Coal India sale offers a good opportunity for retail investors :: Business Standard,

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Business Standard, 10 of 12 OFS stocks have underperformed the markets

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Retail investors' guide to the Coal India mega share sale :: Business Standard,

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The government will sell up to 10% stake in Coal India, the country’s eight-biggest firm in terms of market value on Friday. The share sale is being done through the offer for sale (OFS) route. The core issue is of 15.8 million shares, or 5% stake, with a so-called green-shoe option of selling another 15.8 million shares or 5%. The total issue size is likely to be around Rs 22,000 crore, assuming the government offers further discount to the current market price of Rs 370 per share. The share-sale, if fully subscribed, will be the biggest-ever equity offering in the Indian market, topping the Rs 16,700 crore-worth of rights issue by State Bank of India in 2008 and Rs 15,500 crore-worth initial public offering (IPO) of Coal India itself in 2010. 

Here is a guide retail investors can use to invest in this mega offering:

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2015:Back A year of stock pickers :: Business Standard

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Q2 gold imports crash to less than a fourth ::Business Standard

Tight controls on gold imports by the Reserve Bank of India and the government seem to be yielding results. Imports of gold for the quarter ended September fell by over 77 per cent in value and 28 per cent in volume, according to finance ministry data.

At 12-15 tonnes, the imports in September are estimated to be much lower than in the same month last year. The overall import bill for the July-September quarter on account of gold will be $2.7 billion as against $11.9 billion in the same period last year. That should help keep the current account deficit under control.

The biggest reason for the sharp fall in imports in the quarter has been the restrictions imposed by the RBI. The central bank had said at least 20 per cent of gold imports should be for export purposes and jewellers could not get any financing for buying gold. Getting gold on lease was also prohibited.

Over the last two months, imports were virtually halted as there were several procedural ambiguities, which have been clarified now. Over the past few days, three-four tonnes of gold has been imported. A jeweller said on the condition of anonymity, “We were still getting gold entering the country through unofficial channels.”

The industry estimates that during the quarter over 40 tonnes of gold entered the country through unofficial channels as the 10 per cent import duty made the risk worthwhile for smugglers and carriers who bring the metal on someone else’s behalf.

Going forward, gold availability for the domestic market could remain limited. An office bearer of the Gem and Jewellery Export Promotion Council said he was expecting 200 tonnes of imports in the next two quarters, of which 20 per cent could be exported back. However, traders say the 10 per cent import duty will keep the attractiveness of smuggling intact.

Even as gold imports have come down, those of silver have been rising sharply. In the whole of the last calendar year, India imported 1,900 tonnes of silver. In the September quarter this year, silver imports have been estimated around 1,500 tonnes. Industry experts say several gold traders have shifted to silver after the restrictions imposed on gold imports.��

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Is Aadhaar necessary or not? Business Standard,

The basic aim of Aadhaar is to make benefits directly available to people by eliminating intermediaries and fraud (for example, duplicate and fake ration cards), thereby saving the exchequer enormous leakages.

The Supreme Court has issued an interim order, not a final one, asking that no citizen should be deprived of benefits for not possessing an Aadhaar number or card and these should not be issued to illegal migrants.

This is likely to put a brake on the fast pace at which Aadhaar cards have been issued so far to more than 400 million people.

The breather of sorts now available can be used to re-examine the basics to see what is good and positive about the project and should be preserved and what is not and can be eliminated.

The final verdict of the court will no doubt ensure that the baby is not thrown out with the bathwater.

Aadhaar is a transformative innovation.

However, given the United Progressive Alliance’s attempt to take credit for it in the run-up to the parliamentary elections, it has sadly become a partisan matter -- with the Bharatiya Janata Party deciding to oppose the draft Bill in the parliamentary standing committee.

A consequence of the political logjam is that Aadhaar today has no statutory backing, a fact that must have influenced the apex court’s observations.

Yet, the cost and speed with which it has been rolled out bear testimony to both India’s skills in information technology, despite being poor, and the management skills that even its low-capacity state can bring to bear.

