A Weekly Stock Market Newsletter From KARVY HOUSE
A Research Product of Karvy - The Finapolis 29 Aug. 2005 to 2 Sept. 2005 Volume III: Issue 274
URL: http://www.karvy.com/market/mktnews.pdf

Stock Talk
q Dalal street q Sector focus q IPO update q BSE gupshup q Long term technicals q Performance monitor q Bulk deals q Gainers & Losers q Institutional investments q Derivatives q Strategy report q Our research q Portfolio monitor

Nifty Opening Closing 2367.85 2326.10 2322.50 2354.55 2357.05

NSE Adv/Dec 393/439 85/756 177/643 667/171 638/208 BSE Adv/Dec 1493/1048 525/2035 717/1846 2102/465 1848/737

NSE Nifty
Turnover (Rs. cr.) 5932 5611 5924 7048 5757

: 1 : 1 : 2 : 2 : 3 : 3 : 3 : 3 : 3 : 4 : 4 : 5 : 5

22-Aug-05 23-Aug-05 24-Aug-05 25-Aug-05 26-Aug-05 Sensex

2383.45 2369.55 2326.10 2323.10 2354.60



BSE Sensex
Turnover (Rs. cr.) 3358 2913 2850 2782 3294

Opening Closing 22-Aug-05 23-Aug-05 24-Aug-05 25-Aug-05 26-Aug-05 7814.93 7764.86 7615.68 7651.11 7701.07 7750.60 7615.99 7612.00 7660.42 7680.22


Dalal street
Bear trap emerges at 2300 levels

Sector focus
Construction: Construction stocks witnessed buying interest after strong flow of orders in the past few days. Most of the frontline companies are sitting on strong order books expecting to generate 3 to 4 times their full year revenue. The stocks have moved up sharply after the finance minister presented the Outcome Budget in the parliament according to which NHAI plans to extend the Golden Quadrilateral network to 5846 km by December 2006. Construction stocks are being looked as safe bets in an uncertain market. Tyre: Natural rubber prices have cooled off last week after hovering around record high. Domestic prices increased around 15% since January due to soaring international prices and shortage of production. Prices are expected to go down further as tapping picked up in kerala, which accounts for over 90% of domestic production. Lack of demand from the tyre companies which account for more than 50% of consumption has further put pressure on the prices. Tyre companies will be the major beneficiaries as decline in rubber prices would improve their operating margins.
Target 118-120 155, 160 97-100 159-160 Time Frame 5-6 Days 1 Week 1 Week 4-5 Days

Indices continued to correct on the back of dwindling q MF clippings : 6 FII flows. The recent flare up in crude oil to record q Fund of the week : 6 highs and rising interest rates added to the woes. q Tit bits : 6 With technical indicators in the overbought zone, q Insurance : 7 Nifty easily toppled from the 2400 levels. Unwinding of F&O positions added to the choppiness in the q Income tax queries : 7 markets making the direction unclear. The downward q Interview : 7 slide found few intermittent supports, with the bears q Karvy network : 8 retreating finally at 2300 levels. q Subscription form : 8 Sectors that were hit by the correction included banking, metal and auto. The BSE-Bankex shaved NSE 52 Wk H/L : 2426.65/1593.45 off 2.94% with massive selling in frontline and mid caps. The BSE-Metal index, which ran up sharply in Mcap : Rs.19,26,191cr. the last few weeks due to a rebound in metal prices BSE 52 Wk H/L : 7921.39/5094.56 saw some profit taking falling by 2.51%. Mid caps and small caps were hammered in the beginning of the week only to recover towards the close. The slowdown in foreign funds purchases has Editor : T S Harihar deterred players and the pull back in the index has Associate Editor : Shomesh Kumar been sluggish, with the strength remaining Capital Markets Desk : Amit Gupta, questionable. Nifty is likely to remain range bound Kalyan C Reddy, Manasa Choudary B, Pankaj Kulshrestha, Sumanth Krishna, and exude choppiness in the coming week.
Vishal Jain. Personal Finance Desk : Chinmay, Kirti Singh, S.Krishnamoorthy. Designed by : SSC & B Lintas Graphics : Khadeer Mohammed Printer : Dharani Printers Scrip Mid-Day Rolta Four Soft Bata India Action Buy Buy Buy Buy CMP 110.30 143.90 88.70 151.85

