Monday, January 18, 2010

>My Goal is to Make 20 Pips a Day (ARTICLE)

You would think something as simple as what I am about to share with you would be widely followed, but you'd be wrong. Even in my own trading this simple concept seems to be beyond comprehension at times.

To survive trading in our beloved forex market, you have to limit your losses to the point they are minor annoyances. And then you have to take more in profits than you give up in losses. Pretty simple concept isn't it.

But why do most traders fail to comprehend this basic truth of trading? Is it all in their heads? Perhaps, but we'll deal with the head case aspect of forex trading in another article.
Right now let’s get to the premise of this article, which is simply this: make it your goal to lock in a 20 pip net gain every day you trade. I know that sounds boring. Its not as sexy as hitting those 100 pip trades. But you are trading to make money not to entertain yourself right?

If not, you are likely to go broke, and sooner than later I’d guess. So lets get into the mindset that this is a Business, and it must eventually make a profit if it is to continue operating.

For starters you should be trading on a mini lot size account, where each trade unit or lot is only 10K. Lets go over the math real quick. First lets discuss leverage, and how to honestly
determine your actual trading leverage. Your brokers most likely tout that you have a 400:1 leverage account. This means nothing to us, other than if you think actually trading at 400:1 leverage is a good idea, you are a fool.

What it does mean is that the required margin deposit per open position is very low. This is a good thing right? Well yes, I suppose so. When it becomes a bad thing is when you decide to start leveraging your trades more than 5:1 per entry.

Remember, leverage magnifies both gains and losses equally. Also remember that the broker is taking the other side of your trade. He wins when you lose. He would love it for you to trade like a fool.

To read the full report: 20 PIPS


• Country-specific risk is now returning to the forefront as systemic risks wane.

• 2010Q1 marks the return of headline inflation as the 2008/09 oil price declines fall out of the data.

• Central banks will look through this to stable and low core price inflation but the divergence ensures that the inflation risk premium in financial assets persists.

• A sticky inflation risk premium has some potential to cause measures of inflation expectations to drift higher, with the U.K. most at risk.

• Fiscal strains are building with ratings agencies focused on European sovereigns for now.

• The fabric of the Euro is strained by divergent economic trends within the Euro area and the ECB will struggle to manage sixteen imperfectly integrated economies with just one interest rate.

• The publication also includes quarterly interest rate and exchange rate forecasts for the U.S., Canada, Australia, and New Zealand, and also offers additional exchange rate forecasts for the Japanese yen, the euro, the U.K. pound, and the Swiss franc.

To read the full report: GLOBAL MARKETS

>Shree Renuka Sugars Limited (MORGAN STANLEY)

Quick Comment: Maintain OW - We expect sugar companies in India to report record high earnings in F2010. Domestic sugar commodity prices have increased by around 30% over the past month even as sugar stocks trail domestic sugar prices, up 0-12% in the same period. The consensus – only thin coverage – is constructive toward the sector but the market seems skeptical. We are buyers of the sector as we think: 1) sugar production in India will surprise on the downside, 2) 2-3mn tons of incremental sugar will have to be imported – prices will likely rise further to discourage unmet demand, and 3) India will continue to import sugar in F11 – domestic prices are unlikely to collapse in the medium term.

1QF10: Strong Numbers; Best is yet to Come – OW

What's new: Shree Renuka Sugars (SHRS) reported 1QF10 results with consolidated revenues, EBITDA and PAT at Rs14.3bn, Rs3.6bn and Rs2.6bn, respectively. Revenue growth for the quarter was driven by a combination of higher realization across business segments, trading gains and strong operational performance of the refinery business. Interestingly SHRS has an imported white sugar inventory of 0.1mn tons at around Rs38,000/MT. The management seems to be preparing for intensifying sugar supply concerns in India around June-July 2010 as the country runs out of sugar or alternatively the government is forced to import sugar at high prices, in our view.

Value creation through ‘sugar trading’: An estimated 23% of the company’s standalone profits in 1QF10 are sugar trading profits. This is primarily on account of the company booking profits by selling some of the imported raw sugar inventory to other mills and entering into back-to-back contracts for fresh delivery in the futures market, thereby taking advantage of the sugar futures curve, which remains in steep backwardation. While this may be considered as one-off profits, it underpins our view on management’s focus on maximizing returns across business segments.

