Everybody knows that the markets are in the extremely overbought zone and are ripe for a break considering the overhead resistances discussed earlier. But what if the thing just refuses to go down and instead keeps going up tagging the upper Bollinger band? One must assume this and stay on the long side rather than taking any anticipatory short position. That's easier said than done but then who wants to miss out on a further rally towards 5400?
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on January 27, 2012 01:07 PM· permalink
The PE10 is a useful ratio that aids the investor in determining the relative price level of the aggregate stock market. But as discussed on this site a few days ago, the metric is far from perfect, as the arbitrary use of a 10-year period can bump up or push down the measurement for normalized earnings, thereby biasing the ratio. Another major weakness of the PE10 as a tool for making historical comparisons has to do with a change in how corporations have returned money to shareholders.
It used to be that dividends were the main method by which corporations paid shareholders. But for various reasons, buybacks appear to have become the preferred choice for corporations looking to return cash to shareholders.
As it pertains to current year earnings, whether corporations doled out returns in dividends or buybacks in the past makes little difference. But because of the way Standard and Poor's records the earnings of the index (using the sum of bottom-up earnings per share), this can have a major effect on past years' earnings.
For example, if the index earned $1 in EPS in 2001, and since then companies have bought back 50% of their outstanding shares, the real "earnings power" represented by that $1 is actually $2.
This concept is perhaps easier to grasp with respect to individual companies. Consider GameStop's quarterly earnings, which show just over $50 million in after-tax earnings in the third quarter of both this year and last year. While the absolute earnings are roughly similar for both years, GameStop has seen more than 10% growth in year-over-year diluted earnings per share as a result of share buybacks. Which number do you think is more relevant, GameStop's EPS pre-buyback, or the fact that it earned just over $50 million in both years? I would argue that the latter is more relevant, and that the former can bias the earnings estimate lower.
Considering the fervor with which companies bought back shares this past decade, this difference can have a significant impact on the estimate of the index's normalized earnings level. Unfortunately, it's difficult to quickly adjust the formula to correct for this problem. The level of share buybacks is inconsistent from year to year, and shares have been repurchased at various prices, ranging from extremely high to extremely low.
Related to this problem is fact that the size of the capital stock has changed. As companies have re-invested the earnings that they have not paid out in dividends or used to buy back shares, they now have larger capital bases from which to earn profits.
Fortunately, there are other methods that can be used that are in keeping with the spirit of the PE10, without suffering from these drawbacks. For example, one could average the index's ROE over the last ten years, and multiply that number by the index's current book value in order to arrive at an estimate for normalized earnings. My rough calculations with imperfect data suggest a PE10 of around 19, and a PE8 of around 18.
Of course, this method still suffers several drawbacks. The biggest problem with using ROE, for example, is that it doesn't correct for different levels of leverage. Higher debt can result in higher ROE, but that doesn't mean these higher levels are sustainable.
Fortunately for value investors, we don't have to spend a lot of time valuing the market. Knowing that it is approximately fully-valued or somewhat overvalued is good to know in general, but our money is made with individual stocks. Figuring out how to make money on the index is a lot harder than it is with individual stocks, since with individual stocks you only have to swing at the most attractive pitches.
PS More shortcomings of the PE10 are available here.
Posted by Saj Karsan (noreply@blogger.com) on January 27, 2012 11:49 AM· permalink
Does trading on a particular time offer any advantage? To check this, we divide one trading day into 12 slots of 30 minutes and the last slot is of 15 minutes. Then we check the high low percentage return in each slot. For this study, I randomly selected 60 trading days. The average percentage return in each slot is shown above. There seems to be some truth in the so called "the 2:30 factor" hypothesis which says that the market (Nifty) makes big moves during the last hour. And sure indeed - the percentage returns are higher during the last hour and also in the 1-st half an hour. The quiet period is in the 11:15 to 12:15 time. Maybe one needs to check this out on some more data and if you've done any study on this then you can shoot me a mail and share your findings.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on January 27, 2012 11:25 AM· permalink
This table shows by how much % each index stock is from its 50 day average. This data sure deserves an "overbought" stamp.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on January 26, 2012 09:45 AM· permalink
The PE10 is increasingly becoming a common method for value investors to determine whether the broader market is cheap or expensive. Not only does this method have a logical appeal to it, but data suggests that the magnitude of the market's subsequent 10-year returns is related to its PE10 level.
