India’s Macroeconomic Update – High CPI Inflation, Disappointing IIP Data, Trade Deficit, Oil Imports & Gold Imports

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

It is once again a bad month from India’s macroeconomic health point of view. On the one hand, Index of Industrial Production (IIP) for the month of October 2013 has contracted 1.8% against analysts’ expectations of a contraction of 1.2% and on the other hand, inflation based on the consumer price index (CPI) has again jumped to a nine-month high of 11.24%.

Vegetable prices, led by onions and tomatoes, rose 61.6% in November from their prices a year earlier and have been the biggest contributor to a sharp increase in inflation.

Both these figures carry a lot of disappointment for the RBI, the government, manufacturers, importers, traders, investors, people who are already finding it difficult to sustain their lifestyle due to high inflation and many others here is India.

Inflation based on the wholesale price index (WPI) is up for announcement on Monday and market participants don’t have high hopes out of this number as well.

India’s export-import data for November 2013 also got announced yesterday by the Department of Commerce. As expected, India’s trade deficit has been consistently under control to remain at $9.22 billion for the month after the Diwali season. Here is the summary of trade data including gold and oil imports:

(Note: Figures are in US $ billion)

Trade Deficit in November came out to be $9.22 billion, lower than last month’s $10.56 billion, and much lower than last year’s figure of $17.20 billion. Trade deficit figure of less than $10 billion is psychologically satisfactory and makes analysts confident about CAD to remain below its targeted levels.

Exports – After a growth in the last few months due to various reasons, including a mild recovery in the U.S. or European countries, weak Indian currency and the government’s incentives for exporters, India’s export numbers in November contracted somewhat to settle at $24.61 billion.

Exports in November have seen a fall of 9.75% month-on-month as against last month’s $27.27 billion and a jump of 5.85% year-on-year in comparison to last year’s exports of $23.25 billion.

Imports – Imports in November came out to be $33.83 billion as against last month’s imports of $37.83 billion, a fall of 10.57% and last year’s imports of $40.45 billion, a decline of 16.37%. People who wanted to see a lower trade deficit or lower current account deficit (CAD) cheered after seeing the positive shape of our import numbers. But, sadly their joy would be short-lived with today’s bad IIP and inflation numbers.

Gold Imports in November were at $1.05 billion as compared to last month’s $1.37 billion, a decline of 23.36% and last year’s $5.33 billion, again a steep decline of 80.3%.

Oil Imports in November came out at $12.96 billion as compared to last month’s $15.22 billion, a fall of 14.85% and last year’s $13.11 billion, a dip of 1.14%.

Though trade deficit has been satisfactory, inflation, growth and fiscal deficit pose a big challenge for both the RBI and the government. High CPI inflation will put a lot of pressure on the RBI to raise the Repo Rate again in its upcoming monetary policy on December 18th. But, will another rate hike be able to control vegetable prices and overall inflation to move up even higher? I really doubt.

With an expected jump in bond yields tomorrow, tax-free bond investors can now expect even higher rates with the upcoming issues. But, for the equity investors, it has been a short-lived relief rally again which we saw after the state election results. A deep fall from here might bring an opportunity for the long-term investors.

I also want to question the government – what it was doing when the prices were going up due to its so called ‘hoarding’ by a few traders? Did we see/hear any kind of action being taken against those hoarders? I did not. So, its consequences are in front of us. It would be a big trouble for the policymakers in the near term. What is up next – more trouble for the government, the consumers and the investors of India?

Great Online Shopping Festival (GOSF) 2013 – A Google Initiative

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

I was in South Extension market of South Delhi this weekend and as the winter season has started gathering pace here in North India, I was looking forward to shop for some winter clothing, like a couple of sweatshirts and a jacket or a sweater.

I went to various stores to explore options like Nike, Adidas, Puma, UCB, Pantaloons, Levi’s etc., but, either I did not find the kind of boring/dull clothes I wear or I found them quite costly i.e. beyond my spending budget.

Though I liked a couple of sweatshirts, one from Nike costing Rs. 1,795 and one from Puma costing Rs. 1,599, but then I gave it a thought to try for some online offers from Flipkart or Myntra or any other online store.

I came back home, searched them on internet and to my disappointment, I did not find any good deal. After wasting 15-20 minutes here and there, I came back to my regular Q&A session here on OneMint.

After answering a few queries here, my attention went to an ad on this website itself, which claimed to carry the details of India’s biggest online discount shopping of 2013. It has been named Great Online Shopping Festival (GOSF) 2013 and launched by Google.

