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The IMF, in its World<br />
Economic Outlook, has<br />
lowered its forecast for<br />
world growth and cited<br />
significant risks <strong>to</strong><br />
the economic outlook<br />
For Private Circulation Volu<strong>me</strong> 1 Issue 56 10th Oct ’11
Volu<strong>me</strong> 1 Issue: 56, 10th Oct ’11<br />
Edi<strong>to</strong>r-in-Chief & Publisher: Rakesh Bhandari<br />
Edi<strong>to</strong>r: Tushita Nigam<br />
Senior Sub-Edi<strong>to</strong>r: Kiran V Uchil<br />
Art Direc<strong>to</strong>r: Sachin Kamble<br />
Junior Designer: Sagar Padwal<br />
Marketing & Operations:<br />
Savio Pashana<br />
Research Team:<br />
Sunil Jain, Kunal Shah, Michael Pillai,<br />
Sunit Mehta, Vikash Bairoliya,<br />
Silky Jain<br />
HEAD OFFICE<br />
Nirmal Bang Financial Services Pvt Ltd<br />
Sonawala Building, 25 Bank Street,<br />
Fort, Mumbai - 400001<br />
Tel. 022-3926 7500/7501<br />
CORPORATE OFFICE<br />
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We, at Beyond Market welco<strong>me</strong> your views,<br />
com<strong>me</strong>nts and feedback. Do help us <strong>to</strong> grow<br />
better as per your liking. This is our attempt <strong>to</strong><br />
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Tel No: 022 - 3926 8047<br />
DB Corner – Page 5<br />
Satanic Verses<br />
The IMF in its World Economic Outlook has lowered its forecast for world growth and<br />
cited significant risks <strong>to</strong> the economic outlook – Page 6<br />
Rate Hikes: No End In Sight<br />
In the current scenario where inflation refuses <strong>to</strong> be ta<strong>me</strong>d and global concerns<br />
continue <strong>to</strong> worsen with each passing day, rate hikes seem <strong>to</strong> be an inevitable option<br />
for the RBI – Page 9<br />
Sharp Foresight<br />
Although certain rules for the setting up of new banks seem a bit unfair, it is not<br />
without reason that the RBI is treading cautiously – Page 12<br />
Vibrant Gujarat Gets Future Progressive<br />
Inves<strong>to</strong>r-friendly policies, uninterrupted power supply, road connectivity and<br />
availability of trained workforce are reasons enough for corporates <strong>to</strong> flock <strong>to</strong> the<br />
western state of Gujarat – Page 16<br />
Hoping For A Festive Revival<br />
Vehicle companies are expecting sales <strong>to</strong> rise during the festive season, but hike in<br />
interest rates and fuel prices could halt their upward journey – Page 20<br />
Govern<strong>me</strong>nt’s Co(a)ld Shoulder<br />
Despite the im<strong>me</strong>nse potential of the coal sec<strong>to</strong>r, key challenges and issues are<br />
s<strong>to</strong>pping this industry from growing <strong>to</strong> the hilt – Page 23<br />
For Memory’s Sake<br />
The growing number of patients suffering from Alzhei<strong>me</strong>r’s is indicative of the<br />
tre<strong>me</strong>ndous opportunity offered by this seg<strong>me</strong>nt <strong>to</strong> pharma companies – Page 26<br />
Dena Bank: In A Favourable Position<br />
A large number of fac<strong>to</strong>rs seem <strong>to</strong> be favouring the growth trajec<strong>to</strong>ry of the Gujaratbased<br />
public sec<strong>to</strong>r bank – Page 28<br />
Fortnightly Outlook For Commodities – Page 32<br />
Fortnightly Outlook For Currencies – Page 33<br />
Wooing Foreign Inves<strong>to</strong>rs<br />
The announce<strong>me</strong>nt <strong>to</strong> permit QFIs <strong>to</strong> invest in mutual fund sche<strong>me</strong>s will enable them<br />
<strong>to</strong> have direct access <strong>to</strong> the Indian mutual fund industry, thus widening the class of<br />
inves<strong>to</strong>rs in the Indian capital market and also help in reducing the volatility in the<br />
markets – Page 34<br />
Advising The Advisors<br />
The concept note on the regulation of invest<strong>me</strong>nt advisors proposes certain positive<br />
practices for advisors and distribu<strong>to</strong>rs, thus aiding inves<strong>to</strong>rs in choosing the right<br />
products for their invest<strong>me</strong>nt portfolios – Page 38<br />
Important Statistics for the Fortnight Gone By – Page 40<br />
A Mind of Its Own<br />
The knowledge of behavioural finance can help market participants <strong>to</strong> recognize and<br />
avoid bias and errors in their decisions – Page 44<br />
Beyond Market 10th Oct ’11 It’s simplified... 3
4<br />
PROPHECY OF DOOM<br />
The repercussions of the financial crisis of 2008 can be felt even <strong>to</strong>day. Despite the revival in growth due <strong>to</strong> the huge bailouts by<br />
western banks, fiscal stimulus and easy monetary policies, the threat of economic imbalances, debt defaults by countries and<br />
burgeoning inflation persist. The financial mayhem, evident from the growing debt numbers, coupled with slow growth, is affecting<br />
large economies like the US and Europe. The irony, however, is that the economies that were actually trendsetters are now being<br />
looked at rather suspiciously.<br />
The recent report on the outlook for the world economy by the IMF is testimony <strong>to</strong> these issues. In its report, the IMF has lowered<br />
its forecast for world growth and also <strong>me</strong>ntioned the various reasons that could play spoilsport. According <strong>to</strong> the chief economist at<br />
the IMF, the world economy has entered in<strong>to</strong> a “dangerous new phase”.<br />
Since the IMF is looked upon by nations around the world due <strong>to</strong> the role it plays in fostering global monetary cooperation, securing<br />
financial stability, facilitating international trade, promoting employ<strong>me</strong>nt and sustainable economic growth and reducing poverty<br />
around the world, this report by the organization is very significant. We have tried <strong>to</strong> decipher this report in our cover s<strong>to</strong>ry.<br />
In this issue, we have also shed light on the recent rate hike announced by the RBI with the aim <strong>to</strong> control rising inflation and other<br />
issues that continue <strong>to</strong> be impedi<strong>me</strong>nts <strong>to</strong> economic growth of India.<br />
There is also an interesting article on how Gujarat, also known as the ‘land of the legends’, has attracted invest<strong>me</strong>nts not only from<br />
within the county but also from international inves<strong>to</strong>rs on the back of fac<strong>to</strong>rs like strategic location, business-friendly policies,<br />
robust infrastructure, superior manpower and abundant natural resources, <strong>to</strong> na<strong>me</strong> a few. Through the Vibrant Gujarat Summit, the<br />
state govern<strong>me</strong>nt has managed <strong>to</strong> garner invest<strong>me</strong>nts from all over the world and facilitate expansion of local companies overseas.<br />
Further, focused initiatives have helped Gujarat achieve tre<strong>me</strong>ndous growth, leaving behind all the other states in the country as far<br />
as develop<strong>me</strong>nt is concerned.<br />
Sec<strong>to</strong>rally speaking, there are articles on banking, au<strong>to</strong>mobile and coal industries, among others. The piece on the banking sec<strong>to</strong>r<br />
elaborates on the cautious approach undertaken by the RBI in doling out new banking licenses. As far as the au<strong>to</strong> industry goes,<br />
companies are going all out <strong>to</strong> woo cus<strong>to</strong><strong>me</strong>rs during the festive season <strong>to</strong> revive sales. And despite the im<strong>me</strong>nse opportunities<br />
offered by the coal sec<strong>to</strong>r, several challenges still weigh heavily on the industry.<br />
Apart from these, there is an article on the inves<strong>to</strong>r-friendly initiative undertaken by the market regula<strong>to</strong>r, the Securities and<br />
Exchange Board of India (SEBI). It recently proposed a concept note on regulating invest<strong>me</strong>nt advisors. This concept paper is also<br />
ai<strong>me</strong>d at clarifying the role of the middle<strong>me</strong>n involved in the process, thus helping inves<strong>to</strong>rs make the right invest<strong>me</strong>nt decisionS.<br />
Beyond Market 10th Oct ’11<br />
Tushita Nigam<br />
Edi<strong>to</strong>r<br />
It’s simplified...
T<br />
Overall, the markets<br />
look weak at the mo<strong>me</strong>nt.<br />
he previous fortnight saw<br />
two key announce<strong>me</strong>nts<br />
that will have a bearing<br />
on the Indian economy.<br />
In the first one, the Reserve Bank of<br />
India (RBI) hiked key interest rates in<br />
line with expectations with the aim <strong>to</strong><br />
control inflation, which continues <strong>to</strong><br />
worry policymakers.<br />
Secondly, the govern<strong>me</strong>nt announced<br />
a 32% increase in its borrowing plan<br />
for the second half of the current<br />
fiscal year ending March ’12 and<br />
cited the lower-than-expected cash<br />
surplus at the start of the financial<br />
year and revenue shortfall under the<br />
small savings sche<strong>me</strong> for the move.<br />
However, this increase in borrowing<br />
costs is likely <strong>to</strong> negatively impact<br />
banking s<strong>to</strong>cks.<br />
Overall, the markets look weak at the<br />
mo<strong>me</strong>nt. The Nifty has strong support<br />
at the 4,680 level. If this level breaks,<br />
then market participants are advised<br />
<strong>to</strong> avoid buying.<br />
Instead, they should sell at every rise<br />
in the next fortnight until there is any<br />
positive news at both the global and<br />
do<strong>me</strong>stic levels.<br />
Fresh buying should be considered<br />
only after the quarterly results are<br />
announced. The street expects the<br />
quarterly results of India Inc <strong>to</strong> be<br />
volatile, especially due <strong>to</strong> foreign<br />
exchange move<strong>me</strong>nt and the<br />
depreciation of the Indian rupee.<br />
Companies with higher exposure <strong>to</strong><br />
foreign exchange debt and imports<br />
will have a negative impact, while<br />
those in<strong>to</strong> exports are likely <strong>to</strong> benefit<br />
from the rupee depreciation.<br />
The sharp correction in <strong>me</strong>tal and<br />
crude oil prices <strong>to</strong>o may add <strong>to</strong> the<br />
volatility, because of which<br />
companies will be forced <strong>to</strong> book<br />
inven<strong>to</strong>ry losses.<br />
Traders and inves<strong>to</strong>rs also need <strong>to</strong><br />
watch out for the develop<strong>me</strong>nts in the<br />
Euro zone as the debt crisis remains a<br />
cause of concern.<br />
The European govern<strong>me</strong>nt is looking<br />
at lending support <strong>to</strong> the banks and<br />
leveraging its bailout fund - the<br />
European Financial Stability Facility<br />
(EFSF) - <strong>to</strong> prevent them as well as<br />
other nations from being affected, in<br />
case Greece defaultS.<br />
Nifty: 4,752.35<br />
Sensex: 15,792.41<br />
(As on 5th Oct ’11)<br />
Disclai<strong>me</strong>r<br />
It is safe <strong>to</strong> assu<strong>me</strong> that my clients and I may have<br />
an invest<strong>me</strong>nt interest in the s<strong>to</strong>cks/sec<strong>to</strong>rs<br />
discussed. Inves<strong>to</strong>rs are required <strong>to</strong> take an<br />
independent decision before investing.<br />
Invest<strong>me</strong>nt in equity is subject <strong>to</strong> market risk. Our<br />
research should not be considered as an advertise<strong>me</strong>nt<br />
or advice, professional or otherwise. The<br />
inves<strong>to</strong>r is requested <strong>to</strong> take in<strong>to</strong> consideration all<br />
the risk fac<strong>to</strong>rs including their financial condition,<br />
suitability <strong>to</strong> risk return pro<strong>file</strong> and the like and<br />
take professional advice before investing.<br />
Beyond Market 10th Oct ’11 It’s simplified... 5
6<br />
The IMF, in its World<br />
Economic Outlook, has<br />
lowered its forecast for<br />
world growth and cited<br />
significant risks <strong>to</strong><br />
the economic outlook<br />
Beyond Market 10th Oct ’11<br />
The global economic<br />
uncertainty is getting<br />
murkier and murkier with<br />
each passing day. Recently<br />
the US Fed talked about significant<br />
risks <strong>to</strong> the US economic growth in<br />
the back drop of the global<br />
environ<strong>me</strong>nt and its internal issues.<br />
Few days back Washing<strong>to</strong>n-based<br />
international financial institution, the<br />
International Monetary Fund (IMF) in<br />
its report on the world economic<br />
outlook started with the the<strong>me</strong> of<br />
“slowing growth, rising risk”. In its<br />
opening remarks, it says relative <strong>to</strong><br />
the previous world economic outlook<br />
presented in April, the economic<br />
recovery has beco<strong>me</strong> more uncertain.<br />
The world economy suffers from the<br />
confluence of two adverse<br />
develop<strong>me</strong>nts. The first is the slower<br />
recovery in advanced economies<br />
since the beginning of the year, a<br />
develop<strong>me</strong>nt largely failed <strong>to</strong> be<br />
perceived as it was happening. The<br />
second is the large increase in fiscal<br />
and financial uncertainty, which has<br />
been particularly pronounced since<br />
August. And each of these<br />
develop<strong>me</strong>nts is worriso<strong>me</strong>.<br />
It’s simplified...
It says with accumulating signs of<br />
weaknesses in key advanced<br />
economies, including the bad news<br />
about the US economy over the past<br />
couple of months, equity markets<br />
have fallen sharply and equity price<br />
volatility has jumped up <strong>to</strong>o and<br />
prices for strong sovereign bonds and<br />
gold have risen - all signs that<br />
inves<strong>to</strong>rs have beco<strong>me</strong> more cautious<br />
about the prospects for the major<br />
advanced economies.<br />
The US economy has been in the<br />
news over the past couple of months.<br />
The US govern<strong>me</strong>nt passed the debt<br />
ceiling bill raising the debt limit <strong>to</strong><br />
$14.3 trillion or (equal <strong>to</strong> its size of<br />
GDP) in July ’11. The move allowed<br />
the US govern<strong>me</strong>nt <strong>to</strong> borrow more<br />
and thus accommodate monetary<br />
easing. This ca<strong>me</strong> along with the<br />
downgrade of the US sovereign debt<br />
rating from AAA <strong>to</strong> AA+.<br />
GROWTH & DOWNSIDE RISKS<br />
The IMF has cut the world economic<br />
growth forecast by 30 basis points for<br />
the current calendar year <strong>to</strong> 4% and<br />
50 basis points for the next year <strong>to</strong> 4%<br />
as compared <strong>to</strong> its estimates in June<br />
this year.<br />
However, more than economic<br />
growth, which is more or less coming<br />
down, the IMF draws attention<br />
<strong>to</strong>wards the uncertainty and the<br />
downside risk <strong>to</strong> the global economy.<br />
The IMF said that the global economy<br />
is in a dangerous new phase. Global<br />
activity has weakened and beco<strong>me</strong><br />
more uneven, confidence has fallen<br />
sharply recently and downside risks<br />
are also growing.<br />
It projects that the real GDP growth in<br />
the advanced economies, which<br />
includes the US, Europe, Japan and<br />
others could expand at an anaemic<br />
pace of about 1.6% in calendar year<br />
2011. This is almost 150 basis point<br />
lower than the GDP growth of 3.1%<br />
in the year 2010.<br />
More importantly, this is the base case<br />
scenario that there are downside risk<br />
<strong>to</strong> these estimates, which <strong>me</strong>ans if<br />
so<strong>me</strong> of the concerns or risks<br />
<strong>me</strong>ntioned in the report co<strong>me</strong> true,<br />
growth could even be lower.<br />
Economic Growth (%)<br />
World<br />
US<br />
Euro<br />
Japan<br />
China<br />
India<br />
Source - IMF<br />
2009<br />
-0.7<br />
–3.5<br />
–4.3<br />
–6.3<br />
9.2<br />
6.8<br />
2010<br />
5.1<br />
3<br />
1.8<br />
4<br />
10.3<br />
10.1<br />
2011<br />
4<br />
1.5<br />
1.6<br />
–0.5<br />
9.5<br />
7.8<br />
2012<br />
4<br />
1.8<br />
1.1<br />
2.3<br />
9<br />
7.5<br />
It said that risks <strong>to</strong> the outlook remain<br />
large and downside risks dominate<br />
upside risks. The probability of global<br />
economic growth-now pegged at 4%-<br />
below 2% is appreciably higher than<br />
April ’11 when the world economic<br />
outlook was presented.<br />
FEAR OF THE UNKNOWN<br />
The report highlights that the markets<br />
have clearly beco<strong>me</strong> more sceptical<br />
about the ability of many countries <strong>to</strong><br />
stabilize their public debt. The<br />
worries, which were till so<strong>me</strong> ti<strong>me</strong><br />
lilted <strong>to</strong>wards the few small countries<br />
on the periphery of Europe, have<br />
spilled over <strong>to</strong> other regions like<br />
Japan and the US, among others in the<br />
developing world on the back of fresh<br />
concerns over economic growth.<br />
Further, the evolving sovereign crisis<br />
in the developing world has translated<br />
in<strong>to</strong> worries about the impact on the<br />
banks, which holds these sovereign<br />
bonds, mainly in Europe. With the<br />
uncertainty about the debt, the<br />
concerns over the flow of liquidity<br />
and tight lending have surfaced.<br />
The IMF in its report has prepared a<br />
downside scenario where different<br />
fac<strong>to</strong>rs have been analyzed <strong>to</strong> present<br />
the magnitude of the impact. Broadly,<br />
the scenario includes the kinds of<br />
shocks that could arise mainly in<br />
three regions including the European<br />
countries, the US as well as e<strong>me</strong>rging<br />
Asian economies.<br />
First is the ongoing crisis in the Euro<br />
zone, which already seems <strong>to</strong> be<br />
running beyond the control of<br />
policymakers. The shock is <strong>to</strong> bank<br />
capital, reflecting primarily<br />
recognition of losses on holdings of<br />
public debt but also of other losses on<br />
loans arising from the<br />
macroeconomic fallout.<br />
The report also says that vulnerable<br />
sovereigns are prone <strong>to</strong> a sudden loss<br />
of inves<strong>to</strong>r confidence in their debt<br />
sustainability if funda<strong>me</strong>ntals<br />
deteriorate sharply. European banks<br />
have a large exposure <strong>to</strong> the sovereign<br />
debts of countries, which are in the<br />
news for the wrong reasons, including<br />
the risk of default.<br />
With this background the chances of<br />
recapitalization is low considering<br />
that the inves<strong>to</strong>rs will beco<strong>me</strong><br />
risk-averse. Further, the IMF report<br />
says that these banks rely on<br />
wholesale funding, which is prone <strong>to</strong><br />
freezing during financial turmoil.<br />
This is also the reason why trouble in<br />
a few sovereigns could quickly spread<br />
across Europe. And from there it<br />
could move <strong>to</strong> the United States by<br />
way of US institutional inves<strong>to</strong>rs’<br />
holdings of European assets – and <strong>to</strong><br />
the rest of the world.<br />
In the US, according <strong>to</strong> the report, the<br />
shock scenario has two components.<br />
Of this, first is slower potential output<br />
growth, which could be lower than<br />
the expected growth in the economic<br />
activity. The economic activities in<br />
the US have already softened and<br />
pressure is seen in the housing<br />
markets and employ<strong>me</strong>nt generation.<br />
Beyond Market 10th Oct ’11 It’s simplified... 7
8<br />
There could be further pressure as a<br />
result of fiscal consolidation. This<br />
could be accompanied by accelerated<br />
de-leveraging and savings resulting<br />
in<strong>to</strong> lower spending. Second is the<br />
resulting increase in loan losses,<br />
which could be the mortgage<br />
portfolio of banks.<br />
According <strong>to</strong> the report, the reasons<br />
for the shock in e<strong>me</strong>rging Asia could<br />
probably be loan losses on account of<br />
poor lending decisions in the past.<br />
Furthermore, the corporate risk<br />
premium attached <strong>to</strong> e<strong>me</strong>rging Asian<br />
economies is closely correlated with<br />
the rise in the risk premiums in the<br />
Euro zone and the United States,<br />
which was also seen during the<br />
collapse of the Lehman Brothers.<br />
In such a scenario, the IMF report<br />
says that global risk aversion would<br />
rise sharply and funding rates for<br />
banks and non-financial corporations<br />
would shoot up <strong>to</strong> varying degrees.<br />
Further, e<strong>me</strong>rging market economies<br />
would suffer from the slump in<br />
commodity prices and a sudden<br />
reversal in capital flows.<br />
FALLING BACK IN RECESSION<br />
Under the aforesaid scenario, given<br />
the limited room for monetary and<br />
fiscal policy in advanced economies<br />
<strong>to</strong> respond vigorously, a serious<br />
global slowdown would ensue, which<br />
would undo much of the progress<br />
since the end of the Great Recession.<br />
Commodity prices and global trade<br />
and capital flows are likely <strong>to</strong> decline<br />
abruptly, dragging down growth in<br />
the e<strong>me</strong>rging and developing<br />
economies. The US and the Euro zone<br />
would fall back in<strong>to</strong> recession.<br />
As it happened in the 2008 crisis, the<br />
cascading impact of lower economic<br />
activities and falling confidence could<br />
lead <strong>to</strong> further correction in the global<br />
trade, commodity prices and the<br />
Beyond Market 10th Oct ’11<br />
equity markets could globally correct,<br />
which essentially <strong>me</strong>ans the countries<br />
with higher exposure <strong>to</strong> commodities<br />
as a per cent of their overall economy<br />
could suffer and drag the economic<br />
growth down further.<br />
BANKING: THE ROOT CAUSE<br />
During 2008-09, the financial crisis<br />
was due <strong>to</strong> the falling housing prices<br />
and in turn increase in non<br />
performing assets (NPAs) or erosion<br />
in the bond portfolio led <strong>to</strong> banks and<br />
financial institutions <strong>to</strong> default or ask<br />
for support one after the other. The<br />
latest IMF outlook report again<br />
emphasizes on banks and the need for<br />
adequate capitalization.<br />
The IMF report said that s<strong>to</strong>ck prices<br />
have fallen. These will adversely<br />
affect spending in the months <strong>to</strong><br />
co<strong>me</strong>. Indeed, the numbers for the<br />
month of August indicate that this is<br />
already being witnessed.<br />
Low underlying growth and fiscal and<br />
financial linkages may well feed on<br />
each other and this is where the risks<br />
are. Low growth makes it more<br />
difficult <strong>to</strong> achieve debt sustainability<br />
and leads markets <strong>to</strong> worry even more<br />
about fiscal stability. Low growth also<br />
leads <strong>to</strong> more non-performing loans<br />
and weakens banks.<br />
Downside risks are very real. Under<br />
the most optimistic assumptions,<br />
growth in advanced economies will<br />
remain low for so<strong>me</strong> ti<strong>me</strong>. During<br />
that ti<strong>me</strong>, banks have <strong>to</strong> be<br />
strengthened, not only <strong>to</strong> increase<br />
bank lending and baseline growth, but<br />
also <strong>to</strong> reduce risks.<br />
EMERGING MARKETS<br />
As seen in the recent months, the IMF<br />
report says that the e<strong>me</strong>rging markets<br />
will have <strong>to</strong> deal with volatile capital<br />
flows. Indeed, so<strong>me</strong> are close <strong>to</strong><br />
overheating, although prospects are<br />
more uncertain again for many others.<br />
In its different risk scenarios, it feels<br />
e<strong>me</strong>rging markets may suffer more<br />
adverse export conditions.<br />
The IMF expects the world trade<br />
growth in volu<strong>me</strong>s <strong>to</strong> drop from<br />
almost 13% in 2010 <strong>to</strong> 7.5% in the<br />
current year and 5.8% next year. In<br />
fact, exports growth from e<strong>me</strong>rging<br />
and developing economies will co<strong>me</strong><br />
down drastically from 13.6% last year<br />
<strong>to</strong> 7.8% next year.<br />
Growth (%)<br />
2009<br />
2010<br />
Exports<br />
Advanced<br />
Economies<br />
–11.9 12.3<br />
E<strong>me</strong>rging And<br />
Developing<br />
Economies<br />
–7.7 13.6<br />
World Trade<br />
Volu<strong>me</strong><br />
–10.7 12.8<br />
Source - IMF<br />
2011<br />
6.2<br />
9.4<br />
7.5<br />
2012<br />
5.2<br />
7.8<br />
5.8<br />
Low exports, coupled with lower<br />
commodity prices could create<br />
challenges for low inco<strong>me</strong> countries.<br />
For the Indian economy it says that<br />
real GDP growth could fall from<br />
10.1% in calendar year 2010 <strong>to</strong> 7.8%<br />
in the current year and 7.5% next<br />
year. More importantly, it also<br />
expects consu<strong>me</strong>r prices <strong>to</strong> cool down<br />
from the 2010 levels but will remain<br />
at elevated levels around 8.6% till<br />
next year.<br />
In India, the IMF expects activities <strong>to</strong><br />
be supported by private consumption.<br />
However, it feels that invest<strong>me</strong>nts are<br />
expected <strong>to</strong> remain sluggish,<br />
reflecting, in part, recent corporate<br />
sec<strong>to</strong>r governance issues and a drag<br />
from the renewed global uncertainty<br />
and less favourable external financing<br />
environ<strong>me</strong>nt. It also highlights that<br />
the key challenge for policymakers is<br />
<strong>to</strong> bring down inflation, which is<br />
running close <strong>to</strong> double digitS.<br />
It’s simplified...
