For Private Circulation Volume 1 Issue 71 31st Aug...

For Pr ivate Circulat ion Volume 1 Issue 71 31st Aug ’12

It’s simplified...Beyond Market 31st Aug ’12 3

DB Corner – Page 5

Crumbling Under PressureLack of infrastructures like power and water could spell doom for major metros of the country if this problem is not addressed in time – Page 6

On Neutral GroundThe earnings result for the June quarter were neither too good nor too bad for India Inc – Page 9

A Visionary ApproachThe initiatives announced by SEBI in the past one year are quite exemplary and are hoped to boost investor participation in the markets– Page 12

Desperate MeasuresIndian banks are adopting novel methods like reviving old deposit schemes to pump their deposit base – Page 18

The Big PictureRay Dalio’s philosophy of tracking economic trends and financial events and their impact on different asset classes has enabled him to be a famous businessman – Page 20

Supreme Industries Ltd: Supreme OptimismWith a wide range of products on offer, Supreme Industries enjoys a dominant position in the industry and is likely to benefit from the expected increase in consumption of plastics in India - Page 24

Pricol Ltd – Page 28

Technical Outlook For The Fortnight – Page 29

Get Better, Not BitterWhen a mutual fund scheme fails to deliver consistently, it is time to switch to better performing ones instead of brooding over the past – Page 30

A Thrust To GrowthThe slew of measures announced by SEBI recently are aimed at boosting the ailing mutual fund industry – Page 33

Taking Cue From NewtonLike all things in nature, Newton’s Laws can also be applied to the stock markets – Page 36

A Painful TruthRegardless of history, the return to Drachma seems inevitable for Greece with each passing day as it is on the verge of a near collapse – Page 40

Volume 1 Issue: 71, 31st Aug ’12

Editor-in-Chief & Publisher: Rakesh BhandariEditor: Tushita NigamSenior Sub-Editor: Kiran V Uchil

Art Director: Sachin KambleJunior Designer: Sagar Padwal

Marketing & Operations:Divya Bhurat, Afsana Tamboli

We, at Beyond Market welcome your views, comments and feedback. Do help us to grow better as per your liking. This is our attempt to reach you better while crossing horizons...

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Research Team: Sunil Jain, Vishal Jajoo, Kavita Vempalli,Dipesh Mehta, Anand Shendge, Manav Chopra, Vikas Salunkhe

It’s simplified...Beyond Market 31st Aug ’124

T he Indian economy has been on tenterhooks since a while now. Worries over high inflation and burgeoning fiscal debt in the domestic markets, coupled with global doom are negatively impacting the economy of the country, which in turn, is hurting the capital markets. In such a scenario, it becomes imperative for regulatory authorities to intervene and introduce reforms for the betterment and smooth functioning of the capital markets. Reforms in the financial markets help improve performance by increasing liquidity, augmenting efficiency and bringing down the overall trading cost, thus making it investor-friendly.

The capital market regulator, Securities and Exchange Board of India (SEBI), recently announced a slew of measures to help boost the initial public offering (IPO) market as well as the beleaguered mutual fund industry. In fact in the last one year or so, the SEBI has been making several attempts to push the Indian capital markets. The cover story in this issue sheds light on the most important reforms introduced by SEBI in the past one year. On the same lines is an article on the reforms introduced by SEBI to revive the sagging mutual fund industry.

Other interesting reads in this issue include articles on the crumbling infrastructure in important Indian cities, a wrap up of earnings results of Nifty companies for the first quarter of financial year 2012, the steps that investors can take in view of the poorly performing mutual fund schemes and the inspiring and informative piece on the investment style of Ray Dalio, a great American investor and businessman. The Beyond Learning section in this issue covers two very interesting pieces. The first is on the laws of motion propounded by Sir Isaac Newton and their application to the stock markets and second is on the ancient currency Drachma, which may make a comeback if Greece is forced out of the Euro zonE.

Tushita NigamEditor

SHARPENIN G ROUGH EDGES


Disclaimer It is safe to assume that my clients and I may have an investment interest in the stocks/sectors discussed. Investors are required to take an independent decision before investing. Investment in equity is subject to market risk. Our research should not be considered as an advertisement or advice, professional or otherwise. The investor is requested to take into consideration all the risk factors including their financial condition, suitability to risk return profile and the like and take professional advice before investing.

Nifty: 5,350.25Sensex: 17,678.81

(As on 27th Aug ’12)

he US economy has been showing signs of improvement. The US equity markets were near

their 52-week highs recently. On the domestic front, the monsoon has been improving off late. Even FII flows into India were good in the previous month. Inflation numbers for the month of July were lower, yet not convincing enough for the RBI to lower rates.

Moreover, the government has not taken any steps to curtail deficit, which is proving to be a cause of worry and this could adversely impact the Indian investment grade rating, as Standard and Poor’s has threatened to

T downgrade the country to below investment grade rating.

Traders and investors are advised to avoid buying at upper levels. The long-term trend looks positive and market participants are advised to buy on declines around the 5,200 level on the Nifty.

Stocks such as Ranbaxy Laboratories Ltd (LTP: `554.30), Tech Mahindra Ltd (LTP: `875.80), Cairn India Ltd (LTP: `345.40), Oracle Financial Services Software Ltd (LTP: `2,879) and Mahindra & Mahindra Ltd (LTP: `772.80) can be considered by traders and investors on declines. However, market participants should avoid the banking sector.

The coming fortnight is likely to witness important events in the Euro zone. The outcome of these events is likely to determine the course of the Indian marketS.

Traders and investorsare advised to avoid

buying at upper levels.

Lack of infrastructures

like power and water could

spell doom for major

metros of the country if

this problem is not

addressed in time



provisions for power and water supply. The end result is people live in `1 crore plus flats with no water or electricity supply.

Civic authorities have not been able to create and maintain infrastructure, which can handle the growing population. Infrastructure such as roads, power and sewage disposal are developing at a pace slower than what is required.

The road infrastructure has struggled to keep pace with the increase in vehicular traffic and there is inadequate power generation, with power requirements increasing.

In short, infrastructure development in Gurgaon has failed to keep pace with the speed of real estate development. The Millennium City has not been able to provide a good quality of life to its residents and newer developments will only exert additional pressure on an already strained city.

In certain parts of Gurgaon, builders have taken the onus of providing its residents with their own back-up power plant, water recycling systems and solar power heating.

DLF Ltd, India’s largest developer, has gone a step further and launched its own fire brigade equipped with Mercedes fire trucks imported from Finland. In a public-private partnership (PPP) with the state authorities, it also started building a $100 million, 16-lane highway running through the city.

Gurgaon’s problems, shoddy infrastructure and an equally shoddy administration are reflected in cities across India. It is tragic that the country has the best of airports, national highways and even a Formula one race track, but lacks the most basic infrastructure like power,

water and sewage treatment plants.

Consider Mumbai for instance. Its hour-long traffic jams are now legendary. The city’s roads are clogged forever but there seems to be no relief in sight. The promised metro rail, which would have provided the much needed relief to locals, is still under construction.

The project has been delayed ‘owing to certain impediments’ according to chief minister Prithviraj Chavan and is expected to be operational by March ’13. The metro rail project once completed will help in saving time and fuel and easing congestion on the roads.

Traffic congestion is not the only problem that Mumbai faces. In fact, the city’s biggest problem is lack of space. Few people know that about 55% to 60% of the city’s population still lives in slums or dilapidated buildings. The largest slum in Asia, Dharavi is in Mumbai.

The city’s problem is two-fold because while the population in the city is growing by the day, Mumbai suffers from a shortage of land for development. It is an irony that while more than half of the population has poor access to housing, over one lakh residential flats are still lying unsold.

Developers have been offering discounts but to no avail, reasons being high interest rates, regulatory approvals and inability of builders to deliver the flats on time. The condition is such that even resale homes are not selling.

There is still hope though. Ranked among the top 10 revenue-generators in the world, Mumbai provides abundant scope and demand for redevelopment. The largest slum redevelopment plan started by Omkar Realty and Developers Pvt Ltd and

urgaon is a disaster waiting to happen. The city has shopping malls, five star hotels and golf

courses - all the markings of a world-class city. But that is where the comparison ends. The city has neither power nor water and is laced with potholed roads and numerous open sewage drains.

Residents of the city say Gurgaon has been reduced to a city of beautiful glass and steel buildings and nothing else. The Millennium City, clearly a misnomer, is crumbling all over. The city is home to global companies such as Microsoft Corp, Google Inc, Accenture, Genpact and agribusiness giant Cargill Inc. It has grown at a very fast rate but the infrastructure has failed to keep pace.

Power failures are so frequent that companies and housing societies rely on diesel generators and water shortage is so acute that residents pay private water tankers everyday to deliver water to their homes.

Gurgaon’s sad state of affairs can be blamed on absolute lack of planning. Gurgaon was an agricultural area two decades back, home to Haryana’s farmers. It was sometime in the ’90s that builders turned it around into Delhi’s suburb.

Companies shifted base from Delhi to Gurgaon because of the relatively cheaper real estate prices and soon the city became an Information Technology hub. The city is now India’s third-wealthiest city by per-capita income and its population has climbed to more than 1.5 million from just 9,00,000 in 2001.

The problem is no one was prepared for the exponential growth the city has seen. People in the know say permissions for buildings are regularly handed out without making

G


Larsen and Toubro Realty is currently underway. The plan is to develop a `7,000 crore-plus residential project spread over a 17-acre slum sprawl in Bhoiwada, Parel and to rehabilitate slum dwellers in 269 sq ft (carpet area) flats in nine to ten buildings of 23 floors.

This is not the first time that slum rehabilitation is taking place in Mumbai. In the past, slum rehabilitation has failed due to lack of proper planning. It became nothing but a pipe-dream to the residents who still suffer from lack of sanitation, transport and water facilities.

The major source of drinking water in Mumbai is from its surrounding lakes and it is necessary that lakes collectively hold at least 12.54 million litres every year. But, in the event of a bad monsoon, the shortage of water is inevitable. That is what happened this year.

According to a study, 40% to 70% water is lost due to leakages and wastage against a global norm of 8%. If the percentage of water wastage can be brought down through measures such as rain water harvesting, the condition can be improved drastically.

Similarly, Bengaluru has its own share of infrastructure problems. According to a recent report by industry lobbying body, Assocham, companies have been forced to look outside for more industry-friendly cities because of the deteriorating infrastructure in Bengaluru. The situation is so bad that the city is in the danger of losing its tag of the IT capital of India.

The major problems faced by industrialists in Bengaluru are power failures, water shortage and delay in government clearances. Many companies accuse the state

government of being extremely slow in giving land approvals. Companies are looking for options, even though Murugesh R Nirani, minister of industries Karnataka, has given an assurance that the government will look into the matter. As a result, Bengaluru is severely losing out on prospective investments.

It is not just industries that are facing this problem. According to the Census of India 2011, 16.9% of the urban population in Bengaluru depends on bore well for water, whereas 12.5% depend on untreated tap water.

The condition can get worse, according to experts, as the ground water has reached its critical stage and further sinking will dry up the borewells. The major supply of water comes from river Cauvery, 100 km away from Bengaluru, which itself is drying up.

Moreover, the sewage flowing in open drains is adversely deteriorating the quality of ground water. Lack of proper sewage system is place is turning into a nightmare for the citizens of Bengaluru.

Richmond Road, Residency Road, Hosur Road or any of the roads in central Bengaluru have a river of stinking sewage flowing on one side of it. The condition in some areas is so bad that sewage water has started entering the backyard of homes.

The existing sewage system was built during the British era and though the residential zones are turning into commercial ones, the sewage system hasn’t been improved.

Clearly, there is an urgent need for civic authorities to wake up and do something about the failing infrastructure in cities, before it becomes a full fledged nightmarE.


the previous quarter’s results to arrive at some kind of conclusion.

RESULT ANALYSIS

The aggregate result analysis of Nifty companies which have declared their results so far does not indicate that this is a very different quarter when compared with the previous four to five quarters. The sample does not contain results of six Nifty companies - Coal India, Hindalco, Reliance Infra, Siemens, SunPharma and Tata Steel - as the results were not declared when this article was being written.