But while there is a relationship between a market's PE10 level and its future returns, the following chart (courtesy of My Money Blog) illustrates that the relationship is rather approximate:
For example, in both 1902 and 1965, the PE10 stood around 23. But in the ten years following 1902, the market's real return was 50%, while in the ten years following 1965, the market shrank by almost that much!
Why is there such wide divergence between the market's relative price level and its long-term returns? I would argue that part of the reason has to do with the arbitrary 10-year time period inherent in the PE10 calculation. What you actually want in the denominator of the P/E calculation is a normalized earnings number. Sometimes the E10 (the average earnings of the last ten years) does give you a good approximation for that figure. But other times, such as today, it may not.
For example, in many E10 periods, one recession and one market expansion occurs. These periods may result in an E10 that closely approximates a normalized earnings number. Today, however, two recessionary periods (2001-2 and 2008-9) are contained in the last ten years. I would argue that this arbitrarily biases the PE10 upwards, since the denominator of the PE10 includes only one economic peak period but two economic troughs.
If you throw out the 2001-2 period in the PE10 calculation (so more like a PE8), you get a ratio of about 19, compared to the headline number of 21, a 10% difference. The data used to create the PE10 is made freely available by Robert Shiller, and you can play with it yourself by downloading it here.
Posted by Saj Karsan (noreply@blogger.com) on January 25, 2012 11:31 AM· permalink
The debate
Roughly one decade ago, there was a strong debate in India about
how we should tackle the problem of education. There were two
views:
- Intensification
- On one side were those who felt that
nothing was fundamentally wrong; all that was needed was more
money. So we should just continue building more government schools
and hiring more civil servants to act as school teachers, and we'll
be fine.
- Reform
- On the other side were the reformers, who argued
that the basic incentives in Indian education were wrong. Putting
more money down a dysfunctional system was pointless.
The Intensifiers won this debate. An informal coalition of
educationists (i.e. the incumbent education system) and leftists came
together, supported by the World Bank, which pushed for mere
enlargement of Indian education, without questioning the
foundations.
All of us are involved in this story at many levels. At the
simplest, we are the customers of the education establishment. We pay
income tax and VAT and a few other taxes. On top of this, we pay the
2% education cess. In return for this, we get certain educational
services. These influence our kids, and they influence all the young
people that we encounter in this young country. Trillions of rupees
have been spent, and more than a decade has gone by. It is time to
assess the performance of this strategy.
Three blocks of evidence are now visible, which tell us that the
Intensifiers were wrong. The old strategy, which was invigorated by a
vast rise in spending, was the wrong one.
Evidence #1: OECD PISA results for India
This story is well told in
a
recent blog post by Lant Pritchett. Bottom line: The first
internationally comparable measurement of what children learn has
been done. The sample correctly includes urban and rural children; it
correctly includes children going to private or public schools; there
are no first order mistakes in what was done. It tells us that Indian
education policy has failed miserably: the results have come out at
the bottom of the world.
Evidence #2: ASER 2011 results
Pratham has been running surveys which measure characteristics of
children and schools in rural India (only). Their latest survey
results, for 2011 show the following facts.
First, rural kids learn less at public school. Here's a simple
example of what the evidence shows. Surveyors ask kids in class III to
recognise numbers upto 100. Here are the numbers, for the proportion
of kids in class III who
cannot recognise numbers upto 100:
In 2008, the failure rate with private schools was roughly 17 per
cent. Government schools were much worse at over 30 per cent. A short
three years later, conditions had deteriorated sharply in government
schools. The failure rate had gone up to 40 per cent. Private schools
had also worsened slightly, to a failure rate of 20 per cent. By 2011,
a big gap had opened up between the two: private schools are failing
to teach 20 per cent of the kids while government schools are failing
with a full 40 per cent of their kids.
