Stocks to watch out for

1. Man Industries
Man Industries is a major Saw (submerged arc welded) pipe manufacturer with two plants at Anjar (Gujarat) and Pithampur (Madhya Pradesh). Saw pipes are used for cross-country transport of critical inputs, mainly oil and gas.
Over the next 3-4 years, global demand for Longitudinal Saw/Helical Saw pipelines is estimated at 2 lakh km, including 20,000 km in India.
Prospects for the company look good. It has an outstanding order book of Rs 1,250 crore of which Rs 850 crore are for exports and the rest for the domestic market. It has managed a Rs 400 crore export order to supply LSaw pipes and participated in bids amounting to about Rs 2,000 crore. It expects a success rate of around 20 per cent.
Prices of HR plates have not gone up much (about $750 per tonne X-65 grade) and the company has ensured availability for its entire requirements of plates to cover its existing orders.
Its new plant at Anjar commenced full-fledged commercial production in October 2005, benefits of which will accrue going forward. The stock is worth buying with a price target of Rs 250.

2. Era Constructions
Era Constructions India (ECIL) is a fast-growing mid-sized construction company and a beneficiary of large scale construction activity across sectors like roads, railways, ports, airports, power projects and commercial complexes.
ECIL is increasingly focussing on high margin industrial projects, where timely completion and delivery are critical.
ECIL has lined up several other growth drivers over the near and medium term like pre-engineered building materials, export of structural and allied designs and real estate development.
Group company, Era Metal Building Systems makes pre-engineered building material, which are used in non-residential projects such as industrial plants, railway stations and airports.
They form the core of the superstructure and are fabricated separately even as foundation work is going on at the site.
Thus, a project gets completed in half the time, six months instead of a year.
ECIL has also set up a 100 per cent EOU for structural and allied designs. Here it plans to undertake designing assignments for exports.
To begin with, ECIL plans to tap the Middle East and the UK markets for its products. Contribution to revenues from this division in FY07 is likely to be about Rs 40 crore.
ECIL has a 12 per cent stake in Era Infrastructure. This company develops real estate and has about 400 acres of land. The promoters have a target of increasing the land bank to about 1,000 acres. ECIL also has a small stake in Era Financial Services, which plans to operate multiplexes.
In February 2006, ECIL concluded a GDR issue which has strengthened its net worth by Rs 190 crore to bid for big-ticket projects. The stock is recommended with a price target of Rs 400.

3. Mahindra Ugine Steel
There are two main investment arguments for Musco. First, a transformation from a pure alloy steel company to a sheet metal stampings outfit and second, integration into Mahindra & Mahindra's (M&M) ancillarisation initiative MSat (Mahindra Systems & Automotive Technologies).
In FY06, Musco completed its merger with Pranay Sheetmetals (a stamping unit at Nashik), Valueline Hotels & Resorts and Console Estate & Investment.
Operating margins are up from 16 per cent in FY05 to 19 per cent in FY06 and net profit adjusted for extraordinary items is up 26.5 per cent. Following the merger, Musco issued about 15.5 lakh shares to shareholders of Pranay.
As a result, equity is up from Rs 30.93 crore to Rs 32.48 crore. Post preference dividend, EPS stands at Rs 18. For FY07, we expect an EPS of Rs 22. At the current price of Rs 104, the stock is trading at a P/E of 4.7x FY07E. Even the dividend yield is a healthy five per cent. We recommend the stock with a price target of Rs 200.

4. Venus Remedies
This R&D company makes drugs to treat tumours. It has filed five international patents and six domestic patents. Its products, based on combination therapy in the cephalosporin space, have been successful. We are confident that the company will deliver 100 per cent CAGR in topline and bottomline till 2010.
The 100 per cent subsidiary in Germany is close to getting a German GMP certification that would be valid in EU, Japan and Latin American countries.
Exports generated about 17 per cent of the revenues in FY06 and it currently exports to about 13 countries, primarily to the CIS. We believe the company can become an outsourced manufacturing company for foreign multinationals by next year.
In our view, the current P/E of less than 6x FY07E earnings, does not adequately discount the future cash flow.
Venus posted good results for FY06. Sales increased by 170 per cent to Rs 92.1 crore, while net profit shot up by 311 per cent to Rs 8.4 crore. It has also tied up with three more domestic pharma companies, namely Wockhardt, Indoco Remedies and Alembic.
The management has given a guidance of a 50 per cent topline growth in FY07. We recommend a "buy" with a target price of Rs 693, almost 3x its current market price.

