StockViz – Page 219 – Invest Without Emotions

Quickie: RAJESHEXPO

shyam April 2, 2013

Rajesh Exports [stockquote]RAJESHEXPO[/stockquote], for those of you who don’t follow the stock, is a Bangalore based company that manufactures gold & diamond jewellery for export as well as distribution to the domestic wholesale jewellery market. They also own a 75 outlet retail channel via Shubh Jewellers.

I find this stock interesting because it keeps oscillating between Rs. 120 and Rs. 150 levels. As you can see in the chart below, the stock has been sitting pretty in this channel for more than a year.

This stock could be ideal for those who are looking for some trading action without adding on a lot of risk. With a beta of 0.72, there is not a ton of volatility here. RSI indicator is in the oversold area and the stock is testing its long-time support of Rs. 120.

From a fundamental point of view, the company has shown steady growth over the last three quarters. Gold price volatility has not been kind to the firm and there could be some impact due to that.

As I said earlier in the post, this could a quickie trade for investors trying to get some action that, going by the recent price action of the stock, appears low risk.

Categories Your Money Tags RAJESHEXPO

Analysis: RELIANCE

Abhishek April 1, 2013

Reliance Industries [stockquote]RELIANCE[/stockquote] has been a permanent disappointment since 2005 and this year has been no different. The stock is down 7.46% compared to the Nifty’s 5.35%. The stock just doesn’t seem to have the zing in spite of the bonus in 2009, the more than Rs. 8/share in dividends and stock buy-backs.

After breaking its up-trend line, the chart shows that Reliance is headed towards its most recent support area at Rs. 770 levels. RSI at mid-20’s is basically plumbing the depths at this point – the stock has bounced whenever it has seen such dire readings. However, just about every other technical indicator is bearish. Its 18-day SMA cut the 9-day SMA; Aroon is bearish; MACD histograms are not helping either.

The company remains a cash machine. So much so that Mukesh Ambani is using to enter pretty much all sectors of the Indian economy. It looks like by the end of this decade, Reliance will be dabbling in everything from telecommunications to power to banking. So even though Reliance is classified as a petrochemical major, its undergoing a transformation into a wide winged conglomerate.

The stock, however, is not cheap. With a PE of 12.84, it is trading above other oil multinationals like Exxon (9.30) and Total (7.83). It has a sub-market beta of 0.86 which could have been good news except that its Bull & Bear betas are skewed towards the downside.

To conclude, we are a short-term BUY on RELIANCE. We expect a bounce off these over-sold conditions and a support at Rs. 770 levels. The long-term is a bit hazy. The company is at risk of losing focus by spreading itself too thin on vanity projects and blowing away its cash-hoard on capital intensive projects with low returns and intense competition.

Categories Your Money Tags RELIANCE, technical analysis

Bull Beta / Bear Beta for Stock Picking

shyam March 31, 2013

The Beta of a stock or portfolio is a number describing the correlated volatility in relation to the volatility of an index. By definition, the market itself has a beta of 1.0, and individual stocks are ranked according to how much they deviate from the macro market. A stock with a beta of 2 has returns that change, on average, by twice the magnitude of the overall market’s returns; when the market’s return falls or rises by 3%, the stock’s return will fall or rise (respectively) by 6% on average.

The problem with a single measure of beta during all market conditions is that it might understand/overstate the risk of a stock during bull/bear phases. For example, FINPIPE [stockquote]FINPIPE[/stockquote] has a fairly benign beta of 0.68. So you would expect it to hold up pretty well during volatile markets, correct? However, with a bear beta of 1.17, it is going to tank more than the broader market and with a bull beta of just 0.007, it is not going to rise as much as the market either. So you get all of the downside without the upside. ASHOKLEY [stockquote]ASHOKLEY[/stockquote], on the other hand, has positive asymmetry with a bear beta of 0.90 and a bull beta of 1.16.

The bigger question is can this asymmetry be converted into a model for generating stock picks? Can investing in a portfolio of stocks with bull betas > 1.2 and a bear betas < 0.8 result in meaningful out-performance? We looked all the way back to Jan 2010 to pick out stocks that met this condition to see if a portfolio of these names can outperform the market. It seemed pretty legitimate at first, who wouldn’t want to own stocks that didn’t fall as much as the market when it went down but rose more than the market when it went up?

The results were a bit of a disappointment. First, the stock picks were extremely sparse. There were only 5 days during the entire period where there were more than 5 stocks that met the criteria. So there just weren’t enough data points to confirm or refute the thesis. It also didn’t help that these portfolio did not outperform the market in any meaningful way.

