Inflation & Monetary Policy Mechanism

Inflation is a rise in the general level of prices of goods and services in an economy over a period of time. Inflation can also be described as a decline in the real value of money—a loss of purchasing power in the medium of exchange which is also the monetary unit of account and the monetary store of wealth. When the general price level rises, each unit of currency buys fewer goods and services. A chief measure of price inflation is the inflation rate, which is the percentage change in a price index over time.

When I was a kid my grandparents used to tell me – "Son, in our time we use to take money (paisa) in pockets and carry goods to home in bags. But in your age you will carry money (rupees) in bags and carry goods to home in your pocket". He was so right! This is inflation –which reduces the purchasing power of common man.

Measuring Inflation

In major economies, inflation is measured by CPI, which is Consumer Price Index. CPI is a measure of the average price of consumer goods and services purchased by households. The percent change in the CPI is a measure of inflation. Two basic types of data are needed to construct the CPI: price data and weighting data. The price data are collected for a sample of goods and services from a sample of sales outlets in a sample of locations for a sample of times. The weighting data are estimates of the shares of the different types of expenditure as fractions of the total expenditure covered by the index. These weights are usually based upon expenditure data obtained for sampled periods from a sample of households.

In other words, Inflation is calculated as percentage change in CPI in two periods. Hence,

Inflation (%) = (CPI2- CPI1)*100/CPI1

Where, CPI1 = CPI in the previous period and CPI2 = CPI in the current period.

India uses a different price index called the Wholesale Price Index (WPI) to calculate the rate of inflation in our economy. It is quite similar to Consumer Price Index, but uses whole sale prices instead of retail consumer prices. WPI is the index used to measure changes in the average price levels in the wholesale market. Data on 435 commodities is tracked through WPI, in India, which is an indicator of movement in prices. I share the common view of other economists who believe WPI, as a measure of inflation, is flawed. India should switch to CPI, which has been adopted by most developed countries.

There are several other ways of measuring inflation as well. They are GDP price deflator, Producer Price Indices and Commodity Price Indices. However, they are not commonly used.

Flaws of WPI

Former RBI governor once explained why India does not use CPI as a measure of inflation. The CPI data is not released as frequently as WPI data. WPI data is released almost weekly and sometimes at most biweekly, where as CPI data is released once in a month. There is also a lot of lag in collating all the CPI data. There is another problem with the CPI data in India. We don't have a single CPI data, but four different CPI figures relating to agriculture goods, urban manual labor and non-urban labor etc. There is no discipline in when these different figures are released and with what frequency. So government of India has a genuine reason in not going for CPI based inflation.

WPI based calculation is full of flaws. WPI is supposed to measure impact of prices on business. But we use it to measure the impact on consumers. The WPI that was constituted in 1993-94 has virtually remained unchanged since then, and it has lost quite a bit of its relevance while calculating inflation. Some of the WPI commodities include coarse grains that go into making of livestock feed but they continue to be considered while measuring inflation. The sole reason why many unimportant commodities continue to remain included is possibly because data on their prices was available!

Causes of Inflation

Let's get back to our discussion on the fundamentals of inflation. Economists believe that inflation is a monetary phenomenon. However, in the short and medium term inflation may be affected by supply and demand pressures in the economy, and influenced by the relative elasticity of wages, prices and interest rates.

1. Over-expansion of money supply i.e. excess liquidity in the economy leads to inflation because "too many money would be chasing too few goods".

2. Expansion of Bank Credit Rapid expansion of bank credit is also responsible for the inflationary trend in a country.

3. Deficit Financing: The high doses of deficit financing which may cause reckless spending, may also contribute to the growth of the inflationary spiral in a country.

4. A high population growth leads to increase in demand and money income and cause a high price rise.

5. Excessive increase in the price of fuel or food products due to political, economic or natural reasons will lead toinflation for short- as well as long-term.

For example – We all remember that price of crude went up from $50 to $140 within two years. Almost every industry including agriculture, transportation and manufacturing depends on crude for its operation. Any excessive increase in the price of crude leads to increase in cost of good and services i.e. inflation.

Another example – China and India consist of almost 34% of the world's population. As the economy in these two countries are growing at a rate of over 9%, people are consuming more and more goods due to increased income and better life. Demand for those goods and services has led to a high inflationary environment in these countries.

States of Inflation

There are different states of inflation which is characterized based on its value as well as variation from the previous value.

1. Hyperinflation – It is a very high rate of inflation, usually a rate in excess of 50%. History has some excellent examples of hyperinflation. In Germany, inflation exceeded 1 million % in 1923. It was said that a horse cart full of money would not buy even a newspaper. Right now, Zimbabwe is having an inflation of 1 million %. They have to issue currency of $500 Million dollar (I am not kidding!!) which could only buy a lunch at McDonalds.

2. Deflation – It is the decrease in the general price level of goods and services only when annual inflation is below 0% resulting in the real value of money. Hence, it is sometimes called "negative inflation". Japan suffered from deflation for almost a decade in 1990s. To control recession and Central Bank of Japan was forced to have a negative interest rate on deposit for over a decade.

3. Disinflation – It refers to a time when the rate of change of prices is falling while the inflation rate is positive. For example – if the inflation rate comes down from 3% to 2%, we would say it is disinflation. In India, we have a disinflation because inflation has come down from a high of 13% to 6% and it is still dropping.

4. Stagflation – It is an economic situation in which inflation and economic stagnation occur simultaneously and remain unchecked for a period of time. Stagflation can result when an economy is slowed by an unfavorable supply shock, such as an increase in the price of oil in an oil importing country, which tends to raise prices at the same time that it slows the economy by making production less profitable.

Effects of Inflation on economy

As we know Inflation is the increase in the price of general goods and service. Thus, food, commodities and other services become expensive for consumption. Inflation can cause both short-term and long-term damages to the economy; most importantly it causes slow down in the economy.

1. People start consuming or buying less of these goods and services as their income is limited. This leads to slowdown not only in consumption but also production. This is because manufactures will produce fewer goods due to high costs and anticipated lower demand.

2. Banks will increase interest rates as inflation increases otherwise real interest rate will be negative. (Real interest ~ Nominal interest rate – inflation). This makes borrowing costly for both consumers and corporate. Thus people will buy fewer automobiles, houses and other goods. Industries will not borrow money from banks to invest in capacity expansion because borrowing rates are high.

3. Higher interest rates lead to slowdown in the economy. This leads to increase in unemployment because companies start focusing on cost cutting and reduces hiring. Remember Jet Airways lay off over 1000 employees to save cost.

4. Rising inflation can prompt trade unions to demand higher wages, to keep up with consumer prices. Rising wages in turn can help fuel inflation.

5. Inflation affects the productivity of companies. They add inefficiencies in the market, and make it difficult for companies to budget or plan long-term. Inflation can act as a drag on productivity as companies are forced to shift resources away from products and services in order to focus on profit and losses from currency inflation.

Inflation Targeting

There are various ways of controlling inflation in an economy. I will discuss two main ways of doing so:

Monetary Policy

The most important and commonly used method is monetary policy. Most central banks use high interest rates and slow growth of the money supply as the traditional ways to fight or prevent inflation. RBI raised CRR, Repo rate and Reverse repo rate to reduce money supply in the economy to fight inflation which was hovering in double digit. High interest rates make borrowing expensive and hence, people as well as corporate borrow less money from banks. This reduced the demand for goods and services such as real estate, automobiles and others.

1. Repo (Repurchase) Rate 2. Reverse Repo Rate 3. Bank Rate 4. Call Rate 5. CRR 6. SLR 1. Repo (Repurchase) Rate

Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the demands they are facing for money (loans) and how much they have on hand to lend. If the RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate. Hence, if repo rate is increased, banks would hesitate to borrow money from RBI. Hence, there would be less cash and less liquidity in the market. 2. Reverse Repo Rate This is the exact opposite of repo rate. The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse repo rate. The RBI uses this tool when it feels there is too much money floating in the banking system. If the reverse repo rate is increased, it means the RBI will borrow money from the bank and offer them a lucrative rate of interest. As a result, banks would prefer to keep their money with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a certain amount of risk). Consequently, banks would have lesser funds to lend to their customers. This helps stem the flow of excess money into the economy. Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks, while repo signifies the rate at which liquidity is injected. 3. Bank Rate This is the rate at which RBI lends money to other banks or financial institutions. The bank rate signals the central bank's long-term outlook on interest rates. If the bank rate moves up, long-term interest rates also tend to move up, and vice-versa. Banks make a profit by borrowing at a lower rate and lending the same funds at a higher rate of interest. If the RBI hikes the bank rate (this is currently 6 per cent), the interest that a bank pays for borrowing money (banks borrow money either from each other or from the RBI) increases. It, in turn, hikes its own lending rates to ensure it continues to make a profit. 4. Call Rate Call rate is the interest rate paid by the banks for lending and borrowing for daily fund requirement. Since banks need funds on a daily basis, they lend to and borrow from other banks according to their daily or short-term requirements on a regular basis. A lower call rate means banks frequently borrow money from other banks. A lower call also shows health and confidence of the economy and banking system. 5. CRR Also called the cash reserve ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain with the RBI. This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that RBI control liquidity in the system, and thereby, inflation by tying their hands in lending money. 6. SLR Besides the CRR, banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity ratio (SLR) requirements. What SLR does is again restrict the bank's leverage in pumping more money into the economy.

