Take me to PDF file - Online Share Trading

For Private Circulation Volume 1 Issue 84 08th Jul ’13The ever-growing currentaccount deficit is a matterof great worry for Indiaand urgent steps need tobe taken to keep it undercontrol

DB Corner – Page 5Volume 1 Issue: 84, 08th Jul ’13Editor-in-Chief & Publisher: Rakesh BhandariEditor: Tushita NigamSenior Sub-Editor: Kiran V UchilArt Director: Sachin KambleJunior Designer: Sagar PadwalMarketing & Operations:Divya Bhurat, Shreelatha GollavathiniResearch Team:Sunil Jain, Kunal Shah,Dipesh Mehta, Anand Shendge,Manav Chopra, Vikas Salunkhe, Amrita BurdeHEAD OFFICENirmal Bang Financial Services Pvt LtdSonawala Building, 25 Bank Street,Fort, Mumbai - 400001Tel. 022-3926 7500/7501CORPORATE OFFICEB-2, 301/302, Marathon Innova,Off Ganpatrao Kadam Marg,Lower Parel (W), Mumbai - 400 013Tel: 022 - 3926 8000/8001We, at Beyond Market welcome your views,comments and feedback. Do help us to growbetter as per your liking. This is our attempt toreach you better while crossing horizons...Web: www.nirmalbang.combeyondmarket@nirmalbang.comTel No: 022 - 3926 8047Paving The WayThe FM has assured that he would take steps to revive investor sentiment, buthe has a tough task ahead of him nonetheless – Page 6A Widening GapThe ever-growing current account deficit is a matter of great worry for Indiaand urgent steps need to be taken to keep it under control – Page 8Going DownhillThe bottom line of many companies with a higher dollar debt in their balancesheet is likely to take a hit following the depreciation of the Indian rupee –Page 12False Alarm?Investors need not worry about tapering of QE as the probability of this eventtaking place will depend a lot on whether the US economy will recover or not– Page 15Survival InstinctFarmers must adapt to change and alter their methods of cultivating crops sothat their reliance on monsoons will reduce greatly and they will beself-sufficient – Page 18In An Advantageous PositionThe growth of mortgage finance companies offers investors ample opportunityto invest in them – Page 22On The Same PlaneBy asking banks to treat restructured loans at par with NPAs, the RBI is aimingat improving the health of the banking sector – Page 25The Bliss Of SolitudeWith more and more senior citizens seeking solitariness and independence,realty companies are cashing in on this opportunity by building retirementhomes to meet the needs of this segment – Page 28Technical Outlook For The Fortnight – Page 31KPIT Cummins Infosystems Ltd: Nurturing Its Core StrengthTactful acquisitions by KCIL have led to a strong foothold in focus verticals andis helping the company to steer ahead of competition – Page 32Heading NorthwardsInvestors can look at investing in the world’s largest equity markets throughUS equity funds due to a revival in the markets – Page 36Fantastic StochasticApart from giving buy and sell signals, Stochastic is a great tool to ascertain ifa stock is in an oversold or overbought position – Page 40Quick ThrillsMuch like 20-20 in cricket, day trading too involves some 20 frequently occurringterms, which when used appropriately can benefit traders to a largeextent – Page 42Important Jargon For The Fortnight – Page 45Beyond Market 08th Jul ’13 It’s simplified... 3

Till a while back, the Indian economy was trying to surface above inflationary pressureswhile battling a host of other issues at hand. Of these, the growing current account deficitcontinues to be a big cause of worry for the country. This, coupled with a depreciating rupeehas added to its woes as questions are being raised as to whether the government is doingenough to bridge the current account deficit and arrest the falling economic growth of thecountry through the formulation of effective policies and streamlining of finances.Read our cover story to understand how serious the issue of a burgeoning current accountdeficit is, its impact on the country’s economy and measures to prevent it. We haveattempted to help you decipher and understand the depth of the problem at hand.On a positive note, the Finance Minister has assured that required steps will be taken toreduce to negative impact of various factors on the economy, thus reviving investorsentiment. There is an article in the current issue on this topic too.Besides these, there are articles also on the impact of the depreciating Indianrupee on companies with high dollar debt, possibilities of the US FederalReserve tapering the quantitative easing programme and its impact oninvestors, the need for farmers in India to evolve and change with timesto reduce their dependency on seasonal monsoons, the growth of themortgage finance industry in India, SEBI’s new norms that requirerestructured loans to be treated at par with non-performingassets, which will eventually help improve the state of thebanking sector and the growing retirement homes segmentin the country.Do not miss the Beyond Learning section as itfeatures two very interesting articles. Whileone is on 20 important things to look outfor during day trading, the other is onstochastic, a tool commonly used bymarket analystS.Tushita NigamEditor4Beyond Market 08th Jul ’13It’s simplified...

Markets look good andtraders and investors can considerpartial buying at current levelsand on declines.The past fortnight wastumultuous for the globaleconomy. In the US, theFed Chairman BenBernanke said they could starttapering fiscal stimulus measuresthrough the first half of next year ifunemployment rate improves orinflation edges closer to 2%.Following this announcement, FIIsbegan withdrawing funds from acrossthe world, including India. This led toa further depreciation of the rupee.Also, political uncertainty inEuropean nations like Portugal andItaly is still a concern. While two keymembers of the PM’s cabinet haveresigned in a disagreement overausterity measures in Portugalshaking the government, a coalitionpartner of the government hasthreatened to withdraw support due tothe slow pace of reforms in Italy.In India, the Reserve Bank of Indiakept key rates unchanged in themonetary policy review announced inJune, despite inflation being below5% owing to high current accountdeficit (CAD). The government istaking several initiatives to reducegold imports to rein in CAD.However, good rainfall across thecountry has been a positive amidst allthis gloom.Markets look good and traders andinvestors can consider partial buyingat current levels and on declines. TheNifty has support at the 5,740 level. Itlooks good above the 5,910 level witha target around the 6,180 level.Stocks like Lupin Ltd (LTP:`850.70), Reliance Industries Ltd(LTP: `861.65), UCO Bank Ltd(LTP: `65.10), IndusInd Bank Ltd(LTP: `473.75), Bata India Ltd (LTP:`866.35), Tata Global Beverages Ltd(LTP: `143.40), CESC Ltd (LTP:`358.60), Atul Ltd (LTP: `321) andIndiaBulls Real Estate Ltd (LTP: `64)look good from investment andtrading perspectives.In the coming fortnight, Q1 FY14results of India Inc are likely to bereleased. But the street is not havinghigh expectations from these resultsas a number of companies may beaffected by the depreciation of theIndian currencY.Sensex: 19,410.84Nifty: 5,836.95(as on 4th Jul ’13)DisclaimerIt is safe to assume that my clients and I may have an investment interest in the stocks/sectorsdiscussed. Investors are required to take an independent decision before investing. Investment inequity is subject to market risk. Our research should not be considered as an advertisement oradvice, professional or otherwise. The investor is requested to take into consideration all the riskfactors including their financial condition, suitability to risk return profile and the like and takeprofessional advice before investing.Beyond Market 08th Jul ’13 It’s simplified... 5

Till as late as the middle oflast decade, it was thoughtthat India’s economywould take wings on theback of a double-digit GDP growth tobecome a global economicsuper-power by 2050, if not earlier.But the global economic crisis of2008-09 affected all - the developedas well as the emerging economies, ofwhich India is one.Consequently growth slowed down,stock markets tanked, investmentsdried-up, work lay-offs occurred anda feeling of pessimism gripped theworld economy.India too was affected and wentthrough a period of slowdown.However, it has recovered enough inthe last two years to spur optimismonce again.Though the after effects of the 2008global economic meltdown, haspockmarked the global economy, itcan safely be said that India is in acomparatively better positionvis-à-vis some of its peers and evensome of the developed economies.India’s GDP growth is likely to be inthe region of 5% and a growth of even5%, though admittedly lower thanwhat was predicted, is still not a badposition for the country to be in, giventhe condition of both the global aswell as domestic environments.However, there is no room forcomplacency. The direction and paceof growth will depend heavily on howthe government steers the economy.The Union Finance Minister PChidambaram has painted areasonably optimistic picture a fewdays ago and promised positive actionto spur growth.The Indian economy still retains itsstrong economic fundamentals but theblip on the radar in the form of acontraction in its latest Index ofIndustrial Production (IIP) is a matterof concern.The government would do well tospeed up clearances stuck withvarious ministries as well as give aspecial emphasis to the agriculture,manufacturing as well asinfrastructure sectors.The latest IIP figures (April) revealPAVINGTHE WAYThe FM has assured that he would take stepsto revive investor sentiment, but he has atough task ahead of him nonetheless6Beyond Market 08th Jul ’13It’s simplified...

