Indian economy to be more ‘domestic-driven’: Ambit

Ambit has introduced 15 stocks in its core opportunities portfolio to benefit from the economic revival. These include Bharat Forge , Ramkrishna Forgings ,  Alstom T&D and PTC India Financial  among others.

In an interview to CNBC-TV18, Andrew Holland, CEO of Ambit Investment Advisors, said manufacturing sector will play a key role in India’s economy, which this time around will be more ‘domestic-driven’ than outsourcing based, seen in 2003-2006.

Once the government’s kick starts the infrastructure reforms, it will have a multiplier effect on the economy, Holland said. Ambit is upbeat on the companies that are into supply side of this growth story.

Ambit sees GDP growth to increase by 1 percent and says the country is likely to see significant FDI in insurance. It expects the road sector to see 8,500-km contract in FY15, and engineering, construction sectors to get big boost.

In the oil and gas segment, the firm expects a USD 15 billion investment in the next 3-4 years and sees urea, diesel decontrol.

Anuj: In your note on the Core Opportunities Portfolio, your portfolio management service (PMS), the first question is what stands out, why should one invest in this? Can you tell us the kind of stocks that you would be looking at for this PMS and your rationale for that?

A: It is something we have talked about before and I do feel this is going to be a domestic driven economy unlike the 2003 to 2006 period where a lot of outsourcing helped drive the economy. So as the government starts to kick start the infrastructure will have a multiplier effect on the economy going forward.

What we are trying to identify is companies which supply this domestic growth story where they have operational gearing or pricing power which will start to see earnings grow very strongly over the next two-three years and you will see a new basket of winners emerging from different sectors which are supplying India’s growth story going forward. So that is the scene that we are playing, it is a very concentrated portfolio, 15 stocks. We are looking to find companies which have huge operational gearing, good management and which can deliver as growth starts to unfold in India.

Anuj: Let’s talk about Bharat Forge, that stock has already rallied quite a bit. Why do you think it can rally from here on as well?

A: Bharat Forge since we first started looking at it is up three times. At the moment it is pretty fairly valued. One of the other companies we have been buying because we feel that a similar story is about to unfold is Ramkrishna Forgings where it is going to be doubling capacity over the next six months or so and again operational gearing as they sell into the CV market which everyone is now expecting to pickup strongly. So these are the companies we are looking at. So Ramakrishna Forgings rather than Bharat Forge at this time which has had great run over the last few months. So that is the stock we have picked there.

Following that it doesn’t always have to be a manufacturing. Indian Hotels  is a stock that we like, if the economy is going to pickup then they have both operational gearing through high occupancy and obviously higher pricing power as well to go with it. So a couple of companies which give you an idea of the supply theme that we are looking at.

RBI may stay fire on Sept 30; eyes on Rajan’s tone: Poll

All eyes are set on Reserve Bank of India’s (RBI) monetary policy on September 30. In his 12 months in office Governor Rajan has driven home his determination to cut inflation first to 8 percent and then to 6 percent. So with inflation still at 7.8 percent, the answer to a question will he cut rates was easy and as expected.

It was a resounding, unanimous “no” from all CNBC-TV18’s poll respondents. But there the unanimity ended. When asked when the first rate cut will come, it was deeply divided response. Twenty percent said in 2014; 10 percent said first half of 2015, 40 percent said in the June-September quarter of 2015. But surprisingly, 30 percent said no cut at all till October 2015 i.e. for a year from now.

Likewise when we asked how much will rates fall in a year; 20 percent said 25 bps; 50 percent said 50 bps; while 30 percent said no rate cut at all for a year. By far all those who were polled said they will watch the governor’s stance since in any case no action is expected. Seventy percent said his tone will be as hawkish as in August, but 30 percent said he will tone down his hawkishness.

A Prasanna, Chief Economist at ICICI Securities and others also said the governor will increasingly emphasize real rates i.e. RBI’s policy rate minus inflation. Currently, RBI’s policy rate is 8 percent, and inflation is also around 8 percent. So, 50 percent of the respondents said RBI will begin stressing on real rates.

