When is the right time to invest in share market?

When is the right time to invest in share market?
11/01/2018

Upon finding the markets correcting sharply, as has been happening in the last two months, it would be normal of investors to worry and question whether they should stay invested or exit en masse. Then there are also the more adventurous investors who wonder if any correction is a time to jump in for some bottom fishing.

The truth probably lies somewhere in between.

Your trading account or your trading app is not a ticket to punt on the markets, but is meant to facilitate a long-term approach to investing. Now back to your key questions; is this the right time to invest in share markets? The answer would be “it depends”.

Do Not Get Obsessed by the Nifty or the Sensex

These are indices or benchmarks and that is how you should treat them. A 13% correction in the Sensex means nothing to you. If your portfolio consists of IT stocks, you have actually been enjoying positive returns. However, if you were long on mid-caps and NBFCs, most likely your losses are much deeper right now.

Nonetheless, your decision to invest should depend purely on the merits and demerits of the individual stocks irrespective of the current position of the Nifty or the Sensex. Different stocks offer varying degrees of risk and return and each is best suited for a different investing timeframe. Once you take a granular approach, things become a lot clearer.

It Depends on How Long-Term is Your Long-Term!

Long-term investing is one of the most commonly used and also one of the most misunderstood words in investment parlance today. Contrary to the general belief these days, when we talk of long-term investing, we are not talking about one or two years. When you talk about long-term investing, you cannot look at anything less than seven-eight years. Moreover, most investment gurus do not consider anything less than 15-20 years as long-term. That is the kind of timeframe in which equities really generate wealth for you.

The longer you have to amass your cash, the greater risk you can accept, and consequently, you'll have more time to wait out periods of bad returns. Let us put it this way: even if you need the money within the next five years, you may want to avoid individual stocks and probably look at diversified equity funds.

When it comes to long-term investing, time spent in the market matters a lot more than timing the market!

In Any Correction or Rally, Some Stocks Are Meant to be Sold

The word long-term investing comes with a very important qualification and that is ‘earnings visibility’.

There are some stocks that offer you a clear opportunity to exit. Don’t get obsessed with your long-term theory here. Sample this: the first case to sell is when the business fundamentals have perceptibly changed. For example, NBFCs may be under financing strain after the IL&FS issue. Brick-and-mortar retailing may be under pressure due to the onslaught of e-tailers. These are fundamental changes and call for a change in the way you value these companies.

Another reason to seriously look at an exit is when stocks get overvalued. Has the stock market brought the company's shares to unsupportable heights? Is the stock looking vulnerable and could likely crash on the slightest bad news? Above all, be very cautious about corporate governance issues like disclosure, transparency, group transactions, auditor objections, etc. These are the kind of red flags wherein you need to sell the stock, irrespective of the state of the market.

Shield Yourself From the Noise and the Cacophony

Markets can be chaotic and the never-ending barrage of media opinions can make markets appear even more frenzied. However, always remember that the media tends to focus entirely on the index and a handful of weighty stocks, assuming that it reflects the entire market. Also, there is too much focus on chart levels, supports, and resistances of any stock. The stock does not understand technicals and that is something you need to be wary of. If you are getting a quality stock at the right price with a reasonable margin of safety and if you are willing to hold it for the long haul, you should go ahead and invest. After all, you are investing in the company’s business and not in the price vagaries of the stock.

Ensure that the Stock Makes Sense in Your Portfolio

This is the last and perhaps the most important test. Whatever stock you buy must fit into your risk-return matrix. There is no point for a conservative investor with limited risk capacity loading high beta stocks into the portfolio. That is a clear mismatch.

Look at the sectoral sync among your stocks. If you are already heavy on a particular sector or theme, don’t just keep loading more stocks from the industry even if all the other conditions are met. That is the key!

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Newgen Software Technologies -IPO Note (Not Rated)

Newgen Software Technologies -IPO Note (Not Rated)
by Nikita Bhoota 15/01/2018

Issue Opens: January 16, 2018
Issue Closes: January 18, 2018
Face Value: Rs 10
Price Band: Rs 270-275
Issue Size: ~Rs 425 cr
Public Issue: 17.33 lakh shares (at upper price band)
Bid Lot: 61 Equity shares
Issue Type: 100% Book Building

% shareholding Pre IPO Post IPO
Promoter 70.3 66.3
Public 29.7 33.7

Source: RHP

Company Background

Newgen Software Technologies (NST) is a software products company providing solutions in Enterprise Content Management (ECM), Business Process Management (BPM) and Customer Communication Management (CCM) platforms. NST creates applications on its platforms that aid organizations to drive digital transformation. The applications enable businesses to automate routine business functions and manage data & processes. As of September 30, 2017, NST had over 450 active customers in over 60 countries. NST caters to BFSI, Government/PSU and BPO/IT sectors accounting for 48%, 12% and 11% of its overall revenues respectively (September 2017).

