Monday, October 22, 2001, Chandigarh, India






THE TRIBUNE SPECIALS
50 YEARS OF INDEPENDENCE

TERCENTENARY CELEBRATIONS
B U S I N E S S

Y O U R  M O N E Y
A GUIDE TO PERSONAL FINANCE

How to manage your portfolio
I
N the current scenario when the stock markets are depressed and, except for few elite group of scrips the prices of most scrips have depreciated substantially, restructuring of one’s portfolio has become very critical.

How competition Bill will benefit consumers
I
NTRODUCTION of competition bill is the first step towards protecting the consumer rights in the global economy. The three players in a market economy are, a) industry b) Consumers and the Government. The market for consumer goods is gradually becoming border-less.

Right time to go for dream house
T
HE funds flush banks which do not have the more avenues to deploy money have started looking for more retail banking and have starting pressing their managers to bring quality business to remove profit margins business.

Bankers hope cut in CRR
New Delhi, October 21
Amidst an overall gloomy economic scenario, the Governor of the Reserve Bank of India, Dr Bimal Jalan will present the busy season credit policy with all eyes set on a softer interest rate regime that is expected to be set forth by the central bank.


EARLIER STORIES
 
HOW I INVEST

Buy a blue chip
Mr V Kumar, owner of Vikson Finance and Investments is actively involved in share market trading for the last more than 15 years. An aggressive investor, he though puts almost 70 per cent of his savings in the equities, he does not advise others to do so. Invest only after carefully studying the market- he says.

  • Initial investments

  • Major gains

  • Present investments

  • MFs and banks

  • Mistakes

MARKET SCAN

Top companies perform well despite slowdown
THERE is a report that the industrial growth has slowed down in August and it has dipped to 1.8 per cent. The Index of industrial production for April-September is 2.2 per cent. There is also talk about global recession. September 11 tragedy in the USA is also bound to affect industry not only in the USA but also in the other parts of the world.

CHECK-OUT

Schools responsible for students’ safety
TO schools that pay little or no heed to pupil safety, a recent order of the National Consumer Disputes Redressal Commission (National Commission) should come as a clear warning.

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How to manage your portfolio
Hartaj Singh

IN the current scenario when the stock markets are depressed and, except for few elite group of scrips the prices of most scrips have depreciated substantially, restructuring of one’s portfolio has become very critical.

Weightage Description
40 pc Fundamentally strong Blue Chip Co’s growing at 10-15 per cent a year.
40 pc Fundamentally strong Co’s which may not be very well recognized but are growing at 25-30 per cent a year.
20 pc Up coming — emerg- ing co’s with a very high growth pros- pects ie 50 per cent plus.

Although, one may feel that portfolio management is an art or skill it is more of a common sense application than anything else. Simply put, if one manages his/her portfolio practically i.e. Holding on to only those stocks which at current market price offers value investment and has a bright future and sell off all other scrips which do not have a promising future or that the current market price, do not offer value investment, irrespective of the cost at which these stocks might have been purchased.

This is perhaps the most simple and practical way of managing a portfolio but sadly, very few people follow this approach, mainly because most people are afraid of booking losses. In fact, the worst part of the story is that most of these people go on to buy, rather than sell, these very stocks so as to average out their purchase cost and increase the size of their junk scrips with the hope that it will go up some time in future.

Aspects to portfolio management:

Streamlining the existing portfolio

If one looks at streamlining in the right perspective, it is very simple. Otherwise, it is the most difficult part of portfolio management activity since it involves taking very hard decisions i.e. selling off of those stocks which at current market price doesn’t offer value investment & also the future does not seem promising. Once this is done with, then comes the second part i.e. identifying the companies.

