Dalal Street English Magazine Preview Issue 171

Portfolio Guide KLG SYSTEL Q

I have a huge chunk of KLG Systel @ Rs 66. What is the future of the company? - Firoj Rout, Email

KLG Systel (BSE Code 531269) is currently trading at Rs 165.20 (52 week high/low Rs 471.25/47.40). KLG’s principal activity is to provide software, information technology solutions and IT enabled services mostly to the domestic power, manufacturing and infrastructure sectors. It’s a leading software development and services company providing Organization Life Cycle Solutions. For FY09, on a consolidated basis, KLG recorded YoY de-growth of 14 per cent and 36.60 per cent in its topline and bottomline respectively. One major reason for this de-growth in the KLG’s bottomline is the rise in interest cost by 459.16 per cent that stood at Rs 10.68 crore in FY09. However, the company has been one of the beneficiaries of the orders from the state utilities and in FY09 KLG had in totality received orders worth over Rs 240 crore. In April 2009, KLG got itself empanelled as an IT implementation agency for three roles viz. that of system integrator, GIS solution provider, and meter data acquisition solution provider under the Restructured Accelerated Power Development and Reforms Programme (R-APDRP) with a total outlay of Rs 50,000 crore for the entire industry. Such development augers well for KLG as it might give a decent push to its topline in the coming period. As per the available information, the company has intended to buy back its outstanding FCCBs worth USD 16 million and has also reset the conversion price of these FCCBs at Rs 350 per share from its earlier price tag of Rs 400 per share. However, looking at the current market condition, we would recommend you to book profit in the counter.

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STATE BANK OF TRAVANCORE Q

I have bought ten shares of State Bank of Travancore (SBT) @ Rs 6,500 shares with a face value of Rs 100. Kindly suggest whether I should hold or sell the shares. - N Easwaran, Chennai

State Bank of Travancore (SBT) (BSE Code 532191) is currently trading at Rs 470.10 (adjusted for split in the ratio of 10:1) with a 52 week high/low Rs 3,598.85/176.10. SBT is an associate of the State Bank of India and a member of the State Bank Group. For FY09, SBT recorded a decent growth in its financials. During the same period, SBT recorded a top-line and bottom-line growth of 21.26 per cent and 57.43 per cent respectively on YoY basis. Such impressive bottomline growth was mainly on account of the bank’s operational efficiency. The bank’s deposit and advances recorded a YoY growth of 18.92 per cent and 16.26 per cent respectively. But the most fascinating fact is that the bank has not only managed to post such a performance but has also managed to record a decline in its gross and net NPAs. For FY09, the bank recorded a net NPA of 0.58 per cent as against 0.95 per cent a year ago. The gross NPAs that stood at 1.65 per cent in FY09 recorded a fall of 36 basis points over the last year. The bank seems to be well capitalised considering the fact that the bank’s capital adequacy ratio (Basel II) is 14.03 per cent as against 13.53 per cent last year. On the valuation front, the counter is currently available at a P/E of 3.87x of its FY09 earnings. While looking at the P/ABV (adjusted for net NPAs) of 1.14x, our recommendation is that you should hold the counter for a longer period.

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Readers are requested to send only one company query at a time so that more people get a chance. For complaints regarding non-receipt of dividend, bonus rights and other matters investors may write to www.investor.sebi.gov.in Company Name: Query:

Name: Address: E-mail:

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Vol. No. XXIV No. 17 Send in your queries: DSIJ LTD., 101 A, 1st Floor, Uttam House, 69, P. D'mello Road, Near Carnac Bridge, Mumbai-400009 E-mail: [email protected]

www.DSIJ.in

[ VALUE-ADDED INTERVIEWT ]

Uncommon Leader They were very aggressive in the market place and the stock market lost faith in us thinking we wouldn’t be able to survive. This was reflected in our price to earnings multiple dropping dramatically from 13 to 7 in less than 3 years. What gave you the confidence to take on Hindustan Lever?

We had faith in our capability. Also, products based on coconut oil were everything for us, whereas for Hindustan Lever it was a small part of their operations. Also, we knew the business and had market leadership. What lessons did you learn from that experience?

This experience taught us that we can take on bigger giants if we galvanise ourselves. If you have the strength within you, you are not overawed by MNCs and other giants. You have to be perseverant, despite short-term reversals. What steps did you take to convert coconut oil into Parachute brand so that customers happily pay a premium price?

Firstly, innovation in packaging – sachets, pouches, bottles and large packs. Secondly, multiple price points and mass distribution. And, lastly, overall brand creation with a combination of advertising and merchandising. Parachute has become an iconic brand. Marico today is an admired FMCG company with footprints in more than 26 countries. How did this transformation happen?

In the early ‘90s, we noticed some of our coconut oil products were being smuggled to Middle East. That gave us a good opportunity to grow in the Middle East market. Then our survey in Bangladesh showed that it was a very big coconut oil market. We replicated there what we did in India and increased our market share from zero to 73 per cent in Bangladesh. Today, we are the largest Indian company in www.DSIJ.in

Our experience taught us that we can take on bigger giants if we galvanise ourselves. If you have the strength within you, you are not overawed by MNCs and other giants. Bangladesh in terms of turnover. Did the Bangladesh experience help?

That experience has really helped in increasing the growth engines in the organisation and leveraging opportunities of our brands outside India. It provided other learning experiences too! For example, catering to modern trade in the Middle East helped us cater to evolving modern trade in India. It also provides employees good opportunities for career growth. What was your strategy for the international markets?

In international markets, the first phase was organic growth. But organic growth is a long drawn process. Now we are a little impatient in terms of growth and started surveying markets in Asia and Africa. We identified brands for acquisition through proactive targeting and have presence spanning across 26 countries in Africa and Middle East. Marico is now moving into service - Kaya. What is the difference between managing a brand and managing a service business?

