THE uncertainty in equities has prompted wealthy investors to reduce exposure to shares and invest in short-term debt schemes that invest in instruments with a maturity of less than one year. Wealth managers said that drying up of money supply in recent weeks has pushed up yields of short-term instruments, boosting return prospects from funds that invest in such paper.
“The portfolio yield on these funds are 6.5-7%, which is very attractive in the current scenario,” said Om Ahuja, head-wealth management, Emkay Global Financial Services. “Investors are attracted to these investments as they provide a cushion to their portfolio while giving them steady returns,” he said.
Short-term debt funds, which constitute over half of the mutual fund industry’s assets of roughly Rs 8-lakh crore, invest in commercial paper, bank certificate of deposits and money market instruments. Returns from these instruments have gone up, as withdrawal of money by telecom companies and banks has made funds scarce. Wealth managers said that yields on one-month paper have risen to 6.5% from about 4% recently.
Mr Ahuja recommends investing in Kotak Short-Term Debt Fund which gave an annualised return of 8.15% and Birla Dynamic Bond, which returned 7.2% annually. But some warn that Sebi’s recent move directing mutual funds to mark their short-term debt paper to daily closing prices from July 1 will increase volatility in short-term bond funds.
Some investors are putting money in gilt funds, which invest in government paper. While some are investing as part of their longterm plan, a section of investors expects short spikes in government bond prices. “The current rally in the bond market seems to have caught the imagination of many market participants where the benchmark 10-year government securities rallied from 8.1% to almost 7.5%. So, debt funds were able to give a return of more than 12% while large-cap funds gave a negative return of 0.36% in the past two months,” he said.
Equity mutual funds are yet to see a huge redemption yet, but flows into these schemes have fallen significantly in recent months. “Incremental flows in equities have dried up over the past three months, suggesting many investors have shifted a part of their portfolio to short-term corporate bonds as the interest rates have spiked up,” said Shuja Siddiqui, V-P, wealth management, Motilal Oswal Financial Services.
Sunday, June 13, 2010
Nifty expected to get support at 5020 level
THE creation of positions in Nifty options indicates traders are expecting limited upside, but are not ruling out a sharper downside. Open interest in Nifty call options was 1.25 lakh shares while that in put options was 37.75 lakh shares on Friday, analysts said. This shows the pessimistic bias of traders towards the market. But analysts point out there is a strong support for the index at 5020, which is the 200-day simple moving average. Among stocks, SAIL has seen some call writing at higher levels. Though this means stock upsides could be capped, analysts are not ruling out the possibility of a sharp move before the June series expiry. Harish Rao suggests an options strategy that captures a rangebound Nifty and one that captures a volatile SAIL.
NIFTY
CMP: 5,119.35 Strategy: Long call butterfly Buy 1 June 5000 call @ 157 Rs 7,850 Sell 2 June 5100 calls @ 86.40 Rs 8,640 Buy 1 June 5200 call @ 35.35 Rs 1,767.50 Net premium paid (50* 19.55) Rs 977.50
This strategy involves limited risks, but will fetch only commensurate returns. The maximum profit is when the Nifty expires at 5100. This will be Rs 4,022.50 (50 * (100-19.55). The maximum loss will be limited to the extent of the net premium paid (Rs 977.50), which will occur when the Nifty goes below 5000 or above 5200 at expiration. At 5000 levels, all the options will expire worthless. Above 5200, the gain from two long calls will be neutralised by the selling of two 5100 calls.
SAIL
CMP: 196.30 Strategy: Long straddle Buy 1 June 200 call @ 4 Rs 5,400 Buy 1 June 200 put @ 6 Rs 8,100 Net premium paid (1350 * 10) Rs 13,500 This options strategy involves simultaneous purchase of at-the-money call & put options of the same strike price and expiration date. This is a limited-risk strategy as the maximum loss will be to the extent of the net premium paid (Rs 13,500). This will occur if the stock expires at the strike price (Rs 200). To profit from the strategy, the stock should move beyond 210 (200+(6+4)) on the upside or 190 (200-(6+4)) on the downside.
WHAT TO WATCH OUT FOR
INDIA
Results: Bimetal Bearings, Gokul Refoils, Lancor Holdings and Responsive Industries will declare quarterly & annual earnings on Monday.
WORLD
London: Office for Budget Responsibility (OBR) economic forecast. The newly-formed OBR will publish its first pre-budget forecasts for the economy and public finances on Monday.
NIFTY
CMP: 5,119.35 Strategy: Long call butterfly Buy 1 June 5000 call @ 157 Rs 7,850 Sell 2 June 5100 calls @ 86.40 Rs 8,640 Buy 1 June 5200 call @ 35.35 Rs 1,767.50 Net premium paid (50* 19.55) Rs 977.50
This strategy involves limited risks, but will fetch only commensurate returns. The maximum profit is when the Nifty expires at 5100. This will be Rs 4,022.50 (50 * (100-19.55). The maximum loss will be limited to the extent of the net premium paid (Rs 977.50), which will occur when the Nifty goes below 5000 or above 5200 at expiration. At 5000 levels, all the options will expire worthless. Above 5200, the gain from two long calls will be neutralised by the selling of two 5100 calls.
SAIL
CMP: 196.30 Strategy: Long straddle Buy 1 June 200 call @ 4 Rs 5,400 Buy 1 June 200 put @ 6 Rs 8,100 Net premium paid (1350 * 10) Rs 13,500 This options strategy involves simultaneous purchase of at-the-money call & put options of the same strike price and expiration date. This is a limited-risk strategy as the maximum loss will be to the extent of the net premium paid (Rs 13,500). This will occur if the stock expires at the strike price (Rs 200). To profit from the strategy, the stock should move beyond 210 (200+(6+4)) on the upside or 190 (200-(6+4)) on the downside.
WHAT TO WATCH OUT FOR
INDIA
Results: Bimetal Bearings, Gokul Refoils, Lancor Holdings and Responsive Industries will declare quarterly & annual earnings on Monday.
WORLD
London: Office for Budget Responsibility (OBR) economic forecast. The newly-formed OBR will publish its first pre-budget forecasts for the economy and public finances on Monday.
‘We continue to be bullish on pharma’
With ongoing Euro crisis, overseas fund managers will be compelled to raise exposure to India, says Reliance MF’s Madhusudan Kela
HIS rise within the organisation as well as in the fund management industry has been dramatic. But for the past few months, there has been speculation that Madhusudan Kela, head-equities, Reliance Mutual Fund, is quitting. Untrue, insists Mr Kela. In an interview with Santosh Nair, he says that he is still bullish on the big picture India story. However, in the short term, global sentiment will prevail, he cautions.
How do you see the market playing out near term in light of global developments?
In the next 6-12 months, the market will still be ruled by global sentiment. The ongoing debt crisis in Europe can have a meaningful impact on markets globally as in India, if the situation worsens. If one or two Eurozone countries were to default or the euro as a currency breaks down, there will be chaos. Similarly, if there is slowdown in China, the Indian market will be impacted. Currently, the Indian market is trading at a 25% premium to China. If China’s earnings multiple contracts, there could be a valuation challenge for India as well. However, we have seen over the past six years that the market has produced significantly better returns than most countries in the world. The India story is getting stronger. For instance, this year, you will see a significant fiscal consolidation, which was a major worry for the market. Over the next 2-3 years, the gas and oil reserves will materialise and this will further improve our fiscal position. And the real dark horse could be the UID project which can significantly prune the subsidies and improve tax collection. And hopefully, the pilferage will reduce. I believe a 8-9% growth with more reforms from the government looks real in the next five years.
How steep do you expect the correction, if it does come through, to be?
If the situation in global markets worsens, we could even see a 15-20% correction in Indian shares. But since India’s fundamentals are only getting better, and viewed in the global context, overseas fund managers will be compelled to increase their exposure to India. Any meaningful correction will be a great buying opportunity for retail investors with a long-term view on equities.
