Public Sector Enterprises: Long term outlook

During the bull market that started in April 2003, many public sector companies’ stock prices have skyrocketed. Bharat Earth Movers Limited, which was trading around 56 in 2003 had touched 1850 recently. Investors who bought PSE stocks seven or eight years ago have been benefitted tremendously.

Now, is it wise to invest or continue to remain invested in some of the PSE stocks? Let us analyze from a long term perspective.

1 As on 31.12.04

The scrips mentioned above constitute the CNX PSE Index of National Stock Exchange. BHEL and SAIL top the list while MTNL and HPCL stand last as far as appreciation is concerned. Let us now discuss the long term outlook for these stocks.

Bharat Earth Movers:

This stock has formed a ‘double top’ in the monthly chart; it also failed to close above its previous high at 1788 on a monthly basis. Volumes have been subdued during the rally between July 2006 and December 2007. A doji was formed during December 2007 indicating indecision among traders. The double top formation along with negative divergence confirms a long term trend reversal.

Bharat Electronics/ Bharat Petroleum Corporation/Chennai Petroleum Corporation/ Indian Oil Corporation/ Mahanagar Telephone Nigam/ Mangalore Refinery & Petrochemicals/National Thermal Power Corporation/ Neyveli Lignite Corporation/ Oil & Natural Gas Corporation/Shipping Corporation of India/Steel Authority of India:

A bearish engulfing pattern was formed last month. A red candle with lower close at the end of this month will confirm the trend reversal.

Bharat Heavy Electricals:

A doji was formed in the monthly chart during November last year. This was followed by a red candle in December (bearish engulfing pattern) and another red candle in January this year. The 'three outside down' pattern thus formed is the indication of a long term trend reversal. ‘Exit on every rise’ is probably the best approach for the investors.

Container Corporation:

A bearish three outside down pattern was formed during October 2007. The support trendline was also been broken during November 2007. The long term trend has turned bearish.

Engineers India:

It has failed to close above the long term resistance at 1020 on monthly chart. It also broke the support trendline during March 2007. Lot of upper side volatility was observed last month, indicating that smart money has probably exited the stock.

Gas Authority of India:

No reversal signs have appeared in the long term charts. 341 should act as a strong support; if the stock closes below the support and doesn’t bounce back one may think of exiting at higher levels.

Hindustan Machine Tools:

The trendline support was broken during last October. Though the stock had closed above the long term resistance at 111.20 it was followed by a sell off, forming a bearish engulfing pattern. Also, a negative divergence in the long term charts indicates trend reversal.

Hindustan Petroleum Corporation:

The stock broke its resistance at 337.55 during December 2007 with volume. Even during the last month’s sell off the support at 198.20 was not broken. 416 and 543 will be the resistances for the stock when it resumes the uptrend.

National Alumnium Company:

A bearish harami pattern was formed last month. A red candle with lower close below 375 at the end of this month will confirm trend reversal.

Rashtriya Chemicals & Fertilizers:

A bearish dark cloud cover pattern was formed during last month. If the stock closes below 76.85 at the end of this month, it will confirm the trend reversal.

It can be seen from the above discussion that apart from Hindustan Petroleum Corporation other stocks have either turned bearish or in the process of becoming bearish.

BSE Sensex Reaches 15,000 – All Time High!

Sensex creates history:

The Bombay Stock Exchange Sensex achieved yet another milestone when it reached 15000 mark today. It recorded a high of 15007 in the afternoon. From 14000, it has taken 144 trading sessions to reach this landmark. The index closed at 14964.

Nifty this week:

The Nifty closed at 4385 (another record close), gaining 66.55 (1.54%) during the week. I had mentioned in my Monthly review – June 2007 that:

“The waves a and b appear to be over as we can see consolidation through wave c. Today the index has gained 36 points. So, the short term trend has turned bullish”

As anticipated the index managed to move up higher. On 02.07.07 there was a very minor correction of 4.55 points and on 05.07.07 again it lost a meagre 5.35 points. The remaining three days belonged to the bulls. Today the index had gained nearly 31 points. On 03.07.07 it gained almost 44 points. Nifty closed flat (just a gain of 1.75 points) on 04.07.07.

