Technical Analysis: SBI

This stock refused to buckle under pressure and managed to hold above the key support at Rs 1,600 last week.

The near-term outlook for SBI has been revised to neutral.

The stock is expected to fluctuate in the band between Rs 1,600 and Rs 1,800 next week. Fresh longs are recommended only if the stock moves Rs 1,800.

The medium-term view for SBI stays negative. Move between Rs 1,600 and Rs 1,800 will be construed a pause before the resumption of the downtrend from the January peak.

Investors should wait for a close beyond Rs 1,950 before buying the stock. The stock could move towards Rs 1,400 over the medium-term.

India ranks 44th in most-preferred retail locations list

India, which boasts of a growing retail market, ranks 44th in the list of most preferred retail destination in the world due to factors like FDI restrictions and lower average per-capita income, a report has said.

According to the report 'How Global is the Business of Retail', which maps the global footprint of 250 of the world's top retailers, India is at number 44 in the list of preferred destinations in relation to market, regional trends and other influences.

"Even though the Indian economy is growing at a rapid pace with consumers having more buying power, we are still only at the 44th position on this list. This is primarily due to FDI restrictions in retail and also relatively lower average per-capita income in the country," CB Richard Ellis South Asia Chairman & MD Anshuman Magazine said in a statement.

He hoped that India would move up in the rankings if FDI norms are relaxed and economic growth continues.

Out of the BRIC (Brazil, Russia, India and China) countries, China and Russia are in the top 10 of the rankings. Brazil is also lower in the order.

The report ranks the UK as the current global leader in relation to the presence of international retailers. The UK hosts 55 retailers that were surveyed.

Spain's position as the second-ranked market, closely trailing the UK, gives perspective to the market's new global significance. It houses 51 per cent of retailers surveyed.

Spain's growing ability to attract global retailers to its shores is fuelling its rise as a global retail destination and threatening the UK's title as the 'most international retail market' in the world, according to the report.

The top 10 also included France, Germany and UAE.

The US occupied the 11th position, with 39 per cent of international retailers present in that market. CBRE attributes this to the maturity, size and strength of its domestic retailers, which make it a market that only the strongest foreign retailers are able to break into.

The report also found that luxury goods dominated international retail scene, with almost 90 per cent respondents in the segment having a presence in more than 10 markets. This was markedly more than grocery, food and drinks, with just 60 per cent present in 10 or more markets.

In clothing, footwear and accessories segments, 54 per cent retailers had operations in more than 10 markets.

However, as the report illustrated, many luxury retailers are well-known particularly for their clothing range, such as Hugo Boss or Versace, reflecting the historical tendency for high fashion brands to be offered internationally.

Least likely to 'travel' were the department stores, with only 5 per cent being represented in 10 or more markets.

Market Cues

Market cues:

• FIIs net buy $ 338.3 mn in equity on Apr 4
• Provisional figure was net sell of $212 m
• MFs net sell Rs 162.5 cr in equity on Apr 4
• NSE F&O Open Int up by Rs 1,096 crore at Rs 54,385 cror

F&O cues:

• Futures Open Interest up by Rs 651 crore and Options Open Interest up by Rs 445 crore
• Nifty Futures shed 15 lakh shares in OI, at 3-pt premium
• Nifty Open Int PCR at 1.22 Vs 1.12
• Nifty Puts add 11 lakh shares in Open Interest
• Nifty Calls shed 3 lakh shares in Open Interest
• Nifty 4700 Put adds 2.5 lakh shares in Open Interest
• Nifty 4600 Put adds 2.3 lakh shares in Open Interest
• Nifty 4800 Put adds 2 lakh shares in Open Interest
• Nifty 5200 Call adds 1 lakh shares in Open Interest
• Nifty 5000 Call sheds 2.8 lakh shares in Open Interest
• Nifty 4800 Call sheds 1.6 lakh shares in Open Interest
• Stock Futures add 1.2 cr shares in Open Interest

What's pushing the inflation rate up?

Inflation is a measure of rise in general price levels of goods and services. Inflation is measured by taking a set of goods and services, and then the prices of the items in the set are compared to prices one time period ago.

In India, inflation is measured based on the wholesale price index (WPI) which measures the change in prices of a selection of goods at wholesale prices. Inflation is primarily of two types - inflation due to cost push and inflation due to demand pull (supply side). Cost push inflation is due to rise in costs of input materials or labour, whereas demand pull inflation is due to increase in demand beyond installed capacity.

Controlled inflation is good for the economy as it increases motivation levels of people. The government, in consultation with the Reserve Bank of India, decides the inflation threshold in the country (current inflation threshold range in India is 4-5 per cent). The inflation target is one of the key parameters that go into determining fiscal and monetary policies.

Inflation went up quite a bit in the beginning of last year (around seven percent) on the back of high liquidity in the markets (huge funds inflows in the form of FII and FDI). The RBI controlled inflation by tightening the monetary policy (raising cash reserve ratio and interest rates) and letting the rupee appreciate against foreign currencies. Inflation came well within the control limits in the second half of last year. However, inflation is going up again this year from the last few weeks. Last week, it has gone above 6.5 percent. The reasons of rising inflation this time are quite different from those last year.

Here are some of the main reasons behind rising inflation:

Price rise of essential commodities

The prices of the basic commodities - milk, vegetables, cereals, dairy products, cement, steel, edible oil etc - have gone up quite significantly, especially in the last few weeks. This is due to supply concerns. There is fear in the market that the supply of basic commodities is not increasing in proportion to population growth. This has triggered a wave of speculation in commodities and hence the prices are going up rapidly.

