An options strategy where the investor holds a position in both a call and put with different strike prices but with the same maturity and underlying asset. This option strategy is profitable only if there are large movements in the price of the underlying asset.
This is a good strategy if you think there will be a large price movement in the near future but are unsure of which way that price movement will be.
The strategy involves buying an out-of-the-money call and an out-of-the-money put option. A strangle is generally less expensive than a straddle as the contracts are purchased out of the money.
For example, imagine a stock currently trading at $50 a share. To employ the strangle option strategy a trader enters into two option positions, one call and one put. Say the call is for $55 and costs $300 ($3.00 per option x 100 shares) and the put is for $45 and costs $285 ($2.85 per option x 100 shares). If the price of the stock stays between $45 and $55 over the life of the option the loss to the trader will be $585 (total cost of the two option contracts). The trader will make money if the price of the stock starts to move outside of the range. Say that the price of the stock ends up at $35. The call option will expire worthless and the loss will be $300 to the trader. The put option however has gained considerable value, it is worth $715 ($1,000 less the initial option value of $285). So the total gain the trader has made is $415.
Thursday, August 16, 2007
Call & Put Options
To opt or not to opt...
Anup Menon
FROM July, options trading is likely to start in the capital market.
Starting this week, there will be a series of articles on options, aimed at increasing the awareness on the product.
An option gives you the right to buy or sell an asset at a future date. This can be done at the price specified in the option contract.
But you need to use it only if the option contract price is favourable to you. If the price trend is unfavourable, you need not exercise the option.
Instead you can go and buy or sell the asset in the market at a price better than the option contract price. This means an option holder has a right but not the obligation to exercise the contract. But this facility comes with a price; options help you benefit from the contract price if there are unfavourable movements asset prices in the market.
Options are classified into two types:
* Call option: A call option gives the holder the right but not the obligation to buy the underlying asset at a specified exercise price. Since the initial cash flow to buy the option is comparatively small, investors bullish on the asset (can be a stock or any other asset for that matter) can use call options to maximise their returns by buying into the product. Further, even in the case of the asset moving the other way, the maximum loss for the investor is only the premium he has paid.
* Put option: A put option is the reverse of the call option. It gives the holder the right to sell an asset at a predetermined price. Investors bearish on the future trends of the asset price can use a put option. It confers the same benefits as in a call option.
The players in an option market are holders (buyers) and writers (sellers):
* Option holders: Option holders are actually the buyers of the contract -- be they puts or calls. They have the `right' but not the obligation to do something at expiry. For instance, if the option holder has a call option and the asset price does not move in the expected direction, he will not exercise his option. From this perspective, his risk is limited.
* Option writers: Option writers are those who sell options. In other words, for a fee, they promise the holders delivery of an asset at a fixed price-tag. For instance, if an investor decides to exercise a call option, then the option holder will have to provide delivery of the underlying asset at that price. From this perspective, the risk is much greater for option writers.
Next week, we shall look at some more basic terminologies of the options market.
Option Basics - II
Anup Menon
LAST week we defined what an option is and talked about the two basic types of options namely calls and puts. We also saw the difference between an option writer and a buyer. This week we shall discuss some more key terms in options.
European Options: In India all options that are being introduced are of the European type. We can have a European put, call or any other advanced option variants. The question is what is the European Option. We know that an option holder has the right to exercise his option but not the obligation. The question is when can he exercise his right. Should it be on the maturity date or can he exercise it at any time after he has entered the contract. If the option can be exercised on the maturity date only, then the option is a European option.
American Options: The other type of option is known as the American Options. Most option contracts traded in developed markets are of the American type. The biggest advantage with the American Option is that it can be exercised by the holder at any point of time after entering the contract. However the question remains whether early exercise is optimal. Since the discussion of that topic is fairly academic, we shall deal with it on a later date.
Now that we have seen some of the basic types of options, let us look at some of the key valuation parameters that we should look for. The most important valuation parameter is volatility.
Measurement of volatility has been a subject for financial research, both academic and applied. This is all the more important in options since most positions tend to be leveraged and a wrong call on volatility can cost the trader a packet. The simplest and most widely used measure of volatility is the standard deviation. The standard deviation measures the deviation or changes in the return series from an average value. The higher the standard deviation, the more volatile the series.
However there have been many revised versions of volatility. For instance computation of the standard deviation assumes that the mean is unconditional. Modern volatility measurement techniques such as ARCH and its variants have been frequently referred to.
Next week we shall look into some of the other major valuation parameters such as exercise price and follow it up with a brief discussion on pricing models.
Option Basics - III
Anup Menon
Last week we saw what is meant by American and European options. We also discussed volatility, which is one of the key factors in valuation of options. This week we shall see some more key terms in options.
Expiration Date: Options quoted in exchange include the date and the month on which the option can be exercised. This is called the expiration date. In the case of the European option, the investor can exercise his right on the specified `expiration date' only. In the case of an American Option, investors can exercise the option on or before the `expiration date'.
Strike Price: The `strike price' is the price at which an option can be exercised. For instance, assume that you hold an European Option on XYZ company for one share. The strike price is fixed at Rs 5,000 and the expiration date is 15th June 2001. If the prevailing market price is say Rs 5,500, then you can exercise your option on the 15th and buy one share of XYZ for Rs 5,000.
In-the-money options: Those options which are trading in positive territory are called in-the-money options. This means that in the event of exercising the option, it leads to a gain for the investor. For instance, in the example given above, if the stock was trading at Rs 5,400 on 13th June, then the option is in-the-money from the point of view of the holder.
Out-of-the-money options: Those options which give a negative cash flow to the investors are classified as out-of-the-money options. For instance, in the above example, if the price of XYZ on 13th June was Rs 4,500, then it would have generated a negative cash flow if exercised. Hence the option is classified as out-of-the-money.
At-the-money options: Those options which do not result in any cash flow, in other words, which result in zero cash flow for the investors are called At-the-money options. For instance, in the same example as described above is the price of XYZ was Rs 5,000 on 13th June, then the option is at-the-money.
Next week we shall look into some of the properties of the factors affecting valuation of options.
Option Basics -- IV
Anup Menon
This week we shall look at an option strategy known as collars.
Assume you are an investor and want to own the stock of ABC company. You also know that the stock is not likely to move up at a rapid pace and you want to limit your downside. Under these conditions, an investor can consider using a collar strategy. A collar strategy involves three distinct transactions, namely the purchase of the asset in the spot market. purchase of an out-of-the-money put option and sale of an out-of-the-money call option. The potential risk and reward from using this strategy is limited.
Normally investors using this strategy try to even out the cash outflow on buying the put with the cash inflow from selling the call. In other words the premium paid for the buying the put and selling the call will be equal. This effectively means that the cost incurred by the investor is the equal to that of buying the stock in the spot market. An example would make the operation clearer.
