KARVY BAZAAR BAATEIN

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

CONTENTS Nifty
Opening Closing
NSE
Adv/Dec Turnover
NSE Nifty

Stock Talk (Rs. cr.)

22-Aug-05 2383.45 2367.85 393/439 5932 2357.05
q Dalal street : 1 23-Aug-05 2369.55 2326.10 85/756 5611 ê (1.11%)
q Sector focus : 1 24-Aug-05 2326.10 2322.50 177/643 5924
25-Aug-05 2323.10 2354.55 667/171 7048
q IPO update : 2 26-Aug-05 2354.60 2357.05 638/208 5757
q BSE gupshup : 2
q Long term technicals : 3 Sensex BSE BSE Sensex
Opening Closing Adv/Dec Turnover
q Performance monitor : 3 (Rs. cr.)
q Bulk deals : 3 22-Aug-05 7814.93 7750.60 1493/1048 3358 7680.22
23-Aug-05 7764.86 7615.99 525/2035 2913
q Gainers & Losers : 3 24-Aug-05 7615.68 7612.00 717/1846 2850
(1.29%)
q Institutional investments : 3 25-Aug-05 7651.11 7660.42 2102/465 2782
26-Aug-05 7701.07 7680.22 1848/737 3294
q Derivatives : 4
q Strategy report : 4
q Our research : 5 Dalal street Sector focus
q Portfolio monitor : 5
Bear trap emerges at 2300 levels Construction: Construction stocks witnessed
Personal Finance Matters
Indices continued to correct on the back of dwindling buying interest after strong flow of orders in the
q MF clippings : 6
FII flows. The recent flare up in crude oil to record past few days. Most of the frontline companies are
q Fund of the week : 6 highs and rising interest rates added to the woes. sitting on strong order books expecting to generate
q Tit bits : 6 With technical indicators in the overbought zone, 3 to 4 times their full year revenue. The stocks have
q Insurance : 7 Nifty easily toppled from the 2400 levels. Unwinding moved up sharply after the finance minister
q Income tax queries : 7 of F&O positions added to the choppiness in the presented the Outcome Budget in the parliament
q Interview : 7 markets making the direction unclear. The downward according to which NHAI plans to extend the
q Karvy network : 8 slide found few intermittent supports, with the bears
Golden Quadrilateral network to 5846 km by
q Subscription form : 8 retreating finally at 2300 levels.
December 2006. Construction stocks are being
Sectors that were hit by the correction included looked as safe bets in an uncertain market.
NSE banking, metal and auto. The BSE-Bankex shaved
Tyre: Natural rubber prices have cooled off last week
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 after hovering around record high. Domestic prices
Mcap : Rs.19,26,191cr.
the last few weeks due to a rebound in metal prices increased around 15% since January due to soaring
BSE
international prices and shortage of production. Prices
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 are expected to go down further as tapping picked up
the week only to recover towards the close. in kerala, which accounts for over 90% of domestic
Editor : T S Harihar The slowdown in foreign funds purchases has production. Lack of demand from the tyre companies
Associate Editor : Shomesh Kumar deterred players and the pull back in the index has which account for more than 50% of consumption
been sluggish, with the strength remaining has further put pressure on the prices. Tyre companies
Capital Markets Desk : Amit Gupta,
Kalyan C Reddy, Manasa Choudary B,
questionable. Nifty is likely to remain range bound will be the major beneficiaries as decline in rubber
Pankaj Kulshrestha, Sumanth Krishna, and exude choppiness in the coming week. prices would improve their operating margins.
Vishal Jain. KBB weekly portfolio
Personal Finance Desk : Chinmay, Scrip Action CMP Entry Stop Loss Target Time Frame
Kirti Singh, S.Krishnamoorthy.
Mid-Day Buy 110.30 108-111 104.25 118-120 5-6 Days
Designed by : SSC & B Lintas Rolta Buy 143.90 141-144 136.50 155, 160 1 Week
Graphics : Khadeer Mohammed Four Soft Buy 88.70 86-89 82.00 97-100 1 Week
Printer : Dharani Printers Bata India Buy 151.85 148-152 144.90 159-160 4-5 Days

