More than five million investors waited in keen anticipation for the great man's son to ring the opening bell at the Bombay Stock Exchange on Monday and the start of trade in a company that had attracted subscriptions worth US$190 billion.
Anil Ambani, a break-away scion of India's famed Reliance Group, had three weeks earlier overseen the $3 billion initial public offering - India’s largest - of Reliance Power Ltd (R-PL) and added billions of rupees to his own vast wealth as his fellow Indians bought into his aura of almost unearthly success.
Then the bell rang, and for the first time in history of Indian stock markets the Ambani magic did not work.
Reliance Group companies are known for producing stock-market gains from the moment they are listed, and for a few moments on Monday money seemed there for the taking once more as Reliance Power surged 19% to 538 rupees from the IPO price of 450 rupees (US$11.42).
The promise of lucre hung there for a few seconds, before the dream vanished and R-PL dived to 355 rupees per share never to return even close to the issue price in the next five and a half hours of trading. By the close, it was down 17% at 372.50 rupees, $4 billion of its market capitalization wiped out and with it billions of rupees of investors’ wealth. And tarnished, if not also destroyed, was the invincible image carefully built over three decades by Anil's father, the legendary Dhirubhai Ambani, that an Ambani-float never loses money.
In the following days, the nightmare worsened as another $5 billion of the market capitalization was lost. By Thursday the stock was trading at around 364 rupees.
The sharp decline "was a big disappointment for millions of investors who applied [for the shares] with high hopes driven primarily by the high-profile marketing of the IPO", said Mumbai-based investment advisor S P Tulsiyan. "But the worst fallout of the flopped listing is that retail investors have lost faith in the Reliance Group, particularly in the Anil Ambani faction."
The blow was severe and went far beyond Reliance Power. The listing affected not only the stock prices of companies controlled by Anil Ambani; it also impacted the share prices of the companies of Mukesh Ambani, who controls a slightly larger share of Reliance Group.
The price of all Reliance stocks, including flagship Reliance Industries Ltd [RIL], were hammered for the next two days. It was a roll call of Indian industry - Reliance Petroleum (like Reliance Industries a Mukesh Ambani company), Reliance Communication [RCom], Reliance Energy, Reliance Capital, Reliance Natural Resources and all other Anil Ambani-managed companies shed anywhere between 6% to 25% of their market capitalization in the period.
"The Reliance Power debacle has taught me to never take the Reliance Group for granted,'' said Rajesh Patwa, an investor. "From now on I’ll think twice before investing in Reliance companies, particularly in their IPOs."
Patwa was not alone in his reaction, according to Shankar Sharma, head of First Global Stock Broking Ltd, a Mumbai-based stockbroker and investment banker. "It is clear that the perception of a sort of infallibility the Reliance Group has been created over the years has been shattered with the debacle of the R-PL listing," he said. "The next time, any IPO from this group has to be priced with some fundamental safety net."
Large scale
Like his elder brother Mukesh, Anil Ambani does everything at an absurdly large scale. Where his brother's Reliance Industries features as the largest private sector enterprise in India (and comfortably ranking in the Fortune 500 list) with over $27 billion in revenues, Anil had to make sure that RCom, the mobile telephony company he controls, is the largest in its sector. If Mukesh Ambani embarks upon building the world's largest petroleum refinery - through Reliance Petroleum - Anil too has to build Reliance Power as one of the world's biggest power plants using clean-burning natural gas.
Both brothers have cashed in on the goodwill of Dhirubhai, who died in 2002 after shaping India's equity culture by attracting millions of retail investors in a market that was then dominated by financial institutions. Through repeated public offerings of Reliance Industries since its IPO in 1977, none of which went below their issue price, Dhirubhai revolutionized the country's capital markets by generating billions of rupees in wealth for those who put their trust in his companies.
The IPO of Reliance Power, which had no assets and little cash flow to boast off, benefited from the Reliance brand name and also the present euphoria in India's stock markets, attracting subscriptions for 73 times more shares than were available.
It was the first company flotation by Anil Ambani's ADAG (Anil Dhirudbhai Ambani) Group since he carved it out after splitting with his brother following the death of Dhirubhai in July 2002. The ADAG Group's five previously listed companies were all spun off from Dhirubhai’s Reliance Empire when his sons formally split it in January 2006.
The Reliance Power debacle is intriguing considering the fact that barely a month back, the announcement of the IPO had investors from around the world scrambling to get a piece of the company. Qualified institutional investors (read foreign institutional investors) poured in $100 billion to oversubscribe their share of the float by 82 times. Rich investors or high-net worth investors (HNIs as they are called in India) who had put in single applications worth $260,000 each were even more aggressive, bidding for 163 times more than the number of shares earmarked for them. Retail investors - those who had put in $2,500 worth of applications each - oversubscribed to the extent of around 15 times.
So what went wrong? The debut was not helped by a souring in global market mood as the reverberations of the US subprime and credit crisis swept around the world. Between January 4, when the IPO was announced, and the listing date of February 11, the benchmark Sensex index fell over 4,000 points, or almost 20%, from historic highs of around 20,686 points to 16,630.91 points.
The Indian stock market was also particularly weak on February 11, when it fell by 8%. But that according to analyst that was due to the Reliance Power debacle as investors sold other shares to pay for losses after buying the stock on borrowed money.
Some say Reliance Power's downfall was linked to aggressive pricing of the IPO. "As we have been warning right from the day the IPO pricing was announced, it was too richly priced," said S P Tulsiyan in Mumbai. "According to our calculations, the IPO was at least 20% overvalued when compared with peer companies in India. For instance, the IPO price was assigned a phenomenal price-to-asset value ratio of 6, for a company that does not even have a power plant on the ground. Whereas NTPC (a local power company), which already has as as big a project as what R-PL proposes to set up by 2010, trades at around 3 times its present asset value."
Tulsiyan blames this overpricing squarely on the merchant bankers who marketed and managed the IPO, and on the market premium in the grey, or unofficial pre-listing, market where the stocks changed hands at prices that encouraged many buyers of the IPO to believe that they would easily get an immediate return on their investment.
Critics add that Anil along with the merchant bankers also created hype through a pre-IPO advertising blitzkrieg that with the slogan "Power On, India On" tried to portray India's scorching economic growth is solely dependent on availability of power. Anil dismisses the allegation: "To say that nearly 500 sophisticated institutional investors from across the globe, and 5 million retail investors, were all taken in by hype to an extent that they committed a staggering $190 billion is an unfair comment on their collective intelligence and understanding."
Still,the Reliance Power listing would have missed disaster had not almost every investor who applied in the IPO done so just to make a quick buck, according to Sharma of First Global. "Everybody bought to flip and not as an investment," he said . Flipping is the practice of buying IPO shares and selling as soon as trading begins, usually for a substantial profit and not just for retail investors lucky enough to get offer shares. Institutional investors get most of the shares at the offering price and stand to gain hugely from the practice, particularly in a hot IPO market, when the price of a new company often rises dramatically above the offering price on the first day.
"This includes everybody from the financial investors to high net worth investors to even retail investors. But what is very surprising is that the foreign institutional investors who claim to have great insight into financial markets, great modeling skills, and global investing experience could not pick wheat from the chaff," Sharma said.
The Reliance Power listing, debacle though it was, of course had an upside; it made Anil Ambani, already the world's sixth-richest man according to the Forbes List, move a notch higher. Rough calculations suggest that with the listing, Anil's net worth surged $13 billion, closer to but still about $6.4 billion below his brother Mukesh's $51 billion net worth.
Even after the sale, Anil holds 46.96% of Reliance Power shares directly and 15.49% through Reliance Energy, of which R-PL is an offshoot. The new listing increased the market capitalization of ADAG Group by $21.5 billion to $78.77 billion.
Saturday, 16 February 2008
Rs 250 cr stuck in grey market
| Traders spar over R-Power public offer. | |
| With some of the punters now refusing to honour the grey market deals in Reliance Power (R-Power), positions worth Rs 250 crore are still to be settled in this illegal market for initial public offers (IPO).
| |
| However, with the Reliance Power stock now struggling even to close above the Rs 350 level against the issue price of Rs 450 after three days of listing, some of the clients are refusing to pay, according to sources. | |
| The stock was quoted at a premium of over Rs 400 in the grey market until the issue closed for subscription on January 18. | |
| “Most of them have suffered huge losses on account of lacklustre listing of the stock and are therefore demanding more time of pay-up. But those who have not honoured their positions would not be allowed to trade in the other IPOs,” said a dealer. | |
| A similar payment crisis in the grey market was witnessed in 1992-93, when a scheme of Morgan Stanley was listed on the stock bourses. While all the grey market deals were done at Rs 22, the stock was listed at Rs 8 against the issue price of Rs 10. | |
| Market operators believe that most of the pain in the grey market was out as a majority of the deals was honoured. Players said new bets would be accepted from Friday for the Rural Electrification Corporation (REC) IPO. | |
| Stock market experts, meanwhile, have cautioned all the investors to stay away from the unregulated market run by vested interests. They are of the view that grey market premiums are often rigged by merchant bankers who want the issue to be fully subscribed. | |
| Deven Choksey, the managing director KR Choksey Shares and Securities, today came out with a white paper demanding a crackdown on the grey market by plugging the loopholes in the system. | |
| Choksey is of the view that a technological upgrade by making the IPO bidding process online could curb the notorious grey market operation, which was gaining prominence for price discovery among small investors. | |
| “The book-building system has a limitation as pro-rata allotment is systematically misused for creating artificial demand for the IPO. Investors, in turn, apply for far more in excess of the actual requirement as they calculate the actual allotment based on the number of times the IPO is subscribed. Moreover, the subscription is misunderstood as the actual demand, which, in turn, is used by the grey market for arriving at the listing price,” he said. |
71% stocks on BSE trading at record lows
Though both the benchmark indices, the sensex and the nifty, have not broken their January 22 lows, the common investors have seen enormous wealth erosion, before the recovery set in on Thursday.
Taking cues from global peers, markets have witnessed buying in large-caps as well as mid-cap stocks in the last two days when the benchmark sensex rose by over 1,131 points while the nifty shot up 363 points.
After the big correction of January 22, which dealt a severe blow to stock prices of many companies, as many as 1,956 stocks out of the total 2,764 traded on a given day, have continued to bleed and touched new lows the last five trading sessions.
These constitute 71 per cent of the total stocks listed on the BSE. However, midcap and smallcap counters also showed some recovery due to buyers interest.
Also, it is not only the second-rung stocks but also 12% of the Nifty and 9% of the derivatives stocks that made a new low after January 22, in the last five trading sessions.
"The reason for this investor wealth erosion is not only Reliance Power debacle, as many may perceive, but the fact that leveraged positions were getting unwound in the cash stocks in the last five trading sessions," said V K Sharma, research head, Anagram Securities.
Retail investors could not sell off their holdings in these stocks as majority of them had triggered lower circuit filters.
Leveraged positions in the derivatives got settled quickly, as these stocks have no individual limits and they could fall as much as was required, barring of course the time when the sensex hit the circuit breaker.
Most of the selling that happened by January 22, when the sensex hit the circuit, was sorted out by January 28, the settlement day.
But the leveraged positions in the cash stocks remained to be squared up as these stocks were continuously on the lower circuit.
Thousands of stocks have remained in the lower circuit for days together because of the limit of 5 per cent that a stock can fall.
Taking cues from global peers, markets have witnessed buying in large-caps as well as mid-cap stocks in the last two days when the benchmark sensex rose by over 1,131 points while the nifty shot up 363 points.
After the big correction of January 22, which dealt a severe blow to stock prices of many companies, as many as 1,956 stocks out of the total 2,764 traded on a given day, have continued to bleed and touched new lows the last five trading sessions.
These constitute 71 per cent of the total stocks listed on the BSE. However, midcap and smallcap counters also showed some recovery due to buyers interest.
Also, it is not only the second-rung stocks but also 12% of the Nifty and 9% of the derivatives stocks that made a new low after January 22, in the last five trading sessions.
"The reason for this investor wealth erosion is not only Reliance Power debacle, as many may perceive, but the fact that leveraged positions were getting unwound in the cash stocks in the last five trading sessions," said V K Sharma, research head, Anagram Securities.
Retail investors could not sell off their holdings in these stocks as majority of them had triggered lower circuit filters.
Leveraged positions in the derivatives got settled quickly, as these stocks have no individual limits and they could fall as much as was required, barring of course the time when the sensex hit the circuit breaker.
