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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 />

B-2, 301/302, Marathon Innova,<br />

Off Ganpatrao Kadam Marg,<br />

Lower Parel (W), Mumbai - 400 013<br />

Tel: 022 - 3926 8000/8001<br />

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 />

reach you better while crossing horizons...<br />

Web: www.nirmalbang.com<br />

beyondmarket@nirmalbang.com<br />

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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It’s simplified...


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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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