The SCI FPO dates and pricing are out; in fact the first day is already over, but there hasn’t been much activity on the subscription front probably because people were too busy with the MOIL IPO.
SCI FPO Price Band
The price band has been fixed between Rs. 135 and 140, and the EPS last year was Rs. Rs. 9.29 which was down from Rs. 22.66 EPS in 2009, and Rs. 17.82 EPS in 2008.
The stock closed at Rs. 143.65 on the NSE on Tuesday, which means that a price of Rs. 140 is not all that attractive for people. The subscription numbers are pretty low but that could also be because this is the first day, and the other disinvestment IPO – MOIL has generated a lot of interest today.
Here are the subscription numbers at the end of Day 1 of the SCI FPO. I will update this post with new numbers as each day progresses.
Yesterday I asked for poll ideas at my Facebook page (why haven’t you liked it yet?), and reader Raja Panda suggested the following question:
About what percentage of salary(net) people save at what income level.
I have simplified this a little bit by removing the income level because it’s easier to conduct the poll that way, and also because your standard of living increases as you start earning more, so while you may think that you will save more at a higher salary, in reality that is not the case.
So, here is the question for the new poll:
What percentage of your monthly annual income do you save?
I don’t save anything currently
Between 1 – 5%
Between 6 – 10%
Between 11 – 15%
Between 16 – 20%
Above 20%
The poll is on the left sidebar, so feed and email readers please click through the site and vote. Also leave a comment because as you know – I use them as feedback when I prepare the poll results post, and of course it gets everyone thinking too.
Leave a comment letting everyone know the changes in your savings habit from the peak of the recession to now, and whether you think about saving more at all, or any other thoughts you may have about saving.
Let me start off by telling you that I am not a very thrifty person by nature, but when I graduated I had a student loan to pay off, which forced me to take a certain amount and keep it aside every month. With time that loan was paid off, but the habit stayed with me. It was like having a chunk of money that I didn’t have before, and luckily I had the sense to continue keeping that money aside, and that helped develop a saving habit.
Then during the great recession, I really realized the importance of having an emergency fund, and being thrifty. If you can live below your means, and have no credit card balance or EMIs you can sleep a lot better at night.
But between the recession and having to pay off that loan, I think the loan had a lot more influence on me just because it lasted so long, and forced the habit on me.
Your turn now – leave a comment about your saving habit, and any tips that you may have to develop a thrifty mindset.
Update: Raja made some recommendations, and since not many people had voted, and the emails were not sent out, I made a few changes in the options.
This is the first post based on the Suggest A Topic page that I created recently, and the title of the post is exactly what was written in the comment.
I’ve created that page to get suggestions on topics from readers, and have them organized at one place instead of the usual emails and comments I get. This way is better for me to keep track of the post suggestions as they don’t get buried in my email, and its better for the person suggesting it because the suggestion is out where everyone can see it. So, to me it is a win – win.
Now, to the post itself.
What is the Pre – Open Call Auction Session?
The NSE and BSE introduced the pre – open call auction (pdf) sessions from October 18 2010, and these sessions are intended to reduce volatility and provide better liquidity in the markets.
The pre-open session lasts for 15 minutes from 9 AM to 9:15 AM, and is divided into three parts:
First 8 minutes: In the first 8 minutes orders are placed. They can be canceled or modified during this time period also.
Next 4 minutes: In the next 4 minutes price discovery will be done, and orders will be executed.
Next 3 minutes: The next 3 minutes are used to facilitate the transition from pre – open to regular session.
Right now, only the index stocks are included in this session, and you can place both market, and limit orders as part of the pre – open session. A price band of 20% is applicable on all securities in the pre – open session.
How does the Pre-Open Call Auction Session Work?
The way they go about doing this is instead of executing trades right from the get go, they take all orders, and then arrive at an equilibrium price.
The equilibrium price is the price at which the maximum number of shares can be traded based on the demand and supply quantity and the price.
Consider this example:
Pre Open Call Auction Demand and Supply
In this example you can see various buy and sell orders at different price levels.
The green side is the buy side which shows that there is a bid for 5 shares at Rs. 50, 4 shares at Rs. 51, and so on till Rs. 54 at which there is just demand for 1 share.
On the red side you can see that you can sell 5 shares at Rs. 54, but only 4 at Rs. 53, 3 at Rs. 52 and so on. There is a cumulative column at the end of both sides which shows you the total number of shares that can be bought or sold at any given price.
If you were to create a demand – supply curve based on the price and cumulative values, it would look like this.
