HOSTILE TAKEOVER: SMALL INVESTORS CONCERN

The upward movement of the Indian Stock Market is unabated; sometime it is scary as a small investor to be there, in front of the computer. Capitals of all forms and from all types of sources are entering in the market. It seems the flow will continue for some more times. The recent entry of some Pension indicates the robustness of Indian Stock Market. Some of these funds are well managed and proactive. They generally do not allow Corporate Houses to fiddle and they demand results. We are entering into a more matured stock market scenario in near future.

 

Hostile takeover in our market is virtually non existent, though it is a norm in developed markets. In many cases the hostile takeovers are welcomed by small investors, as they result in matured pricing of a stock.  Recently, there was a rumour of potential take over of Hindalco by a multinational corporation. It is scary not only for the small investors at this dizzy height but also to the corporate houses. The phenomena of hostile takeover will be reality in the coming years.  

 

The leading corporate houses are taking pre-emptive steps by increasing stakes in their companies. Though it is seen as to leverage the India growing story and exercise greater control in the companies; it will act as effective shield against hostile takeover too. I will furnish some figures in the table below which will tell stories if analyzed.

 

Corporate house	Company	Promoters holding % (June-07)	% increase in last one year
ADAG	Reliance Communication	66.75	24.52
ADAG	Reliance Capital	52.40	16.95
ADAG	Reliance Natural Resource	49.95	4.89
ADAG	Reliance Energy	35.90	30.90
Mukesh Ambani	Reliance Industries	50.98	1.15
Tatas	Tata Steel	33.77	6.89
Tatas	VSNL	76.24	4.72
Tatas	Indian Hotel	29.17	0.77
Tatas	Tata Tea	35.40	6.45
Tatas	TCS	79.12	-4.57
Bajaj	Bajaj Hindustan	40.90	3.19
Bajaj	Bajaj Auto	30.11	0.33
UB	United Spirit	38.10	1.78
OP Jindal	Jindal Stainless	42.56	1.98
OP Jindal	JSW Steel	46.43	1.28
Infosys	Infosys	16.54	-2.87
Satyam	Satyam	8.79	-0.39
Wipro	Wipro	79.58	-1.51
HCL	HCL Technologies	67.55	-1.75

 

The new equation of ownership may effect small investors, because in India the management and the promoters are same unlike other developed markets.

 

The increase in stake may dissuade potential take over premium of the stocks where the promoters are holding majority interest of the company. But at the same time the promoters will be at bay as they will always under pressure from those FIIs in addition to small investors best freind SEBI.

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SHOULD WE BUY STOCK NOW?

Right now Indian stock market is presently second most costly than only to Chinese stock market. The unprecedented capital flow in all possible form is worrying our market regulators. Even the P-note scare could result in a small flicker in the up and up going Sensex graph. Probably the market is over heated as some experts are saying. But any case it is certain we are in a long term Indian Bull Market.

It is difficult to make a buy call when the stock market is at all time high, and when the input news is of mixed kind. We have two choices in front of us if we have some cash waiting in our pocket to invest in stock market. The first choice is to wait for a market correction which is being predicted by many pundits or the second choice is to just take the plunge (or buy at the present rate).

To me both the above cases are extremes on opposite sides. If one waits for a market correction which may even come after a good rally of another few thousand points, may prove to be costly to the investor as he will miss the run of the market. Even the correction at that point may not be deep enough that will see the market lower than the present level. In any stock market 10-15% correction is a good correction.

And as in the second case, after buying at present level the market may tank (again 10-15% correction) and it will take some real long time to come back to present level. The buyer will have some agonizing time if he invests all his monies right now.

It is a matter of conviction, if we believe that we are in a strong Bull Run than the situation will be as follows:

In any bull market it is always a buy proposition for any buyer. We are going to find our market at higher level after the gap of a certain time. Especially those stocks with strong fundamentals, strong order book or in the right sectors. If one decides to enter market he can invest at any point of time, say one invests 50% of his capital in his stocks of choice, and may take the opportunity of any correction (10-15% correction of the index) to invest rest 50%. If the correction is elusive then invest another sum of 25% of his capital in the same stocks after every price rise of 25% of his stock. This way the buyer will always have his stocks at lower value than the market price at the same time will not miss the present Bull Run.

It will be a pity if one misses the present Bull Run by sitting in the side line. This run may not be repeated in future as all factors favours Indian Stock market right now.

Footnote: Stock market is again all about conviction of the investor. My conviction, yes we are in a strong Bull Run of Indian Stock Market and it is due to followings:
There are many theories after the North American sub-prime crisis that all the emerging markets are poised to fall as the cash starved American shoppers will feel the pinch in due course. But probably not the Indian stock market, as the 1.1 billion consumer of domestic market will provide an effective shield against any financial instability world wide. The calculated reforms in the Indian financial sectors have resulted in a very stable economy which is yielding results at present. Indian domestic market is getting bigger as the per capita income will cross $1,000 within this year. Our domestic savings is highest if we compare with developed countries. We can look forward to sustainable growth rate above 10 percent by 2011 if we further liberaralise our labour market, as concluded by a study by “Organization for Economic Co-operation and Development”.

I suggest reading the following article: In the Comfort Zone: by George Wehrfritz and Jason Overdorf. Newsweek, October 22, 2007

HIGH P-NOTE EXPOSURE STOCKS

The recent clamp-down on P-note by Market Regulator has mixed reactions from different quarters. The stock market is going topsy-turvey on this issue for last few sessions. We all are confused along with the Indian Stock Market how to deal with this particular issue at hand. But anyway kudos to Regulators.

Probably we will be well off if we know the stocks where P-note exposure is high, I have come across such a list from a well known Blog (Investment Guru), I could not resist to note the stocks which he has shown as having high exposure to P-note.

