With the success in the trust vote in Parliamant by UPA without the support of the Left, has opened up various avenues for the Government to raise the budgetary shortfall through divestment of stake in loss making PSU enterprises. The Governmnet was very open in commenting that it would take forward the almost stalled economic reforms process and made bold statements on banking de-regulation few days back.
With the agri loan waiver scheme alone has taken close to Rs60,000 crores from the Government's kitty, it would be an appropriate time for the Government to look at alternatives like divestment to raise the required revenue.
The market has taken scent of that and today all possible candidates of divestment like ITI, HOCL, RCF, HMT were locked in the upper circuit. Even other profit making and well run PSU's like Engineers India and STC were up by more than 15% in today's trading.
The time is right for the Government to proceed ahead with divestment without the hassles of a constantly pestering Left, but it all depends how they manage the process of divestment. They bungled in the case of IFCI when they tried to rope in a strategic partner.
We believe that the Government may not go for a big-bang divestment process at this stage because the Left and their new found partners would take the issue to the streets and may lead to large scale public protests. Already the macro-economic scenario in the country looks gloomy with rising inflation, high interest rates and economic slowdown. This may turn very negative for the Government who has to face the public in another 9 months time (at the maximum).
Thursday, July 24, 2008
Economic Times reporting on TCI Fund buying of PSU shares
Exactly 3 months after we spotted that The Children Investment (TCI) Fund is buying aggressively in PSU Bank counters, The Economic Times has carried an front page article on this. The earlier write ups in this blog on TCI buying can be read here and here.
TCI Fund has acquired more than 9% stakes in 3 PSU banks, Punjab National Bank, Vijaya Bank and Indian Overseas Bank. The maximum threshold limit for FII to buy in the PSU Bank stocks is 10% and they are close to achieving that. In addition to these 3 banks, they have also bought more than 4% stake in Bank of Baroda and Union Bank of India.
After the trust vote, which UPA won recently, the Finance Minister has gone on record saying that during the Monsoon session of the Parliament, Government would introduce the Banking Regulation Amendment Bill which allows voting rights according to the shareholding pattern. As of now, the voting rights in PSU Banks are not in proportion to the shareholding pattern and the Government still retains the so called "golden share".
Things are hotting up on the Banking space, particularly the PSU Banking space with the BR Amendment. Thanks to Communists for withdrawing support to the Government, otherwise, this would have been unthinkable. We have to wait and watch how things span out in the months to come with regard to further reforms in the financial services space by the Government.
Click here to read the Economic Times article on TCI Fund's purchase of PSU Bank shares.
TCI Fund has acquired more than 9% stakes in 3 PSU banks, Punjab National Bank, Vijaya Bank and Indian Overseas Bank. The maximum threshold limit for FII to buy in the PSU Bank stocks is 10% and they are close to achieving that. In addition to these 3 banks, they have also bought more than 4% stake in Bank of Baroda and Union Bank of India.
After the trust vote, which UPA won recently, the Finance Minister has gone on record saying that during the Monsoon session of the Parliament, Government would introduce the Banking Regulation Amendment Bill which allows voting rights according to the shareholding pattern. As of now, the voting rights in PSU Banks are not in proportion to the shareholding pattern and the Government still retains the so called "golden share".
Things are hotting up on the Banking space, particularly the PSU Banking space with the BR Amendment. Thanks to Communists for withdrawing support to the Government, otherwise, this would have been unthinkable. We have to wait and watch how things span out in the months to come with regard to further reforms in the financial services space by the Government.
Click here to read the Economic Times article on TCI Fund's purchase of PSU Bank shares.
Monday, July 21, 2008
Insurance companies increasing their Indian equity markets exposure
We have earlier written here about the fact that Insurance companies in India are increasing their exposure to the Indian stock markets. The first quarter of this fical 2008-09 data has come out and it goes on to prove that Insurance companies are the biggest buyers in the market.
As per the statistics disclosed by Business Line, Insurance companies in India has bought shares worth Rs15,000 crores in the first 3 months, April to June 2008. Life Insurance Corporation (LIC) has alone bought shares worth Rs12,000 crores. LIC's investment has increased by 60% in the Qtr 1, 2008-09 compared to Qtr 1 in 2007-08. The increase in the Insurance companies investment in stock markets is due to the increased inflow seen in the ULIP products sold by them. Though the volumes have come down due to market uncertainities over the last 3 months or so, ULIP's are still preferred medium to invest in Indian equities for the average Indian.
