31 Jul 2010, 0440 hrs IST,NYT News Service
SKS IPO Conterversy..................................................
An Indian company with rich American backers is about to raise up to $350 million in a stock offering closely watched by philanthropists around the world, showing that big profits can be made from small helping-hand loans to poor cowherds and basket weavers.
The company, SKS Microfinance, is one of the biggest players in the field known as microfinance, which involves loans, often as small as $20, that banks might consider too tiny and risky to bother with.
SKS was set up as what philanthropists call a “social enterprise” — a business based on the concept of doing well by doing good. And there is no question that the company’s 41-year-old Indian-American founder, Vikram Akula, and investors who include prominent Silicon Valley venture capitalists will do very well indeed from the IPO. Mr Akula has already privately sold shares worth almost $13 million, and he still holds stock options potentially worth $55 million.
The question is whether the social good will be as amply rewarded.
SKS Microfinance is not the first microlender to go public, and there has long been debate over whether social enterprises should be turned into giant commercial operations. Proponents of commercial microfinancing say the money raised can provide even more loans to the needy than relying only on charitable donations.
But the IPO for SKS, one of the field’s biggest stock offerings yet, has caused its own type of controversy. The disputes involve two charitable microfinance organisations that helped Mr Akula put SKS on its feet and financed it through its early days. It is not clear what will happen with the money those groups will make from the IPO.
At one of those groups — five Indian trusts that now hold the assets of Mr Akula’s original nonprofit version of SKS — two board members resigned in March over his plan to steer funds toward his original nonprofit group rather than granting them to many charitable entities.
The other nonprofit ensnared in controversy is a Seattle-based group called Unitus, which holds a stake in SKS that will be worth millions after the IPO. The group’s board shocked the nonprofit community this month by saying that all of the organisation’s 40-person staff would be laid off and that Unitus would no longer be involved in microfinance activities.
That stunned donors of Unitus, which was set up a decade ago specifically to support microfinance. As recently as June, a newly hired chief executive at the group had been discussing ambitious new projects with potential supporters, including the Bill and Melinda Gates Foundation.In charity circles, people wondered about the motives of the Unitus board members, at least four of whom had invested in SKS Microfinance themselves and thus would reap profits from the IPO.
“If Unitus is closing down, that shows what is the real result of this IPO,” said Muhammad Yunus, an economics professor who is considered the father of microfinance and has been critical of the SKS stock offering. “You are now encouraging the profit-maximising part, and the nonprofits are closing down.”
Joseph Grenny, the chairman of Unitus’ board and an SKS investor, declined to say what would happen to Unitus’ proceeds from the offering. Because Unitus is listed as a “promoter” of the stock offering, he said he could not comment without violating Indian law. “That’s all speculative at this point, anyway,” he said in a telephone interview.
......
In India, there are also questions about how nonprofit assets will be handled after the SKS IPO. SKS’ roots lie in a nonprofit microfinance organisation, known as SKS Society, that Mr Akula set up in 1997. To help it grow faster, in 2005 Mr Akula set up a profit-making offshoot, SKS Microfinance, to attract commercial financing.
No one doubts that the money SKS Microfinance raises in the offering will enable it to make even more loans to needy applicants. As of March it had about 6.8 million borrowers, holding $624 million worth of microloans, making SKS among the biggest of the world’s 1,800 or so microfinance organisations. The controversy lies in the five trusts that served as the bridge between the original nonprofit SKS Society and SKS Microfinance.
When Mr Akula started the profit-making SKS Microfinance, virtually all of the company was owned by the trusts. Over time, as other investors came in — including the American firm Sequoia Capital and the Silicon Valley venture capitalist Vinod Khosla — the trusts’ stake was diluted to 15%
But the trusts still stand to benefit in a big way from the public offering. They are selling shares worth up to $42 million and will continue to own a stake worth as much as $175 million — collectively making them one of the biggest endowments in India.
A new, supposedly independent board was created last fall to oversee the trusts and the new wealth they will have. But that structure quickly fell apart.
After the board’s first meeting in March, two of the handful of directors resigned: Narayan Ramachandran, who previously headed the Indian operations of the investment bank Morgan Stanley, and Anu Aga, a prominent philanthropist and former chairwoman of Thermax.
Mr Ramachandran and Ms Aga referred requests for comment to the company. But several people close to the situation said the two had left over differences with Mr Akula — who at the time was not a member of the trust board — about how to spend money from the offering.
Mr Akula declined to discuss the trusts or other specifics relating to the IPO, citing Indian and American securities rules. Mr Akula has become something of a celebrity in India, and some people who know him — including his ex-wife, Malini Byanna — said he wanted to continue controlling the trusts and SKS Society because he has political ambitions in India.
Saturday, July 31, 2010
Friday, July 30, 2010
Inflation adjusted Value of US $ 1 since 1977
Following is an interesting piece of information that was obtained from Franklin Templeton, USA. The illustration is self explnatory.
Just for those who need some explanation: Investing to Combat Inflation :
Inflation, by definition, drives prices up and pushes the purchasing power of your saved money down. While not much attention has been paid to inflation since the early ’80s, recent fiscal concerns have many wondering how much inflation will impact our economy in the years ahead. Stocks, despite their recent travails, have done the best job of providing returns after inflation is taken into consideration.
The Bottom Line :
(1) Over time, inflation shrinks buying power.
(2) Historically, stocks have generated better total returns after inflation than bonds, gold and cash equivalents.
(3) It's important to remember that while stocks have historically outperformed other asset classes over the long term, they can fluctuate dramatically over the short term. Investors should be comfortable with fluctuation in the value of the investment.
(4) Speak to a financial advisor for help creating an investment plan with the goal of protecting purchasing power.
