Thursday, May 13, 2010
Get Godrej Industries Ltd-& Get Godrej Consumers' and Godrej Properties
Godrej consumer:
Equity Capital is 30 cr 81 lakh
Market Capitalisation is 9243 cr at 300
Godrej Industries holds 23% (2125 of current Market Capitalisation)
Godrej and Boyce Manufacturing holds 41%.
71.79% Promoters holding.
Institutional Holding-13.73% by-abardeen, first state hongkong ltdl hsbc, ilfs trust, and small cap world fund.
Godrej Properties Ltd.
Equity capital is 69.85 cr.
Market Capitalization is Rs.3422.
God Ind. holds 69%. (2361 of Market Capitalisation)
83.79-promoters holding-83.79%.
Nstitutional holding-close to 5%.
Godrej industries ltd:
Eq. capital is Rs. 31.76 crore.Market Cap is 4764 crore. At Rs.150.
Reserve of Rs.981 crore.
Godrej and Boyce manufacturing Co. holds 69%.
Godrej Ind holds 23% in Godrej Consumer, and 69% in Gojrej Properties.
This Equity Stake amounts to 2125 Cr. And 2361 Cr. Of Market Cap for Godrej Industries; in turn amounting to total Godrej Industries Market Cap of 9250 cr. (Godrej Ind’s 4764+Godrej Consumers’ 2125+ Godrej Properties’ 2361=9250).
Thus in terms of Market Capitalisation. Godrej Industries Ltd share is underpriced. I don’t say it is under valued. This is in no mean a method of value investing. It is just a calculation to find market discrepancies.
Instead of buying Godrej Consumers or Godrej Properties, You can think to Buy godrej Industries for a 100% upside from current 150 levels. Till the Market Capitalization of Godrej Industries reflects its shares in Godrej Consumers and Godrej Properties.
SHAREHOLDING PATTERN:
79.10 % held by promoters
59% held by Godrej and Boyce mfg co.
Il & fs and sbi equity holds 7.23%.
Tuesday, May 11, 2010
SIPs - Achieve the Unachievable
Hearing the word `Systematic` itself makes us feel that something or someone is well planned, well organized, or well managed and the output or result of that systematic activity or person would definitely be the best. Systematic Investment Planning (SIP) is a regular, disciplined, planned and periodic investment of small amounts of money in mutual funds at regular intervals. Many of us always think that we should invest in stocks or mutual funds, as equity can generate wealth in the long run. But the scary part of investing in equity is that if we invest in one or two specific stocks, then we are putting all our eggs in one basket which is very risky as anything can happen to our portfolio with a single swing in markets.
If you are risk averse then you should opt for SIP of mutual funds which is best mode for investing in equity market as fund raised through mutual fund is invested in different stocks spread across various sectors and market capitalizations. The plan aims at a better future for its investors as an SIP investor gets good rate of returns compared to a one time investor as he doesn`t try and time the market - which is next to impossible. This simple disciplined program of investment has many inherent advantages for retail investors which are as follow.
First, it inculcates the discipline of SAVING plus it offers CONVENIENCE in investment, although small amounts but regularly. Since you commit the post dated cheques or standing instruction to the bank to debit the monthly installments, it makes you to save every month.
Its inherent POWER OF COMPOUNDING produces amazing returns which you cannot imagine. As you keep investing, even though a small amount of money regularly, it can grow into a significant amount over a period of time. It is always recommend that one must start investing early in life to get the maximum benefit from compounding. Let`s take an example to understand it more clearly.
For e.g.: Person B started investing Rs 10,000 per year at the age of 30. Person A started investing the twice the amount every year at the age of 45. They decide to retire when they both reach the age of 60.
From above table, MB has built a corpus of Rs 12.23 lakhs while Mr. A`s corpus will be Rs 5.86 lakhs. Both have invested a total of Rs 300000. But Mr. B has managed to get more than twice what Mr. A received. That difference is due to the effect of compounding. The longer the compounding period, the better the final returns on your investments will be.
SIP also ensures you benefits of RUPEE COST AVERAGING. Rupee Cost Averaging is an effective market‐timer mechanism that eliminates market volatility. Since the amount invested per month is constant, one buys more units when the price is low and fewer units when the price is high. As a result the average unit cost will always be less than the average sale price per unit, irrespective of the market rising, falling or fluctuating. The table given below clearly illustrates the concept.
Month
Amount you invest
NAV
No. of units
1
Rs 1000
Rs 10
100
2
Rs 1000
Rs 12
83.333
3
Rs 1000
Rs 10
100
4
Rs 1000
Rs 8
125
5
Rs 1000
Rs 10
100
Total
Rs 5000
Rs 50
508.333
The average NAV = 50/5 = Rs 10
Average buying price = Total investment / Total no. of units
= 5000 / 508.333 = Rs. 9.84
Forth, it is mostly SUITABLE to small investor as it is affordable to pay a small amount regularly than paying a large amount as a whole. You can start with as low as Rs 100 a month. Thus, it`s like you put aside affordable sums of money and over the long run you could accumulate unbelievably great wealth.
Fifth, it ensures easy liquidity as investor can have the liberty to exit at any time even before the agreed time period. But some exit load shall be charged if you withdraw before one year.
Hence, if we look at the roller‐coasting equity markets and then compares it with the concept of Systematic Investment Plans, we can conclude that in order to build a steady flow of income in the future it`s necessary to keep investing regularly over a period of time, in order to eliminate the market noise and realize your goals.
Mitul Shah is a financial planner from Adinath Investments.
If you are risk averse then you should opt for SIP of mutual funds which is best mode for investing in equity market as fund raised through mutual fund is invested in different stocks spread across various sectors and market capitalizations. The plan aims at a better future for its investors as an SIP investor gets good rate of returns compared to a one time investor as he doesn`t try and time the market - which is next to impossible. This simple disciplined program of investment has many inherent advantages for retail investors which are as follow.
First, it inculcates the discipline of SAVING plus it offers CONVENIENCE in investment, although small amounts but regularly. Since you commit the post dated cheques or standing instruction to the bank to debit the monthly installments, it makes you to save every month.
Its inherent POWER OF COMPOUNDING produces amazing returns which you cannot imagine. As you keep investing, even though a small amount of money regularly, it can grow into a significant amount over a period of time. It is always recommend that one must start investing early in life to get the maximum benefit from compounding. Let`s take an example to understand it more clearly.
For e.g.: Person B started investing Rs 10,000 per year at the age of 30. Person A started investing the twice the amount every year at the age of 45. They decide to retire when they both reach the age of 60.
From above table, MB has built a corpus of Rs 12.23 lakhs while Mr. A`s corpus will be Rs 5.86 lakhs. Both have invested a total of Rs 300000. But Mr. B has managed to get more than twice what Mr. A received. That difference is due to the effect of compounding. The longer the compounding period, the better the final returns on your investments will be.
SIP also ensures you benefits of RUPEE COST AVERAGING. Rupee Cost Averaging is an effective market‐timer mechanism that eliminates market volatility. Since the amount invested per month is constant, one buys more units when the price is low and fewer units when the price is high. As a result the average unit cost will always be less than the average sale price per unit, irrespective of the market rising, falling or fluctuating. The table given below clearly illustrates the concept.
Month
Amount you invest
NAV
No. of units
1
Rs 1000
Rs 10
100
2
Rs 1000
Rs 12
83.333
3
Rs 1000
Rs 10
100
4
Rs 1000
Rs 8
125
5
Rs 1000
Rs 10
100
Total
Rs 5000
Rs 50
508.333
The average NAV = 50/5 = Rs 10
Average buying price = Total investment / Total no. of units
= 5000 / 508.333 = Rs. 9.84
Forth, it is mostly SUITABLE to small investor as it is affordable to pay a small amount regularly than paying a large amount as a whole. You can start with as low as Rs 100 a month. Thus, it`s like you put aside affordable sums of money and over the long run you could accumulate unbelievably great wealth.
Fifth, it ensures easy liquidity as investor can have the liberty to exit at any time even before the agreed time period. But some exit load shall be charged if you withdraw before one year.
