One of six stocks beat sensex

Better Benchmark's 23% Gain In Last 12 Sessions With Over 80% Returns

Chennai: The market rally in the last 12 trading sessions has seen one out of every six stocks outperforming the sensex. Up to 287 of the 1,648 stocks listed on BSE and NSE priced over Rs 10, beat the benchmark in the rally that began on March 9.
    Sensex has gained 23% in the period whereas nifty 21%, making it a tad easier for all these market-beaters to enjoy the party on Dalal Street.
    The stock of Sanwaria Agro Oils, which nearly doubled itself to Rs 31.45, heads the winners list, followed by others like Cinemax India (84.2%), Khaitan Electricals (83.8%), Aban Offshore (81.8%), Oregon Commercials (78.7%), J M D Telefilms (78.3%) and D B International Stock Brokers (77.4%), market data complied from Centre for Monitoring Indian Economy (CMIE) shows.
    Penny stocks, with value of less than Rs 10, were kept out of this study as legitimate information on these companies is hard to find and such stocks can easily be manipulated.
    Other notable stocks that gave over 50% returns in this period include Deccan Chronicle Holdings, Essar group firm India Securities, Welspun-Gujarat Stahl Rohren, Blackstone-controlled Gokaldas Exports, Axis Bank and Sterlite Industries — 30 in all.
    Others such as Sesa Goa, Pantaloon Retail, Bajaj Auto Finance, India Infoline, Shyam Telecom, Motilal Oswal Financial, Jet Airways, Novartis India, Tata Steel and ICICI Bank gained between 23% and 50%. Battered real estate firms such as Mahindra Lifespace, Unitech, Ganesh Housing, DLF and Orbit Corporation are also part of the market-beaters.
    Overall, six out of 10 stocks or 1,048 stocks gave positive returns in this rally, which has taken many market participants by surprise. With foreign institutions, mutual funds and insurers favouring stocks over debt, this has led to the markets gaining furious pace and rewarded patient investors who were in the market. UBS Securities has set a 12-month target of 13,500 for sensex, which translates to another 35% upside if the target were to be met by March 2010. UBS analyst Suresh Mahadevan is bullish on auto, banks and, metals and mining.
    "The nifty has crossed psychological mark of 3,000. Now it is trading very close to another important resistance level of 3,150, if this level is a breached decisively then nifty could cross 3,400 mark... Global factors will remain an important factor for forthcoming trading sessions,'' a technical analyst of Indiabulls Securities said.
    Surprisingly, nine stocks such as Abhishek Corporation, K I C Metaliks, Malar Hospitals, Navin Fluorine, Punjab Alkalies & Chemicals and Riga Sugar have neither gained nor lost in this rally. All of them had moved up from March 9 but returns fizzled out by last Friday, i.e, March 27.
    Among losers (over 300 stocks registered losses) were Edserv Softsytems (-52%), Glory Polyfims (-38%), K Sera Sera Productions (-36%), Akruti City (-21.7%) and G M R Industries (-20%).

The Swing Is Away From Equities

The world economy is in a downward spiral, which was unimaginable till a year ago, and the equities market just touched a historic low. So, what's in store for investors in the medium to long-term? ETIG's Pallavi Mulay and Krishna Kant spoke to ING Groep's chief economist Rob Cornell to get a long-term perspective on the global economic crisis and its implications for the investors. Incidentally, Mr Rob was one of the
first economists to forecast the US housingled slowdown back in the autumn of 2005

How do you reconcile to the fact that it was much easier to recommend equities at the top of the bull-run but not now, when they are quoting at a historic low?
    This is paradoxical, but the most important time to give investment advice (in equities) to investors is potentially right now. No one can say, for sure, that we are right now not at the bottom of the crisis and at the verge of a stock market rally. The current revival is a bear-market rally and has some legs, which will take to forward for a while. But, we have not seen the final trough, or the final capitulation, in the equity market, as yet. If we believe that the US is the driver of the global business cycle and the financial market, some of the leading indicators of corporate profits suggest that we will decline further. Our indicators are based on the GDP data that, we believe, work better than those based on other indicators.
But don't you think equity markets bottom out before corporate earnings..
    Yeah, that's true. But we still foresee corporate profits going down in the near term. However, having said that, I must admit that the bottom is not million miles away. It may not happen in the near quarter, but it will happen the next quarter or the quarter thereafter. And if that happens, it will coincide pretty soon with the recovery in the stock market.
Then will you suggest that investors should start accumulating stocks at the current level?
    It will very much depend on the profile of the investor. They have to look at their risk appetite. If you are a portfolio manager of a balance fund and if you underweight equities, you should start buying now. This is because you will anyway have to buy at some point and if you wait too long for the market to hit the bottom, you may be able to buy enough stocks at the right price on their way up. You would rather end-up drive the market up. So these guys would surely be thinking of buying right now. As for retail investors, timing is not so critical. Stock market is not going to rally 30% in the space of one week, though it may happen in a period of two weeks.
Don't you think a 30% rise in benchmark indices in two weeks is too much to expect?
    It's entirely possible. The figure may seem too big in percentage terms, but given the fall, it is a relatively small bounce, if you draw it on charts. So, I don't rule it out altogether. In some of the hammered sectors, such as financials, we are finally seeing some goods news. It seems that the banking system (in the US and Western Europe) is not going to be nationalised, and you can really see substantial gains there. So, it's very difficult to make a concrete call, but if you miss this, you will probably miss one of the biggest rallies in a life-time. If you are a fund manager, you will probably spend 10 years catching up. If you are a private investor and thinking of starting your retirement planning, this is probably the right time. I am not advocating that everybody should pile on, but taking a slightly less dismissive view of the equity market will be the right approach. One way is to start averaging out — making a small but regular investment that makes sure that you, at least, capture some of the bottom.
    Last one-and-a-half-year has seen volatile and dramatic twists-and-turns in the global financial markets. How do you expect these to affect the longterm choices of investors especially with regard to their preference for various asset classes?
    There is substantially a large long-term implication for investors in this turmoil. And I am afraid that most of them are bad in the sense that last 10 years, we had a faster economic growth with a strong credit growth, low volatility and low spreads. And
    this enabled all the asset classes to do well. And all of them, equities, bonds, etc., did well. And commodities did extremely well. Basically, everything flew. Next 10 years will see exactly opposite. We are not going back to a period of strong credit growth of the past. Going forward, credit growth and overall economic growth is likely to be much lower. This will create unpleasant trade-offs between returns on various asset classes, inflation and overall economic growth rate. Assets always love the combinations of low inflation and high economic growth, but that is not going to happen. For every given level of economic growth, we will have a much higher inflation than in the past. If you have deposited in fixed income instruments, you will do slightly better than your peers, who emphasise on other asset classes.
Even better than equities… Not really. Let us think in terms of equityrisk premium. Fixed-income instruments may not necessarily give better returns than equities. The above analysis doesn't necessarily means that bond yields will be superior or interest rates will be higher than that in the past. What I am saying is that for every given level of economic growth, the corresponding level of bond yield and interest rates would be much higher than that in the preceding 10 years. You may have the same levels of interest rates or bond yield, but then overall economic growth rate will be lower. And this translates into lower growth in corporate earnings, which will then feed into equity returns. So even though equities may do well, they will not be able to repeat there past successes.
But what about the difference or spreads on returns of various asset classes, e.g. between equities and bonds? Will it be narrower going forward?
    Yeah, I think you are right. The swing is away from the equity market, once we are out of this initial bounce whenever it happens. Going forward, the swings are much less favourable to equities and in that sense, the opportunity loss to the investors of fixed income instruments will be much less than that in the past. One of the things that we saw in last 10 years is that volatility, i.e. risk, got compressed by a wall of savings from Asia. This compressed everything and everyone could buy more of everything without worrying about the risk, as on historical basis, they didn't matter at all. Now, this strategy will work only if risk remains low. Are we going to get such an environment once again? That will require once again a wall of credit to compress volatility. No one thinks we are going to go back to such an environment once again.
In the US, many pension funds steadily increased their exposure in equities. Does this mean that they will now cut down on their equity investments, which will then have repercussions for the entire world?
    We are already seeing this in a number of pension funds in OECD countries including the UK and the US. In latter, we have quite a few of the pension funds systematically moving out of equity, some entirely and moving into fixed income. When they did this, the timing may not have been entirely right. But you have to think of risk adjusted return and not the overall return. So these are tricky decisions to make.
Do you support the ongoing argument in India that pension funds should be allowed to invest in equity market?
    There is no reasonable argument to have a proportion of your investment in equity markets. The question is what the right proportion is. Then you have to think about risk –return profile and whether you have adequate diversification. I will expect funds to have at least some exposure to equities.
In India, equities still doesn't account for more than 10% of the pension funds under management…
    That is very low for me. From a diversification point of view, equities should constitute anywhere between 40-60% of the funds depending on the risk profile of the investee. It could be less if you have two years left and much higher if you are 15-20 years away from retirement.
Last 10 years, almost all sectors and all kinds of firms did well on bourses. Can we expect the equity market to discriminate much more between various sectors and kind of firms?
    Yeah, expect the market to favour the companies with strong balance sheet, while those with huge loads of debts on their books are likely to be penalised. The best placed will be those companies that are able to finance their growth out of internal resource generation.

