YES BANK
RESEARCH: CITIGROUP
RATING: BUY
CMP: RS 281
Yes Bank's management expects strong growth over the medium term in: a) credit - 35-40% p.a. over the medium term; b) distribution - branch network growing to 225 by March '11 and 750 by March '15, incremental branches largely in North and West India; c) liabilities - including strong growth in CASA (current account savings account) ratios. While focus will shift to retail assets - mainly mortgages and credit cards - the share of retail is likely to remain well below 15% even with a medium-term outlook. SME and mid-corporate segments are likely to be the key growth drivers- also likely to have higher loan yields. The management appears confident of maintaining current net interest margins due to: a) Growth in low CASA share; b) Increasing proportion of higher yielding SME and mid-corporate loan book; and c) wellmatched asset and liability durations. Non-interest income growth has been a key strength of Yes Bank so far and the management expects it to remain strong going forward as well. However, it could lag balance sheet growth in the medium term. This could lead to non-interest income/income ratio falling to below 40% levels.
ITC
RESEARCH: JP MORGAN
RATING: OVERWEIGHT
CMP: RS 282
JP Morgan initiates coverage of ITC with an `Overweight' rating and a target price of Rs 307. The rating is primarily based on: (a) defensive nature of the stock, (b) core cigarette EBIT growth is likely to exceed the expectations of 15% over FY10-12E, and (c) the non-tobacco business sustaining strong performance. While cigarette volume offtake is likely to remain subdued in the near term, ITC's medium-term investment case will depend on pricing power which drives earnings much more than volumes. Price hike of about 15% for its cigarette portfolio is substantially higher than the about 9% increase needed to offset the excise/VAT hike and would drive EBIT growth upwards of 15%. Sales growth surprised on upside, driven by higher than expected growth for cigarette (volume growth of 8.5- 9%), other FMCG (+34% y-o-y) and agri-business revenues (+88% y-o-y). The target price implies one year forward P/E and EV/EBITDA of 20.5x and 12.5x respectively which is inline with company's last five-year averages.
TATA POWER
RESEARCH: MORGAN STANLEY
RATING: EQUALWEIGHT
CMP: RS 1272
Morgan Stanley maintains an `Equal weight' rating on the stock with a revised target price of Rs 1,087. In their view the company has strong execution capabilities and there is high visibility on the implementation of power projects. However, the stock is trading at two times P/B and 10x EV/EBITDA on FY2012 consolidated estimates, which leaves limited upside. Tata Power reported FY10 consolidated revenue of Rs 17,880 crore (up 2% Y-o-Y), EBITDA of Rs 3,680 crore (up 4% Y-o-Y), and adjusted profit of Rs 1,330 crore (up 6% Y-o-Y). Standalone earnings estimates was lowered due to uncertainty on merchant capacity: Tata Power had decided to sell an additional 200-400 MW in the shortterm market from the capacity that was earlier provided to RInfra. They had built in 158 MW of such additional merchant capacity; however, given regulatory uncertainty the company may have to sell this at regulated rates to Reliance Infrastructure. This is the primary reason for taking down the standalone earnings by 13% and 16% for FY2011E and FY2012E, respectively.
CONTAINER CORP. OF INDIA
RESEARCH: NOMURA
RATING: NEUTRAL
CMP: RS 1225
Nomura maintains the `Neutral' rating on Container Corporation of India with a price target of Rs 1,350. Based on data released by the Indian Ports Association, container traffic at the 12 major Indian ports rose 21.4% y-o-y but was down 3.7% m-o-m in April '10. CCRI recorded a weak H2FY10 owing to poor margins, despite reporting strong traffic in Q4FY10. Overall, FY10 results were disappointing, and Nomura expects further near-term pressure on margins as the company is still passing on the price hike imposed by the Indian railways. During the postresults call, Concor spoke of another possible price hike by the Indian railways in July '10. Trading at 17x FY11E P/E, Concor appears fairly valued, given its historical average trading multiple of about 15x oneyear forward earnings, although Nomura expects downsides to the current numbers. On an expected medium-term sustainable earnings growth rate in mid-teens, the historical mean traded multiple appears justified, and accordingly Nomura values the stock at 15x FY12F EPS to arrive at the price target of Rs 1,350.
MPHASIS
RESEARCH: HSBC
RATING: OVERWEIGHT
CMP: RS 580
HSBC maintains 'Overweight' rating on MphasiS with a target price of Rs 770. The key question for investors currently is whether the pricing discounts seen in Q1 were one-off and limited to the infra division. HSBC does not rule out further pricing discounts. However, the management has defined benchmarks for profitability and may not be willing to win business that breaches its profitability criteria. HSBC has factored in 31-30% threshold gross margins for the Applications and infra divisions in the forecasts. HSBC expects 4.5% q-oq dollar topline growth and an EBITDA margin decline of about 100 bps sequentially (primarily driven by the assumption of a pricing discount in the Application division and rupee appreciation). HSBC expects strong volume growth in FY10 and FY11 and EPS growth of about 8% in FY11 and values the stock at a PE of 14.5x on FY11E EPS, which is a 35% discount to Infosys.
