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Tuesday, April 8, 2008

Solrex buys buoy Orchid

The share price of Chennai-based Orchid Chemicals and Pharmaceuticals soared 15.83 per cent on the Bombay Stock Exchange today on reports of a possible takeover bid by Solrex Pharmaceuticals, a company believed to be controlled by the promoters of Indian pharma major Ranbaxy.

There were unconfirmed reports today of Solrex scaling up its stake in Orchid to 12.87 per cent from 9.54 per cent yesterday.

Orchid shares closed at Rs 239.95 against Rs 207.15 on Monday but the Ranbaxy scrip fell 2.71 per cent to close at Rs 470.75.

Ranbaxy refused to comment on the development and an Orchid spokesperson said, “We will not comment on speculation and are yet to get details on the bulk share purchaser.”

Solrex, which had a 4.62 per cent stake in Orchid earlier, bought 2.26 million shares on Friday, and 972,000 shares on Monday to increase its stake to 9.54 per cent.

The promoters of Orchid only hold 15.87 per cent, according to the latest available shareholding data. If Solrex crosses the 15 per cent threshold, it can make an open offer for a takeover under Sebi norms. The open offer will have to be made at Rs 236.34, Orchid’s average share price for the last six months.

Around a dozen institutional investors hold about 38 per cent in the company, Macquarie Bank Ltd (5.13 per cent), Life Insurance Corporation of India (4.91 per cent) and Harpline Ltd (4.54) among them. Orchid is banking on their support to counter the takeover attempt.

Orchid also has a $200 million Foreign Currency Convertible Bond (FCCB) issue that can be converted into shares, said sources.

Sources at financial institutions said they will adopt a wait-and-watch strategy. “Orchid Pharma has not written to us yet and we need time to study the whole thing. We need to see what value addition Ranbaxy will bring, what impact the takeover will have on our investments,” a source said.

“It is an insignificant thing for us. We have investments in several companies. When the time comes, we will decide. So far no one has written to us,” added another institutional shareholder.

A source close to the Ranbaxy management said Solrex was a personal family investment arm of the Ranbaxy promoter family and the investment in Orchid was more of a personal investment than a takeover attempt. But few are willing to buy that argument.

Religare, a Ranbaxy promoter group company that had sold its shares in Orchid recently, distanced itself from Solrex. “We have no connections with Solrex. Any information linking Religare to Solrex is incorrect,” the company’s CEO and Managing Director Sunil Godhwani said.

“It is definitely a hostile takeover attempt by Solrex. Orchid is a good company to buy and whoever takes over will be having management control of a Rs 2,400-crore company,” an industry expert commented.

Added Sarabjit Kaur Nagra, a pharmaceutical analyst with Angel Broking, “Orchid has made significant investments in world-class bulk drug manufacturing facilities in the last three years and it is emerging as a major player in the cephalosporin anti-bacterials and non-cephalosporin antibiotic products. This will help Ranbaxy access the strengths of Orchid, especially in the US and European markets.”

The 16-year-old Orchid has two manufacturing sites for active pharmaceutical ingredients (APIs) at Alathur near Chennai and at Aurangabad near Mumbai and three manufacturing sites for dosage forms at Irungattukottai and Alathur in Chennai. It also has two research and development centres at Sholinganallur and Irungattukottai near Chennai.

Posted by Srivatsan at 7:46 PM

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Understanding Short Term Trading

Before I begin, this blog is not for intraday traders. My definition of short term implies duration of around 2 to 3 months.

Short Term stock picking is no rocket science, but rather a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the securities movement.

Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.

Types of Moving Averages

1) Simple Moving Average (SMA)

SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.

2) Exponential Moving Average (EMA)

EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.

The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.

A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.

In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.

Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.

Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.