David or Goliath?
Despite the emotional drift, it’s a hard choice out there

“To achieve ‘satisfactory’ investment results is easier than most people realize; to achieve ‘superior’ results, harder than it looks,” noted economist Benjamin Graham – also hailed as the father of value investing – couldn’t have been more bang on right when he authored this magnanimously quoted statement. But before appreciating this statement, you have to decide whether you wish to be on that part of the barn that is ‘satisfactorily’ green, or the part that is ‘enviously’ and supremely greener! Surprisingly, many retail investors would prefer the ‘satisfactorily’ green side, given the lesser associated risk return ratio. And this ‘satisfactory’ side in the stock markets is surely the small and mid-cap stocks segment that has performed relatively better and stabler in a market whenever there were depressingly negative returns. So, why have the large-cap stocks moved en masse, whether up or down? Quoted Amit Saxena, CEO, Planman Financial to us, “The reason is because FIIs have heavily invested in the large-cap stocks. Add to this the fact the major indices move only because of FIIs selling or buying. When it came to mid-cap and small-cap companies, the universe has been very wide. Different funds have different positions and weightages; thus stabilising out the fall or rise.” Truly, when it comes to large caps, most of the FII funds have more or less the same set of stocks. As a result, when frontline counters begin to fall, many fund schemes get affected together.

Giving the other viewpoint, Anil Mascarenhas, Editor, India Infoline, revealed to us, “The advantage with sticking to a large-cap stock in bearish phases is when conditions improve; money will first get into the large stocks.” Saxena of Planman Financial rebuff ed, “And when conditions worsen, money will first get out of largestocks.” Rightly said, in times of correction, those surely are the large-cap stocks that feel the brunt, more due to the profi le of investors being the same (FIIs) rather than simply due to the market capitalization of such stocks being large. Interestingly, over the shorter term, FIIs have also started taking positions in mid-cap firms that could well be potential multi-baggers or potential large-caps of tomorrow. Girish Solanki, Research Analyst, Angel Broking Ltd., put across the long-term viewpoint to B&E, “I think that the mid-cap and, say, the Sensex companies in general always have had a valuation gap; and they rightly should have. But then, this (valuation gap) need not apply to all stocks. The company that will stand out – whether it is a mid-cap or a large-cap – is the one that finally delivers (operationally, that is).” Yes, the key is surely to identify a stock with a medium to long term horizon than depend on short term market dynamics. Small aberrations in prices always get corrected while moving ahead. If there is value, as Girish of Angel Broking puts it, the market is sure to recognize it at some point in time. And like Benjamin Graham orated, investors need to make a proper asset allocation depending upon their risk appetite and investment horizon. And what about us? Hmm, fi rst of all, we guess we need to save money!

Let’s simply call SEBI our favourite
..rather than keeping on criticising it, eh!

(column by A. Sandeep)

One look at the bloopers that are being committed by my favourite current punching ‘hag’, SEBI, in the recent past is perhaps enough justification for my statement above; for I keep wondering how much can one regulator get wrong? It was a few months ago that SEBI had announced its ostensibly ‘meritorious’ IPO grading system, which it claimed would play a decisive role in helping retail investors take ‘informed’ decisions. So what if no other regulator in the world had ever started such a truant IPO grading system? Let’s see where has it led our dear old IPOs – two recent examples exemplify the issue. Based on SEBI’s IPO rating diktat, Shree Ashtavinayak Cine Vision Ltd. went to one of the leading rating agencies, Crisil. Imagine its surprise when Crisil awarded it a below average grading of 2 out of 5. So what happened? The scrip listed at a premium of 18% and ended its first day with a rewarding premium of 42%. Currently, the stock is trading at a smashing Rs.378 against the issue price of Rs.160, defying SEBI’s rating logic hands down! Such examples are splattered throughout. Take for example CARE, another leading rating agency, which ranked Orbit Corporation’s IPO on a grade of 1 out of 5 (citing ‘poor fundamentals’). Look at the end result – issue price of Orbit Corporation was Rs.110; the scrip ended the first day at a premium of 16.36%. Current price is a whopping Rs.481! Phew... So much for SEBI’s historic IPO rating system. So, who takes the blame? Does the fault lie with CARE, Crisil and other rating agencies? Of course not! The fault lies with SEBI, period! Th ere’s obviously an extremely sane reason why regulators throughout the world have never implemented such an IPO grading system. Equity and risk are inherently linked. The market price is the grading of an IPO, rather than some God-suggested number given by a rating agency. The faster SEBI realises that, the sooner this hollow rating premise will be stopped. Perhaps, for a change, SEBI should start focusing more on bringing criminals to book than on treating us as guinea pigs. Till then, SEBI remains my favourite... ‘irregulator’!

(End of A. Sandeep column)

Stock ‘boom’!
Bomb blasts improve index!!!

This one has us foxed as well! What do you think should happen to stock markets after any bomb blast? They should tank and plunge, right? Wrong! In a shocking and eye-opening analysis of 11 major bomb blast instances from the March 1993 Mumbai serial blasts to the recent August 2007 Hyderabad blast, when the whole of India came to standstill, B&E was taken aback to find out that stock markets regularly showed their utterly tasteless and morbid response to these blasts by going against the general sentiments and actually going up! Moving in the reverse chronological order – Hyderabad bomb blast on August 25, 2007 made the Sensex gain a massive 418 points the next working day itself; May 18, 2007, a blast in IT hub Hyderabad made the markets zoom up by 115 points; July 11, 2006, a sickening train blast in India’s commercial capital – Mumbai – left 187 dead. No marks for guessing how stock markets responded? 316 points gained! October 29, 2005, blasts in New Delhi, 61 people dead, the index shot up by 207 points. Analytically, there have been just three instances in the last 11 major blasts when the Sensex dipped; the rest 8 times, the Sensex has gained a thundering cumulative of 1,374 points – that means a cool 172 points on every bomb blast, what to talk about on every dead body. Rajesh Jain, Head, SMC Global, opined to B&E, “Negative news tends to get discounted very fast. Small investors usually panic in such events and sell, whereas institutional investors start picking up stocks – that’s the main reason for stock markets picking up.” Whatever the reason, it remains a sick discovery in itself that there are entities waiting to cash in on bomb blasts!