RBI may not cut interest rates: FM

Finance Minister P Chidambaram indicated today that Reserve Bank of India (RBI) may not cut interest rates to boost industrial production because of high inflation.

"As long as there is a threat of inflation, you have to trust RBI to use policy rates to contain inflation and dampen inflationary expectations," Finance Minister P Chidambaram said at an India Today Conclave in response to a query whether there will be rate cuts to give a fillip to sagging industrial growth.

Chidambaram, however, said determination of interest rates is under the domain of the RBI.

He attributed high inflation to rising prices of food and commodity prices in the world saying India is not entirely insulated from the global trends.

Citing examples, he said global crude oil price surged to $110 per barrel yesterday from $37 per barrel when the UPA government came to power. Similarly, global prices of palm oil that India imports rose to $1,270 per metric tonne from $471 per metric tonne.

"We have recognised that there is a slowdown, thanks to the US impending recession. We have applied tax book economic approach to boost consumer demand by putting more money in the hands of tax payers, cutting excise and customs duties and enlarging public expenditure," Chidambaram said

Indian bourses touch six-month low

Turbulence in the US market pushed the Sensex barometer of the Bombay Stock Exchange (BSE) to a six-month low this week. The sub-prime mortgage crisis has resulted in the drying of liquidity around the world. The spillover effect was clear across all markets in Asia.

Developments on the domestic front acted as a catalyst to already dampened market sentiments. A surge in inflation rate coupled with lower-than-expected industrial production data made matters worse.

The 30-share BSE Sensex lost 215 point or 1.35 percent to end the week at 15,760.52. The broader S&P Nifty shed 25.8 points or 0.54 percent to 4,745.80 in the week.

The BSE Mid-Cap lost 220.94 points or 3.25 percent to 6,583.45 and the BSE Small-Cap index slipped 329.68 points or 3.92 percent, 8,079.50.

According to the data available with market regulator Securities and Exchange Board of India (SEBI), the Indian equities market attracted foreign institutional investor (FII) investment to the tune of $676.50 million over the week.

The two indices, the Sensex and the Nifty, saw divergent trends on Monday, with the Nifty posting gains helped by a spurt in non-Sensex constituents such as Reliance Petroleum and Cairn India.

The Sensex was down 51.80 points or 0.32 percent at 15,923.72. The Nifty was up 28.80 points or 0.60 percent at 4,800.40.

On Tuesday, the Sensex gained 199.43 points or 1.25 percent, at 16,123.15. The broader based S&P CNX Nifty advanced 65.50 points or 1.36 percent at 4,865.90.

On March 12, the market erased almost its entire gains - in contrast to the strong start after disappointing industrial production figures for January 2008 hit the market in early afternoon trade. The US Federal Reserve’s move to inject up to $200 billion of liquidity into strained credit markets triggered rally across Asian and European markets.

The Sensex was up marginally by 4.83 points or 0.03 percent at 16,127.98. Nifty rose 6.10 points or 0.13 percent at 4,872.

A major setback was witnessed on the bourses Thursday, as share prices fell almost across the board. Markets across the globe dropped.

The Sensex slumped 770.63 points or 4.78 percent at 15,357.35. The Sensex hit a low of 15,228.99 in late trade, its lowest level since early September 2007. The Nifty was down 242.40 points or 5.10 percent at 4,623.60.

Buying in battered pivotals triggered solid rally on the bourses in late trade, with market closing near the highest point of the day on Friday. However, the market breadth, indicating the overall health of the market, remained negative.

The Sensex surged 403.17 points or 2.63 percent to 15,760.52, while the Nifty advanced 122.20 points or 2.64 percent to 4,745.80.

India’s largest private sector bank by assets ICICI Bank slipped 1.63 percent to Rs.878.20.

India’s largest private sector firm by market capitalization and oil refiner Reliance Industries (RIL) rose 3.24 percent to Rs.2,321.70. Its unit Reliance Retail has signed a joint venture with Pearle Europe for the launch of a chain of optical stores in India.

Bharti Airtel, the country’s top listed cellular services provider by market share, rose 0.22 percent to Rs.752.95.

Rural Electrification Corporation (REC) debuted on the stock exchanged on March 12. It debuted at Rs.125 on BSE, a premium of 19.04 percent over the IPO price.

India can become major IT force: Infosys Chief

India is enjoying its moment in world's attention and should use the trend to the best of its capability to become a major IT force in the global IT industry, Infosys CEO Kris Gopalakrishnan said on Saturday.

Kerala, which had a quiet beginning in the IT field, has become one of the most sought-after IT destinations in the country, he said delivering an address on `IT Vision 2020' at the valedictory function of Kerala IT.Com 2008 at Technopark here.

Indian IT industry worked on a few advantages like costs, demography, IT viable ecosystem and quick adoption to latest technology. The country could use these advantages for a few more years to change the dynamics of the industry.

"It is imperative that India takes the right steps to use this period to plan and get ready for real action," he said.