But economists were divided on what is the appropriate real rate for India: 50 percent said 1 percent; 20 percent said 2 percent; another 20 percent didn’t reply and 10 percent said real rates should depend on phase of India’s economic growth.

When asked will RBI cut the SLR, the percentage of their deposits that banks must invest in GSECs, 60 percent said yes, RBI will bring it down by another 50 basis points – after all the governor has declared his intent that government should appropriate less and less from banks. Fourty percent said no; governor has done enough on SLR for now.

Banks initially were allowed not to mark to market whatever they bought for SLR requirement. But over time, SLR has come down to 22 percent from 25 percent and yet they don’t mark-to-market 24 percent of their GSEC investments, which is called or held-to-maturity (HTM) category. Sixty percent of the respondents said RBI will cut this by 50 bps to 23.5 percent and 40 percent said RBI will leave it alone.

On one issue all were agreed: The governor won’t tinker with the growth forecast. He will leave it alone at 5.5 percent. No rate change; no growth change. A no change policy, but not a non-event policy.

Indian mkt can double in 5 yrs on reform push: Oppenheimer

India is a strong long-term bet, but only if policy and economic support comes in. That’s the word from Rajeev Bhaman of Oppenheimer Funds. He believes that the Indian stock market can double over the next five years if government provides policy support.

Speaking to Shereen Bhan as part of CNBC-TV18’s special series The New Yorkers, Bhaman says that the indices do not necessarily show a full picture of what’s happening with the India story, since most of the euphoria is in a small group of stocks.

On specific sectors, he is betting big on real estate, private banks, auto and pharma.

Q: What is your take on the Indian stock market?

A:  You must look at India on a 10 year type basis. I think the stock markets response is an over response to a near term circumstance but to a long term circumstance it is not.

Q: In the near term you believe the euphoria has been over done?

A: The euphoria has been seen only in a small group of stocks. I don’t think we actually have seen euphoria in the broader market. If you look at the broader market it hasn’t really shown up that way. There needs to be a lot done to demonstrate that the India that we expect to happen post this election is likely to happen in the timeframe that the stock market tends to typically discount.

Somebody was pointing out to me yesterday that what we have seen in India is the same old stuff do really well. It is the consumer stocks, it is the sort of popular things that have done really well. The cyclical broader market sorts of things haven’t. So, the index actually does not represent the market as a whole, it is a very narrowly grouped bunch of companies that have done well and the rest of the places sort of did well and then its come back.

So, for instance yesterday after the news from the Supreme Court around the coal blocks being de-allocated lots of things got wacked, banks got wacked, the companies that were allocated the coal blocks got wacked. If you look at those sorts of companies infrastructure companies, somewhat highly indebted companies who were betting on infrastructure growth they haven’t done anything at all. In fact they are close to 5 year lows or at 5 year lows. So, there has been a mixed bag there.

I am quite optimistic about India. Structurally I think there is an opportunity which may be is a once in a decade type opportunity to actually fix a few things but a lot of stiff does need to be done. There is a show me the money aspect that I think the market will demand. Right now the safer thing to do is sort of buy the things that you were buying whenever you were buying them which is over the last 5 or 10 years the big consumer companies, IT companies and so on, things that are not really dependent on India working. Many of them are not really dependent on India working some of them are dependent on the agricultural markets working well which clearly is improved agricultural income for Indian farmers and so on.

It is a mixed bag as it is always. I think the US is further along in its recovery process than many other parts of the world. I think the emerging markets again are a mixed bag. We have a very confused very difficult circumstance in Russia, we have difficult political environment in Brazil so both those markets I think have the same sort of expectations in terms of hopefully things will change for the better. There is an election coming in Brazil and so the expectation of change is similar to the expectation of change that was there before the last election in India. India we have sort of resolved things in the right direction. So, the optimism is perhaps justified on one level.

