5 Stocks for next week 29th Jan-2nd Feb 2018
BEML - SELL
|Recommendation||The stock has breached the symmetrical triangle formation on the daily chart backed by a surge in volumes. The stock has also shown weakness on the daily MACD Histogram.|
|NSE Code||Market Cap(Rs in Cr)||52-week High /low||200 Day M.A|
CHENNAI PETROLEUM - SELL
|Recommendation||The stock has breached its support levels on the daily chart backed by a surge in volumes; the stock has also formed a large bearish candle on the weekly chart and has given a close below its 10 period EMA on the weekly chart.|
|NSE Code||Market Cap(Rs in Cr)||52-week High /low||200 Day M.A|
RAYMOND LTD - SELL
|Recommendation||The stock continued to face selling pressure near its resistance zone and has formed a large bearish engulfing candlestick pattern on the daily chart. The stock has also shown weakness on the daily MACD Histogram.|
|NSE Code||Market Cap(Rs in Cr)||52-week High /low||200 M.A|
ITC - BUY
|Recommendation||The stock is also in a higher top higher bottom chart structure. The stock has witnessed a positive bounce after consolidating in a sideways range for the past few months. The trend and strength analysis indicates that the current momentum is likely to continue further.|
|NSE Code||Market Cap(Rs in Cr)||52-week High /low||200 M.A|
RELIANCE INDUSTRIES - BUY
|Recommendation||The stock is in a rising channel formation on the weekly chart and has given a positive bounce from its support levels. We expect the positive momentum to continue in the stock.|
|NSE Code||Market Cap(Rs in Cr)||52-week High /low||200 M.A|
Galaxy Surfactants Limited IPO Note
Issue Opens: January 29, 2018
Issue Closes: January 31, 2018
Face Value: Rs.10
Price Band: Rs.1,470-1,480
Issue Size: ~Rs.937 cr
Public Issue: 63.32 lakh shares (at upper price band)
Bid Lot: 10 Equity shares
Issue Type: 100% Book Building
|% shareholding||Pre IPO||Post IPO|
Galaxy Surfactants Limited (GSL) is one of the leading manufacturers of surfactants and other speciality ingredients for the personal care and home care industries in India. GSL’s customer base includes leading FMCG multinationals and regional & local players (home and personal care industries). Its product portfolio comprises over 200 product grades, marketed to more than 1,700 customers in over 70 countries. GSL’s products are classified under two segments i.e. Performance Surfactants and Speciality Care Products. GSL’s ~64% of consolidated revenue (H1FY18) is through overseas business, whereas ~36% is domestic. GSL’s seven facilities (five in India and two overseas) have total manufacturing capacity of 3.51 lakh MTPA and an overall utilization level of ~60% (FY17).
Objective of the Offer
The offer consists of an offer for sale of ~21.47 lakh shares by the promoter / promoter group and ~41.85 lakh shares by other shareholders, a total of ~63.32 lakh shares aggregating up to ~Rs937cr at the upper end of the price band. The company’s public issue in 2011 was withdrawn due to inappropriate market conditions.
|Consolidated Rs cr.||FY16||FY17||FY18E||FY19E||FY20E|
|EBITDA Margin (%)||12.9||12.4||13||13.5||14|
Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band, on post IPO shares
GSL has emerged as one of the preferred suppliers to leading FMCG companies in the consumer centric personal care and home care segments. The company’s customer base includes FMCG players like Calvinkare, Colgate-Palmolive, Dabur India, Himalaya, P&G, Unilever, Reckitt Benckiser and Jyothy Laboratories. Its customer base has increased from ~1,200 customers in FY13 to ~1,700 customers in FY17, representing a CAGR of 7.8%. Market for home care products in India is expected to touch $4.32bn in FY24E, 7.2% CAGR over FY18E-24E. GSL is well poised to cater to the growing demand and improving scenario for FMCG industry.
GSL has a total manufacturing capacity of ~3.51 lakh MTPA with a utilization level of ~60% in FY17. It has sufficient room for utilizing excess capacity to suffice unique requirements of its existing customers and new clientele (that would be added through company’s marketing and sales initiatives). The improvement in EBITDA margin would result into increased profitability leading to free cash flow generation. This would allow the company to deleverage its balance sheet (D/E ~0.6x as on September 30, 2017).
GSL generates a significant portion of revenue from limited number of major customers. The company’s top ten customers contributed 58.5%, 54.8% and 53.5% of the total revenues from operations in H1FY18, FY17 and FY16 respectively. Moreover, it does not have long-term contractual agreements with the significant customers and the business is conducted on the basis of purchase orders. Hence, reduction in demand from customers can impact the company’s performance adversely.
