Truth makes money and lies destroy it - hasn't the Satyam debacle proven this? And for those of you who've burnt their fingers in this and other stocks, returning to invest in the markets takes courage. And it takes even more courage to put your neck out and talk about companies to invest in.
But we did that, three months ago, culled out a list of 7 companies for long term investment. Well now their quarter numbers are out and it is time for us to take stock of them.
But before we go on to a stock update, the much awaited monetary policy review came out early this week. It spoke about GDP growth, inflation and interest rates - all of which affect you. So our big question of the day: What does the latest monetary policy review mean for you?
# Growth estimate at 7 per cent or less
# Inflation to fall below 3 per cent
And what does this mean for you?
# GDP growth slowing to below 7 per cent from 9.5 per cent last year will mean
- Flat markets
- Pressure on jobs
- Zero or low increments
- No new job opportunities
# Inflation is down on the back of a global downturn in the commodity cycle and lower oil prices.
With deposit rates still at 10 per cent, lock in NOW for the maximum period you can. Home loan rates should fall in the next few months, so wait before you buy
Of course the central bank governor also announced no change in key rates. CRR and Repo were held steady but what Dr Subba Rao said very clearly that banks should pass on the benefit of the 5 previous cuts in rates to corporates and individuals.
So expect banks to pass on rate cuts sooner than later. Car rates have begun to come down – so, watch out for lower home loan rates in the near future too.
A worrying indication though on Fiscal deficit which is indicated to grow to 5.9 per cent from 2.5 per cent.
The growing fiscal deficit means that the government is borrowing more than it should. When that happens, money is soaked in by the government sector and private investment suffers. So even lowering of interest rates will not help if there is no liquidity in the system. Over the long term, we'll have to pay in taxes to bridge this gap. And in the short term, unfortunately, it is the small entrepreneur who suffers the most.
# Slowest growth in 6 years
# Repo or lending rate at 5.5 per cent
# Reverse repo or borrowing rate at 4 per cent
# CRR or the percentage of funds that banks keep with RBI: 5 per cent
# Inflation had reached 13 per cent in August 2008
In the first week of November, we had culled out a list of stocks, applying stringent filters for you to look at for long term investment. We looked at almost 500 companies and only 7 really made the cut. But like we said before, time and again, if you are in stocks you need to keep a regular check on the company's performance. So first of this list today, with its quarterly report card is Bharti Airtel. The company has reported strong numbers.
# Net sales growth: 32 per cent
# Net profit growth: 42 per cent
# EPS up from Rs 7.47 to 10.63
# Buy call at Rs 667
Now the stock is at Rs 627 - it’s melted. But we still think it is a stock which is worth keeping for the long term. While other companies are reeling under higher interest costs, interest burden for Bharti has actually gone down over this quarter over the previous year by 14 per cent and other income too is down, by almost 70 per cent; which means the company is making more money in its core operations.
Bharti has launched its global footprint with services in Sri Lanka, but lost out in Iran and South Africa. With the new initiatives like IPTV, there is still steam in the stock. Stock still looks good to us.
HDFC Bank
Though banking has been under pressure, there are yet good stocks in the market. We had recommended HDFC Bank three months ago at 1048 and now it is down to 890. It was a good buy then and after the Q3 results it remains a good buy for staggered investment.
Take a look at these numbers:
# Total income growth: UP 59 per cent
# Net profit growth: UP 45 per cent
# Interest earned growth: UP 64 per cent
# EPS up from Rs 12.10 to 14.60
This includes the ops of the erstwhile Centurion Bank of Punjab.
Yet another bank which we recommended and we're happy to report - the numbers have been validated our pick, is Bank of India.