Just for those who need some explanation: Investing to Combat Inflation :
Inflation, by definition, drives prices up and pushes the purchasing power of your saved money down. While not much attention has been paid to inflation since the early ’80s, recent fiscal concerns have many wondering how much inflation will impact our economy in the years ahead. Stocks, despite their recent travails, have done the best job of providing returns after inflation is taken into consideration.
The Bottom Line :
(1) Over time, inflation shrinks buying power.
(2) Historically, stocks have generated better total returns after inflation than bonds, gold and cash equivalents.
(3) It's important to remember that while stocks have historically outperformed other asset classes over the long term, they can fluctuate dramatically over the short term. Investors should be comfortable with fluctuation in the value of the investment.
(4) Speak to a financial advisor for help creating an investment plan with the goal of protecting purchasing power.
Tuesday, July 27, 2010
SKS Microfinance : Debate
Succesful listing of SKS microfinance would be a good case study for the future on the scope of Private Equity Investments in India. In general a Private Equity brings in huge funds to a company for its operations, on the condition that it will get a profitable exit within stipulated time. Just as in the case of SKS, the first private equity investment happened in 2006. And in 2010, its investors are getting bountiful exit.
And the beauty is, SKS started off as an NGO. With the 'permission' of RBI it gets itself converted into a pucca Non Banking Finance company with a profit motto. No doubt, the 'money minded' investors would meet their goals - make bumper profit. For instance, one of the prime promotor Sequoia, which holds 21% stake @ Rs.49.77 per share is planning to sell one third of its holdings. That means @ the lower price band of Rs.850, it would make 17 times its money - that too in hardly 3 years plus.
This hot subject of an NGO doing business for profit motto has sparked a wide spread debate for quiet some time. One such article is furnished herewith for your kind information. We believe, it would be an interesting piece of reading.
.........Experts from Business Standard............................................
An initial public offer by SKS Microfinance is likely to set the stage for more such offers in the world's largest microlending market, but it has also sparked a debate on the ethics of profiting from the poor.
The IPO, a first in India and one of only a handful by microfinance institutions (MFIs) around the world, is expected to raise about $250-$350 million for SKS and its private equity investors.
It has drawn keen interest from countries with major microfinance industries such as Bangladesh, Mexico and South America, as well as the private equity firms who have recently piled into the sector.
But it has also drawn sharp criticism from some MFIs and non-government organisations who do not favour going to capital markets or the strong flows of private equity that have pushed up valuations.
"The job of microfinance is to alleviate poverty, so the question to ask is: who's going to benefit from the IPO?" said Olivia Donnelly, executive director of UK-based Shivia Microfinance, a non-profit firm that focuses on India and Nepal.
"It's OK to do an IPO because you need to scale up, or upgrade your IT systems, but is it correct to make millionaires out of shareholders when your borrowers are so poor?"
Microfinance has been around since the 1970s, but jumped into the spotlight in 2006 when the Nobel Peace Prize went to Bangladesh's Muhammad Yunus and his Grameen Bank, which pioneered giving tiny unsecured loans to the poor to buy cows or sewing machines.
Some Indian MFIs including SKS have switched to a for-profit model and registered as non-banking financial corporations.
MFIs' expanding client base and near-zero defaults have drawn investors ranging from Singapore's Temasek, CLSA Capital and International Financial Corp to private equity firms Sandstone Capital, Unitus and Matrix, which have put money in SKS, Share Microfin, Spandana, Ujjivan and other MFIs.
HIGH VALUATIONS
Advocates say rapid growth and the drying up of traditional sources of capital have driven MFIs to consider other options.
"When we are growing 75 percent year-on-year, the sort of equity we need to maintain 15 percent capital adequacy ratio cannot come from old-fashioned sources such as philanthropists or banks," said Vijay Mahajan, president of lobby group MFI Network.
"So we've had to move to new sources like PE, the capital market and debt instruments. This is something to be celebrated."
Sumir Chadha, managing director of private equity firm Sequoia Capital India, which holds more than a fifth of SKS, said the IPO would improve the reputation of microfinance lenders.
"MFIs tend to be regarded badly. It is very frustrating. This IPO will dramatically increase visibility and bring in greater trust for the entire MFI eco-system," Chadha said.
Earlier this year, India's finance minister said non-banking financial corporations (NBFCs), including some like SKS, can be granted banking licences, signalling a greater role for MFIs.
But India's central bank has pulled up MFIs for their high interest rates -- about 25-27 percent. That is about double the rate at which they borrow from banks, but still lower than moneylenders.
There is also criticism of high valuations, which private equity has helped push to about 5.9 times book value, or nearly three times the global average, JPMorgan and the World Bank's Consultative Group to Assist the Poor (CGAP) said in a report.
Listed MFIs, including Mexico's Compartamos, have outperformed mainstream banks, but valuations of Indian MFIs are "unsustainably high" and not justified by their recent growth or current and future earnings expectations, it said.
Delinquency levels, kept low because borrowers must repay funds before getting access to more funds, may not be sustainable. Overheating was already evident in some southern Indian states, the report said, and profitability will also decline as operating costs rise as MFIs expand outside the southern states.
Private equity's role in MFIs has also been criticised.
"PEs can bring greater efficiency, development plans and good management, but they can also create tension because investors tend to want to exit in three to five years," Xavier Reille, a co-author of the report, told Reuters from Washington.
"There may be potential rifts because with such high valuations, you obviously want to sell even higher. And the high multiples may discourage fresh capital from coming in," he said.
SOCIAL MISSION
SKS has drawn investors including Sequoia, Kismet Capital, Unitus, venture capitalist Vinod Khosla and Infosys Technologies founder N.R. Narayana Murthy.
Vikram Akula, a former McKinsey consultant, has been named one of the most influential people by Time magazine, and SKS, which he first founded in 1997 as a non-profit, is today India's largest MFI with about 5.5 million clients.
