Stock Chart Pattern - Larsen and Toubro (An Update)

When I updated my analysis 10 months back, the stock chart pattern of Larsen and Toubro had been consolidating within a rectangular band between 1300 and 1750 for a year. I had advised readers to stay invested even though the stock seemed to be going nowhere. The very next day after my post on Jun 16 ‘10, the stock broke out above the year-long trading range on a smart rise in volumes (marked by blue oval).

The timing was fortuitous. Rectangular consolidation patterns are usually continuation patterns. The trend (in this case, up) before entering the pattern tends to resume after the break out. Let us check out the 2 years bar chart pattern of Larsen and Toubro to identify some classic technical signals:

The volume spiked up during the upward break out – which it should, otherwise the break out may be a ‘false’ one. The stock price pulled back to the upper edge of the rectangle – as often happens after a break out – and then quickly rallied 200 points. It touched a high of 1949 on Jul 26 ‘10, which turned out to be a ‘reversal day’ (higher high, lower close).

A sharp correction dropped the stock below its rising 50 day EMA, but the stock stopped short of testing support from the upper edge of the rectangle. The next leg of the rally reached a new high of 2117 on Oct 4 ‘10. Another ‘reversal day’ pattern led to a quick correction down to the 50 day EMA. A final bullish spurt took the stock price to a new two-year high of 2212 on Nov 4 ‘11. But the stock failed to test its previous bull market high of 2335 touched in Nov ‘07.

Note that as the stock price rose towards its 2 year high, three of the four technical indicators made ‘lower’ tops and one made a flat top (marked by blue arrows). The combined negative divergences was an advance warning of a likely correction. But the severity of the correction caught many investors by surprise.

The stock first fell below the 200 day EMA in Jan ‘11 and after a brief hesitation, dropped back into the rectangular consolidation zone. On Feb 10 ‘11, Larsen and Toubro’s stock fell to a low of 1463 – a 34% correction from its peak of 2212, underperforming the Sensex which corrected only 18%. Fortunately, the stock formed a ‘reversal day’ (lower low, higher close) pattern and climbed up quickly – only to face strong resistance from the support/resistance level of 1750.

Another sharp correction reached a slightly higher bottom of 1481 on Feb 25 ‘11, followed by an intra-day high of 1933 on Mar 7 ‘11 – but the stock closed down inside the rectangle and slid down to a slightly higher low of 1503 on Mar 21 ‘11. The subsequent month-long rally has several bullish signs:

The stock is trading above both its 20 day and 50 day EMAs; both EMAs are rising and the 20 day EMA has crossed above the 50 day EMA; the down trend line connecting the Nov ‘10 and Jan ‘11 tops has been broken; the support/resistance level of 1750 and the falling 200 day EMA were breached on intra-day basis twice; the bullish pattern of higher tops and higher bottoms continue from the low of Feb ‘11.

All these bullish signs are negated by the fact that Larsen and Toubro’s stock price is yet to close above the 1750 level or the 200 day EMA since it fell below both in Jan ‘11. Unless the stock closes convincingly above both (i.e. by more than 3%), the bears will dominate.

The technical indicators are showing weakness. The MACD is positive and above its signal line, but has stopped rising. The ROC is still positive, but is below its falling 10 day MA. The RSI and slow stochastic are above their 50% levels, but both have dropped from their overbought zones. The stock may consolidate within the rectangle for a bit longer.

Bottomline? The stock chart pattern of Larsen and Toubro seems to have found a bottom and is gathering strength to return to a bull market. The sale of its electrical products division to Eaton will bring in a massive amount of cash to the company. If Q4 results disappoint, the stock may dip further. That will be a good opportunity to enter/add. Risk averse investors should wait for a clear break out above 1750 to buy.

12 Sensex stocks displaying the ‘death cross’

The main reason why the Sensex isn’t showing a ‘death cross’ yet, is that only 12 of the 30 Sensex stocks are showing the ‘death cross’. The balance 18 are technically still in a bull market. For the uninitiated, the ‘death cross’ is the 50 day EMA crossing below the 200 day EMA on a price chart, signalling the beginning of a bear market. (The 50 day EMA crossing above the 200 day EMA, signalling the beginning of a bull market, is called a ‘golden cross’.)

Chart patterns of the 12 Sensex stocks displaying the ‘death cross’ (marked by blue ovals) are discussed below:

BHEL

BHEL is a PSU blue-chip that started correcting after hitting a peak in Oct ‘10. The correction in the Sensex from Nov ‘10 exacerbated the fall. The ‘death cross’ occurred in end-Nov ‘10, two days after the stock dropped sharply to an intra-day low of 2060. A strong pullback took the stock up to 2379, where it faced strong resistance from the combined 100 day and 200 day EMAs.

Though technically in a bear market, the stock is trying to build a base. A move above 2379 will create a bullish pattern of higher tops and higher bottoms. The RSI and slow stochastic are showing positive divergences, having reached higher tops as the stock made a lower top. Use the dip to accumulate.

DLF

DLF, the real-estate high flier, doesn’t really score very high on management ethics, accounting transparency or investor friendliness. The stock is in a long-term bear market. A brief rally took the stock to a 52 week high of 397 in early-Oct ‘10. That was an opportunity to sell. The ‘death cross’ in Dec ‘10 has restored the bear market. With the recent tightening of loans to real-estate players by banks and housing finance companies, you can forget about investing in this stock even as a contrarian play. It may be headed down to two-digits.

Hero Honda

Hero Honda was one of the stars of the bull market till its peak of 2094 in Apr ‘10. A technically overbought condition started a corrective spell. The confirmed news of Honda, Japan pulling out of the joint venture was given a thumbs down by the market. The uncertainty about the future has led to heavy selling. The ‘death cross’ in end-Jan ‘11 is signalling a bear market for this blue-chip. Avoid.

Jaiprakash Associates

Jaiprakash Associates has been in a down trend since touching a high of 180 in Oct ‘09. The ‘death cross’ occurred in May ‘10, confirming the bear market. The rally from Sep-Nov ‘10 was an exit opportunity. Launching huge projects and borrowing money by the truck-load seems to be the core competency of this company. The stock is headed towards low double-digits. Avoid.

Larsen & Toubro

It is a bit disappointing to see a blue-chip like Larsen & Toubro in this group of bearish Sensex stocks. It started correcting with the Sensex after touching a peak of 2212 on Nov 4 ‘10. The sharp fall in Jan ‘11 was partly due to the less-than-expected Q3 performance. The re-structuring into 9 separate companies has also caused some uncertainty in the minds of investors. The ‘death cross’ will occur tomorrow, but I would use this dip to accumulate the shares of this fundamentally strong and investor-friendly company.

