As an investor in stocks, you should always be asking what the company will do for you tomorrow.

By that, Investors are particularly concerned with future growth in earnings and, ultimately, the stock’s price and dividend if it pays one.

A company can have a great year and the stock can reflect that performance, but if there is no brighter tomorrow, how is future stock price growth going to be justified?

This concern with short-term growth is often criticized as a problem that penalizes companies that make decisions good for the long term, but detrimental in the near term to earnings.

Stock is Hammered

That’s not always the case if management is trusted by investors to make good decisions, however in many cases a company's stock is hammered in the market if there is not a clear pattern of year-to-year growth.

This is especially true of companies tagged as growth investments and in sectors such as technology that are marked by high growth rates.

While this may seem unfair to some, it is a perfectly logical way for the market to allocate investment assets to those stocks that will produce the highest returns in the near future.

Stocks for Long Term

Individual investors are rightly cautioned to invest for the long term and many successful investors do just that, however they only do so when they find a company that has a good chance of providing a sustained growth over a long period.

Investing in company for the long term that does not grow is a pointless exercise (unless you are investing in a utility, for example, for a nice fat dividend and don’t care much about the share price).

The Stock investors should always looking forward and should not be concerned with past performance other than in providing a reference point.

How much cash do you have in the bank? Can you pay all of your current bills and still have a positive balance?

If so you are considered highly liquid, meaning enough of your assets are either cash or easily converted to cash.

For stock investors, a company’s liquidity is an important consideration in looking for potential investments.

Companies that have good liquidity are able to ride out bumps, the economy may put in their way.

The question for stock investors is how do you measure liquidity.

Cash Ratio

The cash ratio is the most conservative ratio for measuring liquidity is often used during periods of economic turmoil.

The cash ratio is easy to calculate. It is:

Cash plus easily marketable securities divided by current liabilities.

Current liabilities are defined as those bills due within one year, such as bills to vendors, suppliers, daily operating expenses, and so on.

You can find the values for this equation on the balance sheet.

The cash ratio should be close to 1 and higher is better.

Ignores Assets: The reason the cash ratio is considered a very conservative view of a company’s liquidity is that it ignores such values as inventory (which turns over at least once a year for most companies).

The cash ratio also ignores the daily cash generation of the business as it sells products and services.

Why use the cash ratio?

In difficult times, cash is the most important asset many companies possess.

If a company has a ready supply of cash, it can survive sudden drops in sales that might put another less liquid company out of business.

The cash ratio is a good gauge of how a company can weather difficult times.

It is not a good ratio to use when considering the value of a company because it excludes valuable assets such as inventory and property. It is not a good ratio to use by itself, because much is missing from the total health of the company.

However, it is a good signal that a company is worth further consideration or a red flag that a company with a poor cash ratio may lack the liquidity to survive a difficult economy.

There are three main areas of influence that move a stock’s price up or down. If you understand these influences, it will help you decide whether the price movement is a buy, sell or sit tight signal.


Fundamentals Changes 

Clearly, the most direct influence on a stock’s price is a change in the economic fundamentals of the business.

If revenues and profits are on a steep upward trend with no indication of leveling off, you can expect to see the stock price rise as investors bid up this attractive company.

On the other hand, if the profit picture is flat or, worse, declining with no change in sight, look for investors to abandon the stock and the price to fall.

These are simple examples of changes in fundamentals. Other, more complex and subtle changes can occur that may not dramatically affect the stock price immediately (increased debt, a poor acquisition and so on can also trigger price changes).

The point is that changes in the underlying business have a direct impact on the stock’s price. Smart investors spot the subtle changes before they become price-movers and take the appropriate action.

Sector Changes

Changes in the stock’s sector can have positive or negative affects on price too. Some sectors or industries are cyclical in nature and you should know that would affect price.

However, when whole sectors catch of fire (think real estate stocks) or burn up (think real estate stocks, again), even those companies that have solid fundamentals are pulled along with the rest of the sector.

You may hold a stock that is a victim of “guilt by association” when an industry falls out of favor. Likewise, stocks can see prices artificially inflated if they find themselves in the right industry at the right time.

Market Swings

The market goes up and the market goes down. That’s about all you can say with certainty concerning the stock market.

As the market moves up and down, your stock may move with or against it. Most large-cap stocks will follow the market to some degree, but smaller companies may not get the same push every time.

In general, a strong market move either up or down will carry more stocks with it than not, so your stock may be up or down for no other reason than the market was up or down.

How do you use this information?

A change in fundamentals may be an opportunity to buy more shares of a growing company or it may signal the time to sell if the changes are for the worse.

A change in the sector is usually temporary so most long-term investors will ride out dips due to these factors. However, if something drastically changes in the stock’s industry due to regulation or a new technology, for example, you may want to reevaluate your position. Is the company capable of adapting or do you own a dinosaur?

