“investor awareness is going to be our focus...

For Pr ivate Circulat ion Volume 1 Issue 57 31st O c t ’11

“Investor Awareness Is Going To Be Our Focus Area.”

Ramesh AbhishekChairman of the Forward Markets Commission

It’s simplified...Beyond Market 31st Oct ’11 3

DB Corner – Page 5

Fall From GraceThe depreciating Indian rupee has pushed the government’s oil import bill and thrown challenges at the RBI in taming inflation – Page 6

SWFs: Long OverdueGiven the fact that India’s oil imports are likely to grow by four times at the current levels in the next 20 years, it makes sense for the government to set up a sovereign wealth fund to help finance energy assets around the globe – Page 9

Haunted By The PastSBI’s act of making provisions to cover NPAs and pension liabilities towards its employees are mainly responsible for the bank’s skewed balance sheet leading to its downgrade by Moody’s – Page 12

For That Competitive EdgeTwo-wheeler companies are adopting innovative strategies, including the introduction of new models and tapping newer areas, to improve sales and beat competition – Page 16

The Enemy WithinWhile the Indian policies are hurting industries here, the government of Bangladesh is doing everything it can to boost the textile industry there – Page 19

Roadblocks To DevelopmentDespite immense opportunities in the infrastructure sector, delays due to high interest rates and lack of funds could hurt this segment – Page 22

CandyflossExperts warn of the potential risks in opting for attractive dual rate schemes offered to home buyers by select banks – Page 25

Ringing In A ChangeThe draft telecom policy strives to introduce sweeping changes in the scam-tainted sector while striking a right balance between different stakeholders – Page 28

“Investor Awareness Is Going To Be Our Focus Area”Mr Ramesh Abhishek, Chairman of the Forward Markets Commission spoke to Beyond Market about the need to protect investors, create awareness among traders and bring in more depth into the commodities market – 0

PI Industries: Putting Its Best Foot ForwardThe outlook for PI Industries looks positive, considering its unique business model and high growth anticipated in the future – Page 36

Fortnightly Outlook For Commodities – Page 40

Fortnightly Outlook For Currencies – Page 41

Marriage Of ConvenienceSeveral fund houses are merging their schemes to lessen the number of equity schemes and to improve the participation of retail investors - Page 42

Important Statistics For The Fortnight Gone By – Page 44

History RevisitedKeynesian economics holds true even today and economists around the world are using this theory to fight the battles plaguing the system at present - Page 48

A To Z Of Financial TerminologiesDon’t let yourself be foxed by the number of financial terms you come across in your daily lives. They are easier than you think – Page 52

Volume 1 Issue: 57, 31st Oct ’11

Editor-in-Chief & Publisher: Rakesh BhandariEditor: Tushita NigamSenior Sub-Editor: Kiran V Uchil

Art Director: Sachin KambleJunior Designer: Sagar Padwal

Marketing & Operations:Savio Pashana

We, at Beyond Market welcome your views, comments and feedback. Do help us to grow better as per your liking. This is our attempt to reach you better while crossing horizons...

Web: www.nirmalbang.com [email protected] No: 022 - 3926 8047

HEAD OFFICE Nirmal Bang Financial Services Pvt LtdSonawala Building, 25 Bank Street, Fort, Mumbai - 400001 Tel. 022-3926 7500/7501

CORPORATE OFFICE B-2, 301/302, Marathon Innova,Off Ganpatrao Kadam Marg,Lower Parel (W), Mumbai - 400 013Tel: 022 - 3926 8000/8001

Research Team: Sunil Jain, Kunal Shah, Sunit Mehta, Vikash Bairoliya, Runjhun Jain, Dipesh Mehta

It’s simplified...Beyond Market 31st Oct ’114

IN FULL CONTROL

Tushita NigamEditor

The Forward Markets Commission (FMC), the regulator of the commodities market in India, now has a new chief, Ramesh Abhishek. He takes over from BC Khatua, who retired recently following a four-year tenure that saw key changes under his leadership.

A member of the FMC for over three years and a 1982 batch Bihar-cadre IAS officer, Abhishek has quite a few achieve-ments to his credit and undoubtedly was chosen for the same as the successor to the chair. As the Chairman of the FMC, Ramesh Abhishek, is hoped to turn a new leaf and give the commodities market the much needed support.

All through the years, the FMC has successfully regulated the commodity futures market for the ease of market partici-pants, despite limited powers and lack of autonomy. The FMC regulates trading in agricultural and non-agricultural commodities on national and regional exchanges all over the country. The Commission issues guidelines and directions to these exchanges for better governance, transparency and investor confidence in the commodities market.

While the commodities market has grown in leaps and bounds, several problems still persist. In an interview with Beyond Market, Ramesh Abhishek says his biggest task is to create investor awareness and crack down on illegal or ‘dabba trading’. Although the task at hand seems arduous, we believe he will be able to pull it off successfully.

Among other topics, we have an article on the current state of the depreciating Indian rupee, which is adding to the internal woes of the economy. There is also an article on the government’s plan to introduce a Sovereign Wealth Fund (SWF) after years of contemplation. Further, we have presented the reasons for the downgrading of the State Bank of India by international credit rating agency, Moody’s.

Also, there are articles each on sectors like two-wheelers, textiles, infrastructure, banking and telecom. While the article on two-wheelers dwells on the changing dynamics of the two-wheeler segment in the automobile industry, the other story is about the rise of Bangladesh as a textile hub and how it is giving Indian companies a run for their money. The other articles are about the delays plaguing the infrastructure sector due to high interest rates and the difficulty in procur-ing funds, the risks revolving around the dual rate schemes that home loan lenders are offering currently to prospective home buyers and the key issues addressed by the draft telecom policy of 2011.

The Beyond Learning section as always is a treasure trove of information. One of the articles is on the relevance of the Keynesian theory in present times despite its creation several decades ago by the great British economist John Maynard Keynes. Then, there is a piece in the same section on a few interesting financial jargon that we often come across in our daily lives.

Finally, Beyond Market would like to wish its readers a very Happy Diwali and a prosperous New YeaR.

Although the task at hand seems arduous, we believe Ramesh Abhishek

will be able to pull it off successfully.


The markets are likely to remain range-bound in the coming fortnight.

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 advertise-ment 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.

Nifty: 5049.95Sensex: 16,785.64(As on 21st Oct ’11)

he previous fortnight saw companies releasing their quarterly earnings results.

The earnings results for Q2FY11-12 are either in line or below expectations. So far, the corporate results have not been encouraging. This may, however, lead to a further downward revision in the expected EPS for FY12.

The rupee has been depreciating since a while now. Though this is a negative for most companies, the ones involved in the business of exports will surely benefit.

However, expectations of the rupee depreciating further may not see further FII inflows into the country. Inflation too remains high. But it may show a declining trend from December due to a higher base kicking in.

Globally, the resolution to address the issues affecting the Euro zone could give a direction to the markets.

The markets are likely to remain range-bound in the coming fortnight. The Nifty has resistance at the 5,220 level due to the unencouraging quarterly results as well as the upcoming results of certain companies. Therefore, market participants should avoid keeping overnight positions.

I advise investors and traders to buy

T on declines around the support levels of 5,000 - 5,050 on the Nifty. If this level breaks, they can further buy around the 4,800 level.

The stocks that can be considered for trading and investment purposes, around the given Nifty support levels, are Arvind Mills Ltd, Hero MotoCorp Ltd, Axis Bank Ltd and Praj Industries LtD.

FALL FROM GRACE

The depreciating Indian

rupee has pushed the

government’s oil impor t

bill and thrown

challenges at the RBI in

taming in�ation

he Indian rupee has slid by around 12% against the US dollar in the past two months and has

surprised many. The Indian currency which was trading at 43.86 a dollar towards the end of July slipped to 49.89 a dollar by the end of September, nearly breaching the `50 a dollar- mark.

Importers were caught on the wrong foot as they failed to hedge their currency risk, while the government could not take advantage of falling

T crude prices due to the depreciating rupee against the US dollar.

Blame it on risk aversion towards emerging markets like India and worsening conditions in the Euro zone, which drove investors towards US bonds. The falling rupee has impacted the Indian economy at various levels.

For one, the slip in the Indian rupee has bloated the government’s oil import bill and thrown challenges at the Reserve Bank of India (RBI) in



taming inflation. In fact, the depreciating rupee was cited as one of the many reasons by oil marketing companies for their `3.14 hike in petrol prices on 15th September.

A set of companies that import commodities and raw materials and bill it in US dollars was on the receiving end. However, the depreciating rupee spells good news for exporters and expatriates who remit money back home.

In this article we try to answer the reasons why Indian rupee has developed slippery feet, the various

One of the reasons cited by experts for the appreciating dollar is the calling back of loans by the US investors given to the banks in the Euro zone as asset quality in the Euro region deteriorated in the wake of the debt crisis.

As far as the fall in the rupee is concerned the reasons were manifold. One, in such uncertain times, risk aversion has led not only the Indian rupee but also other currencies on the downward spiral.

Back home, FIIs have been selling Indian equities. This means that they are selling the Indian rupee and taking back dollar, putting pressure on the Indian rupee. This is also the period when oil marketing companies buy dollar to pay for importing crude oil from other countries.

Iran oil payment has also put some downward pressure on the rupee. The high interest rate regime back home has also led to lower liquidity in the system, causing downward pressure on the rupee.

WHERE ARE WE HEADING

The depreciating rupee is a complicated issue. On one side, higher interest rate leads to lower liquidity in the system and puts negative pressure on the rupee while the same higher rate regime attracts foreign funds due to interest rate differentials leading to demand for the Indian rupee.

Amid all this, the only challenge that remains for the central bank is to control the unwanted volatility in the foreign exchange market.

While it is speculated that the Reserve Bank of India had intervened in the foreign exchange market to arrest the fall in the Indian rupee, the RBI has maintained that it would intervene

only when necessary, implying that it is comfortable with the range in which the rupee-dollar pair is moving at present.

The strength of a currency is largely determined by the economic progress of a nation. Experts are of the opinion that the Indian economy is better placed to face this rough weather.

Experts peg a level of 45 a dollar in the medium term but advise caution as in the near term they peg a breach of 51 a dollar level, mainly because of risk aversion.

Another important factor to watch out for is developments in the western world. Till how long can investors be risk-averse and avoid high yielding assets of emerging markets?

According to the news flow from the US and Europe, it is very unlikely that central banks in those regions will reverse the low interest rate regime as low growth is a looming concern there. Higher the interest rate differential, greater is the incentive for funds to flow across international boundaries and into the economy, like India where interest rates are higher.

Also, some policy measures like relaxation on the FII limit on Infra bonds will also help create demand for the Indian rupee.

However, what may not work for the Indian rupee is the recent mark-down of GDP growth. The possibility of a further rate hike by the RBI in its next policy meet and a sub 8% level GDP growth would mean fight for capital with other emerging markets.

Remember that foreign investors like to invest in an economy whose currency appreciates till their funds remain invested. Exchange rates and interest rates are known to have a negative correlation.

50

49

48

47

46

45

44

Nov Jan Mar May Jul Sep

USD / INR

USD/INR Movement

Source: RBI

implications of the falling rupee and where we are heading.

REASONS FOR THE FALL

For quite some time, markets around the world, including India have been tumultuous. The global macro -economic conditions mainly triggered from the debt issues in the euro zone and growth issues (‘double dip recession’ fears) in the US have been posing challenges to the entire world economy.

Amid all this, the US downgrade by ratings agency Standard & Poor’s was thought to offer difficult times to the US dollar and currencies across the world were expected to strengthen against the greenback.

However, this did not happen. Thanks to the euro zone debt issue and dropping growth rates in the emerging markets, investors took flight to safer US treasuries.


IMPACT

All economies desire a stable foreign exchange rate. However, they don’t mind some sort of depreciation of their currencies as it would mean competitiveness for companies and incentive for growth. Remember how China keeps its currency undervalued, too much depreciation is not desired, especially for countries that are net importers. This is because it will distort trade balances.

The depreciating rupee will lead to high inflation, as India imports around 70% of its crude oil requirement and the government will have to pay more for it in rupee terms. Higher import bill will lead to a rise in fiscal deficit for the government and will push inflation higher.

As far as companies are concerned, they are exposed to the US dollar in various ways - exports, foreign currency denominated loans (FCCBs,

ECBs, etc), international subsidiaries and import of inputs whose costs are linked to global commodity prices.

While most companies hedge their exposures to protect them from extreme currency volatility, this does not completely eliminate the risk to their earnings.

Though companies hedge their risk it is very unlikely that they are there at the right time and at the right price of hedging. This time around when the slide of the Indian rupee against the US dollar was quite sharp, even exporters missed out the opportunity as only some time back the bias for the Indian rupee was positive and they had shorted the US dollar to hedge their risk.

While it was a lost opportunity for some exporters, some are taking the wait-and-watch approach before entering into the market. According to estimates by traders and currency

consultants, about 50% of the $40.43 billion import bill is not hedged.

Also, some experts opine that a fall in the rupee would make exporters competitive, but the clients are quick enough to recalibrate the bills according to new rates. Hence, the competitiveness remains short-lived.

As far as importers are concerned, they were the worst hit as they had to pay for their current overseas purchases. Oil marketing companies are one such example.

A one rupee dip adds to around `2,000 crore to their subsidiary burden. For smaller players and consumers, their consignment has only turned costlier if they haven’t hedged their exposure.

For the moment, if you have saved `1 lakh for your foreign holiday, you need to add another `12,000 due to the 12% slide in the Indian rupeE.


Given the fact that India’s oil

impor ts are l ikely to grow by four

times at current levels in the next

20 years, it makes sense for the

government to set up a sovereign

wealth fund to help �nance

energy assets around the globe

fter years of contemplation, it seems India is ready to take the plunge and come out

with the sovereign wealth fund (SWF). A member of the Planning Commission recently revealed that the Finance Ministry of India is mulling the setting up of a sovereign wealth fund with an initial corpus of US $10 billion.

An in-principal approval has been taken to set up a sovereign wealth fund and the Reserve Bank of India

A

SWFs:Long Overdue

(RBI) is likely to dip into its huge foreign reserve to partly fund the initial corpus. The remaining amount is likely to be sought from state-owned energy companies.

The fund is likely to be structured as a subsidiary of the RBI. According to the proposal, India’s SWF will shop for energy assets that will include crude oil, gas and coal to meet its domestic requirements.

Votaries of such a fund argue that India has a huge foreign exchange

SWFs:Long OverdueLong Overdue


reserve to the tune of US $311.48 billion as on 30th September (the seventh biggest reserve holder in the world), majority of which is invested in US treasuries and other low- yielding currency assets.

Even if a part of the reserve finds its way into high-yielding assets, especially oil assets which have bloated India’s oil import bill in recent times, it will help solve the issues of need for higher returns and tame volatility in oil prices.

India’s proposal comes at a time when aggressive SWFs having investments in the US and the Euro zone are suffering huge notional losses. The argument also holds merit that India has a notable current account and fiscal deficit. High dependence on the volatile portfolio flows to fix the deficit would be a risky proposition. But will it be a good idea to start a sovereign wealth fund considering that India itself has huge internal fund requirements for its development? What are the objectives and policy considerations? Does India want to replicate the model which has been successfully or otherwise implemented by other countries like Canada, Russia, Singapore and China, among others?

While the think-tanks are busy debating the issue, let’s try to scratch the surface and get into the subject matter of SWFs and try to understand whether an SWF fits into India’s scheme of things.

WHAT IS AN SWF (SOVEREIGN WEALTH FUND) ? For starters, Sovereign Wealth Fund is a government-owned fund, pooled from state resources to invest in overseas assets with a clear objective. Typically nations set up a fund to mitigate risks arising from areas

where they have some sort of a comparative advantage.

Take for example, the first SWF, Kuwait Investment Authority set in 1953, to invest excess money coming from oil exports, thus mitigating risk in case oil prices fell in the future. This is akin to hedging in the currency market done by Indian IT companies.

The money typically comes from a nation’s budgetary surplus and serves the primary function of diversification and stabilizes a nation’s economy keeping the needs of the future generation in mind. India has been considering the setting up of its own fund in order to acquire strategic overseas assets in mining and energy segments to meet its future needs.

The past few decades have witnessed funds with varying objectives and investment avenues. At present, there are around 50 sovereign wealth funds managing assets worth nearly $3 trillion, the most notable ones being from Singapore, Kuwait and Norway.

Sovereign wealth funds from countries such as the United Arab Emirates, Norway and Singapore were in the limelight post the Lehman Brothers crisis as they invested in companies such as UBS, Merrill Lynch and Citigroup.

However, some SWFs in order to chase high potential deals acted as ‘hedge funds’ and have burnt their fingers. Take the case of China’s SWF - China Investment Corp (CIC) - whose investment in the IPO of Blackstone was down over 50% post its listing.

THE INDIAN PERSPECTIVE

With the mentioned examples as background, the Indian government had discussed the viability of a

sovereign fund with the RBI several times in the past. However, the central bank turned down the proposal on many occasions, citing the need for stable inflows and a healthy current account balance.

