For Private Circulation Volume 1 Issue 39 08th Oct '10

For Private Circulation Volume 1 Issue 39 08th Oct ’10

Not only your 

DB Corner – Page 5 

PROFESSION, 

Dream Merchants Sell India Inc Story 

Rakesh Jhunjhunwala, Ridham Desai and Madhusudan Kela are betting big on the India 

growth story and urging market players to invest with a long-term horizon for maximum 

returns - Page 6 

but your 

Wait And Watch 

RBI's fifth rate hike in a row signals a halt on further hikes, at least for now; 

but higher inflation and FII inflows will determine the future course of action 

– Page 14 

RELATIONS too 

can help you 

Running Wild 

Even as the market is galloping towards the highs of 2008, a few favourites failed to live 

up to expectations while several others tasted success on the bourses - Page 18 

Tall Efforts 

There has been a resurgence of sorts in the realty sector, but lack of demand may force 

developers to slash rates further to improve sales and prevent a repeat of 2008 

– Page 21 

Bon Appétit 

Happy days are here again for the hospitality industry with improved demand and likely 

rise in occupancies in hotels - Page 24 

EARN 

Nirmal Bang, one of the largest retail broking 

houses in India offers you the opportunity to 

+ 

become a Business Associate by converting your 

contacts into trading-cum-demat accounts. 

At Nirmal Bang, it’s a relationship beyond broking. 

EQUITIES | DERIVATIVES | COMMODITIES* | CURRENCY | MUTUAL FUNDS # | IPOs # | INSURANCE # | PMS | DP 

Volume 1 Issue: 39, 08th Oct ’10 

Editor-in-Chief & Publisher: Rakesh Bhandari 

Editor: Tushita Nigam 

Senior Sub-Editor: Kiran V Uchil 

Art Director: Sachin Kamble 

Junior Designer: Sagar Padwal 

Marketing & Operations: 

Dwiti Bhuta, Savio Pashana 

Research Team: 

Kunal Shah, Michael Pillai, 

Hussain Nagarwala, Vikash Bairoliya, 

Runjhun Jain 

India : The New Guinea Pig 

Given the progressive regulatory environment, diversity of patient pool and the cost 

economics here, more and more multinational companies are turning to India for 

conducting oncology clinical trials - Page 27 

Transcending Horizons 

With the introduction of new regulations in the mutual fund industry, fund houses are 

tapping newer options like offshore funds and PMS, in the interest of the investors 

- Page 30 

Timely Intervention 

The only saving grace in the ongoing tussle between public sector general insurance 

companies and hospitals has been the mediation by the IRDA, in the interest of policyholders 

- Page 32 

The Oil Club Turns 50 

It has been a roller-coaster ride for OPEC since its inception in 1960, but it plays an 

important role in determining crude oil prices on the bourses - Page 34 

Zydus Cadila : Spreading Far And Wide 

Zydus Cadila is set to reach greater heights on account of sales from newer territories, new 

product launches and deeper penetration in existing regions - Page 38 

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We, at Beyond Market welcome your views, 

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Do help us to grow better as per your liking. 

This is our attempt to reach you better while 

crossing horizons... 

beyondmarket@nirmalbang.com 

Tel No: 022 - 30278232 

Fortnightly Outlook For Commodities – Page 42 

Fortnightly Outlook For Currencies – Page 43 

Important Statistics For The Fortnight Gone By – Page 45 

Time To Evaluate 

Diversification, market capitalization and liquidity are some of the criteria for selecting a 

stock in the index - Page 52 

Finders Keepers, Losers Weepers 

Penny stocks are highly challenging and can be extremely rewarding if factors such as stock 

picking, timing and luck favour you on the bourses - Page 54 

Ravi Narain: Actions Speak Louder Than Words 

Ravi Narain, the MD and CEO of the National Stock Exchange, is a low profile person who 

believes that the work of his institution must speak for him than anything else - Page 57 

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 

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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 

Beyond Market 08th Oct ’10 

It’s simplified... 

3

Among sectors, 

banking and pharmaceutical 

look attractive. 

When industry stalwarts share their opinion, people are all ears to what the mavericks say. We 

were witness to such a life-altering experience at Beyond Market, the new-age equity camp, 

presented by Nirmal Bang in association with Bloomberg UTV, in Mumbai where over a 

thousand people gathered to listen to Rakesh Jhunjhunwala, Ridham Desai and Madhusudan 

Kela on whether a new bull run was in the making on the bourses. 

Laced with quantifiable data, the trio gave thumbs up to the bull run on the back of the India 

growth story. They said that while the rest of the world was either recovering from the recently 

witnessed financial meltdown or was facing repercussions of the same, India had a number of 

factors strongly supporting its future growth. 

Banking on India Inc is going is going to prove beneficial to market players, they said, while 

emphasizing on the fact that internal factors would be the growth drivers for the country. Our 

cover story gives an in-depth detail of the panellists’ view on the expected bull run and their 

expected returns from the stock markets. 

Apart from the Beyond Market event, there are articles on the recent rate hike by the Reserve 

Bank of India and its possible outcome, the run up on the stock market with a few favourites that 

brought cheer and a few that were disappointing. 

Sectorally speaking, there is an article on the real estate sector and the revival of the hotel industry 

with the latest acquisition of the East India Hotels Ltd. India’s growing importance of oncology 

clinical trials, too finds a mention in an article on the pharmaceutical sector. 

There is an article on the mutual fund industry too with fund houses launching offshore funds 

and portfolio management services, following the recent changes in the industry. The launch of 

these products and services will not only help fund houses but also investors at large. When it 

comes to the insurance sector, the article on cashless policies tells us the important role played 

by insurance regulator, IRDA, in bailing out policyholders, who were otherwise caught in the 

tussle between insurance companies and hospitals. 

The issue also celebrates the golden jubilee anniversary of the Organization Of Petroleum 

Exporting Countries (OPEC), which has been an integral part of the participating nations and its 

role in oil geopoliticS. 

Tushita Nigam 

Editor 

The Indian stock markets are on an upswing, on 

the back of liquidity that is pouring into the 

country from the international markets, in the 

form of purchases by foreign institutional investors 

(FIIs). This has been the prime reason for the Sensex to 

breach the 20,000-mark. 

The Nifty has support at the 6,050 level and below that at 

the 5,980 level. Traders and investors can take long 

positions partially at current levels and then at the given 

support levels. On the upper side, the Nifty has the potential 

to touch the 6,500 level. 

Among sectors, banking and pharmaceutical look attractive. 

Stocks like Axis Bank (LTP: `1,576.95), HDFC 

Bank (LTP: `2,493.65), IndusInd Bank (LTP: `270.35), 

IDBI Bank (LTP: `160.70) and Canara Bank (LTP: 

`585.10) look good buys in the banking sector. 

Also, Ranbaxy Laboratories Ltd (LTP: `597.50), Orchid 

Chemical and Pharmaceuticals Ltd (LTP: `275.40) and 

GlaxoSmithKline Pharmaceuticals Ltd (LTP: `2,299.70) 

from the pharmaceutical sector can be considered by 

individuals with an investment or a trading perspective. 

On similar lines, traders and investors can look at stocks 

like Tata Motors Ltd (LTP: `1,139.60), Tata Steel Ltd 

(LTP: `669.65), Bharat Heavy Electricals Ltd (LTP: 

`2,617.70), IFCI Ltd (LTP: `68.05), Indian Oil Corporation 

Ltd (LTP: `415.45), ELGI Equipments Ltd (LTP: 

`151.95) and Shree Renuka Sugars Ltd (LTP: `86.70), as 

these stocks appear quite attractive. 

In the coming fortnight, the markets are likely to move 

higher as companies are expected to post good numbers 

in the upcoming earnings seasoN. 

Sensex: 20,475.73 

Nifty: 6,159.45 

(As on 4th Oct ’10) 

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. 

4 





5

DREAM 

MERCHANTS 

SELL INDIA INC STORY 

Rakesh Jhunjhunwala, 

Ridham Desai and 

Madhusudan Kela are 

betting big on the 

India growth story 

and urging market 

players to invest with 

a long-term horizon 

for maximum returns 

Beyond Market has grown and how! From a few 

hundreds to over a thousand traders and investors 

attending the new-age equity camp, 

organized by Nirmal Bang in association with 

Bloomberg UTV, the event is an achievement in itself. 

The equity camp has travelled to 12 cities namely, 

Ahmedabad, Jaipur, Kolkata, Surat, Chennai, Ludhiana, 

Pune, Bengaluru, New Delhi, Indore, Hyderabad and 

Udaipur where the audience got the opportunity to rub 

shoulders with the who’s who of the industry. 

The panellists at these camps included names like N 

Sethuram Iyer, Chief Investment Officer, Shinsei Asset 

Management; PN Vijay, Managing Director, PN Vijay 

Financial Services; Rajat K Bose, Investment Consultant; 

Ajay Bagga, Managing Director and Head of 

Private Wealth Management, Deutsche Bank AG Private 

Wealth Management; Sushil Kedia, Quantitative Strategist, 

Sansar Capital Asia Pvt Ltd; Vijay Mantri, CEO & 

MD, Pramerica Asset Managers Pvt Ltd; Sudip Bandyo 

Rakesh Jhunjhunwala 

Partner, RARE Enterprises 

Rakesh Jhunjhunwala is an 

Indian Chartered Accountant 

by qualification but 

an investor/ trader by 

profession. He is one of 

the most famous and 

respected equity investors 

in India and manages his 

own portfolio as a partner 

in his asset management 

firm, Rare Enterprises. 

padhyay, MD & CEO, Convexity Solutions and Neelesh 

Surana, Senior Equity Fund Manager, Mirae Asset 

Global Investments (India). 

Similarly, experts like Prakash Gaba, Technical Analyst 

and Trader; TP Raman, Managing Director, Sundaram 

BNP Paribas Asset Management Company Ltd; Gul 

Teckchandani, Investment Advisor; Amit Dalal, Executive 

Director, Tata Investment Corporation Ltd; Rajeev 

Anand, CEO Axis Mutual Fund; Anil Manghnani, 

Technical Analyst; SS Naren, CIO of ICICI Prudential 

AMC; A Subramanian, CEO, Birla Sun Life; Sandeep 

Rajani, Fund Manager - PMS, Nirmal Bang and Sunil 

Jain, VP Equity Research, Nirmal Bang were also part of 

different equity camps. 

The camps have helped instil right investment values in 

market players. 

The event at Taj Lands End in Mumbai on 27th September 

is testimony to the rising popularity of Beyond 

Market, the equity camp among market players who 

swarmed the venue only to watch Rakesh Jhunjhunwala, 

Partner, RARE Enterprises; Madhusudan Kela, Chief 

6 





7

Ridham Desai 

Managing Director, 

Morgan Stanley 

Ridham Desai joined 

Morgan Stanley in 

Mumbai in 1997 and was 

most recently JM Morgan 

Stanley's Head of India 

Research. JM Morgan 

Stanley is a joint venture 

between Morgan Stanley 

and JM Financial, a 

leading domestic financial 

services company. 

Investment Strategist, Reliance Capital Ltd and Ridham 

Desai, Managing Director, Morgan Stanley discuss a 

new bull run in the making with Rahul Arora, Markets 

Editor, Bloomberg UTV. 

The main agenda of the camp was to debate about the 

possible bull run on the Indian stock markets apart from 

advising investors and traders on the right time to enter 

the markets, as many sought to know from the experienced 

trio. 

Rahul Arora, the moderator for the evening, initiated the 

panel discussion with the predominant question on 

people’s minds: are we in the middle of a bull run or 

heading towards one and will everything be okay? 

Rakesh Jhunjhunwala, the ‘big daddy’ of the Indian 

stock market responded by saying, “Dil hai ki maanta 

nahin. Bazaar hai ki rukta nahin, bank balance hai ki 

badhta nahin, dil hai ki maanta nahin.” 

The recent slump in the economy was mainly driven by 

global events and not by occurrences in India, said Jhunj- 

hunwala and emphasized that the financial meltdown in 

the year 2008 and the beginning of 2009 was in fact just 

an interruption to the bull market. 

Madhusudan Kela 

Chief Investment Strategist, 

Reliance Capital 

He, however, said, “A correction is inevitable. I see a 

multi-decade bull run (on the bourses).” The India 

growth story is the reason why we are being preferred 

over emerging markets and this is what is driving money 

into the country, he explained. 

Ridham Desai and Madhusudan Kela echoed 

Jhunjhunwala’s sentiments. Desai said, “We are in the 

multi-year bull market and the year 2008 was a deep 

correction. I feel the excess valuations we saw in the end 

of 2007 have been corrected. The markets are not expensive 

and I see few corrections. I expect higher highs in 

the years to come. We are on a sustained bull market for 

the next decade.” 

However, Jhunjhunwala said it is difficult to ascertain if 

the market has formed a new base. The domestic 

elements are good and are the ones that generally decide 

the direction of the markets. But, it would be different 

this time as local selling and foreign buying is relentless. 

Madhusudan Kela 

completed his Masters in 

Management Studies in 

1991 from Somaiya 

Institute of Management 

Studies. Thereafter, he was 

with CIFCO and SSKI 

(Sharekhan). In 1994, he 

joined Motilal Oswal 

before moving to UBS in 

1996. He joined Reliance 

Mutual Fund in 2001. 

8 





9

Madhusudan dwelt upon FII flows into India. He said, 

“Nearly 45% of the emerging market inflows have come 

into India. But what we need to watch is whether these 

flows are sustainable. If not, there could be a steep fall.” 

“I feel it is very difficult for the Nifty to break the 5,000- 

5,100 level, unless there is a big global chaos,” he said. 

When it came to retail participation, Madhusudan said 

retail participation was not visible, while Jhunjhunwala 

feels IPOs are not the best place for retail investors to 

participate. Adding to this statement, Ridham said that 

during his recent visits abroad, he saw scepticism not 

only in retail but also among domestic and foreign 

institutional players. “The nature of flows is different 

from that of 2007. The bulk in the market now is global 

money. But, people are still waiting for a correction.” 

Jhunjhunwala too perceives an upward move in the 

markets, “but there are no excesses”. He said, “There is 

scepticism and fear. Markets go down on the wall of 

worry and go up on a ray of hope.” 

The difference between the events in 2007 and 2010, 

according to Madhusudan Kela, is that then no one was 

prepared for the correction that we saw. “But now, 

people are prepared,” he said. 

Ridham interjected: “Only one-third of the markets are at 

an all-time high, while in 2007 it was two-thirds. We are 

still nowhere close to the type of euphoria or greed we 

witnessed then.” Money has gone into quality stocks. 

The stocks that have performed on the bourses have 

unbelievable valuations, according to Jhunjhunwala. 

On being asked about their take on the state of the US 

economy, Desai responded by saying the US has a long 

way to restructure itself and come out of the excessive 

debt it finds itself in. It may have a sluggish growth but 

he did not see a double-dip recession. The US stock 

markets could be undervalued or the bond markets could 

be overvalued. 

Jhunjhunwala maintained that the US is in a bear market. 

He reasoned by saying that when yields on the Dow 30 or 

S&P 500 exceed the yield on debt, it is a bear market. 

Discussing the current market scenario for gold, Madhusudan 

considers gold to be a smaller asset class as 

compared to equity and bond and hence a small allocation 

can be made to the yellow metal for a rainy day, in 

case the dollar collapses. 

Taking the panel discussion further to the much-talked 

about domestic hiccup of inflation, Jhunjhunwala opined 

that the inflation could stabilize around 5-5.5%. 

Desai too feels that India is a sweet spot as it offers 

growth and inflation. It is also beneficial for equities. 

“India can grow at the rate of 9% with 5% inflation. 

There will be a rollover to where we were, with 9% 

growth at 5% inflation,” said Desai. 

Madhusudan feels that while discussing inflation, it is 

important to take into consideration the changes in the 

components of the inflation index and this effect would 

be visible in the next three months. “Thus inflation may 

surprise everyone positively and may be below 5%. 

Going forward, I do not see inflation to be a cause for 

worry,” reiterated Madhusudan. 

On being reminded about his stance on IPOs by Arora, 

Jhunjhunwala said, “IPOs were in a honeymoon period 

and are issuing now. But they should see a breather after 

the Coal India IPO.” He advised people not to invest in 

IPOs due to their high valuations although a buoyant IPO 

market is good for the economy. 

Jhunjhunwala, then turned the discussion to the importance 

of the savings pyramid in India. The amount of 

money Indians save is mind-boggling and some time or 

the other this money would make way into different 

investment classes. “I see a huge amount of money 

flowing into the markets,” he said. 

According to estimates by Morgan Stanley, around $300 

billion is expected to flow into the markets in the next 10 

years, from households alone, said Desai adding that he 

was expecting a 9-10% growth rate in India by the next 

decade and India would be a $5.5 trillion economy by 

2020, as per his company’s forecasts. 

“People will start putting money into the markets through 

different avenues,” said Jhunjhunwala, the man with the 

Midas touch, while Madhusudan said those who can not 

time the markets or know what to do when, look at 

investing through SIPs. 

Jhunjhunwala feels that by the year 2020, the person who 

invests in the markets through SIPs would be the biggest 

beneficiary. “Invest regularly instead of stock picking,” 

he said. 

Even as the panellists were talking about investment 

avenues, Arora shifted their focus to one of the most 

discussed sectors in recent times - infrastructure. To this, 

Desai expressed optimism. He said,“I expect spending on 

infrastructure to be 10% of GDP. I think infra is an evolving 

story.” 

On the other hand, Madhusudan Kela, feels that due to 

the huge gap in demand and supply for infrastructure, the 

general public is of the opinion that infrastructure is not 

improving and unless this gap reduces, people’s perception 

is not going to change. 

would enter the markets leading to a huge flow of money 

into the markets.” 

Speaking on the same lines, Desai said that the next leg 

of growth in India would be driven by investments. 

“India will go through a big investment cycle in the next 

5-10 years, which will also include infra. Consumption 

remains strong and headline growth in consumption will 

be on a firm footing,” said Desai. 

And who could have missed the agricultural sector? Not 

Jhunjhunwala for sure, since he said, “India needs a 

second Green Revolution and other the sectors revolving 

around agriculture are bound to grow.” 

Desai concurred with Jhunjhunwala. He said, “We have 

the potential to feed our country and other countries as 

well. This should be a reality in the next 10-20 years.” 

To wrap up the panel discussion, Arora sought their view 

on how the markets were going to perform in the next 

one year. 

Ridham Desai said investors could look at around 

15-20% returns from a one year perspective and if things 

fall into place, they should not be surprised to earn 

30-40% returns from the markets. 

Kela wants people to participate in the markets with a 3-5 

year horizon. “If you believe that the country is going to 

grow, then do not wait to time the markets or contemplate 

about what to do and when.” 

Jhunjhunwala was all smiles when he told the audience 

that he would be happy with a 20-25% return on his 

portfolio. He concluded, “I cannot predict what will 

happen in the next one year. People should match their 

expectations with reality. They should be reasonable. 

Markets will remain good.” 

