Monday, October 22, 2007

Dry Bulk Shipping.

Dry Bulk Shipping!!

Courtesy: Jim Crammer.

Nobody talks about dry bulk shipping stocks because they're boring. The money to be made on these stocks, however, is very exciting; they provide "huge and reliable dividends".

Dry bulk shipping stocks have risen enormously since July. "This industry is one of the great bull markets in the world right now".

Because dry bulk shipping companies don't invest in growth (they rarely build new ships), they pay a lot of dividends back to investors.

Even though investing in these stocks is "not sexy," sometimes you have to go for the easy money, and that's what dry bulk shippers offer.

These companies are consistent performers that pay big dividends.

Globalization and high demand for raw materials in China are behind bulk shippers' recent success. In addition, because dry bulk ships offer lower margins for shipbuilders, few of them are being made, so the ships are scarce. The high demand and short supply work together to drive up the price of this kind of shipping.

All of these companies are in the "sweet spot, but they can be grouped into two distinct groups that offer different scenarios to investors.

Scenario 1:

The first group of shippers is completely chartered out for the year, meaning that changes in the Baltic Exchange Dry Index, an indicator of the price of dry bulk shipping, will not affect the stocks' performance. Those companies have already booked their shipping in advance, so they offer steadier performance that doesn't depend on external factors. Conservative investors should opt for these companies.

Scenario 2:

Those shipping companies that have partially chartered their fleets have greater exposure to the Baltic index. Their prices will rise or fall based on demand for the goods they ship. Investors who can tolerate more risk should buy these stocks.

Peter Georgiopoulos, CEO of General Maritime and chairman of Genco.

To shed more light on dry shipping, Cramer welcomed Peter Georgiopoulos, CEO of General Maritime and chairman of Genco.

He asked Georgiopoulos if bulk shipping rates are currently sustainable and whether they have room to improve. Georgiopoulos compared the current dry cargo market to the period immediately following World War II, when iron, steel and cement had to be brought to Europe and Japan to rebuild the war-damaged countries. Citing a similar environment in today's China, he said he believes there is a lot of room for growth in the shipping market. He further asserted that shipyards are "locked up," and it could be as late as 2011 or 2012 before a new dry bulk boat is built, meaning that supply should not change any time soon.

Thursday, October 11, 2007

Introduction to Options Trading.

Introduction to Options Trading.


Like Futures, Options are derivative trading tools.

Option trading is more complex than Futures, but also offers more flexibility.

Options defined

Options, like Futures, is a contract for the purchase of a share at a future date and at an agreed price.

However, the critical difference between the two is that in Options you have the right but not the obligation to buy or sell the share. In Futures you will have to honour the contract.

Also, you don’t have to pay any money to buy a Futures contract (except for depositing a specified margin with the broker). But you have to pay some money to buy an Options contract. This is called the premium.

For example If you buy a Futures contract for Reliance shares at Rs 1,800 one month from now, you will have to honour the contract. So, if the price goes up to Rs 1,900 in the interim, you make a profit of Rs 100 and if the price falls to Rs 1,700, you make a loss of Rs 100.

Thus you could make huge profits or equally serious losses.
But, if you buy an Options contract, you have the choice of honouring or not honouring it.

Say you bought an Options contract to buy Reliance shares at Rs 1,800 one month from now by paying a premium of Rs 40.

And if the price goes up to Rs 1,900 in the interim, you make a profit of Rs 60 (Rs 1,900 – Rs 1,800 – Rs 40). But should the price drop to Rs 1,700, you need not fulfill the contract – you simply forgo your right to buy.

You have the right to do that. So, you don’t lose the entire money even if the price drops to zero.

All you lose is your premium of Rs 40. Thus Options is better than Futures as your loss is limited, but the gains are unlimited.

Three types of Options

These differ based on when they expire. However, apart from the date, there are two more dimensions to an Options contract:

§ If it is the right to buy option (aka Call Option), or right to sell option (aka Put Option).

