CLSA Outlook on TCS Stock Price Misleading

CLSA recent report on TCS stock price target of Rs 2200 in medium term and it's potential to attain a market value of $100 billion over next few years is very misleading for investors in general as they might get into the stock at current levels which is exorbitantly high in our view. 

We believe all the good news in terms of currency depreciation and U.S recovery are largely discounted in the stock prices of all the IT companies in general as they have outperformed Nifty by as high as 50% since the start of this year. 


TCS Stock price chart

CLSA is recommending a stock which has gone up 20% in 7 trading session from 22nd Aug 2013 to 30 Aug and around 50% in 2 months from June end to August end. 20% and 50% upmove might not be very high for a small or mid sized company but for a company of size around 3,96,000 crores it is huge. In two months since the end of June this year it has added more than 1.2 Lakh crores of market value equivalent to entire Wipro.


TCS
Infosys
Wipro(IT)
HCL Tech
Tech Mahindra#
Market Value
396000
178000
119200
72400
32000






Revenue
62989
40350
37688
25734
14500






Net Profit
13941
9421
6105
4099
1950


Indian Rupee (INR) vs Pakistan Rupee (PKR)

Forget USD, you will be surprised to see that Indian Rupee has weakened by more than 15% against Pakistan rupee in past 3 months. Three months back an Indian Rupee could fetch 1.85 PKR (Pakistani Rupee) while now as on 28th Aug it's fetching just 1.54.

Countries that support Syria vs Nations against Syria

The countries in the region and western world are divided over the military attack on Syria following the suspected chemical attack carried out in country against it's people which has claimed more than 300 lives. If the tension increases, it could have serious repercussion for financial markets globally. 

Following is the summary of each countries stand as far as military action in Syria is concerned.

Crude Oil historical price in India: 10 year chart

Crude Oil 10 year price chart

As of 27th August 2013, the crude oil basket in India crossed Rs. 7500 per barrel on MCX, an all time high level due to INR at all time low of 66 plus against USD.

Sell Tata Steel 310 Call at 0.60 premium

Tata Steel has moved up sharply from the lows of 195 (7th Aug) to 180 (23rd Aug) due to short covering and improving fundamentals of steel domestically. However a 44% rise has been too steep in short period of time and hence might face significant resistance going forward. As on 29th May 2013, the stock started it's steep fall from 322 odd levels to a low of 195, and technically a 61.8% Fibonacci retrenchment ends at 275 odd level which could broadly be a big supply zone. 

Valuation wise Tata steel is trading at around 6 times EV to EBIDTA which is expensive compared to Arcellor Mittal Valuation which is trading at around 5.6 times EV to EBIDTA based on FY-14. Considering all these factors once can sell 310 call option of Tata Steel at current premium of 0.60 and generate 1.2% return on margin amount in 4 days.

Total Return from the trade:

Considering one is able to sell the Aug Call option of Tata Steel 310 strike price at current market premium of 0.60 he/she can generate following return from this trade:

USD vs INR: Is this the top?

Ask any exporter, importer, analyst, currency expert or economics expert no one would have imagined 20% plus fall in Indian currency vs USD in matter of less than 4 months. INR depreciated from 53.80 levels on 1st May 2013 to 65.50 as on 22nd Aug 2013 a sharp fall of 21.7% in less than 4 months. 

Point taken that our currency is not alone in this fall and other emerging market currencies having high current account deficits fell sharply as well like Brazilian Real (BRL) is also down around 20% since 1st of May 2013 but the fall has been too much, particularly for INR, in very short span of time and the reversal is inevitable. Just consider the following facts:



1. Indian Economy is expected to grow by at least 5% in FY-14 and at least 6.0% in FY-15 vs U.S economy expected GDP growth rate of 2.6% in FY-14 and 2.8% in FY-15. In terms of growth rate difference India should continue to attract growth oriented capital from west from medium to long term perspective.

Emerging Market Currencies vs USD


The talks of United Stated Fed tapering has made emerging market currencies go into tailspin. Some countries such as India and Brazil has lost more than 15% of it's currency value against USD since 1st of May 2013 which has led to both equity and bond market selloff. Indian Rupee fell to all time low of Rs 64.50 against the greenback on 21st Aug 2013.

