SKS MICRO AT RS 198, YEARLY LOW. BUY 1 GET 4 FREE.

From Rs 1485 to Rs 198 in 12 months. That is the story of SKS Micro. The IPO was sold at Rs 985, luring the investors that this company as the next Infosys. Ironically, Catamaran, the venture capital out fit of Narayana Murthy of Infosys has invested in this company. That gave further credence to the IPO. For the IPO price, now one will get 5 shares.

RBI: DRAFT GUIDE LINES FOR LICENSING NEW BANKS.

The Reserve Bank of India has released the Draft Guidelines for ‘Licensing of New Banks in the ‘Private Sector’. The RBI has sought views/comments on the draft guidelines from banks, non-banking financial institutions, industrial houses, other institutions and the public at large.

Final guidelines will be issued and the process of inviting applications for setting up of new banks in the private sector will be initiated after receiving feedback, comments and suggestions on the draft guidelines.

Key features of the draft guidelines are:

(i) Eligible promoters: Entities / groups in the private sector, owned and controlled by residents, with diversified ownership, sound credentials and integrity and having successful track record of at least 10 years will be eligible to promote banks. Entities / groups having significant (10 per cent or more) income or assets or both from real estate construction and / or broking activities individually or taken together in the last three years will not be eligible.

(ii) Corporate structure: New banks will be set up only through a wholly owned Non-Operative Holding Company (NOHC) to be registered with the Reserve Bank as a non-banking finance company (NBFC) which will hold the bank as well as all the other financial companies in the promoter group.

(iii) Minimum capital requirement: Minimum capital requirement will be Rs 500 crore. Subject to this, actual capital to be brought in will depend on the business plan of the promoters. NOHC shall hold minimum 40 per cent of the paid-up capital of the bank for a period of five years from the date of licensing of the bank. Shareholding by NOHC in excess of 40 per cent shall be brought down to 20 per cent within 10 years and to 15 per cent within 12 years from the date of licensing of the bank.

(iv) Foreign shareholding: The aggregate non-resident shareholding in the new bank shall not exceed 49 per cent for the first 5 years after which it will be as per the extant policy.

(v) Corporate governance: At least 50 per cent of the directors of the NOHC should be independent directors. The corporate structure should be such that it does not impede effective supervision of the bank and the NOHC on a consolidated basis by the Reserve Bank.

(vi) Business model: Should be realistic and viable and should address how the bank proposes to achieve financial inclusion.

(vii) Other conditions:

· The exposure of bank to any entity in the promoter group shall not exceed 10 per cent and the aggregate exposure to all the entities in the group shall not exceed 20 per cent of the paid-up capital and reserves of the bank.

· The bank shall get its shares listed on the stock exchanges within two years of licensing.

· The bank shall open at least 25 per cent of its branches in unbanked rural centers (population upto 9,999 as per 2001 census)

· Existing NBFCs, if considered eligible, may be permitted to either promote a new bank or convert themselves into banks.

(viii) In respect of promoter groups having 40 per cent or more assets / income from non-financial business, certain additional requirements have been stipulated.

As per First Choice IPO assessment - L& T Finance Holdings, Bajaj Finserve are front runners for the license.

BANKS, I T, METALS AND OIL &GAS LEADS THE RALLY. NIFTY UP 110 POINTS.

J M FINANCIALS MAINTAINS SPOT LESS RECORD !

In the last two years J M Financials had managed 15 IPOs and none of them are quoting above the issue price. The latest addition is Tree House Education which had negative closing, on the listing day. A rare distinction for a investment banker.

With that kind of judgment on premium, how can one expect the retail investors to earn money in IPO investing.

IPO SUBSCRIPTION FINAL TALLY - T D POWER AROUND 3 TIMES, SRS 1.25 TIMES

IPO LISTING NEWS :TREE HOUSE LISTS AT PREMIUM

Tree House which allotted shares at lower price band of Rs 135, is trading around Rs 155.

First Choice IPO had advised to invest in the IPO for listing gains. Investors are advised to sell and exit the counter.

SKS MICRO TANKS AGAIN

The stock is down 5% today. In the last one month the stock has lost more than 60%. The much hyped IPO of 2010, where in the shares were issued at a premium of Rs 975, is now trading at Rs 217.

From the day one First Choice IPO has been indicating that the business model of SKS is flawed.

We have been giving selling call right from Rs 1300 level. Sell at current price too. It will come down below Rs 100. Apart from numbers, there are corporate governance issues. SKS needs major surgery.

WORLD’S RICHEST MAN GOES MISSING.