It’s very different. We may be the only FMCG company which has successfully made this transition globally. Nurturing a service brand requires different focus. In service, we are dealing with individual customers and individual feedback. There is active interaction and delivery of experience with one cus-

tomer at a time. In FMCG business, we manufacture and distribute our brands to retailers and create demand through advertising. We don’t interact with the consumers. We had to change our way of advertising as our service brand didn’t have the large budgets that FMCG brands had. So more of PR and events were used to create awareness. What were the learnings from your new business?

When you start any new international or domestic business, you have to remove the “Escape” buttons. It is the first step to success. When we started the international business, we hired a CEO though the business was not large. When a guy is fully responsible for the international business, he will constantly look out for opportunities to grow that business. On environmental issue, how bio-degradable is the Parachute pack?

I think that’s a valid point. Plastics add a lot to environmental degradation. We have reduced weight of the bottle to the minimum. This pro-environment initiative and investment has paid us back financially because we have reduced lot of weight. Private labels are the biggest threat for an FMCG. How are you tackling this threat?

The best strategy to fight private labels is to have a strong brand and keep Aug 3 - 16, 2009

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View Point

Play The IPO Series At a time when the markets are suffering from erratic behaviour, the forthcoming IPOs will offer investors a good opportunity to build a strong portfolio

T

YAMAL VYAS

SUCCESS FORMULA

Most long-term investments in the primary market give positive returns. FOR THE FUTURE

Shares acquired through public issues have helped thousands of investors build huge portfolios. 24

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he recent developments that have taken place in the market have left many of the retail investors confused. The market rose sharply after the poll results were declared. The degree of rise was unduly high in view of most investors. Yet the market continued merrily without any major correction up to the Budget. The recovery subsequent to that has also been quicker and sharper than expected. All these developments bring us to one fact: the investor of 2009 is finding it much harder to understand and predict the market. Then what should the investor be doing to stay and prosper in the market? Well, there is one mode of investment which has not changed much in form over the years, and that can still yield good returns for the retail investors - the IPO market. IPOs had dried up soon after the biggest issue ever viz. the Reliance Power IPO in January 2008. The draught was mainly because of the negative returns earned by the investors in that IPO and also the fact that the global equity markets had fallen sharply for more than a year. This situation has now changed, first in the secondary market as it always does, and now, it seems in the IPO market too. The first major IPO after the R Power experience is also from the energy sector. Adani Power seems to have learnt many lessons from the R Power saga, and has priced the issue lower. The Adani Power IPO would have closed by the time you receive this copy, and the issue is not Adani Power, but the scope of investment in the primary market. Most retail investors have an interest in investing in the primary market. Especially now that the system has been strengthened to ensure return of

investor money in less than a month. There is lower risk in the IPO market too, as no company will price its issue exorbitantly high except in extreme cases. Because of this, the returns are never highly negative, and most longterm investments in the primary market give positive returns. Similarly, the amount involved in any IPO is usually not very high. Usually in a popular IPO the allotment on an application of Rs 1 lakh would be less than 10 per cent. In the Rpower IPO each retail investor was allotted shares of less than Rs 8,000 per Rs 1 lakh application. Thus the amount tied up in a wrong bet would also be such that the investor will not lose sleep. The IPO market thus still remains a low-risk and relatively low-return investment option. And exceptions like Maruti and IDFC in recent times or Colgate and Hindustan Unilever of the previous generation have made millionaires. The market is likely to be flooded with IPOs if all goes well. We have NHPC, OIL and a few more PSUs hitting the market before this financial year closes. And once the initial issues are accepted well by the market and the retail investors make money in the short term, there is likely to be a flood of IPOs from all kinds of private sector companies in the coming months. This will be a good opportunity for retail investors to build a long-term portfolio of good stocks. One has to pick and choose, but the fact remains that shares acquired through public issues have helped thousands of investors build huge portfolios over the last three decades. The trend does not seem to have changed much in the IPO market over the years. Take full advanDS tage of that.

(The writer is the founder of indiainvestment.com) www.DSIJ.in

[ ANALYSIS ]

Ajit Gulabchand CMD, HCC

HCC One Year Price Graph BSE Code: 500185 CMP: Rs 111.00 FV: 1 Volume: 7054568 Date: 24/07/2009

Financial Snapshot For FY09* PARTICULARS Sales (Net) % change from FY08 Net Profit % change Equity Face Value CMP (Rs) EPS (RS) M-Cap P/E (X) M-Cap/Sales (FY09) Dividend (Rs) Promoters(%) Institutional (%) *Figure is on consolidated basis

www.DSIJ.in

(Rs/Cr.) 3560.30 17 99.50 15 256.32 1.00 113.40 4.89 3447.95 23.19 0.97 0.80 40 34

project has been awarded in consortium with John Laing of United Kingdom and Sadbhav Engineering. The financial closure of the project is yet to be achieved. HCC’s real estate venture is led by HCC Real Estate (HREL). Till now company has only one project to its credit – that of 247 Park at Vikroli Mumbai which is to develop 1.8 million sq feet of commercial area spread over three towers. Out of the total area available, the company will occupy 0.18 million sq feet and the rest will be available for lease. The average lease rental in this area as of now is at Rs 70 per sq feet. HREL expects to generate approximately Rs 100 crore of revenue per annum from this project once the total area has been leased out. However, as of now only 50 per cent of the area has been leased. The concerned authorities to answer our query on when will the project be fully operational were not available. One of the most ambitious projects HREL has undertaken is the development of a hill city called Lavasa near Pune. This is spread over an area of 12,500 acres. The company has a plan to develop four towns in Lavasa over the next 12 years at a total cost outlay of Rs 1,40,000 crore. The first in this series is Dasve which is expected to be completely operational by end of 2010. This year (FY09), Lavasa Corporation, the company that is spearheading the project, has booked its maiden revenue to the tune of Rs 212 crore. Out of this total revenue a major chunk was due to sale of land to institutions at an average rate of around Rs 20 lakh per acre. The profit recorded from this project was Rs 123 crore. This project has been able to attract investment from various financial institutions such as Axis Bank, Bank of India etc and the latest among them is Indusind Bank which has invested Rs 50 crore. According to back-of-envelope calculations (Rs 531.25 crore invested by various institutions for a 5.3125 per cent stake), the total value of the project works out to be Rs 10,000 crore. At the end of FY09 HCC holds a 64.99 per cent stake with Lavasa Corporation. The company has plan of unlocking the value by selling the shares of Lavasa

Order Book Break-up (FY09)

Corporation to the general public any time at the end of 2010.