Commodity prices rise at global level

Rise in commodity prices at the global level is another factor that contributes to higher inflation in the country. The correction in global stock market resulted in a rise of commodity prices all over the world as investors are using commodities, especially precious metals, to hedge their risk.

Rising oil prices

Crude oil prices have gone up significantly in the last few weeks. Although the government is controlling fuel prices in the country, rising crude oil prices plays a crucial role in general price rise.

Increasing demand

India's economy is growing at around 7-8 per cent per annum over the last few years. The per capita income levels have gone up and as a result, the demand for many commodities has increased significantly.

Basically, inflation does not have any direct relation to a fall or rise in the stock markets in the short term. However, when inflation goes up beyond the comfortable limit of the RBI and government, they take some strong policy measures such as tightening of monetary policies, regulatory controls, subsidy etc.

View on IT stocks: in the neutral gear

The indice confirmed an intermediate uptrend indicating that the rally has started. The Sensex and Nifty have made a small inverted head and shoulder pattern, giving these indices a minimum target of 17,900 and 5,350 on the upper side. The indices have exhibited descending intermediate tops and bottoms and are in a major downtrend. The Sensex and the Nifty will have to move past 18,896 and 5,545 in the current intermediate rise for the major uptrend to be reinstated. The CNX Mid Cap index has not yet confirmed an intermediate uptrend, as the stock has yet to exhibit rising minor tops and bottoms and will do so after the next minor decline. The trading volumes on Friday, when the indices and scores of stocks confirmed an intermediate uptrend was moderate and below the 50 DMA (50 days moving average) and the low volumes also suggest that the current intermediate rise is just a rally within the major downtrend.

The targets for the intermediate uptrend to fizzle out are at 15,869 for the Sensex and 4,769.60 for the Nifty. Keep on trailing this stop as these indices move higher. As per the time cycle we are likely to see the bullish trend to continue for the next seven trading days and traders can look to buy in declines and sell higher in this period.

In the last week, the Sensex gained 9.18% and the Nifty gained 8.05%. The CNX Mid Cap index ended 8.65% higher. Among the sectors, the BSE Consumer Durable index ended 12.94% and was followed by the BSE Reality index, which gained 12.66%. On the weaker side, the BSE Auto sector ended 4.13% higher and the next was BSE Healthcare index which gained 5.01%.

Our Markets continue to follow the world Markets and this is likely to continue. An intermediate rally has already started in some of these Markets and more Markets around the world are following suit. The earlier intermediate downtrend, which had started on February 4, has now ended on the March 18. The major trend remains down and only if we see a sort of consolidation between 14,500 and 18,500 for the next few months and then breakout on the upper side, a new major uptrend will start. However, currently the major trend remains down and investors must stay away and wait and only trade in the direction of the intermediate trend. They must remember that the current intermediate uptrend is an intermediate rally, unless the indices are able to move past the targets suggested above.

Today, I will take a look at the tech stocks, which have been improving and are poised to move higher in the current intermediate rally.

Infosys

Infosys was an underperformer in the earlier major uptrend, as the stock has been in a major downtrend since the beginning of 2007. The stock has been staying below its falling 30 WMA and will have to move past its earlier intermediate top of 1,685 in the current rally for the major trend to turn up. However, as this level is below its falling 30 WMA, higher levels by the stock will see profit-taking and investors must not be in a hurry to get into the stock. The current intermediate rise is a good trading opportunity for traders on the long side. The weekly MACD Histogram is making rising bottoms indicating that the bears are becoming weaker at this stage n this stock.

Wipro

Like most of the tech stocks, Wipro also went into a fresh intermediate uptrend by exhibiting rising minor tops and bottoms. The stock is in a major downtrend and is exhibiting descending intermediate tops and bottoms. It has come closer to its falling 30 WMA and could move higher in the current week after some consolidation. The earlier intermediate top for the stock is at 552 and the stock will have to close past this level if the major trend of the stock has to turn up. Before the stock moves past this level, it has to face a strong resistance from the major descending trendline. The relative strength line for the stock has started to improve and it is a good trading opportunity for the intermediate rally.

TCS

TCS will have to close past its earlier minor top of 899 to confirm an intermediate uptrend. However, with most of the stocks in the tech sector already in an intermediate uptrend, TCS will follow suit. Once the stock moves past 875, traders can look for long positions with a stop at 840. Trail this stop as the stock moves higher. The 30 WMA for the stock has been falling and this long term moving average will act as a strong resistance to the intermediate rally. The trading volumes for most of the stocks and the indices will be low in the rally. Investors must stay away for some more time till we see signs of the indices bottoming.

SEBI allows institutional clients to have direct market access

Brokers’ manual intervention is not needed

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What it means

This move offered clients direct control over orders, faster execution, reduced risk of errors associated with manual orders and better audit trails.

The move will also reduce the cost of transaction besides curbing possible ‘front- running’ by employees of broking outfits

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Our Bureau

Mumbai, April 3 Institutional investors now can have direct market access (DMA) without brokers’ manual intervention if suitable infrastructure is created by brokers, a SEBI circular addressed to the BSE and the NSE said here on Thursday.

SEBI said DMA offered clients direct control over orders, faster execution, reduced risk of errors associated with manual orders and better audit trails.

Commenting on the nature of the new arrangement, Mr Raamdeo Agrawal, Director of Motilal Oswal Financial Services, said, “What the SEBI directive has implied is that institutional investors (such as FIIs, mutual funds, insurance companies, banks and hedge funds) too, could have a trading terminal similar to that of sub-brokers, in their offices.”