Nurturing Petro Dreams

Cairn's production from its Rajasthan field is set to begin shortly after a long investment phase and this marks a good time for the long-term investors to buy into the scrip

 CAIRN India (CIL) is set to emerge as one of India's leading petroleum producer - and possibly the largest onshore producer - once its oilfields in Rajasthan reach peak production in 2 years. The company is about to commence production at its largest Mangala field and scale it up gradually to 80,000 barrels per day by the end of this year. Its growth prospects look attractive for long-term investors.
    Business: Cairn India, which is a 64.7% subsidiary of the UK-based Cairn Energy, holds petroleum exploration and production (E&P) rights in 14 blocks across India. It is an operator in two blocks - with a 22.5% stake in Ravva field off the eastern coast and 40% in Cambay basin fields - which together produced around 67,600 barrels of oil equivalent per day (boepd) in 2008. Out of this, Cairn's share worked out to around 17,600 boepd.
    CIL made an important hydrocarbon discovery in Rajasthan in 2004 and, after further discoveries, has established inplace reserves of 3.6 billion barrels of oil equivalent (boe). It holds 70% operator's stake in this field and the remaining 30% is held by ONGC. The company recently acquired exploration rights in one block in Sri Lanka.
    The crude oil produced from the Rajasthan fields has high wax content and therefore needs to be heated while being transported through a pipeline. The land-locked nature of the oil field
also makes marketing of this crude difficult. The company has overcome these difficulties by changing the point of delivery to the coast of Gujarat from Barmer and the cost of constructing the pipeline - nearly $800 million - was included in the field development programme expenses.
    Growth Drivers:The company intends to start the production of 30,000 bpd by October this year and raise it to 80,000 bpd by January 2010. By July 2010, the Mangala field will operate at full capacity of 1, 25,000 bpd. The Bhagyam and Aishwarya fields will come on stream in 2011, thereby raising the peak rates to 1,75,000 bpd.
    The smaller fields in the Rajasthan - Rageshwari and Saraswati - can add another 10,000-15,000 bpd. CIL plans to drill nearly 300 more wells in these blocks and use enhanced oil recovery (EOR) measures from the early phase to improve the production levels in the future.
    The company's exploration efforts elsewhere in the country are also on schedule and hold a possibility for new discoveries.
    Financials: The consolidated profit of CIL stood at Rs 785 crore for the year ended December 2008, with Rs 446 crore coming from other income. The company is carrying a cash balance of Rs 2,943 crore, over and above its debt, for funding its capex plans. It generates healthy cash-flows from operations and had raised Rs 2,500 crore through preferential equity placement in April 2008 to build this war chest.
    Valuation: At the prevailing market price of Rs 188, the company is trading at 45.6 times 12 months profits. However, its current valuations are more dependent on expected petroleum output rather than existing operations.
    If the company meets its production targets, it should report net profit of Rs 849 crore in FY2010 and Rs 5,144 crore in FY2011. The existing market price is 41.7 times the profits of 2009 but merely 6.9 times the expected 2011 profits. The company's profitability would go up further after it commences peak production of 1,75,000 bpd in 2011.
    Risk Factors: The price movement of crude oil is the key risk for Cairn. The oil prices, which crashed to $35 in December 2008 from $145 in July 2008, have recovered over the past couple of months. But if they remain soft for a protracted period of time, Cairn's realisations and profitability would take a hit. A substantial appreciation of the rupee against the dollar will also impact the company adversely.
    ramkrishna.kashelkar@timesgroup.com 

Markets may be fairly valued, but that’s no reason for the bulls to cheer.

TOO HOT TO HANDLE

Markets may be fairly valued, but that's no reason for the bulls to cheer. The leading indicators point to a rough ride ahead and that's good news for those sitting on the fence

THE benchmark indices in India are up by a mouth-watering 20% in the past three weeks. Encouragingly, bulk of these gains occurred in the last five trading sessions. The speed and magnitude of the rally left many observers scurrying for answers. While it is always difficult to guess the market's next move, the latest recovery has given rise to all sorts of speculation and forward-looking statements, with the street equally divided between bulls and bears.
    This constant tussle between bulls and bears is enough to unnerve the old-timers; we can just imagine the plight of retail investors who are sitting on the fence looking for the right opportunity to make their moves. This is a time to go back to the basics. Around a year back, we at ETIG had devised a simple and more intuitive way of estimating the right market level –tracking trends in the dividend payouts by companies. The historical data suggests that the movement in benchmark indices closely follow the long-term trends in dividends, albeit with a lag.
    This should not be surprising. After all, the prevailing stock price is nothing but the current value of all future dividend payouts by the company. In the absence of this, equities will become a "big ponzi scheme," where you buy a stock expecting the other guy to buy at a higher price and so, on without any underlying value. But why should the last guy be left holding a useless piece of paper?
    The relative co-movement in Nifty index value and dividend payouts by 50 companies comprising the index is shown in the chart below. Both dividends (actual) and Nifty are indexed to 100 at the beginning of the period starting on 1st Jan, 1999. The chart demonstrates a close corelation between the dividend and Nifty trends. Whenever the Nifty trendline overshoots the dividend line, it declines to close the gap and vice versa. This happened during the dot-com bust of 2000, the stock market crashes of May 2004 and June 2006. And whenever dividend outgrows index, the Nifty catches up albeit with a lag such as was the case in 2003 and 2004.
    So what does the dividend line say about the current rally, which has taken the Nifty to 3100. As is evident from the chart, the Nifty is fairly valued at its current level with both the trendlines blissfully kissing each other. However, there's a caveat. The dividend data for most Nifty companies pertains to FY 2007-08, which was incidentally one of the best years for India Inc. Given the state of the economy and corporate health, most observers expect a cut-back in dividends by a majority of companies. This
will push the dividend lower and not higher, as the bulls would like it to be. In the last economic downturn in late 1990s and early part of this decade, the decline in dividend payments was to the tune of 10-20%. And in many cases, dividends dried out completely as companies turned lossmaking. The latter is already visible in the auto sector. Even if we assume an average 15% dividend decline for the market as a whole, the Nifty's fair level is somewhere between 2500 and 2600. Now you know why the market keeps bouncing back from that level, which is also described as a strong support by many experts.
    The above prognosis is supported by various macro and non-equity indicators. One of the most obvious is the yield on the government bonds, which is currently on an upward curve. The government has announced plans to auction bonds worth a whopping Rs 240,000 crore in the next six months. Such a heavy borrowing programme will not sail through at the current interest rate levels. The government will necessarily have to juice up its bonds offering with higher yields. This will have a cascading effect on the entire economy, including the stock market. If the borrowing costs of the best borrower in town go up, the interest rates applicable to corporates and individuals will just shoot up. While this will raise India Inc's interest payments and lower profitability, it will further diminish the demand for interest rate sensitive products such as passenger cars, commercial vehicles, high-end consumer durables and housing. All this is negative news for the equity market. Anyway, there is always a negative correlation between interest rates and return on equities. Being a risky asset, equities thrive in an environment of low interest rates and easy money. That period is firmly behind us for now. So then where do the investors go from here? Our one-line advice to the retail investors is to stay way from pull-back rallies in the near future. Market reversals are equally sharp and it's difficult for retail guys to catch the momentum and reverse their positions at the right time. Retail investors are better advised to buy their favourite stocks on dips. And blue chips are a must-buy below the Nifty's 2600 level. This is a natural level for the near term and the market will always try to come back. However, even at current levels, quite a few blue-chip counters are available at historically low valuations. If you buy at regular intervals, without waiting for the market bottom, you have a greater chance of capturing at least a part of the bottom. As we have always been advocating, this is the time to start planning for your retirement. Because 20 years down the line, no other asset will match the cash flows that equities can provide.
krishna.kant@timesgroup.com 

