India Needs Land Price Balance

By Dhruva Jyoti Chowdhury

Kolkata, India: While the unchecked speculation in North India has resulted in a price correction, other parts of the country have not witnessed a change in prices as yet.

Increasing the supply of land – which constitutes about 50 percent of the total project cost at present and is largely responsible for high prices – holds the key to affordable housing. This was the consensus that emerged at the Real Estate Conference organized by Confederation of Indian Industry (CII ) recently.

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Parag Munot, Executive Director, Kalpataru Properties Pvt Ltd., pointed out that while demand has gone up real estate supply and infrastructure have not improved. Ashish Raheja, Managing Director, K Raheja Universal Pvt Ltd., said that while the current pricing will not come down, affordability is an issue.

Sunil Rohokale, General Manager - Head Mortgages and Real Estate, ICICI Bank Ltd., explained that demand is always outstripping supply in the mortgage industry with too many people chasing the same asset.

Sunil Mantri, Chairman, Mantri Group, opined that the current slackness in the market would disappear after September with the Dussera-Diwali period commencing whereas Harshavardhan Neotia, Director, Bengal Ambuja Housing Development Ltd., pointed out that very few developers find low income and middle income housing viable in the present scenario. The government needs to let developer’s access land at cheaper prices, he said.

Dharmesh Jain, Chairman & Managing Director, Nirmal Group of Companies emphasized that until supply increases, the concept of reducing prices will remain just a mirage. Until one flat is chased by ten buyers this problem will remain, he said. Similarly Ramesh Jogani, Chief Executive Officer & MD, Indiareit Fund Advisors Pvt Ltd., stressed that affordability and banks introducing liquidity in the system were the major issues at present. The government needs to promote large format schemes with a specified time period. Anuj Puri Conference Chairman & Chairman and Country Head, Jones Lang LaSalle Meghraj, said that while the unchecked speculation in North India has resulted in a price correction, other parts of the country have not witnessed a change in prices as yet.

Advocate Anil Harish, D M Harish & Co felt that the emphasis should be on creation of new areas with infrastructure and facilities rather than further developing existing urban areas while K Srinivas, Managing Director, Gujarat Urban Development Co. Ltd., highlighted the fact that close to 50% of ‘close to urban’ areas can be urbanized but are not put to urban use.

Ness Wadia, Jt Managing Director, The Bombay Dyeing & Mfg Co Ltd, highlighted the soaring land prices in metros like Mumbai. He stressed that there is a huge issue of speculation and customers need to feel that they have a good deal. Pawan Malhotra, Managing Director & CEO, Mahindra Gesco Developers, pointed out that building office spaces for small industries offers a great opportunity to developers.

Lalit Kumar K Jain, Chairman, Kumar Builders opined that speculative development in commercial spaces is very low, primarily for incubation spaces so there is no risk on the supply side. Satish Magar, Chairman & MD, Magarpatta Township Development & Construction pointed out that no developer is going to build offices and wait for customers to come.

R N Bhaskar, Chairman & Managing Director, e-convergence Technologies Ltd, underlined the need to build for the future whereas R K Agarwal, GM-Corporate Real Estate, Hindustan Lever Limited, emphasized that infrastructure has to be in place before corporates take up office space. Capt K Srinivas, Vice President Procurement & RESO, Mphasis, said that it was useful for corporates to have information about the demand and supply for real estate as they needed to consider issues like scalability in future.

Providing an Indian perspective on easing norms for FDI in Real Estate, Niranjan Hiranandani, Managing Director, Hiranandani Group of Companies, said that the secret of reducing prices is to create surpluses and that is only possible if restraints on FDI are removed, while Shobhit Agarwal, President Capital Markets & Investment Sales, Jones Lang LaSalle Meghraj, explained the original objectives behind easing FDI.

Manish Chokhani, Director & CEO, Enam Securities Pvt. Ltd., pointed out that the issue is really about liquidity and access to capital, followed by regulation. Alex Hayim, Director, REIT Property Management Pvt Ltd. stressed that clarity on FDI – what can be done and what not – is the need of the hour.

B S Nagesh, Managing Director, Shoppers’ Stop pointed out that when money comes in, it has to bring in quality. Unfortunately we haven’t seen that happen yet, he said. Ajoy Veer Kapoor, Managing Director, Saffron Advisors, explained that economics, financial inputs and politics cannot be segregated, we have to be realistic. Tarun Joshi, Chief Executive Officer, Brand House Retails Ltd and Shailesh Chaturvedi, Chief Executive Officer, Tommy Hilfiger Apparel India also addressed the conference.

A whole host of financial institutions are looking seriously at entering the reverse mortgage segment. A new concept in India, the reverse mortgage product is essentially a loan provided to senior citizens by mortgaging their homes. Heirs can either repay the loan or forfeit the property. Social and economic conditions have created an opportunity for this segment, particularly with an increasing number of senior citizens living by themselves due to migration of their children to other cities or countries.

Punjab National Bank (PNB) and Dewan Housing Finance Corporation Ltd (DHFC) have already launched reverse mortgage products. GIC Housing Finance Ltd plans to enter this segment in the next 3-4 months. LIC Housing Finance also plans to offer a reverse mortgage product within a month where senior citizens will be given between 40% to 60 percent of the value of their homes as loan with a tenure of 15 years.

According to news reports, other institutions like Allahabad Bank, ICICI Bank and Bank of Baroda amongst others are also evaluating the reverse mortgage segment.

One area that is still unclear is on the tax implications of reverse mortgage. Gruh Finance is one institution that is waiting for clarity over taxation aspects before launching a reverse mortgage product.

