Polaris chief sees 27% dip in gross salary

Mr Arun Jain, Founder, Chairman and Chief Executive Officer of Polaris
Software Lab Ltd, saw his gross remuneration come down by 27 per cent
to Rs 85 lakh in 2007-08 compared with Rs 1.08 crore in the previous
year. This includes Rs 20 lakh (Rs 51.25 lakh) towards bonus, which
was calculated based on performance criteria determined by the
company's shareholders at the annual general meeting held in August
2006.

Some of the company's directors too got lower commission in 2007-08.
For instance, the commission of Mr Abhay Agarwal dropped to Rs 3.50
lakh during the year compared with Rs 4.98 lakh in the previous year.
Similarly, Mr Arvind Kumar's commission dropped to Rs 3.50 lakh (Rs
4.63 lakh). No stock options grants were provided during 2007-08 for
directors compared with 10,000 given to six of them in the previous
year, says the company's 2007-08 annual report.

For the year ended March 31, 2008, Polaris' net profit was Rs 73 crore
(Rs 101 crore) on revenues of Rs 1,117 crore (Rs 1,038 crore).

Polaris Retail – gaining ground


A notable feature in 2007-08 was increased profitability in Polaris'
subsidiary that provides software for the retail industry. Polaris
Retail InfoTech Ltd (PRIL) achieved a net profit of Rs 2.02 crore (Rs
78 lakh).

PRIL, through its products Retail Excel and Smart Store, has reached
to 15,000 point of sale counters across India. It is foraying into
international markets starting with West Asia and Africa, Mr Jain
said.

Polaris Retail won new clients such as Vishal Retail, Godrej Agrovet,
REI Agro, Masper, DSCL Hariyali Kisan Bazar and Indian Terrain. "We
expanded Polaris Retail to the West Asian market last year and this
year, we are looking to expand PRIL to Asia Pacific and Africa markets
as well," Mr Jain told Business Line.

Intellect – slow growth


The Intellect platform contributed around 23 per cent of annual
revenues. This is against the product business of more than 30 per
cent projected in 2002 when Polaris and OrbiTech Solutions, a Citibank
technology group company, were merged. Launched in 2004, Intellect was
the enhanced version of Polaris' OrbiOne suite of banking products.
OrbiOne was the proprietary product of OrbiTech.

In the last five years, the 'Intellect business' has grown to Rs 220
crore from Rs 60 crore.

Mr Jain said post OrbiTech merger, Polaris appointed McKinsey to
understand the global market players and 'right positioning' of the
product in the market place. The consultant recommended that 'Legacy
Modernisation' (migration of legacy systems to modern technology)
offered a good business opportunity as banks and financial
institutions would need to spend on this.

On the basis of the recommendation, Polaris shifted its focus to
position Intellect among top 20 global banks in the world to create
"lighthouse implementations" — Intellect implementations in leading
banks — such as Lloyds Bank in UK, National Bank of Abu Dhabi in West
Asia, Citibank in London, Deutsche Leasing in Germany and Shinsei in
Japan.

source: Business Line
 

 

 

Ambani rivalry under scanner of Western media

More than the potential deal between South African telecom giant MTN
and Anil Ambani group firm RCOM, it's the rivalry between the Ambani
brothers that has caught the fancy of Western media which compares it
to a potboiler penned by fiction writer Jeffrey Archer.

As the time draws closer to the expiry of exclusivity agreement
between RCOM and MTN for negotiations, one newspaper after another in
Britain and the US is commenting on the eruption of a battle between
the two richest brothers in the world.

The controversy over the possible deal started with Mukesh Ambani-led
Reliance Industries asserting its Right of First Refusal over the
younger brother's company with legal notices to RCOM and MTN in the
midst of negotiation for a deal that could create a 70 billion dollar
entity.

While the UK's The Independent termed it like one of famed novelist
Jeffrey Archer's potboilers, a Financial Times columnist said the spat
could make a "passable B movie." Almost all of them felt it is all
about one-oneupmanship between the two.

As The Independent put things in a future perspective, "The next
installment in the Ambani saga will show whether the rivalry between
the two continues to drive both to still greater achievements - or
whether, like a character in a Jeffrey Archer novel, only one can
succeed."

But tension has been flaring up between the two all the time in these
three years (since they parted ways), with both of them trying to
steal the show from each other in areas ranging from construction and
telecom to entertainment, writes a senior journalist at international
business magazine Fortune.

