Mutual Fund Managers' Speak

India paid 20% more tax 

'In the next 60 days, India Inc will raise $12 bn'

Expect markets to be up 20% from current levels: ENAM

An interview with Anoop Bhaskar

Experts Take On Union Budget



 Advance tax collection for Q3 down 22% at Rs 42,600 cr
26 Dec 2008, 1459 hrs IST, PTI

Advance tax collection for Q3 down 22% at Rs 42,600 cr  

NEW DELHI: Advance tax collections from India Inc, that is feeling the heat of the global slowdown, declined by over 22 per cent to Rs 42,600 crore in the third quarter of this fiscal.

In the same period last fiscal the advance tax collection stood at Rs 54,900 crore.

For the first three quarters ended December 15, advance tax collections fell by 2.6 per cent to Rs 1,13,000 crore from Rs 1,16,000 crore in the corresponding period last year, finance ministry sources said.

Fall in advance taxes reflect anticipations of lower profits by companies this fiscal.

However, direct tax collections were up 11.5 per cent at Rs 2,32,000 crore till December 24 of this fiscal from Rs 2,08,000 crore in the earlier year.

Corporate tax collections rose 15.3 per cent to Rs 1,50,000 crore from 1,30,000 crore.

Banks pay 38% higher advance tax in Q3

Prashant K Sahu / New Delhi December 30, 2008, 1:07 IST

Bucking the trend, the banking sector has paid 38 per cent higher advance tax in the third quarter of the current fiscal, as the banks expect robust earnings because of treasury profits.

The higher tax paid by the banks comes in overall 22 per cent decline in advance tax collections in the third installment that was due by December 15.

"The banks managed to perform well due to higher income from both treasury as well as normal banking operations," said Bank of Baroda (BoB) Chairman and Managing Director MD Mallya.

He said BoB is not revising the revenue and profit targets for the 2008-09 fiscal, despite overall slowdown affecting the economy, which is projected to grow at less than 7 per cent in the second half.

Advance tax are paid by companies and individuals based on their estimate of tax payable for the current year. In general, growth in advance tax payment means growth in business profits.

Yield on government securities, which is the ratio of the price and return offered by the security, has dipped sharply in six months. For example, the yield on a ten-year government security declined to 6.5 per cent in December as against 9.5 per cent in June this year, resulting in a substantial increase in the price of the bond.

The dip in the yield, which means increase in price of the underlying securities, could lead to higher treasury profits for the banks  that means buying at lower price and selling at a higher price.

Banks have paid advance tax of Rs 7,769 crore during the third quarter, which was due on December 15, as against Rs 5,637 crore in the corresponding period last year. Cumulatively, advance tax paid by banks has gone up 26 per cent till December in the current fiscal over the corresponding period last fiscal. Whereas, the cumulative advance tax collection from all companies and individuals have declined 2.6 per cent during the period, putting pressure on the direct tax collections.

State Bank of India, which is countryís largest lender, is now just a shade behind state-run gas exploration firm Oil and Natural Gas Corporation, the highest advance tax payer in the country. The state-run banking major paid 56 per cent more in advance tax at Rs 1,700 crore as compared to Rs 1,088 crore paid during the corresponding period last year.

ICICI Bank posted a 25 pre cent increase in advance tax. Punjab National Bank, which is countryís third largest bank, has posted a massive 250 per cent increase in advance tax payment. State Bank of Patiala, a SBI associate bank, saw 113 per cent increase in advance tax payment at Rs 194 crore in the third quarter this fiscal as compared to Rs 91 crore in the same period last year.

The higher treasury profits come at a time when banks are expected to add non performing assets (NPAs) because of the slowdown in the economy.


'In the next 60 days, India Inc will raise $12 bn'
Q&A/ Pramit Jhaveri

Shobhana Subramanian / Mumbai June 15, 2007
When the funding for the Tata-Corus deal was being finalised earlier this year, Citigroup was nowhere in the picture. But when Tata Steel finally handed out the mandate for the takeout of the $7.1 billion bridge loan last month, it was Citigroup that bagged it.