Most of the selling that happened by January 22, when the sensex hit the circuit, was sorted out by January 28, the settlement day.
But the leveraged positions in the cash stocks remained to be squared up as these stocks were continuously on the lower circuit.
Thousands of stocks have remained in the lower circuit for days together because of the limit of 5 per cent that a stock can fall.
Lanco Global to raise Rs160cr via FCCBs
| Lanco Global Systems Limited (LGS), a Hyderabad-based software development company, will be raising $40 million (around Rs 160 crore) through the issue of foreign currency convertible bonds (FCCBs) to fund its proposed expansion. |
| The company expects to list the FCCBs in the next two months, and intends to use the issue proceeds to enter new lines of business, go in for significant acquisitions, besides aggressively penetrating the MENSA (Middle East and South Africa) market. |
| The company has shortlisted half-a-dozen companies that are into banking, financial services and insurance (BFSI), telecom frameworks, service-oriented architecture (SOA), mobile computing and distribution computing. |
| “We are currently doing due diligence on three companies, and expect to acquire them in the next 12 months for a total consideration of $30 million (Rs 120 crore),” Anand Swaroop, director and chief executive officer of LGS, told Business Standard, adding that the company was expecting 30 per cent growth through the inorganic route every year. |
| LGS had, in December 2006, acquired US-based software consulting companies Global IT and TechOrbit Inc for $4 million (around Rs 16 crore). |
| To cash in on the increasing global demand for network operating centre (NOC) services, which enables to monitor, manage and troubleshoot problems on a network, Swaroop said the company was proposing to set up an NOC in Hyderabad with an initial investment of $5 million (Rs 20 crore). “The NOC will go on stream within eight months from now,” he said. |
| Having achieved sustained presence in the remote infrastructure management (RIM) space, the market for which is estimated to grow to $10 billion by 2011 globally, Lanco Global plans to scale up to the next level in this arena by offering end-to-end solutions. |
| The company is setting up an additional 30,000-sft facility in Hyderabad at an investment of $500,000, Swaroop said, adding that the company expects to occupy the 400-seater facility by the first quarter of the next financial year. It is also looking at enhancing its presence in the MENSA market, and would shortly open offices in the Middle East and South Africa for the same. |
| “Till last year, we saw a single digit growth from this region. We expect this market to account for 10-12 per cent of our revenues next year, on the back of our enterprise application, business intelligence (BI) and SOA service offerings,” he said. |
| Driven by its major thrust on the small and medium businesses (SMB) segment, Lanco Global reported a net profit of Rs 22.72 crore on consolidated revenues of Rs 177 crore for the nine-month period ended December 31, 2007. Its outlook for the full year is between $60 million and $65 million (Rs 240 crore and Rs 260 crore). |
| The scrip of the nine-year-old company, which entered the capital market in 2000, is currently hovering around Rs 100 on the Bombay Stock Exchange (BSE). |
Cushman & Wakefield to set up office
| New York-based global real estate consultancy firm Cushman & Wakefield has decided to set up its shop in Ahmedabad. |
| “We will set up our Gujarat operations in Ahmedabad in a month or two,” said Sanjay Dutt, joint managing director of Cushman & Wakefield India Pvt Ltd. |
| Though global firms like Knightfrank India, CB Richard Ellis and Jones Lang Lasalle Meghraj have their operations in the state, it is for the first time that an office will be set up here. |
| Earlier Knightfrank, which was surveying the city, decided to take time to set up its shop as it was waiting for the market to mature, a top company official had earlier said. |
| The company is looking for office space at CG Road and Ashram Road and will offer several real estate services including feasibility study, project management and brokerage activity. Its clientele list in Gujarat includes the Kohler group. The company is also planning to cater to IT, ITeS and the KPO sector, which have remained untapped, according to Dutt. |
| There is a demand for at least half-a-million sft of IT space in the next two years and about 3 million sft will be added in the state 2009 onwards, according to C&W estimates. |
| There is a lot of commitment from the government in strengthening the state infrastructure and the cost of living is low here as compared with other major cities and this is a good sign for investment, Dutt added. |
Friday, 15 February 2008
Inflation still high: RBI
NEW DELHI: India's inflation rate is still high by world standards and needs to be brought down further, the Reserve Bank of India deputy governor Rakesh Mohan said on Thursday.
Inflation, as measured in wholesale prices, breached 4 per cent in late January, its highest in nearly five months, and analysts have said the upswing meant the RBI was unlikely to loosen rates anytime soon despite slowing growth.
"Our inflation is still high by world standards and it needs to be brought down further," Mohan said at the Institute of Economic Growth in New Delhi. "The RBI's objective has been to ensure liquidity and still keep inflation and interest rates low."
Inflation is below the central bank's target of 5 percent for now, but it is expected to head up further in the weeks ahead due to high food and fuel prices, which are expected to remain a challenge in the 2008/09 fiscal year that starts on April 1.
At a policy review last month, the central bank left its key interest rates steady, saying inflation risks persisted. It had raised rates five times in 10 months from June 2006 to tackle inflation and credit growth in Asia's third-largest economy.
Benchmark 10-year bond yields rose 1 basis point to 7.47 percent as traders saw Mohan's comments as a sign that the central bank was unlikely to cut rates in the near term, despite worries about global growth and turmoil in financial markets.
Last week, the statistics office said India's economy was expected to grow 8.7 percent in 2007/08, slowing from the previous year as higher interest rates dent consumer demand.
Mohan, who outlined the challenges facing policy makers as India seeks 10 percent-plus growth rates in the next five years, said excessive credit growth could lead to an asset price bubble.
He said revenues need to be raised if the government wanted to meet its targets to lower the budget deficit and implement the recommendations for a pay rise for public service employees.
Economists say the government should not consider a surge in tax revenues as a windfall for it to spend as it has some big-ticket costs coming up, such as pay rises to over 3 million government workers in the next fiscal year.
Inflation, as measured in wholesale prices, breached 4 per cent in late January, its highest in nearly five months, and analysts have said the upswing meant the RBI was unlikely to loosen rates anytime soon despite slowing growth.
"Our inflation is still high by world standards and it needs to be brought down further," Mohan said at the Institute of Economic Growth in New Delhi. "The RBI's objective has been to ensure liquidity and still keep inflation and interest rates low."
Inflation is below the central bank's target of 5 percent for now, but it is expected to head up further in the weeks ahead due to high food and fuel prices, which are expected to remain a challenge in the 2008/09 fiscal year that starts on April 1.
At a policy review last month, the central bank left its key interest rates steady, saying inflation risks persisted. It had raised rates five times in 10 months from June 2006 to tackle inflation and credit growth in Asia's third-largest economy.
Benchmark 10-year bond yields rose 1 basis point to 7.47 percent as traders saw Mohan's comments as a sign that the central bank was unlikely to cut rates in the near term, despite worries about global growth and turmoil in financial markets.
Last week, the statistics office said India's economy was expected to grow 8.7 percent in 2007/08, slowing from the previous year as higher interest rates dent consumer demand.
Mohan, who outlined the challenges facing policy makers as India seeks 10 percent-plus growth rates in the next five years, said excessive credit growth could lead to an asset price bubble.
He said revenues need to be raised if the government wanted to meet its targets to lower the budget deficit and implement the recommendations for a pay rise for public service employees.
Economists say the government should not consider a surge in tax revenues as a windfall for it to spend as it has some big-ticket costs coming up, such as pay rises to over 3 million government workers in the next fiscal year.
PFC mulls advisory company
Power Finance Corporation (PFC) is floating an advisory company for leading global investors and Indian power companies, reports Economic Times.
PFC will hold 30% in the company while the balance 70% equity will be collectively held by power industry professionals. The advisory company will assess the credit-worthiness of power companies and negotiate with global investors for funding upcoming projects of these firms.
PFC has also decided to raise nearly Rs 159 billion in 2008-09 through private placement of bonds and other instruments.
Shares of the company gained Rs 33.95, or 22.51%, to end at Rs 184.75. The total volume of shares traded was 1,161,731 at the BSE. (Thursday)
RBI for raising govt revenue for meeting pay panel liability
NEW DELHI: Raising concerns over the likely impact of Sixth Pay Commission on economic growth, the Reserve Bank on Thursday said the government should meet the additional outgo by increasing its revenues.
"In the interest of continuing with the growth momentum, it is essential that the impact of the Sixth Pay Commission (SPC) be absorbed without impairing the process of fiscal consolidation," RBI deputy governor Rakesh Mohan said while delivering a lecture at the Institute of Economic Growth (IEG) here.
Pointing out that the Pay Commission award could increase the expenditure of the Centre and states by one per cent of Gross Domestic Product, he said the government should continue its efforts to improve tax compliance.
In addition, he said, the government should endeavour to contain subsidies and levy appropriate user charges to augment non-tax revenues to adhere to the targets prescribed in the Fiscal Responsibility and Budget Management Act.
He also said that unlike the situation that prevailed at the time of the Fifth Pay Commission (1996-97), the SPC would be implemented when the economy is on a high growth trajectory, coupled with tax buoyancy.
The SPC, appointed by the UPA government for central government employees and pensioners, is expected to submit its report in the next few months.
"In the interest of continuing with the growth momentum, it is essential that the impact of the Sixth Pay Commission (SPC) be absorbed without impairing the process of fiscal consolidation," RBI deputy governor Rakesh Mohan said while delivering a lecture at the Institute of Economic Growth (IEG) here.
Pointing out that the Pay Commission award could increase the expenditure of the Centre and states by one per cent of Gross Domestic Product, he said the government should continue its efforts to improve tax compliance.
In addition, he said, the government should endeavour to contain subsidies and levy appropriate user charges to augment non-tax revenues to adhere to the targets prescribed in the Fiscal Responsibility and Budget Management Act.
He also said that unlike the situation that prevailed at the time of the Fifth Pay Commission (1996-97), the SPC would be implemented when the economy is on a high growth trajectory, coupled with tax buoyancy.
The SPC, appointed by the UPA government for central government employees and pensioners, is expected to submit its report in the next few months.
Thursday, 14 February 2008
HOT STOCKS for 14-02-08
STATISTICS :
Market today will follow the global ques, can see another gapup opening, Market will stabilise @ 5000 levels can see a gap opening of 60 + points in Nifty, Nifty will trade between 4950 - 5100 levels, Nifty has a support @ 4996, and resistance @ 5050 levels, once Nifty trades and closes above this level can see a recovery to 5300 levels in coming days.
INTRADAY :
UTV : buy for a tgt of 840+, sl @ 787
ZEENEWS : buy for a tgt of 50+, sl @ 43.25
CAIRN : buy for a tgt of 210+, sl @ 202
FUTURES :
ZEEL : buy for a tgt of 251+, sl @ 241
IFCI : buy for a tgt of 61+, sl @ 54
RCOM : buy for a tgt of 580+, sl @ 553
NIITTECH : buy for a tgt of 121+, sl @ 111
IDBI : buy for a tgt of 112+, sl @ 105
GMRINFRA : buy for a tgt of 155+, sl @ 146
ARVINDMILL : buy for a tgt of 49+, sl @ 43
OPTIONS :
NIFTY : buy call 5000 for a tgt of 240+, sl @ 150
RNRL : buy call 150 for a tgt of 8+, sl @ 2
IDBI : buy call 110 for a tgt of 9+
RCOM : buy call 600 for a tgt of 36+, sl @ 15
HEDGE CALLS :
1 > Nifty : buy 1 lot in futures for a tgt of 5100+, exit above 5050 levels
......... Nifty : sell 1 lot put 4700 @ 100+
2> RCOM : buy 1 lot in futures for a tgt of 608+
.......... RCOM : sell 1 lot in put 560 above 20
3> IDBI : buy 1lot in futures for a tgt of 113+
.......... IDBI : sell 1 lot in put 100 above 4
Market today will follow the global ques, can see another gapup opening, Market will stabilise @ 5000 levels can see a gap opening of 60 + points in Nifty, Nifty will trade between 4950 - 5100 levels, Nifty has a support @ 4996, and resistance @ 5050 levels, once Nifty trades and closes above this level can see a recovery to 5300 levels in coming days.
