Name of Company: Compact Disc India Ltd (CDIL)
Sector: Media and Entertainment – Music
CMP: Rs. 63.3
Target : Rs. 200 (5-6 months)
BSE:526141
NSE:COMPACDISC
Business Profile
Compact Disc India Ltd (CDIL) was incorporated in 1992 as a public limited company. The main objective was to set up a 100% EOU plant for manufacturing compact discs. CDIL had entered into technical collaboration with Netstal/First Light Technology, US. In 1992, the company entered into an MoU with Delta Disc, UK, for the export of 3.5 million or a minimum of 75% of annual production for a period of five years. The company has entered into an exclusive animation outsourcing contract with iMedia Ventures Ltd, a part of world's largest media house and a pioneer in digital entertainment. This group has presence in 28 countries with an annual turnover of USD$200 million.
Currently, the company is into producing, distributing and financing films and television serials including animation. The product range covers all the segments of entertainment i.e. big screen (theatres), small screen (home videos & television) and personal screen (personal computers).
CDIL`s assembly unit was established at Navi Mumbai in collaboration with Hyundai Corp, Korea, to manufacture CD video players. The company also set up a new modern multimedia studio at Gurgaon. It provides solutions to the film industry, education, presentation and training. During 2000-2001, CDIL also launched a web site www.loandefaulters.com, providing credit information on the Indian corporate world.
CDIL has gained extensive expertise in creation, distribution and management of contents for media and entertainment sector in India, Malaysia and Singapore. CDIL is presently working on 2D and 3D animation assignments worth USD40 million. These projects have been contracted to studios in Malaysia, Chennai and Bangalore. The company has recently been awarded two new animation film projects. CDIL, jointly with its business associates, Interactive Creative Media Pte Ltd, Singapore is working on an international animation film project, `Hustle Bustle`. The cost of the film is USD12.45 million.
Financials 
Recent Developments
Compact Disc India decided to issue and allot 1,350,000 warrants convertible on preferential basis to Interactive Creative Media Singapore subject to all such approvals, permissions, sanctions and consents required.
Future Plans
CDIL has been exploring the possibility of setting-up a State-of-the-Art Multimedia Knowledge Park in Northern region. The company will also be setting-up state-of-the-art facility for the development and creation of 2D / 3D animation, multimedia and special effects contents for films, television serials, corporate presentations, gaming, mobiles, etc. The studio will feature latest animation production equipments such as workstations from renowned manufacturers. It is also proposed to set up a state-of-the-art high-end Multimedia College to provide 3 years Bachelors Degree courses in media arts and animation as well as visual and game programming. The college will also offer 2 years Masters Degree courses in the same fields.
News Items:
News 1:
Compact Disc India Ltd on August 09, 2007 has announced that it will set up India's first Integrated state-of-the-art Animation studio at the Kerala Industrial Infrastructure Development corporation (KINFRA). KINFRA is India's first SEZ developed exclusively for Animation & Gaming.
The Company will invest an initial capital of USD 12.40 million to set up an Animated Studio that will house the latest technology in Animation, from modern high end Workstations, Softwares, Render Servers, Central Storage, Motion Capture, Telecine, Editing and Compositing System, Colour Grading, Sound Recording & Dubbing Facilities, Projection Systems, Blue Screen Facilities, Pre-view Theatre etc will be installed at the Studio. This state-of-the-art studio will be the first ever in India, that will enable producers of Animation Films to avail the exclusive opportunity to completely produce their film at just one studio, rather than at different studios, which lack the requisite expertise and technology. Right from the story board to the Digital film format can be developed at the Company Studio.
Commenting on the project, Mr. Suresh Kumar, Chairman, of the Company, said that "This is a significant milestone for the Indian Animation industry, as for the first time a state-of-the art Integrated Animation Studio will be set up In India that will host advanced high-tech amenities to facilitate CDI and other Animation film production houses to produce and develop their films at just one studio. In the first stage of production, we aim to develop three animation films in partnership with renowned International media agencies and with MNCs."