Muammar Gaddafi, the undisputed leader of Libya, till yesterday, has gone missing. Gaddafi a military officer, who seized power in a military coup in 1969. He abolished the Libyan Constitution and adopted laws based on his political ideology. His nearly-42 years in power have made him the fourth longest-ruling non-royal leader since 1900, as well as the longest-ruling Arab leader.

The estimated wealth of Gaddafi across the continent is around $ 70 billion, making him as one of the richest man in the world. Out of the above, around $ 35 billion are stashed in various banks of US, UK and Canada.

RIL IS NUMBER 1 AGAIN IN MARKET CAP.

RIL regained its number 1 position in market cap in the early trade today. Coal India is down by Rs 10 and trading at Rs 385, with market cap of Rs 2.43 lac crore, as against RIL's market cap of Rs 2.47 lac crore. RIL is trading around Rs 756.

L&T FINANCE, BAJAJ FINSERVE FRONT RUNNER FOR NEW BANKING LICENCE

The RBI is likely to release the draft licensing guidelines for new private sector banks shortly. Among others, minimum net wort of Rs1000cr will be the prime condition for companies eligible to set up banks in the country.

Although as many as 8-10 corporate group are eager to set up the bank, L&T Finance and Bajaj Finserve are favorite to get the license because of their pedigree.

Others in the fray are - Seri Infra, Religare, Shriram Transport, India Bulls and Reliance Capital.

IPO ANALYSIS: T D POWER SYSTEMS LIMITED -AGGRESSIVELY PRICED - AVOID.

Price band Rs 256-261
Issue size - Rs227cr
IPO grade 4 by CARE
Issue open / closes on 24-08-11 /26-08-11

T D Power is one of the leading manufacturers of AC Generators with wide capacity range, for prime movers, such as steam turbines, gas turbines, hydro turbines, wind turbines, diesel and gas engines. T D specializes in custom-designed generators for customers, across the world. The company also manufactures motors.

The company since inception has manufactured a total of 1,538 generators with an aggregate output capacity of 12,657 MW, of which 233 generators have been supplied to customers across 34 countries.

In addition to manufacturing AC Generators the Company also executes Turbine Generator island projects for steam turbine power plants including designing, procurement and supply of equipment, assembly, installation & commissioning.

The customer base comprises of companies operating in the industrial sector and includes cement, steel, paper, chemical, metals, sugar co-generation, bio-mass power plants, hydro-electric power plants and Independent Power Plants companies. The clients include Balrampur Chini Mills Limited, Nava Bharat Ventures Limited, Chettinad Cement Corporation Limited, Shree Cements Limited and Vasavadatta Cements.

OBJECTS OF THE ISSUE:

The company intends utilize Rs 103cr for expansion of manufacturing facility, Rs 29cr for building corporate office at Bangalore, Repayment of debt amounting to Rs 33cr, an amount of Rs 40cr towards working capital requirement.

The company till June 2011, has spent less than 10% on capacity expansion and yet to identify land for corporate office.

FINANCIALS: CONSOLIDATED (RS IN CRORES)

	31-03-10	31-03-11
TOTAL INCOME	745	875
PAT	44	57
EPS (RS)	23	25

CHALLENGES:

In the last couple of years many corporates have entered the power sector, to take advantage of huge opportunity it provided. However, many of these companies could not deliver on the business front. Issues which have led to project delays include environment clearance, fuel linkages and rising cost of capital. These issues are not likely to be resolved in a hurry. Financial position of these companies due to delay in project completion are in bad shape. This, in the long run will affect, power equipment manufacturers like T D Power.

The customer base primarily comprises companies operating in the industrial sector. Slowdown in the growth in this segment may impact the performance.

Enam’s pathetic record as BRLM.

Enam is the lead BRLM along with Antique capital and Equirus capital. In the last two years Enam has managed 16 IPOs, out of which only 4 issues are quoting above the offer price. The issues that are quoting below IPO price are – Vascon, DB Realty, Jaypee Infra, Indo Solar, Ramky, Electro Steel, Ashoka Buildcon, Prestige Estates, ILFS Transport, Oberoi Realty and Future Ventures.

Coal India, Persistent, UBI and Eros are the 4 issues that trading above the offer price.

VALUATION AND RECOMMENDATIONS:

The expansion which is in excess of Rs 200cr is funded entirely through the equity. These are long gestation period projects. The revenue accrual and improvement in profitability will happen after 3-4 years. The IPO will not improve the earnings in the near future. In fact the earnings per share may come down due to increase in equity, on account of IPO.