RATE HIKES:<br />
NO END IN SIGHT<br />
Another rate hike at the<br />
mid-quarter review of<br />
the monetary policy on<br />
16th September was<br />
anyone’s guess. Provided, they had<br />
kept track of the economic numbers<br />
which flowed after 26th July, when<br />
the Reserve Bank of India (RBI)<br />
conducted its first quarter monetary<br />
policy review this year.<br />
From 7.8% in the quarter ended<br />
In the current scenario where ination refuses <strong>to</strong> be ta<strong>me</strong>d and<br />
global concerns continue <strong>to</strong> worsen with each passing day, rate hikes<br />
seem <strong>to</strong> be an inevitable option for the RBI<br />
March ’11, the GDP growth<br />
decelerated <strong>to</strong> 7.7% in the quarter<br />
ended June ’11, a stark 1% decline<br />
from 8.8% in the corresponding<br />
quarter a year ago.<br />
Next, the index of industrial<br />
production (IIP) slowed down <strong>to</strong><br />
around 3.3% in July from 8.8%<br />
year-on-year (y-o-y) in June. On a<br />
cumulative basis, during April-July<br />
’11, the IIP numbers increased by<br />
5.8% compared with an increase of<br />
9.7% in the corresponding period of<br />
the previous year.<br />
The inflation that is <strong>me</strong>asured in the<br />
form of wholesale price index (WPI)<br />
was on a roll with a year-on-year rise<br />
from 9.2% in the month of July <strong>to</strong><br />
9.8% in August ’11.<br />
While experts believed that the RBI<br />
would pause after hiking interest rates<br />
Beyond Market 10th Oct ’11 It’s simplified... 9
10<br />
Move<strong>me</strong>nts In Key Policy Rates In India<br />
Effective Since Reverse Repo Rate Repo Rate<br />
19 Mar'10<br />
20 Apr'10<br />
24 Apr'10<br />
02 Jul'10<br />
27 Jul'10<br />
16 Sep'10<br />
02 Nov'10<br />
25 Jan'11<br />
17 Mar'11<br />
03 May'11<br />
16 Jun'11<br />
26 Jul'11<br />
16 Sep'11<br />
11 ti<strong>me</strong>s since March ’10, the<br />
macroeconomic numbers proved<br />
those predictions wrong. With<br />
inflation continuing <strong>to</strong> be a<br />
burgeoning worry, the RBI delivered<br />
25 basis points (hundred basis points<br />
make a per cent) hike in the repo rate<br />
– the rate at which banks borrow from<br />
the central bank.<br />
Thus, the 12th interest rate hike led<br />
the repo rate <strong>to</strong> increase by a<br />
cumulative 350 basis points since<br />
March ’10; it now stands at 8.25%<br />
and the reverse repo rate – the rate at<br />
which banks park their excess<br />
liquidity with the central bank - now<br />
stands at 7.25%.<br />
After announcing the monetary<br />
<strong>me</strong>asure, the RBI said that since its<br />
policy review of 26th July, the global<br />
macroeconomic outlook has<br />
worsened. “There is a growing<br />
consensus that sluggishness will<br />
persist longer than expected,” said the<br />
Reserve Bank of the country in its<br />
policy release.<br />
“Do<strong>me</strong>stically, even as many<br />
indica<strong>to</strong>rs point <strong>to</strong> moderating<br />
growth, both headline and non-food<br />
Beyond Market 10th Oct ’11<br />
3.50 (+0.25)<br />
3.75 (+0.25)<br />
3.75<br />
4.00 (+0.25)<br />
4.50 (+0.50)<br />
5.00 (+0.50)<br />
5.25 (+0.25)<br />
5.50 (+0.25)<br />
5.75 (+0.25)<br />
6.25 (+0.50)<br />
6.50 (+0.25)<br />
7.00 (+0.50)<br />
7.25 (+0.25)<br />
5.00 (+0.25)<br />
5.25 (+0.25)<br />
5.25<br />
5.50 (+0.25)<br />
5.75 (+0.25)<br />
6.00 (+0.25)<br />
6.25 (+0.25)<br />
6.50 (+0.25)<br />
6.75 (+0.25)<br />
7.25 (+0.50)<br />
7.50 (+0.25)<br />
8.00 (+0.50)<br />
8.25 (+0.25)<br />
Cash Reserve<br />
Ratio (CRR)<br />
5.75<br />
5.75<br />
6.00 (+0.25)<br />
6<br />
6<br />
6<br />
6<br />
6<br />
6<br />
6<br />
6<br />
6<br />
6<br />
Source: Reserve Bank of India<br />
Note: Figures outside the parentheses are in percentage and those in parentheses indicate<br />
change in policy rates in percentage points.<br />
manufactured products inflation are at<br />
uncomfortably high levels. Crude oil<br />
prices remain high. Food price<br />
inflation persists, notwithstanding a<br />
normal monsoon,” the RBI’s policy<br />
release added.<br />
The RBI is hoping that stabilization<br />
of energy prices and moderating<br />
do<strong>me</strong>stic demand would ease<br />
inflationary pressures <strong>to</strong>wards the<br />
later part of 2011-12.<br />
However, in the current scenario, with<br />
the likelihood of inflation remaining<br />
high for the next few months, rising<br />
inflationary expectations continue <strong>to</strong><br />
be a key risk. “This makes it<br />
imperative <strong>to</strong> persevere with the<br />
current anti-inflationary stance,” said<br />
the RBI, justifying the ongoing<br />
hawkishness it has been maintaining.<br />
In the readings for the month of<br />
August, inflation with respect <strong>to</strong><br />
primary articles and fuel groups<br />
edged up significantly. The y-o-y<br />
non-food manufactured products’<br />
inflation rose <strong>to</strong> around 7.7% in<br />
August ’11 from 7.5% in the month of<br />
July ’11, suggesting the prevalence of<br />
persistent demand pressures.<br />
Oil marketing companies raised the<br />
price of petrol by `3.14/ litre with<br />
effect from 16th September. This,<br />
according <strong>to</strong> the RBI, will have a<br />
direct impact of 7 basis points on the<br />
WPI, in addition <strong>to</strong> the indirect<br />
impact with a lag.<br />
In the RBI’s view, the latest repo rate<br />
hike is expected <strong>to</strong> reinforce the<br />
impact of past monetary policy<br />
actions <strong>to</strong> contain inflation and<br />
anchor inflationary expectations. In<br />
its guidance, the RBI has said that the<br />
monetary tightening carried out so far<br />
has helped in containing inflation as<br />
well as anchoring inflationary<br />
expectations <strong>to</strong> a certain extent,<br />
though currently both remain at levels<br />
that are beyond the Reserve Bank’s<br />
comfort zone.<br />
The central bank reiterated that as the<br />
monetary policy operates with a lag,<br />
the cumulative impact of the policy<br />
actions should now be increasingly<br />
felt in further moderation in demand<br />
as well as the reversal of the inflation<br />
trajec<strong>to</strong>ry <strong>to</strong>wards the later part of<br />
2011-12.<br />
“As such, a premature change in the<br />
policy stance could harden<br />
inflationary expectations, thereby<br />
diluting the impact of past policy<br />
actions. It is, therefore, imperative <strong>to</strong><br />
persist with the current<br />
anti-inflationary stance,” said the<br />
central bank.<br />
And the global develop<strong>me</strong>nts are no<br />
less crucial. Less than two weeks<br />
from the RBI’s quarterly review in<br />
July, ratings major Standard & Poor’s<br />
downgraded the United States <strong>to</strong> AA+<br />
from its prized AAA rating it held<br />
earlier. And then the concerns over<br />
the sovereign debt problem in the<br />
Euro zone have added further<br />
uncertainty <strong>to</strong> the prospects of an<br />
economic recovery.<br />
In the second quarter (April <strong>to</strong> June)<br />
It’s simplified...
of 2011, the global economy has<br />
slowed down considerably. On 20th<br />
Sept ’11, the International Monetary<br />
Fund (IMF) unveiled the World<br />
Economic Outlook (WEO) where it<br />
said that growth, which had been<br />
strong in the year 2010, decreased in<br />
the year 2011.<br />
The IMF forecasted world growth <strong>to</strong><br />
be about 4% in 2011 and also 4% in<br />
2012. This is down from 4.5% for<br />
both years that the IMF had predicted<br />
in April.<br />
“Now, 4% may not sound <strong>to</strong>o bad,<br />
but, again, the recovery is very<br />
unbalanced,” Olivier Blanchard,<br />
International Monetary Fund’s<br />
Economic Counsellor and Direc<strong>to</strong>r of<br />
Research Depart<strong>me</strong>nt said at the<br />
WEO briefing.<br />
“For the year 2011, we see growth of<br />
6.4% for e<strong>me</strong>rging market countries,<br />
which is a good number. But only<br />
1.6% for advanced economies,”<br />
Blanchard added.<br />
With uncertainty being the na<strong>me</strong> of<br />
the ga<strong>me</strong> across the global markets<br />
the sharp increase in financial<br />
volatility has been prevalent for so<strong>me</strong><br />
ti<strong>me</strong> now.<br />
“What has happened is that the<br />
markets have beco<strong>me</strong> more sceptical<br />
about the ability of policymakers <strong>to</strong><br />
stabilize the govern<strong>me</strong>nt’s public<br />
debt,” explained IMF’s Economic<br />
Counsellor Blanchard.<br />
Worries have spread from countries at<br />
the periphery of Europe, <strong>to</strong> countries<br />
in the core of Europe, and then <strong>to</strong><br />
other nations. Even economies like<br />
Japan and the United States of<br />
A<strong>me</strong>rica have not been spared.<br />
Worries about sovereigns have<br />
translated in<strong>to</strong> worries about the<br />
banks that are holding these sovereign<br />
bonds, mainly in Europe. And these<br />
worries have resulted in a partial<br />
freeze of financial relations with<br />
banks that are keeping high levels of<br />
liquidity as well as tightening<br />
monetary lending.<br />
A day after the WEO, the IMF issued<br />
its Global Financial Stability Report,<br />
where José Viñals, IMF’s Financial<br />
Counsellor and Direc<strong>to</strong>r of the<br />
Monetary and Capital Markets<br />
depart<strong>me</strong>nt said that since IMF’s<br />
previous report, financial stability<br />
risks have increased substantially,<br />
reversing the progress that had been<br />
made over the previous three years.<br />
“So we are back in the danger zone,”<br />
said Viñals.<br />
As we have moved in<strong>to</strong> a new<br />
political phase of the crisis, several<br />
shocks have recently buffeted the<br />
global financial system, including<br />
unequivocal signs of a broader global<br />
economic slowdown, the French<br />
market turbulence in the Euro zone<br />
and not <strong>to</strong> forget the credit downgrade<br />
in the US.<br />
“This has thrown us in<strong>to</strong> a crisis of<br />
confidence, which is being driven by<br />
three main fac<strong>to</strong>rs: weak growth,<br />
weak balance sheets and weak<br />
politics,” maintained Viñals.<br />
“Develop<strong>me</strong>nts in the global<br />
economy over the past few weeks are<br />
a matter of serious concern,” said the<br />
RBI. Growth mo<strong>me</strong>ntum is<br />
weakening in the advanced<br />
economies amidst heightened<br />
concerns that recovery may take<br />
longer than expected.<br />
“Although India’s exports have<br />
perfor<strong>me</strong>d extre<strong>me</strong>ly well in the<br />
recent period, this trend is unlikely <strong>to</strong><br />
be sustained in the face of weakening<br />
global demand,” the Reserve Bank of<br />
India warned.<br />
“This, combined with the slowing<br />
down of do<strong>me</strong>stic demand, <strong>to</strong> which<br />
the monetary policy stance is also<br />
contributing, suggests that risks <strong>to</strong> the<br />
growth projection for the year<br />
2011-12 made in the July review are<br />
on the downside now,” said the RBI.<br />
But global fac<strong>to</strong>rs have already<br />
pushed the Indian rupee <strong>to</strong> a<br />
28-month low at 49.90 a dollar and<br />
also drawn the RBI <strong>to</strong> step in and<br />
intervene in order <strong>to</strong> stem the rupee’s<br />
free-fall, which shed nearly 5%<br />
against the US dollar in just 10<br />
trading sessions.<br />
The gravity of the situation is justified<br />
by the fact that the RBI did not<br />
intervene in the foreign exchange<br />
markets for nine successive months<br />
until July.<br />
Subir Gokarn, Deputy Governor of<br />
the RBI, during his visit <strong>to</strong> the US,<br />
infor<strong>me</strong>d a television channel that<br />
volatility in the currency exchange<br />
rate had beco<strong>me</strong> ‘a part of the ga<strong>me</strong>’<br />
and the central bank would intervene<br />
<strong>to</strong> the excessive volatility in the<br />
currency under control.<br />
But in the middle of moderating<br />
growth, higher interest rates and<br />
stubborn inflation, a volatile Indian<br />
rupee would simply aug<strong>me</strong>nt the<br />
woes of the RBI as much as <strong>to</strong> that of<br />
India Inc.<br />
And for the monetary policy in the<br />
ensuing quarters, the central bank’s<br />
action will depend heavily upon a<br />
host of ‘known unknowns’ like<br />
further develop<strong>me</strong>nts in do<strong>me</strong>stic<br />
growth and inflation dynamics,<br />
develop<strong>me</strong>nts in the global financial<br />
situation as well as move<strong>me</strong>nt of<br />
commodity prices at the international<br />
level, <strong>to</strong> <strong>me</strong>ntion a few.<br />
In all probabilities, the wider market<br />
expectation of aggressive monetary<br />
policy easing, beginning this year,<br />
appears <strong>to</strong> be thoroughly misplaced<br />
for the mo<strong>me</strong>nT.<br />
Beyond Market 10th Oct ’11 It’s simplified... 11
The Reserve Bank of India<br />
has been treading<br />
cautiously with regards <strong>to</strong><br />
banking licences. The<br />
numbers speak for themselves. In the<br />
past two decades, only 12 new<br />
banking licences have been granted <strong>to</strong><br />
the existing players.<br />
However, it is now a well established<br />
fact that a number of corporate<br />
players are seeking <strong>to</strong> make a<br />
footprint in the banking industry.<br />
With the Finance Minister’s 2010<br />
budgetary announce<strong>me</strong>nt of granting<br />
new banking licences, hopes have<br />
only built up further. Conglo<strong>me</strong>rates<br />
such as the Tatas, Birlas, Ambanis,<br />
and Mahindras are all in the fray.<br />
The Non Banking Financial<br />
Companies (NBFCs) such as L&T<br />
Finance Holdings, Srei Finance,<br />
Sundaram and Bajaj Finserv are also<br />
believed <strong>to</strong> be in the race.<br />
RBI, however, is still holding the<br />
cards close <strong>to</strong> its chest. It was only at<br />
the fag end of August that it ca<strong>me</strong> out<br />
with draft guidelines with regards <strong>to</strong><br />
new banking licences. Even then it<br />
was a <strong>me</strong>asured move.<br />
The RBI Governor D Subbarao made<br />
no bones about the fact that in the<br />
current fra<strong>me</strong>work of rules and<br />
regulations, corporate entities, if<br />
allowed <strong>to</strong> open banks, would have a<br />
ready source of funds.<br />
Nevertheless, it has put out the draft<br />
guidelines that are stringent <strong>to</strong> say the<br />
least. Is the RBI justified in making<br />
such cautious moves? We take a<br />
closer look at so<strong>me</strong> of the major<br />
suggestions made by the RBI.<br />
OWNERSHIP ISSUES<br />
Firstly, the RBI said that any existing<br />
financial company will be allowed <strong>to</strong><br />
transform in<strong>to</strong> a bank or an<br />
independent promoter can start from<br />
scratch as long as they have the<br />
minimum initial capital of `500 crore,<br />
a minimum capital adequacy ratio of<br />
12% and the ownership and<br />
manage<strong>me</strong>nt is different for the<br />
promoter company and the bank.<br />
Besides, the promoter seeking <strong>to</strong> set<br />
up a bank is required <strong>to</strong> have an<br />
impeccable track record of 10 years,<br />
sound credentials and must have run<br />
the business with integrity.<br />
However, those entities that have<br />
more than 10% inco<strong>me</strong> from real<br />
estate, construction or broking will<br />
not be considered eligible for the<br />
opening of a new bank.<br />
While the RBI is obviously thinking<br />
about the risk fac<strong>to</strong>rs involved in<br />
businesses such as these, there seems<br />
<strong>to</strong> be a strong objection <strong>to</strong> the sa<strong>me</strong>.<br />
Brokers especially have strong views<br />
against this. They say that they are in<br />
fact the most regulated entities in the<br />
country and are under strict vigil of<br />
the Securities and Exchange Board of<br />
India (SEBI).<br />
Besides, those in the broking business<br />
have a keen sense of finance and<br />
economy and are perfect candidates<br />
for opening up of new banks, so<strong>me</strong><br />
experts argue.<br />
In addition <strong>to</strong> this, the fact that the<br />
bank is not only going <strong>to</strong> be removed<br />
by a separate holding company and<br />
will be directly under the jurisdiction<br />
of the central bank, seems <strong>to</strong> be quite<br />
an unfair clause.<br />
HOLDING FORT<br />
The RBI further stipulates that the<br />
promoters have <strong>to</strong> set up a<br />
wholly-owned non co-operative<br />
holding company (NOHC). This<br />
NOHC will, in turn, be the holding<br />
company for the new bank as well as<br />
other financial subsidiaries of the<br />
promoter such as life insurance,<br />
general insurance or the asset<br />
manage<strong>me</strong>nt company.<br />
According <strong>to</strong> legal experts, this is a<br />
smart move by the RBI as it not only<br />
gets direct supervision of the bank but<br />
also strengthens its holds on the<br />
financial sec<strong>to</strong>r.<br />
The RBI also says that the NOHC<br />
shall hold at least 40% stake in the<br />
banks and this has <strong>to</strong> be locked in for<br />
a period of five years. If the<br />
shareholding is beyond 40%, it has <strong>to</strong><br />
be brought down <strong>to</strong> 40% within a<br />
maximum period of two years from<br />
the date of licensing of the bank.<br />
The shareholding of the NOHC<br />
should further be brought down <strong>to</strong><br />
20% of the paid up capital within ten<br />
years and 15% in 12 years and<br />
maintained at this level, thereafter.<br />
Although it is not clear why the RBI<br />
is insisting on maximum shareholding<br />
now and also minimum shareholding<br />
over a period of 15 years, it may be<br />
deduced that the maximum<br />
shareholding clause has been<br />
introduced since the RBI wants <strong>to</strong><br />
ensure accountability from the<br />
promoter’s end in the initial years.<br />
The other salient clause that the RBI<br />
has suggested is with regards <strong>to</strong><br />
foreign holding. Any non resident<br />
shareholding from FDI, FII or NRI<br />
shall not exceed more than 49% for<br />
the first five years from licensing the<br />
new bank.<br />
The RBI further stipulated that no non<br />
resident shareholder would be<br />
allowed <strong>to</strong> hold more than 5% of the<br />
<strong>to</strong>tal paid up capital of the bank. This,<br />
however, does not seem <strong>to</strong> provide a<br />
level-playing field for the new banks<br />
that will be set up as the existing<br />
banks have a foreign shareholder<br />
ceiling of 74%.<br />
Beyond Market 10th Oct ’11 It’s simplified... 13
14<br />
The foreign shareholder policy should<br />
be uniform across all banks,<br />
according <strong>to</strong> the legal experts.<br />
INDEPENDENT PERSPECTIVE<br />
On corporate governance, the RBI<br />
lays down a stringent policy with<br />
regards <strong>to</strong> independent direc<strong>to</strong>rs. It<br />
says that at least 50% of the NOHC<br />
should be independent direc<strong>to</strong>rs.<br />
The RBI <strong>me</strong>ntions that these direc<strong>to</strong>rs<br />
ought <strong>to</strong> be <strong>to</strong>tally independent of the<br />
promoter, promoter group and all<br />
their cus<strong>to</strong><strong>me</strong>rs and suppliers.<br />
Further, the RBI specifies that no<br />
other financial entity that is functional<br />
under the NOHC will be allowed <strong>to</strong><br />
undertake any activity that the new<br />
bank has under its ambit.<br />
If there are any overlapping activities<br />
they have <strong>to</strong> be moved <strong>to</strong> the bank<br />
with proper notification <strong>to</strong> the RBI.<br />
The central bank will also specify<br />
terms and conditions if the situation<br />
so arises.<br />
While the RBI lays a lot of emphasis<br />
on the independent direc<strong>to</strong>r clause,<br />
experts say that this covers a<br />
miniscule portion of corporate<br />
governance required for banks.<br />
While it is definitely not an easy task<br />
on hand, the RBI has <strong>to</strong> ensure quality<br />
Beyond Market 10th Oct ’11<br />
when it allows people <strong>to</strong> enter the<br />
banking system, which can be called<br />
the backbone of the economy.<br />
It cannot be a decision based on size<br />
or shareholding pattern and<br />
independent direc<strong>to</strong>rs. Having said<br />
that, there is the crying need <strong>to</strong> open<br />
up the banking sec<strong>to</strong>r. This will<br />
encourage competition and result in<br />
cus<strong>to</strong><strong>me</strong>rs getting better loans and<br />
deposits that can be cus<strong>to</strong>mised <strong>to</strong><br />
their needs.<br />
PROS AND CONS<br />
an apple a day keeps the doc<strong>to</strong>r away<br />
regular invest<strong>me</strong>nts keep worries away<br />
Your financial health is our concern.<br />
At Nirmal Bang, it’s a relationship beyond broking...<br />
With new players in the field,<br />
innovation in product design will<br />
co<strong>me</strong> <strong>to</strong> the fore and cus<strong>to</strong><strong>me</strong>rs will<br />
stand <strong>to</strong> benefit.<br />
We have seen innovations such as<br />
gold loans, the brainchild of a few<br />
NBFCs and innovation on ho<strong>me</strong><br />
loans, such as 0% prepay<strong>me</strong>nt<br />
charges on ho<strong>me</strong> loans that has been<br />
introduced by Axis Bank.<br />
Many such innovations may co<strong>me</strong> up<br />
thanks <strong>to</strong> the entry of new players<br />
and, thus competition. The other<br />
benefit the borrower might have is<br />
that of lower interest rates.<br />
With more players in the field, banks<br />
may offer better financial deals or<br />
offer valuable partnerships on au<strong>to</strong><br />
loans and mortgages. Overall, it will<br />
be beneficial for cus<strong>to</strong><strong>me</strong>rs.<br />
The RBI has been of the opinion that<br />
if new banking licences have <strong>to</strong> be<br />
granted, they have <strong>to</strong> encourage<br />
financial inclusion. There is so<strong>me</strong><br />
truth <strong>to</strong> this.<br />
The banking penetration in India is<br />
abysmally low with mortgage at 7%<br />
of the <strong>to</strong>tal GDP as compared <strong>to</strong> 23%<br />
in other developing countries and<br />
over 80% in the US. But the onus<br />
should be as much on the existing<br />
players as it should be on the new<br />
bank. It is evident that very few will<br />
qualify on this ground.<br />
Going by the track record of the RBI,<br />
banking experts say that although<br />
there are many who want <strong>to</strong> be in the<br />
banking industry, it does not look like<br />
the RBI will grant more than four <strong>to</strong><br />
five licences at the most. A lot of<br />
filtering will be applied <strong>to</strong> pick those<br />
who are serious about their venture.<br />
Although so<strong>me</strong> clauses do seem a tad<br />
unfair at this point in ti<strong>me</strong>, it is not<br />
without reason that the RBI is<br />
treading cautiously now.<br />
The Banking Act needs <strong>to</strong> be<br />
a<strong>me</strong>nded before these licences are<br />
granted in the first place and there<br />
seems <strong>to</strong> be no hurry <strong>to</strong> do that.<br />
Signals indicate - the floodgates will<br />
not open anyti<strong>me</strong> sooN.<br />
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16<br />
Vibrant Gujarat Gets<br />
Future Progressive<br />
Inves<strong>to</strong>r-friendly policies, uninterrupted power supply, road<br />
connectivity and availability of trained workforce are reasons<br />
enough for corporates <strong>to</strong> flock <strong>to</strong> the western state of Gujarat<br />
Gujarat govern<strong>me</strong>nt’s<br />
promotional tag line<br />
‘Destination Gujarat’<br />
seems <strong>to</strong> be true at least<br />
in the case of corporate invest<strong>me</strong>nts.<br />
Be it the Tatas or the Ambanis, all big<br />
Beyond Market 10th Oct ’11<br />
corporate na<strong>me</strong>s are making a beeline<br />
<strong>to</strong> the state, citing the state’s<br />
reputation of being India’s most<br />
business-friendly destination.<br />
Here is a look at the recent<br />
invest<strong>me</strong>nts announced by large<br />
corporates in Gujarat. In January ’11,<br />
when Gujarat chief minister Narendra<br />
Modi inaugurated the fifth chapter of<br />
the Vibrant Gujarat Global Inves<strong>to</strong>rs<br />
Summit, heads of <strong>to</strong>p companies,<br />
It’s simplified...