I clicked on the ad and found certain details about it. I got to know that the initiative will remain ‘ON’ for a three days period starting today, December 11th and will end on December 13th and most of the leading online brands are going to participate in the shopping festival. I somehow convinced myself to wait for 2-3 days time and try my luck to get one or two good deals in the shopping festival.

As I was working till late night yesterday or early morning today, once again my attention went to a Flipkart ad on this website, which has decided to participate in GOSF this year. As it was already December 11, I went to visit Flipkart again to check if there is any offer which I can avail of.

Initially, I was positively surprised to see Flat 30% on Men’s Clothing, but then I found it is not there on Nike sweatshirt which I liked in the South Ex Part II market. I again felt cheated and disappointed. Then I tried my luck with some other companies or some other products like sweatshirts/sweaters from Puma or Adidas.

While doing that, I got to know that if I order 3 products or more, I’ll be eligible for a flat 30% discount. I selected 2 sweatshirts, one from Nike, one from Puma, and a Puma sweater and proceeded to checkout. This time I was happy to get a flat 30% discount on my shopping cart i.e. Rs. 1,380 discount on my shopping worth Rs. 4,597.

As a human nature, I got greedy and asked myself to check other online stores also, like Myntra and Jabong. I went to Myntra and got offered a discount of flat 35% without any minimum order requirement and Jabong had it as flat 40% with minimum order of Rs. 2,499 or flat 36% with shopping of any amount. While Myntra wanted me to pay VAT extra on the discounted amount, Jabong went one step ahead to bear VAT itself.

To cut the long story short, I finally ordered 3 sweatshirts from Myntra – one for myself, one for my brother and one for my friend. My total bill value came out to be Rs. 3,274, including VAT of Rs. 155.90 and after a discount of Rs. 1,678.95 on the before discount value of Rs. 4,797. What’s more, I got a “Puma Unisex Black & Grey Fundamentals Sports Duffle Bag” absolutely free as my before discount bill crossed Rs. 3,999 mark.

Now, I am also considering a couple of Nike sweatshirts worth Rs. 1,795 each from Jabong, which is going to entitle me a flat 40% discount to make it cost Rs. 1,077 each after discount. I’ll take the final decision after I finish writing this post.

This was my story about GOSF and my experience with the discounts on offer was extremely satisfactory. As every rupee saved is equal to every rupee earned, my idea with this post was to highlight some of the offers you can avail of in this shopping festival. So, here are some of them which I could notice to be worth considering:

Flipkart Offers in GOSF

* Flat 30% off on Men’s & Women’s clothing on purchase of 3 products or more. There are certain items which carry flat 30% off and don’t require you to do shopping of minimum 3 products.

* Flat 30% + Extra 30% off on Men’s Footwear on a purchase worth Rs. 2,999 or more OR Flat 30% + Extra 25% off on Men’s Footwear on a purchase worth Rs. 1,999 or more.

* Amex Cards Offer – Extra 10% off (up to Rs. 3,000) on purchases of Rs. 5,000 or more. This 10% is over & above your normal discount.

Myntra Offers in GOSF

* Flat 35% off on everything bought online with Coupon Code GOSF35. No minimum purchase required. Flat 40% off on selected brands.

* Holiday voucher worth Rs. 5,999 free with shopping worth Rs. 4,999 or more.

* VAT is charged extra after discount.

Jabong Offers in GOSF

* Flat 40% off on minimum purchase worth Rs. 2,499 with Coupon Code GOSF40

* Flat 36% off without any minimum purchase with Coupon Code GOSF36

* Flat 40% off + Extra 40% off on certain items

Yebhi Offers in GOSF

* Flat 33.33% off on minimum purchase of Rs. 1,499 with Coupon Code GOSF33

Airtel Offers in GOSF

* Get a Wi-Fi modem free on purchase of a broadband plan of 4 Mbps or more

* Get a 4G dongle free with Rs. 2,999 or 3,999 advance rental plans

* Get 25% extra data on 3G and 2G data packs

Croma Retail Offers in GOSF

* Additional 10% discount up to Rs. 2,500 on every purchase with Coupon Code GOSF2013

eBay India Offers in GOSF

* Apple iPhone 5C for Rs. 37,990

* HDFC Credit Cards Offer – Extra 15% off (up to Rs. 1,500) with Coupon Code 15HDFCEBAY

GOSF is an initiative by Google and there are many online participants across different sectors taking part in this online mega festival, like Snapdeal, yatra.com, goibibo, tradus.com, Amazon India etc. As it is a marketing initiative, some people are positioning it to be India’s answer to Cyber Monday in the United States.

