Mkts could see old highs in 4-6 weeks: DSP Merrill Lynch

Mkts could see old highs in 4-6 weeks: DSP Merrill Lynch

S Naganath of DSP Merrill Lynch said, the markets are likely to see an upside over the next 4-6 weeks, which could take it back to its old highs. However, he expected the markets to be extremely choppy after the Budget, between April and September '08, but added that a rally was likely in the last quarter of 2008.

Commenting on earnings, he said while there was a slowdown in earnings, in general, they were reasonably good and had not caused substantial amount of disappointment.

Excerpts from CNBC-TV18's exclusive interview with S Naganath:

Q: How do you find the markets now, these are interesting times, both for primary and secondary markets? How is the risk reward balance looking from here?

Naganath: It has been certainly interesting. We have seen a spate of negative newsflow internationally that seems to have spooked the stock market in the last week to ten days. But we are getting to a point where the markets are beginning to look oversold, and I do believe that over the next 4-6 weeks, we should see a nice bounce on the upside.

Q: How have you read the primary market action and the fact that a couple of large influential IPOs had to be pulled?

Naganath: I can’t comment on individual IPOs. I suppose whatever decisions were taken were in response to the market conditions in the last week or so. But looking forward, I think the risk reward looks like 5% on the downside and probably 15% on the upside over the next 4-6 weeks given that markets were looking oversold and the element of open interest in the F&O market seems to have come down substantially, the results season has been extremely good, the possibility of rate cuts in the next month or two are quite good, given what’s happening around the world with central banks cutting rates, also the fact that, looking ahead we have the Budget.

So all in all, I am of the view that things should start looking up as early as next week over the next month and a half.

Q: You said that earnings were fine but a lot of people have commented that it was about the weakest earnings quarter that they have seen in a long while. Are you worried that things are beginning to slow down a bit?

Naganath: Certainly for FY09, the expectations for GDP growth are somewhere between 8%-8.5%, which is much lower than the 9%-9.5% we saw in the previous couple of years or so. Against that backdrop, yes we are expecting earnings to moderate down to the 17%-18% level for FY09, and similar level of earnings for the following fiscal year.

So this is not something new. Given the high base that we have created in terms of earnings growth over the last three years, this was only to be anticipated. So I don’t find anything greatly surprising in the fact that there has been a moderation. It is because of the base effect.

It is possible that in certain pockets, we have seen some amount of earning slowdown. But otherwise, in general across the market, the earning numbers have been reasonably good, nothing that can cause substantive disappointment.

Q: Your upmove call for the next 4-6 weeks is a near-term tactical call or are you convinced that the worst is over for this year?

Naganath: It is a tactical call. I had said this earlier as well, the bounce that lasts for maybe a month to month and a half, and then the second quarter and the third quarter this year basically from the April all the way to September, is going to be a very choppy market because again you would have renewed newsflow, as western banks, and financial institutions announce their results for the March quarter. Then we could have some pockets of volatility and disappointment in terms of perhaps further write-downs, whether it is credit debt or subprime loans or other mortgage securities that they hold in their books.

And then I do expect that once all this newsflow out of the way, in the fourth quarter 2008 we should expect a smart rally. It is too early to look at 2009, but if you look at the GDP growth estimates currently put out by many economists, it is quite possible that India maybe the fastest growing economy in Asia, as China perhaps slows down as their exports begin to slowdown.

So 2009 could be a very good year for Indian equities. But 2008 would be the year when we basically consolidate after a difficult second, third quarter and then perhaps begin to rally again in the fourth quarter.

Q: What kind of an index band would you see this volatility in? Do you think the lows are in place or do you expect the lows to be violated in the volatility of mid-year that you are talking about?

Naganath: It is possible that in the mid-year my view is that perhaps will test at that point the levels that we saw in August when the subprime crisis broke out around the 14,000-15,000 levels. On the upside we could well retest the old high if the bounce that we do anticipate turns out to be fairly sharp and it can be when you have oversold markets, the rebounds are equally sharp.

Q: What about flows, we have seen USD 5 billion go out? Where is the pressure coming form do you think on this incessant withdrawal of money that has been happening for the last 4-5 weeks?

Naganath: I think if we look at USD 4-5 billion in absolute terms, obviously it sounds like a large number. If you put it in context the market is approximately USD 1.5 trillion in terms of size and thereabouts, approximately 20% from my estimate in the hands of FII that is about USD 300 billion or so. We had about 14-15 billion come in the second half of 2007.

So again if you put it all in context of overall investment by FII in a cumulative sense, the flows that we saw in the second half of last year, these flows are only expected to be given the volatile nature of the markets in the last six weeks and the sell off that we saw in late January.

So, if the markets begin to start steadying and moving up, you will find money coming back in. So I am not too concerned about the possibility of minimal inflows even if markets bounceback. I’m sure they will come back in.

Q: What would stay out of now, because valuations are somewhat different now from any sectors than they were just about a month back what looks attractive and what looks unattractive after the correction?

Naganath: What look attractive are certainly the banks. If we do see some rate cuts over the next few months I think the banks should do well particularly the state-run banks which are available at very attractive valuations. We are still positive on capital goods and the engineering sector. Some may argue that valuations there are a over little overstretched but again if one chooses carefully there are many companies out there that have done exceedingly well, have huge order books and can execute very well. So we do see a lot of stocks in that segment that can do very well over the next year or two.

I’m quite positive on the media sector, which I think is still undervalued relative to its potential over the next few years. Also pharma and FMCG perhaps be sort after now as defensive component of the portfolios and they are looking attractive. What one would not look at is difficult to say. One can probably look at underweighting the auto segment a bit, the oil refining segment, which anyway have been underweight in many portfolios for quite some time.

One is sitting on the fence in technology. One has to evaluate the extent of the impact on margins over the next few quarters. Broadly those are two or three sectors that one would sit on judgment over the next month or two before deciding if one needs to up or reducing weightage.

Q: The whole power space has corrected quite a bit in terms of valuations. Have they come down to reasonable valuations or can they justify more downside?

Naganath: One can take a selective view of utilities. We do still find pockets of value in that whole sector and that’s the way we see it over the next year or two.

Q: What is a reasonable value in terms of price to book in your eyes?

Naganath: I cannot give you a generic answer. As I said we look at company-by-company and based on that we make our decisions. Much like in engineering and capital goods space what I mentioned earlier and one can find some companies that are still very attractive relative to their earnings growth over the next two-three years and some that have vastly richer valuation. So we have to take it case-by-case, company-by-company and look at the stock.

Q: What is your call if we have a pre-Budget rally that takes us back to 21,000 odd on the Sensex or not quite that high?

Naganath: It is difficult to say. But my view is that the rally that we expect to over the course of the next four-six weeks should at least take us back to the old high. That is my view.

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Retirement plans

Retirement plans? A list of what all you need

Retirement planning is a big concern for every one. You always pray for a smooth transition with family, friends and also, enough funds.

In the 1950s, Abraham Maslow put all this in form of a theory, popularly known as the "Hierarchy of needs". In brief, it basically addresses the issue of "survival to self-actualisation".

