For Pr ivate Circulation
Volume 1 Issue 40
SECTORs
RIDING
THE WAVE
OF OPTIMISM
With renewed
confidence in India Inc’s
growth story,, here are
10 broadly-picked
sectors that play an
integral part in the
country’s success
28th O c t ’10
DB Corner – Page 5
India Calling
Post the economic meltdown, things are looking good for travel companies, who have
realised the importance of going local to beat competition and grow in size - Page 6
IPO Rush Hour
Of the 100 companies or so that have filed their prospectus and are waiting to get listed,
Coal India with plans to raise funds to the tune of over `15,000 crore, is one of the largest
IPOs in recent times – Page 9
Riding The Wave Of Optimism
With renewed confidence in India Inc’s growth story, here are ten broadly-picked sectors
that play an integral part in the country's success - Page 12
In Concurrence
More and more fund houses are launching index funds as they imitate the index and are
low-cost alternatives to actively managed funds with lesser risks - Page 28
A Win-Win Situation
The government is boosting the infrastructure sector by making investments in infrastructure bonds eligible for tax exemption upto the extent of `20,000 - Page 31
Volume 1
Issue: 40, 28th Oct ’10
Editor-in-Chief & Publisher: Rakesh Bhandari
Editor: Tushita Nigam
Senior Sub-Editor: Kiran V Uchil
Art Director: Sachin Kamble
Junior Designer: Sagar Padwal
Marketing & Operations:
Dwiti Bhuta, Savio Pashana
Sunny Side Up For EPFs
The Union Finance Ministry has assured that the entire 9.5% interest on EPF deposits will
not be taxed in the current fiscal, thus benefitting scores of people - Page 33
The Currency Yo-Yo
Investors need to stay abreast of currency exchange rates as it has the potential to impact
the fundamentals of the stocks they have invested in - Page 34
Fortnightly Outlook For Commodities – Page 37
Fortnightly Outlook For Currencies – Page 38
Research Team:
Sunil Jain, Kunal Shah, Michael Pillai, Hussain Nagarwala,
Vikash Bairoliya, Ashish Khetan , Ruchita Maheshwari,
Anand Vyas, Kavita Jogani, Runjhun Jain, Venugopal Kasat,
Pulkit Bhagat, Aditya Powani, Niraj Garhyan, Dipesh Mehta.
Important Statistics For The Fortnight Gone By – Page 39
HEAD OFFICE
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Tel: 022 - 22641234, 30272000 / 2222
S Ramadorai: Not Just An 'IT' Guy
The Non-Executive Chairman of the Bombay Stock Exchange, Subramanian Ramadorai not
only loves number crunching, but also takes equal pleasure in listening to music and
capturing wildlife on camera - Page 44
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LADDERING: Moneytree Gains
Investors can use the method of laddering to grow money as it is an investment strategy
by which they can invest in several securities with different maturities - Page 46
We, at Beyond Market welcome your views,
comments, inputs and feedback.
Do help us to grow better as per your liking.
This is our attempt to reach you better while
crossing horizons...
beyondmarket@nirmalbang.com
Tel No: 022 - 30278232
Beyond Market 28th Oct ’10
The Unusual Shapes Of Economic Recoveries
When economists describe recovery, it is usually in the form of alphabets like V, U, W and L
- Page 49
Rising Stars
Small glitches notwithstanding, the Commonwealth Games turned out to be a spectacular
event with a plethora of lesser-known athletes becoming the rising stars of tomorrow by
winning plenty of medals for the country - Page 52
It’s simplified...
3
Riding The Elephant
The markets look good
at the moment and individuals
can look at buying at
current levels
as well as on declines.
The Indian economy’s ride up has been quite smooth as compared with other global econo-
mies that are still trying to figure out ways to overcome the recessionary blues. India braced the
global storm through strong domestic factors and demographics that continue to hold the
country in good stead and maintain the growth trajectory, going forward.
T
The Indian capital market looks fundamentally strong. The recent gush of inflows by foreign
institutional investors (FIIs) is a result of the faith they have in the economic and earnings
growth of our country. In view of India’s growth potential, we have broadly picked 10 sectors
that are part of the country’s growth mechanism, for our cover story in this special issue for
Diwali. Here, we have given our view and the possible risks that the chosen sectors may face in
the next one year.
he earnings for the September quarter have so
far been in line with market expectations. Industry analysts have forecasted a 20% increase in
profit after tax (PAT) year-on-year (y-o-y) for the Nifty
50 companies. The inflow of funds from foreign institutional investors (FIIs) has been rising steadily.
On the same lines, there is an article on the slew of IPOs that are likely to the hit the markets in
the coming months, with the main focus on Coal India Ltd, one of the largest IPOs we have seen
in recent times. Apart from this, there is an article on the travel and tourism industry in India,
which has recovered strongly from the after-effects of the global economic meltdown, mainly
on the back on domestic numbers.
Domestic factors seem to be supporting the upmove on
the Indian bourses. The markets look good at the moment
and individuals can look at buying at the current levels as
well as on declines. The Nifty has support at the 5,950
level and one can buy at this level.
Similarly, Index Funds appear to have found favour with mutual fund houses as they are coming
out with a large number of index funds, thanks to their low cost, low risk and also since they are
actively managed.
Among sectors, pharmaceutical, banking and auto
ancillary look attractive. Aurobindo Pharma Ltd (LTP: `
1,184.55) looks good among pharma stocks. Also, Ranbaxy Laboratories Ltd (LTP: `605.75), Orchid Chemicals
and Pharmaceuticals Ltd (LTP: `323.90) and GlaxoSmithKline Pharmaceuticals (LTP: `2,349.80) that were
mentioned last time, look good buys.
There is also an article on infrastructure bonds in this issue. This is mainly because the government is leaving no stone unturned to boost the infrastructure sector and has exempted tax up
to `20,000, making infra bonds a lucrative investment option. A piece on currency exchange
and its potential to affect stocks, also finds a mention in this issue.
The Beyond People section features S Ramadorai, the Non-Executive Chairman of the Bombay
Stock Exchange, who is surely a person worth reams of paper, due to his academic and professional achievements. The Beyond Learning section carries two interesting articles on the
different shapes of economic recoveries and laddering, a widely used concept to invest in fixed
income securities.
On an ending note, I would like to take this opportunity to wish you, our valued readers, a very
Happy Diwali and a Prosperous New Year. May your investments bear ripe fruits this yeaR.
Tushita Nigam
Editor
Also, Allahabad Bank (LTP: `251.50), Canara Bank
(LTP: `731.55), Yes Bank (LTP: `369.60), Central Bank
of India (LTP: `228.10) and Syndicate Bank (LTP:
`137.30) look good buys in the banking sector.
Similarly, Gabriel India Ltd (LTP: `67.05), Rane
4
Beyond Market 28th Oct ’10
It’s simplified...
Beyond Market 28th Oct ’10
(Madras) Ltd (LTP: `182.20), Carborundum Universal
Ltd (LTP: `246.60) as well as Motherson Sumi Systems
Ltd (LTP: `191.65) can be considered among the auto
ancillary stocks.
Gujarat State Fertilizers and Chemicals Ltd (LTP:
`377.70), Ador Welding Ltd (LTP: `220.05), Asahi India
Glass Ltd (LTP: `113.10) and Indiabulls Financial
Services Ltd (LTP: `210.95) can also be looked at with
investment and trading perspectives.
The stock markets could witness a correction if the
stimulus measures, to be announced by the US Federal
Reserve at its upcoming meeting, are not in line with
street expectations.
I would like to wish all our readers a Happy Diwali and a
Prosperous New YeaR.
Sensex: 20,165.86
Nifty: 6,066.05
(As on 22 Oct ’10)
Disclaimer
It is safe to assume that my clients and I may have an investment interest in
the stocks/sectors discussed. Investors are required to take an independent
decision before investing. Investment in equity is subject to market risk. Our
research should not be considered as an advertisement or advice, professional
or otherwise. The investor is requested to take into consideration all the risk
factors including their financial condition, suitability to risk return profile and
the like and take professional advice before investing.
It’s simplified...
5
W
ith unfavourable sentiments related to
economic slowdown ebbing away and a
marked improvement in business and
leisure travel, there is a wave of optimism
rising in the travel and tourism industry.
Quite a few factors have contributed to this optimism for
the travel and tourism industry. First of all, there has been
a growth in foreign exchange earnings due to arrival of
foreign tourists. According to the website of the Ministry
of Tourism, in September this year, on a year-on-year
basis, foreign exchange earnings have been Rs 4,678
crore, a growth of 23%. Secondly, there has been a
growth in the number of travellers. The data available on
the website of the Directorate General of Civil Aviation,
states that there has been a growth of around 20% in the
number of passengers carried by domestic airlines in the
year-to-date period. And finally, the Commonwealth
Games 2010 has boosted the travel and tourism sector.
THE INDUSTRY
The travel & tourism industry has indeed come a long
way. According to the report Travel & Tourism Competitiveness 2009 by the World Economic Forum, the contribution of the travel and tourism sector to India’s gross
domestic product (GDP) is expected to be around US$
187.3 billion by 2019.
The report says export earnings from international
tourists could be US $51.4 billion by 2019. This shows
that the travel and tourism sector is ready for good
growth in the coming quarters. Even at present, the
industry is generating around 6.5% of the total employment as compared to 2009. It is estimated that by the year
2019, the sector would account for 7.2% of the total
employment, which in terms of numbers comes to
around four crore.
India
Calling
With huge money being pumped into infrastructurerelated sectors like airline and hospitality that are coming
out of recession, the tourism sector is expected to grow in
the coming quarters. It is estimated that the number of
branded hotel rooms in India would double from around
one lakh, in the next three years.
Post the economic meltdown, things
are looking good for travel
companies, who have realised the
importance of going local to beat
competition and grow in size
6
Beyond Market 28th Oct ’10
It’s simplified...
Many global players are expected to add over 300 hotel
properties, which translates into nearly 55,000 rooms, by
2013. The Commonwealth Games in Delhi is believed to
have turned the tables for the travel and tourism sector
with heavy investment in terms of new hotels for foreign
participants and spectators.
DOMESTIC OUTBOUND
It has been observed that in the last five financial years,
Beyond Market 28th Oct ’10
the growth in sales or topline of travel and tourism
companies has been driven by domestic outbound rather
than foreign inbound. These include travellers for higher
education or on business tours, vacationers and other
travellers. For instance, Cox & Kings India’s sales or
topline in the last five fiscals has grown higher than its
revenues from foreign exchanges. For FY10, the
company’s sales were `176 crore, while its revenue from
foreign exchange was `100 crore.
In India, the company’s revenue from outbound travel
(people going abroad) has been growing at a rate of 20%
in the past few years, while its revenues from inbound
travel (foreign tourists coming to India) has been growing at 8-10%. This means that around half of the
company’s revenues come from outbound travel.
So is the case with its nearest peer, Thomas Cook India.
The company in the last five fiscals also has revenues
higher than revenues from foreign exchange. The chief
reason is that domestic outbound is more of a volumedriven business, while foreign inbound is not as big as
domestic outbound and domestic inbound. Hence, many
international players in the travel and tourism industry
are eyeing emerging markets especially Indian markets
as domestic inbound and outbound travel fetch higher
volumes for these players.
BUSINESS MODEL
To secure a larger pie of the growing travel scenario on
the domestic front in both, business as well as leisure,
many travel and tourism companies are adopting
franchise models. Cox & Kings India, for instance, is
now tapping tier-II and tier-III cities to increase its
market share locally. To achieve its goals, the company
has adopted a franchise model. At present, it has 94
franchise sales shops that ensure that its brand reaches
beyond the metros.
In the next two years, the company plans to increase its
number of franchises to about 150. So is the case with
Thomas Cook India. By adopting the franchise model,
companies save huge costs involved in buying and
setting up an office. Besides, it is also time-consuming
for companies to increase their presence in different
cities. Whereas, franchise model saves both costs and
also serves as the best possible way to increase a
company’s presence in different cities in a shorter period
of time. This business model is serving good for all travel
and tourism companies.
GOING FORWARD
Tourism companies are expecting the December and
March quarters to be lucrative for them. More so, since
It’s simplified...
7
Zealand. In terms of revenues, the Indian market still
forms a chunk of the companies’ total revenues.
As the fortunes of hotels, airlines and travel & tourism
companies are inter-related, with rising passenger
growth, increasing expansion plans of hotels players,
companies in the travel and tourism sector would witness
a better and bigger sales revenue in the December and
March quarter, this fiscal.
Cox & Kings India has made selective acquisitions
globally in the aforementioned destinations in the past
few years. This, along with representative offices in
various countries, besides UK, gives the company access
to a huge number of travellers.
Much of this is already visible in the June ’10 quarter
financial performance of Cox & Kings India and Thomas
Cook India. Also in the June ’10 quarter, the Cox &
Kings’ net profits jumped 30% to Rs 26 crore on a yearon-year basis.
An important point here to remember is that though
travel and tourism companies have expanded their operations through selective acquisitions overseas, covering
destinations such as the UK, Japan, Australia and New
However, it is only India that contributes to around
52-53% of overall revenues of the company followed by
the UK (20%), the US (7%). The remaining 20% revenue
comes from Japan and Dubai.
This shows that India, as a travel destination occupies
bigger significance in the overall business sense for
travel and tourism companies. As concerns related to
security are no longer prominent and palpable, companies can expect bigger and better quarters as many of
them are expanding their basE.
I
t is often said that the best time to strike the hammer
is while the iron is hot. This is very true in case of the
Indian primary markets that have seen a flood of
new issues. Interestingly, a large number of IPOs are
waiting in the pipeline to get listed. As per estimates,
more than 100 companies have already filed their
prospectus and are likely to get listed, sooner or later.
these quarters are holiday seasons and fetch peak
business for travel and tourism companies.
This is an unusual situation in the month of September,
when the markets kept scaling new highs and the number
of new issues touched the highest figure in the recent
past. Typically, it so happens that when the markets are
up, sentiments are bullish and liquidity is sufficient.
The Sensex is currently trading near its earlier peak of
2008. Foreign investors have already pumped in a record
$20 billion, which is far more than $17.45 billion that
was invested in the whole of the previous year.
The improved sentiments have paved the way for companies looking to raise funds. Till September this year, over
50 companies raised funds to the tune of `40,000 crore
from the primary market. This is almost double the size
of 21 companies which raised funds amounting to
`20,000 crore last year.
The current situation also reminds us of the IPO boom of
2007 when over 105 companies raised funds to the tune
Of the 100 companies or so that
have filed their prospectus and are
waiting to get listed, Coal India with
plans to raise funds to the tune of
over Rs 15,000 crore, is one of the
largest IPOs in recent times
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8
Beyond Market 28th Oct ’10
It’s simplified...
Beyond Market 28th Oct ’10
It’s simplified...
9
of `45,000 crore. Estimates indicate that this is the start
of an IPO boom, as nearly 90 companies want to raise
funds to the extent of `77,000-80,000 crore.
LOW ON RETURNS
Many investors, including legends like Warren Buffett
avoid investing in IPOs for the simple reason that they
tend to hit the market when the sentiments are bullish and
there is lack of trading history about such companies.
The timing, valuations and quality of the companies that
come out with new issues, generally in the up-turn,
become an issue. There are many examples of companies
such as Indosolar, Tirupati Ink, Ramkey Infrastructure
and Orient Green, that recently got listed below their
issue price.
A study by Care, a rating agency, and published in a
leading business daily Economic Times, states that out of
the 116 companies that came out with new issues
between August ’07 and August ’10, about 62% are
trading below the lower end of the price band. In most
cases, the pricing and timing of IPOs has hammered
down investors’ returns and sentiments.
THE ODD LOT
Pricing is a key parameter for investing in IPOs, apart
from the fundamentals of the company. The example of
Reliance Power IPO, which hit the market in the year
2008, comes to mind in this regard. The price band was
fixed at `405-450 per share, which most street analysts
considered very expensive.
Despite this, the issue was subscribed and the shares
were allotted at `450 (`430 for the retail). However, its
impact was seen on the listing as initially the stock got
listed at `547 per share, but within few minutes it slipped
into the red and declined over 30% from its listing price.
Later, the company issued bonus shares so that investors
could partly make up the losses they incurred and retain
faith in the group.
However, even after adjusting the bonus, the investors
have not been able to make money in Reliance Power till
date, which is mainly on account of its pricing. Thankfully, looking at the poor listing of some of the recent
IPOs, the regulators too have now realized that pricing
should be appropriate.
For instance, Securities and Exchange Board of India
(SEBI) Chairman CB Bhave had earlier said that in a bid
to maximize returns for promoters, the investment
bankers are not looking at the interests of investors. In
contrast to companies, which have disappointed inves10
Beyond Market 28th Oct ’10
tors, there are others who have done their pricing right.
The recent listing of Career Point, at almost a 100%
premium to its issue price, could be one such case; but
such instances are very rare.
lowest cost in the world, scores high as compared to its
competitors. Also, the notified prices are aimed to
provide cheaper fuel for India’s growing energy requirements so that companies and customers do not suffer.
However, the regulators cannot guarantee returns and
hence investors will have to show more vigilance and
awareness about what they want to do with their money.
Investors should neither rush into IPOs for the sake of
listing gains, nor should they fall prey to grey market
premiums or discounts.
STABLE BUSINESS
It is a known fact that Coal India is looking to raise funds
to the tune of over `15,000 crore, one of the largest initial
public offers in the Indian primary markets. Post listing,
the company would be amongst the top ten listed companies in terms of market capitalization. But size is not the
only criteria that matters, other factors too make Coal
India a company to reckon with.
Coal India is one of the navratna’s that the government of
India owns. Now, the public too can have its shares.
The business model of Coal India is quite different from
a number of companies in the domestic market and for
that matter, even international companies.
IRREPLACEABLE
Coal India has huge coal reserves of around 5,250 crore
tonnes, which is the largest in the world. The company
mines coal from its reserves which are supplied to its
customers primarily in power, steel and cement industries. The company produces about 431.26 million tonnes
of coal annually, which too, is the largest production by
any coal mining company in the world.
The company with over 80% market share in the domestic market, plays a very vital role in India’s coal requirements. All large and small companies in power, steel and
cement sectors rely on its supplies and are on the waiting
list to procure maximum amount of coal from Coal India.
PRICE EFFICIENCY
There is a reason why it has a long waiting list. Coal
India supplies coal at a notified price or at a huge
discount of about 50-60% compared to the spot coal
price or the price that prevails in the international
markets. Due to the huge discount it offers, its customers
want to grab as much quantity as possible.
But why does Coal India sell at a low price? That is
because the company still makes operating margins in
excess of 26%, which is on account of its low cost of
production. Here again, Coal India which produces at the
It’s simplified...
Coal India’s business is quite stable. In case of volatility
in the international coal prices, the company need not
make adjustments in its prices as they are already low.
This helps the company to maintain stable profitability
and the earnings do not fluctuate as much.
Like in 2009, when international companies reduced
their coal prices, Coal India did not have to reduce its
prices, which were already low. This means that in the
event of cyclicality in the industry, the company can
protect its margins and profitability. This does not mean
that the company does not raise its product prices, it
frequently raises its prices, but only marginally, in
tandem with the international coal prices.
FAVOURABLE INDUSTRY
The scenario is not going to change in the foreseeable
future too. According to Crisil Research, the total capacity addition in the power sector in the next five years is
expected to be about 66,000 mw, of which coal-based
capacity additions are expected to be about 52,000 mw.
