Can you push up this company's stock price?

Sep 3, 2009

In this issue:
» Hedge fund that profits from boom and bust
» India can be 'junk'. What about the US?
» US economy still not out of the woods
» FMCG companies may not worry about the monsoon
» ...and more!!

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Which Indian companies are concerned about the small investor? You might think the answer to be - All. The truth, as said by Mr. Ajit Dayal in our latest webinar sums up a different story. As he said - "The treatment of minority shareholders is a joke in many companies, in many well known companies."

We got a taste of this (once again) when we called up a leading PSU company from the power sector yesterday for a research meeting to discuss their performance and future plans. And we were bluntly told - "We are not interested in meeting independent analysts. We are interested in meeting only the brokers and their research analysts." On asking them the reason for the same, the reply was indeed shocking - "...because brokers bring their sales guys along who can help in pushing up our stock prices!"

We need not elaborate more on this, but small investors are indeed considered as 'untouchables' in many Indian companies, especially the ones that have gotten large enough to be arrogant in dealing with 'small' investors. For instance, a leading engineering company had indicated to us some time back how they are 'not interested' in dealing with anyone representing retail investors.

So what should you - the retail investor - do in such cases?

Rely on whatever information you have?

Or call up the company directly to seek the same?

Why not try doing the latter? As an activist investor, try calling up a large company you have invested in and try getting through the head of 'investor relations' to clear your doubts and seek information about the company's future. We have some idea of the response you might get! But only your trial will be a path to your empowerment.

Do you believe there is a nexus between companies (like the PSU we spoke of) and large brokers who have the potential to influence stock prices? Tell us

 Chart of the day
Do not pity yourself for not owning a penthouse or not driving a Mercedes S class. If you belong to what is called the 'middle class', the future is yours. As today's chart shows, the middle class population will continue to comprise a large majority in most of the emerging BRIC economies (ex-Russia) over several years. Of these, India will have more than 80% of its population in this bracket by 2040. There will be few other nations like Egypt, Indonesia and Vietnam who will be able to compete with India on this demographic dividend. Who then do you think will the domestic companies and MNCs want to woo?

Source: Goldman Sachs report
*Income between US$ 6,000 - US$ 30,000 (PPP terms)

This man surely knows how to profit from both, stock market boom as well as bust. Take the case of the latest financial crisis. Last year, when most of the hedge funds were in damage control mode, trying to avoid bankruptcies, this man went ahead and returned a hefty 10%, which investors in the developed markets would accept gleefully in good times let alone the cataclysmic 2008. We are indeed referring to the hedge fund titan George Soros. As per a leading financial portal, Soros, also known as the man who broke the Bank of England, had 14% more assets to manage in the month of July under his eponymous fund as compared to the start of the year. On a YoY basis, the growth in assets is even more impressive at 41%, easily making him one of the most powerful hedge fund managers in the world.

Indeed, during this entire financial crisis, the man's clairvoyance has shone through. He was not only among the few to successfully predict a big financial tsunami but was also among a select group of people to argue earlier this year that the world economy has hit a bottom and that stocks could rally. And he seems to have put his money where his mouth was.

It is time rating agencies do some soul searching with regard to their rating policies and allegiance to their sponsors.

In his latest budget speech, the Indian Finance Minister pegged the FY10 fiscal deficit at 6.8% of GDP, the highest in 16 years. Economists expect a couple of more percentages to get added to this number taking into account the off balance sheet liabilities of the government (farm loan waivers, subsidies and the like). However, if this forecast becomes a reality, the Indian sovereign rating may have to do with a disgraceful junk rating as has been warned by the global rating agencies - S&P and Moody's.

At worst it will make overseas borrowing nearly impossible for Indian companies. Even as the basis of this rating is debatable, we wonder what saves the US, which is expected to have a deficit of 11.2% of its GDP in 2009, from a similar rating? In fact, as per the US Congressional Budget Office (CBO) this will be the highest deficit since World War II and is unlikely to reduce substantially till the end of the next decade.

The logic of the US dollar's strength in being a reserve currency and thus empowering the US to leverage excessively also now stands diluted. Not just China but many developed and emerging economies have demanded for a change in the reserve currency. Thus the case for the US economy's de-rating asserts with substantial reasoning.

