Equity Trading For Dummies : Thumbrules (Part 2)

First of all, thanks a lot to the readers for such an enthralling response to the last blog : Equity Trading For Dummies. It showed almost a 200% increase in readership for the first 48 hours!
This is an extension to the previous blog in which I have tried to list some more Factors/Indicators/Circumstances which affect the share prices of a company. Those who are active in markets very well know that these are not hard and fast rules but something that is most likely to happen in the given situation. So, when you read this, take them with a pinch of salt ;)
As always, looking forward to your constructive comments and suggestions.

Factor	Scenario	Impact
Credit Ratings	Decrease	Big investors take them seriously, especially if it comes from big houses like CRISIL, CARE, India Ratings(FITCH) etc. When India Ratings cut the ratings for Srei Infrastructure Finance from A+ to AA-, the stock tumbled 31% in a couple of sessions. A bad rating makes the availability of capital tough for the company apart from portending bad days.
Coal Supply	Decrease	Affects all coal-based steel & Power companies like JSW Steel, GVK Power, Reliance Power etc. Some of the companies like Tata Steel have their own coal mines called as Captive coal mines which helps to mitigate this decrease in supply to some extent. The amount of coal supply available with a company severely affects its Plant Load Factor (PLF) and thus its operations. JSW Steel fell drastically when the news of it having only 4 days of coal supply left hit the markets last year.
Rights Issue	At a price below the current market price	To increase the equity base, companies can take the route of a 'Rights Issue' which gives the existing shareholders the right to buy more of the company's shares. Generally, the companies price these issues at a steep discount to the current market price. This brings in more cash for the company but affects the present shareholders who are not tendering to the rights issue negatively. Alok Industries recently came up with its rights issue where the shareholders where given fresh equity at the rate of Rs 10 per share while the stock price at that time was around Rs 16. The stock fell by 18% the very day and drifted lower thereafter.
Promoter Stake	Increase	Affects the stocks positively as it shows that the promoters of the company have faith on the future of the company. Vakrangee Software hit its 52-week high on the day its promoters increased their stake by 4.57%. Similarly, Adani Power has dipped by 5% on reports that the promoters plan to sell part of their holdings in the coming days.
Festivals	As it closes in	All Hotels and Hospitality sector companies like Hotel Leela, Indian Hotels, EIH Ltd, Royal Orchid Hotels etc all rise. Sugar companies normally get high demand and if there is no negative ruling from government,  companies like Renuka Sugar, Balrampur Chini, Bajaj Hindustan should see uptick in their prices. Auto and Jewellery companies are also positively affected as people plan to buy new vehicles or jewellery during  the festivals. Companies like Jubilant Foodworks, which runs the Dominos Pizza, show increased revenue during these periods.
Movie Release	Bumper Opening	Very obvious, the companies associated with the movie will do well. Dabangg drove the prices of Shree Ashtavinayaka from around Rs 16 to Rs 52 in a couple of weeks. 'The Dirty Picture' did similar for Balaji Telefilms. PVR operates the largest chain of multiplexes and hence sees an uptick as and when any movie gets into the coveted club of Rs 100 Crores! Similarly, Cricket Worldcup affects these stocks negatively for obvious reasons.
Liquidity	Decrease	High Interest Rate Regime, Global Slowdown, Tax payments are some of the instances when the companies face liquidity crunch as big cash goes out of the market to safe havens or to government treasury. Very few factors impact share prices the way liquidity in the market does. A very recent example is the bond buying programs initiated by ECB and FED. Read about it here. Markets are already at their 52 Week high. RBI too pays heed to this parameter. Some of the SLR & CRR cut have been strategically announced just before the advance-tax payments by the companies. It's mostly on the increased liquidity in the system that now we are expecting the markets to scale 20K before the year ends.
Patents	Expiring	Bad for the actual innovator, good for the First-to-File pharmaceutical company as it enjoys a 180-day exclusivity for the sale of drug. We all know what Lipitor's FTF did to the share prices of Ranbaxy. More on this, read here.
Non-Performing Assets (NPAs)	Rising	One of the major parameters constituting any loan portfolio of banks and financial institutions. SBI slipped over 3.5% when it reported to have a gross NPA of 4.99% in its June'12 results. With strict regulations and BASEL III norms kicking in, this could be a big sore point for banks with high NPAs. Private banks like ICICI, HDFC, Yes Bank, IndusInd Bank generally have lower NPAs while PSUs like Central Bank, PNB etc normally have higher NPAs.
Markets	Booming	This is a very generic condition which is good for almost all stocks. But I would like to draw attention to the broking firms as investors suddenly start to flock in which leads to increased account activities and brokerage fees. Something like what is happening at present. Aditya Birla Money has appreciated by 80% in the past 8 days. Other firms like Edelweiss, India Infoline, Motilal Oswal, Geojit BNP also show similar trends.

