How does the grey market work?

The grey market has had a nice run in the bull market, particularly with regards to IPO premiums. For instance, the grey market has been buzzing with whispers about about the possible level at which Reliance Power IPO will list. The situation is such today that every IPO is being judged on the basis of its grey market premium. It is believed that people will base their assesment on such premiums to decide on buying an IPO.

CNBC-TV18 spoke exclusively to some grey market participants to throw light on how it works.

One such participant pointed out that there hasn't been much trading in the grey market at this point in time. The reason, he said, is that people are waiting for Reliance Power to list on February 11. Only once it has listed and the payments settled, will fresh orders be taken for other issues.

He informed that Reliance Power's current grey market premium is approximately Rs 165-170 per share, whereas a month ago, it was about Rs 450 per share. Investors who bought Reliance Power's shares at that high premium will most definitely lose money.

Today's price being Rs 165-170 per share, the difference will have to be borne by the investor and the payment will have to be made within two days post listing.

Already some 5.5 - 6 crore shares of Reliance Power have changed hands on the grey market.
"On February 11, it is expected to list at Rs 580-600, but if selling pressure comes in, the stock can go down to Rs 550 levels," he forsees.

Modus operandi

Major centres of grey market operations are in Rajkot, Ahmedabad, Gujarat, Jaipur, Palanpur, Bhuj, etc., the trader said. They do multiple share applications and trade in the grey market.
The entire trade is done on 'cash only' basis.
He revealed that even if the client is trustworthy, all orders are accepted mostly through a sub-broker who will get a 0.25-0.50 paise commission per application. The onus for settlement then, is on the sub-brokers. Although, there are some clients who do direct dealings as well.
For example, if a trader sells to a client at Rs 450 per share, post listing whatever is the premium or discount, the payment will be settled in two days through the sub-broker.

He, however, reminds that "all transactions are settled in cash and this is a business of mutual trust."
Since mutual trust is involved, there's always an execution risk. But he counters that. "Long time ago, say 25-30 years, when there was no F&O market, there was the 'vaida bazaar'. Trades were done late at night, but were punched and executed the next day. This is similar to that. The trades are not written, but it is based on trust," he explains.
Similar enthusiasm fogged the Future Capital IPO; investors in the grey market bought shares at Rs 400-500 and some even at Rs 600 per share. The stock listed at Rs 1,100 and slipped down to Rs 950. Investors lost money in Future Capital as well.

How a deal is cracked:

Sample the conversation below between the CNBC-TV18 undercover reporter and a grey market operator.

I need to trade. How do I go about it?
Broker:Nifty or IPO?
Investor: IPO. If I need to trade in Reliance Power?

Broker :The rate is Rs 170/sh.
Investors: What is the minimum tick?

Broker: 1,000 shares.
Investor: Isn't there a tick for 500 shares?

Broker :No, I won't make money by doing only 500. Where do you stay?
Investor: Mumbai

Broker: No a 500 tick is not feasible for Mumbai.
Investor: Is the grey market premium different for different areas?

Broker: No, it does not depend on area. But at a 500 tick, the transaction amount would be Rs 5,000. How will we settle the transaction? It is far.
Investor: Will I have to pay in cash?

Broker: The settlement is done only in cash.
Investor: If I want to buy, don't I need to pay you something right now?

Broker: No, you don't have to pay anything right now. If the rate is above Rs 450, the cut-off will be Rs 450 only.
Investor: How will the settlement be done?
Broker: In cash.

Investor: And if the price comes down, then I'll have to pay the difference.

Broker: Yes.
Investor: So, how will it get settled? Will I meet you?

Broker: All that we will see, but for now trade for 1000 shares first. If you want to sell, I will buy for Rs 160/sh and if you want to buy, I will sell for Rs 170/sh.
Investor: And is there anything for Emaar?

Broker: Emaar is at Rs 19-20/sh
Investor: And how is all this done?

Broker :I will teach you all that, but do you want to trade right now?
Investor: Reliance Power. I want to buy 1000 shares.

Broker:Ok. Will tell you after making the transaction.
Investor: What price?

Broker: At Rs 170/sh.
Investor: Is it done at Rs 170?

Broker: I will tell you now in two minutes after buying.
Investor: Sir, what happened?

Broker: The trade will happen, but it is not advisable to buy right now.
Investor: Why? What happened?

Broker: People are saying that it will fall further. See, there is no panic as such. You will get as many shares as you want.

Broker: Trade is done at Rs 160.
Investor: Done at Rs 160?

Broker: I will explain everything to you. I'm picking up your trade.
Investor: Yes.

Broker:I have bought 1000 shares for you at Rs 160.

Broker: The premium for Reliance Power is at Rs 115-125/sh. There is no buyer, you wanted to buy it based on your information.
Investor: Right now I can give Rs 5,000-10,000, not more than that.

Broker: What if you incur a loss of Rs 50,000?
Investor: I don't have more than Rs 5,000-10,000.

Reliance Power listing may lift the market spirit up

MUMBAI: "We are just one day away from the worst (for the market) to end," said Angel Broking's Lalit Thakkar, referring to the listing of Reliance Power on Monday.

Reliance Power raised a whopping Rs 12,500 crore from its initial public offering.

"We feel the market is near the bottom and the last news (listing) of Reliance Power needs to be digested. After that, there is no negative news," he added.

The Reliance Power IPO was subscribed over 73 times. However, with the sentiment in the secondary market turning bearish, the grey market premium for the first offering from the Anil Dhirubhai Ambani group company declined to Rs 125 from Rs 450 earlier.

"Although the euphoric sentiment is out, earnings momentum still seems intact. What needs to be seen how much of sentiment Reliance Power can spoil. Having said that, we have already crossed almost 90 per cent of the danger zone and the last 5-10 per cent of the threat lies with the listing of Reliance Power. So if Reliance Power does not get the right amount of response, it could dampen sentiment. But since we are at the fag end of the negative phase, we expect the market to recover by after a couple of hours of the listing," Thakkar said.

Indian equities have been through a rough patch over the past three weeks as global markets succumbed to repeated indications that the world's largest economy is sinking into a recession.

Bombay Stock Exchange's Sensex retreated more than 8 per cent from Jan 18 till today. The first tremor was felt on Jan 21 when the 30-share benchmark saw the biggest intraday fall of 2,062 points in its history.

As the volatility increased, its effects also could be seen in the primary market. Emaar MGF Land was forced to withdraw its IPO due to poor response, a day after Wockhardt Hospitals pulled out for the same reason.

"The primary market continues to be vibrant, but the kind of valuations that are being commanded need to be sobered down. IPO mobilization will not come down but the pricing needs to be changed," Thakkar commented.

Tamil Nadu to import Pakistani cement

Chief Minister of Tamil Nadu M. Karunanidhi announced that he had given a go-ahead signal to import of cement from Pakistan.

Tamil Nadu, one of the 28 states of India that lies on the eastern coast of the southern Indian Peninsula, is starved of the commodity that it needs for fast growing infrastructure building requirements. And the step taken by the chief minister appeared to be in frustration over the Indian cement companies’ disregard to urgings to increase supplies and bring down prices.

The “Money Control” wrote: “Karunanidhi seems to be winning round two of the battle between the State government and cement companies. The Tamil Nadu chief minister first gave a nationalisation ultimatum to bring down prices and that didn’t work. So now he is importing from Pakistan”.