Mr. Kumar further opined that "The KINFRA SEZ for Animation & Gaming, will give boost to this nascent industry through tax cuts, no duties levy on machinery, free exports etc, thus ensuring an additional profit of 8-10%, which is the need of the hour for the Animation Industry in India. We are indeed thankful to the Kerala Government for promoting Animation & Gaming in India, through this exclusive SEZ."
The Animation Studio will be spread out over a space of 60,000 sq feet and will employ a talent of more than 300 people. Since the studio construction will commence by October 2007, the Company has requested KINFRA SEZ authorities to provide space on lease rental basis in their Incubation Centre to start operations immediately.
News 2:
Compact Disc India Ltd has announced that the Company will co-produce 90 minutes, 3D Animation, family-oriented feature film, GoaaaaaL with Motion Pixel Corporation (MPC) a division of Canyon Entertainment, a leading Los Angles based Hollywood production Company.
Unlike many studios, which gamble on creating their own characters, GoaaaaaL is using real life sports heroes and celebrities and simply creating the cartoon version of them. This means characters that millions love and will come to watch whether its under dog sports teams winning the World Cup.
The animated sector has seen massive hits such as Shrek, Finding Nemo Monsters, Toy Story etc. to name a few. None of them focus on SOCCER / FOOTBALL, which is the most watched and most popular sport in the world, leading to huge worldwide revenue potential based on the wide range of multi-cultural interests, audience acceptance and appeal to its both kids and adults. The film is also expected to achieve huge revenues to do solid numbers in the merchandising of dolls, soccor balls, t-shirts and kids energy drinks etc. connected to its release.
GoaaaaaL will feature Academy Award winning actor Ben Kingsley as the lead voice over artist. Other top international artists such as Catherine Zeta Jones, Michael Douglas, Marisa Tomel, Christina Aquilera, Josh Duhamel, Samuel L Jackson are also likely to lend their voices for the film. Besides these artists, GoaaaaaL has signed all-time Mega-Star Of football-Ronaldo.
The Company will do the complete animation production and post production work related to the film in their studio at Chennai in India. GoaaaaaL written by M. Guerrier with an estimated budget of US$20.15 million, is slated to be released during the first half of 2009.
News 3:
Compact Disc India Ltd has informed BSE that the Board of Directors of the Company at its meeting held on July 26, 2007, inter alia, has transacted the following :
1. The Board has approved to invest SGD 1.00 million in cash, to acquire 1,000,000 equity shares at face value of SGD 1.00 at par of Interactive Creative Media Pte. Ltd., Singapore during the current fiscal year.
2. (i) The Board has approved to invest GBP 1.00 million, in consideration other than
cash to acquire 1,000,000 equity shares at face value of GBP 1.00 at par of MediaOne Venutres Ltd., London during the current fiscal year.
2. (ii) The Board has approved to invest GBP 250,000, in cash to acquire 250,000 equity shares at face value of GBP 1.00 at par of Media Venutres Ltd, London during the current fiscal year.
3. The Board has approved to set-up a state-of-the-art Animation Studio in Kinfra Speical Economic Zone for Animation & Gaming Development at Thiruvananthapuram, Kerala for which industrial land has already been allotted.
Friday, August 10, 2007
Compact Disc India Ltd: A Total Money Spinner
How investing in stocks can make you rich
If there's something big that you want -- from a comfortable retirement to a house on the beach -- and you can't afford it today, you need to save and make your money work for you.
When you have lots of time, but not lots of money in a lump sum, the best way to build wealth is by investing in stocks.
Stocks are volatile, which is another way of saying they're likely to experience wide swings in value. However, over long periods of time, there's good reason to believe stocks also will appreciate dramatically faster than any other type of asset. That makes it easier to attain your long-term wealth goals.
When you buy a share of stock, you are buying a piece of the issuing company. Admittedly, it's probably a small piece, but that share you purchased gives you the right to participate in the company's wealth (or fiscal decline) and vote on matters of some importance -- directors, company auditors, and some shifts in corporate policy.