INTRADAY :
UTV : buy for a tgt of 840+, sl @ 787
ZEENEWS : buy for a tgt of 50+, sl @ 43.25
CAIRN : buy for a tgt of 210+, sl @ 202
FUTURES :
ZEEL : buy for a tgt of 251+, sl @ 241
IFCI : buy for a tgt of 61+, sl @ 54
RCOM : buy for a tgt of 580+, sl @ 553
NIITTECH : buy for a tgt of 121+, sl @ 111
IDBI : buy for a tgt of 112+, sl @ 105
GMRINFRA : buy for a tgt of 155+, sl @ 146
ARVINDMILL : buy for a tgt of 49+, sl @ 43
OPTIONS :
NIFTY : buy call 5000 for a tgt of 240+, sl @ 150
RNRL : buy call 150 for a tgt of 8+, sl @ 2
IDBI : buy call 110 for a tgt of 9+
RCOM : buy call 600 for a tgt of 36+, sl @ 15
HEDGE CALLS :
1 > Nifty : buy 1 lot in futures for a tgt of 5100+, exit above 5050 levels
......... Nifty : sell 1 lot put 4700 @ 100+
2> RCOM : buy 1 lot in futures for a tgt of 608+
.......... RCOM : sell 1 lot in put 560 above 20
3> IDBI : buy 1lot in futures for a tgt of 113+
.......... IDBI : sell 1 lot in put 100 above 4
Wednesday, 13 February 2008
Pipavav Shipyard awaits SEBI nod for IPO
Pipavav Shipyard, PSL has bagged India's largest ship building order of USD 1.06 billion for 26 Panamax Bulk carriers. The company has entered into agreements with three international ship owners for the construction of these bulk carriers (including options for four ships which have been exercised) of 74,500 DWT each.
These ship owners are Golden Ocean Group Limited (Norwegian Group, Norway), SETAF s.a.s (Bourbon Group, France) and AVGI Maritime Services S.A. (Kyrini Group, Greece).
In an interview with CNBC-TV18, Nikhil Gandhi, Chairman, Pipavav Shipyard said that the first delivery of the bulk carrier would be by March 2009 and the balanced by May 2012.
The aggregate DWT of vessel construction orders in order book is approximately 1,937,000 DWT.
PSL has received initial payments from ship owners aggregating USD 150.62 million (Rs 6, 091.1 million). These contracts have an aggregate face value of approximately USD 1,063.12 million (Rs 42,992.6 million).
Pipavav Shipyard is currently constructing a shipyard complex at Pipavav, on the west coast of India adjacent to the maritime sea lane between the Persian Gulf and Asia. The Shipyard will have an estimated investment of Rs 2,888 crore.
Pipavav Shipyard will be capable of ship construction and repairs for a range of vessels of different sizes and types, as well as the fabrication and construction of offshore platforms, rigs, jackets and vessels, for use by oil and gas companies in their exploration and production activities.
The company proposes to part finance this project cost with the help of Rs 1,248.67 crore (including premium) raised through equity already issued and term loans from banks and financial institutions to the tune of Rs 935.2 crore.
To meet the remaining funding requirement, Pipavav Shipyard proposes to enter the capital markets with a public issue of 86,850,000 equity shares of Rs 10 each through 100% book building process. It has already filed DRHP with SEBI for the purpose.
Gandhi also added that the company has already signed Pre-IPO placements and waiting for SEBI nod for this IPO.
JM Financial Consultants Pvt. Ltd, Citigroup Global Markets India Pvt. Ltd and Enam Securities Pvt. Ltd are the book running lead managers for the Issue. SBI Capital Markets Ltd, Kotak Mahindra Capital Co. Ltd and Motilal Oswal Investment Advisors Pvt. Ltd are the CO-BRLMS for the Issue. IL&FS Investsmart Securities Limited is Advisor to the proposed offerings. Punj Lloyd holds nearly 25% stake in Pipavav Shipyard.
Satyam Expects to Win 8 Orders Each Worth at Least $50 Million
Satyam Computer Services Ltd., India's fourth-largest provider of software services, will win eight orders each worth more than $50 million in the current quarter, Senior Vice President Hetzel Folden said.
The company has already won an order worth $50 million from a Belgian bank since the beginning of January, Folden said in an interview in Mumbai, without providing additional details. The three months ending March 31 are the Hyderabad-based company's fourth quarter.
Large banks and financial companies are ``holding on to their money'' as economic growth falters globally, Folden said. Still, the slow down is pushing other companies to consider awarding contracts for managing computer networks and call centers to Indian computer-service providers to pare costs, he said.
The IPO Deep Freeze
Reliance Power's poor listing was the last straw. The domestic IPO market has slipped into a deep freeze and is unlikely to see a revival soon. But, investors have only themselves to blame! By Vivek Sharma
The issue was fully sold within a minute of opening and by the time it closed, had generated demand of nearly Rs7.5 lakh crore and was subscribed a massive 73 times. Grey market trading in the stock had taken off in right earnest even before the issue opened. Premiums of over Rs450 per share in the grey market definitely boosted investor demand for the IPO. Business television channels fuelled the frenzy by providing regular updates of grey market price changes.
When the IPO opened, market pundits were confident that investors would double their money. All they had to do was place a bid and pray for an allotment. If only, making money was all so easy!
Markets started tanking the day the Reliance Power IPO opened and the indices have now retraced most of the up-move made late last year. Even though the grey market premium continued to lighten, most analysts were expecting some gains for the stock on listing. But, that was not to be as Reliance Power became the first stock from either Reliance groups to close lower on debut.The large IPOs - Wockardt Hospitals and Emaar MGF - that followed Reliance Power suffered from the weakened market sentiment. Both issuers cut their offer price bands and extended the offer period, but to no avail. Investor interest had vanished and the issues were withdrawn. Other issuers who were set to hit the market are unlikely to go ahead. What a change in fortunes this has been for the IPO market, in barely over a month!
Big gains of 2007 can no longer sustain investor interest
Most IPOs that hit the market last year did generate good returns for investors. Though the sharp market rally towards the end of the year helped, last year's IPOs were generally of better quality with established businesses and were more reasonably priced.
Even after this year's correction, most of last year's bigger IPOs are trading higher than their issue prices. Television broadcaster GBN is among the best performers, now trading more than three times its issue price. Credit rating company ICRA and retailer Vishal Retail have also given similar returns to investors. Indian Bank is trading well over double its issue price while telecom major Idea Cellular is quoting 40 per cent above issue price, even after the recent correction.
Last year saw two large infrastructure developers hitting the market. Stocks of both Mundra Ports and Maytas have appreciated substantially since their listing. Among the issuers from the financial services sector, Religare has appreciated sharply while Motilal Oswal has offered more modest returns. Even Future Capital, which completed its issue just ahead of Reliance Power, had a good listing and continues to trade above its issue price.
Real estate developer DLF was easily the most high profile IPO of last year. Even though there were concerns of high valuations about the much delayed issue, the stock has offered good returns since listing. Among other builders that offered shares last year, Aakruti Nirman has doubled from its issue price while HDIL has offered more modest returns. ICICI Bank mopped up more than $2 billion in a follow-on offer and the stock is still in the money.
Past gains have been the main factor driving the IPO market towards the end of last year and early this year. But, as the markets came under pressure, part of the gains in recently listed stocks vanished. Startled by the suddenness of the recent market fall, most investors have been scared-off new IPOs. But, issuers still tried their best to push their offers.
Big fat dreams to get cancelled or delayed
Rs75,000 crore - that is the kind of money that was expected to be mopped up by companies from the primary market this calendar year. That would have easily been a record, almost double of what was raised in 2007 and three times the 2006 figure. It would still not have taken us anywhere close to the Chinese, as a single Chinese issuer - Ping An Insurance - is planning a $22 billion IPO this year!
Of course, a majority of the issuers in the IPO pipeline are from the infrastructure and realty sectors that are most fancied in the markets these days. Issuers planning the biggest floats were power generation companies with 'ultra-mega' ambitions, property developers who were determined to 'build a new India' and the few who are into building roads and bridges.
Encouraged by the Reliance Power 'mania', many other established business groups have ventured into power generation. JSW Energy from the JSW Steel group, Sterlite Energy, which is a part of Vedanta group and Jaiprakash Power Ventures, were among the early birds with billion-dollar IPO plans. Others like Hinduja, Essar and Ispat were also rumoured to be interested in joining the fray.
After all, power generation had become a once in a lifetime opportunity to own companies valued at tens of billions of dollars - even before going through the trouble of actually building a business. All an entrepreneur had to do was float a company, finalise the details of a few large power projects, get preliminary approvals from the government and sell a minority stake to the public.
Once the stock gets listed on the exchanges, the promoter is a shoo-in to next year's Forbes list of billionaires.
Preliminary approvals are easy to come by, as power generation is a priority for the central government. State governments are ready to do anything to attract mega industrial investments. Questions on business models and valuations were, till now, being brushed aside. How long will it take to acquire sufficient land and start construction? Doesn't matter! Can these power companies build adequate fuel linkages, especially when fuel prices are soaring? Again, doesn't matter! Aren't the state electricity boards, who will be the major customers, already bankrupt? Who cares? Look at the projections, instead.
Dreams of real estate developers were no less impressive and the pedigree of some of them was even better. Emaar, co-promoter of Emaar MGF, is one of the biggest builders in the Middle East and is now building the world's tallest building - Burj Dubai. Future plans of some of these developers are like that incredible structure coming up in the Arabian Desert, the final planned height of which has not yet been disclosed!
None of the builders will accept that the property market is cooling off and prices are correcting. Even if that is the case, they argue, this is only temporary blip. The great Indian middle class will buy homes, even if they have to indebt themselves for life. And demand for commercial space will rise forever, irrespective of rising supplies, as economic growth shifts to double digits. These are some of the impressive stories that were being sold to investors!
After the Reliance Power and Emaar MGF fiascos, all these planned big issues will be postponed indefinitely. Given the cloudy market outlook, it will be quite a while before they can think of peddling the big dreams once again.
The only potential big issuer outside the infrastructure-realty space is SBI, which is planning a follow-on issue to shore up its capital base. Given its lower valuation when compared to its private sector peers, the issue would not have been excessively priced anyway. Interestingly, SBI - if its issue goes through - will be the only mega issuer this year with an established business!
Investors have only themselves to blame
Early signs of the IPO market topping out were visible from the second half of last year itself. Encouraged by the success of the early real estate IPO's like DLF, Akruti and HDIL, the subsequent issuers from the sector priced their IPOs higher. Interestingly, all the four property stocks that were offered during the second half - Brigade, Puravankara, IVR Prime and Omaxe - are all trading well below their offer prices, with IVR Prime having more than halved from its issue price!
This is not the first time bunching of excessively priced IPO's has happened just before a market decline. The worst was probably in the mid-nineties when thousands of companies just vanished after raising money through public subscriptions.
The promoters disappeared and a never-ending probe by the ministry of company affairs has not yet found any of them. This won't be the last either, as there will be a long queue of issuers to offer shares at the highest possible valuations whenever market sentiment improves.
It is easy to blame issuers and their merchant bankers for pricing these IPO's way above any kind of justifiable valuations. When markets are on a high, selling a mega IPO is easier than selling chilled soda in a desert - like the kids do in an old Pepsi commercial. Promoters and investment bankers will only be too happy to do so.
Promoters, without any track record in a new sector, cannot be blamed for taking immature businesses public when they are allowed to do so, particularly during a friendly market phase. It is in the promoters' interest to raise capital at the least possible cost. That means demanding the highest possible price multiple on projected earnings, which in turn requires them to promote dreams and promises to support that price.
It is the job of investment bankers to help the issuer get the highest valuation possible. It is not their business to protect the investors' interests. After all, they get paid by the issuers - not by investors! Yes, there is the risk of an odd high-price IPO being cancelled when the markets turn weak. But, investment bankers are smart enough to know that investors' memories are extremely short. When the market improves and after a couple of IPOs make money, investors rush in - whatever the price may be.
Investors who get carried away by market frenzy and are ready to believe any improbable investment story will eventually lose money. It is sad to see even institutional investors ignoring their fiduciary responsibility and making extremely risky short term bets. All these have happened before and will happen again!
Companies punt in derivatives to meet guidance
The staff in the derivatives sales team of a British Bank, which is a relatively recent entrant to India, was pulling the leg of a new recruit. The new recruit had been told that the CFO of an auto ancillary company loved new and fancy derivatives structures and was always willing to buy. The new recruit was told that selling a new derivative trade to this CFO would be the best way to open his sales career in this bank. Unfortunately, the CFO did not buy. “You have no future in this place,” joked the recruits’ colleagues, “you couldn’t even sell a structure to him”!