Identifying the companies

This is one of the most crucial part of a portfolio management activity. At times, one my observe a typical phenomenon where the market price of two companies having similar fundamentals (i.e. similar EPS, ROE, P/E, Book Value etc) move in opposite direction. This is generally because there are various other important aspects attached to a company which, as such, may not be apparent on the face of it, but have a telling effect on the share price of a company. For example market perception for the management of a company, shareholder friendliness, preferences of major investors (FII/FI), promoters increase in stake, liquidity in the market, chances of merger on an acquisition, buy back potentials, etc. Hence you as a portfolio manager has to take critical judgement based on these various aspects also apart from looking at the fundamental & technical aspects of a company.

Managing the portfolio

Actually this is the most important activity which requires a little bit of skill. This activity can be said to be successful only if one is able to outperform the market. i.e. Returns generated from the portfolio should be better than the performance of the overall market. To achieve this there are several pre-requisites that one has to look into.

(1) The number of scrips one should ideally have in his/her portfolio & weightage given to each scrip:

Ideally, one should not have more than 15 stocks in his/her portfolio with features like:

(a) Not more than 25% of the funds invested in one single company.

(b) Not more than 40 per cent of the funds invested in any group of corporate House.

The break up of stocks should ideally be like:

(2) No. of industries one should concentrate on and the weightage to be given to each industry.

Ideally one should not look at more than four industries at a time for the first and second categories of scrips stated above and not more than three industries for the third category and the weightage on each industry should be restricted to a maximum of 35 per cent.

(3) Buying and selling strategy

(A) Buying strategy

One should always have a buy range sorted out for each scrips one is planning to invest in i.e. once a stock has been identified as good stock for investment in any of the above three categories, one has to clearly define a buy range for each of these stocks and should make purchases in that buy range only in a phased manner.

If the buy range defined is Rs 250-280, one should buy 40 per cent at Rs 280 and then 20 per cent each at Rs 270, Rs 260, Rs 250. In this way one will be in a position to buy his/her stocks near the lower end of the buy range.

(B) Selling strategy

Likewise, one has to define a selling range and here to one has to sell in a phased manner. i.e. if the sell range is Rs 250-280, then one should sell 40% at Rs 250 and then 20% each at Rs 260/-, Rs 270/-, Rs 280/-.

(4) Periodical monitoring of the portfolio

This is the most important part of portfolio management activity. One should keep track of all scrips & industries one has invested in and if particular stock has turned weak — having a bleak future ahead, one has to sell the stock, even at a loss and switch over to a stock which has a better future prospect ie. at any point in time future prospects should be the criteria for taking a buy/sell decision rather than the cost price.
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How competition Bill will benefit consumers
Nitin Saxena

INTRODUCTION of competition bill is the first step towards protecting the consumer rights in the global economy. The three players in a market economy are, a) industry b) Consumers and the Government. The market for consumer goods is gradually becoming border-less. In the changing scenario, it is the first and foremost duty of any government, to formulate competition policies to promote growth and at the same to protect the consumer from exploitation.

Consumer protection and competition laws are the two sides of the same coin. The ultimate aim of any competition law is consumer protection. In a free market economy it is the consumer who is the king, in the literal sense of the term, he decides the fate of good in the market, and the manufacturers try to produce goods, to satisfy his needs.

The Government in its role as regulator, provide necessary infrastructure and statutory support to the consumers, and prevent consumers from becoming easy prey to the wishes of the manufacturers. In our country, it is proved that the existing legal structure is inadequate to face the globalisation of our domestic markets. The Government cannot pass legislation, without analysing the similar legislation in other parts of the world. Similarly excessive consumer protection without understanding the market structure will deter, and burden the business. Hence consumer protection and competition law are intertwined and needs to be administered in harmony.

Volumes are written on the merits of the new competition law. Now we will make a sincere attempt, and analyse how a consumer is going to be benefited out of the same. If there is any thing that is left out, then steps should be taken to incorporate the same in the proposed Act. The preamble of the bill reads that it is introduced with an avid objective, i.e., “to promote and sustain competition in markets, to protect the interests of consumers....”The definition of ‘consumer’, in the bill is very wide. The proposed bill envisages the establishment of an authority to be called the “Competition Commission of India”, to implement the provisions of the bill.