Further, more than 90% of capacity additions, scheduled
to be commissioned by private players, is expected to be
coal-based.
In addition to this, the demand from the steel and the
cement sector could mean that the overall coal demand
growing at about 10-11% over the next 5-6 years, which
is in contrast to the growth in supply could be around 7%.
Considering that Coal India has huge reserves, which
could last for about 122 years at the current rate of
production, it is in a perfect spot to leverage its capabilities and scale to grow constantly in terms of volumes and
realizations over the next few years.
ICING ON THE CAKE
SOLID FINANCIALS
The company has also adopted a strategy whereby it has
now started selling a part of its coal production in the
spot market or through e-auction, which yields higher
realizations as compared to notified prices. This has and
will further help the company to improve its per tonne
realization thus leveraging on higher coal prices in the
international markets, at the same time.
Along with its size and scale of production, favourable
industry scenario has helped the company to manage its
growth and financials extremely well. It is because of
these reasons that the company generates very high RoE
of about 44% and huge cash out of its operations, which
led to a cash pile-up of about `39,000 crore in its balance
sheet in the last fiscal.
POWER OF MONOPOLY
Also, due to high cash generation, Coal India is almost a
debt-free company and is paying consistently higher
dividends. Its net profit has grown at around 32% with
the revenue growth of 14.5% annually that was recorded
in the last four years.
Coal India is almost a monopoly in the industry, which is
suffering due to a deficit in production. India’s demand
for coal has increased substantially in the last few years
whereas the growth in supply has been very low, resulting in deficit.
To bridge this gap, India still depends on imports or on
the international markets to meet its large requirements
of coal. This is also apparent from the fact that a lot of
companies in the power and steel sector have been
looking for coal assets in the international markets.
Coal India, which has a strong balance sheet and a good
operating history, is a long-term story and a best play on
India’s growing energy needs. The growth of the coal
company in the forthcoming years too will be strong and
stable, on the back of increase in production, improved
coal prices and its strategy to enhance its revenue mix
from the high margin productS.
a stitch in time saves nine
plan your finances in time
Your financial security is our concern.
At Nirmal Bang, it’s a relationship beyond broking...
Beyond Market 28th Oct ’10
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It’s simplified...
11
India is fast emerging as a global automobile giant with both
Market Share (segment-wise) for FY09-10
automobile and auto component sectors witnessing impressive
growth since the past few years, barring FY09. The automotive
industry has emerged as one of the prominent manufacturing
sectors of the Indian economy, contributing as much as 4% to
the total GDP
15.9%
4.3%
3.6%
76.2%
SECTOR
Three-wheelers
Two-wheelers
Domestic Sales Trends
Category
2004
2005
Pass. Veh incl MUV
902096
CV
260114
3-Wheelers
284078
2-Wheelers
5364249
Total
6810537
With renewed
confidence in India Inc’s
growth story,, here are
10 broadly-picked
sectors that play an
integral part in the
country’s success
India is one of the fastest growing economies in the world today and has become an example for
many to emulate for weathering a number of difficult situations, including the repercussions of the
global economic slowdown. While almost all the developed and developing economies were
battling recessionary blues, India was among those nations that maintained a positive economic
growth. Even today, India’s growth story is unique among emerging economies.
The recent run-up in indices on the Indian bourses was not the handiwork of FIIs alone but was
also a combination of internal factors. India Inc is being seen as an investment destination as the
country’s growth story is quite exemplary. India is a consumption-driven economy with favourable demographics that will continue to maintain growth in the future too.
In such a scenario, staying invested in equities in a wise thing to do. Taking cues from the India
Inc growth story, we have broadly listed 10 sectors, namely, automobile, banking, capital goods,
fast moving consumer goods, information technology, media, oil & gas, pharmaceuticals, steel
and telecom, with their risk concerns and respective sector outlook from a one-year perspective.
Beyond Market 28th Oct ’10
Commercial Vehicles
Source: SIAM, Nirmal Bang Research
RIDING
THE WAVE
OF OPTIMISM
12
Passenger Vehicles
It’s simplified...
2006
1379979
1061572 1143076
351041
467765
318430
359920
403910
307862
7872334
6209765 7052391
7897629 8906428 10123988
Source: SIAM, Nirmal Bang Research
Automobile Export Trends
Category
2004
2005
Pass. Veh incl MUV
CV
3-Wheelers
2-Wheelers
Total
129291
17432
68144
265052
479919
166402
29940
66795
366407
629544
2006
175572
40600
76881
513169
806222
2007
198452
49537
143896
619644
1011529
2008
2009
2010
218401
335729
446146
58994
42625
45007
141225
148066
173282
819713 1004174 1140184
1238333 1530594 1804619
Source: SIAM, Nirmal Bang Research
2007
CAGR(%)
22.9%
17.1%
16.8%
27.5%
24.7%
2008
1549882
490494
364781
7249278
9654435
2009
2010
1552703 1949776
384194
531395
349727
440368
7437619 9371231
9724243 12292770
CAGR(%)
13.7%
12.6%
7.6%
9.7%
10.3%
Passenger Car Segment On Fast Lane
In the passenger car segment, growth is
mainly led by the burgeoning middleclass population which has a higher
disposable income. New entrants in the
market like Renault, Volkswagen and
BMW will aid in increasing the depth of
the passenger car market and further the story of India as a large automotive market and an alternative low-cost manufacturing
base. The exports in this sector are primarily led by players like Hyundai and Maruti.
Commercial Vehicle Market: Fundamentals Positive
The commercial vehicle segment has grown over the past three years largely on account of the regulatory changes and favourable
macroeconomic fundamentals. We believe the demand for commercial vehicles will grow at an average of 9-10% per annum in
the long term, driven by the robust industrial sector and the infrastructure build-out. Big international players like Volvo and
MAN Force Motors have also set up shop in India. This move signals their confidence in the robust growth outlook for the Indian
commercial vehicles market over the medium to long-term period, even though their initial capacities are not substantial.
Two-wheeler Segment
The two‐wheeler segment has been the fastest growing segment in automobiles in India. The demand has been in full swing over
the years except for the first half of FY09-10 due to the slowdown in the economy. Over the last six months, the demand has
picked up strongly with recovery in the economy, improved income for middle-class households and the launch of various new
and attractive products by all top two-wheeler manufacturers.
Beyond Market 28th Oct ’10
It’s simplified...
13
Outlook
Two-wheelers Export Sales And Growth Rate
1200000
Domestic players in the automotive OEMs are adding capacities to meet future demand, driven by both, a buoyant domestic
market and a growing vehicle export market, particularly for
small cars, two-wheelers and light commercial vehicles. The
demand has increased so rapidly that the manufacturers are
struggling to meet the demand and are planning capacity
expansions. The high growth that we have seen over the last 6-9
months is expected to continue for the next 2-3 months on
account of the festive season. Thereafter, we expect the growth
to flatten.
45%
40%
35%
30%
25%
20%
15%
10%
1000000
800000
600000
400000
200000
2005
2006
2007
2-Wheelers
2008
2009
2010
Growth (%)
Source: SIAM, Nirmal Bang Research
The increase in raw material prices is forcing manufacturers to increase prices, which will hurt the customers. Moreover, increasing interest rates by the RBI to curb inflation will make it difficult for buyers and limit the growth rate.
Domestic Sales Trends
Sales
EBITDA
(Rs in Cr) (Rs in Cr)
Tata Motors
Mahindra & Mahindra
Bharat Forge
113039
21904
4261
14604
5722
750
EBITDA
Margin
PAT
(Rs in Cr)
12.90%
26.10%
17.60%
6711
2570
406
PAT
Margin
Though our long-term outlook for the sector
remains strong on the back of good economic
growth and improved income of middle class
households, we expect the sector to underperform in the market over the next 6-9 months.
Tata Motors, Bharat Forge and Mahindra &
Mahindra look good in the sector from a longterm perspective.
EPS
5.90%
11.70%
9.50%
98.32
45.07
11.30
Source: Company Data
capex in the coming times. Thus, with pick-up in the economy and resumption in spending, projects that were delayed would start
again, resulting in increase in bank credit growth of more than 20% in fiscal year 2010‐11.
Net Interest Margins (NIMs)
In its recent monetary policy, the RBI hiked key monetary policy rates, resulting in rate hikes by banks both on the deposit and
lending front. In 2010-11, we expect the NIMs of the banking system to increase marginally with higher increase in yield on funds
deployed, as compared to the rise in the cost of funds.
During the second quarter, while banks raised their deposit rates, they also raised their BPLR rates to compensate the increase in
the cost of funds. Due to this, margins are likely to remain stable sequentially, though on a yearly basis, it can show improvement.
In the increasing rate scenario, banks with high CASA ratios like HDFC, State Bank of India and Axis Bank among others will
benefit more.
Capital Adequacy
Capital availability is important for balance sheet growth. The regulator has prescribed minimum capital that a bank should
maintain for stability (Tier 1 capital of 8%). Private banks score high on capital adequacy with PSUs facing constraints due to
government holding reaching the minimum level in several banks.
Finance Minister Pranab Mukherjee, in the budget had announced that the government was planning a capital support of `15,000
crore to public sector banks to ensure that these entities are able to attain a minimum 8% tier-I capital by 31st Mar ’11. Banks like
PNB, HDFC Bank , ICICI Bank and SBI have comfortable capital adequacy positions, which will help them in leveraging their
books, going forward.
Asset Quality: Concern Over Asset Quality Receding
The banking industry is a reflection of the
growth in the economy. If the economy
grows, so will the banking sector.
We have seen the banking system collapse
in the United States during the last financial
crisis, forcing the government to intervene.
Apart from the US, developed nations’
banks too saw stress on their balance sheets.
However, the Indian banking system stood
apart and came out stronger from the crisis.
Advances
The growth in the banking sector and GDP
are correlated. The banking industry grew
Domestic Sales Trends
Credit offtake is expected to improve due to demand from the
agricultural sector as India has witnessed good monsoons.
Further, we believe higher capacity utilization on account of
higher production reflected by IIP numbers will lead to higher
30%
3.5
3.3
3.0
31%
29%
25%
2.3
24%
20%
9.4%
9.7%
9.2%
2.5
2.0
18%
15%
10%
3.0
2.8
2.5
6.7%
17%
7.4%
1.5
1.0
5%
0.5
0%
0.0
FY06
FY07
Credit growth
FY08
GDP
FY09
GDP Growth Times Credit Growth
significantly when the GDP was at its peak. The graph shows
credit growth averaging nearly 2.7x times GDP during the past
five years. With improved IIP numbers and India’s GDP slated
to grow at 8.5% to 9%, we expect bank credit to grow at 20%,
with a positive upward bias in the next two years.
Credit Growth And GDP
35%
With signs of improvement in the economic climate and support to stressed sectors, the pace of addition to gross non-performing
assets (NPAs) is expected to slow down. The banking sector’s healthy capitalization currently cushions the overall credit risk
profiles of most banks from the impact of deterioration in asset quality.
Improvement in portfolio diversity and ability of borrowers to withstand downturns, coupled with banks’ access to regulatory
tools such as SARFAESI Act, has led to a qualitative improvement in asset quality.
Also with the RBI advocating a provisional coverage of 70% for all banks, the asset quality of banks would improve. Except for
a few banks that saw more slippages from restructured assets, all other major banks feel that the worst is behind them (on account
of good economic growth and already huge slippages witnessed).
Valuations
Banking stocks have seen an unprecedented rally since the past six months with most banks now trading at new highs. While we
continue to maintain a positive view on the sector due to structurally strong fundamentals and strong macro-economic growth, we
believe that valuations are rich now.
Public Sector Banks (PSBs) are trying to catch up with their private peers, warranting a strong re-rating. Also, PSBs have undergone significant positive structural changes leading to improvement on almost all financial and operational parameters, which
underpin our view that the gap between PSBs and private banks will narrow. Considering the current valuation, we suggest being
selective on the Indian banking space and prefer banks with strong CASA deposit, higher Tier-I capital and high asset quality.
Few Attractive Stocks In The Banking Sector
P/E
ING Vysya Bank
Oriental Bank Of Commerce
Central Bank Of India
FY10
GDP Growth Times Credit Growth
Beyond Market 28th Oct ’10
2.20
1.80
2.00
ROE
11.4%
16.9%
3.3%
PAT
(Rs in Cr)
6711
2570
406
NPA
0.8%
0.8%
0.8%
Source: Company Data
Source: SIAM, Nirmal Bang Research
14
17.90
8.40
6.50
P/ABV
It’s simplified...
Beyond Market 28th Oct ’10
It’s simplified...
15
The capital goods sector is a function of GDP, GCF, IIP
Opportunity in EPC, BOP & BTG Space
NTPC
NTPV JV
Total SEB's
NLC
UMPP
IPPs ( with in-house EPC)
Other IIPs
New UMPPs
Total
Strong revival in GDP growth, coupled with the rebound in
IIP at 9-10% triggered the revival of industrial capex. Over
the last six quarters, India’s GDP rebounded from the lows
of 4.1% y-o-y in Q4 FY09 to 8% in Q1 FY11. This
certainly points at an increase in demand of assets creation
cycle in FY11E, riding on buoyancy in the economy.
Capital Goods
Order Inflows
60
L&T
Thermax
Elecon
BHEL
Crompton
Siemens
ABB
40
20
0
Sep-09
Jan-10
May-10
Source: Industry data, NB Research
Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11
9600
1100
100
12700
1200
2300
2100
18400
2400
200
8000
1600
2600
1900
17800
1300
200
15500
1100
5200
2400
The growth in capital goods is likely to come from factors mentioned below.
Telecom
3500
Ports& Airports
2500
Railways
2000
Power
1500
Urban Infra
IrrigaƟon
500
Roads
2010-11E 2011-12E 2012-13E 2013-14E 2014-15E
Source: CRISIL, NB Research
46400
10200
-
Industrial capex has started gaining
traction as new project announcements as
well as projects under implementation are
showing an uptrend. As per CMIE, new
project announcements have increased
from `1.9 trillion in June ’09 to `5.8
trillion in June ’10, while projects under
implementation have increased from `
39.1 trillion to `55.8 trillion in June ’10.
28000
20100
22000
12600
15600
2100
600
10700
1800
2000
1200
In the near future, we expect huge amount of order inflows especially from
roads, railways, power, metals, etc. For Q2 FY11, we expect excellent
growth due to lower base effect. (In Q2 FY10, order inflows were muted
due to election).
OUTLOOK
The outlook for the capital goods industry is positive with higher spending
Sales
(FY11)
Patel Engg
ELECON
Crompton
3871
1312
10512
EBIDTA
EBIDTA
PAT
(FY11) Margin (%) (FY11)
610
226
1479
15.8
17.1
14.2
190
88.8
987
EPS
(FY11)
Order
book
27.27 11000
9.6 1800
15.38 6802
Source: Company Data, NB Research
Power: Investment Opportunity In 12th Plan
Investment In Infrastructure
0
6300
12400
18700
Attractive Stocks In Capital Goods Sector
The government has been giving a major push to the infrastructure sector (primarily for roads, railways, airports and seaports),
which has widened revenue opportunities for most players in the construction sector. According to Crisil, huge investments to the
tune of `14,304 billion across the infrastructure segment is expected over the next five years.
1000
24600
12800
37400
on infrastructure , increasing investment in power plants and revival of capex cycle. The government has taken a number of measures
over the past year to ease pre-execution hurdles (the major cause of delays in infrastructure development) in critical sectors such as
power and roads. We believe there is an improvement in funding availability, a trend we think is likely to continue. The uptick in the
industrial capex clearly indicates that the underlying demand momentum, which in turn is likely to build interest in capital expenditure
for capacity expansion.
Government Emphasis On Infra Growth
3000
23800
1400
200
24100
2200
2200
1700
Source: Company Data, NB Research
IIP Index is testimony to positive trends in the Indian economy. After declining to negative territory for most part of FY09-10, IIP
has started its upward journey from October ’09, with significant contribution from the manufacturing segment. We feel that
all-around buoyancy in the economy may fuel strong industrial growth in the future.
4000
16860
2640
9155
2850
0
10170
7300
8000
56975
BTG
Order inflows for most capital goods companies have improved in FY10. It has grown by 41% in Q1FY11, driven mainly by
power, roads and some uptick in industrial capex. Going forward, we expect industrial capex to be a major contributor to the order
inflow of capital goods companies.
Rs In Crore
May-09
13560
1500
12740
1000
15960
0
2550
0
47310
BOP
Source: Ministry of Power, CEA, NB Research
80
Jan-09
30420
4140
21895
3850
15960
10170
9850
8000
104285
EPC
Order Inflows: Strong Signals Of Revival
IIP And Capital Goods
IIP
Planned
Ordered Unordered
Capacity in
Capacity capacity
(MW)
12th plan (MW)
(MW)
Utilities
Leading Indicators
100
Industrial Capex Picking Up, But At
Slower Pace
Rs in Crore
and credit growth. Positive signals from higher GDP
growth (8-9%), strong IIP numbers and credit growth are
indicative of an uptick in industrial capex, which has so far
been a laggard. This convection on the uptick in industrial
capex is due to various factors. Some of them are
mentioned below.
A
The ministry of power envisages 100 GW of capacity addition
in the 12th five-year plan, with 90 GW of thermal capacity.
Even after considering the historical 30-40% slippage in
capacity addition, the investment in the power sector will still
be very high.
decade back, the FMCG sector in India was dominated by MNCs.
However, it is highly competitive now with the presence of both MNCs and
domestic companies. Though MNCs have well-stabilized and admirable
international brands, domestic companies have also developed Indian brands,
which are giving a tough fight to the international brands.
India will witness huge investments (both public and private)
in the next few years to build the country’s T&D infrastructure. PGCIL has announced an investment of `550 billion and
`1,000 billion in the 11th and 12th Plan. We expect companies
in transmission, transformers and distribution space to do well.
The FMCG sector has traditionally grown between 12-15%. In the last 10
years, the FMCG industry has assumed the size of $25 billion from $9 billion.
This has primarily been due to high consumer spending that has led to higher
sale of premium products as well as companies reaching out successfully to the
rural populace of India.
We expect India’s FMCG industry to benefit from a number of revenuegrowth drivers in the future, namely low per-capita consumption in most
16
Beyond Market 28th Oct ’10
It’s simplified...
Beyond Market 28th Oct ’10
It’s simplified...
17
The Indian IT sector has been through a roller-coaster ride over the last three
FCMG categories, low penetration levels for all categories (except for the personal-wash and fabric-wash categories), favourable
age and income demographics, increasing literacy, hygiene awareness and the influence of the media on consumer awareness and
buying behavior.
years. The sector, which badly underperformed in the last two years, has started
outperforming the broader indices this year. Consider this: the BSE IT Index
increased by 41% in the last one year (as on 10th Oct ’10) compared to a 22% rise
in the Sensex.
In the current year, strong agricultural production on account of normal and well-distributed monsoon along with higher realizations will boost the rural demand for FMCG products.
According to McKinsey Global Institute, India’s GDP is likely
FMCG Market Continues To Grow
to rise at a CAGR of 7.4% over the 2008-30 period. Its
(Market Growth as reported by AC Nielsen)
per-capita income is expected to increase nearly four-fold over
25
FMCG Value Growth
FMCG Volume Growth
this period. India is poised to become the world’s fifth-largest
21
20
consuming country by 2025, from its current position of 12th,
18
19
19
17
16
15
15
while India’s FMCG market could triple by 2018 compared to
13
10
the year 2008, according to the The Marketing Whitebook
10
10
10
10
9
2010-11.
