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Sunday, August 26, 2007

Leela Ventures going places

To offset the volatility in the Indian hospitality market and to fuel its growth momentum, Hotel LeelaVentures, one of the leading hospitality majors, is planning to make inroads into the growing international market.

The company has already set up sales offices in UK and Dubai, which will not only enable them to tap the growing international consumers, but also help them to explore opportunities of setting up base in these markets. Singapore is next on the radar for a similar exercise.

Indrajeet Banerjee, head, sales and marketing, Hotel LeelaVentures, told FE, “The expansions are moving at a rapid pace at Leelas. On the completion of our upcoming properties in the domestic market, we may come out with our first international property. The international market is growing rapidly and eventually we will have to spread our wings and compete with the top most international chains in the global field as well.”

The company had recently more than doubled its capex programme from Rs 1,200 crore to Rs 2,500 crore to fund its expansion plans that currently spreads across six properties.

The company has signed a general sales agency agreement with a tour operator in Singapore to set up its sales and marketing arm, which will be operational within a month's time, informed Banerjee.

“We have taken the first baby steps by opening regional offices in the markets of UK, Dubai and Singapore. We will now assess these markets and undertake the feasibility study and then take the decision,” he added.

It is coming up with properties in Gurgaon, Udaipur, Chennai, Hyderabad, Pune and Delhi.

Hotels in Gurgaon, Udaipur and Chennai will be up and running next year and Hyderabad and Pune hotels will be launched in 2009, and the one in Delhi will be up by 2010.

The company is also planning to capitalise on its existing network of more than 800 contractual contract corporate clients, and exploring the option of setting up convention centres to tap the growing MICE travel.

Banerjee said that the demand for luxury accommodation is growing at a phenomenal pace and lack of supply in the 5-star category has added substantially to the top line of most hotels in the luxury category by the way of an average 40% increase in average room rates (ARRs).

Gold price may touch $700 an ounce by year-end

Gold price may touch $700 an ounce by year-end as outlook for the US dollar remains poor supported by sub-prime worries, said Paul Walker, chief executive officer, GFMS. “The sub-prime issue is just the tip of the iceberg. It is symptomatic of a larger malaise in the system,” he said, on the sidelines of fourth India International Gold Convention here.

“Outlook for the US dollar remains poor and the US economy is highly leveraged on an increasingly problematic housing market. Also, interest rate spread between the dollar and euro has fallen over the last few months,” he said.

Growing investment appetites in safe haven assets due to economic and political slowdown may pull gold up prices, he said.

He also said that total jewellery fabrication is expected to grow by a hefty 17.6% at 875 tonne in Q2 of 2007 over Q1on fresh buying from India, China and the Middle East. Physical demand for bars can increase to 85 tonne in Q2 over 68 tonne in Q1.

On bullion supply-demand overview, Rajan Venkatesh, director, Scotia Mocatta, said that Bullion Banks Association will seek permission from Reserve Bank of India (RBI) to allow interbank trade in bullion. The association will send a formal request to RBI in the next few days. Also, the association will seek permission for introducing liability instruments such as gold certificates and accumulation schemes.

“The country will have ‘India Bullion Fixing’ spot price for gold soon. This will be basically ‘benchmark’ price of gold (both buy and sell price) set through a polling system, similar in line with London fixing. We are working on it and the retail price which will be helpful for jewellers and consumers,” Bhargav Vaidya, a leading bullion analyst said.

Indian ITES-BPO Industry NASSCOM Analysis

Indian ITES-BPO Industry NASSCOM Analysis

Cash flow investing - Chetan Parikh

In a great book “The Market Masters”, there is an insightful interview of value investor Andy Pilara.

“Like most young boys, Andy Pilara once dreamed of becoming a profes­sional baseball player. In fact, his love of sports is what originally sparked his interest in stocks. As a youth, he'd devour the sports pages of his home­town newspaper, the San Francisco Chronicle. Back then, the stock tables were part of the sports section, and all those funny-looking numbers fasci­nated him. Before long, Pilara found himself taking an investment class and developing a friendship with the instructor that eventually would pave the way to his future in the business.

After almost two decades of running his own value-oriented one-man boutique, Pilara joined RS Investments in 1993. While the firm has long been known as a growth-oriented shop, Pilara has made a strong name for himself as head of the RS Investments value group. Pilara, 63, runs three funds, all of which have been top performers in their respective categories, including the RS Partners, Global Natural Resources, and Value (formerly known as Contrarian) funds.

In describing his strategy, Pilara says he's a low-expectation investor who focuses on bottom-up analysis and cash flows. He follows small- and mid-cap stocks and has found some of his biggest winners over the years in some rather unusual places.

Kazanjian: Is it true that a friend took you to an investment course when you were in junior high school?

Pilara: It is. When I was 12 or 13, the mother of the catcher of my baseball team brought me to an investment class taught by Claude Rosenberg, who was the head of research at the time for J. Barth and Company. I really en­joyed it. In the summer, I would go down and walk along Montgomery Street in San Francisco, sit inside the brokerage houses, and learn as much as I could about this fascinating thing called the stock market. I made an investment a year or two later in a company called Yuba Consolidated. The stock went from $4 to $16 and I got hooked. My dad was a printer for 40­some years and I watched him sweat and toil with his hands. As I made four times my money in Yuba, I saw that you could make money investing without using your hands. During the class, I told Rosenberg I'd like to work for him someday. We kept in contact, and when I graduated from St. Mary's College, I called him and said I'd like to work for him, but had other things I needed to learn. Instead, I took a job with the Federal Re­serve Bank of San Francisco.

Kazanjian: What did you do there?

Pilara: I was a bank examiner. That job lasted about 13 months. I then went back to Rosenberg and said I'd like to work for him. He hired me to be a runner in the research department. It was a great experience. It was my first exposure to my most important lesson: the value of grassroots re­search. Getting out there and seeing companies, walking through the stores and factories, talking to customers, vendors, and competitors. After work­ing in the research department at J. Barth and Company, I became the first candidate for the firm's registered rep program in training to become a re­ tail salesman. I spent three years doing the things salespeople do. I then moved into an institutional sales position. J. Barth and Company special­ized in West Coast research. As institutional salespeople, we sold this re­search to investment management firms throughout the country. Among my accounts at the time were Capital Research (managers of the American Funds) and several hedge funds in New York. That job was really my MBA. I probably spent more time asking these managers questions than I did ser­vicing the accounts. It was especially insightful to be exposed to the Capi­tal Research process. One of my New York accounts was Steinhart, Fine and Berkowitz. Michael Steinhart was the guru of trading, and I learned a lot just watching him at work. I also learned a great deal about research from Jerry Fine.

At that time I knew I wanted to manage money. I started to get in­volved in trading and research at J. Barth and Company. I would try to go on research visits with our analysts. Salespeople don't do that any more. I also would sit on the trading desk.

Kazanjian: When did you make the move from selling to managing money?

Pilara: In 1974 I created a value investment management boutique called Pilara Associates. It was a one-man shop. Part of my education was picking up accounting books that I knew some of the Harvard MBAs used when they were in school. I educated myself in accounting and read some of the popular investment books of that era, including Phil Fisher's Common Stocks and Uncommon Profits. I would make notes about how Fisher ap­proached analyzing a company and work that into my own template. When I went out to visit a company, I had one sheet for all my production questions, one sheet for all my marketing questions, and one for all my fi­nancial questions. It helped me to organize and pattern myself after a very successful investor.

Kazanjian: When you started your own shop, why did you decide to focus on the value style and study value managers? Was it deliberate?

Pilara: I kind of grew up in the business in the era of companies like Am­pex and Memorex. When times were good, you made a lot of money. When times were bad, you lost a lot. That didn't fit my personality well. I'm a poor loser. I found the pain of losing far outweighed the pleasure of the gain, and became a value investor very quickly after some losing expe­riences. I really became a value investor two or three years before starting my own operation. I was a security analyst in the mold of Ben Graham, doing deep book-value work. It worked well, and 1974 was a great time to be a value investor and small-cap stock picker.

Kazanjian: So you originally were led to the value style because of your desire to lower the risk of investing in stocks?

Pilara: Yes. Emotionally I was trying to remove that pain of loss. As I say to my analysts, tell me about your serious money ideas. Tell me where we can invest big money. Don't tell me the latest fancy stocks. That's not what we're about. I really invested in plain-vanilla companies.

Kazanjian: Have you always been value-oriented in life as well, like many of the other value managers I've interviewed over the years, including several of those in this book?