5. Asian Electronics
This energy saving company (Esco) manufactures lighting products that save energy. Asian Electronics (AEL) sells T5 retrofit and street lights.
Currently with more than a Rs 350 crore order book, the company will supply CFL lights to households in Maharashtra through MSEB for which payment will be collected on a monthly rental basis. We expect doubling of net profit in FY07 to over Rs 50 crore. The stock is available at less than 7x FY07E earnings.
The government has mandated establishments with power requirements above 500 KW to cut their energy bills by 30 per cent over the next three years and directed companies to install energy efficient equipment.
The management is focussing on both organic and inorganic growth. It has taken over Raymolds Lighting which enjoys a significant market share in the retail malls segment in India. We recommend a "buy" with a target price of Rs 700 for the stock.

6. Lloyd Electric
The company manufactures heat exchanging coil for air-conditioners and has now gone into forward integration to manufacture air-conditioners for Samsung and LG from its Himachal and Uttaranchal plants. It has tied up with an Australian company to manufacture ACs for the Delhi Metro.
In addition, the company will manufacture heat exchanging coils for refrigerators for which technological knowhow will come from a Korean company in the frost-free segment. We believe that the stock has over 150 per cent appreciation potential.
The company has increased its capacity to assemble ACs to 2 lakh units per year in FY06. The company is utilising its Kala-Amb plant primarily for contract manufacturing and has customers like Samsung, Electrolux and Carrier.
It is setting up another manufacturing plant to assemble ACs, with 2 lakh units per year capacity in Dehradun. After commissioning of this plant, we expect revenues and profits to grow significantly, as this plant too will have excise and tax benefits. We recommend a "buy" with a target price of Rs 293.

7. HEG
It is the world's fifth largest company in the graphite sector. The major demand driver for its graphite business is the increase in steel production through the electric furnace route, which accounts for 35 per cent of the total steel produced.
Demand from both, blast and electric furnace, is growing at 4-5 per cent globally per annum. The incremental demand is 40,000-50,000 tonnes and HEG, as well as its Indian peer, Graphite India, have expanded capacities to meet the same.
Moreover, the export prices this year are about 20-22 per cent more than the previous year. The growth in FY07 is expected to be high.
We expect the topline to touch Rs 850 crore in FY07 and the PAT is expected to reach Rs 107 crore. The first two quarters of the year should be good and we see a P/E of 5x on FY07E.
The company has ventured into the steel billets business and is integrating it with its sponge iron business. This has been a drag on the company's numbers. We recommend a "buy" with a target price of Rs 228.

8. Subhash Projects
This mid-sized construction company has a Rs 2,300 crore order book, which is to be executed over the next 24-30 months.
The EBITDA for the industry is growing at 8-10 per cent, while it is a bit lower for this company at about 7.5 per cent. We see a P/E of 9x on FY07E earnings, while it is about 15-17x for its peers FY07E.
Moreover, the government has accelerated infrastructure spending in various sectors like power, airports, transmission & distribution, irrigation and water-related projects.
The BOT model is favoured for highway projects to encourage private sector participation. Total spending by the central government has improved to over $150 billion in the 10th plan from $90 billion in the 9th.
The company has key capabilities in executing water-related projects and electrical T&D projects for renovation & modernisation (R&M) of current power infrastructure and rural electrification (RE) projects.
The current order book is distributed between water-related projects including irrigation (63 per cent) and T&D projects (37 per cent). We recommend a "buy" with a target price of Rs 294.

