The stock market is likely to be range-bound this week as investors weigh positive cues like declining food inflation and better-than-expected industrial growth against the recent hike in key short-term interest rates, say experts. Market players said the short-term momentum is clearly negative for
the market, as high interest rates are a significant damper for the overall sentiment.
"We have to wait and watch for commodities to decline and stabilise, IIP to rise and stabilise and inflation or interest rates pressure to ease and then markets can become more positive in the next 2-3 months," Mape Securities Senior Director (Research) Kislay Kanth said.
The market mood is likely to be vitiated by the government's decision to hike petrol prices by Rs 5 in New Delhi. Analysts apprehended that if petrol prices went up by Rs 1-2 per litre, the market would discount it, but if they went up by more than Rs 3-4 a litre, the market will go into the negative zone.
It was a lacklustre week for the market despite positive domestic economic indicators. In the week gone by, the BSE benchmark Sensex went up marginally by 0.06% to settle at 18,531.28 in the previous trading session.
"Going forward, the market will take cues from any sort of positive overtures from the Centre on the policy front. The market will welcome any further moderation in crude oil and other global commodities. Watch out for the April inflation data on Monday," IIFL Head of Research (India Private Clients) Amar Ambani said.
Analysts said the favourable election outcome would give the Congress-led coalition more leverage to push through long-pending reforms in the financial sector.
"The sentiment got a boost, as with the ouster of the scam-tainted DMK in Tamil Nadu, UPA-II could just be able to pursue long-pending reforms and will be able to deal with the 2G scam culprits much more effectively," Ambani said.
Food inflation dropped to 7.7% for the week ended April 30, the lowest level in 18 months. India's exports grew by an annualised 34.4% to USD 23.9 billion in April.
Factory output in March, as measured in terms of the Index of Industrial Production (IIP), slowed to 7.3%, compared to 15.5% expansion in the same month a year ago.
Experts said the IIP growth rate of 7.3% was higher than expected and will likely generate a positive response. The growth rate of 7.8% for FY'11 is less than FY'10, but is still good, given that IIP rates in the last 4-5 months were very volatile, they added.
Sunday, May 15, 2011
Fresh blood at heart of Wipro’s revamp
Wipro had become too bloated and bureaucratic to compete effectively, admits Azim Premji, the chairman and majority owner of India’s third-largest IT outsourcing company.
So, in far-reaching changes to Wipro’s culture, thousands of new graduates are being hired to help with the reinvigoration process.
“I think where it went wrong was that we over-bureaucratised the organisation,” Mr Premji tells the Financial Times during a visit to London. “We created too many layers. I think we have enough people in middle management and supervisory levels. We don’t want to be top-heavy.
“What we are doing is recruiting 70 per cent of our people from campus now. Whereas last year, we recruited just 45 per cent from campus,” he says.
But other changes to the structure at Wipro are a touchy subject with Mr Premji, who has led the group for the last 45 years.
He wants to make it clear that the sudden departure in January of Girish Paranjpe and Suresh Vaswani, who were joint chief executives of the company, was in no way an “ousting”.
Nor does he believe that it was a mistake for Wipro to have tried out an unusual structure of two chief executives. “It was a decision we made three years ago when the world was facing terrible impending risk of recession. We thought we required the power of two, irrespective of the weaknesses of the power of two.”
The appointment of T.K. Kurien as the company’s new, sole chief executive had been planned for some time, Mr Premji says, but he admits the changeover was brought forward by Wipro’s disappointing sales performance last year.
“The organisation was losing momentum, so we reacted. We thought that a change from a joint CEO structure to a single CEO structure was critical.”
Wipro saw just 6 per cent revenue growth in 2010 compared with 40 per cent growth for rival Cognizant and 24.3 per cent for Tata Consultancy Services, another competitor.
Mr Kurien, a long-term Wipro employee, who was previously head of the company’s eco-energy unit, represents a younger, more driven management style.
The 52-year-old is known within Wipro for being energetic and straight-talking and for having a ruthless attention to detail.