Which are the sectors that interest you?
We continue to remain overweight on the pharma sector. We are bullish on companies which will benefit from the domestic consumption story in India. We like public sector banks. They have underperformed the market for a while due to concerns over rising bond yields and hence marked-to-market losses on the bond portfolio. Our view is that PSU banks can grow their loan books 25% for each of the next three years, and they have the capital adequacy to meet the loan demand. The stocks are available at 1.2-1.5 times their book value, and you can’t go wrong if you have a 2-3-year perspective.
There is a lot of pessimism about the telecom sector, more so after the recent 3G bids. Would you take a contrarian view?
Much of the bad news in the sector is behind us. If these stocks see any sharp correction, we would definitely buy them. The stock prices may have underperformed over the past couple of years, but the customer base has more than doubled during the same period.
What about mid-cap stocks in general? Would you still go for them in current market conditions?
Yes, if there are opportunities, we will continue to invest in companies with scalable business models, with earnings growth faster than large-caps, and available relatively cheaper to large-caps.
Your strategy of betting on mid-caps in a big way has been criticised by your peers. They accuse you of boosting portfolio returns by buying into firms with low-floating stock.
Companies like Siemens and Jindal Steel & Power were mid-caps when we first bought them. Not only have they delivered better returns, but are now ranked among the large caps. But I must admit that there have been some wrong bets as well. We have tweaked our mid-cap strategy a bit. We will not buy into very small companies, and would focus on companies with a minimum m-cap of Rs 1,000-1,500 crore.
Locally, what are the factors that could dampen sentiment for stocks?
Below average monsoon would rank high on that list. The reforms process needs to be accelerated. The government has shown resolve, but it needs to build on it, especially in terms of attracting more FDI flows. Rising instances of Maoist and Naxalite attacks could make foreign fund managers nervous. We are highly dependent on inflows at this stage, because there is not much money coming in locally.
How much cash on an average would you be keeping in your portfolio? Your strategy of aggressive cash positions last year was criticised in industry circles.
We will use it more as a tool to improve the portfolio mix. We will not shy away from keeping a higher cash level than our peers if market conditions warrant. But it will not be as high (25%) as was the case last year.
Global cues, tax code draft to chart course
INDIAN stocks may continue to look overseas for direction in the week ahead. But analysts see limited upsides from these levels, as investors are expected to book profits since uncertainty about Europe’s health is yet to recede. Investors will closely watch the contents of the revised direct tax code draft, which is likely to be published by the finance ministry this week for public opinion.
“The market (Nifty) has 5000-5050 acting as a strong support zone and will have to look for positive cues from global markets to build on recent gains,” said Dipan Mehta of Dipan Mehta Shares and Stock Brokers. Last week, the Nifty shed 0.3% to 5119.35.
With local economic data, including last week’s industrial production reading for April, which is at a 20-year high, remaining robust, investors have little doubts about the recovery in the Indian economy. But they fear India’s economic growth would be affected, if problems in Europe are not solved.
“A mood of depression pervades global equity markets. Most investors we speak to believe that the global economy faces a double dip and that structural issues, such as sovereign debt, will keep global growth sub-trend for a prolonged period,” said Garry Evans, global head of equity strategy at HSBC.
But the bank thinks such fears are stretched. “We are happy to stick to our view that this is a normal correction, not a new bear market, and that some countries’ equities, especially in emerging markets, now offer interesting opportunities,” said Mr Evans.
Barclays Capital, in a report, said, “We believe that markets have overreacted assuming that the recovery is losing strength. But we do underestimate the existing difficulties from the European sovereign issues to the risks of a Chinese bubble.”
Analysts expect shares of Reliance Industries (RIL) to surge further this week on news of its Infotel Broadband acquisition. The stock rose 3% to close at Rs 1,046.25.
“This could be a good diversification strategy, as RIL was looking for opportunities to deploy free cash, but it will also intensify competition as existing players will have to deal with a large player with deeper pockets,” said Gaurav Dua, headresearch, Sharekhan.
“The market (Nifty) has 5000-5050 acting as a strong support zone and will have to look for positive cues from global markets to build on recent gains,” said Dipan Mehta of Dipan Mehta Shares and Stock Brokers. Last week, the Nifty shed 0.3% to 5119.35.
With local economic data, including last week’s industrial production reading for April, which is at a 20-year high, remaining robust, investors have little doubts about the recovery in the Indian economy. But they fear India’s economic growth would be affected, if problems in Europe are not solved.
“A mood of depression pervades global equity markets. Most investors we speak to believe that the global economy faces a double dip and that structural issues, such as sovereign debt, will keep global growth sub-trend for a prolonged period,” said Garry Evans, global head of equity strategy at HSBC.
But the bank thinks such fears are stretched. “We are happy to stick to our view that this is a normal correction, not a new bear market, and that some countries’ equities, especially in emerging markets, now offer interesting opportunities,” said Mr Evans.
Barclays Capital, in a report, said, “We believe that markets have overreacted assuming that the recovery is losing strength. But we do underestimate the existing difficulties from the European sovereign issues to the risks of a Chinese bubble.”
Analysts expect shares of Reliance Industries (RIL) to surge further this week on news of its Infotel Broadband acquisition. The stock rose 3% to close at Rs 1,046.25.
“This could be a good diversification strategy, as RIL was looking for opportunities to deploy free cash, but it will also intensify competition as existing players will have to deal with a large player with deeper pockets,” said Gaurav Dua, headresearch, Sharekhan.
QIPs fizzle out as market turns volatile
FUND-RAISING through qualified institutional placements (QIPs) has slowed down sharply in the past couple of months due to uncertain market conditions. Stock markets around the world, including India, have been volatile since late April, as nervous investors reacted to news flows from European countries reeling under a sovereign debt crisis.
Fund managers have turned risk averse, while companies feel they may not get a good enough price in the present market.
Shares of many companies that recently made placements to institutional investors, are trading below the issue price. This, according to investment bankers, may be a blessing in disguise for investors who can take advantage of the discount to buy more shares and increase their holdings. The possibility looks stronger particularly in fundamentally sound, highgrowth companies where returns expectations are quite high, they feel.
Reflecting the lacklustre trend in the QIP market, three companies raised only Rs 948 crore between May and mid-June. This is less than half of Rs 2,107 crore that five companies raised in April. The month before, four companies raised Rs 1,600 crore.
Abhay Bhalerao, director of Mumbai-based investment banking firm Equirus Capital, attributes the lull in fund-raising to adverse market conditions.
He, however, feels institutional investors are unlikely to take a bearish view on their investments in existing companies. “They, in fact, will take advantage of cheaper valuations to raise their holdings in fundamentally strong companies with better prospects,” said Mr Bhalerao.
Even though funds are available, investors are not very keen on deploying them in riskier assets, said Fortune Financial Services joint managing director and Group CEO Devesh Kumar. “Risk aversion has risen due to negative news flows from developed economies and the resultant uncertainty in the stock market. We expect the market to be volatile in the near term,” Mr Kumar said.
While many companies, particularly in realty and infrastructure sectors successfully mopped up large funds in the past, most of them are now quoting substantially below the QIP prices. Out of the 15 offers since January this year, as many as 10 are quoting at a discount ranging from 4% to 23%.
For example, 3i Infotech mobilised Rs 180 crore through placement of shares to qualified institutional buyers at Rs 78.6 a share while the stock closed at Rs 62.5 on Friday. Welspun India is another company which made a Rs 156-crore placement at Rs 100 per share in April this year. Since then, the share price has been on a decline and it closed at Rs 77.3 on Friday.
Fund managers have turned risk averse, while companies feel they may not get a good enough price in the present market.
Shares of many companies that recently made placements to institutional investors, are trading below the issue price. This, according to investment bankers, may be a blessing in disguise for investors who can take advantage of the discount to buy more shares and increase their holdings. The possibility looks stronger particularly in fundamentally sound, highgrowth companies where returns expectations are quite high, they feel.