Pre Open Session Cumulative Demand Supply Function Curve
The intersection of this curve is the price at which you can conduct the maximum transactions, and that’s the equilibrium price that comes out from this pre-open call auction.
You can see this for yourself:
At Rs. 50 there are 15 buyers but just one seller so only 1 share will be traded.
At Rs. 51 there are 10 buyers but only 3 sellers, so only 3 shares will be traded.
At Rs. 52 there are 6 buyers and sellers so 6 shares will be traded.
At Rs. 53 there are 10 sellers but only 3 buyers.
And at Rs. 54 there are 15 sellers but only 1 buyer.
So, in our example at the end of the price discovery phase the price will be determined at Rs. 52, and the orders that can be executed at that price will be executed. The other orders can be carried forward to trade in the regular market.
In this example, if the normal method of determining price would have been used then some trades would have happened on Rs. 54, and Rs. 53 in our example, and by determining the price at an auction like this at least theoretically the exchange is smoothing out some of the volatility that occurs in the opening moments of the market.
If there are more than two prices at which the demand supply matches then they see which of them has the minimum imbalance, and use that as the price. If both the prices create equal imbalance, then they look at the price which is closest to the last closing price and make that the equilibrium price.
What is its significance on the market?
You will hear a lot of folks say that the exchanges have implemented this change, which takes away from the fact that this was something that SEBI had asked the exchanges to look into, and implement, and is used in other countries as well.
I guess until we see a day with a lot of volatility and the market opening with a big gap, and then that day is studied for impact from this change we will not know for sure how this is working, but in theory this sounds like a better system than the one we had earlier.
For retail investors – it is always a good idea to place a limit order instead of a market order so that if the market moves violently you don’t lose out any money, especially in a one off black swan type of event. You could just keep a limit order close to the currently traded price or closing price if you don’t want to wait for your transaction to go through, but developing this habit will hold you in good stead in the long run.
Also, there is some excellent material and a great video by BSE on this topic, and those of you who want to explore further can check them out. All the details for this post has been gathered from that material itself.
The dates for the Hindustan Copper FPO have been declared recently, and this issue is going to open on 6th December 2010, and close on the 9th December 2010, and I thought I’d do a post with the financials, capital structure, and a brief summary of what it does now, and update the post when pricing is out later.
Like several other disinvestment companies, Hindustan Copper is also the only player in its field and is a commodity company.
Hindustan Copper is the only copper ore producing company in India, and has access to over two – thirds of India’s copper reserves. The company mines copper ore, is engaged in concentration of copper ore into copper concentrate, and also does smelting, refining of copper ore into saleable products like cast wire rods, wire bars, and copper cathodes.
Here is a break up of Hindustan Copper’s key production and sales volume for the last three years from its red herring prospectus.
Hindustan Copper FPO Key Production Figures
The prospectus goes on to state that the company’s primary product will be copper concentrate rather than refined copper products in the future as they plan to expand the production capacity from 3.21 MTPA to at least 12.41 MTPA by the end of fiscal 2017.
Hindustan Copper FPO Issue Structure
This FPO consists of fresh issue of shares as well as existing shares from the government which means that part of the proceeds will go to the government, and part of them will go to the company.
The way the issue has been structured is that the government is going to sell 10% of the existing capital, and the company will issue new shares which will be equal to 10% of the existing capital. So, half of the money from the proceeds will go to the government, while the other half will go to Hindustan Copper. Here are the details.
Hindustan Copper FPO Structure
Hindustan Copper Financials
The revenue of the company has grown from Rs. 10,537.59 million in 2006 to Rs. 14,298.48 million in 2010, and the company has been profitable in these years except for 2009 when it had a net loss of Rs. 103.09 million.
Here are the details of revenues and profits in the last few years in Rs. Millions.
Hindustan Copper FPO Financials
The EPS was Rs. 1.89 in 2010, (0.37) in 2009, and Rs. 3.24 in 2008. The stock was traded at Rs. 312.00 in NSE last Friday. The pricing for this issue is not out yet, and I’ll update this post when the pricing of the issue is out.
Day 1 of the MOIL IPO is over, and I thought I’d create a subscription numbers page like I did for the Power Grid FPO. MOIL is an IPO where no new shares are being issued, and the stake of the state and central government is being sold so the money raised from MOIL IPO is going to go to the state and the center government.
An IPO is divided into various categories like Qualified Institutional Bidders (QIB), Non Institutional Investors (NII), Retail and Employees, and here is how the shares offered are split amongst various categories.