In its write-up, UK's The Sunday Times said, "What kind of man travels
halfway round the world to sabotage the biggest deal of our career...
and then threatens you with legal action? For supporters of Anil
Ambani, the second richest man in India, the answer is 'your older
brother."

One of the articles brought about the contrast in the Ambanis' fight,
by touching upon the differences between steel tycoon Lakshmi Mittal
and his brother Pramod Mittal, both of whom managed to keep sensitive
family issues away from the spotlight.


The Sunday Times says India is "no stranger to sibling rivalry, but
this (Ambani) feud has enthralled the country's business community."

The diverse views are reminiscent of the media's scrutiny of the
Ambani family feud, with writings drawing comparisons on personal
fortunes to family fights in India.

"My EBITDA is bigger than yours. Is this what the latest spat between
the two Ambani brothers boils down to?" questioned a columnist of the
British daily Financial Times.

Telecom services revenue up 21% to Rs 1.30 lakh cr

With one out of four Indians owning a phone, revenue of the country's
telecom services industry has swelled to Rs 1,30,561 crore in 2007-08,
up 21 per cent over the the previous fiscal.

India added 100 million new subscribers in this period.

The revenue of telecom services, including that of cellular, fixed
line, national long distance, international long distance, broadband,
radio trunking and VSAT services, has risen to Rs 1,30,561 crore,
registering a growth of 21.3 per cent, a survey by Voice&Data
revealed.

Among the services, cellular segment contributed a major chunk of
around 59 per cent to the total revenue. The segment's topline rose to
Rs 76,608 crore in 2007-08, compared to Rs 56,183 crore last fiscal, a
growth of about 36 per cent.

BSNL topped the survey list in terms of revenue with Rs 35,296 crore
total income. However, it registered a negative growth of 12 per cent.
Its revenue for last fiscal was Rs 40,135 crore.

Bharti with Rs 26,436 crore topline clinched the second slot while
Reliance communications was placed at the third position reporting
total income of Rs 18,638 crore, the survey read.

Fixed line business was the second biggest revenue earner for the
industry, contributing more than 20 per cent. However, its total
income dipped 11.6 per cent in this financial year to Rs 26,692 crore,
compared to Rs 30,190 in 2006-07, it said.

Broadband business showed a huge growth of 162.7 per cent in terms of
revenue. It reached to Rs 5,359 crore in 2007-08, compared to Rs 2,040
crore in the previous fiscal.

The growth in the number of broadband subscribers, however, was not
appealing as the country added only 1.4 million new users in this
period. The total subscriber base was up 56 per cent to 3.9 million,
the survey added.

Corporate news: Reliance Infrastructure Ltd

Reliance Infrastructure Ltd has informed that:

Pursuant to clause 36(7)(ii) of the listing agreement, we wish to
notify you of the amalgamation of Reliance Projects Finance Pvt Ltd
(transferor Company) with Reliance Infrastructure Ltd (transferee
Company). The relevant details of the amalgamation are furnished
hereunder:

1. The High Court of Judicature at Bombay by its order dated June 20,
2008 sanctioned the Scheme of Amalgamation and Arrangement between
Reliance Projects Finance Pvt Ltd, Reliance Infrastructure Ltd and
their respective Shareholders and Creditors (Scheme);

2. Upon filing of the said order with the Registrar of Companies,
Maharashtra, Mumbai, the Scheme has become effective on June 30,
2008;

3. Filing of separate application and petition by Reliance
Infrastructure Ltd (the transferee Company) was dispensed with by the
High Court of Judicature at Bombay vide its order dated April 08,
2008;

4. Since the transferor Company is a wholly owned subsidiary of the
transferee Company, no new shares are required to be issued to the
members of the transferor Company and the entire share capital of the
transferor Company stands cancelled in accordance with the Scheme.

Sharekhan Post-Market Report dated July 01, 2008

 