Hence, if we look at the roller‐coasting equity markets and then compares it with the concept of Systematic Investment Plans, we can conclude that in order to build a steady flow of income in the future it`s necessary to keep investing regularly over a period of time, in order to eliminate the market noise and realize your goals.
Mitul Shah is a financial planner from Adinath Investments.
Organisations as fulfilment engines
What is the true purpose of an organisation? Is it merely the creation of wealth, or must there be a higher purpose to it? The East may have some answers to this question.
Indian culture, as a result of its philosophicalfoundations in Vedic traditions, has nevereschewed wealth. However, it hasrepeatedly stressed that the real purpose oflife is a higher fulfilment whose end goal isself-realisation.
Thus, material wealth of any form cannotbecome the end of any enterprise or humanlife. It may certainly be one of the outcomes,but is not the central purpose.
Our institutions in all spheres - be it business,education or Government - seem to belosing sight of the higher purpose of theirexistence and have increasingly startedviewing themselves as a means to an end. What then could be the higher purpose thatan institution must seek to address itself to?
While there could be many ways of looking at this issue, one possible answer is thatthe reason for the existence of any institutionis to provide an arena for fulfilment forits end-users (customers) and constituents(employees and other stakeholders).
What might such a fulfilment-centred organisationlook like across these two dimensionsof external and internal stakeholders?
Customer Fulfillment:
The big question here is - which customerpurpose is this organisation trying to fulfil?Unfortunately, the industrial era mindset isone of viewing customers as being no morethan `wallets` waiting to be tapped. This isnot to suggest that such firms are unethical - they are only responding to shareholder andinvestor expectations by behaving in a mannerthat only focuses on financial goals.
Additionally, given the complexity of largeorganisations and the degrees of separationbetween the producers and end-consumers,it is no surprise that organisations view customersas abstractions.
The post-industrial world needs to viewcustomers and their needs in the light ofpurpose fulfilment. Every customer is essentiallyseeking fulfilment of some sort throughthe consumption of goods and services. This fulfilment could be at a basic level of survival, or at the highest level of self-actualisation.
What if a business organisation were to alignitself to this hierarchy of needs and claim asits mission the goal of raising the customer tohigher levels of fulfilment?
This may mean the creation of increasinglysophisticated products for which theremay not be a market at the moment. The exact opposite of this is seen in many privately-owned electronic news media outlets.
In the interest of `what sells`, these outletscater to the lowest in their `customers` insteadof raising the bar to challenge theircustomers to evolve. They need to realisethat producers of goods and services have amoral responsibility towards customers. Infact, this is a far higher form of corporatesocial responsibility than the contribution ofa share of profits towards social causes.
The Internal Perspective:
Within the organisation two axes of fulfilmentmust be clearly defined - the first isthe fulfilment of customers through thework done by a worker, and second is thefulfilment of the worker himself, and the tworeinforce each other. However, as pointedout earlier, the distance from the actual customer,and the abstract way in which tasksare parcelled out means that the averageworker no longer feels connected to the customer`spurpose or even his own purpose.
The way out of this alienation is to erase theboundaries between the firm and its customers,and allow customers to `infiltrate` withtheir views and allow these to actively influencecorporate strategy.
The second dimension i.e. the worker`sown fulfilment. This involves a systemic reevaluationof how careers are viewed fromthe traditional give-and-take transactionalmodel to a fulfilment-oriented model. In thelatter model, a service mindset (seva) will bevery important. Seva, in the Vedic/ karmayoga context, is a work offered without anyanticipation of reward, because the workitself is the reward in that it offers an opportunityto expand oneself from one`s narrowselfish ego, towards a greater humanity.
While this may seem like lofty idealism, itis easy to see its practical function. Activitiesperformed without anticipation or anxietyfor future rewards must necessarily bringgreater focus to the work at hand, and hence,a greater quality in the outcome, as well asgreater fulfilment.
In conclusion, India is well placed due toits unique cultural and historical context tobring alive the vision of fulfilment-centricorganisations. The question then is whetherwe will choose to replicate the path taken bythe West and its attendant pitfalls, or will weat some point integrate the best of the Eastwith the West.
Indian culture, as a result of its philosophicalfoundations in Vedic traditions, has nevereschewed wealth. However, it hasrepeatedly stressed that the real purpose oflife is a higher fulfilment whose end goal isself-realisation.
Thus, material wealth of any form cannotbecome the end of any enterprise or humanlife. It may certainly be one of the outcomes,but is not the central purpose.
Our institutions in all spheres - be it business,education or Government - seem to belosing sight of the higher purpose of theirexistence and have increasingly startedviewing themselves as a means to an end. What then could be the higher purpose thatan institution must seek to address itself to?
While there could be many ways of looking at this issue, one possible answer is thatthe reason for the existence of any institutionis to provide an arena for fulfilment forits end-users (customers) and constituents(employees and other stakeholders).
What might such a fulfilment-centred organisationlook like across these two dimensionsof external and internal stakeholders?
Customer Fulfillment:
The big question here is - which customerpurpose is this organisation trying to fulfil?Unfortunately, the industrial era mindset isone of viewing customers as being no morethan `wallets` waiting to be tapped. This isnot to suggest that such firms are unethical - they are only responding to shareholder andinvestor expectations by behaving in a mannerthat only focuses on financial goals.
Additionally, given the complexity of largeorganisations and the degrees of separationbetween the producers and end-consumers,it is no surprise that organisations view customersas abstractions.
The post-industrial world needs to viewcustomers and their needs in the light ofpurpose fulfilment. Every customer is essentiallyseeking fulfilment of some sort throughthe consumption of goods and services. This fulfilment could be at a basic level of survival, or at the highest level of self-actualisation.
What if a business organisation were to alignitself to this hierarchy of needs and claim asits mission the goal of raising the customer tohigher levels of fulfilment?
This may mean the creation of increasinglysophisticated products for which theremay not be a market at the moment. The exact opposite of this is seen in many privately-owned electronic news media outlets.
In the interest of `what sells`, these outletscater to the lowest in their `customers` insteadof raising the bar to challenge theircustomers to evolve. They need to realisethat producers of goods and services have amoral responsibility towards customers. Infact, this is a far higher form of corporatesocial responsibility than the contribution ofa share of profits towards social causes.
The Internal Perspective:
Within the organisation two axes of fulfilmentmust be clearly defined - the first isthe fulfilment of customers through thework done by a worker, and second is thefulfilment of the worker himself, and the tworeinforce each other. However, as pointedout earlier, the distance from the actual customer,and the abstract way in which tasksare parcelled out means that the averageworker no longer feels connected to the customer`spurpose or even his own purpose.
The way out of this alienation is to erase theboundaries between the firm and its customers,and allow customers to `infiltrate` withtheir views and allow these to actively influencecorporate strategy.
The second dimension i.e. the worker`sown fulfilment. This involves a systemic reevaluationof how careers are viewed fromthe traditional give-and-take transactionalmodel to a fulfilment-oriented model. In thelatter model, a service mindset (seva) will bevery important. Seva, in the Vedic/ karmayoga context, is a work offered without anyanticipation of reward, because the workitself is the reward in that it offers an opportunityto expand oneself from one`s narrowselfish ego, towards a greater humanity.
While this may seem like lofty idealism, itis easy to see its practical function. Activitiesperformed without anticipation or anxietyfor future rewards must necessarily bringgreater focus to the work at hand, and hence,a greater quality in the outcome, as well asgreater fulfilment.
In conclusion, India is well placed due toits unique cultural and historical context tobring alive the vision of fulfilment-centricorganisations. The question then is whetherwe will choose to replicate the path taken bythe West and its attendant pitfalls, or will weat some point integrate the best of the Eastwith the West.
MF investors to gain from new regulations!
SEBI`s recent regulatory announcements on mutual funds are beneficial for investors. Here`s a small capsule on what has changed and how it will benefit investors.
