Investor protection fund: Money grab

Ministry of Corporate Affairs allows spending of unclaimed investors’ funds to be decided by bureaucrats, industry bodies

In one of the most brazen moves in recent times, the ministry of corporate affairs (MCA) has allowed the spending of a fat pool of unclaimed investors’ funds that will be decided by a set of bureaucrats and industry associations. Here is how it has happened. When the...

Premium Content
Monthly Digital Access


Already A Subscriber?
Yearly Digital+Print Access


Moneylife Magazine Subscriber or MAS member?

Yearly Subscriber Login

Enter the mail id that you want to use & click on Go. We will send you a link to your email for verficiation
Share prices may slide further: Thursday Closing Report

If today’s low breaks, Nifty likely to fall to 4750

After volatile movement for some days now, the Nifty today ended at its lowest level on its current decline. If the Nifty does not close above 5,000 in the next few days, we may see a fall to the 4,750 level in the next few days.

Taking a cue from global markets, the domestic market opened higher with the Nifty rising resuming trade at 4,915, up 25 points from its previous close, while the Sensex was higher by 53 points at 16,338. The opening level was the highest for the day for the Nifty. Healthcare stocks were sought after in the initial session.

Sharp volatility saw the indices move in and out of the red in the first hour itself. Profit booking in select sectors resulted in the indices drifting southwards. The market made a half-hearted attempt to emerge into the positive in noon trade, but the sellers pulled it lower in no time. The market moved sideways in subsequent trade.

Late in the day, a sharp sell-off by institutional investors dragged the indices to their intra-day lows, the Nifty fell to 4,825 and the Sensex slipped back to 16,104. But the market managed to pull itself together and close off the day's lows. The Nifty ended the day at 4,840, down 49 points, and the Sensex finished 139 points lower at 16,146.

The advance-decline ratio on the National Stock Exchange (NSE) was a negative 576:1122.

Among the broader indices, the BSE Mid-cap index declined by 0.88% and the BSE Small-cap index fell by 0.82%.

The sectoral gainers were BSE Realty (up 0.44%), BSE Healthcare (up 0.3%) and BSE Fast Moving Consumer Goods (up 0.18%). The laggards were led by BSE IT (down 2.07%), BSE Metal (down 1.86%), BSE Bankex (down 1.40%), BSE Consumer Durables (1.27%) and BSE TECk (down 1.20%).

The top performers on the Sensex were DLF (up 2.67%), Tata Motors (up 1.91%), Sun Pharma (up 1.27%), Bharti Airtel (up 1.18%) and ONGC (up 1.11%). The major losers were Jindal Steel (down 4.52%), Jaiprakash Associates (down 4.50%), Hero MotoCorp (down 3.10%), Infosys (down 2.68%) and HDFC (down 2.65%).

The leaders on the Nifty were DLF (up 2.80%), PNB (up 2.60%), Ambuja Cements (up 2.45%), Reliance Communications (up 2.26%) and Tata Motors (2.18%). JP Associates (down 5.22%), SAIL (down 3.92%), HCL Technologies (down 3.87%), Jindal Steel (down 3.82%) and Infosys (down 2.91%) were the top losers on the index.

Markets in Asia, which opened higher on support from overnight gains on Wall Street, settled mostly in the green as investors await the outcome of the Federal Reserve meeting on Friday. Fed chief Ben Bernanke last year used the Jackson Hole speech to unveil the quantitative easing bond-buying programme. However, analysts do not expect any similar moves this time.

The Shanghai Composite jumped 2.92%, the Hang Seng climbed 1.47%, the Nikkei 225 advanced by 1.54%, the Straits Times gained 1.69% and the Seoul Composite rose by 0.56%. On the other hand, the Jakarta Composite shed 0.07%, the KLSE Composite lost 0.30% and the Taiwan Weighted declined by 1.23%.

Back home, continuing their sell-off foreign institutional investors were net sellers of stocks worth Rs883.48 crore on Wednesday. On the other hand, domestic institutional investors were net buyers of equities worth Rs561.10 crore.

State-owned Oil and Natural Gas Corporation (ONGC) has drawn up plans to drill eight wells in its gas discovery block in the prolific Krishna-Godavari basin, off the Andhra coast, to appraise finds it has made in the area. The company estimates that the block holds an in-place volume of 25.61 million tonnes of oil and 197 billion cubic metres of natural gas. It is proposing an investment over $7.7 billion to produce up to 30 million standard cubic metres per day of gas from the block. The stock gained 2.01% to close at Rs284.50 on the NSE.

The country's largest private power generation company Tata Power plans to invest around Rs1,000 crore over the next three years to lay its own cable network in Mumbai for power distribution, a senior company official said. The company serves eight lakh customers using the wire networks of the BEST and Reliance Infrastructure to distribute electricity in the city and the suburbs, respectively. Tata Power also has its own network in certain parts of the metropolis. The stock settled 0.65% higher at Rs1,045 on the NSE.