Assume that the stock of ABC is selling at Rs 100. The investor purchases 10 shares of ABC, which means a net outflow of Rs 1,000 (for the purchase in spot market). At the same time the investor also purchases 1 put option (10 shares) with strike price at Rs 95. The investor also sells 1 call option (10 shares) with a strike of Rs 110. Since the premium paid for the put option is the same as the premium received for the call option, the net cost for the investor is Rs 1,000 only.
Assume that the stock price moves down to Rs 90. In that case three events happen. Firstly the call option is worthless. The investor will exercise his put option and thereby receives a cash inflow of Rs 50. The spot position incurs a loss of Rs 100. Therefore, the maximum loss that an investor will suffer is Rs 50. The same condition holds true for any combination of the spot price. If the asset price falls below the put strike, then the maximum loss that the investor can suffer is the difference between the put strike and initial spot price.
Similarly assume that the price of the asset rises to Rs 120. Then the put option is worthless. The investor will have to provides the shares at Rs 110. This means that he will lose Rs 100 (10*10) in the process. However the spot position will gain by around Rs 200. Therefore the net gain will always be Rs 100, that is the difference between the call strike and the original asset price.
Hence we can see that while the risks are contained, the rewards are also constrained.
Option Basics -- V
Anup Menon
ASSUME you are an investor and want to own the stock of ABC company.
However, at present, you are not sure as to the direction in which the stock will move. Is it possible to devise a strategy with limited risk but unlimited gains. Yes, the investor can consider using the (long) straddle strategy. A straddle involves two distinct transactions. For the (long) straddle involves the purchase of a call and put option with the same exercise and terms and conditions. The (short) straddle involves selling of a put and a call option with the same exercise and terms and conditions.
Normally, investors using this strategy are unable to gauge the direction of the stock. Therefore, the more volatile the stock, the better the payoffs from a (long) straddle and vice versa. Investors have to be careful when using this strategy. Why? Options tend to lose value quickly. In the case of a straddle, the erosion is twice that of holding a call or a put option. This apart the transaction costs would also be higher as the investor has to buy twice the number of options. An example would make the strategy more clear.
First let us look at an example of the (long) straddle strategy. Assume that the stock of ABC is selling at Rs 100. The investors purchases one call option at a strike price of Rs 105 and one put option with the same strike price. All other terms and conditions are similar for both options. Further assume that the investor pays a total premium (inclusive of call and put) of Rs 10. Therefore the cost for the investor is Rs 10. This effectively means that if the stock price moves beyond Rs 110, the call option will make money and if it falls below Rs 95, the put option will make money. In the event of the stock price remaining rangebound between Rs 95 and Rs 110, the maximum loss suffered by the investor is Rs 10.
Now let us look at the (short) straddle. This is an extremely risky strategy. For instance, as in our above example, the investor will write a call and a put option with a strike price of Rs 105. He receives a total premium of Rs 10 for his troubles. Therefore his maximum profit from the transaction is Rs 10 only. However of the stock fluctuates beyond the range stated above, the loss for the investor is unlimited. This is an extremely risky strategy and advised only for players with substantial financial backing and experience in trading options.
Next week we shall look at another strategy known as strangles.
Anup Menon
FROM July, options trading is likely to start in the capital market.
Starting this week, there will be a series of articles on options, aimed at increasing the awareness on the product.
An option gives you the right to buy or sell an asset at a future date. This can be done at the price specified in the option contract.
But you need to use it only if the option contract price is favourable to you. If the price trend is unfavourable, you need not exercise the option.
Instead you can go and buy or sell the asset in the market at a price better than the option contract price. This means an option holder has a right but not the obligation to exercise the contract. But this facility comes with a price; options help you benefit from the contract price if there are unfavourable movements asset prices in the market.
Options are classified into two types:
* Call option: A call option gives the holder the right but not the obligation to buy the underlying asset at a specified exercise price. Since the initial cash flow to buy the option is comparatively small, investors bullish on the asset (can be a stock or any other asset for that matter) can use call options to maximise their returns by buying into the product. Further, even in the case of the asset moving the other way, the maximum loss for the investor is only the premium he has paid.
* Put option: A put option is the reverse of the call option. It gives the holder the right to sell an asset at a predetermined price. Investors bearish on the future trends of the asset price can use a put option. It confers the same benefits as in a call option.
The players in an option market are holders (buyers) and writers (sellers):
* Option holders: Option holders are actually the buyers of the contract -- be they puts or calls. They have the `right' but not the obligation to do something at expiry. For instance, if the option holder has a call option and the asset price does not move in the expected direction, he will not exercise his option. From this perspective, his risk is limited.
* Option writers: Option writers are those who sell options. In other words, for a fee, they promise the holders delivery of an asset at a fixed price-tag. For instance, if an investor decides to exercise a call option, then the option holder will have to provide delivery of the underlying asset at that price. From this perspective, the risk is much greater for option writers.
Next week, we shall look at some more basic terminologies of the options market.
Option Basics - II
Anup Menon
LAST week we defined what an option is and talked about the two basic types of options namely calls and puts. We also saw the difference between an option writer and a buyer. This week we shall discuss some more key terms in options.
European Options: In India all options that are being introduced are of the European type. We can have a European put, call or any other advanced option variants. The question is what is the European Option. We know that an option holder has the right to exercise his option but not the obligation. The question is when can he exercise his right. Should it be on the maturity date or can he exercise it at any time after he has entered the contract. If the option can be exercised on the maturity date only, then the option is a European option.
American Options: The other type of option is known as the American Options. Most option contracts traded in developed markets are of the American type. The biggest advantage with the American Option is that it can be exercised by the holder at any point of time after entering the contract. However the question remains whether early exercise is optimal. Since the discussion of that topic is fairly academic, we shall deal with it on a later date.
Now that we have seen some of the basic types of options, let us look at some of the key valuation parameters that we should look for. The most important valuation parameter is volatility.
Measurement of volatility has been a subject for financial research, both academic and applied. This is all the more important in options since most positions tend to be leveraged and a wrong call on volatility can cost the trader a packet. The simplest and most widely used measure of volatility is the standard deviation. The standard deviation measures the deviation or changes in the return series from an average value. The higher the standard deviation, the more volatile the series.
However there have been many revised versions of volatility. For instance computation of the standard deviation assumes that the mean is unconditional. Modern volatility measurement techniques such as ARCH and its variants have been frequently referred to.
Next week we shall look into some of the other major valuation parameters such as exercise price and follow it up with a brief discussion on pricing models.