The Indian mutual fund industry is at a very interesting phase. With growing popularity and booming assets under management, the mutual fund market is being closely watched by the regulators. Recently, SEBI come up with a few key regulatory changes that is expected to alter the way in which the mutual fund industry has been functioning so far. These changes are in conjunction with SEBI`s continuous effort towards safeguarding retail investors and plugging gaps in the regulatory framework for the mutual fund industry. A few of these changes may hurt fund houses but most investors are likely to be better off. Let`s take up these regulatory changes one by one and look at the impact.
(1) Dividends to be distributed from Realized Gains Only:
Now, no fund can distribute dividends unless the fund has booked profit from its underlying assets. Please note that this new rule is only applicable to those mutual fund investors who have opted for the `Dividend Plan`. Investors in Growth plan will not be affected by this regulatory change.
Let`s understand this with a simple example: If your fund`s NAV moves from Rs 20 to Rs 50 over certain period of time, the fund`s unrealized gain is Rs 30. This Rs 30 is usually transferred to Unit Premium Reserve. And as per the current practice, this reserve is used to distribute dividends to investors.
However, as per the new regulation, this reserve can`t be fully used to distribute dividends. The idea behind this new regulation is that only realized gains can be distributed as dividends. The unit premium reserves contain unrealized gains as well. Hence, now the fund has to sell its units / underlying shares to realize profits to become eligible for dividend distribution.
Many fund houses have been using higher dividend declaration as their selling pitch. Thanks to SEBI, the new rule will help curb such irrational claims by fund houses and hopefully stop investor`s getting lured by distributers into investing based on such claims. Though this means that investor will not receive hefty dividends as earlier, but one should also understand that investors are not losing out on anything. Instead, of receiving regular dividends, your money will stay with the fund and grow with your overall pool of investment in that fund.
In India, dividend declaration by mutual fund houses is widely hyped and often misunderstood. Unlike stock dividends, mutual fund dividends are just like paying out money from your own pocket. Post every dividend declaration, the NAV of your fund falls by the same amount. Hence, it`s doesn`t matter whether you opt for dividend plan or growth plan. Under dividend plan, you are receiving certain amount of your earned money at certain interval at the AMCs discretion. The same effect can be achieved under the growth plan by selling certain amount of units at certain intervals and what is more, at your own discretion.
(2) No Additional Fees to be charged from No-load Funds:
This new regulation is in continuation to SEBI`s earlier directive on entry load. In July 2009, SEBI had stipulated that there shall be no entry load for all mutual fund schemes. However, it was observed that the no-load funds were still charging an additional management fee of 25 basis points. Now, SEBI had clarified that AMCs shall not collect any additional management fees.
This is again good news for investors, as 100% of your investment will be put to work.
(3) NFO Period Reduced to 15 days:
In order to make the New Fund Offer (NFO) process efficient, SEBI has decided that the present limit of maximum period of 30 days in case of Open-ended funds and 45 days in case of close-ended funds shall be reduced to 15 days (except ELSS schemes). In addition, the Mutual Funds / AMCs shall make investment out of the NFO proceeds only on or after the closure of the NFO period.
This is a smart move by SEBI. Now, your money will not stay idle for one month or 45 days. Instead, your money will be invested immediately after 15 days (closure of NFO period) thus giving you and your fund an early chance to make investments in desired assets or asset classes.
(4) No Revenue Sharing by Fund-of-Fund Schemes:
Unlike normal mutual funds, fund-of-funds (FOF) invest their money in other mutual funds instead of stocks or bonds. In this process, FOF are used to receiving commission / brokerage from underlying mutual funds and such arrangements create conflict of interest. To curb this malpractice, SEBI has now asked FOFs to not receive such commission / brokerage or enter into revenue sharing agreement from / with underlying funds. Any commission received from the underlying fund shall be credited into the concerned FOF account.
This will help in improving the performance of FOFs as fund managers would not be bound by such agreements. Instead they will be able to take better decisions resulting in better returns for investors.
The Indian mutual fund industry is at a very interesting phase. With growing popularity and booming assets under management, the mutual fund market is being closely watched by the regulators. Recently, SEBI come up with a few key regulatory changes that is expected to alter the way in which the mutual fund industry has been functioning so far. These changes are in conjunction with SEBI`s continuous effort towards safeguarding retail investors and plugging gaps in the regulatory framework for the mutual fund industry. A few of these changes may hurt fund houses but most investors are likely to be better off. Let`s take up these regulatory changes one by one and look at the impact.
(1) Dividends to be distributed from Realized Gains Only:
Now, no fund can distribute dividends unless the fund has booked profit from its underlying assets. Please note that this new rule is only applicable to those mutual fund investors who have opted for the `Dividend Plan`. Investors in Growth plan will not be affected by this regulatory change.
Let`s understand this with a simple example: If your fund`s NAV moves from Rs 20 to Rs 50 over certain period of time, the fund`s unrealized gain is Rs 30. This Rs 30 is usually transferred to Unit Premium Reserve. And as per the current practice, this reserve is used to distribute dividends to investors.
However, as per the new regulation, this reserve can`t be fully used to distribute dividends. The idea behind this new regulation is that only realized gains can be distributed as dividends. The unit premium reserves contain unrealized gains as well. Hence, now the fund has to sell its units / underlying shares to realize profits to become eligible for dividend distribution.
Many fund houses have been using higher dividend declaration as their selling pitch. Thanks to SEBI, the new rule will help curb such irrational claims by fund houses and hopefully stop investor`s getting lured by distributers into investing based on such claims. Though this means that investor will not receive hefty dividends as earlier, but one should also understand that investors are not losing out on anything. Instead, of receiving regular dividends, your money will stay with the fund and grow with your overall pool of investment in that fund.
In India, dividend declaration by mutual fund houses is widely hyped and often misunderstood. Unlike stock dividends, mutual fund dividends are just like paying out money from your own pocket. Post every dividend declaration, the NAV of your fund falls by the same amount. Hence, it`s doesn`t matter whether you opt for dividend plan or growth plan. Under dividend plan, you are receiving certain amount of your earned money at certain interval at the AMCs discretion. The same effect can be achieved under the growth plan by selling certain amount of units at certain intervals and what is more, at your own discretion.
(2) No Additional Fees to be charged from No-load Funds:
This new regulation is in continuation to SEBI`s earlier directive on entry load. In July 2009, SEBI had stipulated that there shall be no entry load for all mutual fund schemes. However, it was observed that the no-load funds were still charging an additional management fee of 25 basis points. Now, SEBI had clarified that AMCs shall not collect any additional management fees.
This is again good news for investors, as 100% of your investment will be put to work.
(3) NFO Period Reduced to 15 days:
In order to make the New Fund Offer (NFO) process efficient, SEBI has decided that the present limit of maximum period of 30 days in case of Open-ended funds and 45 days in case of close-ended funds shall be reduced to 15 days (except ELSS schemes). In addition, the Mutual Funds / AMCs shall make investment out of the NFO proceeds only on or after the closure of the NFO period.
This is a smart move by SEBI. Now, your money will not stay idle for one month or 45 days. Instead, your money will be invested immediately after 15 days (closure of NFO period) thus giving you and your fund an early chance to make investments in desired assets or asset classes.
(4) No Revenue Sharing by Fund-of-Fund Schemes:
Unlike normal mutual funds, fund-of-funds (FOF) invest their money in other mutual funds instead of stocks or bonds. In this process, FOF are used to receiving commission / brokerage from underlying mutual funds and such arrangements create conflict of interest. To curb this malpractice, SEBI has now asked FOFs to not receive such commission / brokerage or enter into revenue sharing agreement from / with underlying funds. Any commission received from the underlying fund shall be credited into the concerned FOF account.
This will help in improving the performance of FOFs as fund managers would not be bound by such agreements. Instead they will be able to take better decisions resulting in better returns for investors.
Only a fool can ignore this great opportunity!
In this issue:
» What Jim Rogers & Marc Faber are advising now
» Lesson from the Ambani vs. Ambani row
» Buffett ruffles more feathers with his Goldman view
» Realty companies' 'affordable' plank goes for a toss
» ...and more!
If you have led one of India 's leading finance companies for more than two decades, you surely know a thing or two about the state of the Indian economy. Hence when we came across a television interview of Mr. Deepak Parekh, Chairman of HDFC, we saw it with much interest.