Pilara: I'd say so. I grew up in an Italian-Catholic household that was both economically and religiously conservative. Marrying that background with my growth stock investing experiences made the transition to value easy.

I also made a transition in my "value process" from deep value to a focus on returns. At a point, I looked at my portfolios and while they were doing well, I asked myself if there was a common denominator to my losers. The stocks were cheap for a reason: They were poor businesses. I then started to investigate how I could improve my process. I still spend a lot of time on process. I went to Northwestern University, which in those days had something called Merger Week at the business school. It focused on cash flow return and how to create shareholder value. This really turned my head. I realized I could look at and evaluate businesses with this tool, using a discounted cash flow methodology. I moved from a process driven by PE and book value to a cash flow return methodology designed to im­prove results by avoiding poor businesses.

Kazanjian: What made you leave your own firm to join RS Investments?

Pilara: I met Paul Stephens in the early 1970s. He was one of the princi­pals at Robertson Stephens, an investment banking firm that also had a money management arm. He was building a very successful money man­agement business and I really liked the people at the firm. I talked to Paul in 1993 about joining the firm, and ultimately did in September 1993.

Kazanjian: You must have been a bit like a fish out of water, because Robertson Stephens was very much a growth shop at that time.

Pilara: Yes, and it still is. What interested me is Paul ran what was called the Contrarian Fund. Paul has always been a growth stock investor, but he has valuation disciplines and I felt comfortable bringing him my ideas. In 1995, I started the Partners Fund, which is our small-cap value product. A year later I launched the Natural Resources Fund. And in 1999 I became portfolio manager of the Contrarian Fund.

Kazanjian: Why did you start a natural resources fund?

Pilara: I've always been drawn to the natural resources area because I like putting my hands on a product. Unlike a technology company or retailer, once you have your mine in the ground, all you have to worry about is be­ing a low-cost producer. This area of the market lends itself to financial analysis. You can easily run discounted cash flow models with different commodity price assumptions. The natural resources sector has become a good diversifier to technology. Natural resources stocks are negatively co­variant to technology stocks and this makes them a good addition to one's portfolio. Plus, I think we're in a new area for commodities. Natural re­sources look like an even more attractive asset class today than when we started the fund.

Kazanjian: Why?

Pilara: I think if I were to ask a company one question, it would be how much capacity have you built in the last three years and how much do you plan to build in the next three years? Had investors asked that question in technology a few years ago, they would have saved themselves a lot of pain. There's been very little capacity added in most major commodities in the last three years. Commodity prices are primarily driven by supply, not by demand. We have major structural events going on, in which the two largest populations in the world-China and India-are moving toward a more middle-class society. When you move toward middle class, your con­sumption of basic materials increases dramatically. Commodities are the basic building blocks of a middle-class economy. I've not seen resource companies generating as much free cash flow as they are today. When I vis­ited all the paper companies in Canada four or five years ago, I started hearing talk about return on investment rather than the next big paper machine they were going to build. All of a sudden the energy companies are starting to talk about return on investment and so are the mining com­panies. The mindset and fundamentals of the resource business have changed. These companies are now terrific cash flow generators. Some of them realize they can get good stock performance if they can get their rates of return above their cost of capital.

Kazanjian: The natural resources group has done well in recent years. Is the sector still fertile ground for value investors?

Pilara: Yes, assuming you pick and choose your spots. We think that the re­sources sector has favorable supply/demand fundamentals for the next three to five years. China will certainly be a major factor on the demand side. Keep in mind that commodity stocks will always be more cyclical than the general stock market.

Kazanjian: Because of your affinity for this sector, do you keep large weightings in natural resources in all of the funds you manage?

Pilara: No, we are generalists. We do not have an affinity for any particular sector. We don't make big sector bets in the Partners and Contrarian funds. We try to have a diversified portfolio where we can get appropriate nega­tive covariance. That negative covariance is sometimes presented by the natural resources investments. But it's strictly a bottom-up process with an affinity for good business models available at a cheap price.

Kazanjian: You look for stocks with market capitalizations from $100 million to around $16 billion. That's a pretty wide universe to choose from. How do you find your investment ideas?

Pilara: We try to work with a focused list of 150 to 200 companies. This includes the 50 to 70 stocks in our typical portfolio. Our ideas come from various sources. Grassroots research generates ideas. We like to turn over as many rocks as possible. These company meetings also generate candidates for our portfolio.

Over the last 30 years I've had contact with a number of good compa­nies and executives that I want us to always follow. I call this our farm team. It wasn't created from a screen, but from my experiences observing these executives allocate capital.

In addition, because the market today is so short-term oriented, when companies miss earnings in one quarter it creates opportunities for us. I look for companies with good business models experiencing short-term problems. We take a three-year view, so we think of ourselves more as busi­ness analysts than stock market analysts. Nobody analyzing a business would get too concerned about one bum quarter.

Kazanjian: What's more of the company-specific analysis you do when deciding whether to buy a stock?

Pilara: Above all, what we're doing is trying to assess the business model. It's all about unit economics and returns on capital. If we're looking at a retail concept, we'll go look at the store model. How much capital does it take to open one store? If the company is leasing this store, we will capitalize the lease. Then we'll look at the store model in terms of cash flow returns. If it looks like a company has an ability to earn above the cost of capital, we'll do additional due diligence. This includes looking at 10-Q's and 10-K's.We also look at the annual meeting proxy letter. This tells you how management is compensated. We always pay attention to the difference in pay between the CEO and the executive vice president or the CFO, whoever is next in line. If the CEO is making $1,000,000 and the executive VP is making $250,000 a year, you're wasting your time talking to anybody but the CEO.

We read annual reports backwards. The first thing that's usually inside the back cover is the board of directors. All of this has become much more important in our post-Enron world. We want to read the footnotes. It's sort of like being a detective. The best compliment I received was when a CEO said to me, "I feel like I'm talking to Detective Columbo." Columbo asked the apparently inane questions, but at the end of the day he solved the murder. That's what we're trying to do: ask simple questions that will lead us to an understanding of the business.

The first financial statement you come to by reading the annual report backwards is the flow of funds statement. I want to marry that with the balance sheet. Residually we look at the profit and loss (P and L) state­ment, because earnings result from capital deployment. That's why it's fool­ish to concentrate on quarterly earnings. The quarterly outcome has been decided a year or two before by the capital deployed to drive those earn­ings. When we visit with a company, we spend most of the time on our first visit discussing capital deployment.

One of the other ways we'll make a judgment about whether we want to continue with the analysis is by looking at the company's enter­prise value and capital account. I define the capital account of a com­pany as the total assets less non-interest-bearing current liabilities minus cash. We also look at it on a gross basis. By that I mean we add back the accumulated depreciation on the property account. What I'm really trying to do is see what we are paying versus the company's imbedded capital. The other things we'll take a look at are EBITDA (earnings be­fore interest, taxes, depreciation, and amortization) and estimated free cash flow.

Kazanjian: It sounds like a fairly complicated process, especially for those without an accounting background.

Pilara: It's really not. It's not high math. What's noticeable is there's not a focus on the income statement. If I look at one thing on the P and L it is gross margins. We want to know whether this is a commodity business, or one in which the company has a proprietary advantage. If somebody tells me he's got a proprietary product and I see gross margins of 17 percent, he's fooling himself. As far as we're concerned, a proprietary product has growth margins north of 30 percent. But the key point for us is cash flow returns.

Kazanjian: You do all of this research before talking to management. Is having a discussion with company executives required before you'll buy the stock?

Pilara: Yes, and we can't do a management visit without doing our home­work first because we want to be prepared.

Kazanjian: Perhaps it would help if you gave us an example of a company you bought and the analysis that led you to this decision.

Pilara: Several years back we bought a company called Fresh Del Monte. It's a fresh produce company that sells Del Monte bananas and pineapples. I first met the company when it went public. Management came into our offices. I liked the fundamentals of the business, and I admired the way they managed their capital allocation process. This was all confirmed when I went down to see the company shortly after the IPO. I sat down with the chief operating officer and asked him about the capital allocation process. He had a stack of papers on his desk and pulled out a paper with numbers on the acquisition of a motorcycle. He had the capital they spent and the rationale for spending it. I was impressed. Also, this was a company with new management and I saw there would soon be a material improvement in the balance sheet. They were using free cash flow to payoff debt. The returns on capital were above the costs of capital and it met our criteria at that time on our cash flow model.

Kazanjian: What happened to the stock?

Pilara: Subsequent to the IPO it eventually went down to $4 a share.

Kazanjian: Did you buy in at the IPO?

Pilara: We made an investment on the IPO. The stock price declined after the company went public.

