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It is riskier than and definitely demands more time than other investments. However, it can probably be more rewarding than you can imagine and certainly very exciting! World over, and even in India, stocks have outperformed every other asset class over the long run. Stocks are probably your best bet against inflation too.

Steps To be followed before making any investment in Equities

Step 1: Understand how the stock market worksWhen you read you begin with A-B-C. When you sing you begin with Do-Re-Mi. And when you invest in stocks you begin with business-company-shares.

Also Read: Mutual Funds for Beginners

Step 2: Learn how to choose a stock

Having understood the markets, it is important to know how to go about selecting a company, a stock and the right price. A little bit of research, some smart diversification and proper monitoring will ensure that things seldom go wrong.

Step 3: Decide how much to invest

Since equities are high risk, high return instruments, how much you should invest would really depend on how much risk you can tolerate.
Step 4: Monitor and review
Monitoring your equity investments regularly is recommended. Keep in touch with the quarterly-results announcements and update the prices on your portfolio worksheet atleast once a week.

Also, review the reasons you earlier identified for buying a stock and check whether they are still valid or there have been significant changes in your earlier assumptions and expectations. And use an annual review process to review your exposure to equity shares within your overall asset allocation and rebalance, if necessary.

Finally, ensure that you avoid the below mentioned seven most common mistakes and sail smoothly into your financial bright future.

1. Believing that trading is the same as investing
2. Being too conservative with your money
3. Being too aggressive with your money
4. Keeping the ‘duds’
5. Incorrect asset allocation
6. Timing the market
7. Overconfidence

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Here are some of the value picks in the Indian Stock Market in the current scenario:

Bartronics BEML, Gateway Distriparks, IVRCLSimplex Infra, Tanlas Solutions, Tata Chemicals

Some other stocks which make a good buy at their current prices include Amtek India, Bharati Shipyard, EMCO, ICSA (India), Mah Lifespace, Mcleod Russel, MIC Electronics, Nagarjuna Cons. , Patel Engg., PTC India, Rolta India, Sanghvi Movers, Sasken Comm.

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Criteria to Select Stocks

1) Earnings Per Share (EPS) and PE Ratio

EPS and PE are probably the most used criteria around the world in selecting stocks and it’s not without any reason. EPS and PE values are arrived from important information and that’s why people tend to use it as a single significant factor. But I would actually start with EPS and PE Values and then go on to drill down more about other factors. There is no particular PE Value you can stick with. Lower the PE of a stock (when all other things remain good), better the value. But instead of looking at current year PE, I would suggest to take the average of 10 year PE (At least 5 Yrs) and make sure the stock price is not more than 25 times of that average PE Value. Also look at the forward PE ratios to get the sense of what lies ahead.

2) Book Value

Book Value per share is the total asset value of the firm divided by the total number of shares. Looking at this value might give some confidence about the firm’s worthiness. Also book value per share would be the amount shareholders might get if a company sells all the assets and distribute the proceeds for some reason. If you are able to get good stocks with a stock price less than the book value, it would be good. But make sure you do not pay more than 1.5 times of the book value unless you have some credible evidence about any particular company’s growth.

3) Debt / Equity Ratio

If you divide the total debt by the total equity value, you get this debt/ equity ratio and it gives you the sense of company’s indebtedness. If a company has less than 1 DE ratio, then you can say that the company is in a good financial condition. So, I prefer to invest in companies with less than 1 DE ratio.

4) Current Ratio

If you divide the current assets by the current liabilities, you get the current ratio and bigger this value, better the company among peers.Because current ratio indicates the company’s ability to meet short term financial dealings and we need to make sure that a firm is in a decent position in terms of short term financial needs.

5) Profit Margin

If you divide the net profit by revenue, what you get is the net profit margin and you can calculate net operating margin and other similar values in the same way. Better the margin, better the business and we need to make sure that any particular company earns a decent margin. Select the company with better margins among the peers.

6) Return on Capital Employed (RoCE) and Return on Equity

Return on Capital Employed and Return on Equity indicates the company’s profit making ability in return to the capital employed or the equity position. Again, better the value; better the company and its business. So, peer level comparison might be helpful to select better stocks.

7) Dividend History

If a company has paid dividends continuously over a long period of time, then you can be sure of its intention to share profit with you and also the better handling of the surplus cash available. Hence, looking at the dividend history is important and might help you to make a better decision.

Profit Growth

Consistent and decent profit growth over a long period of time is an important factor that we need to look into if we are going to stick with that stock for lengthy periods. There is no single number to think about but we can select the stock with consistent profit growth among peers.