6
5
5
3
0
JQ'08
1500
500
2
SQ'08
DQ'08
-1
MQ'09
JQ'09
SQ'09
DQ'09
MQ'10
April'10
-5
5
652
683
594
597
620
570
308
131
326
376
295
115
349
277
103
146
164
181
528
557
578
605
636
672
2008
2009E
2010E
1000
4
0
MQ'08
Global IT Spending Forecast (in US$ billion)
2000
0
Different Factors That Are Likely To Drive The Performance Of FMCGs
2007
Hardware
Source: HUL
SoŌware
2011E
ITES-BPO
2012E
IT Service
Source: International Data Corporation, CRISIL
Low penetration level in urban and rural markets will drive the growth rate in FMCG.
Product innovation and launch of new products for different segments of people.
Health and wellness portfolio will be a distinct advantage as consumers are becoming more health conscious.
growin
FMCG companies to play a dual strategy - one at the national level and the other at the regional level to counter the growing
market share of regional players.
The demand scenario for FMCG companies is inelastic in nature. The products manufactured are products of daily use, the last
one which people tend to give up in their consumption habits.
compa
The rural consumers are opting for high-end products, which is driving volume sales of FMCG companies. The FMCG compadistribu
nies are looking for various strategies to lure rural consumers by launching SKUs (Stock Keeping Units) and establishing distribution channels in rural areas where these products will be available. Moreover, as products become more widely available and
consumers’ affordability levels increase, their per-capita consumption of FMCGs also increases in the long-term.
The Indian IT industry has been growing at a CAGR of 27% over the last five years (2004-09). However, the growth rate declined
significantly to 11.8% in 2009 due to the slowdown in demand from key geographies like USA and UK, decline in discretionary
expenses and delays in decision-making. However, with the economic recovery, the demand for IT is expected to increase rapidly
in the long term.
The Indian IT sector plays a very important role in the generation of export-related revenue for the country. The total export
revenue from this sector stands at nearly $45 billion in financial year 2008-09. The top destination preferred by the Indian IT
companies is North America.
India’s IT Exports By Industry Verticals (FY 2009E)
Geographic Distribution Of Indian IT Export Revenue
(FY 2009E)
The BFSI industry continues to be the largest customer of IT
services, accounting for approximately 40% of India’s total
IT-ITeS exports. Therefore, with the recovery in the global
economies, we saw the demand from BFSI increasing rapidly,
followed by other verticals like retail and manufacturing.
9%
31%
Organized retail to drive the FMCG market, but the companies will need dedicated modern trade strategy through promotions,
pricing, etc.
60%
Normal and widely distributed monsoon in the current year will cool down the raw material prices for FMCG companies. This
will in turn improve operating margins of FMCG companies.
Going forward, we expect advertising and promotional costs of products to remain high, which will increase penetration and
curtail competition.
Major FMCG players are focusing on expanding their global presence by acquiring companies in niche segments to fill gaps
in their product portfolio.
Americas
Europe
Rest of World
Source: CRISIL
IT Exports By
Industrial Verticals
4%
3%
8%
Few Attractive Stocks In The FMCG Sector
ITC
Nestle
Dabur
CMP
Net
Revenue
EBITDA
PAT
EPS
PE
172
3193
103
214261.85
70903.57
39828.06
72991.77
14652.32
7734.91
4698.5
9677.19
5987.74
6.16
100.38
3.51
27.43
32.61
29.26
Source: Bloomberg Consensus
18
Beyond Market 28th Oct ’10
40%
19%
5%
15%
3%
3%
BFSI
Media, Publishing & Entertainment
Other
Retail
Airlines & TransportaƟon
Source: CRISIL
*Rs in Million
It’s simplified...
Beyond Market 28th Oct ’10
Manufacturing
Healthcare
Hi-tech/ Telecom
ConstrucƟon & UƟliƟes
Going forward, we expect the demand from BFSI to continue
to remain robust, with large global banks expected to increase
their discretionary spending. Moreover, the healthcare and
retail verticals are also providing strong growth opportunities
to IT vendors.
Risks
Now that the Indian economy is coming on track, more foreign
money has started flowing into the country, resulting in appreciation of the rupee. The rupee has appreciated sharply against
the US dollar. This will negatively impact the margins of
Indian IT companies; though the impact would be partially
offset by foreign exchange gains, given that most companies
have hedged a proportion of revenue at USD/INR rate between
`45 and `47.
However, the quantum of impact will vary depending on the
success of hedging strategies adopted by the IT companies.
Increasing attrition rate is also a cause of concern for all IT
companies as they have to give large salary hikes to retain
It’s simplified...
19
employees and to train newly hired employees. This will again negatively impact margins.
Outlook
Outlook
Indian IT companies’ revenue is largely dependent on IT spending by companies in USA and Europe. The increase in demand
from the US has been encouraging with growing discretionary spending in the last couple of quarters following the recovery.
Europe has also stabilized and is expected to recover in the coming quarters.
The pricing scenario has also been firm over the last couple of quarters. With demand expected to pick up, pricing should also
increase. The better outlook in demand and price has resulted in more hiring by Indian IT companies in the last few months. The
IT majors are expected to report strong numbers for Q2 FY11.
Tier I stocks are expected to return to 20% year-on-year (y-o-y) growth trajectory. Going forward, we expect the demand to
remain buoyant with increase in discretionary spending.
Internet
Outdoor
Total Size
Few Attractive Stocks In The IT Sector
Sales
Growth
(Rs in Cr)
(%)
Infosys Tech
Sasken Communications
TAKE Solutions
27599
622
461
21.40%
8.30%
31.00%
The availability and penetration of newer distribution platforms like digital cable, DTH and IPTV, digitalization of newspapers,
magazines, films and sale of online and mobile music are some of the ways by which the M&E industry has benefited from digitalization and the growth is likely to continue in the years to come.
With the entry of new players, the competiWM&E Industry (Rs In Billion)
tion among domestic as well as foreign
CY06 CY07 CY08 CY09 CY10 CY11P CY12P CY13P CY14P CAGR CAGR
players is increasing. We believe it is a
(06-09) (09-14)
positive development in increasing the
Films
78
93
104
89
96
105
115
125
137
5%
9%
market size. Different strata of players are
Television
183
211
241
257
289
337
382
448
521
12%
15%
bringing different specializations. For
Print
139
160
172
175
190
206
225
246
269
8%
9%
Radio
6
7
8
8
9
10
12
14
16
9%
16%
example, regional players are bringing in
Music
8
7
7
8
9
10
12
14
17
2%
16%
regional reach, thus helping the industry in
Animation & VFX
12
14
17
20
23
28
33
39
47
18%
19%
the overall growth.
Gaming
3
4
7
8
10
14
20
26
32
38%
32%
EBITDA
(Rs in Cr)
9220
110.1
100.6
EBITDA
PAT
PAT
Margin (Rs in Cr) Margin
33.41%
17.70%
21.82%
6936
78.7
60.6
EPS
25.13%
12.65%
13.14%
PE
ROE %
121.39 25.34 27.92%
29.03 6.93 13.49%
5.05 7.16 13.55%
Source: Bloomberg Consensus
2
12
443
4
14
514
6
16
578
8
14
587
11
15
652
15
17
742
18
19
836
23
21
956
29
24
1092
Source: Frames KPMG 2010
Top Performing Companies:
FY11
Particulars
Zee Ent.
ENIL
UTV
Sales
Rs Cr
2819.10
384.50
1194.10
EBITDA EBITDA Margin
PAT
%
Rs Cr
Rs Cr
834.90
29.60
615.60
79.90
20.80
34.10
204.50
17.10
136.00
PAT Margin EPS
%
Rs
21.80
12.60
8.90
7.10
11.40
32.40
56%
5%
10%
30%
12%
13%
We also believe that this will give way to
consolidation of the industry through mergers and acquisitions, thus leading to the
emergence of conglomerates.
Zee Entertainment, ENIL and UTV Communications are
the top performing companies in the media sector.
Source: Consensus
The Indian Media and Entertainment (M&E) industry stood at `587 billion in 2009, a growth of 1.4% over the previous year.
Over the next five years, the industry is projected to grow at a CAGR of 13% to reach the size of `1,091 billion by 2014, says a
FICCI & KPMG report released at FRAMES 2010.
The industry went through a tough phase in the last two years due to the economic slowdown, which impacted businesses in the
country. Some sectors like films, radio and Out Of Home (OOH) were impacted more than the others and registered a negative
growth during the year. The industry which is dependent on advertising for almost 40% of its revenues was hit due to shrinking
ad budgets of the corporate world. However, the industry as a whole remained almost flat and registered a modest growth of
around 1.3% in 2009 compared to 12% in 2008. It is poised for recovery in 2010, riding on the back of a surge in economic growth
and favourable demographics of the country.
Spending on media as a percentage to GDP is almost half of
the world average and much lower than other developed
countries like Japan and USA. We believe this opens up an
opportunity window for spending to increase in India.
Media Spend As A % To GDP - 2009F
1.20%
1.08%
1.00%
0.90%
0.78%
0.80%
0.80%
0.75%
0.60%
0.41%
0.40%
0.20%
0.00%
India
UK
US
China
Japan
World
Source: Frames KPMG 2010
20
Beyond Market 28th Oct ’10
India is one of the largest consumers of
energy and accounts for about 3.8% of
world consumption. India is an importdependent nation as more than 77% of the
total consumption is met by imports.
Globally, the crude oil consumption has
declined by 1.7%, from 85.2 million
barrels/day (mb/d) in 2008 to 84.1 mb/d in
FY09. While the global consumption of
natural gas declined by 2.1%, the consumption in emerging economies increased by
2.9%. The decline in consumption is mainly
attributed to the sluggish economic recovery
after the global turmoil in the US and some
European countries.
In contrast, the consumption of crude oil in
India and China has increased by 3.7% and
6.7% respectively. Additionally, consump-
tion has been continuously increasing in some developing countries of Africa, Latin America and Middle East. In 2010, steady
recovery of the global economy has led to a rebound in crude oil demand. The revival in world crude oil market would be led by
emerging economies mainly driven by China and India.
In 2009, OPEC opted for a production cut to arrest collapsing prices. It reduced production by 7.3% from 35.5 mb/d to 33 mb/d.
OPEC has spare capacity of 6-7 mb/d, but due to declining output from non-OPEC countries because of depletion, declining
investments in E&P space, which will affect the future supplies and increasing demand from emerging economies, we believe the
It’s simplified...
Beyond Market 28th Oct ’10
It’s simplified...
21
spare and increasing capacity would get absorbed, thus the demand destruction is just a temporary phenomenon.
Global Crude Mn Barrels/ day
100
ProducƟon
ConsumpƟon
80
60
40
20
0
Global Gas BCM
3500
3000
2500
2000
1500
1000
500
0
ProducƟon
India’s oil & gas sector is on the verge of constructive development on the back of factors like deregulation of fuel prices, increasing demand and improving economic outlook. The successful divestment program by the central government has eased the
pressure on increasing fiscal deficits, so the government might defer deregulation of diesel.
We believe the impact of deregulation of petrol and increase in fuel prices has already been factored in the stock prices. Deregulation of diesel will further reduce under-recoveries and improve earnings. We believe under-recoveries is one of the reasons for
assigning lower rating to the stocks of OMC’s. Thus, if diesel is deregulated, then the markets would rerate the stock prices of
OMC’s.
1992 1996 2000 2004 2006 2007 2008 2009
1992 1996 2000 2004 2006 2007 2008 2009
Source: BP Statistical Review of World Energy
ConsumpƟon
OUTLOOK
Source: BP Statistical Review of World Energy
Until few years back, shale gas was considered expensive. But new technologies have made extraction more feasible. Within a
short span of time, it has changed the basics of gas business in USA. Currently, shale gas accounts for 20% of the gas production
in the US, which is expected to increase to 50% of the total supply. Further, any significant development in shale gas might change
the scenario of the whole gas business.
The gas market in India will continue to witness great demand thus providing huge potential for companies in the entire gas value
chain. Increased prices would benefit upstream companies like ONGC, OIL and RIL. The demand-supply mismatch would be met
by LNG imports, subsequently benefiting LNG re-gasification companies and companies like GAIL on the back of huge transportation infrastructure.
The
Indian pharmaceuticals sector is
estimated to have been around $19.4 billion
in FY08-09. It ranks third in terms of production and fourteenth by value. It is expected to
touch $40 billion by 2015, growing at a
CAGR of 13%. India exports pharmaceutical
products to more than 200 countries, including highly regulated markets like USA,
Europe and Japan.
India’s consumption of crude oil has increased at a CAGR of 4.3% over the last eight years as compared to the global consumption
of 0.8%. India’s domestic crude oil production was more or less the same since the past one decade until the production from
Mangala field of Cairns Energy started some time back. Its requirements are largely met by imports as it imports more than 75%
of the total consumption. All major domestic producing fields that produce more than 80% of the total domestic production are
more than 30 years old and have produced through their peaks, hence pressure of fields is falling quickly. Production at peak
capacity from Cairn energy oil field will be contributing around 20% of India’s total oil production. So, the dependence on imports
will continue and increasing demand in the future would be largely met through imports.
The domestic formulations industry is highly
fragmented, in terms of the number of manufacturers. There are about 300-400 units in
the organized sector, with over 100 manufacturing facilities approved by the US FDA, the
largest outside the US.
India’s gas production has increased by 28.9% from 30.5 bcm in 2008 to 39.3 bcm in 2009 with the start of production from
KG-D6 basin. The demand for natural gas is expected to grow at a CAGR of 10.3%, driven by CGD, power and fertilizer sectors
whereas, the supply from domestic fields is expected to grow at a CAGR of 8.7%. So, the demand-supply mismatch would be met
through LNG imports.
Indian Gas BCM
Indian Crude Mn Barrels/day
3.5
ConsumpƟon
60
ProducƟon
3
ConsumpƟon
ProducƟon
50
40
2.5
2
30
1.5
20
1
10
0.5
Pharma AcƟviƟes
0
0
1992 1996 2000 2004 2006 2007 2008 2009
1992 1996 2000 2004 2006 2007 2008 2009
Source: BP Statistical Review of World Energy
Source: BP Statistical Review of World Energy
Bulk Drug
FormulaƟon
R&D
Recently two significant developments took place in the oil & gas sector in India.
1 Increase In APM (Administrative Price Mechanism) Gas Price From USD 1.79 mtbu To USD 4.2mtbu: Though oil was
left from the clutches of APM mechanism way back, gas prices are still under the APM mechanism. The government has increased
APM price by 134% and brought it at par with Reliance Industries KG-D6 gas price, first step towards uniform gas pricing. The
increase in APM price will reduce under recoveries and improve the earnings of upstream companies like ONGC and OIL.
2 Partial Deregulation And Increase In Fuel Prices: The Indian government deregulated petrol and increased the prices of
diesel, LPG and kerosene. Though diesel has not been regulated, partial deregulation (decontrol of petrol) has provided relief as it
will reduce under-recoveries of oil marketing companies (downstream companies) and upstream companies.
22
Beyond Market 28th Oct ’10
It’s simplified...
DomesƟc
Exports
- Patented
- Generics
- Contract Manufacturing
Beyond Market 28th Oct ’10
DomesƟc
Exports
- Branded Generics
- Generics
- Contract Manufacturing
NCE
NBE
- Captive Use
- Contract Research
It’s simplified...
23
Indian Pharmaceutical Industry - Key Segments
Compounded annual growth
(US $ billion)
2003-04 2007-08 E
Domestic Formulation Consumption (DFC)
4.5
8
Formulation Exports
1.6
4.1
Bulk Drug Exports
1.5
5
Total Market
7.6
17.1
2008-09 E
7.6
5
6.7
19.4
2013-14 P
14.9
10.7
18.3
43.8
2003-04 to 2008-09 (E) to
2008-09 (E)
2013-14 (P)
11.1
14.4
25.5
16.1
35.3
22.2
20.6
17.8
E: Estimated, P: Projected, Note: Domestic formulations is lower in 2008-09 due to depreciation of the rupee against the dollar in 2008-09
Source: CRISIL Research
In the last five years, Indian players have made significant in-roads into the regulated markets of USA and Europe. These markets
are no longer limited to large-sized players, as several mid and small-sized Indian players fulfilled regulatory requirements and
obtained the necessary approvals to launch their products in these markets.
North America and Europe constitute over 95% of India’s total exports to regulated markets. While exports to these markets grew
at a compounded rate of 27% to 32%, penetration in Japan has been slower due to lower acceptance of generics in the market and
relatively meagre presence of Indian players, which we believe will change in the future. The Japanese government has become
more acceptable to generics and a few Indian players have also succeeded in making in-roads there, although it will take another
7-10 years to have meaningful numbers from the region.
On the semi-regulated market front, development was supported by the healthy growth in Africa, Asia CARs and CIS countries
as well as Latin America. Exports to Africa, Asia CARs and CIS countries, which account for over 87% of the total semiregulated exports, grew at a CAGR of 23% as compared to Latin America, which rose at a rate of 27.5%.
Over the last five years, the domestic pharmaceutical market has expanded at a strong rate primarily due to growing population,
increasing awareness about healthcare and rising per capita income resulting in increased spending on medication.
Outlook
USA is the biggest market for the Indian pharma industry. With drugs worth ~ $78 billion going off-patent in the next 3-4 years,
Indian generic players are expected to benefit immensely from this huge opportunity.
Domestically, companies are growing at a healthy rate and are expected to continue the trend in the future too. Currently, only
40% of the population in India has access to healthcare facilities, which offers huge potential for pharma companies to expand
their businesses further.
Coupled with other factors like increasing per capita income, aspirations for a better lifestyle, growing life expectancy, etc, we
believe the Indian domestic market provides an attractive business proposition not only to domestic companies but also to MNCs.
Post the product regime, India saw a surge in activities by MNCs in the domestic markets. Attractiveness of Indian markets to
MNCs can be established from the recent deal of Piramal Healthcare where Abbott paid almost 7 times of Piramals sales for its
domestic formulations business.
On the valuation front, the pharmaceutical sector had been considered as a defensive sector until now, but it is changing now. It
seems companies are moving in the right direction. Top Indian companies have identified R&D as their future growth driver and
are investing around 4-5% of their revenues in R&D. Given the above scenario, we remain positive on the future growth of Indian
pharmaceutical companies.
A Few Attractive Stocks In The Pharma Sector
FY11
Particulars
Cadila
Dr Reddy*
Glenmark
Source: NB Research
24
Sales
Rs Cr
4487.0
7847.0
2987.8
EBITDA
EBITDA Margin
PAT PAT Margin EPS
Rs Cr
% Rs Cr
%
Rs
996.0
22.2 633.0
14.1 30.9
1643.5
20.9 1098.1
14.0 65.9
836.6
28.0 482.4
16.1 17.9
D
ue to the global economic crisis, the world
steel production fell by 1.8% in CY08 to
1,326.5 mnt and further by 8.05% in CY09 to
1,219.7 mnt. The decline in CY09 was very
sharp in developed nations, with 36.4% in the
US and 29.7% in Europe whereas in China and
India, the total steel production grew by 13.4%
and 6% respectively. According to the World
Steel Association, the total steel production is
expected to increase by 10.7% in CY10 and by
5.3% in CY11.