But activists and NGOs see no reason for cheer.
"MFIs are ignoring their social mission. They have a duty to educate their clients and not lend money for buying a TV or pay dowry just to add to their loan books," said Shivia's Donnelly.
"It's the wrong path to take. It's sub-prime all over again."
There are few regulations and no accountability, they say.
"MFIs talk about their valuations, but no one talks about social performance: are we really lifting people out of poverty?" said Royston Braganza, chief executive of Grameen Capital India.
With about half a dozen big Indian MFIs contemplating IPOs, SKS' offering will be a milestone, the JPMorgan/CGAP report said, and could help advance a stalled microfinance bill in India.
"Depending on the outcome, it is quite probable that the spotlight on Indian microcredit will intensify, while triggering renewed discussion around MFIs' profitability and social impact."
Original article: http://www.business-standard.com/india/news/sks-microfinance-ipo-sparks-debate/90764/on
And the beauty is, SKS started off as an NGO. With the 'permission' of RBI it gets itself converted into a pucca Non Banking Finance company with a profit motto. No doubt, the 'money minded' investors would meet their goals - make bumper profit. For instance, one of the prime promotor Sequoia, which holds 21% stake @ Rs.49.77 per share is planning to sell one third of its holdings. That means @ the lower price band of Rs.850, it would make 17 times its money - that too in hardly 3 years plus.
This hot subject of an NGO doing business for profit motto has sparked a wide spread debate for quiet some time. One such article is furnished herewith for your kind information. We believe, it would be an interesting piece of reading.
.........Experts from Business Standard............................................
An initial public offer by SKS Microfinance is likely to set the stage for more such offers in the world's largest microlending market, but it has also sparked a debate on the ethics of profiting from the poor.
The IPO, a first in India and one of only a handful by microfinance institutions (MFIs) around the world, is expected to raise about $250-$350 million for SKS and its private equity investors.
It has drawn keen interest from countries with major microfinance industries such as Bangladesh, Mexico and South America, as well as the private equity firms who have recently piled into the sector.
But it has also drawn sharp criticism from some MFIs and non-government organisations who do not favour going to capital markets or the strong flows of private equity that have pushed up valuations.
"The job of microfinance is to alleviate poverty, so the question to ask is: who's going to benefit from the IPO?" said Olivia Donnelly, executive director of UK-based Shivia Microfinance, a non-profit firm that focuses on India and Nepal.
"It's OK to do an IPO because you need to scale up, or upgrade your IT systems, but is it correct to make millionaires out of shareholders when your borrowers are so poor?"
Microfinance has been around since the 1970s, but jumped into the spotlight in 2006 when the Nobel Peace Prize went to Bangladesh's Muhammad Yunus and his Grameen Bank, which pioneered giving tiny unsecured loans to the poor to buy cows or sewing machines.
Some Indian MFIs including SKS have switched to a for-profit model and registered as non-banking financial corporations.
MFIs' expanding client base and near-zero defaults have drawn investors ranging from Singapore's Temasek, CLSA Capital and International Financial Corp to private equity firms Sandstone Capital, Unitus and Matrix, which have put money in SKS, Share Microfin, Spandana, Ujjivan and other MFIs.
HIGH VALUATIONS
Advocates say rapid growth and the drying up of traditional sources of capital have driven MFIs to consider other options.
"When we are growing 75 percent year-on-year, the sort of equity we need to maintain 15 percent capital adequacy ratio cannot come from old-fashioned sources such as philanthropists or banks," said Vijay Mahajan, president of lobby group MFI Network.
"So we've had to move to new sources like PE, the capital market and debt instruments. This is something to be celebrated."
Sumir Chadha, managing director of private equity firm Sequoia Capital India, which holds more than a fifth of SKS, said the IPO would improve the reputation of microfinance lenders.
"MFIs tend to be regarded badly. It is very frustrating. This IPO will dramatically increase visibility and bring in greater trust for the entire MFI eco-system," Chadha said.
Earlier this year, India's finance minister said non-banking financial corporations (NBFCs), including some like SKS, can be granted banking licences, signalling a greater role for MFIs.
But India's central bank has pulled up MFIs for their high interest rates -- about 25-27 percent. That is about double the rate at which they borrow from banks, but still lower than moneylenders.
There is also criticism of high valuations, which private equity has helped push to about 5.9 times book value, or nearly three times the global average, JPMorgan and the World Bank's Consultative Group to Assist the Poor (CGAP) said in a report.
Listed MFIs, including Mexico's Compartamos, have outperformed mainstream banks, but valuations of Indian MFIs are "unsustainably high" and not justified by their recent growth or current and future earnings expectations, it said.
Delinquency levels, kept low because borrowers must repay funds before getting access to more funds, may not be sustainable. Overheating was already evident in some southern Indian states, the report said, and profitability will also decline as operating costs rise as MFIs expand outside the southern states.
Private equity's role in MFIs has also been criticised.
"PEs can bring greater efficiency, development plans and good management, but they can also create tension because investors tend to want to exit in three to five years," Xavier Reille, a co-author of the report, told Reuters from Washington.
"There may be potential rifts because with such high valuations, you obviously want to sell even higher. And the high multiples may discourage fresh capital from coming in," he said.
SOCIAL MISSION
SKS has drawn investors including Sequoia, Kismet Capital, Unitus, venture capitalist Vinod Khosla and Infosys Technologies founder N.R. Narayana Murthy.
Vikram Akula, a former McKinsey consultant, has been named one of the most influential people by Time magazine, and SKS, which he first founded in 1997 as a non-profit, is today India's largest MFI with about 5.5 million clients.
But activists and NGOs see no reason for cheer.
"MFIs are ignoring their social mission. They have a duty to educate their clients and not lend money for buying a TV or pay dowry just to add to their loan books," said Shivia's Donnelly.
