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Sunday, August 3, 2008

Indian Stocks Post Fourth Weekly Gain; Banks, Tata Steel Advance

India's Sensitive Index rose, posting its fourth weekly advance. Tata Steel Ltd. and State Bank of India gained on expectations corporate earnings are weathering slowing economic growth.

Tata Steel Ltd., the country's largest maker of the alloy, rose to its highest in almost three weeks. State Bank of India, the nation's largest lender, gained the most in a week.

``Earnings for the quarter ended June were decent,'' said Mahesh Patil, who helps manage $9.6 billion in assets at Birla Sunlife Asset Management in Mumbai. ``Investors were expecting earnings to be much worse than what companies reported.''

The Bombay Stock Exchange's Sensitive Index, or Sensex, rose 300.94, or 2.1 percent, to 14,656.69. The gauge climbed 2.7 percent this week. The S&P CNX Nifty Index on the National Stock Exchange gained 80.60, or 1.9 percent, to 4,413.55.

Tata Steel rose 3.8 percent to 679.85 rupees, its highest since July 14. State Bank rose 6.2 percent to 1,504.55 rupees, the most since July 23.

Tata Steel, India's largest producer of the metal, posted a 22 percent gain in first-quarter profit, excluding contributions from unit Corus Group Plc, after the company increased prices on higher demand. Net income rose to 14.9 billion rupees in the three months ended June 30, beating the 13.1 billion rupee median profit estimate of analysts surveyed by Bloomberg News.

State Bank, the nation's biggest, reported profit that beat analysts' estimates on July 26 as fees from selling mutual funds and insurance almost tripled.

Overseas investors bought a net 5.97 billion rupees ($148 million) of Indian equities on July 31, reducing their net outflow this year from stocks to $6.62 billion, according to the nation's stock market regulator.

The following were among the most active stocks traded on the Bombay and National Stock Exchanges. Stock symbols are in parentheses after company names:
Bajaj Hindusthan Ltd. (BJH IN) added 11.75 rupees, or 7.6 percent, to 165.65, the most since July 2. India's biggest sugar producer said its third-quarter loss narrowed 41 percent after prices of the sweetener increased. The net loss in the quarter ended June 30 was 354.1 million rupees compared with 604.7 million rupees a year earlier. Sales fell 4 percent to 4.59 billion rupees.

Essar Oil Ltd. (ESOIL IN) rose 10.05 rupees, or 5.3 percent, to 198.70, the highest since June 27. The company, which owns India's newest refinery, swung to a profit in the first quarter. Net income was 299.3 million rupees in the three months ended June 30. It had reported a loss of 56.7 million rupees a year earlier.

HEG Ltd. (HEG IN) dropped 28 rupees, or 10 percent, to 240.80. India's biggest graphite electrodes maker by market value fell the most in a month after deferring a stock buyback plan.

Housing Development Finance Corp. (HDFC IN) rose 124.4 rupees, or 5.5 percent, to 2,401.75, the highest since June 4. India's largest mortgage company raised its benchmark lending rate by 75 basis points. The company raised the lending rate for its best customers to 15 percent from the 14.25 percent set on June 30, making it the second increase in a month. A basis point is 0.01 percentage point.

Maruti Suzuki India Ltd. (MSIL IN) fell 13.5 rupees, or 2.4 percent, to 562.15. The maker of half the cars in the country posted its slowest sales growth in four months in July as rising interest rates and accelerating inflation damped demand. Sales climbed 1.1 percent last month to 58,543 cars, vans and sport- utility vehicles.
Reliance Communications Ltd. (RCOM IN) dropped 64.65 rupees, or 13 percent, to 436, the most since June 8, 2006. India's second-largest mobile-phone operator reported first-quarter net income growth slowed. Profit rose 24 percent to 15.1 billion rupees for the three months ended June 30, missing the 15.5 billion rupee median estimate of seven analysts surveyed by Bloomberg.

Index Mutual funds are good for passive investors

Index funds have been popular with investors. Over the last year, the returns from index funds have been pretty good - about 30 percent. This is higher than the returns equity schemes posted in the market .

An index fund is a type of mutual fund that invests in securities of the target index in the same proportion or weightage. Index funds are targeted to popular indices like the BSE Sensex or Nifty. There may be index funds benchmarked to sector-specific indices as well. For example, pharma, IT or FMCG sector indices.