However, let us be slightly realistic rather than over enthusiastic. The last three trading sessions have witnessed three lower lows of 4342, 4312 and and 4304 respectively. This is not an encouraging sign. Moreover, the stochastic indicators tell us that the market has entered overbought zones. Under the circumstances, a corrective decline next week cannot be ruled out. This correction, if occurs, will only be a healthy sign that the bull market will continue its uptrend. Index has short term support around 4200.

The medium term and long term trends continue to remain bullish.

IPO update:

Vishal Retail and DLF got listed on 04.07.07 and 05.07.07 respectively. Vishal Retail (Issue price Rs.270) received excellent response on the day of listing, reaching a high of 784.40. Today it has closed at 765.05. DLF, (Issue price Rs.525) recorded reasonable gains yesterday and today. It closed at 573.60.

One more IPO, Everonn is currently live at NSE. The following table gives the bidding status at 1700 IST on 06.07.07.

Total Issue Size	4000000
Total Bids Received	1539400
Total Bids Received at Cut-off Price	1241100
No. of times issue is subscribed	0.38

BEML was oversubscribed nearly 30 times whereas HDIL was oversubscribed nearly 6.5 times.

The following tables gives the top 5 gainers and losers among index stocks for the week:

Scrip	Gain (%)	Scrip	Loss (%)
ACC	11.33	HDFC	5.76
M & M	8.92	HINDALCO	3.59
LT	7.58	ONGC	3.20
MARUTI	7.10	PNB	3.14
HINDLEVER	6.65	REL	2.51

The following tables gives the top 5 gainers and losers in the overall market for the week:

Scrip	Gain (%)	Scrip	Loss (%)
EVENIX	70.64	GMRINDSTRS	13.33
AKRUTI	46.94	JAICORPLTD	11.72
INDUSFILA	42.82	MCDHOLDING	11.39
INDIAFOILS	36.31	NATCOPHARM	10.77
GENESYS	25.62	UTTAMSUGAR	10.42

EVENIX and AKRUTI are cases of bear trap. INDUSFILA was in consolidation since March 2007 and it broke out on 03.07.07.

The following table gives the advance/decline ratio for the week:

Date	Traded	Adv	Ad%	Dec	Dec%	Unch	Unch%
02/07/07	1120	595	53.13	500	44.64	25	2.23
03/07/07	1120	611	54.55	476	42.50	33	2.95
04/07/07	1118	477	42.67	609	54.47	32	2.86
05/07/07	1116	305	27.33	780	69.89	31	2.78
06/07/07	1122	621	55.35	470	41.89	31	2.76
Total	5596	2609	46.62	2835	50.66	152	2.72

We have been tracking the following stocks in my previous articles. The following table gives the percentage gain and loss for each stock this week.

Scrip	Current Price	% Gain
POLYPLEX	144.7	17.69
APARINDS	188.05	12.50
LAKSHVILAS	85.65	11.38
BEML	1291	11.18
SINTEX	263.1	10.62
INDIANB	140.95	10.38
SKUMARSYNF	111.1	9.19
SREINTFIN	97.05	8.44
IBREALEST	453.15	8.33
SOUTHBANK	136.3	6.90
EVERESTIND	121.3	4.98
PSL	309.25	4.37
JINDALPHOT	115.85	4.28
DENABANK	48.65	4.06
ORBITCORP	280.55	2.88
PUNJABTRAC	279.3	2.80
RPL	114.2	2.79
GODREJIND	210	2.74
SRF	175.05	2.13
INDSWFTLAB	59.8	2.05
SICAL	279.15	1.29
GTL	227.65	0.93
XLTL	135.45	0.89
HCC	124.25	0.85
FDC	32.6	0.15
GVKPIL	483.35	(0.66)
AZTECSOFT	87.65	(0.96)
HIKAL	482.55	(1.36)
ADANIENT	270.25	(1.48)
POCHIRAJU	25.65	(1.72)
DCB	102.65	(2.24)
GOKEX	236.95	(2.33)
OPTOCIRCUI	375.6	(2.47)
OMAXAUTO	79.95	(2.68)
CADILAHC	358.6	(4.84)
GLOBALVECT	223.2	(6.94)
TINPLATE	57	(8.65)

ACC, GRASIM, GUJAMBCEM have turned bullish in weekly charts. BAJAJAUTO, CIPLA, DRREDDY continue to remain bearish in medium term. HCLTECH, HEROHONDA,MTNL and NATIONALUM remain sideways. ABB, RCOM and RPL continue to remain bullish though slightly overbought at this time.

