Axis buys Enam Sec in Rs. 2,067-cr deal

Axis Bank, India's fourth-largest bank in terms of market capitalisation, has announced a Rs2,067 crore all-stock deal to take over the investment banking and equity businesses of Enam Securities. The deal comprises investment banking unit, corporate advisory services and equity distribution arm of Enam Securities. Asset management company and insurance broking arm are not part of the deal.

Valuation

According to media reports, Enam's net income for April-October 2010 stands at approximately Rs180 crore and a PBT of Rs77 crore. Annualizing these figures and assuming a tax rate of 30%, the deal values Enam at approximately 22x its FY11 annualized earning per share (EPS) which is at a premium to other broking firms and is reflective of the market leadership position of Enam. (Edelweiss trades at approximately 13.7x its annualized FY11 earnings and India Infoline at approximately 16.8x its annualized FY11 EPS).

Impact

• The deal will lead to an equity dilution of around 3.5% for Axis bank, and based on Enam’s annualised YTD FY11 financials would lead to an earning per share (EPS) dilution of around 0.5%, hence making it largely EPS neutral.
• The acquisition of Enam's investment banking and broking businesses is another step by Axis Bank in the direction towards building a full service financial conglomerate.

As the deal is largely EPS neutral for Axis Bank, we maintain our ‘Hold’ recommendation and price target of Rs1,680 on the stock. The deal is sentimentally positive for stocks of brokerage firms such as Edelweiss Securities, India Infoline etc.

IDFC Infrabond : Good investments!!!

The Industrial Finance Corp of India (IFCI) had launched these bonds sometime back. Now, Infrastructure Development Finance Co (IDFC) has also launched these bonds. The issue opens for subscription on Thursday, September 30, and closes on Monday, October 18. Investors will need to have a demat account and a permanent account number (PAN).

About the issue
IDFC is looking to raise up to `3,400 crore this financial year. The bonds come with a maturity of 10 years, and a lock-in of five. They will be issued in 4 different series:

> Series 1 pays bondholders an interest of 8%, which is payable annually
> Series 2 pays an interest of 8% as well, but the interest will keep getting reinvested into
the bond
> Series 3 pays 7.5% interest annually, but comes with a buyback option
> Series 4 pays 7.50% interest which gets reinvested into
the bond, and comes with a buyback option
Investors cannot shift from one series to another once the amount is paid. However, one can invest in all four series by paying `5,000 in every series.

The real return
What is interesting is that even though the interest paid on these bonds are in the range of 7.5-8%, the actual return works out to be much greater, once you factor in the tax deduction. The initial investment into the bond saves tax. And since a rupee saved is a rupee earned, paying lesser tax is similar to having invested lesser to start with.

For example, let us say you fall into the top tax bracket of 30.9%
and invest `20,000 in these bonds. This means your tax outgo will be lower by `6,180 (30.9% of `20,000), which in turn means that you will be receiving an interest of `1,600 per year (8% of `20,000) on an investment of `13,820 (`20,000 - `6,180).

This in turn pushes up real return, which, as can be seen from the accompanying table, can be as high as 15.74% in case of Series 4 bonds for those falling in the top tax bracket.

Maturity & lock-in
The maturity of the bonds is 10 years. The lock-in period,
however, is limited to five years. The bonds will be tradable on
the Bombay Stock Exchange and the National Stock Exchange after the lock-in period expires. Series 3 and 4 come with the buyback option which allows the company to buy back the bond from investors once the lock-in period is over.

Is your money safe?
Rating agency Icra has given the IDFC bonds an LAAA
rating, which is the highest rating that an infra bond can get. Over and above this, the Government of India owns 20.08% in the company.

Conclusion
These bonds make for a great investment once you have exhausted your Section 80C limit of `1 lakh.

Remember, however, that you can invest more than `20,000 in these bonds, but you can claim tax deduction on a maximum of `20,000.

IDFC Infrabond : Good investments!!!

Series 1 2 3 4 Face Value Rs 5000 per bond Minimum number of Bonds per application Two Bonds and in multiples of one Bond thereafter. For the purpose of fulfilling the requirement of minimum subscription of two Bonds, an Applicant may choose to apply for two Bonds of the same series or two Bonds across different series. Terms of Payment Full amount with the Application Form Interest payment Annual Cumulative Annual Cumulative Interest Rate 8.00% p.a. N.A. 7.50% p.a. N.A. Maturity Amount per Bond Rs. 5,000 Rs. 10,800 Rs. 5,000 Rs. 10,310 Maturity 10 years from the Deemed Date of Allotment Yield on Maturity 8.0% 8.0% compounded annually 7.50% 7.50% compounded annually Buyback Facility N.A. N.A. YES YES Yield on Buyback N.A. N.A. 7.50% 7.50% compounded annually Buyback Amount N.A. N.A. Rs. 5,000 per Bond Rs. 7,180 per Bond Buyback Date N.A. N.A. Date falling five years and one day from the Deemed Date of Allotment Date falling five years and one day from the Deemed Date of Allotment Buyback Intimation Period

N.A. N.A. The period beginning not before nine months prior to the Buyback Date and ending not later than six months prior to the Buyback Date The period beginning not before nine months prior to the Buyback Date and ending not later than six months prior to the Buyback Date

Allotment procedure of IPO shares..

Few things frustate an investor more than applying for shares and not getting them, especially when talk of booming share prices leaves them with stars in their eyes.

A number of my friends have been similarly disappointed.

They simply did not get an allotment after they applied for an Initial Public Offering.

An IPO refers to the first time a company offers its shares to the public. After the shares are alloted through the IPO, the stock will be listed on the stock exchange so that the shares can be bought and sold.

A number of IPOs are in the limelight at the moment.

Since many people apply for an IPO, very few end up with the shares.

Let me explain why this happens and how the IPO game works.

The company will 'discover' its price

Earlier, the company determined a fixed price for the stock issue. The issue was marketed to the general public through advertisements and a media campaign.

Today, companies prefer a book building process. Book building is the process of price discovery. That means there is no fixed price for the share.

Instead, the company issuing the shares comes up with a price band. The lowest price is referred to as the floor and the highest, the cap.

Bids are then invited for the shares. Each investor states how many shares s/he wants and what s/he is willing to pay for those shares (depending on the price band).

The actual price is then discovered based on these bids.

Who can play the game?

Three classes of investors can bid for the shares:

Qualified Institutional Buyers: QIBs include mutual funds and Foreign Institutional Investors. At least 50% of the shares are reserved for this category.
Retail investors: Anyone who bids for shares under Rs 50,000 is a retail investor. At least 25% is reserved for this category.
The balance bids are offered to high networth individuals and employees of the company.
How the game is played

Individuals who apply for the IPO put in their bids.

The process is transparent. You can check on the issue subscription at the BSE and NSE Web sites.

After evaluating the bid prices, the company will accept the lowest price that will allow it to dispose the entire block of shares. That is called the cut-off price.

Let's take an example.

Number of shares issued by the company = 100.

Price band = Rs 30 - Rs 40.

Now let's check what individuals have bid for.