Do not be misled by the IPO grading. Most of the grade 4 IPOs of last 2 years is trading much below the offer price. Enam’s judgment in IPO pricing is awful. The past track record of the lead manager does not inspire the investors to take a favorable call.

AVOID THE IPO.

RIL LEADS THE RALLY, NIFTY UP 60 POINTS

After many months the rally in Sensex / Nifty is lead by RIL, which was up by Rs 27.
The last time it lead the rally was when BP deal was announced.

The other prominent gainers in the index are SAIL, Rcom, IDFC, RelInfra, Hindalco, Tata motors and Bajaj Auto.

RIL which lost its number 1 position to Coal India recently, is likely to regain it tomorrow.

TOP 10 CORRUPT POLITICIANS OF INDIA.

NAME	RANK	STATE TO WHICH THEY BELONG
SURESH KALMADI	1	MAHARASHTRA /KARNATAKA
A. RAJA	2	TN
MAYAWATI	3	UP
LALU PRASAD YADAV	4	BIHAR
MADHU KODA	5	JHARKHAND
MULAYAM SINGH YADAV	6	UP
KARUNA NIDHI	7	TN
SHARAD POWER	8	MAHARASHTRA
J. JAYALALITHA	9	TN
B S YEDIYURAPPA	10	KARNATAKA

SOURCE – YAHOO INDIA.

HYPOCRITES OF FIRST ORDER.

Anna and Baba Ramdev are fighting against corruption and black money. Before extending their support / expressing their views, film stars / others should introspect themselves. How truthful, honest are they in real life? We know, that the film industry runs on black money. Top film stars declare only 15-20% of their income for tax purpose. We know how frequently tax man conducts raids on these stars. They talk of morality in public life. All these celebrities should take a oath in public that they have never cheated the government and honest through out their life. I don't think that there are any. This includes Big B,Khans,Kapoors,Chopras and the rest. Let them have a open debate with Shiv Sena leader Bal Thackeray,on their honesty. Because he has very fine knowledge, working and understanding of the film industry. He will rip them apart.

MERA BHARAT MAHAN.

BROOKS LAB IPO GETS TEPID RESPONSE.

The IPO which closes tomorrow has received subscription to the extent of 26% only. The issue has been aggressively priced in the price band of Rs 90-100.

FIRST CHOICE IPO ADVISES THE INVESTORS TO STAY AWAY FROM THE ISSUE.

COAL INDIA : INDIA'S MOST VALUABLE COMPANY.

On 12-08-11, the day Coal India declared its Q1 results, we had indicated that in next one or two trading sessions the Coal India would replace RIL as number 1 in terms of market capitalization. It has come true today. First Choice IPO had made this prediction while analyzing the IPO Coal India, last year.

Coal India's market cap stood at Rs 2.51 lac crore against RIL's Rs 2.47 lac crore.

SKS MICRO TANKS AGAIN

The shares are down 5% for the second consecutive day.

Economic Times yesterday had reported that the CEO Vikram Akula may be divested of his executive powers.

DEN NETWORKS NOW IS 'TIN' NET WORKS. AT RS 42.80,YEARLY LOW.

The company came out with an IPO at Rs 205, almost two years ago.

The company had no track record of profitability, dividend payment. It had reported losses for the years 2008 and 2009 and had negative cash flows. The company was also heavily indebted. In spite of this, the promoters and the BRLMs were brave enough to fool the investors.

Neither the company’s past track record nor future business prospects justified the very high premium on shares.

The point to be noted here is that the average cost of acquisition of shares by promoters - Lucid Systems and Sameer Manchanda was Rs 0.40 and Rs 8.80 respectively. They are still at profit.

First choice had advised the investors to stay away from he IPO.

MANCHESTER UNITED MULLS IPO

Credit Suisse Group has been mandated for the proposed Singapore IPO listing of U K soccer club.

It plans to raise US$ 1 billion. Manchester United was de-listed in 2005 after an investor bought the club.

SKS MICRO - READ BEYOND LINES

After the unceremonious ouster of Suresh Gurumani, the CEO who successfully steered the IPO of SKS, some well known personalities, known for their integrity have also resigned from the board. They are, Gurucharan Das and Pramod Bhasin. Ashish Lakanpal one of the founder directors is not on the board now. The earlier company secretary has also quit.

We had given sell call on this stock right from Rs 1300 level. The stock will come below Rs 200 in the near future. Apart from numbers, it appears there are corporate governance issues. Only time will tell what is wrong with the company.

IPO ANALYSIS - SRS LIMITED.

SURE TO RUIN YOUR SAVINGS – AVOID.