The physical location of the trading terminal is potentially an evidence of the place from where the order is emanating. That could lead to tax complications as it could be construed as evidence of ‘place of business’ – an important attribute for determining tax liability, said an expert with long years of experience in taxation and regulatory matters.

Mr Anil Saxena, CFO of Religare Enterprises, said that the move will reduce the cost of transaction besides curbing possible ‘front- running’ by employees of broking outfits. The improved confidentiality of trades might attract foreign hedge funds that were not willing to do business here earlier, he added.

Mr Sandeep Singal, Co-Head, Institutional Derivatives Business of Emkay Shares and Stock Brokers Ltd, said, “This allows execution of various products based on quantitative and algorithmic models that were not possible so far.

“It would lead to further consolidation in the institutional segment of broking business. Institutional players might prefer to pass their substantial business through their captive broking outfits.”

The broker shall enter into a specific agreement with the clients for whom they permit DMA facility. The client shall use the facility only to execute his own trades and not on behalf of any other person, SEBI said.

SEBI has also directed the brokers to carry out appropriate validation of all risk parameters including quantity limits, price range checks, order value, and credit checks before the orders are released to the Exchange.

BSE, NSE fix new circuit filter limits

A movement of 1,575 points in the Sensex and 470 points in the Nifty would bring trading to a halt through the current quarter ending June, as per the new circuit filter limits set by the country's two premier bourses BSE and NSE. This circuit w ould be applicable on movements on either side of gain or loss, circulars on both the bourses said.

While a movement of 1,575 points in Sensex or 470 points in Nifty, representing 10 per cent of the closing value of the respective indices in the previous quarter, would bring about a halt for one hour, the halt periods would be greater in case of bigger falls after the trading resumes. The exchanges fix the circuit limits at the beginning of every quarter.

According to the circuit-breaker system, a 10 per cent movement before 1300 hrs triggers a one-hour halt, a gain or loss of 15 per cent before 1300 hours halts the trading for two hours, while a movement of 20 per cent leads to the trading being halted f or the remainder of the day.

The exchanges have fixed 10-per cent circuit at 1,575 points, 15 per cent circuit at 2,350 points and 20 per cent at 3,125 points for the Sensex. Similarly, for the Nifty, the points equivalent to 10 per cent circuit are 470, for 15 per cent it is 710 po ints and for 20 per cent, it has been fixed at 950 points, the circular added. The percentages are calculated on the closing index value of the previous quarter.

These percentages are translated into absolute points of index variations (rounded off to the nearest 25 points in case of Sensex). At the end of each quarter, these absolute points of index variations are revised and made applicable for the next quarte r. The Sensex had ended the last quarter ended March 31 at 15,644.44 points.

SEBI for strengthening Know Your Customer norms

Market regulator Securities and Exchange Board of India has proposed that brokers should limit trading exposure of their clients based on their financial position, a move intended to avoid any default from investors.

"The exposure or turnover limit given by the trading members should be commensurate with the financial details of the clients reported in the Know Your Customer (norms)," SEBI said in its draft proposals on improving sales practice by the members of the stock exchanges.

The exposure limit shall be in proportion to the financial details of the client, said the proposals on which SEBI has invited public comments by April 15.

The limits will have to be specified in KYC and will have to be strictly adhered to, SEBI said adding that if the details require modification, they should be appropriately altered.

Also, the regulator said only those who have a financial standing comparable to that of the client can act as introducers.

To ensure the identity of investor, documents like PAN card, income tax return and proof of residence have to be maintained along with the KYC norms.

These KYC norms were introduced under the Prevention of Money Laundering Act, 2002 as a part of the client identification process.

SEBI had prescribed certain requirements to know about clients. These included verification of identity and address, providing information of financial status, occupation and such other demographic information.

BSE to launch Sensex futures on US bourse: Report

India's leading bourse Bombay Stock Exchange, which is planning listing on its own platform, is all set to launch benchmark Sensex-based futures on the US Futures Exchange in Chicago this week, a media report said on Monday.

"Futures based on its benchmark Sensex index are set to launch on the US Futures Exchange in Chicago this week," the Financial Times reported.

The BSE could list on its own platform through an initial public offering or a direct listing this year, the daily said.

Speaking to the newspaper, BSE's managing director and chief executive Rajnikant Patel said a number of issues, including whether to hold an IPO and raise cash or to list the shares directly on the market, were yet to be resolved.

"In terms of time to market, listing without an IPO would be the quickest way. We don't need additional cash as of now," Patel was quoted as saying by the newspaper in an article published in its online edition.

According to the report, there were technical issues which need to be addressed by the regulators such as the question that with whom the BSE would sign its listing contract.

Currently, firms listing on the bourse ink a contract with the exchange itself. Another issue was how the exchange would be regulated. The easiest option would be direct monitoring by market regulator SEBI of the exchange's activities to ensure it is conforming with the listing requirements, it added.

Pointing out that once these matters were resolved, a listing could be held in a matter of months, Patel told the newspaper, "Suppose we received SEBI and other regulatory approvals, whatever is required, it would take 90-100 days".

Further, the report added that the move to list BSE, part of "efforts to reform India's second-largest equities market after its demutualisation in 2005, comes as it seeks to raise its international profile."

Infy, TCS among 1,000 to lose mkt wealth in FY'08

Investors mostly got a raw deal from the stock Markets with as many as 1,000 Companies, including top five IT firms Infosys, TCS, Wipro, Satyam and HCL Tech, collectively losing over Rs 2,50,000 crore in market value in 2007-08.

