Madras aluminium- MALCO
BSE 504850
CMP Rs 800
Did you notice Malco shooting up 20% to Rs 780?
So you know why?
Malco has 1.1 share of Sterlite for every share of Malco
No of shares of Malco: 22,500,000
Malco owns 25,613,400 shares of Sterlite so if you buy 1 share of Malco you get 1.4 share of Sterlite!!!!
Sterlite is valued at Rs 930 and Malco is valued at Rs 780!!!!
Even if you assume Malco has zero value, then value of Sterlite holing in Malco is Rs 1060
So Malco should be up at least 36% more or Rs 1060 !!!
But note that Malco is profitable with quarterly EPS of Rs 16.28 or annual Rs 65!! so even if we apply conservative PE multiple of 10 that means its Rs. 650
So value of of stock of stock shoule be AT LEAST 650+ 1060 = 1701 or upside of Rs 930
So it shoudl be a muti bagger !!!
Thursday, October 18, 2007
Wednesday, October 17, 2007
IFCI
IFCI reported Rs 497 crs net for Q2 as against Rs 246 crs for Q1 on equity of Rs 638 crs Full year expected Rs 2470 crs EPS Rs 39 fair value on PE of 7 is Rs 273 and at cmp 85 3 times upside is still left. IFCI also entered realty biz on its own. Acquired land at common wealth for Rs 100 crs which will be an Rs 500 crs project with.
IFCI has decided to convert Rs 1480 crs debt including that of LIC of Rs 500 crs at the SEBI formulae price i.e 6 months weighted average or 15 days weighted average whichever is higher.
The six month weighted average is Rs 52 whereas 15 days is Rs 92 which means the debt will be converted at Rs 92 per share. Rs 10 will be part of equity and Rs 82 will go to reserves. The impact will be rise in equity by Rs 160 crs and in reserves Rs 1320 crs.
The new diluted equity will then be Rs 798 crs and EPS expected could be Rs 31 and & PE the adjusted price should be Rs 217 per share. However it is remarkable that IFCI will become a debt free company and the book value will rise by whopping Rs 48 by the end of the year making IFCI a cheapest financial sector co.
With further 26% stake dilution, the reserves will swing close to book value making IFCI a very strong company into making.
This is a well marked beginning by IFCI in the Govt sponsored role model of PSU realty. Having dropped the plan to de-merge realty biz IFIC board has taken decision to start realty in a separate realty division and common wealth is beginning of the same.
With this IFCI will be a clear re rating story and the offer of Rs 127 for 26% stake could still become attractive for IFCI on going forward.
IFCI has decided to convert Rs 1480 crs debt including that of LIC of Rs 500 crs at the SEBI formulae price i.e 6 months weighted average or 15 days weighted average whichever is higher.
The six month weighted average is Rs 52 whereas 15 days is Rs 92 which means the debt will be converted at Rs 92 per share. Rs 10 will be part of equity and Rs 82 will go to reserves. The impact will be rise in equity by Rs 160 crs and in reserves Rs 1320 crs.
The new diluted equity will then be Rs 798 crs and EPS expected could be Rs 31 and & PE the adjusted price should be Rs 217 per share. However it is remarkable that IFCI will become a debt free company and the book value will rise by whopping Rs 48 by the end of the year making IFCI a cheapest financial sector co.
With further 26% stake dilution, the reserves will swing close to book value making IFCI a very strong company into making.
This is a well marked beginning by IFCI in the Govt sponsored role model of PSU realty. Having dropped the plan to de-merge realty biz IFIC board has taken decision to start realty in a separate realty division and common wealth is beginning of the same.
With this IFCI will be a clear re rating story and the offer of Rs 127 for 26% stake could still become attractive for IFCI on going forward.
Why the Dollar keeps Dropping ?
The dollar hasn't been this low in a decade, but it's headed lower. By the end of 2007, we can expect the dollar to buy 11.6% less versus the euro than it did at the beginning of the year.
As the dollar continues its slide, count on Wall Street to gear up its fear machine.
Any further retreat in the dollar will put the U.S. currency on the edge of unexplored territory. The fall of the U.S. dollar into unknown territory, the argument is likely to go, would break the will of those overseas central banks, from Russia to Saudi Arabia to China, that have been buying dollars to give their countries' exports a competitive edge.
Well, I'm sorry, but I just don't buy that scenario. Wall Street could, of course, scare itself into a dollar rout because many of the folks who work there are so traumatized by the crises in the markets for mortgages and for buyout loans that they're likely to jump at shadows, even when the shadows are of their own making.