Option Basics - III
Anup Menon
Last week we saw what is meant by American and European options. We also discussed volatility, which is one of the key factors in valuation of options. This week we shall see some more key terms in options.
Expiration Date: Options quoted in exchange include the date and the month on which the option can be exercised. This is called the expiration date. In the case of the European option, the investor can exercise his right on the specified `expiration date' only. In the case of an American Option, investors can exercise the option on or before the `expiration date'.
Strike Price: The `strike price' is the price at which an option can be exercised. For instance, assume that you hold an European Option on XYZ company for one share. The strike price is fixed at Rs 5,000 and the expiration date is 15th June 2001. If the prevailing market price is say Rs 5,500, then you can exercise your option on the 15th and buy one share of XYZ for Rs 5,000.
In-the-money options: Those options which are trading in positive territory are called in-the-money options. This means that in the event of exercising the option, it leads to a gain for the investor. For instance, in the example given above, if the stock was trading at Rs 5,400 on 13th June, then the option is in-the-money from the point of view of the holder.
Out-of-the-money options: Those options which give a negative cash flow to the investors are classified as out-of-the-money options. For instance, in the above example, if the price of XYZ on 13th June was Rs 4,500, then it would have generated a negative cash flow if exercised. Hence the option is classified as out-of-the-money.
At-the-money options: Those options which do not result in any cash flow, in other words, which result in zero cash flow for the investors are called At-the-money options. For instance, in the same example as described above is the price of XYZ was Rs 5,000 on 13th June, then the option is at-the-money.
Next week we shall look into some of the properties of the factors affecting valuation of options.
Option Basics -- IV
Anup Menon
This week we shall look at an option strategy known as collars.
Assume you are an investor and want to own the stock of ABC company. You also know that the stock is not likely to move up at a rapid pace and you want to limit your downside. Under these conditions, an investor can consider using a collar strategy. A collar strategy involves three distinct transactions, namely the purchase of the asset in the spot market. purchase of an out-of-the-money put option and sale of an out-of-the-money call option. The potential risk and reward from using this strategy is limited.
Normally investors using this strategy try to even out the cash outflow on buying the put with the cash inflow from selling the call. In other words the premium paid for the buying the put and selling the call will be equal. This effectively means that the cost incurred by the investor is the equal to that of buying the stock in the spot market. An example would make the operation clearer.
Assume that the stock of ABC is selling at Rs 100. The investor purchases 10 shares of ABC, which means a net outflow of Rs 1,000 (for the purchase in spot market). At the same time the investor also purchases 1 put option (10 shares) with strike price at Rs 95. The investor also sells 1 call option (10 shares) with a strike of Rs 110. Since the premium paid for the put option is the same as the premium received for the call option, the net cost for the investor is Rs 1,000 only.
Assume that the stock price moves down to Rs 90. In that case three events happen. Firstly the call option is worthless. The investor will exercise his put option and thereby receives a cash inflow of Rs 50. The spot position incurs a loss of Rs 100. Therefore, the maximum loss that an investor will suffer is Rs 50. The same condition holds true for any combination of the spot price. If the asset price falls below the put strike, then the maximum loss that the investor can suffer is the difference between the put strike and initial spot price.
Similarly assume that the price of the asset rises to Rs 120. Then the put option is worthless. The investor will have to provides the shares at Rs 110. This means that he will lose Rs 100 (10*10) in the process. However the spot position will gain by around Rs 200. Therefore the net gain will always be Rs 100, that is the difference between the call strike and the original asset price.
Hence we can see that while the risks are contained, the rewards are also constrained.
Option Basics -- V
Anup Menon
ASSUME you are an investor and want to own the stock of ABC company.
However, at present, you are not sure as to the direction in which the stock will move. Is it possible to devise a strategy with limited risk but unlimited gains. Yes, the investor can consider using the (long) straddle strategy. A straddle involves two distinct transactions. For the (long) straddle involves the purchase of a call and put option with the same exercise and terms and conditions. The (short) straddle involves selling of a put and a call option with the same exercise and terms and conditions.
Normally, investors using this strategy are unable to gauge the direction of the stock. Therefore, the more volatile the stock, the better the payoffs from a (long) straddle and vice versa. Investors have to be careful when using this strategy. Why? Options tend to lose value quickly. In the case of a straddle, the erosion is twice that of holding a call or a put option. This apart the transaction costs would also be higher as the investor has to buy twice the number of options. An example would make the strategy more clear.
First let us look at an example of the (long) straddle strategy. Assume that the stock of ABC is selling at Rs 100. The investors purchases one call option at a strike price of Rs 105 and one put option with the same strike price. All other terms and conditions are similar for both options. Further assume that the investor pays a total premium (inclusive of call and put) of Rs 10. Therefore the cost for the investor is Rs 10. This effectively means that if the stock price moves beyond Rs 110, the call option will make money and if it falls below Rs 95, the put option will make money. In the event of the stock price remaining rangebound between Rs 95 and Rs 110, the maximum loss suffered by the investor is Rs 10.
Now let us look at the (short) straddle. This is an extremely risky strategy. For instance, as in our above example, the investor will write a call and a put option with a strike price of Rs 105. He receives a total premium of Rs 10 for his troubles. Therefore his maximum profit from the transaction is Rs 10 only. However of the stock fluctuates beyond the range stated above, the loss for the investor is unlimited. This is an extremely risky strategy and advised only for players with substantial financial backing and experience in trading options.
Next week we shall look at another strategy known as strangles.
Monday, July 16, 2007
Don't lose money
How to get high returns with low risk? Phil Town offers an answer in `Rule #1' (www.crosswordbookstores.com), a book that guides you to `returns of 15 per cent or more in the stock market, with almost no risk.'
There are only two rules of investing, Warren Buffett would say. "Rule #1: Don't lose money... and Rule #2: Don't forget Rule #1."
The first rule can work for the majority, assures Town. It is easy to learn, and you don't even have to be that smart, either, he says.
How not to lose money? Invest with certainty, says Town. "Certainty comes from this: buying a wonderful business at an attractive price." Wonderful implies three Ms, viz. the business should have meaning, moat, and good management.
The business must have meaning for you, and reflect your values; "you understand it enough to want to own the whole thing if you could." Moat refers to the criteria of financial strength and predictability.
Business that is wonderful isn't enough; the price has to be attractive, meaning `a very big margin of safety,' the fourth M.
Thus, the `four straightforward steps' of Rule #1 investing, according to Town, are: find a wonderful business, know what it is worth as a business, buy it at 50 per cent off, and repeat until very rich.
Rule #1 is just about being a good shopper, cheers the author. "There are opportunities to buy wonderful companies at attractive prices - they really do exist - if you're willing to do your homework and say good-bye to mutual funds."
Meaning is important, because you buy a business, not a stock, the author reasons.