Financial Performance And Valuation For FY09 the company’s sales have grown by just 7.5 per cent on a standalone basis and profit grew by 15.2 per cent on a YoY basis. Profit outpaced increase in sales due to an improvement of its EBIDTA margins from 11.9 per cent in FY08 to 13 per cent in FY09. This was mainly due to a reduction in commodity prices and change of project portfolio. Even during the boom years the company’s sales and profit have not moved at an astounding pace. HCC’s revenue has been growing at a compounded rate of 22 per cent in the last four years (between FY05-FY09) and its profit has grown at an even slower pace of 16 per cent. The company has achieved this sluggish growth in its topline and bottomline despite an increase in its total assets by 44 per cent in the same time period. One of the reasons for its low utilisation of assets is its diversification into a sector such as power which is more capital intensive and calls for a longer gestation period. This has led to a lower fixed asset turnover for the company which declined from 4.5 times in FY06 to 3.18 times in FY09. A major part of its assets has grown due to an increase in its debt portion which grew at a CAGR of 53 per cent. At the end of FY09 the company carried a total debt of Rs 2,321.8 crore which translates into a debt equity ratio of 2.2 times. Out of this total debt, around Rs 450 crore is towards FCCBs which the company issued in FY06 to finance its expansion and working capital requirements. It has a conversion price of Rs 248.08 per share and is to be redeemed by 2011. The CMP of the company’s Aug 3 - 16, 2009

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Market Moves UK 5.51% (3.42)

TAIWAN 2.40% (53.08)

GERMANY 6.72% (9.17)

JAPAN 7.39% (13.87) USA 5.76% (3.78) CHINA 7.02% (88.66) INDIA 6.83% (58.92)

S KOREA 5.98% (35.53) HONG KONG 8.36% (40.75)

SINGAPORE 7.84% BRAZIL (46.27)of indices Figures represent performance of 6.35% indices during the fortnight. Figures in brackets represent YTD performance (45.27)

Welcome To The Feast The past fortnight has been one of merriment with most of the scrips recording an upward movement but the shortage of rainfall has been a cause for concern, reports Amit Bhanot

I

t seems that the stock markets are in a merry mood and betting on the Indian growth story in a big way. Ever since the announcement of the budget the markets have been in the firm grip of bulls, hovering above the 15,000 mark that they had managed to reach after the election. The BSE Sensex opened strong at 14,351 points on July 16 and then gained momentum continuously to reach its peak of 15,463 points on July 28 before closing at 15,331 points, thus gaining 979 points during the fortnight. In the same way, NSE Nifty opened at 4,223 points on July 16 and touched its lowest level of 4,205 points on the same day but then gained momentum to touch its highest level of 4,599 points before closing at 4,564 points, thereby gaining 394 points during the fortnight. As far as the performance of the FIIs was concerned, they exhibited full confidence in the Indian stock market with a net purchase of a whopping Rs 3,215 crore. Meanwhile, the Indian

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mutual funds also looked positive with a net purchase of Rs 1,346 crore during the fortnight. On the combined turnover front of the NSE and BSE markets, the volume inflated in a big way ranging between Rs 24,777 crore and Rs 28,051 crore – spelling a big positive for the markets. In the last fortnight, US Dow gained 5.67 per cent indicating an improvement in the country’s economy. The biggest gainer of the fortnight was Hong Kong’s Hangseng with a rise of 8.36 per cent followed by Singapore’s STI, Japan’s Nikkei, China’s Shanghai Composite, Germany’s Dax, Brazil’s Bovespa and South Korea’s Seoul Composite with a 7.84 per cent, 7.39 per cent, 7.02 per cent, 6.72 per cent, 6.35 per cent and 5.98 per cent rise respectively. On an individual level, the performance of 1,845 stocks appreciated during the trading sessions while that of 723 stocks tumbled. As many as 37 stocks remained unchanged. As far as the individual gainers are concerned,

Gujarat NRE Coke was the biggest gainer with a 36.79 per cent jump followed by Godrej Consumer Products, DLF, Bharat Forge and Tata Motors with 30.17 per cent, 30.02 per cent, 27.25 per cent and 26.58 per cent rise respectively. On the other hand, Union Bank was the biggest loser with a 8.88 per cent decline followed by Thermax, Max India, India Cement and LIC Housing Finance, which declined by 8.22 per cent, 7.84 per cent, 7.53 per cent and 7.22 per cent respectively. Considering the present mood of the markets it seems likely that the next few days will witness a lot of profit booking. Also, the progress of the monsoon season (or rather the lack of it) could play a spoilsport in the honeymoon of the bourses since many states have announced that a large number of their districts have been hit by drought. Taking this into consideration, it would be best to book at least part of the profit. It brings to mind the adage that is always better to have one bird in hand than two in the bush. DS