He wanted radical changes for development of IT industry in the country by building integrated townships to improve and provide comfortable lifestyle, better planning of cities to do away with cluster.

The number of graduates and their quality should be increased by grooming them to become global employees. Quality and quantity of research should be improved, he said.

Asking to reduce dependency in foreign companies, he said investments should be heavily made in domestic IT industry and promote homegrown successful companies like IBS, SunTec, Nest and US Technology and build an environment suitable for entrepreneurship.

Kerala Law and Parliamentary Affairs Minister M Vijayakumar said the state government planned to make Thiruvananthapuram as the IT corridor of Kerala.

Blank papers give BSE anthrax fright

The 'deadly' courier arrived from Indore on Friday in four plain envelopes

No more do hoax calls really rattle the Bombay Stock Exchange (BSE); they have become almost a regular feature. But the nation’s financial nerve centre was shaken to the core by four innocuous looking envelopes it received on Friday.

Seeing that they contained blank pages, the BSE authorities went into a tizzy, fearing the worst - a biological or chemical threat, such as the anthrax.

The BSE staff notified police immediately, and the latter, taking no chances, sent all four envelopes for forensic testing.

“It could be any kind of biological or chemical threat. We instantly sent the envelopes to the forensic laboratory in Kalina,” said deputy commissioner of police Brijesh Singh. Sources said that the cops also feared that it could be an anthrax attack.

All four letters were sent from an address in Indore. The BSE address was scripted on all the envelopes in an almost illegible handwriting, said police. “We are trying to track down the sender,” said Singh.

The forensic lab is expected to give its report in a few days.

All four letters landed at the BSE within a couple of hours of each other. Before informing the police, security personnel at the stock exchange had opened the letters.

“We are taking this matter very seriously. We are also trying to collect the fingerprints on the envelopes and letters to see if it can help us in investigations,” Singh said. When DNA contacted BSE officials, they refused to comment.

The BSE has always been a preferred target of terrorist outfits. Recently, a terror suspect arrested by Uttar Pradesh Police, confessed during interrogation that he and his associates had gone to survey vital installations and found BSE to be one of the softest targets

The security at the BSE has been breached only once: during the 1993 serial bomb blasts in Mumbai. A powerful bomb kept in the boot of a car, parked inside the BSE, had gone off, killing 84 people and injuring 218.

Number of FIIs operating on markets increases to 1,303

The number of foreign institutional investors FIIs operating in the Indian stock markets have increased to 1,303 from 1,100 in six months, Finance Minister P Chidambaram told the Lok Sabha on Friday.

The Minister said that over the last six months ending February, while the number of SEBI-registered FIIs increased from 1,100 to 1,303, the number of sub-accounChidambaram further said that SEBI in October 2007 took several steps to streamline participation of FIIs on stock markets.

In order to streamline the FII investment, the SEBI board in October last imposed various restrictions on the Participatory Notes and laid down deadlines for reducing outstanding positions.

The SEBI had barred FIIs and their sub-accounts from issuing and renewing Offshore Derivative Instruments (ODIs) with underlying as derivatives with immediate effect. The FIIs were also told to wind up their existing position over 18 months.

Indiareit fund advisors to raise $700 mn

Indiareit Fund Advisors Pvt Ltd, a real estate venture capital fund promoted by the Piramal group, will raise $700-800 million through an offshore fund, a top company official said.

"This is our second international fund and we expect to raise USD 700-800 million. We already have a commitment of USD 250 million from 3i PLC and we expect to announce the fund with all necessary approvals by April," Piramal group chairman Ajay Piramal told reporters on the sidelines of a conference.

Indiareit Fund Advisors currently manages a total corpus of USD 450 million raised through two series of domestic funds as well as an offshore fund.

REC lists with 19 pc premium on BSE

State-run Rural Electrification Corp on Wednesday got listed at Rs 125 on the Bombay Stock Exchange with a premium of 19 per cent over its issue price of Rs 105.

Within minutes of listing the company touched a high of Rs 128.40 and a low of Rs 120.25 on the BSE.

On the National Stock Exchange the scrip got listed at Rs 129.90, with a premium of 23.7 per cent over its issue price.

The scrip witnessed good trading volume and as much as 65.54 lakh shares exchanged hands on the NSE and over 68.65 lakh shares got traded on the BSE.

Later, REC parted with some gains and was trading at Rs 123.75 on BSE and at Rs 123 on NSE at 0956 hrs.

The company, which hit the capital market with 15.62 crore equity shares on February 19, raised Rs 1,640 crore. The issue got oversubscribed more than 27 times.

The company had set the IPO price band at Rs 90-105. The issue constituted about 18.18 per cent of the fully diluted post-issue capital of REC.

Buying in BHEL is the best bet

Bulls prevailed over Tuesday’s trading activity. However, the sentiment reading of the tradable counters continues to remain bearish.

Bull domination on Wednesday is likely to change the sentiment reading in their favour. On the contrary, the current sentiment reading is likely to be strengthened with additional counters.

