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Markets + Finance World Bank Prez Seeks MoreFocus on Strength in Services ECO N O M Y ��1 7
NIFTY 8323.00 0.46SENSEX 27585.27 0.46
MSCI INDIA 716.40 0.98MSCI EM 1924.81 0.34MSCI BRIC 468.24 0.55MSCI WORLD 6293.27 0.1
Market TrendsSTOCK INDICES (%)
OIL ($) BOND YIELDSDUBAI CRUDE
46.051.36%
10-Y GOI7.810.03
FOREX RATE `-$ EXCHANGE RATE
OPEN
62.13
LAST*
62.14
Gold RatePRICES PER TROY OUNCE ($)
US India
OPEN 1223.00 1345.16
LAST* 1220.20 1344.91*At 10.30pm, After adjusting for import duty, Indian spot gold higher by $2.69 to US Comex gold price on Monday. The premium on local gold is due to tight supply following import curbs.
Absolute Change
At 7 pm ISTValues in US $, Gross [email protected]
Mumbai: Big banks have longbeen market darlings. It’s theturn of housing finance compa-nies now.
Shares of GIC Housing Fi-nance, Canfin Homes, RepcoHome Finance, Gruh Finance,Dewan Housing Finance and In-diabulls Housing Finance haverisen between 10% and 50% overthe past month as cheap valua-tions, hope of rate cuts andstrong growth potential haveprompted large domestic inves-tors to buy into them.
“Housing finance companieshave been the favourites of in-vestors of late because they arethe biggest beneficiaries amongfinance companies as the cost offunds is falling faster than lend-ing rates and a rate cut is expect-ed any time soon,” said SantoshSingh, head of research at Espi-rito Santo Securities. “Thesestocks underperformed in thepast two years, though there wasno slowdown in the home lend-ing sector.”
GIC Housing Finance has risen
more than 50% in the pastmonth, while the shares of Can-fin Housing, which hit their life-time high of .̀ 695 on Monday,have surged nearly 37%. Both thestocks are currently trading at 15times their earnings per sharefor the trailing 12 months. Themarket leader, Housing Develop-ment Finance Corporation, hasmoved just 2.7% in the pastmonth, as investors remain neu-tral on the stock because of itsexpensive valuation. The bench-mark Sensex has risen just 1% inthe past month.
“High growth and core profit-ability are the main valuation
about .̀ 275 crore. The issue waspriced at .̀ 450 per share againstthe current market price of .̀ 617.As the three main shareholdersof CanFin – Canara Bank,Chhattisgarh Investments andNRN Murthy’s Catamaran in-vestments – have already agreedto subscribe to their rights entit-lement in full, the issue will sailthrough comfortably, say marketparticipants.
Among the other players in thesegment, Repco Home Financehas gained 20% in the pastmonth, while Gruh Finance hasgained 16% and Dewan Hous-ing, 10%.
Analysts expect strong loangrowth for home lenders in thenext three years with a fallingborrowing cost. “While mort-gage rates have remained stable,incremental cost of funds forhousing finance companies hasfallen by 40-70 bps (basis points)as bond borrowings constitute40-68% of total borrowings ofleading HFCs,” said Ishan Ku-mar, analyst at UBS Securities.He expects growth in the hous-ing finance segment to remainstrong at 19-20% over the nexttwo fiscal years.
drivers for housing finance com-panies,” Kotak Securities said ina report on Friday. Stronggrowth in housing, due to thegovernment’s impetus, andlarge latent demand will drive19% compounded annualgrowth in housing loans throughfiscal 2022 to .̀ 35 trillion, it said.
Billionaire investor RakeshJhunjhunwala is bullish on thestocks of home lenders, Bloom-berg news reported recently. Asper available data, he has a 3.89%stake in Dewan Housing.
On Monday, CanFin Homes an-nounced a rights issue – three eq-uity shares for every 10 held – of
Investors Build a Fortunewith Housing Finance CosShares of most of these firms cheaply valued, have gained 10-50% in the past month
Investor Rush
Source : ETIG Database
Stock CMP (`) 1 Mnth Chg (%) YTD
Chg(%)
GIC Housing Fin 280.6 54.2 27.4Canfin Homes 616.5 25.1 23.8Repco Home Fin 683.4 17.7 -1.8Gruh Fin 293.5 15.8 0.1Dewan Housing Fin 437.9 12.0 6.1Indiabulls Housing Fin 497.9 8.1 9.7
Mumbai: Traders created bearish bets onCoal India on Monday on news the govern-ment plans to sell a stake in the company in amonth. Coal India shares dropped 4.5% onMonday to .̀ 358 as investors expect the com-pany’s share sale will be priced at a steep dis-count to the current market price.
The government plans to divest 10% stakein the company to garner about .̀ 24,000 crorein a month. “Looking at the current marketconditions, the divestment of Coal India mayhappen at 6-7% discount from the currentmarket price. This may provide short-term
investors a handsome opportunity for trad-ing in Coal India shares,” said Kunj Bansal,executive director & chief investment offi-cer at Centrum. The total traded volumes inCoal India on Monday was at 2.88 lakh shareson the BSE, more than double the two-weekaverage of 1.27 lakh.
Analysts said the position build-up in CoalIndia futures shows thestock could be subdued inthe coming days.
