Canara bank launches a 5 year close ended equity fund

Canbank Investment Management Services Ltd on Thursday filed initial papers with country's market regulator to launch a 5-year close-end equity fund.
CanMulticap Scheme will invest at least 75 per cent of its assets in equities and derivatives and the rest in debt and fixed income instruments, the fund's offer document said.
Within equities, the fund would allocate at least 60 per cent to large-cap stocks, 15 percent to mid-caps and not more than 10 per cent to small-cap stocks.
The fund will not charge entry or exit loads but will recover proportionate unamortised initial issue expenses from investors redeeming before maturity.
The fund house managed assets worth Rs 32.46 billion at the end of August, data from Association of Mutual Funds in India showed.

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Crain Energy issues shares to CIL at same price as IPO

Cairn Energy, which has drawn up major plans of establishing its Indian chapter, has got the Foreign Investment Promotion Board (FIPB) clearance to acquire shares of its Indian arm Cairn India (CIL).
The company will issue shares to CIL at the same price as the IPO share price. With this approval, the two companies will be able to enter into a share swap aggregating to 70% of the post-IPO capital. The proposed move will involve financial transactions to the tune of $1bn between the two companies.
The proposal was made by the company as it planned to have a publicly quoted subsidiary in India which will help in sharing production costs. Cairn has discovered large reserves in Rajasthan and is keen to start commercial production there. Since the move involves huge investments, the company will also allow national and international investors to make investments in the Indian arm.

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Choosing the right stocks with PEG

PE ratio, that is the Price/Earnings ratio is a common valuation number used by investors in stocks. The PE number gives an idea as to whether the stock is under-valued or over-valued.

It is defined as: PE ratio = market price of the share / earnings per share.

However, the problem with PE ratio is that it is a meaningless number, by itself. Is PE of five good or bad? Or should it be 10? Or possibly say 25? Mathematically speaking, the lower a PE stock appears, it's considered better than a higher PE stock. But is it really so?

Why do we buy a stock? We buy it so that when its price goes up, we can sell it and make profit. But why should the price of the share go up? Again simple, the price would go up if the company makes higher profits i.e. higher earnings per share (There are, of course, many other reasons for share prices to go up, but from the fundamental perspective, the price of a share is ultimately a reflection of it's profits).

In other words, it is the growth in the earnings, which gets reflected in the share price. And since we are buying a share in anticipation that its price will go up in future, we must look at the expected growth rate of its earnings, especially over the next two-three years.

Comparing the two i.e. the PE ratio and the EPS growth of a company gives a more meaningful picture. PEG ratio or the Price Earning Growth Ratio is defined as: PEG ratio = PE ratio / EPS growth rate

PEG ratio=1 This means that the share price is fully reflecting the company's future growth potential i.e. the share at today's prices is fairly valued.

PEG ratio>1 This indicates that the share price is higher than the expected growth in the company's profits i.e. the share is possibly over-valued.

PEG ratio<1 This indicates that the share price is lower than the expected growth in the company's profits i.e. the share is possibly under-valued.

Therefore, the PEG ratio tells us something more about the future potential of the company. It tells us whether the high PE is a superficial number or is supported by future growth prospects.

Let us look at an example to get a better perspective. We have an information technology company whose PE ratio is 30 and expected EPS growth rate of 40 per cent. And then, we have a banking stock, with PE ratio of 12 and EPS growth rate of 8 per cent.

On the face of it, if we only look at the PE ratio, the banking stock looks cheaper and attractive. But what about the PEG ratio? Let's do the simple math:

• IT company PEG = 30/40 = 0.75
• Bank PEG = 16/8 = 1.50

Going by the definition of PEG ratio, we find that the IT company's share is undervalued considering its future growth prospects. And so its share price is likely to appreciate more than the bank stock.

However, as usual, there is a word of caution. Like any other financial number, the PEG ratio is not a law, but a very useful indicator of a whether a share price is under or over-valued. It cannot be looked at in isolation. One must:

Look at other numbers such as

• P/B value, operating margins, return on equity etc.
• Compare it with the peer group
• Consider other non-financial factors too, such as brand value, management quality, barriers to entry etc.

This is so because we are only estimating the EPS growth. If our expectations of growth do not materialise, the share prices can fall. Or sometimes the market gives more value to things like brands.

This is so because, even if the growth rate does not justify a high price, the brand value acts as protection. Say there is a fall in the demand, then it is likely that large reputed companies will be less affected, than relatively unknown companies. There is a sort of stability of returns expected.

