BET ON : VIDEOCON

If you’re looking to invest in a solid Indian consumer electronics company then Videocon is probably an ideal fit for you. Its stock is not priced too high and a single share of the company is currently trading under the Rs.173 range on the Sensex . It’s a decent fit for intraday movements but considering the situation that the company has been in and the progress it is slowly making. Videocon is a pretty good and robust long term stock. If you have an investment horizon of 1-3 yrs then you should take a look and consider Videocon. A best buy under Rs.150,

Market Cap of Rs.3,964.33, EPS-18.88, P/E-9.16, Book Value of Rs.294.96,

Price/Book- 0.65, Div(%)-10.00, Div Yield(%)-0.52, Industry P/E 4.70

A few years ago Videocon was facing tough competition from foreign companies that had just set up base in India. LG and Samsung had begun to take root in India. They arrived with a host of innovative schemes and products and turned the consumer electronics division in India on its head. Many Indian companies had to match up, either sell out, shut shop or compete on the same level as these companies who had both the resources and the technology to turn profitable in India.

Companies like BPL were beaten down, Onida barely survives .Videocon on the other hand weathered the storm and has gone from strength to strength in the past few years.

Videocon’s bread and butter is without a doubt its television division. The company as it stands is the world’s third largest maker of television picture tubes.

It’s got a worldwide manufacturing presence and has started to boost its sales in other countries too. The company’s acquisition of Thomson has greatly benefitted its television business.

Even though it is not a market leader in televisions in India its manufacturing capabilities allow it to make money. Many companies use Videocon’s technology and license their products to be manufactured by Videocon before retailing them under their own brand names.

The company’s also got a decent enough presence in the field of washing machines, refrigerators and other home appliances.

Recently, Videocon has initiated a total brand makeover with a greener, more environmental friendly theme. The company has plans to do well outside India and will be helped by this new marketing campaign which is projecting the company as one that has had a major overhaul.

Pretty soon the company is also expected to enter the fast growing DTH space with its own Satellite TV service. Of late under the astute leadership of Mr.Venugopal Dhoot, the company has been diversifying into sectors different from its core services including the competitive mobile services market. Its sales have shown a capacity to grow and the company is making money.

Also the company has oil and gas joint venture which extracts 50,000 barrels of oil per day.which is 7% of all oil in the private sector in India.Videocon has bagged exploration and production contracts in countries like Oman, Australia and the Timor Sea near Indonesia.

Besides this it is also in the glass mkt. Videocon produces a superior range of panels and funnels to meet the demand for large-size, flat, and slim CRT display products.

In view of all this it is a good long term bet.

BSE : Declared dividend of Rs 4 a share (or 400%).

A higher income from investments helped the Bombay Stock Exchange (BSE) post a rise in net profit, even though the Asia’s oldest bourse recorded a flat growth in revenue due to lower transaction charges and a drop in income from penalties, fees and other charges in the year ended March 31, 2009.

The BSE board has declared a dividend of Rs 4 a share (or 400%) on the post-bonus equity of Rs 10.2 crore, resulting in a dividend outgo of Rs 42 crore. The dividend will go to a string of local and foreign shareholders, with the top 20 receiving 48% of the payout.

Deutsche Boerse, Singapore Exchange, SBI, LIC, Dubai Financial Group, Atticus Mauritius, Acacia Banyan Partners, Caldwell Asset Management and Bajaj Holdings are among the top BSE shareholders. The exchange posted a total income of Rs 421 crore against Rs 420 crore in the previous year.

Brokers attributed the flat growth to a sharp fall in cash and derivatives turnover which affected the exchange’s income from securities trading.

Despite a fall in turnover-linked income, the BSE saw its net profit rise 18% to Rs 212 crore, thanks to a rise in income from investment and deposits — from Rs 175 crore in 2007-08 to Rs 222 crore last fiscal.

Last year’s stock market turmoil caused a significant fall in trading volumes on bourses, with the BSE recording a 30% decline in turnover to Rs 11 lakh crore in 2008-09 compared with Rs 15.8 lakh crore in 2007-08.

The BSE recorded a 30% drop in transaction charges to Rs 77 crore, while income from other charges amounted to Rs 40 crore compared with Rs 48 crore in the previous year. A higher net profit has boosted BSE’s net worth from Rs 1,559 crore to Rs 1,728 crore.

-- an article by ET dt:14th July 2009

(Also read a post on BSE dated: Nov 13 2008 & Nov 20 2008)

INDIA GDP GROWTH : A PREDICTION

Predictions about India GDP growth
Allianz, a major financial and insurance services provider has estimated that in 2009-10 fiscal gross domestic product of India would be growing at 6.5 percent. It says that even though economic recession has hit almost every financial market in world, emerging Asian economies like India would be growing, all be it at a slow pace.

Allianz says that growth of gross domestic product of India would be decidedly slow at first two quarters of financial year 2009-10 but would pick up in last two quarters. They have expressed that since there are sufficient and efficient capital and foreign exchange controls in place in India, it would be able to tide past difficulties like capital movements that can be extremely volatile.

