to 54646 Contact Person: Sagar Karvat - 077383 80033, e-mail

For Private Circulation Volume 1 Issue 45 04th Feb ’11 

BETWEEN EXTREMES 

A short-term halt in the recent rally of copper is likely as the red 

metal appears to be getting caught between the QE2 by the US 

and the monetary tightening measures by China

Volume 1 Issue: 45, 04th Feb ’11 

Editor-in-Chief & Publisher: Rakesh Bhandari 

Editor: Tushita Nigam 

Senior Sub-Editor: Kiran V Uchil 

Art Director: Sachin Kamble 

Junior Designer: Sagar Padwal 

Marketing & Operations: 

Dwiti Bhuta, Savio Pashana 

Research Team: 

Kunal Shah, Michael Pillai, Hussain Nagarwala, 

Vikash Bairoliya, Runjhun Jain, Usha Sharda, 

Sunit Mehta. 

HEAD OFFICE 

38-B/39, Khatau Bldg, 2nd Floor, 

Alkesh Dinesh Mody Marg, Fort, Mumbai - 400 001 

Tel: 022 - 22641234, 3027 2000 

CORPORATE OFFICE 

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Off Ganpatrao Kadam Marg, 

Lower Parel (W), Mumbai - 400 013 

Tel: 022 - 3926 8000 

Web: www.nirmalbang.com 

We, at Beyond Market welcome your views, 

comments, inputs and feedback. 

Do help us to grow better as per your liking. 

This is our attempt to reach you better while 

crossing horizons... 

beyondmarket@nirmalbang.com 

Tel No: 022 - 3926 8047 

Beyond Market 04th Feb ’11 

DB Corner – Page 5 

Back To Basics 

Thanks to benign inflation, the Reserve Bank of India has returned to its rate hike spree and this 

time, less is more – Page 6 

Serious Hurdles 

The global economic recovery could take a beating if other key issues are not dealt with at the 

right time – Page 8 

Aim High 

A promising outlook makes the infrastructure sector a lucrative investment option for investors 

with a long-term perspective – Page 12 

Survival Instinct 

Right from increasing tariffs to adopting the low-cost carrier model, airline companies are doing 

everything they can to stay afloat while making profits – Page 15 

A Medical Breakthrough 

The embryonic stem cell research is a big opportunity for the pharma sector and a boon to 

patients suffering from a range of devastating diseases – Page 18 

Better Safe Than Sorry 

Policyholders must make sure that they pay their premiums on time or else they may have to 

face the wrath of the insurance companies – Page 22 

Orchid Chemicals & Pharmaceuticals Ltd: Making The Right Moves 

Through its rich product portfolio and right expansion plans, the company is trying to find the 

right balance between growth and profitability – Page 24 

Between Extremes 

A short-term halt in the recent rally of copper is likely as the red metal appears to be getting 

caught between the QE2 by the US and the monetary tightening measures by China– Page 28 

Fortnightly Outlook For Commodities – Page 32 

Fortnightly Outlook For Currencies – Page 33 

E-way To Mutual Funds 

Investing in mutual funds online is now simpler than before, especially due to investor-friendly 

features offered by fund houses – Page 35 

Capital Gains 

A Capital Protection Fund is for an investor who seeks a high level of security without risks, yet 

wishes to profit from positive stock market developments – Page 38 

Important Statistics For The Fortnight Gone By – Page 40 

UK Sinha: The Rightful Heir 

Thanks to his vast experience, fifty-nine-year-old IAS officer, UK Sinha, seems to be a suitable 

successor to CB Bhave as the SEBI chief – Page 47 

A Wake-up Call 

If you are an investor, it is advisable to learn from other people’s mistakes instead of staying 

oblivious to scams and frauds – Page 49 

Who Dares Wins 

Bravehearts can battle rough seas or volatility in the markets following events like the budget 

with straddles and strangles – Page 52 

It’s simplified... 

3

4 

Halted In The Tracks 

While most commodities saw a correction due to several economic reasons, which affected their prices, copper is the only commodity 

that has not shown signs of any substantial correction and has been on a strong footing since a while now. The red metal is considered 

a reliable indicator of the health of an economy due to its heavy usage in the infrastructure sector. 

However, the commodity research desk at Nirmal Bang feels that copper prices are likely to match the red metal’s fundamentals soon. 

Copper production will outpace demand and, thus, see a correction in the near future. A halt in the rallying prices of copper is likely from 

a short-term view. The team holds the wide-ranging issues in the emerging markets responsible for the correction. Hence, we deemed 

this topic important for our readers. 

Apart from this, there is a piece on the recent rate hike by the Reserve Bank of India (RBI) in its third quarter Monetary Policy Review. The 

rate hike was necessitated to rein in the rising rate of inflation. The menace of inflation continues to be a major cause of worry in the 

domestic markets. Globally too, there are several issues that need to be addressed on a war footing to restore balance in the economies. 

Further, we have covered infrastructure, airline and pharma sectors due to the immense growth potential they offer. While the 

infrastructure sector holds great potential with a long-term perspective, the substantial efforts put in by airline companies to beat 

industry blues cannot be undermined. Moreover, the pharma sector is pinning hopes on embryonic stem cell research, which it considers 

as the next big thing. 

The mutual fund industry’s attempts to make the process of trading and investing through mutual funds simpler by offering online 

trading is a breakthrough in industry parlance. Hence, the magazine has featured an article on the same. 

The recent appointment of UK Sinha to the post of the SEBI Chairman has been covered in the Beyond People section. He succeeds CB 

Bhave, who brought about revolutionary changes in the financial sector. Only time will tell how well Sinha performs his role as the chief 

of SEBI. 

And last but not the least, there is an article on ways people can avoid getting duped by fraudsters. The case in point is the relationship 

manager of Citibank’s Gurgaon branch who cheated rich individuals of their hard-earned money. This, we hope, will help you stay on 

the guard and prevent falling prey to vested interestS. 


Tushita Nigam 

Editor 

It’s simplified...

Market participants are 

advised to remain cautious 

in the coming fortnight. 

In the previous fortnight, the Reserve Bank of India 

(RBI) hiked interest rates to control the menace of 

inflation, which has been on a steep rise since the 

past few months. 

The central bank, in its third quarter Monetary Policy 

Review, raised its key policy rates by 25 basis points. The 

repo rate was hiked to 6.5% and the reverse repo rate to 

5.5%, in line with market expectations. But indications of 

further rate tightening and other concerns caused a fall in 

the markets. 

The quarterly results of most companies announced so 

far, have met market expectations. But how far the 

companies will manage to sustain themselves in the 

backdrop of rising commodity prices and higher interest 

rates, which could affect margins in the coming quarter, 

needs to be seen. 

Market participants are advised to remain cautious. 

However, they can look at buying around the support 

level of 5,420 on the Nifty. If it breaks this level, investors 

are advised to avoid fresh buying. On the upper side, 

the Nifty has resistance at the 5,750 and 5,900 levels. 

Stocks like Orchid Chemicals & Pharmaceuticals Ltd 

(LTP: `294), Panacea Biotec Ltd (LTP: `195.20), Gujarat 


State Fertilizers & Chemicals Ltd (LTP: `338.35), Praj 

Industries Ltd (LTP: `74.70) and IFB Industries Ltd 

(LTP: `113.50) have declared positive results for the 

December quarter. These stocks, therefore, can be bought 

at the current prices as well as on declines from an investment 

perspective. 

There is a fear that the ongoing crisis in Egypt may 

spread to other Middle East regions, leading to a rise in 

crude oil prices, thus negatively impacting India. Other 

geopolitical tensions could also upset the markets. 

But, internal problems pose a bigger threat to the 

economy and markets at large, instead of the prevailing 

global issueS. 

Sensex: 18,327.76 

Nifty: 5,505.90 

(As on 31st Jan ’11) 

Disclaimer 

It is safe to assume that my clients and I may have an investment interest in 

the stocks/sectors discussed. Investors are required to take an independent 

decision before investing. Investment in equity is subject to market risk. Our 

research should not be considered as an advertisement or advice, professional 

or otherwise. The investor is requested to take into consideration all the risk 

factors including their financial condition, suitability to risk return profile and 

the like and take professional advice before investing. 


5

6 

Macro economic management is quite a task 

for stock market regulators. At times, they 

act against general expectations and at 

others, they know exactly what is coming 

their way. 

Going by this theory, when the Reserve Bank of India 

(RBI) increased the repo and reverse repo rates by 25 

basis points (hundred basis points make a per cent) each, 

at its Third Quarter Review of Monetary Policy for 

2010-11, not many were surprised. 

Post the latest hike, the repo rate (rate at which banks 

borrow from the RBI) stands at 6.5% and the reverse 

repo rate (rate at which banks park their surplus liquidity 

with the RBI) stands at 5.5%. 

After the latest round of rate hikes, the central bank 

cumulatively increased the repo rate by 175 basis points 

and the reverse repo rate by 225 basis points, since 

mid-March ’10 when it gradually moved away from its 

easy money policy. 

Although the cash reserve ratio (CRR) has not been 

altered in the recent policy review, it has gone up by 100 

basis points over the past 10 months. Banks on their part 

have responded to this calibrated tightening by raising 

their deposit and lending rates, suggesting strong 

monetary policy transmission. 


ack 

o 

o 

asics 

asics 

Thanks to benign in�ation, the Reserve 

Bank of India has returned to its rate hike 

spree and this time, less is more 

So what prompted the RBI to give up its pause? Inflation. 

“Inflation is clearly the dominant concern,” said RBI 

Governor D Subbarao. “Even as the rate itself remains 

unacceptably high, the reversal in the direction of 

inflation is striking.” 

Talking about the contributors to inflation, Subbarao said 

primary food articles’ inflation has again risen sharply 

while non-food articles inflation and fuel inflation are 

already at higher levels. 

“There are signs of food and fuel price increases spilling 

over to generalized inflation,” he said adding that there 

has been a sharp rise in global commodity prices, which 

has heightened upside risks of domestic inflation. 

Beyond inflation, growth has moved close to its 

pre-crisis trajectory even in the face of an uncertain 

global recovery. And the uncertainty with regard to 

global recovery has reduced. But inflation is truly a cause 

of concern, even though the moderation in headline 

inflation observed between August and November ’10 

was along the projected trajectory of the RBI. 

The trend, however, reversed when the year-on-year 

(y-o-y) inflation moved up from 7.4% in November ’10 

to 8.4% in December ’10, mainly on the back of a sharp 

increase in the prices of vegetables, mineral oils as well 

as minerals. 


According to the RBI, going forward, the inflation 

outlook will be shaped on the basis of how the food price 

situation, both domestic and global, evolves, how global 

commodity prices behave and the extent to which 

demand side pressures may manifest. 

On its part, the RBI has raised the baseline projection of 

WPI inflation for March ’11 from 5.5% to 7%, based on 

several considerations. First, the upside risks to inflation 

that the RBI had mentioned in the mid-quarter review of 

December ’10, have materialized as reflected in the 

increase in prices of metals and non-administered fuel. 

Second, there have been some transitory supply shocks, 

which triggered a sharp increase in vegetable prices. 

Third, petroleum and aviation turbine fuel prices went up 

in early January, which will add 9 bps to WPI inflation. 

“While the impact of transitory factors is expected to 

dissipate, price pressures on account of demand-supply 

imbalances with respect to some commodities will 

persist,” said Subbarao. 

Regarding the domestic economy, the 8.9% GDP growth 

in the first half of 2010-11 suggests that the economy is 

operating close to its trend growth rate, powered mainly 

by domestic factors. With the risks to growth in 2010-11 

being on the upside, the baseline projection of real GDP 

growth is retained at 8.5%, with an upside bias. 

Therefore, technically the economy has been and may 

continue to be in a high growth - high inflation scenario. 

“Gradual increase in interest rates would perhaps be the 

best approach to manage inflation without disrupting 

growth,” said an economist. 

Of late, the shift in policy priority has been fast. While 

hiking both repo and reverse repo rates by 25 basis 

points, the November policy review had almost explicitly 

indicated the central bank’s preference for a pause in rate 

action in the near term. 

It was geared towards fine-tuning the exit, hinting more 

at nuanced and directed policy measures in the subsequent 

months like prudential norms, including provisioning 

requirements, risk weights for banks’ exposure 

towards sectors like real estate. 

The RBI’s December mid-quarter policy action was 

centered on tackling the excessive tightness in the 

banking system’s liquidity, which included reduction in 

SLR, while keeping rates on hold as expected. 

“Since then, banking system liquidity has gradually 

improved from an ‘excessive deficit’ mode and carries 

promise to improve further during February-March on 

government spending,” stated a Barclays Capital report. 


“The sequential softening in inflation until November 

and the RBI’s stated preference for a near-term pause 

earlier triggered expectations of policy rates staying on 

hold until March,” the report added. 

Despite the hawkish rhetoric during its last policy 

announcement on 16th Dec ’10, economists at Barclays 

Capital believe that the RBI would have ideally avoided 

a January rate hike in case of a stable inflation print and 

no fresh pressure on inflation expectations. 

The unexpected rise in the December inflation print has, 

however, turned out to be a game changer, and had been 

the key to push the central bank to front-load another rate 

hike in January, despite the source of the pick-up coming 

largely from volatile food articles. 

“The current inflation spike is almost entirely due to a 

supply shock, for which monetary policy is not as 

effective,” stated the report, wherein the economists 

factored in a further hike of 75 basis points in the repo 

rate during 2011, with a renewed front-loading bias. 

On the monetary and liquidity scenario, while the y-o-y 

money supply growth at 16.5% in December ’10 was 

close to RBI’s indicative projection of 17%, non-food 

credit growth at 24.4% was much above the indicative 

projection of 20% set by the RBI. 

“Credit expansion in the recent period has been rather 

sharp, far outpacing the expansion in deposits,” said 

Subbarao. “Rapid credit growth without a commensurate 

increase in deposits is not sustainable.” Tight liquidity 

conditions persisted throughout the third quarter of 

2010-11, for which the RBI has announced the extension 

of the liquidity measures to address the still tight domestic 

liquidity conditions. 

Firstly, the additional liquidity support to scheduled 

commercial banks under the liquid adjustment facility 

(LAF), currently set to expire on 28th January, was 

extended to 8th April. Secondly, the second LAF (SLAF) 

will be conducted on a daily basis until 8th April. 

The RBI has been quite vocal about the fact that the 

effectiveness of the monetary policy is muted in the 

presence of a large fiscal deficit. So, all eyes are now set 

on the coming budget in February, wherein the fiscal 

picture would get clear. 

If the fiscal situation is not able to tackle inflationary 

pressures well, the RBI may hike rates again in its next 

mid-quarter review in March. So, for now, pause is past 

and the steps that the RBI has been taking periodically 

since mid-March ’10 are set to continue. A lot depends 

on how the numbers play up in the coming weekS. 


7

8 


The global economic 

recovery could take a 

beating if other key issues are 

not dealt with at the right time 

Post the financial crisis of 2008, it is now mostly 

proved and believed by economists that India is 

not yet decoupled from the rest of the world. 

And despite its relatively less dependence on exports and 

foreign money, there are striking examples of what could 

happen to its economy and the markets when unfavourable 

things happen in the rest of the world, especially in 

the developed countries. 

Needless to say, today the money managers are more 

worried about the global risks than what could happen in 

the domestic economy as a result of the hike in interest 

rates and soaring inflation. 

As global risks have taken centre stage, it is worth 

keeping an eye on some of the key problem areas that 

could drastically impact the Indian economy and the 

stock markets too. 

The United Nations (UN) estimates that between 2007 

and 2009, as many as 30 million jobs were lost around 

the world as a result of the financial crisis and the recession 

that followed. 

It is further estimated that 81 million people are without 

jobs. In this backdrop, the global economy still needs to 

create at least another 22 million new jobs in order to 

return to the pre-crisis level of global employment. It also 

says that at the current speed of recovery, this would take 

at least five years. 

In addition to high levels of unemployment and austerity, 

the UN has said that high levels of volatility in foreign 

exchange markets and conflict between major economies 


over policies that affect exchange rates are the main 

threats to growth. 

Here are a few issues that need to be watched closely in 

the coming year. 

EUROPE: THE REAL TEST 

Despite the recent recovery and the measures taken to 

arrest the problems in the Euro zone, the European crisis 

is far from over. 

Europe is recovering from the deepest recession. Following 

a 4.6% contraction in 2009, the GDP is projected to 

increase substantially in 2010 and 2011. However, many 

economists believe that these GDP figures could come 

down as there is a greater possibility that the sovereign 

debt crisis may recur again in the next one year. 

The New York-based Economist Nouriel Roubini, who 

predicted the global financial crisis, had earlier said that 

the key risk to the world economy in 2011 is the likely 

spread of Europe’s debt crisis. 

He says that the problems of the Euro zone could spread 

to Portugal, Spain and Belgium too. Essentially, this 

means that there is a danger that the crisis could continue 

to travel from one county to another. 

The UN has said the pursuit of austerity measures by a 

number of European countries could push the Euro zone 

back into recession in 2011. Austerity measures are often 

used by governments to reduce their deficit spending, 

usually in the form of higher taxes, reduction in the 

amount of benefits and public services offered. 

When the sovereign debt crisis hit the Euro zone, the 

investors cited excessive concerns over fiscal deficit and 

debt. Concerns initially started with countries like Portugal, 

Ireland, Italy, Greece and Spain, collectively referred 

to as the PIIGS. 

Most of these countries were having very high debts as 

compared to the size of their economies. Greece, the 

most troubled country, has debts in excess of 140% 

compared to its economic size, followed by Italy at 118% 

and Ireland at 95%. 

Not only high debt, but also high fiscal deficit in these 

countries is an equally worrying factor. Countries like 

Portugal, Greece and Ireland have fiscal deficits in the 

range of 9% to 12%, which is very significant as they are 

already sitting on huge debts. High fiscal deficit also 

means that the nations in the Euro zone have very less 

headroom for more spending. Instead, they will have to 

cut their expenditures. 


As a result of high public debt in relation to the size of the 

economy, the questions about their abilities to repay such 

debt, especially in times of tepid economic recovery, are 

being raised. 

To deal with the situation, either the governments will 

have to default or if not, bring down government expenditure. 

In May ’10, the 27-member states of the European 

Union agreed to create the European Financial Stability 

Facility (EFSF), a legal instrument aimed at preserving 

financial stability in Europe, by providing financial 

assistance to the Euro zone states in difficulty. 