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Monday, May 31, 2010
BULL's EYE
Posted by Unknown at 10:31 AM 0 comments
Thursday, May 27, 2010
When The Penny Dropped Among The Billions
ET spoke to insiders in both groups, politicians and government officials to piece together a dramatic 15 days during which the two brothers and their mother, Kokilaben, put together a new peace agreement
ON MAY 26, an Airbus ACJ 320 with the call sign 'VT-IAH' touched down at New Delhi's Indira Gandhi International Airport from Mumbai. Another flight, a Falcon 2000 that answered to the call sign 'VT-AAT', landed two minutes later. The pilots of both the jets informed their billionaire owners that they have landed safely. Outside, the day was just beginning, but the mercury in Delhi had already climbed to 38 degrees.
Mukesh Ambani, the owner-passenger from the first plane, walked out of the airport in his characteristic brisk style, his mind preoccupied with the packed schedule for the day. On top of his priority list was a meeting of the Prime Minister's Council on Trade and Industry.
At the airport, Mukesh ran into Angarai Sethuraman, head of corporate affairs at the Anil Dhirubhai Ambani Group (ADAG) and a close aide to Anil Ambani. He was there to receive the owner-passenger of the second jet: Anil Ambani.
Suddenly, Sethuraman was face-to-face with his old boss.
Mukesh, chairman of India's largest private sector company, Reliance Industries (RIL), calmly walked up to Sethuraman, shook hands and asked him warmly, "How are you, Sethu?"
That small gesture travelled quickly through the political and business circles of the Capital, where the news on Monday that the Ambani brothers have decided to end their six-year-long acrimonious battle and to "collaborate" had been received with surprise bordering on scepticism.
Even though the brothers lived and worked in Mumbai, many of their battles were fought in the power corridor of Luyten's Delhi. The Capital's decision makers and influencers knew the bitter saga closely. It had divided them, put them in awkward spots, and in many cases, rewarded them handsomely. The fault lines of the battle divided the loyalties of New Delhi, whose importance was understood early and well by the Reliance patriarch, the late Dhirubhai Hirachand Ambani.
So the city had to see for itself if there was actually a thaw in hostilities. By warmly greeting a man who had been a key figure in the rival camp's New Delhi affairs, Mukesh Ambani sent a clear signal—he meant to stick to the agreement in spirit. Mummy is the big daddy
Exactly a week earlier, on May 19, Kokilaben Ambani, Dhirubhai's widow and mother of the warring brothers, had returned after a visit to the famous Shiva temple at Kedarnath in the Himalayan foothills.
"This has gone too far now. The two of you have to resolve the differences," Kokilaben is believed to have told younger son Anil, according to insiders who have heard accounts of the conversation. Anil had accompanied her on the pilgrimage along with his sister Deepti Salgaonkar.
But Kokilaben had been there before and almost done that. Five years ago, she had stepped in and drew up a settlement between her two sons, who lived in reasonable harmony while her husband was alive, and had a bitter fallout soon after his death. The agreement, dividing the companies Dhirubhai Ambani had assiduously built between his two sons, was signed on June 18, 2005.
Six months before that Mukesh Ambani had, during a TV interview, admitted to "ownership issues" that were in the "private domain". That was the first public admission of disharmony that had been brewing behind the scenes since the death of Dhirubhai.
While Kokilaben had made several attempts to resolve the differences between her sons, she hadn't been successful. The two brothers had plunged headlong into running the businesses that they had inherited, and in an era that saw unparalleled growth in the Indian economy, multiplied wealth for their shareholders and themselves.
But they had also allowed an apparatus of hostility to grow around them. Vast public relations (PR) teams ran down the other group's companies. Executives who successfully managed media and public opinion grew in clout within the group. It was a race that neither would win. When a dispute over gas supply arose between Mukesh Ambani's Reliance Industries and Anil Ambani's Reliance Natural Resources it spiralled into a no-holds-barred battle that shook even the government at the Centre. The Supreme Court settled the legal war finally early this month and effectively nullified the part of the family settlement between the brothers that referred to supplying gas from Mukesh's Krishna-Godavari basin block to Anil's power projects at a discount.
Kokilaben seized the opportunity and summoned her two sons when she got back from the Kedarnath trip. Enough was enough.
PEACE IN SEA WIND
Mukesh and Anil, the world's richest brothers, met their mother in her 10th floor residence at Sea Wind, a 12-storey building in Mumbai's tony Cuff Parade neighbourhood that is the Ambani family home. Even though the brothers have fallen out, they live in the same house, on different floors.