Reflecting the lacklustre trend in the QIP market, three companies raised only Rs 948 crore between May and mid-June. This is less than half of Rs 2,107 crore that five companies raised in April. The month before, four companies raised Rs 1,600 crore.
Abhay Bhalerao, director of Mumbai-based investment banking firm Equirus Capital, attributes the lull in fund-raising to adverse market conditions.
He, however, feels institutional investors are unlikely to take a bearish view on their investments in existing companies. “They, in fact, will take advantage of cheaper valuations to raise their holdings in fundamentally strong companies with better prospects,” said Mr Bhalerao.
Even though funds are available, investors are not very keen on deploying them in riskier assets, said Fortune Financial Services joint managing director and Group CEO Devesh Kumar. “Risk aversion has risen due to negative news flows from developed economies and the resultant uncertainty in the stock market. We expect the market to be volatile in the near term,” Mr Kumar said.
While many companies, particularly in realty and infrastructure sectors successfully mopped up large funds in the past, most of them are now quoting substantially below the QIP prices. Out of the 15 offers since January this year, as many as 10 are quoting at a discount ranging from 4% to 23%.
For example, 3i Infotech mobilised Rs 180 crore through placement of shares to qualified institutional buyers at Rs 78.6 a share while the stock closed at Rs 62.5 on Friday. Welspun India is another company which made a Rs 156-crore placement at Rs 100 per share in April this year. Since then, the share price has been on a decline and it closed at Rs 77.3 on Friday.
Monday, June 7, 2010
Europe’s debt woes push down commodity prices
THE biggest slump in commodities since Lehman Brothers collapsed is undermining Wall Street forecasts for accelerating economic growth and higher prices for everything from copper to crude oil.
The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of steel, cattle hides, tallow and burlap plunged 57% in May, two years after a decline that foreshadowed the worst recession in half a century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth.
“As risk-taking falls, expected growth is reduced,” said Colin P Fenton, the chief executive officer of Curium Capital Advisors LLC in Boston, who was a commodity analyst at Goldman Sachs Group and Stanley Druckenmiller’s Duquesne Capital Management LLC hedge fund. “Demand for commodities is going to be softer than it might otherwise have been.”
While the Organization for Economic Cooperation and Development raised its growth forecasts for this year and next on May 26, investors are dumping holdings at the fastest pace since February.
The Journal of Commerce Industrial Price Commodity Smoothed Price Index reflects clearer signs of supply and demand than futures markets because half the items it tracks don’t trade on exchanges used by speculators, said Lakshman Achuthan, the managing director at the New York-based Economic Cycle Research Institute. The gauge dropped to 25.97 on May 28 from 60.56 on April 30. In June 2008, a month after the index reached its peak, the Paris-based OECD said the US would grow at a 1.1% rate the following year. Commodities continued to drop, and in October 2008, the index fell at a 56% annual rate, which was then the lowest level since 1949.
Almost two months later, the National Bureau of Economic Research, the panel that dates American business cycles, said the US was in a recession. The world’s largest economy shrank 2.4%, the worst contraction since 1946. Now, “the collapse in the commodity index is telling us that the peak in global industrial growth is imminent, it’s here right now,” Achuthan said. “Markets are going to have to deal with the reality of a slowdown.”
China’s Purchasing Managers’ Index slid to 53.9 from 55.7 in April, the Federation of Logistics and Purchasing said last week. That was less than the median 54.5 estimate in a Bloomberg survey of 18 economists. A monthly gauge of manufacturing in the euro region fell to 55.8 from 57.6, Markit Economics said. The Institute for Supply Management said its US factory index dropped to 59.7 in May from 60.4 in April. Europe’s debt crisis is only starting to weigh on global growth, said Michael Aronstein, a strategist at Oscar Gruss & Son who predicted the 2008 commodity plunge and is betting against a rally this year.
Raw materials may drop another 10% because the economy is on the ‘cusp’ of deflation, said Philip Gotthelf, the president of Equidex Brokerage Group in Closter, New Jersey. That would drive the CRB Index of 19 commodity futures down 22% from a January 6 peak.
DOWN IN THE DUMPS
DIPPING DEMAND
The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of steel, cattle hides, tallow and burlap plunges 57% in May
The index of 18 industrial materials dropped the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth
The index reflects clearer signs of supply and demand than futures markets because half the items it tracks don’t trade on exchanges used by speculators
While the OECD has raised its growth forecasts for this year, investors are dumping holdings at the fastest pace since February NEW NADIR 53.9
The new low for China’s Purchasing Managers’ Index in May from 55.7 in April 55.8
Fall in a monthly gauge
of manufacturing in the
euro region from 57.6 59.7
Drop in United States
factory index in May
from 60.4 in April
The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of steel, cattle hides, tallow and burlap plunged 57% in May, two years after a decline that foreshadowed the worst recession in half a century. The index of 18 industrial materials declined the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth.
“As risk-taking falls, expected growth is reduced,” said Colin P Fenton, the chief executive officer of Curium Capital Advisors LLC in Boston, who was a commodity analyst at Goldman Sachs Group and Stanley Druckenmiller’s Duquesne Capital Management LLC hedge fund. “Demand for commodities is going to be softer than it might otherwise have been.”
While the Organization for Economic Cooperation and Development raised its growth forecasts for this year and next on May 26, investors are dumping holdings at the fastest pace since February.
The Journal of Commerce Industrial Price Commodity Smoothed Price Index reflects clearer signs of supply and demand than futures markets because half the items it tracks don’t trade on exchanges used by speculators, said Lakshman Achuthan, the managing director at the New York-based Economic Cycle Research Institute. The gauge dropped to 25.97 on May 28 from 60.56 on April 30. In June 2008, a month after the index reached its peak, the Paris-based OECD said the US would grow at a 1.1% rate the following year. Commodities continued to drop, and in October 2008, the index fell at a 56% annual rate, which was then the lowest level since 1949.
Almost two months later, the National Bureau of Economic Research, the panel that dates American business cycles, said the US was in a recession. The world’s largest economy shrank 2.4%, the worst contraction since 1946. Now, “the collapse in the commodity index is telling us that the peak in global industrial growth is imminent, it’s here right now,” Achuthan said. “Markets are going to have to deal with the reality of a slowdown.”
China’s Purchasing Managers’ Index slid to 53.9 from 55.7 in April, the Federation of Logistics and Purchasing said last week. That was less than the median 54.5 estimate in a Bloomberg survey of 18 economists. A monthly gauge of manufacturing in the euro region fell to 55.8 from 57.6, Markit Economics said. The Institute for Supply Management said its US factory index dropped to 59.7 in May from 60.4 in April. Europe’s debt crisis is only starting to weigh on global growth, said Michael Aronstein, a strategist at Oscar Gruss & Son who predicted the 2008 commodity plunge and is betting against a rally this year.
Raw materials may drop another 10% because the economy is on the ‘cusp’ of deflation, said Philip Gotthelf, the president of Equidex Brokerage Group in Closter, New Jersey. That would drive the CRB Index of 19 commodity futures down 22% from a January 6 peak.
DOWN IN THE DUMPS
DIPPING DEMAND
The Journal of Commerce Industrial Price Commodity Smoothed Price Index that tracks the growth rate of steel, cattle hides, tallow and burlap plunges 57% in May
The index of 18 industrial materials dropped the most since October 2008 as Europe’s debt crisis widened and China took steps to curb growth
The index reflects clearer signs of supply and demand than futures markets because half the items it tracks don’t trade on exchanges used by speculators
While the OECD has raised its growth forecasts for this year, investors are dumping holdings at the fastest pace since February NEW NADIR 53.9
The new low for China’s Purchasing Managers’ Index in May from 55.7 in April 55.8
Fall in a monthly gauge
of manufacturing in the
euro region from 57.6 59.7
Drop in United States
factory index in May
from 60.4 in April
MF sellers watch out, Sebi’s listening
TELEMARKETING agents soliciting customers by promising huge returns on mutual fund investments may do well to think twice before making tall claims. For, market watchdog the Securities and Exchange Board of India (Sebi) may be listening.