Fixed Interest Rate

As we know high inflation reduced the value of money. A number of smaller countries who do not have sophisticated banking system rely on tying their currency with that of a developed country. Under a fixed exchange rate currency regime, a country's currency is tied in value to another single currency or to a basket of other currencies (or sometimes to another measure of value, such as gold). A fixed exchange rate is usually used to stabilize the value of a currency, vis-à-vis the currency it is pegged to.

Government Measures

Apart from these two broad methods, government takes some protectionist measures as well to fight inflation. Government may ban export of essential items such as pulses, cereals and oils to support the domestic consumption and hence reduced their prices. Also, government may lower duties on the import of similar items which are having less supply in the economy.

Positive side of inflation

You may be wondering how come inflation is good for economy. A little bit of inflation is not a bad thing. It implies the possibility of higher prices and profits in the future. To the worker, a little bit of inflation may imply rising wages in the future. What I am trying to say is that they are based more on "psychology" than "economics".

THE REAL STORY OF INFOSYS

PART 1

It was probably the April of 1974. Bangalore was getting warm and gulmohars were blooming at the IISc campus. I was the only girl in my postgraduate department and was staying at the ladies' hostel. Other girls were pursuing research in different departments of Science. I was looking forward to going abroad to complete a doctorate in computer science. I had been offered scholarships from Universities in the US. I had not thought of taking up a job in India.
One day, while on the way to my hostel from our lecture-hall complex, I saw an advertisement on the notice board. It was a standard job-requirement notice from the famous automobile company Telco (now Tata Motors). It stated that the company required young, bright engineers, hardworking and with an excellent academic background, etc.At the bottom was a small line: "Lady Candidates need not apply."
I read it and was very upset. For the first time in my life I was up against gender discrimination. Though I was not keen on taking up the job, I saw it as a challenge. I had done extremely well in academics, better than most of my male peers. Little did I know then that in real life academic excellence is not enough to be successful? After reading the notice I went fuming to my room.
I decided to inform the topmost person in Telco's management about the injustice the company was perpetrating. I got a postcard and started to write, but there was a problem: I did not know who headed Telco.
I thought it must be one of the Tatas. I knew JRD Tata was the head of the Tata Group; I had seen his pictures in newspapers (actually, Sumant Moolgaokar was the company's chairman then). I took the card, addressed it to JRD and started writing. To this day I remember clearly what I wrote. "The great Tatas have always been pioneers.
They are the people who started the basic infrastructure industries in India, such as iron and steel, chemicals, textiles and locomotives. They have cared for higher education in India since 1900 and they were responsible for the establishment of the Indian Institute of Science. Fortunately, I study there. But I am surprised how a company such as Telco is discriminating on the basis of gender."
I posted the letter and forgot about it. Less than 10 days later, I received a telegram stating that I had to appear for an interview at Telco's Pune facility at the company's expense. I was taken aback by the telegram.
My hostel mate told me I should use the opportunity to go to Pune free of cost and buy them the famous Pune saris for cheap! I collected Rs.30 each from everyone who wanted a sari. When I look back, I feel like laughing at the reasons for my going, but back then they seemed good enough to make the trip.
It was my first visit to Pune and I immediately fell in love with the city. To this day it remains dear to me. I feel as much at home in Pune as I do in Hubli, my hometown. The place changed my life in so many ways. As directed, I went to Telco's Pimpri office for the interview. There were six people on the panel and I realised then that this was serious business."This is the girl who wrote to JRD," I heard somebody whisper as soon as I entered the room. By then I knew for sure that I would not get the job. The realisation abolished all fear from my mind, so I was rather cool while the interview was being conducted.
Even before the interview started, I reckoned the panel was biased, so I told them, rather impolitely, "I hope this is only a technical interview."
They were taken aback by my rudeness, and even today I am ashamed about my attitude. The panel asked me technical questions and I answered all of them.

Then an elderly gentleman with an affectionate voice told me, "Do you know why we said lady Candidates need not apply? The reason is that we have never employed any ladies on the shop floor. This is not a co-ed college; this is a factory.
When it comes to academics, you are a first ranker throughout. We appreciate that, but people like you should work in research laboratories." I was a young girl from small-town Hubli. My world had been a limited place. I did not know the ways of large corporate houses and their difficulties, so I answered, "But you must start somewhere, otherwise no woman will ever be able to work in your factories."
Finally, after a long interview, I was told I had been successful. So this was what the future had in store for me. Never had I thought I would take up a job in Pune. I met a shy young man from Karnataka there, we became good friends and we got married.

It was only after joining Telco that I realized who JRD was: the uncrowned king of Indian industry. Now I was scared, but I did not get to meet him till I was transferred to Bombay. One day I had toshow some reports to Mr. Moolgaokar, our chairman, who we all knew as SM.I was in his office on the first floor of Bombay House (the Tata Headquarters) when, suddenly JRD walked in that was the first time I saw "appro JRD". Appro means "our" in Gujarati.

This was the affectionate term by which people at Bombay House called him.I was feeling very nervous, remembering my postcard episode. SM introduced me nicely, "Jeh (that's what his close associates called him), this young woman is an engineer and that too a postgraduate.

She is the first woman to work on the Telco shop floor." JRD looked at me.
I was praying he would not ask me any questions about my interview (or the postcard that preceded it).

Thankfully, he didn't. Instead, he remarked. "It is nice that girls are getting into engineering in our country. By the way, what is your name?"
"When I joined Telco I was Sudha Kulkarni, Sir," I replied. "Now I am Sudha Murthy." He smiled and kindly smile and started a discussion with SM. As for me, I almost ran out of the room. After that I used to see JRD on and off. He was the Tata Group chairman and I was merely an engineer. There was nothing that we had in common. I was in awe of him. One day I was waiting for Murthy, my husband, to pick me up after office hours. To my surprise I saw JRD standing next to me. I did not know how to react. Yet again I started worrying about that postcard. Looking back, I realise JRD had forgotten about it.

It must have been a small incident for him, but not so for me. "Young lady, why are you here?" he asked. "Office time is over." I said, "Sir, I'm waiting for my husband to come and pick me up." JRD said, "It is getting dark and there's no one in the Corridor. I'll wait with you till your husband comes." I was quite used to waiting for Murthy, but having JRD waiting alongside made me extremely uncomfortable. I was nervous. Out of the corner of my eye I looked at him. He wore a simple white pant and shirt. He was old, yet his face was glowing. There wasn't any air of superiority about him. I was thinking, "Look at this person. He is a chairman, a well-respected man in our country and he is waiting for the sake of an ordinary employee." Then I saw Murthy and I rushed out. JRD called and said, "Young lady, tell your husband never to make his wife wait again." In 1982 I had to resign from my job at Telco. I was reluctant to go, but I really did not have a choice. I was coming down the steps of Bombay House after wrapping up my final settlement when I saw JRD coming up. He was absorbed in thought. I wanted to say goodbye to him, so I stopped. He saw me and paused.Gently, he said, "So what are you doing, Mrs. Kulkarni?" (That was the way he always addressed me.) "Sir, I am leaving Telco."
"Where are you going?" he asked. "Pune, Sir. My husband is starting a company called Infosys and I'm shifting to Pune."

"Oh! And what will you do when you are successful." "Sir, I don't know whether we will be successful." "Never start with diffidence," he advised me. "Always start with confidence. When you are successful you must give back to society. Society gives us so much; we must reciprocate. I wish you all the best." Then JRD continued walking up the stairs. I stood there for what seemed like a millennium. That was the last time I saw him alive. Many years later I met Ratan Tata in the same Bombay House, occupying the chair JRD once did. I told him of my many sweet memories of working with Telco. Later, he wrote to me, "It was nice hearing about Jeh from you. The sad part is that he's not alive to see you today."

