Thursday’s Market Preview: Cautious opening likely

The domestic market is likely to open on a cautious note today on tepid global cues. The expiry of the September futures and options (F&O) contract will induce some volatility. This apart, the government is set to announce the weekly food and fuel inflation numbers today. Across the globe, Wall Street closed lower on Wednesday on lack of any economic triggers and on concerns about the ongoing debt crisis in some European nations. The Asian pack was mixed in early trade no the back of the Eurozone imbroglio. The SGX Nifty was up 9.50 points at 6,606.50 from the previous close of 5,997.

The local indices ended below their psychological levels with sharp cuts yesterday on profit booking by institutional investors. The decline was led by Sterlite Industries, which lost over 8% after the Madras High Court ordered the closure of its Tuticorin plant on environmental issues. Sideways movement in the negative terrain with a high degree of choppiness was seen despite the European markets opening higher. There was a gradual and volatile southward movement with the key indices finally settling near the day's lows.

The Sensex closed below the 20,000 mark at 19,956, down 148.52 points (0.74%). The Nifty breached its crucial 6,000 level to close 38.20 points (0.63%) lower at 5,991.

The US market closed lower on Wednesday in the absence of any economic cues and on worries about the ongoing debt crisis in some Eurozone nations. Spain’s top credit rating at Moody’s Investors Service is at risk as the nation struggles to emerge from recession and reduce its budget deficit, Ireland is set to announce the cost of bailing out state-owned lender Anglo Irish Bank on Friday. Financial stocks were also weak as the government is getting ready to exit its investments in Citigroup and American International Group, made during the height of the financial crisis.

The Dow slid 22.86 points (0.21%) to 10,835. The S&P 500 fell 2.97 points (0.26%) to 1,144. The Nasdaq fell 3.03 points (0.13%) 2,376.

Markets in Asia were mixed in early trade on Thursday on the back of the lingering Eurozone crisis. China’s stocks rose as financial and energy companies rallied on improving prospects for the economy.

The Shanghai Composite was up 0.71%, KLSE Composite was up 0.03% and Taiwan Weighted gained 0.13% while the Hang Seng was down 0.76%, Nikkei 225 was down 0.73%, Straits Times was down 0.27% and Seoul Composite was down 0.22% in early trade this morning. The SGX Nifty was up 9.50 points at 6,606.50 from the previous close of 5,997.

Holding its ground on a proposed law to make miners share profit with locals, mines minister B K Handique on Wednesday said the aim was to benefit tribals and not corporate giants like Tatas or Jindals, and also ruled out diluting the rules in favour of PSUs.

In saying so, Mr Handique rejected his steel ministry counterpart Virbadhra Singh's suggestion that PSUs should be exempt from the law that would mandate miners to sharing 26% of profit with locals who lose land to mining projects.


Commercial Engineers and Body Builders IPO: Expensively priced

The company is a relatively new entrant in the railway wagon refurbishment business and could face intense competition from more well-established players. Dependence on Tata Motors presents a client concentration risk for its commercial vehicle business

Issue Details

Number of shares: 12.24 crore shares
Issue duration: 30th September-5th October
Issue Price: Rs125 - Rs127 per share
Face value: Rs10 per share
Minimum order quantity: 55 shares
Listing: BSE, NSE
Lead book running managers: ICICI Securities Ltd and Edelweiss Capital Ltd  


Its EPS for FY10 stood at Rs4.48 per share. The PE works out to 27.90 at the lower end and 28.34 at the higher end of the price band. The pricing looks steep.

Business model

Commercial Engineers and Body Builders Co Ltd (CEBBCO) is entering the capital market to raise Rs153 crore through a 100% book building issue. Private equity players New York Life Investment Management India Fund (FVCI) II LLC
(1,285,101 shares) and Commercial and Automobiles Pvt Ltd (243,486) will offload a total of 15,28,587 shares. 

The company produces vehicle and locomotive bodies for diverse applications for road and railways transportation. It also conducts refurbishment of railway wagons and manufactures components for railway wagons, coaches and locomotives.

The company has bagged orders for manufacturing different vehicle bodies from original equipment manufacturers (OEMs) such as VE Commercial Vehicles Ltd (a joint venture between the Volvo group of companies and Eicher Motors Ltd), Ashok Leyland Ltd, Asia MotorWorks Limited, Man Force Trucks Private Ltd and Hino Motors Sales India Private Ltd (belonging to the Toyota group of companies), all of which also manufacture fully-built vehicles. For FY2010 and FY2009, its net sales from the commercial vehicles division were Rs121.16 crore and Rs109.36 crore respectively. As of 15 July 2010, its order book in the commercial vehicles division was Rs525.53 crore and in the railways division was Rs98.15 crore. The company is promoted by Kailash Gupta and Ajay Gupta.