made it clear that Gujarat is the state<br />
where they want <strong>to</strong> be. Consider this:<br />
the inaugural session of the inves<strong>to</strong>r<br />
summit alone saw invest<strong>me</strong>nt<br />
announce<strong>me</strong>nts of around `1.96 lakh<br />
crore by India Inc.<br />
The largest invest<strong>me</strong>nt was<br />
announced by Ah<strong>me</strong>dabad-based<br />
billionaire Gautam Adani, chairman<br />
of the Adani Group, who said the<br />
group would invest `80,000 crore in<br />
the power, petroleum and port sec<strong>to</strong>rs.<br />
Adani Group is planning <strong>to</strong> construct<br />
two new ports at Hazira and Dholera<br />
in Gujarat.<br />
Anil Ambani, chairman of the<br />
Reliance-Anil Dhirubhai Ambani<br />
Group or R-ADAG, has committed <strong>to</strong><br />
investing `50,000 crore in the next<br />
five years for setting up gas and<br />
coal-based power projects and ce<strong>me</strong>nt<br />
plants at Kutch, Porbandar and<br />
Junagadh in Gujarat.<br />
Prashant Ruia, group chief executive<br />
of the Essar Group of companies said<br />
his group is looking <strong>to</strong> invest `30,000<br />
crore in power, ports, water<br />
infrastructure and for expansion of its<br />
oil refinery at Vadinar. Gujarat.<br />
AM Naik, chairman of Larsen &<br />
Toubro Ltd, announced an invest<strong>me</strong>nt<br />
of `15,000 crore in infrastructure<br />
projects. Ajit Gulabchand, chairman<br />
of HCC Group, said HCC would<br />
invest `12,000 crore <strong>to</strong> set up a<br />
renewable energy park at its proposed<br />
waterfront city at Dholera Special<br />
Invest<strong>me</strong>nt Region, being developed<br />
on the lines of Lavasa.<br />
Au<strong>to</strong>mobile manufacturer General<br />
Mo<strong>to</strong>rs also said it was investing<br />
$100 million (`450 crore) <strong>to</strong> enhance<br />
production capacity at its Halol plant<br />
<strong>to</strong> 1,05,000 units annually from<br />
85,000 units per year at present.<br />
So, what is it that attracts do<strong>me</strong>stic<br />
and global inves<strong>to</strong>rs <strong>to</strong> Gujarat?<br />
Corporates say that speedy approvals<br />
is one of the reasons why they are<br />
investing in Gujarat.<br />
“States usually take 90 days <strong>to</strong> 180<br />
days <strong>to</strong> give clearances for land and<br />
other issues. When we were in the<br />
process of moving our Nano project<br />
<strong>to</strong> Gujarat, the state govern<strong>me</strong>nt gave<br />
us the clearances in just three days. It<br />
has never happened before,” Ratan<br />
Tata said in 2009 at the Vibrant<br />
Gujarat Global Inves<strong>to</strong>rs’ Summit<br />
that is held every two years.<br />
The Tata Group has already invested<br />
`30,000 crore in the state and has said<br />
it will continue <strong>to</strong> invest there.<br />
Chanda Kochhar, the Managing<br />
Direc<strong>to</strong>r and Chief Executive Officer<br />
of ICICI Bank agrees with Tata.<br />
“What makes Gujarat so attractive is<br />
that the state has reached double digit<br />
growth rate for many years on a<br />
sustainable basis,” she said at the<br />
summit in January this year.<br />
Companies say the inves<strong>to</strong>r-friendly<br />
policy of the Gujarat govern<strong>me</strong>nt,<br />
24/7 power supply, road connectivity,<br />
availability of trained workforce,<br />
large consu<strong>me</strong>r base and a simple and<br />
transparent procedure have lured<br />
them <strong>to</strong> the state.<br />
Through the state-owned Gujarat<br />
Invest<strong>me</strong>nt Corporation Ltd, the<br />
govern<strong>me</strong>nt has in fact taken<br />
initiatives <strong>to</strong> attract inves<strong>to</strong>rs by<br />
offering beneficial services such as<br />
providing financial assistance <strong>to</strong> the<br />
inves<strong>to</strong>rs for diversifying, expanding<br />
their business establish<strong>me</strong>nts and<br />
offering different financial packages.<br />
Interestingly, Jamnagar, Surat,<br />
Bharuch, Kutch and Vadodara<br />
districts in the state of Gujarat<br />
account for more than 80% of the<br />
large projects commissioned in the<br />
state from 1st Sept ’07, according <strong>to</strong> a<br />
state govern<strong>me</strong>nt study, which points<br />
<strong>to</strong> a skewed develop<strong>me</strong>nt, where a<br />
few districts corner a large share of<br />
the invest<strong>me</strong>nts.<br />
Jamnagar accounts for 26% of the<br />
large projects commissioned in the<br />
state, Surat (20%), Bharuch (17%),<br />
Kutch (9%) and Vadodara (8%). Each<br />
of the districts has a different reason<br />
for being popular invest<strong>me</strong>nt<br />
destinations in Gujarat.<br />
Surat has always been an industrial<br />
hub, Baruch is part of the golden<br />
corridor for industry, Baroda is well<br />
connected, Jamnagar is the refining<br />
capital of India and Kutch has a lot of<br />
free land available. This is, however,<br />
typical of develop<strong>me</strong>nt patterns in<br />
most states, where a few districts<br />
attract maximum invest<strong>me</strong>nt.<br />
A 2009 report by Deutsche Bank said<br />
Gujarat offers the best invest<strong>me</strong>nt<br />
potential among all the states and<br />
union terri<strong>to</strong>ries in the country,<br />
<strong>me</strong>asured on socio-economic and<br />
infrastructure fac<strong>to</strong>rs.<br />
“It seems that economic develop<strong>me</strong>nt<br />
and geographical proximity belong<br />
<strong>to</strong>gether, possibly also as a result of<br />
connecting infrastructure links,”<br />
Deutsche Bank said.<br />
The proof of Gujarat’s aggressive<br />
wooing of invest<strong>me</strong>nts is the fact that<br />
it has <strong>to</strong>ppled Maharashtra as the<br />
leading state as far as do<strong>me</strong>stic<br />
invest<strong>me</strong>nts are concerned.<br />
According <strong>to</strong> data released by the<br />
Centre’s Secretariat for Industrial<br />
Assistance, Gujarat has e<strong>me</strong>rged as<br />
the preferred destination for do<strong>me</strong>stic<br />
inves<strong>to</strong>rs who invested `9,44,417<br />
crore in the state between August ’91<br />
and March ’11.<br />
On the other hand, states like<br />
Maharashtra attracted `8,10,864<br />
crore worth of invest<strong>me</strong>nts, Andhra<br />
Pradesh- `7,84,066 crore, Karnataka -<br />
Beyond Market 10th Oct ’11 It’s simplified... 17
18<br />
`7,03,798 crore and Tamil Nadu -<br />
`3,93,477 crore.<br />
In fact, even FDIs may now go <strong>to</strong><br />
Gujarat, with global inves<strong>to</strong>rs<br />
choosing Gujarat over other states<br />
thanks <strong>to</strong> the proactive approach<br />
adopted by their govern<strong>me</strong>nt.<br />
Regular invest<strong>me</strong>nt conclaves<br />
conducted by the Gujarat govern<strong>me</strong>nt<br />
is attracting both do<strong>me</strong>stic and<br />
foreign inves<strong>to</strong>rs. According <strong>to</strong><br />
Gujarat govern<strong>me</strong>nt data, four<br />
Vibrant Gujarat Inves<strong>to</strong>r Summits<br />
have attracted invest<strong>me</strong>nts of over<br />
$400 billion.<br />
Modi has been <strong>me</strong>eting with<br />
international inves<strong>to</strong>rs <strong>to</strong> convince<br />
them <strong>to</strong> invest in the state. For<br />
instance, in March, this year, Modi,<br />
<strong>me</strong>t <strong>to</strong>p CEOs from European<br />
companies in New Delhi. The<br />
<strong>me</strong>eting was part of an interactive<br />
session held between the Gujarat<br />
govern<strong>me</strong>nt and the European<br />
Business Group India.<br />
The session was attended by leading<br />
companies including BAe Systems,<br />
Veolia Water India Pvt Ltd, Vodafone,<br />
BP, Dassault, EDF, IKEA, Rio Tin<strong>to</strong><br />
and Halcrow India, Shell Hazira and<br />
Als<strong>to</strong>m. The whole point of the<br />
<strong>me</strong>eting was <strong>to</strong> get European<br />
companies <strong>to</strong> invest in the state.<br />
Modi has partially succeeded in<br />
bringing FDI <strong>to</strong> the state since it<br />
already has invest<strong>me</strong>nts from few<br />
European companies such as<br />
Heubach, BASF, Bayer, Sie<strong>me</strong>ns,<br />
Linde AG, Lanxess, Duravit,<br />
Pharmacia, Pers<strong>to</strong>rp, Cheminova, and<br />
Sanofi Aventis.<br />
The US is also not far behind.<br />
Recently, on 22nd September,<br />
billionaire inves<strong>to</strong>r Warren Buffett<br />
said US-based specialty chemicals<br />
maker Lubrizol Corporation, a<br />
wholly-owned subsidiary of Buffett’s<br />
Beyond Market 10th Oct ’11<br />
invest<strong>me</strong>nt company, Berkshire<br />
Hathaway Inc, will set up a<br />
chlorinated polyvinyl chloride<br />
industrial unit, in partnership with<br />
Ah<strong>me</strong>dabad-based Astral Poly<br />
Technik, at the Gujarat Industrial<br />
Develop<strong>me</strong>nt Corporation (GIDC)<br />
complex in Dahej.<br />
Lubrizol will initially invest about<br />
$245 million (`1,177 crore) in<br />
Gujarat. “Considering the<br />
inves<strong>to</strong>r-friendly environ<strong>me</strong>nt,<br />
transparent policies and best<br />
infrastructure facilities in Gujarat, we<br />
have chosen the state for setting up of<br />
the first unit,” Tom Frubus, chief of<br />
Lubrizol Corporation (USA), said<br />
while announcing the invest<strong>me</strong>nt.<br />
Dahej is already a major chemical<br />
hub, with India’s largest petroleum,<br />
chemicals and petrochemicals<br />
invest<strong>me</strong>nt region being developed in<br />
this area.<br />
Gujarat has particularly been<br />
successful in attracting invest<strong>me</strong>nts<br />
from au<strong>to</strong>mobile companies. On 1st<br />
September, French carmaker, PSA<br />
Peugeot Citroen SA, signed a<br />
Memorandum Of Understanding,<br />
with the Gujarat govern<strong>me</strong>nt <strong>to</strong> set up<br />
an integrated manufacturing facility<br />
at an invest<strong>me</strong>nt of `4,000 crore at<br />
Sanand, Gujarat.<br />
The firm had been scouting for land<br />
for its India entry for the past few<br />
months in Tamil Nadu, Andhra<br />
Pradesh and Gujarat. “The<br />
availability of greenfield land and<br />
ready infrastructure are a couple of<br />
reasons for us <strong>to</strong> choose Sanand for<br />
the plant. Moreover, it is the<br />
enterprising nature of Gujarat that<br />
attracted us <strong>to</strong> the state,” Philippe<br />
Varin, chairman of the managing<br />
board, PSA Peugeot Citroen, said.<br />
Earlier, in July Ford India, the local<br />
unit of the Michigan-based Ford<br />
Mo<strong>to</strong>r Co had said it will set up its<br />
second manufacturing facility in India<br />
at Sanand for a <strong>to</strong>tal invest<strong>me</strong>nt of<br />
`4,000 crore.<br />
In fact, Sanand, a small <strong>to</strong>wn 40 km<br />
away from Ah<strong>me</strong>dabad, is now<br />
counted among India’s prominent<br />
au<strong>to</strong> hubs such as Pune in<br />
Maharashtra and Sriperumbudur in<br />
Tamil Nadu. The Gujarat govern<strong>me</strong>nt<br />
has been focusing on Sanand <strong>to</strong><br />
develop the region as an<br />
au<strong>to</strong>-engineering hub because of its<br />
proximity <strong>to</strong> Ah<strong>me</strong>dabad.<br />
According <strong>to</strong> <strong>me</strong>dia reports, Gujarat<br />
Industrial Develop<strong>me</strong>nt Corporation<br />
(GIDC) has acquired 5,000 acres of<br />
land from far<strong>me</strong>rs in villages around<br />
Sanand <strong>to</strong> give <strong>to</strong> au<strong>to</strong>mobile<br />
companies interested in setting up a<br />
plant there.<br />
The other advantage is that Sanand is<br />
part of a special invest<strong>me</strong>nt region,<br />
which allows companies that invest<br />
there <strong>to</strong> benefit from tax incentives<br />
and a fast-track approval process.<br />
Gujarat govern<strong>me</strong>nt statistics reveal<br />
that by 2014, Sanand is likely <strong>to</strong> have<br />
an installed capacity of 6,55,000 cars<br />
annually after the two plants beco<strong>me</strong><br />
functional (Peugeot and Ford).<br />
It is expected that in all Gujarat would<br />
have a manufacturing capacity of<br />
7,65,000 cars per annum by 2014,<br />
going by the estimates by<br />
au<strong>to</strong>makers. This compares<br />
favourably <strong>to</strong> Tamil Nadu’s annual<br />
installed capacity of 1.28 million cars<br />
and Maharashtra’s capacity of<br />
6,10,000 units.<br />
Very recently, Maruti Suzuki, India’s<br />
largest carmaker said it will invest<br />
$1.3 billion <strong>to</strong> set up a one million<br />
capacity per annum plant, in Gujarat.<br />
The carmaker has not yet finalized its<br />
plans but if it does, then Gujarat<br />
might just pip Tamil Nadu as the au<strong>to</strong><br />
hub of IndiA.<br />
It’s simplified...
Contact: Sushmita Desai: +91 77380 68262<br />
Registered Oce: 38-B, Khatau Building, 2nd Floor, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400001. Tel: 3926 8600 / 01; Fax: 3926 8610, Corporate Oce: B-2, 301/302, 3rd Floor, Marathon Innova, O Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400 013. Tel.: 39268000 / 8001 Fax: 39268010
20<br />
HOPING FOR<br />
A FESTIVE REVIVAL<br />
Vehicle companies are<br />
expecting sales <strong>to</strong> rise<br />
during the festive<br />
season, but hike in<br />
interest rates and fuel<br />
prices could halt their<br />
upward journey<br />
Beyond Market 10th Oct ’11<br />
T<br />
he au<strong>to</strong>mobile industry had been<br />
reeling under falling sales since quite<br />
so<strong>me</strong> ti<strong>me</strong>. And <strong>to</strong> make matters<br />
worse, the Reserve Bank of India<br />
(RBI) in its monetary policy review hiked repo<br />
rates for the 12th ti<strong>me</strong> in the past 18 months and<br />
the oil marketing companies <strong>to</strong>o hiked fuel prices<br />
in September.<br />
However, au<strong>to</strong> companies are planning <strong>to</strong> turn the<br />
tide in their favour by launching a slew of car<br />
models during the festive season of Navrati and<br />
Diwali. Indian original equip<strong>me</strong>nt manufacturers<br />
(OEMs) Maruti Suzuki, Tata Mo<strong>to</strong>rs, Toyota and<br />
Hyundai, among others, are leaving no s<strong>to</strong>ne<br />
unturned <strong>to</strong> push sales.<br />
In August and September, the Indian markets have<br />
been flooded with cars from au<strong>to</strong>mobile<br />
manufacturers like Toyota Kirloskar Mo<strong>to</strong>r India,<br />
It’s simplified...