What Aadhaar says is that when it comes to IT and management, India is a First-World, not Third-World, country.

The basic aim of Aadhaar is to make benefits directly available to people by eliminating intermediaries and fraud (for example, duplicate and fake ration cards), thereby saving the exchequer enormous leakages.

On the issue of illegal migrants getting Aadhaar cards, it has long been held by the Unique Identification Authority of India that the card or number is a proof of identity, not citizenship.

It does not have the mandate or scope to check the citizenship of a person.

Once a person is found to be an illegal immigrant, the law mandates the authorities to deport him.

The courts can finally direct the authorities not to stop deportation simply because a person has an Aadhaar card.

Next comes the issue of privacy and security of information.

Although efforts have been made to draft suitable legislation to secure citizens’ privacy, they have been too slow.

Extensive electronic snooping by the authorities goes on in India.

The courts can take an initiative to secure citizens’ privacy by being more stringent in overseeing official snooping.

On the security of information stored by the Unique Identification Development Authority of India, everything should be done to strengthen it.

Finally, the question is if there is judicial overreach in India.

A government should be able to exercise its executive authority through executive orders under extant rules.

Otherwise, it will be difficult for the government to function, which will affect economic well-being.

Will Rajan's efforts to fight inflation succeed? :: Business Standard

Raghuram Rajan has clearly sought to establish his credentials as an inflation fighter and the action should be seen as an indication of how monetary policy will operate during his term.

The actions taken by the Reserve Bank of India (RBI) since the middle of July, however they may have been communicated, amounted to significant monetary tightening.

The clearest indicator of this is the sharp increase in the call rate, the market interest rate on overnight borrowing, in response to the actions.

The 200 basis point hike in the marginal standing facility (MSF) rate, which is what banks pay for liquidity when all other sources are exhausted, combined with the tighter daily cash balance requirements and limits on access to the repo window pushed the call rate to the upper end of the liquidity adjustment facility corridor.

This is in contrast to the pattern before these actions were taken, when the call rate stayed close to the repo rate, that is to say, in the middle of the corridor.

RBI Governor Raghuram Rajan’s first set of monetary policy actions must be seen against this backdrop. By lowering the MSF rate by 75 basis points, he has effectively brought down the call rate by a similar amount.

In the current framework, this should be seen as loosening. In doing this, the policy addresses to some extent the concerns that had been expressed about the impact of the previous round of actions on an already fragile growth situation.

In any case, some rollback of those actions in the light of recent developments and their impact on the rupee had been generally anticipated. What took some observers by surprise, though, was the 25 basis point hike in the repo rate.

However, the rationale for this move is essentially that it has no immediate impact on the call rate, which is currently at the upper end of the corridor. Its value, therefore, lies entirely in the signal it sends about Dr Rajan’s high priority on inflation control. 

Top builders sitting on Rs 58,000-cr inventory :Business Standard

India’s top builders seem to be sitting on a huge unsold real estate inventory, worth nearly Rs 58,000 crore (Rs 580 billion), which could take more than two years to sell, a Business Standard analysis of 19 listed realty firms on the BSE-500 index shows.

At the end of March, the combined unsold inventory of these companies rose 25 per cent from a year earlier. Their net sales remained almost flat during the same period (see chart).

Of the Rs 58,000-crore pile-up, DLF, India’s largest real estate developer, accounted for almost a third. As of March-end, the Delhi-based company reported an inventory worth Rs 17,600 crore (Rs 176 billion), 18 per cent more than that two years earlier.

The company’s consolidated net sales declined from Rs 9,561 crore (Rs 95.61 billion) to Rs 7,773 crore (Rs 77.73 billion) during this period.

Following DLF is HDIL, which reported an inventory of Rs 12,043 crore (Rs 120.43 billion) at the end of March this year, more than six times its net sales last financial year.

