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Monday,
October 28, 2002, Chandigarh, India
  
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Disappointing Q2 results pull down the market
Small investors hit hard
PREPARING FOR RETIREMENT |
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Inflation falls to 2.83 pc
Union Bank stock struggles to remain afloat
All that glitters is not ‘pure’ gold
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Disappointing Q2 results pull down the market If the mood of Dalal Street is anything to go by, no investor this Divali will burst the crackers. The reason: disappointing results from corporate India leading to a large scale selling by FIIs and mutual funds. According to figures released by the Sebi, FIIs remained net sellers they sold shares worth Rs 192.40 crore in the first four trading sessions of last week. Lack of support from foreign institutional investors affected the sentiment and the BSE Sensitive Index (Sensex) closed at its 52-week low of 2,875.53 last Friday. The selling was also due to growing concerns on the government’s pace of disinvestment. Software The trend in quarterly results of software companies has been a mixed bag. While companies like Infosys and Satyam computers have shown noteworthy performance; at the same time results from HCL Technologies has disappointed. Infosys Technologies beat analyst expectations to clock a net profit of Rs 225.77 crore (up by12 per cent and a turnover of Rs 879.57 crore (up by 35 per cent) in the second quarter of the financial year 2002-03. Satyam also met market expectation as it beclared a 12 per cent decline in its net profit to Rs 118.15 crore (Rs 134.08 crore) despite 11 per cent growth (Rs 505 crore) in revenues. HCL Tech reported a 36 per cent drop in its net income to Rs 76.2 crore for the first quarter. However, gross revenue at Rs 442.4 crore during the quarter against Rs 372.3 crore in the same in 2001. The market gave thumps down to HCL Tech results and its stock lost close to 25 per cent for the week to close at Rs 163.75. Pharma Pharma companies reported a robust growth in topline and bottomline alike. Ranbaxy Laboratories, India’s largest pharmaceutical company, has reported a 49 per cent increase in turnover to Rs 804.4 crore for the quarter ended September 30, 2002. The net profit rose by 79 per cent to Rs 159.4 crore. Dr Reddy’s reported 13 per cent and 31 per cent decline in sales (Rs 427.8 crore) and net profit (Rs 99.2 crore) respectively mainly on decline in generic sales. In this segment, the USA is the single largest market, which contributed 85 per cent of the total revenue. The results though were in line with market expectations but the stock was pounded to a 17-month low of Rs 687.75 on selling by FIIs and mutual funds. FMCG FMCG stocks took a pounding on the bourses, though the overall industry results were mixed. This industry has been facing rough whether since last July when it was known that the monsoon would be below normal, leading to large scale sell of on expectations of reduced rural demand. ITC reported the second-quarter results in line with expectations. The company announced a 12 per cent growth in net profit (Rs 380.50 crore) for the second quarter of the current fiscal, with gross income up 15 per cent. The biggest disappointment for the market were the results of the FMCG major Hindustan Lever Limited (HLL). The consumer product giant reported a mere 3.5 per cent rise in net profit (Rs 413.29 crore) sending its stock hurtling towards a four year low on the bourses. Investors were more worried on the company’s sales performance which declined by 7.2 per cent to Rs 2367.46 crore, even though the net profit came in line with analysts’ expectations. But its top line was far below expectations. HLL, which is considered to be the benchmark for the FMCG industry, has set the tone for other companies in the sector. This led to all around selling in the FMCG stocks. HLL has lost close to 10 per cent in its share price in the last six trading sessions on the bourses. Banking The banking sector has been in the pink of health. The public and private sector banks have come out with performance, which is noteworthy. In the public sector, Corporation Bank has reported a 27 per cent jump in net profit to Rs 119 crore on a total income of Rs 645.62 crore. The bank’s spread increased from 3.2 per cent to 3.4 per cent. In the private sector banks, HDFC Bank and UTI Bank have reported performance, which are in line with the investors’ expectations. HDFC Bank reported a 29.34 per cent increase in net profit at Rs 89.7 crore, as against Rs 69.34 crore over the corresponding quarter of the previous year. The bank’s stock went below the crucial resistance level of Rs 200 on selling pressure. The selling was attributed to the fact that the bank is facing pressure on