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India's SEBI striking the hammer

By Dhruva Jyoti Chowdhury

Kolkata, India: Securities and Exchange Board of India (SEBI), the market regulator in the country is pretty serious about clamping down on manipulation by the Indian Real estate players inflating their land banks to boost value and is unfazed by concerns that new disclosure norms will keep realty companies from tapping the market.

While addressing a seminar recently at the Tamil Nadu’s Investor’s Association, the SEBI Chairman M Damodaran opined “I believe if that is the case then they should not be there in the first place.”

SEBI recently tightened disclosure norms for real estate companies that want to raise money by selling shares. As per the norms, companies are allowed only to show land that they own, not the land they intend to buy in the future. Moreover, the valuations have to be based on the current market value and not on future projections. If this is materialized, the actual land acquisition will be known by the Government which will help to re- locate the land which had not been aquired by the real estate company. Damodaran also spoke on the extent to which land banks were manipulated and said the market regulator won’t allow the practice to continue anymore. Some real estate companies are inflating land bank values ahead of a public offer of shares by temporarily acquiring land from farmers for a fee and then returning the land to them after the public issue is launched, Damodaran said.

He said the farmers are paid a meager amount for signing the documents. “The first set of documents is what is made available when you build up the land bank and having raised your money, the second set of documents becomes effective. That is, on non-existent landbank you would have parted with money,” Damodaran said.

It must be mentioned here that as much as Rs 4,000 crore out of a total of Rs 20,000 crore raised through share issuances last year was by real estate developers. That pace has slowed so far this year as several initial public offerings, including that of Purvankara Projects Ltd, DLF Ltd and Omaxe Ltd, have yet to be cleared by the stock market regulator.

Even the Central Government has pulled up its socks to check malpractices in the realty sector. Recently the Finance Ministry issued a statement intending to curb demand in overheated sectors such as housing and real estate. "The intention is to constraint demand in those sectors where there are signs of what you call overheating and example of that could be real estate and housing. I think in these sectors there is reduction in demand," finance minister P Chidambaram said.

On the impact of the RBI's measures to tighten money supply in these sectors, he said these steps work with a time lag and it might take time to have its impact on the intended sectors. However, in other sectors there was no intention to reduce demand, Chidambaram said.

Furthermore, the ASSOCHAM is also playing a key role to stop malpractices by the Real Estate companies. In a recent move, the ASSOCHAM has decided to work like a watchdog over the real estate advertisements. In an effort to curb the Real Estate advertisements aimed at enticing the buyer often exaggerate or at times misrepresent reality, the Associated Chambers of Commerce and Industry of India (ASSOCHAM) has decided to propose a monitoring committee to oversee real estate advertisements. So that the prospective buyers can get only the relevant information needed and not the exaggerated one. The monitoring committee, apart from scrutinizing the advertisements may pay surprise visit to the locations where the buildings are coming up.

The buyers are pretty happy with the decision as often seen, the companies to woo its sales, tend to lose the ethics of the trade and make false declarations in the advertisements. The Indian realty sector has also paid the price for this. Often the customers move to court against these false promises made.

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Anil Ambani to foray into investment banking

Anil Ambani all set to become the next big deal maker. According to sources, with India Inc making acquisitions worth at least a billion dollar every month, the Reliance ADAG Group is ready for a foray into investment and merchant banking advisory services. It has come into the notice that the company is planning to float a 100 per cent subsidiary under Reliance Capital, which is a depository participant of the two major depositories in the country and carries out retail broking under the name Reliance Money. In addition, it also funds projects and acts as a cash cow to other ADAG subsidiaries. Initial signs are that the group is in talks with a couple of foreign investment banks not having a presence in India, sources close to the development said. "The proposed entity would be a fully-owned subsidiary of Reliance Capital. RADAG is scouting for a foreign partner to form a joint venture," pointed out official at Reliance Capital. At the present juncture, Reliance Capital’s subsidiaries include Reliance Capital Asset Management Ltd, Reliance Capital Trustee Co Ltd, Reliance General Insurance Company Ltd and Reliance Life Insurance Company Ltd. In theory, the total equity deals struck by India Inc in the last one-year period had crossed $50 billion, of which $46.8 billion was in 287 mergers and acquisitions and $5.1 billion was private equity investments, according to a Grant Thornton study. Point to be noted here is that investment banking firms, which act as advisors, financiers and brokers to mergers and acquisitions deals, usually earn 5 to 10 per cent in commissions. Not so long ago, Reliance Capital started its retail broking venture under the name of Reliance Money, which is trying to establish itself as a one-stop shop for customers' financial needs.

Source: Hindustan Times.com

Top value stocks in Indian markets

By Sundaramurthy Vadivelu The India Street

Important Disclosure

The views expressed below are the opinions of the author based on fundamental analysis. The views are unbiased and informative in nature. These do not constitute an offer to buy or sell stocks. Every effort has been made by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc. Investing or trading in stock markets is a high risk activity. Those who cannot afford to risk their money should refrain from dealing in stocks. The author has no vested interest in any of the stocks mentioned. He and/or his close associates may or may not be having positions at the time of preparing this document. The reader needs to understand that this article is purely for informative purposes only and all transactions, if entered into by him will be solely at his risk. Source for the price and financial data displayed in tables: National Stock Exchange of India Limited, Mumbai, India (http://www.nseindia.com).