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Third on the list is Indiabulls Real Estate, with an unsold inventory worth Rs 5,111 crore (Rs 51.11 billion), nearly four times its 2012-13 net sales.

The situation might look even grimmer if the figures for unfinished projects or those under construction (capital work in progress) were to be included. At March-end, the 19 firms in the sample reported Rs 12,300 crore (Rs 123 billion) of capital work in progress.

For the entire sector, the unsold inventory could be many times more, as a majority of developers are not listed. Delhi and the National Capital Region (NCR), for instance, have a little more than 400 builders but only four of those are listed and part of the sample here. In Mumbai, there are around 140,000 unsold apartments priced at an average Rs 1.2 crore (Rs 12 million) each, according to estimates.

The current inventory level is much higher than the optimal eight to 10 months.

“Builders need to maintain some inventory to maximise their price realisation. But if that exceeds 12 months, they are forced to borrow to fund their operating expenses. If not unchecked, it could start a spiral of inventory and borrowings,” says Pankaj Kapoor, founder & managing director of real estate consultancy Liases Foras.

This explains the close correspondence between inventory and borrowings in the industry. At the end of the last financial year, the companies in the sample were sitting on combined borrowings of over Rs 51,000 crore (Rs 510 billion).

With the interest rate rising, liquidity drying up and sales slowing, developers could be in for tough times, as they might be forced to generate liquidity, especially in Delhi-NCR and the Mumbai Metropolitan Region (MMR). Industry trackers attribute this to a combination of high real estate prices and poor economic growth.

“Inventory is growing because sales have slowed down. Following a price correction after the 2008 crisis, sales picked up. However, builders escalated the prices nearly 100 per cent by 2010, pulling down the offtake of new properties,” says Kapoor.

He estimates that the inventory in Mumbai could take nearly four years to sell out at the current absorption rate. The only way forward for builders now is to cut prices and create demand. “Price correction is imminent. It has started in NCR and now the trend is creeping into MMR,” he adds.

Sanjay Dutt, Cushman & Wakefield’s executive MD (South Asia), agrees that there could be some price reduction in the next few quarters. “Between now and Gudi Padwa (in April), there will be a price correction of 5-10 per cent in Mumbai, while prices could fall by 10-15 per cent in its suburbs,” he says.

Builders, however, seem to disagree.

“We have an inventory problem but that is not as big as being portrayed. In many cases, this is planned inventory to stagger revenues over a period and optimise per-unit realisations,” says DLF Senior Executive Director Sriram Khattar.

“Inventory will decline through a combination of price correction, reduction in number of new project launches and higher sales,” he adds.

The view is seconded by industry body Credai. Chairman Lalit Kumar Jain says the industry doesn’t have too much of an inventory problem. “Price correction has already happened in most markets and developers are selling at their best price due to liquidity crunch. The market is almost bottoming out,” he adds.

How India can boost its foreign exchange reserves ::Business Standard

Regrettably, another voluntary disclosure scheme may be needed to strengthen India's foreign exchange reserves, says Jaimini Bhagwati.

It can be argued that the fundamentals of the Indian economy over the medium term continue to be sound. This claim may currently sound specious; but, since monsoons have been adequate this year, demand will pick up and spur growth.

The major impediments to higher growth over the next 12 months stem more from how soundly India finances its current account deficit and reduces its fiscal deficit.

Given India's limited options, this article reluctantly suggests a voluntary disclosure scheme (VDS), which could conceivably be implemented within the next two months.

Fuel, fertiliser and food subsidies are among the big-ticket subsidies provided by the Indian central and state governments. 

Some food subsidies are warranted. By contrast, fertiliser subsidies are even less justified than fuel subsidies, though politically difficult to reduce in the near term. Consequently, inflationary pressures will persist and so will the causal factors of confidentiality and convenience, which drive incremental cash investments in gold.

7 safe stocks for the volatile market condition :Business Standard

In a worsening macroeconomic situation and volatile markets, there has been a flight to safety, with investors parking their funds in stocks perceived to be safe havens with a reasonable amount of growth visibility.