"The next decade is going to be India 's decade," proclaimed Mr. Parekh in the interview. However, in the same breath, he added, "I am not saying that everything is gung-ho and there are no problems. We have enough problems which we need to tackle, but we are the second fastest growing nation for the last so many years." On being asked as to what could go wrong with the India story, he mentioned factors like terrorism and corruption.
Mr. Parekh had a big advice and a booster dose for someone just starting on the path to investing in stockmarkets. For someone with money to invest for a 10 year horizon, he said, "I would say that if you do not put it in the stock market you are a fool."
There you are! One of the prominent long term thinkers of India advising investors to believe in the country's long term story! We couldn't have asked for anyone better to endorse our own view that someone with a 5-10 year investment horizon can still grab on to stocks of some wonderful companies. The idea is to identify companies run by ethical and visionary managements, and their stocks being available at cheap valuations.
At the end of the day, despite various challenges that the Indian economy faces, its growth prospects still look good from a long term perspective with a lot going for it at present.
So, are you investing in the India story for the next 10 years?
Chart of the day
Today's chart of the day shows the movement of the Baltic Dry Index (BDI), a shipping index that tracks the price of moving dry materials such as coal, iron ore, and grains by sea. This index is a favourite among the economists as it is considered a lead indicator for economic activity. This is because the cost of moving these goods provides a good indication of economic expansion or contraction.
After recovering some ground post the 2008 crash, the BDI has remained choppy (since June 2009). This clearly indicates that global trade is still not out of the woods.
Data Source: GE Shipping
Renowned gurus Jim Rogers and Marc Faber are advocating that investors should consider paring their holdings after a plunge in US stocks. They are of the view that equities are witnessing a normal correction. And that the markets were long overdue for a selloff.
In India too, stock prices of many companies have reached unjustifiable levels. And a correction here would be a good thing too. This would mean that a favourable opportunity presents itself to grab some good quality stocks at attractive prices.
Warren Buffett has already raised a mini storm of sorts with his all out support to Goldman Sachs on the SEC lawsuit. However, that hasn't deterred the man from changing his tack. He still remains very strongly supportive of the embattled firm, a conclusion that could be easily drawn from a recent interview with CNBC. The controversy surrounding Goldman, as we all know, is about the mis-selling of a financial product. The buyer of the product has alleged that the product that it bought from Goldman had a prominent investor on the other side of the transaction and Goldman was in the know. Thus, this amounted to cheating as per the buyer.
However, Buffett has put the blame squarely on the party buying the product rather than Goldman, who was selling it. He continues to believe that there was nothing wrong with the transaction. He further added that the buyers probably had dozens of analysts analyzing the product and if they felt that the product was not up to the mark, they shouldn't have bought it in the first place irrespective of whether there was anyone on the other side of the product or not.
Buffett also mentioned that he felt great about the US$ 5 bn investment that he made in Goldman at the time of investment and he feels great about it even now. Clearly, this man speaks his mind, even at the expense of ruffling up quite a few feathers.
When real estate companies talk about affordable housing, you would be wise to take it with a big pinch of salt. That's because the very companies that sang songs of their newfound focus on 'affordable housing' have made a rather quick U-turn. Recent reports show that they are back to their old ways, making and selling 'high-end' apartments. And in the process trying to bid up prices as much as possible!
Realty biggies like DLF, Unitech and HDIL have set an aggressive pipeline of projects, with a heavy 'high-end' component. No wonder then that property prices are also rising. As per a report on Mint, Mumbai leads the pack with the rates going up by 30-40% in the past six months. This is followed by the national capital region of Delhi and cities such as Bangalore , where prices have gone up by 15-20%. You would indeed do well to steer clear of the many terms coined by builder community to give a fillip to their sales.
The final verdict is out on the Ambani vs. Ambani dispute. One side won, the other lost. But there is one party which lost much before the verdict came out - India 's reputation for enforcing commercial contracts. India routinely gets a low score in this area in the ease of doing business rankings. This case merely highlights how bad the situation is even in such a vital area as oil & gas.
Why were there any grey areas in the contract between government and RIL in the first place? Why do large knowledgeable private parties enter into contracts that are so questionable? Why did it eventually require government intervention in such commercial matters? Uncomfortable questions! But ones that indicate that India needs an overhaul in the way commercial law is enforced. Otherwise, foreign investors will be highly cautious in putting their money in large-ticket long-term projects. If the last round of auctions of oil & gas blocks is anything to go by, the Ambani vs. Ambani dispute has already taken its toll.
Call it what you like. But these days it pays to be 'too big to fail'. The Fed did it last year and now it's the EU's turn - serving more billion dollar loans to those who have been instrumental in blowing up their savings. "The man with the addiction to alcohol is as addicted as the man who serves up the alcohol," wrote our founder Ajit Dayal in an earlier issue of The Honest Truth. This was before Lehman going bust.
Ajit's words seem to hold as much weight today as it did then. Unveiling US$ 962 bn loan for the European nations that are threatened by a sovereign debt crisis, the EU has just multiplied the problem. The US government's US$ 1.8 trillion has proven that such measures cannot solve the problem of excesses. But no one seems to be keen to take any lessons home! The new war chest may halt the landslide correction in European markets. But the debt crisis may come haunting back these nations sooner or later.
Cheered by the European bailout package, and in line with other global markets, Indian markets traded strong today. The BSE-Sensex was trading with gains of around 490 points (2.9%) at the time of writing this. Metal and realty stocks led the overall gains in today's trade. Among other key Asian markets, Hong Kong and Japan closed with gains of 2.5% and 1.6% respectively.
Today's investing mantra
"Investing isn't just about probabilities. It's about consequences, and you've got to be prepared for them." - John Bogle
» What Jim Rogers & Marc Faber are advising now
» Lesson from the Ambani vs. Ambani row
» Buffett ruffles more feathers with his Goldman view
» Realty companies' 'affordable' plank goes for a toss
» ...and more!
If you have led one of India 's leading finance companies for more than two decades, you surely know a thing or two about the state of the Indian economy. Hence when we came across a television interview of Mr. Deepak Parekh, Chairman of HDFC, we saw it with much interest.
"The next decade is going to be India 's decade," proclaimed Mr. Parekh in the interview. However, in the same breath, he added, "I am not saying that everything is gung-ho and there are no problems. We have enough problems which we need to tackle, but we are the second fastest growing nation for the last so many years." On being asked as to what could go wrong with the India story, he mentioned factors like terrorism and corruption.
Mr. Parekh had a big advice and a booster dose for someone just starting on the path to investing in stockmarkets. For someone with money to invest for a 10 year horizon, he said, "I would say that if you do not put it in the stock market you are a fool."
There you are! One of the prominent long term thinkers of India advising investors to believe in the country's long term story! We couldn't have asked for anyone better to endorse our own view that someone with a 5-10 year investment horizon can still grab on to stocks of some wonderful companies. The idea is to identify companies run by ethical and visionary managements, and their stocks being available at cheap valuations.
At the end of the day, despite various challenges that the Indian economy faces, its growth prospects still look good from a long term perspective with a lot going for it at present.
So, are you investing in the India story for the next 10 years?
Chart of the day
Today's chart of the day shows the movement of the Baltic Dry Index (BDI), a shipping index that tracks the price of moving dry materials such as coal, iron ore, and grains by sea. This index is a favourite among the economists as it is considered a lead indicator for economic activity. This is because the cost of moving these goods provides a good indication of economic expansion or contraction.
After recovering some ground post the 2008 crash, the BDI has remained choppy (since June 2009). This clearly indicates that global trade is still not out of the woods.
Data Source: GE Shipping
Renowned gurus Jim Rogers and Marc Faber are advocating that investors should consider paring their holdings after a plunge in US stocks. They are of the view that equities are witnessing a normal correction. And that the markets were long overdue for a selloff.
In India too, stock prices of many companies have reached unjustifiable levels. And a correction here would be a good thing too. This would mean that a favourable opportunity presents itself to grab some good quality stocks at attractive prices.