§ The price at which you will buy the share (you can choose). These prices are called the strike prices.

Pricing of the Premium

An important part of buying an Options contract is your view.

For example, do you expect the price of Reliance Industries to fall or rise in the future? You will accordingly buy with a
Call or a Put Option.

You would also need to take a close look at:

§ The Premium that you have to pay to buy the Options Contract

§ The Strike Price of the Contract

The premium or price of a contract is based on a number of factors such as:

§ Price of the underlying share

§ Difference between strike price and current market price

§ Days left for expiry of the contract

§ Volatility of the underlying share

§ Interest rates

This complex interplay of factors can make an Option’s premium overpriced or underpriced. It is obvious that you should avoid an overpriced Options contract, because, the premium will fall to normal levels due to market forces and one can lose money, even if one’s view turns out to be right.

Therefore, understanding the premium is very important. This can be done through various parameters such as Delta, Gamma, Theta, Vega etc. A serious Options trader must study these before trading.

Strike price of the contract

Based on the strike price, Options contract are defined as:

§ In-the-money contracts: A Call Option is in the money if the Strike Price is less than the Current Market Price (CMP). Vice versa, a Put Option is in the money if the Strike Price is more than the Current Market Price (CMP).

§ At-the-money contracts: Both Call and Put Options are at the money if Strike Price = CMP

§ Out-of-money contracts: A Call Option is out of money if the Strike Price is more than the CMP. Vice versa, a Put Option is out of money if the Strike Price is less than the Current Market Price (CMP)

In a Call Option, if the Strike is less than the CMP, then the contract is in profit; and hence the term in-the-money. Accordingly, if Strike Price is more than the CMP, the contract is in a loss and hence out-of-money.

Usually one should trade in In-the-money or At-the-money contracts, as they move more or less in line with the movement of the underlying share. Out-of-money contracts may appear cheaper as the premium is low.

But they move less, and hence the profit potential is restricted. Also, if the share price doesn’t reach the strike price, you will have to forgo the contract and lose the premium.


§ Advanced trading strategies have been developed using a mix of Options and Futures instead of just buying simple contracts.

§ It is important to understand terms like Delta, Gamma, Theta and Vega to make an assessment to know if an option’s price is overvalued or undervalued.

§ Instead of buying, one can also sell contracts (called the Writer of contracts). But beware! The seller/ writer receives the premium and hence has the obligation to honour the contract.

His situation is, therefore, opposite to a buyer -- he is open to unlimited loss but only a limited gain. Only experienced and expert traders should get into selling/ writing contracts.

§ You need to learn to interpret the Open Interest, Put-Call Ratio, etc.

Tuesday, October 9, 2007

Futures Trading Vocabulary.

Futures Trading Vocabulary


Futures trading in commodity markets is a booming business these days in India. But not many people know the technical terms used in commodity futures trade. Check out below the technical jargons of commodity futures explained in simple language.

Arbitrage: The simultaneous purchase and sale of similar commodities in different exchanges or in different contracts of the same commodity in one exchange to take advantage of a price discrepancy.

Carry forward position: The situation in which a client does not square off his open positions on that day and carries it to the next day is known as the Carry Forward Position.

Cash commodity: The actual physical commodity as distinguished from the futures contract based on the physical commodity.

Cash settlement: A method of settling future contracts whereby the seller pays the buyer the cash value of the commodity traded according to a procedure specified in the contract.

Clearing: The procedure through which the clearing house or association becomes the buyer to each seller of a futures contract and the seller to each buyer, and assumes responsibility for protecting buyers and sellers from financial loss by assuring performance on each contract.

Clearing house: An agency or separate corporation of a futures exchange that is responsible for settling trading accounts, collecting and maintaining margin monies, regulating delivery, and reporting trade data.

Clearing member: A member of an exchange clearinghouse. All trades of a non-clearing member must be registered and eventually settled through a clearing member.

Convergence: The tendency for prices of physical commodities and futures to approach one another, usually during the delivery month.