Sharekhan's daily newsletter July 01, 2008 Index Performance Index Sensex Nifty Open 13,480.02 4,039.75 High 13,613.82 4,075.40 Low 12,904.09 3,878.20 Today's Cls 12,961.68 3,896.75 Prev Cls 13,461.60 4,040.55 Change -499.92 -143.80 % Change -3.71 -3.56   Market Indicators Top Movers (Group A) Company Price  (Rs) % chg Gainers Gammon India 228.25 5.50 HCL Tech 257.95 2.89 United Phosphorus 287.70 2.69 India Infoline 514.05 2.40 Tata Comm 380.00 1.82 Losers Shree Precoated 91.55 -16.35 Chambal Fertilisers 57.70 -14.26 Rajesh Exports 50.15 -14.13 Adlabs Films 378.75 -13.93 JSW Steel 775.65 -13.92 Market Statistics - BSE NSE Advances 406 114 Declines 2,272 1,095 Unchanged 46 19 Volume(Nos) 27.76cr 56.04cr  Market Commentary  Free fall continues Selling pressure in most of the frontline counters saw the index dip for the fifth straight session. Nervousness gripped the market for the third consecutive session, as selling pressure since early trades saw the index remain weak all through the trading session.     Though the Sensex resumed 18 points above its previous close at 13,480 and moved up to touch an early high of 13,614, the market soon snapped gains owing to the emergence of the selling pressure. As correction continued unabated, the index tumbled below the mark to touch the intra-day low of 12,904 by the end of the trade. While the market languished in negative territory through the noon trades, the Sensex signed off the session with losses of 500 points at 12,962. Nifty also ended in the red at 3,897, down 144 points. Movers & Shakers Jetking Infotrain edged lower inspite of the report that the company's board has approved issue of bonus shares in the ratio of one new fully paid up equity share of Rs10 each for every two equity shares of Rs10 each. Hindustan Construction declined in spite of the report that the company has bagged Rs340 crore built-operate-transfers (BOT) project from the National Highway Authority of India (NHAI) to construct Badrapur elevated six-lane highway. The market breadth was quite weak. Of the 2,724 stocks traded on the BSE, 2,272 stocks declined, while only 406 stocks advanced. 46 stocks ended unchanged. All the sectoral indices ended at lower levels. The BSE Realty index fell 7.21%, the BSE Bankex index dipped 5.62%, the BSE Metal index shed 5.40% and the BSE Auto index was down 4.90%. Among the draggers, Reliance Infrastructure dropped 11.93% at Rs688, Mahindra & Mahindra shed 10.53% at Rs430, Reliance Communications tumbled 10.26% at Rs392, SBI declined 8.90% at Rs1,007, DLF was down 8.88% at Rs361 and Maruti Suzuki India declined 8.52% at Rs560. ICICI Bank at Rs580.05, Hindalco Industries at Rs132.50, Jaiprakash Associates at Rs131.15, HDFC at Rs1,800, Wipro at Rs413 and Tata Steel at Rs690.25 were down around 5-7% each. NTPC however managed to register decent gains.  Realty stocks came under sharp hammering. HDIL slumped 12.70% at Rs337.95, Phoenix Mill lost 12.40% at Rs136, Ansal Infrastructure declined 10.70% at Rs61.75 and Anant Raj was down 9.09% at Rs124.50. Omaxe, Indiabulls Real Estate, DLF, Sobha Developers, Unitech and Parsvnath dipped 5-8% each. Over 2.46 crore Sejal Glass shares changed hands on the BSE followed by Reliance Natural Resources (1.61 crore shares), Reliance Petroleum (1.41 crore shares), Ispat Industries (1.07 crore shares) and ICY (1.05 crore shares).   European Indices at 15:57 IST on 01-07-2008 Index Level Change (pts) Change (%) FTSE 100 Index 5500.00 -125.90 -2.24 CAC 40 Index 4332.97 -101.88 -2.30 DAX Index 6303.19 -115.13 -1.79 Asian Indices at close on 01-07-2008 Index Level Change (pts) Change (%) Nikkei 225 13463.20 -18.18 -0.13 Hang Seng Index 22102.01 59.66 0.27 Kospi Index 1666.46 -8.46 -0.51 Straits Times Index 2906.79 -40.75 -1.38 Jakarta Composite Index 2378.81 29.70 1.26

 

Broad Says U.S. Economy in Worst Recession Since World War II

2008-07-01 04:01:44.0 (New York)


By Anthony Massucci and Erik Holm

 

    July 1 (Bloomberg) -- Billionaire investor Eli Broad said the U.S. economy is in the `worst period' of his adult life as a housing market recovery remains ``several years'' away. 

    ``This is worse than any recession we've had since World War II,'' Broad, 75, said in an interview yesterday. Broad, the founder of homebuilder KB Home, said the U.S. should avoid a
depression on the scale of the 1930s because the country now has sufficient ``safety nets.''

    The economy expanded at an annual rate of 1 percent in the first quarter, the Commerce Department said last week. That caps the weakest six months of growth in five years. The U.S. lost 49,000 jobs in May, when the unemployment rate rose to 5.5 percent, the fifth straight month with a drop in payrolls and the biggest jump in the jobless rate in more than two decades.