Maruti Suzuki

Maruti Suzuki’s chart pattern has two ‘death crosses’ – one in May ‘10 and the other in Jan ‘11. What does it indicate? Technical analysis is not a science, and no rule is sacrosanct. The ‘death cross’ usually indicates the start of a bear market. But not in this case. The stock has been consolidating sideways since reaching a top of 1740 in Sep ‘09 – causing the ‘death cross’ to occur twice without entering a bear market. Yesterday’s low of 1170 formed a possible double-bottom. The RSI and slow stochastic are indicating a likely upward bounce. Accumulate.

NTPC

The NTPC stock chart pattern is also showing two ‘death crosses’ – the first in May ‘10 and the second in Nov ‘10. The stock has been drifting downwards since touching a peak of 242 on Dec 31 ‘09, and is in a bear market. The hype about the phenomenal growth and profit opportunities in the power sector has proved to be just that – hype. Avoid.

ONGC

The ONGC chart also has two ‘death crosses’ – one in Apr ‘10 and the other in Jan ‘11. The first one didn’t cause too much damage to the bulls. The current one is unlikely to do much damage also – because the FPO has been scheduled for Mar ‘11, and the DIIs are likely to buy at dips till the FPO goes through. This is a great company but the government’s meddling has messed up its operations. This is a major reason why I avoid all PSU stocks. Accumulate.

Reliance Comm

Where is the ‘death cross’ in the Reliance Communications chart? It happened more than two years back, and is not showing up in the one year chart pattern! The stock is in a long-term bear market and should ideally be removed from the Sensex 30 index. Only big-brother can bail this company out. Don’t go anywhere near this.

Reliance Infra

Reliance Infra chart also has two ‘death crosses’. The first one was caused by the sideways movement in Feb ‘10. The next one in Sep ‘10 signalled the bear market. Anil Ambani has proven to be a big bag of wind with a slow leak. If you are invested in this company, bail out now before it becomes too late.

Reliance Ind.

Reliance chart has two ‘death crosses’ as well – one in Aug ‘10 and the other in Jan ‘11. The first one was due to the sideways consolidation that has generated negative returns in the past one year. But the second one looks more ominous. The fall in Jan ‘11 has been steep and on increasing volumes. If Reliance doesn’t recover soon, it will drag down the Sensex with it. The technical indicators are hinting at a further fall. Wait for the correction to play out before entering. 

Tata Power

The ‘death cross’ in the Tata Power chart hasn’t yet happened – even though it has been marked in Sep ‘10. The 50 day EMA spent only a few trading sessions below the 200 day EMA due to the sideways consolidation, followed by a 52 week high. The current corrective spell may push the stock into a bear market. Wait for the correction to play out before entering.

Stock Chart Pattern - Larsen and Toubro (An Update)

In my prior analysis of the stock chart pattern of Larsen and Toubro, the formation of a consolidation pattern called a 'pennant' (or, a narrow triangle) was observed, after the stock had retraced almost 70% of its bear market fall from 2335 in Nov '07 to 557 in Mar '09.

In technical analysis, a retracement exceeding the Fibonacci level of 61.8% is treated as a trend reversal. So is a rise above the 200 day MA. That means the stock had shaken off the bears successfully and entered a new bull market.

Triangle patterns tend to be unreliable, and though I had expected an upward break out from the 'pennant', possibilities of a down ward break or a sideways consolidation (which would mean a failure of the 'pennant') could not be ruled out. This is the reason why many investors look down upon technical analysis - pattern outcomes can often be unpredictable!

Let us take a look at the 3 years bar chart pattern of Larsen and Toubro:

 

Two long-term support-resistance lines have been drawn at 1300 and 1750. After 4 months of consolidation within the 'pennant', the stock did break out upwards, as expected in a bull market. Why did the 'pennant' fail and the stock start a sideways consolidation within 1300 and 1750?

To answer the question, take a look at the volume bars during the 4 months the stock spent within the pennant. The volumes declined gradually, as they are supposed to do during a consolidation. But an upward break out from any consolidation pattern requires significantly higher volumes. (A downward break does not necessarily need volume support.) The volumes during and after the break out were lower. 

The sideways consolidation within the band of 1300 and 1750 has continued for more than 12 months, much like the Sensex band of 15300-18000. Such prolonged periods, which provide little or no returns, test the true mettle of long-term investors.

The technical indicators are giving mixed signals. The 50 day and 200 day MAs have become entangled. The slow stochastic is in the overbought zone. The RSI has just dipped below its overbought zone. The MACD is slightly positive and above the signal line.

Please don't make the mistake of getting bored and dumping the stock. This is a fundamentally strong and well-managed leader in the infrastructure space, and should find a place in any long-term portfolio.

Bottomline? The stock chart pattern of Larsen and Toubro may continue consolidating in a rectangular band. Existing share holders should stay invested. New entrants should wait for a break out above 1750 on strong volumes, or a break below 1300. As and when the Sensex starts to make new highs above 18000, the stock of Larsen and Toubro will be a leader of the Sensex pack.

Why did the Sensex fall so much today?

One of the favourite pastimes (or is it bread-and-butter?) of market analysts is to assign reasons for gyrations in the Sensex after it has gone through a big up or down move.

Some times the reasons are genuine and accurate. Mostly it is an exercise in trying to explain the unexplainable. The Finance Minister said that inflation in food prices will slow down, so the Sensex moved up. Several Indians are on a ship hijacked by Somali pirates, so the Sensex moved down. You get the drift.

I have no intention of doing a post-mortem. I'd rather quote from this recent article:

'... stock markets generally 'discount' good or bad news months in advance. If you own stocks that make up the Sensex (or Nifty) index, and if such stocks have risen a lot already and are now showing signs of hesitation - then they may fall if the results are perceived to be less than great. Only positive earnings surprises can cause them to rise more.'

Larsen and Toubro's Q3 Profit After Tax (PAT) grew 15% on a Year-on year (YoY) basis; the stock fell more than 6.6%. BHEL's Q3 PAT rose more than 35% on a YoY basis; the stock dropped 4.25%. Wipro's Q3 PAT increased more than 21% on a YoY basis; the stock dipped by 2.2%. ONGC's Q3 PAT was higher by 23%; the stock shaved off 2%.

Is the market behaving irrationally? Not at all. The results were below the market 'expectations'. It was the expectations that were irrational.

Will the Sensex fall some more? The probability is high, because the expectations of growth of the Indian economy has been on the irrational side as well. The actual growth is likely to be lower.