Financial snapshot

Its cash flows were in the red in FY10 and FY09 at Rs0.30 crore and Rs17.39 crore, respectively. 

Objects of the issue

The company plans to incur capital expenditure for the railway project at Gram Imlai in Jabalpur district at a cost of Rs80.30 crore. The combined wagon and EMU coach manufacturing facility will have a production capacity of approximately 1,200 wagons and 150 EMU coaches per annum. The total cost of the railway project is Rs130.30 crore which would be implemented in 2 phases. Phase-I of this project involves setting up the wagon manufacturing facility, while Phase-II of the project is for the EMU coach manufacturing facility. The funding will be through a mix of net proceeds, internal accruals and debt. It will prepay loans of Rs59.05 crore.

Analyst's take

Rating agency CRISIL has assigned an 'IPO Grade 2' to the issue indicating 'Below Average Fundamentals'. The report notes that CEBBCO is a relatively new entrant in this segment and could face stiff competition from existing incumbents in the refurbishment and wagon businesses. Post the commissioning of its wagon capacity, it would account for just around 4% of the total wagon capacity as of 2008-09. Its ability to bag orders remains contingent on how well the company is able to establish strong contacts within the Indian Railways. Organised players in the fabrications business as well as existing wagon manufacturers could easily cater to the Indian Railways' demand for both refurbishment and new wagons as the business is neither very capital intensive nor requires a long gestation period and orders are tender driven.


  •  Strong track record with reputed customers in the commercial vehicles industry
  •  Wide range of product applications and offerings
  •  Ability to continuously expand product offerings
  •  State-of-the-art technology and certifications for design, production standards and quality assurance
  •  Strategic geographic location
  • Competitive cost structure
  • Ability to compete effectively with the unorganised body builders


  •  Limited customer concentration

In FY 2006, 2007, 2008, 2009 and 2010, it derived 56.32% (Rs28.24 crore), 86.36% (amounting to Rs82.59 crore), 73.91% (Rs88.11 crore), 69.23% (Rs77.57 crore) and 52.46% (Rs95.93 crore) respectively, of its net sales from Tata Motors Ltd.

In FY 2009 and FY 2010, it derived 2.39% (Rs2.67 crore) and 27.49% (Rs50.27 crore), respectively, of its net sales from the Indian Railways.

  •  Cyclical business

The commercial vehicles industry is cyclical in nature. A substantial part of its sales are realised during the second half of the financial year due to low demand in monsoons from mining and road-construction sectors.

  •  Competition

It faces competition in the commercial vehicles division from the unorganised sector.

Concluding notes

The IPO is expensively priced.



k a prasanna

6 years ago

The EPS for FY 10 on the post issue capital of Rs 55cr comes to Rs 3.45. At Rs 125 -127, the company is demanding a valuation of 37 PE, which is very expensive. The company’s net profit margins are inconsistent. CRISIL IPO grade 2/5, indicating below average fundamentals. The company had negative cash flow for FY 10.


ICICI Prudential PMS promises 50% returns, relying on back-tested data

Its ‘Fundamental Strategy Index Portfolio’ claims to offer superior returns based on Nomura’s proprietary quantitative model. To hard-sell the product to customers, it is showing astronomical back-tested performance

When the market is extremely bullish, you can trust the self-serving portfolio management services (PMS) companies to come up with innovative techniques to make you rich with their often poorly-conceived and ill-fated products. Some proudly exhibit historical performance through a convoluted display of returns vis-a-vis the benchmark, while others show off a hypothetical scenario of past returns based on simple back-testing of the product. ICICI Prudential is aggressively pushing one such PMS product.

The ICICI Prudential PMS Fundamental Strategy Index Portfolio will create a portfolio based on the Nomura India Fundamental Strategy Index, which selects its stocks according to a quantitative stock-selection methodology. This is an index of 20 stocks selected based on a proprietary quantitative strategy which combines eight fundamental parameters.

The product tries to grab the eyeballs of the investor by showing off the phenomenal back-tested historical performance of the Fundamental Index. Sure enough, the numbers displayed are mind-blowing. According to the product document, if a portfolio had been operational since 30 January 1998, it would have yielded astronomical returns of 5,893% (till 16 July 2010) as compared to the Nifty return of 559%, or 10 times better than the Nifty during this period!
Not only this, it claims a part of the back-tested performance (since April 2009) as live performance, making a case for another round of mis-selling. ICICI Direct which is aggressively selling this product, is even promising a 50% return per annum to prospective investors. PMS are always aggressively (mis) sold at the height of a bull market and this time is no exception.

