuts and higher rentals.






How To Evaluate A Company For Investment?

Making an investment in the stocks is quite challenging, particularly when you are a beginner.  Investing in the stocks demand a lot of discipline and research work. You must have an excellent understanding of the various aspects such as the profitability, debt, management, etc of the company before you decide to invest in the stock market. To minimize the risk of losing your hard-earned money, you must carry out a comprehensive research work about the company to get the better returns.
For instance, if you purchase the shares of the Company XYZ and it is making good profits over the next 1-3 years, then you can expect to get better returns. On the other hand, the company performs poorly over the next few years, then eventually the value of the share prices will decline and you may lose your money.
It is no surprise that most the investors, especially the first-timers, take the investing decisions without researching the prominent facts about the company. As a result, they end up losing their investments. Therefore, it is extremely important to research the company before investing. You may be wondering that researching consumes a lot of time and energy. Do not worry as it is not rocket science and a lot easier than you could imagine. You just need to research the following aspects of the company before putting your hard-earned money into their shares:

High Debt Companies

The shares of the high debt companies must be totally avoided for investment. By using the debt-equity ratio, you can quite easily determine the amount of debt that a company is carrying when compared with the amount equity shareholders have in the company. Generally, it is used to analyze whether a company is able to repay its debt obligations in a hassle-free manner or not. As a thumb rule, the companies with the debt/equity ratio of more than 1 are considered riskier for the investment.

Companies with Zero Transparency

There are very few companies in the stock market that suffer from lack of transparency i.e. it is quite a challenging task to find their information online. This problem is most visible in case of the small and micro-cap companies. Researching information of these companies can be quite hard work for the investors. Furthermore, it is tough to ascertain the reliability of the information or there are chances that the data can be manipulated. Hence, it makes no sense to invest in those companies that suffer from a lack of transparency.

Inefficient or Unstable Management

The management of the company is just like a ship’s captain. They formulate the important policies and their decisions define the growth of the company. When you are planning to invest in a particular company, then do not forget to find out about the management of the company. For this purpose, there are few questions that you must ask yourself with regard to the management before taking any investment decision:
  • What is the structure of the board of directors of the company and the qualifications of the members?
  • Do the members of the management have the desired experience and track record of success?
  • Is the management of the company changes more often, if yes, then what are the reasons?
  • How the decisions of the management affected the company?
  • What is the financial net worth of the company directors and other members?
  • Have any of the directors of the company ever been in trouble with the stock market regulator i.e. Securities and Exchange Board of India (SEBI)?

Companies with Weak Growth Track Record

Before investing, make sure whether the company has a good history of growth or not? The company with the poor or weak track record is considered to be risky for making an investment. For determining the track of the record of the company, you can check out the financial statements or prospectus of the company to find out whether it is losing money or growing continuously. If the record of the company, in terms of the growth, is not good, then it is quite obvious that the share prices may fall.

Conclusion
For the beginners in the stock market, taking into consideration the above important aspects before making an investment will help them a lot avoid the problems and invest in the best-performing companies. All in all, it is important that you carry out in-depth research work and invest in the companies having good or stable leadership and running successfully over the years.
Happy Investing!