RIL set to begin KG gas output

 RELIANCE Industries, India's largest private sector company by market cap, will begin gas production from the Krishna Godavari (KG) basin in the next 24 to 48 hours. The production of gas from Dhirubhai 6 (D6) block of the KG basin will open up a potentially vast revenue stream for the oil-toyarn conglomerate and is estimated to add close to $2 billion to RIL's bottomline at peak production levels, a person close to the development, who did not wish to be named, said.
    RIL, which has recently commissioned a new 29-million tonne refinery in Jamnagar, is thus set to monetise two of its biggest investments in recent years.
    Unlike the refinery project, which may not send cash registers ringing in the immediate future, given the contraction in global demand for fuel, the gas project is set to have a sizeable upside for RIL's bottomlines. This is because RIL will be supplying gas to the domestic market, which has a huge demand-supply gap, with fertiliser and power companies running plants at sub-optimal levels for want of the fuel.
    Also, unlike the refinery business, the gas project will generate stable revenues and profits, which are not dependent on variables like crude prices, a sector analyst, who closely tracks RIL, said.
    The current demand for gas in India is estimated be to nearly 190 million standard cubic metres per day (mmscmd), against a supply of 80 mmscmd, resulting in a shortfall of over 110 mmscmd. The KGD6 field is expected to reach a peak production of 80 mmscmd by the end of 2009.
    "A major portion of the current shortfall in India's gas availability can be met once this happens," said PMS Prasad, president and CEO, oil and gas, RIL. 'Lower input costs to help boost RIL's profits'
ALTHOUGH the KGD6 project is expected to take around four years to break even, profits from the gas business will steadily add to RIL's bottomlines.
    RIL's topline at peak production is likely to be $4.2 billion. The estimate of the net profit figure of $2 billion is after deducting a 10% share to partner Niko, royalty and cess payments, operational expense, the government's share of profits, interest and depreciation.
    The company will be paying 10% as profit petroleum to the government initially as per its production sharing contract with the state. Oil companies share a pre-determined part of their profits with the government in accordance with regulations governing India's oil and gas exploration policy.
    The pre-commissioning countdown has begun and the production of gas from the deepsea exploration block is all set to start, possibly as early as Monday or Tuesday, the person in the know said.
    The gas would be pumped into the East-West pipeline and supplies to the first batch of consumers — 12 fertiliser companies — would begin from mid-April. RIL has projected a production of 10 mmscmd in the first month, which would be ramped up every month. The fertiliser companies have been allotted 15 mmscmd of gas in the first phase. RIL is planning to scale up production to the peak of 80 mmscmd by the year end.
    RIL's next set of consumers will be the gasstarved power consumers who should be signing the gas sales contract in the next few days. The petroleum ministry has approached the Election Commission to obtain special permission for the gas contracts to be signed, a government official in the know said.
    "It is important to have the contracts and consumers in place because it would be difficult to regulate the gas supplies once the production has begun," he said.
    According to a Goldman Sachs report released last week, KGD6 gas could substitute around 7% of oil consumption in 2009-10 and about 10-11% over the next three fiscals. Goldman Sachs also forsees a fall in India's total import bill and the current account deficit.
    "In addition, we expect the lowering of input costs to help boost corporate profits, and thereby tax collections. We estimate the direct impact of this on revenues will be 0.1% of GDP in FY10, but increase to nearly 0.2% over FY11-14," according to the report authored by Tushar Poddar, vice-president, Asia Economics Research.
    RIL is planning to invest an estimated $8.8 billion in the KG exploration block, and of this, it has spent $5.5 billion in developing the block and beginning production. Awarded in the first round of the exploration bidding rounds under the New Exploration Licensing Policy (NELP) in 2000, RIL began developing the block in 2006. It struck gas in 2002, the world's largest find in that year.
    soma.banerjee@timesgroup.com 

Mumbai Will Join The Rest Of The World On Saturday In Switching Off Lights For 1 Hour

DARKNESS FOR A NEW DAWN

Mumbai Will Join The Rest Of The World On Saturday In Switching Off Lights For 1 Hour To Save Power And The Planet

Aamir Khan, Sachin Tendulkar, Amitabh Bachchan and one billion others from 1000 cities— Helsinki, Nairobi, Las Vegas and the like—around the world have promised to switch off their lights for 60 minutes as part of the WWF Earth Hour movement to spread awareness about global warming.
    Dismiss it as mere symbolism at worst or laud it as a massive effort at sensitising people to save their planet before it's too late, the movement that began as an experiment in Thailand in 2005, then took off in Sydney in 2007, the idea has many takers who will put off the lights for 60 minutes from 8.30 pm local time in every country on Saturday. "Earth Hour, aims to highlight the voice of the people of the world and represent a visual mandate for meaningful policy on climate change,'' a WWF official said.
    The idea is not new to Mumbai. On December 15, 2007, a local campaign called Batti Bandh was organised by an enthusiastic group of young professionals. Groups of citizens came together during the outage to sing songs, hold candlelight dinners and organise games as gestures of solidarity. Leading from the front, pre-teens and teens went from house-to-house asking bemused housewives and elders to turn out the lights. Batti Bandh may not have bee very successful in terms of reach—Mumbai's skyline did not dim—but it did create awareness about energy saving.
    City-based greens welcomed the WWF initiative and said the gesture will go a long way in creating awareness about climate change. "We should internalise this practice rather a public demonstration every year. By switcing off lights one hour every day we can shut down 50 thermal plants. The impact of climate change will be huge but unfortunately policy makers are not interested in making it a part of their poll agenda,'' said Bittu Sahgal editor of Sanctuary magazine. "The 26/7 floods were just a curtain raiser. We are just on the brink of a huge environmental disaster in the coming years," he warned.
    Agrees Debi Goenka, of Bombay Environmental Action Group (BEAG) which has been fighting an almost losing battle to save the last stretch of mangroves in the city. "The WWF initiatve maybe just a symbolic gesture . But we need to begin somewhere. The youth should come out in large numbers and support the green cause or we may face yet another 26/7 soon,'' he said, adding the last remaining open spaces in the city are being usurped by builders.
    Sahgal said the increase in private transport has only added to the woes. "We need better public transport system which can reduce pollution levels,'' he said.
    Rishi Agarwal, of Mangrove Society Of India, Mumbai, said though in October 2005, the Bombay High Court had passed an order disallowing construction within 50 metres around mangroves it has been blatantly violated. "I will take this issue to the people,'' said Agarwal who is contesting in the Lok Sabha election from Mumbai North-west as an Independent.
WWF has made an effort to link up and bring all manner of players on board: from celebrity to corporate. Some of South Mumbai's tallest buildings have signed on—Air India building at Nariman Point and the two RBI towers will join monuments like the Sphinx, the Acropolis in Greece, the Empire State Building in New York and the Petronas Towers in Kuala Lumpur in darkness. Fifty corporates have promised to be part of the campaign including hotel groups like ITC and the Taj, banks like ICICI, Standard Chartered and HSBC, and tech giants such as Wipro, Google and HP.
WWF members in Mumbai will host cultural programmes at the Bombay Port Trust Garden in Colaba—a street play, folk dance and an acoustic music concert, followed by a human chain.
Climate activist and the author of Carbon Planet, Mukund Aparajit said, "The impact may not be measurable but it certainly helps spread awareness about the cause and how by bringing about lifestyle changes one can decrease carbon emissions.''
SAVED IN 60 MINUTES
The Earth Hour is a campaign started in 2007 by World Wide Fund for nature (WWF) to create awareness about climate change and environmental problems by switching off lights for one hour
It was based on an idea successfully implemented in Thailand in 2005, and later in Sydney in 2007. It achieved worldwide participation in 2008 when 400 cities went dark
This year 1 billion people from 1000 cites in 75 countries, including India, will participate.
WWF says 2009 is a critical year in terms of the political decisions that will be made at global climate negotiations in December 2009.
READ, WATCH AND CLICK
Book: The Long Thaw: How Humans are Changing the Next 100,000 Years of Earth's Climate
Climatologist David Archer makes a grim prediction — if we continue to pump carbon dioxide into the atmosphere at alarming rates, seas are likely to rise by 50 metres.
Film: The Age of Stupid
It's 2055 in Franny Armstrong's film. An archivist (Pete Prostlethwait) who works in an Arctic that has melted, watches news and documentary footage from 1950-2008 and wonders why the world didn't halt a meltdown when it could have. Website: http://www.wwfindia.org/help/ greenliving-tips/ Send e-greetings instead of cards and water your garden early morning or late evening to avoid evaporation. These are just a couple of tips from a list of ways to lead a more eco-friendly life on World Wide Fund India's website.

