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Monday,
July 8, 2002, Chandigarh, India  
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Golden rules for investment in equity
Dhirubhai Ambani rewrote India’s corporate history
‘Making
teaching an enterprise’ |
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ITC, tech stocks lift index
When varsity mistake costs a life
IT return
Inflation rises
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Golden rules for investment in equity INVESTING in shares and debentures is risky business and requires continuous monitoring of one’s investments. This monitoring not only takes time, but also requires a fair bit of knowledge of financial terms and understanding of the changing economic environment within which the companies operate. Equity market investments typically yield high returns, particularly if invested over longer periods of time, although such investments are characterised by a high degree of price volatility in the short term. The returns generated by holding a diversified portfolio in India — such as the BSE Sensex — from 1985 to 2000 is a CAGR of over 17.5 per cent. But the BSE Sensex index has been very volatile during this period, going through many cycles of peaks and troughs that investment in equities has dismayed many in the short term, but if executed in the framework of the 10 golden rules outline below, may help in better choices. Identify objective Identify your objective, given your needs, life stage and resources. If you want to increase the value of your investment in order to have a larger sum to spend at a later date, your main priority will be capital growth.
Identify your risk tolerance Young people at the start of their working lives will have a greater appetite for taking financial risk as compared to people at the end of their career who are looking forward to stable income and preservation of capital. These two extremes will exemplify the ability to take equity exposure. The young person is likely to be largely in equities for he can afford to take short-term capital loss in anticipation of higher rates of return from equities. The elderly will be unable to take the risk of capital loss even in the short term as their ability to make back any losses will be limited by time and ability to earn. Middle-aged people will balance their investments between capital growth and some capital preservation to take care of near needs such as children’s education and consumption.
Categorise stocks Investing in cyclical stocks, such as those in the cement or steel sector, requires an understanding of the economic scenario, both national and global. An active involvement in the investment is required in order to reap the maximum benefits of swings in economic cycles over time. The stock prices are likely to move through extreme highs and lows, and the ability to time entry and exist will be necessary. Growth investing refers to stocks in sectors where the future direction is clear for the medium term-such as technology. However even here, timing is key, for the stock may do nothing for a long time as
momentum builds up and then move sharply thereafter. Defensive investing is that which is done from a long-term viewpoint, where a stock is held on the premise that it will grow consistently and on a sustainable basis over time, such as those in the fast moving consumer goods sector. While the appreciation may, at times, not be as dramatic as cyclical or growth stocks, stocks that constitute defensive investments grow steadily over longer time periods.
Check out technical position Can you actually sell your investment when you want to? The liquidity of a stock is very important in taking an investment decision, for if there is very little free stock available in the market, buying and selling may well impact the stock price in an adverse manner. It is interesting to see what the price volume relationship is for a stock. So if a stock price is moving up or down on high trading volume, it is more likely that there is real interest in that price movement than if there is very little volume supporting the price move.
Know what the company does The fate of each stock is tied inextricably to the fortune of the underlying business, and the market’s perception of the future prospects for that business. The industry’s future potential in terms of projected demand-supply is key as is the company’s competitive position in the industry. The business model of the company should be considered, as well as possible future changes, and the ability of the company to sustain growth and momentum well into the future.
Who runs the company To my mind the capability and integrity of management is even more important in determining the future viability of your investment. A strong, credible, experienced and shareholder responsive management team is critical for operating and growing a successful company. In the newer areas of our economy, management vision is also of significant importance.
Company’s performance The price earnings (P/E) ratio is the often-quoted measure of a company’s value. This ratio divides the stock price by the year’s earnings, and is useful in arriving at comparative valuation. But the tool that is quite prevalent in professional evaluations is the return on equity (ROE), which is the year’s earnings divided by the net worth of the company. This when compared to the cost of capital for the company allows the investor to gauge the company’s wealth creating ability. Apart from the ratios the investor must also focus on the sustainability of earnings growth.
Company’s valuation? Two stocks may have the same ESP but different PE’s. This is because ROE may be different and its sustainability may be different. Broadly speaking, the higher the sustainable ROE, the higher the P/E rating. A high P/E does not therefore necessarily imply an overvalued stock. Stocks with high sustainable ROE’s are likely to trade at high P/E multiples.
Know the price target? Having completed rule 1 to 8 above, and having selected stocks and built a
portfolio, it is now imperative to track these investments loosely. One method of doing so is to set expectations, by identifying a target price, and to re-evaluate the stock when this target is reached. Here, it is important to consider opportunity costs. If there is a loss on a stock, should one realise that loss and invest in another stock, which has a greater potential, or should one wait for the loss to turn into a profit. By not selling out of low return stocks to get into higher return stocks, investors miss out on opportunities.
