Learning Points for a Newbie Investor

The overall interest in investing in stock market is back with full swing. Almost everybody is talking about bonds, IPOs, real estate as if they have been invented recently. Having said that, I love the passion behind it when they talk about it. When folks talk with passion and fire in their bellies, a newbie coming right of the college thinks, wow! that’s the way to go. Recently, a distant family acquaintance was asking me about my opinion about recent surge in IPOs, bonds, and stock market rise. This kid will be graduating next summer (note: next summer, i.e. 2011) from an engineering school and has already got a decent job through campus recruitment. The salary cash flow has not started, and he is already planning to “get-in the market”. He was “researching” what are different methods to make successful “bets” in the market. Continue reading rest of this article…

Overvaluation in Heated Market – In What Context?

I have mentioned of this blog, keep your investment ideas or processes or choices very simple. Remain focused on your objectives. You may keep dissecting into multiple styles and methods. All said and done, all it will do is add a little panache to your chit chat or it may make you look good for few hours. It is my view that style and panacea does not give sustainable results. In one of my earlier post, I mentioned holding companies can be good long term investments. Only question remains is “how do you define a holding company”. If you constraint yourself with definitions in financial literature, then it is likely you will miss the essence of a holding company.

To me, the essence of holding company is like a parent company. A parent who are trying to raise their kids, i.e. new businesses or future companies, in a hope that all of them will be able to sustainable themselves in future. Parents work hard take risk, and kids… you know what I am trying to say, right? Continue reading rest of this article…

Raising Capital by Rights Issue – What to Make Out of It?

We have all heard a lot about initial public offer (IPOs), follow-on public offer (FPO), Bonds, VC, Angel investors, etc. Right issues is one method (among many other) that is not widely discussed in open financial media. One the reason is it is an option available to existing shareholders only. By definition, the significance seems to the titled towards existing majority shareholders.

The essence of raising capital through rights issues is very simple. It allows existing shareholder an option to invest more money into business. It gives them that benefit as an existing shareholder.  Here, the company board of directors decides to sell new shares, at a pre-defined price, in order to raise capital. In general, but not necessarily always, the shares are offered at a discounted price than the prevailing market price at that point in time. It gives existing shareholders an option to buy new shares proportional to their existing shareholding. It gives them an opportunity to maintain their existing percentage shareholding and hence, not dilute their ownership. Continue reading rest of this article…

Screening Three More Companies in Agriculture Business

Today is the second part of the screening of companies in agriculture or food related businesses. While there are hundreds of companies out there, as individual investor, it is just not possible to read about each one of them. I am presenting summary of few more that I have read about over last few months. After these two screens, I think I have shortlisted four companies which, for now, is enough to focus on.

Lakshmi Energy and Foods Ltd (LAKSHMIEFL): It is engaged in manufacturing and processing food grains and related products. The product includes rice, basmati rice (branded as Lakshmi Foods), parmal rice, rice bran edible oil, wheat flour, de-oiled cake, refined oils, and cattle feed (branded as Heera Moti). It also as 30MW biomass-based power generation business using rice husk as fuel. The company was formerly known as Lakshmi Overseas Industries Limited and changed its name to Lakshmi Energy and Foods Limited in February 2006. I came to know about this company after reading Supreme Court and agri minister’s tussle over grains rotting in FCI. Continue reading rest of this article…

Screening Four Companies in Agriculture Business

We all want to succeed in investments, but there are very few us who are willing to prepare for this success. Preparing and positioning yourself to take advantage of opportunities is something that is not learnt easily. It takes time and effort. I am not competing for allotment of IPOs and Bonds. Instead I am spending time and effort to continue expand my watch list and my buy list. I would like to be prepared for what I want to buy at next opportunity or when they fall in my fair value range. Following are four companies I screened recently in the agriculture sector.

In general, agricultural business is a low margin business and hence, there is no room for error. In our country, it still continues to be heavily dependent on monsoons. Having said that, I believe a company with good management, combined with buying at decent price, can provide good down side risk for individual investors. Continue reading rest of this article…

Capital Raising by Bonds: What to make out of it?

Indian economy has left the recession concerns behind and showed resilience. The equity market indexes reflect this positive environment. FII’s are pumping money into markets and Indian economy. So why should our Indian companies remain behind? Shouldn’t they also try to get capital from different sources either by IPOs, QIPS, or equity, or bonds? And that’s what we are seeing these days. Every Indian company is trying to grab capital from financial markets. Some are raising capital by means of issuing corporate bonds!

As per an data published by AK Capital Services Ltd, in FY2009/10, public and private sectors combined raised close to Rs 172,000 crore of capital from Indian and foreign markets. In FY2010/11, this figure is expected to be Rs 350,000 crore i.e. almost double. Majority of this comes from foreign markets. I do not have exact numbers, my guesstimate is 80%+ comes from foreign markets.

Examples are: SBI, IDFC, Union Bank, L&T

One reader asked, why a company like SBI (i.e. a bank) issues bonds to raise capital? It is already in the business of collecting deposits from people?

Simple answer to this question is: Banks like SBI, need more money than they can collect from deposits. Continue reading rest of this article…

Interpreting Corporate Events of Raising Capital – Background Summary

The way Indian economy has bounced back from 2008 downturn, it has continuously fueled the sense of optimism. In the eyes of developed countries in west, India may be corruption ridden, India may not replicate China’s infrastructure, India may have slow decision making, India is in politically sensitive region, and many more negative connotations. China had been benchmark for western world. But bottom line is, the bounce back from 2008 has proved to the debt ridden western world, structurally, India has sound economic and governance system. The democracy makes it slow, but it provides freedom and openness.  It may not be the best as per the western standards, but it is free and open society (ignoring occasional nuisances from regional groups). What does this have to do with individual investing?

This optimism fuels growth of economy, growth of businesses, and capital investments. Folks who are optimistic, and believe there is ROI for their capital, they are willing to invest money in businesses. And where there is investment, there will be investors like you and me. Continue reading rest of this article…