Warren Buffett has already raised a mini storm of sorts with his all out support to Goldman Sachs on the SEC lawsuit. However, that hasn't deterred the man from changing his tack. He still remains very strongly supportive of the embattled firm, a conclusion that could be easily drawn from a recent interview with CNBC. The controversy surrounding Goldman, as we all know, is about the mis-selling of a financial product. The buyer of the product has alleged that the product that it bought from Goldman had a prominent investor on the other side of the transaction and Goldman was in the know. Thus, this amounted to cheating as per the buyer.
However, Buffett has put the blame squarely on the party buying the product rather than Goldman, who was selling it. He continues to believe that there was nothing wrong with the transaction. He further added that the buyers probably had dozens of analysts analyzing the product and if they felt that the product was not up to the mark, they shouldn't have bought it in the first place irrespective of whether there was anyone on the other side of the product or not.
Buffett also mentioned that he felt great about the US$ 5 bn investment that he made in Goldman at the time of investment and he feels great about it even now. Clearly, this man speaks his mind, even at the expense of ruffling up quite a few feathers.
When real estate companies talk about affordable housing, you would be wise to take it with a big pinch of salt. That's because the very companies that sang songs of their newfound focus on 'affordable housing' have made a rather quick U-turn. Recent reports show that they are back to their old ways, making and selling 'high-end' apartments. And in the process trying to bid up prices as much as possible!
Realty biggies like DLF, Unitech and HDIL have set an aggressive pipeline of projects, with a heavy 'high-end' component. No wonder then that property prices are also rising. As per a report on Mint, Mumbai leads the pack with the rates going up by 30-40% in the past six months. This is followed by the national capital region of Delhi and cities such as Bangalore , where prices have gone up by 15-20%. You would indeed do well to steer clear of the many terms coined by builder community to give a fillip to their sales.
The final verdict is out on the Ambani vs. Ambani dispute. One side won, the other lost. But there is one party which lost much before the verdict came out - India 's reputation for enforcing commercial contracts. India routinely gets a low score in this area in the ease of doing business rankings. This case merely highlights how bad the situation is even in such a vital area as oil & gas.
Why were there any grey areas in the contract between government and RIL in the first place? Why do large knowledgeable private parties enter into contracts that are so questionable? Why did it eventually require government intervention in such commercial matters? Uncomfortable questions! But ones that indicate that India needs an overhaul in the way commercial law is enforced. Otherwise, foreign investors will be highly cautious in putting their money in large-ticket long-term projects. If the last round of auctions of oil & gas blocks is anything to go by, the Ambani vs. Ambani dispute has already taken its toll.
Call it what you like. But these days it pays to be 'too big to fail'. The Fed did it last year and now it's the EU's turn - serving more billion dollar loans to those who have been instrumental in blowing up their savings. "The man with the addiction to alcohol is as addicted as the man who serves up the alcohol," wrote our founder Ajit Dayal in an earlier issue of The Honest Truth. This was before Lehman going bust.
Ajit's words seem to hold as much weight today as it did then. Unveiling US$ 962 bn loan for the European nations that are threatened by a sovereign debt crisis, the EU has just multiplied the problem. The US government's US$ 1.8 trillion has proven that such measures cannot solve the problem of excesses. But no one seems to be keen to take any lessons home! The new war chest may halt the landslide correction in European markets. But the debt crisis may come haunting back these nations sooner or later.
Cheered by the European bailout package, and in line with other global markets, Indian markets traded strong today. The BSE-Sensex was trading with gains of around 490 points (2.9%) at the time of writing this. Metal and realty stocks led the overall gains in today's trade. Among other key Asian markets, Hong Kong and Japan closed with gains of 2.5% and 1.6% respectively.
Today's investing mantra
"Investing isn't just about probabilities. It's about consequences, and you've got to be prepared for them." - John Bogle
Monday, May 10, 2010
Investing is an art Source: Business Line (09-MAY-10)
Each artwork commands its own unique pricing.
Investing in art is an art itself. It is a highly specialised field where all the parameters used to evaluate any investment such as return, liquidity, risk and valuations are all ill-defined at the outset. If we order the various assets in terms of when a person should start investing into art, then it qualifies towards the end of the entire spectrum of available investment options.
Art is a highly unorganised market with little information except in the case of proven and well-known artists and masterpieces. Information asymmetry in such a market is high and thus makes pricing inefficient.
Valuation
Also how does one determine the price of an asset where the conventional parameters of valuation are ineffective? Each art work commands its own unique pricing without following any particular logic. Pricing in the art market is done through negotiations between buyers and sellers or through a bidding process.
The price discovery in such a scenario need not be efficient. In a negotiated pricing mechanism, the price of the artwork will depend upon the urgency of the seller to encash and the desperation of the buyer to own the piece. In a bidding process, the pricing depends upon the contest between the bidders and their desperation to own the particular artwork. In either of the above cases, the pricing will be inefficient for one party. As with any asset, if the buying price is wrong, it will take a long time to recover the investment, let alone reap returns.
Cash outflows?
Returns from other asset classes arise in the form of interim payments such as interest, dividend, rent etc or on the sale of the asset. Art has no interim payments but requires tremendous care and maintenance costs, which have to be borne out of pocket. The monetisation takes place on sale of the art work only. Art has other problems in the form of fakes, counter-party risk and physical form.
Except for real estate, other investment avenues like equities, debt, mutual funds, commodities, currency etc are institutionalised businesses with strong regulators and little risk on counter-party and delivery. There are inherent inefficiencies in this asset class, which renders it appropriate for only a small set of savvy investors.
In India, there has been an attempt to invest into art through collective investment schemes. The results of these schemes have not been very encouraging for investors.
The main issue has been liquidity due to problems with the disposal of the artworks. In some cases, since the works were difficult to dispose at maturity, investors were left high and dry on the redemption payments. Also due to the pressure on the fund managers for payouts, assets were sold at prices which were unfavourable leaving the investors with little return despite a sufficient investment period.
Pooled assets may not be the way to go for art investments. The problem here is that people who understand art may not be good fund managers and those who are good fund managers may not be art experts. There is a shortage of talent on the combination of the two skills required to successfully run an art fund.
For art sake
While there are inherent negatives, art does not cease to be an investment opportunity due to this. A fund structure tries to bridge the inefficiency of the art market by trying to correct certain inherent deficiencies. However, it is difficult for the investor to liquidate his share even under this structure as sale of one of the holdings may be difficult even to provide liquidity. Also, an exit of the existing investor may result in an artwork being sold, which will hamper the returns of the remaining investors.
Art is best bought on individual merit basis on professional advice and understanding than in the form of pooled assets or funds. Art investment is best done by art lovers who buy it because they appreciate the work more than they seeing it as an investment. It is bought for art sake but eventually may turn out to be a good investment.
Any investment has to be evaluated on investment parameters and has its inherent advantages and disadvantages. Also, each investment has a target audience and may be suitable to some and art certainly does not qualify for a large number of investors.
Information asymmetry in the art market is high, making pricing inefficient.
An Analysis of ADAG Group Companies: Opportunities for Future? or More Cautions Ahead?
RNRL SHARE PRICE MOVEMENT: INSIDE LOOK
On 7th may it opened 67.45, made high of 72.95, made low of 50 crashing by 26.84% and closed at 52.75 at down by 22.82 on BSE.
From 27th march the stock started moving up from price of 62 and in next 4 trading sessions made high of 72 rising by 16%.
The take away are that the price was somehow rigged. Because earlier also two famous Mumbai based big operator rivals were exposed fighting for hitting each other in this counter. However the bear side operator won and a big off the table settlement deal was also clinched.
So thus, the RNRL share rose 16% in 5 trading sessions and gave away 22.82% in a single day following the SC verdict against the Company and in favour of RIL.
It is evident that if we deduct the previous 5 trading session ‘unusual rise’, then the stocks should be said to have crashed only 22.82%-16%=6.82%.
The share prices of RNRL has earlier also seen many huge swings. Such as as much as 35% rise in a single day.