IPO FROM AN ONCE SEBI DEBARRED GROUP COMPANY.

PRICE BAND - RS 58-65.

The BRLMs to the IPO are Karvy Investor Services, IDBI Capital Markets and SPA Merchant bankers.

First, IPO managed by these managers in the last twenty months.

SPA has managed two issues – Infinite Computers and Cantabill, both are trading much below heir offer price.

IDBI Capital has managed one issue – ARSS Infra - as against the IPO price of Rs 450, shares are trading at Rs 370. Karvy has not managed any issue during the period.

SRS is a diversified Company with business interests in Cinema Exhibition, Food / Beverages, Retail / Manufacturing & Retail Jewellery.

FIANCIALS:

RS IN CRORES.

	31-03-10	31-03-11
SALES	1329	2077
PAT	26	37
EPS (Rs)	2.55	3.60

MATTERS OF CONCERN:

1. One of the Promoter Group Companies, namely SRS Real Infrastructure (earlier known as Manu Finlease Limited) came with an IPO in the year 1995. After the public issue, Securities and Exchange Board of India (SEBI), on the grounds of alleged malpractices in the public issue ordered

Investigations to be conducted to ascertain the truth of allegations.

The Chairman of SEBI passed an order dated November 29, 2002, whereby M/s. Manu Finlease Limited, Anil Kumar Jindal, J.K. Garg, P.K. Kapoor and Mrs. Ritu Garg were debarred from accessing and being associated with the capital market for a period of 5 years.

2.SEBI had withdrawn the acknowledgment card issued to one of the group company’s IPO in 1996, for non disclosing the irregularities in the IPO of Manu Finelease, a group company.

3. Lacks corporate governance.

4. Almost 90% of IPO proceeds are proposed to be utilized in three businesses, Cinemas, F&B and retail, which accounted for around ~20% of the company’s OPBDITA in FY 10 and 11, according to ICRA.

5. Low RNOW.

6. Negative cash flow in the last three years.

7. Almost a dozen PSU banks are banker to the company including SBI.

However, none of them are BRLMs.

VALUATION AND RECOMMENDATIONS:

For the year 31-03-11, the total revenue is Rs 2077cr. More than 50% of this has come from traded items. This appears to be manufactured. The negative cash flow in the last 3 years from a company which is in to predominately cash sales business, justifies the suspicion.

The company will have a post issue capital of Rs 139.29cr, even to earn an EPS of Rs 1, the company earn a PAT of Rs 14cr, which is unlikely in the near future. These kind stocks are not worth at face value.

The group companies were earlier subjected various strictures, including debarring from accessing capital markets. That has not prevented from them approaching the market in new avatar.

Public memory is short and it is shortest in Capital Markets. Even the disgraced promoters floats an IPO now, it will be heavily subscribed. And if the investors lose the money in that exercise, they can always blame the regulators.

Surprisingly the IPO carries a grade of 3 from ICRA and there is no mention of the SEBI indictment in the report.

AVOID THE IPO.

ISSUE DETAILS:

Issue opens / closes on – 23/8, 26/8

IPO grade 3 by ICRA.

Promoters:

Dr. Anil Jindal, Sunil Jindal, Bishan Bansal, Raju Bansal, BTL Industries and BTL Portfolio Limited

Issue size – 3,50,00,000 equity shares of Rs 10 FV.

COAL INDIA MAY BE NUMBER 1 IN MARKET CAP ON 16-08-11.

The world’s largest producer of coal declared its first quarter result yesterday, after the closing hours of exchanges. The net profit is up by 64%, in Q1 of FY12, compared to the previous year. Net sales too increased by 27%. Coal India increased the coal prices in Feb 2011 and the full effect of the prices can be seen in next quarters. The company is generating more revenue through E-auction, a high profit margin segment.

At Friday closing share price of Rs 385, the market cap is Rs 2.43lac crore, compared to RIL’s Rs 2.49lac crore. RIL closed at Rs 760.

Coal India share price will react positively on Tuesday, the next trading day. And even if t moves up by Rs 10, it will in all probability, will replace RIL as most valued company in India. It is assumed here that the RIL share price on Tuesday will stay put where it is or move up not much.

While replying the queries raised by our readers on the analysis of Coal India IPO, First Choice IPO had indicated that the Coal India would be number 1 in market cap within 2 years of its listing. That had happened within one year.

IPO SUBSCRIPTION STATUS - TREE HOUSE - AROUND 2 TIMES.

PRAMOD BHASIN, INDEPENDENT DIRECTOR, SKS MICRO RESIGNS.