NIFTY FUTURES

The March contract opened with a bear gap of around 84 points from its previous close. However, bears were not able to sustain their initial move and gave way to bulls. The March contract moved within a range of around 172 points and closed with a gain of around 62 points from its previous close.

The downtrend in the Nifty month contract is intact. The short exit and long entry levels are placed quite far away from its last traded price. These levels are unlikely to be triggered during Wednesday’s trading.

STOCK FUTURES

The composition of the top-10 list had no changes. However, the ranking of the top-10 list had minor changes. Reliance Capital and Reliance Energy interchanged their position.

SBI moved from fourth to sixth position in the list. ICICI Bank and Tata Steel moved one step higher in the list.

Except Reliance Industries, Tata Steel, NTPC and BHEL all other counters in the top-10 list are in downtrend. The uptrend counter Tata Steel is likely to be under threat for Wednesday trading. On the other hand, bull move on Wednesday is likely to terminate SBI, Hindalco and Infosys.

Buying opportunities are likely to exist in SBI, Hindalco and Infosys. A lone selling opportunity is likely to be exist in Tata Steel. The best among the above is likely to be buying in Infosys. This counter is in downtrend. Bull move on Wednesday is likely to reverse the existing trend in this counter.

CASH SEGMENT

The composition and ranking of the top-10 list had minor changes. Satyam made its way to top-10 list pushing out Suzlon. Reliance Energy and Reliance Industries interchanged their positions. SBI, HDFC and Tata Steel moved one step higher in the list.

Except SAIL and Tata Steel all other counters in the top-10 list are in downtrend. All the uptrend counters are likely to be under threat for Wednesday’s trading. On the other hand, bull move on Wednesday is likely to terminate Reliance Industries, BHEL, SBI and HDFC. Buying opportunities are likely to exist in Reliance Industries, BHEL, SBI and HDFC.

Selling opportunities are likely to SAIL and Tata Steel. The best among the above is likely to be buying in BHEL. This counter is in downtrend. Bull move on Wednesday is likely to reverse the existing trend in this counter.

Worse is yet to come in forex derivative losses

The crisis is also expected to trigger plenty of litigation.

The $50 million hit L&T took due to hedging losses in a subsidiary may just be the tip of the iceberg.

Losses by Indian companies as a result of their exposure to the foreign exchange derivatives market may hog the headlines for next few quarters since many of the currency swaps are likely to mature after March, said foreign exchange experts.

"This is a big thing brewing. The losses in some cases may be equal to a company’s profit for the whole year," said a senior executive with a Mumbai-based foreign exchange consultant, who did not want to be identified.

For example, Hexaware reported a Rs 81-crore loss for the quarter ended December 2007 after the company took a hit of about Rs 103 crore on account of unauthorised forex derivative deals struck by a company official.

The company had posted a net profit of Rs 110.07 crore in 2007 (the company follows a January to December financial year).

"Corporate India’s exposure is large. Banks have sold these derivatives to both small and big companies. However, many of these positions are maturing after March, and so companies are not required to reveal their losses this fiscal. The losses will be reflected in Q1 and Q2 of next fiscal,’’ added the expert.

Jamal Mecklai, CEO of Mecklai Financial, said he had estimated the losses to be $1billion (Rs 4,000 crore) though some others estimate it at $3 billion. "That is quite large. Today, I heard of a company that has an exposure of Rs 50 crore in forex derivatives on a topline of Rs 150 crore," he said

The crisis is also expected to trigger plenty of litigation since corporations think banks have mis-sold them all kinds of derivatives. In one such case, a paper and stationary manufacturer Sundaram Multipaper has sued ICICI Bank for its losses on forex derivative products.

"Many corporations have complained to the Reserve Bank of India, and you will have a lot of litigation. These are not just currency swaps. Banks have sold more exotic and complex structures to people who have not understood these trades," said another forex consultant who also requested anonymity.

A V Rajwade, a Mumbai-based consultant on risk management, said margins in plain vanilla trading are nominal where prices are readily available on screen.

"This is perhaps why banks have sold complex derivative products to companies. Some companies don't understand them; some are greedy," he said

Many companies don't have the discipline in marking their assets to market or imposing a stop-loss on their trades.

"Many of them do not understand the difference between hedging and reduction in cost or risk. This has led to a lot of problems in the market," Rajwade added.

Mecklai said the problem lies India's "slow and backward" accounting standards. "In other countries, you have to provide mark-to-market losses. Here, you can carry them forward till 2011. The accounting standards have to be tightened. Today, a lot of companies and banks are in battle but you need two hands to clap."

Almost all private banks—Yes Bank, ICICI Bank, HDFC Bank, Kotak Mahindra Bank— and even State Bank of India have sold these derivative structures, and can potentially be hit if companies do not pay.

"Banks are worried that they may have to pay upfront if these cases get into litigation," said a forex consultant.

The stock market may not be aware of the impending crisis and yet, banking stocks have come under selling pressure when everyone was hoping they would provide succour in a falling market.