FUNDAMENTAL LOOK ON RNRL:
Following information are available from public sources, and the company annual reports.
This company is 2nd largest in India in terms of acreage with 3100 square kilometers of coal bed methane block.
This company also own coal mines in foreign (details not available from the company).
This company has won oil and gas block in Mizoram.
It is coming in city gas distribution business.
From the company, coal and gas will be supplied to meet R-Power's demand to generate 34000 mega watt of power.
This company also own coal mines in foreign (details not available from the company).
This company has won oil and gas block in Mizoram.
It is coming in city gas distribution business.
From the company, coal and gas will be supplied to meet R-Power's demand to generate 34000 mega watt of power.
The Anil Ambani leadership has taken Rel Communication to top position in Telecome sector. He has shown his leadership ability by building ADAG group’s umpire in diversified businesses within a very short span after the RIL demerger.
However the telecom bust has not spared the Rel Comm, the ability of his leadership should not be shunned.
REL POWER IPO and INVESTMENT IN IPO:
Many people also said that the R Power IPO was a scam and the ADAG group trapped investors. Yes the pricing was stiff. But many companies offer overvalued IPOs and investors subscribe to it. It was only a coincidence that the R Power IPO hitted the market and just then after the beginning of stock market crashes world wide happened due to the US Subprime crisis.
Always remember ‘most of the IPOs come only pricey, and very few IPOs have any value on the table for investors’. I don’t recommend an investor to go through an IPO route. If one is looking for initial gains, then exit on listing, keep a sotploss a you keep in any trade or short term investment. Because this is not investment, if it is for the short term. Investment is always based on Value and not short term gains.
Many people have a strategy ony to invest into IPOs. This is no strategy. Its only that they have found a simple way. They subscribe to all IPOs during bull market and randomly 7 out of 3 works and they earn money. I know hundreds of such investors who has made it a business to fill/invest in IPOs. When the bear market hits they usually go on vacation. They return back when the tide returns. They don’t have to apply any brain weather when to enter or not because the market itself indicates that. If the IPOs are there and receiving response then the market is favorable and otherwise not. Remember the EMMAR MGF IPO? It was the end or signal of IPO market of last bull run.
So the point is that blaming R Power is not valid, looking at the above functioning of IPO markets and IPO investors mentality.
Who knows the R Power IPO could have doubled in some days or months if the Global meltdown couldn't have resumed? Surely.
SHARE PRICE MOVEMENT OF RELIANCE POWER:
On 7th May Rel Power crashed to an intraday low of 135.70, which is intraday fall of 11.82%. it settled down at close at 140.10 at 8.97% minus.
FUNDAMENTAL LOOK INTO REL POWER:
This company will generate 33000 mega watt of power which will be higher than current capacity of NTPC (current capacity 30000 mega watt). At this capacity, sales of NTPC is 42,000 crores and profit of Rs.8221 crores, after 7 years the company will have the same figure if price remain unchanged of selling power (which is not possible, price would rise) current market capitalisation of Reliance Power is around Rs.35,000 crores .
After the SC verdict on 7th may Anil Ambani reiterated that ‘Reliance Power is committed to become the larget power producing company in India’.
Anil Ambani indeed tried hard and fought for so many years strongly for BENEFITE OF RNRL SHAREHOLDERS.
Insiders also suggest in next two years, RNRL will acquire some companies in gas distribution and other verticals.
The Cement, BPO forays are also expected to give a boost to ADAG group’s value.
It also remains to see that how much value is created out of the media, and film production foray of ADAG Group. This is a no small or avoidable sector. If we go by the experiences of Western world, this sector has created immense wealth for investors and still command it. Many media and information companies still command top market capitalization and running profitably as well as commanding premium in take over and merger bids.
RIL-RNRL Verdict and Implications:
The SC has given verdict in favour of RIL. This is a definite advantage to RIL and the government which going to gain several thousand crores in tax revenues, which it would otherwise couldn’t have got due to lower pricing of gas.
Yes RNRL now will not be able to take advantage of what Anil Ambani was fighting for, i.e. the low rate of gas supply for R Power and for trading. But did the Company’s future was solely dependent on ‘this low price’ deal. No.
The ADAG group has already started to build assets for RNRL and this is evident from its latest annual reports. Read the fundamental look given above.
The deal remains, the contract between RIL-RNRL remains but the price wouldn’t be so low. And this was however expected given the government’s interventions and raising the stance that gas is a national property. The critic stance of ADAG might also have raged the central government and made it a matter of pride as well.
Anyways, as I said the supply deal remains, the R Power plants also would continue getting gas from RIL blocks.
RELIANCE COMMUNICAITIONS:
The RIL-RNRL verdict shouldn’t be blamed for this stock to make low. Because the all telecom stocks are facing pressure due to fundamental reasons.
The telecom space is now overvrowded. The tariff war has sent most of the telecom operators’ share to lows weather it is Bharti Airtel, Tata or Rel Comm.
The silverlinning as it might seem is the heavy rush for the latest spectrum bids and the huge collection made by the government. But many Indian players such as Videoco, Unitech have encashed or raady to encase the telecom licences or ready to do so.
This sector is 100% and ‘stay away’ for investors. The Government of India has done a great deal in busting this sector. The government failed to understand the stages of growth and cycle of telecom business. It believes that the users have benefited by lower teriffs but the economic value has deteriorated. The declining profitability will also bring down the quality of service in this sector.
We have been telling to all in my articles and on www.FiiTrades.Net http://fiitrades.blogspot.com/2009/10/tale-of-two-stock-that-fii-trades.html for so long.
The 3G thing is only savior for the telecom players. Lets see if they are able to increase ARPU-average revenue per user’ after 3G launch.
A class of sure beneficiary will be the value added service provider for the telecom companies and users.
Another negative for the telecom sector is the decreasing valuation of towers and decreasing dependability on telecom infrastructure. The use of non-owned infrastructure is increasing.
FUNDAMENTAL LOOK INTO Reliance Infrastructure:
The company belongs to ADAG (Anil Dhirubai Ambani Group) having presence in power and infrastructure sectors.
Reliance Infrastructure is not only India’s largest private sector company in power but also the largest private sector company in many other infrastructure sectors of India.
In the power space it is involved in generation, transmission, distribution and trading of electricity and constructing power plants.
In the infrastructure space the company is focused on roads, Urban infrastructure which includes MRTS, Sea link and Airports, Specialty Real Estate which includes business districts, trade towers, convention centre and SEZ which includes IT & ITES SEZ and non IT SEZ as well as free trade zones.
In the power space it is involved in generation, transmission, distribution and trading of electricity and constructing power plants.
In the infrastructure space the company is focused on roads, Urban infrastructure which includes MRTS, Sea link and Airports, Specialty Real Estate which includes business districts, trade towers, convention centre and SEZ which includes IT & ITES SEZ and non IT SEZ as well as free trade zones.
The engineering, procurement and construction (EPC) division has an order book of Rs 21,500 crore.
In the Urban Infrastructure business, it is the country’s first and only private sector builder and operator for Metro Systems. It is already into construction of the first line of Mumbai’s Metro system stretching 12 kms from Versova to Ghatkopar. Besides it has also won the Delhi Metro’s airport express link stretching a length of 22.5 kms. The total investment for these two projects is Rs 4900 crore.
In specialty real estate business, it is the country’s first and only private sector builder to build India’s first 100 storeyed building, a trade tower and business district in 80 acres of land in Hyderabad. The total investment for this project is Rs 6,500 crores.
In Special Economic Zones (SEZs), it is developing over 180 mn sq ft of SEZ for IT/ITES, retail hospitality in Mumbai and Noida with an investment worth Rs 31,000 crore.
The infrastructure assets include six roads and two metro rail projects. The company has a healthy balance sheet, with over Rs 10,000 crore of cash and cash equivalent.
The company has plans to a JV venture for the electrical equipment manufacturing business.
In collaboration with Shanghai Electric, the company is examining the feasibility of setting up equipment manufacturing facilities for power generation, to cater to the domestic sector and to markets in the Middle East, Africa and South East Asia. The progress on the project will purely be on the basis of cost benefit analysis.