The first step in Maslow's ladder is "psychological needs" that dominate our lives. These include our basic needs of food, clothing, shelter and others. Once these basic needs are taken care of, we move to our next set of needs, called "safety needs." We need protection, stability and of course, a society which has proper law and order.

After that comes the need for belonging through family, friends and community. And then, there is the need for self-esteem, which comes through status, fame, dignity and ability to influence decision making in the family or community. All the above four needs called "deficits needs."

The last need is popularly known as the "need for self-actualisation." Seldom can one satisfy this last need. It is the endless drive to be all that we "can be" or "can achieve".

Similar to the working person, even the retirees follow the same hierarchy of needs. The first and basic retirement need is food, clothing and shelter. Retirees - like all of us - have the fear of survival. Will my wealth outlive me or will I outlive my wealth is the question that they ask themselves. This basic need can get satisfied with the creation of retirement corpus.

Once the basic need is satisfied, next is need for security and protection. Here we are not just referring to physical protection but also financial protection. Most retirees choose debt-based instruments, as they give security of principal (though it loses to inflation.) Pension system is one form of security for retirees.

The next is a system where they will be safe. With the growing instances of physical assault, thefts and murder on senior citizens on the rise, the issue has to be jointly being addressed by police, government, society and community.

Retirees seek love and warmth of family, friends and society. In the Indian society, elders are a part of the family. Beyond family members, today there are a large number of formal and informal community/activity centres where the retired can meet and spend time together. The sense of belonging is going to be addressed by such centres.

There is a serious requirement of specialised colonies that will cater exclusively to the needs of the elderly. These colonies will need to have several facilities like basic health care, round the clock security and recreational activities. Also, they have to address basic and safety needs.

However, as of now, Indian companies are not aggressively coming out with specialised products like accommodation and insurance for the retirees. This is primarily because we are still living in the world where it is assumed that the retired would not have corpuses to fund these products.

The next generation of retirees would definitely have better corpuses, encouraging companies to create specialised products for them. The retiree of today has more money power than what his parents or grand parents had.

They are very status conscious and seek a lifestyle. The ultimate need of self-actualisation can be addressed by giving back to society by using their skill set.

Retirement planning is not restricted to a mere number. It is more to do with satisfying the needs of the person. And since they are not all financial needs, one will need to understand that a great corpus is just not enough.

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What investors MUST do in 2008

What investors MUST do in 2008

With the new year, come a host of new year resolutions. We have a recommendation for investors - in the year 2008, learn to be still. There is a need for investors to appreciate the importance of this seemingly simple, yet pertinent trait. So what does 'learn to be still' mean? Let's go back in time to understand this.

Over the last few years, investors in the mutual funds segment have been inundated by one trend after another. For example, everything from flexicap funds, close-ended funds, gold ETFs, global funds to infrastructure funds have enjoyed their share of limelight and the investor's kitty as well. Most investors feel compelled to react (read invest) to the noise around them.

Of course, it would be unfair to blame just the investors. Fund houses and mutual fund distributors do their bit as well and by all means do it well. The investor is led to believe that the latest trend i.e. current new fund offer is the next big investment opportunity and missing out on the same could spell doom. As a result, the investor succumbs to the noise and gets invested. This is just the kind of knee-jerk reaction that investors need to be wary of and avoid.

The key to successful investing is not blindly participating in every trend. On the contrary, it's about adhering to one's risk profile, having in place well-defined investment objectives and investment plans to achieve those objectives. There is a need for investors to appreciate the importance of pursuing their investment goals with single-minded dedication and blocking all the noise.

Does this mean that investors should be completely indifferent to what's happening in the markets and in the domain of investments? Not quite. That would be an extreme view. If the 'in trend' offering/NFO fits into the investor's portfolio and can help him achieve his financial goals, then he can consider investing therein, not otherwise. The investment avenue's aptness in the investor's portfolio is the key, not its availability or it being the season's flavour.

This brings us to a vital aspect of investing. All investments need to be part of a broader investment plan. Making investments in isolation makes little sense; such investments often fail to add value to the investor's portfolio. More often than not, investments of the 'in trend' variety fall in this category.

Also, let's not forget the importance of longevity while investing. The utility of investments made has to go beyond the immediate. For example, planning for retirement or providing for children's education are needs common to most investors; furthermore, they are long-term in nature. Investments made to provide for the same should be able to withstand the test of time. An investment that is in flavour at the moment might fizzle out in the future, leaving investors in an unenviable situation.

Another factor that will enable investors to 'be still' is the quality of advice they are exposed to. If the investment advisor/financial planner helps investors construct an investment portfolio that is equipped to deliver over the long-term, then being indifferent to market occurrences and noises is an easy task.

Going forward, investors are likely to find themselves in a scenario wherein they are faced with an increasing number of investment options. The choice between being still or participating in every trend could well be the difference between achieving one's financial goals or missing out. And making that choice certainly shouldn't be difficult.

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Investing in MFs? Think beyond yourself

Investing in MFs? Think beyond yourself

SRI (socially responsible investing) funds invest only in companies that have a good track record in social development.

Thinking beyond oneself and one's immediate environment is looked upon as a good trait in any person. But when this logic is extended to mutual funds, one might find it surprising. "Shouldn't mutual funds be concentrating on giving returns to the customer?" is a question that comes to mind immediately. Yes, they should. But it makes a difference when those returns come from investing in companies who, besides making profits, also help the society in their own way.

Typically known as socially responsible investing, these funds follow a strategy that combines two seemingly diverse and irreconcilable objectives of maximising one's financial return, and doing social good at the same time. Such funds primarily aim at promoting the concepts of good corporate governance, human rights, and environmental protection, among others in the companies they invest in. Obviously, companies involved in alcohol, cigarette, gambling or manufacturing weapon are a big 'no'.

The basic strategies used by such funds include:

Screening: To exclude certain securities from their investment universe, based on social or environmental filters. For example, such funds do not include casino-related companies in their portfolio.

Divesting or removing stocks: To exclude companies from their existing portfolio, in case one of their holdings engages in a socially irresponsible act. For instance, a fund may sell the stock of a textiles company when there are reports that the company is engaging in child labour in a foreign country.

Shareholder activism: To involve efforts of the social investors that will influence a company's behaviour. SRI funds use their ownership rights to influence management through policy change suggestions. This advocacy is achieved through attending shareholder meetings, filing proposals, writing letters to management and exercising voting rights.

SRI investing has been in vogue in the West for the past thirty years. Today, the SRI universe in the USA aggregates over $ 2.3 trillion which is almost 10 per cent of the entire US market $24 trillion. The total number of funds have also increased to a great extent. As per the Social Investment Forum in 2005, there were 201 SRI mutual funds in the USA, as against just 55 in 1995.

As far as performance goes, The Domini Social 400 Index representing 400 SRI compliant companies in the USA has
returned 12 per cent a year between 1990 and September, 2007. Over the same period, the Standard & Poor 500 returned 11.49 per cent.

As far as India goes, SRI funds are just beginning to find their feet. At present, there is only on such fund, namely ABN Amro Sustainable Development Fund. Launched in the first quarter of 2007, this three year close-ended fund aims at
investing in companies that follow high disclosure policies relating to their environment, social and corporate governance parameters.