Right time to invest? Equities appear less risky, higher returns in long-run

The first month of 2019 was positive for Indian equities as the S&P BSE Sensex rose 0.5% during January. However, S&P BSE Midcap and S&P BSE Smallcap index had declined by 5.7% and 5.3%, respectively in January. Sector such as IT, consumer durable and banking performed well during the month. Auto, capital goods and metal stocks were laggards.
Foreign institutional investors (FIIs) in the month of January were inactive with sell orders of $75 million. Domestic institutions were net buyers during the month to the tune of $300 million approximately. Mutual funds were buyers of $1.2 billion while insurance companies sold stocks worth $880 million. The rupee depreciated 1.9% during the month.
The US Fed in its meeting during the month indicated that it will be patient with raising interest rates. It will also go soft on normalisation of its balance sheet, meaning it will be less aggressive in reducing the balance sheet size. This news was cheered by the equity markets. Fears related to recession and trade sanctions led the U.S. Fed to change its stance.
Over the long term, interest rates will rise in developed markets. This will be detrimental to stock prices in emerging markets including India. Investors getting higher return in home markets will likely reduce exposure to riskier emerging markets as interest rates move up overseas.
Budget eye on polls
A major event at the start of February was presentation of the interim union budget. The budget presented had an eye on elections. A number of schemes were launched for the agriculture sector of which guaranteed money transfer to farmers was highlighted. Salaried tax payers also stand to benefit with increase in exemption for paying income tax.
The government borrowing and fiscal deficit is likely to increase due to welfare schemes and forego tax revenue. Sectors such as housing also stand to benefit from budget proposals. However, since this is an interim budget, its measures can be reversed if the new Government takes charge.
In fact, January saw a number of listed companies announcing their third quarter results. There was heightened volatility in a media stock after rumours of involvement in money laundering of a group related company. This was further accentuated by selling of its pledged shares by financiers. Another housing finance company was targeted by a media house of loans being routed to founders. Many stocks with links to these entities were hit.
There has been a good correction in stock prices in the past few months since September 2018. Many stocks which looked highly valued earlier now seem to come within reach. Scheme cash level now is in low single digits, offering decent potential return. Over the long term, we remain optimistic on Indian equities. India is likely to grow faster than many countries. Investors can thus expect decent return from equities over a long period in future. Investors should put more money given that valuations appear more reasonable. They now appear less risky than earlier.

How is the price of a stock decided in an IPO and who decides it?

An IPO can typically be a fixed price issue or a book built issue. In a book built issue, the price band is determined, but the actual issue price is discovered during the IPO. Since Indian IPOs are predominantly through the book built route, we shall focus on the indicative pricing of the book built issues.
 
Factors impacting the price of an IPO
The following factors are the key to the pricing of an Initial Public offering:
  • Financial performance of the company over the last 3 years on a quarterly basis
  • Projected growth in revenues and profits suitably ratified by channel checks
  • Unique nature of the product and the moat that the company has been able to create
  • Comparative valuation of companies in the similar industry group
  • Qualitative factors such as management pedigree, brands, and corporate governance.
 
Absolute vs. relative approach to IPO valuations
The first step to determining the indicative price of a book built issue is the combination of absolute and relative parameters.
 
Absolute approach to IPO valuation
In case of profit making companies, the focus is on discounting the cash flows of the future. Typically, the future cash flows of the company are projected, and then an appropriate discounting of these factors is done to arrive at the present value. But, what about companies that are not making profits? This is quite common in case of companies that have long gestation periods or where the business involves higher initial outlays such as ecommerce and pharma. In such cases, the Enterprise Value is measured as a percentage of EBITDA to arrive at an indicative valuation parameter.
 
Relative approach to IPO valuation
Stock valuations and IPO valuations are never done in absolute terms but in relative terms. For example, even with robust cash flows, companies dealing in commodities attract lower valuations due to the cyclical nature of their business. Hence, such commodity companies attract lower valuations (P/E) compared to brands. Typically, relative valuations use parameters such as P/E, P/BV, Dividend Yield, and EV/EBITDA. Normally, once the absolute valuations are arrived at, the relative valuations are considered based on the peer group comparisons and overall market P/E benchmarks.
 
Finally, it is all about demand and appetite
  • Even after considering the quantitative and qualitative factors, the process of IPO pricing is far from complete. Some more critical inputs are considered before the final indicative price range for book building is arrived.
  • Pricing of the IPO depends on the stage of the IPO cycle. In the early stages, the valuations tend to be muted but get more aggressive over time. In the early stages, promoters and investment bankers try to leave more on the table for investors.
  • What is the state of the market at the time of the IPO? Markets may go into a temporary or permanent bear phase by the time the issue is opened. In such cases, the promoters and investment bankers may take a conscious call to tone down valuations.
  • Are there any sectoral last mile issues? NBFCs planning IPOs at this point may have to settle for lower valuations considering that the sector is currently facing a crisis of liquidity and asset-liability mismatch.
  • Feedback coming from institutional roadshows is also a critical input. Normally, the institutional appetite is clear only when the management meets the FPIs and Mutual Funds across geographies.
  • Retail feedback from brokers, sub-brokers, and distributors is a key input in the final pricing.