For the April to December '09 period, indirect tax collections have suffered. A 13% dip in excise duty, a 6% drop in service tax and a hefty 28% cut in customs duty has led to an overall 18% lower collection over the previous year's same period. These figures will not enthuse market players.

World indices are facing headwinds, with the Dow dropping like a stone at the time of writing this post. FIIs have been selling for some time, and buying by DIIs may not stem the rot.

What should small investors do? If you have been reading my blog posts regularly, you already know my answer. Wait and watch, but stay nimble. Curb the urge to dive in. This could be a quick, sharp cut before the Sensex recovers. The India growth story is far from over.

Become a successful investor by avoiding 'herd mentality'

There are many ways and means to become a successful investor. One way is to be aware that certain behavioural flaws exist in human beings - like 'herd mentality' - and avoid them.

It is logical to expect that a group of people can become successful investors by taking better investment decisions. Why? As more information gets shared and different view points and experiences get discussed and assimilated, the process of deciding which stocks are good 'buys' and which stocks are 'duds' become easier.

The large number of investment groups on the Internet, some with several thousand members, point to the popularity of such joint investment decision making. So the members of these investment groups should be rolling in money, right?

The reality is otherwise. Some times group decision making can be flawed, specially if enough research, or an opposing view, is not taken into consideration. A few individuals, regarded as knowledgeable by group members, can mislead the group inadvertently.

A good example is the mad rush to buy infrastructure and real estate stocks in the later stages of the bull market in 2007. Many investors entered these stocks when they had risen way past the prices that discounted huge growth expectations well into the future.

'Land banks' was added to the investment vocabulary, just as 'eyeballs' were added during the dot.com boom at the turn of the century and 'replacement costs' were touted for pushing overpriced stocks during the Harshad Mehta scam in the early 1990s.

Even seasoned fund managers are not immune to such 'herd mentality' - and the price is paid by legions of small investors. The plethora of 'infrastructure funds' launched in 2006-07 are mostly languishing while the BSE Sensex has gained more than 100% in the past 9 months.

A quick look at the top holdings of popular diversified equity funds is equally revealing about the 'herd mentality' that leads to poor investment performance:-

1. HDFC Top 200 - SBI, ICICI Bank, Infosys, ONGC, L and T
2. DSPBR Top 100 - TCS, L and T, SBI, Reliance, ITC
3. Sundaram Select Focus - SBI, ICICI Bank, Reliance, Sterlite, Shree Renuka Sugars
4. HSBC Equity - SBI, Infosys, Reliance, ITC, BHEL.

Investors buying into these four funds may think that risk has been mitigated through diversification. But they have actually invested in the same stocks (with one or two exceptions).

Herd mentality is further compounded by bad timing. Money is literally poured into fund houses when the BSE Sensex is at or near a top, and pulled out by cart loads when the index is languishing near the bottom.

One of the tricks to being a successful investor is to avoid the herd mentality. Particularly when the herd is talking about esoteric investment ideas like alternative energy and water management. Stick to the knitting - invest in what you know and understand.

Related Posts

About Confirmation Bias in the Stock Market

Some practical examples of Behavioural Finance

The futile quest for the mythical 'multibagger'

Legend has it that the Philosopher's Stone had the unique ability of turning iron and other base metals into gold - the ultimate 'multibagger'. For a long time, the quest for the stone became an obsession in western alchemy.

"Many many years ago, a man decided that he would give up worldly comforts and riches, and dedicate his life to finding the Philosopher's Stone. He set out on his quest with an iron chain in his hand. Whenever and wherever he found a stone, he would stoop to pick it up and touch it against the chain to see if it turned to gold or not.

Many days and months passed, but he never wavered in his quest. He became thin and his hair turned into knots and his beard became long and unkempt. But the desire in his heart didn't wane.

He travelled through many countries and continents, from the mountains to the oceans. Never did he stop to appreciate the beauty of nature all around him. With a piercing gaze he picked out every single stone and kept touching it to the iron chain to check if it had turned to gold.

After a few years, it started to dawn on him that his quest may never reach fruition. Out of sheer habit, he carried on and picked up stones and touched the chain with them. He started getting weary and his heart became heavy, and he no longer bothered to check if the chain had turned into gold.

Once he was passing through a village square, where some small children were playing. They saw this wild-eyed man in tattered clothes, knotted hair and tangled beard coming towards them. One of them exclaimed: 'Look, look! That crazy man is carrying a shining gold chain.'

The man stopped dead on his tracks. In sheer disbelief, he looked at the chain in his hand. It was a solid gold chain. During his long quest, he had found the Philosopher's Stone after all. But he had thrown it away, like all the others, after touching it to his chain without checking.

In sheer despair, he sat down and pondered his fate for a while. After some time, he sighed, got up and resumed his quest."

The moral of the story? It is the rare and fortunate investor who can find more than one multibagger stock in his entire investment career. Such good fortune happens more through chance than by design.

Why is that? Because most of us do not plan to hold a stock long enough in our portfolio for it to generate stupendous returns. Does it mean that holding any stock for a long time will automatically generate multibaggers? The answer is obviously 'No'.

That is why, selecting fundamentally strong stocks is so important. Once the preliminary hard work of proper stock selection is done, one should keep holding such stocks, and at most, book partial profits from time to time.

The trick is to keep buying back these shares during a down turn, at lower prices. Doing this with just a couple of stocks, like Tata Steel or L&T, can provide huge returns.

Can momentum, or 'fashionable', stocks provide multibagger returns? The answer is 'Yes'. Pantaloon and DLF have been multibaggers. But how many small investors were able to reap the multibagger returns?

My guess would be, very few. Most would have exited after the stock doubled or tripled. And the unfortunate few, who actually got the multibagger returns, probably held on too long and are facing losses now because of the steep bear market fall.

(Notes: 1. The above story is a prose version of a famous Tagore long poem, titled 'Parash Pathor'. Satyajit Ray made a highly entertaining movie with the same title, about a person who actually finds the Philosopher's Stone and what happens to him because of it.

2. I'd be very interested to hear from readers about any multibaggers they hit or missed.)

Related posts

How to pick Stocks for Investment - Part III

How to build wealth using a buy and hold strategy

Stock Chart Pattern - Larsen and Toubro

The stock chart of Larsen and Toubro has been in a consolidation pattern since the election and requires a close look. Before that, a brief peek into history.

Two Danish engineers and school mates, Henning Holck-Larsen and Soren Kristian Toubro, left Europe to set up the company in Bombay back in 1938. Their first office was so small that only one of the partners could use it at a time.

How the company grew to become the largest engineering and construction conglomerate in India is a fascinating story. Interested readers can find out more by visiting the L and T site.