To infuse discipline into investing, he lays down the 10-10 rule: "I won't own this business for ten minutes unless I'm willing to own it for ten years."
The rule doesn't, however, preclude you from buying and selling the business over and over; rather, it makes you think as a long-term investor.
Identify your list of `wonderful' companies using three circles: passion (`what do you love to do, professionally and as recreation'), talent (`what things are you really good at'), and money (`what do you do to make money or what do you spend money on').
See how the words that show up in the circles point to a product, an industry, or a certain business.
"Anything that's in two or all the three circles is something you probably understand much better than most of the rest of us. It's probably something that has meaning to you, which automatically makes it an industry worth researching."
Elsewhere in the book, you'd read about `the three tools' to help you "have the courage to grab the stick from Mr Market, which is a good thing because we don't want Mr Market to beat us... "
Too imperative to ignore.
http://www.blonnet.com/iw/2007/06/17/stories/2007061701331200.htm
How to get high returns with low risk? Phil Town offers an answer in `Rule #1' (www.crosswordbookstores.com), a book that guides you to `returns of 15 per cent or more in the stock market, with almost no risk.'
There are only two rules of investing, Warren Buffett would say. "Rule #1: Don't lose money... and Rule #2: Don't forget Rule #1."
The first rule can work for the majority, assures Town. It is easy to learn, and you don't even have to be that smart, either, he says.
How not to lose money? Invest with certainty, says Town. "Certainty comes from this: buying a wonderful business at an attractive price." Wonderful implies three Ms, viz. the business should have meaning, moat, and good management.
The business must have meaning for you, and reflect your values; "you understand it enough to want to own the whole thing if you could." Moat refers to the criteria of financial strength and predictability.
Business that is wonderful isn't enough; the price has to be attractive, meaning `a very big margin of safety,' the fourth M.
Thus, the `four straightforward steps' of Rule #1 investing, according to Town, are: find a wonderful business, know what it is worth as a business, buy it at 50 per cent off, and repeat until very rich.
Rule #1 is just about being a good shopper, cheers the author. "There are opportunities to buy wonderful companies at attractive prices - they really do exist - if you're willing to do your homework and say good-bye to mutual funds."
Meaning is important, because you buy a business, not a stock, the author reasons.
To infuse discipline into investing, he lays down the 10-10 rule: "I won't own this business for ten minutes unless I'm willing to own it for ten years."
The rule doesn't, however, preclude you from buying and selling the business over and over; rather, it makes you think as a long-term investor.
Identify your list of `wonderful' companies using three circles: passion (`what do you love to do, professionally and as recreation'), talent (`what things are you really good at'), and money (`what do you do to make money or what do you spend money on').
See how the words that show up in the circles point to a product, an industry, or a certain business.
"Anything that's in two or all the three circles is something you probably understand much better than most of the rest of us. It's probably something that has meaning to you, which automatically makes it an industry worth researching."
Elsewhere in the book, you'd read about `the three tools' to help you "have the courage to grab the stick from Mr Market, which is a good thing because we don't want Mr Market to beat us... "
Too imperative to ignore.
http://www.blonnet.com/iw/2007/06/17/stories/2007061701331200.htm
Saturday, July 7, 2007
How to read an Annual Report
Shanthi Venkataraman
The thought of poring over annual reports to glean information about a company or its growth prospects may seem terribly dull to most new investors. At a time when there is an overflow of information across media channels and scores of analysts churn out stock calls on a daily basis, you may be excused for taking the short cut and just looking up financial snapshots on the Internet.
Nevertheless, the annual report remains the most authentic source of information about a company and contains important facts about its financial condition, growth strategy and current challenges that are not readily available upon an Internet search. A well-written report can give you a rare glimpse into the management’s outlook for the industry or its views on new trends in the market. So for those who do not know (or remember) what an annual report looks like, here is a quick guide to reading this document.
The manner of presentation differs from one annual report to the other; some are mini opuses that promise to be a one-stop guide to the industry and company, others barely make the cut when it comes to providing crucial information. Most reports, though, will have the following important components:
The director’s report, which will detail the company’s operational performance in the year gone by.
Management Discussion and Analysis, where the management provides an outlook on the industry, competitive scenario, new challenges and risk factors and outlines its future strategy.
Detailed financial statements of the company and its subsidiaries, as well as consolidated financials, along with the auditor’s report.
The basics, for starters
You may also find pictures of happy employees participating in corporate events. Heart warming, but we suggest that you skim through all that gloss and start with the director’s report. This will give you an overview of the company’s performance across various segments and an idea of the factors that drove performance.
If you are unfamiliar with the industry the company operates in, then the Management Discussion and Analysis (MDA) is the best place to begin. Clueless about the pig iron industry? Read the Tata Metaliks report for data on the globa l pig iron and foundry market and pig iron price trends. The report also includes an interview with Tata Metaliks’ management, which discusses some of the key events that took place during the previous year and its perception about the competitive scenario.
Companies put forth their views on a variety of topics that concern their industry, be it Government regulation, consumer or user industry trends or changes in the global picture in the MDA. They then articulate their own plans to capitalise on unfolding opportunities.
Between the director’s report and MDA, you will get a fairly good idea of the businesses the company operates in, its key focus areas, the challenges ahead and the measures it has in place to improve financial performance in the year ahead.
For number-crunchers
For those who believe that it is numbers that do all the talking, the financial statements in the annual report provide you with details that you are unlikely to find on the BSE or NSE Web sites. For instance, you can figure out the extent to which a company is able to fund its expansion plans on the strength of its current operations by looking at its cash flow statements.
The schedules to accounts provide break-ups of income, expenditure and other items. For instance, you may want to know what components constitute “other income”, particularly if it has been a significant contributor to profits that year. The item-wise split-up of the components classified under other income will help you decipher how much of the non-operational income is recurring in nature. You are also provided with segmental information — both geographic and business.
Similarly, schedules elaborate on balance sheet items such as long-term and short-term loans. For retailing companies, for instance, inventory management is crucial and you may have to compare the inventory positions over a three-year period to understand how efficiently the retailer manages its stores. Or for cash-rich companies, the quality of their investment book may well play a role in valuations.
The annual report also discloses the financial information of the company’s subsidiaries, besides providing financials on a consolidated basis.
As new, high-growth ventures are typically routed through subsidiaries, companies are beginning to command valuations based on their consolidated numbers.
Be sure to look at the notes to accounts to understand the accounting treatment of various revenue and expenditure items. Those who are unfamiliar with accounting practices can make-do with looking for changes in accounting policies . This might tip you off on the impact of one-time earnings or expenses.
Also look for the auditor’s qualifications to accounts for any assumptions that have been made while preparing or auditing accounts.