I consider JRD a great man because, despite being an extremely busy person, he valued one postcard written by a young girl seeking justice. He must have received thousands of letters everyday. He could have thrown mine away, but he didn't do that. He respected the intentions of that unknown girl, who had neither influence nor money, and gave her an opportunity in his company. He did not merely give her a job; he changed her life and mindset forever. Close to 50 per cent of the students in today's engineering colleges are girls. And there are women on the shop floor in many industry segments. I see these changes and I think of JRD.
If at all time stops and asks me what I want from life, I would say I wish JRD were alive today to see how the company we started has grown. He would have enjoyed it wholeheartedly.
My love and respect for the House of Tata remains undiminished by the passage of time. I always looked up to JRD. I saw him as a role model for his simplicity, his generosity, his kindness and the care he took of his employees. Those blue eyes always reminded me of the sky; they had the same vastness and magnificence.
*(Sudha Murthy is a widely published writer and chairperson of the Infosys Foundation involved in a number of social development initiatives. Infosys chairman Narayan Murthy is her husband.) *

Article sourced from: Lasting Legacies (Tata Review- Special Commemorative Issue 2004), brought out by the house of Tatas to commemorate the 100th birth anniversary of JRD Tata on July 29, 2004


Part 2

This article is written by Sudha the wife of the Chairman (Murthy) of the largest IT Company INFOSYSin India.

(Infosys is a multi billion company now) Murthy & his wife are famous for their simplicity!! Article is simply humbling & too inspiring!!

AUTHOR AND WIFE OF INFOSYS CHAIRMAN NARAYANA MURTHY, TELLS THE STORY OF HOW INFOSYS WAS BORN AND HOW HER LIFE HAS CHANGED...YET REMAINED VERY MUCH THE SAME
I was in Pune when I met Narayana Murthy through my friend Prasanna, who is now the Wipro chief, who was also training in Telco. Murthy was shy, bespectacled and an introvert. When he invited us for dinner, I was a bit taken aback... I refused since I was the only girl in the group. But Murthy was relentless and we all decided to meet or dinner the next day at 7.30PM at Green Fields Hotel on Pune's Main Road.
The next day, I went there at seven since I had to go to the tailor near the hotel. And what do I see? Mr Murthy waiting in front of the hotel and it was only seven.

Till today, Murthy maintains that I had mentioned (consciously!) that I would be going to the tailor at seven, so that I could meet him... And I maintain that I did not say any such thing, consciously or subconsciously, because I did not think of Murthy as anything other than a friend at that stage. We have agreed to disagree on this matter. Soon, we became friends. Our conversations were filled with Murthy's experiences abroad and the books that he had read. My friends insisted that Murthy was trying to impress me because he was interested in me. I kept denying it till one day,after dinner, Murthy said, I want to tell you something. I knew this was it. It was coming. He said, I am 5'4" tall. I come from a lower middleclass family. I can never become rich. You are beautiful, bright, intelligent and you can get anyone you want. But will you marry me?

I asked him to give me some time...

When I went to Hubli, I told my parents about Murthy and his proposal. My mother was positive since Murthy was also from Karnataka, seemed intelligent and came from a good family. But my father asked: What's his job, his salary, his qualifications, etc? Murthy was working as a research assistant and earning less than me. He was willing to go Dutch with me on our outings.

My parents agreed to meet him in Pune on a particular day at 10 am sharp. Murthy did not turn up. How can I trust a man to take care of my daughter if he cannot keep an appointment, asked my father. At 12 noon, Murthy turned up in a bright red shirt! He had gone on work to Bombay , got stuck in a traffic jam in the ghats, so he hired a taxi (though it was very expensive for him) to meet his would-be father-in-law.
Father was unimpressed. He asked Murthy what he wanted to become in life. Murthy said he wanted to become a politician in the Communist Party and wanted to open an orphanage. My father gave his verdict. No. I don't want my daughter to marry somebody who wants to become a communist and then open an orphanage when he himself doesn't have money to support his family...

By this time, I realised I had developed a liking towards Murthy, which could only be termed as love. I wanted to marry him because he was an honest man. I promised my father that I would not marry Murthy without his blessings, though at the same time, I would not marry anybody else. My father said he would agree if Murthy promised to take up a steady job. But Murthy refused, saying he would not do things in life because somebody wanted him to. I was caught between the two most important people in my life. The stalemate continued for three years, during which our courtship took us to every restaurant and cinema hall in Pune. Murthy was always broke. (Ironically, today, he manages Infosys Technologies Ltd, one of the world's most reputed companies.) He always owed me money. We used to go for dinner and he would say, I don t have money with me, you pay my share, will return it to you later. For three years, I maintained a book of Murthy's debts to me. No, he never returned the money and I finally tore it up after our wedding. The amount was a little over Rs 4,000.
During this period, Murthy quit his job as a research assistant and started his own software business... Towards the late'70s computers were entering India in a big way. At the fag end of 1977, Murthy decided to take up a job as General Manager at Patni Computers in Bombay.But before he joined the company, he wanted to marry me since he was to go on training to the US afterjoining.

My father gave in as he was happy Murthy had a decent job, now. We were married in Murthy's house in Bangalore on February 10, 1978, with only our two families present. I got my first silk sari. The wedding expenses came to only Rs 800, with Murthy and I pooling in Rs 400 each. I went to the US with Murthy after marriage. He enouraged me to see America on my own, because I loved travelling. I toured America for three months with a backpack.

In 1981, Murthy wanted to start Infosys. Initially, I was very apprehensive about him getting into business. We were living a comfortable life in Bombay with a regular paycheck and I didn't want to rock the boat. But Murthy was passionate about creating good quality software. I decided to support him. Typically for Murthy, he had a dream and no money. So I gave him Rs 10,000 which I had saved for a rainy day without his knowledge and told him, this is all I have. Take it. I will take care of the financial needs of our house. You go and chase your dreams. But you have only three years!

Murthy and his six colleagues started Infosys in 1981.In 1982, I left Telco and moved to Pune with Murthy. We bought a small house on loan, which also became the Infosys office. I was a clerk-cum-cook- cum-programmer. I also took up a job as Senior Systems Analyst with the Walchand group of Industries to support the house.

In'83, Infosys got their first client, MICO, in Bangalore . Murthy moved to Bangalore and stayed with his mother, while I went to Hubli to deliver my second child, Rohan. Ten days after my son was born, Murthy left for the US on project work. I saw him only after a year - my son had infantile eczema. It was only after Rohan received all his vaccinations that I came to Bangalore where we rented a small house in Jayanagar and rented another house as Infosys headquarters. Nandan Nilekani and his wife Rohini stayed with us. While Rohini babysat my son, I wrote programmes for Infosys. There was no car, no phone, just two kids and a bunch of us working hard, juggling our lives and having fun while Infosys was taking shape. The wives of other partners too, gave their unstinting support. We all knew that our men were trying to build something good.

Murthy made it very clear that it would either be me or him working at Infosys. Never the two of us together. He did not want a husband and wife team at Infosys. I was shocked since I had the relevant experience and technical qualifications. He said, Sudha if you want to work with Infosys, I will withdraw, happily I was pained to know that I would not be involved in the company my husband was building and that I would have to give up a job that I was qualified to do and loved doing... Then, I realised that to make Infosys a success, one had to give 100 per cent. One had to be focused on it alone, with no other distractions. If the two of us had to give 100per cent to Infosys, what would happen to our home and our children? I opted to be a homemaker; after all, Infosys was Murthy's dream. It was a big sacrifice, but it was one that had to be made. Even today, Murthy says,Sudha, I stepped on your career to make mine. You are responsible for my success. I might have given up my career for my husband's sake, but that does not make me a doormat... Isn't freedom about living your life the way you want it? What is right for one person might be wrong for another. It is up to the individual to make a choice that is effective in her life. I believe that when a woman gives up her right to choose for herself, that is when she crosses over from being an individual to a doormat.

Murthy's dreams encompassed not only himself, but a generation of people. It was about creating something worthy, exemplary and honourable. It was about creation and distribution of wealth. His dreams were grander than my career plans, in all aspects. So, when I had to choose between Murthy's career and mine, I opted for what I thought was the right choice. We had a home and two little children. Somebody had to take care of it all. Somebody had to stay behind to create a home base that would be fertile for healthy growth, happiness, and more dreams to dream. I became that somebody willingly I can confidently say that if I had had a dream like Infosys,Murthy would have given me his unstinted support. The roles would have been reversed. We are not bound by the archaic rules of marriage. He does not intrude into my time, especially when I am writing my novels. He does not interfere in my work at the Infosys Foundation and I don't interfere with the running of Infosys.