After the passing of Larsen in 2003 (Toubro preceded him in 1982), the company seemed to grow a new set of wings. A solid well-managed and fundamentally strong company with steady growth, cash flows and dividends, its stock was not doing anything exciting.

A futile effort by the Ambanis to wrest control of the company perked things up. The divestment of the cement business, which was like a millstone around its neck, to the Birlas of Grasim came as a real boost to growth.

The global economic boom, the emphasis on infrastructure projects in India, a 5:1 stock split followed by two 1:1 bonus issues acted as rocket fuel that made the company shoot up to the must-buy list of FIIs.

Several subsidiaries and joint ventures including units in finance, electronics, information technology are its hidden assets. An apparently disastrous high cost investment in scam-scarred Satyam is turning out to be a blessing in disguise.

Now the technicals. The one year bar chart pattern of Larsen and Toubro has been in a 'pennant' formation, that opens up a few different possibilities:-

After peaking at 2235 on Oct 30 '07, the L and T stock started falling and dropped by 75% to a low of 557 on Mar 9 '09. The subsequent bull rally seemed to stall at the 1000 level, but post election results, a gap-up move took it all the way to 1800 on Jun 18 '09.

The stock entered a consolidation pattern called a 'pennant'. It is a narrow triangular pattern that usually forms after a sharp up (or down) move. Volumes have steadily receded during the formation of the pattern, which is now 7 weeks old. Ideally, it should have broken out upwards from the pattern by now.

Notice how the technical indicators made lower bottoms while the stock made a higher bottom in Jul '09. A negative divergence. Since then, the stock has made a lower top, but the RSI, MFI and slow stochastic made higher tops. A positive divergence. The conflicting signals indicate indecision among market players.

The MACD is marginally positive. The RSI and slow stochastic are turning down from overbought zones, The MFI turned down before reaching its overbought zone.

If the stock breaks out upwards (as it should for a consolidation pattern in an up move), it should go the same distance as it did from the recent bottom of 557 to the top of 1800 (i.e. to about 2800).

If it breaks downwards, it may get support at the zone between its 200 day EMA and the top of the gap at 1100. It may also close the gap and find support at its previous top at 1000.

There is a third possibility. The stock may continue to consolidate sideways, in which case the 'pennant' formation will fail. Now you know why I keep mentioning that technical analysis is not a science!

Bottomline? The stock chart pattern of Larsen and Toubro is showing indecision. Existing holders should hold with a stop loss of 1350. If you want to add or enter, do so on a break above 1600, or on a correction to 1100-1150.

Now, learn portfolio strategies from a game of stud poker

One of the best ideas for managing your portfolio on an ongoing basis is to treat each stock (or fund) in your portfolio as a hand in a game of stud poker. Not my idea. Peter Lynch mentioned it in his book: "One Up on Wall Street".

Stud poker is a 'man's game', pitting strong-willed men with nerves of steel and expressionless faces against each other across a card table. The game has been immortalised in several Hollywood films.

Two of them - my favourites - come to mind. The old pro, Edward G. Robinson playing against the new kid on the block, Steve McQueen, in "The Cincinnati Kid". And a sophisticated Robert Shaw being taken for a ride by a bumbling Paul Newman in "The Sting".

The game - for the uninitiated - is simple enough. A card is dealt face-down, which can only be seen by the player to whom it was dealt. This is immediately followed by a second card dealt face-up to each player. All players get to see the face-up cards. A round of betting follows. Each bet is for a specific amount.

A player has the option to 'fold' (i.e. take no further part, if the cards he has been dealt are not to his liking); 'call' (i.e. stay in the game by betting an equal amount) or 'raise' (i.e. increase the bet by a pre-determined amount). Every time a player raises the bet, another round of betting follows.

The process is repeated three more times, as a card is dealt face-up to each player remaining in the game. After all five cards for each hand have been dealt (one face-down and four face-up) and the betting is concluded, the players remaining in the game show their hands to the others. The player with the best five card combination wins.

I'm not a gambling man, nor do I advocate a gambling mentality in the stock market. But the analogy - that each stock (or fund) in your portfolio is akin to a hand at stud poker - seems very apt.

The face-down card is like some knowledge or information you may have about the company that may not be known to the general public. Each face-up card is some bit of financial news or company-specific information that becomes available in the market.

As each 'card' is dealt, you need to take some action as an investor. If it is pretty bad news - like the Satyam fraud, or Punj Lloyd's overseas subsidiary delaying a project and incurring a huge penalty - you should fold (i.e. sell) that particular hand.

If it is so-so or good information - like Larsen and Toubro bagging a new order, or Tata Investment declaring a marginal profit and matching last year's dividend - you may hold your stock (or fund).

If it is better news - like 3i Infotech declaring increased profits when most IT companies were struggling in the down turn - raise the bet (i.e. buy some more).

You'll need the mental and physical discipline of tracking each bit of information about each of the stocks (or funds) in your portfolio, analysing the consequences and filing it properly at a place from where it can be retrieved easily.

It is not rocket science, but it has to be followed diligently on a regular basis - at least once a week. That means not only tracking company results and announcements, but also the forex rates and macro-economic and political news to understand the implications and likely effects on your portfolio.

Many intelligent individuals never succeed in their market investments. A probable cause can be the lack of time and/or discipline in following a regular process of updating information about their portfolio holdings.

Life becomes a lot easier if you manage to limit your holdings to 10-12 stocks or 5-6 mutual funds. Keeping track of fewer companies improves your chances of being able to move quickly as the situation demands.

Weekly tracking of a smaller number of companies (or funds) means you will tend to remember the important bits of information necessary for taking buy-sell-hold decisions.

Stock Market News, Financial News - Mar 27, 2009

Heavy borrowing could pressure rates - officials

By Rajesh Kumar Singh and Manoj Kumar

NEW DELHI (Reuters) - India could overshoot its annual borrowing target in the 2009/10 fiscal year if more fiscal stimulus is rolled out to revive a slowing economy, and this will put pressure on interest rates, senior officials said on Friday.

Policy advisers also said the economy will fare significantly worse in 2009 than in the previous year, and more doses of fiscal and monetary policy may be needed to boost demand and lift growth.  (More ...)

Will Satyam be an albatross around Larsen's neck?

By Sumeet Chatterjee

BANGALORE (Reuters) - Larsen & Toubro is seen as the front-runner to acquire fraud-tainted outsourcer Satyam Computer Services Ltd but a potential purchase could bring more pain than gain.

Not only will the acquisition be a tricky one due to uncertainty about Satyam's accounts and potential legal liabilities from U.S. lawsuits but also it would distract Larsen from its main engineering and construction business.  (More ...)