The fund has tied up with credit rating agency CRISIL to shortlist companies. CRISIL will rate all companies that form a part of Standard & Poor CNX 500 index on the basis of their disclosure standards across a number of factors under the ECG parameters.

ASDF invests 65 per cent of its corpus in companies that perform well in this rating exercise. However, final stock selection also depends on the fund manager's assessment of the future performance of these companies. Its performance so far has been rather tepid. It has returned 40.52 per cent till November 30, 2007, almost 8 per cent below the benchmark's (BSE 200) return of 48.20 per cent. Also, being close-ended one cannot invest in it today.

However, it is quite likely that this universe will expand considerably over the next few years. Before investing in such funds, you need to keep in mind a few things.

Understand the concept clearly: Check out the broad objectives of the scheme and the filters being employed for screening the investment universe. Invest only, if you truly believe that it offers a value proposition that is different from that offered by the mainstream diversified equity funds. Also, do not get swayed by your emotions while investing. Do not fall prey to schemes that try to appropriate your funds under the garb of SRI.

Avoid over-concentration: A SRI Fund can be treated as a variant of a thematic fund. Hence, do not commit more than a small portion of your investible resources for such funds.

Check the costs involved: Research the fundamentals and fees of the funds in which you are interested. Some items to consider include the level of the expense ratio, the entry and/or exit loads, and the fund manager's track record in managing other schemes within the same fund.

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Tips on how to spend wisely

Tips on how to spend wisely.

Today's youth have higher disposable incomes as compared to their counterparts in earlier generations. The same has resulted in a significant change in lifestyles.

Objects that were considered luxury goods say a decade ago have become necessities for the present generation. In fact, the young population has been a major contributor to the India growth story. It is widely believed that spending habits of the youth will play a major role in vitalising the economic cycle, going forward.

However, there is a need to understand that spending in an unrestrained and haphazard manner could spell disaster for your finances. Spending should be done with a degree of discipline and planning. We present four tips which will help you master the art of spending.

Spend in line with a budget
Remember the longstanding method of making a budget and then spending in line with the same. That is still the right way to go about spending. Having a clearly laid-out budget will help you prioritise your spending. For example, the highest priority must be accorded to investments that have to be made in line with investment plans and commitments like life insurance premiums. Only when the high priority needs have been taken care of, should the balance funds be used for other expenses. Although the idea of abiding by a budget for spending may seem "uncool", it is nonetheless, the right thing to do.

Track expenses
Again, tracking where you have spent your money may not qualify as an interesting way to spend time, but it is important nonetheless. It will provide you an unambiguous picture of your cash flows; this will put you in better control of your finances. More importantly, it will provide you an insight into your spending habits. This in turn can help you understand the areas that account for a significant portion of your expenses and give you the opportunity to do a reality check on their utility.

Don't succumb to impulse spending
It is now considered trendy to hangout at malls, coffee shops and lounges. And window displays and latest blockbusters are known to test the resolve of even the strongest. A young individual with access to disposable funds can be rather vulnerable in such a situation. Resist the temptations and don't succumb to impulse spending. This is especially pertinent if the spending will come at the cost of your monthly investment towards your retirement/home building corpus. Always try to spend in line with your budget.

For example, while it's good to take your friends to the movies or for a dinner once in a while, we recommend that it not be overdone. Movies/dinners can be very expensive propositions these days, which means that you stand to gain significantly if you cut down these outings even by say 20%.

For example, even if Rs 1,000 were to be saved on these outings and invested in a diversified equity fund over 20 years as a one-time investment, it would mature into Rs 16,366 (assuming 15% compounded growth).

Beware of credit cards
Easy availability of credit cards has provided a major boost to spending. A credit card gives you access to high spending limits; also it liberates you of the worry about handling cash. But credit cards have their downsides as well. For example, making the "minimum payment due" could get you entangled in a debt trap and force you to make interest payments at obscenely high rates. In fact, credit cards are so pervasive in the present day context that we have chosen to dedicate an article to the same in this guide.

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How to compare Mutual Fund’s Portfolios

How to compare Mutual Fund’s Portfolios.

Investors who do a bit of research on their own are often stumped by how mutual funds with relatively similar portfolios have sharp variance in their performances. They expect such funds to post similar results by virtue of similar portfolios.

We believe this can be explained easily if investors factor in some points in their analysis.

It's always a good sign for investors to take more than a casual interest in their investments. Although the financial planner is there to guide them, investors must never lose sight of the fact that it is after all their money.

While comparing portfolios of various mutual fund schemes, investors must keep the following points in mind:

1) If you wish to compare portfolios of two mutual funds, first ensure that they belong to the same category. For instance, comparing the portfolios of two diversified equity funds that invest across the market (large caps, mid caps) is rational but comparing a thematic fund's portfolio with that of a diversified equity fund isn't.

While comparing mutual funds across categories is flawed right from the start, there may be some instances when a diversified equity fund's portfolio might coincide with that of a thematic fund. But such a scenario is likely to be rare and short-lived. Short of these instances, such a comparison would give very misleading results.

2) Investors often evaluate portfolios to get into the fund manager's mind so to speak. At least that is the case with some popular names like Warren Buffett.

However, some investors go a step further and compare portfolios of two mutual funds to understand why there is a disparity in their performance despite the presence of similar stocks and sectors across the two portfolios.

For instance, they will compare the latest portfolios of two mutual funds and try to figure out why their returns over 3-year are so disparate? There is a fundamental flaw in this evaluation. The latest portfolios cannot unravel what happened 3 years ago.

To understand that, investors will have to go back 3 years and evaluate the portfolios of both the mutual funds over this time frame i.e. from then until now. The disparity in the two portfolios over this period (3 years in this case) should explain the disparities in their performance.

3) Another point that investors ignore while studying portfolios is that simply being invested in similar stocks and sectors is not reason enough for mutual funds to deliver the same performance.

Even when two portfolios have the same stocks and sectors, they could have invested in these stocks/sectors in varying allocations/proportions and over varying time frames, which could explain the disparities in their performance.

4) Let's assume there are two mutual fund portfolios with fairly similar stocks and sectors in roughly similar allocations, but yet have varying performance.

To unravel the disparity in their performances, it's necessary to examine the performance of each stock and sector in their respective portfolios in detail. When investors get down to doing that, they will find that there is at least one stock/sector that has appreciated very sharply which eventually proves to be the difference between the two funds.

That is what one smart investment decision can do to a mutual fund's performance. There have been many instances of just a couple of investment decisions changing the fortunes of a mutual fund dramatically. However, for investors to determine which particular investment decision made all the difference, they will have to evaluate each investment made by the mutual fund (in terms of stocks and sectors).

5) To continue the previous point, at times investors may not be able to trace a particular stock/sector that made a huge difference to the mutual fund's fortunes. In such a scenario, it could well be that it was not an investment in a particular stock/sector that did the trick; it could simply be a higher cash allocation in a particular month which coincided with a stock market crash.

We have seen this happen in the past, when a mutual fund's performance jumped not so much due to its stock/sector investments as much as its cash allocation during a market downturn. While evaluating mutual fund portfolios, investors must also keep this point in mind.