The market conditions today are very different from what 

they were at the beginning of the year 2008 and despite 

short-term hiccups, India’s bull run is expected to 

continue in the coming years, they said in unison. 

Although the trio refrained from making stock recommendations, 

they were of the general opinion that the 

India growth story is a reality, as the country has everything 

going for it. 

On a broader scale, economic growth in India is driven 

by demand, skills, size, consumption and to some extent 

exports too, said Rakesh Jhunjhunwala. Expressing 

optimism about the India growth story, Jhunjhunwala 

said, “Time is on India’s side and a lot of things are 

changing at their own pace and in the long run, everyone 

Besides, all those sceptical about entering the markets 

should take heart from the factors boosting economic 

growth. They do not expect the bull run to be a blink and 

miss event. In fact, they say that the markets are prepared 

to go the distance in the long run and give attractive 

returns to those who invest with a long-term vieW. 

10 





11

12 





13

BSE Sensex 

7.00 

6.00 

5.00 5.25 

5.00 

4.00 

3.00 3.50 

3.75 

5.50 

4.00 

5.75 

4.50 

6.00 

5.00 

are likely to remain at unacceptably high levels for some 

months,” warns the RBI. While prices of food articles, 

which according to the new series, rose by over 14% in 

August, are still contributing to the pressure, about 

two-thirds of the August inflation can be attributed to 

items other than food articles and products. 

Wait 

And 

Watch 

RBI’s fifth rate hike in a row 

signals a halt on further 

hikes, at least for now; but 

higher inflation and FII 

inflows will determine the 

future course of action 

In mid-September, India’s central bank, the Reserve 

Bank of India (RBI) released its first ever 

Mid-Quarter Monetary Policy Review. As expected, 

the review took the rates up further. The RBI, on the 

basis of the assessment of the macroeconomic situation, 

decided to increase the repo rate by 25 basis points from 

5.75% to 6% and the reverse repo rate by 50 basis points 

from 4.5% to 5%. 

By undertaking a steeper hike in the reverse repo rate 

versus the repo rate, the RBI has continued with its 

stance of narrowing the rate corridor, which is the difference 

between the repo and reverse repo rates. 

But, the unusual read was the last paragraph of RBI’s 

mid-quarter monetary policy review. While a part of it 

was kind of a justification for the hike, the other part is 

interesting, in the sense that it technically indicates a 

pause on further hikes. This is evident from the RBI 

release which states, “Consequently, the role of normalization 

as a motivation for further actions is likely to be 

less important.” 

There were strong evens and odds and the RBI carried 

2.00 

1.00 

0.00 

19-Mar-10 20-Apr-10 2-Jul-10 27-Jul-10 16-Sep-10 

Source: SEBI 

Repo Rate 

Reverse Repo Rate 

forward its fifth rate hike amidst them. Among the evens, 

the GDP growth in the first quarter of 2010-11 was 

estimated at 8.8%. “Although some of this is attributable 

to a favourable base effect, the growth rate indicates that 

the recovery is consolidating and the economy is rapidly 

converging to its trend rate of growth,” stated the RBI 

release on monetary policy. 

On the other hand, the index of industrial production 

(IIP) showed some slippage in June ’10, with the revised 

numbers showing growth to be relatively sluggish at 

5.8%. The trend, however, was sharply reversed in July, 

with growth surging to 13.8%, led by capital goods, 

which grew by 63%. 

In RBI’s belief, although the year-on-year IIP growth 

rate for the first four months of the year remains robust at 

11.4%, the high volatility over the past two months raises 

some doubts about how effectively the index reflects the 

underlying momentum in the industrial sector. 

Inflation remains a dominant concern in macroeconomic 

management and its containment is still the active stance 

of the RBI. For August, the published wholesale price 

index (WPI) inflation rate was based on the new series, 

which has 2004-05 as the base year, for the first time. 

Experts and the RBI believe that the new series has better 

coverage of items and the manufacturing products’ group 

has a slightly higher weight. But the concern for RBI is 

that both the old and the new series indicate similar broad 

inflation trends. 

For instance, the average monthly WPI inflation for the 

first quarter of 2010-11, based on either series, is in 

double digits. However, the monthly average of WPI 

inflation for the first quarter of 2010-11 under the new 

series at 10.6% was about 50 basis points lower than the 

rate of 11.1% under the old series. In July ’10, there was 

a slight moderation in the provisional WPI inflation 

under both the series. 

“Essentially, inflation rates have reached a plateau, but 

Notwithstanding slight moderation in August ’10, the 

headline inflation remains significantly above the trend 

of 5% – 5.5% which was prevalent in the 2000s. “There 

is, therefore, a need for continued policy response to 

contain inflation and anchor inflationary expectations,” 

says the RBI. 

One of the major concerns of inflation is its implications 

for real interest rates. Real interest rate is the difference 

between the interest rate prevailing in the economy less 

the rate of inflation. Currently, this summation is clearly 

negative. According to the RBI, the policy actions taken 

over the past three quarters have been partly motivated 

by the need to end negative real interest rates. 

This was sought to be accomplished by a combination of 

increasing policy rates in a non-disruptive manner and 

declining inflation rates. “Both factors are at work, but 

the process is still incomplete,” says the RBI. 

One important consequence of negative real rates is that 

banks have seen a deceleration of deposit growth, as 

savers look for higher returns elsewhere. “If bank credit 

is not to become a constraint to growth, real rates need to 

move in the direction of encouraging bank deposits,” 

RBI suggests. 

On the external front, the continuing sluggishness of the 

global economy constrains export growth while the 

strong domestic recovery has increased import demand. 

As a result, the trade deficit and with it the current 

account deficit, are widening. In its July policy review, 

the Reserve Bank had highlighted the risks associated 

with a widening current account deficit in the face of 

increasingly volatile capital inflows. 

FII Net Inflows (Equity + Debt) 

8.00 

7.00 

6.00 

5.00 

4.00 

3.00 

2.00 

1.00 

0.00 

-1.00 

-2.00 

1.8 

2.3 

6.5 

2.8 

Source: SEBI (Sept flows upto Sept 28th) 

-1.5 

2.4 

5.3 

3.2 

7.1 

14 





15

The apparent stabilization in advanced economies visible 

over the past few weeks appears to have improved global 

investor sentiments, resulting in a steady increase in 

capital inflows into emerging market economies, including 

India. 

During the current year, net FII inflows in equities 

touched $18.18 billion, while the net inflows in debt 

were $10.35 billion, both as on 28th Sept ’10. “If this 

trend continues, risks on the external front will clearly 

abate despite exports remaining sluggish,” warns RBI. 

And RBI is actively moving in the direction of tackling 

such a situation. During its July policy meet, RBI had 

narrowed the width of the rate corridor from 150 basis 

points to 125 basis points. With this current hike in key 

policy rates, the rate corridor width stands further 

narrowed to 100 basis points. 

“The narrowing of the rate corridor is primarily aimed at 

reducing the volatility of money market rates and allowing 

better transmission of policy rate actions,” says an 

economist. 

A surge in capital inflows, beyond the absorption capacity, 

would increase the liquidity and keep the short-term 

rates softer. “This could undermine the effectiveness of 

the monetary policy actions of the RBI,” he adds. 

A steeper hike of 50 basis points in the reverse repo rate 

raises the floor rate for short-term money and would 

thereby help contain the aggregate demand. 

Even the government has swung into action on the 

capital inflow management. It has increased the limits of 

FIIs in the Indian bond markets by $10 billion. The cap 

on FII investments in the government securities market 

has been upped to $10 billion from the current $5 billion 

and the limit in the corporate bond markets has been 

increased by $5 billion, from $15 billion to $20 billion. 

to buy into these increased limits,” says the report. 

So what next? “We believe the next leg of monetary 

tightening will depend on the pace of credit growth and 

think the RBI will not hike rates before financial year 

2011-12,” says the Barclays Capital report. 

Apart from inflation and capital inflows, RBI’s 

decision-making process on monetary policy will be 

influenced by signs of moderating industrial momentum, 

export numbers and domestic demand. 

Barclays Capital expects the current account deficit to 

deteriorate to $57 billion (3.7% of GDP) in FY10-11 

from $38.4 billion (2.9% of GDP) in FY09-10. “This 

widening is unlikely to be offset by the large inflows to 

the equity markets and the direct investment route,” the 

report adds. 

Technically, this increases the sensitivity to volatile 

debt-creating capital flows. Debt-related inflows, such as 

bank capital, commercial borrowings and short-term 

credit, are likely to rise to $24.3 billion in FY10-11 from 

$1.5 billion in FY09-10, opines the Barclays Capital 

report. “The tightening of domestic credit conditions is 

expected to encourage Indian companies to look at 

foreign funding options at a cheaper cost,” it says. 

Finally, tighten your seat belts. While the annual 

inflation rate is in the region of 8% and a one-year bank 

deposit yields 7%, savings are discouraged. Conversely, 

credit is surging as the borrowing cost is negative in real 

terms. “This situation is conducive to a formation of 

bubbles in various financial and real assets,” says 

Edgardo Torija-Zane, Economist at French bank - 

Nataxis. 

BSE Sensex 

25000 

20000 

15000 

However, investments in these incremental limits have to 

be made in securities which have a residual maturity of at 

least five years. In addition, investments in the corporate 

bond markets will have to be made in securities issued by 

infrastructure companies. 

10000 

5000 

0 

1/1/2008 

3/1/2008 

5/1/2008 

7/1/2008 

9/1/2008 

11/1/2008 

1/1/2009 

3/1/2009 

5/1/2009 

7/1/2009 

9/1/2009 

11/1/2009 

1/1/2010 

3/1/2010 

5/1/2010 

7/1/2010 

9/1/2010 

Source: Bloomberg 

With the current FII limit of $5 billion in government 

bonds completely filled and about 85% of the $15 billion 

limit in the corporate bond market already taken up, this 

increase in limits would attract foreign investors, according 

to a Barclays Capital report. 

“With the Fed appearing to move closer to a second 

round of quantitative easing and with US yields likely to 

remain lower for longer, we expect real money investors 

“The stock market is indeed climbing rapidly,” Edgardo 

adds in a mid-September report. It pays to exercise 

caution because the Sensex, in the past 63 trading 

sessions, has swung by 14.8% to 20,104 on 28th Sept 

’10, from 17,509 on 1st Jul ’10. At 20,104, the Sensex is 

just 1,102 points away from crossing the 21,206.77, the 

highest value it reached on 10th Jan ’08. This, and the 

accompanying FII flows are certainly keeping the RBI on 

its toeS. 


SMS ‘BANG’ to 54646 

Contact Person: Sagar Karvat - +91 77383 80033, e-mail: free@nirmalbang.com 


16 




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 offering for commodity segment. *Through Nirmal Bang Commodities Pvt. Ltd. # Distributors

Ayear and a half ago, India’s bellwether stock index, the 

Bombay Stock Exchange’s (BSE) Sensex, had made a 

low of 8,160 on 9th Mar ’09, a level last seen in the 

year 2005. The slump, which was initially triggered 

by the US sub-prime and credit crisis, ballooned into a 

full-fledged global economic crisis, leading to extremely bearish 

sentiments in the stock markets and a huge fall in stock prices. 

The downturn was indeed an ideal time for investors to 

indulge in bargain hunting of stocks that were available at 

throw away prices; if only there were enough buyers. The 

price-to-earnings multiple of Sensex components had come 

down from the exuberant highs of 27 at the start of 2008 to 

a lucrative 10 times earnings by the end of the year. 

However, not many could have predicted that the key 

benchmark indices would more than double from the 

recessionary troughs so quickly during those pessimistic 

times. In less than two years, the 30-share index has 

soared past 20,000 points propelled by global recovery 

and domestic factors like robust economic expansion 

and decent corporate earnings growth. 

Further, a relative comparison of the returns 

provided by the benchmark Sensex with that of 

other major indices in the emerging global market 

space denotes that the Indian 30-share index has 

broadly outperformed its global peers. The 

returns provided by Hong Kong’s Hang Seng at 

91% and Brazil’s Bovespa at 82% have lagged that of Sensex 

returns, which stood at 135%, during the period under 

consideration. 

However, an important determinant here is to check how 

the Sensex constituent stocks fared during this magnanimous 

rally from the 8,000 level to the 20,000 level. 

A closer inspection shows that 10 out of the 30 Sensex 

stocks have provided more than 200% returns, while a 

couple of them boast of a mind-boggling 400% and 

above returns. On the flip side, as many as 13 out of 30 

stocks yielded below 135% returns provided by the 

benchmark Sensex from 9th Mar ’09 till date. 

Here’s a low down on what turned on some of the 

leading 30 stocks and what turned off the rest. 

SENSEX OUTPERFORMERS 

Tata Motors 

Tata Motors, which was the worst performer 

during the recession, can be singled out as the 

biggest outperformer during the recovery 

phase with a humungous 650% returns. The 

stock price of the truck-maker has surged 

from ` 137 to ` 1,030, even going past its 

lifetime high price level. 

Even as the market is galloping towards the 

highs of 2008, a few favourites failed to live 

up to expectations while several others 

tasted successes on the bourses 

RUNNING 

WILD 

The company, Tata Motors had acquired the businesses 

of two iconic British brands – Jaguar and Land Rover 

(JLR) – from Ford Motors for a net consideration of $2.3 

billion in June ’08, with the intention of spreading its 

footprint globally. 

However, the Group’s plans went into a tizzy as this 

ambitious and leveraged buyout inevitably invited 

troubles during the sharp economic slowdown in the 

American markets. The global recession badly hit the 

demand for premium JLR brands in less than nine 

months of acquiring the iconic brands. 

However, in the June 2010 quarter, the overseas units of 

the two acquisitions logged a turnaround, propelled by 

global recovery and resurgence of retail demand from 

high-end customers. JLR accounted for nearly 70% of 

the company’s net profits and over 60% of its revenues 

on a consolidated basis. The division logged a decent net 

profit of ` 1,613 crore in Q1 as against a net loss of ` 467 

crore a year ago. Thus, the turnaround of its overseas 

units led to the re-rating of the stock price of Tata Motors 

on Dalal Street. 

Hindalco Industries 

Next in the line of outperformers is the industry leader in 

aluminium and copper, Hindalco Industries, which is the 

metals flagship company of the Aditya Birla Group. This 

metal company rose from the recessionary lows of ` 38 

to ` 190, summing up to a little over 400% returns during 

the same period under consideration. 

In February ’07, Indian aluminum giant Hindalco 

acquired Atlanta-based company, Novelis Inc, for $6 

billion including approximately $2.4 billion of debt, as 

part of its inorganic growth strategy. However, the 

meltdown in the real economy led to slackening of 

demand and crash in aluminum prices by more than 50%, 

prompted the downturn-impacted Novelis to post a net 

loss of $1.8 billion in the third quarter of FY09, leading 

to the de-rating of Hindalco on the Indian bourses. 

Gradually, the stock price rebounded on the back of a 

turnaround of Novelis, led by pruning of overhead costs, 

realignment of product line to the revised demand 

scenario and replacement of old contracts with new ones 

that had higher margins. Further, Novelis’ presence in 

the emerging markets grew stronger by the day. Eventually, 

the Novelis acquisition proved to be a very strategic 

move by Hindalco. 

Jindal Steel & Power 

Following a sharp decline in the demand for steel and the 

subsequent fall in the prices of steel during the economic 

slowdown, the stock price of Jindal Steel & Power had 

tested lower levels of ` 167 in March ’09. 

The stock price of Jindal Steel & Power was adversely 

affected during the recession on the back of stalled 

infrastructure development activities, slowdown in 

construction and automobile sectors, which are the key 

sectors involved in the consumption of steel. 

With the rebound in global trade, came a turnaround in 

the commodity cycle as well. Further, this Jindal Group 

company was among the best positioned steel companies 

with 100% self-sufficiency in iron ore and a growing 

proportion of value-added products. The company has 

been ranked as the world’s second largest value creator 

in 2010 by the Boston Consulting Group. 

ICICI Bank 

Most companies from the list of the top six Sensex 

outperformers were in deep trouble during the recession. 

One such company was ICICI Bank whose stock price 

was hammered down to ` 263 in March ’09, but has now 

rebounded to a more than three-figure mark with a 

turnaround in its fortunes. 

The stock price of ICICI Bank was most negatively 

impacted among larger banks with investor perception 

that the bank traditionally held higher leverage than other 

businesses. Additionally, the bank’s overseas operations 

had also reported mark-to-market losses in 2008 on 

account of its exposure to credit derivatives and investments, 

on account of the credit crisis. 

However, ICICI Bank took conscious measures over the 

last one year, to correct its past mistakes, by deliberately 

going slow on credit growth to improve its credit quality, 

cost control and customer service. The bank is also 

concentrating on gaining a higher CASA ratio and 

improving its pricing power. 

SENSEX UNDERPERFORMERS 

Bharti Airtel And Reliance Communications 

The BSE Sensex has more than doubled from its March 

’09 lows of 8,160. Certainly, those of its constituent 

stocks which have yielded less than the benchmarked 

135% returns could be termed as underperformers during 

this mammoth rally. 

Two such laggards are Bharti Airtel and Reliance 

Communications (RCom), both from the ailing telecommunication 

industry. While Bharti has hardly provided 

20% returns from its recessionary lows, RCom has 

meagerly surged 23% from its trough of ` 132. 

18 





19

The Indian telecom sector, which was touted as one of 

the fastest-growing domestic industries, received a 

severe jolt in the wake of hyper-competition from the 

over-crowded telecom operators, with new players 

locking horns with each other to grab a share of the 

Indian subscriber pie. 

The level of competition reached fatal heights for industry 

players with the launch of low tariff plans and 

introduction of ‘pay per second’ pulse by Tata DoCoMo. 

Further, the competition was aggravated by RCom’s 

launch of depressingly low 50p/min call tariffs in 

response to the price war. 

Hindustan Unilever And Cipla 

Both these stocks can be clubbed under the ‘defensive’ 

stocks category by the virtue of the businesses that both 

the companies operate in. While HUL stock has accrued 

only 29% returns from its lows, Cipla underperformed 

with 52% returns as compared with 135% returns benchmarked 

by Sensex in the last couple of years. 

Over the past few quarters, larger FMCG players have 

increased their advertising and promotional spends and 

reduced price per quantity in a bid to stay ahead of 

competition. This has, however, impacted their profitability 

since topline growth has lagged behind the 

increase in operating costs. The short-term impact of this 

strategy is visible in the truncated earnings growth by 

HUL in the last quarter. 

Cipla’s domestic business has been trailing the overall 

market and witnessing intense competition in the African 

anti-retroviral market. Also, lower projection of the 

technology and licensing fees in FY11 than in FY10, 

renders Cipla’s growth prospects even less attractive. 

Cipla is also seeing increased competition in select 

therapeutic areas in which it has traditionally been exceptionally 

strong. 

Reliance Industries 

It is surprising to see a stock like Reliance Industries Ltd 

(RIL), with a huge market capitalization not leading the 

market, having already more than doubled from its lows. 

The stock has surged by a subdued 72% from the March 

lows vis-à-vis the Sensex returns. Further, the refinery 

major has also underperformed in comparison to BSE Oil 

and Gas Index. 

