Portfolio Guide

KLG SYSTEL
Q
I have a huge chunk of KLG Systel @ Rs 66. What is the future
of the company?
- Firoj Rout, Email

KLG Systel (BSE Code 531269) is currently trading at Rs 165.20

A (52 week high/low Rs 471.25/47.40). KLG’s principal activity is to
provide software, information technology solutions and IT enabled
services mostly to the domestic power, manufacturing and infrastructure
sectors. It’s a leading software development and services company providing
Organization Life Cycle Solutions. For FY09, on a consolidated basis, KLG
recorded YoY de-growth of 14 per cent and 36.60 per cent in its topline and
bottomline respectively. One major reason for this de-growth in the KLG’s
bottomline is the rise in interest cost by 459.16 per cent that stood at Rs
10.68 crore in FY09.
However, the company has been one of the beneficiaries of the orders from the state utilities and in FY09 KLG had in
totality received orders worth over Rs 240 crore. In April 2009, KLG got itself empanelled as an IT implementation agency
for three roles viz. that of system integrator, GIS solution provider, and meter data acquisition solution provider under the
Restructured Accelerated Power Development and Reforms Programme (R-APDRP) with a total outlay of Rs 50,000 crore
for the entire industry. Such development augers well for KLG as it might give a decent push to its topline in the coming
period. As per the available information, the company has intended to buy back its outstanding FCCBs worth USD 16 mil-
lion and has also reset the conversion price of these FCCBs at Rs 350 per share from its earlier price tag of Rs 400 per share.
However, looking at the current market condition, we would recommend you to book profit in the counter.

STATE BANK OF TRAVANCORE

Q
I have bought ten shares of State Bank of Travancore (SBT) @ Rs 6,500 shares with a face value of Rs 100. Kindly
suggest whether I should hold or sell the shares.
- N Easwaran, Chennai
State Bank of Travancore (SBT) (BSE Code 532191) is currently trading at Rs 470.10 (adjusted for split in the ratio of
A 10:1) with a 52 week high/low Rs 3,598.85/176.10. SBT is an associate of the State Bank of India and a member of the
State Bank Group. For FY09, SBT recorded a decent growth in its financials. During the same period, SBT recorded a
top-line and bottom-line growth of 21.26 per cent and 57.43 per cent respectively on YoY basis.
Such impressive bottomline growth was mainly on account of the bank’s operational efficiency. The bank’s deposit and
advances recorded a YoY growth of 18.92 per cent and 16.26 per cent respectively. But the most fascinating fact is that
the bank has not only managed to post such a performance but has also managed to record a decline in its gross and net
NPAs.
For FY09, the bank recorded a net NPA of 0.58 per cent as against 0.95 per cent a year ago. The gross NPAs
that stood at 1.65 per cent in FY09 recorded a fall of 36 basis points over the last year. The bank seems to be well
capitalised considering the fact that the bank’s capital adequacy ratio (Basel II) is 14.03 per cent as against 13.53
per cent last year. On the valuation front, the counter is currently available at a P/E of 3.87x of its FY09 earnings.
While looking at the P/ABV (adjusted for net NPAs) of 1.14x, our recommendation is that you should hold the counter for
a longer period.

Readers are requested to send only one company query at a time so that more people get a chance. For complaints regarding non-receipt
of dividend, bonus rights and other matters investors may write to www.investor.sebi.gov.in

Company Name:
Query:
Vol. No. XXIV No. 17
Send in your queries:
DSIJ LTD.,
Name: 101 A, 1st Floor, Uttam House,
69, P. D'mello Road, Near Carnac
Address: Bridge, Mumbai-400009
E-mail:
E-mail: editorial@dalalstreetjournal.com