Look to overseas markets
think it's much more likely that we'll continue to see a steady decline in the dollar, punctuated by rallies as traders take profits. The Federal Reserve, which rode to the rescue in the August crisis, can't do much this go-round. Cutting interest rates to save economic growth hurts the dollar. Raising interest rates to help the dollar would hurt the economy.
In this environment, I think you'd like to own the stocks of companies that own things -- gold and iron mines, for example -- or that make things sold overseas.
And you'd like to make sure that you put a piece of the developing world's stock markets in your portfolio. I know, I know. The press is full of stories about a potential bubble in developing countries' stock markets. And I do think that's a real danger.
But the trend blowing in favor of these markets is so strong, and likely to last for so long, that I think it's worth investing a bit of time on these markets to figure out how to put some money into them without taking on more risk than you'd like.
After all, as I lay out in this column, I think that's exactly what the world's central banks are doing.
Why it will be gradual
In this column, I'm going to lay out the logic for a gradual dollar decline -- no reason to panic -- and for investing more in developing economies. In my next column, I'll look at the arguments for a dangerous bubble in these markets and name some stocks that will give you the exposure you want without taking on a ton and a half of risk.
Here's why the dollar is likely to keep dropping for a while:
The U.S. runs a huge, though falling, trade deficit with the rest of the world, about $700 billion annually at current monthly rates. That leaves our trading partners holding an ever-expanding number of dollars.
In recent years, only relatively higher U.S. interest rates -- and some premium from the economic stability that comes with being the world's biggest economy -- have kept demand for dollars roughly in step.
As the economies of Europe and, for much of the year, Japan have grown faster than the United States in 2007, central banks in those countries have raised interest rates, cutting into the premium investors could earn by holding dollars.
As interest-rate differentials have narrowed, as the U.S. economy has slowed and as a weaker dollar has cut the returns to overseas investors, demand for the dollar has weakened. And so has the price of the dollar.
They'll stick with dollars for now
Despite saber rattling by the world's central banks, there's little evidence that of any of them are abandoning U.S. dollars even as the currency tests new lows. The International Monetary Fund's numbers show a slight shift from dollars into euros, with the dollar share falling to 64.2% of all global reserves in the first quarter of 2007 from 64.6% in the last quarter of 2006.
But much of that shift is a result of an appreciation in the euro holdings of these central banks and the depreciation of the dollar. Certainly, the Federal Reserve's more recent balance sheet of Treasury and agency bonds doesn't show a big shift out of dollars. Foreign central banks held $1.995 trillion of this paper at the end of September, up from $1.673 trillion in September 2006.
To the degree that any asset shifting has taken place in 2007 by central banks, it was out of Treasurys and into higher yielding paper such as mortgage-backed debt, or buyout loans or derivatives based on those assets. The move came just in time for these banks to take a beating in this summer's meltdown in those markets. I suspect that for the moment, these banks aren't overly eager to take on more risk.
The pain will grow
Still, I think after a relatively short breathing space, the world's central banks will start looking for a solution again because the problem is too big to ignore. Subsidizing domestic jobs is all well and good, but a falling dollar makes it increasingly expensive.
An 11.6% decline in the dollar against the euro means that every dollar in China's $1.2 trillion foreign-exchange reserve -- and dollars make up something like 70% of that reserve -- are worth that much less when the country goes to buy anything from the European Union, China's second-largest trading partner. That's not an insignificant issue when you're importing about $90 billion in goods from Europe annually.
Same goes for Russia and Saudi Arabia, where the biggest exports are denominated in dollars but many imports have to be paid for in euros.
The overseas central banks -- or more accurately, the governments behind them that decide on how many jobs to buy by spending reserves to keep their currency from appreciating versus the dollar -- have a pretty high threshold of financial pain. But it's not infinite.
Looking elsewhere for investments
The conventional argument has long been that these banks would support the dollar no matter what because they didn't have a choice. What currency could replace the dollar?
But that argument looks out of date. The countries with huge reserves may still need to keep dollars for trade, but, increasingly, they're looking elsewhere for their investments. The new vehicle is the sovereign investment fund, with capital provided from national reserves for investment in assets around the globe. The models here are the investment funds of Norway and Singapore that have bought stakes in foreign telecommunications companies, airlines and financial companies.
And those investments look pretty attractive now that developing countries' stock markets are beating the returns from investing in the United States. Why buy more of the risky assets that just blew up when you can earn a better return in India or Brazil or the Philippines ?
Developing markets will get the cash
Where does that leave the United States? In a tough competitive position on the currency front.
