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Thursday, April 14, 2011

Market Rising: Liquidity, Short Term Interest Rates (secret behind market moves)

Markets have made a swift move upward..
Change in Fundamentals?
FII Investments?
NO .. I dont think so.. The secret is "Short term interest rates (Liquidity)"

Just look at the MIBOR (Mumbai Inter Bank Offer Rates) and look at Index movement.
April 2011 3 Month MIBOR Avg (6 days data) :9.055%
March 2011 3 Month MIBOR Avg (22 days data) : 10.16%
Feb 2011 3 Month MIBOR Avg ( 19 days date): 9.48%
Jan 2011 3 Month MIBOR Avg (20 days data): 9.10%
Dec 2010 3 Months MIBOR Avg (22 days data): 8.74%
Nov 2010 3Months MIBOR Avg (20 days data): 8.03%
Oct 2010 3Months MIBOR Avg (21 days data): 7.65%

Conclusion: Liquidity is the medium on which stock prices runs.. drop in liquidity will be reflected by rise in  short term  interest rates.. and fall in stock prices. 
Short term interest rates are leading indicators .. ie 
- Rise in short term interest rates will be followed by a drop in stock price.
- Fall in short term interest rates will be followed by an increase in stock prices

FII Investments.. pulling out or pumping in will directly affect availability of short term credit. So short term interest rates are the catch all indicator of market sentiments..

MIBOR Rates are available here (Link)

Company: Gujarat Ambuja Exports: March 2011 Shareholding

Gujarat Ambuja Exports has just released its shareholding details for the quarter ending March 2011.
1. Mutual fund ownership has risen by 1,00,000 shares between Dec 2010 and March 2011 (Shares held per Mutual Fund: March 2011: 6,59,481.78 Dec 2010: 6,52,338.92)
2. HSBC Midcap Equity fund now owns 1.03% in GAEL (HSBC Mutual funds as a group own 28.89 lakh shares in GAEL (link))
3. There has been selling by corporates and there has been an increase of 488 individual shareholders between Dec 2010 and March 2011. (shares held per individual investor: March 2011: 616.65, Dec 2010: 619.51)  
4. There has been an increase in the no of HNI by 1 to 28 and avg shares held by HNI is: (1,10,459 shares per HNI  Dec No: 1,10,680shares per HNI)
5. A 1 Year return on investment on GAEL is 92.57% which is exceptional (more because of the low prevailing prices in April 2010 of 17.50 - Dream prices)

Conclusion: Fundamentally CMP: 33.75 MarketCap: 466.94Cr Sales(TTM):1692.83Cr PBDIT(TTM):153.1Cr Net Profit (TTM):86.82Cr  Long term Debt 18Cr (March 2010). GAEL is still a Value story. Also 1st Quarter(Jan -March)  has traditionally been a weak quarter for stock prices because of Tax outflows, Tight market conditions and provides a very good period for buying into Stocks .. I see GAEL rising to target levels of 100+ but would have a target time frame of 18-24 months due to tight liquidity conditions.. (short term interest rates (3 months is close to 9% and was above 10% in March 2011)