Nooks and corners
The annual report also contains little nuggets of information that could provide you with additional insight into the company.
Management background: For instance, you can find brief profiles about the directors on the board of the company. The presence of directors with strong industry standing lends credibility to the management of the company.
The shareholding pattern of the company will reveal the extent of promoter holding and the extent of institutional interest in the company.
Production and utilisation figures: For manufacturing concerns, the production figures assume significance. The production as a proportion of installed capacity (utilisation) could give you an idea of the efficiency at which the compan y is operating and the headroom for further volume growth. This information is particularly pertinent if the company is planning further expansion.
IPO proceeds utilisation: For newly listed companies, the progress on the expansion plans that had been outlined in the offer document and the utilisation of the IPO proceeds are also disclosed in the annual report.
Notices to resolutions: Some special resolutions passed at the annual board meeting also merit attention. For instance, resolutions passed to increase borrowing limits are cues to the company’s desire to leverage its balance shee t.
Explanations are also available on why the resolution has been mooted. For example, Colgate Palmolive India’s latest annual report explains the reasons for its declaration of a special dividend and a capital reduction.
This list is far from exhaustive. Going through all this might mean a lot of time and work. But it does make your information more authentic than the tip from your broker friend or the analyst on TV.
http://www.thehindubusinessline.com/iw/2007/07/08/stories/2007070850701300.htm
Shanthi Venkataraman
The thought of poring over annual reports to glean information about a company or its growth prospects may seem terribly dull to most new investors. At a time when there is an overflow of information across media channels and scores of analysts churn out stock calls on a daily basis, you may be excused for taking the short cut and just looking up financial snapshots on the Internet.
Nevertheless, the annual report remains the most authentic source of information about a company and contains important facts about its financial condition, growth strategy and current challenges that are not readily available upon an Internet search. A well-written report can give you a rare glimpse into the management’s outlook for the industry or its views on new trends in the market. So for those who do not know (or remember) what an annual report looks like, here is a quick guide to reading this document.
The manner of presentation differs from one annual report to the other; some are mini opuses that promise to be a one-stop guide to the industry and company, others barely make the cut when it comes to providing crucial information. Most reports, though, will have the following important components:
The director’s report, which will detail the company’s operational performance in the year gone by.
Management Discussion and Analysis, where the management provides an outlook on the industry, competitive scenario, new challenges and risk factors and outlines its future strategy.
Detailed financial statements of the company and its subsidiaries, as well as consolidated financials, along with the auditor’s report.
The basics, for starters
You may also find pictures of happy employees participating in corporate events. Heart warming, but we suggest that you skim through all that gloss and start with the director’s report. This will give you an overview of the company’s performance across various segments and an idea of the factors that drove performance.
If you are unfamiliar with the industry the company operates in, then the Management Discussion and Analysis (MDA) is the best place to begin. Clueless about the pig iron industry? Read the Tata Metaliks report for data on the globa l pig iron and foundry market and pig iron price trends. The report also includes an interview with Tata Metaliks’ management, which discusses some of the key events that took place during the previous year and its perception about the competitive scenario.
Companies put forth their views on a variety of topics that concern their industry, be it Government regulation, consumer or user industry trends or changes in the global picture in the MDA. They then articulate their own plans to capitalise on unfolding opportunities.
Between the director’s report and MDA, you will get a fairly good idea of the businesses the company operates in, its key focus areas, the challenges ahead and the measures it has in place to improve financial performance in the year ahead.
For number-crunchers
For those who believe that it is numbers that do all the talking, the financial statements in the annual report provide you with details that you are unlikely to find on the BSE or NSE Web sites. For instance, you can figure out the extent to which a company is able to fund its expansion plans on the strength of its current operations by looking at its cash flow statements.
The schedules to accounts provide break-ups of income, expenditure and other items. For instance, you may want to know what components constitute “other income”, particularly if it has been a significant contributor to profits that year. The item-wise split-up of the components classified under other income will help you decipher how much of the non-operational income is recurring in nature. You are also provided with segmental information — both geographic and business.
Similarly, schedules elaborate on balance sheet items such as long-term and short-term loans. For retailing companies, for instance, inventory management is crucial and you may have to compare the inventory positions over a three-year period to understand how efficiently the retailer manages its stores. Or for cash-rich companies, the quality of their investment book may well play a role in valuations.
The annual report also discloses the financial information of the company’s subsidiaries, besides providing financials on a consolidated basis.
As new, high-growth ventures are typically routed through subsidiaries, companies are beginning to command valuations based on their consolidated numbers.
Be sure to look at the notes to accounts to understand the accounting treatment of various revenue and expenditure items. Those who are unfamiliar with accounting practices can make-do with looking for changes in accounting policies . This might tip you off on the impact of one-time earnings or expenses.
Also look for the auditor’s qualifications to accounts for any assumptions that have been made while preparing or auditing accounts.
Nooks and corners
The annual report also contains little nuggets of information that could provide you with additional insight into the company.
Management background: For instance, you can find brief profiles about the directors on the board of the company. The presence of directors with strong industry standing lends credibility to the management of the company.
The shareholding pattern of the company will reveal the extent of promoter holding and the extent of institutional interest in the company.
Production and utilisation figures: For manufacturing concerns, the production figures assume significance. The production as a proportion of installed capacity (utilisation) could give you an idea of the efficiency at which the compan y is operating and the headroom for further volume growth. This information is particularly pertinent if the company is planning further expansion.
IPO proceeds utilisation: For newly listed companies, the progress on the expansion plans that had been outlined in the offer document and the utilisation of the IPO proceeds are also disclosed in the annual report.
Notices to resolutions: Some special resolutions passed at the annual board meeting also merit attention. For instance, resolutions passed to increase borrowing limits are cues to the company’s desire to leverage its balance shee t.
Explanations are also available on why the resolution has been mooted. For example, Colgate Palmolive India’s latest annual report explains the reasons for its declaration of a special dividend and a capital reduction.
This list is far from exhaustive. Going through all this might mean a lot of time and work. But it does make your information more authentic than the tip from your broker friend or the analyst on TV.
http://www.thehindubusinessline.com/iw/2007/07/08/stories/2007070850701300.htm
Sunday, June 24, 2007
Seven deadly sins of investment
D. Murali
A crow will conquer owl in broad daylight, so too a king who wants to crush his foes needs fitting time to fight. More than two millennia old counsel, this is, from one of the 1,330 Kurals of Tiruvalluvar. Can any work be hard in very fact, if men use fitting means in timely act, asks the poet-saint in a different couplet included in a chapter titled `Knowing the fitting time'?