So while it is an encouraging sign to see investors take an avid interest in their investments, they must adopt the right approach so as to make an accurate evaluation. This way, they can have a fairly good idea about why certain mutual funds are doing well or have done well in the past.

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How dividends in mutual funds work

How dividends in mutual funds work

For a lot of investors, dividend income means a lot. This holds true for investors in mutual funds as well as stocks. Now, investing in stocks calls for a totally different skill set. With stocks, regular dividends (in combination with other key factors like revenue and profit growth, cash flows) do speak for the company's solid fundamentals. The problem arises when investors apply the 'dividend strategy' while investing in mutual funds. To compound matters, fund houses understand this mindset well enough to make a big deal while declaring dividends so as to draw investors looking (only) for dividends.

To appreciate the point about dividends being a misleading indicator, it's important to understand how mutual funds offer a return. Mutual funds give a return by way of appreciation in the net asset value. Being market-linked, its NAV fluctuates on a daily basis; when at any point its NAV is higher than the level at which it was bought the investor has made a profit (generated a return) on his mutual fund investment.

In reality, this is the only way in which mutual funds give a return i.e. NAV appreciation. How about the dividends, doesn't that also count as a return? Not really, because the dividend can be declared only if there is an NAV appreciation.

Confused with all this? An illustration should do the trick for you. Observe what happens to the NAV of a mutual fund after it declares a dividend.

From one hand to another

Cum-dividend NAV (Rs)	15.0
Dividend (%)	20.0
Dividend (Rs)	2.0
Ex-dividend NAV (Rs)	13.0

Notice in the illustration that the cum-dividend NAV is Rs 15.0 (this is the NAV before the dividend declaration). The mutual fund declares a 20 per cent dividend. It is obvious from the illustration that the mutual fund does not declare this dividend from its own pocket; it is drawn from the NAV. So an investor who invests in the fund anticipating a dividend declaration should consider this point before hitting the invest button. After all the money for the dividend will only be deducted from his NAV; he will be richer by Rs 2 per unit (going by our illustration), and poorer by the same amount (since the ex-NAV will also fall by Rs 2). At the end of the day, the dividend-seeking investor has no doubt pocketed the dividend, only to see an erosion in his capital by a similar margin.

In our view, investing in a mutual fund for the sole purpose of pocketing easy money (by way of dividend) can be a recipe for a disaster. This is no way to invest in a mutual fund.

There are certain points about dividends that investors must appreciate before diving into a mutual fund for the dividend lure:

1) Dividends on mutual funds are not assured. Even if a dividend looks certain in the immediate future, there is no saying whether the mutual fund will be in a position to declare another one at the same frequency and for the same amount. As explained earlier, dividends are ultimately a result of performance, there can be a dividend only if the mutual fund has performed well enough.

2) Declaring a dividend by a mutual fund cannot always be interpreted as a healthy sign. It could mean that the fund manager just does not have enough investment opportunities and would rather return the money to investors. Or worse, the fund manager probably sold some of his best stocks to generate cash for the dividends. Either ways, the dividend spells bad news for investors. We are not saying this is the case all time, but investors must divorce mutual funds from stocks as far as dividends are concerned. With stocks a dividend could underline a strong balance sheet but it does not mean the same thing for a mutual fund.

3) When you withdraw money from a mutual fund investment by way of dividend, you lose out on the benefits of compounding. For compounding to work effectively, it's important that you stay invested i.e. preserve your original investment and if possible add to it, but do not withdraw from it, unless it's an emergency.

4) On hindsight, one scenario where pursuing a 'dividend strategy' could prove intelligent is during depressed market conditions. Investors who have collected dividends during a rally in stock markets will have something to show for during a prolonged depression, while investors who had relied only on capital appreciation will wish they had redeemed a portion of their investments during the rally. Mutual fund categories like thematic and sector funds that witness more cycles (than diversified equity funds) are apt candidates for the dividend option.

While dividends may be important for a category of investors, investing in mutual funds only for the dividends is perilous. It is more important that investors focus on the mutual fund's performance, which is dictated mainly by the fund management processes and investment style of the mutual fund. A strong performance could lead to dividends in the future, but the opposite is not true.

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Five things mutual funds must do for investors

Five things mutual funds must do for investors

Over the last few years, the domestic mutual fund industry has grown rapidly. Several asset management companies have established base in the country and there are more on the way. Expectedly, the gamut of mutual fund offerings has grown as well. While few would dispute that the mutual fund industry now has more to offer, there is one aspect that continues to be ignored -- quality of disclosure.

By quality of disclosure, we are referring to the information shared by fund houses with investors. Whether it is disclosing information about the funds' investment proposition or their investment pattern, most fund houses are found wanting.

1. Investment objectives must be concrete and conclusive

Any investment objective that makes the investor wonder 'how is the fund going to manage my money' is a compromise. Far from being concrete and conclusive, most investment objectives only raise more questions than answer them. Imagine the investor's dilemma when every other equity fund in the country has an investment objective like -- 'To achieve capital appreciation from a portfolio that is invested predominantly in equity and equity related instruments' or 'To generate long-term growth of capital'. It's common to find tax-saving equity funds (equity-linked saving schemes == ELSS) have investment objectives like

'To deliver the benefit of investment in a portfolio of equity shares, while offering tax rebate on such investments made in the scheme under section 80C of the Income Tax act 1981�'

What do these unimaginative and vague investment objectives tell the investor about how the fund will manage his money? Nothing!

So the first point on our wish list for fund houses is that they must communicate to investors in no uncertain terms, as categorically as possible, what the fund's investment objective is and how it proposes to achieve the same.

2. Offer document/KIM must be comprehensive

This is an extension of the previous point. Just like investment objectives are often vague and inconclusive, the Offer Document and the Key Information Memorandum can be long and winding without revealing anything significant from a fund management perspective.

We believe fund houses have a responsibility towards the investor. To fulfill this responsibility, they must furnish him all the relevant information that he will need to make an informed investment decision. Unfortunately, although ODs have a lot of information, very little is really relevant for the investor. Apart from the legal and compliance related issues, what the investor would really like to see in the OD/KIM is:

i) What is the fund's investment mandate?

ii) How it will be managed in terms of investment style (growth, value, blend)?

iii) Whether it will invest top down or bottom up?

iv) What is its likely investment pattern (large caps, mid caps and their likely allocations)?

v) What is its asset allocation (whether it will take active cash calls)?

vi) Whether it will adopt the team-based or fund-manager-led investment approach?

vii) How the fund is distinct from comparable investments in the market?

viii) How it proposes to keep its expenses to the minimum?

So the second point in our wish list is that fund houses use the OD/KIM to communicate everything about the fund that the investor must know. Else a statement like 'mutual funds are subject to market risk; please read the offer document carefully before investing' has no meaning at all.

3. Say 'no' to disclaimers

At times fund houses do state explicitly how they will manage the money in terms of investment style and approach, investment pattern and asset allocation. But as if to say -they let on more than they intended, they qualify this with a disclaimer that the fund house can change some of the parameters as and when it deems fit.