10 Dalal Street Investment Journal Aug 3 - 16, 2009 www.DSIJ.in


Uncommon Leader
They were very aggressive in the mar-
ket place and the stock market lost
faith in us thinking we wouldn’t be
able to survive. This was reflected in
our price to earnings multiple drop-
ping dramatically from 13 to 7 in less
than 3 years.
What gave you the confidence to take on
Hindustan Lever?
We had faith in our capability.
Also, products based on coconut oil
were everything for us, whereas for
Hindustan Lever it was a small part
of their operations. Also, we knew the
business and had market leadership.
What lessons did you learn from that
experience?
This experience taught us that we
can take on bigger giants if we galvanise
ourselves. If you have the strength with-
in you, you are not overawed by MNCs
and other giants. You have to be perse-
verant, despite short-term reversals.
What steps did you take to convert coconut
oil into Parachute brand so that customers
happily pay a premium price?
Firstly, innovation in packaging
– sachets, pouches, bottles and large
packs. Secondly, multiple price points
and mass distribution. And, lastly, over-
all brand creation with a combina-
tion of advertising and merchandising.
Parachute has become an iconic brand.
Marico today is an admired FMCG com-
pany with footprints in more than 26
countries. How did this transformation
happen?
In the early ‘90s, we noticed some
of our coconut oil products were being
smuggled to Middle East. That gave
us a good opportunity to grow in the
Middle East market. Then our survey
in Bangladesh showed that it was a
very big coconut oil market. We rep-
licated there what we did in India and
increased our market share from zero
to 73 per cent in Bangladesh. Today,
we are the largest Indian company in
www.DSIJ.in
Our experience
taught us that
we can take on
bigger giants if we galvanise
ourselves. If you have the
strength within you, you are
not overawed by MNCs and
other giants.
Bangladesh in terms of turnover.
Did the Bangladesh experience help?
That experience has really helped in
increasing the growth engines in the
organisation and leveraging opportuni-
ties of our brands outside India. It pro-
vided other learning experiences too! For
example, catering to modern trade in the
Middle East helped us cater to evolving
modern trade in India. It also pro-
vides employees good opportunities for
career growth.
What was your strategy for the interna-
tional markets?
In international markets, the first
phase was organic growth. But organic
growth is a long drawn process. Now
we are a little impatient in terms of
growth and started surveying markets
in Asia and Africa. We identified brands
for acquisition through proactive target-
ing and have presence spanning across
26 countries in Africa and Middle East.
Marico is now moving into service - Kaya.
What is the difference between managing a
brand and managing a service business?
It’s very different. We may be the
only FMCG company which has suc-
cessfully made this transition globally.
Nurturing a service brand requires dif-
ferent focus. In service, we are dealing
with individual customers and individ-
ual feedback. There is active interaction
and delivery of experience with one cus-
[ VALUE-ADDED INTERVIEWT ]
tomer at a time. In FMCG business, we
manufacture and distribute our brands
to retailers and create demand through
advertising. We don’t interact with the
consumers. We had to change our way
of advertising as our service brand didn’t
have the large budgets that FMCG
brands had. So more of PR and events
were used to create awareness.
What were the learnings from your new
business?
When you start any new interna-
tional or domestic business, you have
to remove the “Escape” buttons. It is
the first step to success. When we start-
ed the international business, we hired
a CEO though the business was not
large. When a guy is fully responsible
for the international business, he will
constantly look out for opportunities
to grow that business.
On environmental issue, how bio-degrad-
able is the Parachute pack?
I think that’s a valid point. Plastics
add a lot to environmental degrada-
tion. We have reduced weight of the
bottle to the minimum. This pro-envi-
ronment initiative and investment has
paid us back financially because we
have reduced lot of weight.
Private labels are the biggest threat for an
FMCG. How are you tackling this threat?
The best strategy to fight private
labels is to have a strong brand and keep
Aug 3 - 16, 2009 Dalal Street Investment Journal 21
 View Point
YAMAL VYAS
SUCCESS FORMULA
Most long-term investments
in the primary market give
positive returns.
FOR THE FUTURE
Shares acquired through
public issues have helped
thousands of investors build
huge portfolios.
24 Dalal Street Investment Journal
Play The IPO Series
At a time when the markets are suffering from erratic
behaviour, the forthcoming IPOs will offer investors a
good opportunity to build a strong portfolio
T
he recent developments that
have taken place in the market
have left many of the retail
investors confused. The market rose
sharply after the poll results were
declared. The degree of rise was unduly
high in view of most investors. Yet the
market continued merrily without any
major correction up to the Budget.
The recovery subsequent to that has
also been quicker and sharper than
expected. All these developments bring
us to one fact: the investor of 2009 is
finding it much harder to understand
and predict the market.
Then what should the investor
be doing to stay and prosper in the
market? Well, there is one mode of
investment which has not changed
much in form over the years, and
that can still yield good returns for
the retail investors - the IPO market.
IPOs had dried up soon after the big-
gest issue ever viz. the Reliance Power
IPO in January 2008. The draught
was mainly because of the negative
returns earned by the investors in that
IPO and also the fact that the global
equity markets had fallen sharply for
more than a year.
This situation has now changed,
first in the secondary market as it
always does, and now, it seems in the
IPO market too. The first major IPO
after the R Power experience is also
from the energy sector. Adani Power
seems to have learnt many lessons
from the R Power saga, and has priced
the issue lower. The Adani Power IPO
would have closed by the time you
receive this copy, and the issue is not
Adani Power, but the scope of invest-
ment in the primary market.
Most retail investors have an inter-
est in investing in the primary market.
Especially now that the system has
been strengthened to ensure return of
(The writer is the founder of indiainvestment.com)
Aug 3 - 16, 2009
investor money in less than a month.
There is lower risk in the IPO market
too, as no company will price its issue
exorbitantly high except in extreme
cases. Because of this, the returns are
never highly negative, and most long-
term investments in the primary mar-
ket give positive returns.
Similarly, the amount involved in
any IPO is usually not very high.
Usually in a popular IPO the allotment
on an application of Rs 1 lakh would
be less than 10 per cent. In the Rpower
IPO each retail investor was allotted
shares of less than Rs 8,000 per Rs 1
lakh application. Thus the amount tied
up in a wrong bet would also be such
that the investor will not lose sleep.
The IPO market thus still remains
a low-risk and relatively low-return
investment option. And exceptions like
Maruti and IDFC in recent times or
Colgate and Hindustan Unilever of
the previous generation have made
millionaires.
The market is likely to be flooded
with IPOs if all goes well. We have
NHPC, OIL and a few more PSUs
hitting the market before this finan-
cial year closes. And once the initial
issues are accepted well by the market
and the retail investors make money
in the short term, there is likely to
be a flood of IPOs from all kinds
of private sector companies in the
coming months.
This will be a good opportunity for
retail investors to build a long-term
portfolio of good stocks. One has to
pick and choose, but the fact remains
that shares acquired through public
issues have helped thousands of inves-
tors build huge portfolios over the
last three decades. The trend does not
seem to have changed much in the IPO
market over the years. Take full advan-
tage of that. DS
www.DSIJ.in