    ``This is the worst period of my adult lifetime,'' Broad said, speaking about the U.S. economy. ``I do not think things are going to get any better'' before the next president takes
office in January.

    The banking industry may need additional capital to protect against bad loans, Broad said. U.S. banks may have to raise $65 billion as losses and writedowns extend into the first quarter of 2009, Goldman Sachs Group Inc. analysts said last month.

    The world's biggest financial firms have posted about $400 billion in writedowns and credit losses tied to the U.S. housing slump, according to data compiled by Bloomberg.

    Selling off vacant, unsold homes could take ``several years,'' Broad said.
 

 

                      Waiting for a Bottom

    ``The problem is, people don't believe prices have bottomed out,'' he said. ``You've got to induce people to buy houses'' with federal policies including tax incentives.

    Broad, whose main focus is his $2.63 billion philanthropic organization, last month joined investors in pushing for the ouster of Martin Sullivan as chief executive officer of American
International Group Inc., after the world's largest insurer posted record losses.

    AIG, where Broad served as a director from 1999 until 2003, lost half its market value in the past year and has posted $13 billion in losses tied to the subprime mortgage market collapse
over two quarters. 

    ``It will turn around in due time,'' Broad said of New York- based AIG. ``It's not going to be overnight.''

    Broad said in a television interview that consumer confidence and home sales won't improve this year, while unemployment will rise.

    U.S. borrowers will continue to default on home, auto and credit-card loans, he said. More than 100 mortgage companies have suspended operations, closed or sold themselves since the start of 2007. American Express Co. CEO Kenneth Chenault said last week that credit indicators including late payments have worsened beyond the company's expectations.
 

                       `Corrosive Effect'

 

    The U.S. government stimulus checks helped support economic growth and more federal help is needed to fuel growth, he said. 

 

    ``I think housing is going to continue to have a corrosive effect on consumer psychology and the economy in general to a far greater extent than people think, or even far greater than I thought about a month or two ago,'' he said.

    The number of Americans in danger of losing their homes to foreclosure rose to the highest in at least three decades during the first quarter, according to data from the Washington-based
Mortgage Bankers Association.

    Sales of new and existing homes in the U.S. began to drop in mid-2005, bringing the five-year housing boom to a close. Prices for existing homes finished last year below 2006 levels,
according to the National Association of Realtors in Chicago.

    Repairing the damage to the U.S. economy will require political leadership on U.S. energy, health care and education policies, Broad said. Those areas are the focus of his foundation.
 

    ``I worry about the future of America,'' said Broad. ``It's time to regroup and redefine our place as a country and that's tough to do.''




 

Export sops to go as rupee falls

A host of sops given last year to Indian exporters to help tide over
the sharp appreciation of the rupee will not be extended by the Centre
beyond September 30, when the sops are set to expire.


This is on account of the rupee depreciating about 10 per cent against
the US dollar since April this year. The rupee is expected to continue
to weaken from its current level of nearly Rs 43.

The sops that will be rolled back include interest rate subvention on
pre- and post-export credit as well as the 1-3 per cent increase in
duty drawback and duty entitlement pass book scheme (DEPB) rates,
which were announced in various phases last year. The enhanced duty
drawback and DEPB rates will be rolled back to the values which they
were in before the sops were announced.

However, service tax exemption to export-related services will
continue. Duty drawback and DEPB are used by exporters to get credit
on various duties paid by them while manufacturing the goods meant for
exports.

"The sops are likely to be rolled back. The decision is likely to be
formally announced later this month," said Commerce Secretary Gopal K
Pillai on the sidelines of a function organised by the Delhi Exporters
Association.

Exporters will, therefore, get a two-month cushion, allowing them to
adjust their long-term export contracts accordingly.

Predictably, the export community is upset. Federation of Indian
Exporters Organisations (FIEO) president GK Gupta said: "The
depreciation in the rupee has not benefitted exporters as they had
covered their exposures in the forward market. The rupee has
depreciated more than it was expected. Removal of sops will hit us."

As nearly 70 per cent of India's export orders are dollar denominated,
exporters suffered losses while converting their dollar earnings to
rupees, when it was appreciating.

While the finance ministry will be responsible for the roll back of
the hiked draw back rates and interest subvention in pre- and post-
export credit, the commerce ministry will issue a order on ending the
enhanced DEPB rates.