Capital market regulator Sebi, which administers mutual funds, is said to be contemplating various ways to weed out any kind of mis-selling by distributors, agents and relationship managers of the fund houses.
The possible guidelines for the same are being drawn by Sebi, along with the National Institute of Securities Markets, an institution entrusted with the tasks of educating investors and market players.
The suggestions currently being deliberated include recording of sale or promotional calls that the executives, including those at fund houses and distributors, make to new or existing customers, a top official said. The fund houses would also need to audit these recordings periodically and report compliance to mutual fund industry body Amfi and Sebi on a periodic basis, the official said, adding that such compliance reports would be needed to be filed along with the remedial actions for all the mis-selling activities noticed in these recordings.
The distributors, although they agree that the mis-selling of products can be checked with these measures, are not very keen to adopt the practice, given the fact that their payouts have already gone down with the recent volatility in the market and scrapping of entry-loads on mutual funds.
But, Sebi seems to be firm on its position and the new guidelines, if implemented, would be part of its various investor protection measures taken in the mutual fund space. Recently, Sebi also asked fund houses to disclose all complaints received by them on their websites and also in their annual reports. Besides, it has cracked down on the expensive gifts and payouts by fund houses to distributors.
Capital market regulator Sebi, which administers mutual funds, is said to be contemplating various ways to weed out any kind of mis-selling by distributors, agents and relationship managers of the fund houses.
The possible guidelines for the same are being drawn by Sebi, along with the National Institute of Securities Markets, an institution entrusted with the tasks of educating investors and market players.
The suggestions currently being deliberated include recording of sale or promotional calls that the executives, including those at fund houses and distributors, make to new or existing customers, a top official said. The fund houses would also need to audit these recordings periodically and report compliance to mutual fund industry body Amfi and Sebi on a periodic basis, the official said, adding that such compliance reports would be needed to be filed along with the remedial actions for all the mis-selling activities noticed in these recordings.
The distributors, although they agree that the mis-selling of products can be checked with these measures, are not very keen to adopt the practice, given the fact that their payouts have already gone down with the recent volatility in the market and scrapping of entry-loads on mutual funds.
But, Sebi seems to be firm on its position and the new guidelines, if implemented, would be part of its various investor protection measures taken in the mutual fund space. Recently, Sebi also asked fund houses to disclose all complaints received by them on their websites and also in their annual reports. Besides, it has cracked down on the expensive gifts and payouts by fund houses to distributors.
Call options point to resistance at 5200
LAST week, the Nifty ended above a key resistance level of 5100. But the index could face resistance again at 5200, as evident from the activity in call options of that strike price. Too many traders willing to write call options of that strike price means they don’t expect the market to rise above that mark. Implied volatility, a barometer of traders’ risk expectations, has fallen significantly. But any adverse global development could easily pull the index below 5000.
NIFTY
CMP: 5135.50
Strategy: Ratio put backspread
Buy 1 June 5000 put @ 62.25 Rs 3112.50 Sell 2 June 4800 put @ 28.00 Rs 2800.00 Net premium paid (50 * 6.25) Rs 312.50 This is a neutral options trading strategy created by buying an out-of-the-money put and selling two out-of-the-money puts (below current market price). This is a limited profit-unlimited loss options strategy. The maximum profit for the trader would be when the Nifty is at 4800, as both the options sold will be worthless.
The profit will be the difference in the spread added by the premium received by selling the options and deducting the premium paid on buying 5000 put ((200+56)-62.25)). The lot size for the Nifty is 50. So, the maximum profit for the investor will be Rs 9,687.50 (193.75*50). The breakeven point on the lower side will be 4606.25 (4800-193.75) below which losses will have to be incurred. And on the upside, if the Nifty closes above 5000, losses will be to the extent of the net premium paid.
RIL
CMP: 1029.95 Strategy: Bull call ratio spread Buy 1 June 1000 call @ 50 Rs 15,000 Sell 1 June 1040 call @ 25 Rs 7,500 Sell 1 June 1080 call @ 11 Rs 3,300 Net premium paid (300*14) Rs 4,200
This is a moderately bullish strategy, created by buying an in-the-money call (below the current market price) and selling two out-of-the-money calls (above the current market price). The premium received from the sale of the calls would lower the price of buying the call. The maximum profit in this strategy will be if the stock expires between (Rs 1,040-1,080), which will be to the extent of the spread minus the net premium paid ((40-14)*300) Rs 7,800. The breakeven, on the higher side, will be at Rs 1,106 on the higher side (Rs 1,080+(40-14)), beyond which the trader will lose money. The lot size for Reliance Industries in the F&O segment is 300.
WHAT TO WATCH OUT FOR
INDIA
RESULTS: Caprolactam Chemicals, Hercules Hoists & Vybra Automet will announce their quarterly earnings on Monday.
KIC Metaliks: KIC Metaliks to allot 15 lakh equity shares to promoters and non-promoter group at Rs 43.
eClerx Services: The board of eClerx Services to decide on bonus issue.
WORLD
GERMANY: Factory orders data. Analysts expect German factory orders to have increased by 1.5% in April, after a surge of 5% in March.
NIFTY
CMP: 5135.50
Strategy: Ratio put backspread
Buy 1 June 5000 put @ 62.25 Rs 3112.50 Sell 2 June 4800 put @ 28.00 Rs 2800.00 Net premium paid (50 * 6.25) Rs 312.50 This is a neutral options trading strategy created by buying an out-of-the-money put and selling two out-of-the-money puts (below current market price). This is a limited profit-unlimited loss options strategy. The maximum profit for the trader would be when the Nifty is at 4800, as both the options sold will be worthless.
The profit will be the difference in the spread added by the premium received by selling the options and deducting the premium paid on buying 5000 put ((200+56)-62.25)). The lot size for the Nifty is 50. So, the maximum profit for the investor will be Rs 9,687.50 (193.75*50). The breakeven point on the lower side will be 4606.25 (4800-193.75) below which losses will have to be incurred. And on the upside, if the Nifty closes above 5000, losses will be to the extent of the net premium paid.
RIL
CMP: 1029.95 Strategy: Bull call ratio spread Buy 1 June 1000 call @ 50 Rs 15,000 Sell 1 June 1040 call @ 25 Rs 7,500 Sell 1 June 1080 call @ 11 Rs 3,300 Net premium paid (300*14) Rs 4,200
This is a moderately bullish strategy, created by buying an in-the-money call (below the current market price) and selling two out-of-the-money calls (above the current market price). The premium received from the sale of the calls would lower the price of buying the call. The maximum profit in this strategy will be if the stock expires between (Rs 1,040-1,080), which will be to the extent of the spread minus the net premium paid ((40-14)*300) Rs 7,800. The breakeven, on the higher side, will be at Rs 1,106 on the higher side (Rs 1,080+(40-14)), beyond which the trader will lose money. The lot size for Reliance Industries in the F&O segment is 300.
WHAT TO WATCH OUT FOR
INDIA
RESULTS: Caprolactam Chemicals, Hercules Hoists & Vybra Automet will announce their quarterly earnings on Monday.
KIC Metaliks: KIC Metaliks to allot 15 lakh equity shares to promoters and non-promoter group at Rs 43.
eClerx Services: The board of eClerx Services to decide on bonus issue.
WORLD
GERMANY: Factory orders data. Analysts expect German factory orders to have increased by 1.5% in April, after a surge of 5% in March.