Happy Investing :)

Equity Trading For Dummies : Thumbrules

The Equity trading is generally called as 'Gambling' and rightly so as 90% of the traders in the market only speculate the movement of the market/stocks and gain or lose money depending on their luck. But stock markets have their rules and they are a great source to learn Economics – both micro and macro as well as the way a business works. There are numerous factors which affect the way traders react to the share prices of a company. I have tried to compile the most common ones which one would generally come across while following the markets. These are strictly for those who have little or no exposure to markets and are willing to learn some tricks of the trade to get going. 

In the below table, I have detailed the impact of one scenario, for example A decreasing Rupee. The impact for a Rising Rupee will be vice-versa.

So, let’s take a look.

Factor	Scenario	Impact
Rupee	Decreasing	Exporters get more income IT, Pharma gains as they mostly export. Specially, those IT firms, who have higher hedged currency, outperforms Import bill gets dearer Everything we import gets expensive, specially oil. OMCs like IOC, BPCL, HPCL are the major losers. Airlines like Spicejet, Jet Airways have to pay more for ATF which makes up 40% of their costs.
Crude Prices	Increasing	Companies in exploration and extraction of crude oil gains. Eg. Cairn India OMCs and almost everything falls as we are heavily dependent on oil imports. It affects our fiscal spending and thus fiscal deficit.
Repo Rate	Decreasing	Cost of capital reduces and thus companies can borrow more for growth purposes. Thus almost everything gains led by banks and financials. Rate sensitives like Auto, Metals and highly leveraged companies gain in low interest rate regime.
Inflation	Increasing	Purchasing power of people decreases as the same amount of money fetches less. Consumption related stocks like HUL, ITC, Marico etc should effectively go down. However, if the overall economy is in bad shape, they still get higher valuations for being relatively safer.
Rainfall	Decreasing	Rural India gets affected and agri based companies like Rallis India, Fertilizer companies like Coromandal, RCF, Chambal are hit negatively as demand decreases. Tractor companies like M&M, Eicher and two-wheeler company like Hero Motocorp which has high exposure to rural market is also negatively hit as low rainfall leads to low income for rural india.
Commodity	Increasing	Rubber prices directly impact tyre manufacturers like Ceat, Apollo, MRF. Copra prices affect Marico and other hair oil manufacturers. Increase in Aluminium and Copper prices is good for a company like Hindalco, Sterlite which mines these metals while will augur negatively for stocks like Auto, Electronics manufacturer or other companies which utilize these metals.
Gold	Increasing	For that matter, increase in the prices of precious metals affects companies like Titan, Gitanjali etc which are in jewellery business as their margins decrease. A price increase by them helps to regain the lost margins. Gold Loan companies like Mannapuram and Muthoot gain as more and more people raise loan against gold at higher prices and thus the company's loan book expands. A falling gold price can be a nightmare for the gold loan companies!
Company Outlook of Parent/ Customer/ Supplier	Dismal	Dismal outlook for HP affects the share prices of Mphasis negatively as HP is the largest customer for the company. Such dependence exist for several companies. Similarly, something good for the supplier/customer will be reflected in the company's prices too.
Corporate Governance	Poor	Market hates such news. In the past one year, companies like DLF, Indiabulls, Everonn Education, Reliance Communications, Sun TV and many more have bore the brunt of reports of poor corporate governance. While a positive report is a long term value creator for the investors, a poor report creates instant money for short-sellers.
Equity	Buy Back	A buy back leads to an increase in EPS and thus more often the prices of the stock appreciates. The caveat is the quantum of buy back and the price till which the company is ready to buy. While buyback through tendering shows vigorous uptick, the open market buybacks generally keep the stock buoyed for longer duration. RIL's open market repurchase of the share began the recent rally in its stock prices.
Debt	Reduction	Any plans for debt reduction is mostly considered to be good. But at what cost the debt is being reduced is of prime concern to investors. DLF, IVRCL etc plan to deleverage their balancesheets by selling off their less productive ventures and shareholders like that. While Orchid Chemicals' sale of its Penecillin & Penem API business to Hospira served negatively for the shareholders as the business was a substantial source of revenue for the company.
Excise/Customs Duty	Increase	Mostly affects companies in a negative way as their PAT gets affected. But increase in the excise duty of a competitor product augurs well for the company. For eg. Budget 2012 increased the excise duty on the non-cigarette tobacco products which served positively for cigarette manufacturer ITC.

As I said earlier that these are only a few of the factors which affect the share prices of a company. There are many more. Depending upon the response and the feedback to this article, I may or may not cover them. J