its spreads. UTI Bank was a shade better it reported a 43 per cent increase in net profit to Rs 44.13 crore. It is the 14th quarter in which the bank has posted a growth of over 40 per cent year-on-year. Allahabad Bank’s Rs 100-crore initial public offer (IPO) which opened on October 23 is being offered at par. After the IPO, the government’s stake in the equity of the bank will come down to 72 per cent from 100 per cent at present. The 137-year-old bank does not have much to speak of about its recent performance. The investors need to refrain from subscribing to the public issue as mounting NPAs make at par issue over-priced. Based on the quarterly performances some of the following stocks can be bought by investors for medium term. |
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Small investors hit hard Nil custody charge for small investors up to a holding of Rs 1 crore in demat account vs locker charges for holding shares in physical form was used as one of the main plus points while convincing investors to go in for demat of shares, by Depositories/DPs. SEBI has brought even Z-Category shares, most of which are un-tradable and extremely low in value, under compulsory demat, thereby compelling small investors to get their shares converted to demat form. Clause 1 of the agreement between SHCIL and its account holder clients, inter alia, mentions that “The Depository Participant shall reserve the right to revise the charges by giving not less than thirty days notice in writing to the Client”. In blatant violation of this clause of the agreement, SHCIL has suddenly imposed custody charges on small investors @ Rs 1.5 per ISIN per month irrespective of the number of shares/their rate or total value of the holding of the investor, in contrast to a total holding of Rs 1 crore which was stipulated earlier, on the pretext that these charges have been levied by NSDL. In this connection it may not be out of place to mention that as per “An investor’s guide to Depositories” issued by NSDL Para XV on page 21 under the head “Charges” NSDL. Charges the DPs and not the investors. In this respect even the fundamental concept of value of the total holding has been changed from Rs 1 crore to per ISIN per month. This has put unreasonable and perpetual financial burden on the small investors having their accounts with DPs of NSDL. At this stage it is worth mentioning that DPs of CDSL are not charging anything on account of holding charges. Clause 7 of the agreement states that “The client shall have the right to terminate this agreement and close his account held with the depository participant, provided no charges are payable by him to the depository participant, specifying therein that the balances in its account be transferred to another account of the client held with another Depository Participant or to rematerialise the security balances held. The depository participant shall initiate the procedure for transferring such account or rematerialising such securities within a period of thirty days,....”In view of the unreasonable and heavy perpetual charges levied by SHCIL, if a client wants to terminate his agreement and transfer his entire holding to his own account with a DP of CDSL, SHCIL insists that in addition to payment of arrears if any, regular transaction forms must be filled and transaction charges @ Rs 27/- per ISIN must be paid to them for the entire holding for closing and transferring the account. However, if the client is to pay the regular transaction charges, he can get the shares transferred to his account with another DP within a maximum of two days and the 30 days stipulation in clause 7 of the agreement becomes redundant, atleast for cases where the client wants to transfer his entire holding in the demat form itself. It, therefore implies that on termination and closure of account no charges other than arrears if any, are payable. Moreover, transfer of entire holding to his own account with another depository/DP cannot be termed as a transaction as no consideration is involved, either directly or indirectly and the account is being closed purely because of levy of perpetual and unreasonable charges without any notice and providing a reasonable outlet to the investors. This view is further strengthened when one looks at Annexure Q of SHCIL for closing the account which inter alia states,” I/We request you to transfer the balance of security to my/our account with DP name & Id ......bearing my client id.........”This clearly implies that one does not have to fill regular transaction forms or pay transaction charges, as all the balance securities are transferable on filling the form. Q. Even otherwise, if no reasonable outlet without additional financial burden is provided to the client, notice as stipulated in clauses 1 of the agreement will loose its meaning. Keeping in view the interest of small investors, SEBI should take appropriate action against NSDL/SHCIL for their unreasonable attitude which financially hurts lakhs of small investors more than big ones. |