Steel production in India is expected to
increase by over 12.1% in CY10. USA and
Europe are also seeing some improvement in
production, but they are still lower than what
they were before the financial crisis. China is
the world’s largest steel producer, with a
market share of around 47%, whereas India
has a market share of around 5% in total steel
production in the world.
India Steel: Moving Towards A Sweet Spot
India imports around 7-8% of its steel requirements, which we believe will continue going forward, due to the delayed emergence
of Greenfield expansions. We expect the demand in India to grow at a CAGR of 10-11% for the next five to six years, led by
investment in infrastructure growth and growing consumerism (auto, consumer durables and real estate), to sustain a GDP growth
rate of 8-9%. We believe steel companies may post better steel margins in Q3FY11 on account of increase in steel prices by
5-10% globally from the recent lows, amid 7-13% quarter-on-quarter (q-o-q) decline in iron ore and coking coal prices.
Raw Material Prices
The iron ore market is unquestionably in a state of flux as iron ore prices have been extremely volatile. Steel producers and
consumers have gone through a lot of pain. As a result, steel producers in particular have spent the last couple of years trying
various strategies to minimize price rise and maximize their opportunity when prices fall. This volatility is largely responsible for
killing the decade-old annual price contracts, which dominated the seaborne iron ore trade. This year, the annual contract was
announced officially inactive and a quarterly price formula was introduced based on the spot prices in the preceding months.
Iron ore spot prices have fallen by US $40-50/t during the past two months and Q3FY11 contract prices have been signed in the
range of US $120-125/t from US $135-140/t in Q2FY11. At the same time, even coking coal prices have fallen to US $209/t from
US $225/t in Q2FY11. This, we feel, will give a breather to steel makers who were running on thin operating margins in the
current time.
China’s Steel Appetite Reshapes The Industry
China is one of the largest steel industries in the world, driven by increasing demand for rapid urbanization and many large-scale
infrastructure projects. China is trying to unify the fragmented steel industry by shutting down small and inefficient units, which
will impact around 15% of over 700 mnt capacity. It intends to have 60% of the domestic steel capacity in the hands of the 10
largest steel makers as against 44% in 2009.
China’s spot steel prices bottomed in July and the unexpected production cut due to the government’s curtailment on electricity
supply pushed steel prices higher. China’s exports have dropped between 10% and 50% depending on the product and country
last year, which is a welcome news for the steel industry. We believe with production cuts and limited new capacity coming up
until 2011, the volatility in the spot raw-material prices are likely to come down, which in turn will improve steel prices, in the
near future. A few of the attractive companies in this sector are Tata Steel, SAIL, Usha Martin, Godawari Power and Ispat Ltd.
* Consensus Fig
Beyond Market 28th Oct ’10
It’s simplified...
Beyond Market 28th Oct ’10
It’s simplified...
25
The Department of Telecom (DoT) is contemplating on giving an exit route to loss-making players. DoT may allow such players
to either sell off their stake to established players or merge with one of them. Players like Bharti Airtel, Vodafone Essar and Tata
Teleservices are bound to emerge stronger as and when consolidation takes placE.
A Few Attractive Companies In The Steel Sector
CMP
Net Revenue
enue
EBITDA
PAT
EPS
PE
Tata Steel
636
111510.05
154544.39
59494.23
64.97
9.72
SAIL
220
481042.90
117807.68
76940.21
18.27
11.66
91
34417.82
7546.80
2994.00
9.83
8.87
215
9581.56
2084.75
1018.40
40.30
5.51
Usha Martin
GPIL
Source: Bloomberg Consensus FY11
Peer Comparison
(Rs in Million)
Parameters
O
ver the last one year, the Indian telecommunication industry has witnessed a hypercompetitive scenario. This period saw tele-density rising from 42.27% in August ’09 to 59.63%
in August ’10. During the same period, the overall subscriber base climbed by 42.97% from
around 494 million subscribers to over 706 million subscribers.
Bharti Airtel Idea Cellular Reliance Communication
Earnings per Share(FY 2011)
Price (CMP) (15/10/10)
Price/Earnings (x)
Price/Book value (x)
Enterprise Value (EV) (Cr)
EV/Sales (x)
EV/EBITDA (x)
EV/Subscriber (x)
19.68
334.25
16.99
2.6
179,540
3.28
9.01
9930
2.02
72.3
35.74
1.91
33,512
2.20
8.69
4607
8.43
175.7
20.83
0.86
64,746
2.92
9
5556
Source: Company, Nirmal Bang Research
New entrants like Tata Docomo, Reliance Communication (GSM), Sistema Shyam Teleservices, Uninor who were awarded licenses in January ’08 came up with cut-throat tariffs to grab
market share from incumbents like Bharti Airtel and Vodafone Essar. The price war that
ensued, saw tariffs falling to one of the lowest figures in the world and the margins of incumbents taking a hit. Competitive tariff scenario led to the phenomenon of subscribers owning
multiple SIM cards or switching from one service provider to another to benefit from attractive
tariff schemes.
Disclaimer:
All the companies mentioned in the article are the top
performers in their respective sectors and should not be
considered as recommendations
The past couple of quarters have seen stability in tariffs. This has led to the reduction in the rate
of decline in Average Revenue Per User (ARPU) and the
Average Revenue Per Minute (ARPM) getting stabilized.
Players like Bharti Airtel and Idea Cellular have witnessed an
increase in Minutes of Usage (MoU) per subscriber per month.
Performance Metrics
600
500
0.45
480
400
415
300
200
295
215
182 0.44
100
0.44
130
0
BharƟ Airtel
Idea Cellular
ARPU
OUTLOOK
MoU
0.452
0.45
0.448
0.446
0.444
0.442
0.44
0.438
0.436
0.434
Reliance Comm
ARPM
This will be beneficial to hold the subscriber once Mobile Number Portability (MNP) is launched. MNP will allow subscribers to
retain their numbers even if they switch the service provider. MNP may lead to a shakeout wherein players who are not up to the
mark in terms of service quality, network coverage or tariff schemes may lose subscribers to better established players.
Beyond Market 28th Oct ’10
regular investments keep worries away
Source: Company, Nirmal Bang Research
The government has allotted 3G spectrum to various winners of 3G and BWA auction paving the way for the launch of high-speed
data services. As of now, India has only 10.08 million broadband subscribers. Thus, there is huge untapped potential in the data
services segment. Tata Teleservices has announced that it would be launching its 3G services on the auspicious occasion of Diwali
on 5th Nov ’10. Other players like Bharti, Vodafone Essar and Reliance Communication plan to launch their 3G services by the
end of this year. The rollout of 3G services will enable incumbents to offset their falling voice revenues. Also, it gives them an
opportunity to stand out from the new entrants by showcasing their 3G offerings and execution capability.
26
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It’s simplified...
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Co nta c t at: 0 2 2 - 3 0 2 7 2 3 2 3 | S M S ‘ BA N G’ to 5 4 6 4 6 | e - m a il : f re e @ n ir m a l b a n g. co m | w w w. n i r ma l ba n g. co m
REGD. OFFICE: 38-B/39, Khatau Bldg, 2nd Flr, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400 001. Tel: 022 - 22641234, 30272000 / 2222; Fax: 022 - 30272006. BSE SEBI REGN No. INB011072759, INF011072759 & INE011072759, NSE SEBI REGN No. INB230939139, INF230939139 & INE230939139 DP SEBI REGN. No NSDL: IN-DP-NSDL-136-2000, CDS(I)l: IN-DP-CDSL-37-99, AMFI REGN. No. arn-49454 NCDEX REGN. NO. 00362, FMC Code-0075, MCX REGN. No. 16590, FMC Code-MCX/TCM/CORP/0490, MCX SX-INE260939139, PMS-INP000002981 Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risk. Please read the scheme-related document carefully before investing. Security is subject to market risk. Please read the Do’s and Don’ts prescribed by Commodity Exchange before trading. The PMS Service is not offering for commodity segment. *Through Nirmal Bang Commodities Pvt. Ltd. #Distributors
Beyond Market 28th Oct ’10
It’s simplified...
27
U
ncertain conditions in the equity markets,
coupled with stringent regulations in the
Indian mutual fund industry are hitting profits
and forcing more and more players to launch
index funds as they are cost-efficient.
Index funds and exchange traded funds (ETFs) are
witnessing a gradual rise in their asset base as wealthy
fund investors are taking refuge in passive investment
strategies to reduce their exposure to equities. Recently,
fund houses like Taurus, Reliance, IDBI Mutual Fund
launched index funds to attract first-time investors.
Tracking error is the difference between returns from the
index fund and that of the benchmark index. The lower
the tracking error, the closer are the returns on the fund to
that of the target index. Tracking errors can be attributed
to the time lag between the flow of money into a particular fund and the investment in the securities of the benchmarked index.
In other words, indexing is a structured portfolio strategy
where the benchmark is to achieve the performance of
the predetermined index. Thus, an index fund consistently gives the same return as the index and theoretically, at zero risk.
Sometimes, fund managers may not be able to allocate
money into different stocks in the same proportion as that
of the index. This may lead to differences in returns
given by the fund and its benchmark index
Index fund managers abandon attempts to beat the
market through active specific stocks selection or market
timing and instead seek optimal diversification by indexing their investments to the market portfolio. In fact, in
the past five years, almost all growth funds, which have
provided highest possible returns to the investor, have
performed worse than the Sensex.
The positive returns of index funds are largely because
the market index is able to avoid excess risk and obtain
consistent returns since it represents diversifications
across a fairly wide range of instruments. However, it
carries a market risk.
It is also cost-effective as it minimizes brokerage
commission and market impact cost by minimizing the
necessity to transact. An index fund can mimic any type
of index. Different indexes can follow a broad stock
market index such as the S&P 500 or Dow Jones or
something more specific such as junior mining stocks. In
international markets, indexes also cover non-stock
investments such as bonds or commodities (such as oil).
Beyond Market 28th Oct ’10
It’s simplified...
These funds have been able to closely match the returns
of their benchmark indices. There are over 30 index
funds present in the country out of which approximately
16 funds track either the Sensex or the Nifty indices and
have a tracking error of less than 1.
Index funds are essentially those which try to replicate
the market index. An index fund is formulated in such a
fashion that it carries the same stocks as in the index in
the same proportion. The fund represents the individuality and attributes of the chosen target index and hence,
the rate of return on the portfolio is very close to the rate
of return on the index.
Index funds are passively managed and broadly follow a
“buy and hold” strategy. Index fund managers don’t
churn their portfolios often as the relative proportion of
the index constituents do not change very frequently.
However, modifications are made in the portfolio to
match the composition of the index.
28
Most managed mutual funds cannot beat their index over
any length of time and it is not viable to predict which
ones will beat the index in a given time period. The
significantly lower costs of index funds will ensure that
on an average, index fund investors will have better
returns than their managed mutual fund counterparts.
Beyond Market 28th Oct ’10
Although most stock companies that are held by the fund
declare dividends, the dividends declared by index funds
as a whole, are not much. The dividend declared by
stocks that the fund holds, go back into the fund. This is
reflected in the net asset value (NAV). But since the
quantum of dividends is very low, dividend declaration
does not result in significant appreciation. For instance, a
Nifty index comprises of 50 companies. At any given
point, in time only a handful would declare dividends.
And hence, the total effect on the fund’s NAV will not be
very significant.
An investor will get the dividend based on the fund he
has invested in and the option he has chosen. This means
that any gains he wishes to get, will have to be obtained
by redeeming the units. And the dividend declared by the
inherent companies will appear as an increase in NAV. If
he has invested in the dividend option of an index fund,
he can wait for the scheme to declare dividends.
An actively managed fund can easily underperform the
overall market index that it is competing against. But an
index fund, by definition, cannot. Index funds make great
sense for investors who fear that fund managers may
make mistakes and underperform the market.
However, index funds are yet to make inroads. By definition, index fund replicates its portfolio in the same
proportion as the components of a broad-based share
index. The performance of a fund consisting of company
It’s simplified...
29
shares weighted in this way will mirror that of the index,
thus ensuring that an index fund will not perform worse
(or better) than the market as a whole.
However, if one compares the performance of an index
fund with an actively managed equity fund, the latter has
proved to be a more rewarding proposition.
On the other hand, the corpus of index funds is much
lower than other equity diversified funds. There are times
when the fund houses find it difficult to deploy funds.
Index funds make sense in some markets, but not all of
them. The evidence is that, the more established the
market, the more difficult it is for a fund manager to add
value to the portfolio.
Besides, an index is designed to represent all sectors of
the publicly-traded stock universe. Hence, even if a
sector is fundamentally uncompetitive, it will find a place
in the Index. This is yet another constraint to indexing in
our country.
In other words, an index fund is passively managed since
it doesn’t attempt to beat the stated benchmark.
A
Therefore, an index fund will be forced to invest in
stocks of that specific sector for its mandate, even if it is
completely out of market flavour. Nevertheless, index
fundS.
funds do add value by being low-cost fundS.
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IN-WIN
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The government is boosting the infrastructure sector by
making investments in infrastructure bonds eligible for
tax exemption upto the extent of `20,000
backed
by In-depth
Research#
I
n an attempt to boost the infrastructure sector in
India and also facilitate the financing of infrastructure projects that have a long gestation period, the
Union Budget for FY10-11 introduced infrastructure bonds. As the name suggests, these bonds will
primarily be used to finance various infrastructure
projects in the country.
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Also, finance minister Pranab Mukherjee proposed that
individuals can invest up to `20,000 in these bonds in
addition to the `1 lakh limit available under sections
80C, 80CCC and 80CCD of the Income-tax Act to make
participation in such infrastructure bonds attractive for
retail investors.
Like infrastructure companies, banks had also been
lobbying with the finance ministry seeking permission to
issue infrastructure bonds with tax benefits since more
than half of the infrastructure funding is provided by the
banking sector.
Banks had made this pitch before the finance minister in
August on grounds that there is a huge demand in the
infrastructure sector and that they be allowed to raise
resources through tax-saving schemes. Infrastructure
firms have, however, been opposing this pitch on
grounds that if banks are allowed to issue infrastructure
bonds, the very purpose of the issuance of such bonds
gets diluted.
ISSUERS IN INFRA SPACE
REGD. OFFICE: Sonawala Building, 25 Bank Street, Fort, Mumbai - 400 001. Tel: 022 - 30272222; Fax: 022 - 30272232. CORPORATE OFFICE: B-2, 301/302, Marathon Innova, Off Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400 013. Tel: 022 - 30272300; Fax: 022 - 30272303
BSE SEBI REGN No. INB011072759, INF011072759 & INE011072759, NSE SEBI REGN No. INB230939139, INF230939139 & INE230939139 DP SEBI REGN. No NSDL: IN-DP-NSDL-136-2000, CDS(I)l: IN-DP-CDSL-37-99, AMFI REGN. No. arn-49454 NCDEX REGN. NO. 00362, FMC Code-0075, MCX REGN. No. 16590, FMC Code-MCX/TCM/CORP/0490, MCX SX-INE260939139, PMS-INP000002981
30
Beyond Market 28th Oct ’10
It’s simplified...
As per the central government stipulation, infrastructure
Beyond Market 28th Oct ’10
bonds are to be issued by IFCI, LIC, IDFC and any
non-banking infrastructure finance company recognized
by the Reserve Bank of India. The tenure for these bonds
is 10 years with a lock-in period of five years. After 5
years, the issuing company can buyback these bonds
from the investors.
IFCI was the first company to make a private placement
of infrastructure bonds in August. IFCI had offered
investors an interest rate of 7.85% for bonds with a
buyback option after five years and 7.95% for bonds
without the buyback option, redeemable after 10 years.
After IFCI, another infrastructure-oriented non-banking
financial company, IDFC is making its first tranche of
public offering of these bonds. IDFC plans to raise `
3,400 crore through infrastructure bonds in one or more
tranches in FY11. IDFC, which is present across the
financial sector value chain, has a credit rating of FAAA
from ICRA — which denotes highest investment grade.
The capital adequacy ratio of the company stood at 26%,
making it one of the most under-leveraged NBFCs.
The company has a well-managed asset-liability book
and a strong risk management system for reducing or
minimising default risks. Around 82.5% of the
company’s exposure is in energy, transport and telecom
— sectors that have huge growth potential — and a
majority of loans are secured, reducing the risk of asset
quality slippages.
The net NPA ratio as of 30th June is around 0.15%. The
consolidated net profit for the year ended March ’10 was
It’s simplified...
31
At the end of five years, one can sell series 1 and 2 on the
stock exchanges. IDFC offers a buyback facility for
option 3 and 4 at the end of five years. While series 1 and
2 offer an annual interest rate of 8%, series 3 and 4 offers
interest rate of 7.5%.
Series 1 and 3 give interest on an annualized basis, while
series 2 and 4 give interest on a cumulative basis. The
bonds shall be issued in the demat form only. Hence, it is
necessary to have a demat account to apply for the same.
The issue however, closed on 22nd Oct ’10.
The maximum amount of income not chargeable to tax in
case of individuals (other than women assessees and
senior citizens) and HUFs is `1,60,000. In the case of
women assessees the limit is `1,90, 000 and in the case of
senior citizens it is `2,40,000 for FY10.
After IDFC, whose issue closed on 22nd October, the
next company to offer an infrastructure bond will be the
India Infrastructure Finance Company Ltd (IIFCL).
IIFCL will come up with an infrastructure bond issue in
December to raise around `1,000 crore.
While a five-year tax-saving bank FD is part of the
existing 80C basket with a maximum exemption limit of
`1 lakh, the investment in infrastructure bonds shall earn
the investor an additional exemption of `20,000.
Thus, in case an investor has already exhausted the
exemption limit of `1 lakh through investments in Public
Provident Fund (PPF), Employee Provident Fund (EPF),
LIC Premium, Repayment of Principal on housing loan,
National Savings Certificate (NSC), he should opt for
infrastructure bonds rather than bank FDs.
As far as the returns from these two instruments are
concerned, let us consider an interest rate of 7.85% (as
offered by IFCI) for the five-year infrastructure bond
(with buy-back option) and an interest rate of 7.5% on a
five-year tax-saving bank FD - as is the prevailing
interest rate being offered by most banks. While interest
in case of a bank FD is compounded quarterly, in case of
infrastructure bonds, it is compounded annually.
Given the above interest rates, an investment of ` 20,000
shall fetch a pre-tax interest income of `8,999 in the case
of the bank FD and `183 in case of infrastructure bonds
after a period of five years. Thus, it is not the yield on
maturity, but the benefit accruing at the time of investment that needs to be considered before making an
investment decision.
RISK ELEMENTS
The bonds would have an interest rate somewhere
between 7.5-8%, similar to its predecessors. Following
IIFCL, diversified group L&T’s finance subsidiary has
made known its intentions of raising `700 crore through
the issuance of a long-term infrastructure bond.
While there is no risk as far as the underlying asset of
these investments is concerned, the embedded risk lies
with respect to the institution offering these bonds. It is
thus important for investors to carefully scrutinize the
credibility of the institution offering these bonds.
COMPARATIVE ANALYSIS
The other downside in such investment options is that
these bonds have a lock-in period of five years. So, there
is no exit in case someone needs the money midwaY.
As infrastructure bonds have a lock-in period similar to
penny saved is a penny earned
money invested is money earned
Your financial growth is our concern.