As events unfolded, this bank and indeed many other banks, including several new generation private banks and foreign banks with large presence in India, have realised that this joke is hiding a grim reality. An entire rash of small and medium-sized companies are sitting on loss-making positions on their balance sheets and are trying to figure out ways so that they come out of this clean and so are their bankers who sold them these instruments.
In some cases like Sundaram Multipaper, a Rs 100-crore company, the efforts to contain the problem have ended up in court. In case of Hexaware, which may have a loss of $25 million, and three independent directors of the company are submitting a report on this affair to the board of the company.
“Right now Sundaram Multipaper is one of the most watched cases,” says a forex expert. This case in many ways symbolises the easy money that Indian corporates earned through their hedging operations for almost two years. Over the year ended 2007, income from forex gains had moved up by 44% while net sales moved up by only 40% for Indian corporates that are the part of BSE 500.
Even for the third quarter of FY08, corporate India is showing a slowdown in sales but other income component through forex is still high. “People in the forex market are calling it QSQT (quarter se quarter tak) effect,” says a forex consultant, making a cheeky allusion to Aamir Khan’s first film.
Under pressure to deliver numbers to meet profit promises (guidance), companies have been encouraging their CFOs to punt in the derivatives market.
One of the reasons that has prevented the entire episode from going public is that companies do not have to show notional losses (mark-to-market) regarding derivatives. For example, when a day-trader buys a share of Rs 500 in the morning and the share falls to Rs 200 at noon, he has a mark-to-market loss of Rs 300. If the share remains at that price when markets close, the notional loss is a real cash loss and he has to give that money to the broker.
The company may have to show their MTM losses due to change in accounting standard, not because the derivatives are designed like that. “If a company is holding a position that is making losses on the mark-to-market basis, chances are that bankers will narrow the credit line or in other words, demand for margins. Only when a margin call is triggered will companies take a hit and show a loss in their books,” says Nandlal Bhatkar, CEO of Pyxis Systems, a Pune-based company that builds solutions for derivatives markets.
Options, lies & ticker tapes
This has not happened in all cases though. In some cases CFOs have actually misled the board about their positions, for example, Hexaware. “The information regarding these transactions was intentionally withheld from the senior management and the board of directors and was not included in internal reports,” says Hexaware Technologies founder & chairman Atul Nishar.
Sundaram’s case shows why CFOs and banks ended up doing derivative trades that perhaps were not entirely appropriate. “We did not even have a formal banking relationship with ICICI. When we moved to a new premise, ICICI Bank was next door and so we opened an account there because of proximity.
Soon they started making business visits and invited our CFO to a seminar where he was shown how these derivatives can make good money for the company. He was fairly certain that we would make money, the board gave authorisation; beyond a point a small company like us does not understand these transactions,” says Amrutlal Shah, director of Sundaram Multipaper.
ICICI Bank on its part says Sundaram knew exactly what it was doing. “We have a voice recording in which the company’s CFO has given his explicit approval to the entire transaction. He even asks questions regarding the amount of profit or loss and there is explicit discussion on the potential risk of the transaction expressed in amount,” says ICICI Bank executive director Madhabi Puri Buch. It is for the courts to decide who is at fault, but it is clear that more than anything it is human nature — the desire to eat that free lunch — that is to blame.
Never take a bet you can’t afford to lose
Derivatives, like in most matters, of life are probabilistic. That means most derivative transactions are sold as “95% of the time this trade could make a profit and 5% of the time there will be a loss. Most people tend to take 95% part as a near certainty. This is completely flawed because there is simply no telling how much that loss will be. It can bring the house down,” says Mr Bhatkar.
Take one favourite derivative trade to understand why many companies had loans costing 10-12% per annum. These firms were beginning to hurt from the way interest costs were cutting into their profits. Many auto component and IT companies had revenues coming in dollars, and because with each passing money, a dollar was buying less rupees (rising rupee), the profits of these companies were declining. For instance, a company with Rs 200 crore in debt raised at 10% did not know how to reduce their interest costs.
Banks came to rescue of companies struggling with these problems. To reduce the interest outflow, they had to earn an interest “inflow”. The easiest and least risky way of doing this is to borrow $50 million in the currency of a country with low interest rate —mostly it was Swiss Franc where interest rates were 2%. An equivalent amount was lent in the currency of a country with higher interest rate, usually dollar where interest rate was 6%.
The interest rate differential (of 4% p.a.) multiplied by $50 million was the clear profit that reduced the actual interest impact. This nice profit can be wiped out if two chosen currencies change in relative value sharply. That is why the Swiss Franc (Swissie)/US dollar pair was chosen. Only once in the last 20 years had the Swiss Franc moved out of the band of 1.20-1.10 dollar per Franc.
Lure of lower cost protection
Having sold this “free lunch”, banks told corporates that they should buy a little insurance, just in case in there was an untoward movement in the Swiss Franc currency. To do this, companies paid a premium to buy the right to purchase Swissie if the currency appreciates. However, in order to reduce the cost, clients were offered the knock-out option. This options and the protection offered by them disappear if a certain even takes place. The event defined in some of these options was Swissie touching 1.09. Since at the time of entering, the option this looked extremely remote.
The same trade could have been created by combining a client buying a vanilla Swissie Call option (say at strike of 1.17) and selling a Swissie call option with strike of 1.17, but which only knocks in at 1.09. This cancelled the buy call option with a sell call option and exposed the client to a risk of appreciating Swissie, a completely unforeseen event.
According to RBI rules, an Indian corporate can never be the net receiver of premium in options. In simple words, corporates can buy “insurance” but they can’t sell “insurance” because the extent of financial loss can be very high in the latter. But if a corporate wants to make the entire trade a zero-cost one, it simply starts writing options to receive premiums that will nullify the cost of protection.
In spite of all the protection that companies tried to take, the rise of the Swissie was not taken into consideration. The Swissie moved by 10% over the last one year and is presently trading at 1.09 against the dollar.
The moment the Swissie breached the 1.10 level, the right to sell Swissie was cancelled and companies stopped receiving premiums. But the other leg of the “zero-cost structure” remained intact and premium payouts increased.
With every rise in this currency, the mark to market losses for Indian corporates will increase. They can choose to cancel the contracts but then they will have to show the actual cash loss in their books, so many are sitting on the losses and waiting for the tide to turn. But in such volatile markets, banks do not want to take a chance and thus they are forcing the corporates for margin calls. That’s why you see all these disputed now coming out.
“To be fair, these CFOs made fat profits in the last two years and nobody asked them how they were making such handsome hedging gains,” says a banker. One CFO of an auto component company that makes tonnes of money on hedging, used to go around mocking his production plant heads, saying he could deliver more profit in one quarter than what the production chaps could deliver in a year. “Why did his CEO and board not question him then? It is clear that they liked the money he was making,” says a forex consultant.
The sad fact is that most boards do not even understand the complexities of these trades. “There are a large number of boards that lack the expertise to understand derivative contracts. Ideally, it is the job of the audit committee to check this out but in many cases they do not have correct information made available,” says Nawshir Mirza, an independent director, who serves on the boards of Tata Power and Mphasis.
If this issue blows up, then most boards will have no option (pun unintended) but to appoint experts to examine derivative deals before they are signed. And banks will have to do some soul searching on whether their sold products to people who did not understand them.
As events unfolded, this bank and indeed many other banks, including several new generation private banks and foreign banks with large presence in India, have realised that this joke is hiding a grim reality. An entire rash of small and medium-sized companies are sitting on loss-making positions on their balance sheets and are trying to figure out ways so that they come out of this clean and so are their bankers who sold them these instruments.
In some cases like Sundaram Multipaper, a Rs 100-crore company, the efforts to contain the problem have ended up in court. In case of Hexaware, which may have a loss of $25 million, and three independent directors of the company are submitting a report on this affair to the board of the company.
“Right now Sundaram Multipaper is one of the most watched cases,” says a forex expert. This case in many ways symbolises the easy money that Indian corporates earned through their hedging operations for almost two years. Over the year ended 2007, income from forex gains had moved up by 44% while net sales moved up by only 40% for Indian corporates that are the part of BSE 500.
Even for the third quarter of FY08, corporate India is showing a slowdown in sales but other income component through forex is still high. “People in the forex market are calling it QSQT (quarter se quarter tak) effect,” says a forex consultant, making a cheeky allusion to Aamir Khan’s first film.
Under pressure to deliver numbers to meet profit promises (guidance), companies have been encouraging their CFOs to punt in the derivatives market.
One of the reasons that has prevented the entire episode from going public is that companies do not have to show notional losses (mark-to-market) regarding derivatives. For example, when a day-trader buys a share of Rs 500 in the morning and the share falls to Rs 200 at noon, he has a mark-to-market loss of Rs 300. If the share remains at that price when markets close, the notional loss is a real cash loss and he has to give that money to the broker.
The company may have to show their MTM losses due to change in accounting standard, not because the derivatives are designed like that. “If a company is holding a position that is making losses on the mark-to-market basis, chances are that bankers will narrow the credit line or in other words, demand for margins. Only when a margin call is triggered will companies take a hit and show a loss in their books,” says Nandlal Bhatkar, CEO of Pyxis Systems, a Pune-based company that builds solutions for derivatives markets.
Options, lies & ticker tapes
This has not happened in all cases though. In some cases CFOs have actually misled the board about their positions, for example, Hexaware. “The information regarding these transactions was intentionally withheld from the senior management and the board of directors and was not included in internal reports,” says Hexaware Technologies founder & chairman Atul Nishar.
Sundaram’s case shows why CFOs and banks ended up doing derivative trades that perhaps were not entirely appropriate. “We did not even have a formal banking relationship with ICICI. When we moved to a new premise, ICICI Bank was next door and so we opened an account there because of proximity.
Soon they started making business visits and invited our CFO to a seminar where he was shown how these derivatives can make good money for the company. He was fairly certain that we would make money, the board gave authorisation; beyond a point a small company like us does not understand these transactions,” says Amrutlal Shah, director of Sundaram Multipaper.
ICICI Bank on its part says Sundaram knew exactly what it was doing. “We have a voice recording in which the company’s CFO has given his explicit approval to the entire transaction. He even asks questions regarding the amount of profit or loss and there is explicit discussion on the potential risk of the transaction expressed in amount,” says ICICI Bank executive director Madhabi Puri Buch. It is for the courts to decide who is at fault, but it is clear that more than anything it is human nature — the desire to eat that free lunch — that is to blame.
Never take a bet you can’t afford to lose
Derivatives, like in most matters, of life are probabilistic. That means most derivative transactions are sold as “95% of the time this trade could make a profit and 5% of the time there will be a loss. Most people tend to take 95% part as a near certainty. This is completely flawed because there is simply no telling how much that loss will be. It can bring the house down,” says Mr Bhatkar.
Take one favourite derivative trade to understand why many companies had loans costing 10-12% per annum. These firms were beginning to hurt from the way interest costs were cutting into their profits. Many auto component and IT companies had revenues coming in dollars, and because with each passing money, a dollar was buying less rupees (rising rupee), the profits of these companies were declining. For instance, a company with Rs 200 crore in debt raised at 10% did not know how to reduce their interest costs.
Banks came to rescue of companies struggling with these problems. To reduce the interest outflow, they had to earn an interest “inflow”. The easiest and least risky way of doing this is to borrow $50 million in the currency of a country with low interest rate —mostly it was Swiss Franc where interest rates were 2%. An equivalent amount was lent in the currency of a country with higher interest rate, usually dollar where interest rate was 6%.
The interest rate differential (of 4% p.a.) multiplied by $50 million was the clear profit that reduced the actual interest impact. This nice profit can be wiped out if two chosen currencies change in relative value sharply. That is why the Swiss Franc (Swissie)/US dollar pair was chosen. Only once in the last 20 years had the Swiss Franc moved out of the band of 1.20-1.10 dollar per Franc.
Lure of lower cost protection
Having sold this “free lunch”, banks told corporates that they should buy a little insurance, just in case in there was an untoward movement in the Swiss Franc currency. To do this, companies paid a premium to buy the right to purchase Swissie if the currency appreciates. However, in order to reduce the cost, clients were offered the knock-out option. This options and the protection offered by them disappear if a certain even takes place. The event defined in some of these options was Swissie touching 1.09. Since at the time of entering, the option this looked extremely remote.
The same trade could have been created by combining a client buying a vanilla Swissie Call option (say at strike of 1.17) and selling a Swissie call option with strike of 1.17, but which only knocks in at 1.09. This cancelled the buy call option with a sell call option and exposed the client to a risk of appreciating Swissie, a completely unforeseen event.