The authorities have been able to postpone the problem 

by announcing the rescue package. However, many 

economists still believe that the problems are far from 

over as debt levels and fiscal deficits continue to be 

extremely high. 

Also, there are chances that the crisis, which was 

restricted to a few countries, could spread to other 

nations, which are vulnerable or have poor economic 

fundamentals. Most experienced watchers of the Euro 

zone are expecting another serious crisis, which could 

blow out in 2011. This is also to do with the fact that 

many of these countries will need rollover funds in the 

current year. 

Meanwhile, emerging markets guru Mark Mobius in his 

blog has said: “Greece, Spain, Portugal and Ireland 

continue to have problems in managing their debts. 

While they obviously do not want to default; looking at 

the numbers, I think it may be quite difficult for them to 

avoid it. The question now is how they can restructure 

their debt or raise more debt to repay the old debt.” 

UNITED STATES: LIMPING FORWARD 

While the Euro zone crisis seems large, the process of 

economic recovery in the US is no less daunting. It has 

come a long way since the sub-prime crisis of 2008, 

which was followed by the collapse of the banking 

system and subsequently the financial meltdown in the 

US. This led to massive job losses and drop in retail 

sales, something that was not seen in decades, and caused 

widespread depression in the US economy. 

Now, the situation is improving. The unemployment rate 

and retail sales are better than they were following the 

financial meltdown. Even the fourth quarter ending 2010 

GDP numbers are expected to be strong as against the 

September quarter. Consumer spending, industrial 

growth and capacity utilization numbers, although 

marginal, are recovering from their earlier lows. This has 

led to renewed confidence in the US economy and thus 

the US markets. Its currency too, has seen some improve 


9

10 

ment in the past couple of months. However, despite 

improving numbers, economists still feel that unemployment 

figures are still high. Besides, the housing market 

continues to be weak. 

Moreover, the government is pumping in trillions of 

dollars into the economy to revive it. Post the 2008 crisis, 

it has spent more than $2.5 trillion, rescued several banks 

and kept its interest rates very low. 

Its spending is far higher than its revenues, leading to a 

deficit in government finances and thus, straining its 

balance sheet. 

But the real impact will be visible on the overall demand 

and economic growth only after the government 

withdraws the stimulus and repairs it balance sheet, even 

if it involves monetary tightening. 

The US economic recovery is also important because it 

commands almost 25% of the world GDP. Though the 

economic recovery is for good, whether it will withstand 

the test of time is what needs to be seen. 

CHINA : THE DEFIANT DRAGON 

Similarly, problems are not limited to the global super 

powers – Europe and the US. Chinese authorities too 

have a lot of problems that need to be addressed. Western 

countries are now reluctant to import goods from China 

as demands have shrunk. Also, with tremendous pressure 

on China to revalue its currency, exports in this economy 

have taken a beating. 

Renowned investor Marc Faber, who is known for his 

ability to predict events and bubbles, in late 2010, had 

said that China has considerable risk of a slowdown. In 

one of his interviews, he had said that there is a 99% 

possibility that China will witness a considerable 

slowdown and there is another 30% chance that the 

markets will crash. 

He said if growth in China slows down, it will have a 

devastating impact on the prices of industrial commodities 

and also on those who supply these commodities. 

Even Author Richard Duncan in his new book titled ‘The 

Corruption of Capitalism’ says that every boom busts, 

and China’s boom will be no exception. 

On the contrary, the Chinese economy continues to roar. 

The only difference today is that Chinese policymakers 

too feel that they need to shift from the export-driven 

economy to one led by domestic consumption, which is 

possible given the huge population of the country. To 

achieve this, China will have to reduce its dependence on 

the western world without hurting its economic growth. 


All developments, good or bad, will eventually impact 

the industrial commodities. Only time will tell how it 

would affect the global economies. In fact, China has 

already begun the process of tightening its interest rates 

and reigning in its appreciating currency. Therefore, the 

current year would be very important in this regard. 

CURRENCY WAR – THE BATTLE FOR 

SUPREMACY 

Globally, the faith in paper currencies is reducing. The 

logic given is that countries, especially from the developed 

world, have made all sorts of attempts to revive 

their sagging economies through excessive money 

printing, very high debt to GDP (both public and 

private), off-balance sheet liabilities, rescue of banks and 

temporary stimulus, to name a few. 

While this is one part of the story, the other part is that 

there is enormous pressure on countries to manage their 

currencies in such a manner that they help their own 

countries favourably, while ensuring that others do not 

have an undue advantage. 

A cheap currency not only helps exports but only attracts 

foreign investments. For instance, China saw huge 

exports and foreign investments as a result of which it 

has accumulated the largest foreign exchange reserves in 

the world. 

But now world leaders ,especially the US, want China to 

revalue its currency that has been kept low artificially. It 

is quite logical as China runs a huge trade surplus or $268 

billion (as of 2008) with the US. An economist recently 

said that as much as 40% of the Chinese economy could 

be attributed to its dependence on exports to the US. 

Meanwhile, several economists believe that the Chinese 

currency - the renminbi (RMB) is undervalued by about 

25% to 30% against the dollar. Today at a time when 

domestic employment is a priority, countries such as 

USA, Europe and Japan, among other nations, want to 

protect their domestic industries and jobs against cheaper 

imports of goods. 

This is also the reason why countries want their currencies 

to devalue or keep them undervalued to remain 

competitive in the world market. Considering these 

issues, it is important to see how different currencies are 

valued against each other in the coming times. 

The European debt crisis, sluggish economic recovery in 

the United States, the suspected bubble formation in 

China and the ongoing currency war among countries 

need to be addressed on a war footing to restore balance 

in the global economieS. 


12 



In the last one year, shares of infrastructure companies 

have been hammered out of shape, mostly over 

concerns about slower order inflows and execution. 

Shares fell further in the second quarter ended 30th Sept 

’10, when infrastructure companies delivered financial 

results because of slow progress on projects as well as 

heavy monsoon. 

In 2010, the monsoon season went on for an extended 

period, which is a negative for infrastructure companies, 

as construction activity slows down during this period. 

This caused a delay in completion of projects, which was 

subsequently reflected in depressed earnings of 

infrastructure firms, during the second quarter. 

Market experts, however, believe the correction in 

infrastructure stocks over the last one year, offers an 

opportunity for investors to add some of the stocks to 

their portfolio. It is, indeed, a good time to buy shares of 

infrastructure companies. 

Infrastructure is a very lucrative area for investment, 

which is evident in the interest that is being shown in the 

sector by individual investors, fund houses and 

infrastructure finance companies. Mutual funds have 

increased their exposure to infrastructure shares, with 

domestic fund managers launching numerous specialized 

funds to invest in the sector. 

Also, in the last one year, a large number of infrastructure 

finance companies such as IFCI Ltd and IDFC Ltd, have 

started investing in the sector by issuing bonds. The 

infrastructure bonds have become an attractive investment 

option, considering that the bonds give an 

additional tax saving of `20,000 over and above the `1 

lakh tax deduction allowed under section 80C of the 

Income-tax Act. Besides, foreign institutional investors 

have also started investing in infrastructure stocks. 

It is not too hard to see why there is so much interest in 

the sector, given the fact that every government sees 

infrastructure development as a priority. It has become an 

important focus area even for India, which has seen its 

Gross Domestic Product (GDP) grow at an average rate 

of 8% year-on-year (y-o-y). 

In order to keep the growth momentum going or to 

achieve higher growth, India needs to develop infrastructure 

such as airports, roads, power generation plants and 

water treatment plants, among others. 

Perhaps, realizing this, the Indian government has 

increased its spend on infrastructure projects. According 

to a report on savings and investments brought out by the 

Central Statistical Organization, the overall investment 


in infrastructure went up from `253,035 crore in 2007-08 

to `307,282 crore in 2008-09, a rise of 21.4%, marginally 

less than the 22% growth in the previous year when the 

economy grew by 9.2%. 

The investment to GDP ratio of this segment, which 

includes electricity, gas, water supply, railways, road, 

airports, ports, storage and communication, has also gone 

up from 5.1% of the GDP at market prices in 2007-08 to 

5.5% in 2008-09. 

In the past, infrastructure was solely funded and managed 

by the government. This has changed now with the 

government opening up the sector to private companies 

and investors. 

For instance, power generation is largely done by private 

power companies; road projects are executed by private 

companies on a build-operate-transfer (BOT) model and 

the government has adopted a public-private partnership 

(PPP) model for port projects. 

Apart from the government, infrastructure is now being 

funded as investment by companies such as LIC Housing 

Finance Ltd, which has issued about $1 billion worth of 

infrastructure bonds to help fund India’s deficit in roads 

and power plants. 

Analysts feel that even if other sectors in the market do 

not perform well, the infrastructure sector will always do 

well, considering that it is much needed in a growing 

economy such as ours. 

While investors may be put off by the second quarter 

numbers of companies, they would do well to discount 

earnings during this quarter, because the second half of a 

fiscal generally tends to be better than the first half, for 

infrastructure companies. 

In the second half of a fiscal, infrastructure companies 

book around three-fifths of their annual revenues. The 

reason is that, construction activity picks up after the 

monsoon ends. 

This fiscal too, analysts expect infrastructure firms to 

post better results in the December quarter as compared 

to the September quarter. Profitability of these firms, 

however, is expected to be low in the December quarter 

because of high interest costs. Analysts also expect 

earnings before interest, tax, depreciation and amortization 

(EBITDA) margins to be under pressure due to 

soaring commodity prices. 

But, in spite of concerns related to the sector, the increasing 

order book of infrastructure companies is expected to 

drive their growth in the long-term, which makes their 


13

14 

stocks profitable bets. The trick to investing in infrastructure 

stocks is to buy them from a long-term perspective. 

A long-term investment will ensure that investors book 

heavy profits. 

There are many stocks that investors can choose from. 

For example, they can choose to invest in an energy 

company, a construction or an urban waste management 

company, since the industry is so divergent. 

Analysts, however, caution that investing in infrastructure 

stocks is not without its risks. The first risk relates to 

the fact that the sector has a long gestation period, which 

means earnings in the short term could be less. 

The second is financial risk, where being over-leveraged 

can expose a project to volatility in interest rates, thus 

impacting the profit of a company. Also, infrastructure is 

highly capital-intensive and large amounts of capital can 

be tied up in projects for a long time. 

The next risk is the possibility of construction cost 

overruns, when a project sees cost escalation either 

because of an unexpected delay in the project or due to 

several other factors. 

Typically, construction of infrastructure projects is done 

through multi-year contracts, which expose the project to 

cost escalations either because of a delay in the project or 

the rise in commodity prices. This can drag down the 


revenue and profitability of a project. 

In the case of toll roads and bridges, there is a risk that the 

company developing the project may not get the 

expected demand. In fact, investing in stocks of companies 

that develop toll roads, ports and airports is considered 

to be a high-risk investment. 

There is also a political and regulatory risk associated 

with infrastructure projects. Infrastructure investments 

are subject to government regulations, which means that 

any change in government regulations or policies can 

impact a project. A more recent risk that has come up is 

the delay or cost escalation of a project because of 

environmental concerns, such as the Vedanta mining 

project in Orissa. 

The bottom line though is that historically infrastructure 

investments have been lucrative. There are, however, 

critics who warn of bubbles and too much money chasing 

too few projects. 

Still, with a promising outlook for infrastructure in the 

future years, investing in this sector could prove beneficial. 

The good thing is that during an economic recession, 

governments tend to invest more in infrastructure to 

stimulate growth, which can provide investors with a 

hedge in investments during a downturn. Overall, 

infrastructure remains a sector with extremely high 

potential for returnS. 

Your financial success is our concern. At Nirmal Bang, it’s a relationship beyond broking... 

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


SURVIVAL INSTINCT 

Right from increasing tari�s to adopting the low-cost 

carrier model, airline companies are doing everything 

they can to stay a�oat while making pro�ts 



15

16 

After a prolonged lull in the economy, the previous 

year was quite good for the airline industry 

as business and leisure travel got the necessary 

push. In fact, domestic passenger traffic 

grew over 20% during this period, fuelling hopes of 

better December quarter results of airline companies. 

However, the only worry in the coming quarters could be 

abnormal movement in the crude oil prices that are 

hovering around $90 per barrel. It is estimated that if 

crude oil prices breach the $90-mark, airline companies 

would start feeling the pinch. 

Further, capacity expansion plans that are likely to 

happen after FY13 could also spoil the joyride for these 

companies. But it would not be as bad as the effect of the 

rise in crude oil prices. 

Even if we assume that the revenues of airline companies 

are the same and crude oil prices move up by $1 per 

barrel and that the companies do not pass on the cost to 

travelers in terms of ticket prices, then the margins would 

come down by 350-400 basis points. 

THE INDUSTRY 

The airline business is cyclical in nature. At present, the 

industry is on an upward curve. After a period of 

prolonged losses, airline companies are now seeing a 

revival, with demand growing faster than supply. 

Strong economic growth, range-bound fuel prices and 

the return of pricing power show an uptrend for the 

industry. The fortunes of the aviation industry are linked 

closely to the state of the economy. 

And with growth being more or less broad-based, 

business as well as leisure travels are expected to pick up 

further, a far cry from the scenario a few months ago, 

when several airlines had piled up huge losses, and in 

some cases, defaulted on payments too. 

Airline companies have learnt their lesson on increasing 

their profits the hard way, in the past five years. Although 

airline companies increased their capacities, the demand 

from travellers did not match with the capacity expansion. 

This resulted in a price war among airline companies. 

During the five year period from FY04 to FY08, the 

industry players faced consistent losses or profits, which 

were erratic and generated mainly in the form of 

non-business income. 

This was followed by the financial meltdown. In this 

situation, the airline companies had to weigh their 

options to lessen their debt burdens and follow an 

economical model. 


Over the past two years, Jet Airways acquired Air 

Sahara, while Kingfisher took over Air Deccan. The 

government went on to merge Air India and Indian 

Airlines. A few other insignificant players faded out of 

the scene. However, this process of consolidation did not 

have a deep impact other than increasing the market 

share, as both the topline and bottomline of airlines 

continued to stagnate. 

Airline companies, especially full service carriers, 

realized that in order to boost their topline, it was crucial 

for airline companies to first apply brakes on capacity 

addition and secondly, give importance to a low-cost 

carrier (LCC) service to create a hybrid business model. 

LOW-COST CARRIER MODEL 

Low-cost Carrier (LCC) has now become an important 

part of the business model of airline companies in India. 

Since business has been seasonal, it is immensely important 

that the industry keeps the LCC model intact in its 

core business model. 

Cheaper ticket price of a low-cost carrier ensures better 

passenger load factor and, in turn, a good topline for 

many airlines. Among the cost-conscious Indian travellers, 

an LCC player, such as SpiceJet, Go Air and IndiGo 

would remain the first preference. 

Most often, it is only when fliers fail to get a seat in a 

no-frills airline, do they opt for full-service carriers. 

Realizing this, full-service carriers, such as Jet Airways 

and Kingfisher Airlines, started offering LCC services. 

Jet Airways launched JetLite and Jet Konnect services, 

while Kingfisher Airlines started Kingfisher Red. These 

initiatives work on low costs and have helped enhance 

the revenues of the respective airline companies. 

The swift adoption of the LCC model has enabled Jet 

Airways to report consistent profits during the past three 

consecutive quarters. As opposed to this, Kingfisher, 

which was late in adopting this, continues to report losses 

and now has a negative net worth. 

On the sidelines, pure LCC players, such as SpiceJet, 

IndiGo and GoAir, continue to thrive, with the three of 

them commanding close to 34% of the market share 

today. SpiceJet was the first among the three listed 

players to bounce back after the slowdown and post a net 

profit for FY10. Rising debt burden and interest outgo 

have weighed down heavily on full-service carriers. 

In FY10 alone, both Jet Airways and Kingfisher Airlines 

paid almost `1,100 crore each towards interest costs, 

while carrying a pile of debt several times their equity 


ase. As a result, these players chose to adopt a leaseback 

model to acquire new aircrafts without increasing debt. 

Take for instance, Jet Airways. The company now has 

60% owned and 40% leased aircraft. It has dry leased 

three long-haul Boeing 777-300ERs to Thai Airways and 

THY-Turkish Airlines. 

IN THE COMING QUARTERS 

Owing to growth, not much change is expected on the 

supply side. Better occupancy is also helping airline 

players increase their ticket tariffs, or revenues per 

passenger per kilometre. 

The improvement in sentiments has prompted Jet 

Airways to convert 60% of its flights to full service 

mode. Crude oil prices, that had wreaked havoc on the 

industry due to high volatility a couple of years ago, have 

remained range-bound over the past one year. 

No capacity additions have been planned for the coming 

months. Companies such as Jet Airways and Air India 

have deferred some of their earlier orders for new 

aircraft. At present, there are around 380 aircrafts in the 

industry and analysts estimate that if passenger growth 

continues within 15% to 18%, around 150 aircrafts can 

be accommodated over the next five years. 

Passenger traffic has grown despite the rise in ticket 

prices. Domestic airlines showed a growth of 25.1% in 

passenger traffic in November, on a year-on-year basis. 

This growth has increased prospects of the upcoming 

December quarter for airline companies as the most 

profitable in the last five fiscals. The growth in net profits 

of airline companies has been uneven due to factors such 

as mounting debts or high crude oil prices. 

FY11 has been a year of resolving issues that slowed 

down the recovery of the airline industry. Toning down 

the impact of profit-squeezing debts, which has been a 

task for airline companies for years, today, has been dealt 

with to a reasonable extent. 

Measures such as conversion of rupee-denominated debt 

to US dollar-denomination at an interest rate (average 

interest rate of 6.8%) less than 50% of rupeedenominated 

interest rate (12.25%) and debt-to-equity by 

airline companies are steps in the right direction to keep 

in check rising interest costs. 

This would result in enhancement of net profits, 

especially for Jet Airways in particular, and Kingfisher 

Airlines in the near future. The only concern that would 

dash the hopes of the smooth growth of airline companies 

is unfavourable movement in crude oil prices. 


At present, it is believed that crude oil prices, which are 

trading in the range of $85-$90 per barrel, may breach 

the $95 per barrel-mark sometime in the March’11 

quarter. Airline companies may not feel the negative 

impact of the increase in the December’10 quarter. 

