Tuesday’s Market Preview: Soft-to-flat opening likely

The market is likely to open on a soft-to-flat note today on the back of negative cues from across the globe. Concerns about sustainable economic growth without additional stimulus made investors jittery after the recent gains in the markets, with Wall Street ending lower on Monday. Asian markets were mostly lower in early trade today on continuing worries about the growth in the Euro zone. The SGX Nifty was down five points at 6,043 from its previous close of 6,048.

Adding to Friday's gains, the market opened strong on positive global cues on Monday. It touched the day's high in initial trade but pared some gains and gradually drifted lower — near the day's low — and settled off those levels at the end of the session, above the crucial levels.

The Sensex finally closed at 20,134, up 88.89 points (0.44%). The Nifty settled 17.35 points (0.29%) higher at 6,035.

The US markets closed lower on Monday as concerns about a sustainable economic growth made investors jittery after the recent gains. While stocks gained following announcements of mergers and acquisitions, a dip in financial stocks led to the decline in the market after Moody’s downgraded the debt of Anglo Irish Bank by three notches.

The Dow was down 48.22 points (0.44%) at 10,812. The S&P 500 was down 6.51 points (0.57%) at 1,142. The Nasdaq was down 11.45 points (0.48%) at 2,369.

Pinning hopes on high foodgrain production after a good monsoon, India’s finance minister Pranab Mukherjee on Monday exuded confidence that inflation will come down soon and asked states to better the public distribution system to cater to the needs of the poor.

In an interview to a popular news channel, Mr Mukherjee indicated that the introduction of Goods and Services Tax (GST) may miss the deadline of April 2011 because consensus among states and the Centre is yet to be reached.

Markets in Asia were mostly lower in initial trade today as lingering worries about the growth in the Euro zone continued to haunt investors. This apart, the recent surge in the market tempted investors to indulge in profit booking. Downgrading of the debt of the Anglo Irish Bank by three notches by Moody’s also weighed down the sentiments.

The Shanghai Composite was down 0.32%, Hang Seng was down 0.01%, Jakarta Composite was down 0.20%, Nikkei 225 was down 0.76% and Seoul Composite declined 0.22%. On the other hand, KLSE Composite gained 0.01%, Straits Times was up 0.26% and Taiwan Weighted rose 0.08%. The SGX Nifty was down five points at 6,043 from its previous close of 6,048.

Blaming the "government mentality" of keeping costs low for the lukewarm response of New Pension System (NPS), interim regulator Pension Fund Regulatory and Development Authority (PFRDA) on Monday said there is need to give incentives to fund managers for popularising the scheme.

"...Typically, the government mentality is to have lowest cost... It is so low (cost) that nothing is happening, nobody is selling, nobody is buying...Why should we mandate a management fee on the pension fund managers," PFRDA chairman Yogesh Agarwal said on the sidelines of a CII event.


High-risk portfolio management schemes continue to be pushed for commissions

ING Vysya Bank has just closed subscription to a portfolio management scheme that aims to provide handsome returns through equity exposure while protecting investors’ capital. The main gainer would be ING and the distributors who push it

The stock markets are riding a wave of enthusiasm as the Sensex comes within touching distance of its previous record high. This is also the ideal time for portfolio management services (PMS) providers to capture the mood of the market and begin peddling a gamut of products to cash-heavy high net-worth individuals (HNIs). ING Vysya Bank has recently closed subscription to a Nifty-linked debenture scheme. This plan, issued through Milestone Capital Advisors Private Ltd, offers aggressive participation in the possible upside movement of the Nifty while claiming to protect the capital in case of downside. The way the product works is:

Up to 82% of the capital will be invested in NCDs of 36-month maturity, issued by Deutsche Investments India Private Ltd (these debentures have been rated AA+/Stable by CRISIL). This means that Rs82 will be invested in 3-year debt instruments, thus protecting capital of Rs100. The balance 18% will be invested in index derivatives, by taking trading exposure of 120% of upward Nifty movement. In doing so, the scheme claims the potential to generate upto 24% compounded return on the entire investment in the 3-year period, provided the Nifty rises by 90% in that period. However, if the Nifty rises by more than 90% at any time during this period, the investor is only eligible to the barrier coupon of 63%, translating into a compounded return of 16%. If the Nifty fails to appreciate during this period, the investor only receives the maturity value of the NCDs (provided the issuer does not default) and earns no returns on the equity side. As the appreciation in the Nifty closing level moves lower towards 100%, the potential for returns gradually diminishes.

