THE ECONOMIC TIMES BANGALORE TUESDAY 9 NOVEMBER 2010

MARKETS 21
ET INDICES Retail 1377.46 ( 4.23%) Sugar 20503.45 ( 4.22%) Infotech 4959.70 ( 1.50%) Logistics 22442.52 ( 1.54%)

S P E C I A L F E AT U R E EVERYDAY SCAMS

TUE The Fixer
WED The Trader
THU The Banker
FRI The Fund Manager
SAT The Equity Seller

The Fixer
JAIN IRRIGATION
MID-TERM PICKS
Co has to strike a BROKING HOUSE: Unicon Securities
MSP STEEL & POWER
balance between BUY
MARKET PRICE: ` 68

growth and debt
Ramkrishna Kashelkar
ET INTELLIGENCE GROUP
Street. They know the corners of the market as well as they know its centre. They
THE results for the September 2010 quarter of Jain Irri-
gation System (JISL) cheered investor sentiments on
Monday as the scrip gained nearly 3% in an overall
weak market. The company reported a 46% jump in its
net profit for the quarter, which is traditionally its lean-
est quarter, and is now trading at more than 34 times its
earnings for last 12 months.
The company had revealed losses in its subsidiaries
for FY10, which had dampened the scrip’s perform-
ance over the past couple of months. The June quarter
numbers, although operationally strong, was weak
thanks to forex losses. Against this background, the
September quarter’s performance provided a much-
needed boost to the investor sentiments.
Out of JISL’s outstanding loans of Rs 1,941 crore,
loans worth Rs 750 crore are in foreign currencies.
With currency rates fluctuating, the company has to
book a mark-to-market loss or profit on these liabilities,
which are notional in nature. These numbers influence
the company’s quarterly earnings to a great extent. For
example, in the
June quarter, it
booked a forex loss
of Rs 20 crore,
which made its net
profit drop below
the year-ago level.
On the contrary, the
strong net profit
growth for the Sep-
tember quarter was
helped by a Rs 21.6
crore forex gain
with the rupee appreciating.
Removing the effect of these forex fluctuations, the
company’s June quarter results were actually better
This is the first in a five-part series of tell-all accounts from the daily work of a
TARGET PRICE: ` 114
MSP IS an integrated steel manufactur-
er with a plant at Jamgaon, Raigarh in
bunch of diverse players in the stock market. They are hardy veterans of Dalal Chhattisgarh. The company has under-
taken a massive phase wise expansion
plan with a focus on backward integra-
tion to increase its pellet, sponge iron
know how to strike a deal, but not all deals they strike are above board. and power capacity by FY12. The target
price is Rs 114.
SANGAM (INDIA)
MARKET PRICE: ` 49.5
BUY
TARGET PRICE: ` 62
SIL IS a fully integrated textile player
with 162,720 spindles of polyester-
viscose dyed yarn, 31,200 spindles for
cotton yarn, 257 weaving machines and
a 31MW thermal power plant. Looking
at its expansion plans, improving prod-
uct mix and new forays, investors may
buy the stock with a target of `62.
HSIL
MARKET PRICE: ` 141
BUY
TARGET PRICE: ` 171
HSIL MAY benefit from expansion to
capture growth opportunities in both
the segments it operates in. Margins
may expand on better realisations, sav-
ings on fuel cost and higher capacity
utilisation. Its wide distribution
network, capex plans, among others,
give sustainability to the business.
ARINDAM
ESCORTS

F P
than the September quarter’s. The company’s operat-
ing profit had grown by 31% in the June quarter; in the
September quarter it grew by just 15% y-o-y. Never-
theless, the net profit at Rs 62 crore made the Septem-
ber 2010 quarter the second-best quarter historically
for the company after the March 2010 quarter, when it
had posted a net profit of Rs 117 crore.
The company’s agri-input business continued to do
well with a 24% growth in sales and 45% growth in pre-
interest-and-tax profits during the September quarter. It
was mainly a volume-led growth particularly in the mi-
cro-irrigation business, which contributes almost half of
the company’s total turnover. As against this, the indus-
trial inputs division registered a dip due to discontinua-
tion of the polycarbonate sheet business last year.
The company plans to achieve over 25% growth at
the topline level for FY11. Considering the company is
OR SOMEONE WHO MAKES NO BONES
about being part of Dalal Street’s dark
underbelly, LM is surprisingly well read,
English classics being his favourite.
Lean and in his forties, he is more than a
broker. He is a fixer — a willing conduit be-
tween promoters of companies and fund
houses, enabling them to do deals that are
not on the right side of the law. He also bro-
kers trades in the grey market for initial
public offerings, and runs a thriving front-
running operation on behalf of fund man-
agers and dealers who execute trades for
their institutional clients.
For the uninitiated, front-running is the
illegal practice of a broker using informa-
tion about a large client’s upcoming trade to
romoters are no angels. LM claims to
know many promoters who hold
more shares (in the companies they
have promoted) than what they have dis-
closed to the stock exchanges. These shares
are held in benaami accounts.
“Promoters are the biggest players in the
stock market. Even respected names who
often preach corporate governance do
this,” he says.
Strangely enough, this sin corrupted the
system only when shares were demateri-
alised way back in the late 90s. “In the days
of physical shares, promoters would learn
the identity of the buyer or seller only when
the shares came to them for transfer. But,
today, promoters can immediately find out
L M pulls out his mobile, a worn-out
revealed, says LM. This helps promoters
flout the creeping acquisition norms, which
restricts the quantum of shares they can
legally buy through open market purchases.
Such promoters have many uses for the
shares held in benaami accounts – they can
indulge in insider trading without the
transactions being traced back to them. It
also helps them avoid the disclosures that
would otherwise have to be made to the
stock exchanges, if they are selling shares in
the open market.
Nokia E50. He scrolls down the text
messages he has received, finds the
one he is looking for and flashes it. The mes-
sage is simple enough – two eight digit fig-
MARKET PRICE: ` 231
BUY
TARGET PRICE: ` 280
WE BELIEVE new launches across the
value chain will increase volumes, going
forward. We expect overall margins to
expand as the new products are in high-
er margin segment, such as the railway
segment which commands ~25% EBIT
margin. At the CMP, the stock trades at
IDBI BANK
11x as per FY12 earnings estimate.

likely to generate two-thirds of its business in the second
half of the year, it is expected to meet the target. The
company is also spending nearly Rs 400 crore in FY11 to
expand its micro-irrigation capacities. As it continues to
grow, managing its debtors and the borrowing levels
would remain the key challenges before it.
ramkrishna.kashelkar@timesgroup.com
GLENMARK PHARMA
profit himself. For instance, the broker can
buy shares for himself before executing a
client’s buy order or sell shares ahead of his
sell order. Sometimes, even the fund man-
ager colludes with the broker, giving him
advance information. The two share the
spoils. This practice has irked SEBI (Securi-
ties and Exchange Board of India) no end.
“Front running can never be eliminated,
but the authorities can at least curb it if they
try hard enough,” says a cocky LM, as he
which fund manager is buying or selling
their stock,” he says. “They use this infor-
mation to play along using benaami ac-
counts.” LM specialises in fixing up such
ures, one with a plus sign before it and the
other with a minus sign. “I am supposed to
receive around Rs 2 crore and pay out
around Rs 1 crore,” he says in a matter-of-
fact tone. This is the net result of the illegal
grey market pre-IPO deals he had indulged
in last week.
He matches buyers and sellers even be-
fore the company has officially allotted
shares to the investors after an IPO. “Grey
market prices can never be set without the
MARKET PRICE: ` 195
BUY
TARGET PRICE: ` 242
IDBI’S THRUST on improving NIMs,
CASA ratio, core operating income,
return ratios will help IDBI emerge as
one of the fastest growing Indian banks.
IDBI delivered strong second quarter
results. The stock is available at P/BV of
1x of FY12E, valuing IDBI’s business at

Betting big on sips his sugarless tea.

Over the years, he has figured out ways
to fool sophisticated surveillance software
participation of either the issue manager or
the promoter,” says LM, who has been ac-
tive in the grey market for the past three
1.4x FY12E P/BV.
DISCLAIMER: The views expressed in these pages are from brokerages, analysts
and fund managers. Readers should seek professional investment advice before

drug for ailment and tapped phones in dealing rooms. He re-

lies on a simple but elaborate system of cod-
ed words. “I can call a dealer on his record-
ed line and get a fairly good idea of what he
years. This is why grey market quotes are
available even before a company has fi-
nalised its IPO price-band, he says.
The banker or a company insider calls up
acting on any recommendation. ET does not associate itself with the choices.
Check out the ET Code of Ethics at www.economictimes.com

related to HIV is up to, even if I don’t have the full details,”

Kiran Kabtta Somvanshi
ET INTELLIGENCE GROUP
THE phase-III trials for Crofelemer for cure of HIV-as-
sociated diarrhoea have been completed successfully.
And that is good news for Glenmark Pharma, since the
drug’s development and commercialisation rights in
select markets have been in-licensed by the company.
The drug, whose launch in India and the rest of the
world is subject to regulatory approvals, is touted to be-
come the first novel drug launched by the company.
The company’s announcement came at a time when
its stock is trading at almost a two-year high, riding on the
wave of a stellar financial performance during the second
quarter ended September 2010. Glenmark’s stock gained
4.4% during the day and closed 3.6% up for the day.
Crofelemer is a first-in-class anti-diarrhoeal drug.
Glenmark’s partners — US-based Napo Pharmaceuti-
cals and Salix Pharmaceuticals — have announced the
completion of phase-III trials for the drug in the US.
Glenmark has in-licensed the developing and market-
ing rights to the drug in 140 emerging markets, includ-
ing India, for multiple diarrhoea indications. The com-
pany also has the exclusive rights to supply the active
pharmaceutical in-
gredient for the drug
globally, except Chi-
boasts LM.
But he won’t say any more on his code or
on the people he colludes with, which is
only natural given the illegal and clandes-
tine nature of his operations.
LM drops a hint to show just how preva-
lent front running is. “Today, both stock ex-
changes have a window for negotiated
deals between institutional players. Yet,
many institutions prefer to route their ne-
gotiated deals through the normal channel,
even though there is the risk of the buyer
not getting the entire chunk he has bid for.
Bypassing the block deal window helps
front running,” he says.
“When a dealer or fund manager tips me
about a large deal and the price, I will put in
a bid a few paise over the order (and few
paise below if it is a sell order), and corner a
small portion for myself first. The stock
price reacts once the large order becomes
public, and that is the time I square off my
position for a profit,” LM says.
The dealer/fund manager also gets his
cut. But, in a block deal, both the buyer’s
and the seller’s identities have to be dis-
closed.
UNIT TRUST
Without trust, none of the
Dalal Street’s many illegal trades
will be possible
promoters with equally compromised fund
managers. It is never too difficult, greed eas-
es the way.
Often, promoters sell parts of their
undisclosed holdings to such “friendly”
fund houses that are looking to buy large
chunks of stock.
“It is a win-win situation. Had the fund
manager bought the shares directly from
the market, the impact of the purchases
would have pushed up his average cost.
The benefit for the promoter is that he has
got the cash, but not lost all influence over
the shares he has sold.”
And when a “friendly” fund sells a large
block of shares, the promoter buys those
shares in small tranches through a clutch of
investment firms, so that his identity is not
a grey market broker and places a buy or-
der for a small chunk of shares at a rate
above the likely issue price. This rate then
becomes the benchmark for future trades
in the grey market.
On the day of listing, the transaction is
“legalised”, by entering the buy and sell or-
ders in the trading terminal, and there is no
way to prove that it was an off-market
transaction to begin with.
“All these trades are done purely in good
faith, there is no documentary evidence. If
somebody goes back on his word, I will
have to make good the losses,” he says with
a wry smile.
He recounts an incident some years
back, when a cartel of buyers refused to ho-
nour their commitments, after a high-pro-
file IPO tanked on listing.
“That disrupted the entire system. Of
course, I was not the only one affected. And
though the IPO market recovered the fol-
lowing year, the grey market picked up
only after some months later, as the trust
among players was broken,” says LM.
And that’s the irony of it – without trust,
none of Dalal Street’s many illegal trades
will be possible.
IN A NUTSHELL
Govt plans divestment in IOC, SAIL
and ONGC in Q1 next year
MUMBAI: The government is likely to dilute its stake in Indian
Oil Corporation (IOC), Steel Authority of India (SAIL) and
ONGC in the January-March quarter of 2011, a top
government official said here. “We are looking at divestment
in Indian Oil Corporation, Steel Authority of India and ONGC
in the first quarter of 2011,” disinvestment secretary Sumit
Bose told reporters. He, however, declined to comment on
the amount that the government is likely to raise from the
three issues. “We can’t do the valuation right now,” Bose said,
when asked about the amount that could be mopped up from
disinvestment in SAIL, IOC and ONGC. Bose also said that the
divestment target of Rs 40,000 crore will be achieved this
fiscal. “We are raising Rs 40,000 crore through divestment
this fiscal. We are now planning to disinvest stake in Shipping
Corporation of India (SCI), Manganese Ore (India) and
Hindustan Copper in the current fiscal year,” Bose said.
Aiming to raise Rs 40,000 crore through disinvestment in the
current fiscal, the government has diluted its stake in Satluj
Jal Vidyut Nigam, Coal India and Engineers India Ltd.
Besides, PowerGrid Corporation’s follow-on offer to raise
about Rs 8,000 crore opens on Tuesday, when the Centre
would disinvest 10% of its 86.36% stake and the company
would raise equal percentage of fresh equity. Last fiscal, it had