only a 2.3% growth and has beendescribed as ‘disappointing’ by noless a person than the PlanningCommission Deputy ChairmanMontek Singh Ahluwalia. The reasonis not too far to seek.Industry segments which constitutethe engines of growth - mining,manufacturing, power as well ascapital goods sectors - are all faringrather dismally.There is, therefore, a pressing needfor the government to monitor themanufacturing sector and take stepsto facilitate its growth.The infrastructure sector too needs animpetus with projects underimplementation to be strictlymonitored for on-schedulecompletion. The new infrastructureprojects are not coming up as speedilyas expected mainly on account ofpaucity of funds.High interest rates are the primedeterrent though the silver lining hereis that with inflation beginning todecline, the Reserve Bank of India(RBI) is likely to adopt anincreasingly accommodativemonetary policy.This could make funds available forinvestors at reasonable interest ratesresulting in higher investments,which in turn, would perk-up growth.Another critical factor will be speedyclearances of projects by thegovernment. This will not only buoyinvestor sentiment but also clearlysignal the government’s intent toeradicate red tape and push aheadwith economic reforms.Agriculture, another strongcontributor to the country’s GDP, haslagged behind in the last few years asit is heavily dependent on themonsoons. With the monsoons in thelast few years playing truant, thissector has taken a beating, resulting inlower demand in rural areas.However, this year there aregladdening signs as the monsoon hasarrived on time. Several states in thecountry have witnessed encouragingrainfall and indications are that thisyear Indian farmers will have reasonsto cheer.A good performance by theagricultural sector will not only pushup demand in rural areas but will alsohelp moderate food grains andvegetable/fruit prices, thereby pullingdown inflation.A heartwarming development in thelast few weeks has been the decline inthe rate of inflation.For long, India was plagued by highinflation, which resulted in the centralbank adopting a tight monetarypolicy. This resulted in high interestrates as well as a dampenedinvestment climate.Now, with inflation easing (presentlyat a 43-month low) hopes of a rate cutby India’s central bank have risenthough it will have to factor in adepreciating rupee, which will pushup import costs.Rate cuts are, however, a certaintygoing forward, if not immediately,and along with other governmentinitiatives could help propel growth inthe mid-term.For some time it was being felt thatthe Indian government was struck bypolicy paralysis.However, the Union FinanceMinister’s assurance recently to takesteps to revive investor sentiment hascome at the right time and should actas the necessary tonic to boost theinvestor confidence.Fiscal consolidation, easing offoreign direct investments (FDI) capsin some sectors like retail, aviationand insurance, continuing the processof disinvestment and increasinggovernment expenditure are some ofthe steps he outlined.It is heartening to note that thegovernment is not blind to the needfor further economic reforms.A 5% growth in the prevailing globalcircumstances is not a cause for alarmbut if the authorities remain blind tothe need for further economicreforms, then a slowing economycould totally offset all the advantagesIndia enjoys as a potential economicsuperpower - that of abundant naturalresources and favourabledemographics, coupled with a hugeinternal demand potential. Therefore,under no condition should growth beallowed to slip below 5%.India’s journey towards becoming aneconomic superpower is on course,despite the occasional blips in the lasttwo to three years.With the global economy not yetentirely recovered and growthmoderated to around 5% to 6%,India’s economic miracle may take alittle longer to achieve.But even this moderate growth rate of5% to 6% over the next three-yearperiod will be enough to help buildthe platform for India to take the giantleap forward towards becoming aneconomic superpower by 2050.The successful conclusion of thejourney, however, solely hinges onhow the authorities steer India in thenext three years.A high degree of statesmanship willneed to be displayed to act wisely andtake tough decisions as and when theyare needeD.Beyond Market 08th Jul ’13 It’s simplified... 7

The ever-growing currentaccount deficit is a matterof great worry for Indiaand urgent steps need tobe taken to keep it undercontrol8Beyond Market 08th Jul ’13It’s simplified...

High current accountdeficit (CAD) and theextent of its funding isperhaps the mostdaunting concern for India today.The Indian rupee, which is closelylinked to CAD and capital flows intoIndia, has depreciated sharply ascompared to the US dollar in therecent times.Economists and analysts have warnedabout deteriorating CAD situation.Even the Reserve Bank of India (RBI)has said that higher CAD is a majorrisk to the Indian economy and weneed to be ‘vigilant’ about globaluncertainty, which might impactcapital flows and thus worsen CAD.The Indian government has beenworking overtime to fix the CADissue. The government’s approach hasbeen to boost exports, containnon-productive imports like gold andmake the environment conducive forforeign investments.All this will lead to a better CADnumber. CAD moved from 3.9% ofGDP in Q1FY13, to 5.4% inQ2FY13. It touched a record figure of6.7% of GDP in Q3FY13. ForQ4FY13, current account deficitnarrowed sharply to 3.6%, whichanalysts say is indeed an aberration.Slowdown in domestic activity led toa slowdown in non-oil and non-goldcomponents of imports in the fourthquarter. With this Q4 number, CADfor FY13 stands at 4.8%.However, with revision and somelast-minute additions, analysts expectthe CAD print for FY13 to be 4.5-5%of the GDP.The recent sell-off in the equity anddebt markets, which has taken a tollon the rupee, will impact overallcapital inflow, thus its ability to fullyfund CAD, experts think.So, why has CAD garnered so muchattention? Why does it need to befixed? Has India not been a CADcountry in the past? The answer tothis is the perennial nature of thecountry’s CAD.A country that is progressing willalways import more for its needs.However, India has increased itsCAD even as its growth slowed.Higher CAD means higher demandfor foreign currencies to settle itsimport liabilities. This will putpressure on the rupee and weaken itsvalue as it happened in recent weeks.This means the country will need topay more for imports.India’s CAD has moved from 0.6% ofGDP in 2001 to an estimated 5% in2012, while GDP growth has onlyslowed in this period. In fact in thepast decade India enjoyed a surpluson current account in the years 2002,2003 and 2004.GLOBAL COMPARISIONIndia also has been an outlier ifcompared with few countries acrossthe world. Russia and China havesurpluses. While Chinese surplus hasplummeted over the years as its focusshifted to imports rather than exports,other Asian countries have surpluseson current account or they have amodest deficit.Apart from India, South Africa andBrazil have large current accountdeficits, but not to the extent ofIndia’s figure. It is no wonder thenthat currencies of these economieshave corrected in recent weeks.At around $93 billion, India’s CAD in2012 was second only to that of theUS in absolute terms and higher thanthat of the UK, Canada and France.Global ComparisonChina7.7India4.8Brazil1.9Russia1.6South Africa 1.6Indonesia 6Philippines 7.8Thailand 5.4Vietnam5Malaysia 4.1Source: Print And Wire ServiceNATURE OF INDIA’S CADThe problem with higher CAD is thatIndia has done little to control itsimport bill. It has done little to boostexports. And it has done little to getrid of its dependence on volatilecapital flows to fill the overallbalance of payments gap. Let usdiscuss each in some detail.IMPORTSGDPGrowth(Most Recent)CAD(2012)1.7-4.1-2.52.3-5.3-1.93.216.96.7India imports around 80% of its crudeoil requirement. With crude oilcomprising around 30% of the overallimport bill, a slight change ininternational prices impacts the tradedeficit in India. Depreciation of theIndian rupee against the dollar alsohas a negative impact on the landingcost of oil.It is estimated that a US$1/barrelincrease in crude increases tradedeficit by US $900 million. Annualimports of oil are up by 10% butdomestic production is up by only 2%over the last seven years. Thissituation is unlikely to change, unlessdomestic production of oil increasesor alternative fuel like shale gas orrenewable energy sources like solaror wind are tapped.The other major import item also theBeyond Market 08th Jul ’13 It’s simplified... 9

Out of the three steel companies listedin this article, this one will be themost badly hit.Tata Power, one of the country’slargest power producers, also hasgood amount of foreign debt on itsbalance sheet. As per its 2011-12annual report, the company had closeto `1,800 crore of foreign currencyloan. As a result of this, it incurredforex loss of `42 crore in the quarterending December '12.With the current rupee depreciation, itis expected to incur roughly `50 croreof forex loss in this quarter. Thoughthis is unlikely to impact the bottomline significantly, roughly one-tenthof the profit before tax will be wipedoff because of this.Aurobindo Pharma, a leader in theIndian pharmaceuticals industry, isalso a potential candidate to look at.The company had foreign currencyloan of little more than `5,000 croreat the end of the financial year.The company took a hit of `64 crorein the third quarter due to currencyexchange losses. And this amount islikely to go up to `75 crore in thisquarter and would account for almosthalf of the net profit. It means thecompany’s June quarter earningswould be hit badly.The above companies are just a few ofthe examples and there are manymore such companies from variousother sectors. For instance, BhartiAirtel, the largest telecom player inIndia, has close to 70% of its debtdenominated in US dollar.In FY13 the company reported aforex loss of `275 crore and a `2,655crore charge to Currency FluctuationReserve, on account of 4.7%depreciation in INR.As the debt profile has not changedmuch since the end of FY13, theimpact of forex fluctuation in FY14Ewould be more or less similar to thatin FY13. With current 6.8%depreciation in this quarter, therewould be an impact of at least `400crore on profit before tax.Some other examples include IdeaCellular, Reliance Communicationand Alok Industries, among others.The list of companies is not limited tolarge caps alone. It also includescompanies from the mid-cap andsmall-cap space.Instead of focusing purely on exactnumbers, investors should look at theoverall fundamentals of the company.If the forex loss is a small componentof the profit, then the stock marketmay not react very negatively.But in cases where the company’sforex loss is more than half of theoverall profit or has the potential topush the bottom line into the red,investors need to be more watchfuL.Micro analysis. Mega gains.Trading at Nirmal Bang is based on extensive research and in-depthanalysis, where we focus on the smallest of details and turn them intoan advantage for you.Over the years, the analytical approach coupled with decades ofexperience has helped us maximize returns for our investors andthereby inspire confidence in them.EQUITIES* | DERIVATIVES* | COMMODITIES | CURRENCY* | MUTUAL FUNDS^ | IPOs^ | INSURANCE^ | DP* www.nirmalbang.comSMS ‘BANG’ to 54646 | Contact at: 022-3926 9404 | e-mail: contact@nirmalbang.comDisclaimer: 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 - 39267500 / 7501; Fax: 022 - 39267510 CORPORATE OFFICE: B-2, 301/302, Marathon Innova, Off Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400 013. Tel: 022 - 39268000 / 8001; Fax: 022 - 3926801014Beyond Market 08th Jul ’13It’s simplified...