Reliance signs gas deal with fertiliser firms

NEW DELHI (Reuters) - Reliance Industries on Friday signed deals with 12 fertiliser firms to sell about 15 million standard cubic metres a day (mmscmd) of gas from its block off the country's east coast. Supplies will start from mid-April, Reliance said. 

The firms will pay Reliance a marketing margin of 13.5 cents per million British thermal units (mmBTU) for the gas, said Satish Chander, Director General of Fertiliser Association of India. The margin is in addition to the government-set price of $4.2 per mmBTU for the gas.       (More ...)

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ADVFN World Daily Markets Bulletin (excerpts)

US Market

Stocks Moving Lower As Traders Cash In On Recent Gains

Stocks are showing notable weakness during mid-morning trading on Friday, as investors take profits from the recent rally and digest some mixed economic news. With the decline, the Nasdaq has once again slipped below the unchanged line for the year-to-date period.

On the economic front, the Commerce Department released its report on personal income and spending in the month of February. While the report showed an increase in spending that came in line with estimates, income fell by a little more than expected.

The report showed that personal spending rose 0.2 percent in February following an upwardly revised 1.0 percent increase in January. The modest increase in spending came in line with the expectations of economists.

At the same time, the Commerce Department said that personal income edged down 0.2 in February after a downwardly revised 0.2 percent increase in the previous month. Economists had been expecting a slightly more modest 0.1 percent decrease.

The final reading of the Reuters University of Michigan's consumer sentiment index for March was also released earlier, showing a revised reading of 57.3. Economists had expected the consumer sentiment index to be lifted to 56.8 from the mid-month reading of 56.6.

In other news, President Barack Obama is meeting today with the CEOs of JP Morgan, Citigroup, Goldman Sachs and other banks, as well as executives from industry associations, to discuss the economy and the administration's proposals to increase regulation of the financial system.

Additionally, President Obama will soon unveil the results of a federal examination of the restructuring plans from General Motors and Chrysler, a condition for the auto-makers to rece ive more government capital.

White House Press Secretary Robert Gibbs said the details would be announced before the President departs for the G20 Summit in London on Tuesday.

"The President, as part of viability plans from both GM and Chrysler, is required by the 31st to give an update on those plans and where our government sees them, and we'll be doing that also in the next few days," Gibbs said.

The major averages pulled back to new lows for the session in recent trading, but they have regained some ground since then. The Dow currently remains down 128.39 at 7,796.17, the Nasdaq is down 29.14 at 1,557.86 and the S&P 500 is down 13.55 at 819.31.

European Shares

Europe's top stocks have swung into the red in choppy trade on Friday, led lower by a weak energy sector. U.K.'s FTSE 100 Index is showing a loss of 0.9 percent, while the French CAC 40 Index and the German DAX Index are falling 2 percent and 2.1 percent, respectively.

Asia Markets

The Japanese stock market took a pause for breath Friday bringing to an end nine successive days of rises for the Topix index.
Nevertheless, the Nikkei 225 index reached its highest point since 9 January during the session before easing back to 8,626, down 9 points. Hong Kong's Hang Seng Index ended the day up 0.1 percent.

Commodities

Oil and gold rise after gloomy GDP data
The worst US GDP data for 26 years sent investors scurrying for the safety of gold, pushing the April futures contract up to $940, up $4.20 on the day.

US GDP fell by an annual rate of 6.3% in the final quarter of last year, worse than the initial read of 6.2% but better than consensus forecasts from economists of a 6.6% fall.

Meanwhile, the appeal of gold as a safe asset was further enhanced by news that the total number of US unemployed rose to a record 5.56m, although the dollar’s strength limited the extent of gold’s gains.

The oil price was also on the rise, with the April contract rising above $54 a barrel, reversing Wednesday’s losses when the Energy Information Administration revealed that crude inventories rose by 3.3m barrels last week.

Forex
Dollar dominant
US GDP data that was not as bad as feared prompted support for the greenback Thursday. Though US GDP fell by an annual rate of 6.3% in the final quarter of last year, worse than the initial read of 6.2%, it was still better than consensus forecasts from economists of a 6.6% fall.

Sentiment towards the dollar was also boosted by the relative success of the US Treasury’s auction of seven-year notes. The Treasury sold $24bn of notes at a yield of 2.384%.

The euro was out of favour after data from the European Central Bank (ECB) showed a slowdown in the growth of private sector lending. The aggregate value of loans was 4.2% higher in February than a year earlier, compared with a 5% year-on-year g ain in January. The figures are likely to add pressure to the ECB to cut interest rates some more this year, which will diminish the appeal of the euro.

Sterling also fell back in New York trading despite a good response to the sale of index-linked gilts due to mature in 2022, which was oversubscribed. The auction result came as a relief after the flop the previous day of the auction of 40-year gilts.

The pound fell back by almost a cent, to $1.4444 in New York, having earlier made headway in London trading, where it reached $1.4562. However, even in London the currency finished below its best levels of the day after UK retail sales data revealed a far bigger than expected 1.9% drop in sales from the previous month.

ADVFN World Daily Markets Bulletin - Mar 13, 2009

US Stocks at a Glance

Major Averages Once Again Turn Mixed After Failing To Sustain Upward Move

Stocks have shown a lack of direction over the course of morning trading on Friday, with the major averages have difficulty sustaining any significant moves after closing higher in the three previous sessions.

The choppy trading comes as traders express some uncertainty about the near-term outlook for the markets following the recent gains. While some investors expect stocks to extend the recent upward move, others expect the markets to retest their recent lows.

In corporate news, Fitch downgraded investment firm Berkshire Hathaway, Inc.'s Issuer Default Rating, or IDR, to 'AA+' from a top-notch credit rating of AAA and lowered its senior unsecured debt ratings to 'AA' from 'AAA'. However, Fitch has affirmed its 'AAA' Insurer Financial Strength or IFS ratings on the company's insurance and reinsurance subsidiaries.
Fitch also said that the rating outlook for all entities is "Negative". Fitch cited concerns about the potential for losses on the insurer's equity and derivatives holdings.

Meanwhile, Time Warner Inc. said Thursday that it has appointed Google Inc. executive Tim Armstrong as chairman and CEO of its AOL unit. Armstrong will replace Randy Falco, who, along with president and COO Ron Grant, plans to leave the company after a transition period.

While the major averages moved firmly into positive territory in recent trading, they have moved back to the downside in the past few minutes and are currently mixed. The Nasdaq is currently down 2.65 at 1,423.45, while the Dow is up 18.47 at 7,188.53 and the S&P 500 is up 1.92 at 752.66.