Therefore, to get the best out of this PEG Ratio, it may be prudent to follow investment guru Peter Lynch's advice - first, find the companies whose long term prospects look good and have good management quality and then check whether their share price is under-valued using the PEG Ratio. Get more information

Points to consider before investing in Mutual Funds

Most of us like to try out new things whether its dining at restaurants, buying mobile phones and cars to name a few. Some go to the extent of changing mobile phones every one year and a car every three years. Well this is a matter of personal preference and lifestyle and might give you some kind of emotional happiness which is good in some sense.

But when it comes to most new funds, there is hardly anything different, unique or really NEW about it. It's just that the name gets more exotic, dressing gets much better or a new marketing ploy such as Invest in India's Growth potential as if other options available are not investing in India's growth potential.

Securities and Exchange Board of India on its part took a series of steps. First, Sebi objected against the use of the word IPO (initial public offer) and instead had every fund house use NFO, to confuse with stock IPOs, to curb rampant mis-selling of new funds.

Secondly, Sebi had Mutual Funds launching open-ended New Funds charge the initial issue expenses within the entry load itself whereas close ended funds could still charge 6 per cent initial issue expense.

3 common mistakes all investor should be aware of:

Too less or too many aren't good enough
I have seen many investors having anywhere between 16-85 funds or some who have just one or two. Having too many in the name of diversification is no good and in fact defeats the very purpose of diversification.

After all the one of the reasons you opt for a mutual fund is to diversify your investments but having all large cap funds in your portfolio is unlikely to do any good.

At best based on the size of your portfolio, spread your investments across in 4-9 different funds spread across different mutual funds, fund managers, investing styles, expense ratios, portfolio turnover, market capitalization and whether its an all equity, balanced, or tax planning fund. Give Sectoral funds a complete miss unless you are very bullish on the sector and understand the risks well.

Rs 10 NAV is not cheaper than Rs100 NAV
What you should be concerned about is the per cent fall or per cent rise. A Re. 1 fall in a NAV 10 fund is the equivalent of Rs.10 fall in a NAV 100 fund. In fact Rs.100 means proven competence and a long track record of capital appreciation.

Don't fall for fancy terms
Don't fall for fancy and general terms such as 'investing in India's growth potential', 'options and derivatives to diversify your portfolio'. See if there are any existing funds with longer track records with similar investment objectives and strategies.

If there are, opt for the tried and tested ones rather than going from newer exotic ones.

How to decide if the new fund is an appropriate one for you?

Take a look at your Financial Plan if you have one or at your existing portfolio. What kind of funds do I have in my existing portfolio? Are they large cap funds, mid cap funds, flexi cap funds, balanced funds, tax planning funds?

The next to see is how does this new fund really add value to my existing portfolio? How does this New Fund fit into my portfolio, my asset allocation, and help achieve my goals? This is a million-dollar question.

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Retail investors are back investing

Retail investors may have been staying away from the stock market after the May meltdown, but the flow of household savings into equities has grown over four times in the past year.

The share of the country's household savings in equities and debentures has grown from 1.1 per cent in 2004-05 to 4.9 per cent in 2005-06.

During the Harshad Mehta-led bull run in the early 1990s, the share of household savings in the equity market had touched 5 per cent, before the securities scam drove retail investors away.

In real money terms, the flow of household savings into equities last year was Rs 29,008 crore (Rs 290.08 billion), against Rs 4,967 crore (Rs 49.67 billion) in 2004-05, according to the latest statistics by the Reserve Bank of India. The figure includes the amount invested in the equity market through mutual funds.

In developed countries, the share of household savings in the equity market is as high as 15-20 per cent.

"In India, pension and provident funds are not allowed to invest in the equity market. However, some of the largest pension funds in the US have entered the Indian stock market," S Muhnot, managing director and CEO, IDBI Capital Markets, said.

It is estimated that if 5 per cent of the pension fund corpus is allowed to be invested in equities, about Rs 30,000 crore (Rs 300 billion) will flow into the stock market.

In 2003-04, the household savings in equities and debentures was as low as Rs 492 crore (Rs 4.92 billion), or just 0.1 per cent of the gross financial assets.

The stock market had a tremendous run in 2005-06 with the bellwether Sensex rising 70.11 per cent from 6,605.04 on April 1, 2005 to 11,279.96 on March 31, 2006. In comparison, the Sensex had posted only a modest 13 per cent growth in 2004-05. Get more information

Tata Tea's latest acquisition

Tata Tea's latest acquisition promises fantastic growth over the medium-term but for now it will only hurt the bottomline.