Economic surveys conducted in India during February of 2008 fiscal had reported that gross domestic product of India would be growing at a rate of 8.7 percent. This was supposed to follow up impressive statistics of 2006-07 fiscal, when rate of growth of gross domestic product was 8.7 percent.

Much of this optimism was based on increase of rates of savings and investments in domestic financial circuit. It was predicted that aggregate gross domestic product of India in 2007-08 financial year would be approximately $10,00,82,03,62,968.85. It was expected that this growth would enable Indian economy to grow to one trillion dollar mark in near future.

In terms of nominal exchange rate, gross domestic product of India was supposed to be $1.16 trillion dollars in 2007-08 financial year. Per capita income in terms of nominal exchange rate was around $1,021.

Actual situation of India GDP growth
Actual picture is pretty different from what has been predicted. It is being assumed that in present scenario of economic recession, growth rate of India GDP would slip, if India's national government does not introduce economic stimulus packages.

NSE : Market methodology changes to FREE FLOAT METHOD

The National Stock Exchange’s index NIFTY will shift to free float capitalisation from market capitalization method from June 26th 2009. Under this method, the weightage of each of the 50 component stocks in the index will be proportionate to the amount of free float.

Free float is the number of shares of company in public hands- stocks that is “floating free”, that which is not with promoters.

Share holdings held by investors that would not, in the normal course come into the open market for trading are treated as 'Controlling/ Strategic Holdings' and hence not included in free-float.

In specific, the following categories of holding are generally excluded from the definition of Free-float:

Holdings by founders/directors/ acquirers which has control element

Holdings by persons/ bodies with "Controlling Interest"

Government holding as promoter/acquirer

Holdings through the FDI Route

Strategic stakes by private corporate bodies/ individuals

Equity held by associate/group companies (cross-holdings)

Equity held by Employee Welfare Trusts

Locked-in shares and shares which would not be sold in the open market in normal course.

The remaining shareholders would fall under the Free-float category.

Free-float factor is a multiple with which the total market capitalization of a company is adjusted to arrive at the Free-float market capitalization. Once the Free-float of a company is determined, it is rounded-off to the higher multiple of 5 and each company is categorized into one of the 20 bands given below. A Free-float factor of say 0.55 means that only 55% of the market capitalization of the company will be considered for index calculation.

Globally, most indices are moving to this system as it is perceived to be more representative of market action. Reliance Industries retained its position as the top weighted stock due to its high free float component (50%), ONGC 3.5% from 8%, NTPC to 1.9% from 6%, Infosys 7% from 3.77%, ICICI Bank 6.45% from 2.96%, Larsen & Toubro 6.41% from 3.27%, SAIL 0.77% from 2.34%. All the fund managers tracking the NIFTY made changes accordingly.

RIL's WEIGHT A HEADHEACHE TO FUND MANAGERS

India Index Services and Products (IISL), the NSE subsidiary which manages benchmark indices such as NIFTY came to know about difficulties to manage RIL weightage in index by fund managers. RIL is the largest market capitalization and with the highest weightage in Sensex & Nifty at 17.7% & 13.3% respectively.

The stock has being biggest contributor to the recent rally accounting to 861 pnts of the 3859 point Sensex up move. Fund managers both local & foreign, are taking a big hit in their portfolios for being significantly underweight on the counter, most of them are forced underweight by 500 bps. As per the SEBI rules local fund managers cannot bet more than 10% of their portfolio on a single stock. Foreign fund managers are bounded by mandates from their investor to stick to similar limits. Thus an average fund manager has lost nearly 2% returns on the underweight on just this stock. RIL’s size has begun to create problems for fund managers and is bound to increase. NSE is making the Nifty a free-float index which will add to its weight and also with completion of RPL merger will add up to 2% weightage. And it is possible that this bluechip giant may end up with a weight of 20%-plus on indices if it uses up its surplus cash for acquisitions. And suppose it does, India will have KOREA like situation where SAMSUNG INDUSTRIES accounts for a fifth or 20%-plus of the market. The most impact is that fund manager’s performance is benchmarked with Nifty and they cannot give more than 9.9% weightage to any stock, they have the risk of underperformance, and also none of the fund managers can take sells call, even if they have negative view on the stock because they are already underweight. A free market call on Reliance Industries is not possible and thus gives RIL a premium valuation.

In the recent rally, the stock outperformed the Sensex by huge margin. While the Sensex rose 47% between March 09 and May 13, the bluechip rose to 68%. This in turn, has taken its weightage up substantially on Nifty from 11% to 13.3% & on Sensex from 15.5% to 17.7%. In such situation, it depends on which way the index moves. If index is going up, then there is disadvantage. But when it fall the fund managers outperform because of under weight.

The only option is either to change the rules of 10% or follow MSCI and apply the 10/40 rule. This 10/40 methodology was introduced by MSCI indices in 2002. Accordingly the maximum weight of securities of a single issuer cannot exceed 10% of market value of the index, and the sum of the weights of all issuers representing more than 5% of the market value of the index cannot collectively exceed 40%.