Meanwhile, Commerce Secretary Gopal K Pillai today unveiled a single-
account drawback disbursement system for exporters. The new system
will do away with the practice of having bank accounts in each sea and
inland port to avail drawback claims

Realty stocks face rate reality; index down 4.2%

MUMBAI: Shares of realty companies continued to face the bear rage
Tuesday as the BSE Realty Index dropped 190.89 points or 4.20 per cent
to trade at 4,352.58.

DLF was the biggest loser on the Sensex while Indiabulls Real Estate
led the pack in the sector with a loss of 14.18 per cent.

HDIL suffered a fall of 5.71 per cent to Rs 232.75 while Purvankara,
Akruti City and Omaxe were down 4.92 per cent to 4.30 per cent, in
that order. Mahindra Lifespace was only marginally weaker.

The sector, which has seen an unprecedented boom in the last two
years, is facing a slump with banks raising lending rates in the
Reserve Bank of India's fight against inflation, which is at a 13-year
high of 11.42 per cent.

ICICI Bank is the latest to raise lending rates, announcing a 75 basis
points hike in the fixed as well as floating home loan interest. The
fixed loan interest for ICICI home loans will now be 14.75 per cent.

Home loan leader HDFC also raised its interest rate by 50 basis points
for all existing borrowers with floating rate loans. The rate hike is
75 basis points on floating as well fixed rate loans for new
borrowers.

On June 11, Reserve Bank of India hiked the repo rate--at which banks
borrow from the central bank--by a quarter basis point to 8 per cent.
This was followed by another half-a-percentage point hike in the repo
rate and cash reserve ratio on June 24.

HDFC, ICICI raise home & other loan rates by up to 0.75 pc

Home, auto and other retail loans will cost up to 0.75 percent more,
with lenders HDFC, ICICI Bank and SBI announcing an increase in
interest rates following the Reserve Bank squeeze on money supply.


HDFC will raise its minimum floating rate for home loans by 0.75
percent to 11 percent for new customers from 10.25 percent from
Tuesday, while the existing customers will have to shell out 0.50
percent more at 10.75 percent.

The new fixed rate would be 14 percent, up 0.75 percent.

ICICI Bank increased its benchmark floating rate for retail customers,
including home loan borrowers, by 0.75 percent to 13.50 percent from
Monday.

For existing floating rate customers, the increase will be effective
from Tuesday, the bank said.

The existing fixed rate customers, whose loans are fully disbursed,
will, however, not be impacted by the increase and they will have to
pay the prevailing rate.

ICICI Bank has also announced increase in benchmark rate for corporate
by 0.75 percent to 16.50 percent.

HDFC bank also increased its deposit rates by 0.50 percent across most
maturities, while ICICI Bank raised interest rates on fixed deposits
of less than Rs 15 lakh by 0.50-1 percent with effect from Tuesday.

The announcement by two banks came close on the heels of similar
announcement by the largest lender SBI.

SBI Chairman O P Bhatt said interest rates on all loans linked to
prime lending rate will rise by 0.50 percent. These include housing
and auto loans.

Other banks like PNB, Bank of India and Vijaya Bank too have already
announced an increase in their prime lending rates following tighter
monetary stance by RBI to tame double digit inflation.

SBI hikes interest rates on home, car loans

Home loans and auto financing from public sector State Bank of India
would be dearer as the lender has decided to hike interest rates by 50
basis points on all credit linked to prime lending rates.

Speaking at a function in Ghaziabad on Monday, State Bank Chairman-cum-
Managing Director O P Bhatt said the bank has decided to raise the
interest rate by 0.5 percent on all loans such as home loans and auto
loans which are linked to PLR.

The revision in PLR came after SBI raised its PLR from 12.25 percent
to 12.75 percent last week following Reserve Bank's increasing its key
short-term lending rate to banks and the mandatory cash deposits that
banks need to keep with the apex bank (CRR) by 0.5 percent each.



Referring to the impact on bank's profit margins, Bhatt he hoped to
maintain the net interest margin at 3 percent this fiscal.



SBI had earlier announced to hike interest rate on fixed deposit rates
by up to 75 basis points effective from 30th June.



State Bank of India in which government has about 60 percent stake is
targeting 40 percent growth in non-interest income in 2008-09,
compared to 28 percent last fiscal.


The bank had lowered its PLR twice in February to 12.25 percent but
decided to raise by 50 basis points last week.



"The net profit of the bank is likely to be affected next quarter
though there is not much on first quarter profits ending today," he
said.


He also indicated the bank is expected to set aside at least 10
billion dollars (232.8 million) to provide for depreciation in its
treasury portfolio as interest rate rise.

Is the Indian stock market bottoming out?