Recently two-day international conference on 20th & 21st August 2001. On concerns of the developing countries in the WTO regime on competition law and policy was inaugurated by the Prime Minister at Vigyan Bhawan in New Delhi. In this occasion Minister for Law Justice and company affairs Arun Jaitly defended the competition bill and said it was aimed at giving protection to Indian market and consumers, with the Government stepping out of several areas, a competition law was necessary, the example of the telecommunications and broad coasting sectors that consumers gained from market competition. The increase in the number of players in telecommunications has resulted in teledensity rising by 400 per cent in the past five years. The telecom industry is expected to witness a 15 per cent annual growth. He emphasised the need for educating the market and consumers on various competition aspects of the policy.

This empowers the consumer to decide and purchase goods of his choice. In our country as on date, if a common man wants to purchase a fan or plans to open a bank account, or to take an insurance policy he is clueless, and is not aware as to whom he should contact to get the relevant information. He has to make all ground work himself, and compare and analyse the qualities of various fans available in the market or various facilities offered by banks to its account holders or advantages of various policies and to select one to meet his requirement. In the process either he wastes much time, or at times goes by the unsolicited advice rendered by friends or shopkeepers. Label reading is almost negligible in our country, nor the labels provide all the relevant information. All manufactures should provide as much information as possible on the labels, so that the consumers will be able to decide the use of the goods, before purchasing them. Similarly all types of tie-ups, technical know-how arrangements among the producers should also be made public, along with the changes. The bill is silent on these aspects.

In its entirely the bill is a comprehensive measure taken to protect the interests of consumers in the global market, with its primitive features and other checks, at the same time giving thrust to consumer welfare and resources maximisation. The Consumer Unity and Trust Society (CUTS) has taken the lead in the matter and conducted series of seminars and workshops highlighting the advantages and ambiguities in the bill. The readers who want to suggest their views about the bill may forward them www.cuts-india.org.
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Right time to go for dream house
S.C. Dhall

THE funds flush banks which do not have the more avenues to deploy money have started looking for more retail banking and have starting pressing their managers to bring quality business to remove profit margins business.

Notwithstanding the low interest regime making housing financiers bullish, there is little sign of pick up by the housing construction sector, which is one of the main engine to spur economic growth.

Most of the people are postponing their investment because of US war and no one knew how much time it will take.

No new orders are coming through despite the fact that number of banks are coming out with advertisements for various incentives specially in the housing sector.

Recently the State Bank of India has reduced the rate of interest on housing sector to 12 per cent irrespective of the loan amount and this is valid upto November 13 a special festival offer. This is perhaps the lowest rate of interest in the market at present.

In the coming months, cut throat competition between the housing finance companies is expected to bring down lending rates to even sub PLR levels, but there is no evidence of the housing construction picking up.

But the fact remains that housing construction is yet to take off. Overall there is bound to be 4 to 6 per cent decline in the sector by the end of current fiscal, as compared to last year’s growth.

Today, various banks and agencies are offering loans for buying, construction and even improving existing homes, that too at very convenient terms and conditions. The Corporation Bank which has a budget of Rs 800 crore for this sector has already disbursed over Rs 300 crore.

Any individual between the age of 18 to 60 year satisfying normal borrowers standards and with sufficient repaying capacity can avail of these loans. The loan among is available upto Rs 50 lakh depending upon the purposes.

The SBI claims to offer lowest interest rate charged on reducing balance daily. It levies no annual/administrative charges, no processing fee and no prepayment penalties. It is also offering an option of fixed/floating interest rates. A high light of SBI loan scheme is the availability of loans for application money too, and only for Chandigarh Housing Board flats.

Now all the private banks, LIC, and other financial institutions are offering better facilities.

Experts while admitting that India is a very price sensitive market, feels that rate of interest have already bottomed out and henceforth competition in the housing loan market would depend on non price factors which means better services for the customer.