India has a notable current account deficit. It stands at around 2.6% of the GDP. India also runs a large fiscal deficit, which is projected to be 4.6% of the GDP in FY12. Though the deficit may not be a problem in itself, it is the nature of the foreign exchange reserve used to fix the deficit, which is a matter of concern.

Though India has huge reserves, it has largely borrowed money in the form of loans raised by private sector firms, non-resident deposits and foreign portfolio investment, which is volatile and perceived to be ‘hot money’.

However, the RBI subsequently, agreed to set aside over $5 billion from its foreign exchange reserves for financing infrastructure, which is now routed through a state-run firm — India Infrastructure Finance Company or IIFCL. Now, the RBI is willing to dip into its foreign reserves to part finance the SWF.

China’s SWF reserves have been built on the back of its huge export earnings while countries in the Middle East that have set SWFs have recourse to rich oil reserves. India setting up a fund would seem to be at odds considering that we are neither heavy exporters of capital nor do we have rich oil reserves.

However, the argument that a nation that runs a current account deficit cannot start a SWF does not hold ground. When Singapore established Temasek Holdings and the Government Investment Corporation in 1974 and 1981 respectively, Singapore was running current account deficits. So did Australia,


Kazakhstan, and Mexico when they set their SWFs. Also, four US states have SWFs that invest abroad despite the fact that the United States has had a current account deficit for many years.

Also, the point in case is the approach

and objective with which India sets up its SWF. There is no need for India’s SWF to put money into mindless assets only for quick returns. It is no secret that India needs massive investment in infrastructure, education and health care projects and we need to address this first.

And, we can allocate a small portion of the foreign exchange reserve and detect high-potential investment opportunities overseas (just as the government of Singapore did). So, it is advisable to start small, and then eventually evolve in order to make sense of India’s SWF.

NAME OF THE SWFCOUNTRY YEAR OF ESTABLISHMENT OBJECTIVE

Australia

Bahrain

China

Canada

Singapore

Iran

Korea

Norway

Qatar

Russia

UAE

United States

The Future Fund

The Future Generations Reserve Fund

China Investment Corp (CIC)

The Alberta Heritage Savings Trust Fund

Government Of Singapore Investment

Corporation Pte Ltd And Temasek

Holdings (Private) Ltd

Oil Stabilization Fund

Korea Investment Corporation

Government Pension Fund

Qatar Investment Authority

Reserve Fund And The National

Wealth Fund Of The Russian Federation

Abu Dhabi Investment Authority

Alaska Permanent Fund Corporation

To take care of retirement as the population ages

To strengthen Bahrain’s long-term fiscal management and

help preserve the hydrocarbon wealth.

The purpose of the CIC is to maximize return at acceptable

risk tolerance and improve the corporate governance of key

state-owned financial institutions. CIC’s capital is funded

through issuing special treasury bonds

For inflation proofing. It was established as a means of saving

a portion of the royalty and other revenues that the Province

of Alberta receives from the production of its oil and

natural gas resources.

GIC’s mission is to preserve and enhance the purchasing

power of these reserves, which may be called upon in

times of crisis.

---

It was launched with a mandate to manage public funds

entrusted by the government and the Bank of Korea, by

investing in a variety of financial assets in the international

financial markets.

To support long-term management of petroleum revenues

and facilitate the government’s accumulation of financial assets

to help cope with large, future financial commitments

associated with an ageing population.

QIA’s objectives are to develop, invest and manage the state

reserve funds and other property assigned to it by the

Government via the Supreme Council of Economic Affairs

and Investments.

--The objective of the RF is to ensure that the federal budget

expenses are financed and the federal budget balance is

maintained in case oil and gas revenues of budget decline.

--The objectives of the NWF are to co-finance voluntary

pension savings of the Russian citizens and to maintain

the budget balance of the Pension Fund of the

Russian Federation.

The objective is to receive funds of the Government of Abu

Dhabi allocated for investment and invest and reinvest

those funds in the public interest of the Emirate in such a

way so as to make available the necessary financial

resources to secure and maintain the future welfare

of the Emirate.

The objective was to save a portion of the state’s oil revenue

for the future.

2006

2006

2007

1976

1981 and 1974

2005

2006

2005

2007

1976

1976

Source: www.ifswf.org

Sovereign Wealth Funds (SWFs) Across The Globe

HauntedBy The Past

SBI’s act of making

provisions to cover NPAs

and pension liabilities

towards its employees are

mainly responsible for the

bank’s skewed balance

sheet, leading to its

downgrade by Moody’s

inety-nine percent plunge in net profit! That is really scary for any listed company to

post as its quarterly result. And when the company is State Bank of India (SBI) – largest bank by any measure in the country – questions are bound to be asked.

On 17th May this year, State Bank of India’s new chairman, Pratip

N Chaudhari, who took charge on 7th April ’11, announced the bank’s fourth quarter performance - the worst in recent history. From `1,867 crore a year ago, SBI’s net profit fell to a paltry `20.88 crore in the January-March 2011 quarter.

The culprits for dragging profits down to virtually nothing were provisions made to cover non-performing assets, or commonly

known as NPAs, defined as loans that are not serviced for three months - and the bank’s pension liabilities towards its employees.

What is the point in going four months back in time? The latest issue for the bank to tide through is the downgrade of its bank financial strength rating (BFSR) or stand-alone rating to D+ from the earlier C- by Moody’s Investors Service – the


international credit rating agency that is famed to be one of the Big Three credit rating agencies in the world.

Indeed, but the problems that Moody’s cited grew in time and were left unsolved then.

Before peeping further into SBI’s past, let us look at what triggered Moody’s action.

“The rating action considers SBI’s capital situation and deteriorating asset quality. Our expectations that non-performing assets (NPA) are likely to continue rising in the near term - due to higher interest rates and a slower economy - have caused us to adopt a negative view on SBI’s creditworthiness,” Beatrice Woo, Moody’s VP and Senior Credit Officer was quoted in a release.

As of 30th June, SBI reported a Tier 1 capital ratio of 7.60%, which pushed the bank into a lower rating band. Moody’s noted that SBI’s ratio was below the 8% Tier 1 ratio that the Government of India has committed to maintaining in public sector banks and substantially lower than those of other C- rated Indian banks – which include SBI’s private sector peers like Axis Bank, HDFC Bank and ICICI Bank, among others.

In Moody’s view, SBI’s lower level Tier 1 capital ratio provides an insufficient cushion to support the bank’s growth and to absorb potentially higher credit costs from its deteriorating asset quality.

And no one other than SBI can be blamed for its current situation, especially with regards to mounting NPAs of the bank.

The Reserve Bank of India (RBI), the country’s central bank, in early October ’09 stipulated that all banks should cover through provisions 70%

of their total NPAs and had set a September ’10 deadline for the same. While most banks made incremental provisions over the quarters, SBI chose to buy time and made little provision and, in turn, kept shoring up its profits.

Had OP Bhatt, Chaudhari’s immediate predecessor, chosen to provide for the additional NPA coverage ever since the RBI stipulation, the impact per quarter would have been a fourth of the otherwise gigantic `2,330 crore made in the January-March quarter. And that is not the only problem. Again, in November ’10, the RBI asked all banks offering teaser home loans to provide higher provisioning - 2% from 0.2% earlier - which worked out to `500 crore for SBI.

Teaser loans offered fixed interest rates, set at least one percentage point lower than market rates, for the first three years of the loan tenure and were then reset to the market rates.

The Indian central bank’s apprehensions were that borrowers were lured by lower (immediate) interest rates without realizing the impact on their liability after the three year window closes.

SBI did not make for the provision during the quarter ended December ’10 and that `500-crore provision, too, was made in the quarter ended March ’11.

While Moody’s has not highlighted SBI’s inaction on the pension provision in its rating downgrade ration, the same has ample relevance to gauge the issues – past, present as well as future. SBI’s need for pension provisions arose on account of wage revision which was due in the year 2007 and finally concluded

somewhere in 2010.

Not just conservative accounting norms, but even common sense calls for provisioning for such liabilities from the year they become due, based on broad estimates, rather than delaying them to one particular point in time.

SBI opted to defy conservatism and common sense and made a large provision of `7,927 crore, again, in the quarter ended March ’11. The net effect of all the chunky provisions pulled down its Tier I capital ratio from the comfort mark of 8% to 7.77% then.

While the impression one could make so far is that SBI’s troubles were brewed when Bhatt was at its helm. But industry men and experts credit Bhatt for making the banking behemoth aggressive.

Post the global financial crisis, banking customers made a lateral shift from private to public sector banks in pursuit of safety. And that was SBI’s chance to squeeze itself into the prized tag of being the largest retail banker of the nation.

Also, it was ICICI Bank’s stated strategy to go slow on lending to conserve capital and hence SBI’s efforts to sideline the erstwhile largest retail bank did not require too much of an effort for SBI.

Now, that is one of the reasons why the problems of pilling up began. Bhatt knew that macro-economic conditions were not conducive for raising cheaper capital.

Number one, being a public sector bank with 59.4% government holding, a follow-on public offering (FPO) was not easily on the cards even when the investor appetite to invest in government-owned



institutions was very much alive and active at that time. Next, when the global banking sector was facing questions from the mess in the Western economy, the supply and the cost of non-equity capital were determined by better earnings visibility of banks.

While SBI’s top-line grew aggressively, provisions would have marred its bottom-line and hence raised its borrowing costs.

Both the bank and the government, its single largest shareholder, knew that fresh dose of capital was a critical must but the priorities were different in the years following the financial meltdown of 2008.

Rating agencies and investors were closely looking at the rising fiscal deficit and increasing borrowings of the government after it announced a series of bailout packages to boost the economic recovery and arrest slippage of growth.

And shelling out money to either subscribe to fresh equity or rights’ issue was not an ideal avenue for the government to deploy money.

The same would not happen without any further wastage of time. And Moody’s has pre-empted the same in its rating action.

“Notwithstanding our expectations that SBI’s capital ratios will soon be restored through capital infusion by the government, SBI’s efforts to secure this capital for the better part of the year demonstrates the bank’s limited ability to manage its capital,” states Woo.

The `2,30,000-crore rights issue that SBI is currently seeking would raise its Tier 1 ratio to approximately 9.30%.

However, Moody’s estimate that the capital deployed for loan growth, assuming 15% per annum for the next three fiscal years, will cause the Tier 1 ratio to plummet below 8%, thereby necessitating another round of capital exercise by the bank.

And as far as its asset quality goes, NPAs as of June ’11 reached a three-year high of 3.52% of loans or `27,768 crore on an absolute basis. For the system, the ratio was 2.3% as of March ’11.

And in the current backdrop of a slowing economy, coupled with higher key interest rates, the rising trend which is quite evident in SBI’s new NPA formation rate since the October – December 2010 quarter, will continue.

Therefore, Moody’s expects SBI’s potential credit costs to be relatively high in the near-term. NPAs - as a percentage of the bank's Tier 1 capital ratio - are now about 43%.

Under the stress scenario, which Moody’s assumed a gross NPA ratio of 12.07%, SBI would require `37,400 crore or $8 billion, to replenish its Tier 1 capital ratio to around 8%.

To put this into perspective, SBI’s ability to absorb losses in a stress situation is below that of C- rated Indian banks.

In order for the bank to raise its standalone rating, Moody’s opines that SBI has to increase and sustain the level of its Tier-1 capital, as well as contain its asset quality, in line with other C- rated Indian banks over an extended period.

So, why is this move not a death-bell for the SBI or the entire banking sector? The quick and short answer is government support.

While financial history has ample examples of governments bailing out banks, we do not need to go very far in history as the example of Northern Rock Plc would suffice.

This British bank is best known for becoming the first bank in 150 years to suffer a bank run after having had to approach the Bank of England for a loan facility to replace money market funding during the credit crisis in 2007. And, having failed to find a commercial buyer, Northern Rock was taken into public ownership in the year 2008.

And the uncompromising prudential regulations have been saviours for the banking sector in harder times and so far the situation, with or without the SBI downgrade, does not call for any anxiety. Rather, buying into valuable banking stocks now is a better choice than to wait for the rate hikes cycle to pause and end.

The reason is that the country’s largest bank might prefer to lend maximum to highest rated borrowers so that its provisioning is minimum. This, in turn, will reduce the strain on its capital. So, it is an opportunity in disguise for the banks at large.

And another possible positive development is consolidation in the banking sector – especially the public sector space. For the government, which is grappling to make ends meet, today it is SBI which is in desperate and urgent need of capital and tomorrow it could be another public sector bank.

Barring a few, government ownership in most banks is not far from the 51% majority mark. And with resources being demanded from productive areas, giving banks autonomy to consolidate among themselves could be a better option than to battle priorities to be a bailout agenT.

Registered O�ce: 38-B, Khatau Building, 2nd Floor, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400001. Tel: 3926 8600 / 01; Fax: 3926 8610, Corporate O�ce: B-2, 301/302, 3rd Floor, Marathon Innova, O� Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400 013. Tel.: 39268000 / 8001 Fax: 39268010

Contact: Sushmita Desai: +91 77380 68262


For ThatCompetit iveEdge Two-wheeler companies are

adopting innovative strategies, including the introduction of new models and tapping newer areas, to improve sales and beat competition


he two-wheeler segment in India is going through interesting times. For a long time the

two-wheeler segment had a clear set of patterns.

Market share, new launches, product innovations and marketing of products have for long been the same. Hero Honda (now Hero Moto Corp), Bajaj Auto in the top, constitute a significant market share. They are followed by TVS Motor and Honda Motorcycle & Scooter India (HMSI), among others. However, last year the end of the joint venture of Hero Motor with Honda triggered speculations about the changing business dynamics of the two-wheeler segment. Honda, in the joint venture with Hero Motor, had a distinct advantage of technology.

Also with the wide acceptance of its motorcycle such as Unicorn in the 150 cc segment and durability of its technology, it is believed that equations would not be the same in the coming years.

Let us explore the growth of India’s two-wheeler segment in the coming years and how companies with distinct advantage in their business model will continue to do well. GROWTH There is a large untapped market in semi-urban and rural areas of India. It is important for the two-wheeler industry to identify these pockets.

Industry experts believe that with the introduction of the second-hand car market by famed car manufacturers and easy loan availability for new as well as used cars, the two-wheeler industry needs to enhance its reach and product range that they offer to capture these new markets.

T Companies also need to focus their attention on credit facilities in rural and semi-urban areas to improve their reach. Experts stress on two impor-tant measures that would enhance their growth in the coming years. It is also imperative to initiate measures to make the presence of the Indian two-wheeler industry felt in the global market.

Adequate incentives for promoting exports as well as setting up of institu-tional mechanism such as an automo-bile export promotion council would prove to be of great help to boost demand for the two-wheeler industry in the country. The National Council of Applied Economic Research (NCAER) had forecast two-wheeler demand between 2002-03 and 2011-12. These forecasts present a long-term growth for a period of 10 years.

The Council foresees that the high growth rate in motorcycle segment at present will stabilize after a certain point and beyond that a condition of equilibrium will set the growth path. However, this will not alter the regional distribution of market share to a significant extent. Region-wise numbers of motorcycles and scooters suggest the future market for these segments. At the all-India level, the demand for motor-cycles will be almost 10 times that of scooters. The same will be almost 20 times in the western region, account-ing for more than 40% of demand.

The south and north-central region will follow this. The demand for scooters will be maximum in the northern region. It will account for more than 50% of the demand for scooters in 2011-12.

In terms of units, the two-wheeler segment is expected to report a

volume CAGR of 10% to 12% over the next five years to reach a size of 21 million units to 23 million units by 2015-16. According to certain estimates, 50% of the domestic sales of two-wheelers come from first-time buyers, while 30% come from customers looking to upgrade their existing vehicles and 20% from buyers seeking a second vehicle for the household.

The break-up suggests that currently around 50% of the sales in the domes-tic two-wheeler market are made to replacement buyers. Industry estimates also suggest that the two-wheeler ownership cycle has now shrunk to less than five years.

This shows the rising importance of technology and value-added features among two-wheeler buyers. This is the reason why investment in research and development and capacity additions in the industry is growing.

The installed capacity of the top three players - Hero Honda Motors Ltd, Bajaj Auto Ltd (BAL) and TVS Motor Company Ltd (TVS) - which together command a market share of over 80% in the domestic two-wheeler market, rose from 8.4 million units in 2005-06 to 12.9 million units in 2010-11 incurring a cumulative capital expenditure of `3,700 crore in the same period.