I teach computer science to MBA and MCA students at Christ College for a few hours every week and I earn around Rs 50,000 a year. I value this financial independence greatly, though there is no need for me to pursue a career. Murthy respects that. I travel the world without him, because he hates travelling. We trust each other implicitly. We have another understanding too. While he earns the money, I spend it mostly through charity. The Infosys Foundation was born in 1997 with the sole objective of uplifting the less-privileged sections of society. In the past three years,we have built hospitals, orphanages, rehabilitation centres, school buildings, science centres and more than 3,500 libraries. Our work is mainly in the rural areas amongst women and children. I am one of the trustees of the Foundation, and our activities span six states. I travel to around 800 villages constantly. Every year, we donate around Rs 5-6 crores. We run Infosys Foundation the way Murthy runs Infosys - in a professional and scientific way. Philanthropy is a profession and an art. It can be used or misused. Every year, we receive more than 10,000 applications for donations. Every day, I receive more than 120 calls. Amongst these, there are those who genuinely need help and there are hoodwinkers too. Over the years, I have learnt to differentiate the wheat from the chaff, though I still give all the cases a patient hearing. Sometimes, I feel I have lost the ability to trust people. I have become shrewder to avoid being conned. I think that is the price that I have to pay for the position I am in now.

The greatest difficulty in having money is to teach your children its value... Bringing up children in a moneyed atmosphere is a difficult task.
Even today, I think twice if I have to spend Rs 10 on an auto when I can walk to my house. I cannot expect my children to do the same. They have seen money from the time they were born. But we can lead by example. When they see Murthy wash his own plate after eating and clean the two toilets in the house every day, they realise that no work is demeaning, irrespective of how rich you are. This doesn't mean we expect our children to live an austere life. My children buy what they want, go where they want, but they have to follow certain rules. They have to show me bills for whatever they buy: My daughter can buy five new outfits, but she has to give away five old ones. My son can go out with his friends for lunch or dinner, but we discourage him from going to a five star hotel.Or we accompany him. My children haven't given me any heartbreak. My daughter is studying abroad, my son in Bangalore. They don t use their father's name in vain. They only say that his name is Murthy and that he works for Infosys.

They don't want to be recognised and appreciated because of their father or me, but for themselves.

I don't feel guilty about having money, for we have worked hard for it. But I don't feel comfortable flaunting it. It is a conscious decision on our part to live a simple, so-called middle class life. We live in the same two-bedroom, sparsely furnished house we lived in before Infosys became a success. Our only extravagance is buying books and CDs. My house has no lockers for I have no jewels. I wear a pair of stone earrings which I bought in Bombay for Rs 100. I don, t even wear my `mangalsutra` unless I need to attend some family functions or when I am with my mother-in-law.

Five years ago, I went to Kashi, where tradition demands that you give something up. I gave up shopping. Since then, I haven't bought myself a sari or gone shopping. I don't carry a purse and neither does Murthy, most of the time. I borrow money from my secretary or my driver if I need cash.

They know my habit, so they always carry extra cash with them. But I settle the accounts every evening. Murthy and I are very comfortable with our lifestyle and we don't see the need to change it now that we have money.

Murthy and I are two opposites that complement each other. Murthy is sensitive and romantic in his own way. He always gifts me books addressed 'From Me to You. Or'To the person I most admire, etc. We both love books. I am an extrovert and he is an introvert. I love watching movies and listening to classical music. Murthy loves listening to English classical music. I go out for movies with my students and secretary every other week.

I am still young at heart. I really enjoyed watching 'Kaho Na Pyaar Hai'; I'm a Hrithik Roshan fan. It has been more than 20 years since Murthy and I went for a movie. My daughter once gave us a surprise by booking tickets for 'Titanic'. Since I had a prior engagement that day, Murthy went for the movie with his secretary Pandu. I love travelling, whereas Murthy loves spending time at home. Friends come and go with the share prices. Even in my dreams, I did not expect Infosys to grow the way it has. After Infosys went public in 1993, we became what people would call rich, moneyed people. Suddenly, you see and hear about so much money: people talk about you. It was all new to me. Have I lost my identity as a woman, in Murthy's shadow? No, I might be Mrs Narayana Murthy. I might be Akshata and Rohan's mother. I might be the
trustee of Infosys Foundation. But I am still Sudha. Like all women, I play different roles. That doesn't mean we don't have our own identity.
Women have that extra quality of adaptability and learn to fit into different shoes. But we are our own selves still. And we have to exact our freedom by making the right choices in our lives, dictated by us and not by the world.

Dow to fall 90%? Yes, says Elliott Wave International's Prechter

With the stock market lurching again, plenty of investors are nervous, and some are downright bearish. Then there’s Robert Prechter, the market forecaster and social theorist, who is in another league entirely. 

Prechter is convinced we have entered a market decline of staggering proportions – perhaps the biggest of the last 300 years. 

In a series of phone conversations and e-mail exchanges last week, he said that no other forecaster was likely to accept his reasoning, which is based on his version of the Elliott Wave theory – a technical approach to market analysis that he embraces with evangelical fervor. 

Originating in the writings of Ralph Nelson Elliott, an obscure accountant who found repetitive patterns, or "fractals," in the stock market of the 1930s and '40s, the theory suggests that an epic downswing is underway, Prechter said. But he argued that even skeptical investors should take his advice seriously. 

"I’m saying: ‘Winter is coming. Buy a coat,’" he said. "Other people are advising people to stay naked. If I’m wrong, you’re not hurt. If they’re wrong, you’re dead. It’s pretty benign advice to opt for safety for a while." 

His advice: Individual investors should move completely out of the market and hold cash and cash equivalents, like Treasury bills, for years to come. (For traders with a fair amount of skill and willingness to embrace risk, he suggests other alternatives, like shorting the market or making bets on volatility.) But ultimately, "the decline will lead to one of the best investment opportunities ever," he said. 

Buy-and-hold stock investors will be devastated in a crash much worse than the declines of 2008 and early 2009 or the worst years of the Great Depression or the Panic of 1873, he predicted. 

For a rough parallel, he said, go all the way back to England and the collapse of the South Sea Bubble in 1720, a crash that deterred people "from buying stocks for 100 years," he said. This time, he said, "If I’m right, it will be such a shock that people will be telling their grandkids many years from now, ‘Don’t touch stocks.'" 

The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said. That unraveling, combined with a depression and deflation, will make anyone holding cash "extremely grateful for their prudence." 

Prechter is hardly the only market hand to advocate prudence now, but nearly everyone else foresees a much rosier future once current difficulties are past. For example, Ralph J. Acampora, a market analyst with more than 40 years of experience, said he moved entirely out of stocks and into cash late last month. Now a partner at Alverita, a wealth management firm in New York, he said recent setbacks suggested that the market would drop another 10 or 15 percent, probably until September or October, before resuming another "meaningful rally." 

Over the next several years Acampora expects an "old normal market," characterized by relatively short-lived swings that will provide many opportunities for smart investors – one that resembles the markets of the 1960s and 70s. "I’ve lived through it," he said. 

Like Prechter, he is a past president of the Market Technicians Association, the leading organization of technical market analysts, and he said that his colleague has done "some very good work." But Acampora doesn’t agree with Prechter’s long-term theories, either intellectually or emotionally.

The "mathematics don’t work," Acampora said, because such a big decline would imply that individual stocks would need to trade at unrealistically low levels. Furthermore, he said, "I don’t want to agree with him, because if he’s right, we’ve basically got to go to the mountains with a gun and some soup cans, because it’s all over."

Still, on a "near-term" basis, he said, "We’re probably saying the same thing."

Similarly, Larry Berman, who co-founded ETF Capital Management in Toronto and recently ended his term as the president of the technicians association, says he sees a "classic" short-term negative market trend developing now. But he doesn’t use the Elliott Wave theory, saying Prechter is trying to "measure the market in decades, which is too long a time frame for practical trading purposes or for risk management."

Prechter, 61, lives in Gainesville, Ga., where he runs Elliott Wave International, a forecasting and publishing firm. He graduated from Yale University as a psychology major in 1971, dabbled as a singer, drummer and songwriter in a rock band and became a technical analyst for Merrill Lynch.

Prechter became fascinated by Elliott’s writings, which suggest that the market moves in predictable if complex patterns. Along with A.J. Frost, Prechter wrote "Elliott Wave Principle," a 1978 book that predicted the emergence of a great bull market – a forecast that was largely fulfilled. By 1987, he was widely regarded as an expert in technical analysis. Articles in The New York Times said he was known as "the market’s leading technical guru" – and more. An article in October that year said he had "emerged as both prophet and deity, an adviser whose advice reaches so many investors that he tends to pull the market the way he has predicted it will move."

He has far less day-to-day influence now, after years spent developing a theory he calls "socionomics," which holds "social moods" as the cause not only of market cycles but also of economic and political events. A grand cycle is ending, he says, and the time for reckoning is near.

In 2002, he published "Conquer the Crash," which predicted misery ahead. Even so, he said in 2008 that the market would soon rally sharply – then said late last year that stocks were about to fall and that the great decline would resume.

