Persistent Systems Ltd – IPO – Invest at Cut-off

Persistent Systems is a pure play Outsourced software Product Development (OPD) services company. The company is different from other IT companies as it caters to Independent Software Vendors (ISV) as well as smaller product development companies. Persistent Systems offers its customers OPD services that help them reduce time-to-market, better the quality of their products, improve predictability and reliability of the engineering process and helping them lower their over-all product engineering costs. As a result, client stickiness is higher than other IT companies.

Investment Arguments

Healthy balance sheet

Aggressive expansion plans

Continued interest from VC firms

Dedicated client base

Key Risks

Dependence on US market

Expiry of tax holidays


I feel that the company has the management expertise and the necessary cash to pave the path for aggressive growth in the years to come. Persistent Systems continuously spends in R&D to better its technical skill sets. It appears to be attractively priced considering the potential upside due to capacity addition and earnings in the long term. Even from a long-term perspective also, the company can provide significant returns.

I feel that one can invest in this company at cut-off price (Price Band Rs.290-310)

NMDC LTD – SUBSCRIBE AT LOWER BAND PRICE

NMDC Ltd, a navaratna Public Sector Company, has come out with a Follow-on Public Offer. The issue details are hereunder.

Issue Period - March 10, 2010 to March 12, 2010
Issue Size - 33,22,43,200 Equity Shares
Issue Type - 100% Book Building
Face Value - Rs. 1/-
Price Range - Rs.300 to Rs.350
Tick Size - Re. 1/-
Market Lot - 20 Equity Shares
Minimum Order Quantity - 20 Equity Shares
Maximum Subscription Amount for Retail Investor - Rs.100000
IPO Market Timings - 10.00 a.m. to 5.00 p.m.

The pricing is considered to be aggressive and the market would have been happier had the price been fixed in the range of Rs.250-Rs.300. There has been a poor response for the issue so far.

I am of the view that one can look into the issue with a long term perspective and bid at the lower band price considering the facts that NMDC is a low cost producer of Iron Ore having strong competitive advantages and the prospects of the iron ore industry which will benefit from a strong economic growth. The company is having a high RoNW and consistent growth in earnings. Future plans of NMDC to indulge in steel and power production, though associated with risks, may add to the earnings of the company.

Happy Investing

Disc: The ideas on market are for sharing purpose only. Investments should be done on own risk.

Unanswered Questions Remain!

It is still a big question whether the global economy will return to its glorious past as was in 2006 & 2007. But, stock markets are now quite convinced so and returned to their peak levels of 2007, if not 2008. Many individual stocks have gone even above their life time high levels tested in those years.

Generally, stock markets are the leading indicators and can visualize the future to some extent. However, stock market need not be 100% correct in its every assumption. Even though, there are certain greenshoots visible in the global economy, it is too early to assume that economic life will turn back to its glorious past any time soon.

Hence, it is prudent to be cautious in the future rallies of the stock market. One should take position in equity market only after visualizing the probability of global economy returning to normalcy, the ability of the individual companies to survive unscathed till that time and the earnings of the company once the normalcy returned.

As many would have noticed, Nifty crossed the all-important resistance level of 4730 levels last week comfortably thanks to the surge in giant caps like Reliance, SBI and ICICI Bank. However, broader market did not rally once after this remarkable success was achieved as anticipated by many analysts. In fact, there was a huge profit booking in the smaller stocks even while the giant caps were hitting their new highs for the year 2009.

I expect the same trend to continue in the coming week also. I suggest the traders to exercise caution while picking the smaller stocks which have run up miles since March 2009. 4700 points for Nifty can be taken as a pivot point while taking trading positions in larger stocks.

Wishing a great week ahead!

Green Shoots and Yellow Weeds

Markets continued to be indecisive and volatile during the last week also. Markets started the week with lot of negativism thanks to poor jobless claims data from US however ended with great optimism thanks to the record rise in homes sales in US and better than expected industrial data from the Western Europe.

As witnessed in the earlier weeks, our market continued to ignore the local happenings and was always looking for the direction from the west. For a change, markets are now looking east also particularly China which evoked great interest in the recent times, thanks to the “China Bubble and the its ripples in Asian markets.

Locally, Adani Power failed to impress with a lackluster debut on the bourses. There was no big premium on listing as expected by its IPO investors. However, it is a reminder for those, who do not want to leave any thing on the table for the IPO investors that such issues may not evoke great interest from the investors in future.