Do you want a professional manager? Many investors mistakenly assume that they can purchase one or two stocks and they will do well. In the absence of good luck, this can be a dangerous strategy since there is always a risk of a stock declining in value or the business facing company specific problems. The more diversified the portfolio, lower is the risk of one poorly performing stock affecting overall performance of the portfolio. However, a good way of diversifying the portfolio is to invest through mutual funds where the professional fund manager and the rigorous investment process is likely to limit risk while maximizing profit, depending on the risk profile of the fund invested in.
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Dhirubhai Ambani rewrote India’s corporate history
Mumbai, July 7 Popularly known as Dhirubhai, the 69-year-old Ambani Sr, also changed the rules of the game in the industry in an era when the private sector was hampered by the licence regime, even if he had attracted criticism that he did not always play fair. There is also the story of how the Ambanis blocked publication of a biography titled ‘The Polyester Prince’ written by a foreign writer because they threatened legal action for anything they perceived as defamatory in the book. Ambani’s huge success dwarfed the controversies that surrounded him. A matriculate, he started his career as a worker in a Shell service station in Aden (Yemen) but returned to the country to build an empire that now boasts of a net worth of over Rs 300 billion with a net profit of over Rs 2,800 crore. Now employing a workforce of 85,000, the group’s Rs 25,000 crore integrated Jamnagar refinery complex in Gujarat houses the world’s largest greenfield project with a capacity to refine 27 million tonnes of crude every year. Born in Chorvad in Junagadh in 1932 as the third son to a village school teacher, Ambani embarked on an entrepreneurial career by selling “bhajias” to pilgrims in Mount Girnar over the week ends. He returned to India in 1958 with Rs 50,000 and set up a textile trading company. Starting from scratch in 1966, Ambani and his two US-educated sons — Mukesh and Anil — have built brick by brick an empire that has outstripped older venerable groups like the Tatas and the Birlas. Over a period of two decades, Ambani’s millions of investors lifted him from being owners of a fledgling Rs 20-30 lakh firm in the 1970’s to a situation, according to last count, the total revenues were more than Rs 60,000 crore. Flagship Reliance Industries is valued by the market at nearly Rs 30,000 crore, while Reliance Petroleum commands a figure of nearly Rs 17,000 crore. And the group’s assets add upto over Rs 52,000 crore. Ambani is also credited with being the man whose efforts helped create an ‘equity cult’ in the Indian capital market. With innovative instruments like the convertible debenture, Reliance quickly became a darling of the stock market in the 1980s. Today, the group has close to five million individual shareholders. In 1992, Reliance became the first Indian company to raise money in global markets, its high credit-taking in international markets limited only by India’s sovereign rating. Critics accuse the group of resorting to all tricks of the trade and breaking all rules of the game. The corridors of power in Delhi and elsewhere are replete with stories of what the Ambani influence could do to the careers of politicians and bureaucrats. In his relentless run to the pinnacle, Dhirubhai became the highest-paid Chief Executive Officer with a salary at Rs 8.85 crore leaving Wipro’s Aziz Premji far behind at Rs 4.2 crore. Both are among the world’s top 500 billionaires.
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Paul condoles Ambani’s death London, July 7 “It is a great national tragedy and India and all of us will be that much poorer”, Lord Paul, Ambassador for Overseas British Business said. “Dhirubhai Ambani created a modern concept of building world class industrial plant and created share holders value for larger number of people in India. PTI 2-minute silence by BSE members Mumbai BSE Executive Director Mr A.N. Joshi told UNI that the bourse would request all members of the exchange to observe the silence. They called Ambani as the father of stock market.
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‘Making teaching an enterprise’ This focussed and systematic approach has led to what is now Top Careers and You (TCY). It is the only training academy in the country that is ISO 9001 certified. My father is himself an engineer. So he trained me to be an engineer. I did my B Tech in 1996. Immediately I joined MBA in the Indian Institute of Management Studies Indore and completed my degree in 1998. Job market was not difficult. But I wanted to do something of my own where I could take independent decisions. At the same time there was no big money to fall back upon. I had to do everything of my own without the capital people need for business. Five years since inception, the TCY today has a turnover of over rupees one crore annually. Home work paid I had done my homework well and had finally concluded that Ludhiana needed a thoroughly professional training institute which will train people for the competitions like MBA, MCA, GRE, GMAT and SAT. This was a misnomer with the great stride Ludhiana has made in the business. Aspiring candidates had either to go to Delhi or Chandigarh for getting themselves trained to appear in various entrance examinations like MBA, MCA, GRE, GMAT and SAT. I decided to provide them quality training here. Although 100 per cent success is never and no where guaranteed, I tried to inculcate confidence in them. That everyone in this world can do everything, provided he is trained and guided properly.