As I am writing for this post, the official website for GOSF has been down. I don’t know if that is due to some technical reasons or if the euphoria is so great for a Google site to handle such traffic.

I found this initiative to be quite interesting as the kind of discounts/offers it is currently offering, before the peak winter season, normally start pouring in from the second half of January here in North India when the season is about to end. I could avail one of these offers to the best of my expectations. Would you like to go for any? Check out and share your experiences.

India Infoline Housing Finance (IIHFL) 11.52% NCDs – December 2013 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

After India Infoline Finance Limited (IIFL), the 98.87% subsidiary of India Infoline Limited (IIL), successfully raised Rs. 1,050 crore from its 12% NCD issue in September this year, its own wholly owned subsidiary India Infoline Housing Finance Limited (IIHFL) has now come up with its issue of non-convertible debentures (NCDs).

Before we check out more about the company and its financials, let’s take a look at some of the main features of the issue first.

Coupon Rate – The issue is simply uncomplicated. It is offering only one choice of coupon rate i.e. 11.52% per annum payable monthly and that too, only for 60 months. Effective yield comes out to be 12.15% per annum. But, mind it that it is taxable as per the tax slab of the investor and is also subject to TDS, if taken in physical form.

Size of the Issue – Base size of the issue is Rs. 250 crore and the company has the right to exercise the green-shoe option to retain oversubscription to the tune of another Rs. 250 crore, thus making it a Rs. 500 crore issue.

NRI Investment – Non-Resident Indians (NRIs) are not allowed to invest in this issue.

Opening/Closing Date – The issue is scheduled to open on Thursday, 12th of December and will remain open for subscription for just 7 working days to close on Friday, 20th of December. The company has the option to close it earlier or extend it beyond the closing date, depending on the investors’ response to the issue.

Minimum Investment – If you want to subscribe to this issue, you need to invest at least Rs. 10,000 i.e. 10 NCDs worth Rs. 1,000 each.

Listing – The company has decided to list these NCDs on the National Stock Exchange (NSE) as well as on the Bombay Stock Exchange (BSE) and the listing will happen within 12 working days from the closing date of the issue.

Demat A/c. Not Mandatory – Though these NCDs will get listed on the stock exchanges, it is not mandatory to have a demat account to invest in this issue. You can subscribe for these NCDs in physical form as well, like you invest in bank fixed deposits (FDs) or post office schemes.

Only the investors, who subscribe for it in demat form, will be able to sell/trade them on the stock exchanges and will not be subject to any TDS on the interest income.

No Put/Call Option – The investors subscribing for these NCDs in physical form will have no option to redeem/sell them before maturity, as the company has not given put option to its investors. At the same time, the company will not be able to call its option to return investors’ money before the maturity period.

Credit Rating – CRISIL and CARE have been appointed as the credit rating agencies and have rated the issue as ‘AA-/Stable’ and ‘AA-’ respectively.

Categories of Investors – The company has decided to categorise investors in the following three categories:

Category I – Qualified Institutional Bidders (QIBs)

Category II – Non-Retail Investors including HUFs, Corporates etc.

Category III – Retail Investors including HUFs investing Rs. 10 lakh or below

Category Reservation – 50% of the issue size i.e. Rs. 250 crore, has been reserved for Category III retail investors, 35% i.e. Rs. 175 crore for Category II non-retail investors and 15% i.e. Rs. 75 crore for Category III institutional investors.

Allotment on FCFS Basis – As with most of these issues, allotment in this issue will be made on a first come first serve (FCFS) basis.

Interest Payment Date – IIHFL has decided to pay interest on the investors’ money on a monthly basis, but has not fixed the date of interest payment as yet. Interest payment will start from one month after the deemed date of allotment and will keep on getting paid on the same date every month.

Profile & Financials of India Infoline Housing Finance Limited (IIHFL)

India Infoline Housing Finance Limited (IIHFL) is a wholly owned subsidiary of India Infoline Finance Limited (IIFL), which is a 98.87% subsidiary of India Infoline Limited (IIL). As its name clearly indicates, the company offers housing loans and loans against property (LAP).

IIHFL received the certificate of registration from the National Housing Bank (NHB) to carry on the business as a Housing Finance Company (HFC) on February 3, 2009, which makes it a company with short operational history.