The total market cap of all the listed Companies in the country, however, rose by about Rs 18,00,000 crore during the fiscal, counting close to 100 that got listed during the year.

But as many as 1,000 Companies including newly listed firms, recorded a fall in their market capitalisation, while another 1,400 firms managed to add about Rs 15,00,000 crore to their valuations.

Those that witnessed a fall in their market cap include the big names of IT sector, such as Infosys, Tata Consultancy Service, Wipro, Satyam Computer, HCL Technologies, Tech Mahindra, i-Flex, MphasiS, Patni Computer and Moser Baer.

Besides, firms like Tata Motors, Dr Reddy's, Cipla, Hindustan Zinc, Mahindra and Mahindra, Zee Entertainment, Jet Airways, Parsvnath, Videocon Industries, Financial Technology, United Breweries, Indian Hotels and Container Corporation also shed value.

Infosys, TCS and Wipro lost Rs 18,000-42,000 crore, while Satyam, HCL Tech and Patni lost Rs 2,000-4,500 crore. Tata Motors, M&M, Hindustan Zinc, Cipla, Container Corp, Dr Reddy's, Tech Mahindra, i-Flex, Videocon, MTNL, Bharat Forge, Sobha Developers, United Breweries, Amtek Auto, Cadila, Wockhardt, Aventis Pharma, Ansal Properties, Aurobindo Pharma, Mindtree Consulting, Hexaware, Subex and NIIT Tech all lost between Rs 1,000-10,000 crore each.

Together these 1,000 firms saw their market value falling to about Rs 7,24,000 crore, from about Rs 9,82,000 crore at the end of fiscal ended March 31, 2007.

In comparison, the market capitalisation of 1,400 other Companies rose to about Rs 40,40,000 crore from about Rs 25,40,000 crore at the end of previous fiscal.

The most prominent gainers included Reliance Industries, ONGC, NTPC, Bharti Airtel, NMDC, MMTC, Reliance Comm, SBI, BHEL, L&T, ICICI Bank, ITC, SAIL, Reliance Petro, HDFC, Indian Oil, Tata Steel and Sterlite Industries.

RIL, NMDC and MMTC each recorded gains of more than Rs 1,00,000 crore, while market capitalisation of MMTC rose by about Rs 98,000 crore.

Besides, market values of Companies, like ONGC, NTPC, SBI, BHEL, L&T, Reliance Petro, ITC, SAIL, HDFC, Tata Steel, Sterlite Industries and Jindal Steel rose between Rs 20,000 crore to Rs 50,000 crore.

Firms like Reliance Communications, HDFC Bank, Unitech, Cairn India, Suzlon Energy, GAIL India, Reliance Capital, Reliance Energy, Nalco, Axis Bank, GMR Infra, Tata Power, Essar Oil, Neyveli Lignite, RNRL and Hindustan Copper also saw their market capitalisations growing by over Rs 10,000 crore.

Collectively, the market capitalisation of all the listed Companies, including those that made a debut on the bourses during the year, rose by over 50 per cent during the fiscal.

The total market capitalisation of all the listed firms currently stands at Rs 53,09,319 crore, as against Rs 35,44,979 crore at the end of previous fiscal.

Besides, the market capitalisation of the 30 Sensex Companies rose to Rs 23,26,429 crore from Rs 17,11,241 crore at the end of the previous year -- representing a gain of about 36 per cent or over Rs 6,00,000 crore

Sebi begins review of public issue norms

Regulator revisits retail quota, pricing and refund rules.

Triggered by the recent market volatility and low floating stock of high-value shares in the market, the Securities and Exchange Board of India (Sebi) has kick-started an extensive review of various issues related to the primary equity market.

According to sources close to the development, the review is based on recommendations forwarded by the Parliamentary Standing Committee following the IPO demat scam and recommendations of the Securities Markets Infrastructure Leveraging Expert Task Force (SMILE) headed by Axis Bank Chairman P J Nayak.

The major issues under review are pricing of IPOs, quota reservation for the retail segment in IPOs, reducing the timeframe for listing IPOs, the refund system in case of unallotted IPO shares and the minimum public holding in a company.

There is a view that the quota system for the retail segment should be scrapped since the small investor base is not widespread.

Instead there could be a proportionate allotment for small investors, given that they comprise a minuscule portion of the total market participants.

Incidentally, in 2006, National Securities Depository (NSDL) had suggested the abolition of quota for retail investors in IPOs in its report to the market regulator on multiple dematerialised accounts.

Under the current practice, while 50 per cent of the allotment in an IPO is set aside for institutional investors, 15 per cent goes to high networth investors and the remaining 35 per cent is reserved for small investors.

NSDL had said quota for small investors should be done away with till the infrastructure for checking frauds involving multiple accounts were put in place.

The regulator is also revisiting the option of a fixed price mechanism for IPOs as against the book-building process, which is akin to auctioning bids.

Sources said in recent times, the book-building mechanism had been questioned as most of the promoters had failed to earn a good price for their public floats.

This is because shares get traded at a much higher price right on the first day of trading compared with the issue price. This has also led the regulator to ask for the circuit filter to be imposed by exchanges even on the first day of trading.

While the regulator has decided in principle to make it mandatory for all promoters to offload 25 per cent of their shares to the public for being listed on exchanges, it may give a timeframe of six months to a year from the date of the final notification for companies to comply with the new norms.

The other proposals under consideration are bringing down the timeframe for the IPO process, expediting the listing process and quickening the process of refund for unallotted IPO shares, provided payments have been made through the electronic fund transfer of banks.