India’s resilient, but it’s high on valuation
l too much debt in the developed world and, at some stage, it may end badly, feels Gerard Minack, global head of developed markets strategy at Morgan Stanley. His colleague Jonathan Garner, chief Asian and emerging markets strategist, thinks the problems in Europe have caused a reverse contagion back into emerging markets. In a chat with Deeptha Rajkumar, they share their concerns and the likely scenarios for equity markets.
The problems in Europe have raised concerns about the durability of global growth. How do you expect things to play out?
Gerard Minack: I am bearish on how the Western world leverage will end. The policy response to the great recession was just a big swap — asset risk from the private sector to the public sector and income from the public to the private. In aggregate, we have not fixed anything. Many economies have debt levels of over 250% their GDP. There is simply too much debt and, at some stage, it is going to end badly. As far as equities go, near term, we are in a broad range. Assuming a hard-landing — which looks less likely for now — I would be a buyer at 950-1000 at the S&P. (S&P 500 closed at 1065 on Friday). We need to go lower before I turn up the volume and say we should go long. If we get to 1200, I will be a seller again. Growth is going to be the uppermost concern over the next couple of quarters.
The MSCI emerging markets index is down 2.4%. Are investors losing faith in the emerging markets growth story?
Jonathan Garner: Our economic growth forecast for the emerging world this year is about 8% (average). Approximately 9% for India and 11% for China. It will be the best growth year for Brazil in 25 years. So, the decoupling theme is back. Consumption and fixed investments in the emerging world are very strong and there has even been some export recovery, particularly to the US. But the principle reason we are bullish on emerging markets is the combination of economic growth and earnings growth which is probably going to be about 40% for MSCI EM this year and now, very cheap valuations. I believe, the issues in Europe have caused a ‘reverse contagion’ back into emerging markets. At the moment, people appear to be scared of the developed world. But we think, it’s a growth scare, because the underlying growth drivers of the emerging world are intact.
There have been some very large outflows from emerging markets and Asian equity funds over the past month. About $5 billion of net outflows, the most since December 2008. For us, it’s the time to be brave again. Ten days ago, we raised our equity weightages back to what we call a major overweight on emerging markets and we went underweight on cash. So, we are now as bullish as we were in the second quarter of last year.
Which are your big bets in emerging markets? How do you view Indian equities?
Jonathan Garner: At the moment, we have a preference for China and Korea. Those two markets typify the general theme of being relatively cheap to other emerging market countries. After these two, Russia and Brazil seem relatively cheap. Again primarily on valuations. India has been an overweight for us, for almost a year. We downgraded India to equal weight a month ago. We are neutral on India and the primary reason for the downgrade was relative valuations. For the past month or so, the relative valuation is working against India all the more so, because it is trading at an approximately 50% forward priceearning premium to the rest of the emerging markets. At the moment, the Indian market has held up well, but it has become expensive relatively speaking. We don’t want to be underweight on India, given the kind of growth resilience it has, but you can no longer recommend it as a strong overweight, simply because other markets are cheaper. It’s not an economic story we are telling, but a valuation story.
We have seen a lot of money flowing out of developed markets, some selloff in emerging markets and fixed income as well. Where is all that money going?
Gerard Minack: At the asset allocation level, there has clearly been a flow to safe haven assets. We have seen treasury markets everywhere, except for the intense stress areas, rally. You have got the German BUND yield below 3%, the US 10-year yield approaching 3%. So, yes, there has been a big shift. The big surprise in the first part of the year was how much better the US was doing. For the developed world, ex-Europe, we had only seen a 6-7% pullback by the middle of May. It was even smaller than what we saw in January.
Globally, which are the markets and sectors you see value in?
Gerard Minack: We like Western companies that sell into macro strength, which is Asia. We had been playing that through Japan. But two things have changed in Europe. First, there is real value there now. The European market is at a forward PE of less than 10 times.
Jonathan Garner: In emerging markets, on the sector side, we like consumer discretionary and energy and our big underweights are telecom and defensive areas, particularly utilities. The theme that we can play in emerging markets is that a number of these business models, particularly in China and India, have very high returns on invested capital.
Disclaimer: (Morgan Stanley has a position in and
makes a market in the securities of some of the companies
mentioned in this article. Morgan Stanley does and continues to seek to do business with, and has an investment
banking relationship with some of the companies
mentioned in this article)
The problems in Europe have raised concerns about the durability of global growth. How do you expect things to play out?
Gerard Minack: I am bearish on how the Western world leverage will end. The policy response to the great recession was just a big swap — asset risk from the private sector to the public sector and income from the public to the private. In aggregate, we have not fixed anything. Many economies have debt levels of over 250% their GDP. There is simply too much debt and, at some stage, it is going to end badly. As far as equities go, near term, we are in a broad range. Assuming a hard-landing — which looks less likely for now — I would be a buyer at 950-1000 at the S&P. (S&P 500 closed at 1065 on Friday). We need to go lower before I turn up the volume and say we should go long. If we get to 1200, I will be a seller again. Growth is going to be the uppermost concern over the next couple of quarters.
The MSCI emerging markets index is down 2.4%. Are investors losing faith in the emerging markets growth story?
Jonathan Garner: Our economic growth forecast for the emerging world this year is about 8% (average). Approximately 9% for India and 11% for China. It will be the best growth year for Brazil in 25 years. So, the decoupling theme is back. Consumption and fixed investments in the emerging world are very strong and there has even been some export recovery, particularly to the US. But the principle reason we are bullish on emerging markets is the combination of economic growth and earnings growth which is probably going to be about 40% for MSCI EM this year and now, very cheap valuations. I believe, the issues in Europe have caused a ‘reverse contagion’ back into emerging markets. At the moment, people appear to be scared of the developed world. But we think, it’s a growth scare, because the underlying growth drivers of the emerging world are intact.
There have been some very large outflows from emerging markets and Asian equity funds over the past month. About $5 billion of net outflows, the most since December 2008. For us, it’s the time to be brave again. Ten days ago, we raised our equity weightages back to what we call a major overweight on emerging markets and we went underweight on cash. So, we are now as bullish as we were in the second quarter of last year.
Which are your big bets in emerging markets? How do you view Indian equities?
Jonathan Garner: At the moment, we have a preference for China and Korea. Those two markets typify the general theme of being relatively cheap to other emerging market countries. After these two, Russia and Brazil seem relatively cheap. Again primarily on valuations. India has been an overweight for us, for almost a year. We downgraded India to equal weight a month ago. We are neutral on India and the primary reason for the downgrade was relative valuations. For the past month or so, the relative valuation is working against India all the more so, because it is trading at an approximately 50% forward priceearning premium to the rest of the emerging markets. At the moment, the Indian market has held up well, but it has become expensive relatively speaking. We don’t want to be underweight on India, given the kind of growth resilience it has, but you can no longer recommend it as a strong overweight, simply because other markets are cheaper. It’s not an economic story we are telling, but a valuation story.
We have seen a lot of money flowing out of developed markets, some selloff in emerging markets and fixed income as well. Where is all that money going?
Gerard Minack: At the asset allocation level, there has clearly been a flow to safe haven assets. We have seen treasury markets everywhere, except for the intense stress areas, rally. You have got the German BUND yield below 3%, the US 10-year yield approaching 3%. So, yes, there has been a big shift. The big surprise in the first part of the year was how much better the US was doing. For the developed world, ex-Europe, we had only seen a 6-7% pullback by the middle of May. It was even smaller than what we saw in January.
Globally, which are the markets and sectors you see value in?
Gerard Minack: We like Western companies that sell into macro strength, which is Asia. We had been playing that through Japan. But two things have changed in Europe. First, there is real value there now. The European market is at a forward PE of less than 10 times.
Jonathan Garner: In emerging markets, on the sector side, we like consumer discretionary and energy and our big underweights are telecom and defensive areas, particularly utilities. The theme that we can play in emerging markets is that a number of these business models, particularly in China and India, have very high returns on invested capital.