In the December ’10 quarter, airline companies would 

record a sharp improvement in net profits. Considering 

the average price movement of aviation turbine fuel 

(ATF) in the September ’10 and December ’10 quarter, 

there has been a rise of 5% in the price of ATF. 

Though fuel cost constitutes around 35%-40% of the 

total expenditure of airline companies, this rise in fuel 

prices so far has been easily absorbed in the system. 

The demand growth in recent months is one of the chief 

reasons why airline companies are not feeling the pinch 

of the rise in fuel prices. In November last year, there has 

been a demand growth of around 25% in comparison to 

the corresponding period in 2009. 

Besides this, the sharp increase in ticket prices by airline 

companies would also negate the impact of the rise in 

fuel prices and enhance earnings of airline companies. 

Moreover, debt-restructuring measures too would 

enhance net profits for companies. These measures 

would lessen interest costs in the December ’10 quarter 

itself, especially for Jet Airways. 

Jet Airways had converted around `1,200 crore worth of 

its non-aircraft debt in US dollar denomination by the 

September ’10 quarter. This would save the company an 

interest cost of around US $15 million annually (around 

`67.5 crore) and around `16.87 crore in the December 

’10 quarter for the company. 

For Kingfisher Airlines, the benefit of reduction in 

interest cost due to conversion of debt of `2,003 crore to 

equity would be gauged by the March ’11 quarter. 

The coming two quarters would be good for all airline 

companies, considering the fact that the December and 

the March quarters are holiday seasons. This will ensure 

higher yields and improvement in capacity utilization, 

leading to an improvement in the quarterly financial 

results, thus making the industry attractive for investors. 

While the industry has been lobbying the government for 

allowing foreign airlines to pick up minority stake in 

domestic airlines, any development on this front will 

spell good news for the industry. 

Also, most capacity additions for airline companies - Jet 

Airways India, Indigo Airlines and SpiceJet - is likely to 

happen in installments over the next five yearS. 


17

18 


A Medical 

Breakthrough 

The embryonic stem cell research is a 

big opportunity for the pharma sector 

and a boon to patients su�ering from a 

range of devastating diseases 


India is one of the few countries in the world that is 

seriously pursuing stem cell research. But regenerative 

medicine comprising stem cell therapies and 

tissue engineered products are in a nascent stage in 

our country. 

As per industry estimates, about 164.4 million patients 

who will be suffering from diabetes, cardiovascular 

disorders, neurological disorders, burns and wounds, 

osteoarthritis, osteoporosis, degenerative and traumatic 

disorders of bone and cartilage, liver disorders by the end 

of 2011, will benefit from stem cell therapies in India. 

Stem cell therapies have already demonstrated reasonable 

efficacy in treating certain ocular, cardiovascular 

and neurological disorders. Stem cell research is a niche 

industry and has been gaining considerable attention in 

India over the last few years. 

The industry is well-positioned to have a promising 

future. According to Stem Cell Global Foundation, a 

Delhi-based organization, stem cell banking was worth 

`100 crore in India in 2008-09. It is expected to grow to 

an estimated `140 crore, a 35% rise, by 2010-11. In 

India, over 55 programmes have reportedly been identified 

and supported on various aspects of stem cell 

research till now. 

The sentiments for the industry are upbeat, as reflected 

by a prediction of an overall increase in stem cell banking 

customers in India from around 25,000 currently to about 

1,00,000 by 2012. 

Growing awareness about the benefits and the potential 

applications of stem cell technology to develop cures for 

chronic diseases, which do not respond to conventional 

treatment has facilitated the setting up of various firms in 

this segment. 

Research in this field is being promoted by the government 

as well as several institutes and hospitals. More 

than 20 research organizations and 15 companies are 

working on stem cells in India. There are many institutions 

conducting research in stem cell therapy like the 

AIIMS, New Delhi. 

But clinical trials in the true sense are few and far 

between. By clinical trials, it means that they should be 

double blind, randomized placebo-controlled trials, with 

definite inclusion and exclusion criteria and with definite 

start and end points. 

The clinical trials should also throw light on how a 

particular stem cell has or has not worked. It should not 

vaguely state that the trial has been beneficial. Instead, 

definite parameters need to be set before the actual trial 


to gauge the degree of improvement. 

The industry is dominated by companies involved in 

umbilical cord blood banking. There are several companies 

and institutions engaged in various aspects of stem 

cell research. These include LifeCell, CryoStemCell and 

Reliance Life Sciences. 

Some firms have also begun identifying and developing 

cell-based therapy treatments for various disease areas, 

including cardiovascular diseases, stroke, diabetes and 

retinal degeneration. 

Recognizing the potential of this field, the Department of 

Biotechnology has allocated more than `300 crore over 

the last five years towards basic and applied research in 

stem-cell technology. 

Bengaluru-based National Centre for Biological 

Sciences (NCBS) is the key organization leading the 

government’s efforts in the field of stem cell technology. 

And the major players in this industry are prominent 

public-funded institutes like LV Prasad Eye Institute, 

CMC Vellore, IISc, NCCS, NBRC, CCMB, NCBS, 

CDFD, Nizams, TIFR, Nimhans, PGI Chandigarh, 

AIIMS as well as IIH (ICMR). 

On the other hand, private sector companies include 

Reliance Life Sciences, LifeCell, Pacific Stem Cells – 

Hyderabad, Stempeutics Research Pvt Ltd, Nichi-In 

Centre for Regenerative Medicine, LifeLine Hospitals 

and Manipal Hospital - Bengaluru. 

The regenerative medicine and stem cell technologies 

market is expected to grow to a US $500 billion business 

globally over the next 20 years. Recognizing the potential, 

several institutes and companies have ventured into 

this field in India. 

In stem cell research, AIIMS, LV Prasad Eye Institute, 

Centre for Stem Cell Research at CMC Vellore and 

National Centre for Cell Sciences are some institutes 

focusing on regeneration of damaged muscles due to 

heart attack, stroke or damage to cornea. Companies in 

the private sector too have started coming to the forefront 

in this field. 

CURRENT SCENARIO 

In India, the stem cell industry mainly focuses on using 

adult stem cells for treating various diseases. These cells 

are called Mesenchymal Stem Cells, Mesenchymal 

Stromal Cells, Mesenchymal Adult Progenitor Cells 

(MAPC), Human Somatic Stem Cells, among other 

names. The other area of banking, cord blood stem cells, 

is not an active research area in India. Usually, it involves 


19

20 

companies licensing technology from an overseas 

company or a subsidiary of the overseas company to set 

up a cord blood bank. 

Indian companies which have not imported the technology 

have used previously published protocols for 

banking cord blood. Thus, industry experts do not 

consider this as a research area for stem cells. 

In the adult stem cell space, the major players are 

Reliance Life Sciences, Stempeutics and International 

Stem Cell Services. These companies are focusing on a 

variety of disorders like myocardial infarction, neuronal 

stroke, critical limb ischemia, etc, as potential diseases 

that can be treated with stem cell-based therapies. 

THERAPEUTIC PRESENCE 

Stem cell therapies are currently in the evolving stage. 

Moreover, they are primarily autologous therapies. The 

stem cell-based therapy on the autologous mode is evolving 

as the new branch of therapy to address a spectrum of 

clinical disorders, for which traditional medicine does 

not offer any cure. These include haematological 

disorders, both congenital and acquired, leukaemia, 

metabolic disorders, bone and cartilage defects, corneal 

blindness, neuro-degenerative disorders, etc. 

Only when they shift to allogenic therapies would the 

larger business opportunities open up. This would necessitate 

a lot of basic research work in immunological 

aspects of stem cell therapies. 

Stem cells are being utilised to treat a wide range of 

diseases - over 100 - across the globe. Key therapeutic 

areas include cardiovascular, central nervous system 

(CNS), orthopaedics, dermatology, paediatrics, endocrinology, 

gastroenterology, oncology and immunology. 

The main areas for research include lung disease, arthritis, 

incontinence, osteoporosis, diabetes, cancer, orthopaedics, 

infertility, Alzheimer’s disease, burns, 

Parkinson’s disease, liver failure, multiple sclerosis, 

critical limb ischemia, multiple myeloma, NH lymphoma 

and leukaemia. 

In India, all the therapeutic areas have more opportunity, 

but principally in areas of myocardial tissue regeneration, 

neuronal tissue regeneration, pancreatic tissue 

regeneration and skin and soft tissue regeneration. 

These areas will show promise and are sure to become 

the talk of the town, considering the number of people 

who get affected by cerebral stroke and myocardial 

infarction. More and more young people are falling prey 

to cardiovascular ailments than ever before because of 


lifestyle changes, for the worse. Diabetes is becoming a 

menace and will become the biggest reason for morbidity 

today and mortality tomorrow. 

Beta cell regeneration will be able to cure diabetes. Skin 

and soft tissue regeneration will be used in lieu of split 

skin grafts and to cover and regenerate skin in burn 

wounds, amputation stump covering and non-healing 

chronic ulcers. 

REGULATION MATTERS A LOT 

‘Stem Cell Research and Therapy Guidelines’ drafted by 

the ICMR and the DBT in 2007 put forward the general 

principles for stem cell research and therapy keeping in 

view the ethical issues. 

In addition, it looks to provide specific guidelines for 

derivation, propagation, differentiation, characterization, 

banking and also the use of human stem cells for research 

and therapy. 

Industry experts say that the process of granting approval 

for clinical trials using stem cells needs to be harmonized 

better. Since ICMR and DBT have formulated these 

guidelines, they should also regulate therapeutic trials 

involving stem cells. 

Alternatively, if the Drug Controller General of India 

(DCGI) aims to regulate stem cell trials (as is the current 

procedure), it should assemble a set of people with the 

required technical expertise to review these applications. 

This can be modelled on CBER, which is part of the 

US-FDA. If DCGI regulates these trials there will be no 

conflict of interest since DCGI does not fund stem cell 

research, unlike DBT or ICMR. 

Organizations Active In Stem Cell Research 

�� 

areas such as mesenchymal stem cells, cancer biology and 

cardiovascular research as well as clinical trials for myocardial 

infarction, critical limb ischemia, cerebral stroke and 

multiple sclerosis 

�� 

cell-based therapies in areas of cardiac disorders, neural 

degeneration, spinal cord injury, metabolic disorders, ophthalmic 

diseases, haematological diseases, oncological diseases, 

burns and wounds, diabetic and venous ulcers as well as 

cartilage disorders 

�� 

including corneal stem cells, cancer stem cells and tissue 

engineering 


GUIDELINES ON STEM CELL RESEARCH 

�� To provide 

a separate mechanism for review and monitoring for 

research and therapy in the field of human stem cells, one 

at the National level called as National Apex Committee 

for Stem Cell Research and Therapy (NAC-SCRT) and 

the other at the institutional level called Institutional 

Committee for Stem Cell Research and Therapy 

(IC-SCRT) 

��- 

�� Human embryonic stem (hES) cells, derived from 

blastocysts; Human embryonic germ (hEG) cells, 

derived from primordial germ cells of the foetus and 

Human somatic stem (hSS) cells, derived from foetal or 

adult tissues or organs, including umbilical cord 

blood/placenta 

�� 

�� Permissible areas of research, restricted 

areas of research and prohibited areas of research 

�� 

�� 


�� 

�� 

�� 

for generation of hES cell lines 

�� 

�� 

�� 

�� 

�� ments 

in the area of stem cell research aimed at stimulating 

this industry. However, the growth momentum of the 

�� 

�� 

What is required is a much stronger mechanism for 

continuous monitoring and reviewing of stem cell 

research, technologies and techniques so as to ensure and 

develop confidence in the safety and efficacy of the 

practices being adopteD. 

SMS ‘BANG’ to 54646 

Contact at: 022-3926 9404, E-mail: contact@nirmalbang.com 

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21

etter SAFE than 

SORRY 

22 

Policyholders must make sure that they pay their premiums on time or else they may 

have to face the wrath of the insurance companies 

Sanjeev Patel, software professional and the only 

working member of his family comprising two 

kids and his wife had taken a traditional life 

insurance policy for the security of his family, 

as they are all dependent on him. 

This policy is seven-years-old and Patel ensured that 

each of the premium payments were made in a timely 

manner. One day on the way back from work, in a very 

tragic incident while crossing the road, he met with an 

accident and lost his life. Fortunately for his family who 

were entirely dependent on his income, the sum assured 

on his policy helped them overcome the financial loss. 

If it were not for the timely payment of premiums by 

Patel, his policy would have lapsed, causing immense 

financial strain to his family as the insurance company 

would not have been liable to make any payments to the 

family and they would have found themselves in a 

situation of financial strain. 

Note that insurance companies honour the commitments 

if and only if the policy is active. Hence, in a traditional 

life insurance policy if you have paid the premium for 

three years and missed the premium for the fourth year, 

the policy becomes inactive. Even though we know its 

importance - security to family members, insurance 

companies indicate that many policies lapse. 

It could be due to various reasons. But carelessness tops 

the list. In order to ensure that the policyholder remembers 

to pay the premium, insurance companies send a 

reminder for premium payment wherein they also 

mention the grace period within which the premium 

should be paid. 


For monthly premium payments, the grace period is 15 

days and for quarterly and annual payments it is 30 days. 

If you fail to pay the premium even within the grace 

period, the insurer sends a communiqué to you announcing 

that the policy has lapsed. 

In September ’10, IRDA came out with a new set of 

regulations for ULIPs and health insurance products. 

Traditional policies already follow a certain set of guidelines 

outlined by the IRDA. 

TRADITIONAL POLICIES 

Do You Need To Take A New Policy If Your Policy 

Has Lapsed? 

Policy revival is possible but there are certain rules and 

regulations governing the same. Revival reinstates the 

benefits to the beneficiaries. According to the insurance 

regulator IRDA, if a policy has been in force for at least 

three years, the insured has the chance to revive it for a 

period of up to two years. 

�� Within The First Six Months Of Lapsation: If the 

policy is revived within the six months of lapsation, then 

the process involves just paying off the premium which 

was overdue along with the interest and your policy will 

be revived. 

�� After The First Six Months of Lapsation: If the 

policy is revived after six months of lapsation, you need 

to pay the interest, outstanding premium amount and 

penalty. This will differ from policy to policy. 

If the policy was inactive for at least three years, the 

death benefit ceases and the surrender charge may be as 

high as 100%, resulting in the family getting no money. 


While IRDA has stated that the lapsed policy can be 

revived within a period of two years if the policy was in 

force for at least three years, the insurance company can 

decline an application for revival if it is not convinced 

about the integrity of your application, that is, the 

insurance company would like to make sure there is no 

intended or suspected fraud. 

Therefore, the insurer can impose conditions such as 

asking you to take a medical test before the policy is 

revived so as to make sure that you, the insured have not 

developed a new medical condition during the period 

when the policy had lapsed. 

Even after the revival of the policy, if the insured 

commits suicide within one year of the policy’s revival, 

the insurance company can reject the insurance claim. 

Also, if the insured dies within a period of two years of 

the policy revival, the insurance company reserves the 

right to conduct an enquiry before paying off the claim to 

the beneficiaries. 

Can Beneficiaries File A Claim If The Policy Has 

Lapsed? 

This will entirely depend on the time period for which the 

policy was active. 

If the policy was active for a period of less than three 

years and an insurance claim is filed by the beneficiaries, 

the insurance company has no obligation to pay off 

anything. In certain exceptional cases, the insurer might 

be willing to pay the beneficiaries the premium payments 

made by the insured. 

If the policy was active for a period of more than three 

years, as per IRDA, the dependents can get some benefit. 

Again here, the beneficiaries will not be entitled to the 

full sum assured. The insurance company will pay a 

reduced sum assured based on some pre-defined formula, 

which is typically the number of payments made to the 

total number payable. 

What If You Cannot Afford The Premiums? 

Insurance companies do provide policy holders with the 

opportunity to reduce the premium payment amount 

along with the sum assured, so that they can continue to 

have insurance coverage. Also, you can change the 

frequency of premium payment to monthly or quarterly 

from annually. 

UNIT LINKED INSURANCE POLICY (ULIP) 

If you have taken an ULIP, which is an investment-cuminsurance 

product, rules differ because of the lock-in 

period and the investment component. Last year, IRDA 

came out with a set of guidelines that govern ULIPs, 


effective from 1st Sept ’10. Under the new set of guidelines, 

the policyholder can either seek revival of the 

lapsed policy or let go of the ULIP. 

Like a traditional policy, if the policyholder is not able to 

pay the premium within the due date, it can be paid 

within the grace period given by the insurance company, 

which is typically 15 days for monthly payment policies 

and 30 days for policies where premium has to be paid 

quarterly or annually. Beyond this grace period, the 

policy will be discontinued (new terminology for lapsation). 

If your policy is discontinued, then you are left 

with two options, revive the policy or surrender the same. 

�� Policy Revival: Within 15 days of a policy’s discontinuation, 

the insurance firm will send the policyholder a 

notice to which he will have to respond within 30 days. 

He can pay off the outstanding premium and revive the 

policy. If he does not want to revive the policy, the 

insurance company will deduct a discontinuation charge, 

not exceeding `6,000, and then return the fund value 

�� Surrender The Policy: If the policyholder wishes to 

surrender the policy before the lock-in period of five 

years (increased from 3 years), the fund which is called 

the discontinuance fund will be given to him only after 

five years. In the interim period, the fund will keep 

earning a minimum interest of 3.5% per annum. His 

policy stands terminated once he gets this money back. 

HEALTH INSURANCE POLICIES 

Health insurance is a one-year renewable product. Till 

the regulator stepped in in March ’09, health insurers did 

not provide grace period to policyholders, which meant 

that there was a break in the policy and, hence, it could 

not be renewed and no health coverage. IRDA has now 

changed it. Health insurers have to mandatorily state the 

terms and conditions for renewal along with the indicative 

premiums for future renewals. Also, a grace period 

of 15 days will be provided to renew the policy. 

The earlier you buy your life insurance policy, the better 

because you get the benefit of age and hence the mortality 

charge will be lower, resulting in lower premiums. 

Having bought the policy early, make sure you do not let 

the policy lapse. Take necessary steps to make sure that 

the payments are made in time because it is for the wellbeing 

of your family. 

In case of health insurance, it is even more critical to 

renew your policy in a timely manner as for every claimfree 

year, insurance companies offer benefits such as 

increase in the sum assured. Also, pre-existing 

conditions/diseases will be covered after continuous 

renewal for 2-3 years, depending on the kind of policY. 