RIL’s key segments - refining and petrochemicals - are 

facing cyclical headwinds leading to clouding of 

prospects and earnings downgrade for the company. 

However, analysts are gradually waking up to the fact 

that an unfavourable outlook for the refining margins are 

already factored into the current stock prices of RIL on 

the bourses. 

Further, structural changes in the rapidly developing 

Indian gas market, likelihood of any incremental gas 

discovery in the KG basin and RIL’s venture into shale 

gas acreages in the US could all provide the trigger for 

the stock’s performance in the coming times. 

In a nutshell, specific companies such as Tata Motors, 

Hindalco and Tata Steel, which were leveraged with high 

debt levels during the recessionary phase, failed to boost 

investor confidence due to their attempts to indulge in 

risky inorganic growth-led acquisitions. 

However, with the V-shaped recovery on the horizon, the 

investor community had no choice but to cling on to the 

same set of leveraged stocks as these companies held 

large inventories and production capacities to cater to the 

rush of demand spurred by an upturn in the consumption 

cycle. This likened the recession-hit stocks to rally at 

their 52-week highs on the bourses in no timE. 


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 offering for commodity segment. *Through Nirmal Bang Commodities Pvt. Ltd. # Distributors 

TALL 

EFFORTS 

There has been a 

resurgence of sorts in 

the realty sector, but 

lack of demand may 

force developers to slash 

rates further to improve 

sales and prevent a 

repeat of 2008 

Lady luck seems to be smiling on the realty sector 

as more and more developers are undertaking 

massive projects in major metros of India, 

including Mumbai, Delhi, Bengaluru and Chennai. 

But, things were not so good a few years back. The 

year 2008 was probably the worst year in recent times for 

the Indian real estate market. The real estate market 

crashed all over the world, leading to a global recession. 

The real estate market in India was no exception to the 

financial meltdown as it too took a heavy beating. 

In the year 2008, realty prices in India were at an all time 

high, having run up by 25% to 100% across the country 

during the 2006-2008 boom period, which was fuelled by 

low home loan rates and demand by speculative investors 

in locations such as the National Capital Region (NCR). 

The speculative investors used to buy properties before a 

project was launched and sell them within few months 

for a quick profit. 

Fearing job losses, several home buyers postponed their 

buying decision. This led to a big fall in demand and 

20 





21

prices fell by 30% to 40%. In some micro-markets of 

Gurgaon, a Delhi suburb, the fall was nearly 50%. 

Real estate developers suffered the most as sales plunged 

rapidly leaving them high and dry. The only way out was 

to start selling homes and for that developers slashed 

home prices, offering discounts to bring customers back 

to the market. The government also did its best by 

restricting credit to developers and bringing down home 

loan rates. 

All this led to a pick up in demand from early January 

’09. DLF Ltd, India’s largest developer, was the first to 

cut back on prices and was followed by other developers 

in Mumbai and Bengaluru. Developers also ventured into 

the unexplored segment of affordable housing (sub ` 20 

lakh - ` 30 lakh range). Under this segment, developers 

reduced the size of homes (made small houses of 

500-800 sq ft), thereby reducing total cost of the house. 

Unitech, launched a new brand of homes called 

Unihomes in Noida, Mohali and Chennai. In the South, 

developers such as Puravankara Projects Ltd created a 

separate brand of homes called Provident Housing Ltd 

for affordable homes. 

Affordable housing became a hit, as home-buyers had 

been waiting for a while for prices to fall. As per a report 

by PropEquity Research, a real estate research firm, 

around 1,06,008 apartments in the ` 5 lakh - ` 30 lakh 

range were launched across India between July and 

September ’09. Of these, 48,826 were sold, showing a 

46% absorption rate. 

Pune had the highest number of launches with 13,971 

homes, followed by Gurgaon with 11,388 and Mumbai 

with 11,098 homes. Pune also had the highest absorption 

rate at 7,043 units, followed by Gurgaon at 4,426 units. 

Prior to the crash, developers had mostly focussed on the 

high-end and luxury home segment as this was led by 

investors, who bought properties in bulk and sold them 

off for a high margin. The price cuts and launch of 

affordable housing gave huge impetus to demand in 

Delhi, Gurgaon, Noida, Mumbai and Bengaluru. 

The problem is that, led by the growth in demand, developers 

have begun repeating their past mistakes by hiking 

prices, even of affordable homes. By the end of 2009, 

developers had hiked prices by 10-15% across projects. 

Builders are now going slow on the execution of their 

affordable and mid-segment (` 30 to ` 40 lakh range) 

homes and are focussing again on luxury projects. 

DLF, Unitech and other developers in Mumbai have 

launched luxury homes (above ` 2 crore) in the last few 

months. Sensing a good response from buyers, Emaar- 

MGF, which is mainly in the high-end home segment, 

plans to construct around 2,000 luxury homes in 

Gurgaon, Hyderabad, Punjab, Bengaluru and Kerala. 

Unitech, which said it would focus only on high-volume, 

low margin affordable homes, has already launched a 

few luxury projects like Karma Lakelands, The Villas 

(above ` 3 crore) in Gurgaon for its high-end clients. 

In Central Delhi, DLF recently sold the third phase of 

Capital Greens, comprising luxury flats of around ` 3 

crore each. It has launched luxury projects in Gurgaon 

too. In Mumbai, DLF plans to launch a luxury project in 

Lower Parel. They could cost ` 5 crore to ` 10 crore each, 

with home sizes starting from 2,000 sq ft onwards. 

While in Mumbai, there are genuine buyers for such 

properties, in Gurgaon, luxury housing is preferred by 

speculative investors for high returns, causing a rapid rise 

in home prices in the last eight months, where prices 

have even increased by 100%. Prices have almost gone 

up to the peak levels of 2007 in some locations. 

National Capital Region (NCR) saw launches in the mid 

segment, according to a report by Cushman & Wakefield 

India, a real estate consultancy firm. Several new 

residential corridors such as Sector 37 D, 90 and 91 in 

Gurgaon were also introduced. 

Rental values have, however, not seen a big rise, according 

to Cushman. In the second quarter of 2010 (April- 

June), rentals of most micro markets across the high-end 

and mid-income segment did not see any significant 

change. Rental values of mid segment increased by 10% 

in South Central micro markets and 4% in South West 

and Central micro markets in Delhi. However, there was 

a significant increase of 21% in capital values in the 

high-end segment across Delhi in Q2. 

Mumbai’s residential segment saw a big improvement in 

demand during Q2 with capital values crossing the peak 

values of 2008. There was a huge increase in capital 

values in South Mumbai, while values remained stable in 

North and far North Mumbai as per the Cushman report. 

In Bengaluru, the rental and capital values of the residential 

segment stabilized in the second quarter. This was 

because there were no significant project launches during 

the period. Except for a marginal appreciation in the 

range of 2-7% in capital values of the high-end segment, 

there was not much change. Rental values, however, saw 

an increase in South and Central Bengaluru. 

In Mumbai, due to the rise in prices volumes have 

dropped by nearly 45%, according to Liases Foras, a real 

estate research firm. In Gurgaon too, volumes are slowly 

declining, say brokers. Property consultants say that if 

price hike continues, this could have a big impact on 

demand as buyers will stay away from the market. 

Especially, given the fact that home loan rates could 

increase as the Reserve Bank of India, India’s central 

bank, has hiked policy rates many times over, leading to 

a fear that this will have an impact on home loan rates. If 

this happens, residential demand could be seriously hit. 

In the commercial segment, demand is looking up gradually. 

According to Cushman, NCR saw a supply of 1.5 

million sq ft, during the quarter. This is 62% of the anticipated 

supply. 

“This quarter witnessed significant completion of 

projects resulting in increase in supply by 85%, over the 

previous quarter,” the report said, adding that the absorption 

level was 2.2 million sq ft, a 126% increase over the 

previous quarter. Out of this 2.2 million sq ft, 60% was 

absorbed in Gurgaon, primarily in the Information 

Technology Special Economic Zones (SEZs), while in 

Noida 8,06,000 sq ft was absorbed. 

Vacancy rates remained stable in the range of 12%-14% 

with overall supply matching absorption during the 

quarter. Gurgaon and the Central Business District of 

Delhi saw a decline of 12.2% and 1.2% respectively in 

vacancy rates in the quarter, indicating that the demand is 

coming back in the office space. Rental values also did 

not see any significant change, with a 2% increase in 

Noida due to a growing demand for IT SEZ space. 

With the expansion of domestic retailers and the arrival 

of international brands, Q2 saw mall supply of 9,45,000 

sq ft in NCR. Gurgaon had the highest rental value appreciation 

in prime mall rentals with a 5% increase over the 

previous quarter, South Delhi by 1%, West Delhi by 4%, 

while rates in Noida remained unchanged. Khan market 

and Karol Bagh saw a significant increase in main street 

rents with an increase in value by 10% and 17% respectively. 

While Basant Lok saw a correction, rates in South 

Extension and Greater Kailash remained unchanged. 

With a growing demand in IT/IT-es and Banking and 

Financial Services Insurance (BFSI) sectors, Mumbai 

saw a fresh supply of 2.54 million sq ft of new office 

space supply, concentrated mostly in the suburban areas 

of Andheri, Malad and Bandra. 

The overall vacancy rate in Mumbai, during the second 

quarter, was stable at 14%-15%. In the second quarter of 

2010, Mumbai saw no new additions in mall supply with 

the exception of G-7, a new 1,50,000 acres multi-brand 

shopping centre in Andheri (West). Mall rental value 

improved by 5% in Thane. However, it remained 

unchanged in other areas. 

Main street rental values were mostly stable except some 

places. Vashi was another area that saw marked improvement. 

Due to low availability and rise in enquiry, Vashi 

saw a 5% increase. 

The supply of commercial space in Bengaluru increased 

four times since the January-March ’10 quarter with a 

total of 6.23 million sq ft of supply coming in. Of this, 

Whitefield constituted around 77% of total supply. The 

total demand for Bengaluru’s commercial space was 2.38 

million sq ft for the second quarter. The absorption rate 

was as high as 2.24 million sq ft, in which the Outer Ring 

Road micro markets accounted for over 8,00,000 sq ft. 

Developers including DLF, Unitech, Parsvnath, etc have 

also invested in SEZs, formed under the SEZ Act of 

2005. SEZs are now facing issues due to the Direct Tax 

Code (DTC) Bill, which will come into effect from 1st 

Apr ’12. It is worrying investors in SEZs as it places 

SEZs under the Minimum Alternate Tax (MAT) and 

Dividend Distribution Tax (DDT) regime, removing all 

the incentives it got from the special SEZ Act of 2005. 

According to DTC, MAT will be applicable to SEZ 

developers and SEZ units. Also, SEZ developers are 

subject to DDT similar as SEZ units, widening the tax 

base. Prior to this, developers were expected from tax. 

The DTC bill has both, advantages and disadvantages. 

There are chances of less revenue loss, as it will bring in 

an investment-linked incentive regime. Also, it will 

accelerate the setting up of SEZs since there is time for 

the bill to be operative. 

Business houses, that do not come under specified 

businesses, can take advantage of the time limit. 

However, the bill makes SEZs less attractive from a 

long-term investment perspective. 

With the dilution of incentives and neutralization of other 

benefits, there will not be much difference between SEZs 

and other places. Also, DTC will benefit capitalintensive 

industries whereas employment-intensive 

industries including IT will be affected as less capital is 

required for the same. 

All these developments have caused additional concern 

for developers who are already struggling with slowing 

demand and a need to generate cash flows to fund their 

operations and repay debts. Analysts say, if demand 

starts to slacken, there is a possibility that home prices 

could come down again though not as much as during the 

2009 slowdowN. 

22 





23

Bon Appétit 

Happy days are here again for the hospitality industry with 

improved demand and likely rise in occupancies in hotels 

In the years 2008 and 2009, the Indian hotel industry 

went through some extremely difficult and challenging 

times. It can be attributed to the start of the 

global economic crisis in the year 2008 and the 

collapse of world trade, including its impact on the 

tourism industry. 

This period also includes the unfortunate terror strike on 

some of the leading hotels in Mumbai. The Indian hotel 

industry, especially the hotel chain in Mumbai, suffered 

majorly due to this, as a result of the change in image and 

fear among travellers. Led by the decline in foreign 

tourist arrival (FTA) in the year 2009, the Indian hotel 

industry witnessed a 12.4% drop in occupancy, which 

was the largest in the last one decade. 

Due to the same reasons, room occupancy rates declined 

to 64% in financial year 2009 as compared to 72% in 

financial year 2008. However, the impact was higher in 

certain markets like Mumbai, where the occupancy rates 

dipped to 45% by the end of 2009. 

It also impacted room rates as hotels reduced room rates 

and gave promotional offers in the hope of achieving 

better utilizations. The average room rates (ARR), for 

instance, fell by more than 10%, from about ` 9,000 in 

FY09 to about ` 8,000 in FY10. 

NO LOOKING BACK 

But what is the status today? Those days are gone and the 

Indian hotel industry has seen a strong rebound. There is 

a huge rise in foreign tourist arrivals, which had earlier 

dipped to 5.2 million in 2009 as compared to 5.4 million 

in 2008. It is estimated that the foreign tourist arrivals 

could further improve to 5.8 million in 2011 and to about 

6-6.5 million tourists in 2012. 

This is in addition to domestic tourists, who are expected 

to travel more this year and also the next year. In terms of 

numbers, the growth in the number of domestic tourists 

could be about 10-12% in 2011, touching almost 760 

million tourists. This can be credited to the revival in the 

domestic economy and improvement in the domestic 

corporate activities. 

Further, the icing on the cake is the ongoing Commonwealth 

Games, ICC World Cup in 2011 and Formula- 

One race, which will, in turn, lead to more arrivals and 

travels of both domestic and international tourists leading 

to better demand for the hotel industry. 

Applying the simple demand-supply rule, this would also 

mean that hotels could earn more revenue per room. 

Particularly, given that no major capacities are coming, 

there is scope for the room rates to go up by about 10% in 

the current fiscal year and 10-12% in the next fiscal year. 

The biggest relief would come in the form of improvement 

in occupancies moving to about 65% this year and 

further to about 70% by financial year 2012. A good 

room occupancy rate is a sign of a healthy industry, 

because it helps hotels to report better operating margins 

as fixed costs such as maintenance, interest costs, wages 

and other expenditures could be taken care of. 

Hit by slowdown and lower occupancy levels, the operating 

margins were lower last year in the range of 15-20%. 

However, led by revival, the operating margins in the 

current fiscal year could be in the range of about 30-40%, 

which are very good for many of these companies to 

report a strong profit growth. 

FAVOURABLE DEMAND SUPPLY 

The fact that tourist arrivals are improving with fewer 

room capacity additions, there could be a mismatch in 

demand-supply situations in the country. To put things 

into perspective, on the back of 12-15% expected growth 

in foreign tourist arrivals, the demand for premium 

category rooms in the country, is expected to grow at 

about 12-13% till fiscal year 2012. 

Further, the growth in domestic travellers, which is 

expected to be to the tune of 15-18% over the next two 

years, could give an additional edge to the industry. The 

strong growth in domestic tourists is on account of the 

revival of the job market, higher economic activities and 

recovering foreign trade in India. 

To sum up, the demand from the domestic and international 

tourists is expected to be higher in the range of 

12-18%. However, over the next two years, room supply 

would only grow at about 9-10% annually, which will 

create a mismatch in demand and supply. 

The slow pace of supply growth could be ascribed to the 

fact that in the last two years or so the companies did not 

invest in new capacities and others pushed back due to 

uncertainties created by the global economic slowdown, 

construction delays, high real estate prices and credit 

crunch. It is estimated that about 40% of the new capacities 

have been delayed or postponed till 2015. Whatever 

the reason, favourable demand-supply is good news for 

the hotel industry as well as the investors as this will help 

companies to generate decent profits and work at good 

operating margins. 

LONG-TERM OPPORTUNITY 

People say New York City has more hotels than India as 

a whole. No wonder the US has forty times higher hotel 

capacities than India. Even if we compare this with 

China, which has 10 times higher capacity, the Indian 

hotel industry is still does not have the desired size. This 

is also the reason why the Indian hotel industry is 

expected to grow at about 8-9% . 

On comparing numbers with the US, China and other 

countries, the most important thing we find is that their 

economies are bigger than India and their economic 

activities are relatively higher too. 

Additionally, due to higher per capita income and disposable 

income people tend to spend more, travel more and 

go out for holidays. But things will also change for India 

as the economy grows. According to estimates, over the 

coming decades Indians could see their per capita income 

growing by around three time the current levels, leaving 

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25

REGD. OFFICE: 38-B/39, Khatau Bldg, 2nd Flr, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400 001. Tel: 022 - 22641234, 30272000 / 2222; Fax: 022 - 30272006. 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 

them with more disposable income. The increase in 

income and affordability would take care of the growth 

in the Indian hotel industry. This is also reflected in the 

past growth where domestic travellers increased 

four-fold in the last one decade. 

INCREDIBLE INDIA 

After neighbouring China, India could be among the 

most talked about countries in the world, which will not 

only be because of the emergence of its economic 

strengths but also due to some of its well-known tourist 

destinations. In fact, India stands seventh in terms of the 

number of world heritage sites. Moreover, a relatively 

better regulatory environment, government promotions 

and better infrastructure including roads, power and ports 

among others are helping the country to attract more 

foreign tourists. 

Furthermore, almost 60% of the hotel industry's tourists 

come from the business or corporate segment. Many 

international companies, associations, business delegations, 

investors, bankers and thousands of professionals 

travel to India so that they can be a part of the world's 

second largest growing economy. There are several 

foreign companies that have their offices and factories in 

India. The BPO sector is also helping the domestic hotel 

industry by creating demand. 

Moreover, the recent acquisition of East India Hotels Ltd 

(EIH) by Reliance Industries is an indication of better 

times for the hotel industry. Reliance Industries recently 

acquired over 14% stake in East India Hotels Ltd (EIH) 

at a cost of ` 1,021 crore. RIL paid ` 184 per share and 

the deal is valued at ` 1,021 crore, significantly higher 

than its market price hovering at ` 150 per share at that 

time. RIL is one instance of companies increasing their 

stake in some of the listed hotel companies. The other 

examples are Tata Group’s Indian Hotel and ITC. 

Not only Indian companies but also foreign hospitality 

majors are eying the Indian hospitality markets and 

expanding their presence. Among others, Best Western, 

which is the world's largest hotel Group, is planning to 

develop 100 hotels in India over the next few years. 

International majors like Accor, Marriott, Claridges and 

Carlson Hospitality Groups have already made inroads 

into India and are planning to explore opportunities 

directly and indirectly through joint ventures and other 

form of alliances. 

Rising occupancy rates in hotels is a sign of good times 

for the hotel industry and is expected to bring cheer to 

tourists as well as major players in the industrY. 

an apple a day keeps the doctor away 

regular investments keep worries away 

INDIA: 

THE 

NEW 

GUINEA PIG 

Given the progressive regulatory environment, diversity of patient pool 

and the cost economics here, more and more multinational companies are 

turning to India for conducting oncology clinical trials 

Your financial health is our concern. 

