Here’s the other side
Rupee increase! Is anybody gaining?

The case of the appreciating rupee is as strong as the concerns expressed by the exporters & companies which derive a major part of their revenues from overseas. However, in this whole bunch of distressed customers, is a lot which seems to be rejoicing. Well, those are the firms that relied much on dollar borrowings, as interest expenditure on such dollar borrowings in rupee terms has reduced; hence the servicing of overseas debt has become cheaper to a large extent.

Companies like HDFC, Bharti-Airtel, Lafarge, Jindal Steel & Power & Jaiprakash Associates have significant overseas borrowings. Even in pharma – where companies like Ranbaxy, Sun Pharma, Lupin & Jubilant Organosys have collectively raised almost $1.1 billion by way of ECB/ FCCBs – the gains are huge. As Malvinder Singh, CEO, Ranbaxy, accepts to B&E, “Out of $500 million of foreign debt that we have, close to $440 million is by way of FCCBs, & as the rupee appreciates, it will definitely work in our favour.” Top CLSA Analyst, Anshu Govil, confirms the same, “Ranbaxy, with signify cant exposure, will have to set aside lower amounts to service the foreign debt.” The Q2 results of Ranbaxy, which surprisingly show smashing forex gains of Rs.2.014 billion, are a clear testimony.

Some companies were even smarter. Firms like ICICI & L&T were quick to take advantage of cheaper interest rates prevailing in Japan & borrowed massively in yen. For them, it was a double delight as the rupee appreciated as much as 17% against the Japanese yen in the last one year & almost 11% since the beginning of this year. Why couldn’t our other firms take advantage of such cross country hedging? The answer might seem too simplistic, but is in reality true. When was the last time you heard of RBI – like other central banks – conducting a treasury workshop for Indian firms? We have a small advice for RBI: just do it!

Not funny at all
NFOs fail to deliver big-time

(column by Gyanendra Kashyap)

Contra funds, infrastructure funds, core sector funds, India advantage funds, emerging India funds, mid-cap funds... Ouch!!! Funds of all shades & colours have hit the market & Asset Management Companies (AMC) have left no stone unturned to create a hype. Yet, for the uninitiated, the reality is that the performance of various schemes vis-à-vis benchmarks has been utterly pathetic.

It’s true that the oft en cited Assets Under Management (AUM) figure, used to lure customers into the fold, is by no means a true reflector of the performance of the funds, for it is neither the size nor the sect oral orientation that guarantees better performance. Nevertheless, even the prominently cited AUM figure has seen a drastic dip as compared to initial collections. Many of the schemes have witnessed a staggering 50% drop in their AUM figures since inception.

Well, the reasons for this tumble are simple – more than the fresh influx of funds, it is the money moving out from the existing funds to the newly launched New Fund Offers (NFO). Over the past one & half years, the market has been witnessing a bull run with Sensex thundering across the 15,000 milestone; but to the agony of investors, more than 60% of the NFOs have had a trailing record against their benchmarks (the table alongside has startling performance results). UTI Contra, Tata Contra, Sundaram BNP, Stanchart Classic, SBI, Reliance, Magnum, take a name & we’ll show you blood on Dalal Street. Gauri Magar of Arihant Capital Market, puts across her views while speaking to B&E, “They are changing their portfolio on a monthly basis, investors are looking for short term gains & hence you have AUMs eroding, NFOs must be looked as a long term investment...” Easier said than done. If one year is not considered long term, then pray, tell us what else can be?

(End of Gyanendra Kashyap column)

The Gold & The Beautiful!
Why is it that people still don’t invest in gold mutual funds? Well, if you think otherwise, ask yourself, have you?

(column by Sunanda Roy)

What if on your next wedding anniversary, your well read wife quite sweetly tells you to gift her jewellery in the form of a mutual fund, & that too in a demat form?!?! Yes, we know, you’ll think she’s finally gone off her rockers completely. Not that you would have required such an intellectual reason to accuse her of that infirmity, but we’d still advise you to delay calling your marriage lawyer that fast dear cowboy Clint, for your horses might quite not be that well lettered.

For it’s not just investing in gold with mutual funds that’s jiving up the domestic Indian markets currently, but also that of doing the same in a dematerialized form. And for starters, there are three in a row to do the honours for your wife in the gold Exchange Traded Fund (ETF) arena – Benchmark Asset Management Company (the first to launch a gold fund), UTI Asset Management Company, followed by Kotak Asset Management Company.

Benchmark started off with an initial corpus of about Rs.1 billion (in its fund titled Gold BeES); & from thereon, “we have got a very good response... Since the listing, the number of investors has increased over 70% & the number of units by over 30%, & that too in just about three months,” thumped Rajan Mehta, Executive Director, Benchmark Asset Management, to B&E. R Raja, Sr. Vice President, UTI Asset Management Company, was as equally excited, “From initial corpus of 1,399 kgs, our corpus has swollen to 1,581 kgs as on July 17, 2007”.

