Nifty’s resistance is at 5,330
The market which opened in the positive, riding on the optimism from Greece, stayed range-bound for the whole trading session and closed flat in the absence of any domestic triggers. Markets across the world now await the outcome of the two-day US Federal Reserve policy meeting later today, for further direction.
As expected, the market opened with small gains on the back of supportive cues from the global arena, following easing of debt problems in Greece. The Nifty resumed trade at 5,305, up 29 points, and the Sensex opened 99 points higher at 17,659. The indices soon touched the day's high with the Nifty touching 5,311 and the Sensex at 17,679.
However, volatility from the opening bell and the India Meteorological Department's report that the monsoon this year will be slightly below normal, made investors nervous. This is another dampener, in addition to continuing high inflation and successive rate hikes by the Reserve Bank of India, the most recent effected only last week.
The market hovered on both sides of the neutral line in post-noon trade, following mixed trade by key European markets in the early session. It fell to the day's low, the Nifty fell to 5,263 and the Sensex to 17,492. The indices witnessed a flat close with a mixed bias; the Nifty added two points to 5,278 and the Sensex shed 10 points to finish at 17,550.
The advance-decline ratio on the National Stock Exchange was 434:975.
The broader indices were badly bruised today as the BSE Mid-cap index and the BSE Small-cap index both declined 0.84% each.
In the sectoral space, BSE Oil & Gas (up 0.28%), BSE Capital Goods (up 0.24%) and BSE Bankex (up 0.06%) were the notable gainers, while BSE Consumer Durables (down 3.83%), BSE Realty (down 2.29%) and BSE Fast Moving Consumer Goods (down 0.67%) were the top losers.
Mahindra & Mahindra (up 2.39%), ONGC (up 2.05%), Cipla (up 1.99%), Bajaj Auto (up 1.68%) and Tata Power (up 1.60%) were the best performers on the Sensex. The laggards were led by Hindustan Unilever (down 3.42%), Maruti Suzuki (down 2.39%), Bharti Airtel (down 2.32%), TCS (down 1.86%) and Jindal Steel (down 1.46%).
The top Nifty gainers were M&M (up 2.29%), Tata Power (up 2.13%), Cipla (up 2.03%), Bajaj Auto (up 1.79%) and ONGC (up 1.56%). HUL (down 3.61%), Ranbaxy (down 3.11%), Bharti Airtel (down 2.45%), TCS (down 2.25%) and Maruti Suzuki (down 1.90%) were the top losers on the index.
Markets in Asia closed mostly higher, as optimism from Greece lifted investor sentiment in the exports-dominant region. Value-picking after the recent decline helped the Hong Kong market end higher. Japanese automakers rose as Citigroup raised their outlook to 'neutral' from 'bearish', following a quicker-than-expected recovery in supply chains.
The Shanghai Composite gained 0.09%, the Hang Seng added 0.04%, the Jakarta Composite 0.71%, the KLSE Composite rose 0.42%, the Nikkei 225 jumped 1.79%, the Seoul Composite was 0.77% higher and the Taiwan Weighted settled 0.27% up. Bucking the trend, the Straits Times lost 0.35%.
Back home, foreign institutional investors were net sellers of stocks worth Rs563.36 crore on Tuesday, whereas domestic institutional investors were net buyers of stocks worth Rs430.41 crore.
If you want to invest Rs10 lakh and above in a fixed-income product, consider listed corporate bonds. Some safe ones can yield returns as high as 12%
With interest rates shooting up, bank fixed deposits are attractive now. For the more adventurous, there are corporate fixed deposits, about which we had written last week, on 14th June, (Corporate fixed deposits offer higher rates than banks. But is it safe and smart to go for them?).
But if you have an investment plan of Rs10 lakh or more in fixed income, corporate bonds are also a great option for you. Many of the new bonds even offer you a higher rate of interest as compared to fixed deposits, postal savings or similar investments. Some bonds floated by the Tata group currently yield more than 11% per annum. Many of these bonds are listed on the BSE (Bombay Stock Exchange) and the NSE (National Stock Exchange) and can be bought through stockbrokers who have a presence in the debt segment, who immediately transfer them into your demat account.
Since these instruments are listed, you need not be stuck with them; you can sell them in the secondary market before maturity. The bonds that are currently worth buying are: IRFC 12.90% 2012 (S-15M) from the Indian Railway Finance Corporation earning around 13%; CitiFinancial Consumer 9.48%, 2013 (Series-320) yielding around 12%; PGC 6.10% 2010 S-XIV STRPP-H from Power Grid Corporation of India earning around 12% and IDBI 8.90% 2017(IDBI Omni Bonds yielding around 11%). Then there are higher-yield bonds from builders which are riskier—Vijay Associates Wadhwa Cons 16% 2013 (Sr-B) from Vijay Associates (Wadhwa) Construction Private Limited yielding 16%.
You can download the details of the listed bonds from the NSE website at http://nseindia.com/.