The BSE Bankex has shrunk 30 per cent from January 8, 2008, when the benchmark BSE Sensex touched a high 20,873.33, faster than the market that has lost 23 per cent of its market cap since then.

Goldman Sachs picks up 20% in Shriram Credit for Rs 300 cr

One of the world’s largest investment banking firms, Goldman Sachs, is picking up a 20% stake in Chennai-based Shriram Credit for Rs 300 crore, making an indirect entry into equity and commodity brokerage business in India. Shriram Credit is a non-banking finance company (NBFC) under the south India-based Shriram Group, which is engaged in lending activities.

The Indian group is transferring its brokerage and distribution services business to Shriram Credit and bringing in Goldman Sachs as a significant minority partner. The deal values the firm at Rs 1,500 crore ($375 million). Goldman Sachs is routing the deal through its 100% Mauritius-based subsidiary GS Strategic Investments.

This is one of Goldman Sachs’ major strategic moves after it broke ties with the Kotak Mahindra Group in 2006. The US-based investment banking firm has been present in India through its I-banking unit and has also been an active player in the private equity space. The partnership with Shriram Credit would allow Goldman entry into the brokerage and lending business.

Shriram Financial Services Holdings managing director DV Ravi told ET: “We are in discussions with certain prospective investors for giving a minority stake in Shriram Credit, which will eventually hold both the broking and distribution business. This is similar to our offering minority stakes in other group companies. We will keep you updated about the name of the investor and other related queries once we finalise the investment.”

However, sources said the deal has been finalised with Goldman Sachs. As per the initial agreement, the US-based I-banking firm also reserves the right to further expand its equity stake by 5% to take its stake in Shriram Credit to 25%. The transaction will be through a preferential allotment to Goldman Sachs.

Goldman Sachs’ former JV partners Kotak Mahindra Capital and Kotak Securities - as well as key promoters Uday Kotak and Anand Mahindra, have already given a no-objection certificate to Goldman Sachs picking up a stake in Shriram Credit.

Goldman Sachs India is known to have evinced interest in entering asset management services, besides lending and broking businesses. While the I-banking firm is awaiting green light from Sebi to start its asset management business in India, it is not clear whether the firm is looking to start afresh or buy equity in an existing company to enter other businesses.

Shriram Credit is a Chennai-based privately-held firm with a paid-up equity capital of Rs 3.24 crore. It is primarily engaged in asset finance and NBFC-based lending activities. In addition, it has a significant majority stake in Shriram Fortune Solutions, which markets and distributes financial products and is looking to get into marketing consultancy services.

According to sources, Shriram Credit is going to acquire close to 90% stake in Shriram Insight Share Brokers, which is into stock broking activities, apart from being a depository participant. Shriram Insight Share Brokers also has a step down wholly owned commodity brokerage subsidiary, Insight Commodities & Futures.

Through this deal, Goldman Sachs would, in one shot, get exposure to lending and equity and commodity brokerage sectors in India. Foreign investment norms currently do not allow direct investment in a commodity brokerage firm. However, foreign companies can invest in a firm, which in turn owns a separate commodity brokerage entity. The funds would be used for expansion of its existing and proposed businesses of Shriram Credit.

Goldman Sachs, which had investments in Kotak Securities and Kotak Mahindra Capital Company, had sold off its 25% stake in the firms in 2006 and had said it would start its own financial services firm in India.

The joint venture, formed in 1995, in itself was a break from tradition for Goldman Sachs, one of the oldest I-banking firms in the world with a history dating 1869. However, since then, Goldman Sachs Group has formed other such ventures, including a 33:67 JV with Gao Hua Securities to start an investment banking firm in China three years ago. The current deal with Shriram Credit can be seen as a continuation of this strategy for global expansion.

HIGHLIGHTS
----------------------
* Goldman Sachs to acquire 20% in Shriram Credit Co for Rs 300 crore; values the NBFC at Rs 1,500 cr
* The US-based I-banking firm reserves the right to hike its stake to 25%
* First significant equity venture by Goldman Sachs after breaking ties with Kotak Mahindra in 2006
* Shriram Credit is into lending activities
* South-based Shriram Group transferring its equity & commodity brokerage into Shriram Credit
* Goldman Sachs to get access to lending and brokerage business through this deal
* As of now Goldman Sachs is primarily into investment banking and private equity investments in India

HOT STOCKS for 12-03-08

STATISTICS :

Markets today can witness a gapup opening following a rally in global markets. Nifty may open a gapup of 100+ points can see Nifty trading 5000+ levels comfortably. Nifty is rangebound between 4950 - 5100 levels. Nifty has a support @ 4950 and resistance @ 5100. above these levels can see nifty going upto 5300 levels in a coming days.