9. BOC India
The Q4 numbers for this company, engaged in the manufacture of gas cylinders, were good. Moreover, it has recently signed a two-year gas supply contract with JSW Steel for supply of over 3,000 tonnes per day of gaseous oxygen, nitrogen and argon to meet the latter's demand for gases arising from the expansion of their steel making capacity at Bellary.
We expect a P/E of 10x on FY07E earnings, which is cheap considering its MNC credentials. With the takeover process of parent company--BOC Plc--by Linde AG in progress, an open offer is expected.
The focus on India in this business is increasing with the expansions happening in the steel sector. Investors with a long-term horizon of 2-3 years should hold on to the stock as the prospects of BOC India are good.
Short-term investors can exit if the open offer is priced between Rs 230-250. We recommend a "buy" on this stock as it holds potential.

Stocks you can pick up this week - ET

Cummins India
Research: JM Morgan Stanley
Recommendation: Buy
CMP: Rs 164.25(Face Value Rs 2)
12-Month Price Target: Rs 228

Cipla Research: CLSA
Recommendation : Buy
CMP: Rs 210.35 (Face Value Rs 2)
12-Month Price Target: Rs 280

AIA Engineering Research: Enam Securities
Recommendation: Outperformer
CMP: Rs 528.30 (Face Value Rs 10)
12-Month Price Target: Rs 700

Tata Teleservices (M) Research: IL&FS Investsmart
Recommendation: Buy
CMP: Rs 18.00 (Face Value Rs 10)
12-Month Price Target: Rs 55

12 rules that can save you further losses - MC

With the markets sliding leaps and bounds, you need to keep your calm and find ways to cushion the free fall. In a book review of Zurich Axioms, our expert Kanu Doshi, talks about 12 strategies that can help you reduce your loss. Reviewer's Note: The author (Max) son of a very wealthy Swiss citizen by name, Franz Heinrich, (whom Americans preferred to call Frank Henry), jotted down all the principles of speculation strategies, particularly in stocks, adopted by his father and his father's several other Swiss friends to make large fortunes on the Wall Street in USA in roaring Eighties. Principles perfected by these Swiss gentlemen have therefore been called "Zurich Axioms" by Max.
Enumerated below are twelve major principles and sixteen minor ones with brief comments by Kanu Doshi on each of them:
First Major Axiom: On Risk “Worry is not a sickness but sign of health. If you are not worried, you are not risking enough.”Adventure is what makes life worth living. Every occupation has its aches and pains. The rich have to worry about their wealth. But, if there is a choice between remaining poor and worry-free, the selection is obvious. It is better to be wealthy and worried than to be worry-free and poor.
Minor Axiom I: “Always play for Meaningful Stakes.”If you invest Rs. 1000 and your investment doubles, you have only Rs. 2000 and are still poor! So if you want to be rich, you must increase your stakes.
Minor Axiom II: “Resist the allure of diversification”. Firstly, diversification negates the earlier principle of playing for meaningful stakes. Secondly, it may keep you where you began so that your gains on few will cancel out the losses on the other few. Thirdly, it entails keeping track of many more items leading to confusion and occasional panic. Second Major Axiom: On Greed “Always take your profit too soon.”Lay investors having made the investment tend to stay too long on it out of greed for higher profits. But, one must conquer this weakness and book profits soon. If one is less greedy for more profits one will take in more. Don't stretch your luck. In effect, it suggests, SELL sooner than later.
Minor Axiom III: "Decide in advance what gain you want from the venture, and when you get it, get out. Decide where the finish line is before you start the race".
This is self explanatory and hence needs no comment.
Third Major Axiom: On Hope “When the ship starts to sink, don't pray, jump”This axiom is about what to do when things go wrong. Learn how to accept a loss. One should accept small losses to protect oneself from big ones. When the market starts falling, sell, take your money and run!
Minor Axiom IV: "Accept small losses cheerfully as a fact of life." Expect to experience several smaller losses while awaiting a large gain.
Fourth Major Axiom: On Forecasts"Human behavior cannot be predicted. Distrust anyone who claims to know the future, however dimly." The story of a monkey throwing darts on the stock exchange page of a newspaper, to select the companies to buy, and coming out a winner is too well known to be recited. Recent news from London, further proves the truth, when an untrained chemist's stock selections, in a widely publicised contest open to all and sundry, registered higher appreciation over several full time highly qualified fund managers' well researched selections. Human events cannot be predicted by any method by anyone and, hence, don't trust anybody's predictions.
Fifth Major Axiom: On Patterns "Chaos is not dangerous until it begins to look orderly." The truth is that the world of money is a world of patternless disorder and utter chaos. This axiom is a commentary on Technical Analysis - a branch of investment strategies based on charts and patterns. The fact is, no formula that ignores own intuition's dominant role can ever be trusted.
Minor Axiom V: "Beware the Historian's Trap". This is based on the age old but entirely unwarranted belief that history repeats itself.
Minor Axiom VI: "Beware the Chartist's Illusion". Life is never a straight line. Let us not be hypnotised by a line on a chart.
Minor Axiom VII: "Beware the Co-relation and Causality Delusions." Don't be taken in by coincidences in the market.
Minor Axiom VIII: "Beware the Gambler's Fallacy." There is a gambling theory which suggests that one should put small stakes initially and test their luck, and if these turn out well one should go for big stakes on the dice table. But this is not correct. It only shows that winning streaks happen. But nothing is orderly about it. You can't know how long it will last or when it will strike. Sixth Major Axiom: On Mobility "Stay away from putting down roots. They impede motion". You may feel socially comforting to have roots. But in financial life, roots can cost a lot of money. Have a flexible approach while investing. This axiom implies a state of mind.
Minor Axiom IX: "Do not become trapped in a souring venture because of sentiments like loyalty and nostalgia." Do not develop emotional attachment to your investment. You should feel free to sell when desired.
Minor Axiom X: "Never hesitate to abandon a venture if something more attractive comes into view." Never get attached to things, but only to people. Otherwise it hits your mobility. Never get rooted in an investment. You should remain footloose, ready to jump away from trouble or into a profitable opportunity as and when circumstances demand.