"It's the wrong path to take. It's sub-prime all over again."
There are few regulations and no accountability, they say.
"MFIs talk about their valuations, but no one talks about social performance: are we really lifting people out of poverty?" said Royston Braganza, chief executive of Grameen Capital India.
With about half a dozen big Indian MFIs contemplating IPOs, SKS' offering will be a milestone, the JPMorgan/CGAP report said, and could help advance a stalled microfinance bill in India.
"Depending on the outcome, it is quite probable that the spotlight on Indian microcredit will intensify, while triggering renewed discussion around MFIs' profitability and social impact."
Original article: http://www.business-standard.com/india/news/sks-microfinance-ipo-sparks-debate/90764/on
Monday, July 26, 2010
SKS Microfinance - IPO Note
SKS Microfinance is India’s largest and the world’s fastest- growing microfinance organization with 1626 branches. It aims to empower the poor by providing them collateral-free loans for income-generation. SKS extends these loans to women who use it to scale up their enterprises and get themselves and their families out of poverty. Started in 1998 as an NGO, SKS transformed into an NBFC in 2005 and is regulated by the RBI.
Since transformation, SKS has been successful in creating a for-profit model of microfinance using commercial funds that is scalable. Delivering services at the doorsteps of its members and following clear-cut processes, SKS has been able to ensure a repayment rate of over 99 % on its loans.
Borrowers take loans for a range of income-generating activities, including livestock, agriculture, trade
(such as vegetable vending), production (from basket weaving to pottery) and new age business (photography to beauty parlours). SKS also provides members with interest-free loans for emergencies as well as life insurance and loan cover insurance to borrowers. It has a customer base of around 53 lakh people.
About the Founder:
SKS Microfinance was founded by former McKinsey consultant Dr.Vikram Akula, an NRI, in 1998. It is head quartered in Hyderabad. Dr.Vikram Akula holds a B.A. from Tufts, an M.A. from Yale, and has a Ph.D. from the University of Chicago. His Ph.D. dissertation focused on the impact of microfinance. He has received several awards for his work with SKS, including the Echoing Green Public Service Entrepreneur Fellowship.
Dr.Akula, who grew up in Schenectady, upstate New York (where father A.V. Krishna is a surgeon), encountered poverty first hand earlier while visiting relatives in Medhak. "It's a tragedy that we NRIs who can do a lot, are not doing enough. We have the skills to solve the problems,"
In the hinterland, where there are few landlines, let alone ATMs, the founder of SKS Microfinance is starting to dispense loans, typically $116, on smart cards, which its loan officers had been using to record repayments electronically.
High Profile Investors of SKS:
(1) In March 2006, SKS closed its first round of equity investment; the largest microfinance investment in India to date - $ 3.2 million from some of the world’s leading microfinance investors
(2) Second round equity investment of $11.5 million in March 2007.
(3) The third round of equity worth Rs 147 crore was raised in January 2008.
(4) In November 2008 SKS raised equity worth $ 75 million(Rs 366 crore), the largest equity raised by an MFI in the world.
(5) In July 2009, Bajaj Allianz made a strategic investment of $ 10 million(INR 50 crore) in SKS Microfinance which was the first-ever investment by an insurance company in an Indian microfinance institution.
(6) U.S. venture capital firm Sequoia, one of Google Inc. and Yahoo! Inc.’s early investors, plans to sell about a third of the SKS holding it has accumulated since March 2007 in the IPO. It began buying stake in SKS in March 2007 for Rs 49.77 per share. It now plans to sell about 40 lakh shares or less than a third of its stake
(7) George Soros’s Quantum (M) Ltd. hedge fund, which bought 300,000 shares for 636 rupees each as late as 23rd July 2010. He will hold a 0.4 percent stake after the sale, according to the prospectus.
(8) Infosys Narayana Murthy’s Catamaran Management Services Pvt. will own 1.3 percent for Rs.300 a share.
(9) Sequoia Capital India (21.8%), Sandstone (12.9%), Kismet Capital (5.7%), Tejas Ventures (2.7%), Bajaj Allianz (2.6%), SIDBI (2.8%), Narayana Murthy’s Catamaran Fund (1.6%) and Unitus (5.7%)
(10)Chairman Dr.Vikram Akula himself holds only 13% of SKS equity
Why so much craze for Micro finance:
There is an expectation that credit to the nation’s poorest may surge by more than 40 percent in a market where about 120 million households don’t have access to banking and financial services.
SKS provides loans from $22 to $260 each for women raising cows or opening a village tea stall in a nation where 828 million people live on less than $2 a day. India has an untapped credit demand of 1.2 trillion rupees, according to Crisil Ratings, the Indian unit of Standard & Poor’s.
Now What is on offer in the IPO :
(1) Price band for the issue is fixed at 850-985 rupees/share of face value of Rs.10
(2) Retail investors to get 50 rupees discount on final price
(3) The Issue will constitute 21.6% of the fully diluted post issue paid-up capital of the company
(4) At the end of the issue, this IPO would have raised as much as 16.3 billion rupees ($347 million) or Rs.1561 Crores.
(5) A 21.6 percent stake in SKS will be offered to investors, with 7.45 million new shares to be sold by the company and 9.35 million shares by existing investors.
Ofcourse there has been a critic article on SKS. We will post it later.
Engineers India - Follow on Public Issue
Engineers India (EIL) the PSU Engineering Project Consultancy & Turnkey company in which the Government of India holds 90.4%. In line with recent regulation which states that atleast 25% of any company's share should be with public, EIL has come out with a Follow on Public Issue for 10% of its holdings. After this issue the government stake in the company will fall to 80.4%.
As on June 2010, the company has a revenue growth of 55% at Rs 606.04 crore. However with operating margin eroding by 180 basis points, the growth at profit were limited and it eventually closed with a net profit of Rs 114.56 crore, a rise of 22%.