The Bull Beta / Bear Beta thesis needs to be further tested for different bull/bear thresholds. It is an interesting thesis and we are big fans of repeatable, verifiable and systematic portfolio strategies. Stay tuned for updates!

Categories Your Money Tags model

The Great Rotation into Debt

shyam March 29, 2013

It used be that news about increasing FII flows brought cheer to the markets. However, in spite of them bringing in close to $10.3 billion dollars since the beginning of this year, the market has been in an interminable funk.

Market action doesn’t seem to concur with FII bullishness. Are FII faith misplaced? At first, the market expected a whiz-bang budget and capitulated once that turned out to be a damp squib. And now it appears that investors have latched on to the political goings on to feel depressed about.

Underneath it all is the exodus of domestic investors out of Equities. Since July 2012, Indian mutual funds pulled out more than $3.6 billion out of equities and piled into debt.

For every single month since July 2012, domestic investors have rotated out of equities and into debt to a grand total of $58.2 billion. Given the recent volatility in the stock market, it would be no surprise if domestic investors continue to herd into debt funds. The big question on my mind is how long will FII flows continue into equities if domestic investors continue to sell into them?

Categories Your Money Tags economy

Falling Demand Impacts Profitability of Indian Steel Industry

Monica Samuel March 28, 2013March 28, 2013

The Indian steel industry is on a slow growth curve. Domestic demand for steel has fallen because of inflation and high interest rates. Low availability of raw materials, high cost, upheaval in the mining sector, state bans, and environmentalist pressures are creating more problems for steel producers. The Editorial March 2013 reveals that the growth rate of the Indian iron and steel industry fell from 11% in 2010 to 4.3% in 2011.

India is the fourth largest producer of crude steel in the world today. It is also an importer of steel since 2007. It is projected that if the 12th Five Year Plan proposals are implemented as per schedule, India could grab second place by 2015-16. However, as the 12th Plan Period (2012-17) commences, the prospect does not look bright for domestic demand of steel though per capita consumption in India has increased from 36.6kg in 2005 to 51.7kg in 2010.

Challenges facing the Indian steel industry

There are many problems that are hurting the growth of the Indian steel industry:

Non-availability of iron ore: Iron ore is available in plenty in India but unregulated mining and large scale exports have raised concerns on the long-term availability of raw materials to address domestic demand. For the sake of sustainability, the Ministry is restricting exports and making efforts to preserve the non-renewable iron ore fields.
Non-availability of coking coal: Coking coal is largely imported as domestic availability of the resource is limited. Raw material security and price volatility are challenges. Non-coking coal used for sponge iron production is growing scarce; imports will create heavy cost burdens on the steel sector.
Inadequate infrastructure: Inadequate sintering and pelletisation facilities for steel as well as domestic technology to process low grade iron ore are significant challenges. Existing road, railway, port and power facilities are not good enough to support the 12th Plan working group’s optimistic projection of steel production doubling in the next 5 years.
Outdated technology and R&D: The performance of Indian steel plants is lagging because of low quality inputs, obsolete technology in treating resources, and insufficient R&D on alternate technologies to reduce wastes and cost, and address environmental concerns.
Cheap steel imports: Indian steel industry players are concerned about the cheap steel dumped into India by Japan and Korea, following the Free Trade Agreement and lower import duties. “India has spent over $5.5 billion of precious foreign exchange Iast year in importing steel which Indian steel mills are capable of producing,” says Dilip Oommen, CEO & MD, Essar Steel India Limited.

Steel industry prospects

As per the 12th Five Year Plan, infrastructure will receive an investment of $1 million. If that happens, domestic demand, infrastructure and the economy will receive a boost. The Steel Ministry proposes to increase steel production to 60 million tonnes in the next 5 years with an investment of ₹2.5 crore. Therefore, the Ministry plans to review steel-related sectoral caps by banks and consider relaxation of norms on External Commercial Borrowings (ECBs).

The Steel Ministry also expects domestic steel demand to rise by 10.3% annually by the final year of the 12th Plan. World Steel Association, a leading global steel body, predicts steel consumption will increase by 5% in India in 2013.

As of now, the steel industry is experiencing immense pressure on profit margins. Rising input costs have increased steel production outlay. At the same time, low demand has created over-capacity. JSW Steel reported ₹669 crore in losses (analysis) in the second quarter of this fiscal. Tata Steel also saw profits going down by 89% (analysis). Steel companies may have to look at export options to maintain profits but the global scenario is hardly more encouraging. To be sure, it’s a tough time for steel manufacturers.

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