Ironically, during the same quarter, Mutual Funds have bought less than what they bought in Qtr 1 2007-08. MF's have bought shares worth Rs3,131 crores compared to Rs4319 crores the previous year.
As per the statistics disclosed by Business Line, Insurance companies in India has bought shares worth Rs15,000 crores in the first 3 months, April to June 2008. Life Insurance Corporation (LIC) has alone bought shares worth Rs12,000 crores. LIC's investment has increased by 60% in the Qtr 1, 2008-09 compared to Qtr 1 in 2007-08. The increase in the Insurance companies investment in stock markets is due to the increased inflow seen in the ULIP products sold by them. Though the volumes have come down due to market uncertainities over the last 3 months or so, ULIP's are still preferred medium to invest in Indian equities for the average Indian.
Ironically, during the same quarter, Mutual Funds have bought less than what they bought in Qtr 1 2007-08. MF's have bought shares worth Rs3,131 crores compared to Rs4319 crores the previous year.
Tuesday, July 15, 2008
Fund Investing in Volatile Markets
In 2008, the equity markets have seen a high amount of volatility. After reaching a high in early January, the markets have been on a downward trend. A variety of global and local events including oil prices, sub prime crisis, inflation etc has influenced the markets.
A common question we have is whether to continue investing in the markets now. Even those who invest through SIP plans in equity mutual funds face this dilemma. There is no shortage of advice either.
We question the logic behind the most common ones:
· Continue investment in the markets as they are for the long -term:
Every analyst worth his salt is downgrading earnings, reducing P/E multiples and predicting ever lower Sensex predictions. If the analysts are so sure that the markets are going down, then why should retail investors continue to invest now? Why cant they wait for the 10k Sensex levels predicted with such confidence by the same analysts to whom they hand over their money? While picking the bottom of a market is different, if there is an overall gloomy scenario and a strong downward trend, then why should invest put up their money now?
· Invest in mutual funds and do not pick stocks directly as one should leave it to the professionals in such tough times:
As of today (15th July 2008), as per Value Research, the diversified equity mutual funds have delivered a 1 year return of – 16%. Add 2.5% administrative expenses and 2.25% entry load, the total return in a year stands at – 21%. Against this the Nifty has a – 10% return over one year. That is a huge difference of 10 % over a year. Why should I hand over my funds to a professional who doubles my loss, when I can stick to an Index ETF with better returns?
· Invest in five star funds recommended by the fund distributors/Value Research:
Currently ICICIDirect wants investors to switch to Sundaram Select Focus and HSBC Equity based on one year performances. Out of curiosity I checked their fund recommendations in 2007. Of course neither fund figured there.
One more curious fact – I have never seen any distributor/MF rating firm put a Sell on any fund. And all these switching of fund portfolios will earn them fresh entry loads. Coupled with the fact that they keep changing their preferred funds every few months, it is difficult to build a long term portfolio using this information.
Summary
So what we need to do in this market – Do not follow any general advice – there is no free lunch!!
In this market it is best for each investor to carry out his own analysis, determine his/her risk apetite, holding period before you decide on MF investments. Remember, asset allocation is the key. When we buy/sell a fund we need to consider the impact on our portfolio.
Today a multitude of options are available (In this blog we have spoken about arbitrage funds, international funds, liquid plus funds etc.)
Building a long term mutual fund portfolio which provides superior returns requires clear understanding of the expected returns and the risks in such portfolios, and it does not help with frequent churning of the funds.
A common question we have is whether to continue investing in the markets now. Even those who invest through SIP plans in equity mutual funds face this dilemma. There is no shortage of advice either.
We question the logic behind the most common ones:
· Continue investment in the markets as they are for the long -term:
Every analyst worth his salt is downgrading earnings, reducing P/E multiples and predicting ever lower Sensex predictions. If the analysts are so sure that the markets are going down, then why should retail investors continue to invest now? Why cant they wait for the 10k Sensex levels predicted with such confidence by the same analysts to whom they hand over their money? While picking the bottom of a market is different, if there is an overall gloomy scenario and a strong downward trend, then why should invest put up their money now?
· Invest in mutual funds and do not pick stocks directly as one should leave it to the professionals in such tough times:
As of today (15th July 2008), as per Value Research, the diversified equity mutual funds have delivered a 1 year return of – 16%. Add 2.5% administrative expenses and 2.25% entry load, the total return in a year stands at – 21%. Against this the Nifty has a – 10% return over one year. That is a huge difference of 10 % over a year. Why should I hand over my funds to a professional who doubles my loss, when I can stick to an Index ETF with better returns?