EIL has rewarded its share holders quiet healthy in the past. List of its dividends and its bonus issues are given below:
As on June 2010, the company has a revenue growth of 55% at Rs 606.04 crore. However with operating margin eroding by 180 basis points, the growth at profit were limited and it eventually closed with a net profit of Rs 114.56 crore, a rise of 22%.
EIL has rewarded its share holders quiet healthy in the past. List of its dividends and its bonus issues are given below:
Thursday, July 22, 2010
ETF's : The Facts
When compared to Demat MF's , Exchange Traded funds are far better. But the liquidity factor is a huge concern. What is the use of investing, when you cannot sell the investments at your price.
Following is an article that appeared in a magazine recently. The article is self explanatory. Plz read on:Trading volumes and turnover of equity exchange traded funds (ETFs) continue to be pathetic, in sharp contrast to the rash of ETFs that fund companies are launching
Exchange traded funds (ETFs) are coming by the dozens to the market. After a spate of gold ETFs and even a specialised index ETF by Motilal Oswal Mutual Fund, Benchmark Mutual Fund is ambitiously launching six ETFs over and above its bouquet of eight. These are IT BeES, FMCG BeES, SERVICES BeES, ENERGY BeES, PHARMA BeES, and REALTY BeES. The benchmark indices of these schemes would be CNX IT Index, CNX FMCG Index, CNX Services Sector Index, CNX Energy Index, CNX Pharma Index and CNX Realty Index respectively.
Currently there are 10 equity ETFs listed on the National Stock Exchange (NSE) and 12 on the BSE (Bombay Stock Exchange) while seven gold ETFs are traded on both NSE and BSE.
Half a decade after ETFs became a rage in international markets, they are becoming more and more popular in India. But the question is among whom? While fund companies are launching more and more ETFs, the investing public continues to ignore this product category. A cursory glance at the volumes of ETFs listed on the NSE is a testimony to this fact.
On Tuesday (20th July), the total traded quantity of 10 equity ETFs stood at 1,67,854 units with a total turnover of just Rs5.24 crore on the NSE. The ETFs launched by Benchmark Mutual Fund -'NIFTYBEES' and 'JUNIORBEES' - were the two schemes which together contributed Rs5.08 crore of this turnover. HDFC Mutual Fund and ICICI Prudential Mutual Fund have also launched their gold ETFs.
The low trading volumes were reflected in the bid ask spread. The difference between the bid price and the ask price of Reliance Banking Exchange Traded Fund (ETF) - 'RELBANK' was Rs14 with bid price or buy price at Rs947 and sell price at Rs961.
Similarly 'PSUBNKBEES' had a spread of Rs5 with bid price at Rs388 and sell price of Rs393 on a turnover of just Rs40,000. At 2.50pm (20th July) on the NSE, UTI Mutual Fund's 'UTISUNDER' recorded only one trade worth Rs1,000. In the event of market volatility the difference between this spread will be even more. There is a direct co-relation between the spread and volumes. The lower the volumes the higher will be the spread (difference between selling price and buying price). Just as a matter of comparison, Nifty Index Futures trades at a spread of 10-20 paise on a price of over Rs5,400. In the options market, the liquidity and trading volumes are so high that the price difference is just about 30 paise.
The huge gap in bid ask prices was also visible in gold ETFs. For instance, the 'RELIGAREGO' order book had a buy price of Rs1,816.50 and sell price of Rs1,835, a difference of Rs18.50 with turnover of just Rs2.22 lakh. The assets under management (AUM) of all gold ETFs put together were marginally higher at Rs1,939 crore as on June 2010. The seven gold ETFs recorded a turnover of Rs17.35 crore on the NSE on 20th July with a total of 97,395 contracts traded.
"Index funds and ETFs are the best way to invest for a long-term perspective but they are yet to catch up in India. That is the reason why volumes are poor. There is no retail penetration. The volumes will not be there if there's no retail participation. Institutional volume is slowly picking up. A few banks which are open to the idea of buying ETFs are already doing some transactions," said RL Narayanan, vice president - equity & institutional sales, Bonanza Portfolio Ltd.
The concept of ETFs is new among retail investors. Industry experts cite poor commission as the primary reason behind the low awareness of these products. ETFs are cheaper for investors. An ETF carries 1.50% annual recurring expense compared to 2.50% which an equity fund can charge to its scheme. ETFs also do not carry an exit load unlike other schemes. As on June 2010, the AUM of ETFs stood at just Rs1,135 crore (excluding gold ETFs).
"Benchmark Mutual Fund is usually into ETFs so people are more aware about it. The awareness about other big fund houses which have launched ETFs in the recent past is not much. Even if they are aware they like to buy traditional equity funds. Buying a traditional fund is convenient than buying an ETF at the moment," said Y Jawahar, VP - head, distribution, Mata Securities.
Link to original article: http://www.moneylife.in/article/8/7384.html
Following is an article that appeared in a magazine recently. The article is self explanatory. Plz read on:Trading volumes and turnover of equity exchange traded funds (ETFs) continue to be pathetic, in sharp contrast to the rash of ETFs that fund companies are launching
Exchange traded funds (ETFs) are coming by the dozens to the market. After a spate of gold ETFs and even a specialised index ETF by Motilal Oswal Mutual Fund, Benchmark Mutual Fund is ambitiously launching six ETFs over and above its bouquet of eight. These are IT BeES, FMCG BeES, SERVICES BeES, ENERGY BeES, PHARMA BeES, and REALTY BeES. The benchmark indices of these schemes would be CNX IT Index, CNX FMCG Index, CNX Services Sector Index, CNX Energy Index, CNX Pharma Index and CNX Realty Index respectively.
Currently there are 10 equity ETFs listed on the National Stock Exchange (NSE) and 12 on the BSE (Bombay Stock Exchange) while seven gold ETFs are traded on both NSE and BSE.