Rising cost may pinch JK Cement

na.
Using the clinical
studies conducted in
the US, Glenmark is
looking at seeking
approval for the drug
in India by 2012. It,
typically, takes about
two years post ap-
proval to achieve
peak sales of the drug. Glenmark is looking at a peak sales
opportunity of about Rs 400 crore across all the 140 mar-
kets by 2014-2015. The company, depending on how at-
tractive the research findings are, can extend the launch
of the drug for treating other kinds of diarrhoea indica-
tions like adult diarrhoea, paediatric diarrhoea, etc.
This is good news for the company, but investors
should be cautioned against bearing too much enthu-
siasm too early in the day. The monetary gains of this
development will start trickling in only after two years
from now. Moreover, achieving the peak sales oppor-
tunity is two years away. Investors must keep in mind
that benefits from innovative R&D are not low-hang-
ing fruits. It involves long gestation and execution risks,
too. Though after a series of setbacks and out-licensing
deals, Glenmark has finally got a novel drug at the final
stage, it is still not advisable to discount all the estimat-
ed peak sales from its launch into the present valua-
tions of the company – especially when it is the first-of-
its-kind launch for the company.
kiran.somvanshi@timesgroup.com
Co Reports Rs 21-Cr Net Loss In Sept, But Increasing Demand Gives Room For Optimism
Amriteshwar Mathur
ET INTELLIGENCE GROUP
JK CEMENT, which is focused on
northern India and Karnataka
markets, has seen some investor
interest over the past three months,
despite a rather lacklustre perform-
ance in the September 2010 quar-
ter. At Monday’s close of Rs 170.8,
the stock has gained nearly 11%
during the quarter compared with
a 14.9% rise in the
broader market.
And that’s be-
cause of expecta-
tions of a pick-up in
cement demand in
the post-monsoon,
given strong economic activity in
the country and pick-up in housing
demand. In addition, media re-
ports indicate that cement prices
have risen sharply in several parts
of the country.
For instance, in New Delhi, ce-
ment prices are currently at Rs 220
per bag levels, a rise of 15 % from
three months earlier, as per esti-
mates. Also, in key southern mar-
kets, like Bengalaru, prices are at Rs
235 per bag, a rise of 27 % during
this period. This in turn should help
to bring a turnaround in the com-
pany’s performance, going for-
ward, and also help it overcome ris-
ing input costs, like freight and
power & fuel costs.
However, ce-
ment demand
across the country
in the first half of
current financial
year had grown
barely 5% year –on – year, consid-
erably slower than the growth re-
ported during the earlier financial
years. The country witnessed near
record monsoon in different parts
of the country this year and it ad-
versely affected demand from user
industries, like construction.
Meanwhile, during the Septem-
ber 10 quarter, JK Cement’s oper-
ating profit margin fell by nearly
four-fifth compared to a year earli-
er to 4.7% in the quarter under re-
view. Its net sales also fell marginal-
ly to Rs 434.9 crore in the second
quarter.
For JK Cement, its realisations
declined an estimated 2.2% year-
on-year to Rs 2258 per tonne in the
second quarter. Its dispatches had
grown marginally year-on-year to
1.92 million tonnes in the quarter.
For an all-India player ACC, its re-
alisations also declined nearly
13.8% year-on-year on a per tonne
basis in the September 10 quarter.
Apart from weak realisations, JK
Cement also grappled with higher
costs, like power & fuel that in-
creased nearly 23.4% y-o-y on a
per tonne basis to Rs 574 in the sec-
ond quarter. The company also re-
ported a net loss of Rs 20.8 crore in
the September 10 quarter com-
pared to a net profit of Rs 65.4 crore
a year earlier.
Going forward, managing a ris-
ing cost structure remains a chal-
lenge for the company. At Rs 170.8
per share, JK Cement trades at 12
times on a trailing four-quarter ba-
sis, and is rather expensive.
raised Rs 25,000 crore through stake sale in Oil India, NMDC,
REC and NTPC.
Power Grid Corporation’s follow-on
public offer from today
NEW DELHI: State-run PowerGrid Corporation’s follow-on
offer to raise about Rs 8,000 crore opens on Tuesday, when
the Centre would disinvest 10% of its 86.36% stake and the
company would raise equal percentage of fresh equity. This is
part of the government’s disinvestment target of Rs 40,000
crore for the current financial year. PowerGrid would be the
fourth company after Satluj Jal Vidyut Nigam, Coal India and
Engineers India where the central government would
disinvest part of its holding. The price band for the PowerGrid
FPO was fixed between Rs 85 and Rs 90 on November 7 by a
group of ministers. The capital raised from the FPO will be
used for part funding the PSU’s Rs 55,000 crore capex plan,
with investments worth Rs 30,900 crore lined up over the
next two years. The offer comprises over 84 crore
(84,17,68,246) equity shares of Rs 10 each, constituting 20% of
the existing paid-up capital of the company. The Cabinet
Committee on Economic Affairs gave the nod for PowerGrid’s
follow-on public offer (FPO) on July 22. The PSU has already
tied up for 86% of the funds required for its capex plan and the
remaining amount will be raised through the follow-on public
offer and bonds issues. The company aims to augment
transmission capacity to 23,400 MW in the current fiscal from
19,800 MW at present. PowerGrid had hit the capital market
with its maiden public offer in October 2007. Shares of the
company closed at Rs 98.35, down 3.58%, on the BSE.
THE ECONOMIC TIMES BANGALORE WEDNESDAY 10 NOVEMBER 2010
MARKETS 13
ET INDICES FMCG 6362.00 ( 2.19%) Realty 5993.53 ( 1.56%) Retail 1369.43 ( 0.58%) NBFC 27342.42 ( 0.62%)

EVERYDAY SCAMS

TUE The Fixer
WED The Trader
THU The Banker
FRI The Fund Manager
SAT The Equity Seller

The Trader
This is the second in a five-part series of tell-all accounts from the daily work of a bunch of diverse players in the
stock market. They are hardy veterans of Dalal Street. They know the corners of the market as well as they know
MID-TERM PICKS
BROKING HOUSE: SMC Global
JMC PROJECTS (INDIA)
BUY
MARKET PRICE: ` 208
TARGET PRICE: ` 227
JMC OPERATES in varied segments
such as roads, power, industrial and
housing constructions. A healthy order-
book, tie-ups with bigger companies for
its centre. They know how to strike a deal, but not all deals they strike are above board, writes Santosh Nair better projects, repeat orders from
clients, kick-off into build-own-operate
projects are other factors that boost the

W
ITH his bespectacled, boyish appearance, SK
could easily pass off as a junior investment prospects of this company.
banker. Share prices and fitness are a passion
with this stock and currency trader, who is in his
late-30s. SK is no rookie. He keeps a low profile,
IL&FS TRANSPORTATION
but he has built up sizeable positions and honed MARKET PRICE: ` 322
a razor-sharp instinct on which way the market BUY
will move. ‘Market operator’ is what his peers TARGET PRICE: ` 340
call him; he would rather be known as a trader The company has a pan-India presence
and an investor. in the BOT road sector with interests in a
He believes there is a clear difference in the diverse project portfolio consisting of 22
two roles. “An operator is the engine of a trade; road projects of about 12,000-lane kilo-
his action determines prices. He loads up on a
metres. It also has international
stock, then goes about talking up the price and
convincing fund managers to buy some shares presence through the acquisition of its
off him. I buy a stock if I think it is genuinely un- subsidiary, Elsamex, which is into opera-
dervalued, and then wait for the market to assign tional and maintenance services.
it the right value.” According to brokers, SK is
among the handful of big traders who managed
to call the market crash in 2008 correctly. And if GODREJ INDUSTRIES
his peers are to be believed, SK made an “ob-
scene” profit as the market hurtled downhill. MARKET PRICE: ` 229
BUY
TARGET PRICE: ` 250

I nformation is SK’s key ally. Comfortably en-

sconced in his plush suburban Mumbai office,
he carefully absorbs every byte that comes his
way. On one arm of an L-shaped glass-top table,
two screens are mounted on two more, feeding
Company’s Q2 & H1 FY 2011 perform-
ance has been encouraging. It intends
to double the gourmet retail outlets,
Nature’s Basket, to 20 by March 2011.

him with financial and political news from key
world markets. Adjacent to these are two termi-
nals into which SK punches his trades. On the far
side of the room is a massive plasma television
screen beaming a business channel.
“A golden lesson I learned as a young trader
was: never be the engine of a trade, always be a
bogie. That way the impact is much less in the
event of a collision,” says SK.
But so too are the profits. “That is fine,” he says.
“But survival to me is more important. More
traders are wiped out by over-confidence, rather
than bad markets. Opportunities come knocking
now and then; but you have to be around to seize
them,” says SK, even as his eyes constantly scan
the news and trading terminals.
SK knows what survival means — he’s built an
empire from scratch, a source of inspiration to
scores of day traders who hope to make it big.
He started his career on Dalal Street in Decem-
ber 1991 with a retail brokerage at a salary of
`2,500 a month, pitching stock ideas to clients. SK
moved on to a slightly bigger broking outfit four
years later, and was in charge of servicing high net
worth individuals and domestic institutions. “I
recommended Visual Software to my clients
when the stock was languishing at `30. It went
on touch `10,000 a few years later,” says SK. He,
too, bought some shares and made a profit.
ARINDAM
The company’s products are exported
to around 40 countries, and it leads the
Indian market in the production of fatty
technology bull-run in 1999-2000. “I got most of call it. Unless the market actually reverses, I will a safe margin. “When your positions grow to a acids, fatty alcohols and AOS.
my calls right, and managed to retain most of my not scale up my bets,” he says. certain size, information comes looking for you.
profits when the market crashed. But, I lost a But the fact that he made a killing when the A lot more players are willing to talk to you than
good chunk of it when I tried to deploy it in un- market crashed in 2008 doesn’t quite fit in with they would otherwise.” And then, he throws the WELSPUN INDIA
listed companies, which appeared to be blue chips the wait-and-watch theory. Clearly, the instinct question back: “What exactly do you define as
in the making at that time,” says SK. — and his network — does come to his rescue at inside information?” MARKET PRICE: ` 73
The market has been on a tear for a few weeks, times. He explains how: “The market had already Well, there’s a little buzz doing the rounds of BUY
TARGET PRICE: ` 81
but SK says it has been more beneficial for in- begun to reverse, but for some reason, even the Dalal Street. On how operators and big traders
vestors than traders. “Traders have not benefited best of players — be they operators or fund man- have “friends” among dealers at foreign broking The company has strategically located
to the extent that prices seem to suggest. The agers — chose to ignore them.” houses and among fund managers, who tip integrated manufacturing facilities in
movements have been too For SK, the trigger was them off on what they are buying or selling. Anjar and Vapi in Gujarat. WIL plans to
sudden for them to be able the Reliance Power IPO. SK steers clear of it all. “The days when one spend `3 billion in FY11 to enhance ca-
to profit. But those having a He ran a check with lead- could profit by front running client orders at a pacity in towels, bed linen and bath
portfolio containing decent ing financiers and his large broking house are long gone. The market rugs. It sell its products in 32 countries
mid-cap stocks have hit the friends at large retail bro- has become too big. Unless one knows all the and is planning to tap new markets in
jackpot,” says SK. kerages. It emerged that large orders at all the foreign broking firms, an
He’s clear about what many high net worth operator is more likely to lose money by front Japan, Singapore and the Middle East.
makes a good trader. “Disci- clients had borrowed running, rather than make it. Even otherwise, it
pline, as much as skill. As a
RIGHT TRACK
heavily to invest in the is the promoters who are the biggest operators NAHAR IND ENTERPRISES
rule, I square off my out- IPO, and most retail in- today, and nobody can touch them,” says SK.
standing positions if they “Never be the engine of a vestors had liquidated Front running is the illegal practice of a broker MARKET PRICE: ` 96
show a loss of 1% at the trade, always be a bogie. That their other holdings to trading in a stock in his own account based on BUY
TARGET PRICE: ` 105
end of the day,” he says. His way, the impact is much less subscribe to the share is- the information of what his client is going to do.
principle is that if he is going sue. Thus, a huge chunk For instance, the broker can buy shares for him- NIEL’s client base is extremely diverse
long on a stock, it should in the event of a collision.” of retail money was self before executing a client’s buy order or sell with no one customer accounting for
not have fallen more than locked up in the issue. “If shares before a sell order. more than 5% of total revenues. NIEL’s
1% that day, and if he has institutional investors SK is known to be well connected with traders strategic objective is to capitalise on the