Since 1980, the advice in his investing newsletters, when converted into a portfolio, has slightly underperformed the overall stock market but has been much less risky, losing money in only one calendar year, according to calculations by The Hulbert Financial Digest. Prechter said he disagreed with the methodology used in these measurements, but offers none of his own.

For his part, Acampora says that the Elliott Wave has some validity as an indicator but that "it’s only part of the story" of technical market analysis, which also needs to be buttressed by economic and fundamental research.

Prechter says his unifying theory, socionomics, is a "young science."

"We’re quantifying it," he said. "We’re working on it." In the meantime, he contends, it has enabled him to "look around the corner" and prepare for a dangerous future.

MAHALAXMI

Confidence Petroleum BSE Code: 526829 CMP: Rs. 7.5/-

Confidence Petroleum India (CONFIPET) is engaged in the liquid petroleum gas (LPG) bottling business. It was incorporated in July 1994 as a private limited company and converted into a limited company in September 1994. Earlier known as Deversa Gas-Chem, it got its present name on Feb. 21, 2006.The company is part of the Nagpur-based Confidence group, which is into the business of LPG cylinder manufacturing, bottling, marketing, blending, auto cylinder manufacturing and auto dispensing.

The company manufactures cylinders and is engaged in LPG bottling and distribution. It has fully absorbed the LPG bottling technology at its plants spread across Udaipur and Pali in Rajasthan; Raigad and Patalganga in Maharashtra; Coimbatore in Tamil Nadu; Haridwar in Uttaranchal; Chindwara, Gwalior and Jabalpur in Madhya Pradesh.

A plant in Patalganga manufactures cylinders, and the Andhra Pradesh State Government allotted a 10-acre piece of land in 2008 within a Visakhapatnam special economic zone to establish a second CNG cylinder manufacturing plant.

Beta 1.39
Institutional Holding 0.83%
Current Dividend Yield 0%
Current P/E 8
Current Market Price Rs 7.5
Current Market Cap Rs 204 cr

Confidence Petroleum has emerged a key vendor for marketing operations of oil and gas players. Focussing on its key clientele the company is expanding its bouquet of offerings and is adding capacities. Considering the interesting opportunities lying ahead for this little known company, it appears attractive for the long-term investors.

Business:

Confidence Petroleum (CPL) is establishing itself as an all service provider for the marketing and distribution needs of Indian oil marketing companies. The company has scaled up its traditional businesses of LPG cylinders and LPG bottling and is investing heavily in auto LPG and natural gas distribution related businesses.

CPL has emerged India’s largest bottler of liquefied petroleum gas (LPG) operating out of 51 locations. These dispersed facilities offer greater flexibility and cost advantage to petroleum retailers in supplying LPG to domestic users spread across the country.

The company is also the largest LPG cylinder manufacturer with 6 facilities having an installed capacity of around 42 lakh cylinders per annum. Its 7.5 lakh unit per annum plant near Kandla in Gujarate is a 100% export oriented unit (EOU). The company has set up 50 auto LPG dispensing stations (ALDS) across various cities under the brand of GoGas.

The company has also entered the natural gas related businesses and recently commissioned a 3-lakh unit per annum cylinder manufacturing facility for compressed natural gas (CNG). It has also launched auto meter reading solutions for piped natural gas (PNG) sold to households by the city gas distributors (CGD).

Towards the end of year 2008, the company acquired two ethanol manufacturing units with a combined capacity of 1.5 lakh liters per day and one crude oil refining unit with 2 lakh liters per day capacity in Maharashtra. The company acquired these distressed assets for a low investment of around Rs 7.5 crore, which allows them the flexibility of operating only when profitable.

Growth drivers:

The company has recently commissioned CNG cylinder manufacturing plant in Vizag for exports market. It is currently setting up LPG and CNG cylinder manufacturing complex in Uttarakhand, which will commission operations by end of 2009. This new plant will enjoy 15-year exemption from sales and excise duties.

The company is carrying an order book of over 30 lakh LPG cylinders. It has significant growth plans in ALDS to scale up to 250 stations in next couple of years and has also won a turn-key contract for Indian Oil to set up 9 similar stations.

The company has tied up with Israel’s Energetech to introduce an innovative technology for automotive natural gas called ‘Adsorbed Natural Gas’ (ANG). This would enable it to store large quantity of natural gas under less pressure, enabling light-weight cylinders, which could be installed even on two-wheelers.

This being a new concept in India needs government approval and the company has received permission from the Chief Controller of Explosives to conduct tests. This technology, when commercialised, would enable it to transport natural gas from the marginal fields. The company also has plans to augment its offering to the petroleum companies by adding fuel-dispensing units for petroleum retailing and also move into setting up auto CNG stations.

Financials:

The current management has taken over the listed company with two LPG bottling plants, which was a sick unit, few years back and has turned it around. Hence, we do not have long financial history for the company.

Last year the company raised over Rs 100 crore through a GDR issue and share warrants. The company’s debt-to-equity ratio has been steadily coming down to 0.1 for the year ended March 2008. Post completion of its Uttarakhand plant, CPL would be carrying around Rs 30 crore of debt.

The company has approved a share buy-back of upto 5% of its equity from open market at a price less than Rs 20 per share. The company is currently in the process of amalgamating three of its subsidiaries with itself.

During FY 2010, the company is expected to derive meaningful benefit of its investments in Vizag and Uttarakhand plants as well as the acquisitions.

Most of the people reading this article, by now, must be aware of the of the illegal involvement of Ketan Parekh (He was involved in the scam related to Madhavpura Mercantile Co-operative Bank & amp; was banned by SEBI five-and-a-half-years ago) and the entities backed by him in unscrupulous trading activities in certain counters such as Cals Refineries, Confidence Petroleum, Bang Overseas, Temptation foods and Shree Precoated steels.

Securities and Exchange Board of India in the course of its routine market surveillance, received information regarding theexecution of synchronized deals in above mentioned scrips by entities namely, Maruti Securities Limited, Kundan Leasing and Finance Private limited,Chandra Financial Services Private Limited, Jay Investrade Private Limited and HSM Financial Services Private Limited. Also, SEBI's probe found that the two individuals — Harsh Shirish Maniar and Jay Shirish Maniar — were directors in three of the connected entities.

Now, Ketan Parekh's involvement is suspected as the PAN details of the two mentioned individuals revealed that their father, Shirish Shantilal Maniar, had been chargesheeted by the Central Bureau of Investigation (CBI) along with Ketan Parekh five years ago.

Devoid of economic rationale...The connected entities made off-market transactions amongst themselves. There were many instances where one connected client made off-market transfer to another connected client to enable the recipient to meet its market sale delivery obligations. Their transactions in securities amongst themselves appear to be devoid of economic rationale as they made substantial losses on account of their dealings in the scrips of Cals, SPSL and TFL. That they continued to execute such uneconomic transactions indicates that they possibly had alternative pay-offs outside the securities market and Ketan Prekh could be supporting them.

Confidence Petroleum Case...
It's a known fact that the connected clients carried out circular trading in the scrip of Confidence Petroleum as well and that has made many investors jittery and suspicious of the company. The stock also plunged by 5% in the day's trading after revelations of Ketan Parekh's involvement. The investors are very rightly concerned about their investments in this counter.

Let me put forward some points regarding the findings of SEBI :

#1. On December 28, 2006 Confidence petroleum had allotted around 2.1 Cr warrants to one of the connected entities i.e. Kundan Leasing and Finance Private limited (KLFPL). The warrants were converted to equity shares on June 13, 2007. The Lock-in Release date of the shares was on December 29, 2007. It is observed that KLFPL had dematerialized those shares and transferred the same through off-market transactions to various connected clients.

>>> Now, if the promoters had any intentions of manipulating the trade volume or rigging the stock price then they could have resorted to some other means & would not have issued warrants which had a lock-in release date of December 29, 2007 i.e full one year ahead. Why would a promoter ask an entity to manipulate the trading volumes in his company after 1 year?

#2. A thorough glance at the shareholding pattern of Temptation foods, Cals refinery and Confidence Petroleum clearly tells the difference. Temptation foods had just 18.19% as Promoters holding with 99.83% of their shares pledged, a case somewhat similar to Satyam. Also Venture Business Advisors private limited – the promoter group of Temptation foods limited was directly involved in off-market transactions with the connected entities, thus ensuring that promoters were a party to such fraudulent activities.

>>>Whereas in the case of Confidence Petroleum, the promoters have a sizeable holding of 45.52% with none of their shares pledged. Also in the last six months they have accumulated 26,81,231 shares from the open market with major purchasing done in the month of May when the price was hovering around 8-9 levels. That in itself should give a sense of satisfaction and should bolster the confidence of investors.

Trading in a counter by a group of entities take place on a daily basis in most of the counters and it's difficult for the promoters or others to know until authorized entities such as SEBI or Income tax department come out with such disclosures. So, one should not conclude that promoters are involved or a company is cheat.