The recent blowup in the U.S. mortgage- and buyout-loan markets couldn't have come at a worse time competitively. Big losses in these dollar-denominated investments eroded some of the edge that dollar investments had in the minds of investors over investments in developing markets. The bigger the losses in that debacle, the longer it takes to work out and the less transparent that market remains, the more overseas central banks will look to developing markets for the gains they can't get in U.S. dollar assets.
That doesn't add up to a quick stampede out of dollars. Instead, look for the decline in the dollar to continue at a gradual pace as developing markets win more of the world's cash.
As the dollar continues its slide, count on Wall Street to gear up its fear machine.
Any further retreat in the dollar will put the U.S. currency on the edge of unexplored territory. The fall of the U.S. dollar into unknown territory, the argument is likely to go, would break the will of those overseas central banks, from Russia to Saudi Arabia to China, that have been buying dollars to give their countries' exports a competitive edge.
Well, I'm sorry, but I just don't buy that scenario. Wall Street could, of course, scare itself into a dollar rout because many of the folks who work there are so traumatized by the crises in the markets for mortgages and for buyout loans that they're likely to jump at shadows, even when the shadows are of their own making.
Look to overseas markets
think it's much more likely that we'll continue to see a steady decline in the dollar, punctuated by rallies as traders take profits. The Federal Reserve, which rode to the rescue in the August crisis, can't do much this go-round. Cutting interest rates to save economic growth hurts the dollar. Raising interest rates to help the dollar would hurt the economy.
In this environment, I think you'd like to own the stocks of companies that own things -- gold and iron mines, for example -- or that make things sold overseas.
And you'd like to make sure that you put a piece of the developing world's stock markets in your portfolio. I know, I know. The press is full of stories about a potential bubble in developing countries' stock markets. And I do think that's a real danger.
But the trend blowing in favor of these markets is so strong, and likely to last for so long, that I think it's worth investing a bit of time on these markets to figure out how to put some money into them without taking on more risk than you'd like.
After all, as I lay out in this column, I think that's exactly what the world's central banks are doing.
Why it will be gradual
In this column, I'm going to lay out the logic for a gradual dollar decline -- no reason to panic -- and for investing more in developing economies. In my next column, I'll look at the arguments for a dangerous bubble in these markets and name some stocks that will give you the exposure you want without taking on a ton and a half of risk.
Here's why the dollar is likely to keep dropping for a while:
The U.S. runs a huge, though falling, trade deficit with the rest of the world, about $700 billion annually at current monthly rates. That leaves our trading partners holding an ever-expanding number of dollars.
In recent years, only relatively higher U.S. interest rates -- and some premium from the economic stability that comes with being the world's biggest economy -- have kept demand for dollars roughly in step.
As the economies of Europe and, for much of the year, Japan have grown faster than the United States in 2007, central banks in those countries have raised interest rates, cutting into the premium investors could earn by holding dollars.
As interest-rate differentials have narrowed, as the U.S. economy has slowed and as a weaker dollar has cut the returns to overseas investors, demand for the dollar has weakened. And so has the price of the dollar.
They'll stick with dollars for now
Despite saber rattling by the world's central banks, there's little evidence that of any of them are abandoning U.S. dollars even as the currency tests new lows. The International Monetary Fund's numbers show a slight shift from dollars into euros, with the dollar share falling to 64.2% of all global reserves in the first quarter of 2007 from 64.6% in the last quarter of 2006.
But much of that shift is a result of an appreciation in the euro holdings of these central banks and the depreciation of the dollar. Certainly, the Federal Reserve's more recent balance sheet of Treasury and agency bonds doesn't show a big shift out of dollars. Foreign central banks held $1.995 trillion of this paper at the end of September, up from $1.673 trillion in September 2006.
To the degree that any asset shifting has taken place in 2007 by central banks, it was out of Treasurys and into higher yielding paper such as mortgage-backed debt, or buyout loans or derivatives based on those assets. The move came just in time for these banks to take a beating in this summer's meltdown in those markets. I suspect that for the moment, these banks aren't overly eager to take on more risk.
The pain will grow
Still, I think after a relatively short breathing space, the world's central banks will start looking for a solution again because the problem is too big to ignore. Subsidizing domestic jobs is all well and good, but a falling dollar makes it increasingly expensive.
An 11.6% decline in the dollar against the euro means that every dollar in China's $1.2 trillion foreign-exchange reserve -- and dollars make up something like 70% of that reserve -- are worth that much less when the country goes to buy anything from the European Union, China's second-largest trading partner. That's not an insignificant issue when you're importing about $90 billion in goods from Europe annually.