Honda Siel Cars India Ltd (HSCIL),<br />
Hyundai Mo<strong>to</strong>r Company, Nissan<br />
Mo<strong>to</strong>r India Pvt Ltd, Tata Mo<strong>to</strong>rs Ltd,<br />
Mahindra & Mahindra Ltd and<br />
Renault India Pvt Ltd, <strong>to</strong> na<strong>me</strong> a few.<br />
Interestingly, in the first half of this<br />
year there are more new launches in<br />
the passenger cars and two-wheeler<br />
seg<strong>me</strong>nts, as compared <strong>to</strong> the sa<strong>me</strong><br />
period in the previous year.<br />
According <strong>to</strong> SIAM (Society of<br />
Indian Au<strong>to</strong>mobile Manufacturers),<br />
in the first half of this fiscal, there<br />
were over 13 new launches in the<br />
passenger cars and two-wheeler<br />
seg<strong>me</strong>nts, respectively as well as<br />
three refreshed variants in both the<br />
seg<strong>me</strong>nts, whereas last year there<br />
were more refreshed variants of<br />
passenger cars.<br />
At the sa<strong>me</strong> ti<strong>me</strong>, there were more<br />
refreshed variants than new models.<br />
Companies launched seven new<br />
passenger car models and 15<br />
two-wheeler models in the first six<br />
months of the previous fiscal.<br />
So<strong>me</strong> of these companies have<br />
already launched their passenger cars<br />
in the do<strong>me</strong>stic market. Not <strong>to</strong> be left<br />
behind, Tata Mo<strong>to</strong>rs also launched the<br />
refreshed fuel efficient and power<br />
variants of the Indica as well as<br />
Indigo cars.<br />
The <strong>to</strong>p three manufacturers – Maruti<br />
Suzuki India Ltd, Tata Mo<strong>to</strong>rs and<br />
Hyundai Mo<strong>to</strong>r India – reported over<br />
20% decline in their sales. Maruti’s<br />
sales slumped by around 19% as<br />
labour problems bogged operations at<br />
its Manesar plant, where the new<br />
Swift cars are manufactured.<br />
The general slowdown in demand<br />
also affected sales of its existing small<br />
car models Al<strong>to</strong> and Wagon R.<br />
Increased s<strong>to</strong>cks of Tata’s Nano with<br />
dealers resulted in a fall of 1,202 units<br />
in the sales of the model, which is<br />
one-fifth of its average monthly sales<br />
in 2010-11.<br />
Industry analysts are expecting the<br />
two events – hike in repo rates and<br />
fuel price rise – <strong>to</strong> hit mini car and<br />
sub-four <strong>me</strong>tre car seg<strong>me</strong>nts in<br />
particular owing <strong>to</strong> defer<strong>me</strong>nt or<br />
cancellation of purchases by<br />
first-ti<strong>me</strong> buyers. Au<strong>to</strong>makers on the<br />
other hand are likely <strong>to</strong> provide more<br />
incentives <strong>to</strong> boost sales. But, it is not<br />
going <strong>to</strong> be easy.<br />
Car sales in the country fell by about<br />
10% in August ’11 compared <strong>to</strong> a<br />
growth of 33% in the corresponding<br />
period last year. With rising interest<br />
rates and high fuel prices, buyers are<br />
deferring their decision <strong>to</strong> purchase<br />
cars. Despite increased discounts and<br />
incentives from car manufacturers<br />
(OEMs), sales of existing models<br />
remain tepid.<br />
Car sales of OEMs, other than the <strong>to</strong>p<br />
three, however, grew 31% on the<br />
strength of new models and price<br />
reduction. While new models such as<br />
Volkswagen Ven<strong>to</strong>, Toyota Etios and<br />
Liva continued <strong>to</strong> garner consu<strong>me</strong>r<br />
interest, sales of Honda City rose by<br />
37% in August, after an 8% reduction<br />
in its price in June ’11.<br />
According <strong>to</strong> analysts, rising interest<br />
So<strong>me</strong> Of The Passenger Car Launches In H1 2011-12<br />
Passenger Car<br />
Manufacturer<br />
rates and high fuel prices dampened<br />
the demand in August, despite the fact<br />
that it marks the beginning of the<br />
festive season. Any delay in model<br />
launches in the second half of<br />
2011-12 will further dent car demand<br />
in the months <strong>to</strong> co<strong>me</strong>.<br />
Around eight new models are<br />
expected <strong>to</strong> be launched in the<br />
remaining part of the fiscal, including<br />
few concepts at the upcoming Au<strong>to</strong><br />
Expo in January ’12.<br />
The year-on-year (y-o-y) growth of<br />
the passenger car industry is expected<br />
<strong>to</strong> be lower at around 8% <strong>to</strong> 9% as<br />
compared <strong>to</strong> around 13% <strong>to</strong> 14% in<br />
the sa<strong>me</strong> period in the previous year,<br />
as these are months when the sales<br />
peaked in the country.<br />
Maruti Suzuki India Ltd (MSIL), the<br />
leader in the passenger car seg<strong>me</strong>nt, is<br />
expected <strong>to</strong> be severely hit due <strong>to</strong> the<br />
impasse between the company’s<br />
manage<strong>me</strong>nt and the workers at the<br />
Manesar plant.<br />
The sales of models like the new<br />
Swift, A-Star and SX4 have been<br />
impacted due <strong>to</strong> the strike. However,<br />
the company had said that it has<br />
enough s<strong>to</strong>ck of SX4 and A-Star.<br />
“The SX4 diesel has a waiting period<br />
of around 2-3 weeks. But we at<br />
New Model Refreshed Variant<br />
Maruti Suzuki New Swift<br />
-<br />
Hyundai<br />
Eon (<strong>to</strong> be launched)<br />
Verna Fluidic<br />
Honda<br />
Brio<br />
Honda City, New Jazz<br />
Toyota<br />
Etios Diesel and Liva Diesel -<br />
GM (Chevrolet) Beat Diesel<br />
-<br />
Mahindra and Mahindra XUV500<br />
New Bolero<br />
Renault<br />
Fluence Sedan, Koleos SUV -<br />
Nissan<br />
Sunny<br />
-<br />
Ford India<br />
New Ford Fiesta<br />
-<br />
Tata Mo<strong>to</strong>rs<br />
New Tata Vista, New Tata Sumo Tata Indigo e-CS VX, Tata Aria 4X2<br />
Skoda Au<strong>to</strong><br />
Laura RS, Rapid (yet <strong>to</strong> be launched) Fabia Active<br />
Force Mo<strong>to</strong>rs<br />
Force One SUV<br />
-<br />
Volkswagen<br />
-<br />
New Jetta, Polo Breeze & Ven<strong>to</strong> Breeze<br />
Source: Company Data<br />
Beyond Market 10th Oct ’11 It’s simplified... 21
22<br />
present have enough s<strong>to</strong>cks for the<br />
petrol SX4 and the A-Star,” Maruti<br />
Suzuki India Ltd had said.<br />
Maruti Suzuki has received over one<br />
lakh bookings for the Swift model,<br />
which is a good sign. But Maruti has<br />
managed <strong>to</strong> improve production <strong>to</strong> a<br />
little over 700 cars a day across its<br />
two plants in Manesar. But even at<br />
this rate, cus<strong>to</strong><strong>me</strong>rs will have <strong>to</strong> wait<br />
for about five months for the petrol<br />
version and more than six months for<br />
the diesel version.<br />
Company officials say the Swift<br />
cus<strong>to</strong><strong>me</strong>r is loyal and would not<br />
switch <strong>to</strong> other models. But, with the<br />
waiting period extending <strong>to</strong> six<br />
months, so<strong>me</strong> switchover <strong>to</strong> rival<br />
brands cannot be ruled out.<br />
Further there will be more challenge<br />
for Maruti Suzuki India Ltd in the<br />
hatchback seg<strong>me</strong>nt, where it is the<br />
market leader in India.<br />
Honda has launched its first small car<br />
Honda Brio, while Hyundai is<br />
expected <strong>to</strong> launch Hyundai Eon in<br />
the second week of this month. The<br />
company has started bookings for the<br />
car and is targeting first-ti<strong>me</strong> buyers<br />
who want <strong>to</strong> buy a spacious and<br />
stylish car with good fuel economy.<br />
The new launches will further spell<br />
worries for Tata Mo<strong>to</strong>rs, whose sales<br />
of passenger cars have been falling<br />
since the last four months. The<br />
cumulative sales of Tata Mo<strong>to</strong>rs for<br />
the fiscal are at 1,10,148 units, lower<br />
by 21%. The company is now<br />
banking on the new Indica and new<br />
Indigo eCS <strong>to</strong> rev up sales during the<br />
festive season.<br />
The only positive for Tata Mo<strong>to</strong>rs is<br />
growth in the sales of com<strong>me</strong>rcial<br />
vehicles, where it has over 62%<br />
market share. Cumulative sales of<br />
com<strong>me</strong>rcial vehicles in the do<strong>me</strong>stic<br />
market for the fiscal are 1,96,887<br />
Beyond Market 10th Oct ’11<br />
So<strong>me</strong> Of The Two-Wheeler Launches In H1 2011-12<br />
Mo<strong>to</strong>rcycle New Model Refreshed Variant<br />
Yamaha<br />
Hero Mo<strong>to</strong>Corp<br />
TVS<br />
Royal Enfield<br />
Source: Company Data<br />
units, a growth of 17% over last year.<br />
YZF-R15<br />
Impulse, Maestro (both yet <strong>to</strong> launched)<br />
Max4R, TVS Star City<br />
Classic Chro<strong>me</strong>, Desert S<strong>to</strong>rm<br />
Cumulative light com<strong>me</strong>rcial<br />
vehicles sales are 1,18,808 units, a<br />
growth of 23% over last year, while<br />
<strong>me</strong>dium and heavy com<strong>me</strong>rcial<br />
vehicles sales s<strong>to</strong>od at 78,079 units, a<br />
growth of 8% over last year.<br />
Meanwhile, Tata Mo<strong>to</strong>rs is planning<br />
<strong>to</strong> raise US $500 million as external<br />
com<strong>me</strong>rcial borrowings <strong>to</strong> fund<br />
working capital require<strong>me</strong>nts and<br />
offset high interest debt with a<br />
long-term low interest rate.<br />
Similarly, the board of Suzuki Mo<strong>to</strong>r<br />
Corporation, the majority shareholder<br />
in Maruti Suzuki is looking at options<br />
other than the state of Haryana and<br />
Delhi NCR for its new plant,<br />
including states like Gujarat.<br />
Mahindra & Mahindra also aims <strong>to</strong><br />
break in<strong>to</strong> the league of global OEMs<br />
with the launch of its global sports<br />
utility vehicle, the XUV 500, which<br />
has been developed by the company’s<br />
research and develop<strong>me</strong>nt centre<br />
situated in Chennai.<br />
The SUV expected <strong>to</strong> be priced<br />
between `12 lakh <strong>to</strong> `14 lakh will be<br />
simultaneously launched in South<br />
Africa, Western Europe, Australia and<br />
South A<strong>me</strong>rica.<br />
The only silver lining in the do<strong>me</strong>stic<br />
au<strong>to</strong>mobile industry at present is the<br />
growth in com<strong>me</strong>rcial vehicles as<br />
well as the two-wheelers seg<strong>me</strong>nt,<br />
which is expected <strong>to</strong> continue with<br />
the growth in infrastructure and<br />
increase in focus on rural penetration<br />
by two-wheeler manufacturers.<br />
FZ, FZ-S & Fazer<br />
-<br />
-<br />
-<br />
The two-wheeler industry grew by<br />
around 16% with sales of over 5.35<br />
million for the April-August ’11<br />
period. The sales are expected <strong>to</strong><br />
grow, but with so<strong>me</strong> caution.<br />
An independent au<strong>to</strong>mobile industry<br />
expert said, “The repo rate hike that<br />
would lead <strong>to</strong> higher interest rates<br />
will predominantly affect the urban<br />
two-wheeler market, as sales of a<br />
majority of two-wheelers are<br />
dependent on credit.<br />
The sales of high-end mo<strong>to</strong>rcycles -<br />
150cc and above and cars will see<br />
double impact in the urban market, as<br />
compared <strong>to</strong> the rural market where<br />
the vehicles are purchased in cash.<br />
Good monsoon across the country<br />
will drive vehicles sales in the rural<br />
market this festive season.”<br />
The expert further said that with the<br />
fuel price hike, people from the urban<br />
market would start chasing<br />
fuel-efficient mo<strong>to</strong>rcycles and<br />
scooters instead of two-wheelers with<br />
powerful engines.<br />
Further, it will be interesting <strong>to</strong> see<br />
how Hero Mo<strong>to</strong>Corp Ltd, for<strong>me</strong>rly<br />
Hero Honda, will launch the<br />
country’s first dirt bike and a gearless<br />
scooter model called the Maestro in<br />
this month.<br />
The models, the first after the 26-year<br />
partnership between the<br />
Munjals-owned Hero and Japan’s<br />
Honda ca<strong>me</strong> <strong>to</strong> an end, will sport<br />
Hero’s new brand identity. With an<br />
engine displace<strong>me</strong>nt of 180cc, the dirt<br />
bike will be Hero Mo<strong>to</strong>Corp’s first in<br />
the niche seg<strong>me</strong>nT.<br />
It’s simplified...
Despite the im<strong>me</strong>nse<br />
potential of the Coal<br />
sec<strong>to</strong>r, key challenges<br />
and issues are s<strong>to</strong>pping<br />
this industry from<br />
growing <strong>to</strong> the hilt<br />
One of the basic natural<br />
resources needed <strong>to</strong><br />
sustain India’s growth<br />
s<strong>to</strong>ry is coal. Its<br />
significance as an input for generation<br />
of power is im<strong>me</strong>nse. And its<br />
availability has beco<strong>me</strong> scarce and<br />
price dear. Hence, conservation and<br />
judicious use of coal is becoming an<br />
important task for corporations and<br />
govern<strong>me</strong>nt bodies.<br />
As Indian companies grow in leaps<br />
and bounds and penetrate deep in<strong>to</strong><br />
unheard pockets of the country, the<br />
require<strong>me</strong>nt of coal for generation of<br />
power would increase considerably.<br />
Of all the natural resources such as<br />
oil, natural gas, hydro and nuclear,<br />
coal is highly used as the primary<br />
source of energy.<br />
According <strong>to</strong> an estimate, coal is the<br />
dominant source of energy in India<br />
and <strong>me</strong>ets 52.4% of energy<br />
require<strong>me</strong>nts, followed by oil and<br />
natural gas, which <strong>me</strong>et 41.6% of the<br />
<strong>to</strong>tal primary energy require<strong>me</strong>nt of<br />
the country. However, the present<br />
’<br />
GOVERNMENT S<br />
CO(A)LD<br />
SHOULDER<br />
situation of coal availability is not<br />
very uplifting. Even though India has<br />
one of the largest coal reserves, it is<br />
not able <strong>to</strong> e<strong>me</strong>rge as a very strong<br />
energy producer. Instead, it is<br />
struggling <strong>to</strong> <strong>me</strong>et its increasing<br />
do<strong>me</strong>stic demand.<br />
A study conducted by the Indian<br />
Planning Commission and the Coal<br />
Ministry revealed that India’s <strong>to</strong>tal<br />
coal consumption was expected <strong>to</strong><br />
increase from around 510 <strong>me</strong>tric<br />
<strong>to</strong>nnes in 2007-08 <strong>to</strong> 550 <strong>me</strong>tric<br />
<strong>to</strong>nnes by 2008-09. India is yet <strong>to</strong><br />
reach this consumption limit. Huge<br />
amount of invest<strong>me</strong>nt is needed for<br />
such consumption.<br />
The existing regula<strong>to</strong>ry fra<strong>me</strong>work<br />
restricts private sec<strong>to</strong>r players from<br />
coal mining and other activities<br />
related <strong>to</strong> the production of coal.<br />
More than 90% production of coal is<br />
with the central and state<br />
govern<strong>me</strong>nts. Hence, regula<strong>to</strong>ry<br />
hurdles are one of the chief reasons<br />
for the inadequate coal policy that has<br />
failed <strong>to</strong> address the country’s strong<br />
coal consumption needs.<br />
Through a low-down on India’s coal<br />
industry, we would be discussing<br />
about the key challenges and issues<br />
that mar the growth of this industry at<br />
a ti<strong>me</strong> when require<strong>me</strong>nt of power for<br />
consumption is becoming necessary<br />
and crucial.<br />
COAL: AN ESSENTIAL INPUT<br />
India ranks third among the world’s<br />
Beyond Market 10th Oct ’11 It’s simplified... 23
24<br />
leading coal-producing countries. In<br />
India, around 70% of the <strong>to</strong>tal<br />
production is used for the generation<br />
of power, while the remaining is used<br />
by the steel, ce<strong>me</strong>nt, chemicals and<br />
heavy industries, <strong>to</strong> na<strong>me</strong> a few.<br />
It is estimated that India produces 310<br />
million <strong>to</strong>nnes of coal annually and<br />
imports around 25 million <strong>to</strong>nnes. In<br />
the last five years, com<strong>me</strong>rcial energy<br />
consumption in India has increased <strong>to</strong><br />
around 68%. This, however, when<br />
seen in terms of per capita<br />
consumption, is very low, especially<br />
when one compares this with<br />
developed countries.<br />
At present, the per capita primary<br />
energy consumption in India is about<br />
243 Kilograms Oil Equivalent<br />
(kgoe)/year. Experts believe that this<br />
consumption is very low in<br />
comparison with the per capita<br />
primary energy consumption in<br />
developed countries.<br />
One argu<strong>me</strong>nt that strengthens this<br />
belief is the fact that energy<br />
consumption has a strong correlation<br />
with economic growth. In addition <strong>to</strong><br />
this, limited reserves of petroleum<br />
and natural gas also grant validity <strong>to</strong><br />
the argu<strong>me</strong>nt that coal would e<strong>me</strong>rge<br />
as a crucial natural resource in the<br />
coming years. Not <strong>to</strong> <strong>me</strong>ntion that it is<br />
cheap and relatively abundant than<br />
other natural resources.<br />
Despite such reigning importance of<br />
coal, there are many irregularities in<br />
terms of lack of clarity of policies of<br />
govern<strong>me</strong>nts and local mafia (so<strong>me</strong><br />
with Marxist leanings), which have<br />
squeezed out substantial unaccounted<br />
coal from the system.<br />
ISSUES AND CHALLENGES<br />
One of the serious concerns for<br />
India’s coal industry is strong<br />
govern<strong>me</strong>nt control. This results in<br />
taxes and duties that continue <strong>to</strong> be<br />
Beyond Market 10th Oct ’11<br />
levied on imports and distribution of<br />
coal. Besides this, there is also limited<br />
private invest<strong>me</strong>nt in the buying of<br />
coal mines as well as supplying coal<br />
<strong>to</strong> cus<strong>to</strong><strong>me</strong>rs.<br />
Experts believe that the privatization<br />
of the sec<strong>to</strong>r is important and the<br />
easiest way of providing access <strong>to</strong> this<br />
natural resource <strong>to</strong> companies and<br />
other consu<strong>me</strong>rs alike. Such has been<br />
irregularities in the govern<strong>me</strong>nt<br />
policies that foreign invest<strong>me</strong>nt in the<br />
sec<strong>to</strong>r is permitted only on a<br />
case-<strong>to</strong>-case basis.<br />
Hence, the industry needs pointed and<br />
clear reforms. Reforms that address<br />
issues related <strong>to</strong> large-scale<br />
invest<strong>me</strong>nt in increasing mining<br />
capacity and improve the quality of<br />
coal. Also it is believed that in order<br />
<strong>to</strong> thin the gap between demand and<br />
supply of do<strong>me</strong>stic coal, the<br />
govern<strong>me</strong>nt should facilitate smooth<br />
import of coal.<br />
The govern<strong>me</strong>nt’s eleventh plan had a<br />
whole range of coal sec<strong>to</strong>r reforms<br />
such as setting up of a coal regula<strong>to</strong>r,<br />
ramping up captive production,<br />
com<strong>me</strong>rcializing, auctioning of<br />
blocks and increasing the share of<br />
e-auction, among others.<br />
Hardly any of these reforms have<br />
been imple<strong>me</strong>nted in<strong>to</strong> the system.<br />
This has given weight <strong>to</strong> the<br />
oft-repeated assertion that powerful<br />
coal lobby is preventing India from<br />
e<strong>me</strong>rging as the largest energy<br />
producer in the world.<br />
Besides these issues, the one<br />
indigenous problem that has<br />
obstructed the natural production of<br />
coal and its equivalents is stiff<br />
opposition of Maoists. In India, the<br />
Southern and Eastern regions are<br />
coal-rich.<br />
In these regions in India, there are<br />
several pockets where people<br />
propagate Marxist ideology. These<br />
groups have differences over use of<br />
land ownerships, corruption and<br />
illegal mining.<br />
Due <strong>to</strong> stiff opposition from these<br />
groups, many coal mining projects -<br />
both govern<strong>me</strong>nt and private sec<strong>to</strong>r<br />
companies - have got derailed and<br />
s<strong>to</strong>pped midway. The govern<strong>me</strong>nt has<br />
been unable <strong>to</strong> weed out these<br />
ele<strong>me</strong>nts and, hence, these ele<strong>me</strong>nts<br />
pop up abruptly and jeopardize many<br />
coal projects in these areas even after<br />
most govern<strong>me</strong>ntal clearances have<br />
been acquired by the companies.<br />
Recently, a new concern that is<br />
serving as a huge obstacle in coal<br />
projects is from the govern<strong>me</strong>nt’s side<br />
itself. The environ<strong>me</strong>nt ministry has<br />
identified ‘Go’ and ‘No-Go’ areas<br />
arguing that forests are being cut at a<br />
rapid pace, wildlife corridors are<br />
being destroyed and one should be<br />
more sensitive <strong>to</strong>wards this.<br />
The environ<strong>me</strong>nt ministry has found<br />
many captive blocks under the<br />
‘No-Go’ category. Though<br />
corporations promise afforestation for<br />
occupying space of dense forest of a<br />
region, most of their projects just<br />
don’t take off.<br />
Industry experts believe that only<br />
special recom<strong>me</strong>ndations and the<br />
passing of a cogent coal bill in the<br />
parlia<strong>me</strong>nt could remove these<br />
loopholes in the system.<br />
Special recom<strong>me</strong>ndations on price<br />
reforms for coal and electricity,<br />
freeing-up of com<strong>me</strong>rcial relations<br />
between buyers and sellers,<br />
rationalizing quality standards,<br />
increasing productivity as well as<br />
profitability, attracting invest<strong>me</strong>nt for<br />
the coal industry, enhancing<br />
environ<strong>me</strong>ntal performance and<br />
intensifying competition, are pointers<br />
that are gaining prominence among<br />
industry expertS.<br />
It’s simplified...
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26<br />
W<br />
ith nearly 30 million<br />
people worldwide<br />
diagnosed with<br />
Alzhei<strong>me</strong>r’s<br />
disease, it is a scourge of the modern<br />
day health care and is projected <strong>to</strong><br />
quadruple <strong>to</strong> 120 million people by<br />
2050, which is incidentally the<br />
population of Japan.<br />
The elderly population is growing at<br />
the fastest pace in China, India, south<br />
Asia and western Pacific regions.<br />
Already 58% of people with de<strong>me</strong>ntia<br />
live in developing countries. But this<br />
number is likely <strong>to</strong> rise <strong>to</strong> 71% by<br />
Beyond Market 10th Oct ’11<br />
2050 due <strong>to</strong> the addition of more<br />
number of patients owing <strong>to</strong> better<br />
disease detection, rise in inco<strong>me</strong><br />
levels <strong>to</strong> detect and treat the disease<br />
and better social support by<br />
govern<strong>me</strong>nt and health agencies.<br />
France, Germany, Italy, Japan, Spain,<br />
the UK and the US have a high<br />
number of patients suffering from<br />
Alzhei<strong>me</strong>r’s disease. Usually, people<br />
over sixty are at the risk of<br />
Alzhei<strong>me</strong>r’s disease. But few cases of<br />
the early onset of the disease among<br />
people in their forties or fifties are<br />
being reported.<br />
The growing number of patients<br />
suering from Alzhei<strong>me</strong>r’s is<br />
indicative of the tre<strong>me</strong>ndous<br />
opportunity oered by this<br />
seg<strong>me</strong>nt <strong>to</strong> pharma companies<br />
In India, nearly three million people<br />
suffer from Alzhei<strong>me</strong>r’s disease and<br />
the number is predicted <strong>to</strong> double by<br />
2030, clearly demonstrating the<br />
im<strong>me</strong>nse opportunity this seg<strong>me</strong>nt<br />
holds for the pharma sec<strong>to</strong>r. Presently,<br />
30-35 branded and generic drugs are<br />
available <strong>to</strong> treat de<strong>me</strong>ntia.<br />
So<strong>me</strong> drugs have even proven<br />
symp<strong>to</strong>matic benefits. However, there<br />
are mainly four drugs - donepezil<br />
hydrochloride (aricept), rivastigmine<br />
(exelon), galantamine (reminyl),<br />
<strong>me</strong>mantine (ebixa) made by<br />
Eisai/Pfizer, Novartis, Shire Pharma<br />
It’s simplified...