project has been awarded in con-
sortium with John Laing of United
Kingdom and Sadbhav Engineering.
The financial closure of the project is
yet to be achieved.
HCC’s real estate venture is led by
HCC Real Estate (HREL). Till now
company has only one project to its
credit – that of 247 Park at Vikroli
Mumbai which is to develop 1.8 mil-
lion sq feet of commercial area spread
over three towers. Out of the total area
available, the company will occupy
0.18 million sq feet and the rest will
be available for lease. The average lease
rental in this area as of now is at Rs
70 per sq feet. HREL expects to gen-
erate approximately Rs 100 crore of
revenue per annum from this project
once the total area has been leased
out. However, as of now only 50 per
cent of the area has been leased. The
Ajit Gulabchand concerned authorities to answer our
CMD, query on when will the project be fully
HCC operational were not available.
One of the most ambitious projects
HREL has undertaken is the develop-
ment of a hill city called Lavasa near
Pune. This is spread over an area of
12,500 acres. The company has a plan
to develop four towns in Lavasa over
the next 12 years at a total cost outlay
HCC One Year Price Graph of Rs 1,40,000 crore. The first in this
series is Dasve which is expected to be
BSE Code: 500185 completely operational by end of 2010.
CMP: Rs 111.00
FV: 1 This year (FY09), Lavasa Corporation,
Volume: 7054568
Date: 24/07/2009 the company that is spearheading the
project, has booked its maiden revenue
to the tune of Rs 212 crore. Out of this
total revenue a major chunk was due to
sale of land to institutions at an average
rate of around Rs 20 lakh per acre. The
profit recorded from this project was
Financial Snapshot For FY09* Rs 123 crore.
PARTICULARS (Rs/Cr.) This project has been able to attract
Sales (Net) 3560.30 investment from various financial
% change from FY08 17
institutions such as Axis Bank, Bank
Net Profit 99.50
% change 15
of India etc and the latest among
Equity 256.32 them is Indusind Bank which has
Face Value 1.00 invested Rs 50 crore. According to
CMP (Rs) 113.40 back-of-envelope calculations (Rs
EPS (RS) 4.89 531.25 crore invested by various insti-
M-Cap 3447.95 tutions for a 5.3125 per cent stake),
P/E (X) 23.19 the total value of the project works
M-Cap/Sales (FY09) 0.97 out to be Rs 10,000 crore. At the end
Dividend (Rs) 0.80 of FY09 HCC holds a 64.99 per cent
Promoters(%) 40
stake with Lavasa Corporation. The
Institutional (%) 34
company has plan of unlocking the
*Figure is on consolidated basis
value by selling the shares of Lavasa
www.DSIJ.in
[ ANALYSIS ]
Order Book Break-up (FY09)
Corporation to the general public any
time at the end of 2010.
Financial Performance
And Valuation
For FY09 the company’s sales have
grown by just 7.5 per cent on a stand-
alone basis and profit grew by 15.2 per
cent on a YoY basis. Profit outpaced
increase in sales due to an improve-
ment of its EBIDTA margins from
11.9 per cent in FY08 to 13 per cent in
FY09. This was mainly due to a reduc-
tion in commodity prices and change
of project portfolio. Even during the
boom years the company’s sales and
profit have not moved at an astound-
ing pace. HCC’s revenue has been
growing at a compounded rate of 22
per cent in the last four years (between
FY05-FY09) and its profit has grown at
an even slower pace of 16 per cent.
The company has achieved this slug-
gish growth in its topline and bottom-
line despite an increase in its total assets
by 44 per cent in the same time period.
One of the reasons for its low utilisation
of assets is its diversification into a sec-
tor such as power which is more capital
intensive and calls for a longer gestation
period. This has led to a lower fixed
asset turnover for the company which
declined from 4.5 times in FY06 to 3.18
times in FY09. A major part of its assets
has grown due to an increase in its debt
portion which grew at a CAGR of 53
per cent. At the end of FY09 the com-
pany carried a total debt of Rs 2,321.8
crore which translates into a debt equity
ratio of 2.2 times. Out of this total debt,
around Rs 450 crore is towards FCCBs
which the company issued in FY06
to finance its expansion and working
capital requirements. It has a conversion
price of Rs 248.08 per share and is to be
redeemed by 2011.
The CMP of the company’s
Aug 3 - 16, 2009 Dalal Street Investment Journal 27
 Market Moves
USA
5.76% (3.78)
BRAZIL
Figures represent performance of 6.35%
indices during
(45.27)
Welcome To The Feast
The past fortnight has been one of merriment with most of the scrips recording an upward
movement but the shortage of rainfall has been a cause for concern, reports Amit Bhanot
I
t seems that the stock markets are
in a merry mood and betting on
the Indian growth story in a big
way. Ever since the announcement of
the budget the markets have been in
the firm grip of bulls, hovering above
the 15,000 mark that they had man-
aged to reach after the election.
The BSE Sensex opened strong at
14,351 points on July 16 and then
gained momentum continuously to
reach its peak of 15,463 points on July
28 before closing at 15,331 points,
thus gaining 979 points during the
fortnight. In the same way, NSE Nifty
opened at 4,223 points on July 16
and touched its lowest level of 4,205
points on the same day but then gained
momentum to touch its highest level
of 4,599 points before closing at 4,564
points, thereby gaining 394 points dur-
ing the fortnight.
As far as the performance of the
FIIs was concerned, they exhibited full
confidence in the Indian stock market
with a net purchase of a whopping Rs
3,215 crore. Meanwhile, the Indian
32 Dalal Street Investment Journal Aug 3 - 16, 2009
UK
5.51% (3.42)
GERMANY
6.72% (9.17)
the fortnight. Figures in brackets represent YTD performance
mutual funds also looked positive with
a net purchase of Rs 1,346 crore dur-
ing the fortnight. On the combined
turnover front of the NSE and BSE
markets, the volume inflated in a big
way ranging between Rs 24,777 crore
and Rs 28,051 crore – spelling a big
positive for the markets.
In the last fortnight, US Dow gained
5.67 per cent indicating an improve-
ment in the country’s economy. The
biggest gainer of the fortnight was
Hong Kong’s Hangseng with a rise of
8.36 per cent followed by Singapore’s
STI, Japan’s Nikkei, China’s Shanghai
Composite, Germany’s Dax, Brazil’s
Bovespa and South Korea’s Seoul
Composite with a 7.84 per cent, 7.39
per cent, 7.02 per cent, 6.72 per cent,
6.35 per cent and 5.98 per cent rise
respectively.
On an individual level, the per-
formance of 1,845 stocks appreciated
during the trading sessions while that
of 723 stocks tumbled. As many as 37
stocks remained unchanged. As far as
the individual gainers are concerned,
TAIWAN
2.40% (53.08)
JAPAN
7.39%
(13.87)
CHINA S KOREA
7.02% 5.98%
(88.66) (35.53)
HONG KONG
INDIA 8.36% (40.75)
6.83% (58.92)
SINGAPORE
7.84%
(46.27)of indices
Gujarat NRE Coke was the biggest
gainer with a 36.79 per cent jump fol-
lowed by Godrej Consumer Products,
DLF, Bharat Forge and Tata Motors
with 30.17 per cent, 30.02 per cent,
27.25 per cent and 26.58 per cent rise
respectively. On the other hand, Union
Bank was the biggest loser with a 8.88
per cent decline followed by Thermax,
Max India, India Cement and LIC
Housing Finance, which declined by
8.22 per cent, 7.84 per cent, 7.53 per
cent and 7.22 per cent respectively.
Considering the present mood of
the markets it seems likely that the
next few days will witness a lot of
profit booking. Also, the progress of
the monsoon season (or rather the lack
of it) could play a spoilsport in the
honeymoon of the bourses since many
states have announced that a large
number of their districts have been hit
by drought. Taking this into consider-
ation, it would be best to book at least
part of the profit. It brings to mind the
adage that is always better to have one
bird in hand than two in the bush. DS