Further, the sample does not include companies from the oil & gas, banking and financial services sector. Companies from these excluded sectors have a different reporting format and are largely regulated by the government and, hence, they skew the overall result.

ndia’s economy has been going through a turbulent phase and the June ’12 quarter is no exception. With little positive

news coming in from the world economy, the already dwindled Indian economy has little hope left. There is no improvement in the domestic political scenario either.

As a result, it is quite obvious that the first quarter of the current financial year would be a tough one. However, the question to ask is whether this is an exceptionally bad quarter or just another bad quarter.

This is important for investors from the stock market point of view. Most of the pessimism has already been factored in into the lacklustre stock market performance. And if this is just another bad quarter, then there is really nothing much to worry about. Hence, it is also imperative to look at

IThe earnings

results for the

June quarter

were neither too

good nor too

bad for India Inc

n Neutral Ground

Net SalesOperating IncomeOther IncomeOperating ExpensesInterestDepreciationTaxNet Profit

Year-on-year Growth (%)

23.041.5

-37.722.164.624.5

8.5-10.0

23.5-11.518.727.745.026.717.7-3.3

20.7-13.615.123.631.724.5-6.58.1

19.1150.4

5.921.228.921.2

6.36.7

Sep '11 Dec '11 Mar '12 Jun '12

Source: BSE Note: Aggregate Growth Figures Of Nifty Companies


y-o-y growth figure in the previous three quarters. Lower operating expenses, in fact, helped in expanding the operating margin figure.

It appears that lower raw material costs would have aided the decline in operating expenses. Prices of key metals like aluminum, copper and steel, among others, fell by around 10% to 25% during the quarter, according to the London Metal Exchange (LME) data.

Raw material roughly accounts for a little more than one-third of the total operating cost. Power and fuel expenses, which account for around one-tenth of the operating expenses, would have also remained muted due to the cut in petrol prices and no increase in diesel prices during the June quarter.

All these factors helped in boosting the operating margin. The aggregate operating margin of the sample works out to be over 22%, an expansion of almost 900 basis points when compared to the same period last year. All these indicate that there is nothing in particular to get worried about this quarter’s performance.

The interest rate grew at a relatively slower pace compared to the previous quarters. The growth in interest expenses stood at 29%, less than half of the growth rate during the quarter a year ago.

The Reserve Bank of India (RBI), in its latest policy review, left key interest rates unchanged. With little change in interest rates, it appears that the companies have lowered their debt level from the year-ago period, thereby bringing down the cost of their business operations.

The overall effect of these factors has been positive on the bottom line of the companies. The aggregate net profit

of sample Nifty companies grew at a tad 6.7%, reckoned on a y-o-y basis. While this number may not look very impressive, it is actually better when we look back at the same figure for the previous quarters.

For instance, the net profit growth for the June ’11 quarter was negative 10%. The average y-o-y net profit growth figure for the previous three quarters stands at -1.7%. Hence, it is difficult to say that India Inc, at least for the biggies, had a very bad quarter.

The Indian stock market too took cognizance of this factor and has not reacted negatively to the quarterly earnings results.

The S&P CNX Nifty, the benchmark equity index in India, remained around the 5,200-5,300 level through July and August, the period when companies start declaring their quarterly results to investors.

The market would have reacted much more positively had there been some more hint from the government on economic reforms, strong policy measures, etc. In the absence of all such initiatives, the economic outlook for India still looks grim. Standard & Poor’s (S&P), the international credit rating agency, has already downgraded India. Any further inaction by the government could attract another round of downgrade, driving away foreign investors from the Indian market and thus drag the benchmark equity indices further down .

Like any other quarter, irrespective of how India Inc performed on the whole, there are certain companies whose performance is either way above or below the benchmark aggregate result.

Following is a list of outperformers

The aggregate year-on-year (y-o-y) growth in net sales of the sample was little more than 19%, around 200 basis points lower than average growth rates in three quarters prior to the June quarter.

The quarter-on-quarter (q-o-q) growth doesn’t make sense due to seasonality. In the Indian economy, the first quarter is anyway a little dull due to monsoon, lesser construction activity, etc.

If we have to compare the June’12 quarter with the corresponding quarter in the previous year, we see that growth rate in net sales is down by 300 basis points. If we consider other sources of operating income, then the growth figure looks marginally better. The decline in top line was inevitable given that Index of Industrial Production (IIP) numbers, an indicator of the industrial activity taking place in the country, fell twice in three months in the quarter. The average IIP figure for the June quarter is marginally negative.

Keeping in line with the topline growth, the core operating expenses also grew at a relatively slower pace. The total operating expenses grew at a little more than 21%, reckoned on a y-o-y basis. This figure is almost 300 basis points lower than the average

Profit Margins

Source: BSE

9.0

11.0

13.0

15.0

17.0

19.0

21.0

23.0

25.0

Opera ng Pro t Margin Net Pro t Margin


and underperformers:

WINNERS

HCL Technologies

HCL Tech’s June ’12 quarter, which is also the last quarter for financial year FY12, surprised investors positively on most fronts, with the exception of slight disappointment in software services volume growth.

The company bagged eight transformational deals in the fourth quarter. The management has also hinted at maintaining the FY12 margin in FY13 also, thereby setting the tone for a healthy FY13.

EBITDA margin expansion of 360 bps q-o-q to 21.6% was the key highlight, driven by currency and productivity and SGA efficiencies.

Revenue visibility, better margin outlook and continued execution focus will continue to support higher valuation multiples for the company.

Cipla

For the first quarter of FY13, Cipla’s top line and bottom line numbers came better-than-expected. The net sales and profits for the quarter was `1,917 crore and `400 crore, registering a growth of 23.7% and 57.9% respectively; both reckoned on a y-o-y basis.

However, the major positive highlight

of the quarter was the improvement in OPMs, which expanded by 484 bps to end the quarter at 26%.

The expansion in margins came on the back of the improvement in the product mix of the company. For FY13, the management has upgraded its revenue guidance from 10% to 12-15%.

LOSERS

Bharti Airtel

The June quarter earnings result of Bharti Airtel was disappointing, with its net profit declining by 40% on a q-o-q basis. Muted revenue growth and cost escalation led to significant pressure on margins. Consolidated operating margin contracted by 300 basis points.

Some of the key factors, which led to such a poor show are decline in average revenue per minute (ARPM), average revenue per user (ARPU), pricing pressure and muted minutes of usage (MoU) growth. Even its foreign operation in Africa did not perform well and was impacted by headwinds in currency and economic developments in that country.

Going forward, the stock lacks near-term catalyst as Key Peformimg Indicators (KPIs) would remain under pressure and any rebound in margin is also ruled out. The stock market reacted quite negatively to all this information and the stock lost almost

6% within two days of the declaration of the result.

Infosys

For the first quarter of FY13, Infosys reported yet another disappointing quarterly earnings result, broadly underperforming on all fronts. The most disappointing thing in Infosys result was revision of FY13 USD revenue growth guidance downwards to at least 5% from 8% to 10% earlier, a tad lower than average estimate of 6% to 8%.

In addition, the company has stopped issuing quarterly guidance, citing uncertainty in demand environment, which is discomforting.

Infosys reported a revenue of US $1,752 million, down 1.1% q-o-q, mainly impacted by the 3.7% decline in pricing.

The EBITDA margin contracted by 181 bps quarter-on-quarter to 30.8%, despite having benefits from ~8% INR depreciation against the USD because operating margins were impacted adversely by pricing decline and US $15 million of revenue reversal on account of cancellation of a project.

The stock market took the result and guidance very negatively and reacted sharply. Once considered to be the darling of investors, the Infosys stock fell by around 10% on the day the result was announceD.

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AVISIONARYAPPROACH

The initiatives announced by SEBI in the past one year are quite exemplary and are hoped to boost investor participation in the marketsA

VISIONARYAPPROACH

The initiatives announced by SEBI in the past one year are quite exemplary and are hoped to boost investor participation in the markets



physically submitting IPO forms can now use broker terminals at 1,000 locations while applying for electronic-IPOs. A company proposing to issue capital to public through the online system of the stock exchange for offer of securities is called as an e-IPO. The facility of Applications Supported by Blocked Amount (ASBA) will also be extended to applicants coming through this mode. This move will help broaden participation in IPOs.

- To further reduce the time gap between issue closure and listing of securities, all ASBA banks will have to provide ASBA facility to all its branches in a phased manner. By doing so, the SEBI is looking at significantly reducing the timeline for IPOs from 12 days at present to about five days.

- The minimum ticket for retail IPO investment has been increased to `10,000-15,000 from `5,000-7,000 earlier. Further, every retail applicant, irrespective of his application size, will get an allotment of a minimum bid lot. Earlier shares were allotted on a proportional basis. And hence, in case of oversubscription, the applicants for smaller quantities used to get left out. - The price band for IPOs will have to be announced five days prior to the IPO from the current two days. This will give retail investors more time to take an informed decision.

- For companies to meet the minimum public share holding norms of 25% by June ’13 (10% for PSUs by August ’13), additional routes of rights and bonus issues have been permitted by SEBI. Last year market regulator SEBI had allowed offer for sale (OFS) and institutional placement programme (IPP) for companies to meet the norms (explained in the latter part of the article).

While OFS and IPP had some bearings on the market price of the stock, bonus and rights are neutral to the market price. This is good as investors are insulated from volatility in the stock price. Also, as far as the minimum public share holding norms are concerned, the market regulator will also look into the matter on a case-to-case basis.

- In case of FPOs and rights issues, the free float market capitalization requirement has been reduced to `3,000 crore from `5,000 crore to facilitate and solve issues through the fast track route.

- It will put additional mechanisms to monitor issue proceeds within the prevailing legal framework.

- To avoid any misleading signals to retail investors about the extent of subscription in the issue, no withdrawal or lowering the size of bids shall be permitted for non-retail investors at any stage. At many instances, it was found that Qualified Institutional Buyers (QIBs) used to participate at a certain price and later withdraw, giving wrong signals to retail investors.

- In order to improve the quality of public offerings as well as enhance investor protection, companies that have a minimum average pre-tax operating profit of `15 crore will be allowed to take the public offering route. Exceptions are allowed for companies wanting to get listed on the Small and Medium Enterprise (SME) platform.

- In a measure which will help investors with updated information, listed entities should file a comprehensive annual disclosure statement in addition to the existing requirements on the lines of rules existing in the US Securities Exchange Commission.

nvestor protection, market development and market regulation fall in the realm of capital market regulator

Securities and Exchange Board of India (SEBI). And to have a firm hold on the capital market, SEBI has been on its toes since the past one year.

However, the challenge in terms of routing domestic savings, both directly and indirectly, has been daunting. Equally daunting has been the challenge of raising funds for companies in an environment where investor sentiment was low and negative news flow was the new norm. In this backdrop SEBI undertook a number of reforms in the past one year.

On 16th August this year SEBI announced several measures to boost the primary markets and provide support to the bleeding mutual fund (MF) industry.

This article highlights the recent steps taken by SEBI and follows up with equally important measures taken by the regulator in the recent past.

THE BOARD MEET OF 16TH AUGUST

PRIMARY MARKET

SEBI Chairman UK Sinha has been talking about revamping the primary markets in India since quite some time. And the recently concluded board meet was the moment of reckoning for Sinha. SEBI has taken certain far-reaching steps to lift the IPO market.

Some of the steps are in line with the announcements made in the Union Budget for the current year. While the guidelines on the same are keenly awaited, let us look at the highlights.

- Retail investors in addition to

I


- To bring more transparency in capital raising, ‘general corporate purposes’ as an object of the issue would not exceed 25% of the issue size. Presently, there is no cap on this item. There have been alleged incidents where companies have raised money for general corporate purposes but deployed it elsewhere.

