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Wednesday, August 22, 2007
No Entry Load
Market regulator Sebi is considering a move to do away with the entry load on mutual fund investments
The Asset Management Companies (AMCs) charge an entry load of upto 2.25 per cent from the retail investors for their investments in equity funds.
With this move the investment in mutual funds will become more cost effective for investors.
However, this waiver will be applicable to investors who will directly interact with the fund houses i.e deposit their applications directly with the AMCs. Applications received through internet or collection centre/ investor service center directly will also qualify for the waiver.
The move is not expected to go down well with the mutual fund distributors as it is this entry load which the fund houses use in paying commissions and brokerage to distributors. Today most of the funds in India are sold through distributors.
ITC plans big Chaupal Fresh
Aiming to become a player to reckon with in fresh produce retailing, ITC is planning to initially scale up Chaupal Fresh—stores selling
vegetables and fruits—from the current three outlets to 40 this financial year. At present, the stores are located at Hyderabad, Pune and
Chandigarh. The new 40 stores will all be in these three cities.
In the next three years, another 140 Chaupal Fresh outlets will be opened across the country, including in cities like Mumbai, Delhi and Kolkata.
"These stores share a lot of synergy with our existing business of agri-retail and therefore it is difficult to provide an investment figure. It is not easy to distinguish between the two businesses," said S Sivakumar, chief executive - agri business, ITC.
All the new stores will be opened on leased properties.
In addition, ITC is planning to take its rural malls - Choupal Sagar - to small towns. Forty such outlets have been planned as of now. While
Choupal Sagars in rural areas are spread across seven to ten acres retailing approximately 25,000 SKUs, the format for smaller towns will be
shrunk to one acre selling 12,000-13,000 products in small towns. The catchment area for these outlets would include villages near small towns.
Interestingly, kirana stores and other small retailers from the small towns will also be able to purchase goods from these outlets. Choupal Sagar will
provide different prices to retailers and ordinary consumers.
These stores would cost Rs 2 crore each, and would be set up in UP, Madhya Pradesh, Rajasthan and Maharashtra.
In rural areas, Choupal Sagar will begin focusing on health services. "Having looked at poor health facilities in rural areas, we are scaling up
health services. We have already experimented in Madhya Pradesh, and will be soon expanding to Uttar Pradesh and Maharashtra," said Sivakumar.
Market Close: Eased political issue helped !
Mixed global cues and political uncertainty kept Indian Indices in a volatile mood. Despite a strong start indices witnessed a roller coaster ride as selling intensified in the mid sessions. Investors were cautious to enter the volatile market but buying at low levels in the front liners gave a boost to their sentiments. Late in mid sessions market saw some recovery after the news that Congress has settled issue with the Left. Buying was seen across the board with capital goods, power and metal stocks leading the pack of gainers. The BSE Capital Goods and the BSE FMCG advanced by 4% and 3% respectively. But some Realty, Banking and selective Auto stocks were out of favour. Midcaps also saw some action.
Sensex ended up by 260 points at 14248.66. It was helped up by gains in BHEL (1666.95,+5 percent), Rel Energy (724.8,+5 percent), TISCO (569.3,+4 percent), Bharti Tele (847.65,+4 percent) and ITC (158.4,+4 percent). Restricting the gains were Tata Motors (618.95,-2 percent), Cipla (175.55,-1 percent), Hero Honda (625.85,-1 percent), SBI (1457.95,0 percent) and Maruti (766.7,0 percent).
We met with IT People which is expected with its follow on Public offer. The company provides human capital solutions on the IT and ITES industry globally. The company addresses vital requirements of the IT industry by providing recruitment Solutions through an e-Recruitment portal. The Company has a large active database of CVs, in addition to online services. IT People have a complementary 'brick and mortar' model for providing a range of contract consulting services that meet client's off-line requirements. The Company's client list includes Emirates Airlines, National Bank of Dubai, EDS, KPMG, WIPRO, Hexaware among others. For FY 07 the revenues were seen at Rs.18 crores and Net Profit of Rs.3. crores. With a Market cap of 185 crores it seems pointless to talk about it. The company is a play on the high attrition in the IT sector. The company hopes to raise Rs 45 cr to use for promotion and for setting up new offices.