As such, investors will have to take a blind bet on strong appreciation in the Nifty in the next three years to actually earn decent returns on their investment.
The product has other discrepancies as well. Since the equity exposure involves investments in futures and options contracts, it will involve charges on rollover of contracts and payment of margins. However, the product has not clarified the extent of incidence of such charges, which have the potential to erode returns.

The bank is apparently pushing the product quite aggressively. A certified financial planner Rajesh Joshi told us that he was offered a share in the commission (up to 3%) on the product. "These products are sold to HNIs who are looking for some excitement. They usually generate good money for the banks and distributors only, who can earn handsome commissions," Mr Joshi told Moneylife.




6 years ago

Dear Money Life Team.
Before coming up article like this you need to study the product well...
This product takes exposure in 3 yr Call option with strike p.rice.Hence there are no rollover charges or margin payment..
Moreover it has upfront fee up to 3% which is at par with any other equity product i.e. Mutual Fund.
This product provides capital protection.It also gives guaranteed outperformance on Nifty be 20% if Nifty grows between 0 to 90 %.

Bedmutha Industries’ IPO is on the expensive side

The revenue growth and profitability of the company depend on successful implementation of its new project, as well as market acceptance of the products. It is not an inexpensive IPO offer due to the competitive market with a presence of large and well-established players

Issue Details

Number of shares: 90 lakh
Price band: Rs95 -Rs102 per share
Issue duration: 28th September-1st October
Issue size: Rs85.50 crore-Rs91.80 crore
Qualified Institutional Buyers allotment: 45 lakh shares
Mutual funds allotment: 2.25 lakh shares
Non-institutional investors' allotment: 13.50 lakh shares
Retail investors' allotment: 31.50 lakh shares
Face value: Rs10 per share
Minimum order quantity: 65 shares
Shares prior to the issue: 1.20 crore shares
Shares post-issue:  2.10 crore shares
Market-cap pre-issue: Rs114 crore
Market cap post-issue: Rs199 crore
Listing: BSE, NSE
Lead book running managers: Ashika Capital Ltd and Keynote Corporate Services Ltd


Based on the FY10 earnings per share (EPS) of Rs10.14 the P/E works out to 9.37 at the lower end of the price band and 10.06 at the higher band. Its competitors like Usha Martin Ltd, Ramsarup Industries Ltd, Rajratan Global Wire Ltd, Odessy Corporation Ltd and Goodluck Steel Tubes Ltd carry an EPS of Rs2.90, Rs12.70, Rs20.90, Rs1.50, Rs8.20 and Rs8.29, respectively. They carry P/E of 23.40, 8.20, 10.00, 101.30 and 3.40 respectively. The issue seems to be priced competitively compared to its peers. The industry composite P/E stands at 16.90.

Business model

Nashik-based steel wire manufacturer Bedmutha Industries Ltd is entering the capital market to raise Rs85.50 crore through a 100% book building issue. Bedmutha started its commercial production in 1992, by setting up the first galvanised wire plant at Nashik with an installed capacity of 3600 metric tonnes per annum (MTPA). It ramped up its production capacity from 3,600MTPA to 26,050MTPA by setting up three additional galvanising lines at the same location. The company presently has four manufacturing units in and around Nashik with combined production capacity of 60,000MTPA. It produces galvanised wires, cable armour wires, Aluminium Conductor Steel Reinforced Wires (ACSRs), wire nails, earth wires, stay wires, spring steel wires, barbed wires, etc to domestic manufacturers and dealers. Its subsidiary Kamalasha Infrastructure & Engineering Private Limited (KIEPL) which carries out turnkey projects has bagged a Rs60-crore contract in Dharangaon Division of Maharashtra State Electricity Distribution Company Limited (MSEDCL) to set up new sub-stations, augmentation in old sub-stations, laying of 33KV and 11KV lines for approximately 600km, installing around 500 distribution transformers, etc. The company is planning to set up a galvanising plant with latest technology with capacity of 48000TPA and manufacturing of aluminium rods and conductors with capacity of about 42,000TPA.