Other steps taken by SEBI in the recent past are as follows:

QUALIFIED FOREIGN INVESTORS (QFIs)

QFIs found a mention in the Union Budget speech of FY11-12. Later in August that year the market regulator allowed foreign investors to directly invest in mutual funds. QFIs include individuals, groups or associations, resident in a foreign country which is in compliance with the financial action task force (FATF), which is an anti-money laundering inter-governmental institute.

QFIs do not include FIIs or sub-accounts. A QFI needs to comply with certain KYC norms and tax regulations. Later in January ’12, it was announced that QFIs can also directly invest in equities and corporate bonds. However, they are not allowed to short sell or lend or borrow securities or indulge in instruments like derivatives.

While the move was expected to increase the depth of the Indian market and encourage more foreign inflows, QFIs have not shown much interest, mainly due to the procedural aspects. A QFI needs to obtain a Permanent Account Number (PAN) and also fill forms with the RBI every time it wants to remit funds.

Further, a QFI also needs to file income tax returns. All these procedural aspects have posed challenges for the participation of

QFIs in the Indian market.

SCORES (SEBI COMPLAINTS REDRESS SYSTEM)

In June last year, SEBI came up with an electronic complaint redressal system called SCORES or SEBI Complaints Redress System. It is a web-based, centralized grievance redressal system for investors. The grievance redressal time will get reduced because of SCORES.

Among other benefits, SCORES will provide a centralised database of all complaints, online movement of complaints to the concerned listed companies, online upload of Action Taken Reports (ATRs) (action taken by companies with regard to investors’ complaints) by the concerned companies and online viewing by investors of action taken on the complaints and its status.

All listed firms will have to register themselves with SCORES by 14th Sept ’12. Companies will have to initiate action within seven days and resolve all grievances within 30 days of the receipt of the complaint.

STREAMLINING OF THE CONSENT PROCESS

On 25th May ’12 SEBI streamlined the entire mechanism of consent order. The consent order mechanism, put in place in April ’07, would let alleged offenders to settle charges against them by paying monetary penalty without admitting or denying the guilt. This process had been criticised as some serious violators used to walk away by paying a small penalty, which was minuscule as compared to the profits made due to such acts.

The streamlined version of the process disallows certain serious defaults like insider trading, front

running and fraudulent and unfair trade practices to be consented. Further, the new version acts as a deterrent for repeat offenders as it denies consent for the second breach of the same violation.

The new process is transparent. The consent order will be disposed within a span of six months. SEBI will entertain the consent only after the entire process of investigation is completed. Hence, the offender cannot pay the penalty mid way and hide the extent of the violation.

DRAFT NATIONAL STRATEGY ON FINANCIAL EDUCATION

This draft was released on 16th July ’12 and comments on the same had to be submitted to the SEBI by 15th Aug ’12. The National Strategy recognises that financial literacy and financial education play a vital role in financial inclusion and inclusive growth.

It envisages ways towards creating awareness and educating consumers on access to financial services, availability of various types of products and their features, financial risk and opportunities and benefit from various financial products and making consumers of financial services understand their rights as well as obligations. It envisages setting up of the National Institute for Financial Education (NIFE) and recommends several channels to educate investors and reach a larger audience, including students and adults.

RESPONSIBLE HANDLING OF MARKET-RELATED NEWS OR RUMOURS

Unauthenticated market-related news or rumours have the potential to distort the price discovery mechanism and adversely affect the normal


functioning of the market. In order to counter this, the SEBI on May ’12 issued a set of frequently asked questions (FAQs) on how market intermediaries should handle market-related rumours.

The intermediaries are now required to design systems and code of conduct that is able to successfully block or completely supervise access to blogs, chat forums, messenger and social network sites. They are also required to demonstrate measures taken by the exchanges and SEBI, whenever required.

Employees should be asked to refrain from spreading rumours. Intermediaries are expected to keep records of logs for using blogs, chat rooms, messenger sites and their employees who use these modes to communicate with clients.

TOLL-FREE HELPLINE SERVICE FOR INVESTORS

In early January this year, SEBI launched a toll-free helpline number for investors across the country. The service will be offered in 14 languages including English, Hindi, Marathi, Gujarati, Tamil, Bengali, Malayalam, Telugu, Urdu, Oriya as well as Punjabi.

The service which will be available on all working days from Monday to Friday between 9.30 am and 5.30 pm, will provide guidance to investors on the status of companies - whether unlisted, sick, delisted or liquidated, on how to lodge a complaint, against whom to lodge a complaint and compliant status, among others. However, the helpline does not offer investment advice to investors.

BUSINESS RESPONSIBILITY REPORTS (BRRs)

In line with the ‘National Voluntary

Guidelines on Social, Environmental and Economic Responsibilities of Business’ framed by the Ministry of Corporate Affairs (MCA), issued late last year, the SEBI has asked listed companies to mandatorily submit an annual business responsibility report’, wherein they will have to disclose compliance to various environmental, social and governance aspects, including matters like sexual harassment complaints.

BRRs would be mandatory for top 100-listed entities based on market capitalisation at BSE and NSE as on 31st Mar ’12. Hence, we see a section on BRR in the annual reports of the top 100 companies for this year.

Further, all listed companies should comply with the guidelines from financial year ending on or after 31st Dec ’12. The BRRs have to be submitted along with annual reports.

Among others, the SEBI circular dated 13th August said that listed companies need to indicate the number of complaints and pending ones related to child labour, forced labour, involuntary labour and sexual harassment during a financial year.

SIMPLIFYING AND RATIONALIZING TRADING ACCOUNT OPENING PROCESS

Currently, over 50 signatures are needed to open a trading account with the broker. With the aim to save investors from the cumbersome process of opening their trading accounts, SEBI in August last year decided to simplify and rationalise the process with minimum paper work.

Now, the client will be required to sign only one document, that is, the Account Opening Form. A copy of which will also be provided by the broker to the client. At the time of signing of the form the stock broker

will give a tariff sheet specifying various charges, including brokerage. Besides, the brokers would inform investors about the Do’s and Don’ts for trading in the market and also provide contact details of their senior officials to the investors. HARMONIZATION AND RATIONALIZATION OF KYC IN SECURITIES MARKET

Currently, Know Your Client (KYC) norms are carried out by each SEBI-regulated intermediary, namely, Broker, Depository Participant (DP), Mutual Fund, Portfolio Manager, etc. This results in duplication of work, wastage of recordkeeping space and is a burden on the intermediaries and even more so, on the client.

In order to take care of this, SEBI last year said that the ‘initial KYC’ including the identification of the beneficial ownership will be undertaken only once. This task of registration will be taken up by ‘KYC Registration Agencies’ (KRAs) at the account opening stage for all clients in the securities market through Points of Service (PoS), which will be regulated by SEBI.

Both NSDL and CDSL, the two depositories have registered as KRAs. KRAs between them would have the provision of inter-connectivity for any data transmission.

The change in methodology of obtaining the KYC process will not compromise the Prevention of Money Laundering (PML) rules and Financial Action Task Force standards. Instead, the proposed change will strengthen the uniformity of the conduct of the KYC process.

Experts opine that setting up of KYC is in line with the vision of the government and various regulators, which is to set up one KYC


throughout the financial sector, whether it is banking securities or insurance products.

PLATFORM FOR E-VOTING BY SHAREHOLDERS OF LISTED ENTITIES

SEBI has decided to implement the said proposal by making electronic voting mandatory for all listed companies with respect to those businesses to be transacted through postal ballot, in line with the proposal in the budget to make it mandatory for top listed companies to provide electronic voting facilities.

The same would be implemented in a phased manner. To begin with, it would be mandated for top 500 listed companies at BSE and NSE based on market capitalization. Listed companies may choose any one of the agencies which is currently providing the e-voting platform.

OWNERSHIP AND GOVERNANCE NORMS FOR MARKET INFRASTRUCTURE INSTITUTIONS

After much deliberation over the controversial Bimal Jalan draft committee report on Ownership and Governance norms for Market Infrastructure Institutions, SEBI on 2nd Apr ’12 notified new norms which would pave the way for the setting up of new bourses and also permit exchanges to get listed on other bourses.

As per the new norms, every recognised stock exchange shall have a minimum networth of `100 crore at all times and at least 51% of the stake has to be held by the public. Clearing corporations are needed to have a networth of `300 crore. Besides, no Indian entity, either individually or together, would be

allowed to acquire or hold more than 5% stake directly or indirectly in a stock exchange. However, stock exchanges, depositories, banks, insurance companies and public financial institutions from India can acquire or hold up to 15% stake.

The Jalan committe had advocated against listing of Market Infrastructure Institutions (MIIs) as it felt they are public entities and, hence, profit maximization cannot be their only goal.

In a U-turn to the report, now, listing of MIIs is permitted by SEBI. However, SEBI will create a conflict resolution committee to deal with the issues of conflicts of interest in such public entities.

The individual shareholding would be capped at 5% for all non-Indian entities and their collective holding cannot exceed 49% (FDI-26% and FII-23%). No FIIs would be allowed to acquire shares of a recognised stock exchange other than through the secondary market.

SEBI has also mandated that there be no trading or clearing member on the board of directors of exchanges or clearing corporations.

REGULATION OF ALTERNATIVE INVESTMENT FUNDS

In May this year, SEBI came out with a final set of regulations for Alternative Investment Funds (AIFs). AIFs are investment vehicles such as private equity funds, real estate funds, infrastructure funds, debt funds and hedge funds, among others which pool money together to invest.

The new sets of regulations for AIFs are completely different from those advised by the draft paper in August last year. And after the new guidelines

in May this year, SEBI has allowed seven AIFs to set shop in the country under the newly formulated route.

Under the new regime, the regulation seeks to cover all types of funds broadly under three categories - I, II and III.

Category-I is a pool, which invests in socially beneficial companies like SMEs, Infra-funds, welfare companies, venture capital companies etc, for which certain incentives or concessions like tax benefits might be considered by SEBI or the government or other regulators. Category-II comprises of those funds which can invest anywhere in any combination but are prohibited from raising debt except to meet their day-to-day operational requirements. Category-III is those that trade with a view to make short-term returns and include hedge funds, among others. OTHER SALIENT FEATURES

- The AIF shall have a minimum corpus of `20 crore and `1 crore shall be the ticket size for an individual investor.

- The fund or any scheme which is a part of the fund shall not have more than 1,000 investors

- To ensure their skin in the game, fund managers are expected to shell out 2.5% of the size of the pool or `5 crore, whichever is lower.

- Category I and II AIFs shall be close-ended and shall have a minimum tenure of three years. However, Category III AIFs may either be close-ended or open-ended.

- Category I and II AIFs shall not be permitted to invest more than 25% of the investible funds in one investee company. Category III AIFs shall invest not more than 10% of the


corpus in one investee company.

OFFER FOR SALE (OFS) AND INSTITUTIONAL PLACEMENT PROGRAMME (IPP) (announced in January, later tweaked in June)

All listed companies are required to have at least 25% public holdings by June ’13 while in case of state-owned company the limit is 10%, which has to be met by August ’13.

To help companies meet these norms, SEBI came out with two new ways of divestment for companies early this year - Offer For Sale (OFS) and Institutional Placement Programme (IPP). Later in June, SEBI tweaked the norms to smoothen the process. The new routes signify faster, cheaper and safer methods of raising money for promoters.

OFS: The offer for sale of shares through stock exchanges — is akin to selling shares on the bourses through auction. The stock exchanges will offer a separate window for such share sales that would be open during normal trading hours.

Under this method, the issuer company has to offer at least 1% of its paid-up capital or equity worth a minimum of `25 crore. Only the

promoters will be allowed to offer shares for sale. The bidders will be required to pay 100% margin in cash upfront against every buy order.

IPP: Through the IPP route, listed firms can increase their public shareholding by up to 10% till they comply with the minimum public shareholding requirement of 25%.

IPPs can be used for both fresh issuance of capital and dilution of stakes by the promoters. This route can be used to offer shares only to qualified institutional buyers (QIBs) and at least 25% has to be reserved for mutual funds and insurance firms.

The issuer company will have to announce an indicative floor price or price band at least a day prior to the opening of an IPP. There have to be at least 10 allottees in every IPP issuance and no single investor can be given more than 25% of the total shares on offer.