Disclaimer: (Morgan Stanley has a position in and
makes a market in the securities of some of the companies
mentioned in this article. Morgan Stanley does and continues to seek to do business with, and has an investment
banking relationship with some of the companies
mentioned in this article)
Sunday, June 6, 2010
Euro crisis spread may dampen sentiment
SHARES could weaken on Monday and then trade in a range of around 200 points on the Nifty for the rest of the week, say brokers. The latest bad news from Europe, this time from Hungary, jolted world markets on Friday. US shares tumbled after the unemployment number for May was higher than market estimates. These developments will affect the sentiment for Indian shares, which have had a good run over the past few sessions.
Just when it seemed that the sovereign debt crisis in Greece was under control, the new government in Hungary said that its public finances were in a bad shape than estimated and that the country had only a slim chance of avoiding a debt crisis.
“Sentiment rather than fundamentals will drive share prices in the short term,” said Apurva Shah, vice-president & head-research, institutional equity, Prabhudas Lilladhar. “India is much better placed than most other economies, but its shares can not be immune to the turmoil in world markets,” he added.
Brokers expect foreign funds to persist with their selling-spree should the situation in Europe worsen. In May alone, foreign funds net-sold around Rs 9,700 crore.
Technical analysts expect the Nifty to face resistance in the 5150-5175 band, but don’t see the index falling below 4,800 in the near term. The meteorological department’s (Met) prediction of a normal monsoon and expectations of healthy corporate earnings for the current quarter will cushion the fall, market participants said. Benchmark indices will take cues from the Index of Industrial Production (IIP) due this week.
“We will see double-digit growth in manufacturing and the overall industrial growth is expected to be good, because of favourable base effect,” says Sujan Hajra, chief economist, Anand Rathi Financial Services. Investors expect shares of fast-moving consumer goods (FMCG) and pharmaceutical companies to be in demand, as these stocks are relatively steady in a volatile market.
Just when it seemed that the sovereign debt crisis in Greece was under control, the new government in Hungary said that its public finances were in a bad shape than estimated and that the country had only a slim chance of avoiding a debt crisis.
“Sentiment rather than fundamentals will drive share prices in the short term,” said Apurva Shah, vice-president & head-research, institutional equity, Prabhudas Lilladhar. “India is much better placed than most other economies, but its shares can not be immune to the turmoil in world markets,” he added.
Brokers expect foreign funds to persist with their selling-spree should the situation in Europe worsen. In May alone, foreign funds net-sold around Rs 9,700 crore.
Technical analysts expect the Nifty to face resistance in the 5150-5175 band, but don’t see the index falling below 4,800 in the near term. The meteorological department’s (Met) prediction of a normal monsoon and expectations of healthy corporate earnings for the current quarter will cushion the fall, market participants said. Benchmark indices will take cues from the Index of Industrial Production (IIP) due this week.
“We will see double-digit growth in manufacturing and the overall industrial growth is expected to be good, because of favourable base effect,” says Sujan Hajra, chief economist, Anand Rathi Financial Services. Investors expect shares of fast-moving consumer goods (FMCG) and pharmaceutical companies to be in demand, as these stocks are relatively steady in a volatile market.
Thursday, May 20, 2010
TODAY’S BETS
DESPITE several attempts to protect 5000, the bulls finally surrendered on Wednesday. The mounting selling pressure in heavyweights, increasing volatility, jittery global markets and the continuously depreciating rupee dampened sentiment. The build-up in out-of-money Put options with increase in implied volatility indicates the panicky situation in the market.
VIX, the investor’s fear gauge, has been consistently trading above 20 in the May series. In yesterday’s trade, it shot up above 30 to close at 32.04. This level of high volatility was last seen in the third week of February 2010 when Nifty corrected by over 7% from January highs. The Nifty has so far corrected by over 9% from its highs of 5400. If VIX moves decisively higher from these levels, the Nifty may be pushed below 4900 levels.
Nifty has consistently traded at a discount for most part of the month. We are yet to witness any short covering in the index. Nifty 200 DMA is placed near 4900. If the index does not hold 4900, it may see further downside. The build-up in the Nifty May series 5000 calls has significantly increased suggesting stiff resistance at this level.
Foreign institutional investors, or FIIs, were net sellers in Nifty Futures since the start of this series. However, they have also started selling in the cash market, thanks to the depreciating rupee and European market uncertainties. Losses incurred due to a strengthening dollar may lead to unwinding of carry trade positions by FIIs. Carry trade means borrowing of funds at low interest rates in currencies like dollar and investing in highyielding assets. Midcap banking stocks are looking attractive and these market dips can be utilised to add positions in this segment. However, the upsides in the market can be used for shorting real estate stocks.
WHAT TO WATCH OUT FOR
INDIA
GRASIM: The board will meet to consider the audited financial results for the year ended March 31, ‘10 and also to recommend dividend on equity shares for the same period.
Wockhardt: The board will meet to consider audited financial results of the for the quarter and fifteen months ended March 31, ‘10.
Jet Airways: The board will meet to consider audited financial results for the year ended March 31 ‘10.
Satluj Jal Vidyut Nigam:
The company will make its debut on the bourses. Priced at Rs 26, company’s initial public offering had received good response from investors, attracting an overall subscription of 6.6 times.
VIX, the investor’s fear gauge, has been consistently trading above 20 in the May series. In yesterday’s trade, it shot up above 30 to close at 32.04. This level of high volatility was last seen in the third week of February 2010 when Nifty corrected by over 7% from January highs. The Nifty has so far corrected by over 9% from its highs of 5400. If VIX moves decisively higher from these levels, the Nifty may be pushed below 4900 levels.
Nifty has consistently traded at a discount for most part of the month. We are yet to witness any short covering in the index. Nifty 200 DMA is placed near 4900. If the index does not hold 4900, it may see further downside. The build-up in the Nifty May series 5000 calls has significantly increased suggesting stiff resistance at this level.
Foreign institutional investors, or FIIs, were net sellers in Nifty Futures since the start of this series. However, they have also started selling in the cash market, thanks to the depreciating rupee and European market uncertainties. Losses incurred due to a strengthening dollar may lead to unwinding of carry trade positions by FIIs. Carry trade means borrowing of funds at low interest rates in currencies like dollar and investing in highyielding assets. Midcap banking stocks are looking attractive and these market dips can be utilised to add positions in this segment. However, the upsides in the market can be used for shorting real estate stocks.
WHAT TO WATCH OUT FOR
INDIA
GRASIM: The board will meet to consider the audited financial results for the year ended March 31, ‘10 and also to recommend dividend on equity shares for the same period.
Wockhardt: The board will meet to consider audited financial results of the for the quarter and fifteen months ended March 31, ‘10.
Jet Airways: The board will meet to consider audited financial results for the year ended March 31 ‘10.
Satluj Jal Vidyut Nigam:
The company will make its debut on the bourses. Priced at Rs 26, company’s initial public offering had received good response from investors, attracting an overall subscription of 6.6 times.
Shock waves rock global markets
WORLD markets dropped sharply on Wednesday after Germany’s new curbs on traders unsettled investors.
The euro, meanwhile, recovered from fouryear lows against the dollar — reached in the aftermath of the ban — as experts suggest European central banks are considering intervening in the markets to slow the currency’s drop. The European Central Bank (ECB) declined to comment.
By late-afternoon, the euro was up 1.3% on the day at $1.2342, having earlier dropped to $1.2146, its lowest level since April 2006.
Stock markets didn’t get any such reprieve. In Europe, Britain’s FTSE 100 index of leading shares closed down 149.26 points, or 2.8%, at 5,158.08 while Germany’s DAX plunged 167.26 points, or 2.7%, to 5,988.67. The CAC-40 in France ended 105.65 points, or 2.9%, lower at 3,511.67.