According to RBI rules, an Indian corporate can never be the net receiver of premium in options. In simple words, corporates can buy “insurance” but they can’t sell “insurance” because the extent of financial loss can be very high in the latter. But if a corporate wants to make the entire trade a zero-cost one, it simply starts writing options to receive premiums that will nullify the cost of protection.
In spite of all the protection that companies tried to take, the rise of the Swissie was not taken into consideration. The Swissie moved by 10% over the last one year and is presently trading at 1.09 against the dollar.
The moment the Swissie breached the 1.10 level, the right to sell Swissie was cancelled and companies stopped receiving premiums. But the other leg of the “zero-cost structure” remained intact and premium payouts increased.
With every rise in this currency, the mark to market losses for Indian corporates will increase. They can choose to cancel the contracts but then they will have to show the actual cash loss in their books, so many are sitting on the losses and waiting for the tide to turn. But in such volatile markets, banks do not want to take a chance and thus they are forcing the corporates for margin calls. That’s why you see all these disputed now coming out.
“To be fair, these CFOs made fat profits in the last two years and nobody asked them how they were making such handsome hedging gains,” says a banker. One CFO of an auto component company that makes tonnes of money on hedging, used to go around mocking his production plant heads, saying he could deliver more profit in one quarter than what the production chaps could deliver in a year. “Why did his CEO and board not question him then? It is clear that they liked the money he was making,” says a forex consultant.
The sad fact is that most boards do not even understand the complexities of these trades. “There are a large number of boards that lack the expertise to understand derivative contracts. Ideally, it is the job of the audit committee to check this out but in many cases they do not have correct information made available,” says Nawshir Mirza, an independent director, who serves on the boards of Tata Power and Mphasis.
If this issue blows up, then most boards will have no option (pun unintended) but to appoint experts to examine derivative deals before they are signed. And banks will have to do some soul searching on whether their sold products to people who did not understand them.
RBI raises concerns over govt proposal on currency futures
| The Reserve Bank of India has raised several concerns over the government’s proposal to use the existing infrastructure of stock exchanges for introducing currency futures. |
| In its technical advisory committee meeting with market participants yesterday, RBI said that foreign exchange and related activities should be isolated from all other businesses of exchanges and for the participants in the market like banks or brokers. |
| Further, any existing exchange, even if allowed to float a platform for currency futures, should have a diversified shareholding pattern. |
| At present, commodity exchanges, other than stock bourses which have evinced interest in floating currency futures, do not have diversified holdings, according to sources. |
| The National Stock Exchange and the Multi Commodity Exchange have reportedly applied for currency futures trading. |
| Besides the regulations and the use of the trading platform, all other norms for currency futures in the final draft will remain similar to the draft guidelines issued by RBI. The final draft will be issued shortly. |
| In its draft proposal, RBI had favoured the standalone platform for currency futures while the government is supporting use of existing exchange infrastructure. |
| According to the government, it will involve lot of additional cost and time to develop independent platforms just for currency futures trading. |
| In response to this, RBI said exchanges could float separate bourses for the currency futures business as it would become a wholly owned independent subsidiary with separate books. |
| The structure will be similar to the Chinese wall maintained by banks in their primary dealer business. |
| “There should separate prudential and operational guidelines for the participants and platforms independent of the exchanges. Moreover, the authority for regulating such platforms should be clearly spelt out since foreign exchange management is an sole purview of the central bank,” the sources said. |
| Further, banks who would be the major participants in the currency futures business are regulated by RBI. |
Does SEBI have control over IPO pricing?
THE IPO market in India is seems to be passing through turmoil. One after the other, two big issues have turned flat on the primary market and the much-hyped Reliance Power has failed terribly on its debut day. Plunged by selling pressure, the price of Reliance was closed much below its issue price (closed at Rs 372). Earlier, the two issues, namely Wockhardt and Emaar MGF, were withdrawn by their issuers due to poor response from investors.
Is the dismal performance of Reliance Power shares on their debut day also due to aggressive pricing? Whatsoever the reason may be in the case of Reliance Power, the pricing of the IPO in India should be largely discussed. One of the reasons quoted for the failure of Wockhardt and Emaar MGF IPO is the aggressive pricing of the issue. The question is how will the ill informed and small investors know whether an issue is fairly priced or aggressively priced?
Does the SEBI, the highest statutory body in capital market, have any control over the pricing of primary market issue? Is it not the responsibility of SEBI to inform investors about the pricing of any particular issue? If it cannot inform the general public, it should have some control over pricing so that in the mad rush for making money overnight, people should not end up eroding their capital. After all, if any commodity price is excessively hiked by its producer, the government tries to control prices of that commodity by several means. Cement is an example and in the same way, for SEBI, share is a commodity only. It is the primary responsibility of SEBI, to control its issuers and not allow them to price their issue beyond a certain level.
If you see the pattern of applications received in case of Wockhardt, it would be very clear that ill informed retail investors have applied in most numbers because of the name of the company - Wockhardt, without assessing the pricing of the issue. Institutional investors, after seeing the aggressive pricing in terms of PE of 2008 of the company, have kept themselves away from the issue. Comparing the valuation to the other players in the same business, it was said that Wockhardt has priced its IPO very aggressively. Later on, the company marginally reduced its price and increased the timing also but was not able to convince its institutional investors. Another IPO, Emaar MGF, was also not liked by investors due to its aggressive pricing.
Retail people should thank the institutional investors and the management of the two companies who have withdrawn their issue. Otherwise, crores of rupees of retail investors would have been locked up after the dismal performance of the two issues on the bourses. Already people have burnt their fingers in several such issues, which are still being traded below their IPO price, even after one year of their debut.
The ongoing discussion by SEBI, to introduce circuit filters on the issue date is a welcome move to safeguard the investors and particularly the retail investors. But it is beyond understanding what prevents SEBI from stopping an issue if it finds that the issue is aggressively priced. If a small broker can assess the valuation of an issue, being the top most body, SEBI must be having all those facts and figures. SEBI should not clear the primary issue, if it finds it aggressively priced.
After all, to safeguard the interest of investors is the duty of SEBI. This is most important, especially in India, where the credit rating of the issue is at infancy and people hardly go through the rating agency report. In the name of price discovery and book building how long will the ill informed poor retail investors be cheated by greedy corporates?
Is the dismal performance of Reliance Power shares on their debut day also due to aggressive pricing? Whatsoever the reason may be in the case of Reliance Power, the pricing of the IPO in India should be largely discussed. One of the reasons quoted for the failure of Wockhardt and Emaar MGF IPO is the aggressive pricing of the issue. The question is how will the ill informed and small investors know whether an issue is fairly priced or aggressively priced?
Does the SEBI, the highest statutory body in capital market, have any control over the pricing of primary market issue? Is it not the responsibility of SEBI to inform investors about the pricing of any particular issue? If it cannot inform the general public, it should have some control over pricing so that in the mad rush for making money overnight, people should not end up eroding their capital. After all, if any commodity price is excessively hiked by its producer, the government tries to control prices of that commodity by several means. Cement is an example and in the same way, for SEBI, share is a commodity only. It is the primary responsibility of SEBI, to control its issuers and not allow them to price their issue beyond a certain level.
If you see the pattern of applications received in case of Wockhardt, it would be very clear that ill informed retail investors have applied in most numbers because of the name of the company - Wockhardt, without assessing the pricing of the issue. Institutional investors, after seeing the aggressive pricing in terms of PE of 2008 of the company, have kept themselves away from the issue. Comparing the valuation to the other players in the same business, it was said that Wockhardt has priced its IPO very aggressively. Later on, the company marginally reduced its price and increased the timing also but was not able to convince its institutional investors. Another IPO, Emaar MGF, was also not liked by investors due to its aggressive pricing.
Retail people should thank the institutional investors and the management of the two companies who have withdrawn their issue. Otherwise, crores of rupees of retail investors would have been locked up after the dismal performance of the two issues on the bourses. Already people have burnt their fingers in several such issues, which are still being traded below their IPO price, even after one year of their debut.
The ongoing discussion by SEBI, to introduce circuit filters on the issue date is a welcome move to safeguard the investors and particularly the retail investors. But it is beyond understanding what prevents SEBI from stopping an issue if it finds that the issue is aggressively priced. If a small broker can assess the valuation of an issue, being the top most body, SEBI must be having all those facts and figures. SEBI should not clear the primary issue, if it finds it aggressively priced.
After all, to safeguard the interest of investors is the duty of SEBI. This is most important, especially in India, where the credit rating of the issue is at infancy and people hardly go through the rating agency report. In the name of price discovery and book building how long will the ill informed poor retail investors be cheated by greedy corporates?
RBI bought $2.73 bn in Dec ember
RBI bought $2.73 billion in intervention in December, taking its dollar purchases in 2007 to $74.9 billion as it tried to temper the pace of rupee's rise, its monthly bulletin showed on Wednesday.
The Indian currency climbed more than 12 percent against the dollar last year, a gain second only to the Philippine peso among Asian currencies, ending 2007 at 39.42 per dollar.
Foreign portfolio flows of $17.4 billion into the stock market and about $2.3 billion into debt in 2007 were key drivers of the rupees gains last year. Intervention in December was substantially lower than the $7.83 billion in November, when the rupee had peaked at 39.16 per dollar, its strongest is nearly a decade.
Traders said the central bank's dollar purchases so far in 2008 have slowed as risk-averse foreign funds pulled money out of the stock market amid falls in global markets. India's currency reserves jumped $98 billion in 2007 to a record of $275.6 billion on December 28.
The Indian currency climbed more than 12 percent against the dollar last year, a gain second only to the Philippine peso among Asian currencies, ending 2007 at 39.42 per dollar.
Foreign portfolio flows of $17.4 billion into the stock market and about $2.3 billion into debt in 2007 were key drivers of the rupees gains last year. Intervention in December was substantially lower than the $7.83 billion in November, when the rupee had peaked at 39.16 per dollar, its strongest is nearly a decade.
Traders said the central bank's dollar purchases so far in 2008 have slowed as risk-averse foreign funds pulled money out of the stock market amid falls in global markets. India's currency reserves jumped $98 billion in 2007 to a record of $275.6 billion on December 28.
HOT STOCKS for 13-02-08
STATISTICS :
Markets today will tend to bounce back to 5000 levels can see some volatility with a range bound session within levels 4800 - 5050, Nifty can see a gap up opening with 30+ points and sensex with 200+ points, today can see some shorts being covered so there can be a recovery. Nifty has a support only above 4900 levels and Resistance @ 4970+ levels, Unless nifty trades above this levels its a bear phase once if it closes above this levels mkt will recover to 5200+ levels
INTRADAY :
ICICI bank : buy for a tgt of 1100+, sl @ 1062
RNRL : buy for a tgt of 124+, sl @ 115
REL : buy for a tgt of 1568+, sl @ 1520
FUTURES :
RELIANCE : buy for a tgt of 2360+, sl @ 2318
ICICI BANK : buy for a tgt of 1105+, sl @ 1060
HDFC : buy for a tgt of 2750+, sl @ 2590
HDFC Bank : buy for a tgt of 1460+, sl @ 1400
IFCI : buy for a tgt of 62+ , sl @ 54
IDBI : buy for a tgt of 108+, sl @ 100
IDFC : buy for a tgt of 188+, sl @ 177
OPTIONS :
IDBI : buy call 110 for a tgt of 10+, sl @ 3.2
IFCI : buy call 60 for a tgt of 8+, sl @ 2.5
MTNL : buy 120 call for a tgt of 9.4+, sl @ 3.5
Nifty : buy call 5000 for a tgt of 200+, sl @ 100, can go to 300+
HEDGE CALLS :
1 > INFOSYS : buy 1 lot feb expiry @ 1545 for a tgt of 1600+
.......... INFOSYS : sell 1 lot 1470 put @ 40+
2 > MTNL : buy 1 lot feb expiry for a tgt of 122+
.......... MTNL : sell 1 lot 110 put @ 6+
2> RNRL : buy 1 lot feb expiry @ 118 for a tgt of 140+,
........... RNRL : sell 1 lot put 110 @ 11+
Markets today will tend to bounce back to 5000 levels can see some volatility with a range bound session within levels 4800 - 5050, Nifty can see a gap up opening with 30+ points and sensex with 200+ points, today can see some shorts being covered so there can be a recovery. Nifty has a support only above 4900 levels and Resistance @ 4970+ levels, Unless nifty trades above this levels its a bear phase once if it closes above this levels mkt will recover to 5200+ levels
INTRADAY :
ICICI bank : buy for a tgt of 1100+, sl @ 1062
RNRL : buy for a tgt of 124+, sl @ 115
REL : buy for a tgt of 1568+, sl @ 1520
FUTURES :
RELIANCE : buy for a tgt of 2360+, sl @ 2318
ICICI BANK : buy for a tgt of 1105+, sl @ 1060
HDFC : buy for a tgt of 2750+, sl @ 2590
HDFC Bank : buy for a tgt of 1460+, sl @ 1400
IFCI : buy for a tgt of 62+ , sl @ 54
IDBI : buy for a tgt of 108+, sl @ 100
IDFC : buy for a tgt of 188+, sl @ 177
OPTIONS :
IDBI : buy call 110 for a tgt of 10+, sl @ 3.2
IFCI : buy call 60 for a tgt of 8+, sl @ 2.5
MTNL : buy 120 call for a tgt of 9.4+, sl @ 3.5
Nifty : buy call 5000 for a tgt of 200+, sl @ 100, can go to 300+
HEDGE CALLS :
1 > INFOSYS : buy 1 lot feb expiry @ 1545 for a tgt of 1600+
.......... INFOSYS : sell 1 lot 1470 put @ 40+
2 > MTNL : buy 1 lot feb expiry for a tgt of 122+
.......... MTNL : sell 1 lot 110 put @ 6+
2> RNRL : buy 1 lot feb expiry @ 118 for a tgt of 140+,
........... RNRL : sell 1 lot put 110 @ 11+
Parliamentary panel on the trail of market volatility
In an aggressive bid to identify the “beneficiaries” of the wide fluctuations in scrip prices, the Parliamentary Standing Committee on Finance on Tuesday launched a concerted investigation into the recent stock market volatility. The Committee — it suspects the possibility of a speculators’ cartel at work — headed by BJP MP Ananth Kumar, will submit its report to Parliament in three months.
