Archive for the 'Mutual Funds' Category

Market Matrix as on 11 Feb 2008

February 11, 2008

By krsna Khandelwal – A veteran market

Friends,

SEBI is considering reduction in disclosure requirements for the listed companies at the time of debt issuance so that the debt issues are done with ease and without too much time leg. Since banks are not reducing spreads why should not the most efficient platforms of stock exchanges be made use of for bringing the lenders and borrowers together and give the nation’s economy a boost, while not letting the portion of capital pie fall out of hands of savers and users of capital.

Indian MFs have maintained the quantum of AUM(Assets Under Management) in Jan ‘08 even though the Nifty suffered 16% fall. Of the 32 fund houses , 14 posted an increase in AUM in Jan ‘08 . Despite fall in January MFs bought Rs 7 K crs worth of equity, MFs had bought only Rs 3 K crs worth of equities in Dec ‘07. This speaks of the high savings rate in India and that too in hands of younger people largely who have no aversion to equity investment. The following is the table giving AUM of 5 top MFs:

Reliance Rs 77200 crs

ICICIPRU Rs 64100 crs

UTI Rs 52700 crs

HDFC Rs 43800 crs

Birla Sunlife Rs 36000 crs

IPOs are being called off due to slack response. Its is a pity that the IPOs are not being offered at prices attractive enough. The promoter greed is at its worse. There was a time when CCI (Controller of Capital Issues) used to fix premiums in a fashion where intrinsic value used to be much more but it used to be OK with CCI to give OK for the par issues and some tricky issuers used to cheat public of their money by being successful in raising money for dubious purposes. There has be a balanced approach and the merchant banker have a duty to discharge here.

Sixth Pay Commission may hike basic salaries of the Govt. Servants by over 150%. Basic pay for the Section Officer would rise to Rs 20000/month from Rs 8000/month. I think that the new salaries including allowances, will make govt. staffers more honest. They would have no room to complain about not making two ends meet comfortably. India therefore is about to enter an era where the corruption is less rampant.

SBI Rights issue is to open on 18th Feb ‘08. Govt. holds about 60% of SBI equity capital and would invest about Rs 10 K crs in acquiring right shares. My advice to SBI shareholders is to sell the share on ex-right basis without thinking twice.

It is once again that the Steel and Mines Minister has asked the steel companies to keep the steel prices low. It is pity that the same minister hasn’t done a thing to see the new capacity being brought at a better speed. I don’t understand when the ministers would understand their duties in right way.

UK’s growth rates has dwindled to 0.5% , a two year low.

Economists estimate US economy to grow just at 0.5% during Jan-Mar ‘08 quarter. Some say US economy is on the cusp of recession.

Warren Buffet sees ‘poetic justice’ for bankers who designed and sold complex investment instruments that have gone sore and have made the banks themselves suffer a lot.

Inflation has inched up to 4.11% , a high for 6 months.

Govt. unreserved 79 item from the list of Small Scale Sector exclusive domain and only 35 items remain there. This is step in right direction. There are areas where small scale survives better and in other areas it is not cost efficient. The natural market forces act and keep overall industrial competitiveness of India alive , if only the RBI Chief looks at the economy’s needs from the angle of an entrepreneur and reduces interest rates. It is a pity that the people in the business and industry have no say in the making of monetary policy as a bureaucrat may never understand the imperatives of finance policy. There concern gets over with control of inflation which the govt. itself usually is not serious about.

Auto component industry has lowered the export target for 07-08 to Rs 14460 crs against earlier estimate of Rs 15172 crs due to strong rupee and lower custom duties. I am sure the auto component industry would do better in coming years due mainly to the low cost manufacturing base in India, only the govt. has to make the capital available at the international interest rates and bring the long overdue labour reforms.

‘NANO’ may have to be priced higher by Tats eventually but it has put a cap on other category car prices for years to come. Nobody would dare keep the price gap higher and risk loosing market.

Automobile Industry declined to 829569 units in Jan ‘08 from 89844 units in Jan ‘07. It was passenger car segment that kept the tempo up and it grew to 113899 unit in Jan ‘08 (104501 units in Jan ‘07).

Scooters account for 20% of total two-wheeler sales in India.

Nifty closed the week on 8th Jan ‘08 at 5120 points.

India now officially claims to be member of $ one trillion economy club of the world, it is fact no small achievement for India.