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PREPARING FOR RETIREMENT Ludhiana Birla Sun Life not only offers an endowment plan that has been discussed in these columns before, but also some other exciting plans that facilitate savings that could be utilised once you cross the 60 age mark. These insurance linked saving plans can be customised to meet individual requirements and coincide with the periods in life when one would need financial help. Flexi Cash Flow
The Flexi Cash Flow Money Back Plan is flexible life insurance cum saving plan that can be cover you for a specified period with the option of a periodic payback of the face value at fixed intervals coupled with savings growth. The periodic payback does not hamper the insurance cover that remains intact for the full sum insured during the policy period. The Flexi Plan is designed keeping in mind that the policy holder may at some point during the duration of the policy need to use their savings without exposing them in terms of a life cover. Anyone between ages 1 to 65 is eligible to take this policy. For minors, the minimum amount of the policy has to be Rs 50,000 and Rs.75000 for adults. The policy offers several options such as choice of investment option, plan duration, premium paying options, access to funds during the plan duration, automatic premium payment, etc. Flexi Life Line
Flexi Life Line Whole Life Plan as the name suggests aims at a long term investment plan for higher returns over an extended period of time. The plan is aimed at people who can spare some money that is not required in the immediate future. The plan covers the policy holder’s life and at the same time aims at providing higher returns. In this plan the insured keep paying premiums through out and enjoys the benefits of savings and life insurance. According to the Birla Sun Life policy advisors, “the whole life plan is a systematic mechanism of savings for the subsequent generations, at the same time getting the insurance cover for life, up to the age of 100”. It is, however, the flexible features in the plan that helps the insured to take advantage of the savings for oneself. The policy is open to all between ages 18 to 65. Under the Flexi Life Line Whole Life Plan a minimum sum assured is Rs 75000. The plan runs till the insured’s age of 100, unless terminated earlier by death, surrender or lapse. The plan offers flexibility in terms of payment of premium and offers a choice of investment options. The premium for the policy is paid automatically, besides the policy also offers access to funds during the plan duration under certain circumstances. Birla Sun Life
The Birla Sun Life Term Plan is aimed with keeping the premium low and especially suited to people who want to avail of the benefits of the life insurance by paying the least. A pure risk coverage plan, the Birla Sun Life Term Plan takes care of your financial commitments towards family or dependents, if anything unfortunate were to happen to the person insured. Some of the features of Birla Sun Life Term Plan include a maturity age as 70 years, attractive rebate for sum insured equal to or greater than Rs.7 lakh, flexibility in premium payment and choice of several additional benefits from the riders. Birla Young Scholar Plan
The Birla Young Scholar Plan is aimed at the future of children aged 8 or below. This policy secures the educational future of the child if something were to happen to the parent/policy holder or he/she for some reason were to become unable to educate the child. “No parent would like to the take the risk of not being able to afford the best education and the same comfort should some unforeseen event happen”. The Young Scholar is a saving plan and at the same time insuring the parent. The plan guarantees a minimum return of 6 per cent p.a. on the investible part of the premium. The Birla Sun Life’s Young Scholar Educational Package Plan ensures that there is sufficient money available for your child’s higher education. (Concluded)
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Inflation falls to 2.83 pc New Delhi, October 27 The point-to-point price change as measured by Wholesale Price Index (WPI) ducked for the fourth consecutive week to less than 3 per cent from the previous week’s 3.02 per cent and 3.04 per cent a year ago even as fuel and manufactured products’ prices stood unchanged. WPI fell, however, marginally by 0.1 per cent to 167.2 from 167.3 in the previous month and was 162.6 a year ago. Final WPI was revised at 167 for the week ended August 17 as against the provisional figure of 166.9, while the final inflation was 3.47 per cent as compared to provisional level of 3.41 per cent.
