Banks, cement-construction cos lead fortnightly rally

The market rallied last fortnight breaching the 12,000 mark for the first time since 18 May on consistent FII inflows and falling crude oil prices, which dipped to a five-month low.

The Sensex rose 231.57 points (or 1.96%), to end at 12,009.59 in the fortnight ended 15 September 2006 from a closing of 11,778.02 on 1 September 2006. However, the BSE Sensex plunged 368 points on Monday (11 September), due to heavy selling by FIIs in the derivatives segment.

For the period between 1 September and 15 September 2006, banks, cement and construction companies were the biggest gainers in the A group on expectations that interest rates may not rise in the near term and that the cement prices will go up due to an increase in construction activity post monsoon.

The BSE's banking sector index, the BSE Bankex, rose 251.57 points, (4.67%), to close at 5,635.43 on 15 September from 5,383.86 on 1 September. The major gainers among the banks in the A group were Oriental Bank of Commerce (up 16.69% to Rs 226.5), Canara Bank (up 14.35% to Rs 260.05), Corporation Bank (spurted 14.12% to Rs 358.25), Indian Overseas Bank (soared 10.24% to Rs 105.5), Vijaya Bank (advanced 9.95% to Rs 51.90), and Union Bank of India (rose 9.57% to Rs 127.65).

Among banks in the A group that lost during the last fortnight, include Jammu and Kashmir Bank (less 7.76% to Rs 405.15), Kotak Mahindra Bank (dipped 2.25% to Rs 304.10), and ING Vysya Bank (lost 1.99% to Rs 95.50).

The other major sector to post gains in the fortnight was cement and construction. Birla Corporation spurted 17.75% to Rs 333.95, Jaiprakash Associates gained 10.64% to Rs 472.55, and Grasim Industries added 10.34% to Rs 2,486.05. Hope that cement prices will be hiked due to an increase in construction activity post monsoon aided the rally.

Watch maker HMT topped the list of gainers with a 33.72% jump to Rs 85.85, followed by Escorts at Rs 108.75, which sprung 26.23%. Other major gainers in the A group were battery maker Exide Industries, which spurted 26.18% to Rs 44.05, Jet Airways (India), climbed 25.19% to Rs 673.8, TVS Motor Company that surged 19.35% to Rs 114.70, Chennai Petroleum Corporation spurted 16.38% to Rs 231.20, Asahi India Glass increased 15.90% to Rs 102, and EIH, which was boosted 13.79%, to Rs 111.25.

Meanwhile, the top losers in the A group was IT company HCL Infosystems, falling 11.73% to Rs 151.60, followed by Godrej Consumer Products that dropped 8.29% to Rs 162.05. The other major losers in the A group were Nicholas Piramal India (dropped 6.98% to Rs 213.80), Tata Tea (slipped 6.74% to Rs 764.05), VisualSoft Technologies (lost 6.36% to Rs 86.05), GAIL (India) (decreased 6.11% to Rs 254.70), and Bharat Earth Movers (lost 6.11% to Rs 904.15).

Are Indians the Model Immigrants?

They have funny accents, occasionally dress in strange outfits, and some wear turbans and grow beards, yet Indians have been able to overcome stereotypes to become the U.S.'s most successful immigrant group. Not only are they leaving their mark in the field of technology, but also in real estate, journalism, literature, and entertainment. They run some of the most successful small businesses and lead a few of the largest corporations. Valuable lessons can be learned from their various successes.
According to the 2000 Census, the median household income of Indians was $70,708—far above the national median of $50,046. An Asian-American hospitality industry advocacy group says that Indians own 50% of all economy lodging and 37% of all hotels in the U.S. AnnaLee Saxenian, a dean and professor at University of California, Berkeley, estimates that in the late 1990s, close to 10% of technology startups in Silicon Valley were headed by Indians.

You'll find Indian physicians working in almost every hospital as well as running small-town practices. Indian journalists hold senior positions at major publications, and Indian faculty have gained senior appointments at most universities. Last month, Indra Nooyi, an Indian woman, was named CEO of PepsiCo (PEP)

A MODEST EXPLANATION.  Census data show that 81.8% of Indian immigrants arrived in the U.S. after 1980. They received no special treatment or support and faced the same discrimination and hardship that any immigrant group does. Yet, they learned to thrive in American society. Why are Indians such a model immigrant group?