It is the aggregation of all these factors that results in the indicative price of the Book Built IPO.An IPO can typically be a fixed price issue or a book built issue. In a book built issue, the price band is determined, but the actual issue price is discovered during the IPO. Since Indian IPOs are predominantly through the book built route, we shall focus on the indicative pricing of the book built issues.
 
Factors impacting the price of an IPO
The following factors are the key to the pricing of an Initial Public offering:
  • Financial performance of the company over the last 3 years on a quarterly basis
  • Projected growth in revenues and profits suitably ratified by channel checks
  • Unique nature of the product and the moat that the company has been able to create
  • Comparative valuation of companies in the similar industry group
  • Qualitative factors such as management pedigree, brands, and corporate governance.
 
Absolute vs. relative approach to IPO valuations
The first step to determining the indicative price of a book built issue is the combination of absolute and relative parameters.
 
Absolute approach to IPO valuation
In case of profit making companies, the focus is on discounting the cash flows of the future. Typically, the future cash flows of the company are projected, and then an appropriate discounting of these factors is done to arrive at the present value. But, what about companies that are not making profits? This is quite common in case of companies that have long gestation periods or where the business involves higher initial outlays such as ecommerce and pharma. In such cases, the Enterprise Value is measured as a percentage of EBITDA to arrive at an indicative valuation parameter.
 
Relative approach to IPO valuation
Stock valuations and IPO valuations are never done in absolute terms but in relative terms. For example, even with robust cash flows, companies dealing in commodities attract lower valuations due to the cyclical nature of their business. Hence, such commodity companies attract lower valuations (P/E) compared to brands. Typically, relative valuations use parameters such as P/E, P/BV, Dividend Yield, and EV/EBITDA. Normally, once the absolute valuations are arrived at, the relative valuations are considered based on the peer group comparisons and overall market P/E benchmarks.
 
Finally, it is all about demand and appetite
  • Even after considering the quantitative and qualitative factors, the process of IPO pricing is far from complete. Some more critical inputs are considered before the final indicative price range for book building is arrived.
  • Pricing of the IPO depends on the stage of the IPO cycle. In the early stages, the valuations tend to be muted but get more aggressive over time. In the early stages, promoters and investment bankers try to leave more on the table for investors.
  • What is the state of the market at the time of the IPO? Markets may go into a temporary or permanent bear phase by the time the issue is opened. In such cases, the promoters and investment bankers may take a conscious call to tone down valuations.
  • Are there any sectoral last mile issues? NBFCs planning IPOs at this point may have to settle for lower valuations considering that the sector is currently facing a crisis of liquidity and asset-liability mismatch.
  • Feedback coming from institutional roadshows is also a critical input. Normally, the institutional appetite is clear only when the management meets the FPIs and Mutual Funds across geographies.
  • Retail feedback from brokers, sub-brokers, and distributors is a key input in the final pricing.

It is the aggregation of all these factors that results in the indicative price of the Book Built IPO.

Beginner’s Guide To F&O

What Is A Forward Contract? 
A forward contract is a customised contract between two parties to buy or sell an asset or security at a specified price on a future date. This contract, which is agreed and signed on by both the parties, is a forward contract. This contract helps ensure that both parties have a buffer against volatility in the price movement of the asset or security.

Standardisation Of Contracts And Role Of Exchanges 
A forward contract is the basis for a futures contract. But for it to work, a few conditions need to be met. Agreement on quantity and price of a security is one. That the contract will be upheld by the parties involved is another. This is where stock exchanges come into play. This video explains the need to standardise contracts and the role an exchange plays in creating markets for such derivative contracts.