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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.
Karvy.com - Your Online Personal Finance Advisor
KARVY BAZAAR BAATEIN
Ø 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 Super-
Stockists who in turn have 130 sub-
stockists 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,
BSE gupshup
Sudan, Panama, Venezuela, Ivory Coast,
Benin, Zaire, Saudi Arabia and Kuwait Champagne Indage: It is the market leader and the
have a strong demand for its products. largest producer of wine in Asia with 32 principal brands
Objects of the issue under its umbrella. The company also plans to enter the
overseas beer market with its maiden brand Tantra with
The main objective of the issue is to
hopes to corner 8% of the 2.5 million cases Indian beer
operationalize and expand the Surat plant
market abroad. The company has already tied up with
for manufacturing of ayurvedic medicine,
retail companies in these countries to market the product.
to utilize the proceeds for marketing/
The stock has suddenly flared up in the past few weeks
branding of the 24 new products, to
from Rs.240 levels to Rs.325. According to rumors, the
spend in R&D, to meet the working
company could be acquired by a larger domestic liquor
capital requirements and to meet the issue
player as it offers an attractive entry in the fast growing
expenses.
wine market. Fundamentally, the stock looks attractive
Pricing of the issue with a price earning multiple of 13 times its forward
The issue looks attractive seeing the earnings of Rs.24.
growth in the industry and the cheap Micro Technologies: The Bombay based company
valuations of the company. The company manufactures a wide range of software products and
has received license for 24 new products recently developed few innovative security software
which will strengthen the order book of products which provide super security solutions to various
the company in the months to come. The kinds of applications. These include security systems that
company emphasis on R&D may also detect theft in cars, houses and ATMs. The company has
reap some benefits in the long run. recently placed shares with the Bennett & Coleman group
Overall, this could be a good investment and also proposes to raise funds from abroad. Punters
for medium-long term perspective. Even say that the company could announce acquisitions in the
short-term investors are likely to make near term. The scrip trades at Rs.257 and players expect a
money through this issue. target of Rs.325-350.
2
 KARVY BAZAAR BAATEIN

Debt
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
Bulk deals
due to a fall in oilseeds, minerals and
Company Weight. Avg. Traded Acquirer
price (Rs.) quantity manufactured product prices and last
Buy year's high base effect. The data was lower
S Kumars 44.00 10000000 HSBC Global Invt. than the 3.24% forecast in a Reuter’s poll.
Flex Ind. 93.11 899071 Composite Sec. US treasury debt yields fell on expectations
India Cements 103.38 750000 SBIMF that rising gasoline costs will finally force
GHCL 101.98 656704 Tanvi Fincap US consumers to cut back spending,
Melstar Info 27.08 516038 Ankita Vishal Shah denting economic performance. The
Sell central bank sold Rs.60 bn of stabilisation
Matrix Labs 180.65 1200000 BNP Paribas bonds on Thursday to suck out excess
Videocon Intl. 75.01 454400 Prudential ICICI
cash in the banking system, estimated at
Federal Bank 173.70 390000 JM Financial MF
about Rs. 300 bn. Chief economic adviser,
Cinevistaas Ltd 61.16 323098 Ankita Vishal Shah
Ashok Lahiri, said on Friday that he
McDowell 378.58 304955 Ghalla Bhansali
Mid-day 106.59 264279 Indus Portfolio
expected the "virtuous state" of low
inflation to continue for some time,
Top Gainers
provided support to the market.
Company 25 Aug. 19 Aug. %Change
Visualsoft 180.20 155.95 15.55 Long term technicals
Whirlpool 31.25 27.25 14.68
MRF 3180.95 2817.85 12.89 Shyam Telecom
H C L Infosys 261.15 239.05 9.24
Hind Inks Res 642.90 608.35 5.68
CMP: 105.20
Top Losers The stock gained by more than 11% on Friday
Company 25 Aug. 19 Aug. %Change to close at a 52 week high level. The stock has
Kotak Mah.Finance 203.00 487.25 -58.34 been facing strong resistance around 100 levels
Saregama 175.75 199.35 -11.84 and has retraced back from these levels in the
HMT 71.90 79.90 -10.01 past. However, it has managed to close above
Geometric Soft 103.95 115.30 -9.84
this level supported with very good volumes.
Indusind Bk 74.75 82.80 -9.72
The MACD has also made a bullish crossover
FII Invt (Rs.cr) MF (Rs.cr) on the daily as well as the weekly charts
Date Purchases Sales Purchases Sales
confirming the uptrend. Hence the stock might
19-Aug 920.70 873.50 252.83 285.79
see further upsides in the coming days.
22-Aug 959.20 1036.30 301.60 230.87
Investors may buy this stock if it is able to sustain above 100 levels for medium term targets of 124-
23-Aug 751.50 742.10 329.96 234.04
126. If the stock manages to move past 126 levels then it would attempt 140 levels in the medium
24-Aug 841.10 780.50 442.15 271.37
25-Aug 875.40 985.90 609.82 452.80
term and around 220-240 levels in the long term. A stop loss is advised below 90 levels.
Total 4347.90 4418.30 1936.36 1474.87 KBB weekly portfolio monitor
Scrip Action Entry Stop Loss Target No. of Shares Profit/Loss Return Remark
TA - Target achieved India Cement Buy 105-108 102.50 118, 125 2303 -9,211.34 -3.76% SLT
Sterlite Optical Buy 113-116 108.50 125-127 2133 21,326.26 8.70% TA
SLT - Stop loss triggered
Hind. Sanitary Buy 163-165 161.20 173-175 - - - NI
CMP - Closing price as on last Navneet Pub Buy 285-288 281.50 296-300 852 10,218.83 4.17% TA
trading day Total 22,333.75
NI - Not initiated Balance on inception Balance last week Balance current week Abs. returns Abs. returns since
(01- Jan- 05) (22-Aug-05) (26-Aug-05) WoW (%) inception (%)
5,00,000 735,756 758,090 3.04% 51.62%