At Nirmal Bang, it’s a relationship beyond broking... 

EQUITIES | DERIVATIVES | COMMODITIES* | CURRENCY | MUTUAL FUNDS# | IPOs# | INSURANCE# | PMS | DP 

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Following globalization and liberalization, more 

and more multi-country oncology trials for 

pharmaceutical companies are being held in 

India as investigators from all participating 

countries are working on the same protocol. Besides, 

investigators and researchers get to know about the latest 

trends in cancer treatment and get an opportunity to be 

part of the clinical drug development right from the start. 

A majority of multinational pharma companies, namely, 

Pfizer, Eli Lilly, GSK, J&J, AstraZeneca, Wyeth, Merck, 

Aventis and Bristol-Myers Squibb are successfully 

carrying out clinical oncology trials in India. 

The oncology market in India is worth ` 900 crore and is 

expected to reach up to ` 3,350 crore by 2012, growing at 

a CAGR of nearly 30%. Several multinational pharma 

companies are investing up to 20% of their annual 

research and development budget on the development of 

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cancer treatments. 

The oncology market is changing with the occurrence of 

a growing number of cancer subtypes, and, therefore, 

newer targeted therapies and more complex clinical trials 

are being undertaken. There is also a growing need for a 

specialized approach to conduct these trials. 

According to McKinsey, global pharma majors would be 

spending nearly $1.5 billion on drug trials in India by 

2010. India has the largest pool of patients and diseases, 

including cancer, which makes conducting clinical trials 

here, ideal. Also, India’s biggest advantage is 

cost-effectiveness, as has been seen during the global 

downturn of the economy. 

Owing to business strategies and opportunities in 

conducting oncology trials in India, patients here have 

access to new anti-cancer agents at a much earlier stage 

unlike the past. 

Reputed international journals have declared India as the 

most preferred destination with about 49% of global 

trials moving to India. Now, regulatory approvals are 

much quicker, which helps in clinical research. The 

overall scenario is really good in India because of its rich 

expertise and clinical experience, which will boost 

oncology research. 

CROs provocatively encourage multinational trials in 

India. It gives a platform to update and participate in 

cutting-edge research and development programmes. 

However, a decade ago major pharma companies used to 

conduct their oncology clinical trials in support of the 

research drug’s application to the regulatory authorities 

in either Europe or North America. 

Because of the large increase in the number of exploratory 

drugs being developed by pharma and biotech 

companies in the last 20 years, the development companies 

had difficulty finding enough patients in Europe and 

North America to apply to their clinical trials. This 

resulted in the trials taking much longer than anticipated. 

This difficulty has led companies and regulatory authorities 

to utilize patients outside their normal area of recruitment. 

Because of this, India along with Eastern Europe 

and Russia have become standard additional countries 

often included in the clinical trials. 

Oncologists can make a clear judgement about the 

disease progression and adverse reaction. With the 

advancement in radio diagnostic technology and lab 

tests, it becomes easier to conclude the tests too. Generally, 

patients are covered under the insurance scheme for 

any trial-related injury and it is all explained to them in 

the consent form. 

social), side effects of anti-cancer drugs and effects and 

interactions with other medications that the patients are 

taking at the same time. 

Many a times, the objectives in cancer trials are not just 

the cure but improving the quality of life , which is based 

on the interpretation of patients and their survival. 

Some roadblocks do exist, like in China, especially from 

a regulatory stand point. The release of tissue samples 

out of the country, overall regulatory environment and 

the language are relative impediments in China. 

In India, however, we do not have a written regulatory 

procedure for a fast track approval for such unmet 

medical therapies, but during the review process these 

trials and treatments are viewed on a case-to- case basis. 

These policy changes in the developed world have come 

due to intense societal pressure from highly motivated 

groups, many of whom have strong political support. 

Hence, the regulatory framework in India so far has not 

supported such trials. Ironically though, if the drug is of 

Indian origin, the regulations do support phase-I trials 

despite exactly similar challenges. Due to these reasons, 

investigators in India have not been able to build this 

experience of phase-I trials and hence this has resulted in 

very few phase-I trials being conducted in India. 

The regulatory requirements of oncology trials are 

basically the same as other therapeutic trials. The one 

major exception is that oncology clinical trials only 

include patients with cancer, while in other therapeutic 

areas; the trials compare the drug in patients with the 

disease and also in patients without the disease. 

India has all the ingredients required to conduct clinical 

trials given the type of medical training that our doctors 

have, the advantage of the English language, a progressive 

regulatory environment, the diversity of our patient 

pool and the cost economics of patient enrolment are all 

aiding clinical trials in India. But we in India, still have to 

evolve both socially and politically to understand this in 

the right perspectivE. 

The sheer number of diverse and advanced cancer cases 

offers a unique opportunity for carrying out different 

trials in various parts of the country. The largest single 

advantage to the multinationals has been the ability to 

carry out trials in a shorter span of time due to a faster 

rate of recruitment. 

As per industry experts, the oncology therapeutic 

segment is ranked the fifth largest therapeutic class 

worldwide. In 2007, the anti-cancer drug market generated 

sales of $66.8 billion, up by 17% in comparison with 

$57 billion in 2006. The global market for cancer drugs is 

expected to cross $78 billion by 2012. 

Oncology is an area with significant unmet therapeutic 

needs. There is a dire need to promote and support 

clinical trials of new cancer treatments, explore methods 

of cancer prevention and early detection and also study 

quality-of-life issues and rehabilitation during and after 

the treatment of cancer. 

Modern targeted therapies are being developed and need 

to be looked at differently. Since these cancer patients do 

not have enough treatment options or are refractory to 

available therapies, they participate in trials to explore 

new treatments with a hope of longer and/or better life. In 

terms of outsourcing or serving others needs, Indian 

From a regulatory standpoint, the US FDA has made a 

commitment to the same fast-track approach for 

anti-cancer drugs as has been used for the development 

of drugs effective against AIDS. 

The FDA has also indicated its willingness to use surrogate 

markers (for example, partial responses) rather than 

survival rates as a measure of drug effectiveness when 

considering the approval of anti-cancer agents. These 

policy changes have markedly reduced the drug-approval 

processing time. 

Many of these drugs are getting approval in less than six 

months from the time a new drug application is submitted; 

in contrast, previously the approval time would often 

exceed one year. 

An excellent example of the effect of the changing 

regulatory policy is the approval by the FDA of irinotecan 

as second-line treatment for advanced colorectal 

carcinoma without data from phase III randomized 

clinical trials. Imatinib (Gleevac) for Chronic Myeloid 

leukemia is another example. 

Managing oncology clinical trials are different from 

other therapeutic trials as you need to deal with a deadly 

disease - cancer, other co-existing problems (medical and 

We don’t just help you invest your money, at Nirmal Bang it’s a relationship beyond broking 

SMS ‘BANG’ to 54646 www.nirmalbang.com 




28 





29

TRANSCENDING HORIZONS 

With the introduction of new regulations in the mutual fund industry, 

fund houses are tapping newer options like offshore funds and PMS, 

in the interest of the investors 

Mutual fund houses are betting big on the 

India growth story by setting up shop 

abroad to attract foreign investors and 

launch India-dedicated offshore funds, thus 

increasing footprints globally. 

In fact, the trend of Indian companies launching offshore 

funds or special purpose vehicles has picked up post the 

market turnaround of mid-2009. More and more fund 

houses have also begun providing portfolio management 

service (PMS) to their clients to increase their profit 

margins in the current tough environment. 

There are more than 65 offshore funds that collect money 

from global investors and invest in Indian equities. 

Interestingly, some offshore funds have even beaten 

some of the Indian equity diversified funds in the last one 

year. Market participants say that the prospects of 

offshore funds improve if the foreign partner involved 

helps with the distribution, leading to increased attention 

to the offshore fund from new entrants too. 

Birla Sun Life AMC, Sundaram BNP Paribas and ING 

Investment Management are a few companies with 

offshore businesses. Top fund houses such as Reliance 

Mutual Fund, Birla Sunlife Mutual Fund and UTI also 

plan to open offices in Singapore, Japan Gulf, UK and 

the US. 

Most fund houses now sell offshore products through 

foreign distributors by paying huge commissions. Low 

interest rates in several global countries has pushed 

investors into offshore funds, which are now offering 

relatively higher returns. 

Offshore funds invest in shares of Indian companies but 

are priced in a foreign currency, thus providing overseas 

investors a currency risk-free access to the local markets. 

Offshore funds collect money from various institutions 

and investors like pension and endowment funds as well 

as high networth individuals (HNIs) and Non-resident 

Indians (NRIs) who want to invest in the Indian markets. 

Also, several fund houses are approaching zero-tax 

destinations like Mauritius to raise offshore capital. In 

the past, huge amounts of money from developed 

countries have flown into India from tax havens like 

Mauritius, Luxemburg, Hong Kong and UAE. 

India-dedicated funds are increasingly getting higher 

fund allocations as India is becoming the second fastest 

growing economy in the world. Several mutual funds are 

trying to make the most of this opportunity. With their 

long track record of managing domestic funds, fund 

houses are selling their wares to manage India-dedicated 

funds or even provide portfolio advisory services to 

institutional investors. 

Not only that, several fund houses along with parent fund 

houses have started providing funds of other international 

markets like China in India. However, these trends 

have not yet picked up and funds are witnessing a very 

weak response from investors. 

However, there are some risks involved in the investment 

in offshore funds. Liquidity poses some trouble for 

investors. Some of the offshore funds are priced on a 

weekly basis, which limits the entry and exit facilities to 

once a week. 

There are also currency risks for those funds which 

maintain their portfolios in Indian rupees but are markedto-market 

in US dollars depending on each day’s net 

asset value. Also, redemptions pose a big problem - since 

delays could be experienced reflecting the time involved 

for the fund to sell the underlying investments in India. 

There is no doubt that mutual fund is the most popular 

investment vehicle managed by the finest fund managers 

in the country. Another product similar in nature is 

Portfolio Management Services (PMS). 

PMS offers customized solutions to high net worth investors 

and invests in both the equity and debt markets on 

their behalf. 

The fund management industry, using the PMS route, has 

lately witnessed stunning growth with a large number of 

players now offering specialized fund management 

services while catering to the needs of the investors. 

There are mainly two kinds of portfolio management 

services, namely, Discretionary Portfolio Management 

Services and Non-discretionary Portfolio Management 

Services. Discretionary Portfolio Management Services 

is where the fund manager has the liberty to invest the 

funds as he pleases without consulting the client. 

The fund manager independently manages the funds of 

each client subject to the overall mandate as given by the 

client and can be compared with a mutual fund scheme. 

However, under the Non-discretionary Portfolio 

Management Services, all investment decisions are 

carried out in consultation with the client. 

PMS offers personalized service and customized portfolio 

solutions. However, at ` 20 lakh, the level of personalization 

offered will not be significant. Further, your 

money will be invested in a pool with investments of 

many other investors. 

PMS providers target specific segments from the rich and 

the affluent class, whereas mutual funds attract a diverse 

set of investors, which may include small investors, 

corporates, provident funds, banks, etc. 

While mutual fund investment services could be availed 

of by retail investors, with investment amounts as low as 

` 500, PMS is a luxury which only a few affluent investors 

can afford. Most PMS providers target high net 

worth individuals, corporates and Non-resident Indians 

and ask for minimum portfolio size ranging from a few 

lakhs to several crores. 

The difficulty involved in analyzing individual equity or 

debt markets makes it extremely perplexing for an investor 

to take investment decisions on his own, which is why 

he gives money to professional fund managers. So, it 

makes a lot of sense to depend on those who are good at 

the job of managing funds rather than trying to bet on 

one’s own skills. 

The fee charged by mutual funds and PMS also varies 

considerably. The fund management expenses charged 

by mutual funds are regulated and are subject to certain 

limits specified by SEBI. The limit on expenses for 

equity-oriented funds is set at 2.5%. 

In contrast, most PMS providers earn their revenues on a 

profit-sharing basis and some also have a fixed fee 

structure, which ranges from 4% to 6% of portfolio value 

charged on an annual basis. The fee structure in PMS 

could also vary from client to client and is decided while 

signing a contract with the client. 

However, the drawback of PMS is that there is frequent 

churning of portfolio, high management fees followed by 

dismal returns and dwindling profitability. This is why 

several fund houses exited the PMS business during the 

2008-09 crises. 

Before 2005, if an investor wanted to enter the PMS 

business, the entry level charge used to be anywhere 

between ` 1 crore and ` 1.5 crore. During the bull run of 

2006-2007, fund houses cut the PMS entry level charge 

to ` 10 and ` 15 lakh in a bid to attract more retail 

customers. 

Most PMS houses charge 20% more than the hurdle rate 

profit-sharing ratio. Even if the scheme shows poor 

performance, the PMS house charges a fixed fee, which 

is very high. Again, there is no control on the cost in 

terms of churning and the brokerage paid to distributors. 

There is no transparency in the process. 

Despite charging high fees, a very few PMS’ were able to 

beat the benchmark index of diversified equity funds. Of 

course, PMS will be promoted by distributors and financial 

advisors because of high commission ranging 

between 3% and 5% as offered by fund houseS. 

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31

In August ’10, Delhi resident A Gill was taken aback 

when he used the cashless mediclaim card provided 

by his health insurance company to pay for his 

wife’s hospital bills. 

He was dumbfounded when hospital authorities told him 

that the said hospital was no longer a part of the Preferred 

Provider Network (PPN) of the insurer. Unprepared for 

something like this, Gill turned to his relatives for financial 

assistance. 

THE DISPUTE 

While Gill’s relatives bailed him out, not everyone is as 

lucky as he is. Scores of people have been caught off 

guard from 1st July onwards, when four public sector 

general insurers, namely, United India Insurance, New 

India Assurance, Oriental Insurance and National Insurance 

- who together account for more than 60% of the 

business - struck 300 hospitals off their Preferred 

Provider Network list. 

According to available statistics, health is the second 

largest segment after motor with an annual premium 

collection of ` 8,305 crore (in 2009-10) in the non-life 

insurance business. The collection is expected to double 

in the next five years, growing at an annual compounded 

rate of 25%. 

Currently, while cashless policies account for 35% of the 

health insurance policies, the rest are reimbursementbased. 

Issues of over-billing by private sector hospitals 

TIMELY 

INTERVENTION 

The only saving grace in the ongoing tussle between public 

sector general insurance companies and hospitals has been 

the mediation by the IRDA, in the interest of policyholders 

was cited as the prime reason for the tussle between 

insurance companies and authorities of high-end private 

hospitals that began a couple of months ago. 

CEASEFIRE 

It was not until late August that the high court stepped in 

along with insurance regulator, Insurance Regulatory and 

Development Authority (IRDA), and instructed all life 

and general insurance companies to allow cashless 

facility to patients who are already being treated. 

Following a directive from the high court towards the 

end of August, the insurance regulator clearly stated that 

in case a policyholder is already undergoing such 

treatment at a hospital under a standard procedure and 

within this time frame, the hospital in question is 

proposed to be removed from the list of PPN, then the 

insurers will be required to provide the benefits of 

cashless facility for such policyholders, as if the hospital 

continues to be on the PPN list. 

In order to ensure that the interests of the policyholders 

are not adversely affected, at times when a change in 

PPN is implemented, the insurers have further been 

directed to inform the policyholders at all times, the 

nearest possible alternative hospitals where the cashless 

facility is available and the conditions thereof. The latest 

directive by IRDA will ensure that situations like in the 

case of Gill do not arise. 

After the intervention of the insurance regulator, many 

insurers now claim that the issue is on the verge of being 

resolved following umpteen rounds of discussions 

between them and the hospitals. 

However, it is to be noted that only small hospitals have 

joined hands with the insurers, while the bigger ones are 

still not relenting. 

Under the agreement finalized by the two sides, that is, 

the hospital administration and the insurers, the package 

rates are being worked out and prices have been fixed for 

42 procedures. 

THE NEXT STEP 

Obeying IRDA’s order, public sector general insurers 

say they are making arrangements to provide better 

services to policyholders. Insurance companies discourage 

policyholders from availing of cashless treatment in 

non-network hospitals. 

However, according to G Srinivasan, chairman and 

managing director, United India Insurance, the company 

has already extended the cashless facility to policyholders 

who are in the middle of treatment. 

“We have been giving advertisements saying emergency 

or trauma treatments can continue on a cashless basis 

even in non-network hospitals,” informs the managing 

director of United India Insurance. 

This is the first time that the company is re-jigging its 

PPN list, also updated on the website. According to 

Srinivasan, 450 hospitals are part of this list at present 

and many more are likely to join soon. 

Any policyholder can check the website to spot the 

nearest hospital. Besides, the four public sector general 

insurance companies - National Insurance Company, 

United Insurance Company, New India Assurance and 

Oriental Insurance Company - have decided to set up an 

entity to administer and manage claims in a better way, 

following the dispute revolving around the cashless 

mediclaim facility. 

The General Insurers’ (Public Sector) Association of 

India (GIPSA), the voluntary co-ordinating body for the 

four public sector general insurance companies, had 

invited proposals to select a joint venture partner to set up 

a third party administrator (TPA) to manage health 

insurance claims. 

“The partner will be offered up to 26% equity stake in the 

new company,” GIPSA CEO AK Singhal informed. The 

company will be formed with a minimum capital base of 

` 200 crore. 

QUESTIONS REMAIN 

Meanwhile, insurance companies and hospital authorities 

have agreed on package rates being segmented on the 

basis of categorized hospitals. There will be three categories 

- A, B, C - for classification of hospitals. The categorization 

would take place on the basis of infrastructure 

facilities available at these hospitals. 

Industry players say that such agreements would eventually 

lead to the insured paying higher premiums for 

treatment in super-specialty medical centres. 

Such differential pricing would help the health insurance 

industry, which is currently a loss-making entity. 

Currently, many health insurers give more in claims than 

they collect from premiums. 

In fact, the claim ratio, which measures this trend, is 

about 140% for the industry. There are about 8 crore 

mediclaim policy holders in the country. 

The public sector insurance companies claim that they 

had to resort to rationalization of rates for cashless facilities 

as they suffered a loss of ` 2,000 crore due to 

overcharging by hospitals in leading metros like 

Mumbai, Delhi, Chennai and Bengaluru. 

While smaller private hospitals have clearly agreed to the 

above proposition, the bigger players continue to 

maintain that they are being unfairly targeted by health 

insurance companies. 

They argue that the price they charge is proportional to 

the quality of care they provide. Since the kind of care in 

a 100-bed hospital with the latest technology will be 

different from that in a 15-bed hospital, cost of healthcare 

in a large, private hospital is more. 

WHAT YOU CAN DO 

While the issue is being resolved, hapless patients can 

breathe a sigh of relief, as of now. It is evident that the 

sphere of health insurance is likely to witness several 

changes, especially when bigger hospitals make 

themselves heard. 

Meanwhile, as policyholders, it will be prudent on your 

part to contact the customer care centres of insurers to 

know the cashless policy of your own insurer. 