To measure the scale of its operations, I tried to do some comparison of its financials with that of its parent company, IIFL and IIL, the parent company of IIFL. Here are certain tables which carry some relative data for comparison:




These tables clearly show that IIHFL is a very small company relative to IIFL and IIL. Also, though the company deals in secured financing only, which ensures lower NPAs and lesser recovery related problems, its business model is very much concentrated to a single segment i.e. housing loans and loans against property. This makes it more vulnerable to adverse market conditions including intense competition, an economic downturn or a sudden downward movement in real estate prices.

IIFL, in its September issue, offered coupon rates of 12% per annum. It is really surprising for me to see the parent company offering higher rate of interest and its subsidiary, of a much smaller size, offering a lower rate of interest @ 11.52% per annum.

Personally, I won’t put my money into this issue and won’t advise any of my clients either, except somebody who is not liable to pay any taxes and wants regular income on a monthly basis.

Application Form for IIHFL NCDs

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in IIHFL NCDs, you can contact me at +919811797407

Power Grid FPO @ Rs. 85-90 – Basis of Allotment, Credit of Shares into Demat A/cs., Refund & Listing Info

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Power Grid follow-on public offer (FPO) finally got closed yesterday. The issue got 6.74 times oversubscribed and the company successfully raised around Rs. 7,000 crore from the issue.

As the issue has got closed now, the investors are quite eager to know what price has been fixed by the company to issue these shares at, when they will come to know how many shares have been allotted to them, when these shares will get credited to their respective demat accounts, when these shares will be admitted to trade on the stock exchanges.

Here are some of those post-offer FAQs regarding Power Grid FPO and my responses to the best of my knowledge and research capabilities:

How many times the issue has got subscribed and how many shares will I be allotted? I have applied for ‘X’ number of shares, what is the system for allotment – is it based on lottery system, proportionate system or guaranteed allotment of shares?

Vivek also put up a similar query today.

Vivek December 7, 2013 at 4:05 pm

How many shares can I get for 2L application if issue is subscribed 2.17 time? I will get 6 lots minimum- how much more?

The issue has got oversubscribed to the tune of 6.74 times overall and 2.17 times in the retail investors category. Approximately 3,89,142 bids have got placed on the stock exchanges during the offer period.

As per the new rules for Basis of Allotment – “Every retail participant gets a minimum bid lot allotted, irrespective of his/her application size. This is subject to availability of shares.” So, the allotment system is neither lottery based nor it would be proportionate or guaranteed allotment.

As the retail investors category in the issue has got 2.17 times subscribed, I think there are enough number of shares available in this category for every retail investor to get at least one lot of 150 shares allotted. In a way, it is guaranteed allotment, but only of 150 shares.

If you’ve applied for 2,250 shares or 2,100 shares, it is no guarantee that you’ll get these many shares allotted, even in a proportionate manner.

You will get to know the exact number of shares allotted to you only once the basis of allotment gets finalised.

What price has been fixed by the company to issue these shares at?

Simple asked me to guess the “Cut-Off” price yesterday.

Simple December 6, 2013 at 11:53 pm

Hi Shiv!

Retail subscribed @ 2.17 times. Any guesses about the cut off price?

The board of Power Grid is scheduled to meet on Monday and after its consultation with the book running lead managers (BRLMs), will fix the final issue price i.e. the cut-off price. I expect the cut-off price to get fixed at Rs. 90 per share. If it gets fixed below this price, it will be a bonus for the investors.

By when will I get to know how many Power Grid shares have been allotted to me? If I get certain number of shares allotted, by when will the shares be credited to my demat account?

SPPatel, a relatively new participant in the FPO/IPO process, wanted to know about the date by which he can expect the shares to get allotted and the allotted shares to start trading.

SPPatel December 6, 2013 at 11:52 am

Dear Shiv,

Can you tell me the allocation date of FPO. When it will be available to my account. And when i can do the buy/sell transaction. Actually i dont know much about FPOs. So i am asking these kind of question. Thanks in advance.

Post closure of the FPO, this is the most common query the investors have and the following table, which I have taken from page 418 of the Red Herring Prospectus filed by Power Grid dated November 15, 2013, is the best source to get all our queries answered.

Power Grid, in consultation with the NSE, the designated stock exchange, will finalise the basis of allotment on or about December 16th. As we can check from the table above, we’ll get to know the number of shares allotted to each of us either by December 16th or December 17th. The Registrar to the issue will initiate the refund process as early as December 17th.

After approval of the basis of allotment by the NSE, an allotment advice will be sent to each successful investor, who has been or is to be allotted Power Grid shares.