Initial phase Initially I started with only a few students in 1998 from my residence. With due course of time my efforts and hardwork started showing up deserving and desired results. And the success never goes unnoticed. My students served as my messengers and today I have about 600 students on regular rolls who are trained in the class room. I have set up a good faculty of about 30 teachers who are not just training and guiding the students but always on research to devise new methods and manners to ensure maximum success.
Spread out helped Because we at TCY have 3000 students enrolled in correspondence training. They are from all over the country. These students are regularly fed with all the material required for the competitions. Given the increasing response to our correspondence courses we have all the reasons that the students do get the desired results. Otherwise why should they enroll themselves with us in great numbers. Not just that, we have another 3000 students enrolled on our online course on our website tcyonline.com. Our site has a minimum of 3000 hits daily, mostly from the aspiring MBA students. So far the online service is free of cost and we are likely to make it available on payment basis.
Future plans TCY would soon offer franchises all over the country as well as overseas. The first overseas franchise would be set up in Dhaka (Bangladesh) later this year.
(As told to Naveen S Garewal) |
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ITC, tech stocks lift index THE 30-share Bombay Stock Exchange Sensex gained 85.91 points last week to close it at 3244.70. The surge can be attributed to gains in the stock across sectors like automobiles, steel, cement and PSUs. Buying was also witnessed in a few other sectors like construction, textiles, auto-ancillaries, power, consumer, electronics, chemicals, engineering, paints and sugar. Bargain hunting in the tech stocks lifted Infosys and Satyam Computers. Foreign Institutional Investors (FIIs) have started buying on hopes of economic recovery. FIIs have pumped in a net of Rs 154.80 crore in the bourses in first four trading sessions last week. The buying list included ITC, Telco, Tisco, Tata Tea, Bajaj Auto and Hero Honda. ITC Cigarette major ITC surged 12.5 per cent during the week to Rs 720 as UTI’s proposal to offload its 13 per cent stake in the cigarette firm at a premium to the market price pushed the scrip northwards. A foreign brokerage recently issued a ‘buy’ recommendation on the ITC stock due to the company’s strong cash flow position. Rumors in the market say that UTI is looking for a four-figure price for its stake in ITC. British American Tobacco (BAT) is interested in acquiring UTI’s stake. BAT currently has 31 per cent stake in ITC. PSUs PSU scrips witnessed a renewed buying interest last week on the hope that the government would set up its divestment agenda after the reshuffle of Union Cabinet on Monday. On Thursday, the government allowed bidders to use the external commercial borrowings (ECB) route to fund PSU acquisitions. The major gainer during the week was Hindustan Machine Tools (HMT). The scrip gained 52 per cent during the week to close at Rs 32.55. The trigger for the big rise on the counter was after the company put up a newspaper advertisement earlier in the week inviting strategic partners for acquiring up to 74 per cent stake in four of its subsidiaries — HMT Machine Tools, HMT Watches, HMT Bearings and HMT Chinar Watches. The stakes will be sold off along with the relinquishing of management control. The entire disinvestment in the four subsidiaries will be completed by October 2002. Coming
fortnight The market is comfortably placed on institutional support. The buying spree may continue next week on the hope of good results from the corporate sector for the quarter ended June 2002. |
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When varsity mistake costs a life IT'S not just negligence on the part of a doctor that can cost a life. Callous indifference and insensitivity on the part of a school or an university examination board can also cause irreparable damage. Barkatullah University, however, realised this only after it was too late. I do not know how many of you heard on television or read in newspapers about the tragic death of 21-year old Fais Mohammad Khan, who had appeared for the second year B.Com examination of the university in Bhopal. A bright student, apparently he was expecting to pass in first division and he did too. However, the university for some reason, withheld the results of some students and Khan was one of them. Knowing the anxiety of students over the examination results, the university should have at least mentioned this fact on the results sheet. It did not do so and on finding his name missing from the list of those who had passed the examination, Khan came to the only conclusion that was possible in the circumstances — that he had failed. Even if he had, death was not the solution but unfortunately, Khan, in a state of depression, shot himself. Instances of school examination boards and universities goofing up on students’ answer sheets and marks cards are not rare. So also instances of students losing an academic year or two only because of such careless mistakes by universities. And in almost all such cases those responsible for such negligence get away, while the students suffer the consequences. In fact on the day that newspapers carried the report of Khan’s tragic death, there was a letter in the “grievance redress” column of The Tribune, highlighting the casual attitude of a school board towards the students’ academic careers. The letter said the Government Girls’ Senior Secondary School, Dhuri, Punjab, had found mistakes in 43 certificates of detailed marks cards and sent them to the Punjab School Education Board for correction about 10 months ago. The corrected cards were yet to be received.. In Khan’s case, the local police has reportedly registered a case of negligence against the university, but that is not enough. Khan’s parents should file a case for compensation against the university before the consumer court. Of course no amount of