In the absence of scientific research, I'll present my own reasons for why this group has achieved so much. As an Indian immigrant myself, I have had the chance to live the American dream. I started two successful technology companies and served on the boards of several others. To give back, I co-founded the Carolinas chapter of a networking group called The Indus Entrepreneurs and mentored dozens of entrepreneurs.

Last year, I joined Duke University as an executive-in-residence to share my business experience with students (see BusinessWeek.com, 9/14/05, "Degrees of Achievement") and research how the U.S. can maintain its global competitive advantage

1. Education. The Census Bureau says that 63.9% of Indians over 25 hold at least a bachelor's degree, compared with the national average of 24.4%. Media reports routinely profile graduates from one Indian college—the Indian Institute of Technology (IIT). This is a great school, but most successful Indians I know aren't IIT graduates. Neither are the doctors, journalists, motel owners, or the majority of technology executives. Their education comes from a broad range of colleges in India and the U.S. They believe that education is the best way to rise above poverty and hardship.

2. Upbringing. For my generation, what was most socially acceptable was to become a doctor, engineer, or businessperson. Therefore, the emphasis was on either learning science or math or becoming an entrepreneur.

3. Hard work. With India's competitive and rote-based education system, children are forced to spend the majority of their time on their schooling. For better or for worse, it's work, work, and more work for anyone with access to education.

4. Determination to overcome obstacles. In a land of over a billion people with a corrupt government, weak infrastructure, and limited opportunities, it takes a lot to simply survive, let alone get ahead. Indians learn to be resilient, battle endless obstacles, and make the most of what they have. In India, you're on your own and learn to work around the problems that the state and society create for you.

5. Entrepreneurial spirit. As corporate strategist C.K. Prahalad notes in his interview with BusinessWeek's Pete Engardio (see BusinessWeek.com, 1/23/06, "Business Prophet"), amidst the poverty, hustle, and bustle of overcrowded India is a "beehive of entrepreneurialism and creativity." After observing street markets, Prahalad says that "every individual is engaged in a business of some kind—whether it is selling single cloves of garlic, squeezing sugar cane juice for pennies a glass, or hauling TVs." This entrepreneurial sprit is something that most Indians grow up with.

6. Recognizing diversity. Indians hold many ethnic, racial, gender, and caste biases. But to succeed, they learn to overlook or adapt these biases when necessary. There are six major religions in India, and the Indian constitution recognizes 22 regional languages. Every region in the country has its own customs and character.

7. Humility. Talk to almost any immigrant, regardless of origin, and he will share stories about leaving social status behind in his home country and working his way up from the bottom of the ladder in his adopted land. It's a humbling process, but humility is an asset in entrepreneurship. You learn many valuable lessons when you start from scratch and work your way to success.

8. Family support/values. In the absence of a social safety net, the family takes on a very important role in Indian culture. Family members provide all kinds of support and guidance to those in need.

9. Financial management. Indians generally pride themselves on being fiscally conservative. Their businesses usually watch every penny and spend within their means.

10. Forming and leveraging networks. Indians immigrants found that one of the secrets to success was to learn from those who had paved the trails (see BusinessWeek.com, 6/6/05, "Ask for Help and Offer It").

Some examples: Successful Indian technologists in Silicon Valley formed an organization called The Indus Entrepreneurs to mentor other entrepreneurs and provide a forum for networking. TiE is reputed to have helped launch hundreds of startups, some of which achieved billions in market capitalization. This was a group I turned to when I needed help.

Top Indian journalists and academics created the South Asian Journalists Association (SAJA) to provide networking and assistance to newcomers. SAJA runs journalism conferences and workshops, and provides scholarships to aspiring South-Asian student journalists.

In the entertainment industry, fledgling filmmakers formed the South Asian American Films and Arts Association (SAAFA). Their mission is the promotion of South Asian cinematic and artistic endeavors, and mentoring newcomers.