Bid Number of shares Price per share
1 20 Rs 40
2 10 Rs 38
3 20 Rs 37
4 30 Rs 36
5 20 Rs 35
6 20 Rs 33
7 20 Rs 30

The shares will be sold at the Bid 5 price of 20 shares for Rs 35.

Why?

Because Bidders 1 to 5 are willing to pay at least Rs 35 per share.
The total bids from Bidders 1 to 5 ensure all 100 shares will be sold (20 + 10 + 20 + 30 + 20).
The cut-off price is therefore Bid 5's price = Rs 35.

Bidders 1 to 5 get allotments at that price. Bidders 6 and 7 don't get an allotment because their bids are below the cut-off price.

How to make bidding work for you
Go for the higher price band.

As a retail investor, you don't have to specify an exact price.

Make out a cheque for the number of shares you are applying for at the highest end of the price band. If you are applying for 10 shares, the amount wll be Rs 400 (10 x Rs 40 -- the higher end of the price band).

On allotment, the extra amount paid will be refunded to you. Since the cut-off price is Rs 35, the 10 shares will cost you Rs 350 (10 x Rs 35). The balance Rs 50 will be refunded to you.

How the allotment is done

The bids are first allotted to the different categories and the over-subscription (more shares applied for than the shares available) in each category is determined.

Retail investors and high networth individuals get allotments on a proportional basis.

Assuming you are a retail investor and have applied for 200 shares in the issue, and the issue is over-subscribed five times in the retail category, you qualify to get 40 shares (200 shares/5).

Sometimes, the over-subscription is huge or the issue is priced so high that you can't really bid for too many shares before the Rs 50,000 limit is reached.

In such cases, allotments are made on the basis of a lottery.

Say a retail investor has applied for 5 shares in an issue, and the retail category has been over-subscribed 10 times, the investor is entitled to half a share.

Since that isn't possible, it may then be decided that every 1 in 2 retail investors will get allotment. The investors are then selected by lottery and the issue allotted on a proportional basis among.

That is why there is no way you can be sure of getting an allotment.

How to make an allotment work for you

Put in bids in the names of your family members. The problem is, you will need to open demat accounts for them first.

Most regular IPO investors try to calculate how much the issue will be over-subscribed and then put in their bids accordingly.

For instance, if you want 10 shares and feel the retail portion of the issue will be over-subscribed three times, you should bid for 30 shares.

You could also apply separately in the high networth category if you have the money.

Direct Tax Code.

The cabinet approved a new direct tax code on Thursday that will replace archaic income and wealth tax laws in the country, a key reform initiative that is aimed at widening the tax net and increasing federal revenues.

The direct tax code bill will now be placed before parliament for approval on Monday. The government aims to implement it from April 1, 2011.

Here are some questions regarding the tax reform.

WHAT IS THE DIRECT TAX CODE ALL ABOUT?

India wants to modernise its direct tax laws, mainly its income tax act which is now nearly 50 years old. The government, wants a modern tax code in step with the needs of an economy which is now the third largest in Asia.

The new tax code is expected to widen the tax base, end unnecessary exemptions, moderate tax rates and add to the government's coffers.

The federal budget has estimated about $92 billion in direct tax receipts for the year that ends in March 2011.

WHY IS IT IMPORTANT FOR INDIAN FIRMS AND FOREIGN INVESTORS?

One of the key aims of the new tax code is to provide a system which takes into account increased cross border mergers and acquisitions by Indian corporates over the last few years.

The new code is also expected to streamline tax rates and administration for foreign institutional investors, for whom India is a top destination.

Despite the crisis in the euro zone, capital flows have been robust this year with an inflow of $8.5 billion so far.

WILL IT PROVIDE GREATER STABILITY TO INVESTORS?

The code aims to provide greater tax clarity and stability to investors who want to invest in Indian projects and companies.

These officials have said the government would not like to tinker with tax rates every year to provide a greater degree of tax certainty to corporates, investors and individuals.

WHAT WILL BE THE IMPACT ON INDIAN AND FOREIGN CORPORATES?

On the face of it, the corporate tax rate has been reduced from a little over 33 percent to 30 percent. But tax experts say whether a company pays more tax or less will also depend on a key provision called the minimum alternate tax (MAT).

MAT is applicable to those companies who do not show book profits liable to tax, as they claim a plethora of exemptions on account of being in capital intensive industries. The MAT rate has now been increased from 18 to 20 percent in the new code.

Foreign corporates today pay a higher rate of tax. However, the new rate of taxation for foreign corporates is not yet known.

WILL IT BE REVENUE POSITIVE FOR THE GOVERNMENT?

The government has marginally lowered the tax burden for individuals and has effectively left corporates with largely similar tax rates as before, hoping that these changes will make the new code revenue positive.

Though the exact impact is not yet known, finance ministry officials have said the new code will help shore up the tax GDP ratio significantly from around the current 11 percent level.

WILL THE ANNUAL BUDGET BE LESS IMPORTANT?

An important part of the budget every year has been the detailing of the tax rates. However, with the introduction of the new direct tax code, the tax rates will not be part of the budget presented to Parliament every year.

SEBI clears smart order routing for all investors

Capital market regulator the Securities and Exchange Board of India (Sebi) has approved the launch of smart order routing to every class of investors on stock exchanges, putting an end to the conflict between the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

By using smart order routing technology, investors will be able to obtain the best possible price while buying or selling shares, similar to what is being done manually by stock brokers, except that this technology makes it much faster to execute. Stock brokers say that smart order routing determines which exchanges offer the best price at any given time. Speed is the key to the success of programme trading. If the price feed is not fast enough, the software will be unable to capitalise on some of the opportunities that last for a second or less.

The BSE had said in a public forum that the NSE was dragging its feet on allowing smart order routing on fears that it may lose some of the orders, if this was allowed. The NSE, on its part, said that security concerns related to audit trail had prompted a second look at the proposal.

“Smart order routing would help in better price discovery and also increase electronic trading volume,” Parag Gude, MD-consolidated equities, Morgan Stanley

Algorithm-based trading or programme trading has really not taken off in a big way in India and one reason, say stock brokers, is a lack of liquidity beyond the top 15-20 most actively-traded stocks. The other reason is the systems at stock exchanges are not equipped to handle very heavy trade volumes when the market is unusually active.

According to Sebi, stock brokers, who are interested in offering the smart order routing facility, will have to apply to the respective stock exchanges, which, in turn, will have to communicate their decision to brokers within 30 days. Brokers will also have to submit a third-party system audit of its smart order routing system and software.

Stock exchanges will disseminate a list of approved system auditors (CISA or equivalent) qualified to undertake such system audits. System audit of the smart order routing systems and software will be periodically carried out by brokers, and certificate, in this regard will have to be submitted to the exchange.

Brokers will have to provide an undertaking that the new system will route orders in a neutral manner. They have to provide an alternative mode of trading system in case of failure, besides maintaining logs to facilitate an audit trail.

Stock exchanges will have to provide a unique identification number (UID) for orders placed through this facility and maintain data on all orders and trades. Within three months from implementation of the smart order routing, bourses will have to ensure that a system is put in place to time stamp market data feed that’s disseminated to the market.