“Money Control” stated that the Tamil Nadu Cement Corporation or TANCEM would import at comparatively cheaper prices. Mr Chitty Babu of Confederation of Real Estate Developers Association of India stated that builders would be happy to get a “huge relief of Rs25 per 50-kg bag”.

Analysts at stock brokerage firms in Karachi commented that given the gap between the currency value of the Indian and Pakistani rupee, the exporters would fetch Rs240 per bag. That would doubly benefit the local cement companies.

The export price to India carries significant premium over what the cement fetches in local markets and unlike local sales, exports were exempt from general sales tax (GST) and Central Excise Duty (CED).

The previous week, almost all stock brokerage firms had come up with the latest data for January 2008, which showed cement exports to have touched new peak at 618,000 tons in January. That beat the previous highest export at 575,000 tons achieved in August 2007.

The January figures of sales outside the country were 152 per cent higher on year-on-year basis and 60 per cent up when compared to December 2007. On the other hand, local dispatches stood at 1.6 million tons in the month under review, down by 13 per cent compared to the same month last year.

Analyst Bilal Hameed at JS Global stated in a report on the sector that aggregate (local plus exports) dispatches stood at 2.2 million tons in January 2008, representing an increase of six per cent YoY. That represented growth of six per cent in local dispatches and 148 per cent in exports during the first seven months of FY08.

Buy Now Sell Tommorow Calls - BNST for Monday 11-02-08

BNST calls :

RNRL : buy now for a tgt of 162+

ZEEL : buy now for a tgt of 252+ on monday

REL : buy now @ 1975 levels for a tgt of 2040+

the above mentioned calls can be taken in futures also

HOT STOCKS for 08-02-08

STATISTICS :

Markets will tend to bounce back after a weak consecutive trading sessions, Nifty will trade between levels 5090 - 5280, can see Nifty trading in high levels in second session. Nifty has some support @ 5105 level, resistance @ 5270 level,

Futures :

Nifty : buy for a tgt of 5250+, sl @ 5040

SATYAM : buy for a tgt of 405+, sl @ 483

IFCI : buy for a tgt of 70+, sl @ 61

RNRL : buy for a tgt of 164+, sl @ 144

ZEEL : buy for a tgt of 272+, sl @ 251

ICICIbank : buy for a tgt of 1155+

OPTIONS :

Nifty : buy call 5500 for a tgt of 210+, sl @ 77

MTNL : buy call 130 for a tgt of 10+, sl @ 3.6

IDEA : buy call 120 for a tgt of 8+, sl @ 3

BSE to suspend 22 cos for non-compliance of listing agreements

The Bombay Stock Exchange on Thursday said it will suspend trading in shares of 22 companies, including Bollywood film production house, K C Bokadia Films Ltd, for non-compliance of the Listing Agreement. As per the regulations, a company listed on BSE is needed to comply with various clauses of the Listing Agreement, failing which trading in securities of such defaulting companies is liable for suspension. In a statement issued here, BSE said that despite various reminders and subsequent show-cause notices, a total of 22 companies have failed to comply with various provisions of the Listing Agreement up to quarter ended June, 2007. Consequently, trading in securities of these 22 companies listed on BSE would be suspended with effect from March 10. These include, Arunoday Mills, Assambrook, Centron Industrial Alliance, Chankya Investments, Gamma Infoway Exalt, Gold Rock Investments, Hasti Finance, K C Bokadia Films, Noble Explochem, Rajkamal Synthetics, Rashel Agrotech, Sanrhea Technical Textiles, Satellite Engineering, Saya Housing Finance Company, Shamken Cotsyn, Shamken Multifab, Shamken Spinners, Sharda Ispat, Spartek Ceramics India, Super Syncotex India, Systel Infotech and VJIL Consulting Ltd. In case, a company complies to the satisfaction of the Exchange with all the provisions of the Listing Agreement on or before February 28, trading in securities of the company will be suspended for 5 days, or upto March 14, BSE said. In case a company fails to comply with all the provisions of the Listing Agreement on or before March 26, the trading will be suspended for 30 days or up to April 9.

India expects growth to slow to 8.7 pct in 2007/08

India expects its economy to expand 8.7 percent in fiscal 2007/08, slower than the previous year as higher interest rates dent consumer demand, and analysts expect growth to cruise at a similar speed next year.

While still strong, Asia's third-largest economy has lost altitude from the heady 9.6 percent expansion seen in 2006/07 and 8.7 percent would be the slowest growth in three years.

But Reserve Bank of India (RBI) chief said Thursday's official estimate would not alter the RBI's wait-and-see approach as the figure was broadly in line with its forecast of 8.5 percent for the fiscal year that ends on March 31.

Analysts had been looking for gross domestic product to moderate this year from its fastest pace in 18 years in 2006/07, with a Reuters poll forecasting expansion of 8.7 percent.

"Clearly moderation has set in, essentially driven by industrial moderation," said Shubhada Rao, chief economist with Yes Bank.

"Going forward in (fiscal year 2008/09) we expect growth to maintain 8.5 percent levels, led by infrastructure spending."

Financial markets were cool to the estimate, the first for this fiscal year, with the partially convertible rupee dipping to 39.5450/5600 per dollar from about 39.49/50.

The benchmark 10-year federal bond yield was initially stable at 7.49 percent but later slipped to 7.47 percent after the RBI said inflation was contained.

Growth in manufacturing, which makes up nearly 15 percent of GDP, was expected to slow to an annual 9.4 percent from 12 percent the previous year, the central statistics office said.

HIGH RATES BITE

The RBI raised interest rates five times in 10 months from June 2006 and tightened banks' reserve requirements repeatedly last year to restrain inflation and credit growth.

Annual inflation, as measured by wholesale prices, has subsided to just below 4 percent, below the central bank's comfort ceiling of about 5 percent. But the monetary authority kept rates steady last month, saying inflation risks persisted.

Just over half the analysts polled by Reuters after that decision saw the central bank cutting rates by 25-50 basis points by June while the rest saw no change for the next five months at least.

RBI officials told reporters on Thursday inflation had been contained but Governor Yaga Venugopal Reddy said the "inherent logic" of last week's rate decision had not changed.

"There is no fresh information that requires any particular response," he told reporters. "We are watching the evolving uncertainties."

FIIs shift focus on government debt market, ask SEBI to hike investment limits in bonds

MUMBAI: In less than a week after the Securities and Exchange Board of India (SEBI) raised the limit for FII investment in government bonds, foreign institutional investors (FIIs) are now knocking on the doors of the markets regulator asking for a hike in their individual limits.

Yields in the government bond market have been on the rise in recent times. This, coupled with the rising rupee and lower borrowing rates in overseas markets, makes it lucrative for overseas investors to look at the gilt market.

According to a senior treasury manager with a multinational bank, SEBI has already been flooded with applications from FIIs, intending to invest in the gilt market on an incremental basis. There have been significant amounts of outflows due to the fact that SEBI has categorised all investments in liquid mutual funds as corporate debt investments, he added.

Bond traders are confident that once approvals from SEBI come through, investments by FIIs in government bonds will see a huge spurt. In fact, the rise in investments could be so sharp, that it could even bring down the yields from their current levels. FIIs who ended up bidding aggressively for the Reliance Power public offer will now find the surplus bid amounts finding their way back to them, in the post-allotment phase.