A new policy is on cards to bring about state-of-the-art technology in wagon manufacturing, maintenance and allow private players to procure wagons on lease without investing in it. The existing wagons were designed 25 years ago. They have become outdated and there is a need to change it to meet the global standard. Currently, customers have to buy their own wagons for carrying goods under the wagon investment scheme. The policy would allow private players to invest in special kinds of wagons and lease them to customers of railways. Till now, it was only railways which could lease out wagons. Certainly there is immense demand and supply is constrained. Titagarh Industries has indirect exposure as part of the group of Titagard wagons. It supplies castings here. A direct exposure is Texmaco which is a story by itself. Increasing capacity in its foundry will make this a strong play. However, on valuation parameters, things don't seem too encouraging. Expect a research note on this one. Texmaco ended down marginally.
Telecom was mixed for the day but this sector may see pressure. The TRAI has suggested 'number portability' as the solution to ensure that the Telecom companies don't increase prices as they recently did. The suggestion is also to have no limit to the number of players in each circle. This is the risk we have been referring to earlier. The companies would need to invest big way to give better services and the returns may not be commensurate. Look for negatives in the Telecom stocks if this comes in.
Technically Speaking: Sensex had volatile session with no clear direction bur recovered in late trading hours. The Declines outnumbered Advances as the declines were 1568 against advances of 1122. Volume for the day was at Rs.4387 cr. Sensex closes near the 200dma with major resistance seen at 14400 levels. Many pivotal are at their resistance so the market can see some more choppy sessions. If the market breaks the 14400 levels then the market can see some directions.
End Session Commentary
The BSE Sensex ended the session on a positive note as it closed higher by 259.55 points at 14,248.66 while Nifty grew by 78.25 points to close at 4,153.15. The BSE Mid cap advanced by 25.39 points to close at 6,159.62 while Small cap decreased by 19.75 points to close at 7,518.70. Of the 2,674 stocks actively traded on BSE, 1,575 stocks declined while 1,042 stocks advanced.
BSE Metal index surged by 234.18 points to close at 10,081.33 as Sterlite Industries (4.35%), Tata steel (4.25%), Hindalco industries (2.02%), JSW Steel (1.17%) and SAIL (1.14%) closed in positive.
BSE Auto Index dropped by 1.35 points to close at 4,473.79 as Tata Motors (2.42%), Maruti Udyog (0.13%) and Hero Honda (0.06%) closed in red while M&M (2.93%) and Bajaj auto (1.02%) are closed in green.
BSE oil & gas index grew by 103.31 points to close at 7,511.33 as GAIL (3.32%), ONGC (2.43%), IPCL (2.14%) and HPCL (1.88%) and Reliance petroleum (0.60%) closed higher.
BSE bankex index closed higher by 63.62 points at 7,387.92 as ICICI bank (1.98%), IDBI Bank (1.57%) and HDFC Bank (1.40%) closed in green while PNB (3.03%), BOI (2.05%) and SBI (0.40%) closed in red.
BSE Capital goods index grew by 407.53 points to close at 12,397.50 as Siemens (9.17%), Praj industries (8.41%), BHEL (4.81%), L&T (3.26%) and ABB (2.95%) closed higher.
BSE Health Care Index ended lower by 4.42 points at 3,426 as Sun pharma (2.40%), GlaxoSmithKline (1.94%) and Cipla (0.93%) closed in negative while Dr Reddy lab (1.50%), Glennmark (1.41%) and Ranbaxy (0.71%) closed in positive.
BSE FMCG index increased by 42.85 points to close at 1,841.90 as ITC (4.07%), HUL (1.45%), Tata Tea (0.46%) and Dabur (0.45%) closed in green.
BSE IT index closed higher by 53.67 points at 4,348.53 as HCL technologies (1.74%), Wipro (1.51%), Infosys (1.63%), TCS (0.81%) and Satyam (0.25%) closed higher.
Mckinsey - Pharma worth 20 billion$ in 10 years!
Increasing personal incomes, addition of healthcare facilities and deeper penetration of health insurance will see the domestic pharmaceutical market triple to $ 20 billion in a decade, according to global consulting firm McKinsey.
The projected growth would see India become the 10th biggest pharmaceutical market - from number 14 two years ago - by replacing Brazil, Mexico, South Korea and Turkey, the report released here today said.
"Doubling of disposable incomes and the increase in numbers of middle-class households will account for nearly 40% of the projected growth as affordability and access will increase dramatically," Palash Mitra, Partner, McKinsey & Company and co-leader of the Pharmaceuticals & Medical Products Practice said.
According to Mitra, significant expansion of medical infrastructure will account for 20% of the expected growth followed by greater penetration of health insurance (15%) and a gradual shift in disease profile and adoption of patented products (10%).
India Mobile Banking Savvy!