In some cases, you are also entitled to dividends -- payments of cash or stock to shareholders. Some companies also provide their shareholders with perquisites, such as tickets to the company's theme parks or discounts on its merchandise.
Why share prices go up
Because companies tend to grow and prosper over time -- and because a share of stock allows you to participate in the prosperity -- stock prices, in the aggregate, tend to appreciate over long periods of time.
However, individually, some companies prosper; others fail. If you buy a share in a loser, you could lose all, or a significant portion, of your initial investment. In other words, when you invest in stocks, you risk losing your initial investment, but because you are taking a bigger risk, you get the opportunity to earn far bigger rewards.
How big a reward? In the case of the United States, for example, the Chicago-based research company Ibbotson Associates has tracked the performance of U.S. stocks from 1926 to the present. That period includes the Great Depression, the New Deal, World War II, the Korean conflict, the Vietnam War, the Kennedy assassination, Reaganomics, and the Gulf War, not to mention the lunar landing, the break-up of Ma Bell, the Watergate scandal, and the dismantling of the Iron Curtain.
In other words, it is a fairly diverse period that has had its share of ups and downs, just like any period in history. During that time, the average annual return on small-company US stocks was about 12.4 per cent.
The average annual return on big-company stocks was 11.2 per cent. Over the same period, inflation rose 3.1 per cent per year, and the return on U.S. Treasury bills was 3.77 per cent.
To put it another way: If you had a diversified portfolio of large-company stocks during that period, the value of your investment portfolio rose 8.1 percentage points faster than the rate of inflation.
For every $100 you put in the market, you hiked your buying power by $8.10 each year. At the end of twenty years, your real (inflation-adjusted) buying power increased fivefold, to $503 from $100, without any additional payments from you.
Although investing is as much an art as a science, it's reasonable to expect that future investment returns will mirror historic returns over long periods.
In other words, it's reasonable to assume that stocks will continue to appreciate faster than the rate of inflation and other types of traditional investments.
The downside: It is also reasonable to assume that stocks could repeat their short-term historic performance over shorter periods, too. And that's been far less illustrious than the long-term performance.
To be specific: The market crash of 1929 so depressed stock prices that investors who put $100 in the market then saw the value of their securities fall to less than $20 at the market's nadir in 1932. It took roughly eight years before securities prices rose back to ground zero, where $ 100 invested in 1929 was worth $100 again.
And then the market took another sickening slide, from which it didn't recover until after World War II had ended. From start to finish, it was a full fifteen years of pain for stock market investors.
The market also took a sharp, decade-long dive in 1969. And it experienced short-term "crashes" in 1987, 1989, and 1990. But its performance in 1995 was enough to make an investor beam. Stock values as measured by the Standard and Poor's 500 index were up more than 37 per cent.
The years following have been almost as impressive. Big-company stocks posted a 23 per cent gain in 1996, a 33 per cent gain in 1997, a 28 per cent gain in 1998, and a 21 per cent gain in 1999.
Incidentally, although investors in small companies have done better than investors in large companies over the long haul (average annual returns of 12.4 per cent versus 11.2 per cent, respectively), at various points in time, small-company stocks do worse than big-company stocks. They fall farther and faster, and they stay depressed longer.
How to deal with price yo-yos
These heady climbs and sickening slumps are called volatility. When an investment is as volatile as the stock market, it is unwise to invest unless you have a fairly long time horizon that allows you to wait out the price swings and go for the long-term price appreciation.
How long is a 'fairly long' time horizon? That depends on you and why you are investing. Let's say you want to buy a house in five years, and you're trying to determine where to invest the down-payment money.
The stock market would be a good place for all or part of that money if you wouldn't be crushed if your home-buying plans had to be put off because of a market slump that depressed the value of your investment portfolio and thus reduced the amount you had saved for the down payment.
What if you would be crushed if you couldn't buy the home as planned? Then put the down payment money in bonds that mature (or pay back their principal) at the same time as your plans do.