Market swings that move your stock’s price can be opportunities to buy additional shares (assuming all the company’s fundamentals still checkout). If the rising market pushes up your stock’s price, it may be time to take a profit on part of your holdings and wait for the price to come back down to earth to reinvest.

Stock splits may seem like a gift to some investors, but there is little evidence that you benefit in any meaningful way when a company splits its stock.

Here’s what happens. Let say a stock, which is currently priced at Rs 200 per share, announces a 2-for-1 stock split. If you own 100 shares before the split worth Rs 20,000, you will own 200 shares worth Rs 20,000 after the split.

The market automatically marks down the price of the stock by the divisor of the split. The Rs 200 per share price becomes Rs 100 per share.

There are other splits such as 5-for-1 and 10-for-1, however 2-for-1 seems the most common.

It terms of what your holdings are worth, nothing changes. In terms of what the company is worth, nothing changes. So, why do it?

Why Split?

Perception – Some companies worry when the per share price gets too high that it will scare off some investors, especially small investors. Splitting the stock brings the per share price down to a reasonable level.

Liquidity – If a stock’s price rises into the thousands of Rs per share, it may reduce the trading volume. Increasing the number of outstanding shares at a lower per share price aids liquidity.

Is it Good for Investors?

Some investors say a stock split is a sign that a stock is doing well and they consider it a buy signal. You should always look at the whole picture before making an investment decision. If you want to use stock splits as a marker for stocks to consider for further evaluation, that is a reasonable idea, but don’t stop there with your research.

Ultimately, you should buy a stock based on whether it meets the fundamental standards you require and not on whether it will or will not split.

One of the ways investors classify stocks is by type of business. The idea is to put companies in similar industries together for comparison purposes. Most analysts and financial media call these groupings “sectors” and you will often read or hear about how certain sector stocks are doing.

One of the most common classification breaks the market into 11 different sectors. Investors consider two of there sectors “defensive” and the remaining nine “cyclical.” Let’s look at these two categories and see what they mean for the individual investor.

Defensive


However, for all their safety, defensive stocks usually fail to climb with a rising market for the opposite reasons they provide protection in a falling market: people don’t use significantly more energy or eat more food.

Defensive stocks do exactly what their name implies, assuming they are well run companies. They give you a cushion for a soft landing in a falling market.

Cyclical stocks

Cyclical stocks, on the other hand, cover everything else and tend to react to a variety of market conditions that can send them up or down, however when one sector is going up another may be going down.

Here is a list of the nine sectors considered cyclical:

• Basic Materials
• Capital Goods
• Communications
• Consumer Cyclical
• Energy
• Financial
• Health Care
• Technology
• Transportation

Most of these sectors are self-explanatory. They all involve businesses you can readily identify. Investors call them cyclical because they tend to move up and down in relation to businesses cycles or other influences.

Basic materials, for example, include those items used in making other goods – TMT bars, for instance. When the construction market is active, the stock of TMT bars companies will tend to rise. However, high interest rates might put a damper on construction and reduce the demand for TMT bars.

Hence, you need to compare stocks in a particular sector. This is extremely helpful, since one of the ways to use sector information is to compare how your stock or a stock you may want to buy, is doing relative to other companies in the same sector.

If all the other stocks are up 11% and your stock is down 8%, you need to find out why. Likewise, if the numbers are reversed, you need to know why your stock is doing so much better than others in the same sector – maybe its business model has changed and it shouldn’t be in that sector any longer.

You never want to be making investment decisions in a vacuum. Using sector information, you can see how a stock is doing relative to its peers and that will help you understand whether you have a potential winner or loser.

Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of a business to determine its financial health and gives you an idea of the value its stock.

Many investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.

Earnings

It’s all about earnings. That is what investors want to know. How much money is the company making and how much is it going to make in the future.

Earnings are profits. It may be complicated to calculate, but that’s what buying a company is about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular dividend.

When earnings fall short, the market may hammer the stock. Every quarter, companies report earnings. Analysts follow major companies closely and if they fall short of projected earnings, sound the alarm.

While earnings are important, by themselves they don’t tell you anything about how the market values the stock. To begin building a picture of how the stock is valued you need to use some fundamental analysis tools. These ratios are easy to calculate, but you can find most of them already done on various financial websites.


Below are the most popular tools of fundamental analysis. They focus on earnings, growth, and value in the market.

