Buy IGL Cmp 248.65 Rs, Short term target R1- 261 Rs, Medium Term Target R2- 274 Rs.....Rohit Saxena

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Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Yes Bank Call Closed..........Rohit Saxena

Yes bank Cmp 470 Rs, target was 469 Rs, total return 16% in 1.5 Month....CHEERS!!!!

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Update :- Buy and hold Yes Bank Cmp 404Rs, target R1- 425Rs, Target R2- 445Rs, Target R3- 469Rs......Rohit Saxena

Dear All,

Yes bank Cmp 446 Rs, today's High 446.95 Rs, R2- 445 Rs level achieved, total return till date 10.65% in one month,  Yes Bank sustain between 441 to 449 than the next target will be 469 Rs soon.

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Reliance Industries might go up from here because of Petroleum minister reshuffling...Experts View.

Regards
Rohit Saxena
Sent on my BlackBerry® from Vodafone

Yes Bank Q2 net profit at Rs3060.80 mn

Total Income has increased from Rs. 16527mn for the quarter ended September 30, 2011 to Rs. 22631.30 mn for the quarter ended September 30, 2012.
Yes Bank Ltd has posted a net profit of Rs. 3060.80 mn for the quarter ended September 30, 2012 as compared to Rs. 2350.20 mn for the quarter ended September 30, 2011.
Total Income has increased from Rs. 16527mn for the quarter ended September 30, 2011 to Rs. 22631.30 mn for the quarter ended September 30, 2012

Regards
Rohit Saxena
Sent on my BlackBerry® from Vodafone

Update on Yesbank

YesBank Cmp 390.40Rs, and hit the major support level as per the volatility in the market. But you will continue your position in YesBank and if u want than make average at this level with the stop-loss of Rs 385.

Regards
Rohit Saxena
Sent on my BlackBerry® from Vodafone

Buy and hold Yes Bank Cmp 404Rs, target R1- 425Rs, Target R2- 445Rs, Target R3- 469Rs......Rohit Saxena

Hold this stock with the support level of S1-397 to 391Rs , maximum time frame 1.5 months.

Thanks & Regards 
Rohit Saxenae
Sent on my BlackBerry® from Vodafone

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India's industrial output remains subdued in July.....Source IIFL

IIP for July 2012 came in at 0.1% versus expectations of 0.5% growth. India's industrial production barely moved in July, as weakness persisted in the critical areas of the economy such as manufacturing, mining and capital goods amid sticky inflation, high interest rates, fragile currency, global slowdown and policy paralysis.  The combined output of Factories, Mines and Power Utilities, as measured by the index of industrial production (IIP), inched up by a measly 0.1% in July 2012 as against expectations of a 0.5% growth.  India's industrial output was at 3.7% in July last year. The Commerce Ministry said today that IIP for June was left unchanged at -1.8%.  The cumulative growth for the period April-July 2012-13 stands at (-) 0.1% versus a decent 6.1% expansion in the year-ago period. IIP Break-up for July 2012: Manufacturing: -0.2% vs 3.1% YoY Electricity - 2.8% vs 13.1% YoY Mining - (0.7%) vs 0.7% YoY Basic Goods - 1.5% vs 10% YoY Intermediate Goods - (1.1%) vs (0.1%) YoY Capital Goods - (5%) vs (13.7%) YoY Consumer Durables - 1.4% vs 9% YoY Consumer Non-durables - 0.1% vs 4.1% YoY Markets just before IIP Data: Nifty and Sensex: 5,410; 17,929. Rupee: 55.23. 10-year Yield: 8.1862%. Markets just after IIP: Nifty, Sensex: 5,411; 17,932 Rupee: 55.23 10-year Yield: 8.1892%

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Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Sensex holds gains after disappointing IIP data....Source IIFL

India Infoline News Service / 11:19 , Sep 12, 2012

At 11:15am (IST), the BSE Sensex was trading at 17,923, up 70 points over the previous close.