[ COVER STORY ]

fear makes them flee away from the market when they should be flocking to buy. The fundamentals of the companies do not change everyday, yet the share prices move up and down daily. This volatility is due to the third ‘E’ which stands for ‘events’. Events impact emotions or sentiments in a positive or negative way. Not only the events per se, but also how these are presented by the media impact the sentiments. Based on the presentation and interpretation of the events, people make decisions by taking short cuts without processing the information (known as heuristic in the behavioural finance) based on how quick the information is received. “We have a herd mentality in the market and when we don’t understand anything in the market, we try to do things that are done by majority of the people so that, if we go wrong, we will have the solace that everyone has gone wrong. The effects of events on the markets are basically shortlived, unless these have long-term implications,” says Parag S. Parikh, Chairman, Parag Parikh Financial Advisory Services. Markets are rational in the long run, however, the events and their effects turn the market irrational in the short run. So, if you remain rational when the markets are behaving irrationally, you can make money. To put it simply: buy when everyone is selling, and sell when everyone is buying – kind of value buying. But this is easier said than done. “People are not actually rational and the reason is that we have a mind and a heart. We are supposed to make decisions with our mind but if decisions are made from the heart, then they may not be of financial interest and that is the crux of the financial prospect theory of behavioural finance. Good decisions are always made when there is less noise, so one should not always follow the ticker and the news channel,” advises Parikh. Now let’s look at some of the events which have an impact in the short term.

MONSOON www.DSIJ.in

The monsoon doesn’t impact the equity markets directly, but it has deep implications for the growth of economy. Deficient rainfall has the double whammy effect on the economy, as it not only leads to higher inflation, but also adversely impacts

tations are infinite but the means to satisfy them are limited, so not everybody can be pleased. Thus, for most of the times, large part of these expectations go unfulfilled. During P Chidambaram’s ‘dream’ budget of 1997, the markets rose by an impressive 6.53 per cent on the budget day, which is highest rise in the last 17 years. The budget laid down the road map for economic reforms in India, lowering income tax rates, removing surcharge on corporate tax and reducing corporate tax rates. However, as explained earlier, the impact of the budget has always been short-lived on the market.

ELECTIONS

the overall demand in the economy. Deficient rainfall results in decline in agricultural produce, which hugely impacts the food prices in a highly populated country like India, pushing inflation at higher levels. Agricultural activity hugely depends on good monsoon and contributes 15 per cent to the GDP and massive 60 per cent of total employment. As majority of our population’s earnings depend on agricultural activity, it directly impact the prices of commodities and indirectly affect demand in the country.

When the Lok Sabha Election’s results were announced, the market went euphoric and rose by whopping 17.34 per cent and hit the upper circuit after the ruling United Progressive Alliance’s (UPA) returned to power. The UPA winning by a clear majority meant political stability at the Centre without the Left parties which were perceived to be anti-reforms. The markets and most political pundits expected that the 2009 elections would throw up a hung parliament and, therefore, an unstable government at the Centre, but the election results gave a pleasant surprise for the market and within a month (April – May 2009), it went up by 28.26 per cent. Political stability is good for the growth of the economy and for the equity markets. However, election results earlier have not too good for the market. Since 10th Lok Sabha elections, i.e. out of six elections, the market has rejoiced only twice on the outcome of the elections and been in the positive zone. Markets had gone up by 10.32 per

BUDGET Since 1993, out of 17 occasions, market has tanked on the budget day 11 times. This is because the capital market players eagerly await the Union budget with lot of expectations. Every industry, investor or an individual would expect the budget to bring goodies for them. The expecAug 3 - 16, 2009

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Cover Story

THE TIME FACTOR

W

e have talked a lot about the events and how these impact the movement of broader indices. Now, we will try to explore time as an event (i.e. different months of the year) and find out how it influences returns. For our analysis, we took data since 1991 to understand if there are any ‘auspicious’ months when the market generally tends to give positive returns. Out of total 222 months, there were 125 months when the market gave positive returns. The month of December has the distinction of outperforming all other months, it has given negative returns only three times followed by July, which has closed below its opening on five occasions. The average return for the month of December since 1991 is four per cent and if we annualize it, the return is a whopping 48 per cent. In terms of negative return, it is the month of March which seems to be the most ill-fated which has given negative return thirteen times out of a total 19 years followed by October which has given negative return for eleven years. Hence, one can draw a logical conclusion that since October and March being the worst months in terms of investment returns and December and February being the best months, one can enter the market at the end of November and exit before March or at the end of February to get fantastic returns. Out of eighteen times, this strategy would have given positive results 14 times, with median return of eight per cent, and annualizing it makes it a return of 32 per cent. From the above empirical evidence, it might appear that investing only for three months of a fiscal year will give decent returns to investors, but this may not hold true always. As can be observed in the last three years, this strategy would have given negative returns. But there is no harm in trying the strategy. So we tried to understand this better returns from numerology perspective. And this is what Swetta Jumaani, eminent Numerologist has to say “Jupiter is the planet of wealth and 20th of November to 20th of December is ruled by Jupiter therefore such good returns in December, even 20th of February to 20th of March is ruled by the Jupiter but in negative form therefore they have such negative return”. The other way in which we can take time as an event is to resort to astrological method. The formation of celestial bodies in a definite way may prompt the market to move in a certain direction. Vijay Kumar, an astrologer and a regular columnist with Dalal Street Investment Journal (Hindi), had predicted various events such as fall of the market in September 2001. “Once the Jupiter becomes weak it will have negative effect on the stock market for medium to long term, and for shorter time period, it’s the position of Sun and Moon that determines the fate of market,” says Kumar. 72

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SMART STRATEGY (Gain/loss in%) Period Ending February-92 February-93 February-94 February-95 February-96 February-97 February-98 February-99 February-00 February-01 February-02 February-03 February-04 February-05 February-06 February-07 February-08 February-09

Enter Nov End, Exit February End 59 5 33 -17 13 26 2 21 18 6 8 2 12 8 18 -6 -9 -2