Seventh Major Axiom: On Intuition 'A hunch can be trusted if it can be explained.' A good hunch is something that you know but you don't know how to recognise it. When a hunch hits you, try to locate some data in your mind for any familiarity. Then only should you act on it.
Minor Axiom XI: 'Never confuse a hunch with a hope'. Be highly skeptical. Examine every hunch with extra care.
Eight Major Axiom: On Religion and The Occult'It is unlikely that god's plan for the universe includes making you rich'. You can't only pray that you should be made rich. You will have to work at becoming rich. Mere prayers will not suffice.
Minor Axiom XII: 'If Astrology worked, all astrologers would be rich.' This is self explanatory. Don't trust predictions.
Minor Axiom XIII: 'As superstition need not be exorcised, it can be enjoyed provided it is kept in its place.' In your day-to-day financial matters, act rationally. But, when buying a lottery ticket, give it a full play to amuse yourself.
Ninth Major Axiom: On Optimism and Pessimism 'Optimism means expecting the best, but confidence means knowing how you will handle the worst. Never make a move if you are merely optimistic.' In poker and a lot of other speculative worlds, things are never as bad as they seem - most of the times they are WORSE.
Confidence comes not from expecting the best but from knowing how you will handle the worst. Optimism can be treacherous because it makes you feel good.
Tenth Major Axiom: On Consensus 'Disregard the majority opinion. It is probably wrong'. It is likely that the Truth has been found out by a few rather than by many.
Minor Axiom XIV: 'Never follow speculative fads. Often, the best time to buy something is when nobody else wants it.' This is the best way to get a good stock cheaply.
Eleventh Major Axiom: On Stubbornness 'If it doesn't pay off the first time, forget it'. If at first you don't succeed, try and try again and you will succeed in the end. This is good advice for spiders and kings but not for ordinary persons with regard to financial matters. Every trial is a costly error.
Minor Axiom XV: 'Never try to save a bad investment by averaging down.' If the price of the stock goes down after your purchase don't buy more to bring down' the average cost of your total holding. Investigate why the price went down rather than put good money in a bad bargain.
Twelfth Major Axiom: On Planning 'Long-range plans engender the dangerous belief that the future is under control. It is important never to take your own long-range plans, or other people's seriously.' This is self explanatory and hence needs no comment.
Minor Axiom XVI: 'Shun long-term investments.' If possible try to stay away fro long-term investments. The author noticed that the Swiss group never took a long-term view of their stock purchases. They always sold out as soon as their targeted profit was achieved.