Actual ExpectedCompany

Hero Honda

Bajaj Auto

TVS

HMSI

Suzuki

Yamaha

Royal Enfield

Mahindra 2W

2009-105.4

3.9

2.4

1.6

0.3

0.6

0.7

NA

2010-115.6

4.5

2.8

2

NA

NA

0.7

0.5

2011-125.7

5

3

2.2

0.5

1.1

NA

0.5Units in Millions Source: Company Websites

Installed Capacity Of Two-Wheeler Companies


Besides this, new entrants are adopt-ing new business strategies to keep at bay the undisputed kings of the markets. In this, early entrants such as Hero Motor Corp and Bajaj Auto would continue to focus on their distinct advantages that sets them apart from their industry peers. CHANGE IN BUSINESS MODELS At present, there is an increasing perception that new tactics would come into play as each player in this industry has realized the growing importance of tier-II and tier-III cities across the country. These pockets of modern India have immense potential in terms of rising market share and strong aspiration factor associated with the consumer.

In fact, in September this year, the two-wheeler industry recorded highest monthly volumes. A substan-tial part of this growth has come from strong demand from tier-II, tier-III cities and rural markets. In addition to this, it is believed that considering the fact that the festive season is round the corner, many dealers have already ordered two-wheelers in advance.

Bajaj Auto’s volumes were up 18.4% year-on-year (y-o-y) and 9.1% sequentially to 4,17,686 units and Hero Moto Corp’s volumes rose 26.7% y-o-y and 9.1% sequentially to 5,49,625 units, while TVS Motor’s total volumes increased 25.1% y-o-y and 12.6% sequentially to 2,19,369 units in September ’11.

In September, Hero Moto Corp’s market share in the domestic motor-cycle segment rose to 53.7%, followed by Bajaj Auto and TVS Motor, whose market share in the domestic motorcycle segment fell to 27.4% and 7.6%, respectively.

Deep penetration in tier-II and tier-III cities has helped Hero Moto Corp

maintain growth in its share. Break-ing or snatching market share would not be a sensible strategy for players like Honda, Mahindra 2W and others.

It is believed that in the industry where new buyers are being added due to increasing spending pattern of a prospective two-wheeler buyer, Honda would concentrate on newer buyers instead of breaking and attracting as well as luring and snatching existing customers of Bajaj Auto, Hero Motor Corp and TVS Motor Company.

For instance, if the industry has 100 customers and assuming that in the coming years around 200 buyers are likely to be added to the earlier 100, Honda’s strategy would be to grab maximum share of this new 200 buyers instead of focussing on the existing 100 buyers. Being a pioneer in technology and long-known for the durability of their products along with their ability to create value products (Honda Activa is a chief example), Honda might outdo the bottom three players and emerge as a strong contender for the third spot after companies like Hero Motor and Bajaj Auto.

Sector experts are of the opinion that Honda is capable of catapulting its position and creating new equations in the market.

The fact that despite being in the market for over 20 years, Hero Honda continues to be strong only in the sub-125cc segment. This presents an opportunity for the company to explore and grow in the above 125cc segments considering its strong products like the 150cc bike Unicorn. On the other hand, Bajaj Auto and Hero Motor Corp, being early entrants would stick to their basic distinct advantages. Bajaj Auto would

continue to be strong above the 100 cc and sub-220 cc segments.

Hero Motor Corp would continue to maintain its supremacy in the 100cc segment and in the coming years this segment would continue to be the source of handsome revenues.

The company’s only ambition to go overseas and establish strong presence, however, would not fructify considering the termination of its joint venture with Honda and strong competition due to the entry of new players in the industry such as Mahin-dra & Mahindra. The branching out of TVS Motor into the moped segment (TVS Scooty Pep is a prime example) is a lucrative strategy.

With strong dominance of Hero Motor and Bajaj Auto and to a certain extent HMSI, the south-based TVS plans to continue exploring new segments in mopeds and the motorcy-cle segment would help maintain its presence and market share.

Experts believe that despite having a strong and sturdy brand in the 150cc segment (Apache), the company has been unable to make its presence felt in this segment. This is more to do with its marketing strategy. At present there are eight players in the market. These are Hero Motor Corp, Bajaj Auto, TVS, HMSI, Suzuki, Yamaha, Royal Enfield and Mahindra 2W. The industry has grown from around four noteworthy players to eight strong players.

In the coming years, as new pockets of India grow richer, smarter and aspirational, the only way to survive peacefully for these players would be through consolidation. This is because despite their distinct advan-tages, the players would resort to price war, which does not bode well for any industrY.

While the Indian policies are

hur ting industries here, the

government of Bangladesh is

doing ever ything it can to boost

the textile industr y there

angladesh’s importance as a textile hub has increased greatly in the past few years. Further,

cheap labour, low manufacturing costs and almost duty-free access to European and Chinese textile companies has helped Bangladesh emerge as the strongest textile destination, outweighing India too.

It is therefore important to know the reasons behind the sudden rise of Bangladesh in the textile sector and how Indian textile companies are

B coping with the stiff competition from its counterparts in Bangladesh.

SPINNING A SUCCESS STORY

The textile industry in Bangladesh can be divided into three main categories – public sector, handloom sector and the organized private sector. While the private sector is the fastest growing segment in the country, the handloom industry provides employment to a large segment of the population of Bangladesh, supplying huge



quantities of fabric needed by the local market.

And since textiles and readymade garments are the two largest export sectors in the country, providing huge employment to the people, they receive tremendous support from the government of Bangladesh. Also, restrictions on investments are minimal and tax-free imports of machinery and raw materials for exports are allowed. According to the Bangladesh Garment Manufacturers and Exporters Association (BGMEA), the total fabric requirement in the captive market is about 3 billion yards. Of this, roughly 85% to 90% is imported from countries such as China, India, Hong Kong, Singapore, Thailand, Korea, Indonesia and Taiwan. Analysts are of the opinion that the demand for fabric is growing at the rate of 20% per year in Bangladesh. Although it is one of the largest industries in Bangladesh and growing at a faster rate, it faces serious problems nonetheless. The main issue is that the country does not produce enough raw materials necessary for the industry to expand.

The main materials used in the spinning sector are raw cotton and man-made fibres such as viscose and polyester staple fibres. Unfortunately, none of these raw materials are produced in Bangladesh. Most spinning mills in Bangladesh produce low-grade yarn.

Available figures show that current yarn production met only 22% of the total yarn demand. Despite this drawback, as many as 116 new spinning mills, each with a capacity of 25,000 spindles, will be established in the near future. The weaving sector too is plagued by

the lack of organization and coordination. The existing weaving capacity in Bangladesh can meet only about 40% of fabric demand; the rest is imported.

However, the increasing trend of expansion in the weaving sector is clear from the fact that 223 modern weaving plants, each with an annual capacity of 10 million metres, are likely to come up in the near future.

The knitting and hosiery sectors look brighter than weaving sectors and about 80% of garment accessories like cartons, threads, buttons, labels, poly bags, gum tapes, shirt boards and neck boards are being produced in Bangladesh and contribute to the national gross domestic product (GDP). However, the textile industry is just budding. At present, there are 21 textile companies under the Bangladesh Textile Mills Corporation (BTMC). The role of BTMC within Bangladesh’s textile industry has substantially been altered since the denationalization of a large number of public sector textile mills over the last decade and a half.

The government-owned Bangladesh Export Processing Zones Authority promotes foreign and local investment in its export processing zones, which were developed to provide potential investors a business environment that is free of complicated procedures.

The government has also initiated various policy measures such as rationalization of tariffs and taxes on import of capital machinery, raw materials, dyes and chemicals and reduction of interest on long- and short-term loans. The Bangladesh government offers great incentives to encourage the use

of local fabrics in export-oriented garment industries. To encourage textile export, companies can import capital machinery duty-free. Cotton also may be imported duty-free.

Moreover, the government recently implemented several policy reforms to create a more open and competitive climate for foreign investment.

Rising garment export trends from Bangladesh, along with some benefits provided by the government, have created concerns for the government of Pakistan. Textile tycoons in Karachi are thinking of shifting their business to Bangladesh. These steps have helped Bangladesh emerge as a big textile hub. Though the country might be dependent on raw material such as cotton, its textile-oriented policies continue to help retain its position as the most preferred textile destination for European and Chinese companies.

INDIA: ON A SHAKY GROUND

India, on the other hand, has lost prominence to Bangladesh due to its closed textile policies. Despite being a cotton-surplus country, the Indian government waived off duty on 46 apparel products coming from Bangladesh to India.

Heavy duty on textile products for countries in Europe and other parts of the world has forced fabric manufacturers to gain a backdoor entry into the fast-evolving Indian textile market.

Not surprisingly, many Indian textile companies are starting manufacturing units in Bangladesh due to various inherent market advantages. This move would not impact large textile companies that are into retailing. Instead, it would hurt small retailers who do not have the wherewithal to


establish shops in Bangladesh.

Large textile companies with a significant exposure to retailing like Pantaloons, Shoppers Stop, Arvind and Madhura Garments have set up production units in Bangladesh.

Experts believe that this grant from the government would result in joint collaborations of Indian textile and retail companies with Bangladeshi manufacturers. In recent years, Bangladesh has emerged as an economical and a lucrative garment-manufacturing hub for many European countries and also Asia’s giant China.

India’s exports to Bangladesh of total exports have been hovering around 2% in the last five years.

Another major factor that works in favour of Bangladesh is its treaty with China and other countries in Europe. Chinese companies that are known for their fabrics, export to Bangladesh and procure garments duty-free.

On the other hand, Chinese companies have to pay duty to export fabrics to India. Hence, experts believe this move by India would give back door entry to Chinese fabrics into Indian apparel markets. Back home, companies that are into man-made and synthetic fibres would be impacted the most in comparison

Imports (%)Year Exports (%)

2006

2007

2008

2009

2010

2011

0.2

1.4

1.8

1.5

3.2

3.3

2.0

2.0

1.7

2.3

2.1

2.1Textiles including readymade garments Source: India Trades-CMI

India’s Exposure To Bangladesh

According to estimates, Bangladesh has overtaken India in terms of export of garments. Today, Bangladesh exports 50% more garments than what India does.

Factors such as cheap labour costs (almost one-third of Indian labour costs), low power costs (50% lower than India) and overall lower production costs 30% to 40% have made Bangladesh cost-effective and a lucrative textile hub for companies based in China and Europe.

Such has been the growing importance of Bangladesh that according to CMI-India Trades data, imports from Bangladesh to India have risen to 3.3% (of total imports) in 2011 from 0.2% in 2006, while

Even today Bangladesh derives a substantial part of its exports revenues from the textile sector. It is estimated that more than 70% of the exports earnings of the country come from the textile sector itself. According to the data by the Export Promotion Bureau, woven and knitwear products in the apparel segment accounted for 78.14 % or $17.91 billion in fiscal 2010-11, rising from 77.12 % or $12.50 billion in fiscal 2009-10. Many believe the contribution would be more than 80% if other apparels like home textiles, specialised woven and knitted fabrics are clubbed with garment products. Despite a huge dependence on the textile industry, Bangladesh is yet to develop a situation for raw material: cotton. The country is highly dependent on cotton as a chief source material. Experts believe this could be a potential threat to the growth of its textile industry.

The two factors that have fostered the growth of the textile industry could not be its core differentiating factors in the long run. Factors such as cheap labour and tax-free entrance, which have catapulted Bangladesh’s reputation as an economical textile hub can also be cultivated by countries such as Vietnam, Cambodia and more importantly India and China. Hence, experts believe that to increase its competitiveness as a textile hub, the country should improve its infrastructure. It is estimated that it takes three months for a factory in Bangladesh to deliver products to the US and other European countries after getting the order. This is quite a long time for manufacturing hubs in other countries. This would boost the productivity of workers also, which, in turn, would raise the productivity of textile mills.

with a large number of listed peers who have cotton-specific businesses. Companies like Sutlej, Sangam India and Banswara Syntex that are into man-made and synthetic fibres are the ones which would get impacted.

Besides, small retailers in West Bengal, Ludhiana and Gandhinagar would also be affected. In the listed category, however, most companies that have cotton-specific activities (like trading) would not be impacted.

Another upshot of this move by the government is huge unemployment. It is believed that if one considers a conservative estimate of $2.5 billion worth of exports to Bangladesh, nearly 1.25 million labourers would lose jobs in IndiA.

Bangladesh: A Textile Hub

ROADBLOCKS TO DEVELOPMENTDespite immense opportunities in the infrastructure sector,, delays due to high interest

rates and lack of funds could hurt this segment

ROADBLOCKS TO DEVELOPMENT



he Indian infrastructure sector is poised for growth with the govern-ment planning an

expenditure of around $1 trillion alone on infrastructure projects under the 12th Five-Year Plan.

Investing in infrastructure projects is crucial, considering the glaring infrastructure deficits in the country. An excellent example of this is the looming threat of power shortage in major states such as Delhi, Andhra Pradesh, Maharashtra and Karnataka, due to the shortage of coal supplies to power producers.

Had the government not intervened in time and offered some of the e-auction coal to the power sector, the states would have had to virtually stare at a power blackout.

A report by Gajendra Haldea, a senior planning commission official, talks about infrastructure deficits in the country. In the power sector, there is a 13.3% power shortfall during hours of peak consumption.

In highways, there is 70,548 km of national highways. Of this, only 18% is four-lane; 52% two-lane and 30% single-lane. In ports, there are inadequate berths, rail/road connec-tivity; in airports there is inadequate capacity and railways are plagued by old technology, saturated routes and slow average speeds.

The good news is that the government has realized India’s infrastructure constraints and is taking steps to correct it. The projected investment on infrastructure by the government has increased to `40,152 billion in the 12th Plan from `19,481 billion in the 11th Plan.

The government also plans to rely more on infrastructure investment by the private sector and has targeted

T private investment contribution of 50% in the 12th Plan compared to 37% in the 11th Plan and 25% in the 10th Plan.

The road sector has a strong project pipeline. In FY12, the National Highway Authority of India, has already awarded 4,300 km of road projects and is on track to award more than 7,000 km in FY12.

In the power sector, 1,20,000 MW is expected to be added under the 12th Five-Year Plan, and an additional 20 GW each worth of solar and nuclear power will be added by 2022.

The Indian government has also sought the help of the Chinese government in developing infrastruc-ture projects. The government is looking at active participation of Chinese companies in building power plants and high-speed rail networks.

Chinese companies have already completed and are executing infrastructure projects worth $40 billion in India, according to a report by the Indo-Asian News Service.

Chinese power equipment manufac-turers have procured almost 18% of the 12th Plan capacity addition target in India, the report said. Anil Dhirub-hai Ambani Group’s (ADAG) Reliance Power has also struck a $8.29-billion deal with China’s Shanghai Electric last November for the supply of as many as 36 coal-fuelled power plants.

While the intentions of the govern-ment are good, the biggest problem has been implementation of projects. India’s efforts to correct infrastructure constraints have not been fruitful as almost half of the government projects are running behind schedule.

About 81% road, transport and highways sector projects have been

delayed. The data by the Ministry of Statistics and Programme Implemen-tation shows that as of April end, 2011, out of 560 total infrastructure projects, 251 projects were delayed. The projects come under the `150 crore or above category.

Of the 119 road and highways projects listed by the ministry, 97 were running behind schedule. A total of 44 projects got delayed in the power sector with 22 projects running behind schedule, each in the coal and the railway sector, respectively. The delays result in cost overruns and eventually the projects become unprofitable for the companies devel-oping them. A state-wise perspective revealed that while Assam, Andhra Pradesh and Bihar did not complete a single project, Maharashtra and Tamil Nadu completed half of their projects by April-end this year.

Recently, Montek Singh Ahluwalia, deputy chairman of the Planning Commission, recently said that India may miss a $500 billion target for infrastructure investment for the five years through 2012.

“We think our investment will probably be little short of the USD 500 billion target,” Ahluwalia said at a conference. “I would not be surprised if it is 10% or even 12% short,” he added.

The delay in infrastructure projects is on account of multiple reasons. For one, the government has been slow in taking decisions on infrastructure projects because of the multiple scams that have rocked the govern-ment. Secondly, there have been several hurdles in getting environ-ment clearances for projects and in acquiring land.

While government orders have


slowed down because of political paralysis, order inflows from the private sector have also come down because of funding issues faced by the private sector.

In fact, not only order inflows, infrastructure companies have also been hit by high interest rates, high commodity prices and continuing rise in working capital needs leading to a sharp rise in debt and interest cost in the last three years.

The consistent rise in the working capital cycle has been on account of high competition in the infrastructure sector due to which companies have indulged in aggressive bidding, which has stretched their balance sheets.

According to analysts, the working capital cycle of companies has worsened in recent times, with some companies having a working capital cycle of over 200 days. The average working capital days for infrastruc-ture companies have increased by 22% over FY08-11 and the incremen-tal receivable days in the last two years is 50% to 75% of infrastructure companies’ net worth.

Infrastructure companies have also been bogged down by the high interest rate scenario and rising inflation, which has increased their cost of debt and cost of raw materials.

Infrastructure is a very capital-intensive sector and companies usually borrow money from banks to finance their projects. In most cases, debt accounts for more than 50% of the project cost and when interest rate increases, as it has in the last one year or so, the cost of capital for compa-nies increases drastically. In some cases, interest cost for companies has increased by more than 100%.

