HOT STOCK PICK OF 18-MARCH-2010

Trader's Choice



At any given point in time, there is always a story in the stock market that is cited to be a sure-shot winner, mutli-bagger, jackpot or whatever else it may be called. It can be Internet stocks one day, retail stocks the next, realty stocks the day after and so on. As more and more traders hear about the story and prices starts zooming, there is always the temptation to jump on the bandwagon and shovel in a large chunk of the portfolio in such stocks.



That is not such a good idea. Over-betting stems from over confidence and over confidence as we all know, has no place in stock markets. Betting a large chunk of your investment into any one idea can lead to significant diminishing of capital once the sector falls out of favour.



It is best to restrict exposure to any one stock to 2-3 per cent of your portfolio.



Diversification is the key to successful management of your investment portfolio. We talked about diversification within the equity portfolio in the preceding paragraphs. But the overall investment portfolio should also be diversified with money invested across asset classes so that the portfolio is cushioned from the vagaries of the stock market.



The exposure that an investor or trader has to the stock market should be related to his assessment of the market's trend. As the market starts looking over bought, over stretched etc, the exposure to the stock markets should be reduced and cash should be moved into safer avenues of investment. The extent of speculative activity evident in the markets can be used to guide the investors regarding formation of market peaks. Revival of interest in penny stocks, increase in the number of stocks hitting 52-week highs, surfacing of scams etc. are some of the common symptoms of a market nearing its peak.



Similarly, as the market sentiment turns negative more money should be moved away from equities.



It is not possible to take all the money out of the market or to move all the money in to the market. Scaling down the exposure is the second best alternative.



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TODAY'S HOT STOCK PICK: WELSPUNGUJR
BSE CODE: 532144

REC: BUY


1st TARGET : Rs. 284

2nd TARGET : Rs. 300

STOP LOSS: Rs.270


Welspun-Gujarat Stahl Rohren Limited


LTP: Rs.279.15



PREV. CLOSE: Rs.268.05

CHG %: 4.14%



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Description

Welspun Gujarat Stahl Rohren Limited is an India-based pipe producing company. The Company is engaged in the business of steel products. The Company manufactures diameter pipes of 56 inches. It is a supplier of products for over 50 oil and gas companies across the world. The products of the Company include Anjar - L-Saw Mill, Anjar - Spiral Mill 2, Anjar-HFERW Pipes (Mill1), Anjar - HFERW Pipes (Mill2), Anjar - Coating Mill, Anjar - Bending Mill, Dahej - L-Saw Mill, Dahej - Spiral Mill and Dahej - Coating Mill. In April 2009, the Company announced the demerger of its Plate-cum-Coil mill into a 100% subsidiary.

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HOT NEWS


UPDATE 1-Welspun Gujarat unit to acquire MSK Projects

* Welspun Infratech to make open offer for MSK Projects

* Total acquisition cost at 4 bln rupees

* Expects to complete the transaction in 90 days

MUMBAI, March 18 (Reuters) - Steel pipemaker Welspun Gujarat Stahl Rohren (WGSR.BO: Quote, Profile, Research) said on Friday its unit will make an open offer to acquire a 75 percent stake in construction firm MSK Projects (MSKP.BO: Quote, Profile, Research), marking its foray into infrastructure.

Welspun Infratech will acquire the stake through a combination of share purchases from founders, associates, investors, preferential allotment and open offer, it said in a press release.

"The acquisition will enable Welspun to move a step forward towards complete integration by being a one-stop-solution in the line pipe segment," the pipemaker said.

The total acquisition cost will be 4 billion rupees, of which 2 billion will be infused directly into the company for business growth, it added.

The entire investment will be funded by Welspun Gujarat's existing cash flows, the company said, adding it expects to complete the transaction in 90 days.

The due diligence of MSK was conducted by Ernst & Young while M&A advisory firm Brescon was the sole advisor.

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Trading tips



Never try to fight a trend by taking positions against the prevailing trend. Though it may be always tempting to buy a stock that is falling with an intention to lower the average cost of acquisition, such a practice should be avoided. This will be tantamount to throwing good money after bad.



Always have a stop-loss and an exit price clearly defined before making a trading decision.



There are several methods to arrive at stop-loss levels. If you are unable to identify a logical or reliable stop-loss level, use a fixed money-based stop method, which fits into your psychological comfort zone.



Never hold on to a trading or investment position that has moved past your psychological zone of comfort.



If you are not disciplined to cut positions on the breach of stop-loss, it could turn out to be a psychologically arduous task to cut those loss-making positions when prices keep moving against you.



Always take care of your losses and profit would take care of themselves.


Periodical profit booking and re-entry on fresh "buy" triggers are crucial aspects of success in stock market investing. There is nothing wrong or inconsistent in buying a stock at slightly higher levels after having booked profit earlier.



Keep track of stocks you find are in a long-term upward trend and take positions on fresh "buy" triggers. The key aspect is to ensure that the long-term trend is intact and there is a valid reason to take fresh exposures.



Even after the stop-loss is hit, investors should not ignore the stock they have been tracking.



It may well turn out that the stock could reverse trend and get back to the target zone envisaged earlier.



The stop-loss might have been hit owing to either an incorrect stop loss or a change in the short-term trend. The stock price may reverse at lower levels and manage to move to the earlier determined target zone.



Not willing to play a guessing game



Various technical indicators in the derivative segment (detailed below) captured the nervousness and weakness in the underlying market over the past month. However, the primary reason for the indicators turning weak is low trading volumes, suggesting that not many investors were willing to take bold calls in a volatile market.



Volatility



When dealing in options, one has to consider two kinds of volatility — historical and implied.



Historical volatility measures how erratic or volatile the stock has been in the past while implied volatility (IV) measures the market's perception of how erratic or volatile it may be in future.



In determining whether options are cheap or expensive, it is the volatility that offers the clues. When a stock is fluctuating wildly, it is volatile, which in turn increases the volatility component. When volatility increases, so do option prices. When stocks are stagnant, volatility decreases which, in turn, brings down the option premiums. Now, with the market swinging wildly almost on a daily basis, volatility levels have surged to historic highs.



Put/call ratio


It is a ratio of the trading volume (and open interest) of put to call options. For example, a high volume of puts compared to calls indicates a bearish sentiment in the market. As this ratio increases, it can be interpreted to mean that investors are putting their money into put options rather than call options. An increase in traded put options signals that investors are either starting to speculate that the market will move lower, or starting to hedge their portfolios in case of a sell-off. However, investors have predominantly used put options only as hedging tools.


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DISCLAIMER:



The stock picks and recommendations are based on the information we collect regarding those stocks. However it's your discretion to select a stock to buy/sell and you have to use your personal check about the price or news related to those stocks and use your due diligence before buying or selling any stock. And you've to understand that we're not responsible for your loss/profit on our stock recommendations or picks.