Personal Finance Matters

KBB weekly portfolio Entry Stop Loss 108-111 104.25 141-144 136.50 86-89 82.00 148-152 144.90

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IPO update
Amar Remedies Limited Type of Issue: Book Building Price Band: Rs.24-Rs.28 Issue Size: Rs.36cr – Rs.42cr Issue Opening: 25th August, 2005 Issue Closing: 31st August, 2005 Face Value: Rs.10 Minimum Application: 250 shares and multiples of 250 thereof The company was started by Mr. P. Shah as ‘Swami Aushadhalaya Private Limited’ in 1984. The main objective is to do extensive research in ayurveda and ayurvedic medicines. In 1989 the company‘s first breakout in oral care ayurvedic product “Amar” toothpowder was a huge success. During the period of 1991-98, 16 different ayurvedic medicines were discovered and introduced in the market with the approval of FDA. The company is exporting 12 products to US under different brand names and 3 products in the domestic market Investment positives Ø The company has a good track record since 1995. In the recent financial year 2004-05 the company achieved a sales growth of 29.98%. This healthy track record is mainly supported by its export business of Amar toothpastes which generates annual revenue of Rs.5.17cr. (85% of total turnover). Ø Despite being a profit making company, Amar remedies has never availed any term loan facilities from banks or financial institutions. All the existing facilities were set up by own internal accruals. Ø The company has 24 FDA approved ayurvedic medicines in their basket. The company has got the licenses to start manufacturing the same 24 products in their new Daman and Diu plant. Now the company is in plans to launch the product both in domestic and international markets.

The company has a well structured distribution network which maintains smooth sales of its products through out the globe. Ø The company has robust distribution system. It has 13 super-stockists for domestic sales who in turn have more than 700 sub-stockist spread in the northern, western and eastern region. Out of these 13, 4 sub-stockists are attached with Amar remedies for more than 10 years. The total revenues received for FY2005 from these Super-stockists is Rs.56.78cr. Ø The company has recently started venturing its products to the southern region also. It has appointed 2 SuperStockists who in turn have 130 substockists for selling upto the taluka level. Ø The company enjoys tax benefits from their newly built Daman plant. These tax benefits help the company to manufacture FMCG products in bulk without disrupting the margins. Ø Foreign markets such as Ghana, Dubai, Sudan, Panama, Venezuela, Ivory Coast, Benin, Zaire, Saudi Arabia and Kuwait have a strong demand for its products. Objects of the issue The main objective of the issue is to operationalize and expand the Surat plant for manufacturing of ayurvedic medicine, to utilize the proceeds for marketing/ branding of the 24 new products, to spend in R&D, to meet the working capital requirements and to meet the issue expenses. Pricing of the issue The issue looks attractive seeing the growth in the industry and the cheap valuations of the company. The company has received license for 24 new products which will strengthen the order book of the company in the months to come. The company emphasis on R&D may also reap some benefits in the long run. Overall, this could be a good investment for medium-long term perspective. Even short-term investors are likely to make money through this issue.