S K’s stock ideas and his passion for work im-

pressed one of his high net worth clients,
who would later turn out to be his mentor.
This client persuaded SK to buy a membership on
the BSE in 1998, when the market was going
through a downturn. “I paid `1 crore for the BSE
card, and invested nearly 90% of my savings. But
short sold, the stock price should not be 1% above were to start selling, there was little retail liquidi-
his selling price that day. He says he has lost ty to hold the market up. I took a calculated bet
whenever he has strayed from this strategy. and increased my short positions,” he says. Only
And true to his philosophy of being a bogie, SK four other large traders took a similar bearish
waits for clear signs of a trend reversal before in- view on the market, he says.
at foreign broking houses. But, to him, it’s a sim-
ple deal, involving an exchange of information.
“Market information always helps. I never ask
them specifically what they are buying or selling.
But I would like to know if they are broadly net
growth opportunities in the domestic
and global textile industry. Company
has planned expansions in spinning
and weaving capacities.
creasing the size of his positions. “I may think that buyers or net sellers. That helps me form my DISCLAIMER: The views expressed in these pages are from brokerages, analysts
the market is overvalued at 20,000, or that it is

S taying two steps ahead of the pack always view on the market. Besides, if they want my and fund managers. Readers should seek professional investment advice before
in hindsight, it was a good investment,” he says. undervalued at 8,000, and my assumption may helps. But being an “insider” can give a views and my market information, they better acting on any recommendation. ET does not associate itself with the choices.
Check out the ET Code of Ethics at www.economictimes.com
SK says he made a “decent” profit during the be right. But I do not want to be the first person to trader the extra edge, too. On this, SK keeps give me some information as well,” he says.

