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Sunday, February 10, 2013

Your questions on Titan, MMTC, Hindalco and others!

Valued readers have sent these questions:


I have bought 150 share of Titan at Rs. 290/-, Now the current price of this share is Rs 262/-. What do I do with this share - HOLD or SELL?


Titan Industries had a good December quarter and it reported robust growth numbers in the recent quarterly earnings. The firm reported 24.29 per cent increase in its standalone profit after tax for the quarter ended December 31, 2012, at Rs 203.73 crore, compared to profit after tax of Rs 163.91 crore in the corresponding period previous year. The standalone net income during the third quarter also went up by 23.68 per cent to Rs 3,017.80 crore from Rs 2,440.10 crore in the year-ago period.

However, looking at charts one can sense the disappointment of investors. The stock had a fall from recent highs of 312 to levels of 260. Why this in-congruency exists in markets, when the company is making good profits, but has a stock which is falling in price. This is simply because of investor expectations mismatch, which often surpasses the true value of the company and stock price overshoots, only to fall back later as insiders and informed large investors sell at highs. This results in some retail investors getting trapped at higher levels.

In your case, your investment at Rs 290 is close to Titan’s recent highs. One would advice holding the stock as its support level of Rs 256 is nearby. One can hold the stock but needs to exit at your cost price or at small profit whenever the recent highs are revisited. Currently the chart is making a Head and Shoulder kind of technical pattern, which is bearish, but often fails in Indian markets. So hold with caution, with a stop-loss of Rs 256 and aim for recovering your cost price in next 3-6 months.


I have 100 shares of MMTC @ Rs 800. Currently it’s trading around Rs 535. Though, the past performance of this script is stupendous. Should I hold or sell. I have a time horizon of 1 year more for this script. Why this stock has taken so much beating?


MMTC is a unique firm, one because it’s one of the largest bullion and metal trading companies in whole of Asia and secondly because 99.33% of the firm is owned by Government of India. MMTC had a glorious run in the past as it had sole control over trading of precious bullion like Gold of which India is a huge importer and exports of metals such as Iron Ore, of which India is a large exporter.

Iron Ore export in last year has suffered a death blow, with Supreme Court ordering a ban on Iron Ore mining, due to large scale graft allegations. This reflects in fall in revenues for MMTC, as Sept, 12 quarter revenues were barely Rs 8800 crores, whereas Mar,12 annual revenues were as large as Rs 66,000 crores, which translates to a approx Rs 16,000 quarterly revenues. Hence topline has declined by almost 50% for MMTC, due to recent ban on Iron Ore mining and exports. Firm is also posting losses in recent quarters, which is also adding to stock woes.

However, significant overhang on MMTC stock prices is the government’s decision to disinvest partly in this Mini-ratna. 99.33% of the firm is currently owned by GOI and divestment will be of the tune of 9.33% which is large chunk of liquidity suddenly coming into the stock, after being a low float stock for a very long time. When large chunk of liquidity comes into the stock, its true value gets discovered in the market.

Government is providing significant discount on most of its recent disinvestments such as Hind Copper, NTPC etc, and hence MMTC might be a discount case as well. That affects the existing investor morale and stock takes longer time to reach to its prior highs after new liquidity gets absorbed during the course of time. Current support levels are at Rs 440, which looks to be a level which might come soon for this scrip. However, since you are in deep red already, selling at these lower levels do not make sense for you. One can hold with Rs 440 as Stoploss and hope for turn-around in next 6-12 months. Rs 1000 can be a good long term target for the stock once the ban on Iron Ore mining and export is removed. New investors should wait for Government disinvestment price to take a fresh position in the stock.


I have position in following four stocks. I can hold for next six month, kindly guide on their prospects.

Hindalco-160 Nos @ Rs.124

LIC Housing-Rs100 Nos @ Rs.278

United Phosphorus- 50 Nos @ Rs.132

Jain irrigation DVR- 100 Nos @ Rs.42


Metal stocks such as Hindalco are overall going through a soft phase currently as slowdown in global economies hits metal vehemently. With construction space slowing down, and Infra space in limbo, Metal sector turns out to be a high-beta and volatile space and stocks do a lot of price ups and downs depending on news flows.

Technically speaking, Hindalco is close to its support at Rs 105 and this support is unlikely to break. One can hold with a stoploss of Rs 100, keeping a slight margin, and one can hold this stock for first target of Rs 130, and subsequent targets of Rs 163, and Rs 188 in next 6-12 months timeframe.

LIC Housing Finance would benefit from the current declining interest rate regime in next one year. As interest rates fall, more consumers would line-up for home-loans hence banks and financial companies would see greater business and profits.

However, some of this is built in stock price already, as on charts a huge double top at Rs 300 is evident. The support is only at Rs 240 levels, and I would suggest exiting the stock at minimal loss currently and taking a position at lower levels. Only when Rs 300 is crossed, one can see fresh highs for this scrip.

United Phosphorus is near to its support levels of Rs 105 and hence is a low risk stock to hold currently. The stock oscillates between Rs 105 and Rs 170 levels and one can take a position at lower levels and book profits close to Rs 170 on this scrip.

Jain Irrigation Systems had allotted one bonus DVR for every twenty ordinary shares held by the existing shareholders. However, the ordinary shares performed stronger in comparison to DVR offering, as lot of investors exited the DVR to average their cost in ordinary shares. Internationally, DVR shares trade at a discount of 10-12 per cent to common shares of a given company. In this case, the DVR is at a steep discount due to low news coverage and investor interest. It makes sense to do a little bit of arbitrage play here and hold on to DVRs as they are available at steep discount to ordinary stock of Jain Irrigation. However, their fortune will only revive if the fortune of the parent firm revives and ordinary stock also rebounds, which is also in strong bear grip currently. Nearby support levels are at 34 and 31 for the DVR respectively.

1 comment:

  1. Request you to write an article on Direct Mutual fund Investment. Few question - Does it imply only to physical mutual fund and not for demated ones.

    Even for purchasing MF through respective AMC they need existing portfolio? How can we have mutual funds invested in Direct plan and demat account.


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