Day trader: A speculator who will normally initiate and offset a position within a single trading session.

Default: The failure to perform on a futures contract as required by exchange rules, such as a failure to meet a margin call or to make or take delivery.

Delivery: The tender and receipt of an actual commodity or warehouse receipt or other negotiable instrument covering such commodity, in settlement of a futures contract.

Delivery period: The interval between the time when the warehouse receipt is given to the exchange by the seller and the time incurred by the buyer in getting this warehouse receipt is known as delivery period.

Derivative: A financial instrument, traded on or off the exchange, the price of which is directly dependent upon the value of one or more underlying securities, equity indices, debt instruments, or any agreed upon pricing index or arrangement.

Hedging: The practice of offsetting the price risk inherent in any cash market position by taking the opposite position in the futures market. Hedgers use the market to protect their businesses from adverse price changes.

Long: One who has bought futures contracts or owns a cash commodity.

Mark-to-market: To debit or credit on a daily basis a margin account based on the close of that day's trading session.

Open interest: The sum of all long or short futures contracts in one delivery month or one market that have been entered into and not yet liquidated by an offsetting transaction or fulfilled by delivery.

Position: A commitment, either long or short, in the market.

Price discovery: The process of determining the price level of a commodity based on supply and demand factors.

Price limit: The maximum advance or decline from the previous day's settlement price permitted for a futures contract in one trading session.

Settlement price: The daily price at which the clearing house settles all accounts between clearing members for each contract month. Settlement prices are used to determine both margin calls and invoice prices for deliveries. The term also refers to a price established by the clearing organization to calculate account values and determine margins for those positions still held and not yet liquidated.

Short: One who has sold futures contracts or the cash commodity.

Speculator: One who tries to profit from buying and selling future contracts by anticipating future price movements.

Spot: Usually refers to a cash market price for a physical commodity that is available for immediate delivery.

Squaring: The practice by which the goods sold in the market are bought back before the term ends to meet the cycle or the practice that the bought goods are sold before the term ends to settle the deal is called squaring. Here price or commodity is not exchanged, but only profit or loss.
Tick: The smallest allowable increment of price movement for a contract. Also referred to as Minimum Price Fluctuation.

Trade account: To trade in the Futures market the client has to register himself and open an account with the broking organization known as trading account.

Trading lot: Each commodity should be sold and bought in the Futures market at a specific quantity. These quantities are called trading lots fixed by the exchanges. For rubber and pepper it is 1 ton, while it is 1 quintal for cardamom.

Volatility: A measurement of the change in price over a given time period.

Monday, October 8, 2007

Introduction To Futures.

Introduction To Futures.


"Invest in equity with a long-term focus." How many times do we hear this but never heed it?

Guess not too often, since our tendency to time the market is high. What if your temptations get the better of you?

To indulge in the excitement of short-term trading, you can invest about 90-95% of your corpus in long-term ventures and give yourself just 5-10% for your short-term trade.

Thus, you can also balance risk and prudence.

With this approach you may not be able to buy a varied or large quantity of stocks. And should you want to buy and sell within the same settlement, you would hardly have any time for the stock to move and make money for you.

And you cannot short-sell a stock that you don’t own. This is where derivatives or Futures and Options (F&O), come in use.

What are Futures?

Futures is a contract that you will buy (or sell) the share of, at a future date and at an agreed price.

For example, let us say Reliance Industries is quoting Rs1,800 today, and you feel that the price will go up to Rs1,850 over the next one month or so. As usual, you can buy the shares and keep them.

Alternatively, you can buy a Futures contract, according to which you can buy Reliance shares one month from now at say Rs 1,805 (Futures prices are usually a few rupees higher/ lower than the spot price).

Why Futures?

Buying shares in the routine manner may not fetch you great returns if you don’t have large sums to play with.

If you buy Futures instead, you don’t have to pay the full cost. You just need to deposit a specified margin (usually 15-30% of the total value) with your broker.