To research analysts like us, it tells us that either the fund house is not sincere in its disclosure or it isn't confident that it will be able to manage the mutual fund within the parameters defined by it and hence the need to keep the door open for changing some of these parameters.

For the fund house, it can be a nuisance to have very precise investment mandates defined in the OD/KIM. Because every time they wish to make a change, it involves legal and compliance issues. To avoid this situation, they keep their investment mandates as open as possible or add disclaimers.

This is not only in theory, in the past we have seen mutual funds change their investment mandates seamlessly. In fact there is a fund house that swapped the investment mandates between two funds so that its large cap fund became a mid cap fund and the mid cap fund transformed into a large cap one (without any apparent reason). This was not surprising given that both these equity funds have investment objectives that read exactly the same, word for word.

By keeping the investment objectives of its mutual funds ambiguous the fund house no doubt reduced the compliance hassles for itself in the event of a change. However, imagine the plight of the investor who finds that his large cap fund has turned into a mid cap fund making his portfolio a lot riskier.

So the third point in our wish list is that fund houses abandon all disclaimers and make their investment mandates as precise as possible without leaving any door ajar to flout the mandates at a later stage.

4. Complete portfolio disclosure

For investors to 'interpret' the fund manager's investment strategy and ensure that he is abiding by the investment mandate, it is important that they access the fund's complete portfolio (and not just the top 10 stocks). This involves having access to all the portfolio constituents � stocks, sectors and asset classes so that the investor can make an informed decision on whether the mutual fund is doing what it set out to do.

In the best interests of the investor, fund houses must declare the entire portfolio in a timely and consistent format for ease of comparison. All the stocks and sectors must be displayed in a manner to facilitate research and analysis so that investors can take an objective decision as to whether the fund manager is managing his money as promised.

Some points that fund houses must consider while declaring their portfolios:

a) A sector/theme-wise listing that combines all related sectors like auto and auto ancillaries for instance under a single head. Often fund houses tend to split these sectors so as to show they are well-diversified while in reality they are a lot concentrated.

b) A break up of stocks into large caps, mid caps and small caps; also definitions of the same should be provided. Fund houses have varying definitions of large caps and mid caps and investors are often confused whether a particular stock is classified by the fund house as large cap or mid cap.

c) If a particular fund has an uncharacteristically high allocation to a particular asset (like an equity fund with a 30% cash allocation) then fund houses must elaborate why it is not fully invested. Investors when they see a significant cash allocation in an equity fund are left guessing about the reasons for the same. It is for the fund house to take a cue and explain why the cash is there.

5. Complete disclosure of relevant ratios

In an extension of the previous point, fund houses must likewise provide updated ratios/statistics like Expense Ratios and Portfolio Turnover Ratios to help investors make more informed investment decisions. And these ratios must give a detailed explanation of how they were calculated given that different fund houses adopt various approaches (this is true at least in the case of the Portfolio Turnover Ratio).

In addition to the numbers, fund houses must have a note explaining deviations. For instance, if the Portfolio Turnover Ratio is unduly high, then fund houses must elaborate on the reasons for the same. In the past we have seen the Portfolio Turnover Ratio of a value fund higher than that of a growth fund from the same fund house. Most investors can judge for themselves that (at least within the same fund house) value funds must have a lower churn than growth funds.

When they see the opposite they are warned that something is amiss. By having a note alongside the ratios/numbers, fund houses can elaborate these finer points.

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Upcoming IPO- V Guard Industries Ltd

V Guard Industries Ltd.

44/1037, Little Flower Church Road, Kaloor, Cochin, Kerala - 682017 Phone: 2539911, 2530912 Fax: 2539958

Public Issue of 80,00,000 equity shares
of Rs 10 each for cash at a premium of Rs 75 per share.

Issue open	Issue close
18 Feb, 2008	21 Feb, 2008

Issue price (Rs)	Total size (Rs)
85	68.00 Crores

QIB	Non-Institutional	Retail	Employee
38,00,000	11,40,000	26,60,000	4,00,000

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Reliance Infratel to mop up Rs 6,000 cr via IPO

Reliance Infratel to mop up Rs 6,000 cr via IPO

February, 2008

Mumbai: Reliance Infratel, the tower subsidiary of Reliance Communications, is mulling to mop up Rs 6,000 crore via an Initial Public Offering (IPO). The company has filed the Draft Red Herring Prospectus with the Securities and Exchange Board of India (SEBI).

The Anil Ambani group company has proposed to offload 10.05 per cent stake to the public, which puts the valuation of the company at around Rs 60,000 crore. The IPO follows that of another group company, Reliance Power, which is to be listed on February 11. According to the DRHP, Reliance Infratel has proposed to offload 8,91,64,100 equity shares of Rs 5 each at a price that will be decided through the book building process. Around 60 per cent of the issue will be allocated to Qualified Institutional Buyers (QIBs), with 5 per cent for mutual funds, and 30 per cent to be allocated on a proportionate basis to retail individual bidders.

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Wockhardt Hospitals scraps IPO

Wockhardt Hospitals scraps IPO

February 08, 2008

Wockhardt Hospitals have withdrawn their IPO due to poor response form the investors. The authority of the hospital said that they would refund the IPO money in 15 days.Sources said that the IPO has been withdrawn in the larger interest of investors and will be taken up again at an appropriate time.

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Reliance Power IPO under pressure

Reliance Power IPO under pressure

February 09, 2008

Anil Ambani's mega Reliance Power IPO is geared to be listed on Monday and the Emaar MGF IPO withdrawal might cast its shadow on the listing. Though the grey market premium has failed sharply over the past few weeks because of the volatility, analysts still expect it to list at least Rs 150 above the offer price. All eyes are now on Monday when Reliance Power is expected to list around Rs 600 per share as against the IPO offer price of Rs 450 per share. The Grey market premium, which has fallen sharply in the last two weeks, is still ruling between Rs 120 - 140 per share. But if Reliance Power lists below Rs 550, HNIs may have little option to sell as it will barely cover their cost per share, given the high interest charges. Reliance Power's IPO may have been oversubscribed a record 73 times but the one uncanny similarity with Emaar MGF is that both companies are yet to show any real profits.

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Trading on Friday, 8 February

Trading on Friday, 8 February

BSE -62.04
17464.89 -0.35%

NSE -12.90
5,120.35 -0.25%

4:48 PM - It was a rough week for the market. The failed IPOs affected sentiments on the primary market. Wockhardt was the first IPO to bomb and then today Emaar MGF withdrew due to poor subscription figures. SVEC IPO has revised its price band and extended its closing date. The weekly figures are: Sensex was down 4.3% and Nifty was down 3.5%. All sectoral indices were in the negative, BSE Bankex down 6.7%, BSE Auto index down 5.3%, BSE Metal index down 5%, BSE Oil&Gas index, BSE Power index down and BSE Capital goods index, all three down 3.5%, BSE IT down 2.3%, BSE Power index down 1.5% and BSE Realty index down 0.9%.