Housing will do better if the government lowers stamp duty rates and solves infrastructure hassles.
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Bankers hope cut in CRR
Tribune News Service

New Delhi, October 21
Amidst an overall gloomy economic scenario, the Governor of the Reserve Bank of India, Dr Bimal Jalan will present the busy season credit policy with all eyes set on a softer interest rate regime that is expected to be set forth by the central bank.

The busy season credit policy addresses the supply side issues of the economy. This is being done through the use of monetary instruments of CRR and Bank Rate.

A cut in the CRR and Bank Rate increases liquidity in the system and makes available more funds for the corporate sector. Currently, the CRR is at eight per cent.

Industry observers, however, said there has been a decline in non-food credit offtake in recent months, primarily arising out of industrial slowdown and unless the industrial growth picks up credit offtake is unlikely to show signs of improvement.

A cut in deposit rates at a time of depressed demand and low disposable income at the hands of individuals may not prove to be a politically correct choice as household savings will have to bear the brunt of a cut in the deposit rates.

The CII on its part has suggested a reduction in CRR by 200 basis points from the current 7.5 per cent to 5.5 per cent.
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Inflation dips

New Delhi, October 21
Despite a steep hike in the price of electricity, inflation touched the year’s lowest ever level of 3.18 per cent as against 7.37 per cent in the comparable period in the previous year due to downward pull of fruits and vegetables.

Finance Minister Yashwant Sinha had earlier said the inflation was very reasonable and was quite sure of keeping it well under control. PTI
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HOW I INVEST

Buy a blue chip

Mr V Kumar, owner of Vikson Finance and Investments is actively involved in share market trading for the last more than 15 years. An aggressive investor, he though puts almost 70 per cent of his savings in the equities, he does not advise others to do so. Invest only after carefully studying the market- he says. He worked for almost 13 years with several companies after completing his Company Secretaryship (CS) but the ever volatile share market became his passion and he opened his company. He spoke to TNS on how to invest in the equities.

Initial investments

I have been a very aggressive investor. Shares were always a priority, and other investments were mainly done with an aim to save upon taxes.

During the initial years of my service-around 1976, all I did was put my money in bank Fixed Deposits(FDs) and Provident Fund. It was in 80s that first invested in LML and the gains evoked my interest . Then I started studying the market and say five years after that, I started dealing in shares.

Major gains

Investment in good company always pays off. My experience has shown me that the best performing companies are MNCs, that too based in developed countries like the US. In these companies, the promoters are the major shareholders as a result of which investors also get better dividends. My major gains were Monsanto which I bought for around Rs 70 a unit and sold for more than Rs 700. I sold shares of ACC Cement which I had bought for Rs 100 at Rs 800.

If one has to invest in some local company, a proven record of the good performance of the company’s management should be the first thing one should take care of.

Present investments

At present, my main investments are — Larsen and Toubro, ACC Cement.

Reliance Petro and I have shares like Finolex, Hoganas (old holdings) which the companies are now buying back . Losses have been negligible though in some cases I could have earned more profits. One thing which helped me was that I took the decision to sell at the right time .

I have also put money in NSCs for tax saving purposes only and regularly put part of my savings in PPF.

Since I am running my own business, to manage the medical expenses, I undertook a mediclaim policy for around six lakh rupees for my family and also a life insurance policy. Insurance to me is not an investment, it is rather a risk covering devise.

MFs and banks

Mutual Funds can be a good option if one does not study the market thoroughly. One advantage they have is comparative safety over the shares. If it is a good company, one is assured of lower risk and returns that are higher than if you put your money in the banks.

One must have liquid cash with himself and thus, money in the bank. But not all money should be put in banks. It is safe, no doubt, but it does not grow.

Mistakes

A few shares like Escorts, JCT which is hovering around a meagre Rs 2 whereas I had bought it for Rs 50. I could have also been more planned and avoided erosion of the likely profits , in other words could have earned the maximum.

