STATISTICS :
Global markets today are under pressure can see almost all indices down by 1% and more. Chances of our market fowwloing the same path can see noticed. Opening will be flat to negative due to global pressure. Nifty is rangebound and volatile can trade @ 5995 - 6080 levels, can see buying coming in second session, markets will tend to recover, Market is still stock specfic, one can watch out for the below mentioned picks for today and coming days.
INTRADAY :
IFCI : buy for a tgt of 124+, sl @ 107
EDELWEISS : buy for a tgt of 1530+, sl @ 1445
DELIVERY :
NIIT TECH : buy for a tgt of 310+, time frame is 1 month
HFCL : buy for a tgt of 65+, time frame is 1 month
FUTURES :
IFCI : buy for a tgt of 124+
SATYAM : buy for a tgt of 450 , go for jan expiry
MOSERBAER : sell for a tgt of 285, sl @ 297
RPL : buy for a tgt of 230+
EDELWEISS : buy for a tgt of 1530+ , sl @ 1450
BHARTI : buy for a tgt of 980+, sl @ 935
OPTIONS :
EDELWEISS : buy call 1500 for a tgt of 90+, sl@ 40
EDELWEISS : buy call 1560 for a tgt of 55+, sl @ 16
NIFTY : buy call 600 below 145 for a tgt of 180 , sl @ 120
RCOM : buy call 740 for a tgt of 50+, sl @ 25
Monday, 17 December 2007
Securities in ban period for trade date December 17, 2007- F&O segment
The derivative contracts in the below mentioned securities have crossed 95% of the market-wide position limit and are currently in the ban period. It is hereby informed that all clients/ members shall trade in the derivative contracts of said securities only to decrease their positions through offsetting positions. Any increase in open positions shall attract appropriate penal and disciplinary action in accordance with the Circular No. NSCC/F&O/C&S/365 dated August 26, 2004.
| Sr. No. | Symbol |
| 1 | ADLABSFILM |
| 2 | ALOKTEXT |
| 3 | BONGAIREFN |
| 4 | ESSAROIL |
| 5 | GITANJALI |
| 6 | GMRINFRA |
| 7 | HOTELEELA |
| 8 | MRPL |
| 9 | NAGARFERT |
| 10 | NEYVELILIG |
| 11 | POWERGRID |
| 12 | RAJESHEXPO |
| 13 | TTML |
SEBI panel suggests compensation for retail investors
MUMBAI: This could well signal a new beginning in the country’s financial sector in terms of compensating investors who have been defrauded.
Thousands of retail investors in the primary market could be in line to be compensated monetarily for potential losses suffered by them due to manipulation in the initial public offering (IPO) allotment process of 21 companies two years ago.
A SEBI-mandated committee has recommended that individual investors who were short-changed in IPOs between 2003 and 2005 be compensated in monetary terms. The Justice Wadhwa committee has worked out a compensation of Rs 92 crore for investors who had applied for shares in the retail category in 21 IPOs in 2005-06.
This is based on the closing price on the listing day for all these IPOs, which include IDFC, Jet Airways and Suzlon.
In essence, investors who lost out in these IPOs should be paid the difference between the offer price and the closing price on the listing day, the committee has said in its report, according to sources. This is reckoned to be the unjust gain made by scamsters who cornered shares meant for individual investors.
Sources said the report has recommended that the first to be compensated should be retail investors who failed to get any allotment, followed by those who were allotted fewer shares than they had applied for. Orders to disgorge ill-gotten gains are common in the US, the world’s largest financial market.
Finance Minister P Chidambaram had said last year that he wanted to send out a strong signal to those attempting to defraud investors by compensating them for the losses they had incurred. He had told SEBI to work out a mechanism to ensure this.
The SEBI board will now have to consider the Wadhwa committee’s recommendations and then take suitable action. This would mean going back to old records with market intermediaries and identifying thousands of investors, which can be a cumbersome exercise.
In almost all 21 IPOs, the shares were listed at a premium to the offer price. The compensation can be paid out by selling securities worth over Rs 140 crore of those operators involved in the IPO scam which have been frozen in their depository accounts based on an order issued by SEBI.
The 2005-06 scam featured a clutch of operators who put in thousands of fictitious applications in several IPOs in the retail category of a small value. After allotment, these operators transferred the shares to another set of players, who in turn transferred them to financiers who had provided the funds for investing in the IPOs.
These shares were then sold on the first day of listing, landing them a windfall, the price difference between the IPO price and the listing price. Thousands of bank accounts and demat accounts were opened in the names of fictitious entities, which SEBI investigators unearthed in 2006 after checking over 100 IPOs.