Parents in India face the
choice between sending their
children to a government school, which is free and serves a mid-day
meal, versus sending them to a private school where they pay
fees. Yet, an increasing fraction of parents
choose to send
their children to a private school, paying tuition fees from their own
pockets, while government schools are free. The relationship between a
parent and a private school is a transaction between consenting
adults. The relationship between a parent and a government school
involves all of us, because we are paying for it.
Given the low income of parents in India, their use of private
schools is a striking indictment of what the Intensifiers have
wrought:
At class II, the fraction of rural children in private school went
up from 19 per cent (2007) to 23 per cent (2011). At class VII, this
rose more slowly to levels slightly above 20 per cent.
Evidence #3: CMIE household survey
CMIE has data for the year ended March 2011 about the behaviour of
169,492 households, about their expenditure on school/college fees and
tuition fees. Here's
the
picture for the quarter ended September 2011; all values as
percent of overall expenditure:
| Income class | School/college fees | Private tuition fees |
|---|
| Rich - I | 4.79 | 0.66 |
| Rich - II | 3.79 | 0.51 |
| High Middle Income - I | 3.54 | 0.63 |
| High Middle Income - II | 3.12 | 0.65 |
| High Middle Income - III | 2.44 | 0.68 |
| Middle Income - I | 1.93 | 0.59 |
| Middle Income - II | 1.62 | 0.45 |
| Lower Middle Income - I | 1.38 | 0.49 |
| Lower Middle Income - II | 1.05 | 0.60 |
| Poor - I | 0.76 | 0.58 |
| Poor - II | 1.13 | 0.28 |
| Overall | 2.10 | 0.57 |
If parents chose to stay within public sector schools, their
expenditure on fees would have been zero. The table shows that across
all income groups of India, there is movement towards private
provision of education, both by paying fees at schools and by paying
for private tuition classes. These two elements add up to 2.67 per
cent of overall expenses of households. (The CMIE household survey
separately measures expenses on books, journals, stationary,
additional professional education, education overseas, hobby classes
and other education expenses. This helps us gain confidence in the
extent to which the two fields in the table above narrowly pin down the
feature of interest).
These decisions of well intentioned parents are the strongest
indictment of education policy in India. The product being given out
by the Intensifiers is such a terrible one, the parents of India are
walking away from it even though it is free and the alternative is
not and the parents are poor.
Implications
For more than a decade, the Intensifiers have controlled Indian
education policy. They have said:
Leave education to the education
establishment, do nothing radical, just give us more money, we will
deliver results. Now we know that they were wrong. They took the
money, but failed to deliver the results.
Kapil Sibal has said that his ministry should not be held
responsible for the stream of bad news that is coming out. To me, this seems to be dodging accountability. His ministry is responsible for
Sarva Shiksha Abhiyaan, for the Right To Education Act, for blocking
OECD PISA from being done in India, etc. The bureaucratic consensus of
his ministry represents the education establishment.
The key phrase that needs to be emphasised today is
accountability. If a contractor took money from
you, and failed to deliver on building your house, you would sack
him. (You would also take him to court, to recover the money that was
paid to him, for services not delivered). In similar fashion,
education is too important to be left to the educationists. We need to
start over.
What is to be done
- We need to start over in the field of education, with a fresh
management team, one that is not a part of the status quo, one that is
rooted in the worlds of incentives, public policy and public
administration.
- In 2004, we were told that in return for a tax rate increase of 2%, in the form of an education cess, we would obtain improvements in education. We now know that those improvements did not come about. Hence, that tax rate increase should go. (Even if sharp improvements in educational outcomes had been obtained, the education cess was a mistake in terms of basic public finance, and needs to go. Public expenditures on education should simply come out of general tax revenues; there is no need to have a cess.)