Southern chain of stores ‘Subhiksha’ is to raise Rs 500 crs through IPO shortly.

George Soros has acquired 3% of Reliance Entertainment, a wholly owned company of Anil Ambani. He spent $100 million for this much stake in the company.

America’s $20 bn generic market is awaiting entry by Indian players . Some of the largest selling drugs in US are going off patent shortly.

Interest rate differential has been responsible for giving a philip to Indian markets when it kept coming down during 2002 tp 2007 from a peak difference of 5% in 2002 to a low of under 1% at a point in 2007. Now it has gone back to 4% in a sudden move and has unnerved the markets. This co relationship may easily be seen. People think that the capital will flow to India but since the cheaper interest would open doors of more investment in US why would the capital move in to India and be at risk of exchange parity changing for disadvantage. Secondly , if the cheap capital flows in to India the established companies may have face competition from newly created capacities at lesser capital costs. For the time being the interest differential has opened doors for the sharp shooting business houses to have free lunches which is being ensured by the RBI by keeping the rupee value under leash. The 90 day rate here is 7.2% while in US it is under 2%. Would not the schemers take advantage , it is hardly understandable why the RBI Chief is keeping this artificial pocket of making money thriving. Is there sinister connection somewhere, only time will tell.

Mumbai’s Nariman Point has 2 million sq ft of office space while Bandra-Kurla has 12 million sq ft of office space. On top of it there is going to be additional office spaces coming up in Mumbai’ suburbs. This additional office space would be no less than 10 million sq ft and would come up in an year’s time. I have a feeling that the rentals for office space in Mumbai would be far lower than prevailing rates.

Tata Chemicals has acquired US based soda ash company for $ one billion. Tata Chem would become second largest manufacturer in its line of business behind only the FMC Chemicals of US. As told to you many times earlier Tatas theme remains to housed more out of India than in side India. Seems Tatas have fear of Indian politicians who have since independence given sleepless nights to the Tatas. Indira once had threatened the senior Tata with her sword of nationalisation on some pretext or the other and the brave men still did not bow to her wishes. Naturally when the govt. today has made the exiting of capital possible for the business house why would they not secure their future. If need be they may bring back the capital as foreign owned which would at least be treated in a better way.

GDP growth at 9.6% in 06-07 has been the highest in 18 years . This translates in to Rs 1700/- additional per capita income which now stands at 22552/-.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

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Market Matrix: Current Economic News Analysis

January 2, 2008

By krsna Khandelwal – A veteran market analyst

Friends,

SEBI allows introduction of mini size contracts in F&O section for nifty and Sensex granting scope for hedging to small investors. This is a step in right direction and would raise volumes. The best thing to do would be to fix a one lac rupee tag irrespective of the number of the underlying security every time a new series of contracts takes place . This would be giving an straight calculation of gain / loss over the time till the expiry of the contract. This is possible as the present day programming expertise may easily ensure it.

In line with the election related soft measures , the govt may raise the tax free income limit by Rs 25 k to 50 k. While it would more prudent and will provide a lot of funds to govt for development expenditure , if the contribution to specified saving schemes including pension schemes is made entirely tax exempt as income . It may be subjected to tax when the withdrawals are made or the maturity value is received . Such a provision will make filing of returns much easier and the compulsory TDS at the time of pay back will ensure that no income is concealed. It would be making life of individuals easier, in the sense that they would be free to look after their needs without the govt’s undue intervention. I am sure that such simplification is not the present govts’ cup of tea.

Entry load on MF investment is going to be zero now , if there is no intermediary involved. MFs are allowed to charge up to 7% towards entry plus exit load which by the way sums up to about 2.5% on average for all MFs. This will spell death of ordinary middlemen role and the arena of investment advice will be mostly covered by the experts who would be charging for their services from the investors. Even the insurance selling should be subjected to this very treatment.

HDFC has sold 7.15% stake in its subsidiary HDFC SLIC to Std. Life ( Mauritius Holdings ) for a sum of RS 201 crs as per the earlier agreed formula. Now the foreign partner has full 26% stake beyond which it can not go as per rules. There will an IPO before 2009 at fair value. HDFC SLIC is fourth largest insurance co., it had first year premium income of Rs 2856 crs in 06-07 through over one lac financial consultants and 12000 employees spread across 700 cities.