The onus is also on the part of life insurers who have a 

small part of their portfolios as health (operating through 

third party administrators) to keep their customers 

informed at all times through various modes of online 

and offline communicatioN. 

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33

This September, the Organization of Petroleum 

Exporting Countries(OPEC) accomplishes 50 

successful years as an international energy 

committee. It has grown into a twelve-member 

strong establishment of oil-producing countries. 

OPEC was created in Baghdad on 14th Sept ’60 by the 

five member countries: Iraq, Iran, Saudi Arabia, Venezuela 

and Kuwait. The other members, apart from the 

founding nations, are Qatar, Libya, UAE, Nigeria, 

Algeria, Angola and Ecuador. 

OPEC widened its scope with the First Summit of Heads 

of State and Government in Algiers in the year 1975. 

This meeting mainly dealt with the plight of the third 

world countries and called for a new era of international 

co-operation due to concerns over world economic 

development and stability. Member countries ventured 

into challenging socio-economic development strategies. 

Thus, the OPEC Fund for International Development 

was constituted in 1976. 

1981 - 1990 

OPEC was founded around the purpose of co-operation 

and commitment to protect the interests of these 

oil-producing nations and ascertain stability and order in 

the international oil market. 

TRACING THE FIVE-DECADE JOURNEY 

1960 - 1970 

The first half of the 80s saw crude oil prices touching 

record high levels. But they soon began to fall and 

crashed in 1986, responding to the big oil glut. The glut 

was an outcome of sluggish economic activity in the 

industrial countries due to the crises of the 1970s and the 

energy conservation stimulated by high fuel prices. This 

is when the member nations started having differing 

opinions over the course of action. 

THE 

The Iraqi capital of Baghdad is the birthplace of this 

influential organization, where the five founding 

members were holding a five-day meeting to discuss 

their concerns over the excessive controlling power of 

several multinational oil companies. In effect, these 

multinational companies controlled the quantity of oil 

that was extracted and determined the quantity, price as 

well as the purchasing party. 

During their second meeting held at Caracas in Venezuela 

they adopted the OPEC's statute by unanimous 

consent. It states that the principal aim of OPEC is to 

harmonize the petroleum policies of its member 

countries and work together to ensure stable oil prices, 

secure fair returns to the producing countries and investors 

in the oil industry as well as provide a steady supply 

of petroleum to its consumers. 

In Sept ’85, Saudi Arabia tried to acquire a larger part of 

the market by increasing its production, thus creating a 

huge surplus that enraged many of its peer members. 

OPEC’s share in the oil market dropped heavily and its 

total petroleum revenue fell to less than a third of its 

earlier highs, causing economic severities for many 

member nations. Prices rallied towards the end of the 

decade, but only to around 50% of the levels of the first 

half. Gradually, the petroleum association’s share in the 

world output began to recover. 

Significant advancement in market stability was reached 

in the decade from 1981 to 1990 with the commencement 

of dialogue and cooperation between the OPEC and 

non-OPEC countries. 

1991 - 2000 

It has been a 

roller-coaster ride for 

OPEC since its inception 

in 1960, but it plays 

an important role in 

determining crude oil 

prices on the bourses 

OIL 

CLUB 

TURNS 50 

Several other oil-producing countries like Algeria, 

Nigeria, United Arab Emirates, Qatar, Libya and Indonesia 

joined forces with OPEC. This inter-governmental 

organization switched its headquarters from Geneva to 

Vienna during this period. 

1971 - 1980 

The early 1970s saw a good deal of nationalization in the 

oil industry. These countries also gained a greater say in 

the pricing of crude oil in the world markets. During this 

decade, oil prices rose steeply on two occasions - the 

Arab oil embargo in 1973 and the outbreak of the Iranian 

Islamic Revolution in 1979. This period also saw the 

membership of the Organization of Petroleum Exporting 

Countries grow to 13 with Ecuador and Gabon joining 

the existing nations. 

Price movements were less dramatic in the 70s and 80s 

but the well-timed OPEC policies reduced the market 

impact of Middle East events in 1990–91. The Gulf War 

broke out with the invasion of Kuwait by Iraqi troops that 

began on 2nd Aug ’90. This was met with a lot of international 

condemnation. 

The very next day, the United Nations Security Council 

urged Iraq to withdraw from Kuwait and on 6th Aug ’90, 

the council imposed a worldwide ban on trade with Iraq. 

Consequently, excessive volatility and general price 

weakness prevailed during this decade. 

The South-East Asian economic downturn even affected 

richer economies of the North. Plummeting stock prices 

and plunging currencies combined to hammer threequarters 

of the value of Indonesian and Thai financial 

34 





35

assets. However, a strong recovery followed in the 

unified oil market with increased regionalism, globalization, 

revolution in the communication sector and other 

technological developments. 

OPEC’s achievements extend beyond the oil sector. The oil 

revenue that has been earned over the years has helped 

Member Countries develop their own domestic economies. 

Abdalla Salem El-Badri’s - Secretary General , OPEC 

Producer-consumer dialogue propelled the progress in 

OPEC and non-OPEC relations. The United Nationssponsored 

climate change negotiations gained speed 

after the Earth Summit of 1992 due to the involvement of 

the OPEC members. This decade saw Gabon leaving the 

international oil committee and Ecuador suspending its 

OPEC membership. 

Due to its success at being a coherent group and a regulator 

of oil supplies in the world, OPEC has always been viewed as 

a strategic global energy supplier and has thus proved to 

play an important role in the world economy. 

Dr Hussain Al-Shahristani - Iraq, Oil minister 

2001-2010 

In the past decade, Angola joined OPEC while Ecuador 

reactivated its membership and Indonesia suspended it. 

OPEC initiated a ground-breaking oil price-band mechanism 

that stabilized crude prices in the first half of this 

decade. But a culmination of market forces, speculation 

and other factors gave an impetus to oil prices and growing 

volatility in a well-supplied crude market from 2004. 

Nations began progressively touting oil as a financial 

asset class. Prices zoomed to record levels in mid-2008, 

before collapsing in the global financial turmoil. OPEC 

played a big role in stabilizing the oil market and 

strengthening prices to widely acceptable levels. 

OPEC has evolved throughout the years and weathered the 

political and economic changes worldwide and in its Member 

Countries. 

Ali I Naimi - Minister of Petroleum and Mineral Resources, 

Saudi Arabia 

OPEC played a major role in initiating producerconsumer 

dialogue in Paris, which eventually became the 

International Energy Forum (IEF) in 1991. This forum is 

the world’s largest gathering of Energy Ministers and the 

participating members account for more than 90% of the 

global oil and gas supply and demand. The magnitude 

and diversity of this association is a testament to IEF’s 

position as a neutral facilitator. 

Sustainable development, environment and eradication 

of energy poverty were the three guiding themes at the 

Second and Third Summits in Caracas and Riyadh in 

2000 and 2007 respectively. 

OPEC’s ACHIEVEMENTS OVER THE YEARS 

The OPEC Special Fund was originally meant to be a 

temporary facility when it started operations in Aug ’76 

with an initial endowment of $800 million. But within 

little over a year, the funds resources had doubled. It was 

then converted into a full-fledged, permanent OPEC 

Fund for International Development in 1980. 

OPEC introduced the production ceiling system in 

1982. The organization started the practice of having a 

production agreement in place, which stated the overall 

ceiling for the organization as well as the individual 

quotas for member countries. 

The OPEC basket, based on the average price of seven 

representative crudes, was presented in 1987. It was the 

weighted average of oil prices collected from various 

oil-producing countries and is determined as per the 

production and exports of each country and is used as a 

reference point by OPEC to monitor worldwide oil 

market conditions. 

The OPEC Basket, that was reintroduced in 2005, is 

now based on the average price of 11 representative 

member country crudes including the Saharan Blend 

(Algeria), Girassol (Angola), Oriente (Ecuador), Iran 

Heavy (Islamic Republic of Iran), Basra Light (Iraq), 

Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light 

(Nigeria), Qatar Marine (Qatar), Arab Light (Saudi 

Arabia), Murban (UAE) and Merey (Venezuela). 

OPEC initiated energy dialogues with the European 

Union, China and Russia, in 2005, with the agenda of 

recognizing the realities of global climate change and 

supporting comprehensive, fair and realistic efforts to 

reduce the environmental impacts of global energy use. 

OPEC adopted the long-term strategy too, in 2005. 

This strategy recognizes the importance of oil in the 

world economy and the socio-economic development of 

OPEC members. It is designed to identify the key 

challenges that OPEC encounters now and in the future. 

Half a century since its foundation, OPEC has made 

commendable advances towards its main target of 

stabilizing prices in the global oil markets along with 

overseeing the elimination of unnecessary volatility. This 

oil club has effectively managed to anchor oil prices at 

around $75 a barreL. 

SMS ‘BANG’ to 54646, 

Contact Person: Sagar Karvat - +91 77383 80033; e-mail: free@nirmalbang.com 


36 




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 offering for commodity segment. *Through Nirmal Bang Commodities Pvt. Ltd. # Distributors

Business Structure 

Cadila 

Domestic 

(41%) 

Exports 

(44%) 

JVs 

(4%) 

Others 

(11%) 

API 

(1%) 

Formulations 

(40%) 

Formulations 

(37%) 

API 

(7%) 

Hospira 

(2%) 

Nycomed 

(2%) 

BSV 

Consumer 

(8%) 

Animal Health 

(3%) 

Source: Company, NB Research 

SPREADING 

FAR AND WIDE 

Zydus Cadila is set to 

reach greater heights 

on account of sales 

from newer territories, 

new product launches 

and deeper penetration 

in existing regions 

Zydus Cadila is a global healthcare provider and 

one of the top five pharma companies in India. 

The company was founded by late Ramanbhai 

B Patel in 1952 and went on to be the second 

largest pharma company in the early 90s. 

In 1995, the Group restructured its operations. Now, it 

operates as Cadila Healthcare Ltd, under the aegis of the 

Zydus Group spearheaded by Pankaj R Patel, Chairman 

and Managing Director. 

The Group has a strong presence in the cardiovascular, 

gastrointestinal and women’s healthcare segments. It has 

a firm footing in respiratory, pain management, CNS, 

anti-infectives, oncology, neurosciences, dermatology 

and nephrology segments too with a field force of 4,500 

reaching out to super specialists, specialists, surgeons, 

physicians and the rural markets. It has around 11,000 

dedicated workforce spread across the world. 

The company has a well integrated business model 

having presence from API to R&D. It is one of the few 

companies to have a presence in the top three markets - 

USA, Japan and Europe. It also has made a mark in 

emerging markets. Cadila is also a strong player in 

domestic markets with its strong legacy. Cadila believes 

in quality and, hence, gives more thrust on R&D for its 

future expansion. It, therefore, invests close to 5-6% of 

its revenues in R&D annually. 

Cadila caters to the consumer market also via its listed 

subsidiary - Zydus Wellness, in which it holds 72% 

share. Zydus Wellness is the market leader in all the 

segments it is present in. This was possible only due to its 

niche segment approach. 

FINISHED DOSAGES 

Cadila provides formulations to domestic as well international 

markets. It derives 95% of its domestic revenues 

from branded generics, thus ensuring higher margins. 

Presently, domestic formulations have a higher share in 

their pie. But the trend is changing. 

Geographical Distribution 

100% 

80% 

60% 

40% 

20% 

0% 

FY06 FY07 FY08 FY09 FY10 FY11E FY12E 

Domesc Exports 


API AND INTERMEDIARIES 

Backward integration into APIs provides the company an 

edge over its competitors. Besides supporting margins 

and smooth functioning of integrated efforts, captive 

usage of APIs takes care of privacy issues. 

CONSUMER HEALTHCARE 

Cadila Healthcare also has a consumer healthcare and 

wellness business under a separate listed company - 

Zydus Wellness. It holds 72% in Zydus Wellness, which 

has a market cap of more than ` 2,000 crore. 

In FY08, Cadila split the company into two to focus on 

both the businesses. Zydus Wellness is a market leader in 

most of the participated segments. 

Three Segments 

Segments 

Brand 

Skin Care 

EverYuth 

Scrubs 

Peel Offs 

Face Wash 

Sugar Substitutes 

Sugar Free 

Table Spread Margarine Nutralite 


ANIMAL HEALTHCARE 

Cadila caters to the livestock and poultry segments 

through Zydus Animal Health Ltd, its 100% subsidiary. 

In FY10 it began reaching out to the canine segment with 

the launch of eight products. This has helped the 

company to grow by 8.5% despite unfavorable events 

like poor monsoon, outbreak of bird flu, etc. We expect 

the segment to post a CAGR of 6% over the next two 

years and report revenues of ` 143 crore in FY12E. 

UNIQUE MODEL: JVs 

Position 

Leader 

Leader 

2nd Largest 

Leader 

Leader 

Volume Market Share 

69.5% 

98.6% 

13.0% 

80% 

NA 

Cadila has adopted a unique model to grow its business. 

It has entered into three joint ventures with strategic 

partners to have long-term relationships, earn higher 

revenues and to gain from the experience of its partners. 

Zydus Nycomed Healthcare Pvt Ltd: Initially started to 

manufacture Key Starting Materials (KSM) for Pantaprazole 

the scope of this JV has been increased with the 

addition of 14 new products now. It is a 50:50 JV 

between Nycomed and Zydus Cadila to produce APIs. 

Zydus Hospira Oncology Pvt Ltd: This is 50:50 JV 

between Zydus and Hospira to manufacture and market 

oncology products. The JV mainly focuses on injectibles 

and has set up a manufacturing facility in an SEZ in 

Ahmedabad. Injectibles are ‘difficult-to-manufacture’ 

products and hence ensures profitability. FY10 was the 

first year of commercial operations for the JV with the 

production of three products for the European region. 

Zydus BSV Pharma Pvt Ltd: Zydus Bharat Serum and 

Vaccines Pharma Pvt Ltd (ZBSV) is again a 50:50 JV 

between the two companies. It operates in the novel 

patented as well as generic oncology contract segments. 

38 





39

A patented drug ‘NUDOXA’ has been launched in India 

and continues to grow at an encouraging rate. The JV has 

completed Phase I clinical trials of a novel patented 

product and approval for the same have been filed in the 

US and Europe. Also, Phase II/III has been started on the 

product for semi-regulated markets, including India. 

RESEARCH AND DEVELOPMENT 

Cadila aims to be an innovation-driven research-based 

company by 2020. It has a team of total 900 scientists 

involved in NME, NDDS, biologics and API research. It 

is one of the few companies in India which focuses on to 

R&D and considers it to be a future growth area. 

Increasing R&D Revenue 

` in cr 

250 

200 

150 

100 

50 

0 

FY06 FY07 FY08 FY09 FY10 

Revenue Expenditure Capital Expenditure % to Sales 


INVESTMENT RATIONALE 

Robust Export Growth - From US To Taiwan: 

Currently, Cadila gets approximately 40% of its revenues 

from formulations’ exports. The company caters to both 

regulated as well as semi-regulated markets. We expect 

the next phase of growth coming from the export markets 

for the company. 

The company entered the US market five years ago and 

the company has been able to grow its US sales at a 

CAGR of 91% from FY06 to FY10 and currently 

contributes nearly 19% to the gross revenues. 

The company plans to launch 12-15 ANDAs annually. It 

is also foraying into high value generics like pulmonary, 

transdermal, oncology, hormones and topical products, 

which is a $180 billion plus opportunity in the near to 

mid-term period. Given the complex nature of products, 

entry barriers are high, thus ensuring margin stability. 

Cadila is not looking at tender-based markets like 

Germany and is mainly focusing on prescription markets 

like France and Spain in Europe. It has adopted an 

inorganic route to enter these markets by acquiring 

Alpharma in France and laboratories in Spain. 

12 

10 

8 

6 

4 

2 

0 

% to sales 

The company has also forayed into Japan, which has 

been the most difficult market for any company to crack. 

Cadila adopted the most logical way to enter the 

Japanese markets by way of acquisitions. Cadila 

acquired a company called Nippon in FY07. 

Semi-regulated markets like Brazil and Rest of the World 

(RoW) are shaping up decently for the company. 

Together they contribute around 9.5% to gross revenues 

in FY10. Brazil markets are branded as generics market, 

like India, providing stability to margins. 

We expect these markets to grow at a rate of 20% for the 

next two years. The company successfully forayed into 

Taiwan last year and has thus become the first Indian 

company to start operations in the highly-regulated but 

promising markets. It has plans to enter Thailand soon, 

which is looking attractive given the branded generics 

characteristics and low competition in the markets. 

Strong Domestic Presence - Cash Cow 

Cadila is the fifth largest player in the domestic markets 

with a market share of 3.7%. It is a leader in cardiovascular, 

gastro intestinal, women’s healthcare and respiratory 

segments in the covered market. It derives 57% of its 

revenue from chronic therapy segments, giving higher 

revenue visibility to the company. 

Domestic formulations contributed 40% to gross 

revenues in FY10 with 95% coming from the branded 

formulations portfolio. It is one of the earliest players to 

target rural markets. 

It has an impressive field force of 4,500 people divided 

among 11 divisions to target a wide range of doctors and 

to penetrate deeper into the country with an annual 

run-rate of around 60 launches (including line extensions) 

in the domestic market, thus maintaining the 

growth momentum. 

The company is also targeting new therapeutic segments 

to increase the scale and scope of its operations across 

India. Stable domestic formulations give the company 

enough freedom to foray into new and unexplored 

regions and avenues of growth, therefore acting as a 

‘cash cow’ for the company. 

Targeting Niche And High Growth Segments 

The Indian vaccine maker is expected to be ` 3,000 crore 

in size, which provides a huge growth potential to the 

participants. Cadila is emerging as a serious player in the 

segment with rabies and H1N1 vaccines in its account. It 

is targeting the niche segments to grow. The vaccine 

segment gets higher valuation as it is a complex product, 

which posts high barrier for entry and needs specialized 

skills to be successful. 

The company is also entering other ‘difficult to enter’ 

segments like Pulmonary (brand sales of $20 billion), 

transdermal ($10 billion), biogenerics ($40 billion), 

topical ($16 billion), etc. These are near to mid-term 

growth drivers of the company as these are high value, 

low competition products. 

The Consumer Healthcare Segment - Another 

Feather In The Cap 

The consumer healthcare and wellness business of the 

pharma major contributed 7.4% to gross revenue to the 

company in FY10. The company functions under three 

segments, namely, sugar substitutes, skin care and 

margarine, which is listed separately under a 72% subsidiary 

called ‘Zydus Wellness’. 

The company is growing at a CAGR of 34% since the 

last four years. It is a market leader in the peel off 

segment, with 98% market share and in scrubs with 75% 

market share in the skin care segment. 

It has recently launched ‘Menz’ under the skin care 

segment exclusively meant for men. This segment is 

likely to grow at a rate of 25% for the next two years and 

contribute more than 8% to gross revenues. 

Strategic Partnerships In The Form Of JVs 

Cadila Healthcare has adopted a unique business model 

of involving customers directly into the business by 

forming JVs with them. The company has done it with 

Hospira, Nycomed and recently with Bharat Serum and 

Vaccines. This provides many benefits to the company 

like sales stability and visibility, technological transfer 

from market leaders and access to markets where it is not 

present, to name a few. 