Financial snapshot

Its cash flow was in the red at Rs2.20 crore for the year ended 31 March 2010.

Objects of the issue

The company plans to set up a new plant at Sinnar, Nashik for manufacturing a new product LRPC wire and spring steel wire at a cost of Rs84.94 crore. It has already acquired 15 acres of land to implement the proposed expansion for Rs56.60 lakh.

Analyst's take

Rating agency ICRA Ltd has assigned an 'IPO Grade 2' to the company indicating 'Below Average Fundamentals'. The assigned grading takes into account the company's two decades of track record in the wire manufacturing business, healthy growth in production levels with regular increase in production capacities, strong presence in the western region and a reputed and well-diversified customer profile. The rating agency cites that the grading is constrained by the competition present in the industry due to the presence of several large and well established players in certain product categories and a host of unorganised players in other product segments and the expected decline in return indicators given the large expansion and the resultant equity dilution. Also, the company's operations are working capital intensive, which has impacted the free cash flow generation in the past, resulting in an adverse capital structure. Also, while the demand potential is favourable, the company would face high project implementation risks in setting up the project for LRPC and spring steel wires, especially given the fact that very limited progress has been made in the project so far and its dependence on IPO proceeds for financial closure. ICRA notes that going forward, the overall revenue growth and profitability indicators of the company would remain dependent on successful implementation of its new project as well as market acceptance of the products.


  •  It has an operating track record of over 19 years in the steel wire business.
  •  It produces a wide range of products, from MS wires to Grade 3 Spring wires both coated and uncoated. The products include galvanised steel & MS wire, cable armour, aluminium conductor steel reinforced wire, stay wires, annealed/binding wires, high carbon rope wires etc. Its products are registered and approved with various public sector undertakings such as Power Grid Corporation, Maharashtra State Electricity Distribution Company Ltd (MSEDCL), Gujarat Electricity Board (GEB), and Madhya Pradesh State Electricity Board (MPSEB).
  •  Sales are carried out from various locations like Mumbai, Nashik, Pune, Nagpur, Ahmedabad, Baroda, Bengaluru, Lucknow, Haridwar, Gwalior, New Delhi, Indore, Angul (Orissa). It has serviced clients like Sterlite Industries Ltd, Apar Industries Ltd, Finolex Cables, RPG Cables, Universal Cables, Ravin Cables, Suprajit Industries, Godrej & Boyce, GTL Infrastructure, Ashoka Buildcon Limited, MSEDCL, GEB and MPSEB.
  • It enjoys sales tax benefits under the Maharashtra State Government Package Scheme of Incentives until 2015. The benefit can be extended until 2017 due to its expansion plans.


  • The implementation of the project for which the proposed issue is planned is at a very preliminary stage. A delay in implementation may escalate the cost and affect returns from the project.
  • Its top 10 clients contribute approximately 51.21% of its sales for FY 2010. Any loss of business from one or more of them may affect its revenues and profitability.

Concluding notes
It is not an inexpensive IPO, based on the competitive market with the presence of large and well-established players.



k a prasanna

6 years ago

At Rs 95-102, the issue is priced around 17 times its FY 10 earnings, on post issue capital of Rs 21.02cr. This is expensive compared to the listed peers in the segment like Good Luck Teel Tubes (3.5PE) and Ramsaup Industries (9PE).
While the IPO should enable the company to scale up its revenues, the actual return indicators may decline given the large size of expansion, the significant equity dilution and uncertainty on the company’s ability to get market acceptance for its new product offerings.
The offer is expensive. AVOID. FIRST CHOICE IPO.

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