Kazanjian: Were you buying more as the stock went down?

Pilara: We purchased more as the stock declined and substantially in­creased our position when shares were trading below $6. It was obvious that banana pricing was deteriorating, but while this part of the business had the largest revenues, it made the smallest contribution to cash flows. All the while, the higher gross margin pineapple business continued to im­prove. At $4 a share the company had a market cap of $200 million and an enterprise value of approximately $500 million, with cash flows in the $150-$200 million range. At that level, I figured I was buying a good brand name for cash flow multiple under 3. Within the next three years, the company's earnings per share were almost as much as the lowest price I bought the stock at. It went from $400 million in debt to zero in two and a half years. The stock went from $4 to $28.

Kazanjian: When did you sell out?

Pilara: I sold the stock in the $20s. Our target price was reduced after fun­damentals in the pineapple business changed and it became a more com­petitive business.

Kazanjian: Do you have specific rules for when you sell a stock?

Pilara: We have a couple of sell disciplines. If a stock reaches our war­ranted value and there's been no change in the fundamentals, we sell. If the returns of the business start to deteriorate, we make a call to management. We mayor may not sell, but it raises a red flag. If returns are deteriorating and we become uncomfortable, as at Fresh Del Monte, we sell. If the com­pany makes a large capital acquisition, we discuss it with management. If we don't believe it's creating value, we will sell.

Kazanjian: Fresh Del Monte turned out okay for you, but my guess is the average investor wouldn't have held on as the stock went from $16 to $4. They probably would have sold out sooner, to keep a cap on losses. Weren't you tempted to get out?

Pilara: This was an unusual example. I would say that 90 percent of the time if a stock goes down 15 percent and the fundamentals haven't changed, we'll add to our position. I think the reason for our good perfor­mance is not because we've had a lot of home runs, but rather because we haven't had a lot of big losers in the portfolio.

Kazanjian: Does that mean that if the price drops 15 percent and something has changed for the worse you'll get out?

Pilara: If the fundamentals have changed, we get out. Part of our philoso­phy here is that we're low-expectation investors. I tell my guys, "If you fall out of a window, fall out the basement window. Don't fall out the top-­floor window." Most times we go into stocks with low expectations. We're all about losing less, not making more. For the most part, when one of our companies misses its earnings, nobody cares because it's not a high-­expectation stock.

Kazanjian: 'True, although you mentioned that most of the names you buy are hav­ing some short-term problems. I suppose there~ an investment risk that these prob­lems will get even worse


Pilara: No. Most of our companies do not have short-term problems. Oc­casionally we look at companies going through some short-term problem, but we're trying to buy after the short-term problem has been worked out. We're not playing turnarounds. We still want a company with a good busi­ness model.

Kazanjian: One of your huge home runs over the last few years was China Yuchai. What led you to that unusual company?

Pilara: When I took over the Contrarian Fund in 1999, China Yuchai was in the portfolio. This was the second largest diesel motor company in China. Unit volumes were increasing at a dramatic rate. The fundamentals looked very good, and the stock was under $2. Within 18 months, the company would almost earn our inherited cost basis.Yuchai was a "10-bagger." Home runs like that don't come along that often. I certainly don't expect them. I'm just trying to hit singles and doubles without striking out along the way.

Kazanjian: Do you pay any attention to PE ratios at all?

Pilara: Sure, we look at the PE, but we don't think it's robust enough to give us the information we need as a primary assessment of whether this is a business we want to own. The reason is that when you look at the price-­to-earnings, you don't solve for how much capital it took to generate the earnings, which is really important. Nor will it tell us about free cash flow.

Kazanjian: Given that, let’s say you're looking at a company selling at what you deem to be 50 percent below what it’s worth, yet it has a PE of 30 or 40. Would you still buy the stock?

Pilara: That really doesn't happen very often. But there are instances where a company is currently losing money, there is no PE, and it is selling below its business value.

Kazanjian: How diversified do you keep your portfolios, in terms of the number of holdings?

Pilara: In the small- cap portfolio, we own around 60 names, and approximately 50 names in the mid- cap portfolio. Our core position is 2 to 4 percent at cost.

Kazanjian: When looking at the mistakes you've made over the years when it comes to picking stocks, do the losers tend to have any common themes?

Pilara: The common theme is that we made a mistake in evaluating the business model and its sustainability. Sometimes you make people mistakes, but more often it's not properly assessing the business model.

Kazanjian: Carrying that further, what would you say is the biggest mistake indi­vidual investors make?

Pilara: Not understanding the business and unreal return expectations.

Kazanjian: What are some realistic expectations over the next 5 to 10 years, in your opinion?

Pilara: Less than a 10 percent annualized total return from the market. I say that because when you look back at market history, a significant part of total returns have come from the dividend yield. Dividend yields today are only 1.7 percent. If you look at the last 20 years, you had a period of de­clining interest rates and declining inflation. It's been the best of times for stocks. I do not expect interest rates and inflation to exert such a positive influence on equities in the next few years. I believe we're in a low return environment for most asset classes.

While Pilara still loves sports, and emphasizes that just about everyone else on his investment team does as well, golf is about the only game he ac­tively plays these days. In his spare time, Pilara collects photography, espe­cially post-World War I social documentary photographs, but maintains his real passion in life is the investment business. "I'm one of those guys who says, 'Thank God it's Monday,' " he adds.”

IPO investors selling post listing

Initial public offers are selling like hot cakes even during the recent turbulent times on the bourses, but it has become more of a short-term opportunity with close to 60 per cent of the companies seeing a sell-off by a large number of small investors within days of listing.

An analysis of all the IPOs that hit the bourses in the past one year shows that 43 companies witnessed a decline in the number of shares held by small individual shareholders. This is based on the pre-listing and the mandatory quarter-end shareholding data disclosed by the companies.

As many as 76 companies have come out with their IPOs since August last year and both pre-listing as well as quarter-end shareholding pattern is available for 71 of them.

According to market observers, short-term investors in IPOs tend to sell their shares mostly on the first day -- which is evident from the huge trading volumes recorded by the stocks on their first day on the bourses. Besides, they do not want to take a risk on whether the momentum generated by the IPO would continue, said a broker.

Brokerage firm Motilal Oswal Financial Services Ltd's chairman and managing director Motilal Oswal told PTI: "It is true that a number of investors have started behaving like passengers when it comes to investing in IPOs. They tend to put money in a public issue, book profit from the listing gains and then invest in another IPO," he said.

Incidentally, Motilal Oswal's IPO closed on August 23 with more than 27 times of over-subscription. It is the strong appetite for IPOs that helped the IPO sail through even during the turbulent phase on the bourses, said a broker.

According to data with stock exchanges, companies who saw decline in their small individual shareholdings include Development Credit Bank, Global Broadcast Network, Idea Cellular, Indian Bank, Lanco Infratech, Raj Television, Power Finance Corp, Sobha Developers and Tech Mahindra.

Besides, Info Edge India, which owns job portal, Hanung Toys, fashion goods firm House of Pearl, Mudra Lifestyle, Nissan Copper, AMD Metplast, Atlanta, Accel Frontline and Action Construction also recorded a decline.

Small retail investors are defined as those who hold shares worth up to Rs one lakh in a company. The retail portion of Motilal Oswal IPO was subscribed more than four times, while that of Indowind Energy Ltd also closed with over-subscription.

The post-listing selling of shares by small investors comes amid an average gain of about 23 per cent recorded on their first day of listing, followed by further upward rally in the following days when those investors rush to buy the shares who had been left out in the primary market.

Investors have benefited from the robust first-day gains over the issue price. Based on the individual first-day gains recorded by each stocks, an investor would have netted a gain of Rs 3.8 lakh on a portfolio of 100 shares of all the firms that came out with IPOs in the past one year.

Most of the companies that have seen sell-off by small shareholders recorded significant first-day gains over their issue prices, while some of those who ended with a discount also recorded sale of shares by them.

Shares of Fiem Industries, House of Pearl, Raj TV and Gremach Infra closed below their respective issue prices in the debut trade, but small investors seem to have pared their exposure in the following days after booking some gains.

Vishal Retail is the only company that has seen no change in the net holding of small shareholders, although the stock had recorded a gain of 178 per cent in its debut trade.

A total of 28 companies -- including Akruti Nirman, Cairn India, FirstSource Solutions, GMR Infra, Mindtree Consultancy, Pyramid Saimira, Fortis Healthcare and ICRA -- saw their base of small shareholders increasing after listing

Political Stability key to rally

Political instability saw the market turn nervous this week with the CPM raising hackles over the Indo-US nuclear deal.