Stocks are also ideal to have in your retirement portfolio. The younger and farther from retirement you are, the more stocks you can handle. And they're a good choice for college funds for young children.
However, if you are investing in individual stocks rather than mutual funds, you must diversify your portfolio by buying stocks in several different companies that do business in several different industries. That ensures that your net worth won't crash if one industry, whether it's oil, technology, or retailing, hits a slump. Experts suggest you own shares in at least eight to ten different companies. Ideally, those companies should be operating in substantially different industries.
Do it the equity mutual fund way
Mutual funds are investment companies that pool the money of many investors and buy securities in bulk. The securities that a fund buys are determined by the fund's investment objectives. These investment objectives are spelled out in the prospectus and by the fund manager, who makes the investment decisions.
So-called equity funds -- also known as growth or aggressive growth funds -- buy stock in companies. When you buy a share in an equity fund, you're actually buying an interest in all of the different stocks held by that fund.
That gives you the benefit of broad diversification, which reduces the risk that your investment portfolio will be savaged by a single bad stock. In essence, if you buy the right mutual fund, you may not need to diversify the stock portion of your portfolio further. One fund could do it all.
There are lots of other benefits and tricks to buying mutual funds. However, let it suffice to say that investing in equity mutual funds is an alternative to investing in individual stocks.
It is a particularly good alternative for those who don't want to spend a lot of time picking individual shares or for those who are starting out and don't have a lot of money.
Excerpt from:
Investing for Beginners
by Kathy Kristof
Thursday, August 9, 2007
Philips Carbon : A Hidden Gem
Name: Phillips Carbon Black Ltd
BSE : 506590
CMP :Rs. 159
Target : Rs 300
Period : 5-6 Months
Business Profile
Incorporated in March 1960, Phillips Carbon Black Ltd, is part of the RPG group. Not only is the company the largest domestic manufacturer of carbon black, it is also Asia`s largest exporter of CB.
Phillips Carbon Black sells CB to almost all tyre companies in the country. It is the world`s seventh largest manufacturer of carbon black. Its three plants account for 70 per cent of the country`s installed capacity. It is India`s largest exporter of carbon black.
The company has a technical collaboration with Columbian Chemicals Corporation, USA. It is the only Indian manufacturer of CB to be accredited with ISO 9001 certification.
Why a Multibagger:
• Phillips Carbon Black announced a phenomenal jump in net profits for the quarter ended in June, 2007. During the quarter, the company`s profit rose 156.64 times to Rs 219.30 million from Rs 1.40 million in the corresponding quarter, last year.Net sales for the quarter rose 3.41% to Rs 2,348.10 million compared with the corresponding quarter, a year ago. Operating margins improved to 14.65% during the quarter, a rise of 849.33 basis points compared with the corresponding quarter, a year ago. Net margins, rose to 9.32% during the quarter from 0.06%.The company`s earnings per share on a trailing twelve month basis is Rs 12.50.
• Phillips Carbon Black is in the process of reducing operational costs by improving efficiency and slashing workforce.
• Phillips Carbon Black plans to merge its subsidiaries with itself. It is in the process of mulling the merger proposal, which was likely to take a final shape within six-nine months. The company has three wholly-owned subsidiaries, Transmission Holdings, South Asia Electricity Holdings and PCBL Industrial Finance.
• Financials
Sep '06 Dec '06 Mar '07 Jun '07
Sales 242.57 272.32 256.36 234.81
Nett Profit 1.70 7.92 13.91 21.93
EPS 0.96 3.84 5.80 8.68
It is a perfect pick.....
Subprime Meltdown
Subprime mortgage loans are riskier loans in that they are made to borrowers unable to qualify under traditional, more stringent criteria due to a limited or blemished credit history. These loans have a much higher rate of default than prime mortgage loans and are priced based on the risk assumed by the lender.