Half a decade after ETFs became a rage in international markets, they are becoming more and more popular in India. But the question is among whom? While fund companies are launching more and more ETFs, the investing public continues to ignore this product category. A cursory glance at the volumes of ETFs listed on the NSE is a testimony to this fact.
On Tuesday (20th July), the total traded quantity of 10 equity ETFs stood at 1,67,854 units with a total turnover of just Rs5.24 crore on the NSE. The ETFs launched by Benchmark Mutual Fund -'NIFTYBEES' and 'JUNIORBEES' - were the two schemes which together contributed Rs5.08 crore of this turnover. HDFC Mutual Fund and ICICI Prudential Mutual Fund have also launched their gold ETFs.
The low trading volumes were reflected in the bid ask spread. The difference between the bid price and the ask price of Reliance Banking Exchange Traded Fund (ETF) - 'RELBANK' was Rs14 with bid price or buy price at Rs947 and sell price at Rs961.
Similarly 'PSUBNKBEES' had a spread of Rs5 with bid price at Rs388 and sell price of Rs393 on a turnover of just Rs40,000. At 2.50pm (20th July) on the NSE, UTI Mutual Fund's 'UTISUNDER' recorded only one trade worth Rs1,000. In the event of market volatility the difference between this spread will be even more. There is a direct co-relation between the spread and volumes. The lower the volumes the higher will be the spread (difference between selling price and buying price). Just as a matter of comparison, Nifty Index Futures trades at a spread of 10-20 paise on a price of over Rs5,400. In the options market, the liquidity and trading volumes are so high that the price difference is just about 30 paise.
The huge gap in bid ask prices was also visible in gold ETFs. For instance, the 'RELIGAREGO' order book had a buy price of Rs1,816.50 and sell price of Rs1,835, a difference of Rs18.50 with turnover of just Rs2.22 lakh. The assets under management (AUM) of all gold ETFs put together were marginally higher at Rs1,939 crore as on June 2010. The seven gold ETFs recorded a turnover of Rs17.35 crore on the NSE on 20th July with a total of 97,395 contracts traded.
"Index funds and ETFs are the best way to invest for a long-term perspective but they are yet to catch up in India. That is the reason why volumes are poor. There is no retail penetration. The volumes will not be there if there's no retail participation. Institutional volume is slowly picking up. A few banks which are open to the idea of buying ETFs are already doing some transactions," said RL Narayanan, vice president - equity & institutional sales, Bonanza Portfolio Ltd.
The concept of ETFs is new among retail investors. Industry experts cite poor commission as the primary reason behind the low awareness of these products. ETFs are cheaper for investors. An ETF carries 1.50% annual recurring expense compared to 2.50% which an equity fund can charge to its scheme. ETFs also do not carry an exit load unlike other schemes. As on June 2010, the AUM of ETFs stood at just Rs1,135 crore (excluding gold ETFs).
"Benchmark Mutual Fund is usually into ETFs so people are more aware about it. The awareness about other big fund houses which have launched ETFs in the recent past is not much. Even if they are aware they like to buy traditional equity funds. Buying a traditional fund is convenient than buying an ETF at the moment," said Y Jawahar, VP - head, distribution, Mata Securities.
Link to original article: http://www.moneylife.in/article/8/7384.html
Wednesday, July 21, 2010
Demat Mutual Fund Units
Mutual Funds are in transition mode : struck somewhere inbetween. Recent regulation by SEBI allowed MF Units to be held in demat mode. Here is a list of FAQ regarding the process and operations of MF's in demat mode.
We interacted with few clients. Following are some of their views:
1) Demated units will lose their transaction history: Right now in physical mode, you get the list of all the transaction done in a mutual fund folio. But under the new demat mode, only the units will be transmitted, not the transaction history.
2) Selling Demat MF's seem to be a cumbersome process (Refer Point number 18).
Looks like, we can wait for the system to stabilize before rushing for demating existing MF's.
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We interacted with few clients. Following are some of their views:
1) Demated units will lose their transaction history: Right now in physical mode, you get the list of all the transaction done in a mutual fund folio. But under the new demat mode, only the units will be transmitted, not the transaction history.
2) Selling Demat MF's seem to be a cumbersome process (Refer Point number 18).
Looks like, we can wait for the system to stabilize before rushing for demating existing MF's.
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Monday, July 19, 2010
Outperformer of the Month: Capital Goods
BSE CAPITAL GOODS WHICH WAS ONE OF THE LAGGARDS TILL MAY 31, 2010 IS NOW A TOP PERFORMING SECTOR FROM JUNE 1, 2010 TILL JULY 15, 2010.
VIEWS ON INFRASTRUCTURE GROWTH ARE TURNING BULLISH WITH A SLEW OF REFORMS BEING ANNOUNCED BY GOVERNMENT OF INDIA. IN THE LAST 1 MONTH ON ABSOLUTE BASIS INFRA FUNDS RETURN IS SIMILAR OR CLOSE TO DIVERSIFIED FUNDS RETURN.