There are many such nuggets of wisdom in the ancient Tamil work for aspiring investors who want to profit from the market. It is not unusual to find contemporary instructions echoing ageless guidance. Take for instance, Colin Alexander's Streetsmart Guide to Timing the Stock Market (www.tatamcgrawhill.com). "Technical analysis tells you when to buy or sell a stock on the basis of what its price action says about it," he writes.
Fundamental analysis can tell you which stocks to buy on the basis of companies' financial statements and assumptions about their business prospects. Remember, however, that fundamental analysis "does not necessarily lead you to stocks where the action is." Therefore, supplement technical analysis with fundamental analysis, because when both analyses support the same conclusions, the results are likely to be spectacular, as Alexander assures.
Timing is not about finding `absolute tops and bottoms,' because that cannot be done with acceptable consistency, clarifies the author. He'd instead suggest that you study the market action to "avoid getting caught in a serious bear market for stocks generally or get caught in an individual stock that is going down the drain."
Take personal responsibility for your investments, says Alexander. "Owning stocks is like owning a business... Few businesses do as well as they should when an absentee owner farms out management."
In a chapter on `The Winning Attitude' the author urges you to be prepared to do things to be successful. Preparation includes the challenge of guarding yourself against seven deadly sins of investment:
Impatience ("one partial cure for impatience is to look at the rate at which a long-term moving average or a long-term trendline is going up").
Fear (which can be overcome "by the repetition of acts of courage").
Greed (watch out, "greedy use of margin can double losses instead of doubling profits").
Hope (don't "fall back on hope when the technical case turns against a stock").
Pride (this can attack "investors who believe that their intelligence and personality are superior to the market or to a systematic approach to buying and selling stocks").
Carelessness (for, "it is easy to get sloppy about doing your homework").
Gambling (please note, stock market is not a substitute for Las Vegas!)
Timely read.
Overpower dissatisfaction
What if you were given a ticket that could magically start your life anew? Would you redeem it?
With these enticing questions begins Life's Golden Ticket, an inspirational tale by Brendon Burchard (www.landmarkonthenet.com).
The prologue cites Richard Bach's simple test to find whether your mission on Earth is finished: "If you're alive, it isn't." Burchard finds himself alive after a ghastly car accident, and realises how the crash was "a perfect metaphor" for his life at that point: "A journey down a dark road, a sharp turn, utter loss of control."
How familiar these phrases may be to those who play the markets!
Well, turn the pages to follow the protagonist to a park where a wizard addresses the crowd from atop a stool: "You've been raised with the question `What should I do with my life?' That question, of course, is secondary. The primary question is, `Who should I be in my life?'"
You are in the park because of a quiet dissatisfaction with yourself, the wizard tells the people assembled. "You feel there is something more inside you... Deep down, you know you are more than what society has said you are or told you to be."
There are more lessons to learn from the park, such as this one, from `the centre ring' preceding `the last ride': Many of us live our lives desperately seeking to draw attention to ourselves, writes Burchard.
"We live our lives to be noticed, accepted, and adored. We live our lives as if we were in the centre ring, as if the world should sit around applauding our every move."
Thankfully, however, "there are a small number of people in this world who live their lives to make others smile, to remind others of the magic and hope in the world, to help them discover the possibilities that live within them... "
Refreshing ride.
http://BookPeek.blogspot.com
http://www.blonnet.com/iw/2007/06/24/stories/2007062401221200.htm
D. Murali
A crow will conquer owl in broad daylight, so too a king who wants to crush his foes needs fitting time to fight. More than two millennia old counsel, this is, from one of the 1,330 Kurals of Tiruvalluvar. Can any work be hard in very fact, if men use fitting means in timely act, asks the poet-saint in a different couplet included in a chapter titled `Knowing the fitting time'?
There are many such nuggets of wisdom in the ancient Tamil work for aspiring investors who want to profit from the market. It is not unusual to find contemporary instructions echoing ageless guidance. Take for instance, Colin Alexander's Streetsmart Guide to Timing the Stock Market (www.tatamcgrawhill.com). "Technical analysis tells you when to buy or sell a stock on the basis of what its price action says about it," he writes.
Fundamental analysis can tell you which stocks to buy on the basis of companies' financial statements and assumptions about their business prospects. Remember, however, that fundamental analysis "does not necessarily lead you to stocks where the action is." Therefore, supplement technical analysis with fundamental analysis, because when both analyses support the same conclusions, the results are likely to be spectacular, as Alexander assures.
Timing is not about finding `absolute tops and bottoms,' because that cannot be done with acceptable consistency, clarifies the author. He'd instead suggest that you study the market action to "avoid getting caught in a serious bear market for stocks generally or get caught in an individual stock that is going down the drain."
Take personal responsibility for your investments, says Alexander. "Owning stocks is like owning a business... Few businesses do as well as they should when an absentee owner farms out management."
In a chapter on `The Winning Attitude' the author urges you to be prepared to do things to be successful. Preparation includes the challenge of guarding yourself against seven deadly sins of investment:
Impatience ("one partial cure for impatience is to look at the rate at which a long-term moving average or a long-term trendline is going up").
Fear (which can be overcome "by the repetition of acts of courage").
Greed (watch out, "greedy use of margin can double losses instead of doubling profits").
Hope (don't "fall back on hope when the technical case turns against a stock").
Pride (this can attack "investors who believe that their intelligence and personality are superior to the market or to a systematic approach to buying and selling stocks").
Carelessness (for, "it is easy to get sloppy about doing your homework").
Gambling (please note, stock market is not a substitute for Las Vegas!)
Timely read.
Overpower dissatisfaction
What if you were given a ticket that could magically start your life anew? Would you redeem it?
With these enticing questions begins Life's Golden Ticket, an inspirational tale by Brendon Burchard (www.landmarkonthenet.com).
The prologue cites Richard Bach's simple test to find whether your mission on Earth is finished: "If you're alive, it isn't." Burchard finds himself alive after a ghastly car accident, and realises how the crash was "a perfect metaphor" for his life at that point: "A journey down a dark road, a sharp turn, utter loss of control."
How familiar these phrases may be to those who play the markets!
Well, turn the pages to follow the protagonist to a park where a wizard addresses the crowd from atop a stool: "You've been raised with the question `What should I do with my life?' That question, of course, is secondary. The primary question is, `Who should I be in my life?'"
You are in the park because of a quiet dissatisfaction with yourself, the wizard tells the people assembled. "You feel there is something more inside you... Deep down, you know you are more than what society has said you are or told you to be."
There are more lessons to learn from the park, such as this one, from `the centre ring' preceding `the last ride': Many of us live our lives desperately seeking to draw attention to ourselves, writes Burchard.
"We live our lives to be noticed, accepted, and adored. We live our lives as if we were in the centre ring, as if the world should sit around applauding our every move."