At one of his first staff meetings he gave prizes to the employees asking him the toughest questions.
Mr Premji, who owns 74 per cent of Wipro, says Mr Kurien offers “extremely strong execution capability blended with a strong strategic focus. And he is terrific with customers”.
Critics of the Bangalore-based company say it has been unable to respond quickly enough to changing demands in the wake of the global financial crisis.
Sudin Apte, principal analyst at Offshore Insight, says: “There is a perception among clients that Wipro isn’t able to deliver what they need, which is a more integrated business and technology solution rather than just providing a software and some back-office . . . they want added-value services.”
Mr Premji concedes some ground to the critics, saying: “Where we have really fallen behind is our ability to create business with customers. We have always been in the past too much in a reactive model. We have not created business like an Accenture or IBM does. Customers want to be coached and to have us discuss with them what more we can do for their business.”
Wipro is a family business and 67-year-old Mr Premji was forced to take over the running of the company in 1966, interrupting his studies in electrical engineering at Stanford university, following the sudden death of his father.
He has never been hesitant to make changes at the group, having transformed the business from a maker of hydrogenated vegetable oils to one of the leaders in the Indian IT industry.
Mr Premji says he expects the world economy to remain mixed over the next few years.
However, he says that protectionist sentiment in the US, which has dogged the Indian outsourcing companies’ efforts to expand in that market, was likely to soften as the US economy went into recovery.
Mr Premji has recently been withdrawing – just a touch – from the business. His role as chairman is mainly strategic these days and his work for the educational charity he has founded in India is becoming more important.
In December, Mr Premji, whose personal fortune is estimated at $16.8bn, donated Wipro shares worth $2bn to his own foundation to fund rural education – one of the largest charitable donations in Indian history. He was nominated as one of the world’s 100 most influential people by Time magazine, including a citation from Bill Gates for his charity work.
He continues to keep a close eye, however, on Mr Kurien’s progress. The new chief has tough targets to reach. “The most important thing is restoring employee morale, customer satisfaction and getting the sales engine working again. He has to do it,” Mr Premji says. “The stakes are so large, you can’t carry dead wood.”
So, in far-reaching changes to Wipro’s culture, thousands of new graduates are being hired to help with the reinvigoration process.
“I think where it went wrong was that we over-bureaucratised the organisation,” Mr Premji tells the Financial Times during a visit to London. “We created too many layers. I think we have enough people in middle management and supervisory levels. We don’t want to be top-heavy.
“What we are doing is recruiting 70 per cent of our people from campus now. Whereas last year, we recruited just 45 per cent from campus,” he says.
But other changes to the structure at Wipro are a touchy subject with Mr Premji, who has led the group for the last 45 years.
He wants to make it clear that the sudden departure in January of Girish Paranjpe and Suresh Vaswani, who were joint chief executives of the company, was in no way an “ousting”.
Nor does he believe that it was a mistake for Wipro to have tried out an unusual structure of two chief executives. “It was a decision we made three years ago when the world was facing terrible impending risk of recession. We thought we required the power of two, irrespective of the weaknesses of the power of two.”
The appointment of T.K. Kurien as the company’s new, sole chief executive had been planned for some time, Mr Premji says, but he admits the changeover was brought forward by Wipro’s disappointing sales performance last year.
“The organisation was losing momentum, so we reacted. We thought that a change from a joint CEO structure to a single CEO structure was critical.”
Wipro saw just 6 per cent revenue growth in 2010 compared with 40 per cent growth for rival Cognizant and 24.3 per cent for Tata Consultancy Services, another competitor.
Mr Kurien, a long-term Wipro employee, who was previously head of the company’s eco-energy unit, represents a younger, more driven management style.
The 52-year-old is known within Wipro for being energetic and straight-talking and for having a ruthless attention to detail.
At one of his first staff meetings he gave prizes to the employees asking him the toughest questions.