During the probe, it came to light that key operators had cornered shares representing 0.52% of the total number of shares allotted to the retail investors in the Jet Airways IPO. In the Suzlon offering, 3.74% of shares were allotted to operators using over 21,000 different accounts while in the NTPC issue, the operators used 12,853 accounts to corner 1.30 % of the total number of shares allotted to investors.
Thousands of retail investors in the primary market could be in line to be compensated monetarily for potential losses suffered by them due to manipulation in the initial public offering (IPO) allotment process of 21 companies two years ago.
A SEBI-mandated committee has recommended that individual investors who were short-changed in IPOs between 2003 and 2005 be compensated in monetary terms. The Justice Wadhwa committee has worked out a compensation of Rs 92 crore for investors who had applied for shares in the retail category in 21 IPOs in 2005-06.
This is based on the closing price on the listing day for all these IPOs, which include IDFC, Jet Airways and Suzlon.
In essence, investors who lost out in these IPOs should be paid the difference between the offer price and the closing price on the listing day, the committee has said in its report, according to sources. This is reckoned to be the unjust gain made by scamsters who cornered shares meant for individual investors.
Sources said the report has recommended that the first to be compensated should be retail investors who failed to get any allotment, followed by those who were allotted fewer shares than they had applied for. Orders to disgorge ill-gotten gains are common in the US, the world’s largest financial market.
Finance Minister P Chidambaram had said last year that he wanted to send out a strong signal to those attempting to defraud investors by compensating them for the losses they had incurred. He had told SEBI to work out a mechanism to ensure this.
The SEBI board will now have to consider the Wadhwa committee’s recommendations and then take suitable action. This would mean going back to old records with market intermediaries and identifying thousands of investors, which can be a cumbersome exercise.
In almost all 21 IPOs, the shares were listed at a premium to the offer price. The compensation can be paid out by selling securities worth over Rs 140 crore of those operators involved in the IPO scam which have been frozen in their depository accounts based on an order issued by SEBI.
The 2005-06 scam featured a clutch of operators who put in thousands of fictitious applications in several IPOs in the retail category of a small value. After allotment, these operators transferred the shares to another set of players, who in turn transferred them to financiers who had provided the funds for investing in the IPOs.
These shares were then sold on the first day of listing, landing them a windfall, the price difference between the IPO price and the listing price. Thousands of bank accounts and demat accounts were opened in the names of fictitious entities, which SEBI investigators unearthed in 2006 after checking over 100 IPOs.
During the probe, it came to light that key operators had cornered shares representing 0.52% of the total number of shares allotted to the retail investors in the Jet Airways IPO. In the Suzlon offering, 3.74% of shares were allotted to operators using over 21,000 different accounts while in the NTPC issue, the operators used 12,853 accounts to corner 1.30 % of the total number of shares allotted to investors.
Sunday, 16 December 2007
Indian markets among most expensive globally?
Price- to-book value ratio of Sensex stocks is at record 6.5
Chennai, Dec. 15 With the key stock indices at new highs, the Indian markets may now look quite expensive by most valuation parameters.
But do you know that India is now among the most expensive major global markets, based on the price-to-book value ratio (PB ratio)?
The Sensex PB ratio is now at a record high of 6.5, making the Indian benchmark the most richly valued among the global indices on this valuation parameter. The PB ratio is a measure of the value that the stock market is willing to assign to a company, based on the tangible assets on its books.
It is computed by dividing the market price by the book value per share. The PB ratio is the most widely used measure, after the PE multiple, to value stocks.
While the Sensex PB ratio rules at 6.5, data published in Forbes.com in mid-November, reveals that the developed markets in US and Europe trade at PB ratios of between 2.4 and 2.8.
Emerging markets such as Brazil (4.3) and Mexico (3.5) sport PB ratios that are a tad higher than developed markets, but they are still well below Indian levels.
Even the Shanghai Composite Index hovers pretty close to the Sensex, if you go by its PB ratio.
Rapid rise
The current PB ratio of the Sensex is 80 per cent above its eight-year average. What is more, it has climbed from 4.8 in August to the current value of 6.5, in less than three months. The rapid increase in the stock prices over the last three months could be partially responsible for the distortion in this gauge.
Another bit of disturbing news is that it is not just the 30-stock Sensex that is stretched on this parameter. The more broad-based BSE 500 index too is ruling at a PB ratio of 6.2.
This indicates that the widespread rally in recent months has expanded valuations across-the-board.
However, PB ratio for the BSE Small-cap index is at a relatively modest 3.4.