fear makes them flee away from the
market when they should be flocking
to buy.
The fundamentals of the compa-
nies do not change everyday, yet the
share prices move up and down daily.
This volatility is due to the third
‘E’ which stands for ‘events’. Events
impact emotions or sentiments in a
positive or negative way. Not only the
events per se, but also how these are
presented by the media impact the
sentiments. Based on the presenta-
tion and interpretation of the events,
people make decisions by taking short
cuts without processing the informa-
tion (known as heuristic in the behav-
ioural finance) based on how quick
the information is received.
“We have a herd mentality in the
market and when we don’t understand
anything in the market, we try to do
things that are done by majority of
the people so that, if we go wrong,
we will have the solace that everyone
has gone wrong. The effects of events
on the markets are basically short-
lived, unless these have long-term
implications,” says Parag S. Parikh,
Chairman, Parag Parikh Financial
Advisory Services.
Markets are rational in the long
run, however, the events and their
effects turn the market irrational in
the short run. So, if you remain ratio-
nal when the markets are behaving
irrationally, you can make money. To
put it simply: buy when everyone is
selling, and sell when everyone is buy-
ing – kind of value buying. But this
is easier said than done. “People are
not actually rational and the reason
is that we have a mind and a heart.
We are supposed to make decisions
with our mind but if decisions are
made from the heart, then they may
not be of financial interest and that
is the crux of the financial prospect
theory of behavioural finance. Good
decisions are always made when there
is less noise, so one should not always
follow the ticker and the news chan-
nel,” advises Parikh.
Now let’s look at some of the
events which have an impact in the
short term.
MONSOON
www.DSIJ.in
The monsoon doesn’t impact the
equity markets directly, but it has
deep implications for the growth of
economy. Deficient rainfall has the
double whammy effect on the econ-
omy, as it not only leads to higher
inflation, but also adversely impacts
the overall demand in the economy.
Deficient rainfall results in decline in
agricultural produce, which hugely
impacts the food prices in a highly
populated country like India, pushing
inflation at higher levels. Agricultural
activity hugely depends on good mon-
soon and contributes 15 per cent to
the GDP and massive 60 per cent of
total employment. As majority of our
population’s earnings depend on agri-
cultural activity, it directly impact the
prices of commodities and indirectly
affect demand in the country.
BUDGET
Since 1993, out of 17 occasions,
market has tanked on the budget
day 11 times. This is because the
capital market players eagerly await
the Union budget with lot of expecta-
tions. Every industry, investor or an
individual would expect the budget
to bring goodies for them. The expec-
[ COVER STORY ]
tations are infinite but the means
to satisfy them are limited, so not
everybody can be pleased. Thus, for
most of the times, large part of these
expectations go unfulfilled.
During P Chidambaram’s ‘dream’
budget of 1997, the markets rose
by an impressive 6.53 per cent
on the budget day, which is high-
est rise in the last 17 years. The
budget laid down the road map for
economic reforms in India, lower-
ing income tax rates, removing sur-
charge on corporate tax and reducing
corporate tax rates. However, as
explained earlier, the impact of the
budget has always been short-lived on
the market.
ELECTIONS
When the Lok Sabha Election’s
results were announced, the market
went euphoric and rose by whop-
ping 17.34 per cent and hit the
upper circuit after the ruling United
Progressive Alliance’s (UPA) returned
to power. The UPA winning by a
clear majority meant political stabil-
ity at the Centre without the Left
parties which were perceived to be
anti-reforms. The markets and most
political pundits expected that the
2009 elections would throw up a
hung parliament and, therefore, an
unstable government at the Centre,
but the election results gave a pleasant
surprise for the market and within a
month (April – May 2009), it went up
by 28.26 per cent. Political stability is
good for the growth of the economy
and for the equity markets. However,
election results earlier have not too
good for the market. Since 10th Lok
Sabha elections, i.e. out of six elec-
tions, the market has rejoiced only
twice on the outcome of the elec-
tions and been in the positive zone.
Markets had gone up by 10.32 per
Aug 3 - 16, 2009 Dalal Street Investment Journal 67
 Cover Story

THE TIME FACTOR

W
e have talked SMART STRATEGY (Gain/loss in%)
a lot about the Period Ending Enter Nov End,
events and how Exit February End
these impact the movement of broader February-92 59
indices. Now, we will try to explore time as February-93 5
an event (i.e. different months of the year) and February-94 33
find out how it influences returns. For our analysis,
February-95 -17
we took data since 1991 to understand if there are any
February-96 13
‘auspicious’ months when the market generally tends
to give positive returns. Out of total 222 months, there February-97 26
were 125 months when the market gave positive returns. February-98 2
The month of December has the distinction of outperforming February-99 21
all other months, it has given negative returns only three times February-00 18
followed by July, which has closed below its opening on five February-01 6
occasions. The average return for the month of December since February-02 8
1991 is four per cent and if we annualize it, the return is a whopping February-03 2
48 per cent. In terms of negative return, it is the month of March February-04 12
which seems to be the most ill-fated which has given negative return February-05 8
thirteen times out of a total 19 years followed by October which has February-06 18
given negative return for eleven years. Hence, one can draw a logical February-07 -6
conclusion that since October and March being the worst months in February-08 -9
terms of investment returns and December and February being the February-09 -2
best months, one can enter the market at the end of November and exit
before March or at the end of February to get fantastic returns. Out of
eighteen times, this strategy would have given positive results 14 times,
with median return of eight per cent, and annualizing it makes it a return
of 32 per cent. From the above empirical evidence, it might appear that LUCKY MONTHS
investing only for three months of a fiscal year will give decent returns to Month Since 1991
investors, but this may not hold true always. As can be observed in the Positive Returns
last three years, this strategy would have given negative returns. But there December 15
is no harm in trying the strategy. So we tried to understand this better July 13
returns from numerology perspective. And this is what Swetta Jumaani, February 12
eminent Numerologist has to say “Jupiter is the planet of wealth and 20th June 12
of November to 20th of December is ruled by Jupiter therefore such August 11
good returns in December, even 20th of February to 20th of March September 11
is ruled by the Jupiter but in negative form therefore they have such
negative return”.
The other way in which we can take time as an event is to
resort to astrological method. The formation of celestial bodies UNLUCKY MONTHS
in a definite way may prompt the market to move in a certain
Month Since 1991
direction. Vijay Kumar, an astrologer and a regular columnist with Negative Returns
Dalal Street Investment Journal (Hindi), had predicted various March 13
events such as fall of the market in September 2001. “Once October 11
the Jupiter becomes weak it will have negative effect on the January 10
stock market for medium to long term, and for shorter time
April 9
period, it’s the position of Sun and Moon that determines
May 9
the fate of market,” says Kumar.
November 9