Bharti, VSNL join undersea cable deal

A nine-company consortium that includes Bharti Airtel and Tata-owned Videsh Sanchar Nigam Ltd signed a formal construction and maintenance agreement in Rome today to build a high-capacity fibre-optic submarine cable from India to France via Egypt and Italy.

The cable will cost $400 million to $450 million to build.

Known as I-ME-WE (India, Middle East, Western Europe), this is the fifth in the series of similar cable systems. Submarine cable Owner Connectivity Flag Telecom & Falcon Anil Dhirubhai Ambani group East coast to Europe, Europe-India-Far East, Mumbai to 12 countries in West Asia, Chennai- Korea-Japan Tata Indicom & Tyco Global Tatas Chennai-Singapore-Far East, Japan to West Coast Europe to East Coast Se-Me-We 3 and Se-Me-We 4 Consortium in which VSNL and Bharti (in only Se-Me-We 4) are partners South East Asia-India- West Asia-Europe Network i2i Bharti Chennai-Singapore

Apart from Bharti and VSNL, the consortium includes Etisalat (UAE), France Telecom (France), Ogero (Lebanon), PTCL (Pakistan), STC (Saudi Arabia), TE (Egypt) and TIS Sparkle (Italy).

The almost 14,000 km I-ME-WE cable system is designed to provide 3.84 terabits per second and is expected to be available for service by late 2009.

With Se Me We 3 already ten year old and with 50 per cent of Se Me We 4 already booked, the new cable will meet the rapidly growing capacity requirements of Asia and Europe besides satisfying the capacity needs of the US to these regions as well.

VSNL has been appointed as the network admistrator of the project and will oversee the management of the entire cable.

The announcement of the new cable comes close on the heels of a serious disruption in internet and communications after critical cable links on the Se-Me-We-4 and Flag Telecom cables were snapped by a ship’s anchor off the coast of Egypt and Se-Me-We 3 had problems on its electronics.

“The I-ME-WE cable system will offer increased redundancy and resilient networks, and meet the increasing demands of voice, data and Internet traffic,” said Rajan Swaroop, executive director (global network services), Airtel Enterprise Services.

Reliance plans big for realty, goes headhunting

Mumbai: Reliance Industries looks all set to enter the realty space in a big way. Mukesh Ambani’s $27-billion corporate house has called for project managers, project architects, project and design engineers for its real estate projects, in an advertisement in a national daily.

Large portfolio

The Reliance Group said it has a substantially large portfolio of real estate projects to fulfil captive requirements and independent business activity. The projects include high quality space, residential properties, convention centres and auditorium.

Recently, the company acquired a 10,183 sq. metre commercial plot at the Bandra Kurla Complex for Rs 918 crore, wherein it would be allowed to construct a 20,366-sq. m multi- storeyed car park and 30,550 sq. m commercial complex.

Earlier, against a reserve price of Rs 480 crore for an 18.5-acre plot, also in BKC for an international convention-cum-exhibition centre and a commercial complex, the company bid Rs 1,104.11 crore for it — more than double the reserve price.

The large corporate house is seeking professionals with at least 15 years of “hands on experience” with major civil constructions, hotel chains, interior designers, architects, real estate developers, contractors and engineering consultancy companies.

The appointments are for a Group company operating in the EPC (engineering, procurement and construction) sector, the advertisement said.

Reliance Entertainment plans IPO

Anil Ambani is planning another initial public offer (IPO). After Reliance Power and Reliance Infratel, Reliance-ADA Group company Reliance Entertainment is now understood to be finalising plans for an IPO.

The company is expected to file the Draft Red Herring Prospectus (DHRP) with the Securities and Exchange Board of India (SEBI) soon after the budget. Reliance Infratel, which had filed the DHRP prospectus on February 4, would receive the mandatory approval in the next 15 days.

For the Reliance Entertainment issue, Kotak Mahindra and JM Financials are likely to be the investment bankers. A spokesperson for the ADA Group said: “We do not want to comment on speculation.” An analyst with a Mumbai-based research firm said: “Right now, it is difficult to arrive at a valuation for Reliance Entertainment. There could be restructuring of the company’s businesses. This could involve transferring certain related businesses to Reliance Entertainment.”

After soaring to their peaks, valuations of entertainment companies have taken a major hit during the recent market meltdown. While TV 18 has a market capitalisation (price multiplied by the number of traded shares) of Rs 4,961 crore as on February 6 2007, UTV’s market capitalisation was at Rs 1,961 crore.

The group has put all its new-age businesses like gaming and home entertainment under Reliance Entertainment. While Zapak is company’s gaming business, BigFlicks is its home entertainment venture.

The company is also eyeing a presence in the television segment through channels it has planned to launch. “Reliance Entertainment is taking its time to decide whether the IPO should be timed before the launch of its DTH service-Big TV or after it,” said the executive of an entertainment channel.

SEBI puts pre-IPO PE deals under scanner

MUMBAI: Private equity (PE) deals struck ahead of initial public offerings (IPO) have come under regulatory glare. The capital market regulator, SEBI, has taken a serious view on such pre-IPO deals, where companies have raised debt through issuance of ‘IPO convertible’ — a hybrid instrument which is debt in the garb of equity.

Market sources said many pre-IPO deals struck last year had a now-familiar instrument called IPO convertibles. “It is nothing but debt, since companies do not freeze the pricing at the time of the deal and allow investors the freedom to buy equity at the IPO price at a later date when the company goes public,” said a Mumbai-based investment banker. Sebi is believed to have now asked companies that are going for IPOs to “freeze their pre-IPO pricing” and “to fix their IPO pricing independently”.

Sources said the regulator is likely to announce measures to check pre-IPO deals involving IPO convertibles. Several attempts by ET to get a response from Sebi proved futile. An e-mail query did not elicit any reply. In 2007, private equity players had emerged as the most preferred investors for corporates, enabling them to raise a record $17 billion (around Rs 69,159 crore) during the year, according to Grant Thornton, a global financial and business advisor.

The capital mobilised through PE deals last year was higher than the funds collected through IPOs, follow-on offers and qualified institutional placements (QIPs). A senior official with a PE firm said half of the PE deals struck in 2007, especially in certain sectors like real estate, involved IPO convertibles. “Any check introduced on IPO convertibles will bring in transparency in the primary market. Also, pre-IPO deals tend to influence the of investors who are unaware of the fact that the pre-IPO pricing is, in fact, not fixed,” said another investment banker. The government had earlier raised concerns about the increasing capital inflows affecting the value of rupee.

It is being examined whether restriction on external commercial borrowing (ECB) are being side-stepped through such placements of quasi-equity instruments. The ECB rules suggest that the debt has to be fixed at Libor plus 2 percentage points.

At the time of IPO, merchant bankers work out a valuation based on forward multiples of comparable peers. It also depends on the company’s business plan and its projections. There are industry-specific valuation methods: for instance, for real estate, net asset value (NAV) could be considered while for banks and financial companies, price to book value could be an indicator. Similarly, price-earnings multiple or EBIDTA-multiple could be used for the manufacturing sector.

Last year, Indian companies sewed up 386 PE deals, mainly in real estate, infrastructure and financial services space. The IT & ITeS (IT enabled services) segments led the PE charts in terms of volumes, accounting for 66 deals. Some of the top deals last year included Temasek Holdings’ $1-billion investment in Bharti Infratel, another $1-billion investment by Deutsche Bank, Citigroup and other international investors in GMR Infrastructure and ICICI Venture Funds’ $800 million in Jaypee Infratech.

