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Reliance Power board considering free bonus shares.

In an unprecedented move, Anil Ambani Group company Reliance Power will give free bonus shares to all its shareholders to compensate the losses they suffered when the company was listed a week ago.

"Reliance Power board will consider issuing free bonus shares to all shareholders excluding the promoters," a group spokesperson said.

On the day of its listing at Rs 547.8 a share, Reliance Power performed miserably at the stock exchanges and closed the day nearly 32 per cent lower.

The IPO had attracted a total demand of about Rs 7,50,000 crore and the company had issued the shares at Rs 450 while giving a discount Rs 20 a share to retail investors.

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Do you feel let down by the listing price of Reliance Power IPO?

Reliance Power IPO was big news from day one. It evinced huge interest from desperate investors wanting to cash in on the possible gains on listing.

There were several news stories in the media about the grey market premium the stock was attracting even before the issue opened for subscription. However, the listing price of the stock has left much to be desired. While it initially quoted above the offer price, it subsequently slid below it.

Do you think the IPO was over-hyped or is the weakness in the listing price only on account of poor overall sentiment in the market? Do you think the stock would recover and return big gains once market sentiment improves? What is your analysis of the situation?

MFs crash but still promise long term gain

he bearish trend in the stock market for the last three weeks has hit the investors hard. Even those who have invested through mutual funds have lost substantial wealth. However, experts and mutual fund managers say that this has created a good opportunity to invest in the market.

CEO of a mutual fund run by a foreign bank said in the next one to three years, Indian stock market will give a return of more that 25% compounded annually. He advised that investor should postpone the idea of liquidating their investments in the stock markets to invest some other assets class. He said the returns from the investment in the equity market would be more than other areas.

As shown in chart, in the long term, equity is still the best instrument to invest. However, he cautioned that one should not enter the market with the short term view in the current market scenario.

The 30-share sensitive index has fallen by over 25% in the last one month from 20,827 on January 11 to 16,631 on Monday. This, a senior fund manager said, has brought down the share prices of many good performing companies to very attractive level. He said that prices of medium and small companies have become even more attractive.

He said the present fall in the market is mainly because of the apprehension of a slowdown in the US economy. But, many foreign fund managers feel that in a scenario of a US slowdown, Indian companies will emerge as an attractive option to invest. A senior foreign fund manager said very few Indian companies are dependent on the export revenue besides the IT companies, which will benefit from slowdown as the outsourcing by US companies will further increase to cut cost.
The performance of India centric companies is likely to improve as economy continue to grow at around 8.5%. Investment in equity of these companies will remain robust.

A senior mutual fund official said there is no redemption pressure on mutual funds. Investors are still investing in MFs. According to one source, Reliance MF has raised over Rs 5,000 crore in the primary market. Other funds like HDFC Infrastructure has mobilized around Rs 2000 crore. AIG Fund has raised another Rs 450 crore. These funds are likely to start investing in the current week. Besides, funds are mobilizing substantial fund through systematic investment plan (SIP).

FIIs have also started coming back in the market. In February so far, there net investment has increased by Rs 330 crore as against a net sale of Rs 3,200 crore in January.

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Long term prespective.

1. Investors with a 6-12 month horizon can find value in stocks like Bharti Airtel, L&T, BHEL, Punj Llyod, ICICI Bank and SBI at current levels.

2. However one requires a heart of steel to enter in the stock market when their is blood on the street and moreover stock traders generally are without any cash due to their pre commitment in stock market.

Indian markets to be safe haven for investors in '08: Merrill Lynch.

India's stock market, one of the world's most expensive, is likely to be a safe haven for investors in 2008 because of the economy's low exposure to slowing global growth, Merrill Lynch strategists said on Friday.

Rolling out their top picks in Asia this year, they said global investors should also be overweight Chinese shares, though less so than in 2007, as well as Hong Kong issues, while going underweight South Korean and Taiwan markets.

They predicted India will fare better than more trade-dependent economies as US growth slows, noting exports of goods and services account for about a fifth of its gross domestic product, compared with 40 per cent for China.

"Its valuations look steep, and it's a crowded trade ... but it's the nature of lifeboats to get crowded. And there is some merit to the idea of India being seen as one now," Mark Matthews, Merrill Lynch's chief Asia equity strategist, told a media briefing in Hong Kong. "It's our sense that it can remain in a protracted expensive valuation zone because there's not enough reason to sell it."
India's benchmark BSE index, which hit a record high on Thursday, trades at more than 20 times 12-month forward earnings, compared with about 18 times for Hong Kong-listed shares of Chinese companies.

The US investment bank said China is still its second favourite Asian market after Hong Kong, but it had reduced its overweight rating partly because of concern about China's high inflation rate. It warned the market could face a tough first half.

"The jury is still out on Chinese inflation, and because exports are not a small part of Chinese GDP, that market is likely to remain in a directional no man's land until there's firmer evidence on both inflation and exports," Matthews said.