LUCKY MONTHS Month December July February June August September

Since 1991 Positive Returns 15 13 12 12 11 11

UNLUCKY MONTHS Month March October January April May November

Since 1991 Negative Returns 13 11 10 9 9 9 www.DSIJ.in

[ SPECIAL REPORT ]

cially faltering domestic demand. It is very important to note that private consumption has taken a lot of beating as is reflected in the Q4’08-09 GDP number. The private final consumption expenditure (PFCE) grew by a meagre 2.7 per cent YoY in Q4, thereby dragging down the annual increase to only 2.87 per cent. So far, there is no sign that domestic demand has really picked up on a sustainable basis. Increasing corporate tax collection is not an indication of economic recovery at this point in time. This is because, while a number of corporates have been able to record improved profit margins, it has lot to do with aggressive belt-tightening measures in response to the difficult business environment rather than real increase in revenue. In fact, overall revenue grew ever so slowly. This indicates that there has not been much revival in domestic demand as is claimed by the proponents of green shoots. Now, we need to understand India’s deficit scenario. The following equation is useful for better understanding: Fiscal deficit = primary deficit + net interest payment In the chart given above, the widening gap between the two, therefore, reflects the cost of India’s fiscal profligacy, i.e., interest payment. In the last financial year, net interest payment constituted 59.02 per cent of India’s fiscal deficit. For the current year, it is budgeted to be 56.25 per cent. This means that more than 50 per cent of India’s borrowing need is required to meet only the interest obligations. While this in itself is not a comforting signal, does that necessarily mean that the remaining amount that is borrowed is used for productive purpose? Not quite so. To understand this, it is important to understand the revenue deficit trend. Last year, the revenue deficit was close to 74 per cent of the fiscal deficit. For the current year, it is budgeted at nearly 71 per cent. This implies that more than 70 per cent of government’s borrowing would be utilized to meet the government’s housekeeping expenses, leaving the rest for investment. As a result, when the economy was growing at a very fast pace, wasteful expenditure kept on increasing. For example, in a recent report, the Planning Commission found www.DSIJ.in

(Source: RBI Handbook of Statistics and my calculation)

out that for every one rupee that reaches a BPL (Below Poverty Line) household, the government spends Rs 3.35 on the logistics, resulting in a huge wastage. As a result, after having met with all expenditures, there’s hardly much left with the government to invest gainfully. That apart, virtually all the focus of stimulus package (during the current budget) was aimed at such socially relevant projects. While increase in social sector investment is praiseworthy, the fact is the growth multiplier of such investments is much less than that of investments in various areas of physical infrastructure. Not surprisingly, while the recent Economic Survey stressed the need to spend about 9 per cent of GDP on infrastructure during the 11th Five Year Plan (2007-2012), the envisaged investment in infrastructure during the current financial year is still less than 5 per cent of expected GDP. And even this might not materialize if there is further strain on resources. This, in fact, is quite a possibility since the budget makes no provision for the proposed Food Security Act and assumes that current global prices of oil and fertilizers will not rise. Moreover, it optimistically projects a 15 per cent rise in corporate tax receipts, even as income tax revenue declines 9 per cent. Clearly, there is very limited capability of the government to provide the right kind of economic stimulus. In contrast, China, which recorded a GDP growth of 7.9 per cent in Q2 of 2009 was able to do so because of

the effect of huge stimulus package (about USD 579 billion). The aim of the package was to boost domestic consumption through higher spending on construction of highways and other public works. Hence, the domestic demand is unlikely to ratchet up the GDP growth number to the desired extent. This leaves external demand to come to the rescue. And India’s export performance has been anaemic at best ever since October last. And, during the last three months, India’s exports in dollar terms were down by more than 30 per cent on an average. While in the month of May, the decline was marginally lower at 29 per cent as compared to over 33 per cent in the previous two months, the extent of decline is still very high for comfort. Going forward, it is likely to remain soft, given the global scenario. While there are some signals that the US economy might bottom out towards the end of 2009, a closer look at the data does not give confidence that there will be a 'U'-shaped recovery. The recovery is likely to be very slow and one cannot also ignore the possibility of another dip going forward. And the less said about Europe, the better. On the whole, therefore, there would be enough constraints that would hold back the economy this year and even years to come. DS

Kunal Kumar Kundu is the Client Operations Head of Infosys BPO. Views expressed by the writer are his own

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Special Report

JUNE QTR RESULTS

Ready, Steady, Go! To go by corporate India’s results being posted for the first quarter of the new fiscal, it does seem that our economic situation is finally out of the woods. However, a lot also depends on how the monsoon fares, reports Kaustubh Ghotikar

I

t’s the first quarter of the new fiscal and though there is a general sense of better results from India Inc, investors are still excited about the June quarter results. And why wouldn’t they be when companies are posting better

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than expected results. May it be Infosys, TCS, Maruti or any of these bigwigs, all have pleasantly surprised the investors and performed quite well. The market too has given its due after these scrips surged on the bourses to catch up with

the valuations. In our cover story on the Q4FY09 results we had predicted that the June quarter results would be better and with the initial numbers that are pouring in, our prediction is certainly coming true. www.DSIJ.in

IN FOCUS

Investing Is A

Good Addiction Most people put off their investment plans due to deep-rooted fears. However, shed these off and create for yourself the right strategy to earn rewards through investments

Hemant Rustagi CEO, Wiseinvest Advisors

KEY POINTS • An important ingredient for success in investing is not to lose sight of your long-term objectives. • Also, explore other possibilities rather than abandoning your long-term investment plan in a hurry.