Allotments can be made on price-priority basis (higher price, higher priority), proportionate basis or according to pre-specified criteria, to be disclosed in advance in the draft red herring prospectus. This will provide state-owned firms with an additional avenue through which they

can potentially meet the divestment target for the fiscal year.In June, the regulator decided to relax the mandatory 12-week time gap requirement between two consecutive OFS or IPP to two week. This will help companies to offload shares in more than one tranche depending on the market conditions.

TAKEOVER CODE

In sweeping changes to the old takeover code, SEBI came out with a revamped version of the code in July last year. SEBI proposed a new takeover regulation based on a committee which gave its reading in August ’10.

Takeover norms cater to entities holding shares in other company. The new code came into effect from October ’11.

The norms are as under: a) Initial trigger threshold increased to 25% from the existing 15%.b) There shall be no separate provision for non-compete fees to promoters and all shareholders shall be given exit at the same price.c) The minimum offer size shall be increased from the existing 20% of the total issued capital to 26% of the total issued capitaL.

Micro analysis. Mega gains.Trading at Nirmal Bang is based on extensive research and in-depth analysis, where we focus on the smallest of details and turn them into an advantage for you.

Over the years, the analytical approach coupled with decades of experience has helped us maximize returns for our investors and thereby inspire con�dence in them.

EQUITIES* | DERIVATIVES* | COMMODITIES | CURRENCY* | MUTUAL FUNDS^ | IPOs^ | INSURANCE^ | DP* www.nirmalbang.com

REGD. OFFICE: Sonawala Building, 25 Bank Street, Fort, Mumbai - 400 001. Tel: 022 - 39267500 / 7501; Fax: 022 - 39267510 CORPORATE OFFICE: B-2, 301/302, Marathon Innova, O� Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400 013. Tel: 022 - 39268000 / 8001; Fax: 022 - 39268010BSE SEBI REGN No. INB011072759, INF011072759 & INE011072759, NSE SEBI REGN No. INB230939139, INF230939139 & INE230939139 DP SEBI REGN. No NSDL: IN-DP-NSDL-136-2000, CDS(I)l: IN-DP-CDSL-37-99, AMFI REGN. No. arn-49454 NCDEX REGN. NO. 00362, FMC Code-0075, MCX REGN. No. 16590, FMC Code-MCX/TCM/CORP/0490, MCX SX-INE260939139, PMS-INP000002981

Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risk. Please read the scheme related document carefully before investing. Please read the Do’s and Don’ts prescribed by Commodity Exchange before trading. The PMS Service is not o�ering for commodity segment. *Through Nirmal Bang Securities Pvt. Ltd. ^Distributors #Prepared by Research Analyst of Nirmal Bang Commodities Pvt. Ltd.

SMS ‘BANG’ to 54646 | Contact at: 022-3926 9404 | e-mail: [email protected]

a sluggish deposit growth on the other. The RBI too has made it amply clear that it cannot ease rates drastically as of now to increase liquidity in the system till the government takes some concrete steps to ease supply side pressures.

SLUGGISH DEPOSIT GROWTH - THE ROOT CAUSE

As if things were not bad enough, the apex bank further expressed dissatisfaction with the banks over the fact that credit growth continues to outpace deposits. It is believed that the slowing pace of deposit growth was the main point of contention that

DESPERATEMEASURES

Indian banks are adopting novel methods like

reviving old deposit schemes to pump their deposit base

ith the economy showing veritable signs of a slowdown and the Reserve

Bank of India (RBI) doing little to ease liquidity, Indian banks have begun reviving old deposit schemes in a new avatar to give a shot in the arm to their deposit base. Special deposit schemes that were withdrawn five to six years back are now being revived and re-introduced by a clutch of banks that are desperate to shore up their deposit base.

It is an established fact by now that the economic slowdown has begun telling sordid tales and one of the first

W

industries to reflect the strain is the Indian banking industry. Most lenders are in a spot now as they are grappling with rising NPAs on the one hand and



maximum amount that can be put as term deposit. In some cases, the limit has been moved up from `1 lakh to `10 lakh and in others, it has been moved up from `1 crore to `5 crore. While this practice seems to be gaining steam as of now, it is to be recalled that the RBI frowns upon such methods of “lazy banking”.

HISTORY REPEATS ITSELF

In fact in October ’07, the RBI had stepped in to put a check on this very same trend. The central bank had asked banks to withdraw schemes that were offering rates of interest that were not in sync with the interest rates being offered on normal deposits with regular tenures. The RBI had put its foot down and asked banks to put an end to such “discriminatory” practices between two deposits accepted on the same date and of the same maturity period.

Though the RBI diktat worked back then, banks now seem to have devised a way to work around this norm by offering special deposit schemes that are separated from the kitty of normal deposits. For instance, while a regular term deposit of 999 days receives an interest rate of 9%, the special deposit schemes offer a higher rate of interest on a scheme of 1,000 days.

While this seems to have become quite the order of the day in small-sized banks from both public and private sector, industry watchers believe that this trend might not last very long. This is because banks will soon begin taking a hit on their margins if there is no corresponding rise in advances.

Some banking sector analysts say that the banks that have resorted to such measures are the ones that are facing issues of asset and liability mismatch for certain tenors and have thus resorted to such desperate measures.

LIGHT AT THE END OF THE TUNNEL?

Even though short-term measures of shoring up deposit base is being looked down upon by banking authorities, it is time to find out why banks seem to be losing their foothold over savings through deposits.

At a time when a slowdown seems imminent, people are being driven to either hold on to their savings in cash or invest in gold. The demand for gold has been rising when prices are crashing. Gold is considered a safe haven in times of trouble.

But a part of the blame must be shouldered by the RBI too. The open market operation (OMO) that is the standard practice to improve liquidity in the banking system, has done little to help lenders as a bulk of the money released through OMOs left the system after the RBI intervened in the currency market to make the journey of the rupee a little less hard.

As a result of this no fresh liquidity was released and banks continued to finance loans with short-term money. This is the real reason why the credit deposit ratio has widened and there seems to be little chance of this gap being bridged at least in recent times. The regulator may find it a hassle to see that the deposit growth is not keeping pace with credit expansion, but it too has to play its role in increasing both the size and the frequency of OMOs to lend a helping hand to banks.

But this is easier said than done, as the RBI is walking the tightrope now. Any measure it adopts to ease liquidity is likely to stoke up inflation. Till the government steps in with regulatory measures on the policy side to ease out pressures, it seems like it will be a long, dark and meandering road aheaD.

was put forth by central banking authorities in their customary meeting with bankers before the announcement of the monetary policy review at the fag end of July.

According to the latest data available with the RBI, while credit growth stood at 17.2% till the end of July, deposit growth was lagging behind at 13.8% for the same time period. This is much lesser than RBI’s expectations of a 16% deposit growth. In other words, RBI is unhappy about the fact that a smaller number of people have put their money in bank fixed deposits.

In a situation like this, Indian commercial banks have little choice but to come up with innovative measures to help themselves. In one such move banks have refocused their attention on special deposit schemes. In these schemes which are offered for a specific period, depositors can benefit from a higher rate of interest as compared to other fixed deposits being offered by banks.

TACTICS TO SHORE UP DEPOSITS

In one such development, recently Bank of Baroda announced a special term deposit with tenure of 1,111 days with an interest rate of 9.15%. This is higher than the interest rate of 9%, which is usually offered on deposits with a tenure of three to ten years.

Other banks like UCO Bank and Central Bank of India have revised interest rates of such term deposits by 15-25 basis points in order to attract customers. A handful of other public sector banks and smaller private ones are expected to follow suit to shore up their deposit base.

Along with the card rate that has been re-aligned, some of the banks have also increased the cap for the

Ray Dalio’s philosophy

of tracking economic

trends and financial

events and their

impact on different

asset classes has

enabled him to be a

famous businessman

The BigPicture



relentless pursuit of truth and hunger for personal evolution are the other important aspects of his philosophy and success. Dalio tells his employees, “You learn so much more from the bad experiences in your life than the good ones.”

THE DIFFERENTIATOR

When the financial crisis hit the global markets in the year 2008 and 2009, many hedge funds were closing their shops and some of them in fact committed suicides. Ray Dalio’s firm and its clients, mostly pension funds, were enjoying the fruits of Ray Dalio’s wisdom and strategy.

What separates him (in terms of philosophy and strategy) and his firm from the crowd of several hedge funds and the hedge fund managers is his ‘big picture thinking’.

Unlike most money managers who keep their eyes on computer screens looking at price fluctuations and focusing on short-term issues, Ray Dalio keeps his eyes on the big picture in terms of how certain economic trends and financial events are going to shape up and what implications they could have on different asset classes. This is also the reason why he has been able to identify some of the major trends in advance and avoid the mistakes that others made. In the years 2008 and 2009 when investment managers were buying expensive stocks, he bought shares in few of the world’s cheapest markets like Japan and Malaysia. When everybody was piling their exposure to equities at the peak of the markets in the year 2008, he ventured into precious metals. He bought US currency and US treasury in the year 2011 when there was extreme pessimism about them and they were trading lower.

But all this would not have been possible without his talented team. He does not compromise on talent and employs the best people in his organization. His research team and economic analysis team is far bigger than most organizations and produces data and information that are far relevant and informative.

At his organization the working environment is completely different from others. It is quite transparent, promotes objective thinking, allows debating and producing new ideas. Moreover, there are no hierarchical barriers. His organization offers the very encouraging environment for its employees who produce some of the original ideas and think differently.

In fact everyone is given a 123 pages book of Ray Dalio’s principles, which is available on his website, before joining Bridgewater. The book is famous for its content about work ethics, business and other aspects of life not only among the employees but also those keen on learning and understanding his philosophy.

LETTER TO THE READERS

Ray Dalio is not often seen on TV channels or on any other media. He prefers to remain focused and away from making any news or appearing at public places. However, those keen on knowing what is going on in his mind and what he has to share with his investors, readers and his followers can access his quarterly letters on the Internet.

In the latest quarterly letter, Dalio talks about certain interesting aspects about the world economy and shares his views on the goings on in the western world.

Among many topics, Ray Dalio raised the issue of high debt and deleveraging in many economies. He

uch like Warren Buffett, the quarterly letters written by Ray Dalio, the founder of

the world’s largest hedge fund, which manages about $120 billion in assets at Bridgewater Associates, is equally famous and read the most in the financial community as they are considered quite valuable by them.

It is not an easy task to manage and attract such a huge sum of money especially when the clients are pension funds, global central banks and several large investors and those that manage the money are the best in the class.

Ray Dalio, known as alpha master for his ability to generate surplus returns over and above the normal or relative returns, has earned all the credibility and name owing to his philosophy and investing style, which in some sense is quite different from others.

In a world where the best money managers are striving hard to earn decent returns and continuously making efforts to beat the benchmark indices, Ray Dalio has generated far greater returns and that too consistently over a fairly long period of time.

According to a study, $1,000 invested in Ray Dalio’s Alpha fund in December ’91 would have become $15,000 by the end of December ’11, which is almost 15 times returns in a time span of 20 years.

The performance figures speak for themselves. However, before we get into the details of his recently published letter to the public about his view on different issues here is what differentiates him and how he beats the indices: Dalio has been practicing transcendental meditation for more than 40 years and calls it the single biggest influence on his life. His

M


said that the developed world remains mired in the deleveraging phase of long-term debt cycle.

European deleveraging has been badly managed and is escalating, bringing Europe closer to either debt implosion or monetization of the currency collapse. The impact of deleveraging has spread to the emerging world, impacting the capital flow, which has weakened their growth rates and undermined their asset prices.

In the US he says deleveraging is happening in a more orderly fashion. However, that too continues to weigh on its economy’s ability to grow without the monetary support of the US Federal Reserve.

Referring to Europe, he says that at this point it is in the most critical stage of the deleveraging process without a credible plan that will allow transition from an ugly deleveraging where incomes fall faster than debts decline, to a beautiful one, where incomes grow faster than debts. Dalio is of the opinion that the transition from ugly to beautiful requires an acceptable mix of default and redistribution monetization.