Karvy.com - Your Online Personal Finance Advisor 3

 KARVY BAZAAR BAATEIN

Derivatives
Rs.cr Week Ended Week Ended % age
Derivatives (per day date) 25 Aug. (4 Days) 19 Aug (4 Days) Change
Index Futures - Avg Traded Value 7180.50 4681.50 53.38
Nifty witnessed negative bias throughout the
Index Options - Avg Traded Value 1476.25 1020.00 44.73
week after it opened on a negative note in Stock Futures - Avg Traded Value 13235.00 8884.50 48.97
Monday’s trade. It displayed high degree of Stock Options - Avg Traded Value 637.25 561.75 13.44
volatility and choppiness all through the week Total Average Turnover 22529.00 12118.20 85.91
due to the settlement of August contracts. This
expiry has seen a healthy rollover of around Strategy report around 2320-2330 levels. Based on the above
82% for the entire derivatives market. Most of outlook, a rangebound strategy is suggested
the rollover was visible in the frontline stocks. Nifty…in a range to the investors.
Select midcap stocks not only showed 100%
After touching historical highs in August, Nifty In such a scenario investors are advised a ‘Short
rollover but also added fresh positions in
witnessed correction towards expiry. Profit Strangle’;
September series. Nifty futures alone have
booking and slow down in FII investments l Sell ONE Sept. 2400 Call @ 22.00 - 24.00;
witnessed a 92% rollover but a high discount
did not allow the market to sustain at higher and
of 27 points indicates heavy rollover of short
levels. Fundamentally too with the Q1 results l Sell ONE Sept. 2300 Put @ 43.00 - 45.00
positions. The fluctuations in the implied
season getting over, there is no major positive
volatility of both the options indicates a The strategy will breakeven at 2467 (upper
trigger in the market. Nifty has seen heavy
skeptical view on the markets and the decline BEP) and 2233 (lower BEP). Beyond the break
rollover of close to 92%. High negative basis
even points the strategy will incur losses and
Put - Call Ratio (Nifty) of 27 points shows that the rollover has been
hence investors are advised to hold the
on the short side. On the other hand, most
positions with USL of 2470 and LSL at 2230.
of the heavyweights and select midcaps have
seen healthy rollover which is mostly on the The suggested time-frame is till expiry. The
positive side as indicated in their high positivetarget return from the strategy is the entire
cost of carry. With these mixed positions, the premium received on selling the options i.e.
markets seem to have entered a consolidation Rs.6700 [(23+44)*100] where100 is the lot size
phase where the trading would be marked by of Nifty. The strategy is a Tier II strategy with
Open Interest (Nifty)
predominantly range bound movement. a margin requirement of approx. Rs.47,762
Indices are unlikely to continue the rally (2*23,881) on selling two options.
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 5 stock options as on Aug. 19, 2005
Top Five Futures Contracts as on Aug. 26, 2005 Name Exp. Strike Type Cont. Value
Name Exp. Date Cont. Value (Rs.cr.) (Rs.cr.)
RIL 29Sep05 15381 651.95 ONGC 29Sep05 960.00 PA 800 23.67
in the implied volatility of the call options TCS 29Sep05 14382 489.29 Tisco 29Sep05 380.00 CA 738 19.78
clearly indicated the motive of benefiting from Tisco 29Sep05 13932 366.67 RIL 29Sep05 700.00 CA 637 27.65
VSNL 29Sep05 9590 375.73 Tisco 29Sep05 380.00 PA 617 16.17
the time decay by writing (selling) higher level
Satyam 29Sep05 9549 290.71 Tisco 29Sep05 390.00 CA 611 16.59
calls.
Investment Strategies
Nifty is expected to hover around in the range Scrip Recommended Action SL BEP Target Time Frame
of 2320-2390 levels for the coming week. It IPCL Sell ONE Sept 180 Call @ 7.50-8.50 and USL- 193 UBEP-192 Premiums Expiry
might find a strong support at around 2320 Sell ONE Sept 180 Put @ 3.50-4.50 LSL- 167 LBEP-168 Received
and 2300 levels. Traders are advised to trade Nifty Buy 2300 Put @ 38.00-40.00 - 2267 58-60 10-15 Days
long only if Nifty sustains above 2340 levels MTNL Sell ONE Sept 130 Call @ 2.50-3.50 and USL- 138 UBEP-137 Premiums Expiry
for targets of 2365 and 2380 levels. However, Sell ONE Sept 120 Put @ 4.00-5.00 LSL- 112 LBEP-113 Received
if Nifty fails to hold 2340 levels, traders can Infosys 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
trade short for lower support levels.
Short Term Strategies
Scrip Recommended Action CMP Entry Stop Loss Target Time Frame Reverse Strategy Stop Loss Target
Bank of India Buy Sept. Futures 123.95 122-124 120.90 128, 130 3-4 Days Not Applicable - -
NDTV Buy Sept. Futures 230.55 228-232 226.05 238, 244 4-5 Days Not Applicable - -
Maruti Buy Sept. Futures 474.75 469.60 471-475 482, 490 3-4 Days Not Applicable - -
Satyam Buy Sept. Futures 508.35 506-509 504.70 515, 524 4-5 Days Not Applicable - -
Cent. Text. Buy Sept. Futures 306.80 305-308 302.60 315, 320 4-5 Days Not Applicable - -

