Although a small bounce back may be seen, the medium-term trend is negative
The instability of the global markets has resulted in the domestic indices closing down for the seventh day today. After opening well below yesterdays close, the Nifty managed to make a smart recovery towards the end of the session; however, it closed in the negative. The Nifty recorded the maximum a weekly closing loss of 5.09% since the week ended 30 October 2009. From here we may see the Nifty making a small bounce back, which will not be sustained for too long. The medium-term trend shows negative bias. Today’s fall has again been on a large volume of 70.75crore shares on the National Stock Exchange (NSE).
Continuing its lacklustre performance the whole of this week on strong rumblings in Europe, the market opened lower today. The lower opening of the rupee against the dollar on account of higher demand for the US currency from importers also weighed on investor sentiment. The Nifty opened at 4,899, down 36 points from its previous close, and the Sensex saw a cut of 74 points at the opening bell as the index opened at 16,388.
The indices fell to the day’s low at around 12.15pm with the Nifty at 4,838 and the Sensex at 16,165. Trade was range-bound throughout the session with the market firmly in the red as policymakers are worried about the global events pulling down the market. A marginal recovery was seen in late trade as the European indices pared early losses. The development helped the indices touch their intraday high and make a splendid recovery from the day’s lows. At the highs, the Nifty went up to 4,911 and the Sensex rose to 16,397. Closing lower for the seventh successive day, the Nifty declined 29 points to 4,906 and the Sensex settled at 16,372, down 90 points.
The advance-decline ratio on the NSE was 453:1308.
Among the broader indices, the BSE Mid-cap index fell by 1.03% and the BSE Small-cap index declined 1.90%.
BSE Healthcare (up 0.19%); BSE consumer durables (up 0.02%) and BSE Oil & Gas (up 0.01%) managed to end in the green while the other 10 sectoral gauges settled lower. The top losers were BSE Realty (down 1.59%); BSE Fast Moving Consumer Goods (down 1.39%); BSE Metal (down 1.30%); BSE Auto (down 1.20%) and BSE Power (down 1.09%).
Hero MotoCorp (up 3.05%); Tata Power (up 2.42%); Wipro (up 1.88%); Sun Pharma (up 1.36%) and HDFC (up 1.34%) were the major gainers on the Sensex. The laggards were led by BHEL (down 3.06%); Mahindra & Mahindra; Tata Motors (down 2.74% each); ITC (down 2.46%) and TCS (down 2.24%).
The top performers on the Nifty were SAIL (up 7.79%); Hero MotoCorp (up 3.79%); IDFC (up 2.57%); Tata Power (up 2.31%) and Wipro (up 2.30%). The top decliners were Sesa Goa (down 4.18%); ITC (down 3.51%); Power Grid Corporation (down 2.91%); M&M (down 2.74%) and BHEL (down 2.42%).
Markets in Asia closed lower on renewed European concerns after a weak Spanish bond auction. European concerns once again impacted the banking sector in Asia. In Hong Kong, Bank of Communications tumbled 3.9%, Agricultural Bank of China declined 2.9%, and Bank of China tanked 3%.
The Shanghai Composite tanked 1.89%; the Hang Seng declined 1.73%; the Jakarta Composite fell 1%; the KLSE Composite slipped 0.76%; the Nikkei 225 decreased by 1.23%; the Straits Times lost 1.72%; the Seoul Composite tumbled 2% and the Taiwan Weighted settled 2.08% lower.
Back home, foreign institutional investors were net sellers of stocks aggregating Rs195.20 crore on Thursday while domestic institutional investors were net buyers of equities worth Rs371.59 crore.
Hindustan Petroleum Corporation has informed the exchanges that the company has entered into a memorandum of understanding with Greater Calcutta Gas Supply Corporation and Gas Authority of India to carry out natural gas business for Kolkata and its adjoining districts. The stock surged 7.07% to close at Rs299.90 on the NSE.
Realty major Unitech today said it has sold over 300 housing units worth Rs250 crore under a recently launched project at Gurgaon. Group housing project ‘Crestview’ is part of the 500-acre integrated township that the company is developing in Gurgaon, Haryana. The stock fell 1.30% to close trade at Rs22.85 on the NSE.
Reliance Industries (RIL) and BP have announced the incorporation of India Gas Solutions Pvt Ltd, a 50:50 joint venture company which will have an equal equity from both partners. The JV will focus on global sourcing and marketing of natural gas in India and will also develop infrastructure for transportation and marketing of natural gas within the country. RIL ended flat at Rs809.95 on the NSE.
Will this scheme be more dynamic than others?