4:23 PM - The market closed in the negative today. The withdrawal of the Emaar MGF IPO just before close added to its woes. Sensex closed at 17464, down 62 points and Nifty at 5120, down 12 points from the previous close. The CNX Midcaps Index was down 1.7% and BSE Smallcaps Index was down 2.7%. The market breadth was negative with advances at 190 against declines of 1034 on the NSE.

4:16 PM - We may consider listing Emaar IPO after 3-6 months once the market stabilizes, says Shravan Gupta, vice chairman of Emaar MGF in Delhi, on NDTV Profit. Appreciation post listing was a challenge for the company and today's decision is to benefit shareholders, he adds.

4:10 PM - Buying conviction is missing in the market and if Nifty trades convincingly above 5500 then only we can say we are out of the woods, says Ashwani Gujral, technical analyst, on CNBC-TV18. Investors now need to get out of frothy sectors like realty and power and seek value in select stocks (small lots) in the IT, pharmaceuticals, auto and PSU banking space, he adds.

4:06 PM - In the realty space, Godrej Industries and Purvankara are value picks going forward, says Ambareesh Baliga of Karvy Stock Broking on CNBC-TV18.

4:04 PM - Bankers and promoters believe present market conditions are not suitable for the Emaar MGF IPO, says Vallabh Bhansali of Enam Consultants, on CNBC TV18. Emaar MGF IPO was withdrawn today.

3:58 PM - Investors with a 6-12 month horizon can find value in stocks like Bharti Airtel, L&T, BHEL, Punj Llyod, ICICI Bank and SBI at current levels, says Hemang Jani of Sharekhan, on NDTV Profit.

3:49 PM - The market will continue to be volatile in February till budget and F&O expiry on the same day, says Gaurang Shah of Geojit Financials, on CNBC Awaaz. The market is likely to stabilize after the budget, he adds.

3:46 PM - Retail participation has been subdued and the market has been volatile due to holidays in other markets, says Hemang Jani of Sharekhan, on NDTV profit. Reliance Power IPO listing on Monday may see some money return to the market which is likely to stabilize next week, he adds.

3:35 PM - It was a volatile day for the market that closed in the negative. Sensex closes at 175420, down 106 points (provisional) and Nifty at 5109, down 23 points (provisional) from the previous close. The CNX Midcaps Index was down 2% and BSE Smallcaps Index was down 2.9%. The market breadth was negative with advances at 200 against declines of 1023 on the NSE.

3:30 PM - SVEC IPO revises its price band to Rs 80-90 vs Rs 85-95 and extends its closing date to February 13, reports NDTV Profit.

3:27 PM - Emaar MGF withdraws IPO due to poor subscriptions (drops from 83% to 43%), it was to close on Monday, reports CNBC TV18. The Emaar management says it will refund IPO money in 10-15 days and it will consider other funding options like private placements, PE at SPV level.

3:21 PM - The volatility continues in the market. Sensex is at 17469, down 57 points and Nifty is at 5116, down 16 points from the previous close. The market breadth is negative with advances at 199 against declines of 1022 on the NSE.

3:12 PM - HDFC Securities has a target price of Rs 470 for Colgate Palmolive, reports NDTV Profit. The stock is currently trading at Rs 388, down 1.8% on the BSE.

3:03 PM - The market sentiment is weak and that may affect the Reliance Power listing on Monday, says Nipun Mehta of UNITIS Tower Wealth Advisors, on NDTV Profit. The worse does not seem to be over yet from the US and we cannot say that we are yet out of the woods despite the rate cuts, he adds. The equity market will continue to offer good returns but on select stocks, he feels.

2:56 PM - The European markets are trading positive on the news of a possible rate cut. The Indian market recovers a little. Sensex is at 17604, up 77 points and Nifty at 5154, up 20 points from the previous close. The CNX Midcaps Index is down 1.1% and BSE Smallcaps Index is down 2.6%. The market breadth is negative with advances at 219 against declines of 997 on the NSE.

2:43 PM - Hindustan Construction has a price target of Rs 300 in one year, says Gaurang Shah of Geojit Financials, on CNBC TV18. The stock is currently trading at Rs 171, down 2.5% on the BSE.

2:37 PM - Firstsource bags $80 million deal from Barclays and to takeover 300 employees in the US, reports CNBC TV18. The company says it is too early to comment on a US listing yet.

2:28 PM - Religare maintains buy on Bajaj Auto with price target of Rs 2942, reports NDTV Profit. The stock is currently trading at Rs 2230, down 2.1% on the BSE.

2:22 PM - The market recovers, Sensex and Nifty are both in the positive. Sensex is at 17540, up 13 points and Nifty at 5144, up 10 points from the previous close. The CNX Midcaps Index is down 1.3% and BSE Smallcaps Index is down 2.7%. The market breadth is negative with advances at 204 against declines of 1010 on the NSE.

2:14 PM - Indian Hotels has a price target of Rs 190 in one year, says Gaurang Shah of Geojit Financials, on CNBC TV18. The stock is currently trading at Rs 136, down 2.4% on the BSE.

2:07 PM - The market has seen a tremendous correction and now it is likely to go up, says Amit Dalal of Amit Nalin Securities, on CNBC TV18. FIIs have sold nearly Rs 40,000 crore in the last 3 months so the market is unlikely to pierce further lows and the outflows will start ebbing, he adds.

1:58 PM - Voltas has a price target of Rs 250 in one year, says Gaurang Shah of Geojit Financials, on CNBC TV18. The stock is currently trading at Rs 193, down 0.4% on the BSE.

1:47 PM - The European markets opened in the positive. The market sees a slight recovery. Sensex is at 17435, down 91 points and Nifty is at 5111, down 22 points from the previous close. The CNX Midcaps Index is down 2.2% and BSE Smallcaps Index is down 3.3%. The market breadth is negative with advances at 121 against declines of 1092 on the NSE.

1:36 PM - Gujarat Industries to set up 2 plants of 1000 MW in South Gujarat, says the management of the company, on NDTV Profit. The company's phase 1 expansion of 125MW will be operational by December 2008. The stock is currently trading at Rs 100, down 4.9% on the BSE.

1:26 PM - Sharekhan has target price of Rs 558 for Ranbaxy, reports CNBC TV18. The stock is currently trading at Rs 375, up 0.5% on the BSE.

1:19 PM - The market may retest 4850-5000 on the Nifty and 16700-17100 on the Sensex, says Anil Maghnani, technical analyst, on CNBC-TV18. This will offer an opportunity to the investor to accumulate good stocks in the portfolio, he says. This level may be maintained for a week so there is enough time for all to invest, he adds.

1:07 PM - In the Asian markets, only Nikkei is trading, and that is weak. Global cues are a side issue. The Indian market is looking intensely volatile and sliding badly. Sensex is at 17215, down 310 points and Nifty is at 5040, down 92 points from the previous close. The CNX Midcaps Index and BSE Smallcaps Index are both down 3%. The market breadth is negative with advances at 102 against declines of 1108 on the NSE.

12:55 PM - As long as ICICI Bank stays above its support levels of Rs 1,168 and Rs 1,138, there is not much reason to worry, says Ashu Kakkar, technical analyst, on NDTV Profit. In fact, it is a good buy at these levels or lower, he adds. Medium to long term target for this counter is Rs 1,400, he says. It is trading at Rs 1,090, down 1.4% on the BSE.