INTRADAY :

EDUCOMP : buy for a tgt of 3620+ , sl @ 3470

ADLABS : buy for a tgt of 710+, sl @ 670

RENUKASUGARS : buy for a tgt of 1085+ levels, sl @ 1100

UTV : buy for a tgt of 845+

FUTURES :

IDBI : buy for a tgt of 110+

SATYAMCOMP : buy for a tgt of 406+

RNRL : buy for a tgt of 125+

ADLABS :buy for a tgt of 710+

RELAINCE CAPITAL : buy for a tgt of 1500+

REL : buy for a tgt of 1340+

OPTIONS :

IDBI : buy call 110 for a tgt of 7+ can go upto 10+ levels, sl @ 2

NIFTY : buy call 5000 for a tgt of 160+, sl @ 80

RCOM : buy call 600 for a tgt of 24+, sl @ 5

HEDGE CALLS :

1 > Nifty : buy 1 lot futures for a tgt of 5100+

...... Nifty : sell 1 lot put 4800 @ 125+ levels

2 > RNRL : buy 1 lot futures for a tgt of 128+

......RNRL : sell 1 lot put 110 above 7 levels

RBI frees ATM balance queries

Customers can now make balance enquiries at ATMs for free and will be levied a maximum fee of Rs 20 per transaction for withdrawals, that too till March next year after which such usage would be not be charged.

This would be irrespective of the amount and the bank where the customer holds the account.

Aiming to make all ATM usage free from April next year, the Reserve Bank today said banks cannot charge for balance enquiries and capped the fee for cash withdrawals at Rs 20 per transaction, irrespective of the amount and the bank where the customer holds the account.

In a circular issued to all commercials banks, RBI also said that customers would not be charged for even cash withdrawals at other bank ATMs with effect from April 1, 2009.

It said that banks cannot charge its own customers for any ATM usage, with immediate effect, while they would have to cut down cash withdrawal charges for other banks' customers to a maximum of Rs 20 per transaction by March 31 this year.

ATM usage charges

RBI said that the framework on ATM usage charges have been decided after analysing the public comments received on an Approach Paper released by it on December 23, 2007.

RBI has also asked the banks to make free with immediate effect the use of other bank ATMs for balance enquiries.

Cash withdrawals
About cash withdrawals, RBI said that no banks should hike the charges prevailing as on December 23, 2007 and those charging more "shall reduce the charges to a maximum of Rs 20 per transaction by March 31, 2008."

RBI has clarified that for two services – use of own ATMs for any purpose and use of other bank ATMs for balance enquiries – “the customers will not be levied any charge under any other head and the service will be totally free."

It also said that charge of Rs 20 for cash withdrawn at other bank ATMs will be "all inclusive and no other charges
will be levied to customers under any other head irrespective of the amount of withdrawal."

However, banks can levy service charges, to be determined by themselves, for cash withdrawals with use of credit cards and at an ATM located abroad.

Govt considering proposal to merge SBI, SBS

Government is considering a proposal for merger of State Bank of India and State Bank of Saurashtra as the boards and unions of the two have approved the move.

This was stated by Minister of State for Finance Pawan Kumar Bansal in Rajya Sabha today.

The boards of directors of SBI and State Bank of Saurashtra have approved merger to "allow economies of scale in terms of network, manpower and other resources besides entailing better management of risks," he said.

"The proposal is under examination of the Government," he added.

He said the Government would not put pressure on banks to merge although the Narasimham committee on banking sector had recommended consolidation in the banking sector so that Indian banks are equipped to compete at the global level.

"Government is of the view that any proposal for consolidation, by way of merger etc of one public sector bank with another, should emanate from the concerned bank with Government playing a supportive role," he said.

He said although the country needs banks having international standards to compete at the global level, amalgation must arise from business compulsions and it is not necessary that all the banks merge.

Kotak Bank denies special audit by RBI

Kotak Mahindra Bank has denied any special audit by the Reserve Bank of India in the last few days. The bank said, its exposure to equity markets is well within the regulatory norms.

The clarification follows an article in a financial daily that the bank's books are under RBI scrutiny.

At 12.36 pm, Kotak Mahindra shares were up 6.42 per cent at Rs 652.90 on BSE.

Country Club to merge associate companies

Country Club India (CCIL) is contemplating merging or acquiring its associates companies that own club and resort properties. A proposal to this effect, in order to protect the interests of the 1.5 lakh members, their families and shareholders, has been approved by the board of directors of the company at its meeting held on March 7, 2008.

CCIL informed the Bombay Stock Exchange (BSE) today that the consideration would be in the form of equity shares of the company based on reports by independent valuers.

The effective date of the transaction will be January 1, 2008, and the company proposes to benefit from an additional 500 acre as part of the transaction, which it will utilise for country vacations and medical tourism.

The company has also proposed that the clubbing and the country vacations business be distinctly aligned. In this regard, it has been proposed that the revenues generated from the country vacations products be recognised in its subsidiary.

CCIL completed GDR and QIP issue in January 2008, in which its equity shares were valued at Rs 770 per share.

Nicholas Piramal changes name to Piramal Healthcare

Nicholas Piramal India Ltd will now be known as Piramal Healthcare Ltd.