Pramod Bhasin, an Independent Director has tendered his resignation as Director from the Board of SKS Micro Finance, with effect from August 12, 2011. The stock reacted and down by Rs 14, closed at Rs 339.

Pramod Bhasin was the President and CEO of Genpact, till recently. Pramod established Genpact (formerly GE Capital International Services) in 1997. He started the BPO industry in India, China, and in Eastern Europe. He was the Chairman of India's National Association of Software & Services Companies (NASSCOM) for the year 2009-10, and is also a member of the Board of Trustees of NASSCOM Foundation. In 2007, the International Quality and Productivity Center (IQPC) at the Shared Services and Outsourcing Global Conclave honored Pramod with the Lifetime Contribution Award.

RAJESH EXPORTS - STERLING PERFORMANCE

The bengaluru based, world's largest jewelery manufacturer and exporter, has posted a net profit of Rs. 95.12cr for the quarter ended June 30, 2011, as compared to Rs. 47.40cr for the quarter ended June 30, 2010. Total Income has increased from Rs. 4283.45cr for the quarter ended June 30, 2010 to Rs. 4737.45cr for the quarter ended June 30, 2011. The company's OPM and NPM has improved substantially compared to the previous quarter. The stock is up 4% and trading around Rs 111 (FV Rs 1) at the exchanges.

TV18 BROADCAST @ RS 54, YEARLY LOW.

TV 18 Broadcast, the holding company of The Network18 Group, is trading at yearly low @ 54-55 level.

U S STOCKS REBOUNDS AGAIN, DOW AND NASDAQ UP 4%.

Favorable weekly employment report and the absence of troublesome new developments in European sovereign debt and banking the helped stocks soar.

A possible turnaround at networking-equipment maker Cisco Systems, is one of the big catalyst in a massive advance of U.S. blue-chip stocks.

The Dow Jones Industrial Average soared 400 points plus or 3.9%, the second-biggest point and percentage gain this year.

APPLE WAS ALMOST THERE AS NUMBER 1 IN MARKET CAP.

Apple's market value briefly surpassed Exxon Mobil's during stock trading Tuesday, but a last-minute surge enables the oil giant to remain No. 1 — at least for now.

The market value of Apple rose to $346.7 billion a few minutes before the end of regular trading, nearly $5 billion above Exxon's at $341.9 billion. But a last-minute market surge pushed Exxon back above Apple by about $1.6 billion, according to Los Angeles Times.

BIG TICKET DELIVERY BASED BUYING SEEN IN SELECT METALS, I T AND BANKING STOCKS.

IPO LISTING NEWS: L&T FINANCE HOLDINGS TO LIST ON 12-08-11.

U S MARKETS BOUNCE BACK, DOW JONES UP BY 4%, NASDAQ UP MORE THAN 5%.

After Federal Reserve statement that vowed to keep interest rates near zero through mid-2013 and reaffirming that the business environment continues to expand, markets in U S rallied by more than 4%. Oil too, climbed as much as 3 in New York, its first gain in three days.

IPO ANALYSIS : BROOKS LABORATORIES LIMITED - COSTLY PRESCRIPTION - AVOID.

ISSUE OPENS / CLOSES ON 16-08-11 / 18-08-11

ISSUE SIZE Rs 63cr

PRICE BAND Rs 90-100

IPO GRADE 2 BY ICRA.

This issue is being managed by D & A Financial Services, who recently managed Shilpi Cable Technologies. As against the issue price of Rs 69, the shares now are trading at Rs14. BRLM is not known for bringing quality issues.

Brooks is a pharmaceutical formulation company undertaking Contract Research &Manufacturing Services (popularly known as CRAMS). The product range includes Beta Lactam, Cephalosporin & General Dry powder Injectables, Ampoules and Liquid vials, Dry Syrups and Tablets. The product portfolio comprises of 26 Dry Powder Injections, 31 Liquid Injections, 5Tablets and 2 Dry Syrups which are marketed domestically.

The manufacturing unit is located at Baddi, Himachal Pradesh, which is WHO-GMP approved plant. The company is promoted by Atul Ranchal and Mr.Rajesh Mahajan.

The company’s major clients are Zydus, Cadila, Aristo Pharmaceuticals, Nectar Life sciences, Sanat Products, Hetero Healthcare, Medley Pharmaceuticals, Wockhardt, Parental Drugs and Alembic Ltd, among others.

The company proposes to setup new manufacturing unit at Panoli, Gujarat. However this project has not been appraised by any bank / financial institutions. The IPO funds are partly intended to be used for this purpose.