# Total income growth: 46 per cent
# Net Profit growth: 70 per cent
# Interest earned has grown: 38 per cent
# EPS up from Rs 10.50 to 16.61
# we gave a buy call at Rs 270
# Now at Rs 233
# We say continue to hold. Profits went up on the back of other incomes - interest and investment income.
# Diversified loan book - retail, corporate, agricultural and SMEs
# Reach and largely conservative banking practices
# Corporates are 40 per cent of its loan book and these loans are up 70 per cent
# Higher risk SMEs account for 16-18 per cent of its loan book
# 2,900 branches
# Margins are higher due to cost control
Notes for us:
# PE ratio 6.03 23/01/09
# EPS (Rs) 38.21 Mar, 08
# Sales (Rs crore) 4,343.17 Dec, 08
# Face Value (Rs) 10
# Net profit margin (%) 3.89 Mar, 08
# Last dividend (%) 40 30/04/08
# Return on average equity 9.16 Mar, 08
Banking outlook: Though these two banks have reported good numbers, if you see the sector as a whole, there's clear indication of rising NPAs.
Banks are under pressure due to the rise in non-performing assets, specially in their retail book. But banks with prudent norms will swim. Also, in a regime of falling interest rates, the treasure ops kicker is also there. Talking of a return kicker, let’s look at KS Oil that has the potential for a good return kick
KS Oil
The small edible oil company we spoke about, KS Oil, has done fairly well, though the stock is still lower than our price.
# Net sales growth: 47 per cent
# Net profit growth: 33 per cent
# EPS up from Rs 1.07 to 1.23
# Buy call at Rs 45
Now at Rs 43
What we still like about the stock?
# One of India's leading agri based edible oil company
# Kalash, the flagship brand remained strong in the mustard oil segment
# Company is focusing on brand building and distribution
# Is looking at tie-ups with the major retail chains
There are 3 other stocks which passed our acid test as long term investment. Mphasis from the IT space, Consumer major Titan and Indraprastha gas. Next week we'll tell you how these are performing, after reviewing their third quarter performance.
And now, we'll take a look at Fidelity Wealth Builder - does it make the investment grade or not.
I'm sure many of you have already received an sms or a call from your financial agent advising you to invest in this. So, should you?
So let’s take a look at some key features. Fidelity Wealth Builder Mutual Fund comes with three plans and you can opt for either of the plans, depending on your risk appetite.
Plan A: upto 15 per cent of the money will be invested in equity
Plan B: upto 30 per cent will be in equity. So these are the low risk more debt heavy options
Plan C: is a balanced option with upto 50 per cent in equity
And the fund gives you the option of switching between these plans as well.
But the most important part to note is Fidelity Wealth Builder is a Fund of Funds - which essentially means it will invest in other Fidelity funds including debt and equity.
And what is a 'fund of fund'?
# What: mutual fund that will invest in other funds, either from the same fund house or from the entire universe of funds in the market
# Why: The aim is to always invest in the best performing schemes of the market
# Caveat: You pay charges twice in a fund of fund - for the underlying fund and for the fund you buy. The cost is capped at 0.75 per cent in a FoF and that of the underlying is capped at 2.5 per cent in equity.
It is a fairly controversial category of funds globally and were quite in favour some years back, but not any longer. However in India, we've had a bit of a mixed result - Optimix was a fund house that did only FoFs and it had to shut down. But Birla Sun Life Asset Allocator has outperformed the market. So the jury is still out there and we need to look at it on a case by case basis.
Well, if we look at the performance of the equity, debt and cash schemes of Fidelity, they have done fairly well. Their equity funds have not been outperformers in upmarket, but they have done well in managing risks in a falling market. Their liquid funds have done well; debt funds have given average returns. Another thing to also look at is the fund expense ration. Fund of funds - so it charges twice, right ? And does that make it expensive?
Look at the expense ratio and we find that most equity funds are doing 2 or less. Fidelity equity is at 1.87 per cent and the debt funds are at 60-80 bips. So overall the charges will be in line with other balanced funds that do about 2 to 2.5 per cent. Also there is zero load at the moment.
So our analysis says: You can buy the fund if-
# You do not want very high returns
# You want the safety of your money
And that brings us to the end of today’s show.