Lack of funding is the single largest problem for infrastructure companies

at present. On the one hand, clients (mostly state governments) have delayed payment to infrastructure companies and on the other hand, creditors (contractors) insist that companies to pay them in advance for the projects.

Infrastructure companies are caught between the two and they are being forced to borrow more to fund the existing projects. This is one of the key reasons for the delay in projects. Because while some companies have been successful in raising debt, others have not been able to do so or do not want to pile on more debt.

On an average, the net debt/equity ratio has increased by 36% for companies. This has also impacted the profitability of companies and analysts have cut earnings forecast for infrastructure companies. Therefore, till the entire macroeconomic environment improves and interest rates begin softening, projects will remain stuck.

Meanwhile, the land acquisition bill tabled in the parliament could help ease problems of land acquisitions and will make the whole process more transparent.

The fallout of land acquisition, however, will be a substantial increase in land prices, which could make projects unprofitable, say industry experts. Also, till the time, the bill is passed, land acquisition could get further delayed.

The government is trying to improve funding for the sector by allowing companies to raise tax-free bonds. Infrastructure firms are expected to be dominant issuers in India’s corporate debt market.

Industry experts say infrastructure firms will take advantage of the newly auctioned corporate infrastruc-

ture debt limits for Foreign Institu-tional Investors after the lock-in period restrictions were revised. The government has lowered the lock-in period for such debt to 1-year from 3-years previously. Infrastructure Development Finance Co and Rural Electrification Corp have announced issuances accordingly.

India has allowed four firms to raise `300 billion through tax-free bonds in FY12. National Highways Authority of India and Indian Railway Finance Corp can each raise `100 billion, while Housing and Urban Develop-ment Corp and Power Finance Corp can raise `50 billion each, the Central Board of Direct Taxes has said in a notification posted on its website.

In addition to this, India’s central bank, the Reserve Bank of India, is looking at allowing banks to float dedicated infrastructure funds.

The government had recently issued guidelines for the setting up of debt funds that can either be structured as a non-banking finance company or a trust that will function like a mutual fund. Still, more clarity is needed on this issue.

Overall, the outlook for the infrastructure appears to be gloomy at least for the next year or so, till interest rates start to soften.

The RBI increased repo rates by more than 9 times this year and considering the pace at which interest rates have increased, industry analysts say it is unlikely that interest rates will soften any time soon.

So, it will be a while before project delays because of lack of funding are sorted out. Clarity is also needed on other issues such as land acquisitions and environmental clearances. Until then, the sector is expected to remain in a bad shapE.


CANDYFLOSSExper ts warn of the

potential risks in

opting for attractive

dual rate schemes

o�ered to home buyers

by select banks

hen the festive season is round the corner in India, retailers come out

with various schemes and incentives to give a veritable push to the sale of their products and services. Along with retailers, both public and private banks are also seen doing the same this time around.

W Most big lenders are pushing attrac-tive dual rate schemes to attract potential home buyers. Others are making slight variations to their existing home loan products by giving discounts on their processing fee or offering progressive monthly instalment schemes, whereby the borrower’s liability increases as he gets a hike in his earnings.

THE WHOLE BOOTY

Others still, like Axis Bank, recently took the home loan market by surprise when it launched a lifetime fixed rate home loan and christened it ‘Nishchint’. This is a loan available at an interest rate of 11.75% for a 20-year tenure. What surprised the market was that not only is this the


cheapest fixed rate loan available today, it also comes from the stable of a bank which is a late entrant to the home loan market, despite the fact that it is the third largest private sector bank in the country.

The logic behind launching such a scheme, the bank claims, is to offer protection to the customer in a rising interest rate scenario, which increases his EMIs.

Over the past couple of months there has been a deluge of innovation in home loan products from banks and other financial services outfits. HDFC, the country’s premier home loan lender and ICICI Bank that comes a close second, have launched dual rate home loan schemes.

HDFC Bank offers products at a fixed rate for the first three and five years. Under the fixed rate scheme, HDFC charges between 11.25% and 11.75%

per annum depending upon the amount of the loan.

ICICI Bank, on the other hand, offers products at a fixed rate for the first and second year and shifts to a floating rate, thereafter.

In the one-year fixed rate home loan scheme, loans up to `25 lakh are available at 10.50%, loans of ̀ 25 lakh - `75 lakh at 11% and those above `75 lakh at 11.50%.

Under the two-year fixed rate housing loan scheme, loans up to ̀ 25 lakh will be disbursed at 10.75%, loans of `25 lakh - `75 lakh at 11.25% and those above `75 lakh at 11.75%.

Facing stiff competition from its peers, State Bank of India has been forced to extend its concessional home loan scheme till December ’11. Initially, the bank was to withdraw this scheme after October ’11.

Under this scheme, the bank offers a 25 basis points discount on its interest rates across the tenure of a floating home loan scheme.

Not just banks, but housing finance companies too have jumped on the bandwagon. LIC Housing Finance has kicked off its five-year fixed rate scheme, while Edelweiss Housing Finance recently launched two- and five-year fixed rate loans.

ARE BANKS STILL ‘TEASING’?

While banks and financial institutions are going the whole hog to attract potential customers, financial planners and property consultants do not share their enthusiasm.

In fact industry critics believe that this ‘dual rate schemes’ or hybrid loans that most lenders are offering now are a second coming of the ‘teaser loans’.

Rate Of Interest Lender Processing Fee Prepayment Charges

HDFC Bank

ICICI Bank

State Bank Of India

LIC Housing Finance

Axis Bank

Scheme I: 10.75 %

(fixed for three years )

Scheme II: 11.25 %

(fixed for five years)

(Upto 25 lakh) Scheme I:

10.50% fixed for one year.

Scheme II: 10.75% fixed for two years.

(Above 25 lakh) Scheme I: 11% fixed

for one year. Scheme II:11.25%

fixed for two years.

10.75% floating interest rate

11.75% (fixed for five years)

0r 10.65% (floating)

Scheme I:11.75 % (fixed for 20 years)

Scheme II: 10.75%

(floating rate up to 25 lakh)

11% (above 25 lakh)

0.5% plus applicable

service tax and cess.

0.50% of loan amount

upto 1 crore.

0.50% of the loan amount.

With a cap of

`10,000+service tax.

0.5-1%

1% of the loan

amount+applicable taxes

If 25% is paid within three

years- no penalty. Else 2%

of outstanding amount will be charged.

`10,000 above 1 crore.

If full payment -2% of the outstanding

amount. Part payment- no penalty.

NA

2% of outstanding payment.

If balance is transferred then 2%,

otherwise nil.

Source: Company Data

The Offerings Of The Top Lenders


Teaser loans had become a rage in 2009 after SBI took the lead follow-ing the recession. These were adjust-able rate loans where a borrower had a fixed interest rate for the first two or three years and then moved on to the market-adjusted rate.

SBI’s home loan portfolio grew considerably (approximately by 20%, the same year). After some resistance, HDFC Bank launched a similar teaser loan and got an overwhelming response, as well. In fact, the popular-ity of teaser loans got the banking regulator worried.

In October ’10, the Reserve Bank of India (RBI) intervened and increased the provisioning requirement for such teaser loans from 0.50% to a straight 2% to dissuade banks from offering such products.

RBI’s logic was that offering teaser loans does not help the borrower as he feels the pinch when his monthly outgo increases after the first few years. Though the provisioning had the desired affect then, it seems to have returned in this new avatar of dual rate loans.

Though the RBI maintains its stance and says that all dual rate loans will

be treated like teaser loans, banks offer a different argument.

According to lenders, the fixed rate offered for the first few years in a dual rate scheme is at mar with market rates. Therefore, they should not attract higher provisioning. On the floating component they argue that it is also linked to base rate and so the borrowers do not get hurt when interest rates comes down.

WHAT YOU SHOULD DO

While banks and regulators are still thrashing out differences over dual rate schemes, investment experts advise potential customers to stay away from such products. The main reason they cite is that when lenders start pushing fixed rate products, it can be interpreted as a sign of a reversal in the interest rate cycle.

At such times, banks try and lock in customers at a higher rate. Therefore, it is advisable to opt for loans with a floating rate option instead.

Consider an example. If Mr A opts for a dual interest rate option now (that is in the year 2011), for the first three years at the rate of 10.75% from HDFC against a loan of `10 lakh, his

EMI works out to be `10,150 for the first three years.

If rates drop by 2012 and interest rates come down to 8.5%, Mr A will have to continue to pay the same EMI for the next two years and incur losses of close to `20,000 per year.

The other thing that potential borrow-ers need to be aware of are charges such as prepayment penalties and switching charges. Most banks charge around 2% of the outstanding amount as prepayment penalty. The banks also levy a switching charge on home loan borrowers.

If during the tenure of the loan, a person wants to make a switch from a fixed rate to a floating rate loan, then the bank will once again charge him 2% of the loan amount, which is an expensive switch to make.

The verdict is therefore clear. Pay about a few basis points more and opt for a floating rate. It’s best if you don’t bite the bait that most lenders are offering now.

After all you wouldn’t like to get locked in on the higher side when the interest rates are showing signs of peaking ouT.

regular investments keep worries away

an apple a day keeps the doctor away

SMS ‘BANG’ to 54646 | e -mail: [email protected] | www.nirmalbang.comE Q U I T I E S | D E R I V AT I V E S | C O M M O D I T I E S | C U R R E N C Y | M U T U A L F U N D S | I P O s | I N S U R A N C E | D PYour financial health is our concern.

At Nirmal Bang, it’s a relationship beyond broking...


The draft telecom polic y strives to introduce sweeping changes in

the scam-tainted sector while striking a right balance between

di�erent stakeholders

he draft telecom policy of 2011 comes at a time when the sector is struggling to deal with

increasing competition and stretched balance sheets, the result of recent acquisitions made by certain players and a heavy capex undertaken to finance the auction of 3G spectrum and its implementation.

That apart, the 2G scam had dented the overall assessment and perception of the telecommunication sector in the eyes of the investors, who, including institutional players, stayed away from the sector.

While things did go bad for these companies, most of these issues are slowly and gradually being resolved. This is also reflected in the share prices of the telecom companies and investor interest.

A lot of important things are changing for the better. The tariff war is almost over as some players have in fact initiated the increase in tariffs.

T Also, the pick up in value added services, largely aided by 3G technology, has helped improve margins and cash flows of companies. The per minute utilization and earnings of companies have also grown relatively.

But more than the change in fundamentals, policy reforms were needed on a war footing to attract investments and sustain growth of the sector. The National Telecom Policy (NTP) 2011, introduced on 10th Oct ’11, to some extent, has come at the right time and is hoped to lift the overall investor mood regarding the telecom sector.

First and foremost, the policy focuses on developing infrastructure and building a sustainable framework for optimum utilization, allowing companies and users to stay ahead in terms of technology, availability as well as affordability.

The policy aims to augment rural teledensity to 60% by 2017 and 100%

by 2020 as compared to the current teledensity of 35%. It expects the broadband subscriber base to increase to 175 million by 2017 and 600 million by 2020, which is huge, going by the current level of broadband users. This will greatly increase the total penetration of Internet in the country.

Also, Internet connectivity and data transfer could increase as broadband speeds are expected to be revised to 2 Mbps by 2015 and 100 Mbps by 2020 as compared to the current speed of 256 kbps, which could remarkably improve wireless telephony and help companies to offer more value added services to its customers.

This will also facilitate new age communication services, including video conferencing, video calling and many other facilities which require higher bandwidth and Internet speeds.

Additionally, the policy has provisions to increase spectrum


availability and will free up 500 MHz by 2020, including vacating bands and re-farming for new technologies. This is good considering that spectrum allocation per operation in the country is quite low and scarce.

Investors too were worried about the pricing and treatment of the existing spectrum. Union Minister of Communications and Information and Human Resource Development Kapil Sibal commented that spectrum pooling and sharing will be allowed, which will eventually extend to spectrum trading.

This will enable operators to save on capex and aid new entrants into the sector. The policy aims to streamline operations and allocation of spectrum and its usage, making the entry and exit of players in the industry easy.

In fact, as many believe in the need for consolidation in the industry, the new telecom policy will also look for relaxed norms for mergers and acquisitions. This will provide an exit option to those marginal and inefficient players and help in managing underutilized spectrum.

However, Sibal also said that the government will not let the number of players in any telecom zone to fall below six, thus ensuring that there is enough competition and customers get competitive services and the services are reasonably priced for all types of users.

The draft policy also states that the allocation of spectrum will be based on market price – similar to the bidding of 3G. This is a good move because it will bring the required transparency into the industry.

In the light of the telecom license scam, Sibal also said that regular audits of spectrums and the use of spectrums will be undertaken.

Though time lines have not been mentioned, this is a positive move for the sector from the corporate point of view since players with excess or deficit spectrum will be able to act according to individual strategy and unlock value.

Also, the telecom policy aims to move towards the next generation of unified license regime in the long run, allowing players to choose their services according to the demand without paying much attention to procedures or buying different spectrum or licenses every time. It is a positive for old players in this sector because variable licensing fees will get rationalized.

Among other long-term moves, the sector will get an infrastructure status. This is again a positive for the sector as currently only fixed lines have been accorded with that status. The move to provide infrastructure status will offer companies better financing opportunities, which is critical for future investment in the sector.

Also, tax breaks, especially in the case of capital-intensive tower business, will incentivize investments. The draft policy also stated that the Department of Telecom (DOT) would consider rationalizing other taxes and levies, which are affecting the sector.

DIRECT IMPACT

The draft bill of the national telecom policy also mentions the phasing out of roaming charges through the creation of a pan-India license or one-nation license. The phasing out of roaming charges is going to be undertaken over a period of time, although the time needed to implement the same is not yet known.

According to the Telecom Regulatory Authority of India, currently GSM

operators generate about 8% of their wireless revenue through roaming charges. Of this, nearly 50% constitutes international roaming charges. This means that doing away with roaming charges could hit around 4% of the revenues of the telecom companies.

This move is likely to hurt individual companies that generate a large part of their revenues from roaming charges. While it may hurt their profitability, it may benefit consumers and new entrants on the other hand.

However, there is also a possibility that telecom companies might resort to a hike in tariffs in the coming days to offset the impact of the end of roaming charges. And if roaming charges are done away with then it may lead to higher volume growth to some extent.

MORE TO BE DESIRED

Though the telecom policy is considered to be a positive as it addresses certain critical issues that are being faced by the industry and focuses on future sustainability, it still leaves a lot to be desired as several things have not been covered and accounted for. There is not much clarity on the timeline, pricing and the implementation of the policy.

Like in the case of exit policy and national free roaming, more clarity is being sought by the players. In fact, there was no mention of spectrum pricing and re-farming of the spectrum. However, Sibal mentioned that the final telecom policy will be released before December ’11.

Also, clarity on issues such as excess spectrum pricing, renewal of the license and spectrum re-farming is likely to be achieved after the TRAI makes its recommendationS.

mainly due to the lack of investor awareness. Our biggest effort is to educate investors. To begin with, we want to reach out to investors through advertising campaigns like ‘Jaago Grahak Jaago’. We have made several commercials in Hindi and other regional languages so that we can reach out to a larger audience base.

We urge investors to understand the commodity markets before trading and we also advise them to not get lured by some stray tips and promises of high returns. The other considerable problem we have on our hands is that of illegal or ‘dabba trading’ and we are trying to address this as much as possible. We are also seeking help from the police and are training them to curb this menace. We have already organized a pilot training programme in Bhopal, which was attended by 68 senior police officials.

We will hold similar programmes in Raipur, Gujarat, Rajasthan and Maharashtra. We are hopeful that with the co-operation of the police force we will be successful in prosecuting the miscreants who are responsible for ‘dabba trading’. But as mentioned earlier, all this emanates from the lack of investor awareness. So, investor awareness is going to be our focus area. We are also encouraging suggestions from market participants about policy measures that will be incentives to stay away from illegal trading.

Ramesh Abhishek is the Chairman of the Forward Markets Commission (FMC). In the past, Ramesh Abhishek held the prestigious post of District Magistrate of Patna. He is a Mason Fellow and has a Master’s Degree in Public Administration from Harvard Kennedy School and a Master’s Degree in Politics from Jawaharlal Nehru University, New Delhi.

Q.What do you consider as the biggest challenge for the commodity

regulator today and what are you doing to address it?

We feel most of the issues that are prevalent in the commodity derivatives market today are

The newly appointed chairman of the Forward Markets Commission (FMC) Ramesh Abhishek seemingly has a crown of thorns. Unlike its counterparts in SEBI or the RBI, the FMC is unique because it does not have any regulatory powers of its own.

The FMC reports to the department of consumer affairs. For years now, the FMC has been seeking autonomy which is subject to the amendment of the Forward Contracts (Regulation) Act, 1952.

The amendment will give search and seizure powers to the FMC. But for now that seems some time away. Abhishek, however, is a brave heart and is determined to make things work in the current scenario.

In a candid conversation with Beyond Market, he speaks passionately about the need to protect investors, create awareness among traders and bring in more depth into the commodities market.