HOT STOCKS for 07-02-08

STATISTICS :

Markets will tend to bounce back, but volatility continues with sector specific action taking place, Nifty will trade between levels 4270 - 4375, Nifty has a support @ 4280 and Resistance @ 4360 level, once if it closes above this level one can go long in market.

Stocks to take positions for today and hold for a short period

DELIVERY :

SAIL : buy now for a tgt of 400+ levels in 3 - 6 months time frame

RNRL : buy now for a tgt of 260+ in 2- 3 months

ZEE NEWS : buy for a tgt of 90+ in 2 months

KALINDRA RAIL : buy for a tgt of 600+ in a month

FUTURES :

Nifty : buy for a tgt of 4350 for today, can go to 5550+ levels

ADLABS : buy for a tgt of 1200+, sl @ 1060, can go to 1280 levels

OMAXE : buy for a tgt of 310+, sl @ 294

EDELWEISS : buy for a tgt of 1060+, sl @ 1013

NIIT TECH : buy for a tgt of 145+, buy below 139 levels , sl @ 135.8

TTML : buy for a tgt of 44+, sl @ 37.20, can go to 46+ levels

OPTIONS :

Nifty : buy call 5500 for a tgt of 210+, can go to 245+ levels, sl @ 105

Nifty : sell put 4700 for a tgt of 40 levels hold for a tgt of 1rs

INFOSYS : buy call below 72 levels for a tgt of 115+ , sl @ 50

MTNL : buy call 130 for a tgt of 12+, sl @ 3.2

HEDGING :

1 >
RNRL : buy futures 1 lot for a tgt of 168 levels

RNRL : sell call 160 above 20Rs

ICICI awaits RBI norms on holding firms

ICICI Bank is still awaiting Reserve Bank of India’s final norms on bank holding companies, said Managing Director and Chief Executive Officer K V Kamath today.

“We are waiting for the discussion paper. We will wait,” Kamath said. On Friday, ICICI Bank scrapped the deals entered with investors who had intended to pick up stake in the bank’s proposed holding company, ICICI Financial Services.

Last date of the agreement with these investors had lapsed on Thursday as regulatory approval had still not come, the bank said. The bank was awaiting approvals from Reserve Bank of India, Insurance Regulatory and Development Authority, and Foreign Investment Promotion Board.

RBI had expressed its discomfort of banks setting up holding companies as these entities would be outside the central bank’s supervision limit.

In November, RBI had extended the date of releasing the draft norms on holding company, but did not set any final date for announcing the guidelines.

On whether valuation of the holding company has fallen due to delay in the approval from RBI, he said: “I don’t want to speculate. We are content with growing our business and we will remain content. We will see what happens.”

Kamath reiterated the country’s largest retail lender has still not decided on reducing lending rates on sectors like home and car loans. “This is the last quarter and normally there is a lot of credit off-take and demand.

So we will have to wait and watch. This is not the right time for me to talk on interest rates,” he said.

Kamath expects home loan demand to revive in the next financial year. “Demand will come back once you have price correction in property markets and affordability in terms of cost of homes and interest rates.”

Many BSE B1, B2 cos may enter A-club

Many companies currently in the BSE’s B1 and B2 group may soon earn a promotion to the ‘upper crust’ A-group which houses large-cap, blue chip companies across sectors. The exchange has announced revised eligibility criteria for classifying listed companies as A-group, which will be effective from March 3, ‘08. The rules will be applicable to companies which are listed at least for three months. Any company can directly list in the A group if its market cap exceeds that of the 100th company ranked on the basis of average market cap calculated for the preceding three months. In any case, the number of A-group stocks will be maintained at about 200, said the BSE spokesperson. The exchange will announce the revised list of re-classified companies on February 18, ‘08. The BSE has also done away with classifying non-A group companies as B1 and B2. Instead, the two groups, housing medium and small-cap companies, will be merged into B group. Any company entering into the F&O segment from the day of its listing will be directly included in the A group. Existing companies seeking listing in the A group should be traded at least 98% of trading days in the past three months. It should have non-promoter holding of 10%. Public sector companies, however, are exempted from this criteria. While re-classifying any company as A group, a weightage of 75% will be given to market cap and 25% to traded turnover. The classification of the A group will be reviewed two times in a year — in February and August, said the BSE on Tuesday.

RCom, Bharti Airtel spar over link charges

MUMBAI/NEW DELHI: The cut in undersea submarine cables near Egypt's northern coast last week which had impacted internet services in India, has now led to a war of words between India's largest private telcos - Reliance Communications (RCom) and Bharti Airtel.

The issue began with RCom, whose undersea cables FLAG and FALCON were damaged, seeking additional capacity from Bharti on the latter's i2i cable. RCom has alleged that Bharti was severely overcharging - up to 12 times - for this additional capacity, which it required only for an 'interim period of 15 days', even as the FLAG and FALCON cables were being repaired.

Bharti though has dismissed these allegations as totally baseless. When contacted, the Bharti spokesperson said: "We have not received any communication on this subject. In any case, as per policy, we do not comment on any agreement that are bilateral in nature."

RCom has been the worst affected as both its cables - FLAG and FALCON - have been cut. The Se-Me-Me-4 cable, on which both Bharti and the Tatas-owned VSNL have capacity was also cut during the same accident, but both these companies were able to minimise the impact and re-route traffic within a few hours through their other cables - Bharti through i2i and VSNL through the Tata Indicom cable and Se-Me-We-3 cables.

It is also learnt that RCom has sought the intervention of both sector regulator TRAI and even the Department of Telecommunications (DoT) and requested that the government put in place a framework for industry co-operation and co-ordination which will mandate that undersea cable operators share bandwidth on a cost plus charges during such emergencies. DoT sources said they were looking into RCom's complaints. When contacted RCom officials declined to comment on the issue. Meanwhile TRAI sources said that representatives from both Bharti and RCom had already met the regulator on the issue. "The regulator had facilitated talks between both companies and the issue has been solved. We intervene only when both companies do not arrive at a solution with regard to bandwidth costs, but in this case, the companies have solved it," TRAI sources added. However, industry sources maintain that the issue was far from solved. Adding further fuel to the fire, an industry source said that RCom had been requesting Bharti for additional bandwidth on i2i since November 2007, but the latter had refused citing technical feasibility due to upgrade on its (i2i's) Chennai-based landing station. This further complicated matters for RCom especially after its another undersea cable - FALCON - too broke down near Dubai. and presented difficulties for the ADAG group promoted company to maintain its networks in India, the source said. "Generally the charge is Rs 12 lakh per stpm but Bharti had demanded nearly 10-12 times more charge for the use of its Chennai-based landing station," the source added.

Ispat acquires coal blocks in Mozambique

Global Steel Holdings, the holding company which controls steel and associated businesses of the Ispat Group, has acquired two coal mining blocks in Mozambique.

The investment in the two blocks would be in the region of Rs 460 crore. The blocks, which cover a licence area of around 30,000 hectares, have proven resources of around 70 million tonne of coking coal with low to medium ash content, said sources.

The exploration work had already commenced and the actual reserves could be higher considering the potential of the blocks, sources added.

The blocks are in the Tete region and in close proximity to the licence areas of ArcelorMittal, Tata Steel and Vale’s coal asset areas.