A few kilometres away, on Napeansea Road, the world's most expensive residential building, named 'Antilla', is coming up at a cost of $2 billion. Upon completion, Mukesh Ambani will move into the 570-ft tower. Kokilaben was firm with her demand and persuasive in her logic. If Mukesh was going to produce gas, why not give it to Anil, than anybody else? Now if Anil was getting assured gas supply for his power plant till 2022, why not make some concessions in the original non-compete agreement and allow Mukesh to enter telecom and power, if he so desired. The discussion started thus, and made significant headway. There were two meetings, between May 20 and May 23, in which the broad contours of the agreement were thrashed out, says a person familiar with the negotiations.
But just why was this latest attempt at peace-making suddenly making progress when both parties had refused to budge an inch during similar efforts in the past? Even in June last year, after the Bombay High Court pronounced its verdict in the gas dispute, Anil had met his elder brother in the latter's Maker Chambers offices in Nariman Point. But precious little came out of those talks.
The answer perhaps lies in the longdrawn-out legal battle over gas that had just concluded. The two groups had been consumed by the dispute that dragged on for four years. It strained their relations with senior politicians. It cost both sides a bomb—every day of Supreme Court hearing amounted to more than Rs 1 crore in lawyers' fee and other infrastructure costs. The case took away much time and attention, the opportunity cost of which would be millions of dollars. Above all, it had been exhausting, mentally and physically.
While the two brothers were spending resources fighting each other, other groups were gaining from the cold war. The spouses of the two brothers are not known to be best friends, but their children get along fine.
Blood, after all, is thicker than gas.
The Sea Wind meetings then were about a way out of the morass for both the brothers. Kokilaben was striking the iron when it was unbearably hot: The noncompete agreement would be scrapped and the brothers would collaborate.
Yet, it was not just a simple matter that a mother could settle between her sons. At stake were the fortunes of two of the world's largest business houses. And each brother had to take his war cabinet into confidence.
Mukesh Ambani called Manoj Modi and Anand Jain; Anil Ambani called Satish Seth and Amitabh Jhunjhunwala. They were briefed about what transpired at Sea Wind.
The next Sunday, May 23, then would be the red-letter day. Early that day, Anil Ambani summoned his closest executives for a "review meeting". Just before 2 pm, he took out a crumbled sheet of paper from his pocket and handed it to the group. "This is a statement we are sending out today," he said. One after the other, the executives read the statement in silence. The game had changed. Not entirely, however. Now on, it would be a tightrope walk. If you faltered in figuring what has changed and what hasn't, it could cost you dearly.
"We have a lot of work at hand," the younger Ambani said, according to oneof the people present. "Enforcing peace takes a lot of work."
His older brother had a similar message for his people when he briefed them about the details.
Tony Jesudasan, chief propagandist of the Anil Ambani side, dialled Niira Radia, his counterpart on the other side. The two generals who managed public perception could not smoke the piece pipe because Radia was in the US and wasn't available immediately. Jesudasan then called Manoj Warrier, Radia's close associate and CEO of a company that handles PR for all RIL group companies. "This is an opportunity to work together and also an opportunity to stop working against each other," Jesudasan told Warrier, who agreed. Like Jesudasan, Warrier too had been asked to come to work on a Sunday.
The same statement went out from both groups to the media. By evening, the news had spread. Corporate tycoons across India called their associates to discuss the development and learn further details.
On Monday, the morning of May 24, the Sensex rose 280 points in opening trade. Shareholders had little doubt about the benefits of the decision. Several central ministers, including Pranab Mukherjee, Kamal Nath and Praful Patel, called Kokilaben to congratulate her on the settlement.
RIL's group president for corporate affairs, V Balasubramaniam, called up several politicians and said: "Now, we are one house again."
For Balasubramaniam—Balu as he is known in Delhi's power corridors—it was a personal moment too. ADAG's Sethuraman is his nephew, but the two had stopped speaking to each other when they moved to different camps after the group split.
The uncle and nephew too can make up now, just like the brothers.
POST SCRIPT
At the height of the battle between the two brothers, a key aide of Mukesh Ambani had met with a few journalists in his office. As he was impressing upon them how the ADA group was supposedly squandering away opportunities that were handed to them on a platter, at one point, he was overcome with emotion. He pointed to the large portrait of Dhirubhai Ambani in the room and said, with emotion in his voice: "In logon ne hamare papa ke naam barbaad kar diya hai." (These people have ruined our father's reputation.) The Ambani turf war was as much about emotion as it was about enterprise. But in the end, the rage appears to have dissipated. The top executives on both sides, some of whom were uncomfortable fighting former colleagues, are happy to give peace a chance. They can how go back to their first love, making money, rather than draft affidavits for courts and brief the media about the alleged wrongdoings of the other group.
There are some, particularly business houses who had faced the might of the undivided Ambanis, who would love to see the brothers resume fighting. For now that seems unlikely, though that could change as both enter sectors where they had been barred by the now-scrapped non-compete agreements.