“Investor Awareness Is Going To Be Our Focus Area.”

Ramesh AbhishekChairman of the Forward Markets Commission

Excerpts from the interview:


safeguards for a retail investor when he trades in the commodities market in India?

I think we are far more conservative as compared to the US and the European markets because we understand that since the underlying instruments are commodities we have to be very careful. They do not have safeguards like open position limits or daily price limits.

In the US, the CFTC is considering putting position limits, but it has not happened so far. Unlike the developed markets, we also have

We have received suggestions like changing the time of trading or reducing tick sizes to name a few. But we need more concrete policy suggestions to work on this front. Q. The commodities markets have been waiting for regulatory reforms for quite a while now. Do you feel that the time has arrived for instruments such as Options and indices trading that will be good hedging tools in the hands of the investors? Also, do you see any scope for portfolio management services in commodities to encourage participation of retail players?

Options and indices trading are instruments that the markets are looking forward to. We are aware of the fact that more instruments are needed to bring in further liquidity in to the markets. The presence of more instruments will lead to better price discovery mechanisms. But we cannot do

anything till the FCRA (Forward Contracts Regulation Act) amendment takes place.

Till that happens even the RBI will not be comfortable in allowing banks and other financial institutions participating in commodities derivative trading.

So even if there is scope for the entry of portfolio management services as you are suggesting, we have to wait for now, at least.

Q. Considering the volatility in the global markets currently, do you think that there are enough

31


special margins, which we can impose in case of any irregularity.

If you ask me, we have a whole lot of regulatory tools by which we regulate our markets much better than the West. We are much better positioned to handle volatility in a crisis, which has become a common occurrence today.

As far as retail participants and traders are concerned, we believe that we should do our best to protect them so that they have the confidence to participate in the markets in a much bigger way.

One of the concrete measures recently undertaken by us is asking the exchanges to set up an Investor Protection Fund by 31st Mar ’12. They have to set up a trust that runs this fund. But before that they have been asked to set up a committee that will operate the fund till the trust is formed. This fund will have access to the various fines that exchanges collect so they will have access to a pile of funds.

This investor protection fund can compensate an investor or a trader up to `2 lakh. We are expecting this to instil some kind of confidence in retail investors. We also want to make risk management at the member level a little more transparent.

One of the proposals we are considering is to make quarterly settlement of members with clients. That will obliterate many member-and client-related disputes, as well.

Q. You have also spoken in a public appearance about the simplification of KYC norms. Can you please throw more light on the same?

Currently there are many forms like client registration form, risk disclosure forms and various other forms that essentially ask for the same information in different exchanges.

We wanted a common KYC form that will be uniform across all exchanges. We have drafted this and sent it to the exchanges for their comments as well as put it up on our website.

We will consider these suggestions and make the necessary changes in the first week of November. Once that is done, we expect all new client registrations happening after 31st Dec ’11 to use the new KYC norms. Q. Some time back there were talks about the introduction of market wide position limits in the commodities market in India. Has there been any progress on that front?

Currently market wide position limits are applicable to sugar contracts only and not applicable to other commodities. There are views for and against market wide position limits. We have to weigh the pros and cons to take a decision on this one. Q. After 2004, not many new contracts have seen good liquidity. Do you think that new contracts should be introduced now for the betterment of the commodities market?

The exchanges should constantly endeavour to launch new products that draw more liquidity. Once we have Options as one of the permitted instruments, the depth and diversity of the market will go up manifold. Only having Futures in the current scheme of things is certainly limiting.

Q. For agri commodities especially, do you think spot rates being flashed by exchanges should reflect the actual demat rates that are inclusive of all other expenses, to encourage delivery?

Recently there was a problem with the commodity - turmeric. Sometimes it is very difficult to find out the various percentage increases over and above taxes. Unfortunately there cannot be any one uniform rate of increase that can be fixed for all commodities.

We have, therefore, advised the exchanges to work in tandem with the local traders and warehouses for proper price discovery. It is a commodity-specific issue.

Q. Why are we witnessing quality issues especially in chilli, jeera and other commodities?

The exchanges have a quality control system and warehousing certification is in place. Despite this, there are complaints from time to time. When we get a complaint, we do look into the matter from both the exchange and the commission’s end.

Proper systems are in place, but sometimes the people who are the cogs in the wheel do not function properly. It does happen from time to time and we, from our end, do what it takes to rectify it. Having said that, I do not perceive this as a systemic issue. Q. Of late, margins have been shooting up or reducing especially on the longer side of agri commodities in times of volatility. Why?

The initial margin (the VAR margin) is indexed to volatility and is imposed at both ends. But sometimes we have noted that spot prices are not really aligned to the future prices and are not driven by demand and supply.

In such cases there may be over speculation, which leads to the shooting up of prices in one direction. That is when the commission imposes a margin on one side, either long or short.

But this is done only when there is suspicion about market manipulation. It is resorted to rarely and is imposed for a short

period of time. Recently, we imposed a special margin in chana.

Q. Can you give us the path that FMC has defined for itself over the course of the next year? What are the regulatory changes that can be expected?

The market is waiting for the amendment of the FCRA which will conform greater powers of regulation as well as enforcement to the FMC. This will enable more products in the markets and bring more liquidity into the system. That is something we are looking forward to.

Meanwhile as I mentioned earlier, our focus is going to remain on creating greater awareness for traders and investors. Another area of focus is farmers. They should benefit more than they do now. The challenge is to get them to participate more through aggregators and disseminate commodity prices better.

We are setting up ticker boards for them across the country in APMCs. We have installed 900 boards already and will take this up to 1,500 in another few months.

Another important thrust area is to build greater capacity among stakeholders. The commodity markets have grown very fast. There is a crying need for training and we have also proposed the setting up of the National Institute of Commodities Management to build up more capacity.

And of course there is always an effort to bring in greater transparency into the system. We hope this will encourage more individuals to participate in the commodity marketS.

The Forward Markets Commission (FMC), headquartered at Mumbai, is a regulatory authority, which is overseen by the Ministry of Consumer Affairs, Food and Public Distribution, Government of India. It is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act, 1952.

The functions of the FMC include keeping the forward markets under observation and taking such action in relation to them, in exercise of the powers assigned to it by or under the Act, collecting and publishing information regarding the trading conditions, including information regarding supply, demand and prices, and submitting to the Central Government, periodical reports on the working of forward markets relating to such goods, making recommendations with a view to improving the organization and working of forward markets, undertaking the inspection of the accounts and other documents of any recognized association or registered association or any member of such association whenever needed.


Now, Commodity TradingIs No More A Puzzle.

Commodity trading can be confusing especially if one is inexperienced and lacks the

necessary skills to trade successfully. At Nirmal Bang, our team of seasoned analysts with

years of experience and in-depth knowledge can help you spot the underlying clues and

create the investment strategies that best suit your commodity trading requirements.

w w w.nirmalbang.com

CORPORATE OFFICE: B-2, 301/302, Marathon Innova, O� Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400 013. Tel: 022 - 39268000 / 8001; Fax: 022 - 39268010R E G D. O F F I C E : S onawala Bui ld ing, 25 Bank Street , For t , Mumbai - 400 001. Tel : 022 - 39267500 / 7501; Fax : 022 - 39267510BSE 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. Please read the Do’s and Don’ts prescribed by Commodity Exchange before trading. The PMS Service is not o�ering for commodity segment. *Through Nirmal Bang Securities Pvt. Ltd. ^Distributors #Prepared by Research Analyst of Nirmal Bang Commodities Pvt. Ltd.

For job openings at Nirmal Bang, visit http://www.nirmalbang.com/careers.aspx


The outlook for PI industries looks positive, considering its unique business model and high growth anticipated in the future

ounded in 1947, PI Industries (PII) is a leading agri-input and custom synthesis company in India. In the mid-1990s, PII entered into the custom synthesis business (which currently

contributes about 40% to the total revenue). From April ’11, the polymer business has been divested to Rhodia, SA, a French multinational specialty chemical major.

AGRI-INPUT BUSINESS

PI Industries is one of the leading agrochemical companies in the country, with focus on in-licensed products. It gets 60% of its revenues from the agri-input segment (includes argichemicals – 90% and plant nutrients and fertilizers – combined 10%).

This venture is a flagship business for which PI enjoys tremendous brand recognition across leading products in the industry. Given the inevitable surge in demand for food grain production in the agriculture sector, the opportunities for agrochemical companies are innumerable.

PI Industries is favourably positioned to contribute to the growth in this space by leveraging its long-standing association with business partners and intensive network of distributors across India.

It enjoys exclusive relationships with global giants for distribution of products in the domestic market. As a result,

F

Putting Its Best Foot Forward


the company has above industry margins in the agrochemical market (18% to 20% as against industry margins of 10% to 12%).

The company registers products in India in its own name and distributes via its large and extensive network. Recently the company launched an herbicide - Nominee Gold - for paddy crop, which is growing at an exponential rate and is expected to continue at the same pace in the future too.

CUSTOM SYNTHESIS BUSINESS

What sets the company apart from other agrochemical companies is its presence in the custom synthesis business (40% of the business), which commenced in 1996-97. It is a premium business with high margins (22% to 23%). In addition, the company has an impressive product portfolio due to exclusive tie-ups with leading agrochemical, pharma and fine chemical companies around the world.

In custom synthesis, PI Industries undertakes research work for commercialization of molecules on behalf of innovator companies and in return gets supply commitment for 4-5 years. PI has made substantial investments in building state-of-the-art process research and manufacturing facilities of chemical intermediates and active ingredients, with focus on R&D capabilities.

This unit is expected to be the primary growth driver with strong revenue visibility as India continues to be a preferred destination for outsourcing custom synthesis and contract manufacturing-related projects.

With exceptional growth opportunities in the offing, this business segment is poised for great success. Currently, around 10-12 projects are going on, providing $350 million order book (6.5x of FY11 custom synthesis revenues of `240 crore) to be executable in the next 3-4 years, providing visibility for the future. The company also has 18-20 projects in the pipeline.

The share of custom synthesis is expected to increase in the coming years. Almost all big global innovator agri companies, especially those from Japan and Europe are customers or are in talks with PI Industries. There is no comparable player in India undertaking a similar business.

RECENT DEVELOPMENTS

In April this year, the company concluded the sale of its non-core low margin business of polymers and received around `80 crore from it. The company intends to utilize the proceeds to fund its capex plans

The company recently opened a joint research centre with Sony Corporation Ltd for the development of commercially viable processes for molecules invented by Sony. The joint venture proves the strong research capabilities of PI Industries, which earned it enormous recognition. This has also opened up another sector for growth other than agri for PI Industries

INDUSTRY GEARED UP FOR ROBUST GROWTH

India has a large population size of 1.13 billion and offers a growing market for agricultural and food products. However, compared to other countries, India faces a greater challenge, since with only 2.3% of the world’s total land area, it has to ensure food security of its population, which is about 17.5% of the world’s population.

In addition to this, the population of India is growing at a rate of about 1.6% per annum and it is expected that India would have the largest population in the world by 2040. This will result in higher food consumption.

Although India has the largest area under agriculture in the world for major crops like paddy and wheat, it still lags behind in terms of ‘per hectare’ productivity.

Source: Company, Nirmal Bang Research

Under custom synthesis business, the company undertakes projects for process development. An innovator company approaches PI Industries with a molecule and requires it to develop a process for economical mass commercialization. PI Industries undertakes a feasibility study, process evaluation, followed by quality validation and pilot scale trials. After getting customer approval for the whole process, the company starts supplying the final product to be distributed by the customer. Over the years, PI Industries has developed a unique capability for new process development.

0

2000

4000

6000

8000

10000

12000

Paddy Wheat Maize

Argicultural Yield (Kg/Hectare)

India World Average China USA


In order to meet the demand for food grains, there are three major options for enhanced production and sustainability on a long-term basis, namely

(i) Area expansion (our view - not feasible), (ii) Enhancing per hectare productivity (our view – most desirable), and (iii) Along with the above options, saving the losses caused by insect pests, diseases and weeds through rational use of pesticides (our view – can be easily achieved with little more awareness)

It is estimated that up to 30% of the crop gets damaged by pests (includes insects, fungus and weeds). Given that such a high percentage of crops gets damaged by pests, it becomes important to prevent or reduce such losses.

Agrochemicals play a very vital role in preservation of crops, improving agricultural productivity and also ensuring food security.

However, India’s consumption of agrochemicals is one of the lowest in the entire world at 0.48 kg per hectare. We believe this weakness has set the stage for potential growth, going forward. We feel that the Indian

agrochemical industry is definitely poised for robust growth in the coming years. The Indian crop protection industry is estimated to grow by about 12% to 15% for the next 2 to 3 years, which offers significant latent potential to grow for agrochemical companies in the industry.

CAPEX PLANS TO FUEL FUTURE GROWTH

The company is undertaking a capacity expansion programme at Dahej SEZ for custom synthesis division to ensure the future flow of revenues. The capital expenditure is estimated to be `125 crore spread over a period of around two years.

The potential sale from this is around `400 crore. The facility is expected to become operational by the end of FY13 and the full benefit would be seen in FY14. Since the facility is in SEZ, the tax rate is also expected to reduce from FY14.

BRIGHT FUTURE

The first quarter results for FY12 were exceptional for the company because of the sale of its polymer business. This also helped the agri-input, custom synthesis company in improving the total margins at the company level as the polymer business had low margins.

In FY11, the company reported 17.2% EBITDA margins. However, in Q1FY12, the EBITDA margins of PI Industries shot up to 20.7%.

For sales, the company is expected to grow by 35% to 40% for the next two years with margin improvement year-on-year.



Consumption Of Agrochemicals (Kg/Hectare)

FinancialsEBITDA

(`crs)Margin

(%)PAT

(`crs)Margin

(%) EPS(`)

PE(x)

ROE(%)

FY08FY09FY10FY11

31.864.587.2

124.2

8.613.916.117.2

6.424.339.461.7

1.75.27.38.6

2.59.7

15.724.6

229.760.337.123.7

9.529.531.733.5

Growth(%)

16.824.817.232.8

Net Sales(`crs)

YearConsolidated

370.9462.9542.5720.3

IN A NUTSHELL

Because of excellent quarterly results, the stock has also been re-rated and has seen a sharp up move. The outlook remains positive on the stock considering its unique business model and high growth anticipated. However, the critical point to watch is the Q2FY12 results so as to verify whether the company will be able to maintain its margins or noT.

0

2

4

6

8

10

12

14

16

18

Taiwan China Japan USA Korea France UK Pakistan India

w w w.nirmalbang.com

EQUITIES* | DERIVATIVES* | COMMODITIES | CURRENC Y* | MUTUAL FUNDS^ | IPOs^ | INSURANCE^ | DP*

REGD. OFFICE: Sonawala Building, 25 Bank Street, Fort, Mumbai - 400 001. Tel: 022 - 39267500 / 7501; Fax: 022 - 39267510 CORPORATE OFFICE: B-2, 301/302, Marathon Innova, O� Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400 013. Tel: 022 - 39268000 / 8001; Fax: 022 - 39268010

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. Please read the Do’s and Don’ts prescribed by Commodity Exchange before trading. The PMS Service is not o�ering for commodity segment. *Through Nirmal Bang Securities Pvt. Ltd. ^Distributors #Prepared by Research Analyst of Nirmal Bang Commodities Pvt. Ltd.

Micro analysis.Mega gains. Trading at Nirmal Bang is based on extensive

research and in-depth analysis, where we

focus on the smallest of details and turn

them into an advantage for you.

Over the years, the analytical approach

coupled with decades of experience has

helped us maximize returns for our investors

and thereby inspire confidence in them.

SMS ‘BANG’ to 54646Contact at: 022-3926 9404 | e-mail: [email protected]


uted to such a fall in bullion prices.A Franco-German split on the role of the ECB in leveraging the euro bailout fund emerged in Frankfurt, where officials had gathered to mark the end of Trichet’s term as ECB president. The disagreements among policymakers arose as banks lobbied against forced recapitalization and deeper write downs on Greek debt. The Euro zone debt crisis may once again appeal gold to investors as a safe-haven asset.

Going forward, we expect gold prices to remain buoyant as we have not seen any major liquidation in ETF holdings. Strong ETF holdings suggest that investment interest is still strong in the yellow metal. We recom-mend going long in gold at $1,600 per ounce to $1,610 per ounce on the COMEX at which we see actual value buying for the metal for a target of above $1,700 per ounce on the COMEX until the next fortnight.

INDUSTRIAL METALS

Industrial metal prices extended their losses after showing some strength last week. Slowest GDP growth of 9.1% in China, coupled with mount-ing tensions in the Euro zone led to sell offs in the broad base metals complex. Copper prices tumbled more than 6% in a week to trade back at $6,900 per tonne on the LME and below 51,000 yuan per tonne on the Shanghai Futures Exchange. Prices of zinc and lead were also hit badly as ample supply estimates pressurized the prices. Aluminium was once again an outperformer by not participating in the recent fall that was visible in base metals.