MF buys on year-end sees indices add over 2%

Heavy buying by mutualfunds and insurance houses ahead of financial books closure on March 31 saw indices close higher Friday.

Bombay stock Exchange’s Sensex closed at 16,371.29, up 2.22 per cent or 355.73 points. It touched a high of 16,452.08 and low of 15,884.45.

National Stock Exchange’s Nifty ended 2.31 per cent or 111.75 points higher at 4942.00. The index swung between intra-day high of 4,970 and low of 4,796.35.

“There was buying from various quarters today. Insurance companies and domestic fund houses bought to perk up their NAVs for March 31. There’s talk that insurance companies and Government of Singapore bought into RIL,” said Anita Gandhi, head institutional business, Arihant Capital Markets.

Mutual funds bought securities worth Rs 729.50 crore while foreign institutional investors were sellers to the tune of Rs 401.95 crore, according to provisional data available on the BSE.

“We were in an oversold territory. A lot of funds were sitting on cash and have deployed cash to enter when valuations of most of these companies looked attractive,” she added.

Leading the rally were Tata Steel (up 9.46%), Larsen & Toubro (6.19%), Infosys Technologies (5.94%), Wipro (5.56%), and BHEL (5.37%)

HDFC Bank (down 2.36%), HDFC (1.81%), ONGC (1.65%), Tata Motors (1.41%) and Hindustan Unilever (0.74%) were the biggest index losers.

Tier II and III stocks also witnessed major buying. BSE Midcap Index closed at 6,522.79, up 3.93 per cent and BSE Smallcap Index ended at 7,901.98, up 4.98 per cent.

However, Arihant Capital’s Gandhi feels that Indian equities are not out of the woods yet as global markets are still vulnerable to any negative flows from financial institutions.

“Concern is that the market completely ignored the high inflation figures which otherwise would have had a negative impact on the sentiment. This rally will be seen till March 31 and we may witness some correction after that. Next month our market will take cues from quarterly corporate earnings reports. Taking cues from advance tax numbers, it can be said that not many companies are likely to disappoint” she added.

India's wholesale price index shot up 6.68 per cent in the week to March 15 from the previous week's rise of 5.92 per cent and a market estimate of 5.96 per cent.

FIIs give the thumbs down to SEBI’s margin call

They are referred to as deep-pocketed investors. And the raw money power of some of these institutional investors can make or mar the fortunes of a stock. Yet, when it comes to the SEBI proposal asking them to shell out margins for cash market trades from April 21, the fat cats of the stock market appear reluctant to reach for their wallets.
“No other market in Asia requires this of institutional traders; Korea and Taiwan do have margining, but selectively on high beta stocks,” said the head equity of a leading foreign brokerage, adding that it would put India at a disadvantage to other competing markets.

At present, all categories of non-institutional investors - retail, high net worth and corporate - have to pay an upfront margin of up to 50% on cash market trades. In most cases, the brokerages fund the margin requirements.
Last week, SEBI issued a circular saying that all institutional trades in the cash market would be margined on a T+1 basis (the day after the trade), with margin being collected from the custodian upon confirmation of the trade. Subsequently, with effect from June 16, the margins would be collected upfront.

At this stage, it is not clear if broking firms executing trades on behalf institutional investors can deposit the margin, or if it will be compulsory for the institutions themselves to fork out the money.

The main reason why institutional investors are opposed to the proposal is that it will reduce the pace at which they can churn their portfolios. This is because a certain portion of their funds would be locked up as margin, which otherwise could have been used to buy stocks.

Still, some of the concerns of foreign institutional investors appear to be legitimate. Paying margins is almost like giving an advance payment on the shares which will be received only two days after the trade has been executed. Some classes of international investors, like pension funds, charitable trusts do not allow for this as they do not want to take on the slightest risk irrespective of how well regulated that market is. There is a fear that these investors may turn their backs on India.

Both institutional broking firms (if they are allowed to fund their clients margins) as well as institutional investors resent the move, because it will mean more of their funds getting tied up in the short term. And that means higher transaction costs.

The other issue is related to the transfer of funds. An institution in the US would have to first inform its global custodian, which in turn would notify the local custodian (in India) to release the funds to the exchange or the broker, whichever the case. If margins are to be paid upfront, real-time transfer of funds could pose a problem due to differing time zones in both markets.

For long, domestic non-institutional investors have been demanding that their institutional counterparts too be charged margins so as to create a level-playing field. And even some of the local institutional players feel the SEBI proposal is in good spirit.

“It is a fair move,” says Abhay Aima, country head equities, private banking and third party products at HDFC Bank. “As markets grow and more players come in, risk will go up. If one has to safeguard the market from growing risks, this is required,” he adds.

Brokers say frequent churning of portfolios by institutional investors especially FIIs has been fuelling volatility on the bourses. “It is a positive move and will ensure more genuine trades (by institutions),” says Ved Prakash Chaturvedi, MD Tata AMC, “Currently, the amplitude of swings is huge. That needs to be dampened,” he added.

Stay invested in blue chips !!!

A sharp upswing in the stock market in the past four trading sessions, following a two-month-long downward spiral must have confounded many retail investors The investors have suddenly realised the importance of consistency over flamboyance. These are times when investors can look at stocks, which are market leaders and have track record of consistent revenue and profit growth.

To see if there is something like ‘consistency’ in a topsy-turvy market, we constructed a ‘Blue-Chip Index’ comprising forty-five market leaders across sectors beginning January 1993.