There are many different kinds of subprime mortgages, but the most popular form is “Initial fixed rate mortgages that quickly convert to variable rates”. For example, a "2-28" loan, which offers a low initial interest rate that stays fixed for two years after which the loan resets to a higher adjustable rate for the remaining life of the loan, in this case 28 years. The new interest rate is typically set at some margin over an index, for example, 5% over a 12-month LIBOR.
The root of the trouble actually stretches back to 2004. In a battle for market share, the subprime lenders began cutting rates. These low rates weren't very profitable, especially because the Federal Reserve was increasing the lenders' cost of funds at the same time. Their interestrate spread—the key to their profitability—shrank from nearly 6 percentage points in 2003 to just over 3 percentage points by the end of 2005. (Source: Businessweek, March 2, 2007)To resuscitate profits, the subprime lenders started raising their lending rates. Naturally, though, that chased away customers. To keep volumes up the lenders started relaxing their credit criteria. Wall Street encouraged this behavior, too, by bundling the loans into securities that were sold to pension funds and other institutional investors seeking higher returns.
It took a while for the problems to surface because many of the subprime mortgages carried artificially low interest rates during the first few years of the loan. The delinquency rate on subprime mortgages eventually went up Some of this trouble might have been avoided if home prices had continued to climb like they did between 2000 and 2005. In such a scenario, even borrowers who weren't paying the principal loan amount would have built up more equity. That in turn would have made it easier for subprime borrowers to refinance into a new loan with a low interest rate. Since home prices weakened in many parts of US and lenders started becoming more vigilant, such borrowers were not left with much refinancing options.
The impact of the subprime mortgages has been magnified as they started being packaged with innovative financial structures like Collateralized debt obligations (CDOs). CDOs are a type of asset-backed security which gain exposure to the credit of a basket of fixed income assets. These instruments slice the credit risk in different tranches with varying risk and return profiles which in turn are issued as separate intruments. From 2003 to 2006, new issues of CDOs backed by assetbacked and mortgage-backed securities increased exposure to subprime mortgage bonds. The CDO packaging enabled institutions to mix good risk and bad risk debt all in one pot and label it as good risk. Therefore the financial institutions earned a higher rate of return on what seemed like a relatively low risk CDO package that was priced in the market price as low risk debt upon which hedge funds such as Bear Stearns leveraged to the hilt.
Hedge funds deploy leverage to enhance their exposure to markets. When things are moving in the right direction this results in phenomenal profits. However if they are caught in the wrong direction, they may end up eroding their entire capital. The LTCM collapse in 1997 was fallout of the excessive leverage taken by the fund. This is what happened with Two of Bear Stearns Hedge funds recently, which placed highly leveraged bets on packages of subprime mortgage derivative products. When the value and credit worthiness of these bond packages was cut due to the subprime defaults, these funds started received calls from the banks which had provided them funds to leverage their bets in the subprime market. In order to meet their commitment towards these banks, they sold a part of their portfolio in an illiquid market. The illiquidity ate into their portfolio as their own selling led to a further fall in prices. The effect of this was it virtually wiped out the total value of the funds that had previously been rated as low risk.
Meanwhile, the $11 billion Raptor Global Fund posted a one-month loss of 9%, while two hedge funds run by Australia's Macquarie Bank were off 25% this year (Source: Businessweek, August 13, 2007). And Sowood Capital Management has already started bleeding.
Subprime woes have moved far beyond the mortgage industry. Already, at least five hedge funds have blown up. The latest worry is that a recent slump in the markets for corporate loans and junk bonds will deepen, jeopardizing the financing of leveraged buyouts, a big profit driver for investment banks. What's more, fears are growing that banks may be on the hook for some of the $300 billion in loan commitments they've made for buyouts already in the pipeline.
Impact on the equity markets
As the subprime woes continue, the stocks of the banks, funds and other financial institutions having exposures to such assets plummet leading to a fall in the broad markets. Also, as the subprime markets go down, the hedge funds receive calls by the banks to meet their margin commitments forcing the hedge funds to liquidate their portfolio. This derivative ripple affect results in selling off emerging market equity portfolios. As liquidity moves out to safer assets, riskier assets like emerging markets start tumbling down.