After IDBI Mutual Fund, Union KBC has also filed offer document with Securities and Exchange Board of India (SEBI) to launch Union KBC Dynamic Bond Fund, an open ended debt scheme. As we said earlier a dynamic bond fund, as the name suggests, is designed to give the fund manager the flexibility to change the duration of the bond as and when needed. Interest rates and bond prices are inversely related. When the interest rate is rising, bond prices fall and the fund manager should be able to decrease the duration of the bond; short-term bonds face a lower impact. In addition, when the interest rate is falling they should be able to increase the duration of the bond.
The other flexibility is to move into cash and sit on the sidelines when the interest rate is rising sharply over different horizons. Dynamic bond funds would dynamically move from a fully invested situation to a fully cash position and various stages in between, depending on the fund manager’s reading of the interest rate situation. The idea of dynamic bond funds has by and large proved to be good only on paper. We studied eight of them and their returns since inception do not seem great.
The Union KBC will invest 100% of assets in debt instruments including government securities and corporate debt with medium risk profile and money market instruments with low risk profile. Investments in securitized debt including Pass Through Certificates (PTCs) not to exceed 25% of the net assets of the Scheme as at the time of purchase. The benchmark index is CRISIL Composite Bond Fund Index
The media company's infamous 'ads-for-equity' unit bought stake at huge premium in Karuturi Global, a company that is on a free fall with its shares trading 88% below since recent high in October last year
Bennett, Coleman & Co (BCCL), the media group that owns assets like the Times of India, radio and TV channels besides various magazines and online portals, has done a new stake purchase, again at an inflated value. BCCL's unit Times Private Treaties or Brand Capital, as it is now known, has bought 0.4% stake in so-called food processing and rose-growing company Karuturi Global at Rs21.6 per share against its week-to-date average price of Rs4.50 a share, huge premium of 380%.
Brand Capital paid Rs7.51 crore for buying 34.7 lakh shares of Karuturi that based on the average price are valued at just Rs1.56 crore! Incidentally, Karuturi shares are also on a free fall since the past 13 months. Since October last year, (the shares closed at Rs38.15 on 21 October 2010) Karuturi shares have tumbled 88% to Rs4.70 per share as on 17 November 2011.
Earlier this year, three private funds, Emerging India Focus, India Focus Cardinal and Elara India Opportunities, together converted their warrants into equity.
These funds bought the warrants in 2009 for Rs12 per piece and post-conversion hold 22.8% stake in Karuturi. They also seem to have lost about 60% value of their investment. As of September end, 11 investors under the category ‘public and holding more than 1% of the total number of shares’ have 48.34% stake in Karuturi, while the promoters hold 18.15% shares.
During the quarter to end-September, Karuturi said its profit more than halved to Rs17.79 crore from Rs42.61 crore in the same period last year. During the second quarter, Karuturi Global’s total revenues also fell to Rs133.73 crore from Rs151.08 crore a year ago.
Bengaluru-based Karuturi Global is reportedly the world’s largest rose exporter and is engaged into floriculture, processing foods and information technology (IT) business as well. Its operations are claimed to be spread in about 15 countries including India, Ethiopia and Kenya. With an area of over 292 hectares under Greenhouse cultivation, Karuturi annually produces around 555 million stems of quality cut roses, essentially for exports to high-value markets. At least that’s what the claim is.
According to a blog posting, Karuturi bought large portions of land in Ethiopia, a country that still suffers from hunger and is dependent on foreign food support. “The contracts between companies like the Karuturi Global and the Ethiopian government are kept secret. The local farmers are abandoned from their land as it is not privately owned but belongs to the government of Ethiopia. Companies like Karuturi expand and profit from this situation on the back of the local farmers and community management. Land is leased cheaply, machines and equipment is imported without customs and the crops are exported,” the blog said. However, there are whispers in Mumbai market circles that many of Karuturi’s claims are suspect.
Coming back to BCCL and Brand Capital, according to Wikipedia, Times Private Treaties is a barter program in which advertisement space is bartered for equity stakes in new and established companies. This has been an extremely controversial trend started by the Times Group, as it breaches the sanctity of the media. Times Treaties is known for acquiring large stakes at inflated valuations in return for advertising space and articles, which appear as news items. In 2010, Times Private Treaties was relaunched as 'Brand Capital', which, according to the company, reflects its value proposition better.
Currently, Times Private Treaties, BCCL’s private equity arm, has stakes in over 135 companies including Lavasa Corporation, Gujarat NRE Coke, Gini & Jony, Micro Technologies, Refeel Cartridge Engineering, Thyrocare and Raj Oil Mills.