• Earnings per Share – EPS
• Price to Earnings Ratio – P/E
• Projected Earning Growth – PEG
• Price to Sales – P/S
• Price to Book – P/B
• Dividend Payout Ratio
• Dividend Yield
• Book Value - BV
• Return on Equity - ROE

We published articles on EPS and P/E ratio, you will get the updates on other tools in Saral Gyan future Articles. No single number from the above list is a magic bullet that will give you a buy or sell recommendation by itself, however as you begin developing a picture of what you want in a stock, these numbers will become benchmarks to measure the worth of potential investments.

Most of the investors either rely on the advice of a broker who was paid only when they bought or sold stocks or Investors had to dig through mounds of annual reports and an assortment of documents that were months old by the time they got them.

Researching more than a few companies was almost impossible unless you had a huge staff of analysts working for you. Comparing several companies was tedious and difficult. Thank God, the "good old days” are gone forever.

Saral Gyan expert analysts team keep researching stocks (that is, before the Internet). Today, any investor can access powerful research tools using Internet and many of them are free. Of course, there are some very sophisticated tools that come with hefty price tags; however, for most investors all the research they’ll need is free or available for a modest subscription.

Stock Performance, Key Ratios, Peer Comparison & much more, Key factor is time! To derive a decision to buy stock consumes a lot of time.

Sector selection >>>  Market Capital Segmentation >>> Grouping & Stocks selection  >>> Peers Comparison >>> Moderate Research to select 5 Key Stocks >>> Extensive research to finalize 3 out of 5 >>> Debate & discussion to derive the Best 1 out of 3 for Portfolio Investment.

Most of the basic research tools provide financial reports & Key ratio's analysis with comparing performance of a stock on QoQ as well as YoY basis. They provide analytical data not only for a particular stock but also for a specific sector, and help investors to do a peer group stocks comparison. This handy program does in nanoseconds what would take you hours and hours of research by hand to do – and best of all, there are many of them on the Internet free for you to use. Some of the better ones come as part of subscription packages to the better research sites, but you can get a feel for how they work for free.

The concept is simple. You want to identify stocks that meet certain criteria. (Incidentally, this is how you go about building a portfolio, rather than haphazardly investing in whatever stock looks good at the moment.)

One of the simplest and easiest to use comes from Moneycontrol. Despite its simplicity, the website yields some powerful results.

The stock page lists your results with links to each company. Click on the link and you will get a financial snapshot of the company. It is a good tool to get you started.

Why stocks that pay dividends tend to fall far less than their non-dividend paying counterparts? For many investors, this is a major part of the appeal as they can’t stomach huge drops or volatility. Of course, stocks are always going to be riskier than most other asset classes. On the whole, dividend paying stocks tend to display far more consistency that other enterprises.

Here are the four major reasons why dividend-paying stocks tend to fall less during bear markets:

1. The Quality of Earnings is Higher.

It’s hard to fake cash. When shareholders get checks in the mail, there is at least some proof that the earnings aren’t just accounting magic. This makes people more comfortable holding the stocks during uncertain times because they know there is some value there.

2. Dividend paying stocks generate current income.

In depressions, recessions, or bear markets, many people may find themselves unemployed or earning less than they did during boom years. During times like this, you don’t want to part with something that consistently brings in funds for your family to use to buy groceries and gas unless you must. Typically, the shares of high growing, low payout stocks are the first, and hardest, to fall because you can’t use them to keep the power bill paid.

3. These stocks become “yield supported”.

As share price falls, dividend yield gets higher (the cash dividend divided by the share price is known as “dividend yield”). Imagine if a Rs. 200 stock paid a Rs. 10 annual cash dividend. That is a 5% return, which you would compare to all kinds of other available options such as money market accounts, bonds, etc. If the stock fell to Rs. 100 per share, the yield would suddenly be 10%. The stock would become more attractive and people or companies that did have excess funds, such as insurance groups or international corporations not damaged by domestic problems, are lured in by the relatively higher returns they can earn. If a company is healthy, in a world of 5% interest rates, it’s highly unlikely that it’s going to have a dividend yield of 15% or 20% because someone, somewhere, with a whole lot of cash is going to step into the situation.

4. Management doesn’t have as much capital to allocate.

Human nature being what it is, it’s often normal for executives to want to go on an empire-building spree, even if it means earning less attractive returns than their shareholders could if the money was put back into their hands. An established dividend policy solves a big part of this problem by limiting the funds that are available for stupid, overpriced acquisitions.

Hence, its always advisable to keep major allocation of your portfolio in high dividend yield companies during bear phase, you usually get better returns in terms of dividend yield.

Penny Stock Investing:

Penny stocks have always been alluring for investors but a smart investor steers clear of them. Most consider investing in penny stocks a good option since they are more affordable to invest in.

In Indian financial markets, the term penny stock commonly refers to any stock trading outside one of the major exchanges like Sensex or Nifty. The SEBI defines penny stock as low-priced, speculative security of a very small company regardless of market capitalization.