Other suggested stock market overweights included Malaysia, Pakistan, Singapore and the Philippines. Merrill said these were preferable to South Korea and Taiwan, where economic growth prospects are "unexciting at best". On the currency front, the investment bank said the US dollar was likely to come under further pressure in the first half, which would benefit Asia currencies.

It said the yen was likely to rise against the dollar, and that investors should be long the Singapore dollar against the US currency. "The world will increasingly come to realise that the larger Western economies are in a structural decline relative to Asia, and the transfer of wealth from the West to the East is not ending. In fact it's just getting started," Matthews said.
Source:-ET

Stocks for long-term investments in 2008

IG brings you the new themes for this year and the preferred stocks where you can park your long-term investments...

Premium Class

Income inequality, a perennial subject of discussion in India, has acquired a greater significance during the current bull run. Not everyone has gained uniformly from India’s growth story. Those at the top of the food chain — i.e. promoters and directors — have demonstrated a faster growth in their income and wealth than employees and small shareholders.

For many of us, this may be a cause for concern, but for an opportunist investor, this trend provides another opportunity to make money.

Investors are advised to put their money in companies that sell goods and services to the swelling upper-middle class. The potential investment targets can either be manufacturers of high-end consumer goods, lifestyle products or providers of leisure and entertainment.

Increased expenditure in the premium category indicates bullishness. There are many ways to quantify economic inequality in an economy. We have used income and wealth generated by India Inc as a proxy to gauge the income and wealth inequality in India.

As Corporate India tackles several challenges and generates huge profits, the stakeholders — i.e. the promoters, top management, shareholders and employees — are witnessing an unprecedented rise in incomes and therefore, their standard of living.

Financial Sector

The era of ‘lazy banking’ is long dead and gone. The banking and financial sector has acquired a new spanking avataar in a span of just a few years. In fact, today, India has emerged as a hub of banking and financial services at the global level. One big reason is India’s current economic growth story.

A strong surge in the potential growth to 8.5-9% has improved income levels of Indians and hence, the overall surplus cash balances and savings. Banks and other financial services are end beneficiaries of this boom. This is clearly reflected in the composition of gross household finance savings. The share of bank deposits, savings in the form of mutual funds and equity shares has gone up significantly from 38.4% in FY04 to 62.0% in FY07.

Apart from the retail segment, corporates are big users of banking and financial services. Increasing corporate savings are either parked with banks or mutual funds. Investment demand is a major driver for the current surge in economy and will be the same in forthcoming years.

Thus, to finance the huge capital demand, India Inc will rely on banks, non-banking financial companies (NBFCs) or the equity market. So, ample availability of resources, coupled with easing interest rates, will enable banks and other financial services to do well, irrespective of market conditions. Nevertheless, with an eye on maximising future opportunities, banking and financial companies have raised capital or are planning to raise it in the coming years, which will offer a leverage to raise their assets.

Media

Humourists describe advertising as the science of arresting human intelligence long enough to get money from it. Whether or not this definition is true, the year 2008 is likely to be a bonanza year for media stocks, given the huge potential in advertising spends.

Experts feel that ad spends are likely to trace the broader growth in the economy and consumerism. While ad spends will provide a trigger for good performance by broadcasting companies, increasing penetration of content distribution methods, including DTH and CAS, are likely to add sparks to the party.

Apart from broadcasting, content providers also have a busy schedule lined up, given the ever growing number of TV channels and shows. This spells a bonanza for companies which are engaged in the production of TV shows and animation.

Moreover, the increasing number of multiplexes and aggressive promotion of movies mean that companies engaged in the business of production, distribution and exhibition of movies will also have
a good time.

All said and done, the party holds promise for only a handful of players as most of them are already looking richly valued. This means investors have to look for growth stocks. Companies which enjoy a pan-India presence and offer services in various media segments are likely to be the biggest beneficiaries of these trends.

Infrastructure

Infrastructure is the pillar of economic, as well as social development. If various reports and studies are to be believed, India is set to emerge as one of the world’s largest economies. This is not achievable unless infrastructure improves. In the current scenario, lack of proper infrastructure is a bottleneck in the growth of the Indian economy. Sectors like power, rail and ports have to improve substantially if they want to meet the rising demand from India Inc.

Infrastructure investment requires huge initial capital outlay, which was considered to be a big hurdle in the past. With rising government revenues, a bullish stock market, huge foreign capital inflows and burgeoning corporate balance sheets, mega investment projects in infrastructure are no more a dream.

We feel infrastructure growth in India has reached an inflexion point and historical growth may no longer act as guidance for the future. So, will we ultimately see the kind of airports, ports, trains and roads that we have so far seen only in Bollywood movies? Looking at the revolution in the telecom sector, this cannot be ruled out.

This growth will have a cascading effect across a number of sectors, ranging from construction, cement and metals, to capital equipments and project finance, among others. But how big is this opportunity for India Inc and its investors? ETIG does a reality check by benchmarking India’s infrastructure growth against other countries to highlight the gaps and identify the investment opportunities.
Source:-ET