Thankfully, however, "there are a small number of people in this world who live their lives to make others smile, to remind others of the magic and hope in the world, to help them discover the possibilities that live within them... "
Refreshing ride.
http://BookPeek.blogspot.com
http://www.blonnet.com/iw/2007/06/24/stories/2007062401221200.htm
Saturday, June 16, 2007
‘I want to be rich too, should I buy this IPO?’
The first part is implied, but the second part of the sentence above is what a young colleague asked me on the last day of DLF’s IPO. I’m not surprised — this is almost a process that happens towards the peak of every bull run. Hype runs in like adrenalin and there is almost an itch to join the investing bandwagon. Different matter that many of these highly competent, highly intelligent people have generally been risk averse. Whether this time it signifies the peak or a pause remains to be seen.
“That’s very good,” I said. “Do you have a demat account?”
“Demat? I have my PAN number¿”
Sensing she had never heard of the word, I tried to explain in as simple words as possible about how shares, including IPOs, can be bought only in dematerialised form and that she would have to open one.
“Like how?” I put her in touch with our in-house expert on stocks and off she went to become Client Account No. 7,903,390 on NSDL’s (National Securities Depository Ltd) 7,903,389 strong database of direct equity investors. The depositary holds Rs 31,42,645 crore worth of stocks in its custody, and my colleague will add her thousands to India’s stock story.
I believe she should not buy into the DLF IPO — or any other IPO or any other stock. Not until, that is, she’s learnt a thing or two about reading balance sheets, understanding businesses, tracking companies and the market. She did mention the last: “I’m planning to enroll on a stock simulation website to get a feel of things.”
“Sure, do that,” I said, “but also read One Up on Wall Street by Peter Lynch”, a prescription I’ve given to all my relatives, friends, colleagues, neighbours, e-groups — and even my doctor. (And a bible that many fund managers constantly refer to.) And if the dose is inadequate and the investor-patient needs a stronger antibiotic to negotiate the perceivably dangerous world of equity investing, I prescribe that too — Warren Buffett’s letters to shareholders, downloadable free from berkshirehath-away.com. Between the two, you’ve got your equity strategy education in place.
Next come the details — opening a demat account, applying the fundamentals to real life, finding out the difference between cyclicals and turnarounds, fast-growers and stalwarts, RoCE and RoE, PE multiples and how to apply them, when to use them and when to discard them. On this, there is no one source and the education is largely experiential and constant. Experts say you need to lose money to learn. I disagree. What you need to do in this age of information overload is be able to sift information from noise.
The most important edge you as a lay investor have while investing in stocks is your non-investment decisions. Did you go to Big Bazaar and buy the monthly groceries? Did you notice the crowds, making it so difficult to negotiate your way? Did you observe the long lines at the cash counter? Have you been seeing it for the past year or so? Yes? Congratulations, you’ve just finished 75 per cent of the research.
Now, all you need to do is to study Pantaloon Retail’s (Rs 447) financials and answer this question: is it still investment worthy?
Yes? Go buy.
No? Move on to your mobile phone - Bharti Airtel (Rs 813) or Reliance Communications (Rs 493)? Or banking - ICICI Bank (Rs 909) or State Bank of India (Rs 1,324)? And so on. Find a good company, then see if it’s worth the price.
I then asked my colleague another question: “What will you do if the DLF stock crashes to Rs 250 on listing?” She said, “Since I’m investing for the long term, I won’t worry about it too much, it’s from money I’ve set aside. But if it falls really low, I may sell it.”
Right answer, but: “Why sell a good company? If you thought DLF was investment worthy at Rs 550, it should be even more interesting at Rs 250. Why not buy more?”
“I guess, I should, yes.”
“No - not now, that is. You must buy stocks, but first you must understand them, be ready to spend time with them - at least as much time as you spent on buying your new phone. Until then, stay with equity funds.”
Meanwhile, I’m wondering whether her wanting to buy into IPOs today means crash of the market next week.
editor@expressindia.com
http://www.indianexpress.com/story/33730.html
“That’s very good,” I said. “Do you have a demat account?”
“Demat? I have my PAN number¿”
Sensing she had never heard of the word, I tried to explain in as simple words as possible about how shares, including IPOs, can be bought only in dematerialised form and that she would have to open one.
“Like how?” I put her in touch with our in-house expert on stocks and off she went to become Client Account No. 7,903,390 on NSDL’s (National Securities Depository Ltd) 7,903,389 strong database of direct equity investors. The depositary holds Rs 31,42,645 crore worth of stocks in its custody, and my colleague will add her thousands to India’s stock story.
I believe she should not buy into the DLF IPO — or any other IPO or any other stock. Not until, that is, she’s learnt a thing or two about reading balance sheets, understanding businesses, tracking companies and the market. She did mention the last: “I’m planning to enroll on a stock simulation website to get a feel of things.”
“Sure, do that,” I said, “but also read One Up on Wall Street by Peter Lynch”, a prescription I’ve given to all my relatives, friends, colleagues, neighbours, e-groups — and even my doctor. (And a bible that many fund managers constantly refer to.) And if the dose is inadequate and the investor-patient needs a stronger antibiotic to negotiate the perceivably dangerous world of equity investing, I prescribe that too — Warren Buffett’s letters to shareholders, downloadable free from berkshirehath-away.com. Between the two, you’ve got your equity strategy education in place.
Next come the details — opening a demat account, applying the fundamentals to real life, finding out the difference between cyclicals and turnarounds, fast-growers and stalwarts, RoCE and RoE, PE multiples and how to apply them, when to use them and when to discard them. On this, there is no one source and the education is largely experiential and constant. Experts say you need to lose money to learn. I disagree. What you need to do in this age of information overload is be able to sift information from noise.
The most important edge you as a lay investor have while investing in stocks is your non-investment decisions. Did you go to Big Bazaar and buy the monthly groceries? Did you notice the crowds, making it so difficult to negotiate your way? Did you observe the long lines at the cash counter? Have you been seeing it for the past year or so? Yes? Congratulations, you’ve just finished 75 per cent of the research.
Now, all you need to do is to study Pantaloon Retail’s (Rs 447) financials and answer this question: is it still investment worthy?
Yes? Go buy.
No? Move on to your mobile phone - Bharti Airtel (Rs 813) or Reliance Communications (Rs 493)? Or banking - ICICI Bank (Rs 909) or State Bank of India (Rs 1,324)? And so on. Find a good company, then see if it’s worth the price.
I then asked my colleague another question: “What will you do if the DLF stock crashes to Rs 250 on listing?” She said, “Since I’m investing for the long term, I won’t worry about it too much, it’s from money I’ve set aside. But if it falls really low, I may sell it.”