Members have also sought information from Sebi chairman M Damodaran, RBI governor YV Reddy and others on the guidelines for fixation of price for initial public offers (IPOs). Pessimism in the markets has meant that two high-profile IPOs, that of Emaar MGF and Wockhardt Hospitals, were withdrawn after below expectation performance. The more significant victim of the market sentiment and its rejection of higher pricing, not in consonance with fundamentals, though, was Reliance Power. Its IPO closed well below its issue price on its debut on Monday. As part of its investigations, members will travel to various cities and towns to elicit investors views.
The panel is to meet again on February 18, when the finance ministry is expected to make a presentation.
The Sebi chairman told the Committee, sources said, that since the Indian stock market is integrated with the global markets, it cannot remain immune to the global volatility. Mr Damodaran also said the US subprime mortgage crisis has affected the Indian stock markets and the liquidity crunch aggravated the situation on January 22. Members called for immediate steps to stop any cartelisation and high speculation in the market, apart from compulsory grading of public offers.
Sources said information was also sought on both these sensitive issues from NSE MD Ravi Narayanan and deputy MD Chitra Ramkrishna. They, along with Mr Damodaran and Mr Reddy, were queried on steps that NSE, Sebi and other authorities have taken to control the prolonged volatility in the market as well as the criteria for price fixation of IPOs.
At the meeting, the Committee members also spoke with brokers’ representatives, including Bina Mehta, and small investors’ representatives led by Investors Grievances Forum president and BJP leader Kirit Somaiya. UTI MF chairman UK Sinha and Mr Somaiya also made presentations at the meeting.
Members also sought the operationalisation of Investors Protection Fund under the aegis of Sebi at the earliest. This had been suggested by the Joint Parliamentary Committee, which probed the Ketan Parekh stock scam. Given the extent of the losses incurred by investors, members wanted Sebi and the government to launch an education campaign for investors to caution them against the markets’ volatile nature.
Members have also sought information from Sebi chairman M Damodaran, RBI governor YV Reddy and others on the guidelines for fixation of price for initial public offers (IPOs). Pessimism in the markets has meant that two high-profile IPOs, that of Emaar MGF and Wockhardt Hospitals, were withdrawn after below expectation performance. The more significant victim of the market sentiment and its rejection of higher pricing, not in consonance with fundamentals, though, was Reliance Power. Its IPO closed well below its issue price on its debut on Monday. As part of its investigations, members will travel to various cities and towns to elicit investors views.
The panel is to meet again on February 18, when the finance ministry is expected to make a presentation.
The Sebi chairman told the Committee, sources said, that since the Indian stock market is integrated with the global markets, it cannot remain immune to the global volatility. Mr Damodaran also said the US subprime mortgage crisis has affected the Indian stock markets and the liquidity crunch aggravated the situation on January 22. Members called for immediate steps to stop any cartelisation and high speculation in the market, apart from compulsory grading of public offers.
Sources said information was also sought on both these sensitive issues from NSE MD Ravi Narayanan and deputy MD Chitra Ramkrishna. They, along with Mr Damodaran and Mr Reddy, were queried on steps that NSE, Sebi and other authorities have taken to control the prolonged volatility in the market as well as the criteria for price fixation of IPOs.
At the meeting, the Committee members also spoke with brokers’ representatives, including Bina Mehta, and small investors’ representatives led by Investors Grievances Forum president and BJP leader Kirit Somaiya. UTI MF chairman UK Sinha and Mr Somaiya also made presentations at the meeting.
Members also sought the operationalisation of Investors Protection Fund under the aegis of Sebi at the earliest. This had been suggested by the Joint Parliamentary Committee, which probed the Ketan Parekh stock scam. Given the extent of the losses incurred by investors, members wanted Sebi and the government to launch an education campaign for investors to caution them against the markets’ volatile nature.
Budget don't affect all sectors
Budget announcements don’t affect all sectors or companies uniformly. While some tax proposals improve market sentiment with regard to certain sectors, others have a negative influence on some other sectors.
A case in point is the excise duty hike on cement and withdrawal of indirect tax exemption available to construction companies with retrospective effect announced last year.
The market reacted swiftly, pulling down the stock price of most of the stocks in the two sectors. The ET Cement index fell by 6% on budget day, while ET Construction index shed 8%.
The pessimism in the two sectors continued for over a month. However, by the end of ’07, most of the stocks in the two sectors reached new highs. Is it a coincidence or is this a regular feature in the budget month?
To find out, we studied the movements of ET sectoral indices on budget day and during the following weeks, for five years since ’03. Additionally, we compared the Sensex returns in February and March for every year since 1991.
The results were startling. We found that every budget leads to a fall on the budget day (and the following weeks) in some or other sectors. And this provides a buying opportunity for investors, since the fall is a temporary phenomenon.
In ’07, for instance, the ET Construction index more than doubled from its closing value on budget day. In ’03, shipping, textile and sugar indices witnessed a similar trend. These three indices fell the most on budget day and ended March with a negative return of 10%. In the next 12 months, however, their value nearly tripled.
The Sensex exhibits similar gyrations during and after the budget. In 13 of the past 17 years since 1991, the benchmark index has fallen in the month of March. But the post-budget blues are almost often preceded by a mini rally in February.
Hence, the decline in stock prices due to the budget has no relation with the expected future returns in the following months. Instead, investors can use this as a buying opportunity.
As the fall continues for at least two weeks after the budget, investors need not rush to buy the stock on the budget day. They will be better off if they accumulate their favourite stocks over a period of time and thus, lower the average investment cost.
For example, in ’04, the ET Consumer Durable index fell over 2.5% in the week following the budget day. Subsequently, it declined by another 9% in the next week and finally ended the month with a negative return of 14.5%.
But here’s a word of caution for investors. Do not buy a stock only because it fell on the budget day. Instead, buy those stocks that are growing and are expected to grow even after the budget.What matters in the medium and long term is the demand for goods and services offered by the company. In a growing economy, the company can easily pass on tax increases to its customers.
A case in point is the excise duty hike on cement and withdrawal of indirect tax exemption available to construction companies with retrospective effect announced last year.
The market reacted swiftly, pulling down the stock price of most of the stocks in the two sectors. The ET Cement index fell by 6% on budget day, while ET Construction index shed 8%.
The pessimism in the two sectors continued for over a month. However, by the end of ’07, most of the stocks in the two sectors reached new highs. Is it a coincidence or is this a regular feature in the budget month?
To find out, we studied the movements of ET sectoral indices on budget day and during the following weeks, for five years since ’03. Additionally, we compared the Sensex returns in February and March for every year since 1991.
The results were startling. We found that every budget leads to a fall on the budget day (and the following weeks) in some or other sectors. And this provides a buying opportunity for investors, since the fall is a temporary phenomenon.
In ’07, for instance, the ET Construction index more than doubled from its closing value on budget day. In ’03, shipping, textile and sugar indices witnessed a similar trend. These three indices fell the most on budget day and ended March with a negative return of 10%. In the next 12 months, however, their value nearly tripled.
The Sensex exhibits similar gyrations during and after the budget. In 13 of the past 17 years since 1991, the benchmark index has fallen in the month of March. But the post-budget blues are almost often preceded by a mini rally in February.
Hence, the decline in stock prices due to the budget has no relation with the expected future returns in the following months. Instead, investors can use this as a buying opportunity.
As the fall continues for at least two weeks after the budget, investors need not rush to buy the stock on the budget day. They will be better off if they accumulate their favourite stocks over a period of time and thus, lower the average investment cost.
For example, in ’04, the ET Consumer Durable index fell over 2.5% in the week following the budget day. Subsequently, it declined by another 9% in the next week and finally ended the month with a negative return of 14.5%.
But here’s a word of caution for investors. Do not buy a stock only because it fell on the budget day. Instead, buy those stocks that are growing and are expected to grow even after the budget.What matters in the medium and long term is the demand for goods and services offered by the company. In a growing economy, the company can easily pass on tax increases to its customers.
Tuesday, 12 February 2008
Greed is bad for listing-gain hunters
Two out of three IPOs since January 2007 have listed at a premium, so investing in them was a good bet for those seeking to make a quick buck. As a natural corollary, the grey market —- or the unofficial 'bourse' where investors trade informally through verbal, but fully honoured, transactions —- has been booming: 70 of 107 public issues of the past 14 months have given punters a neat profit on listing day.
So when shares of Reliance Power, the mother of all Indian IPOs, was set to open, the grey market, especially in Gujarat, went into a frenzy, with quotes soaring to Rs 900 or twice the issue price.
It is this milieu that lured Sudarshan Nair, an executive with a logistics firm in Mumbai —- and lakhs of others —- to borrow money and invest in the IPO.
Like everyone else, Nair also wanted to make the quick buck.
"Thank God I got allotted only 17 shares," he said, quivering in hindsight.
But Nair's keeping the faith and not selling now.
Naresh Kothari, co-head of institutional equities at Edelweiss Capital says that's par for the course.
Quarterly results of corporates: Check out
"Retail does not normally sell at a loss. They would have held on primarily because it has gone below that acquisition cost. And some would have also taken a fundamental view, knowing that the Ambani brothers are creators of wealth," he said.
"My take is that it's the conventional IPO flippers, such as hedge funds, and to a certain extent, high networth individuals, who sold on Monday," he said.
He added that domestic banks may not have sold either as they typically do not sell at a loss.
But, apart from HNIs, thousands of others such as qualified institutional buyers, foreign institutional investors and hordes from the Gujarat were doing.
The hit may not be very hard for these investors because the weighted average price per trade was Rs 417 on the NSE and Rs 413 on the BSE.
"Deliveries were at 32 per cent of the total volume of 19.83 crore on the exchanges," points out Amitabh Chakraborty, president-equity, at Religare Securities.
"I can't say whether this is good or bad, but the point is, the shares have shifted to stronger hands —- who else can take delivery in such a market?" he asks.
After opening at Rs 547.8, and making a high of Rs 599 immediately through some clearly false trade, it was all southwards for the Reliance Power share on Monday. Total volumes indicated 87 per cent of the floating stock of 22.8 crore shares changed hands.
The percentage is not large as some listings have racked up turnover upwards of 100 per cent of floating stock, but what pressed prices —- and the broad market —- down is the sheer number in Reliance Power's case. By the end of it, the share recorded a traded volume of Rs 8,243 crore.
Vinod Kumar Sharma, head of research at Anagram Securities, says not a single tear needs to be shed for those who got in with a one-day horizon.
"With open eyes, they got into a company that said that it will have its full 28,800 mw generating projects ready only by 2016," says Sharma.