(Janssen) and Lundbeck - that can<br />
help control Alzhei<strong>me</strong>r’s disease.<br />
Earlier, only branded drugs were<br />
available in the market. Following the<br />
expiry of patents, so<strong>me</strong> of the drugs<br />
are being manufactured and sold in<br />
India by companies like Aurobindo,<br />
Dr Reddy’s Labora<strong>to</strong>ries, Sun<br />
Pharmaceuticals, Ranbaxy, Alkem,<br />
Torrent, Glenmark, etc.<br />
Indian companies are manufacturing<br />
and selling generic drugs globally<br />
only after they receive ANDA<br />
approvals. There are no innovative<br />
drugs by Indian companies. Suven is<br />
the only company that is developing<br />
innovative drugs. It has miles<strong>to</strong>nes<br />
(phase II and III clinical trials) <strong>to</strong><br />
cross and get NDA approvals, which<br />
is a long way <strong>to</strong> go (2015-16).<br />
As the Indian population continues <strong>to</strong><br />
grey, life expectancy increases and<br />
awareness about the disease<br />
increases, the projected growth would<br />
likely continue in double digits (18%<br />
<strong>to</strong> 20%) on a higher patient base. As<br />
per ORG IMS-MAT, the accounted<br />
market in India has a size of about<br />
`140 crore and a CAGR of 25%.<br />
To keep pace with this growth, Suven<br />
has undertaken research for a drug for<br />
Alzhei<strong>me</strong>r’s <strong>to</strong> an advanced stage, but<br />
needs funding <strong>to</strong> continue doing the<br />
sa<strong>me</strong>. If the proof of concept of the<br />
drug is strong, the company might<br />
succeed, thus catapulting it <strong>to</strong> the<br />
global market.<br />
As per industry reports, more than 35<br />
million people are expected <strong>to</strong> suffer<br />
from Alzhei<strong>me</strong>r’s disease by 2015<br />
worldwide. By 2050, 59% of the<br />
world’s Alzhei<strong>me</strong>r’s cases will live in<br />
Asia. The global Alzhei<strong>me</strong>r’s disease<br />
market is expected <strong>to</strong> cross the US<br />
$19 billion-mark by 2015.<br />
Aricept sales are expected <strong>to</strong> fall after<br />
losing its patent in November ’10.<br />
Ebixa, Excelon and Na<strong>me</strong>nda may<br />
beco<strong>me</strong> the next blockbuster drugs<br />
after Aricept. Till last year, Aricept<br />
was the world’s best selling drug but<br />
lost patent protection in November<br />
’10, a miles<strong>to</strong>ne which will be<br />
followed by a rapid loss in sales.<br />
But there are other drugs which have<br />
the potential <strong>to</strong> beco<strong>me</strong> blockbuster<br />
drugs. Na<strong>me</strong>nda, Exelon have shown<br />
tre<strong>me</strong>ndous growth in the market and<br />
beco<strong>me</strong> blockbusters in 2010. Ebixa,<br />
a drug by the Memantine Group, is<br />
expected <strong>to</strong> have a billion-dollar<br />
market by 2014. Given the growth in<br />
Alzhei<strong>me</strong>r’s patients, the outlook for<br />
this seg<strong>me</strong>nt is excellent.<br />
TREATMENT OF THE<br />
ALZHEIMER’S IN INDIA<br />
At present, there are no specific tests<br />
<strong>to</strong> positively confirm the diagnosis of<br />
Alzhei<strong>me</strong>r’s or de<strong>me</strong>ntia. There are<br />
hardly any standard practice<br />
guidelines and treat<strong>me</strong>nt centres in<br />
India. Several new treat<strong>me</strong>nts are<br />
being initiated, while so<strong>me</strong> are<br />
nearing the late stages of clinical<br />
trials. Within 2 - 3 years, pharma<br />
companies will know if one or more<br />
of these treat<strong>me</strong>nts can help slow the<br />
progression of Alzhei<strong>me</strong>r’s. There are<br />
currently 934 clinical trials recruiting,<br />
underway or recently completed<br />
related <strong>to</strong> the Alzhei<strong>me</strong>r’s disease.<br />
A lot of herbal preparations are<br />
available for diagnosing Alzhei<strong>me</strong>r’s<br />
disease. Tur<strong>me</strong>ric in curry may<br />
explain Alzhei<strong>me</strong>r’s low occurrence.<br />
Indian scientists in UK and India are<br />
examining the ancient Indian<br />
ayurvedic <strong>me</strong>dicine for possible use<br />
in drugs <strong>to</strong> treat Alzhei<strong>me</strong>r’s disease.<br />
Researchers say ayurveda works in<br />
the sa<strong>me</strong> way as conventional drugs<br />
for boosting <strong>me</strong>ntal agility in the<br />
disease. They found that the plants<br />
used in ayurveda acted <strong>to</strong> improve<br />
<strong>me</strong>mory and concentration in patients<br />
suffering from Alzhei<strong>me</strong>r’s.<br />
Researchers from King’s College,<br />
London and Jadavpur University,<br />
Calcutta studied five plants<br />
commonly used in ayurvedic<br />
<strong>me</strong>dicine and found that the plants<br />
acted <strong>to</strong> prevent the breakdown of<br />
neurotransmitters, improving<br />
<strong>me</strong>mory and concentration in people<br />
with Alzhei<strong>me</strong>r’s disease. Scientists<br />
are now trying <strong>to</strong> identify the<br />
chemical compounds responsible for<br />
the sa<strong>me</strong> so that they can be used <strong>to</strong><br />
develop more effective drugs.<br />
Suven and Aurobindo are also getting<br />
approvals for molecules for this<br />
disease. This would help the market<br />
<strong>to</strong> grow and Indian patients would get<br />
these drugs at affordable prices. As<br />
more players enter the market with<br />
generics, the noise level would<br />
increase and more awareness and<br />
detection camps would help tap this<br />
seg<strong>me</strong>nt, resulting in a large number<br />
of psychiatrists taking up Alzhei<strong>me</strong>r’s<br />
disease as a focused specialty<br />
practice. Ultimately, the patient,<br />
especially those from low inco<strong>me</strong><br />
groups and rural areas would benefit.<br />
WAY AHEAD<br />
Nearly 4% of the population of India<br />
suffers from Alzhei<strong>me</strong>r’s or de<strong>me</strong>ntia<br />
as against 10%-15% of those in the<br />
60-plus age group in the US.<br />
However, this figure may <strong>to</strong>uch 21%<br />
by 2050. India is ho<strong>me</strong> <strong>to</strong> more than<br />
70 million people over the age of 60<br />
years according <strong>to</strong> the 2001 census.<br />
In 2010, nearly 3.7 million Indians<br />
were reported <strong>to</strong> be suffering from<br />
de<strong>me</strong>ntia and the <strong>to</strong>tal cost of<br />
treat<strong>me</strong>nt was `14,700 crore. This is<br />
expected <strong>to</strong> double by 2030 and the<br />
cost may rise three-fold. By 2015, the<br />
Alzhei<strong>me</strong>r’s market is expected <strong>to</strong> be<br />
close <strong>to</strong> `300 crore. Hence, Indian<br />
pharma companies can make the most<br />
of this opportunitY.<br />
Beyond Market 10th Oct ’11 It’s simplified... 27
28<br />
Beyond Market 10th Oct ’11<br />
Dena Bank:<br />
In A Favourable<br />
Position<br />
A large number of fac<strong>to</strong>rs seem <strong>to</strong> be favouring<br />
the growth trajec<strong>to</strong>ry of the Gujarat-based<br />
public sec<strong>to</strong>r bank<br />
Public sec<strong>to</strong>r lender Dena Bank is a prominent<br />
na<strong>me</strong> in the industry, with a network of 1,297<br />
branches, 507 ATMs and 12 extension counters<br />
as on 30th Jun ’11. On the said date, it had a<br />
<strong>to</strong>tal business of `1,03,973 crore. The bank is mainly<br />
concentrated in the state of Gujarat. It has a major presence<br />
in rural areas. In fact, nearly 56% of its branches are<br />
situated in rural and semi-urban areas. Its head office is<br />
situated in Mumbai.<br />
Business Growth<br />
R` in Crs<br />
200000<br />
150000<br />
100000<br />
50000<br />
0<br />
24%<br />
26%<br />
21%<br />
26%<br />
Source: Company Data, Nirmal Bang Research<br />
19%<br />
21%<br />
FY 2008 FY 2009 FY 2010 FY 2011 FY 2012E FY 2013E<br />
Business Growth<br />
INVESTMENT RATIONALE<br />
Sustained Growth Above Industry Average<br />
30%<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
0%<br />
Dena Bank has been able <strong>to</strong> sustain growth in advances<br />
above industry average. The bank’s advances have grown<br />
at a CAGR of 25% over FY07‐11 compared <strong>to</strong> a CAGR of<br />
20% in the industry. Going forward, we expect advances <strong>to</strong><br />
grow at a CAGR of 20.5% for FY11‐FY13E.<br />
It’s simplified...
Dena Bank Advances V/s Industry Advances<br />
30%<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
0%<br />
Source: Company Data, Nirmal Bang Research<br />
Major Exposure In The State Of Gujarat<br />
The state of Gujarat has grown at a rate of 11% in 2011 as<br />
compared <strong>to</strong> the all-India average growth of 9%. Between<br />
2005 and 2010, the real GDP growth in Gujarat has been<br />
11.3%, highest among all the states in India.<br />
Dena Bank has a major presence in Gujarat.<br />
Approximately 41% of the <strong>to</strong>tal branches are located in<br />
Gujarat. We believe that higher exposure in the state will<br />
help the bank <strong>to</strong> garner higher CASA and enjoy better<br />
advances growth.<br />
Change In Mix: Focus On High Yielding Assets<br />
His<strong>to</strong>rically, Dena Bank’s loan portfolio has inclined<br />
<strong>to</strong>wards corporate lending contributing above 50% of the<br />
<strong>to</strong>tal advances. However, the bank has now shifted its<br />
focus more on the small and <strong>me</strong>dium enterprise (SME) and<br />
retail seg<strong>me</strong>nt <strong>to</strong> exploit the potential in these<br />
high-yielding seg<strong>me</strong>nts.<br />
Currently, agriculture, SME and retail seg<strong>me</strong>nts contribute<br />
approximately 43% of the <strong>to</strong>tal current loan book. We<br />
believe the bank’s advances will be achieved through<br />
high-yielding SMEs and the retail portfolio. The bank is<br />
targeting a growth of around 25% in its retail portfolio for<br />
FY12E.<br />
Strong CASA<br />
26% 25%<br />
26%<br />
22%<br />
23%<br />
22%<br />
21%<br />
19%<br />
17% 17%<br />
18% 20%<br />
2008 2009 2010 2011 2012E 2013E<br />
Dena Bank Advances Industry Advances<br />
Dena Bank’s strength lies in having a very strong<br />
concentration of its branches in CASA-rich regions of<br />
western India.<br />
Approximately 65% of the Bank’s branches are located in<br />
western India and the bank also has a strong presence in<br />
rural and semi‐urban areas, which gives the bank access <strong>to</strong><br />
low‐cost deposits, thus helping the bank in garnering<br />
higher current and saving account (CASA) ratio. Dena<br />
Bank has been able <strong>to</strong> register one of the highest CASA<br />
ratios among PSU banks.<br />
CASA Of PSU Banks (FY11)<br />
45.3% 38.5% 35.4% 35.0% 33.5% 28.7% 24.5% 28.3%<br />
Source: Company Data, Nirmal Bang Research<br />
Protection Of NIMs<br />
With increasing interest rates and cost of deposits, the<br />
NIMs (net interest margins) of the bank are expected <strong>to</strong><br />
remain under pressure.<br />
However, a recent equity infusion of `600 crore will help<br />
the bank <strong>to</strong> maintain margins in FY12E. The manage<strong>me</strong>nt<br />
is confident that the bank will be able <strong>to</strong> maintain NIMs at<br />
around 3% for FY12E. Nevertheless, we fac<strong>to</strong>r in a 20 bps<br />
decline in margins for FY12E.<br />
Net Interest Margins<br />
Source: Company Data, Nirmal Bang Research<br />
Beyond Market 10th Oct ’11 It’s simplified... 29<br />
50%<br />
40%<br />
30%<br />
20%<br />
10%<br />
0%<br />
` in Crs<br />
3000<br />
2500<br />
2000<br />
1500<br />
1000<br />
500<br />
0<br />
SBI<br />
PNB<br />
2.9%<br />
Dena Bank<br />
2.4%<br />
Central Bank<br />
3.1% 2.9% 2.9%<br />
FY 2009 FY 2010 FY 2011 FY 2012E FY 2013E<br />
NII NIMs<br />
3.50%<br />
3.00%<br />
2.50%<br />
2.00%<br />
1.50%<br />
1.00%<br />
0.50%<br />
0.00%<br />
Asset Quality To Remain A Cause Of Concern In The<br />
Near Term<br />
Asset quality has been a cause of concern for the public<br />
sec<strong>to</strong>r bank, Dena Bank. But with increasing efforts taken<br />
by the bank <strong>to</strong> recover and minimize new slippages, the<br />
bank has been able <strong>to</strong> maintain its NPA levels in a<br />
comfortable zone.<br />
The bank has set up recovery teams and specialized<br />
moni<strong>to</strong>ring systems <strong>to</strong> take care of the asset quality. This<br />
has started showing good results as recoveries have<br />
increased. The bank further expects higher recoveries in<br />
FY12E.<br />
However, there are so<strong>me</strong> near-term concerns that the bank<br />
is facing currently. Dena Bank has an extre<strong>me</strong>ly high<br />
exposure of approximately `9,000 crore in the power<br />
industry. Of this huge amount, around `6,000 crore (March<br />
’11) are <strong>to</strong> State Electricity Boards (SEBs) on a short‐term<br />
working capital basis.<br />
Allahabad Bank<br />
Bank Of Baroda<br />
Bank Of India<br />
Canara Bank
30<br />
The current outlook for SEBs is not very positive. The<br />
bank manage<strong>me</strong>nt has beco<strong>me</strong> cautious due <strong>to</strong> this and is<br />
focusing on reducing its exposure <strong>to</strong> SEBs. This is evident<br />
from the fact that the bank has been successful in reducing<br />
its exposure <strong>to</strong> SEBs from `6,000 crore in March ’11 <strong>to</strong><br />
`5,180 crore in June ’11.<br />
Moreover, the bank has not yet shifted <strong>to</strong> a 100%<br />
system-based NPA recognition. The bank still has <strong>to</strong><br />
migrate its ‘`50-lakh and below’ portfolio <strong>to</strong> system-based<br />
NPA recognition. This constitutes around 18% of the <strong>to</strong>tal<br />
advance portfolio of the bank.<br />
As observed by the performance of other banks, we believe<br />
that migrating <strong>to</strong> a system-based NPA recognition can lead<br />
<strong>to</strong> higher slippages. However, the manage<strong>me</strong>nt of the bank<br />
is confident that the slippages will not be higher and it aims<br />
<strong>to</strong> reduce its gross NPAs from around 1.8% in FY11 <strong>to</strong><br />
1.6% in FY12.<br />
Going forward, we expect gross NPAs and net NPAs of the<br />
bank <strong>to</strong> remain higher in FY12 owing <strong>to</strong> the reasons<br />
<strong>me</strong>ntioned here.<br />
However, we are of the opinion that Dena Bank will<br />
witness a substantial improve<strong>me</strong>nt in the quality of its<br />
assets on the back of recoveries, the right steps taken <strong>to</strong><br />
NPA Move<strong>me</strong>nt<br />
1400<br />
1200<br />
1000<br />
800<br />
2.13% 1.80%<br />
1.21%<br />
1.87%<br />
1.24%<br />
1.90%<br />
1.16%<br />
1.85%<br />
1.09%<br />
1.80%<br />
600<br />
400<br />
200<br />
1.08%<br />
0.90%<br />
0<br />
0.00%<br />
FY 2009 FY 2010 FY 2011 FY 2012E FY 2013E<br />
Gross NPA Net NPA GNPA (%) NNPA (%)<br />
Source: Company Data, Nirmal Bang Research<br />
` in Crs<br />
contain fresh slippages by way of constant moni<strong>to</strong>ring as<br />
well as adequate provisions that would be provided by the<br />
bank itself.<br />
Financials<br />
Year<br />
FY 10A<br />
FY 11A<br />
FY 12E<br />
FY 13E<br />
Beyond Market 10th Oct ’11<br />
Focus On Non-Interest Inco<strong>me</strong><br />
The bank’s non-interest inco<strong>me</strong> has shown dismal growth<br />
and had been a point of concern for the bank. However, the<br />
manage<strong>me</strong>nt is confident of a revival in its non-interest<br />
inco<strong>me</strong> in the coming quarters.<br />
The bank is leveraging its relationship with its current<br />
cus<strong>to</strong><strong>me</strong>r base <strong>to</strong> increase the non-fund based business,<br />
which will, in turn, increase the fee-based inco<strong>me</strong> of the<br />
bank. The bank has tied up with all the <strong>to</strong>p mutual fund<br />
houses in the industry <strong>to</strong> distribute their products through<br />
the bank’s branches.<br />
The bank is also focusing on core banking solution (CBS)<br />
<strong>to</strong> enable its cus<strong>to</strong><strong>me</strong>r’s branch banking. Moreover, the<br />
bank is focusing on recoveries, which will further boost the<br />
bank’s bot<strong>to</strong>m line performance.<br />
RISKS AND CONCERNS<br />
o In the event of the macro‐economic scenario worsening<br />
again, there is a strong possibility of higher‐than‐expected<br />
NPA provisions.<br />
o A change in the manage<strong>me</strong>nt of the bank could impact<br />
the bank’s strategic target leading <strong>to</strong> a phase of uncertainty<br />
for the bank.<br />
VALUATIONS<br />
We expect Dena Bank <strong>to</strong> improve its core operating<br />
<strong>me</strong>trics, going forward, driven by focus on its liability<br />
franchise along with operating efficiency. Dena Bank is<br />
currently trading at a very attractive valuation in the<br />
banking space.<br />
Dena Bank has been able <strong>to</strong> sustain growth in advances<br />
above industry average and has a major presence in the<br />
state of Gujarat, which has the highest GDP among all the<br />
states in India.<br />
NII (`crs) Growth % Op. profit (`crs) Margin % PAT (`crs) EPS (`) P/E (x) Adj BVPS (`) P/ABV (x) ROE %<br />
1,100<br />
1,763<br />
2,017<br />
2,390<br />
3.10%<br />
60.30%<br />
14.40%<br />
18.50%<br />
841<br />
1,224<br />
1,480<br />
1,768<br />
Source: Company Data, Nirmal Bang Research<br />
49.80%<br />
53.30%<br />
56.00%<br />
56.50%<br />
511<br />
612<br />
679<br />
816<br />
17.82<br />
18.34<br />
20.37<br />
24.48<br />
4.79<br />
4.66<br />
4.19<br />
3.49<br />
73<br />
92<br />
108<br />
126.2<br />
1.17<br />
0.93<br />
0.8<br />
0.68<br />
21.40%<br />
19.50%<br />
17.20%<br />
17.80%<br />
Higher exposure in Gujarat, increasing focus on high-yield retail credit, strengthening of its balance sheet, coupled with<br />
lower operating costs would improve efficiency and drive earnings of Dena Bank, going forwarD.<br />
It’s simplified...
COMMODITY<br />
FUTURES<br />
Nickel<br />
$28,000/<strong>to</strong>nne<br />
Crude Oil $98/barrel<br />
Copper $8,500/<strong>to</strong>nne<br />
Pepper<br />
`25,000/quintal<br />
Guar Seed `3,200/quintal<br />
Silver $32/troy ounce<br />
Gold $1,500/troy ounce<br />
Zinc $2,100/<strong>to</strong>nne<br />
Chana<br />
`2,500/<br />
quintal<br />
Aluminium $2,450/<strong>to</strong>nne<br />
Jeera<br />
`14,000/quintal<br />
Cardamom `1,000/kg<br />
Predicting Accurate Results.<br />
Consistently.<br />
Our research goes beyond numbers <strong>to</strong> identify the forces that affect the kundali of commodities - global events,<br />
do<strong>me</strong>stic issues, and everything in between. Which is why, our predictions have invariably co<strong>me</strong> true on<br />
several occasions, proving that we are among the best in the industry when it co<strong>me</strong>s <strong>to</strong> commodity trading.<br />
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Prepared by Research Analyst of Nirmal Bang Commodities Pvt. Ltd.<br />
BSE SEBI REGN No. INB011072759, INF011072759 & INE011072759, NSE SEBI REGN No. INB230939139, INF230939139 & INE230939139 DP SEBI REGN. No NSDL: IN-DP-NSDL-136-2000, CDS(I)l: IN-DP-CDSL-37-99, AMFI REGN. No. arn-49454 NCDEX REGN. NO. 00362, FMC Code-0075, MCX REGN. No. 16590, FMC Code-MCX/TCM/CORP/0490, MCX SX-INE260939139, PMS-INP000002981
32<br />
FORTNIGHTLY OUTLOOK FOR COMMODITIES<br />
Most international<br />
commodities reacted<br />
rather sharply <strong>to</strong><br />
growing debt<br />
concerns in the Euro zone, led by<br />
Greece, tumbling Asian currencies<br />
and the strength in the US dollar<br />
index. Despite recent positive US<br />
jobs data and US ISM manufacturing<br />
data, we haven’t seen any kind of<br />
buying in several commodities.<br />
Gold prices <strong>to</strong>o tumbled losing its<br />
safe-haven stature. Silver prices<br />
followed the broad base <strong>me</strong>tals<br />
complex, which witnessed their worst<br />
quarterly performance since 2008.<br />
Crude oil prices, though relatively<br />
strong, saw a weak trading fortnight<br />
as tumbling equities and easing<br />
tensions in the middle-east nations<br />
reduced issues related <strong>to</strong> supply, in<br />
turn, leading <strong>to</strong> a selloff in crude oil.<br />
PRECIOUS METALS<br />
After a volatile trading session in<br />
mid-September, we saw a huge crash<br />
in both gold and silver prices this<br />
fortnight. After reaching an all-ti<strong>me</strong><br />
high of $1,920 per ounce on the<br />
COMEX, gold prices corrected by<br />
more than 16.5% <strong>to</strong> trade at $1,600<br />
per ounce. Silver prices were worst<br />
hit with prices trading at $26 per<br />
ounce from a recent high of $44 per<br />
ounce on the COMEX, accounting for<br />
a 40% correction in the previous<br />
fortnight. However, because of the<br />
strength in the US dollar against the<br />
Indian rupee, the fall was not as steep<br />
as was seen in the international<br />
markets. The strength in the US dollar<br />
against major international currencies<br />
can be majorly attributed <strong>to</strong> the<br />
massive correction in bullion prices.<br />
The Greek govern<strong>me</strong>nt said it passed<br />
a new budget backed by its international<br />
credi<strong>to</strong>rs, including larger<br />
Beyond Market 10th Oct ’11<br />
deficits than previously forecasted, as<br />
the country moves closer <strong>to</strong> securing<br />
an 8 billion euro ($10.7 billion) aid<br />
payout needed <strong>to</strong> avoid default. Pri<strong>me</strong><br />
Minister George Papandreou’s<br />
Cabinet also passed 6.6 billion euros<br />
of austerity <strong>me</strong>asures recently <strong>to</strong> cut<br />
the 2012 deficit <strong>to</strong> 6.8% of the GDP,<br />
missing the 6.5% goal previously set<br />
with the EU, International Monetary<br />
Fund and the European Central Bank,<br />
known as the troika .<br />
Going forward, we expect gold prices<br />
<strong>to</strong> remain buoyant as we have not<br />
seen any major liquidation in the ETF<br />
holdings. Strong ETF holdings<br />
suggest that the invest<strong>me</strong>nt interest is<br />
still strong in the yellow <strong>me</strong>tal. We<br />
recom<strong>me</strong>nd going long in gold at<br />
$1,600-$1,620 per ounce on the<br />
COMEX for a target of above $1,720<br />
per ounce on the COMEX until the<br />
next fortnight.<br />
INDUSTRIAL METALS<br />
Prices of industrial <strong>me</strong>tals once again<br />
had a very weak session. Copper<br />
prices tumbled <strong>to</strong> trade below $6,800<br />
per <strong>to</strong>nne on the London Metal<br />
Exchange. This is a 35% correction<br />
from its all-ti<strong>me</strong> high level in February<br />
this year. Most industrial <strong>me</strong>tals<br />
are set <strong>to</strong> display their worst quarterly<br />
performance since the crisis of 2008.<br />
Despite labour unrest in major<br />
copper-producing mines, prices failed<br />
<strong>to</strong> sustain upper levels.<br />
South African miner Me<strong>to</strong>rex, the<br />
takeover target of Chinese <strong>me</strong>tals<br />
group Jinchuan said its copper output<br />
for the three months <strong>to</strong><br />
end-September rose 15% from the<br />
previous quarter.<br />
Global aluminium prices cannot fall<br />
much further, with as much as<br />
two-fifths of the global production<br />
already unprofitable and demand<br />
likely <strong>to</strong> hold up, a senior executive at<br />
RUSAL, the world’s largest producer<br />
of the <strong>me</strong>tal, said.<br />
Aluminium <strong>to</strong>ps the list among base<br />
<strong>me</strong>tals in terms of consumption<br />
growth prospects, followed by nickel,<br />
zinc, copper, lead and lastly tin,<br />
according <strong>to</strong> CRU, an independent<br />
research agency.<br />
Going forward, we do not expect any<br />
respite for base <strong>me</strong>tals. They still look<br />
weak based on bleak manufacturing<br />
PMI numbers from across the globe.<br />
Looking at the price levels and the<br />
quantum of demand, we still do not<br />
feel that base <strong>me</strong>tals are cheap. We<br />
expect copper prices <strong>to</strong> test $6,500<br />
per <strong>to</strong>nne <strong>to</strong> $6,400 per <strong>to</strong>nne on the<br />
LME until the next fortnight.<br />
CRUDE OIL<br />
Crude oil prices fell sharply from $90<br />
per barrel <strong>to</strong> $77 per barrel in the last<br />
fortnight. The downside was majorly<br />
supported by the slowdown in the<br />
global economic growth, increasing<br />
threats that Greece would default and<br />
expectations of low oil demand from<br />
the world’s <strong>to</strong>p oil consu<strong>me</strong>r.<br />
Meanwhile, Libya <strong>to</strong>o restarted oil<br />
production and will start exporting<br />
half of its <strong>to</strong>tal oil production by the<br />
end of November. The projected pace<br />
for oil demand is lower this month<br />
due <strong>to</strong> a less optimistic outlook for<br />
global economic growth.<br />
We expect more weakness <strong>to</strong> continue<br />
in oil prices due <strong>to</strong> macroeconomic<br />
indica<strong>to</strong>rs showing weakness around<br />
the globe, raising concerns for lower<br />
oil demand and improve<strong>me</strong>nt in the<br />
situation in Libya. Any major upside<br />
should be used as a good selling<br />
opportunity for the coming fortnighT.<br />
It’s simplified...