Right answer, but: “Why sell a good company? If you thought DLF was investment worthy at Rs 550, it should be even more interesting at Rs 250. Why not buy more?”
“I guess, I should, yes.”
“No - not now, that is. You must buy stocks, but first you must understand them, be ready to spend time with them - at least as much time as you spent on buying your new phone. Until then, stay with equity funds.”
Meanwhile, I’m wondering whether her wanting to buy into IPOs today means crash of the market next week.
editor@expressindia.com
http://www.indianexpress.com/story/33730.html
Stocks update on Hindu
Reliance
Though RIL did not head lower as expected, the recovery was not convincing either. The evening star in the weekly chart has been followed by a harami, which implies indecision. The stock faced resistance from Rs 1,715. The short-term outlook will turn neutral only if the stock closes above Rs 1,735. Inability to do so will make the stock move lower to Rs 1,621 or Rs 1,566 shortly.
The medium-term outlook remains unaltered. We expect a dip to Rs 1,580. Investors can hold the stock with a stop at Rs 1,570. Fall below this level will signal the end of the move from Rs 1,262.
SBI
SBI has retraced 32 per cent of the up-move since April 2007. The next retracement target for the stock is at Rs 1,250, which is the medium-term trend deciding level.
Investors can hold the stock till it stays above Rs 1,250.
Momentum indicators too denote that though there can be weakness in the short-term, the larger trend is not under threat as yet.
Upper target for the week are at Rs 1,346 and then Rs 1,388.
Inability to move above Rs 1,346 will be a cue for traders to initiate fresh short positions with a target of Rs 1,180.
ACC
ACC is pausing just below the 50 day moving average positioned at Rs 825. The hurdle beyond this level will be at Rs 852.
Inability to move beyond Rs 852 will imply an imminent fall to Rs 760 again.
Fourteen-day RSI at 47 and 10-day ROC in the negative zone imply that the stock needs to move a little higher before the short-term outlook turns positive.
But the medium-term outlook will turn negative only on a close below Rs 768. Investors can hold the stock with a stop at Rs 760. Fall below Rs 760 will take the stock to Rs 680.
ONGC
ONGC bounced higher in line with our expectation to an intra week high of Rs 891. But a strong impediment exists at Rs 900. A reversal from this level can drag the stock down to Rs 842 and then Rs 801. The 200 DMA at Rs 850 should lend support in the near term.
Sustained sell signal in the weekly chart implies the continuation of the downtrend that began in April.
A close beyond Rs 935 is required to make the medium term positive for this stock. Investors can hold with a stop at Rs 840. Target beyond Rs 840 is Rs 760.
Infosys
Infosys could be charting the C wave of the flat correction that commenced from the April low of Rs 1,912.
This C wave has the target of Rs 2,041 and then Rs 2,140. The 200 DMA present at Rs 2,070 will be an interim impediment.
In other words, a cluster of resistances exist between Rs 2,040 and Rs 2,140.
The medium-term outlook is negative though a fall below Rs 1,900 is required to reinforce this assumption. A close above Rs 2,140 will negate this outlook. Traders can short on rallies with a stop at Rs 2,075. Stop for investors would be Rs 1,900.
Tata Steel
Tata Steel staged a minor pullback last week that took it to an intra-week peak of Rs 622. The laboured nature of the pullback and the sell signals in the weekly oscillators herald short-term weakness in the stock.
The short-term resistance for the stock exists at Rs 630. Inability to rally above this level will make the stock move to Rs 567 and then Rs 533 next week.
The band between Rs 560 and Rs 570 can lend medium term support. Investors should not initiate fresh buys if the stock falls below this level. That would pave the way for a fall to Rs 500.
Lokeshwarri S. K
Though RIL did not head lower as expected, the recovery was not convincing either. The evening star in the weekly chart has been followed by a harami, which implies indecision. The stock faced resistance from Rs 1,715. The short-term outlook will turn neutral only if the stock closes above Rs 1,735. Inability to do so will make the stock move lower to Rs 1,621 or Rs 1,566 shortly.
The medium-term outlook remains unaltered. We expect a dip to Rs 1,580. Investors can hold the stock with a stop at Rs 1,570. Fall below this level will signal the end of the move from Rs 1,262.
SBI
SBI has retraced 32 per cent of the up-move since April 2007. The next retracement target for the stock is at Rs 1,250, which is the medium-term trend deciding level.
Investors can hold the stock till it stays above Rs 1,250.
Momentum indicators too denote that though there can be weakness in the short-term, the larger trend is not under threat as yet.
Upper target for the week are at Rs 1,346 and then Rs 1,388.
Inability to move above Rs 1,346 will be a cue for traders to initiate fresh short positions with a target of Rs 1,180.
ACC
ACC is pausing just below the 50 day moving average positioned at Rs 825. The hurdle beyond this level will be at Rs 852.
Inability to move beyond Rs 852 will imply an imminent fall to Rs 760 again.
Fourteen-day RSI at 47 and 10-day ROC in the negative zone imply that the stock needs to move a little higher before the short-term outlook turns positive.
But the medium-term outlook will turn negative only on a close below Rs 768. Investors can hold the stock with a stop at Rs 760. Fall below Rs 760 will take the stock to Rs 680.
ONGC
ONGC bounced higher in line with our expectation to an intra week high of Rs 891. But a strong impediment exists at Rs 900. A reversal from this level can drag the stock down to Rs 842 and then Rs 801. The 200 DMA at Rs 850 should lend support in the near term.
Sustained sell signal in the weekly chart implies the continuation of the downtrend that began in April.
A close beyond Rs 935 is required to make the medium term positive for this stock. Investors can hold with a stop at Rs 840. Target beyond Rs 840 is Rs 760.
Infosys
Infosys could be charting the C wave of the flat correction that commenced from the April low of Rs 1,912.
This C wave has the target of Rs 2,041 and then Rs 2,140. The 200 DMA present at Rs 2,070 will be an interim impediment.
In other words, a cluster of resistances exist between Rs 2,040 and Rs 2,140.
The medium-term outlook is negative though a fall below Rs 1,900 is required to reinforce this assumption. A close above Rs 2,140 will negate this outlook. Traders can short on rallies with a stop at Rs 2,075. Stop for investors would be Rs 1,900.
Tata Steel
Tata Steel staged a minor pullback last week that took it to an intra-week peak of Rs 622. The laboured nature of the pullback and the sell signals in the weekly oscillators herald short-term weakness in the stock.
The short-term resistance for the stock exists at Rs 630. Inability to rally above this level will make the stock move to Rs 567 and then Rs 533 next week.
The band between Rs 560 and Rs 570 can lend medium term support. Investors should not initiate fresh buys if the stock falls below this level. That would pave the way for a fall to Rs 500.
Lokeshwarri S. K
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