India Bulls Financial Services
ICICI Bank
HDFC
Bharti Airtel
Reliance Capital
Reliance Energy
Financial Technologies
SAIL
IVRCL Infra
Gateway Distripark
Aptech
BHEL

To quote the statement "this is not an exhaustive list". Link:here

Now what to do in such a scenerio? To me for investors there is absolutely no sense to press the panic button. The P-note have eighteen months time to wind up, but only concern is for the so called market operators, they are already and will be out there in the market to skin unsuspecting small investors. The following three steps will help the small investors in the present scenerio

1. Do not indulge in short term trading. No fresh long term buy.
2. Do not empty up your stock portfolio, specially those family silvers.
3. Bottom fishing is ambiguous term, one can not time the market, we should keep in mind.

We small investors are better off if you compare with those fig fishes. We can hold back our positions till sunny days ahead.

SENSEX : POISED FOR CORRECTION?

There are two developments which may effect the Indian stock market on 17 th October 2007.

Firstly official from the Ministry of Finance said that the recent inflow of foreign money into our market is due to "Inflows are high as foreign institutional investors find Indian shares attractive" and "It is also because of the interest rate differentials". Link: News.

This is a statement made to control the damage from the statement made by Finance Minister Mr. P. Chidambaram. Link: News, earlier post.

And secondly SEBI is trying to control of Participatory Note participation in our market. The P-note is a derivative product used by overseas operators to protect their identity and the ease of entering and existing any market. Mostly the P-note is used for short term investment in market.
Read SEBI's Paper on the P-note here.

Many pundits beleive that the recent bull run of our market is also fuelled by the P-note phenomena to some extend.

We should be prepared to any kind of market reaction for both the above developments.

CONTROL SENSEX: JUSTIFIED MOVE?

One week is a long time in stock market, I took a break for one week and it crossed two mile stones (1800 and 1900). Though I still believe Sensex is just another set of numbers, we have some emotional values attached to it. It was pleasant to find the power stocks are powering their way up. It seems there is no end to FII flows which reminds me of a magic trick we all enjoyed during our childhood, the never ending “Water of India”. Sensex is going to cross 20000 in this very run ("19,300" just another number). May be some correction is in its way. News report.

The sheer pace of market movement has some element of doubts; at least our Finance Minister Mr. P. Chidambaram believes so. At the summit of Hindustan Times he showed his reservations and suspicion on how the movement of Sensex sometimes surprised, and sometimes worried him. He talked about the ‘copious inflow of funds from a number of sources’. It is always better to be cautious. But what about too much of it? Agreed that at the helm of affairs he has some responsibilities, especially to those small investors who invest their ‘life’s in the market. But those words in a forum are not exactly what were expected from him, it is no less than manipulating the stock market, trying to stop the natural market movement. Another report in CNBC (Payal Bhattar) says the market regulatory bodies will have two sittings per month as against one earlier. It seems he is really concerned to find a skeleton in the cupboard. Though I have my own doubts on his suspicions I have no objection to the regulatory bodies to be proactive.

Some experts are sure the market movement is due to robustness of our economy and the checks our regulatory bodies have put in place, copious monies can not simply play any major role in market manipulations. It is also believed by major section of small investors that our stock market has started its movement only now and it has unbound potential to go up and up and up. Remember Mr. P. Chidambaram is an economist of his own repute, and there are lot many who shares in his above observations.

The market will go up, the bull run as we all believe is there to stay for some more times, still we are to go slow and not be that greedy to put our life’s into the market.

Check the Sensex graph, may be another correction is in its way.
Disclaimer: I am not a technical analyst.

POWER SHOWS: MARKET THIS WEEK

Last week is to be marked for two reasons; first the index is just a whisker away from another milestone (Sensex: 18,000) and for the extreme volatility at this high valuation.

Secondly, the phenomenal rise of a dormant sector after a very long time, the POWER sector. Almost all the power stock surged ahead anticipating better market viability after the Power Grid Corporation of India made its debut in stock market (at a premium of 93.5% over issue price). Let us look at the followings and believe the appreciation in the last week only,

Reliance Energy by 20.12%
Tata Power: 10.52%
CESC: 15.76%
Suzlon: 13.79%
GVK Power by 2.3%

ADAG is talking about the mega issue of Reliance Power; so the street is now busy with Power play. Let me note a few figures down here

India’s per capita power consumption is 606 units per annum, a dismal low figure.
90,000 MW new generation capacity will be required in next seven years (we have 135,000 MW now).
Rs 8,00,000 Crores investment opportunity will be there.
Government is emphasizing in this sector.

May be Power merits some investment from the small investors? It is now correct to say “Power shows”. (Word of caution: Power stocks may correct after its too fast run.)

The volatility ensured the market to appreciate only reasonably in last week, Sensex by 2.79% and Nifty by 3.28%, CNX Midcap is laggard by only 0.63%.

Is the extreme volatility a sign of an impending correction?

To put down a hopeful statement “small and meaningful correction” is the best scenario for small investors.
Political issues on Nuclear Deal with United States (another Power story for a power starved nation like India) are proposing to take the shape of a snow ball. Statements are running thick and hard. Caution is prescribed for small investors, book some profit.

If the market corrects itself, small investors can buy some power stocks like Reliance Energy , Tata Power, NTPC, Power Grid Corporation of India etc at lower price. Note: RNRL may have some hidden story in the present Power sector story.

Bankex took some breathers fearing CRR hike last week. CRR hike now is ruled out by experts and downplayed by authorities. Look in that space too; SBI and Centurion Bank of Punjab may have some aces in its sleeve (some block deals last few days).

I should not forget to thank my friend “Greta”; she changed the layout of my blog.