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Introduction: Before investing in any particular stock, one needs to know about the company, its business, key areas of strength, possible risks, top management, financial performance like book value, earnings per share, dividend yield etc. This is called ‘fundamental analysis’ and focuses only on the company fundamentals. It simply ignores the stock market conditions during that period. This is in complete contrast with technical analysis, which discounts all the factors while the market price is determined. In other words, the technical analyst believes that the company performance, business forecast etc. are always discounted by the market participants while trading the stock. It is ultimately a personal choice. For an investor who can’t sit in front of a computer for hours to analyze the market and find the right stock to invest, be it short term or long term, fundamental analysis could be useful. Several financial newspapers publish the important data such as book value, earnings per share etc. along with stock quotes. This can be used for fundamental analysis. Earnings of a company are very important to an investor. Once the company’s operations are stabilized and starts earning, it is reported to the stock exchanges. The audited results may also be published in popular newspapers. Good earnings are an indication of company performance and capital appreciation. Earnings per share is a term that is used to reflect the earnings of the company for each outstanding share. ‘Outstanding’ means the shares that can be traded in the stock market anytime. This is arrived after deducting promotors’ shareholding, locked in shares, etc. from total number of shares. EPS is calculating by adding the total earnings for the previous 4 quarters and then dividing it by the total number of outstanding shares. P/E ratio is another term that can tell the investor how much the market is willing to pay for the company’s earnings. It is simply the market price divided by the EPS. The book value of a company is the company's net worth, as measured by its total assets minus its total liabilities. This indicates how much the company would have left over in assets if it went out of business immediately. As with EPS, book value per share is arrived at after dividing the book value as per last balance sheet by the total number of outstanding shares. Price to book value (PBV) is the ratio between stock price and book value per share. These two parameters can help an investor to identify “growth” and “value” stocks in the market. Growth stocks usually have high P/E and PBV ratios, which means that these stocks are relatively high-priced in comparison with the companies’ net asset values. In contrast, value stocks have relatively low P/E and PBV ratios. Most growth investors are willing to pay a fairly high price for a stock whose earnings they expect to go up higher. They aren't completely insensitive to price, but the question of whether a stock is cheap or expensive isn't the real question for them. Value investors view cheapness as a major factor. They focus on stocks that are cheap. Just as growth investors are not totally insensitive to price, they are not completely indifferent to earnings progress. However, they are willing to sacrifice some earnings growth for the sake of cheapness. The following tables give us “growth” and “value” stocks in Indian stock market. Table 1: Companies with high P/E ratio Some of these companies, such as Aban Offshore, Educomp Solutions, Glenmark Pharma and UTV Software have gone up by more than 300% in the last 1 year. Table 2: Companies with high PBV ratio We can once again see Aban Offshore, GMR Infrastructure, Educomp Solutions and Glenmark pharma in this list. Table 3 : Companies with low P/E ratio: While choosing a stock the investor needs to be aware of the current business conditions in the industry it belongs to. Table 4: Companies with low PBV ratio: Conclusion: The debate between growth and value investing has been going on for years. Both styles have their positives and negatives and need different requirements on investment research. A truly diversified portfolio will have both growth and value stocks. In value investing, correct stock valuation as well as the right time of entry is very critical whereas in growth investing, it is essential to identify businesses that face little or no threat of erosion so that earnings growth of those companies is not affected.

Bharti Enterprises all set to open its first retail store by March 2008

By Avadh Singh

Bharti Enterprises is all set to open its first retail store in India by the March 2008 and plans to open a minimum of six stores by the end of that year.

Sunil Bharti Mittal, chairman and CEO of the Bharti group, in an exclusive chat to The India Street said that the branding process would be completed soon and discussions were on with Bharti’s back-end partner Wal-Mart. “The process is going according to plan and we are looking at a cluster of stores by early 2008. You will see half-a-dozen stores coming up within the year,” pointed out Mittal.

Mittal also said to The India Street that during his visit to the US earlier this month as president of a CII delegation, he met Mike Duke, chairman of Wal-Mart Stores Incorporated, in Washington separately. Mittal also held a meeting with Carlos Gutierrez, secretary, US Department of Commerce.

Point to be noted here is that the foreign direct investment in multi-brand retailing is not yet allowed in India. As a matter of fact, only 51 per cent FDI in single-brand stores and 100 per cent in the cash-and-carry wholesale business are allowed. The existing policy also allows FDI in franchises.

In general, Bharti and Wal-Mart have started recruitment and expect to sort various issues, including legal ones, soon. “We are going ahead with legal issues like brand agreement. A franchise arrangement may take some time, but we are on track," Mittal said.

It is worthwhile remembering that last year; the Bharti group had announced an investment of $2.5 billion in its retail venture. According to an agreement with Wal-Mart, Bharti would manage the front-end and the US major would provide back-end and logistics support.

Mittal said US companies were quite interested on India opening its FDI policy in multi- brand retail chains. “In the starting they will be happy to see it happening, may be with 26 per cent FDI,” he added.

What's next for Stock Market?

By Vipin Agnihotri

No doubt, Bombay Stock Exchange (BSE) Sensex is making valiant attempts to decisively cross the 14,697 peak it reached on February 8 but has not been able to ever since.

In theory, the NSE Nifty, which is not a free-float index such as the Sensex, has managed to cross its previous peak. “Two large IPOs, DLF and ICICI Bank, will divert part of the funds that could otherwise have gone into the secondary market,” pointed out Rangita Chatterjee, stock market expert.

Last week, the Sensex failed to get its chin above the 14,697 bar and dropped back to end the week at 14,003, down 506 points. The biggest contributors were Reliance Industries (with 98 of those 506 points), Larsen & Toubro (47) and ITC (44). Investors are wondering which way the breakout will happen.

As far as money flow into the stock market is concerned, it has come into the notice of The India Street that Life Insurance Corporation of India is planning to invest Rs 115,000 crore in equity and corporate debt.