The global copper market registered a 312,500 tonne surplus in January to August, up from a surplus of 1,28,000

tonne in the whole of last year, the World Bureau of Metal Statistics (WBMS) said.

Azerbaijan has launched a new aluminium plant with an annual capacity of 50,000 tonnes and plans to restart production of alumina later this year.

Going forward, we do not expect a major downside in metal prices. Chinese industrial production data, Chinese retail sales data and US housing data are hinting towards growth. Nor do we see any major rate cuts from major emerging nations. Also, we see substantial production cuts in major metals. Chinese import numbers of metals are likely to rebound at lower levels. We expect a further bounce back in metal prices. Zinc and nickel look relatively strong and can be bought on dips.

CRUDE OIL

Crude oil was trading with a positive bias on account of higher demand from the developed markets as manu-facturing activities in the US and Europe were good in the last fortnight. Overall optimism about the solution for the European debt crisis and better recovery from the United States provided a boost to the consumer’s confidence. Supply from Russia was halted due to the recent earth quake in Russia which further pushed the prices higher. Lower inventories helped crude oil to make a high of $89 per barrel.

Going forward, we expect prices to trade lower on expectations of lower demand for crude oil as many refiner-ies would be under maintenance and increasing worries about the solution for the Euro zone debt crisis would keep sentiments under pressurE.

FORTNIGHTLY OUTLOOK FOR COMMODITIES

A ll international commodities extended their downward rally to end sharply lower once

again in the previous fortnight. Grow-ing debt concerns in the Euro zone, led by Greece, tumbling Asian currencies, strength in the dollar index and slowing Chinese economic growth are mainly responsible for such a massive sell-off witnessed in riskier asset classes.

Despite some recent positive US jobs data, US ISM manufacturing data, positive Chinese industrial produc-tion and retail sales data, we have not seen any kind of buying in almost all commodities. Gold prices too tumbled, losing its safe-haven stature. Silver prices followed the broad base metals complex, which had their worst quarterly performance since 2008. Crude oil prices, though relatively strong because of reducing stockpiles, were still under the bear’s radar in the last fortnight.

PRECIOUS METALS

After showing some strength in the previous fortnight, gold prices are back to the levels seen at the start of October ’11. After reaching $1,670 per ounce on the COMEX, gold prices fell back to $1,610 per ounce on the COMEX. On an absolute basis, gold did not provide any returns to the investors this month. Silver prices too traded weak.

However, interestingly, the magni-tude of the fall was not worse as seen in gold in the previous fortnight. After testing a low of $26 an ounce on the COMEX, silver prices were back above $33 per ounce and now the prices are hovering around $32 per ounce on the COMEX. The strength in the US dollar can be majorly attrib-


meeting may hurt the ongoing rally and squeeze out all the gains. Even though the rally has continued unabated, we remain bearish on high-yielding currencies and bullish on safe havens such as the USD and Swiss franc for the coming fortnight.

The British pound advanced by more than 2.5% this fortnight as a broad-based rally in risky assets saw inves-tors turning back on the US dollar surging throughout the fortnight.

The Bank of England voted to maintain the key interest rate at 0.5%. The Monetary Policy Committee boosted the target of its bond purchase programme to 275 billion pound from 200 billion pound.

The inflation rate for the month of September was 4.5%, which is more than double the targeted inflation rate of 2% by BOE. The central bank is not looking for a rate hike, which will not appeal investors to invest in the UK currency.

They are strictly maintaining the key rate at the level of 0.5%, which will not draw investor’s interest for UK currency. The sterling rallied with the euro but the outlook for the overall UK economy remains bearish because of lower interest rates and more liquidity in the system. We expect it to test the levels of 1.54 in the coming fortnight.

The low-yielding Japanese currency weakened on the back of better recov-ery from the US economy and it moved in line with treasury yields. With better recovery from the United States, investors were seeking better asset classes and turned back on the Japanese yen over the US dollar.

However, some offers were placed at

the level of 77.50 by exporters, which pulled it back to the level of 76.75. The government may intervene after the G-20 meeting as it has decided to take some measures against the stronger yen. The appeal for the Japanese yen may dampen for a while and it may retest the level of 77.50.

One should be cautious if it breaches the level of 77.5 as it may enter into a new zone on account of fears of joint intervention. The outlook for the fortnight remains sideways with a trading range of 76.50-78.

The rupee traded with an appreciation bias in the last fortnight because of good dollar inflows in the equities and bond markets, as well. A bounce in the euro also helped the rupee to reap benefits against the USD.

The market is expecting the RBI to hike key interest rates in its monetary policy review, which may further help the rupee to appreciate. However, the gains will be capped as importers may be active at 48.50.

The global financial health will be a key issue and the G-20 meeting will be watched closely. Developments in Europe are less likely to be positive and may weigh on the rupee on account of flight to safety.

Going further, we expect the Indian currency to depreciate on the back of rising inflation and widening gap on the fiscal front.

Rising crude oil prices will also lead to greater import bills and the demand for the dollar as oil payments will be due at the end of the month. The Indian rupee may trade with a negative bias against the dollar and may depreciate to the levels of 51.00 in the coming fortnightT.

FORTNIGHTLY OUTLOOK FOR CURRENCIES

T he US Dollar Index was broadly under pressure on account of overall optimism over the

solution to the European debt crisis. Better recovery from the United States too was favourable for high-yielding currencies.

The European banks were down-graded, which hardly shocked market participants as investors knew very well that European banks are poorly placed due to the mounting debt on their balance sheet.

Despite risk aversion, the markets rallied as all this news was fairly priced-in and the greenback was under immense pressure throughout the fortnight.

High-yielding assets floated higher throughout the fortnight, with the euro and the US stock market posting its best weekly gains since January ’09 and July ’09, respectively.

Optimism that European leaders will be able to stem the threat of contagion and hopes for a more concrete solution from the G20 meeting this weekend has kept market sentiments well supported.

Market participants are betting on high-yielding currencies in the hope that the contagion risk will be avoided by setting up a proper plan by the finance ministers.

The last vote was from the Slovakian parliament for the extension of European Financial Stability Fund (EFSF), which boosted the 16-member currency euro against the US dollar to 1.39.

The rally may not last long as any negative outcome from the G-20


Marriage Of ConvenienceMarriage Of ConvenienceMarriage Of ConvenienceMarriage Of ConvenienceMarriage Of ConvenienceSeveral fund houses are merging their schemes to

lessen the number of equity schemes and to

improve the participation of retail investors

undreds of equity schemes and poor participation of retail investors into mutual

funds have forced many fund houses to merge their schemes, resulting in less confusion in the mind of investors while selecting the schemes to suit their needs. The fund industry has often been blamed for offering a number of

H thematic products which mostly end up confusing retail investors and adding to the pile of existing schemes with similar mandates.

It was always said that, in the 42-member industry, there are over 700 equity schemes, which sometimes also resulted in more churning by distributors who earned better commission before the ban on entry loads was introduced. However,

this trend is slowly changing in a big way as more and more players are consolidating their equity products. In 2011, as many as 45 schemes have been merged into another one and many fund houses are planning to further consolidate their equity scheme base. Surprisingly since 2008 till 2010, only 37 schemes were merged with other schemes. But, the move by the Securities and Exchange


Board of India (SEBI) to relax some norms for merger of schemes gave a chance to fund houses to close down ‘poor performing’ schemes. Fund houses such as Birla Sun Life MF, Franklin Templeton MF, JP Morgan MF, Kotak Mahindra MF, UTI MF, DSP BlackRock MF and JM Financial have seen mergers of their schemes in the current calendar year. Last year SEBI relaxed norms for the merger of mutual fund schemes, allowing fund houses to give an exit option to the unit holder of a surviving scheme. The SEBI order had also mentioned that “in order to facilitate merger of schemes, it has been decided that the merger or consolidation shall not be seen as a change in the fundamental attribute of the surviving scheme if some conditions are fulfilled”. The circular also said that at the time of the merger of schemes the fund houses need to give the unit holders of surviving schemes an exit option if fund houses can show that there was no change in the fundamental attribute of the scheme.

Also, mutual funds have to demonstrate that the circumstances merit the merger of the scheme and the interest of the unit holders are not adversely affected. In 2003, the market regulator came out with a circular on the consolidation of schemes. It said consolidations will be viewed as changes in fundamental attributes of the related schemes.

The mutual fund houses will be required to give unit holders the option to exit at the prevailing net asset value (NAV) without exit load. MFs were also required to disclose information pertaining to the investment objective, asset allocation

and main features of the new consolidated schemes, among others.

Besides, low profitability and weak equity market conditions have also encouraged fund houses to take cost-cutting measures and make sure that they get rid of schemes which have small amounts to manage, still continuing to be a big trouble for fund houses.

Since the transaction is basically one of selling one fund and buying into another one, it is somewhat similar to that of corporate merger. The value of investment stays the same, but the net asset value (NAV) and the number of units change.

For example, say that before the merger an investor holds `1,00,000 in a fund with a NAV of `10 and owns 10,000 units. If the fund being merged has an NAV of `20, then post-transaction, the investor will have 5,000 units, totaling `1,00,000 in value. It is seen that, whichever mutual fund schemes have merged recently, have in the past few years, given very low returns to their investors as compared to other equity mutual fund schemes with a similar mandate.

In general, the schemes merged are some kind of thematic funds which used to be famous some years ago. But over a period of time, the theme became irrelevant which also hit the performance of the schemes. So the best route for fund houses was to merge the fund into another one that has been performing well. The current analysis shows that the host of scheme mergers being undertaken today are being done either to hide their below average performance or to simply cut down the number of offerings, while investor interest is not openly visible.

But as far as investors are concerned, not only do they need to take a call on whether to continue with their investment in the surviving scheme, they also need to look at the taxation angle. That is, whether they intend to go ahead with the investment or move out from the scheme. In case of scheme merger, there is a fresh issue of units of the surviving mutual fund scheme in lieu of units in the merging schemes. Thus, the transaction is treated as a transfer under the Income-tax Act, 1961. This tax is applicable even if the investor continues with his investment in the surviving scheme. However, when a scheme is merged, the taxes and loads such as capital gains, securities transaction tax (STT) and exit load are applicable. If an investor has invested in the equity scheme for less than one year, then he is liable to pay short-term capital gains tax liability of 15% for an equity scheme.

The rate of STT is 0.25% of the transaction value, but AMCs are paying this tax for requests of redemption in the 30-day notice. The exit load is also not applicable during this period. Currently, the STT for the merger of mutual fund schemes is 0.25% of the value or `25,000 on a turnover of `1 crore. This is higher than an STT of 0.125% or `12,500 on a turnover of `1 crore that is charged in the delivery-based transaction in the cash market segment. Given the large number of schemes that have as low of `2 crore to `5 crore as its corpus, the mutual fund industry has to walk a long road before it has consolidated offerings for investors that is easy to understand and helps reduce more confusion for retail investorS.


CHANGE IN PRICE AND OPEN INTEREST

Nifty FuturesBank NiftyACC LtdAmbuja Cements LtdAxis Bank LtdBajaj Auto LtdBharat Heavy Electricals LtdBharat Petroleum Corporation LtdBharti Airtel LtdCairn India LtdCipla LtdCoal India LtdDLF LtdDr Reddy's Laboratories LtdGAIL (India) LtdGrasim Industries LtdHCL Technologies LtdHDFC Bank LtdHDFC LtdHero MotoCorp LtdHindalco Industries LtdHindustan Unilever LtdI T C LtdICICI Bank LtdIDFC LtdInfosys LtdJaiprakash Associates LtdJindal Steel & Power LtdKotak Mahindra Bank LtdLarsen & Toubro LtdMahindra & Mahindra LtdMaruti Suzuki India LtdNTPC LtdOil & Natural Gas Corporation LtdPower Grid Corporation of India LtdPunjab National BanRanbaxy Laboratories LtdReliance Communications LtdReliance Industries LtdReliance Infrastructure LtdReliance Power LtdSesa Goa LtdSiemens LtdState Bank of IndiSteel Authority of India LtdSterlite Industries (India) LtdSun Pharmaceutical Industries LtdTata Consultancy Services LtdTata Motors LtdTata Power Co LtdTata Steel LtdWipro Ltd

Company Name Price(`)

OpenInterest

Price(`)

OpenInterest

Changein Price

(`)

Changein Price

(%)

Changein OpenInterest

(%)

Changein OpenInterest

4775.008893.951095.55

148.15963.25

1498.95320.80670.10370.80266.80280.45320.80197.75

1454.00410.10

2279.40390.50446.65621.40

1963.85125.15327.90192.65803.55108.80

2430.1068.90

460.15440.45

1338.75779.95

1099.60164.20264.75

96.30907.90514.20

71.65775.10378.60

78.65191.55834.55

1776.0599.90

105.75452.80

1041.50146.60

96.80395.10335.90

220526002030200

86225010928000

624125010057509796250

7345009299000

1659000029770006534000

23195000573500

1021500405625

175600015941875

6007000994000

198680009501000

145460009096000

181360002275000

2884400037965003219500669975029405002047500

1508600014663000

489600036665002602000

2234200011577750

547700017070000

7825000376250

57052508520000

2521400026195004205000

400650007517500

207230002956000

5102.009772.751119.45

154.551132.601619.95

319.40643.45390.55293.90289.95330.25230.90

1527.50422.75

2324.95407.25491.25647.45

2037.10125.20331.70205.75880.65122.35

2747.6570.75

538.15473.20

1390.30803.15

1080.25171.65267.45

99.35982.90504.00

74.95840.55406.55

85.10209.85814.15

1939.80107.25116.45489.40

1045.35183.40

97.85439.10354.90

2572665021396751223500

1433200077480001550000

128062501091000

1112500016305000

36010001013100027789000

6840001795500

5198753484500

1799500085065001306750

2926100012515000248760001214725024604000

350437538728000

46805004208000680025034780002759500

1809600014750000

779600045927502536000

2355600014557000

52045001880000012248000

65500065958759542000

2746000031645006585000

530837501135750024269000

3135500

327.00878.80

23.906.40

169.35121.00

-1.40-26.6519.7527.10

9.509.45

33.1573.5012.6545.5516.7544.6026.0573.25

0.053.80

13.1077.1013.55

317.551.85

78.0032.7551.5523.20

-19.357.452.703.05

75.00-10.20

3.3065.4527.95

6.4518.30

-20.40163.75

7.3510.7036.60

3.8536.80

1.0544.0019.00

3674050109475361250

34040001506750

5442503010000

3565001826000-285000624000

35970004594000

110500774000114250

172850020531252499500

31275093930003014000

103300003051250646800012293759884000

884000988500100500537500712000

301000087000

2900000926250-66000

12140002979250-27250017300004423000

278750890625

10220002246000

5450002380000

1301875038400003546000

179500

6.859.882.184.32

17.588.07

-0.44-3.985.33

10.163.392.95

16.765.063.082.004.299.994.193.730.041.166.809.59

12.4513.07

2.6916.95

7.443.852.97

-1.764.541.023.178.26

-1.984.618.447.388.209.55

-2.449.227.36

10.128.080.37

25.101.08

11.145.66

16.665.39

41.9031.1524.1454.1130.7348.5419.64-1.7220.9655.0519.8119.2775.7728.1798.4312.8841.6131.4647.2831.7271.0233.5435.6654.0434.2723.2830.70

1.5018.2834.7719.95

0.5959.2325.26-2.545.43

25.73-4.9810.1356.5274.0915.6112.00

8.9120.8156.6032.4951.0817.11

6.07

04 Oct'11 20 Oct'11CHANGE IN PRICE AND OPEN INTEREST OF THE NIFTY 50 COMPANIES

Source: NB Research


Source: Capital Line

Company Name Current Market Price11th Nov'10

Book Value Price /Book Value

121.30105.50313.59233.26100.33

27.31305.43

75.14116.54226.44

11.14137.82123.52

82.68283.64153.89137.50146.30223.34

64.0774.33

488.7739.3221.42

158.75191.11107.05

50.44699.66153.07142.78

69.5651.5633.68

127.74310.74

19.43107.52

92.72358.06211.90

37.80152.72

50.9840.85

147.14647.53100.23

99.21115.23

0.240.280.290.320.350.360.360.370.400.400.400.410.410.410.430.450.460.470.470.470.470.480.490.500.500.500.500.500.510.510.520.530.540.560.560.560.570.570.580.580.580.590.590.590.600.610.620.620.620.64