12:48 PM - If one wishes to invest in Arvind Mills, then buying it closer to its support levels of Rs 50 and Rs 38 is advisable, says Ashu Kakkar, technical anlayst, on NDTV Profit. The stock is trading at Rs 51, down 1.7% on the BSE.

12:41 PM - L&T has won a Rs 1,107 crore order from SAIL's IISCO steel plant at Burnpur. The L&T stock is trading at Rs 3,522, down 3% on the BSE.

12:32 PM - NTPC has support at Rs 200 and resistance at Rs 220, says Prakash Gaba, techncial analyst, on CNBC Awaaz. Once the resistance is crossed, it can go up to Rs 240-250, he adds. It is a good buy at current levels, he says. It is trading at Rs 204.80, down 0.8% on the BSE.

12:24 PM - JP Hydro has 6-9 months target of Rs 121-135, says Ashu Kakkar, technical analyst, on NDTV Profit. The stock has supports at Rs 75, Rs 64 and Rs 50 and resistances at Rs 97 and 105, he adds. It is trading at Rs 82.15, down 0.2% on the BSE.

12:17 PM - SCI is not only a good investment opportunity for the long term, but also for the short to medium term, says Ashu Kakkar, techncial anlayst, on NDTV Profit. It should be bought on declines, he suggests. The stock has supports at Rs 208, Rs 192 and Rs 178 and resistances at 230, Rs 252 and Rs 295, he adds. It is trading at Rs 220.50 on the BSE.

12:10 PM - Inflation for the week-ended January 26 has come in at 4.11% versus 3.93% the previous week. The market estimated it at 3.97%. Inflation has come in above 4% for the first time since week ended August 11, 2007, reports CNBC-TV18.

12:03 PM - Sensex is currently trading at 17,488, down 38 points from the previous close. Nifty is at 5113, down 19 points. Realty, power, metal and consumer durable stocks are witnessing significant selling pressure, while IT is attracting a good amount of buying interest. Market breadth is weak.

11:57 AM - ACC will be rangebound for the next couple of months, says Ashu Kakkar, technical analyst, on NDTV Profit. But this is a good opportunity to buy into the counter, he adds. In a year, the stock can go up to Rs 1,200, he says. It has supports at Rs 752 and Rs 737 and resistances at Rs 805 and 882, he adds. It is trading at Rs 764.95, down 1% on the BSE.

11:50 AM - Power Grid has a good psychological support at Rs 100 and some resistance at Rs 150-160, says Prakash Gaba, techncial analyst, on CNBC Awaaz. Once this resistance is taken off, the stock will have a target of Rs 235, he adds. The stock is therefore a good buy at current levels, he says. It is trading at Rs 105.80, down 2.3% on the BSE.

11:43 AM - L&T has a target price of Rs 4,200 in the next two months, says Ashu Kakkar, technical analyst, on NDTV Profit. The stock has supports at Rs 3,520, Rs 3,484 and Rs 3,368, he adds. It might face resistances at Rs 3,700 and Rs 3,850, he says. It is trading at Rs 3,518.90, down 3.1% on the BSE.

11:37 AM - Omaxe looks technically weak on the charts for now, says PK Agarwal of Bonanza Portfolio, on Zee Business. The stock has support at Rs 240 and resistance at Rs 350, he adds. It is trading at Rs 272.50, down 2.3% on the BSE.

11:30 AM - Reliance Energy is a safe investment for now, says Prakash Gaba, technical analyst, on CNBC Awaaz. The stock has strong support at Rs 1,900 and is facing some resistance at Rs 2,150-2,200, he adds. Once Rs 2,200 is crossed, it can easily go up to Rs 2,400, he says. It is trading at Rs 1,958, down 1.5% on the BSE.

11:23 AM - The market is quietly consolidating for now, says Vijay Bhambwani, technical analyst, on CNBC-TV18. As long as the Nifty remains above 5070-5080, there is not major cause of concern, he adds. But initiate a buy only after it moves above 5200 decisively, he suggests.

11:17 AM - Sharekhan has put a 'buy' rating on Bank of Baroda, with a price target of Rs 500, reports NDTV Profit. The stock is trading at Rs 389.95, down 0.9% on the BSE.

11:08 AM - Videocon Industries has support at Rs 410-420 and will face strong resistance at Rs 530, says PK Agarwal of Bonanza Portfolio, on Zee Business. It is advisable to sell the counter on 15-20% rallies, as it will take a long time to go back to its earlier highs, he says. The stock is trading at Rs 432 on the BSE.

11:00 AM - The market is trading lower. Sensex is at 17,447, down 79 points from the previous close. Nifty is at 5105, down 28 points. CNX Midcap index is down 1.9% and BSE Smallcap index, down 2.4%. All sectoral indices, except IT, are trading lower. Market breadth is extremely weak, with 152 advances against over a 1000 declines on the NSE.

10:52 AM - The Nifty will face resistance at 5260 and if it manages to cross that, then there will be resistance at 5260, says Sushil Kedia of K&A Securities, on CNBC-TV18.

10:46 AM - There is no problem with the Indian growth story over the long term, says Ashith Kampani of JM Financial, on NDTV Profit. India is largely a domestic story, while China is export-oriented, he adds. In the current market scenario, systematic investment planning will work the most, he says.

10:38 AM - Short term investors should lighten their positions at higher levels, says Rajat Bose, technical analyst, on CNBC Awaaz. The market is expected to go lower in coming days, he adds.

10:30 AM - The short term outlook for the realty space seems to be dampened, says Shahina Mukadum of IDBI Capital, on CNBC-TV18. But the current level is good to get in stocks like DLF for the medium term, she adds. The stock is currently trading at Rs 820, down 3% on the BSE.

10:23 AM - Karvy Stock Broking keeps an 'outperformer' rating on Tech Mahindra and has a target price of Rs 910 on the stock, reports CNBC-TV18. It is trading at Rs 738.70, up 1.8% on the BSE.

10:16 AM - IT is seeing a pullback rally now, says Rajat Bose, technical analyst, on CNBC Awaaz. Unless Infosys crosses Rs 1,750, no sustainable rally can be expected in the IT space, he adds. The stock is trading at Rs 1,546, up 4.4% on the BSE. BSE IT index is up 4.7%.

10:08 AM - State Bank of India may find support between Rs 2,110 and Rs 2,090 today, says Rajat Bose, technical analyst, on CNBC Awaaz. But it is advisable to buy the stock, only after it crosses Rs 2,150, he says. It is trading at Rs 2,155.60, down 1.3% on the BSE.

10:01 AM - The Wockhardt Hospitals IPO has been withdrawn due to poor response from investors, reports NDTV Profit. The authority of the hospital said that the IPO money would be refunded in 15 days. The Wockhardt stock has been hit by the news and is currently trading 3% lower.

9:54 AM - The market has opened slightly higher on Friday. Sensex is at 17,580, up 53 points from the previous close. Nifty opened flat and is currently at 5150, up 17 points.