Coal evacuation from the mines to the nearest sea port of Biera, which is about 600km, is proposed to be done through the railway network under restoration now and likely to be operational within a year. Coal production is expected to start in 3-4 years.

Currently, Global Steel operates and manages about 13.8 million tonne of steelmaking capacity in countries like Bulgaria, Nigeria, Philippines, Libya and India.

Deepak Fertilizers signs JV with Norway major

Pune-based Deepak Fertilizers and Petrochemicals Corporation (DFPCL) has entered into a heads of agreement with the Norway-based Yara International ASA, a $14 billion fertilizer and specialty chemicals major, to establish a joint venture (JV) for the production and marketing of ammonium nitrate and specialty fertilizers in India.

DFPCL will own 51% of the JV while Yara will own the balance 49%. The JV will also invest in Deepak Fertiliser's 300,000 million tonne (MT) per annum ammoium nitrate plant under construction at Paradip in Orissa.

A spokesperson of DFPCL declined to comment on the size of the investments in the joint venture, citing the Board of Directors of both the companies were yet to finalize the details.

Fertilizer industry sources said typically a midsize to large fertilizer plant would incur an investment of close to $1 billion.

India consumed around 400,000 tonne a year of technical ammonium nitrate (TAN) and the market was growing at around 5-6% per year, driven by strong coal demand for power generation, said a Yara press release.

Ammonium Nitrate is mainly used to produce explosives for the mining industry and in coal production.

Currently Deepak Fertilizers is the only major domestic producer of ammonium nitrate, with an installed capacity of 140,000 tonne. The rest of Indian demand is covered mainly by imports.

"The JV will be value-accretive to DFPCL and will benefit its long term strategy in nutrient management through specialty fertilizers and value-added mining products and services," said Sailesh Mehta, vice-chairman and managing director, DFPCL.

"India has the world's third biggest coal reserves and Yara has proven strengths in safety, production, logistics and expertise in the use of technical ammonium nitrate for explosives (TAN)," said Thorlief Enger, president and CEO, Yara International ASA.

The heads of agreement would be converted into a final agreement after a due diligence and the necessary company and regulatory approvals.

The JV will review opportunities for production, marketing and import of specialty fertilizers in focused states like Maharashtra and Gujarat, where DFPCL has considerable strengths. It will also target the ammonium nitrate market in India, especially the mining and infrastructure sectors.

Yara International ASA, is a global leader in ammonia, speciality and bulk fertilizers and Ammonium Nitrate (AN), industrial gases and other diversified chemical and pollution control products.

Tepid response to public offers continues

Initial public offerings by Emaar MGF Land and Wockhardt Hospitals were yet to be fully sold on Tuesday, forcing the second company to extend the deadline for submission of bids by two more days.

Emaar MGF, controlled by the biggest Middle Eastern developer Emaar Properties PJSC, got bids for 39 per cent of the 102.6 million shares on offer, while Wockhardt’s bids totalled less than 1 percent of the 25 million shares on offer, the National Stock Exchange said on its Web site. The two companies had cut the size of their initial offerings last month.

The Indian developer may raise 8.7 percent less than planned, while Wockhardt Hospitals lowered its target by 16 per cent, in the worst start to the year for Indian stocks in at least three decades. Wockhardt’s initial offer will end on February 7 and bids for Emaar MGF close tomorrow.

The demand is in contrast with Reliance Power Ltd.’s record IPO last month, which was sold out soon after it opened for subscriptions.

Among other share sales, IRB Infrastructure Developers received bids for four times the offer, and Tulsi Extrusions Ltd. 1.7 times. Both the offers ended on Tuesday.

The volatility in the stock market has also affected the grey market premium of Reliance Power shares. Ahead of its February 11 listing, the grey market premium of RPL has slipped to Rs 175 from around Rs 450 a day before the initial public offer opened on January 15. This indicates that listing price expectations have been toned down from Rs 900 a share to around Rs 625.

Some of the other IPOs, including Shriram EPC, KNR Constructions, J Kumar Infraprojects and Wockhardt are trading at a discount to their issue prices in the grey market.

The premiums for Emaar MGF, Globus Spirit, IRB Infrastructure Developers, Cords Cable Industries and OnMobile Global Ltd have declined by 80 per cent.

Meanwhile, Wockhardt Hospitals on Tuesday decided to extend its IPO closing by two days to February 7 after the issue got subscribed by 0.1 times as at 6 pm.

Market Watch: The anatomy of the grey market

In January 2008, lakhs of investors across the country became familiar with the phrase “grey market premium”. After all, the decision to buy into the Reliance Power IPO for many investors was based on this premium. While few understand what this grey market is all about and even fewer actually trade in it, it became the sole basis of investing for lakhs of investors. Not just retail but even for smart HNIs, who borrowed money to scalp this premium on listing.

The grey market thrives in cities like Ahmedabad, Rajkot, Jaipur and Delhi. While there's nothing "official" about grey market trades, they are generally honoured and defaults, if any, are rare. So operators by the name of Kali, Muno, Jindal, Karwaji and Gulshan (possibly fictitious) will take orders of minimum lots of 500 shares and settlement is done in cash. It's so easy for anyone to get access to this market that it baffles me why the authorities have not been able to clamp down on it. Wouldn't the RBI have clamped down on an illegal entity accepting public deposits running into hundreds of crores?

So how big is this grey market? Actual figures are hard to come by but according to sources, the total quantum of trade on Reliance Power in the last few weeks has touched 1 crore shares. That may be a small fraction of the issue size but not insubstantial in itself. What worries me is the scope for manipulation and misleading investors. Without any aspersions on any promoter as such, ask yourself this simple question. If a grey market premium started influencing public consciousness in a manner that had a direct bearing on the level of oversubscription and subsequent listing, would it not be in the interests of a promoter to lay out say 1-2 per cent of the issue size in trying to keep the grey market premium hot and going? So this grey market premium which people mistake as a truly credible and “market determined” price may actually be nothing like it. Also, going by the Reliance Power experience, grey market prices are notoriously fickle. When the Nifty corrected 20% last month, the premium on this IPO tanked nearly 70% from 450 + to 140. The result: HNI’s who had expected a listing above 900 are now praying for 600 for a "no loss" exit.

Here are some bitter truths about the grey market then : it's illegal, unreliable, shallow, possibly rigged and swings wildly with market conditions. Don’t use it, don't trust it, certainly don't use it as a benchmark for buying into an IPO. In the world of money, grey and black aren't good colours, stick to white.

Near-term forward dollar premia trade at a discount

Rupee: Weak close The spot rupee opened at 39.41/42, but closed weaker at 39.56/57 due to acute demand for spot dollars in the market.

According to dealers, most of the foreign banks were buying the spot dollar since there was shortage of dollar funds in the market.

The RBI has been buying spot dollars, but deferring the infusion of rupee funds used for the purchase of the dollars into the system through sell-buy swaps. Thus dollars are available only at a future date.

Over and above this, overseas borrowing of dollars has become expensive since global markets are themselves fighting the shortage of dollars and seeking central bank intervention.

Besides, the usual dollar shortage, the demand on Tuesday also included the refund of subscription money to the portfolio investors (foreign institutional investors) who had participated in the Reliance

Power IPO Therefore foreign banks were also seen contracting sell-buy swaps wherein they bought spot dollars to be sold at a forward date and thus the system received rupees. This led to a drastic fall in the rupee premia paid for booking forward dollars. Dealers added that spot dollar is available at a premium over the forward, which is unlike the usual cheaper spot dollar over the forward.

