False closing again - 2/8/11

After a long gap I am back. The recent movement in Indian and World stock markets have been so unpredictable that the investors all around the world and even trader like me is left in a fix and confused which way to position them selves. Last month Nifty touched 5700 and now again its back to 5400 which is almost a 4% up and down which is not a good signal for long term investors. 

Since last week the debt-ceiling drama was played very effectively by US politicians and like in hollywood where the hero diffuses a bomb at the last second, US politicians passed the controversial debt-ceiling bill yesterday which was the deadline for the fed to raise the limit above $14.3 trillion but with a guarantee to cut US budget expenses by $1-2 trillion in coming years. This budget cuts will add more pressure on the already faltering US economic recovery. Then came the all important manufacturing data which was dismal. This data confirmed that the manufacturing all around the world has slowed and thus raising alarm bells of a new global recession. 

Since Monday stock markets around the world are falling because of this fear and so is our market following the trend. Today market closed almost 1% down like yesterday. Yesterday was also a false closing at 5454 and thus the market fell today. Today was a perfect False closing at 5404 and hence another negative day for the market tomorrow can be confirmed. But the magnitude of the negativity will be decided by the US markets closing and the opening of asian markets. US markets today started with a big negative tick losing more than 1.5% but as I speak the US markets have recovered and are flat with nasdaq gaining 0.5%. If US markets close flat then most probably our markets tomorrow will be up at the opening and than slip in to the red along the course of the day.

What should investors do?

The best advice for the investors at this point of time is to sell off 50-60% of their existing holdings and wait for better prices as markets have confirmed a downward trend as Sensex has dropped below 18000 and Nifty is on a verge of breaking 5400, an important level. Over the next month long term and short term investors will find good stocks at cheap prices.

What should traders do?

Traders should short sell the market and companies with global exposure like Infy, TATA Group etc., at every rise in the prices and square off at the lowest point in a day. Buying should be minimum and maintained only in Healthcare stock and FMCG stocks. Though the market fell today the open interest in the Nifty PUT options did not come down and open interest in Nifty CALL options actually increased indicating a short selling in Call options of even 5400 clearly indicating that the Options traders expecting a sudden fall of atleast 100-150 points in coming days. So put options of Nifty can be bought with a target of 5300 on the nifty.

Coming trading sessions are crucial and tense as these trading sessions will indicate if the BULL market of INDIA is intact or the sentiment is turned BEARISH.

Have a nice trading day.

KS Oil --- Target 32, Time horizon 4-6 months, stop loss 16

KS Oil an Edible oils and Solvent extraction company has been slipping lower and lower since last 6 months. 6 months back it costed Rs.45 and today it is at 22. More than 50% down. The reason for such a big fall can be attributed to FII selling in this stock. Goldman Sachs a big investor in this stock had sold heavily since few months. Now as the markets are improving and traders ready to take risk, FIIs might again start buying this stock. Below are the reasons to buy this stock.

1. Book value(total assets of the company divided by no. of shares) is Rs.32.51 . Fundamentally share value is always above Book value. So logically Rs.32 is achievable.

2. Its closest competitor Gokul Refoil has sales and profit less then KS Oils but still Gokul commands a Market Capitalisation(no. of shares * Price of share = value of the company) Rs.1200crores and KS Oils has Market Cap of Rs.940 crores. So logically KS Oils deserves a market cap of more than 1200 crores for which its share value should rise by 27% which gives us a value of Rs.28/share. Then again the Total assets of KS oils are Rs.2929crores. Taking the assets under consideration the value of the share should be Rs.68/per share which was its 52 week high. But looking at the market condition Rs.32 looks like a safe target which is 45% above the present price.

3. P/E ratio(price of share/earnings per share) of KS Oils is at 4.88 . Whereas Gokul Refoils has a P/E ratio of 19.39 which again gives a huge potential for upside. Even if we justify P/E ratio of 10 for KS Oils, share value should be Rs.45.


My target for the stock is Rs.32 for next 6 months and Rs. 45 till march 2012. Even if we buy now and the stock doesn't increase, we can hold the shares as KS Oils is the second largest company in Refined cooking oil in India and has good business.

Happy investing :):)

Bears are back!!! And this time with more strength.

