Master And Student - All About Stock Markets

Cut your losses and Let your Profits run.

How many times we have heard this simple rule of trading? A rule often used in trading that acknowledges the tendency among traders to sell winning positions too early and while they also hold onto losing positions in the hope that the stock will come up quickly.

Most traders tend to take quick gains off the table so early out of fear that the Profits will evaporate quickly.The key to letting your profits run is to not to panic when volatility increases and to maintain your convictions about why you entered into the trade.

To explain this, I am giving details about a recent trade done last week, by one of our friends. As you can see the trade is a short sell one. The stock - Akruti - shorted at Rs.2100 and covered at Rs.1600 (the stock fell Rs.550 that day). Though the quantity traded might be small, one needs to look at the way it has been traded. The position was not closed for just 100/200 profits, but the profits were allowed to run almost entirely.




Cutting your losses and letting your profits run is nothing more than making decision about the trade before the trade has been initiated. When attempting to make all these decisions during the trade, you get yourself into trouble and make emotional decisions.

Define your discipline prior to investing/trading and not after.

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Crompton Greaves Ltd - CGL has approved an investment of Rs 2.3 bn in equity shares of Rs 10 each of Avantha Power and Infrastructure Ltd (APIL).The investment will be made at book value and would represent approximately 41% stake in APIL. APIL, a group company is engaged in generation, transmission and distribution of power.

Market's reaction has been negative to this move.Following the announcement during trading hours, the stock had a sharp correction. The investment is of a long-term nature as returns in the form of dividends would be generated only after a period of 3-4 years (being the execution time frame).

Pricing of stake - Rs 2.2 bn for a company developing 1200 MW project:
CGL would be investing Rs 2.2 bn in APIL for a 41% stake. APIL is already in the middle of developing 1200 MW of project consisting of 600 MW each at Korba and Jhabua. This project has already made significant progress so far as necessary prerequisites is concerned. Thus to that extent the risk involved with this project is limited.

CGL has also indicated that the pricing had been approved by independent directors. Pricing of stake appears to be reasonable. Equity commitment of a 1200 MW project assuming 70:30 debt equity ratio works out to Rs 14.4 bn. Thus for a 41% stake equity commitment would be Rs 5.9 bn, however CGL is paying only Rs 2.2 bn for the take.

Buyback of equity shares.
CGL has approved buyback of equity shares of Rs 2/ each from the open market at a price not exceeding Rs 170/- per share, upto an amount of Rs 2.2 bn (25% of paid-up capital). At the current price, the maximum stake that can be bought works out to 5%.

Impact on balance sheet.
The total outgo on account investment in APIL and Buyback works out to Rs 4.5 bn.The company could end the year with a cash of Rs 2.7 bn after incurring capex of Rs 2.0 bn. Thus, the company may have to raise debt for funding substantial portion of investment.

Valuation.
CGL is currently trading at 8.8x and 7.6x FY09 and FY10 earnings respectively. Investors could accumulate on declines with a long term view.

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You want to call back a sent email message ? Google's Gmail now gives users a brief period to hold back the sent messages.

A new feature - "Undo Send" introduced in Google's Gmail program that holds a message for five seconds before it is being sent. Gmail's sent mail confirmation message now includes an "Undo" link. Clicking on "Undo" will return a message to its original draft form.

The feature does not allow a user to recall a message that's already been sent.

Really useful feature. So, you have five seconds to decide - to send or not to send !

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Everonn Systems had came out with an IPO last year at Rs.140 and the stock listed at 400 and hit an high of 1200 within few months of listing. Recently the stock hit a yearly low of 79. The stock is up 100% in a just two days ! So what's the reason behind this big up move?

No great news to write home about. It just another case of operator driven hi-flier. Prior to this rally, the average volumes of the stock were 6 lakh shares, whereas in the couple of days the volumes are more than 1 cr shares. The delivery volumes were meagre 3 lakh shares, which confirms the high speculative activity going around.

Though the fundamentals of Everonn seems reasonable, reporting an annualised EPS of Rs.20, with a P/E ratio of 7 times, the stock has gone up sharply warrants a caution. Probably it is running along with Educomp, also up 40% in just a few days.

Another hi flier, Akruti City , up from Rs.810 to Rs. 1600, in just couple of weeks.The stock hit a year-low Rs.600 in Jan 2009. When all other realty stocks are hitting year lows, Akruti seems to be trading in a different universe. The stock has hit a year-high of 1600. The momentum could take up a few hundred rupees more.

Fundamentals of Akruti are terrible. The company has reported a quarterly EPS of just Rs.3, on an annualized works out to Rs.12. The current P/E of that stock at CMP of Rs.1600 is staggering 130 times.

So what is SEBI doing? Yes ! you know .No prizes for guessing !

Buyer beware !

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Market last week was a truncated one, but nevertheless it was full of action. The week began on a subdued note and Nifty closed at 2573 on Monday. But it held the support at 2550 and rebounded strongly on last two days of the week to close at 2720, gain of about 170 points from the lows of the week.

Global markets too, recovered after a initial setback in the beginning of the week. Dowjones index recovered from an intra-week low of 6516 to close the week with a whopping 10 per cent gain. European indices such as the FTSE, CAC and DAX recovered from multi-year lows on Monday to close with weekly gains of about 10 percent. Most of the Asian indices gained about 5% for the week.

So, what to expect next week ?