The regulator has also stipulated that apart from strengthening investor grievance cells to address complaints, exchanges will also have to share necessary data as and when required in order to facilitate necessary examination in case of investor complaints.

The broker server routing orders will have to be located in India. The markets regulator has also asked stock exchanges to communicate the status of the implementation of the provisions of this circular in the monthly development report.


Source: http://economictimes.indiatimes.com/markets/stocks/market-news/NSE-BSE-battle-ends-Sebi-clears-smart-order-routing-for-all-investors/articleshow/6448585.cms

Thanks.

Reliance rejigs holding pattern to save on tax

Reliance Industries Ltd (RIL) has undertaken a significant restructuring of promoter holdings, under which a significant chunk of shares have been transferred to a limited liability partnership (LLP), reports Business Standard. The move would reduce the dividend distribution tax before the Direct Taxes Code (DTC) kicks in. In the financial year ended March 31, the company paid

dividend distribution tax of INR3.5bn. For FY09, the outgo was INR3.2bn. The promoter group, which held shares through 32 entities, would now transfer their shares, representing 34.17% of

voting rights, to a total of 61 entities, including 27 LLPs. The transaction was completed on August 11. LLPs are an alternative corporate business vehicle that offers the benefits of not only limited

liability, but also allows its members the flexibility to organise their internal structure as a partnership based on an agreement.

Amazingly Only 451 clients account for 50% of NSE daily turnover !!!

As many as 451 client identities accounted for about 50 per cent of the average daily turnover in the cash equity segment of the National Stock Exchange in the first quarter this fiscal.

This was stated by the Minister of State for Finance, Mr Namo Narain Meena, in a written reply to question posed by Mr Sukhdev Singh Dhindsa in the Rajya Sabha.

The number is even more intriguing in the derivatives segment, with only 106 clients accounting for 50 per cent of the average daily turnover.

Daily Average

While the average daily turnover in the NSE's cash segment is Rs 13,000 crore, it is about Rs 90,000 crore in the derivatives segment.

In the first quarter of 2010-11, more than 30.90 lakh clients traded in the NSE cash equity segment, Mr. Meena said.

About 52 per cent of the exchange's turnover was contributed by retail investors, high net worth individuals and corporate clients. While institutional clients contributed about 24 per cent, proprietary traders accounted for about 24 per cent of the exchange turnover, Mr Meena said.

Even in the case of derivatives segment, about 52 per cent of turnover in NSE was contributed by retail investors, high net worth individual and corporate clients. However, institutional clients accounted for only 12 per cent, while proprietary traders contributed 36 per cent of the turnover.

Mr. Meena also said that top 25 trading members of the NSE accounted for about 42 per cent and 43 per cent of cash and derivatives segment turnovers respectively during the first quarter this fiscal.

In a reply to a question from Mr. Mohammad Adeeb, the Minister noted that foreign brokerage firms with direct or indirect controlling interests in domestic brokerage houses accounted for 12 per cent and 9 per cent of the turnovers in NSE's cash and derivatives segment respectively.

Source: www.thehindubusinessline.com 

A Nice debate - An SIP or One-Time Investment?

An SIP or One-Time Investment?

If I continuously invest Rs 5,000 per month in an equity fund, is it possible to build a corpus over 15 years? Would I not make much more by investing it all at one go and holding on for that long? Would I need to change funds to keep the growth going?
— Ashwin Arora

Regarding the possibility of building a corpus over 15 years, it certainly is plausible. Even if you invest just Rs 5,000/month and earn an annual return of 12 per cent, you would end up with Rs 25.20 lakh at the end of 15 years.
Alright, that's theoretical. So let's look at some actual funds to see if this thesis holds up. I have taken a 15-year time frame and looked at a Systematic Investment Plan (SIP) of Rs 5,000/month over this entire period. The diverse line up includes some superstars as well as dogs. That's deliberate. It will convey a more realistic picture. As you can see, there is no arguing with the numbers. And even though the worst performing fund made money, the difference between the best and the worst is nothing short of glaring.
Your second question is interesting, and you may even be right, but look at the table below for a reality check. If you are looking at a one-time investment, you would first of all need to be in possession of capital, in this case Rs 9 lakh, that too 15 years ago. Once you overcome this hurdle, you would end up being a hostage to market timing. What if you had invested the money at the peak of the market cycle, say January 2008 when the Sensex was at around 21,000. Can you imagine the worth of your investment by December 2008 when the Sensex dipped to an abysmally low 8,500? Psychologically, the impact of seeing your investment reduce to half can be disastrous. The good thing about a systematic investment plan (SIP) is that it helps you ride the market upheavals to your advantage. And it does what you want, which is accumulate wealth over the years in a low-cost, transparent fashion without a strain on your finances.

Bajaj Corp Limited IPO

BRLM: Kotak Mahindra Capital Company Ltd
Issue Period: August 2 – August 5, 2010
For QIB: August 2 – August 4, 2010
For Retail : August,5, 2010
Face Value: Rs.5/-

Price Band: Rs. 630/- – Rs. 660/-
Lot Size: 10 Equity Shares and Multiples of 10 Equity Shares thereafter
Registrar: Karvy Computershare P. Ltd.
Issue: 45,00,000 Equity Shares
QIB Book: 27,00,000 Equity Shares (60% of Net issue size)
HNI Book: 4,50,000 Equity Shares (10% of Net issue size)
Retail Book: 13,50,000 Equity Shares (30% of Net issue size)

NSE launches volatility index on real time basis.

Investors would now be able to hedge their portfolios against the risk arising out of volatility in the markets, with the National Stock Exchange launching its volatility index on a real time basis today. This is for the first time in the country that volatility index is being disseminated, on a real time basis.



The volatility index called the 'India VIX' depicts the expected market volatility over the next 30 calendar days. Higher the India VIX values, higher would be the expected volatility and vice-versa.



So far, the volatility index, expressed in a percentage figure, was shown at the end of the day. But now it will be displayed on a real time basis.



Once India VIX is available for trading after regulatory approvals, it will give a lot of security to investors and traders, who face uncertainty, because the new product will empower them with better information and foresight, NSE MD and CEO Ravi Narain said in a statement.



More importantly, it will give them the ability, to use the product to hedge their portfolios against the risk arising out of volatility. NSE will also be applying to the capital market regulator Sebi for permission to start derivatives on the index, after it has been tracked for a suitable period, the exchange said.



Once the futures and options start on the index, investors whose portfolios are affected by volatility in the market can use the product to hedge their risks. India VIX is a volatility index based on the index option prices of NSE's benchmark index Nifty.



Before starting derivatives on the volatility index, the index will be disseminated on a real time basis, so that market participants can understand the behaviour of the index, before trading on it.



Volatility refers to the amount of uncertainty or risk about the size of changes in a security or index value. A higher volatility means that a scrip's value can potentially vary over a larger range of values. This means that the price of the security can change dramatically.



A lower volatility means that a security's value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.



Source: economictimes.com.