Organic Growth Complemented By A String Of 

Successful Acquisitions 

The Gujarat-based pharmaceutical company has started 

acquiring brands and/or companies since the last 4-5 

years to fasten the pace of its growth, which has worked 

well for the company. 

It has made strategic acquisitions to fill the gaps in the 

market, business segments or even product-wise. This 

strategy has shortened the learning curve of the company 

and given it a competitive advantage in the targeted 

fields. The company management has proved its mettle 

by managing well all the acquisitions so far and thus 

grown manifold. 

RECENT UPDATE 

Abbott Deal: Zydus Cadila and Abbott have signed a 

pact for 24 products to be marketed in 40 emerging 

markets. The deal holds an option to increase the scope 

of products by 40 additional products. In May this year, 

Cadila received a sum of ` 47.36 crore ($10 million) as a 

milestone payment. 

Bonus Issue: In Q1FY11, Cadila rewarded its shareholders 

with bonus shares of 1:2, which has increased the 

number of equity shares to 20.5 crore from 13.6 crore. 

Income Statement 

Particulars (Rs cr) FY08 

Revenues 

2,323 

Materials Consumed 790 

Personnel Cost 

277 

Other Expenditure 798 

EBITDA 

458 

Margins % 

19.7 

Depreciation 

97 

Interest 

33 

Other Income 

2 

Profit Before Tax 330 

Taxes 

61 

Profit After Tax 

269 

Margins % 

11.4 

Minority Interest 

5 

Extraordinary Items 7 

Adjusted PAT 

258 

Margins % 

11.1 

Adj EPS 

18.9 


FY09 

2,927 

957 

352 

1,013 

606 

20.7 

112 

120 

20 

394 

67 

327 

11.2 

0 

24 

303 

10.4 

22.2 

FY10 

3,687 

1,178 

441 

1,259 

809 

21.9 

134 

82 

16 

609 

74 

534 

13.8 

25 

5 

505 

13.7 

37.0 

FY11E 

4,487 

1,436 

529 

1,526 

996 

22.2 

147 

79 

13 

783 

118 

666 

14.1 

33 

0 

633 

14.1 

30.9 

VALUATION AND RECOMMENDATIONS 

FY12E 

5,368 

1,691 

655 

1,798 

1,224 

22.8 

160 

75 

13 

1,002 

150 

852 

15.1 

43 

0 

809 

15.1 

39.5 

Cadila’s net sales could grow at a CAGR of 19.3% over 

the next two years. Its net profit is expected to grow at a 

higher CAGR of 28.1% during the same period, on 

account of sales from newer territories, new product 

launches and deeper penetration in the existing regions. 

The management is looking at a sale of $1bn (~ ` 4,600 

crore) in FY11, which translates into 24.8% growth over 

sales in FY10 and $3 billion by 2015, growth of 30% 

CAGR. On a conservative level, we are projecting sales 

of ` 4,446 crore in FY11E, a growth of 20.6%. 

We expect the company to earn an EPS of ` 32 in FY11E 

and ` 39.5 in FY12E. At a CMP of ` 698 per share, 

Cadila is currently trading at a PE of 22.6x FY11E and 

17.7x FY12E EPS, which looks attractive given the 

revenue visibility of the company. 

Cadila should be valued on a PE multiple of 20x. Based 

on our EPS of ` 39.5 for FY12E and a target multiple of 

20x, we arrive at target of ` 790. Consequently, we 

expect the stock this global pharmaceutical major to have 

a potential upsidE. 

40 





41

Fortnightly Outlook For Commodities 

Fortnightly Outlook For Currencies 

In the previous fortnight, most commodities rallied 

mainly on account of a weakness in the US dollar. 

During this period, gold and silver hit fresh highs of 

$1,310/ounce and $22/troy ounce respectively. The 

base metals pack remained vibrant, with copper hitting 

$8,000/tonne and other base metals too moving up. 

Crude oil managed to test $80/barrel and agricultural 

commodities on CBOT, including oilseeds and grains 

were seen moving up in the last fortnight. However, the 

upside in base metals, precious metals and energies was 

capped on our domestic bourses due to sharp appreciation 

in the rupee from ` 46.50 to ` 44.90. 

So, what is fuelling the rally in commodities despite a 

series of negative economic reports from the US, the 

world’s largest economy? We believe the FOMC 

meeting brought bulls back into the market. The FOMC 

in its statement said that it is “prepared to provide 

additional accommodation if needed to support the 

economic recovery and to return inflation, over time, to 

levels consistent with its mandate.” 

Inflation in the US is still below the expectation of the 

Federal Reserve and statements that they want to return 

to inflation were bullish triggers for the commodities 

market. The dollar started to weaken prior to the FOMC 

meeting and post that, it collapsed. 

Dollar Index 

84 

83 

82 

81 

80 

79 

78 

77 

76 

10 Sept’10 

Source: Reuters 

12 Sept’10 

14 Sept’10 

16 Sept’10 

18 Sept’10 

20 Sept’10 

With a sharp weakness in the dollar, we have seen an 

upside in the commodities index. The weakness in dollar 

is clearly reflected in the commodities index that is the 

CRB Index. 

With enormous liquidity in the markets, we see all asset 

classes moving upwards in tandem. Although this may 

appear irrational, this is how the financial markets are 

behaving in the current scenario. Besides, talks of further 

22 Sept’10 

24 Sept’10 

26 Sept’10 

28 Sept’10 

30 Sept’10 

quantitative easing also attributed to the rally in 

commodities from gold to wheat. 

Moreover, robust economic data from China seems to be 

helping base metal prices. Expansion in manufacturing 

activity for the month of September was clearly visible 

from China’s Purchasing Managers’ Index (PMI), which 

rose to 53.8 in September from 51.7 in August. We 

believe there is extreme optimism in the global financial 

markets as the markets are ignoring negative developments 

and moving up. Now the question that needs to be 

answered is: how long will this go on? 

In the coming fortnight, we may see bulls staying active 

due to the continued weakness in dollar. However, 

demand and supply dynamics cannot be ignored. As per 

the GFMS report, the worldwide hedge book gained 

about 1,60,000 ounces to 7.19 million ounces in the last 

quarter, the first and the biggest increase since the fourth 

quarter of 2005. This development indicates that miners 

are playing safe at current levels, indicative of a limited 

upside in gold prices. Stabilizing financial markets could 

deter fresh participation from speculators in the yellow 

metal. We do not expect gold prices to breach $1,335 on 

the upside. 

After trading in a narrow range of $72-$78/barrel, crude 

oil has finally started trading above $78/barrel. The 

fundamentals of crude oil are not bullish since supply 

exceeds demand. We have entered the refinery maintenance 

season and demand from the US has picked up a 

great deal. 

The crude oil rig count is moving up but OPEC production 

is way below its peak levels. This may push crude oil 

prices to $82/barrel. This would be a fantastic opportunity 

to go short in crude oil with a downside target of 

$76/barrel in the coming fortnight. 

While rising production of industrial metals, higher 

availability of concentrates, negligent arbitrage opportunity 

between LME and Shanghai markets are negatives 

for base metal prices, good imports and robust manufacturing 

report from China and weakness in the dollar are 

boosting base metal prices. 

More than the underlying fundamentals, any further 

weakness in the US dollar could drive base metal prices 

higher. We are not very bullish on the base metals 

complex, however, we do not rule out the possibility of 

copper testing ` 370/kg and aluminium ` 107/kg in the 

coming fortnighT. 

The tone in the Forex market in the past fortnight 

was primarily set by the outcome of the last 

Federal Open Market Committee (FOMC) 

meet held in late September. Now, faced with a 

9.6% jobless rate and below-target inflation, Fed policymakers 

hinted at a second round of quantitative easing, 

which may essentially come in the form of resumption of 

a treasury buying program by the Federal Reserve. 

This expectation led to a broad sell-off in the US dollar 

coupled with aggressive bidding for high-yielding 

currencies. The emerging tensions between USA and 

China due to the yuan revaluation augmented pressure 

on the US dollar. Moreover, Asian Central Banks were 

seen rebalancing their Forex reserves portfolio by 

bidding for currencies like euro, swiss franc and sterling. 

The 16-member euro currency, rallied by a good 

400-450 basis points in the fortnight gone by, in spite of 

debt concerns prevailing in the European peripheral 

nations. Firstly, slight improvement seen in the German 

IFO business climate and manufacturing numbers 

coupled with robust Purchasing Managers’ Index from 

China boosted the global risk appetite and thereby lent 

support to the euro. Secondly, Asian Central Banks were 

quite busy bidding for the euro, taking the euro to the 

high of $1.38 during the fortnight. We expect a rally in 

the euro to continue to the mark of $1.40 before settling 

down for any significant profit-taking. 

The sterling, too rallied in the backdrop of the weakness 

in the US dollar. However, the pace remained subdued 

for the sterling largely after one of the European Central 

Bank members commented that UK requires further 

quantitative easing. Another poll of economists showed 

that the probability of the Bank of England extending its 

quantitative easing scheme is very high. 

Faced with a projected slowdown in growth and imminent 

budget cuts that will slash government departments’ 

spending by around a quarter, 16 from a sample of 51 

analysts said that they expected the BoE to step in with 

more quantitative easing (QE). That compared with just 

five from 47 in the same poll conducted a month ago. 

The BoE’s QE scheme, used to inject money into the 

economy through its purchases of mostly government 

bonds with newly-created money, totalled 200 billion 

pounds ($317 billion) and the Bank has reserved the 

right to do more, if necessary. The growing list of economists 

who think that the BoE’s Monetary Policy 

Committee (MPC) will extend QE, while still in the 

minority, is catching up with more solid expectations in 

the US that the Federal Reserve will do the same. 

Taking these developments into account, we do not see 

any significant upside in the sterling from the current 

levels of $1.5825. In fact, the levels of $1.59-1.5950 shall 

be used as a good selling opportunity. 

The Japanese Yen strengthened to the level of 83 against 

the US dollar on the back of fiscal half-year end dollar 

selling by hedge funds and Japanese exporters. This is 

the level where the Bank of Japan intervened in early 

September to curb the strength in the yen. We anticipate 

another round of BOJ intervention that would limit 

further gains in the yen. We are expecting the USDJPY 

pair to climb to 85 in the coming fortnight. 

Asian currencies benefitted the most along with the 

Australian dollar. Huge capital flowed from the US and 

Europe to this part of the world in search of higher yields. 

Though there were some efforts seen from apex banks of 

South Korea and Thailand to limit gains in their respective 

currencies, they went almost in vain. 

The South Korean won rose to a 4-1/2-month high 

against the dollar, overpowering intervention worth an 

estimated $2 billion. Thai baht’s rise gathered pace in 

late September, pushing the currency up to test a new 

13-year high of 30.22 per dollar amid sporadic intervention 

by the Central Bank. 

The Indian rupee emerged as the best performer among 

Asian currencies in September, boosted by robust portfolio 

investments and tracking broad losses in the dollar 

versus major currencies overseas. The partially convertible 

rupee settled at 44.47/48 per dollar after hitting 

44.46, its strongest since 30th April this year. 

Robust foreign fund inflows coupled with strong auto 

sales drove Indian shares to 33-month highs in the previous 

fortnight. Net equity inflows in 2010 now stand at a 

record $19.2 billion, above last year’s $17.5 billion. 

Going forward, we expect the rupee to test the level of 

44.00 against the US dollar. 

But there could be some importers and corporates covering 

in between, but the overall bias is on the downside in 

the USDINR pair. On the other hand, India’s current 

account deficit widened in the June quarter from the 

previous three months due to higher merchandise trade 

gap and lower earnings through services, which are likely 

to limit the strength in the rupee in the medium terM. 

42 





43

Commodity 

Daily Technical And 

Fundamental Reports 

Evening Buzzer 

F&O Reports Of Gold 

And Crude Oil On 

Comex And Nymex 

Intra-day 

And Long-term Calls 

Trading 

backed 

by In-depth 

Research # 

Quarterly Magazine 

On Commodities 

Spread Strategies 

Commodity trading helps to boost 

your investment portfolio when 

backed by in-depth research. At Nirmal 

Bang, we assist you in taking the right 

decisions with the right analysis. 

EQUITIES* | DERIVATIVES* | COMMODITIES | CURRENCY* | MUTUAL FUNDS^ | IPOs^ | INSURANCE^ | PMS* | DP* 

Contact: Hiral Parekh - +91 77383 80020/ 022-3027 4557/58/59 

Shalini Desai - +91 77383 80155/ 022-3027 2332 

SMS ‘BANG COM’ to 54646; e-mail: commodity@nirmalbang.com 

www.nirmalbang.com 


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 offering for commodity segment. *Through Nirmal Bang Securities Pvt. Ltd. ^Distributors # Prepared by Research Analyst of Nirmal Bang Commodities Pvt. Ltd. 

REGD. OFFICE: Sonawala Building, 25 Bank Street, Fort, Mumbai - 400 001. Tel: 022 - 30272222; Fax: 022 - 30272232 

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CHANGE IN PRICE AND OPEN INTEREST 

Company Name 

Nifty Futures 

Bank Nifty 

ABB Ltd 

ACC Ltd 

Ambuja Cements Ltd 

Axis Bank Ltd 

Bharti Airtel Ltd 

Bharat Heavy Electricals Ltd 

Bharat Petroleum Corporation Ltd 

Cairn India Ltd 

Cipla Ltd 

DLF Ltd 

GAIL (India) Ltd 

HCL Technologies Ltd 

HDFC Ltd 

HDFC Bank Ltd 

Hero Honda Motors Ltd 

Hindalco Industries Ltd 

Hindustan Unilever Ltd 

ICICI Bank Ltd 

Idea Cellular Ltd 

IDFC Ltd 

Infosys Technologies Ltd 

ITC Ltd 

Jindal Steel & Power Ltd 

Jaiprakash Associates Ltd 

Kotak Mahindra Bank Ltd 

Larsen & Toubro Ltd 

Mahindra & Mahindra Ltd 

Maruti Suzuki India Ltd 

NTPC Ltd 

Oil & Natural Gas Corporation Ltd 

Punjab National Bank 

Power Grid Corporation of India Ltd 

Ranbaxy Laboratories Ltd 

Reliance Communications Ltd 

Reliance Capital Ltd 

Reliance Industries Ltd 

Reliance Infrastructure Ltd 

Reliance Power Ltd 

Steel Authority of India Ltd 

State Bank of India 

Siemens Ltd 

Sterlite Industries (India) Ltd 

Sun Pharmaceutical Industries Ltd 

Suzlon Energy Ltd 

Tata Motors Ltd 

Tata Power Co Ltd 

Tata Steel Ltd 

Tata Consultancy Services Ltd 

Unitech Ltd 

Wipro Ltd 


CHANGE IN PRICE AND OPEN INTEREST OF THE NIFTY 50 COMPANIES 

13th Sept'10 30th Sept'10 

Price 

(Rs) 

5763.20 

11850.10 

780.70 

977.55 

135.95 

1430.60 

349.65 

2503.00 

756.75 

329.35 

307.85 

332.80 

470.05 

411.85 

665.65 

2290.70 

1708.85 

191.10 

278.95 

1096.05 

74.35 

191.60 

2934.75 

163.80 

720.30 

122.20 

448.95 

1908.95 

660.25 

1333.55 

207.75 

1376.30 

1242.30 

105.95 

510.80 

163.30 

777.50 

993.50 

1058.10 

157.65 

202.20 

3120.25 

725.20 

167.00 

1757.35 

51.30 

1032.90 

1276.90 

602.85 

884.45 

85.15 

405.35 

Open 

Interest 

42417100 

2864175 

1218250 

3055500 

29950000 

4484000 

23203000 

2681500 

4770000 

18860000 

7969000 

15916000 

4374500 

2960000 

10796250 

4597125 

4323875 

24968000 

12473000 

20674000 

37152000 

18026000 

4621250 

42698000 

5980500 

35652000 

6203000 

4803500 

8095500 

2944000 

21539000 

3263000 

2963000 

19684000 

3139500 

35212000 

9524500 

29182750 

9129250 

28112000 

8249000 

6846250 

1808500 

35593000 

882875 

88836000 

14435500 

1874250 

23707000 

6789500 

58868000 

7590296 

Price 

(Rs) 

6033.50 

12342.15 

913.10 

988.50 

139.45 

1537.70 

367.20 

2500.95 

756.70 

337.20 

324.10 

379.25 

479.55 

421.55 

733.35 

2490.80 

1799.40 

196.70 

310.75 

1114.75 

74.05 

204.00 

3047.05 

178.90 

712.00 

121.70 

478.05 

2058.05 

693.55 

1452.10 

218.70 

1411.65 

1293.70 

107.55 

561.10 

169.70 

785.00 

994.00 

1076.60 

160.30 

206.65 

3195.85 

827.25 

167.40 

2030.20 

52.95 

1104.55 

1363.45 

656.55 

929.25 

88.90 

450.80 

Open 

Interest 

29258800 

1766625 

1020000 

1753000 

19836000 

2806750 

15726000 

2709250 

3309500 

15130000 

3573000 

13543000 

1695500 

1424000 

7660000 

2644500 

2880625 

15194000 

9076000 

12828250 

17704000 

19202000 

3472250 

19920000 

5040500 

33552000 

3253000 

2448125 

6619250 

2289750 

18853000 

1530750 

1492000 

18620000 

3293500 

27718000 

8457500 

22314250 

7126250 

27086000 

5835000 

3561625 

1195500 

22196000 

451000 

82560000 

10779500 

898250 

18731500 

3411500 

56196000 

5831833 

Change 

in Price 

(Rs) 

270.30 

492.05 

132.40 

10.95 

3.50 

107.10 

17.55 

-2.05 

-0.05 

7.85 

16.25 

46.45 

9.50 

9.70 

67.70 

200.10 

90.55 

5.60 

31.80 

18.70 

-0.30 

12.40 

112.30 

15.10 

-8.30 

-0.50 

29.10 

149.10 

33.30 

118.55 

10.95 

35.35 

51.40 

1.60 

50.30 

6.40 

7.50 

0.50 

18.50 

2.65 

4.45 

75.60 

102.05 

0.40 

272.85 

1.65 

71.65 

86.55 

53.70 

44.80 

3.75 

45.45 

Change 

in Open 

Interest 

-13158300 

-1097550 

-198250 

-1302500 

-10114000 

-1677250 

-7477000 

27750 

-1460500 

-3730000 

-4396000 

-2373000 

-2679000 

-1536000 

-3136250 

-1952625 

-1443250 

-9774000 


-7845750 

-19448000 

1176000 

-1149000 

-22778000 

-940000 

-2100000 

-2950000 

-2355375 

-1476250 

-654250 

-2686000 

-1732250 

-1471000 

-1064000 

154000 

-7494000 

-1067000 

-6868500 

-2003000 

-1026000 

-2414000 

-3284625 

-613000 


-431875 

-6276000 

-3656000 

-976000 

-4975500 

-3378000 

-2672000 

-1758463 

Change 

in Price 

(%) 

4.69 

4.15 

16.96 

1.12 

2.57 

7.49 

5.02 

-0.08 

-0.01 

2.38 

5.28 

13.96 

2.02 

2.36 

10.17 

8.74 

5.30 

2.93 

11.40 

1.71 

-0.40 

6.47 

3.83 

9.22 

-1.15 

-0.41 

6.48 

7.81 

5.04 

8.89 

5.27 

2.57 

4.14 

1.51 

9.85 

3.92 

0.96 

0.05 

1.75 

1.68 

2.20 

2.42 

14.07 

0.24 

15.53 

3.22 

6.94 

6.78 

8.91 

5.07 

4.40 

11.21 


Change 

in Open 

Interest 

(%) 

-31.02 

-38.32 

-16.27 

-42.63 

-33.77 

-37.41 

-32.22 

1.03 

-30.62 

-19.78 

-55.16 

-14.91 

-61.24 

-51.89 

-29.05 

-42.47 

-33.38 

-39.15 

-27.23 

-37.95 

-52.35 

6.52 

-24.86 

-53.35 

-15.72 

-5.89 

-47.56 

-49.03 

-18.24 

-22.22 

-12.47 

-53.09 

-49.65 

-5.41 

4.91 

-21.28 

-11.20 

-23.54 

-21.94 

-3.65 

-29.26 

-47.98 

-33.90 

-37.64 

-48.92 

-7.06 

-25.33 

-52.07 

-20.99 

-49.75 

-4.54 

-23.17 

Source: NB Research 

45

TECHNICAL OUTLOOK FOR THE FORTNIGHT 

KEY HIGHLIGHTS 

In the previous fortnight, Indian indices maintained 

their momentum and have been touching new highs on 

strong Foreign Institutional Investor (FII) fund flows. 