23

24 

Making The Right Moves 

Orchid Chemicals & Pharmaceuticals Ltd 

(Orchid) is a leading pharmaceutical 

company headquartered in Chennai, India. 

The company is involved in the development, 

manufacture and marketing of diverse bulk actives, 

formulations and nutraceuticals. With exports spanning 

more than 75 countries, Orchid Pharma is the largest 

manufacturer-exporter of cephalosporin bulk actives in 

India and is ranked amongst the top five cephalosporin 

producers in the world. 

Due to mounting debts and unfavourable economic 

conditions, Orchid Pharma was facing operational 

difficulties till FY10. To overcome these issues, the 

company sold its generic injectable formulations 

business for US$ 400 mn to Hospira in March ’10. The 

agreement covered sale of assets, products, product in the 

pipeline and the team to manage the transferred assets. 


Through its rich product 

portfolio and right expansion 

plans, the company is trying to 

�nd the right balance between 

growth and pro�tability 

BUSINESS OVERVIEW 

Orchid Chemicals & 

Pharmaceu�cals 

Source: Company, Nirmal Bang Research 

API 

FORMULATION 

R & D 

CRAMS 

Cephalosporin 

Penicillin 

Carbapenems 

NPNC 

Cephalosporin 

NPNC 

NDDS 

NCE 

BIOTICS 

ACTIVE PHARMACEUTICAL INGREDIENTS 

(API) 

Currently, Orchid Pharma gets 70% of its total revenues 

from API. The company has become API-skewed after it 

sold its injectable formulations division to Hospira. The 

transaction was completed in Mar ’10 and included a 

supply agreement between the two companies where 

Orchid Pharma would supply API to Hospira for the 

injectables for 10 years at pre-determined volumes and 

prices. This ensures stability of margins for Orchid 

Pharma, going forward. 


Niche Product Segment: Orchid Pharma supplies APIs 

for cephalosporins, penicillins, sterile carbapenems and 

non-penicillin non-cephalosporins products (NPNC). 

These are difficult-to-manufacture products with high 

entry barriers and, hence, with limited competition. 

Orchid Pharma has the largest cephalosporin API facility 

in Chennai and has been approved by USFDA, 

UKMHRA and other regulatory agencies. 

It has cumulative DMF (drug master file) filings of 81 

spread across cephalosporins, NPNC, beta-lactums, 

carbapenems, etc. 

It has also filed 21 COS (Certificate of Suitability) for the 

European markets. 

FORMULATIONS 

Orchid Pharma is making efforts to increase its contribution 

from formulations, from the current 30% to 50% of 

its total revenues in the future. 

As a matter of strategy, the company is targeting niche 

product segments with attractive margins and in areas 

where it has the required expertise. 

It has developed a strong product portfolio in oral cephalosporins 

and in NPNC (non-penicillin 

non-cephalosporin) and will continue to market oral 

formulations in the domestic, regulated and semiregulated 

markets. 

For regulated markets, the pharma company is relying on 

the partnership model for front-end exercise. Orchid 

Pharma has acquired a front-end company called Karalex 

Pharma, LLC to expand its presence in the sales and 

marketing of generic products. 

Cumulatively, the company has filed 39 ANDAs including 

eight Para-IV FTF filings. Of these, it has already 

settled four Para-IV with innovators. This is a huge 

success for any company and would ensure momentum 

of growth in the long run. 

RESEARCH & DEVELOPMENT 

Orchid Pharma also undertakes research and development 

activities. It has a wholly-owned subsidiary - 

ORLL (Orchid Research Laboratories Ltd), which 

focuses on NDDS, NCE and CRAMS for research. It has 

130 scientists. 

The pharmaceuticals company has developed a healthy 

product pipeline in the R&D segment. They are under 

various stages as shown in the chart. 


�� 

�� 

Segment NCE Di�covery 

1 Tyrozine - TZD, Non-PPAR Molecule 

Diabetes 2 DPP IV Inhibitor 

3 Novel 

1 Th1/Th2 Cytokine Synthase Inhibitor 

Inflammation 2 PDE IV Inhibitor 

3 TNF � Inhibitor 

Oncology 1 STAT 3 / IL-6 Inhibitor 

(Non-Cytotoxic) 2 HDAC Inhibitor 

1 Oxazolidinone 

Anti-Infectives 2 Cephalosporin 

3 Betalactamase Inhibitor 

Clotting Disorders 1 Oral Direct Thrombin Inhibitor 

Obesity 1 Novel 

CNS 1 Novel 


INVESTMENT RATIONALE 

�� 

We believe the deal is beneficial for Orchid Pharma in 

the long term as huge debts and economic slowdown had 

hampered the overall growth of the company, due to 

which it was not able to realize the true potential of its 

healthy and attractive product portfolio. 

As per the agreement, Orchid Chemicals & Pharmaceuticals 

Ltd transferred its generic injectable business to 

Hospira and received $400 million in cash. Also, Orchid 

Pharma managed to get 10 years’ API supply agreement 

from Hospira for the sold injectable formulations, at a 

pre-determined volume and price. 

On one hand, this would ensure growth momentum and 

on the other hand, it would provide stability to the 

pharma company’s margins. 

Other Benefits From This Transaction 

�� Orchid Pharma had huge debts of around `2,985 crore 

in its books as on 29th Mar ’10. After the business 

transaction, Orchid Pharma could repay around `1,400 

crore worth of loans. This significantly deleveraged the 

company’s balance sheet and at the same time improved 

its financial ratios. 

�� Hospira’s formidable presence in the global injectables 

market should translate into higher demand for 

formulations and, hence, for Orchid Pharma’s APIs. 

�� 

Orchid Pharma has adopted a combination of various 

marketing strategies to reach different geographies as the 

characteristic of each market is unique. 

��Regulated Market 

The company has presence in all regulated markets, 

namely the US, EU, Australia and Japan. These markets 


25

26 

accounted for 49% of the company’s formulations 

revenue in 2009-10. 

As Orchid Pharma does not have the expertise in frontend 

marketing in regulated markets, it is tying up with 

large distribution chains for wider coverage. For the 

same reason, it has also acquired US-based company, 

Karalex Pharma. 

��Semi-regulated Market 

Orchid Pharma derives 51% of its formulations revenues 

from the semi-regulated markets. The pharma company 

focuses on branded generics in semi-regulated markets, 

including India. 

The company has its own distribution network in most 

countries, thereby enabling it to control the total network. 

This results in quality control as well as better margins 

for the company. 

�� 

To be different from the rest, the company has chosen a 

unique business segment to position itself. Antiinfectives 

is a high-margin, high-entry barrier segment 

and hence, keeps a check on competition. And to 

leverage the same benefit, Orchid Chemicals & Pharmaceuticals 

Ltd has lined up a healthy product pipeline for 

the future too. 

It has filed 80 DMFs in the US and 21 COS in Europe in 

the API segment. Additionally, the company has filed 36 

ANDAs in the US and 18 dossiers in EU, for the formulation 

division. 

The company plans to file 20-22 products every year for 

the next three consecutive years, to keep its product 

portfolio strong. 

We believe that the API supply deal with Hospira would 

also provide further benefit, once Hospira gets product 

approvals for the carbapenems facility, which will also 

add to the revenues of Orchid Pharma. 

�� 

By selling its business to Hospira, Orchid Pharma paid 

off its debts, making the company’s balance sheet less 

leveraged and thus increasing the cash flow of the 

company too. 

The debt to equity ratio of the company improved from 

4.4 pre-deal to around 1.3 after the deal. This provides 

further headroom to the company to leverage it for any 

future expansion. 


�� 

Movement of currency could adversely impact the 

pharma company’s profitability. 

�� 

We believe Orchid Chemicals & Pharmaceuticals Ltd is 

left with enough engines to keep its growth momentum 

going. It has a rich product portfolio. 

The company is also expanding its wings in different 

geographies by combining various strategies like acquiring 

front-end marketing companies, tying-up with 

distributors or by having a direct presence in areas it has 

the requisite expertise. The company is targeting both 

regulated and semi-regulated markets. 

Orchid Pharma has a planned strategy to build its product 

portfolio. For the same reason, it has lined-up 20 to 22 

product launches every year. 

The company management is confident of taking its 

formulations contribution of 30% to 50% in the near 

future to balance the API – formulations mix. 

�� 

Particulars (` in Cr) FY09 FY10* 6M FY11 

9M FY11 

Sales 

EBIDTA 

% Margin 

Adj. PAT# 

% Margin 

EPS 

Equity 

Debt 

Debt: Equity 

1,211.30 

285.7 

23.60% 

(52.2) 

-4.30% 

(7.4) 

670.2 

2,596.80 

3.9 

1,251.00 

(171.2) 

-13.70% 

(555.2) 

-44.40% 

(78.8) 

979.6 

1,629.50 

1.7 

712.7 

161.6 

22.70% 

45.6 

6.40% 

6.5 

1,046.20 

1,726.80 

1.7 

1,159.00 

283.3 

24.40% 

98.2 

8.50% 

13.9 

NA 

NA 

NA 


�� 

We find relief in the fact that the promoters of the 

company are increasing their stake by 5% (the maximum 

limit set by SEBI) every year. They currently hold a 

reasonable 31% in the company. 

We believe it is a positive development from the 

company’s point of view as this shows the management’s 

commitment towards the business. The management is 

confident of achieving $350 million in revenues with 

22% EBITDA margins in FY11, translating into an EPS 

of `22. 

On the valuation front, we believe that Orchid Pharma is 

available at attractive valuations and has a significant 

potential upside from the current level�� 


Nirmal Bang in association with Zee Business invites you to be a part of Beyond , the 

one-of-its-kind commodity camp, where market mavens like Anjani Sinha, MD & CEO, National 

Spot Exchange and Kunal Shah, Head – Commodity Research, Nirmal Bang Commodities Pvt Ltd 

will discuss opportunities in the commodity markets with Amish Devgan, Commodity Editor and 

Anchor, Zee Business. 

Date: 18th February, 2011 

Time: 6.30 pm 

Venue: Ludhiana 

To register, 

MAIL: beyondmandi@nirmalbang.com 

SMS: ‘BANG COM’ to 54646

28 

BETWEEN EXTREMES 

The prices of commodities rose considerably in 

2010. Copper prices surged 30% last year. The 

bull run in commodities can be attributed to a 

host of factors. 

Some of them are: 

Launch Of Copper Exchange Traded Funds (ETFs) 

Due to its usage in major sectors, especially construction 

and electrical applications, copper prices are considered 

as good economic indicators. Besides, with the recent 

launch of copper ETFs, backed by physical warehousing 

of the red metal, there has been a change in the nature of 

demand for this commodity. 


A short-term halt in the recent rally of copper is 

likely as the red metal appears to be getting caught 

between the QE2 by the US and the monetary 

tightening measures by China 

ETF Securities, JPMorgan Chase & Co and BlackRock 

Inc, last year, announced the introduction of copper 

ETFs. These ETFs are aimed at providing investors 

access to the red metal in the form of an equity-like 

product. The launch of copper ETFs has been the driving 

factor for the prices of this commodity. In fact, the 

demand for copper has been inelastic during this period. 

Additional Quantitative Easing (QE2) 

The second round of quantitative easing or QE2 in the 

US is a $600 billion asset purchase programme, spread 

over eight months and is aimed at stimulating growth in 

the US economy. However, the pumping of money into 


the economy has led to higher liquidity. Moreover, high 

growth and inflationary expectations owing to increased 

liquidity are being discounted, leading to the rise in the 

prices of major commodities, including copper. Also, the 

weakness in the US dollar against major trading currencies 

of the world is supporting the prices of metals, 

tracing a historical inverse relationship between the US 

currency and metals. 

LME 3M Copper And US Dollar 

US $ / Tonne 

9500 

9000 

8500 

8000 

7500 

7000 

6500 

6000 

1/4/2010 

1/25/2010 

2/15/2010 

3/8/2010 

3/29/2010 

4/21/2010 

5/13/2010 

6/4/2010 

6/25/2010 

7/16/2010 

8/6/2010 

8/27/2010 

9/20/2010 

10/11/2010 

11/1/2010 

11/22/2010 

12/13/2010 

Source: Reuters, NB Research 


LME 3M Copper Price Dollar Index 

90 

88 

86 

84 

82 

80 

78 

76 

74 

Since the past one year, the US dollar and copper have 

witnessed an inverse correlation of 67%. And, if we 

consider the data during the past six months, we see a 

stronger inverse relation of 83% between the US 

currency and the red metal. 

Declining Exchange Warehouse Stocks 

Copper stocks held by major exchange-recognized 

warehouses have been continuously declining. At the 

start of October ’10, the combined inventories from 

COMEX (converted to metric tons), the LME and 

Shanghai Futures Exchange stood at 5,38,252 metric 

tonnes, down 32% from a high of 7,93,184 metric tonnes 

in the last week of February ’10. It is also believed that 

nearly 50%-70% copper stocks at LME warehouses are 

being cornered by a particular organization. 

Supply Constraints 

The year 2010 saw a huge number of strikes in major 

copper-producing mines like Chile’s Collhuasi and 

Peru’s Cerro Verde, which impacted copper supply 

majorly. Moreover, stoppage in operations at major ports 

exporting copper led to a decline in the supply of the red 

metal. Declining ore grades was also a cause of worry in 

the previous year. 

According to experts, copper supply is expected to lag 

demand for the coming two years. International Copper 

Study Group estimates that the world refined copper 

consumption exceeded production by 3,63,000 metric 

tonnes between January and August ’10. Also, the full 

year-end copper balance is estimated to be around 

5,81,000 metric tonnes in deficit. And for the year 2011, 

the deficit in refined copper market is expected to be 

around 4,00,000 metric tonne. 

Production Of Copper 

World Mine Production 

World Primary Refined Production 

World Secondary Refined Production 

Total Refined Production 

World Refined Consumption 

Surplus / Deficit 

Exchange Reported Stocks (LME+ COMEX+SHFE) 

Source: ICSG, NB Research 



2009 2010 (E) 2011 (F) 

15910 

15465 

2831 

18296 

18118 

178 

1426 

16235 

15639 

3351 

18989 

19571 

-581 

- 

17076 

- 

- 

19294 

19729 

-435 

- 

Launch of copper ETFs, QE2, declining exchange 

warehouse stocks and supply constraints widened the 

demand-supply gap of the red metal, thus supporting 

copper prices at major exchanges around the world. 

While we have discussed the factors responsible for the 

30% rise in copper prices, it would not be right to ignore 

the other side of the story, especially inflationary 

concerns in emerging economies, including China, the 

world’s major consumer of copper. 

Inflation In Emerging Markets 

Increased liquidity due to additional quantitative easing 

by the US has pushed commodity prices higher, thus 

stoking inflationary pressures in emerging markets. High 

prices of crude oil, metals as well as agricultural products 

have been responsible for growing inflation in the emerging 

markets. 

Chinese CPI 

% Change 

6 

5 

4 

3 

2 

1 

0 

-1 

-2 

-3 

Indian WPI 

% Change 

12 

10 

8 

6 

4 

2 

0 

-2 

-4 

Chinese CPI 

12/31/2008 

3/31/2009 

4/30/2009 

6/30/2009 

7/31/2009 

8/31/2009 

9/30/2009 

11/30/2009 

12/31/2009 

3/31/2010 

4/30/2010 

5/31/2010 

6/30/2010 

8/31/2010 

9/30/2010 

11/30/2010 

Indian WPI 

1/2/2009 

1/30/2009 

2/27/2009 

3/27/2009 

4/17/2009 

5/8/2009 

6/5/2009 

6/30/2009 

7/24/2009 

8/21/2009 

9/11/2009 

10/2/2009 

10/30/2009 

4/30/2010 

9/30/2010 


29

30 

Brazil CPI 

% Change 

7 

6.5 

6 

5.5 

5 

4.5 

4 

1/1/2008 

3/1/2008 

5/1/2008 

7/1/2008 

9/1/2008 

11/1/2008 

1/1/2009 

3/1/2009 

5/1/2009 

7/1/2009 

9/1/2009 

11/1/2009 

1/1/2010 

3/1/2010 

5/1/2010 

7/1/2010 

9/1/2010 

11/1/2010 



Brazil CPI 

Emerging economies like India, China and Brazil have 

been affected the most due to the rise in prices of essential 

commodities, forcing their respective governments to 

initiate steps to control price hike and, thus, inflation. 

China has already initiated monetary tightening 

measures. Brazil too raised its interest rates by 50 bps 

taking it to 11.25% currently. India, on the other hand, is 

expected to follow suit. 

This step would increase input costs, thus directly 

impacting margins and reducing profits of businesses. In 

addition to this, less credit offtake will affect the overall 

growth of the economy, resulting in a slowdown in the 

emerging nations. 

Chinese Monetary Tightening Measures 

China has undertaken a series of steps to control rising 

inflation since the past few months. It increased its bank 

reserve requirement ratio (RRR) – the seventh time in 

recent months and for the fourth time in the past two 

months - to restrict money supply in a bid to curb the 

spiraling rate of inflation. 

Following the hike, major banks in China will now have 

to set aside 19% of their reserves, while small and 

medium banks will have to maintain 15.5% reserve, a 

record high for the country’s financial institutions. 

World Bank On China 

The World Bank has predicted a slowdown in China’s 

economic growth. It says: “China’s GDP growth is set to 

slow down this year and the next, to below 9% and the 

key challenge for the economy is to ensure that 

anti-inflationary measures do not ‘significantly’ reduce 

economic growth.” 

The World Bank has also stated that the growth rate in 

China will be 8.7% for this calendar year as against 10% 

in 2010. 

China’s Copper Consumption 

China is the highest consumer of copper in the world and 

accounts for nearly 27% of the total global consumption. 

The historical relationship between Chinese GDP growth 

rate and copper prices for these periods, states that there 

is almost an 80% positive correlation between Chinese 

GDP growth and the growth in the price of the red metal. 

China GDP And LME 3M Copper 

13 

10000 

12 

9000 

11 

8000 

10 

7000 

9 

6000 

8 

5000 

7 

4000 

6 

3000 

% Change 

12/31/2008 

3/31/2009 


6/30/2009 

9/30/2009 

12/31/2009 

3/31/2010 

6/30/2010 

9/30/2010 

12/31/2010 

China GDP Growth LME Copper 3M 

Source: China Academy Of Social Sciences, XAN SABARIS / CHINA DAILY 

US $ / Tonne 

Rising Property Prices – A Matter Of Concern in 

China 

Owning a house in major metros in China is getting 

costlier by the day. In Beijing and Shanghai alone, 

property prices have gone up by almost 40% from the 

previous year. 