Mr Premji, who owns 74 per cent of Wipro, says Mr Kurien offers “extremely strong execution capability blended with a strong strategic focus. And he is terrific with customers”.
Critics of the Bangalore-based company say it has been unable to respond quickly enough to changing demands in the wake of the global financial crisis.
Sudin Apte, principal analyst at Offshore Insight, says: “There is a perception among clients that Wipro isn’t able to deliver what they need, which is a more integrated business and technology solution rather than just providing a software and some back-office . . . they want added-value services.”
Mr Premji concedes some ground to the critics, saying: “Where we have really fallen behind is our ability to create business with customers. We have always been in the past too much in a reactive model. We have not created business like an Accenture or IBM does. Customers want to be coached and to have us discuss with them what more we can do for their business.”
Wipro is a family business and 67-year-old Mr Premji was forced to take over the running of the company in 1966, interrupting his studies in electrical engineering at Stanford university, following the sudden death of his father.
He has never been hesitant to make changes at the group, having transformed the business from a maker of hydrogenated vegetable oils to one of the leaders in the Indian IT industry.
Mr Premji says he expects the world economy to remain mixed over the next few years.
However, he says that protectionist sentiment in the US, which has dogged the Indian outsourcing companies’ efforts to expand in that market, was likely to soften as the US economy went into recovery.
Mr Premji has recently been withdrawing – just a touch – from the business. His role as chairman is mainly strategic these days and his work for the educational charity he has founded in India is becoming more important.
In December, Mr Premji, whose personal fortune is estimated at $16.8bn, donated Wipro shares worth $2bn to his own foundation to fund rural education – one of the largest charitable donations in Indian history. He was nominated as one of the world’s 100 most influential people by Time magazine, including a citation from Bill Gates for his charity work.
He continues to keep a close eye, however, on Mr Kurien’s progress. The new chief has tough targets to reach. “The most important thing is restoring employee morale, customer satisfaction and getting the sales engine working again. He has to do it,” Mr Premji says. “The stakes are so large, you can’t carry dead wood.”
Equity folios plunge in April
Fresh investor money coming in but less of it going into equity category.
The Indian mutual fund sector lost a little over 400,000 equity folios in April, one of the sharpest such declines in a single month.
After successfully applying brakes on the pace of loss of equity folios in the second half of the previous financial year, the MF industry is again in trouble on the growing of the equity base.
The equity folio loss in April was a little less than one-fourth of what the industry lost in all of 2010-11. In FY11, the fund industry saw an erosion of 1.8 million equity folios. About Rs 1,400 crore went out of MF equity schemes.
The Securities and Exchange Board of India (Sebi) says the number of equity folios (including equity-linked saving schemes or ELSS) stood at 38.88 million as on April 30, against 39.29 million at the end of the previous month.
STEEP FALL
Category-wise change in folios
Category Number in April Change*
Equity 3,05,60,596 - 2,78,240
ELSS 83,277,13 - 1,23,740
ETFs 4,33,356 10,555
Income 47,19,763 + 1,92,328
Industry’s overall folios 4,70,18,486 - 2,14,776
*with respect to March figures Source: Securities and Exchange Board of India
The hit on the pure equity category was severe, as it declined by 2,78,000; ELSS folios shrank by 1,23,000.
WORRIES
Karan Datta, national sales head at Axis Mutual Fund, says, “The situation is not good. It is increasingly getting difficult to attract customers in the equity segment. However, it is not that fresh flow is not coming to the industry. The majority of the fresh money is getting diverted to gold and income funds, particularly the fixed maturity plans.”
More, with underperforming Indian equity markets, fund managers have raised concern over how the scenario would turn around in the coming months.
According to Navneet Munot, chief investment officer at SBI Mutual Fund, “Going forward, it would be a challenge to maintain flows in the equity segment, given the current volatility.” Vetri Subramaniam, equity head at Religare Mutual Fund, agrees. He says, “It is likely that inflows will be under pressure in a volatile market.”