72 Dalal Street Investment Journal Aug 3 - 16, 2009 www.DSIJ.in


cially faltering domestic demand.
It is very important to note that
private consumption has taken a lot of
beating as is reflected in the Q4’08-09
GDP number. The private final con-
sumption expenditure (PFCE) grew
by a meagre 2.7 per cent YoY in Q4,
thereby dragging down the annual
increase to only 2.87 per cent. So far,
there is no sign that domestic demand
has really picked up on a sustainable
basis. Increasing corporate tax collec-
tion is not an indication of economic
recovery at this point in time. This is
because, while a number of corporates
have been able to record improved
profit margins, it has lot to do with
aggressive belt-tightening measures in
response to the difficult business envi-
ronment rather than real increase in
revenue. In fact, overall revenue grew
ever so slowly. This indicates that there
has not been much revival in domestic
demand as is claimed by the propo-
nents of green shoots.
Now, we need to understand India’s
deficit scenario. The following equa-
tion is useful for better understanding:
Fiscal deficit = primary deficit + net
interest payment
In the chart given above, the widen-
ing gap between the two, therefore,
reflects the cost of India’s fiscal profli-
gacy, i.e., interest payment. In the last
financial year, net interest payment con-
stituted 59.02 per cent of India’s fiscal
deficit. For the current year, it is bud-
geted to be 56.25 per cent. This means
that more than 50 per cent of India’s
borrowing need is required to meet
only the interest obligations. While this
in itself is not a comforting signal, does
that necessarily mean that the remain-
ing amount that is borrowed is used
for productive purpose? Not quite so.
To understand this, it is important to
understand the revenue deficit trend.
Last year, the revenue deficit was close
to 74 per cent of the fiscal deficit. For
the current year, it is budgeted at nearly
71 per cent. This implies that more than
70 per cent of government’s borrowing
would be utilized to meet the govern-
ment’s housekeeping expenses, leaving
the rest for investment. As a result,
when the economy was growing at a
very fast pace, wasteful expenditure kept
on increasing. For example, in a recent
report, the Planning Commission found
www.DSIJ.in
(Source: RBI Handbook of Statistics and my calculation)
out that for every one rupee that reaches
a BPL (Below Poverty Line) household,
the government spends Rs 3.35 on the
logistics, resulting in a huge wastage. As
a result, after having met with all expen-
ditures, there’s hardly much left with the
government to invest gainfully.
That apart, virtually all the focus of
stimulus package (during the current
budget) was aimed at such socially rel-
evant projects. While increase in social
sector investment is praiseworthy, the
fact is the growth multiplier of such
investments is much less than that of
investments in various areas of physical
infrastructure.
Not surprisingly, while the recent
Economic Survey stressed the need
to spend about 9 per cent of GDP on
infrastructure during the 11th Five
Year Plan (2007-2012), the envisaged
investment in infrastructure during
the current financial year is still less
than 5 per cent of expected GDP. And
even this might not materialize if there
is further strain on resources. This,
in fact, is quite a possibility since the
budget makes no provision for the pro-
posed Food Security Act and assumes
that current global prices of oil and fer-
tilizers will not rise. Moreover, it opti-
mistically projects a 15 per cent rise in
corporate tax receipts, even as income
tax revenue declines 9 per cent.
Clearly, there is very limited capa-
bility of the government to provide
the right kind of economic stimulus.
In contrast, China, which recorded a
GDP growth of 7.9 per cent in Q2
of 2009 was able to do so because of
[ SPECIAL REPORT ]
the effect of huge stimulus package
(about USD 579 billion). The aim
of the package was to boost domestic
consumption through higher spending
on construction of highways and other
public works.
Hence, the domestic demand is
unlikely to ratchet up the GDP growth
number to the desired extent. This
leaves external demand to come to the
rescue. And India’s export performance
has been anaemic at best ever since
October last. And, during the last three
months, India’s exports in dollar terms
were down by more than 30 per cent on
an average. While in the month of May,
the decline was marginally lower at 29
per cent as compared to over 33 per cent
in the previous two months, the extent
of decline is still very high for comfort.
Going forward, it is likely to remain
soft, given the global scenario. While
there are some signals that the US
economy might bottom out towards the
end of 2009, a closer look at the data
does not give confidence that there will
be a 'U'-shaped recovery. The recovery
is likely to be very slow and one cannot
also ignore the possibility of another dip
going forward. And the less said about
Europe, the better.
On the whole, therefore, there would
be enough constraints that would hold
back the economy this year and even
years to come. DS
Kunal Kumar Kundu is the
Client Operations Head of Infosys BPO.
Views expressed by the writer are his own
Aug 3 - 16, 2009 Dalal Street Investment Journal 75
 Special Report

JUNE QTR RESULTS

Ready, Steady, Go!

To go by corporate India’s results being posted for the first quarter of the new fiscal, it
does seem that our economic situation is finally out of the woods. However, a lot also
depends on how the monsoon fares, reports Kaustubh Ghotikar

I
t’s the first quarter of the new fiscal
and though there is a general sense
of better results from India Inc,
investors are still excited about the June
quarter results. And why wouldn’t they
be when companies are posting better
than expected results. May it be Infosys,
TCS, Maruti or any of these bigwigs, all
have pleasantly surprised the investors
and performed quite well. The market
too has given its due after these scrips
surged on the bourses to catch up with
the valuations. In our cover story on the
Q4FY09 results we had predicted that
the June quarter results would be better
and with the initial numbers that are
pouring in, our prediction is certainly
coming true.