What Is A Futures Contract? 
For an exchange to standardise and facilitate trade of futures contracts, it needs to determine: The size of contract. Date of contract settlement. The advance sum expected from parties trading in the instrument. The price is agreed upon by participants involved in the transaction.

The Long And Short Of Derivatives 
In the derivatives market, to buy a contract is to ‘go long’ and to sell a contract is to ‘go short’. But why use different terms when they mean the same thing? One word- leverage.
Premium And Discount In Futures The price at which a futures contract trades is invariably different from the price of its its underlying asset in the cash market. It’s often higher than the spot, but it sometimes trades lower too.

What Is Expiry? 
Expiry is the date up to which the agreement is valid or the last date that a trader can hold the contract. Beyond this date, the trade ceases to exist and the trader cannot hold that contract anymore. 

Open Interest And Market-
Wide Position Limit Open interest is the number of contracts or positions outstanding in futures and options on an exchange. It may be denoted in a number of contracts or the number of shares. It's computed by summing up net open positions in the derivative of an index or stock. These positions must be closed on expiry if not squared off earlier.

What Is Mark To Market? 
To mark to market is to account for profit and loss incurred in holding a position in the futures contract on a periodic basis, in this case daily. The profit or loss is adjusted to the margin paid by participants to hold a position in the futures contract.


Friday, 15 February 2019

How To Make 1 Crore Rupees By Quit Smoking Today? – Truths & Facts

Smoking Cigarettes is one of the nasty expensive habits that we all regret at some point in our lives. If there is a list of quitting nasty habits then I think smoking cigarettes should be on top of this list. Truth is we don’t realize how much tobacco we’re putting into our body. Not only it affects our overall health but also burn up our finances. But, we also know that. In fact, most of us have already tried to quit smoking in the past. Most of us failed to do is because we lack the proper motivation. If you are in the same situation then I can help with this one.
Have you ever wondered how much you’ve actually spent on smoking cigarettes?

How much it is Costing to Smoke Half a Packet per Day?

If you are a regular smoker who smoked half a packet of cigarettes in a day then you shelled out nearly Rs. 250 per day just on your nasty habit of smoking cigarettes. It is because currently, a packet of cigarettes consist nearly 20 cigarettes which cost nearly Rs. 400-500 per packet. The two hundred fifty rupees per day means Rs. 7500 per month ( 250 x 30 Days= 7500) and about Rs. 90,000 for a year (7500 x 12= 90,000). In perspective, 7500 rupees is nearly one month of rent. But, the reality is, as a smoker, we may not pay our rent on the first of the month, but we will always find a way to smoke that much of cigarettes on monthly basis.  At today’s price if you are spending 250 rupees per day on smoking cigarettes then you will waste nearly around 18,00,000 rupees in 20 years. And with the annual cost of smoking will rise as it risen in past, the amount will be a lot higher.
In short, you will burn nearly around 18 lakh rupees in 20 years on what, “Tobacco”. Not only it is burning you’re finances but also destroying you from the inside. That’s a lot of money to burn, right?
It is such a shame!
Do you know how much you could save if you stopped smoking cigarettes?
What if you quit smoking and take that money to invest in the stock market instead?
Did you get the picture?
No!
Let’s do the calculation now.

How to Make 1 Cr. Rupees from “Smoking” Money in just 20 Years?