The National Bureau of Statistics in China states that 

despite the steps taken by the Chinese government, 

property rates in major Chinese cities grew by 6.4% in 

December ’10 as compared to November ’10. 

Property Price Rise in Chinese Cities 

Wuhan 

Shenzhen 

Beijing 

Shijiazhuang 

Lanzhou 

Tianjin 

Qingdao 

Nanning 

Hangzhou 

Fuzhou 

0.00% 20.00% 40.00% 60.00% 80.00% 

Percentage Rise 

The above graph shows percentage rise in the prices of 

houses in major Chinese cities in the year 2010 as 

compared to the year before that. 


Hence, over the past year, Chinese officials have undertaken 

measures like hike in RRR and interest rates, to 

curb speculation in property markets, while sucking up 

excess liquidity too. 

The Chinese government is also considering of levying 

new real estate tax, on a trial basis, in major metros to 

tackle the stubborn rise in property prices. The new tax 

policy is expected to be levied on high-end residential 

properties. This measure is likely to put short-term 

breaks on the construction sector. 

Hence, less credit offtake and low construction activity 

are likely to directly impact the prices of major metals, 

including copper. 

Refined copper output by Chinese smelters saw a 12% 

rise between January and November of 2010 as against 

the corresponding period in 2009. It was the highest 

monthly production in the past two years, in November, 

adding fresh copper cathodes in the Chinese markets. 

China Refined Copper Output 

Tonnes 

500000 

450000 

400000 

350000 

300000 

250000 

10/31/2008 

12/31/2008 


2/28/2009 

4/30/2009 

6/30/2009 


8/31/2009 

10/31/2009 

China Re�ned Copper Output 

12/31/2009 

2/28/2010 

4/30/2010 

SHORT-TERM OUTLOOK 

6/30/2010 

8/31/2010 

10/31/2010 

China Refined Copper Imports 

Tonnes 

400000 

350000 

300000 

250000 

200000 

150000 

100000 

50000 


0 

11/30/2008 

1/31/2009 

3/31/2009 

5/31/2009 

7/31/2009 

9/30/2009 

China Re�ned Copper Imports 

As far as Chinese refined copper imports are concerned, 

there has been a 9% decline from January ’10 to November 

’10 as against the corresponding period in the year 

2009. This has been mainly due to the closure of the 

profitable arbitrage window between copper prices on 

the London Metal Exchange (LME) and the Shanghai 

Futures Exchange. 

In 2009, Chinese traders made fast cash by capturing the 

difference in the prices of copper. But this phenomenon 

did not prove successful for them in the second half of 

2010. Also, many end users have refrained from making 

fresh buys in Chinese markets due to the record high 

prices of copper in recent months. 

The introduction of new copper supplies in the Chinese 

markets and slowing imports of the red metal could 

narrow down the demand-supply gap, thus affecting 

copper prices in the near term. 

We find copper getting caught between the QE2, which has been doled out to support 

economic recovery in the US, and the monetary tightening measures initiated by China. 

Thus, a short-term halt in the recent rally of copper is likely. Despite signs of recovery in 

the western world, the ongoing problems in the emerging markets could drag the prices of 

the red metal loweR. 

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31

32 

Fortnightly Outlook For Commodities 

In the previous fortnight, commodities saw the much 

awaited correction, especially in precious metals 

and energies. While base metals remained firm, 

agricultural commodities continued to trade at their 

2010 highs. But the US dollar has been declining rapidly 

against the basket of currencies, inspite of profit-taking 

in commodities. 

Also, while developed economies are recovering from 

the after-effects of the financial meltdown by way of 

quantitative easing, which many believe to be the cause 

of inflation, emerging markets, which have been the 

growth engines of global recovery, are finding it difficult 

to win the battle against inflation. In fact, scores of 

people took to the streets in Egypt seeking an end to the 

30-year rule of President Hosni Mubarak. 

But many believe that additional quantitative easing or 

the QE2 is one of the major reasons for inflationary woes 

and the Federal Reserve does not appear to be in any 

mood to stop this anytime soon. However, despite rate 

hikes in emerging markets, inflationary expectations 

could be high for the coming months as this hot money is 

likely to find its way into commodities. 

PRECIOUS METALS 

Precious metal prices took a beating in the last fortnight, 

as interest rate hikes in the emerging markets and a 

strong set of economic reports from the United States 

resulted in profit-taking in this complex. Besides, investors 

were seen booking profits from their long positions. 

Exchange Traded Funds (ETFs) of these precious metals 

saw good redemptions and the world’s largest gold and 

silver ETF’s holdings declined by more than 5% during 

the month. Gold prices declined to `19,600/10 gm from 

`20,800/10 gm and silver prices dropped from 

`46,000/kg to `41,250/kg. 

But gold and silver futures jumped 2% and 3% respectively, 

on safe haven demand amid escalating tensions in 

Egypt towards the end of the fortnight. We believe gold 

futures will find stiff resistance at `20,200/10 gm and 

silver at `43,800/kg, in the next fortnight. 

ENERGIES 

Despite OPEC officials’ remarks on the increase in 

production of crude oil, its prices plummeted to 

$85.50/barrel from $92/barrel, in the previous fortnight. 

In addition to this, the weakness in the dollar further hit 


the price of crude oil. However, towards the end of the 

fortnight, oil futures increased 4.3% to $89.34. 

Moreover, high food prices and rising inflation in North 

Africa and the ongoing protests in Egypt, could hit 

supplies of crude oil as the Suez Canal, which connects 

the Mediterranean and Red Sea, is located in Egypt. 

Thus, these geopolitical concerns are dominating the 

crude oil markets more than fundamentals, pushing the 

rally in this complex to $94/barrel to $95/barrel. But the 

oil prices may drift lower, once these risks subside. 

BASE METALS 

While zinc and lead performed poorly owing to rising 

production in China and increased surplus globally, 

nickel met expectations and tested the highs of `1,230/kg 

due to the drop in pig iron production in China, in the 

previous fortnight. Floods in Australia too hit the supply 

of base metals. 

Further, the introduction of new Exchange Traded Funds 

(ETFs) for metals and the additional quantitative easing 

helped base metals remain firm in the previous fortnight. 

We believe China’s attempts to control inflation will hurt 

the demand for non-ferrous metals and we expect prices 

to remain weak, in the coming fortnight. 

However, China’s copper refining capacity got a boost, 

as Yunnan Copper Industry, China’s third-largest 

producer, added 1,00,000 tonnes of capacity. It plans to 

expand the same by 5,00,000 tonnes per year, over the 

next five years. The refined copper production reached a 

record of 4.8 million tonnes in 2010 in China, the world’s 

largest producer of copper. 

AGRO COMMODITIES 

We believe that the rise in the prices of food items may 

cause protests and social unrest to grow globally, as was 

visible in parts of the world in the previous fortnight. The 

bull run in agricultural commodities has been partly due 

to weather uncertainties. In the Indian context, agricultural 

commodities like cumin seed and coriander may 

remain buoyant in the coming fortnight. 

The excellent rally in guar seed in the past fortnight may 

continue and we remain bullish on this commodity. We 

also recommend market participants to go long between 

`2,650/quintal and `2,750/quintal in cumin seed. 

Further, profit-taking in oilseeds looks likely due to the 

improvement in weather conditions in ArgentinA. 


Fortnightly Outlook For Currencies 

The fortnight gone by witnessed a good downside 

trend in the US dollar against most major 

currencies. Risk buying was the overall tone in 

the financial markets and made investors dump 

the US dollar in favour of high-yielding currencies. The 

US Dollar Index, which measures the greenback’s 

strength versus a weighted basket of major currencies, 

struck a low of 77.81 later in the fortnight. 

In the coming fortnight, the markets would focus on the 

stance of the Federal Reserve Bank, as its chief Ben 

Bernanke may adopt a dovish tone, stressing the importance 

of their full employment mandate and dismiss 

inflationary concerns for the time being. This development 

may drive the US dollar index even lower, towards 

the 77-mark. 

In the other major currencies, the euro enjoyed the best 

of the trading, hitting $1.37 against the US dollar. The 

latest numbers from the Commodity Futures Trading 

Commission (CFTC) showed a reversal in speculators’ 

position from net short to net long, which lent support to 

the euro. Also, ECB President Jean-Claude Trichet 

warned of rising Euro zone inflation, leading markets to 

speculate that a rate increase may be forthcoming. 

The markets were seen acknowledging this in bond 

pricing too, with the spread between the US dollar and 

euro two-year note rising 110 basis points, whereas less 

than a month ago, the difference was 73 basis points. 

Meanwhile, peripheral yield spreads eased too, giving 

further boost to the euro. 

Going forward, we do not see a rapid rise in the euro as 

most of the short covering has already been done. In the 

best case scenario, the euro may test the mark of $1.3850 

against the US dollar. However, debt concerns are still 

looming large in the Euro zone and the markets would 

keep an eye on the forthcoming debt supply from the 

peripheral nations. 

Any signs of weakness in demand may trigger a strong 

sell-off in the euro. We recommend investors to go 

cautiously long in the euro for a target of $1.3850 and 

look forward to going short at these levels. 

The sterling tested $1.60 against the US dollar, largely 

after a release by the Office for National Statistics 

revealed that UK inflation, measured by the consumer 

price index, rose by 0.4% in December to stand at 3.7%, 

much higher than the targeted value of 2%. The broadbased 

Retail Price Index (RPI) which includes items 


such as mortgage interest costs also rose in December, 

climbing to 4.8% from 4.7%. The RPI figure for the year 

as a whole was 4.6%, the highest annual rate seen since 

1991. 

However, the sterling took a beating towards the end of 

the fortnight when the Office for National Statistics 

(ONS) revealed that the UK economy contracted by 

0.5% in Q4 2010. This came as a shock to many, thus 

pulling the sterling back to $1.58 against the US dollar. 

Going forward, the sterling may continue to remain 

under pressure since the government’s austerity 

measures will lead to a further cooling of the economy, 

which may slow inflation as a consequence. Additionally, 

we do not expect any rate hike by the Bank of 

England in the near future as the Bank may adopt a wait 

and watch policy over the next few months. We recommend 

investors to sell the sterling at the levels of $1.59, 

for a target of $1.56-1.55 against the US dollar. 

The Japanese yen traded with an appreciation bias in the 

last fortnight. The USDJPY pair may trade in the broad 

range of 82-83.50 in the coming fortnight. 

The Indian rupee traded in the broad range of 45.30- 

45.80, mostly with a depreciation bias as the traction in 

the domestic equity markets, coupled with high crude oil 

prices undermined the Indian unit even as the US dollar 

weakened overseas. 

In the local market, the focus was on the quarterly review 

of the RBI monetary policy, which raised rates by 25 bps 

in line with expectations. The policy statement, underscoring 

strong inflationary pressures and easing growth 

momentum, had a negative bearing on the stock market, 

leading to a strong sell-off in the Indian rupee. The rupee 

settled in the fortnight at 45.70 against the US dollar. 

In the coming fortnight, the rupee dollar-pair could trade 

in the range of 45.40 – 46.00 with a depreciation bias. In 

the local market, we expect a good dollar demand from 

oil importers on account of high crude oil prices. 

Globally, the most awaited event will be the first estimate 

of the fourth quarter US GDP numbers. 

Any improvement in risk appetite against the backdrop 

of robust GDP number may not be too supportive for the 

rupee, as that would stoke crude oil prices and may not be 

too supportive of the local stock market. The rupee could 

therefore, continue to trade with a weakening bias against 

the US dollar in the coming fortnighT. 


33

on 

targetJust plain truth 

Our team of dedicated and experienced commodity research analysts have been giving calls on prominent business 

channels, print media and newswire services, which have consistently hit bullseye. Time and again, we have delivered 

results that are visible and can be measured. Get the Nirmal Bang advantage, if accuracy is what you seek. 

Contact: Hiral Parekh - +91 77383 80020/ 022-3926 9550 / 9551 

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

Disclaimer: Insurance is a subject matter of solicitation. Mutual Fund investments are subject to market risk. Please read the scheme related document carefully before investing. 

Please read the Do’s and Don’ts prescribed by Commodity Exchange before trading. The PMS Service is not o�ering for commodity segment. *Through Nirmal Bang Securities Pvt. Ltd. ^Distributors 

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Prepared by Research Analyst of Nirmal Bang Commodities Pvt. Ltd. 


www.nirmalbang.com

e-way a To Mutual Funds 


Investing in mutual 

funds online is now 

simpler than before, 

especially due to 

investor-friendly 

features o�ered by 

fund houses 

If f you do not have the time to research each stock in 

the equity market and yet long to invest in the stock 

markets, the best thing to do is to take the mutual 

fund route, and, with online trading of mutual funds 

(MFs), it couldn’t have got any easier. 

In order to encourage and promote equities in India, the 

capital market regulator, Securities and Exchange Board 

of India (SEBI) abolished entry load on MFs, which in 

turn, has given the much-needed shot in the arm to online 

trading of funds. 

A big advantage of investing through online distributors 

is the availability of mutual funds from all AMCs at the 

same location. You can buy and sell funds from across 

companies without the hassle of enrolling for each 

company separately and viewing holistic portfolio 

statements, making it much easier and faster to manage 

your investments. 

THE PREREQUISITES 

You now need not get hassled about multiple brokers, 

bank accounts or folios, or have to engage the services of 

an agent. All you need is a demat account that allows 

access to mutual funds online in complete privacy, in the 

comfort of your home, just like equity trading. 

You can register and buy mutual funds through any of the 

broking companies offering online services. All it takes 

is one-time registration through the website of the 

broking house (for a small transaction fee) and then at the 

click of a button, you can switch between funds, discontinue 

a systematic investment plan (SIP), or even get a 

consolidated statement of all your holdings. 

You need to have a specific bank account that you intend 

to make investments from. This is to confirm the source 

of funds and also to enable direct credit of funds to your 


35

36 

account in the case of sale of units or dividend payout. 

It is also worthwhile to note that as of now, in India, third 

party purchase of mutual fund units (purchasing of 

mutual fund units from your account for someone else) is 

not allowed. 

Investors can also trade on the online platform of the 

National Stock Exchange (NSE), called Mutual Fund 

Service System (MFSS), or the BSE Star platform. This 

can be done much the same way as you buy and sell 

shares online. 

All you need to do is register with your existing stock 

broker by filling up the requisite forms. Here again, you 

will need a demat account, which entails paying an 

annual fee, in the range of `300 to `800 per annum. MFs 

purchased will be credited to your demat account. 

PAST PERFECT 

If you are fretting about your existing mutual fund units, 

do not worry. You can also use your existing demat 

account(s) to convert your existing mutual fund units to 

demat form. 

All you have to do is obtain the conversion request form 

from your depository participant, fill it, attach your 

statement of account and submit it to your depository. 

After due verification, the depository will have it sent to 

the respective asset management company (AMC) or its 

registrar and transfer agent. The AMC will then credit the 

mutual fund units to your demat account. 

If you want to redeem your mutual fund units, you can 

place an order through the stock exchange platform or 

submit the delivery instruction slip to your depository 

participant to transfer the mutual fund units. 

NEW DIRECTIVES 

However in a recent regulatory directive, SEBI has made 

it mandatory for all mutual fund investors (online and 

offline) to go through Know-Your-Customer or KYC 

norms, irrespective of the amount you invest. 

This is as per SEBI’s anti-money laundering (AML) 

procedures. Most mutual fund houses and online 

distributors assist in fulfilling this requirement. Till now, 

retail investors who invested less than `50,000 were not 

required to follow KYC guidelines. They could invest by 

merely submitting a copy of their self-attested PAN card. 

KYC norms require your identity and residence proofs to 

be verified and recorded with a central authority. Your 

residence proof can be verified by any of these 


documents - an utility bill, passport, letter from your 

employer or housing society, ration card, voter ID card or 

driver’s license. 

You will need to have the original documents with you as 

well as the copies to be processed. The originals will be 

returned to you after they are verified as accurate. If you 

send the document through a courier, documents need to 

be attested by a notary, gazetted officer, or manager of a 

scheduled commercial bank. As of now, no charges or 

fees are levied on the investor for KYC verification. 

DO-IT-YOURSELF 

Online trading provides transparency on all the information 

from the time of placement of order till the final 

settlement. However after having all the prerequisites 

into consideration, it is important to keep in mind that 

investing online really means becoming a ‘do-ityourself’ 

investor. 

Before taking the plunge into investing and selecting 

your funds, do asses your risk profile by consulting a 

mutual fund distributor who will help you select the right 

scheme from those on offer by different AMCs. The next 

important step is to define the goals that you would like 

your investments to meet. It could be a family vacation 

abroad next year, or your child’s education 10 years later. 

This clarity is critical in narrowing down an investment 

product. For example, equity funds are best invested in 

for the long term; the longer, the better as they offer the 

best chance of returns over inflation rate and you don’t 

get hit by short-term fluctuation. But for short term 

investments, fixed income funds are recommended. 

Once you have identified the categories of funds that you 

would like to invest in, start looking at the specific funds 

available in each category. The idea here is to select 

funds that have given consistent returns over at least 2-3 

market cycles. 

Although past performance of a fund is no guarantee of 

its future returns, the consistency of a fund indicates the 

ability of the fund management team to weather the 

market’s ups and downs. Researching funds, keeping 

track of your units will all be a regular feature once you 

are in the groove. The good news is that with online 

investing, managing investments has become a lot faster 

and simpler. 

Once invested, it is important for you to track and 

manage your portfolio holdings, profit or loss positions 

as well as your transactional records. With technology, 

online distributors are able to offer you website features 

and services to make this as painless as possiblE. 


SMS ‘BANG MF’ to 54646 

e-mail: nbmutualfunds@nirmalbang.com 

www.nirmalbang.com

38 


A Capital Protection Fund is for an investor who seeks a high level 

of security without risks, yet wishes to pro�t from positive stock 

market developments 

Capital Protection Funds (CPFs) are back in 

vogue. This is clearly evident from the fact that 

fund houses like Sundaram Mutual Fund and 

Birla Sun Life Mutual Fund launched their 

CPFs in the last few months. CPFs propose to invest 85% 

to 90% of the total corpus of the scheme in debt and the 

remaining amount in equities. 