They are sold by companies who are seeking money for expansion, basic operations or even commencement of business. Many penny stocks lose all of their value in the short and long term. Therefore, financial analysts warn about the risks which include limited liquidity, lack of financial reporting, and fraud. Lack of liquidity and volatility also makes penny stocks much more vulnerable to manipulation by management, market makers, or third parties. Obtaining quotations of certain penny stocks makes selling them off even more difficult. While jumping on to one of the riskiest investment vehicles the investors ought to be prepared to lose their entire investment.

By definition - "Penny stocks are volatile, risky, thinly traded securities issued by minuscule companies that are disproportionately known for having big losses, meager sales, cozy insider management and scant or unverifiable financial data. Unscrupulous promoters typically work by blast faxing or flooding the Dalal Street with press releases so that investors will read the dubious news and bid up the hyped shares. Then the promoters can cash in by selling the stock, typically in huge volume. There is a certain formula to these advertisements: breathless claims for a miraculous-sounding product or trove of commodities, comparisons to well-respected brands, and an exhortation to the reader to get in on the ground floor by investing in the unknown company."

Buying a lottery ticket would promise you the same degree of unpredictability as investing in penny stocks that you are unaware of.

We help you to become a smart investor who is looking for handsome returns by being a part of a stable, sustainable and potentially high-end growth stock prospects.

Growth Stock Investing:

In contrast to penny stocks our best stock picks are aim at the best return in the stock market for we understand the value of your money.

By offering you comprehensible and reliable stock investment advice and analysis report after extensive stock market research Saral Gyan best stock picks are characterized by:

• Transparent operations resulting in reliable financial statements.
• Trustworthy establishment.
• Verification and sound research that do not go by press release hypes on the stocks concerned.

Our Hidden Gem Research Reports promise to provide its subscribers steadfast investment options with the best picks of secure small cap and medium cap companies. By being a part of us you shall be assured of healthy returns all based on sound market research.

Pioneer Investcorp Limited: The Group's principal activities are providing Project and Financial Advisory Services and Financial Solutions for Corporate and Industrial Houses Development Projects. It operates under three segments: Advisory & Merchant Banking, Income from Securities/Investment and Equity Brokerage and related income. Its offerings include formulating capital structure, raising capital, debt restructuring, project financing and other corporate advisory services.

Better known for its research division PINC research, Pioneer Investcorp is an integrated financial service company promoted by Charted Accountant, Gaurang Manhar Gandhi (Ex.ICICI). This two-decade-old company is still unknown because of its less concentration in retail broking business and brand building efforts. In 2007, there was some strong news in the market that Citigroup Venture Capital International (CVCI) is close to acquiring an equity stake in Pioneer Investcorp for about Rs 400 crore. Later, Pioneer Investcorp announced a massive expansion in all its verticals, the Promoter cum Managing director Mr. Gaurang Gandhi took 15,00,000 Warrants (convertible into one Equity Shares of the face value of Rs 10/- each) at a price of Rs 630/- per Warrant (including a premium of Rs 620/- per Warrant). The said deal could not struck due to the unexpected global financial crises and the problems faced by the Citi Group.

Pioneer Investcorp is one of the worst affected stocks in the 2008 market crash, which eroded almost 98% of its value as it fell from Rs. 930 to Rs. 13. As expected, the promoter did not convert his above mentioned warrants. But it is noted that he converted 85000 warrants (which he took earlier) at a price of Rs.110/- at a time when the market price was only Rs.35/- in October 2008. Aquiring shares at almost 200% premium to the market price by the managing director is really a confidence booster.

For nine months ended December 2009, the company reported an income of Rs 27.8 crores and net pofit of RS 9.14 crores. On an equity base of 12.2 Cr, nine months EPS stood at Rs 7.5. The company’s promoter is holding 51.36% stake in the company. Another 19% stake is holding various Pvt Ltd. Companies which seems as promoter related entities. Now the stock is trading at Rs. 62. But, still the company is one of the cheap and best quality stocks in the promising financial service industry in India.

Another interesting fact is Pioneer Investcorp is noticed and rated by Wright Investor's Service. Wright Investor's service is an internationally recognized investment management and financial advisory firm headquartered in Milford, Connecticut, USA. Wright Investor's Service has recently published its corporate research report and rated Pioneer Investcorp as LDNN (Limited Investment Acceptance & Fair Financial Strength)

Saral Gyan Recommendation:

Since there is sanity and hope of revival in financial service sector globally, company may revive its big plans in near future. Price movement of past few month has shown signs of accumulation at 47 - 50 Rs levels. Considering all the above facts, we recommend a buy on Pioneer Investcorp with a long term view. Long term Investors can add this stock in their portfolio. Good levels to enter in Pioneer Investcorp is at a range of Rs. 50-55.

