Banking and Finance
Debit and credit of universal banking
THE reasons for financial institutions converting themselves into universal banks was put forth in a report by a working group (KWG) under the Chairmanship of Mr. S. H. Khan to examine the role of the financial institutions and sugge
st means to harmonise the roles of banks and the FIs.
Financial highlights of the three FIs
A BRIEF look at the highlights of the three leading financial institutions:
Financial institutions: Trying to change with the times
FOR THE three listed financial institutions (FIs) _ the Industrial Development Bank of India (IDBI), the ICICI and the IFCI _ there has been a sea-change in the operating environment over the last decade, mainly in the form of increasing cost of funds, d
eclining interest spreads and deterioration in asset quality. Now, they appear to have reached another watershed, with the lines of demarcation in the financial sector gradually disappearing. The situation presents the FIs with another opportunity to mak
e up for the adverse developments over the last five years and, in response to the changing situation, they have adopted different strategies.
ICICI at the top
EXCEPT for the ICICI, the stock market has tended to cold-shoulder the other financial institutions, such as the IFCI and the IDBI. While investors can overlook the IFCI, the ICICI and the IDBI appear to have the potential to seek further highs from curr
ent levels.
SBI's Gold Deposit Scheme -- Putting idle holdings to work
IN A FIRST-OF-ITS-KIND attempt to induce gold-holders to part with their holdings of the precious metal, the State Bank of India in October 1999 launched a Gold Deposit Scheme. The scheme allows individuals and institutions to deposit their gold with the
bank for a predetermined period and receive a `Gold Certificate' or passbook as proof of deposit. The bank will pay interest of 3-4 per cent per annum on the deposit, depending on the duration.
Economy
SIMPLE ECONOMICS: Small-savings: Why the cut in rates
THE government recently cut interest rates on small savings. The public provident fund (PPF), for instance, would now fetch 11 per cent instead of 12 per cent earlier.
An unkind cut
THE one percentage point cut in the interest paid on small savings, decided by the Government last week, has earned all-round praise as a reformist measure. Industry captains termed it a clear signal for banks to bring down interest rates and, indeed, th
e State Bank of India chairman immediately went on record that his bank would consider a rate cut soon. Some private banks, such as ICICI Bank, have already announced a cut in interest rates. While there appears to be satisfaction all round on the impend
ing fall in interest rates, is it such a good thing after all from the common man's point of view?
Investment World
The primary pointers
THE year 1999 saw renewed interest in the primary market, driven by initial public offerings from companies in the information technology sector.
Mutual funds: Raking it in
ONE section of the primary market that buzzed with activity was mutual funds. This was hardly surprising due to two factors. One, the dividend tax break provided in the 1999-2000 Budget. The income distributed by mutual funds was exempt from tax in the h
ands of investors. This ensured that even the debt schemes provided pre-tax yields that were considerably higher than any other investment option.
Rights: A perception of value
SINCE 1996, primary market investors have found succour in the few rights offers from established companies at a sizeable discount to the prevailing market price. In 1999, too, investor support was readily forthcoming for such offers.
Torrent Pharma: Rushing ahead
THE 15 per cent non-convertible part of the partially convertible debenture issue of Torrent Pharmaceuticals Ltd trades at Rs. 72. At the current price, the yield-to-maturity for the instrument works out to 18.70 per cent. Given the attractive yield, inv
estors with a penchant for risk can consider investing in the bond.
It is the mind that matters
AT ONE level, the story of the Pied Piper of Hamlyn is about a breach of contract _ a regrettable but fairly common occurrence in the realm of public administration. But at another level, it is also about the power of the `abstract' in triggering changes
in public behaviour.
Nagarjuna Fertilisers and Chemicals -- Shorter tenors, fertile options
THE fixed deposit programme of Nagarjuna Fertilisers and Chemicals is open for investment. The company offers two schemes _ fixed and cumulative. The tenure for both schemes is one, two and three years at 12.5 per cent.