The cash dollar to be sold tomorrow (cash tom) was available at 42%premia on an annualised basis or at 4 paise premia over the spot rate. This is usually similar to the call rate of 6-7%, at which the banks lend and borrow rupee funds for their daily fund requirement.

The one month forward dollars were available at a discount. The annualised premia for six month and one year forward dollars fell drastically since the spot traded at a premium. The six month and one year forward dollars were available at 1.33% and 1.36% as against 1.63% and 1.52% respectively.

Liquidity: Situation of abundance The liquidity in the system improved substantially with the RBI absorbing around Rs 9000 crore from the system despite a string of outflows slated for this week.

Call rates closed around 5.5/6% and the rates in the collateralised lending and borrowing market (CBLO) fell to 4.5%. According to dealers, the refund of the money towards the subscription of the Reliance Power issue has eased liquidity. There was no fund infusion by the RBI into the market.

G-sec: Energetic trading Though the market was cautious ahead of outflows towards the MSS auctions, there was brisk trading. The prices of government securities moved up in the beginning of the trading session, but fell towards the end since banks resorted to profit booking. The yield on the ten-year benchmark paper closed at 7.51%.

The interest rates in the shorter end of the maturity also fell since the yield on the 91 day t-bills moved down from 7.10% to 7.05%. Dealers expect the cut-off yield on the 91 day t-bill to hover in the range of 6.98-7.05% on Wednesday.

The banks also preferred to set aside funds in the beginning of the reporting fortnight rather than scurrying for money at the end of the fortnight. Reporting fortnight is the Friday of the week when the banks are required to report maintenance of cash reserve ratio (CRR) to the RBI.

CRR is the portion of deposits mobilised by banks in a fortnight and deposited with the RBI as a statutory requirement.

OIS: Edgy times Even as the uncertainty surrounding liquidity in the money market eased, the outlook in the overnight interest rate swap market continued to remain jittery.

According to dealers, even if the sentiment is not bearish, the outlook is uncertain till the outflows occur and a clear picture emerges on the liquidity. The yield across maturities fell marginally by 2-3 basis point. Overnight interest rate swap market is derivative product based on the underlying of the interest rate on the government securities.

The one year segment in OIS witnessed brisk trades and the yield in this segment fell from 6.75-6.70%. There were not many trades in the short term and long term corporate bond market. The triple A 10- year benchmark bond of State Bank of India was trading at 9.12%.

Tracking the SBI bond, Power Finance Corporation announced its plan to raise three year and five year funds at a book built issue.

Since funds could be offered at a highest bid rate in a book built issue, banks are likely to put bids in the range of 8.96-9.03%. PFC will raise around Rs 300-500 crore.

HOT STOCKS for 06-02-08

STATISTICS :

Markets will tend to follow the global que's can see a gap down opening, Nifty will be rangebound can see trading between 5260 - 5400 levels, Recovery can be seen once nifty trades above 5360 levels. Nifty has some support @ 5275 levels and resistance @ 5400 level, so volatility will tend to continue so trade cautiously will selective stocks.

FUTURES :

Nifty : buy below 4250 for a tgt of 4360+

IFCI : buy below 63 for a tgt of 70+ , sl @ 60

SATYAM : buy below 418 for a tgt of 435+ , sl @ 415

RELPETRO : sell for a tgt of 172 , sl @ 178

SAIL : sell for a tgt of 225 , sl @ 234

OPTIONS :

NIFTY : buy 5500 put for a tgt of 340+, sl @ 250

NIFTY : buy call 5500 below 150 for a tgt of 190+ , sl @ 125

IFCI : buy call 60 below 7 for a tgt of 12+ , sl @ 4

HEDGING :

1> buy Nifty futures below 5250 levels for a tgt of 5550+
.................... buy put 5500 for a tgt of 360+ ... can go to 400+ levels

2> buy Nifty call 5500 below 160 levels for a tgt of 210+
..................... sell call 5700 @ above 90 levels

* Hedging is safe to trade in volatile market loss can be limited to gain a maximum pft

BSNL-MTNL merger still on frontburner

The initial public offering (IPO) of state-owned Bharat Sanchar Nigam Ltd (BSNL) is not the only issue over which the government has gone back and forth. BSNL’s merger or synergy with the other telecom PSU, Mahanagar Telephone Nigam Ltd (MTNL), is another issue on which the government has not been able to take a decision for years.

Although the proposed BSNL-MTNL merger is widely believed to be on the backburner, a source in BSNL told this newspaper that “the issue is not dead yet.”

Merger or synergy between these two telcos will be the only way to beat competition, the source pointed out.
While BSNL operates telecom services across the country except in Mumbai and Delhi, MTNL is present in only the two metros (Mumbai and Delhi).

Officials denied that BSNL would be allowed to go to Delhi and Mumbai, and MTNL to the rest of the country, without the two entities merging.

A few months ago, BSNL slipped in the overall GSM (global systems for mobile communications) ranking in terms of subscriber numbers. From the second position, it dropped to number three. Currently, Bharti is the top GSM player in terms of subscriber numbers at 55.1 million, followed by Vodafone Essar at 39.8 million, and BSNL with 32.7 million.

However, BSNL aims to be the market leader by 2010. This objective can be fulfilled only if BSNL and MTNL merge, a BSNL official pointed out. While BSNL is targeting over 100 million mobile subscribers (mainly GSM) by the end of 2010, CDMA major Reliance Communications and GSM players Bharti and Vodafone have similar projections for their respective GSM services.

Merchant bankers, which were appointed for advising the government on the synergy between BSNL and MTNL, had given four options for the same. Subsequently, the issue was put on the backburner. Direct merger of the two was one of the options.

Recently, BSNL officials had said on the sidelines of a conference that the PSU was gearing up to come out with a mega IPO of $10 billion. But, the following day, the Department of Telecommunications denied that BSNL was coming out with an IPO.

FM plan could see a share surge

Mumbai: If the government decides to go ahead with a finance ministry proposal for a minimum 25% public shareholding in all listed Indian firms, at least Rs1.19 trillion worth of fresh shares will flood the market, based on the top 500 companies alone.

A Mint analysis of the BSE 500, the top 500 firms on the Bombay Stock Exchange (BSE), reveals that at least 42 firms will have to lower their promoters’ stake to comply with the norm, and the size of their floats could be between 1% and 24.33% of their equities.

CAPITAL INFUSION

Based on the market value of these stocks at Friday’s closing price on the Bombay Stock Exchange, the collective value of their floats could be Rs1.19 trillion. India’s top 500 firms in terms of market value comprise the BSE 500 index that accounts for 90% of the value of all stocks trading on bourses.

People monitor market news outside the BSE building in Mumbai. A Mint analysis shows at least 42 of the top 500 firms will have to lower their promoters’ stake to comply with the proposed norms. (Adeel Halim / Bloomberg)

The ministry has proposed to raise the public shareholding limit to 25% from the current 10% to increase investor participation in the market.

“A large number of shares distributed among a large number of shareholders is essential for the sustenance of a continuous market for listed securities to provide liquidity to the investors and to discover fair prices,” the discussion paper of the ministry says.

Industry participants believe this move by the government could broaden the equity markets. “If the finance ministry’s proposal becomes a law, it will be a great step to broad-base the equity market,” says Vikas Khemani, senior vice-president of the publicly traded institutional brokerage Edelweiss Capital Ltd.