Understated values
However, there is a section of investors who believe that a high PB ratio isn’t particularly worrying for Indian stocks.
Explains Mr Shriram Iyer, Head of Research at Edelweiss Capital: “Price to Book Value, as a valuation measure, usually sets a floor for valuing a stock. It doesn’t capture future earnings potential.” He explains that while a company’s book value typically captures the cost incurred to build assets, it doesn’t reflect the earnings that can be generated by these assets over the next few years.
Mr Iyer also feels that “book value” in the Indian context tends to be understated in balance sheets due to several reasons. He cites the example of natural resource companies.
“The value of mining rights, gas reserves or other resources held by companies such as ONGC, Reliance Industries, Tata Steel, SAIL and so on has risen sharply in recent times, but these assets are captured at cost in the company’s books. To that extent, the price-to-book value may not reflect the earnings potential of such companies.”
“There could also be several intangibles that are not reflected in the books. The value of an insurance subsidiary for a financial service company or the earnings potential of land held by a realty company will not be reflected in book value; yet they may have high earnings potential.
However, it would be difficult to comment on whether a PB ratio of over 6 is expensive for the Indian market,” he adds.
Chennai, Dec. 15 With the key stock indices at new highs, the Indian markets may now look quite expensive by most valuation parameters.
But do you know that India is now among the most expensive major global markets, based on the price-to-book value ratio (PB ratio)?
The Sensex PB ratio is now at a record high of 6.5, making the Indian benchmark the most richly valued among the global indices on this valuation parameter. The PB ratio is a measure of the value that the stock market is willing to assign to a company, based on the tangible assets on its books.
It is computed by dividing the market price by the book value per share. The PB ratio is the most widely used measure, after the PE multiple, to value stocks.
While the Sensex PB ratio rules at 6.5, data published in Forbes.com in mid-November, reveals that the developed markets in US and Europe trade at PB ratios of between 2.4 and 2.8.
Emerging markets such as Brazil (4.3) and Mexico (3.5) sport PB ratios that are a tad higher than developed markets, but they are still well below Indian levels.
Even the Shanghai Composite Index hovers pretty close to the Sensex, if you go by its PB ratio.
Rapid rise
The current PB ratio of the Sensex is 80 per cent above its eight-year average. What is more, it has climbed from 4.8 in August to the current value of 6.5, in less than three months. The rapid increase in the stock prices over the last three months could be partially responsible for the distortion in this gauge.
Another bit of disturbing news is that it is not just the 30-stock Sensex that is stretched on this parameter. The more broad-based BSE 500 index too is ruling at a PB ratio of 6.2.
This indicates that the widespread rally in recent months has expanded valuations across-the-board.
However, PB ratio for the BSE Small-cap index is at a relatively modest 3.4.
Understated values
However, there is a section of investors who believe that a high PB ratio isn’t particularly worrying for Indian stocks.
Explains Mr Shriram Iyer, Head of Research at Edelweiss Capital: “Price to Book Value, as a valuation measure, usually sets a floor for valuing a stock. It doesn’t capture future earnings potential.” He explains that while a company’s book value typically captures the cost incurred to build assets, it doesn’t reflect the earnings that can be generated by these assets over the next few years.
Mr Iyer also feels that “book value” in the Indian context tends to be understated in balance sheets due to several reasons. He cites the example of natural resource companies.
“The value of mining rights, gas reserves or other resources held by companies such as ONGC, Reliance Industries, Tata Steel, SAIL and so on has risen sharply in recent times, but these assets are captured at cost in the company’s books. To that extent, the price-to-book value may not reflect the earnings potential of such companies.”
“There could also be several intangibles that are not reflected in the books. The value of an insurance subsidiary for a financial service company or the earnings potential of land held by a realty company will not be reflected in book value; yet they may have high earnings potential.
However, it would be difficult to comment on whether a PB ratio of over 6 is expensive for the Indian market,” he adds.
An introduction to open offers
There has been a string of open offers in recent months, on the back of a wave of takeovers and stake hikes by the promoters of India Inc. The stock prices of companies for which offers have been made have also zoomed.
Just what are open offers? How are they triggered? How do stocks behave in response to open offers? Read on to find out.
Warning. Some of what you are about to read might seem a bit like regulatory mumbo-jumbo. Here goes.
When there is a takeover, or a substantial quantity of shares or voting rights being acquired, regulations require the acquirer to provide an exit option to the target company’s shareholders, as there is a change in control of the company. The acquirer makes an open offer to buy shares to the extent of 20 per cent of the share capital from the public, at a particular price, during a defined time period. A public announcement is made to this effect, providing details such as the background of the acquirers, the justification of the offer price and the intentions and plans of the acquirer.