9) Cash Flow Details

As I wrote in one of my previous articles, cash flow is as important as a balance sheet and looking into it gives you an idea about company’s financial health including cash inflow and cash outflow. Consistent growth in cash inflow and better use of it is essential to any company’s success. Hence, carefully look at the cash flow statements (including footnotes) if you are going to invest large amount of money.

10) Business Segment and Future Potential

In stock investments, it is very important to look at the business segment in which the company operates and also the future potential of that particular business as a whole. As you might have seen, a company might be good and if the business is not doing well, it makes little sense to invest in it. You also need to consider if the business is cyclical or non-cyclical or consumer oriented or government owned etc…to get real understanding about the risk of any particular stock. If you are interested in small cap stocks, this is most important factor that one needs to consider in my point of view.

11) Size of the Company

Size of the company is positively associated with the risk potential most of the times. Conservative investors prefer to invest in large cap stocks and risk taking investors who wants to make more money invest in mid cap stocks and also the so called “Multibagger” small cap stocks. So, it really depends on the individuals risk appetite as mid caps and small caps are the ones go down much during the bear phase and go up much during the bull market. Large cap stocks usually have economies of scale benefits and they always stand to gain the volume advantage. Hence lesser volatility.

12) Competitive Advantage

Competitive advantage in the market place is essential for consistent financial performance. If a company operates in a segment where barriers to entry are huge, then you can be sure of your capital at least and your margin of safety is more. Warren Buffet calls this as “Economic Moat” and no wonder he has been so successful.

13) Brand Value or Product Differentiation

Good brand value brings customers on a more consistent basis and that’s the reason FMCG companies command higher valuation all the time. If a company produces a product which is different from others and is difficult to replicate, then that particular company will always command better valuation as investors are confident about its survival over a long period of time.

14) Goodwill

This is an intangible asset companies create over a period of time and it is gained with help from media, political support and solid client base. It usually has some effect on investors.

15) Market Scenario

Finally market scenario comes into play and no matter how big the company is and which business segment it operates, the stock price move according to the market scenario and I am sure most of the people would have good idea about it as we are witnessing once in a life time situation these days.

These are the factors I considered or consider while selecting stocks and it is not necessary to analyze a stock through all of these parameters. You can leave out some criteria for a particular company or you can give more importance to a particular factor and things like that. You can be flexible based on your risk profile. For example, I give more importance to business segment and future potential along with market scenario while selecting small caps and individuals can follow similar patterns according to their skills and risk appetite.

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My views

Though markets have come long way from 2500-2600 levels , and if you have not invested at that time (before some weeks) , then you have missed some good rally .

But anyways , markets are roaring even now and there are chances of markets going little more up , after which it may again head down and then move sideways for some time or do down again .

If you have to invest for long term now , you must now wait for a dip , and then you can buy your stocks , with tight stop loss around 2850 levels of Nifty (to make it simple)

If Markets move up : Book profit on some position and keep half shares with stop loss at buy price .

If Markets go down : Get out at the SL price and take a small loss , then wait for markets to move down and when there are signs of strength again , then buy fresh , dont forget to participate that time because of fear . Watch moving averages .

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The key to understanding Buffett’s less-than-apocalyptic take on the banks is the idea of the spread: the gap between the interest rate banks can charge for the loans they make and the interest rate they have to pay for the money they borrow — from depositors or other lenders. When the Federal Reserve slashes interest rates, particularly when they slash them as aggressively as they have in the past year, spreads widen, so that every loan a bank issues becomes more profitable. And that’s especially true today, because the risk aversion of investors and financial institutions has meant that the interest rates on loans have fallen less than they normally would have, given the steep decline in the fed funds rate. Buffett, for instance, said that in the fourth quarter of 2008, Wells Fargo’s cost of funds — how much it had to pay to borrow money — was just 1.44 percent. Needless to say, the average interest rate it charged the people it was lending to was a lot higher than that. In fact, though it’s hard to get exact data on this, it’s possible that, as Buffett said, the spreads on loans have “never been wider.” And when you combine that with the sheer number of loans these giant banks have on their books, you’re talking about individual banks earning tens of billions of dollars on their own.

Does that mean that the banks are fine? Not necessarily. The basic problem the banks face is that they need to recapitalize themselves. One way to do that is by taking their profits and, as it were, banking them. But the banks still have lots of old, bad assets on their books, and it’s possible that, as many predict, the value of those assets will fall more than their earnings will rise. And if the economy gets significantly worse, the increase in bad loans will probably cancel out the effect of wider spreads.