Coming week, NHPC’s listing will be viewed curiously as there are many government company issues lined up for IPO. In case of NHPC also, government has not left much on the table for IPO investors. Still, there are hopes in the market that the company may get listed with a decent premium. Any failure on the premium part may hurt the future IPO plans of government companies.

Going back to global scenario, Obama is expected to raise the projection for the fiscal deficit (US) for the next 10 years from $7.1 trillion to $9.0 trillion. Such projection may lead to the impression that the American government may continue to flood the markets with dollars for many more years to come.

As mentioned earlier, hopes of persistent dollar flooding and visibility of green shoots have been taken well across the board, currencies commodities, gold, oil and stock markets.

Euro strengthened against the US Dollar as the appetite for riskier assets went up due to the new found optimism for a quicker recovery in the global economy.

At the same time, it is notable that the INR failed to join the global rally against dollar and in fact, INR lost against USD in a big way. FIIs withdrawing their investments in India and higher import demand may be the reasons for such Rupee weakness.

Crude Oil was a stunner for the last week. It had a big rally and broke the crucial resistance of $72. Even though many analysts put expectation of higher demand rising from the global recovery as the reason for the surge in oil prices, personally I am not convinced. I feel that the dollars are now flowing towards the commodity markets particularly oil and gold as a new avenue of investment as stock markets are appearing as overvalued.

There are good chances for a big rally in oil and gold in the coming days provided that the economic data continues to be good.

In India, even while the largecap indices were struggling to make new highs, many stocks are started to make merry thanks to the renewed interest from the operators and small traders. Many stocks witnessed dramatic rallies in the last week.

To sum up, green shoots are more visible as of now but there are yellow weeds too. It is the duty of the governments and the central bankers to protect the green shoots and weed out bubbles. If they fail to do so, bubbles would impact the global economies badly.

Wishing you a great week ahead

Easy Money Policy for an Extended Period

Sudden fall in unemployment numbers in US had raised speculations that Federal Reserve may end its easy money policy sooner. Accordingly, US Dollar started gaining against other major currencies including Indian Rupee. Poor monsoon data and negative FII inflows also put pressure on INR in the beginning of the week.

Gold and other commodities were also seen losing against US Dollar. Bursting of bubble in Chinese markets also added pressure on the metals.

However, Federal Reserve, in its FOMC minutes on Wednesday, said that the easy money policy will be continued for an extended period of time and it would pump in $300 billion dollars (around Rs.15,00,000 lacs) into the market by October 2009. This statement revived positive sentiments in the global markets.

Positive GDP numbers in Germany also added to the bullish sentiments of the markets. Euro gained in a big way against US Dollar. Gold also had a spurt against USD rising to $963. Fall in South African Gold production also helped the Gold prices to firm up against US Dollar.

Indian Rupee also turned into positive trend and went below 48 levels. Surprise rise in IIP numbers (India) for the last month also helped INR to strengthen against USD. However, heavy demand for Dollars from the importers checked any major appreciation for Rupee.

Worse than expected US Consumer confidence data released in US on Friday indicated that the recession is far from over and the US Dollar gained against other major currencies accordingly. Gold also fell to $948 levels.

US Dollar may begin the next week with some gains against other major currencies including Indian Rupee. Local currency markets will also look for the trend in the equity markets particularly the FII inflows. For the next week, Rupee may trade between 48 and 49 levels.

There is a major risk of downgrading of Indian Rupee in case our government increases its borrowing programme for the current fiscal year to accommodate the possible drought relief measures.

Gold may face a strong resistance around $963 & $ 980 levels. Breaking the above two levels may take the prices to $1000 levels. In Rupee terms, MCX Gold may face resistance around 15020 and 15200 levels.

Indian stock markets are now cautious about the impact of poor monsoon on the overall GDP. It is expected that there may be an impairment of around 1.00% in the overall GDP for the current year due to poor monsoon. Further, reduced crop production will add to the pressure on the food inflation which is already at a high level.

Overall outlook for a normal monsoon seems to be a distance dream now and the short fall is likely to be over 25%, sounding weakness for rural demand prospects.

Still the broader trend of stock prices has been inline with Dow futures and the net inflows from FIIs, who were once again net sellers in cash market except for Thursday. The gains were broad based and the mid and small cap stocks gained more than the large cap stocks. There was renewed interest from domestic institutions and they gave strong support at every low, absorbing most of the net sales from FIIs and public.

