The ranking of top 10 firms remained as follows: TCS, RIL, HDFC Bank, ITC, Infosys, Sun Pharma, ONGC, CIL, HDFC and SBI. (Express Photo)

The combined market valuation of nine of the top 10 most valued Sensex companies eroded by Rs 81,812 crore last week amid an overall weak stock market sentiment.

Barring Sun Pharma, rest nine companies, including ITC, CIL and HDFC witnessed decline in their market capitalisation (m-cap).

On a weekly basis, the BSE benchmark index Sensex fell by 2.96 per cent to 26,656.83.

The market valuation of ITC slumped Rs 18,863.88 crore to Rs 2,68,725.44 crore, taking the steepest hit among the top 10 firms.

CIL’s m-cap dipped by Rs 13,580.18 crore to Rs 2,02,060.50 crore and that of HDFC plunged Rs 13,197.28 crore to Rs 1,98,345.75 crore.

The valuation of SBI tanked by Rs 12,148.75 crore to Rs 1,84,133.07 crore and ONGC suffered a loss of Rs 8,213.27 crore to Rs 2,12,047.82 crore.

TCS took a hit of Rs 7,664.96 crore to Rs 4,92,074.97 crore; Infosys (Rs 2,871.18 crore to Rs 2,60,944.40 crore); HDFC Bank (Rs 2,719.65 crore to Rs 2,76,258.39 crore) and RIL (Rs 2,552.82 crore to Rs 3,06,992.27 crore).

In contrast, Sun Pharma added Rs 986.64 crore to Rs 2,13,932.19 crore in its market valuation.

The ranking of top 10 firms remained as follows: TCS, RIL, HDFC Bank, ITC, Infosys, Sun Pharma, ONGC, CIL, HDFC and SBI.

in September 2015 alone, Sebi initiated final proceedings in the case of illegal fund raising from investors by 29 companies and their directors through redeemable preference shares (RPS). (Reuters)

On October 19, the Securities and Exchange Board of India (Sebi) ordered Newland Agro Industries Ltd not to, directly or indirectly, access the capital market by issuing prospectus, offer document or advertisement soliciting money from the public and prohibited the company from buying, selling or otherwise dealing in the securities market for four years.

The company had issued redeemable preference shares (RPS) to about 48,886 investors and had mobilised funds amounting to about Rs 37.64 crore during 2009-13 period without complying with the ‘public issue’ norms stipulated under the Companies Act, 1956.

Last week, Infinity Realcon Ltd (IRL) of Kolkata was banned from the capital market for four years issuing redeemable preference shares to 24,718 investors and mobilising funds amounting to approximately Rs 19.32 crore.
At a time when the interest income on fixed deposit is on a decline and gains from equity markets are not very encouraging, it is easy for investors to get attracted to investment instruments that offer high returns. However, investors need to verify the credentials of the issuer and the legitimacy of the investment instrument before investing.

Take the case of trading in Kamalakshi Finance Corp (KFCL) where 33 entities were found making illegal gains of over Rs 1,800 crore. Sebi had earlier this year banned 24 entities from the capital market and nine others were restrained from trading in the shares of Kamalakshi Finance. Sebi found that the entities used the preferential share route through Kamalakshi and their trades resulted into artificial increase in its price. The modus operandi involves preferential allotment of shares to entities wanting to launder black money. Later, the share prices of the companies, in which allotment is made, are artificially inflated and the preferential allotees are provided an exit whereby making fictitious long-term capital gains (LTCG), which doesn’t attract tax.

Sebi chairman UK Sinha had gone on record saying that 900 entities have been banned from capital markets by the regulator and these cases have been referred to the Income Tax Department for further investigations for tax evasion. The tax avoidance that has happened in these cases is likely to be more than Rs 5,000-6,000 crore. In short, manipulators in the market have been using the stock markets as a black money laundering platform.

On the other hand, in September 2015 alone, Sebi initiated final proceedings in the case of illegal fund raising from investors by 29 companies and their directors through redeemable preference shares (RPS). While most of the orders against illegal public issues were in West Bengal, Uttar Pradesh, Madhya Pradesh and Odisha, CIS (collective investment scheme) activities were from Tamil Nadu, Madhya Pradesh, Maharashtra, Uttar Pradesh and West Bengal. Under the Securities Laws (Amendment) Act, which was notified by the government in August 2014, Sebi is empowered to pass orders for attachment of properties, arrest of defaulters and to access call data records. In October, Sebi issued orders against 11 companies for illegally raising funds from the public.

There’s no dearth of manipulative exercises by fraudsters in spite of “stringent regulations” in the market. In fiscal 2014, the regulator took action in 1,436 cases, including 619 adjudication orders and 537 warnings. Regulatory actions in fiscal 2013 were 1,024. If market sources are to be believed, the focus has shifted now from chit funds and multi-level marketing (MLM) frauds to fund raising through illegal means like issue of redeemable preference shares and manipulation to convert black money using LTCG, which do not attract taxes. Small investors are getting sucked in when fraudsters rig up prices. Many burnt their fingers when Kamalakshi scrip rose from Rs 10.20 to Rs 489, an increase of 4,694 per cent, and later trading was suspended.