Same goes for Russia and Saudi Arabia, where the biggest exports are denominated in dollars but many imports have to be paid for in euros.
The overseas central banks -- or more accurately, the governments behind them that decide on how many jobs to buy by spending reserves to keep their currency from appreciating versus the dollar -- have a pretty high threshold of financial pain. But it's not infinite.
Looking elsewhere for investments
The conventional argument has long been that these banks would support the dollar no matter what because they didn't have a choice. What currency could replace the dollar?
But that argument looks out of date. The countries with huge reserves may still need to keep dollars for trade, but, increasingly, they're looking elsewhere for their investments. The new vehicle is the sovereign investment fund, with capital provided from national reserves for investment in assets around the globe. The models here are the investment funds of Norway and Singapore that have bought stakes in foreign telecommunications companies, airlines and financial companies.
And those investments look pretty attractive now that developing countries' stock markets are beating the returns from investing in the United States. Why buy more of the risky assets that just blew up when you can earn a better return in India or Brazil or the Philippines ?
Developing markets will get the cash
Where does that leave the United States? In a tough competitive position on the currency front.
The recent blowup in the U.S. mortgage- and buyout-loan markets couldn't have come at a worse time competitively. Big losses in these dollar-denominated investments eroded some of the edge that dollar investments had in the minds of investors over investments in developing markets. The bigger the losses in that debacle, the longer it takes to work out and the less transparent that market remains, the more overseas central banks will look to developing markets for the gains they can't get in U.S. dollar assets.
That doesn't add up to a quick stampede out of dollars. Instead, look for the decline in the dollar to continue at a gradual pace as developing markets win more of the world's cash.
Thursday, October 04, 2007
Time To Book Profit
Phew what a ride it has been from 15000 to almost 18000...None of the market guru could foresee this move....taking everyone by surprise....One might wonder whats next now...Market at the current level of 17847 seems all set for short - correction according to me...it might open n touch 18000 or maybe close a tit-bit above 18000 this week but seeing the volatility n the technical parameters i sense market is all set for correction with huge volatility across the board.
i will advice 75% profit booking in all the counters that i had advised investment in.....NTPC...reliance petrolium....RNRL....Reliance energy....unitech...Raipur alloys n many other...one can buy these gems once again as and when market consolidates n value buying can be seen
OFCOURSE AS NO ONE CAN PREDICT WHERE MARKET WILL GO THESE ARE JUST MY VIEWS AND CAN GO WRONG
i will advice 75% profit booking in all the counters that i had advised investment in.....NTPC...reliance petrolium....RNRL....Reliance energy....unitech...Raipur alloys n many other...one can buy these gems once again as and when market consolidates n value buying can be seen
OFCOURSE AS NO ONE CAN PREDICT WHERE MARKET WILL GO THESE ARE JUST MY VIEWS AND CAN GO WRONG
Tuesday, October 02, 2007
US bull market might be coming to an end
It is difficult to believe that the largest holder of the US treasury bonds is China. To me, I think it is geo-politically very sensitive issue and if I were to be the President of America I would redeem them the next day. They have forgotten where Hindi-Chini bhai-bhai led (Indians) to.
Having said that, the US economy was the engine of economic growth worldwide. It was an unsustainable methodology of growth, where you borrow, borrow,borrow and consume, consume, consume. Also we had a 25-year bull market in America and all bull markets, regardless of regulators, always produce excesses. Excesses are not products of loose regulations but more products of bull markets because then markets make people lose their sense and they become absolutely greedy.
I personally believe that the US housing market is not going to bottom in the next 36 months; because you built 21 million houses in 2 years as against 16 million every year. So you build one million extra and at least out of those 16 million normal ones, 40% of the houses in the last two years have been sold to subprime and allied alternatives.
In Miami, you have a building boom amongst the housing bust. So I think the world is underestimating the consequences of this subprime or the meltdown of the US housing. There was a vicious cycle in America where you gave money to people on credit to people who could not afford USD 50,000 - you gave them half million dollars; not based on their ability to pay, but on the value of their capital assets. They primarily drove the buying of houses in the last 24 months
On interest rates:
It is not the question of interest rates. No one in his right sense now is going to give loans to sub-prime mortgages again. The resets are just starting.
So I foresee a few things.
One, the problem in the housing market problem is going to get worse because there will be a lot of foreclosures. Two, there is lot of housing under construction which cannot be stopped immediately. And third, people say there is full employment in America. But housing is 70% of America’s GDP and that itself would lead to a slowdown in America.
This slowdown in the housing industry is going to lead to a slowdown in the US economy. This again, would mean lower wages and lower employment, which could result in greater housing loan repayments defaults.