Kaushal Sampat, chief operating officer of Dun and Bradstreet Information Services India Pvt. Ltd, also says pushing up public holdings in listed entities will provide adequate float in the market.

In addition to that, more stocks will also “rationalize” the valuations of Indian equities. “If the demand remains constant but the supply increases, we will see a change in pricing of stocks. It will be more realistic,” says the company secretary of a corporate house in Mumbai, adding, “New stocks will also dampen the volatility in the market.” Analysts, however, feel such firms should be given enough time for their public floats in line with the market’s appetite.

Among the top 5 listed Indian firms with the least public holdings, four are public sector undertakings: MMTC Ltd, NTPC Ltd, Steel Authority of India Ltd and Power Grid Corp. of India Ltd. The only private entity IN the top 5 is India’s largest listed realtor, DLF Ltd.

Currently, MMTC is 99.3% state-owned and the government holding in the other three companies varies between 85.81% and 89.41%. The promoter holding in DLF is 88.16%.

Some industry participants feel this is a way of unlocking value in some large state-owned companies. “The government stands to gain the most from such a move,” says B. Narasimham, vice-president of Karvy Compushare Pvt. Ltd, the largest registrar of primary market issues in India. “This will allow the market to value companies fairly. In many cases, valuations are too high because of limited float. Also, with increasing institutional participation, both domestic and foreign, the available number of shares for active trading is coming down.”

However, the increase in “public shareholding” does not necessarily mean that institutional shareholding will go down as public shareholding, which loosely refers to stakes held by non-promoters, includes holdings by foreign and domestic institutions, mutual funds, employees as well as private corporate bodies, besides the public. The ministry’s discussion paper has emphasized on the need for a fresh definition of public ownership.

Many analysts say most of the companies may opt for private placement of shares to an institutional investor to bring down the promoters’ stake instead of entering the capital market with public floats.

The discussion paper notes that the market regulator, the Securities and Exchange Board of India, should be entitled to take enforcement action including delisting of a company’s shares from the stock exchanges if it fails to comply with the new rule, for which the ministry has invited comments by 28 February.

However, not everyone is convinced about the feasibility of the new norms. A senior executive from a large foreign investment bank in India who does not wish to be named says: “One should also ask the question whether all these companies or their promoters need additional money at this point. The government’s intention to widen the market is good. However, this will affect all the shareholders of the company. Investors will raise questions about stock dilution, which will destroy the value of their shares.”

The promoters can bring down their holdings in two ways—by selling their stakes and by expanding the equity base and issuing fresh shares. The expansion of equity base affects shareholders’ interest as earnings per share goes down following the increase in number of shares.

“The sudden and large increase in the volume of public offers in India will put to test the adequacy of domestic primary market infrastructure,” notes Akhil Hirani, managing partner of Mumbai-based corporate law company Majmudar and Co.

According to New Delhi-based primary market data provider Prime Database, more than Rs75,000 crore worth of public offerings are expected this year in the normal course. In January, the Rs11,700 crore Reliance Power Ltd was subscribed 73 times and the Rs 490 crore Future Capital Holdings Ltd was subscribed 133 times, showing huge investor appetite for new stocks. More than 100 initial public offerings hit the market last year.

RBI opts for flexible policy financial scene

The Reserve of India’s decision not to change any of its policy rates — the Bank Rate, the repo rate and the reverse repo rate — in its third quarter review of monetary policy (January 29) has become the focal point of discussion on the subject. With the cash reserve ratio too unaltered, the RBI has clearly opted for status quo in so far as interest rates are concerned. Individual banks have, however, been exhorted to lower lending rates. Moral suasion he lps up to a point while even overt signalling devices, for instance a reduction in CRR or repo rate, need not always work.

However, public sector banks, as a rule, have been responsive to suggestions, especially if they come from the Finance Minister. On one widely publicised occasion in mid-October last year, the Finance Minister ‘persuaded’ banks to reduce their interest rates on car loans. Slackening auto sales was given as the reason for the intervention.

Hopefully, such instances will become part of history as they reflect adversely on the autonomy of the monetary authorities.

‘Non- events’

This time, the Finance Minister has publicly endorsed the RBI’s stand of not changing the policy rates. Inaction though it may be, it does give the central bank the flexibility to increase or decrease the rates depending on the emerging domestic and global situations. Besides, through a conscious decision, the RBI has sought to convert monetary policy statements into ‘non-events’. Even while increasing the frequency of policy pronouncements from two to four in a year, the central bank had made it clear that headline — making rate changes need not always be a part of each policy pronouncement. Such delinking gives flexibility to the central bank.

Yet, on the eve of its latest policy review, there was more than the usual level of speculation as to what the RBI would do with its rates. Many thought that it would reduce the rates. There were several reasons why their expectation was not baseless.

A week earlier, the U.S. Federal Reserve (Fed) had cut its federal funds rate by a massive 0.75 percentage points primarily to stimulate the U.S. economy that was seen as sliding into a recession. On stock exchanges across the globe, prices had crashed. In the aftermath of the rate cut, there was some recovery but that proved short-lived. On January 30, after the RBI announced its review, the U.S. Fed reduced the fed funds rate by another 0.50 percentage points.

Such massive interest rate reductions have several implications for India and other emerging economies too. The expectation among a large section of market analysts was that other countries, including India, would follow suit, perhaps not to stave off a recession as in the U.S. but to remain competitive and stimulate growth.

In India, economic growth continues to be robust but there have been signs of a slowdown in manufacturing and to a lesser extent in services. Almost all recent gross domestic product (GDP) forecasts for the current year have been less upbeat suggesting that the second half of 2007-08 will see a much slower growth than the average 9.1 per cent recorded in the first six months. Two sectors, consumer durables and transportation equipment, have been slowing down and an interest rate reduction in India would help in their recovery, it was thought. The case for not changing interest rates looked equally strong but was based almost entirely on considerations of price stability. Inflation, always a major worry for most central banks, is right back at centre stage of monetary policy.

Although inflation numbers have been below 4 per cent they have been climbing in recent weeks. Global oil prices remain high though Indian consumers continue to be insulated. Then there is the ‘food inflation’ caused partly by record prices of wheat, corn and other cereals.

Money supply and bank deposits have been growing ahead of targets while non-food credit from banks is sharply lower. The surfeit of liquidity is a cause for worry. The RBI hopes to contain inflation within 5 per cent this year and anchors expectations in the region of 4-4.5 per cent over the medium term.

As always, the RBI has to tackle several — often conflicting — objectives simultaneously. Maintaining price stability while providing for the credit needs of the economy has always been a dilemma. There is also the question of balancing short-term considerations with those of the medium term. The RBI is clearly indicating that the complexities of monetary management are such that it requires substantial flexibility to deal with the emerging situations both in India and abroad. Besides, fiscal policies should supplement monetary policies even for achieving monetary goals.

Role for fiscal policy

For instance, steady accretion to the RBI’s forex assets has contributed to the huge growth in reserve money. A major portion of the assets build-up is attributable to large portfolio investments in the stock market. The RBI’s actions in sterilising first the dollar flows and then trying to mop up domestic liquidity — through market stabilisation schemes and so on — are the classic monetary policy dilemmas. Fiscal policy evidently comes into play in several ways. The debate over better utilisation of forex reserves cannot be viewed in isolation from the quasi-fiscal costs that are incurred in keeping the reserves in safe, but low yielding instruments such as U.S. government paper.