If that margin is 25%, you will be able to buy about 44 shares (you would normally get 11) with your Rs 20,000, and make a profit of Rs 2,200.

Thus, you can leverage Futures to make much higher profits from your funds.

Caution: The reverse is also true!

Should the price fall by Rs 50, you stand to lose Rs 2,200, as compared to Rs 550, had it been delivery-based trading. So, bear in mind that this is definitely a high-risk, high-return game.

Other benefits

Apart from being able to trade larger volumes with the same amount of money, Futures offer other advantages too.

1. The Security Transaction Tax applicable on Futures contracts is much lower:

  • Delivery-based: 0.125% (both at the time of buying and selling)
  • Non-delivery based: 0.025% (only at the time of selling)
  • Futures: 0.017% (only at the time of selling)

2. The brokerages are also comparatively much lower for Futures/Non-delivery based trades vis-à-vis delivery-based trades.

3. Apart from making speculative trades, you can also use Futures to hedge or protect your profits.

For instance, if you bought Infosys shares two years back, you might have made good profits on them by today. However, you are not sure about the future and don’t want to sell for next two to three months.

In such a case, you can sell a Futures contract of Infosys.

If the prices fall, you will lose money on your shares, but make money on your Futures.
Vice-versa, if prices rise you will make money on your shares, but lose money in Futures.

Thus, overall you neither make nor lose money. You have protected your profits if prices fall. Though, of course, you will not gain if the price moves up.

4. You can also buy and sell shares through, say Nifty, in Futures, which you cannot in delivery-based trading.

Some rules

1. There are three Futures contracts available for trading at any given time. This is based on the date on which the contract will be settled and closed by the Exchange (called the expiry date). The Exchange has fixed this as the last Thursday of the next three months.

2. Futures contracts are settled in cash therefore there is no concept of delivery. So, if you have bought a Futures contract, you won’t get the shares; you will only get money if you have made a profit or pay money if it is a loss.

3. Similarly, if you have sold a contract, you won’t have to give shares (hence you can short-sell). Again, you will only get money if you have made a profit or pay money if it is a loss.

Though the contract is valid till the expiry date, the profit or loss is adjusted on the daily basis. Unlike shares, where you can trade even in one share or odd numbers, in Futures you can only trade in lots of 50, 100, 200 etc, depending on the particular share.

Quick tip

Short-term trading is extremely risky. However, you can mitigate it by following some important principles of short-term trading such as:

- Understand the scrip well.
- Put stop-loss/stop-gain limits.
- Do only a limited number of trades.
- Go with the market trend.

Friday, October 5, 2007

Patel Engineering Company.

Patel Engg Q1FY08 cons net profit up 34.46% at Rs 27.04cr
2007-07-26 13:14:10 Source :
As on 6-Oct-2007.
# Parameter Value Remarks
1 Price 493
2 PE 25
3 52 Week High : 510
4 52-Week Low : 290
5 Div 130
6 EPS 19
7 B/V 38

Patel Engineering Ltd., a civil-infrastructure construction company, has posted a 34.46 per cent jump in consolidated net profit at Rs 27.04 crore for the first quarter ended June 30, 2007 as compared to Rs 20.11 crore in the corresponding quarter previous year. Consolidated income from operations for the quarter rose 33.07 per cent at Rs 415.25 crore as against Rs 312.06 crore during the same period previous year. The earning per share (basic and diluted of face value of Re 1) for the quarter stood at Rs 4.54 as on June 30 , 2007 compared to Rs 3.72 in the corresponding quarter last year.

Order Book Position

As on June 30, 2007, company’s order book position stood above Rs 5,000 crore. As a part of its business strategy, the company continued to focus on niche areas and high margin business. Meanwhile, the company has pre-qualified for new projects worth in excess of Rs 6,000 crores as on June 30, 2007.