This loss of folios is also in the background of the shallow penetration of mutual fund products among the country’s population — less than five per cent. Poor penetration and a majority of investment coming from only the top 10 cities has been an issue for the industry. Though investor awareness programmes and expansion in terms of reach to tier-I & II cities are on, it has not yet reflected in the industry’s assets and number of investors.
The new regime at Sebi under U K Sinha is already contemplating changes to bring relief for the industry. Sector experts say unless distributors are incentivised properly, it would remain an uphill task to increase penetration of MF products.
The overall industry’s folios also shrank in April by close to 200,000 folios as compared with 47.23 million as on March 31.
Income schemes saw the top growth in folio addition, as it increased 4.2 per cent to 4.71 million in April from 4.52 million at the end of March.
Exchange traded funds continued their momentum and the month saw a rise of 2.5 per cent in their folios, while the investor base of gold exchange traded funds was up three per cent during the month.
The Indian mutual fund sector lost a little over 400,000 equity folios in April, one of the sharpest such declines in a single month.
After successfully applying brakes on the pace of loss of equity folios in the second half of the previous financial year, the MF industry is again in trouble on the growing of the equity base.
The equity folio loss in April was a little less than one-fourth of what the industry lost in all of 2010-11. In FY11, the fund industry saw an erosion of 1.8 million equity folios. About Rs 1,400 crore went out of MF equity schemes.
The Securities and Exchange Board of India (Sebi) says the number of equity folios (including equity-linked saving schemes or ELSS) stood at 38.88 million as on April 30, against 39.29 million at the end of the previous month.
STEEP FALL
Category-wise change in folios
Category Number in April Change*
Equity 3,05,60,596 - 2,78,240
ELSS 83,277,13 - 1,23,740
ETFs 4,33,356 10,555
Income 47,19,763 + 1,92,328
Industry’s overall folios 4,70,18,486 - 2,14,776
*with respect to March figures Source: Securities and Exchange Board of India
The hit on the pure equity category was severe, as it declined by 2,78,000; ELSS folios shrank by 1,23,000.
WORRIES
Karan Datta, national sales head at Axis Mutual Fund, says, “The situation is not good. It is increasingly getting difficult to attract customers in the equity segment. However, it is not that fresh flow is not coming to the industry. The majority of the fresh money is getting diverted to gold and income funds, particularly the fixed maturity plans.”
More, with underperforming Indian equity markets, fund managers have raised concern over how the scenario would turn around in the coming months.
According to Navneet Munot, chief investment officer at SBI Mutual Fund, “Going forward, it would be a challenge to maintain flows in the equity segment, given the current volatility.” Vetri Subramaniam, equity head at Religare Mutual Fund, agrees. He says, “It is likely that inflows will be under pressure in a volatile market.”
This loss of folios is also in the background of the shallow penetration of mutual fund products among the country’s population — less than five per cent. Poor penetration and a majority of investment coming from only the top 10 cities has been an issue for the industry. Though investor awareness programmes and expansion in terms of reach to tier-I & II cities are on, it has not yet reflected in the industry’s assets and number of investors.
The new regime at Sebi under U K Sinha is already contemplating changes to bring relief for the industry. Sector experts say unless distributors are incentivised properly, it would remain an uphill task to increase penetration of MF products.
The overall industry’s folios also shrank in April by close to 200,000 folios as compared with 47.23 million as on March 31.
Income schemes saw the top growth in folio addition, as it increased 4.2 per cent to 4.71 million in April from 4.52 million at the end of March.
Exchange traded funds continued their momentum and the month saw a rise of 2.5 per cent in their folios, while the investor base of gold exchange traded funds was up three per cent during the month.
Markets open lower, OMCs rally
Markets opened lower tracking weak Asian peers and investors turning to the sidelines ahead of April inflation data. The S&P CNX Nifty dipped 20 points, at 5525 and the Sensex was down 92 points, at 18, 440
The April inflation reading is expected to affect the Reserve Bank of India’s decision on rate hike. Reuters poll has predicted April Whole Sale Price Index at 8.58%. The inflation bias may remain on the upside after India’s state run gasoline companies raised prices by Rs 5 per litre soon after United Progressive alliance (UPA) and its allies won elections in three out of five states on Friday.