Thanks,

A good news : Rupee has a symbol! IIT-ian's design selected

Finally, the Rupee has a symbol like other major global currencies! In a historic event, a five-member jury set up to finalise symbol for the rupee selected the design presented by IIT-ian D Udaya Kumar. The Union Cabinet approved the symbol on Thursday noon. Speakin...g to rediff.com on Thursday, a proud D Udaya Kumar said: "My design is based on the Tricolour, with two lines at the top and white space in between. I wanted the symbol for the Rupee to represent the Indian flag.

It is a perfect blend of Indian and Roman letters: a capital 'R', and Devanagari 'ra', which represent rupiya, to appeal to international and Indian audiences." "I worked on it for few months and made numerous designs. Finally, I shortlisted 8 to 10 designs and then refined them further till I got this one," he said. "I got to know of my design having been chosen to represent the rupee from a media report. It is proud moment for me.

But I cannot rely on a media report alone as I have yet to get a confirmation from the finance ministry," he said, keeping his fingers crossed. "I will be joining the design department at IIT-Guwahati on Friday, and am looking forward to hearing the good news," he added.See

Long-term infra bonds offer additional tax relief

TO BOOST the investment in the infrastructure sector/projects, the Finance Act, 2010, had introduced a new section 80CCF under the Income Tax Act, 1961 (‘the Act’) to provide for an income tax deduction for subscription in longterm infrastructure bonds (‘bonds’), as notified by the central government. The deduction can be claimed by an individual or a Hindu Undivided Family of up to Rs 20,000 from the taxable income in respect of the amount paid or deposited as subscription for bonds during the FY 2010-11.

LONG-TERM INFRASTRUCTURE BONDS

The central government has now notified that the bonds issued by Industrial Finance Corporation of India, the Life Insurance Corporation of India, Infrastructure Development Finance Company and a non-banking finance company classified as an infrastructure finance company by the Reserve Bank of India (RBI) would qualify as long-term infrastructure bonds. These bonds will be eligible for the purpose of claiming a deduction u/s 80CCF of the Act.

TAX SAVINGS

An individual or a HUF can claim a deduction of up to Rs 20,000 from the taxable income by subscribing to these bonds. It effectively means that for the taxpayer who is in the highest tax bracket of 30%, he will be able to save tax up to Rs 6,180, including applicable education cess, annually and in lowest tax bracket of 10%, he will be able to save tax up to Rs 2,060.

ADDITIONAL DEDUCTION

The deduction of Rs 20,000 in respect of subscription to the bonds is in addition to the overall deduction of Rs 1 lakh available under other provisions for claiming tax deductions. These include Section 80C wherein deduction can be claimed in respect of life insurance premium, contribution to recognised provident fund/public provident fund, repayment of principal amount of housing loan, etc. Section 80CCC deduction is in respect of contribution to certain pension funds and Section 80CCD deduction in respect of contribution to pension scheme of the central government.

LOCK-IN PERIOD

The tenure of the bonds will be a minimum 10 years with a lock-in period of five years for an investor. After the lock-in period, the investor may exit either through the secondary market or through a buyback facility as specified by the issuer in the issue document. The bonds can also be pledged for obtaining loans from specified banks after the lock-in period. Furthermore, it is mandatory for the subscriber to furnish his PAN to the issuer of the bonds.

YIELD OF THE BOND

The final details in respect of the interest and other terms and conditions are to be prescribed by the issuer of the respective bonds. However, it is important to note that it has been specified by the government that the yield of the bond shall not exceed the yield of government securities of corresponding residual maturity as reported by the Fixed Income Money Market and Derivatives Association of India as on the last working day of the month immediately preceding the month of the issue of the bond.

END USE OF THE FUNDS

The proceeds from these bonds shall be utilised by the issuer towards infrastructure lending as specified by the Reserve Bank of India. Furthermore, the issuer of these bonds is required to submit necessary details to the government/regulatory authority in respect of the end use of these funds.

TO SUM UP

These long-term infrastructure bonds offer an additional window for making tax saving investments of up to Rs 20,000. However, there is a long gestation period with a minimum five year lock-in and also that tax savings are not substantial due to the overall limit for claiming the tax deduction. Nevertheless, any tax-saving investment tool is always welcomed by the common tax payer!

SEBI directs MFs to have uniform exit load

The Securities and Exchange Board of India (SEBI) has directed mutual funds (MFs) to have a uniform exit load — a fee charged for early redemptions — for investments through the lumpsum route as well as systematic investment plans (SIPs). The securities market regulator communicated this to mutual funds in a briefly-worded letter without providing any reason, according to two officials at two different fund houses.

“We usually waive off the exit load for large investors, who invest a lumpsum, as the situation demands. In the case of SIP, we charge an exit load as per the period mentioned in the prospectus,” said a top official at a private mutual fund.

Prospectus of asset management companies (AMCs) says an exit load of 1% will be charged in case the investments are redeemed before a year. Most AMCs do not charge exit loads for investments over Rs 3-5 crore.

“It is the retail investors who usually tap the SIP route and a load on early exits is a deterrent against redeeming money before they can start showing returns,” the mutual fund official quoted above said. “Also, it’s a structure that suits the business,” he said.

This directive, among its various recent decisions, is seen as SEBI’s attempts to push mutual funds to shift their business focus on servicing more retail investors, drawing hushed protests from the industry.

“SEBI is getting into micro-management of the industry nowadays. It is getting all the more difficult to run the business,” said a senior official with another private mutual fund.

Last week, the market regulator reiterated its concerns over mutual funds charging higher expense fees in schemes meant for retail investors compared to the same product for institutions. Mutual funds offer two versions or plans — institutional and retail — of the same scheme. Higher expense fees could result in the institutional plan of a scheme fetching slightly higher returns than the retail version of the same scheme. 

2-wheeler makers must give helmets

The Supreme Court has made it mandatory for two-wheeler manufacturers to supply helmets that conform to the Bureau of India Standards while selling scooters and motorbikes to customers. The helmets will be sold through the dealers. A bench headed by Justice G S Singhvi on Wednesday dismissed a petition

filed by Society of Indian Automobile Manufacturers (SIAM) that had sought reversal of a Delhi High Court judgment giving the direction.

The bench said helmets were for the safety of customers and declined to entertain the plea that the order would force customers to have a collection of helmets.

“The high court judgment obliges a customer to purchase a helmet whenever he buys a new two-wheeler. This is despite the fact whether he possesses one or not,” contended senior advocate P.S. Patwalia, appearing for SIAM. He added the direction amounted to legislation.

To this, the bench said in a lighter vein: “There is no harm in having more than one helmet. It comes handy in situations such as taking part in protests, dharnas or even defending oneself during a fight with wife.”

The court added it was improper for it to interfere in an order that was meant for a public cause.

The Delhi High Court had on July 30, 2009, directed two-wheeler manufacturers to start selling helmets along with the vehicles. The direction came on a public interest litigation that asked the court to give directions to the companies to comply with one of the provisions of Motor Vehicles Act that mandates supply of helmets.

repo & reverse repo rates hiked by 25 bps.