Ranbaxy Labs suffers net loss of Rs 951 crore

INDIA'S largest drugmaker Ranbaxy Laboratories reported a consolidated net loss of Rs 951 crore for the financial year ended December 2008 compared with a net profit of Rs 774.58 crore the previous year, as per its audited results declared on Friday. The Gurgaon-based company's net sales grew 8.26% to Rs 7,295 crore in 2008, from Rs 6,692 crore in 2007.
    The net loss for the year was 4% higher than the unaudited consolidated annual net loss of Rs 914 crore, announced in January. Hit by foreign exchange losses, ban on 30 drugs in the US and adoption of a new accounting standards, it had recorded one of its worst performances in 2008. Ranbaxy's scrip rose 4% to Rs 164.35 at the Bombay Stock Exchange (BSE). Under the audited figures, net sales was 6% higher at Rs 7,295 crore compared to the unaudited financials.
    Ranbaxy has also appointed corporate lawyer Percy Shroff as an independent director on the board. "The board of directors of the company, at its meeting held on March 27, approved the appointment of Percy Shroff as a director (independent) of the company in the casual vacancy caused by the resignation of Harpal Singh," it informed the BSE on Friday.
    Ranbaxy's CMD Malvinder Singh told ET: "We have appointed BSR & Co, the Indian affiliate of KPMG, as our auditor as KPMG is the global auditor of our parent company Daiichi Sankyo."

Weak Re may power IT cos’ Q4 show

A WEAK rupee, which has depreciated more than 10% against the dollar since last October, may save the $50-billion IT services industry's blushes as it gears up to announce fourth-quarter results, but slowing topline growth remains a cause of concern in the long run.
    The companies are sparing no effort to ride out of the tight situation — a result of high exposures to the recession-hit US market and the troubled financial services sector. They hope better use of their employees, longer working hours and salary freezes will help them improve margins.
    While margins may remain stable due to some productivity gains and a depreciating rupee, the coming fiscal could well be the weakest that the IT industry has seen in over a decade. Companies find new business hard to come by in a tough market. With software industry body, Nasscom, cutting growth forecast to 17% for this year from its earlier projection of 21-24%, they find little to cheer about.
    With new technology spends on hold, companies are adopting a wait-and-watch approach, while closely monitoring costs. "Given the market conditions, growth will be under pressure. Revenue growth and volume growth will be hit," said Amit Singh, executive director & head of IT services practice, Avendus Advisors, an investment bank.
    According to Goldman Sachs, concerns about limited visibility, increased pricing pressure, industry exposure to the US (60-70% of total revenues) and financial services sector (around 35% of revenues) will linger. Re impact depends on IT cos' hedging strategy
"WE view CY2009 outlook (10%-plus revenue growth year-on-year) as consistent with our cautious coverage," said a Goldman Sachs analyst.
    The rupee's fall does have a positive impact on margins, with every 1% depreciation improving margins by 40-50 basis points. "Yet, some of this improvement has been neutralised by the forex losses that IT companies have incurred," says Harit Shah, research analyst at Angel Broking.
    Much will depend on how companies have hedged. About a year ago, when the rupee was strengthening, companies locked contracts at Rs 42-43 to a dollar. Now, with the rupee dropping to around Rs 49 to a dollar this quarter, a lot depends on how companies had placed their bets. "Most companies lock in a sizeable part of their receivables, up to 80% at times, at a particular rupee-dollar rate for 12-18 months. In that sense there may not be too much to gain for companies except in new contracts," said Suvojoy Sengupta, partner at consultancy firm Booz & Co.
    While the rupee fell against the dollar, it gained against the pound and euro. A lot will depend on how CFOs managed their currency basket, Mr Sengupta said. During this quarter, the rupee has stayed above Rs 49 against the dollar.
    Companies such as TCS have increased working hours by at least five hours per week and the employee use across the industry has increased by 3-6%.
    "Companies have several levers for margin improvement and this will be seen in the quarter results. They are signing new contracts at levels 10-12% lower compared to previous quarters. This loss is being compensated by higher use of the bench, cut in wages and rupee fall," said Avinash Vashishtha, CEO of Tholons, a Bangalore-based advisory firm.
    Companies are looking at new growth areas such as consulting and high-value services, while waiting for demand to pick up. "We stay 'market underweight' on the IT sector, as we do not see any catalysts on the horizon, while keeping in mind the downside risks," said Viju George, research analyst at Edelweiss Securities.
    For companies, this could mean a faster shift to high-end services, lest they are left with only lowmargin business, making survival a challenge in the long run.

SENSEX ON ROAD TO REDEMPTION

TENTH PASS

GREEN CHANNEL: RECOVERY AROUND THE CORNER?
The pall of gloom over the economy may just be lifting if the Sensex's good run in recent days — on Thursday, it rose 335 points to breach 10k — and pickup in steel production are any indicators...

Our Bureau MUMBAI

    THE Sensex closed above the psychological 10,000 mark on Thursday after more than two-and-a-half months, reviving fond memories of the boom time, and hopes that equities may finally be on the path to recovery. Brokers attributed the gains to frantic covering of short-positions in the derivatives segment — it being the settlement day — and the upbeat mood in global markets.
    While Indian equities have gained nearly 23% in about three weeks since the worldwide rally began early this month, market watchers are unsure if the rally is indicative of an impending recovery in the economy. Since March 9, the Sensex has gained 1,842 points, with five stocks — Reliance Industries, Infosys Technologies, HDFC, ICICI Bank and HDFC Bank — accounting for over 53% of those gains. Reliance alone accounted for 25% of the rise, as market is expecting some announcements related to production of gas from its KG Basin blocks shortly.
    The Sensex closed at 10,003.10, up 335.20 points, or 3.5%, over its previous close, while the 50-share Nifty closed at 3,082.25, up 97.90 points or 3.3%. According to provisional data on BSE, foreign funds net bought close to Rs 1,300 crore worth of shares, easily offsetting the net Rs 462 crore worth of sales by local institutions.
    "Even after the recent runup, shares are not significantly expensive," said Sashi Krishnan, CIO, Bajaj Allianz Life Insurance. "We will continue to be buyers in stocks where we will find value. I think there is lot of value in many stocks at this point of time," he said.
Brokers said mutual funds have been booking profits due to redemption pressures, but insurance companies continue to be steady buyers. "Strong insurance flows in March may lead to further buying in equities going forward," said Vikram Kotak, CIO of Birla Sun Life Insurance. "This (the recent rally) is an early sign of risk aversion reversing, with the US currency's depreciation leading to money moving out of sovereign securities to commodities and equities," he added.
    Significantly, however, the government announced its huge borrowing programme just an hour before the closing bell and the details later.
RETAIL INVESTORS PLAY IT SAFE
RETAIL INVESTORS, WHO USUALLY
get carried away by a sudden frenzy in the market, are treading a bit cautiously. While the Sensex has risen more than 1,800 pts in the past three weeks, the second-rung stocks have underperformed, reflecting the small investors' lack of confidence. P 16 Capital goods stocks drive up indices
CHANCES are that some smart operators may have pared their positions after the borrowing data; a clearer picture of which may emerge on Friday. One of the biggest market operators is said to have built a sizeable position in bank counters.
    Key Asian markets rose between 1% and 4%, while European markets were mostly lower, sobered by a 6.3% fall in the US economy during the fourth quarter of 2008. According to foreign media reports, the decline was higher than what most market watchers were expecting. The number of people claiming jobless benefits has risen to a record 5.56 million, underscoring the economy's woes.
    In a move that could tighten capital flows across the world, treasury secretary Timothy Geithner plans to bring large hedge funds, private equity firms and derivatives markets under federal supervision for the first time as part of a revamp of the US financial rules.
    Back home, Thursday's rally was driven mainly by capital goods, with the BSE Capital Goods index rising over 6%. Star performers included ABB, Bhel and Larsen & Toubro, which rose between 3% and 6%.
    Brokerage house Credit Suisse is not excited about the prospects for the sector, saying that industrial output data suggest lower order flows for capital goods firms in FY10.
    "In the past, a recovery in IIP from such low levels has been backed by a stock price recovery with a lag of at least 6-12 months. This essentially indicates that a sustained recovery in macro fundamentals is more relevant for stock price performance than a mere reversal in IIP trends," the Credit Suisse note to clients said.