As far as China is concerned there has been a tighter control over Chinese growth than people might have expected because the world has seen something different for the last decade and a half. So, I do not know for sure that the emerging markets are in a better position, in fact I would say that it is mixed and rest of the world is also mixed. Europe is still undergoing a fairly difficult transition process out of a very bad circumstance but they have structural problems that go beyond the current moment and there needs to be a lot of things resolved in Europe that will take time.

Centre maintains H2FY15 borrowing target of Rs 2.4 lakh cr

The government has released its borrowing calender for the second half of this fiscal. The Centre will borrow Rs 2.4 lakh crore against the Budget estimates of Rs 2.48 lakh crore, which is pretty much on target. According to sources, there will be a marginal cut in borrowing to meet the fiscal deficit target of 4.1 percent of GDP.

Addressing the media, Finance Secretary Arvind Mayaram said that there will be no additional borrowing via T-bills in Q3 and that the average weekly borrowing will be at Rs 14,000-15,000 crore in H2FY15. He said the government will undertake substantial switches or buybacks of bonds for better debt management. He expects the FY15 growth in the range of 5.7-5.9 percent.

“Borrowing calendar for the second half of this fiscal was finalised for total borrowing of Rs 2,40,000 crore. Total borrowing for the year has been revised to Rs 5,92000 crore,” he said.

What it means

The good news here is the government has been borrowing Rs 8000 crore less. It borrowed Rs 16000 crore less in the first half mainly on the back of surplus money from tax collections. It was expected that the extra Rs 16000 crore will be loaded on in the second half but they have increased it only by Rs 8000 crore, which means overall for the year it is still Rs 8000 crore less.

Market impact

The markets rallied on Friday on S&P’s credit outlook upgrade on India, with the Sensex climbing 158 points and Nifty ending 57 points up, managing to hold the important support level of 7850. Thus, there won’t be much space for the markets to move up on Monday.

The yields fell from 8.47 percent to about 8.44 percent. So, it is a little difficult to find more reasons to increase bond prices or allow yields to fall. Also, Tuesday is the RBI’s credit policy, which is another reason why the bond markets will not want to react too gung-ho. Yet the yields may open at least 1 basis point lower when they start trading on Monday.

IRDA to make suggestions on Insurance Bill

The Insurance Regulatory Development Authority (IRDA) would make suggestions vis-à-vis the proposed insurance bill to cover different areas like health insurance and e-commerce, IRDA Chairman T S Vijayan said here today.

“We have a number of suggestions and would be placing them before the Select Committee (Parliament). The bill was envisaged somewhere in 2006, and lot of changes have happened in environment since then. When we are bringing the 2014 bill.. what the IRDA opinion is, it is better that latest changes in technology, is also coming into the bill,” Vijayan said.

He was speaking to reporters on the sidelines of a conference organised by industry body Assocham on ‘Digitisation and Enhanced FDI in Insurance – The Road Ahead’. The insurance bill, brought afresh by the NDA government in the recent session of Parliament could not be passed and was referred to the Select committee.

Replying to a query, Vijayan said some of the major suggestions are related to areas like health insurance, repositories and e-commerce.

“Some of the suggestions are in relation to life, non-life and health, which was not there in the one proposed in 2006. Health companies have started working and now we have experience in the health sphere, e-commerce has come. Some of the things have to find place in the bill itself,” he said.

The IRDA is in favour of capital infusion in the insurance sector so that it can be strengthened, Vijayan said. “What we have been consistently maintaining and is a fact also, is that industry needs capital. If foreign capital is increased, it will be easier flow of capital… We are not saying FDI has to come,” he said.

Asked about the level of capital inflows that would be required in the insurance sector, Vijayan said there were various estimates ranging from Rs 50,000 crore and upwards.

May look at bidding for coal blocks during re-auction: GMR

Would have taken another 5 years to extract coal from Rampia mine in Odisha

MADHU TERDAL

President of New & Emerging Business

GMR Infrastructure

In a landmark judgement, the Supreme Court on Wednesday cancelled allocation of 204 coal blocks allotted between 1993 and 2008. Of the total 218 blocks, 14 coal blocks, which are state-run non-joint ventures, have been spared.