In addition, pension funds will be allowed to invest partly in equity. Furthermore, private sector mutual funds will get access to surplus PSU funds. “The Reserve Bank of India is releasing $5 billion of its over $200 billion forex kitty for investment in infrastructure. As India’s economy grows and the equity cult spreads, more money will keep pouring into the stock market,” pointed out N Yadav, business journalist based at India.

But experts believe that there are reasons to being cautious in the short term. First and foremost, public governance is abysmal, and getting worse as elections approach. Quite a number of times it is downright foolish as in the quest to squeeze tax resources with not a thought on how poorly those already raised are being utilized.

In my opinion, the fringe benefit tax on sweat equity is one example. Another one is the levy of a 12.3 per cent service tax on sale of tickets for international flights out of India. The result: ticketing business has gone to other countries.

“The most valuable state-owned company is ONGC, which has been headless ever since the Government refused an extension to its former chairman who made the firm hugely profitable,” pointed out Ramesh G, CEO of India research.

It is worthwhile remembering that the man nominated by an internal committee, RS Sharma, was refused the post by the Prime Minister’s Office and now, funnily, has been re-nominated! Similarly, State Bank of India, which has an unbelievable uninterrupted dividend history of over 150 years, is valued at $17 billion, less than private sector ICICI Bank and far lower than ICBC of China, which is valued at over $230 billion.

To see how the private sector extracts value, it is of utmost importance that one observes the $1 billion valuation sought to be extracted by Reliance Communication by hiving off its tower business into a separate entity.

The present stock of 110,000 towers is expected by the telecom regulator to grow to 350,000 by 2010. Reliance Communication’s valuation has shot up.

On the other hand, that of public sector Bharat Petroleum, Hindustan Petroleum and Indian Oil Corporation are languishing, because of the burden of subsidy forced upon them. Its not that these managements cannot extract value but, sadly, they are not allowed to. All in all, it’s better, therefore, to await a better opportunity to invest.

Chart Patterns and market’s reaction

By Sundaramurthy Vadivelu

Important Disclosure

The views expressed below are the opinions of the author based on the principles of technical analysis, a science that has been tested and proven for more than hundred years. The views are unbiased and informative in nature. These do not constitute an offer to buy or sell stocks. Every effort has been made by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc.

Investing or trading in stock markets is a high risk activity. Those who cannot afford to risk their money should refrain from dealing in stocks.

The author has no vested interest in any of the stocks mentioned. He and/or his close associates may or may not be having positions at the time of writing this article.

The reader needs to understand that this article is purely for informative purposes only and all transactions, if entered into by him will be solely at his risk. The author does not guarantee that the projected targets will be achieved within the stipulated time frame.

Source for the price data displayed in graphics and tables:

National Stock Exchange of India Limited, Mumbai, India (www.nseindia.com).

Charts have been created with FCharts Pro, © Spacejock Software, Australia (www.spacejock.com).

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Many people who follow stock markets may have noticed charts. These are graphical representation of price volume data over a period of time. It could be price plotted every hour, day, week or month and are known as hourly, daily, weekly or monthly charts respectively.

These charts are very important since the stock’s demand versus supply can be ascertained from the price action. Volume is also displayed on the charts. A visual examination of the chart will reveal how the stock moved within a particular period (day, week etc.).

It is very much essential that the investors and traders get familiar with charts, particularly those who work full time in the markets. The two common types of charts are OHLC bar Chart (Open, High, Low, Close Charts) or Western Bar Charts Japanese Candlestick charts

An example of OHLC bar chart:

The same chart when represented by candlesticks will look like this:

As we can see, the ‘candlesticks’ are more visually appealing compared to the OHLC bar charts.

As co-movement of price and volume gets plotted over a time, the current market status can be examined easily. In a bull market, increasing volume with increasing prices during an uptrend indicates bullishness. During a corrective decline in a bull market, we can see declining volumes with declining prices. In a bear market, increase in volume with decreasing prices can be spotted. During pullbacks in bear markets, declining volumes with increasing prices can be seen. Though volumes may not increase uniformly all the time, a trend can be observed.

Chart patterns:

These are certain types of formations in charts which indicate bullishness or bearishness. These are formed by support / resistance levels and trendlines. Support level is the price where buyers will enter the stock and take control over the sellers. Resistance level is the price above which the stock must trade in order to move up higher.

Some of the chart patterns are:

Bullish patterns: Double bottom, triple bottom, inverse head and shoulder pattern, cup and handle breakout, triangle breakout etc.

Bearish patterns: Double top, triple top, head and shoulder pattern etc.

The daily chart of SAMTEL is shown below. Let us analyze how many chart patterns have been formed over a period of time. This is an interesting stock since this gives an idea as to how the market reacts quickly to a chart formation.

Cup and handle breakout:

Bewteen March 2001 and April 2002 watch the ‘cup’ shaped price movement followed by the ‘handle’. Watch the resistance could not be broken on the first attempt. That lead to another decline. Eventually, after the resistance at 31.50 was broken, the stock touched a high of 57.50. It can easily be noted that the green line or the ‘top’ of cup was a strong support during the corrective decline from 42.90 to 30.90.

Inverse Head and Shoulder pattern:

This bullish pattern was formed between August 2002 and November 2003. It simply looks like an inverted man.

Please note that the ‘shoulders’ may not be horizontally on the same line and this is nothing unusual. After the resistance around 32.80 was broken, see how quickly the prices were flying vertically upto 74.65. This was again followed by a corrective decline.

Double bottom:

This pattern was formed around the 38.35 which was the next resistance when the stock bounced back during the inverse head and shoulder pattern. Again, after the resistance trendline was broken, we can see the heavy buying upto 124.70. Double bottoms and triple bottoms are usually more reliable bullish patterns, indicating strong support levels.