US stocks failed to sustain an early flourish and the Dow Jones industrial average dropped 135.28 points, or 1.3%, at 10,375.67 and the Standard & Poor’s 500 index fell 14.59 points, or 1.3%, at 1,106.21. In Asia, shares dropped too in the wake of the German decision. Japan’s benchmark Nikkei 225 stock average dropped 55.80 points, or 0.5%, to 10,186.84. South Korea’s Kospi index lost 0.8% to 1,630.08 and Australia’s S&P/ASX 200 index was off 1.9% at 4,387.10.
Benchmarks in Singapore and Indonesia fell more than 1% and Hong Kong’s Hang Seng index lost 1.8% to 19,583.22. — AP
The euro, meanwhile, recovered from fouryear lows against the dollar — reached in the aftermath of the ban — as experts suggest European central banks are considering intervening in the markets to slow the currency’s drop. The European Central Bank (ECB) declined to comment.
By late-afternoon, the euro was up 1.3% on the day at $1.2342, having earlier dropped to $1.2146, its lowest level since April 2006.
Stock markets didn’t get any such reprieve. In Europe, Britain’s FTSE 100 index of leading shares closed down 149.26 points, or 2.8%, at 5,158.08 while Germany’s DAX plunged 167.26 points, or 2.7%, to 5,988.67. The CAC-40 in France ended 105.65 points, or 2.9%, lower at 3,511.67.
US stocks failed to sustain an early flourish and the Dow Jones industrial average dropped 135.28 points, or 1.3%, at 10,375.67 and the Standard & Poor’s 500 index fell 14.59 points, or 1.3%, at 1,106.21. In Asia, shares dropped too in the wake of the German decision. Japan’s benchmark Nikkei 225 stock average dropped 55.80 points, or 0.5%, to 10,186.84. South Korea’s Kospi index lost 0.8% to 1,630.08 and Australia’s S&P/ASX 200 index was off 1.9% at 4,387.10.
Benchmarks in Singapore and Indonesia fell more than 1% and Hong Kong’s Hang Seng index lost 1.8% to 19,583.22. — AP
Training institute set to be closed
THE Indian Institute of Securities Management (IISM), promoted originally by the erstwhile UTI and which came under the Securities Exchange Board of India (Sebi) fold later, is set to be closed down.
With none of the staffers of the institute willing to accept an exit package, Sebi is in a fix over handling the issue. Some employees are now planning to approach the political establishment to highlight their plight.
The IISM management, in a letter to all its employees on March 3, ’10, has made it clear that “all activities of the institute will come to an end”. It offered a VRS and also made it clear that retrenchment was inevitable if the employees failed to accept the VRS. There, however, are no takers for the two “voluntary separation schemes followed by the “revised voluntary separation scheme” offered by the institute.
This leaves a question mark over the fate of the institute. According to employees, the management’s decision to sack employees goes against the promise made to them when it was merged with Sebi’s National Institute of Securities Markets (NISM) four years ago. “We were promised job protection while the institute was being transferred,” a member of the IISM staff toldET.
When contacted, a former senior official with the market regulator, who was involved with the project, said: “Following the merger of IISM with the NISM, it was decided to offer VRS to employees. Sebi took this decision long ago. Formed as the Indian Institute of Capital Markets as the Unit Trust of India’s training arm in 1989 it was managed and run by the Specified Undertaking of the UTI (SUUTI). A few years later, the institute was taken over by Sebi and was christened as the National Institute of Securities Markets (NISM).
The institute has regularly been conducting programmes for the Central Bureau of Investigation, Central Economic Intelligence Bureau, Indian Economic Service, Indian Revenue Service, Forward Markets Commission and Sebi’s employees besides many public, private and MNCs.
It conducts Securities Markets Programme, a full-time one-year post-graduate diploma along with a popular programme on Financial Engineering and Risk Management.
With none of the staffers of the institute willing to accept an exit package, Sebi is in a fix over handling the issue. Some employees are now planning to approach the political establishment to highlight their plight.
The IISM management, in a letter to all its employees on March 3, ’10, has made it clear that “all activities of the institute will come to an end”. It offered a VRS and also made it clear that retrenchment was inevitable if the employees failed to accept the VRS. There, however, are no takers for the two “voluntary separation schemes followed by the “revised voluntary separation scheme” offered by the institute.
This leaves a question mark over the fate of the institute. According to employees, the management’s decision to sack employees goes against the promise made to them when it was merged with Sebi’s National Institute of Securities Markets (NISM) four years ago. “We were promised job protection while the institute was being transferred,” a member of the IISM staff toldET.
When contacted, a former senior official with the market regulator, who was involved with the project, said: “Following the merger of IISM with the NISM, it was decided to offer VRS to employees. Sebi took this decision long ago. Formed as the Indian Institute of Capital Markets as the Unit Trust of India’s training arm in 1989 it was managed and run by the Specified Undertaking of the UTI (SUUTI). A few years later, the institute was taken over by Sebi and was christened as the National Institute of Securities Markets (NISM).
The institute has regularly been conducting programmes for the Central Bureau of Investigation, Central Economic Intelligence Bureau, Indian Economic Service, Indian Revenue Service, Forward Markets Commission and Sebi’s employees besides many public, private and MNCs.
It conducts Securities Markets Programme, a full-time one-year post-graduate diploma along with a popular programme on Financial Engineering and Risk Management.
Germany goes to war alone, bans naked short selling
GERMANY declared war on speculators on Wednesday, wrongfooting European partners who said they were not consulted about an overnight ban on naked short sales of a range of assets that rattled markets.
Chancellor Angela Merkel told German lawmakers EU leaders had to ensure markets could not “extort” the state any more and the bloc would introduce its own financial transaction tax or levy if the Group of 20 nations failed to reach a deal in June.
Merkel urged EU leaders to speed up financial market supervision and introduce a new tax on them, saying Berlin was ready to act alone on a ban on activities which some leaders blame for deepening the euro zone’s debt crisis.
“I’ll boil it down to its core: The euro is the foundation for growth and prosperity, along with the common market — also for Germany. The euro is in danger,” Merkel told parliament.
But Germany’s European partners were blindsided by the ban. France and senior EU officials said they had not been consulted and called for concerted, not unilateral, action.
“It seems to me that one ought to at least seek the advice of the other member states concerned by this measure,” French Economy Minister Christine Lagarde said, stressing that Paris was not considering banning naked short-selling on European debt. The EU commissioner for internal markets and financial regulation, Michel Barnier, said in a statement the measures would have been more effective if coordinated at European level.
“It is important that member states act together and that we design a European regime to avoid regulatory arbitrage and fragmentation both with the EU and globally,” he said.
Markets were spooked by the lack of coordination and fears that Germany’s move was in response to a new financial problem.
Some analysts suggested Germany’s ban might be an attempt to get markets under control before further negative developments in the euro zone debt crisis — conceivably even a restructuring of Greek debt, which officials have so far ruled out.
Rabobank said Germany’s move “raises the question as to whether the German regulator knows something the market doesn’t. If there is a secret here, it can’t possibly be a positive one.”
EU TALKS ON FRIDAY
EU finance ministers will discuss Germany’s ban on Friday, said EU President Herman van Rompuy, who is to chair meetings on toughening EU budget rules and improving economic governance.
Merkel’s comment on the euro heaped fresh pressure on the single currency, which had already tumbled overnight on the back of Germany’s plan to ban naked short-selling of some financial shares, euro government bonds and related transactions in credit default swaps. In the United States, where the bulk of credit default swap trading is done, US. Treasury Secretary Tim Geithner told CNBC television the history of trading restrictions was “not good”. Credit default swaps insure against the risk of debt defaults, short selling is a trade that bets a price will fall.
Naked short selling involves selling a financial instrument without first borrowing the instrument or ensuring that it can be borrowed, as would be done in a conventional short sale. A German Finance Ministry spokesman said the ban would run until March 31, 2011. — Reuters
Chancellor Angela Merkel told German lawmakers EU leaders had to ensure markets could not “extort” the state any more and the bloc would introduce its own financial transaction tax or levy if the Group of 20 nations failed to reach a deal in June.