Source: Capital Line

PRICE TO BOOK VALUE

IVRCL Assets & Holdings LtdMahanagar Telephone Nigam LtdBharati Shipyard LtdReliance Communications LtdAnsal Properties & Infrastructure LtdKsoils LtdGreat Offshore LtdMoser Baer India LtdPrakash Industries LtdHousing Development & Infrastructure LtdKaruturi Global LtdD B Realty LtdAnant Raj Industries LtdOrbit Corporation LtdKesoram Industries LtdShipping Corporation Of India LtdGammon India LtdIndiabulls Real Estate LtdUnited Breweries (Holdings) LtdProvogue (India) LtdIVRCL LtdDredging Corporation Of India LtdAlok Industries LtdFirstsource Solutions LtdEscorts LtdPatel Engineering LtdPunj Lloyd Ltd3i Infotech LtdPiramal Healthcare LtdJai Corp LtdRolta India LtdBajaj Hindusthan LtdElectrosteel Castings LtdConsolidated Construction Consortium LtdPunjab & Sind BankVideocon Industries LtdIndiabulls Power LtdGeodesic LtdNCC LtdJindal Poly Films LtdKiri Industries LtdTriveni Engineering & Industries LtdJai Balaji Industries LtdIFCI LtdMercator Lines LtdGujarat Narmada Valley Fertilizers Company LtdReliance Infrastructure LtdBrigade Enterprises LtdDhanlaxmi Bank LtdIndia Cements Ltd

Company Name Current Market Price(21st Oct'11)

Book Value Price /Book Value

29.4530.0091.5074.2535.50

9.91111.05

27.8046.8091.20

4.5156.0550.3533.75

121.5569.1063.8568.20

104.5530.3035.25

234.6019.4510.6579.3095.6553.9025.45

353.6077.5073.9536.8528.1018.7571.85

175.5511.0561.5054.05

209.00123.80

22.3090.3530.2024.5090.00

399.0062.0561.9573.55

IVRCL Assets & Holdings LtdMahanagar Telephone Nigam LtdBharati Shipyard Ltd

D B Realty Ltd

Punjab & Sind Bank

Jindal Poly Films Ltd

Triveni Engineering & Industries LtdJai Balaji Industries Ltd

Gujarat Narmada Valley Fertilizers Company Ltd

Brigade Enterprises Ltd

The table represents companies listed on the BSE that are low on Price to Book Value


MUTUAL FUND, FII ACTIVITY AND NIFTY

Source: NB Research

Date MF Net*04 Oct'1105 Oct'1107 Oct'1110 Oct'1111 Oct'1112 Oct'1113 Oct'1114 Oct'1117 Oct'1118 Oct'1119 Oct'1120 Oct'11

FII Net *-95.20103.70184.10193.80344.50179.50-82.00-17.80

-229.60-75.10

-9.40--

-782.40-966.10-969.30491.30281.20183.10649.20665.80-83.30397.50

-249.2017.30

4772.154751.304888.054979.604974.355099.405077.855132.305118.255037.505139.155091.90

Nifty

*Net activity in Equity

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

MF FII NIFTY (RHS)

BULK DEALS

Ex Company Client

Price (`)

Date Quantity % of EqTrade

BSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSEBSE

4 Oct'115 Oct'115 Oct'115 Oct'115 Oct'115 Oct'115 Oct'115 Oct'117 Oct'11

10 Oct'1110 Oct'1111 Oct'1112 Oct'1112 Oct'1112 Oct'1113 Oct'1113 Oct'1114 Oct'1117 Oct'1117 Oct'1117 Oct'1117 Oct'1118 Oct'1118 Oct'1119 Oct'1119 Oct'1120 Oct'1120 Oct'11

Quintegra Solutions LtdChandni Textiles LtdParichay Investments LtdVenmax Drugs & Pharma LtdChandni Textiles LtdCNI Research LtdChandni Textiles LtdS R IndustriesNeo Corp International LtdBrushman (India) LtdQuintegra Solutions LtdIRB Infrastructure Developers LtdMedia Matrix Worldwide LtdClarus Finance & Securities LtdVMS Industries LtdClarus Finance & Securities LtdLakshmi Electrical Control Sys LtdParichay Investments LtdReligare Technologies LtdOnelife Capital Advisors LtdIRB Infrastructure Developers LtdOnelife Capital Advisors LtdInnoventive Industries LtdPasupati Fincap LtdFlexituff International LtdTrijal Industries LtdApollo Hospitals Enterprise LtdApollo Hospitals Enterprise Ltd

CNI Research LtdSatyaprabhu Infrastructure Pvt LtdShyam ConstructionKinita Real Estate Pvt LtdMahan Industries LtdCNI Infoxchange Pvt LtdAarya Agro-Bio & Herbals Pvt LtdHPL Infraprojects Pvt LtdPunamraj Construwell Pvt LtdCNI Research LtdCNI Research LtdReliance Life Insurance Company LtdVimochan Pictures LtdGujarat Fluorochemicals LtdGunny Chem Tex India LtdGujarat Fluoro Chemicals LtdLakshmi Electrical Drives LtdDominent Fincap Services Pvt LtdCresta Fund LtdAmisha Devlopers LtdIdeal Toll And Infrastructure Pvt LtdAmber Enclave Pvt LtdStandard Chartered Pvt Eq Mauritius LtdPasupati Olefin LtdIndia Max Investment Fund LtdSafalta Infotech Pvt LtdBisikan Bayu Investments (Mauritius) LtdThe Bank Of New York Mellon

BuyBuyBuySellSellBuySellSellBuyBuyBuyBuySellBuySellBuyBuySellSellBuySellBuyBuySellBuySellSellBuy

147500018324260

120100188400

451570510816002508500

139044250000407000595102

350000011321100

400000200000400000

4874815450

194500266919

5527499201607

124995450000

475000101000

40938604093860

5.5011.3610.01

4.312.801.671.551.111.782.762.221.05

14.002.251.212.251.981.292.392.001.661.512.101.062.192.013.123.12

Traded

2.951.00

18.003.451.002.801.004.26

42.302.852.85

165.001.82

63.5021.0060.25

248.0024.7435.00

135.16171.00149.33

93.0015.70

157.003.65

513.00513.00

Close

3.121.10

18.903.451.102.721.104.35

41.302.852.85

165.151.91

63.4021.5060.25

250.0524.7536.25

145.90172.95145.90

95.1516.45

166.403.62

513.30513.30

MAJOR BULK DEALS WHERE OVER 1% OF EQUITY WAS TRADED FROM 4th Oct’11 TO 20th Oct’11

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.

Source: NSE and BSE

4500

4600

4700

4800

4900

5000

5100

5200

-1200-1000

-800-600-400-200

0200400600800

04 Oct'11

10 Oct'1113 Oct'11 18 Oct'11


Scheme Name

Absolute % (Point to Point)

2 Weeks

NAV(20th Oct'11)

MoversBirla SL CEF-Global Agri-Ret(G)DSPBR World Energy-Reg(G)Mirae Asset China Advantage-Reg(G)Mirae Asset Global Commodity Stock(G)HSBC Emerging Mkts(G)LaggardsING OptiMix Asset Allocator Multi FoF(G)AIG World Gold(G)Sundaram-Select Thematic Funds-CAPEX Oppor(G)Peerless Equity- (G)SBI PSU(G)

14.597710.9454

8.861010.9450

8.5238

14.831214.921018.632910.0974

8.6100

15.338514.720813.777612.568112.3445

-0.1495-0.04020.66230.93971.4134

Equity Schemes

MOVERS AND LAGGARDS IN MUTUAL FUND SCHEMES

Debt Schemes MoversICICI Pru Advisor-Moderate(G)FT India Life Stage FOFs-40(G)Fidelity Wealth Builder-B(G)ING OptiMix Income Gth Multi FoF-30%-A(G)FT India Life Stage FOFs-50(G)LaggardsUTI G-Sec-Invest(G)Tata Gilt RIP(G)Edelweiss Gilt(G)Reliance Gilt Securities-Ret(G)Principal Govt Sec Fund(G)

24.777623.305813.080512.968818.8980

22.083528.330010.691612.297120.4674

2.59031.80011.46141.45901.3809

-0.9846-0.9160-0.9147-0.7946-0.7742

Balance SchemesMoversSundaram Balanced Fund(G)Escorts Balanced(G)UTI CCP Advantage(G)Reliance Reg Savings-Balanced(G)Baroda Pioneer Balance(G)LaggardsBirla SL Enhanced Arbitrage-Ret(G)Religare Arbitrage(G)ICICI Pru Blended-A-Reg(G)SBI Arbitrage Opportunities(G)GS Equity & Deriv Oppor(G)

44.699056.608615.417920.743926.5400

11.322313.398615.637814.107112.5785

5.13824.90514.77894.72274.5705

-0.07500.00300.01410.03190.0477

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.

ohn Maynard Keynes or Keynes, as he is famously known, is the subject of almost every headline in the

newspapers of late and the discus-sions on television channels and the Internet. This brilliant, intelligent and famous British economist showed the entire world the ways to deal with an economic crisis and avert a serious depression.

Today the Keynesian economic theory, which is named after him, is all over the place as central bankers across the globe mainly in the western world, are struggling to achieve economic growth and are working hard to prevent the occur-rence of a double dip.

J To respond to the aftermath of the financial crisis of 2007-08 in the US, central banks across the world did nothing but use Keynesian thoughts to fight the menace, 70 years after his death. This would make you wonder what is so great about Keynes that he is remembered even decades after his death. Why is everybody talking about him?

Keynes is in the news for both the right and the wrong reasons. Those who are implementing his thoughts are thanking him for saving the world from getting into a deep recession and those who are against him are cursing this theory as they feel it led to a speculative bubble. And this debate rages on.

Keynes who was born in the England city of Cambridge, in the year 1883 was considered to be a brilliant student. His father John Neville Keynes was a well known Cambridge economist.

As a student, he was more interested in mathematics and philosophy. He completed his BA with first class in mathematics in 1904.

Surprising, especially for the Indian readers, is the fact that at a very early stage in his career, he was deployed in India by the British government as a clerk in the year 1906. Importantly, his first book in 1913 focused on India and was titled as ‘Indian Currency and Finance’.

Keynesian economics holds true even today and economists around the world are using this theory to fight the battles plaguing the system at present

Keynesian economics holds Keynesian economics holds Keynesian economics holds true even today and true even today and economists around the economists around the

historyrevisited


However, his eagerness to know more and to do something different led him to resign and return to Cambridge where he worked on the theory of probability.

In 1909, Keynes published his first professional economics article and started giving lectures in economics. He earned a lot of fame and knowl-edge in economics, which made him the editor of an economic journal. His first book was appreciated and showed economic thinkers his talent and philosophies on economics.

But much of his fame came after World War I, which lasted till November 1918. He wrote a book by the name ‘The Economic Conse-quences of the Peace’, which was published in the year 1919 and is supposed to be the most influential book and best book by Keynes. That book sold several thousand copies and caused Keynes to achieve immediate fame.

RISE OF KEYNESIAN ECONOMICS

There was much more to come. In 1936 he published ‘The General Theory of Employment, Interest and Money’ and his work was really tested after the end of World War II, which lasted till 1945.

And this is also the period - in the middle of the great depression - when Keynesian economics gained fame for its practical approach.

As western economies after the World War were in severe depres-sion, Keynes proposed that to keep full employment, the governments will have to run budget deficits to lift the slowing economic growth.

He believed if private demand or investments are slowing, it is the government’s role to keep interest

rates low and increase public spending or spending on public works so that the lost demand can be compensated and economic slump can be avoided or averted.

KEYNES AND ROOSEVELT

The most interesting part of the story is that it was very difficult for Keynes to convince the government and the economists who favoured balanced budget.

At the depth of the great depression, around the year 1934 Keynes had an interaction with the then US president Franklin D Roosevelt and he advocated for more deficit spendings, which the reading suggests Roosevelt did not much like and in fact criticized Keynes more as a mathematician rather than a political economist.

Meanwhile, Roosevelt kept on doing what he could do in terms of spending on public works within the limits of the budget along with lower rate of interest at about 2%.

However, that was not enough or was considered to be uncompleted. There was recovery for some time but both the US and the British economies again entered into a sharp recession by the year 1938, which they could only arrest with the help of Keynes-ian thoughts.

By that time having left with no other idea, the US president Roosevelt tried Keynesian thoughts of deficit spending. The results were visible as there was a significant recovery in economic output and a reduction in unemployment.

FAVOURING KEYNESIAN ECONOMICS

Followers of Keynesian economics say that for more than 25 years after

the World War, Keynesian economics ruled. It was in nobody’s interest to experience a great depression-like situation all over again. And world leaders understood that it is the responsibility of the government to keep employment high and steady consumer demand.

The causes and solutions propounded by Keynes regarding depression are well accepted across the world. This is also the reason why his general theory of economics is called ‘depression economics’ and he was therefore more known as a depres-sion economist.

The global financial crisis of 2007-08 was no different. Consider-ing its devastating impact on employment, demand and economic activities, particularly in the western world, Keynesian economics once again came into the limelight for the simple reason that it devised ways to deal with depression.

The huge monitory stimulus announced across the world in 2009 to prevent banks and corporates from falling or going bankrupt is nothing but a Keynesian approach.

CRITICISM OF KEYNESIAN ECONOMICS

Keynes was considered to be a socialist and an advocate of the permanent budget deficit. Also, many believe that the veteran economist was in favour of inflation and offered depression theory as opposed to the general economic theory as he had claimed earlier.

And he called for active government intervention - printing more money and, if necessary, spending heavily on public works - to fight unemploy-ment during periods of slump.

However, this also led the



non-Keynesian believers to talk about the demerits of his thoughts. The strong opponent of Keynesian economics, especially Austrian economists, believed that every time there was a crisis, central banks have kept interest rates low and went on borrowing, printing and spending money, which later on entered into speculative activities and has kept the demand artificially high.

As opposed to Keynesian economics, Austrian economics is equally famous especially after the crisis and its criticism of the Keynesian economic approach.

Austrian economics came into the limelight in the 20th century after the most influential economist Friedrich Hayek won the Nobel Prize in Economics for his work on the Austrian theory of business cycles.

The Austrian School of Economics advocates free markets theory and calls for minimal government intervention. Austrian school economists oppose corporate welfare and corporate bailouts.

They also blame the Keynesian theory for the ongoing global economic crisis and the one which could hit the global economy as a result of easy money policies and growing budget deficit and the resultant ballooning of sovereign debt around the world.

STRONG FOLLOWERS OF KEYNESIAN THEORY

Experts like Ben Bernanke, Rober Shiller, Paul Krugman and Nouriel Roubin, among others are strong believers of Keynesian economics. Many of them defend the role of the Keynesian economic theory in the present crisis by saying that the theory is not being understood in its true essence.

The policymakers took Keynes’ second suggestion of curing depres-sion economics more seriously than his previous message of its causes and prevention.

KEYNES AND MARKETS

Despite the arguments, it goes without saying that Keynes was a great philosopher and an economist. He was intuitive and a sharp observer of his own and others experiences.

His economic theories were influenced to some extent by his experience of business and largely by being an investor and a speculator in the market. He was well informed about the financial markets.

Keynes was keenly interested in the markets and speculation which made him more influential. He was also considered to be a hedge fund manager much before the modern hedge fund industry claimed to have invented it. He made his money during the periods between 1920 and 1940 when the stock markets were highly volatile.

His wealth was at its peak before the Great Depression of the year 1929 but later he lost a major portion of his fortune as the markets went through a massive correction.

Unfortunately, his losses were mainly the result of his exposure to commodities rather than the Wall Street crash in the year 1929 as by that time he had the least exposure to the equity market.

By 1930 and later, his wealth eroded by more than 80% as the global slump hit all kinds of markets and asset classes. In fact, he was so trapped that he wanted to sell some of his collections of paintings but could not do so as prices there were also depressed.

In fact driven by the situation Keynes said: “The markets can remain irrational longer than you can remain solvent.” This quote is still relevant and is among the most striking ones ever written on the markets. But later on he started buying stocks trading below their intrinsic value and became a contrarian investor. And the results were striking. By the end of 1936 his net worth, helped by the recovery in the stock markets, appreciated by over 20-25 times.

He wrote a lot about the markets. In the year 1936 in the book ‘The General Theory of Employment Interest and Money’, Keynes compared the stock markets to a beauty contest. He described a newspaper contest in which 100 photographs of faces were displayed.

Readers were asked to choose the six prettiest. The winner would be the reader whose list of six came closest to the most popular of the combined lists of all readers.

The best strategy, according to Keynes is not to pick the faces that are your personal favorites but to select those you think others will think are prettiest.

Similarly in speculative markets, he said, “You win not by picking the soundest investment, but by picking the investment that others, who are playing the same game, will soon bid up higher.”

Keynes once famously said, “A speculator is someone who takes risks of which he is aware, and an investor is someone who takes risks of which he is unaware.”

For Keynes investing was about taking note of what everyone else would want to buy and buying before they diD.

A to Z OfFinancial

Terminologies

Don’t let yourself be foxed

by the number of �nancial

terms you come across in

your daily l ives. They are

easier than you think

n the past few years, thanks to dumbing down of information by financial news channels and a

multitude of business newspapers and magazines, most people have come to believe that they are financial gurus in their own right. But when it comes to financial jargon, we still feel at sea. Hence, we

I have culled a few jargon that are not run-of-the-mill yet are interesting at the same time.