“Coal India futures added6 lakh shares of short posi-tions on Monday, whileFebruary futures continueto trade at a discount of .̀ 3,which suggests that thedivestment overhang on
the stock will remain going forward,” saidHemant Nahata, derivatives analyst at IIFL.“We expect most of the action to happen inthe February series as the share sale is un-likely to happen in the January series.”
If the government raises .̀ 24,000 crore fromCoal India this time, it would be India’s big-gest-ever share sale, beating the record set bythe company in October 2010, when the gov-ernment raised .̀ 15,000 crore through an IPO.Analysts recommend subscribing to the CoalIndia issue. “I would advise retail investors toparticipate in the share sale offer as the stockprice will be available at a steep discount fromthe current price. I expect the Coal India stockprice to fall another 5-7% from the current lev-el, from which retail investor can get furtherdiscount of 5% on the stock price,” said ArunKejriwal, founder & CEO, Kris Research.
The Coal India stock has risen 37% in thepast year against the 35% gain in the Sensex.It is trading at 14 times price to earnings (P/E) based on 2014-15 estimated earnings. Fortraders looking to benefit from any stockweakness before the issue, Nahata advisesselling Coal India’s put option of either 320 or330 strike price, or selling call option of either380 or 400 strikes of the January series.
Traders Turn Bearish on Coal India
10%STAKE GOVTPLANS TO SELLIN THE COMPANY
Stock falls 4.5% as investorshope co’s share sale will be atdiscount to the market price
Mumbai: After launching a slewof close-ended equity schemes inthe last six months, mutual fundsare introducing variations inthese products to attract freshmoney. The latest variation in-volves investing in not just stocksbut also index options for churn-ing higher returns than a plainvanilla equity scheme.
Two large fund houses — Re-liance Mutual Fund and ICICIPrudential Mutual Fund — havejust launched such schemes, andmany others are planning tocome out with similar products.
These close-ended schemes willinvest 80% of the corpus in stocksand 20% in Nifty options. Re-liance Capital Builder Fund II –Series B has a tenure of threeyears and ICICI PrudentialGrowth Fund – Series 7 has a ten-ure of 42 months.
“Investors having a positiveview on the equity market for thenext three years could use suchproducts to maximise returnsfrom equities,” says RupeshBhansali, head (distribution),GEPL Capital. What differen-tiates this product from a simpleequity diversified scheme is theexposure it offers to call or putoptions. Fund managers willtrade in Nifty options to maxi-mise returns.
Hypothetically, if the fund in-vests .̀ 100 in stocks and Nifty callsand if the index moves up 50% ina year, the .̀ 80 invested in the cashmarket would be worth .̀ 120,while the .̀ 20 invested in the Niftycall option would be worth .̀ 50.Thus, the value of the initial in-vestment of .̀ 100 would be .̀ 170 in-stead of .̀ 150 in a plain equityschemes, thereby giving an extra20% return. While the upside de-pends on the up-move in the op-tion, the downside is limited tothe option premium paid.
If the market stays flat or at thesame level at the end of the fund
tenure, the valueof .̀ 20 investedthrough optionswould become ze-ro, while the .̀ 80invested in thecash marketwould remain.̀ 80. Thus, .̀ 100 in-vested in such ascenario would
be worth .̀ 80, resulting in a loss of20%. In case, the Nifty falls by20%, the value of the call optionwould be zero, while the amountinvested in the cash market wouldbe worth .̀ 64. Thus, .̀ 100 would beworth only .̀ 64, a loss of 36%.
“Since these are leveraged prod-ucts and close-ended, investorsshould understand the risks be-fore investing in them,” says Jig-nesh Shah, founder, Capital Advi-sors. Due to the close-endednature of the product, an exitwould not be possible if investorschange their view on the marketsover the tenure of the product.
Bhansali says aggressive inves-tors can allocate a small portionof 5-10% of their equity portfolioto such products.
MFs Launch EquityPlans that’ll Also Beton Stock Options
Offering a New Option
Scenario Analysis for the portfolio 1 2 3
Assumed absolute Return in Nifty -20% 0% 50%
Value of `20 through options (`) 0 0 50
Value of `80 though direct equity (`) 64 80 120
Total Value of Investment (`) 64 80 170
Note: Assume returns are in line with markets; Source: Reliance Mutual Fund Investment for 3 years
Here is how investment of `100 in such schemes will work
These schemes aim togive higher returnsthan a plain vanillaequity mutual fund
Analysts sayaggressiveinvestors canallocate a5-10% of their equityportfolio tosuch products
� HUL Settles Case with Sebi by Paying .̀ 2.60 lakh
MUMBAIHindustan Unilever hassettled a case related to alleged non-compliance of takeover norms withSebi by paying nearly .̀ 2.60 lakh as
settlement fee. Securities and Exchange Boardof India had initiated adjudication proceedingsagainst Hindustan Unilever over alleged failureto make timely disclosures to the stock ex-changes, mandated under the takeover norms,for the years 2008 and 2010.
� Sebi Wants a Stronger Circuit-breaker MechanismMUMBAI To keep a close watch on stock mar-kets, Sebi today directed top bourses to put inplace a stronger and dedicated circuit breakermechanism, including provisions to track themovements of Nifty and Sensex indices afterevery trade. The index-based circuit breakersystem, which is already in place, brings to halttrading in all equity and equity derivative mar-kets in case of a steep swing in share move-ments of BSE's Sensex or NSE's Nifty.
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