 

1 Jul, 2008, 1321 hrs IST

 

There is much to be said for the 'efficient market hypothesis' which states markets are generally both rational and efficient, and serve as reasonable leading indicators of economic and corporate developments.

Nonetheless, as investment professionals, we must continue to make informed judgements about where the market is headed, based on both our investment experience and using historical data. This is always a useful exercise.

The Indian market went through an impressive five-year bull market, beginning in 2003 and running until January 2008, fuelled by over $50 billion in FII inflows. During this period, corporate earnings surged at an unprecedented annualised rate of 32%, while multiples expanded from 9x to 19x at their recent peak.

Unfortunately, since then, India's market sell-off has been equally intense, accompanied by higher credit costs, inflation, lower industrial production, and several high-profile earnings disappointments. Although recent quarterly earnings growth has remained high, the trend has been one of QoQ deceleration, with contracting EBITDA margins (23% vs 26% last year) and net profit growth of 22% compared to 32% last year.

And rising commodity prices, particularly oil, of which India is a net importer, are likely to strain margins and earnings growth for the foreseeable future. It is instructive to look at India's high inflation environment in the mid-1990s.

In 1994, inflation was high at 10.8% compared to today's 11.42%, and the market was trading at similarly high P/E multiples of 23x. A very sharp correction of over 40% and a de-rating of the market P/E to around 13x soon followed.
 

Today, by contrast, market multiples have already contracted to 14x. Moreover, in addition to lower inflation, today's GDP growth is forecast at 7%+, versus only 6.3% in 1994. In short, a strong argument can be made that the economy, as well as the market, are in better shape today.

Nevertheless, the situation could quickly worsen if oil prices continue to rise. India's net imports of oil as a percentage of GDP is likely to rise to 6% this year, and research shows that every 10% increase in oil prices can shave off at least 0.1% in GDP growth and add 0.4% more inflation. Much, then, depends on where oil prices are heading, not something anyone can confidently predict.

It can also be helpful to examine the US market performance during the 1970s and '80s, when high inflation, spiking oil prices, and slowing growth (i.e., stagflation) all first appeared. Of course, there were many other unique political events affecting the market then, Watergate and the Iran-Contra affair, to name just two, but it's still useful to see how the US market responded to similar conditions.

The Dow remained volatile, but often traded within a tight range for most of this era, posting an annualised real rate of return of only 5% between 1970 and '89. India, a volatile market, tends to suffer more pronounced corrections (and rebounds) than other markets.

So has the Indian market survived this correction, or can it de-rate further to, say, a 10x multiple, like in 2003? Past bear markets in India have fallen 40- 55%, while MSCI India has already fallen 40% since December 2007. On the plus side, an argument can be made that India's corporate sector today is stronger, deeper, and better positioned to weather this slowdown than in the past.

In addition, though the economy is not without challenges, with the exception of the oil price, many of these appear less daunting than they have in the past. Combined with a growth to valuation profile that remains attractive relative to global peers, we would argue, the Indian market can avoid a further significant de-rating, unless commodity prices continue to rise.

Nevertheless, we would hasten to add that any immediate upside is also unlikely. Absent improvement on the global market front, the Indian market is likely, more than anything else, to be range-bound.

Ever since markets slid precipitously in January and continued on the downward turn, one has been wondering if the market has fallen enough to see a sustainable trend reversal. Amidst around 7,000 point fall in sensex from January peak till date, there have been as many as four 1,000-point rallies, including a 20% rise from mid-March low to end-April high.

Thus, there have been a few bottoms so to speak, and bottom-hunting so far has been a rather unprofitable enterprise with many false starts. Continuing the risky pursuit even then, there are multiple ways to approach this question of bottom.

For most of us though, given the odds of getting peaks and troughs right, the best way, of course, is to evolve an approach that does not effectively depend on searching for tops and bottoms. From a fundamental perspective, trajectory in corporate earnings is the most significant variable that will decide the long-term direction of the market.

Corporate earnings in India have grown at almost twice the pace of GDP in the last five years, and the market's expectations are that earnings growth trend is intact; only the extent of growth in the medium-term is made uncertain by recent macro-economic developments. The most important such development is the change in short-term inflation expectations in the recent past, and which has resulted in a change in the direction of interest rate movement.

To what levels inflation could rise and when it might start showing declining trend is in some way linked to trend in prices of global commodities, chiefly oil. As things stand today, there are reasons to believe that inflation is likely to cool down towards the last quarter and may take a little longer to come within the policymakers' tolerance band.