Triggers for open offers
Open offers can be voluntary. For instance, a promoter may wish to increase his stake in the company. According to SEBI regulations, promoters holding more than 55 per cent of the capital can increase their stake only by making an open offer to the public. If they hold less than 55 per cent, they can add up to 5 per cent a year to their stake, after making suitable disclosures to the stock exchanges. If they wish to acquire more than 5 per cent in a year, then too, an open offer will have to be made.
Most open offers are, however, triggered when a new acquirer buys a significant stake into a company and his shareholding in the company crosses the 15 per cent threshold limit stipulated by SEBI. In this case, an open offer has to be compulsorily made, barring a few exceptions, and involves a hefty cash payout. This is why acquirers who have a purely investment or financial interest in the company try to maintain their stake at below 15 per cent levels. It is also why the open offer route is rarely used for complete 100 per cent buyouts.
Offer price
The price at which the acquirers buy shares from the public will be based on parameters such as the rate at which shares are acquired from promoters, the price at which shares have been allotted to the acquirers in the six-month period preceding the offer and the stock price behaviour in weeks preceding the offer, whichever is higher.
Confused? Essentially, you can expect the offer price to be at least equivalent to the market price before the offer, or higher. If the acquirer is keen on garnering a higher stake in the company, he is likely to price the offer at a significant premium to the current market price, to induce most shareholders to tender their holdings.
Stock market response
So how does the stock market typically respond to an open offer? While the acquirer is busy complying with regulatory norms, the stock market is busy digesting the idea of a change in control of the company. There is usually an interlude between the time the public announcement is made and the actual offer period. The behaviour of the stock during this period has an immediate bearing on the success of the open offer. Here is how.
The usual response to an offer, especially if the offer price is at a premium, is a sharp run-up in the stock price. Say, an open offer is made for a stock at Rs 125 and its current market price is Rs 100. Who can pass up the opportunity to make a quick 25 per cent gain? A spurt of buying immediately leads to a stock run-up to near Rs 125 levels.
Great expectations
But sometimes the market sees benefits beyond the premium, in this case 25 per cent. It might expect the new management to pump in more money, re-structure operations, help a loss-making company turn around or a small company scale up operations.
The market may expect an ultimate merger with the acquiring company, which could mean a better valuation. Given these expectations, it is only natural that the market price jumps way beyond the offer price.
This has been a recurring phenomenon with a majority of recent offers: Reliance Capital’s offer for TV Today, Kingfisher’s offer for Deccan Aviation, or the promoter’s offer for Tata Investment Corp.
If the market price shoots up beyond the offer price, the acquirers would have to revise the offer price upwards, if they wish to acquire a higher stake.
Alfa Laval, for instance, had to revise its offer price upwards by nearly 50 per cent after its first open offer price of Rs 875 was rejected by shareholders. But with expectations that the Swedish parent would ultimately de-list the Indian subsidiary, even the higher offer price has not found many takers.
Low acceptance ratio
Sometimes, however, the stock price may not run up even if the offer price is at a premium to the current market price. For instance, private equity player Blackstone made an offer of Rs 275 per share to shareholders of Gokaldas Exports, a significant premium to the then prevailing offer price.
Textiles stocks have also been out of favour, as a strong rupee has been hurting off-take and margins of garment exporters. There is, therefore, a good incentive to tender shares to the offer. However, the stock price continues to trade below the offer price.
Here is where the acceptance ratio comes into play. The acquirer offers to buy only 20 per cent of the shareholding. Therefore, if the public shareholding is say 40 per cent, and almost all shareholders accept the open offer, the acquirer will only buy a part of the shares tendered.
That is, you might be able to tender only a part of your holdings to the offer and will have to offload the remaining in the open market. In this case, the company will accept only one of every two stocks tendered. This is known as the acceptance ratio.
So if the acceptance ratio is low, chances are the premium between the offer price and the current market price would never be bridged.
No easy choice
Clearly, there are several factors that influence the stock during an open offer, making the decision to tender shares to the offer no easy choice. Of course, when the stock price runs up ahead of the offer price, your decision is made simpler.
In other instances though, you have a window of opportunity to make a quick gain. Your own expectations from the new management, your investment horizon and target return would ultimately determine your choice.
Just what are open offers? How are they triggered? How do stocks behave in response to open offers? Read on to find out.
Warning. Some of what you are about to read might seem a bit like regulatory mumbo-jumbo. Here goes.