Buying is visible across all sectors and large heavyweight 

stocks are driving the index higher. 

The undertone has been quite strong as we are not 

witnessing great sell-offs at higher levels. This move 

which began from the low of 5,480 on 6th September 

has been broadly on the index front with mid-cap 

stocks not participating much. 

While bank stocks were outperformers, Reliance 

Industries and the Anil Ambani Group continued to be 

under pressure despite the 16.25% move on the Nifty 

since the start of September ’10. 

The global indices too rallied decently, with the Dow 

Jones rallying 7%, Nasdaq (14.70%), S&P 500 (10%), 

Hang Seng (10.50%), FTSE (8%) and Nikkei (7%). 

However, the Shanghai Comp Index, which is still 

trading flat, did not participate in the global rally. 

So, technically speaking both the global and the Indian 

markets are looking positive at the moment and 

chances are that the Indian markets could head further 

north in the medium-term, if the global markets 

continue to remain firm. 

In the month of September, FIIs remained consistent 

buyers at `55,885 crore, while domestic institutions 

were net sellers at `12,920 crore. 

STRATEGY 

Going forward, from the current levels of 6,200 on the 

Nifty, the Indian markets are technically well shaped 

from a medium to long-term perspective. 

The trend is continuously up but there is no great 

optimism or euphoria on the streets. This 16% move 

on the Index is a result of institutional participation 

while retail players have been largely left out as 

broader indices have not moved significantly. On the 

F&O front, the October series is trading with heavy 

premiums proving that a lot of shots continue to be 

covered in the system. 

The PCR is at 1.36, which also signifies that the 

markets are yet overbought and chances of the markets 

rallying further are very high. On the Options series, 

huge addition on the 6,100 and 6,000 Put series can be 

seen providing huge support at lower levels. 

India’s medium-term outlook remains promising. 

From here on, the markets will continue to take cues 

from the global markets and also track FII fund flows 

closely. The coming result season is likely to be the 

next major trigger. The trading range for this fortnight 

could be 5,885 – 6,300 with a positive bias. 

From a trading perspective, it appears as if we are in 

the last leg of the spectacular rally on the bourses and 

market players should be very cautious while taking 

positions in the market. 

The current trend is positive and a major breakdown 

may be seen in the Nifty only below the 5,885 level. 

Any decline can be used as a buying opportunity. 

Going forward, chances are that the Nifty could hit the 

6,350 mark. 

For the coming fortnight, we believe that profitbooking 

around the 6,250 - 6,350 levels cannot be 

ruled out at higher levels. Hence, market players are 

advised to remain stock-specific and work with a strict 

stop-loss on all positions. 

Nifty Weekly Chart: The Nifty is inching higher and is showing a lot of relative strength. The weekly RSI at 78 

indicates that the markets are extremely overbought and chances are that they could correct in the near term. The 

first sign of weakness could be seen only below the 6,030 level. The next support exists at the 5,980 level and only 

below these levels can the trend get slightly weaker. 

21 29 11 

2010 

0.0% 

23.6% 

38.2% 

50.0% 

61.8% 

100.0% 

18 25 1 8 15 22 2 8 

February 

March 

Relative Strength Index (78.7589) 

* S&P CNX NIFTY (6,030.30, 6,153.10, 6,030.30, 6,143.40, +113.450) 

15 22 29 5 12 19 26 3 10 17 24 31 7 

April 

May 

June 

14 21 28 5 

July 

12 19 26 2 9 

August 

0.0% 

23.6% 

38.2% 

50.0% 

61.8% 

100.0% 

161.8% 

261.8% 

423.6% 

16 23 30 6 13 20 27 4 11 

September October 

80 

70 

60 

50 

40 

30 

6250 

6200 

6150 

6100 

6050 

6000 

5950 

5900 

5850 

5800 

5750 

5700 

5650 

5600 

5550 

5500 

5450 

5400 

5350 

5300 

5250 

5200 

5150 

5100 

5050 

5000 

4950 

4900 

4850 

4800 

4750 

4700 

4650 

4600 

4550 

30000 

20000 

10000 

x10000 

18 

However, from a very short-term view, we believe that 

the markets have entered into an extremely 

overbought zone as the RSI on the daily chart reads 

80, and on the weekly chart it is at 77, signifying that 

the markets could pause, going forward. 

The trend is very strong and buying is seen mainly in 

large-cap and quality stocks indicating that the downtrend 

from the current levels is limited to the extent of 

5,885 and any sharp decline could be used as a buying 

opportunity by market players. 

Traders should look forward to buying quality 

mid-cap stocks that are trading slightly above their 

support levels and have higher volumes as the Nifty 

could consolidate after a huge non-stop rally. 

STOCK IDEA 

Stocks like Bank of India, Cipla Ltd, Century Textiles 

and Industries Ltd, Exide Industries Ltd, Godrej 

Industries Ltd, IFCI Ltd, Jindal Steel & Power Ltd, 

Vijay Bank look great buys on declines from a shortterm 

trading perspectivE. 

a stitch in time saves nine 

plan your finances in time 

Your financial security is our concern. 

At Nirmal Bang, it’s a relationship beyond broking... 

EQUITIES | DERIVATIVES | COMMODITIES | CURRENCY | MUTUAL FUNDS | IPOs | INSURANCE | PMS | DP 

SMS ‘BANG’ to 54646 | e-mail: free@nirmalbang.com | www.nirmalbang.com 

46 





47

COMPANIES IN AND OUT ( For Aug’10) 

IN 

OUT 

ACC Ltd 

Ambuja Cements Ltd 

Axis Bank Ltd 

Bharat Petroleum Corporation Ltd 



DLF Limited 

Hindalco Industries Ltd 

Hindustan Unilever Ltd 

HDFC Ltd 

ICICI Bank Ltd 

JaiPrakash Associates Ltd 

Kotak Mahindra Bank Ltd 


COMPANY QTY AMC 


Punjab National Bank 

Reliance Capital Ltd 

Siemens Ltd 


Tata Consultancy Services Ltd 

Unitech Ltd 

3400 

987700 

450 

5000 

364777 

50000 

414777 

125000 

1614999 

399980 

58824 

500000 

22753 

1275115 

2256672 

1150004 

59823 

53250 

150000 

29997 

15099 

18000 

5200 

68296 

15000 

13000 

28000 

23500 

4250 

368300 

125000 

400000 

265003 

290999 

Sahara 

Reliance 

JPMorgan 

Axis 

Deutsche 

Mirae Asset 

Escorts 

DSP BlackRock 

Axis 

Baroda Pioneer 

Deutsche 

Religare 

Sundaram BNP Paribas 

Reliance 

Deutsche 

Escorts 

Mirae Asset 

Axis 

Fortis 

Mirae Asset 

Sahara 

Kotak Mahindra 


Sahara 

Sahara 

DSP BlackRock 



Axis 


Note: Data mentioned here has been extracted on 27th Sept ’10 


MUTUAL FUND, FII ACTIVITY AND NIFTY 

This graph and data represent the Mutual Fund and FII activity 

that took place in the last fortnight, whether the Fund Houses 

were buyers or sellers. 

4000 

3500 

3000 

2500 

2000 

1500 

1000 

500 

0 

-500 

-1000 

-1500 

13 Sept'10 

MF Net , FII Net & Nifty 

16 Sept'10 21 Sept'10 


MF FII NIFTY (RHS) 


6100 

6050 

6000 

5950 

5900 

5850 

5800 

5750 

5700 

5650 

5600 

ABB Ltd 

Axis Bank Ltd 



Cipla Ltd 

HDFC Bank Ltd 

Hero Honda Motors Ltd 

IDFC Ltd 

ITC Ltd 

JaiPrakash Associates Ltd 



Ranbaxy Laboratories Ltd 

Reliance Infrastructure Ltd 

Reliance Power Ltd 

Siemens Ltd 


Suzlon Energy Ltd 

Tata Steel Ltd 

Unitech Ltd 

Wipro Ltd 

COMPANY QTY AMC 

Date 
















MF Net* 

-434.90 

-662.80 

-487.10 

-751.30 

-345.00 

-208.80 

-750.80 

-449.90 

-278.00 

-299.30 

-611.30 

-567.90 

-535.90 

-1093.80 

260400 

1126465 

3048386 

4435251 

1230 

8039 

9269 

97999 

635137 

96000 

731137 

257436 

14600 

272036 

15000 

189000 

60006 

672170 

618522 

1350698 

20000 

865593 

287357 

30000 

6107 

4000 

10000 

10000 

20000 

198000 

1650 

199650 

10161 

53117 

6317993 

6371110 

14000 

26129 

10100 

2650 

52879 

4680163 

333000 

FII Net * 

1176.50 

2636.40 

1723.30 

2360.10 

1143.60 

1715.80 

1878.60 

3312.60 

1505.40 

582.70 

1338.70 

1307.10 

894.90 

- 

AIG Global 

DSP BlackRock 

Reliance 

Escorts 

Religare 

Bharti AXA 

Deutsche 

Mirae Asset 

Deutsche 

Sahara 

Bharti AXA 

HSBC 


HSBC 

JPMorgan 

Axis 


DSP BlackRock 


Religare 

Axis 

Axis 

Sahara 

HSBC 

Shinsei 

Escorts 

Baroda Pioneer 

Reliance 

Bharti AXA 

Religare 

Sahara 

Shinsei 

DSP BlackRock 

HSBC 

Nifty 

5760.00 

5795.55 

5860.95 

5828.70 

5884.95 

5980.45 

6009.05 

5991.00 

5959.55 

6018.30 

6035.65 

6029.50 

5991.30 

6029.95 

*Net activity in Equity 

CASH POSITION OF ASSET MANAGEMENT COMPANIES 

This table signifies change in the amount of cash held by fund houses. An increase in the cash position can be due to 

the fund houses choosing to hold cash expecting better opportunities in the future or it could also be that they are 

expecting more redemptions due to a liquidity crunch and are therefore maintaining a high cash position. A decrease 

in the cash holding can be the outcome of purchases made by fund houses or due to redemptions that might have come 

in during the said period. 

Fund House 

AIG Global Investment Group Mutual Fund 

Axis Mutual Fund 

Benchmark Mutual Fund 

Bharti AXA Mutual Fund 

Birla Sun Life Mutual Fund 

Baroda Pioneer Mutual Fund 

Canara Robeco Mutual Fund 

DSP BlackRock Mutual Fund 

DWS Mutual Fund 

Edelweiss Mutual Fund 

Escorts Mutual Fund 

Fidelity Mutual Fund 

Fortis Mutual Fund 

Franklin Templeton Mutual Fund 

HDFC Mutual Fund 

HSBC Mutual Fund 

ICICI Prudential Mutual Fund 

IDBI Mutual Fund 

IDFC Mutual Fund 

ING Mutual Fund 

JM Financial Mutual Fund 

JPMorgan Mutual Fund 

Kotak Mahindra Mutual Fund 

L&T Mutual Fund 

LIC Mutual Fund 

Mirae Asset Mutual Fund 

Morgan Stanley Mutual Fund 

PRINCIPAL Mutual Fund 

Quantum Mutual Fund 

Reliance Mutual Fund 

Religare Mutual Fund 

Sahara Mutual Fund 

SBI Mutual Fund 

Shinsei Mutual Fund 

Sundaram BNP Paribas Mutual Fund 

Tata Mutual Fund 

Taurus Mutual Fund 

UTI Mutual Fund 

Total 

Corpus* 

as on 

31 Jul '10 

(Rs in Cr) 

534.01 

807.20 

62.30 

192.83 

12054.09 

108.74 

1068.39 

12038.45 

426.64 

60.27 

29.84 

6508.03 

328.59 

13862.02 

26005.13 

2658.55 

15383.57 

130.25 

4384.67 

362.78 

1673.29 

785.04 

4300.51 

264.68 

1077.02 

241.14 

2179.70 

2663.19 

62.56 

36626.35 

856.68 

83.52 

19206.36 

12.14 

9961.37 

6705.89 

340.07 

22761.81 

206807.68 

Jul '10 Aug '10 

Cash Cash Corpus* Cash 

as on 

Holding Holding 31 Aug '10 Holding 

(Rs in Cr) (%) 

(Rs in Cr) (Rs in Cr) 

43.38 

171.63 

4.95 

6.59 

814.53 

28.30 

114.99 

469.07 

54.27 

13.22 

4.45 

134.30 

7.52 

730.86 

851.84 

134.03 

2547.21 

0.27 

399.53 

27.92 

54.82 

43.37 

310.27 

11.19 

54.60 

11.87 

72.16 

118.71 

9.01 

2430.48 

25.62 

5.80 

932.91 

1.00 

379.73 

205.54 

16.81 

850.79 

12093.54 

8.12 

21.26 

7.95 

3.42 

6.76 

26.02 

10.76 

3.90 

12.72 

21.94 

14.92 

2.06 

2.29 

5.27 

3.28 

5.04 

16.56 

0.21 

9.11 

7.70 

3.28 

5.52 

7.21 

4.23 

5.07 

4.92 

3.31 

4.46 

14.40 

6.64 

2.99 

6.94 

4.86 

8.27 

3.81 

3.07 

4.94 

3.74 

5.85 

511.60 

810.32 

64.00 

181.00 

11612.81 

114.98 

1103.05 

12298.52 

415.52 

66.97 

29.58 

6468.00 

315.28 

13983.08 

26844.94 

2577.05 

15450.20 

129.45 

4487.94 

374.30 

1596.77 

757.58 

4275.54 

278.75 

1040.06 

233.17 

2193.99 

2656.17 

65.46 

36678.98 

840.96 

87.92 

18947.68 

12.11 

10071.43 

6646.36 

347.15 

22937.30 

207505.96 

66.78 

168.18 


4.32 

521.54 

14.85 

144.58 

489.45 

31.37 

10.26 

7.01 

184.67 

3.76 

901.96 

882.72 

106.27 

1822.57 

1.27 

294.44 

24.46 

53.93 

41.59 

318.51 

14.59 

33.67 

4.92 

50.55 

133.67 

8.59 

1968.09 

44.99 

7.55 

726.15 

0.57 

641.56 

179.00 

13.37 

891.33 

10817.48 


* AUM of the Equity schemes owned by the fund house Note: Cash Position of some of the AMC schemes are not included due to unavailability of data. 

Cash 

Holding 

(%) 

13.05 

20.76 

6.86 


4.49 

12.92 

13.11 

3.98 

7.55 

15.32 

23.71 

2.86 

1.19 

6.45 

3.29 

4.12 

11.80 

0.98 

6.56 

6.53 

3.38 

5.49 

7.45 

5.23 

3.24 

2.11 

2.30 

5.03 

13.12 

5.37 

5.35 

8.58 

3.83 

4.69 

6.37 

2.69 

3.85 

3.89 

5.21 

48 





49

MOVERS AND LAGGARDS IN MUTUAL FUND SCHEMES 

Equity Schemes 

Scheme Name 

Movers 

JM Equity - G 

Reliance Quant Plus Fund - Ret - G 

ICICI Prudential Technology Fund - G 

Religare AGILE Fund - G 

L&T Hedged Equity Fund - G 

Laggards 

Birla Sun Life Commodity Equities Fund - GA - Ret - G 

JM Hi Fi Fund - G 

JM Agri & Infra Fund- G 

Principal PNB Long Term Equity Fund - 3 Year - Series II - G 

Birla Sun Life International Equity Fund - Plan A - G 

Debt Schemes 

Movers 

ICICI Prudential SMART Fund - Series G - 36 Months - Ret - G 

ICICI Prudential SMART Fund - Series F - 36 Months - Ret - G 

ICICI Prudential SMART Fund - Series H - 36 Months - Ret - G 

Templeton India IBA - Plan A - G 

Templeton India Income Fund - G 

Laggards 

ICICI Prudential SMART Fund - Series D - 24 Months - Ret - G 

Canara Robeco InDiGo Fund - G 

Sundaram BNP Paribas Income Plus- G 

UTI Investment Bond Fund - Plan I - Ret - G 

Morgan Stanley Active Bond Fund - Reg - G 

Balance Schemes 

Movers 

Sundaram BNP Paribas Balanced Fund - G 

LIC Balanced - Plan C (G) 

JM Balanced - G 

Baroda Pioneer Balance Fund - G 

UTI Balanced Fund - G 

Laggards 

Escorts Opportunities Fund - G 

Birla Sun Life 95 - G 

Canara Robeco Balance - G 

HDFC Balanced Fund - G 

Escorts Balanced Fund - G 

*(28th Sept’10) **(29th Sept’10) 


NAV 

(1st Oct '10) 

40.8443 

14.5974 

18.0600 

7.1700 

15.5100 

15.3043 

6.1709 

3.0613 

12.71* 

8.5802 

20.3884** 

16.0766** 

15.2381** 

31.3192 

32.4868 

13.4496** 

10.1455 

14.6709 

10.3866 

10.1780 

51.5074 

59.7389 

25.0424 

29.7100 

85.3600 

28.4358 

323.3300 

64.4700 

56.1090 

66.6713 

Absolute % 

(Point to Point) 

2 Weeks 

6.3557 

5.4642 

5.0000 

4.9780 

4.8682 

-1.7507 

-1.6260 

-1.0505 

-0.9353 

-0.7519 

7.2549 

1.3076 

1.2626 

1.2479 

0.7683 

-0.6185 

0.0118 

0.1181 

0.1234 

0.1397 

3.8018 

3.3665 

3.2617 

2.8384 

2.5962 

0.3504 

0.7290 

1.1929 

1.4960 

1.5342 

50 


Disclaimer 

The information provided here has been obtained from 

various sources and is considered to be authentic and 

reliable. However, Nirmal Bang Securities Private 

Limited is not responsible for any error or inaccuracy 

in the same. 

