Rakesh Jhunjhunwala” Takes Punters For A Ride In Surana Solar Scam

On Monday, 8th June 2015, the radar flashed the red alert that “Rakesh Jhunjhunwala” had bought and sold 2,50,000 shares of a little known company called Surana Solar Ltd.

However, as the trade was squared off on the same day, nobody paid much attention thinking that it was a quirky time-pass transaction of the type that the Badshah is known to occasionally indulge in.

On Tuesday, 9th June 2015, the radar again flashed the red alert that “Rakesh Jhunjhunwala” had bought another lot of 2,56,500 shares of Surana Solar at Rs. 53.74 each. However, this time he was reported to have taken delivery of the shares.

Nobody bothered to check whether the “Rakesh Jhunjhunwala” who bought the Surana Solar stock is the same Rakesh Jhunjhunwala who is revered as the Badshah of Dalal Street or he is just a namesake. All the major journals, including the ET, Business Standard, Mint, NDTV etc, reported the purchase as being that of the Badshah’s.

Today morning, the punters were understandably excited and eager to have a go at the Surana Solar stock. They lined up in large numbers at the counter and each was desperate to grab as much of the stock as he could.

The total volumes traded today in this little-known counter was 5,824,896 shares on the NSE and 1,756,375 shares on the BSE. You can judge the magnitude of the volume when you compare it with the 30-day average volume of the stock, which is a mere 75,000 shares.

Not surprisingly, the hectic buying action sent the stock surging to an all-time high of Rs. 63, up nearly 19% from the opening price.

By afternoon, CNBC’s Varinder Bansal broke the news that the “Rakesh Jhunjhunwala” who bought the stock is not the Badshah of Dalal Street but a namesake based in Kolkata.

Within seconds, the stock price slumped like a ton of bricks, leaving the punters dazed and confused in its wake.

At the end of the day, the stock closed at Rs. 44.75, down a whopping 40% from the peak of Rs. 63 and down 15.65% from yesterday’s closing.

Varinder Bansal speculated in his report that the entire episode appears to be a carefully orchestrated ‘pump-n-dump’ operation. Apparently, somebody had planned the entire episode and was lying in wait for the stock price to surge so that he could dump a large quantity on the hapless punters.

When I last checked, the punters were licking their wounds and looking very downcast. Hopefully they would have learnt a lesson from today’s episode that you must always look before you leap!

Seven Top-Quality ‘Mid-Cap Marvels’ Stocks For June 2015

Edelweiss’ Midcap Marvels are high convection stock ideas from the Mid-Cap and Small-Cap space to power the portfolio with the investment horizon of 1-2 years. The stocks featured in this product are relatively strong on the fundamental side, with potential for exponential revenue growth, high ROCE, strong margins and credible corporate governance.

Edelweiss introduced Midcap Marvels on 4th June 2014. It has outperformed the benchmark CNX Midcap Index by 50%.

The seven stocks have been picked on the basis of the following factors:

Opportunity size
– How big the sector can grow (3x, 4x, 5x)

Moat around the business

– Differentiated business Model
– Sustainable competitive advantage
– High barriers to entry

Corporate Governance

– Management back ground
– Accounting policies
– Corporate policies
– Business with Related Parties

Strong Management Credentials

– Professional management
– 2nd level of management
– One person dependency
– Track record of past decisions
– Comments v/s deliverable

Click here to download Edelweiss’ Midcap Marvels for June 2015

Porinju Veliyath Foresees More Multibagger Gains From Latest Micro-cap Stock Pick

Porinju Veliyath never tires of talking about Samtex Fashions, a micro-cap with a market capitalisation of about Rs. 100 crore. In an interview to ET, Porinju oozed confidence about the prospects of companies like Samtex. “I am seeing many potential multibaggers and when I look for values, I am still more convinced that the value is lying in the midcap and the small cap segment” he said.

Porinju later tweeted about the stock:

(Samtex Fashions, I suggested on @ETNowTv last Friday is on 5th day circuit. Look cons. nos. There are 100s of such potential multi-baggers!)

Porinju was in fact a major shareholder in Samtex Fashions earlier. As of 30th June 2011, he held 117,000 shares. His name, however, does not appear in the present list of major shareholders.

Samtex has been on fire in the recent past. On a YOY basis, it has given a stupendous return of 225%. The two year return is an incredible 607%.

The million dollar question is whether after such a scorching performance, Samtex has the potential to offer more gains?

Porinju obviously believes that it has that potential. Today, he scooped up a chunk of 77,473 at Rs. 70 each, making an investment of Rs. 54 lakhs.

Porinju’s logic appears to be that Samtex Fashions is walking on the same path as its illustrious peers, Arvind, Page Industries, Kitex Garments, Indian Terrain, Ashapura Intimates etc and that there are mega gains to be made from such stocks.

