Share prices struggling: Monday Closing Report

Nifty is ranged between 5,070 and 5,160

The market ran out of steam today after notching up gains of 5% last week. Reliance Industries was the top loser, following reports that the company plans to suspend drilling activity till it completes a review of its exploration and production activities in view of declining oil & gas output. Although the Nifty opened in the positive, made a higher high and higher low, the index ended marginally in the red. Today’s fall has been on nine days’ low volume of 48.01 crore shares (including today) on the National Stock Exchange (NSE).

Although the global indices are showing positive signs, it is not helping the domestic market sustain the upmove. We may see the Nifty move between 5,070 and 5,160. In case the index closes below 5,070, we may see a substantial correction. On the upside, the Nifty has to close decisively above 5,170 and then 5,220.

The domestic market opened higher, tracking its Asian peers which were in the positive in morning trade. The Nifty opened at 5,156; 21 points higher from its previous close and the Sensex rose 93 points to resume trade at 17,176. The indices touched their intraday highs in initial trade itself with the Nifty going up to 5,160 and the Sensex rising to 17,189.

However, the sharp fall in the Reliance Industries’ stock price despite positive quarterly results pulled down the oil & gas sector and resulted in the market venturing into the red at around 10.50am. The benchmarks continued to trade in the negative, with the market falling to its day’s low around noon. At the lows, the Nifty went down to 5,085 and the Sensex to 16,928.

Minor recovery attempts were shot down by selling pressure, keeping the market lower. The indices witnessed sideways movement in the post-noon session, ignoring the good set of quarterly numbers declared by mortgage lender HDFC. Finally, the market closed lower with the Nifty down 14 points at 5,118, and the Sensex settling at 17,025, a fall of 58 points.

The advance-decline ratio on the NSE was almost balanced at 813:869.

The broader indices had a mixed closing with the BSE Mid-cap index down 0.01% and the BSE Small-cap index settling with a gain of 0.22%.

The top sectoral gainers were BSE Auto (up 1.58%), BSE Consumer Durables (up 1.50%), BSE Bankex (up 0.60%), BSE Realty (up 0.52%) and BSE Fast Moving Consumer Goods (up 0.19%). The major losers were BSE Oil & Gas (down 2.29%), BSE Capital Goods (down 1.37%), BSE Power (down 1.18%), BSE PSU (down 0.69%) and BSE TECk (down 0.55%).

The Sensex leaders were Tata Motors (up 4.50%), Maruti Suzuki (up 2.39%), DLF (up 1.53%), Sterlite Industries (up 1.51%) and Bajaj Auto (up 1.27%). The key losers on the index were Reliance Industries (down 3.88%), NTPC (down 2.63%), Jaiprakash Associates (down 2.17%), BHEL (down 2.11%) and Larsen & Toubro (down 1.98%).

Tata Motors (up 4.42%), Cairn India (up 3.73%), Ambuja Cement (up 2.65%), Maruti Suzuki (up 2.38%) and DLF (up 2.12%) were the main gainers on the Nifty. The top five Nifty losers were RIL (down 3.90%), BPCL (down 3.03%), SAIL (down 2.96%), NTPC (down 2.89%) and BHEL (down 2.43%).

Markets in Asia settled higher on expectations of good earnings reports and hopes that the debt crisis in Europe will ease as the Group of Twenty (G-20) leaders last weekend endorsed part of the emerging plan to avoid a Greek default, boost banks and prevent the contagion from spreading.

The Shanghai Composite gained 0.37%; the Hang Seng surged 2.01%; the Jakarta Composite climbed 1.76%; the KLSE Composite advanced 1.59%; the Nikkei 225 rose 1.50%; the Straits Times gained 1.27%, the Seoul Composite jumped 1.62% and the Taiwan Weighted settled 1.40% higher.

Back home, institutional investors—both foreign and domestic—were net sellers in the equities segment on Friday. Foreign institutional investors offloaded stocks worth Rs94.04 crore and domestic institutional investors pulled out Rs237.85 crore from stocks.