In fact, two of the three original bankers that had arranged the loan, did not even figure in the takeout, though they were European banks. The moral of the story, Pramit Jhaveri, managing director, Citigroup Global Markets, tells Shobhana Subramanian, is that it is not enough to have the ability to write out a cheque; one must also be able to give the client the best possible deal. Excerpts:

In 2006 your M&A advisory market share was just 9 per cent, although you were number one in the equity sweepstakes. In 2007 too, Citigroup has not been able to bag the really big deals. Does that hurt?

The reality is that it is our aspiration to be number 1, 2 or 3 in any given year, in either equities, debt or M&A. And therefore, even if one significant transaction gets done away from you, it hurts you. You have to be part of the big deals, because they will constitute a significant part of the volumes at the end of the year. Sure, we would have liked to be a part of the Corus transaction; we were not because we were working with another bidder.

But we did manage to be an important member of the funding team and we also played a role in the Essar-Vodafone and Whyte&Mckay deals.

But investment banks donít make too much money on the bigger deals, do they?

Thatís not really true. Itís not only important to us to be first, second or third in the league tables, itís more important to be 1, 2 or 3 in terms of fees. Weíd like to believe that over the last three or four years, weíve been up there in terms of fees, though in the league tables, we might have been lower down in the pecking order. Sometimes we have to do some business that may not be attractive in terms of fees. But itís good to have a well-rounded mix.

With a host of global investment banks looking to set up shop in India, are companies spoilt for choice?

Virtually every big player is here now and there are more coming in. But I feel thereís room for a mix of universal players, monolines, niche players and boutiques. The Indian market is big enough and will continue to grow at a rate to support more players than exist today. But there will be a correction sometime and it will be interesting to see how some of these players respond to that.

So how does one play this game?

Institutions that have a global platform, that donít depend on individual relationships, that can provide the balance sheet and are able to come up with ideas, will do well. And those that have experienced teams and share the rewards with them will do well as against those where individuals get a disproportionate share.

So are banks that can write out cheques better positioned than boutique firms?

It certainly has its advantages but I think there is room for all models. And itís not just about debt, there will also be room for those that can write out cheques for equity. Some banks have an active proprietary book. Weíre committed to investing about $1 billion in the Asia-Pacific region.

What is your estimate of the size of the fees to be made in the Indian market?

We do make estimates but the problem is that these have got outdated very quickly in the past. Our own business has grown 60-70 per cent a year for the last four-five years and we would like to believe weíre gaining market share.

In all of 2006, Indian companies raised $18 billion of equity. In the next 60 days they will raise $12 billion. And the total fees in 2006 were about $350 million; three years down the line, the numbers could be significant, as big as Chinaís perhaps.

Do you think asset valuations for overseas acquisitions are a trifle stretched?

This is a point of view that has been often expressed. Weíre in an extremely robust M&A environment globally and the reality is that valuations globally are expensive. In the last 12-18 months financial sponsors have been the most active in M&A. Are these multiples high? Yes, but the reality is that those are the valuations that exist if you want to get a transaction done.

Also, the acquisitions have been made by experienced firms which feel there are synergies to be unlocked. So, I think itís a little too early to sit in judgement on them.

Do you believe the deal flow overseas will slow down because free cash flows of many companies as also the potential to leverage have been used up to a great extent?

Take a sample of Indiaís top 75-100 companies. They are generating strong free cash flows, they are yet underleveraged and theyíre trading at very high market multiples. So, thereís reason to believe that capital will continue to flow from India for acquisitions.

Why do you think consolidation in the domestic market is not happening as one would have expected, given that conglomerates are not in fashion?

Itís a problem peculiar to India. There are a number of sectors where you could argue for some degree of consolidation. However, because we have been in buoyant markets for some time and capital and liquidity are available, there is no overriding pressure for players to sell out. In the past consolidation has been driven because sectors didnít do well.

Why do you think the Qualified Institutional Placements(QIPs) segment hasnít taken off ? Is it because thereís too much P/E money coming in at higher valuations?

There are some technical nuances with QIPs, such as the Sebi floor price and the limitation of 49 investors, that need to be reviewed. But you have to look at the QIPs in the context of the GDR market and the number of GDR issues has fallen. I donít think P/E money is replacing the QIPs segment, though its true that a lot of P/E money is coming in.

