Sensex, Nifty upmove is maturing: Friday Closing Report

For the first time this year the Nifty has seen gains for eight consecutive trading days. The current move is maturing but be prepared to buy the dips

Domestic and global events saw the market closing around 2.5% higher and in the positive for the eighth day in succession. Today the Nifty reached a high of 5,587, which was its best since 23 February 2012 and closed almost at the day’s high. The Nifty’s 2.62% gain was its highest percentage gain since 7 June 2012. We see the index uptrend still continuing. The National Stock Exchange (NSE) saw a high volume of 80.01 crore shares and the advance decline ratio of 791:642.  
With the major international events behind us, the focus now shift to the Reserve Bank of India’s quarterly policy review on 17th September.
Riding on the two positive events—the diesel price hike in India and announcement of the QE3 by the US Federal Reserve—the Indian market opened with smart gains this morning. The Nifty opened at 5,528, a gain of 93 points over its previous close, and the Sensex added 264 points to resume trade at 18,285. All sectoral indices, led by banking, metals and oil and gas, were trading in the positive zone with gains of up to 3.36% in early trade.
Biting the bullet, the Indian government on Thursday hiked diesel prices by a steep Rs5.62 per litre and restricted the supply of subsidised cooking gas to six cylinders per household in a year to fetch an additional Rs20,300 crore.
Meanwhile, the Federal Reserve on Thursday fulfilled expectations of more stimulus to boost the US economy. The central bank said it will buy $40 billion of mortgage-backed securities per month in an attempt to help the recovery in the real estate market. The purchases will be open-ended, meaning that they will continue until the Fed is satisfied that economic conditions, primarily in unemployment, improve.
The opening figure on the Sensex was its intraday low while the Nifty fell to its lows soon after the opening bell with the index at 5,527. However, optimism in the Asian markets helped the benchmarks maintain their gains in subsequent trade. 
The market brushed aside the higher-than-expected monthly inflation numbers for August, which came in at 7.55% in August as against 6.87% in the previous month. Analysts pointed out that the hike in diesel prices would see inflation going up in the short term.
The positive opening of the key European indices saw the local benchmarks extending their gains in the second half of trade. The market scaled its high towards the close of trade. At this point the Nifty rose to 5,587 and the Sensex climbed to 18,499.
A minor bout of profit taking at the highs saw the market closing off the highs, but in the green for the eighth day in a row. The Nifty climbed 142 points (2.62%) to 5,578 and the Sensex jumped 443 (2.46%) points to settle at 18,464.
The broader indices lagged behind the Sensex today as the BSE Mid-cap index advanced 0.88% and the BSE Small-cap index gained 0.45%.
With the exception of BSE Healthcare (down 1.24%) and BSE Fast Moving Consumer Goods (down 0.49%), all other sectoral gauges ended higher. The top gainers were BSE Realty (up 4.78%); BSE Metal (up 4.25%); BSE Bankex (up 4.15%); BSE Capital Goods (up 3.48%) and BSE Auto (up 2.88%).
Twenty-four of the 30 stocks on the Sensex closed higher. The top performers were Jindal Steel (up 8.83%); Hindalco Industries (up 8%); State Bank of India (up 5.52%); Reliance Industries (up 5.35%) and ICICI Bank (up 4.97%). NTPC (down 1.61%); Dr Reddy’s Laboratories (down 1.59%); ITC (down 0.59%); ONGC (down 0.37%) and TCS (down 0.24%) were the key losers on the index.
The top two A Group gainers on the BSE were—Jindal Steel (up 8.83%) and Hindalco Ind (up 8%).
The top two A Group losers on the BSE were—Glenmark Pharmaceuticals (down 4.26%) and Lupin (down 4.01%).
The top two B Group gainers on the BSE were—Gujarat Themis Biosyn (up 20%) and Ravi Kumar Distilleries (up 19.98%).
The top two B Group losers on the BSE were—Mahavir Impex (down 15.38%) and Koa Tools India (down 12.50%).
Out of the 50 stocks listed on the Nifty, 40 stocks settled in the positive. The top gainers Jindal Steel (up 7.79%); Hindalco Ind (up 7.44%); DLF (up 7.43%); Jaiprakash Associates (up 6.72%) and Axis Bank (up 6.49%). The major losers on the index were Ranbaxy Laboratories (down 2.07%); NTPC (down 1.87%); Dr Reddy’s Laboratories (down 1.83%); Power Grid Corporation (down 1.36%) and BPCL (down 1.33%).
The US Fed QE3 announcement resulted in the Asian markets closing with smart gains. The US move increased the appetite for riskier assets like stocks. The Seoul Composite closed at its best in five months on Standard and Poor’s upgraded the country’s credit rating. On the other hand, the Japanese government cut its assessment of the economy for the second month in succession on the back of the global slowdown.
The Shanghai Composite gained 0.64%; the Hang Seng surged 2.90%; the Jakarta Composite climbed 2.07%; the KLSE Composite advanced 0.89%; the Nikkei 225 rose 1.83%; the Straits Times gained 1.33%; the Seoul Composite jumped 2.92% and the Taiwan Weighted settled 2.10% higher.
At the time of writing, the CAC 40 of France was up 1.97%; DAX of Germany climbed 1.46% and UK’s FTSE 100 was 1.54% higher. At the same time, the US stocks futures were in the positive, indicating a firm opening for US stocks.
Back home, foreign institutional investors were net buyers of shares totalling Rs361.48 crore on Thursday whereas domestic institutional investors were net sellers of equities amounting to 156.05 crore.
Uttam Sugar Mills today said it will raise Rs27.21 crore through rights issue to fund working capital requirement. The company would issue 1,23,69,120 equity shares at Rs22 per share, which is lower than the today's closing price of Rs 24.15 a piece on the BSE. The stock gained 0.82% to settle at Rs24.50 on the NSE.
Pennar Engineered Building Systems (PEBS Pennar), a subsidiary of Pennar Industries, has bagged orders worth Rs60 crore. The new orders takes the company’s order book to Rs260 crore, the company said in a press release. Pennar Industries settled at Rs25.10 on the NSE, up 0.20%.
Pharmaceutical firm Wockhardt, which had run into financial trouble, said its financials are improving and has settled its liabilities towards FCCBs. After defaulting on $110 million overseas bonds in 2009, the company earlier this year settled the issue with its foreign lenders. The sale of its nutrition business to Danone for Rs1,280 crore has helped the company reduce its debt to equity below 1 compared to 1.9 earlier. Wockhardt closed 0.13% up at Rs1,338 on the NSE.


Bharti Infratel to raise $1 billion via IPO by year-end

Bharti Airtel, which owns around 86% stake in the tower unit, however said that it would not  participate in the share sale process of its mobile tower unit

Mumbai: Bharti Intratel, the telecom mast unit of mobile operator Bharti Airtel, on Friday filed for a $1 billion initial public offer (IPO) to divest 10% stake in the company by the year-end, reports PTI quoting said a senior merchant banking source directly involved with the deal.
However, Bharti Airtel, which owns around 86% stake in the tower unit, said in a filing to the BSE earlier in the day that it has decided against participating in the share sale process.
"The IPO will constitute a fresh issue of equity shares by Bharti Infratel and an offer for sale portion by Compassvale Investments, GS Strategic Investments, Anadale and Nomura Asia Investment," the filing said without saying how much stake these investors will dilute.
But the merchant banking source told PTI on condition of anonymity that "the investors will dilute 10% of their stake through the IPO which will hit the markets towards the end of the calendar year." 
Without attributing any reasons for deciding against participating in the stake sale process, Bharti filing said its committee of directors, which was looking at the details of listing of Bharti Infratel, has decided not to participate in the IPO.
Other investors in Bharti Infratel include Temasek Holdings, Kohlberg Kravis Roberts & Co, Goldman Sachs, Macquarie Group, Citigroup, Investment Corporation of Dubai and AIF Capital who together hold about 13%, according to the source.
The source further said 75% of the issue will be reserved for the primary market while the rest will be the quota for institutional investors.
Standard Chartered India is the lead-banker to the issue, with JP Morgan, UBS and Bank of America being the co-book-runners. 
Bharti Infratel has over 33,000 towers. Other players in the business include Anil Ambani-led Reliance Infratel and Viom Networks, a joint venture between Tata Teleservices and Kolkata-based Quippo Infrastructure.
So far, none of the tower companies is listed, although Reliance Infratel had plans to do so in the past but now is keen to sell off the business.
During the Reliance Communications AGM early this month, Chairman Anil Ambani had told shareholders that the tower arm will be sold as part of its effort to pare the huge debt pile, which currently is around Rs32,000 crore, next year.


Retired teachers selling ‘simple’ & ‘performing’ schemes: Another harebrained idea from SEBI

SEBI wants to create a new category of fund sellers: Postal agents, retired teachers, retired government and semi-government officials who will sell units of ‘simple’ and ‘performing’ mutual fund schemes. The concept and the definition of these two terms should rank pretty high in the list of harebrained ideas from regulators

The Securities and Exchange Board of India (SEBI) recently passed a circular that sharply increases charges for mutual fund investors. This by far is the worst we have seen from the market watchdog. Apart from penalising long-term investors (Read: Mutual funds to be expensive from 1st October ) SEBI’s circular also states “A new cadre of distributors, such as postal agents, retired government and semi-government officials (class III and above or equivalent) with a service of at least 10 years, retired teachers with a service of at least 10 years, retired bank officers with a service of at least 10 years, and other similar persons (such as bank correspondents) as may be notified by AMFI/AMC from time to time, shall be allowed to sell units of simple and performing mutual fund schemes.”

Now what is SEBI’s ‘simple’ and ‘performing’ mutual fund schemes? SEBI has helpfully defined it: “diversified equity schemes, fixed maturity plans (FMPs) and index schemes.” If SEBI considers diversified equity schemes as simple, we wonder why SEBI has not included debt income schemes and liquid schemes as well and which are not complex? And FMPs were the main cause of distress for investors and SEBI in the 2008 crash, which wiped out a fund house.

But what is even more intriguing is the second part of the idea. The schemes “should have returns equal to or better than their scheme benchmark returns during each of the last three years.” (our emphasis). This criterion for selecting schemes is not only wrong but investing in certain schemes based on this can be harmful to one’s investment. And what’s worse is that this would be the investments of hard earned money of savers from small towns and cities who would invest on the trusted advice of ‘government’ employees, postal agents, teachers and ‘senior’ bank officers.

Schemes that beat their benchmark in each of the last three years are not necessarily consistent performers. Take for example the scenario in August 2007, had one planned to invest at that time there would have been funds like SBI Magnum Global Fund 94, Reliance Vision and DSP BlackRock India Tiger Fund among the list of schemes that beat their benchmark on each of the last three years. What happened subsequently?

  • In the following year itself the schemes fell by 10% to 17% whereas their benchmarks had fallen by just 3% to 5%.
  • In fact none of these three schemes made it to the list in any of the subsequent years till now based on the same criteria.
  • Half of the schemes present in that year never met the criteria for the following year. This is one reason why we emphasise that while selecting a scheme one should focus on long-term consistence performance.

Let’s take the most recent period just for making our point clear.

  • At the end of August last year there were 51 equity diversified schemes that met the criteria of the SEBI circular.
  • The following year as many as 18 schemes failed to beat their benchmark and around eight schemes delivered negative returns compared to their benchmarks which were positive.

Here are some more issues that show how foolish SEBI’s idea of ‘performing’ schemes is.

  • Returns are always considered point-to-point. We have explained the fallacy of taking returns over a fixed period (read it here Three reasons why S&P-CRISIL’s rating of mutual funds based on fixed period is flawed ). Here even though the performance over each of the last three years is taken it is not enough.
  • Some good schemes may have failed to outperform their benchmark for just one particular period that too by a negligible amount. If we apply the above mandate it would mean the particular good scheme would fail to make it to the list of “simple and performing” schemes. Take for example HDFC Top 200, it marginally underperformed its benchmark in August 2007 by one percentage point (the scheme had returned 31% compared to the BSE 200 which returned 32%). This would mean it would not be present on the list of schemes for that year and the following two years even though it substantially outperformed its benchmark in the following two years.

And as long as SEBI allows fund companies to charge 1.5% on index funds, allowing retired teachers to sell index funds to the masses is patently doing severe harm.

Would the retired government officials be able to do their own research and select the top schemes or would they just push the schemes that would earn them higher incentives? Who would be responsible if investors lost their hard-earned money by investing in the wrong scheme? After all, SEBI has only found new ways to bribe mutual funds companies to reach them, not protect their interests with appropriate metrics and making fund houses and sellers accountable.

Bureaucrats who run the regulatory bodies come up ideas that are well-meaning but senseless because of their tendency to bring in value judgements that have little to do with reality. In 1992 when Dr Manmohan Singh declared that foreign funds would be allowed to invest in India, he said only ‘reputed’ institutions would be allowed to invest here. Dr Singh’s value judgement looked ridiculous and even more so with the reputation of Wall Street firms like Goldman Sachs, Merrill Lynch, Citi and Morgan Stanley in tatters after their role in sub-prime crisis of 2007-08 came to light.

We suspect that this breathtakingly silly idea will remain stillborn like many other ivory-tower ideas of regulators. This is simply because it is not possible to implement it and neither will there be any takers for it.



Pankaj Kapadia

4 years ago

FMPs are simple. How? Because no returns are printed and given. I wonder what would those govt employees answer if asked how much return FMP would generate and what are tax implications?. Honestly we have no reliable answer.
Index funds AUM if you go to see is hardly anything. In fact they should be given monopoly to sell such funds. I also wonder why refresher courses are required for existing ifas... if there are SIMPLE MUTUAL FUND SCHEMES available.

mam chand aggarwal

4 years ago

This is unnecessary hue and cry ,Please ask the investors who put their hard earnings 4-5 years ago in mutual funds,what is their condition now ? they were promised
to get the profit earning at least @ 15 % but they have lost their most of the principle amount also.
Who is responsible ? The shops of mutual funds may please be closed to any further financial loss to the investors and save them from mental agony.The bank FDs are much more better and with ensured income

H Doshi

4 years ago

hanks for the article and the research. Wonder how the retired history, chemistry and biology teachers are going to first,self understand the past, investment combination in a fund and the life strength of a fund? Experience of their past in classes considered similar to the fund classes, by SEBI?


4 years ago

SEBI has miss the target what i feel , i dont thing this is the smart solution to protect the investor's interest. whereas my view is that on issue that the SEBI has now implement the regulation for advisory model.

Krishna Gopal Gupta

4 years ago

SEBI itself is allowing to MISSELL & MISREPRESENT MF Schemes to new investors, why? The motive is to be found out. Probably, they might have got a huge sum of money to push this class of people. Further, what is wrong then with the AMFI Certified IFAs, who are not only earning their bread but are also feeding AMFI, NISM, AMCs and Investors besides their own family members needs to be answered by SEBI?


4 years ago

Apart from all this are these guys supposed to check everyday for the performance of every scheme for the last three years, to date? At the cost of repitition I will say it again that this is what happens when you try to fix things when they are not broken. If these hairbrained people are supposed to look after the interests of the investors, then God save the investor.

mam chand aggarwal

4 years ago

there is no need of appointing new distributors / retired teachers . the officials sitting in AMCs have got issued ARN in favour of their family members.


4 years ago

Excellent and well researched. What about new found theory of "Direct" investments cheaper for all existing and new investments? In what way this will benefit AMC? SEBI is bringing one or the other at frequent intervals only to harm the industry than helping to survive. IFAs role in promoting the sales are of paramount importance and they should be encouraged. My request to you is to put concerted efforts to prevail upon SEBI to help grow MF in India.

Bharat Bhushan

4 years ago

For such bizarre idea, each of the advisory commitee member and current SEBI Chairman and Director and AMC CEO should take upon themselves a mandatory target to rope in minimum 25 such distributors from amongst there near and dear ones (relatives - there must be many aspiring) in this cadre who accomplish minimum mobilisation of Rs. 1 crores and 50 new investors each in next one year and then publicly publish the experience.

What happens if any of their investors wishes to invest/ switch into any scheme out of this selected set ? Do they say "No" ? Who shall be responsible for this ?

Will there be a separate fact sheet and CAF of such schemes ?

Go one step further - If the scheme fails to meet the criteria next year - Do automatic redemption !

mam chand aggarwal

4 years ago

The AMCs have grabbed the poor investors hard earnings in connivance with SEBI.Both are enjoying on public money .They are suggesting new frauds with old aged persons to overlook the old grabbing .

arun adalja

4 years ago

sebi is trying to correct his mistakes by creating foolish idea.and wasting time of the elderly retired persons by moving out in streets for small amount by selling junk mutual fund schemes.

mam chand aggarwal

4 years ago

MFs are nothing but junk food due to highly paid fund managers sitting in AC cabins without minds


4 years ago

yah baat ab sabit ho gayi hai ki SEBI ki office me gadho(donkey) ki jamat baithi hai kyoki gadhe hi itni betuki ghatiya salah de sakte hai.


4 years ago

1) Performing Schemes: Somebody seems to have forgotten, past performance is no guarantee of future returns . . . used to be a risk factor disclosure till very recently. Like changing traffic, performing schemes keep on changing. Otherwise, we would have had a list of some common schemes performing this miracle continuously.

2) Rewarding Tracking error? How can a passively managed Index fund be expected to outperform the underlying benchmark? It can only happen if the fund manager, managing the Index Fund is incompetent. i.e. he is unable to replicate the index portfolio. Index funds have costs attached to them while an index has no cost, thus how can we expect an Index fund to do better than the underlying index?

3) New Cadre of distributors: It is one more attempt at trying to figure out what does not work. As things stand, it will be difficult to enroll new agents (After having witnessed the plight of MF sellers, who will now want to join the ranks? And for what?) . By creating this cadre of retirees, are we trying to convert a full time profession into a post retirement hobby? How many retirees will be willing to go ‘out of pocket’, spending their princely pension for promoting mutual funds? Their upfront compensation shall be less than a stipend.


Sucheta Dalal

In Reply to Nilesh KAMERKAR 4 years ago

Excellent points Mr Kamerkar .... very thoughtful. It makes me want to be a fly on the wall and listen to the discussions at SEBI's advisory committees, that end up with such bizarre schemes being approved and publicised.
Funnily, the mutual fund industry, which is already so badly damaged by such mindless and knee-jerk actions remains silent.
The new rally in stock indices will ensure there is no discussion either!


In Reply to Sucheta Dalal 4 years ago

Thanks Ma’am,

About SEBI’s advisory committee: Do not wish to take names, though . . .
A few from that list of 14, which makes the committee are ‘single handedly’ capable of advising SEBI on reviving the MF industry. And make it robust.

It is depressing when such leading lights of the MF industry have collectively let the opportunity slip – some of them have spent most of their professional lives ‘nurturing the MF industry’ while creating wealth for their investors & a solid reputation for themselves.

Like it happens in committees, here too there are those who masquerade as crusaders of investor protection, but in reality are feasting off the same retail investor’s hard earned savings in mutual funds ( and in more ways than one). They may be here for their nuisance value & personal agenda. Mutual funds revival can continue to wait.

While one understands the difficulty of making things simple, but, it is kind of weird when complicated measures get announced as simple.

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