9:50 AM - The Reliance pack as well as banking stocks should be bought on any fall, says Anil Maghnani, technical analyst, on CNBC-TV18. These stocks look strong on the charts and once the market starts moving up again, they will lead, he adds.

9:45 AM - The market may have a flat-to-lower opening today, says an NDTV Profit Poll. Crucial level for the Nifty would be 4970. Expect two-sided movement for the day. Power stocks may move today, ahead of Reliance Power listing.

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Reliance Communications: Buy

Reliance Communications: Buy (1st Feb, 2008)

An investment with a 1-2 year perspective can be considered in the stock of Reliance Communications (RCom), considering the recent correction in its valuations and strong growth prospects for the company.

With an end-to-end telecom services model spanning voice, data and international connectivity and its recent foray into IPTV, RCom appears well placed to deliver strong earnings growth over the medium term. At Rs 667, the stock trades at 28 times its FY08 earnings and 22 times its FY09 estimated earnings. RCom’s licence win, which enables it to become a national GSM operator, strong growth in the data segment and increased revenue contribution from Yipes Communications provide scope for strong earnings growth over the next 18 months.

RCom adds about one million subscribers a month in its existing operations. The company’s recent licence win to offer GSM services in 14 additional circles will give it a nationwide footprint. Contracts for setting up the network have already been awarded to Huawei Technologies. Over time, this could provide RCom with dual revenue streams from the GSM and CDMA businesses, with a presence in high revenue metros. The revenue realisation per minute, at 74 paise, has remained stable over the past year, despite the industry-wide trend of falling realisations and tariffs.

RCom’s non-voice business is also fairly substantial. The broadband business generates an average revenue per line of Rs 1,948, among the highest in the country, and is registering growth on the back of strong enterprise offtake. The buyout of US-based Yipes Communication through FLAG Telecom signals its intent to become an international player in data communications. FLAG gives the company global connectivity through its huge undersea cable network.

Yipes connects 14 key cities in the US, a very data intensive market, providing substantial high margin revenue opportunity. Yipes also has top stock exchanges and traders in its client roster. The company has also sold a 5 per cent stake in Reliance Telecom Infrastructure (the tower business) for Rs 1,400 crore.

Any further stake sale may unlock more value for investors in the stock. RCom has also joined the IPTV (Internet protocol television) bandwagon with the announcement of a $500 million deal with Microsoft for launching this service. Pressure on tariffs, penetrating new circles where there are established players, and any regulatory pressure on offering dual technology are risks to this recommendation.

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Dabur India: Buy

Dabur India: Buy (1st Feb, 2008)

Investors with a two-three-year horizon can consider using the recent decline in price to accumulate the Dabur India stock. Dabur India appears set to deliver earnings growth of 22-25 per cent (annualised) over the next three years, on the back of proposed forays into FMCG categories such as personal and home care, scaling up of the foods portfolio, and recent launches in health supplements and skincare.

A diverse basket of brands that lends itself to extensions and a strong ‘ayurvedic’ and herbal association should help Dabur capitalise on the high-growth potential for the personal and healthcare businesses within the FMCG space. At its current market price of Rs 113, the stock trades at a premium valuation of about 23 times its expected earnings for 2008-09.

This, however, appears justified in the light of the high return ratios enjoyed by the business and superior growth prospects.

Of the diversified portfolio that spans consumer products, health products and foods, the consumer-care business contributes two-thirds of Dabur’s current revenues. This straddles oral care (Babool, Meswak, and Dabur Red), hair care (Vatika, Anmol), health supplements (Chyawanprash, honey), digestives (Hajmola), and home care (Odomos, Odonil, and Sanifresh).

Dabur’s brands in most of these segments sustained double-digit growth recently. Relatively slow-movers such as health supplements may also move into a higher growth trajectory if recent launches pay off. New product launches in the last few months include skin-cream extensions under Gulabari and brand extensions of Chyawanprash, apart from a household cleaner, Dazzle.

Dabur also plans to leverage on its national distribution network to substantially expand its food offerings. Though competitive pressures in the new categories will be high, the company’s ability to connect with consumers on the ayurvedic and natural planks may stand it in good stead. That the company has managed robust growth in its oral-care portfolio despite being a late entrant, is evidence of this.

Dabur India has also lined up a retail foray in the health and beauty segment, with plans to open 350 stores in five years. Though funding for this venture may not be a challenge given the healthy cash coffers, the payoffs carry uncertainty given the likely competition in this segment. Rising input costs are also a risk, but may be offset by Dabur’s ability to take price increases.

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Microsoft offers to buy Yahoo for $44.6 b

Microsoft offers to buy Yahoo for $44.6 b

Redmond: Microsoft Corp is making an unsolicited $44.6 billion offer for Yahoo Inc, the Internet icon, and one the best-known Web portals, in a move to boost its competitive edge against Google Inc in the online services market.

The unexpected announcement Friday comes as Yahoo and Microsoft have fallen behind Google in the race to capture online advertising dollars. The deal could also give lift to the entire technology market.

The announcement sent Yahoo's share price up 54 per cent in premarket trading, while Google fell 8 per cent.

In a letter to Yahoo's board of directors, Microsoft Chief Executive Steve Ballmer said the company would bid $31 per share, representing a 62 per cent premium to Yahoo's closing stock price Thursday.

Since reaching a 52-week high of $34.08 in October, Yahoo shares have fallen 46 per cent. Yahoo climbed $10.27 to $29.45 in premarket trading.

Ballmer said in the letter that Yahoo had told the world's biggest software company a year ago that the Yahoo board felt it was not the right time to enter into discussions regarding a deal.

"According to that letter, the principal reason for this view was the Yahoo board's confidence in the "potential upside" if management successfully executed on a reformulated strategy based on certain operational initiatives, such as Project Panama, and a significant organizational realignment."

"A year has gone by, and the competitive situation has not improved," Ballmer added.

Under terms of the proposed deal, Yahoo shareholders could choose to receive cash or Microsoft common shares, with the total purchase consisting of 50 per cent each cash and stock.

Microsoft said it sees at least $1 billion cost savings generated by the merger, and intends to offer significant retention packages to Yahoo engineers, key leaders, and employees. The software giant said it believes the takeover would receive regulatory clearance and close in the second half of 2008.

Ballmer said Microsoft expects Yahoo's board will review its proposal, but "reserves the right to pursue all necessary steps to ensure that Yahoo's shareholders are provided with the opportunity to realize the value inherent in our proposal."

Google shares fell $45.30, or 8 per cent, to $519 in premarket trading. Microsoft shares dipped 90 cents, or nearly 3 per cent, to $31.70.

The announcement follows Yahoo's announcement late Thursday that Terry Semel stepped down as chairperson, severing his ties with Yahoo 7 1/2 months after he resigned as chief executive under shareholder pressure. He had been criticized for failing to cash in on the Web advertising surge as effectively as main rival Google Inc.

Yahoo co-founder and Chief Executive Jerry Yang said this week the company would cut 1,000 jobs, or 7 per cent of its work force, in an effort to cut costs.

Meanwhile, Microsoft last week forecast a rosy 2008 -- despite broader economic worries -- after it blew by Wall Street's expectations for a second consecutive quarter.

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