With a lower risk appetite, investors have parked a larger share of their funds in large caps.

Not surprisingly, the broader markets have outperformed, with the Sensex gaining 11.3 per cent over the last one year, while the BSE Midcap index has lost 9.5 per cent in the same period.

Consequently, pockets of value have emerged within the mid cap space defined here as stocks with a market cap less than Rs 25,000 crore (Rs 250 billion).

And, experts say, given the environment, if investors follow a bottom-up approach, it should work well and deliver better results.

G Chokkalingam, chief investment officer & executive director, Centrum Broking & Wealth Management, sees the bottom-up approach to invest in stocks that have seen valuations become cheap as a good strategy.

While advising to avoid the infrastructure sector, he says investors should consider companies with a sound business model, export-oriented or companies with no debt, sustainable profit growth and good corporate governance.

In a bid to select investment-worthy stocks, we looked at BSE 200 companies. Based on Bloomberg earnings estimates, there are companies with pretty healthy earnings visibility - wherein average annual EPS growth for FY14 and FY15 is over well 15 per cent.

However, given the higher risk, investors have to be cautious, keeping in mind parameters such as a strong balance sheet and healthy cash flows from operations, relatively higher resilience to economic slowdowns and reasonable valuations.

The seven stocks listed here not only meet these parameters but are either market leaders or have carved out a niche for themselves in their respective sectors with strong brand equity.

NSEL: Anatomy of a trade gone sour (BS)

NSEL: Anatomy of a trade gone sour

Like many small investors, P Dharnidharka, 54, invested in the commodity trades on the National Spot Exchange Ltd.  Dharnidharka was promised hefty returns by his broker at a time when stockmarket was volatile and fixed deposit returns were not very attractive.

 

It looked too good to be true. Thousands of investors like Dharnidharka were lured into trading what looked like exotic derivative contracts on the National Spot Exchange Ltd (NSEL) that promised an assured return of anywhere between 15 and 18% per annum. Every trade would result in earnings of 1-2% in a month or so - guaranteed. 

 

Dharnidharka was delighted at the prospect of earning business income from trading in commodities. No trade could go wrong. Investors and brokers flocked in droves to a well-crafted commodities-trading strategy that was simple to execute and immensely profitable. In the end, it turned out too good to be true. 

 

Nobody asked crucial questions. How can commodities traded on an exchange always turn a profit for investors? How did the trade work? Who were the commodity traders? Where were the warehouses? Nobody knew that one day the music will stop. And it did.

 

Looking back, when the NSEL commenced operations in October 2008, it started as an exchange to facilitate commodity producers to find buyers for their products. Spot exchanges normally offer T+2 or T+3 delivery. Any buy or sell transaction should be settled within a few days. If you purchased on the exchange, you paid your dues in two or three days and took delivery the next day of whatever you had bought whether castorseed or wool. 

Events that shaped private mutual funds industry :Business Standard

1993

Sebi MF Regulations 1993 formulated

First private sector MF Kothari Pioneer registered in July 93

First open-ended scheme launched by a private sector player (Kothari )

1994

 Morgan Stanley launched a fund on a “first-come, first -serve” basis leading to unprecedented response from investors. 

Also, for the first time, lead managers were appointed for a mutual fund scheme

1995

Reliance Growth and Reliance Vision were the first  schemes launched by an MF with “no load”

Incorporation of AMFI

First instance of a promoter misusing an MF comes to light. CRB mutual fund barred from launching new products 

1996

Sebi MF Regulations substituted by a more comprehensive regulation, that is, Sebi MF Regulations, 1996

1997

First merger in the industry- HB Asset Management  merged with Credit Capital Asset Management

1999

Union Budget 1999 made dividends tax-free in the  hands of investors

2001

First ETF launched by Benchmark MF

2002

Registration of MF distributors made compulsory by  AMFI

2003

UTI Act 1963 repelled and consequently UTI was bifurcated into two parts

2006

Sebi disallows open-ended funds from  charging initial issue expenses to investors