Ten stocks are controlling 52% of index

Heavy weight index stocks

just watch this 10 stocks for market direction

 

BHARTIARTL     5.79%
BHEL     3.15%
DLF     3.33%
INFOSYSTCH     3.46%
NTPC     5.37%
ONGC     8.14%
RELIANCE     12.26%
RCOM     3.95%
SBIN     3.44%
TCS     3.12%

India Inc may get 2-year relief over forex losses

THE National Advisory Committee on Accounting Standards (Nacas), which is the final word on accounting policies followed by the Indian industry, has favoured suspending for two years a key rule that requires firms to mark-to-market foreign exchange assets and liabilities, a decision which comes as a victory for corporate India, as it sits down to draw yearly financial results.
    The demand to suspend this rule, known in accounting circles as AS-11, was made by the Confederation of Indian Industry (CII) on grounds that it could severely distort the earnings of many companies. It was contended that this accounting standard, designed to address normal conditions, should be suspended for the time being, as the present market conditions were not normal.
    India Inc may post better results if Nacas' recommendations are accepted, as it would spare several companies from taking a hit to reflect the 27% depreciation of the rupee against the dollar in the past one year. Higher profits would mean higher tax collections for the government.
    A similar debate is now raging in the US on whether the capital market regulator, Securities and Exchange Commission, should suspend mark-to-market accounting rule that has forced banks to report billions of dollars in asset writedowns. Nacas' recommendations are usually accepted by the government. Nacas chairman YH Malegam declined to comment on whether the body, which was constituted by the ministry of corporate affairs, had asked for the suspension of AS-11 until April 2011.
    The ministry of corporate affairs, which gives statutory force to Nacas' suggestions through notifications, also declined to comment. Nacas consists of representatives from the ministry of corporate affairs, the Reserve Bank of India (RBI), Comptroller and Auditor General of India (CAG) and various chambers of commerce.
    The decision to hold off implementing AS-11, which would have forced companies to mandatorily account their foreign exchange losses, was taken at a Nacas meeting held in Mumbai on Tuesday.
SAVING ACCOUNTS
What is AS-11?
Accounting Standard-11 mandates MTM provisioning in the P&L a/cs for forex-related gains and losses. It moots forex assets & liabilities be recorded at a fair value on the date of preparation of balance sheet
Why are cos against it?
CII wants suspension of this norm on grounds that it has distorted the earnings of many cos. It contended that this accounting standard, designed to address normal conditions, should be deferred as the present market conditions were not normal ICAI objects to Nacas plan
THE decision was strongly opposed by the accounting regulator, the Institute of Chartered Accountants of India (ICAI), said one official who attended the meeting.
    ICAI, whose objections were overruled by the Nacas board, said it continued to maintain its opposition to suspend implementing AS-11. "We believe that an accounting standard should not be changed because of any change in circumstances. We are not interested in going for any changes in the regulation because we want consistency and prudence," said ICAI president Uttam Prakash Agarwal, who was also present at Tuesday's meeting. ICAI further said that with India's accounting norms set to converge with the International Financial Reporting Standards (IFRS) by April 2011, the decision to suspend AS-11 will not be a prudent step.

Where to invest during deflation

Go For Telecom, Healthcare, Utility Cos Where Demand Is Not Hit

New Delhi: Within months of inflation hitting the 13% level, the economy now faces a diametrically opposite situation. With deflation staring in its face, the near-zero level of 0.44% inflation is expected to go down further in coming weeks.
    If negative inflation sustains, it will affect economic activities and in turn performance of most companies as currently prices are falling not because of improved productivity but due to lack of demand. If deflation continues for a longer period, it will only worsen demand.
    "Deflation results in less demand, lower production and weak economic growth,'' said Citibank in a report "India Macroscope''.
    Negative inflation discourages investment in the economy. The real interest rate—difference between nominal interest rate and inflation—becomes very high, making funds costlier. The falling demand also takes with it the capacity utilisation of manufacturing units. This discourages investment in capacity expansion.
    As performances of companies will be hit, the Citibank report said, investors should be selective in their decisions. They must invest in companies whose products or services do not see too much of decline in demand. So, companies operating in healthcare, telecommunication and utilities like electricity distribution could be good bets. Their services will remain in demand even if the economy slows down.
    Investors also need to identify those companies where fall in prices lead to increased demand for their products, prompting them to produce more value-added products with greater economies of scale. In this category are those sectors like snacks and beverages, healthcare, utilities and telecom. Companies with strong balance sheets, which do not have much debt on their books, can also be considered for investment. As debtservicing would become difficult in the deflationary times, one should stick to companies (mainly in IT, health care and energy sectors), which are less leveraged, the report added.
    The report pointed out that the total investment in the economy may decline by 2 percentage points of GDP by 2010 to 35.7% from 37.1% in the current financial year.
    At the same time, companies operating in the capital goods sector should be avoided. Capital goods are required when companies are investing in either new projects or expanding existing facilities. But, as companies may do neither during deflation, the performance of capital goods companies may further dip.
    Similarly real estate companies too should be avoided. In deflation, the general perception is that prices will further fall. So, home buyers will postpone purchasing decisions, which will further increase the suffering of the cash-starved sector.
    Meanwhile, the IMF has said the world economy is set to contract for the first time in 60 years, as the deepening financial crisis would lead to the global GDP shrinking by up to 1% in 2009. In its latest assessment of the global economy published on Thursday, the IMF said that "more sustained, concerted policy actions (was) needed to revive growth'' in the economy across the world, as trade volumes have shrunk rapidly despite large stimulus packages announced by advanced economies and several emerging markets.

D-Street gets Rs 80k-cr LIC cover to fight bears

Insurance Major Invested Around Rs 40,000 Crore Each In Equities And NCDs In FY09 As Most FIIs Took First Flight Home

 LIVING up to its image of a contrarian investor, the Life Insurance Corporation of India (LIC) has been the biggest buyer of Indian equities during the current financial year. The insurance major has invested close to Rs 40,000 crore in equities and another Rs 40,000 crore in non-convertible debentures (NCDs) of companies, a senior LIC official told ET.
    LIC's purchases come at a time when foreign institutional investors have been fleeing the Indian markets in droves. So far in 2008-09, FIIs have net sold shares worth nearly $10 billion.
    LIC has increased stake in many frontline companies, including banks such as SBI, HDFC Bank, Syndicate Bank, Indian Overseas Bank, Union Bank of India, Allahabad Bank and Andhra Bank, through open-market purchases. The insurance major bought an additional 2-3% in these banks over the past 6-7 months. It has also increased holdings in a few non-banking blue-chip companies such as Cummins India, ABB, Mahindra and Mahindra, Dabur India and Zee Entertainment, according to disclosures filed with BSE. "We are long-term investors. We don't take sector-specific calls, rather prefer to invest in specific stocks of companies which have growth potential and are available at attractive valuations," says LIC executive director N Mohan Raj.
    LIC's equity investment pattern shows that its focus has been largely on banking stocks, which have witnessed a massive value erosion amid the ongoing global financial crisis as well as a slowdown in the domestic economy.
    Among the largest banks in the country, ICICI Bank is now available at a price/earnings ratio (P/E) of 9, compared with 22 last year. The ratio is based on standalone earnings, in the past one year. While HDFC Bank's P/E has declined from 30.8 to 17.2 times, that of SBI dipped from 16 to 7 times during the same period. UK-based hedge fund The Children's Investment (TCI) Fund has been a heavy seller in most banks where LIC has raised its stake.
    The largest insurer in the country, has also increased its investments in NCDs of many blue-chip companies, pumping in more than Rs 40,000 crore, said another top LIC official, who did not want to named. "Alot of companies are still approaching us to raise resources through the NCD route. Compared to last year, our investments in NCDs have increased substantially this fiscal," he said.
    reena.zachariah@timesgroup.com 