Courtesy : Business Standard




Expect markets to be up 20% from current levels: ENAM
Manish Chokhani of ENAM Securities believes that we are in a long secular market. He expects to the markets to be up 20% from current levels. However, he suspects the pain in the market to get a bit worse before it gets better and hopes that things will get overshot like they always do on the corrective side.

In his view, 2007 is a defensive year where people want to hide but in the next quarter or so, the more aggressive people will start getting valuations where one can buy stocks, which can give 50% upside on a 12-month basis. However, he feels that one will not find that in blue chips, which are recognized as being stable and secular but in other stocks.

Excerpts of CNBC-TV18's exclusive interview with Manish Chokhani:

Q: Whatís your sense now looking at the strength in the global markets, whatever is transpired locally? Whatís your market call now?

A: We remain in a long secular market, the corrections will keep happening as we keep hoping for. But nothing has changed the basic thesis of investing in India. The fact is that we overshot on the way up and therefore we probably need to spend some time treading water. But I canít make a very spectacular bear case and nor can I make a very spectacular bull case either for the current year. But going ahead, if I take a year view from now, we will be more likely to be 20% up and I will take that bet.

Q: Whatís your sense of the global situation because in the last few days, there have been some local factors to contain with interest rates etc, globally things seems to have perked up many markets have hit new highs. Do you think the whole outlook for at least for the near term globally has changed a bit?

A: It's not that, you have seen this wall of liquidity, which has been unleashed in the world, and from time to time, Central Banks have to pull the stick back, just to bring things back from the realm of inflation or speculation. We almost had a repeat of this last year when the Fed Chairman made the statement implying that the rates are going to ease and then commodities went parabolic, and after that, he had to came back and cut rates again.

Something very similar is happening in the current year because inflation has been running all over the world. So events are really playing out as one would expect in a normal economic cycle that interest rates have to diverge, at some point in the US, just to prop the currency up and because we have, in a way, imported that fiscal stance into India, we are tending to follow that for a while.

But at some point, the Asian countries will have to take a view on what they have to do to their currencies collectively to tame the inflation monster because interest rates is not going to do the trick here because availability of credit more than the price of credit is really the issue. So I continue to
be sanguine about the prospects of Asia and India, in particular. I donít think I have seen anything yet to cause a change in view saying that this bull market is now over and it will not come back for the next couple of years. We should be okay.

Q: What do you expect to see in the next 3-4 quarters in terms of the earnings slowdown which people are expecting and given that what kind of valuation ranges are we trading at you think? Can you build that case for example for the market to rush to significantly new highs just yet?

A: Very unlikely, in my opinion. Itís like a cyclical slowdown in the context of a longer bull cycle. But if you were to build the case for earnings, I would think 2007 calendar year, we are likely to be sliding a slope of hope in terms of earnings expectations, unlike 2005, where it was climbing a wall of worry and earnings just beat us all through. So in that sense, the index earnings estimates, which broadly are out for FY08, are in the region of about Rs 850 odd for the index.

If you forecast that forward by another year - because a year from now we will really be pricing the index for a FY09 earnings - we should be in Rs 950-1000 range depending on how much earnings slowdown and what point they will start re-accelerating again. So on that basis, in the case of a bull, we do at least Rs 1000 for FY09, it's hard to imagine the index not trading at 15,000-16,000 by this time next year. The bear case is if we donít actually make those earnings and we end up around Rs 925 and thereabouts, you would
still be ahead of where you are currently, so I canít make a case where we will lose money in a 12-month perspective. Given the fact that there are barely 7-8 companies, which are propping the index up because the broader market has already been estimated over the last year.

As is evident by the fact that a lot of funds or a lot of portfolio managers, a lot of individuals have not really performed in line with the broader index. So a lot of good companies has actually got beaten down already. Therefore, one feels that it is better to look at companies, which would want to build for a longer term portfolio as opposed to where they were even 6 months ago.

Q: Whatís your take on technology and is that a good place to be now for the next year-year and half?