CPF first made an entry in 2006, when interest rates 

started moving up and were targeted at investors with 

low risk appetite, looking for a substitute for bank fixed 

deposits. Mutual funds target retail as well as high 

networth individuals (HNIs) towards these schemes as 

they get better returns and tax benefits over bank fixed 

deposits (FDs). 

CPFs are close-ended products with a lock-in for the 

entire product tenure, which varies from three years to 

five years. There is potential for better returns compared 

to fixed deposits but an investor needs to consider the 

lock-in before making investments in close-ended 

products like these. 

Currently, CPFs are an important investment vehicle for 

HNIs as their need to protect their capital, yet earn more 

than the fixed deposits, is met through this instrument. 

These products can give better returns than bank fixed 

deposits because of the equity element. These products 

also prove beneficial when it comes to paying taxes. On 

the other hand, returns from fixed deposits are added as a 

part of the income and taxed accordingly. 

So for HNIs, who are mostly in the higher tax bracket, 

the returns get taxed at 30%. But returns from these 

schemes get inflation indexation benefits. Compared to 

returns on bank fixed deposits, these funds have done 

well over one and two-year return performance. 

But the real test of these funds is when they are held till 

maturity of three or five years. If you look at the returns 

of the fund then, they do not seem to be as attractive as 

fixed deposits. However, they are more tax-efficient then 

bank FDs. 

The gains on CPFs, for high networth individuals in the 

highest tax bracket, is taxed at 10.3% tax without indexation 

or 20.6% with indexation, whichever is lower. In 

comparison, the interest on bank fixed deposits attracts 

30.9% tax, which most often does not match inflation. In 

real terms, when adjusted to inflation, bank fixed deposits 

eat into the capital. 

A capital protection fund is for an investor who seeks a 

high level of security without risks, yet wishes to profit 

from positive stock market developments. The focus of 

this investment fund is security and guaranteed capital 

performance of the investment at the end of the mutual 

fund scheme’s tenure. 


If a CPF is a three-year, close-ended scheme, then 

redemption of units before maturity will not be allowed. 

Assume that an investor puts `10,000 in a CPF, 80% to 

85% (`8,000 to `8,500) of this amount will be invested in 

a debt paper (three-year AAA-rated corporate paper 

yielding around 9%). The balance `1,500 - `2,000 will 

be invested in equities. 

While `8,000 grows to around `10,200 in three years, 

thereby protecting your capital, the `2,000 equity investment 

can grow to approximately `3,000, assuming that 

returns on equities is at a compounded rate of 15% over a 

period of three years. So at the end of three years, the 

investor would receive between `13,000 and `13,500. 

A CPF today would, therefore, yield a compounded 

return of around 9%, post-tax and expenses (1.5% 

assumed) in three years. The 8% NSC locks your money 

for six years, while the PPF imposes a 15-year lock-in. A 

CPF will be rated by a credit rating agency on its investment 

structure and the ability to protect capital. 

If we take the case of the recently launched Sundaram 

Capital Protection Oriented Fund, a three-year closeended 

scheme, which invests in AAA-rated high safety 

interest bearing bonds and a small portion in equities and 

related instruments, we find that this fund seeks to 

maximize returns without losing sight of the main 

function - capital protection. 

Simple capital protection-oriented funds such as these 

ensure capital protection by investing a substantial 

portion of the corpus in high-quality debt at all points in 

time. The debt component is sized in such a way that its 

redemption value at the time of maturity of the scheme 

will be equal to or greater than the amount invested by 

the investors. 

The scheme would primarily invest in high-quality 

fixed-income securities and it intends to generate capital 

appreciation by investing in equity and equity-related 

instruments as a secondary objective. 

The CPF satisfies the need for an investment avenue 

which allows participation in stock markets without the 

accompanying qualms of capital erosion. The scheme 

will enable investors to benefit from the upside potential 

of equity investments without subjecting their capital to 


a stitch in time saves nine 

plan your finances in time 

Your financial security is our concern. 


market-related volatility. 

CPFs are hybrid structured products and their ability to 

preserve capital is well-suited to current market conditions, 

where both debt and equity markets have been 

displaying intense volatility. The equity portion of these 

kind of funds will be managed in a flexible investment 

style designed to take advantage of the opportunities 

across the market capitalization range. 

However, one disadvantage of CPFs is that these funds 

are not sold much by distributors compared to equity 

linked saving schemes (ELSS) as they do not have any 

direct tax benefit like an ELSS. 

Also, the liquidity of these schemes is significantly lower 

since investors cannot exit, even with a load, immediately. 

They suggest investing that part of the portfolio, 

which investors will not require in the next three years. 

For example, people wanting to buy an asset after threefour 

years can look at this scheme. 

Capital protection schemes promise that at least the 

minimum amount, which has been invested, will be 

returned to the investor irrespective of the movements in 

the market over the stipulated period. Besides, the investor 

can get a healthy appreciation in case the net asset 

value (NAV) of the funds rise by that time. 

It is widely known that such mutual funds invest the bulk 

of their assets in bonds and debt instruments and the rest 

in equities, hoping for some capital appreciation. 

Markets regulator, Securities and Exchange Board of 

India (SEBI) had said that the mutual fund portfolio, 

under the scheme, must be rated by a SEBI-registered 

credit rating agency. 

However, do not be misled by the name. These are 

close-ended products, with a three to five year lock-in 

and are illiquid compared to fixed deposits, which offer 

overdraft and loan facility against deposits. And, though 

the schemes are listed on the stock exchange, they tend to 

remain illiquid owing to the lack of trade volumes. 

Though a good product for first-time mutual fund investors, 

this fund can be a part of every investors’ portfolio 

as all of us park some proportion of our savings in 

relatively safe investment avenueS. 




39

40 

CHANGE IN PRICE AND OPEN INTEREST 

Company Name Price 

(Rs) 

Nifty Futures 

Bank Nifty 

ACC Ltd 

Ambuja Cements Ltd 

Axis Bank Ltd 

Bajaj Auto Ltd 

Bharti Airtel Ltd 

Bharat Heavy Electricals Ltd 

Bharat Petroleum Corporation Ltd 

Cairn India Ltd 

Cipla Ltd 

DLF Ltd 

Dr Reddy's Laboratories Ltd 

GAIL (India) Ltd 

HCL Technologies Ltd 

HDFC Ltd 

HDFC Bank Ltd 

Hero Honda Motors Ltd 

Hindalco Industries Ltd 

Hindustan Unilever Ltd 

ICICI Bank Ltd 

IDFC Ltd 

Infosys Technologies Ltd 

ITC Ltd 

Jindal Steel & Power Ltd 

Jaiprakash Associates Ltd 

Kotak Mahindra Bank Ltd 

Larsen & Toubro Ltd 

Mahindra & Mahindra Ltd 

Maruti Suzuki India Ltd 

NTPC Ltd 

Oil & Natural Gas Corporation Ltd 

Punjab National Bank 

Power Grid Corporation of India Ltd 

Ranbaxy Laboratories Ltd 

Reliance Communications Ltd 

Reliance Capital Ltd 

Reliance Industries Ltd 

Reliance Infrastructure Ltd 

Reliance Power Ltd 

Steel Authority of India Ltd 

State Bank of India 

Sesa Goa Ltd 

Siemens Ltd 

Sterlite Industries (India) Ltd 

Sun Pharmaceutical Industries Ltd 

Suzlon Energy Ltd 

Tata Motors Ltd 

Tata Power Co Ltd 

Tata Steel Ltd 

Tata Consultancy Services Ltd 

Wipro Ltd 


CHANGE IN PRICE AND OPEN INTEREST OF THE NIFTY 50 COMPANIES 

17th Jan'11 28th Jan'11 

5657.15 

10483.25 

1005.55 

126.30 

1230.10 

1270.50 

348.55 

2184.75 

587.65 

340.60 

346.95 

250.60 

1639.65 

484.05 

473.35 

663.55 

2075.95 

1784.35 

225.00 

301.60 

1003.70 

155.35 

3272.75 

172.35 

671.50 

88.70 

404.10 

1681.50 

738.80 

1262.40 

187.20 

1171.90 

1123.55 

97.60 

565.75 

131.95 

573.85 

1000.50 

736.70 

137.85 

156.30 

2518.80 

318.20 

736.20 

170.30 

467.15 

51.90 

1170.10 

1342.80 

621.85 

1137.00 

465.55 

Open 

Interest 

24778900 

1370625 

2275500 

11218000 

2389500 

2209500 

8314000 

2579250 

2595500 

12220000 

3845000 

16352000 

1301750 

1711500 

1821500 

7023500 

2418125 

2543250 

14878000 

13521000 

10646500 

19542000 

2791625 

12834000 

2746000 

50772000 

2522000 

5034875 

3951500 

2118500 

17231000 

2323000 

1335500 

30594000 

2206000 

29228000 

7284500 

13855250 

7305000 

24536000 

11231000 

5332625 

11873000 

921500 

16248000 

1751875 

85672000 

11127500 

1313000 

21554500 

3515750 

3369000 

Price 

(Rs) 

5536.55 

10635.95 

981.10 

127.50 

1262.80 

1263.00 

328.30 

2159.05 

634.55 

328.90 

337.25 

224.15 

1572.35 

456.30 

495.40 

649.70 

2069.00 

1653.90 

224.85 

273.70 

1023.65 

149.50 

3187.35 

169.35 

668.90 

87.45 

382.75 

1616.45 

702.75 

1225.15 

190.55 

1138.35 

1089.45 

96.80 

539.10 

125.75 

540.60 

920.55 

728.20 

137.65 

159.50 

2635.50 

330.45 

728.35 

168.70 

453.05 

50.05 

1138.75 

1269.85 

628.95 

1188.35 

439.60 

Open 

Interest 

21309250 

1102700 

1966000 

8370000 

1978000 

1515750 

7657000 

2272625 

1370000 

10330000 

3491000 

17575000 

1066500 

2053000 

1463500 

5846500 

2260000 

2134875 

11164000 

14607000 

7971500 

17610000 

2680625 

11402000 

2395000 

39960000 

2446000 

4008625 

3740000 

1638500 

15356000 

2309250 

1612500 

22226000 

1762500 

26958000 

6546000 

16704000 

6911750 

21992000 

8139000 

3213250 

10654000 

862000 

14096000 

1753750 

73952000 

8774000 

1014000 

24824500 

2684250 

2926000 

Change 

in Price 

(Rs) 

-120.60 

152.70 

-24.45 

1.20 

32.70 

-7.50 

-20.25 

-25.70 

46.90 

-11.70 

-9.70 

-26.45 

-67.30 

-27.75 

22.05 

-13.85 

-6.95 

-130.45 

-0.15 

-27.90 

19.95 

-5.85 

-85.40 

-3.00 

-2.60 

-1.25 

-21.35 

-65.05 

-36.05 

-37.25 

3.35 

-33.55 

-34.10 

-0.80 

-26.65 

-6.20 

-33.25 

-79.95 

-8.50 

-0.20 

3.20 

116.70 

12.25 

-7.85 

-1.60 

-14.10 

-1.85 

-31.35 

-72.95 

7.10 

51.35 

-25.95 

Change 

in Open 

Interest 

-3469650 

-267925 

-309500 

-2848000 

-411500 

-693750 

-657000 

-306625 

-1225500 

-1890000 

-354000 

1223000 

-235250 

341500 

-358000 

-1177000 

-158125 

-408375 

-3714000 

1086000 

-2675000 

-1932000 

-111000 

-1432000 

-351000 

-10812000 

-76000 

-1026250 

-211500 

-480000 

-1875000 

-13750 

277000 

-8368000 

-443500 

-2270000 

-738500 

2848750 

-393250 

-2544000 

-3092000 

-2119375 

-1219000 

-59500 

-2152000 

1875 

-11720000 

-2353500 

-299000 

3270000 

-831500 

-443000 

Change 

in Price 

(%) 

-2.13 

1.46 

-2.43 

0.95 

2.66 

-0.59 

-5.81 

-1.18 

7.98 

-3.44 

-2.80 

-10.55 

-4.10 

-5.73 

4.66 

-2.09 

-0.33 

-7.31 

-0.07 

-9.25 

1.99 

-3.77 

-2.61 

-1.74 

-0.39 

-1.41 

-5.28 

-3.87 

-4.88 

-2.95 

1.79 

-2.86 

-3.04 

-0.82 

-4.71 

-4.70 

-5.79 

-7.99 

-1.15 

-0.15 

2.05 

4.63 

3.85 

-1.07 

-0.94 

-3.02 

-3.56 

-2.68 

-5.43 

1.14 

4.52 

-5.57 


Change 

in Open 

Interest 

(%) 

-14.00 

-19.55 

-13.60 

-25.39 

-17.22 

-31.40 

-7.90 

-11.89 

-47.22 

-15.47 

-9.21 

7.48 

-18.07 

19.95 

-19.65 

-16.76 

-6.54 

-16.06 

-24.96 

8.03 

-25.13 

-9.89 

-3.98 

-11.16 

-12.78 

-21.30 

-3.01 

-20.38 

-5.35 

-22.66 

-10.88 

-0.59 

20.74 

-27.35 

-20.10 

-7.77 

-10.14 

20.56 

-5.38 

-10.37 

-27.53 

-39.74 

-10.27 

-6.46 

-13.24 

0.11 

-13.68 

-21.15 

-22.77 

15.17 

-23.65 

-13.15 

Source: NB Research

TECHNICAL OUTLOOK FOR THE FORTNIGHT 

KEY HIGHLIGHTS 

The Indian markets began the year 2011 on a rough 

note and continued to drift lower, owing to various 

concerns. Prominent among them were fears that 

money was flowing back to the US from emerging 

markets, including India. Further, higher inflation and 

political uncertainties reflected poorly on the bourses. 

In the previous fortnight, huge unwinding was visible 

in the January series. The Nifty was down almost 497 

points on a month-on-month (m-o-m) basis. 

The Indian stock markets closed below their 200 exponential 

day moving average (eDMA), which is a very 

big sign of worry. The markets remained trapped in a 

trading range. 

A severe correction was triggered in the first week of 

January this year, after the Nifty made a double top at 

6,181 (on 4th Jan ’11), with an earlier top at 6,178 (on 

3rd Jan ’11). 

After a 14% correction from the recent top of 6,335 

(on 8th Nov ’10), the question before us is whether 

more consolidation or a slight correction from the 

current levels is needed or not. 

The trend remains extremely cautious as the markets 

are trading below their important 200-eDMA at the 

5,647 level. 

According to the monthly chart, lower prices could be 

witnessed in the near term, if the 5,400 level is 

breached. On the same lines, the new low made by the 

MACD since 25th May ’10 could accelerate further 

weakness in the Nifty. 

Also, a strong negative outflow of `7,983 crore was 

seen in the cash segment, in the previous fortnight. 

However, the local domestic players were buyers to 

the tune of `4,229 crore during this period. 

STRATEGY 

Going forward from the Nifty Futures’ current level of 

5,524, it would be very difficult to say if we are likely 

to see any further corrections. As per the technical 

chart, if the Nifty starts trading below the 5,400 level, 

there is a possibility that the markets may witness a 


fall and that the Nifty may test the 5,250 – 5,210 

levels, subsequently. 

For the time being, all domestic risks seem to be 

priced in. However, rising inflation and crude oil 

prices remain a cause of worry. 

The short-term trade is clearly dependant on the developed 

markets and the revival of FII flows. Till then, 

the markets are likely to remain range-bound around 

the 5,200-5,800 levels. 

The February series opened at `44,782 crore as 

against `48,932 crore last month, where the Nifty 

Futures was at `13,036 crore and Stock Futures at 

`31,746 crore. 

From the Options data, the 5,400 Put has the highest 

open interest and the 5,100 and 5,200 Puts have also 

shown a good amount of open interest built-up. On the 

Call side, fresh additions were seen at the 5,500, 5,600 

and 5,700 levels. 

The Put Call ratio (PCR) for the Nifty increased to 

1.29 from the previous 0.83, exactly from the oversold 

region of 0.80, indicating that a technical pull-back 

rally is just round the corner. A major upmove is 

possible only if the spot Nifty holds above the 5,590 

level, in the near term. 

On the Nifty daily chart, the RSI is at 28.60, indicating 

that the markets have entered into the oversold area 

and a technical bounce is likely in the coming days. 

Market participants need to wait and watch if the rally 

holds above the 5,520-5,590 levels, for a further 

upside to take place in the near term. On the lower 

side, if the 5,400 level is breached, then the 5,250- 

5,200 levels are likely to be achieved. 

The Bank Nifty at the 10,660 level looks scary as the 

index continues to be under tremendous pressure, as 

compared to the Nifty. 

An important support is placed at the 10,200 level. A 

break below this point could lead to extreme selling 

pressure up to the 9,850 level, where the possibility of 

a bottom formation exists. 

On the higher side, 10,700 – 10,950 will act as strong 


41

42 

resistance levels and stability above the 11,000 level 

could only bring back strong momentum in the banking 

index. Till then, traders and investors are advised to 

wait for a clear signal. 

The current downtrend is only a corrective phase. 

There is also not much room left for leveraged 

positions on the Indian bourses to drift lower than 

5%-10% from the current levels. There is a lot of pain 

on the streets and the best strategy is to stay quiet and 

Nifty Future Weekly Chart 


see what to do next when the stock markets bottom out. 

STOCK IDEAS 

Stocks like Axis Bank Ltd, ICICI Bank Ltd, Larsen & 

Toubro Ltd, Exide Industries Ltd, Orchid Chemicals & 

Pharmaceuticals Ltd, Gujarat State Fertilizers & 

Chemicals Ltd (GSFC) and Tata Steel Ltd can be 

bought during a correction from trading as well as 

investment perspectiveS. 

The Nifty has broken the key level of 5,550. Going forward, the next important number would be the Fibonacci 

61.8% retracement level at 5,405. Unless this point is breached, we do not see any fresh sell-offs happening. A 

sustained trade below the 5,400 level can drift the Nifty lower to the 5,140 level, in the near term. On the higher 

side, the 5,640 level has to be sustained for a fresh positive rally to occur. 


BULK DEALS 

Bulk deals take place from normal trading windows that brokers provide and can be done 

any time during trading hours. In a bulk deal, the total traded quantity exceeds 0.5% 

of the number of equity shares of a company. 