PUBLIC OFFERS
Geometric Software Solutions Co. is making a public offer of 3.10 lakh equity shares at Rs. 300 to part-finance the setting up of software development facilities at the Pune Information Technology Park, aggregating Rs. 9.30 crores. Some of the existing s
hareholders _ Draper India International, ICICI Venture Funds Management and Moldflow Mauritius _ are making an offer for sale of 10 lakh equity shares at Rs. 300, aggregating Rs. 30 crores.
Sun Pharmaceuticals -- Formula for growth
EXPANDING frontiers with strong brands has been the strategy of Sun Pharmaceuticals in the last two years. In line with this, the company, through a spate of mergers and acquisitions, widened its basket product portfolio in various therapeutic segments.
As a result, the company has attained a strong position in the fast-growing cardio-vascular and neuro-psychiatry segments. It has also made inroads into speciality segments such as ophthalmology and ENT.
Ingersoll-Rand: No compression in performance
Innovation and proactive response to the changing business dynamics are the two dominant themes that run through the strategic framework of Ingersoll-Rand. The aim is to improve profitability by creating niche markets and minimising volatility with
minimum confrontation. This helped the company maintain its leadership position, says A. Srikanth.
OPEN OFFER
ICL Securities, along with India Cements and Raasi Cement, is making an open offer to pick up a 9.99 per cent equity stake in Sri Vishnu Cement at Rs. 98.25 per share. Since the stock price of Sri Vishnu has not touched these levels in the last five year
s, except briefly in the post offer announcement period, the shareholders of Sri Vishnu can capitalise on this opportunity by tendering to the open offer.
MUTUAL FUND OFFERS
THE Prudential ICICI Technology Fund is the latest in the spate of sector-specific schemes to hit the market. The scheme is an equity-oriented scheme proposing to invest in technology-intensive businesses. The scheme proposes to levy an entry load of 2 p
er cent once it reopens for sale on an ongoing basis. Initial investors will have to bear initial issue expenses of 1.75 per cent which are being charged to the scheme. The scheme is open-end and offers two options _ dividend and growth _ apart from 54EA
, 54EB and systematic investment plans.
Too early to disown small savings schemes
With the rate cut effected on small savings investment options, the yield on the various investment options are likely to come down. Interest rates have been cut by half a percentage point on National Savings Certificate and National Small Savings Scheme
. On all other investment options, the rate cuts have been of the order of 1 per cent.
Bond market likely to stay buoyant
THE bond market has been buoyant in the last couple of days and is likely to remain that way for a while for the following reasons.
SEARCHLIGHT
HDFC Bank's performance for the October-December quarter is in line with expectations and its own consistent performance over the preceding two quarters. The bank posted a 55 per cent rise in net profit for the third quarter at Rs. 28.17 crores on a 70 p
er cent growth in total income of Rs. 194.84 crores. There was a significant increase in fee-based income, which more than doubled at Rs. 34.80 crores compared to the corresponding period the previous year. (The results are only for HDFC Bank alone and n
ot yet for the combined entity following the merger with TimesBank.) Incidentally, Times Bank too turned in a 30 per cent increase in Q3 profits at Rs. 8.34 crores on the back of a similar increase in interest income at Rs. 94.59 crores.
Victory for Warner-Lambert shareholders
``THE board of directors of Warner-Lambert has authorised the management to explore a potential business combination with Pfizer. In the light of the changed circumstances, the board has concluded that Pfizer's previously announced
conditional proposal could lead to a transaction that is better financially for Warner-Lambert shareholders than the proposed merger with American Home Products.''
Primary market -- Advantage IT
THE YEAR 1999 was perhaps one of the better ones for the primary market, after the excesses of the mid-1990s, which put off investors. There were clear signs of a higher degree of investor participation in primary market offerings. But the caveat is that
the activity was almost entirely IT-driven, just as in the secondary market. Another dominant theme was investor support to quite a few rights offers priced attractively (see accompanying story). From a long-term perspective, the important development w
as the ADR offering of three companies _ Infosys Technologies, ICICI and Satyam Infoway _ as they tapped the US market.
Miscellaneous
NET CATCH: www.zipahead.com
A TASTEFULLY-DESIGNED youth portal, this site is likely to catch the imagination of youngsters. This portal is addressed to a segment which is likely to constitute the single-largest segment of consumers in the future, and the scope to convert it into a
business-to-consumer e-commerce site is quite bright. Started by Mr. Puneet Dalmia and Mr. Alok Mittal, this site enjoys the distinction of being the first dedicated youth portal in the country.