GSL is dependent on a single supplier for one of the key raw materials i.e. ethylene oxide. It constituted 6.8% and 7.3% of total cost of materials consumed in H1FY18 and FY17 respectively. This may restrict the company to negotiate sourcing arrangement and pricing of raw material.
At the upper price band, the stock looks moderately expensive at ~36x FY17 EPS. We expect revenue CAGR of 11% with EBITDA margin expansion of ~160bps over FY17-20E (14% EBIDTA margin in FY20E). PAT is expected to witness 20% CAGR over FY17-20E. The stock appears to be attractive at ~25xFY19E and ~21xFY20E (on preliminary estimates). We recommend SUBSCRIBE from long-term perspective.
Tips for an investor to attain success
Every successful investor follows some common strategies and tips that they must have analyzed through years of investing. One should consider following the below tips in order to invest in the share market in a better way and avoid losses while investing.
1. Be prepared to incur small losses initially if you are a beginner investor.
2. Always put a stop loss to all your investments in order to cut losses
3. Always sell your shares if the price drops below 10 percent.
4. Don’t get discouraged by losses, be persistent.
5. It takes some time to attain success in the market, be patient.
6. Always pick a brokerage firm charging a flat brokerage fee, rather than a commission.
7. It doesn’t require a huge amount of money to invest; you can start investing with Rs15-20k.
8. Avoid investments which are highly volatile and invest in liquid assets.
9. Your sentiments are your worst enemy, don’t get too attached to a particular investment.
10. Be careful of the companies having share price below Rs100; good companies mostly don’t have share prices this low.
11. Learn from your previous mistakes, analyze them so that you never commit them again.
12. Study the people who have been successful in the market, and learn from their personality.
13. Combination of both fundamental and technical analysis is a must before taking an investment decision.
14. Fundamental analysis means you study the balance sheet, income statement, cash flow statement, and growth margin of the company.
15. Technical analysis suggests that you learn about the company by analyzing the price charts of the company.
16. Concentrate on few stocks which are of superior quality. Don’t own stocks of more than 20 companies at once.
17. Look for companies having good growth potential and invest in them.
18. Companies having strong sales and consistent earnings are considered as the best companies to invest.
19. Buy stocks of companies that are just coming out of price consolidation in order to make money.
20. Analyse which industry is profitable in the market right now - pharma, technology, IT, etc., and find the best companies within that sector.
21. Always consider the volume: how many shares of the scrip are actively traded? Higher the volume, better the liquidity.
22. Try to pick stocks from the leading sectors. Successful investors usually hold shares of industry leaders.
23. If the stock price has gone up, it means that there is more buying than selling in the market.
24. If the price has gone down, there must be more selling than buying in the market.
25. Look over your financial position before investing and only invest what you can afford to lose.
26. Avoid the herd mentality and don’t invest just because everyone else is investing.
27. The right time to buy a stock is at its “pivot point.”
28. Don’t chase a stock if the price has risen over 5% of its initial price.
29. The volume should increase by 50% on the day of the breaking out of stock.
30. Buy low and sell higher has become buy high and sell a lot higher, at the current time.
31. To let yourself know when a stock has reached its top, keep monitoring the chart price and volume action of the company.
32. History always repeats itself in the stock market. If a trend has passed, it will come back again in the future.
33. You should not take any rash decision and sell the stock if the price increases slightly. Keep the stock for at least four weeks and then decide.
34. Always track the direction of big indices like Nifty50. They make or destroy a current trend.
35. Ignore taking advice from people about the stock market. Do what’s best for you in your opinion.
36. A bear market will decline up to 25% from its initial price.
37. Political or economic environment and interest rates can influence prices in the market.
38. Three out of four stocks will most probably follow the overall trend of the market, even if they seem good at first glance.
39. The market trend usually tends to change after a three to four week period.
40. Investors panic during a bear market and when the prices start to go up again, investors don’t believe that the trend is changing.
41. At some point during a downtrend, the market will try to rebound in an attempt to advance in price level after declining for a certain period.
42. Most stock prediction charts are of little value as the market is volatile and can’t be predicted perfectly.
43. You should try picking better stocks once you determine that the market is in an uptrend direction.
44. A company which can earn you profits will have strong previous earnings and continuous distribution of dividend.
45. Analyzing price charts of a company can help you identify the right time to buy or sell shares.
46. There are two types of investors: defensive and aggressive. A defensive investor spends less time in the investment process, and an aggressive investor spends more time towards investments.
47. Investors who seek growth can look for companies with high earnings and strong sales.
48. Investors who seek value can look for stocks which are undervalued and have lower P/E ratio.
49. Keep the investment process as simple as possible so that you understand your investments properly.
50. Keep monitoring your investments regularly. It will help you to identify which investments to buy or sell in order to to cut losses.