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32
Beyond Market 28th Oct ’10
EQUITIES | DERIVATIVES | COMMODITIES | CURRENCY | MUTUAL FUNDS | IPOs | INSURANCE | PMS | DP
SMS ‘ BANG’ to 5 4 6 4 6
|
e -m a i l: f re e @ n i r m a lb a n g. co m
|
w w w. n i r m a lb a n g. co m
It’s simplified...
N
YS
N
U
S
IDFC is offering four different investment options. The
face value of each bond is `5,000 and an investor can
apply for a minimum of two bonds and in multiples of
one bond thereafter. All the four options have a tenure of
10 years and a lock-in period of five years.
U
P
E
D
I
R EPF
FO
WHAT IS ON OFFER
tax-saving bank fixed deposits and are expected to offer
interest rates similar to the ones being currently offered
by banks on their fixed deposits, it is but natural that the
prospective investors would compare it with bank fixed
deposits and figure out which of the two is a better
tax-saving avenue.
s
`1,064 crore. The allotment is on a first-come, first-serve
basis. Investors may note that there may be three other
institutions - REC, PFC and LIC - wanting to raise funds
using the infrastructure theme over this fiscal by issuing
similar bonds.
S
The Union Finance Ministry
has assured that the entire
9.5% interest on EPF
deposits will not be taxed in
the current fiscal, thus
benefitting scores of people
ix crore Employees’ Provident Fund account
holders had reason to cheer when the Central
Board of Direct Taxes (CBDT) made an
announcement on 15th Sept ’10 to increase the
interest rate on EPF deposits in FY 2010-11 after five
years, by 1% to 9.5% per annum, from the current 8.5%
per annum.
Finance Ministry through the labour ministry for a
resolution. It is now believed that the Finance Ministry
has assured the EPF office that the entire 9.5% interest
will not be taxed in the current fiscal. The new notification, altering the existing one, is expected to be released
by the Finance Ministry any time soon where the interest
on EPF in the current fiscal will be exempt from tax.
This means higher interest income for employees, which
will accumulate in the EPF account, resulting in a higher
tax-free retirement corpus. The increase in interest rate
was announced by the CBDT due to the discovery of
nearly `1,700 crore in the suspense account, when a
review of all EPF accounts since 1952 was being done.
This will be good news for EPF account holders, who
will now enjoy higher interest income. Also, crores of
low income workers will be saved from the trouble of
filing tax returns as it will be completely tax-free.
However, the announcement made by the Finance Ministry on 26th Aug ’10, a little over a fortnight before the
CBDT announcement to tax interest on EPF above 8.5%
from the earlier threshold of 12%, proved to be a spanner
in the works because the incremental interest rate would
be subject to tax resulting in lower interest income.
This notification issued by the Finance Ministry, which
became effective from 1st Sept ’10 has forced a lot of
low income workers, who do not fall into the tax bracket,
to pay tax, causing a lot of inconvenience to them. This
development met with protests from trade unions who
said that they were unhappy with the fact that EPF
returns would be taxed. They opined that EPF interest
should be tax-exempt in entirety.
This matter was then taken up by the EPF office with the
Beyond Market 28th Oct ’10
Employees will continue to enjoy a dual advantage. They
will save tax on both the principal (the employee’s
contribution) and the interest income, resulting in a
healthy post-tax return on the investment. This will
certainly attract investments in EPF as the current rate of
interest on fixed deposits post tax is much lower.
In another development, the CBDT has decided to
discourage people from using EPF as an investment
destination and hence accounts that are inoperative for 36
months will not get any interest, dissuading individuals
from maintaining a corpus when not in employment.
The reason is that, when in employment, the employer
pays 1.1% fee on the amount deducted. So, when the
individual is not employed, the EPF office spends money
on maintaining the account. If you are not employed for
a long period, withdraw your money, so that it doesn’t lie
idle with the EPF officE.
It’s simplified...
33
The movement of the dollar is also linked to the fortune
of many Indian companies that either import or export
their products and services. Hence, it is important for
investors to remain abreast of this issue as it has the
potential to impact the fundamentals of the stocks they
have invested in.
Apart from the Indian rupee, the US dollar is also moving
sideways against other currencies like the euro and the
yen. For instance, major global currencies like the euro,
pound sterling and Japanese yen have significant effects
on the movement of the US dollar.
Movement of US $ Against Other Major Currencies
125.0
120.0
115.0
110.0
GBP
JPY
INR
100.0
95.0
Investors need to stay abreast of
currency exchange rates as it has the
potential to impact the fundamentals
of the stocks they have invested in
T
he rupee-dollar exchange rates have been
extremely volatile during the last one year. In
the initial six months, the exchange rate moved
downwards from `48 per dollar to `44 per
dollar. Following that, the dollar gained momentum and
the value of the US dollar surged upwards to trade at `48
per dollar.
However, in the last three months, the trend has reversed
again and the dollar value has slipped to trade at `44 per
dollar. And this time, it is not just the volatile FX trading
chart. Many economic factors around the world are
linked to this phenomenon and many market pundits as
well as economists are keenly watching the direction of
the US dollar.
34
Beyond Market 28th Oct ’10
It’s simplified...
90.0
Source: Bloomberg
Scale to 100
Near-term market factors like credit-easing dynamics,
US economic softness, fears of competitive currency
devaluations, the ongoing frustration with China’s
currency regime change and the renewed strength of the
commodity market among others have the potential to
impact the foreign exchange market.
Renewed monetary easing by major central banks across
the globe equates to a new flood of liquidity into the
system. Fears over currency debasement, sparked by
direct currency intervention in Japan and the potential for
regular intervention by USA and Japan, has helped push
gold prices to newer highs and also the US dollar to
year-to-date lows.
Most countries are uneasy with the thought of local
appreciation of their currencies, which may make their
export more expensive and, hence, less competitive. The
path ahead is likely to be difficult and volatile. News
from the upcoming G20 could prove important for the
markets globally. Many research houses expect the USD
to close at lower levels in the current year and also the
coming year.
The euro, which is benefitting from improved economic
outlook and a weaker USD, is overdue for a period of
rest. After all, the problems in the euro zone have
improved, but not evaporated. With the positive market
Beyond Market 28th Oct ’10
The Japanese yen (JPY) has been appreciating against
the US dollar since the past few months. So much so that
finally the Japanese government had to intervene to
contain this movement.
Since its dramatic $24 billion unsterilized one-day
intervention on 15th September, the USD-JPY has been
relatively stable, just above 83 JPY/$. This also shows
how concerned government authorities around the world
are about their currency movement. This is because any
appreciation in the local currency can hurt the export
industry and this is the last thing any government would
want in an already slowing economy.
EUR
105.0
THE
CURRENCY
YO-YO
sentiments for the euro zone, the euro has rallied against
the US dollar and has gained nearly 17% since its June
low of 1.1877 euro per dollar. More than the fundamentals of the euro zone, market participants are focused on
the US side of the equation, which looks weaker. This
could continue to keep the value of the dollar at lower
levels. The British pound (GBP) is also strong, but has
underperformed the euro.
Although China is a very large economy, its currency has
never been determined by free market forces and has
always been controlled by the government there. China’s
massive manufacturing industry is heavily dependent on
exports and any appreciation in its currency yuan will
make Chinese products more expensive in the international market including the US.
On the other hand, the US has been pressing China to let
the yuan appreciate against the US dollar. With political
tensions escalating, the CNY’s appreciation accelerated
in September. A recurring theme in currency markets is
how China factors into the global landscape. Shifting
trade patterns hint that a strengthening Asian block of
currencies will do less damage to the domestic economies than previously thought.
However, if CNY strengthens to a level that stems
Chinese domestic growth, it could have an unpleasant
global impact. All in all, the yuan has appreciated little
and has a long way to go. Other emerging market currencies including the Indian rupee are benefitting from riskseeking inflows, a stronger growth trajectory and widening interest rate spreads.
In North America, the combination of a weaker-thanexpected US growth trajectory, anticipation of the
Federal Reserve entering a second round of unconventional stimulus measures, the lack of a credible fiscal
plan and the upcoming mid-term elections have all
helped to weaken the US dollar.
The currency war attracted so much attention that the
It’s simplified...
35
International Monetary Fund (IMF) Chief issued a
warning over the prevailing currency war. “When large
economies with undervalued exchange rates act to keep
the currency from appreciating, it encourages other
countries to do the same,” said Treasury Secretary Timothy Geithner.
Using exchange rates ‘as a policy weapon’ to undercut
other economies and boost a country's own exporters
“would represent a very serious risk to the global recovery,” elaborated IMF Managing Director Dominique
Strauss-Kahn.
All these developments show the underlying worries of
the governments to take their economies smoothly out of
the global slowdown. And the currency is being used as a
tool for this purpose. It is unlikely that any pressure from
the US will help to make the US dollar more valuable,
not at least in the short-term. Many research houses are
expecting a weak dollar to close the year.
Coming back to India, strong dollar inflows into the
Indian equity market have resulted in a strong rally on the
bourses. This is expected to continue for some time and
would keep the Indian rupee stronger against the US
dollar. In that case, several export-linked industries will
get affected, the most obvious one being the IT sector
which will get impacted negatively.
IT is heavily dependent on export revenues and the sector
as a whole will get impacted. Most of the frontline Indian
IT companies like Tata Consultancy Services (TCS),
Infosys and Wipro will have to bear the brunt of crosscurrency headwinds.
Most of these companies receive roughly 60% of their
revenue from North America and 20-30% from Europe
(mostly UK). However, considering the upsurge in
demand for IT services in these geographies, the
currency impact on overall earnings is expected to be
minimal. However, investors need to keep their eyes
open on the current issue.
The impact on the auto sector will be very little and vary
from company to company. Companies like Maruti
Suzuki, Tata Motors and M&M may be impacted.
However, a significant portion of their exports is
restricted to developing or under-developed countries.
Hence, investors can heave a sigh of relief as far as this
sector is concerned.
Commodity prices are closely linked to the US dollar
movements as international commodity prices are
denominated in dollars and countries worldwide follow
the international benchmark prices. Those Indian companies which import their raw material commodity will see
their input costs going downwards. Such companies may
include another commodity producing company or a
manufacturing company.
For instance, primary steel producers buy iron ore and
coal, which is their raw material, to produce another
commodity. But if the company imports raw material and
sells its products in India, it will face a positive impact of
rupee appreciation.
Whereas, if the company imports raw material and
exports its products, then the exchange risk will have a
natural hedge and there will be little positive impact on
the company’s earnings. The other types of companies
are those that import commodities like steel, aluminium
and copper among others to manufacture different equipment and sell them in India. Capital goods is one such
sector that needs to be watcheD.
Fortnightly Outlook For Commodities
C
ommodity prices have been volatile, more on
account of volatility in the US dollar than
demand and supply. By and large, the US
dollar seems to be the key driver of commodity prices of late. The ongoing ‘Currency War’ between
the US and China over revaluation of yuan, is also one of
the main reasons why commodity prices remain volatile.
In the last fortnight, the prices of precious metals soared
to new highs, with gold hitting an all-time high of
`20,100/10 gm. Even silver made a 30-year high of
`37,000/kg. Key economic data from the US continues
to disappoint investors.
Higher-than-expected US non-farm payroll figures and
unemployment rate at 9.6%, raised expectations of
another round of quantitative easing in the form of Asset
Purchase Program in the next Federal Open Market
Committee (FOMC) meeting.
The last minutes from the FOMC meet, reflects policymakers’ belief that the pace of the US economic recovery
remains subdued. The minutes also suggest that the
Federal Reserve is ready to make good on its previous
pledge to provide additional unconventional measures to
boost the economy.
The correlation between higher gold prices and a weaker
US dollar was seen strengthening in the previous
fortnight. The FOMC minutes also indicated that interest
rates will continue to be low for longer than expected.
This will put further pressure on the US dollar, making
precious metals a good alternative investment option as
investors are losing trust in this currency.
The past fortnight also saw healthy profit-taking in
bullions, after China increased its policy lending and
deposit rates by 25 basis points. We believe investors
should continue buying precious metals on declines.
Despite low demand from the western world, the rally in
base metals continued with lead and zinc outperforming
their peers. The rally in zinc could be attributed to the
suspension of production by Zhongjin Lingnan, responsible for 6% of China’s zinc output, owing to environmental spill. The state-owned smelter produces 2,70,000
tonnes of refined zinc every year.
EQUITIES | DERIVATIVES | COMMODITIES* | CURRENCY | MUTUAL FUNDS # | IPOs # | INSURANCE # | PMS | DP
Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risk. Please read the scheme related document carefully before investing. Please read the Do’s and Don’ts prescribed by Commodity Exchange before trading. The PMS Service is not offering for commodity segment. *Through Nirmal Bang Commodities Pvt. Ltd. #Distributors
36
Beyond Market 28th Oct ’10
It’s simplified...
It also produces 1,15,000 tonnes of lead each year, which
is around 3% of the country’s total lead output. Environmental concerns in Henan province of China, is one of
the reasons why lead prices are moving up sharply.
Beyond Market 28th Oct ’10
Meanwhile, copper continued its upward movement on
the back of robust investment demand from metal-based
ETFs that are hitting the markets.
While in September, China’s production of refined lead
and zinc hit record highs due to the rise in supply of raw
materials and capacity expansion. It produced 5,05,000
tonnes of refined zinc in September, up 16.6% from
August and 24.1% from a year ago, as per the National
Bureau of Statistics. And lead output reached 4,21,000
tonnes in September, up 4.2% from the previous record
in August, up 19.3% on a year-on-year (y-o-y) basis.
The recent rate hike in China has resulted in a healthy
correction of 2-3% in prices of base metals. But expectations of further measures, to be announced at the FOMC
meeting in the US, could lead to an upside in base metal
prices. We believe this rally will fizzle out once there is
clarity on the size of the stimulus package by the US.
However, natural gas was the only exception to the broad
rally in commodities in the previous fortnight, as high
stocks, coupled with a slack demand in the US weighed
on the prices. Abundant supply and poor demand is
hitting natural gas prices and weak fundamentals in the
near term, point to a further downside in this commodity.
However, we may see a revival in prices of natural gas
after the onset of the winter season in the US.
On the other hand, crude oil prices hit $84/barrel from
$77/barrel in the previous fortnight. The strike in
France’s top port, coupled with a weaker dollar,
supported crude oil prices. However, fundamentals of
crude oil are weak and we see $88/barrel as a strong
resistance level.
Currently, we are in a state where all riskier and
safe-haven assets are moving in tandem, similar to what
we experienced in 2007-08 before the sub-prime crisis.
We believe that the markets have already discounted the
quantum of quantitative easing in the offing and we are
expecting the markets to fizzle out after the FOMC meet
in the US, scheduled for the first week of November.
Therefore, one can expect a further upside in prices of
commodities with expectations of additional stimulus
package in the US. Money can buy food, but not appetite,
as higher commodity prices will result in slack demand
and, hence, a correction. We believe that the commodity
prices are likely to correct by the coming fortnight. Until
then, the US dollar and not demand and supply, will
dominate commoditieS.
It’s simplified...
37
Fortnightly Outlook For Currencies
T
once traders started covering short dollar positions.
Among the data released from UK, the annual CPI
inflation rate remained unchanged at 3.1%, the tenth
consecutive month that headline inflation has been above
the government’s 2% target.
The fortnight gone by witnessed investors pricing in a
significant amount of QE as economic data from the US
showed further deterioration and Fed officials stepped up
the rhetoric. The outright tone was going short in the US
dollar. The fact is that the weakness we have seen in the
US dollar in the past several weeks has been largely due
to speculation; the Fed has not acted yet.
Furthermore, Bank of England’s minutes showed that
one of its members, Posen, voted for extension of the
Asset Purchase Program. Fundamentally, sterling looks
weak against the backdrop of the build-up in expectations of extension n the Asset Purchase Program, which
expired in February this year. However, it is taking
support from the broad weakness in the US dollar. In the
short to medium term, we expect sterling to test $1.55
against the US dollar.
he focus of the currency markets remained on
the potential of further easing measures by the
Fed in the form of the second round of asset
purchases or QE2 as reflected in the minutes of
the FOMC meeting held on 21st September and Fed
Chairman Ben Bernanke’s speech.
Meanwhile, Asian central banks’ action also added fuel
to the weakness in the US dollar with the unexpected
decision by the Monetary Authority of Singapore to
widen the band in which its dollar trades to allow for
faster currency appreciation.
This increased speculation that other Asian central banks
may follow suit, leading to the decline in the US dollar.
However, the dollar gained some strength in the fortnight
owing to profit-booking in the euro and China’s move to
increase its benchmark interest rate by 25 basis points.
The euro continued to gain ground as economic data
from the US came in soft and speculation that the Fed
will provide additional stimulus mounted. The European
Central Bank maintained its stance of withdrawing
policy stimulus from the European financial system at its
meeting that concluded on 7th October.
This was in direct contrast to other central banks, which
helped boost the euro briefly above $1.40. The euro
made a high of 1.4159 during the fortnight. However, the
European Union’s Jean-Claude Juncker said that the
“euro is too strong at the current level”, which limited
the upside in EUR/USD pair.
The euro gave up some of its gains towards the end of the
fortnight after investors believed selling in USD is
overdone. We expect the euro to bounce back to the
levels of $1.41 in the coming fortnight since we see some
more downside in the US dollar. More importantly,
Asian central banks are seen bidding for the euro which
remains the biggest support for the euro.
The pound also benefitted from the weakness in the US
dollar. During the fortnight, the pound made a high of
1.6105. However, it could not sustain that level and fell
38
Beyond Market 28th Oct ’10
The Japanese yen remained in the narrow range of
80.75-82.00 against the dollar. Though there were talks
of fresh intervention by Bank of Japan, it kept itself away
from the forex market in view of the upcoming G20
meet. USD/JPY may continue trading between 81.0082.00 against the US dollar, in the coming fortnight.
A lot seems to be happening among Asian currencies.
Most Asian currencies strengthened on the back of huge
capital inflows seen in the last fortnight, coupled with the
unexpected decision by the Monetary Authority of
Singapore to widen the band in which its dollar trades.
Though some central banks from South Korea and
Thailand, intervened to cap the strength in their respective currencies, the efforts went in vain.
The outlook for Asian currencies depends on what China
does with the yuan after the G20 meet. Expectations that
China may follow in the footsteps of Singapore and
allow a one-off revaluation in the yuan, are building. Any
such action could further strengthen Asian currencies.
The rupee continued to gain in line with other Asian
currencies, leading to RBI intervention at level 44.
Largely, IPO-related inflows lent strength to the rupee.
However, persistent dollar buying by importers capped
the rise in the rupee. Nonetheless, the rupee is up about
5% on the year.
Foreigners have bought stocks worth $23.6 billion so far
this year, in addition to last year’s record of $17.5 billion
inflows. Going forward, we expect the rupee to show
slight weakness and test the level of 45.00. The customary month-end dollar demand, coupled with expectations
of a slowdown in foreign inflows is likely to weigh on the
Indian rupeE.
It’s simplified...