Since 2days whenever market opens, it makes and attempt to cross 5300 on the Nifty but whenever Nifty crosses 5300 there will be fresh selling and short selling in futures market. Its seems to be that "Bears are back!!"
(Bear is a market participant who have negative view on the market and believes market will fall. Bears are mainly people who short sell stocks and make profit).

I predict market to fall to 5100 by end of june. Here are the points which make me believe that.

1) Most of the prominent stock market analysts have started giving out bad picture of the market. Usually major analyst make use of complex mathematical charting softwares which display the key trigger points of an event in the market. These trigger points show whether market is going to rise or fall. Right now Sensex and Nifty have come down below a key trigger point. This has confirmed the stock market participants belief that market is going down.

2) Indian Met dept. has brought down their monsoon forecast predicting a "below average" rain. This will mean that inflation might stay up for a while not allowing the RBI to think about bringing down interest rates.

3) FIIs have been net sellers since last 10 trading sessions clearly suggesting that they are not interested in buying at this point of time.

4) Govt.'s inability  in making favourable market policy inspite of having majority parliament vote is giving negative signals and causing irritation to not only FIIs but also Indian investors.

5) European problem is getting worse as one nation after other is getting on a verge to default its international debt. People are observing Spain closely as Spanish economy is 10 times bigger then Greece and failure in Spain might cause collateral damage for world economy.

6) Federal Reserve of US has cut down the GDP estimate for second time in a row confirming the slow down in US. Economists have again started debating the possibility of double dip recession in US making US investors and global investors more nervous.

7) Indian stock market sell off of tuesday has got every market participant worried. In search of answers, people are coming out with every possible kind of theories and conspiracy theories.

Indian markets are so vulberable right now that markets are starring at a scenario in which one bad news from US or Europe, One more scam in India, One more downgrade and may be a terrorist attack or natural calamity away from a major sell-off.

I am keeping my fingers crossed and justing retail investors to stay away from markets for a while.

Panic on Dalal street

Today was on of the most panicky days for stock markets which reminded me of the days after the Lehman Brothers bankruptcy. 

Before the open of the market today there was a news that Reliance Communications and Reliance Infra were removed from the Sensex index. Reliance ADAG were expected to open down by atleast down by 3%. After the market opened, there was a panic and there was only selling at one point of time which took market down more than 3% in a straight line. The news that Indian Govt. is going to negotiate the tax treaty with Mauritius spooked the market. As we all know that most of the black money from India goes to Mauritius or Switzerland and over 35 per cent of India's FDI and close to 70 per cent of FII inflows are routed through Mauritius, and hence the announcement triggered a selloff that took the BSE benchmark Sensex over 550 points lower in early trade. GTL and GTL Infra which has maximum investment from Mauritius saw a loss of 50% on stock price immediately. Govt. later came out and clarified that it was not negotiating any treaty with Mauritius. Market recovered almost 50% of the fall but then again drifted lower. This shows that the news was just a reason for sell off that was due. There was another thing going on in the market. For the big investors(High networth investors-HNI) who usually trade on margin(for example, if for 25% margin then a HNI can trade for Rs.4crores by just paying Rs.1crore) , the sudden fall resulted in margin call or stop loss getting triggered. As the stop losses on their buy positions got triggered, the shares which they held on margin got automatically sold in the market causing more selling in the market.

The Biggest question, "What will happen next?"
First Scenario: The volatility in previous trading days and the suddenly fall today has scared the retail investors who are net buyers in the market. These investors who deploy their savings in the market and are long term investors will not put their money because of sheer scare and would opt for FDs or gold investments. The retails investors who are holding will also opt to sell their investments and sit on cash to buy again at substantial lower level. This will mean a very low participation in the market.

Second scenario: The FIIs and HNIs who are the key participants in the market. Many of their margin calls might have got triggered because of the panic fall today and might be at substantial losses. To cover their losses and make the payment to brokers who provided the marginal money, they will sell their other stock holdings. This will inturn create more selling pressure on the market. The ones which have some money left will actual prefer short selling then to buy in this uncertain environment. Short selling will create the additional selling pressure of the market.

If these scenarios turn out to be true and which seems to be the possibilty, markets will go down lower.
Today was another False closing. Sensex closed at 17506 and Nifty at 5257 which are perfect False closing points. Out of previous 12 occasions , 10 False closings  have resulted in sell off the next day. This time I expect a bigger sell off.