FORTNIGHTLY OUTLOOK FOR CURRENCIES<br />
IInves<strong>to</strong>rs continued <strong>to</strong> shelter<br />
themselves in safe havens like<br />
the US dollar and US treasuries<br />
in the wake of persistent<br />
global growth concerns and the<br />
European debt crisis. The US dollar<br />
index, a broad <strong>me</strong>asure of the dollar’s<br />
performance against six major currencies,<br />
rallied <strong>to</strong> 79.75 from 77.<br />
The IMF forecasted the world economies<br />
will grow at a much slower pace<br />
for another one-and-a-half year.<br />
Moreover, no concrete words ca<strong>me</strong><br />
from the European Union, causing<br />
more pain <strong>to</strong> risky assets.<br />
Macro-economic indica<strong>to</strong>rs are showing<br />
weakness around the globe. PMI<br />
numbers of developed markets are<br />
indicating slower growth in all the<br />
industries. Unemploy<strong>me</strong>nt rates in the<br />
US and Europe are high at around<br />
9.1% and 10%, respectively. The<br />
housing sec<strong>to</strong>r weakness continued in<br />
the US and UK leading <strong>to</strong> poor<br />
consu<strong>me</strong>r spending. Also, inter-bank<br />
lending rates continue <strong>to</strong> reflect lack<br />
of confidence in the money markets.<br />
All concerns, coupled with the<br />
ongoing dollar squeeze make the<br />
dollar a good bet. The dollar index is<br />
likely <strong>to</strong> test the mark of 81 in the<br />
coming fortnight.<br />
The euro made a nine-month low<br />
against the US dollar, the worst hit<br />
among all the major currencies. The<br />
single currency is under im<strong>me</strong>nse<br />
pressure on account of contagion<br />
fears in the European economies.<br />
Inves<strong>to</strong>rs went short on every rally on<br />
the euro, which led <strong>to</strong> a sharp fall<br />
from $1.38 <strong>to</strong> $1.3160 within two<br />
weeks. Though the German parlia<strong>me</strong>nt<br />
passed the enhanced EFSF<br />
(European Financial Stability<br />
Facility) with a vast majority, the<br />
inves<strong>to</strong>rs remained sceptical about the<br />
long-term solutions for European<br />
peripheral countries.<br />
Higher CPI numbers <strong>to</strong>o did not<br />
support the currency and expectations<br />
of a rate cut was largely ruled out. The<br />
coming fortnight is very crucial for<br />
the Euro zone as the markets await the<br />
final con<strong>to</strong>urs of an enhanced EFSF.<br />
On the other hand, troika (IMF, EU<br />
and ECB) will decide upon the next<br />
tranche of aid <strong>to</strong> Greece.<br />
Currently, inves<strong>to</strong>rs are very sceptical<br />
about the Euro zone and with every<br />
disappoint<strong>me</strong>nt, inves<strong>to</strong>rs are going<br />
short on the EUR/USD pair. With a<br />
bearish outlook on the pair, we expect<br />
the EUR/USD pair <strong>to</strong> trade in the<br />
range of $1.2850 <strong>to</strong> $1.3350.<br />
The sterling was broadly under<br />
pressure in line with the euro. It fell <strong>to</strong><br />
$1.54 from $1.57 against the US<br />
dollar in the last fortnight. Rising<br />
expectations of additional quantitative<br />
easing weighed on the exchange<br />
rate as the Bank of England showed<br />
willingness <strong>to</strong> expand its monetary<br />
policy further.<br />
The central bank looks set <strong>to</strong> increase<br />
its efforts <strong>to</strong> stimulate the ailing<br />
economy in order <strong>to</strong> avoid falling<br />
back in<strong>to</strong> a recession. Going forward,<br />
we may see a sustained downward<br />
pressure on GBP/USD against the<br />
backdrop of broad strength in the US<br />
dollar, coupled with deteriorating<br />
outlook for the UK economy.<br />
The funda<strong>me</strong>ntals are weak for UK<br />
and any rally should be considered as<br />
a selling opportunity. The likely range<br />
for the pound for the fortnight is<br />
$1.55 <strong>to</strong> $1.52 with a downside bias.<br />
The Japanese yen broke the usual<br />
appreciation trend <strong>to</strong>wards the end of<br />
the fortnight. The US GDP ca<strong>me</strong> in<br />
better-than-expected at 1.3% for the<br />
June quarter. This develop<strong>me</strong>nt gave<br />
the US dollar so<strong>me</strong> positive ground<br />
against the Japanese yen and the<br />
JPYINR pair surged <strong>to</strong> 77.25.<br />
However, quarter-end exporters’<br />
dollar selling ca<strong>me</strong> in at these levels.<br />
On the economy front, the newest<br />
Tankan economic survey for major<br />
Japanese industries in Q3 showed<br />
welco<strong>me</strong> improve<strong>me</strong>nt in the manufacturing<br />
sec<strong>to</strong>rs. In the coming<br />
fortnight, we expect the Japanese yen<br />
<strong>to</strong> be in the range of 76 <strong>to</strong> 78.<br />
The Indian rupee remained under<br />
tre<strong>me</strong>ndous pressure, depreciating by<br />
almost 8% <strong>to</strong> 10% in the last month.<br />
Capital outflows, coupled with the<br />
dollar squeeze in the Asian markets<br />
led <strong>to</strong> a sharp decline in the rupee.<br />
The RBI reiterated that it won’t<br />
intervene <strong>to</strong> protect any particular<br />
level. However, it will intervene in<br />
the Forex market only <strong>to</strong> control the<br />
intraday volatility of the rupee.<br />
According <strong>to</strong> data from SEBI, FII<br />
outflows since 20th September is<br />
$1,706 million from equity and debt<br />
markets. The weakness in rupee is<br />
likely <strong>to</strong> continue in the coming<br />
fortnight as the run on the US dollar<br />
may lead <strong>to</strong> further weakness in<br />
overall Asian currencies.<br />
On the economic front, the current<br />
account deficit for June quarter ca<strong>me</strong><br />
in at $14 billion against $12 billion in<br />
the corresponding period last year.<br />
Additionally, fiscal numbers point <strong>to</strong><br />
a higher-than-estimated fiscal deficit<br />
for the current financial year. Both the<br />
external and internal fac<strong>to</strong>rs indicate a<br />
weaker rupee in the short-term. The<br />
USDINR pair may test the levels of<br />
49.90-50.00 in spoT.<br />
Beyond Market 10th Oct ’11 It’s simplified... 33
34<br />
Wooing Foreign Inves<strong>to</strong>rs<br />
The announce<strong>me</strong>nt <strong>to</strong> permit QFIs <strong>to</strong> invest in mutual fund sche<strong>me</strong>s will enable them <strong>to</strong> have direct access <strong>to</strong><br />
the Indian mutual fund industry, thus widening the class of inves<strong>to</strong>rs in the Indian capital market and also<br />
help in reducing the volatility in the markets<br />
Beyond Market 10th Oct ’11<br />
It’s simplified...
In accordance with the<br />
announce<strong>me</strong>nt made by<br />
Finance Minister Pranab<br />
Mukherjee in his 2011-12<br />
budget speech, the finance ministry<br />
has decided <strong>to</strong> permit Qualified<br />
Foreign Inves<strong>to</strong>rs (QFIs) <strong>to</strong> invest up<br />
<strong>to</strong> $10 billion in equity and debt<br />
sche<strong>me</strong>s of mutual funds through the<br />
direct route – holding mutual fund<br />
units in a demat account through a<br />
deposi<strong>to</strong>ry participant (DP) that is<br />
registered with the SEBI and the<br />
indirect route – holding mutual fund<br />
units via the Unit Confirmation<br />
Receipt (UCR) issued by an overseas<br />
UCR issuer.<br />
An additional amount of $3 billion<br />
can be invested in debt funds in the<br />
infrastructure sec<strong>to</strong>r. Invest<strong>me</strong>nt by<br />
QFIs will propel the markets,<br />
decrease volatility and boost<br />
infrastructure spending.<br />
“To liberalize the portfolio invest<strong>me</strong>nt<br />
route, it has been decided <strong>to</strong> permit<br />
mutual funds that have been<br />
registered with SEBI <strong>to</strong> accept<br />
subscriptions from foreign inves<strong>to</strong>rs<br />
who <strong>me</strong>et the KYC (know your<br />
cus<strong>to</strong><strong>me</strong>r) require<strong>me</strong>nts for equity<br />
mutual fund sche<strong>me</strong>s,” Mukherjee<br />
had said in his budget speech.<br />
He said, “This would enable mutual<br />
funds in India <strong>to</strong> have direct access <strong>to</strong><br />
foreign inves<strong>to</strong>rs as well as widen the<br />
class of foreign inves<strong>to</strong>rs who would<br />
invest in the Indian equity market.”<br />
THE DIRECT ROUTE:<br />
DEPOSITORY PARTICIPANT<br />
(DP) ROUTE<br />
This route will be operated through a<br />
separate single rupee pool bank<br />
account <strong>to</strong> be maintained by the<br />
deposi<strong>to</strong>ry participant (DP). Dividend<br />
pay<strong>me</strong>nts will be directly remitted <strong>to</strong><br />
the overseas accounts of the QFIs.<br />
QFIs can open a single demat account<br />
with a DP in India. However, they are<br />
not allowed <strong>to</strong> open a bank account in<br />
the country.<br />
Process Flow When QFIs Co<strong>me</strong> For<br />
Subscription Through The Direct<br />
Route<br />
Step 1:<br />
The Qualified Foreign Inves<strong>to</strong>rs shall<br />
place a purchase/ subscription order<br />
<strong>me</strong>ntioning the na<strong>me</strong> of the mutual<br />
fund sche<strong>me</strong> with its deposi<strong>to</strong>ry<br />
participant and remit foreign inward<br />
remittances in any permitted currency<br />
directly <strong>to</strong> the single rupee pool bank<br />
account of the DP.<br />
Step 2:<br />
The DP, in turn, shall forward the<br />
purchase order <strong>to</strong> the concerned MF<br />
and remit the money <strong>to</strong> the MF’s<br />
sche<strong>me</strong> account on the sa<strong>me</strong> day as<br />
the receipt of funds from QFIs. In<br />
case of receipt of money after<br />
business hours, DP shall remit the<br />
funds <strong>to</strong> MF sche<strong>me</strong> account by the<br />
next business day.<br />
Step 3:<br />
The mutual fund house shall process<br />
the order and credit units of the<br />
mutual fund sche<strong>me</strong> in<strong>to</strong> the demat<br />
account of the QFIs. If for any reason<br />
the units are not allotted, the mutual<br />
fund house/ deposi<strong>to</strong>ry participant<br />
shall ensure that the money is<br />
remitted back <strong>to</strong> the QFI’s designated<br />
overseas bank account within three<br />
working days from the date of receipt<br />
of subscription of money in the single<br />
rupee pool bank account of the<br />
deposi<strong>to</strong>ry participant.<br />
How Redemptions <strong>Take</strong> Place In<br />
The Direct Route Method<br />
Step 1:<br />
QFIs can redeem through delivery<br />
instruction on the receipt of<br />
instruction from QFIs. The DP shall<br />
process the sa<strong>me</strong> and forward the<br />
redemption instructions <strong>to</strong> the MF.<br />
Upon receipt of instruction from DP,<br />
the MF shall process the sa<strong>me</strong> and<br />
credit the single rupee pool bank<br />
account of the deposi<strong>to</strong>ry participant<br />
with redemption proceeds.<br />
Step 2:<br />
In case no fresh purchases are made,<br />
the money shall be remitted by the<br />
DPs <strong>to</strong> the designated bank’s overseas<br />
account of the QFIs within two<br />
working days from the date of the<br />
receipt of money from the MF in the<br />
pooled bank account.<br />
However, the DP can make fresh<br />
purchase of units of equity and debt<br />
sche<strong>me</strong>s of the mututal fund (if so<br />
instructed by the QFIs) out of the<br />
redemption proceeds received,<br />
provided that pay<strong>me</strong>nt is made<br />
<strong>to</strong>wards such purchase within two<br />
working days of the receipt of money<br />
from the mutual fund house in the<br />
pooled bank account.<br />
THE INDIRECT ROUTE:<br />
UNIT CONFIRMATION RECEIPT<br />
(UCR) ROUTE<br />
Do<strong>me</strong>stic mutual funds can open<br />
foreign currency accounts outside<br />
India for the purpose of receiving<br />
subscriptions from QFIs as well as for<br />
redeeming UCRs. The UCR will be<br />
issued against units of do<strong>me</strong>stic MF<br />
equity sche<strong>me</strong>s and would be<br />
non-tradable and non-transferable.<br />
There are four parties under this route<br />
- QFIs, UCR issuer (based overseas),<br />
SEBI registered cus<strong>to</strong>dian (based in<br />
India) and mutual fund house. QFIs<br />
can subscribe/redeem only through<br />
the UCR Issuer.<br />
The mutual fund house shall appoint<br />
one or more UCR issuing agents<br />
overseas and one SEBI-registered<br />
cus<strong>to</strong>dian in India. UCR issuer<br />
appointed by the fund house shall act<br />
as an agent of the mutual fund.<br />
The rupee denominated units of the<br />
Beyond Market 10th Oct ’11 It’s simplified... 35
36<br />
MF would be held as underlying by<br />
the cus<strong>to</strong>dian in India in demat mode<br />
against which the UCR issuer would<br />
issue UCR <strong>to</strong> be held by QFIs. Units<br />
purchased and redee<strong>me</strong>d through<br />
UCR issuer shall be settled on gross<br />
basis and under no circumstances<br />
shall be netted against other inves<strong>to</strong>rs<br />
of UCR issuer.<br />
Process Flow When QFIs Co<strong>me</strong><br />
Through The UCR Route<br />
Step 1:<br />
In case of a mutual fund house<br />
opening a bank account overseas, the<br />
UCR issuer shall forward the order of<br />
QFIs <strong>to</strong> the MF/ cus<strong>to</strong>dian. Upon<br />
receipt and transfer of funds <strong>to</strong> India,<br />
the mutual fund shall issue units <strong>to</strong> the<br />
cus<strong>to</strong>dian and the cus<strong>to</strong>dian in turn<br />
intimate the UCR issuer <strong>to</strong> issue UCR<br />
<strong>to</strong> the QFIs.<br />
In case of redemption, the UCR issuer<br />
shall confirm the receipt of<br />
redemption request <strong>to</strong> the MF and<br />
cus<strong>to</strong>dian. On receipt of the<br />
instruction, the MF shall process the<br />
sa<strong>me</strong> and transfer the redemption<br />
proceeds <strong>to</strong> the MF overseas bank<br />
account for making pay<strong>me</strong>nts <strong>to</strong> the<br />
designated overseas bank account of<br />
the QFIs.<br />
Step 2:<br />
In case the MF receives money in<br />
India from the UCR issuer, the UCR<br />
issuer shall forward the purchase<br />
order <strong>to</strong> the mutual fund and<br />
cus<strong>to</strong>dian and remit the funds in<strong>to</strong> the<br />
MF sche<strong>me</strong> account (in rupee terms).<br />
Upon the receipt of funds, the mutual<br />
fund shall issue units <strong>to</strong> the cus<strong>to</strong>dian<br />
Beyond Market 10th Oct ’11<br />
a stitch in ti<strong>me</strong> saves nine<br />
plan your finances in ti<strong>me</strong><br />
Your financial security is our concern.<br />
At Nirmal Bang, it’s a relationship beyond broking...<br />
Who Is A Qualified Foreign Inves<strong>to</strong>r (QFI)?<br />
QFI <strong>me</strong>ans a person resident in a country that is compliant with<br />
Financial Action Task Force (FATF) standards and that is a signa<strong>to</strong>ry<br />
<strong>to</strong> the International Organization of Securities Commission’s<br />
(IOSCO’s) Multilateral Memorandum of Understanding. That<br />
person should also be non-resident of India and currently is not<br />
registered with the SEBI as a Foreign Institutional Inves<strong>to</strong>r or a<br />
sub-account.<br />
and the cus<strong>to</strong>dian shall, in turn,<br />
confirm <strong>to</strong> the UCR issuer <strong>to</strong> issue<br />
UCR <strong>to</strong> the QFIs.<br />
In case of redemption, the UCR issuer<br />
shall confirm the receipt of<br />
redemption request <strong>to</strong> the mutual fund<br />
and the cus<strong>to</strong>dian.<br />
Upon the receipt of instruction, the<br />
mutual fund house shall process and<br />
remit redemption proceeds <strong>to</strong> the<br />
UCR issuer, which in turn, shall remit<br />
the redemption proceeds <strong>to</strong> the<br />
designated bank account of the QFIs.<br />
Invest<strong>me</strong>nts under both the routes<br />
will be moni<strong>to</strong>red on a daily basis.<br />
The invest<strong>me</strong>nt under both the routes<br />
will be in units which are directly<br />
issued by do<strong>me</strong>stic mutual funds and<br />
no secondary market purchases would<br />
be allowed.<br />
Further, SEBI, the regula<strong>to</strong>r has also<br />
allowed QFIs <strong>to</strong> invest an additional<br />
amount of up <strong>to</strong> $3 billion under both<br />
the routes in do<strong>me</strong>stic mutual fund<br />
debt sche<strong>me</strong>s which invest in<br />
infrastructure debt of minimum<br />
residual maturity of five years within<br />
the existing ceiling of $25 billion for<br />
FII invest<strong>me</strong>nt in corporate bonds that<br />
have been issued by the infrastructure<br />
companies in the country.<br />
The Secutiries Exchange Board of<br />
India has also said that a mutual fund<br />
can accept subscriptions from QFIs<br />
till invest<strong>me</strong>nts under both the routes<br />
reach $8 billion in equity mutual fund<br />
sche<strong>me</strong>s and $2.5 billion in debt<br />
mutual fund sche<strong>me</strong>s.<br />
The remaining limit of $2 billion in<br />
equity sche<strong>me</strong>s and $0.5 billion in<br />
debt sche<strong>me</strong>s would be auctioned by<br />
the capital markets regula<strong>to</strong>r through<br />
a bidding process.<br />
The move may act as a further boost<br />
<strong>to</strong> MFs as it might get more inflows<br />
and will be managing funds for global<br />
inves<strong>to</strong>rs. So<strong>me</strong> industry players also<br />
believe that this move might ease the<br />
pressure on the mutual fund industry<br />
which ca<strong>me</strong> about after the SEBI<br />
scrapped entry loads in 2009.<br />
However in order <strong>to</strong> get inflows from<br />
foreign players, Indian fund houses<br />
should be able <strong>to</strong> convince and<br />
market themselves outside the<br />
country <strong>to</strong> attract such inves<strong>to</strong>rS.<br />
EQUITIES | DERIVATIVES | COMMODITIES | CURRENCY | MUTUAL FUNDS | IPOs | INSURANCE | DP<br />
SMS ‘BANG’ <strong>to</strong> 54646 | e-mail: contact@nirmalbang.com | www.nirmalbang.com<br />
It’s simplified...
38<br />
Beyond Market 10th Oct ’11<br />
Advising The Advisors<br />
The concept note on the regulation of invest<strong>me</strong>nt advisors proposes certain positive<br />
practices for advisors and distribu<strong>to</strong>rs, thus aiding inves<strong>to</strong>rs in choosing the right<br />
products for their invest<strong>me</strong>nt portfolios<br />
R<br />
etail inves<strong>to</strong>rs, who<br />
so<strong>me</strong>ti<strong>me</strong>s used <strong>to</strong> get<br />
unwarranted financial<br />
advice resulting in huge<br />
losses on their invest<strong>me</strong>nts, is set <strong>to</strong><br />
change as markets regula<strong>to</strong>r,<br />
Securities and Exchange Board of<br />
India (SEBI) is planning <strong>to</strong> regulate<br />
financial advisors and distribu<strong>to</strong>rs<br />
selling financial products.<br />
The concept paper on the regulation<br />
of invest<strong>me</strong>nt advisors released by the<br />
SEBI recently proposed so<strong>me</strong><br />
positive practices for the advisors and<br />
distribu<strong>to</strong>rs, which might help<br />
inves<strong>to</strong>rs chose right products for<br />
their portfolios. The regula<strong>to</strong>r has<br />
invited public com<strong>me</strong>nts on the draft<br />
guidelines before 31st Oc<strong>to</strong>ber.<br />
The markets regula<strong>to</strong>r plans <strong>to</strong><br />
regulate invest<strong>me</strong>nt advisors through<br />
a Self-Regula<strong>to</strong>ry Organization<br />
(SRO) which will look in<strong>to</strong> issues<br />
relating <strong>to</strong> financial products<br />
mis-selling, violation of code of<br />
conduct, conflict of interest, etc. The<br />
SRO set up for the regulation of<br />
invest<strong>me</strong>nt advisors shall follow the<br />
rules laid down by the respective<br />
regula<strong>to</strong>rs for products falling under<br />
their purview.<br />
Individuals in the advisory business<br />
would have <strong>to</strong> register themselves<br />
with the SRO and have <strong>to</strong> comply<br />
with its rules and regulations. Besides<br />
individuals, even portfolio managers<br />
It’s simplified...