(1) AWARD OF ROAD PROJECTS
(2) LIBERALISATION OF BANK LENDING TO INFRASTRUCTURE COMPANIES
(3) REDUCTION IN FISCAL DEFICIT OF GOVERNMENT / FREEING UP RESOURCES TO BE SPENT ON DEVELOPMENT AGENDA (3G AUCTIONS, DEREGULATION OF OIL / REDUCTION IN SUBSIDIES)
(4) HUGE INFRA SPEND IN 12TH 5 YEAR PLAN (ESTIMATED AT RS. 27 TN) WILL OBVIOUSLY LEED TO ORDER FLOW FOR CONTRACTORS, ENGINEERING AND PROCUREMENT COMPANIES,
(5) CONSTRUCTION COMPANIES, CAPITAL GOODS, CEMENT ETC)
(6) HUGE POWER GENERATION CAPACITY TO BE ADDED IN NEXT 5 YEARS
(7) AT LEAST 15 AIRPORTS TO GET FACELIFT AND NEW PORTS TO BE COMMISSIONED
PERCEPTION OF INDIA IS FAST CHANGING IN INTERNATIONAL MARKETS: THIS IS PARTLY DUE TO
(1) NEW SYMBOL FOR RUPEE
(2) LAUNCH OF DELHI INTERNATIONAL AIRPORT T3, AMONGST THE LARGEST IN THE WORLD
(3) INDIAN MARKET PERFORMANCE THROUGH EUROPEAN TURMOIL, ONLY MARKET NOT TO FALL - PEOPLE HAVE LEARNT FROM OUR PERFORMANCE AFTER SUBPRIME CRISIS (BEST PERFORMING STOCK MARKET IN THE WORLD) SO THIS TIME THEY ARE NOT LIKELY TO MAKE MISTAKE OF SELLING OUT OF A MARKET THAT IS HARDLY IMPACTED BY GLOBAL TURMOIL.
Source of above mentioned information : ICICI Pru Asset Management Company, India
VIEWS ON INFRASTRUCTURE GROWTH ARE TURNING BULLISH WITH A SLEW OF REFORMS BEING ANNOUNCED BY GOVERNMENT OF INDIA. IN THE LAST 1 MONTH ON ABSOLUTE BASIS INFRA FUNDS RETURN IS SIMILAR OR CLOSE TO DIVERSIFIED FUNDS RETURN.
(1) AWARD OF ROAD PROJECTS
(2) LIBERALISATION OF BANK LENDING TO INFRASTRUCTURE COMPANIES
(3) REDUCTION IN FISCAL DEFICIT OF GOVERNMENT / FREEING UP RESOURCES TO BE SPENT ON DEVELOPMENT AGENDA (3G AUCTIONS, DEREGULATION OF OIL / REDUCTION IN SUBSIDIES)
(4) HUGE INFRA SPEND IN 12TH 5 YEAR PLAN (ESTIMATED AT RS. 27 TN) WILL OBVIOUSLY LEED TO ORDER FLOW FOR CONTRACTORS, ENGINEERING AND PROCUREMENT COMPANIES,
(5) CONSTRUCTION COMPANIES, CAPITAL GOODS, CEMENT ETC)
(6) HUGE POWER GENERATION CAPACITY TO BE ADDED IN NEXT 5 YEARS
(7) AT LEAST 15 AIRPORTS TO GET FACELIFT AND NEW PORTS TO BE COMMISSIONED
PERCEPTION OF INDIA IS FAST CHANGING IN INTERNATIONAL MARKETS: THIS IS PARTLY DUE TO
(1) NEW SYMBOL FOR RUPEE
(2) LAUNCH OF DELHI INTERNATIONAL AIRPORT T3, AMONGST THE LARGEST IN THE WORLD
(3) INDIAN MARKET PERFORMANCE THROUGH EUROPEAN TURMOIL, ONLY MARKET NOT TO FALL - PEOPLE HAVE LEARNT FROM OUR PERFORMANCE AFTER SUBPRIME CRISIS (BEST PERFORMING STOCK MARKET IN THE WORLD) SO THIS TIME THEY ARE NOT LIKELY TO MAKE MISTAKE OF SELLING OUT OF A MARKET THAT IS HARDLY IMPACTED BY GLOBAL TURMOIL.
Source of above mentioned information : ICICI Pru Asset Management Company, India
Wednesday, July 14, 2010
Investing with Automated Profit Booking
Everyone of us invest with profit motto in mind. Some may have 10%, some others may have 20% etc. So far we keep our eyes open and once the invesment appreciates by relevant percentage, we manually book our profits.
Now in mutual fund, we can automate this. No need to keep our eyes open. Once the target is reached, the profit booking is done automatically.
We have frequently been covering the various emerging flexibilities of investing through Mutual fund. We are updating the latest developments in this regards. Kindly click the picture below.
Now in mutual fund, we can automate this. No need to keep our eyes open. Once the target is reached, the profit booking is done automatically.
We have frequently been covering the various emerging flexibilities of investing through Mutual fund. We are updating the latest developments in this regards. Kindly click the picture below.
Tuesday, July 13, 2010
Futures & Options : Lot Size Details
Margin Trading or Leaverage trading is possible in india through Futures and Options trading also known as derivatives trading. Unlike investing in stock market, we cannot buy any quantity of our choice, but we need to pick in one or more lot's. Many investors would be looking for the lot size of stocks to take appropirate exposures. Here is the list :
Monday, July 12, 2010
All about Market Cap's
Many a times, we come across the term 'Large cap', 'Midcap' etc. Though we may understand this terms to certain extent, here is the accurate explanation for the same.
Before that, Market capitalization (market cap in short) is the total current value of the company. This means the total number of shares multiplied by current market price per share.
Top 100 companies is taken broadly as the border for Large Cap companies. As mentioned in the picture below, any company whose current value is Rs11,132 crores and above, are included in the large cap sector.
Similar is the boundry for Mid and small cap.
Any mutual fund which invests only in Large cap companies are called Large Cap Funds. Similar is the case for Mid and small cap. And any fund which invest in all the market cap stocks are called as Multicap Funds.
In general, Large cap companies are grown up. Mid cap are fast growing and small cap are budding companies. The risk profile varies between these stocks : Highest risk for a small cap and relatively lower risk for a large cap.
Before that, Market capitalization (market cap in short) is the total current value of the company. This means the total number of shares multiplied by current market price per share.
Top 100 companies is taken broadly as the border for Large Cap companies. As mentioned in the picture below, any company whose current value is Rs11,132 crores and above, are included in the large cap sector.