Stock markets are quite happy about the IIP data and there is view that impact of poor monsoon may be nullified by a strong growth in industrial sector. However, personally I would like to see the trend of IIP numbers for some more months to take a firm view on the revival in the industrial sector.

Next week, Indian Stock markets will be looking for direction from its Asian peers and US Dollar movement. As said earlier, Nifty may face resistance around 4610 & 4730 levels and find support around 4520 and 4480 levels. Firm breaking above 4730 levels may indicate a new bull cycle whereas a complete fall below 440 may point towards a steep fall.

Wishes for a happy week ahead.

Keep Swine Flu Away with Basic Precautions

Swine flu in India is spreading like wildfire, taking the toll to six. Officials say there are currently more than 800 cases of the H1N1 flu strain in India. Governments from all around the world are finding ways to combat this deadly disease. So what can you do to protect yourself?

Stay calm and practice these 10 effective prevention tips.

1. Wash your hands frequently

Use the antibacterial soaps to cleanse your hands. Wash them often, at least 15 seconds and rinse with running water.

2. Get enough sleep

Try to get 8 hours of good sleep every night to keep your immune system in top flu-fighting shape.

3. Keep hydrated

Drink 8 to 10 glasses of water each day to flush toxins from your system and maintain good moisture and mucous production in your sinuses.

4. Boost your immune system

Keeping your body strong, nourished, and ready to fight infection is important in flu prevention. So stick with whole grains, colorful vegetables, and vitamin-rich fruits.

5. Keep informed

The government is taking necessary steps to prevent the pandemic and periodically release guidelines to keep the pandemic away. Please make sure to keep up to date on the information and act in a calm manner.

6. Avoid alcohol

Apart from being a mood depressant, alcohol is an immune suppressant that can actually decrease your resistance to viral infections like swine flu. So stay away from alcoholic drinks so that your immune system may be strong.

7. Be physically active

Moderate exercise can support the immune system by increasing circulation and oxygenating the body. For example brisk walking for 30-40 minutes 3-4 times a week will significantly perk up your immunity.

8. Keep away from sick people

Flu virus spreads when particles dispersed into the air through a cough or sneeze reach someone else's nose. So if you have to be around someone who is sick, try to stay a few feet away from them and especially, avoid physical contact.

9. Know when to get help

Consult your doctor if you have a cough and fever and follow their instructions, including taking medicine as prescribed.

10. Avoid crowded areas

Try to avoid unnecessary trips outside. Moreover, avoid touching your eyes, nose or mouth. Germs spread this way.

Good News and Bad News

Our Equity Market is always sensitive to two important factors.

First one is the dollar inflows to our markets. There is always a strong correlation between the FII flows and our market’s direction. Our market believes that dollar weakness brings more inflows to the emerging markets including India.

There was an improvement in US Unemployment data published last week for the first time since April 2008. Unemployment rate fell to 9.4% from the previous month level of 9.5%. Even though the white house officials warned that the unemployment rate may peak at 10%, markets were convinced for the time being that the end to the American recession is nearer now and accordingly, there was a sharp rally in the US markets.

At the same time, there were fresh apprehensions that the Federal Reserve may exit its easy monetary policy sooner than later by hiking its key interest rates. Hence USD strengthened against other major currencies. Euro and GBP registered one of their sharpest falls against USD on the last day of the week.

As said earlier, our markets sensed in advance that the dollar inflows may become scarcer hereafter and duly witnessed a sharp correction in the last two sessions of the week.

The bad news was from our skies. Indian Meteorological Department has said that the rainfall was deficient in 27 out of 36 meteorological divisions of India. Now, there is a real threat of a drought like situation in India this year.

Though, agriculture forms a smaller part in overall GDP of India, majority of Indians is dependent on agriculture in India. Further, scarcer rainfall may badly impact the allied industries of agriculture particularly in rural India.

Failure of crops may add the pressure on prices of food articles which are already at high levels and the supply side hyperinflation is the last thing our market would like to have now.

Thus the combination of above said two factors have brought down the sentiments of our high flying market.

Hereafter, the direction of our market may depend on the FII inflows and the monsoon pattern.

As said in the earlier post, our market (Nifty) failed to break 4700 levels decisively. Now it finds support at around 4430 & 4320 & 4200 levels. It faces resistance at around 4550 & 4580 & 4700 levels.

Wishes for a happy week ahead!