A: Itís a bit like the market now because even if I take a lead from Infosys - they have guided Rs 81, let's say, they do Rs 85 and you forecast the following year and they will probably be in the region of Rs 105-110 of earnings, it's hard to see why there should be trading at this time next year below Rs 2200 on that 20 multiple basis and indeed if things look like they can re-accelerate at some point when rates start turning, which they inevitably will be, towards the end of this year. You can even build the case that you can make money over there but will it outperform the broader market in 12 months? It's hard to say because there will be other sectors, which are beaten up to pulp, which can probably bounce a lot more than lot of these secular great companies.

Well, a lot of people have already chosen to hide out in fact. So, 2007 is a kind of a defensive year where people want to hide but the more aggressive people, someone somewhere in the next quarter or so will start hopefully getting valuations where we can buy things which on a 12 month basis can give us 50% upside. Sadly, you wonít find that in blue chips, which are
recognized as being stable and secular but maybe elsewhere. So at the end of the day, we are all here to make money, which is very unlikely again to make it in the so-called 'safe havens'.

Q: Do you think you will get better prices to buy during the course of the next 9 months or do you think the market will not give you that opportunity?

A: Over the next 3 months, as you donít find a lot of reasons for this market to go up and you still are faced with headwinds on the interest rates front and possibly a downgrading of earnings at some point because we will probably slide the slope of hope in earnings at least in the short run, I suspect you will get better chances to buy. But having said that, it is not like I can make a very major bear case and see this index falling by a 1000 points either, except in the top 7-8 companies where there seem to be propping up and holding up valuations. But at some point, people will exit the market. Who knows what sort of mouthwatering valuations they throw up? One is really hoping for that because one doesnít have a lot of infinite supply of money. So I am hoping to get lucky.

Q: Whatís your own call on interest rates for the next 3-6 months and how are you positioning yourself from those rates sensitives?

A: My sense is that already if we have USD 200 billion of reserves and the RBI is structurally short on domestic bonds through the MSS facility to the extent of USD 15-20 billion, I canít make a case for interest rates to be substantially higher by end of this year. At some point, this has to reverse and come down. Also very importantly, by next year in fact, because of the FRBM, our primary deficit is going to reduce and we have an excess of savings such that SLR requirements of the banking sector, which will be lower than what the government needs to borrow.

Therefore structurally, rates have to head down next year at least its out belief. Therefore banking, as a sector, in fact over the next 3-6 months, could give you the best buying opportunities because currently we are all scared that the banks are going to lose on their bond portfolio side whereas probably by January of next year, we will start again looking for bond gains over there because I canít imagine rates in India being where they are given the way our domestic saving is as well as the way a lot of foreign money seems to be headed to our shores and we will continue to be so.

Q: Would you buy steel now?

A: We love commodities; we think itís a long cycle for commodities, resources really rather than commodities and it is really a 10-year cycle very much like our own index and we will see periodic corrections there. But these volumes ainít going away and because of all the disruptions the various ministers do all over the world including in our own, they are going to continue to cause disruptions in prices over here. In a structural upturn, whether itís for steel, non-ferrous, coal or energy, itís a great place to be in. I wonít run away from these in a hurry and the beauty is that valuations are the lowest in the
sectors where the earnings surprises are going to be the best whether in steel, non ferrous, cement.

Q: Are you saying that you could see a bit more pain in the next 6-9 months but that could be a good entry opportunity?

A: Yes, and it may not be in the index, the way the index has disguised a lot of things in the last year as well giving an optical illusion that it has been rising whereas the broader market hasnít participated. I suspect some of that will continue over the next 3-6 months, that you may not see major index falls because the heavyweights really have no reason to fall in a very major way. But individual stocks or individual sectors get bombed out. For instance, it has been happening to banking. I suspect the pain will get a bit worse before it gets better and one is hoping that things will get overshot like they always do on the corrective side as well as the way they did on the upside.

Hopefully, for savvy money managers, this is the best of times because 2005-2006, you need to just turn up and throw darts and buy stocks and make money. Even for the fund industry in India, I think this is a great time because it will differentiate the men and the boys like it will happen in companies as well. So itís actually a great year to pause, consolidate and take stock.

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