Reserve Bank of India on Friday raised its key short-term interest rates by 25 basis points each, citing worries over inflation, nearly month ahead of its next scheduled review.
Wholesale price index (WPI) inflation rose to 10.2 percent in May, from 9.6 percent in April, exceeding expectations. The Reserve Bank of India raised its main lending rate, or repo rate, to 5.50 percent from 5.25 percent, and the reverse repo rate, at which it absorbs excess cash from the banking system, to 4 percent, from 3.75 percent, it said in a statement.

"There has been some moderation in food price inflation, but the price index of food articles continues to increase," the central bank said. "More importantly, the prices of non-food manufactured goods and fuel items have accelerated in recent months," it said.

The rate hike comes soon after the Indian government raised fuel prices that it said would lift inflation by nearly one percentage point.

The central bank said that while inflation and GDP growth data had been available by mid-June, it had been inadvisable to raise policy rates then as the financial system was dealing with liquidity pressures resulting from higher than expected payments for wireless spectrum in government auctions.

"It's a welcome move but probably RBI should have moved a little more aggressively -- not now, but earlier in April or May," said Jay Shankar, economist at Religare capital. "The rate hike quantum is okay as we have a liquidity crunch scene right now. But it has come too late," he said.


Source: Economic Times.

Thanks

RNRL-RPower merger at 4:1 swap

Reliance Anil Dhirubhai Ambani Group (R-ADAG) company Reliance Natural Resources (RNRL) will merge with Reliance Power (RPower), another group firm, in a 4-for-1 share swap deal. After the merger, shareholder of RNRL will get one share of RPower for every four shares of RNRL held on the record date, the R-ADAG announced on Sunday after the board meetings.

As of Friday’s close of trading, RNRL was valued at nearly Rs 10,400 crore, while RPower's market capitalisation was almost Rs 42,000 crore, so jointly the combined market capitalisation is worth over Rs 50,000 crore. A statement from the R-ADA group said that the valuations were done by consulting major KPMG. The merger is subject to approvals from the shareholders of the two companies and also other regulatory nods. The completion of the merger could take about six months.

Post the transaction, RPower will have over 60 lakh shareholders, the largest number of shareholders for any firm, a company official, told TOI. According to the official, who did not wish to be identified, shareholders of both companies would benefit. "While RNRL would become part of a larger company, RPower would get the benefits of the gas supply agreement entered between RIL and RNRL," he said. On Friday, the two companies had informed the bourses that the boards of the two companies will consider the proposal for merger.

Given the share-swap ratio, market players expect RNRL's scrip price to slide when trading resumes on Monday, while RPower shares could trade flat. On Friday, RPower stock on the BSE closed at Rs 175, up 3.3% over Thursday's close, while RNRL, after an initial spurt, had finished the session at Rs 64, down 2%.

According to market players, the merger was necessitated by a recent Supreme Court verdict, which said that RNRL could not trade in gas received from RIL, and virtually turned the company into a shell company that will only act as a pass through vehicle for RPower.

RNRL is the company which is mandated to supply gas to RPower that will run the latter's electricity generation plants. Analysts feel that post merger, the combined entity will enjoy economies of scale since the supply of gas and also its usage will be controlled by one company. In effect, the marketing margins will also remain within RPower now.

In May, other than disallowing RNRL from trading in gas obtained from RIL, the apex court had also said that the gas it buys from RIL should be priced as per the government policy and not according to the private family agreement that the two Ambani brothers — Mukesh and Anil — had signed when they split their family businesses in 2005. Subsequent to the Supreme Court order on gas supply, the two brothers had prematurely ended the no-compete agreement that they had signed in 2005.

The no-compete agreement had clearly defined the businesses each could and also could not enter. R-ADAG has been able to restructure its group companies and in some cases would be able to infuse much-needed capital, like in the case of Reliance Communications (RCOM), due to the cancellation of the non-compete agreement.

RCOM had last week raised some money by demerging its towers business and merging it with GTL Infra. RCOM since then also bought out Mumbai-based Digicable.

Decision Making in Volatile Market

The stock markets have gone up significantly over the last few quarters. The markets have been volatile during this run-up phase and had a couple of profit booking correction phases. Profit booking (or exit) is a very sensitive factor and the decision to book profits is personal to an investor. Many investors are sentimental about their investments and therefore miss an opportunity to book profits (or cut loss) at the appropriate time.

These are some strategies for investors to book profits and avoid missing out on opportunities: Set target and phase exit Booking profits at regular stages is one of the most basic strategies. Wealth managers suggest maintaining a 'book profits' and 'cut loss' target on investments and keeping track of them. However, many investors do not follow it or lose track of the targets.

It is therefore advisable to keep booking profits regularly, whenever the price moves significantly. Smaller milestones can be set in steps of 10 to 20 percent price movements.

Regular selling and booking profits enables investors to average out the opportunities and use them in a systematic manner.

Identify sell signals:

Identifying sell signals is a bit more difficult. This takes time and investors need to keep tracking developments around their sectors and markets in general.

These are some of the basic but important factors that investors can track to identify signals for profit booking: Quarterly results Investors can track the quarterly results of companies.

Sometimes, the results clearly indicate the business conditions and challenges, which indicate a clear-cut sell signal. At other times, investors should research deeper to figure out a way forward from the management interviews, analysts' views, etc.

Market trends:

The market is divided into various sectors. These sectors have well-defined trends based on past data. The general performances of stocks from various sectors vary according to the market conditions.

For example, FMCG and pharma are treated as defensive sectors. These stocks perform well in negative market conditions whereas they under-perform during good market conditions.

Similarly, there are different tendencies for different sectors, and investors can take a decision based on the general market and sectoral conditions.

Sharp run-up:

If a stock runs up significantly in the short term, it can be treated as a signal for profit booking. Most of the time, investors do not book profits (or exit) due to their sentimental attachment to a stock and lose an opportunity.

In case an investor can't make an exit decision, he should look at opportunities to book part profits at least. This helps in making best use of an opportunity.

Be objective:

Investors should be careful while investing in equity-related instruments, especially if they are investing in stocks themselves. It is important to put emotions and sentiments out of the way while taking decisions (especially exit decisions) related to investments.

Sometimes, in case of bad investments, the investor should be ready to take a cut and make a loss exit. This hard move enables him to protect the capital which can be reinvested in stocks or instruments with better prospects of growth, rather than losing the entire capital in a bad investment.

Src:http://techyyum.blogspot.com/2010/06/decision-making-in-volatile-market.html

Reliance Life Insurance introduces Mobinsure

Reliance Life Insurance has announced the launch of unique mobile-based insurance initiative — ‘Mobinsure’ — a mobile portal offering a range of insurance related services on mobile phones. This service would make it easier for the policyholders to track their policies and premiums, do fund switches, pay insurance premium and resolve policy-related queries instantly using their web-enabled mobile handsets. It would be available both on CDMA and GSM platforms, the insurance company said in a statement.