The key Indian stock indices have managed to hold on to modest gains in late morning trade despite a disappointing report on industrial production for the month of July. The BSE Sensex and the NSE Nifty are just marginally higher. The Nifty has managed to stay above the crucial 5,400 mark. The overall market breadth is positive on the back of decent gains in the broader indices. At 11:15am (IST), the BSE Sensex was trading at 17,923, up 70 points over the previous close. It had earlier touched a day's high of 17,953 and a day's low of 17,904. It opened at 17,916. The NSE Nifty was quoting at 5,405, up 15 points over the previous close. It earlier touched a day's high of 5,417 and a day's low of 5,401. It opened at 5,404. RIL, Infosys, Wipro, TCS, Tata Power, HDFC Bank, ONGC, ICICI Bank, L&T, Sun Pharma, Coal India, Tata Steel, Maruti Suzuki, HUL, Tata Motors are among gainers in BSE Sensex and Nifty. Bharti Airtel, BHEL, Hero MotoCorp, ONGC, NTPC are among losers in BSE Sensex and Nifty. The BSE Small-Cap index and BSE Mid- Cap index was trading at 1%. PSU,  Metal, FMCG, Auto,  IT, Teck, Capital Goods,Bankex indices are the gainers. HC, Power and Oil and Gas indices are the losers. Barring Power, Pharma and Oil & Gas indices, most other sectoral plays are trading in the positive zone. Auto, Banking, Realty and IT indices are the top leaders so far. The remaining sectoral indices on the BSE are trading slightly higher as well. India's industrial production barely moved in July, as weakness persisted in the critical areas of the economy such as manufacturing, mining and capital goods amid sticky inflation, high interest rates, fragile currency, global slowdown and policy paralysis. IIP for July 2012 came in at 0.1% versus expectations of 0.5% growth. Meanwhile, June's IIP was left unchanged at -1.8%. The cumulative growth for the period April-July 2012-13 over the corresponding period of the previous year stands at (-) 0.1%.

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Titan Call Closed.....CHEERS!!!!

Titan Cmp 234Rs, todays high 234.35Rs, 2% up today, Total Return 7.62% Up in One Month.

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Stoploss triggered yesterday , Exist from the TVtoday stock

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Buy Yes Bank Cmp 336Rs, Buy between 327 to 336, target R1- 345Rs, R2- 357, R3- 370Rs.

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Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

UPDATE : Buy Titan Cmp 217.75Rs, Target R1- 223, R2- 229, R3- 235.....Rohit Saxena

Titan Cmp 222Rs, Todays High 223Rs...R1 Target achieved...Stock on the way....CHEERS!!!!

As per 10th Aug Updation.

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Buy and Hold TVtoday Cmp 61.35Rs, Target R1- 65Rs, R2- 68Rs, R3- 71Rs, Stoploss 60Rs Strictly follow.....Rohit Saxena

R means Resistance.

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Buy Titan Cmp 217.75Rs, Target R1- 223, R2- 229, R3- 235.....Rohit Saxena

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Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Update : Buy IGL Cmp 233Rs, Target 245Rs, Stoploss 226.90Rs....Rohit saxena

As per 26th July 2012 Updation.

 

IGL Cmp 258Rs, 7% UP, book partial profit at this level as per the market condition and continue further position for more profit.

 

Indraprastha Gas Ltd (Q1 FY13)