It is blessing in disguise for those who wish to enter the scrip or want to invest more, because after such disclosures by SEBI, the stock price have come down to 7-8 levels, which otherwise may not have happened.

Off-late the company has performed really well with more than 50% jump in net profit for quarter ending Dec'09. Expect the company to register more than Rs 35 crore as net profit for FY 2009-10. This is substantial growth considering the fact that we are just out of recession. At present the company is available at very cheap valuations with a P/E multiple of just 8, while in the past it has traded at more than 20.

Thus, the case definitely provides a buying opportunity to all those who were sitting on fence waiting for the price to come down and also to those who wish to add more to their holding as the company has strong fundamentals and has huge opportunities ahead both internationally and domestically. The stock has all the merits to appreciate significantly on the basis of its performance and I thus suggest you to keep holding the same for next 3-4 years. But once must take position according to their own risk appetite and do their own research. It's your money invest it wisely; I am just suggesting it.



Nitin Khara- A born winner


Born into a middle-class Gujrathi family, he grew up to become one of the very successful first generation entrepreneurs. He grew up inculcating all the good values of being a good person, an honest citizen and an ambitious leader. 


His growth path started with a small venture into stainless steel business with limited capital from his pocket in the year 1985. Within a span of 8 years he had gathered enough experience and courage to take over a LPG cylinder manufacturing unit in Mandeedip, in M.P. From here began the growth of a true businessman whose vision was great, who could take risks and who had the courage to trade on paths un-trodden.


Hereafter it was more takeovers and acquisitions of cylinder manufacturing plants which he continued to do very confidently. Start of Bottling plant network :


Then came the Government’s hints that it may allow private companies to enter the field of domestic LPG marketing. Mr. Khara tapped the opportunity and “Gaspoint Petroleum (India) Ltd.” took birth in the year 1999. Under this banner, the company went on with opening of LPG bottling plants all over India. They were with the view of reaching out to the public as a whole.


The network of bottling plants increased steadily and now the company operates through its bottling plants in total 22 states all over India. The company caters to bottling requirements for all major Public Sector units including HPCL, BPCL, IOCL and also to private companies like Leader and Shell gas.


Manufacturing in big way:


The company acquired one after the other cylinder manufacturing units and became the largest cylinder manufacturer in the country.


* The acquisitions and takeovers can be summarized as below :
* Andhra Cylinders, Hyderabad in the year 1997.
* Maharashtra Cylinders Private Limited, Nagpur taken over in 1997.
* Karnool cylinders, Karnool, taken over in 1998.
* Sanuj Steels Private Limited, Khopoli taken over in 1999.
* Mercury Cylinders Pvt. Ltd., Mathura taken over in 2000.
* Devrasa Gas Chem Ltd.


Under his leadership the company revived the Khopoli plant to become Asia’s largest cylinder manufacturing plant.


The company is largest supplier of cylinders to major oil companies like HPCL, BPCL, IOCL and some other private companies like Reliance and Shell.


Formation of Confidence Group :


With his presence in all LPG related activities it was time to go national. He acquired a stock listed company with the name of “Devrasa Gas Chem” and renamed it as Confidence Petroleum India Ltd. Thus now his company was Bombay stock exchange listed. His phenomenal growth path continued herein as well and the shares of the company recorded a path breaking increase in prices in a short period of time. Once again Mr. Khara was in news, this time on National news channels as winner.


Confident as he is, he ventured into the Global securities market with a GDR listing. Again emerging as winner he not earned his company good share, but also an international acknowledgment.


Latest Ventures :


Visionary as he is, Mr. Khara is busy in some international tie ups that may give Indian LPG market a big technological boom. In view of the changing market scenario, where technology plays a vital role in any business, he is bringing the latest and the most modern one to India. The company’s latest venture is in the field of Auto LPG. In the initial phases, the company has plans to launch 150 Auto LPG Dispensing Stations (ALDS) all over India. The stations are specifically designed for maximum customer comfort and safety. The next phase includes setting up of Auto LPG Cylinder Manufacturing Units.


Global Businessman :


Mr. Khara’s vision has already seen the opportunity that lies in alternate sources of fuel to cater the ever increasing need of the society. He has ambitious plans for making the Natural Gas available in the country viable and usable to the society as a whole.


This includes some technological innovations to be brought in from other developed countries. He plans to make CNG & LPG as the parallel sources available under the banner of his company – Confidence Group of Compnaies.


One more sector he is venturing into is the Automatic Meter Reading technology. The system works on Radio Frequency and is one of its kind. The knowledge sharing agreements with an Israel company called Miltel are through and the products are being tested in India.


Socialite :


Mr. Nitin Khara is not only an accomplished businessman but also has a great presence in social and community activities. His leadership qualities come in play in taking him to the top in every activity that he undertook. Some of the chairs currently dawned by him are:


1. Director in Vardhman Urban Co-operative Bank Ltd.
2. Vice President – All India Parallel LPG Federation
3. Chairman – Mahavir International
4. Vice President – ‘Sankalp’ a social organization.
5. Trusty – Sakal Jain Foundation
6. Trusty – Shree Vardhman Sthanakwasi Jain Shrawak Sangh
7. Trusty – Vanrai – a social group
8. Executive Member – Jain Social Group
9. Trusty – Shree Gujrathi Samaj
10. Member – Vidarbha Industries Association (VIA)
11. Member – Nag Vidarbha Chamber
12. Member – Lions Club


Awards and Achievements :


This journey has given a lot of satisfaction and accolades to Mr. Khara in the form of various awards won by him. Some of the major awards are :


Presented with memento for Outstanding and meritorious contribution at the hands of then President of Lions Club in the year 1995-1996. Jay Maharashtra Smruti Chinha for outstanding achievements in the field of business at the hands of Sh. Vilasrao Deshmukh in the year 1999. Udyog Patra – by “Institute of Trade and Industrial Development” in the year 2002 at the hands of the then Labour minister Sh.Satyanarayan Jatiya during “16th Economic Development Conference”. Rashtriya Udyog Ratan Award by IOBRD.

IKF Technologies Ltd. BSE Code: 532414 CMP: Rs.3.5-4/-

IKF Technologies Ltd. is a Public Limited company incorporated in the year of 2000 with the main objective of promoting IT, ITES, Telecom and Alternative Energy Resources across the Globe. Today it has emerged as one of the fastest growing company in IT and pioneering in the field of Bio Diesel. We will try to analyze if buying stocks of IKF could be good deal for invetsors in longer time frame duration. IKF Green Fuels Ltd formed as a subsidiary of IKF Technologies in 2005-06 started working in 2006 and has begun field operations in the current cropping season in 16 states in India.

IKF Green Fuels Ltd formed as a subsidiary of IKF Technologies in 2005-06 started working in 2006 and has begun field operations in the current cropping season in 16 states in India including Chattisgarh, West Bengal, Jharkhand, Orissa, Rajasthan, Karnataka, Madhya Pradesh, Tamil Nadu, Andhra Pradesh, Maharashtra, Gujarat, Manipur, Arunachal Pradesh, Assam, Meghalaya and Nagaland.

The parent company IKF Technologies has committed an investment of Rs 200 crore into IKF Green Fuels Ltd. Currently the company has 50,000 hectares of land under cultivation and has recently signed an MoU with the government of Madhya Pradeshwhere it would be investing Rs 30 crore in setting up a refinery. It is also seeking 2,000 hectares of wasteland for the cultivation of Jatropha in the state. The companyhas also signed an agreement with Indian Oil Corporation Ltd, R&D center, Faridabad for transferring of technology and providing technical assistance for conversion of Jatropha into biofuel.

A group of individuals bought a listed company in 2004 and turned it around. The software company they bought, has now expanded into telecom and even into the emerging bio-fuels business. Can we buy stocks of IKF to create wealth for us.

IKF Technologies is today a Rs 180-crore company and growing. In 2004-05, when the company was taken over by Pradeep Dutta and Sunil Kumar Goel, it had a share capital base of Rs 10 crore. Over the last two years, the company has invested in putting together infrastructure and technology, which has paid off. It grew its web development, software and BPO businesses internationally, to Australia and the UK.

Read: IKF plans Rs 400-cr GDR for biofuel biz

In 2006, it set up a 31-seat BPO for Tata Teleservices. “The initial couple of years went into restructuring and settling down in the core business,” says Pankaj Garg, director at IKF Technologies, which counts domestic telcos and banks among its clients. Though the promoters realise that they are late entrants in BPO outsourcing, they are looking at new markets.