Note: The stocks discussed in Saral Gyan through posts are not a part of "Hidden Gems" issue which we recommend to our paid subscribers only. These are just stock specific views by Saral Gyan Team; one must do the due diligence before doing any investment based on our recommendations

Buy low and sell high is the ultimate guide to successful stock investing. It is also the reverse of what many new investors do. It’s not that investors start out to do that, but too often, they use price, and in particular price movement, as their only signal to buy or sell.

Stocks that have gone up recently, especially those with a lot of news, often attract even more buyers. This obviously drives the price up even higher.

People get excited about what they read and see and want a part of the action. They jump into a stock that is already trading at a premium – they buy high.

Traders : Experienced traders can make money jumping in and out of a stock that’s caught the public’s attention, but it’s not a game for the inexperienced and it’s not investing. There’s risk involved and tax consequences along with other issues that mean most investors should leave this activity to short-term traders.

For most investors, trying to grab a piece of the latest flashy stock, usually means paying too much (buying high).

Bad Decision : The other side of the market is when a stock has fallen; most investors may want to sell along with the rest of the market. If you go by price alone, this can be a bad decision (sell low).

There are many reasons a stock’s price drops and some of them have nothing to do with the soundness of the investment. That’s why if you only follow price you may miss an opportunity. After a stock’s price has fallen can be a great time to buy (buy low) if you have done your research on the company.

Conclusion : If all you know about a stock is the price, you may (and likely will) make investing mistakes. Remember, if a stock has had a good run up it may be time to sell, not buy (sell high). Similarly, if a stock has dropped like a rock, it may be a good time to buy rather than sell (buy low). You won’t know what to do unless you understand a lot more about the company in terms of EPS, PE ratio, Debt to Equity ratio, operating margins, expansion & diversification plans, order book, peer group comparision etc than its stock price.

Issuing and selling shares of stock is a common method corporations use to raise capital in order to carry out the goals of the company, such as expansions and improvements, without borrowing large amount of money. Without the income generated by the sale of shares of stock, many companies would not be able to come up with the cash to accomplish these goals.

Sometimes corporations sell shares of stock simply because the owners want to reduce their holdings in the company and generate cash for personal use.

When you own stock, you actually own part of the company, and the value of your shares goes up and down as the company's stock value fluctuates. It's important to remember that when stock prices go down, you don't actually lose anything unless you sell the stock while the price is lower than what you paid for it. As long as you hold onto the stock, you can recoup any "notional" losses the next time the stock price rebounds (assuming that it does).

Stock prices often have more to do with investor's perceptions than with the actual financial standing of the company. During peak of bull run (Jan 2008) some real estate companies stocks, for example, started trading at above thousand Rs per share but then settled down into less than 100 Rs per share after the market crash.


A Financial Stock Analyst looks at many parameters while evaluating individual stock and choosing it for investment, basic factor includes dividend track record & dividend yield, CAGR (Compounded Annual Growth Rate), EPS (Earning per Share), PE ratio (Price:Earning), share holding patterns, past performance (6-8 last quaterly results), etc.    

Each publicly traded stock is usually traded on just one of the Indian or international stock indexes. In India, the best known index is the Sensex, but only 30 stocks are included on this exchange. You could have investments in a hundreds of stocks and not be directly affected by rises and falls in the Sensex, if your stocks are traded on other exchanges.

Investors are often their own worst enemies. That’s because they sometimes allow their emotions to get the best of them when it comes to making financial decisions. They hear their neighbours at cocktail parties talking about hot stocks they own and wonder why they can’t hit it big. Others are more jittery, selling their shares the moment they dip in value without understanding what’s causing the decline.

First step to good investing is to understand yourself and how comfortable you are when putting your savings at risk. That’s what you’re doing when you buy stocks or mutual funds. There is the potential that your investment will increase in value, but there is also the risk that it can be worth less.

Before you jump in to the stock market ask yourself a few questions:

1. Can I afford to lose my investment?


There’s an old joke about people who buy a big block of an inexpensive stock. “It’s only Rs 10 per share,” says the investor. “How much can I lose?” Answer, “All of it.”

If you need your money to pay your bills, you shouldn’t use it to buy stocks. If you need your money for a near term expense, perhaps to buy a house or help pay for college, you shouldn’t put it in the stock market.

The stock market isn’t for gamblers. In most cases, it’s for people who want to grow their savings through a diversified investment plan in which stocks are one part. That plan might also include fixed-income investments, real estate (a piece of land or a house) and commodities. If you can’t afford to lose it, you shouldn’t risk it.

2. Will the ups and downs on Sensex/Nifty make me a nervous wreck?

Between cable television, the Internet and wireless networking, the average investor can follow the movements of the stock markets from the opening bell to the close. If you’re someone whose emotions will swing with every bounce in stock price, you might go crazy worrying about your investments.