One out of every three people in India is ready to switch to another bank if its offers them free mobile banking, states an Asia Pacific survey on mobile banking opportunities. The survey notes that Indian users are much more aware of mobile banking than the others countries.
The report titled, ‘Mobile Opportunities for Financial Sector’ was conducted in five countries including India, and commissioned by Sybase 365, a subsidiary of Sybase, along with BDM Intelligence -- a custom market research firm in Asia. It surveyed 1,818 mobile users.
The survey states that 81% of Indian respondents are aware they can check bank balance on a mobile phone, while 49% have used the services in the last three months-- the highest amongst the five countries surveyed in the region. Almost 42% of Indian consumers are able to state their bank balance at any given time. The survey also points out that consumers in India (71%) are much more aware when compared to their counter parts in the other regions on the offering from their banks on mobile phones.
Meanwhile, 50% of Indian respondents checked their bank balance on their mobile phone and 54% via the Internet-- although the majority still obtain account balance information through brick and mortar facilities.
However, the biggest concern among the Indian user while accessing details through mobile phones is security. In line with this, they accounted for the largest percentage of survey respondents expressing an interest in the ability to report potentially fraudulent transactions and to freeze cards via their mobile phones (67% for both). Indian respondents also expressed the most willingness to pay for these services.
Kaustuv Ghosh, country manager Sybase 365 India said, "Indian bank’s need 360 degree view of mobile service deployment and its benefit to customer and operational expenditure alike. The survey reveals a growing culture of financial awareness as customers are becoming increasingly vigilant when it comes to their money."
Mobile banking is gaining traction in Asia Pacific on a number of levels, though the speed at which each region adopts mobile banking clearly differs. India has a greater enthusiasm for mobile banking services.
Post Market Commentary
The benchmark Sensex on Wednesday rebounded by 260 points on emergence of buying by funds in a roller-coaster ride caused by concerns of a mid-term poll following a political stalemate. Swinging in a range of 14,281.48 and 13,870.70, the BSE bar ometer settled at 14,248.66, a net rise of 259.55 points or 1.86 per cent over yesterday's close of 13,989.11.
The broader S&P CNX Nifty of the NSE also bounced by 78.25 points or 1.92 per cent to close at 4,153.15 from previous close of 4,074.90.
Analysts, however, visualised uncertain outlook for near future in the light of political standoff between the government and its Left allies on the Indo-US civil nuclear deal even as some stability was seen in global markets.
Domestic institutional investors (DIIs) were believed to have cornered a sizeable chunk of shares at the lower levels. Financial institutions and private mutual funds also made heavy sector-specific purchases, particularly shares in capital goods, metal and fast moving consumer goods (FMCG) sector, market players said.
Foreign institutional investors (FIIs) including hedge funds, however, remained net sellers. As per provisional numbers, FIIs pulled out Rs 138 crore on August 21 while DIIs pumped in Rs 826.84 crore on the same day.
Meanwhile, the CPI(M) top brass began a two-day meeting amid signals that the government is in no mood to heed its ultimatum on the issue of nuclear deal.
Power Grid Corporation IPO coming soon
Power Grid Corporation of India Ltd (PGCIL), the country’s biggest transmission utility, on 22 August filed its red herring propectus with market regulator Sebi for its initial public offer to raise an estimated Rs580 crore.
PGCIL is the third central power utility to tap the capital market for raising funds after NTPC Ltd in 2004 and Power Finance Corporation early this year. Like NTPC and PFC, the government will piggyback on PGCIL IPO to divest five per cent of its stake. While NTPC had raised around Rs 5,400 crore, PFC had mopped up nearly Rs 1,000 crore. Power Grid is expected to mobilise up to Rs 580 crore, sources said.
Power Grid Corp is raising funds from the market to part-finance its expenditure requirements. The country’s transmission sector requires an estimated investment of Rs 70,000 crore during the 11th plan and central utilities led by PGCIL are expected to contribute as much as Rs 50,000 crore.
The public issue comprises 57.39 crore equity shares of Rs 10 each. This includes a fresh issue of 38.26 crore shares by PGCIL and an offer for sale of 19.13 crore shares by the government. About 1.39 crore shares have been reserved for employees and the net issue to public is 55.99 crore shares.
The IPO would constitute 10% of the equity capital and government is divesting 5%of its holding.
The company will issue shares at a price to be decided through the book building process and the shares will be listed on Bombay Stock Exchange and National Stock Exchange.
Kotak Mahindra Capital Company Ltd, Citigroup global Markets India and Enam Financial Consultants are the book running lead managers to the issue.