Objective of the Offer

The offer consists of Fresh Issue of Rs95cr and OFS of up to 13.45 lakh shares (aggregating to ~Rs330cr) at upper end of the price band. Amount of ~Rs84cr from proceeds will be used for purchase/furnishing of office premises and balance for general corporate purposes.

Financials

Consolidated cr FY14 FY15 FY16 FY17 1HFY18
Revenue 248 308 347 427 207
EBITDA Margin % 19.3 18.7 11.3 16.4 4.6
PAT 41 46 28 52 6
EPS (Rs)* 5.9 6.7 4 7.6 0.8
P/E* 40.5 35.9 59.8 31.8 --
P/BV* 9.6 7.9 7.3 6.1 --
EV/EBITDA* 33.8 28.2 42.1 23.3 --
RONW (%)* 28.3 24.1 12.6 20.8 --

Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band, on post IPO shares

Key Points

NST has been recognized by analyst firms like Gartner and Forrester. These research and advisory firms’ views help enterprises to make software purchase decisions. Usually the comprehensive research provided by these firms are expensive, but both these firms have other options like Gartner’s Magic Quadrant research and Forrester’s Wave report, which list the top vendors and their products in the specific markets. According Gartner’s research, NST was the only vendor positioned in all four Magic Quadrants of ECM, IBPMS, BPM-Platform Based Case Management Framework and CCM. Forrester has also labeled NST as leader and strong performer across platforms. Endorsements by leading technology research and advisory firms bode well for new client wins for NST.

NST has a diversified customer base that includes 17 Global Fortune 500 companies. Most of its Indian and overseas customers are well known and revenues from repeat customers were ~72% in FY17. Strong relationships with clients has enabled to get repeat business, which is more expansionary in nature, as the client utilizes the solutions in other geographies. Cross-selling opportunities with existing clients for different platforms and geographies, and ability to make inroads into recently won client’s accounts will aid revenue growth for the company.

Key Risk

NST’s performance in FY16 had come under pressure owing to weakness in markets like the Middle East and currency related issues in Nigeria. The issues also resulted in sharp increase in receivables, as the customers were unable to pay AMC fees. Weakness in key markets can impact company’s overall financials

Research Disclaimer

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Amber Enterprises India Ltd IPO Note

Amber Enterprises India Ltd IPO Note
IPO
by Nikita Bhoota 16/01/2018

Issue Opens: January 17, 2018
Issue Closes: January 19, 2018
Face Value: Rs.10
Price Band: Rs.855-859
Issue Size: ~Rs.600 cr
Public Issue: 69.85 lakh shares (at upper price band)
Bid Lot: 17 Equity shares
Issue Type: 100% Book Building

% shareholding Pre IPO Post IPO
Promoter 59.0 43.5
Public 41.0 56.5

Source: RHP

Company Background

Amber is a market leader in the room air conditioners (RAC) original equipment manufacturer (OEM) and original design manufacturer (ODM) industry in India. It designs and manufactures complete RACs including split ACs and inverter ACs. Amber manufactures a range of equipment for ACs viz. heat exchangers, inverter & non-inverter printed circuit boards, multi-flow condensers, sheet metal components, injection molding components, etc. Amber also manufactures components for other consumer durables like case liners for refrigerators, plastic extrusion sheets and printed circuit boards, etc. for microwaves and washing machine tub assemblies. Its key customers include Daikin, Hitachi, LG, Panasonic, Voltas and Whirlpool.

Objective of the Offer

The offer consists of Fresh Issue of 55.3 lakh shares (aggregating up to ~Rs.475cr) at the upper end of the price band. It also includes offer for sale of up to 14.6 lakh shares (Rs125cr) by the promoters. The proceeds will be used for pre-payment or repayment of borrowings (~Rs.400cr) and for other general corporate purposes (~Rs.75cr).

Financials

Consolidated `cr. FY16 FY17 FY18E FY19E FY20E
Revenue 1089 1644 1973 2467 3083
EBITDA Margin (%) 10.4 7.8 8.9 9.0 9.2
Adj. PAT 24 28 61 117 141
EPS (`)* 7.7 8.9 19.5 37.1 44.9
P/E* 112.1 96.8 44 23.2 19.1
P/BV* 10.3 8.1 4.9 4.1 3.4
RONW (%)* 9.2 8.3 11.0 17.6 17.6

Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band, on post IPO shares

Key Investment Rationale

The OEM/ODM manufacturers in India cater to ~34% of the outsourced requirements of the Indian RAC industry. Out of this, Amber enjoyed huge share of 55.4% (in volume terms) in FY17 (source: F&S report). This shows that its share in the total RAC market in India (in volume terms) has grown from 14.7% in FY15 to 19.1% in FY17.  Moreover, RAC penetration level in India (mere 4%) lags behind the global level of 30%, thus indicating enough room for growth. Amber’s customers command around 75% share in the Indian RAC market. We believe, Amber by virtue of its market leadership stands to benefit the most from growth surge in RAC industry. 