Fed’s $1-t recession remedy just what India ordered

A WORLD haunted by the spectre of deflation, sputtering growth engines and job losses is now hoping for the mother-of-all stimuli to work. In a dramatic move to battle recession, the US Federal Reserve — the world's most powerful monetary authority — will spend $1 trillion to buy government bonds and mortgage-backed securities.
    The move will lower interest rates across the spectrum, free up loan markets, flush international money markets with dollars and help mortgage borrowers, particularly in America. US bond yields crashed — clocking the biggest drop since 1987 — after the unexpected announcement, stocks rose across various markets while the dollar slipped against most currencies, including the rupee, which closed at 50.37 on Thursday, after gaining 91 paise from its previous close. Even though the excitement in western markets did not boil over to Dalal Street, with the Sensex rising just 25 points to close at 9001.75, the Fed buying will have its rub-offs here.
• First, it will certainly make it easier and cheaper for Indian corporates fishing for dollar funds. Though benchmark rates like Libor had crashed, the risk premium attached to companies from emerging markets such as India had made borrowings prohibitive for most firms. Libor had partly lost its relevance as bankers were pricing loans on a cost-plus basis. This will begin to change.

• Second, it will finally arrest the rise of the dollar. As the dollar breached the 50-mark against the rupee, hundreds of corporates booked derivative losses while unhedged importers, hoping that the dollar would slip, were caught off-guard. "The interest rate market will become more liquid and there will be more transactions. It will bring down the entire interest rate structure, lower mortgage rates and benefit existing and future mortgage borrowers," said Rob Carnell, chief international economist, ING.
    The Fed has said it will buy government bonds worth $300 billion, for the first time since 1961, and $850 billion of mortgagebacked assets. Fed move to boost Indian stocks
THIS will give US banks an opportunity to turn more liquid and clean up their balance sheets. Faced with uncertain global markets, banks had pulled back the dollars they had lent, causing a money market crunch which is expected to ease now.
    According to SA Narayan, MD of Kotak Securities, the Fed move will positively impact Indian equities in the near term. "The extent of optimism in India will again depend on how long US markets stay higher on the back of this news," he said.
    Grappling with losses and a slowdown, few in the financial markets would fear the consequences of money infusion into the system. The biggest challenge for monetary authorities in the coming years would be the course they pursue in mopping up the excess liquidity from markets. The money pumped in by the Fed has to be withdrawn systematically because such enormous fund infusion could lead to spiralling inflation in the future and asset price bubbles. But, in today's world, that's the least of worries.

BEN'S BOOSTER

Inflation dips to near-zero levels

INDIA'S inflation rate skidded to a record low of 0.44% in the first week of March, well on course for a widely expected move into negative territory, triggering hopes authorities would be forced to intervene with steps to shore up demand in the economy.
    The inflation rate as measured by the wholesale price index fell from 2.43% in the preceding week, led by plunging food prices and cheaper fuels. Very soon, buyers in wholesale markets may be paying less for most items, except food, than what they paid last March.
    Economists say there is a good chance prices may continue falling longer than expected unless the government moves quickly to rev up demand. They expect Reserve Bank of India (RBI) to infuse more liquidity to counter this trend, besides cutting policy rates further.
    "The higher base effect along with low demand in the economy is expected to keep inflation in negative territory for five to six months. Inflation will turn negative starting from April and will remain so until the end of 2009... We expect the Reserve Bank to ease liquidity to support growth," said economist Tushar Poddar at Goldman Sachs. Cos expect positive impact on consumer spending
GIVEN the inflation outlook and macro environment, Goldman Sachs expects a 150 basis point cut by June in the cash reserve ratio, the funds banks have to keep with the RBI.
    Analysts say further infusion of funds through increased lending by banks may keep the system flush with liquidity.
    "We expect continued policy action, including unconventional measures, to stem the deceleration in growth," Citi analyst Rohini Malkani said in a research note.
    But the government maintained that though prices may drop to below 2008 levels, demand continues to remain strong. "I do not see any signs of deflation as demand for certain core sectors like steel, cement and automobiles is picking up, along with rural demand," said cabinet secretary KM Chandrasekhar, who is the government's seniormost bureaucrat. "Only those sectors that are heavily dependent on overseas demand will take time to pick up," he added.
    When prices decline, consumers typically postpone purchases in anticipation of catching the bottom. This causes further shrinkage of demand. Even so, companies manufacturing household electronic items say they are not worried.
    "We are observing a slight easing of consumer spending and with the inflation coming down, we expect a positive impact on consumer spending," said R Zutshi, deputy managing director of Samsung India.
    One reason why companies remain optimistic is that prices in the retail market continued to rise faster than before in the week ended March 7. Retail inflation, measured by various consumer price indices (CPI), is still high. CPI for industrial workers has moved to 10.45% in January, the highest in over a decade.
    But even retail inflation may eventually cool, if food, especially fruits and vegetables, become substantially cheaper in the coming months. They are already less expensive compared to January. Annual food inflation index has dropped to 7.24% from a 10-year high of 11.64% in January.
    Prices of manufactured products, with a 64% weight in the WPI, did not change over the week. Inflation in this category could fall further if demand for manufactured goods does not pick up. While auto, cement, steel and retail sales in February beat market expectations, sectors such as real estate, freight and port traffic continue to be a cause of concern for policymakers.
    The International Monetary Fund said this week that India should rely more on monetary policy to support the economy because it has already exhausted options such as additional spending and tax sops.