The company in a statement issued to the Bombay Stock Exchange (BSE) Tuesday said that all formalities including the nod from shareholders and central government have been taken for the name change.

According to the company, the group of companies like NPIL Laboratories and Diagnostics Pvt. Ltd has been clumped together into Piramal Diagnostic Services Pvt. Ltd, while another company Gujarat Glass Ltd has been renamed Piramal Glass Ltd.

Recently, the group company popularly known as NPIL Research & Development Ltd was renamed Piramal Life Sciences Ltd.

Another group company, Indiareit Fund Advisors Pvt. Ltd, will continue to be known by its existing name, the statement said.

BSE revises circuit filter for more than 1600 stocks

The Bombay Stock Exchange has revised the circuit filters for more than 1600 stocks as part of their surveillance action.

The circuit filter that came into effect from Monday has been revised to 10 per cent for 1,118 companies, 5 per cent for 468 companies and to 2 per cent for 22 companies, the BSE said in a circular.

A circuit-breaker is a device that halts trading in a stock if the price changes by a pre-determined percentage on a given day. The stock exchanges have 2, 5, 10 and 20 per cent circuit breakers on certain stocks.

“Circuit filters are tightened to control the movement of scrips in times of high volatile markets,” said Sanjay Someshwar, broker with Ventura Securities.

“In times of volatility, a reduced circuit filter means that the loss is minimal to the shareholders,” said a broker with a Mumbai-based broking firm.

“The stocks which are highly volatile and there is a lot of speculative activity in them, seem to have been put under the 2 per cent circuit filter,” he added.

The circuit filters are reduced in case of illiquid stocks or as a price containment measures. The circuit filters are reduced to 10 per cent, or 5 per cent or 2 per cent as the case may be, based on the criteria decided by the Market Surveillance Department.

No circuit filters are applicable on stocks on which derivative products are available and scrips which are liquid and included in indices.

Among the stocks which have come under the 10 per cent circuit filter are Adani Enterprises Ltd, Ajanta Soya Ltd, AksharChem (India) Ltd, Arvind Chemicals Ltd, Lanco Industries Ltd, Khandwala Securities Ltd, Kaveri Seed Company Ltd and Marg Constructions Ltd.

IPO close and listing gap may be cut to 3-5 days

The proposal, which will be one of the biggest capital market reforms in recent years if it is implemented, has been made by a Group on the Review of Issue Process (GRIP), which is likely to submit a report today or tomorrow.

GRIP is a sub-committee of the stock market regulator’s Primary Market Advisory Committee (PMAC), which meets Monday to consider the report. The report will be put up for public comment by the Securities and Exchange Board of India (Sebi) after that.

The decision to reduce the IPO closure and listing period was announced by the new Sebi Chairman C B Bhave after the regulator's board meeting in New Delhi yesterday.

Sources close to the developments said Sebi was also considering changing the price discovery, bidding and allotment process to eliminate grey market operations and having investor money locked up without interest payments for almost a month.

Since these reforms will require a smoothly functioning electronic market in which everything from applications to payments will be in e-mode, the broad proposal is to introduce the changes in phases.

In the first phase, applications will be allowed in both electronic and physical formats and the time gap between issue closure and listing kept to seven days.

The three-day process could be considered once sufficient experience has been gained on electronic applications.

"Large IPOs attract many first-time investors who are not necessarily skilled and technology-savvy. For these people we still have to provide an alternative mechanism," said the source.

As part of the exercise, the information required in the application form may be pared to the bare minimum like the Permanent Account Number or unique identification number issued by the Association of Mutual Funds of India.

Data like the applicant’s father’s name and address will be scrapped since a good deal of investor data are already available electronically.

The reduction in the time gap between issue closure and listing will address one of Sebi’s major concerns that promoters artificially boost demand in the grey market ahead of an IPO listing.
Promoters typically take advantage of the time gap between closure and listing to put in bids in the grey market through. Many brokers also take independent positions on stocks and charge clients a premium for doing so.

Shortening the time gap will also impact institutional investors who may have to pay the entire amount upfront along with their applications, like retail investors do now, against 10 per cent currently.

IPO grading: Back to basics

IPO Grading is a new concept launched in mid-2007 by CRISIL. While it is unique to India, the underlying philosophy - the need for independent research in equity has been recognised in several other markets.

In the US, for instance, fines raised through the Spitzer settlement early this decade were used to pay for independent equity research. Similarly, Malaysia’s stock exchanges pay for independent research on listed companies.

IPO grading is a tool that provides an independent opinion on companies going public for the first time. There traditionally exists little or no information or research on these unlisted entities for retail investors.

And these investors more often than not, lack the resources to carry out adequate research on their own before investing. In a move aimed at enabling investors obtain an unbiased opinion on fundamentals of IPOs in India, Sebi made IPO Gradings mandatory in May 2007.

The objective was to provide simply-expressed opinions on the issuing companies that lay investors could base their decisions upon. IPO Grading fills this gap, with an easily understood and self-explanatory grade from 1 to 5, available free to the investing public.