Customers can log on to their Reliance Life Insurance accounts on their mobile handsets and get important information on policies, applications, funds, profile, advisors and also activate online transactions, including premium payments, future allocations and change of address, free of cost. Customers are required to register first time and key in their policy and personal details which will be validated against customer details submitted at the time of new business for security reasons.

Reliance and RNRL pact.........

MUMBAI -- India's Reliance Industries Ltd. and Reliance Natural Resources Ltd. Friday signed a revised gas supply pact, a month after an apex court order settled a five-year dispute between two of the country's biggest corporate houses.

Reliance Natural will now ask the federal government to allocate natural gas in a step towards implementing the pact, it said in a regulatory filing.

The gas supply master agreement complies with the Gas Utilization Policy and EGOM (empowered group of ministers) decisions, Reliance Industries said in a statement.

India's highest court on May 7--while ruling on a dispute between the two companies on a gas supply agreement--asked them to start negotiations in eight weeks' time on a pact within the framework of government policy regarding price, quantity and tenure for the supply of gas.

The talks had to be completed within six weeks of their commencement.

The Supreme Court of India ruled that a private natural gas supply agreement between the billionaire Ambani brothers wasn't binding and that the two companies had to agree to a state-set price.

The ruling allowed the Mukesh Ambani-controlled Reliance Industries, India's largest company by value, to sell natural gas from the D6 block in the Krishna Godavari basin off India's eastern coast at $4.20 per million British thermal units--as set earlier by a federal government panel.

Anil Ambani's Reliance Natural wanted to pay $2.34, citing a family agreement signed in June 2005 when the brothers divided the petrochemicals-to-telecommunications empire of their late father, Dhirubhai Ambani.

According to the pact between Mukesh--the world's fourth-richest man--and younger brother Anil, Reliance Industries was to supply 28 million metric standard cubic meters a day of gas from the D6 block at $2.34 per mBtu to Reliance Natural for 17 years.

Shares of Reliance Natural jumped after the news, while Reliance Industries shares stayed neutral.

"It is positive for RNRL as this pact makes it certain that their power plants will receive gas. However, for Reliance Industries, it does not make any difference," said Saeed Jaffery, analyst at Ambit Capital.

IMF proposes global bank tax plans

The International Monetary Fund has proposed two new global taxes on banks and other financial institutions to cover the cost of future bailouts, the BBC reported.
The measures would see all institutions pay a bank levy as well as a further tax on profits and pay, which would aim to protect against future financial meltdown, said the broadcaster Tuesday, citing a leaked IMF report.

Governments of the Group of 20 advanced and developing countries -- which account for more than 85 percent of the global economy -- received the documents Tuesday, said the BBC.

Finance ministers would discuss the proposals this weekend, it added.
Insurers, hedge funds and other financial institutions would also be required to pay the taxes under the IMF proposals, despite the fact they were less implicated in the recent financial crisis.

This was to prevent banks reclassifying activities they currently carry out as other services -- such as insurance or hedge-fund services -- in an effort to avoid the levy.

The general levy, called the "financial stability contribution," would start at a flat rate but would eventually be changed so businesses judged to be riskier paid more, said the broadcaster.
Several proposals have been put forward by different governments to cover the costs of future economic rescue packages, including a tax on financial transactions.

But many have been reluctant to unilaterally introduce taxes to pay for future bailouts, believing coordinated action is the only option.

If governments acted alone, it is feared that institutions would simply move their operations to places with less stringent financial regulation.
The IMF report, which will form the basis of a submission to the G20 summit in June, states international cooperation in the introduction of the new levies would be "beneficial".

"Countries' experiences in the recent crisis differ widely and so do their priorities as they emerge from it. But none is immune from the risk of a future -- and inevitably global -- financial crisis," it said.
"Unilateral actions by governments risk being undermined by tax and regulatory arbitrage."

Britain has been pressing for the introduction of a global bank tax, and Finance Minister Alistair Darling welcomed the contents of the leaked IMF proposals.
"The recognition that banks should make a contribution to the society in which they operate is right," he said.
Prime Minister Gordon Brown told the Financial Times newspaper earlier this month that the large economies were getting closer to a deal.


Britain, France and Germany were broadly agreed on the need for a levy, Brown told the paper, adding he hoped the United States would join them.
The leader said he wanted a deal to be struck at the G20 summit in Seoul in November.

Is Spain A Dead Economy Walking

Barring an economic bailout of mammoth proportions, the economy of Spain is completely and totally doomed. The socialist government of Spain is drowning in debt, unemployment is running rampant and everywhere you turn there are major economic problems. So will Spain be the next Greece? No. When the economy of Spain implodes it is going to be a whole lot worse for the world economy. The economy of Spain is more than four times the size of the economy of Greece.
Spain accounts for 11.5 percent of eurozone GDP while Greece only accounts for approximately 2.5 percent. Spain is the 4th largest economy in the 16 nation eurozone and it is the 10th largest economy in the world. If the economy of Spain fails it will cause a shockwave that will be felt in every corner of the globe. In fact, there are quite a few analysts that believe if Spain defaults it would ultimately lead to the breakup of the eurozone.

So will the EU step up and bail out Spain? Well, there are rumors that EU officials have begun work on a bailout package for Spain which is likely to run into the hundreds of billions of dollars, but on Monday the European Commission, the Spanish government and the German government all denied that the European Union was preparing a bailout for the Spanish economy.

Of course we all know that politicians don’t always tell us the truth.
So who knows what is going on over there right now.
But the reality is that the economy of Spain is not going to make it much longer without serious help, and some EU officials are already using apocalyptic language to describe what an economic collapse in Spain would mean.

For example, EU Commission President Jose Manuel Barroso recently warned that democracy could completely collapse in Greece, Spain and Portugal unless urgent action is taken to tackle the burgeoning European debt crisis.'

So could democracy actually fail in those nations?

Well, considering the fact that Greece, Spain and Portugal only became democracies in the 1970s, and that all three of those countries have a history of military coups, such a scenario is not that far-fetched.
Without a doubt there would be serious public unrest in those nations if public services collapsed because their governments ran out of money.
So are there signs that the economy of Spain is about to collapse?
Well, yes, there are quite a few of them.

The following are reasons why Spain is a dead economy walking….

1) Even before this most recent crisis, unemployment in Spain was approaching Great Depression levels. Spain now has the highest unemployment rate in the entire European Union. More than 20 percent of working age Spaniards were unemployed during the first quarter of 2010. If people aren’t working they can’t pay taxes and they can’t provide for their families.

2) In an effort to stimulate the economy, Spain’s socialist government has been spending unprecedented amounts of money and that skyrocketed the government budget deficit to a stunning 11.4 percent of GDP in 2009. That is completely unsustainable by any definition.

3) The total of all public and private debt in Spain has now reached 270 percent of GDP.

4) The Spanish government has accumulated way more debt than it can possibly handle, and this has forced two international ratings agencies, Fitch and Standard & Poor’s, to lower Spain’s long-term sovereign credit rating. These downgrades are making it much more expensive for Spain to finance its debt at a time when they simply can’t afford to pay more interest on their debt.