There is a common saying, “Health is Wealth”. If you are tired of wasting your money on such a nasty habit that is not only eating your finances but also eating you from the inside then my dear friend it is time to quit smoking. If you have decided to change your life from here on then I would suggest you to better use your precious hard-earned money somewhere better.
Have you ever heard about mutual funds?
Well, that’s a very stupid question. Of course, you heard of it!
Mutual funds have recently gained huge popularity and become one of the top investment avenues in India. If we talk about the average rate of return of mutual funds in India in the last 20 years then it is nearly around 15% give or takes.
I understand if you say that twenty years is a very long time. But, it is not like you only invest those 7500 rupees per month. You can extend your principal amount. Besides, Indian old mutual fund schemes have made its investors millionaires. And systematic investment plan (SIP) is the best investment option for long-term investment and wealth building. Not only you will be able to utilize your “Smoking” money to build your wealth but also bring discipline in your investing, as well as life.
Now come to the point where we discussed making 1 crore rupees in 20 years. I’m sure you will be excited to know how it is possible.
So, let’s do the calculation.
Taking the above example, let’s assume you were spending Rs. 7500 per month on smoking cigarettes which is around Rs. 90,000 a year. In a 20 year period, it would be around Rs. 1,800,000. What if you invest those 18 lakh rupees in the stock market in SIP mutual fund scheme, you can make better use of that money by investing in equity mutual funds or other investment schemes.
If we consider the same 15% in the next twenty years, although this rate of interest should go higher by the time and country’s growth but let’s assume you invested Rs. 7500 every month for twenty years in a SIP mutual fund where you receive the average rate of return of 15% then the total return you will receive after twenty years would be exactly Rs. 11,369,662.31. That amount would be without inflation with the monthly compound frequency.
Now think about it!
Who’s to say that you won’t achieve a better return than this in the next twenty years?
If you do the same you will become a millionaire in just 20 years. The cost of cigarettes may different in your country or area but the rate of return will be the same or higher.  But, still, I would advise you to not invest all your money at once. Also, mutual fund investments are subject to market risk.

How To Find Penny Stocks With Strong Fundamentals In India?

How do you find the penny stocks in India? There are plenty of stocks to choose from and the problem is that the new ones get listed on the stock exchanges every day. As an investor or trader, it is quite obvious that you may feel confused when it comes to finding the penny stocks, which may have the potential to grow and give better returns in the near future.
So, now the question that pops out here is how you can identify the penny stocks? While every trader may have own his/her method of selecting the stocks, there are some of the prominent tips that must be taken into the consideration to find good penny stocks in India:

Examine Trading Volume

If you have made up your mind to invest in penny stocks, then it is important that you must determine the trading volume, which you are planning to undertake. This is because, if you are investing, then in the near future, you plan to sell the penny stocks, then there must be somebody to buy the shares. It is important to remember that the penny stocks have a very low liquidity and hence you must adopt a very cautious approach before investing your hard-earned money.

Determine the Company Fundamentals

Investing the fundamentals of the company is extremely important before you take the decision to invest in the penny stocks. If the financial health of the company is on the higher side, then you can invest in the stocks hassle-free. Carrying out the fundamental analysis of the company must be your topmost priority for finding penny stocks. Furthermore, it also pays a great deal to keep a close eye on the market reputation and future projects of the company.

Examine the Prominent Ratios

It is quite true that taking into the account the financial health or performance of the company is a vital key to find penny stocks in India, but there are also other prominent ratios such as the debt-equity ratio, market capitalization, Return on Equity (ROE), Earnings Per Share (EPS) and so on. The ratios will help you a lot to companies the performance or financial health of the company, in terms of the earnings and growth quite easily.

Look for Penny Stocks on Exchange

The chances of finding penny stocks on the stock exchanges are less because most of the companies fail to meet the listing requirements. However, this does not mean that you cannot find the penny stocks as they can be located on the Over-the-Counter bulletin boards and pink sheets.  However, it must not be forgotten that the penny stocks are subject to the greater risks and manipulation. Hence, a comprehensive amount of the research is a key here to find the penny stocks and invest in them.

Conclusion
Finding penny stocks for the purpose of making an investment is nothing wrong, but it is also important to keep into the consideration that you should not put all your hard-earned money at one go in the penny stocks.  This is because these kinds of the stocks have a very low liquidity, which means that you are putting your capital at the great risk. According to many renowned financial experts, you can plan to have only 15%to 20% of the penny stocks in your investment portfolio. By this way, you will be diversifying your portfolio and balance your risk profile in a very effective manner.
All in all, taking out some time to find penny stocks and investing them can pay great dividends because there have been instances where the penny stocks have provided excellent gains to the investors or traders in days or hours. The decision for the purpose of investing must be taken in a very careful manner after you weigh all the pros and cons of penny stocksassociated with it.