RIL’S FUEL RETAIL VENTURE

Shell's India Unit, IndianOil In Race To Pick Up 50% Stake In

INDIA'S most valuable company, Reliance Industries (RIL), will induct a partner into a planned new venture that will house its loss-making fuel retail business, and state-owned IndianOil Corporation (IOC) and the Indian unit of Anglo-Dutch Royal Dutch Shell are the front-runners for the 50% stake it is willing to offer, a person familiar with the matter said.
    The company, which operates the world's largest refining complex at Jamnagar in Gujarat, has no plans to completely exit fuel retailing in the country, but is, at the same time, keen to recoup some of its past losses, estimated to be several thousands of crores.
    "We want to look at options of a collaboration with existing market players," RIL's CEO for its oil and gas operations PMS Prasad told ET.
    The group recently invited bids from a raft of Indian and overseas companies, notably IOC, Shell India, BPCL and HPCL, and the person said it could consider even offering a majority stake of 51% to the partner.
    RIL has invested nearly $1.4 billion to date in the fuel retailing business and has built up a network of 1,432 petrol pumps across the country. Creating a separate company for this business and divesting a part of its equity in it could help RIL shift its accumulated losses from fuel retailing away from its books.
    Analysts also said Shell India and IOC, the country's largest oil marketing company, are the obvious frontrunners for the stake, the sale of which will help RIL recoup some of its past losses and share meet the challenges of India's price-controlled retail fuel market.
    IOC, which controls almost 50% of India's retail market for fuel, and Shell, which has set up an LNG terminal in Gujarat and has a licence to sell fuel in the country, are expected to put up a tough fight to acquire the stake.
    "We are looking at the proposal and will take a call after the due diligence is done," said IOC chairman Sarthak Behuria. IOC has appointed a financial advisor to carry out a due diligence on the information memorandum RIL has circulated among potential bidders.
    "Shell does not comment on speculation and rumour," a spokesman for Shell said in response to an emailed query.
    While a partnership with IOC, which is majority-owned by the government, will give the joint venture more influence in the corridors of power, considering that prices are subsidised, a partnership with Shell could help RIL sell refined products from its refinery in overseas markets, analysts said.
    The company recently ended a partnership with US oil company Chevron, which could have helped it market its products overseas.
PUMP IT UP
Empty Run
RIL has 1,432 outletsprimarily along the GQ highway and East-West corridor. But it shut these stations across India after record oil prices made it impossible to compete with public sector refiners that sell fuel cheaper, but get compensated
New Game Plan
RIL to float separate JV for fuel retail business by offering 50% stake to partner. IOC & Shell India are the front-runners
IOC's View
IOC has a large footprint and a say in government corridors, being a government-owned company. With over 17,600 petrol pumps, IOC is the largest fuel retailer, with a 50% marketshare
Shell's Strategy
Shell India, a subsidiary of Royal Dutch Shell, boasts of a large global footprint. Known for its deep pockets, the company is likely to pay a higher price RIL outlets hold more land banks
SHELL, which has deeper pockets that IOC, will also gain access to a domestic refinery and expand operations in what could become one of the world's leading markets for fuel, as the Indian economy grows and automobile numbers increase. Shell India now has a marginal presence in the South and buys most of its fuel from Mangalore Refinery and Petrochemicals, a subsidiary of staterun oil company ONGC.
    RIL's network of petrol outlets is largely located on the Golden Quadrilateral and the country's East-West corridor, where fuel sales are higher. Most of these outlets, which have been shut since last year after high global crude prices made them unable to compete with subsidised fuel sold by pumps operated by state-owned companies, also come with significant land banks and were meant to house hotels, food courts and other similar facilities.
    Company officials say RIL is not keen to completely exit the business as it would run counter to its ambition of being a leading player in this area in India. Moreover, the network of outlets will also come in handy when it sells compressed natural gas at a future stage.
    Despite the government announcing decontrol of retail fuel prices in 2002, petrol, diesel, cooking gas and kerosene continue to be sold at government-administered prices, which are often way below the cost price.
    Public sector oil companies, which market the fuel at these controlled prices are compensated for their losses by the government. However, private fuel marketing companies are not eligible for any such compensation.
    soma.banerjee@timesgroup.com 

Bulls knock out bears in Akruti thriller

Futures Short-Sellers Trapped By Surge In Price

AFTER a long time, Dalal Street is witnessing a fierce tussle between bear and bull traders. The scene of action is the Akruti City counter, with the stock surging to new highs over the past few days. It soared 11% to close at Rs 2,227.50 on Thursday, amid heavy volumes, as the bulls appeared to be moving for the kill.
    According to market talk, some players who short-sold Akruti March futures have been trapped by the upswing in prices. They have been frantically trying to cover up their positions over the past few sessions, sending prices of the stock and its futures higher.
    Akruti's share price has more than doubled since the beginning of futures and options contracts' March series, with brokers attributing the spectacular rise to the battle between the two camps. The real estate sector, in general, has had a dismal run over the past one month, barring this week, when there have been signs of renewed buying interest at lower levels.
    On Thursday, the National Stock Exchange (NSE) said it would exclude the Akruti stock from the F&O segment after the expiry of the March series. Outstanding contracts in the April-May series will also expire on March 26, the last day of the current settlement cycle. The exchange did not specify any reason for its action. NSE has also placed the stock in the trade-for-trade segment with effect from March 27. Bears to carry forward their short positions
THIS means that no trade in the stock from that day can be squared off; every trade will have to compulsorily result in delivery. Brokers say the stock could see volatility on Friday too.
    "Some of the smaller investors may sell Akruti shares on Friday, worried about regulatory actions. But it is very likely that the selling will be absorbed by the bull cartel, as it would want to keep the price firm till expiry," said SP Tulsian, a market analyst. The bear group is said to consist mainly of a Mumbai-based trader and a couple of foreign institutional players.
    The bull camp is said to be a led by a Mumbaibased operator who holds a sizeable stake in the company through his investment firm. Brokers say this operator is being backed by powerful players, without whose support he would not have been able to sustain the price. Of the company's equity base of 6.67 crone shares, the promoters own 90%, nearly 6% is held by corporate bodies, and the rest by the public. The low-floating stock is said to have made it easier for the bulls to trap the short sellers.
    A few months back, Akruti's promoters had raised money by pledging shares with a couple of non-banking finance companies. Initially, it appeared that the promoters were finding it difficult to repay the loans. This encouraged bear traders to go heavily short on the stock from January, hammering the price all the way down to around Rs 550.
    To the bears' misfortune, the promoters are said to have repaid the loans and redeemed the shares. Suddenly, the bears found themselves trapped, as they realised they would not be able to square off their positions without pushing prices up. They decided to carry forward their short positions, hoping that the price would cool down because of the bearish outlook on the real estate sector in general.

Elections bring bulls back in action

Sensex Up 10% In 10 Days, Hope Of Pro-Reform Govt Enthuses Mkt In Run-Up To Polls

Chennai: Have you noticed the sensex has gained close to 10% since March 9, closing 112 points up at 8,977 on Wednesday? Going by data for the last eight elections from 1980 onwards, stock markets tend to dance in the run-up to the Lok Sabha elections with the sensex showing an average 4% gain in the three months preceding elections. Expectations of a reform-minded government seem to enthuse investors as much as gains in sectors that benefit from pollrelated expenditure.
    Barring the May 2004 elections, sensex has, in fact, gained more than 5% in the three months preceding the elections the last five times since 1980. The benchmark index was up 13.5% before the October 1999 polls, 5.1% before the March 1998 polls, 5.9% in 1996 and 8.1% in 1991, clearly showing how the anticipation of change spilled over on to Dalal Street. In 2004 (after five years of the NDA government) and 1980 (following the Janata Party's short-lived rule), sensex recorded less than 1% returns in the three-month period before the polls, but it still made gains. The only time it went into negative territory was in 1989 when the sensex was down 2% in the three months before the Congress government was overthrown due to the Bofors controversy.
    From the investors' point of view, sectors such as media, FMCG and auto look favourites in the run-up to the elections as polls are known to boost consumption. "Readership of
newspapers goes up during
elections and so does news channels' viewership. Sales of
alcoholic beverages shoot up
during elections; and with increase in money supply, more pronounced in rural areas, personal care products are also likely to benefit. Auto sales usually go up (marginal increase) as SUVs are used for election campaigns, personal transportation and security of politicians,'' Abhishek Singhal of Edelweiss Research said.
    The five-phase elections for the 15th Lok Sabha begin from April 16. Elections will be held from April 16 to May 13, with the results on May 16. As data shows, only on three occasions (in 1989, 1996 and 1999) has the market delivered negative returns even in the one month before elections kick off. In all other years, the average gain has been 4.6% in the one month before polls. Even this year, since March 16 - exactly one month to the elections - the index has already risen by 2.5%.
    But will the market sustain the momentum post-election? Analysis since 1980 shows that a month after the polls, the bellwether index posts an average rise of 3.5%. On six out of the eight times since 1980, investors have made gains.
    And returns appear even better when you map the sensex three months after elections - an average rise of 7.8%. Post-elections, markets have usually been positive as expectations on policy initiatives builds up following clarity on the political front. "This time too, a reform-minded stable government could mean that the market may start looking at a strong earnings recovery in FY11 and a 25-30% rally from current levels,'' Nilesh Jasani of Credit Suisse said.

Bottom-up innovation strategy gives Infosys edge over peers

AT A time when domestic and multinational rivals are struggling to maintain profitability because of pricing pressures, India's secondbiggest software company Infosys Technologies continues to report an operating margin of over 25%, helped by better rates, a robust banking software product business and its reputation as an efficiently run and ethically governed company.