Ex Date Company Client 

Trade Quantity % of Eq 

BSE 

BSE 

BSE 

BSE 

BSE 

BSE 

BSE 

BSE 

BSE 

BSE 

BSE 

BSE 

BSE 

BSE 

BSE 

BSE 

BSE 

BSE 

18 Jan'11 

19 Jan'11 

19 Jan'11 

19 Jan'11 

19 Jan'11 

24 Jan'11 

24 Jan'11 

24 Jan'11 

24 Jan'11 

24 Jan'11 

24 Jan'11 

25 Jan'11 

27 Jan'11 

27 Jan'11 

27 Jan'11 

28 Jan'11 

28 Jan'11 

28 Jan'11 

Source: NSE and BSE 

MAJOR BULK DEALS WHERE OVER 1% OF EQUITY WAS TRADED FROM 17th Jan ’11 TO 28th Jan ’11 

Ashiana Housing Ltd 

Bampsl Securities Ltd 

Kirloskar Pneumatic Co Ltd 

Asahi Infrastructure & Projects Ltd 

Consolidated Const Consortium Ltd 

Cable Corporation Of India Ltd 

Shree Ashtavinayak Cine Vision Ltd 

Gujarat Toolroom Ltd 

KSK Energy Ventures Ltd 

Shri Lakshmi Cotsyn Ltd 

Shri Lakshmi Cotsyn Ltd 

Alpha Graphic India Ltd 

PM Strips Ltd 

Midvalley Entertainment Ltd 

Gujarat Toolroom Ltd 

Prism Informatics Ltd 

Chandni Textiles Ltd 

Ashutosh Paper Mills Ltd 


Ashiana Ret Villages Ltd 

Bhaijee Overseas Ltd 

Relialnce Capital Mutual Fund 

Indravarun Trade Impex Pvt Ltd 

Ubs Securities Asia Ltd 

Rhodes Diversified 

Sicom Ltd 

Blueberry Trading Company Pvt Ltd 

Ksk Energy Company Pvt Ltd 

Nav Nirman Mercantiles Ltd 

Coastal Fertilisers Ltd 

Sonal International Ltd 

Comfort Intech Ltd 

Real Marketing Pvt Ltd 

Blueberry Trading Company Pvt Ltd 

Idhasoft Ltd 

Nabh Tradelink Pvt Ltd 

Tarini Enterprises Pvt Ltd 

MUTUAL FUND, FII ACTIVITY AND NIFTY 

This graph and data represent the Mutual Fund and FII activity 

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

were buyers or sellers. 

1000 

500 

0 

-500 

17 Jan'11 

-1000 

-1500 

MF Net , FII Net & Nifty 

20 Jan'11 

MF FII NIFTY (RHS) 

25 Jan'11 

penny saved is a penny earned 

money invested is money earned 

Your financial growth is our concern. 


5800 

5750 

5700 

5650 

5600 

5550 

5500 

5450 

5400 

5350 

Source: NB Research 

Sell 

Buy 

Buy 

Buy 

Sell 

Buy 

Sell 

Sell 

Buy 

Buy 

Sell 

Sell 

Buy 

Buy 

Sell 

Sell 

Buy 

Buy 

200500 

1681000 

200000 

461066 

1998268 

3655000 

21925000 

80000 

8000000 

266094 

249491 

88700 

66000 

500000 

44700 

500000 

200000 

78300 

Date MF Net* 

17 Jan'11 

18 Jan'11 

19 Jan'11 

20 Jan'11 

21 Jan'11 

24 Jan'11 

25 Jan'11 

27 Jan'11 

28 Jan'11 

45.70 

-1.50 

224.80 

27.40 

71.30 

263.20 

-51.50 

-307.70 

n.a 

1.07 

1.63 

1.56 

1.31 

1.08 

5.83 

2.66 

2.30 

2.15 

1.32 

1.24 

1.80 

4.23 

1.46 

1.29 

3.86 

1.24 

1.20 

Traded 

140.00 

2.79 

499.00 

11.04 

48.50 

22.70 

7.15 

7.87 

108.00 

110.55 

110.55 

9.04 

53.05 

60.25 

8.67 

46.50 

138.00 

130.01 


Price (Rs) 

FII Net * Nifty 

-694.60 5654.75 

-53.70 5724.05 

176.40 5691.05 

-208.00 5711.60 

-834.30 5696.50 

37.60 5743.25 

194.90 5687.40 

428.20 5604.30 

-1397.40 5512.15 

*Net activity in Equity 

Close 

142.05 

0.00 

0.00 

0.00 

0.00 

27.20 

7.15 

7.87 

116.05 

110.50 

110.50 

9.05 

0.00 

0.00 

0.00 

0.00 

0.00 

0.00 



43

44 

COMPANIES IN AND OUT ( For December ’10) 

IN 

OUT 

ACC Ltd 


Axis Axis Bank Ltd 

Bajaj Auto Ltd 

Bharat Heavy Electricals Electricals Ltd 

Bharat Petroleum Corporation Ltd 


HCL Technologies Ltd Ltd 

HDFC Bank Ltd 

Hero Honda Motors Ltd Ltd 

Hindalco Industries Ltd 


IDFC Ltd 

Kotak Mahindra Bank Bank Ltd 

NTPC Ltd 

Power Grid Corporation of India India Ltd 


COMPANY QTY AMC 


Sesa Goa Ltd 

Siemens Ltd 

Steel Authority of India India Ltd 

Sterlite Industries (India) Ltd 


Tata Consultancy Services Ltd 

Tata Steel Ltd 

Wipro Ltd 

Source: NB Research 


2500 

31000 

800 

64881 

65681 

445 

363 

82500 

4000 

86500 

53969 

4800 

49998 

108767 

59996 

15000 

1100 

3291 

76599 

76599 

356019 

8598 

364617 

24699 

24699 

27002 

1000000 

1027002 

679999 

679999 

55003 

9750 

333 

65086 

279 

135000 

67773 

571423 

774196 

10399 

41424 

2743 

1586991 

30018 

1213 

36900 

40259 

827196 

904355 

Mirae Asset 

Mirae Asset 

Daiwa 

JPMorgan 

JPMorgan 

JPMorgan 

HSBC 

Mirae Asset 

Bharti AXA 

Daiwa 

L&T 

Axis 

AIG Global 

Bharti AXA 

JPMorgan 

Bharti AXA 

Benchmark 

JPMorgan 

Bharti AXA 

Bharti AXA 

Kotak Mahindra 

AIG Global 

Axis 

Bharti AXA 

JPMorgan 

JPMorgan 

Kotak Mahindra 

Religare 

Sundaram 

Bharti AXA 

Bharti AXA 

JPMorgan 

DSP Blackrock 

Deutsche 

JPMorgan 

Bharti AXA 

DSP Blackrock 

Sundaram 


COMPANY QTY AMC 

ACC Ltd 

4800 BNP Paribas 

2259 

7059 

IDFC 


18286 IDFC 

Bharat Bharat Petroleum Corporation Ltd 

2891 IDFC 


100024 Deutsche 

9633 

109657 

IDFC 

Cipla Ltd 

7991 Escorts 

DLF Ltd 

8111 IDFC 

Hero Honda Motors Ltd 

2120 IDFC 

6000 Kotak Mahindra 

100 L&T 

276516 

284736 

Sundaram 

Hindalco Industries Ltd Ltd 

28999 IDFC 


23417 IDFC 

IDFC Ltd 

25565 IDFC 

JaiPrakash Associates Ltd 

25693 IDFC 

17057 

42750 

Religare 

Kotak Mahindra Bank Bank Ltd 

60004 Axis 

8024 IDFC 

25001 

93029 

L&T 

Maruti Suzuki Suzuki India Ltd 

2960 IDFC 

NTPC Ltd 

28583 IDFC 

Power Grid Corporation Corporation of India Ltd 481766 Axis 

363522 

845288 

HSBC 


48358 DSP Blackrock 

Ranbaxy Laboratories Ltd 

3401 IDFC 


163028 Morgan Stanley 

Reliance Reliance Power Ltd 

8154 IDFC 

145483 

153637 

Sundaram 

Sesa Goa Ltd 

20998 BNP Paribas 

8508 IDFC 

20000 

49506 

L&T 

Steel Authority of India Ltd 

13099 IDFC 

21998 

35097 

L&T 


17971 IDFC 

Tata Motors Ltd 

1057941 DSP Blackrock 

9800 

1067741 

L&T 

Wipro Ltd 

11231 IDFC 

Note: Data mentioned here has been extracted on 27th Jan ’11 



MOVERS AND LAGGARDS IN MUTUAL FUND SCHEMES 

Equity Schemes 


Scheme Name 

Movers 

Birla Sun Life International Equity Fund - Plan A - Gr 

Franklin Infotech Fund - Gr 

UTI Banking Sector Fund - Gr 

Religare Banking Fund - Reg - Gr 

Benchmark Equity And Derivative Opportunities Fund - Gr 

Laggards 

HSBC Small Cap Fund - Gr 

HSBC Midcap Equity Fund - Gr 

Principal PNB Long Term Equity Fund - 3 Year - Series I - Gth 

JM Basic Fund - Gr 

L&T Small Cap Fund - Gr 

Debt Schemes 

Movers 

Peerless Short Term Fund - Gr 

BNP Paribas FTF - Series 16 - Plan A - Reg - Gr 

Baroda Pioneer Income Fund - Gr 

Tata FIP Fund - Series C2 - Ret - Gr 

Kotak FMP - 13 Months - Series 6 - Gr 

Laggards 

Birla Sun Life Equity Linked FMP - Series A - Ret - Gr 

Axis Triple Advantage Fund - Gr 

Sundaram MIP - Aggressive - Gr 

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

DWS Twin Advantage Fund - Gr 

Balance Schemes 

Movers 

Escorts Opportunities Fund - Gr 

HDFC Prudence Fund - Gr 

Birla Sun Life 95 - Gr 

Escorts Balanced Fund - Gr 

FT India Balanced Fund - Gr 

Laggards 

JM Balanced - Gr 

Principal Conservative Gr Fund 

HDFC Balanced Fund - Gr 

ING Balanced Fund - Gr 

UTI Balanced Fund - Gr 

*(27 Jan’11) Source: NB Research 

NAV 

(28th Jan'11) 

9.7451 

68.5768 

41.0000 

19.1900 

12.0499 

11.8414 

20.8726 

10.5200 

14.0670 

4.9500 

10.6187 

10.7337 

15.2471 

11.4921 

10.5871 

13.4829* 

9.9714 

10.1680 

19.1617 * 

16.0228 

27.5429 

206.4920 

303.0100 

60.6299 

47.2289 

22.0598 

85.6900 

52.6670 

24.6500 

78.9600 

Absolute % 

(Point to Point) 

2 Weeks 

1.4290 

0.6323 

0.5148 

0.4712 

0.3506 

-7.1306 

-6.5179 

-6.3224 

-6.1818 

-6.0721 

3.2947 

0.7859 

0.6442 

0.6225 

0.5232 

-1.6730 

-1.6714 

-1.4690 

-1.2925 

-1.2529 

-0.8692 

-1.2940 

-1.4666 

-1.6779 

-1.6988 

-3.9893 

-2.9668 

-2.8302 

-2.7613 

-2.3739 

Disclaimer 

The information provided here has been obtained from 

various sources and is considered to be authentic and 

reliable. However, Nirmal Bang Securities Private 

Limited is not responsible for any error or inaccuracy 

in the same. 


45

SMS ‘BANG’ to 54646, 

Contact Person: Sagar Karvat - 077383 80033; e-mail: contact@nirmalbang.com 

For job openings at Nirmal Bang, visit http://www.nirmalbang.com/careers.aspx 


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

UK Sinha, the successor to SEBI chief CB 

Bhave, will assume the post of the security 

market regulator in February this year. He is 

scheduled to take over when Bhave’s term ends 

next month. Sinha is the chairman and managing director 

of Unit Trust of India Asset Management Company (UTI 

AMC), also known as UTI Mutual Fund, since 2005. He 

is also the chairman of the Association of Mutual Funds 

in India (AMFI). 

Born in the year 1952, Sinha is an IAS officer of the 1976 

batch of Bihar cadre. He is a post-graduate in mathematics 

and statistics and has a degree in law as well. He has 

held important positions with the Indian government and 

has also been the Additional Secretary to the government 

of India. 

He has been on the board of directors of SIDBI, IFCI, 

Bank of Baroda, Central Bank of India and the Pension 

Funds Regulatory & Development Authority (PFRDA). 


UK Sinha: 

The Rightful Heir 

Thanks to his vast experience, 

fifty-nine-year-old IAS officer, 

UK Sinha, seems to be the suitable 

successor to CB Bhave as the SEBI chief 

He was on several committees set up by the government 

of India like the Wheat Procurement Committee, an 

Advisory Committee working on the guidelines for 

mutual fund investments in the infrastructure sector and 

one that focuses on reworking the framework governing 

foreign investments. 

Sinha began his career as a probationary officer for three 

years with the State Bank of India. He has also been the 

director of the State Credit and Investment Corporation 

at Patna. He has been the Joint Secretary in the banking 

division of the Ministry of Finance and dealt with financial 

institutions. Here, Sinha helped banks with recovering 

bad loans and restructuring corporate debt plans. 

Sinha’s portfolio then included the capital market, 

currency and coins, external commercial borrowings, 

foreign exchange management and pension reforms. He 

was in charge of the drafting of the SEBI (Amendment) 

Act, 2002, the Securities Law Amendment Act, 2004 and 


47

48 

the PFRDA Bill, 2005. He was also the Joint Secretary in 

the Department of Economic Affairs. 

UTI TURNAROUND 

Sinha took up the reins of UTI in 2005, at the time when 

the organization was reeling in the aftermath of its 

‘assured returns’ scheme that went under due to a deluge 

of redemptions. This left the company to grapple with the 

consequences of a government bailout and also a split in 

the company. 

UTI was losing its esteemed customers by the week and 

Sinha was brought on board to give the company a 

radical makeover. In a span of five years, UTI has 

regained most of its past glory and boasts of an `80,000 

crore AUM and nearly 10 million customers. 

Sinha decided to cut back UTI’s dependence on the four 

shareholders - Punjab National Bank, State Bank of 

India, Bank of Baroda and Life Insurance Corporation. 

He devised a strategy where T Rowe Price, a global 

investment management firm, with assets of over $350 

billion, acquired a 26% stake in UTI. He also managed to 

attract considerable foreign investment particularly from 

Europe, Middle East and Japan. 

Thinking of the transformation days, Sinha said that five 

years ago, when he came into UTI, he was shocked to 

notice that the organization did not even have a human 

resource (HR) head. He recalled the low employee 

morale and the time when 40 of the top talented professionals 

left UTI to look for greener pastures. So, he 

decided to revamp the setup of the human resource 

department first. 

Some of his remarkable achievements include reworking 

the public sector pay scales of the UTI employees to 

match the market-level salaries. He also hired the best 

talent in the industry. 

UTI was the first company to publicly list its mutual fund 

scheme. The market valuation of UTI MF rose more than 

ten times in a span of around two years. Sinha has 

introduced some extremely successful schemes that have 

raised the assets under management at UTI MF by 

approximately 100%. 

He launched a micro-pension scheme too that was 

targeted at low-income groups. This scheme provided 

them with financial protection on the lines of a 

post-retirement pension scheme. It is run with the help of 

a few co-operative societies and government agencies 

and has attracted over two lakh investors. 

Sinha has arranged for tie-ups with agencies such as 


SEWA, the dairy farmers’ co-operative in Bihar and the 

Union of Railway Porters. This mutual fund scheme has 

laid the path for quite a few others, who are now coming 

up with similar minimum-payment models. Thus over 

the years, Sinha has built a reputation for himself with his 

knack for turning a crisis around. 

CHALLENGES AT SEBI 

The current SEBI chief, CB Bhave’s three-year term was 

not devoid of turbulent times. He had to deal with the 

global financial crisis, scams and changes in regulations 

in the primary and secondary markets. A number of 

concerns will be carried forward to Sinha after Bhave’s 

term ends. 

On assuming the post of SEBI chairman, Sinha will 

decide the fate of two important policy papers that were 

pioneered during Bhave’s tenure. 

A panel headed by C Achuthan has modified the rules 

governing corporate takeovers and a different panel, 

headed by former Reserve Bank of India governor Bimal 

Jalan, has recommended a framework governing market 

infrastructure institutions such as stock exchanges, 

depositories and clearing corporations. Both these 

reports have some controversial proposals, especially the 

takeover code, since the SEBI board has already begun 

discussions on the draft. 

He also has to deal with the Multi-Commodity Exchange 

(MCX) issue, where SEBI has so far rejected their 

application to run bourses trading various products, 

including stocks and equity derivatives, on the grounds 

that the promoters of MCX cannot hold more than 5% 

stake in the commodity exchange. 

SEBI has also warned investors of the Sahara Group 

companies that it will not be liable to address investor 

complaints since Sahara India Real Estate Corporation 

Ltd (SIRECL) and Sahara Housing Investment Corporation 

Ltd (SHICL) have been raising funds without the 

regulator’s approval. 

And the largest of all, the SEBI investigations into the 

country’s biggest scam, Satyam Computers. It remains to 

be seen if UK Sinha will be able to overcome the impediments 

and forge a path of innovation for the Indian 

securities market. 

UK Sinha is a self-confessed music lover and a connoisseur 

of Urdu poetry. He listens to music while on his 

morning walks and on his way to and from work. Sinha 

says that this is indeed very relaxing. He also loves 

analyzing numbers so an indoor game of bridge wipes 

out the day’s stresS. 


A 

Wake-up 

Call 


If you are an investor, it is advisable 

to learn from other people’s 

mistakes instead of staying 

oblivious to scams and frauds 

The he usage of the words scam/fraud has increased 

manifold these days with the unearthing of 

several unethical practices across the board, be 

it sports (Commonwealth Games) or even 

industries (telecom sector - 2G scam, housing finance 

loans scam). 

The investment world is not new to frauds and scams. 

But time and again people fall prey to scams because 

they only talk about it when it hits the headlines. 

However, as time passes, it gets erased from public 

memory. They do not exercise caution. Instead, they only 

tend to take the return element into consideration. 

In the past too several people have been duped by scams 

such as the plantation scam, which lured thousands of 

small investors and other such scams. Yet, they fall prey 

to such schemes since they are marketed in a very attractive 

manner. 