African Foray

The company has entered into the high-margin African markets and has bagged its first order worth US$ 153 million in Algeria from Agence Nationale Des Barrage Et Transferts (ANBT – Algeria). The project is in joint venture with M/s As-ka Insaat Construction Co, a Turkey based company. The work includes detailed design and construction of the dam under the Project Travaux De Construction Du Barrage De Mehouane Sur L’oued El-Guessar (Mehouane Dam). PEL has also floated a separate 100% subsidiary Patel Engineering (Mauritius) to tap new markets in Mauritius.

Real Estate

The company has floated a wholly owned subsidiary Patel Realities India Ltd (PRIL) for real estate development. The company currently owns more than 500 acres of urban land bank in Bangalore, Chennai, Hyderabad, Mumbai and other cities. The company plans to focus on residential and commercial development in these metros.

Management Comments

Sonal Patel, Whole Time Director, Patel Engineering said, “With the government’s expenditure on infrastructure increasing, we continue to remain bullish.” She also added, “Going forward, we intend to bid for projects on public-private partnerships and thus enhance our role as developer.”

On company’s foray into new markets, Mr. Rupen Patel, Managing Director, Patel Engineering Ltd, said, “We believe African markets have good potential over the next few years and the company is in process of finalizing bids for other projects in other African sub-continent including Mauritius.” He also added, “The company has bid for projects worth about $100-$ 200 million in Africa and is keen to acquire local construction firms in this region.”

Commenting on the real-estate business, Mr Pravin Malkani, President, PRIL said, “Going forward, we believe that reality business will bring strong cash flows which will then be used to further strengthen our core business and taking more BOT and independent power projects.”

Key takeaways from Patel Engineering concall

  • Patel Engineering posts 34.46% jump in cons net profit at Rs 27.04 crore versus Rs 20.11 crore YoY
  • Consolidated income from operations rose 33.07% at Rs 415.25 crore Vs Rs 312.06 crore
  • Revenues includes: 50% from Hydro projects, 30% from Irrigation and 8% from road business
  • As on June 30, 2007, company’s order book position above Rs 5,000 crore.
  • Company has pre-qualified for new projects worth in excess of Rs 6,000 crore as on June 30, 2007
  • Company bagged order worth USD 153 million in Algeria from Agence Nationale Des Barrage Et Transferts (ANBT – Algeria).
  • Floated wholly owned subsidiary Patel Realities India Ltd (PRIL) for real estate development.
  • Company currently owns more than 500 acres of urban land bank in Bangalore, Chennai, Hyderabad, Mumbai and other cities.
  • Real estate revenues starts reflecting from FY09
  • Working capital is of 150 days
  • Current cash at Rs 175 crore including Rs 100 crore from unutilised funds from FPOs
  • Rs 30 crore revenues from Joint venturs
  • Debt equity ratio - 0.70, current debt at Rs 500 crore plus.

Key highlights of the company

Robust order book.

Patel Engineering has a current order book of approximately Rs.50 billion spread across hydropower (55%), irrigation (28%), road and microtunneling projects (17%). The company's major thrust area is hydropower EPC projects. Patel would continue to remain focused on this. It has also diversified its order book towards road BOT projects as well as irrigation projects in India and other countries. The company expects to benefit from the Government's focus on increasing the contribution of hydropower to the total power generated in the country. It is already L1 in Rs.4 billion worth of orders.

Stable margin scenario.

Patel Engineering enjoys very good margins as compared with other construction players due to its focus on the higher margin hydropower construction projects. Hydropower projects have operating margins in the range of 17-22% while irrigation projects have margins in the range of 7-15%. Road projects have relatively lower operating margins of 5-7%. Portfolio diversifications, larger scale of operations and variable pricing clauses have enabled the company to hedge against any kind of margin decline. For a particular quarter, margins depend on the specific projects executed in the corresponding period. However, we expect the company will be able to maintain operating margins in the range 13.5% for the full year, going forward.

Venture into thermal IPP project.

