Some insiders are selling their shares!

Jun 15, 2009

In this issue:
» Cases of insiders selling part of their stakes
» Krugman's dire warning for world economy
» The most attractive destination for international retailers
» Takeaways from Indian Hotels' analyst meet
» ...and more!!

There is an old saying that no one's ever gotten broke by booking profits. And it is not just investors that are taking this phrase seriously but the promoters and top management at some of the Indian companies too.

As market value of Indian companies rise from their lows and witness handsome gains, corporate bigwigs are being seen resorting to offloading part of their equity holdings so that the gain in their wealth can be encashed. As per a leading daily, some of the big names involved here include the Tanti family of Suzlon Energy, L&T's Chairman and Managing Director, and a couple of HDFC top management officials.

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Although there is nothing wrong in this trend as long as the total number of shares changing hands is small, investors should watch out for companies where the stake being sold is sizeable, especially where the underlying company's financial position is weak or it is going through troubled times. Since no one has a better idea of the developments that are taking place within a company than the top management itself, a large quantum of offloading could indeed be signs of coming trouble.

Cases of promoters selling stakes
Company Name of seller Designation Quantity Total value (Rs m) Value per share (approx.) Current price
Apollo Hospitals Prathap Reddy Chairman 550,000 287 522 490
Suzlon Energy Girish Tanti Promoter 23,500,000 2,045 87 120
Suzlon Energy Rambhaben Ukabhai Promoter 27,500,000 2,393 87 120
Suzlon Energy Nidhi Tanti Promoter 9,000,000 804 89 120
L&T AM Naik CMD 40,000 61 1,525 1,520
L&T KV Rangaswami Director 10,000 14 1,400 1,520
HDFC Deepak Parekh Chairman 25,000 60 2,400 2,268
HDFC Renu Karnad ED 20,000 48 2,400 2,268
Kotak Mah. Bank Anuradha Mahindra Promoter 75,359 52 690 669
Table Source: Economic Times

Before the onset of the credit crisis when derivatives and other such arcane and new age instruments flooded the financial system, there was no shortage of criticism for the Reserve Bank of India (RBI) for being a conservative lot. Now, that very same conservatism is being lauded both globally and in India.

Rs 100 invested is now worth...
Source: Trend
When asked for his advice to the banking sector recently, Mr. K.V. Kamath, chairman of ICICI Bank recently said in an interview, "I will tell them (banking companies) to continue to be conservative." Interestingly, ICICI Bank itself has been quite aggressive in its lending in the past and has also had to pay the price for it (in terms of rising NPAs). The bank was also at the forefront in terms of losses arising from exposure to US subprime assets. Maybe, Mr. Kamath's current conservatism comes on the back of these bad experiences for the bank under his charge.

Anyways, at the end of the day, it was truly a mark of foresight and wisdom on the part of the RBI who saw the need to be conservative and implemented that attitude in the form of right policies when it was needed the most.

The US administration wants to go very slow when it comes to withdrawing the economic stimulus. This has been clarified by the country's Treasury Secretary Timothy Geithner, who has said, "It is too early to shift toward policy restraint. Economic and financial recovery, however, will be stronger and more sustainable if we make clear today how we get back to fiscal sustainability when the storm has fully passed."

As you are aware, the US is under tremendous pressure from its burgeoning fiscal deficit (excess of government spending over its income) which contains the seeds of future hyper-inflation if the house in not brought to order. And then, with Asian countries like China and India that have been financing the US deficit for so long, now voicing their concerns on its bloated deficit, there is no other way than fiscal restraint for the US government when things show signs of improving.

Till that time, however, Geithner and his men would not tighten their purse strings.

Now, before Geithner even thinks of removing the stimulus from the US economy, he needs to listen to what Paul Krugman has to say. The Economic Nobel prize winner for 2008 has been on the dot in the past in predicting the bubble burst. And his current predictions are even scarier.

In an interview given to the English news daily Guardian, Krugman has warned that what happened to Japan in the 1980s will happen to the whole world now. As he says, "The risk of a full, all-out Great Depression - utter collapse of everything - has receded a lot in the past few months. But this first year of crisis has been far worse than anything that happened in Japan during the last decade, so in some sense we already have much worse than anything the Japanese went through. The risk for long stagnation is really high."

Just as a review, the crisis in Japan in the 1980s was all about excess debt, excess leverage and lack of demand, which was reinforced by the fallout from the asset bubble collapsing. They did not have credit contraction on anything like the US is witnessing now. But even so, zero interest rates were just unable to turn the Japanese economy around. And Krugman expects a similar ill fate for the US economy over the next few years.

And then he says, "I hope I'm wrong but the question you always have to ask is: where do we think that this recovery's going to come from? It's not an easy story to tell."

India is the most attractive destination for international retailers looking to expand in emerging markets. At least this is what the AT Kearney's Global Retail Development Index says. This index ranks 30 developing markets according to market attractiveness, country risk, growth and market saturation.

Two reasons have put us at the pinnacle. First being, lower penetration levels of modern retail. And the second - other nations have moved down as they had a tougher year compared to India. Vietnam, which was number one last year, slid to number six. Poor performance by the other nations has helped us score better!

We recently attended the analyst meet of Indian Hotels, India's largest hospitality company. And if one were to go by the views outlined therein, it's grim from a short term perspective. The company's management expects the Indian hotel industry to witness yet another tough year in FY10. While the effect of terror attacks on tourist inflow has reduced, the global slowdown and lower corporate spends would continue to pinch.

The management has indicated that the industry is likely to see a drop of 10% to 15% YoY in room rates during the current year. This is apart from the pressure that would continue on the occupancy front. Indian Hotels itself has seen occupancy levels drop to 66% in FY09 as compared to 73% in FY08. The company is now looking at rationalising its expansion plans.

Indian markets traded weak today led by losses in stocks from the oil & gas and capital goods sectors. At the time of writing, the BSE-Sensex was down around 360 points (2.4%). The BSE-Midcap and Smallcap indices were also trading weak - down by 2.3% and 2.1% respectively. Among other key Asian markets, while China ended the day with gains, weakness was seen in Hong Kong and Japan. European markets have also opened the week on a dull note.

India and China seem to be at the loggerheads yet again. Just as the moving of Indian troops to the border along China has caused resentment in the Chinese camp, so are the Indians not too enthused about a consignment of fake drugs, which were actually produced in China, being labeled as 'Made in India'.

The State Food and Drug Administration of China is investigating the allegation. Spurious drugs are a menace to the pharmaceutical industry as they are dangerous to health and can eat into sales and profits of companies manufacturing ethical drugs. Besides given that India still has an edge over China in terms of being the partner of choice with both global innovator and generic companies, China will have to pull its act together fast. Any more negative news on the drugs front will only tarnish its image and set its pharmaceutical industry one step back.

 Today's investing mantra
"For some reason, people take their cues from price action rather than from values. What doesn't work is when you start doing things that you don't understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it's going up." - Warren Buffett

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3 Responses to "Some insiders are selling their shares!"


Jun 16, 2009




surajit paul

Jun 16, 2009

pls send investmantra directly.



Jun 16, 2009

Thanx for such a nice and valuable information. plz keep updating us with such value additions...

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