5) There are 1.6 million unsold properties in Spain. That is six times the level per capita in the United States. Considering how bad the U.S. real estate market is, that statistic is incredibly alarming.

6) The new “green economy” in Spain has been a total flop. Socialist leaders promised that implementing hardcore restrictions on carbon emissions and forcing the nation over to a “green economy” would result in a flood of “green jobs”. But that simply did not happen. In fact, a leaked internal assessment produced by the government of Spain reveals that the “green economy” has been an absolute economic nightmare for that nation. Energy prices have skyrocketed in Spain and the new “green economy” in that nation has actually lost more than two jobs for every job that it has created. But Spain so far seems unwilling to undo all of the crazy regulations that they have implemented.

7) Spain’s national debt is so onerous that they are now caught in a debt spiral where anything they do will harm the economy. If they cut government expenditures in an effort to get debt under control it will devastate economic growth and crush badly needed tax revenues. But if the Spanish government keeps borrowing money their credit rating will continue to decline and they will almost certainly default. The truth is that the Spanish government is caught in a “no win” situation.

8) But even now the IMF is projecting that the Spanish economy is going nowhere fast. The International Monetary Fund says there will be no positive GDP growth in Spain until 2011, at which point it will still be below one percent. As bleak as that forecast is, many analysts believe that it is way too optimistic considering the fact that Spain’s economy declined by about 3.6 percent in 2009 and things are rapidly getting worse.

9) The Spanish population has gotten used to socialist handouts and they are not going to accept public sector pay cuts, budget cuts to social programs and hefty tax increases easily. In fact, there is likely to be some very serious social unrest before all of this is said and done. On May 21st, thousands of public sector workers took to the streets of Spain to protest the government’s austerity plan. But that was only an appetizer. Spain’s two main unions are calling for a major one day general strike to protest the government’s planned reforms of the country’s labor market. The truth is that financial shock therapy does not go down very well in highly socialized nations such as Greece and Spain. In fact, the austerity measures that Spain has been pressured to implement by the IMF have proven so unpopular that many are now projecting that Spain’s socialist government will be forced to call early elections.

So what is going to happen in Spain?

The truth is that nobody can predict for sure how things are going to play out over the coming weeks and months.
But what everyone can agree on is that the stakes are incredibly high.
Speaking at the World Economic Forum in Davos, Switzerland, world famous economist Nouriel Roubini put it this way: “If Greece goes under, that’s a problem for the eurozone. If Spain goes under, it’s a disaster.”
But right now the entire population of Spain (along with much of the rest of the world) is completely distracted by the World Cup. As long as the Spanish team does well, that is likely to keep the Spanish population sedated. But if the Spanish team gets knocked out of the tournament early that will put the entire Spanish population in a really, really bad mood and that could mean a really chaotic summer for the nation of Spain.

IRDA to raise risk cover , ULIPs all set to offer guaranteed returns

India’s insurance regulator—the Insurance Regulatory and Development Authority (IRDA)—boosted by a clear mandate from the government to regulate unit-linked insurance plans (ULIPs), will unveil new rules soon to raise the risk cover and to lower charges to make this product more attractive to investors.

In what could potentially be a game changer, ULIPs are set to offer guaranteed maturity benefits to protect policyholders even when markets crash, said a senior official in the regulator’s office.

The aim is to encourage long-term savings and help policyholders build a nest egg to cater to their needs as they grow old. Insurers now offer guaranteed returns only on pension policies that are not sold on a unit-linked platform.

“We will revise the guidelines for ULIPs to make it attractive for investors. Insurers will also be given more time to redesign these products,” IRDA chairman J Hari Narayan told ET. Over the weekend, the government promulgated an ordinance to bring ULIPs under the regulatory purview of IRDA.

“It is best to give customers the option because if a guarantee is provided, the risks will be lower and hence returns will also be lower,” said GV Nageshwara Rao, CEO of IDBI Fortis Life Insurance. Pension plans will now have to be bundled with a life cover or a health cover or annuities. Insurers can offer all three, but at least one will be mandatory. IRDA is also planning to prescribe the minimum health cover for policyholders.

For pension plans, the insurer has to convert the accumulated fund value into an annuity at maturity. The policyholder or the insured will have the option to commute up to a maximum of one-third of the accumulated value as lump sum on maturity. If the policy is surrendered, the policyholder will get only a third of the surrender value. Further, the policy holder will have to buy an annuity for the remaining amount.

Who wins and who loses with new yuan

China’s signal that it will let its currency appreciate is a boost to consumer firms, airlines and insurers, but may dampen the outlook for exporters and commodity producers.

The immediate winners from a yuan revaluation would be companies that buy raw materials and other inputs overseas, such as airlines purchasing jet fuel and automakers sourcing parts.

Chinese exporters are likely to be the hardest hit. A relatively mild yuan appreciation against the U.S. dollar of about 5% would cause losses at these companies, says a Reuters poll conducted at China’s top trade fair in April. Following is a list of some likely winners and losers from any yuan appreciation.

CHINA AIRLINES - WIN

China’s three top carriers, Air China, China Eastern Airlines and China Southern Airlines, which borrow in foreign currencies to pay for their aircraft but generate revenue in yuan, could benefit the most. Airlines also use dollars to buy fuel.

Deutsche Bank estimates a 1% yuan appreciation would boost Air China’s 2010 net profit by more than 10%, China Eastern Air’s by 15% and China Southern Air’s by 20.6%.

AUTOMAKERS - WIN

Foreign automakers which sell cars in the world’s largest vehicle market, such as BMW, Volkswagen, General Motors, PSA Peugeot Citroen, the Renault-Nissan alliance and Fiat, should also gain.

BMW would benefit the most if the yuan continues to rise against the euro — an outcome that’s far from certain — as its auto manufacturing joint venture with Brilliance China imports about half its parts, mainly from Germany.

FOREIGN COMMODITY FIRMS - WIN

Commodity prices jumped to a five-week high after China, the world’s third-biggest economy, eased its currency peg to the dollar, spurring bets that global demand for energy, industrial metals and crops will increase.

The reason is simple: A stronger yuan increases buying power.

Ending the currency peg will help curb inflation and shift investment toward service industries from exports and manufacturing, the People’s Bank of China said. The country is the world’s biggest consumer of copper, soybeans, pork and cotton and the second-largest user of corn and sugar.

CONSUMERS, TECHS - WIN

U.S. firms such as General Electric and Proctor & Gamble are likely to make currency-exchange gains when their China profits are converted into U.S. dollars.

A spokeswoman for GE, which makes many of the products it sells in China in that country, said the U.S. conglomerate does not expect “any material impact” to its earnings from the change.

U.S. furniture retailer Ethan Allen Interiors Inc. believes the move will be either neutral or positive, chief executive Farooq Kathwari said at the Reuters Global Retail Summit in New York.

Yum Brands Inc., which owns the KFC and Pizza Hut fast-food chains and generates more than one-third of its profits from its 3,500 locations in China, regards the move as good news, said spokesman Jonathan Blum.

“China represents our No. 1 growth opportunity and we expect this to be a very positive development over the long-term,” Mr. Blum said.