This grade indicates how strong the fundamentals (essentially the intrinsic quality of the company as measured by its business prospects, financial strength, corporate governance and management quality) of the graded company are in relation to listed Indian companies.

CRISIL makes IPO grades available free of charge to all investors on its website. The grades are also displayed in the company’s IPO prospectus, advertisements and application forms.

While there is consensus among market participants that an independent opinion by a credible agency does benefit the market, there have been whispers that the value to investors is questionable as an IPO grading does not provide a view on the issue price and it does not directly recommend whether the investors should subscribe to the proposed IPO.

Why does an IPO grading stop at fundamentals? Why can’t it take the next step and actually recommend an investment decision (buy/don’t buy) to investors? For this, let us understand the components of an investment decision. An investment decision stems from three basic components, an analysis of fundamentals, an analysis of returns and investor preferences.

While an analysis of returns (does the upside potential match the investor’s return expectation?) and investor preference (for example, is he/she already overexposed to the specific asset class/sector) are very specific to the individual, the fundamentals of a company are uniform across every class of investors.

Thus, what is a ‘buy’ for a 25-year-old may not be appropriate for a 57-year-old, even as product attributes and quality are constant. An all-encompassing ‘buy’ or ‘don’t buy’ opinion can therefore mislead investors. At the fundamental level, however, there can be no ambiguity: what is fundamentally good or bad is fundamentally good or bad for all categories and classes of investors!

What then should an investor do after seeing the IPO grade? Having satisfied yourself as to the quality of fundamentals through IPO grading, investors should proceed to analyze whether the pricing of the issue is in line with its quality. This can be done by looking at the pricing of other peers in the secondary market. This combination of fundamentals obtained from the IPO grade and the investor’s own analysis of returns should lead to an investment decision by the investor.

A common refrain is, “how come an issue graded 1/5 (weak fundamentals) was subscribed several times over? And on listing, opened at double the price? How did the 4/5 company open so low? Does this mean your grading is wrong?” The answer is a resounding no. The price on listing or the extent of oversubscription or the grey market premium are all a function of various factors including pricing of the IPO and market sentiment. IPO grading is not a tool for investors (speculators?) looking for short-term listing profits and it cannot be judged based on what happens when an IPO lists. IPO grading is a very useful tool for a serious investor looking to make stock picks of fundamentally sound companies from a long term perspective.

Caveat emptor - if you are investing your hard-earned money, you must understand what you are buying. An IPO grading can give you the benefit of an expert opinion on the prospects of the company, quality of management and corporate governance completely free of cost. So, while investing, refer to the IPO grade, factor in your return expectations and preferences and make an empowered, informed and sound investment decision.

F&O Outlook: Downtrend to continue

The Nifty broke all crucial support levels on Friday as a result of weak global markets and a fresh assault from the bears.

The fall on Monday and again on Friday not only wiped out market capitalisation worth Rs 6.18 lakh crore on BSE, but also pushed the Sensex and the Nifty to their biggest-ever weekly decline.

A break of the crucial support for the Nifty at 4,800 on Friday indicates a continuation of the downtrend next week. The manner in which the index will come down in coming weeks will indicate whether new lows are made or not, says technical analyst Kamalesh Langote of vfmdirect.com.

The Nifty had touched the recent low of 4,449 on January 22 and hence it will act as the next support level in case markets come down. The Sensex will similarly find support at the recent low (January 22) of 15,332, says the analyst.

According to a technical analyst at Asit C Mehta, any breach of the previous low at 4,448 will extend the cyclical bear market and may lead to a further correction, going forward. Any breach of 4,002 will change the cyclical bear market into a structural bear market, says Suresh Kumar Iyer, an analyst at Asit C Mehta.

The weakness in markets is also indicated by key Nifty heavyweights that are currently trading below the Fibonacci price projection level of 161.8 per cent of the recent swing in their highs and lows. The next downside stop, according to the Fibonacci price projection level, is at 261.8 per cent from the recent highs.

Nifty heavyweight Reliance Industries closed at 2,248.25 on Friday, which is below its 161.8 per cent downside price projection level of Rs 2,269. The next downside level for Reliance is Rs 2,041, which is 261.8 per cent downside price projection level. ICICI Bank closed at Rs 893.40 last week, which is below its 161.8 per cent level of Rs 964 and hence the 261.8 per cent downside target for the bank is at Rs 824.

Brokerage stocks fall by 50% since January

Share price of listed broking firms and financial services companies have suffered around 50 per cent erosion from their 52-week high touched at the beginning of 2008.

Last week’s Budget proposals have been responsible in a major way for the downslide besides the weak global market sentiments.

Following the Budget announcements, brokerages have been at the receiving end on account of the negatives in the Budget such as 50 per cent rise in short-term capital gains tax, introduction of commodity transaction tax (CTT) and the Securities Transaction Tax (STT) being set-off against income-tax will now become a part of the business expenditure.