WINDOW TO THE WORLD

Auto volume Closely-held firms with undisclosed profits are beginning to act more like Wall St banks, looking to fend off
tighter rules and appease lawmakers who say the firms put small investors at a disadvantage
growth to decide
Motherson fate High-frequency traders lobby to head off rules
Shikha Sharma
ET INTELLIGENCE GROUP
AUTO ancillary firm Motherson
Sumi System (MSSL) posted a ro-
bust consolidated net profit growth
for the quarter ended September
2010 backed by strong perform-
ance of its domestic operations.
However, its overseas subsidiary,
which contributes more than half
the consolidated revenue, has im-
pacted the overall topline growth
due to muted sales growth in the
international market.
MSSL is a leader in wire-har-
nessing products, with 50% share
in the domestic market. Its acquisi-
tion of Visiocorp’s rear-view mirror
business in 2009
catapulted it to the
position of the
largest global play-
er in that segment.
The company’s
consolidated sales
increased 20% to `1,916 crore for
the three months to September
2010, mainly due to the over 77%
growth in domestic sales, as auto-
mobile demand zoomed. Howev-
er, its overseas arm, which supplies
rear-view mirror to carmakers,
saw only a single-digit growth in
revenues due to weak demand in
Europe. The region contributes
close to half of its sales followed by
Asia and USA. The company con-
tinued to improve its operating
margin for the second straight
quarter. Notwithstanding the ris-
ing commodity prices, the margin
improved by 500 basis points in the
September quarter.
It has so far been able to control
its operating expenses efficiently.
The firm also benefited from mod-
eration in interest and deprecia-
tion cost, which led to net earnings
of `85 crore for the quarter ended
September 2010, about six times
the net earnings during the same
period last year.
With October 2010 automobile
sales figures showing higher
growth due to the festive season,
there is reasonable visibility for
strong revenue in the coming
quarters as well for MSSL. This is
already visible in the sequential
growth in its topline. It grew by 3%
in the September 2010 quarter
from the previous quarter’s levels.
Going forward, MSSL has plans
to invest `400 crore to `500 crore
by the end of the current fiscal to
expand production capacity for
harnessing wire in passenger cars,
which could provide an upside for
revenue. Further,
the company is fo-
cusing on growth
in capital employed
as against main-
taining operating
margin in the long
term. This can result in making
every unit profitable, which will
also add to the bottomline in the
coming quarters.
MSSL has matched the rise of
ET Auto Ancillary index, with its
scrip climbing 9% in the past three
months. At the last traded market
price of `185, the stock has a P/E of
close to 17 on a consolidated basis
for the trailing four quarters ended
September 2010. This is lower
than the industry average of 22 for
the auto ancillary sector.
The stock has gained over 70%
in the past one year, but a similar
surge again looks difficult. The
earnings growth in the coming
quarter will depend on how fast
auto volumes pick up in the inter-
national market and how well the
firm manages the rising cost of pro-
duction since commodity prices
have once again begun hardening.
Jesse Westbrook,
Robert Schmidt & Frank Bass
WASHINGTON
THE high-frequency trading industry is stepping
out of the shadows in Washington.
Closely held companies with undisclosed
profits and obscure names like Getco LLC, Hard
Eight Futures LLC and Quantlab Financial LLC,
are beginning to act more like Wall Street banks,
cutting checks to politicians, forming trade
groups and hiring lobbyists and ex-regulators.
They’re looking to fend off tighter rules and ap-
pease lawmakers who say the firms disadvan-
tage small investors and contribute to wild
swings in stock prices. While the companies,
which use high-powered computers to execute
thousands of trades in milliseconds, aren’t ap-
proaching the big banks in Washington spend-
ing, they have more than quadrupled their po-
litical giving over the last four years, a
Bloomberg News analysis shows. The top recip-
ients include Eric Cantor, set to become House
majority leader, and several incoming senators
who won in last week’s Republican rout.
“They are under attack as an industry and
they are fighting back,” said James Angel, a pro-
fessor at Georgetown University’s business
school who is on the board of Direct Edge Hold-
ings LLC, which operates stock exchanges.
In just over a decade, high-frequency trading
has evolved from a little-known investment
strategy practised by mathematicians to a force
that accounts for the majority of US stock trades.
The companies, which prefer to be called auto-
mated proprietary trading firms, say they bene-
fit all investors by keeping markets liquid and
transaction fees low.
The Securities and Exchange Commission is
less certain of the benefits. The agency is consid-
ering a requirement that high-frequency traders
keep buying and selling shares during periods of
stress, instead of just abandoning the market.
The SEC is also evaluating whether it should
slow down computers that submit and cancel
thousands of orders in milliseconds by requiring
bids to stand for a minimum amount of time.
While regulators may need to address some
issues, any rules shouldn’t get in the way of in-
novation, said David Hirschmann, president of
the US Chamber of Commerce’s Center for Cap-
ital Markets Competitiveness, whose trade
group’s members include stock exchanges, fi-
nancial firms and public companies.
The SEC and members of Congress already
were examining the business when the May 6
market plunge temporarily wiped out $862 bil-
lion of share value in 20 minutes. Although an
investigation by regulators didn’t put direct
blame on high-frequency firms, the volatility of
stock prices focused more attention in Washing-
ton on their operations.
“Those with powerful computers are able to
use them to their own financial advantage,” Sen-
ator Carl Levin, a Michigan Democrat, said on
September 28 on the Senate floor. “Those who
exploit our markets to the detriment of long-
term investors and the real economy will not be
able to do so without a battle from the Senate.”
In addition to writing proposed rules, the
SEC’s enforcement division is investigating
whether computer-driven traders have manip-
ulated prices. The scrutiny has spurred the in-
dustry to seek friends in Washington. Managers
and employees of 21 of the largest computerised
trading firms, including Getco, Allston Trading
LLC and Infinium Capital Management LLC
gave about $490,000 for this year’s congression-
al elections, compared with just over $100,000
in 2006, according to federal election reports
filed through October 15.
SEC chairman Mary Schapiro in September
2009 began issuing proposals to curtail market
developments that cater to the industry. After the
May 6 stock plunge, she went even further by
saying the SEC will examine whether it should
restrict a practice by high-frequency firms of can-
celling most of the orders they submit.
Last January, Representative Cantor of Vir-
ginia, the second highest-ranking Republican in
the House, sent Schapiro a letter saying her
agency’s ideas for regulating fragmented, elec-
tronic markets, including a proposal that would
prohibit exchanges from giving high-frequency
traders and other market participants a split-sec-
ond peek at stock orders, “appeared ad hoc in
nature.” The SEC should “collect all the facts and
develop coherent and rational policy objectives
before adopting any potentially far-reaching
rulemaking proposals,” Cantor wrote in the Jan-
uary 27 note.
Cantor, who helped spearhead his party’s suc-
cessful campaign to win the House back from
Democrats, has been among the largest recipi-
ents of contributions from the industry, with he
and his political action committee taking in
$23,000 since last year, records show.
Another advocate for electronic trading has
been Representative Jeb Hensarling, a Texas Re-
publican who sits on the House Financial Ser-
vices Committee. Hensarling and Representa-
tive Spencer Bachus, the Alabama Republican
in line to become chairman of the financial serv-
ices panel, advised Schapiro in an August 24 let-
ter to get a better understanding of what caused
the crash before “assigning blame to algorithmic
or high-frequency trading firms”. Hensarling re-
ceived $4,800 last month from Suhas Daftuar
and Alexander Morcos, two managing directors
of Hudson River Trading LLC, a New York high-
frequency trading firm. Hudson River Trading
didn’t respond to a request for comment.
In June, about two dozen high-frequency
trading firms formed a trade association to re-
spond to legislative and regulatory proposals.
Known as the Principal Traders Group, the asso-
ciation said it plans to reach out to the media to
improve its understanding of electronic trading.
The Principal Traders Group is a part of the
Futures Industry Association, which advocates
on behalf of financial companies in Washington.
The unit doesn’t lobby, said Overdahl, a former
chief economist at the SEC and Commodity Fu-
tures Trading Commission.
Still, a number of high-frequency firms, in-
cluding members of the Principal Traders Group,
have retained former aides to lawmakers to
push their interests in Washington.
Getco in April 2008 hired the Rich Feuer
Group, which represents financial titans such as
Goldman Sachs Group Inc and Credit Suisse
Group AG. Getco has paid Rich Feuer at least
$730,000 in the past two years to lobby Con-
gress and the SEC on rules affecting electronic
trading and US market structure, according to
federal disclosure records.
RGM Trading LLC, a high-frequency trader
based in Austin, Texas, hired Patton Boggs LLP’s
Micah Green this year. Green, who was head of
the Bond Market Association, also lobbies on be-
half of Quantlab, a computerised trading firm
based in Houston. RGM and Quantlab didn’t re-
spond to requests for comment.
Some companies have also employed former
regulators. Getco hired SEC lawyer Elizabeth
King in June, adding to a roster of agency alum-
ni that includes John McCarthy, the company’s
general counsel, and former SEC Chairman
Arthur Levitt, who’s a consultant. Cameron
Smith, Quantlab’s general counsel, worked at
the SEC in the 1990s. Levitt is a board member
of Bloomberg LP, the parent company of
Bloomberg News.
The high-frequency trading firms’ Washington
education is following a well-worn path, travelled
by such companies as Microsoft and Google that
avoided the political process until they grew too
big to escape notice. “Like so many other cutting
edge technologies that have run into the media
and regulatory whipsaw, high-frequency trading
firms would be smart to engage in the Washing-
ton public policy discussion,” said Israel Klein, a
lobbyist at the Podesta Group who represents fi-
nancial companies. — Bloomberg
THE ECONOMIC TIMES BANGALORE THURSDAY 11 NOVEMBER 2010
ET INDICES Shipping 12419 (
Smooth drive
abroad,hurdles
in home run
TATA MOTORS
Amriteshwar Mathur
ET INTELLIGENCE GROUP
THE stock of Tata Motors hit its all-time high of `1,350
during the intra-day trading on Wednesday, in re-
sponse to the company’s robust second-quarter per-
formance. This, once again, highlights the strong per-
formance of the company’s overseas operations, in-
cluding those of Jaguar and Land Rover (JLR).
A major highlight of its performance was the fact
that with business growth, profitability also improved.
The company’s consolidated operating margin rose by
770 basis points (bps) to 9.5% (excluding amount cap-
italised and other non-core items) compared with a
year earlier. Net sales grew by 36.5% to `28,782 crore
in the quarter under review. JLR accounts for nearly
56.2% of its consolidated quarterly turnover.
The growth momentum for JLR operations came not
only from a 21% rise in volumes for its models during the
quarter, but also from the improved realisation per vehi-
cle and a better product mix. In addition, a weaker pound
against the dollar helped realisations and operating mar-
gins. This enabled the company to deal effectively with
the gruelling prob-
lem of rising metal
and allied costs. With
this, Tata Motor’s
consolidated net
profit has reached a
normalised propor-
tion to sales. It surged
nearly 100 times to
`2,223 crore in the
quarter, given a low-
base effect of the pre-
vious year.
However, the picture is not that promising on the
home front. Tata Motors’ India business is facing cost
pressure amidst the rising interest rate regime. The com-
pany had hiked prices during the first half of the finan-
cial year, but that could not protect its domestic margins,
which shrank by 310 bps to 7.7%. The company hiked
prices again in October. In addition, the domestic auto fi-
nance rates are firming up and that may impact sales vol-
ume growth over the next few quarters. Currency fluc-
tuations would also play an important role given the in-
creasing proportion of the company’s overseas activities.
This, in turn, could cause fluctuations in its consolidated
margins. On a positive note, demand conditions in the
key markets of JLR, like Russia, China and North Ameri-
ca, are expected to continue in the short term, given the
pick-up in economic activities in these countries.
The stock of Tata Motors trades at a P/E of nearly
10.7 times its trailing 12-month consolidated earnings.
This seems to fully reflect the market’s expectations
about the company’s future growth.
BHARTI AIRTEL
Co rings in more
customers,but
not better value
Ranjit Shinde and Parul Bhatnagar
ET INTELLIGENCE GROUP
BHARTI Airtel’s September 2010 quarter numbers
raise doubts over its ability to add new subscribers to
the mobile network. The country’s largest telecom op-
erator continued to report decent user additions during
the quarter but failed to show any meaningful addition
to the minutes of usage on its mobile network.
Telecom penetration in India has increased at a phe-
nomenal pace over the past few quarters. Just from 49%
a year ago, it now stands at close to 66%, largely fuelled
by the entry of new players and the conscious attempt by
existing operators to cover remote areas. But minutes of
usage have either remained stagnant or fallen in some
cases. This may cause some concern since minutes of use
reflect how efficiently the network is utilised.
For Bharti, minutes of usage remained more or less
stagnant at 190.8 billion minutes during the September
quarter from the previous quarter though it added 6.7
million new subscribers. According to Bharti’s manage-
ment, the second quarter is traditionally a weak quarter
given the torrential rains and other seasonal factors. But
historical data shows that the company’s sequential rate
of growth in network minutes during the September
2010 quarter was the lowest compared with figures in
the corresponding period of the previous two years.
This means that additional users may no more bring
additional minutes
to the network. It
needs to be seen
whether the trend
continues in the
coming quarters.
Bharti’s second-
quarter numbers are
not strictly compa-
rable with its per-
formance in the pre-
vious quarter since it
has consolidated the
full quarter results of its African venture. While this has
boosted its topline significantly, its margin profile has
eroded given the lower profitability of the African busi-
ness. At 23.9%, the African business’s operating mar-
gin before depreciation is way below the 35.2% margin
of its mobile business in India and South Asia.
Bharti has two operational levers to improve the
profitability of its African operations. First is network
utilisation. Currently, the number of customers per cell
site is lower. Bharti has taken initiatives to improve the
situation. The second is to improve operational effi-
ciency by employing its famous outsourcing model.
The company has entered into partnership with IT
players, including IBM, Pinnacle and Tech Mahindra,
to initiate outsourcing. This may help in offsetting the
impact of high labour costs going ahead.
So far, Bharti’s stock has not participated in the
broader stock market rally. It gained a meagre 2% in
the past three months compared with the 14% gains in
the benchmark Sensex. The benefits from the 3G
launch expected in the next two quarters and a gradual
turnaround in its African business are long term in na-
ture. In the near term, however, the stock’s movement
may be restricted given the lack of any fresh triggers.
3.76%) Consumer Dur 14477 (
EVERYDAY SCAMS
TUE The Fixer
WED The Trader
THU The Banker
The Banker
This is the third in a five-part series of tell-all accounts from the daily work of a
bunch of diverse players in the stock market. They are hardy veterans of Dalal Street.
They know the corners of the market as well as they know its centre. They know how
to strike a deal, but not all deals they strike are above board, writes Santosh Nair
S
J HAS been an investment banker for near-
ly 12 years. He started as an analyst at a
leading domestic investment-banking
house, and after a few job changes, heads
the ECM (equity capital market) division at
a relatively well-known firm. The ECM
team of an investment bank helps compa-
nies raise money from the stock market
through initial public offerings, follow-on
public offerings and private placements.
“My job is more about balancing the inter-
ests of my colleagues and the client,” says SJ.
Here’s how it works. The coverage banker
responsible for a particular sector in the firm
gets the mandate from a company looking to
raise money, and passes on the lead to SJ.
“My boys work out the best price at which
the issue can be sold,” says SJ. “The price can-
not be too low because the coverage banker
has promised the moon to his client. It cannot
be too high because my colleagues in the sales
division will have trouble selling the issue to
fund managers. If they push an overpriced is-
sue and it bombs, it spoils their relations with
those fund managers,” explains SJ.
It is a fiercely competitive business. SJ says
there is little to distinguish between the serv-
ices offered by the top-10 investment banks
when it comes to raising money. “Every in-
vestment bank may know a few clients that
their rivals don’t, but then a lot depends on
market conditions as well,” he says. “No
matter how good the bankers, if the market
is unfavourable, a company will have to set-
tle for the price decided by the buyers.”
S J has been working nearly 16 hours
everyday for the past few months as
the stock market is in the throes of a
bull run, and companies are rushing to raise
money when the going is good.
Before making a pitch to a prospective
client, the ECM head has to tap someone
within the line-up of decision makers. It
could be the promoter, or some other key
investor on that company’s board. “It helps
if one of them reveals what other bankers
have quoted. We can then rework our deal
accordingly,” SJ says.
The standard opening gambit of a sales
pitch is a bout of rah-rah. “You always say
you are number one,” chuckles SJ. “It is an-
other matter you use a parameter of your
choice. So, you could be the number one
capital arranger for a particular sector, or
over a certain period, or in a specific role,
but you are number one.”
Once you get a foot in the door, says SJ,
you have to promise the best possible valua-
tion to the promoter. But isn’t it risky to
promise a price that is hard to deliver on?
“Not really,” says SJ. After getting the man-
date, it takes two months to prepare the offer
document, and 30-45 days for Sebi clear-
ance. Then, there are road shows to gauge
investor appetite, which takes a few weeks.
That’s enough time to cite a change in mar-
ket conditions — and lower the issue price on
that pretext. Even companies, exhausted by
the efforts of the past few months, are less de-
manding. “For them, to appoint a new set of
bankers would mean going through the en-
tire process all over again,” says SJ. “Most of
them are reluctant to do that.”
Swap failure costs US taxpayers $4 b
Michael McDonald end agreements since 2008.
BOSTON California’s water resources de-
partment this year spent $305 mil-
THE subprime mortgage crisis isn’t lion unwinding interest-rate bets
the only calamity Wall Street creat- that backfired, handing
ed that’s upending the finances of
US states and cities.
over the money to
banks led by New
For more than a decade, banks York-based Morgan
and insurance companies con- Stanley. North Caroli-
vinced governments and nonprof- na paid $59.8 million in
its that financial engineering would August, enough to
lower interest rates on bonds sold cover the annual
for public projects such as roads, salaries of about 1,400
bridges and schools. That failed full-time state employ-
promise has cost more than $4 bil- ees. Reading, Pennsylvania, which
lion, according to data compiled by sought protection in the state’s fiscal-
Bloomberg, as hundreds of bor- ly distressed communities pro-
rowers from the Bay Area Toll Au- gramme, got caught on the wrong
thority in Oakland, California, to end of the deals, costing it $21 mil-
Cornell University in Ithaca, New lion, equal to more than a year’s
York, quietly paid Wall Street to worth of real-estate taxes.
MARKETS
3.04%) Cement 10618 (