11. Giving back. The most successful entrepreneurs I know believe in giving back to the community and society that has given them so much opportunity. TiE founders invested great effort to ensure that their organization was open, inclusive, and integrated with mainstream American society. Their No. 1 rule was that their charter members would give without taking. SAJA officers work for top publications and universities, yet they volunteer their evenings and weekends to run an organization to assist newcomers.

12. Integration and acceptance. The Pew Global Attitudes Project, which conducts worldwide public opinion surveys, has shown that Indians predominantly hold favorable opinions of the U.S. When Indians immigrate to the U.S, they usually come to share the American dream and work hard to integrate.

Indians have achieved more overall business success in less time in the U.S. than any other recent immigrant group. They have shown what can be achieved by integrating themselves into U.S. society and taking advantage of all the opportunities the country offers.

Let's Offshore The Lawyers

DuPont is farming out legal services to Asia—and saving a bundle

Mention offshore outsourcing, and Americans fume. But who would cry if we outsourced the work of lawyers, with their fat fees and endless strategies for adding years to litigation? Sounds like a great idea, but many might say it can't be done anyway. Legal work is too sensitive and technical to risk farming out to Asia.

Try telling that to DuPont, the giant chemical company. On the seventh floor of an old office building on the outskirts of Manila, 30 Filipino attorneys, including three who have passed U.S. bar exams, are seated elbow-to-elbow with 50 other staff at long tables crammed with PCs. Working in three shifts seven days a week, they read, analyze, and annotate digital images of memos, payroll and medical records, old engineering specs, and other documents that might be used as evidence in DuPont legal cases.

The operation is part of a tieup between DuPont and offshoring shop OfficeTiger that is testing the limits of how far legal services outsourcing can go. Attorneys and others in OfficeTiger's Philippines and India offices are helping out on more than a dozen projects, from monitoring old contracts and licensing agreements to managing documentary evidence for product-liability cases. "We want to be the center of excellence for this whole area of offshore document management," says DuPont assistant general counsel Thomas L. Sager.

The most important project is processing 2 million pages of documents vital to a DuPont case against 10 insurers. DuPont aims to recover more than $100 million in payouts to thousands of former pipefitters, insulators, mechanics, and other workers who claimed their illnesses came from exposure to asbestos in DuPont facilities. Much of the work is tedious: digitizing and indexing decades-old paperwork. But some requires judgment normally provided by U.S. lawyers, such as determining whether documents are relevant to a case or violate confidentiality.

COST-CUTTING PIONEERS 
By going offshore, DuPont aims to save 40% to 60% on document work and cut up to $6 million from its annual $200 million-plus in legal spending. It also hopes to shave months off the discovery process in court cases. But the move is risky. In industries from software to customer support, corporations have run into myriad logistical and quality problems with offshore outsourcing. If OfficeTiger stumbles and doesn't have the evidence ready by December, when the asbestos case could go to trial, it could cost DuPont millions.

But if OfficeTiger delivers, it could mean big changes for the $225 billion U.S. legal services industry. DuPont's legal department has been a pioneer in cost-cutting since the early 1990s, saving more than $100 million over that time through automation, outsourcing, and reducing the number of outside law firms it uses. Offshoring is the logical next step. While firms in India, the Philippines, and elsewhere have been processing legal documents for years on a small scale, the size and complexity of DuPont's deal with OfficeTiger pushes it to a higher level. "If DuPont does well with this, you will find other companies taking a good look," says Bradford W. Hildebrandt, chairman of the legal consulting firm Hildebrandt International Inc., which estimates U.S. firms can save 25% to 35% by farming legal work to Asia. "Ultimately, there may be little limit to what can go offshore."

That doesn't mean U.S. lawyers will be getting pink slips, or even lowering their hourly fees. They're still needed for developing arguments, writing briefs, and other trial work. But DuPont figures 70% of the labor in a typical insurance or liability case can be outsourced. U.S. law firms often bill around $150 an hour for document-processing by paralegals. "Law firms historically have made much of their revenue on administrative and paralegal work you don't really need a lawyer to do," says OfficeTiger Co-CEO Joseph Sigelman. Offshore providers such as OfficeTiger, bought in April by R. R. Donnelley & Sons Co., charge around $30 an hour. That's possible because an attorney with five years of experience can be hired for around $30,000, including benefits, in the Philippines, whose legal system is similar to America's. That's half what a veteran U.S. corporate paralegal earns, and one-fifth what a first-year attorney can fetch in New York.