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-INP000002981them to perform well.Even when domestic investors werenot investing, foreign investors kepton buying and that took the marketshigher and higher. Some of theseinflows are termed as dollar carrytrade, yen carry trade and some othersconsider it leveraged money.This effectively means that investorsborrow at low cost or almost at zerocost and then invest the same moneyin assets and markets which offerhigher yield. Generally, they hedgethe downside risk. So, what theymake is net gain.For instance, assume that a personborrows at 1% in the US for sixmonths. To hedge the currency risk heincurs another 3% to 4% on hedging.So, the net cost for him may not bemore than 4% to 5%.Even at that cost if you invest inemerging market debt, you will stillmake a clean 2% to 3%. And if youinvest in equity the hedging costcould go up slightly higher but thereturns could be far greater.This is just one very plain strategy.But there are many such complicatedstrategies that investors around theworld employ to make quick money.This is precisely the reason news flowabout QE impacts the flow ofshort-term money, easy money orleveraged money, causing short-termproblems for the markets.Only time will tell if QE will go awayor stay. Meanwhile, it is believed thatinvestors should not worry. If QE isgoing to be withdrawn, it will be onlyhappen if the economy recovers,which in itself is good news becauserecovery in the economy will takecare of markets and liquidity.On the contrary if QE stays, there isno doubt that it will boost asset pricesand markets, which will not be ahealthy sign in the long run becausedebt levels will go up and questionscould be raised about the solvency ofthe government itself.In the short-term, tapering down ofQE could impact sentiments. It isconsidered that on the back of thesenews flows a lot of volatility in thestock, currency and commoditiesmarkets and this is possible in thecoming months.Further, it is not good news for theIndian markets because it impactssentiments and perceptions given thatthe emerging markets are consideredto be risky in uncertain times.If the US continues to spend, theworld will be assured of moreliquidity in the markets, which isparticularly good for emergingeconomies like India. However, thiswill pose new challenges for centralbanks in emerging economies ashigher liquidity will boost inflation,impact the currencies as well asinterest rates.Increase in the flow of money,particularly cheap money, will lead toa further spike in prices of variouscommodities globallY.SMS ‘BANG’ to 54646Contact at: 022-3926 9404, E-mail: contact@nirmalbang.comRegistered Office: 38-B, Khatau Building, 2nd Floor, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400 001. Tel: 264 1234 / 3027 2000 / 2005; Fax: 30272006Corporate Office: B-2, 301/302, 3rd Floor, Marathon Innova, Off Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400 013. Tel.: 39268000 / 8001 Fax: 39268010EQUITIES | DERIVATIVES | COMMODITIES* | CURRENCY | MUTUAL FUNDS # | IPOs # | INSURANCE # | DPDisclaimer: 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.# DistributorsBeyond Market 08th Jul ’13 It’s simplified... 17

Farmers must adapt toTchange and alter theirmethods of cultivatingcrops so that theirreliance on monsoons willreduce greatly and theywill be self-sufficienthis is one annual guestwhose visit is awaited withbated breath by each andevery Indian - from afarmer to a policymaker. Just whenthe sweltering sun gets the better of usin the month of June, a cold whiff ofwet air comes across as manna fromheaven. We speak of none other thanthe south west monsoons that markthe onset of rains in India.Come June and newspapers are rifewith front page updates about theonset of monsoons and editors andpolicymakers wax eloquent ineditorials about the impact of themonsoons on the country.REASON TO CHEER BUT WILLIT LAST?It is not just about raincoats and gumboots, our economy too is heavilyreliant on the monsoon as thequantum of rains decide the course ofaction policymakers will need to takefor the rest of the year.The RBI Governor D Subbarao in a18Beyond Market 08th Jul ’13It’s simplified...

it also has a tempering impact oninflation besides keeping the importburden under control.A weak monsoon on the other hand,pushes prices of food and otheressential commodities, stokesinflation and lends a hand to hoarderswho create havoc in the marketplace,causing harm to everyone.In the past 40 years India wasbesieged with five major droughts.The worst and the most severe ofthese droughts were in 1972 and 2009when rainfall deficiency was at 24%and 23% (anything below 90%rainfall between June and Septemberis considered to be a drought-likesituation). The other years whendrought hit India were in 1979, 1987and 2002.Even though 5 out of 40 years seemslike a small number, the averageimpact of scanty monsoons in thesefive years has been staggering.Food production came down by10.30% as kharif crop productioncame down by close to 14%. Evenwinter crop (rabi crop) saw quite asignificant impact as it came down byclose to 7%.If there is anything close to a droughtin the current fiscal year, we couldhave more trouble on our hands. Notonly will food production drop byclose to 10%, we might see nearly0.7% being shaved off of our GDPgrowth rate.Also, the fiscal deficit that has prettymuch become the bane of theexistence of policymakers now couldworsen if the government is forced tointroduce drought relief measures.HAVE LESSONS BEEN LEARNT?Even though there are insurancepolicies against scant monsoons, onlya handful of the 24 crore farmers inIndia can afford them or have evenheard of them and are still dependenton the rain Gods for a bountiful crop.If there is a drought-like situation, notjust farmers but the entire economyspirals out of control. As recently as2009, India faced a severe drought asit received only 77% of its annualrainfall, which was the third worstdrought from the period (1901-2009).Therefore, the question that needs tobe asked is whether any lessons havebeen learnt so far or do we as a nationstill depend on the mercy of the rainGod? Apparently, yes. There havebeen slow but steady structuralchanges in the agricultural sector.Over the past 40 odd years, the shareof agriculture’s contribution to theeconomy has come down from awhopping 43% to 15%. This has beenpossible because industrial output hasbeen increasing hand in hand with therise of the service sector.Over the years, several efforts havebeen made in the farmlands of India.For instance, in drought-prone areas,farmers are being educated to moveaway from staples and concentrate oncash crops.Besides, alternative varieties ofproduce that consume less water havebeen customized for such areas andseed banks have been created to assistfarmers. Technology too has been putto best use in such drought-proneareas.In many drought prone hinterlands ofthe country rubber dams are beingdeployed. These rubber dams are notonly cost effective but are also highlyefficient as they can store water foruse during droughts as well as act as awater proofing element.Local authority bodies (governmentand zila parishads) are now proactivein organizing camps, advisory bodiesand meets for farmers that help themin getting to know better hedgesagainst scanty rains.MILES TO GOHaving said that, it would be noexaggeration to say that only thesurface has been scratched. Themarginal farmers (those who own oneor two hectares of land) still hang onto seasonal rains and are oftenignorant about these alternative waysof protecting themselves againstscanty monsoons.Therefore, when drought hits, theyare the worst impacted and often takeextreme steps like ending their livesbecause they simply cannot bear thepressures any longer. Farm insuranceand formal credit remain far out oftheir reach and they still remain in theclutches of local moneylenders.While we can be aware of such graveissues, it is up to the authorities tofocus their attention on thesemarginal farmers who form a bulk ofthe agricultural workforce in India.Just providing subsidies and creatingseed banks is not enough.The need of the hour is education ofthe farming community in thecountry. Farmers need to be madeaware of techniques of sowingalternative cash crops, rainwaterharvesting and microfinancefacilities, among others.Widespread education over time willresult in bringing down theover-dependency on seasonal rains inIndia. While we will still lookheavenwards and wait for thebenevolence of the skies for rains, atleast our future generations will nothave to worry about the availability offood grains at right prices if there arescanty rains in the countrY!20Beyond Market 08th Jul ’13It’s simplified...

The growth ofmortgage financecompanies offersinvestors ampleopportunity toinvest in them22Beyond Market 08th Jul ’13It’s simplified...

Shelter is a basic need ofhuman beings. For Indians,home - to be precise - ownedhome is an emotional needtoo. Owning a house is high on theagenda of Indians after they startearning their livelihood. For many,owing a house is a qualifyingcondition for marriage.Even if they acquire a house, there isa tendency to look for another one -call it second home or an investment.Indians prefer real assets to paperassets – land, houses, shops, gold overshares, debentures and mutual funds.They, however, prefer to ownsomething that they can touch andfeel. Naturally, house is a classic‘investment candidate’ for many ofthem as they do understand what ittakes to own one and how to benefitfrom it - in terms of rents as well ascapital appreciation.All these factors drive the demand forhouses in India, no matter the price atwhich the house is quoted. And thesky-high prices, such as thoseprevailing in the Indian real estatemarket for almost half a decade now,ensure that the leverage becomes themeans to own a house in most of thecases. And the obvious beneficiariesof this hunger to own a house arehousing finance companies.This makes mortgage - housingfinance - business a lucrativeinvestment opportunity for investorswho are keen to have an exposure inthe India growth story.And the empirical evidence tooshows that long-term investors inmortgage business such as HousingDevelopment Finance Corporation(HDFC) and LIC Housing Finance(LICHF) have smartly outperformedthe broader markets.More importantly these businessesare perceived to be less risky ascompared to other businesses such asbanking, insurance and broking in thebroader financial services domain.The Indian mortgage market hasgrown at a compounded annualgrowth rate (CAGR) of 16% over thepast five years. A point to note is thatover the same period of time, theIndian economy and the globaleconomy have been slowing down.However, this does not indicate thatthe best days of housing financeindustry are over.According to a recent Credit Suissereport, the Indian mortgage businessis nearly 9 to 11 years behind otheremerging markets.For example, while Indian mortgagepenetration stands at 8% of India’sgross domestic product (GDP), thesame is at 14% and 11% in case ofChina and Thailand, respectively atthe end of CY12. The level ofpenetration was 8% for China in theyear 2002 and for Thailand in 2004.Simply put, as India continues togrow, young population with its risingincome levels and reducing familysize will keep fuelling housingdemand as urbanization increases.The Indian population’s median age islittle over 25 years, which is lowerthan most other emerging nations.Also, there is a sustained uptick inurbanization of India.Nearly 25% of the total population ofIndia was living in urban areas in2001 and now the number has movedup to 30%. This sets the stage forrising demand for housing. Housingfinance companies stand to benefitfrom this development and the best isyet to come.While investors may buy into thelong-term investment argument thereare some medium- and short-termpositive developments that are addingjuice to the investment opportunity.One such development is the recentsoftening of interest rates.On the one hand, lower interest ratesmean more affordability for mortgageseekers, which results in moredemand for mortgages, and on theother hand it pulls down the cost offunding for housing financecompanies, which in turn increasesthe net interest margin.For example, coupon payable onHDFC’s non-convertible debentureshas gone below 9%, which wasquoting above 10% in December ’11.LICHF too has seen lower fundraising costs, as coupon payable byNCD issued by LICHF goes below9% as compared to more than 10% inMay ’11.Lower interest rates also make it easyfor existing home loan takers toservice their home loans. This ensureslower non-performing assets in futureas well.A point to note is home loan as acredit portfolio observes lowestdelinquencies in India, thanks to theemotional attachment a home loancustomer has with his home - it is thelast loan he would default on.Tax incentives associated with homeloan is another factor that supportsdemands for mortgages.In an extant structure a home loanborrower enjoys deduction up to`1,50,000 each financial year towardsthe interest paid on his home loan and`1,00,000 towards repayment ofprincipal each financial year. Thisbrings down the effective rate ofinterest for home loan borrowers.As the country goes for parliamentaryelections next year, there is a highBeyond Market 08th Jul ’13 It’s simplified... 23