The mines are allowed to run till March 31, 2015, up until the government readies the framework for auction. Moreover, the companies will have to pay penalty at Rs 295 per tonne for all the coal mined to that date.

Discussing the verdict, Madhu Terdal, Group CFO, GMR Infra , which has also seen cancellation of few mines, said the company would not get impacted by the SC order. He said the company would have taken another 5 years to extract coal from Rampia mines in Odisha, allotted to it.

Moreover, the company has already been given a tapering coal linkage for plants for the next five years till 2020. He says the company may look at bidding for coal blocks once the government starts re-auctioning process.

Prasad Baji, Senior VP, Institutional Equities – Research at Edelweiss Financial Services, says companies like Prakash Industries and Monnet Ispat may also get hit by the SC verdict.

Edelweiss has a target price of Rs 360 per share on Coal India , which does not include the benefits of new coal blocks. He feels opening up of coal sector to merchant miners is a long-term goal.

Sonia: Tell us about the impact that the Supreme Court ruling would have on GMR Infrastructure because two or three of your mines have been cancelled. What is the kind of damage that you see and how much would you have to pay to regain these blocks in the auction process, if there is any ballpark estimate on numbers that you have been working on?

Terdal: First of all let me clarify that GMR is not at all impacted by this order. There were certain coal blocks which were allotted to some of the operators have been cancelled. GMR got allotted a mine called Rampia in Odisha and that coal mine was given to six people jointly, along with us it was given to Arcelor-Mittal, Reliance, Lanco and others. All these people had different strategic plans, for example Arcelor-Mittal cancelled their plans for India and they did not use the coal mines.

Therefore, in our view we would have taken another five years minimum to expect coal from this coal mines and looking at the way land acquisition policies are there, the difficulties in the state of Odisha, I think it is better handled by the Government of India rather than private company like ours. So we are not impacted by the cancellation of coal blocks and indeed instead of that we have already been given a tapering coal linkage for the next five year – that is till 2020, already the problem in the coal mine was anticipated and government has already given us a tapering coal linkage for 2020.

Latha: When will you next need coal and have you got all the coal through FSA for that period? Terdal: Yes we have been given full coal. We are getting from the current coal mines which are given to us by Coal India. We have got a firm coal linkage for 500 megawatt; that is already in operation. For the balance of 550 megawatt we have been already given a tapering coal linkage. Wherever there is a shortfall we can import the coal from our own coal mines. So, that also is possible for us.

Latha: Will you therefore bid when the existing 46 guys are put on the block?

Terdal: We haven’t thought of that as a group. I will not be able to comment on that.

Latha: At least yes or no, not whether you will outbid the existing guys or anything but you would be interested because these are well prospected and running mines?

Terdal: I think it makes sense without talking from the company’s angle. I think it makes sense for us definitely to go for bidding.

Sonia: The judgement is silent on the auctioning process but if the de-allocated coal blocks when they are auctioned will it have any kind of inflationary impact on the power tariffs?

Terdal: To a minor extent it should be having an inflationary impact. However, what is important to know if we have understood the little bit of the government plans, what the government is likely to do is Coal India is going to bring in some very experienced and world class operators into the game.

Companies like Anglo, Rio Tinto which have very large mines with very high quality of technology and resources, if these kind of companies are given what is called as a mining contract by Coal India, in my opinion not only there will be very high quality of coal as well as the efficiency will be brought into the system.

So, I think whatever to the extent of minor inflationary impact it may have I think it can be offset by the quality as well as the speedness in which this mine can be extracted.

Latha: What is your sense of the most impacted companies? Now we know about Jindal Steel and Power  (JSPL) and Hindalco  but barring these companies which are the ones you think are going to be severely impacted?

Baji: After Hindalco and JSPL among the private producers Calcutta Electric Supply Corporation (CESC) is producing around 2.8 million tonne. So, they will need to bear a penalty at least from the group level as such. It is unclear whether this penalty can be passed on from the tariff at this stage but upfront at least the penalty is there.