sn’t it strange that while most of us work hard to earn, we do not show the same intensity and seriousness at the time of investing it? No wonder many people around us delay the process of investing either for the fear of losing their hardearned money due to wrong investment decisions or thinking that they do not have sufficient money to begin with. The fact, however, is that investing is an on-going process, not a one-time activity. Therefore, even if one doesn’t have a lump sum in the beginning, the process of capital building can be started through small contributions. There are effective investment options like mutual funds that not only allow you to begin with a modest sum but also provide you the best in terms of variety, liquidity, flexibility, tax efficiency and professional management. Though investing is a very simple process, a haphazard approach to investing can be suicidal. Remember, investing money requires planning, perseverance and time commitment. Here’s what you should do to ensure success on a consistent basis:

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Take The Right First Step Don’t begin investing unless you have determined your investment objectives i.e. long-term as well as short-term ones, the right asset allocation as well as the investment vehicle to achieve each of these. Simply put, there are three steps that can help determine an action plan. First, begin by making a list of personal and financial goals during short, medium and longterm horizons. For example, in the short term, you may want to buy a car; in the medium term you may like to provide for children’s education; and in the long run, retirement funding could be an objective. Second, you need to assess your current position in the financial lifecycle. Third, you must decide as to how much risk you are willing to take to earn your targeted returns. This is critical as different financial objectives require different investments.

Try To Balance Risks And Rewards Many of us make the mistake of underestimating risks www.DSIJ.in

and/or overestimating rewards from an investment. One needs to be careful about this aspect of investing. By estimating the risks associated with each of the investment options, you can improve your chances of building greater wealth.

Select Appropriate Investment Option In an ever-changing financial environment, it pays to invest in smart options like mutual funds. Though investment risks and economic uncertainties can never be eliminated, professional management of your money in mutual funds can help you tackle them more efficiently. However, to benefit from their expertise to the fullest, it is necessary to invest in the right type of fund i.e. the one whose objective matches with yours.

Focus On Tax Planning Too Many of us have the habit of investing in a haphazard manner to save taxes. That’s because we consider investments a burden rather than a tool to get the best in terms of saving taxes as well as making our money grow. There is a need to integrate these investments into your overall investment programme. Besides, you need to adopt a disciplined way of investing rather than investing at the fag end of the year. By doing so, you can not only invest in the right options but also achieve your goal of investing on a regular basis. After determining your overall exposure to equities, you can invest a part of it in Equity Linked Savings Schemes (ELSS) of mutual funds. Being equity-oriented funds these have the potential to provide better returns than most of the options under Section 80 C. Another notable feature is the tax efficiency in terms of returns earned through them.

Asset Allocation Is Important It is quite common to see investors showing complete disregard to their asset allocation in a bull market. Obviously, in their quest to maximise the returns, the risks associated with the portfolio imbalance are totally ignored. While an equity market requires a long-term commitment, it is equally important to maintain proper asset allocation. Portfolio rebalancing is a process of bringing the different asset classes back into a proper relationship following a significant move in one or more. Aug 3 - 16, 2009

Dalal Street Investment Journal

83

MUTUAL FUND DATABANK A. EQUITY FUNDS NAV Inception Fund Size Three Six (24/07/09) Date (Rs. Cr) Months Rank Months Rank Appr.* Appr.*

Scheme Name AIG India Equity Fund - Reg - Growth Birla Sun Life Dividend Yield Plus - Growth Birla Sun Life Equity Fund - Growth Birla Sun Life Frontline Equity Fund - Growth Birla Sun Life India GenNext Fund - Growth Birla Sun Life India Opportunities Fund - Growth Birla Sun Life Long Term Advantage Fund - Growth Birla Sun Life Long Term Advantage Fund - Sr 1 - Gr. Birla Sun Life Mid Cap Fund - Growth Birla Sun Life Special Situations Fund - Growth Birla Sun Life Top 100 Fund - Growth DBS Chola Contra Fund - Growth DBS Chola Global Advantage Fund - Growth DBS Chola Growth Fund -Growth DBS Chola Hedged Equity Fund - Growth DBS Chola Midcap Fund - Growth DBS Chola Multi Cap Fund - Growth DBS Chola Opportunities Fund - Cumulative DSP Blackrock Equity Fund - Growth DSP Blackrock India Tiger Fund - Growth DSP Blackrock Micro Cap Fund - Regular - Growth DSP Blackrock Nat. Res. & New Energy Fund-Ret-Gth DSP Blackrock Opportunities Fund - Growth DSP Blackrock Small and Midcap Fund - Growth DSP Blackrock Top 100 Equity Fund - Growth DWS Alpha Equity Fund - Growth DWS Investment Opportunity Fund - Growth Fidelity Equity Fund - Growth Fidelity India Growth Fund - Growth Fidelity India Special Situations Fund - Growth Fortis Dividend Yield Fund - Growth Fortis Equity Fund - Growth Fortis Future Leaders Fund - Growth Fortis Opportunities Fund - Growth Fortis Sustainable Development Fund - Growth Franklin India Bluechip - Growth Franklin India Flexi Cap Fund - Growth Franklin India High Growth Companies Fund - Growth Franklin India Opportunity Fund - Growth Franklin India Prima Fund - Growth Franklin India Prima Plus - Growth Franklin India Smaller Companies Fund - Growth HDFC Capital Builder Fund - Growth HDFC Core & Satellite Fund - Growth HDFC Equity Fund - Growth HDFC Growth Fund - Growth HDFC Long Term Equity Fund - Growth HDFC Mid-Cap Opportunities Fund - Growth HDFC Premier Multi - Cap Fund - Growth HDFC Top 200 - Growth HSBC Dynamic Fund - Growth HSBC Equity Fund - Growth HSBC India Opportunities Fund - Growth HSBC Midcap Equity Fund - Growth HSBC Progressive Themes Fund - Growth HSBC Small Cap Fund - Growth HSBC Unique Opportunities Fund - Growth ICICI Prudential Discovery Fund - Growth ICICI Prudential Dynamic Plan - Growth ICICI Prudential Emerging STAR Fund - Growth ICICI Prudential Fusion Fund - Growth ICICI Prudential Fusion Fund - Series II - Growth ICICI Prudential Fusion Fund - Series III - Ret - Growth ICICI Prudential Growth Plan - Cumulative ICICI Prudential Power - Growth ICICI Prudential Service Industries Fund - Growth IDFC Enterprise Equity Fund - Plan A - Growth IDFC Small & Midcap Equity Fund - Growth India Advantage Fund ING C.U.B. Fund - Growth ING Contra Fund - Growth ING Core Equity Fund - Growth ING Dividend Yield Fund - Growth