MOIL IPO Shares offered breakdown
Here are the subscription numbers from NSE at the end of Day 1. I will update these numbers every day to get an idea of how the numbers move.
MOIL IPO Final Subscription Numbers
Update: Look at the QIB number zoom on Day 3, and looks like the retail number will also end up a lot higher than we have seen in the past. I will do a full post once the subscription closes, and update this with Day 4 numbers as well.
The green bar represents the second day from NSE. Usually you see QIB zoom up, and retail only grows on the last day but here retail is slightly higher than QIB on the second day. There are two more days left so let’s see how high the retail goes.
This week I present to you this awesome David Einhorn interview that I came across via The Big Picture. David Einhorn is a hedge fund manager famous for his successful shorts, and there are some points in this interview that really resonated well with me. The interviewer was great too, which is not as usual as it should be, so that added to the whole interview as well.
I like the part which starts about the 13 minute mark where he describes some of his longs, and the rationale behind it. It’s so simple, clear, and easy to understand that you struggle to understand why some other people on TV go rambling for minutes without making any sense at all.
The other part that I especially like starts at about the 23 minute mark when he says that investors should do their own research, and think for themselves, and understand that no one cares about their money as much as they do. If you go wrong then go wrong knowing that you did what was best for you, and not because someone else told you that.
As I have written before I have stayed away from gold, but when I read that John Paulson has gold holdings, and then I see David Einhorn talking positively about gold, I get tempted and I say to myself I have to be a fool not to be in gold if these smart guys own it, but I’d rather be wrong on my own analysis, than be right aping someone else plus gold is not the only game in town, so that makes the decision slightly easier.
I’ve said enough now, go watch the video, it is about 26 minutes long, and is well worth your time.
I’ve been asked to write a post about the best mutual funds in India several times, and I’ve been avoiding that exercise for long because it’s just so difficult to nail the right parameters, and get information on the fund managers and things like that. However, I’ve decided to take a crack on giving my opinion on the best mutual funds since there have been quite a few emails about it, but before that let’s take a look at why any such analysis from me or anyone else should be viewed with a little bit of skepticism.
The HDFC Top 200 Mutual Fund is one of the better mutual funds in India. It has a very long track record as it was started in 1996, and has done tremendously well during that time. A snapshot from Value Research’s fund assessment very clearly shows why it is such a favorite.
HDFC Top 200 Fund Performance
Just look at the red line go – isn’t it wonderful?
A closer look at the numbers reveal that the fund is a consistent performer, and has done better than its benchmarks consistently, and is quite a good fund. Even in 2008 when there was blood on the streets this fund managed to do slightly better than the benchmark. The fund has returned 26.48% since inception, and for a fund that has been around since 1996 this is quite a great number.
There is just one thing I’d like to point out with these returns. Look at the Total Returns (%) row and then look at the number for 2003 – the fund hit a jackpot in 2003 with a 134.47% returns, which was 62.57% better than the benchmarks, and that has had a great role in helping its great returns since inception number. Make no mistake – the fund has done better even without that great jump, and has returned a pretty good 26.56% CAGR in the past 5 years without having a big bump in a single year.
But the point I am trying to make here is that even with consistent performers a good or bad year can really impact the overall profit, so when you consider investing in a mutual fund please keep in mind that there may not be a bumper year in your holding period, or the mutual fund may suffer a bad year when you hold it, and that may impact your returns adversely.
The mutual fund has a NAV of Rs. 230 or thereabouts today, but if I replace that one great return in 2003 with a slightly less magnficient number say Rs. 30 (which is arbitrary but still quite high) instead of 17.23 to 40.39 – the NAV today would only be about Rs. 170 or so.
Year
NAV
Total Return
2000
15.2
2001
13.66
-10.13
2002
17.23
26.13
2003
30
Reduced from 134
2004
38.25
27.53
2005
59.40
55.27
2006
81.64
37.43
2007
126.06
54.40
2008
68.92
-45.32
2009
134.03
94.46
2010
169.58
26.52
Now even that is a good number, but not as spectacular as its actual returns.
And this, my friends was the longest – past returns are no guarantee of future returns disclaimer you’ve ever read.
I got this email about the IFCI bonds, and I thought I’d paste my response here as well.
Q.
are these bonds same as shares
can we sell it on market or we have to sell it to the company itself
what is the locking period
A.
No, these bonds are not same as shares. Share prices go up and down every day, and can be quite volatile. Also, there is no guarantee that you will get a certain amount back at the end of the tenure.