Head and shoulder pattern:

After hitting a high of 124.70, stock fell to 84.20 and after the reversal, it was unable to pierce the ‘neckline’ as can be seen in the chart. The neckline is an important resistance zone in this pattern. Ever since this happened, stock has been terribly bearish. All supports have been broken, except for the last one at around 12.70. This is almost 1/10th of its high price. Just imagine a person who bought it near the high price and wondering what’s going on with this. Currently it is 16.25.

Conclusion:

As can be seen from the chart, the bullish and bearish patterns, when spotted successfully, foretell how the stock will perform in the near future. In this case, the head and shoulder pattern has clearly indicated the bearishness and stock was hit very badly.

What will happen to this stock in the near future? As mentioned earlier, it just managed to bounce back near its last horizontal support around 12.70 but without much volume. Momentum indicators are negative and if it is able to sustain above the support of 12.70, we can expect a consolidation phase. But consolidation phase may last for longer durations, and as such, there is nothing this stock can offer for anyone for the time being.

When investors make a decision to buy a stock for long term investments, it is better to observe patterns such as these. That will help them to hold stocks for better returns.

DLF to invest a third of IPO proceeds in land

Mumbai, India: DLF Ltd has said it would invest Rs 3,500 crore - roughly a third of its planned initial public offering (IPO) - in building up its land reserves. This is significantly lower than its earlier plan of investing Rs 6,500 crore for the purpose.

Announcing its plans here today, DLF said it hoped to raise Rs 9,625 crore through a public issue of 1.75 crore shares in the price band of Rs 500-550 between June 11 and 14.

The new shares on offer will constitute 10.27 per cent of DLF’s post-sale capital. The share sale will give DLF a market value of as much as $24 billion, more than double Unitech’s, India’s biggest property developer.

The real estate major added that it can develop up to 575 million sq ft of real estate space on 10,255 acres (4,150 hectares) of land that it owns or has rights to in 31 cities. The company currently has 44 million sq feet of land under development.

Over half of its land (nearly 5,269 acres) is located in the National Capital Region, 2,708 acres in other major cities and 2,278 acres in the rest of the country.

The company said its current land reserves are sufficient for its planned developments over the next 10 years and provide it with a major competitive advantage, as well as protection against land price inflation.

“We aim to build up land reserves at competitive prices at strategic locations in the country, to gain from them during the upside in the economy,” said DLF Vice-Chairman Rajiv Singh.

While DLF and its subsidiaries own 11.3 per cent of the land reserves, they have sole development rights for 44.6 per cent of the total.

They have agreements to purchase or letters of acceptance for 35.9 per cent of the land, while the rest are joint developments with partners, the company said.

DLF filed its first prospectus in May 2006, which it had to withdraw on account of regulatory objections in August, following complaints by minority shareholders. The company filed a renewed prospectus in January this year. The Delhi High Court recently cleared the issue.

DLF will foray into newer areas in the future, including airport management, financial services, asset management, leisure entertainment and hospital properties, among others.

“We may foray into newer areas if good opportunities are available at any point of time. We can also tie up with foreign partners for the ventures,” Singh said.

DLF is promoted by billionaire Kushal Pal Singh, whose wealth doubled last year to $10 billion, according to Forbes. Singh, 75, a former Indian Army officer, bought land in Gurgaon, 17 miles (27 km) south of central New Delhi, in the early 1980s.

He developed Gurgaon as a significant suburb of the national capital, carving out residential plots and condominiums and commercial buildings that house offices and retail outlets.

Merrill Lynch and Kotak Mahindra Capital will manage the IPO, and Citigroup Inc, ICICI Securities, Lehman Brothers Securities, UBS AG, Deutsche Equities India and SBI Capital Markets will also be the sale arrangers.

Source: BS Reporter.

Indian government all set to keep an eye on FDI flows

By Vipin Agnihotri

Lucknow, India: It has come into the notice of The India Street that the Indian government is all set to put in place routines to check whether foreign investors setting up shop in India are complying with the norms prescribed for them. Initial signs are that the new norms could make it necessary that companies file an annual compliance report or an inspection system could be put in place.

Talking exclusively to The India Street, one government official said: "We are yet to decide what kind of monitoring we want to do but the idea is to ensure that companies do not have to face inspectors form another government agency and at the same time comply with the undertaking given to us.”

It is worthwhile remembering that the move follows apprehensions about non-compliance of FDI norms by Hutch Essar, however the government did not find any sort of evidence of the sectoral caps being breached. There is a strong possibility that the finance ministry, which has proposed putting in place few guidelines, was expected to come up with a concrete proposal over the next few weeks.

The pivotal factor here is that North Block had suggested that the department of industrial policy and promotion (DIPP) deal with the issue taking into account the detailed review of the FDI guidelines but in the absence of any proposals the issue is expected to be dealt with later. Point to be noted here is that the Foreign Investment Promotion Board (FIPB), which cleared Vodafone's acquisition of Hutch Telecom International's stake in Hutch Essar last month, had also asked DIPP as well as the finance ministry to put in place norms that assist companies come clean on indirect shareholding.

"While the chances of a breach of cap were less when a company was planning to enter the Indian market since FIPB still vetted a large number of proposals, the possibility of violation at a later date was not ruled out since no government agency was monitoring it," pointed out Avadh Singh, Finance journalist based at India.

Generally speaking, there are 19 activities that NBFCs (non-banking finance companies) can undertake. However, there is a chance that the government allows a company to carry out one or two businesses but the company could actually be doing all 19. In other word, there is no mechanism to check such violations at the present juncture.