The country’s largest two-wheeler maker Hero MotoCorp today said it will soon start selling the first ‘Hero’ branded bike to be launched after the break-up of Hero Honda last year—Impulse—in the Indian market at Rs66,800 (ex-Delhi showroom). The company is positioning the new 150-cc bike as a dual-purpose bike that can be used for both normal commuting as well as off-road adventure. The stock lost 0.04% to close at Rs1,993 on the NSE.

JSW Energy has started commercial operations of the fourth 300MW unit at its power plant at Jaigad in Maharashtra’s Ratnagiri district from Sunday. The entire 1200MW power plant is now fully operational and supplying power to the state grid, the JSW group company said Monday. The stock jumped 2.20% to close at Rs51.20 on the NSE.

J Kumar Infraprojects has bagged various work orders aggregating Rs183.39 crore. The first work order worth Rs145.69 crore is from CIDCO. The company has bagged the second work order from Pune Municipal Corporation worth Rs24.70 crore. It has also bagged piling work orders from various parties worth Rs13 crore. The stock fell 0.60% to end trade at Rs148.40 on the NSE.


Will Baroda Pioneer Sensex Plus Fund be a better bet than a normal index fund?

Similar ‘enhanced’ funds have had mixed success so far. Many mutual fund houses offer slightly tweaked variants of index funds, by including an element of active management, promising better performance than the underlying benchmark. Often, they fail in this objective

Baroda Pioneer Sensex Plus Fund will allocate 80% to 100% of assets in equity-related securities covered by the Sensex, including derivatives, and invest up to 20% of the assets in securities other than those covered by the Sensex including derivatives. It also wants the flexibility of investing up to 20% in debt, including money-market instruments with ‘low’ to ‘medium’ risk profile. Investment in derivatives may be made up to 50% of the net assets of the scheme. The scheme will not invest in securitised debt. Baroda Pioneer Sensex Plus Fund is essentially looking for a lot of flexibility around the core idea of index investing. Will such flexibility lead to higher returns?

Index funds are merely supposed to mimic the returns provided by the underlying benchmark index such as the Sensex or the Nifty. Essentially, these funds are expected to follow the passive investing route, buying and holding stocks in the index in the same proportion as the index. However, many mutual fund (MF) houses offer slightly tweaked variants of index funds, by including an element of active management. They promise to deliver better performance than the underlying benchmark and other index funds, by tweaking the portfolio underlying the benchmark index, or by altering the weightage assigned to each constituent of the index or moving between cash, bonds and derivatives. This is called ‘enhanced’ indexing. Such funds invariably have the term ‘plus’ or ‘advantage’ attached to their names, indicating that the fund manager intends to offer something extra—that is, returns superior to the underlying index. Sadly, the ‘extra’ bit ends with the name itself. Most often, they fail in this objective.

Take for instance, LIC Nomura MF Index Fund-Sensex Advantage Plan Fund which has made an ass of investors. Launched in December 2002, this fund has yielded returns of 14% since inception, whereas its underlying index, the BSE Sensex, earned 20% over the same period.

Since inception, LIC Nomura MF Index Fund-Sensex Plan and Nifty Plan Funds have provided returns of 15% and 13% respectively, while their underlying indices, BSE Sensex and S&P Nifty, have managed to deliver 20% and 19% returns over the same period. The HDFC Index Fund-Sensex Plus Plan is one of the rare few that has so far managed to live up to its mandate. While its benchmark, the BSE Sensex, has provided 19% returns since its inception, the fund has managed to deliver 22%.

Enhanced indexing defeats the very purpose of an index fund by substantial underperformance relative to the benchmark. It thus translates into a huge tracking error, which is appalling for a fund that is only tasked with following the broader index. Will Baroda Pioneer do any better? It faces a tough task because it is relying on only 20% of the fund being able to make a substantial difference to the total fund performance.

For instance, in any given period of time, if the market has given a return of 15%, the fund will fetch 12% return (minus costs) for the 80% part of its portfolio. Now if it aims to get an overall return of 17%, where will that extra 5% come from? From the remaining 20% part of the portfolio (minus costs). This is a tall order because 5% from the 20% of the portfolio means a 25% return.