2007

First gold ETF launched

2008

Sebi disallows amortisation of initial issue expenses in close-ended funds ; end of the NFO saga

KYC introduced for mutual fund investors investing more than Rs 50,000

2009

Sebi bans entry load on MF investments

Sebi introduces KYD for distributors

2012

Sebi implements steps to reenergise the MF industry- look beyond top 15 cities, single plan and additional expenses can be charged  for monies mobilised beyond top 15 cities

BS Bureau

All eyes on services sector in GDP data tomorrow ::Business Standard,

Services need to grow 7.8 per cent in order for India's GDP to expand by 5.3 per cent in the first quarter of this fiscal, the same as the previous quarter, assuming agriculture production rises by up to one per cent as most economists predict. Industrial output figures are already out with factory production falling 0.1 per cent in the first quarter. The GDP figures for the first quarter of 2012-13 would be out tomorrow.

Want to teach your child importance of saving? Try this :: Business Standard

With children's education cost rising at a fast clip, many of them would be borrowers even before they have started earning. In such circumstances, it is important that they are aware of how to manage money.

Archana Joshi has already started the process. Recently, she opened a bank account for her daughter (nine-year old) with a private bank. Archana says her daughter is yet to learn about the importance of saving, but wants her kid to learn the value of money to spend it carefully.

Banks like ICICI Bank, ING Vysya Bank, HDFC Bank and Kotak Mahindra Bank provide savings bank accounts for children (below 18 years).

Some myths about income tax :Business Standard,

Many dread the words income tax. And, give up on the subject before even attempting to understand it. According to a study by Delhi-based e-return intermediary, TaxSpanner, there are several misconceptions.

For instance, salaried individuals earning more than Rs 10 lakh a year are less likely to claim exemption for house rent allowance than taxpayers in the lower salary brackets.

It is possible many of them are not aware that both HRA and home loan benefits can be claimed simultaneously, says the report

Time magazine has done PM a favour by calling him Underachiever: Karvy / Business Standard

ARE MAGAZINE COVER STORIES
CONTRARIAN INDICATORS?
Last week, TIME magazine had put Prime Minister Manmohan Singh on
its cover tagging him ‘THEUNDERACHIEVER’. Brokerage firm Karvy feels
these contrarian indicators could precede a reversal of fortunes for
India’s economy and markets. It supports its thesis by listing some
popular covers of leading global magazines over the past three decades

http://www.business-standard.com/content/general_pdf/071512_01.pdf

Gold to reach $1,800 by year end: GFMS: Business Standard

Gold prices could go up 12.5 per cent and touch $1,800 per ounce in the second half of 2012, according to the Thomson Reuters GFMS Gold Survey, released in Beijing on Tuesday. Improved investment sentiment for gold will help drive prices up, said the survey. Presently, gold is trading at $1,600. However, the upside is expected to be capped by expectations of a surplus market in 2012, said Philip Klapwijk, global head of metals analytics at Thomson Reuters GFMS.

Multi-asset funds are for passive investors :Business Standard

With gold prices rising and debt holding steady, fund houses have launched multi-asset funds for passive customers who are not so nimble while churning their portfolios.

These schemes invest in gold, debt and equities with the logic that debt will provide balance to the portfolio and gold or equity or both in tandem will give higher returns.

In January, Morgan Stanley launched its multi-asset fund even as others such as Axis, Canara Robeco and ING have similar schemes. Recently, Quantum Mutual Fund launched a similar product.

Finally, some Reliance clarity on K-G reservoir output riddle : Business Standard in rediff

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If the substantially differing estimates of gas reserves from the joint venture partners in the Krishna-Godavari (K-G) basin off the east coast have been puzzling oil industry watchers, there is now some official confirmation.

Reliance Industries Ltd (RIL), operator of the country's premier deep water gas acreage, has for the first time said it sees a 10-15 percentage point downward revision in its '2P' (proven plus probable) reserves there. This, it says, is due to "reservoir complexity". Typically, experts say, 2P estimates have a 50 per cent strike rate.

