Currency Trading and the art of contrarian thinking

"The art of contrary" thinking is one of the most powerful tools
a trader can use, and is a trait with which all true great traders are
familiar with.
What is the Art of Contrary Thinking?
Humphrey Neill's book, "the art of contrary thinking," the best
known work on the subject, is based on a simple powerful idea that:
"When everybody thinks alike, everybody is likely to be wrong"
"The art of contrary" thinking consists in training your mind to
ruminate in directions opposite to general public opinions; but basing
your opinion in the light of current events and human behavior".

Why Contrary Trading Works
By spotting situations when the consensus of a currency is either
extremely bullish or bearish, means that a trend change is imminent, as
it is likely the emotions of greed and fear have pushed prices too far
away from true value.
If you can step aside from the crowd and take a contrary view at these
turning points, you can make big currency trading profits. Contrary
thinking can be used in any market and is highly effective in
currencies.
Contrary thinking can be used to make really big currency trading
profits and if used selectively, when markets are extremely over bought
or oversold, you can be in right at the start of the trend for maximum
profitability.
In any currency you look at - The Yen, Euro, British Pound Swiss Franc
Canadian or Australian dollar and many others, there are always
occasions where a currency trend in the news is forecast to continue,
due to overwhelming evidence in its favor and it then promptly
collapses!
Big profits from currency trading can therefore be made by using the art
of contrary thinking when the market is extremely bullish or bearish.
Why? Because everyone who has bought has taken positions and there are
no buyers left. Prices have moved away from fair value. When there is no
more buying to enter the market, a trend change is imminent.
It is clear that to succeed and make big profits in currency trading you
need to think independently of the majority at important market turning
points.
You can make big profits in currency trading from trend following, but
you can with a little practice spot potential turning points in
currencies as well which will help you bank profits, tighten stops or
open new trades right on the turn, for maximum profitability.
Contrary trading will not only make you big profits in currency trading
but in ANY market and has worked for centuries, as human nature never
changes.

Goenka Diamond & Jewels Ltd IPO

Goenka Diamond & Jewels Limited is entering the capital markets with an initial public offering (IPO) of 10,000,000 equity shares of face value of Rs.10 each with a price band of Rs. 135- 145 per share. The Company is looking to raise in excess Rs. 1.35 bn through this issue. The issue shall constitute 30.93% of the fully diluted post issue paid up capital of the Company.

Valuation and recommendation:

We value the stock at Rs. 159, by using the DCF method (WACC: 14.8% and Terminal Growth 5%), which offers an upside of 18% over the lower end of the price band and 10% over the upper end. Moreover, the issue appears attractive with an annualized FY10 P/E of 6.9x compared to an average of 15.7x for its peers (Shrenuj, Asian Star, Renaissance, Rajesh Exports and Gitanjali). Additionally, Goenka enjoys better EBITDA margins and net margin of ~10% and ~8.2%, respectively compared to 5.7% and 2.3% of its close peers (Shrenuj, Asian Star and Renaissance). Besides, it has enjoyed a superior ROE (FY09) of over 46% compared to a peers’ average of 10%-18%. Thus, we recommend investors to Subscribe to the issue.

The issue closes on March 26, 2010.

Stock Market Updates

US stocks declined as India’s unexpected interest rate boost spurred speculation withdrawals of economic stimulus will curtail global growth. The Dow Jones, S&P 500 and NASDAQ declined 0.35%, 0.51% and 0.59%, respectively. Exxon Mobil Corp. and Dow Chemical Co. dragged energy and raw-material producers to the biggest losses in the Standard & Poor’s 500 Index as oil fell. Financial shares dropped after Goldman Sachs Group Inc. cut estimates for banks and brokerages. Palm Inc. plunged 29% after forecasting sales that trailed analysts’ estimates and Canaccord Financial Inc. cut its share-price estimate to zero.

The benchmark FTSE 100 advanced, extending a 20-month high after shares of Lloyds Banking Group Plc soared, offsetting an unexpected interest rate rise in India. The FTSE 100 Index gained 7.51 points, or 0.13%, and ended at 5,650.13. Lloyds jumped 8.2% after it forecast a return to profit this year. Rival Royal Bank of Scotland Group Plc rallied 4.8%. Vedanta Resources Plc and Cairn Energy Plc limited gains as commodity producers fell with metal and oil prices.

 

Corporate News Headline

•

ONGC and partners walked away with more than half of the 33 oil and gas blocks awarded to successful bidders of the recently concluded eighth round of auction under the New Exploration Licensing Policy. (BS)

•

Bharti Airtel applied for broadband wireless access services spectrum for which government has kept the reserve price at Rs. 17.50 bn. (BS)

•

Larsen & Toubro has bagged a road project worth Rs. 14.00 bn from the National Highway Authority of India. (BS)

 Economic and Political Headline

The RBI raised key policy rates by 25 bps to mark a reversal of its easy monetary policy regime to tame inflation and anchor inflationary expectations. The central bank said that the repo rate, or the rate at which banks borrow from the RBI, is being increased by 25 bps to 5%. Similarly, the reverse repo rate, which is the rate at which surplus cash is parked with the central bank, was also increased to 3.5%, from 3.25% earlier. (BS)

The Federal Reserve Board removed an exemption it had given to six banks at the start of the crisis in 2007 aimed at boosting liquidity in financing markets for securities backed by mortgage- and asset-backed securities. The so-called 23-A exemptions, named after a section of the Federal Reserve Act that limits such trades to protect bank depositors, were granted days after the Fed cut the discount rate by half a percentage point on Aug. 17, 2007. (Bloomberg)

President Nicolas Sarkozy opposes Germany’s push for an International Monetary Fund loan to Greece, pitting the euro area’s biggest members against one another over a rescue plan. (Bloomberg)

Shree Ganesh Jewellery House Limited IPO

Shree Ganesh Jewellery House Limited is entering the capital markets with an initial public offering (IPO) of 14,269,831 equity shares of Rs. 10 each with a price band of Rs. 260-270 per share. The Company is looking to raise in excess Rs. 3.71 bn through this issue. The offer comprises a fresh issue of 12,136,497 equity shares by the issuer and an offer for sale of 2,133,334 equity shares by Credit Suisse Pe Asia Investments (Mauritius) Limited. The issue will constitute 23.52% of the fully diluted post issue paid-up capital of the Company. The fresh issue will constitute 20% of the fully diluted post issue paid-up capital of the Company.

Valuation and recommendation:

We value the stock at Rs. 280, by using the DCF method (WACC: 16.6% and Terminal Growth 5%), which offers an upside of 7.7% over the lower end of the price band. Moreover, the issue appears attractive with a forward FY11E P/E of 9.3x compared to an average of 10.3x for peer (Rajesh Exports and Gitanjali). Additionally, SGJHL has enjoyed a superior ROE of over 30% compared to a peer average of ~10%. Thus, we recommend subscribing to the issue at lower end of the price band.

The issue closes on March 23, 2010.

Persistent Systems Ltd IPO

Persistent Systems Ltd is making an Initial Public Offer (IPO) of 5,419,706 equity shares of Rs. 10 each (face value) at the price band of Rs. 290-310 per share. The IPO consists of a fresh issue of 4,139,000 equity shares and an offer for sale of 1,280,706 equity shares by Dr. Shridhar Bhalchandra Shukla, Vijayalaxmi Shridhar Shukla and Ashutosh Vinayak Joshi. The issue comprises a net issue to the public of 4,877,730 shares and a reservation of up to 541,976 equity shares eligible employees. The issue will constitute 13.55% of the fully diluted post issue paid-up capital of the Company and the net issue will constitute 12.19% of the fully diluted post issue paid-up capital of the Company.

Valuation and recommendation:

Based on our valuation, we recommend investors to subscribe to the issue. At a lower price band, the Company offers FY11E EV/EBITDA of 5.9x which is at a discount to peers’ average (Mindtree, Polaris Software, Hexaware, Mastek and Allied Digital) of 6.3x. Moreover, PSL proposes a comparable ROE of 20.1% for FY11E to the peers’ average of 20.7%. Although at upper price band, the FY11E EV/EBITDA of 6.3x appears in line with peer average, in our view, the issue may command some premium given high expected EBITDA margin of 23% for FY11E compared to 17.9% for peers’ average.

The issue closes on March 19, 2010.

IPO Note on IL&FS Transportation Networks Ltd.

IL&FS Transportation Networks Limited is entering the capital markets with an initial public offering (IPO) at theprice band of Rs. 242-258 per share to raise Rs. 7 bn. The issue comprises of an offer for sale of 4.28 million equity shares by Trinity Capital Limited and a fresh issue of more than 22.85 million equity shares with a face value of Rs. 10 per share. The object of the issue is to fund the pre-payment and repayment of a portion of debt availed by the Company and to utilize the funds towards general corporate purposes.

Valuation and recommendation:

According to our valuation, at a lower price band of Rs. 242, the Company offers an EV/EBITDA of 9.2x which is at a discount to peers’ (IRB Infra., IVRCL, Hindustan Const., Nagarjuna Const. and Gammon) average of 11.3x for FY11. The Company proposes a P/E multiple of 19.9x for FY11E, which is comparable to the peers’ average of 18.8x for FY11E, respectively. However, the Company enjoys a high EBITDA margin as compared to the peer average of 16% and also offers a better ROE of 13.7% for FY11 in comparison to the peer set’s average of 12.8%. So, considering attractive valuation and strong operational capabilities and parentage, we recommend investors to Subscribe to the issue.

The issue closes on March 15, 2010.

NMDC Ltd. FPO open for Subscription

NMDC Limited. FPO is open for Subscription. Below are the details of the FPO:

NMDC Limited

ISSUE OPENS
10-March-10

ISSUE CLOSES
12-March-10

PRICE BAND
Rs. 300/- to Rs. 350/-

MINIMUM APPLICATION
20 Shares