compensation can bring Khan back, but a steep compensation awarded by the court and recoverable from those responsible for such callous negligence can at least send a signal to other examination boards and universities not to play with students’ academic careers. In the earlier years the National Consumer Disputes Redressal Commission, which is the apex consumer court, had held that issues connected with examinations such as the conduct of examinations, correction of answer sheets or declaration of results, did not come within the purview of the consumer courts. However, that was the time the national commission had not even taken a view on the larger question of whether services provided by education institutions came under the ambit of consumer courts. Then in September 2000, in the case of Bhupesh Khurana vs Vishwa Buddha Parishad, the national commission finally resolved this issue and held that education institutions could be hauled up before the consumer courts for negligent service.(OP no 168 of 1994) Subsequently in several cases the commission has taken universities and education institutions to task for their casual attitude towards students’ academic careers as well as safety. In the case of Sreedharan Nair vs Registrar, University of Kerala, for example, the National Commission asked the university to pay Rs 50,000 as damages to Nair for the loss suffered by him on account of the university’s failure to give him a law degree after completion of a three-year course in law. Dismissing the argument of the university that the qualifying examination of the Mysore University (B.G.L degree) passed by Nair was not recognised by it, the National Commission pointed out that the student should have been informed of it at the time of admission to the LLB course and not after completion of three years of the course. (FA no 643 of 1994, decided on 31-5-2001) Similarly in the case of S.D. Seth Mathews vs Mahatma Gandhi University, where the student lost two valuable academic years because Kerala University failed to inform him at the outset that the SSLC (Compartmental) examination of Tamil Nadu was not recognised by it and did so only after the student had completed two years of B.A and B.Ed courses, the apex consumer court upheld the decision of the District Forum to award Rs 35,000 as compensation and Rs 5000 as costs .(RP no 406 of 1997, decided on 28-9-2001). While doing so, it set aside the order of the State Commission holding that the complaint did not come under the purview of the consumer court. In another case (S.Somasundarama vs Sri Chakravarthy International Matriculation Academy) where a three-year old child died by drowning in a septic tank left open next to the school toilet, the National Commission held the school authorities liable and awarded the parents compensation of Rs 2 lakh plus interest (.FA no 518 of 1994, decided in August 2001) |
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IT return Q: I am a Punjab Government pensioner. I received Rs 65623 as pension including LTC Rs 4617, Rs 6035 on the maturity of MEP 92 (UTI) for Rs 5000 after deduction of Rs 1020 TDS. Please guide me about the following points to file the IT return for FY 2001-2002, if I am in receipt of Rs 50,000 as interest. 1. Is the interest of Rs 2055 for MEP-92 exempted or not. 2. Which documents should be attached with Return if I want to take exemption of LTC received in January, 2001. 3. Am I eligible for some rebate as I spent Rs 2 lakh for repair and construction of my ancestral house which is not registered in my name. 4. What will be may tax liability. — Dharam Paul Lakhanpal, Jadla (Nawanshahr) Ans: On the pension amount received by you, you will be eligible to claim standard deduction equal to 331/3rd% of the pension amount. In respect of MEP whatever you have received over and above the amount invested together with the amount of TDS will be treated as your taxable income. The tax deducted at source by UTI will be adjusted against total tax payable by you. For claim exemption in respect of LTC you should enclose with your income-tax return details of having spent the money. No tax rebate or deduction is permissible on the money spent by you for repair and construction of your ancestral house which is not registered in your name. The most important condition to claim the tax benefit is that the house should have been owned by you and that the deduction would be available only for interest on loan and not on the expenses so incurred. Savings from abroad Q: I am working in Punjabi University and went abroad to work in foreign University for five years after obtaining leave of the kind due. I brought my savings in India. As I was abroad so I did not file my income tax returns in India. Now what should I do? Should I file income tax return for five years? Should I pay tax on my savings brought from abroad? Kindly clarify. — Surinder Pal, Ludhiana Ans: Yes, you may please file your IT Returns now and apply to the CIT u/s 273A for waiver of interest. Interest earned on foreign savings invested in India is taxable. |
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Inflation rises
New Delhi, July 7 The point-to-point price change as measured by Wholesale Price Index (WPI) rose from the previous week’s figure of 2.05 per cent despite price dip in vegetables and fruits, wheat, jowar, bottles and black-and-white TV sets.
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Mumbai, July 7
LUDHIANA: “If you are determined to succeed no force on earth can hinder your course. It may get delayed but it will definitely come your way. That is what I have learnt from my five years experience with my idea. I have tried to systemise and organise the business of educating people. Rather preparing people to compete. This is as vast a field as one can think. But I have always tried to keep myself focussed, systematic and organised. And it did work. Within five years I have set up a network of training institutions across the country with 600 students on regular rolls, 3000 learning through correspondence and another 3000 enrolled online”, says Mr. Kamal Wadhera Managing Director, Top Careers and You.