Merkel urged EU leaders to speed up financial market supervision and introduce a new tax on them, saying Berlin was ready to act alone on a ban on activities which some leaders blame for deepening the euro zone’s debt crisis.
“I’ll boil it down to its core: The euro is the foundation for growth and prosperity, along with the common market — also for Germany. The euro is in danger,” Merkel told parliament.
But Germany’s European partners were blindsided by the ban. France and senior EU officials said they had not been consulted and called for concerted, not unilateral, action.
“It seems to me that one ought to at least seek the advice of the other member states concerned by this measure,” French Economy Minister Christine Lagarde said, stressing that Paris was not considering banning naked short-selling on European debt. The EU commissioner for internal markets and financial regulation, Michel Barnier, said in a statement the measures would have been more effective if coordinated at European level.
“It is important that member states act together and that we design a European regime to avoid regulatory arbitrage and fragmentation both with the EU and globally,” he said.
Markets were spooked by the lack of coordination and fears that Germany’s move was in response to a new financial problem.
Some analysts suggested Germany’s ban might be an attempt to get markets under control before further negative developments in the euro zone debt crisis — conceivably even a restructuring of Greek debt, which officials have so far ruled out.
Rabobank said Germany’s move “raises the question as to whether the German regulator knows something the market doesn’t. If there is a secret here, it can’t possibly be a positive one.”
EU TALKS ON FRIDAY
EU finance ministers will discuss Germany’s ban on Friday, said EU President Herman van Rompuy, who is to chair meetings on toughening EU budget rules and improving economic governance.
Merkel’s comment on the euro heaped fresh pressure on the single currency, which had already tumbled overnight on the back of Germany’s plan to ban naked short-selling of some financial shares, euro government bonds and related transactions in credit default swaps. In the United States, where the bulk of credit default swap trading is done, US. Treasury Secretary Tim Geithner told CNBC television the history of trading restrictions was “not good”. Credit default swaps insure against the risk of debt defaults, short selling is a trade that bets a price will fall.
Naked short selling involves selling a financial instrument without first borrowing the instrument or ensuring that it can be borrowed, as would be done in a conventional short sale. A German Finance Ministry spokesman said the ban would run until March 31, 2011. — Reuters
ICICI-BoR deal fuels hopes of more M&As
THE proposed merger of Bank of Rajasthan (BoR) with ICICI Bank has triggered hopes of mergers and acquisitions slowly gaining pace in the banking segment, prompting investors to take a positive view on mid-cap banking stocks even in a choppy market. Shares of select banks like South Indian Bank, Federal Bank, City Union Bank and DCB outperformed the broader market on Wednesday, gaining between 0.6% and 4.6% against a 2.8% fall in the Sensex.
According to analysts, BoR’s valuation, taking into account the price offered by ICICI, was at a significant premium to the current market price. This could have acted as a trigger for the movement in other stocks. However, analysts say that investors should not base their decision purely on the merger play but should rather look at specific stocks, particularly those trading at attractive valuations.
Vaibhav Agrawal, V-P-research, banking, Angel Broking, says that the BoR deal sets a very high benchmark valuation for other smaller private banks. “However, it would not be advisable to invest in these stocks only based on the M&A theme due to the substantial uncertainties involved.”
Harendra Kumar, head, institutional equities & global research at Elara Capital, says, “We do not see this valuation to be secular ascribed to other mid-sized banks. Mergers are typically driven by strategic objectives and hence would be wrong benchmarks to be used across-theboard. They should trade on the fundamentals of their business and at a discount to large private and public sector banks. Most stocks in terms of valuation are closer to fair value.”
“The price commanded by Bank of Rajasthan was certainly higher than most of the other banks. Stocks such as South Indian Bank, Federal Bank and Karnataka Bank are expected to outperform the markets. However, every deal may not be able to get these kind of valuations due to scattered shareholding in case of other banks unlike BoR,” says Ajay Parmar, head, institutional equities, Emkay Global Financial Services.
Some stocks such as Federal Bank and South Indian Bank look quite attractive based on their current fundamentals, says Mr Agrawal. “Both are trading at very cheap valuations of less than one times their adjusted book values, as compared to five times of book value at which Bank of Rajasthan has been valued. The M&A possibility can be seen as an added potential catalyst in some stocks, rather than the only positive. Even on fundamentals, such as the substantial low-cost NRI deposits that these banks have, profitable operations among others these banks look attractive.”
Apart from listed old generation private sector banks, there are few unlisted banks such as Catholic Syrian Bank, Tamilnad Mercantile Bank and Ratnakar Bank which are also viewed as potential acquisition candidates. Analysts, however, say that the acquisition of these banks is not easy as there is likely to be resistance from stake holders including majority shareholders and employees.
They also said there could be uncertainty in the recent deal till the time the special audit is complete. “On most metrics on the liability side, the valuation seems sensible. But, given that the authenticity of Bank of Rajasthan’s reported numbers are not certain until the special audit is complete, risks remain,” says a note from Execution Noble.
Mr Kumar adds that consolidation in banks is never easy given cultural, technological and asset quality differences. “It will be premature to herald a consolidation at this moment. Depending on the portfolio strategy, one can take tactical positions in smaller banks.”
According to analysts, BoR’s valuation, taking into account the price offered by ICICI, was at a significant premium to the current market price. This could have acted as a trigger for the movement in other stocks. However, analysts say that investors should not base their decision purely on the merger play but should rather look at specific stocks, particularly those trading at attractive valuations.
Vaibhav Agrawal, V-P-research, banking, Angel Broking, says that the BoR deal sets a very high benchmark valuation for other smaller private banks. “However, it would not be advisable to invest in these stocks only based on the M&A theme due to the substantial uncertainties involved.”
Harendra Kumar, head, institutional equities & global research at Elara Capital, says, “We do not see this valuation to be secular ascribed to other mid-sized banks. Mergers are typically driven by strategic objectives and hence would be wrong benchmarks to be used across-theboard. They should trade on the fundamentals of their business and at a discount to large private and public sector banks. Most stocks in terms of valuation are closer to fair value.”
“The price commanded by Bank of Rajasthan was certainly higher than most of the other banks. Stocks such as South Indian Bank, Federal Bank and Karnataka Bank are expected to outperform the markets. However, every deal may not be able to get these kind of valuations due to scattered shareholding in case of other banks unlike BoR,” says Ajay Parmar, head, institutional equities, Emkay Global Financial Services.
Some stocks such as Federal Bank and South Indian Bank look quite attractive based on their current fundamentals, says Mr Agrawal. “Both are trading at very cheap valuations of less than one times their adjusted book values, as compared to five times of book value at which Bank of Rajasthan has been valued. The M&A possibility can be seen as an added potential catalyst in some stocks, rather than the only positive. Even on fundamentals, such as the substantial low-cost NRI deposits that these banks have, profitable operations among others these banks look attractive.”
Apart from listed old generation private sector banks, there are few unlisted banks such as Catholic Syrian Bank, Tamilnad Mercantile Bank and Ratnakar Bank which are also viewed as potential acquisition candidates. Analysts, however, say that the acquisition of these banks is not easy as there is likely to be resistance from stake holders including majority shareholders and employees.
They also said there could be uncertainty in the recent deal till the time the special audit is complete. “On most metrics on the liability side, the valuation seems sensible. But, given that the authenticity of Bank of Rajasthan’s reported numbers are not certain until the special audit is complete, risks remain,” says a note from Execution Noble.
Mr Kumar adds that consolidation in banks is never easy given cultural, technological and asset quality differences. “It will be premature to herald a consolidation at this moment. Depending on the portfolio strategy, one can take tactical positions in smaller banks.”
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