Tread carefully

The thumb rule for any investor is that they should be circumspect if a company launches a scheme or an issue without proper approvals from the regulators. Schemes or issues which are not rated or which carry poor credit rating should raise alarm bells. They should be concerned if the interest rates or rates of return on investments offered are higher than those offered by others in the market place. Unless the entity accepting funds is able to earn more than what it promises, the entity will not be able to repay the investor as promised. For earning higher returns, the entity will have to take higher risks on the investments it makes. Higher risk could mean undertaking speculative activities and on such activities, there can be no assured return. The likelihood of losing money in schemes that offer high rates of interest is more.

The money collected through illegal means in the market could turn out to be much higher than the legal route. Pearls Agrotech Corporation Limited (PACL) illegally collected a huge amount from investors. In the guise of selling agricultural land, it collected Rs 49,100 crore from 5.85 crore customers over a period of 15 years by promising them that the investments in the schemes of the company are highly profitable. The PACL mobilisation is twice that collected by the Sahara Group, which allegedly mobilised Rs 24,000 crore through the optionally fully convertible debenetures (OFCDs) without Sebi approval.

The mushrooming of unregistered schemes and illegal issues by paper companies, collective investment schemes (CIS), chit funds and multi-level marketing companies have nothing to do with financial inclusion. It is greed, gullibility of investors and lack of effective monitoring at all levels which is to be blamed for the free run of fly-by-night operators. According to bankers, 80 per cent of the people behind the financial scams use the banking services. “I have definite understanding and evidence… They come to the bank and use the bank services to remit the money. They (investors) have drawn cheques to such firms. It’s not that they are not without bank accounts. They have gone for such schemes as they promise high returns. These schemes offer 25-30 per cent returns. There’s also high-incentive selling pressure. This happens because of greed and gullibility,” said a former chairman of State Bank of India.

The solution lies in improving investment in productive assets.  It means getting the banking, insurance and mutual fund sectors to reach out to all segments of society.

According to SMC Investments and Advisor there are certain methodologies, which an investor should consider in choosing the potential stocks. Below are six points listed by the brokerage house to find a quality stock.

Identifying a good stock from the universe of listed stocks can be a difficult task for any investor. A wrong pick could bring your investment portfolio to ground levels. To give an example, MMTC share price declined 96.55 per cent in the past five years. MMTC share price declined from Rs 1,290 on October 29, 2010 to Rs 44.45 on October 29, 2015. Similarly, share price of IVRCL, Opto Circuits, Lanco Infratech, Unitech and Bhushan Steel declined over 90 per cent duirng the same period.

Share price of Ajanta Pharma jumped 4876.49 per cent to Rs 1587.50 on October 29, 2015 from Rs 31.90 the same day five years ago. Likewise, La Opala RG and Marksans Pharma surged 3,814.95 per cent and 2,493.29 per cent during the same period.

Therfore, a thorough study of balance sheet, financial ratios, income statement and promoters background could guide you to pick quality stocks.

According to SMC Investments and Advisor there are certain methodologies, which an investor should consider in choosing the potential stocks. Below are six points listed by the brokerage house to find a quality stock.

1) Company Business model and promoters credential: At the first point it is very important to understand the business in which the company is working and at the same time look out for the factors that distinguish it from others in the same peer group. It is also important to give closer look to the management in terms of their ability and acumen to ascertain whether they have the ability and knowledge to take business to new heights.

2) Revenue: After getting a good understanding of the business one now needs to look into the revenues. That means whether the company is in the service business or in manufacturing it becomes imperative on the part of the investor to try and gauge how the company is clocking in revenues and it ability to growth them.

3) EBITDA: EBITDA reflects clear picture of the company’s operating profit. If the company has high operating profit, it means it has the potential to give good returns to the investors.

4) Debt/ Equity ratio: Debt/Equity Ratio measures a company’s financial leverage. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing.

5) Earnings per share (EPS) and price multiples: Investors should always calculate the Trailing Twelve Months (TTM) basic EPS and revenue to calculate current Price to EPS (P/E) and Price to Sales (P/S) respectively of a stock. If the EPS of the company is performing significantly well, then one should consider investing in the stock.

6) To consider capital expenditure & structural changes: Investors should consider read the company website. The investors should go through the company so that he/she could get the recent announcements related to capital expenditure, structural changes in the company, other major management decisions, etc. He should also read the Chairman’s speech which gives the vision and expansion plans of the company.

Maintain ‘add’ on Yes Bank with a target price of R850 a share, reflecting limited changes to our near-term earnings profile.

At our target, we value the bank at 2.3x book and 13x FY17e book for RoEs in the range of 18% and earnings growth of 15% CAGR. Our positive rating is driven by the improving economic outlook, favourable interest rate environment and focus on diversifying the loan book from the corporate segment.

Yes Bank reported a 27% y-o-y growth in earnings on the back of 27% y-o-y growth in revenues and flat provisions. NII grew 29% y-o-y, while non-interest income grew at a relatively slower level of 22% y-o-y, as the bank saw pressure on growing its fee income from transaction banking and subdued performance in corporate advisory.

NIM was maintained at 3.3%, but there is marginally higher support from interest income from RBI/inter-bank funds, which is probably not a one-off and appears to be a function of the underlying liquidity in the environment.

Loan growth has slowed to 29% y-o-y. Gross NPLs have increased marginally by 15 bps to 0.6% of loans, but the key concern remains the steady rise in gross NPL ratio and declining coverage which currently stands below 70%. Fresh impairments were low at 0.7% of loans and the bank has not undertaken any restructuring of loans this quarter.