FOREIGN HEAVY MACHINERY MAKERS - WIN

The world’s largest maker of earth-moving equipment, Caterpillar Inc., could be a major winner. The U.S. machinery giant sells billions of dollars worth of machinery and products to China each year. Its group president said on Saturday that Beijing’s move would help lift U.S. exports.

Second-ranked Komatsu said that every 1% rise in the yuan would boost its operating profit by ¥1.1-billion (US$12.1-million).

LUXURY FIRMS - WIN

A firmer yuan would likely boost other Asian currencies as a strong yuan is seen by investors as a pledge of confidence for Asia’s growth. That should help luxury goods makers, whose imported products will be cheaper across the region, just as more Asians benefit from increased wealth.

At the top of the list are those luxury goods companies for whom Asia is a key market, such as Tiffany & Co., Bulgari SpA, Hermes International SCA and LVMH Moet Hennessy Louis Vuitton.

CHINESE FINANCIALS - WIN

Chinese insurance companies such as China Life and Ping An Insurance should benefit as a yuan revaluation is expected to boost China’s domestic A-share stocks, which account for a large chunk of their investment portfolios.

Chinese insurers can put up to 25% of their total investable assets into stocks, but most keep it below that level.

FOREIGN RETAILERS - LOSE

Big retailers that source from Asia, such as Hennes & Mauritz, Target and Wal-Mart Stores Inc., would see a firmer yuan push up their production costs.

It could also hit Walt Disney Co., which has signed a memorandum of understanding to build an amusement park in Shanghai, as it would have to spend more in U.S. dollars to fund investments.

Aeon Co Ltd. said yuan appreciation would have an impact as Japan’s second-biggest retailer imports a large percentage of its products from China. Spokesman Eiichi Yamatani said Aeon would continue to diversify its product manufacturing base due to rising labor costs in China.

COMMODITY FIRMS - LOSE

China’s commodity producers could be hardest hit over the longer term.

Companies such as Aluminum Corp. of China, Zijin Mining and PetroChina face dollar-linked prices for their output, but their costs are in yuan.

If the yuan does strengthen, these firms would find their revenues falling while their costs remain steady.

Reliance Industries buys 95% stake in Infotel Broadband for Rs 4,800 cr

Mukesh Ambani owned Reliance Industries has bought 95% stake in Infotel Broadband for Rs 4,800 crore. Infotel Broadband will now be a subsidary of Reliance Industries. Shares of RIL have been buzzing of late on rumours of foray in the telecom sector.

Unlisted Infotel Broadband Services is the only firm to win broadband spectrum in all 22 zones in India in an auction that ended on Friday. The firm is paying Rs 12,848 crore ($2.7 billion) for the spectrum, the government said. Announcement of the deal came within hours of Infotel emerging as the sole winner of broadband spectrum for the entire country. Reliance would pay this fee, a source direct knowledge of the matter told Reuters on Friday.

This marks Mukesh Ambani group's entry into telecom sector in less than a month of he and his younger brother Anil reaching a truce by ending all the no-compete agreements to enable each other an opportunity to enter and invest in areas hitherto barred under the family settlement reached in 2005 for division of Reliance empire.

RIL will invest Rs 4,800 crore by way of subscription to fresh equity capital at par to be issued by Infotel Broadband, the company said in a statement.

The share prices of both HFCL (promoted by Mahendra Nahata) and HFCL Infotel (promoted by son Anant Nahata) today rose by the maximum limit and closed at Rs 11.39 and Rs 10.14 a share respectively. RIL's shares also surged over three per cent to close at Rs 1,046.25 a share.

SBI : PSU FUND NFO

SBI PSU Fund, an open ended equity fund, would invest in the stocks of Public Sector Undertakings, whose strong presence in high growth trajectory sectors viz; financial services, Oil & Gas, engineering and capital goods space offers you an opportunity to participate in these sectors and benefit over long term.

Investment Strategy of SBI PSUThe primary strategy of the scheme would be to invest in the stocks of the PSU companies. The scheme would endeavor to identify market opportunities and at the same time would sufficiently diversify its equity portfolio and control liquidity risks and non-systematic risks by selecting well researched stocks which have growth prospects on a long and mid-term basis in order to provide stability and possibility of returns in the scheme.

Investment in equities would be done through primary as well as secondary market, private placement / QIP, preferential/firm allotments or any other mode as may be prescribed/ available from time to time

Who should invest ?

■Investors interested in the long term value unlocking in PSUs.
■Investors looking for diversification in their portfolio.

Why should I invest in SBI PSU Fund?
PSUs are the wealth creators of the nation, with strong fundamentals and moreover they are available at attractive valuations compared to broader markets. There may arise several disinvestment opportunities too which shall lead to unlocking of value in these companies.

Wealth Creators
Out of the 30 companies which constitute the BSE Sensex, 4 companies with a combined weightage of 13.54 % are from the PSU space (BHEL, NTPC, ONGC, and SBI). As the graph shows, BSE PSU index outperforms the BSE Sensex index over the years by a substantial margin.
(Source: ICRA MFI explorer. Data as on 30th April 2010. Past performance may or may not be sustained in future).

Attractive valuations

As the table suggests, currently PSU companies are attractively placed in terms of valuations vis-à-vis the broader market indices and the BSE Sensex. BSE PSU Index is trading at relatively attractive trailing P/E multiple of 14.26 as against 17.16 P/E of Sensex companies, with better earning growth rate than the Sensex. Valuations as measured by P/B multiple also suggest that PSUs are better placed than the Sensex companies.
(Source: Bloomberg. Past performance may or may not be sustained in future)

Divestment Opportunity - Unlocking Value

The stage is being set for all listed companies to mandatorily have minimum public holding of at least 25%. Thus PSUs having stake above 75% will have to dilute their holding to that extent. Disinvestment is high on the government’s agenda to increase the threshold limit for non-promoter public shareholding for the private sector as well as public sector companies. PSU companies, other than the listed ones lined up for disinvestment could include Coal India, LIC India, BSNL, Nuclear Power Corporation etc. SBI PSU Fund would also identify investment opportunities in IPOs of these companies. Privatisation has brought out significant value unlocking and greater efficiencies in the past, which lead to re-rating of those companies and eventually leading to wealth creation.

(Source: Bloomberg Past performance may or may not be sustainable in future)

Resilient During Downturn

Historically, we can see that PSUs are less prone to downturns in the markets as compared to broader indices. When the market fell in 2008, the PSU index did not fall as much as the BSE Sensex.

(Source: Bloomberg; Data as on April 2010. Past performance may or may not be sustained in future)

strong Dividend Payouts

While the growth potential clearly exists, there is another aspect that adds to the need to look at PSU companies closely; that is they have a strong dividend payout history.

(Source:Prowess. Past performance may or may not be sustained in future)
Low Debt to Equity Ratio
PSU Companies have very less borrowing as compared to their private peers. They are also having better cash reserves, which makes their debt equity ratio lower, and more attractive for investors.
(Source:CMIE, IIFL. Data: As on 31st March, 2010 Past performance may or may not be sustained in future)