BSE gupshup
Champagne Indage: It is the market leader and the largest producer of wine in Asia with 32 principal brands under its umbrella. The company also plans to enter the overseas beer market with its maiden brand Tantra with hopes to corner 8% of the 2.5 million cases Indian beer market abroad. The company has already tied up with retail companies in these countries to market the product. The stock has suddenly flared up in the past few weeks from Rs.240 levels to Rs.325. According to rumors, the company could be acquired by a larger domestic liquor player as it offers an attractive entry in the fast growing wine market. Fundamentally, the stock looks attractive with a price earning multiple of 13 times its forward earnings of Rs.24. Micro Technologies: The Bombay based company manufactures a wide range of software products and recently developed few innovative security software products which provide super security solutions to various kinds of applications. These include security systems that detect theft in cars, houses and ATMs. The company has recently placed shares with the Bennett & Coleman group and also proposes to raise funds from abroad. Punters say that the company could announce acquisitions in the near term. The scrip trades at Rs.257 and players expect a target of Rs.325-350.

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10-Year G-Sec Curve

Debt market
Gilts prices rose on Friday supported by a larger-than-expected drop in inflation to its lowest in 34 months and a purchase of long dated securities by a cash rich insurance company. Annual WPI rose 3.13% in the week ended Aug.13, down from the previous week's 3.35%, mainly due to a fall in oilseeds, minerals and manufactured product prices and last year's high base effect. The data was lower than the 3.24% forecast in a Reuter’s poll. US treasury debt yields fell on expectations that rising gasoline costs will finally force US consumers to cut back spending, denting economic performance. The central bank sold Rs.60 bn of stabilisation bonds on Thursday to suck out excess cash in the banking system, estimated at about Rs. 300 bn. Chief economic adviser, Ashok Lahiri, said on Friday that he expected the "virtuous state" of low inflation to continue for some time, provided support to the market.

Bulk deals Company Weight. Avg. Traded Acquirer price (Rs.) quantity Buy S Kumars Flex Ind. India Cements GHCL Melstar Info Sell Matrix Labs Videocon Intl. Federal Bank Cinevistaas Ltd McDowell Mid-day Company Visualsoft Whirlpool MRF H C L Infosys Hind Inks Res Company Kotak Mah.Finance Saregama HMT Geometric Soft Indusind Bk Date 19-Aug 22-Aug 23-Aug 24-Aug 25-Aug Total Purchases 920.70 959.20 751.50 841.10 875.40 4347.90 180.65 1200000 BNP Paribas 75.01 173.70 61.16 378.58 106.59 454400 Prudential ICICI 390000 JM Financial MF 323098 Ankita Vishal Shah 304955 Ghalla Bhansali 264279 Indus Portfolio 44.00 10000000 HSBC Global Invt. 93.11 103.38 101.98 27.08 899071 Composite Sec. 750000 SBIMF 656704 Tanvi Fincap 516038 Ankita Vishal Shah

Top Gainers 25 Aug. 19 Aug. %Change 180.20 31.25 3180.95 261.15 642.90 Top Losers 25 Aug. 203.00 175.75 71.90 103.95 74.75 19 Aug. %Change 487.25 199.35 79.90 115.30 82.80 -58.34 -11.84 -10.01 -9.84 -9.72 155.95 27.25 2817.85 239.05 608.35 15.55 14.68 12.89 9.24 5.68

Long term technicals
Shyam Telecom CMP: 105.20 The stock gained by more than 11% on Friday to close at a 52 week high level. The stock has been facing strong resistance around 100 levels and has retraced back from these levels in the past. However, it has managed to close above this level supported with very good volumes. The MACD has also made a bullish crossover on the daily as well as the weekly charts confirming the uptrend. Hence the stock might see further upsides in the coming days. Investors may buy this stock if it is able to sustain above 100 levels for medium term targets of 124126. If the stock manages to move past 126 levels then it would attempt 140 levels in the medium term and around 220-240 levels in the long term. A stop loss is advised below 90 levels.