An official at the PMO, who met both the brothers on Wednesday, remarked how unusually relaxed they both appeared. It will be important for them to remain calm through a number of inevitable misunderstandings that will occur given the nature of their businesses, temperament of their key executives and the incessant media attention their affairs attract.
As for now, the Ambani patriarch's larger vision prevails: Ambani ka sapna, sab ka apna apna.
Posted by Unknown at 8:00 PM 0 comments
Monday, May 24, 2010
FDI in multi-brand retail set to get 100% backing
DIPP PROPOSAL CONDITIONS APPLY
THE commerce and industry ministry is likely to propose 100% foreign direct investment (FDI) in multi-brand retail, opening the doors to the likes of Wal-Mart and Tesco, but will suggest stiff local sourcing requirements and mandatory investments in backward linkages.
"We are preparing the paper that will be placed for public debate in some time," a senior official of the department of industrial policy and promotion (Dipp), the nodal body for foreign investment policy, told ET.
Though the earlier view within the department was to keep the FDI limit at 51%, same as in single-brand retail, it has veered around to keeping it much higher and even pegging it at 100% to have an intense debate on the subject, he added.
A final decision on the proposed cap will be taken after deliberations with the consumer affairs ministry, the nodal department for retail, he said.
Interestingly, in another paper on FDI in defence, the department has proposed foreign investment up to 74%. The paper on retail will be the second in a set of six discussion papers proposed to be put out by Dipp.
The paper is also expected to make it mandatory for big multi-brand foreign retailers to create a back-end cash-and-carry for small shopkeepers, giving them benefit of scale on the sourcing side.
"The idea is that big multi-brand retail outlets should enable growth of small retailers and not threaten their existence," the official said.
Mandatory domestic procurement will ensure improved returns for farmers while strong backend linkages will contribute to the development of food processing and cold chains in the country.
The suggestions are consistent with the UPA government's emphasis on technology upgradation and flow of investments into the farm sector.
The lack of cold chains in the country leads to wastage of about 40% of the farm produce, causing a loss of about Rs 50,000 crore annually, according to industry estimates.
To further prevent any danger to small shopkeepers, particularly in small cities, MNC retailers will be allowed to set up stores only in cities with population upwards of one million, as per the discussion paper being given finishing touches by Dipp. They will also have to have stores with a minimum built-up area as the government wants to ensure that these lead to employment generation.
Both the Left and BJP are completely opposed to opening up of multi-brand retail, a sector that employs millions, in the country. A parliamentary standing committee headed by BJP leader Murli Manohar Joshi had, in fact, recommended a complete ban on FDI in retail. However, the UPA government, sans the Left, seems more open to the idea of opening up multi-brand retail to FDI.
Finance minister Pranab Mukherjee had in his 2010-11 budget speech said: "... The second element of the strategy relates to reduction of significant wastages in storage as well as in the operations of the existing food supply chains in the country. This needs to be addressed.
Prime Minister Manmohan Singh recently said, "We need greater competition and, therefore, need to take a firm view on opening up of the retail trade."
Posted by Unknown at 8:19 PM 0 comments
Sunday, May 23, 2010
Brothers Ambani have agreed to bury agreements that bar them from investing in each other’s sectors.
FIVE YEARS DOWN THE LINE: A NEW BRIDGE OVER TROUBLED WATERS
BLOOD IS THICKER THAN GAS
Mukesh and Anil Ambani will also negotiate a new gas supply agreement
Non-compete pact buried by Mukesh, Anil in Truce II MUKESH and Anil Ambani took a giant step towards ending their bitter feud by agreeing to scrap a set of agreements that had stirred up trouble between them. The apparent end of the soap-opera style fight between the brothers, which had captivated the country but had delayed vital infrastructure projects, was greeted with relief by government ministers.
The two billionaire brothers said in a joint statement on Sunday afternoon that they had decided to end agreements preventing them from investing in industries where the other was present and pledged to work together in an atmosphere of harmony.
The second Ambani truce, which comes almost five years to the day after the original family settlement brokered by Kokilaben, the mother of the two brothers, scraps a no-compete pact that had barred Mukesh, 53, from sectors such as power, telecom and financial services and had kept Anil, 50, away from refining and petrochemicals. The only vestige of the earlier agreement left over is RIL's pledge not to set up gas-fired plants till March 31, 2022.
In the joint statement, Reliance Industries, headed by Mukesh and four companies of the Anil Dhirubhai Ambani Group (ADAG) said they had signed a new and simpler non-compete agreement that "will eliminate any room for further disputes between the two groups... on the scope and interpretation of the noncompete obligations".
The two sides also said they would soon negotiate a new gas supply agreement in keeping with aMay 7 ruling by the Supreme Court.
Finance minister Pranab Mukherjee, the government's favoured interlocutor for resolving tricky problems, including fixing the price of gas, told ET the truce would lead to healthy competition and boost investor confidence.