These funds are expected to provide returns that closely track the benchmark index and are also subject to all the risks associated with the class of securities invested in. When the market falls, the securities comprising the index fund also fall, and the returns from index funds fall too. Their objective is to ensure that the returns do not vary far from returns from the index that the fund is linked to. These funds do not eliminate or reduce market risk.

Index funds are used by investors who are risk-averse . In comparison to actively managed funds, index funds have lower expense ratio, lower transaction costs, better control of risk through diversification and less prone to risk of fund manager's performance. Among institutional investors, index funds are used by pension and insurance funds.

Among individuals, investors who do have knowledge of the markets or are averse to sector-specific risks prefer index funds. Index funds can be either for equity funds or debt funds. Indexing is popular with investors who prefer steady returns through a conservative, long-term and lowrisk investment strategy.
Indexing is an investment approach that attempts to match the investment returns of a specified stock market benchmark or index. The fund attempts to replicate the investment results of the target index by holding all or a representative sample of the securities in the index. No attempt is made to use traditional stock management, take positions on individual stocks, or narrow industry sectors in an attempt to outpace the index.

Indexing is a relatively passive investment approach. Index funds are generally evaluated on the basis of the tracking error, i.e., the annualised standard deviation of the difference in returns between the index fund and its target index. It is the difference between returns from the index fund to that of the index.

An index fund needs to calculate tracking error on a daily basis. The lower the tracking error, closer are the returns of the fund to that of the target index. The tracking error is calculated against the total returns of the index, inclusive of dividends.

It indicates how closely the fund is tracking the index. It refers to the ratio of how close the weightages of the stocks in the portfolio are to the weightages of the stocks in the index. The more closely the weightage of the stocks are tracked in the index, lower will be the tracking error.
The factors that affect tracking error are inflows or outflows in the fund, corporate actions, change of index constituents, level of cash maintained in the fund, costs that are routinely deducted from fund returns like transaction costs including commissions , bid and ask spread, etc.

The higher the expenses incurred, greater will be the tracking error. Because of the tracking error, the returns from the index funds are usually lower than the benchmarked index. However, in case the tracking error is zero or negative, the index fund may deliver returns superior to that of benchmarked index.

Index funds are primarily meant for the passive investors. The portfolio of the index fund comprises stocks in a particular benchmark index. The composition of the portfolio is similar to the benchmark index, any movement in the underlying index would affect the fund. The NAV of the scheme replicate the underlying index. So the investor can swim and float with the index.

These funds are cost-effective . The schemes are pretty transparent. The investor knows in which companies his money is going to be invested. For example, if one invests in an index fund linked to the BSE Sensex, the investor knows that his money would be invested in the companies comprised in the BSE Sensex only and not in any other company. These funds are ideal for investors having a medium term view of the market.

As presently the stock markets are subdued , and are expected to rise in the times to come - over a time horizon of 1-2 years - one may consider including investments in index funds in his portfolio to get good returns.

Tuesday, July 29, 2008

Indian bombings raise concerns among foreign investors

Major Indian cities remain on high alert following 17 blasts in a space of an hour in the western city of Ahmedabad and seven bombings here late last week.

On Tuesday (July 29), panic gripped the city of Surat, in the northwestern state of Gujarat, where police recovered and defused 17 bombs. During the blasts over the weekend, more than 50 people were killed and another 150 injured.

All the explosions bore uncanny similarities; all were smaller charges and were placed in bicycles and lunch boxes.

Officials have yet to capture the culprits, but numerous theories have been floated to explain the motivation behind the bombings. According to a report in The Times of India, India continues to suffer at the hands of terrorists, indigenous as well as from Pakistan and Bangladesh. "The recently initiated attempts of the clerics and other leaders of the Muslim community to condemn the resort to terrorism is not yet having any impact on the younger elements," B. Raman, a noted security expert and former head of India's intelligence outfit, the Research and Analysis Wing, wrote in an article.

An Islamist group calling itself the "Indian Mujahideen'' claimed responsibility for the attacks in Ahmedabad. The organization emerged when it claimed responsibility in May for similar bomb attacks that killed 63 people in the northwestern city of Jaipur and in three other northern Indian cities last November in which more than a dozen people were killed and 80 injured.

Security analysts described the Indian Mujahideen as a relatively unknown group that could be a new terrorist network formed by Indian fundamentalists or as an extension of a foreign militant organization.