Only time will tell whether Porinju is right in his theory or not.

Daljeet Kohli Reveals His Model Portfolio Of Top 10 Stocks

Daljeet, as is his custom, has made a careful selection of stocks while preparing the Model Portfolio. First he has taken care to ensure that all the top sectors such as Pharma, Financials, FMCG, Power etc find place in the portfolio. Then, he has ensured that there is an equitable distribution amongst the large-caps and mid-caps. This strategy ensures that the portfolio remains stable even in the midst of heavy turbulence.

A detailed rationale in support of each stock is also given in the note.

Click here to download IndiaNivesh’s Model Portfolio of top 10 stocks

Parag Parikh’s PPFAS Mutual Fund’s AUM Zooms, New Stock Added

The first good news is that there is a steady increase in the AUM of the PPFAS Mutual Fund. As of 30th May 2015, the AUM stood at Rs. 602.71 crore. That is an increase of about 41% over the AUM of Rs. 426.03 crore as of 30th May 2014.

The other good news is that the PPFAS Mutual Fund has added Balkrishna Industries to the portfolio. The Fund bought 140,259 shares in May 2015 worth about Rs. 10 crore.

We have earlier seen that Balkrishna Industries is a value investors’ favourite owing to its niche area of manufacturing “off road” highway tyres. Its valuations are also reasonable.

Sanjoy Bhattacharyya, the doyen amongst value investors, recommended the stock in March 2013. At that time, he called it a “compelling investment opportunity” and a “solitary exception”. He explained that Balkrishna Industries is “well positioned in a highly profitable niche”.

Sanjoy Bhattacharyya was perfectly correct in his analysis because the stock price has jumped from Rs. 250 to Rs. 696, a handsome return of 175%.

Even in his latest interview, Sanjoy Bhattacharyya heaped lavish praise on Balkrishna Industries by emphasizing that it enjoys the “moat” of operating in a niche area.

Akash Prakash is another ace investor who has put his faith in Balkrishna Industries. His Amansa Capital invested Rs. 108 crore in buying 17,50,000 shares of Balkrishna Industries on 20th March 2015.

If you want to read a research report on Balkrishna Industries, there is one available from IndiaNivesh.

Basant Maheshwari’s Fans Launch Spirited Counter-Attack To Battle His Detractors Over Failure Of Hawkins Cookers’ Stock Pick

Being a stock picker and making public stock recommendations is a hazardous activity. If the stock pick fails, disgruntled investors are quick to draw the gun and shoot to kill. You need a thick skin to handle the criticism and carry on with your job.

Daljeet Kohli is one of the victims of this short-tempered attitude of investors. Though he has several multibagger stock picks like Ajanta Pharma, Alembic Pharma, JB Chemicals, CARE, Gujarat Pipavav etc to his credit, Daljeet was attacked mercilessly over the failure of his stock pick, Sharon Bio-Medicine.

Porinju Veliyath, who is well known for his forever bullish stance and preference for so-called ‘low quality’ stocks, is also frequently lampooned as an ‘operator’, ‘fixer’, ‘manipulator’ and whatnot whenever his stock picks are discussed. Though there is no evidence to show any wrong-doing on Porinju’s part, people nevertheless attack him and his stock picks.

Basant Maheshwari is the latest to join the club. The alleged failure of his stock pick, Hawkins Cooker, has not gone down well with a section of investors and several of them have taken to MMB to vent their ire on him.

Basant has been subjected to the choicest of abuses. Someone called him a “bluff master” and said that he has “lost credibility”. Another asked him to “apologize”. Yet another threatened to file a “complaint with SEBI”. Another ridiculed Basant’s followers as suffering from “BM Mania” and claimed that they are “blinded” by his charm. Yet another claimed to have “busted BM’s gang who mislead the small retail investors for their own vested interest”. Some crossed the line by alleging that “Basant is a crook making tall claims of CAGR using leverage” and that “BM’s free advice just to manipulate the stock price so that he and his paid members get the benefit”. Some other allegations are that Basant had already sold off the stock when he made the public recommendation, etc, etc.

Basant has so far maintained a dignified silence and kept a stiff upper lip, refusing to be drawn into the debate.

However, Basant’s fans have rallied in his support. They have descended in large numbers and are keeping a 24×7 vigil at MMB. Every criticism of Basant meets with a swift and brutal rebuttal. The strategy that Basant’s fans are following is to highlight his long track record of picking winning stock picks and to emphasize that he is a man of “integrity”. They have also adopted the strategy of lampooning the detractors. “The critics of BM don’t know the story – they truly are the frogs in the well and who remain content being in the well. Live with your ignorance you ignoramus” one fan said. Another added that the criticism of Basant is “unprofessional and unacceptable statement. We know BM very well. Don’t act like smart here”. Yet another claimed to be happy to be living in “BM Mania”. Another was more direct: “You are only here to discredit and denounce and raise allegations without putting yourself in any line.. If you are such great man, pls give 2-3 reco like BM and lets see what happens in 6 months..”