This index constitutes companies like Reliance Industries, Tata Steel, HDFC, Hindustan Unilever and Colgate-Palmolive from FMCG, Ambuja Cements and ACC from cement sector, auto majors like Mahindra & Mahindra and Tata Motors, engineering giants like ABB, L&T and Siemens, besides leading stocks from pharma, financial services, hospitality and information technology industries. This has been done to ensure that all sectors in the economy are duly represented. The returns are seen over the course of last 15 years so as to cover all phases of economic cycle.

It was given that the blue-chip index will beat the Sensex, but no one could have imagined the extent of outperformance. If one had invested Rs 100 in Sensex at the beginning of January 1993, it would have grown to Rs 700 by February 2008. In the same period, an investment of Rs 100 in the blue-chip index would have grown to Rs 1,700 outclassing the Sensex by a staggering 141%.

In all these 15 years, seldom did it happen that the blue-chip index has underperformed the Sensex. The extent of outperformance also kept a secular upward trend and in the bull run, starting 2003, the outperformance grew leaps and bounds, indicating that blue chips are better placed to take advantage of emerging opportunities than their smaller rivals.

The returns are backed by an equally strong earnings growth by these blue-chip companies. Comparing the earnings growth and the value of blue-chip index, we found that if earnings in calendar year 2007 were 22 times that of 1993, the blue-chip index of December ’07 was only 19 times of its value in January ’93.

If one were to counter this argument, one easy criticism is that such blue-chip index will include stocks, which have actually become blue chips over the course of last 15 years. Infosys Technologies was not a blue chip in early ’90s, similarly Wipro, but number of such companies is insignificant in our blue-chip index. Rather, we have companies like HUL, Colgate, Tata Motors, ITC, M&M, Tata Steel, MRF, Raymond and Indian Hotels, which were top companies in their sectors even in early ’90s.

The paradox with stock market investing is that most often retail investors panic and sell-off in a falling market or they have short-term horizon. Only if they pay greater attention to blue chips rather than looking for goldmine in obscure ideas, they would beat best of the mutual fund managers.

Deutsche Bank top FII in India, Bear Stearns comes at 10th spot

Shares of Indian firms where Bear Stearns Asset Management Ltd (BSMA) has stakes took a big hit last week after the FII (foreign institutional investor) sold heavily as its parent Bear Stearns Companies Inc., the fifth largest US investment bank, agreed to a $2 (Rs81) a share takeover from JPMorgan Chase and Co.

The bulk deals data from bourses indicated more than Rs1,000 crore worth of sales by BSMA in just two trading days—14 March and 17 March.

Among a dozen big FIIs in India, BSMA’s portfolio ranks third from the bottom. The fund’s end-December portfolio, at Wednesday’s price, was worth Rs2,491 crore.

A Mint analysis of Indian portfolios of some of the global investment banks, brokerages and their subsidiaries shows that the biggest stock portfolio is owned by German group Deutsche Bank AG and its affiliates, valued at Rs33,579 crore.

The stock portfolio is based on the quarterly shareholdings data available with the Bombay Stock Exchange (BSE), which lists investors with more than 1% stakeholding as on 31 December. Since then, there could have been changes in their portfolios. Besides, the BSE data only refers to those firms in which these funds hold at least 1%. The valuation of their portfolios is based on the market price of the stocks as on 19 March.

New York-based Citigroup Inc. and London-based HSBC Holdings Plc. own the second and third largest portfolios.

“A large part of this portfolio is participatory notes (PNs) held on behalf of our clients,” said Ravi Kapoor, managing director and head of equity capital markets at Citigroup Global Markets India Pvt. Ltd. PNs are offshore derivatives of Indian stocks sold by registered FIIs in India to their foreign clients.

Two US investment banks, Morgan Stanley and Merrill Lynch and Co. follow the table toppers. Hong Kong-based brokerage CLSA Asia-Pacific Markets, majority owned by French banking group Credit Agricole SA, comes next.

Goldman Sachs Group Inc., the world’s most profitable investment bank, owns Indian stocks worth Rs7,307 crore, while US-based JPMorgan has a Rs6,835 crore kitty.

Swiss bank UBS AG with 5,848 crore worth of stockholding in India, held mostly under its subsidiary Swiss Finance Corp. (Mauritius) Ltd, is the ninth largest in this group followed by BSMA.

Interestingly, BSMA had begun selling stocks during the third quarter of financial year 2008, ending December .

While BSMA had 103 firms in its portfolio at the end of the second quarter in September, by end-December, it was down to 86. The big names among the stocks offloaded by it include CEAT Ltd, Dabur Pharma Ltd, Eveready Industries Ltd, Everest Kanto Cylinder Ltd, IVRCL Infrastructures and Projects Ltd, Shipping Corp. of India Ltd and SpiceJet Ltd.

Meanwhile, BSMA also bought a substantial stake, worth more than $150 million, in Jaiprakash Associates Ltd, the latest entrant in BSE’s benchmark Sensex.

Similarly, Lehman Brothers Holdings Inc., which wrote down $1.8 billion mark-to-market losses in its first quarter results, had sold some of its stakeholdings in Indian companies, even as it released a bullish report on the country titled India: Everything to Play For in October 2007.

While Lehman had more than 1% stake in 29 companies at end-September, it had cut down the portfolio to 14 companies by end-December.