51. What you pay is what you get in the market. Higher the investment, higher the profits.
52. Identify your risk appetite before investing. Only invest what’s in your budget.
53. Read different investment books to get basic knowledge about the factors that influence the prices in the market.
54. Diversify your portfolio by investing in stocks of multiple companies across various sectors and industries.
55. Sell the shares which you think can lower your overall profits to protect the performance of your portfolio.
56. Don’t make decisions based on your sentiments or based on company’s goodwill. A good company can also force you to incur losses at times.
57. Don’t invest more money once you have achieved your desired financial goals.
58. Keep an eye on news related to the company you have invested your money in. It can influence the prices of stocks to a great extent.
59. Ask for advice from your stockbroker on how you can reduce your taxes and increase your profits.
60. Consider investing in stocks rather than bonds and fixed deposits. Stocks will provide you with better profits in less amount of time.
8 big mistakes to avoid in a falling stock market
Everyone prefers to invest in a bullish stock market. However, investing in a bearish market is seen as a challenge for investors.
Stock markets have been facing a lot of volatility these days, hence, investors should keep a check of what they do and don’t. Panic leads to hasty moves, as a result paying a hefty price. However, if one is cautious of the commonly made mistakes (listed below), it may help in reducing losses to a great extent.
1). Don’t fixate on a price: Investors tend to anchor on a price, at which they bought the stock. They should carefully analyze the reasons for the falling stock and plan their next move accordingly. They must realize that the price at which the stock is bought is not necessarily perceived as its fair value by the market.
2). Say ‘No’ to buying more to average: Even though this concept has its own benefits, keep reminding yourself that this works only if the fundamentals of the stock are strong. The method of averaging is one of the trusted techniques in stock trading.
3). Be well researched regarding the market updates: Do not ignore any significant development happening in the market based on over confidence. Be well informed and take decisions according to the market trends. Your judgement without information may not always be correct.
4). Don’t be a value picker: Buying stocks at their 52-week low may seem a good bargain, but it might turn out to be a value trap. Markets can be unreasonable for longer periods of time than one can think of.
5). Do not make leveraged bets: Leverage requires that the investment should earn a return, which is at least equivalent to the interest paid on the borrowed capital (if you have borrowed). However, in case of market dips, it can accrue huge losses too.
There’s a high degree of uncertainty involved in the stock market, which can drive the trends either ways – it can bring panic if one is risking the money that they cannot afford to lose. Alternatively, it can force one to close their positions by limiting their options, if they are buying on margin.
6). Don’t alter your financial plans: It is a human tendency to panic and react frantically in the state of stress. Don’t change your investment decisions and existing portfolios based on the current market trends. Keep a clear sight of your asset allocation.
7). Do not stop your Systematic Investment Plans: One should not stop their SIPs during a bear market. The primary purpose of SIP is to encourage buying more units at lower prices and reaping benefits when the market rebounds. Stopping SIPs at that point interrupts the compounding benefit of equities and affect the long term goals.
8). Do not over diversify your portfolio – One should not over diversify his portfolio that too in multiple companies of the same sector. Though this might help one to limit their downside to an extent, but won’t be of much help in the long run. Diversification beyond a point leads to greater risks, and it becomes difficult to monitor the stocks.
The ‘right’ way to exit a losing trade
Every trader has his share of bad trades in his portfolio and you do not need all your stocks to be multi-baggers to be successful in the share market. While gains from a stock have no upper limit, the loss from a stock is limited to the value invested in it. Exiting a losing stock is not only a financial loss for a trader, but also an emotional or psychological loss. It is human tendency not to accept losses readily. We have a few recommendations that will help you exit a declining trade.
Let’s take a look
Use stops to restrict your financial losses
Stops are calculated, pre-determined price levels at which the investor chooses to go short or sell his stocks to limit losses. When the stock price hits the stop loss price, a sell order is executed and the stock is automatically sold at that price. Stop loss orders work well as they define the losses beforehand and the loss amount is in the control of the investor. Have a personalized stop loss strategy and use it effectively to limit your losses while investing in stocks.
Keep a check on the stock even after exiting to find a re-entry point
Once you exit a position, keep an eye on it to identify any bullish indication of reversal, which can be a potential re-entry point. Using stops, you might sometimes exit your position because of price volatility. In no time, you may find the prices rising again. However, using proper stops is proven to be effective as it limits your losses in most cases. Analyze the charts, study the candlestick patterns, and re-enter, only, if it coincides with your research and not in hope or revenge. If there is no valid reason to re-enter the trade after the initial exit, walk away and search for new opportunities.
Do not emotionally connect with your stock picks
You should accept your wrong picks and move on rather than lingering onto the stock in the hope of a rebound. You need to monitor and notice the developments around your shares continuously, and if stocks are taking the wrong direction, you will sometimes need to book losses and accept your wrong stock picks. Don’t fall in love with your shares, sell them if the fundamentals do not appear correct and restrict your losses. Booking losses or hedging them at an early stage can help minimize losses.