That the Sensex, following cues from the rest of Asia, fell over 1,000 points intra-day, and closed at 16,630.91, 834 points below the previous close, did not help the Reliance Power IPO in any way.
But unlike Nair, who had bought the share with his own money, and thus was not compelled to sell, there were others, especially HNIs who were forced to unload at a loss because they had borrowed at exorbitant rates to fund subscription applications. At 16-19 per cent interest rates, such investors would have broken even only if the shares debuted at Rs 550-590.
But, many of them may not have had to sell, because of the marginal allotments they got. "As such, they could have financed the purchase out of their own pockets and returned the borrowed money," says Sharma.
For those like Nair, who are waiting for a better day to sell, it may be a while before that day arrives.
"Reliance Power should trade near Rs 300 for sometime," bets Anmol Sekhri, fund manager at Bonanza Portfolio.
HOT STOCKS for 12-02-08
STATISTICS :
Markets after a 4 day continuous losses will tend to move up, U can witness Gap up opening, can see some rally in almost all sectors, with profit booking in IT sector.
Nifty is range bound would trade between 4860 - 5100 levels, Nifty after slipping down to 200 DMA levels always bounced back with gap up openings so this could be noticed, Nifty has resistance @ 5010, and support @ 4840 level.
INTRADAY :
Reliance : buy for a tgt of 2320+, sl @ 2260
ADLABS : buy for a tgt of 860+, sl @ 805
NAGARJUNA FERT : buy for a tgt of 47+, sl @ 42.5
FUTURES :
IFCI : buy for a tgt of 60.5+, sl @ 54.5
RNRL : buy for a tgt of 133+, sl @ 120
SATYAM : sell above 427+, for a tgt of 417, sl @ 432
ZEEL : buy for a tgt of 260+, sl @ 244
REL : buy for a tgt of 1650+, sl @ 1540
OPTIONS :
MTNL : buy 120 call for a tgt of 12.5+, sl @ 4.5
Nifty : buy 5000 call for a tgt of 245+, can go to 300+, sl @ 150
ISPAT : buy call 40 for a tgt of 8+, sl @ 2
HEDGE calls:
1 > RNRL : buy 1 lot feb expiry for a tgt of 150+
.......RNRL : sell put 120 @ 16
2> NAGARJUNA FERT : buy 1 lot feb expiry for a tgt of 50+
.......NAGARJUAN FERT : sell put 40 @ 4
3> Nifty : buy 1 lot futures for a tgt of 5200+
.......Nifty : sell 1 lot put 4700 @ 240+
Markets after a 4 day continuous losses will tend to move up, U can witness Gap up opening, can see some rally in almost all sectors, with profit booking in IT sector.
Nifty is range bound would trade between 4860 - 5100 levels, Nifty after slipping down to 200 DMA levels always bounced back with gap up openings so this could be noticed, Nifty has resistance @ 5010, and support @ 4840 level.
INTRADAY :
Reliance : buy for a tgt of 2320+, sl @ 2260
ADLABS : buy for a tgt of 860+, sl @ 805
NAGARJUNA FERT : buy for a tgt of 47+, sl @ 42.5
FUTURES :
IFCI : buy for a tgt of 60.5+, sl @ 54.5
RNRL : buy for a tgt of 133+, sl @ 120
SATYAM : sell above 427+, for a tgt of 417, sl @ 432
ZEEL : buy for a tgt of 260+, sl @ 244
REL : buy for a tgt of 1650+, sl @ 1540
OPTIONS :
MTNL : buy 120 call for a tgt of 12.5+, sl @ 4.5
Nifty : buy 5000 call for a tgt of 245+, can go to 300+, sl @ 150
ISPAT : buy call 40 for a tgt of 8+, sl @ 2
HEDGE calls:
1 > RNRL : buy 1 lot feb expiry for a tgt of 150+
.......RNRL : sell put 120 @ 16
2> NAGARJUNA FERT : buy 1 lot feb expiry for a tgt of 50+
.......NAGARJUAN FERT : sell put 40 @ 4
3> Nifty : buy 1 lot futures for a tgt of 5200+
.......Nifty : sell 1 lot put 4700 @ 240+
Monday, 11 February 2008
Long-term investors will gain: Ambani
There is concern that the recent meltdown in global and Indian stock markets could affect the listing price of Reliance Power?
These are normal cyclical phases in global capital markets and India, driven by economic liberalisation, can not remain insulated. However, I am confident that long-term investors will reap good returns on their investments in shares of Reliance Power, regardless of short-term fluctuations, which affect all stocks and not just Reliance Power.
Do you feel you have been too aggressive in pricing the IPO, given that the company has no operating assets?
The fact that the IPO received commitments of nearly Rs 7,50,000 crore ($190 billion), setting several new global records, is testimony it was attractively priced.
Was the record over-subscription achieved only because of the hype surrounding the IPO?
This is too narrow a view. To say that nearly 500 sophisticated institutional investors from across the globe and 5 million retail investors were all taken in by hype is an unfair comment on their collective intelligence. The fact is that the IPO received this overwhelming response because of investors' confidence in Reliance Power's attractive and unparalleled portfolio of multi-feedstock power projects aggregating over 28,000 Megawatts under development and our record of delivering superior returns to investors.
But the grey market premium ahead of the IPO is said to have contributed to the response?
This is again a coloured view. The lack of depth, and unreliability of the so-called grey market is well known to all investors. The alleged grey market activities are the focus of only a limited number of speculators and leveraged players, who participate in an insignificant way in an IPO. Sophisticated institutional investors and the wider universe of retail investors subscribe on very different multi-dimensional long-term considerations.
Then, why is there so much anxiety regarding the listing price?
The events of the global capital markets in the past few weeks are perhaps responsible for this sentiment. Also, selective speculative players and certain vested industrial investors are deeply concerned at the continuing success of our group.
speculators and leveraged players, who participate in an insignificant way in an IPO. Sophisticated institutional investors and the wider universe of retail investors subscribe on very different multi-dimensional long-term considerations.
Then, why is there so much anxiety regarding the listing price?
The events of the global capital markets in the past few weeks are perhaps responsible for this sentiment. Also, selective speculative players and certain vested industrial investors are deeply concerned at the continuing success of our group and its unparalleled value creation for its over 7 million investors in just around 30 months.
Post allotment, the feedback we have received from all categories of investors has been one of disappointment that their allotments are only a small fraction of what they had applied for in the IPO. The facts are that institutional investors have received just over 1 per cent of what they had applied for, HNIs got just over .5 per cent and the bulk of the retail investors have got 15 shares against their applications for 225 shares. We are confident that over a period of time these investors will look forward to increasing their shareholding.
All our long-term institutional investors, as well as millions of retail investors, are fully supportive of the group, and have reposed full confidence in our ability to deliver superior sustainable returns.
BSE receives complaints against 337 listed companies
The Bombay Stock Exchange on Monday said it has received 596 complaints against 337 listed companies and resolved 734 investor's complaints during January.
The exchange has received complaints of non-receipt of refund orders, allotment letters and stock invest against 143 active companies, an exchange statement said here.
It has also received complaints of non-receipt of dividend, interest against 67 active companies and 13 suspended firms, it said.
Meanwhile, the BSE has announced the list of companies with highest number of complaints pending as on January 2008. Vatsa Corporation topped the list with 1,044 pending complaints, followed by Pantafour Products (258), Pal-Peugeot (258), Mukerian Papers (164), Enkay Texfoods Industries (147), Panchmahal Cement (146), Usha (India) (137), Montari Industries (124), Mesco Pharmaceuticals (121) and Toheal Pharmachem (98).
The exchange has received complaints of non-receipt of refund orders, allotment letters and stock invest against 143 active companies, an exchange statement said here.
It has also received complaints of non-receipt of dividend, interest against 67 active companies and 13 suspended firms, it said.
Meanwhile, the BSE has announced the list of companies with highest number of complaints pending as on January 2008. Vatsa Corporation topped the list with 1,044 pending complaints, followed by Pantafour Products (258), Pal-Peugeot (258), Mukerian Papers (164), Enkay Texfoods Industries (147), Panchmahal Cement (146), Usha (India) (137), Montari Industries (124), Mesco Pharmaceuticals (121) and Toheal Pharmachem (98).
Videocon Appliances to be renamed Value Inds
The board of directors of Videocon Appliances, which met on February 9, approved a proposal to change the name of the company to Value Industries subject to necessary approvals.
According to a release issued by the company to the BSE today, the meeting also approved a proposal to alter the main objects in the memorandum of association of the company by inserting an additional clause relating to providing, executing, implementing, hiring, working as EPC contractors, providing turnkey services for industrial activities and manufacturing, trading of all kinds of machineries, components and engineering equipment.
The meeting also approved a plan to authorise the board to sell, lease, mortgage or otherwise dispose off the whole or substantially the whole of undertaking of a company up to an amount of Rs 10,000 crore, and borrow up to Rs 10,000 crore, the release added.
"The board has proposed to transact all the aforesaid resolutions by postal ballot in terms of the provisions of Section 192A of the Companies Act, 1956 read with The Companies (Passing of the Resolution by Postal Ballot) Rules, 2001. Accordingly, the board appointed Sheetal Kumar Dak, company secretary in whole-time practice, as scrutinizer for conducting the ballot," the release added.
According to a release issued by the company to the BSE today, the meeting also approved a proposal to alter the main objects in the memorandum of association of the company by inserting an additional clause relating to providing, executing, implementing, hiring, working as EPC contractors, providing turnkey services for industrial activities and manufacturing, trading of all kinds of machineries, components and engineering equipment.
The meeting also approved a plan to authorise the board to sell, lease, mortgage or otherwise dispose off the whole or substantially the whole of undertaking of a company up to an amount of Rs 10,000 crore, and borrow up to Rs 10,000 crore, the release added.
"The board has proposed to transact all the aforesaid resolutions by postal ballot in terms of the provisions of Section 192A of the Companies Act, 1956 read with The Companies (Passing of the Resolution by Postal Ballot) Rules, 2001. Accordingly, the board appointed Sheetal Kumar Dak, company secretary in whole-time practice, as scrutinizer for conducting the ballot," the release added.
Did R-Power fail investors or is global volatility to blame?
Would it be fair to say that Reliance Power failed to live up to investor expectations when the secondary market was already troubled by global volatility?
Even before the Indian market opened, Hong Kong's Hang Seng was down 1.59 per cent and Singapore's Straits Times lower by 1.37 per cent on concerns over the global economy's health. Japan, China and Taiwan remained closed for public holidays.
Making the situation worse for the company was the withdrawal of IPOs by Wockhardt Hospitals and Emaar MGF Land late last week.
The Reliance Power IPO, the first from the Anil Dhirubhai Ambani Group after the demerger, had its share of distracters during the issue period itself, with questions being raised about the valuation.
Coming from the ADAG stable, the IPO had built high expectations amongst investors on its listing. In fact, even before the issue opened the grey market premium was Rs 450 to the price band of Rs 405-450 per share.
No wonder then that Reliance Power faced immense odds as it listed on Monday. On the BSE, the share opened at Rs 547.80 and on NSE at Rs 530 to the issue price of Rs 450 (Rs 430 to retail investors who got a discount of Rs 20 per share).
"This is not surprising because the global market scenario has affected this IPO, which is its latest casualty," said Jigar Shah at KIM ENG Securities India.
Intraday the counter saw a high of Rs 599.90 and low of Rs 355.05, before settling at Rs 372.50 on BSE, a discount of 17.2 per cent. The counter clocked a volume of 6.38 crore shares.
On NSE the stock closed at Rs 372.30, after slipping to a low of Rs 355.30. The high was Rs 530. Volume traded was 13.43 crore shares.
“There was a lot of hype on Reliance Power IPO well before the issue. Talks of 100 per cent premium in the grey market attracted speculators to the issue, subscribing it heavily. However, prevailing market sentiment has hit the stock adversely. Reliance Power may settle around Rs 450-500,” said a market analyst.
Expectations of subdued start in Europe as French bank Societe Generale launched a rights issue at a steep discount and announced 600 million euros in fresh write-downs further weighed on market sentiment.
The unsympathetic treatment by investors to the stock saw the market plumb lows.
The BSE Sensex lost 1,007 points or 5.76 per cent at the day’s low of 16,457.74 and NSE’s Nifty declined 316.75 points or 6.19 per cent when it fell to a low of 4803.60.