Stocks tips - ET

While stock markets have tanked over the past month, the growth trajectory of corporate India seems to be on track. Leading companies in sectors like engineering, automobiles, petroleum and software are expected to bring out numbers that display strong profitability in the coming year. The earnings for the 30 stocks which comprise the sensex are expected to increase by 16-18per cent in FY07.Among the major sectors, capital goods and engineering companies are expected to account for the biggest jumps in earnings during FY07. Earnings growth estimates for power equipment companies such as Bhel range from 25-35per cent for the coming year. Engineering & construction companies are projected to record a 25-30per cent rise in earnings. Companies like Bhel and L&T have substantial order backlogs and, hence, there is a higher degree of visibility in sales and future earnings. The earnings growth is expected to be modest for oil and gas companies. While profitability of oil marketing companies has been hit by high crude oil prices, ONGC and Reliance could post a modest increase in profits during the year. Reliance may benefit from higher gross refining margins in some of its major markets, particularly the US. While Reliance is present in petrochem and petro-retail, refining continues to account for the bulk of its sales and profits. ONGC’s profitability is expected to improve on two accounts, a capped subsidy burden and improved production over the last year. In the auto sector, the commercial vehicle segment is expected to show strong performance on the back of infrastructure spending. The top auto companies, Maruti and Tata Motors, are expected to clock a jump of about 15per cent in profitability. Projections for the first quarter remain robust because the market itself is expanding. Operating margins could flatten as expenses relating to product, brand and distribution all weigh in for the quarter. While the sector has shown strong sales so far during the first quarter, further performance is tied to the monsoons. Earnings growth for the software sector is expected to be in the range of 25-30per cent. The steel sector could also spring up a surprise as prices are on the upswing and have seen a recovery of $100/tonne since the start of this year.

Blind buys - MC

Jaiprakash Sinha of Kotak PCG said, "We have suggested our investors to be with Reliance Industries, ONGC, GAIL within the oil and energy pack. However, we have recommended them to stay away from others in this pack at this point in time.Some of his blind picks in this market include heavyweights such as SBI, ICICI Bank, M&M, Infosys, and ACC. “However, the caution is not more than 20% at this point,” he said.Sinha is also positive on sugar stocks since the fundamentals of this sector are still intact.

Technical analyst Ashwani Gujral, however, advises caution to investors and recommends staying away from the banking pack. He told CNBC-TV18, “Banks were weak even before the bear market started. In a rising rate situation, banks will go to lower levels.”

He believes that there is still some downside left in the banking stocks.

“ICICI Bank could go to Rs 380 levels. PNB could go as low as Rs 300. So there is no point talking about levels in such kind of market because everything is getting painted with the same kind of brush.

You just need to wait for the market to stop falling, get above at least the 200-day moving average. After that one can buy a bit because one could easily go down another 1,000 points with the valuations getting more and more attractive and one will end up losing money if they invest at these levels.”

Mehraboon Irani of Darashaw and Company is yet another proponent of buying into frontline stocks during the ongoing correction. However, he is not so gung-ho on the midcap space. Says he: In the frontline, I would still look at picks like ACC, L&T, BHEL, Reliance Industries, and Tata Power, which are ultimately expected to rally, because when the market bottoms out and goes up, it is the frontline story which moves up. Over the next three-six months, midcaps will give maximum returns to investors. For the next 1,000 points, I do not see midcaps performing.