After that the producers are much lower in number, you have Prakash Industries at 1 million tonne, Usha Martin  at 0.8 million tonne coal production, Monnet is around 1 million tonne. So, it is around that level for four to five players. Totally the private producers are around 20-22 million tonne out of the 40 million tonne that India produces on a captive coal basis.

Sonia: Coal India was up 5 percent yesterday. They have been allotted these 40 coal blocks but there are so many unanswered questions with respect to what the management fee could be. So there is quite a bit of uncertainty. At this price what would your view be on Coal India, do you expect it to increase further?

Baji: Our current target is Rs 360. We have not taken the benefit of the new coal blocks. Upfront definitely these 40 million tonne production comes to Coal India but eventually there will be some e-auctioning.

Net-net what one can say is that out of this 40 million tonne if 20 million tonne is with state PSUs then there is some likelihood that that maybe retained by Coal India considering also that Supreme Court judgement that essentially ownership of resources for merchant mining should be with central government and only captive miners can be in the end use sector. So, considering that the state PSUs which are producing around 20 million tonne that be retained with Coal India and that benefit can certainly come.

There are question marks on how the takeover would happen, what happens to the land acquired by the existing mine owner to the infrastructure? So, there are many question marks. Directionally it is positive but the quantum cannot be ascertained fully at this stage.

Sonia: Many analysts are talking about a couple of scenarios. One could be auctioning of the coal blocks to the highest bidder, there could also be perhaps a tariff based bidding that the government could take and then finally something that politically may not be the best thing to do but opening up the coal sector to merchant mining, etc. What do you think is the best approach that the government should take now?

Baji: In the short to medium term definitely the auctioning of coal blocks has to happen. Government has already said that they would be auctioning coal blocks. However, I would say we would need very detailed guidelines and process in terms of how this would happen for the cancelled coal blocks.

So, in a cancelled coal block, we already have a mine owner who has invested in the land, invested in the infrastructure. If there is a winning bidder who is other than the incumbent how this gets transferred, whether the incumbent has a right of first refusal (ROFR). So, government will have to come up with a detailed framework for all this.

Government will also have to look at why all the earlier auctions which were only two or three failed. Government has said that they would like to do it with approvals and land. So, for the producing coal blocks it is easier but there will be clear guidelines on that.

Thirdly on the pricing or the reserve price for the auctioning, earlier the guideline was that it would be 10 percent of the DCF value with the valuation based on imported coal pricing. However, is that really viable or should we link it to Coal India prices and how do we come to 10 percent number. So, there are a lot many finer points that need to be thrashed out before the auctioning is done but I would say that is what we should expect going forward.

Opening up the sector to the merchant mining definitely is there but I would think that the government is going to consider it more in the longer term because there is a lot of immediate fixing that needs to be done considering all the cancellation that has now happened, so, that I would expect in fact for the longer term.

Latha: How are you going to approach the various power companies that you spoke about? They may not be in your coverage but basically even CESCs and GMRs and GVKs and a lot of others who will be looking for coal, do you expect that the coal auctioning could see some fairly aggressive pricing because these 46 as you said don’t have any land issues, titles are clear, you don’t have to prospect and see how much coal is available. Could there be aggressive bidding and would that bleed the sector?

Baji: We can’t conclude that there will be aggressive bidding because these coal mines, they are already supplying to certain plants. So, they will have all the infrastructure aligned for that. So, for example for JSPL coal blocks, there is a dedicated conveyor from the mine to the plant. If there is any another winner then how does he do the logistics as such; that is not clear at this stage.

So, definitely there will be bidding but all these issues will need to be thrashed out as to if a new winner comes how does the changed situation be addressed. So, I expect bidding but until this is clear, it may not be necessarily very aggressive.

Sonia: You spoke about what your fair value on JSPL is but if in case the premium paid during the auctions for the first few operational mines gets to be a little on the higher side or little aggressive then how much do you think it could hit JSPL further because now there is this whole uncertainty and overhang looming?