Indraprastha Gas Ltd (IGL) reported net sales of Rs7,607mn a growth of 41.7% yoy and 5.6% qoq. The growth was driven by a volume growth of 13.5% yoy for CNG and 23.5% yoy for PNG (lowest since Q3 FY10). CNG realizations were higher by 20.6% yoy, while PNG realizations surged 27.6% yoy on the back of price hikes implemented by the company. Revenue was ahead of our estimates on the back of higher than expected realizations in PNG segment and a beat on CNG volume growth assumption. OPM was at 23.6%, was better than our expectations. OPM declined of 577bps yoy but increased 35bps qoq. Gross margins/unit was lower by 1.6% yoy but rose 1% qoq. Over the past few quarters, the company has been able to pass on the impact of rupee depreciation and higher gas sourcing cost through price hikes in both CNG and PNG. Raw material cost as a percentage of sales was higher by 845bps yoy as the contribution of high-cost R-LNG increased in the raw material basket. Depreciation and interest costs were higher by 32.5% yoy and 72.2% yoy respectively owing to the capex program being executed by the company, large portion of which is being financed through debt. Better than expected OPM resulted in higher than estimated PAT. While the volume growth might remain strong given the steep discount between pricing of petrol and CNG, the main concern floating around the stock has been the restrictions on marketing margins implemented by PNGRB. We have kept our estimates and recommendation under review for the final verdict on the issue. Cost analysis As a % of net sales Q1 FY13 Q1 FY12 bps yoy Q4 FY12 bps qoq Raw material 64.4 56.0 845 63.5 89 Personnel Costs 1.6 1.9 (26) 1.8 (23) Overheads 10.4 12.8 (241) 11.4 (101) Total costs 76.4 70.6 577 76.7 (35) Source: Company, India Infoline Research   Results table (Rs m) Q1 FY13 Q1 FY12 % yoy Q4 FY12 % qoq Net sales 7,607 5,369 41.7 7,206 5.6 Material costs (4,899) (3,004) 63.1 (4,577) 7.0 Personnel costs (121) (99) 21.7 (131) (7.6) Other overheads (790) (687) 15.0 (821) (3.8) Operating profit 1,797 1,579 13.9 1,677 7.2 OPM (%) 23.6 29.4 (577) bps 23.3 35 bps Depreciation (427) (322) 32.5 (397) 7.4 Interest (155) (90) 72.2 (136) 14.1 Other income 31 18 72.1 24 30.7 PBT 1,247 1,185 5.2 1,168 6.8 Tax (396) (384) 3.2 (368) 7.7 Effective tax rate (%) 31.8 32.4   31.5   Adjusted PAT 850 801 6.2 800 6.3 Adj. PAT margin (%) 11.2 14.9 (373) bps 11.1 8 bps Ann. EPS (Rs) 24.3 22.9 6.2 22.9 6.3 Source: Company, India Infoline Research

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

RBI First Quarter Policy Review: Policy rates unchanged, SLR cut by 1%

First Quarter Policy Review - 2012-13

 

In the First Quarter Policy Review the Reserve Bank of India (RBI) has left key policy rates unchanged. However, it has cut the Statutory Liquidity Ratio (SLR) to 23% from 24% earlier.

 

RBI said that "The primary focus of monetary policy remains inflation control in order to secure a sustainable growth path over the medium-term. While monetary actions over the past two years may have contributed to the growth slowdown several other factors also have played a significant role. In the current circumstances, lowering policy rates will only aggravate inflationary impulses without necessarily stimulating growth. As the multiple constraints to growth are addressed, the RBI will stand ready to act appropriately. Meanwhile, managing liquidity within the comfort zone remains an objective and the RBI will respond to liquidity pressures, including by way of OMOs."

 

On the basis of the assessment of current economic situation, the Reserve Bank announces the following policy measures.

 

Monetary and Liquidity Measures:

 

Ø Cash Reserve Ratio (CRR): Retained at 4.75%

Ø Repo Rate: Retained at 8.0%.

Ø Reverse Repo Rate: Stands 100 bps lower to Repo rate at 7.0%.

Ø Bank Rate: Retained at 9.0%.

Ø  Statutory Liquidity Ratio:  Reduced to 23% from 24% for the Scheduled Commercial Banks with effect from the fortnight beginning August 11, 2012.

.

Domestic Outlook and Projections:

 

Growth:

In the April Policy, the RBI had projected GDP growth for 2012-13 at 7.3% on the assumption of a normal monsoon and improvement in industrial activity. Both these assumptions did not hold. The greater integration of the Indian economy with the global economy, have an adverse impact on growth, particularly in industry and the services sector. On the basis of the global & Domestic factors the growth projection for 2012-13 is revised downwards from 7.3% to 6.5%.

 

Inflation:

In the April Policy, the RBI made a baseline projection of WPI inflation for March 2013 of 6.5%. This was based, on an assumption of normal monsoon. The deficient and uneven monsoon performance so far will have an adverse impact on food inflation. Notwithstanding some moderation, international crude oil prices remain elevated. This, coupled with the pass-through of rupee depreciation to import prices, continues to put upward pressure on domestic fuel price inflation. Keeping in view the recent trends in food inflation, trends in global commodity prices and the likely demand scenario, the baseline projection for WPI inflation for March 2013 is now raised from 6.5%, as set out in the April Policy, to 7.0%.

 

Expected Outcomes

 

The policy actions taken are expected to anchor inflation expectations based on the commitment of monetary policy to inflation control; and maintain liquidity to facilitate smooth flow of credit to productive sectors to support growth.