76 Dalal Street Investment Journal Aug 3 - 16, 2009 www.DSIJ.in


Investing Is A
Good Addiction
Most people put off their investment plans due to
deep-rooted fears. However, shed these off and create
Hemant Rustagi
for yourself the right strategy to earn rewards through
CEO,
Wiseinvest Advisors
investments
KEY POINTS
• An important ingredient for success in investing is not to lose
sight of your long-term objectives.
• Also, explore other possibilities rather than abandoning your
long-term investment plan in a hurry.
sn’t it strange that while most of us work hard
I to earn, we do not show the same intensity and
seriousness at the time of investing it? No won-
der many people around us delay the process of
investing either for the fear of losing their hard-
earned money due to wrong investment decisions or thinking
that they do not have sufficient money to begin with. The fact,
however, is that investing is an on-going process, not a one-time
activity. Therefore, even if one doesn’t have a lump sum in the
beginning, the process of capital building can be started through
small contributions. There are effective investment options like
mutual funds that not only allow you to begin with a modest
sum but also provide you the best in terms of variety, liquidity,
flexibility, tax efficiency and professional management. Though
investing is a very simple process, a haphazard approach to
investing can be suicidal. Remember, investing money requires
planning, perseverance and time commitment. Here’s what you
should do to ensure success on a consistent basis:
Take The Right First Step
Don’t begin investing unless you have determined your
investment objectives i.e. long-term as well as short-term ones,
the right asset allocation as well as the investment vehicle to
achieve each of these. Simply put, there are three steps that can
help determine an action plan. First, begin by making a list of
personal and financial goals during short, medium and long-
term horizons. For example, in the short term, you may want
to buy a car; in the medium term you may like to provide for
children’s education; and in the long run, retirement funding
could be an objective. Second, you need to assess your current
position in the financial lifecycle. Third, you must decide as
to how much risk you are willing to take to earn your targeted
returns. This is critical as different financial objectives require
different investments.
Try To Balance Risks And Rewards
Many of us make the mistake of underestimating risks
www.DSIJ.in
IN FOCUS
and/or overestimating rewards from an investment. One needs
to be careful about this aspect of investing. By estimating the
risks associated with each of the investment options, you can
improve your chances of building greater wealth.
Select Appropriate Investment Option
In an ever-changing financial environment, it pays to invest
in smart options like mutual funds. Though investment risks
and economic uncertainties can never be eliminated, profes-
sional management of your money in mutual funds can help
you tackle them more efficiently. However, to benefit from
their expertise to the fullest, it is necessary to invest in the right
type of fund i.e. the one whose objective matches with yours.
Focus On Tax Planning Too
Many of us have the habit of investing
in a haphazard manner to save taxes. That’s
because we consider investments a burden
rather than a tool to get the best in terms
of saving taxes as well as making our money
grow. There is a need to integrate these
investments into your overall investment
programme. Besides, you need to adopt
a disciplined way of investing rather than
investing at the fag end of the year. By
doing so, you can not only invest in the
right options but also achieve your goal of investing on a regu-
lar basis. After determining your overall exposure to equities,
you can invest a part of it in Equity Linked Savings Schemes
(ELSS) of mutual funds. Being equity-oriented funds these
have the potential to provide better returns than most of the
options under Section 80 C. Another notable feature is the tax
efficiency in terms of returns earned through them.
Asset Allocation Is Important
It is quite common to see investors showing complete
disregard to their asset allocation in a bull market. Obviously,
in their quest to maximise the returns, the risks associated
with the portfolio imbalance are totally ignored. While an
equity market requires a long-term commitment, it is equally
important to maintain proper asset allocation. Portfolio re-
balancing is a process of bringing the different asset classes
back into a proper relationship following a significant move
in one or more.
Aug 3 - 16, 2009 Dalal Street Investment Journal 83
 MUTUAL FUND DATABANK
A. EQUITY FUNDS
NAV Inception Fund Size Three Six One Three Since
Scheme Name (24/07/09) Date (Rs. Cr) Months Rank Months Rank Year Rank Years Rank Incep. Rank
Appr.* Appr.* Appr.* Appr.* Appr.*
AIG India Equity Fund - Reg - Growth 9.52 22/06/07 488.61 39.02 75 75.69 48 7.90 58 -- -- -2.31 140
Birla Sun Life Dividend Yield Plus - Growth 54.89 26/02/03 255.25 37.33 88 56.83 138 28.55 1 18.2 28 30.42 12
Birla Sun Life Equity Fund - Growth 204.95 27/08/98 1112.11 40.26 63 73.66 57 7.17 62 18.38 25 31.88 9
Birla Sun Life Frontline Equity Fund - Growth 66.25 30/08/02 788.96 38.89 74 71.94 63 15.56 16 22.32 8 31.50 9
Birla Sun Life India GenNext Fund - Growth 17.25 05/08/05 94.77 31.38 144 52.65 147 8.15 54 16.16 44 14.72 65
Birla Sun Life India Opportunities Fund - Growth 38.50 27/12/99 42.99 42.75 48 78.24 40 -3.70 134 0.68 114 5.19 112
Birla Sun Life Long Term Advantage Fund - Growth 10.43 10/10/06 291.46 35.63 103 66.08 101 4.30 83 -- -- 1.52 128
Birla Sun Life Long Term Advantage Fund - Sr 1 - Gr. 8.15 31/05/07 234.11 47.62 25 72.20 64 3.41 89 -- -- -9.06 153
Birla Sun Life Mid Cap Fund - Growth 78.34 03/10/02 592.14 51.59 10 85.55 21 13.22 21 20.28 14 35.29 4
Birla Sun Life Special Situations Fund - Growth 8.17 31/01/08 585.57 34.71 109 66.96 91 3.02 93 -- -- -12.80 158
Birla Sun Life Top 100 Fund - Growth 17.19 24/10/05 348.43 31.89 138 58.43 129 9.35 43 12.77 76 15.54 60
DBS Chola Contra Fund - Growth 8.75 27/02/06 9.89 40.90 57 71.91 67 -6.52 146 -0.42 119 -3.85 137
