STOCK DOCTOR
GS Sood
GS Sood
link : http://www.gfilesinda.com
Reshuffle your portfolio, but warily
THE markets have again belied the expectations of most analysts who continued to maintain that there was not much downside in them. The two most significant arguments put forth for this was the cash position with domestic mutual funds that are waiting to deploy it and the eagerly anticipating retail investors who seem to have missed the bus. The markets have corrected by almost 10 percent from the Sensex high of 21,000 touched recently. There are thousands of factors that influenced the markets and it is not possible to analyse their impact. Analysts examine only some of the factors that prima facie appear to be the most significant such as growth in credit, industrial growth, capital issues, inflation, FII investments, exchange rate movements, changes in forex reserves and mutual fund investments.However, it so happens that someone somewhere sneezes and everybody starts catching the cold. The sentiment may drive the market in such a way that despite everything, including the economic conditions, being good, a single event such as interest rate hike or political uncertainty may lead to steep decline. The excerpts of a study by Madan Sabnavis of CARE, published in The Economic Times make this abundantly clear when it concludes that factors such as growth in credit, industrial production, exchange rates and forex reserves do not impact the markets. Higher inflation and increase in IPO activity have a negative relation whereas net FII and mutual fund investments have a very insignificant positive impact on the Sensex. The study concludes that all these variables explain only 48 percent of variation in the Sensex, implying that more than 50 percent of Sensex movement may in fact be sentiment-driven. Another important observation I would like to mention is the one made by Dhirendra Kumar in his column in The Hindustan Times that is of great relevance to small investors. He says they should be guided more by their personal goals than by what they expect the markets to do. He cites the example of two contestants appearing on Kaun Banega Crorepati. One, having already won Rs 1 crore, went on to answer the next question even though he wasn’t sure of his reply and lost everything. The other quit at Rs 12.5 lakh even though she was fairly confident of the next answer, which would have been correct. These two people represent two very common categories of investors, one intelligent but overconfident and the other probably not that intelligent but wise. Despite the fact that most of the experts have been suggesting that there is still enough steam left in the markets, it is the wise investors who have been booking profits at regular intervals. Also, we should not forget that in view of faltering growth in the developed world, the chances of emerging markets growing by them and driving global growth may not sound realistic. The emerging markets, including India, are not decoupled from the rest of the world and anything negative about global markets is bound to impact the Indian markets as well. The investors should therefore reshuffle their portfolios in the light of this fact.
Sandur Manganese & Iron Ores
(CMP Rs 780)
SANDUR Manganese & Iron Ores is engaged in the business of mining manganese and iron ore, production of sponge iron, project consultancy and supervision. The total mining area of the company stands at 2005 hectares with reserves of over 50 million tonnes of iron ore and 25 million tonnes of manganese ore. The valuation of these reserves comes to Rs 15,000 crore, assuming beaten down valuation of Rs 4,000 per tonne for manganese ore and Rs 1,000 per tonne for iron ore. The promoters are holding at 75 percent which provides added confidence. The company has a ferro alloys plant, Star Metallics and Power Pvt Ltd, at Vyasankere, Karnataka, which is a 74 percent subsidiary.
Despite most experts suggesting that there is still enough steam left in the markets, it is the wise investors who have been booking profits regularly.
The company has reported good results in H1 FY 2011 with EPS spurting to Rs 53.64 as compared to Rs 33.34 for the entire FY 2009-10. At an EPS of about Rs 100 for FY 2010-11, its PE at the CMPwill be less than eight as against the industry PE of around 15. The company has a debt of roughly Rs 18 crore towards working capital advances and also has cash kept as bank deposits and investment in various mutual funds of Rs 125 crore. Investors can get decent returns with hardly any downside by investing in the stock with a long-term perspective.
The author has no exposure in the stock recommended in this column. gfiles does not accept responsibility for investment decisions by readers of this column. Investment-related queries may be sent to gfilesindia@gmail.com with Dr Sood’s name in the subject line.