MARKETS _ A CENTURY IN RETROSPECT: M and As: Flavour of the decade
``Restructuring to create shareholder value is not a transitory fad; it will become a permanent part of management's strategic response to shifting economic forces such as deregulation, technology and global competition...''
MARKETS _ A CENTURY IN RETROSPECT: 1997 crash
OCTOBER 1997. The global media was on a trip down memory lane. After all, it was the tenth anniversary of the (in)famous 1987 crash when the Dow Jones Industrial Average lost 22 per cent on Black Monday in a price move that had repercussions in markets a
round the world.
Mutual Funds
`We're trying to time the market' _ Mr. K. N. Atmaramani, Managing Director, Tata Mutual Fund
AFTER lagging behind its peers initially, Tata Mutual Fund has bounced back. In 1999, most of its schemes generated returns in line with the industry performance. Mr. K. N. Atmaramani, Managing Director, Tata Mutual Fund, spoke to Business Line on the fu
nd's investment policy and focus.
Rate cuts: A fund view
KOTAK Mahindra Mutual Fund has stated that the cut in interest rates on small savings and the Public Provident Fund by 1 percentage point was a positive step by the Government. It has said that the move would enable the banking system to reduce lending a
nd deposit rates and lead to a shift of funds from small savings to private debt and equity instruments.
Magnum IT Fund: Capture the opportunity
THE Magnum IT Fund, a sectoral fund of SBI Mutual Fund, has performed well since its launch in July 1999. The NAV of the fund is around Rs. 35 per unit. With both first- and second-rung IT stocks going through a corrective phase, this may be a good time
to buy into the portfolio that is already in place. The Magnum IT portfolio is well-placed to capture opportunities for value gains across a range of IT stocks.
MUTUAL FUND OFFER
IL and FS Mutual Fund, which had entered the mutual fund fray in July 1999, is now launching a sector-specific fund. And, not surprisingly, it has opted for a fund which will focus on the technology sector, though the name may suggest the Internet sector
. The fund has given itself a fairly wide investment ambit in the technology sector.
JM Balanced Fund
ONE of the first open-end balanced funds to debut in the market _ the JM Balanced Fund _ has had a mixed track record of performance. After performing quite well in the initial years, the performance slackened in 1998 and again picked up in 1999. Since i
nception, the scheme has turned in a compounded annual return of around 13 per cent and has offered both a growth and a dividend plan since inception. Portfolios of the two plans were separately disclosed until the first quarter of 1999, after which the
fund discontinued this practice. It now discloses a single portfolio for both plans put together.
DSP Merrill Lynch Balanced Fund -- Offbeat but safe strategy
THE DSP Merrill Lynch Balanced Fund, launched in May 1999, has recorded a holding period return of around 35 per cent in the seven months since inception. This is just about equivalent to the appreciation in the BSE Sensitive Index (Sensex) over the same
time frame. For a balanced fund, with a debt component of around 40 per cent, this is a reasonably good performance.
Scrip Scan
Apollo Tyres: Firm grip and steady growth
THE sustained uptrend in automobile output since January 1999 has had a positive impact on stocks from the automobile tyre segment. With its aggressive foray into the radial tyre market, and the possibility of Continental picking up a stake, investors c
an take another look at Apollo Tyres.
Healthy and wealthy
PHARMACEUTICAL stocks seem to have lost their charm in the stock market in recent times. This could probably be due to the disappointing financial performance by some of them this fiscal. But there are some fundamentally strong companies that have the su
pport of their global parents making them good investment bets over the long term.
Swaraj Engines: Revving up
A SOLID financial base coupled with a recovery in the automobile sector is likely help the fortunes of Swaraj Engines. But the lower growth rate in fiscal 2000 of Punjab Tractors, compared to that of the industry, could have a negative impact on the comp
any's fortunes. The performance in the recent past indicates that the company was not affected by the cyclical nature of the user industry, mainly due to its beating the industry trends. In this backdrop, the stock can be considered for investment from a
long-term perspective.