FINANCIALS:

Brooks reported a net profit of Rs 5.2 crore in FY 2010 and revenue of Rs 45.1 crore as compared to a net profit of Rs 3 crore in the previous year on the revenue of Rs 45 crore. For the six months ended 30th September 2010, the company reported a net profit of Rs 3.2 crore on the revenue of Rs 25.1 crore.

MATTERS OF CONCERN:

1. According to ICRA which has graded the IPO, the small scale of operations having a single manufacturing facility and the highly competitive domestic contract manufacturing industry characterized by presence of numerous similar sized smaller players as well as large established players puts pressure on pricing.

2. The proposed new unit requires substantial time for stabilization of the manufacturing processes; hence the project execution risks remain high.

3. The company’s ability to attract and partner clients in order to achieve sufficient orders in a highly competitive market and timely receipt of necessary approvals are critical in attaining a strong revenue growth.

4. There are no supply agreements for the raw materials required for manufacturing of the products.

5. The name and logo of ‘Brooks’ are not registered trademarks in the name of the Company.

VALUATION AND RECOMMENDATIONS:

The company will have a post issue capital of Rs 16.20cr. Assuming that the company earns net profit of Rs 8cr, in FY12 , the IPO looks very expensive at 20 PE. Family owned (some senior executives are also related to directors) small time company. The expansion is funded entirely by IPO proceeds. The project carries high execution risk. The IPO is very aggressively priced.

A MUST AVOID ISSUE.

.

MARKET HAS ALMOST BOTTOMED OUT, IT IS TIME TO BUY

In the last few trading sessions the BSE /NSE indices have corrected more than 10%. This is largely due to what happened in US. Slowing down in the US economy may affect some of our companies, particularly IT and export oriented. There are benefits from the current melt down in global markets. Commodity prices are cooling down. Great news for developing economies like ours. This will bring down the inflation. RBI may not go for any rate hike in its Sept 2011 review meeting. India's growth story is intact. The US economy is not as bad as it is made out. There will not be double dip rescission, as feared by most. The same rating agencies will come out with a robust picture of USA, in next 3-6 months. Sovereign ratings, most of the time is based on perception, than facts.

Most importantly FIIs have to invest their funds in emerging markets, they have no choice. Among emerging markets India is the favored destination.

Stay invested.

U S IS TOO BIG TO FAIL, FALL.

Last week there was a terrorist attack on USA. Unlike the previous one, this one from the home-grown. Dow Jones index fell by 5%. Tremors were felt in other markets too. The world’s accredited rating agency - Standard and Poor’s down graded the US debt by notch to AA+ from AAA. However, the other two rating giants – Fitch and Moody’s maintained the coveted AAA ratings, with a warning. S&P’s rating down grade has come in for criticism from US treasury department and from others. How credible is the rating agencies ratings? In 2006-07 the same agencies had rated the housing loan mortgage papers as A+, A and investment grade. Within months the world discovered they were nothing but junk papers. Millions of people lost their money, relying on the rating agencies ratings. That brought the world economy to its kneels. The biggest banks in the US collapsed. It had cascading effect on the other economies too. And it was the same US administration that bailed out those troubled banks by pumping $ 4 trillions. Where was the rating agencies wisdom when they rated the junk bonds as safe investment?

It is true that US economy is thriving on borrowed money. It is not yesterday’s creation. It was there earlier too. US federal debt as a percentage of GDP was 40% in 70s and around 60% in 90s. Now it has moved an inch higher. That is how the US economy has been built.

Consider the following:

US is the world's largest national economy, with an estimated 2010 GDP $14.780 trillion (23% of global GDP), has per capita income of $ 48000. This is the only country in the world, with a quarter billion population and above has this kind of per capita income.

• Out of top 4 banks in the world, 3 are US based.

• The top 10 richest people in the world includes 5 US citizens - Bill gates, Ware Buffet, Larry Ellison and Christy Walton and family of Wal-Mart, among others.

• Exxon Mobil, Apple Inc, Chevron Corp and Microsoft find a place in the world’s top 10 companies in terms of market capitalization.

• The world’s top software companies are all US based.

1. Oracle Corporation
2. IBM
3. Microsoft
4. Google
5. Accenture
6. SAP AG (Germany)
   
7. Hewlett Packard
8. Computer Sciences Corporation
9. Yahoo!
10. Computer Associates.

• Fed reserve holds 8200 tonnes of gold, second only to euro zone. India at 11th position, our central bank holds only 615 tonnes of gold.
  

• Out of top 10 pharma companies in the world, 4 are US based.