It’s simplified...

TIME 

TO 

EVALUATE 

Diversification, market capitalization and 

liquidity are some of the criteria for selecting a 

stock in the index 

In August, shares of Dr Reddy’s Laboratories, Sesa 

Goa and Bajaj Auto spiked up a bit on news of their 

inclusion in the most coveted 50-share S&P CNX 

Nifty effective 1st Oct ’10. While, ABB, Idea and 

Unitech were on the way out and on the receiving end. 

Evaluation 

Outstanding 

Excellent 

Very Good 

Average 

Below Average 

Though not a new phenomenon, every time there is an 

inclusion or exclusion of a component to/from an index, 

we have seen some sort of volatility linked to the stock, 

and is a reason for investors to worry about too. So, it is 

worth knowing what an index is and why the components 

of the index keep changing from time to time. 

INDEX 

According to Investopedia, an index is an imaginary 

portfolio of securities representing a particular market or 

a portion of it. Each index has its own calculation 

methodology and is usually expressed in terms of a 

change from a base value. The base year for the Sensex is 

1978-79 and the base value is 100 whereas for the Nifty 

the base year is 1995 and the base value 1,000. 

Example: Suppose the Index consists of only two stocks: 

Stock X and Stock Y. Stock X has 1,000 shares out of 

which 300 are held by promoters and only 700 shares are 

available for trading to the public. These 700 shares are 

the so-called ‘free-floating’ shares. Similarly, Stock Y 

has 2,000 shares out of which 1,000 are held by promoters 

and 1,000 are available for trading (free-floating). 

Assume price of Stock X is ` 100. The total market 

capitalization of Stock X is ` 1,00,000 (1,000 x 100) and 

its free-float market capitalization is ` 70,000 (700 x 

100). Assume the price of Stock Y is ` 200. The total 

market capitalization of Stock Y is ` 4,00,000 (2,000 x 

200) and its free-float market capitalization is Rs 

2,00,000 (1,000 x 200). Then, the sum of free-float 

market cap of these two companies (X & Y) = 

(700*100+1000*200) = 70,000+2,00,000 = ` 2,70,000. 

Assume the overall market cap during the year 1978-79 

was ` 50, 000. On applying the formula for Sensex calculation, 

we get, Sensex = 2,70,000*100/50,000 = 540. 

Going by the formula, a stock with a larger cap will have 

the ability to move the index more as compared to a stock 

with a smaller cap. Hence, any change in the component 

will have implications on the index movements. Though 

the authorities from the stock exchanges do their due 

diligence to avoid unwanted volatility, investors trying to 

replicate the index have work to do, as explained later. 

WHAT DOES AN INDEX REPLICATE? 

Traditionally, indices serve as a benchmark for measuring 

the performance of fund managers. Talking of Sensex 

and Nifty, it is used as a lead indicator for performance of 

the overall economy and corporate sector. Even the 

expansion and fund-raising plans of corporates have a 

direct co-relation with the movements of the benchmark 

index. So a good market index should be able to replicate 

the mood of the market and give a sense to investors that 

if the benchmark is performing, so is the economy. 

CRITERIA FOR SELECTING STOCKS OF A 

MARKET INDEX 

Broadly, diversification, market capitalization and 

liquidity are few of the criteria for selecting a stock in the 

index. It is decided by the Index Committee, comprising 

all sorts of individuals like academicians, fund managers, 

finance journalists, independent governing board 

members and other participants in the financial markets. 

The eligibility criteria for inclusion of stocks in S&P 

CNX Nifty is market capitalization (Stocks eligible for 

inclusion in the Nifty must have a six monthly average 

market capitalization of ` 500 crore or more during the 

last six months), liquidity - low spreads (low impact cost) 

and floating stock (stocks actually available for trading 

and not held by promoters). 

For a company to be included in the Sensex, it should be 

among the leaders in their industry group, the scrip 

should have a listing history of at least one year on the 

BSE, it should have been traded on each and every 

trading day for the past one year, it should figure in the 

top 100 companies listed by market capitalization, it 

should be among the top 150 companies listed by the 

average number of trades (buying or selling of shares) 

and the average value of the trades (in actual rupee terms) 

per day over the past one year. 

REVISION OF INDICES 

As companies go through various cycles, so do the stock 

market indices. Changes in any of the above criteria 

would lead to changes in the components. Index reviews 

are carried out periodically to ensure that each security in 

the index fulfills all the laid down criteria. The relevant 

index body, say India Index Services and Products Ltd. 

(IISL) in case of NSE, makes clear, researched and 

publicly-documented rules for this purpose, which are 

applied to obtain changes to the index set. However, it is 

ensured that the value of the index does not change 

significantly after the revision of the index set. 

IMPACTS OF INDEX REVISION 

Since its inception in 1995, the Nifty has witnessed 30 

changes in its renowned S&P CNX Nifty. Exchange 

traded funds (ETFs) and other passive investment instruments, 

that try to replicate the returns given by the benchmark, 

invest in each stock of the index in exactly the 

same proportion to the weightage of the stock in the 

index. Hence, these guys are the first ones to react to any 

announcement of changes in the components. 

Usually, on the day of the change, the fund would change 

the securities in its underlying portfolio by selling 

securities that are going out and buying those stocks that 

are coming in. This will not affect the units being held by 

an investor, as the units will continue to track the indeX. 

52 





53

Finders Keepers, 

Losers Weepers 

Penny stocks are highly 

challenging and can be 

extremely rewarding if 

factors such as stock 

picking, timing and 

luck favour you on the 

bourses 

Picture this. A lame horse is running the derby 

and not a soul expects him to run, let alone win 

it. But to everyone’s surprise, it wins the race. 

More surprising is when you find out that while 

others are blaming their luck, a solitary guy exults in 

excitement. He is the one who had put his money on that 

lame horse and in an instance transformed himself from a 

pauper to a king. 

A penny stock is almost similar to the lame horse 

mentioned above and has the same fortune-building 

power. But remember, not all lame horses win the race; 

some of them just don’t budge while many others just 

collapse mid-way through the race. The real art lies in 

picking out the right penny stock. 

WHAT IS A PENNY STOCK? 

There is actually no precise definition of a penny stock 

since there is no clear-cut criterion by which a stock can 

be branded as a penny stock. Many people consider 

stocks trading below ` 10 as penny stocks, whereas many 

others consider stocks with a market capitalization of less 

than a 100 crore to be penny stocks. To each his own! 

Generally speaking, these are relatively low-priced, 

low-market cap stocks that are not the main components 

of market indices. These are highly illiquid stocks since 

there are very few buyers and sellers of these stocks. 

Also, there is a great deal of difference between the bid 

and ask price, which makes it an excellent candidate for 

speculative trading. 

Although, there have been umpteen instances where a 

stock costing less than ` 10 has moved up drastically to a 

mind-boggling level of more than ` 500, there have also 

been cases where such stocks have reduced to nothing 

more than mere paper of no real value. Basically, penny 

stocks are highly risky in nature. 

RISKS ASSOCIATED WITH PENNY STOCKS 

1. Lack Of Liquidity 

The most important risk associated with a penny stock is 

the lack of liquidity, which means if you have bought a 

penny stock and at a later date want to sell it in the 

market, there is no guarantee that you would find buyers 

for your shares since there are very few buyers and 

sellers of these stocks. 

So, while you might be sitting on a fair deal of profit on 

paper, in the event of lack of buyers, you wouldn’t be 

able to sell your stock(s) at the desired target price and by 

the time you find buyers, the price of the stock may have 

plummeted further. 

2. High Volatility 

Since liquidity is very low and the difference between the 

bid and the ask price is generally huge, even a small 

quantity of shares traded can move the stock up or down 

greatly; most of the times swinging from one circuit to 

another. This makes it a highly unpredictable and risky 

proposition as one can incur huge losses within a short 

span of time if the trade backfires. 

3. Prone To Manipulation 

Penny stocks are not followed very actively by the 

markets and analysts alike. Hence, the common investor 

is not abreast of all the happenings and goings-on in the 

company on a regular basis. This makes it an easy target 

for unscrupulous elements to spread rumours and bad 

news about the company to lure gullible investors and 

create artificial demand as well as supply bubbles in the 

stock, leading to frauds such as price rigging, etc. 

4. Lack Of Research Material 

Many penny stocks are newer or lesser-known compa- 

nies that have very little by way of past history, promoter 

background, previous financial results, etc. So in a way, 

you are playing a blind move, not knowing what you are 

getting yourself into. 

5. Bankruptcy 

Many penny stocks trade at such low prices because 

there is generally something fundamentally wrong with 

the company. Either the company is incurring heavy 

losses or it is reeling under huge debts. All these are signs 

of impending danger and chances are that the company 

might go bankrupt all of a sudden, in which case your 

entire investment may get wiped off. 

The obvious question that might occur to people is that if 

penny stocks are so highly risky, why would anyone 

want to trade in them in the first place. This is because 

penny stocks offer some things which no other category 

of stock does. 

1. Ability To Buy Huge Quantities With Lesser Invest- 

ment 

Low cost of acquisition is the primary reason why inves- 

tors are attracted towards penny stocks. If you have just ` 

5,000 to invest and if you buy a stock worth ` 500, you 

would be able to buy just 10 shares, whereas if you buy a 

penny stock worth ` 5, you would then be able to buy 

1,000 shares. 

Now, if both the shares go up by just ` 1, on the first 

stock, you would have made a profit of only ` 10. 

Whereas on the second stock, you would have made a 

handsome profit of 

` 1,000. The economy of scale works 

highly in your favour. 

2. Shorter Time Frame 

Penny stocks can rise phenomenally with the slightest 

rise in investor interest and are capable of generating 

much higher percentage returns within a few days or 

weeks, thus making it a clear favourite of both traders 

and short-term investors, not to mention the fact that on 

the upside, only sky is the limit. 

3. Sheer Excitement 

If things such as river-rafting, skydiving, bungee- 

jumping give you a real high, then trading in penny 

stocks is the thing for you. Penny stocks can give you the 

much-needed adrenaline rush and enough twists and 

turns to keep you on the edge and satisfy your hunger for 

adventure. 

4. Highly News-driven 

Penny stocks are like dormant volcanoes, which do not 

erupt for years on end. In such a scenario, any positive 

news or even expectation of positive news will fire up the 

stock immediately. 

If you feel that any good news such as a huge order, a 

patent approval, or a profitable acquisition is on the 

cards, investing in penny stocks can prove to be highly 

rewarding when the news is actually out. 

54 





55

5. Riding Your Luck 

If you are someone who believes very strongly in luck, 

there is no better place than penny stocks to try it out. 

There are times when everything you touch turns into 

gold and if you are going through such a great period, 

penny stocks can prove to be really lucky for you. 

Basically, penny stocks are apt for the strong-hearted, 

risk-taking, financially-sound, emotionally-stable, 

experienced and aggressive investor. But if you do not 

fall under any of the above categories, there is no need to 

feel disheartened. You too can invest and benefit from 

investing in penny stocks in a relatively safe and profit- 

able way, if you follow certain basic precautions and tips. 

a. Research 

A man’s best investment is education. Once you have 

decided to enter a penny stock, try and find out all that 

you can about the company from various sources such as 

the internet, newspapers, magazine, analysts, etc. Try 

and look for companies that have a strong promoter 

history, healthy balance sheet, good dividend-paying 

record, etc. 

b. Volume 

Look for companies that have a decent daily trading 

volume so that you can easily find a buyer whenever you 

want to sell your stock. 

c. Corporate Action 

Check for corporate actions such as a stock split, which 

could be why the stock is trading at such low prices. For 

example, if a ` 80 stock with a face value of ` 10 undergoes 

a 10:1 split, the stock will trade at ` 8 but with a face 

value of ` 1. Thus, basically the intrinsic price of the 

stock is still ` 80 and you are not getting it any cheaper. 

d. Portfolio Allocation 

Penny stocks are high-reward stocks. But at the same 

time, they are high-risk stocks. Hence, as a rule, you 

should refrain from investing more than 15% to 20% of 

your entire corpus in penny stocks and the rest should be 

in fundamentally strong stocks with a long-term horizon. 

e. Stop-Loss And Exit Points 

Always keep a strict stop-loss when trading in penny 

stocks. This can be according to your risk-taking capac- 

ity. But ideally, keep a stop-loss at a maximum of 20% 

below your purchase price. Also, keep a price target in 

mind at the start of the trade at which you can religiously 

exit the stock completely. 

f. Ignore Tips 

Penny stocks attract the highest number of tips with the 

promise of doubling or tripling your money within a 

short span of time. If you trust these tips, you are surely 

looking for trouble. Take some effort and do your own 

homework. You will never go wrong. 

Penny stocks are highly challenging and can be 

extremely rewarding, if factors such as stock picking, 

timing and most importantly luck are going your way. So 

go ahead, roll that dice. You never know, you might just 

hit the jackpoT. 

Ravi Narain: 

Actions Speak 

Louder Than Words 

R 

avi Narain, the MD and CEO of the National 

Stock Exchange, is also a part of the founding 

team that launched the nation’s largest 

bourse. The 56-year old Cambridge-trained 

economist and MBA-holder from Wharton left his job as 

a policy and economic consultant in Washington to take 

up a job back home at the Industrial Development Bank 

of India, IDBI. He was amongst the few individuals who 

were handpicked by RH Patil, the founder of NSE, to set 

up the national exchange in the early 1990s. 

We don’t just help you invest your money, at Nirmal Bang it’s a relationship beyond broking 

SMS ‘BANG’ to 54646 www.nirmalbang.com 




Ravi Narain, the MD and 

CEO of the National Stock 

Exchange, is a low profile 

person who believes that 

the work of his institution 

must speak for him than 

anything else 

He is the Chairman of National Securities Clearing 

Corporation Ltd (NSCCL) and NSE.IT Ltd. He is also 

associated with several committees of the Securities & 

Exchange Board of India (SEBI) and the Reserve Bank 

of India (RBI). He is also the Director of the National 

Securities Depository Ltd (NSDL) and National 

Commodity & Derivatives Exchange Ltd (NCDEX) as 

well as a member of the Central Listing Authority. 

The NSE head honcho also serves as a Member of the 

IPO Committee at the OTC Exchange of India. He serves 

as the Director of HDFC Standard Life Insurance Co Ltd. 

Narain has been affiliated with Industrial Development 

Bank of India in various roles. He was a member of the 

core team that did the groundwork for the establishment 

of SEBI. 

He successfully stepped into Patil’s shoes in 2001 to take 

up the task of running NSE. The onus of kick-starting a 

slew of new products and services - trading in retail debt 

market products, launch of exchange traded funds and 

56 





57

58 

the introduction of Options and Futures trading in 

individual securities and interest rate futures market, is 

solely on Narain. He is also instrumental in entering into 

alliances with regional exchanges as he believes that 

there are a number of smaller companies with good 

potential that go unnoticed due to their market capital 

and customer base. 

SME PLATFORM 

SEBI issued guidelines for setting up SME exchanges in 

April this year. NSE has all the advantages necessary to 

set up a separate SME platform including a nationwide 

terminal network, online screen-based trading and 

surveillance capability, a business continuity plan, a risk 

management system plus a minimum net worth of ` 100 

crore. NSE has already submitted an application to SEBI 

to set up an SME exchange. 

Narain put forth his view regarding the relevance of an 

SME platform stating, “Smaller companies, by virtue of 

their size, have not been able to attract enough analysts. 

That plays into a self-enforcing vicious circle. The SME 

platform requires work on the entire ecosystem surrounding 

SMEs.” 

CROSS-LISTING PARTNERSHIP WITH CME 

NSE entered into a significant partnership with the CME 

Group, the world’s largest derivatives exchange operator, 

in March ’10. Futures contracts on the NSE's benchmark 

S&P CNX Nifty Index will be listed shortly on the 

exchanges controlled by the Chicago Mercantile 

Exchange (CME) Group, which will be denominated in 

their local currency. 

Reciprocally, the NSE will be able to list their own 

Futures contracts, denominated in Indian rupees, on the 

CME Group’s S&P 500 and Dow Jones Industrial 

Averages stock index contracts. These contracts started 

trading in July ’10. Narain believes, “The future belongs 

to exchanges doing product alliances.” 

INDIA VOLATILITY INDEX 

In July this year, NSE launched the India Volatility Index 

(India VIX) on a real-time basis; previously it would 

only report the changes at the end of the day. India VIX 

is based on the index option prices of the benchmark 

Nifty. Currently, it is the only globalized index in emerging 

Asia that is a measure of investors’ fears at any given 

point in time. 

Ravi Narain said, “In the last few years, markets around 

the world have seen higher volatility. India is no exception 

and it has also witnessed higher volatility.” 


Once India VIX is available for trading after regulatory 

approvals, it will give a lot of security to investors and 

traders, who face uncertainty, because the new product 

will empower them with better information and 

foresight, he said adding that it will give investors the 

ability to use the product to hedge their portfolios against 

the risk arising out of volatility. 

FIRST OUTDOOR CAMPAIGN 

NSE launched the first ever mass outreach programme 

by a bourse, aimed at simplifying the Nifty 50 through 

pictographs and comic strips, on Rajdhani Express trains 

on three routes for a year in April this year. 

The motto of the campaign is ‘Soch kar, samajh kar, 

invest kar’, which is a message to invest carefully. This 

mass programme is targeted at retail customers and the 

campaign aims to spread awareness among investors 

about various products traded on the NSE. 

“The campaign is basically to talk to our potential investors 

about the benefits of investing,” says Ravi Narain. 

FOREIGN STAKE IN NSE 

NYSE Group Inc and three other foreign investors have 

bought a 20% stake - the maximum permissible holding 

in India’s biggest stock exchange. Investment bank 

Goldman Sachs, private equity firm General Atlantic and 

SoftBank Asian Infrastructure Fund have each bought a 

5% stake in the NSE. “This alliance marks a significant 

milestone for NSE in developing a place for itself in the 

emerging global scenario,” Narain said. 

He believes it is evident that foreign exchanges are 

enthusiastic about making their presence in India as an 

increasing number of Indian firms are hopeful of listing 

overseas. More recently, NYSE sold its 5% stake to a 

Singapore-based investor, Temasek Holdings. 

The Indian FDI regulations do not allow a single foreign 

investor to hold more than 5% stake in the bourse. This 

killed any chances of control by NYSE and the stake was 

also too small to provide any cost synergies. 

Narain’s parents, who were economists in government 

universities, instilled in him the virtues of indulging in 

public service. Originally from New Delhi, Narain is 

always stressing about being on the vigil lest he miss 

spotting an opportunity. Though, regular yoga practice 

and meditation help him to calm his nerves. 

Narain is deliberately a low profile person as he believes 

that the work of his institution must speak for him than 

anything elsE. 


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For Private Circulation Volume 1 Issue 39 08th Oct '10

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