These bonds will be locked in for 5 years, so you will not be able to trade them for that much time. They will then be listed on an exchange but will not be as volatile as regular stocks. They will pay you an interest, and also save tax which is not something stocks do. Think of bonds more like a fixed deposit than a stock.
Feel free to weigh in on the response, and add your comments!
MOIL IPO price band was declared between Rs. 340 – 375, and the IPO will open on November 26th 2010, and close on the December 1st 2010.
MOIL is a Mini – Ratna engaged in mining Manganese ore which is used for desulphurization and strengthening of steel, thus making it closely tied with the steel industry.
Of the total land based manganese ores in the world – South Africa accounts for a whopping 75% followed by Ukraine which has 10%, and then Australia and India which have 3% each.
The Indian manganese reserves are estimated at 378.6 million tonnes and Orissa has the bulk of them with 40% of the reserves, and Karnataka comes second at 22%.
The domestic steel demand has doubled between 2002 and 2010, and CARE research expects it to grow by 9.2% CAGR from the year 2011 – 2015. In fact the demand for manganese ore has turned India into a net importer of the ore in the last 3 years. India is in fact the fifth largest producer of steel in the world, and the need for infrastructure and economic development in the future will only mean that the demand for steel goes up.
MOIL India is the biggest producer of manganese ore in the country, and produced 1,093,363 tonnes of Manganese ore in 2010. This amounts to about half of the manganese ore production in the country.
They operate 1o mines currently, and a look at the volume of ores mined in the past few years shows a that the numbers have actually declined from 2008 – 2010. In 2008 MOIL mined 1.3 million tonnes of ore, which came down to 1.1 million tonnes in 2009, and 1.09 million tonnes in 2010.
Manganese Ore Mined by MOIL
I’m not sure what the cause of this decline is, and I couldn’t find any reference of it anywhere. I wonder if I’m just reading this wrong, so I’m pasting the relevant para from the prospectus here:
We were the largest producer of manganese ore by volume in India in Fiscal 2008 (Source: Indian Bureau of Mines, Indian Mineral Yearbook 2008). We produced 1,364,575 tonnes, 1,175,318 tonnes, 1,093,363 tonnes and 516,749 tonnes of manganese ore in Fiscal 2008, 2009, 2010 and in the six months ended September 30, 2010, respectively.
The company had a total income of Rs. 10,154.5 million, Rs. 14,394.1 million, Rs. 10,878.5 million and Rs. 6,924.9 million in Fiscal 2008, 2009, 2010 and in the six months ended September 30, 2010, respectively.
The profit after tax was Rs. 4,615.6 million, Rs. 6,902.9 million, Rs. 4,656.2 million and Rs. 3,315.0 million in Fiscal 2008, 2009, 2010 and in the six months ended September 30, 2010, respectively, or 45.5%, 48.0%, 42.8% and 47.9% of the total income in those periods.
The EPS for 2010 was Rs. 27.72, which was down from Rs. 41.09 in 2009, and about the same as the Rs. 27.47 EPS earned in 2008. The EPS for the six months of this fiscal was Rs. 19.73. The dip in the EPS is because the number of shares issued, subscribed and paid up increased from 28 million on Sep 30 2009 to 168 millon on Sep 30 2010.
As of September 30, 2010, the cash and bank balances were Rs. 17,628.8 million and they had no debt.
MOIL IPO Vital Stats
The company has 168 million shares outstanding so cash per share amounts to about Rs. 105.
MOIL Limited has positive cash from operations in each of the last five years, and they even had a positive cash from investing of about Rs. 1 billion in 2010 when they earned Rs. 1.2 billion as interest on fixed deposits!
The total outstanding shares of the company are 168 million, and it is offering 33.6 million shares in this IPO. A lot of you are interested in knowing if the company or the government gets the money in these disinvestments, so let me state that in this particular case there are no fresh shares being issued, and all the money raised from this IPO will go to the state and centre government. The company will not get any money out of this IPO.
The price band of the MOIL IPO is between Rs. 340 – 375, and price will ultimately be finalized using the book – building process.
CARE has assigned a grade of 5 out of 5 to MOIL which indicates strong fundamentals, and finally MOIL Limited is one of the companies in which retail investors will be allowed to invest up to Rs. 200,000 which was recently increased by SEBI.
Update: There has been a change in terms, and you can now invest in these bonds in physical form also. Here is the link to relevant IFCI page.