Amber has total installed capacity of 1.59mn outdoor units (ODUs), 1.37mn indoor units (IDUs) and 0.59mn window air conditioners (WACs) and several other components (as on FY17).  Currently, the capacity utilization is ~47% (H1FY18), thus providing enough room for scalability. We believe that benefit of operating leverage due to scale up, will support its margin profile.

Amber offers complete product basket (main products, critical as well as non-critical components) and is a one-stop solutions provider under one roof. This gives the company a competitive edge over other players in India and abroad as a consistent and reliable OEM/ODM   supplier. 

Amber currently exports to Saudi Arabia, Oman, Sri Lanka, Nigeria and Maldives. It intends to leverage low cost advantages of manufacturing in India and aims to export to Middle East, South and South East Asia as well as Europe.

Key Risk

Amber’s sales are concentrated with top five and top ten customers contributing 74.8% and 92.5% respectively to FY17 sales. Therefore, reduction in demand from top customers could have an adverse effect on its business.

Amber faces competition from other RAC OEM/ODM players as well as from China. Further, it may face competition from its RAC customers if they increase proportion of in-house manufacturing.

Conclusion

At the upper price band, though the stock looks expensive at ~97xFY17P EPS. However, considering, the leadership position in RAC OEM/ODM market industry in India, the strong growth prospects as well as operating leverage, the stock would be attractive at ~23xFY19E and ~ 19xFY20E (on rough cut basis). Dixon Technologies, which has a similar business model, trades at ~31xFY20E. We recommend SUBSCRIBE from long-term perspective.

Research Disclaimer

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5 Stocks for next week 22nd Jan-26th Jan 2018

5 Stocks for next week 22nd Jan-26th Jan 2018
by Gautam Upadhyaya 19/01/2018

TORRENT POWER - BUY

Stock TORRENT POWER
Recommendation The stock is in a higher top higher bottom chart structure. It has managed to give a breakout from its sideways consolidation backed by a surge in volumes on the daily chart. The stock has also witnessed a bullish crossover on the daily MACD Histogram.
Buy/Sell Range Target Stop Loss
Buy(cash) 300-303 322 287
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 Day M.A
TORNTPOWER 14562 304/171 236

IBULHSGFIN - BUY

Stock IBULHSGFIN
Recommendation The stock has managed to give a breakout for its sideways consolidation on the daily backed by a smart uptick in volumes. Derivative data is also suggesting  fresh long build up, which is indicated by surge in price and O.I.
Buy/Sell Range Target Stop Loss
Buy(cash) 1292-1304 1370 1256
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 Day M.A
IBULHSGFIN 55565 1374/741 1139

 

PERSISTENT-Buy

Stock PERSISTENT SYSTEMS
Recommendation The stock is in a strong uptrend and has managed to form a bullish engulfing candlestick pattern on the daily chart. The stock has also managed to give a double bottom breakout on the 15 min chart. The trend and strength analysis indicates that the current momentum is likely to continue further.
Buy/Sell Range Target Stop Loss
Buy(cash) 765-770 807 742
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 M.A
PERSISTENT 6160 798/552 654

AMBUJA CEMENT - SELL

Stock AMBUJA CEMENTS
Recommendation The stock has formed a large bearish candle on the daily chart and has given a close below the rising trend line. The stock has also shown weakness on the daily MACD histogram.
Buy/Sell Range Target Stop Loss
Sell Jan Futures 269-271 258 278
NSE Code Market Cap(Rs in Cr) 52-week High / low 200 M.A
AMBUJACEM  53324 291/218 262

IDFC - SELL

Stock IDFC
Recommendation The stock has formed a large bearish candlestick on the weekly chart. It has also given a close below its 200day EMA on the daily chart. Derivative data also suggesting fresh short positions.
Buy/Sell Range Target Stop Loss
SELL-Jan Futures 58-58.7 52.8 61.7
NSE Code Market Cap(Rs in Cr) 52-week High /low 200 M.A
IDFC 9258 68/50 59

Research Disclaimer

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Galaxy Surfactants Limited IPO Note

Galaxy Surfactants Limited IPO Note
IPO
by Nikita Bhoota 25/01/2018

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
Promoter 77.0 70.9
Public 23.0 29.1

Source: RHP

Company Background

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.

Financials

Consolidated Rs cr. FY16 FY17 FY18E FY19E FY20E
Revenue 1,802 2,161 2,383 2,655 2,929
EBITDA Margin (%) 12.9 12.4 13 13.5 14
Adj. PAT 103 146 172 211 250
EPS (Rs)* 29 41.3 48.6 59.6 70.6
P/E* 51.1 35.9 30.4 24.8 21
P/BV* 11.7 9.2 6.9 5.6 4.7
RONW (%)* 24.9 28.7 25.8 24.9 24.3

Source: Company, 5 Paisa Research; *EPS & Ratios at higher end of the price band, on post IPO shares

Key Points

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).

 Key Risk

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.

Conclusion

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.

Research Disclaimer

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Tips for an investor to attain success

Tips for an investor to attain success
25/01/2018

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.