Canadian Market

Toronto Stocks Continue Upward Move - Canadian Commentary

Bay Street stocks are modestly higher in early trading and are looking for a fourth straight positive close. Traders mulled over some economic reports from both sides of the border.

The S&P/TSX Composite Index is up 32.76 points or 0.39% to 8,315.03. The index has reached its highest level in more than three weeks.

Financial stocks are up 1.3%, adding to recent gains. National Bank is up 1.5% and CIBC has added 1.2%. The Energy Index is down 0.5%. Paramount Resources has dropped 3.5% and Baytex Energy Trust is down 2.2%.

Light sweet crude oil is up 37 cents at $47.40 amid choppy trading on Friday morning. Prices hit as high as $48.14 earlier in the morning. Rock Energy has surged 25% after the company announced funds from operations for the fourth quarter rose to C$5.51 million or C$0.21 per share from C$4.73 million or C$0.18 per share last year.

In other corporate news, Capital Gold Corp. has jumped 7.4% after the company reported net income for the second quarter was C$3.20 million or C$0.02 per share, compared to C$2.13 million or C$0.01 per share in the same quarter of last year.

Biovail is up 1.3% after the drug maker was initiated at Buy at UBS. Goldcorp is up 1.3%. The stock was rated at Underweight by Barclays Capital in new coverage.

Friday, gold exploration company Pacific Rim Mining Corp. is up 15.8% after the company said its third-quarter net loss was US$383,000 or break even per share, compared to a net loss of US$3.70 million or US$0.03 per share in the year ago quarter.

Statistics Canada announced a decline of 82,600 jobs in February, following a record $129,000 drop in January. The unemployment rate increased to 7.7%, up from 7.2 percent.

Meanwhile, the Canadian trade deficit widened to To C$993 million in the month of January, compared to a revised about 700,000 in the previous month. Economists were looking for a deficit of 800,000.

Across the border, the Commerce Department said that the trade deficit narrowed to $36.0 billion in January from $39.9 billion in December. Economists had been expecting a smaller decrease in the size of the trade deficit to about $38.0 billion.

Meanwhile, the Labor Department said Friday that import prices slipped 0.2 percent for February compared to the previous month. This followed a revised 1.2 percent decline in January. Economists had expected a sharper drop of 0.8 percent.

European Shares

Europe Roundup - Eurozone Retail Sales Continue To Fall

Friday, official data revealed that Eurozone retail sales decreased for the eighth consecutive month in January as consumers reduced their spending amid the economic slowdown.

In other news, new car registrations in Europe dropped 18.3% in February from the same period of the previous year, the European Automobile Manufacturers' Association reported. This follows a 27% annual fall in January. The number of passenger cars registered in February totaled 968,159. The downturn was more marked in the new EU Member States than in Western Europe, where the German market pushed total registrations upward.

Eurozone

Compared with January 2008, Eurozone retail sales dropped 2.2%, a slower pace than December's 2.4% decline, the Eurostat said. Economists were looking for an annual decrease of 2.3%.

Retail trade volume in the Euro area rose 0.1% in January from the previous month, reversing three consecutive months of decline. Sales were down 0.3% in December and 0.1% in November. However, retail sales growth in January was smaller than the consensus forecast of 0.2%.

The Eurostat also said Eurozone labor costs increased 3.8% year-over-year in the fourth quarter, smaller than a revised 4.2% growth in the previous quarter. Economists' were looking for an increase of 3.6%.

Germany's Federal Statistical Office said in a report that the real manufacturing turnover decreased a working day adjusted 20% year-over-year in January, compared with a 12.6% fall in the previous month. This was the highest annual decline since 1991.

The German statistical office also reported that the wholesale price index declined 5.7% year-over-year in February, after falling 5.9% in January.

Italy's National Institute of Statistics announced that the average labor cost per employee rose 3.5% year-over-year in the fourth quarter, smaller than the 6.2% rise in the third quarter.

Statistics Austria announced that the jobless rate stood at 4% in the fourth quarter, up from 3.7% in the previous three months. A year ago, the jobless rate was 4%.

The Netherlands' Central Bureau of Statistics announced that the trade surplus stood at EUR 2.8 billion in January, up from EUR 2.5 billion in December.

The Statistical Service Of the Republic of Cyprus said retail trade turnover increased 32.2% month-on-month in December, accelerating from 8.3% increase seen in the previous month.

Finland recorded a current account deficit of EUR 27 million in January, reversing from a surplus of EUR 287 million in December, a report by the Bank of Finland said.

Asia Markets

Indian market surges on strong global cues

Friday, the Indian market jumped on heavy buying across the board to post its best weekly rise in three weeks. Battered index heavyweights saw heavy buying as investors drew comfort from a sustained rally in the global markets.

Stocks rallied strongly in Asia and Europe, as hopes of a revival in the global economy strengthened following positive U.S. retail sales data and encouraging comments from major U.S. banks over the past few days.

Comments from the Chinese Premier Wen Jiabao that his Government is ready to unveil another stimulus package for reviving the economy and reports that Government officials in Tokyo are contemplating new stimulus package to support the world's second largest economy also added to the buoyancy.

Back home, the strengthening of the rupee against the US dollar and signs of revival in the domestic economy also bolstered investor sentiment. Rate sensitive stocks like realty and banks, metal and IT were the best performers.

The BSE Sensex opened higher at 8,481 and saw continuous buying all through the day. The index closed near the day's high at 8,757, up 413 points or 4.95% over the previous close. Meanwhile, the S&P CNX Nifty rallied 102 points or 3.89% to 2,719.

On the BSE, the market breadth was positive, with advances outnumbering decliners by 1583 to 854. The broad-based BSE 500 index rose 4.15% and the mid-cap index gained 2.96%, while the small-cap index moved up a modest 1.97% compared to the broader market.

Realty stocks soared on hopes that lower rates will spur housing demand after the inflation rate fell to a multi-year low of 2.43%, paving the way for the RBI to cut further its key policy rates to boost economy. Twenty-eight out of 30 Sensex stocks participated in the rally, while NTPC and Sun Pharma ended in the red.

DLF (up 11.47%), Tata Motors (up 10.72%), Tata Power (up 9.18%), ICICI Bank (up 8.60%), Hindalco (up 7.99%), Sterlite Industries (up 7.93%), HDFC (up 7.53%), Tata Steel (up 6.89%)and Larsen & Toubro (up 6.76%) were the major gainers.

Banking stocks extended the rally following sharp gains among their peers in the other global markets after beleaguered US banks Citigroup and Bank of America said that they were profitable in January and February.