FII Invt (Rs.cr) 873.50 1036.30 742.10 780.50 985.90 4418.30

MF (Rs.cr) 252.83 285.79 301.60 230.87 329.96 234.04 442.15 271.37 609.82 452.80 1936.36 1474.87

Sales Purchases Sales

KBB weekly portfolio monitor
Entry 105-108 113-116 163-165 285-288 Stop Loss 102.50 108.50 161.20 281.50 Target 118, 125 125-127 173-175 296-300 No. of Shares 2303 2133 852 Profit/Loss -9,211.34 21,326.26 10,218.83 22,333.75 Abs. returns WoW (%) 3.04% Return -3.76% 8.70% 4.17% Remark SLT TA NI TA

TA - Target achieved SLT - Stop loss triggered CMP - Closing price as on last trading day NI - Not initiated

Scrip Action India Cement Buy Sterlite Optical Buy Hind. Sanitary Buy Navneet Pub Buy Total Balance on inception (01- Jan- 05) 5,00,000

Balance last week (22-Aug-05) 735,756

Balance current week (26-Aug-05) 758,090

Abs. returns since inception (%) 51.62%

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Nifty witnessed negative bias throughout the week after it opened on a negative note in Monday’s trade. It displayed high degree of volatility and choppiness all through the week due to the settlement of August contracts. This expiry has seen a healthy rollover of around 82% for the entire derivatives market. Most of the rollover was visible in the frontline stocks. Select midcap stocks not only showed 100% rollover but also added fresh positions in September series. Nifty futures alone have witnessed a 92% rollover but a high discount of 27 points indicates heavy rollover of short positions. The fluctuations in the implied volatility of both the options indicates a skeptical view on the markets and the decline
Put - Call Ratio (Nifty)

Rs.cr (per day date) Index Futures - Avg Traded Value Index Options - Avg Traded Value Stock Futures - Avg Traded Value Stock Options - Avg Traded Value Total Average Turnover

Week Ended 25 Aug. (4 Days) 7180.50 1476.25 13235.00 637.25 22529.00

Week Ended 19 Aug (4 Days) 4681.50 1020.00 8884.50 561.75 12118.20

% age Change 53.38 44.73 48.97 13.44 85.91

Strategy report

Open Interest (Nifty)

Nifty…in a range After touching historical highs in August, Nifty witnessed correction towards expiry. Profit booking and slow down in FII investments did not allow the market to sustain at higher levels. Fundamentally too with the Q1 results season getting over, there is no major positive trigger in the market. Nifty has seen heavy rollover of close to 92%. High negative basis of 27 points shows that the rollover has been on the short side. On the other hand, most of the heavyweights and select midcaps have seen healthy rollover which is mostly on the positive side as indicated in their high positive cost of carry. With these mixed positions, the markets seem to have entered a consolidation phase where the trading would be marked by predominantly range bound movement. Indices are unlikely to continue the rally beyond the resistance levels of 2380-2390. On For further details please contact Manasa the lower side Nifty is likely to take support at Choudary B at manasa@karvy.com
Top Five Futures Contracts as on Aug. 26, 2005 Name Exp. Date Cont. Value (Rs.cr.) RIL 29Sep05 15381 651.95 TCS 29Sep05 14382 489.29 Tisco 29Sep05 13932 366.67 VSNL 29Sep05 9590 375.73 Satyam 29Sep05 9549 290.71 Scrip IPCL Nifty MTNL Infosys Top 5 stock options as on Aug. 19, 2005 Name Exp. Strike Type Cont. Value

around 2320-2330 levels. Based on the above outlook, a rangebound strategy is suggested to the investors. In such a scenario investors are advised a ‘Short Strangle’; l Sell ONE Sept. 2400 Call @ 22.00 - 24.00; and l Sell ONE Sept. 2300 Put @ 43.00 - 45.00 The strategy will breakeven at 2467 (upper BEP) and 2233 (lower BEP). Beyond the break even points the strategy will incur losses and hence investors are advised to hold the positions with USL of 2470 and LSL at 2230. The suggested time-frame is till expiry. The target return from the strategy is the entire premium received on selling the options i.e. Rs.6700 [(23+44)*100] where100 is the lot size of Nifty. The strategy is a Tier II strategy with a margin requirement of approx. Rs.47,762 (2*23,881) on selling two options.