FRI The Equity Seller
SAT The Fund Manager
As along as the price is not way below
their expectations, promoters usually go
along with the revised price. But promoters
are a savvy bunch, he adds. “Most promoters
understand the market much better than in-
vestment banks or broking houses,” says SJ.
Theirs is first-hand knowledge, he adds, and
drops a bomb: “You can count the number of
mid-cap companies whose promoters don’t
dabble in the market on your fingertips.”
O nce the mandate is bagged, an invest-
ment bank tries to convince the pro-
moter that it be made the sole lead
manager to the issue, says SJ. Almost all the
top investment banks service the same set of
institutional clients, with some minor varia-
tions. The retail portion of the book is out-
sourced to a syndicate of brokers anyway.
But the promoter rarely agrees to this con-
dition. After all, he enjoys good relations
with other banks as well and may need their
support at some time. Then, there are banks
that will come asking for a role in the syndi-
cate, however small, to improve their posi-
tion in the league table. “Usually, the pro-
moter obliges, even if he knows it won’t
make much of a difference to the issue,” says
SJ. “Often, it is due to good relations between
the company and that investment bank, or
BANK ACCOUNT
“There are promoters who are
so well connected that they can
be more effective than five top
investment banks put together.”
the banker himself.”
The coveted position in the syndicate is
that of the left lead — the name that ap-
pears first among the list of bankers. Techni-
cally, the left lead has a greater say in the
way the issue is managed, though its fee
might not be significantly higher than what
other banks in the syndicate get. The left
lead is responsible for interacting with Sebi
till the offer document is cleared. It is the
face of the issue till approvals come. For this
effort, it is paid an additional fee. SJ says a
greater number of merchant banks don’t
necessarily improve an issue’s prospects.
“Companies have this misconception. They
think if one bank can’t get the client, another
will. But that is not always true,” he says. “In
fact, the responsibility gets diffused if there are
too many (merchant) banks.”
There are promoters who are so well
connected that they can be more effective
than five top investment banks put togeth-
er, says SJ. He recalls an infrastructure firm
whose IPO was about to flop because of a
bad market. “I was part of the syndicate ad-
The termination payments to
Wall Street firms come at the worst
possible time. The longest recession
since the Great Depression left states
facing budget gaps of
$72 billion next fiscal
year, according to the
National Conference of
State Legislatures. US
cities saw their general
fund revenue fall the
most since at least 1986
in the budget year that
ended June 30, accord-
ing to the National League of Cities.
Wall Street banks and insurers
peddled financial derivatives
known as interest-rate swaps to
governments and nonprofits that
bet they could lower the cost of
borrowing. There were as much as
1.20%) Teleserv 1524 (
ARINDAM
vising that company. Everybody thought
the best strategy would be to retreat and re-
launch the issue when market conditions
improved. The promoter would have none
of it. It just took him a few phone calls.”
A large domestic institution and the
treasury of one of the most aggressive pri-
vate banks together subscribed nearly the
whole issue, he recalls. There was not a sin-
gle foreign investor in the qualified institu-
tional buyer portion. “The promoter gave
his word to the two big buyers that he
would hold the price for at least the first few
weeks after listing, which he again man-
aged, thanks to another set of phone calls.
That was something,” he says.
T he biggest bone of contention among
the syndicate members is the distribu-
tion of clients. Every bank tries to
keep the best clients for itself. “When it is
time to decide on the client list, and who
will approach whom, a brawl invariably
breaks out,” he laughs. “The argument
sometimes drags on for an hour or two and
it can be amusing to see suave bankers al-
most coming to blows.”
It’s settled in an old-fashioned way. Chits
are drawn to decide which bank gets to
choose first. The stronger banks usually cor-
ner the best clients, and the smaller banks are
left with the dregs. At times, there are fights
over trivial matters as well. For instance,
who gets to speak first at the IPO press brief-
ing. Or, who sits where on the dais. “Yes, that
is also a matter of pride,” says SJ.
There is no shortage of upmanship among
bankers and daggers are always ready.
SJ recalls the issue of a prominent real es-
tate firm in 2008, a few months after the
stock market crash. The company had ap-
pointed half-a-dozen bankers to sell the is-
sue. But two of the investment banks, who
had been designated as ‘global book run-
ning lead managers’, insisted they get the
top 70% of the clients on the list. “The com-
pany should have refused this outrageous
demand, but it chose to go with the two
banks,” says SJ. “The rest of us were miffed,
but there was little we could do. The mo-
ment we began sounding out the handful of
clients allocated to us, we knew the issue
was headed for trouble. There was just no
demand because of the expensive valuation
and the fragile market sentiment,” he says.
Even the two ‘big boys’ had a similar expe-
rience, continues SJ, but they would not ad-
mit it. The other four banks decided to take
things easy, as they were not managing the
show. Also, an issue by a hospital chain had
bombed a few weeks ago. “So we would not
be the first to fail.” In the evening conference
call to assess demand for the issue, the big
boys asked the other four banks on the re-
sponse they were getting from clients. “We
knew the big boys were not finding any buy-
ers and were afraid to admit that. So, we cor-
nered them,” says SJ. “We told them that our
clients are willing to invest, but they would
like to know the bids by some of the bigger in-
vestors. The big boys had no answer to that.
As hard as they tried, we refused to reveal our
cards.” The issue fell through. Sometimes
friends, sometimes foes, it’s all in a day’s work.
$500 billion of the deals done in the
$2.8-trillion municipal bond mar-
ket before the credit crisis, accord-
ing to a report by Randall Dodd, a
senior researcher on the Financial
Crisis Inquiry Commission, pub-
lished by the International Mone-
tary Fund in June.
Borrowers from New York to Cal-
ifornia are now paying to get out of
agreements. Altogether, they have
made more than $4 billion of termi-
nation payments to firms including
New York-based Citigroup Inc, New
York-based JPMorgan Chase & Co
and Charlotte, North Carolina-
based Bank of America Corp since
the beginning of 2008, according to
a review of hundreds of bond docu-
ments and credit-rating reports by
Bloomberg News. —Bloomberg
13
1.32%)
MID-TERM PICKS
BROKING HOUSE: Eastern Financiers
VARDHMAN TEXTILES
BUY
MARKET PRICE: ` 353.20
TARGET PRICE: ` 520
VARDHMAN’S PRODUCT portfolio
includes yarn, processed fabric,
sewing thread, acrylic fibre and alloy
steel. The numbers for the first two
quarters have been encouraging. It
has lined up huge expansion plans
and is considering restructuring its
steel division. Expected FY11 EPS is 65.
BAJAJ HOLDINGS & INVESTMENT
MARKET PRICE: ` 929.80
BUY
TARGET PRICE: ` 1,200
BHIL has unquoted investments in
debentures, bonds, government secu-
rities and mutual funds. The current
NAV taking all investments except list-
ed equities at book value is around
1650. BHIL gives handsome
dividends; the current dividend yield
works out to 3.25%.
CENTURY PLYBOARDS
MARKET PRICE: ` 66.10
BUY
TARGET PRICE: ` 90
CPIL may come out with an IPO of its
cement unit. This will unlock value for
shareholders in future. Volume led
growth in cement and full scale opera-
tions of the CFS business in FY12 will
lead to a significant jump in
bottomline and margins. The target
price is `90.
DHUNSERI PETROCHEM & TEA
MARKET PRICE: ` 229.20
BUY
TARGET PRICE: ` 315
DHUNSERI PETROCHEM & Tea
reported a jump of 183.8% in its
bottomline for the quarter ended Sep
2010. We expect the company to
report a strong jump in both topline
and bottomline once the new
capacities are on stream. The target
price for the stock is `315.
DECCAN CHRONICLE HOLDINGS
MARKET PRICE: ` 141.30
BUY
TARGET PRICE: ` 198
DCHL PUBLISHES Deccan Chronicle
and owns IPL team Deccan Chargers. It
operates the retail chain Odyssey. The
expected EPS for FY11 and FY12 is 14
and 18. The scrip is available at a stand-
alone discounting of 9 and 7 times,
respectively. The numbers do not
include Deccan Chargers’ valuation.
DISCLAIMER: The views expressed in these pages are from brokerages, analysts
and fund managers. Readers should seek professional investment advice before
acting on any recommendation. ET does not associate itself with the choices.
Check out the ET Code of Ethics at www.economictimes.com
IN A NUTSHELL
Power Grid FPO subscribed
almost twice on day two
MUMBAI: The follow-on public offer (FPO) of the state-run
transmission firm Power Grid Corporation of India was
subscribed by more than 1.8 times on the second day on
Wednesday. The institutional portion of the book was
subscribed by over seven times on day two as against over
two times on day one. The FPO is part of the government's
plan to raise `40,000 crore in the fiscal year ending March
2011 by disinvesting some of its stakes in state-run firms.
Power Grid will use the funds raised from the FPO for part-
funding its capex plan. The company's shares closed at `102
on the BSE on Wednesday.
Sebi imposes `3-lakh fine on Religare
MUMBAI: The Securities and Exchange Board of India, or Sebi,
has slapped a `3-lakh fine on Religare Securities, which was
accused of violating norms related to client accounts. In a
circular released on Wednesday, the markets regulator said,
“It has failed to be prompt and diligent in processing and
handling account-opening forms, account information
modification requests and demand requests.” Religare has
also failed to ensure satisfactory internal control procedures
and adequate mechanism for reviewing and monitoring its
internal control and system at its branches, the circular said.
Bharti may list tower subsidiary
NEW DELHI: Bharti Airtel on Wednesday said it may look at
listing its telecom tower subsidiary — Bharti Infratel.
Announcing the second-quarter results of the company,
group CFO Manik Jhangiani said the company may look at
an initial public offer (IPO) for its tower unit, although there
was no definite time plan. Bharti Infratel, a wholly-owned
subsidiary of Bharti, provides passive infrastructure services to
telecom operators. It deploys, owns and manages passive
infrastructure in 11 circles of India. Infratel also holds 42%
share in Indus towers (a joint venture between Bharti
Infratel, Vodafone and Airtel).
S’pore Exchange nod for India Infoline
MUMBAI: India Infoline has got Singapore Exchange’s
approval to become a trading and clearing member there. The
move will allow the Mumbai-based brokerage to start broking
services in Singapore, where it set up office in early 2008, an
India Infoline release said here on Wednesday.
Parsvnath to raise `100 cr via pvt equity
NEW DELHI: Realty firm Parsvnath Developers is likely to raise
about `100 crore this month by selling stake in a housing
project to a private equity firm. According to sources, talks are
in an advanced stage with a couple of private equity (PE) firms
and the deal is likely to be finalised this month. Parsvnath
Developers spokesperson could not be reached for comments.
THE ECONOMIC TIMES BANGALORE FRIDAY 12 NOVEMBER 2010
MARKETS 13
ET INDICES Logistics 22750.34 ( 0.15%) Metal 20647.22 ( 0.23%) Sugar 20622.08 ( 2.57%) Realty 5778.68 ( 3.13%)

EVERYDAY SCAMS

TUE The Fixer
WED The Trader
THU The Banker
FRI The Equity Seller
SAT The Fund Manager

Overseas growth
helps mitigate
HINDALCO

Equity Seller MID-TERM PICKS

BROKING HOUSE: Microsec Capital
MAX INDIA
BUY
MARKET PRICE: ` 169.55

domestic slump
Abhineet Singh
ET INTELLIGENCE GROUP
THE robust performance of the overseas subsidiary
may offer some solace to investors of Hindalco Indus-
tries at a time when its domestic operations have suf-
fered from lower aluminium production and falling
copper refining charges. The gloom on the domestic
front, though, may not last long given an expected
trend reversal in refining charges and new capacities
going on-stream in the coming quarters.
Hindalco’s operating profitability continued to remain
under pressure during the September 2010 quarter de-
spite the easing raw material prices. This was due to
higher staff cost and rising finished goods expenses. But
the company still reported a robust 25% growth in its net
profit due to lower interest cost. Given the fact that it has
repaid `2,000 crore of debt in FY 10, interest charges are
expected to remain low in the coming quarters as well.
This should offer some support to the bottomline.
The production volume of aluminium was lower
during the September quarter on account of power
outage at the Hirakhud aluminium smelter. The com-
pany is expected to
report lower pro-
duction even in the
December quarter
since full start-up
and stabilisation of
the smelter is ex-
pected only in the
March 2011 quarter.
The Hirakhud
smelter expansion
project, to increase
capacity from
1,55,000 tonnes per annum to 1,61,000 tonnes per an-
num, is nearing completion. Further expansion to
This is the fourth in a five-part series of tell-all accounts from the daily work of a
bunch of diverse players in the stock market. They are hardy veterans of Dalal Street.
TARGET PRICE: ` 210
MAX INDIA, through its subsidiary
MYNL, is one of the best operationally
managed private insurance player with
They know the corners of the market as well as they know its centre. They know how low dependence on Ulip, lower
expense ratio. The recent tie-up with
to strike a deal, but not all deals they strike are above board, writes Santosh Nair Axis Bank in the bancassurance space
may benefit Max India in the long run.
ANDHRA BANK
MARKET PRICE: ` 179.45
BUY
TARGET PRICE: ` 231
ANDHRA BANK is migrating to a
centralised core banking solution. Con-
sidering its expansion plan, for Andhra
Bank, we assign a P/B multiple of 1.71x
on its FY12E BVPS of `135 and arrive at
a target price of `231. One may buy the
stock.
JAY BHARAT MARUTI
MARKET PRICE: ` 110
BUY
TARGET PRICE: ` 139
JAY BHARAT Maruti is in the business
of making body-in-white (BIW) parts
and assemblies, rear axles, fuel neck
fillers, mufflers and other auto
components. It’s Q2 PAT jumped by
133% to `10.3 crore. We assign a P/E of
8x to its FY12E EPS of `17.3.
ARINDAM