Keeping aside the monitoring routine, the government and Reserve Bank of India (RBI), the nodal body for automatic investment proposals that do not need prior approval from any agency, have to decide on which agency should be given the task.

Not so long ago, the security agencies have also recommended that the government keep tabs on foreign companies investing in India. Though, a proposal was opposed by both North Block and DIPP saying that they do not have the ability to track investment.

There has been no progress on the National Security Council's proposal to put in perspective a new law to ensure that foreign investors did not turn into a threat to national security with most economic ministries opposing the move. If sources are to be believed, the NSC Secretariat is expected to put forward a draft Bill for other ministries in the coming months.

DLF shares draw premium in grey market

The grey market for the initial public offering (IPO) of real-estate major, DLF has become active following announcement of the dates and price band by the Delhi-headquartered company yesterday. The shares of DLF command an unofficial premium of Rs 26-28 a share in Ahmedabad, which is considered as the most active centre for grey market transactions.

The K P Singh-promoted DLF is raising Rs 9,600-odd crore through the IPO. The shares, with a face value of Rs 2 each, would be issued in the price band of Rs 500 and Rs 550.

The grey market is the unofficial market for IPOs and the premium or discounts indicate the level of retail interest in the public issue. It is also considered as an unofficial price discovery mechanism before the listing.

The unofficial premium for DLF in the grey market is lower, in absolute terms, compared with the recent IPOs such as ICRA Mindtree Consulting, Advanta and Global Broadcast Network, where the prices doubled in the first few days after listing. The share prices of ICRA and Global Broadcast Network doubled on the listing day itself.

The grey market premium of Rs 26-28 a share is not small, as the size of the DLF issue is large at 17.5 crore equity shares. The premium indicates that market players expect the retail portion of the DLF offer to be fully subscribed or even subscribed by two times, said a broker who did not want to be quoted as grey market is not legal.

The returns from the grey market are calculated in terms of money invested and the expected allotment of shares. For instance, if a retail investor puts in Rs 1,00,000 in the IPO application, he/she will get 100 to 200 shares at the lower end of the price band. A premium of Rs 26-28 assures the investor a return of 3-6 per cent within a time-frame of a month, the broker explains. All the profit (or loss) would be borne by the person who pays the premium.

The grey market exists in tier-two cities and areas where the investor population is sizeable, though such deals are not legally allowed. The market is vibrant in Ahmedabad, Unjha, Kolkata and some other cities.

The normal settlement in the grey market is trust-based and the brokers have the backing of big brokers who may be based in Kolkata or Mumbai. This market also offers multiple products.

The premiums for the IPOs are forward deals. There is also a product called koshtak. This product offers interest rates on the price paid per application form, depending on the demand for shares. The interest rates are paid for applying for the issue. The allotment and post-listing premium goes to the person who pays the interest rates.

The interest amount or price per application form for the DLF issue ranges between Rs 2,700 and Rs 2,900 for an application worth Rs 1 lakh.

There is a third product known as “subject to.” The retail investors in most of the IPOs, follow the HNIs (high networth individuals) and QIBs (qualified institutional buyers). Some brokers, acting on behalf of promoters, assure certain returns to high networth investors and if the listing price does not give the assured returns, the broker concerned makes good the returns assured.

Source: Business Standard

Overseas borrowing costs of Indian companies all set to increase

By Vipin Agnihotri

Lucknow, India: If the Indian government fails to meet its deficit reduction targets, the overseas borrowing costs of Indian companies could increase over the next two years. You may ask: Why is it so? This is because failure to meet deficit reduction targets can adversely impact the sovereign credit rating of the country.

On the other hand, if the rating worsens, there will be fewer takers in overseas markets for Indian bonds and international lenders will charge more from Indian firms looking to raise money. “The rating models used by international lenders factor in sovereign ratings, and a drop in the ratings would have an impact (on the rating of Indian companies and the interest rate they would have to pay), pointed out Shailesh Nigam, partner and head, Dreamz advisory, an audit firm.

And that is where, India’s Fiscal Responsibility and Budget Management (FRBM) Act, 2003, come into the fray to shrink revenue deficit, the difference between the government’s revenue receipts and revenue (or operational) expenditure, to zero by March 31, 2009. When The India Street analyzed the whole issue, it came into light that in the financial year leading to the deadline, 2008-09, India and the government will likely be in election mode - the present government assumed office in 2004 for a five-year term. I do not expect the government to be in a position to control expenditure in an election year.

It is worthwhile remembering that Finance minister P. Chidambaram has already said in public that he expects revenue deficit to be 1.5 per cent of GDP at the completion of the current financial year (2007-08), a minimization of 50 basis points compared with the last financial year (2006-07). The pivotal factor here is that if the government has to meet the targets set by the FRBM Act, it would have to minimize its revenue deficit by a further 150 basis points. Interestingly, in his Budget speech in February, Chidambaram had said the government was on course to achieve this.”

Meeting this target had a bigger impact on India’s sovereign rating than is usually understood,” pointed out highly placed source at Finance ministry. “It was seen as a sign that the entire political spectrum was in favour of fiscal prudence and any deviation would affect India’s credibility,” pointed out Sunil Dang, Editor of The Day After Magazine. Though, some experts do not see cause for alarm. “I don’t see a major danger at this point,” said Azim Khan, a renowned economist at rating agency when asked about the possibility of the government falling short of its target.