9.52 54.89 204.95 66.25 17.25 38.50 10.43 8.15 78.34 8.17 17.19 8.75 9.58 31.39 11.42 27.89 15.73 34.63 11.56 39.04 8.45 10.43 62.94 10.67 77.17 62.47 30.00 24.93 8.66 13.32 12.02 27.98 6.46 15.99 10.46 158.65 23.85 9.39 25.45 189.08 162.64 10.09 74.52 26.72 184.25 60.58 11.52 9.41 20.00 153.75 8.41 85.12 28.09 16.85 11.86 7.67 8.65 30.05 73.92 22.75 10.24 9.35 9.27 104.30 83.76 13.28 13.13 11.59 167.56 12.44 13.49 29.37 14.47

22/06/07 26/02/03 27/08/98 30/08/02 05/08/05 27/12/99 10/10/06 31/05/07 03/10/02 31/01/08 24/10/05 27/02/06 30/05/05 17/09/01 19/04/07 09/08/04 28/01/05 27/11/97 07/06/07 11/06/04 14/06/07 25/04/08 16/05/00 14/11/06 10/03/03 21/01/03 29/01/04 16/05/05 23/10/07 22/05/06 15/09/05 23/09/04 02/05/06 15/04/05 23/04/07 01/12/93 02/03/05 26/07/07 21/02/00 01/12/93 29/09/94 13/01/06 01/02/94 17/09/04 01/01/95 11/09/00 10/02/06 25/06/07 20/04/05 11/09/96 24/09/07 10/12/02 24/02/04 19/05/05 23/02/06 24/03/08 21/03/07 14/08/04 31/10/02 28/10/04 25/03/06 31/03/07 15/03/08 09/07/98 01/10/94 30/11/05 09/06/06 07/03/08 08/08/96 11/09/06 10/03/06 06/05/99 24/10/05

488.61 255.25 1112.11 788.96 94.77 42.99 291.46 234.11 592.14 585.57 348.43 9.89 6.28 15.81 20.17 17.65 19.48 61.30 1231.52 3320.48 218.08 233.15 888.46 617.26 1726.75 164.16 160.33 2528.34 537.62 1177.87 9.59 104.82 33.48 92.41 13.16 2199.40 2158.26 1129.41 599.65 736.63 1515.18 576.72 512.10 353.87 3870.79 1164.93 1047.83 1051.44 429.95 3689.11 277.19 1492.18 348.02 139.73 456.28 52.95 287.10 307.65 1498.89 361.16 391.52 703.13 543.88 345.37 682.03 360.24 976.14 286.73 499.89 34.13 11.24 56.99 22.81

39.02 37.33 40.26 38.89 31.38 42.75 35.63 47.62 51.59 34.71 31.89 40.90 37.25 36.54 29.63 50.27 39.08 43.99 35.15 34.27 48.98 30.39 36.96 45.82 33.17 26.97 32.04 36.08 37.22 43.07 33.02 27.36 40.30 28.39 32.39 35.28 39.46 42.19 33.60 46.89 30.61 48.25 40.91 43.03 45.15 36.58 36.35 38.29 44.07 43.68 23.17 26.44 27.21 42.77 26.87 38.82 33.06 49.21 29.52 44.44 35.63 37.10 32.62 27.35 33.04 37.62 36.71 38.84 -49.88 46.15 33.20 38.07

75 88 63 74 144 48 103 25 10 109 138 57 88 96 151 13 76 43 107 110 19 146 91 32 118 151 131 97 87 43 118 143 59 141 122 98 67 48 107 29 130 25 52 41 33 81 82 70 37 37 132 129 126 40 125 62 98 17 118 34 80 72 100 116 95 68 71 59 -15 27 88 62

75.69 56.83 73.66 71.94 52.65 78.24 66.08 72.20 85.55 66.96 58.43 71.91 55.27 76.94 66.72 88.70 74.58 91.96 58.79 71.72 -66.78 68.17 71.74 58.81 52.03 59.49 67.33 69.86 77.54 46.85 50.27 61.46 52.93 51.61 72.36 75.62 79.69 66.64 78.79 60.25 83.09 69.91 80.27 87.92 64.06 61.34 64.39 76.87 86.06 37.72 52.42 50.29 71.18 49.69 -60.99 91.89 58.04 75.13 63.06 66.37 61.78 59.87 66.79 67.89 --5.15 91.98 88.15 66.59 64.43

48 138 57 63 147 40 101 64 21 91 129 67 144 50 97 16 62 10 127 69 -94 87 68 122 141 121 90 79 46 147 141 107 134 135 65 53 38 88 41 105 28 72 35 19 89 97 88 45 21 131 119 121 59 121 -94 10 103 49 87 80 87 90 75 73 --119 9 14 74 76

One Three Year Rank Years Rank Appr.* Appr.*

Since Incep. Appr.*

Rank

7.90 28.55 7.17 15.56 8.15 -3.70 4.30 3.41 13.22 3.02 9.35 -6.52 -15.15 2.55 1.24 7.19 -1.99 3.40 9.56 5.30 -6.91 7.08 9.39 7.91 13.40 1.83 -0.66 11.18 12.17 5.35 15.01 1.78 -21.46 -22.73 12.18 16.23 15.90 8.89 -0.25 4.75 10.86 5.21 8.62 10.29 18.49 3.55 6.13 6.70 9.12 20.75 -8.21 2.04 -1.46 -3.37 -8.68 -15.81 -9.69 22.45 6.07 -12.23 -4.12 -7.61 -0.54 6.42 6.48 -6.74 0.65 25.67 -43.25 -4.31 16.39 0.38 12.52