"It is a very positive development. It is good that the two companies and the Ambani brothers have reached an agreement as it would lead to healthy competition. They are corporate giants in themselves and this kind of an agreement will have a real positive impact on the larger corporate world. Other companies will draw confidence from them as this would mean an end of the rivalry."
The two brothers also said they were hopeful that Sunday's developments would create an atmosphere of "harmony and collaboration between these two groups".
Sunday's development, while sudden, was not entirely unexpected. Both sides, according to persons familiar with the situation, had become increasingly exhausted over the seemingly interminable dispute. "Neither side is dying to get into each other's sectors. That's not primarily what this is about. What the agreement really does is that it will stop both sides from spending their energy blocking each other," said a person close to ADAG.
Sources familiar with the developments of the past week said Kokilaben had once again played a key role in the latest truce. According to these sources, Anand Jain, a close friend of Mukesh, and Atul Dayal, one of RIL's top lawyers, were key players in the last-lap negotiations. Last week, in an indication of the impending truce, Mukesh had met the PM requesting a change of rules to help new gas-fired plants obtain supply of the fuel for a period longer than the five years currently fixed by the government. If implemented, this will help ADAG attract financing for its power projects.
A new gas supply agreement remains the only matter that still needs to be resolved. Non-compete pact escalated tussle
ONCE that happens, a clause in the family MoU—which said Anil could sue Mukesh in case a suitable gas supply agreement was not reached—was likely to be scrapped, according to the sources.
The existence of the non-compete pact had escalated the estrangement. Anil had objected to Mukesh's move to enter the financial services sector to support RIL's retail operations.
In 2008, a possible deal between Reliance Communications and South African telecom company ran into trouble after RIL said it had a so-called right of first refusal (ROFR) to buy the telecom business of ADAG. Sunday's reworked agreements scraps all ROFRs between the two groups.
The Supreme Court ruling in favour of RIL in the prolonged legal dispute over the price of gas appears to have galvanised moves towards a settlement.
The court said ADAG companies would have to buy gas at a price of $4.20 per million British thermal units (mBtu) compared with $2.34 per mBtu contained in the family settlement in 2005 when RIL was divided between Mukesh and Anil. The SC also asked the two brothers to sign a new gas supply agreement.
it sparked speculation that the raging war between India's richest brothers may come to an end soon. But it didn't, and only got worse with time. This photo, through those agonising years, almost singularly carried the hope of Brothers Ambani coming together. Today, after 5 years of festering bitterness and mistrust, that hope is on the verge of becoming a reality.
Posted by Unknown at 7:58 PM 0 comments
Sunday, May 16, 2010
Wild Swings Ahead
THE market started the week with a very strong rally on Monday, but lost steam to end with a greatly reduced gain of 1.34%, or 225.49 points. The Nifty finished 1.50% up, and the CNX Midcap Index gained 1.83%. Mahindra & Mahindra was the biggest winner among the index stocks with a 7.0% gain. The other index stocks to go up included Tata Motors, HDFC Bank, DLF and Reliance Infrastructure with gains between 7% and 4.7%.
Cipla was the biggest loser among the index stocks with a 8.4% fall. The other index stocks to go down included Bharti Airtel, Reliance Communications, Sterlite Industries and Tata Steel with losses falling between 8.1% and 1.8%.
Bajaj FinServ was the biggest winner among the more heavily traded non-index stocks with a 35% gain. The other nonindex stocks to go up included Aqua Logistics, Mundra Port, Axis Bank, LIC Housing Finance, Rural Electrification, Talwalkars Better Value Fitness and Dr Reddy's Laboratories with gains between 13.4% and 7%.
Aban Offshore was the biggest loser among the more heavily traded nonindex stocks with a 17.7% loss. The other non-index stocks to go down included Engineers India, Kemrock Industries, Idea Cellular, Reliance Natural Resources, Piramal Healthcare, GMR Infrastructure and Jubilant FoodWorks with losses falling between 15.4% and 5.6%.
INTERMEDIATE TREND: The market's intermediate trend is still down, but could turn up if there is a decent rally early this week. However, the odds would recede if the decline persists, and the indices go below their recent lows (16,684 for the Sensex). The Sensex would need to go above 17,400 for an intermediate uptrend. The corresponding figure is 5,225 for the nifty and 7,975 for the CNX Midcap index. (Figures rounded up to the nearest 25).
LONG-TERM TREND:Our market's longterm trend is up, as the indices made new bull market highs during the preceding intermediate uptrend. However, about 15% of the more heavily traded stocks are in major downtrends, and more are entering one during this decline.
The Sensex would enter a bear market if it falls below 15,300, the Nifty under 4,500, and the CNX Midcap below 6,350. Most global markets are also in major uptrends at this time. The lower of the past two intermediate bottoms for the indices has been taken as the bear market trigger, as they are very close to each other.