What about tomorrow?
Tomorrow if Asian markets open up because of the US cues which are positive(US market up by 0.6%) then we might also see a bit of green on our market but then again the selling will begin and a minimum of 1% and maximum of 2% downside can be easily expected on the market in next 2 days.

Previous recommendations
I had suggested to buy put options last week after thursdays closing. Those Nifty puts options have increased 3 times as of todays closing. I suggest holding them for another 2 days for better returns. I suggest buying 5200 put option available at 52 for a target of 80 in next 2 days and a stop loss of 45.

Happy Trading :)

How will be tomorrow for the Indian stock market?

As I speak US markets are down by 1.8%. 1.8% down on US is very huge. This slide comes mainly due to the fears of Greece defaulting on its international loans. The news on greece and the worst condition of global economy has been coming in since many days now but Indian markets are not moving in accordance with global markets. This is possibly because of India's own worries of inflation and rising fiscal deficit of the government. Indian markets are waiting with its fingers crossed for the RBI's decision tomorrow. Nifty is oscillating between 5450 and 5550 for over 2 weeks now. Market is uncertain where to go from this range. Today Nifty closed at 5447 which is almost a False closing. Markets might take decisive direction only after RBI's meeting tomorrow.

Tomorrow the whole nation's Industrial and financial establishment will be staring at the News channel to get what the RBI has decided. Expectation is that RBI will increase only 25bps on the rate. Last months RBI meeting surprised everyone when RBI raised rates by 50bps against the expectation of 25bps and markets sold off heavily. Tomorrow traders on the dalal street might be hoping nothing as such happens. 

What if RBI raises rates more than what is expected?

There will be a big sell-off in the magnitute of 2% down on Nifty and sensex. Over the next coming days also the markets will keep going down as Indian markets are due for correction in relation with Global stock markets which have fallen a lot. 

What if RBI doesn't raise rates?

 This will be a sweet surprise and market will go up heavily and it could be in the magnitude of 2% on both Nifty and Sensex. But the chance of this is very very low as the latest inflation data suggests that inflation is still high and uncontrollable.

What if RBI raises rates in line with expectations?

Markets will be satisfied as its expectation is met and markets will go up a bit say at max 1%. But soon traders will look at other important data coming from Europe and US which is negative and market will resume down turn. This sell off will be huge as Indian market were holding up well since 2 weeks whereas all around the world markets were falling.

I predict a level of 5300 on nifty by this month end if RBI raises rates.

Buying Nifty puts tomorrow is the best possible trade for tomorrow.

Reliance Industries - Emperor has no clothes - Short sell target 800 in One month time frame

Since last few months we are reading articles about Reliance Industries not able raise its output of oil and gas from KG basin. Reliance is giving an excuse of "Technical Problems" but as any intelligent person can guess Reliance doesn't want to sell gas at such low prices decided by Government which applies till 2014. So Reliance has reduced production and coming out with lower then expected projections for future gas output from KG basin. Government is also coming to its senses and continuously coming out of many warnings and investigations on this matter but Reliance is escaping from this act probably by throwing some money and keeping some mouths shut and hands tied in the government dodging investigations. This uncertainity about the future of KG basin has caused a numbness and considerably falling of volumes in the Reliance Industries stock. 


Monday say one more report coming on malpractice of Reliance Industries Ltd(RIL) in operation of KG basin.This time it is the draft prepared by the Comptroller Auditor General (CAG).The CAG in its report said that the government had favoured Mukesh Ambani's RIL and two other oil exploring companies.The CAG report also mentioned that the oil ministry and its regulatory arm - the Directorate General of Hydrocarbons (DGH) - allegedly favoured at least three explorers.The report alleged that the government allowed Ambani's RIL to violate terms of its contract with the government for exploration in the Krishna-Godavari basin.This was the first ever audit of private sector participation in the oil sector.The CAG report also stated that the Directorate General of Hydrocarbons had allowed RIL to violate norms.The violation of terms, in turn, helped RIL increase its capital expenditure plan to start production from the Krisha-Godavari basin thereby decreasing the share of profit for government and causing huge loses for the taxpayers. 


After the CAG, it was the turn of the CBI.