India’s BEML IPO Expected to Skyrocket

BEML is a public sector undertaking (PSU) with headquarters at Bangalore. It was incorporated in 1964 and began operations in 1965. It was fully owned by the Ministry of Defence, Government of India. In 1992, the government divested 25% stake. So far about 40% equity has been divested to financial institutions and general public. BEML is Asia’s second largest manufacturer of earth moving equipments. The domestic market share of the company is about 70%.

BEML’s machinery has plenty of applications in coal, mining, steel, cement, power, irrigation, construction, road building and railway. The product range has been expanded to cover high quality hydraulics, heavy duty diesel engines, welding robots and undertaking of heavy fabrication jobs.

The manufacturing plants are located at Bangalore, Mysore and Kolar Gold Fields. The product range includes:

Earth moving equipment such as bulldozers, dump trucks, hydraulic excavators, wheel loaders, wheel dozers , tyre handlers, pipe layers, rope shovels, walking draglines, motor graders , scrapers, water sprinklers, aircraft towing tractors and backhoe loaders;

Railway equipment such as integral rail coaches, electric multiple units, rail buses, track laying equipment and overhead equipment inspection cars;

Heavy duty hydraulic aggregates and high power diesel engines.

BEML has been granted "Mini Ratna Category - I status" by the Ministry of Defence, Government of India with effect from 29th August 2006. Key financial data for the year ending 31.03.2007:

Item	Rs. Crores
Gross Income	2479.28
Total Expenditure	2144.11
Net Profit	204.93
EPS (Rs.)	55.77
P/E	22.54
Book value	238.60
Dividend	100%
Market capitalization	4,297.85

Following table gives the shareholding pattern as on 31.03.2007:

Entity	% holding
Central government	61.23
Mutual funds/UTI	13.40
Financial institutions/banks	6.40
FII's	6.26
Corporate bodies	2.55
Retail investors < 1 lakh	5.86
Retail investors > 1 lakh	3.36
NRI's	0.81

Details of the IPO:

Issue Period: June 27, 2007 to July 03, 2007

Issue Size: 49,00,000 Equity Shares

Issue Type: 100% Book Building

Face Value: Rs.10/-

Price Range: Rs. 1020/- to Rs. 1090/-

Market Lot: 5 shares

Minimum Order Quantity: 5 shares

Retail Investor cap: Rs.100,000

Application forms can be downloaded from here.

Red Herring Prospectus is available here.

This stock is already listed and traded at both BSE and NSE. We have discussed the daily chart in Technical review of select India stocks – Part 3.

Now let us analyze the long term trend for BEML.

When Elliot wave theory is applied to the monthly chart of BEML, currently a full cycle has been completed. Watch waves 1 through 5 and a, b and c. As I have mentioned already, an ideal bull market 50% support is maintained in the monthly chart. It managed to break 61.8% retracement exactly a year ago; now since it has closed above 38.2% retracement levels, it can be concluded that the uptrend has begun. The stock will have to close above 1387. After that we can think of stock testing its all time high at 1788.

Wave Analysis:

Wave	Low	High	Gain
1	10.05	114.95	11.44
3	56.05	261.00	4.66
5	96.50	1,788.00	18.53

It can be seen that the 5^th wave has witnessed the highest gain. The first wave, usually is shorter compared to the third and fifth.

Conclusion:

The current market price of BEML is 1180. It is about 90 rupees higher than the IPO high price or by about 7.6%. We have seen in technical reviews that the stock is bullish in short term and long term charts. The company has performed very well in the sector. The key financials are good. IPO looks attractive at the current price levels.

One may wonder that the valuations are very high. But that is exactly how the market has gone in the last 4 or 5 years. We certainly can’t think of stock falling to a very low level now. We have seen in Indian stock market – An Outlook that Steel Authority of India has appreciated nearly 17 times. BEML though, got multiplied 178 times between September 2001 and March 2006.