Investors can expect the FPO shares to get credited into their respective demat accounts latest by December 18th or December 19th. Once these shares get fully allotted, we can expect these shares to start trading on the stock exchanges by December 20th.

Power Grid will ensure that the whole FPO process gets completed within 12 working days from the closing date of the issue, including the finalisation of basis of allotment, refund of excess investment amount, allotment & credit of shares to the successful bidders and commencement of trading.

If there is any delay in the refund of investment amount, Power Grid will have to pay interest at the rate of 15% per annum.

Finally, if you have any other FPO related query, please share it here. I’ll try to answer it as soon as possible. If you have any allotment or refund related grievance, then you need to contact Karvy Computershare, the Registrar to the issue.

I’ll keep updating this post as and when I get any post FPO info. If any of you get info about the issue price, allotment, refund, listing or any related news, please share it here.

Issue Price Fixed At – Rs. 90 per share with discount of Rs. 4.50 for the Retail Investors

Basis of Allotment

(Source: Times of India)

Refund Process Started From – December 17th (Updated on December 17th)

Credit of Equity Shares into Demat Accounts – December 18th (Updated on December 18th)

Trading in FPO Shares Begins From – December 19th (Updated on December 18th)

IIFCL 8.91% Tax-Free Bonds Tranche II – December 2013

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

India Infrastructure Finance Company Limited (IIFCL) is back again to offer its tax-free bonds and as expected this time, it is carrying higher rate of interest for all the maturity periods. The issue is getting opened for subscription from Monday, 9th of December and is scheduled to get closed along with the HUDCO 9.01% issue on January 10th, 2014, which is a Friday.

Size of the Issue – IIFCL raised Rs. 1,213.01 crore from its Tranche I issue in October and plans to mop up another Rs. 3,000 crore from this issue, including the green shoe option of Rs. 2,000 crore.

If the company is able to successfully raise its target amount of Rs. 3,000 crore from this issue, then it plans to launch its Tranche III issue sometime in January again.

Categories of Investors & Allocation Ratio – Investors have been categorised in the four usual categories and the percentage allocation has been the same as it was in IIFCL’s first issue:

Category I – Qualified Institutional Bidders (QIBs) – 15% of the issue is reserved i.e. Rs. 450 crore

Category II – Non-Institutional Investors – 20% of the issue is reserved i.e. Rs. 600 crore

Category III – High Net Worth Individuals including HUFs – 25% of the issue is reserved i.e. Rs. 750 crore

Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved i.e. Rs. 1,200 crore

NRIs Ineligible to Invest – Once again, IIFCL has not allowed Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) to participate in this issue.

Coupon Rates on Offer – Coupon rates in this issue are absolutely same as those got offered in the NTPC issue – 8.91% per annum for the 20 year option, 8.73% per annum for the 15 year option and 8.66% per annum for the 10 year option.

These rates are applicable for the retail investors investing Rs. 10 lakh or below. All other investors will see a cut of 25 basis points or 0.25% per annum for the respective maturity periods.

Rating of the Issue – Like its previous issue, IIFCL Tranche II issue is also ‘AAA’ rated. CARE, ICRA, Brickwork Ratings and India Ratings, all these four rating agencies have assigned their highest credit rating to this issue.

These bonds are again ‘Secured’ in nature as certain receivables of the company will be charged equivalent to the outstanding amount of the bonds.

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchange.

Listing – IIFCL will get these bonds listed only on the Bombay Stock Exchange (BSE). As required by the listing rules of the SEBI, the company has committed to get the bonds allotted and listed within 12 working days from the closing date of the issue.

No Lock-In Period – As these bonds are freely tradable, an investor may sell them on the BSE whenever he/she wants after these bonds get listed on the exchange. That is how these bonds do not carry any lock-in period.

Demat/Physical Option – Though these bonds are tradable if taken in the demat form, investors have the choice to subscribe for these bonds in physical form as well, if they don’t have a demat account or they don’t want to take these bonds in the demat form.

Interest on Application Money & Refund – IIFCL will pay interest to the successful allottees on their application money, from the date of realization of application money up to one day prior to the deemed date of allotment, at the applicable coupon rates. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Minimum Investment – Investors are required to invest a minimum of Rs. 5,000 in this issue i.e. at least 5 bonds of Rs. 1,000 face value each.

Interest Payment Date – IIFCL has not fixed the date of interest payment for this issue as yet. It has decided to pay its first due interest exactly one year after the deemed date of allotment.

NTPC issue, which got closed on Thursday, received an overwhelming response from all the categories of investors. As IIFCL is offering coupon rates absolutely same as those offered by NTPC, it is very much clear that these tax-free interest rates are very attractive.