probability that the limits are liberallyenhanced, thus creating a better pitchfor mortgages.In the present context, many wouldpoint out the rising competition fromcommercial banks and insist thatbanks could be a better alternative tohousing finance companies. Theirargument is that banks offer a betterinvestment opportunity as comparedto housing finance companies.All the aggression shown by bankshas almost reached a nadir and thereis little scope for banks to compete onthe basis of ‘interest rate’ withhousing finance companies as banks’lending rates have hit base rates.Housing finance companies raisetheir funds through bond markets thatare far more efficient in reflectinglower interest rates as compared toretail fixed deposits, which are stickyin nature.Banks cannot cut interest rates onfixed deposits as quickly as housingfinance companies who can reducethe coupon payable on bonds issuedby them.In addition to this, banks have acorporate loan book too. Blame thepolicy paralysis prevalent till the endof CY12 or the paralysed Indianeconomy, many corporate loanaccounts have gone in for corporatedebt restructuring and the nonperformingassets too are burgeoning.Not many investors would want toown a lending business with concernson the asset quality. Housing financecompanies thus can be seen as a pureplay on the India growth story withminimum asset quality concerns.Savvy market participants can utilizethe current volatility in the equitymarkets to accumulate stocks fromthe mortgage finance sector from along-term growth perspectivE.The most intelligent strategy in Chess is to be ready with thenext move. Similarly, currency trading involves moves thatare a combination of knowledge and skill, backed by years ofexperience.Currency Derivatives Trading with us keeps you a few stepsahead, always.EQUITIES | DERIVATIVES | COMMODITIES* | CURRENCY | MUTUAL FUNDS# | IPOs# | INSURANCE# | DPContact: 022-39268088 | e-mail: currencies@nirmalbang.com | www.nirmalbang.comRegistered Office: Nirmal Bang Securities Private Limited. 38-B, Khatau Building, 2nd Floor, Alkesh Dinesh Mody Marg, Fort, Mumbai - 400001. Tel: 3926 8600 / 01; Fax: 3926 8610Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risk. Please read the scheme related document carefully before investing. Please read the Do’s and Don’ts prescribed by Commodity Exchange before trading. Through Nirmal Bang Securities Pvt. Ltd. *Through Nirmal Bang Commodities Pvt. Ltd. # Distributors investment in securities is subject to market risk. investment in securities is subject to market risk24Beyond Market 08th Jul ’13It’s simplified...

In an attempt to bring in moretransparency in the bankingsystem and to bring India atpar with global best practicesin provisioning, the central bankrecently unveiled a new set of normsfor restructured assets. This meansbanks and non-banking financialcompanies (NBFCs) have till the year2015 to bring all their restructuredassets under the same ambit as that ofnon-performing assets (NPAs) andmake similar provisions for them.From 1st Apr’15 not only wouldrestructured loans be considered atpar with NPAs, provisioning for themwould also be higher at 5% ascompared to 2.75% currently.Tightening of provisioning norms hasleft corporate India not too happy asthey are already in a bind as theeconomy is not in the pink of healthnow. And if the GDP numbers are anindication, then things will notimprove in a hurry.THE CORPORATE CRIBIn a situation such as this, tighteningof provisioning norms is beingtranslated as higher commitments onbehalf of promoters, and it is beingfelt that far fewer corporations wouldbe willing to restructure their assets.SMEs in particular would find itBy asking banks totreat restructured loansat par with NPAs, theRBI is aiming atimproving the healthbanking sectorSAME PLANEON THEof theBeyond Market 08th Jul ’13 It’s simplified... 25

doubly difficult as they would now berequired to give in a personalguarantee like a house or theirpersonal wealth.So far, corporates were being givensome concession even if they werenot in a position to keep theircommitments on repayments.The standard practice in the bankingsector has been to ‘evergreen’ anaccount. This means that a fresh loanwould be issued on the basis of the‘relationship’ that the bankers and thecorporates shared.Evergreening is a practice where anew loan is given to repay the oldloan. This is detrimental to the healthof the banking system as it leads to amuch bigger mess eventually.The central bank can hardly beblamed as it is trying to put an end topractices such as these. Even thoughcorporates have severely criticizedthe timing of the central bank, theRBI has in fact been very logical andprudent in making these moves.Contrary to what corporates may besaying, it has gone ahead and evenmade some concessions.For instance, the banking authorityhas made an exception forinfrastructure projects that sufferbecause of administrative delays foryears on end.Keeping in mind that several bankslend to infrastructure projects, theRBI has said that they need not betreated at par with NPAs. But thisconcession brings into light thebanking system’s over exposure to theinfrastructure segment. But that is adifferent issue altogether.HOW BANKS ARE COPINGFor now, not just Indian corporationsbut banks too are losing their sleepover these new provisioning norms asthese norms mean that profitability ofthese lenders will take a hit in theshort- to medium-term. Initialcalculations reveal that the bankscollectively could take a hit of`13,000 crore on their bottom-line inthe next two years or so.Estimates by banking sector analystsshow that loan recasts have beenhappening at the rate of `5,000 to7,000 crore in a single month. Withprovisioning being raised to 5% from2.75%, additional provisioning costscould be to the tune of `6,000 crore.This is assuming that the pace ofrecasts remains the same.INVESTOR CONSIDERATIONAccording to domestic rating agency,Crisil, over the next two yearsprovisioning costs would increase by`15,000 crore, and that in turn, couldimpact profitability of banks byaround 7% to 8%.The larger worry is that of publicsector banks who comprise a lion’sshare of the restructured assets in theindustry. To cite some examples,Punjab National Bank’s restructuredassets stand at 9.6% of its loan book,Central Bank (14%) and IndianOverseas Bank (10%).Comparatively speaking, privatesector banks are at a better position.For instance, the restructured assets atHDFC Bank are at a mere 0.3% of itsloan book, Axis Bank at 2.4% andICICI Bank at 1.5%. Of course, it isnot entirely the fault of public sectorlenders that they have a higherproportion of restructured assets.Being in the public sector has moreoften than not been a disadvantage forbanks as they have, under pressurefrom ruling political parties, beencoerced into lending to projects thatthey are not very convinced about.Private sector banks do not have tosuccumb to such pressures and couldperhaps be far more discerning abouttheir choice.Public sector bankers as of now are,however, putting up a brave front andseveral banking heads have spoken atpublic gatherings and assured that theactual hit on the earnings of theirbanks would be far less than itappears to be from these initial backof envelope calculations.They claim that these provisioningnorms though they come in at a timewhen there are several other issues inthe economy, need to be taken in thestride and the impact thoughsignificant will still be manageable.As for investors in banks though thesenumbers seem daunting, analysts saythat there is nothing much to bealarmed about. The main reason theycite is that while examining banks,analysts already treat restructuredloans as non performing loans.Provisioning at par means that therewill be lesser cash flow for thesebanks, but in essence it will not have abig impact on their valuations. Theability of these banks to raise capitalsubsequently is, therefore, notquestionable at all.This is going to be an importantconsideration when the Basel IIIregime kicks in. But for now investorsin banking stocks need not read toomuch into these new provisioningnorms as it has already been factoredinto the valuations.If anything, the new norms augur wellas it is a move aimed at improving thehealth of the banking sector. It’s a bitlike putting the banking system on atreadmill if you will! The initial painis inevitable, but at the end of the dayit will be a much healthier and fitterbanking systeM.26Beyond Market 08th Jul ’13It’s simplified...

Childhood and old age havea lot of things in common.Both require properattention and care,sometimes more so in old age. Notlong ago, Indian society used to bejoint family-oriented where theyounger generation used to take careof the older generation.However, times have changed and thejoint family system has been replacedby nuclear families.The trend today is that senior citizenswant to live an independent lifewithout being dependent on theirchildren. With this changing face ofsociety came the concept ofretirement homes. Popular in theWestern world, the concept is slowlybut steadily taking a foothold in Indiaas well.Worldwide, senior or retirementhousing is a $25 billion industry.According to a report by real estateconsultancy firm, Jones Lang LaSalleIndia (JLL India), in the US alone,there are over 2,000 senior housingprojects with over 5,00,000 residents.The concept of senior housing hastaken time to come to India becauseof the negative implications ofseparate housing for senior citizens.These homes were taken to besynonyms for abandonment of oldpeople in India.With the passage of time, perceptionshave changed. “We have lived our lifeaccording to our wish, now we wantto let our children live their lifeaccording to their wish,” is a commonsentiment now among senior citizensin urban India. And so they haveopted for retirement housing.Other reasons are improved financeswith respect to the earlier generation,breaking up of joint families andimproved life expectancies. Aboveall, most senior citizens want to livetheir retirement years in peace withless stress and worries.Earlier, two kinds of retirementhomes were prevalent in India –assisted living and palliative care.Assisted living is for thoseindividuals who require physical ormedical help. These are mostly run bynon-profit organizations (NGOs).Palliative care is for those withdebilitating illnesses.However, most companies arefocussing on a third type of retirementThe Bliss Of Solitude28Beyond Market 08th Jul ’13It’s simplified...

living category called independentliving where senior citizens arereasonably healthy and can manageon their own.These homes are built for seniorcitizens keeping in mind their variousneeds regarding social security,healthcare, administrative, food andother requirements. These units comewith all the modern amenities andarchitectural specs such as grab-barsin bathrooms, anti-skid tiles,low-height shelves, bigger balconiesfor sunlight keeping in mind theage-group. Some bigger units alsohave nurse/servant rooms, primaryhealthcare facility on campus, etc.Though the architectural layout ofthese units is different, the coststructure of developing a senior livingproject is similar to that of anystandard residential project.However, the cost of operating asenior living project is highercompared to building and sellingresidential apartments on the sameplot as they include continuation ofsupport facilities such as healthcare,mess, club, wellness and gymnasiumby the developer.Units in these housing projects comein all configurations and sizes -1BHK, 2BHK and 3BHK as well asstudio apartments and villas from 500sq ft studio apartments to 2,500 sq ft 3BHKs as well as villas. The pricerange for these units varies from `25lakh to `1 crore.The price is positioned in theaffordable segment, as residents ofthese projects will be senior citizenswith limited income resources, butthat does not imply that the luxurysegment is not available.With more and more seniorcitizens seeking solitarinessand independence, realtycompanies are cashing in onthis opportunity by buildingretirement homes to meet theneeds of this segmentBeyond Market 08th Jul ’13 It’s simplified... 29

KPIT Cummins Infosystems Ltd:NURTURINGITS CORESTRENGTHTactful acquisitions by KCILhave led to a strong footholdin focus verticals and ishelping the company to steerahead of competitionHeadquartered in Pune, KPIT CumminsInfosystems (KCIL) was incorporated in1990 as KPIT Infosystems. Later in 2002, itmerged with Cummins Infotech and formedKPIT Cummins Infosystems. Cummins is the company’stop client and contributes almost 17% to the topline.KCIL is a leading product engineering and IT consultingcompany, which provides IT and consulting solutions toautomotive and transportation, manufacturing and energyand utilities companies.The company focuses on select strategic business units(SBUs) - integrated enterprise solutions, auto andengineering and SAP.It is a technology partner to over 165 global corporationsincluding Original Equipment Manufacturers (OEMs),semiconductor companies and automotive Tier Icompanies. As on 31st Mar ’13, KPIT CumminsInfosystems Ltd had 8,321 employees.32Beyond Market 08th Jul ’13It’s simplified...