Analysts expect Indian markets to remain weak as Nifty has formed a bearish head on should pattern on the daily charts which indicates a major reversal in the bullish trend.
Most of the Asian markets were also trading in the red in the morning trades as sell-off in commodities weighed on resource shares.
Hong Kong's Hang Seng fell 0.4% led by losses in banking shares. Investors veered away from risky assets as the Dollar strengthened. Euro-zone debt worries also affected investor sentiment. China's Shanghai Composite index was trading flat at 2,869. The Nikkei Stock Average slipped 0.6% as rising yen weighed on exchange rate sensitive stocks. South Korea's Kospi Composite was down 0.6%, Singapore's Strait Times edged lower by 0.9% and Taiwan's weighted index was off 0.4%.
Among individual stocks, oil marketing companies were leading the gains. Bharat Petroleum and Hindustan Petroleum surged 2% each after they raised petrol prices by Rs 5 per litre. Suzlon rallied 4% after the fifth largest turbine maker reported 20% jump in fourth quarter net profit. Glenmark rallied 8% after it signed a licensing deal with Sanofi which has marketing rights in Japan, USA and Europe.
BSE Healthcare index was leading the gains, up 1.3%. Besides Glenmark Pharma, Ranbaxy advanced 2.1%, Lupin zoomed
2% and Sun Pharma was up 1.9%.
Auto shares were leading the losses, BSE auto index slipped 1.2%. Maruti Suzuki, Bajaj Auto and Cummins India all fell over 1% each.
Only four shares on the Sensex were trading in the green, BHEL advanced 0.8%, TCS was up 0.9% and Reliance Communication gained 0.4%. Top losers were Mahindra & Mahindra, down 1.8%, ICICI Bank was off 0.4% and Tata Motors
declined 1.3%.
Broader markets were flat. Market breadth was negative, 749 stocks advanced for 833 stocks which declined.
The April inflation reading is expected to affect the Reserve Bank of India’s decision on rate hike. Reuters poll has predicted April Whole Sale Price Index at 8.58%. The inflation bias may remain on the upside after India’s state run gasoline companies raised prices by Rs 5 per litre soon after United Progressive alliance (UPA) and its allies won elections in three out of five states on Friday.
Analysts expect Indian markets to remain weak as Nifty has formed a bearish head on should pattern on the daily charts which indicates a major reversal in the bullish trend.
Most of the Asian markets were also trading in the red in the morning trades as sell-off in commodities weighed on resource shares.
Hong Kong's Hang Seng fell 0.4% led by losses in banking shares. Investors veered away from risky assets as the Dollar strengthened. Euro-zone debt worries also affected investor sentiment. China's Shanghai Composite index was trading flat at 2,869. The Nikkei Stock Average slipped 0.6% as rising yen weighed on exchange rate sensitive stocks. South Korea's Kospi Composite was down 0.6%, Singapore's Strait Times edged lower by 0.9% and Taiwan's weighted index was off 0.4%.
Among individual stocks, oil marketing companies were leading the gains. Bharat Petroleum and Hindustan Petroleum surged 2% each after they raised petrol prices by Rs 5 per litre. Suzlon rallied 4% after the fifth largest turbine maker reported 20% jump in fourth quarter net profit. Glenmark rallied 8% after it signed a licensing deal with Sanofi which has marketing rights in Japan, USA and Europe.
BSE Healthcare index was leading the gains, up 1.3%. Besides Glenmark Pharma, Ranbaxy advanced 2.1%, Lupin zoomed
2% and Sun Pharma was up 1.9%.
Auto shares were leading the losses, BSE auto index slipped 1.2%. Maruti Suzuki, Bajaj Auto and Cummins India all fell over 1% each.