IKF has now set up offices in Germany, Brazil, Dubai and Russia, and is hoping to see growth from these markets over the next two years. The idea of getting into telecom was there since 2006 but “since it was difficult to get a licence at that point in time, it never materialised”, says Garg. But it finally got a Category ‘A’ licence for Internet Service Provider (ISP) by the Department of Telecommunications (DoT) in January. Since then, it has been busy setting up its network. “We have already spent Rs 4-5 crore, and another Rs 8-9 crore will be spent in the future on developing the network,” informs Garg. As an initial foray in telecom, the company decided to get into VoIP services, a segment, which is not too crowded. That’s how IKF Tel came into being. The company is almost on the verge of launching its VoIP services for the retail market, having already launched the same for enterprise customers.

IKF has earmarked $2-3 million for its telecom business, of which, says Garg, $1 million has already been spent over the last one year. IKF expects revenues of Rs 100 crore from its telecom business in the next three years, growing both organically and inorganically. Taking its quest for emerging technologies forward, IKF is into bio-fuels too.


According to Vishal Rawat, President, IKF Green Fuels, "The company plans to invest Rs 2,200 crore by 2015 in both plantations and refineries to become a market leader in the field and is eyeing 15-20 percent of the market share of biodiesel by then." The company has joint ventures for Jatropha cultivation in several states. In Andhra Pradesh, it has tied up with Sigma Biofuels Hyderabad and SRECKO Indhan Ltd while in Gujarat it has a JV with Avani Vermi Compost and Biofuel, Ahmedabad.


Bio Diesel Sector - Future Prospects 

"We aim to have 15-20 percent share of the biodiesel market by 2015,"

-Vishal Rawat, President, IKF Green Fuels


Exerpts of interview with Vishal Rawat printed in BioSpectrum magazine.

How many refineries do you have? Any plans for expansion? 
The company has a refinery at Udaipur with a capacity to process 3,000 liters of biodiesel per day for trial and demonstration purposes. We are looking at the expansion of that refinery as well as setting up of more refineries in Vidharbha, Gujarat and Meghalaya. The capacity would be dependent on the captive area.

When do you expect to start commercial production?
We expect to start it by 2011. We expect full-fledged commercial production to start by 2015-16 since by then we would have a fully-developed refining capacity and plantations. We expect the size of the industry to be close to Rs 80,000-l00,000 crore by 2017.

How are you funding the plantations?
We have an agreement with HDFC bank for a credit line of Rs 20 crore on an all India basis for the farmers to undertake contract farming for IKF Green Fuels Ltd. We also have got a preliminary approval from Buldhana Urban Cooperative Credit Society (Maharashtra) for extending a credit line of Rs 50 crore for Jatropha cultivation. We are targeting 10,000 hectares in Maharashtra by the end of this year. We are also in advanced stages of talks with the Punjab National Bank and Cooperation Bank for a similar arrangement.

Are you looking at any acquisitions?
We are looking at acquiring a proprietorship concern in Rajasthan. It has around 10,000 hectares of existing plantation and an assured credit line of Rs 10 crore. The deal is almost finalized. We have also put up a proposal to Rajasthan fuel development authority for allotting 10,000 hectares which will take some time.

What is the progress made on R&D?
We already have 26 different varieties of Jatropha and we have collected the planting material from different sources. We are setting up a 200 hectares research farm in Ahamgaon in Maharashtra and looking at tie-ups with agricultural universities as well.

“The chairman of the company, Dr RP Singh, who is a former scientist at the Indian Agriculture Research Institute, led us into this field,” says Vishal Rawat, president bio-diesel at IKF Green Fuel. IKF Green Fuel is also planning to get into ethanol, solar and wind energy in the near future. For bio-diesel, though, it has signed an MoU with the government of Madhya Pradesh through which it is seeking 200 hectares of wasteland for jatropha cultivation and will also be setting up an oil extraction plant with an investment of Rs 30 crore.

It also engages in contract farming on private wasteland. “We have one refinery already at Udaipur, which can produce 3,000 litres a day but at the moment, it is being used for trial runs. We expect commercial production to start by 2010-11,” says Rawat. Commercial bio-diesel production would need a steady flow of jatropha seeds. To this effect, IKF has 10,000 hectares of jatropha under cultivation, both on leased and owned land. “By 2008-end, we hope to reach the 30,000-40,000 hectares mark,” says Rawat. Meanwhile, research is on for better seeds with agricultural universities and other institutions.

The company has been granted permission by the government of India for a GDR issue to raise Rs 500 crore. About Rs 200 crore are already been allocated for IKF Green Fuel, indicating the company’s commitment to the growing sector. It is also exploring JVs in Brazil and South Africa for plantation and extraction there. “We want to be the leader in the bio-fuels market by 2015,” says Rawat.

IKF Tech plans to grow jatropha in Africa-------
IKF Technologies, the country's first corporate jatropha refiner, has formally approached African Governments — Swaziland, Mozambique and South Africa — for permission to cultivate the plant. Armed with detailed project reports, the company has also applied for an area of 50,000 acres of wasteland in each of these countries for organised jatropha farming. Mr Mukesh Kumar Goel, a director of the company, told Business Line that official responses, however, were awaited. According to the company's estimates, the cost of acquiring the land (total 1.5 lakh acres), nursing the plants till the first fruition after 18 months, and setting up crushing facilities would be Rs 3,000 crore. In a phased manner If permissions were obtained, the purchases or acquisition of land through lease and taking up the plantation projects would be done in a phased manner over a long period of time. IKF has sought to own the land in Africa, and prefers not go in for contract farming, Mr Goel explained.

In India, it has opted for the contract-farming model in Rajasthan, where its existing refinery is located, in an area of 5,000 hectares. In Meghalaya, however, IKF cultivates on its own land.Its refinery was commissioned in March this year. Currently, it is procuring jatropha seeds from the open market since it began farming the plants in Meghalaya roughly 12 months ago.Though the first flush of seeds takes 18 months, jatropha harvests are available twice a year in the period after maturing. One hectare can accommodate roughly 2,500 plants.

The yield per tree in one harvest, according to thumb rule, is around 3.5 kg and from one kg of seeds, a little over 300 ml of bio-diesel can be had.The company has a one-year renewable technology agreement with Indian Oil Technologies Ltd, a subsidiary of Indian Oil Corporation, for perfecting mixing grade bio-diesel.

Refinery in Gujarat :
It has proposed to set up another refinery in Gujarat with a capacity of 1 lakh tonnes per annum at a cost of Rs 50 crore.

It has also sought permission for contract farming of jatropha in Gujarat and Chhattisgarh.

In Rajasthan, it has a refinery running with a capacity to produce 3,000 litres a day.

As a Market Analyst, I am strongly recommending to buy stock at CMP of around INR 3-4. It's future prospects are bright. 

Stock price could touch arround INR 50+ in 2012 and may be 200 in future but buy at your own risk. Do your own analysis and take a call. I would say one can take bet on this counter depending upon their risk appetite. 

Cals Refinery BSE Code: 526652

Cals Refineries is one stock in my small cap stock list and making rounds nowadays in circle of people who buy penny stocks.

Background
Cals Refineries Limited was incorporated on the 25th of July, 1984 as a private limited company. On 22nd September, 1992 the company was converted into a public limited company and is now listed on the Bombay Stock Exchange (BSE) under the Scrip Code 526652.

With the energy sector playing a pivotal role in global economies, the company aims to actively participate in it's growth in India as well as in international markets.

Cals Refineries Limited, in the first phase of a mega project, is establishing a 4.8 MMTPA (100,000 BPD) refinery at Haldia, India.

Comparison with existing refineries in India
* Reliance Industries (33 million tonne)
* Essar Oil (7.5 million tonne)
* Reliance Petroleum setting up 29 million tonne
* MRPL (10.5 million tonnes)
* Chennai Petroleum (9.5 million tonnes)
* Bongaigaon Refinery (2 million tonnes)

Management of CALS Refineries
Chairman of Cals Refineries, Mr. M.S. Ramachandran, was Chairman of Indian Oil Corporation (I.O.C.), India’s largest Oil & Gas company. Mr. M. S. Ramachandran has over 38 years of experience in the Oil and Gas industry. He was Chairman of Indian Oil Corporation (I.O.C.), India’s largest Oil & Gas company. He helped the government to implement various policies that would attract private players into the Oil & Gas sector.

At I.O.C., he redirected the organization around key business lines with greatercommercial focus and market facing capabilities. During his tenure, Mr. Ramachandran increased sales growth from USD 25 Billion to USD 34 Billion, which increased the net profit of company from USD 0.65 Billion to USD 1.2 Billion, raising the company’s Fortune ranking from 223 to 189.

Crude Oil supply
Cals Refineries Ltd has signed a deal with oil major BP for up to 5 million tonnes of crude a year for a refinery. So the supply of crude is already guarenteed.