"Whenever there is a major terrorist strike anywhere in India, I immediately receive a large number of telephone calls from journalists and others in India," Raman said. After the July 25 attacks in Bangalore, Raman said "I got more telephone calls and messages from abroad than from India. Many were executives of foreign corporate houses having offices in Bangalore and wanted to know whether the blasts were meant to convey a message to foreign investors [and] businessmen."

The large concentration of U.S. companies here has made it a target for more than two years. "If doubts arise as a result of incidents like those of July 25, [Bangalore's] reputation for security could be dented, thereby affecting the flow of foreign investments," Raman said.

Still, motives behind the bombings remain unclear. Intelligence agencies speculated that they could be the result of political discord between pro-Hindu members of the ruling Bharatiya Janata Party and an anti-Muslim party acting as the opposition to the ruling government. Other observers like Raman believe the bombings stem from the Indianization of a pan-Islamic holy war.

"It is only a question of time before the extremists from Pakistan and al Qaeda itself set up their own outfits or sleeper cells in India consisting only of Indian Muslims," Raman said.

Sunday, July 27, 2008

UCO Bank Net Up marginally

UCO Bank posted a marginal increase of 0.42 percent in net profit during the first quarter of the current fiscal at Rs.1.33 billion, against Rs.1.32 billion over the same period last year.

Announcing the first quarter results Saturday, bank chairman-cum-managing director S.K. Goel said: "Deposits increased by 24.07 percent and advances by 29.26 percent. The total business of the bank stood at Rs.1.34 trillion with deposits at Rs.782.35 billion and advances at Rs.557.25 billion at the end of June, 2008."

The total business of UCO Bank grew by 26.18 percent in the April-June quarter compared to the corresponding period of the previous fiscal.

The board of directors of the bank approved the proposal to float a subsidiary within the next six months for its fee-based operations.

Sector Scan: Information Technology

India's information technology (IT) industry was hit by a slowdown in 2007-08, causing the revenue growth of the top 20 players to drop to 24 percent from 41 percent the year before, an industry survey released Sunday said.

The top 20 IT services exporters also saw a dip in their growth, growing 29 percent as against the 45 percent recorded the year before, according to the Dataquest Indian IT Industry Survey 2008 conducted by Dataquest magazine, a publication of specialty media chain CyberMedia.

The finding is in line with what the National Association of Software and Service Companies (Nasscom), the organisation representing the Indian software industry, said earlier.

In its annual report released July 9, Nasscom said IT services exports grew 28.2 percent to gross $23.1 billion in 2007-08, while the business process outsourcing (BPO) sector showed an increase of 30 percent, fetching $10.9 as compared to $8.4 billion the previous fiscal.

However, the Nasscom report said the industry clocked a combined growth rate of 28.2 percent in 2007-08, as against Dataquest's figure of 24 percent. It said the growth was expected to slow down to between 21-24 percent in the current financial year, the figure Dataquest quoted for last fiscal.

“A stronger rupee adversely impacted the exports-heavy Indian IT industry in [the] financial year 2007-08 when the average value of rupee in comparison to dollar rose nine percent, with a vast majority of the IT companies still unfazed by a slowdown in the global outsourcing industry,” the Dataquest report said.

In Dataquest's listing of the top 20 IT companies in India, the top seven positions remained unchanged, with TCS, Wipro, Infosys, HP India, IBM India, Ingram Micro and Satyam Computer Services retaining their positions in that order.

Last year, foreign companies Accenture, SAP and Dell replaced three Indian firms, Teledata, Patni and Moser Baer.

“After three years of strong growth, financial year 2007-08 was a challenging year for IT companies in several ways, not least of all due to the exchange rate which meant an over 10 percent hit right away in rupee earnings for exporters," said CyberMedia publisher Pradeep Gupta.

Reserve bank of India may increase the interest rate to cool down Inflation

India's central bank may raise interest rates for the third time in less than two months to combat inflation running at a 13-year high.

The Reserve Bank of India will increase the benchmark repurchase rate to 8.75 percent from 8.5 percent, according to 16 of 22 economists in a Bloomberg News survey. The bank, which will release its quarterly monetary policy tomorrow at noon in Mumbai, will also raise the cash reserve ratio to 9 percent from 8.75 percent, 10 of 21 economists said.

Governor Yaga Venugopal Reddy, whose term at the Reserve Bank ends in September, is intensifying efforts to cool inflation that has accelerated to more than double his goal. Prime Minister Manmohan Singh, fresh from winning last week's confidence vote, is looking to Reddy to spearhead the fight against rising prices as he prepares for elections before May.