Though steps have been taken in this direction, these steps remain well short of what is necessary. The range of potential outcomes for Europe and the impact on the global financial systems are wide. So, navigating this environment will require flexibility and an understanding of how new policy decisions will mainly affect the path of deleveraging.

He also said that there are good reasons to doubt that European banks and sovereign deleveraging will be prevented from progressing to the next stage in an orderly way without a plan B in place. This he calls a “fat-tail” event and considers it to be a

significant possibility.

As per estimates, in the past few months, globally growth has slowed down from about 3.3% to 1.9% and that 80% of the world’s economies have slowed, including all of the largest. The breadth of this slowdown creates a dangerous dynamic because given the interconnection of the world economies and capital flows, one country’s decline tends to reinforce another’s, making a self-enforcing global decline more likely and a reversal more difficult to produce.

And at this point, while actions have been taken, none of the world’s largest economies are stimulating aggressively through either monetary or fiscal policy, further reducing the odds of a reversal.

CHINESE IMPACT

Half of the global slowdown has been due to the slower growth in China. In recent years, China has been the locomotive of global growth and

accounts for almost 12% of the world GDP. China has hurt countries which have been exporting to it. It also has an adverse impact on commodity producers due to lower consumption. Although China has taken steps like monetary easing and stimulation, they have not produced any notable economic response. GLOBAL EQUITIES

Talking about the global equity markets, Dalio says that the sell-off in the second quarter was largely the result of intensifying deleveraging forces and fading stimulus and increasing risk aversion among investors. He says deleveraging in the developed world remains to be a significant headwind. Global equity markets continue to price in fairly pessimistic long-term earnings growth. He believes that though there are reasons for this due to global financial conditions leading to impact on the revenue growth of companies, the companies still retain

THE MAKING OF A LEGEND

The big thinker and alpha master Ray Dalio is no ordinary man. Born in 1949 in New York, Dalio developed an early interest in the stock markets. He was only 12 when he first started investing in the markets.

He bought his first share of Northeast Airlines at $300 and sold them at thrice the price after Northeast airlines merged with another company. He completed his BA and later did his MBA from one of the world’s prestigious B-Schools - Harvard Business School.

During his studies, he developed a special interest in stocks and traded in them. After completing his education, Dalio worked on the floor of the New York Stock Exchange and later learned to invest in commodities.

He also worked at Dominick & Dominick as the director of commodities. In 1974 he also worked at Shearson Hayden trader as a futures trader and broker. Finally, in the year 1975 Dalio founded his own company Bridgewater Associates.


the ability to protect the margins and profitability. Yet, the markets are currently pricing in the worst real earnings growth rate in 100 years. For instance, he says that the current dividend yield of the US non-financial corporations is higher than the yield on the US government notes, which is something that has only happened once in the last 50 years.

COMMODITIES

The weakening global growth and growth prospects also had their bearing on global commodities as most of them declined in prices in the second quarter of the current year. The decline in crude oil prices was particularly sharp.

Regarding crude oil Dalio said that Organization of the Petroleum Exporting Countries (OPEC) aggressively ramped up production in recent months and the Libyan production recovered to the pre-war level, coupled with Saudi output

rising sharply to an all-time high.

Though this has left the markets looking oversupplied in the short term, at current price the demand is still expected to be strong, leading to gradual tightening of supply. And if OPEC follows its typical pattern of leaning against the recent price changes, it will reverse some of its recent supply increases.

IN FAVOUR OF GOLD

Gold, he said, is primarily an alternative to the fiat (paper) currency and a store hold of wealth. He believes that the main advantage that precious metals have over currencies is that they cannot be printed. He believes since developed economies will remain highly reliant on the stimulation for years, it is a positive for gold.

Additionally, he made an interesting point. Dalio says that due to low interest rate environment in the developed world the fact that gold does not pay any interest, has been

mitigated. Importantly, real interest rates are likely to remain low and below real growth rates, which is essential for deleveraging and improving debt sustainability.

Such a scenario will favour shift from financial assets to gold and other tangible assets. Besides, he says that gold is also being supported by secularly increasing demand. Despite the fact that gold is under-owned by central banks and sovereign funds, it is still in its early stage.

Besides, he says that the ongoing debt crisis in Euroland has raised questions about the long-term sustainability of the Euro. However on the flipside, the long rally in gold prices in recent years has attracted lot of short-term hot money speculative flows and these players have also been sellers in times of financial strains.

However, thanks to their selling, he says that speculative gold positions had been significantly reduced and as a result it is less likely to be a bearish short-term driver, going forwarD.

w w w.nirmalbang.com

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CORPORATE OFFICE: B-2, 301/302, Marathon Innova, O� Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400 013. Tel: 022 - 39268000 / 8001; Fax: 022 - 39268010R E G D. O F F I C E : S onawala Bui ld ing, 25 Bank Street , For t , Mumbai - 400 001. Tel : 022 - 39267500 / 7501; Fax : 022 - 39267510


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lacks the necessary skills to trade successfully. At Nirmal Bang, our team of

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suit your commodity trading requirements.


With a wide range of products on o�er,

Supreme Industries enjoys a dominant

position in the industr y and is l ikely to

bene�t from the expected increase in

consumption of plastics in India

ncorporated in 1942 and promoted by Kantilal Mody, Supreme Industries Limited (SIL) today is India’s largest plastic products company. It handles more than 2,00,000 tonnes of polymers annually. Its

product profile has evolved since inception as per market needs and consists of pipes and fittings, consumer products, packaging products and industrial products.

The company operates in a highly fragmented market with intense competition from unorganized and small players who constitute almost 70% of the market. However, due to its superior quality, range and service, SIL’s products are widely accepted in industries it operates in. SIL offers a wide and comprehensive range of products across the Indian market through its well networked distributors and 19 manufacturing plants.

Apart from plastics, the company also has interests in the construction business. Its maiden commercial project ‘Supreme Chambers’ - a 10-storeyed building with saleable area of 2,75,000 sq ft at Andheri (West), Mumbai - is ready for occupation. The company has sold around 40,000 sq ft and expects to sell the remaining portion by the end of calendar year 2012.

I

Optimism


INVESTMENT RATIONALE

Ultimate Leader in the Plastic Industry With Well-evolved Product Portfolio

SIL is a dominant player in the Indian plastics industry, with more than 7,000 industrial as well as consumer

Product/Service Offering PVC, CPVC,PPRC and HDPE pipes, injection moulded and handmade fittings

Performance films, protective packaging films, cross laminated films

Dashboards, plastic body for consumer durable industry, pallets, crates, bins

Moulded furnitureand mats

Market Position Second largest player with 18% share of the organized market

40% market share across various products

18% market share15% market share and holds second position

Competitors Finolex Industries Ltd, Kirti Industries Ltd, Tulsi Extrusions Ltd, Jain Irrigation Systems Ltd, Astral Poly Technik Ltd

NA Motherson Sumi Systems, Sintex Industries Ltd, Mutual Industries Ltd.

Nilkamal (30% market share)

Source: Company Data, Nirmal Bang Research



Plastic Pipes And Fittings Packaging Products Consumer Products Industrial Products

products. The company offers a wide range of plastic products with a variety of applications in moulded furniture, storage and material handling products, XF films and products, performance films, industrial moulded products, protective packaging products, plastic piping system as well as petrochemicals.

Supreme Industries has various systems to cater to the requirements of agriculture and also to offer superior products compared to products made from conventional materials for infrastructure improvement.

The company has forayed into different types of plastic processing like injection moulding, rotational moulding (ROTO), extrusion, compression moulding, blow moulding, etc.

SIL largely has domestic focus, with exports constituting a small portion of its business. It has the largest polymer processing capacity in India at 3,28,650 tonnes. The plastic products industry in India is highly fragmented, with the unorganized segment constituting 70% of the market.

Tata Global Acquisition History:

91913 100053 95439118115 130547 139239

172746191704

224673245700

0

50000

100000

150000

200000

250000

300000

FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12

Polymers Processed (MT)

46%

10%

25%

19%

Product Share In Revenues

Plas cs Pipping Systems

Consumer Durables

Packaging Products

Industrial Products


Source: Company

Plastic Piping Packaging Products Industrial Products Composite Cylinders Consumer Products Others

6296215453

Break-Up Of Capex For FY12 `crore

Consistent Financial Performance

SIL’s revenues have consistently grown at a CAGR of 22% during 2008-2012. Profits in the same period have grown at a CAGR of 47%. The company’s ROE has also been consistently above 30% for the past several years.

SIL has been successful in capturing the market share from the unorganized sector in plastic products and has also introduced newer products to add value to its clients. In addition, a gradual shift in demand from the galvanized products to PVC has worked in favour of SIL which in turn has taken advantage of the situation by adding up capacities to the existing ones.

Moreover, the company has generously distributed a part of its profits to investors by maintaining a payout ratio above 30% in the past several years. For FY12, the dividend yield stood at 2.7%.

Expansion To Aid Growth

While the demand for plastic products is expected to revive in 2012, SIL is augmenting its current capacities and is on an expansion spree. SIL incurred a capacity expansion of almost `250 crore in FY12.

Industry Growing At A Consistent Rate

India’s plastic consumption has grown at a CAGR of 10% over the past 10 years, largely due to growth in end-user segments such as industry, automobiles, consumer durables, agriculture, infrastructure, housing, etc.

Given the low penetration of plastics in India as compared to other countries, the demand for plastic in India is all set to grow.

Plastics have been rapidly replacing conventional materials such as steel, glass, paper, iron, aluminum and leather mainly due to its cost effectiveness and durability. For instance, plastic pipes have replaced almost 80% of galvanized iron (GI) pipes in plumbing since GI has zinc-oxide and corrodes over time.

Similarly, plastic tarpaulins are fast replacing conventional cotton tarpaulins since there is a marked cost differential and the frequency of replacement is also low.

Going forward, as newer applications of plastics find wider acceptance among end users, the total consumption of plastics in India is expected to double from the present 8 million tonnes to 16 million tonnes by 2018 and 20 million tonnes by 2020.

With a prominent presence in plastic products, Supreme Industries is well poised to benefit from this growth in consumption of plastics.

RISKS

Increasing Raw Material Costs

The key raw material used by SIL - PVC resin - constitutes around 45% of raw material costs. Any major fluctuations in crude prices will have an adverse impact on prices of PVC as well as other raw materials, namely polyethylene and polypropylene.

Delay In Capacity Expansion

SIL has outlined approximately `200 crore for expansion every year. Any delay in this expansion can impact the growth of the company.

Currency Fluctuations

The company imports almost 50% of its raw materials, which is subject to currency fluctuations despite the company having adequate hedging policies.

The company is expected to incur an incremental capex of `200 crore in FY13, as well. This would result in four new Greenfield facilities, which are likely to come on stream by FY13 as under:

Protective packaging unit (for EPE foam) at Hosur – operational in Q1FY13. Silpaulin unit at Halol (Gujarat) with an initial capacity of

6,000 MTPA – operational by Q1FY13. Composite cylinder unit at Halol with an initial capacity

of 4,00,000 MTPA – operational by Q2FY13. Plastic piping unit at Malanpur to cater to growing

markets in Chhattisgarh and MP - operational by Q1FY13.The mat division (part of its consumer products segment) was closed in November ’11. Most equipment have been sold. Only machines which were to be scrapped are left out and the same is likely to be sold in Q2FY13.


Net Sales%Change - Plastic - ConstructionEBIDTAMargin %InterestDepreciationOther IncomeEBTTaxProfit After TaxExtra-ordinary ItemsAdj PATEPS (Unit Curr.)Book Value (`)Debt/EquityROE (%)Dividend (%)

FinancialsP&L Account

1651.926.10%1651.9

0242

14.60%54.652.511.2

146.148.797.44.2

93.27.3

288.11

33.2120

2005.721.40%1985.3

20.4298.5

14.90%33

52.97.1

219.674.8

144.80

144.811.4

378.20.9

39.8180

2435.721.40%2396.5

39.8357.4

14.70%42.561.99.7

262.787.7175

017513.8

489.60.6

35.4215

2927.120.20%2858.2

69.2471.9

16.10%54.872.510.9

355.6115

240.50

240.518.9

641.50.3

37.4300

FY09 FY10 FY11 FY12

Source: Company Data, Nirmal Bang Research * Year ending is June

PERFORMANCE FOR THE YEAR ENDED JUNE ’12

The company has processed 2.46 lakh MT of polymers, a growth of 10% and recorded sales of `2,769.85 crore, a growth of 19%.