• Measured solely by revenue numbers, the U.S. is the undisputed leader of the retail industry. Wal-Mart is not only the largest global retailer; it is also one of the largest companies of any kind in the world.

• Most valuable brands in the world are all American - Apple, Google, IBM, McDonald, Microsoft, Coca-Cola, AT &T and GE.

The world’s economy revolves around US economy, it is too big either to fail or fall. The tremors we are feeling toady are temporary in nature. US need to do some structural adjustments. They will fix it sooner than the world thinks.

"If nothing else takes place, meaning, if all other variables hold and there isn't say, a new problem in Europe, it won't make any difference,". This is the comment made by Warren Buffet, on the rating agency down grading the US debt. World has reason to believe him.

According to IMF, that the US needs urgent fiscal consolidation but it also regards US economic prospects as stronger than any other advanced economy, and that its financial sector is in better shape, meaning the risks of default-inducing shocks are lower.

The world keeps turning even without an AAA rating. Remember, the best brains in the planet lives in USA.

NEW DISPENSATION IN KARNATAKA IS ON SHAKY GROUND.

The central leadership of the BJP is unlikely to gain any political mileage out of its decision to seek the resignation of the B S Yediyurappa, in response to his indictment by the Karnataka Lokayukta. The reaction of the CM to the diktat of his party’s leadership to fall in line with the rules of probity was alarming. The BJP’s ability to impose a minimum level of discipline is severely impaired.

The ideological commitment of the followers of the BJP in Karnataka was always suspect, relying as it did on the support of a single dominant caste, the Lingayats. The latest developments underline the fact that in Karnataka it is not Hindutva that binds the BJP together but caste and personal loyalty. That casteism and personal loyalty has taken precedence over Hindutva could well prove to be a watershed moment for the BJP.

The cadre based and the party with a difference is not clean as it was during 1990s. The party is adulterated with all kinds of character. There is no discipline. Defiance by the CM and his supporters is a clear indication of everything is not alright. The confidence BSY enjoyed with all party functionaries earlier has eroded and broken. This broken relationship can be soldered, but it will not be strong. The crack will surface again. This will make things difficult for the new chief minister. MLAs of Shettar group, around 50, did not attend the swearing ceremony. This kind of boycotting was unheard in the disciplined party.

This is only tip of the ice berg. There is trust deficit. Publicly BJP leaders say they are all ‘one’ there are no groups. This is far from truth. There is trust deficit among leaders, which is not a good sign. It is difficult to manage a council of ministers full of mistrust.

Reddy brothers were with BSY till he resigned. Now they are with Shettar group. It is very unlikely that the tainted 3 will be inducted into ministry. Their grip over Republic of Bellary is waning. Much credit was been given to Bellary brothers for rise of BJP to power in Karnataka. The irony is that the some action of the same brothers, in illegal mining, has put the BJP in trouble and BSY had to resign.

Many Religious heads of Lingayats community are unhappy they way BSY behaved and prevented Shettar, belonging to the same community, becoming the CM.

BSY and his family are involved in various land scams. The Lokayukta report is already with the Supreme Court. SC may order for comprehensive inquiry including CBI. That will spell disaster for BSY, Reddy brothers and to the BJP.

BSY, Eshwarappa, R Ashok and Ananth kumar are at logger heads. Although, DVS is a go-getter, the bickering and discontentment are beyond rapprochement. With the above uncertainties the new government is unlikely to last long.

COAL INDIA IS AT STRIKING DISTANCE TO REPLACE RIL AS NO1, IN TERMS OF MARKET CAP.

At yesterday's closing price, Coal India's (Rs 392) market cap stood at Rs 2.48lac crore, as against RIL's(Rs 791) market cap of Rs 2.59lac crore.

LESS FII INVESTMENT IS BETTER FOR STOCK MARKET

AN ARTICLE AS APPEARED IN DNA MUMBAI ON 30-09-09 UNDER THE CAPTION MARKET MANIPULATION, BY K A PRASANNA IS REPRODUCED HERE.


R. Jaganathan views on ‘Why India may get lucky once again’ was excellent. (DNA 28-09-09).However certain points are overemphasized. The markets movements are although an indicator of the health of the economy and confident booster for potential investors - both local and foreign, the stock indices are some times misleading and confusing. We have seen how one Harshad or Ketan can take the markets to dizzy heights by pure manipulation. Because of slow down in US and European economies, FIIs may prefer to invest in the emerging economies like India, China and Brazil. But, for a country like ours too much FII investments in stock market is fraught with danger. Our stock market /small investors are not matured enough. When FIIs start investing heavily in markets here the indices goes over the roof, the small investors being caught unaware. During the buoyancy without understanding the dynamics of the markets they make investments and soon they realize that they have entered the market at the wrong time because the so called FIIs who were responsible for the indices to hit the highest point, start withdrawing/selling their investments, once their desired percentage of return on investments are achieved leaving the small investors in the lurch. (FIIs are not charitable institutions who help small investors to lead a comfortable life). Once the small investors’ confidence is shattered no market will hold for long time. And we will be back to square one.