 

RBI, lowering of SLR could bring down market interest rates as it would release close to Rs. 55,000 crores into the system. This would release the funds for private sector where interest rates could ease at least for the top rated companies and it would also improve the profitability of banks by almost 1%.

 

Our View:

 

From RBI`s policy statement it is clear that RBI will wait for the government to take decisive steps like fuel prices hike to bring down the fiscal deficit and look for signs of a sustainable moderation in inflation before re-initiating the rate cutting cycle. We are currently expecting a total of 50bp in cuts to the repo rate in current fiscal.

 

The bond yields surged to 8.22 -23 % levels reacting to the reduced demand for the government securities because of RBI`s SLR cut. Also lower than normal rain will also increase possibility of fiscal slippage which is not so good for yields. Given all these factors, bonds markets dependence on the RBI`s OMO's is very high to absorb the supply of Rs. 15,000 cr ($ 2.5-3 bn) week on week. Taking into consideration all these domestic and global economic developments it is expected that 10 year GOI  yields will be range bound between 8.20 to 8.40% till the time there is more clarity on the RBI`s stance on the OMOs.

 

 

The next Mid-Quarter Review of Monetary Policy for 2012-13 will be put out through a press release on Monday, September 17, 2012.

 

 

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Exist from ITC Cmp 260Rs, todays High 260.80Rs target was 262.15Rs..​....Call closed

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Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

CHEERS for McDowell-N Cmp 783Rs Call Closed

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Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Buy and Hold Voltas Cmp 102.50Rs, buy 50% at this price and rest 50% buy @ 95Rs, target R1-109Rs, R2-116.90R​s, R3- 122.70Rs..​...Rohit Saxena

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

RBI KEPT REPO, REV REPO AND CRR RATES UNCHANGED; SLR CUT FROM 24% TO 23%.

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Buy McDowell-N Cmp 745Rs, Buy between 727Rs to 745Rs, Target 781Rs....Rohit Saxena

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Buy McDowell-N Cmp 745Rs, Buy between 727Rs to 745Rs, Target 781Rs

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Buy McDowell-N Cmp 745Rs, Buy between 727Rs to 745Rs, Target 781Rs....Rohit Saxena

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Buy IGL Cmp 233Rs, Target 245Rs, Stoploss 226.90Rs....Rohit saxena

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Update On ITC

ITC cmp 256.45Rs, Todays High 257Rs, R1- Target achieve, book partial profit at this level and rest 50% sell @ 262Rs as per the result.

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

CHEERS for UBL Cmp 557 Rs, 10.5% Up.

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Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Book partial profit in UBL cmp 530Rs, Rest 50% sell @ 545 to 560Rs

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Hold ITC for two days Cmp 249.50Rs, buy between 245 to 250 with the target of 257Rs

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--

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Update On UBL

UBL cmp 521Rs, 3.5% Up today Nifty -30 points, Stock on the way.....CHEERS!!!

Stock moment 18th July to till date

Open

High

Low

Close

Volume

Value(Rs.)

Date ↓

 

478.70	506.00	475.00	502.85	179797	88662143.75	2012-07-24
491.65	501.70	470.10	475.75	88255	42910696.35	2012-07-23
494.00	509.95	494.00	504.05	163868	82568700.05	2012-07-20
501.00	510.00	491.35	494.60	92702	46543101.80	2012-07-19
502.20	509.00	492.05	499.60	108192	54168090.90	2012-07-18

 

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Maruti Suzuki: How critical is Manesar facility

Maruti Suzuki: How critical is Manesar facility

·         The violence at Maruti Suzuki's Manesar plant stalled production on Wednesday. The plant accounts for a third of the production capacity for the largest car maker in the country.

·         Here are pointers that explain how important this facility is for the company:

·         The Manesar facility has a capacity of 550,000 vehicles per annum. It accounts for a third of the company's production capacity.

·         The plant assembles or makes popular and profitable models like Swift, Dzire, SX4, A-Star and the newly launched Ertiga. The average realisation of sales or revenue per car at Manesar is Rs 4,00,000 against overall realisation of Rs 3,00,000. 

·         If the plant closes for more than 7 days, it could hurt the company's net profit.

·         If the plant is closed for a day, it costs Maruti Suzuki Rs 73 crore in revenue and Rs 8 crore in operating profit. If it closes for two weeks, the sales loss could be Rs 1,100 crore and operating loss of Rs 121 crore.