-2.31 30.42 31.88 31.50 14.72 5.19 1.52 -9.06 35.29 -12.80 15.54 -3.85 -1.56 26.35 6.04 22.98 10.62 11.24 7.02 30.47 -7.68 3.47 22.15 2.43 37.76 32.50 22.16 24.35 -7.90 9.45 4.89 23.71 -12.67 13.15 2.03 27.91 21.85 -3.09 10.42 20.66 20.69 0.26 13.85 22.45 22.14 22.51 4.19 -2.89 18.23 25.65 -9.04 38.16 21.01 13.29 5.12 -18.07 -6.00 24.92 34.59 18.94 0.71 -2.86 -5.43 23.64 15.42 8.08 9.09 11.31 24.99 7.91 9.27 11.11 10.35

140 12 9 9 65 112 128 153 4 158 60 137 131 15 108 28 85 80 102 8 137 112 30 114 3 5 27 20 130 83 99 21 135 60 106 10 26 113 75 34 33 104 52 23 23 22 90 103 37 12 112 2 25 46 82 114 103 14 2 29 89 92 96 17 37 69 65 52 12 66 61 54 57

58 1 62 16 54 134 83 89 21 93 43 146 161 97 106 59 127 89 42 69 145 59 42 52 21 95 115 31 28 62 17 91 151 151 26 12 14 37 100 64 29 56 38 30 9 68 50 46 32 8 121 74 94 99 119 127 119 6 46 121 100 113 88 45 43 108 78 2 122 97 7 77 17

-18.2 18.38 22.32 16.16 0.68 --20.28 -12.77 -0.42 -5.71 11.73 -14.81 5.12 25.31 -20.94 --15.67 -22.51 16.48 21.49 19.69 -14.84 11.87 14.18 -3.15 4.12 -18.23 15.85 -13.14 8.14 18.87 6.6 16.45 11.07 18.95 20.34 9.13 -14.11 22.96 -17.93 12.29 7.2 8.79 --13.07 18.19 6.11 6.52 --14.15 12.55 12 ---2.78 -18.76 13.94 17.35

-28 25 8 44 114 --14 -76 119 122 86 -58 116 2 -11 --49 -7 42 9 15 -51 78 54 114 111 -22 42 -64 92 17 96 38 74 15 11 80 -50 5 -21 63 86 77 --58 18 86 83 --45 58 60 --88 -14 48 24

(*Appreciation in %)

Entry loads on all mutual fund schemes removed by SEBI with effect from August 01, 2009.

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Dalal Street Investment Journal

Aug 3 - 16, 2009

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Letters to Editor

LETTER OF THE

FORTNIGHT GIVE INFO ON BONUS & DIVIDEND

Winner of Issue No. 16 Cover Poll Jitendra Sanghvi Subscription No.: 0529638

Congratulations, Jitendra Sanghvi your gift is on its way!

Thank you very much for the DSIJ’s Stock Market Book, which I have duly received. My hearty congratulations for bringing such an excellent book. I have however; a suggestion to make, which I feel, would be immenslely useful to prospective investors while making their investment decisions. It would be great help to investors if you can include in your Dalal Street magazine two statements showing (1) year-wise bonuses (2) yearwise dividends over the last ten years , so that the investors can pick or choose companies which are not only consistently giving but also giving maximum bonuses and dividends. In these statements you can also include relevant information like face value, sales, PAT, price etc. Vasant Mangesh Kalbag, Mumbai Reply: Your suggestion is under consideration

ARTICLE ON NRI INVESTMENT

Feedback on Cover Page Really very good, it conveys to us that share market is like a sea and it is very difficult to find value picks, but DSIJ cover shows these can be picked out without any difficulties - Jitendra Sanghvi Fantastic Design & art work. It increases the value of magazine. Seems it has undergone through good thought process. - Shyam Sundar Choudhary Hope your small and medium size fishes turn another Infosys, Unitech, Pantaloon Retails and create wealth for long term investors - S C Dasgupta It is exciting and tempting. It speaks of the content of the main story and forces a reader to visit the main story. - Lakshmi Kant Gupta Subscribers can post their feedback on Cover Page design on

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I am a fresher in investment arena, and I mostly refer to DSIJ for stock picks and information. Being an NRI, I would appreciate if you could pen down one article related to NRI investing in stock markets, the tax structure, limitations if any for NRIs investing in India, summary on rules and regulations for the same and something more informative which will be useful for NRIs. Hope you will consider the above request and publish some related article. Vikram Patel Reply: We would be publishing an article on the subject very soon.

INFORMATION UPDATED This has reference to your article “Data Bank-Updated Information” appearing from pages 33 to 64. In this connection, please note that the data update on Kotak Mahindra Bank Limited appearing on page no.47 in respect of the data “Pledged (%)” is incorrect. As clearly indicated in our requisite disclosures to eth stock exchanges the promoter’s pledged (%) is 0.01 percent. We request you to update the information in your next issue accordingly. Bina Chandarana, CS & Exec.VP, Kotak Mahindra Bank Reply: We have corrected the information in the current issue. Our column gives the promoter’s pledged shares as percentage of promoter’s holding and not total share capital. We welcome your letters at: 101 A, 1st Floor, Uttam House, 69, P. D'mello Road, Near Carnac Bridge, Mumbai - 400009 Tel: 022-40629500 Letters may also be mailed to:

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Aug 3 - 16, 2009

Dalal Street Investment Journal

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