When there is a takeover, or a substantial quantity of shares or voting rights being acquired, regulations require the acquirer to provide an exit option to the target company’s shareholders, as there is a change in control of the company. The acquirer makes an open offer to buy shares to the extent of 20 per cent of the share capital from the public, at a particular price, during a defined time period. A public announcement is made to this effect, providing details such as the background of the acquirers, the justification of the offer price and the intentions and plans of the acquirer.
Triggers for open offers
Open offers can be voluntary. For instance, a promoter may wish to increase his stake in the company. According to SEBI regulations, promoters holding more than 55 per cent of the capital can increase their stake only by making an open offer to the public. If they hold less than 55 per cent, they can add up to 5 per cent a year to their stake, after making suitable disclosures to the stock exchanges. If they wish to acquire more than 5 per cent in a year, then too, an open offer will have to be made.
Most open offers are, however, triggered when a new acquirer buys a significant stake into a company and his shareholding in the company crosses the 15 per cent threshold limit stipulated by SEBI. In this case, an open offer has to be compulsorily made, barring a few exceptions, and involves a hefty cash payout. This is why acquirers who have a purely investment or financial interest in the company try to maintain their stake at below 15 per cent levels. It is also why the open offer route is rarely used for complete 100 per cent buyouts.
Offer price
The price at which the acquirers buy shares from the public will be based on parameters such as the rate at which shares are acquired from promoters, the price at which shares have been allotted to the acquirers in the six-month period preceding the offer and the stock price behaviour in weeks preceding the offer, whichever is higher.
Confused? Essentially, you can expect the offer price to be at least equivalent to the market price before the offer, or higher. If the acquirer is keen on garnering a higher stake in the company, he is likely to price the offer at a significant premium to the current market price, to induce most shareholders to tender their holdings.
Stock market response
So how does the stock market typically respond to an open offer? While the acquirer is busy complying with regulatory norms, the stock market is busy digesting the idea of a change in control of the company. There is usually an interlude between the time the public announcement is made and the actual offer period. The behaviour of the stock during this period has an immediate bearing on the success of the open offer. Here is how.
The usual response to an offer, especially if the offer price is at a premium, is a sharp run-up in the stock price. Say, an open offer is made for a stock at Rs 125 and its current market price is Rs 100. Who can pass up the opportunity to make a quick 25 per cent gain? A spurt of buying immediately leads to a stock run-up to near Rs 125 levels.
Great expectations
But sometimes the market sees benefits beyond the premium, in this case 25 per cent. It might expect the new management to pump in more money, re-structure operations, help a loss-making company turn around or a small company scale up operations.
The market may expect an ultimate merger with the acquiring company, which could mean a better valuation. Given these expectations, it is only natural that the market price jumps way beyond the offer price.
This has been a recurring phenomenon with a majority of recent offers: Reliance Capital’s offer for TV Today, Kingfisher’s offer for Deccan Aviation, or the promoter’s offer for Tata Investment Corp.
If the market price shoots up beyond the offer price, the acquirers would have to revise the offer price upwards, if they wish to acquire a higher stake.
Alfa Laval, for instance, had to revise its offer price upwards by nearly 50 per cent after its first open offer price of Rs 875 was rejected by shareholders. But with expectations that the Swedish parent would ultimately de-list the Indian subsidiary, even the higher offer price has not found many takers.
Low acceptance ratio
Sometimes, however, the stock price may not run up even if the offer price is at a premium to the current market price. For instance, private equity player Blackstone made an offer of Rs 275 per share to shareholders of Gokaldas Exports, a significant premium to the then prevailing offer price.
Textiles stocks have also been out of favour, as a strong rupee has been hurting off-take and margins of garment exporters. There is, therefore, a good incentive to tender shares to the offer. However, the stock price continues to trade below the offer price.
Here is where the acceptance ratio comes into play. The acquirer offers to buy only 20 per cent of the shareholding. Therefore, if the public shareholding is say 40 per cent, and almost all shareholders accept the open offer, the acquirer will only buy a part of the shares tendered.
That is, you might be able to tender only a part of your holdings to the offer and will have to offload the remaining in the open market. In this case, the company will accept only one of every two stocks tendered. This is known as the acceptance ratio.
So if the acceptance ratio is low, chances are the premium between the offer price and the current market price would never be bridged.
No easy choice
Clearly, there are several factors that influence the stock during an open offer, making the decision to tender shares to the offer no easy choice. Of course, when the stock price runs up ahead of the offer price, your decision is made simpler.
In other instances though, you have a window of opportunity to make a quick gain. Your own expectations from the new management, your investment horizon and target return would ultimately determine your choice.
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