We believe that for clarity to emerge on the impact of the macro-economic challenges on aggregate corporate earnings it will take another 3-6 months. Some clarity will emerge in the upcoming first quarter results, but for more we may have to wait till second quarter's earnings reports to come.

While the macroeconomic news flow could remain mixed in the near future, one need not wait for the last of the bad news to come out of the bag, as in any case one can never be completely sure, a priori, to make an investment.

Incidentally, despite all the concerns expressed around India, GDP growth is expected in the range of 8% this fiscal and that should still rank us amongst the fastest growing economies in the world.

The most important lesson from history one can learn about equities is that one should not base one's investment decisions based on prevailing sentiment, feel good factor or lack of it. There is ample evidence in history to show that market bottoms out much before bad news ends, as markets discount future news into current prices or valuations.

The valuation of Indian equity market has corrected sharply from almost 20-21 times one-year forward to close to 13 times, whereas over last five years market has consistently traded in mid-teens range. Clearly a lot of bad news is already in the price.

Of the many amongst us who wish to time the bottom, only a few will succeed and even fewer on a consistent basis, while almost all of us need to save for future and on a regular basis.

So instead of trying to time the bottom, a better approach would be to systematically invest in a combination of assets that gives us the best chance of meeting our financial goals, which must also include outperforming long-term inflation to protect real value of savings as one of the key objectives. For the reasons discussed above, this is clearly an opportune time to be buying equities for the long-term.

 

Indian economy has grown at an average 8.8% since FY04 compared to global GDP growth of around 4.5%. Robust domestic demand, higher productivity and increased global footprint have resulted in Indian corporates delivering over 25% earnings CAGR over FY04-08 period. In past five years sensex has more than quadrupled resulting in massive wealth creation for investors.

However, last six months have been a challenging time for Indian equity investors with series of negative events culminating at the same time, high commodity prices leading to higher inflation and interest rates, increased risk aversion resulting in emerging market sell-offs, political uncertainty, high fiscal deficit (including oil, fertiliser subsidies) etc.

India has been able to showcase a total turnaround in not just economic growth but in most factors of growth like literacy level, poverty level, industrialisation and others. India's demographic advantage has been highlighted time and again over the course of past few years.

India's capex and consumption cycle still remains in place in spite of the recent blips faced on macro economic front. Investment-led employment creation would feed a virtuous cycle of rising incomes and domestic consumption which in our view would dwarf the current scale of corporate activities.

In the short run we may see some moderation in the growth rates but over medium-to-longer term the trend GDP growth is likely to sustain at around 8% levels, if not higher. The current market valuations (BSE sensex) are comparable to other emerging markets despite their slower economic growth and lower return on equities (RoEs).

Sensex is down by over 33% from the peak while some of the mid-cap and small-cap stocks are down by over 50-60%. In search of bottom, investors tend to forget that the basic principle of equity investment is to have a 3-5 years investment horizon.

The question which investors should ask is whether Indian economy and thereby Indian corporates will able to withstand the near-term pressure and deliver longer-term growth. We believe that with a strong balance sheet and competitive cost structure, Indian corporates are as of now better placed to face near-term challenges. It is the trying times that will separate companies with superior management skills from the also-rans.

Bottom in stock markets can be spotted only with the advantage of hindsight. Crowd sentiments are often fickle and extremely difficult, if not impossible, to gauge. It is vital to understand that for a long-term investor, risk is not represented by stock price volatility; rather it lies in a firm's business and the economy it operates in. Interestingly, so do the opportunities!

If one were to take a years' perspective, most of the negative issues currently surrounding the Indian equities might have subsided. Global slowdown in demand is likely to have an impact on commodity prices, which in turn could bring down inflation to an acceptable level. As and when this happens it is likely to result in a change in the monetary policy, which currently has a tightening bias. The overhang of political uncertainty will be over along with general elections.

The deep pessimism surrounding the markets has made valuations attractive. In fact, some stocks are trading at bargain prices. These opportunities arise only in such uncertain times and for a long-term investor the current market offers excellent risk reward opportunity. For retail investors, we believe, systematic investment plan (SIP) is the best option to stay invested in the market.

 

Mkts plunge, Sensex closes below 13K

Tuesday , July 01, 2008 at 1707 hrs

 

 

Benchmark indices Sensex and Nifty on Tuesday breached their psychological 13K and 4K levels by losing nearly 500 points and more than 140 points respectively to close at their 16-month low levels on relentless selling pressure on heavyweight stocks.