Though I don’t expect this issue to get subscribed as fast as the NTPC issue, the investors, who missed out on the NTPC issue and/or want to invest only in ‘AAA’ rated securities, I think this issue offers a very good opportunity.

Also, a number of macro economic data is expected to get released sometime next week here, such as trade deficit for the month of November, IIP growth figures, CPI inflation, WPI inflation etc. This data will be very crucial for the RBI Governor Dr. Raghuram Rajan to take his final decision for the RBI’s monetary policy of December 18th.

One more rate hike would once again ruin the mood of the market participants in the bond markets and result in a jump in the G-Sec yields. Investors should keep a close eye on all these events also.

Application Form of IIFCL Tax Free Bonds

IIFCL Tax-Free Bonds – Bidding Centres

IIFCL Tax-Free Bonds – Banking Matrix

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in IIFCL tax-free bonds, you can contact me at +919811797407

Power Grid Corporation’s FPO @ Rs. 85-90 – December 2013

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

Power Grid Corporation of India Limited (PGCIL), a ‘Navratna’ company and the Central Transmission Utility (CTU) of the country, is coming out with its second follow-on public offer (FPO). The issue will open for subscription today, December 3 and will get closed for the institutional investors on December 5 and for all other investors, including the retail investors and its employees on December 6.

Price Band & 5% Discount – The company has set the price band between Rs. 85 to Rs. 90 and has also decided to offer a 5% discount to the retail investors and the employees of the company. If the price gets fixed at Rs. 90, the retail investors will get the shares at Rs. 85.50 per share.

Lot Size, Minimum & Maximum Investment – With a lot size of 150 shares and the offer price of Rs. 85.50 per share, minimum investment required stands at Rs. 12,825. A retail investor may apply for a maximum of 2,250 shares in the offer i.e. a maximum investment of Rs. 1,92,375.

Shares on Offer – The company is going to issue about 78.71 crore shares in the offer, constituting 17% of the company’s existing paid up capital. This comprises a fresh issue of 60.19 crore shares and simultaneous disinvestment of 18.52 crore shares by the Government of India. After the stake sale, the Government’s holding in PowerGrid will come down to 57.89% from the current 69.42%.

35% Issue Reserved for Retail Investors – There are three categories of investors – Qualified Institutional Bidders (QIBs), Non-Institutional Bidders (NIBs) and the retail investors. 50% of the issue is reserved for the QIBs, 15% for the NIBs and the remaining 35% for the retail investors. 30 lakh shares have been reserved for the employees of the company.

Historical Price Movement – Power Grid launched its IPO in October 2007 and its first FPO in November 2010. Price band set for the current FPO is absolutely same as it was offered in its first FPO. Since then, its price has been moving in a limited range, touching a high of Rs. 124.70 and a low of Rs. 86.55.

But, during most of this time period, it has remained in a very tight price range of Rs. 95 to Rs. 115. During the same time, the fundamentals of the company never deteriorated, as it has been the case with many other public sector enterprises.

This FPO has been an overhang on the company’s price movement in the recent past. Despite a good performance and improved profitability shown by the company, its price has fallen from Rs. 110-115 to Rs. 93-98 in the last few months.

The company is to invest Rs. 30,000 crore in the 12th Plan and this FPO would help the company to partially fund its ongoing projects.

Power Grid is a defensive stock to buy in the power sector with extremely attractive valuations. Net Profit of the company grew at 22% compounded annually between financial years 2007-08 and 2012-13. At the current price of Rs 93.60, the stock trades at 10.05 times its trailing twelve months earnings per share and 1.64 times its book value.

I think the offer price of the company in the FPO @ Rs. 85.50 is extremely attractive and has the potential to provide around 30-50% returns in the next one to two years time frame. Personally, I’ll subscribe to the issue and advise my clients as well to invest in this offer.

NTPC 8.91% Tax Free Bonds – December 2013 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

NTPC (BSE:532355), the country’s largest power generator and a ‘Maharatna’ company, is set to enter the battlefield of tax-free bond issues from Tuesday, December 3rd. It would become the sixth company to do so this financial year after REC, HUDCO, IIFCL, PFC and NHPC.

The issue will remain open for just ten working days to get closed on December 16th i.e. Monday.

Size of the Issue – NTPC has been authorized to raise Rs. 1,750 crore from tax free bonds this financial year. The company plans to mop up the whole of Rs. 1,750 crore from this issue itself, including the green shoe option of Rs. 750 crore, as the base issue size is Rs. 1,000 crore.