The issue grew menacing with the CPM threatening to pull out of the UPA government and the Congress standing firm.

When all seemed lost and mid-term polls seemed almost certain, with the opposition BJP also readying itself, the CPM took a step back by saying that there was no intention of destabilising the present government.

The last day of the week saw Bombay Stock Exchange's Sensex finish 260 points or 1.84 per cent higher at 14,424.87. The 30-share index swayed 810 points during the week from 13870 to 14680.

National Stock Exchange's Nifty closed 75 points or 1.83 per cent higher at 4190.15. The 50-share benchmark swung 222 points during the week from 4040 to 4262.

Week over week, the Sensex gained 217 points and Nifty 82 points.

The rebound Friday, though due to short covering, has raised expectations of a move higher. “The market is looking exciting and volatility seems to have subsided,” said Sumeet Rohra, technical analyst, Tricolor India.

Drawing comparisons, he said Asian markets have recovered 10-18 per cent from lows whereas the Indian market just 2 per cent.

“If nothing deteriorates on the political front, our market will rally next week. Once we manage to cross 4262 on the Nifty, we will enter a strong bull run.”

Inflation for the week ended Aug 11 inched up to 4.10 per cent from 4.05 per cent in the earlier week. Analysts had expected the number to remain unchanged.

The scene on the global front was peaceful for the first four days of the week after the US Federal Reserve cut its discount rate to infuse liquidity into its system.

However, with Countrywide Financial Corp, the biggest US mortgage company, warning that the housing downturn could create a recession sent panic signals to investors.

Asian stocks too fell for the first time in five days Friday after Bank of China said it had almost $9.7 billion invested in US sub prime loans.

“Two major issues surrounding the Indian market are the sub-prime woes and political uncertainty. Though things look settled a bit, we are still not out of the woods. It will be a trading market next week in the range of 14000-14700 levels,” said Manish Sonthalia, vice president-equity strategy, Motilal Oswal Financial Securities.

It needs to be seen whether the Indian market will be able to sidestep these uncertainties. The outlook for next week is that of guarded

Rajendra S Pawar: Developing talent for global needs

Globalisation and the outsourcing boom have undoubtedly transformed India. From a developing country, we are today an emerging economy and a super power in the making. Over the last few years, India has clearly moved up the offshoring value chain — from being a low-cost destination we are today known as a knowledge hub to the world. The outsourcing boom has already begun to play a large role in India’s growth process. In the financial year 2006-07, the IT/ITES sector recorded export revenues to the tune of $39.6 billion, contributing 5.2 per cent of India’s GDP. The sector is expected to grow at a compound annual growth rate of 24 to 27 per cent and is poised to record exports of $60 billion by 2010.

But where do we go from here? Clearly, the growth paradigm of the developed world requires fuel of another kind — they need knowledge workers and skilled professionals. The developed world’s requirement of skilled professionals is only going to increase with time. By 2020, the developed world will have a shortage of 40 million working people, says a report, India’s New Opportunity — 2020, brought out by the All India Management Association, the Boston Consulting Group, the High Level Strategic Group and the CII.

The developed world is already finding it difficult to find talent. A recent study undertaken by global HR consultancy Manpower Inc, Talent Shortage Survey; 2007 Global Results, says 41 per cent of employers worldwide are having difficulty filling positions due to a lack of suitable talent available in their markets. The countries hit by this acute talent shortage are Costa Rica (93 per cent), the US (62 per cent), Japan (61 per cent), New Zealand (62 per cent) and EMEA (31 per cent). Talent shortage appears to be the least problematic in India (9 per cent), Ireland (17 per cent) and China (19 per cent), points out this survey. For the developed world, this is a serious matter. Manpower shortage can cripple economic growth. It can escalate wage rates, thereby reducing the competitiveness of these countries.

For India, the workforce shortages in the developed world pose a humongous opportunity. Despite the increase in jobs, educated unemployment in India is on the rise. By 2012, India could have an unemployed population anywhere in the range of 19 to 37 million, the largest share of which will be educated youth. By 2020, India is estimated to have a surplus working population of 45-50 million people.

With this surplus working population, it may appear that India has all it takes to bag the ‘40-million-jobs’ opportunity. However, the reality is far divorced from that. India is facing a peculiar manpower paradox — while it is a young country (over 50 per cent of its population is below the age of 25 years), even domestically it is facing a shortage of skilled manpower. The manpower crunch in India is more serious than we think. The reason — while urban India has witnessed a stupendous growth in jobs, in much of India children still drop out from school, girls are still not sent to school and youngsters are forced to take up jobs instead of completing their graduation. Despite 60 years of independence, our system does not ensure ‘education for all’. Out of the 200 million children in the age group of six to 14 years, 59 million children are not attending school in India. Even those who get educated are often not employable. Every year, 300,000 engineering graduates and approximately 2 million graduates pass out of colleges. But only 10-15 per cent of graduates are suitable for employment in offshore IT and BPO industries. Nearly two-thirds of the 300,000 engineering graduates need to be reskilled, so that they can get jobs in the IT industry. This lacuna in the education system had prompted us to launch programmes like GNIIT, way back in 1992.

Even those who find jobs need to undergo training and be re-skilled. Today, India needs to skill/re-skill 1 million working executives. Emerging sectors such as retail, banking, financial services and insurance are facing acute shortage of manpower. The banking industry, which currently employs 900,000 people, is expected to add 600,000 more over the next five years. But it’s unclear how this increased demand will be met. The shortage of skilled talent threatens to slow down the Indian IT and ITES industry, if the education system does not keep pace with the rising talent needs. As per estimates, by 2010 the industry will need approximately 850,000 additional skilled manpower.

Therefore, while there is a big opportunity knocking at India’s door, a concrete action plan is needed to convert it into reality. India needs a sharp focus on global talent development. This can be done by making education and vocational training more market-driven. If the education system does not transform itself, we may lose out to other BRIC economies, particularly China and Russia. In terms of sheer numbers, the opportunity lost can be huge. As per estimates, remote services could bring in $133-315 billion of additional revenue into the country every year and create an additional 10-24 million jobs (direct and indirect) by 2020.

The task of developing global talent can be approached in two ways — by companies/training institutes going global in order to develop talent in those nations, and by developing talent indigenously. At NIIT, we are working on both these models of global talent development. Given our vast pool of qualified manpower, track records in service delivery in sectors like IT, and lower costs, India appears poised to cash in on the 40-million-jobs opportunity. However, several initiatives on the part of the industry, government, NGOs and industry associations are required to convert the opportunity into reality.

Clearly, the existing education and training infrastructure cannot meet all the manpower needs. We need to begin from the primary schools in villages and cities, work with underprivileged children and encourage them to get educated. We need to change our education system and focus on job-oriented courses. Education and vocational training need to be aligned with market demand. This can be done by mapping the demand for professionals today and by projecting future demand and working towards enhancing the skill-sets needed for these jobs. At NIIT, we have tied-up with the ICICI Bank (NIFBIT) to train people for the banking sector and with IIMs to hone managerial talent (NIIT Imperia). We now plan to take this approach forward to other sectors, such as retail, banking, insurance and so on. While India has some natural advantages — it has the world’s largest English speaking population — countries like China are working overtime to cash in on the global labour crunch. A fifth of the Chinese population is learning English. British Prime Minister Gordon Brown has said that the total English-speaking population in China will outnumber the native speakers in the rest of the world in two decades.

Therefore, there is a pressing need to act fast. From an outsourcing hub, India needs to transform itself into a repository of talent that can feed global demands for skilled workforce. We need to focus on global talent development, so that an increasing number of Indians can find jobs overseas or in offshoring outfits, such as BPOs and KPOs. Given India’s track record, we have all it takes to meet the world’s global talent needs.

Via Business Standard

India's most expensive boulevard

Check out India’s most expensive ZIP codes. From the old world charm of Kolkata’s Alipore Road to Delhi’s hallowed Lutyens’ zone and Mumbai’s shore-hugging Napean Sea Road — it’s not really a surprise that these represent India’s most exclusive and most expensive addresses.

But when SundayET commissioned global real estate consultancy Cushman & Wakefield (C&W) with the task of tracking the richest residential streets in the top six Indian cities, what really flummoxed us were the mind blowing valuations that emerged.

So while the aggregate value of properties on Delhi’s creme-de-la-creme Amrita Shergill Marg at Rs 7,236 crore didn’t really raise eyebrows, the financial capital’s Napean Sea Road at almost double with Rs 12,375 crore did somewhat. Experts put this down to a large number of new high-end constructions, which have also helped Napean Sea Road to edge past supply in Mumbai’s other premium areas like Malabar Hill, Altamount Road, Breach Candy and Walkeshwar where very limited new construction is taking place.

