Coal India snatches RIL crown

Barely nine months after it listed on the stock exchanges, has state-owned Coal India had mid-wived one of the most incredible stories on Dalal Street by toppling Reliance Industries from its perch and becoming the country’s most valuable company. The Calcutta-based hewer of coal today notched up a market capitalisation of Rs 2,51,296 crore, nudging ahead of Mukesh Ambani’s flagship company which reported a value of Rs 2,47,129 crore. The Coal India stock, which first listed on the bourses on November 4 last year, has risen 16.21 per cent till date, while Reliance has wilted 32 per cent during the same period. Both are principally energy resource companies: one is the largest producer of coal, while the other is the biggest refiner of crude oil. Coal India’s push to the top came in just seven trading sessions since it burst into the sensex on August 8. That itself is a fairytale ride: no other company has leapt into the index in a short span of nine months since listing. The change at the top, though not unexpected, is a reflection of the huge demand for natural resources such as coal in an economy that is projected to grow at 8 per cent. The fortunes of the two companies — Coal India and RIL — seem to have diverged because of perceptions of investors in a market that has been extremely volatile lately. RIL has been under-performing the markets over several months primarily because of disappointment over the company’s inability to ramp up gas output at its famed KG-D6 block. Revenues from its oil and gas exploration account for just 5.7 per cent of its gross turnover of Rs 276,371 crore in 2010-11, but that does not seem to have weighed with investors at all. In the trading today, the Coal India stock closed with a gain of 2.64 per cent at Rs 397.85, translating into a market capitalisation of Rs 2,51,296 crore. On the other hand, the RIL share ended lower by Rs 4.20 at Rs 754.80. For RIL, the change in the pecking order is tinged with a little bit of irony: it had emerged as India’s most valuable company nearly four years ago after dislodging another state-owned giant — ONGC. It has now been beaten by a nine-month old PSU newbie on the market. The RIL stock has also been pounded after a draft report of the CAG said the company had been shown undue favours by the Union ministry of petroleum and natural gas and the Directorate General of Hydrocarbons (DGH) in its Krishna-Godavari (KG) block. Experts point out that there are many things that are going in favour of Coal India, which is the largest coal producer in the world. The availability of huge reserves in India will see many coal-based power projects coming up. Moreover, after the Fukushima nuclear power disaster in Japan, concerns over safety are likely to result in a slowdown of future nuclear projects.  Coal India has huge cash reserves and will not be affected by the current environment of high interest rates or the economic uncertainty overseas.

Beetle variant .......... next year

 Volkswagen India will bring the third generation Beetle to India next year.

The car, first introduced in 1938, has dropped the “New” tag from its name and will now be called the 2012 Beetle.

The third generation bug was unveiled at the Shanghai Motor Show.

The car has recently been launched in the US and is expected to hit the Asian markets in February 2012.

Volkswagen India has, so far, sold 617 units of the New Beetle that was introduced in India in December 2009. While the company sold 58 units of the “People’s Car” in 2009, sales rose to 466 units in 2010.

This year, the German carmaker sold 93 units of the car till July.

The Beetle, with a price tag of Rs 21.22 lakh, has been introduced in India for its iconic status and for brand positioning and not for volumes. Still, we have not done too badly having sold over 600 units in over one-and-half years.

The new generation Beetle has hit the US markets. It will be introduced in Europe later this year. We hope to bring it to India next year. The car continues to be manufactured at our Mexican plant and will be sold here as CBUs.

Plan your investment in the next one year

It seems that returns from equities is a distance dream however gold and silver are at record highs and inflation is eating into fixed-income returns; now maybe as good a time as any to rethink your asset allocation.

While overall asset allocation should be a function of age and financial goals, equities are expected to emerge as outperformers over the next 12 months, according to experts.

Locking in returns at high interest rates would help get reasonably decent returns in the fixed income space, while gold is being advised as a hedge rather than a major component of a portfolio.

The stock market has outperformed after a year of underperformance in recent times. This trend is expected to repeat itself with a bounce back in the next year.

 A correction in oil prices is good for the Indian economy and one could expect significant returns in equities over the next 12 months.

The Sensex, an index whose movements represent the state of the markets for the Bombay Stock Exchange, was up 81.03% in 2009 after falling 52.45% in 2008.

It has fallen 3778.15 points, or 18.42%, since January this year.

Goldman Sachs put out a report on August 8 with a one-year target of 6600 on the Nifty, the benchmark for the National Stock Exchange. 

This implies a 28.76% upside from Tuesday’s closing level of 5125.75 on the Nifty or 16730.94 on the Sensex.

On the fixed-income side, experts said a peaking of interest rates bodes well for locking in returns in fixed deposits or investing in debt mutual funds.

Under the present circumstances it is advisable to invest in debt mutual funds as against fixed deposits as they are more tax-efficient.

Also, dynamic bond funds could be expected to do well over the next one year as they are best placed to take advantage of the change in interest rate cycle.