I
2,13,000 tonnes per annum will be completed by
4QFY12. The expansion of Utkal and Mahan plants is
also on track with improving visibility.
Hindalco’s copper business continues to face head-
winds on account of low TcRc (treatment and refining
charges) margins. The company, however, is trying to
mitigate the impact with the help of higher realisation on
byproducts. It was also able to increase byproduct vol-
umes by 41% during the quarter. The spot TcRc has seen
a sharp jump in the last two months following smelter
disruptions and maintenance shutdowns in global mar-
kets. Given the recent trend in spot TcRc, there could be
some upside for the company when it renegotiates the
annual benchmark TcRc during the fourth quarter.
Hindalco’s overseas subsidiary Novelis reported a
16% jump in its revenue due to higher LME prices and
higher conversion premiums. The company is focusing
more on profitability by selling higher-margin products.
This seems to be working for the company as its adjust-
ed EBITDA increased 45% y-o-y. Going ahead, Novelis
is likely to sustain its strong operating performance, as it
is a dominant player in the metal cans business. The seg-
ment accounts for 60% of Novelis’ product mix.
Novelis’ finished products also find application in the
automobile sector. As the sector is poised to do well in
the coming quarters, the company may expect higher
revenue share from this sector.
The Street seems to have priced in the future expected
growth since Hindalco’s stock has surged 40% in the past
three months. As a pure commodity play, the company’s
future performance will be linked to the international
metal prices and timely commissioning of new projects.
RANBAXY
More visibility
needed for
consider myself to be something of a story-
teller,” says NJ, who handles equity sales at
a mid-sized institutional broking house.
The research analysts of the firm come up
with a stock idea, which NJ then has to pitch
to his clients — fund managers at local and
foreign institutions. “I have to tell an engag-
ing story to fund managers for them to buy
that stock through me,” he says. The plot is
mostly similar, only the characters vary. It
usually revolves around the vision of the
promoter, the competitive advantage of the
company, and the potential of the sector. In
the process of telling the story, NJ sizes up his
listeners, and draws quick mental maps.
“I meet all kinds of money managers,”
says NJ. “There are some really intelligent
people whom you dare not approach un-
less you have a really good stock to pitch.
Then, there are those who can’t think on
their own, and make you wonder how
they got into that chair in the first place. Oc-
casionally, you run into fund managers
who have been having a bad day or are
plain ill-tempered, and they choose to let
off steam at you.”
N J has been in the stock market for
nearly 15 years in different roles, the
latest being that of an equity sales-
person. “The equity sales profession mirrors
the feast or fast nature of the stock market,”
says NJ. “In a bull market, we earn fat
bonuses. But when the cycle turns, it is our
jobs that are first on the line. When there
are no takers for ideas, who needs people to
sell them.”
A mechanical engineer, NJ started as a
sales representative at an engineering firm.
An interest in stock investments led him to
try his hand at sub-broking for a while. That
venture failed. Rather than return to his
previous world of nuts and bolts, NJ landed
a job as a dealer at a domestic broking
commodity prices. “You need to read up a
lot on what is happening around the globe,
and at the same time, be clued into local de-
velopments,” says NJ. “Most fund man-
agers would hate to admit it, but they are
curious to know what their peers are buy-
ing and selling.”
Unlike equity analysts, who specialise in
a few sectors, the trick to succeeding as an
equity salesperson is to be a jack of all trades
and master of none, he says. “I need to be
conversant with patent laws in the US as
well as the price of coking coal, because I
have to sell whatever idea my research
team comes up with,” he says.
N J finds it amusing that clients are far
more tolerant when they lose mon-
ey on a “buy” recommendation,
than when the stock goes up after you con-
vinced them to sell it. “They forgive real
TRUMP CARD
“Unlike equity analysts, who
specialise in a few sectors, the trick
to succeeding as an equity
salesperson is to be a jack of all
trades and master of none
to put in a few more years.’ I certainly can’t
say that for my profession. Give me a de- TUBE INVESTMENT OF INDIA
cent sum of money for the rest of my life,
and I shall gladly quit this evening.” MARKET PRICE: ` 150
NJ says, though the money is good, it is a BUY
TARGET PRICE: ` 201
“high-pressure game”. It is all about rela-
tionships. Equity salespersons have one or TUBE INVESTMENT manufactures
two fund managers they can turn to in a cri- bicycles, precision steel tubes, and car
sis. It takes years to develop a relationship, door frames, automotive and industrial
but these can be lost overnight. chains. Considering its strong Q2 FY11 re-
The fund manager may move to another sults and strong brands — Hercules and
asset management company, which deals BSA Cycles — new branding strategy may
only with a certain set of broking firms. Or, further elevate the company’s
the fund manager might give it all up, and
become a restaurateur or an environmen- performance. The target price is `201.
tal activist. “With him goes your bonus for
that year,” says NJ. “After spending some
years in this profession, you are on good
terms with most fund managers...at least
they will give you a patient hearing... but
getting business out of them on a regular
WHIRLPOOL INDIA
BUY
MARKET PRICE: ` 319.75
TARGET PRICE: ` 350
basis is a struggle. No wonder, the burnout WHIRLPOOL INDIA is likely to report
ratio in the broking industry is so high,” a spectacular growth in topline and bot-
says NJ. He has not decided on his new vo- tomline with new product launches that
cation after he quits. are directly linked to India’s economic
NJ has had some interesting experiences
growth and consumer spending. With
during his 15-year stint in the stock market.
increased sales during the festive
After a good deal of prodding, he agreed to
share one incident. In the late 1990s, he
quit a job in a huff, and briefly worked for a
market operator, who asked him to find a
buyer for a large block of physical shares of
season, strong RoE of above 45%, the
stock may evince further interest.
DISCLAIMER: The views expressed in these pages are from brokerages, analysts
and fund managers. Readers should seek professional investment advice before
a mid-cap pharma company. “It was not a acting on any recommendation. ET does not associate itself with the choices.
difficult task, since the company had a fair- Check out the ET Code of Ethics at www.economictimes.com
ly good track-record and the stock was
available cheap. I managed to get commit-
ments from a few fund managers, with
IN A NUTSHELL
whom I had dealt in the past and was on
good terms with,” he remembers.
Then, one of the fund managers asked
NJ if the block belonged to the promoter, Nimbus Communications plans to
since he had heard rumours of the promot-
er wanting to reduce his stake. Fund man-
agers usually shun a stock if a promoter is
raise around `900 cr via IPO
MUMBAI: Nimbus Communications, known for its Neo Cricket

fresh entry house, and then graduated to equity sales

Jwalit Vyas & Kiran Kabtta Somvanshi
ET INTELLIGENCE GROUP
RANBAXY Laboratories’ net profit grew more than two-
and-a-half times in its third quarter ended September
30, 2010. The initial euphoria took the stock up by 3.5%
during the day, but, after the market digested the full im-
plications of the numbers, the stock closed 3% lower.
The company’s consolidated revenues surged by
10% for the quarter. A major part of the net profit was
from one-time non-recurring items. The company
made `260.5 crore in forex gains from foreign curren-
cy loans and on foreign currency option derivatives. It
also gained from the transfer of a part of its assets of in-
novative R&D centre to Daichi Sankyo. The company’s
performance at the operating level was not encourag-
ing as the consolidated EBITDA fell by 35% y-o-y.
Good performance in the North American market
was the major growth driver. The company’s revenues
from North America
increased by 70%
compared with the
corresponding quar-
ter last year, thanks
to the good sales of
its first to file product
Valacyclovir. Even
post the exclusivity
period, the company
is benefiting from its
sales and claims to
hold around 36% of
the market share. Going ahead, the company is likely to
benefit from the launch of first to file Donepezil Hy-
drochloride — its generic version of Aircept — for
which it has received tentative approval from the US
FDA. The drug clocked sales of $3 billion in 2009.
In the domestic market, the company posted a growth
of 18%, in line with the industry’s average growth rate.
The consumer healthcare (over-the-counter) business is
witnessing traction. However, the company struggled to
achieve growth in the Europe, CIS and Africa markets.
Ranbaxy has undertaken organisational restructur-
ing and various cost-rationalisation measures to spruce
up its bottomline. The key trigger in the coming quar-
ters would be its ability to resolve the US FDA issues. Its
forex management skills will also play a vital role, given
the volatility in the currency markets. Though the stock
looks attractive vis-à-vis its peers, it may be prudent for
investors to wait for more visibility on the critical issues.
over the next few years.
Over the years, his job has become more
demanding. Most mutual funds today have
losses, but are often unreasonable if you
were to cause them an opportunity loss,”
looking to sell it cheap. “I went back to my
boss to ask him if the rumour was true,”
says NJ. “He gave me his word that the
shares did not belong to the promoter. In
and Neo Sports channels, plans to raise around `900 crore
through its initial public offer (IPO) in January. “The company
proposes to issue 22,050,000 equity shares, which comprises
fresh issue of 14,040,000 equity shares and offer for sale of
a decent in-house team of analysts. So, it is he says, with a grin. turn, I assured the buyers, who took my 8,010,000 equity shares in January,” Nimbus
not as if they are dependant only on NJ is nearing 40, and wants to call it a day word for it.” Communications chairman Harish Thawani told reporters
broking firms for stock ideas. “Things were within the next five years. Unlike, his fa- But after a few weeks, when the shares here. Americorp Ventures Limited, CSI BD (Mauritius) and
not too complicated till a decade ago,” says ther. “My father was a clerk in the Indian were delivered to the fund houses, it turned Funderburk Enterprises Limited — Nimbus’ investors — are
NJ. The best of broking houses did not cov- Railways, and worked for 37 years in the out the block did belong to the promoter. partially divesting their stake, while the core promoters and
er more than 20 to 30 stocks at any time. same office,” he says. “When he was leav- “The fund managers did not hold this another investor, 3i Sports, are not selling any stake in the IPO,
“Today, even a small broking firm covers ing for work on the day of his retirement, I against me; I had always been fair in my Thawani said. “Following the last placement that happened at
twice that.” said to him, ‘you must be a relieved man to- dealings with them, and the odd lemon is the rate of `446 per share, the IPO of 22,050,000 equity shares
Equity sales persons also need a global day, after enduring the drudgery of those forgiven,” he says. “But I could no longer will be sized at over `900 crore,” banking sources said. The
perspective on many of these companies, as files for so many years.’ His reply took me trust my benefactor.” NJ quit the following company has drawn up a `350-crore capital expenditure plan,
they may already be present in foreign mar- aback. ‘No, my son. I still haven’t had day and became a “storyteller” for another which will be met through the IPO proceeds.
kets, or are affected by the swings in global enough of it. Given a chance, I would love broking house.
Pramerica launches 2 equity funds
Laggard Usha Martin ready to gallop MUMBAI: Pramerica Asset Managers (PAMPL), the Indian asset
management venture of US-based Prudential Financial, on
Thursday launched two equity funds and has two more fixed
income products in the pipeline. The funds — Pramerica
Equity Fund and Pramerica Dynamic Fund — will be open for
Reduced Debt Burden, New Capacities Make Company’s Outlook Promising subscription from November 19 till December 9. “These funds
are designed to capture India’s growth story by investing
Abhineet Singh rope manufacturers globally. It re- ing the total metallic capacity to primarily in large caps using sector rotation (identifying right
ET INTELLIGENCE GROUP ported an 18% increase in its con- nine lakh tonnes. This is sufficient sectors) and special situations (identifying value-unlocking
solidated sales during the Septem- to meet a significant share of the potential), which will benefit investors in the long run,”
THE stock of steel manufacturer ber 2010 quarter; the net profit company’s iron ore requirement to PAMPL executive director chief investment officer (equity)
Usha Martin has not beaten the re- surged 40% on a year-on-year ba- produce one million tonnes of Ravi Gopalakrishnan said here. The company, which entered
turn of the benchmark indices in sis. The company’s operating mar- steel. India this year, already has two funds in its portfolio — ultra
the past three months. Its return gin expanded by 410 basis points Usha Martin also met its iron ore short term Bond (debt fund) and Pramerica liquid fund.
over the one-year period has also following a strong volume growth and coal requirement in FY10
lagged behind the gains in the ma- and due to the benefits from pro- through captive operations. These
jor indices. The stock’s perform- duction of 42,000 tonnes of ther- overall integration steps should Embassy Prop to raise `2,400 cr via IPO
ance is mainly marred by the delay mal coal from its captives mines. support its profitability in future. AHMEDABAD: Bangalore-based real estate developer Embassy
in commissioning new capacities The company saw an 86% in- Further, with debt of `600 crore re- Property Developments (EPD) on Thursday said it will raise
and concern surrounding its highly crease in y-o-y production on ac- paid, the company’s debt-equity `2,400 crore through an initial public offer. “The company
leveraged balance sheet. count of new DRI (direct reduced ratio has reduced from 1.4 a year filed the draft red herring prospectus with the market
The stock is likely to see renewed iron) plant and hot metal capacity ago to just about one. This offers fi- regulator, SEBI, in July this year, and is now awaiting a nod,”
investor interest given the fact that added by the company. Volumes nancial flexibility for further capex Embassy Property Development (EPD) managing director
the company has could have been opportunities. Jitu Virwani told reporters. “We expect the IPO to hit the
repaid over one- even better but for The scrip is trading about 20 capital markets by this month end,” he said.
third of its loans and the shutdown at its times its trailing 12-month earn-
it expects to com-
plete capacity ex-
DRI plant, due to
which the compa-
commissioned sinter plant. ings per share. The scrip is trading at
Over the past three years, the a premium compared with its peers
CSB to enter capital market
pansion by the end ny lost about company has managed to increase such as Surya Roshni and Apl THRISSUR: Kerala-based private sector Catholic Syrian Bank
of FY 11. Further, 20,000 tonnes of both its steel-making and iron ore Apollo due to Usha Martin’s better (CSB) here will enter the capital market in the next fiscal,
steps taken for backward integra- production. The company is ex- capacity. Its massive `2,100-crore margins. bank’s chairman S Santhanakrishnan said here on Thursday.
tion will boost its performance go- pected to report higher production capex ends this year, which will in- With the addition of new capac- The RBI had asked the bank to enter the capital market with
ing forward. numbers in the coming quarter as crease its crude steel and ore capac- ities and backward integration ini- an initial public issue, he said. The 90-year-old bank had
The Kolkata-based Usha Martin its newly commissioned blast fur- ity three-fold. The company re- tiatives, the company’s outlook decided to widen the capital base by mobilising funds this
is a leading producer of specialty nace stabilises and due to the avail- cently commissioned its second looks promising. fiscal itself. But the mode of mobilisation of funds would be
steel and is one of the largest wire ability of feed from the recently blast furnace of 4 lakh tonnes, tak- abhineet.singh@timesgroup.com finalised later, he said.
THE ECONOMIC TIMES ON SATURDAY BANGALORE 13 NOVEMBER 2010
MARKETS 11
Sensex 20156.89 ( 2.10%) Nifty 6071.65 ( 1.98%) Nikkei 9724.81 ( 1.39%) Hang Seng 24222.58 ( 1.93%)