For FY12, while the industrial segment’s revenues stood at `560 crore, a growth of 14%, consumer segment’s revenues were `268 crore, a growth of 2%. Similarly packaging segment’s revenues were `687 crore, a growth of 18% and piping segment’s revenues were `1,320 crore, a growth of 29%.

For FY12, the company’s volume in industrial products stood at 38,325 tonnes, a growth of 8%; consumer segment at 18,734 tonnes, de-growth of 14%; Plastic pipes at 1,54,000 tonnes, a growth of 16% and packaging at 37,371 tonnes, a growth of 9%.

The margin of industrial products stood at 13%, consumer segment at 14%, plastic pipes at 13% and packaging at 20% on a y-o-y basis for FY12.

OPM has increased by 102 basis points to 14.7%. The operating profit was up by 28% to `425.66 crore.

The company’s profit from construction business is `46.24 crore. Since the commercial property market in

Mumbai is slack at the moment, there has been no sale of premises in the last few months. The other income has decreased by 37% to `2.81 crore.

The interest cost has increased by 29% to `54.81 crore, whereas depreciation increased by 17% to `72.49 crore. The profit before tax stood at `347.41 crore, a rise of 35%.

The total tax outgo stood at `115.04 crore, a rise of 31%. The net profit after considering the share of profit from associates has increased by 23% to `241.68 crore.

CONCLUSION

With the average per capita consumption at 10% of the global average, India represents a significant growth opportunity with the automotive, electronics, textile, construction and packaging segments representing key growth drivers.

The management of SIL feels that the consumption of plastics in the country is expected to grow at around 12% per year in this decade.

SIL continues to enjoy leadership in the plastic products market and plans to expand capacity. It is adding many new products to achieve the same in the coming years. All this should augur well for SIL, going forward and we continue to remain positive about the prospects of the companY.


100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

100 100 100 100 100 100 100 100 100 remier Instruments & Controls (PRICOL) Ltd is engaged in the business of manufacturing

Dashboard Instruments & Accesso-ries, Oil Pumps and Idle Speed Control Valve Assembly. The company promoted by late N Damodaran and LG Varadarajulu in 1972 commenced commercial production in 1975.

Primarily an automobile ancillary unit, the company diversified into electronic control instruments, precision machine tools, panel and sensor instruments for defence and industrial gauges. The name of the company has been changed from Premier Instruments & Controls Ltd to PRICOL Ltd.

REGAINING MARKET SHARE

Pricol Ltd, the industry leader, had lost a significant portion of its market share due to labour problems in the year 2009. The company has resolved all these issues and is all geared up to regain the lost market share.

A NUMBER OF INITIATIVES TAKEN BY THE COMPANY

Pricol has taken a number of initiatives, including entering into a JV with Johnson Control Boards (JCB) and allotment of warrants to PHI Holdings, among others. These initiatives are expected to help the company excel, going forward considering the fact that Indian auto-ancillary players associated with global names would be at an advanta-geous position. Denso Corporation, Japan has a 12% stake in the company (promoter holding: 35%).

With these initiatives, the company

P should not only be able to procure electronic components at a lower cost, thereby improving operating margins, but also be able to tap new clients leading to higher revenues.

COST-CONTROL MEASURES

Pricol has taken a number of initiatives to control costs. The benefits of these measures should be reflected over the next few quarters. These initiatives not only include value-engineering exercise leading to reduction in raw material expenses, but also effectively managing labour and other administrative expenses. The company has made efforts to reduce material cost by 500 bps over the next one year from the present 67% of the net sales figure.

CLEAN BALANCE SHEET

The company has a clean balance sheet. Pricol hived off a portion of its operations at Pune in favour of the joint venture with Johnson Control Board last year. This led to a one-time gain of more than `40 crore.

I N V E S T O R - F R I E N D L Y APPROACH

Pricol had distributed a dividend of

`0.60 (60%) for FY11. The company paid a dividend of `0.80 during FY12 of which 0.40 was a one-time special dividend on account of capital gains booked from the slump sale.

PROFESSIONAL APPROACH

Since the promoters are engaged in a number of other businesses in addition to Pricol, the company has roped in KU Subbaiah, ex-CEO, Tyco Electronics to spearhead the opera-tions of the company.

FINANCIALS

Pricol clocked net sales of `1,050.2 crore in FY12, registering an increase of 21.7% y-o-y. PAT stood at `62.9 crore compared to `17.04 crore during the same period last year. The profits for FY12 included capital gains of `41.6 crore.

During Q1FY13, the company clocked net sales of `218.9 crore compared to `213.8 crore during FY11. On a like-to-like basis, net sales grew by 18% y-o-y considering the fact that figures for last year included net sales of operations sold off to the JV with Johnson Controls. The PAT for the quarter stood at `3.36 crore compared to `4.23 crorE.

PRICOL LTDPRICOL LTD

Financials

Net Sales% GrowthEBITDAAdj PAT

757.3019.6098.2723.41

862.6413.9085.2417.04

Particulars (` in Cr) FY10 FY11

1050.1721.70

140.3721.38

FY12

Source: Capitaline

Note: The market price of Pricol Ltd as on 27th Aug ’12 is `15.85.


he Nifty rallied more than 5.5% (as on 28th August) in the August expiry on the back of continuous buying

by Foreign Institutional Investors (FIIs). The FIIs bought more than `10,000 crore in index futures during the August Expiry (since 27th July). Improved global cues with increased optimism of quantitative easing (QE3) also helped markets to sustain the gains. The Indian market touched its five-month high on 21st August in the August expiry.

India’s wholesale price index (WPI) increased by 6.87% on a year-on-year (y-o-y) basis in July as compared to the expected figure of 7.37%. Consumer price inflation too eased slightly in July to 9.86%.

But India’s industrial production contracted 1.8% in June, mainly due to the slump in manufacturing. Weak IIP numbers, absence of policy initiatives by the government and the coal scam revealed by the CAG (which is estimated to cost around `1,86,000 crore) restricted the upward movement of the markets.

The Put Call Ratio-Open Interest (PCR OI) for Nifty Options is trading between a broader range of 1.1-1.35 since the past fortnight. The current PCR OI stands at 1.28 (as on 27th August). Going forward, we see PCR moving down again near the level of 1.2-1.1 till the end of the September expiry, maintaining a neutral to negative bias for the market.

On the Nifty Options side for the August series, highest build up was witnessed near 5000PE and 5500CE, which got shifted to 5300PE a couple of weeks prior to the August expiry. We believe the markets will continue

T to hold its strong support at the 5,300 and 5,200 levels on the lower side in the September expiry, wherein the 5,500 level will act as a major resistance to it.

The key point in Options these days is the Volatility Index (VIX), which is hovering near its historical lows of 15-16. Looking at the uncertainty in the global as well as domestic markets (concerns over scarcity of rainfall and lack of political action), we feel that the Indian equity Options are at considerably cheaper rates, and would recommend traders to go long on volatility from these levels for a short-term target of 20-22.

It appears that some seller was present around the 5,450 level and his supply kept the lid on the rise recently. Unless this is overcome in the coming weeks, moving higher will prove difficult.

As the market struggles with the trend and seems undecided about moving up or down, we find that the evidence for some continuation of the ranging action has built up yet again.

There is an immediate support at the 5,350 level on the downside. If it breaks below this level, one can expect it to decline to 5,300, 5,280 and 5,250 levels. The Nifty has a strong support at the 5,250-5,300 levels on the downside where selective buying is likely to emerge.

The Bank Nifty faces strong resistance around the 10,450-10,620 levels on the upside, which is unlikely to be crossed immediately. It has an important support at the 10,200 level on the downside and on break below you can expect it to decline to the 10,500 and 9,900 levels. There is a

TECHNICAL OUTLOOK FOR THE FORTNIGHT

strong immediate resistance at the 10,300 level on the upside where selling pressure is expected.

We expect a decline of 5-8% in ICICI Bank from the current level. The price has managed to give a breakdown from the rising wedge pattern and is currently trading below it. The overall parameters indicate limited upside from current levels and suggest a potential short-term top in place.

The stock is likely to test its lows of July ’12, which also coincides with the 38.2% retracement of the recent rally, which is around the 895 level.

Sectorally speaking, the BSE IT Index has reversed its trend in the upward direction whereas Bank Nifty is showing selling pressure due to selling in frontline PSU stocks. There is also emergence of negative divergence between Nifty and Bank Index, which is a bearish signal. BSE FMCG and BSE Healthcare indices are continuing their upward trend, forming new highs. This sector may continue outperforming as we maintain a positive bias in HUL and Cipla for an upside of 8% and 10% from current levels.

STRATEGY FOR THE SEPTEMBER EXPIRY

Long Straddle On Nifty: It can be initiated by buying 5400CE and 5400PE of the September series. The net combined premium outflow is around `190-195, which is also the maximum loss (i.e. if the Nifty Sept series expires at 5,400). The break-even stands at the 5,590-5,310 levels. There is unlimited profit beyond the break-even range. Traders can square off their strategy when the 5,400 straddle rate crosses 280.

When a mutual fund scheme fails to deliver consistently, it is time to switch to be�er performing ones instead of brooding over the past

he main aim of fund managers is to generate extra returns against benchmark indices or

broader markets, without taking undue risk in the complex markets. However, there are several schemes which continue to underperform not only for short term, but also for a longer duration.

Recently at a mutual fund summit, Securities and Exchange Board of India (SEBI) Chairman UK Sinha had raised concerns about the underperformance of equity schemes. He had said, “There are nine fund houses where more than 50% of the schemes have underperformed their scheme benchmarks and there are nine others where up to 50% of the schemes have underperformed.”

He had also indicated that if such

T schemes continue to underperform for long, then it would not only affect investors, but also the regulator. “This should be a cause of concern for those asset management companies (AMCs) and I do hope that their trustees are taking note of it. I would say that for the credibility of the industry as also individual fund house, their trustees, shareholders and directors, it is important that these matters are discussed and remedial measures taken.”

This article attempts to inform investors about ways to deal with underperforming schemes, precautions investors should take and steps to build a winning portfolio.

IS YOUR FUND UNDER -PERFORMING?

There has been intense debate about

Get

Better, Not BitterGet

Better, Not Bitter

the underperformance of several mutual fund schemes in the country. Poor performance of equity schemes in India can be directly linked to weak equity markets since the past few years. As of now, several dozen schemes are underperforming either against their benchmark or the main index (Sensex or Nifty).

It is often said that one should always have a long-term time frame before investing in mutual funds. Long-term investing can be anywhere between five years and more.

However, many investors choose to exit when the net asset value (NAV) of schemes are low as was witnessed in the recent past.

Given the current market situation, only a few schemes are able to give positive returns. Rest of the funds are



Investors should always keep a few things in mind before investing in mutual funds. First, they should have a time frame and purpose of investing. Second, they should always diversify across categories (equity, debt, gold and real estate). And lastly, they should be disciplined while managing their investments.

They should also change their investment style depending upon the market condition. In the present market conditions, it would make more sense to put fresh money into debt products instead of equity products. Hence, an investor should make the necessary changes.

The other important point that investors should note is that before investing they should check if the fund has been rated by any rating agency. They should always take efforts to check the historic performance of the schemes and see how the fund has performed during a fall or a rise in the markets. A little pain in re-checking the performance of the funds and then investing will bear fruits later in the lifetime.

Investors should refrain from investing a lump-sum amount in either equity or debt mutual fund schemes. Investors should always maintain discipline while investing and it should be done through systematic investment plans (SIP).