I read an economist saying that Europe has had faster increases in housing prices than America. There is a very large subprime market even in Britain. So I think this will continue to transfer itself even to Europe.
I believe there have been great excesses in the US bull market. That bull market, in my opinion, is coming to an end and the real excesses will be exposed only after the bull market is over.
Though at the moment we are all very happy and feeling that this is something like long-term capital management or the Russian debt crisis, where the Fed reduces interest rates and all problems go away. I do not believe that because credit is not only available on cost; it is also a question of risk appetite to borrow and risk appetite to lend.
So I think that credit is no longer going to be available in America or if it is, it is going to be available in a measured manner. There is going to be a slowdown in America.
There are various opinions that if US interest rates comes down money will flow into emerging markets. Let us put the impact in two parts – one, how they will affect economic activity and how they will affect asset prices.
On India:
As far as India is concerned, I personally foresee a big slowdown for the software industry. I do not think that if America slows down; more work will come to us. I think if America slows down, more work could come 36 months later. I think 25%-30% IT budgets are discretionary and there will be big cuts in IT budgets.
As far as other Indian exports are concerned, I do not think they are going to be affected very substantially. As far as commodity prices go, I think they will come down. Interest rates also will be down, which is good for India.
US is a very dynamic economy; it has great self-correcting measures. This recession in America depends on factors like whether it is going to be orderly, or create a lot of disequilibrium etc. If it is an orderly one, I think Indian markets will be not be affected to a very large extent. But if it is a huge disequilibrium, then things are going to be quite unpredictable
Having said that, the US economy was the engine of economic growth worldwide. It was an unsustainable methodology of growth, where you borrow, borrow,borrow and consume, consume, consume. Also we had a 25-year bull market in America and all bull markets, regardless of regulators, always produce excesses. Excesses are not products of loose regulations but more products of bull markets because then markets make people lose their sense and they become absolutely greedy.
I personally believe that the US housing market is not going to bottom in the next 36 months; because you built 21 million houses in 2 years as against 16 million every year. So you build one million extra and at least out of those 16 million normal ones, 40% of the houses in the last two years have been sold to subprime and allied alternatives.
In Miami, you have a building boom amongst the housing bust. So I think the world is underestimating the consequences of this subprime or the meltdown of the US housing. There was a vicious cycle in America where you gave money to people on credit to people who could not afford USD 50,000 - you gave them half million dollars; not based on their ability to pay, but on the value of their capital assets. They primarily drove the buying of houses in the last 24 months
On interest rates:
It is not the question of interest rates. No one in his right sense now is going to give loans to sub-prime mortgages again. The resets are just starting.
So I foresee a few things.
One, the problem in the housing market problem is going to get worse because there will be a lot of foreclosures. Two, there is lot of housing under construction which cannot be stopped immediately. And third, people say there is full employment in America. But housing is 70% of America’s GDP and that itself would lead to a slowdown in America.
This slowdown in the housing industry is going to lead to a slowdown in the US economy. This again, would mean lower wages and lower employment, which could result in greater housing loan repayments defaults.
I read an economist saying that Europe has had faster increases in housing prices than America. There is a very large subprime market even in Britain. So I think this will continue to transfer itself even to Europe.
I believe there have been great excesses in the US bull market. That bull market, in my opinion, is coming to an end and the real excesses will be exposed only after the bull market is over.
Though at the moment we are all very happy and feeling that this is something like long-term capital management or the Russian debt crisis, where the Fed reduces interest rates and all problems go away. I do not believe that because credit is not only available on cost; it is also a question of risk appetite to borrow and risk appetite to lend.
So I think that credit is no longer going to be available in America or if it is, it is going to be available in a measured manner. There is going to be a slowdown in America.
There are various opinions that if US interest rates comes down money will flow into emerging markets. Let us put the impact in two parts – one, how they will affect economic activity and how they will affect asset prices.
On India:
As far as India is concerned, I personally foresee a big slowdown for the software industry. I do not think that if America slows down; more work will come to us. I think if America slows down, more work could come 36 months later. I think 25%-30% IT budgets are discretionary and there will be big cuts in IT budgets.
As far as other Indian exports are concerned, I do not think they are going to be affected very substantially. As far as commodity prices go, I think they will come down. Interest rates also will be down, which is good for India.
US is a very dynamic economy; it has great self-correcting measures. This recession in America depends on factors like whether it is going to be orderly, or create a lot of disequilibrium etc. If it is an orderly one, I think Indian markets will be not be affected to a very large extent. But if it is a huge disequilibrium, then things are going to be quite unpredictable
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