TUE The Fixer
WED The Trader

EVERYDAY SCAMS

THU The Banker
FRI The Equity Seller
SAT The Fund Manager
Share registrar
Karvy won’t have
YES Bank declines 5% in 3
sessions on profit booking
YES Bank shares
fell 2.5% on
Friday to close at
Fund Manager
This is the last of the five-part series of tell-all accounts from the daily work of a
it easy anymore
Coal India IPO share registrar Link Intime
`347.8, as
institutional seen set to break into Karvy’s monopoly
investors bunch of diverse players in the stock market. They are hardy veterans of Dalal Street.
offloaded the Apurv Gupta & Nesil Staney try in more than 15 years that was
shares in large They know the corners of the market as well as they know its centre. They know how MUMBAI once dominated by Datamatics. The
quantities. With proliferation of fake UTI Mastergain
this, the stock has fallen around 5% in to strike a deal, but not all deals they strike are above board, writes Santosh Nair COAL India listing changed many certificates dented Datamatics’ repu-
the past three sessions on volumes things in the capital market, from in- tation that left the field open for
higher than the daily average over the vestment banking league tables to Karvy. Since most of the business is
past couple of weeks. According to record-speed entry into global indices, done by unlisted companies and that
dealers tracking the stock, foreign including Morgan Stanley Capital In- too very few of them, industry statis-
institutional investor “Kala Patthar” has ternational. It is also set to shake up tics, apart from primary issuances, are
been booking profits in the stock, having the leadership position in the not available.
accumulated it at lower levels. A report back-office industry such Despite the market-
by broking house Enam says that the as share registrars. share gains, companies
bank’s asset quality is among the best in Link Intime, the share may not improve their
the industry, with gross and net non- registrar for Coal India’s profitability as they get
performing assets of 0.22% and 0.06%, `15,200-crore share sale is business mandates by
respectively. The bank’s net profit grew snapping at Karvy Com- quoting low prices. While
over 12.5% in the second quarter to putershare’s heels. investment banks do the
`176.3 crore and revenues grew 29% to Karvy’s more-than-a- same to get mandates,
`954 crore, according to BSE data. decade-old leadership po- their trading activities help
sition is under threat as them compensate for
Contributed by Harish Rao the joint venture between TOUGH lack of fees.
Australia’s Link Group The bids for business
and India’s Intime raised GOING have been at a fraction of

Forex reserves its IPO market share to Karvy’s leadership `5-6 per application in IPOs
43.7% from just about position is under
1.3% a year earlier.
Karvy’s share plunged to threat as the JV
needed to make profits. Fi-
nancial squeeze may lead
to a fresh round of mergers

rise over $2 b 53% from 93% a year raised its IPO market and acquisitions in the in-
ago, according to statistics share to 43.7% from dustry, some believe.
from Prime Database. 1.3% a year earlier There were about 300

to touch “It was only after Octo- registrars in 1997, which

ber 2009 that the situation improved has fallen to about twenty active
and companies got their plans to raise now. But others are sceptical about

$300-b mark ARINDAM

funds back on track,” said MV Ram- the consolidation since there’s not
narayan, director, Link Intime India. much value in buying those
“So, most of the mandates of 2009 were small companies.
deferred to 2010.” “Not many of them have more

V
Our Bureau
MUMBAI
INDIA’S foreign exchange reserves once again
crossed the $300-billion mark on November 5,
as the central bank started mopping up capital
inflows. This is the first time since the global fi-
nancial crisis deepened in September 2008 that
the central bank’s stock of reserves crossed the
$300-billion mark.
The country’s forex reserves rose $2.26 bil-
lion in the week ended November 5. The re-
serves are at $300.2 billion. Foreign currency
assets — comprising dollars, British pounds and
euro, among others — rose $2,193 million in
the week. The value of gold in reserves, how-
ever, did not change.
Special drawing rights (SDRs) — the reserve
currency with the International Monetary
Fund — and the reserve capital with the IMF
rose $43 million and $22 million, respectively.
The last time the reserves were above the
$300-billion mark was in 2008. However, for-
eign investors started pulling out their invest-
ments after the global financial crisis deepened
in September 2008. Foreign currency dealers
said that the central bank has started buying
dollars from the market to prevent excessive
appreciation of the rupee.
The central bank makes public its forex in-
tervention figures after more than a month’s
lag. At current levels, India is the fourth-largest
holder of foreign currency reserves in South
Asia; behind China, Japan and Taiwan. While
China and Japan have over a trillion billion in
reserves, Taiwan has close to $400 billion.
In other developments, the Centre has re-
duced its surplus revenues parked with the
central bank by `23,791 crore to about `12,768
crore. While at the same time, it didn’t resort to
any short-term borrowings from the central
bank. Such borrowings are resorted to by the
government to meet its daily revenue mis-
matches. These borrowings are known as ways
and means advances (WMAs) — a facility un-
der which governments borrow from RBI to
meet their daily revenue mismatches. State
governments, on the other hand, hiked their
WMA by `252 crore in the week ended No-
vember 5, to `1,691 crore.
M BEGAN his career in the treasury depart-
ment of a non-banking finance company
(NBFC), then moved to a broking firm as
an equity analyst, and is now a fund man-
ager with one of the top five mutual funds,
overseeing equity schemes since 2003. He
looks older than his 39 years, and is con-
scious of the greying around his temples.
“The pressure to perform on a daily basis is
taking the fun out of this profession,” says
VM, wistfully running his fingers down his re-
ceding hairline. “I have more grey for my age,
and I fear I may lose all my hair at this rate.”
VM is just back from a week-long tour of
the South, where he was visiting some re-
gional garment players to get a feel of the
textile industry. He has many more lined
up for the month. With shares of blue-chip
companies struggling for direction, mid-
sized and small companies are the rage as
fund managers scramble to figure out the
next set of multi-baggers.
There’s plenty of muck floating there.
“Good business model and cash flow,” he
says, of a textile company he just visited.
“But dubious promoters. A cursory reading
of the balance sheet indicates they could be
siphoning off money.”
However, business comes first. VM will
buy the stock if the management can con-
vince him on a few points. “One can’t not
buy a stock just because the promoters are
dipping into the till. By that yardstick, there
would be very few companies you can in-
vest in,” he says, pragmatically. “There is a
cost of doing business in India, and the pro-
moter will use the company’s money to
fund that. As long as shareholders are not
being short-changed, it’s fair.”
To him, the relationship between the
promoter and the minority shareholders is
like one between a lion and a fox. “You can
hunt with the lion, but you get your share
only after he has had his fill.”
V M, typically, visits three to four com-
panies a month. As a fund manager,
he is in great demand: representa-
tives of another 10-12 companies land up
at his doorstep with PowerPoint presenta-
egy. After returning from the meeting, I
dumped the shares, which were showing a
small profit then.”
The job has its own share of pinpricks.
VM, like many of his peers, is miffed at
what he feels is over-regulation of the mu-
tual fund industry, particularly the removal
of incentives for distributors. “More people
buy houses than they buy mutual fund
units, so why is the government not regu-
lating builders for a change? It’s an outright
scam over there.”
Money is just not coming into equity
schemes, says VM. “To make matters
worse, existing investors are pulling out,
preferring to book profits than wait for
greater gains.” VM’s anguish is understand-
able, considering his company’s profits de-
termine the bonus he and his team will re-
ceive at the end of the year.
B ut don’t fund managers enrich them-
selves through other means? Market
gossip has stories of real estate com-
panies giving fund managers flats at throw-
FINE LINE
VM believes there is a fine line
between insider info and research
info. Top brokers have better access
to big firms,and that means
exclusive access to information
manager used to buy illiquid technology Karvy Computershare chief execu- than `2-crore turnover per annum
stocks to boost the net asset value (NAV) of tive V Ganesh declined to comment and no one has added any significant
his scheme, so he could earn a higher bonus. on the market share positions. Al- clients,’’ says an industry official who
The NAV swelled from `10 to `40, and he got though there are more than 80 share did not want to be identified. “One
a fat bonus that year. But when the technol- registrars, hardly a dozen are active; would be better off wooing the client
ogy bubble burst, the scheme’s NAV slid to with Karvy keeping the lion’s share base and any acquisition will not
`5. “Other fund managers, including me, and the rest on the fringes. Link’s as- provide enough edge.”
were delighted that he had received his just cent is the biggest event in the indus- apurv.gupta@timesgroup.com
desserts,” says VM. “But a market bounce
took the NAV to `10. His contract ensured a
certain bonus if he doubled the NAV. That
year, the scheme’s unitholders got nothing,
but the fund manager again made a tidy
packet for himself.”
VM denies ever having been approached
for favours. “Brokers and companies have
an idea about which fund managers are pli-
able,” he says. “It usually starts innocuous-
ly: small Diwali gifts, free passes for a fash-
ion show, music concert, movie premieres.
But if you rebuff them, they leave you
Re posts biggest fall in 5-½
alone,” he says.
months as stocks decline
W hat does it take to be a good fund
manager? “I call it the rule of
100,” says VM. “At any time, a
good fund manager should be on top of at
least 100 companies. He should know
THE rupee posted its biggest one-day fall in 5-½
months on Friday, as sharp losses in local shares
and bunched-up dollar demand after the US
Veteran’s Day holiday weighed. The partially
their balance sheets and what’s convertible rupee closed 44.80/81 per dollar, af-
happening in them.” ter hitting 44.85, its weakest since September 29
There are companies and there are com- and below Thursday’s close of 44.31/32. The lo-
panies. “I’m a bit wary about companies that cal unit ended down 1.1% on the day, its worst
go out of their way to woo institutional in- daily fall since June 1. On the week, the rupee
vestors. And I don’t like managements that dropped 1.35%, its worst weekly fall in nearly
are tight-lipped; it usually means they prefer six months. The index of the dollar against six
to run the company like a fiefdom,” he says. majors was down 0.2% when the rupee market closed but it had been up as
“I think a fund manager can be forgiven for much as 0.33% earlier in the day. The euro bounced from six-week lows
going wrong on valuations occasionally, but against the dollar on Friday as EU leaders sought to reassure nervous bond-
not for going wrong on a business.” holders and on speculation, which was quickly denied, that a rescue package
VM believes there is a fine line between for Ireland was being hammered out.
insider information and research informa-
tion put out by broking firms. Top broking
firms have better access to the big compa-
nies, and that sometimes means exclusive
access to information. “Brokers are selec-
Bond yields off highs as weak
growth data lift rate pause hopes