Baji: When we do our numbers we take a base case. So, we have taken around Rs 600 increase in coal cost for JSPL because the challenge is going to be that after Coal India takes it over whether 100 percent of the coal can come back to JSPL and after that will there be an auction, will JSPL be successful at price it will get. So, considering these uncertainties we have build in a certain increase in coal cost and arrived at a fair value of around Rs 209.

The issue remains that if the coal cost rises further then this, in a worse case the extent of imports of coal has to be higher then the coal cost can be much higher because the imported coal cost will be at least Rs 2000-3000 higher per tonne.

GMR Infra stock price

On September 25, 2014, at 13:30 hrs GMR Infrastructure was quoting at Rs 18.95, down Rs 0.55, or 2.82 percent. The 52-week high of the share was Rs 38.30 and the 52-week low was Rs 17.60.

The company’s trailing 12-month (TTM) EPS was at Rs 0.21 per share as per the quarter ended June 2014. The stock’s price-to-earnings (P/E) ratio was 90.24. The latest book value of the company is Rs 16.76 per share. At current value, the price-to-book value of the company is 1.13.

With 30 engagements on list, PM Modi heads for US today

Prime Minister Narendra Modi will start for his much anticipated five-day tour to the United States of America on Thursday. PM’s delegation will leave at 4 pm.

External Affairs Minister Sushma Swaraj has already reached the US.

In his five-day trip to New York and Washington, Modi will have over 30 engagements. He is scheduled to hold meetings with US administration, Heads of state, businessmen and NRI community.

Modi will meet four leading figures of the US administration, including President Barack Obama on September 29 and 30 when he is in Washington.

The Prime Minister will also meet US Vice President Joe Biden, who will host a lunch for him along with Secretary of State John Kerry. Secretary of Defense Chuck Hagel will also call on the PM on the same day.

Modi is also scheduled to meet former US president Bill Clinton and former secretary of state Hillary Clinton.

On September 27, Modi will address the United Nation General Assembly. “His participation in the UNGA is an affirmation to India’s commitment to multi-lateralism. He will focus on issues of paramount importance including India’s permanent membership of UN Security Council in his address to UNGA,” the MEA said on Tuesday. Later in the day, Modi will pay homage to the 9/11 terror attack victims.

On September 30, Modi will pay homage at Lincoln Memorial, Martin Luther King Memorial and Mahatma Gandhi’s statue in Washington.

Modi will also be meeting the President of Sri Lanka, Prime Minister of Bangladesh and Nepal during the trip. Modi, however, has no plans of meeting his Pakistani counterpart Nawaz Sharif.

Ignore volatility; see OPM improvement in Q2: Pramerica

Ignore short-term volatility and continue to remain invested in the market, is the word coming in from BP Singh of Pramerica Mutual Fund. He, however, does not rule out short-term corrections in the market. According to him, every bull run is always accompanied by very sharp short-term corrections. “But investors should ignore this, pick their stocks and stay invested,” he says.

He says fundamentals are improving fasted than anticipated.

Singh says the Indian rupee has appreciated against most currencies, on the back of which exports may take a hit and export-oriented companies may see some discomfort. But all these issues are likely to be short-term.

He continues to remain positive on IT on the belief that the sector is still undervalued.

He expects company financials to improve from the third quarter of next calendar year. In the second quarter of this fiscal year, he expects companies to report improvement in operating margin, but not in topline.

Sonia: It has become a little tricky for the market now, volatility has crept in. What do you suggest the average investor do at this point, wait on the sidelines or is it still a good time to be going and buying good quality names?

A: Yes, I do agree with you that there are volatilities every day if you look into the market but if you keep comparing week-on-week or month-on-month performance, you notice that the market is going up and so investor is making money if they are invested and they just ignore the volatility. That is a typical of any bull market that there are going to be more people who will continue to doubt whether this rally is sustainable, whether any small event is going to affect it. But let us not ignore that there are many who were sitting on the sidelines waiting for an opportunity to get in.