DBS Chola Global Advantage Fund - Growth 9.58 30/05/05 6.28 37.25 88 55.27 144 -15.15 161 -5.71 122 -1.56 131
DBS Chola Growth Fund -Growth 31.39 17/09/01 15.81 36.54 96 76.94 50 2.55 97 11.73 86 26.35 15
DBS Chola Hedged Equity Fund - Growth 11.42 19/04/07 20.17 29.63 151 66.72 97 1.24 106 -- -- 6.04 108
DBS Chola Midcap Fund - Growth 27.89 09/08/04 17.65 50.27 13 88.70 16 7.19 59 14.81 58 22.98 28
DBS Chola Multi Cap Fund - Growth 15.73 28/01/05 19.48 39.08 76 74.58 62 -1.99 127 5.12 116 10.62 85
DBS Chola Opportunities Fund - Cumulative 34.63 27/11/97 61.30 43.99 43 91.96 10 3.40 89 25.31 2 11.24 80
DSP Blackrock Equity Fund - Growth 11.56 07/06/07 1231.52 35.15 107 58.79 127 9.56 42 -- -- 7.02 102
DSP Blackrock India Tiger Fund - Growth 39.04 11/06/04 3320.48 34.27 110 71.72 69 5.30 69 20.94 11 30.47 8
DSP Blackrock Micro Cap Fund - Regular - Growth 8.45 14/06/07 218.08 48.98 19 -- -- -6.91 145 -- -- -7.68 137
DSP Blackrock Nat. Res. & New Energy Fund-Ret-Gth 10.43 25/04/08 233.15 30.39 146 66.78 94 7.08 59 -- -- 3.47 112
DSP Blackrock Opportunities Fund - Growth 62.94 16/05/00 888.46 36.96 91 68.17 87 9.39 42 15.67 49 22.15 30
DSP Blackrock Small and Midcap Fund - Growth 10.67 14/11/06 617.26 45.82 32 71.74 68 7.91 52 -- -- 2.43 114
DSP Blackrock Top 100 Equity Fund - Growth 77.17 10/03/03 1726.75 33.17 118 58.81 122 13.40 21 22.51 7 37.76 3
DWS Alpha Equity Fund - Growth 62.47 21/01/03 164.16 26.97 151 52.03 141 1.83 95 16.48 42 32.50 5
DWS Investment Opportunity Fund - Growth 30.00 29/01/04 160.33 32.04 131 59.49 121 -0.66 115 21.49 9 22.16 27
Fidelity Equity Fund - Growth 24.93 16/05/05 2528.34 36.08 97 67.33 90 11.18 31 19.69 15 24.35 20
Fidelity India Growth Fund - Growth 8.66 23/10/07 537.62 37.22 87 69.86 79 12.17 28 -- -- -7.90 130
Fidelity India Special Situations Fund - Growth 13.32 22/05/06 1177.87 43.07 43 77.54 46 5.35 62 14.84 51 9.45 83
Fortis Dividend Yield Fund - Growth 12.02 15/09/05 9.59 33.02 118 46.85 147 15.01 17 11.87 78 4.89 99
Fortis Equity Fund - Growth 27.98 23/09/04 104.82 27.36 143 50.27 141 1.78 91 14.18 54 23.71 21
Fortis Future Leaders Fund - Growth 6.46 02/05/06 33.48 40.30 59 61.46 107 -21.46 151 -3.15 114 -12.67 135
Fortis Opportunities Fund - Growth 15.99 15/04/05 92.41 28.39 141 52.93 134 -22.73 151 4.12 111 13.15 60
Fortis Sustainable Development Fund - Growth 10.46 23/04/07 13.16 32.39 122 51.61 135 12.18 26 -- -- 2.03 106
Franklin India Bluechip - Growth 158.65 01/12/93 2199.40 35.28 98 72.36 65 16.23 12 18.23 22 27.91 10
Franklin India Flexi Cap Fund - Growth 23.85 02/03/05 2158.26 39.46 67 75.62 53 15.90 14 15.85 42 21.85 26
Franklin India High Growth Companies Fund - Growth 9.39 26/07/07 1129.41 42.19 48 79.69 38 8.89 37 -- -- -3.09 113
Franklin India Opportunity Fund - Growth 25.45 21/02/00 599.65 33.60 107 66.64 88 -0.25 100 13.14 64 10.42 75
Franklin India Prima Fund - Growth 189.08 01/12/93 736.63 46.89 29 78.79 41 4.75 64 8.14 92 20.66 34
Franklin India Prima Plus - Growth 162.64 29/09/94 1515.18 30.61 130 60.25 105 10.86 29 18.87 17 20.69 33
Franklin India Smaller Companies Fund - Growth 10.09 13/01/06 576.72 48.25 25 83.09 28 5.21 56 6.6 96 0.26 104
HDFC Capital Builder Fund - Growth 74.52 01/02/94 512.10 40.91 52 69.91 72 8.62 38 16.45 38 13.85 52
HDFC Core & Satellite Fund - Growth 26.72 17/09/04 353.87 43.03 41 80.27 35 10.29 30 11.07 74 22.45 23
HDFC Equity Fund - Growth 184.25 01/01/95 3870.79 45.15 33 87.92 19 18.49 9 18.95 15 22.14 23
HDFC Growth Fund - Growth 60.58 11/09/00 1164.93 36.58 81 64.06 89 3.55 68 20.34 11 22.51 22
HDFC Long Term Equity Fund - Growth 11.52 10/02/06 1047.83 36.35 82 61.34 97 6.13 50 9.13 80 4.19 90
HDFC Mid-Cap Opportunities Fund - Growth 9.41 25/06/07 1051.44 38.29 70 64.39 88 6.70 46 -- -- -2.89 103
HDFC Premier Multi - Cap Fund - Growth 20.00 20/04/05 429.95 44.07 37 76.87 45 9.12 32 14.11 50 18.23 37
HDFC Top 200 - Growth 153.75 11/09/96 3689.11 43.68 37 86.06 21 20.75 8 22.96 5 25.65 12
HSBC Dynamic Fund - Growth 8.41 24/09/07 277.19 23.17 132 37.72 131 -8.21 121 -- -- -9.04 112
HSBC Equity Fund - Growth 85.12 10/12/02 1492.18 26.44 129 52.42 119 2.04 74 17.93 21 38.16 2
HSBC India Opportunities Fund - Growth 28.09 24/02/04 348.02 27.21 126 50.29 121 -1.46 94 12.29 63 21.01 25
HSBC Midcap Equity Fund - Growth 16.85 19/05/05 139.73 42.77 40 71.18 59 -3.37 99 7.2 86 13.29 46
HSBC Progressive Themes Fund - Growth 11.86 23/02/06 456.28 26.87 125 49.69 121 -8.68 119 8.79 77 5.12 82
HSBC Small Cap Fund - Growth 7.67 24/03/08 52.95 38.82 62 -- -- -15.81 127 -- -- -18.07 114
HSBC Unique Opportunities Fund - Growth 8.65 21/03/07 287.10 33.06 98 60.99 94 -9.69 119 -- -- -6.00 103
ICICI Prudential Discovery Fund - Growth 30.05 14/08/04 307.65 49.21 17 91.89 10 22.45 6 13.07 58 24.92 14
ICICI Prudential Dynamic Plan - Growth 73.92 31/10/02 1498.89 29.52 118 58.04 103 6.07 46 18.19 18 34.59 2
ICICI Prudential Emerging STAR Fund - Growth 22.75 28/10/04 361.16 44.44 34 75.13 49 -12.23 121 6.11 86 18.94 29
ICICI Prudential Fusion Fund - Growth 10.24 25/03/06 391.52 35.63 80 63.06 87 -4.12 100 6.52 83 0.71 89
ICICI Prudential Fusion Fund - Series II - Growth 9.35 31/03/07 703.13 37.10 72 66.37 80 -7.61 113 -- -- -2.86 92
ICICI Prudential Fusion Fund - Series III - Ret - Growth 9.27 15/03/08 543.88 32.62 100 61.78 87 -0.54 88 -- -- -5.43 96
ICICI Prudential Growth Plan - Cumulative 104.30 09/07/98 345.37 27.35 116 59.87 90 6.42 45 14.15 45 23.64 17
ICICI Prudential Power - Growth 83.76 01/10/94 682.03 33.04 95 66.79 75 6.48 43 12.55 58 15.42 37
ICICI Prudential Service Industries Fund - Growth 13.28 30/11/05 360.24 37.62 68 67.89 73 -6.74 108 12 60 8.08 69
IDFC Enterprise Equity Fund - Plan A - Growth 13.13 09/06/06 976.14 36.71 71 -- -- 0.65 78 -- -- 9.09 65
IDFC Small & Midcap Equity Fund - Growth 11.59 07/03/08 286.73 38.84 59 -- -- 25.67 2 -- -- 11.31 52
India Advantage Fund 167.56 08/08/96 499.89 -- -- 5.15 119 -43.25 122 -2.78 88 24.99 12
ING C.U.B. Fund - Growth 12.44 11/09/06 34.13 49.88 15 91.98 9 -4.31 97 -- -- 7.91 66
ING Contra Fund - Growth 13.49 10/03/06 11.24 46.15 27 88.15 14 16.39 7 18.76 14 9.27 61
ING Core Equity Fund - Growth 29.37 06/05/99 56.99 33.20 88 66.59 74 0.38 77 13.94 48 11.11 54
ING Dividend Yield Fund - Growth 14.47 24/10/05 22.81 38.07 62 64.43 76 12.52 17 17.35 24 10.35 57
(*Appreciation in %)