Foreign Tobacco Companies would find entry gates open as the govt is thinking of delicencing industry as was done for alcohol industry in 2007.

2007 would be the best year so far , may be for the future years too. Market of BSE touched Rs 71.87 lac cr mark up from Rs 35.71 lac cr over the whole year.

Oct-Dec quarter has been the most volatile in stock market history in India. This period saw four biggest intra day gains on NSE and three biggest slips too.

Tata Steel and Sail are going to form a joint venture to mine coal in Jharkhand with a capital contribution of Rs two crores each. With expansion plans in hand steel companies are trying hard to ensure raw material and coal supplies. I may add here that discounting of m/cap at more than three times the sales and at more than six times of book value is a recipe for disaster in case of steel companies and other commodity manufacturers but who listens.

India closed the year with 2.93% share of world market cap while China at 7.37 % . I think India’s share would surpass that of UK in about two years , rest of Europe is behind UK and Japan. It would be interesting to see China and India fare in times to come , hopefully these two will line up behind USA in a few years.

I may remind you that purpose behind my writing the ‘Market Matrix’ , which includes facts and my opinion, is to give a glimpse in to economic march of India to the reader in distant future on one hand and on the other to give the present day reader a platform to remain informed of the development which has bearing on the stock markets in India. The investment advice under the ‘panch-tattva’ is of course against payment but some pieces of advice are given free to all our readers so that they may be confident about the value of advice that would come to them under paid service. Please pay thorough attention to past advices and find out your self how it worked over last more than an year and a half.

Your suggestions are welcome,

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Mutual Funds vs Sensex returns

December 14, 2007

By krsna Khandelwal – A veteran market analyst

Friends,

Sixty out of 154 MF schemes have underperformed their benchmarks by over 30% or so in a year that saw the BSE Sensex gain over 40% according to ‘value research’. During 2006 , 85% funds legged behind the leading indices. India has 3.4 million MF investors and just 3 to 4% of total household savings find way in to MFs. The record of the funds under ULIPs of Insurance Companies is better as their size is big and they do not remain under threat of redemption. They are also able to take longer term view of the market compared to MFs . Insurance companies are more prudent too, for they can not start new schemes after some of the existing have underperformed as is done by MF industry.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market

Market Matrix: Mid May 2007

May 16, 2007

By krsna Khandelwal – A veteran market analyst

Friends,

Forbes Magazine perceives Indian tax payers as better of compared to France, Belgium and China.

The Customs and Excise duty collection has been up by 27.4% and 11.3% respectively. The share of indirect collection used to be 57.9% in 2003-04 and has since then come down to 51.20% .This is one good thing that weighs in favour of markets and industry in general. But there is flip side too. The govt. is taxing the lower incomes more fiercely than the big incomes by not suitably raising the limit of exemption. There is in fact complete tilt towards the richer people . This should be taken care of immediately. Unless there is a greater purchasing power left in hands of the masses , the increased supply of goods would be difficult. It is not only the savings that spur the economic activity but also the well being is necessary so that the consumption level increase in the economy.

The Thomson group would buy Reuters for $17 b and would form the 12 billion pound revenue generating corporation employing 46000 people and would have the news share of 34% against the rival Bloomberg’s 33%.

The parliament has cleared the SBI Subsidiaries Bill and now the stakes in subsidiaries may be diluted after SBI holds 51%. The subsidiaries would now have their own Chairman appointed by themselves.Due to some problems the desired objective of merging of the subsidiaries has not been possible. May be after SBI is through divesting its other than banking activity businesses, the merger would be possible.You may recall that the welcome effect of the steps taken was made known to you way back. There is going to be IPO rush by the banks raising about Rs30K crs to 40 K crs and by the way it should not dampen the banking stocks. The funds would form direct investible resource in the hands of bank and will add to book value hence no dilution in earnings would be there.

The MF club of India commands just $88 billion as against US’s $10414 b and on the low side Italy’s $453 b . Rest of the countries that matter have MF investments in between these figures. We therefore have a long way to go but some how the market here is not maturing the way it should. The situation has to improve on the front of total availability of quoted share and debenture stocks of the companies. The companies have lately started to raise monies and eventually a lot more will be added to present market capitalisation.

Hari Om

BIRDINFO Stock Rx – A prescription for stock market