But hold your breath. The biggest surprise was Hyderabad’s Banjara Hills which leads the pack at a whopping Rs 96,000 crore. The reason behind this surprise winner appears again to be a lot of new construction and mixed commercial and residential land use.

Moving east, the properties at Alipore Road were valued at a much conservative Rs 630 crore — Kolkata reflecting a similar non-availability of land for fresh transaction — sale or resale — as Delhi. In Bangalore, Lavelle Road emerged tops with a total value of Rs 202.5 crore, while the total value of properties at Chennai’s Boat Club were pegged at Rs 94.5 crore.

The methodology for the C&W study took into account only the premium apartment complexes and independent houses in Delhi, Mumbai, Kolkata, Chennai, Bangalore and Hyderabad.

The most expensive location in each city was identified based on the fact that independent units of the identified location would be of one of the highest values within the city. The sample size, however, is not representative of the total stock or supply of that area and is restricted to the most premium construction in a single location.

And what we found was that it’s not just the wide open spaces, dense green foliage or stately architecture that set the rich streets apart from all others.

It’s the nameplates on the mahogany engraved gates that make them the most sought after addresses in the country. From the Mittals to the Birlas, they all live here.

For Amrita Shergill Marg, the price range for properties varied between Rs 3 lakh/sq.yd to Rs 3.50 lakh/sq.yd. The elite neighbourhood with the residents such as Bharti honcho Sunil Mittal and Sanjay Singhal of Bhushan Steel, who bought his property in a record deal of Rs 137 cr last year, is one of the most sought after addresses in the country.

Located in the Lutyens Bungalow Zone (LBZ), the street comprises of colonial bungalows which are reflective of the British Raj in India. There are just 46 houses each approximately measuring 4840 sq.yds. Mumbai’s Napean Sea Road has been rising in its attractiveness over the past few years. The price has now been pegged at Rs 50,000/sq ft depending heavily on the type of building.

An interesting trend that emerged out of the study was that the uber rich in different cities lived differently and had a different view about ‘exclusivity’. So while in Delhi it is not hip to live in an apartment, in Mumbai’s rich street many luxury apartments had come up in recent years.

“Lifestyle always has something to do with the city that one lives in. So while a top corporate honcho or an industrialist in Delhi may like to own a posh bungalow or a farm house spread over a few acres, in Mumbai an expansive luxury apartment or penthouse facing the sea can be the choicest location.

In Mumbai, higher floors are more in demand whereas in Delhi preferred options are still bungalows or lower floors and they attract better prices as preferential location charges,” says Amitabh Bhattacharya, vice president, Omaxe, a real estate developer.

In Kolkata — the study found that old world charm is what makes Alipore the costliest residential boulevard post Independence. Residences of top business families such as the Goenkas, Singhanias, Jalans, Apeejay, the Mittals of Ispat Industries and the Bangurs share space on this road. There are a few prestigious apartment complexes too, which mostly belong to top corporate houses. In many cases, the profile of occupants at the apartments are either well known intellectuals or top brass in companies.

The price range in this area is at Rs 7,000/sq ft and there are approximately 300 houses ranging from 2,500 sq ft to 3,000 sq ft. Industry analysts feel that the lack of availability of large tracts of land makes Alipore such an expensive residential area.

“There has been no vacant land available in this area for a long time and the only building activity is of old business families renovating their old palatial homes. Besides, there are large properties owned by the Kolkata Port Trust, Railways and the Army. Other landmark properties include the National Library, Taj Bengal hotel and the Kolkata zoo,” industry sources told SundayET.

In Bangalore, Lavelle Road plays host to high profile residents and has become a status symbol. Bangalore Club - one of the most prestigious clubs in the city is located in the region – further adding to the wow factor.

About 50 premium apartments are located on Lavelle road measuring approximately 2000 - 4000 sq. ft. The price range for these apartments varies from Rs 12,000 to 15,000/sq.ft. In Chennai’s Boat Club area, the average current property value has been estimated at Rs 13,500/sq ft with an average area of 2000/sq ft/ apartment.

The survey further finds that excellent infrastructure and well-planned and organised development has led to Banjara Hills getting the top slot in Hyderabad. These are mostly plotted developments leading into independent bungalows.

There is also a good mix of commercial, retail and residential as opposed to earlier when the region had only plotted developments being predominantly residential. Over time, the location has come to gain significance as a destination for retail and commercial developments as well. The price is approximately Rs 60,000 per sq yard with an average area of 800 sq yards as the plot size.

“High-end posh streets such as Amrita Shergill Marg, Aurangzeb Road, Banjara Hills and Napean Sea Road have become top-end premium residential living areas for India’s select few. The prices of these premium locations are always moving upwards due to the limited availability.

The corporate glitterati generally tend to look for a piece of land or apartments in these areas as that would catapult them into an almost “Z” category residential zone,” says Mr Bhattacharya. And now with more and more NRIs, PIOs and even expats looking for prime addresses in India, Amrita Shergill Marg and Napean Sea Road are set to join the big league of top streets globally. Who needs Kensington, Beverley Hills or Upper East Side?

Via Economic Times

Bangalore is a expensive city!

The rush of MNCs to the global back-office headquarters Bangalore has placed the city among the world’s five most expensive cities in terms of hotel rents, even as India’s financial capital Mumbai has seen the biggest rise in rentals, says a survey.

Moscow remains the most expensive city with average room rates of £236.06 (Rs 19,433), compared to £220.57 in 2006, according to a survey by UK-based corporate travel consultant HRG.

Moscow is followed by New York city at the second slot (£180.29), Dubai (£166.73), Paris (£165.84) and Bangalore, which has an average room rent of £162.04 (Rs 13,341) for the first six months of 2007.

Interestingly, Mumbai has witnessed the highest rise of 30% in average room rates at £147.55 (Rs 12,147) over the last six months

Divi's Laboratories, JSW Steel

Divi's Laboratories, JSW Steel

US sub-prime crisis & Indian economy

Both global and domestic markets got a churn, by the US sub-prime mortgage defaults. Though the markets are recovering, helped by the interventions of central banks of major economies in the system, to ease the liquidity and credit crunch, experts are still taking a cue of the long term effects of the financial crisis.

The crisis having its origin in the US posed higher risk for itself. The problem started to take off in the early years of this decade, when housing prices began spiraling upwards in the US, residing on lower borrowing and lending rates. The latter, thus, boosted the demand for, and supply of new and existing houses. Tempting to capitalized the opportunity, many institutions offered home loans to borrowers with very poor or no credit histories, by charging higher than normal repayment levels. For the purpose, `sub-prime mortgages` were created - to attract investment banks and hedge fund owners, to bet big on this emerging aspect of the US economy. Seven times hikes in interest rates by the US Federal Reserves, since June 2004, however started to spoil the party and housing prices plummeted on rising borrowing cost. Consequently, sub-prime mortgage holders defaulted and headed to bankruptcy in March 2007.

Though the stock markets all over the globe, are now digesting the losses, the very first impact will be observed on the US economy. The resultant housing slowdown may hurt consumer spending, leading to an economic contraction. The economy, consequently, will grow at even slower pace than estimated before the mounting of losses. (Experts are mulling over the possibility of a recession)

The subsequent question can be raised, whether the global economy will really continue to grow at nearly 5%, amid the US slowdown. The managing director of the International Monetary Fund, Rodrigo Rato has said that, financial markets turbulence probably will curb global economic growth slightly this year. According to him, a downward correction is possible but will not be in a dramatic manner. He also accentuated in his recent interview that, the measures taken by the central banks of various countries to resolve the credit problems in the markets are `adequate and efficient`. Even so, it is noteworthy that the managing director altered that, in spite of the calmer mood in markets in recent days, it is still too early to draw definitive conclusions on the dimensions and effects of the crisis.

Indian economy, amidst the global slowdown however, is likely to remain intact from the spread of crisis, as the growth of the economy is rooted in its own ground. The attractive 8% plus growth is mainly driven by Indians, unlike other export-driven economies, which depend on US consumption.

Interest rates, more sensitive to any financial shocks are likely to come down in US with a faster pace than budgeted earlier. The emerging markets like India would be amongst the beneficiaries, as lower rates in major economies would make Indian assets more attractive. On the same ground, US dollar would be a big looser (Read: US dollar would depreciate against other currencies). A slowdown in US economy, weak liquidity and credibility might force investors worldwide to reduce their exposures in the world`s biggest economy.