Tata Tea is seeing renewed optimism armed with new products and newer markets thanks to its recent acquisition. After three global acquisitions � Tetley, Good Earth and Jemca � this time the company has announced a bigger and novel one - Glaceau Water Company.

This acquisition is Tata Tea's biggest in the US and novel because, unlike the other acquisitions which are of tea companies, this one is of an enhanced water company.

"The acquisition is in line with the global expansion strategy of Tata Tea in the beverage segment," says Percy Siganporia, managing director, Tata Tea.

Late last month, Tata Tea announced the acquisition of a 30 per cent stake in the US based Energy Brands, the parent company for Glaceau � a pioneer in the enhanced water business.

The management describes the acquisition as a directional change to capitalise on the convergence trends in the beverage sector. "Consumer demand is shifting from carbonated soft drinks to non-carbonated, functional beverages," says Siganporia.

Glaceau has grown at a CAGR of  200 per cent since its inception in 1996. The company's revenues have grown from $1.6 bn in 2001 to $3.1 bn in 2005. Glaceau today sells around 50 lakh bottles daily and still leads the industry in innovation with natural, low-and-zero calorie beverages.

The enhanced and flavoured water market grew 57 per cent in 2005 to $1.9 bn (Rs 8,740 crore) and is expected to grow at a CAGR of 31.8 per cent to touch $8.6 bn (Rs 39,560 crore) in 2010.

This sounds great for Tata Tea considering the fact that tea, as a segment, is showing muted growth. Another advantage is that, this space has very few players like Glaceau, Gatorade and Hansen. Also, as an analyst points out, Coke's internal resistance to get into this category augurs well for other players.

The acquisition will help Tata Tea to strengthen its foothold in the 'exciting' (as the company describes it) US markets given the strong distribution network Glaceau has. It will set the platform to distribute its teas in US.

The company's distribution network spreads across 40 states in the US where the company is the market leader. It has the third largest distribution network in the US beverages industry, after Coca Cola and PepsiCo. Although currently Tata Tea is looking at growing only in the US markets, it plans to look at other regions in the future. Get more information

Good Mid cap stocks to consider investing

Companies whose share prices had fallen by at least 15 per cent, almost twice the fall in the Sensex as compared to its May 11 peak, and whose valuations looked attractive were considered. This, to some extent, helps in keeping a tab on the price one pays for a stock -- basically to ensure that one does not end up paying a huge premium for growth.

Quantitatively, key financial parameters like debt-equity ratio (we considered companies for which this figure was less then one), return on capital employed (greater than 15 per cent) and positive cash-flow from operating activities were analysed. (In Dishman's case, the actual debt-equity ratio is higher than one since it raised FCCB of $50 million last year for expansion and acquisition. A good part of that -- Rs 124 crore -- was kept in cash till March 2006, which when adjusted for, gives a net debt-equity ratio of less than one.)

Finally, only companies with good growth prospects were considered. Given below are five companies from the mid-cap category which we believe have the ability to grow at a fast clip and the potential to deliver healthy returns.

1. Blue Star

It is India's largest central air-conditioning and commercial refrigeration company, well-known for delivering quality products, and has a six-decade-long history.

The company has a network of 23 offices, four modern manufacturing facilities and around 1,800 employees. Blue Star supplies large central air-conditioning plants, packaged air-conditioning systems, split and window air-conditioners, cold storages and water coolers for commercial and residential use.

The boom in sectors like IT and IT enabled services, healthcare, entertainment, retail, hospitality, telecom, power and banking has created a strong demand for Blue Star products in the commercial air-conditioning space. The prospects are good too, as this segment is expected to grow at over 20 per cent, at least over the next few years.

2. Clariant Chemicals

Clariant Chemicals (India), earlier Colour-Chem, now represents the merged operations of the five companies of Switzerland-based Clariant in India. A specialty chemicals company, Clariant Chemicals enjoys dominant positions in pigments (used by manufacturers of paints, printing inks, plastic, rubber, detergents and cosmetics, among others), dyes and speciality chemicals (used to manufacture textiles, leather, pape and, personal care products) and diketene-based intermediates.

Dyes and speciality chemicals account for 57 per cent of revenues, the other two categories 41 per cent and the balance comes from master-batches. The company's strategy of working closely with its customers and its ability to innovate and deliver new products that meet their requirements has helped it achieve a dominant position.

3. Dishman Pharmaceuticals

This Ahmedabad-based company manufactures intermediates, APIs (active pharmaceutical ingredient -- the ingredient with the curative property) and quaternary compounds (Quats, catalyst compounds).