There was a time when a 100-point intra day swing of the Sensex was headline news. No longer. In today’s trading, it’s not unusual to see the Sensex plummet in value, only to recover the following day. When those swings happen, it’s important for investors to stay disciplined and think long-term. Can you tolerate that type of activity? If your honest answer is no, congratulations. You’ve recognized that realty about yourself before risking your money.

If that’s the case, consider more conservative investments such as Bonds, Debenture Funds and Fixed Deposits. They offer a smaller return, but also lower risk. You’ll sleep more soundly at night.

3. Do I have the composure - and the energy - to get the facts when I hear rumors?

With online trading, investors can buy and sell with the click of a mouse button. That's convenient, but it also makes it too easy for emotional investors to lose money.

Socially responsible investors deliberately inject a level of emotion into their investing by using their ethical principles as a screen. But dumping stock at the first whiff of trouble can be a knee-jerk approach, especially if the news ultimately turns out to be inaccurate or flat-out wrong. The price takes a fall on the news, the rash investor sells at a lower price, then the shares ultimately recover when the real story is told. But the damage to their portfolio has been done.

Do your homework in advance. It's time-consuming and demanding and is a must, you could not invest in a business which you dont look at.  Do the upfront work until you're comfortable with your investment. That will give you the confidence to hold your ground when bad news pops up.

when negative news does hit and it proves to be true, don't run to the door and sell all your stock at once. It might make sense to back out of the company or mutual fund by gradually selling your shares. You'll still be true to yourself and kind to your savings based on diversified investments.

Do remember the most important fact, you put your money into high risk high reward zone by investing in small capital companies. If you have not done the home work before you put your hard earned money into that zone, you can invest in large cap blue chip stocks. You need to check your risk level before you start counting on rewards.

After the Union Budget 2010-11, the big question in the mind of many investors probably is - Will the markets correct more looking at week global cues or positions for long term can be taken at these levels considering better than expected budget?

This article looks into the probable direction of the Indian markets in the next 2-3 months. It is impossible to predict any levels for the indices. Hence, that is not something we would attempt to do. We will primarily try to figure out the probable trend for the markets based on certain factors and events.

Not surprisingly, stock markets gave a rousing welcome to the Budget and rose immediately as the FM presented his speech.


Pranab Mukherjee also sought to raise excise duty for sectors like cement, capital goods and autos, in a mild way — the 2% hike was less than the 4% as per analyst expectation.

• The Budget was good and coming back to fiscal discipline is a good move.
• The Budget was also growth-oriented with financing incentives for real estate, infrastructure and agriculture.
• The Budget another key announcement was that the RBI would consider giving banking licences to non-banking financial companies (NBFCs).  

While the markets got something to cheer, after witnessing seeing consolidation in the past few weeks, weak global cues could remain the party-spoiler ahead. So even as specific sectors get a potential earnings boost, the overall global investment climate continues to remain tepid. The markets are still dependent on the global markets, commodity prices and global currencies.


Sectors to Prefer:

Infrastructure - Set to be in high growth trajectory with financing incentives from government.
Non Banking Financial Companies (NBFCs) - Entry in banking space will increase business scope and earning dimensions.

The reasons why we believe that indian stock market might correct further are discussed below.

Valuations still look expensive: 
The Indian markets are still trading at a PE of close to 21. This is higher then the average PE the Indian markets have traded in the last 10 years. Also, the Indian markets have gone up over 100% from its March 2009 lows. After such a steep rise, a correction of even 20-25% can't be ruled out. This would be healthy for the markets in terms of attractive more money as valuations again start looking fair.

China Credit Tightening:
The Central Bank in China has been making efforts to control the credit growth as there is a high probability of asset bubbles and run away inflation in China. Infact, one can say that the Chinese property market is already in a bubble stage. Therefore, there is a high probability of aggressive policy action to control credit growth and this can slow down China's growth significantly. Any such event will trigger a sharp sell off by the FII's in the emerging markets. Hence, the Indian economy might do well and the stock markets tank or correct significantly.

Plenty of problems in the Western World:
The developed world has averted a financial disaster but are surely not out of the woods. The fears of soverign debt default is a very valid one. The fear os the U.S economy slowing down again is also valid and highly probable. Therefore, there are not many positive cues which one can expect from the developed markets.
 
Inflation Concern:
There is no doubt that the Indian economy is coming back to a robust growth trajectory. At the same time, inflation is also becoming a greater concern. The food inflation has shown no signs of easing and the WPI inflation is also going up at a robust pace.

Sectors to Avoid:

Industrial Commodities - will be negatively impacted if there is a sharp slowdown in China.
Crude Oil Exploration - The China slowdown factor might impact exploration Companies as crude price corrects.