· Invest in five star funds recommended by the fund distributors/Value Research:
Currently ICICIDirect wants investors to switch to Sundaram Select Focus and HSBC Equity based on one year performances. Out of curiosity I checked their fund recommendations in 2007. Of course neither fund figured there.
One more curious fact – I have never seen any distributor/MF rating firm put a Sell on any fund. And all these switching of fund portfolios will earn them fresh entry loads. Coupled with the fact that they keep changing their preferred funds every few months, it is difficult to build a long term portfolio using this information.
Summary
So what we need to do in this market – Do not follow any general advice – there is no free lunch!!
In this market it is best for each investor to carry out his own analysis, determine his/her risk apetite, holding period before you decide on MF investments. Remember, asset allocation is the key. When we buy/sell a fund we need to consider the impact on our portfolio.
Today a multitude of options are available (In this blog we have spoken about arbitrage funds, international funds, liquid plus funds etc.)
Building a long term mutual fund portfolio which provides superior returns requires clear understanding of the expected returns and the risks in such portfolios, and it does not help with frequent churning of the funds.
Monday, July 14, 2008
Treatment of TVS Electronics Shareholders
The TVS group is one of the oldest and most respected business families in India. TVS Electronics is one of their listed companies. Unfortunately the shareholders have been taken for a ride recently.
In 1999, TVS Electronics, a listed company paid Rs 10 crores to ICL foundries to acquire 6 acres of commercial land in Nandambakkam, which is close to Guindy. This property is shown as an asset of Sravanaa Properties, which was earlier a 100% owned subsidiary of TVS E.
As per reports in the Economic Times, the group has been trying to sell this land since Sept 2007. The upset price is Rs 225 crores, and they are close to clinching a deal with Ascendas, which is a renowned Singapore realty firm. Sounds great news for TVS E shareholders. But there is a sting in the tail.
Through a board resolution on 13 August 2007, the stake in Sravanaa Properties has been divested by TVS Electronics in favour of TVS Investments for a consideration for Rs45.50 crores to meet the long term fund requirements of TVS Electronics. The group had an upset price of Rs 225 crores, but they were happy to sell the stake to an unlisted group entity for Rs 45 crores !!
It is worthwhile to understand some corporate developments which took place in the case of TVS Electronics during the August 13, 2007 meeting. (http://www.bseindia.com/qresann/newsh.asp?newsid={5171DFA9-AB41-4B4A-85A8-BB70A99D1D8A}¶m1=1). The firm transferred the assets in Sravanaa Properties and TVS Finance to TVS Investments Ltd for a total consideration of 60 crores.
Subsequently in Nov 07 the firm issued a statement that TVS E does not own the land in Chennai (http://www.bseindia.com/qresann/newsh.asp?newsid={2075BE77-829E-4361-80D0-ED5C76EF43A8}¶m1=1)
Several questions could be raised about these transactions:
1. If the TVS Group had any intention of selling this property in the near future, why did they divest their stake in the company, Sravanaa properties. Instead of subscribing for the preferential allotment, TVS Investments has taken over the prime assets of TVS electronics at almost one-fourths of current market price. The irony is that the current market price is much lower than what it would have been 9 months ago when the real estate prices were ruling high.
2. If the TVS Electronics is dire need of funds, it should have borrowed from the market or taken a loan from any TVS Group company. Instead they sold their family silver to run the business?
3. Regarding the sale of TVS Finance and Services Ltd's shares, four months down the line, TVS Investments makes an open offer for the same shares of TVS Finance and Services Ltd., at Rs26/- per share, again at agreat dis-advantage to TVS electronics shareholders.
The way in which the TVS Group has treated TVS Electronics shareholders is very disappointing. They used TVS Electronics funds of Rs10 crores to buy the land from ICL Foundries in 1999, and finally when they were about to hit a goldmine, TVS Group has silently transferred the property to an unlisted group company. Probably, all these transactions would be within the rules of the law but not definitely in the right spirit!!
Post your comments.
In 1999, TVS Electronics, a listed company paid Rs 10 crores to ICL foundries to acquire 6 acres of commercial land in Nandambakkam, which is close to Guindy. This property is shown as an asset of Sravanaa Properties, which was earlier a 100% owned subsidiary of TVS E.
As per reports in the Economic Times, the group has been trying to sell this land since Sept 2007. The upset price is Rs 225 crores, and they are close to clinching a deal with Ascendas, which is a renowned Singapore realty firm. Sounds great news for TVS E shareholders. But there is a sting in the tail.