in the implied volatility of the call options clearly indicated the motive of benefiting from the time decay by writing (selling) higher level calls. Nifty is expected to hover around in the range of 2320-2390 levels for the coming week. It might find a strong support at around 2320 and 2300 levels. Traders are advised to trade long only if Nifty sustains above 2340 levels for targets of 2365 and 2380 levels. However, if Nifty fails to hold 2340 levels, traders can trade short for lower support levels.
Scrip Bank of India NDTV Maruti Satyam Cent. Text. Recommended Action Buy Sept. Futures Buy Sept. Futures Buy Sept. Futures Buy Sept. Futures Buy Sept. Futures CMP 123.95 230.55 474.75 508.35 306.80

ONGC 29Sep05 960.00 PA 800 23.67 Tisco 29Sep05 380.00 CA 738 19.78 RIL 29Sep05 700.00 CA 637 27.65 Tisco 29Sep05 380.00 PA 617 16.17 Tisco 29Sep05 390.00 CA 611 16.59 Investment Strategies Recommended Action SL BEP Target Time Frame Sell ONE Sept 180 Call @ 7.50-8.50 and USL- 193 UBEP-192 Premiums Expiry Sell ONE Sept 180 Put @ 3.50-4.50 LSL- 167 LBEP-168 Received Buy 2300 Put @ 38.00-40.00 2267 58-60 10-15 Days Sell ONE Sept 130 Call @ 2.50-3.50 and USL- 138 UBEP-137 Premiums Expiry Sell ONE Sept 120 Put @ 4.00-5.00 LSL- 112 LBEP-113 Received Sell ONE Sept 2310 Call @ 50-53 and USL- 2460 UBEP-2454 Premiums Expiry Sell ONE Sept 2310 Put @ 89-91 LSL- 2160 LBEP-2166 Received Short Term Strategies Target 128, 130 238, 244 482, 490 515, 524 315, 320 Time Frame 3-4 Days 4-5 Days 3-4 Days 4-5 Days 4-5 Days Reverse Strategy Not Applicable Not Applicable Not Applicable Not Applicable Not Applicable Stop Loss Target -

Entry Stop Loss 122-124 120.90 228-232 226.05 469.60 471-475 506-509 504.70 305-308 302.60

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points during the June contract which could have been effectively utilised for Unwinding the arbitrage arbitraging. This was a forwards arbitrage Arbitrage is defined as the simultaneous where arbitrageurs bought the stock and purchase and sale of an asset or different sold futures. As the contract approached instruments on the same asset or expiry, unwinding of arbitrage led to different assets, to profit from a decline in the spot prices while the futures temporary differential in pricing. There prices soared. A similar situation was is no time lag between buy and sell legs observed in the July contracts too where of the contract resulting in an immediate the basis was abnormal on many occasions. The spot price too declined ‘riskless, profit’. sharply towards the expiry due to The futures prices are derived from spot unwinding. values and CoC binds futures to the underlying asset. When the two go out Jindal Steel- In June, the contract opened of sync, arbitrage arises. An arbitrage with a very high positive basis of 13 points opportunity is said to exist when the and hovered in the range of 9-12 points basis and spot show a wide gap in their for many trading sessions, thereby possible arbitrage values. (i.e. spot is increasing and basis providing is decreasing or vice versa.). The gap is opportunities. On expiry the spot quantified in terms of a 2% or more displayed tremendous volatility, by making a high of 895 and a low of 830. difference in the spot and futures. This price fluctuation is a likely evidence This study is an attempt to study the of arbitrage unwinding i.e. selling in cash potential arbitrage that existed during a and buying in futures. Similarly, the July given month and study price behaviour contracts showed a negative basis of as of stocks which presented arbitrage high as 11-12 points on some occasions opportunities close to the expiration of which was partly due to dividend. contract. Few stocks were studied during However, the dividend adjusted basis was April to July 2005 along with their basis/ also abnormal which could have led to CoC to track likely arbitrage patterns and arbitrage between cash and futures (selling likely impact on the spot prices towards stock and buying futures). Last two days the close of the contract. Such price towards expiry saw the price fluctuating movements could be utilised for short from 970 to 1020 levels, implying likely term gains towards expiry. We are citing buying in the cash and unwinding of the here the examples of two stocks from arbitrage positions. our sample of study. The study showed such price patterns for Wockhardt Pharma- Good arbitrage many stocks in our sample which opportunities existed during the month suggested early discovery of such arbitrage of May and June where the basis turned opportunities could be effectively utilised abnormally high at many occasions for trading gains towards the expiry. during the month. A high basis of 4-6