    "Margin is a function of how efficiently you run a company and we have been able to sustain our margins since 1993," S Gopalakrishnan, chief executive and one of Infosys' founders, told ET. "We believe in running business optimally, in good or bad."
    Not surprisingly then, when competitors such as TCS, Wipro and HCL Technologies are postponing joining dates for new recruits, Infosys is keeping its commitment, and that too at better salary levels than last year. Infosys will be inducting almost 20,000 engineering graduates this year —up from some 18,000 it had projected earlier — at salaries which are 8.3% higher than last year even as it tries to cope with lower demand for software services in its top markets in the US and Europe.
    Beyond business reasons, Infosys is doing this because it has never looked back after making a job offer. "We are very particular about this since it could impact the brand, and Infosys chairman and chief mentor NR Narayana Murthy himself has made it clear that the company must respect its commitments — no matter what the economic situation is," a company official said.
    Founded on July 2, 1981, in Pune by Mr Murthy, Nandan Nilekani, NS Raghavan, Mr Gopalakrishnan, SD Shibulal, K Dinesh and Ashok Arora, Infosys continues to attract thousands of software engineers every year. Mr Murthy, who borrowed around Rs 10,000 from his wife Sudha to start the company, is now chief mentor and brand ambassador of Infosys.
    "No one in the services business from across the globe has such margins — in the US, Infosys trades at 14-15 times its earnings when most others in the sector trade at 6-7 times their earnings," said James Friedman of financial firm Susquehanna International Group.
    According to a US-based expert, who is advising some top Indian tech firms on creating the next set of differentiators, Infosys is well-positioned to grow into one of the world's biggest IT companies. "Globally, companies such as IBM, Accenture and EDS, have followed differed models. Infosys, with its clear focus on high-value consulting, and research-led solutions, could be the next Accenture," he said. At the end of December 2008, Infosys had around 74 customers contributing at least $50 million in annual revenue. Its rate of repeat business is over 95%.
    In an industry primarily delivering commoditised application development and maintenance services, Infosys is able to command 5-10% premium over domestic rivals by investing almost nearly 2% of its revenues in research and development and offering more focussed solutions to large customers such as BT and American Express.
    "Our sales model competes on value and not on price, and we are very competitive when it comes to total cost of ownership in the medium to long term," Mr Gopalakrishnan said. "We were also the first company to offer a comprehensive employee stock option programme in India, and we believe that investments made in employees pay good dividends," he added.
    With many of Infosys' customers, including ABN Amro, getting acquired or merged with other financial institutions, experts have raised concerns about new business deals. However, Infosys is finding new business from these transactions as customers such as Bank of America and Merrill Lynch seek partners to help them integrate their banking systems. "M&A is a silver lining for us in the current environment because we are incumbents in some of these cases," Mr Gopalakrishnan observed in a recent interview.
    Despite the compelling need to grow its top line in challenging times, Infosys will stay away from troubled contracts. "We don't compete on price, and we will stay away from toxic contracts that can hurt in the long term," the Infosys CEO said.
    During quarter ended December last year, net income rose by almost a third to Rs 1, 641 crore on a 35.5% growth in revenues to Rs 5,786 crore. The company's banking software product Finacle is another reason why Infosys is able to sustain its margins, helped by licensing revenues from the product.
    "Infosys' value proposition is that they can author a solution right from consulting, to application development and up to customer care services, not to mention their growing banking product business," said Mr Friedman.
    In tough times, when customers are seeking more operational efficiency, "innovations coming out of our Software Engineering and Technology Labs (SET Labs) are critical because they help us win large transformational deals", Subu Goparaju, vice-president and head of Infosys' SET Labs told ET recently. "We are able to change the paradigm from being a typical vendor-customer relationship to partners in innovation."
    When BT wanted to integrate business data across different sources and make them available to its leadership and users on a real-time basis, Britain's biggest telco decided to integrate Infosys' Gradient solution with its own business intelligence platform.
    "We follow a bottom-up innovation programme, encouraging employees to develop and propose ideas across new technology areas such as grid computing and platforms such as Linux," said Mr Gopalakrishnan.
    With over 100,000 employees, Infosys now wants to adopt non-linear growth by aggressively growing its banking product business and seeking other solutions that do not require as many people to deliver a project.
    "Among all offshore service providers, TCS and Infosys are best positioned to arrest employee-led growth since they have been able to establish their footprints in the product business," Pankaj Ghemawat of Spain's University of Navarra said.
    pankaj.mishra1@timesgroup.com 

US bill may dent Dr Reddy’s growth plans

DR REDDY'S Laboratories could be affected if a recent US bill that seeks ban on MNC pharma companies from transferring authorised generics to third parties becomes a law. In a report dated January 20, 2009, Bank of America-Merrill Lynch had estimated that Dr Reddy's earned nearly $74 million in the December 2008 quarter from the sale of authorised generics brand Imitrex, which was launched in November last year.
    Analysts said Dr Reddy's sold the product only five weeks in the December quarter which showed its huge potential. However, the company officials did not comment. An e-mail sent to the company's spokesperson on Tuesday remained unanswered.
    Dr Reddy's had launched Glaxo Pharma's Imitrex tablets (medication for treating migraine headaches) in 25 mg, 50 mg and 100 mg in the US. It is understood that the Hyderabad-based firm was the first to launch an authorised generic version of this product in the US.
    The launch of authorised generics had helped Dr Reddy's to ramp up its North American sales to $137 million in the December 2008 quarter as compared with $36 million a year earlier. For Dr Reddy's, North American sales accounted for 36.1% of its total sales of $379 million in third quarter of FY09.
    However, Indian generics exporters like Sun Pharma and Cipla could potentially benefit from the US move. Says Rajesh Vora, vice- president, ICICI securities: "As and when this bill is passed in the US congress, it is potentially a very big positive step for the global generics industry, including the Indian generics industry." Indian generic exporters like Sun Pharma and Cipla could potentially benefit from a bill that has been recently introduced in the US Senate, which aims to further open up the US generics market.
    The bill has been sponsored by Senator Herbert Kohl, a democrat from Wisconsin, along with four cosponsors. It had been introduced on February 3 and it has now been referred to a committee of the US Congress, for further examination. Keen to cut healthcare costs in their country, American senators have put up the bill in the US Senate, which aims principally at making it easier for generics to gain access to the US market. The US generics market is the world's largest, and is valued at $70-75 billion annually.

CLSA sees India GDP growth at just 4.6%

BROKING house CLSA Asia-Pacific Markets on Wednesday termed India as one of the riskiest markets to be invested in at the moment. The outfit has forecast a GDP growth of 4.6% in 2009-10, and expects the domestic economy to stabilise only by early 2010. Further, it has projected public sector deficit to rise to 14% of GDP in 2009-10, and the rupee to fall to 57 to the dollar by the end of this year.
    The broking house, however, has said an Argentina-styled debt crisis was unlikely.
    "The bulk of Indian government debt is domestically held and Indian banks are eager buyers of government securities. However, not only is the government's $500-billion infrastructure programme on the back burner, but the spread between private and public sector borrowing costs has widened, bad news for private investment spending," the note said.
    CLSA opines that capital outflows — both portfolio and FDI — could continue for some time. "A rapidly widening budget deficit, coupled with slowing growth, falling investment returns, a substantial current account deficit and growing global risk aversion (which is underpinning the flight to safety into the $) suggest that these trends will continue," it said.

Sebi discussion paper on trading hours soon

SEBI will be shortly coming out with a discussion paper on extension of trading hours on stock exchanges. So far, only a proposal to extend trading hours for the equity derivatives segment was under examination. The regulator is considering whether the extension in trading hours should apply on other segments like the cash market and currency derivatives as well. Uppermost in the consideration for across the board extension in tradings hours is whether the banking and clearing system will be able to cope with the increased load. A few months ago, NSE had sought Sebi permission to start trading in Nifty futures before the normal trading hours. It wanted trading Nifty futures to start at 8 am to coincide with the Nifty futures trading on Singapore Exchange (SGX).
Rolta stock seen going Akruti City way
AKIN to Akruti City, Rolta India has also been witnessing an unusual build-up over the past one week. If one discounts Rolta's weak closing on Wednesday (down 3% at Rs 51.95), the stock has appreciated over 21% over the past five trading sessions. According to brokers, a Singapore-based foreign institutional investor has been accumulating the stock in sizeable numbers. This apart, "friendly circles" are also strengthening their positions in the stock, according to market talk. Analysts said, currently, Rolta has only one visible positive factor in strong order book going in its way. "But going ahead, as a result of economic downturn, there is a risk of order book weakening," said a Mumbai-based broker. Analysts are also not happy about the company's higher-than-expected capex plans.