- The flow of public money into the status quo needs to go down
sharply. There is no reason to put money into something that fails to
deliver the goods. First we must prove that a mechanism
delivers results, and only after that should we put money into
it. This is the common sense that a housewife would apply. She would
not spent gigabucks on promises from people who have failed to
deliver.
- OECD PISA measurement needs to take place every year at every
district. The production of this data is a public good that the government can and should do. It can be fully contracted out to private firms so as to avoid the problems of public sector production. Datasets about student characteristics and school characteristics should be released, covering every district and every year, so as to enable research.
- Civil servant teachers, who have tenured (permanent) have no
incentive to teach well, regardless of their qualifications or high
income. We can't sack them, but what we need to do on a massive
scale is to stop recruiting them. The existing stock can be
reallocated to other civil servant functions where staff is in short
supply. Through this, it would become possible to whittle away at
the accumulated stock over the coming 20 years.
Posted by Ajay Shah (noreply@blogger.com) on January 25, 2012 04:32 AM· permalink
Scripscan:Zuari Industries Ltd
cmp:430
Code:500780
Story:Recently, Zuari, in joint venture with Mitsubishi Corporation, acquired a 30% stake in Peruvian mine Fospac for 230 crore for assured supply of phosphate rock- the main feedstock for di-ammonium phosphate (DAP). Fospac?s annual rock phosphate production is expected to reach 2.5 million tonne by 2015, half of which will come to Zuari. The company plans to set up a 1 million tonne DAP plant at Karwar in Karnataka with a capex of 750 crore.In mid August 2011 the company finalised a contract to source potash feed, which will help the company grow its revenue and profit.Recently, Zuari also signed a gas-supply agreement with GAIL for 0.4 million tonnes urea plant at Zuarinagar. With fuel supply expected to start from January 2012, the company?s annual urea production capacity will grow 10% to 441000 tonnes. This is likely to attract an additional margin of 3,000 a tonne, which means an additional profit of 12.6 crore.The company also has plans to set up 1.3 million tonne gasbased urea plant at Belgaum in Karnataka at a cost of 5,000 crore by 2015-16. The Dabhol-Bangalore gas pipeline project may supply the project with natural gasDuring the first half of FY12, Zuari's performance was impacted by a 63-day long disruption in urea production and a 20-day break in phosphatic and potassic fertiliser production during the September 2011 quarter following a fire accident.These led to a 15% fall in the total sales volume of the company to 0.94 million tonnes compared with a year-ago period. Consequently, Zuari?s top-line also fell 1.2% to 2,995 crore on a standalone basis and bottomline dropped 27% to 80 crore. Operating profit margins were down 130 basis points to 3.3%. Zuari could complete only 40% of its annual target of 0.4 million tonne of urea production during the first half due to plant shutdown. The company expects to make up for the shortfall in the remaining two quarters. Also, as on September 30, 2011, the company had a builtup inventory of over 1,300 crore which is expected to liquidate with the resumption of operation at the plants.At the current market price of 430, the stock trades at nearly nine times its earnings for the trailing 12 months. Industry rivals such as Coromandel International and Gujarat State Fertilizes Corporation are currentlytrading at 11 and 4.1, respectively.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 24, 2012 04:28 PM· permalink
With the first release of OECD PISA results for India, and with the
release of one more year of Pratham data, there has been an upsurge in
interest in education in India. The following set of materials are a
useful reading kit to get a grip of the field.
Elementary education
- Education
in India at the crossroads, 24 January 2012.
- Ila
Patnaik in the Indian Express, 20 January 2012.
- ASER
2011 report by Pratham. Article in the Indian Express on
this
by Rukmini Banerji.
- Accountability
in education by Jeff Hammer, 18 January 2012.
- The
first PISA results for India: The end of the beginning by
Lant Pritchett, 5 January 2012.
- The
Right to Education Act: A critique by Parth Shah, 1 April
2010. Also see Raghuram
Rajan and Abhijit Banerjee 20 February 2010.