“The expansion plans of some of the brokerages may suffer after the negative announcements made in the Budget in short run, but in the longer term they won’t be affected like in the past when STT was introduced,” an analyst with a credit rating agency said.

“The other dynamics in play are much stronger compared to the negatives in the Budget proposals and it will be overcome in the course of time,” he added.

Among the recently listed brokerages Motilal Oswal and Edelweiss Capital have suffered the maximum, while Religare Enterprises too has suffered from the weak investors’ sentiment.
Tumbling scenario

Motilal Oswal has fallen from a 52-week high of Rs 2,270 on January 4 to Rs 786, a drop of 65 per cent. During the last one month, Motilal Oswal has fallen by 36 per cent and 18 per cent of it happened over the last one week.

Edelweiss Capital’s share price has slipped from a high of Rs 1,795 to Rs 769.80, again a fall by 57 per cent. Edelweiss too has fallen by 24 per cent over the last one month and by 13 per cent during the last one week.

Religare Enterprises has fared better and fallen by 40.68 per cent to Rs 433 from a high of Rs 730 touched on January 3. During the last one week, the scrip of the Ranbaxy group promoted company has fallen only 6.56 per cent.

During the last one-week, among the major losers figure Indiabulls Financial Services (22.97 per cent), India Infoline (22.90 per cent), Reliance Capital (22.06 per cent).

Indiabulls has lost 51.75 per cent from the 52-week high of Rs 1,028 touched on December 27, 2007; India Infoline’s fall from the recent high of Rs 1,974 on January 1 has been steep too by a hefty 54.35 per cent.

Reliance Capital, which has a broking services and mutual fund business, has fallen by 48.75 per cent from the one-year high of Rs 2,925 touched on January 10.

Other listed broking firms that have taken a major hit post the Budget announcement are JM Financials (20.69 per cent), Geojit Financials (16.22 per cent), Apollo Sindhoori Capital Investments (20.09 per cent), Prime Securities (17.29 per cent) and Arihant Capital Markets (17.19 per cent).

ICICI Bank, Kotak Mahindra Bank and SBI, which offer broking services, too have suffered during the last week, though their fall has also been on account of other factors.

JAIPRAKASH TO REPLACE BAJAJ AUTO IN BENCHMARK BOMBAY SENSEX

The Bombay Stock Exchange on Saturday said Jaypee group's flagship firm Jaiprakash Associates (BSE:532532) will replace India's second largest two-wheeler maker Bajaj Auto (BSE:500490) in the benchmark Sensex from March 14.

Jaiprakash Associates would be included in the 30-share bellwether index, Sensex, while Bajaj Auto would be excluded, a BSE circular said.

Sensex, a basket of 30 constituent stocks, represents a sample of large, liquid and representative companies. The base year of Sensex is 1978-79 and the base value is 100.

The index committee of the exchange in its meeting has decided to revise the composition of other BSE indices as well, including BSE -100, BSE-200, BSE-500, BSE-Auto, BSE-PSU.

Bajaj Auto has been excluded from the BSE 100 and BSE 200 indices and Power Grid Corporation (BSE:532898) would be inducted instead in both the indices from March 14.

State-run NMDC (BSE:526371) would replace Bajaj Auto in the BSE-500 index, while IRB Infrastructure Developers (BSE:532947) would be included in the index on exclusion of Asian Star Co, the circular said.

BSE-500 index represents nearly 93 per cent of the total market capitalisation on Bombay Stock Exchange. The index represents all 20 major industries of the economy.

NMDC is also being included in the BSE-PSU index from April 28, it added.

However, no new company is being included in the BSE Auto index after the exclusion of Bajaj Auto from March 14.

RCom to issue 1.75 crore shares under ESOP

Anil Ambani-promoted Reliance Communications on Sunday said it would issue 1.75 crore shares under Employees Stock Options to 20,000 staff members of the company and its subsidiaries.

If one goes by Reliance Communications' closing share price of Rs 543.35 on the Bombay Stock Exchange on March 7, the issue of ESOPs would amount to about Rs 950 crore.

Claiming that it is the largest ESOP rollout by any Indian Telecom Service Provider, Reliance Communications said in a release that the initiative is in line with the groups' policy to create value for stakeholders, external and internal.

The company said each option would be exercisable into equal number of fully paid-up equity shares of Reliance Communications.

"The options would be vested at the end of one year from the date of grant and shall be eligible for exercise up to a period of nine years from the date of vesting," the company said.

The Employee Stock Option Scheme recognizes the efforts of our employees and aims to reward them for contributing towards the transformation of Reliance Communications as the most profitable Indian Telecom Enterprise, and among Asias Top 5 Most Valuable companies within a short span of two years, Reliance Communications Chairman Anil Ambani said.

The Company has undergone extensive research based on intricate scientific models to formulate an innovative 3-Tier Model that would consider multiple parameters including number of years in the company, role, contribution, experience amongst others.

The Shareholders of Reliance Communications had passed the resolution of grant of securities under the ESOP scheme last year.