The Indian economy, thus looks more safe as of now.

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Jyothi Structures

Jyothi Structures

India's Debt level on the rise, still behind China

The country`s economy is on a strong wicket going by the debt level while other Asian countries such as China, Hong Kong and Malaysia have witnessed a sharp rise in their domestic credit, a latest report says.

According to a Citigroup analysis, the ratio of domestic credit levels in the gross domestic products in six out of the 10 economies of Asia, excluding Japan, has risen. Major economies -- China, Hong Kong, Korea, Malaysia, Taiwan and Thailand -- have recorded the credit levels higher than their GDP in 2006.

"In six out of the 10 economies of Asia, excluding Japan, the domestic credit to GDP ratio has risen and six economies have domestic credit to GDP ratio in excess of 100 per cent," Citigroup analyst Marcus Rosen said in the report.

For India, the credit to GDP ratio of 64 per cent in 2006 is at a comfortable level and much less than that of other major Asian economies. The country recorded a GDP growth rate of 9.4 per cent for the financial year 2006-07.

In the United States, the credit to the GDP ratio is nearly equal. This means debt is balanced by the sum of market value of all final goods and services produced within a country in a given period of time.

In Japan, the level is over 200 per cent, indicating that the debt is double the GDP, while in the euro area it is 152 per cent, the report said.

The report highlights the progression of domestic credits as a per cent of GDP over 3 time frames - 1995, 2000 and 2006.

India has witnessed one of the biggest rises in credit of about 20.8 per cent from 2000 to 2006. Korea with over 29.2 per cent and China with 14.7 per cent are the other countries where big increases have been seen.

According to IMF staff estimates for 2007, India`s GDP is around Rs 32,810.86 billion, while China`s GDP is at 9,618.29 billion Yuan. The economy of Hong Kong, Korea and Malaysia stands at 1,829.236 billion Hong Kong Dollar, 792,894.66 billion won and 292.945 billion Ringgit respectively.

Besides, America`s GDP is estimated at USD 11,663.241 billion and Japan`s at 518,100.98 billion yen for 2007.

On the other hand, India has seen the degree of operating leverage (DOL) rise over the past 24 months as capex has taken hold but returns from the investment have not yet flowed through to the bottom line.

DOL refers to the ratio of fixed to variable cost ratio. The reason behind the rise in operating leverage in Asia, including India, is due to the success of outsourcing.

Companies in the US, Europe and Japan have a tendency to outsource the manufacturing part of their businesses to the developing countries. The emerging economies take on more fixed cost while holding on to the variable cost, that is, marketing and R&D

Rising rupee, interest rates affecting biz sentiments: FICCI

Notwithstanding a good monsoon that portends well for rural demand, the other two key drivers of the economy -- exports and investments - are showing signs of moderation as a result of successive rise in interest rates and appreciating rupee, industry body FICCI said on Sunday.

"The adverse impact of rising interest rates and appreciating rupee has engulfed many more sectors and many more firms," FICCI said in its Business Confidence survey.

The chamber said the assessment made by the participating companies about industry and firm-level performance shows that the industry is in the midst of a moderate slowdown.

Pointing out that a rising rupee and hikes in interest rates have affected the sentiments at ground level, the survey revealed that industrial growth was a matter of concern. "Unless we take actions to reverse this situation we may face a situation of slowdown in growth," it said.

The Indian currency has risen more than 10 per cent against the US dollar in the past one year, while the Reserve Bank has raised key interest rates six times in the past two years to cool inflation.

Of the participating companies, 58 per cent respondents reported that their current industry performance is 'moderately to substantially' better vis-a-vis last six months. In the last survey, 68 per cent had reported likewise.

With regard to firm level performance, 64 per cent of the companies reported current performance was 'moderately to substantially' as compared to 73 per cent in the last survey.

As a result of the weakening performance both at the industry and at the firm level, the Current Conditions Index computed by the chamber has nosedived from 70.4 in the last survey to 65.0 in the present survey.

However, on expectations regarding performance during the next six months, the survey revealed that respondent's outlook for the economy has improved as compared to last survey. The results related to expected performance at the industry and firm level were similar to the results obtained earlier.

The survey revealed that demand condition in the economy was weakening. Nearly 30 per cent of the companies have reported 'weak demand' as a constraining factor.

"Certain segments of the industry have been forced to cut down on production in the wake of weak demand," it said. In the last survey, 72 per cent of the participating companies had reported a capacity utilisation level of more than 75 per cent, which has come down to 60 per cent.

While the outlook for investments and exports have taken a hit, some moderation in terms of expectations regarding profits and employment over the next six months is also visible, the survey said, adding services sector have emerged as the most apprehensive about its near term performance.

In case of services, 59 per cent of respondents reported 'moderately to substantially' better performance as against 75 per cent in the last survey, while in heavy industry the figure has come down to 57 per cent in the current survey as compared to 66 per cent in the last survey.

As regards performance over the next six months, while 80 per cent of the respondents from services sector were optimistic about their performance during third quarter of 2006-07, this proportion fell to 67 per cent in quarter four 2006-07 and has further come down to 59 per cent in the current survey.

Mkt Review: Pull-back unsustainable

While the global markets stabilised last week, our markets continued to witness considerable volatility, thanks to the Left/Congress stand-off over the nuclear deal.

The indices eventually managed to post gains after four weeks of losses. After having dropped over 9 per cent (1,424 points) in the preceding four weeks, the Sensex last week gained 2 per cent (283 points). The index swung in a wide range of 809 points. From a high of 14,680, the index dropped to a low of 13,871, only to bounce back and end at 14,425.

However, the pull-back was on low turnover (the daily traded average turnover for the last week dropped to Rs 4,343 crore on the BSE as against Rs 5,213 crore in the preceding week) and hence doesn’t look convincing and may be unsustainable. On the positive side, the Sensex last week did not break its recent low of 13,780. If the index is able to cross 14,800 on the upside, the rally then may stretch up to 15,500.

This week, the index is likely to face resistance around 14,735-14,830-14,925, while support on the downside would be around 14,115-14,020-13,925.

The Nifty from a high of 4,263 touched early in the week tumbled to a low of 4,040 -- down 223 points. However, the index finally ended the week with a gain of 82 points at 4,190.

The short-term trend for the Nifty remains bearish as the index has closed below its short-term moving average, that is 20 days (4,309) and the short-term moving average is currently below the mid-term moving average, that is 50 days (4,358).

The long-term moving average, that is 200 days is currently at 4077.
The short-term trend for Nifty may change to positive as and when the index crosses 4315, above which, the index can rally up to 4530. A break of 4000-4030, in the near-term would trigger a fresh round of weakness.

This week, the index is likely to face resistance around 4275-4300-4330, while the support is around 4105-4080-4050.

Mid-term elections will derail growth

Jittery over the growing political crisis, leading CEOs have gone on record to place their concern that mid term elections would disrupt the “growth rhythm” achieved by the economy.
In a quick survey of 235 CEOs done by Assocham Business Barometer (ABB), 91% CEOs felt it made no sense to face another election on the nuclear deal issue, which they felt was actually good for the country.
Apprehensions about government stability would affect economic activity at domestic and international level and industry was also against spending huge sums of money on conducting elections, which would cost exchequer more than Rs2700 crore.
The survey was done between 22- 24 August 2007 when key UPA supporting parties threatened to pull the plug on the Government if it went ahead with negotiating safeguards with IAEA.
* 93% CEOs were of the opinion that the amount spent on conducting mid-term elections would be a total waste, serving little or no purpose.
*73% said snap polls would derail GDP growth rate which averaged 8.6% in last three years.
* 68% admitted that they realized implications of the threat to the Government only at a later stage, for they were dismissing earlier warnings as mere political posturing.
* 67% felt any new government would like to ‘revisit’ Plan Polices which may affect growth of industry.
* Few infrastructure projects have been initiated by present government including ultra-mega power projects, modernization of airports, rural electricity initiatives Rajiv Gandhi Vidyutikaran Yojana, Bharat Nirman and Delhi-Mumbai Industrial Corridor Project: 74% felt these would get derailed with change in Government.
* Economic reforms like aligning indirect tax structure of economy under a single system of Goods and Service Tax (GST) by FY 2010 were indispensable to maintain fast and sustained growth of the economy: 86% felt that to successfully bring about reforms, government must complete its term.
* 70% expressed concern over potential damage to negotiations with international trading partners.

