Stocks held by stronger hands

I was looking at the stock price movements in two periods. One from 22nd Aug 2007 to 08th Jan 2008. Two from 09th Aug 2008 to 23rd Jan 2008. The first period saw a stupendous rise for the stocks and the later period has seen an equally stupendous fall. I was trying to figure out if there were stocks that were resilent during this period. The stocks which gained in both period will be an obvious choice. Stocks like Amara Raja, Akruti City, Bank of India, Welspun Gujarat and Essar Shipping fall in this category. Just to give the figures, Amara Raja was up 72% in first period and 16% in second period. Akruti stood at 146% and 10%, Bank of India saw 68% and 10%, Welspun Gujarat gained 114% and 4% and Essar Shipping risen 404% and 4%.

There is another category of stocks that have seen huge upward movement but have fall less which indicates that they are with strong hands. Take the case of banking stocks like Indian Bank, Axis Bank, Bank of Baroda and SBI that have gained over 50% in first period but have fallen less than 6% in second period. Some favourite stocks like Indiabulls Financial, Everonn, Shriram Transport Finance, Jain Irrigation, Pidilite, Simplex Infra and Sadbhav Engineering have gone up anywhere between 40 to 170% in first period and fallen less than 7% during the market free fall.

Biggest Sensex Falls

Jan 21, 2008 (Monday): Sensex down 1408 pts (7.4%)
Concerns: US market recession; margin call pressure from domestic investors

May 18, 2006 (Thursday): Sensex down 826 pts (6.76%)
Concerns: Government circular on taxing investment gains; heavy selling by FIIs, retail investors and a weakness in global markets

April 28, 1992 (Tuesday): Sensex down 570 pts (12.77%)
Concerns: Harshad Mehta securities scam

May 17, 2004 (Monday): Sensex down by 565 pts (11.14%)
Concerns: NDA loses election to Congress

Looking beyond flipping

It is a foregone conclusion that Reliance Power is going to be hugely subscribed. Infact, it has subscribed 4 times in 20 minutes of IPO opening with all the bids coming at upper band of Rs 450. It is a no brainer that it is going to list at a huge premium with the current grey market premium quoting at Rs 350. The strategy that many are using is to be flippers on the listing day. Added to that, is it a good idea to short Reliance Power in the futures market. Or is it foolhardy?
Compare the current Reliance Power IPO with Reliance Petro IPO in 2006. Reliance Industries (RIL) gained 16% in a month leading to the IPO start date (Apr 13 2006) and zoomed 31% between IPO start date (Apr 13 2006) and RPL listing date (11 May 2006). After RPL listing, RIL got into a downtrend. It lost 21% in less than a month breaching the stock price it quoted on RPL IPO open date (Apr 13 2006). Even RPL retraced to its issue price of Rs 60 in less than a month after listing at Rs 102. Will it be a similar story with Reliance Power? Doesn’t similar evidence call for shorting Reliance Power after its listing?
A similar comparison can be drawn for peers. When Reliance Industries ran up, ONGC did the same. When RIL cam down, ONGC followed suit perhaps quickly. ONGC gained 8% in a month leading to RPL IPO open date and gained 15% from IPO open date to listing date. What is interesting to note is that, it lost all its RPL IPO driven price in just 9 days. It lost one third of its price in one month after RPL listing. Will NTPC, the closest peer to REL have the same fate. All the ingredients for this scenario are there. REL and NTPC have gained 30% and 16% respectively in a month running to Reliance Power IPO opening today (15th Jan 2008). Is it a decent proposition to short REL and NTPC after Reliance Power listing in the first week of Feb 2008. Just look beyond the listing date and being a flipper.

Tata Nano - People's Car

There are more questions raised than answered by the launch of Tatas’s Nano. Ratan Tata has definitely answered the prayers of millions of people desiring to have a comfortable and safe outing with their families. What are unanswered are the raging debates like: Does auto manufacturers have any role in the development of infrastructure for increased use of their products? Is government doing enough to alleviate the pain of daily travelers? Is it thinking about the elevating aspirations of owning cars by the rapidly growing Indian middle class? Are policies in India too liberal for our auto makers? Are big cars better than small cars? Where will cars be parked when there is not enough commercial space to do business? and many more. Even with these kind of questions bothering in the sub-conscious mind, the innovation from the Tatas is an humdinger.

Tatas have pushed the envelope of current customer demographics wider through the launch. This can be compared to what Dell did with their low cost PC – direct selling business model. CRISIL notes that the market for Nano is families with income around Rs 2 lakhs. It estimates the current market size in India is to be around 2 crore families which will triple to over 6 crore families in just four years. The potential is not only in India but in all emerging markets. PwC predicts that BRIC countries will contribute about 50% of global auto sales and most of them will be small cars. The government of two countries approaching Mr Tata is a vindication of the potential. Even in countries in Europe and Latin America, the sales of Volkswagen’s Gol, Renault’s Clio and Nissan’s Tsuru are upbeat.

Though Tatas have sprung a miracle by producing a car that is 50% cheaper than the existing one in QQ3 of Chevy Auto of China which costs $5000, they should watch out for disruptive models from its peers. We could see serious action from Maruti that sells M800 for $5200, Geely Auto of China that sells Merrie Star and S-RV mini SUV for $5500 and $5780 respectively. Also, Bajaj Auto has already jumped on to the band wagon of developing low cost cars to defend its customer base. Will Tatas capitalize on their first move advantage in the Indian markets? Can Tatas continue to show cost and product differentiation to maintain their sustainable competitive advantage? The Indian auto industry is set for interesting times.

Sources:
http://driving.timesonline.co.uk/tol/life_and_style/driving/news/article316
Tata Nano Impact Analysis by CRISIL Research