Entry loads on all mutual fund schemes removed by SEBI with effect from August 01, 2009.

86 Dalal Street Investment Journal Aug 3 - 16, 2009 www.DSIJ.in

Letters to Editor
Winner of Issue No. 16 Cover Poll
Jitendra Sanghvi
Subscription No.: 0529638
Congratulations, Jitendra Sanghvi
your gift is on its way!
Feedback on Cover Page
Really very good, it conveys to us that
share market is like a sea and it is very
difficult to find value picks, but DSIJ
cover shows these can be picked out
without any difficulties
- Jitendra Sanghvi
Fantastic Design & art work. It increas-
es the value of magazine. Seems it
has undergone through good thought
process.
- Shyam Sundar Choudhary
Hope your small and medium size
fishes turn another Infosys, Unitech,
Pantaloon Retails and create wealth
for long term investors
- S C Dasgupta
It is exciting and tempting. It speaks
of the content of the main story and
forces a reader to visit the main story.
- Lakshmi Kant Gupta
Subscribers can post their feedback
on Cover Page design on
letters@dalalstreetjournal.com
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LETTER
OF THE
FORTNIGHT
GIVE INFO ON BONUS & DIVIDEND
Thank you very much for the DSIJ’s Stock Market Book, which I
have duly received. My hearty congratulations for bringing such an
excellent book. I have however; a suggestion to make, which I feel,
would be immenslely useful to prospective investors while making their
investment decisions.
It would be great help to investors if you can include in your Dalal
Street magazine two statements showing (1) year-wise bonuses (2) year-
wise dividends over the last ten years , so that the investors can pick or
choose companies which are not only consistently giving but also giving
maximum bonuses and dividends. In these statements you can also
include relevant information like face value, sales, PAT, price etc.
Vasant Mangesh Kalbag, Mumbai
Reply: Your suggestion is under consideration
ARTICLE ON NRI INVESTMENT
I am a fresher in investment arena, and I mostly refer to DSIJ for stock picks
and information. Being an NRI, I would appreciate if you could pen down one
article related to NRI investing in stock markets, the tax structure, limitations if
any for NRIs investing in India, summary on rules and regulations for the same
and something more informative which will be useful for NRIs. Hope you will
consider the above request and publish some related article.
Vikram Patel
Reply: We would be publishing an article on the subject very soon.
INFORMATION UPDATED
This has reference to your article “Data Bank-Updated Information” appearing
from pages 33 to 64. In this connection, please note that the data update on
Kotak Mahindra Bank Limited appearing on page no.47 in respect of the data
“Pledged (%)” is incorrect. As clearly indicated in our requisite disclosures to eth
stock exchanges the promoter’s pledged (%) is 0.01 percent.
We request you to update the information in your next issue accordingly.
Bina Chandarana, CS & Exec.VP, Kotak Mahindra Bank
Reply: We have corrected the information in the current issue. Our column gives the
promoter’s pledged shares as percentage of promoter’s holding and not total share capital.
We welcome your letters at:
101 A, 1st Floor, Uttam House, 69, P. D'mello Road,
Near Carnac Bridge, Mumbai - 400009 Tel: 022-40629500
Letters may also be mailed to:
Aug 3 - 16, 2009 Dalal Street Investment Journal 93