Geography-wise Revenue Split11.13%these acquisitions. The company has a revenue target ofUSD 1 billion by FY17 with EBITDA margins of 18%.Revenue Growth Trend (` Cr.)12.95%75.92%USAEuropeRoW2500.02000.01500.01000.0500.0318.2 463.7 583.5 793.15 731.6987.01500.02238.6Source: Company Data0.0FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13Vertical-wise Revenue SplitSource: Company Data, Nirmal Bang Research14%13%34%39%Automove &TransportaonManufacturingEnergy & UliesOthersAutomotive Vertical To Be A Major Revenue GrowthCatalystUSA has been facing a slowdown in its economy, whichhas badly hampered sectors like automotive engineeringand manufacturing in the US.More than 75% of KCIL’s revenues come from the US andcontinual client budget cuts and delayed decision makinghad affected the company’s automotive vertical.Source: Company DataINVESTMENT RATIONALETactful Acquisitions Have Led To A Strong Foothold InFocus VerticalsKCIL has been actively acquiring companies with strongdomain expertise in areas of automotive engineering,electronics, SAP and Oracle, JD Edward Solutions, etc inthe last 5 to 6 years.It acquired CG Smith Software Pvt Ltd (2006), SpartaConsulting (2009), CPG Solutions (2010), In2Soft GmBH(2010) and Systime (2011). The acquisition of CG Smithhelped the company to strengthen its automotive vertical.While eSparta enhanced the company’s SAP consultingpractices, CPG and SYSTIME acquisitions have helpedthe company to widen the Oracle services offerings and itsgeographic presence. During the same period(FY07-FY12), KCIL’s revenues and profits grew at aCAGR of 26.5% and 23.6%, respectively.A major part of this growth of the company is attributed toHowever, the US economy is now on the road to recoveryand the US automotive industry is bullish about thecoming year and expects a fairly steady continuation ofgrowth momentum in both the economy and in vehiclesales, going forward. This is a positive for KCIL as thissegment contributes almost 39% to 40% to the topline.Moreover, impelled by technological advancement andconsumer demand, electronics constitutes the fastestgrowing segment in the global auto parts industry.According to Scotiabank Global Auto Report, worldwidesales of automotive electronic technology is expected toascend from $189 billion in 2012 to $274 billion by 2017.Being an automotive solutions software vendor, KCIL willbenefit from this.With a view to enter the market for fuel-efficientautomobiles, KCIL has built an in-house fuel-efficienthybrid automotive solution (Revolo) in a 50:50 JV withBharat Forge, which is in the trial phase for about morethan 40 vehicles.The results of these trials have been encouraging both onthe fuel efficiency as well as emissions front and once thisBeyond Market 08th Jul ’13 It’s simplified... 33

solution commercializes, it would be a major catalyst toKCIL’s revenues.Continual Growth In Client Addition Assures GoodGrowth PotentialIn order to reduce the dependence on its top clientCummins, which has not been doing too well since the pastfew quarters and to reduce the risk of client concentration,KCIL has been focusing on acquiring new clients andmining the existing ones. Its active customers have grownfrom 152 in Q3FY11 to 183 in Q4FY13.On the other hand, revenue contribution from its top clienthas come down from 24.8% in Q3FY11 to 16.6% inQ4FY13, while contribution from its non-Cumminsaccounts have been increasing during the same period.Moreover, customers with a revenue run rate of more than1 million have also increased from 40 to 78 in the sameperiod. KCIL is a gold partner to SAP and platinum partnerto Oracle. Its strong relationship with such global partnersand improving client metrics across all verticals showcasesthe company’s ability to acquire new clients and providesgood revenue visibility.Active Clients Growth Chart200180160140120100806040200144 147Q1FY113 3Q2FY11No. Of Acve CustomersSource: Company DataSource: Company Data152155 159 163 165 169 172 176 178 183554 444Q3FY11Q4FY113Q1FY12Q2FY12Q3FY122Q4FY12Q1FY133Q2FY13Q3FY13No. Of Customers AddedDecreasing Contribution From Top Clients(Cummins) To The Top Line30.00%25.00%20.00%15.00%10.00%5.00%0.00%Q1FY1124.02% 24.76%20.65%Q2FY11Q3FY1121.00% 20.65%Q4FY11Q1FY122Q4FY1322.58% 23.92%20.6% 19.7% 19.1%Q2FY12Q3FY1219.5%Q4FY12Q1FY13Q2FY13Q3FY1316.6%Q4FY136543210SAP SBU On A Road To RecoveryKCIL’s SAP SBU caters to all the three verticals -automotive and transportation, manufacturing and energyand utilities. Within this, SBU, North America has beenwitnessing good traction in the utilities segment, whileAPAC has a pipeline building up in the manufacturing andautomotive segment.Over the last few years, KCIL has been investing increation of industry-specific solutions and currently hasSAP-certified solutions for automotive, energy andutilities, industrial manufacturing, Hi-Tech, wholesaledistribution and CPG verticals.However, since the last three quarters, it has been facingsome slowdown in the SAP business because of which therevenue contribution to topline had come down from 32%in Q1FY13 to 26% in Q4FY13. This was due to thetechnology reset that took place within SAP ecosystem asSAP HCM was being replaced by SAP SuccessFactors.The company has now resolved this concern by developingexpertise and capabilities in these new technologies byadding 25 Successfactors-certified consultants under abusiness transfer agreement with US-basedSuccessFactors specialist company named Learn 2Perform (L2P). The management is confident of stronggrowth in this SBU, going forward and has already had afew wins in Q4FY13. We believe that the association withL2P will help KCIL to capture the growth potential in thisbusiness segment.RISKS AND CONCERNSCurrency VolatilityA major part of KCIL’s revenues are exposed to USD/INRmovement. Any significant appreciation in rupee willhamper the company’s financials.Geographic ConcentrationMore than 85% of the company’s revenues are derivedfrom the US and Europe where the economies of thesecountries are facing fiscal problems and prolongedslowdown, respectively.Decline In Cummins ContributionRevenues from the company’s top client Cummins hasalways been a safety cushion for the company and this hasbeen declining since the past few quarters, which can be34Beyond Market 08th Jul ’13It’s simplified...

detrimental to the company’s revenues. However, KCIL issuccessfully mining it’s non- Cummins customers.FinancialsFinancial Health (` In Cr)FY11FY12FY13IN A NUTSHELLEQUITY AND LIABILITIESShare Capital17.635.638.6Concerns regarding the weakness in Cummins account hasbeen taken care of by increasing the share ofnon-Cummins account. Moreover, SAP business is backon track and with recovery seen in the key market – USA,the management is confident of good traction in theautomotive business, as well. Thus, the resolution ofongoing concerns, coupled with improvement indiscretionary spend and a strong deal pipeline has resultedin the management guiding for 14% to 16% dollar revenuegrowth in FY14. The stock is currently trading at a trailingP/E of 11.1x on FY13 EPS and looks attractivE.Reserves & SurplusShare Appl & MINon-Current LiabilitiesLong-term BorrowingsDeferred Tax LiabilitiesOther Long-term LiabilitiesLong-term ProvisionsCurrent LiabilitiesShort-term Borrowings585.41.111.55.710.75.181.6676.832.766.90.826.410.3147997.527.2145.900.114.2175.3FinancialsParticulars (` in cr)Revenues% ChangeEbitda% Change In EBIDTADepreciation & AmortizationOperating IncomeInterestOther IncomeExceptional ItemPBTTaxMinority InterestShare Of Profit From AssociatesRep PATRep EPSNo Of Shares (Crs)Price Earnings (x)Price / Book Value (x)BV Per ShareDividend Per ShareSource: Company Data, Nirmal Bang ResearchFY1198734.90%148.4-8.10%41.1107.33.86.740110.315.5-0.2094.65.317.822.63.533.90.7FY12150052.00%216.645.90%44.5172.17.313.810188.643.7-3.13.5145.48.217.814.72.9400.7FY132238.649.20%364.168.10%47.231714-17-1.3284.776.6-8.6-0.519910.917.811.1258.20.8Trade Payables94.2Other Current Liabilities75.9Short-term Provisions20TOTAL908.7ASSETSNon-Current AssetsTangible Assets89.1Intangible Assets37.3Capital Work-in-progress 28.1Intangible Assets Under Devp 3.6Goodwill130Non-current Investments0Deferred Tax Assets0.2Long-term Loans And Advances 75.5Other Non-current Assets2.7Current AssetsCurrent Investments47.7Trade Receivables228.8Cash And Cash Equivalents 208Short-term Loans And Advances 33Other Current Assets24.9TOTAL908.7Source: Company Data, Nirmal Bang Research175.799.9561328.1133.932.99.29.3362.321.73.570.43.436.5423.3147.358.116.41328.1190.412669.61784.8138.537.75.918.4442.311.86.9115.53.2203.6467.3192.159.382.31784.8Samurai MarketIt is a slang term for the stock market in Japan. Samurai market is usually used by non-residents of Japan, with referenceto the Japanese warrior - the samurai. The term Samurai market was used in business slang but has become widelyaccepted, much like the ‘Yankee market’ referred to the US markets and the ‘bulldog market’ referred to the UK market.Beyond Market 08th Jul ’13 It’s simplified... 35