Our research

Initial value as on July 29 = 499674.50 Stock Amount Profit/ Return Remarks Invested Loss W1 Tisco W1 Reliance W1 ONGC W2 Tata Motors W2 Nifty W3 Gail W3 Tisco W3 Nifty W3 Satyam W4 Tisco W4 Satyam 85893 73615 71844 68974 4220 116547 4194 42782 54759 4862 6156 5152 5174 1922 -2898 1860 -11049 -4302 4629 -3700 -4862 -6156 6.00 7.03 2.68 -4.20 44.08 -9.48 -102.58 10.82 -6.76 -100.00 -100.00 -2.67 NI=Not initiated Closed Closed Closed Closed Closed Closed Closed Closed Closed Closed Closed

533846 -14230 Final Value as at Aug 26 : Rs.485444.50

Derivatives portfolio monitor
Scrip Action Chennai Petro Buy Aug Fut Syndicate Bank Sell Aug Fut M&M Buy Aug Fut Tisco Sell Aug Fut Hindalco Sell Aug Fut
Balance on inception (01- Jan- 05) 5,00,000

Entry Stop Loss Target Reverse Stop Loss Target 205-208 203.40 212, 216 NA 72-74 75.20 70, 68 NA 708-712 704.40 720, 736 NA Below 400 403.60 392, 387 App 399.30 408, 414 Below 1395 1406.75 1380, 1365 NA Balance last week (22-Aug-05) 25,18,957 Balance current week (26-Aug-05) 27,73,057

Margin 716376 834408 517224 398196 2466204

Profit/Loss Return (%) NI 136800 19.10 -42000 -5.03 105300 20.36 54000 13.56 254100
Abs. returns since inception (%) 454.61% 5

Abs. returns WoW (%)


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Personal Finance Matters
Weekly Personal Finance Advisor from Karvy - The Finapolis
mutual Funds & Insurance
Fund picks as on August 25, 2005
Scheme Magnum Balanced HDFC Prudence Tata Balanced Kotak Balance Alliance '95 NAV 23.12 72.20 33.50 20.24 121.07 3 Yr Ret (%Ann.) 48.29 47.23 39.93 39.48 37.88

Equity Diversified
Scheme Reliance Growth Franklin India Prima Magnum Contra Magnum Global Sundaram Select Midcap NAV 159.74 147.72 21.35 23.18 48.60 3 Yr Ret (%Ann.) 77.55 75.45 73.30 70.02 68.55

Scheme Magnum Taxgain Prudential ICICI Tax Plan HDFC Taxsaver HDFC Long Term Advantage Birla Equity Plan NAV 45.21 64.85 92.65 62.14 46.15 3 Yr Ret (%Ann.) 84.44 74.43 71.09 68.11 65.56