Investors flock to buy cheap stocks
The Bombay Stock Exchange benchmark Sensex partly made up for the previous session’s losses, rising 260 points on 22 August on emergence of buying by funds amid firm Asian markets and gains in US stocks.
The market remained volatile on aggressive bouts of buying and selling, which took the index to a high of 14,281 and low of 13,870 points during the day.
The Sensex, which had tumbled 438 points on 21 August on political concerns, gained 259.55 points to close at 14,248.66 as buying interest revived in fundamentally strong stocks led by shares in capital goods, metal and oil and gas sectors.
Similarly, the wide-based National Stock Exchange’s Nifty gained 78.25 points at 4,153.15 after touching a high of 4,165.70. The Nifty had fallen to 4,040.15 in morning deals.
The market gained as Asian stocks rose on the back of fourth day of gains in US stocks yesterday, while discounting the political crisis brought about by the Indo-US nuclear deal at home.
As the market turned bullish, capital goods segment index spurted the most by 407.53 points at 12,397.50 followed by metal index by 234.18 points at 10,081.33. Oil and gas index shot up by 103.31 points at 7,511.33 and PSU index by 81.97 points at 6,573.94.
Bank index rose by 63.62 points at 7,387.92, Teck index by 63.16 points at 3,421.97, IT index by 53.67 points at 4348.53 and FMCG index by 42.85 points at 1,841.90.
However, realty, healthcare, consumer durables and auto sector stocks remained weak.
Mid-day
In volatile trading, the benchmark Sensex surged over 291 points at midsession on the Bombay Stock Exchange on 22 August on emergence of buying by funds amid brokers covering their short positions.
The key index moved in a wide range of 14,280 and 13,870 points on heavy alternate bouts of trading in fundamentally strong stocks led by heavy-machinery and information technology company stocks.
The Sensex gained 291.22 points at 14,280.33 at 1300 hours, while the wide-based National Stock Exchange’s Nifty gained 87.50 points at 4,162.40. The Nifty had fallen to 4,040.15 in morning deals.
The Sensex had plunged 438 points on 21 August on political developments over the nuclear issue after the last week’s bearish trend over widening sub-prime mortgage problems in US markets.
“The fresh firmness in the market came on speculations that the US Federal Reserve cutting the discount rate might help the market to defuse a crisis in the credit markets and revive demand for riskier assets like equities, Mumbai-based broker Ratnesh Gupta said.
Asian stocks rose on the back of rebound in US stocks for the fourth day yesterday, giving positive signals to the Indian markets, even discounting the political crisis at home, Gupta said.
Reliance Industries, which has the world’s third biggest refinery and is the heaviest on the Sensex, jumped Rs8.15, or 0.5%, to Rs 1,755.5.
Infosys Technologies rose Rs10, or 0.6%, to Rs1,771. India’s second-largest software exporter expanded into Latin America by setting up a software development and sales unit in Monterrey, Mexico. These two companies carry almost one-fifth of the total weightage on the Sensex.
Opening
The benchmark Sensex on 22 August recovered by over 178 points in early trade on the Bombay Stock Exchange on revival of buying by funds even as some investors were covering short positions.
The Sensex, which tumbled nearly 438 points in yesterday trade, bounced back to gain 178.5 points to 14,167.61 in first five minutes of trading.
Similarly, the wide-based National Stock Exchange’s Nifty recovered by 49.25 to 4,124.15 as most of the index stocks jumped up on fresh buying.
Subprime concerns, implications for India
The global equities sell-off of the last four weeks reflects a sharp rise in risk aversion. Higher risk aversion has come on the back of the disarray in the credit markets and the growing concern that an emerging global "credit crunch" as well as the continuing US housing slump, will force the US economy into recession over the next 12 months.
In addition, the re-pricing of risk took on yet another ugly dimension on Thursday and Friday of the last week with the dramatic unwinding of "carry trades" across Asia leading to a sharp rise in the Yen, and further major declines in Asian equities, including the Sensex.
How should investors react? Clearly the last four weeks have been very painful for many and the immediate market outlook is very uncertain.
But long term investors should take comfort from the overall health of the world economy, including India. Outside the US housing sector, the world economy is very strong with good GDP growth, generally well-contained inflation, high corporate earnings, and healthy business and consumer sector balance sheets.
We believe that the most likely outlook is that global markets will calm down by or during September and that the sense of panic of recent weeks will recede.