Investors can look at investingin the world’s ’ largestequity markets through USequity funds due to a revivalin the marketsAfter lying low for almostthree years, the world’slargest equity markets -the United States - madea strong bounce back recently.Positive corporate earnings, coupledwith strong jobs reports andimprovement in the housing markethas boosted the prospects of the USmarkets in the past few weeks.Though recently the Federal ReserveChairman Ben Bernanke indicatedplans to withdraw quantitative easing(QE), which led to a crash in mostglobal markets. But experts argue thatextraction of stimulus is afundamental sign of optimism in theUS recovery, which is all set to lookreasonable in the distant future.With the US equity markets on thepath to recovery, Indian investorshave a greater chance to be part of theUS markets and invest through USequity funds.Currently, there are three funds fromFranklin Templeton, DSP BlackRockand ICICI Prudential Equity. Otherfund houses such as Reliance MF,PineBridge India MF and JP MorganMF have filed offer documents withmarket regulator, Securities andExchange Board of India (SEBI) tolaunch US-dedicated funds.But you must be thinking why toinvest in the US or whether it makesany sense to diversify your portfolioin such a manner. Can US equityfunds be a good investment option tosupplement your overall portfolio?The answer is very straightforward.As mentioned earlier, the US equitymarkets are showing signs ofrecovery and the major point to investin US funds is that throughinvestment in US funds, one caninvest in global companies likeApple, Berkshire Hathway, GeneralElectric and Microsoft, which will inthe real sense diversify the portfolioof investors.The Dow Jones index is at an all-timehigh. Broader indices like the S&P500 and the NASDAQ 100 are alsonear their all-time highs.Here is a list of three funds availablefor Indian investors that investpredominantly in the US equitymarkets. Select your fund and be apart of the world’s largest economy.Motilal Oswal MOst SharesNasdaq-100 ETFInvestment StyleIt is one of the first fund houses torealize the potential of the USmarkets when it was coming out ofrecession and the scheme waslaunched way back in March ’11.Since then the fund has given asuperior one-year return of over 25%and 17%, respectively.The strategy of the fund is verysimple. It invests in securities whichare constituents of the NASDAQ-100Index in the same proportion as theIndex. The NASDAQ-100 Indexconsists of the 100-largest US andglobal non-financial companies thatare listed on the NASDAQ StockExchange Market.The Index reflects companies acrossmajor industry groups includingcomputer hardware and software,telecommunications, retail/wholesaletrade and biotechnology. It howeverdoes not contain securities offinancial companies including theinvestment companies.FT India Feeder-Franklin USOpportunities FundInvestment StyleIt is the second fund to come out withan US-dedicated fund and waslaunched in January ’12. With acorpus of over `190 crore it hasmanaged to give returns of over 23%in the last one year.As the name suggests, it is a feederfund which invests in units ofFranklin US Opportunities Fund andin equity securities of US companiesbelieved to possess sustainablegrowth characteristics and whichmeet growth, quality as well asvaluation criteria.These include small, medium andlarge capitalization companies withstrong growth potential across a widerange of sectors that have exceptionalgrowth potential and are fast growingand innovative companies.This mutual fund also invests insectors showing an above averagegrowth or growth potential ascompared with the overall economy.And fund managers at Franklin planto hold their investment from mediumto long term.Through its underlying fund, thisfeeder fund concentrates on qualitystocks in high growth sectors such asinformation technology (IT),healthcare, consumer discretionary aswell as industrials.ICICI Prudential Bluechip EquityInvestment StyleUnlike FT India Feeder Fund, thisfund invests directly into theBeyond Market 08th Jul ’13 It’s simplified... 37

securities of the US markets and ispositioned as an US-centric fundinvesting in bluechip stocks listed onthe New York Stock Exchange orNasdaq. This bluechip fund by ICICiwill follow a combination of both -top down as well as bottom approachof investing.Moreover, the portfolio of the fundwill be tilted towards large-capcompanies selected from within theconstituents of its benchmark - S&P500 index.For researching equities, the fund willdepend on Morningstar EquityResearch Services and intends tobenefit from its expertise, efficiency,quality and consistent and disciplinedresearch approach for building itsequity portfolio.It is unlikely to face any fund-specificrisk apart from the general marketrisk of the US stock markets. In thecurrent calendar year, the fund hasmanaged to give 20% returns and waslaunched in July ’12.DSP BlackRock US Flexible EquityInvestment StyleThis fund is similar to FT FeederIndia Fund - Franklin USOpportunities as it invests in units ofUS Flexible Equity Fund.The fund has a flexible investmentapproach as its underlying fundsignifies that it will have theflexibility to either invest in growth orvalue investment characteristicsecurities, depending upon what themarket outlook is like.The fund will construct its portfolioon the basis of BlackRock’squantitative and fundamentalinvesting. The underlying fund willinvest at least 70% of its total assets inequity securities of companiesdomiciled in, or exercising thepredominant part of their economicactivity, in the US.As the name suggests, ‘flexible’ refersto the fact that the mutual fund caninvest in either value or growthstocks. The fund is likely to closelyreplicate the broad route and scale ofthe broad US markets.IN A NUTSHELLBefore getting into investing in anyinternational funds the factor ofcurrency risks cannot be ignored.Unlike the domestic equity funds inIndia, long-term capital gains frominternational funds are not tax-free.Therefore, before redeeming thefunds, one has to look at the tax angle.The taxation is similar to non-equityIndian funds. However, high marketsand taxation should not discourageyou from starting to invest in suchinternational funds.Investors should not invest a lumpsum amount. Instead, they should gothrough systematic investment plans(SIPs) for such funds. Thematic fundsshould never be the top priority forinvestors but it should supplementyour portfolio on the whole.Now, Commodity Trading Is No More A Puzzle.Commodity trading can be confusing especially if oneis inexperienced and lacks the necessary skills to tradesuccessfully. At Nirmal Bang, our team of seasonedanalysts with years of experience and in-depthknowledge can help you spot the underlying clues andcreate the investment strategies that best suit yourcommodity trading requirements.EQUITIES* | DERIVATIVES* | COMMODITIES | CURRENCY* | MUTUAL FUNDS^ | IPOs^ | INSURANCE^ | DP* www.nirmalbang.comDisclaimer: 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 - 39267500 / 7501; Fax: 022 - 39267510 CORPORATE OFFICE: B-2, 301/302, Marathon Innova, Off Ganpatrao Kadam Marg, Lower Parel (W), Mumbai - 400 013. Tel: 022 - 39268000 / 8001; Fax: 022 - 39268010BSE SEBI REGN No. INB011072759, INF011072759 & INE011072759, NSE SEBI REGN No. INB230939139, INF230939139 & INE230939139 DP SEBI REGN. No NSDL: IN-DP-NSDL-136-2000, CDS(I)l: IN-DP-CDSL-37-99, AMFI REGN. No. arn-49454 NCDEX REGN. NO. 00362, FMC Code-0075, MCX REGN. No. 16590, FMC Code-MCX/TCM/CORP/0490, MCX SX-INE260939139, PMS-INP00000298138Beyond Market 08th Jul ’13It’s simplified...

Fantastic StochasticApart from giving buy and sell signals, Stochastic is a great toolto ascertain if a stock is in an oversold or overbought positionOpen any technicalcharting software andyou are sure to bebombarded with aplethora of indicators, oscillators aswell as techniques.Most common of these arecandlestick patterns, Elliot waves,gaps, breakout patterns, relativestrength index and on-balancevolume, among others.However, there is another widelyfollowed and quite effectivemomentum oscillator known asStochastics, which is used by a hugecontingent of chartists.While we do not really need to plotthis on the chart manually (it is alldone by the software on thecomputer), we have to understand therationale behind it and learn how tointerpret it.An oscillator developed by GeorgeLane as early as the 1950s, Stochasticis basically an indicator for takingshort-term positions in the markets.Stochastic mainly tells whether asecurity is oversold or overbought. Italso gives buy and sell signals. It is anindicator which shows momentumand the relationship between theclosing price of a security and theprice range of the security over apredetermined time period.STOCHASTICS EXPLAINEDStochastics consists of two lines - %K(fast line) and %D (slow line). Theselines are plotted or oscillate within therange of 0 to 100 on the chart.CalculationsGenerally a 14-period is used forcalculation of Stochastics. It can beanything from 14 days, 14 weeks or14 months according to the need andtrading system of the trader.%K Line = 100 x (C –L14)/(H14-L14)Where,C = most recent closing priceL14 = lowest price of the stock in thepast 14 trading sessions.H14 = highest price of the stock in thepast 14 trading sessions.While,%D Line = 3-period movingaverage of %KThis form of calculation is known asfast stochastics.But many analysts found this type ofcalculation to be too sensitive to pricechange and many a times it gave falsebuy or sell signals and was found tobe of not much use from a day-tradingpoint of view.So, a version of Fast stochastics,known simply as Slow Stochasticswas invented.Here the %D line of fast stochastics istaken as the %K line (of this slowstochastics). And the 3-day simplemoving average of this new %K lineforms the %D line.Just think of it as a slow train and afast train. While a fast train is quick, itmisses quite a few stations on its wayto the destination, a slow train on theother hand, albeit sluggish, touchesall its stations on the route and alsoreaches its destination.All these calculations look confusing,don’t they? Believe us, they are.But don’t rack you brains over it. It isjust for your knowledge; it is allautomated and in the software.40Beyond Market 08th Jul ’13It’s simplified...

RATIONALEThe main assumptions when usingstochastic is that a stock will tradenear the top of the trading range in anuptrend or near the low of thepredetermined trading range during adowntrend in the market.On the chart, the stochastic oscillatorturns down if the stock has made anintraday high but fails to close nearthe top. It signifies weakness andsignals a ‘sell’.Conversely, the oscillator turns up, ifthe stock has made an intraday lowbut fails to close near the bottom. Itsignifies strength and signals a ‘buy’.Stochastic oscillator is plotted as twolines, the %K line (fast line) and %Dline (slow line).Usually the %K line is Blue in colourand the %D line is Red in mostcharting softwares. But, in somesoftwares, the %K line is a solid lineand the %D line a dotted line.INTERPRETATIONa. Overbought/OversoldWhen either the %K or the %D linegoes above 80, it is considered to bein the overbought zone and a sellposition can be initiated. When thelines are below 20, they areconsidered to be in the oversold zone,and a buy position can be initiated.This is just the first indicator and anindividual should wait for otherindicators listed below beforeinitiating a buy or a sell position.b. IntersectionIf in the overbought zone (above 80),the %K line moves/crosses below the%D line, it is a sign of weakness andthe stock may be going down.Alternatively, if in the oversold zone(below 20), the %K line moves/crosses above the %D line, then it is asign of strength and the stock may begoing up.c. DivergenceTo study divergence, the %D line isimportant. If the stock is moving inthe upward direction but the %D lineis moving in the downward direction,then it is a bearish sign. Similarly, ifthe stock is moving in the downwarddirection, but the %D line is movingin the upward direction, it then is abullish sign.d. ShapeIf the stochastic forms a narrow top ora narrow bottom, it signals weaknessof the bull or bears and a trendreversal. If the stochastic forms abroad top or a broad bottom, then itsignals strength and continuation ofthe trend.e. ConjunctionRemember, stochastic works bestwhen used in conjunction with otheranalytic techniques. And if there isany contradiction between theunderlying trend and the signalsgenerated by stochastic, one shouldrefrain from taking any position andwait until the stochastic and theunderlying trend are in agreement toinitiate a tradE.When the %K line moves belowthe %D line in the overbrought zoneit is a sell signalSELLOverbought 80%Oversold 20%BUYWhen %K line moves above the %Dline in the oversold zone, it is a buysignal%K line (Blue)%D line (Red)Beyond Market 08th Jul ’13 It’s simplified... 41