Outlook on the Indian Markets
In the short term, the markets may correct if liquidity flows out and may consolidate between 14000 – 14500 levels. The markets valuations have been stretched for sometime and a correction is expected. We remain cautious, as the following factors remain a cause of concern
* Stretched equity market valuations - ahead of fundamentals
* High leverage in the market
* Increase in input costs as demand exceeds supply
* Appreciation in INR – concern for exporters of goods and services
* Rising crude oil prices
* CRR hike – cost for the banks
However, the fundamentals of the economy remain strong as evidenced by:
* 30% Q1 profitability growth (Source: Internal Analysis)
* Interest rates seems to have peaked out
* Inflation has come down below 4.5% (Source: Office of economic Advisor, Ministry of Commenrce & Industry, GOI)
* Satisfactory monsoons
The Indian stock markets remain exposed to the global liquidity pressures but fundamentally, being an economy fuelled by internal consumption demand, the economy is less vulnerable to the global economic situation. Also, in terms of valuations, the Indian markets, which were trading at a significant premium to its South East Asian counterparts, has come back to parity. The long term strength of the market is intact and a further correction from these levels would be a good opportunity to accumulate for the long term.
Source: ICICI Prudential Asset Management
Wednesday, August 8, 2007
New Multibagger: Shri Lakshmi Cotsyn Limited
Name : Shri Lakshmi Cotsyn Limited
BSE:526049
NSE:NA
Face Value: Rs. 10
CMP :Rs. 116.15 (8/8/2007)
Target : Rs 350 in 8-12 Months
Website : http://www.shrilakshmi.in/
About the Company:
Incorporated in 1988, Shri Lakshmi Cotsyn (SLCL) is Kanpur-based textiles major. The company has two manufacturing facilities in Fathephur, Uttar Pradesh and Sonepat, Haryana. The product range of the company includes blended fabrics, quilted fabrics, fusible interlining and embroidered fabrics. The company is entering the individual home segment with terry towels, home furnishing, denim fabrics, garments and bottom weight fabrics. The company has undertaken a Rs 26.4-million expansion programme in 2006 and commercial production began by Dec. 2006 in all product portfolios such as denim, bottom weight fabrics, bed-sheets and terry towels. The completion of the expansion plan expected soon would add Rs 2,000 million to the total turnover. SLCL has a domestic distribution network of 300 agents across the country for domestic sales, besides supplying defence-related items such as bullet-proof jackets and bullet-proof helmets to defence establishments.
Recent Developments:
• The company forms a joint venture with UK-based company Armet Armored Vehicles under the name of `ARMET ARMORED VEHICLES & SHRI LAKSHMI LTD`. SLCL is participating with 49% equity in the said joint venture company whereas Armet Armored Vehicles, UK is having a 51% equity in over all capital structure. The main business of this joint venture will be to carry on the business of manufacturing of armored vehicles and manufacturing of armor plates, panels, helmets, ballistic body amours, etc and similar safety and security related equipments for domestic as well as foreign market. The manufacturing unit of the joint venture company will he established in dist. Malwa, Fatehpur, Uttar Pradesh.
• The board of directors of Shri Lakshmi Cotsyn (SLCL), a company whose primary activity is textile manufacturing, has approved in principle the issue of foreign currency convertible bonds (FCCBs) or global depository receipts (GDRs) for an aggregate sum of $20 million to fund its ongoing projects. The FCCBs/GDRs would be issued on a preferential basis to foreign institutional investors, financial institutions, a company release says.
• Shri Lakshmi Cotsyn Ltd has informed BSE that the Board of Directors of the Company at its meeting held on July 31, 2007, inter alia, has decided to convert 4 Lacs warrants of Rs 10/- each (issued earlier at a premium of Rs 119/- per warrant) in to 4 Lacs equity shares of Rs 10/- each at a premium of Rs 119/- per share (fully paid-up).