What we are going through in the last one to one and a half months is if you look at the dollar index, it has appreciated considerably vis-à-vis the various currencies and Indian currency has hold on to it. What clearly indicates that the Indian market is now trying to separate itself from the global markets. So there is really a genuine fundamental rally, which is going on. Now we will see the earnings, which will follow with a lag effect, investors will continue to doubt it but month-on-month we will continue to make money. So we will ignore this, we will recommend people to ignore this short-term volatilities and continue to remain invested, pick your stocks and continue to back it.

Latha: The FII pipe was clearly keeping the stocks fuelled. Now if nobody is buying at – fresh money is not coming in at 8,200 or 8,180 levels, do you see the index continuing to charge ahead? After all we are told that eight months in a row is a very rare occurrence for the Nifty to rise. Therefore, do you think that we are in for some short-term correction but certainly money to be made in six months?

A: I don’t rule out short-term corrections in the market. For example, the simple fact is that the Indian rupee has now appreciated vis-à-vis practically most of the currencies in the world. If that is the case then the exports are either going to come under pressure or the currency will have to give in. Now if either of the situation you will find that the markets might get in for a small correction. But why is that happening? That is happening because the investors are finding this particular market attractive. You cannot have both the things together when your market gets attractive at the same time your currency continues to weaken up. So if you combine these factors, you will notice that every bull market rally is accompanied with a very sharp correction, which is going to be a short-term.

My only advise at this point in time is that how we are planning our portfolio and we are ignoring those short-terms because when we try to focus too much on those short-term corrections, we end up missing the bigger picture, the bigger rally. We are continuing to focus on that bigger rally because the fundamentals are improving much faster than what many people anticipated.

Sonia: In the past couple of weeks, we have seen some defensive moves on the market, IT names like TCS etc have charged ahead, do you think that one should now up their exposure to the defensive names because there could be lot of volatility in the weeks to come?

A: What is happening is that the top-down India has suddenly started looking attractive but when you look bottom-up, you will still not see the earnings. So as a result of which the investors who are coming to the market are rather continuing to focus on the defensives thinking that I need to be in this particular market because the market is rallying but at the same time, they are looking for more conviction. Now, what will happen that the bottom of the earnings will start improving with a little bit of lag effect. For example, auto — if you are discussing just three-four months ago, many people wouldn’t have recommended the auto ancillaries but today the auto ancillaries are one of the favourite stocks.

Similarly, for the cement sector – various such sectors are now picking up. So yes, I completely agree with you that the initial flow, which is taking place into defensive side will gradually move towards other sectors. That phase is going to be slightly with a lag because initial money is all getting concentrated and there is still some amount of scope left in the IT sector and we ourselves are very positive on the sector right now because we clearly see undervaluation,. However, as far as the pharmaceutical sector is concerned, as far as the fast moving consumer goods (FMCG) is concerned, in our opinion, the overvaluation is now building in and I think we are gradually now looking to get out of this and move into the other sectors.

Bubble in everything, everywhere: Marc Faber

Even after the Dow and the S&P 500 closed at new all-time highs, closely followed contrarian Marc Faber keeps sounding the alarm.

“We have a bubble in everything, everywhere,” the publisher of The Gloom, Boom & Doom Report told CNBC’s “Squawk Box” on Friday. Faber has long argued that the Federal Reserve’s massive asset purchasing programs and near-zero interest rates have inflated stock prices.

The catalyst for a market decline, as he sees it, could be a “raise in interest rates, not engineered by the Fed,” referring an increase in bond yields.

Faber also expressed concern about American consumers. “Their cost of living have gone up more than the salary increases, so they’re getting squeezed. So that’s why retailing is not doing particularly well.”

A real black swan event, he argued, would be a global recession. “The big surprise will be that the global economy slows down and goes into recession. And that will shock markets.”

If economies around the world can’t recovery with the Fed and other central banks pumping easy money into the system, that would send a dire message, Faber added. He believes the best way for world economies to recover is to cut the size of government.