Few industries seem more ripe for radical restructuring than legal services. For starters, they remain remarkably mired in paper. At its Wilmington (Del.) warehouse alone, DuPont has more than 200,000 boxes, each typically stuffed with 2,500 pieces of paper. Analyzing those documents involves photocopying the pages and shipping them to lawyers, who then pore over them.

Now, OfficeTiger staffers take portable scanners to sites where documents are stashed and zap images of scanned pages to a secure database. In minutes, Filipino attorneys can retrieve the material on their PCs. One of them is Eric Himan, a thirtysomething former corporate lawyer and Manila law school grad. "I want to work on really big, meaningful cases so that my market value can go up, rather than litigate some minor local dispute," Himan says as he reads through old e-mails relating to an asbestos case. He enjoys conference calls with top U.S. lawyers, who often ask his opinion on evidence and strategy. "Our input is valued," he says. "Not many lawyers in the Philippines get to do what we do."

VAST TIME SAVINGS 
By the time the documents get back to Wilmington, they are attached to electronic files about each asbestos litigant, along with data on how damages paid by DuPont were calculated. DuPont lawyers then review the work. By delivering neatly organized and reliable digital evidence to opposing attorneys, DuPont hopes it can slash the discovery process in insurance cases to three months from an average of 18 months. So far, the work has been accurate and on schedule, says DuPont's Sager. He says the move might also send the message that DuPont can afford to fight cases more aggressively, rather than settle due to the expense. "Corporations are looking for alternative ways to buy legal services so that cost does not become an issue in deciding whether or not to defend a case," says Sager.

For OfficeTiger, success could mean a surge in business. By the end of 2007, Sigelman predicts his Asian legal team could reach 1,000 with several hundred lawyers. He also believes U.S. clients will become more willing to hand over sensitive work such as research for briefs. Is the U.S. legal industry ready for such a leap? "The proof will be in the pudding," says DuPont counsel Silvio J. DeCarli, who manages the asbestos litigation. "If this case implodes because of what OfficeTiger did or did not do, whether we save money won't be important."

Insurance business continues to create value

According to the latest report released bythe Insurance Regulatory and Development Authority, the first yearpremium collection of the life insurance companies grew by a whopping 177% year on year (yoy) from Rs6,524 crore to Rs18,096 crore for theperiod April-July 2006.

In the private sector, ICICI Prudential LifeInsurance (IPLI) as well as Bajaj Allianz Life Insurance (BALI)continued to be the growth leaders with a 206% and a 149% year-on-yeargrowth respectively.

We estimate the value of IPLI to be Rs66 pershare of ICICI Bank and that of BALI at Rs700 per share of Bajaj Auto.We believe that as the robust growth in the sector continues on theback of the changing demographics and investment patterns of the Indianpeople, the insurance joint ventures of these companies would keepcreating higher value for their shareholders.

Premium collections show robust growth
During July 2006, the private life insurancecompanies saw a growth of 161% yoy in the first premium collection toRs4,068 crore. Public sector insurer Life Insurance Corporation's (LIC)first premium collection increased by a mammoth 182% yoy to Rs14,027crore during the same period. The launch of a new single premiumproduct called "Jeevan Tarang" (which is eligible for tax deductions)helped LIC to achieve this commendable growth.

In the private sector, IPLI witnessed thehighest first premium collection of Rs1,157 crore, achieving a growthof 149% over the same period last year. It was followed by BALI whosefirst premium collection grew by 206% yoy to Rs833 crore.

Private players continue the robust show

Source: IRDA, Sharekhan research

IPLI takes lead in private sector
Over the last couple of years, IPLI and BALIhave contested a tough fight to maintain their market leadershipamongst the private players. In the current year up to July, IPLI hasmaintained its market leadership with a share of 28.5% followed by BALIwith a 21% market share. Both the companies recorded a significantgrowth in their premium collections driven by a larger number ofpolicies and higher ticket size.