Karvy.com - Your Online Personal Finance Advisor 4

 KARVY BAZAAR BAATEIN

Derivatives
points during the June contract which
Our research 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
‘riskless, profit’. occasions. The spot price too declined
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
values. (i.e. spot is increasing and basis providing possible arbitrage
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
difference in the spot and futures. making a high of 895 and a low of 830.
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 Initial value as on July 29 = 499674.50
opportunities close to the expiration of
which was partly due to dividend. Stock Amount Profit/ Return Remarks
contract. Few stocks were studied during
However, the dividend adjusted basis was Invested Loss
April to July 2005 along with their basis/
also abnormal which could have led to W1 Tisco 85893 5152 6.00 Closed
CoC to track likely arbitrage patterns and
arbitrage between cash and futures (selling W1 Reliance 73615 5174 7.03 Closed
likely impact on the spot prices towards
stock and buying futures). Last two days W1 ONGC 71844 1922 2.68 Closed
the close of the contract. Such price
towards expiry saw the price fluctuating W2 Tata Motors 68974 -2898 -4.20 Closed
movements could be utilised for short
from 970 to 1020 levels, implying likely W2 Nifty 4220 1860 44.08 Closed
term gains towards expiry. We are citing
buying in the cash and unwinding of the W3 Gail 116547 -11049 -9.48 Closed
here the examples of two stocks from
arbitrage positions. W3 Tisco 4194 -4302 -102.58 Closed
our sample of study.
The study showed such price patterns for W3 Nifty 42782 4629 10.82 Closed
Wockhardt Pharma- Good arbitrage
many stocks in our sample which W3 Satyam 54759 -3700 -6.76 Closed
opportunities existed during the month
suggested early discovery of such arbitrage W4 Tisco 4862 -4862 -100.00 Closed
of May and June where the basis turned
opportunities could be effectively utilised W4 Satyam 6156 -6156 -100.00 Closed
abnormally high at many occasions
for trading gains towards the expiry. 533846 -14230 -2.67
during the month. A high basis of 4-6
Final Value as at Aug 26 : Rs.485444.50
Derivatives portfolio monitor NI=Not initiated

Scrip Action Entry Stop Loss Target Reverse Stop Loss Target Margin Profit/Loss Return (%)
Chennai Petro Buy Aug Fut 205-208 203.40 212, 216 NA - - - - NI
Syndicate Bank Sell Aug Fut 72-74 75.20 70, 68 NA - - 716376 136800 19.10
M&M Buy Aug Fut 708-712 704.40 720, 736 NA - - 834408 -42000 -5.03
Tisco Sell Aug Fut Below 400 403.60 392, 387 App 399.30 408, 414 517224 105300 20.36
Hindalco Sell Aug Fut Below 1395 1406.75 1380, 1365 NA - - 398196 54000 13.56
2466204 254100
Balance on inception Balance last week Balance current week Abs. returns WoW (%) Abs. returns since
(01- Jan- 05) (22-Aug-05) (26-Aug-05) inception (%)
5,00,000 25,18,957 27,73,057 8.33 454.61%