Unfortunately, there is very little awareness of these bonds and their products among retail investors and so they miss out on the opportunity. Corporate bonds are issued by corporations in need of capital for their regular operations and also for projects. Most corporate bonds offer semi-annual fixed-rate coupon payments. Others offer floating coupons. When a company decides to sell bonds to raise capital, it negotiates deals with investment bankers and large institutional investors to place those bonds in the market.
After that, the bonds are listed on the secondary market. This market is open to all investors, but caution is warranted. The secondary market is almost entirely an over-the-counter market. Most trades are conducted on closed, proprietary bond-trading systems or via the telephone.
The only way the average investor can participate is through a broker who would be willing to locate small lots and sell them to him. More importantly, the pricing of bonds on the secondary market can be difficult to track and understand.
Follow the yield-to-maturity (YTM) figure which is available on the NSE website. One way to invest in corporate bonds is through off-market purchases. Take an example where an institution has Rs1 crore worth of bonds while you want to buy Rs20 lakh worth of bonds. You can approach the broker, negotiate the purchase price, pay via cheque and the bonds get transferred to your demat account.
Corporate bonds are mainly secured—backed by assets of the issuing company. Theoretically, they do carry an inherent risk of default, though it is hard to see that Tata Power of TISCO would default suddenly. Companies move slowly towards default following significant deterioration of their finances, over a long period due to adverse fundamentals, competition, and poor or unethical management practices. Bondholders will get plenty of time to exit when the deterioration is palpable.
Another form of corporate bond issuance that is now becoming popular is perpetual bonds. These have been issued by Tata Power and Tata Steel. Perpetual bonds pay interest forever. They are never redeemed and so have the characteristic of equity shares with a fixed dividend. This instrument made its entry into the financial markets in 2005. The issuers of perpetual bonds are primarily scheduled commercial banks. In January 2006, RBI allowed banks to shore up their capital through issuance of perpetual bonds and another instrument called 'Upper Tier-II Bonds'. In March this year, Tata Steel was the first private sector company to have issued perpetual bonds.
The unique features of these securities are that they are perpetual in nature with no maturity or redemption and can be called only at the option of the company. They are not redeemed, unless the issuer wishes so, after a few years. Perpetual bonds give the issuer access to long-term capital and it is mostly insurance companies and pension funds which subscribe to these bonds. For instance, the Tata Power offering is for a period of 60 years with a call option of 5 years.
Some of the perpetual bonds yielding more than 10% include: Tata Steel RESET Perpetual from Tata Steel having a coupon rate of 11.50%. Interestingly, if Tata Steel does not call the bonds after 10 years from the date of allotment, the rate of distribution would be revised upwards by 300 bps (basis points) i.e., to 14.50% per annum payable semi-annually. Tata Power issued a perpetual bond of 11.40% coupon which can be bought at Rs104 now, leading to an effective yield of 10.96%. Other such bonds have been issued by Punjab National Bank, Oriental Bank (yield of around 10.50%) and State Bank of Travancore which offers yield of around 10%. Shriram Transport has also announced plans to raise money through 11.50% bonds.
With an IPO grading of just 1/5, the stock ends at a premium 44.76% on debut
Timbor Home, which opened its innings on the bourses today, emerged as the top gainer on the National Stock Exchange (NSE), closing at Rs91.50 compared to its issue price of Rs63, a premium of 44.76% to its issue price. Opening at Rs72, the stock traded in the range of Rs72-Rs99 intra-day. The total volume of shares traded on the NSE and the Bombay Stock Exchange was 7.91 crore which is 5.38 times the issued equity shares of the company.
Timbor Home, manufacturer and retailer in the modular kitchen industry, had set the issue price of its initial public offer (IPO) at Rs63, the upper end of the price band of Rs54-Rs63. The issue was subscribed 5.78 times. The Qualified Institutional Buyers (QIBs) category was subscribed 65%, while the non-institutional investors' category was subscribed 3.22 times and the retail investors' category was subscribed 14.22 times. Interestingly, the company has such poor fundamentals that it got an IPO grading of 1/5.
The issue is equivalent to 25% of the company's post-IPO equity and will lead to the promoter's holding falling to around 50%. Other private investors hold the remaining 25% shareholding in the company.
The company raised Rs23.25 crore through the issue of 36.9 lakh equity shares. Of the total issue proceeds, the company will use Rs2.6 crore for capacity expansion, Rs4 crore for establishment of stores, Rs13.2 crore for working capital requirement and the remaining amount for other corporate purposes.
Analysts had suggested ignoring the issue on account of the company's aggressive valuations and weak financials.
Timbor Home operates as a manufacturer and retailer, having 80 stores of kitchen, door and furniture. It also operates on a franchise model. Competitors in the segment include Pantaloon, Shoppers Stop, Trent, Godrej, Durian and Lifestyle.
The company's net sales in FY09-10 was Rs51 crore. Apparently, it grew at a compounded annual growth rate of 65% in the last four years. During the same period, the company's net profit has grown to Rs1.8 crore from just Rs10 lakh. The company has very thin margins. The operating margin in FY09-10 was 10.7% and net profit margin was 3.5%.