CHANGE IN PRICE AND OPEN INTEREST
CHANGE IN PRICE AND OPEN INTEREST OF THE NIFTY 50 COMPANIES
1st Oct'10
21st Oct'10
Company Name
Nifty Futures
Bank Nifty
ACC Ltd
Ambuja Cements Ltd
Axis Bank Ltd
Bajaj Auto Ltd
Bharti Airtel Ltd
Bharat Heavy Electricals Ltd
Bharat Petroleum Corporation Ltd
Cairn India Ltd
Cipla Ltd
DLF Ltd
Dr Reddy's Laboratories Ltd
GAIL (India) Ltd
HCL Technologies Ltd
HDFC Ltd
HDFC Bank Ltd
Hero Honda Motors Ltd
Hindalco Industries Ltd
Hindustan Unilever Ltd
ICICI Bank Ltd
IDFC Ltd
Infosys Technologies Ltd
ITC Ltd
Jindal Steel & Power Ltd
Jaiprakash Associates Ltd
Kotak Mahindra Bank Ltd
Larsen & Toubro Ltd
Mahindra & Mahindra Ltd
Maruti Suzuki India Ltd
NTPC Ltd
Oil & Natural Gas Corporation Ltd
Punjab National Bank
Power Grid Corporation of India Ltd
Ranbaxy Laboratories Ltd
Reliance Communications Ltd
Reliance Capital Ltd
Reliance Industries Ltd
Reliance Infrastructure Ltd
Reliance Power Ltd
Steel Authority of India Ltd
State Bank of India
Sesa Goa Ltd
Siemens Ltd
Sterlite Industries (India) Ltd
Sun Pharmaceutical Industries Ltd
Suzlon Energy Ltd
Tata Motors Ltd
Tata Power Co Ltd
Tata Steel Ltd
Tata Consultancy Services Ltd
Wipro Ltd
Price
(Rs)
Open
Interest
Price
(Rs)
Open
Interest
Change Change Change
in Price in Open in Price
(Rs)
Interest
(%)
Change
in Open
Interest
(%)
6176.30
12596.50
997.95
140.10
1576.45
1547.60
367.95
2611.75
762.55
339.85
326.80
390.25
1485.05
489.45
433.30
745.20
2515.10
1822.90
206.15
312.45
1142.65
208.70
3107.80
180.15
738.70
124.95
502.05
2115.20
712.85
1493.15
221.15
1417.30
1317.15
109.40
573.25
169.25
805.70
1015.70
1092.55
162.75
225.35
3248.30
345.65
842.30
175.85
2047.75
54.90
1121.10
1402.50
673.25
965.50
464.65
29197250
1805475
1860500
21302000
2817000
1719500
16592000
2931250
3525500
14835000
3842000
13609000
975250
2040500
1521000
7896875
2695000
2835000
18002000
10381000
13248750
21894000
3579000
20400000
5219500
33700000
3711000
2695125
6724500
2291250
18794000
1839500
1557000
19132000
3348000
27500000
8716000
22758250
7246500
27222000
8959000
3629125
11635500
1376500
21567000
454875
88040000
11352000
941500
19559500
3460500
5855990
6135.00
12506.35
981.05
140.45
1513.30
1501.30
338.05
2553.55
722.95
339.80
347.95
374.05
1634.10
504.60
424.60
710.20
2379.00
1861.40
214.65
307.65
1136.15
204.55
3046.00
175.50
718.45
130.05
505.65
2055.15
718.60
1526.05
206.85
1368.60
1329.50
106.25
599.45
179.60
840.70
1086.20
1069.05
161.15
222.40
3217.30
353.75
813.85
173.20
2130.75
59.05
1172.70
1442.70
632.20
990.60
473.45
30308150
1550175
3229250
31952000
3462000
1924250
21022000
2773500
5628000
15551000
6319000
14811000
990000
2912500
2288000
9571250
2539625
3621750
24548000
12626000
11117250
25636000
4053750
28168000
6439000
35362000
3787000
3250375
11669250
2635250
24785000
3311500
2105750
40016000
6242500
33738000
10777000
23292250
7974500
31948000
8002000
3945875
15473500
1566000
23745000
564500
91576000
11826500
961750
23555000
4727000
6571537
-41.30
-90.15
-16.90
0.35
-63.15
-46.30
-29.90
-58.20
-39.60
-0.05
21.15
-16.20
149.05
15.15
-8.70
-35.00
-136.10
38.50
8.50
-4.80
-6.50
-4.15
-61.80
-4.65
-20.25
5.10
3.60
-60.05
5.75
32.90
-14.30
-48.70
12.35
-3.15
26.20
10.35
35.00
70.50
-23.50
-1.60
-2.95
-31.00
8.10
-28.45
-2.65
83.00
4.15
51.60
40.20
-41.05
25.10
8.80
3.80
-14.14
73.57
50.00
22.90
11.91
26.70
-5.38
59.64
4.83
64.47
8.83
1.51
42.73
50.43
21.20
-5.77
27.75
36.36
21.63
-16.09
17.09
13.26
38.08
23.36
4.93
2.05
20.60
73.53
15.01
31.88
80.02
35.24
109.16
86.45
22.68
23.65
2.35
10.05
17.36
-10.68
8.73
32.99
13.77
10.10
24.10
4.02
4.18
2.15
20.43
36.60
12.22
1110900
-255300
1368750
10650000
645000
204750
4430000
-157750
2102500
716000
2477000
1202000
14750
872000
767000
1674375
-155375
786750
6546000
2245000
-2131500
3742000
474750
7768000
1219500
1662000
76000
555250
4944750
344000
5991000
1472000
548750
20884000
2894500
6238000
2061000
534000
728000
4726000
-957000
316750
3838000
189500
2178000
109625
3536000
474500
20250
3995500
1266500
715547
-0.67
-0.72
-1.69
0.25
-4.01
-2.99
-8.13
-2.23
-5.19
-0.01
6.47
-4.15
10.04
3.10
-2.01
-4.70
-5.41
2.11
4.12
-1.54
-0.57
-1.99
-1.99
-2.58
-2.74
4.08
0.72
-2.84
0.81
2.20
-6.47
-3.44
0.94
-2.88
4.57
6.12
4.34
6.94
-2.15
-0.98
-1.31
-0.95
2.34
-3.38
-1.51
4.05
7.56
4.60
2.87
-6.10
2.60
1.89
Source: NB Research
Beyond Market 28th Oct ’10
It’s simplified...
39
TECHNICAL OUTLOOK FOR THE FORTNIGHT
BULK DEALS
Bulk deals take place from normal trading windows that brokers provide and can be done
any time during trading hours. In a bulk deal, the total traded quantity exceeds 0.5%
of the number of equity shares of a company.
Price (Rs)
MAJOR BULK DEALS WHERE OVER 1% OF EQUITY WAS TRADED FROM 1st OCT’10 TO 21st OCT1’0
Ex
Date
Company
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
BSE
01 Oct'10
01 Oct'10
01 Oct'10
01 Oct'10
01 Oct'10
01 Oct'10
01 Oct'10
01 Oct'10
01 Oct'10
01 Oct'10
01 Oct'10
01 Oct'10
01 Oct'10
04 Oct'10
04 Oct'10
04 Oct'10
05 Oct'10
05 Oct'10
05 Oct'10
06 Oct'10
06 Oct'10
06 Oct'10
06 Oct'10
06 Oct'10
06 Oct'10
06 Oct'10
07 Oct'10
07 Oct'10
11 Oct'10
11 Oct'10
11 Oct'10
11 Oct'10
12 Oct'10
12 Oct'10
12 Oct'10
13 Oct'10
13 Oct'10
13 Oct'10
13 Oct'10
13 Oct'10
14 Oct'10
14 Oct'10
14 Oct'10
14 Oct'10
14 Oct'10
14 Oct'10
14 Oct'10
15 Oct'10
15 Oct'10
18 Oct'10
19 Oct'10
19 Oct'10
Tirupati Inks Ltd
Tirupati Inks Ltd
Tirupati Inks Ltd
Jupiter Bioscience Ltd
Parenteral Drugs (India) Ltd
VST Industries Ltd
Systematix Corporate Services Ltd
Tirupati Inks Ltd
VST Industries Ltd
Chhattisgarh Industries Ltd
Edelweiss Capital Ltd
Amtek India Ltd
Hanung Toys & Textiles Ltd
Tirupati Inks Ltd
Tirupati Inks Ltd
Tulip Telecom Ltd
Timken India Ltd
Timken India Ltd
APL Apollo Tubes Ltd
Kirloskar Brothers Ltd
Indiabulls
Merck Ltd
Merck Ltd
Vakrangee Softwares Ltd
Career Point Infosystems Ltd
Consolidated Construction Con Ltd
Systematix Corporate Services Ltd
Pipavav Shipyard Ltd
JK Agri Genetics Ltd
International Conveyors Ltd
LKP Finance Ltd
Networth Stock Broking Ltd
Radha Madhav Corporation Ltd
Nova Iron & Steel Ltd
Kajaria Ceramics Ltd
Strides Arcolab Ltd
Strides Arcolab Ltd
Radha Madhav Corporation Ltd
Strides Arcolab Ltd
Strides Arcolab Ltd
Sea Tv Network Ltd
Sea Tv Network Ltd
Sharyans Resources Ltd
Sterling Holidays
Bedmutha Industries Ltd
Bedmutha Industries Ltd
Sea TV Network Ltd
Parenteral Drugs (India) Ltd
Grabal Alok Impex Ltd
Axtel Industries Ltd
Golden Tobacco Ltd
Grabal Alok Impex Ltd
Client
India Max Investment Fund Ltd
Taib Sec Mauritius Ltd
Kuvera Capital Partners Llp
The Royal Bank Of Scotland Nv
Dsp Blackrock Mutual Fund
ITC Ltd
Lotus Global Investments Ltd
Somerset Emerging Opp Fund
IDFC Mutual Fund
Clarus Infrastructure Realties Ltd
Lehman Brothers Netherlands Horizons B V
Swiss Finance Corporation (Mauritius) Ltd
Kotak Securities Ltd
Credo India Thematic Fund Ltd
Kuvera Capital Partners Llp
UBS Securities Asia Ltd
The Timken Company
Timken (Mauritius) Ltd
Apollo Pipes Ltd
Kirloskar Oil Engines Ltd
Indiabulls Employees Welfare Trust
HDFC Mutual Fund
SBI Mutual Fund
Seahorse Mercantile Company Pvt Ltd
HDFC Mutual Fund
Franklin Templeton Mutual Fund
Lotus Global Investments Ltd
Trinity Capital (Nine) Ltd
Melchior Indian Opportunities Fund Ltd
India Max Investment Fund Ltd
India Max Investment Fund Ltd
The Royal Bank Of Scotland Plc
Deutsche Securities Mauritius Ltd
Industrial Development Bank Of India
Morgan Stanley Mauritius Company Ltd
Zenith Pharamaceuticals Ltd
Deutsche Securities Mauritius Ltd
Deutsche Securities Mauritius Ltd
SBI Life Insurance Company Ltd
Reliance Life Insurance Company Ltd
Deutsche Securities Mauritius Ltd
Taib Bank E C
India Capital Management Ltd
Edelcap Securities Ltd
Somerset Emerging Opp Fund
Taib Sec Mauritius Ltd
Merit Credit Corporation Ltd
India Discovery Fund Ltd
Jermyn Capital Llc
The Catholic Syrian Bank Ltd
Yes Bank Ltd
Orange Mauritius Investments Ltd
Trade
Quantity
% of Eq
Traded
Close
Sell
Sell
Sell
Sell
Buy
Sell
Buy
Sell
Buy
Sell
Sell
Sell
Sell
Sell
Sell
Sell
Sell
Buy
Sell
Buy
Buy
Sell
Buy
Buy
Buy
Buy
Buy
Sell
Sell
Buy
Buy
Sell
Sell
Sell
Buy
Sell
Buy
Sell
Buy
Buy
Sell
Sell
Sell
Buy
Sell
Sell
Sell
Buy
Sell
Sell
Sell
Buy
813468
500566
500000
400000
500000
261292
200000
240000
222229
100700
9940663
1500000
252000
751618
251618
1750000
50999988
50999988
250000
10718400
7658930
248994
249000
300000
214504
2000000
168000
7200000
156359
1900000
300000
162210
1000000
4508471
1000000
7980115
2672716
1200000
685333
685333
488654
271051
260000
586054
250488
241000
135777
790000
250000
120600
180000
225000
5.37
3.30
3.30
2.48
1.93
1.69
1.58
1.58
1.44
1.34
1.32
1.19
1.00
4.96
1.66
1.21
80.02
80.02
1.23
13.51
2.47
1.50
1.50
1.33
1.18
1.08
1.33
1.08
4.46
2.81
2.29
1.44
3.07
2.99
1.36
13.83
4.63
3.69
1.19
1.19
4.07
2.26
1.75
1.28
1.19
1.15
1.13
3.05
1.11
1.21
1.02
1.00
43.71
46.53
44.00
92.00
235.00
575.00
97.75
54.85
575.00
8.15
53.33
64.59
327.00
32.00
32.00
176.01
154.55
154.55
156.50
256.00
148.00
730.00
729.98
254.62
521.95
83.00
117.00
80.53
445.20
23.75
138.05
54.02
19.50
13.20
79.50
400.13
400.00
19.50
400.00
400.00
113.90
112.74
123.51
94.49
119.50
106.63
112.89
290.00
48.00
12.00
97.12
52.91
36.65
36.65
36.65
90.95
298.30
573.65
97.80
36.65
573.65
8.15
58.00
63.95
324.05
29.35
29.35
190.20
166.55
166.55
156.75
254.50
167.25
742.90
742.90
251.55
632.35
82.90
107.45
83.40
439.50
23.75
137.90
54.05
19.90
13.78
80.35
409.10
409.10
19.36
409.10
409.10
106.00
106.00
118.65
94.15
180.80
180.80
106.00
306.50
47.95
11.81
97.00
52.70
Source: NSE and BSE
40
Beyond Market 28th Oct ’10
It’s simplified...
KEY HIGHLIGHTS
After hitting an intermediate top of 6,284 on 14th Oct
’10, the markets saw a correction on the back of the
Coal India IPO that closed last week. The IPO, it is
hoped, will bring success to the government. However, the huge response to Coal India’s IPO has sucked
liquidity from the markets. According to industry
analysts, the good response to the Coal India issue is
expected to encourage other public sector companies
like Hindustan Copper, Power Grid and Indian Oil to
come out with issues in the near future.
The decline in the Sensex was in line with sluggish
Asian markets, as a sudden rate hike by the Chinese
central bank in the last fortnight raised apprehensions.
The Sensex corrected from the top of 20,854 and made
a recent low of 19,822, ahead of the Coal India IPO in
five trading sessions. But the index is firmly holding
above the 20,000 mark.
Even during this downtrend, we saw Reliance Industries Ltd, Cipla Ltd, Tata Consultancy Services Ltd,
Biocon Ltd and several PSU banks outperforming the
market, which indeed maintained the momentum.
Metals, realty and IT stocks remained under pressure.
The Indian markets seem to be in a hot spot at this
point and we believe that as long as strong earnings
and data continue, the markets are going to outperform. Technically speaking, the Indian markets are
currently well-balanced and any decline should be
considered as an entry point. A major trend reversal
could be seen only if the Nifty breaks the 5,900 level.
STRATEGY
Going forward from the current levels of the Nifty
futures at 6,085, we see that the Indian markets are
technically well-shaped from a medium to long-term
perspective. But from a very short-term view, we
believe that the markets could correct slightly if it slips
below the recent lows of 5,966. Markets are facing
tremendous selling pressure at higher levels close to
6,150 – 6,200.
We are seeing huge pressure from the domestic
institutions as they continue to be sellers to the tune of
`10,811 crore and the FIIs were buyers of `12,959
crore for the month of October. The oscillator RSI on
the daily chart is in the negative territory, indicating a
slight weakness, which is likely to continue. The
Beyond Market 28th Oct ’10
undertone of the markets is strong as we are witnessing huge buying in large-cap and quality mid-cap
stocks, which is supporting the sentiments.
On the F&O front, the October and the November
series of the Nifty are continuously trading with 25-30
points premium, which clearly indicates that a lot of
shorts in the system are yet to be covered. The PCR is
at 1.27, which also signifies that the markets are not
yet overbought and chances of the markets rallying
further are very high. On the Options series, we are
seeing huge additions on the 6,000 and 5,900 Put
series that is providing huge support at lower levels.
The markets are likely to rally owing to liquidity in the
near term. But global sentiments may reverse this
uptrend. India’s medium-term outlook continues to
show a lot of promise and it will continue to take cues
from the global markets as well as keep a close track
of the FIIs fund flows and the quarterly earnings. The
trading range for this fortnight could be 5,885 – 6,200
with a positive bias. A major move could be seen only
if the markets break this trading band.
From a short-term trading perspective, it seems that
we will continue to remain in the trading range of
5,900 – 6,200 with a positive bias as the markets will
try to consolidate and make a base before heading for
a fresh breakout above the 6,285 level. But if Reliance
Industries Ltd continues to give fresh breakouts above
the 1,095 level in the near term, then chances are that
it could test the 1,210 level going forward. There is a
huge probability that the Nifty could also test the
6,320 level in the October series.
Currently, from a trader’s perspective it has become
very difficult to time the market as the volatility has
risen very sharply and we are seeing a 100 – 150 point
swing trade on the Nifty on a daily basis. Hence, it
would be safe to stay on the sidelines and sit on cash
till the markets settle down as the Nifty is trading near
the bottom end of the channel. Here on, it could drift
further to test its 50-DMA of 5,818 if it slips below the
6,000 mark.
In the coming fortnight, as the Nifty heads towards the
October series, the 5,930 level is an important point to
watch out for on the spot Nifty. On the higher side, the
6,115 level and above that a strong upside move could
be seen up to the 6,220 - 6,320 levels.
It’s simplified...
41
We believe the markets are likely to head further on the back of important events like the Coal India listing on 4th
November and the Diwali Muhurat trading on 5th November.
STOCK IDEA
Stocks like Ballarpur Industries Ltd, E.I.D Parry (India) Ltd, Jammu & Kashmir Bank Ltd, Parenteral Drug
(India) Ltd, Pipavav Shipyard Ltd, Raymond Ltd, Reliance Industries Ltd, Uflex Ltd, United Phosphorous Ltd,
look great buys on declines from a short-term trading perspectivE.
NIFTY DAILY CHART
As shown in the chart, the Nifty is holding strong above its important retracement level of 5,910. We believe that
fresh sell-offs could be witnessed only if the Nifty slips below this point in the near term. The RSI is also well
below the overbought zone and is showing signs of revival. A good rally could be seen if the Nifty holds above
the 6,115 level.