MF clippings
Recommended investment strategy: Markets are hovering near their all-time high levels and many investors who could not participate in the their returns during the last years are wondering if it is the appropriate time to invest. Though markets have witnessed some correction due to profit-booking in the recent past, the overall outlook for the market still remains positive. However, at the prevailing levels, the scope of upside movement is not likely to be as high as in the past. The recommended investment strategy at the prevailing levels is entering through Systematic Investment Plan (SIP) and having long term outlook in view. SIP is a way of investments in markets where instead of making a lumpsump investment, one can choose to invest periodically on a monthly or quarterly basis. How does SIP work in falling markets? In case of a bearish market trend, SIP investment can reduce the loss compared with making lump-sump investment. By opting for SIP, the average cost of 590.38 units for an investor has declined to Rs.50.81. If he would have opted to make lump sump investment on March 1, 2004, his cost would have been Rs.54.37. His total investment of Rs. 30,000 would have been worth only Rs.26,336 as on July 1, 2004.
Falling Markets Date NAV 3-Feb-04 1-Mar-04 1-Apr-04 3-May-04 1-Jun-04 1-Jul-04 Total Average Cost 50.6 54.37 54.1 52.66 46.52 47.73 Amount invested (Rs.) 5000 5000 5000 5000 5000 5000 30000 No of units 98.81 91.96 92.42 94.95 107.48 104.76 590.38 50.81

Fund of the week
Franklin India Prima
Franklin India Prima, from the stable Franklin Templeton Fund aims at offering capital appreciation and income generation focusing on mid cap and small cap stocks. This fund has taken the absolute advantage of mid cap stocks and has delivered outstanding returns for the last 1-year and 3-year period. Started in March 93, it follows a buy and hold strategy. Due to this approach, it has gained good returns in the year 2002. Currently the fund holds 73.57% in the mid cap segment. December 2003 was an unforgettable month for this fund. During this period it had exposure in sectors like services, textiles, chemicals and automobiles and in the very next month market turned down especially in these segments. In other way, it was a real challenge for the fund to regulate its downside risk. But due to its top holdings and buyhold strategy it has been able to meet the expectations of the investors. On the whole the fund has gratified the investors with respectable returns even in the bullish and volatile market. Hence the investor with a long term view can choose this fund since its mid-cap exposure is high. Due to the volatility of mid-cap stocks in short term, investors with a short-term outlook may avoid the fund.
Snapshot Minimum investment Type of fund Entry / exit load Rs. 5,000 Equity diversified 2.25% / 2% if redemption within 1 year NAV as on August 24, 2005 Rs.146.43 Performance update (%) as on Aug. 24, 2005 1M 3M 1Y 3 Y* 6.60 17.03 88.46 74.94 *Returns annualised, Source: Bloomberg

Tit bits for the week
l SEBI may soon ban the practice of MFs

amortising issue expense over a longer period. l Fund managers have remained largely defensive in July, as cash levels went up to Rs 4,210 crore constituting 8.2% of the total industry corpus. l Pension-based mutual funds may be barred from investing in foreign securities, Pension Fund Regulatory and Development Authority (PFRDA) said recently. l Domestic MFs are likely to be a separate category for the book-building process in primary offerings. A final decision on this will be taken at the SEBI's board meeting. New Fund Offers open for subscription l SBI Mutual fund has launched SBI Multicap Fund that would invest a minimum of 50% in equity of large-cap stocks and the rest in small and mid-cap stocks. The offer remains open till September 16. l Sundaram MF has launched an equity fund, named as Sundaram CAPEX Opportunities Fund. The fund is available for subscription from August 10 to September 5. l The ABN AMRO Dividend Yield Fund will be open for subscription till August 30. l Franklin Templeton MF has launched Fixed Tenure Product-Series II- 60 Months Plan. The offer period closes on August 30. Forthcoming NFOs l Birla MF is launching a new equity scheme, Birla Top 100 Fund. The new fund offer will be from August 30 to September 28.The fund seeks to provide medium to long-term capital appreciation, by investing predominantly in a diversified portfolio of equities of top 100 companies as measured by market capitalization.