Through a board resolution on 13 August 2007, the stake in Sravanaa Properties has been divested by TVS Electronics in favour of TVS Investments for a consideration for Rs45.50 crores to meet the long term fund requirements of TVS Electronics. The group had an upset price of Rs 225 crores, but they were happy to sell the stake to an unlisted group entity for Rs 45 crores !!
It is worthwhile to understand some corporate developments which took place in the case of TVS Electronics during the August 13, 2007 meeting. (http://www.bseindia.com/qresann/newsh.asp?newsid={5171DFA9-AB41-4B4A-85A8-BB70A99D1D8A}¶m1=1). The firm transferred the assets in Sravanaa Properties and TVS Finance to TVS Investments Ltd for a total consideration of 60 crores.
Subsequently in Nov 07 the firm issued a statement that TVS E does not own the land in Chennai (http://www.bseindia.com/qresann/newsh.asp?newsid={2075BE77-829E-4361-80D0-ED5C76EF43A8}¶m1=1)
Several questions could be raised about these transactions:
1. If the TVS Group had any intention of selling this property in the near future, why did they divest their stake in the company, Sravanaa properties. Instead of subscribing for the preferential allotment, TVS Investments has taken over the prime assets of TVS electronics at almost one-fourths of current market price. The irony is that the current market price is much lower than what it would have been 9 months ago when the real estate prices were ruling high.
2. If the TVS Electronics is dire need of funds, it should have borrowed from the market or taken a loan from any TVS Group company. Instead they sold their family silver to run the business?
3. Regarding the sale of TVS Finance and Services Ltd's shares, four months down the line, TVS Investments makes an open offer for the same shares of TVS Finance and Services Ltd., at Rs26/- per share, again at agreat dis-advantage to TVS electronics shareholders.
The way in which the TVS Group has treated TVS Electronics shareholders is very disappointing. They used TVS Electronics funds of Rs10 crores to buy the land from ICL Foundries in 1999, and finally when they were about to hit a goldmine, TVS Group has silently transferred the property to an unlisted group company. Probably, all these transactions would be within the rules of the law but not definitely in the right spirit!!
Post your comments.
Monday, July 7, 2008
Time to look at Top-ups on your Pension and Children Plans
We have been seeing a very volatile stock markets with a negative bias over the last 3 months. The NIFTY has corrected from 6000 levels to sub-4000 levels and the index PE has fallen from 17 to less than 14. This has been caused by the global factors like continuously raising crude oil prices, commodity prices, threat of inflation and stagflation (raising inflation with negative economic growth) across continents and top it all the liquidity crisis and the lack of confidence on the stocks. So taking into account all the above factors, the markets has discounted heavily leading to a 35% correction on NIFTY in 2008.
We also acknowledge that all these factors are true and bound to have an effect on the stock market performance over the short to medium term, but the moot question is, from the long term perspective does this provide an opportunity to buy/increase your exposure to Indian equity. We believe that it is definitely a good opportunity to start buying Indian equities slowly but steadly. Nobody can predict the tops and bottoms of the stock markets exactly, but as investors we should make good use of the huge market corrections for increasing our exposure in the long term investment options. Since many of us don't directly invest in stock markets but we invest through our Mutual Funds units, Unit linked Plans for Pension, it is a good time to look at making top-up premiums to our existing plans.
The advantage of top-up premiums are :
We also acknowledge that all these factors are true and bound to have an effect on the stock market performance over the short to medium term, but the moot question is, from the long term perspective does this provide an opportunity to buy/increase your exposure to Indian equity. We believe that it is definitely a good opportunity to start buying Indian equities slowly but steadly. Nobody can predict the tops and bottoms of the stock markets exactly, but as investors we should make good use of the huge market corrections for increasing our exposure in the long term investment options. Since many of us don't directly invest in stock markets but we invest through our Mutual Funds units, Unit linked Plans for Pension, it is a good time to look at making top-up premiums to our existing plans.
The advantage of top-up premiums are :
- It allocates the maximum amount towards investment content rate (ICR). In many cases, almost 99% of the top-up premium goes towards investment allocation.
- As the market has come down significantly and the NAV's of various funds have corrected by huge margin, the unit holders would get higher number of units.
- Top-up premiums should be used for effectively increasing your pension or other LONG TERM investment plans corpus only. By long term, we mean where we allow the investments to remain for more than 5 years or so.
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