·         Maruti sold 96,597 vehicles in June 2012. The company reported a net profit of Rs 1,409 crore over net sales of Rs 36,069 crore for the year ended March 2012.

(Src: From the Web)

 

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Buy Supreme Petrochem ltd. Cmp 45.20Rs, buy between 42 to 46Rs, target R1- 52 Rs, R2-55, Rs R3-59 Rs.....Rohit Saxena

Supreme Petrochem FY12 net profit at Rs313.7mn.

Supreme Petrochem Ltd (SPL) a Styrenics major and the largest polystyrene producer in India has reported net revenues of Rs2272.67 crores for the year ended June 30, 2012 as compared to Rs1943.49 crores in the preceding year. Net profit was Rs313.7mn for 2011-12 as compared to Rs87.69 crores for 2010-11.

The Board of Directors of the Company in its meeting held on July 18, 2012 have recommended a Dividend of Rs1.40 per equity share of Rs10/- each for the year 2011-12.

SPL's operations during the year suffered on account of fall in export sales due to overall down turn in various regions of the global economy compounded by continuing disturbances in many countries in Gulf region and ongoing debt crises in Europe, continuing depreciation in the value of Rupee in parity to US Dollar and wide fluctuation in all major raw material prices.  These factors not only increased the cost but also resulted in lower volume sales in particular to the price sensitive sectors thus putting pressure on the margins of the Company.
 
The new plants for Expandable Polystyrene (including Cup Grade EPS) commenced commercial production from February, 2012.  SPL's total installed capacity for EPS thus stands at 72,100 TPA considering its plant sites in Maharashtra and Tamil Nadu and is the largest in the country.
 
The debottlenecking of the existing Polystyrene lines to increase the production capacity of premium value added grades by 50000 TPA within the overall capacity of 272000 TPA is progressing as per schedule and  is likely to be completed by the quarter ended December 31, 2012.  The Polystyrene plant will be partially shut down in the first phase for three weeks from July 21, 2012 for this purpose, however the Company will continue to service its customers.
 
The environment clearance for the 4000 KVA Captive Gas Engine Power plant has been received.  Consent to operate is awaited from Maharashtra Pollution Control Board. The plant is expected to start by September 2012.

Source :- IIFL PReMIA

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Buy and Hold Vijaya Bank Cmp 56.5Rs, buy 50% at this level, Rest 50% buy @ 52Rs, Target 62Rs.....Rohit Saxena

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Buy UBL Cmp 501Rs, add 50% at this level and add 50% @ 480Rs...Target 560Rs......Rohit Saxena

Thanks and Regards 
Rohit Saxena

Phone No: 09899365905
Mail Id: simmi9sep@gmail.com 

              

Warrants: A High-Return Investment Tool

Dear All,

 

 

A warrant is like an option. It gives the holder the right but not the obligation to buy an underlying security at a certain price, quantity and future time. It is unlike an option in that a warrant is issued by a company, whereas an option is an instrument of the stock exchange. The security represented in the warrant (usually share equity) is delivered by the issuing company instead of by an investor holding the shares.

Companies will often include warrants as part of a new-issue offering to entice investors into buying the new security. A warrant can also increase a shareholder's confidence in a stock, provided the underlying value of the security actually does increase over time. (Warrants are just one type of equity derivative. Find out about the others in 5 Equity Derivatives And How They Work.)

Types of Warrants
There are two different types of warrants: a call warrant and a put warrant. A call warrant represents a specific number of shares that can be purchased from the issuer at a specific price, on or before a certain date. A put warrant represents a certain amount of equity that can be sold back to the issuer at a specified price, on or before a stated date.

Characteristics of a Warrant
Warrant certificates have stated particulars regarding the investment tool they represent. All warrants have a specified expiry date, the last day the rights of a warrant can be executed. Warrants are classified by their exercise style: an American warrant, for instance, can be exercised anytime before or on the stated expiry date, and a European warrant, on the other hand, can be carried out only on the day of expiration.

The underlying instrument the warrant represents is also stated on warrant certificates. A warrant typically corresponds to a specific number of shares, but it can also represent a commodity, index or a currency.

The exercise or strike price is the amount that must be paid in order to either buy the call warrant or sell the put warrant. The payment of the strike price results in a transfer of the specified amount of the underlying instrument.