So why might most of the banks come out of this okay, without having the government nationalize them? One reason is that since most of these banks have slashed their dividends to pennies, every dollar they earn essentially goes to recapitalization, instead of going out the door to shareholders. And with the government looking over their shoulders, it’s also likely that the banks are going to be running tighter ships, so their expenses may be down as well. That’s why Buffett said on Tuesday: “I mean, the right prescription with most of the banks is just let them pay very little in the way of dividends and build up capital for awhile, and they will build up a lot of capital.”

The interesting thing about this prescription is that, in some ways, it’s precisely how the U.S. got out of its last big banking crisis, which happened during the recession of 1990-1991. While it hasn’t been talked about very much, during that recession most of the big moneycenter banks were, by today’s standards, insolvent — arguably more insolvent, in fact, than the big banks are today. They were not nationalized or put into receivership. Instead, after the Fed slashed interest rates, the banks hunkered down, cut back on risky loans, and allowed the wider spreads to work their magic, and over time earned their way out of insolvency. Today’s crisis is different in some important respects (in the earlier crisis, banks were able to make easy profits by investing in government debt, while today the profits on such an investment would be quite small). And there are some banks today which may be carrying so many bad loans that even their increased earnings power won’t save them. At the very least, though, history suggests that Buffett has not gone around the bend, and that it’s a mistake to think that nationalization is the only plausible solution to our current banking crisis.

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Summary -
Nestle India Limited engages in the manufacture and sale of nutritious food products in India. The company’s products primarily comprise milk products, such as sweetened condensed milk, baby milk foods, milk powders, acidified infant food, and other milk products. It also offers beverages, prepared dishes and cooking aids, and chocolates and confectionery under various brand names, such as KitKat, Friskies, NESCAFE, Maggi, Nestle, Dreyer’s, DogChow, and NESTEA. The company is headquartered in Gurgaon, India. Nestlé India Limited operates as a subsidiary of Nestle S.A.

Result analysis -
Nestlay India has decalred its fourth quarter results. The company’s Q4 net profit was up 29.1% at Rs 534 crore.
Its net sales were up 23.4% at Rs 432.4 crore.
(A good result during recession time)

Growth
Nestle India is best placed to ride on the expected growth in processed food market due to the strong technology of the parent company. Dominant market share and strong brands will prevent margin erosion of the company. Going ahead, high penetration and innovative prod-uct launches would further fuel its growth.

Positive Factors
Good financials/results.
A divident paying stock (paid 25.50 Rs per share last yr)
Good market demand / growth potential.

Source: IndianMoneyPlus.com

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There has been some criticism of Warren Buffett as the declining mark-to-market value of those contracts puts pressure on reported earnings.  Fourth quarter net fell 96 percent to $117 million, largely due to ‘paper’ losses on those derivative positions.  For the year, net fell to $4.99 billion from $13.21 billion the year before.

Buffett also predicts the economy will “be in shambles throughout 2009 – and for that matter, probably well beyond – but that conclusion does not tell us whether the stock market will rise or fall.”

He’s still optimistic for the long-term, however, again pointing out that “our country has faced far worse travails in the past” but always “we’ve overcome them.”  He says confidently, “America’s best days lie ahead.”

Major Mistake by Warren Buffet

Buffett admits that “I made at least one major mistake of commission and several lesser ones that also hurt… Furthermore, I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action.”

The mistake of commission: buying a large amount of ConocoPhillips stock just as energy prices were near their peak.  Buffett writes, “I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year.”  He still thinks oil will eventually go well above its current $40-$50 range, “but so far I have been dead wrong.”

Even if energy prices do rise, “The terrible timing of my purchase has cost Berkshire several billion dollars.”

Buffett also reveals that he spent $244 million for shares of two Irish banks that “appeared cheap” to him.  At the end of the year, they were written down to their market price of $27 million, for a loss of 89 percent, and they’ve continued to drop.

“The tennis crowd would call my mistakes ‘unforced errors.’”

But he says he’s not bothered by the overall “significant decline” in Berkshire’s portfolio.  “We enjoy such price declines if we have funds available to increase our positions.”

Buffett confirms that he sold some stocks he would have preferred to keep to fund Berkshire’s purchases of $14.5 billion in fixed-income securities from Wrigley, Goldman Sachs, and General Electric. He calls the holdings “more than satisfactory” based just on the high current yields they are delivering.  Equity participation is a “bonus.”

Those sales primarily involved Johnson & Johnson, Procter &, and Conoco.

“I have pledged – to you, the rating agencies and myself – to always run Berkshire with more than ample cash.  We never want to count on the kindness of strangers in order to meet tomorrow’s obligations.  When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.”

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BSE Code : 517271

TTM EPS : Rs. 39

Market Cap : 275 Cr.