In collaboration with Shanghai Electric, the company is examining the feasibility of setting up equipment manufacturing facilities for power generation, to cater to the domestic sector and to markets in the Middle East, Africa and South East Asia. The progress on the project will purely be on the basis of cost benefit analysis.
This company holds 45% in reliance power which will generate 34000 mega watt powers in the next 7 to 8 years.
If we calculate the valuation @141 of reliance power then stake value per share of reliance infra will go to 1500.
Book value 525 per share (only of reliance infra and not unlisted company).
Total valuation= Reliance Power valuation + book value
=1500+525.
Total value=2025.
Now at price of 1062 what you are paying?
What is the value of infrastructure business?
What is the value of 981 mg power capacity?
Looking at above factors and analysis our price projection are 1500 and 2000.0000000
Sunday, May 9, 2010
Welcome, correction
A dip in the market is an opportunity if you have missed out on the action earlier or even to rejig the portfolio.
A falling stock market has few takers. On April 26, when the Indian stock markets felt the first tremors of the Greek crisis, many experts started predicting a correction.
Since then, the Bombay Stock Exchange Sensitive Index, or Sensex, and the CNX Nifty have already fallen over 4 per cent in the last nine trading sessions. Investors, obviously, are unsure of the magnitude of correction or if there will be one at all.
This is quite similar to last March, when the Sensex was languishing at the 8,000 level, most people were uninterested in putting in any fresh money.
There were reports that the number of folios with mutual funds fell sharply because even systematic investment plans (Sips) were not being renewed. As a result, in the turnaround that followed, many investors missed out.
Hemant Rustagi, chief executive officer, Wiseinvest, sums up an investor’s psyche and says, “Investors are always in a dilemma. They want the market to go up for existing investments, but want it to fall to make fresh investments.”
For a value buyer, one share of Reliance Industries (RIL) was available at Rs 859.15 (52-week low) on July 13, 2009. The scrip closed at Rs 1,010.90 on Thursday – almost 15 per cent more expensive.
For different kinds of investors, a falling market presents different opportunities.
The first timer: For those who have not entered the market, a falling market is a wonderful opportunity to start investing in a portfolio of stocks as well as in mutual funds, and at a much cheaper price.
Says VK Sharma, head (private broking & wealth management), HDFC Securities, “For those, who have missed the boat, a correction is a great opportunity to get stocks at a lower value.”
However, financial planners are more cautious. They feel that first-time investors should look at equity diversified funds initially. This allows them to have a slice of the entire market.
If you are starting out, try out a mix. Say if you have Rs 1 lakh to invest, you can put Rs 50,000 in equity diversified fund.
Also, depending upon you regular income flow, start two-four systematic investment plans (SIP) of Rs 5,000 each, one could be an equity-linked saving scheme that will give you tax benefits under Section 80C. Use the rest to buy some blue chip stocks.
Another strategy could be moving money through systematic transfer plans (STPs). Said Anil Rego, chief executive officer, Right Horizons, a financial planning firm, “When markets are falling, buy in tranches at different index levels by way of STP. In case of a sharper fall, move higher amount of money and quickly.”
Already in, but entered at a high level: Corrections are great opportunities for them. Most people enter the market during a bull run. For example, between July and December 2007, the Sensex rose from 14,800 to 20,200 levels – a rise of 38 per cent. During the same period, equity mutual funds collected Rs 59,601 crore. Clearly, investors feel more comfortable in a rising market.
Once the market corrects, they are a nervous lot. And, that is primarily because of the value of their shares fall sharply. But, they could look at cost-averaging. That is, buying the same shares at a lower price to reduce their holding cost. Importantly, SIPs should be continued for the same reason because you get more units for the same installment.
A word of caution though – if you own cyclical stocks, it is important to do proper research. “If there is a stock in the portfolio that is dependent on commodity cycles, be careful with the cost-averaging strategy,” added Sharma. For instance, there are expectations that reduced demand from China will adversely impact commodity prices in the coming days. As a result, related companies could suffer. Here, a cost-averaging strategy could go for a complete toss.
Well-diversified portfolio: A correction is an opportunity to move money. If there are dud stock as or some non-performing funds in the portfolio, which have not performed in the rising market, you can move money from them to better stocks and funds. Similarly, if you have overexposure to some sectors, prune it.
Investing in stock markets is not a cakewalk. There will be dips and rises. But overtime, a patient investor will surely be able to make money.
Source: Business Standard
Greek Crisis Turns Deadly Serious; Will the World's Governments Learn from It?
This week, the financial crisis in Greece turned deadly serious. No longer are investors just losing boatloads of money. People are starting to lose their lives!
The latest bout of chaos struck on Wednesday during a general strike. Everyone from air traffic controllers to teachers left their posts. Tens of thousands of protestors hit the streets, hurling rocks and Molotov cocktails. Three people reportedly died in a fire that struck an Athens bank branch.
So what's provoking the madness?
It's the stiff austerity measures the rest of the European Union and the International Monetary Fund want Greece to enact. Officials are forcing Greece to slash public sector wages, freeze pensions and boost taxes before they'll start disbursing the $143 billion in bailout money.
 |
| Greece's citizens are scared over what's to come. |
But Greek citizens are sick of bearing the brunt of the pain. They don't want to see their wages, salaries, and standard of living collapse. And they're stark raving mad, especially because the measures are being crammed down their throats at a time when unemployment is already running at a six-year high of 11.3 percent.
Borrow and Spend Madness
Sparks a Greek Tragedy
Sparks a Greek Tragedy
I hate to see things come to this. At the same time, I believe there is a serious (and potentially valuable) lesson coming out of this mess — one that I hope governments elsewhere will learn!
You see, this terrible Greek tragedy stems from a simple fact: The country lived way beyond its means for far too long! Politicians borrowed and spent like mad, assuming the day of reckoning would never come.
Then on September 24, 2009, creditors decided they'd had enough. I don't know why it was that day. I don't think anyone does now — and I doubt anyone ever will. But that's when Greek debt prices started declining and Greek bond yields started rising.
That was when creditors decided to FORCE the government to get its fiscal house in order. They didn't do so with guns. They didn't do so with bombs. They did so by picking up the phone and uttering a four letter word: "Sell."
That simple move set in motion a process that eventually drove interest rates sky-high. And that has now turned a simmering economic problem into a major political and social crisis.
So what's the lesson?
Don't Wait for Disaster to Strike —
Head It Off While You Still Can!
Head It Off While You Still Can!
If Greece had tried to get its house in order BEFORE interest rates surged, it probably would have avoided the disaster unfolding before our eyes. If Greek officials had demonstrated a little foresight — a little proactive thinking and policymaking —they could have prevented a huge tragedy.
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| Will the rest of the world take the Greek crisis seriously? |
But instead, they chose the easy way out. And now they're paying a huge price.
What I hope — in my heart of hearts — is that policymakers in Lisbon ... Madrid ... London ... and most importantly, Washington, are listening. I hope they're all sitting in front of their televisions and watching the chaos in Greece. I hope they're going to learn their lesson and take PROACTIVE action to get their own fiscal houses in order.
What I fear is that they won't.
Heck, not a day goes by without some television anchor or government official saying something like: "Look at the 10-year Treasury Note yield. If investors were worried about our debts or our deficits, they wouldn't be buying our bonds at these low rates."
But you know what?
They were saying the same thing in Athens ... right up until September 24, 2009.
US Market Regulator SEC Probe into 6May WallStreet Crash
The USA Stock market regulator SEC and Commodity Futures Trading Commission has started a probe into the 6th May sudden market crash.
Most of the reviews coming in is the lack of circuit breakers and the tangled network of high-speed trading network. The different rules of trading on such different trading platform which are interconnected and the trade routing system is also under criticism by many and sources suggest that the cause of such sharp crash lies in between these things only. The computer programmes making the situation worst.
The initial focus of the investigations appeared to center on the way a growing number of high-speed trading networks interact with one another and with venerable exchanges like the NYSE. Most investors are unaware that these competing systems have fractured the traditional marketplace and have displaced exchanges like the Big Board as the dominant force in stock trading.