Market shares in YTD first year premium collection (%)

Source: IRDA, Sharekhan research

Angel Top Picks

Angel Broking top picks - Download here

Sharekhan Investor's Eye - Sept 15

Org Informatics - Emerging Star - Target 190

Tata Tea - Apple Green - Target 970

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Sharekhan Eagle Eye - Sep 18

Godrej Consumer

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Edelweiss - Tulip IT

We believe that the shift in revenue mix towards IP VPN will drive revenue growth and positively
impact margins. At INR 283, the stock trades at 8.8x FY07E and 4.7x FY08E, and EV/
EBITDA of 7x FY07E and 3.6x FY08E. We believe that current valuations are extremely
attractive in light of the exponential growth expected over the next two years and hold significant
upside potential. We believe that Tulip could be a potential acquisition target by larger integrated telecom players given swift traction in IP VPN operations and a likely free cash flow positive status by FY08E. We initiate coverage with a ‘BUY’ recommendation

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Sharekhan Investor's Eye dated September 14, 2006

Marico & Orient Paper

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Sharekhan Eagle Eye - Sept 15

SREI International

Balrampur Chini

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Trading Calls

Buy Mercator Line Delivery at Rs 43.30-42.30-40.20. Stop Loss at Rs 37. Target of Rs 50 and Rs 64.     

Buy Essel Propack Delivery at Rs 90-88-87. Stop Loss at Rs 80. Target of Rs 97 and Rs 111.    

Sell Reliance Communication at Rs 317. Stop Loss at Rs 323.10

Trade at your own risk

These calls are from a popular portal - not mine!

Trading Calls

Buy Reliance Capital with a stop loss of Rs 480 for a target of Rs 640

Buy ZeeTelefilms on declines with a stop loss of Rs 298, for a short-termtarget of Rs 332.

Buy Dena Bank with a stop loss of Rs 26.90 for a short-term target of 33

Buy Jet Airways (684.95) with a stop loss below Rs 647 for a target of Rs 765

Trade at your own Risk - Don't blame me later!

Sharekhan Eagle Eye

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Sharekhan Investor's Eye - Sept 13

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India's Affirmative Action Rocks the Boat (May 19)

The scenes from the streets of Bombay, Delhi, and other big Indian cities have shocked India. As medical students and young doctors peacefully protested a government initiative to reserve another share of seats in colleges and universities for members of lower castes, police set upon the marchers, beating many of them with truncheons.

Even more shocking to many, officials later claimed that although a few students were hospitalized, the police had not used undue force. One politician even dismissed the injuries as "just a few broken bones." Such responses have spurred students and young professionals across the country to join in the protests.

ANCIENT GRIEVANCES.  Rarely has an issue so polarized India. The country's 10 million undergraduate students see the already limited number of spots in universities shrinking further. Those in favor of the affirmative action program -- generally referred to as "reservations" -- say such measures are necessary to make up for 3,000 years of a caste system that allowed Hindu society to become stratified into the privileged few and the excluded many.

A loosely organized guild system, based on professions such as priests, princely warriors, leather-workers, blacksmiths, weavers, and cowherds, eventually grew into the caste system. For centuries, the system allowed educated Brahmin priests to wield enormous power over kingdoms won by warriors and made wealthy by merchants. They exploited the rest of the uneducated populace, consigning them to the underclass by virtue of their birth. Intermarriage and even socializing between the various castes was forbidden.

Officially, the caste system was abolished when India achieved independence from British rule in 1947. Early Indian leaders such as Mahatma Gandhi agitated against it, and encouraged the lower castes to voice their grievances and participate in public life. India's first prime minister, Jawaharlal Nehru, advocated affirmative action to overcome the disparities. Two decades ago, India began reserving for the lowest classes -- including the untouchables, or Dalits -- 22% of government jobs and places in state schools and colleges.

VOTING BLOC.  The program has benefited many. India's past president, K.R. Narayanan, and current president, A.P.J. Kalam, a scientist who also rose to head India's nuclear establishment, are from lower castes. And the measures empowered the lower castes politically. As they became aware of their rights, they became a powerful voting bloc.