Among the major gainers in this space, Axis Bank and ICICI Bank surged up around 8% each and Bank of Baroda jumped 7.17%, while Indian Overseas Bank, IDBI Bank, Oriental Bank of Commerce, Punjab National Bank and Union Bank of India rallied over 6% each.

Metal stocks jumped in line with a rally in commodity prices after Chinese Premier Wen Jiabao said that he had allocated 595 billion yuan in this year's budget for stimulus moves. JSW Steel, National Aluminum, Welspun Gujarat, Hindalco, Sterlite, Tata Steel, Hindustan Zinc and Steel Authority of India were some of the prominent gainers.

Among airline stocks, Kingfisher soared 8.02%, JetAirways jumped 9.69% and SpiceJet rallied 4.93% as their load factors saw a jump in February. Gateway Distriparks climbed 7.81% after Allcargo Global Logistics acquired around 6% stake in the company from the open market.

State Bank of India moved up 4.63% after the Life Insurance Corporation of India hiked its stake in the company to 9.16% from 2.12% through open market purchases between mid November '08 and early March.

Simplex Infrastructure gained 3.89% on reports that the company's sales would grow between 30-40 percent for FY10. SRF showed marginal gains after the company resumed the operations of the polymerization and spinning lines at its plant at Manali, Tamil Nadu.

Liquor manufacturer United Spirits moved up 5.29% following reports that huge cash spending ahead of general elections could boost demand for liquor. Firstsource Solutions surged up 5.76% after the company repurchased $17.9 million worth Zero Coupon convertible bonds.

Tea stocks such as Harrisons Malayalam, Warren Tea and Mcleod Russel moved up sharply amid reports that tea prices may rise 15-20% in the next fiscal year due to weather problems in India and a crop shortage in Kenya.

DCM rose 0.69% after Aggresar Leasing and Finance, a promoter group company hiked its stake in the company. Matrix Laboratories tumbled 3.01% despite receiving a U.S. drug regulator's tentative approval for antiretroviral tablets.

In the energy sector, Reliance Industries jumped 6.69%, Cairn India rallied nearly 4% and ONGC advanced 3.50% after crude oil held firm at around $47 a barrel. However, oil-marketing companies such as HPCL, BPCL and IOC ended in the red.

Metals

Gold Notably Higher For Third Straight Session

Gold rallied for a third straight session on Friday and continued to move off its monthly low. The metal is now up almost $40 in the last three days.

April gold added $10.60 to reach $934.60 per ounce. Prices hit as high as $936.60 in early trading. On the economic front Friday, the Commerce Department said that the trade deficit narrowed to $36.0 billion in January from $39.9 billion in December. Economists had been expecting a smaller decrease in the size of the trade deficit to about $38.0 billion.

Meanwhile, the Labor Department said Friday that import prices slipped 0.2 percent for February compared to the previous month. This followed a revised 1.2 percent decline in January. Economists had expected a sharper drop of 0.8 percent.

Export prices were down 0.1 percent from last month, the Labor Department said.

The Reuters/University of Michigan's preliminary report on the consumer sentiment index for March is scheduled to be released at 10 a.m. ET. Consumer confidence is expected to tick down in the month, with economists are forecasting a flat reading for the index at 56.3.

At 10.30 a.m. ET, White House National Economic Council director Lawrence Summers is set to give briefing on the government's economic program and the U.S. economic outlook.

Gold surged $13.30 on Thursday and gained nearly $30 in the last two sessions, coming off a monthly low. Before the rally, gold had dropped in 10 of 12 session since crossing above $1,000 on Feb. 20.

Stock Market News, Financial News - Mar 11, 2009

Citigroup cheers markets but economies still bleak

By Jonathan Stempel and Sachi Izumi

NEW YORK/TOKYO (Reuters) - Citigroup said it was profitable in the first two months of 2009 and Toshiba was reported to be set for an operating profit of $1 billion next year, two rare shards of corporate news to lift markets.

Asian stocks rose on Wednesday, following a strong rally on Wall Street, but economic news remained gloomy.  (More ...)

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'US protectionism not to impact Indian IT'

By ENS Economic Bureau

At a time when US President Barack Obama's statements on curbing tax breaks for outsourcing companies in the US rang alarm bells in the Indian IT sector, Indian IT representative body National Association of Software and Service Companies (Nasscom) today said it does not expect the recent protectionist measures taken by the US government to impact the Indian IT-BPO industry.  (More ...)

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NHAI plans funding to road developers

By Gunjan Pradhan Sinha, Indian Express Finance

In a bid to prevent work on road projects from coming to a halt, the government is considering a proposal to allow the National Highways Authority of India (NHAI) to extend working capital loans to developers. In a meeting held on March 7, the roads secretary and NHAI officials discussed the possibility of such a move with road developers. According to developers present at the meeting, the move may help them tide over the tight credit situation they face for projects undertaken by them under the National Highways Development Programme (NHDP).  (More ...)

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LandT, 8 others in race for Chennai mega container terminal

By Financial Express Bureau

Nine companies have submitted their requests for qualification for the development of India's first mega container terminal at the Chennai port. Estimated to cost Rs 3,686 crore, the terminal, with a rated annual capacity of 4 million TEUs, is likely to become operational by 2012-2013.

The last date for submitting the request was on March 9, 2009. The applicants are: LandT Transco Pvt Development Project Ltd, Chennai; Navayuga Engineering Co Ltd, Chennai; DP World Pvt Ltd, Mumbai; IL andFS Maritime Infra Co Ltd, Mumbai; Vadinar Oil Terminal Ltd, Mumbai; Mundra Port and SEZ Ltd, Ahmedabad; Lanco Infratech Ltd, Hyderabad; FGI Group of companies, Malaysia and GVK-Leighton Consortium, Mumbai.  (More ...)

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Nine million GSM users added in Feb, tally rises to 277 million

By Financial Express Bureau

The country added a total of 9 million GSM subscribers in February, taking the total tally to 277 million at the end of the month. This marks an increase of 3.43% in the total number of subscribers, compared to the month of January.

The country's largest telecom operator, Bharti Airtel, added the highest number of GSM subscribers during the month, at 2.5 million. With this, the total number of mobile subscribers for the company went up to about 91million. Bharti continues to have the largest market share in the GSM segment with 32.88%. Bihar once again added the largest number of subscribers for the company, with 4 lakh additions. Karnataka added the second highest number of subscribers with around 3 lakh, with Rajasthan close behind with 2.9 lakh additions in the month.  (More ...)