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Union Bank stock struggles to remain afloat Notwithstanding the fact that the IPO market is in a comatose state, it is interesting to note how the post-listing performance of the previous banking IPO affects investor response to the next. The better than expected post-listing performance of PNB buoyed the investor response to Union Bank, but the poor post-listing performance of the latter seems to have somewhat dampened investor enthusiasm for the ongoing IPO of Allahabad Bank. However, being a par priced IPO, Allahabad Bank has history, if nothing else, on its side as there is evidence that par priced banking IPO’s have traditionally proved a happier hunting ground for investors than their premium priced contemporaries. Interestingly, close on the heels of the par priced Allahabad Bank comes the premium priced IPO of Canara Bank. The last bank to attach a premium tag to its IPO was Union Bank. Its post-listing performance has left a lot to be desired, plummeting as it did below offer price within a day or two of listing. As I had predicted on the CNBC television show on the day this stock listed, if it dips below the issue price, it would be difficult for the stock to cross that barrier again. Let us now flashback to a SWOT snapshot of the bank. On the positive side of a SWOT snapshot of the bank, one of the key points, albeit a double-edged positive is the extensive reach of its nationwide branch network numbering 2000 plus. Additionally, it has also undertaken efforts to lower its cost of deposits. By the end of fiscal 2002, its cost of deposits stood at 7.03 per cent, down from 8.17 cent in fiscal 1999. Another crucial plus for this bank is that it has remained relatively untainted over the years, which is more than one can say about most of its peers. Finally, there is no escaping from the fact that this bank has advances and deposits aggregating Rs 61,000 crore plus. On the negative side of the SWOT, one finds that the positive results for the year ended March 31, 2002 has been driven greatly through smart treasury operations which may not necessarily be sustainable YoY. A closer look at the numbers indicates a squeeze on growth on income earned as the annual growth in interest income dipped to 7.57 per cent during FY 2002 as compared to a growth rate of 12.6 per cent during FY 2001. It must also be noted that 13 per cent of its industry loan book is accounted for by the chemicals and dyes sector, while the iron and steel sector constitutes 11 per cent and the textiles sector represents around 10 per cent. Now, that could be a potential source of worry as many of the companies in these sectors are plagued by either evaporating demand or oversupply. With there being little to tilt the scales between the SWOT positives and negatives, it all boiled down to the pricing equation. At a premium tag of Rs 6 per share, it was always going to be touch and go, notwithstanding the fact that, post-IPO, it is likely to rank among the better positioned banks in the M&A sweepstakes which increasingly appears to be the emerging scenario in the banking sector. Well, that’s what one thought, but a pink paper report that the government was considering merging the bank with IDBI sounded its death-knell even before listing. The sheer thought of IDBI coming down like a ton of bricks on any bank is enough to scare away any potential investor. Little wonder then that the Union Bank stock struggles to remain afloat. Now, will it cast a shadow over the forthcoming IPO of Canara Bank ? Time will tell. |
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by R.N. Lakhotia RBI bonds Q: In the ‘Tax & you’ column in The Tribune dated August 5 you have suggested that one can invest the entire retirement benefits in Relief Bonds issued by the RBI. I want to know if the retirement benefits include the leave encashment and the GP Fund lying in one’s account at the time of retirement also, for the purpose of this provision. — A.S. Chahal, Patiala Ans: For the purposes of Relief Fund investment, the retirement benefits would include all the retirement benefits mentioned by you. Tuition fees Q: I am a Punjab Government employee. My son is doing B.Tech in Haryana. The college is approved by AICTE and authorities are charging Rs 44,000 per annum as tuition fee as per Haryana Government norms. Please let me know that whether I can claim any I. Tax exemption. If is it so then under which section and how much amount. — Suresh Sharma, Una Ans: You cannot enjoy any tax benefit on the tuition fee paid by you for your son. Standard deduction Q:
I am a pensioner, I am receiving around Rs 1,30,000 as pension in this financial year and also earn interest income around 50,000. Kindly tell, what is the Standard Deduction in this Financial Year (Ass Year 2003-04) available to me u/s 16 of IT Act. — Deepak Garg, Panchkula Ans: For the Financial Year 2002-2003 relevant to A.Y. 2003-04 you will be entitled to standard deduction on pension income @ 331/3% on Rs 1,30,000 or equal to Rs 30,000 (maximum). On bank interest the deduction u/s 80L is Rs 12,000 p.a. Q: If a plot is allotted or purchased in resale by taking Housing Loan from a financial institution then which of the following rebate of income tax can be available by the purchaser on the repayment of loan and with what limit: (a) Rebate on principal under Section 88. (b) Rebate on interest under Section 24. (c) Rebate on the expenditure of registration, transfer fee for the plot. — Narender, Chandigarh Ans: Even on purchase of a plot by taking housing loan the rebate on principal amount u/s 88 as also rebate on interest u/s 24 would be allowed as a deduction provided house is constructed thereon. Merely on purchase of plot no tax deduction is available. Please also note that no rebate is available on expenditure incurred on registration fee, etc. |
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by Pushpa Girimaji All that glitters is not ‘pure’ gold Several years ago during Divali, consumer groups in Delhi began a sustained drive against the practice of weighing of sweets along with the box by retailers. As boxes turned heavier and the loss to the consumer became proportionately higher, the consumer organisations stepped up their campaign. And soon law enforcement agencies, which till then had looked the other way, were forced to take stringent action against such violations of the Standards of Weights and Measures Rules. Today, shops selling sweets in Delhi put out boards assuring customers that the weight of the box would be taken into consideration while weighing the sweets. The second crusade was against firecrackers. In fact this was a very difficult operation because school children, who love to burst crackers, had to be convinced enough to say “no” to them. While social activists spoke to them about the exploitation of child labour in the firecracker industry, environmentalists talked about the pollution caused by firecrackers. Doctors, policemen and firemen too pitched in to bring the children up to date on the number of firecracker- related injuries and deaths caused during Divali, besides destruction of property. The drive against crackers had to be sustained over several Divalis, but till date, it has been one of the most successful public interest campaigns. The latest in the series is the move against sub-standard jewellery, initiated by the Bureau of Indian Standards. For the first time last year, the BIS took on a pro-active role, joined up with consumer groups and surveyed 120 jewellery shops in eight cities: Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Jaipur, Kolkata and Mumbai. The results were shocking — 88 per cent of the jewellers surveyed short-changed consumers and sold gold of lesser caratage or purity than claimed or promised. The samples were picked up from outlets of different sizes — small, medium and large — located in different parts of these cities. For the BIS, this was a very unusual role. Besides formulating standards, it’s enforcement work is limited to taking action against those who misuse its standard mark. Whereas here, it was conducting a nationwide survey of jewellers, informing consumers about its outcome and subsequently putting the fear of the law among the jewellers by filing cases of unfair trade practice against those who had cheated on the caratage, before the MRTPC. The positive effects of this campaign can be seen in the fact that today consumers in urban India have begun to question the quality of gold ornaments sold by jewellers, thereby forcing more and more jewellers to opt for hallmarking. And thanks to this increased consumer awareness, this festive season a number of jewellers are advertising the fact that they are selling hallmarked jewellery. Of course the total number of jewellers who have taken the BIS licence for selling hallmarked jewellery is still very small — 413 out of an estimated 3 lakh registered jewellers in the country. But the campaign began only last year and needs to be sustained for a few more years for it to be really effective. Besides, the survey only encompassed certain major cities and did not cover smaller towns and villages. And this is what is now required to be done, more so because it is said that rural India accounts for nearly 70 per cent of the gold consumption in the country. The BIS should therefore, now conduct, in association with consumer groups, extensive gold quality surveys in the rural areas. That will not only give an indication of the extent of malpractice in this trade in the villages but also help create quality consciousness among rural consumers too. And the BIS proactive role should not end with the gold survey. As an organisation committed to quality standards, it should make use of its large network of offices around the country and its technical staff, to take up similar market surveys on several other products. Silver, for example. Considering that here again, most transactions take place on the basis of trust, one needs to find out how trustworthy the silversmiths are. |
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Cipla’s 17 per cent topline growth (Rs 394.94 crore) year-on-year in the second quarter had been below expectations. But the improvement in opening margins by 350 basis points to 25 per cent beat the investor’s expectations.