Adhocracy: It is a management practice that promotes greater flexibility in the functioning of its organization, does not follow a strict set of rules, nor follows a rigid

hierarchical path, and encourages out-of-the-box thinking among its employees keeping the dialogue two-way. Such a practice can help a company adept and innovate at a much faster pace in an ever-changing industrial scenario.

Burn Rate: It is the rate at which a


new company spends its capital to meet its expenses before generating positive cash flows. In other words, it measures the negative cash flow of a company. The faster the burn rate, the sooner it is likely to exhaust all its cash reserves, after which it would either have to turn profitable or face shutdown.

Cutting The Melon: Basically, it is an additional dividend that the board of directors of a company declare every once in a while over and above its regular expected dividends. It is a way of profit sharing by the company with its shareholders when it has earned additional income.

Deer Market: Ever wondered what a market that is neither a Bull market nor a Bear market called? It is called a Deer Market. Basically it is a flat market that seems to be headed nowhere. In a Deer Market, investors wait on the sidelines for certain triggers or events which will signal the direction of the next move.

Elevator Pitch: It is a corporate slang for a concise and brief speech that covers all relevant details about a subject and drives home the point. This form of speech is used mostly by sales and marketing professionals while making their sales pitch because they need to highlight all the important points about their products and services without wasting much of their client’s time and hence the name. In fact, an elevator ride does not last more than a few minutes.

Force Majeure: It is a clause that is included in a contract between two parties wherein if either party is unable to fulfil the obligation of a contract due to unavoidable and

unforeseen circumstances beyond the control of the party such as floods, earthquakes, wars, etc, there will be no liability on that party. The term force majeure literally means a ‘Greater Force’ in French.

Green Shoots: Green shoots is a term used to denote bottoming out of an economic downturn with early signs of economic recovery. The positive economic data and growth is compared to the growth of a plant and vegetation after a prolonged period of drought

Halo Effect: A marketing concept that states that customers tend to favour certain products just because they have had a pleasant experience with some other product of the same company in the past is known as the halo effect. The term is synonymous with brand loyalty. A halo effect can sometimes be negative if a customer buys a product only on the basis of the name of the brand and not on its merits as even the best of brands can go wrong with newer products.

Icarus Factor: Sometimes managements embark on overambi-tious projects without assessing the logistics and the resources involved and by the time they realize that they have bitten more than they can chew, it is too late and the project fails miserably and all the money has gone down the drain. This is known as the icarus factor.

Junk Bonds: These are usually corporate bonds that offer very high interest rates but have poor credit safety ratings. While high interest rates may attract some investors, they should be aware that such bonds carry with them a high chance of default and they would be better off

putting their hard earned money in much safer instruments like govern-ment bonds.

Kickback: It is a form of incentive for an individual to deal via an intermediary wherein a part of the commission earned by the intermedi-ary is passed back to that individual. Kickbacks are mostly seen in the insurance sector where many agents return a part of the money received by them as commission on the premium paid by the customer. Investors should be vary of the fact that in return for a one-time petty gain they may end up sacrificing the long-term valuable service.

Lady Macbeth Strategy: A backstabbing strategy adopted by a relatively unknown third-party which puts in a friendly takeover offer to a company which is already facing a hostile takeover bid. However at a later stage, such third-party makes a U-turn and joins forces with the hostile bidder. It derives its name from the deceptive character of Lady Macbeth by Shakespeare’s famous play ‘Macbeth’.

Mothballing: The practice of keeping a production facility in working condition without actual production is known as mothballing. It is very effective in saving costs in industries where goods need to be produced on an as-needed basis and not on a continuing basis. The preservation ensures that there are no glitches in the machinery even when used after a long interval.

Nervous Nellie: It is a term used to describe an investor who is very risk-averse. Such an investor cannot handle the high-risks associated with the stock markets and hence a large



part of his portfolio is focussed on debt and fixed income instruments.

Open The Kimono: It means that companies should be open to sharing information and be transparent in their dealings. An open-kimono policy is a sign that a company has nothing to hide and is viewed very positively. Kimono is a traditional Japanese piece of clothing.

Paycation: Many a times an employee takes a break or a vacation from his/her main job and during that period, he/she takes up a second job or an assignment to earn an extra pay packet. This is known as Paycation. For example, a good dancer can go on a vacation for a brief period of time from a job and conduct dandiya classes during the Navratri festival and earn a fat sum in a relatively short period of time.

Quid Pro Quo: Unlike olden times when business relations were based on trust and mutual respect, nowadays businesses are based on the dictum of ‘you scratch my back, I scratch yours.’ In other words, a favour granted needs to be matched with an equal or nearly equal favour. This is known as quid pro quo.

Rain Check: If any product/item that a buyer wants to purchase is out of stock, then the vendor/seller promises the buyer that once the goods are available at any later date, the buyer will be able to buy it at the price he sought to buy the product. This is known as rain check. For example, if you go for a movie and the projector of the theatre goes bust, then the theatre management may give you a ticket for some other show at a later date to make up for the inconvenience.

Sweetheart Deal: A deal between two parties wherein the terms and conditions offered by one party to the other are so lucrative and appealing that it becomes very difficult for the other party to turn down the deal. Many a times such deals have a whiff of corruption to them.

Takeover Artist: A person or an organization that is constantly on the lookout for companies that are prime takeover candidates and are available at very attractive rates is known as a takeover artist. A takeover artist believes that such companies are in the right businesses but are doing badly primarily because they are not being managed properly and once he/she takes over the reins of this company, he can manage a 360-degree turnaround with the company and make it profitable. Who can forget the character of the rogue takeover artist ‘Gordon Geeko’ from the famous movie ‘Wall Street’ immortalized by the Hollywood actor Michael Douglas.

Unencumbered: It is a property or possession that does not have any loans or liabilities attached to it. In other words, it is a property that is free from any legal or financial burden. Such assets or properties are much easier to sell and command a premium to it. This is the reason why our grandparents and parents always advise us against buying property or assets on loan.

Vertical Integration: The expansion of a company into newer businesses but those which form a part of its main product chain is known as vertical integration. For example, a real estate company expands into production of cement, which it would otherwise have had to

procure from a different company is an act of vertical integration. Several companies are opting for vertical integration to reduce their depend-ence on external agencies and avoid hassles such as hold ups, price rises and to promote efficiency.

Whistle Blower: A person who reports certain illegal activities going on within his/her company to higher authorities or makes the information public is known as a whistle blower. Most of the times, a whistle blower reports illegal activities by his colleague or his superior to the top management. At other times, he may report the misconduct to external agencies. Being a whistle blower requires a great deal of courage because he stands to face the ire of his company and his co-workers and sometimes the punishment can be pretty harsh.

XD: It is a symbol which is used in many financial magazines and newspapers to denote that a company stock is trading ex-dividend. It means that investors buying shares after the XD will not be eligible to receive any dividends.

Yo-Yo: Yo-Yo is a slang used to describe a market which moves up and down frantically. In other words, the volatility in the markets is very high. It derives its name from the toy ‘Yo-Yo’, which we all remember playing with when we were small.

Zero-sum Game: Its is a situation where for one player to win there has to be a corresponding player who has to lose the game. The amount earned by one is exactly equal to the loss of the other. The best example of a zero-sum game is the futures and options markeT.

Contact: 022-39268088e -mail: [email protected]

www.nirmalbang.com

EQUITIES | DERIVATIVES | COMMODITIES* | CURRENCY | MUTUAL FUNDS# | IPOs# | INSURANCE# | DPRegistered O�ce: Nirmal Bang Securities Private Limited. 38-B, Khatau Building, 2nd Floor, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400001. Tel: 3926 8600 / 01; Fax: 3926 8610, 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. Through Nirmal Bang Securities Pvt. Ltd. *Through Nirmal Bang Commodities Pvt. Ltd. #Distributors investment in securities is subject to market risk. investment in securities is subject to market risk

The most intelligent strategy in Chess is to be ready with the next move. Similarly, currency trading involves moves that are a combination of knowledge and skill, backed by years of experience.Currency Derivatives Trading with us keeps you a few steps ahead, always.


Date: 19th Aug, 2011.Venue: Radisson Blu Hotel,

Indore

LEARN THE ART OFCOMMODITY INVESTING

LEARN THE ART OFCOMMODITY INVESTING

Exchange Partner

BeyondPresent

&

.


BEYOND MANDIVISITS INDORE

Even a novice can learn the tricks of

the trade if he makes the most of

expert guidance and timely advice,

say market mavens

As part of its investor education initiative, Nirmal Bang Commodities Pvt Ltd in association with Zee Business has been organizing Beyond Mandi, a series of investor education camps across the country since the past few months. One such camp was held on 19th August at Radis-son Blu Hotel in Indore .

The main aim of the camp is to educate traders and investors in the art of investing in commodi-ties by inviting industry experts to give sharp insights into the commodity markets, helping market participants to take right investment decisions.

National Spot Exchange Ltd (NSEL) MD & CEO Anjani Sinha and Nirmal Bang Commodities Pvt Ltd’s Head of Commodity Research Kunal Shah were the main speakers at the event. The duo discussed the immense opportunities in the commodities space and how traders and inves-tors can benefit from the rally in commodities.

Zee Business anchor and commodity editor, Amish Devgan started the event. He first introduced the panelists and later explained the objective of the commodity camp. He also threw light on the co-relation between the spot market and commodity mandi.

Anjani Sinha, the first speaker at the event said MCX has become one of the premier commodity exchanges in India. “For the benefit of investors, MCX has come out with various instruments like gold, silver, crude oil, copper, etc. The exchange further plans to launch new instruments in order to serve investors,” said Sinha.

MCX-promoted NSEL has also launched certain instruments for small and retail investors like the e-series, which have proved to be very beneficial, he informed. He said the products under the e-series allow investors to trade in small quantities electronically in the demat form. He added that products under the e-series are also beneficial to those who do not want to trade with futures on the MCX and also for those who are apprehensive about taking advantage of daily price fluctuations but wish to invest in commodities with a long-term perspective in mind.

“Investors can also convert their holdings into the physical form. Further, e-series is a good option for those who want to enter into an SIP by investing a small amount every month,” he said.

Referring to gold, a favourite among investors, Sinha said those who trade in e-gold can convert their holdings directly into jewellery by just paying making charges.

Anjani Sinha,MD & CEO of NSEL

Amish Devgan, Commodity Editor andAnchor at Zee Business

Anjani Sinha is the MD & CEO of National Spot Exchange Ltd (NSEL). He has over two decades of experience and deep knowledge of commodity derivatives and spot markets. His previous stint was with the Ahmed-abad Stock Exchange. Prior to that, he was associated with the Bombay Commodity Exchange Ltd, Interconnected Stock Exchange of India Ltd (ISEI) as well as Magadh Stock Exchange.


Kunal Shah, Head of CommodityResearch at Nirmal BangKunal Shah serves as the Head of Commodity Research at Nirmal Bang. He closely tracks precious metals, base metals, energy and agricultural commodities. He addresses seminars on the outlook of commodities across the country. He appears regularly on business channels. He is also sought by the print media and wire services, on a regular basis. Prior to Nirmal Bang, he was associated with Motilal Oswal Commodities Pvt Ltd, where he managed the research desk.

The commodity camp ended with a discussion between the panellist and the members of the audience. The next Beyond Mandi camp was held on 30th September in Hyderabad.

Kunal Shah took over the presentation from Anjani Sinha. Shah explained the reason behind bringing the commodity camp to Indore. He said, “Indore is a commodity hub and the people of this city do not need to be told about the importance of commodities as an asset class.”

He emphasized on the positive returns that investors have been getting in commodities since over a decade. Economic and political problems, coupled with rising global popula-tion, have resulted in the rise in commodity prices, he explained. “Another reason for this hike is the serious monetary debasing occurring across the globe. This ongoing rally is majorly an effect of liquidity in the commodities market,” he said

The commodities market has been gradually outperforming the equity market, which is evident from goings-on in the European and American markets. In 2009, a 21% drop in the volume of equity markets was seen. At that time, commodities markets were a major source of revenue for broking houses across the country.

He said commodities as an asset class are safer than the equity markets. This is because fluctuations in commodity prices are not as high as equities. He said the prices of commodity move in a cyclical manner, making it a trading asset class. However, it is important to control greed and fear. “Most of the times, the markets move in a direction that is opposite to general sentiment or consensus,” he said.

Investors need to realize that the commodities market is majorly a futures market and that the market discounts the future. One must not react to the current news. Instead, he must think whether the market has discounted this news or not, he said. “Investors and traders must study the fundamentals and then execute a trade.”

“Exchanges must not be blamed for the hike in commodity prices as this hike is due to fundamental factors,” concluded Shah.

Comparing e-gold to gold ETF, he said while investors have to incur an additional cost for an ETF which is levied by the fund house, the same is absent in the case of a product like e-gold. Also, e-gold is gaining immense popularity since it is easily convertible into physical gold and subsequently into jewellery. It can be stored conveniently too. Hence, many investors are systematically purchasing e-gold use it for a future marriage or similar occasions, he explained.

Elaborating on NSEL’s role in the agri commodities market, he spoke about the various licenses obtained from state governments, allowing the exchange to deal directly with farmers from all over the country, thus being a liaison between investors and farmers.

1.6603 in1.6603 in

QUAL

EQUITIES | DERIVATIVES | COMMODITIES* | CURRENCY | MUTUAL FUNDS | IPOs | INSURANCE | DP# # #

www.nirmalbang.com

We understand and value the equation of our relationships. Which is why, we offer our sub-broker/authorized person/remisier equal independence and

status that our partner merits.

That apart, we provide unparalleled knowledge and exceptional market analysis to keep you ahead of the curve, to the advantage of your customers.

After all, at NIRMAL BANG, it’s a relationship beyond broking.

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

Registered Office: 38-B, Khatau Building, 2nd Floor, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400 001. Tel: 39268600 / 8601; Fax: 39268610, Corporate Office: B-2, 301/302, 3rd Floor, Marathon Innova, Off Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400 013. Tel.: 39268000 / 8001 Fax: 39268010

AT NIRMAL BANG, YOU’RE MORE THANJUST A BUSINESS ASSOCIATE,YOU’RE AN EQUAL PARTNER.

Contact Person: Andhra Pradesh - P V Siddhartha: 9849029992; Chandigarh - Yoginder Singh/Gaurav Jolly: 8800396877/9468086545; Chattisgarh - Vidhya Bhushan Tiwari: 7898909299; Delhi, NCR - Aparna Kohli/Yogendra Singh: 8800396872/8800396877; UP - Utkarsh Garg / Yoginder Singh: 7607346002/8800396877; West Bengal, Bihar, Jharkhand, Orissa, North Eastren Region - Joydeep Mukharjee: 9163671502; Gujarat - Devarshi Bhatt: 7600014125; Surat - Om Prakash Mohata: 7600021601; Karnataka - Sivaram Ramkrishnan / Sridhar Ustala: Cell9686682492/8861208308; Kerala - Dennu Kuruvilla / Raghavan: 8129823502/8129823500; Mumbai - Gaurav Mohta/Nilesh Sonawane: 7738380299/7738380027; Maharashtra - Vikrant Darak: 7738380029; MP - Prafull Jain: 7869960088; Punjab, Himachal Pradesh, Jammu & Kashmir - Sukhwinder Singh / Inderpal Singh Madan: 8146666001/8146666006; Rajasthan - Sushil Shrimal: 9414043547; Jodhpur - Shyam Mundra: 9461268368; Udaipur - Dinesh Chhajed/Abhishek Pokharna: 9414166060/9414166662; Tamil Nadu - Thirupathy S: 9677128266

DISCLAIMERIn the preparation of the content of this magazine, Nirmal Bang Securities Private Limited has used information that is publicly available, including information developed in-house. Such information has not been independently verified and we make no representation or warranty as to its accuracy, completeness or correctness. Any opinions or estimates herein reflect the judgement of Nirmal Bang Securities Private Limited at the date of this publication/ communication and are subject to change at any point without notice. This is not a solicitation or any offer to buy or sell. This publication/ communication is for information purposes only and is not intended to provide professional, investment or any other type of advice or recommendation and does not take into account the particular investment objectives, financial situation or needs of individual recipients. For data reference to any third party in this material no such party will assume any liability for the same. Further, all opinion included in this magazine are as of date and are subject to change without any notice. All recipients of this magazine should seek appropriate professional advice and carefully read the offer document and before dealing and/ or transacting in any of the products referred to in this material make their own investigation. Nirmal Bang Securities Private Limited, its directors, officers, employees and other personnel shall not be liable for any loss (financial or otherwise), damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary and consequential, as also any loss of profit in any way arising from the use of this material in any manner whatsoever. The recipient alone shall be fully responsible/ are liable for any decision taken on the basis of this material. This magazine is prepared for private circulation only. Nirmal Bang Securities Private Limited, its affiliates and their employees may from time to time hold positions in securities referred to herein. Nirmal Bang Securities Private Limited or its affiliates may from time to time solicit from or perform investment banking or other services for any company mentioned in this document.

RNI Reg. No. MAHENG/2009/28962

“investor awareness is going to be our focus...

Documents