``We expect another rate hike,'' said Krishnamoorthy Ramanathan, who manages $1.9 billion in Indian debt at ING Investment Management Pvt. in Mumbai. ``The government has exhausted fiscal measures and hence is relying on monetary policy to bring inflation under control.''
India's key wholesale price inflation has accelerated to 11.89 percent even as the government cut import duties on edible oils, steel products and gasoline, foregoing revenue. The government also banned the export of corn, pulses, rice, wheat and edible oil to spur local supplies.

Standard & Poor's said this month that India's BBB- credit rating, the lowest level in the investment grade, may be cut to junk if faster inflation and higher government spending ahead of the election widens the budget deficit.

`Fiscal Headroom'
``The fiscal headroom available to relieve the inflation stress is fast reducing,'' said Shuchita Mehta, senior economist at Standard Chartered Bank in Mumbai. ``A higher budget deficit not only will crowd out private investment, but also is likely to be inflationary.''

Reddy, who has been tightening monetary policy since 2004, was caught wrong-footed as inflation in India surged in the past two months after the government was forced to increase energy prices by as much as 17 percent to cut losses at refiners.

Since June, Reddy has raised rates by 75 basis points and the cash reserve ratio by half a percentage point. The governor is trying to discourage lending from banks that could stoke consumer demand and add to inflation fanned mainly by higher prices of oil. Money supply is growing at about 21 percent, more than the central bank's 17 percent target.

Faster inflation is prompting other Asian central banks to also increase interest rates. The Philippine central bank has raised rates at its last two meetings, while Bank Indonesia has boosted borrowing costs for three straight months.

Weaker Rupee
Reddy has also had to contend with a weakening rupee this year, which has pushed up the cost of imported goods.

India's $912 billion economy may grow as little as 8 percent this year, Reddy estimates. The rupee has weakened 8.3 percent and the benchmark stock index fell by a third since January. The yield on India's benchmark 10-year bonds has gained 91 basis points this year on inflation expectations.

Prime Minister Singh extended his four-year tenure last week by proving his majority in parliament after his main ally, the communist parties, withdrew support on opposition to a nuclear energy accord pursued by the government with the U.S.
By averting early elections, Singh, who has suffered electoral reverses in nine of the past 11 state polls, has won more time to gain control over inflation.

Oil Prices
Singh may succeed in reining in inflation before the national elections if oil prices, which have dropped 13 percent in the past two weeks, sustain their downward trend. India imports 70 percent of its oil requirement.

Lehman Brothers Holdings Inc. expects India's inflation rate to start falling ``decisively'' from January, based on their assumption that growth will slow to 7.3 percent this year and the price of oil drops to $90 a barrel in the first quarter of 2009.

``Our inflation pulse measure is starting to turn, but pressure on producers to pass on input costs remain heavy,'' said Sonal Varma, a Mumbai-based economist at Lehman. ``A rate hike will help anchor inflation expectations.''

Friday, July 25, 2008

Sensex slumps after Bangalore blasts


Equities ended lower for second straight day as investors booked profits following subdued results from Reliance Industries. Weak European market and bomb blasts in outskirts of IT city Bangalore dampened sentiments further.
Bombay Stock Exchange’s Sensex closed at 14,283.53, down 493.48 points or 3.34 per cent. It touched a high of 14,484.39 and low of 14,210.63.


National Stock Exchange’s Nifty ended at 4320.65, down 2.55 per cent or 113 points. It touched a high of 4,440.85 and low of 4,297.15.


Tier II and III stocks showed some resistance to the bears onslaught. BSE Midcap Index closed at 5,582.36, up 0.03 per cent and BSE Smallcap Index closed 0.11 per cent lower at 6,788.37.


Biggest index losers comprised ICICI Bank (-9.73%), HDFC Bank (-7.35%), Reliance Industries (-7.09%), HDFC (-4.96%) and Jaiprakash Associates (-4.44%)


Ranbaxy Laboratories (3.17%), ACC (2.54%), Hindustan Unilever (2.26%), Grasim Industries (1.9%) and Satyam Computer (1.25%) were the index gainers.


Market breadth on BSE showed 1161 advances and 1447 declines.


Meanwhile, stocks in Europe fell as credit-related concerns mounted. The FTSE 100 fell 0.88 per cent, DAX 30 declined 1.44 per cent and CAC 40 was down 0.88 per cent.