Though Ritesh Jain, Head-Fixed Income, Kotak Mahindra AMC (initial corpus Rs.400 million), stated dejectedly to B&E, “The response has been a tad lower than our expectations as the collections that we have garnered could have been higher by another 20-25%.” And there lies the most critical question. Should a 30% increase in units (as in Benchmark’s case), or a 181 kg increase in gold asset holdings (as in UTI’s case) really be a cause to rejoice? The factual answer is, as Kotak would vindicate, an obvious no! It’s quite clear that customers are not investing that avidly in gold ETFs. Is a fear of volatility, or the rising Sensex the reason? Benchmark’s Mehta disagreed, saying, “Correlation of gold is very low with equity markets; a gold ETF actually provides stability to the portfolio.” Jain of Kotak gave a supporting perspective, “Since the time we have launched our product, gold has reached $666 levels from $640 levels (upside of 3.5%) & correspondingly, Sensex has moved from 14,500 to 15,500 level (upside of 7%).” Considering the amazingly low risk attached with investing in gold, even a return that is half of that in equity markets is quite respectable.

Th e truth is, investors are simply not aware of gold ETF schemes. “The awareness of this type of investment vehicle is still low. Also, if the exchange traded funds have to reach the rural public & masses, things like, account opening procedures & documents should be kept simple,” says S.I. Kannan, analyst with Kotak Commodities.

Unless SEBI, AMFI & our Finance Ministry take proactive steps in educating investors about such a terrific investment vehicle, gold ETFs would remain dismally unknown.

(End of Sunanda Roy column)

Let’s bow down to SEBI in shame
SEC convicts 1,236 in 5 years; SEBI, er, none?

Well, that must be an exaggeration, right? How could SEC (through the Corporate Fraud Task Force; July 26, 2007 data) tout 1,236 final convictions in the past five years, while SEBI have very few? Shamefully, the fact is that not only does SEBI have less than a handful of convictions annually to boast of, but also that even the number of investigation cases being completed has declined by a massive 55% (from 179 in 2005 to a pathetic 81 in 2006), & that too when all indices are rocking up to historical highs!

Be it the IPO scam, wherein SEBI issued interim orders against Indiabulls & Karvy, or be it the decision to ban Ketan Parekh, or the promoters of Adani Enterprises from entering capital markets, due to the utterly shallow prosecution procedures of SEBI, firms have found it too easy to get stays on orders issued by the regulator (On July 14, 2007, SEBI suffered another of the by-now-familiar nose cuts when Securities Appellate Tribunal – SAT – set aside SEBI’s order against Adani). In fact, some top examples are as follows – SAT had set aside SEBI’s order suspending the registration of broking firm First Global Stock Broking. SAT had also set aside SEBI’s order banning the former Chief Investment Officer of Alliance Mutual Fund, Sameer Arora, from dealing in the securities market for five years (SAT even verbally humiliated then SEBI chief G.N. Bajpai for his public statements against Sameer Arora, while the matter was being investigated).

This at a time when the US Corporate Fraud Task Force, in the past five years, has succeeded in superbly convicting a total of 214 CEOs & Presidents, 53 CFOs, 23 Corporate Counsels or attorneys, & 129 Vice Presidents. Each one of the high profile convictions of SEC (from Kenneth Lay to Computer Associates) has resulted in jail terms exceeding an average of ten years! Now digest this. Any party aggrieved by SAT’s orders can file an appeal within 60 days (Section 15Z). In the last year, guess which was that one entity that filed 83% of all the appeals against SAT rulings? Of course, SEBI! Bow down your heads, guys!

Hit me baby...
Did FM succeed in hitting realty?

(column by Gyanendra)

The Finance Minister had blamed the realty beast for driving inflation; & had subsequently increased interest rates. Now comes recent evidence that it worked, though the beast, as our B&E Sector feature comments, lives on!

Flush with foreign funds, while the industry has grown overall at 30% & emerged as one of the backbones of Indian economy, the sector’s realty index at BSE has remained low. And this despite the fact that a real estate major like DLF has amazingly already crossed the Rs.1 trillion mark in m-cap. While the Sensex & Nifty were thundering up to historical highs, the realty index morbidly slumped by 1.31% last week. Nine out of eleven stocks that constitute the index, marked declines, with the only exceptions being Indiabulls Real Estates & Phoenix Mills. But the question is, in the days to come, will realty stocks experience a further slowdown, as what with interest rates & disclosure norms continuing to act as dampeners. Satish Kannav of Arihant Capital Market, differs. Speaking to B&E, he asserted, “Inflation & interest rates are not going to cause much of impact. Contribution of real estate firms to the economy is going to be tremendous & the sector will see faster growth in Tier II & III cities.” Agrees Amit Saxena, CEO, Planman Financial, “Inflation is controlled, & interest rates won’t be hiked now; so realty can take a positive reality check now.”

Index or no index, one doesn’t need a soothsayer to know that the realty sector lives to fight another day.

(End of Gyanendra column)