L&T Construction today said it has secured an order worth Rs797 crore in the building and factories segment. The order has been secured from a leading developer for mixed use construction, comprising pre-dominantly residential, including retail and commercial developments, at Mumbai, the company said. The L&T stock lost 0.44% to end at Rs1,551.20 on the NSE.


June quarter results threaten the groupthink of the last few months that the market is undervalued

Indian companies have reported extremely poor profit growth which explains why the market is unable to show any recovery. In fact, there could be further downside due to poor earnings growth. We had suggested in June that analysts and fund managers were too optimistic

For months together, we have been sceptical about the forecasted EPS (earnings per share) of the analysts and fund managers arguing that a slowdown is not being factored into it. The consensus EPS of the Sensex for March 2010 was Rs1,250 (around April). This meant that at a Sensex level of 18,000, the market appeared "reasonably valued" to many people given the historical trend. It was not so obvious to us. (See Market valuation: Is the Sensex undervalued? ). However, the Sensex is now at 16,000. And now we know why. Earnings growth of Corporate India has slowed down to a crawl. As a result, the March 2012 EPS assumption looks grossly optimistic.

So far, 1,245 companies out of 1,300 companies in the Moneylife database have declared their quarterly results. For the first quarter of FY2011-12, revenues have grown by 28% over the previous year but aggregate operating profit and net profit (NP) fell by 10% and 3% respectively. Operating profit margin (OPM) for the companies for the June quarter was just 14%. The June quarter last year had an OPM of 16% and for the previous December and for the March quarter OPM was 17% and 16% respectively. Despite the good sales growth of the 1,245 companies reviewed, the profits of the companies took a beating due to the increase in costs and the rise in interest rates.

The Index of Industrial Production (IIP) growth, for April-June 2010 was 9.7% compared to a significantly lower growth of 6.8% for April to June 2011. This just shows there is a slowdown in the industry.

Out of the 1,245 companies, 975 companies registered a positive revenue growth for the June quarter year-on-year (y-o-y) and 760 companies registered a positive OP (operating profit). There were 68 companies that had a positive OP for the June quarter of 2010, but turned negative in the June 2011 quarter. As many as eleven of these companies are from the textiles sector.

Out of 107 companies that had registered an operating loss in the June 2010 quarter, just 57 of these were able to generate operating profits in the June 2011 quarter.

The 29 major sectors (out of 49) which are tracked by Moneylife in its database of 1,300 companies registered a revenue growth of 27% for the June quarter y-o-y, growth in OP and NP (net profit) was 11% and 3% respectively.

Companies in the lifestyle & leisure sector continued to show good growth for this quarter y-o-y. Sales grew by 43% y-o-y, whereas OP and NP grew by 28% and 21% respectively. Banks and financial services as well showed good growth in sales, showing a quarterly growth 30% y-o-y.

Among the laggards, sales of sugar companies grew by just 2% y-o-y. The revenues of the shipping sector grew marginally by just 3% with the OP and NP growth being in the negative. The telecom services sector registered a sales growth of just 7%.

The June quarter results should have put the analysts and fund managers on the edge. In our June 30th article we had mentioned that the consensus looks like a prime example of 'groupthink'.

We had argued that in FY10-11, a year of robust recovery, the EPS was probably Rs1,013. If the EPS estimate of Rs1,240 for FY11-12 has to be achieved, EPS had to grow by 22%. We had asked "on how many occasions has the Sensex achieved an earnings growth of 22%, especially when the first three months of the year have been a washout? In fact, assumption of such growth is simply absurd. Last year, which was great for earnings growth, EPS expanded by 21% or so. Battling the headwinds of higher interest and rising raw material cost, it is a pipedream to think that EPS growth would be 22%. Actual growth would probably be half of that. What if EPS growth is only about 11%? This is not unlikely, given how badly Sensex companies have done in the March quarter without any plausible reason and warning. And, if the growth is lower at 10% (not impossible), EPS will be Rs1,120-way off the Bloomberg consensus estimates. This would be a shocker for the market."

The shock has come. This explains why the Indian market is simply not able to bounce back after such a hard fall. Conviction has been shaken and groupthink is at a peril.


We are listening!

Solve the equation and enter in the Captcha field.

To continue

Sign Up or Sign In


To continue

Sign Up or Sign In



The Scam
24 Year Of The Scam: The Perennial Bestseller, reads like a Thriller!
Moneylife Online Magazine
Fiercely independent and pro-consumer information on personal finance
Stockletters in 3 Flavours
Outstanding research that beats mutual funds year after year
MAS: Complete Online Financial Advisory
(Includes Moneylife Online Magazine)