To read the full report: RENUKA SUGARS


We believe that the growth momentum of top tier Indian IT services firm is likely to continue. We are not anticipating any negative commentary from the management about the IT budget for CY10. As the corporate profits rebound in CY10 after hitting a new low in CY08-09, we expect the companies to spend more on their IT. We continue to believe that a discretionary spend in IT is still 2-3 quarters away but may witness some large transformational contracts on the blocks in H1CY10. We continue to prefer large cap Indian IT services companies for their clients, geographical and service offering diversification.

IT services – building blocks for the sustained competency of companies: We believe that as companies in S&P500 witness stability in their business in CY10 after declining sales and profitability in CY08-09, the willingness to spend more is going to increase. We expect the
companies to continue to take more of tactical decision for IT outsourcing deals with sporadic transformation deals in the first half of 2010 before large deals would be put on blocks for outsourcing. We are not ruling out positive surprises in our assumptions.

Return of the Indian IT sector

Volume momentum – help maintain margins: We are expecting that the cost cognizance measures taken by the companies in FY10 are likely to continue. Although the hiring plans by large peers and its global competitors give early indication of wage inflation, we believe that the weak hiring and lay-offs in CY08-09 did ease the supply-side constraints for the next two quarters. But the aggressive hiring plan on the cards could result in wage inflation in H2CY10.

Revising our estimates upward for FY10 and FY11: We are factoring in a volume growth of 13-17% for FY11, with no negative bias on pricing. We are revising our revenue estimates by 0-1% and 0-2% for FY10 and FY11, respectively. We revise our EPS estimates for 0-3% and 0-5% for FY10 and FY11, respectively.

Valuations and Recommendations: We upgrade Wipro to ‘BUY’, with a revised target price of Rs815 (from Rs680). We reiterate ‘BUY’ on TCS, with revised target price of Rs850 (from Rs680), ‘Accumulate’ on Infosys, with a revised target price of Rs2,900 (from Rs2400) and ‘Accumulate’ on HCL Tech, with a revised target price of Rs430 (from Rs360). We assign a target multiple are 23.0x, 23.0x, 22.0x and 15.0x FY11 earnings for TCS, Wipro, Infosys and HCL Tech, respectively.

To read the full report: INDIAN TECHNOLOGY


Company Snapshot: Prism Cement Limited is an ISO 9001:2000 certified company promoted by Rajan R heja Group which has diverse business interests. The company operates one of the largest single kiln cement plants in the country at Satna, Madhya Pradesh. Equipped with state-of-the-art machinery and technical support from F.L Smidth & Co., A.S Denmark, the world leaders in cement technology, the company has successfully created a niche for itself in the Indian cement industry.

The company manufactures Portland Pozzollana Cement (PPC) with the brand name ‘Champion’ and Ordinary Portland Cement (OPC). ‘Champion’, its largest selling product, is general purpose cement mainly used in housing construction. OPC is used for specialized applications like high rise buildings, bridges, AC sheets, pipes, poles, etc.

The company has the highest quality standards due to modern plant with automated controls. The strength and other characteristics of its cement are much higher than the BIS requirements. This together with brand building exercise has placed it in the premium price segment.

The company caters mainly to markets of UP, MP and Bihar which are within the radius of 340-370 kms of its plant at Satna, MP. The company has strong marketing network with over 2000 dealers serviced from 46 stocking points without any wholesalers.

Highlights/Recent updates: The Scheme of Amalgamation u/s 391-394 of the Companies Act, 1956 to amalgamate H. & R. Johnson (India) Limited and RMC Readymix (India) Private Limited with the Company has been approved with the requisite majority by the shareholders and creditors of the Company. The Scheme is subject to the approval of High Courts of Judicature at Bombay and Andhra Pradesh. The Amalgamation will be accounted from the appointed date of April 01, 2009 on getting necessary approvals.

The all-stock deal will transform the Madhya Pradesh-based company into an integrated building material supplier with a major presence in tiles and sanitary ware and readymix concrete. However, a cause for concern is the poor profitability of the tiles and RMC business, which could pull down the operating margin of the combined entity.

To read the full report: PRISM CEMENT