Ask any expert or stalwartof cricket what does heprefer Test cricket or20-20, the answer wouldbe unanimously in favour of theformer, considered to be the realgentleman’s game. While others mayscoff at 20-20, there is no denying thepopularity of this form of cricket, therecent controversy notwithstanding.On the same lines, every stock marketexpert is of a strong opinion that stockmarket investments should be from along-term perspective of 3 to 5 yearsand that the faster version of daytrading is not the right way to playthis market.But we all know that the edgeof-the-seatexcitement, triumphs andtragedies as well as the sheeradrenaline rush of day trading cannotbe diminished.Just as the 20-20 format is essential tobring in fans, advertisement revenuesand add glamour quotient to thegame, day trading too is essential tohelp generate volumes as well asliquidity in the stocks and attractnewer market players.Just as the rules and strategies of Testcricket are different from 20-20, so isthe research and analysis that is usedfor long- and medium-term investing,QuickThrillsMuch like 20-20 incricket, day trading tooinvolves some 20frequently occurringterms, which when usedappropriately canbenefit traders to alarge extent42Beyond Market 08th Jul ’13It’s simplified...

which cannot be applied to daytrading strategy.Day trading analysis relies mainly onthe data of the previous day’s tradingsummary. The previous day’s marketmovements both in the cash as well asthe derivatives market serve as anindicator of how the markets arelikely to open on the following day.TRADING DATAMost of this data is easily available onvarious financial/stock marketrelatedwebsites under the headingdaily statistics, end-of-day statisticsor analytical tools.1. Advance/Decline RatioThis number helps one understand theratio of the number of stocks movingup to the number of stocks goingdown in the entire market.It helps to understand the overallbreadth of the markets, that is, if thenumber of advancing stocks faroutweigh the number of decliningstocks, then the underlying trend isbullish and vice versa.2. TurnoverThis shows the total volume onimportant exchanges in all segments,that is, cash and derivatives. Turnoveris very important because it tells youwhether the markets are falling orrising on high or low volume.Also, it tells you how muchpercentage of the day’s trade is cash(delivery) and how much is thederivatives segment.3. Top Gainer/Top LosersThe first and foremost thing to checkout is the list of top gainers (stocksthat have gone up the most) and thetop losers (stocks that have gonedown the most on the trading day).Although it may not remain the samethe next day, it indicates which stockshave maximum buying or sellinginterest and can then be analysed onother parameters.4. Upper/Lower CircuitUpper circuit means that there are nosellers in the stock, only buyers.Lower circuit means that there are nobuyers in the stock, only sellers.Usually such stocks are expected tocontinue the same trend and hit upperor lower circuit the next day as well.One should wait for buyers/sellers toreturn to such stocks before enteringor exiting them.5. Stocks Closing At/Near TheDay’s High/LowA stock closing at its highest point orlowest point of the day usually meansthe bulls or the bears were strongenough to take the stock to thehigh/low point and keep it there tillthe end of the day.It signals strength of the bulls or bearsand these stocks can be expected toopen in the same direction thefollowing day as well.6. Most Active StocksThis shows the stocks that have madesignificant moves both in terms ofvalue as well as volume. Any move ofthe stock either upwards ordownwards with high volumesusually implies that there is greaterinterest of market participants and themove of the stock and the trend isexpected to continue in the directionof the move for the next session.7. 52-week High/LowThis shows the stocks that are tradingat the highest or the lowest point ofthe year.While on one hand it signifies that thestock has broken out of the range andis ready for a new move in thedirection of the breakout, on the otherhand it can also be interpreted that thestock is now in anoverbought/oversold zone and there isa high chance of reversal.It would be prudent to wait beforetaking any position until a definitepattern emerges.8. Bulk And Block DealsSuch deals are usually undertaken bylarge hands such as institutions,insurance companies, mutual funds,high net worth investors, etc, and,hence, from that point of view helpsone understand where institutionalinterest lies.9. Sector BuzzThis gives an idea of the sectorswhich are leading the market up andwhich are dragging them down.If pharma and FMCG stocks aretaking the market up and banking andauto stocks are dragging it down, itcan be assumed that investors arebeing cautious and investing in saferhaven and taking out money fromhigh-beta and rate-sensitive sectors.10. FII And DII figuresThese are the most importantnumbers in the market since these areinstitutions which decide the directionof the market. These figures showwhether FIIs or DIIs have been netbuyers or net sellers in the market.11. Open Interest (OI)Open interest simply means thenumber of future or options positionsthat are not closed or remain unsettledBeyond Market 08th Jul ’13 It’s simplified... 43

at the end of the day. If the OI is upand stock price is also up, then it is abullish sign. If OI is down and stockprice is up, it is a bearish view.If OI is up but stock price is down,then too it is a bearish view. Andfinally if OI is down, and the stockprice is down, then it is a bullish sign.12. Put-Call RatioIt is the ratio obtained by dividing thetotal number of put options traded bythe total number of call optionstraded. If the ratio is increasing, itmeans that investors are buying moreputs than calls and, hence, the outlookis bearish or they are not sure aboutthe markets and are buying putoptions as a hedging tool in case of asell off.13. Moving AveragesStocks that have moved above their30-day, 50-day, 200-day movingaverages mean that they havemanaged to trade and close abovethese historic levels and are expectedto move upwards and vice versa.14. VolumeVolume is the most important entity toconsider while entering or exiting anystock. A stock that is going up withhuge volumes can be expected tocontinue in that direction. Whereas astock that is going up on thinvolumes, does not show strength andthe move is not expected to last and itcan be a reversal.15. Positive/Negative BreakoutWhen stocks move out of a confirmedresistance or support level, it isknown as a breakout.If the breakout is on the upside (abovethe resistance), it is known as apositive breakout and the stock can beexpected to go up. If the breakout ison the downside (below the support),it is known as a negative breakout andthe stock can be expected to go down.16. Higher Tops-Higher Bottoms/Lower Tops And Lower BottomsWhen the chart pattern shows theformation of higher tops and higherbottoms, it means that the stockopened higher than the previous day’shigh and closed higher than theprevious day’s low, and thus itsignifies an uptrend.Similarly, if it shows lower tops andlower bottoms, then it means that thestock is in a downtrend.Some other bullish patterns areinverted head and shoulder, doubleand triple bottom patterns, ascendingtriangles, etc. Some of the bearishpatterns are head and shoulderpattern, double and triple top patternsand descending triangle.17. Corporate ActionCompany-specific actions such asbonus, splits, rights issues, dividends,quarterly results, etc all have animpact on the stock price. Keep tab ofimportant dates such as record dates,result dates, ex-dates, AGMs, etc, soas not to get caught on the wrong foot.18. Exchange & Regulator ActionsActions taken by exchanges andregulators can impact stock pricesgreatly. Stocks taken in and out of keyindices, stocks put in F&O ban,stocks shifted to T-to-T segment,penal actions, fines, etc.19. Global MarketsWhatever anybody says, thedecoupling theory just does not panout. In this world of globalization,happenings from around the worldaffect our markets to some extent.Have a look at how the differentworld markets have done since theclose of our markets to the nextopening of our markets. Theseinclude the European markets(afternoon and evening), the USmarkets (night), the Asian markets(next morning).20. NewsFinally news, whether it is good orbad, is the most powerful force andhas the power to change a trendovernight. Especially thoseannounced after the present day’smarket hours! Therefore, always keepyour eyes and ears opeN.Lipstick EffectA theory that states that during periods of recession or economic downturn, consumers will avoid purchases of expensiveitems and seek material solace in smaller indulgences, such as premium lipstick. It is also known as the ‘leading lipstickindicator’. The lipstick effect is one of the reasons that the restaurant and entertainment industries typically do well amidrecessions. Cash-strapped consumers want to treat themselves to something that will allow them to forget their financialproblems. Therefore, they often settle for dining out and going to a movie.44Beyond Market 08th Jul ’13It’s simplified...

IMPORTANT JARGONFOR THE FORTNIGHTFITCH’S UPWARD REVISION ONINDIA’S CREDIT OUTLOOKRatings agency, Fitch on 12th June revised India’ssovereign rating outlook from ‘negative’ to ‘stable,’ whileaffirming its BBB- rating. This came as a pleasant surpriseto many. Both, bond and foreign exchange markets reactedpositively to the announcement.The announcement was a sentiment booster for the equitymarkets. To recall, ever since last June when ratingsagencies lowered their outlook on India, the governmenthas been pitching for an upgrade with the ratings agencies.Let us see what prompted Fitch to revise the outlook andwhat other agencies are up to.What Are Ratings Agencies?Ratings agencies tell you the credit worthiness of a debtissuer. These agencies tell you the likelihood of default oflarge-scale borrowers like company, financial institutionsor a sovereign nation. Apart from quantitative andqualitative parameters, even judgement of the analystplays an important role in assigning a score by the ratingsagency to the borrower.The score ranges from excellent to poor. Excellent wouldmean strong capacity of the issuer to meet financialobligations, while poor means high chances of paymentdefault. India is one notch above the poor rating or ‘junkstatus.’ as it is widely called.Further, the agencies also tell you the outlook, signallingthe potential direction of the overall ratings. Lowering anoutlook is generally considered to be the first step towardsa downgrade and upward revision would mean chances ofupgrade in the future. The outlook varies from positive tostable to negative depending on the agency.What Is The Impact Of Lower Rating?Lower credit ratings result in higher borrowing costs as theborrower is deemed to carry a higher risk of default. A lowcredit score of a nation would mean companies andfinancial institutions of that nation will also have to bearhigher debt costs due to high country risk. Usually ratingsof different agencies move in tandem. Big investors likepension funds and endowment funds are risk averse tocountries with lower ratings.What Prompted Fitch To Revise Outlook?Fitch cited governments’ efforts towards fiscalconsolidation as one of the most important reasons for thisupward revision in the outlook. To recall, FY13 fiscaldeficit was contained at 4.9%, much below expectations,while FY14 print is expected to be 4.8%. The financeministry has been working overtime to achieve this targetthrough fuel price reforms and other measures. Fear offiscal slippages has also reduced.Efforts towards addressing “structural impediments” toinvestment and economic growth, pronounced signs ofeasing inflationary pressures and relative strength inIndia’s external situation despite current accountdeterioration were cited as important factors drivingFitch’s decision. Contained fiscal deficit and slowdown ininflation also helped, cited the ratings agency.What Are Other Agencies Up To?After Fitch’s outlook upgrade, two out of three agencieshave a stable outlook on India, barring S&P which still hasa negative outlook. It usually takes six months to two yearsfor an agency to upgrade or downgrade the rating postrevision on the outlook.S&P’s: On 17th May this year, S&P reiterated its negativeoutlook on India. The agency said that there is a one-thirdBeyond Market 08th Jul ’13 It’s simplified... 45