IPO ANALYSIS:TREE HOUSE EDUCATION -CARRIES HIGH REGULATORY RISK. CONCEPT STOCK - INVEST FOR LISTING GAINS.

ISSUE OPENS / CLOSES ON - 10-08-11 / 12-08-11
PRICE BAND RS 135 - 153, RS 6 Discount for retail share holders.
IPO GRADE 3/5 BY CRISIL.

Before analyzing this IPO let us analyze the IPOs managed by the BRLMs- JM Financials and Motilal Oswal, in the calendar year 2010 and 2011.

J M FINANCIALS: PAST PERFORMANCE.

NAME OF THE COMPANY	ISSUE PRICE (RS)	CMP 05-08-11 (RS)
PFC (FOP)	203	175
FUTURE VENTURES	10	9
PTC INDIA FINANCIALS	28	18
CLARIS LIFE	228	149
BS TRANSCOM	248	105
ORIENT GREEN POWER	47	13
CAREER POINT	310	310
STD CHTD BK IDR	104	89
JAYPEE INFRA	102	43
SJVNL	26	22
NITESH ESTATES	54	21
ILFS TRANSPORT	258	204
REC (FOP)	203	195
L&T FINANCE HOLDINGS	52	YET TO LIST

Out of the 13 issues managed so far, NONE OF THE IPO/FPO are quoting above the issue price.

MOTILAL OSWAL has managed only two issues. Out of the two, one IPO – Galaxy Surfactants was withdrawn due to poor response. The other one - Ashoka Buildcon is trading at Rs 270 as against the IPO price of Rs 324.

Tree House is India’s largest self-operated Preschool education provider running 177 Preschools in 23 cities. More than 72% of its branches are concentrated in western India, of which 80% is concentrated in Mumbai. Tree House has also ventured into ancillary services like preschool teacher training and day care.

The self-operated pre-schools serve more than 5,000students, apart from the students at the franchisee operated pre-schools, primarily in the age group of1.5 to 6 years. In recent years, the company also ventured into offering educational services to K-12 schools.

In the pre-schools, Tree House offers standardized services and innovative teaching methodologies, including playschool, nursery facilities, vacation camps, mother-toddler classes, hobby classes, day care facilities and teacher training course. The company claims have a team of more than 400 teachers at the self operated pre-schools. Tree House’s pre-schools are largely concentrated in the states of Maharashtra, Gujarat, Karnataka, Rajasthan and Andhra Pradesh

OBJECTS OF THE ISSUE:

The objects of the issue are to fund expansion, acquisition of office space, repayment of loan and for general corporate purposes.

FINANCIALS:

RS IN CRORES

	31-03-09	31-03-10	31-03-11
TOTAL INCOME	10.64	21.87	41.15
PAT	0.51	2.59	9.15
EPS (RS)	0.41	1.57	3.00#

# Annualized, on post issue capital of Rs 34.84cr.

MATTERS OF CONCERN:

1. Limited business history, operations started in 2008.

2. As of now this segment is unregulated. Government may regulate this segment in future, similarly, as was done in case of Micro Finance Institutions. It depends on the business ethics, greediness of the promoters or otherwise.
3. There are debtors outstanding for more than 180 days, which raises genuineness of the revenue earned.
4. RONW in the last 3 years is less than 6%.
5. There are corporate governance issues – company has delayed the income tax payments and other statutory dues.

VALUATION AND RECOMMENDATIONS:

At Rs 135-153, the stock is offered around 30 PE, on its estimated FY12 earnings, which is expensive.The company is into new kind of business which may evoke good response to the IPO. There are many grey areas particularly with regard to corporate governance. The company will have a post issue capital of Rs 34.85cr. Even to show an EPS of Rs 5 the company has to earn a PAT of Rs 17.50cr, in FY 12, which is a tall order. Like micro finance, education too politically sensitive segment. Any wrong doing will attract harsh measures from the government.

The performance of any company on the eve of an IPO is to be taken with a pinch of salt. Since this is a concept stock there could be listing gains.

The track records of the BRLMs are pathetic.

INVEST FOR PROBABLE LISTING GAINS.