Accept responsibility and analyze your mistakes and find out where your investment plan can be improved
This will help reduce the chances of the same happening again. Handling trading losses well is a leading characteristic of successful investors. Treat a failure as an opportunity to learn and improve it in your next move. Many opportunities are waiting out there in the market for you to find and grab hold of.
Top 5 ELSS for 2018
Equity Linked Savings Scheme (ELSS) is a type of equity mutual fund in which investments up to Rs1.5 lakh per financial year are tax deductible under section 80C. In other words, investors don’t have to pay tax on investment up to Rs.1.5 lakh in ELSS. By investing in ELSS, an investor in the 30% tax bracket can save Rs.46,350 as tax.
Below table exhibits the amount of tax one can save by investing Rs.1.5 lakh in ELSS for different tax slabs.
*Includes 3% cess also
Besides tax benefits, ELSS investments also offer other benefits discussed below.
- Wealth creation with tax-saving – Historically, it has been seen that ELSS schemes have given significantly higher returns than other tax saving schemes like PPF, 5-year FD, EPF, etc.
- Shortest lock-in period – ELSS has a lock-in period of 3 years, which is the shortest among all tax-saving instruments.
- Tax free capital gains: The long-term capital gains from investment are tax-free.
- Dividends are tax-free: Dividends received are tax-free in the hands of the investor right from the year of investment.
- Low investment amount: Investors can start investing with Rs500 in lump sum or via SIP in ELSS. Since it is difficult to invest a lump sum amount in one go, SIP helps a person to invest small amounts at regular intervals. SIP payment is auto-debited from your bank account every month.
ELSS is the best way to save tax and create wealth in the long term. Below are the top 5 recommended ELSS funds.
|Scheme Name||Fund Manager||Corpus (cr)||1 Y (%)||3 Y (%)||5 Y (%)|
|Aditya Birla SL Tax Relief '96(G)||Ajay Garg||Rs.4,349||41.6||16.3||21.6|
|Axis LT Equity Fund(G)||Jinesh Gopani||Rs.15,408||35.7||12.2||22.4|
|DSPBR Tax Saver Fund-Reg(G)||Rohit Singhania||Rs.3,571||34.4||15.6||20.1|
|IDFC Tax Advt(ELSS) Fund-Reg(G)||Daylynn Pinto||Rs.798||52.2||17.4||21.6|
|Reliance Tax Saver (ELSS) Fund(G)||Ashwani Kumar||Rs.10,157||44.2||13.3||22.4|
1 year returns are absolute; 3 year and 5 year returns are CAGR.
AUM as of November 2017, Returns are as on January 02, 2018
Aditya Birla SL Tax Relief ‘96 Fund
- Aditya Birla SL Tax Relief ‘96 Fund does tactical allocation between large cap and mid-= cap stocks to ensure optimal risk reward.
- As of November 2017, the fund has invested ~37% of its AUM in large cap stocks, ~55% in mid cap stocks and ~7% in small cap stocks to generate higher returns.
Axis Long Term Equity Fund
- Axis Long Term Equity mutual fund invests in companies with sustainable profit growth to generate wealth over 3-4 years.
- Besides, the fund manager follows bottom-up approach to select the companies.
- As of November 2017, the fund has invested ~66% of its AUM in large cap stocks while ~30% in mid cap stocks to generate alpha.
DSPBR Tax Saver Fund
- DSPBR Tax Saver Fund primarily invests in large cap stocks with some tactical allocation to midcap and small cap stocks to generate higher returns.
- The fund manager follows buy-and-hold strategy for majority of the portfolio. He also takes active and tactical calls to exploit the market opportunities.
- As of November 2017, the fund has invested ~71% of its AUM in large cap stocks and ~22% in mid cap stocks to generate higher returns.
IDFC Tax Advantage (ELSS) Fund
- IDFC Tax Advantage (ELSS) Fund does tactical allocation between large cap, mid cap and small cap stocks to generate higher returns.
- As of November 2017, the fund has invested ~46% of its AUM in large cap stocks, 29% in mid cap stocks and 20% in small cap stocks in order to generate higher returns.
Reliance Tax Saver (ELSS) Fund
- Reliance Tax Saver (ELSS) Fund does tactical allocation between large cap, mid cap and small cap stocks to generate high returns.
- The fund invests in potential leaders with high growth prospects.
- Generally, the fund takes 2-3 sector call at a time and invests in high conviction mid cap stocks.
- As of November 2017, the fund has invested ~60% of its AUM in large cap stocks, 25% in mid cap stocks and 15% in small cap stocks in order to generate higher returns.