• Reliance Capital Ltd. Holds 130000 shares i.e. 9.03% of the total equity capital as on 30th June 2007
Financials
Sales Net Profit EPS
Q1 2006-07 945.1 34.5 2.52
Q2 2006-07 985.2 51 3.72
Q3 2006-07 1259.9 94.5 6.9
Q4 2006-07 1537.2 118.3 8.64
Q1 2007-08 2247.8 141.4 9.81
Current Reserves : Rs. 150.98 Cr vs equity of Rs. 14.40 Cr. This makes it a great Bonus Candidate. Last 1:1 Bonus was on Jan 2005.
Future Plans
• SLCL is planning for a tie-up with major retail chains abroad such as Wal-Mart in the US for terry towel and other cotton-based textile products the company is manufacturing now. The focus is on the major markets of the US, Europe and the UAE.
Tuesday, August 7, 2007
Update on Tips
| Code Name | Date Recommended | Target | Recommended Price | CMP | % Gain |
| Code 530609 Carnation Industries Ltd | 31/7/2007 | 75.2 | 24 | 34 | 42 |
| Code 500456 Pasupati Acrylon Ltd | 31/7/2007 | 12.8 | 4.62 | 5.83 | 26 |
| Code 523672 Flex Foods Ltd | 31/7/2007 | 64.4 | 19 | 22.3 | 17 |
| Code 508875 Nitin Alloys Global Ltd | 30/7/2007 | 372.8 | 65.25 | 75.45 | 16 |
| Code 507522 Mount Shivalik Industries Ltd | 30/7/2007 | 260.8 | 78.05 | 90.15 | 16 |
| Code 590048 TYCHE PERIPH | 30/7/2007 | 180 | 42.2 | 47.65 | 13 |
| Code 519287 Modern Dairies Ltd | 30/7/2007 | 102.8 | 59.55 | 65.15 | 9 |
| Code 526433 ASM Technologies Ltd | 30/7/2007 | 81.6 | 31.25 | 33.2 | 6 |
| Code 526703 Ecoplast Ltd | 30/7/2007 | 46.8 | 23.05 | 23.6 | 2 |
| Code 524689 Parenteral Drugs India Ltd | 39271 | 280 | 128.55 | 128.55 | 0 |
| Code 500322 Panyam Cements & Mineral Industries Ltd | 39271 | 140 | 80 | 80 | 0 |
| Code 526365 Shyam Star Gems Ltd | 30/7/2007 | 210.8 | 92.65 | 91.85 | -1 |
| Code 514138 Suryalata Spinning Mills Ltd | 31/7/2007 | 146 | 39.2 | 38.55 | -2 |
| Code 532858 Decolight Ceramics Ltd | 30/7/2007 | 56.8 | 28.55 | 28.05 | -2 |
| Code 505299 Kulkarni Power Tools Ltd | 30/7/2007 | 237.6 | 122.6 | 120.2 | -2 |
| Code 509675 Hyderabad Industries Ltd | 30/7/2007 | 590.8 | 185.8 | 175.15 | -6 |
| Code 519359 Poona Dal & Oil Industries Ltd | 31/7/2007 | 63.6 | 29.75 | 28 | -6 |
| Code 506590 Phillips Carbon Black Ltd | 30/7/2007 | 347.2 | 169.35 | 158.45 | -6 |
| Code 532828 AMD Metplast Ltd | 30/7/2007 | 80.8 | 45.7 | 41.8 | -9 |
Monday, August 6, 2007
A great stock picking strategy
In my quest to find the best stock picking system, I came across a very interesting strategy that is simple as well as convenient. To employ this strategy, you will require not more than two-three hours in a year. Yes, you heard that right.
I like to call this strategy Dogs of the Sensex, based on the Dogs of the Dow theory made famous by Michael O'Higgins. Dogs of the Dow is one of the most popular 'mechanical' investing techniques. It takes all of the research, strategy and guesswork out of investing. In fact, it will only take up two-three hours of your time each year.