away prices in return for subscribing to their

tive about sharing such information. They
may issue a standard research report to all
their clients, but ring up the larger fund
houses and pass on details not mentioned
in the report,” he says.
GOVERNMENT bond yields ended off the day’s highs on Friday after weaker-
than-expected factory data strengthened expectations for a rate pause, while
Monday’s inflation data was being eyed to cement this view. The 4.4% an-
tions. Sometimes more. One company gift- initial public offers (IPOs). Market operators VM says that he doesn’t chase inside in- nual growth in the volatile industrial output figure was well below the me-
ed him an expensive bottle of vintage wine. and promoters are also known to pay cash formation. Instead, he prefers to rely on dian forecast of 7% in a Reuters poll and lagged the previous month’s up-
IN A NUTSHELL On another occasion, during a visit to a to fund managers to buy stocks off them ‘market intelligence’: his sources are bro- wardly revised 6.92% growth. The benchmark 10-year bond yield ended at
company’s subsidiary in the US, VM was using the fund house’s money. kers, vendors, friends or relatives of pro- 8.08%, steady with Thursday’s close and off the day’s high of 8.11%, its high-
Power Grid’s FPO taken to an expensive steakhouse, except
that he’s a vegetarian and a teetotaller. “The
For VM, these are aberrations. “You
mean fund managers take money to invest
moters, employees and ex-employees. For
instance, there was an auto-component
est since November 2. It fell to 8.07% after the industrial data. The bond yield
is up 9 basis points this week.
subscribed 14.5 times only vegetarian food available was bread
and butter,” he laughs.
in certain stocks in return for suitcases full
of money? That seems a bit far-fetched,” he
firm that VM was bullish on, and was look-
ing to increase his stake in. “One day, a bro- CROSS CURRENCY RATES RATES AS OF 6 PM IST Friday 12 November 2010
MUMBAI: Power Grid received at least $23 VM likes to stay alert, 24x7. He constant- says. “There could be wrong investment ker offered me a cut to buy a large block of COUNTRY INR USD AUD GBP CAD JPY SGD CHF AED EUR
billion of bids on the final day of its secondary ly scrolls his Blackberry during our conver- calls, but I wouldn’t call them cases of wilful shares of that company. I was going to buy India - 0.02231 2.2547 0.0139 0.0226 1.834 2.88624 0.0218 0.082 0.01627
share offer in a record year for asset sales. sation, checking for “stock ideas and com- corruption. Besides, if at all, the scale of cor- it anyway,” he says. “But after the broker US 44.83 - 1.0103 0.6229 1.0111 82.18 1.2938 0.9747 3.6726 0.7289
Australia 44.3568 0.9898 - 0.61659 1.0009 81.35 1.2808 0.9647 3.635 0.7215
Investors bid for 12.2 billion shares, or 14.5 pany updates from broking firms”. “It’s all ruption would be a fraction of what hap- tried to bribe me, I made some discreet en- Britain 71.783 1.6053 1.6218 - 1.6232 131.92 2.0771 1.5647 5.895 1.1701
times the 841.8 million shares on offer, as of 5 about long-term investing, but we have to pens at foreign fund houses,” says VM. He quiries about the company and learnt the Canada 44.3252 0.989 0.9991 0.6161 - 81.27 1.2796 0.9639 3.6325 0.7209
p.m. local time, according to NSE data. Power react quickly, if a company springs a nasty cited a case in the late 90s of a fund manag- seller was desperate to unload his holdings Japan 0.5441 0.012169 1.2293 0.7581 1.2305 - 1.5745 1.1861 4.4692 0.88704
Grid’s stock was offered at `85-90 apiece. surprise,” he says. He recounts the example er at a leading US investment firm who was because he had some inside information Singapore 34.6472 0.7729 0.7808 0.4814 0.7814 63.52 - 0.7533 2.8384 0.5633
Switzerland 45.9665 1.026 1.0365 0.6391 1.0375 84.31 1.3275 - 3.7675 0.7479
Institutional investors bid for 18.5 times the of an engineering company he was invest- fired for allegedly taking sexual favours that the company was headed for trouble.” UAE 12.2025 0.2723 0.2751 0.1696 0.2753 22.38 0.3523 0.2654 - 0.1985
shares offered to them. Rising demand for ed in and which was doing well. The com- from some brokers. With a little help from friends and his Euroland 61.3568 1.3719 1.3859 0.85459 1.3871 112.74 1.775 1.3372 5.0384 -
power to fuel homes and factories attracted pany suddenly wanted to diversify into the In the same breath, VM mentions a fund gut feel, VM knows how to keep the
investors to Power Grid after a record IPO in power sector. “I met the management and manager who made quick money during engine going. EXCHANGE RATES Source: AXIS Bank

state-owned Coal India. realised it was not a well-thought out strat- the dot-com boom of 1999-2000. The fund nair.santosh@timesgroup.com Currency TT Buy Bill Buy TT Sell Bill Sell TC Buy CCY Buy TC Sell CCY Sell
Australian Dollar 43.6450 43.5575 44.4600 44.5500 43.2000 42.9500 44.9000 45.1500
British Pound 71.0650 70.9225 72.3775 72.5200 70.3500 70.0000 73.1000 73.5000
Canadian Dollar 43.8725 43.7850 44.6925 44.7800 43.4000 43.2000 45.1500 45.4000

Difference with RBI over bad loans resolved: Bhatt

Danish Krone 8.0575 8.0400 8.2250 8.2425 7.9500 7.9000 8.3500 8.3500
Euro 60.2400 60.1175 61.3550 61.4775 59.6000 59.3000 62.0000 62.3000
Hong Kong Dollar 5.7125 5.7000 5.8375 5.8500 5.6500 5.6000 5.9000 5.9500
Japanese Yen (*100) 54.1950 54.0850 55.2000 55.3100 53.6500 53.3500 55.7500 56.0500
New Zealand Dollar 34.2400 34.1725 34.8850 34.9525 33.9000 33.7000 35.2500 35.4500
Singapore Dollar 34.1450 34.0750 34.7850 34.8550 33.8000 33.6000 35.1500 35.3500

SBI Wants To Tap Retail Market With A Bond Issue Every Quarter; Plans Its Maiden Euro Bond Sale Swedish Krona
Swiss Franc
UAE Dirham
6.4075
45.4025
11.9400
6.3950
45.3100
11.9150
6.5475
46.2500
12.4425
6.5600
46.3425
12.4675
6.3000
44.9500
11.8000
6.3000
44.7000
11.7500
6.6500
46.7500
12.6000
6.6500
46.9500
12.6500
Our Bureau that SBI has not classified a approval for the rights issue, US Dollar 44.4900 44.4000 44.8925 44.9825 44.0500 43.8000 45.3500 45.6000
MUMBAI substantial portion of its loan as although the bank has to yet CURRENCY FUTURES
bad loans, which in turn helped receive a written approval. The IIFB course for bank staff Contract Open High Low Close Open
1 unit denotes 1000 $ : Tick Size - Rs 0.25
Value No Of No Of

S TATE Bank of India (SBI) has them show higher profit. government would need to invest Price Price Price Price Interest (`Lakhs) Contracts Trades

resolved differences with the Mr Bhatt was speaking on the close to `12,000 crore to retain its MUMBAI: The Indian Institute of Banking and MCX-SX
EURINR261110 60.98 61.62 60.74 61.46 13656 41299.84 67512 9784
central bank over sidelines of a function organised share in the bank. “We would be Finance (IIFB) has launched a course in cus- EURINR291210 61.30 61.95 61.22 61.84 1791 877.60 1424 201
classification of bad loans, accord- by Indian Institute of Banking and meeting government officials tomer services and standards for frontline bank GBPINR261110 71.69 72.20 71.69 72.03 7957 10371.67 14422 3200
JPYINR261110 54.15 55.00 54.15 54.69 9600 8875.88 16246 3284
ing to bank’s chairman OP Bhatt. Finance (IIBF). “There have been either on Tuesday or Wednesday to employees. Speaking to ET, IIFB director DR JPYINR291210 54.50 55.25 54.50 54.93 1198 819.44 1492 138
USDINR261110 44.55 45.01 44.55 44.94 699418 2055846.33 4584849 64676
He said the bank has addressed some genuine interpretation discuss the details of the rights Bhaskar said, “We brought this course in the USDINR291210 44.85 45.26 44.85 45.19 166418 62172.38 137807 3689
the differences by increasing differences. The issue has now issue.” He added that the face of deteriorating standards in banking serv- USDINR270111 45.13 45.48 45.13 45.44 56243 11664.20 25711 570
provisioning in some cases and, in been resolved. So, either they government would either choose USDINR290311 45.53 45.85 45.53 45.81 4629 2314.55 5069 118
ices. Banking Codes and Standards of India has NSE
other cases, convincing the have accepted our argument or to invest in rights issue or keep its laid down certain norms. Bankers will be intro- EURINR 261110 60.84 61.61 60.76 61.46 24268 53721.86 87795 6227
Reserve Bank of India (RBI) that we have provided for the loan,” cash neutral. In the past rights EURINR 291210 61.16 61.93 61.09 61.79 4933 3433.20 5586 437
duced to how they can increase the efficiency GBPINR 261110 71.82 72.17 71.72 72.04 10866 12780.29 17776 2355
its provisions are adequate. he added. The bank had set aside issue, the government had issued JPYINR 261110 55.05 55.05 54.11 54.69 14265 12854.96 23527 2672
“The bank has 15 auditors on `7,076 crore in the first half of this quarter, probably of the same size `10,000-crore bonds and the of these services. There would be a half-yearly JPYINR 291210 54.40 55.25 54.40 54.88 8067 4677.35 8530 315
its panel and all of them have fiscal year, up 91% over the corre- or bigger. We want to build up bonds were subscribed by the exam.” RBI deputy governor KC Chakrabarty, USDINR 261110
USDINR 291210
44.63
44.91
45.00
45.26
44.62
44.87
44.94
45.21
778976
201525
1518150.00
58533.23
3385898
129769
50055
2759
been appointed by the RBI. So, sponding quarter. long-term liquidity for financing bank, so that they there is no who also handles the customer service portfo- USDINR 270111 45.14 45.48 45.12 45.43 59026 7706.19 16998 449
there is no case that the bank mis- On retail bond issue, Mr Bhatt long-term assets.” immediate pressure on fisc. lio, said that banks should also put in place a INTEREST RATE FUTURES
stated its financial performance,” pointed out that the bank would On the rights issue which the Meanwhile, he said that SBI is system to measure the level of customer serv- Instrument Open High Low Close Open Value No Of No Of
said Mr Bhatt, responding to like to tap the retail market with a bank plans to launch by the end of in advance stage of planning its ice to verify improvement after employees Price Price Price Price Interest (Rs Lakhs) Contracts Trades
media queries on RBI’s inspection bond issuance every quarter. “We this fiscal year, Mr Bhatt said that maiden euro bond issue which attend the course. — Our Bureau NSE
10YGS7 291210 92.60 92.60 92.60 92.60 1 1.85 1 1
report for March 2009, which said will do one more in the fourth bank has received a verbal will have a tenure of five years.