Are the rating agencies listening?

These days there are news galore about promoters taking the earliest opportunity to cash in on the market buoyancy and sell stakes in their companies. One may also wonder whether the same is the fallout of the lack of confidence in their businesses. Or is it that they are privy to some information that the market is unaware of?

However, in the midst of these there is one promoter that although being widely known for business ethics continues to practice what it preaches. Tata Sons, the holding company, owned by Tata group's charitable trusts, reaped rich dividends from some of its subsidiaries in FY09. The company plans to use the dividend income to raise stake in group companies where its holding is low and also fund Tata group's expansion plans. The group holds less than 20% in companies such as Tata Chemicals and Indian Hotels. Tata Sons' strategy to plough back dividends reaped into the group companies to fund acquisitions and expansion as and when required goes a long way in displaying the management's faith in the prospects of and commitment to each of the businesses.

FY09Dividend (Rs m)Stake (%)
TCS20,207 73.7
Tata Steel3,597 30.7
Tata Motors1,051 34.4
Tata Power767 30.1
Tata Chemical302 14.3
Tata Inv. Corp287 55.5
Tata Tea246 22.7
Tata Communication140 10.9
Indian Hotels125 14.3
Voltas126 23.8
Tata Elxsi92 42.2
Total dividend received26,939  
Source: Economic Times

So, will the US have a U-shaped, V-shaped or a W-shaped recovery? If one goes by what Pimco's Bill Gross has to say then the US may not be completely out of the woods just yet. According to him the inability of the government to continue pumping stimulus into the economy could promote a double-dip recession (which also means a W-shaped recovery). This in turn will mean investment opportunities in longer-term government debt. What will also make bonds attractive is a low inflation scenario as the economy is still weakening. Since the green shoots witnessed in the economy seems to be a result of the government's various stimulus packages, as Americans are vary of spending, any form of a withdrawal means that the economy could once again head southwards. Certainly, the US government has a tough task on its hands as there is a great deal of uncertainty with respect to the timing of withdrawing these stimulus packages. Only time will tell how the scenario will pan out.

At a time when everyone is gunning for higher GDP numbers, we should also look at the sustainability of the growth. If the Indian economy expands by an average 8% a year during the next two decades, India's greenhouse gas emissions will grow 4 times. While that may sound alarming, India's per capita emission will still be way below the levels of the developed countries. In fact, data shows that India's efficiency in energy use, as measured by kilograms of oil equivalent used to generate a dollar of GDP, has been improving over the years. In our opinion, we should actively take steps to maintain this record because, given our size, if we repeat the same mistakes as the Western economies in our path to development, we might push our environment beyond what it can absorb.

At least the FMCG companies have something to thank the Indian government for! Unilever, Hindustan Unilever's European parent, seems to be quite happy about the fact that its subsidiary has maintained sales in India so far even as the driest monsoon season in seven years is set to cut rural incomes significantly. In a recent interview, the top management of the company has indicated that if the monsoon season ends with deficit rain, there could be some slowdown in growth. However, the company has not seen any negative impact so far. One reason for this is that the Indian government has been proactive in terms of starting rural employment schemes and has pumped in quite a lot of stimulus to keep the rural demand going. That, the company expects, should partly offset any downturn that will inevitably come as a consequence of a poor monsoon. The fact that such initiatives by the government are helping prop up demand for FMCG goods is heartening, and would be even more so if other sectors of the economy too continue to see robust demand in rural India despite the drought.

In the meanwhile, it has turned out to be a pretty volatile session for the Indian markets as the benchmark indices were seen circling around the breakeven point at the time of writing. Infact, when the readings last came in, the BSE benchmark Sensex was trading just 40 points above yesterday's close. Majority of the Asian indices closed higher today while European markets have also opened in the positive.

 Today's investing mantra
"The fact that people will be full of greed, fear or folly is predictable. The sequence is not predicatable." - Warren Buffett

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12 Responses to "Can you push up this company's stock price?"