Like the BSE Sensex is the benchmark index for the Indian stock markets, the Dow Jones Industrial Average, DJIA, is the benchmark index for the US stock markets. A benchmark index consists of stocks that represent various dominant sectors of a country's economy.
As unreal as that sounds, this technique has been around since the early 1990s, when Michael O'Higgins introduced it in a book.
Here's how it works
~ Once each year, you look at the 30 stocks in the Sensex and pick the 10 with the highest dividend yield.
Dividend yield is the dividend amount per share divided by the share price.
For example, a dividend yield of 3 per cent means that a share that costs Rs 100 would pay a dividend of Rs 3.
A high dividend yield is seen as an indication that a stock is under-priced. A low dividend yield indicates that the stock is over-priced.
According to the Dogs of the Dow theory, such stocks are the best candidates for a jump in their prices. You invest an equal amount in each of these 10 stocks, and then wait for a little more than a year.
~ After one year, you look at the Sensex again. You sell the stocks that are no longer in the top 10 by dividend yield (the 10 stocks that you had picked earlier will not be there because their price will have risen or because a few of them might have been removed from the Sensex. A committee that looks into the composition of Sensex changes the stocks that form the Sensex on a regular basis).
~ You replace them with the stocks that now make the top 10 list by dividend yield (they will be there because their prices would have fallen or they are new entrants in the Sensex).
~ Important note: Make sure you hold the stocks you buy for one year and one day. If you hold and sell your stocks after a day more than a year, it is considered as long-term capital gain. In India, long-term capital gains are not taxed at all. Any gains that you make by buying and selling a stock/s within a year is considered as short term capital gains and is taxed at 10 per cent.
This strategy needs you to rebalance your portfolio after a year and a day. This is because the stocks with high dividend yields that you had picked the previous year may not remain the top dividend yielding stocks after a year.
The strategy WORKS and how!
As mentioned earlier, one of the big attractions of the Dogs of the Dow strategy is its simplicity; the other is its performance.
From 1957 to 2003, the Dogs outperformed the Dow by about 3 per cent, averaging a return rate of 14.3 per cent annually whereas the Dows averaged only 11 per cent.
The performance between 1973 and 1996 was even more impressive, as the Dogs returned 20.3 per cent annually, whereas the Dow averaged 15.8 per cent.
More than the performance of this strategy in the US market, the other reason it will work is due to the assumption on which the entire strategy is based.
Do things the smart way
The base of this investment style is that the Dow laggards, which are temporarily out-of-favor stocks, are good companies because they are included in the index (if they were not, then they would not be a part of the Dow or for that matter the Sensex, in the first place); therefore, holding on to them is a smart idea, in theory.
Once these companies rebound (that is, the price of their stocks increase) and the market has revalued them properly, you can sell them and renew your portfolio with other good companies that are temporarily out-of-favor but the potential of a high dividend yield.
Companies that form a particular benchmark index have historically been very stable companies that can weather any market crash with their solid balance sheets and strong fundamentals.
Furthermore, because there is a committee perpetually tinkering with the index like the Sensex, you can rest assured that the Sensex or any other index is made up of good, solid companies.
Investing in dividend dogs of the Sensex is similar to the strategy of `Dogs of the Dow' followed in the US.
In the US, the strategy involves investing in the high dividend yielding stocks that are part of the Dow Jones Index. The strategy has been found to beat the market consistently in the US. Adaptations of the strategy in the UK and Canada [Images] have also delivered index-beating returns.
Caution is the key once again
This strategy, like any other stock picking strategy in the world, is not foolproof. It cannot save you from the losses during recessions; it can at the maximum minimise your losses. The key to this strategy is that it can beat the Sensex return over a long term; at the same time, it gives you the benefit like that of a fixed deposit.
If you are looking for a mechanical, non-emotional way of investing in the stock market, the Dogs of the Sensex may be your answer. This strategy removes out the judgment required in the stock market, replaces it with cold calculation and brings sanity in our investing.