Be more planned, study the market thoroughly if you are interested in investing. Infact I believe share market is the only place where your money grows.

If you have just started earning, you can afford to take risk and can think of putting around say 50 per cent of your savings in the equity market. But never invest without thinking or merely because others are investing in a particular company.

Always buy a blue chip, it increases the probability of your capital appreciation. In such cases if the share value goes down, one should hold it for longer duration.

(As told to Shveta Pathak )

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MARKET SCAN

by J.C. Anand

Top companies perform well despite slowdown

THERE is a report that the industrial growth has slowed down in August and it has dipped to 1.8 per cent. The Index of industrial production for April-September is 2.2 per cent. There is also talk about global recession. September 11 tragedy in the USA is also bound to affect industry not only in the USA but also in the other parts of the world. But the second quarter results which have so far been announced show that the top companies are doing well, particularly in the software sector. Infosys Technologies has reported 31 per cent rise in this quarter. Both revenues and profits grew by 6 per cent. The management has repeated that its projections of maintaining 30 per cent growth for the year will be accomplished.

Wipro Technologies too has announced excellent second quarter results and has stated that it would maintain 5 per cent growth in the third and fourth quarter too. Its manpower strength has further been cut down by 5.4 per cent. Though its profits have suffered from IT services, its net profit is higher by 61 per cent when placed against the last year profits during the corresponding period. Polaris’s second quarter profit is higher by 9.8 per cent.

Top companies in other sectors too have performed very well. Hindustan Lever’s net profit for the third quarter is higher by 14 per cent and sales have grown by 7 per cent. The company has rewarded the shareholder by issue of a bonus debenture in the ratio of one debenture for one share of Re. 1 face value. These debentures of the face value of Rs. 6 each will carry interest of 9 per cent per annum and will be redeemed by the company at his face value at the end of second and third year from the date of issue.

Hero Honda, another leader in the motorcycle sector, has announced excellent results, although sales in the automobile sector as whole have dropped in September by 22.38 per cent. Its net profit is up by 63 per cent for the quarter. The company has declared a special dividend of 250 per cent. Aksh Optifibre’s half year net profit stands at Rs 1439.07 lakh as against Rs 314.92 lakh last year for the same period. It has declared second interim dividend of 0.75 paise. HDFC’s net profits is higher by 14 per cent.

Moser Baer another leader in its trade has announced excellent results. There are, however, some defaulters. Exides’s second quarter profit after tax is marginally lower in spite of higher sales. Tata Power’s second quarter results are higher by 74.10 per cent though a part of these profits can be attributed to “other income”.

ITC’s net profit is higher by 29 per cent at Rs. 334 crore. Smithkline Beecham Consumer Healthcare’s net profit is higher by 19.9 per cent. Aventis Crop Science India has achieved 300 per cent increase in profit before tax.

However, smaller companies have suffered in their working. Vanival Dyes net profit has decreased from 92.57 lakh to 67.95 lakh for the quarter. Its EPS for the six months period is 2.45 as against 4.12 for the corresponding period last year. Sonata Software also has reported poor results. Its net profit has gone down from 87.82 million to 61.83 million rupees.

These results largely pertain to pre-September 11 debacle period and its impact on industry and exports may affect the performance of companies during the third and four quarter. It is, therefore, advisable for the investors to avoid long term investments, for performance of Corporate Sector may be poor during the next year. At any rate avoid investments in small companies. Even in the software sector small companies will be performing poorly. “Trading is alright but even here traders must confine themselves to companies which are leaders in their sector. Also avoid sectors as tea, automobile & textile etc. Pharma sectors, however, is expected to maintain its profitability and do well.