Is Rakesh Jhunjhunwala betting on Auto sector in India?

Rakesh Jhunjhunwala, known for his contra bets, seems to have turned bullish on Autos as he recently bought over 6 lakh shares of Escorts at around Rs.88 on 14th August when stock got locked in 20% upper circuit. 

Escort delivered good set of number in the 3rd quarter of FY-14 and is trading at attractive valuation based on TTM EPS. The company's trailing 12-month (TTM) EPS was at Rs 16.23 per share including EPS of Jun, 2013 quarter. The latest book value of the company is Rs 131.94 per share. At Rs.88 the stock's price-to-earnings (P/E) ratio was 5.46 and price-to-book value at 0.67. 52 week high low for the stock is 95.40 - 48.40 respectively.

NSDL Transaction Charges

With effect 1st September 2013, Depositories (NSDL and CSDL) has levied transaction charges of Rs 4.5 and Rs 5.5 per ISIN respectively on debit instruction. These charges are irrespective of the transaction value and would be levied on delivery Sell trades in cash segment.

Points to note:
  • NSDL/ CDSL charges are levied only on Delivery Sell transaction and not on Delivery Buy transactions
  • NSDL / CDSL charges are levied on per scrip basis at net level.
  • NSDL / CDSL charges are levied per scrip irrespective of value or quantity of transaction
  • There is no change for Intra-day transaction or F&O transactions.
  • Applicable service tax would be levied.

Brokerage Houses View on Hindalco Industries

Hindalco IndustriesWith Q1 Fy 2014 results slightly disappointing, most of the global brokerage firms have published their ratings on the India's Largest Aluminium Company. Some have retained their previous rating while others have reduced their price target on the stock. 

Following is the list of brokerage houses and their rating and price targets for Hindalco Industries.

Individual's Forex Limit for Investing outside India

In order to curb dollar outflow and control current account deficit, the Reserve Bank of India has reduced the limit of forex an Individual can remit from India under Liberalised Remittance Scheme (LRS). Earlier the limit was $2,00,000 (Two Hundred Thousand) which is now reduced to $75,000 (Seventy Five Thousand) as on 14th Aug 2013.

Arvind Mayaram, Economic Affairs Secretary, said that individuals can no longer use forex for buying realty abroad however genuine forex needs can be approved by the apex bank. According to the revised norms, an Indian can now invest overseas only upto 100% of his networth compared to 400% earlier. 

Limit on rupee gifts to Non Resident Indians also cut to $75,000 a year. In 2102-13 outward remittance under LRS was more than $1.2 billion.

Infrastructure Companies Debt and Stock Valuation

Since past 5 years, every time there was a big fall in infrastructure related stocks, investors felt that was the bottom and could not fall further only to be disappointing as the stock of those companies kept falling relentlessly. Majority of the boom time infra stocks are now virtually penny stocks, down more than 95% from it's peak and around 90% from 2010 highs.

Take for instance GMR infrastructure which was ruling at Rs 70 in Jan 2010 is now trading at Rs.12 as on 7th Aug 2013. Lanco Infratech has fallen 93% to Rs.5 from the levels of Rs.75 it was at in August 2010. GVK power fell from 52 levels in Jan 2010 to Rs.6 again a fall of more than 88%. HCC touched a high of 81 on 18th Jan 2010 and has fallen to Rs 10 as on 7th Aug 2013, a fall of around 88% in 3.5 years. HCC peaked at Rs140 in Jan 2008. Nagarjuna Constructions is down more than 90% since June 2010. The stock touched a high of Rs.192 in June 2010 but has now come down to Rs.19.

Allahabad Bank Dividend Yield and History

Public Sector Banks stocks have fallen like house of cards on the back of heavy portfolio selling fearing the exponential rise in non performing assets in coming months. 

The gross and net non-performing assets of almost all public sectors banks are rising fast since past couple of quarters mainly due to debt restructuring and casualties in specific large accounts. However the steep fall in stock prices have made most of the PSBs attractive for medium to long term investors as they are trading at historical low valuations and high dividend yields.

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