TRADING & INVESTING STRATEGIES: Increasing portfolio exposure should be avoided for now, as the bull market has run for over two years, making this a little too late to get in. If cash must be invested, wait for this intermediate downtrend to end. It would be a good move to keep portfolios defensive by switching out of highly volatile sectors such as sugar, real estate, construction, airlines, financial services and even metals, even though some of these stocks had done well in the past rally.
GLOBAL PERSPECTIVE:
Most major global markets are still in intermediate downtrends despite strong rallies at the beginning of the week. Some had come close to entering an uptrend, and the German DAX appeared to be in one already. The Dow will have to now cross 11,000 to enter an uptrend.
Many of the global indices made fresh bull market highs during the last intermediate uptrend, so there is no reason yet to suspect that the global bull market was ending. However, the situation will change if they go below the lows reached during this downtrend. A few indices including the Shanghai Composite and French CAC-40 had gone below their last intermediate bottoms, which is a bear market signal. The Dow would go into a bear market if it closes below 9,750.
The Sensex had gained 45.4% in the twelve months that ended on Thursday, up one position to the 5th place among 35 well-known global indices considered for the study. Sri Lanka continues to head the list with a 125.1% gain. Turkey, Indonesia, Argentina and Sensex follow. The Dow Jones Industrial Average has gained 29.4% and the NASDAQ Composite gained 41.7% over the same period. (These rankings do not take exchange rate effects into consideration).www.trendwatchindia.com
Posted by Unknown at 8:14 PM 0 comments
Fund houses are focusing on existing schemes rather than launching new ones
Losing The Steam
A MUTUAL fund investor is today spoilt for choice. A prospective investor can choose from an estimated 500 mutual fund products today. The range is so vast that there have been cases when investors have found no striking difference between two schemes launched by same fund house. Another fall out of this overkill of new fund offers in the past has been that be flood of existing products is that existing fund houses are running out of new ideas. No wonder, in the past two years, the number of new fund offers has declined. MF investors especially those looking for fresh investment themes face immense confusion in choosing funds that would meet their investment goals. Hence, fund houses are better off reviewing the performance of their existing schemes rather than launch new ones. ET Intelligence Group is investigating why NFOs have lost their sheen and why you should concentrate more on your existing schemes. Also given the uncertainty in equity markets, we feel investors should go for hybrid or balanced funds.
THE CRUX: MF experts believe that most old fund houses have enough range of product mix and hence they should focus their energies on existing schemes rather than waste managerial time in launching new schemes. Even if new fund offers come in they will from new entrants in the MF industry. However, these NFOs are likely to be niche offering as the market is already floated with hundreds of traditional products. According to monthly redemption data by AMFI, since August last year, MF investors have resorted to huge redemptions. With the exception of January and February, investors have withdrawn money from their MF schemes every month and redemptions to an extent of Rs 2,000 crore per month in equity funds. Much can be attributed to investors' poor outlook about market future course. This also shows that investors are not convinced about the long-term attractiveness of the equity markets and they want to book profit at the first available opportunity. Genesis of this can be seen in the way markets have moved in the past six months — the Sensex has given barely 2% returns. Also in the past few quarters as interest rates rose, mid and long tenure debt funds have fallen off the investors' radar. Hence, balance funds that invest in both equities and debt market seem to be a convincing proposition for fund mangers and investors alike.
GOING FORWARD: Balance/hybrid funds as such have a combination of equity and bonds. Hence even if markets rally after a good monsoon andinflation is reigned in, investors wouldn't miss the rally. Says Venkata Subramaniam, a mutual funds analyst at a leading broking firm, "Its advisable for investors to go for balanced funds as they offer bond and equity market exposure." More so in the last two years it has been observed that balanced equity fund category (on the average) has beaten the equity diversified category by fair percentage."
In the past two years, hybrid/balanced funds category has given around 7% returns, while equity diversified funds category has given around 4.8%. Says Devendra Nevgi, founder and principal partner, Delta Global Partners, a firm that manages large investment portfolios, "The extraordinary experience of incurring huge losses in FY09 —thanks to recession, which resulted in the fall of around 52% of markets, investors remained away from the markets for a long time. It would take long time for investors enter into new equity NFOs with fresh, positive mindset."
It is seen that on a year-on-year comparison, new fund offers of balanced funds have increased from 12 to 15, while new fund offers in equity and debt funds category have fallen. Every fund house when launches an NFO, it interacts with large investors, agents and distributors about the acceptability of the theme of the fund to be launched. Hence considering the increase in hybrid/balanced funds it seems that investors prefer a good mix of equity and bond rather than pure equity or bond.
rajesh.naidu@timesgroup.com
Posted by Unknown at 8:11 PM 0 comments
Banks are using their distribution strengths to move aggressively into MF space.