RIL, reporting its fourth quarter and annual results on Friday, told analysts it might restate the K-G basin reserves. Five analysts Business Standard spoke to confirmed that.

"RIL has for the first time admitted of sorts that they did go wrong as far as the understanding of the geology at the K-G basin is concerned. They also provided an asset by asset play as far as their other E&P (exploration & production) portfolios are concerned," said an analyst who was present at the meeting.

After MFI turmoil, chit funds the next big draw

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Once bitten, but hardly twice shy.

After having burnt their fingers in the microfinance sector, you might expect investors there to show restraint.

On the contrary, private equity and venture capital (PE and VC) companies are exploring newer, more risky terrain, such as the Rs 35,000-crore (Rs 350-billion) chit fund sector.

These earlier stakeholders in the MFI sector are now turning to this one.

Shriram Chits, with an annual turnover close to Rs 4,200 crore (Rs 42 billion) and one of the biggest in the country, has seen queries from a number of PE funds for investment in its business.

"We have (also) seen interest from our existing investors in the Shriram Group to invest in our chit fund business," said Y S Chakravarti, chief operating officer, Shriram City Union Finance, who is also on the board of Shriram Chits.

Enquiries, it seems, are pouring in from all quarters.

For instance, Lok Capital, a VC firm founded by IDFC's Rajiv Lall and PE veteran and former Actis head in India, Donald Peck, that was focusing on the microfinance sector, is now actively exploring options to invest in chit fund companies.

"We are clearly looking at investment opportunities that will expand financial inclusion, and chit funds is one.

"The chit fund model is unique and it has a lot of advantages, with elements of savings.

They operate on the same model as MFIs, and their commission is also capped," said Venky Natarajan, managing director of Lok Advisory Services.

To begin, Lok Capital might invest up to Rs 5 crore (Rs 50 million) in a chit fund company.

"After the crisis in the MFI sector, investment opportunities in NBFCs (non-banking finance companies) has shrunk.

"Investors are looking at alternative investment options, and chit funds is one," said Shashi Shrivastava, senior vice-president, Grameen Capital, a financial advisory firm focused on the MFI sector.

However, with the commission of chit fund companies now capped at five per cent of chit value, the returns may not be as alluring as the MFI sector.

Recently, the All India Chit Fund Association gave a charter of demands to the Union finance ministry, including allowing members to undertake sensitisation deals, issues on rating and waiver of service tax.

The estimated size of the industry is Rs 35,000 crore (Rs 350 billion), with the unregistered part estimated to be at least 100 times the registered one, according to association data.

There are about 30,000 registered chit fund firms.

For this sector, the MFI crisis was a blessing in disguise. The southern states of Kerala, Andhra Pradesh and Tamil Nadu, where the MFI crisis got precipitated, account for a third of the chit fund industry in India.

"Not only have we seen a rise in business but also enquiries by VC firms for investment in the sector," said T S Sivaramakrishnan, proprietor of Balussery Chit Fund, and secretary of the All India Chit Fund Association.

Last year, the industry grew around 20 per cent, against a usual growth of 10-15 per cent, he said.

A chit fund is a saving-cum-borrowing instrument, with a scheme operating under a predominant value and denomination.
Each scheme admits a particular number of members, who contribute a certain sum every month to a 'pot', which is auctioned each month.

The highest bidder wins the pot.

The bid amount is also called a discount and the prized subscriber wins the sum equal to the chit value, less the discount.

The discount money is then distributed among the rest of the members.

Typically, these companies cater to middle-income group clients, due to the high cost of operations and cap on revenue.

However, with the crisis in the micro finance sector, chit fund companies are now eager to tap lower income group households.

Thus, over the past year, chit funds of lower denomination, with a higher number of participants, fuelled the growth of the industry in the southern states, said Sivaramakrishnan.

Source: