Share prices may head higher: Wednesday Closing Report

Nifty is on course to reach the level of 4850-4,900

The market snapped its two-day winning streak on mixed global cues, which resulted in a high degree of volatility. A setback in the PSU disinvestment process also weighed on the investors. The Nifty made a higher high today on rising volume of 56.45 crore shares on the National Stock Exchange (NSE). Yesterday, we had mentioned that Nifty is headed for a short rally where it may reach the level of 4,900. We continue to maintain it. Today's intraday low on the Nifty was the highest in the past 15 days (including today).

The market opened almost unchanged as investors resorted to profit booking after the two-day rally. The fall was despite gains in the US markets overnight and the Asian pack in morning trade today. Cautiousness among investors ahead of a crucial Cabinet meeting to approve the proposal allowing state-owned companies to buy back stake in public holdings kept sentiments lower. The Nifty opened 10 points up at 4,775 and the Sensex resumed trade at 15,967, a gain of 28 points over its previous close. Realty, metal and banking sectors witnessed selling pressure in early trade.

Volatile trade at saw the indices fluctuate in and out of the red in the first two hours. However, with the Cabinet deferring its decision on the on PSU disinvestments, the market entered the negative terrain in late morning trade.

The market began a gradual upmove in the noon session and entered the green around 2pm on select buying. The move enabled the indices touch their intraday highs. At the highs, the Nifty rose to 4,783 and the Sensex breached the psychological level of 16,000 to touch 16,005. But the gains were short-lived as a sharp sell-off pushed the market to the day's low with the Nifty falling to 4,729 and the Sensex going back to 15,822.

The market pared its losses but closed in the red, ending its two-day winning streak. The Nifty settled at 4,750, down 16 points, and the Sensex lost 57 points to finish at 15,883.

The advance-decline ratio on the NSE was 945:778.

While the Sensex closed with a cut of over 0.36% today, the broader indices settled with minor gains. The BSE Mid-cap index rose 0.17% and the BSE Small-cap index added 0.10%.

The top sectoral gainers were BSE PSU (up 1.73%); BSE Capital Goods (up 1.10%); BSE Bankex (up 0.69%); BSE Metal (up 0.63%) and BSE Power (up 0.56%). The declining sectors were led by BSE Auto (down 1.21%); BSE TECk (down 0.88%); BSE Consumer Durables (down 0.67%); BSE Fast Moving Consumer Goods (down 0.52%) and BSE IT (down 0.49%).
The Sensex leaders were Tata Motors (up 3.38%); BHEL (up 2.44%); Hindalco Industries; ICICI Bank (up 2.43% each) and ONGC (up 1.06%). The main losers on the index were Bajaj Auto (down 4.70%); Mahindra & Mahindra (down 4.25%); Hindustan Unilever (down 3%); Bharti Airtel (down 2.95%) and Hero MotoCorp (down 2.75%).

The top Nifty gainers were HCL Technologies (up 3.91%); Tata Motors (up 3.12%); Reliance Infrastructure (up 2.60%); Ranbaxy (up 2.56%) and ICICI Bank (up 2.20%). Bajaj Auto (down 4.52%); M&M (down 4.12%); ACC (down 3.47%); Bharti Airtel (down 3.39%) and Ambuja Cement (down 3.23%) settled at the bottom of the index.

Most markets in Asia settled higher as positive economic data from the US and Germany raised hopes of global growth in 2012. However, markets in China and Hong Kong settled lower on worries of continuing high inflation and lower export demand.

The Jakarta Composite surged 1.28%; the Nikkei 225 climbed 1.24%; the Straits Times gained 0.84% and the Taiwan Weighted rose 0.42%. On the other hand, the Shanghai Composite declined 1.37%; the Hang Seng fell by 0.80%; the KLSE Composite slipped by 0.62% and the Seoul Composite lost 0.49%. At the time of writing, the key European markets were trading lower while US stock futures were mixed.

Back home, institutional investors-both foreign as well as domestic-were net buyers in the equities segment on Tuesday. While foreign institutional investors pumped in Rs255.39 crore, domestic institutional investors invested Rs206.51 crore in shares.

Tulip Telecom chairman and managing director HS Bedi has pledged an additional 39 lakh shares to various entities. Mr Bedi has pledged 13 lakh equity shares each with ECL Finance and Cholamandalam Investment and Finance Company (CIFCL), according to regulatory filings made by Tulip on the BSE. Besides, he has pledged five lakh shares with Religare Finvest, four lakh each with STCI Finance and IFCI, respectively, the company said. Tulip Telecom gained 2.43% to close at Rs113.80 on the NSE.

The Maharashtra government on Tuesday announced new norms amendments to the development control rules (DCR). The state government overhauled the development control regulations to redefine the floor space index (FSI). Reacting to the development, Pujit Aggarwal, managing director of Orbit Corporation said that despite the push in the cost, the move will help realtors to launch new projects sooner. The stock surged 4.97% to settle at Rs31.70 on the NSE.

EPC major KEC International has won new orders worth Rs1,253 crore. The company has secured orders worth Rs723 crore in the transmission business, Rs253 crore orders in power systems for substation works, Rs123 crore orders in the water business, Rs105 crore orders in the cable business and Rs49 crore is in the telecom business. The stock jumped 8.22% to finish at Rs39.50 on the NSE.


ASCI receives maximum complaints against personal care ads

More and more corporates are using the fast track court system of ASCI to resolve their issues with advertisements from competitors

The Advertising Standard Council of India (ASCI), the self-regulatory industry body and its Fast Track Complaints Council (FTCC) receives maximum number of complaints against advertisements relating to detergents and shampoos- from the personal care segment.

Alan Collaco, secretary of ASCI, said, “So far eight complaints have been dealt by the FTCC. Four complaints have been upheld by the Council. These advertisements are of detergents, shampoos and sanitary napkins – mainly belonging to the personal sector.”

Moneylife learn that FTCC had upheld a complaint it had received against the television commercial of Pantene Pro-V Shampoo, a product of Procter and Gamble (P&G). According to the complaint, the claim, “Hair fall ka chakkar…shuru hone ka no chance,” is misleading as it conveys that using this shampoo from Pantene will completely stop the hair fall cycle. The complainant said that the claim is false, misleading and needs to be backed with substantial independent data.

FTCC after reviewing the advertisement concluded that the claim, “Hair fall ka chakkar …. Shuru hone ka no chance”, was an absolute one and was inadequately substantiated. It also contravened with ASCI’s code and hence it was upheld.

Even Ahemdabad-based, Consumer Education and Research Centre (CERC), in its draft advertising code says that advertisement should substantiate all the claims made in it. “Advertisers shall be under obligation to substantiate all claims made by them, whether direct or implied, with documentary evidence of independent research and test findings that are capable of objective assessment. Relevant evidence should be sent without delay if requested by the Authority and should be adequate to support both detailed claims and the overall impression created by the advertisement,” it says.

“If there is a significant division of informed opinion about any claim made in an advertisement it should not be portrayed as universally accepted,” CERC adds.

Experts say that the FTCC is an easy platform from ASCI for the corporates, instead of choosing lengthy and expensive legal battles over competitor’s advertisements.
In September, ACSCI started the FTCC for 'fast-track redressal' of complaints originating within the industry. Accordingly, such complaints are resolved by the FTCC within seven working days, from the earlier time of around five weeks taken to resolve complaints.
A member of ASCI’s Consumer Complaint Council (CCC) who wished not be named explains that the FTCC has been successful in resolving the cases quickly. The complainant needs to check if the decision given by ASCI is complied or not, since ASCI does not have any mechanism for it. However, since most of the companies are member of the council, they abide by the decision.

ASCI is planning speedy disposal of the consumers complaints it receives against errant and misleading advertisements. “For quick disposal of consumers, ASCI’s CCC now meets twice a month. Earlier the CCC used to meet only once in a month. Now, complaint can be resolved within a month instead of 40-42 days,” says Mr Collaco.
Experts from advertising industry say that it is easier for the companies to resolve their advertising dispute with ASCI instead of approaching courts, where decision might be taken after several years. Moneylife had reported that how ASCI have become a battle ground for companies who find it easier to have the advertisements of their rivals pulled out by approaching the ASCI. (

ASCI has been seeking statutory powers from the union government to make its decision binding on advertisers.


Muthoot Finance NCDs—should you go for it?

Muthoot Finance’s business model is based on the premise of gold and gold prices. However, the stability and level of gold prices after five years is anybody’s guess. This very fact that the company is dependent on one variable, makes us very uncomfortable in addition to its already high debt

Muthoot Finance is the largest gold financing company in India in terms of loan portfolio. It’s loan portfolio as of 30 September 2011 comprised about 5.5 million loan accounts, gold loans outstanding of Rs20,766.62 crore, of which the gold loan business contributed to 99.01% of its total revenue.

The company is issuing a non convertible debenture (NCD) to raise as much as Rs600 crore. This issue is rated ‘AA- with stable outlook by CRISIL as well as by ICRA. The issue opened on 22nd December and closes on 7 January 2012. Muthoot Finance hopes to utilise the money for lending and investments, to repay existing liabilities or loans and towards business operations including capital expenditure and working capital requirements.

The minimum investment is Rs5,000. That means you have to purchase minimum five units at Rs1,000 per unit. The interest rate offered is 13% for two years, and 13.25% for remaining options which are three, five and five-and-half years. The face value or per unit cost of NCD is Rs1,000. According to the company’s website, the NCD claims to double your investment in 5.5 years.

Is it worth the investment? We find out for you.

Muthoot Finance’s capital adequacy ratio stood at 18.24%, with Tier I capital comprising 13.48%, as of September 2011, 324 basis points above the Reserve Bank of India’s (RBI) minimum required of 15%. In order to maintain a safe ratio in the next five years, it would require sufficient capital infusion, or strong cash-flows, to cushion in case of default.

The company currently faces as much as Rs17,256.70 crore of liabilities, of which Rs2,401.50 crore, or roughly 14% of its total liabilities, is due for repayment by 31 March 2012, which would probably be refinanced. It also had contingent liabilities, not provided for, amounting to Rs322.90 crore. The long-term debt equity of the company stood at a whopping 6.71 times!

Muthoot Finance’s gross non-performing assets (NPAs) grew to Rs123.32 crore from Rs46.01 crore, a staggering rate of 168%, between 31 March to 30 September 2011. However, as a percentage of its loan portfolio the gross NPA stood at 0.59%, which is reasonable, but by no means safe if you consider economic slowdown which is already happening.

Its income has declined over the last six months by 12.5%, while its profit margins stood at a healthy 20.17% (down from 21.5% over six months). However, its cash flows have remained flat during the same period. Cash flow against interest revenue is a major component towards paying off debt, especially paying the interests on NCDs.

The NCD remains very attractive from the instrument’s point of view—at 13.25% over a period of 5+ years—virtually doubling your initial investment. However, we are not wholly comfortable with the fundamentals of the company. If the company does not manage to increase cash flow and generate business over the next five years, it will face a difficulty in paying you the promised 13.25% interest rate for five years.

Their already high debt-equity ratio shows an over-leveraged balance sheet, which would further be jacked up with this NCD issue. With the economy slowing down, the company might have difficulties in meeting its short-medium term obligations.

The company business model is based on the premise of gold and gold prices. The higher the price of gold, the higher loan quantum the company would give you, by pawning off your physical gold possessions. We are in the middle of one of the most unprecedented gold price rises. However, the stability and level of gold prices after five years is anybody’s guess. This very fact that the company is dependent on one variable makes us very uncomfortable, in addition to its already high debt.



Krishnaraj Rao

5 years ago

Isn't Muthoot Finance what they used to call a loan shark a couple of decades ago -- encouraging indebtedness, and feeding off the people who default on loans?


E Jose

In Reply to Krishnaraj Rao 5 years ago

It depends on what you call a loan shark. Did not people accuse all the New Gen banks of encouraging indebtedness through aggressive marketing of credit cards and car loans?

All banking and financing institutions sell loans. They cannot just keep accepting funds and keep it idle. In the process they fulfill a real need in the market for finance. We all need loans and we have multiple choices in selecting the loans from various providers. We choose what best suits us.

Muthoot is not a bank-it is a licenced Non Banking Financial Company and is in the organised sector and is regulated by RBI.

One must study the finance papers like ET, Hindu Business Line, Financial Express etc. and learn about the whole thing and make informed choices.

That is my opinion.


E Jose

5 years ago

Hi Sundaram,

As I see it, any investment carries risk, or we would not get any return. How the risks are addressed is what we should look at. The risk from the Company’s dependency on gold is mitigated by the fact that their Loan to Value is approx 62 % only. i.e. it would require a 38 % fall in Gold prices to discourage redemption of the loans. Further, there is always some sentimental value attached to the pledged jewels which has not been quantified, but we could say it ranges between 5 to 10 % . This provides an additional margin. Since they give mostly small ticket short term loans of three to six months, frequent corrections are possible to set off the price and interest related risks.

All big financial companies, Muthoot not excluded, maintain constant watch over their Asset-Liability position for various time buckets to ensure all payments due are covered by inflows. Further, since their loans are short term, (3 to 6 months) they would not have any problem meeting payments due in March 2012 or at any other time.

As regards the long-term debt equity ratio, it is the natural position of any financier, including banks. Banks have the added risk of long term loans which are secured by illiquid assets.

International observers predict that Gold prices would continue to rise in 2012-13.

NPA position of banks presently exceeds 5 % (rise from 3.5 %)according to today’s news. It is a global phenomenon-nothing to panic about.

There is another view posted by the Hindu Businessline available at
This may be of interest to you.
I am a retired banker.
E. Jose


5 years ago

Agreed-over 5 years there are dark clouds over the company.But how about investing @13% for 2 years?The chances of gold prices crashing in the next 2 years seem remote(given the world economic conditions). Request your urgent feedback(since the issue closes on the 7th). Thanks.



In Reply to Sundaram 5 years ago

Well for 2 years it is a good option along with kikback brokers are passing(as high as 1),but then you can also try already listed deb from same co,which are avilable at discount(N4/N6 series).I am not sure abt period of holding in them & yield it gave,after accured int & discount.

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