There’s a dual-economy in the U.S. and around the world with the rich doing really well and others struggling, he said. “[But] the rich will get creamed one day, especially in Europe, on wealth taxes.”

On the other end of the market spectrum, longtime stock market bull Jeremy Siegel told CNBC on Tuesday (ahead of Wednesday’s Fed policy statement leaving interest rate guidance unchanged) that he stands by his Dow 18,000 prediction. The Wharton School professor sees second half economic growth of 3 to 4 percent, S&P 500 earnings near $120, and the start of Fed rate hikes in the spring or summer of 2015.

PNB board oks stock split from Rs 10/sh face value to Rs 2

This resolution has also enabled us to raise other capital like 81 new instruments that have come.

KR KAMATH

CMD PNB

The Punjab National Bank ( PNB ) board has enabled resolution to raise capital via QIP/FPO/rights issue through a stock split of shares from face value Rs 10 per share to Rs 2 per share in order to bring in retail investors.

KR Kamath, CMD, Punjab National Bank says that the government has not yet decided on how much they will provide to the bank.

The bank is in no hurry to raise capital but its modus operandi will be fixed after government’s equity infusion plan, Kamath says in an interview with CNBC-TV18’s Latha Venkatesh and Sonia Shenoy.

PNB is trying to keep its capital adequacy ratio at 12 percent, he adds.

Q: When are you likely to tap the market and is there any preference? Is it likely qualified institutional placement (QIP) or likely follow on public offer (FPO) or a mix of both?

A: The board resolution was an enabling resolution for the bank to raise capital and look at different means depending upon the market situation. The first thing is that the government is yet to decide on the allocation of the funds, which out of Rs 11,400 crore earmarked for the capitalisation of the public sector banks. In case there is an allocation coming to Punjab National Bank and if it’s a good allocation we may even look at rights issue depending upon what the quantum that the government would like to subscribe. If the rights issue is not possible then probably we may look at either QIP or FPO depending upon the circumstances. This resolution has also enabled us to raise other capital like 81 new instruments that have come. So, it was a broader resolution enabling us to go ahead with the raising of the capital and we will take a call once the government’s plan is clear.

Q: Has the government indicated to you that they may be able to provide a little more money, because this morning Dr. Mayaram has been quoted saying that the financial position of the government is actually better, all the ministries will be allowed to spend up to their limits and even that Rs 16,000 crore that they did not borrow in the first half may not be borrowed at all. They are expecting that kind of comfort. So have they given you any comfort, any number in mind as to what you will get by way of capital?

A: They have not yet decided on this issue, they are looking at various options how to go about. Therefore, I do not think that any bank has been indicated any amount on this. We are just waiting for their final plans.

Q: I understand that you tier one capital currently stands at 8.8 percent. What will the tier one look like post this fundraising?

A: We have been looking at keeping the capital adequacy at 12 percent minimum. We are comfortable for a capital adequacy for the current year I do not think even without raising of the issue; just by ploughing back, we will be in a position to manage our capital requirement at a comfortable level. We are not in a hurry to raise but looking at the plans what we have for the growth of the next year onwards; we need to raise the capital. Therefore, we will time it in the second half depending upon how the government comes out with their plan.

Q: What is the reason for the stock split?

A: There is a feeling that more and more retail investors should be brought to the market and where prices are today around Rs 1,000, if the people have to pick it up, it will be very difficult for them to pickup in order to get a retail interest in the stocks. We said that we will split the shares so that anybody who wants to get into can buy our shares.

PNB stock price

On September 22, 2014, at 10:10 hrs Punjab National Bank was quoting at Rs 988.10, up Rs 11.25, or 1.15 percent. The 52-week high of the share was Rs 1068.00 and the 52-week low was Rs 458.20.

The company’s trailing 12-month (TTM) EPS was at Rs 95.90 per share as per the quarter ended June 2014. The stock’s price-to-earnings (P/E) ratio was 10.3. The latest book value of the company is Rs 991.39 per share. At current value, the price-to-book value of the company is 1.00.