The scrapping of entry load has forced independent distributors and brokerages to shun MF schemes as they are no more remunerative.The regulatory change has opened a new line of business for commercial banks while independent AMCs find it tougher to stay afloat
Bakul Chugan Tongia ET INTELLIGENCE GROUP
WHEN it comes to relying someone with one's hard-earned money, banks are the most entrusted of all institutions, especially in India. So much so, that even today, despite there being plenty of other investment avenues, an average Indian investor continues to trust banks with their savings.
According to data by the Reserve Bank of India (RBI), the share of banks in the total financial savings of the household sector has increased from about 48% in 2006-07 to nearly 55% by 2008-09. In contrast, the share of mutual funds has declined from about 5.3% to -1.4% in the same period. And as the MF industry continues to adapt to the regulatory changes that have been tightening the noose around manufacturers, it will be little surprise if the share of MFs in the total financial savings of the household sector declines further in the year 2009-10.
However, despite various challenges that the MF industry is currently facing, many new players, especially banks, have shown a great deal of interest in launching their own asset management companies. After the launch of Axis Asset Management last year, IDBI and Union Bank of India (UBI) are the latest banks to join the MF bandwagon. While IDBI has already launched its operations on its own accord, UBI has joined hands with the KBC group of Belgium and is likely to start business soon. With this, the total number of banks that are actively involved in the MF business stands at 10. And if Indian banks are yearning to be an active participant of the MF industry, it is not without reason. For, in the light of the current circumstances, banks are indeed better placed to run MF business in India than other institutions.
STRONG DISTRIBUTION NETWORK
Facilitated by a large distribution network through their extensive and continuously increasing branch network (see Distribution Strength), banks are indeed better positioned to tackle the main issue of distribution than independent asset management companies that are required to set up distribution networks right from scratch before starting their businesses.
The table clearly reveals the distribution strength that banks command through their pan-India presence and the pace with which they are expanding their network to further expand their reach. Moreover, given their large customer base and the brand equity that banks enjoy with the investors, it makes a tad easier for them to cross MF products to their existing customers.
The existence of a strong distribution network has in fact come to command a far greater importance following the Sebi diktat of introducing no-load regime for equity MFs last year. Not only has this new regulation compelled many in theindustry to alter their business models but has had far-reaching impacts even on the competitors of the MF industry.
NO-LOAD REGIME
Under the no-load regime, MF houses have been debarred from charging any commission or entry load from investors at the time of investment. If the investor is utilising the services of any distributor to invest in an MF product today, then the quantum of commission payable to the distributor now has to be mutually agreed upon between the distributor and the investor. This is in stark contrast to the earlier practice wherein investors were charged a flat fee of 2.5% of their investment amount as entry load by the fund houses, which was then used by the fund houses to pay the distributors for their services.
While the no-load regime can be construed as an extremely positive step for MF investors, who are now aware of the amount of commission they pay to the distributor, the distribution community has severely criticised this regulatory move, which has had a grave impact on their commission income. In a country like India, where financial literacy is still at an extremely nascent stage, it is indeed difficult for many distributors to convince their investors to pay for MF advisory and servicing, leading them to boycott the sale of MF products, and instead promote other high incentive earning financial products.
This, in turn, has greatly impacted sales of the equity MF products. Despite the markets making a dramatic recovery in 2009-10, the MF industry could add just about Rs 2,000 crore to its equity assets last year which is far lower than the equity inflows of about Rs 47,000 crore in 2007-08 or Rs 28,000 crore in 2006-07. Even the meltdown year of 2008-09 had witnessed equity inflows of more than Rs 4,000 crore.
ADVANTAGE BANKS!
With the MF industry's distribution network gone for a complete toss, bankbased fund houses are far better placed to reach out to investors. And this is not just plain thesis but a reality backed by factual data.
During the period from November 2009 to March 2010, total number of equity MF investors (folios) in the country has declined marginally by about 0.05% from 411.4 lakh folios to about 411.2 lakh folios. However, if one were to assess the growth of folios for bank-backed MFs, the same has gone up by about 1.5% from 137.5 lakh investor accounts to 139.4 lakh accounts during the same period. These include folios of Baroda Pioneer, Canara Robeco, HDFC, ICICI Prudential, Kotak Mahindra, Principal PNB and SBI Mutual Fund combined. As far as all other fund houses are concerned, combined together, their number of equity folios declined from 273.9 lakh accounts to 271.8 lakh accounts during the same period.
As far as the average assets under management (AAUM) of fund houses are concerned, while bank owned/backed fund houses reported an increase of about 45% in their AAUM during April 2009 - April 2010, the AAUM of all other fund houses combined has increased by just about 36% during the same period. Apart from convenience of distribution, it is also the popularity that these banks enjoy with the public at large that helps them gain the investor confidence.