Rating of the Issue – NTPC is a big company with market capitalization of Rs. 121,497 crore as compared to REC’s market cap of Rs. 22,376 crore, NHPC’s market cap of Rs. 22,326 crore and PFC’s market cap of Rs. 20,956 crore. Considering its big size and strong fundamentals, CRISIL and ICRA have assigned ‘AAA’ rating to the issue.

Like all other tax free bond issues, these bonds are also ‘Secured’ in nature and certain fixed assets of the company will be charged equivalent to the outstanding amount of the bonds.

Coupon Rates on Offer – As the issue is rated AAA, the coupon rates are lower by 10 basis points or 0.10% lower than that of HUDCO. NTPC is offering 8.66% per annum for its 10-year option, 8.73% per annum for the 15-year option and 8.91% per annum for the 20-year option to the retail investors investing less than or equal to Rs. 10 lakh.

As always, these rates would be lower by 25 basis points (or 0.25%) for the non-retail investors.

NRI Investment – Repatriation Not Allowed – Non-Resident Indians (NRIs) are also eligible to invest in this issue, but only on a non-repatriation basis. NRI investors will not be allowed to repatriate its interest amount or maturity proceeds outside India.

QFI Investment – Also, unlike HUDCO tax free bonds, Qualified Foreign Investors (QFIs) are not allowed to invest in this issue.

Investor Categories & Allocation Ratio – As always, the investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue is reserved i.e. Rs. 175 crore

Category II – Non-Institutional Investors (NIIs) – 25% of the issue is reserved i.e. Rs. 437.50 crore

Category III – High Net Worth Individuals including HUFs & NRIs – 25% of the issue is reserved i.e. Rs. 437.50 crore

Category IV – Resident Indian Individuals including HUFs & NRIs – 40% of the issue is reserved i.e. Rs. 700 crore

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Listing – NTPC has decided to get these bonds listed on both the stock exchanges i.e. National Stock Exchange (NSE) as well as the Bombay Stock Exchange (BSE) and has successfully got  the necessary in-principle listing approval also from these exchanges. The bonds will get allotted and listed within 12 working days from the closing date of the issue.

Demat/Physical Option – Investors have the choice to apply for these bonds either in physical form or in demat form, whichever they like.

No Lock-In Period – These tax-free bonds are freely tradable and do not carry any lock-in period. An investor may sell them at the market price whenever he/she wants after these bonds get listed on the NSE or BSE.

Interest on Application Money & Refund – NTPC will pay interest to the successful allottees on their application money at the applicable coupon rates, from the date of realization of application money up to one day prior to the deemed date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of Rs. 1,000 face value each. Though there is no upper limit for the investors to invest in this issue, an investor investing more than Rs. 10 lakhs will be categorized as an HNI and will get a lower rate of interest.

Interest Payment Date – NTPC will make its first interest payment exactly one year after the deemed date of allotment. As the deemed date of allotment will be announced just before the listing date, I will update this post as and when it gets announced.

NTPC is ranked fourteenth among the top Indian companies by market capitalization. Also, at present, there are only seven central public sector enterprises (CPSEs) which have been conferred the status of Maharatna and NTPC is one of them.

Among thirteen companies, which have been authorized to issue tax free bonds this financial year, NTPC is the only company which has this Maharatna status. In fact, the company this year in March got awarded as the most efficient Maharatna in manufacturing for the year 2012.

As NTPC is fundamentally a better company, the issue is rated ‘AAA’ and the issue size is relatively smaller at Rs. 1,750 crore, I think its coupon rates are attractive enough for the issue to get oversubscribed in the first week itself. I expect the investors’ response to be even better than that for NHPC and the company to get it preclosed much before its official closing date of December 16th.

Also, I expect the issue to provide some listing gains also, like it has been the case with NHPC bonds and PFC bonds. Let us see if it meets my expectations or not.

Application Form of NTPC Tax Free Bonds

NTPC Tax-Free Bonds – Bidding Centres

NTPC Tax-Free Bonds – Banking Matrix

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in NTPC tax-free bonds, you can contact me at +919811797407

HUDCO 9.01% Tax-Free Bonds Tranche II – December 2013 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

After a month long break, tax free bond issues are back and the 10-year options are looking much healthier now carrying annual coupon rates of 8.76% and 8.66% for ‘AA+’ rated HUDCO issue and ‘AAA’ rated NTPC issue respectively, as against its previous highs of 8.43% for ‘AAA’ rated PFC & NHPC issues and 8.39% for ‘AA+’ rated HUDCO issue.