 

The 30-share Sensex on the Bombay Stock Exchange lost 499.92 points at 12,961.68, a level last seen on February 28, last year. The index touched the day's low of 12,904.09 and a high of 13,613.82 points, reflecting volatility in trade.

 

Similarly, the wider Nifty on the National Stock Exchange dropped 143.80 points at 3,896.75. The index, which had broke 4,000 level at early trade, cracked another resistance level of 3,900 on panic selling.

 

In last three straight sessions, the Sensex had lost over 1,460 points as investors resorted to hectic selling on worries of political uncertainty, inflation and high oil prices.

 

"Stock markets are have been badly hit the ongoing tussle between the ruling party and its key allies over the nuclear deal amid crude oil surging to records," an NSE broker Rajiv Malik. Besides, fears of inflation rising further also haunt the bourses, he added.

 

Marketmen said hike in interest rate by leading bankers has pulled down bank stocks and scrips of other interest sensitive sectors like realty, auto and consumer durables.

 

"Weakening trend received another blow after European and Asian stock markets remained weak," said a BSE broker Ratnesh Gupta.

 

The markets received another shock from metal stocks after the base-metal prices tumbled in the London Metal Exchange. Metal sector index suffered the most by 713.11 points at 12,494.19 followed by capital goods index by 336.38 points at 9744.31.

 

Banking sector index dropped by 332.39 points at 5,583.59 with blue-chips HDFC Bank, SBI, ICICI Bank and Kotak Mahindra Bank closing lower in the range of 3-8 per cent.

 

Realty index plunged by 327.54 points at 4,215.93 after stocks of developers fell after a hike in interest rate on home loans on Monday.

 

DLF Ltd fell by Rs 27.80 at Rs 368.40 or its lowest since July 4, 2007. Unitech Ltd, the second-biggest developer, declined Rs 11.05 to Rs 159.60. Indiabulls Real Estate dropped Rs 20.75 percent to Rs 250.45, a 15 months low level.

 

Capital goods index dropped 336.38 points at 9,744.31, oil and gas index by 275.44 points at 8,733.72, PSU index by 204.45 points at 5461.97, consumer durables by 148.84 points at 3328.76, auto index by 176.15 points at 3409.47, power index by 95.45 points at 2156.94, Teck index by 93.46 points at 2950.53, Healthcare index by 90.34 points at 4073.99 and IT index by 69.87 points at 3949.95.

As the selling pressure spilled over a wide front, the smallcap index plunged by 316.85 points at 6385.11 and madcap index by 244.63 points at 5141.86.

 

 

 

3G policy finalised

Tuesday , July 01, 2008 at 2153 hrs

 

The Centre is understood to have finalised the policy for 3G telecom services in the country and foreign players will be allowed to participate in the auction of spectrum to be held soon. According to sources, communications and IT minister A Raja has approved the final guidelines for 3G services after meeting Finance Minister P Chidambaram. Government is expected to initiate bid for 3G spectrum within the next two months, sources said. The government's permission to allow foreign players is significant in view of telecom regulator Trai's strong opposition to such a move.

—PTI

Current a/c deficit at 1.5% of GDP; external debt soars 30.4%

Tuesday , July 01, 2008 at 2145 hrs   Surging oil import bill has turned India's current account balance into deficit of $1.04 billion in the fourth quarter of 2007-08 against $4.25 billion surplus a year ago, despite growth in software services exports and rise in remittances from overseas Indians.   With this, India's current account deficit rose by 77% to touch $17.4 billion, constituting 1.5% of the GDP last fiscal against $9.8 billion or 1.1% of the GDP in 2006-07, data released by the RBI said on Monday.   Meanwhile, d riven by growing finance needs of the Indian Inc, the external debt of the country soared 30.4% to over $220 billion in the last fiscal.   "The external debt was placed at $221.2 billion at the end of March 2008, recording an increase of $51.5 billion, or 30.4%, over the end-March 2007 level," the RBI.   The increase, the RBI said, was mainly on account of massive external commercial borrowings, contributing 39.5% and short-term debt, accounting for 34.8% of the total external debt.   While there was significant growth in oil imports at 88.9% in the fourth quarter of last fiscal, non-oil imports recorded a growth of 30.6%.   The country's balance from services trade and net money transfer (invisibles) by overseas Indians rose to $22.8 billion in the fourth quarter of 2007-08 against $17.1 billion a year ago, RBI said.   "Steady expansion in invisibles surplus reflected mainly the growth in exports of software services and travel receipts and inward remittances from overseas Indians for family maintenance," RBI said.   —PTI

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