The conversion ratio is the number of warrants needed in order to buy (or sell) one investment unit. Therefore, if the conversion ratio to buy stock XYZ is 3:1, this means that the holder needs three warrants in order to purchase one share. Usually, if the conversion ratio is high, the price of the share will be low, and vice versa.

In the case of an index warrant, an index multiplier would be stated instead. This figure would be used to determine the amount payable to the holder upon the exercise date.

Investing in Warrants
Warrants are transferable, quoted certificates, and they tend to be more attractive for medium-term to long-term investment schemes. Tending to be high-risk, high-return investment tools that remain largely unexploited in investment strategies, warrants are also an attractive option for speculators and hedgers. Transparency is high and warrants offer a viable option for private investors as well. This is because the cost of a warrant is commonly low, and the initial investment needed to command a large amount of equity is actually quite small.

Advantages
Let us look at an example that illustrates one of the potential benefits of warrants. Say that XYZ shares are currently priced on the market for $1.50 per share. In order to purchase 1,000 shares, an investor would need $1,500. However, if the investor opted to buy a warrant (representing one share) that was going for $0.50 per warrant, he or she would be in possession of 3,000 shares using the same $1,500.

Because the prices of warrants are low, the leverage and gearing they offer is high. This means that there is a potential for larger capital gains and losses. While it is common for both a share price and a warrant price to move in parallel (in absolute terms) the percentage gain (or loss), will be significantly varied because of the initial difference in price. Warrants generally exaggerate share price movements in terms of percentage change.

Let us look at another example to illustrate these points. Say that share XYZ gains $0.30 per share from $1.50, to close at $1.80. The percentage gain would be 20%. However, with a $0.30 gain in the warrant, from $0.50 to $0.80, the percentage gain would be 60%.

In this example, the gearing factor is calculated by dividing the original share price by the original warrant price: $1.50 / $0.50 = 3. The "3" is the gearing factor - essentially the amount of financial leverage the warrant offers. The higher the number, the larger the potential for capital gains (or losses).

Warrants can offer significant gains to an investor during a bull market. They can also offer some protection to an investor during a bear market. This is because as the price of an underlying share begins to drop, the warrant may not realize as much loss because the price, in relation to the actual share, is already low. (Leverage can be a good thing, up to a point. Learn more in The Leverage Cliff: Watch Your Step.)

Disadvantages
Like any other type of investment, warrants also have their drawbacks and risks. As mentioned above, the leverage and gearing warrants offer can be high. But these can also work to the disadvantage of the investor. If we reverse the outcome of the example from above and realize a drop in absolute price by $0.30, the percentage loss for the share price would be 20%, while the loss on the warrant would be 60% - obvious when you consider the factor of three used to leverage, but a different matter when it bites a hole in your portfolio.

Another disadvantage and risk to the warrant investor is that the value of the certificate can drop to zero. If that were to happen before it is exercised, the warrant would lose any redemption value.

Finally, a holder of a warrant does not have any voting, shareholding or dividend rights. The investor can therefore have no say in the functioning of the company, even though he or she is affected by any decisions made.

A Bittersweet Stock Jump
One notable instance in which warrants made a big difference to the company and investors took place in the early 1980s when the Chrysler Corporation received governmentally guaranteed loans totaling approximately $1.2 billion. Chrysler used warrants - 14.4 million of them - to "sweeten" the deal for the government and solidify the loans.

Because these loans would keep the auto giant from bankruptcy, management showed little hesitation issuing what they thought was a purely superficial bonus that would never be cashed in. At the time of issuance Chrysler stock was hovering around $5, so issuing warrants with an exercise price of $13 did not seem like a bad idea. However, the warrants ended up costing Chrysler approximately $311 million, as their stock shot up to nearly $30. For the federal government, this "cherry on top" turned quite profitable, but for Chrysler it was an expensive afterthought.

The Bottom Line
Warrants can offer a smart addition to an investor's portfolio, but warrant investors need to be attentive to market movements due to their risky nature. This largely unused investment alternative, however, can offer the small investor the opportunity for diversity without having to compete with the elephants. (What's true for warrants is true for options, learn more in our Options Basics Tutorial.)

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Rohit Saxena

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Mail Id: simmi9sep@gmail.com