MOVERS AND LAGGARDS IN MUTUAL FUND SCHEMES
Absolute %
(Point to Point)
(21st Oct '10)
2 Weeks
NAV
Scheme Name
Equity Schemes
Movers
Birla Sun Life Commodity Equities Fund - GA - Ret - Gr
Escorts High Yield Equity Plan - Gr
UTI Pharma and Healthcare Fund - Gr
Sahara Star Value Fund - Gr
Sundaram BNP Paribas Rural India Fund - Gr
Laggards
Sundaram BNP Paribas Media & Entert Opp Fund - Ret - Gr
Birla Sun Life Commodity Equities Fund - GPM - Ret - Gr
JM Telecom Sector Fund - Gr
Reliance Media & Entet Fund - Gr
Sahara Infrastructure Fund - Fixed Pricing - Gr
16.3064
16.0389
40.0900
14.0325
17.3876
5.4836
3.7895
3.2981
2.7014
2.5285
16.2492
13.5754
8.6420
31.0511
17.8142
-3.5249
-3.2381
-3.1915
-2.7166
-2.5177
12.0683*
10.2092
10.4533
18.1401
10.2405
1.2144
0.2740
0.2715
0.2642
0.2526
20.4043*
16.0093*
15.2705*
11.1480
16.2078
-1.9010
-0.7304
-0.5361
-0.4723
-0.4722
57.3710
28.8601
51.9780
60.2453
29.8700
1.1816
1.1535
1.0755
0.9066
0.3696
63.7500
24.8521
50.6473
324.3700
86.3017
-1.4226
-1.4091
-1.1752
-0.8740
-0.6995
Debt Schemes
Movers
ICICI Prudential SMART Fund - Series E - 24 Months - Ret - Gr
HDFC Medium Term Opportunities Fund - Gr
ICICI Prudential Banking & PSU Debt Fund - Prem Plus - Gr
Sahara Income Fund - Gr
Religare Active Income Fund - IP - Gr
Laggards
ICICI Prudential SMART Fund - Series G - 36 Months - Ret - Gr
ICICI Prudential SMART Fund - Series F - 36 Months - Ret - Gr
ICICI Prudential SMART Fund - Series H - 36 Months - Ret - Gr
Fortis Flexi Debt Fund - Plan A - Gr
Fortis Flexi Debt Fund - Gr
Balance Schemes
MUTUAL FUND, FII ACTIVITY AND NIFTY
This graph and data represent the Mutual Fund and FII activity
that took place in the last fortnight, whether the Fund Houses
were buyers or sellers.
MF Net , FII Net & Nifty
6000
5000
4000
3000
2000
1000
0
-1000 01 Oct'10
11 Oct'10
06 Oct'10
-2000
MF
FII
19 Oct'10
14 Oct'10
NIFTY (RHS)
6300
6250
6200
6150
6100
6050
6000
5950
5900
5850
Date
01 Oct'10
04 Oct'10
05 Oct'10
06 Oct'10
07 Oct'10
08 Oct'10
11 Oct'10
12 Oct'10
13 Oct'10
14 Oct'10
15 Oct'10
18 Oct'10
19 Oct'10
20 Oct'10
Source: NB Research
42
Beyond Market 28th Oct ’10
MF Net*
-18.70
-352.60
-324.80
-423.50
-640.20
-553.40
-260.10
-336.80
-352.20
-399.40
-1085.00
-1048.40
139.20
50.00
FII Net *
Nifty
4755.80
1964.10
1918.90
970.20
2285.40
1700.80
807.50
1111.20
700.10
3100.40
2894.40
654.00
815.70
341.00
6143.40
6159.45
6145.80
6186.45
6120.30
6103.45
6135.85
6090.90
6233.90
6177.35
6062.65
6075.95
6027.30
5982.10
Movers
HDFC Balanced Fund - Gr
Escorts Opportunities Fund - Gr
Sundaram BNP Paribas Balanced Fund - Gr
LIC Balanced - Plan C (Gr)
Baroda Pioneer Balance Fund - Gr
Laggards
Canara Robeco Balance - Gr
JM Balanced - Gr
FT India Balanced Fund - Gr
Birla Sun Life 95 - Gr
Tata Balanced Fund - Gr
*(20th Oct’10) Source: NB Research
Disclaimer
The information provided here has been obtained from
various sources and is considered to be authentic and
reliable. However, Nirmal Bang Securities Private
Limited is not responsible for any error or inaccuracy
in the same.
*Net activity in Equity
It’s simplified...
Beyond Market 28th Oct ’10
It’s simplified...
43
Ramadorai has been with TCS for 38 years now. He
started out as a junior engineer with TCS and swiftly
progressed to managing TCS’s operations in the United
States by 1979. He was made the CEO of the software
company in 1996 and has turned around the company
from a mere $160 million company to a $6.3 billion
global entity.
S Ramadorai:
Not Just
An ‘IT’ Guy
S
ubramanian Ramadorai, the 66-year old NonExecutive Chairman of the Bombay Stock
Exchange is also the Non-Executive ViceChairman of Tata Consultancy Services. The
Board of Directors of the BSE appointed him as the
Additional Director and elected him for his current post
in March this year. Ramadorai expressed immense
pleasure on his association with Asia’s oldest bourse by
stating that he considers it a great privilege to chair the
board at a time when the BSE is poised for innovation
and change.
The Non-Executive
Chairman of the Bombay
Stock Exchange,
Subramanian Ramadorai
not only loves number
crunching, but also takes
equal pleasure in listening
to music and capturing
wildlife on camera
44
Beyond Market 28th Oct ’10
Born in Nagpur, Maharashtra, he finished his schooling
from Sardar Patel Vidyalaya in New Delhi. He obtained
a Bachelors degree in Physics from the University of
Delhi and an Engineering degree in Electronics and
Telecommunications from the Indian Institute of
Science. Ramadorai holds a Masters degree in Computer
Science from the University Of California (USA). He has
also been a part of the Senior Executive Development
Program at the MIT Sloan School of Management, USA.
ADMIRABLE CAREER
Ramadorai has an extremely admirable career path in IT
services. He is currently the Chairman of Tata Technologies Ltd, Computational Research Laboratories Ltd, Tata
Elxsi Ltd and Chairman of CMC Ltd. He is also on the
board of Tata Industries Ltd, Tata Communications Ltd,
Tata Teleservices (Maharashtra) Ltd along with Asian
Paints Ltd, Piramal Healthcare Ltd and Hindustan Unilever Ltd.
It’s simplified...
He concentrated his energies on forging associations
with large corporations and academic organizations.
Ramadorai strategized and channelized acquisitions and
development in technology at TCS. He also monitored
the research and development activities of the software
major. He passed on the baton to N Chandrasekaran in
September last year after retiring as the CEO and MD of
TCS at the illustrious age of 65.
Ramadorai pioneered TCS’s quality initiatives, taking
sixteen of its Development Centres to CMM Level 5, the
highest and most prestigious performance assessment
issued by the Software Engineering Institute (SEI). TCS
also attained the distinction of being the world’s first
company to have all centres assessed as operating at
Level 5 of PCMM .
BSE India launched stock trading via mobile phones last
month with the intention of cashing in on the
fast-growing handset market and the increasing
emergence of tech-savvy investors. They have entered
into agreements with local mobile phone operators and
software companies to offer real-time updates and other
trading products.
Mobile phone users will now be able to buy and sell
shares, see live index and stock prices and receive their
investment positions on their phones. BSE chairman
Ramadorai said, “We believe that this will advance the
development of financial inclusion through higher
penetration of capital markets by leveraging the mobile
telecom infrastructure in the country.”
CERTIFICATES OF EXCELLENCE
Ramadorai has received numerous awards from national
as well as international organizations. One of the highest
civilian awards, the Padma Bhushan was awarded to him
by the government of India in 2006 to acknowledge his
commitment and dedication to the IT industry.
In the year April ’09, Ramadorai was awarded the CBE
(Commander of the Order of the British Empire) by Her
Majesty Queen Elizabeth II for his contribution to IndoBritish economic relations. The CBE is bestowed upon
an individual in recognition of his exceptional contribution to his/her respective field. Under his aegis, Tata
Consultancy Services UK’s estimated turnover grew to
Beyond Market 28th Oct ’10
over $1 billion and helped create nearly 4,200 jobs there.
TCS is also responsible for Tata Group’s role as the
largest Indian investor in the UK. Through its services to
the UK clients, TCS helps British businesses to deliver
definite results.
Ramadorai is associated with several educational institutions like the Indian National Academy of Engineering
and the Institute of Electrical and Electronics Engineers
(IEEE) by way of Fellowship. He has also been presented
with a Fellowship of the Institute of Management
Consultants of India.
He is the President of the Indo-American Society. Ramadorai is on the National Council of the Confederation of
Indian Industry (CII) and the Corporate Advisory Board
of Marshall School of Business (USC) and various other
reputed Indian academic institutions.
Ramadorai received the Lifetime Achievement Award
from Indore Management Association in the year 2003
and the Distinguished Achievement Award from his
alma mater, the Indian Institute of Science, Bangalore.
He has also been presented the ‘Management Man of the
Year’ award by the Bombay Management Association
and also CNBC Asia Pacific’s esteemed ‘Asia Business
Leader of the Year’ Award in 2002.
LIFE OUTSIDE WORK
S Ramadorai is married to Mala Ramadorai and is
blessed with a son. But Mala is not overshadowed by her
husband’s achievements. She is a renowned Hindustani
and Carnatic music singer in her own right and performs
at music concerts all over the country. She is also an
educator with many years of experience and a wide
variety of interests.
S Ramadorai is a self-confessed gadget freak who cannot
function without being in constant touch with his
colleagues through his latest smart phone. He also has
thousands of songs stored on his music device as he is a
music lover and is inclined towards classical music
thanks to his wife. He listens to them while travelling as
well as before and after work. He owns a high-end music
system at home, too.
Ramadorai is extremely passionate about wildlife
photography and has visited several sanctuaries across
the country to capture the animals in their natural habitat
with his high-definition camera.
Ramadorai’s love for mathematics can be attributed to
his father, who taught him the subject and also induced
an interest in science apart from instilling values such as
honesty, ethics and hard worK.
It’s simplified...
45
But wait, before you too head for the bank and invest
your entire corpus in one single fixed deposit at one go.
Let us look at the flaws in this arrangement. Say you
invest `10 lakh in a single five-year FD and a couple of
years down the line, if the interest rate increases, you lose
out on that extra interest.
In this manner you have an FD maturing every year. Now
when the first FD matures after 1 year, you reinvest that
into a 5-year maturing FD and you have your Rung 6 (FD
maturing in the 6th year). Similarly when the 2nd FD
matures in 2 years, again reinvest it in a 5-year FD and
you have your Rung 7 (seventh year) and so on.
Alternatively, if you do decide to cash out your FDs
prematurely to reinvest at higher rates, generally a
penalty is levied for premature withdrawal, which will
neutralize that extra interest rate you would get when you
reinvest at higher rates.
Advantages Of Laddering
Secondly, if at maturity, the rate of interest at that point is
lower than your initial rate, your new FD will fetch a
much less interest income as compared to the one you are
used to, whereas the inflation in all likelihood would
have increased, so in a way it would be a double blow to
your household budget.
LADDERING
LADDERING:
Moneytree Gains
Investors can use the method of laddering to grow money as
it is an investment strategy by which they can invest in
several securities with different maturities
S
ensex hits 20,000! Nifty touches 6,000! This is
where, as they say ‘the plot thickens.’ Do you
remain invested in equity expecting the rise to
continue or exit your stock portfolio
completely, expecting a crash?
and keeping the money idle in your savings bank
account. This is because even though your money will be
safe, the real value of that money will actually get eroded
by inflation and will result in the reduction of its purchasing power.
Asset allocation is a very important part in every
investor’s life. There comes a time when the risk far
exceeds the reward and hence shifting from riskier assets
(equities) to relatively safer assets (debt) becomes the
need of the hour.
Hence, it is imperative that you invest in some form of
debt instrument such as Fixed Deposit, National Savings
Certificate, Kisan Vikas Patra, company deposits or
NCDs that offer a rate of interest higher than your
savings account and try and keep pace with inflation, if
not outrun it.
The best piece of advice at such a point would be to
maintain a balanced portfolio where, from time to time
equity or debt could be increased or decreased depending
on the risk and the market scenario.
However, do not make the mistake of exiting your stocks
46
Beyond Market 28th Oct ’10
As a case study, we shall take Fixed Deposits (FD) as the
instrument of choice in this article. More so, because FD
rates are on the rise since the past few months, after a lull
of over two years and there is a mad rush by investors to
either renew their FDs or get a fresh one.
It’s simplified...
To overcome this problem, a novel concept called
‘laddering’ needs to be employed. Laddering is a portfolio management system that aims at minimizing the risk
of future movements in interest rates and also decreases
the risk of reinvestment. FD laddering involves investing
money in different fixed deposits (fixed income instruments) having different maturities thereby creating an
income ladder, one rung at a time.
The concept of laddering is similar to our daily life. If
you want to climb a five feet high wall, you can either
jump over it or you can put a ladder against the wall and
climb up one step at a time and reach your goal. The first
technique, even though fast, is very risky as a person may
hurt himself. The second technique, although slow, is
much safer. FD laddering is precisely a safe and hasslefree technique.
How To Create A Fixed Deposit Ladder
Basically, laddering involves dividing the total portion of
your portfolio allocated for fixed deposits (fixed instruments) into several fixed deposits of different maturities.
For example, if you have `10 lakh to invest with a time
horizon of five years, then you divide the sum into five
equal parts of `2 lakh each and invest in the following
manner to form rungs like in a ladder.
Here’s how:
First 2 lakh, invest in a 1-year maturing FD - Rung 1
Second 2 lakh, invest in a 2-year maturing FD – Rung 2
Third 2 lakh, invest in a 3-year maturing FD – Rung 3
Fourth 2 lakh, invest in a 4-year maturing FD – Rung 4
Fifth 2 lakh, invest in a 5-year maturing FD – Rung 5
Beyond Market 28th Oct ’10
a. Reduces The Impact Of Interest Rate Insulation
Interest rates are never static; they are dynamic and in a
state of constant change. So, it is almost impossible to
time your investments and aim to invest all your money
at the highest interest rate.
By laddering one’s investment, at any given point of time
you have both short-term and long-term FDs in your
portfolio with varying interest rates. Although this may
not guarantee the highest returns, but if the interest rates
were to fall, your entire investment would not get
affected, as some FDs will always be invested at higher
rates. It will give you that much needed freedom from
having to time the interest rate scenario.
b. Reinvestment Risk
One of the most important advantages of laddering is
mitigation of reinvestment risk. For example, if you are a
retired person who needs a fixed monthly income and
have invested a lumpsum amount of `10 lakh in a
five-year FD at an interest rate of say, 8%. For those five
years, you would receive an interest income of approximately `6,666 each month until maturity.
But at the end of five years, when the FD matures and
you go in for reinvestment of that FD, the rate of interest
in all likelihood would have changed, either on the
upside or downside. In case the rates are higher or equal
to 8%, you are lucky.
But in case the rates are lower, say 6%, you will then
have no choice but to reinvest at these lower interest
rates, on which you would receive a monthly return of
just ` 5,000. A monthly income, lesser by `1,666, could
create a lot of financial problems for a retired person with
no other source of income. This is referred to as reinvestment risk.
But, by employing the laddering strategy, wherein
instead of a lumpsum investment, you have spread out
your risk in different FDs with different maturity dates
and different interest rates, so that even if the prevailing
rates at the time of reinvestment are lower than your
initial rates, you are only investing a part of your corpus
at these lower rates and not your entire corpus.
You are not committed to one interest rate and can
It’s simplified...
47
benefit from any higher rate that may be available in
subsequent years.
you tide over your crises and the rest remains unscathed
and continues to enjoy the same rate of interest.
c. Liquidity
Unlike a single long-term FD, in laddering you would
have FDs maturing at regular intervals and hence there is
a steady income stream, which helps in goal-setting and
you will always have some liquidity for emergencies.
e. Insurance Against Defaults
repay
In India, bank fixed deposits are guaranteed for repayment up to `1 lakh, in the unfortunate event of a default
by the bank.
Also, if you feel that there is a greater potential for
outperformance by some other investment avenue,
instead of reinvesting back in the ladder on maturity of
any deposit, you can shift your money into such promispromis
ing sectors.
d. Avoidance Of Penalty
If you have a single large FD and an emergency arises,
you might have to make a premature closure of your FD.
Generally, there is a penalty attached to such premature
closures. But, if you have multiple small FDs, you can
redeem only those many number of FDs, which will help
Hence, if laddering is employed by having multiple small
fixed deposits with different maturities in different
banks, it is much safer than having a single large FD in
one single bank.
f. Inculcates Regular Saving Habit
Laddering helps develop the habit of saving regularly,
which in the long run can help create huge wealth.
Remember, laddering helps you tide over the volatility of
interest rate fluctuations and in the long run this strategy
evens out the high and low interest rates and your
average yield will be on the higher sidE.
THE UNUSUAL SHAPES OF
ECONOMIC RECOVERIES
VUWL
When economists describe recovery, it is
usually in the form of alphabets like
V, U, W and L
T
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48
Beyond Market 28th Oct ’10
It’s simplified...
here are a few English alphabets that are used
to describe economic theories of recovery and
cycles. In fact, when we plot certain economic
data pertaining to GDP growth and industrial
production among others, the shapes that emerge are
identical to English alphabets like U, V, W, L, etc. These
alphabets are also used to define the trend or recovery of
the stock markets when they fall. The global economic
crisis of 2008 is the case in point as a lengthy debate on
the shape of the economic recovery ensued following the
financial meltdown.
This is also one of the most common and frequently
occurring economic activities.
Most developed and emerging economies of the world
are still trying hard to recover from the aftermath of the
financial crisis of 2008. However, emerging economies
like China and India have recovered faster and are
believed to be in the last leg of the ‘V’ shaped recovery.
For instance, till the first quarter of 2008, the Indian
economy was growing at about 9%, which dipped to just
5.7% by September-December ’08. Since then the recovery has been fast. By the end of 2009, India’s economic
growth was back to its pre-crisis level of 8%.
‘V’ Shaped Recovery
The term ‘V’ shaped recovery is also used in the context
of markets. For instance, during the correction in the
markets, led by the global economic crisis in 2008, most
experts were of the opinion that the recovery in key
indices like the Sensex would not be ‘V’ shaped. This has
been true since the recovery in the markets has been more
‘U’ shaped than ‘V’ shaped.
As the shape of the alphabet ‘V’ says it all, a ‘V’ shaped
recovery means that the economy is suffering or that its
key indicators like GDP growth and industrial numbers
are on a rebound after a sharp decline. In other words, the
slide in economic activities, although quick, lasts for a
shorter period of time, after which the economic recovery
takes place immediately at more or less the same pace.
Generally, when the markets crash for a shorter period of
time, they recoup their losses at an equally fast pace,
which is like the ‘V’ shaped recovery. The time when the
Left party withdrew its support to the UPA government
in 2008, the terror attack on Mumbai in 2008 and the
general elections in the year 2009 when the Congress
won to form the government at the Centre are a few
It, therefore, makes all the more sense to understand the
frequently used alphabets of the English language in
economic parlance.
Beyond Market 28th Oct ’10
It’s simplified...
49
‘U’ shaped recovery
would be a ‘U’ shaped recovery. But for the same reason,
there is another set of economists who now believe that
the global economic recovery is fragile and may not
sustain. This is precisely the reason why they are calling
it a double-dip recession, also referred to as a ‘W’ shaped
economic recovery.
The slowdown and recovery resembles a ‘U’ shape. This
is visible when key economic indicators signal a decline
from the top and take a little longer to recover and reach
their previous levels. ‘U’ shaped recoveries are little
longer and slow. Hence, they form a pattern like the
alphabet ‘U’.
A typical ‘W’ shape situation occurs when the economic
indicators first show a steep decline and later on recover
and again dip for a short period before actually coming
back to the pre-crisis levels or before normalizing. This
process of ‘W’ shaped recovery generally takes a little
longer than usual.
The ongoing global economic crisis which began in
mid-2008 will complete two years in 2010. The world
economy which grew by 5.2% in the year 2007 plunged
to 3% in the year 2008 and further into negative territory
of 0.6% in the year 2009.
In fact, many economists including Nouriel Roubini,
who earned the credibility of rightly predicting the US
housing and financial crisis of 2008, recently raised the
probability of a double dip recession or a W-shaped
recovery a little higher.