BP focusing on ‘Next Wave’ strategy to boost KG-D6 output

Following up on BP chief executive Bob Dudley’s whirlwind visit late last month, the BP Plc’s India CFO Kris Sliger has written to the oil ministry saying that Europe’s second-largest oil firm is preparing to explore newer areas of D6 as part of a ‘Next Wave’ strategy

New Delhi: With gas output from Reliance Industries’ showpiece KG-D6 fields dropping by 23%, the firm’s new partner BP Plc has expressed confidence that the slump in production can be reversed by focusing on a ‘Next Wave’ strategy of developing satellite fields, reports PTI.

Following up on BP chief executive Bob Dudley’s whirlwind visit late last month, the UK firm’s India CFO Kris Sliger has written to the oil ministry saying that Europe’s second-largest oil firm is preparing to explore newer areas of D6 as part of a ‘Next Wave’ strategy.

“From what we know now, we believe the best path forward is to enhance the focus on the ‘Next Wave’ of new developments in D6—the R-series and all the satellites,” he wrote.

“These new ‘Next Wave’ D6 developments have the potential to add large new volumes of production capability to continue the successful launch of a new basin for furthering the India E&P energy security pursuit,” he said.

Reliance Industries on Saturday reported a 23% drop in production from the Krishna-Godavari basin D6 fields to 147.2 billion cubic feet, or 45 million metric standard cubic metres per day (mmscmd) during the July-September quarter. Production from KG-D6 had touched 61.5 mmscmd in March last year and was projected to rise to 69.2 mmscmd by this time, but has instead slumped.

"With the existing decline and the knowledge of the existing reservoirs well understood, we know that there are essentially no options to materially change the trajectory without adding new development potential, since we know D6 remains the ‘golden block’ and gas demand will continue to rise with time,” the BP India executive wrote.

BP asked the oil ministry for approval to begin pre-development activities at both the R-Series and satellite fields that surround the currently producing Dhirubhai-1 and 3 fields.

“As discussed with you, in order to expedite the required new work, we support the operator RIL’s intentions to begin the required pre-development activities on the potential ‘Next Wave’ of developments in the coming winter weather window—December 2011 to March 2012,” Mr Sliger wrote.

Tests by RIL have shown that gas-bearing layers of sand in the Dhirubhai-1 and 3 fields of KG-D6 block are thinner than initially estimated and extraction may require costlier drilling techniques. Satellite fields in the KG-D6 block and discoveries, also known as the ‘R-Series’, together are estimated to have the potential to produce 35 mmscmd.

RIL has submitted plans to invest $1.5 billion on developing four satellite fields to produce up to 10 mmscmd of gas by 2016. BP wants the government to quickly approve plans for additional satellite and R Series reservoirs so as to begin the process of engineering and hike production of gas from KG-D6 by 2014.

“Given the decline in the D1/D3 field, all participating interest holders in the D6 block believe it imperative that we maximise opportunities to work in each available offshore work season,” Mr Sliger wrote.

“With the existing decline and the knowledge of the existing reservoirs well understood, we know that there are essentially no options to materially change the trajectory without adding new development potential since we know D6 remains the ‘golden block’ and gas demand will continue to rise with time,” he said.

The BP executive asked for approval for pre-development activities like geo-physical and geo-technical surveys both at the R-Series and Satellite D6 areas.

“The above required work is normally accomplished with Management Committee support of the Declaration of Commerciality (DoC) and the approval of a specific pre-development activity budget to align all efforts to the PSC, capture capital efficiencies and most importantly capture the targeted potential acceleration of new gas development options now.

“Knowing that Management Committee decisions can take time, however, the operator could expedite the required pre-development work by starting to tender now and thereby secure industry capability if the ministry will support the deployment of vessels and survey crews with the required permits in time to work this year,” the BP executive said.

The Managing Committee is an oversight panel made up of representatives of the ministry, upstream regulator Directorate General of Hydrocarbons (DGH) and the operators.

“We believe your support of the required Management Committee endorsements of a DoC for the R-Series and Satellites and approval of pre-development activities at both the R-Series and Satellites are aligned with the ministry’s objective to add production potential in the D6 block as quickly as possible,” Mr Sliger added.


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