HOW TO FIX INVESTMENT MISTAKES MADE IN THE PAST

An investor should always exit schemes which are underperforming as soon as he can. But one should always give time to investments to pass through a complete market cycle.

Avoid exiting within one year of the investment as one has to pay exit load as well as short-term capital gains tax (long-term capital gains tax is nil if

investments are sold after one year).

Before comparing the returns of the scheme, we have to look at different time periods. It is quite possible that investors would have come in at quarterly or half yearly period in some schemes and now the overall returns could have either gone up or down in the equity markets. Therefore, never take a decision in haste while exiting schemes and if you need some money, then withdraw a partial sum.

Many investors are loaded with thematic funds such as infrastructure funds, banking funds or even international funds. To keep them or to exit them is a tricky issue as they are cyclical in nature. The past few years have been ruthless on the infrastructure sector following the global slowdown.

Thematic funds are not meant for everyone. They are only for investors who have a proper diversified portfolio and at a later date this fund supplements the complete portfolio. Hence, one has to sort out issues with financial advisors and try and find out the scheme’s investment strategy. If the strategy is defective, then investors should not wait to exit from that scheme.

HOW TO TRACK YOUR INVESTMENTS IN MUTUAL FUNDS

There are several instances of investors overlooking investments they had made years ago. Other changes like change in residence, non-updation of Know Your Customer (KYC) norms or even change in bank account indirectly affect the overall gains on the investment portfolio.

It is a known thing that most investors are unable to get their dividends or

giving negative returns. Indian investors tend to believe that a scheme underperforms when its market value is less than the investment value.

For example, A invested in ABC schemes in 2009 with an NAV of `15, but with poor market conditions the NAV has fallen down to `12; so he is incurring a loss of `3 per unit. And hence, exits the scheme. Many investors make the mistake of exiting at losses. But before exiting investors must always look at whether their fund is underperforming or passing through a rough patch.

However, if as an investor you find that the scheme you had invested in for the past five years has continued performing badly in the market, then you should exit the scheme immediately.

There are many investors who invested in thematic funds (power and infrastructure) during the Bull Run and incurred huge loses. Such investors should exit thematic funds and opt for diversified equity funds. Any scheme should be given a full market cycle to prove it and if it fails, then one should immediately move away from it.

HOW TO MAINTAIN A LEAN PORTFOLIO

Legendry investor Warren Buffet has always said that a person should never invest in any business he cannot understand. The same rule applies to other financial investment products.

In India many investors over diversify their portfolio and have many schemes that are of no use to them. It is always advisable to have not more then 3-5 schemes in any person’s portfolio. Having a large portfolio makes it almost impossible to maintain which often results in losses.


interest due to proper updation of residential changes. So, first and foremost investors who have not updated their KYC should do it immediately as it is now mandatory for everyone who wishes to invest in mutual funds.

If you are unable to complete the KYC details, then you can contact your financial advisor or visit www.cvlindia.com, the website of CDSL Ventures Ltd, which is a nodal agency appointed to do the KYC formality for mutual fund investors.

Once the KYC process is complete, investors need not give their Permanent Account Number (PAN) every time they want to invest in mutual funds. Instead, they must give a copy of KYC, which will be

stress-free for all investors.

Investors should also update their email Ids with the fund houses so that they can stay in touch with you. Also, if one wishes to invest in the name of a minor, he needs to fill in a third-party declaration form. Only parents are allowed to invest on behalf of their children.

IN A NUTSHELL

Investors should always remember that the primary reason for redeeming investments would be the fulfillment of your investment objective and goal. The underperformance of a fund is another important reason to redeem your investment. Continue investing if saving is your goal and your fund is performing well enough. Do not

redeem in haste because a short period of underperformance is possible even in well-established mutual funds.

Investors should look at the fund’s performance relative to its other fund peers and category. Consider exiting a fund only when it fares badly over a longer period of time. Awful performance should prompt investors to review their investments. Investors should sell a fund only if its underperformance sustains.

Lastly, it is important for every investor to keep track of his schemes and keep an eye on worsening performance. If a scheme begins underperforming its benchmark regularly, then it is time to switch and opt for better performing schemeS.

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AT NIRMAL BANG, YOU’RE MORE THANJUST A BUSINESS ASSOCIATE,YOU’RE AN EQUAL PARTNER.

Contact Person: Gaurav Mohta - 07738380299 & Nilesh Sonawane - 07738380027 Address: B-2, 301/302, 3rd Floor, Marathon Innova, O�. G. K. Marg, Lower Parel (W), Mumbai - 400013.

BSE SEBI REGN No. INB011072759, INF011072759 & INE011072759, NSE SEBI REGN No. INB230939139, INF230939139 & INE230939139 DP SEBI REGN. No NSDL: IN-DP-NSDL-136-2000, CDS(I)l: IN-DP-CDSL-37-99, AMFI REGN. No. arn-49454 NCDEX REGN. NO. 00362, FMC Code-0075, MCX REGN. No. 16590, FMC Code-MCX/TCM/CORP/0490, MCX SX-INE260939139, PMS-INP000002981

Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risk. Please read the scheme-related document carefully before investing. Security is subject to market risk. Please read the Do’s and Don’ts prescribed by Commodity Exchange before trading. The PMS Service is not offering for commodity segment. *Through Nirmal Bang Commodities Pvt. Ltd. #Distributors

Registered Office: 38-B, Khatau Building, 2nd Floor, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400 001. Tel: 39268600 / 8601; Fax: 39268610, Corporate Office: B-2, 301/302, 3rd Floor, Marathon Innova, Off Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400 013. Tel.: 39268000 / 8001 Fax: 39268010

www.nirmalbang.com

A �rustTo Growth

�e slew of measures

announced by SEBI recently

are aimed at boosting the ailing

mutual fund industry

he Securities and Exchange Board of India (SEBI) at its board meeting on 16th August announced a

number of measures to boost the ailing mutual fund industry. These steps are also aimed at increasing the penetration of mutual funds, improving its reach in semi-urban and rural areas and strengthening the regulatory framework.

T A number of measures that were announced at the meet were not surprising to say the least as the market was largely anticipating them. However, the new rules will be effective after SEBI comes out with details pertaining to the guidelines.

SEBI has now decided that there will be fungibility of the total expense ratio (TER). Earlier while charging



proportionate amount will be allowed as additional TER.” In other words, fund houses will be able to charge extra 30 bps from investors if they are beyond top 15 cities, provided they get at least 30% of inflows from beyond top 15 cities.

SEBI also directed fund houses to make complete disclosures of the efforts taken by them to increase penetration of mutual funds in their half yearly reports.

They also sought details of the opening up of new branches, especially those beyond top 15 cities. Some market participants feel that this move will increase the cost for investors, but fund houses will be able to bring in more money.

To further align the interest of investors, distributors as well as fund houses, SEBI has decided to subject all new investors to a single expense structure under a single plan. Currently, there are different expense structures for retail as well as institutional investors.

SEBI also said that there should be a different plan for direct investments with a lower expense ratio. This move by the market regulator is likely to encourage informed investors to directly go to fund houses and apply for units instead of going through a broker or a distributor.

Further, to get more number of investors to mutual funds, especially those who are not tax payers and do not have a Permanent Account Number (PAN) or bank accounts, such as farmers, traders, businessmen and workers, the SEBI has decided to allow cash transactions to the extent of `20,000, subject to compliance with the Prevention of Money Laundering Act, 2002 (PMLA). Earlier it was necessary for investors to have PAN to get into mutual funds.

By introducing these measures, SEBI has surely brought cheer to investors. However, it also announced that service tax will have to be borne by investors and not fund houses as was the case earlier, to be in line with other industries.

To further strengthen the regulatory framework of fund houses, SEBI has decided that AMCs should disclose half yearly financial results of mutual funds on their websites and publish an advertisement in this regard in at least one national and one regional newspaper. A Self-Regulatory Organization (SRO) will also be set up to regulate distributors, said SEBI.

“To provide fair treatment to existing investors of mutual fund schemes, it has decided to harmonize applicability of net asset value (NAV) across various schemes based on the day on which the funds are available for utilization, for an amount equal to or more than ̀ 2 lakh,” stated SEBI. In other words, the same NAV will be applicable to the investor who invests more than `2 lakh on the day it is available for utilization.

Currently, several corporate investors make payments through cheques, which takes at least one or two days to clear. However, units are allotted at the day of the request, which allows them an extra day’s benefit, at the cost of existing investors.

Also, to reduce churn and align the interests of fund houses as well as distributors with that of investors, SEBI said that the entire exit load should be credited to the mutual fund scheme, while the AMCs will be able to charge an additional TER to the extent of 20 bps.

Currently, exit loads are taken away from the fund houses. “This will not result in any additional cost to the investors. Claw back of additional

TER the slab was 2.5%. It included management charges, custodian charges and distribution charges.

With the new regulation coming in, slabs will be removed and it will be up to the fund house to decide the charges. This regulation comes as a relief to fund houses as they can pay higher commission to distributors from the expense ratio.

Since the past few months there has been a steady decline in distributors selling mutual funds. Hence, to bring back some lost glory, SEBI has decided to simplify the distributors’ registration process and increase the base of mutual fund distributors by including postal agents, retired officials from government, banks and retired teachers to help distribute simple mutual fund products.

“Introduce varied levels of certification and registration depending on products and services offered and reduce the fees for NISM certification and AMFI registration,” said SEBI in its release.

In order to tackle the issue of mis-selling, SEBI has decided to create a system of identification of actual sales personnel of distributors, evolve a system of ‘product labelling’ and inclusion of mis-selling as a ‘fraudulent and unfair trade practice’ in SEBI regulations.

Apart from fungibility of TER, the market regulator also allowed asset management companies (AMC) to charge an additional TER, up to 30 basis points, depending upon the extent of new inflows from locations beyond top 15 cities.

SEBI said, “AMCs will be able to charge 30 basis points if the new inflows from these cities/towns are a minimum of 30% of the total inflows. In case of lesser inflows, the


TER (in the case of inflows from cities beyond top 15 cities) would be provided to the extent the investments are redeemed within a period of one year,” stated SEBI

The Board welcomed the government’s recent announcement of a new scheme called Rajiv Gandhi Equity Savings Scheme (RGESS) and decided that SEBI should make a recommendation to the government suggesting that RGESS may also provide for investments in equity schemes of mutual funds, which have the securities allowed under RGESS as the underlying.

In the last Union Budget, the then Financial Minister Pranab Mukherjee had announced RGESS to bring retail

money into the Indian equity markets.

Finally, it was decided that to attract long-term money there is a need to develop a policy for mutual funds by taking into account its importance in mobilizing domestic savings for the growth of the economy.

“The policy would include all aspects, including enhancing the reach and promoting financial inclusion, tax treatment and obligation of various stakeholders, among others. The Mutual Fund Advisory Committee of SEBI would recommend long-term policy measures after wider consultation with all the stakeholders in a reasonable time frame,” mentioned SEBI in the release.

Experts believe that in the next six months we may see some action regarding certain regulations which seek to attract long-term money into mutual funds.

The big bang reforms that were expected by SEBI have been finally announced. While some of these reforms are likely to bring in more money, others could slightly increase the cost for investors. But overall measures will bring in more clarity not only for fund houses and distributors but also for retail investors. SEBI has laid a right plan to bring more money into mutual funds. It all depends on how fund houses cash into the opportunity and start earning profits for themselveS.

number of scholars, researchers and chartists have racked their brains while attempting to

come up with fool-proof plans for sustained profitability in the stock markets. However, the closest they have been able to come to is developing theories.

A

Like all things in nature, Newton’s Laws can also be applied to the stock markets

TAKING CUE FROM NEWTON

Yet, there was an individual who was neither a chartist, nor a fundamental nor technical analyst nor was even connected to the stock markets.

Yet, he has unknowingly given us simplest and most effective ways to achieve success in the stock markets. He is none other than the renowned

scientist Sir Isaac Newton.