The Indian market recently witnessed a big fraud to the 

tune of `400 crore, committed by the relationship 

manager of Citibank. It is noteworthy to mention that the 

clients duped by this relationship manager were actually 

wealthy individuals and corporates. 


49

50 

�� 

investors but also wealthy ones are susceptible to tall 

claims and promises. 

OVERVIEW OF THE CITIBANK FRAUD 

Shivraj Puri, the relationship manager at Citibank’s 

Gurgoan branch allegedly lured rich clients in investing 

into fraudulent schemes by promising attractive returns 

supposedly backed by the bank. 

By virtue of being a relationship manager, he garnered 

trust of his clients and used that to his advantage. He 

made his clients sign blank documents, which were later 

used to transfer money. 

He forged a letter from the capital markets regulator, 

�� 

credence to the products he was offering and was 

successful in tapping wealthy investors. He siphoned off 

the funds garnered to the accounts of his family members 

and then routed the funds to the stock market through 

brokerage houses. 

The Citibank fraud got a lot of publicity due to its magnitude. 

But several small frauds that occur around us go 

unnoticed simply because the quantum of frauds are not 

huge nor are the affected investors powerful. 

Some time back, the wealth management arm of Kotak 

Mahindra Bank, another big private sector bank, was 

accused of misleading a customer into investing into a 

fund at a steep premium based on bogus claims. These 

�� 

is time to pause and think of how you can avoid falling 

into such a trap. 

POINTERS WORTH CONSIDERING 

�� 

because you have a relationship manager looking after 

them. Monitor them on a timely basis as it is your money 

and you will be the one affected by the loss or gain 

�� 

you. Weigh the pros and cons and then decide on the 

investment opportunity 

�� 

a product that makes a lot of money with minimum risk 

and guaranteed returns 

�� 

promised looks unbelievable and is more than what the 

�� 

accept what is being told to you because achieving 


spectacular returns, that is, returns much above the 

markets is not an easy task 

Make sure you get as many details as possible. Talk to a 

few people and see if they are aware of such a product 

and what their view on that particular product is. Make 

an attempt to understand the product. Understanding the 

product offered is important because it will help you 

understand the risk element 

�� 

spectacular returns blindly even if it is being offered by 

big and reputed business houses. The alleged fraudster 

from Citibank, Shivraj Puri, was able to fool investors as 

�� 

offering from a big business house cloud your judgement 

�� 

details of your investment. Regular monitoring will help 

you figure out abnormalities, if any. Take corrective 

actions on an immediate basis instead of learning about 

the same after it is too late 

�� 

pressure tactics. You may be told that you have to invest 

in a day or two else the opportunity is lost. Take time to 

understand the product if you have the background, or 

else talk to people who have an understanding of the 

�� 

instead of falling prey to it because of urgency 

�� 

look after your financial needs. This will allow you to 

take a second opinion when needed and ensure that your 

risk is diversified 

�� 

brochures, flyers and similar such things. Looking at 

them, you should be able to gauge the authenticity of the 

investment product 

�� 

may involve talking to your relationship manager, 

seeking details, asking for updates in the form of 

documents, among other things. 

While it may be easy to blame the fraudster, the responsibility 

of the investment made lies with you too. Hence, 

‘investors beware’. Falling prey to claims that are unusually 

attractive is easy. 

Try to be prudent while making your investment 

decisions and do not decide in haste. Take time out to 

understand and talk to people about the product being 

�� 

have the better of your judgemenT. 



SMS ‘BANG’ to 54646 

Contact Person: Sagar Karvat - 077383 80033, e-mail: contact@nirmalbang.com 

For job openings at Nirmal Bang, visit http://www.nirmalbang.com/careers.aspx 


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

52 

WHO 

DARES 

can battle rough 

seas or volatility in the markets 

following events like the budget 

WINSBravehearts 

with straddles and strangles 



Come February and all eyes shift focus to the one 

big event of the month – the budget. This is 

because it is that singular event, which affects 

the financial world like nothing else. 

While the salaried class, professionals and even 

businessmen look at the budget with a long-term macro 

perspective, there is another niche group of people who 

view budget as an extremely short-term money-making 

event. This group is the ever-so-important trader community 

of the stock market. 

The budget is important to the traders because of the 

stock markets on the whole, and more importantly 

individual stocks fluctuate violently, either up or down 

depending on the event, which is perceived as favourable 

or unfavourable for respective sectors or industries. 

Thus, no active trader can afford to miss out on such huge 

fluctuations in the markets. 

The best piece of advice for newcomers and the 

risk-averse traders is to stay away from such volatile 

markets since they can burn their fingers if their trades go 

against them. 

But those who have been around for a while now can 

enter the markets during such an important event and 

take advantage of the wild swings. These individuals can 

make use of certain tried and tested strategies for such 

volatile markets. 

These strategies are designed to help market participants 

profit if the markets rise or fall drastically. People will 

lose money if the market or the stock remains rangebound 

with very little change. And the best part about 

these strategies is that they have limited risk, but can give 

unlimited profit. 

The key instrument employed for these strategies is 

known as Options. Options is a part of the derivatives 

market, also commonly known as the Futures and 

Options (F&O) market. 

While the buyer of an Option has limited loss potential 

with the possibility of unlimited profit potential, the 

seller of an Option has limited profit, but with a possibility 

of incurring unlimited loss. So it is advisable to buy 

Options rather than sell them until such time that an 

individual is well-versed in Options trading. 

OPTION STRATEGIES 

LONG STRADDLE: A long Straddle is a strategy for 

volatile markets and involves simultaneous buying of a 

Call Option and also a Put Option of the same 

stock/index with the same strike price and expiry date. 


Illustration: Say stock XYZ is trading at a price of `200 

in the cash market and you feel that certain announcements 

in the budget can have a significant impact on the 

stock price and hence, you buy a 200-strike price Call at 

a premium of `6. The lot size of the stock XYZ is 1,000 

per contract. Thus, the total premium for the Call Option 

is `6 x 1,000 = `6,000 

Simultaneously, you also buy a 200-strike Put at a 

premium of `5. Thus, the total premium for the Put is `5 

x 1,000 = `5,000. 

The total premium paid for the entire straddle is `6,000 + 

`5,000 = `11,000. This is the total loss that you can incur 

on this transaction and, hence, your risk is limited to only 

`11,000. 

Now as the total premium paid is 6+5 = 11. This straddle 

will be profitable for the investor only if the stock trades 

above 200 + 11 = 211 on the upside or below 200 - 11 = 

189 on the downside. 

Payoff Illustration: After the budget, if the stock zooms 

to `250, your profit would be `250 - `211 = `39 x 1,000 

= `39,000. Conversely, if the stock crashes to `160 after 

the budget, you would still make a profit of `189-`160 = 

`29 x 1,000 = `29,000. 

Thus, the profit potential is virtually unlimited if the 

stock moves drastically on either side. But, if the stock 

remains in a sideways movement, that is, between the 

211 and 189-range, then it would result in a loss for the 

investor. And even though investors can square off both 

the Puts and Calls at lower premiums and minimize their 

losses – if held till expiry and the stock does not move, 

the investor stands to lose the entire premium and the 

maximum loss that can be incurred is `11,000. 

LONG STRANGLE: A long Strangle is almost similar 

to the long Straddle, except for the fact that here you buy 

an Out-of-the-Money (OTM) Call and an Out-of-the- 

Money (OTM) Put with the same expiry date. In other 

words, the strike prices of the Call and Put are different. 

Take the same stock XYZ as example. XYZ is trading at 

a price of `200 in the cash market and you buy one OTM 

Call of 230 at a premium of `3. You also buy one OTM 

Put of 170 at a premium of `2. Since both the Options are 

OTM, their premium is relatively low. Hence, the total 

premium paid for the Strangle is `3 +2 = `5 x 1,000 (lot 

size) = `5,000. This `5,000 is the maximum loss you can 

incur on this transaction. 

This Strangle will be profitable for the investor only if 

the stock trades above `230 + 5 = `235 on the upside and 

below `170 – 5 = `165 on the downside. 


53

54 

Payoff Illustration: After the budget, if the stock rises to 

`250, your profit would be `250-`235 = 15 x 1,000 = ` 

15,000. Alternatively, if the stock crashes to `155, your 

profit would be `165-155 = 10 x 1000 = `10,000. But, if 

the stock remains range-bound between 235 and 165, it 

will result in a loss for the investor. The one advantage 

that a long strangle offers over a long straddle is that the 

premium outgo is much lower in the former since both 

the Options are out-of-the-money. 

The two main factors to keep in mind when trading 

Options are 

a. Time Decay Or The Time To Expiry: The longer the 

time left for expiry of an Option, the higher will be the 

premium. As the time to expiry comes nearer, the Option 

premium loses its value and at expiry, the premium 

becomes zero. This erosion of the premium is known as 

time decay. 

b. Volatility: The probability of the underlying asset 

moving up and down in price is called volatility. The 

higher the volatility, the higher is the premium. It is more 

IMPORTANT TERMS 

Option: An Option is a contract that gives the buyer the right but not the obligation to buy or sell an underlying asset 

(index or an individual stock) at a specific price, on or before a certain date. 


commonly known as Implied Volatility (IV), which is 

the estimated volatility of the price of an underlying. 

Generally the IVs are very high before important events 

such as budget, elections, quarterly results, etc. Hence, 

the premium of Options is also very high. 

And it is often seen that once the event is out, the IVs 

drop drastically and the premium also drops considerably 

even if the trade is in your favour. So, watch out for such 

sharp falls in IVs and exit at the first sign of trouble by 

either booking your profits or minimizing your losses. 

The main reason why employing Options strategies 

makes sense is because they offer a low-risk, high-return 

proposition without having to guess the direction of the 

markets, which is much better when compared to a pure 

speculative one-sided trade based on mere gut feeling. 

Remember, it is always better to wear a life jacket when 

jumping into the rough seas even though you may know 

how to swim. After all, the only thing you stand to lose 

is the money spent on buying the life jackeT. 

There are two types of Options - Call Option and Put Option. 

Call Option: It gives the buyer the right to buy the underlying asset at a fixed, predetermined price within a fixed 

period of time. 

Put Option: It gives the buyer the right to sell the underlying asset at a fixed, pre-determined price within a fixed 

period of time 

Strike Price Or Exercise Price: Strike price or the exercise price is the specified price of an Option at which the 

contract may be exercised 

Lot/Contract Size: It is the number of underlying assets in a contract. For example, the lot size of Nifty is 50 

Underlying: It is a particular asset on which the Option contract is issued. While index is the underlying asset in 

Index Options, individual stocks are the underlying assets in Stock Options 

Option Premium: It is the price paid by the buyer of an Option to the seller of an Option 

Expiry: It is the date on which the Option expires and ceases to exist 

In-the-money: It is when the Option strike price is less than the market price of the underlying asset 

At-the-money: It is when the Option strike price is equal to the market price of the underlying 

Out-of-the-money: It is when the Option strike price is greater than the market price of the underlying 

How To Read An Options Table 

OPT-Nifty-27-Jan-2011-5900-CE at 50. This is how an Options contract typically appears on a screen or in newspapers. 

It simply means that a Nifty Call Option with strike price of 5,900 and an expiry date of 27th Jan ’11 is available 

at a premium of `50. 


LEARN THE ART OF 

COMMODITY INVESTING 


& 

Beyond 

Present 

Date: 14th January, 2011 

Venue: The Pride Hotel, 

Pune. 

Exchange Partner 


55

Educating Investors 

In The Oxford 

Of The East 

The fourth in the series of commodity camps called Beyond Mandi, organized by Nirmal Bang, 

one of the leading broking houses in India, in association with Zee Business, was held in Pune. 

A good crowd of people comprising traders and investors alike turned up at the Pride Hotel, Pune 

to hear market mavens like Anjani Sinha, MD & CEO at NSEL; Kunal Shah, Head of Commodity 

Research at Nirmal Bang and Manish Rangari, CEO of the Indian Bullion Association discuss 

the opportunities offered by the commodities market and the future of this asset class with Amish 

Devgan, Commodity Editor and Anchor at Zee Business. 

Amish Devgan kick-started the camp by introducing the panelists. He stated that the discussion 

would mainly focus on the advantages of investing in the spot and futures market. He told the 

audience that the speakers would be guiding them in getting favourable returns from commodity 

trading and speak about the future of the commodity markets too. 

56 

Anjani Sinha, 

MD & CEO of NSEL 

Anjani Sinha is the MD & CEO of National Spot 

Exchange Ltd (NSEL). He has over two decades of 

experience and deep knowledge of commodity derivatives 

and spot markets. His previous stint was with the Ahmedabad 

Stock Exchange. Prior to that, he was associated with 

the Bombay Commodity Exchange Ltd, Interconnected 

Stock Exchange of India Ltd (ISEI) and Magadh Stock 

Exchange. 


With right advice from experts, 

individuals can make the most 

of the ongoing rally in the 

commodities market 

Amish Devgan, 

Commodity Editor and 

Anchor at Zee Business 

Anjani Sinha commenced the discussion and spoke about how each and 

every investor could take advantage of the commodity markets, thanks to 

the development of new investment products. He went on to speak about 

the ‘E-series’ instruments introduced by NSEL in March last year. Sinha 

also mentioned that up till now four such instruments have been developed 

for investors by NSEL. 

He said that all the ‘E-series’ products have been giving good returns and 

explained the process of investing in them to the audience. He expects 

the commodity markets to grow manifold and advised investors to make 

small investments from time to time. Sinha suggested that investors 

could also convert their commodity investments into the physical form 

and reap profits on a regular basis. 


Kunal Shah 

Head of Commodity 

Research at Nirmal Bang 

Kunal Shah serves as the Head of Commodity 

Research at Nirmal Bang. He closely tracks 

precious metals, base metals, energy and 

agricultural commodities. He addresses 

seminars on the outlook of commodities across 

the country. He appears regularly on business 

channels. He is also sought by the print media 

and wire services too, on a regular basis. Prior 

to Nirmal Bang, he was associated with 

Motilal Oswal Commodities Pvt Ltd, where he 

managed the research desk. 


The next speaker in line was Kunal Shah, who chose to delve on commodities as an asset 

class, its value, the opportunities and outlook in the coming times as well as the potential 

risks involved in commodity trading. 

Where opportunities are concerned, Shah said that the volumes have grown by leaps and 

bounds even though most have not got the permission to enter the commodity markets. 

He moved on to the do’s and don’ts to be followed by market participants while trading 

in the commodity markets. According to him, all those entering the commodity markets 

should have adequate knowledge and must only trade as per individual capacity and keep 

a futuristic view while trading in commodities. 

He attributed the rise in commodity prices to a number of reasons, including liquidity. He 

told the audience that where fundamentals are strong, there will be liquidity. Shah also 

mentioned that commodities have outperformed other asset classes globally because 

currently commodity fundamentals are quite strong. 

Shah said that in the coming times, the population is bound to rise and the demand will 

maintain an upward pressure on commodity prices. He spoke about commodity index 

funds and said that he sees a liquidity-driven run up in the markets since the value of 

commodities is rising. 

Talking about the outlook of the commodities market, Shah said that inflation is on a rise 

due to a gap in the demand and supply of agro commodities. He is bullish on agro 

commodities till no substantial rise is visible in their supply. He also listed out various 

reasons supporting his bullish outlook on agricultural commodities. 

Shah said that there has been no major correction in commodities but inflation is rising 

due to global uncertainties like the European sovereign debt crisis and excess liquidity. 

Rising commodity prices will affect the profitability of companies. 

The slackening growth in China, weak housing market data in the US and high frequency 

trading that has been adopted globally are all posing a problem presently and could do so 

in the future too. Shah feels that rising rates could affect growth prospects of economies 

and, in turn, affect commodity prices. 

In agro commodities, Shah feels guar seed could test `2,900 level and guar gum could 

touch the `7,200 level in a month’s time. Shah expects soya bean prices to drop and 

advised investors to accumulate it on declines as he sees soya bean giving good returns in 

the coming year. He is bullish on coriander seeds and thinks the price will touch 

`6,000/quintal – `7,000/quintal in the next four months or so. Long positions in cumin 

seeds are to be avoided in the near future. 

As far as base metals are concerned, Shah feels that only nickel is strong and one could 

enter around the level of `1,130/kg – `1,135/kg and see the level of `1,200/kg – 

`1,230/kg. Copper can be shorted around the level of `450/tonne – `455/tonne with a 

stop loss of `460/tonne - `465/tonne. He feels that zinc, as a base metal, is fundamentally 

weak. Shah warns investors of the ongoing rally in other base metals and thinks that the 

short-term outlook is not very positive but he is bullish on base metals with a long-term 

investment perspective. 

Shah does not see much of an upside fundamentally in crude oil and believes it will go up 

to a maximum price of $95/barrel - $96/barrel. In the near term, a correction in precious 

metals is likely but the long-term outlook is bullish. 


57

Manish Rangari, 

CEO, Indian Bullion Association 

58 


The last speaker for the day, Manish Rangari, CEO of the Indian Bullion Association 

feels that the commodities market will correct in 2011. He spoke on the outlook for 2011 

and the advantages of bullion as an asset class. Rangari said that gold is a very good asset 

class and that as much as 30% of the total world consumption is by India. He also feels 

that in the coming years, India will hold the maximum amount of gold. Rangari says that 

gold production is limited and is always connected to a country’s economy. 

Gold is an asset which hedges us against inflation. Even though the rally in the shortterm 

may not last long, Rangari feels that it will be a sideways movement. Though in the 

coming days, the maximum returns could be from gold investments. 

He urged the audience to invest in gold since even countries are buying gold. He says 

that if gold investment is done with a systematic approach, an investor will not only beat 

inflation but also build a strong portfolio as well as take advantage of easy liquidity. To 

sum it up, Rangari threw light on the different avenues through which people can invest 

in gold. 

This was followed by a discussion among panelists and a round of questions and answers. The camp was a 

huge success if the number of attendees is anything to go by and this encourages Nirmal Bang to hold similar 

such camps in the future as it will educate many more investors who will be able to take guidance from the 

experts and profit from them. 

The next camp will he held on 18th February at LudhianA. 




1.6603 in

SMS ‘BANG NRI’ to 54646 | nri@nirmalbang.com | www.nirmalbang.com 

DISCLAIMER 

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included in this magazine are as of date and are subject to change without any notice. All recipients of this magazine should seek appropriate professional advice and carefully read the offer document 

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