Telecom phobia !!!

Bharti cmp: 320
RCom cmp: 180
Idea cmp: 50
MTNL cmp: 70

Telecom sector which was the favorite of many investors and traders seem to be a forgotten story now. When the Bharti-MTN deal got cancelled, people jumped into buying the stock on the morning of 1st Oct at 6% gap-up opening at 450. Everybody thought that the wrost is over for Bharti and many brokerage house called it a big thumbs up for Bharti. Incidentally, we asked to buy Oct 400 puts at 3 rs. On expiry that traded at a whopping 80 rs and put value had actually given 600% return in 1 day.

Once the crash came in Bharti the very next day on bouts profit booking, the Telecom Minister, Mr. A. Raja urged all operators to come up with a 1p/sec tariff. Wow!!!! What a benefit for customers. And alas !!! The conclusion came......All telecom operators are going to face huge losses on account of reduced tariff rates and that their balance sheet will suffer due to THIS.....Really??? Lets think.....

True it may be that their competition is getting stiffer day by day. From only BSNL/MTNL came Bharti and Hutch. And now we have Idea, Aircel, RCom, TataDocomo and so many others trying to bring technological revelution among 130 crore Indian population....Definitely, we will see consolidation in the industry and that in one way is appicable for any industry, be it, metal, aviation or anything.... Mergers and buyouts is an inherent part of any industry. Let it be like that....

Now, lets analyze the 1p/sec tariff. When you call up your friends or relatives, what is the smallest duration that you speak. How many times the duration is of only a few seconds. Hardly 5 times a month. Even when we speak only what is necessary, the average duration generally comes like 1 min 15 sec or 2 mins 15 sec. Isn't it?Now, what is the normal rates charges by all operators. I guess 30p to 50p per min on a 1 min pulse.Say, you speak for 2 min 15 sec.On the normal 40p tariff, you end up paying Rs.1.20 for a 3 min pulse. And in the new 1p/sec tariff, you actually end up paying Rs.1.35 which is costlier and if that speech ends up near to the complete min, you pay even more......

So, what is perceived may not be the actual.....Isn't it....So, next time when Shahrukh Khan comes on TV and says "how long it takes to say 'I love u'" and asks us to subscribe for the 1p/sec tariff, "Be cautious"....When you say the same will you stop speaking in 5 secs. I guess, if you do that, that love will never come.....Hahaha.....Also remember, if the deal would actually been a loss making proposal for the telecom companies, they would not have spent so much money on advertisement for the same......Isn't it.....

Remember one thing, when the worst is coming in any sector and the global houses are degrading the sector, do not be fearful always. Had the management of Bharti/Rcom/Idea sold their holdings in the open market, you should have been fearful. Instead, they actually increased stake in the companies. Why should they? After all, its their business and they know it better than us. With the advent of 3G and then 4G, Indian telecom companies have a long way to go. Do you know that the average download speed in Korea is 33 Mbps whereas in India its only 180kbps. The revolution is yet to come. I would not be surprised to see these stocks becoming a few bagger in days to come. Hold and accumulate them for the future.....

Hindalco Industries

CMP = 38 in NSE.
Products : Aluminium and Copper. Listed for trading at London Metal Exchange (LME)

The world's largest Aluminium rolling company and one of the largest producer of primary aluminium in Asia. It enjoys a domestic market share of 42 per cent in primary aluminium, 63 per cent in rolled products, 20 per cent in extrusions, 44 per cent in foils and 31 per cent in wheels and 45% in copper. The company has delivered excellent results in the Q3 2008 with a 544.8 cr profit which is 13.35% on net sales. Its also backed by a strong management of Aditya Birla Group. Yet the stock has seen the worst in its history and is currently trading at the lowest level since 1994. It has fallen 80% in a matter of last 8 months. The major reason for such a massive fall was decreasing Aluminium prices in LME form 3200 to 1200 and decreasing copper in LME from 9000 to 3000 during the same period which was mainly due to shortage of demand following the collapse of the banking system in US. Further the Chinese demand which kept on pushing metal prices since the last 7 years also fell after the Olympics and that too accelerated the fall in metal prices.

Currently, the stock is trading at a P/E of 2.81 , EPS is 13.48 and book value of 127. At this level, the stock seems to be trading at throwaway prices. The only problem is the current loan book and it needs to be seen how they service the debt maintaining their cash flow and and at the same time keeping the order book running. With the global economy shifting its base towards China and India and considering the immense domestic demand, which is expected to increase substantially from FY2010 and Hindalco,being a major non-ferrous player, is definitely a BUY in low volumes at current levels for an expected multifold return on investment.

Technical View
The stock has collapsed completely from technical point of view. For the last couple of months, it took support at 48 levels and then at 42. Now that it has broken it, a fall is expected till 36-34. The reason is the theory of equidistant parallels. Since it had risen from 48 to 60, hence while retracing it might move all the way down 12 points from 48 and touch 36 levels. But if 36 is broken, then it might fall till. The volume has practically vanished from this stock and is slowly going through the phase of consolidation. The on-balance volume has not made a new low though the stock itself has made a new low. This shows a slow accumulation at lower levels. The time frame can be from months to years as is suggested by its history. So, investors should enter this stock partly around 36 and then at 22 (if touches). The rebound is this should be strong enough and the investor is expected to make a fortune out of this.

Sugar Sector

Sugar sector had gone through a very bad phase during the bull run of 2006-2007...This commodity has got cyclical patterns depending on domestic and global demand....Currently, as forecasted, there is a possibility of sugar cane short supply leading to increase in prices.....Plus the festive season is on and there will be lot of sugar in demand during Christmas and New Year......Currently, the UP sugar mills have mentally accepted 140 rs/quintal on sugarcane prices and have decided to prepone their operations in the mills.....

Going forward, there will be tough times in equity markets.....So, even the slightest hints on any positive news on price front can lead to rally in the sector....Inflation has come down....So, possibility of sugar price increase can not be ruled out under the circumstances that these mills are facing uphill task to manage business.......

Lastly, sugar cos are trading at less the book value and the current prices seem quite reasonable.....Technically also they are attractive.......

My favorite picks are Shree Renuka, Balrampur.....These 2 enjoy high intraday trading volume as well........I expect reasonable upmove in coming 3-5 months.....

Disclosure: I have positions in this sector for both trading and short to medium term investment purposes......

Core Projects

Buy in small quantities in dips of 70-50.......Buy more above 110.....Hold for 6 months......