Interestingly, Basant Maheshwari is not a stranger to criticism. On an earlier occasion, Basant was attacked on twitter for allegedly making a claim that his PMS/ portfolio had earned “65% CAGR” and for allegedly not having any evidence to back it up. His detractors also took umbrage at the fact that Basant is not “registered as a RIA” and is not “subjected to audit” from SEBI. On that occasion also, Basant’s followers turned up in large numbers to combat the detractors. There was a free-for-all slug fest of allegations and counter-allegations which lasted many days.

However, Basant is probably unaffected by all the criticism. He is a seasoned player and knows that if one wants to be in public life, one has to accept the bouquets with the brickbats.

Arbitrage Fund

Debt mutual funds were a perfect substitute to the conventional fixed deposits (FDs) because they offered much better post-tax returns. But the Budget 2014-15 took away the tax advantage of debt funds. Now, for debt funds to enjoy the benefit of indexation (gains after calculating inflation), they have to be invested in for three years or more. Having said that, liquid funds haven't been badly impacted because even though the tax advantage may have lessened, the convenience and better absolute returns they offer for very short-term, even overnight investing, is significant.

The change in taxation affects investors who have money for one to three years of investment or goals arising within that timeframe the most. If investors invest in FDs, Fixed Maturity Plans (FMPs), or income finds for less than three years, the returns get taxed at their respective marginal tax rate of 10 per cent, 20 per cent or 30 per cent. Most likely, the post-tax return from these FDs, FMPs or income funds will fail to beat current inflation levels.

There are three questions that will arise in the minds of investors:

* Do we have a substitute that could offer improved post-tax returns? How does it work?

* How safe is the substitute from protecting capital perspective?

* How will it better the income funds' returns?

Fortunately, the arbitrage fund could work as a substitute to the debt funds (that is, FMPs/income funds) for a period of more than one year and less than three years.

How does it work?

As you know, there are two markets - the spot market and the futures market. There is a price difference between the two. The fund manager buys a stock in the spot market. At the same time, he sells an equal quantity in the futures market. By doing this he doesn't take any market risk.

A fund manager buys, say, 100 shares of Infosys at Rs 3,560 in the spot market. At the same time, he sells an equal quantity in the futures market, at say, Rs 3,585. So the fund manager has booked a Rs 25 gain - on the expiry date of the future, the price converge providing the fund manager the gain of Rs 25.

The difference typically reflects the interest rate in the economy, mainly the overnight liquid fund rate. Please note the similarity in liquid and arbitrage fund returns (see table).

When do arbitrage funds work?

We need to ask if arbitrage funds are good at capital protection. Most of the time arbitrage funds mimic the liquid fund returns that prevail in the economy, but it may not work as a perfect substitute to liquid funds for three reasons:

* It is volatile over a short-term period

* One month in the last five years has seen a very marginal negative return as well

* On a one-month rolling return basis it has underperformed 19 out of 40 quarter periods over the last 10 years

However, arbitrage funds work as a good substitute for income funds over a one- to three-year time horizon.

Rolling return analysis

The three months and above rolling returns of arbitrage funds over a period of five years show that they have never been negative. However, the returns fluctuate quite a bit, with the worst three months rolling return being 0.55 per cent absolute. The rolling returns over one, two and three years gain steadiness with the maximum returns being in the 9 per cent region, whereas the worst return is four to six per cent.

The volatility in returns is a function of the arbitrage spread. It widens during uncertain and volatile times. Hence, it delivers a slightly better return during such times. However, the same typically narrows when the stock market is unidirectional.

Better returns than income funds

The worst return of arbitrage funds over two and three-year period equals post-tax FD returns. The upside of this strategy is that it can generate a post-tax return in the range of 9-9.5 per cent per annum. Arbitrage funds qualify as equity investment, resulting in tax-free returns for investments of over one-year periods. So, on the downside, long-term investors have very little to lose, but the upside offers good 9 per cent tax-free returns.

What to watch out for:

One has to be careful in selecting arbitrage funds because some of them have higher exposure to the debt category. The equity and equity-related instruments must cross the minimum average of 65 per cent to qualify as equity funds and to get the tax advantage associated with it. The whole purpose of using arbitrage in this situation is tactical. If this point is overlooked, the purpose itself will get defeated.

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The author is the founder & CEO of Fincart