His most famous work is ‘The Three Laws of Motion’. These three laws govern all things in nature. And the stock market is no exception to it. Today, let us try and understand how these three laws can be applied to the stock markets.



and avoid trading in stocks that have appreciated/depreciated very little in terms of price.

b. If a stock has started moving after being in a range or sideways for a long time, confirm the move by looking at the volumes, that is, stocks where prices are going up, and volumes are rising - buy and stocks where prices are going up, but volumes are low - avoid or sell.

c. You can trade a stock in a sideways trend by selling out-of-the-money Put and Call options and pocket the premium earned.

Part 2: A Body In Motion Will Continue To Move In The Direction Of The Motion, Unless Acted Upon By A Force.

Interpretation of the law: The most important thing from the point of view of a stock market is the trend. Trend means the general direction of a market or the price of an asset. The law states that a stock/market that is continuously moving in a particular direction (trend) will continue to move in the direction of the trend, unless acted upon by a force.

So, if a stock is continuously going up, it can be assumed that it will keep on rising until it encounters an opposite force in the form of selling pressure of equal or greater magnitude. And only then will the trend reverse.

Implementation of the law:

a. Follow the age old adage - “Make trend your friend till the end.” In other words, trade in the direction of the general market consensus.

b. Indicators to watch out for are charts with higher tops and higher

bottom or lower tops, lower bottom formation, higher 50, 100, 200-day moving averages, rising stock price with rising Open Interest, etc.

c. Look for reversal chart patterns such as head and shoulders, rising wedge, falling wedge, double top, double bottom, rounding bottom, etc, before going contrarian.

� SECOND LAWAcceleration Of A Body Is Parallel And Directly Proportional To The Net Force Acting On The Body And Inversely Proportional To The Mass Of The Body.

Interpretation of the law: The harder you throw a ball up, the higher it goes; whereas the heavier the ball, the lesser it goes up.

Similarly, if there are far more buyers than there are sellers in the market/stock, the stock will rise faster. This is because when both opposing forces of buyers and sellers collide, the selling pressure will be easily absorbed by the buyers simply because they are greater in number and the resultant net force (pressure) will be upwards.

Parallel to the net force means that the stock price move will be in the direction of the force, and directly proportional will mean that the stock price movement will be equal to the strength of the force, that is, higher the buying pressure, the greater will be the price move.

The second half of the law states that the acceleration is inversely proportional to the mass of the body, which means that the more over-valued/expensively valued a stock, the slower it will rise, because investors will be reluctant to enter at such high valuations since the risk-reward ratio will not be in their

� FIRST LAWAn Object At Rest Stays At Rest And An Object In Motion Stays In Motion With The Same Speed And In The Same Direction Unless Acted Upon By An Unbalanced Force.

There are two parts to this Law. Let us dissect each one and see what they exactly mean.

Part 1: An Object At Rest Will Continue To Remain At Rest Unless Acted Upon By A Force.

Interpretation of the law: The stock market moves according to the forces of demand and supply. This force can be identified in the form of volume(s) (buying-selling pressure) in the stock of the company or the markets on the whole.

According to the above law, a stock that is not moving at all or is just moving sideways will continue to do so, unless a force is applied to it.

In other words, when a stock is at rest or is just moving sideways, there is no force acting on it in the form of demand-supply (in other words, lack of interest from investors, that is, buyers and sellers).

Hence, there is no real volume in the stock. Such a stock is likely to remain muted for a long time because investors do not see any high return potential from the stock and, hence, refrain from trading in it.

Momentum returns to the stock only when there is some news or renewed investor interest in the stock in the form of active participation.

Implementation of the law: a. Look at the historic price charts, 3- month, 6-month, 12-month periods


favour at that time.

More and more investors will look to go short or sell the stock to book profits, and hence the upward movement will grind slowly to a halt and after a point the sellers will gain an upper hand and the stock will start going down.


1. Look at the buyer to seller ratio before investing.

2. Check the EPS/PE ratio and other fundamentals to avoid investing in overvalued stocks.

3. Watch out for over-bought or over-sold indicators such as RSI, MACD and ROC.

� THIRD LAWTo Every Action There Is An Equal And Opposite Reaction.

Interpretation of the law:

For every rupee gained by you, there is someone at the opposite end of the spectrum who has made a loss of that one rupee. Remember that it could

very easily be you who could be at the other end of the spectrum making that loss. Respect the markets and understand that there is always somebody smarter than you in the markets, so never be complacent.

Do not expect to always be on the right side of the trade. Instead, aim to minimize the frequency of your wrong decisions. How can you gain this advantage?


1. The only way you can gain an upper hand in the stock markets is by knowing something that others don’t know or have overlooked. Work hard, study the fundamentals and technicals and keep an eye on the industry news as well as stock-specific news, among other things.

For example, if you are involved in the agricultural industry and know that the production of sugarcane this year is below normal and soon there will be demand-supply mismatch, which will push sugar prices upwards, you can buy sugar stocks right now at cheap valuations and hold on to them, chances are that you will make good profits.

2. Don’t get too carried away when you are making profits and don’t get too depressed when you are making losses. Remember that it is all a part of the game.

A WORD OF CAUTION

All these laws are expected to work perfectly well in nature but man is the only animal who goes against the forces of nature.

Hence, the combined forces of all the laws are no match for the intense forces of fear and greed of man in the stock markets. Therefore, there will always be aberrations and deviations from these laws.

Newton himself lost a lot of money in the stock markets during the South Sea Bubble crisis, which led him to write his famous stock market quote, “I can calculate the movement of the stars, but not the madness of man.”

Therefore, the best piece of advice to our readers is that they should trade the markets keeping the above laws of motion in mind. Also, they should bear in mind Murphy’s Law, which states: “IF ANYTHING CAN GO WRONG, IT WILL”

Micro analysis. Mega gains.Trading at Nirmal Bang is based on extensive research and in-depth analysis, where we focus on the smallest of details and turn them into an advantage for you.

Over the years, the analytical approach coupled with decades of experience has helped us maximize returns for our investors and thereby inspire con�dence in them.

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philosophers with their multiple streams of knowledge were responsible for the birth of Western literature and historiography, political science, major scientific and off course mathematical principles.

Alexander’s philosophy and political career was bound to be influenced by these philosophers. Alexander was mentored by one of the greatest Greek philosophers Aristotle, who was a student of the classical Greek philosopher Plato who was, in turn, the disciple of Socrates.

All three of them were greatest philosophers that the world has ever known. After the death of his father Philip II, Alexander took over as the king of Macedon a state in ancient Greece. He soon established his authority by defeating his enemies within ancient Greece.

However, if that was not enough, Alexander then only 22 years of age, left Greece with a huge army in an attempt to conquer the world. During his journey, he fought several battles and established his authority in a number of regions and countries in Europe, and some part of today’s Africa like Egypt, Gaza and other areas in Asia.

By the time he reached Asia he was well-recognized as a great warrior and the perception then was such that many kingdoms would surrender or offer their authority without a fight.

PARALLELS TO INDIA

Initially his entry into Asia was easy. However, it turned into a nightmare when he entered ancient India. As some of the regimes in ancient India, now known as Pakistan, refused to accept his authority, he fought devastating wars with them in the valley. And although he ultimately captured them, the wars caused him

enormous losses, apart from the loss of men.

His long and most famous battle was fought with king Porus, who was then the king of a region in Punjab. While he suffered hugely due to the fight, he was nonetheless impressed with someone’s bravery.

Instead of ruling the region and destroying the leadership and the army, Alexander made an arrangement to ally with Porus. This was considered to be a very tactical move by Alexander, which could be used by him whenever he needed support and local understanding to move ahead and capture the core of the country.

The next challenge before Alexander was the arduous task of motivating his army to cross the river Ganga. On the other side of the Ganga lay the famous ancient India kingdom of Magadha, whose capital was Pataliputra, today known as Patna.

Magadha was a strong kingdom during the 326 BC when Alexander wanted to conquer it. Apart from Magadha, the Gandaridai empire of Bangal was equally strong. Both the kingdom and their forces jointly waiting on the others side of the river fought the battle with Alexander.

Alexander then started marching on the sides of the river Sindhu, aiming to reach the extreme of the ocean from the southern side, which today largely falls in Punjab and also in Pakistan. This also did not go well. Soon Alexander’s army was confronted with another strong army of Malli clans who are better known as Multans.

Alexander was wounded severely during this war when an arrow pierced his breastplate. This war forced Alexander to return from

ver since Greece went to the polls in May, speculation was rife that if the worst case scenario - a

collapse of the euro, or the withdrawal from the European Monetary Union by a euro zone nation – ever came true, it would be forced to return to its old national currency, the drachma.

While the economic crisis in Greece has not deepened as much as to force a switch to drachma, the former currency still merits a consideration as it is one of the oldest known currencies to the humankind.

Drachma is regarded as one of the oldest currencies in the world, dating back to 3,000 years. It was once used in an Empire that stretched from Egypt to India. During that time, drachma was considered as the most powerful currency.

More so, since its history was linked with Alexander the Great. In fact, it existed even before Alexander the Great was born in 356 BC in Greece.

However, it was Alexander the great who made Greece and its currency famous. Not only were its currency and its warrior Alexander famous, it was even home to great western philosophers that the world has ever known. This is also the reason why Greece is well-known for the origin of Western civilization.

No wonder then that these

E

REgardless of history,

the return to drachma

seems inevitable for

Greece with each passing

day as it is on the verge of

a near collapse


India. Some say this was the primary reason for this death two years hence, since he is believed to have died from the injury caused by the arrow that pierced his breastplate.

RETURN OF A MAGNIFICENT CURRENCY Alexander the Great died in his early forties, but he is still known to the world as a great warrior. And for the people of Greece, he made a lot of difference in terms of its dominance, existence and the power of its currency, even years after his death.

Today, athough Greece is struggling with the economic and political crisis, its lost currency is most likely to make a swift entry into the economy yet again. Dramcha was last replaced by the Euro in 2001 in the ratio of 340.750:1 following Greece’s entry into the Eurozone.

For Greece to remain in Euro, external financial aid is important given the huge debt and the money that needs to be spent on the economy to keep reasonable employment as

well as productivity.

However, the other side of the debate is also that how long and how much support can be provided to Greece, especially in the light of the fact that despite the funding - though the crisis has been averted - structural issues still persist.

Greece is still in the grips of recession, led by a high unemployment rate of 22%. Greece Prime Minister Antonis Samaras recently told that the nation is in a Great Depression, similar to what America felt during the 1930s.

On the same lines, Greece wants two more years to achieve the goals set under the bailout package. However, this does not seem to be going too well with the lenders, who believe that this further implies the need for additional financial aid and support. This may not be a great idea at a time when leaders from the region are worried over fresh concerns emanating from Spain, which could be next in line for a bailout as its

economy continues to shrink.

Even for the supporting nations as well there may not be much leeway given that the whole Euro region, including stronger countries, are still facing huge challenges in terms of growth despite the extended cut in interest rates.

In this backdrop, many economists believe that the exit of Greece from the Euro seems quite likely. And if the exit ever takes place, the return of the drachma is an inevitable truth.

The ground work is already underway. News developments in Greece suggest that the government has secretly awarded a contract to start printing drachmas.

Germany’s political leaders have suggested Greece to start paying half of its civil service wages, pensions and other expenditures in drachmas.

Political leaders suggest that a soft return to the old currency, Dramcha could be a better strategy to avoid any dramatic movE.

The most intelligent strategy in Chess is to be ready with the next move.

Similarly, currency trading involves moves that are a combination of

knowledge and skill, backed by years of experience.

Currency Derivatives Trading with us keeps you a few steps ahead, always.

Registered O�ce: Nirmal Bang Securities Private Limited. 38-B, Khatau Building, 2nd Floor, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400001. Tel: 3926 8600 / 01; Fax: 3926 8610Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risk. Please read the scheme related document carefully before investing. Please read the Do’s and Don’ts prescribed by Commodity Exchange before trading. Through Nirmal Bang Securities Pvt. Ltd. *Through Nirmal Bang Commodities Pvt. Ltd. #Distributors investment in securities is subject to market risk. investment in securities is subject to market risk

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