That does not, however, keep Irani away from the midcap space. He has identified at least 35 companies with a PE multiple of less than 5. According to him stocks like Indo Asian Fusegear, Hyderabad Industries, Hotel Leela Venture, Birla Corporation, Apar Industries, Aban Loyd Chiles Offshores, Bharat Bijlee are going at valuations of 6-8 times their 2006-07 earnings.
Sharmila Joshi of Asit C Mehta says that investors need to keep a cool head and look at stocks that were missed on the way up and invest partially. Her picks during the correction are a mixed bag comprising stocks in the capital good and construction space and cement sector.
“I think one can look at L&T, BHEL at this level among the frontline stocks. Among secondline stocks, Punj Lloyd and Pratibha Industries in capital good and construction space; in cements it would be ACC, Gujarat Ambuja Cements, and India Cements from the midcap sector.”

How not to lose money in the current volatile scenario

People lose money and sometimes a lot of money. There is a method of deploying funds into the equity markets. If you follow this method you just cannot go wrong.

Place your hand on your heart and ask yourself, have you really made money? Are you happy with the way your investments have performed? Was something missing? Could things have been better? The stock markets are down about 25% from the peak levels they touched in mid-May. People lose money and sometimes a lot of money. This shakes confidence. Just a couple of months back, every expert on stock market investments was shouting from the top of the roof, that India is on a growth trajectory not witnessed before in our history. India is a growing economy and that every statistic available to us, signals more growth and positive development in years to come. But suddenly, the tide turned and the stock market crashed and now the experts are giving us reasons as to why the stock market fell. As a result, people feel cheated. They lose confidence in the stock market and start believing that the stock market is like a gambling den and it is a place, where you lose money. Hence they decide to cut losses and cash out from the stock market. There is obviously something wrong somewhere. Either the experts were wrong or your investment decisions went wrong somewhere down the line. However, the funny thing is nothing is wrong here. If there is something that is wrong, it is our planning or rather the lack of planning. There is a method of deploying funds into the equity markets. If you follow this method you just cannot go wrong.

Here is the method:One fundamental assumption, always to be kept at the back of your mind is that 'equity investments are assets that will generate the maximum returns over a fairly long period of time.' If you trust this, you will not go wrong, that is certain. Volatility is just part and parcel of investing in the equity market. 20%-30% volatility is implicit for equity investment at any time. If you cannot stomach this, then you should not even look at the stock market. If you do not like the rules of this game, then obviously you should not play it.

Once, you've decided to play the game, then here is a method on how to deploy your funds:
1. What is your surplus? How much can you save from your gross earning after deducting all expenses ie. your taxes, loan installments and all living expenses? If it is above 20%, it is good. 20% is a minimum and if you cannot meet this, you must take serious note and reassess your expenses.
2. From this amount, deduct the amount you require for meeting your basic financial requirements like insurance, medical contingencies etc?
3. The balance amount is what is available for managing long term, medium term and short-term financial goals. For short term goals ie. for goals of less than 3-4 years, it would not be wise to commit any money to the stock market.
4. For goals beyond 4-5 years, you may use equity investments. What you need to control here is your greed and expectations of the future. Expect no more than a return of 12% to 15% or so per annum, but remember you many not get this each year. However, if you were to look at your portfolio after 5 to 7 years, you will see that on an average your wealth has grown by 15% or so. In reality, you may land up getting much more as well. What you must not forget is that you must invest with discipline. You can choose to invest in equity mutual funds or shares as you like. For shares, you have to be sure that you have done extensive research.
5. Finally, how you actually place your investments is also important. A systematic investment plan, SIP, of investing directly into equity mutual funds may be a great idea but is not foolproof. In the intermediate, you could lose significantly in SIP also. Ask your advisor/broker to help you do a bit of asset allocation and thereby risk management.
That is all there is to it. It is not like learning rocket science, it is just simple financial discipline. Forget about IPOs, fancy derivative strategies, futures, options, arbitrage etc., all these big words are nothing but trading instruments and trading is a zero sum game. This essentially makes your broker and advisor, far richer than you will ever be.Here is a figure to chew over: Just Rs 10,000 invested per month for 20 years that earns 12% returns can easily give you your first crore! It's really so simple. And it was just such simple strategies that helped the Bhandaris to amass their fortune.