Reliance Industries Bonus, Buy now or not !

Reliance announced a bonus issue of 1:1. Dividends were declared at Rs 13 per share. Whats changed?
During the years ended 31 March 2009 to 2003, Reliance has delivered earnings of Rs 103, Rs 135, Rs 83, Rs 68, Rs 54 and Rs 37 for a six year average of Rs 80 and a six year median of Rs 75.56. During this period dividends have been Rs 13, Rs 13, Rs 11, Rs 10, Rs 7.5, Rs 5.25 for a six year average of Rs 10.50 and a six year median of Rs 9.96. The long term payout ratio is 12.5%. Based on the long term payout ratio of 12.5%, a long term growth rate of 12% (in line with India long term GDP + Inflation expectations), I would value the stock at Rs 1,850 for an investor looking for an annualized return of 16% per annum.
Why the excitment about the bonus? After all if a company has 100 shares in issue and has a market cap of 100, it is worth 1 per share. Double the shares to 200 and all that happens is that shares become worth 0.50 each. But a bonus does have some interesting implications.
The first is that halving of the share price will make it more liquid; this tends to attract more buyers and results in stronger prices.
The second is that in India, normally the dividend per share is not cut following a bonus issue; which means the yield doubles. Suppose the Pre Bonus Share value is Rs 2,000 with a dividend of Rs 13. Post bonus you have 2 shares worth Rs 1,000 each with a total dividend of Rs 26. So thats an improvement.
Thirdly is understanding what the company is implying with the bonus issue. What Reliance is telling us is most interesting; it is saying that we expect a dividend of Rs 26 (per pre bonus share) to reflect a payout of 12.5% over the long term; they are expressing confidence in achieving median earnings over the next cycle of Rs 208. Now this is big news; if they achieve this, 6 years out Reliance shares could command a value of Rs 5,096 (i.e Rs 2,548 post bonus value); that is the value based on the long term payout ratio of 12.5%, a long term growth rate of 12% (in line with India long term GDP + Inflation expectations), for an investor looking for an annualized return of 16% per annum.
What the bonus means can differ for people. Some might view it as Reliance saying there are limited growth opportunities and so we are raising our long term payout ratio to 25%. My own view is that Reliance will maintain its 12.5% long term payout ratio; the journey for Reliance lies ahead not behind the company.
Reliance is a strong long term buy and persons other than buy and hold investors, can look for an exit value of over Rs 5,000 by 2014.

Reliance Industries Ltd Sponsored 144A Gdr equals 2 shares in Reliance Industries. It is lightly traded on the pink sheets and for that reason, it is not a GDR I would recommend to anyone other than a buy and hold in perpetuity investor. However exposure to the stock can be acquired via ETF's which have considerable exposure to RLNIY; and of course non resident Indians (NRI's) can buy the shares directly on the Indian National Stock Exchange or the Bombay Stock Exchage.

Source : StockTalks

Copper drops for first time in five days

Prices drop as the dollar inches up
Copper prices ended lower for first time in five days on Thursday, 19 November, 2009 at Comex. Prices rose to its highest levels in fourteen months yesterday. But on Thursday, it dropped due to the dollar and economic data.
At USA, copper futures for March delivery ended lower by 2.95 cents (0.9%) to 3.106 a pound. Earlier during the week, on Monday, it had touched a high of $3.142.
On the London Metal Exchange, copper for delivery in three months ended lower by $85 (1.2%) at $6,795 a metric ton. On 3 July, 2008, prices had touched an all time intra day high of $8,940.
In the currency market on Thursday, the dollar strengthen up against its previous days' position but continued to remain at its weak levels. The dollar index, which measures the strength of dollar against basket of six other currencies, rose by almost 0.2% paring majority of its earlier gains.
The Labor Department in US reported on Thursday, 19 November that the number of people filing initial claims for state unemployment benefits was flat at a seasonally adjusted 505,000 in the week ended 14 November. Initial claims are at the lowest level since early January, but they have hovered above 500,000 for 53 straight weeks, contributing to a 26-year high in the U.S. unemployment rate at 10.2%.
The Conference Board in US reported on Thursday, 19 November, 2009 that the index of leading economic indicators rose for the seventh consecutive month in October, showing that a recovery is "unfolding" in the U.S. economy. The leading indicators rose 0.3% in October after a 1% gain in September.
The U.S. buys about 13% of the 17 million metric tons of copper sold annually and China buys about 20%.
In FY 2008, copper prices dropped by 54%. Prior to 2008, copper prices ended FY 2007 with a gain of mere 5.5% after a whopping 44% gain in FY 2006. The price of copper gained every year since 2002 as global economic growth boosted demand for the metal used in pipes and wires.
At the MCX, copper for November delivery closed at Rs 317.3/Kg. The closing price was Rs 0.3/Kg (0.09%) higher than previous closing price. Prices rose to a high of Rs 319.9/ Kg and fell to a low of Rs 315.7/Kg during the day's trading.
Among other metals traded in the LME on Thursday, lead slid 0.3% to $2,397 a ton and zinc gained 1% to end at $2,269.5 a ton. Nickel gained 0.3% to end at $17,130. Aluminium was unchanged at $2,066 a ton.