The near-term resistance for the Nifty is at 2760/2800. Profit booking is expected around these levels. The 50-day moving average at 2810 adds to its significance. If 2800 isn't taken out, it will imply that the near-term outlook for Nifty stays negative and the index can reverse down to decline to 2650/2550.




The current up-move is one of the sharp bear market rallies. A close above 2810 will make the near-term view positive for Nifty. Such a move will indicate that the index can move higher to 2900/3000 over the medium-term. On the other hand, a close below 2500 will take it down to 2250. Big move on the either side can be expected if either of the levels get breached.

Index heavy weights:

Reliance Industries: RIL witnessed a sharp up-move in the last two sessions that enabled it to gain about 10 per cent last week. RIL faces strong resistance at Rs 1,300/1320.Like nifty , RIL is also trading in a band of Rs.1150-1300.

State Bank of India: SBI was weak and the stock declined to Rs 896 last week but staged a recovery to close at 950.A strong close above Rs 1,000 is required to make the short-term outlook positive for this stock.A downward reversal is expected from Rs 1,000,which could take it down to 900/860.

Infosys : The stock closed the week with 6 per cent gain. The stock has strong resistance at Rs 1,320. A downward reversal from Rs 1,320 will pull the stock down to Rs 1,200/1,150.

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Bharti Airtel shares fell 6 percent on Thursday to close at Rs.550.It was the steepest fall for the stock in four months. So what's the buzz ? The firm's chief executive, Manoj Kohli, sold his holding in the company.

He sold 123,000 shares through open market transactions on March 6 and 9, later said he had done so for personal reasons . Kohli said he is still holding 180,000 options and would continue as CEO and joint managing director.

Kohli would have got about $1.5 million for the shares he sold.The market is worried why all of a sudden the CEO had to sell his holding.Investors were jittery about such insider stake sales after recent corporate scandals, including the alleged fraud by Satyam Computer. Also, the recent TRAI announcement to cut interconnection charges is negative for them.

Technically the stock has gone down on huge volumes of more than 1cr shares on NSE and it is a important factor to watch out going forward.

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Banking Sector - Knowns and Unknowns.

The Banking stocks have corrected sharply and the Bank Nifty has underperformed Nifty very much. Now we take a look at the factors favoring and affecting the banking sector.

Knowns :

* Fiscal-profligacy led market borrowings have tightened bond yields, thereby largely ending the public sector banks (PSBs)’s chances of recording healthy treasury gains.

* Earnings growth seems to have peaked for now—moderating credit growth, anticipated pressure on the net interest margins (NIMs), likely weaker fee income growth and higher credit costs will limit the bottom line growth. Private players are better placed compared with the PSBs in defending their bottom line growth.

Unknowns:

* While the above factors were largely known, the risk arising from the Indian banks’ international operations remains a major “unknown” due to the scanty disclosure in this regard by the banks.

* Besides, the ongoing negotiation over offering a second round of pension to the uncovered employees is another potential risk to the PSBs. If the banks agree to abide by the demand raised by the employee unions, they may have to face a significant additional pension liability, over and above the AS-15 provisions being made currently.

* PSBs may face capital constraints (Tier-I capital) as the Government of India (GoI)’s fiscal position may not permit capital infusion and lack of appetite in primary equity market currently. Private players are comfortably placed in this respect on the back of their recent capital raising.

The above unknowns has caused much weakness in the Indian banking stocks. Though cheap, Indian banks are likely to remain cheap in the near term as the world struggles with the after-effects of the credit squeeze on real economy. Despite the near-term weakness, the Indian banks are positive from the long-term perspective. Hence, investors can utilize the opportunities that may present themselves now and over the next 2 to 3 months to accumulate banking stocks.

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Plinky is the brainchild of one of the original Blogger team-members, Jason Shellen.People have come up with interesting answers, in the first few weeks of answering Plinky prompts.

What's a Plinky prompt?

According to Plinky, every day they provide a prompt (i.e. a question or challenge) and you answer.They make it simple to add rich media and share your answers on Facebook, Twitter and blogs.

Not only does Plinky provide help with what to post to your Blogger blog, but it also helps your answers look good in the process. Depending on the prompt, answers contain rich media elements like photos, maps, lists and cover art for books, movies and albums. It's easy to tell Plinky that you use Blogger and all your answers posted through Plinky can go right to your blog.

Just give it a try!

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The BSE Sensex fell more than 2 percent, to its lowest close in more than three years as concerns about the global economic outlook weakened and volatile regional markets dented investor appetite.

Reliance Industries, led the losses as foreign funds dumped the stock on worries the company's profit margins would come under severe pressure in the wake of recession in major economies.

The 30-share BSE Index shed 179.79 points to 8,427.29, its lowest close since Nov. 10, 2005, with 27 components out of 30 , losing.The benchmark, which fell for the third consecutive session, has lost 12 percent this year after tumbling more than 50% in 2008 in its worst annual performance.

The stocks slide sent the rupee to a record low for the third day, crossing 52 per dollar, as foreign fund withdrawals and falling exports mounted pressure.

However, export-led outsourcing companies likes Infosys Technologies and Tata Consultancy Services fell 1.7 and 3.1 percent respectively on a gloomy business outlook in the United States, their main market.

Foreign funds have pulled more than $2 billion from Indian markets this year, after outflows of $13 billion in 2008.

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