Up till now, the government’s attempt to squeeze revenue deficit has succeeded primarily on account of the sharp growth in tax revenue. In my opinion, maintaining momentum of revenue is critical for meeting FRBM targets. Statistic wise, revenue growth has been spurred by an economy that grew by 9.2 per cent and 9 per cent in the matter of two years. Initial signs are that India’s GDP will grow by over 8 per cent in 2007-08 and 2008-09.

In the last few years, the combination of strong economic growth, introduction of the FRBM Act, and better government finances have encouraged international credit rating agencies to push India’s sovereign rating into investment grade. For example, Standard & Poor’s Rating Services raised India’s rating to investment grade in January after a gap of 15 years.

INDIAN STOCK MARKET – AN OUTLOOK

By Sundaramurthy Vadivelu

Important Disclosure

The views expressed below are the opinions of the author based on the principles of technical analysis, a science that has been tested and proven for more than hundred years. The views are unbiased and informative in nature. These do not constitute an offer to buy or sell stocks. Every effort has been made by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc.

Investing or trading in stock markets is a high risk activity. Those who cannot afford to risk their money should refrain from dealing in stocks.

The author has no vested interest in any of the stocks mentioned. He and/or his close associates may or may not be having positions at the time of writing this article.

The reader needs to understand that this article is purely for informative purposes only and all transactions, if entered into by him will be solely at his risk. The author does not guarantee that the projected targets will be achieved within the stipulated time frame.

Source for the price data displayed in graphics and tables:

National Stock Exchange of India Limited, Mumbai, India (www.nseindia.com)

- - - - - - - - x - - - - - - - - x - - - - - - - -

In this article let us analyze the current market scenario, how Nifty has performed during last 4 years and comparison of index vis a vis some of the individual index stocks.

Current Scenario:

As of now, there is no significant threat to the indices. No major reversal sign has been observed in the monthly charts of Nifty. Watch the reversal patterns displayed in the chart below. Bearish “three outside down” pattern occurred in April 2000 and bullish “three outside up” pattern was seen in June 2003. Since then, Indian markets are on a high.

In the absence of strong reversal signs, it may be concluded that markets will continue their uptrend.

Wave analysis:

The following table illustrates the wave count and their retracements:

This means that after the completion of the 5th wave (which needs a confirmation) a downtrend is likely to begin.

The longer term target for the Nifty, when calculated from a low of 920, works out to 4600. This will give wave 5 a gain of 177.20%.

What is the reason behind this huge rise in index?

Like all other financial markets, Indian markets are also governed by the fundamental principles of demand and supply gap. When interest rates were lowered, stock market looked an attractive option and investors began to look for opportunities. Huge foreign funds are another reason for the upsurge. Liquidity is one more factor – one can easily transact with a click of a mouse unlike the old days when physical share certificates were in use.

Whatever be the reason behind any move, it is always reflected in the charts. All other factors, namely, business conditions, economy growth etc. are always discounted when analyzing the market technically.

How many stocks got benefited from this nearly five fold rise in index in the last 4 years? Let us analyze some of the index stocks.

* Adjusted Close 1 due to stock split / bonus / rights issue

** Close 1 as on 31/07/2004

*** Close 1 as on 31/08/2003

It can been seen from the above table that not all the index stocks have performed in the same manner. ABB, BHARTIARTL and SAIL have outperformed when compared to the overall index.

It should be noted here, that the ‘performance’ in stock market by a scrip has nothing to do with the financial performance of the company. It just implies that the investors have chased this stock more strongly compared to the rest.

We can see no direct relationship between the overall index performance and the individual stocks’ performance. This indicates the demand and supply gap scenario for the stocks discussed.

What could be the reason for the uneven performance?

The price of a particular stock on a given day is decided by the market participants. They are

FII’s or the foreign institutional investors FI’s or the financial institutions MF’s or the mutual funds Long term investors Medium term investors Short term investors Day traders Speculators Punters Derivative traders

When thousands of people are trading a particular stock, no one can be very clear of what the other trader thinks. This leads to volatility and uncertainty in the markets.

When one person buys a stock, obvious reason is that he thinks that it will go up. The person who sold the stock thought that it would either go down or he had enough profit or loss.

In a complex scenario like this, price fluctuations happen regularly. The investor needs to take advantage of the situation by buying when the demand just starts picking up for the stock and sell when it just starts diminishing.

Having said that it is difficult for an ordinary investor to completely understand and assess the market status.

What can the investor do now?

Ideally, one would like to take some money home. If one has remained a long term investor and likely to get some profit, he can book it.

Remember that the chance of the profit going down may increase with the time a stock being held.

For the one who wants to invest for long term in stocks, he has to be cautious, as can be seen from the charts and tables provided.

Some thoughts on investing in stocks:

Not too many people understand the stock market dynamics. So take professional advice, consult a qualified and experienced person. He may charge you a little, but it is worth taking the risk than worrying later.

Invest the amount that you can afford to lose. There are only probabilities, no certainties in financial markets.

Keep doing your research. Observe prices at least once a week. If you think you gained a reasonable amount, book your profits at least partially.

Last but not least, never borrow money to invest in stocks thinking that prices will always go up!

Good luck.

India Real Estate Jitters

By F. Colton

I have recently read about a few laws the India Government has passed to slow the real estate market in India. The false claim that too many foreign real estate funds are driving up real estate values is complete rubbish. First and most importantly, I can count on two hands the number of foreign real estate funds that have actually invested money on a real estate project in India. It's just not happening like the media claims. Foreign Real Estate funds find the India market appealing, but it still lacks the transparency available in other more mature markets.

So how are the real estate prices being driven up? For one, local Indian developers and local speculators are driving the cost of real estate up. Most are ignoring real estate fundamentals and are paying any price to participate. The smart ones are forming Joint Ventures with landowners to reduce their exposure and risk. Most of these joint ventures are win-win scenarios.