A source said that it appeared that as stock trading was slowed on the New York Exchange when big price moves started, orders moved automatically to other, electronic exchanges that did not have pricing restrictions.
Meanwhile the regulators had collected statistical and trading data from stock and futures exchanges, and had begun cross-analyzing that with trading reports from brokerage firms and large market participants. Regulators have also gathered anecdotal accounts of what happened from hedge funds and other trading firms
The two major regulatory agencies — the Securities and Exchange Commission and the Commodity Futures Trading Commission — have generated multiple memos detailing what they have found and offering possible causes for the market events. Among the issues discussed in the memos, the official said, were the disparate rules that different stock exchanges have for dealing with large price movements on the same securities and how prices on futures markets and stock exchanges appeared to lead or follow each other’s movements down and back up.
Over the last five years, the stock market has split into a plethora of new competing hubs and trading outlets, a legacy of deregulation earlier this decade and fast-paced technological change. On Friday, the rivalry between the two main exchanges erupted into view as each publicly pointed the finger at the other for being a main cause of the collapse on Thursday, which sent shockwaves around the globe.
The absence of a unified system to halt trading in individual stocks led to bitter accusations between exchanges on Friday. Robert Greifeld, chief executive of Nasdaq OMX, appeared on CNBC to criticize the New York Stock Exchange for halting trading for up to 90 seconds in half a dozen stocks on Thursday.
“Stopping for 90 seconds in time of crisis is exactly equivalent to not picking up the phone,” Mr. Greifeld said.
A few minutes later, Duncan L. Niederauer, chief executive of NYSE Euronext, responded in an interview on CNBC, blaming Nasdaq’s computers for continuing trading while the market was in free fall.
“These computers go out and just find the next bid they can find,” he said.
AMBANI VS. AMBANI: Chronology of Gas Raw Between RIL and RNRL
Following is the chronology of events surrounding the dispute over supply and pricing of gas from Reliance Industries' eastern offshore KG-D6 fields to Reliance Natural Resources Ltd (RNRL):
February 1999: Reliance Industries (undivided) and Niko Resources of Canada win Krishna Godavari (KG) basin deepsea block KG-DWN-98/3 (KG-D6_ in India’s first licencing round (NELP-1)
April 2000: RIL-Niko sign Production Sharing Contract (PSC) for KG-D6 with the Government
October 2002: RIL makes huge gas finds in the block KG-D6; names them Dhirubhai-1 and 3
September 2003: State power utility NTPC Ltd floats global tender for sourcing 12 million standard cubic meters a day of natural gas/LNG to fuel expansion projects at Kawas and Gandhar in Gujarat
June 2004: Reliance Energy signs pact with Uttar Pradesh for world's largest gas-based power plant with a capacity of 3,500 MW at Dadri near Delhi
June/July 2004: RIL wins NTPC tender quoting USD 2.34 per million British thermal unit price for KG-D6 gas
June 18, 2005: Memorandum of Understanding to reorganise RIL signed between brothers Mukesh and Anil Ambani. Anil resigns as joint managing director. While Mukesh gets energy and petrochemical business, Anil gets power, financial services and telecom business
August 2005: Ambani brothers sign non-compete pact. RIL board approves scheme of de-merger
December 2005: NTPC moves Bombay High Court seeking RIL to 'perform' the bid it had made in its gas supply tender
January 10, 2006: RIL Board approves the draft Gas Sale Master Agreement (GSMA) to be signed with RNRL for sale of gas on terms decided in the family MoU
January 12, 2006: The board of directors of RIL approve pact that calls for 28 mmscmd of gas to be supplied to Anil Ambani Group and up to 40 mmscmd if the contract with NTPC does not materialise.
September 2003: State power utility NTPC Ltd floats global tender for sourcing 12 million standard cubic meters a day of natural gas/LNG to fuel expansion projects at Kawas and Gandhar in Gujarat
June 2004: Reliance Energy signs pact with Uttar Pradesh for world's largest gas-based power plant with a capacity of 3,500 MW at Dadri near Delhi
June/July 2004: RIL wins NTPC tender quoting USD 2.34 per million British thermal unit price for KG-D6 gas
June 18, 2005: Memorandum of Understanding to reorganise RIL signed between brothers Mukesh and Anil Ambani. Anil resigns as joint managing director. While Mukesh gets energy and petrochemical business, Anil gets power, financial services and telecom business
August 2005: Ambani brothers sign non-compete pact. RIL board approves scheme of de-merger
December 2005: NTPC moves Bombay High Court seeking RIL to 'perform' the bid it had made in its gas supply tender
January 10, 2006: RIL Board approves the draft Gas Sale Master Agreement (GSMA) to be signed with RNRL for sale of gas on terms decided in the family MoU
January 12, 2006: The board of directors of RIL approve pact that calls for 28 mmscmd of gas to be supplied to Anil Ambani Group and up to 40 mmscmd if the contract with NTPC does not materialise.
July 26, 2006: Petroleum Ministry rejects RIL's proposal to sell Reliance Natural Resources Ltd a minimum of 28 million standard cubic meters per day (mmscmd) of gas from D6 field for USD 2.34 per million British thermal unit (mBtu)
November 7, 2006: RNRL files a case against RIL in the Bombay high court
May 3, 2007: Ad-interim relief granted to RNRL. RIL restrained from creating any third party interest for 40 mmscmd (28 mmscmd claimed by RNRL and 12 mmscmd offered in NTPC tender)
September 13, 2007: Empowered group of ministers (EGoM) approves RIL's gas pricing formula with minor changes. The price for first five years fixed at USD 4.20/MMBtu
October 2007: EGoM sets gas distribution priorities with first preference to existing fertilizer, cooking gas, power and steel unit
January 30, 2009: Bombay high court lifts stay on sale of gas produced from KG-D6 block, allowing it to be sold to buyers as per Govt's Gas utilization policy at USD 4.20/MMBtu
March 2009: Government finalizes gas allocation to fertilizer and power sectors
June 15, 2009: Bombay High Court instructs RIL and RNRL to draft an agreement that gives gas to RNRL as agreed upon in the MoU
July 4, 2009: RNRL moves Supreme Court
July 5, 2009: RIL moves SC
July 17, 2009: Government files writ petition seeking to declare that part of the Ambani family pact that deals with gas supplies as null and void
October 20, 2009: Supreme Court begins hearing the cross appeals
November 4, 2009: Justice Raveendran recuses himself from hearing
December 18, 2009: Three-judge bench headed by Chief Justice K G Balakrishnan reserves judgement on the case
May 8, 2010: Supreme Court delivers its verdict.
November 7, 2006: RNRL files a case against RIL in the Bombay high court
May 3, 2007: Ad-interim relief granted to RNRL. RIL restrained from creating any third party interest for 40 mmscmd (28 mmscmd claimed by RNRL and 12 mmscmd offered in NTPC tender)
September 13, 2007: Empowered group of ministers (EGoM) approves RIL's gas pricing formula with minor changes. The price for first five years fixed at USD 4.20/MMBtu
October 2007: EGoM sets gas distribution priorities with first preference to existing fertilizer, cooking gas, power and steel unit
January 30, 2009: Bombay high court lifts stay on sale of gas produced from KG-D6 block, allowing it to be sold to buyers as per Govt's Gas utilization policy at USD 4.20/MMBtu
March 2009: Government finalizes gas allocation to fertilizer and power sectors
June 15, 2009: Bombay High Court instructs RIL and RNRL to draft an agreement that gives gas to RNRL as agreed upon in the MoU
July 4, 2009: RNRL moves Supreme Court
July 5, 2009: RIL moves SC
July 17, 2009: Government files writ petition seeking to declare that part of the Ambani family pact that deals with gas supplies as null and void
October 20, 2009: Supreme Court begins hearing the cross appeals
November 4, 2009: Justice Raveendran recuses himself from hearing
December 18, 2009: Three-judge bench headed by Chief Justice K G Balakrishnan reserves judgement on the case
May 8, 2010: Supreme Court delivers its verdict.
Courtesy: Business Standard
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