Only four shares on the Sensex were trading in the green, BHEL advanced 0.8%, TCS was up 0.9% and Reliance Communication gained 0.4%. Top losers were Mahindra & Mahindra, down 1.8%, ICICI Bank was off 0.4% and Tata Motors
declined 1.3%.
Broader markets were flat. Market breadth was negative, 749 stocks advanced for 833 stocks which declined.
Higher income and inflation drive up credit card spends
MUMBAI: Indian consumers have started using their credit cards more often than before, driven by higher income . Soaring inflation has no doubt pushed up card spend, but even the number of transactions has increased, albeit a falling base. The latest official data puts the total number of transactions in March at 2.3 crore on a card base of 1.8 crore.
In April 2009, the total number of transactions was 1.5 crore on a card base of 2.4 crore. The rise in the total value of spend is also a reflection of soaring prices. "There is action again in the credit cards business. The focus this time is on higher value segment," said Shamal Saxena , head of credit cards business at Standard Chartered Bank .
"Almost 20% of our new card customers are non-bank customers and we add 80,000-90,000 new cards per month," said Parag Rao, head of credit cards, HDFC Bank . Lenders who held back from issuing credit cards to non-account holders are back in the game, though cautiously. This is reflected in the decline in the total number of cards outstanding, which does not include those withdrawn or blocked, to 1.8 crore as on end March 2011 from 2.8 crore in March 2008.
It could also mean that banks are not pursuing renewal of cards that have expired, a phenomenon common in the pre-crisis period. The slowdown following the global financial crisis of 2008 forced many banks to go slow on their credit card business.
Card overdues, or payments owed to banks beyond due date, was about 43% of the total card spend in 2008-09 fell to 24% in 2010-11, according to RBI data. Industry estimates show that non-performing loans under credit cards rose to as high as 20% in 2009-10.
In April 2009, the total number of transactions was 1.5 crore on a card base of 2.4 crore. The rise in the total value of spend is also a reflection of soaring prices. "There is action again in the credit cards business. The focus this time is on higher value segment," said Shamal Saxena , head of credit cards business at Standard Chartered Bank .
"Almost 20% of our new card customers are non-bank customers and we add 80,000-90,000 new cards per month," said Parag Rao, head of credit cards, HDFC Bank . Lenders who held back from issuing credit cards to non-account holders are back in the game, though cautiously. This is reflected in the decline in the total number of cards outstanding, which does not include those withdrawn or blocked, to 1.8 crore as on end March 2011 from 2.8 crore in March 2008.
It could also mean that banks are not pursuing renewal of cards that have expired, a phenomenon common in the pre-crisis period. The slowdown following the global financial crisis of 2008 forced many banks to go slow on their credit card business.
Card overdues, or payments owed to banks beyond due date, was about 43% of the total card spend in 2008-09 fell to 24% in 2010-11, according to RBI data. Industry estimates show that non-performing loans under credit cards rose to as high as 20% in 2009-10.
'Consumer' stocks to drive market in the long term
MUMBAI: Sundaram Mutual Fund will focus on defensive sectors in the near term as high inflation, rising interest rates, and growth concerns continue to weigh on the Indian stock market.
The fund house, which manages assets worth more than Rs 14,500 crore, has trimmed its exposure to energy, financial services, and utility companies as the Reserve Bank of India's (RBI) aggressive rate stance to fight soaring inflation will dent profit margins of these sectors, said Srividhya Rajesh, vice-president equity, Sundaram Asset Management.
"We're sticking to defensive stocks...Inflation, growth worries, and high commodity prices will weigh on the market. However, we don't expect a deep correction," said Srividhya, who manages about.`1,200-crore assets for Sundaram Capex Opportunities and Sundaram Select Focus funds. Defensive stocks remain stable in various phases of business cycle. During recession they tend to perform better than the market.
However, during an expansion phase they perform below the market. Defensives include sectors such as pharmaceutical, consumer staple, and agro-products. Consumer-oriented sectors will lead the market rally in years to come driven by rising salaries and increased spending, Srividhya said.