Daily Technical Futures - Aug 27 2007

Daily Technical Futures - Aug 27 2007

Trace and Track Report - Aug 27 2007

Trace and Track Report - Aug 27 2007

Weekly Technicals - Aug 27 2007

Weekly Technicals - Aug 27 2007

Reliance Retail.. shut ..

The new supermarket was slated as the shape of retail to come in globalising India. Now shutters covered its windows, staff meandered outside and customers picked final bargains before its closure.

The store, open just two months, was the latest to close after Uttar Pradesh told Reliance Industries to shut its supermarkets, citing law and order problems after protests from small traders and political activists.

"In the street markets it's not hygienic, their weights don't work and there's no air-conditioning," said V.P.S. Nanda, a stationery shop owner whose bags bulged with groceries in the fading minutes before the store's temporary closure.

"Everything is so convenient here," he said, pondering a while for the right phrase. "That's the word -- convenient."

The closure of 10 Reliance stores by Uttar Pradesh highlighted the choppy progress of India's modernisation, beset by political wobbles and fears for the livelihoods of millions of Indians who work in street markets or small shops.

Following Thursday's closure in the state capital Lucknow, authorities ordered the closure of more stores in Noida and Ghaziabad -- towns on New Delhi's outskirts that are symbols of a middle-class consumer boom -- because of security concerns.

The stores could be shut for up to 60 days as authorities look into law and order problems. A Reliance official, who asked to remain anonymous, said plans to inaugurate more supermarkets in the states had been suspended for now.

It was a blow for Reliance Retail, a subsidiary of top conglomerate Reliance Industries Ltd and which plans to spend $5.6 billion on hundreds of stores and already has more than 250 Reliance Fresh grocery stores.

The potential profits are huge. About 3 percent of India's market is organised retail, a tiny amount compared with other large economies.

India's $350 billion retail industry could double in size by 2015. Companies like Wal-Mart are also keen to enter the market even though foreign retailers are hampered by laws restricting multibrand retailers to cash-and-carry and franchise operations.

Wal-Mart Stores Inc. and Bharti Enterprises have signed a deal to set up wholesale outlets jointly, but the project has also seen protests.

Tesco and Carrefour have eyed the market but are waiting for changes in the investment law.

New supermarkets have sparked protests in other states, like Jharkhand, Madhya Pradesh and West Bengal.

Sonia Gandhi, head of the Congress party which heads a fractious centre-left coalition, has expressed caution about allowing foreign retailers into India.


Some analysts said the closure, announced by Uttar Pradesh Chief Minister Mayawati, was dictated by fears of losing votes from traders and some farmers.

"It is clearly a populist, political move," said Raman Mangalorkar, a principal at consultancy AT Kearney. "It sends a very bad signal to investors."

Investors are worried that, while Uttar Pradesh is a poor state and not India's biggest market, it could spark a chain reaction among left-ruled states like Kerala and West Bengal.

There have also been reports of some states seeking to impose limits on the size and number of stores, which would crimp profits of retailers who need economies of scale.

"Foreign firms like to have clarity on policy and control of their operations, so they may hesitate to commit now," said Soumya Palchoudhuri, retail industry manager at Ernst & Young.

"The bigger question for them is really: how much of the magic is still there in India?" he said, echoing analysts who say the window for foreign retailers might soon close.

Via Reuters

Trader's corner

Anyone who has dabbled with charts would agree that one of the easiest tools available in technical analysis is the moving average. It gives buy and sell signals at the apt juncture that can be used by traders and investors alike to take or pare positions.

Let us start by defining what a moving average is. As we all know, an average is the middle value for a set of data. Since the value of the moving average line is calculated afresh for a pre-determined period with the latest data, the average “moves” over time. The moving average line helps in smoothing the data and pointing towards the underlying trend in the chart.

There are numerous types of moving averages. The more popular methods are the simple moving average and exponential moving averages (or exponential weighted moving averages). To construct the exponential moving average, the latest data is multiplied by an exponential percentage thus giving greater weight to the most recent data. Other ways in which moving averages can be constructed are by assigning weights governed by the volume or volatility over the time range.

The oft-used moving averages are the 10-day moving average, the 21-day moving average, the 50-day moving average and the 200-day moving average. Buy signals are generated when the stock price crosses above the moving average from below after a down trend, whereas the stock price falling below the moving average from the top after an uptrend will be a sell signal.

Many analysts use multiple moving averages and use the cross-over of these averages to generate or to confirm buy and sell signals. Moving averages work well in trending stocks. But they are difficult to implement when the stock is moving sideways or not trending. So, before attempting to incorporate the moving averages the traders should first identify the stocks that show some trending characteristics.

Index Outlook

Sensex (14424.8)

Global markets partied last week as the spectre of a financial crisis started dissolving in to the background. The Sensex was, however, held back from joining in the celebrations thanks to the pandemonium on the political front. The Sensex managed to close the week in the green though its mid-cap and small-cap peers closed the week with losses.

Subdued volumes and deteriorating breadth recorded last week indicate that investors are biding their time, waiting for the volatility to subside. Cash market sales by FIIs also petered off as the week progressed. The focus will once more turn to the derivative market next week as the long-drawn August series draws to a close. Low Nifty put-call ratio points towards squaring of short positions and the oversold nature of the market.

The Sensex went nowhere last week, charting a symmetrical triangle pattern. The 200- day simple moving average line is acting as a buttress in dips. The oscillators in the weekly chart are rather precariously poised. But the 10-week ROC needs to move deeper in to the negative zone to signal the onset of the third leg of the correction that commenced at 15863. The daily oscillators are implying a short-term rally in the offing.

As explained last week, the 13780 level from where the Sensex reversed the previous week is a significant intermediate support. If the 13 per cent down-move in the Sensex is just another bull-market correction, it can halt at these levels. The strength in the subsequent rallies should help us know if the correction has already ended or if it will have more ‘legs’. Investors need not fret as long as the index rules above 13140.

The trend would continue to be indecisive in the short-term with the Sensex confined to a range between 13800 and 14800. The Sensex will attempt to move higher to 14680 or 14882 next week. A close above 14882 is required to make the short-term outlook positive for the Sensex again. Supports for the week would be at 14063 and then 13759.

Nifty (4190.1)

Nifty managed to hold above the near term trough at 4002. The 200-day moving average positioned at 4076 needs to be closely watched now. A close below this line will weaken the bulls considerably.

A minor rally can be expected next week to 4240 or 4320. A close above the second target would signal that the short-term trend has turned positive again. Conversely, a reversal below 4240 would drag the index lower to 4098, 4003 or 3895.The medium term outlook is neutral and clear direction would emerge only when the index moves out of the range between 4000 and 4300.

Global Cues

Global markets were firmly on the road to recovery last week. Some Latin American markets such as Brazil and Chile have already retraced almost 61.8 per cent of the correction. Among the Asian countries, Hong Kong and China led the upward surge. Other Asian markets in Japan, Taiwan, Thailand, Indonesia, Korea etc. put up a more subdued performance.

Europe is still struggling. Dow staged a good fight-back last week. It is poised just below the resistance at 13500. A move beyond would mean that the correction has been brought to a close

Prime Focus: Buy

An investment can be considered in the stock of Prime Focus, a company focussed on the post-production and visual effects segment of the media sector. At the current market price of Rs 770, the stock trades at about 26 times its 2007-08 earnings per share.

Although absolute valuations are on the high side, limited competitive activity in the domestic visual effects space and a steady demand environment promises greater earnings visibility compared to other players in the media sector. Its presence in a niche and high-margin business is likely to make the stock a good exposure within the media sector.

While the stock has weathered the recent market correction well, it remains vulnerable because of its relatively small market capitalisation. Investors can consider taking exposure in small lots and use declines linked to market weakness to accumulate the stock.

Buoyant domestic operations

Corporatisation of the film industry, increasing production budgets, experimentation by film-makers and the changing tastes of Indian audiences in favour of action/fantasy/suspense films as against the traditional family drama are factors that have created a fine setting for the post-production and visual effects industry. With an integrated presence across post-production activities and a geographical spread across markets, Prime Focus is well-placed to cater to this trend.

Since its IPO in May 2006, Prime Focus has beefed up its domestic operations. It has completed the expansion of its Mumbai facility and opened a new facility in Chennai. It has also acquired a post-production outfit in Hyderabad. It is now well-placed to cater to demand from the Tamil and Telugu film industries, which are equally prolific in film releases.

There is a high degree of visibility on the demand side. While the fortunes of Bollywood may have changed in 2007, with few films making it in the box office, Prime Focus has continued to record a robust growth in revenues and profits. Being in the post-production business, the company does not bear the risk of the content gaining popularity with an audience. It can also count on steady orders from the Indian film industry, which churns out hundreds of movies a year, irrespective of how the economy does, as the demand for entertainment remains inelastic. The frenetic activity in broadcasting and the rising trend in television advertisement spends also augur well for its business.