Most of us are aware of the fact that ever increasing global energy consumption equals environmental disaster unless we move to a de-carbonized energy system. IPCC (Intergovernmental Panel on Climate Change) has created too much hype around melting of glaciers by 2035 and that too without doing a detailed study, but one cannot sit back and say that we have enough fossil fuel for our lifetime, and global warming isn't going to effect us.

Countries like China, are already putting in great deal of money on securing their energy needs from both fossil fuels and from alternative sources of energy. In India, many smaller companies at their own level are working on various alternative sources of energy. Solar and wind are the two forms of energy. Solar energy had its share of criticism on various grounds, most important of them being cost and availability of raw material, which in most of the cases is silicon. Keeping the above factors in mind, our Saral Gyan team explored a company that is into potential alternative source of energy, and may not have to face constraints with respect to availability of raw material.

PAE LTD.

PAE is not into Solar Panels manufacturing on its own. On standalone basis, it is into the business of marketing and distribution of Lead Acid Storage Batteries to provide power storage in power back up systems. In addition to batteries, PAE also buys and/or builds power back-up systems from manufacturers and sells to OE, dealers and end users. It also provides total power solutions to end customers by doing installations, commissioning and service of large power back-up systems. Hence, PAE Ltd. is into power related business, but most of it is in the form of distribution and marketing. This is also evident from its low margin results. On a net sale of Rs 250 crore for FY 2008-09, it could only make a net profit of Rs 5.36 crore.

But looking at recent updates, PAE has forayed into Solar Panels manufacturing by taking a controlling stake (51%) in Shurjo Energy Private Limited, which was in need of funds to expand its capacity to 10MW from 2MW. In terms of the agreement, the company has totally invested Rs 5.06 crore in Shurjo Energy for acquiring 51% stake in the company.

Shurjo Energy Pvt. Ltd. is into manufacturing solar panels using CIGS Copper Indium Gallium diSelenide (CIGS), thin film technology which has "off grid" and "on grid" applications. The company has its manufacturing facility in Kalyani, West Bengal. Point to be noted is that CIGS technology does not use silicon as the active photovoltaic semiconductor and therefore does not suffer from any raw material supply problems. Shurjo also recently passed IEC 61646 & IEC 61730 tests (The certifications required for solar modules used in solar power plants in most markets worldwide) for its CIGS solar modules, opening up the Grid-connect market for its modules.

Studies show that CIGS material actually yields more energy per kW installed, compared to traditional crystalline products, due to its better performance in low light conditions (Source: web). As mentioned earlier the installed capacity stood at just 2MW, which will be ramped up to 10MW. One can expect additional revenue and profitability for PAE Ltd, because the company has 51% stake in Shurjo Energy Pvt Ltd.

PAE has touched 52 week high price of 57 Rs on 21st Dec 09 with couple of bulk deals on the same day (Source: BSE). Chairman and Managing Director of PAE Ltd, Mr Arvind Doshi shared his views on his company business and see profitability improving from FY 2011 onwards.

As per him, at present the company is doing 100% export to the tune of approximately Rs 10 crore. It is a small unit manufacturing latest models of solar panels, the latest technology is called CIGS. We recently got international certification also for these panels manufactured in India.

The basic film comes from a company in USA called Global Solar. PAE intend to market these panels including some of the equipment as complete units for domestic power generation as well as power generation for offices and industries in India. Initially, this will take a slow start in India. But we hope with the Copenhagen discussion this will gather a faster momentum in India. We will see a greater future in this line.

Saral Gyan Recommendation:

PAE last closing price on BSE was 40.25 with a market capital of 38 crore. Standalone PE ratio of PAE is 8.5. Looking at last 3 quarters share holding patterns, promoters have increased their total holdings continuously in last 3 quarters (48.78 % in June 09, 49.13 % in Sep 09, 50.12 % in Dec 09), hence management is confident to deliver good growth with increase in profit margins in future considering entry into solar panel business. Current market stock price of PAE Ltd gives an opportunity to buy the stock at current levels with limited downside risk.

We recommend buy for PAE LTD with a target price of 56 (appreciation of 40 % from current market price) in a time horizon of next 6 to 9 months. We believe investments in such stocks should be done keeping a long term view, hence partial profit booking is advised to investors once target price is achieved.

Note: The stocks discussed in Saral Gyan through posts are not a part of "Hidden Gems" issue which we recommend to our paid subscribers only. These are just stock specific views by Saral Gyan Team; one must do the due diligence before doing any investment based on our recommendation.