Karvy.com - Your Online Personal Finance Advisor 5

 Personal Finance Matters
Weekly Personal Finance Advisor from Karvy - The Finapolis
mutual Funds & Insurance

Fund picks as on August 25, 2005

Balanced Equity Diversified ELSS
Scheme NAV 3 Yr Ret (%Ann.) Scheme NAV 3 Yr Ret (%Ann.) Scheme NAV 3 Yr Ret (%Ann.)
Magnum Balanced 23.12 48.29 Reliance Growth 159.74 77.55 Magnum Taxgain 45.21 84.44
HDFC Prudence 72.20 47.23 Franklin India Prima 147.72 75.45 Prudential ICICI Tax Plan 64.85 74.43
Tata Balanced 33.50 39.93 Magnum Contra 21.35 73.30 HDFC Taxsaver 92.65 71.09
Kotak Balance 20.24 39.48 Magnum Global 23.18 70.02 HDFC Long Term Advantage 62.14 68.11
Alliance '95 121.07 37.88 Sundaram Select Midcap 48.60 68.55 Birla Equity Plan 46.15 65.56

MF clippings Fund of the week Tit bits for the week

Recommended investment strategy: Franklin India Prima
Markets are hovering near their all-time high
Franklin India Prima, from the stable Franklin
levels and many investors who could not
Templeton Fund aims at offering capital
participate in the their returns during the last
appreciation and income generation focusing
years are wondering if it is the appropriate time
on mid cap and small cap stocks. This fund
to invest. Though markets have witnessed
has taken the absolute advantage of mid cap
some correction due to profit-booking in the
stocks and has delivered outstanding returns
recent past, the overall outlook for the market
still remains positive. However, at the for the last 1-year and 3-year period. Started in
prevailing levels, the scope of upside March 93, it follows a buy and hold strategy.
movement is not likely to be as high as in the Due to this approach, it has gained good
past. The recommended investment strategy returns in the year 2002. Currently the fund
at the prevailing levels is entering through holds 73.57% in the mid cap segment.
Systematic Investment Plan (SIP) and having December 2003 was an unforgettable month
long term outlook in view. SIP is a way of for this fund. During this period it had
investments in markets where instead of exposure in sectors like services, textiles,
chemicals and automobiles and in the very
making a lumpsump investment, one can
choose to invest periodically on a monthly or next month market turned down especially in
quarterly basis. these segments. In other way, it was a real
How does SIP work in falling markets? challenge for the fund to regulate its downside
risk. But due to its top holdings and buy-
In case of a bearish market trend, SIP
hold strategy it has been able to meet the
investment can reduce the loss compared with
expectations of the investors.
making lump-sump investment. By opting
for SIP, the average cost of 590.38 units for an On the whole the fund has gratified the
investor has declined to Rs.50.81. If he would investors with respectable returns even in the
have opted to make lump sump investment bullish and volatile market. Hence the investor
on March 1, 2004, his cost would have been with a long term view can choose this fund
Rs.54.37. His total investment of Rs. 30,000 since its mid-cap exposure is high. Due to the
would have been worth only Rs.26,336 as on volatility of mid-cap stocks in short term,
July 1, 2004. investors with a short-term outlook may avoid
Falling Markets the fund.
Date NAV Amount No of Snapshot
invested (Rs.) units Minimum investment Rs. 5,000
3-Feb-04 50.6 5000 98.81 Type of fund Equity diversified
1-Mar-04 54.37 5000 91.96 Entry / exit load 2.25% / 2% if redem-
1-Apr-04 54.1 5000 92.42 ption within 1 year
3-May-04 52.66 5000 94.95 NAV as on August 24, 2005 Rs.146.43
1-Jun-04 46.52 5000 107.48 Performance update (%) as on Aug. 24, 2005
1-Jul-04 47.73 5000 104.76 1M 3M 1Y 3 Y*
Total 30000 590.38 6.60 17.03 88.46 74.94
Average Cost 50.81 *Returns annualised, Source: Bloomberg
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 Multi-
cap 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.

Karvy.com - Your Online Personal Finance Advisor 6

 KARVY BAZAAR BAATEIN

Ø It should be homogeneous by nature of

Insurance
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’
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.
Ø 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.
Interview
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.

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