Investors in UGS 64 should note that from January, 2002 it would be bought back by the UTI only at its net asset value. Ten paise increase per unit every month even now applies to first 3000 units only and not to the entire holding. It is possible that the net asset value of unit may be lower than Rs. 10. Unit holders may, therefore, consider whether it is better to wait for the declaration of net asset value for the unit or to sell up to 3000 units to UTI at its present purchase price which will be a little above Rs. 10 per unit.
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CHECK-OUT

by Pushpa Girimaji

Schools responsible for students’ safety

TO schools that pay little or no heed to pupil safety, a recent order of the National Consumer Disputes Redressal Commission (National Commission) should come as a clear warning.

While holding the school authorities liable for the death of a three-year old student, the National Commission’s order makes it clear that a school’s responsibility does not end with providing quality education. Safety of the students is as much an integral part of the service provided by it and that the consumer courts will not treat lightly any dereliction of duty in this respect. In other words, the order enlarges the meaning of “service” provided by education institutions and thereby the scope of the consumer courts to haul them up for violations of basic safety norms.

The case revolves round the tragic death of a three-year old girl who fell into an open septic tank on the school premises. “When a school admits a child, it undertakes to look after the safety of the child during school hours”, the National Commission said, pointing out that in this case, this undertaking had been clearly breached. And the result was the death of Brinda, the only child of Mr S.Somasundaram. Commented the Commission: There could not be two opinions that keeping the septic tank open near the toilet used by tiny tots was an act of sheer negligence on the part of the school authorities.

This would mean that education institutions cannot take shelter under the fact that their services are hired for imparting education only and that under the Consumer Protection Act, they would be liable only for deficiency or negligence in respect of that service. They would henceforth be equally responsible and liable for the safety of students during school hours. In a country where safety gets a very low priority and tragic accidents involving school children are reported at regular intervals, this order should have a tremendous impact on the way education institutions look at safety.

This order is important from another point of view too. Generally, the consumer courts’ valuation of damages is extremely conservative and in this case, the Tamil Nadu State Commission which heard the case first, awarded a compensation of Rs 10,000 to the father of the child ! The National Commission’s condemnation of such miserly award should force all consumer courts in the country to re-think on the way they calculate compensation. In fact the apex consumer court begins the order by expressing consternation and shock over the award of a “paltry sum of Rs 10,000” to the father.

On December 2, 1993, Brinda, a student of UKG at the Sri Chakravarthy International Matriculation Academy went to the toilet in the school and fell into the open septic tank situated near it. Her body was later found floating in the tank and was handed over to the father after the post-mortem the next day. The distraught father filed a complaint before the consumer court. The State Commission held the school guilty of negligence, but awarded a compensation of Rs 10,000 on the ground that the victim was only three and a half years and therefore there was no claim on grounds of dependency. And the courts could not award sympathetic damages or damages by way of solatium for the loss of a child, spouse or parent, the State Commission said.

The National Commission before which Mr Somasundaram filed an appeal, held that the amount of Rs 10,000 could not be considered as just or reasonable under any circumstances. It also pointed out that under the Law of Torts, a spouse can claim damages for loss of ‘consortium’, which was conjugal fellowship of husband and wife, and the right of each of the company, society, cooperation, affection and aid of the other in every conjugal relation. Said the Commission: “Damages for loss of consortium are commonly sought in wrongful death actions or when spouse has been seriously injured through negligence of another.... Parents in the present case have been deprived of the company of their child, comfort and enjoyment of bringing up the child. If a spouse is entitled to damages for loss of consortium, parents will be entitled to the loss of company of a child”.

Saying that the State Commission had not appreciated the question of compensation in its right perspective and had gone solely by the Fatal Accidents Act 1855, the apex consumer court said even under the Fatal Accidents Act, the amount of damages to be awarded had to be just. And in this case, it was certainly not so. Mr Somasundaram had asked for Rs 5 lakh as damages, but the Commission said Rs 2 lakh would meet the ends of justice, considering the facts and circumstances of the case. It, therefore, asked the school to pay Rs 2 lakh along with interest at the rate of 6 per cent annum from December, 1993, till the date of payment.
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