While this jump has come due to a consistent rise in the yield of the benchmark 7.16% 10-year government bond, the coupon rates with 15-year option and 20-year option have been the highest ever with the HUDCO issue as it is rated ‘AA+’ and carries a leverage of 10 basis points (or 0.10% per annum). I’ll cover the HUDCO issue today and the NTPC issue tomorrow.

HUDCO is launching the second tranche of its tax free bonds from Monday, December 2nd and it will be the first ever tax free bond issue to cross the psychological mark of 9% coupon rate.

Size of the Issue – HUDCO has set the base issue size at Rs. 500 crore with an option to retain oversubscription up to Rs. 2,439.20 crore. The company has already raised Rs. 2,560.80 crore in its first tranche and through a private placement. I think this issue is attractive enough for it to become the last issue from HUDCO’s stable.

Rating of the Issue – Like Tranche I, this issue has also been rated ‘AA+’. CARE and India Ratings are the two companies which have passed their opinion to assign this rating to the current issue.

Again, the bonds are ‘Secured’ in nature as certain receivables of the company will be charged to the extent of amount to be mobilized under the issue. Also, as HUDCO is wholly-owned by the government of India, I would consider the investors’ investments to be comfortably safe in the issue.

OK to NRI Investment – Non-Resident Indians (NRIs) are eligible to invest in this issue, on a repatriation basis as well as on non-repatriation basis. Qualified Foreign Investors (QFIs) are also eligible.

Investor Categories & Allocation Ratio – As always, the investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved for the allocation:

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue is reserved

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved

Category III – High Net Worth Individuals including HUFs, NRIs & QFIs – 30% of the issue is reserved

Category IV – Resident Indian Individuals including HUFs, NRIs & QFIs – 40% of the issue is reserved

First Come First Served Allotment – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Listing – Bombay Stock Exchange (BSE) is the only exchange on which these bonds will get listed and the exchange has given its in-principle listing approval to the bonds issued under this tranche. As with all the recent issues, these bonds also will get allotted and listed within 12 working days from the closing date of the issue.

Demat/Physical Option – Investors can apply for these bonds either in physical form or in demat form, as per their comfort and requirement.

No Lock-In Period – These bonds are offering good rate of interest which is tax-free also under Indian taxation laws. As your investment does not provide any tax deduction, there isn’t any lock-in period with these bonds. As these bonds get listed on the BSE, you may sell them whenever you want at the market price.

Interest on Application Money & Refund – HUDCO is the only company which pays the same rate of interest as the applicable coupon rate is on the application money as well as on the money due for a refund. So, with the 20-year option, you’ll get 9.01% as the rate of interest on your application money as well as the refund amount.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of Rs. 1,000 face value each. Retail Investors’ investment limit stands at Rs. 10 lakhs, beyond which they will be considered as HNIs and will get a lower rate of interest.

Interest Payment Date – HUDCO has not announced the interest payment date of this issue as yet. I will update this post as and when it gets announced at the time of listing.

While it will be a bonanza for the fixed income investors, I’ll consider this to be a bad situation for the commercial banks, the government and the borrowers. Let’s check how.

Many people have been breaking their fixed deposits to invest in these tax free bonds. It is putting a lot of pressure on the banks to either hike their deposit rates or increase premature withdrawal charges.

As the money is moving out of taxable instruments like fixed deposits, post office schemes etc., the government is also losing out a big amount in tax revenues.

Higher rate of interest will force banks to hike their lending rates also in order to maintain their net interest margins (NIMs) and this outcome will put an additional burden on the borrowers.

With a huge difference between the 10-year interest rate and the 20-year or 15-year rates, I used to prefer the 20-year or 15-year options earlier. But, as the difference has narrowed down considerably, the 10-year option has also become quite attractive now. However, I still prefer the longer duration options as I think it is better to stay invested with longer duration bonds when the interest rates get higher.

Though the issue is scheduled to get closed on January 10, 2014, I really doubt that it would continue that long. I expect it to get closed earlier than that given other companies don’t offer a similar or higher rate of interest.

With coupon rate crossing 9% now on these tax free bonds, there is no reason for the investors to ignore such high rate of interest and keep investing their fresh money into fixed deposits or keep their money invested in it.

Application Form of HUDCO Tax Free Bonds

HUDCO Tax-Free Bonds – Bidding Centres

HUDCO Tax Free Bonds – Banking Matrix

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in HUDCO tax-free bonds, you can contact me at +919811797407