Govt says no to curb film piracy with policy

In what is viewed as a setback to the efforts of the film industry in curbing piracy, the government today said the recommendations of the draft optical disk policy on combating piracy would lead to the creation of a regime of inspectors that would go against the grain of the liberalisation policy. For the past few months, the Ministry of Information & Broadcasting was examining the draft Optical Disc Law to check piracy in the film sector. The draft law was prepared by the members of film sector at the initiative of government of India, and they were expecting a positive response. However, addressing the Ficci-Frames 2008 convention in Mumbai, Asha Swarup, Secretary, Union Ministry of Information & Broadcasting, made it clear that the government was not in favour of implementing the recommendations.

Acknowledging, though, that the menace of piracy in the entertainment and media industry was huge, she added that the problem had to be tackled by closing the supply side gaps. "A possible way", she said, "is to release films in ‘C’ and ‘D’ class towns in digital formats". Swarup expressed satisfaction on Pakistani films were being released in India and Indian films like Taare Zameen Par were getting an entry into Pakistan. She hoped that with a new democratic government in place in Pakistan, the situation would further improve and more Indian films would be screened in that country. The secretary also emphasised the need for development of content for TV viewers, especially for children.

Meanwhile, the FICCI-PricewaterhouseCoopers 2008 report estimates the industry at Rs 51,300 crore in 2007 -- a growth of 17 per cent from Rs 43,800 crore in 2006. The Indian entertainment and media industry is projected to clock Rs 115,000 crore by 2011.

In his address, Yash Chopra, chairman, FICCI Entertainment Committee & Yash Raj Films noted that Indian cinema has transcended boundaries. However, he added: "Piracy, IP protection in the animation segment and censorship are hurdles that the Indian media and entertainment industry have to overcome."

Rajeev Chandrasekhar, MP and President, Ficci, pointed out that the industry today had reached a point of critical mass from the early goals of nine years ago. “I believe this industry is poised to achieve the scale and size required to be global in terms of its value and presence,” he said. The challenge for the industry over the next few years, he said, was to scale up and becoming globally relevant to the capital markets and investors; relevant to consumers of entertainment all over the world and to producers of entertainment all over the world.

Kunal Dasgupta, co-chairman, FICCI Entertainment Committee & CEO Sony Entertainment Television, said: "We are in talks with the Academy of Television Arts and Sceince in the US, which represents the popular Emmy Awards, and hopefully we will able to present an Indian version of the popular Emmy Awards by next year." Amit Khanna, chairman, Reliance Entertainment & FICCI Convergence Committee said that new digital techology will reshape the distribution and exhibition business. On-demand entertainment will become the standard industry norm.

6th Pay Commission to see pay hikes by 40%

The Sixth pay commision's report has been submitted to the Finance Minister. The expected outgo to the exchequer is around Rs 13,000-15,000 crore.

We understand from sources that there will be no internal relief. The average increase in basic fair pay for all government employees will be in the region of 40-45%. This is a very rough average because for senior level officers, like the Cabinet Secretary or officials at the secretary level, the payback could increase by more than 50%.

We understand that secretaries to the Government of India could draw anything between Rs 75,000-80,000 per month. The Cabinet Secretary could draw something like Rs 85,000-90,000 per month. Even junior level officers could start of at Rs 15,000-20,000 per month.

So, this is obviously a huge bonanza which translates to roughly Rs 13,000-15,000 crore. However, the report is yet to be made public. The Finance Minister might release a summary of the report or brief the media later in the day.

The objective of the Sixth Pay Commission is really two-fold. One, it wants to showcase what the UPA has achieved in Election Year. Off late, we have seen a brain drain from the government sector to the private sector, a recent high profile example being that of the ex-Finance Secretary who is now the Head of an Indian auto company. The second reason for this release could be to stem the reverse brain drain, so that it doesn’t happen because of low salaries in the government sector.

The Pay Panel has recommended a new pay scale from January 1, 2006. The existing HRA would be retained for A1 cities; while there would be a 10-20% hike for other cities. The maximum government salary would be at Rs 80,000 per month, while the minimum would be at Rs 6,660 per month. The recommendations would cost the Government Rs 12,561 crore in FY09, the Panel has noted. It has said that there would be a one-time burden of Rs 18,060 crore on arrears. Pensioners would get 50% of the last pay drawn, the Panel estimates. It favours 2.5% annual increment in salary.

Promoters of small & mid cap firms take advantage of market meltdown

It’s not just the portfolio investors who were bottom-fishing in the market. Promoters of a bunch of mid and small-cap firms have taken advantage of the market meltdown to buy shares of their own companies from the open market through the creeping acquisition route.

Some companies whose promoter groups have bought shares in the last fortnight when the market crashed include NIIT, Maharashtra Seamless, Gujarat NRE Coke, Uflex, KRBL, Hitech Gear, Birla VXL and Jyoti Structures, among others.

Promoters raise their equity stake for various reasons. Typically for shoring up equity holding or infusing funds into the company, the owners go for preferential allotment of shares or convertible instruments such as warrants.

The creeping acquisition route of buying shares, for which there is a mandatory ceiling in a particular year, entails buying shares from the secondary market is typically done when promoters feel the price in the market is low enough to justify such a purchase. Some firms with healthy cash reserves even go for equity buybacks which in turn tends to increase promoter holding while repricing undervalued stock.

According to stock market disclosures the firms have bought shares of varying proportions in the open market. For instance, one of the promoter group entity of NIIT bought 0.27% stake from the market. The transaction was done at a price 15-20% cheaper than its recent highs.