Since 1998, Dishman has diversified its interests to the contract research and manufacturing (CRAM) sector. Within a span of five years, Dishman has achieved several CRAM projects and is a contract manufacture outsourcing organisation. As a business strategy, Dishman typically establishes relationships with MNCs through sales of low-margin Quats and later tries to move up the value chain by entering into high-margin CRAM for intermediates and APIs.

4. Kirloskar Oil Engines (KOE)

Even after 60 years KOE is going strong and figures among the largest manufacturers of engines in the country with a broad product portfolio -- engine capacity ranges from 3 horsepower (HP) to 1,100 HP.

The company's engine business can be categorised into three separate strategic business units that service different market segments. While the smaller engine segment (3 HP up to 30 HP) caters primarily to the agricultural segment, the medium engine segment (30 HP up to 600 HP) addresses the industrial, tractor and power generation industries.

5. Taj GVK

It is no secret that the Indian hospitality sector has been booming over the last two years, occupancy levels have been rising and room rates have been moving up year after year. For Taj GVK, which operates three hotels in the rapidly growing Hyderabad, the boom has been even better.

Revenues have grown at a scorching pace from Rs 70 crore in 2002-03 to Rs 188.7 crore (in 2005-06), while net profit has jumped from a measly Rs 9.2 crore to Rs 46.2 crore during the same period.

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Global investors prefer companies having better risk management

Global investors prefer companies that have better risk management capabilities, as they rate this aspect on top of the list while making investment decisions, says a survey by Ernst & Young (E&Y).

According to the 'Global institutional risk survey,' released at a function organised by the Bombay Stock Exchange on Friday evening, majority of the global respondents (69 per cent) identified transparency as the top priority when considering an initial investment in a company. 

'Investors feel that they might be making investment decisions based on incomplete information about how companies are managing risks and stress the importance of a detailed investor communications program to make them aware about these risks,' the survey said.

Of the respondents, 61 per cent avoided investing in companies which lack a risk programme, while 48 per cent actually de-invested from firms where risk management was insufficient.

At the same time, 82 per cent investors were willing to pay a premium for companies with good risk management. The E&Y report is the compilation of studies conducted on 163 institutional investors across 16 countries. Of those studied, more than 30 per cent manage funds of over $1 billion.

The BSE has also launched a six-part series in association with E&Y on mastering risk.

The series will span over four months and will focus on themes such as operationalising enterprise risk management, role of internal audit in corporate governance, managing treasury risk and clause 49 & risk management -- maximising benefits of compliance initiatives.

The series was inaugurated by G Anantharaman, a whole time member of the Securities and Exchange Board of India, in the presence of Rajnikant Patel, MD and CEO, BSE, and Sunil Chandiramani, national director, risk and business solutions at E&Y. Get more information

Sensex 12000 - investing now

It was another positive week for investors as markets closed in positive terrain (for the eighth successive week) to breach the 12,000-point barrier. The BSE Sensex appreciated by 0.76% and closed the week at 12,010, while the S&P CNX Nifty ended at 3,479 points (up by 0.23%). The CNX Midcap posted a gain of 0.38% and closed at 4,522 points. Chola Growth (2.03%) emerged as the top performer in diversified equity funds segment. Fidelity Equity (1.73%) took the second position, closely followed by Birla India GenNext (1.72%).

The 10-year 7.59% GOI yield closed at 7.83% (September 15, 2006), 13 basis points above the previous weekly close. Bond yields and prices are inversely related with rising yields translating into lower bond prices and net asset values (NAVs) for debt fund investors.

Funds from Birla Sun Life Mutual Fund dominated proceedings in the debt funds segment. Birla Income Plus (0.15%) and Birla Sun Life Income (0.15%) shared the top position followed by Birla Dynamic Bond (0.14%). Tata Income (0.14%) and PruICICI Flexible Income (0.13%) also featured in the list.

UTI Balanced (1.23%) surfaced as the best performer in the balanced funds segment. Birla Sun Life 95 (1.00%) and Birla Balance (0.95%) came in at second and third positions respectively.

Investment opportunities continue to compete for a share of the investor's wallet. You have a leading private sector AMC (Asset Management Company) filing for the much-touted Gold ETF (Exchange-Traded Fund), a new AMC planning to launch its very first NFO in the market, some new funds (NFOs) that are still on offer and in the midst of all this, investors have to contend with looming tax-planning commitments.

In terms of priority, our vote goes for tax-planning. Often investors are so 'enamoured' by the steady supply of investment opportunities, that critical investments related to tax-planning get sidelined until it's too late. Our advice � with a little over 6 months left for March 2007, first tie up your tax planning investments and then focus on other investment opportunities. Get more information from this article.