Upstream Integration
Spice Energy, the parent company of CALS has another subsidiary, Spice Exploration, which has operations in Africa and Indonesia from where crude could be made available.

Signed with customers for finished products
Cals Refineries has signed a deal with oil major BP to buy up to 100,000 bpd crude for its refinery. As per the deal, 60,000 bpd is confirmed, the balance of 40,000 is optional.

Additionally, Cals Refineries Ltd has signed a memorandum of understanding (MoU) with Bharat Petroleum Corporation (BPCL) for petro products off-take from CALS. The MoU has been signed in order to off-take the part of petroleum products by BPCL from CALS in its first phase which is a 100,000 BPSD crude oil refinery after accounting for the products committed to British Petroleum (BP) and the entire petro products from CALS in the second phase of expansion which is another 100,000 BPSD refinery at Haldia, West Bengal.

Some calculations and stock price estimation
CAPACITY OF REFINERY = 4.8 MMTPA (Million Metric Tonnes Per Annum)= 100000 Barrels Per Day (Approximately) = 36500000 Barrels Per Annum

Gross Refining Margin (GRM) Per Barrel is 10$ = 500Rs Approx.

Approx. Annual Profit = 36500000 * 500 RS = 1825 Crores

EPS at above nis. = 1824/794 = 2.3 **794 crores is total Equity of CALS Refineries

Average P/E ratio of Indian Refining Sector would 15

Share Price = 15 *2.3 = 34.50 Rs.

So if everything goes as per calculation in phase 1 and company manages to produce as estimated, around Rs. 30 - 40 could be the stock price range.

They have plans of capacity expansion for second and third phase as well. I am not sure about the numbers.

CMP of the stock: 0.25-0.30 Rs.

Downside Support @ 0.10-0.15 paise.
If you are investing in stock markets and not in Bank FD's/bonds/Kisan Vikas Patra, you have the appetite to take risks in your investments. ;)

So you decide how much money you can loose comfortably by investing in penny stockand invest that amount in CALS Refineries. !@##@$%^%&^%$#@ this must have been your immediate reaction after reading this statement but this is what my true opinion is!

A negative note to make
Cals refineries promoters hold only 0.11 percent share in this company and Shares held by Custodians and against which Depository Receipts have been issued 83.98 percent (custodian name is The Bank of Newyork Mellon DR) so public share holding is 99.89 percent and there are a huge equity capital of cals refineries.

Total 7,931,300,000 shares of Cals refineries held by general public.

As I have read in Business Standard news article, promoters do hold a big chunk of equity (almost >70%) which is held by custodians for issue of depository receipts at the moment.

I am not recommending you to buy stocks to invest in CALS refineries but I am asking you to take a bet in this counter. If it goes well, you would gain a lot, if you loose, never mind.

Few of the penny stocks that made such magic are:
ABAN OFFSHORE - 6.00 Rs to 5393 Rs
KS OILS - 0.50 paise to 142 Rs
MERCATOR LINES - 0.40 paise to 184 Rs.
COUNTRY CLUB- 0.42 paise to 222 Rs
PANTALOONS RETAIL- 2.23 Rs to 875
JAI CORPORATION- 16 Rs to 1079 Rs


Update:-


CALS REFINERIES, which is topping Volumes in Bombay Stock Exchange, is one of the most talked in penny stock segment. I have seen in many forums and even brokers are recommending their client as a Multibagger stock just based on the humongous plans made by the company. It’s from unlisted Spice Energy group, which has its presence in Exploration, Mining and Refining sectors. Promoters acquired listed NBFC and planned to set up crude refinery. Equity floated to 794 Cr through GDR issue. Before giving any opinion on this stock lets first dig up into details of plans made by the company.

Cals Refineries plans to Implement a 20000 Cr, 4.8MMTPA refinery project at Haldia (East coast, West Bengal) by June 2011 in Phase I for which it will be shipping existing plants from Germany/Canada/US to India and adding more secondary processing units. Cals will be implementing another 4.8 MMTPA (100,000 BPD) by July 2012 taking the total capacity to 9.6 MMTPA (200,000 BPD) by July 2012.Lower capital cost/bbl and faster implementation than Greenfield project is management’s reasoning for a second-hand refinery. Company has also planned for phase III as of now I wont go deep into it. The refinery project would involve moving basic crude distillation units (CDU) from a Petro Canada plant and a refinery in Kansas, USA, moving secondary processing units from Bayernoil Ingolstadt refinery (Germany) and adding new Propylene and Benzene units .The refinery being brought from Germany is under operations from late 60's and units from PetroCanada and Kansas (US) are under operations from 70’s, these refinery will be dismantle and than transported through ship and assembled at Haldia. The refinery will be relocated by Ventech Corp USA, which has done similar relocation projects, Looking at the Management of Cals having vast experience & expertise, Chairman of Cals Refineries, Mr. M.S. Ramachandran, was Chairman of Indian Oil Corporation (I.O.C.) having over 38 years of experience in the Oil and Gas industry. Ramesh Bhosale is Chief Financial Officer, Independent Non-Executive Director of Cals Refineries Ltd. He has over 25 years of experience in the field of Costing, Finance, Accounts, MIS, Merger & Acquisition and Project Finance. Cals has some more achivement on its name like Crude oil supply contract with BP (World’s Second petroleum Company) & Sign MOU for 1000 acres land, already allotted 400 acres.

Now let look at the other side of it, there are some important facts that should be stressed on before making any position in this stock.

Due to economic meltdown, company has not able to achieve financial closure (FC) till now. Hence for the project to be completed on time look doubtful to me.
Shareholding pattern of Cals: - Interestingly, data available with BSE shows that Spice is the only promoter of CALS, controlling 0.11 per cent stake through a group outfit called SRM Exploration. But from the last two years the promoters of Spice Mr Sanjiv Malhotra, Mr Ravi Chilukuri (CEO) and Mr Gagan Rastogi and their families are claming to actually controlled as much as 75 per cent of the paid-up equity capital in Cals through GDR, but interestingly to note the shareholding pattern for the quarter ending Dec 2009 where GDR holding is reduced to only 61.16% from 83.98% in June 2009 quarter, whereas the total public share holding also increase from 15.91% to 38.73%. Number of shareholders also increased from 71,247 to 123,496 from june 2009 till now. However seeing the positive side is that Fund houses has made an entry.
India Max Investment Fund Ltd: 2.40%
Merrill Lynch Capital Markets Espana S.A. S.V.(spain): 1.27%.
GDR holdings are continuously reducing from the june 2009 qtr this creates a doubt.
Whereas looking at the work related activities at haldia only land filling is in progress and dismantling of refinery has not yet been started, Company is waiting for the Financial Closure and onces it is done than they will start the further process.
The thinning refining margin may pose further problems for the project, which suffers from an estimated cost disadvantage of $2 a barrel on crude oil transportation from the proposed port at Dhamra in Orissa to Haldia in West Bengal.
Cals is having a Market cap around 450 crore & fundamentals are nil as on date.
Whereas the revised circuit of 10% in Cals makes it a trader paradise.

Seeing all the aspect of the company as of now Cals is a very risky affair. But saying goes higher the risk; higher the return. So one can take risk within their comfortable zone.

Sturdy Industries - BSE Code: 530611 CMP: 4.90/-

This is one of the gems in penny stock trading
and also a high growth stock in list of cheap penny stocks
As in all stock investments I have one research on this GEM
Total Sales in March 2009 quarter were Rs 20.08 Crores which have zoomed to Rs 145.18 Crores in March 2010 Quarter
Similarily net profit has zoomed from mere 14 lakhs to Rs 1.6 Crores
EPS For Last 2 Quarters is 2.4 Rs Which makes Annualized EPS at Rs 4,8
Sock is currently trading at Rs 4.90
Which makes PE value just Above 1.6 for high growth stock like this
Now lets see Price chart of last 1 Year

This Stock was trading in Range of Rs 20 to Rs 45 when the Promoters decided to split the stock.That’s the reason its available so cheap now. Before stock trading or stock investing in This Penny stock (also known as penny trading ) lets know about this company

This Company is based in BADDI Parwaano Himachal Pradesh
M L Gupta is Chairman & Managing Director
It manufacture Plastic Products, A P Sheets and Alumimium Colour Coated Sheets/Coils
This Company was established in 1978

Risk factors:
1.Company products include asbestos product and Many NGO are opposing their production
2.There is a court cases for Merger
Board of Directors of the Company at its meeting held on October 05, 2009, inter alia, has decided to move a petition to the Division Bench against the other of the Single Bench of Honble High Court of Simla in the matter of merger of Swan Storwel Pvt ltd
3.Most Serious one :Auditor of the Company. has resigned recently

Still all the Risk Factorsare Built in price as price is severly undervalued. One can buy according their risk appetite.