The company has signed an MoU with the Government of Gujarat to set up a thermal power plant of 1200 MW, entailing an investment of Rs.50 billion. The electricity generated will be sold to power traders, captive consumers and state governments. The company is currently in the process of land acquisition, tying up coal linkages outside India and getting clearances from the Government. We do not expect returns from the thermal IPP project to come in the near term. However, this foray is likely to result in enabling the company to emerge as an independent power producer in the long run.

Patel Engineering, a civil engineering company with specialisation in complex infrastructure projects including dams and micro tunnelling, is moving ahead to acquire large coalmines in Indonesia and Africa, according to market grapvine.

Valuation and recommendation

With a current order book of approximately Rs.50 billion, we expect the company to

grow its revenues at a CAGR of 30%. At the current market price of Rs.398, the

stock is trading at 21.7x and 17.3x on P/E multiples on FY08 and FY09 estimates,

respectively. Adjusted with the subsidiary and land bank valuations, it is trading at

14.3x and 11.4x on P/E multiples on FY08 and FY09 estimates, respectively. This

is very attractive.

We maintain our estimates and upgrade the stock to BUY from HOLD with a price

target of Rs.485. Our price target is based on the sum of DCF value of the core

business, subsidiary valuation and land development valuations arrived through NPV methodology on FY09 estimates. Our target price provides an upside of 22% from the current levels.

India's Patel Engineering Ltd said it has won an order worth 4.28 bln rupees from National Thermal Power Corp Ltd for a hydroelectric project in the northern Indian state of Uttaranchal.

Q: How has your net profit and sales growth been?

A: Sales is up by 33% on a consolidated basis and net profit is up almost 35% this quarter compared to last quarter.

Q: Would you therefore say, that there was an improvement in margins?

A: There has been a slight improvement in margins. What you see right now is the order book come into play. We were extremely happy that the order book this quarter has exceeded our expectations, and the order book today stands in excess of Rs 5,000 crores, out of which over 50% is hydro work.

Q: If you have to compare this order book to a year ago, how much has been the growth in an annual term?

A: In the past three-years, the order book has been growing at a compounded rate of almost in excess of 40%.

Q: What lead time would this Rs 5,000 crore order book require to finish it?

A: About 2.5-3 years is the lead-time, if you see the order book pan out and play out. If Patel does not take any more work, then the company would at least grow a minimum of 25% to execute the existing order book. But like I said earlier, the intake of orders has far exceeded the expectation this quarter.

Q: You have said earlier that you expect an order intake of about Rs 2,000 crores for FY08, would you like to up that bar?

A: Yes I may in the coming months, because this quarter has been extremely good in terms of intake.

Q: Give us an idea about Michigan Engineering, which you acquired? What prospects do you have from there?

A: Michigan Engineering is a small company. Since the acquisition has been almost 100%, the turnover of Michigan Engineering has in FY07 close to Rs 50 crores and I expect more than 50-70% growth on top line.

The Michigan order book is close to Rs 90-100 crores right now and I expect that there is at least about Rs 400 crores of micro-tonne work, which is likely to come up this year for which Michigan will get a sizeable amount, because they provided end-to-end solutions.

Q: Your operating margins a year ago in the same quarter was 11%, how much would it be now?

A: This year the operating margins are almost the same, but when you look at the last quarter, we got orders of Rs 1,700 crores in hydro and we are mobilising those sites. So if you take those costs, profit and margin have remained stagnant in spite of huge spending on infrastructure mobilisation.

Courtesy(9 Oct, 2007):

Patel Engg abuzz with land bank talk The stock of Patel Engineering has been moving up on the bourses on talk that the company is getting its land bank valued by global real estate advisors DTZ and global property professionals Knight Frank. The company is reportedly getting around 1,200 acres in Mumbai, Bangalore, Hyderabad and Chennai valued at Rs 300 per share. Company officials were unavailable for comment. The company, which is due to announce its results on October 14, is expected to report robust numbers. Analysts are expecting a 40% growth in net profit. Analysts point out that if one were to alienate the land price, the company’s current PE falls well below the industry PE of 30. The stock of Patel Engineering ended the day at Rs 474.40 on BSE, down almost 4%. The stock has seen a 4% gain over the past week.