The Japanese economy is the classic case of an
‘L’-shaped recession. During 1970-80, Japan emerged as
one of the fastest growing economies in the world, thanks
to its export-led strategy. But gradually, as the easy
money spread and the central bank continued to retain
loose monetary policies, a bubble formed in its asset and
equity markets.
However, thanks to central banks across the world - who
pumped a lot of money into the system to revive the
sagging economies and avert depression - the economy is
growing like in the past. According to the latest data by
the IMF, the global economic growth would be around
4.6%. But it would be slower and lesser than the
pre-crisis levels.
In the present context, a ‘W’ shaped recovery means that
marginal recovery, which we have already seen in the
global economy, could once again see a decline before
reviving or attaining the pre-crisis levels.
By 1990, the Japanese stocks were trading 60 times their
earnings. Japan’s market capitalization was higher than
the US, whose population was twice and GDP more than
twice that of Japan.
examples of how the Sensex plummeted in reaction to
these developments, but recovered immediately after the
outcome. However, it may not be the case when
problems are deep and take longer than usual to resolve.
Most global indicators, especially industrial activity and
economic growth, are witnessing a slow but gradual
recovery in the advanced economies. This is also the
reason why several economists felt that the world
economy was witnessing a ‘U’ shaped recovery. This is
mostly due to the advanced economies whose growth has
been slow compared to the emerging economies, most of
whom have seen a ‘V’ shaped recovery.
It is also true in market parlance. For instance, the Indian
equity markets, which are still away from the 2008 peak,
have undergone a ‘U’ shaped recovery in the last two
years. The Sensex crossed the 21,000 level in early 2008
and made a bottom below the 8,000 level in early 2009.
However, today the recovery is underway and the Sensex
is currently trading above the 20,000 level. These three
years - the peak to the bottom and then recovery is still
not over, but is believed to be a ‘U’ shaped recovery.
‘W’ Shaped Recovery
After a severe global economic crisis in 2008, everybody
believed that the world economy would take a little
longer to recover as problems could persist for some
more time and the process of de-leveraging, price stabilization and pick up in actual demand would be gradual
and could take a little longer than expected. Due to these
reasons, economists initially had little doubt that this
50
Beyond Market 28th Oct ’10
decline but later on, show a flattish recovery over a
longer period of time, then it is considered to be an ‘L’
shaped economic recovery.
None of us or for that matter, not even the central bank of
any country would imagine falling into this kind of trap,
which could be very depressing and even costly in terms
of its impact on the society and also government
finances. No wonder the European and the US governments are continuously spending, fearing that they might
find themselves in a similar situation.
The bubble ultimately burst in 1990 as the central bank
started gradually tightening liquidity and interest rates,
which led to the real estate and the stock markets correcting almost 60% from their peaks. But what was initially
thought to be good for the Japanese economy became its
worst experience as the impact on the economy was far
devastating in terms of the effect on growth and demand.
To deal with the perilous situation, the government again
started cutting interest rates and began spending huge
money, although gradually. But despite huge stimulus
and interest rates, which were cut all the way to zero, the
Japanese economy did not respond even after a decade.
This is also the reason why people call it as Japan’s lost
decade.
However till today, after two decades of government
spending and lower interest rates, the Japanese economy
is the same size as it was in 1993. After years of slow
growth, the economy has neither fallen nor grown much,
which is why it is considered to be a perfect case for ‘L’
shaped recovery. Like in the case of Japan, an ‘L’ shaped
recession generally lasts longer, with the key indicators
showing a flattish trenD.
Although it is difficult to predict and most economists
are divided on this issue, there are a number of reasons
that indicate a double-dip recession. Many economists
believe that the global economic recovery, which we
have seen is on account of the government printing and
spending too much money.
It has left most world economies, including the biggies,
vulnerable. In most cases, government borrowings have
gone up and spending has surpassed revenues, creating a
huge mismatch in government finances.
Besides, the consumers in the western world themselves
want to de-leverage their own balance sheet, which is
why they are not spending much and have instead started
saving. This could also result in lowering demand and
increasing unemployment.
What is even more surprising is that the IMF itself
expects a marginal decline in 2011 in the world
economic growth at 4.3% compared to 4.6% growth,
expected in 2010. Leading economies including the US
and Europe are once again expected to witness lower
growth in 2011. The IMF also expects China, India and
Japan to slowdown in the year 2011.
‘L’ Shaped Recovery
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An ‘L’ shaped recovery-like situation arises when the
economy falls from the top and continues to remain at the
bottom. Generally, when economic indicators show a
It’s simplified...
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Beyond Market 28th Oct ’10
It’s simplified...
51
Small glitches notwithstanding, the Commonwealth
Games turned out to be a spectacular event with a plethora
of lesser-known athletes becoming the rising stars of
tomorrow by winning plenty of medals for the country
T
he 19th Commonwealth Games ended with a
spectacular ceremony on 14th October, with
most of the sporting events going off smoothly
and generating a new-found vigour among
sports enthusiasts. The events too boasted of Olympic
disciplines and were conducted extremely well. Despite
lingering concerns, there were no terror attacks, venues
were of the highest standard, the rain gods were benevolent and dengue fever didn’t grip the participants.
g
S
n
t
a
i
s
r
i
s
R
For once it was not about cricket mania in the country
and Indian fans had much reason to cheer. For the
massive cost of staging the games, estimated at somewhere between $3 billion and $10 billion, India was
adequately rewarded as we finished second on the
medals tally behind Australia and in the most dramatic
manner, overhauling England from the second position
on the final day of the competition.
Beyond Market 28th Oct ’10
It’s simplified...
Be it Deepika Kumari in archery, shooter Omkar Singh,
gymnast Ashish Kumar, long-distance runner Kavita
Raut, the sportspersons have made the tricolour fly high
as well as put small towns of India firmly on the map.
Deepika, who hails from Ranchi, is the daughter of Shiv
Charan Mohato, an auto-rickshaw driver, while Omkar
Singh, who won three gold medals and one silver, comes
from Kotma Colliery village of Anuppur district in
Madhya Pradesh. Kavita Raut was brought up in
Trimbakpur, a tribal area of Maharashtra.
Ashish Kumar who hails from Allahabad, feels the only
famous person from his city was Amitabh Bachchan and
now he is glad to bring his city on the global map. India
has won a plethora of medals, but those won by these
athletes are special, as nobody knew their names before
the Games started.
This victory came in as Saina Nehwal beat Malaysian
counterpart Mew Choo Wong to bag yet another gold
medal at the close of the competition. This is also the first
time that India won the most number of medals with 38
golds, taking the total tally of medals to 101. Besides, the
country witnessed many young Indian sportspersons
making India proud.
These young men and women deserve a special mention
because they do not have the natural advantage of the
facilities made available to players hailing from cities. It
is easy for these players to get nervous with so much
media attention they have never been used to. But the
fact that several of them showed spectacular confidence
in proving their mettle is indeed praiseworthy.
Yet, the build-up to the games was tarnished. There was
negative news flow about construction delays, safety and
health concerns of the Games village. The biggest stars
like Jamaican sprinters Usain Bolt and Asafa Powell
decided to skip the CWG. But all this negative media
forced India’s leaders to unite and put their best foot
forward. Everyone from PM Manmohan Singh to Delhi’s
CM Sheila Dikshit suddenly got involved to urge a
last-minute blitz to get things done.
It is not just the fact that India has seen a new dawn in
terms of sports champions, economic experts are also
busy chalking out the benefits of the Games on the Indian
economy. The Commonwealth Games is believed to
have boosted FDI in the country and have a multiplier
effect on the Indian economy.
Despite the fact that the OC Chairman, Suresh Kalmadi
was in the eye of the storm, as was evident when he was
jeered at both the beginning and the close of the
ceremony, he seemed unfazed. After the close of the
Games, Kalmadi gushed about how all athletes and
participants were pleased with the arrangements made
and how they would be returning home with great appreciation for India. That Kalmadi was not exaggerating was
evident when CWG Federation President Michael
Fennell, who only two weeks earlier had been critical of
the delay in preparation, vouched for the fact that Delhi
had delivered. “The competitions went well, and it was a
comfortable, satisfactory experience,” Fennell said.
52
Kalmadi who was repeatedly asked how the absence of
international stars would impact the Games had
maintained that new stars would be born. And indeed,
Indian fans witnessed the making of many a sporting
icon of tomorrow. And what was noteworthy was that
most of them were from humble backgrounds.
Beyond Market 28th Oct ’10
In the last three years, India has attracted foreign investment worth around $100 billion. India is expecting
another $30 billion inflows by the close of the fiscal year.
According to an estimate by the Organising Committee,
the Games would spurt India’s growth by $4,940 million
over the next four years. The 12-day sporting extravaganza may have created an employment opportunity for
close to 24.7 lakh people, according to the OC.
In all, the Commonwealth Games has left a positive
legacy behind. Small glitches notwithstanding, the big
picture is gratifying. What this means is that India is out
of the comfort zone of being a cricket-crazy nation. It can
be hoped that some of our home-grown talent will be
recognized and lauded in sports events worldwide henceforth, and that they will get their due as sports starS.
It’s simplified...
53
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BSE SEBI REGN No. INB011072759, INF011072759 & INE011072759, NSE SEBI REGN No. INB230939139, INF230939139 & INE230939139 DP SEBI REGN. No NSDL: IN-DP-NSDL-136-2000, CDS(I)l: IN-DP-CDSL-37-99, AMFI REGN. No. arn-49454 NCDEX REGN. NO. 00362, FMC Code-0075, MCX REGN. No. 16590, FMC Code-MCX/TCM/CORP/0490, MCX SX-INE260939139, PMS-INP000002981
DATE: 2nd Oct ’10
VENUE: Inder Residency, Udaipur
Beyond Market 28th Oct ’10
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A Taste Of Royal
Splendour In Udaipur
other countries. We focus on services and high-tech products. We also have a consumption boom.” Comparing India and
China’s economies, he said, “We have a vibrant economy which others are taking advantage of. It is high time that we
Indians begin taking advantage of the growth our country will witness through the Indian capital markets.”
Udaipur, the Venice of the East, was witness to Beyond Market, the new-age equity camp being held by Nirmal Bang in
If people are keen to participate in growth, they could even come through
insurance and mutual funds. “But make sure that you are not left out of the
growth story,” he insisted.
The event, which was held at Inder Residency on 2nd October, is part of the series of camps that is being organized with the
aim of bridging the gap between market players and industry experts. So far, the camp has been held at Ahmedabad, Jaipur,
Kolkatta, Surat, Chennai, Ludhiana, Pune, Bengaluru, New Delhi, Indore, Hyderabad and Mumbai.
He later spoke about gold, the other asset class. “I don’t see bubbles in equity
or gold. Gold has been around for centuries now. Reasons like a shaky
outlook for world economies, low interest rates and a weakness in the US
dollar, fears of inflation, buying of gold by central banks as a shift from
currency reserves and geopolitical situations, make gold a preferred destination for safe investments.”
association with Bloomberg UTV, earlier this month.
Stalwarts like Sudip Bandyopadhyay, MD & CEO – Convexity Solutions; A Balasubramanian, CEO – Birla Sun Life Mutual
Fund; Rajat K Bose, Technical Analyst and Sunil Jain, VP Equity Research – Nirmal Bang were the esteemed panellists at
the event.
Rahul Arora, Markets Editor with Bloomberg UTV introduced the panellists to the audience. He spoke about the recent
run-up in the markets, and added that there was some skepticism on the way to an all-time high. Market gurus around the
world often say that people sell when they are told to buy and buy when they are told to sell. However, retail tendency is
opposite to this, most of the time.
He urged investors to do their homework before investing. “This is because it is important to know where you are investing
your money,” said Arora. He said that in the Indian scenario, the number of people investing in the equity markets is quite
small as compared to the total population of the country.
The FIIs tend to make more money as they believe in the India growth story more than we do, he emphasized, and added that
the FIIs take advantage of the growth while most investors just talk about it. We need to believe in India’s growth story.
Every investor must keep in mind certain key points like why they are there
in the markets and that they should not enter the markets with the sole
purpose of making a quick buck. Also, if you believe in the markets, loosen
up your wallets, stay debt-free and never try to time the markets.
He then invited Sudip Bandyopadhyay to continue the dialogue. Bandyopadhyay said he completely agreed with Arora’s view that FIIs have made
more money than Indians since the former believe in the India growth story
more than we do.
SUDIP BANDYOPADHYAY
MD and CEO of Convexity Solutions
Sudip Bandyopadhyay is a qualified CA and a Cost
Accountant. Sudip has over 22 years of rich and
diverse experience in various areas of financial
services. He has worked with reputed organizations
like Reliance (ADA Group), ITC, ICI and HLL.
He further shifted his focus to two important asset classes, namely, equity
and gold and also what these two asset classes can do in the current scenario.
“Equity has outperformed other asset classes over a long period of time. The
chances of losing money on the bourses reduces with the increase in time
horizon. Volatility is high in the short-term. The key feature of equities is that
they bounce back,” he elaborated.
He said, “When the markets go down, people start running away from them
and panicking. But that is not the way to react. Instead, we need to start
believing in the markets. This is an avenue where an individual’s wealth
multiplies over a period of time. The world has just discovered, but the fact
is that India is growing since the last 25 years. The pace has been slow but
steady. Population growth is slowing down, literacy is rising and poverty
levels are declining. These are all very important factors.”
According to Bandyopadhyay, people are not giving importance to these factors. India is the fourth largest economy in the
world and will soon overtake Japan. “India’s growth model is unique. We are a domestic-driven economy as opposed to
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Beyond Market 28th Oct ’10
It’s simplified...
Over the next 10 years he does not see a major fall in the price of gold, except
in an extreme case. But he sees a rise in ETF holdings and its growing importance. Even the demand for other forms of gold is on the rise.
A BALASUBRAMANIAN
CEO – Birla Sun Life AMC
A Balasubramanian is the CEO of Birla Sun Life
Asset Management Company and has been with them
since its inception. He has more than 17 years of
experience in the Indian capital markets. He joined the
company as Chief Dealer/Trader, managed Hybrid
Funds and moved on to head the Fixed Income Group.
He has also held the position of Country Head for
Sales and Distribution before becoming the CIO. Prior
to joining BSLAMC, he has worked with GIC Mutual
Fund as Senior Trader and Canbank Financial
Services as Senior Executive.
He stated that diamonds are forever and gold would soon become the next
diamond. To conclude, he said that investment demand is increasing and if a
person is a long-term investor, then equities in the Indian markets and gold
are the best investment options.
A Balasubramanian, the next speaker at the event, however, said that investors and traders feel the markets are complicated. “Investment is nothing but
common sense,” he opined. Referring to the Indian scenario, he said, “The
government is now spending money on making changes, indicating the growing prosperity of the country. Our generation could be going through a lot of
pain while these changes take
place. But the future generations will be the ones to
benefit from this.”
Balasubramanian feels that consumption is responsible for the growth of the
country. “India’s demographic profile is a big positive for the country. There
has been an increase in the per capita income of the people in India. There is
a lot of money with people but they are not coming to the markets due to lack
of awareness.”
He says Indians adapt to any new invention faster than others and that helps
the economy. We should be confident of our economy and see how it grows.
He said, “People fear that speculators may influence the market. But today,
the market is more broad-based, with more money and many more people.
People miss the chance by waiting for a correction.” He advised people to
focus on asset allocation and leave the returns to the market. In the end,
Balasubramanian linked investments to driving and said, “Start early, drive
slowly and reach safely.”
While the two speakers before him emphasized on investing in the markets,
Rajat K Bose dwelt on trading. He said, “Before claiming to be a trader,
individuals must know their risk appetite as trading depends on it. They must
also know what kind of traders they are – whether they are intra-day, shortterm, positional or long-term traders.” As a matter of fact, people must not
Beyond Market 28th Oct ’10
RAJAT K BOSE
Technical Analyst
Rajat K Bose is a well-known technical analyst in
the Indian equity market. While he is better
known for his technical analysis, he also does
fundamental analysis and is a keen student of
financial and capital market history. He has been
studying markets and companies for more than
15 years.
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57
impose their beliefs on the markets as it moves on the basis of collective behavior, he reasoned. Bose gave tips to trade
successfully and also shared his experiences. “When markets don’t react too much to major news or move in the opposite
direction, it indicates strength. Or there can be weakness. Do not have a fixed belief. You can’t beat market wisdom in the
short-term. You won’t go wrong if you follow the average traded price. Be open-minded and receive the advice that the
market is giving. There is nothing wrong in being a professional trader as long as a proper method is followed,” he said.
Finally Sunil Jain, the last speaker for the day, appeared on the dais to share his insights on the commonly used price to
earnings ratio. “There are a lot of myths associated with the usage of P/E
ratio,” said Jain. He cited examples of highly-traded scrips with different P/E
ratios. P/E ratio is actually the price given for a company’s earnings. A
common belief is that P/E indicates the interest an investor takes in the stock.
It is a relative value and should not be considered as standalone. It has to be
compared with the company’s peers or the industry.
There are a few sectors to which the P/E should not be applied like real
estate, infrastructure development, shipping companies and holding companies to name a few. Even loss-making companies cannot be valued.
Sunil Jain
Vice President (Equity Research) at
Nirmal Bang
A Chartered Accountant with over 16 years of
experience, Sunil Jain looks after the equity
research department of the Nirmal Bang Group.
He addresses conferences on market directions.
His views are regularly sought by TV channels.
People must remember that P/E is directly linked to growth. Sectors like
pharma, retail, media, etc, always get a high P/E ratio as people see consistent growth in the future. They should see the management quality too while
considering the P/E ratio. They must first figure out why a company’s P/E is
low instead of investing blindly. Debt is another important factor which
creates a difference in P/E, he said. Apart from these factors, traders and
investors must also look at other supporting valuation techniques.
According to him, stocks like Cadila Healthcare Ltd (CMP: `698, Target:
`790), Indian Metals & Ferro Alloys Ltd (CMP: `720, Target: `1030) and
Take Solutions Ltd (CMP: `36, Target: `50) can be looked at, for investment
purposes. With a near-term perspective, stocks like Orchid Chemicals and
Pharmaceuticals Ltd, Indian Oil Corporation Ltd, MRF Ltd, Ranbaxy Laboratories Ltd and Edelweiss Capital Ltd can also
be considered by market players.
The event concluded with a round of questions and answers, which was followed by a sumptuous meaL.
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Beyond Market 28th Oct ’10
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Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risk. Investments in Securities are subject to market risk. Please read the scheme related document carefully before investing.
Please read the Do’s and Don’ts prescribed by Commodity Exchange before trading. The PMS Service is not offering for commodity segment. Through Nirmal Bang Securities Pvt. Ltd *Through Nirmal Bang Commodities Pvt. Ltd. #Distributors
REGD. OFFICE: 38-B/39, Khatau Bldg, 2nd Flr, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400 001. E-mail: contact@nirmalbang.com; Tel: 022 - 22641234, 30272000 / 2222; Fax: 022 - 30272006.
BSE SEBI REGN No. INB011072759, INF011072759 & INE011072759, NSE SEBI REGN No. INB230939139, INF230939139 & INE230939139 DP SEBI REGN. No NSDL: IN-DP-NSDL-136-2000, CDS(I)l: IN-DP-CDSL-37-99, AMFI REGN. No. arn-49454 NCDEX REGN. NO. 00362, FMC Code-0075, MCX REGN. No. 16590, FMC Code-MCX/TCM/CORP/0490, MCX SX-INE260939139, PMS-INP000002981
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