"We're bullish on auto, FMCG, and telecom companies. Though sensitive to rates, some of the topline banks look good as they have corrected recently," she said. Sundaram Select Focus Fund, a large-cap fund with assets of more than Rs 899 crore, posted a one-year return of 3.12% against 9% gained by the Sensex during the same period. Large-cap funds, on an average, returned 7.3%, as per fund tracker Value Research.
The fund increased holdings in Infosys Technologies , Larsen & Toubro , ICICI Bank , State Bank of India , ITC , Bharti Airtel , and Tata Motors . It has reduced exposure to Reliance Industries, Tata Consultancy Services , Cipla and Sun Pharmaceuticals.
Sundaram Capex Opportunities, an infrastructure fund with assets worth Rs 350 crore, yielded a negative return of 12% over oneyear period. ET Construction Index, a compilation of infrastructure companies, has fallen over 16% over the past one year. The index - comprising stocks such as Jaiprakash Associates , Lanco Infratech, Reliance Infratel and BHEL - have fallen 15-45% in one year.
"Rising interest rates is not good news for companies operating in the core sector," said Srividhya. "Disappointing order flows are another problem faced by infrastructure companies. Growth has been slashed for most infrastructure companies. Higher capacities, lower utilisation will put pressure on profit margins of these companies. We're expecting a turnaround only when order flows turn normal," she said. Lack of government spending in infrastructure is also a problem for infrastructure companies, she said.
"The government has become more of an activist; the focus now is more on environment and less on development. There is a need for balance between development and sustainable ecology," she said. She emphasised that India needs to tap natural resources and rely less on imports.
"It is not in the interest of countries with huge deficits to import natural resources," she said. Rising global coal prices will impact earnings of Indian companies, she said. Shortage of dedicated wagons and rail corridors for evacuating coal will also cause problems. Coal prices have gone up to $330 per tonne from $225 per tonne in the last six months.
Coal accounts for more than half of India's power generation. Environmental clearances and low investment are posing hurdles for domestic coal production that supplies most of the coal consumed. Indian coal producers are increasingly depending on imports to meet the shortfall. Srividhya sees earnings of Indian companies declining 2-3% in fiscal 2011-12 due to rising input cost. "We've seen a decline in growth of large companies... smaller companies are still better off. But there is no reason for big worries as Indian companies have good surpluses," she said.
India's gross domestic product growth is likely around 8% this fiscal, she said. "The RBI is trying to contain inflation by raising rates. This should have an impact on overall growth. In fact, the RBI is trying to apply brakes on growth temporarily to avoid overheating. As a result of consecutive tightening, GDP growth this year will not exceed 8%," she said.
The fund house, which manages assets worth more than Rs 14,500 crore, has trimmed its exposure to energy, financial services, and utility companies as the Reserve Bank of India's (RBI) aggressive rate stance to fight soaring inflation will dent profit margins of these sectors, said Srividhya Rajesh, vice-president equity, Sundaram Asset Management.
"We're sticking to defensive stocks...Inflation, growth worries, and high commodity prices will weigh on the market. However, we don't expect a deep correction," said Srividhya, who manages about.`1,200-crore assets for Sundaram Capex Opportunities and Sundaram Select Focus funds. Defensive stocks remain stable in various phases of business cycle. During recession they tend to perform better than the market.
However, during an expansion phase they perform below the market. Defensives include sectors such as pharmaceutical, consumer staple, and agro-products. Consumer-oriented sectors will lead the market rally in years to come driven by rising salaries and increased spending, Srividhya said.
"We're bullish on auto, FMCG, and telecom companies. Though sensitive to rates, some of the topline banks look good as they have corrected recently," she said. Sundaram Select Focus Fund, a large-cap fund with assets of more than Rs 899 crore, posted a one-year return of 3.12% against 9% gained by the Sensex during the same period. Large-cap funds, on an average, returned 7.3%, as per fund tracker Value Research.