Sep 6, 2009

Sorry for belated feedback. Like small shareholders, the fate is same with small Bank Customers. While RBI promotes large FII investments which moves the market either way, it seems there is a negative attitude to small NRI clients by the leading Banks.
While services provided is not upto standard, fees levied at evey instant is qestionable. My Bank charges me just for manging mt demat account....Rs.100 on and purchase of share
and Rs.100 for sale of the said shares. This is apart from
brokerage commission on sale purchase transaction. Over all service level and response is very poor. I am talking about one of the leading Bank like Axis etc. There are also charges and taxes to pay for in inward remittances. I feel
while NRI are actively canvassed to remit, once in, they are treated as cash-cows by the Banks.


Ravikumar Varadarajan

Sep 4, 2009

These type of authoritative practices with vested power within shall have to be totally avoided and SEBI should keep a class on the discipline of companies.


sanjay goenka

Sep 3, 2009

what is mentioned in the 5 minute wrap up is true but I fail to understand equitymasters' failure to mention the name of the company - if equitymaster or any other publication can recommend/write a positive review the same should apply otherwise - your withdrawal of the investment recommendation on compact disc ltd is an example of the same. This hesitation and passive attitude helps guilty company go scot free.


Ca. Dinesh Kotecha

Sep 3, 2009

sure for once and ever. Giving of some very privy information to select few is the name of the game. Brokers benefit via brokerage and spread, companies benefit by high market prices [manipulated on stories made]and market capitalisation of their stake, the small investor is taken for a ride as a fool and the greater fool theory is practically in circulation. the small investor is the goat made at higher prices. once the operation of making profit is over, the small investor who relied and believed in great future stories are left dry with such stocks to cry.latest example is lesha steels ltd bse code no 513536-check it out. 4 EGMs is 3 months, No Annual report for the last three years sent to shareholders inspite of repeated reminders and personal visits, management stake going down every quarter and still prices are in upward circuits. a advise to small investors : it's your money dear, ONLY YOU and nobody else can take better care of it.please do it.thanks


Graham's cat

Sep 3, 2009

Please make the names of these companies which you allege are favouring brokerage houses to independent anaylsts, public. If it leads to legal trouble, do it in a safe but unambiguous way. For example, when Economic Times mentions "HNI with large stake in Titan industries", we know who is being referred.



Sep 3, 2009

I completely agree with your views on the bully factor of the retail investor. As the retail investor no. grows with the market development, it is necessary that the retail investor is protect and kept well informed. If one views the way the business chanels mislead retail investors whos only easy access is TV, it is evident how vulnerable a retail investor is. Your 5 minute wrapup is a excellent newsfeed for those who are newbies in the equity market. Keep it going. All the best.


Subrata Pramanik

Sep 3, 2009

Respected Mr. Dayal
I am an avid reader of your 5-mins wrap-up and appreciate the angles you bring in. But the topic "Can you push up this company's stock price?" made me laugh. Being so many years in Equity Market do you really believe the said PSU & The engineering company are only ones who had broker nexus to jack up price. I myself once worked in PSU so I can say that PSUs work with certain philosophy whereas except few Public company rest are...... I do not know what happened between you and the PSU but the story is nothing new between companies, stock market & brokers. It is seen time and again in BSE, NSE & world over, nexus between brokers & stocks. Noone cares for small investors.
I would appreciate if you can bring in more practical views than sensational.

With best regards


tapek riba

Sep 3, 2009

It is an long known & established fact that there has been nexus between companies and large brokers who have the potential to influence stock prices. It is because of this nexus that the brokers comes to know of any important announcement of a company, such as, bonus issue, right issue dividend, etc, long before the announcement is actually made. By the time retail investors come to know, it is already too late. There are several instances of stock prices shooting up before such announcement. Why can't SEBI initiate action on such companies basing on the price movements.



Sep 3, 2009

Is it possible for EquityMaster to send a petition to SEBI to address this disadvantage for retail investors and independent analysts? I'm sure thousands of small investors and other independent analysts would come forward to support the initiative.

Perhaps SEBI could mandate all listed companies to hold a "Small Investor & Independent Analyst Day" once a year (aside from the AGM)...just as many companies already have "Analyst Days" where they invite institutional analysts to meet the management.

It would be GREAT if EM tried an initiative in this direction.



Sep 3, 2009

do you know that this stock market driven by government
with help of big bull You will see mr.udayan mukhargee
deceiving most of people by givivng wrong signals and comments.

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