Finally, in sticking to its GDP growth target of 8.5 per cent for the current year, the RBI is not necessarily conservative. Days after the monetary policy review, the Finance Minister, expected the economy to grow at closer to 9 per cent which will be not substantially higher than earlier official forecasts.

C. R. L. NARASIMHAN The RBI’s recent monetary policy review is an exposition of the several policy dilemmas and the increasing complexities faced by the central bank.

Sebi open to margin norms review

The Securities and Exchange Board of India (Sebi) was open to reviewing share margin requirement system, T C Nair, wholetime member, said on Tuesday. THORNY ISSUE The market regulator has been receiving feedback on share market margining requirements According to market players stiff margin norms accentuated the recent sharp correction on bourses Market intermediaries are keen on Sebi introducing longer tenure of stock lending and borrowing contracts and inclusion of more stocks for short-selling The market regulator has been receiving feedback on share market margining requirements that according to market participants accentuated the correction in the market.

The Indian share market witnessed a major fall in the last 10 days of January, with trade getting halted on January 22 after key indices hit the lower limit within one minute of trade commencement.

“However, looking at it does not mean we will change the system or policy,” Nair said.

During the recent sudden and sharp market fall, lots of margin calls were triggered by brokers as well as exchanges to manage the risk. The capital market regulator is also receiving feedback from market participants on institutional short-selling and will study all these suggestions, Nair said.

Among others, intermediaries are keen on longer tenure of stock lending and borrowing contracts and inclusion of more stocks for short-selling. “We will review the tenure of contracts, and inclusion of more stocks as well. But, that will be based on the initial experience,” Nair said.

To start with, contracts with tenure of seven trading days would be introduced and short-selling will be permitted in stocks trading in the derivatives segment.

However, most market participants are of the view that tenure of stock lending and borrowing contracts should match the settlement period of futures contracts or or at least that of the near-month contract.

Stock exchanges were expected to start institutional short-selling from February 1, however, the implementation has been delayed as the Central Board of Direct Taxation has yet to clarify tax treatments of these contracts.

Currently, there are 224 stocks trading in the derivatives segment compared with over 1,300 stocks listed on the National Stock Exchange.

Apart from the stocks that are currently in the derivatives segment, any new additions will automatically be available for short-selling, Nair said.

HOT STOCKS for 05-02-08

STATISTICS :

Market after a consecutive rally can trade flat with volatility, Nifty can trade between 5390 - 5540 levels, Nifty has some support @ 5365 levels, Resistance @ 5510 levels, once Nifty trades above this level one can go long in specific stocks.

FUTURES :

Nifty : sell for a tgt of 5400, sl @ 5520

Bharti : sell @ above 934 for a tgt of 915 , sl @ 942

Nagarjuna fertlizer : buy for a tgt of 46+ , sl @ 38

IFCI : buy for a tgt of 66+, sl @ 58

RCOM : buy for a tgt of 705+, sl @ 690

OPTIONS :

Nifty : buy put 5500 for a tgt of 280+, sl @ 205

MTNL : buy call 130 for a tgt of 14+, sl @ 4.6

HEDGING :

Safe to buy in this kind of market :

1 >>IDEA : buy 1 lot in futures @ 122 for a tgt of 135+

........IDEA : buy 1 lot in put 120@ below 6rs,

2 >>INFOSYS : buy 1 lot in futures for a tgt of 1725+

........INFOSYS : buy 1 lot in put 1590 @ below 50.

in the above 2 cases once the futures tgt is reached clear the put and sell ur futures u will get pft, if some bad news comes even then no need to worry as the stock falls clear ur futures lot and sell ur put lot in pft so that u will get pft *** .

Reliance Infratel files DRHP with SEBI

Reliance Communications Limited proposes an initial public offering of 8,91,64,100 Equity Shares of Rs. 5 each (“Equity Shares”) for cash at a premium (the “Issue”) to be decided through the 100% book building process. The Issue will constitute 10.05% of the post-Issue paid-up equity capital of the Company. The Company has filed its Draft Red Herring Prospectus (“DRHP”) with the Securities and Exchange Board of India (“SEBI”) At least 60% of the Issue to the public shall be allocated on a proportionate basis to Qualified Institutional Buyers (“QIBs”), of which 5% shall be available for allocation to Mutual Funds only and the remaining QIB Portion shall be available for allocation to all the QIB Bidders, including Mutual Funds, subject to valid Bids being received at or above the Issue Price. Further, not less than 30% of the Issue shall be available for allocation on a proportionate basis to the Retail Individual Bidders and not less than 10% of the Issue shall be available for allocation on a proportionate basis to Non-Institutional Bidders, subject to valid Bids being received at or above the Issue Price.

The Company is part of the Reliance Anil Dhirubhai Ambani group and its business is to build, own and operate telecommunication towers and related assets at designated sites and to provide these passive telecommunication infrastructure assets on a shared basis to wireless service providers and other communications service providers under long-term contracts. These customers use the space on the Company’s telecommunication towers to install their active communication-related equipment to operate their wireless communications networks.

The Issue proceeds are proposed to be utilized to finance the development of passive infrastructure sites and for general corporate purposes.

The Equity Shares of the Company are proposed to be listed on the Bombay Stock Exchange Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”).

JM Financial Consultants Private Limited, J.P. Morgan India Private Limited, ABN AMRO Securities (India) Private Limited, Deutsche Equities India Private Limited, Enam Securities Private Limited, ICICI Securities Limited, Lehman Brothers Securities Private Limited, Macquire India Advisory Services Private Limited and UBS Securities India Private Limited are acting as the Book Running Lead Managers to the Issue whilst HSBC Securities and Capital Markets (India) Private Limited, Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited, are acting as Co-Book Running Lead Managers. Amarchand & Mangaldas & Suresh A. Shroff & Co. is advising the Company whilst Linklaters Allen & Gledhill Pte Ltd and Khaitan & Co are advising the BRLMs and CBRLMs in relation to the Issue.

Rupee slips on IPO outflows, RBI concerns

The rupee came under pressure on Monday as foreign investors repatriated funds returned after recent initial share offerings, with concerns about central bank intervention further weighing on sentiment.

The rupee ended at 39.44/45 per dollar, higher than the day's low of 39.48, but losing ground from the previous finish of 39.35/36.

It hit 39.16 in November, its highest in 10 years.

"The outflows from the IPOs were the dominant factor today, but what's remarkable is that the rupee has not fallen further," said a senior dealer with a private bank.

Earlier this month Reliance Power, a unit of Anul Dhirubhai Ambani's group, raised a record $3 billion through an initial share sale that generated sizeable foreign interest, and dealers said rebates worth $2 billion had left India so far.

Dealers said strong inflows into local equities helped trim the rupee's losses.

India's benchmark share index gained over 2 percent, as stocks around the region gained on global acquisition news.

The euro and the dollar edged up against the yen on Monday as stocks rose, signalling an improvement in risk appetite, but investors were seen holding their fire before a batch of central bank meetings this week.

With the Reserve Bank of India widely seen as playing an active role in limiting the rupee, dealers were circumspect about building large positions in the local unit.

The central bank bought $72.1 billion in the first 11 months of 2007 and dealers said it has been active since then in a bid to prevent the rupee from appreciating rapidly.