Tide Water Oil Co. (I) Ltd. is a PSU company. Tide Water Oil Co. (I) Ltd., is a part of the multi divisional Andrew Yule group that has diverse interests in Engineering, Electrical, Tea Cultivation, Power Generation, Digital Communication Systems and Lubricants.

Tide Water has been a pioneer of Automotive and Industrial lubricants in India since 1928 and has five plants at Howrah, Oragadam, Turbhe, Silvassa and Faridabad. Its repertoire of automotive products includes engine oils for trucks, tractors, commercial vehicles, passenger cars and two/three wheelers. It also produces gear oils, transmission oils, coolants and greases for automobiles. For industrial application it manufactures industrial oils, greases and speciality products like metal working fluids, quenching oils and heat transfer oils.

Tide Water has tie-ups for manufacture of genuine oils with a number of renowned OEMs in the automotive and industrial equipment segment. The company also has technical collaboration with Nippon Oil Corporation, the No.1 petroleum conglomerate in Japan. Company sells oil in automotive segment under the brand name Veedol, enjoys high brand recall. Superior quality lubricants under the brand name Eneos are also manufactured and marketed in India by Tide Water Oil Company.



Share holding of Tide Water Oil as per last quarter, Promoter holds 26.33% stake, institutions hold 14.31% stake, non promoter corporate bodies hold 40.93% stake and public hold only 18.43% (Only 160593 shares with 7269 share holders) stake in this company.

Last year quarter performance was above analyst expectations, June was outperforming quarter in which company has shown marvelous number, Net sales zoomed to Rs 197.65 crore from Rs 165.07 crore while net profit zoomed to Rs 15.78 crore from Rs 7.85 crore. Company has shown EPS of Rs 181.09 in June quarter itself. Company has paid 300% dividend to share holders for last year. Current level at per estimated EPS stock is trading at PE ratio of 10.

Looking at peer group, Castrol India is trading at a price of 625 with PE of 22 with a market cap of 7700 crore. Tide Water Oil stock is available at an attractive price of 5050 looking at medium to long term investment, market cap is only 440 crore with less public holding.

Company has equity of just 0.87 crore while company has huge reserve of around Rs 150 crore (More than 172 times of equity, it shows company is very strong bonus candidate).

We recommend Buy on Tide Water Oil with a target of 7200. Stock has strong support zone at Rs 4350, hence incase of severe market correction, Tide Water Oil may not go below 4350 levels and give an opportunity to accumulate more at lower levels. In the days to come, we also expect disinvestment story coming out in this company. Tide Water Oil can give 20 to 30 percent returns in next couple of months.

PBA Infrastructure is a good buy at current market price. As infrastructure is a promising sector based on domestic development across the country, PBA infra is expected to deliver robust results in future. Company has strong presence in highway construction and road development.

CAGR of PBA in last 3 years is above 20 percent, operating margins have improved looking at last 3 quarter results. At current market price, stock is discounted comparing with small cap peers like subhash project, gayatri infra, unity infra and Maytas. With a market cap of around 100 crore, PBA infra is currently trading at a price of 76 with PE of merely 6.5. All other peer stocks are trading at a PE range of above 25 to 100 which makes PBA Infrastructure an excellent bet at current market price.

PBA promoters shareholding is increased by around 62 percent and is increased by approx 0.75 percent in last one year. Looking at recent annoucement by the management, company received a payment of 150 crore plus for development of 4 lane highway project at nagpur.

With strong order book of 500 crore plus, stock can shoot upto 3 digit very soon with a target of 120. Keeping a medium to long term view of 12 to 18 months, PBA infrastructure can see a price of 200.

Resistence is at 82-84 and strong support is at 68 Rs.

We suggest investors to buy PBA infrastructure with a medium to long term target of 200 Rs.

We have already seen bullish signals as Sensex level is doubled within a year.
Sensex & Nifty lows of October 2008 is a history now.
Everybody is betting on hot sectors like Infrastructure & Power.
But a million dollar question is "Is it right time to invest, if yes - where to park the fund in equity? Which stock should i add in portfolio? How long it will take to yield handsome returns?"
Its always good to keep investing... a way to create wealth in long term but we need to ensure that our pick is right at right point of time.
Below are the 2 Mid Cap stocks pick - Available at discounted price as compared to peers.

1. Gayatri Projects:
Trading at a P/E of 7, undervalued stock in Infra space. Peer group is trading at a P/E of 20+
Allotted preference shares to Reliance Trustee.
Aggresive to grab the opportunity on NHAI plans.
Stable earnings with healthy order book to be executed in next 2-3 years.

2. India Infoline:
Brokerage firms show handsome profits because of increasing volumes in trade
India Infoline offers best in class trading terminal with latest technology to trade
Increase geographical presence to provide services linked to MF, Portfolio management, Equity Research
Aggresive plans to rollout more services linked to Financial space.