Similar is the boundry for Mid and small cap.
Any mutual fund which invests only in Large cap companies are called Large Cap Funds. Similar is the case for Mid and small cap. And any fund which invest in all the market cap stocks are called as Multicap Funds.
In general, Large cap companies are grown up. Mid cap are fast growing and small cap are budding companies. The risk profile varies between these stocks : Highest risk for a small cap and relatively lower risk for a large cap.
Sunday, July 11, 2010
What to Buy / What to Sell ?
Indian stock market has been hovering at 16000 plus or minus 1000 points, since september 2009. While many may think that the market has not moved at all, lots of stock specific actions have been happening all along. And they are bound to happen in the near future too.
To assist investors, at EASY Investments, we did compile a long list of stocks with buy sell recommendations with possible price targets in the next 12 months. May be this is of some help to make some investment decisions.
Note: These recommendations are based on EPS growth, Price to Book value, Dividend Yield and Return on Equity. To minimize confusion in the report, we are providing only the end result. If you wish to see the complete analysis, do email us at : easyinvest@gmail.com. We would be happy to share the information.
To assist investors, at EASY Investments, we did compile a long list of stocks with buy sell recommendations with possible price targets in the next 12 months. May be this is of some help to make some investment decisions.
Note: These recommendations are based on EPS growth, Price to Book value, Dividend Yield and Return on Equity. To minimize confusion in the report, we are providing only the end result. If you wish to see the complete analysis, do email us at : easyinvest@gmail.com. We would be happy to share the information.
Sector Scan : Power Industry
If India continues to grow at an average rate of 8% for next 10 years, the country's demand for power is likely to soar from around 120 Giga Watts (GW) at present to 315GW by 2017. Four key factors will drive this demand:
(1) India's manufacturing sector is growing faster than the past.
(2) Residential consumption may grow at 14% over next 10 years.
(3) Connection of 1,25,000 villages to grid under Power for all by 2012.
(4) The realisation of demand is supperessed due to load shedding.
To fulfill all these requirements (estimated to be about 355 GW) by 2017, India will require power generation capacity of 415 to 440 GW after adjusting for transmission loss etc. This implies trippling of power capacity from 120 GW. This inturn translates into an addition of about 40 GW per annum, which is a 10 fold increase from 4GW per year that was achieved for last 10 years.
But all these constaints are no execuse to development. This is a budding opportunity which is likely to benefit the first mover. Some of them could be:
(1) Integrators : Market inefficiencies and bottlenecks suggest that integration by players into critical bottlenecked part of value chain would be beneficial. For instance, large generation players can win by integratinginto fuel and EPC which will allow them to bid aggressively, win competitive projects and establish a low cost positions.
(2) Specialist: There are two forms of specialists. First, the players who have deep operational expertise and capabilities in a specific segment : such players will succeed since there is a need for significant performance improvement in a particular segment. Such specialists will include world-class players in distribution, generation or mining and project specialists. Second, players who focust relatively small and potentially valuable opportunities to build a strong positions : like companies that develop load centre based peaking plants, serve the captive power market or provide specialised services like demand side management.
(3) Regional Entrepreneurs: These play in multiple parts of the value chain but predominantly work in a few geographies. Such companies will create value by developing a deep understanding of conditions in the region and leverating their strong relationship with stake holders and get access to previleged resources.
In a nutshell, the power sector will provide one of the biggest avenues to participate in the development of india's infrastructure. No doubt, there are multiple challenges and risks. But those who could plan and foray would make an early entry will be at a significant advantage to others who enter this sector once it is reformed.
(1) India's manufacturing sector is growing faster than the past.
(2) Residential consumption may grow at 14% over next 10 years.
(3) Connection of 1,25,000 villages to grid under Power for all by 2012.
(4) The realisation of demand is supperessed due to load shedding.
To fulfill all these requirements (estimated to be about 355 GW) by 2017, India will require power generation capacity of 415 to 440 GW after adjusting for transmission loss etc. This implies trippling of power capacity from 120 GW. This inturn translates into an addition of about 40 GW per annum, which is a 10 fold increase from 4GW per year that was achieved for last 10 years.
But all these constaints are no execuse to development. This is a budding opportunity which is likely to benefit the first mover. Some of them could be:
(1) Integrators : Market inefficiencies and bottlenecks suggest that integration by players into critical bottlenecked part of value chain would be beneficial. For instance, large generation players can win by integratinginto fuel and EPC which will allow them to bid aggressively, win competitive projects and establish a low cost positions.
(2) Specialist: There are two forms of specialists. First, the players who have deep operational expertise and capabilities in a specific segment : such players will succeed since there is a need for significant performance improvement in a particular segment. Such specialists will include world-class players in distribution, generation or mining and project specialists. Second, players who focust relatively small and potentially valuable opportunities to build a strong positions : like companies that develop load centre based peaking plants, serve the captive power market or provide specialised services like demand side management.
(3) Regional Entrepreneurs: These play in multiple parts of the value chain but predominantly work in a few geographies. Such companies will create value by developing a deep understanding of conditions in the region and leverating their strong relationship with stake holders and get access to previleged resources.
In a nutshell, the power sector will provide one of the biggest avenues to participate in the development of india's infrastructure. No doubt, there are multiple challenges and risks. But those who could plan and foray would make an early entry will be at a significant advantage to others who enter this sector once it is reformed.
Midcap Infrastructure valuation
Following is a list of lesser known, fast growing infrastructure companies. May be some of them could become multibaggers in the days to come.
Thursday, July 8, 2010
Wealth Advisor Awards :
Kindly click the picture below to enlarge:
Original link for these article is: http://www.wealthforumezine.net/awardssrc250610.html
Original link for these article is: http://www.wealthforumezine.net/awardssrc250610.html
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