Axis Mutual Fund, for instance, managed to accumulate more than Rs 900 crore of assets under management (AUM) for its equity scheme that was launched in November last year even as the other newly-launched fund houses are struggling to reach out and convince the investors even today. Joining Hands With Bank
The development has not gone unnoticed by international fund houses planning to launch MF business in India. Thus, instead of launching an MF business in India on their own accord, these international MF brands have preferred to join hands with an Indian bank. We thus have Societe Generale Asset Management of France, which has entered into a JV with SBI Asset Management, while Pioneer Investments of Italy has partnered with Bank of Baroda. More recently Robeco Group of the Netherlands has joined hands with Canara Asset Management while US's T Rowe has entered into collaboration with the country's oldest asset management, UTI, which is already quite strong on the distribution front.
BANK OR NO-BANK – WHAT IT MEANS FOR INVESTOR?
While bank-based fund houses are definitely at an advantage today in terms of reaching out to the investors, it will, however, be foolish for investors to get prejudiced for any fund house simply because it is backed by a strong bank. For when it comes to investing, performance is the key criteria to be looked out for, followed by the financial strength and soundness of the organisation.
Adjudging these fund houses solely on the basis of performance, Canara Robeco and HDFC Asset Management have topped the charts in this round of ET Quarterly MF Tracker with the highest and second highest fund house scores for the quarter ended March 2010.
While HDFC asset management, the second largest mutual fund house of the country today, has seen a healthy turnaround in the performance of its schemes since the market meltdown of 2008, for Canara Robeco, which despite being one of the oldest is a relatively smaller fund house; the turnaround has been visible since the time it has collaborated with the Robeco Group of the Netherlands. As far as the performances of other fund houses are concerned — banks and non-banks, log on to our website www.etintelligence.com to get the performance rating of MF schemes as well as the score card of the fund houses.
bakul.chugan@timesgroup.com
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Euro ash may cloud Indian IT vision
Sliding Currency, Economic Worries Threaten To Pull Down Recovering Sector
ECONOMIC uncertainty and a weakening currency in Europe are twin worries for India's exportfocused IT sector, which has only just recovered from the fallout of the US slowdown. The euro has slid to its lowest since the Lehman Brothers collapse and while the dollar has strengthened against the euro, it has not strengthened against the rupee to the same extent.
Europe is the second largest market for the Indian IT industry, accounting for approximately $15 billion worth of exports. For firms such as Tech Mahindra, WNS Global Services and Mastek, Europe is the largest market, bigger than even the US. Top IT firms Tata Consultancy Services, Infosys Technologies and Wipro earn between 20% and 25% of their revenues in euros and pounds. And Friday's euro crash, when the currency fell to a low of 1.24 against the dollar, sent jitters through the industry. Since the beginning of this year, the euro has lost around 13.5% against the dollar.
At stake is the fragile recovery of the outsourcing sector and exposure to euro and pound billings. "Nobody would have foreseen that the euro would fall to 1.23. Even the pound has not been doing very well," pointed out an IT analyst with an overseas brokerage. For most firms, approximately half their Europe region revenue is from the UK, where the billings are in pounds. Impact on sentiment a big worry
INFOSYS, for example, earns about 7% of revenue in euros and 12%-13% in pounds. Cross-currency hedges against the euro and GBP are also less common than rupee-dollar hedges, said analysts. Companies usually hedge only some part of their pound and euro exposure. In comparison, a higher percentage of dollar exposure is hedged. Many companies were not available to comment over the weekend but analysts that ET contacted said revenue realisation would be lower and the weak euro and pound would affect profitability. "Even the GBP (pound) has had a free fall in the last two days. There is much uncertainty but the pound has a higher resilience. We've hedged about 50% of our net exposure to the pound and to that extent, we are protected," said Farid Kazani, group CFO, Mastek. About 55% of Mastek's receivables are in pounds.
Among the large IT firms, HCL Technologies and Tech Mahindra have a higher percentage of revenues from the Europe region as compared to the rest of the industry. HCL Technologies, after the Axon acquisition, gets about 29% of its revenues from Europe, and Tech Mahindra, which has British Telecom as its largest client, gets 56% of its revenue from the Europe region. Ironically, IT firms may be insulated to some extent from euro worries because of their failure to make much headway into continental Europe as a market. But the bigger worry nagging companies at this point is how Europe's troubles will affect sentiment. "From an India perspective, business will not get impacted much. But the worry is the negative sentiment could affect larger markets such as the US. Customers who had started spending could put their capex plans on hold if it continues," warned Sudin Apte, principal analyst at technology research firm, Forrester. "I only hope the economic whirlwind doesn't impact buying sentiment" he added.
If the crisis spreads, CFOs who had resumed spending about 2-3 quarters ago might cut back on IT budgets and hold on to their capex plans. "Europe troubles will impact the Indian IT industry in two ways — one will be the cross-currency impact and the second will be that many corporates might cut back on budgets," added an equity analyst with a brokerage.
Posted by Unknown at 8:08 PM 0 comments