Pmt Stake : 63 %

52W H/L: Rs. 420/96

P/E Ratio : 2.8x

Dividend : 15% (F.V. 2)

Founded in 1977, HBL Power Systems Ltd (HBL) is an acknowledged leader in design, development and manufacture of industrial & specialized batteries, allied electronic products and DC (direct current) systems in India. DC power systems are used across the world for a variety of application where the traditional power supply system cannot be sustained/ supported. It is specifically required in mobile (nonstationary)applications like rail coaches, aviation etc. Therefore company focuses mainly on five key sectors namely telecom, aviation, railways, defense and other industrial segment including oil & gas, power, petroleum, steel etc.

A. Batteries :- This is the core business of company deriving more than 90% of total revenue. HBL is a technology focused manufacturer of several ranges of specialized application batteries i.e. nickel cadmium (pocket, fibre, and sintered plate), lead acid (VRLA, Tubular, LMLA), silver oxide zinc, lithium, thermal, etc.

B.Railway Electronics :- Traditionally HBL has been sup- plying various batteries for train lighting, air conditioned coaches, locomotives, signaling and communications. But off late, company has designed and developed wide range of microprocessor based signaling products and power systems to cater to the needs of Indian Railways. It now offers integrated power supplies for railway stations and does turnkey signaling works contracts including design, installation and commissioning.

C. Defence Electronics :- Although HBL derives hardly 5% revenue from this division but it boasts of supplying several specialized, tailor made batteries to the Army, Navy and the Air Force. EPS of Rs 33 on equity of Rs 24.30 cr. Incidentally company has a debt of Rs 350 cr leading to a debt equity ratio of 1.2x times. In order to fund its expansion, company had planned a preferential allotment as well as a right issue, but due the stock market sentiment, had to shelve it off. Importantly, with telecom, power, railway & defense being its focus market, HBL isn’t much affected by the ongoing recession. And in case if it witnesses any

slowdown in domestic demand it can always cater to international market and increase its export revenue which is currently around 10% of total sales. Considering all the factors investors are strongly recommended to buy at current levels with a price target of Rs 240 in 12~15 months.

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BSE Code : 517417

Market Cap : Rs. 18 Cr.

TTM EPS : Rs. 13

Pmt Stake : 36 %

52W H/L : Rs. 81/25

P/E Ratio : 2.7x

Dividend : 15 %

Incorporated in 1973, Patels Airtemp (India) Ltd (PAL) is one of the leading designers, manufacturers and suppliers of the complete range of heat exchangers such as shell & tube type, finned tube type and air cooled heat exchangers, pressure vessels, columns & air-conditioning and refrigeration equipments like coils, exhaust air units, fan coils, fans & blowers, condensers & chillers etc. It also makes Dow therm condensers, inter coolers & after coolers, oil coolers, air heaters, HP & LP feed water heaters, LPG bullets etc. All these industrial process plant equipments are supplied to leading industrial sectors like power projects, refineries, fertilizers, cements, steel, aluminum, automobile, petrochemicals, engineering, pharmaceuticals, textiles, paper, chemical etc. Importantly, the company

Also undertakes turnkey projects in the highly specialized and related area of Humidification, Ventilation and Air-Conditioning i.e. HVAC. Its expertise in HVAC project includes industrial air conditioning, pharmaceutical plant air conditioning, textile humidification, and pressurization and ventilation systems, evaporative

Cooling systems etc. Besides, it also undertakes project work for air-conditioning multiplexes, offices, educational institutions, halls, theaters, hospital etc.

Importantly, in the past PAL has successfully executed several orders of Nuclear Power Corporation of India.

Hence it is expected to good orders from NPCIL in future due to signing of the Indo-US nuclear deal. Currently it boasts of having unexecuted order in hand to the tune of Rs 50 cr including Rs 16 cr order bagged from Essar Oil in Sept 2008. Recently, company reported good set of nos for the Dec’08 quarter, as it registered 30% rise in sales as well as NP to Rs 13 cr & 1.75 cr respectively. Even for nine months, the sales have increased by 35% Rs 49 cr whereas it saw a 40% jump in NP to Rs 5.20 cr thereby posting an EPS of Rs 10 till date. Accordingly it may end FY09 with sales of Rs 60 cr and PAT of Rs 6 cr leading to an EPS of Rs 12 on equity of Rs 5 cr. It may maintain its 15% dividend which gives a yield of 5% at CMP. For FY10 it can report a topline of Rs 75 cr and bottomline of Rs 7.50 cr i.e EPS of Rs 15 on current equity. Although it’s a small company with a gross block of less than Rs 15 cr but the share price can easily double within 9~12 months. Investors are recommended to buy at current levels.

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