Real estate is a cycle of booms and busts. The Indian government may try and smooth the peaks and valleys but inevitably the cycle must continue. Moreover, India is in need of a complete overhaul in infrastructure. Why scare away the very investor you are looking to attract to help build out the infrastructure India sorely needs? There is no so called bubble in the India real estate marketplace. Of course prices are too high in some areas and will come down. However, the fact remains that almost 95% of the buildings in India are Class D or F in other parts of the developed world.

India needs foreign capital to drive its real estate market and to compete with other Asia countries. Foreign investment brings jobs and skill development not currently found in domestic India. The India Government should be focused on enticing FDI and not protectionism. India has momentum, but as history has shown, it can change overnight by thoughtless, short-term strategies that may get one reelected but not allow the country to modernize.

In summary, India is at yet another cross roads. This won’t be the last one but it is an important signpost directing foreign investment in or out. Unlike more mature markets, India’s modernization depends on foreign capital. The world is globalizing and is looking for alternative investments outside of the US and Europe. India can either open the door a little wider to foreign capital or discontinue FDI liberalization and risk foreign capital finding other alternative markets. Large foreign investors are a finicky bunch.

The author is the Editor, The India Street.

Realty Investment Trusts: Mirage or Reality?

A rising India is inter alia characterised by a robust real estate sector, which is witnessing a deluge of investment in land acquisition, development and construction. The spiralling growth of manufacturing, services, retail and hospitality sectors, together with rising levels of disposable income, has fuelled the demand for various classes of real estate.

Currently, the participation of small and medium investors is restricted to the residential sector, through direct purchase of property. Higher returns from fixed income yielding commercial property are beyond their reach. This limitation of participants in the commercial sector, and the over-use of debt funding in the past with limited access to the same today, has made the industry turn to Real Estate Investment Trusts (REITs) as the next big thing.

REITs, common in several developed countries, are generally open or close-ended companies /trusts that hold, manage, lease, develop and/or maintain properties for investment purposes. They are often, but not necessarily, traded on an exchange. The value of units/stock allotted to investors is computed on a NAV (Net Asset Value) basis, as the market value of assets minus liabilities. REIT invests in real estate directly, through properties or mortgages, or indirectly through subsidiaries.

In India, a fledgling attempt at introducing REITs in the form of Real Estate Mutual Funds (REMFs) has been made, with draft Securities & Exchange Board of India (Sebi) regulations on the anvil, albeit not in the public domain. These regulations are being closely scrutinised by the Association of Mutual Funds in India (AMFI), Sebi and Institute of Chartered Accountants of India (ICAI). Valuation norms and periodicity of NAV revision are likely to be difficult problems to resolve.

Source: The Economic Times.

The author - Gaurav Taneja, is national director of tax and partner, Ernst & Young India.

Fresh dollars heading for Indian realty

New Delhi, India: Nearly two dozen US funds are raising $3.5 billion for investments in Indian realty. This is over and above the $2.5 billion invested by overseas realty funds in India to date. Those raising the money include Wall Street powerhouses such as Blackstone Group ( $1 billion) Goldman Sachs ($1 billion), Citigroup Property Investors ($125 million), Morgan Stanley ($70 million) and GE Commercial Finance Real Estate ($63 million). Others raising the money are: JP Morgan, Warburg Pincus, Merrill Lynch, Lehman Brothers, Warren Buffett’s Berkshire Hathaway, Colony Capital and Starwood Capital.

Considering that most US funds had showed no interest in investing in realty in India, their bullish outlook now has surprised many. The answer lay in the policy changes of February 2005 that allowed 100% foreign investments in construction projects with fast-track approvals. But the real attraction is potential investment returns of 25% and more in Indian projects that might be hard to come by in the US and Western Europe today.

One such determined big player is Goldman Sachs. Today there is a sea change in perceptions. For about a year now, Goldman Sachs’s Whitehall Street Real Estate Funds have been exploring the Indian market and checking out potential investment partners. Some time back, the firm announced its plans to invest up to $1 billion over the next two years in Indian private equity, real estate, private wealth management, and other businesses in the country for its institutional clients. A month later, California Public Employees’ Retirement System invested $100 million in a $400-million real estate fund promoted by IL&FS.

What is attracting investors in particular is India’s urban office space market, which is at 60 million sq ft, compared with New York City’s 400 million sq ft or New Jersey’s 175 million sq ft.

Bangalore has 25 million sq ft of office and high-tech space, of which 9 million sq ft was built last year. For investors, this is a glass half-full or half-empty.

Tishman Speyer is among the first US developers to invest in India. Last year, the New York City-based firm formed a joint development company with ICICI Venture Funds of Mumbai that will have a war chest of $2.5 billion. Tishman Speyer and ICICI Venture Funds are bringing in $300 million each in equity and will invest equally in projects. So far, the Tishman Speyer-ICICI Venture Funds combine has signed memoranda of understanding for two ventures in India. One is a $200-million project for residential and commercial development on 42 acres in Bangalore’s prime Whitefield suburb. The second one is in Karnataka’s Devanahalli , where Tishman Speyer and ICICI Venture Funds are buying a 25-acre plot whose final use has not yet been decided.

Similarly, New York-based developer Vornado Realty Trust has teamed up with The Chatterjee Group, a venture capital firm also located in New York. The Chatterjee Group has more than $1.5 billion in investments, including some in Indian real estate development projects and business process outsourcing operations. Vornado’s investments through this partnership are primarily in the booming market for information technology parks in cities like Bangalore, Hyderabad and Navi Mumbai.

Source: The Financial Express.