Investing in a fixed deposit one year ago would have given you a return of 7.25%, today it gives 9.25% before tax.

Debt mutual fund returns could give higher, with some experts predicting double-digit returns of 10%-13% over the next one year.

Gold and other precious metals have had a great run over the last one year.

The yellow metal returned 40.13%, while silver has more than doubled (102.44%).

Analysts do not expect the same stellar performance now, unless there is a repeat of the global uncertainty that resulted in people fleeing to the safe haven.

Precious metals would be better off as a hedge than a major part of one’s portfolio, experts said.

Precious metals could be expected to give returns of 2-3% over the prevailing inflation rate. One should allocate 10-12% of investible money to the category.

On Tuesday, gold was trading at Rs26,155 per 10 grams and silver at Rs60,145 per kilo, according to data from the Bombay Bullion Association.

Cash with investors at a 30-month high

Cash holdings with global investors touched their highest levels in the last two-and-a-half years following a drastic fall in risk appetite on fears of recession and slowdown in corporate earnings.

A global fund manager survey carried out by Bank of America Merrill Lynch last week suggests cash balances rose to 5.2% — the highest since March 2009 and just a tad below extreme levels seen during previous downturn in December 2008.

Even so, investors remain bullish on emerging market (EM) equities.

Despite the shift away from risk, EM allocations remain remarkably stable and EM has become the single overweight region for global investors.

A net 27% are overweight EM, down slightly from 33% last month. The improving outlook on China can partly explain stable EM allocations.

Among the sectors preferred, EM investors continue to like consumer-oriented sectors with consumerdiscretionary and staple the biggest overweight. 

The cyclical sectors like energy and materials are big underweight.

The income effect and demographics effect along with less impact of slowdown on these stocks works in favour of consumer staples and consumer discretionary sectors like FMCG, pharma and two wheeler automotives.

According to survey, the most favoured markets among EM investors are Indonesia, Russia, China and South Africa (+13).

India remains among the least favoured despite the correction. For India, inflation has been a concern and there may be slowdown in earnings in the near term as well.

However as and when commodity prices come down, we would see inflation cooling off and pause in monetary policy tightening. One needs to keep an eye on oil prices.

Lokpal Bill

The Lokpal will be a three-member body with a chairperson who is or was a chief justice or Supreme Court judge, and two members who are or have been high courts judges or chief justices.

Implementation of the Lokpal bill will hopefully reduce corruption in India.
The basic idea of the Lokpal is borrowed from the office of the ombudsman in other countries.

It provides for filing complaints of corruption against the prime minister, other ministers and members of parliament with the ombudsman.

Anyone, except for a public servant, can file a complaint and the Lokpal has to complete the inquiry within six months.For 42 years, governments have tried to put in place the law.

The bill was for the first time presented during the fourth Lok Sabha in 1968, and was passed there in 1969. However, the Lok Sabha was dissolved, resulting in the first death of the bill.It was revived in 1971, 1977, 1985, 1989, 1996, 1998, 2001, 2005 and 2008.

In September 2004, Prime Minister Manmohan Singh said the Congress-led United Progressive Alliance government would lose no time in enacting the bill. Nevertheless, strong lobbies blocked it.

The bill's supporters consider existing laws too weak and insufficiently enforced to stop corruption

Key features of proposed bill

1.     To establish a central government anti-corruption institution called Lokpal, supported by Lokayukta at the state level.

2.     As in the case of the Supreme Court and Cabinet Secretariat, the Lokpal will be supervised by the Cabinet Secretary and the Election Commission. As a result, it will be completely independent of the government and free from ministerial influence in its investigations.

3.     Members will be appointed by judges, Indian Administrative Service officers with a clean record, private citizens and constitutional authorities through a transparent and participatory process.

4.     A selection committee will invite shortlisted candidates for interviews, video recordings of which will thereafter be made public.

5.     Every month on its website, the Lokayukta will publish a list of cases dealt with, brief details of each, their outcome and any action taken or proposed. It will also publish lists of all cases received by the Lokayukta during the previous month, cases dealt with and those, which are pending.

6.     Investigations of each case must be completed in one year. Any resulting trials should be concluded in the following year, giving a total maximum process time of two years.

7.     Losses caused to the government by a corrupt individual will be recovered at the time of conviction.

8.     Government office work required by a citizen that is not completed within a prescribed time period will result in Lokpal imposing financial penalties on those responsible, which will then be given as compensation to the complainant.

9.     Complaints against any officer of Lokpal will be investigated and completed within a month and, if found to be substantive, will result in the officer being dismissed within two months.

10. The existing anti-corruption agencies (CVC, departmental vigilance and the anti-corruption branch of the CBI) will be merged into Lokpal , which will have complete power and authority to independently investigate and prosecute any officer, judge or politician.

11. Whistleblowers who alert the agency to potential corruption cases will also be provided with protection by it.