The Nomura index attempts to identify and optimise fundamental parameters that the market is giving importance to. Note that we are not talking normal fundamental factors but fundamental factors that the "market is giving importance to". This looks too clever. Either the stock picking is based on fundamental undervaluation or rising price trend (which captures what the market is interested in). Combining the two would seem a bit dubious.

Nomura's method screens a universe of top 100 listed stocks by market capitalisation and ranks them on each of the identified fundamental parameters. These include price to earnings, price to book value, price to sales, EV (enterprise value) to sales, EV to EBIT (earnings before interest and tax), EV to FCF (free cash flow), dividend yield and market capitalisation. Apparently, these parameters have been selected based on an analysis that indicated that a combination of these eight parameters was able to forecast most of the stock outperformance.

The strategy assigns weightages to each of these fundamental parameters every quarter. While doing so, it supposedly takes into account the most recent trends, giving more weight to the fundamental factor that the market is assigning importance to, on a quarterly basis. A weighted average composite score is given to each stock in order to identify stocks that scored well across all the fundamental parameters. The top 20 stocks that have the best composite score across all factors are then included in the index.

ICICI Prudential claims that the portfolio not only offers high returns but also minimises risk through built-in controls like equal allocation to stocks, volatility adjustment and drawdown events. Since no one stock has a higher allocation, the portfolio claims to be diversified enough to mitigate any event risk. The portfolio also decreases exposure to equities with increase in volatility. While the allocation to equities is never less than 65% and not more than 100%, any excess funds are invested in interest-bearing instruments for that quarter. The drawdown event is built in, to react proactively to a sudden change in market conditions. This is triggered automatically if the strategy underperforms Nifty by more than 10% within a quarter. In this scenario, the equity allocation for that quarter is switched to a portfolio that replicates the broad index like S&P CNX Nifty. These strategies look fine on paper, but their efficient execution remains a major concern, what with the dubious history of many PMS products in the past. In this case, for instance, the top 20 would possibly include stocks like Infosys and State Bank of India which have got their once-in-a-lifetime lift. It would be ridiculous to extrapolate their performance into the future.




3 years ago

The ICICI Pru Pms scheme is probably the worst Investment thrust on me by Citibank, who were promoting the scheme. In 3 years the scheme has lost over 25% absolute. On top of this , Citibank actually charged me a hefty fee for selling this piece of Junk


4 years ago

Since there is promise of minimum 50 % Return from ICICI Prudential PMS, such promise will bind the PMS to fulfill its commitment. Thus Investor may go ahead and enter into Written Agreement with PMS.
(It appears SEBI does not allow PMS people to promise the Returns.It is not understood why SEBI should intervene in such matters.)


5 years ago

if u wants to invest like warren buffett



In Reply to NISHESH 5 years ago

As bad as any other PMS. Thanks. You seem to be working with PPFAS.

hiroo alimchandani

6 years ago

I am victim of icici pru pms who promised such portfolio and at the end has given me 15% loss.
I dont know who to complain about mis selling by icici as I am NRI
In the past sold insurance policy that too very bad


6 years ago

Same here. I have burnt my fingers in various PMSs including Kotak PMS. ASK PMS too has been underperforming by around 50% than the benchmark/index eventhough the money is invested for over 5 long years, without a single withdrawal.



In Reply to Prakash 5 years ago

Dear Mr. Prakash

Any PMS in equity and equity related assets is very risky indeed !! Especially when they promise you a fixed rate of return, you need to be extra cautious about that PMS scheme. If you need to manage your assets better than the PMS way, giving you excellent returns over the medium to long term, use a portfolio of Mutual Funds instead. These have a lot of advantages over direct equity investments, including reducing your capital gains tax implications for every sell trade executed within a year. Also you can spread your risk across stocks, sectors, themes and even geographies and asset types (including alternative assets) with excellent ease. Want to know how?

If yes, you may contact me at [email protected]

sharan gill

6 years ago

I too have had a very bad experiences with PMS services.Even birla PMS was shocking .There was more than 70% overlap two pms of birla india reforms and NCASH.very few complain.They perform worse than an average mutual fund.


6 years ago

Promises are only on paper. In reality, the portfolio (mis) management schemes aim to make money only for themselves. An honest advice: Never part with your money to a PMS; just take financial advice from the right people and invest yourself.

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