IT mid-caps, drug cos near lows.


While the market has been hitting new highs practically every day since the Fed rate cut, there are quite a few stocks which are trading close to their 52-week lows. Not surprisingly, the list includes mid-cap IT shares. Mindtree Consulting Ltd, Subex Azure Ltd, Geometric Software Solutions Co., Kale Consultants Ltd and Megasoft Ltd are all less than 2% away from their 52-week lows.

Most IT analysts had downgraded mid-cap IT shares last month on fears of a slowdown in the US. In a report last month, JPMorgan Chase pointed out that mid-cap IT firms would have a higher negative impact in the event of a US slowdown, essentially because large-sized companies enjoy better bargaining power, have more diversified service offerings and have superior relationships at the boards of clients.

With the rupee appreciating further in the past month, the situation has only worsened for mid-cap IT shares. Most of these companies have operating margins of less than 20%, unlike their large-cap counterparts. Thus, the drop in margin owing to the appreciating rupee leads to a higher drop in their profit. In the September quarter, the rupee appreciated by 13% over the year-ago quarter. Every percentage rise in the rupee hits margins by roughly 50 basis points, which essentially means a hit of 650 basis points.

For a company with an operating margin of 13%, profit would halve owing to the 6.5% hit (assuming all other factors remain the same). But for someone like Infosys Technologies Ltd, which has margins of 26%, profits would fall only by a quarter.

Interestingly, the list also includes some pharma companies such as Aventis Pharma Ltd, Merck Ltd, Unichem Laboratories Ltd and Cadila Healthcare Ltd. Pharma analysts say that there isn’t anything inherently wrong with the sector, but it’s just that it’s not hot enough for the markets currently. Unlike industries such as infrastructure where large capex and huge order wins are a routine affair, the pharma industry is too low-key to attract the markets’ fancy. Most companies in the sector are expected to grow earnings by over 20%, but earnings growth or fundamentals aren’t the issue.

It’s just a lack of preference, or “sentiment”, as market participants put it.
Another sector that has lost favour is retail. Pantaloon Retail India Ltd’s shares have done well lately because of its plans to sell shares in its subsidiary companies and unlock value for shareholders. But both Trent Ltd and Shoppers’ Stop Ltd are less than 5% away from their year’s lows. The market’s lack of interest in these companies reflects the concerns about increasing competition. Pantaloon recently reported that core profit (before tax) halved to Rs10.5 crore in the June quarter which, according to analysts, was primarily because of higher competition.

Auto component shares such as Sundram Fasteners have also underperformed, which is not surprising given the drop in auto sales lately. But what’s surprising is that auto stocks themselves are at least 25% higher compared with their lows. Analysts say that while auto component shares are reflecting the underlying realities in the auto space, shares like Tata Motors Ltd and Bajaj Auto Ltd are being propped up because of high trader interest, especially in the derivatives segment.

FIIs finally go short
After taking long positions worth Rs25,975 crore in the cash and futures segments in just 10 trading sessions, foreign institutional investors took net short positions for the first time since the Fed rate cut. On Thursday, their net short positions in the futures segment amounted to Rs2,411 crore, more than offsetting the net purchases worth Rs575 crore in the cash segment. Foreign institutional investors also do arbitrage trades on the cash and futures segments, so it makes sense to look the net long positions being taken. The net short position on Thursday explains why the market ended its record 11-day winning streak. While it’s early to see whether FIIs applied the brakes, it does look as if their exuberance over Indian stocks would be tempered. The share of index derivatives in total turnover has risen to 34% in the past three trading sessions, from a low of 25% in the preceding two sessions. The increasing volatility in the markets seems to have caused traders to look at hedging their market positions. It also points to the fact that fewer people now expect the markets to be a one-way street.