The fund increased holdings in Infosys Technologies , Larsen & Toubro , ICICI Bank , State Bank of India , ITC , Bharti Airtel , and Tata Motors . It has reduced exposure to Reliance Industries, Tata Consultancy Services , Cipla and Sun Pharmaceuticals.
Sundaram Capex Opportunities, an infrastructure fund with assets worth Rs 350 crore, yielded a negative return of 12% over oneyear period. ET Construction Index, a compilation of infrastructure companies, has fallen over 16% over the past one year. The index - comprising stocks such as Jaiprakash Associates , Lanco Infratech, Reliance Infratel and BHEL - have fallen 15-45% in one year.
"Rising interest rates is not good news for companies operating in the core sector," said Srividhya. "Disappointing order flows are another problem faced by infrastructure companies. Growth has been slashed for most infrastructure companies. Higher capacities, lower utilisation will put pressure on profit margins of these companies. We're expecting a turnaround only when order flows turn normal," she said. Lack of government spending in infrastructure is also a problem for infrastructure companies, she said.
"The government has become more of an activist; the focus now is more on environment and less on development. There is a need for balance between development and sustainable ecology," she said. She emphasised that India needs to tap natural resources and rely less on imports.
"It is not in the interest of countries with huge deficits to import natural resources," she said. Rising global coal prices will impact earnings of Indian companies, she said. Shortage of dedicated wagons and rail corridors for evacuating coal will also cause problems. Coal prices have gone up to $330 per tonne from $225 per tonne in the last six months.
Coal accounts for more than half of India's power generation. Environmental clearances and low investment are posing hurdles for domestic coal production that supplies most of the coal consumed. Indian coal producers are increasingly depending on imports to meet the shortfall. Srividhya sees earnings of Indian companies declining 2-3% in fiscal 2011-12 due to rising input cost. "We've seen a decline in growth of large companies... smaller companies are still better off. But there is no reason for big worries as Indian companies have good surpluses," she said.
India's gross domestic product growth is likely around 8% this fiscal, she said. "The RBI is trying to contain inflation by raising rates. This should have an impact on overall growth. In fact, the RBI is trying to apply brakes on growth temporarily to avoid overheating. As a result of consecutive tightening, GDP growth this year will not exceed 8%," she said.
Now, Pranab hints at diesel price hike
KOLKATA: Diesel, LPG and kerosene prices may also go up shortly, finance minister Pranab Mukherjee hinted in Kolkata on Sunday.
The UPA government had kept fuel price rise in abeyance keeping in mind the five state assembly elections. Petrol prices were increased by Rs 5 per litre just after the election results were declared.
Pranab said an empowered group of ministers (EGOM) headed by him would decide on the price rise when it meets next week.
He said the government has no control over petrol prices since they had been deregulated in June 2010. ''Oil marketing companies decide petrol prices. The state-run oil companies hiked petrol prices by Rs 5 a litre on Saturday. For other petroleum products like diesel, LPG and kerosene there is the empowered GOM,'' he said.
The finance minister said petroleum prices were increased last time when it was $68 per barrel. ''But now it is at $110 per barrel. A subsidy of Rs 26 was given on a litre of kerosene, Rs 16 on a litre of diesel and Rs 320 per LPG cylinder,'' he said.
The UPA government had kept fuel price rise in abeyance keeping in mind the five state assembly elections. Petrol prices were increased by Rs 5 per litre just after the election results were declared.
Pranab said an empowered group of ministers (EGOM) headed by him would decide on the price rise when it meets next week.
He said the government has no control over petrol prices since they had been deregulated in June 2010. ''Oil marketing companies decide petrol prices. The state-run oil companies hiked petrol prices by Rs 5 a litre on Saturday. For other petroleum products like diesel, LPG and kerosene there is the empowered GOM,'' he said.
The finance minister said petroleum prices were increased last time when it was $68 per barrel. ''But now it is at $110 per barrel. A subsidy of Rs 26 was given on a litre of kerosene, Rs 16 on a litre of diesel and Rs 320 per LPG cylinder,'' he said.
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