Prime Focus’ stand-alone revenues (numbers include only its domestic operations) have been growing at a brisk 40-50 per cent in recent quarters. The trend is likely to sustain, with the South beginning to make a more active contribution to its revenue stream. However, with Prime Focus’ acquisition of the London-based VTR and its associated outfits, its Indian operations now account for less than 30 per cent of its consolidated revenue of nearly Rs 200 crore.

Overseas operations

Part of the offer proceeds helped fund Prime Focus’ acquisition of VTR, a 20 million pound post-production outfit. The loss-making unit was subsequently re-structured. Within seven months of its takeover, Prime Focus has managed to turnaround VTR. The impact of the acquisition has boosted its overall revenues, but has temporarily impacted profitability, with consolidated margins hovering in the 30 per cent range compared to the high 50s earlier. However, Prime Focus hopes to initially get at least 10-15 per cent of VTR’s projects outsourced to India where it can undertake the same work at a fraction of the cost. This could improve VTR’s margins, even as the outsourcing order flow adds to the company’s Indian revenues.

The company has managed to integrate its acquired facilities and has completed its first project with the film “28 weeks later”, a sequel to the horror/thriller movie “28 days later”. It is now working on a couple of more features with VTR. An improvement in VTR’s profitability will enhance its consolidated margins and earnings as well.

Gaining access

Even as it consolidates its newly acquired international business, Prime Focus is scouting for other acquisitions and has an eye on Los Angeles, as it will give it access to the biggest market for post-production.

The company is also considering the inorganic route to growth for its ready access to international clients.

As special effects and editing require a close interaction with the client, it makes sense to operate through a company that already has an established presence in the market.

A presence in overseas market will strengthen the demand for Prime Focus’s services domestically, especially from international players such as Fox and Walt Disney, which are increasing their focus in India.

While international operations will help expand its revenue base considerably, the domestic operations are likely to contribute the most to growth in the near-term.

Post-production services in overseas market are not as lucrative as they are in India, because of the higher employee costs.

Also, being a more mature business, it is likely to witness a more sedate revenue growth than in India where the use of visual effects is in a nascent stage. Therefore, any slowdown in growth in domestic operations will impact consolidated numbers.

Further, inorganic growth will also bring with it the usual risks of successfully integrating operations.

Stock ideas for the medium term

ICICI Bank (Rs 834): Sub-prime concerns have trimmed valuations for this stock to a level that is at a discount to other private sector peers. A focus on retail lending, where growth prospects are strong and the possibility of value un locking from subsidiaries (insurance, venture capital, investment banking) with bright prospects are the positives. PE multiple: 28 times (trailing 12 month earnings).

NTPC (Rs 163): The stock offers a good exposure to power generation, which is set to see accelerated government spending over the next few years. One of India’s most efficient and low-cost power producers, the company has ambitio us capex plans lined up for the next five years. Contribution from hydel power and backward integration into coal also have the potential to improve margins in the next three years. PE multiple: 18 times.

Container Corporation (Rs 2,017): A leading player in the logistics solutions business, Concor’s earnings have direct linkages to domestic business activity as well as India’s foreign trade, both of which are on a strong wi cket. The company will be a key beneficiary of increased capex by the railways over the next five years, having steadily increased its share in domestic traffic even as the contribution from logistics linked to cross-border trade has stagnated. PE multiple: 18 times.

Punj Lloyd (Rs 246): The company is a unique turnkey solutions provider with a focus on oil and gas infrastructure, which is set to see substantial investments in the years ahead. Contributions from newly acquired subsidiaries to the o rder book, renewed focus on infrastructure solutions and recent strategic investments to strengthen its position in the new offshore platform business may drive strong earnings growth. PE multiple: 31 times.

Colgate Palmolive India (Rs.353): The company has been expanding its market share in oral care at a time when offtake for oral care products is showing a healthy growth, driven by demand from non-metros. The company’s earnings gr owth may outpace most other FMCG players over the next couple of years, as newly expanded capacities at Baddi(HP) reduce tax incidence. An improving product mix as a result of Colgate’s foray into personal care products is also positive for margins. A capital reduction proposal may improve the stock’s dividend yield and return parameters. PE multiple: 20 times.

KEC International: Buy

The capex/replacement spending in the power sector across various countries augurs well for the earnings growth of KEC International, which has a presence in 15 countries globally. The planned merger with two group companies is likely to provide synergy in operations and capture market share in the telecom infrastructure space. With almost zero debt and high return on equity, the company’s financials also appear superior to a number of peers in the transmission and distribution (T&D) segment.

Given the current market volatility, investors can buy the stock in small lots and use any dips to accumulate. At the current market price of Rs 542, the stock trades at 17.7 times its trailing earnings on a standalone basis; it trades at a post-merger valuation of 12.9 times its expected earnings for FY-09. Invest with a two-three-year perspective, so as to capitalise on the likely order flow from the Government spending in this sector in India and the T&D upgradation in the Middle East and North African (MENA) markets.

Strong standalone

KEC International’s business operations have been robust over the last two years, with the return on equity surging from 26 to 48 per cent as a result of increased profitability in domestic and overseas projects. The company was one of the early movers in key markets such as Oman, Ethiopia and other West Asian and African markets. As a result, international orders account for 75 per cent of its order book of Rs 3,250 crore.

The company has also capitalised on the domestic scenario by moving into rural electrification and distribution segments. KEC’s execution period on an average was about 14.5 months in FY-07.

The rising share of distribution projects in the company’s order book is likely to lead to a further reduction in the execution cycle period.

Further, at the global level, with the Gulf Co-operation Council (GCC) and the MENA spending heavily to meet their power demands, KEC is likely to emerge as one of the key beneficiaries, as there are strong pre-qualification requirements in the region, leaving little room for new players. KEC’s joint venture with the US-based Power Engineers has enabled the company to foray into the US and Canadian markets.

The replacement capex in the T&D space expected in these countries throws up further opportunities for KEC to expand its order book.

merger Positives

The company has approved a plan to merge two group companies RPG Transmission (RPGT) and National Information Technologies (NITEL) with itself.

There could be some long-term benefits for KEC through these amalgamations.

RPGT undertakes power transmission and rural electrification projects — a business similar to that of KEC. This listed company had a turnover of over Rs 370 crore and net profits of Rs 25 crore in FY-07. There are strong positives in this merger. One, KEC and RPGT share similar operations.

The merger is likely to bring about efficiencies in operating costs and create a larger tower manufacturing capacity.

Two, RPGT has a larger domestic presence with active participation in rural electrification projects. KECs order-book is increasingly tilted towards international orders.

The combined order-book of Rs 3,800 crore (excluding Rs 1,200 crore of L1 orders) would now be more diversified, thus mitigating the risks from foreign exchange transactions. Further, post-merger, KEC would have a bigger balance-sheet that would enable it to comfortably bid for projects awarded through the Build-Own-Operate-Transfer (BOOT) model.

The other group company, NITEL provides turnkey solutions in the telecom infrastructure space.

The company, with a turnover of Rs 117 crore in FY-07, recently won orders under the Universal Service Obligation (USO) for setting up telecom towers in three circles at a cost of Rs 100-120 crore.

The company would receive quarterly subsidy and reimbursement of operational costs for five years, post which it would charge the telecom utilities commercial usage rates.

Given the steady revenue stream expected from this business, coupled with the strong growth potential for telecom infrastructure business (on the back of outsourcing of such operations by utilities), integration of this company with KEC appears to be a positive diversification move.

Further, usage of common facilities (for tower manufacturing) may also result in economies.

Merger scheme

Under the scheme approved by all the three companies, KEC would issue four shares for every nine held by the shareholders of RPGT. This is fairly in line with RPGT’s market capitalisation on the date of approval.

Similarly, shareholders of NITEL would get two shares of KEC for every 15 shares (of Re 1 each) held by them.

Further, as KEC itself holds shares in RPGT, this investment would be transferred to a new company called MP Power Line that would be subsequently listed. Existing shareholders of KEC would receive two shares of KEC for every 25 held by them.


As most of the spending is done by state utilities and the Centre, any slowdown in order flow as a result of political changes would affect KEC’s revenue growth.

However, the company’s geographical diversification is likely to provide some support to revenue flow against slowdown in one region.

Client concentration risk is high in the T&D business and timely recovery of dues could be a challenge, impacting cash flows.