Still, though politically empowered, the reservations did little to economically empower the underprivileged masses out of poverty. Today, the caste system persists and the ranks of the lower castes have swelled as India's poor population has mushroomed. Narendra Jadhav, a Dalit who is the chief economist of India's central bank, the Reserve Bank of India, says reservations are all the more necessary today "because of the inability of the system to be just and fair."

Today's debate is about extending such privileges to other lower-caste groups such as cowherds, leather workers, and butchers. If implemented, such a policy would add, on top of the earlier 22%, another 28% of seats in colleges reserved for students from lower castes, making for a total of 50%. These lower castes especially want entrée into the new economy, which they feel has benefited the privileged educated classes who attend highly competitive institutions such as the Indian Institutes of Technology (IIT) and the Indian Institutes of Management.

BRAIN DRAIN.  The anti-reservationists argue that reserving seats at India's few merit-based and uncorrupted institutes of higher learning will dilute standards, bring down student morale, and jump-start a brain drain that had just started to reverse. The new India has been built on the education provided at institutes such as the IIT. Furthermore, they point to the chronic lack of qualified candidates for the posts in Indian universities reserved for professors from lower castes. Finally, they argue, reservations at the university level won't work until India improves primary and secondary school education.

Indeed, despite the excellence of India's top schools, most of the nation remains far behind. Of the 202 million children who enroll in the country's 1 million schools every year, barely 15% make it to high school, and just half of those -- about 14 million -- graduate, according to Pratham, a foundation that focuses on education. Then there is an acute shortage of colleges in the country, and a lack of vocational training institutes. Of the 370,000 engineers who graduate annually, just 200,000 are of good quality, says Mohandas Pai, board member for human resources at software and services house Infosys . About 140,000 of those will be hired by software companies this year. "so what's left for the rest of Indian industry?" he asks.

The shortage of colleges has prompted bright Indian students to go overseas. Some 150,000 are studying in the U.S., Britain, and Australia, spending an average of $4.5 billion a year. That's more than twice New Delhi's $2 billion annual budget for higher education. Reservations will simply encourage the brain drain, especially from the middle classes and elite. "If these stakeholders aren't in the system, government becomes complacent," says Ravinder Kaur, an associate professor of sociology at the Indian Institute of Technology, New Delhi.

But the prospect of easier access to the IIT and other top schools has revved up the lower castes. Bhanwar Meghwanshi is a Dalit from Rajasthan's weaver caste who is now editor of Diamond India, a Hindi magazine dedicated to secularism and equality. He was educated in the village and didn't reap any advantages from reservations. Now, even though he is more educated than the upper castes in his village, as a Dalit, he is barred from entering the main village temple, where only upper castes are allowed.

Meghwanshi says that if the new reservations are to really work, the "creamy layer" of lower castes -- those whose parents have already benefited from such policies and are integrated into the Indian mainstream -- "must be kept out, because the very, very poor still don't even know this is being done for them."

LOSING INVESTORS.  Many economists are worried about the effect of reservations on India's competitiveness. Surjit Bhalla, an economist who often advises New Delhi, worries that reservations will become a problem for investors. If there isn't enough qualified talent available in India, they "will not hesitate to go to China, Vietnam, even Bangladesh and Pakistan."

Subir Gokarn, chief economist at Crisil, India's largest rating agency, says the government should be more concerned about creating blue-collar jobs for India's burgeoning youth than about reserving scarce spots at the top end. He suggests converting the caste system back into a guild system, encouraging those with traditional skills to pursue them. "Caste's positive aspect should be the basis of India's competitive strength in manufacturing," he says. He points to India's successful auto parts sector in the southern state of Tamil Nadu, where private industry has built on an available bank of blacksmiths and iron smiths.

Now, even as India is in turmoil over reservation of university seats, New Delhi is talking of yet another divisive measure: reserving half the jobs in the private sector for the lower castes. "That sort of coercive measure will really affect India's competitiveness," says Ram Guha, a well-regarded Indian author and historian on the subject. "We will be worse off than in the socialist economy we once used to be."