Little change for precious metals

Prices manage a positive end as dollar pares most of its gains
Precious metal prices ended slightly higher on Thursday, 19 November, 2009. Prices rose as the dollar continued to stay weak despite paring earlier losses. Prices also rose riding on back of economic data.
Generally, a stronger dollar pressures demand for dollar-denominated commodities, such as crude oil and gold, which become more expensive for holders of other currencies and also vice versa.
On Thursday, gold for December delivery ended at $1,141.9, higher by $0.70 (0.06%) an ounce on the New York Mercantile Exchange. Yesterday, during intra day trading, it hit a high of $1153.4. This was an all time high prices marked by the yellow metal. Last week, gold ended higher by 2%. Year to date, gold prices are higher by almost 30%.
On Thursday, December Comex silver futures ended higher by 4.5 cent (0.2%) $18.455 an ounce.
In the currency market on Thursday, the dollar continued to remain at its weak levels. The dollar index, which measures the strength of dollar against basket of six other currencies, rose by almost 0.2% paring majority of its earlier gains.
The Labor Department in US reported on Thursday, 19 November that the number of people filing initial claims for state unemployment benefits was flat at a seasonally adjusted 505,000 in the week ended 14 November. Initial claims are at the lowest level since early January, but they have hovered above 500,000 for 53 straight weeks, contributing to a 26-year high in the U.S. unemployment rate at 10.2%.
The Conference Board in US reported on Thursday, 19 November, 2009 that the index of leading economic indicators rose for the seventh consecutive month in October, showing that a recovery is "unfolding" in the U.S. economy. The leading indicators rose 0.3% in October after a 1% gain in September.
In 2008, gold prices ended higher by 5.5%. The dollar index had gained 12% that year.
At the MCX, gold prices for December delivery closed higher by Rs 126 (0.73%) at Rs 17,231 per ten grams. Prices rose to a high of Rs 17,243 per 10 grams and fell to a low of Rs 17,085 per 10 grams during the day's trading.
At the MCX, silver prices for December delivery closed Rs 85 (0.3%) higher at Rs 28,312/Kg. Prices opened at Rs 28,200/kg and rose to a high of Rs 28,436/Kg during the day's trading.

Crude ends lower for first time in four days

Price drop due to dollar and economic data
Crude prices fell for the first time in four days at Nymex on Thursday, 19 November, 2009. Prices registered losses due to the dollar and economic data.
On Thursday, crude-oil futures for light sweet crude for December delivery closed at $77.46/barrel (lower by $2.12 or 2.7%). Crude had gained more than 4% in the past three sessions before Thursday. Last week, crude ended lower by 1.4%.
Oil prices had reached a high of $147 on 11 July, 2008 but have dropped almost 51% since then.
In the currency market on Thursday, the dollar continued to remain at its weak levels. The dollar index, which measures the strength of dollar against basket of six other currencies, rose by almost 0.2% paring majority of its earlier gains.
The Labor Department in US reported on Thursday, 19 November that the number of people filing initial claims for state unemployment benefits was flat at a seasonally adjusted 505,000 in the week ended 14 November. Initial claims are at the lowest level since early January, but they have hovered above 500,000 for 53 straight weeks, contributing to a 26-year high in the U.S. unemployment rate at 10.2%.
The Conference Board in US reported on Thursday, 19 November, 2009 that the index of leading economic indicators rose for the seventh consecutive month in October, showing that a recovery is "unfolding" in the U.S. economy. The leading indicators rose 0.3% in October after a 1% gain in September.
the EIA reported yesterday that crude inventories fell 900,000 barrels in the week ended 13 November, 2009 against an expectation of a modest increase. The weekly EIA data also showed U.S. crude imports fell 0.9% to 8.58 million barrels a day, and total petroleum demand rose 1% to 18.5 million barrels a day. Gasoline demand rose nearly 2% to 9.02 million barrels a day, returning to the level seen at the end of last month.
The report also detailed a decline of 1.7 million barrels in gasoline stockpiles and a drop of 300,000 barrels in distillates, which include heating oil and diesel.
Among other energy products, December gasoline lost 2.1% to $1.9695 a gallon, and December heating oil was down 2.5% at $1.9964 a gallon
Also on Thursday, natural gas for December delivery rose 2% to $4.342 per million British thermal units.
Crude prices had ended FY 2008 lower by 54%, the largest yearly loss since trading began at Nymex.
At the MCX, crude oil for December delivery closed lower by Rs 37 (1%) at Rs 3,649/barrel. Natural gas for November delivery closed higher by Rs 1 (0.5%) at Rs 200/mmbtu.

Nifty November 2009 futures below 5,000

Turnover rises
Nifty November 2009 futures were at 4,984, at a discount of 5 points as compared to spot closing of 4,989. Turnover in NSE's futures & options (F&O) segment jumped to Rs 79,048.32 crore from Rs 67,322.64 crore on Wednesday, 18 November 2009.
State Bank of India (SBI) November 2009 futures were at discount at 2,275 compared to the spot closing of 2,280.
ICICI Bank November 2009 futures were at discount at 886.50 compared to the spot closing of 890.
Suzlon Energy November 2009 futures were near spot price at 74.80 compared to the spot closing of 74.90.
In the cash market, the S&P CNX Nifty lost 65.70 points or 1.30% at 4,989.