who only provide invest<strong>me</strong>nt advice<br />
would have <strong>to</strong> register with the SRO.<br />
It is always seen that selecting<br />
between an agent and an advisor may<br />
be problematic for inves<strong>to</strong>rs since no<br />
proper guidelines regarding their<br />
qualification or eligibility are in place<br />
yet. However, several inves<strong>to</strong>rs have<br />
begun running a proper background<br />
check on the distribu<strong>to</strong>r or advisor<br />
before seeking any financial advice.<br />
The SEBI, in its concept paper, has<br />
proposed a minimum qualification<br />
without which an individual cannot<br />
work as a financial advisor. It has<br />
proposed that an individual needs <strong>to</strong><br />
be either a chartered accountant, an<br />
MBA in finance or needs <strong>to</strong> hold a<br />
similar qualification or should have at<br />
least 10 years of relevant experience<br />
in the field.<br />
The regula<strong>to</strong>ry order also states that<br />
in addition, individuals would be<br />
required <strong>to</strong> have a certification from<br />
SEBI-approved organizations such as<br />
the National Institute of Securities<br />
Markets (NISM). In case of advisory<br />
services from banks, at least two key<br />
personnel from the bank would be<br />
required <strong>to</strong> have relevant experience<br />
and suggested certification.<br />
The person who interfaces with the<br />
cus<strong>to</strong><strong>me</strong>r should declare upfront<br />
whether he is a financial advisor or an<br />
agent of the product manufacturer. If<br />
he is an advisor, he would be subject<br />
<strong>to</strong> the Invest<strong>me</strong>nt Advisors<br />
Regulations and would require a<br />
much higher level of qualification. He<br />
would act as an advisor <strong>to</strong> the inves<strong>to</strong>r<br />
on all financial products. He would<br />
receive all pay<strong>me</strong>nts from the<br />
inves<strong>to</strong>r and there would be no limits<br />
on these pay<strong>me</strong>nts.<br />
On the other hand, there will be<br />
agents who will be associated with<br />
the manufacturer and would receive<br />
remuneration from them. However,<br />
they will be prevented from styling<br />
themselves as financial advisors and<br />
will have <strong>to</strong> call themselves as agents<br />
only. The SEBI’s decision <strong>to</strong> regulate<br />
the advisors is being done mainly <strong>to</strong><br />
protect the conflict of interest among<br />
financial distribu<strong>to</strong>rs.<br />
Invest<strong>me</strong>nt advisors or their<br />
representatives would be required <strong>to</strong><br />
do adequate risk profiling of the client<br />
before any invest<strong>me</strong>nt service is<br />
provided <strong>to</strong> them. Based upon the risk<br />
profiling perfor<strong>me</strong>d by the invest<strong>me</strong>nt<br />
advisor or their representative,<br />
suitable invest<strong>me</strong>nt advice should be<br />
provided <strong>to</strong> the client.<br />
The records of such risk profiling and<br />
invest<strong>me</strong>nt advice should be<br />
maintained by the invest<strong>me</strong>nt advisor.<br />
Currently with no proper availability<br />
of records, inves<strong>to</strong>rs are, therefore,<br />
not in a position <strong>to</strong> produce proof of<br />
any false practices.<br />
The concept paper is intended <strong>to</strong> clear<br />
the confusion among inves<strong>to</strong>rs about<br />
wealth managers, private bankers,<br />
and portfolio managers. It also states<br />
that advisors should be strictly<br />
identified as ‘invest<strong>me</strong>nt advisors’<br />
and not by na<strong>me</strong>s like wealth<br />
managers or private bankers. Besides,<br />
they should be highly qualified.<br />
“This causes much confusion as <strong>to</strong><br />
their role and responsibility. Hence<br />
the (proposed) regulations will<br />
provide that no person can carry on<br />
the activity of offering invest<strong>me</strong>nt<br />
advice unless he is registered as an<br />
invest<strong>me</strong>nt advisor under the<br />
regulations,” said SEBI.<br />
According <strong>to</strong> the paper, currently<br />
distribu<strong>to</strong>rs play a dual role as agents<br />
of both the inves<strong>to</strong>r and the financial<br />
product manufacturer, getting paid<br />
from both ends. Such divided loyalty<br />
is not in the best interest of<br />
stakeholders and results in a situation<br />
where the distribu<strong>to</strong>r is loyal only <strong>to</strong><br />
himself, churning inves<strong>to</strong>rs'<br />
portfolios and squeezing more<br />
commission from the manufacturer.<br />
Invest<strong>me</strong>nt advisors cannot receive<br />
any money from anyone other than<br />
clients and must clearly indicate fees<br />
and charges payable along with<br />
detailed information about their<br />
businesses, his<strong>to</strong>ry and terms and<br />
conditions for advisory. They cannot<br />
outsource any activity except research<br />
reports and shall not be liable for civil<br />
and criminal liability for their advice<br />
unless negligence or mala-fide<br />
intention is established.<br />
Also advocates and chartered<br />
accountants who provide advice in<br />
their respective professions are out of<br />
the domain. It also leaves out<br />
newspapers and the broadcast <strong>me</strong>dia.<br />
Additionally, s<strong>to</strong>ck brokers and<br />
sub-brokers, who provide invest<strong>me</strong>nt<br />
advice without charging any fees and<br />
any person offering only insurance<br />
broking under the regulations of the<br />
Insurance Regula<strong>to</strong>ry and<br />
Develop<strong>me</strong>nt Authority (IRDA), will<br />
not be covered under the proposed<br />
invest<strong>me</strong>nt advisor regulation.<br />
The concept paper has proposed that<br />
all invest<strong>me</strong>nt advisors will act only<br />
in the best interest of their clients<br />
(fiduciary responsibility). In case they<br />
provide other services such as<br />
broking, dematerialization of shares,<br />
etc, they should maintain a Chinese<br />
wall between advisory and other<br />
services and must disclose them <strong>to</strong> the<br />
client, said SEBI.<br />
However, a final decision will be<br />
taken only after looking in<strong>to</strong> the<br />
public com<strong>me</strong>nts. But the path chosen<br />
by the regula<strong>to</strong>r will lead <strong>to</strong> advisors<br />
selling right products <strong>to</strong> the inves<strong>to</strong>rs<br />
and not feed them with unwanted<br />
products which might hurt their<br />
pockets and prevent them from<br />
achieving their financial goalS.<br />
Beyond Market 10th Oct ’11 It’s simplified... 39
CHANGE IN PRICE AND OPEN INTEREST<br />
40<br />
Company Na<strong>me</strong> Price<br />
(`)<br />
Nifty Futures<br />
Bank Nifty<br />
ACC Ltd<br />
Ambuja Ce<strong>me</strong>nts Ltd<br />
Axis Bank Ltd<br />
Bajaj Au<strong>to</strong> Ltd<br />
Bharti Airtel Ltd<br />
Bharat Heavy Electricals Ltd#<br />
Bharat Petroleum Corporation Ltd<br />
Cairn India Ltd<br />
Cipla Ltd<br />
DLF Ltd<br />
Dr Reddy's Labora<strong>to</strong>ries Ltd<br />
GAIL (India) Ltd<br />
Grasim Industries Ltd<br />
HCL Technologies Ltd<br />
HDFC Ltd<br />
HDFC Bank Ltd<br />
Hero Mo<strong>to</strong>Corp Ltd<br />
Hindalco Industries Ltd<br />
Hindustan Unilever Ltd<br />
ICICI Bank Ltd<br />
IDFC Ltd<br />
Infosys Ltd<br />
I T C Ltd<br />
Jindal Steel & Power Ltd<br />
Jaiprakash Associates Ltd<br />
Kotak Mahindra Bank Ltd<br />
Larsen & Toubro Ltd<br />
Mahindra & Mahindra Ltd<br />
Maruti Suzuki India Ltd<br />
NTPC Ltd<br />
Oil & Natural Gas Corporation Ltd<br />
Punjab National Bank<br />
Power Grid Corporation of India Ltd<br />
Ranbaxy Labora<strong>to</strong>ries Ltd<br />
Reliance Communications Ltd<br />
Reliance Capital Ltd<br />
Reliance Industries Ltd<br />
Reliance Infrastructure Ltd<br />
Reliance Power Ltd<br />
Steel Authority of India Ltd<br />
State Bank of India<br />
Sesa Goa Ltd<br />
Sie<strong>me</strong>ns Ltd<br />
Sterlite Industries (India) Ltd<br />
Sun Pharmaceutical Industries Ltd<br />
Tata Mo<strong>to</strong>rs Ltd<br />
Tata Power Co Ltd*<br />
Tata Steel Ltd<br />
Tata Consultancy Services Ltd<br />
Wipro Ltd<br />
Beyond Market 10th Oct ’11<br />
CHANGE IN PRICE AND OPEN INTEREST OF THE NIFTY 50 COMPANIES<br />
12 Sept'11 03 Oct'11<br />
4942.45<br />
9385.60<br />
1031.95<br />
142.65<br />
1052.15<br />
1577.75<br />
386.20<br />
340.28<br />
660.05<br />
274.00<br />
291.20<br />
192.60<br />
1457.00<br />
409.75<br />
2157.40<br />
378.55<br />
654.45<br />
468.35<br />
2210.05<br />
141.65<br />
347.20<br />
864.05<br />
108.40<br />
2197.25<br />
196.55<br />
521.30<br />
64.70<br />
452.25<br />
1631.20<br />
783.10<br />
1072.50<br />
162.00<br />
262.05<br />
930.30<br />
94.40<br />
489.60<br />
79.95<br />
388.35<br />
807.85<br />
436.30<br />
77.45<br />
108.00<br />
1866.30<br />
222.15<br />
839.30<br />
125.75<br />
489.10<br />
145.20<br />
99.35<br />
449.75<br />
984.25<br />
324.85<br />
Open<br />
Interest<br />
28693300<br />
2075925<br />
1056750<br />
13768000<br />
5491750<br />
1190750<br />
8777000<br />
12937500<br />
915000<br />
15002000<br />
3827000<br />
22942000<br />
626750<br />
1308000<br />
459500<br />
2220500<br />
5459500<br />
17097500<br />
1873750<br />
17832000<br />
12913000<br />
8710000<br />
22048000<br />
2854000<br />
15884000<br />
3763500<br />
40424000<br />
3968500<br />
5538750<br />
3588500<br />
2990000<br />
21526000<br />
22869000<br />
3637000<br />
7880000<br />
2383500<br />
22102000<br />
3493000<br />
12893250<br />
4408000<br />
24282000<br />
8646000<br />
5639125<br />
7434000<br />
487000<br />
21368000<br />
2424500<br />
35105000<br />
9217500<br />
19617500<br />
5396000<br />
3953500<br />
#BHEL goes ex-split in the ratio of 5:1, *Tata Power goes ex-split in the ratio of 10:1<br />
Price<br />
(`)<br />
4857.75<br />
9182.60<br />
1098.90<br />
148.10<br />
990.05<br />
1524.35<br />
382.65<br />
319.40<br />
679.85<br />
271.70<br />
285.45<br />
196.05<br />
1467.10<br />
418.65<br />
2281.75<br />
399.75<br />
632.95<br />
456.45<br />
1964.95<br />
124.40<br />
335.50<br />
841.00<br />
109.60<br />
2471.80<br />
195.55<br />
475.80<br />
70.45<br />
447.00<br />
1324.10<br />
811.50<br />
1082.95<br />
165.15<br />
269.10<br />
924.00<br />
97.35<br />
511.85<br />
72.45<br />
321.55<br />
791.95<br />
379.70<br />
77.95<br />
100.20<br />
1857.75<br />
193.35<br />
832.40<br />
109.40<br />
465.35<br />
152.85<br />
97.00<br />
392.90<br />
1042.40<br />
332.10<br />
Open<br />
Interest<br />
20814900<br />
1987725<br />
892750<br />
11070000<br />
6230000<br />
1000500<br />
8945000<br />
10050625<br />
823500<br />
16578000<br />
2959000<br />
23871000<br />
574500<br />
993000<br />
395750<br />
1640000<br />
5844000<br />
15893750<br />
1036250<br />
20179000<br />
9400000<br />
8869750<br />
17398000<br />
2337125<br />
13750000<br />
3613000<br />
28492000<br />
3223500<br />
6977750<br />
2937500<br />
2344250<br />
15074000<br />
14724000<br />
3623500<br />
4568000<br />
2455000<br />
22472000<br />
6346000<br />
11217000<br />
5612000<br />
17554000<br />
7836000<br />
5335625<br />
7532000<br />
374500<br />
23618000<br />
2559500<br />
39951250<br />
7867500<br />
20810000<br />
4142250<br />
3236000<br />
Change<br />
in Price<br />
(`)<br />
-84.70<br />
-203.00<br />
66.95<br />
5.45<br />
-62.10<br />
-53.40<br />
-3.55<br />
-20.88<br />
19.80<br />
-2.30<br />
-5.75<br />
3.45<br />
10.10<br />
8.90<br />
124.35<br />
21.20<br />
-21.50<br />
-11.90<br />
-245.10<br />
-17.25<br />
-11.70<br />
-23.05<br />
1.20<br />
274.55<br />
-1.00<br />
-45.50<br />
5.75<br />
-5.25<br />
-307.10<br />
28.40<br />
10.45<br />
3.15<br />
7.05<br />
-6.30<br />
2.95<br />
22.25<br />
-7.50<br />
-66.80<br />
-15.90<br />
-56.60<br />
0.50<br />
-7.80<br />
-8.55<br />
-28.80<br />
-6.90<br />
-16.35<br />
-23.75<br />
7.65<br />
-2.35<br />
-56.85<br />
58.15<br />
7.25<br />
Change<br />
in Open<br />
Interest<br />
-7878400<br />
-88200<br />
-164000<br />
-2698000<br />
738250<br />
-190250<br />
168000<br />
-2886875<br />
-91500<br />
1576000<br />
-868000<br />
929000<br />
-52250<br />
-315000<br />
-63750<br />
-580500<br />
384500<br />
-1203750<br />
-837500<br />
2347000<br />
-3513000<br />
159750<br />
-4650000<br />
-516875<br />
-2134000<br />
-150500<br />
-11932000<br />
-745000<br />
1439000<br />
-651000<br />
-645750<br />
-6452000<br />
-8145000<br />
-13500<br />
-3312000<br />
71500<br />
370000<br />
2853000<br />
-1676250<br />
1204000<br />
-6728000<br />
-810000<br />
-303500<br />
98000<br />
-112500<br />
2250000<br />
135000<br />
4846250<br />
-1350000<br />
1192500<br />
-1253750<br />
-717500<br />
Change<br />
in Price<br />
(%)<br />
-1.71<br />
-2.16<br />
6.49<br />
3.82<br />
-5.90<br />
-3.38<br />
-0.92<br />
-6.14<br />
3.00<br />
-0.84<br />
-1.97<br />
1.79<br />
0.69<br />
2.17<br />
5.76<br />
5.60<br />
-3.29<br />
-2.54<br />
-11.09<br />
-12.18<br />
-3.37<br />
-2.67<br />
1.11<br />
12.50<br />
-0.51<br />
-8.73<br />
8.89<br />
-1.16<br />
-18.83<br />
3.63<br />
0.97<br />
1.94<br />
2.69<br />
-0.68<br />
3.12<br />
4.54<br />
-9.38<br />
-17.20<br />
-1.97<br />
-12.97<br />
0.65<br />
-7.22<br />
-0.46<br />
-12.96<br />
-0.82<br />
-13.00<br />
-4.86<br />
5.27<br />
-2.37<br />
-12.64<br />
5.91<br />
2.23<br />
Change<br />
in Open<br />
Interest<br />
(%)<br />
-27.46<br />
-4.25<br />
-15.52<br />
-19.60<br />
13.44<br />
-15.98<br />
1.91<br />
-22.31<br />
-10.00<br />
10.51<br />
-22.68<br />
4.05<br />
-8.34<br />
-24.08<br />
-13.87<br />
-26.14<br />
7.04<br />
-7.04<br />
-44.70<br />
13.16<br />
-27.21<br />
1.83<br />
-21.09<br />
-18.11<br />
-13.43<br />
-4.00<br />
-29.52<br />
-18.77<br />
25.98<br />
-18.14<br />
-21.60<br />
-29.97<br />
-35.62<br />
-0.37<br />
-42.03<br />
3.00<br />
1.67<br />
81.68<br />
-13.00<br />
27.31<br />
-27.71<br />
-9.37<br />
-5.38<br />
1.32<br />
-23.10<br />
10.53<br />
5.57<br />
13.81<br />
-14.65<br />
6.08<br />
-23.23<br />
-18.15<br />
Source: NB Research<br />
It’s simplified...
BULK DEALS<br />
Bulk deals take place from normal trading windows that brokers provide and can be done<br />
any ti<strong>me</strong> during trading hours. In a bulk deal, the <strong>to</strong>tal traded quantity exceeds 0.5%<br />
of the number of equity shares of a company.<br />
MAJOR BULK DEALS WHERE OVER 1% OF EQUITY WAS TRADED FROM 12th Sept ’11 TO 3rd Oct ’11<br />
Ex Date Company Client<br />
Trade Quantity % of Eq<br />
BSE 13 Sept'11 Gloster Ltd<br />
Joonk<strong>to</strong>llee Tea & Industries Ltd<br />
Sell 154232 5.89<br />
BSE 14 Sept'11 India Securities Ltd<br />
Essar Teleholdings Ltd<br />
Sell 48000000 5.48<br />
BSE 14 Sept'11 Nandan Exim Ltd<br />
Chiripal Industries Ltd<br />
Buy 4554907 1.00<br />
BSE 15 Sept'11 Chandni Textiles Ltd<br />
Monaecum Properties Pvt Ltd<br />
Sell 2500000 1.55<br />
BSE 16 Sept'11 Le Waterina Resorts & Hotels Ltd Sangam Agro Agencies Pvt Ltd<br />
Buy 4100000 6.15<br />
BSE 16 Sept'11 Thambbi Modern Spinning Mills Ltd Asset Reconstruction Co I Ltd<br />
Sell 73141 1.27<br />
BSE 19 Sept'11 India Securities Ltd<br />
Essar Teleholdings Ltd<br />
Sell 47500000 5.42<br />
BSE 21 Sept'11 Entegra Ltd<br />
MW Infra Developers Pvt Ltd<br />
Sell 6000000 5.61<br />
BSE 26 Sept'11 Futura Polyesters Ltd<br />
R Raheja Properties Pvt Ltd<br />
Buy 5307311 9.67<br />
BSE 26 Sept'11 Bloom Dekor Ltd<br />
Shalibhadra Steel Pvt Ltd<br />
Sell 260390 4.34<br />
BSE 26 Sept'11 Beryl Drugs Ltd<br />
Addo Constructions Pvt Ltd<br />
Sell 133547 2.60<br />
BSE 26 Sept'11 Bloom Dekor Ltd<br />
Darshit Hydro Power Project Pvt Ltd<br />
Sell 100000 1.67<br />
BSE 26 Sept'11 Excel Infoways Ltd<br />
Satyaprabhu Infrastructure Pvt Ltd<br />
Sell 500000 1.59<br />
BSE 27 Sept'11 Futura Polyesters Ltd<br />
R Raheja Properties Pvt Ltd<br />
Buy 4435106 8.08<br />
BSE 27 Sept'11 Shekhawati Poly-Yarn Ltd<br />
Nayan Impex Pvt Ltd<br />
Buy 500000 2.27<br />
BSE 27 Sept'11 Godrej Properties Ltd<br />
Godrej Industries Ltd<br />
Sell 790000 1.13<br />
BSE 27 Sept'11 Pasupati Fincap Ltd<br />
Pasupati Olefin Ltd<br />
Sell 52623 1.12<br />
BSE 28 Sept'11 LKP Finance Ltd<br />
KBS Real<strong>to</strong>rs Pvt Ltd<br />
Sell 300000 2.29<br />
BSE 28 Sept'11 LKP Finance Ltd<br />
Evans Fraser And Company (India) Ltd Buy 300000 2.29<br />
BSE 28 Sept'11 Claris Lifesciences Ltd<br />
WF Asia Fund Ltd<br />
Sell 934106 1.46<br />
BSE 30 Sept'11 UT Ltd<br />
Progressive Star Finance Pvt Ltd<br />
Sell 275000 3.00<br />
BSE 30 Sept'11 UT Ltd<br />
Lend Lease Company India Ltd<br />
Buy 275000 3.00<br />
BSE 30 Sept'11 BGIL Films & Technologies Ltd<br />
Felex Enterprises Pvt Ltd<br />
Sell 150000 2.34<br />
BSE 30 Sept'11 Emco Ltd<br />
Purna Properties And Invest<strong>me</strong>nts Pvt Ltd Buy 780000 1.20<br />
Source: NSE and BSE<br />
MUTUAL FUND, FII ACTIVITY AND NIFTY<br />
This graph and data represent the Mutual Fund and FII activity that <strong>to</strong>ok place in the last fortnight,<br />
whether the Fund Houses were buyers or sellers.<br />
Date MF Net* FII Net *<br />
12 Sep'11 -94.00 -219.80<br />
600<br />
400<br />
200<br />
0<br />
-200<br />
-400<br />
-600<br />
-800<br />
12 Sep'11<br />
-1000<br />
-1200<br />
-1400<br />
MF Net , FII Net & Nifty<br />
20 Sep'11<br />
15 Sep'11<br />
23 Sep'11<br />
28 Sep'11<br />
5200<br />
5150<br />
5100<br />
5050<br />
5000<br />
4950<br />
4900<br />
4850<br />
4800<br />
4750<br />
4700<br />
4650<br />
13 Sep'11<br />
14 Sep'11<br />
15 Sep'11<br />
16 Sep'11<br />
19 Sep'11<br />
20 Sep'11<br />
21 Sep'11<br />
22 Sep'11<br />
23 Sep'11<br />
26 Sep'11<br />
27 Sep'11<br />
-62.00<br />
-147.20<br />
107.00<br />
149.80<br />
-78.60<br />
-109.20<br />
216.10<br />
-41.00<br />
8.60<br />
37.10<br />
194.60<br />
-779.60<br />
-369.60<br />
-9.20<br />
166.80<br />
394.60<br />
-4.00<br />
378.70<br />
333.70<br />
-1234.60<br />
-1189.80<br />
-1006.80<br />
MF FII NIFTY (RHS)<br />
28 Sep'11 -156.90 88.70<br />
29 Sep'11<br />
-- 251.90<br />
Source: NB Research<br />
Traded<br />
274.10<br />
61.95<br />
2.63<br />
1.94<br />
5.39<br />
11.47<br />
61.00<br />
25.00<br />
5.01<br />
15.75<br />
12.76<br />
15.75<br />
11.80<br />
5.59<br />
22.60<br />
630.00<br />
15.41<br />
75.01<br />
75.01<br />
110.01<br />
9.97<br />
9.97<br />
6.90<br />
55.90<br />
Price (`)<br />
Nifty<br />
4946.80<br />
4940.95<br />
5012.55<br />
5075.70<br />
5084.25<br />
5031.95<br />
5140.20<br />
5133.25<br />
4923.65<br />
4867.75<br />
4835.40<br />
4971.25<br />
4945.90<br />
5015.45<br />
*Net activity in Equity<br />
Beyond Market 10th Oct ’11 It’s simplified... 41<br />
Close<br />
310.70<br />
60.00<br />
2.60<br />
1.94<br />
5.89<br />
11.47<br />
57.45<br />
27.15<br />
5.60<br />
15.75<br />
14.05<br />
15.75<br />
11.79<br />
5.65<br />
22.60<br />
639.20<br />
15.49<br />
79.95<br />
79.95<br />
119.45<br />
10.10<br />
10.10<br />
6.63<br />
54.20
42<br />
MOVERS AND LAGGARDS IN MUTUAL FUND SCHEMES<br />
Equity Sche<strong>me</strong>s<br />
Beyond Market 10th Oct ’11<br />
Sche<strong>me</strong> Na<strong>me</strong><br />
Movers<br />
Franklin Infotech(G)<br />
ICICI Pru Technology(G)<br />
DSPBR Technology.com(G)<br />
Birla SL New Millennium(G)<br />
ING OptiMix Asset Alloca<strong>to</strong>r Multi FoF(G)<br />
Laggards<br />
Birla SL CEF-Global Agri-Ret(G)<br />
Birla SL CEF-Global Multi Commo-Ret(G)<br />
Mirae Asset China Advantage-Reg(G)<br />
DSPBR World Mining-Reg(G)<br />
Birla SL CEF-Global Prec Metal-Ret(G)<br />
Debt Sche<strong>me</strong>s<br />
Movers<br />
Escorts Inco<strong>me</strong> Plan(G)<br />
Birla SL Medium Term-Reg(G)<br />
Taurus Dynamic Inco<strong>me</strong> Fund(G)<br />
Escorts ST Debt(G)<br />
Tata FIPF B3-Reg(G)<br />
Laggards<br />
ICICI Pru Advisor-Moderate(G)<br />
ICICI Pru Advisor-Cautious(G)<br />
Canara Robeco InDiGo(G)<br />
Escorts Inco<strong>me</strong> Bond(G)<br />
IDFC Asset Alloc-Mod(G)<br />
Balance Sche<strong>me</strong>s<br />
Movers<br />
Kotak Equity Arbitrage(G)<br />
IDFC Arbitrage Plus-Reg(G)<br />
Reliance Arbitrage Advantage(G)<br />
JM Arbitrage Adv(G)<br />
Religare Arbitrage(G)<br />
Laggards<br />
Escorts Balanced(G)<br />
Kotak Balance<br />
LIC Nomura MF Children(G)<br />
Escorts Opp(G)<br />
UTI CCP Advantage(G)<br />
Source: NB Research<br />
NAV<br />
(3rd Oct'11)<br />
55.4568<br />
15.2700<br />
27.8440<br />
16.6200<br />
14.8479<br />
13.0393<br />
11.1373<br />
8.0580<br />
9.1344<br />
13.2972<br />
33.0050<br />
11.8528<br />
10.6666<br />
15.2345<br />
13.8819<br />
24.4757<br />
18.9217<br />
11.7036<br />
29.9043<br />
11.2043<br />
15.3070<br />
12.1437<br />
10.8233<br />
14.3102<br />
13.3757<br />
54.7820<br />
19.9250<br />
9.1444<br />
26.6479<br />
14.9970<br />
Absolute %<br />
(Point <strong>to</strong> Point)<br />
2 Weeks<br />
2.6052<br />
1.9359<br />
1.2730<br />
1.0334<br />
0.2606<br />
-17.8415<br />
-15.2677<br />
-15.1879<br />
-14.1907<br />
-12.4764<br />
0.7672<br />
0.7471<br />
0.5420<br />
0.4755<br />
0.4181<br />
-2.6319<br />
-1.5833<br />
-1.2254<br />
-1.1556<br />
-1.1138<br />
0.9270<br />
0.4109<br />
0.3830<br />
0.3563<br />
0.3346<br />
-5.5818<br />
-4.8245<br />
-3.7999<br />
-3.6998<br />
-3.6071<br />
Disclai<strong>me</strong>r<br />
The information provided here has been obtained from various sources and is considered <strong>to</strong> be authentic and reliable. However,<br />
Nirmal Bang Securities Private Limited is not responsible for any error or inaccuracy in the sa<strong>me</strong>.<br />
It’s simplified...