Stock Market News, Financial News - Mar 9, 2009

L&T says to go ahead with bid for Satyam

MUMBAI (Reuters) - Larsen & Toubro Ltd will go ahead with a bid for beleagured software firm Satyam Computer Services Ltd, a Larsen spokesman said on Monday.

"We expect to go ahead with the bid," spokesman D. Morada told Reuters.  "The bid price has no relation to the market price," he said, when asked about the basis for valuation of the bid.  (More ...)

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GLOBAL MARKETS - Asia stocks spooked by U.S. woes, dollar dips

By Eric Burroughs

HONG KONG (Reuters) - Asian stocks dipped on Monday on worries about the fate of U.S. automakers and banks, while the dollar retreated as market players booked profits on the rise to a three-year peak last week.

Markets sent mixed signals at the start of the week, with the safe-haven dollar and government bonds losing ground even as financial shares dragged down most stock indexes. Oil prices jumped for a second day on hopes for more OPEC supply cuts. (More ...)

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Global economy will shrink in 2009: WB

Financial Express

The World Bank said that the global economy will shrink this year for the first time since World War II and that the global financial crisis will make it tougher for poor and developing nations to access needed financing.

Trade is forecast to fall to its lowest point in 80 years in 2009, as economic hardship ripples across the globe, the bank said. The most drastic trade slowdowns are expected in East Asia, where growth had been robust, the bank said in a paper prepared for a meeting of finance ministers and central bank officials next week. (More ...)

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DoT asks BSNL, MTNL to stop 3G services

Financial Express

Acting upon the directions of the Intelligence Bureau (IB) the department of telecommunications (DoT) has asked the two state-owned telecom service providers, BSNL and MTNL to stop providing 3G services till call monitoring services are made available to the intelligence agencies.

The 3G services provide for high speed data and video streaming and are distinct from the plain voice-based 2G services.  (More ...)

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'India-China mutual investment to boost economy'

Indian Express Finance

Facing a slide in economic growth due to the global financial crisis, China has favoured an increased two-way investment with India to check the impact of the downturn.

Chinese ambassador Zhang Yan said the two economic powers should "go hand in hand" and enhance bilateral cooperation in economic field to send out a positive message and help the world economy also to a great extent. Seeking mutual investment in key sectors like infrastructure, Yan said both India and China have huge foreign exchange reserves which need to be utilised properly.  (More ...)

Stock Market News, Financial News - Feb 20, 2009

Nikkei touches Oct trough amid economy worries

TOKYO (Reuters) - Japan's Nikkei stock average was down 1.8 percent on Friday, after briefly touching its October bear market low, dented by bank shares on worries about their European peers, while exporters largely failed to benefit from a weak yen.

Jittery investors also pushed the broader Topix index to 741.42, a level that would mark its lowest close in 25 years.  (More ... )

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Rupee edges lower, strike affects volume

MUMBAI (Reuters) - The rupee dropped on Friday, weighed down by losses in the share market and a stronger dollar overseas, but volume was thin following a one-day strike by central bank employees.

At 10:20 a.m., the partially convertible rupee was at 49.87/88 per dollar, 0.5 percent weaker than Thursday's close of 49.62/63.

"The forex market is open but there is very thin trade, the strike has affected volumes," said a senior dealer with a private bank.

(More ... )

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L&T says studying Satyam decision

MUMBAI (Reuters) - Larsen & Toubro, the largest shareholder in Satyam Computer Services, said it will review a decision to allow the fraud-hit outsourcer to increase shares on issue and sell a stake before making its next move.

"We are studying details of the Company Law Board order. Only after studying the details, we will take a decision," Chairman A. M. Naik told reporters on Friday.

L&T, India's leading engineering and construction firm, has a 12 percent stake in Satyam.  (More ... )

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IFCI for rejig of entire Maytas board, open to bigger role

By Financial Express Bureau

Development Financial Institution IFCI Ltd is favouring reconstitution of the existing board of Maytas Infrastructure as it lost the trust of one and all and cannot perform the duties with due importance and in a more transparent manner. While welcoming the Centre's move to refer the case to CLB, IFCI said that the company was 'overlooked' despite having 17.4% stake in Maytas Infra, said Atul Kumar Rai, chairman and managing director, IFCI.  (More ...)

How to Select Stocks within Infrastructure Sector

During the later stages of the previous bull market, stocks from the real estate and infrastructure sectors were on the top of investor buy lists. Those who invested in these sectors are sitting on massive losses as most stocks have fallen much more than the Sensex.

Many inexperienced investors are tempted by the current low prices to try and lower their average holding cost per share. That would be akin to 'catching a falling knife'. Averaging down may be a smart move if you are 100% certain about the management quality and the business outlook of the company. Most real estate and infrastructure companies will not qualify on either count.

Unfortunately, despite the massive fall in prices of real estate and infrastructure shares, investor fascination has not completely waned. Last week, I received a couple of investor queries that brought this shockingly to the forefront.

One asked: Which one is a better buy - IVRCL Infra or GMR Infra? The other asked: Is Punj Lloyd a good buy at Rs 95?

I decided to do a little digging by visiting the Rediff site. Here is what I found (for three years ending Mar '06, Mar '07 & Mar '08):

IVRCL had negative cash flows from operations for all three years - going from -83 Cr to -377 Cr; decreasing Net Profit Margins (NPM) - 6%, 5.9%, 5.6%; EPS of Rs 15.80 (in '08).

GMR had negligible cash flow from operations in '06 and negative cash flows of -7 Cr and -57 Cr in '07 and '08; wildly fluctuating NPM - 58%, 8%, 60%! EPS of a miniscule Rs 0.34 (in '08).

Punj Lloyd had negative cash flows from operations for all three years - going from -84 Cr to -233 Cr; marginally increasing NPM - 2.5%, 2.7%, 4.9%; EPS of Rs 7.30 (in '08).

Now the three years in consideration also happened to be the three biggest boom years for the infrastructure sector in India. And our three 'gems' failed to earn a single Rupee in cash! Wonder what they will do during this prolonged Bear Market? Keep wondering - just don't touch these stocks.

Since I am a firm proponent of buying only the best and leading stocks in any sector, I took a quick look at the figures of L&T. And this is what I found.

L&T had positive cash flows from operations for all three years - 1369 Cr, 2130 Cr and 1945 Cr; increasing NPM - 6.7%, 7.7%, 8.5%; EPS of Rs 74 (in '08). Based on these figures, I am inclined towards discounting GMR's ridiculously high NPMs in '06 and '08. (May be these were typos on the Rediff site.)

Since all four companies have shares with face value of Rs 2, the EPS figures are comparable. On all counts, L&T is the clear choice - and by my reckoning, the only stock to be considered in engineering and construction within the infrastructure sector.