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What is Group Insurance?
In group insurance a number of persons are covered under a single policy called “Master Policy”. It is a sort of mass insurance in place of individual insurance. Each member in the scheme is covered on a pre-determined formula. The sum assured under group insurance is not left to the choice of individual member. It may be, say, on the basis of the cadre to which he belongs or on the basis of his/her salary. In any case, the individual member has no choice. Since many persons are covered under one single policy – under one contract - it is possible for insurance companies to cover the risk at a low cost on account of saving of expenses for administration, medical etc. The premium under group insurance is revised every year on account of changes in the ages of the existing members and addition of new members. The insurance contract is with the body that represents the individuals, the employer or the association. Because the contract is with the body, that body is the policyholder. The individuals are the beneficiaries. The amount and the terms of insurance are negotiated by the policyholder and not by the individual beneficiaries. Special legal aspects/other features of group insurance: The parties to a master policy are the insurer on the one hand and the employer or the trustees on the other. The members of the group are covered on simple insurability conditions. Risk is not assessed individually. Example: It is sufficient that the employee is not absent on the date of effecting the insurance, on grounds of sickness. Graded cover can also be provided where the membership is not less than 50 and the employees can be categorized into four groups viz. senior management, middle management, clerical staff and sub staff & workers. General characteristics of ‘Group’

It should be homogeneous by nature of occupation. Ø It should not have been formed for the purpose of insurance only. Ø It should have single central administrative machinery to act on behalf of all the members, like trustees or employer.

1. Please throw some light on the investment objective and investment style of Sundaram Capex Opportunities Fund? The investment objective for the fund is to generate consistent long-term returns by investing predominantly in equity instruments of companies, which are engaged in supply of capital equipment or provide engineering turnkey services etc. 2. How is this fund different from any infrastructure fund or opportunities fund? While infrastructure funds aim to invest in companies that provide the infrastructure services, our fund aims to invest in the beneficiary companies of this capital expenditure. The key difference between the two sets of companies is that an infrastructure project typically requires as gestation period of 3-5 years during which period, the investing company does not earn any return on the invested capital. On the other hand, capital goods suppliers' start booking their revenues and profits once the project is underway depending on the work completed. Hence we believe that investing in capital goods suppliers is a better way to play the capital expenditure theme. 3. BSE Capital Goods Index has risen significantly over the period. Are such companies still available at attractive valuations? While the capital goods index has outperformed the Sensex, this has been primarily on account of the order book visibility that these companies enjoy. Given that these companies enjoy high leverage, strong revenue growth would lead to a similar or higher profit growth. Hence adjusted for growth prospects, these companies continue to look attractive. Based on the experience of other countries like US, Japan, Korea, China etc, infrastructure-building phase has lasted for more than 10-15 years and we believe that India is also poised for a long period of infrastructure creation that would provide sustainable growth for our universe of stocks.

There is a steady flow of new entrants so that the group is not stagnant. Ø A large proportion of all the eligible persons of the group should join the scheme, if the scheme is a contributory scheme. A condition is imposed making it compulsory for all the new entrants should join the scheme. Ø For each scheme a minimum size of number of persons that should be there in the group is prescribed. For introduction of a Group Scheme by any employer the following are the requirements: Ø Letter from the employer expressing his intention to enter into a group scheme Ø Master proposal form wherein all the details regarding the name and address of the organisation, nature of business carried on, date of commencement of business, no. of employees employed, various grades of salary structure, different cadres and other particulars are to be furnished. Ø A copy of the trust deed and trust rules. Ø A statement giving the following particulars regarding each of the employees: employee no., name, and category, date of birth, sex, date of appointment, salary etc.

Income tax query
What are the tax implications of taking a mediclaim policy? In addition to section 80C, contribution towards the premium of a mediclaim policy is eligible for a deduction under section 80D of the Income Tax Act. The maximum limit eligible for a deduction is Rs.10,000. Mediclaim policy is an annual contract that needs to be renewed.

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