chance of a ratings downgrade. The agency listed highfiscal deficit and heavy government borrowing as the maindrag on India’s rating, but said India’s position hasimproved over the past year. S&P in March said that theUnion Budget was a non event and there was potential forthe government to exceed its budgeted spending.Moody’s: On 18th March this year, Moody’s said that highfood inflation is a negative for India’s sovereign ratings.Post-budget Moody’s said that the budget offered a‘realistic’ plan to meet the country’s fiscal deficit targetand should be credit positive for its sovereign ratings.Concerns Of These Rating Agencies?As 2014 is an election year, the agencies do not expect themomentum on reform measures to continue. Remember,since last August after P Chidambaram took over asfinance minister numerous reforms were announced.Further, they are also worried about slowdown ininvestment cycle, which could impact growth in the future.THE US IMMIGRATION BILL AND ITSECTORStocks of IT sector have not gained much even as recentrupee depreciation is considered good for the sector. Thisis because of the policy overhang of the United Statesimmigration bill. On 27th June, the US Senate approved acomprehensive series of immigration reform. The bill inthe present form is negative for the IT sector because offew killer provisions.What Is The Timeline?There are two versions of the bill: one prepared by theSenate and the other prepared by the House ofRepresentatives. Both the Senate and the House form theUS Congress.For a bill to become a law, both the versions will have to bereconciled. The reconciled version is sent back to theSenate and the House for final voting before it goes for thePresident’s nod and becomes a law.The Senate version, which has many controversial clausesas compared to the House’s version, got approved on 27thJune. The Houses’ version will be discussed and voted bylate July. Software companies are hoping that the finalversion will not be too harsh for them. Analysts are of theview that the implementation of the US Immigration Bill isstill 6‐9 months away.What Are The Controversial Provisions And TheirImpact On The IT Sector?The bill in its current form is severely damaging to theIndian IT sector. Following are a few of the provisions.Local Hiring: If 15% of workforce of a company is onVisa, then the bill requires the company to locally hire25%, 35% and 50% of the total workforce in FY14, FY15and FY16, respectively.Impact: This would result in increase in onsite wage aslocal talent would be scarce. Further, utilization ofworkforce will reduce as currently employees areredeployed to a new location after the project is completed.Re-deployment would not be possible with local hires.Doubling Of Visa Fees: According to the Senate Bill, if anemployer has more than 50% of its employees on H-1B orL-1 visas, they would be required to pay $10,000 fee peradditional worker from the existing $5,000.Impact: This will impact margins of IT companies.However, since local hires will go up, it will be partlycompensated by lower number of visas required, goingforward. It will affect most of the large Indian IT servicescompanies including TCS, Infosys and Wipro.Outplacement Clause: The outplacement clause isperhaps the most damaging provision for Indian IT playersas it stipulates that firms with over 15% of their employeeson H-1B visas cannot deploy their human resource inclient companies. It is widely believed in the industry thatthis clause will be diluted.Impact: Indian IT companies generally place Indian lowcost tech professionals on H-1B visas at client locations.Now, with this provision, it hits at the core of the Indianoutsourcing business model.Other Provisions: Indian firms also need to give a list tothe US Department of Labour on how many H-1B permitsthey have got and how they are being deployed.Impact: This will increase the IT company’sadministrative workload and will involve numerousprocedural issues.IN A NUTSHELLBig Indian IT companies get a major chunk of theirrevenue from the US. While the bill in the current formimpacts their margins and executive strategies, experts inthe field believe that few provisions will get diluted in thereconciled version. Industry body, Nasscom is alsostepping up its lobbying efforts in the US for a watereddown version of the existing Senate versioN.46Beyond Market 08th Jul ’13It’s simplified...

&BeyondPresentLEARN THE ART OFCOMMODITY INVESTINGExchange PartnerDate:22nd June ’13.Venue: Hotel Holiday Inn,Mumbai.Beyond Market 08th Jul ’13 It’s simplified... 47

BEYOND MANDIVISITS MUMBAIExperts urge investors toprepare themselves fortough times in thecommodity marketsAs part of its investor education drive, Nirmal Bang Commodities Pvt Ltd, in association withZEE Business, had organized Beyond Mandi, the one-of-its-kind investor education camp atHotel Holiday Inn in Mumbai on the 22nd of June.The camp was held with the aim to educate traders and investors in the art of investing incommodities by bringing market participants and industry experts on a common platform andthus helping the former to take right decisions through sharp acumen and guidance.The panel of experts embodied Mr Ramesh Abhishek, Chairman of Forward Markets Commission(FMC); Mr Kishore Bang, Vice Chairman and Managing Director, Nirmal Bang Group; MrAnjani Sinha, MD and CEO of the National Spot Exchange Ltd (NSEL), Mr Kunal Shah, Head,Commodity Research, Nirmal Bang Commodities Pvt Ltd and Mr Samir Ahluwalia, Editor, ZeeBusiness.Mr Amish Devgan, the anchor commenced the event by introducing the panelists and explainingthe objective behind the camp.Mr Amish Devgan,Commodity Editor andAnchor, Zee BusinessMr Ramesh Abhishek kick started the event as the first speaker. He began byexplaining that the commodity futures market has evolved with time and there is a lotof scope for it in the future as well. He told the audience that any investor who dealsin the commodity market will have two considerations, one is safe and sound investmentand the other is good returns. For this reason the commodity market should befully regulated with minimum risk and the investor in turn should take informeddecisions so as to earn good profits.Mr Ramesh Abhishek,Chairman, Forward MarketsCommission (FMC)He then informed the audience about the initiatives taken by future exchanges so asto make the commodity market smooth as well as safe. “KYC requirements havebeen more streamlined; SMS and email alerts are sent to customers after all tradesand quarterly settlements and robust margining risk management system is madeavailable to them. Moreover, various steps have been taken to improve dealing inagricultural commodities,” he said.48Beyond Market 08th Jul ’13It’s simplified...

This was followed by a panel discussion between Mr Ramesh Abhishek, Mr KishoreBang, Mr Anjani Sinha and Mr Samir Ahluwalia. All of them acknowledged the growingimportance of commodities as a new asset class among retail investors.During the panel discussion when asked to elaborate on the impact of the CommodityTransaction Tax (CTT) on commodities trading, Mr Kishore Bang said, “Commoditymarket is at a very nascent stage and there is less awareness about the same. Also, thecommodities market is a traders market, where arbitrageurs and jobbers work on a thinmargin. CTT will decrease their volumes as well as liquidity, which will ultimatelyimpact the commodities market. Therefore, CTT will have a major impact on thecommodities market.”Mr Kishore Bang,Vice Chairman and Managing Director,Nirmal Bang GroupWhile agreeing to the fact that stock broking houses prefer equity markets to commodities,he elucidated by reiterating that the commodities market is a traders market and is ata very nascent stage. “The commodities market in India still doesn’t have options such asIndex trading, Options and Portfolio Management Services, which can allow brokers todesign products for their clients. But for the time being we just have futures trading anddelivery-based trading has just started in commodities. Whereas, equity markets have alot of products available and there is high investment and extensive research. Therefore,brokers have much more penetration in the equity markets than the commoditiesmarkets,” explained Mr Bang.Mr Anjani Sinha highlighted the fact that commodities market is a combination of varioustypes of market participants like jobbers, hedgers, speculators amongst others. “CTT willhave a major impact on jobbers because the percentage of jobbers is very high in thefutures market,” said Mr Sinha.According to Mr Sinha the future of commodities market is bright as this market willalways have relevance in the society. But, some new things must be done so as to improveit and make it better. He further said that the introduction of the Forward Contract RegulationAmendment (FCRA) Bill will help in the introduction of index trading and optiontrading. “At a lot of place, there is a need to develop aggregators model,” elaborated MrAnjani Sinha.Beyond Market 08th Jul ’13 It’s simplified... 49

Taking the discussion forward, Mr Kunal Shah, the next speaker talked about the dos anddon’ts of the commodity market and what trading strategy should be adopted. He alsospoke about the macro economic scenario, the reasons for high volatility in the commoditymarkets and its significance and the outlook of certain commodities.He said, “At the centre of all the macroeconomic events happening in the world economyis the US Federal Reserve’s announcement to end quantitative easing and also highliquidity in Japan.”Mr Kunal Shah,Head of CommodityResearch, Nirmal Bang.According to Mr Shah, the dollar will be much stronger than the yen in times to come andthat is why there is a lot of turnaround in the currency market. These fluctuations in thecurrency markets according to him have a big impact on the commodities markets.He also mentioned that the slowdown in the Chinese economy is the biggest threat to thecommodities market. This will be aggravated due to the discontinuation of quantitativeeasing by the US Fed Reserve. He presented charts and figures to quantify his claim.Mr Shah spoke about the measures taken by the US central bank and highlighted the GDPof US and Europe. He also discussed the GDP and industrial production of China andJapan’s response to infusion of liquidity into its economy.Towards the end of the talk, he told investors to brace themselves for tough times aheadfor gold and crude oil. He also offered his outlook on commodities such as crude oil,nickel, copper, coriander, cumin seeds, castor seeds and soya bean.The session concluded with an interactive session of questions and answers between theaudience and the speakers at the commodity camP.50Beyond Market 08th Jul ’13It’s simplified...