SMS ‘BANG NRI’ <strong>to</strong> 54646 | nri@nir malbang.com | www.nir malbang.com<br />
38-B, Khatau Building, 2nd Floor, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400001. Tel: 3926 8600 / 01; Fax: 3926 8610,
44<br />
Beyond Market 10th Oct ’11<br />
A MIND<br />
OF ITS<br />
OWNThe<br />
knowledge of<br />
behavioural nance<br />
can help market<br />
participants <strong>to</strong><br />
recognize and avoid<br />
bias and errors in<br />
their decisions<br />
It’s simplified...
Do you know who the<br />
biggest enemy of a<br />
trader or an inves<strong>to</strong>r is?<br />
No, it is not inflation or<br />
high interest rates, or global fac<strong>to</strong>rs<br />
and not even market opera<strong>to</strong>rs. The<br />
biggest enemy of a trader or an<br />
inves<strong>to</strong>r is his or her own mind.<br />
It is a known fact that the markets<br />
thrive on two major human emotions<br />
– fear and greed. However, human<br />
emotions like hope, despair, regret,<br />
pride and optimism, among others <strong>to</strong>o<br />
play a major role in affecting the<br />
psyche of an inves<strong>to</strong>r.<br />
Till few decades back, emphasis was<br />
laid on studying the s<strong>to</strong>ck markets<br />
from a funda<strong>me</strong>ntal or a technical<br />
point of view instead of emotional<br />
fac<strong>to</strong>rs. It was only recently that a<br />
relatively new concept of looking in<strong>to</strong><br />
these human emotions and studying<br />
the effects of human psychology on<br />
the overall outco<strong>me</strong> of profit or loss in<br />
the markets in an inves<strong>to</strong>r’s life was<br />
put forth. This concept is known as<br />
behavioural finance.<br />
BEHAVIOURAL FINANCE<br />
The study of behavioural and<br />
cognitive psychology that affects the<br />
financial decision-making process is<br />
known as behavioural finance. There<br />
are nu<strong>me</strong>rous concepts under<br />
behavioural finance and it would be<br />
almost impossible <strong>to</strong> cover all of them<br />
in one or two articles. So what we<br />
have done is handpicked so<strong>me</strong> of the<br />
key concepts that an inves<strong>to</strong>r co<strong>me</strong>s<br />
across in everyday trading, <strong>to</strong> help<br />
him understand the causes and effects<br />
of each and how we can control them<br />
<strong>to</strong> e<strong>me</strong>rge winners in the markets.<br />
PROSPECT THEORY<br />
Imagine a scenario wherein you give<br />
a child four chocolates and tell him<br />
that he has <strong>to</strong> give two chocolates <strong>to</strong><br />
his younger sister. Now imagine a<br />
second scenario wherein you give the<br />
child two chocolates and tell him he<br />
can keep both of them for himself.<br />
Which scenario, in your view, would<br />
be considered more favourably by the<br />
child? Rational thinking says that<br />
there should be no difference in his<br />
emotions as the end result is that the<br />
child is left with a net of two<br />
chocolates. But it is not so. Research<br />
shows that the child reacts more<br />
favourably <strong>to</strong> the second scenario.<br />
In the sa<strong>me</strong> manner, a straight `1,000<br />
profit is viewed differently from a<br />
`2,000 profit followed by a `1,000<br />
loss in the s<strong>to</strong>ck market. In the second<br />
scenario, even though the net profit is<br />
still `1,000, it is not viewed positively<br />
as the effect of the loss is much more<br />
than the profit on the trader’s mind.<br />
This effect is popularly known as<br />
Loss Aversion.<br />
The theory states that humans<br />
perceive gains and losses differently.<br />
The pain of loss is much more than<br />
the pleasure of a gain. In fact, it is said<br />
that the pain of a loss is almost three<br />
ti<strong>me</strong>s more than the pleasure of a gain<br />
of the sa<strong>me</strong> value. This is why we see<br />
that we are quick <strong>to</strong> lock-in our<br />
profits, however small. But we let our<br />
losses run for long. This is because we<br />
cannot bear the pain of a loss.<br />
This is also the reason why in a<br />
panicky situation, inves<strong>to</strong>rs shift their<br />
funds <strong>to</strong> bank fixed deposits where<br />
they are assured of 8% <strong>to</strong> 10%<br />
guaranteed returns and avoid<br />
investing in the s<strong>to</strong>ck markets where<br />
even though the returns can be as high<br />
as 30% <strong>to</strong> 50%, the risk of capital<br />
erosion is equally high, which can<br />
cause pain.<br />
Re<strong>me</strong>dy<br />
The best piece of advice is <strong>to</strong> look at<br />
the net figure of profit minus loss and<br />
not focus on each entity in its<br />
singularity. Also, re<strong>me</strong>mber that the<br />
s<strong>to</strong>ck market is a risky place and that<br />
loss is an integral part of trading. And<br />
if you do not take risks, you will not<br />
reap rich rewards. Finally, set a ti<strong>me</strong><br />
fra<strong>me</strong> for your invest<strong>me</strong>nts and do not<br />
exit before that ti<strong>me</strong>.<br />
GAMBLER’S FALLACY<br />
How many ti<strong>me</strong>s have we restrained<br />
ourselves from buying a s<strong>to</strong>ck or have<br />
sold off our holdings just because it<br />
has moved up in 5 <strong>to</strong> 6 consecutive<br />
trading sessions in a row thinking that<br />
it cannot go up any further and that<br />
the next trading day would be a down<br />
day for the s<strong>to</strong>ck? We guess many a<br />
ti<strong>me</strong>s. But <strong>to</strong> your surprise, it goes up<br />
the next trading day and even the next<br />
one, as well.<br />
In a gambler’s fallacy, a trader thinks<br />
that after an event or a series of events<br />
has occurred, the likelihood of it<br />
occurring again is very less, even<br />
though it is an arbitrary event. A<br />
gambler’s fallacy is the worst enemy<br />
of a trader. After a series of losses, an<br />
inves<strong>to</strong>r feels that his streak of bad<br />
luck is coming <strong>to</strong> an end and a U-turn<br />
is just round the corner and he keeps<br />
on investing and betting more and<br />
eventually ends up losing everything.<br />
This normally happens with traders<br />
who tend <strong>to</strong> look for s<strong>to</strong>cks that are<br />
trading at or near their 52-week lows,<br />
because they feel that the s<strong>to</strong>ck<br />
cannot go down any further and the<br />
only way is up. But how many ti<strong>me</strong>s<br />
have we seen the s<strong>to</strong>ck moving<br />
downwards and forming new<br />
52-week lows with each passing day?<br />
Re<strong>me</strong>dy<br />
Inves<strong>to</strong>rs should bear in mind that the<br />
s<strong>to</strong>ck market is a ga<strong>me</strong> of probability<br />
and that past events do not change the<br />
probability that certain events will<br />
occur in the future and there is always<br />
a 50:50 chance of it recurring. Rather<br />
than just blindly predicting that the<br />
trend will reverse, inves<strong>to</strong>rs should do<br />
Beyond Market 10th Oct ’11 It’s simplified... 45
46<br />
their ho<strong>me</strong>work and wait for clear-cut<br />
technical and funda<strong>me</strong>ntal signals<br />
that the trend has actually reversed<br />
before entering any trade.<br />
ANCHORING<br />
A very interesting concept in<br />
behavioural finance states that we<br />
tend <strong>to</strong> hold on <strong>to</strong> certain events or<br />
figures and use them as anchors or<br />
reference points on which we base<br />
our investing decisions. This is quite<br />
common and almost everybody will<br />
identify with this example. Suppose<br />
you have bought a s<strong>to</strong>ck at `100 and it<br />
rises <strong>to</strong> `140, yet you wait for it <strong>to</strong> rise<br />
further. But the s<strong>to</strong>ck price starts<br />
falling instead and reaches `70. You<br />
then decide <strong>to</strong> get out of it if it reaches<br />
`100 again. But when it does really<br />
reach `100, you do not sell it. Instead,<br />
you say that you will wait for it <strong>to</strong><br />
reach `140 again. This is because the<br />
recent high of `140 has been<br />
anchored in your mind.<br />
Anchoring is a <strong>me</strong>ans for inves<strong>to</strong>rs <strong>to</strong><br />
justify their decisions. Because the<br />
price of `140 is anchored in the<br />
inves<strong>to</strong>r’s mind, he feels that it is the<br />
correct valuation for the s<strong>to</strong>ck and the<br />
market forces are undervaluing it.<br />
According <strong>to</strong> him, the s<strong>to</strong>ck will<br />
reach the right price of `140, sooner<br />
or later. What inves<strong>to</strong>rs do not realize<br />
is that the funda<strong>me</strong>ntals of the<br />
company or so<strong>me</strong> such fac<strong>to</strong>rs could<br />
have deteriorated and that is what is<br />
being shown in the price of the s<strong>to</strong>ck.<br />
Repeated exposure <strong>to</strong> certain numbers<br />
or events can also cause anchoring.<br />
So, if you have heard one or more<br />
technical analysts on TV say that if<br />
the Nifty breaks 5,000 on the<br />
downside it can go as low as 4,700,<br />
your mind gets fixated on the number.<br />
Once the Nifty breaks the<br />
5,000-mark, even though the s<strong>to</strong>ck<br />
you want <strong>to</strong> buy is available at a very<br />
cheap rate, you still do not buy it<br />
because you feel that the markets are<br />
Beyond Market 10th Oct ’11<br />
going <strong>to</strong> fall <strong>to</strong> as low as 4,700 and<br />
you may get the s<strong>to</strong>ck even cheaper.<br />
Eventually you miss your bus.<br />
Re<strong>me</strong>dy<br />
a. Forget the highs and lows.<br />
b. Do your ho<strong>me</strong>work properly. Plan<br />
your entry and exits in advance and<br />
stick <strong>to</strong> it.<br />
c. Keep a sharp eye on any news<br />
regarding internal changes or those<br />
revolving around the company or the<br />
industry on the whole.<br />
ENDOWMENT EFFECT<br />
Suppose your friend has gifted you a<br />
digital ca<strong>me</strong>ra worth `5,000 for your<br />
birthday. But since you already have a<br />
digital ca<strong>me</strong>ra of your own, you<br />
decide <strong>to</strong> sell it off. At what price<br />
would you sell it for? Obviously, for<br />
nothing less than `5,000 even though<br />
you have not spent a single rupee <strong>to</strong><br />
purchase the ca<strong>me</strong>ra.<br />
Now consider a second scenario. You<br />
are in need of a digital ca<strong>me</strong>ra and<br />
instead of gifting you the ca<strong>me</strong>ra, you<br />
friend offers <strong>to</strong> sell it <strong>to</strong> you. You<br />
know that the price of the ca<strong>me</strong>ra in<br />
the market is `5,000. What is the<br />
price that you are willing <strong>to</strong> offer <strong>to</strong><br />
your friend <strong>to</strong> buy the ca<strong>me</strong>ra? Most<br />
of us would be willing <strong>to</strong> offer just<br />
`4000 or even less. Why then are we<br />
not ready <strong>to</strong> sell for less than `5,000<br />
and want <strong>to</strong> buy it at a lesser price?<br />
This is called the Endow<strong>me</strong>nt Effect,<br />
which states that humans believe that<br />
so<strong>me</strong>thing that belongs <strong>to</strong> them is<br />
much more valuable than so<strong>me</strong>thing<br />
that belongs <strong>to</strong> others. Humans<br />
experience a lot of pain when parting<br />
with objects they own. Hence, we<br />
note that we press the ‘buy’ but<strong>to</strong>n<br />
very easily but pressing the ‘sell’<br />
but<strong>to</strong>n is very difficult.<br />
Thus, if you have bought a s<strong>to</strong>ck at<br />
`100, you would ideally not part with<br />
it if you are not getting `120 or more.<br />
Endow<strong>me</strong>nt is the reason why people<br />
hold on <strong>to</strong> their losing s<strong>to</strong>cks. They<br />
feel that just because they own it and<br />
have bought it at a certain price, the<br />
sell price that they are demanding is<br />
justified and anything less than that<br />
would be doing injustice <strong>to</strong> the s<strong>to</strong>ck.<br />
This right price may never co<strong>me</strong> and<br />
they are stuck with the s<strong>to</strong>ck for life.<br />
Re<strong>me</strong>dy<br />
Plain and simple. Do not get married<br />
<strong>to</strong> your s<strong>to</strong>ck. Be prompt <strong>to</strong> lock-in<br />
profits and do not hesitate <strong>to</strong> book<br />
losses when needed.<br />
CONFIRMATION BIAS<br />
People tend <strong>to</strong> think only in a manner<br />
that suits their preconceived notions<br />
or thoughts. Hence, when processing<br />
information they focus only on<br />
information that confirms with their<br />
line of thinking. Any contradiction or<br />
opposing thoughts are comfortably<br />
ignored. This is known as<br />
Confirmation Bias.<br />
For example, if you have a<br />
preconceived notion that only low<br />
P/E and high beta s<strong>to</strong>cks are<br />
multibaggers in the long run, you will<br />
search only for those s<strong>to</strong>cks that fulfil<br />
these two criteria.<br />
Furthermore, once you have<br />
identified such s<strong>to</strong>cks, you will<br />
reaffirm your argu<strong>me</strong>nt by focussing<br />
only on the positive news surrounding<br />
these s<strong>to</strong>cks such as high net profit,<br />
increased sales, etc. Any negative<br />
news about the s<strong>to</strong>ck is completely<br />
ignored. This sort of view can prove<br />
<strong>to</strong> be very disastrous as it provides<br />
only a one-sided view and obliterates<br />
the complete picture.<br />
Re<strong>me</strong>dy<br />
Carefully process all the news about a<br />
s<strong>to</strong>ck - positive as well as negative.<br />
Assess all the pros and cons, weigh<br />
the risk <strong>to</strong> reward ratio and only then<br />
take an infor<strong>me</strong>d decisioN.<br />
It’s simplified...
Contact: 022-39268088<br />
e -mail: currencies@nirmalbang.com<br />
www.nirmalbang.com<br />
The most intelligent strategy in Chess is <strong>to</strong><br />
be ready with the next move. Similarly,<br />
currency trading involves moves that are a<br />
combination of knowledge and skill,<br />
backed by years of experience.<br />
Currency Derivatives <strong>Trading</strong> with us keeps<br />
you a few steps ahead, always.<br />
EQUITIES | DERIVATIVES | COMMODITIES* | CURRENCY | MUTUAL FUNDS# | IPOs# | INSURANCE# | DP<br />
38-B, Khatau Building, 2nd Floor, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400001. Tel: 3926 8600 / 01; Fax: 3926 8610,<br />
Disclai<strong>me</strong>r: Insurance is a subject matter of solicitation. Mutual Fund invest<strong>me</strong>nts are subject <strong>to</strong> market risk. Please read the sche<strong>me</strong> related docu<strong>me</strong>nt carefully before investing. Please read the Do’s and Don’ts prescribed by Commodity<br />
Exchange before trading. Through Nirmal Bang Securities Pvt. Ltd. *Through Nirmal Bang Commodities Pvt. Ltd. # Distribu<strong>to</strong>rs invest<strong>me</strong>nt in securities is subject <strong>to</strong> market risk. invest<strong>me</strong>nt in securities is subject <strong>to</strong> market risk
LEARN THE ART OF<br />
COMMODITY INVESTING<br />
48<br />
Beyond Market 10th Oct ’11<br />
&<br />
Beyond<br />
Present<br />
Date: 22nd July, 2011.<br />
Venue: Hotel Centre Point,<br />
Nagpur.<br />
Exchange Partner<br />
It’s simplified...
BEYOND MANDI<br />
VISITS NAGPUR<br />
Nirmal Bang Commodities Pvt Ltd, in association with Zee Business, had organized Beyond<br />
Mandi, the inves<strong>to</strong>r education camp at Hotel Centre Point in Nagpur on 22nd July with the aim<br />
<strong>to</strong> educate traders and inves<strong>to</strong>rs on the art of investing in commodities by bringing market<br />
participants and industry experts on a common platform and thus helping the for<strong>me</strong>r <strong>to</strong> take right<br />
invest<strong>me</strong>nt decisions through sharp insights and guidance.<br />
At the camp, Anjani Sinha, MD & CEO of the National Spot Exchange and Kunal Shah, Head –<br />
Commodity Research at Nirmal Bang Commodities Pvt Ltd deliberated about the im<strong>me</strong>nse<br />
opportunities in the commodities complex. Purshottam Kawade, president of the Maharashtra<br />
Suvarnakar Association was also present on the occasion.<br />
Amish Devgan started the event by introducing the panelists and explaining the objective behind<br />
the camp.<br />
Anjani Sinha,<br />
MD & CEO of NSEL<br />
Anjani Sinha is the MD & CEO of National Spot<br />
Exchange Ltd (NSEL). He has over two decades of<br />
experience and deep knowledge of commodity derivatives<br />
and spot markets. His previous stint was with the Ah<strong>me</strong>dabad<br />
S<strong>to</strong>ck Exchange. Prior <strong>to</strong> that, he was associated with<br />
the Bombay Commodity Exchange Ltd, Interconnected<br />
S<strong>to</strong>ck Exchange of India Ltd (ISEI) and Magadh S<strong>to</strong>ck<br />
Exchange.<br />
Traders and inves<strong>to</strong>rs can take advantage<br />
of the opportunities in commodity<br />
complex by using expert guidance and<br />
ti<strong>me</strong>ly advice<br />
Amish Devgan,<br />
Commodity Edi<strong>to</strong>r and<br />
Anchor at Zee Business<br />
The first speaker of the day, Anjani Sinha infor<strong>me</strong>d the audience about MCX and<br />
how it has beco<strong>me</strong> one of the premier commodity exchanges in India. He further <strong>to</strong>ld<br />
them about the various products offered by the exchange and also its plans <strong>to</strong> launch<br />
new instru<strong>me</strong>nts <strong>to</strong> <strong>me</strong>et inves<strong>to</strong>r needs.<br />
“MCX-promoted NSEL has also launched certain instru<strong>me</strong>nts in the e-series seg<strong>me</strong>nt<br />
for small and retail inves<strong>to</strong>rs. One of them is e-gold, which is gaining popularity since<br />
it is easily convertible in<strong>to</strong> physical gold and subsequently in<strong>to</strong> jewellery and can be<br />
s<strong>to</strong>red conveniently,” said Sinha.<br />
He added that e-gold would benefit those who seek <strong>to</strong> invest systematically or those<br />
who want <strong>to</strong> save money for important events like marriage. Other e-series products<br />
include e-gold, e-silver, e-copper, e-lead and e-zinc. NSEL plans <strong>to</strong> take the <strong>to</strong>tal<br />
number of commodities in the e-series seg<strong>me</strong>nt <strong>to</strong> 20.<br />
Sinha also dwelt on the benefits of NSEL, especially the way it has helped the people<br />
of Vidarbha in trading in cot<strong>to</strong>n. He said commodity traders can also avail of the<br />
Warehouse Receipt Financing from banks empanelled with NSEL against commodities<br />
deposited in the warehouses.<br />
Beyond Market 10th Oct ’11 It’s simplified... 49
Kunal Shah,<br />
Head of Commodity<br />
Research at Nirmal Bang<br />
Kunal Shah serves as the Head of Commodity<br />
Research at Nirmal Bang. He closely tracks<br />
precious <strong>me</strong>tals, base <strong>me</strong>tals, energy and<br />
agricultural commodities. He addresses<br />
seminars on the outlook of commodities across<br />
the country. He appears regularly on business<br />
channels. He is also sought by the print <strong>me</strong>dia<br />
and wire services, on a regular basis. Prior <strong>to</strong><br />
Nirmal Bang, he was associated with Motilal<br />
Oswal Commodities Pvt Ltd, where he<br />
managed the research desk.<br />
50<br />
Beyond Market 10th Oct ’11<br />
The next speaker <strong>to</strong> carry forward the event was Kunal Shah. Explaining the reason<br />
behind conducting the commodity camp in Nagpur, Shah said Nagpur is quite big in<br />
terms of commodity trading. He further said concentrated orange juice is one of the<br />
biggest traded agricultural commodities on the NYBOT.<br />
“Even without the participation of FIIs, MFs and insurance companies, the markets are<br />
growing at a pheno<strong>me</strong>nal pace,” said Shah. “Internationally, commodities are treated as<br />
an asset class.”<br />
According <strong>to</strong> him, commodity prices cannot reach zero or negligible levels. He said the<br />
future of commodities is bright because of the growing population of India, which will<br />
result in the rise in prices as India’s acreage is on the decline.<br />
He made a presentation on the reasons for the upward move<strong>me</strong>nt in commodities between<br />
2000 and 2010, except the recessionary years of 2001 and 2008.<br />
In 2010, commodities had beaten all other asset classes, including equities and currencies.<br />
Even though, a correction was witnessed in the equity markets this year, the commodity<br />
market has managed <strong>to</strong> outperform.<br />
The current scenario is very similar <strong>to</strong> the one seen after WWI when Germany had printed<br />
large amounts of currency notes, which resulted in the rise in commodity prices. At<br />
present, pri<strong>me</strong> economies around the world are increasing their supply of money in the<br />
markets, which is pushing the prices of commodities, elaborated Shah.<br />
The ongoing rally in the markets is mainly due <strong>to</strong> increased liquidity in the commodity<br />
markets. This rally is not due <strong>to</strong> supply constraints and is not driven by market forces<br />
alone, Shah maintained.<br />
He went on <strong>to</strong> explain the sovereign debt problem in Greece, Portugal, Ireland, Italy and<br />
Spain. The bond yield in these countries has been on the rise since these nations do not<br />
have money, he said.<br />
Talking about individual commodities, Shah expressed a strong outlook for gold. But he<br />
said he was not optimistic about silver since industrial activity had subdued.<br />
As far as base <strong>me</strong>tals are concerned, he said there have been positive data from China.<br />
However, its biggest markets – USA and Europe – are currently facing a slowdown.<br />
Funda<strong>me</strong>ntally, lead is the weakest among <strong>me</strong>tals, he said. However, he remained bearish<br />
on crude.<br />
According <strong>to</strong> him, cumin has strong funda<strong>me</strong>ntals due <strong>to</strong> robust demand from China. He<br />
cautioned inves<strong>to</strong>rs against having high exposure in the commodity futures market.<br />
“People must not try <strong>to</strong> predict the markets by seeing charts alone. They should study<br />
funda<strong>me</strong>ntals <strong>to</strong>o,” said Shah, adding that s<strong>to</strong>p loss is an important <strong>to</strong>ol and must be used.<br />
Most importantly, inves<strong>to</strong>rs must control their greed and fear, he addeD.<br />
After Kunal Shah’s talk, the discussion was thrown open <strong>to</strong> the audience for a<br />
round of questions and answers. The next Beyond Mandi camp was held in<br />
Indore on 19th August this year.<br />
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