In addition, if the markets sell-off does escalate further and seriously threatens the economic outlook, the US Federal Reserve has shown that it is sensitive to the threat that the re-pricing of risk becomes even more disorderly. The Fed (along with other central banks) has lifted its liquidity injections into markets and on Friday lowered the so-called discount rate at which it lends emergency funding to financial institutions - by 50 basis points to 5.75%.
In addition, if its largely technical measures do not do the trick in stabilising markets, the Fed has also indicated that if necessary it would also reduce its key policy rate - the Fed Funds rate (currently at 5.25%). The Fed remains reluctant to be perceived as bailing out investors for unwise decisions.
But US inflation is no longer a serious problem and markets may well have suffered enough pain for lessons to have been learnt. The risk of a US recession and a prolonged stocks meltdown is higher now than a few weeks ago but still looks only something like a 30% risk, in our view, over the next 12 months.
The fear in markets may take some time to dissipate and volatility is likely to stay high for a while. But a global equities rebound should come through over the next few months, and this should lift Indian markets as well. It will not be a straight line but our end 2007 target for the Sensex before the current turmoil was 16000, and we are sticking with that target. From the close on Friday August 17th, this implies a 12-15% climb and a 15% gain for 2007 as a whole.
The stocks turmoil stems from losses on US sub-prime mortgage lending, where lax lending standards in the US in 2005-06 combined with falling house prices in some areas since then are now bringing a wave of mortgage defaults.
Even on very pessimistic assumptions about the US housing prices, the total losses look set to be around $200 bn, losses which when spread around the world's investors should not be dangerously large.
But the problem is that many of the sub-prime mortgages have been packaged up into other securities, such as collateralised debt obligations (CDO's), which are now impossible to value.
The uncertainty over valuations caused the CD0 market to dry up in mid-August. This uncertainty, combined with the news of major losses from the general markets sell-off, have spread doubt about the liquidity of the financial system.
As a result, banks have been hoarding cash, pushing up short term lending rates and forcing central banks to respond by adding more liquidity into the system to keep market rates close to policy rates - 4% in Europe and 5.25% in the US. Have central banks now done enough to calm markets?
Central banks have probably done enough but it is far too early to be sure. In addition, the US housing sector looks almost certain to worsen further. The reduced availability of mortgages to weaker borrowers as well as higher interest rates will discourage new buyers. With many local markets already suffering from acute oversupply, this means that US house prices are likely to fall further and that the drag on the overall economy from the housing slump will probably continue into 2008.
The continued drag from housing makes the current crisis very different to the 1998 LTCM crisis when liquidity injections and Fed rate cuts quickly restored confidence. Nevertheless, the key economic uncertainty remains the extent to which house price weakness will translate into sharply weaker US consumer spending
The good news here is that there are several reasons not to be overly pessimistic although much will depend on whether stocks weaken further. On the positive side, US household wealth remains strong and should be able to absorb the hit from weaker housing and the stocks sell-off. In addition, income gains remain solid and employment continues to expand.
The US economy should also continue to gain from strong exports whilst good corporate balance sheets should offset the negative impact on business investment of tighter lending standards.
As a result, a US recession still seems unlikely and we still expect that the Federal Reserves will be able to keep rates on hold at 5.25% into 2008.
But the uncertainties around this "no change" Fed Funds forecast are very large. If the current markets turmoil does escalate further and threatens the economic outlook, and/or the credit crunch widens even further from mortgage, then the Fed would respond quickly by cutting the Fed Funds policy rate.
The problems in the US will overhang Indian markets for a while but, provided the US avoids recession, the pressures should be manageable and Indian equities upswing should continue. Back in 2000-01, India and Asia more generally were far more dependent on the US and the US equities downturn hit very hard. In 2007 and 2008, economic growth in Europe and Japan should continue to be resilient to a weak US economy.
In addition, there are more alternative sources of domestic economic growth - from private consumption in India and business investment in India. In addition, the Reserve Bank has raised interest rates since 2004 and so now has plenty of scope to make monetary policy less stringent if the Indian economy looks like slowing significantly.
The key risk scenario for Indian equity investors is the threat that the US economy does move into recession over the next 12 months. A US recession would happen in 2008 if the contagion from the housing market is much more severe than we expect, and crucially, the Fed is too slow in responding to any systemic economic weakness and does not cut interest rates quickly enough.
In this event, Indian equities would likely move sharply weaker over the next few months. Investor should not rule out the Sensex falling back well below 10000 by end 2007 or early in 2008 before eventually finding a bottom. We do not think that this we happen but Indian investors would be wise to stay much more aware of the potential downside market risks.
Via ET
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