While the quantum of purchase was not too significant, it comes at a time when promoter holding in the IT solutions firm had been coming down over time. Promoter group holdings slipped from more than 40% in December 2005 to just about 30.14% on December 31, 2007. Nor was this one off case. Promoters of Gujarat NRE Coke also inched up their holdings by a similar proportion(0.25%). In their case also the promoters holding had come down over the last one year from 46% in December 2006 to 41% in December 2007. For others its been a mixed picture. For instance, in case of basmati rice company KRBL, one of the promoter group entities has been buying and selling shares of KRBL at the fag end of 2007. However, the firm started buying shares consistently since January 30 and, as of today, has added 0.7% stake over 10 days. Maharashtra Seamless promoters have added 1.42% stake last week through open market purchases. The transactions come at a time when the company is mulling a preferential allotment of warrants to the promoters. Incidentally, the proposal for the stock split which was mooted last year and was to be implemented soon, has been postponed as is the EGM for approving the allotment of warrants to the promoters. This is not surprising, given that the scrip has dropped about 50% in value over the last one month. Among others KS Oils promoter Ramesh Chand Garg increased his stake in the edible oil company by 1.71% since January 21, the day the market took the first big hit. Another company where the promoter bought 0.33% stake is Uflex (formerly Flex Industries).

How to pick dividend stocks in a troubled market

Even if stocks go nowhere this year—a distinct possibility as US recession looms—investors can get returns by hunting for companies that pay health dividents.You receive the company’s quarterly payouts even if its stock, and the entire market, heads south.

While this is a popular and often successful strategy during bear markets, it also entails some dangers. Watch out for stocks that offer an especially high dividend yield. That could signal that a company might not pay its dividend.

For example, since the credit crisis began in July, financial firms have been disappointing investors by slashing dividends.

At the other end of the spectrum, profitable companies with airtight balance sheets often offer pitifully low dividend yields. The other traditional dividend play is the safe, boring utility sector. Heavily regulated, utilities offer slow growth but high, consistent divi-dends.

However, most managers warned of problems ahead for this sector. Utilities have already had a good run and many market observers think the stocks are overvalued. A good place to find healthy dividend yields is the consumer staples sector, where products like food and tobacco provide steady cash even in recessions.

Another necessary product that often sells well even during recessions is health care and pharmaceuticals. However, big pharma faces chal-lenges. It’s a tough political environment, with increased regulation of the health-care system.

Telecom service providers also offer healthy dividends. These companies pay significant dividends and have strong balance sheets. Energy firms tend to have lower dividends than some sectors, but they’re generating huge profits.

Because high dividends are often concentrated in particular sectors, fund managers say it’s important to diversify. Many dividend-focused investors got burned by too much financial exposure in 2007.

Dividend-paying stocks should continue to be popular in the next decade because of demographic shifts. As baby boomers retire, they’ll seek out more stable investments with steady payouts.

One fact should hearten dividend-focused investors: Company boards will only cut dividends as a last resort.
While there’s no such thing as an entirely safe dividend, stocks with healthy yields are a good place to park money in turbulent times.

Sensex turning sexier for women investors?

It is hard to fathom a day when an Ekta Kapoor soap would be less talked about than stock market fall or rise stories in an all women gossip session. But the fact of the matter is that more and more women are now finding the once 'bastion of men' very attractive, or at-least, worth talking about.

It is not that only now women are getting into the lure of fast bucks. Easy money (read fast bucks) has always attracted men and women alike. But the fact that stock markets were seen as something that only guys with thorough knowledge could deal in had helped in keeping the fairer sex away.

However, things are changing gradually. It is evident from the fact that brokerage firms are now looking at all women branches. Geojit Financial Services Limited, a pioneer in this regard, already has three such all women branches in Mumbai, Chennai and Kochi.

According to some estimates, six in every hundred investors are women now. Undoubtedly, India's growth story is a factor in that, but is that all?

Ajinder Pal Singh, branch manager at the Janakpuri branch of Karvy Stock Broking, a domestic brokerage firm feels that media has played a very important role in making stocks a much more attractive investment option for women, "Thanks to exclusive 24 hour business channels, housewives now have the option of listening to analysts live on TV and accordingly trade online. Women also feel empowered by the easy accessibility of research material on the net. Though I can't give you the exact figures, we have definitely seen a surge in the number of women who express desire and seek our services for investing into the markets."

Traditionally women are looked at as more conservative and hence it is supposed that they would not be going for high risk stocks. Surprisingly, this has not been the case, claims Singh of Karvy, "No matter what the sex of the investor is, he or she realizes that investing in markets is a 'no pain no gain' affair. We have been advising many women investors and most of them are ready to take some risks for some quick bucks"

It is also a fact that women look at investments that can easily be liquidated. They prefer stocks as it gives them the liberty of quitting as and when they desire.

Mayuri Arafat, a resident of Janakapuri says she looks at stocks which can give her return of 5 to 10%, "I prefer not to invest in real estate and other options as they can't be easily liquidated. I have been investing in the markets for quite some time now and have a fair enough idea of what is in store. As I don't put in much money, volatility hardly makes much of a difference."

When asked what advantages a woman investor has over her male counterpart, Mrs Arafat says, "The fact that we don't shy away from asking questions does help us in making sound investment decisions. We also think long term and that, to a large extent, insulates us from market fall."

However, despite the positive outlook, Sumit Kumar of Geojit Financial Limited does not buy the idea that women investors are making big strides in Indian markets. The Relations Officer in Geojit's West Delhi branch just says that women are getting more 'market literate' but that has not been converted into numbers.

So, is the 'rising woman investor' in India just a myth or reality? Well, we'll have to wait and watch. But one thing is for sure that Sensex, after all, is not that unsexy.