The issue has been extended till January 12 2011
The IFCI Infrastructure bonds are the latest infrastructure bonds to be issued with the 80CCF benefits, and are the second tranche from IFCI, which issued them earlier this year as well.
The IFCI bonds are issued with section 80CCF benefits which means that they will get you a tax benefit of reducing your taxable income over and above the Rs. 100,000 under Section 80C with a cap of Rs.20,000.
The issue has been rated “BWR AA†by “BRICKWORK RATINGS INDIA PVT LIMITED†which means that they are rated as instruments with high credit quality.
IFCI Infra Bond
Here are some other details about them.
IFCI Infra Bond Options
There are 4 series that you can choose from with a combination of getting interest paid annually, cumulatively, and having a buyback or not.
Here are the details of the 4 series.
Options
I
Buyback &
Non – Cumulative
II
Buyback &
Cumulative
III
Non Buyback &
Non – Cumulative
IV
Non – Buyback &
Cumulative
Face Value
Rs. 5,000
Rs. 5,000
Rs. 5,000
Rs. 5,000
Buy Back Option
Yes
Yes
No
No
Coupon
8.00% per annum
8.00% compounded annually
8.25%
8.25% to be compounded annually
Redemption Amount
Rs. 5.000
Rs. 10,795
Rs. 5,000
Rs. 11,047
Buyback allowed after
5 years
5 years
NA
NA
As you probably noticed IFCI didn’t show yields in the same manner as L&T and IDFC, where they took the tax benefits based on various slabs and showed yields at different tax slabs and interest payments. This is probably a good idea given the various limitations of the way those yields were calculated.
How does the IFCI infrastructure bond buyback option work?
At the time of selecting a series you have to select either series 1 or series 2, which allow the buyback after 5 years lock in period. To exercise the buyback you have to write to IFCI to request it, and this has to be done in the month of November for the year when you want to exercise the buyback.
Open and Close Date of the IFCI Infra Bond
Opening date of the issue: November 16th, 2010 and Closing date of the Issue: December 31st ,2010. They can close earlier as well if their entire demand is met.
Is a Demat account necessary to apply for the IFCI Infra Bond?
Yes, right now it is necessary to have a demat account to apply for these bonds as they won’t be issued in physical format. Even the IDFC bonds started out as Demat only, and were later on changed to allow physical forms also. The target sum to be raised by IFCI bonds are much lesser than the IDFC ones, so they might not feel the need to change and include the physical format as well.
Will tax be deducted at source from the interest payment?
These IFCI 80CCF bonds will not attract TDS, however the interest itself is taxable at your hands. So, the bonds don’t attract TDS, but it doesn’t mean they are tax free.
Will the bonds list in a stock exchange?
Yes, IFCI plans to list these bonds on the Bombay Stock Exchange (BSE), but from reading the information memorandum it seems to me that you can only sell these bonds after the lock in period of 5 years.
Can NRIs invest in the IFCI Infrastructure bonds?
NRI customers are not eligible to apply for the issue.
What if you have already bought another infrastructure bond?
If you have already bought another infrastructure bond, and exhausted the limit of Rs. 20,000 then you won’t get any further tax benefit by buying this bond. There are also several banks that offer 8% interest for terms less than 5 years, so you won’t get much value out of locking your money in this instrument for 5 years.
How can you buy the IFCI infrastructure bonds?
You can buy these bonds through your broker like ICICI Direct, or can submit an application form in one of the bank branches that are accepting them. The information memorandum lists down a large number of HDFC bank branches so you can go to one near your house, and they might be selling the bonds or can at least tell you where you will get them.
Should you wait for another issue?
This issue is 50 basis points, or half a percentage higher than similar L&T bonds issued earlier, and reader Amit Khandelia actually left a comment about LIC coming up with a future issue, and possibly even offering term insurance free with their offer.
IDFC has also indicated interest in coming up with a future issue, so they might come up with another issue too.
The advantage with waiting is that you may get a slightly higher interest rate, maybe half a percentage or one percentage more, but as I said earlier if you’re able to wait and get a bond which offers a percentage higher, and you invest the maximum Rs. 20,000 in it – that means an additional 200 bucks extra in a year; what is that worth to you? How many hours of Googling and speculating is it really worth?
The advantage of getting it now is that you can get this one thing done with, and have plenty of time to receive the certificates for tax proofs or whatever else you need.
This is a personal decision really, but something worth keeping in mind the next time you speculate on whether you should wait or go ahead with it.
Please leave a comment if you have any questions or observations.