In the F&O segment on NSE, Reliance Power February futures closed at Rs 375, a premium of Rs 2.7 to the spot close. The contract opened at Rs 410, rising to a high of Rs 452.70 while the low was Rs 357.10. Number of contracts traded was 84,185 and turnover Rs 1549.04 crore. Open interest was 48,15,450.
Shares of parent company Reliance Energy also got a severe drubbing. The stock ended down 19.40 per cent at Rs 1,582.30. The low was Rs 1,515.
Other ADAG companies also ended lower. Reliance Communications lost 5.3 per cent, Reliance Natural Resources fell 9.1 per cent.
Even before the Indian market opened, Hong Kong's Hang Seng was down 1.59 per cent and Singapore's Straits Times lower by 1.37 per cent on concerns over the global economy's health. Japan, China and Taiwan remained closed for public holidays.
Making the situation worse for the company was the withdrawal of IPOs by Wockhardt Hospitals and Emaar MGF Land late last week.
The Reliance Power IPO, the first from the Anil Dhirubhai Ambani Group after the demerger, had its share of distracters during the issue period itself, with questions being raised about the valuation.
Coming from the ADAG stable, the IPO had built high expectations amongst investors on its listing. In fact, even before the issue opened the grey market premium was Rs 450 to the price band of Rs 405-450 per share.
No wonder then that Reliance Power faced immense odds as it listed on Monday. On the BSE, the share opened at Rs 547.80 and on NSE at Rs 530 to the issue price of Rs 450 (Rs 430 to retail investors who got a discount of Rs 20 per share).
"This is not surprising because the global market scenario has affected this IPO, which is its latest casualty," said Jigar Shah at KIM ENG Securities India.
Intraday the counter saw a high of Rs 599.90 and low of Rs 355.05, before settling at Rs 372.50 on BSE, a discount of 17.2 per cent. The counter clocked a volume of 6.38 crore shares.
On NSE the stock closed at Rs 372.30, after slipping to a low of Rs 355.30. The high was Rs 530. Volume traded was 13.43 crore shares.
“There was a lot of hype on Reliance Power IPO well before the issue. Talks of 100 per cent premium in the grey market attracted speculators to the issue, subscribing it heavily. However, prevailing market sentiment has hit the stock adversely. Reliance Power may settle around Rs 450-500,” said a market analyst.
Expectations of subdued start in Europe as French bank Societe Generale launched a rights issue at a steep discount and announced 600 million euros in fresh write-downs further weighed on market sentiment.
The unsympathetic treatment by investors to the stock saw the market plumb lows.
The BSE Sensex lost 1,007 points or 5.76 per cent at the day’s low of 16,457.74 and NSE’s Nifty declined 316.75 points or 6.19 per cent when it fell to a low of 4803.60.
In the F&O segment on NSE, Reliance Power February futures closed at Rs 375, a premium of Rs 2.7 to the spot close. The contract opened at Rs 410, rising to a high of Rs 452.70 while the low was Rs 357.10. Number of contracts traded was 84,185 and turnover Rs 1549.04 crore. Open interest was 48,15,450.
Shares of parent company Reliance Energy also got a severe drubbing. The stock ended down 19.40 per cent at Rs 1,582.30. The low was Rs 1,515.
Other ADAG companies also ended lower. Reliance Communications lost 5.3 per cent, Reliance Natural Resources fell 9.1 per cent.
Sunday, 10 February 2008
RBI at odds with govt on bonds for SBI issue
| The Reserve Bank of India (RBI) is not in favour of the government subscribing to State Bank of India’s rights issue through bonds on grounds that it does not conform to good corporate governance. |
| The rights issue to raise Rs 16,736 crore is likely to open for subscription from February 18, a finance ministry official said today. In terms of size, this is reported to be second to ICICI Bank’s follow-on public issue of Rs 20,000 crore. |
| Banking sources said the government should not use the bond route when ordinary shareholders are expected to pay in cash to subscribe to the issue. |
| The central bank raised this issue when the finance ministry approached it to grant the bonds Statutory Liquidity Ratio (SLR) status. An SLR bond qualifies for the portfolio maintained by banks to meet the statutory liquidity requirement. |
| SLR is the percentage of total deposits banks have to maintain in the form of cash, gold or approved securities. At present, the minimum SLR is 25 per cent. |
| Sources close to the developments other bonds such as bank recapitalisation bonds carry SLR status because they are meant to resurrect weak banks. |
| Moreover, SLR status for Rs 10,000-crore bonds (this is the amount to which the government, which holds 59.73 per cent, needs to subscribe) will interfere with the government's borrowing programme. |
| Government bonds issued by RBI to meet the borrowing programmes carry SLR status, which roughly specifies its sovereign status. If the SBI bonds also carry SLR status, extra provision has to be made for the total borrowing programme. |
| Sources said SBI may be required to give an undertaking that these bonds will be held till maturity and will not be offloaded in the secondary market in order to avoid confusion over the government’s borrowing programme. |
Sensex completes four-week losing streak, down 4.26%
The stock markets lost lustre for the fourth week in a row on sustained selling as investors opted to book profits rather than making fresh commitments on slew of negative factors during the week under review. Fall in GDP growth, rise in inflation, sluggish global markets, a feeble response to the IPOs and fears of recession in the US took its toll on share values, brokers said.
The Bombay Stock Exchange 30-share (BSE) barometer continued to display volatile movements with downward bias and moved in a wide range of 18,895.34 and 17,203.06 before ending the week at 17,464.89, a steep fall of 777.69 points or 4.26 per cent over last weekend’s close of 18,242.58.
The Sensex had lost 3,362.56 points or 16.14 per cent in last four weeks, and is down by a whopping 3,741.88 points or 17.64 per cent from a record high of 21,206.77 registered on January 10. Similarly, the broad-based S&P CNX Nifty of the National Stock Exchange (NSE) also tumbled by 196.90 points or 3.70 per cent to finish the week at 5,120.35 from preceding weekend’s close of 5,317.25.
Marketmen attributed initial firmness to expectations of increase in liquidity as investors started investing the refund money from Reliance Power IPO, which had received unprecedented response, back into the stock markets. But projection of a moderation in GDP growth from 9.6 % last fiscal to 8.7 % this year forced cautious operators to book profits even at current lower levels.
In the US, reports of weak services sector and tightening of lending standards by banks once again stoked recession fears. Comments by a Fed official about possible recession only added fuel to fire and impacted negatively on the global markets.
Depressing secondary markets weighed on the primary markets as after pulling out IPO by Wockhardt Hospitals on February 7, the West Asia’s largest property developer Emmar MGF Land also withdrew its IPO on February 8, giving wrong signals to the investors.
Anil Dhirubhai Ambani Group company, Reliance Power is going to be listed on the local bourses on Monday, January 11, and all eyes are now set on that. During the week, the trading volume on the BSE improved to Rs 30,332 crore from last week’s turnover of Rs 23,539 crore, while declined on the NSE to Rs 67,660 crore from Rs 68,828 crore.
The broad-based BSE-100 index slumped by 387.78 points or 4.00 % to end the week at 9,296.78 from last weekend’s close of 9,684.50. The BSE-200 index and the Dollex-200 were quoted sharply lower at 2,196.12 and 922.61 at the weekend compared to previous weekend’s close of 2,280.37 and 965.07 respectively.
The BSE-500 index also dropped by 254.75 points to end the week at 7,047.60 from preceding weekend’s close of 7,302.35 and the Dollex-30 ended the week sharply lower at 3,618.13 from 3,807.10 last weekend.
On the NSE, the S&P CNX Defty plunged by 205.80 points or 4.40 % to finish the week at 4,476.35 from previous weekend’s close of 4,682.15 and the S&P CNX Nifty Junior dipped by 478.75 points to 9,740.60 from 10,219.35 last weekend.
The Bombay Stock Exchange 30-share (BSE) barometer continued to display volatile movements with downward bias and moved in a wide range of 18,895.34 and 17,203.06 before ending the week at 17,464.89, a steep fall of 777.69 points or 4.26 per cent over last weekend’s close of 18,242.58.
The Sensex had lost 3,362.56 points or 16.14 per cent in last four weeks, and is down by a whopping 3,741.88 points or 17.64 per cent from a record high of 21,206.77 registered on January 10. Similarly, the broad-based S&P CNX Nifty of the National Stock Exchange (NSE) also tumbled by 196.90 points or 3.70 per cent to finish the week at 5,120.35 from preceding weekend’s close of 5,317.25.
Marketmen attributed initial firmness to expectations of increase in liquidity as investors started investing the refund money from Reliance Power IPO, which had received unprecedented response, back into the stock markets. But projection of a moderation in GDP growth from 9.6 % last fiscal to 8.7 % this year forced cautious operators to book profits even at current lower levels.
In the US, reports of weak services sector and tightening of lending standards by banks once again stoked recession fears. Comments by a Fed official about possible recession only added fuel to fire and impacted negatively on the global markets.
Depressing secondary markets weighed on the primary markets as after pulling out IPO by Wockhardt Hospitals on February 7, the West Asia’s largest property developer Emmar MGF Land also withdrew its IPO on February 8, giving wrong signals to the investors.
Anil Dhirubhai Ambani Group company, Reliance Power is going to be listed on the local bourses on Monday, January 11, and all eyes are now set on that. During the week, the trading volume on the BSE improved to Rs 30,332 crore from last week’s turnover of Rs 23,539 crore, while declined on the NSE to Rs 67,660 crore from Rs 68,828 crore.
The broad-based BSE-100 index slumped by 387.78 points or 4.00 % to end the week at 9,296.78 from last weekend’s close of 9,684.50. The BSE-200 index and the Dollex-200 were quoted sharply lower at 2,196.12 and 922.61 at the weekend compared to previous weekend’s close of 2,280.37 and 965.07 respectively.
The BSE-500 index also dropped by 254.75 points to end the week at 7,047.60 from preceding weekend’s close of 7,302.35 and the Dollex-30 ended the week sharply lower at 3,618.13 from 3,807.10 last weekend.
On the NSE, the S&P CNX Defty plunged by 205.80 points or 4.40 % to finish the week at 4,476.35 from previous weekend’s close of 4,682.15 and the S&P CNX Nifty Junior dipped by 478.75 points to 9,740.60 from 10,219.35 last weekend.
BSE to change eligibility criteria for Group A scrip
The Bombay Stock Exchange (BSE) has decided to change the eligibility criteria for inclusion of scrip in ‘A’ group effective from March three.
The BSE in a circular here said the revised list would be announced on February 18. A total of 200 companies would find place in 'A' group. The BSE has also discontinued the division of group‘B’ into group ‘B1’ and ‘B2’. All companies not included in group‘A’, ‘S’ or ‘Z’, will constitute group ‘B’ the circular said.
The BSE in a circular here said the revised list would be announced on February 18. A total of 200 companies would find place in 'A' group. The BSE has also discontinued the division of group‘B’ into group ‘B1’ and ‘B2’. All companies not included in group‘A’, ‘S’ or ‘Z’, will constitute group ‘B’ the circular said.
Bulk deal: Indiabulls Financial Services tops the chart on BSE
On Friday, Sameer Gehlaut bought 1,800,189 shares at Rs 665.71 a share and Sonata Capital sold 1,426,885 shares at Rs 665.79 a share of Indiabulls Financial Services on the Bombay Stock Exchange (BSE).
Clearwater Capital Partners Cyprus sold 248,000 shares at Rs 120 a share and Ruane Cunniff Goldfarb on account of Acacia Institutional Partners bought 208,000 shares at Rs 120 a share of Sayaji Hotels.
Macquarie Bank sold 170,584 shares at Rs 675 a share of Country Club (India).
Amit Totla sold 87,300 shares at Rs 16.2 a share, Om Prakash Totla HUF sold 134,500 shares at Rs 16.2 a share and Sewa Ram Totla HUF sold 85,000 shares at Rs 16.2 a share while J P Totla HUF bought 308,400 shares at Rs 16.2 a share of J P T Securities.
Halcyon Trading bought 80,000 shares at Rs 193.61 a share and Kamlesh M Kanungo sold 47,659 shares at Rs 195 a share of Parekh Aluminex.
Asian Pacific Continental bought 83,000 shares at Rs 150.58 a share and Nav Nirman Mercantiles bought 79,300 shares at Rs 152.9 a share of Shri Lakshmi Cotsyn.
Meenakshi Jatia sold 48,415 shares at Rs 66 a share of Madhav Marble & Granites.
IPCA Laboratories bought 44,939 shares at Rs 27 a share of Tonira Pharma.
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