The CBI on Tuesday stepped in to investigate the alleged flouting of policy by Mukesh Ambani led Reliance Industries Limited(RIL). Irregularities in the policy were highlighted in the draft in the Comptroller Auditor General (CAG) Report leaked to the media on Monday.The CBI has, now, asked for files relating to approvals to RIL for increasing its capital expenditure from $ 2.4 billion to $ 8.8 billion.The CBI is also looking at files relating to the vigilance inquiry against former DG Hydrocarbons, V K Sibal.The investigative agency is probing why the exploration period was extended beyond original schedule for both RIL and ONGC.


How bad can it effect RIL? Can it escape again this time?
History is evident how big companies have escaped even biggest of allegations by throwing loads of money. But this time its different. India is going through a time in which no one spared for corruption and malpractice no matter how big he is. Though he is A.Raja(Telecom Minister) or DMK MP Kanimozhi.
Now, even if Mukesh Ambani wants to come out and say "We are clean" it will be a nearly impossible task to prove so many investigations and reports wrong. Do you think Anil Ambani would not have tried bribing few ministers and escaping? Ofcourse he did and escaped CBI enquiry but Reliance communication was not spared and many investors suffered because of it. Anil Ambani must have accepted his allegiance with Congress and escaped the bars of prison. But in matter of Mukesh its different. It is a well known fact of Mukesh's association with Narendra Modi and the BJP. Congress Govt. will not take this thing lightly and will do everything possible to make Mukesh accept Congress party's allegiance. But Mukesh will not give up so easily. Mukesh will try to threaten the Govt. in some way or the other. This fight between Mukesh Ambani and Congress is going to go for long but now that CBI has got involved in this, its going to be more ugly. CBI well known for its unbiased investigation is not going to leave any stones unturned. It is going to be a very ugly period for crores of share holders of RIL.


I predict tomorrows day will see a minimum fall of 3% on RIL stock and a max fall of 5%. The stock will keep falling slowly over the time till everything is clear on the scam side. I predict a price of 800 on the stock by the mid of july and even further down in time to come. Though RIL stock might give good bounces up once in a while because of Mukesh Ambani paid stock market operators of RIL stock. But even these operators cannot keep the stock up for long time as the ownership of RIL stock is huge(crores of share holders majority of them middle class families who at the smell of smoke will cry fire and will sell the stock to run for cover to save their precious life savings). Next few months remain negative for the stock. If somehow Govt. brings Mukesh to his knees and make him increase the output of KG basin then the stock will start rising heavily. Till then the stock is absolutely No Buy. 


There has been huge short selling in the RIL stock since last two days suggesting 850 a perfectly possible value on the stock in coming 2 weeks.


I suggest Short selling of RIL tomorrow in futures or buying Put options of RIL of Rs.900 stock price(Put options - Derivatives contract of underlying shares. These contracts increase in value when the stock price falls).

Buy Rallis India Target Rs.1850-1900 till september

The monsoons have started. It is the time when farmers start sowing to reap their crops during dassera and diwali. If you think logically for good crops farmers will use pesticides and insecticides. Rallis India's does business in Pesticides and other agrochemicals. Rallis having major market share is this business will be the first one to benefit from the monsoon as the sales of agrochemicals rise in this season. Every year as the monsoon season starts the increase in the sales of Rallis products is visible in the increase of the Rallis share price. Almost  every year there will be a sudden spurt in the share price from the start of june. Last year the share price rose from Rs.1000 during start of june 2010 and acheived a peak of 1590 during september 2010 giving a returns of 59% for investors who bought rallis in june2010. During the harvest period of september for obvious reasons farmers stop buying pesticides reducing the sales of Rallis. Every year Rallis is stock to buy during the start of june and sell it with an average return of 30% at the mid of september.

This year also Rallis has started rising again from the levels of Rs.1390 at the end of may. Now Rallis is at Rs.1500 but the stock still has exceptional value as the sales of Rallis are growing every year by an average of 10% and profit are growing at an average of 15%. Also MET department of India has predicted Normal rainfall for this year which means farmers will have adequate water to culivate at the maximum. This factor itself makes me predict a rise of the stock to Rs.2000/- but the current negative sentiments makes me give a conservative target of Rs.1850-1900 till september giving 23-26% returns which is far higher than any fixed deposit for 3 months period in the market . Even if the stock falls(due to sudden negativity in market) from current levels and stays below 1500 after we buy the stock, we can hold this stock for long term as it is a Tata Group Company and after being in the stock market for more than 3 yrs I feel Tata Group  is the most trust worthy of the business groups.

Please find below the one year graph of Rallis.