- Getting
results on education and health expenditures of government, by
Lant Pritchett and Jeff Hammer, 16 July 2009.
- Ila
Patnaik on the then draft Right to Education Bill, 13 January
2008.
- The
mess in education by me in the Business Standard, 28
February 2006.
- The World Bank's WDR
2004: Making
services work for poor people.
- Rethinking
elementary education by me in the Business Standard,
1 July 1998.
Higher education
Posted by Ajay Shah (noreply@blogger.com) on January 24, 2012 04:08 PM· permalink
Scripscan:Samrat Pharmachem Ltd
cmp:40
Code:530125
Story:At the start I would like to insist that I am neither recommending a buy nor sell for this microcap, nor am I invested in it as yet. I would briefly mention this commodity stock for your later research.Fortunes turn about-face as the change of weather on shore side with commodities. I have never believed in any metal including Gold, its utility to me is only in times of war, to carry something precious in pockets when a country is ravaged. Despite out performance of this metal in past decade the odds are completely stacked against this non-thinking, nor productive asset, last two hundred year of results stand up for even TIPS and vouch the superiority of equities.A commodity nevertheless, backed by able men has distinct advantage over bare metal. Hence the openness to invest in commodity miners and manufacturers. A microcap such as this, or Sandur Manganese, SELAN etc are infinitely superior investments to investing in rarest of rarest metals like Platinum, Rhodium etc. I firmly believe there will be no money left to make in coming decades in any commodity, only technology will be the saviour. Majority of resources including metals, iron, crude oil etc. will all be over in any case by the end of the century at humble 1-2% growth rate assumption. Iodine is a 15,000 tonne industry globally out of which 2.5 - 3% of Global output is contributed by Samrat Pharmachem. Recent out performance is a consequence of global turnaround. Other players that produce Iodine and its derivatives in India are:G. Amphray Laboratories, Calibre Chemicals Pvt Limited, Salvi Chemical Industries,Vishal Laboratories, Champa Purie-Chem Industries, Shree Bhavani Iodates, Adani Pharmachem Pvt Limited, Canton Laboratories Pvt Limited, Micron Laboratories,Prachi Pharmaceuticals Pvt Limited, Omkar Speciality Chemicals Pvt Limited, Samrat Remedies Limited, Triveni Chemicals and IRIS Pharmachem - quite a few one would say.Global Leaders in this domain include: Ajay-SQM,Deepwater Chemical Inc,IodiTech,Troy Corporation,Cosayach - Chile,Atacama - Chile,Ise Chemicals - Japan.Godo Shigen Sangyo - Japan.World reserves exceed 15 million tonnes, i.e 1000 years worth of supply, hence there is no shortfall. In addition to above reserves, Iodine can be extracted from sea weeds which contain 0.05 PPM or at current sea weed stockpile 34 million tonnes. Recent demand of Iodine was propelled by LCD display and X-Ray contrast media. Like any cyclical stock, this will reward or misbehave with your money, hinges on how correctly cycle is timed.
Source:Amit arora
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 24, 2012 04:05 PM· permalink
Some time after you've purchased a stock, you probably have a pretty good idea as to whether you made a good decision or not. This is because you likely follow the stocks you have purchased fairly closely. This feedback mechanism allows you to fine-tune your stock purchase criteria so that you don't make the same mistakes again. But often, some of the best lessons to be learned come from the stocks you didn't buy, but considered buying!
Unfortunately, investors often forget about these stocks. These stocks don't make it onto their "follow" lists or spreadsheets, and have zero mind-share. As a result, they may never know if their thesis was correct. Not utilizing this potential feedback mechanism for a large number of stocks can prevent one from becoming a better investor.
Consider cataloging the stocks you were close to buying, but didn't. Check back to see if the reason you didn't buy came true. Note that for a small sample, the result might be misleading. For example, a risk you foresaw may not have come to fruition, but may have been a legitimate reason for not buying. Looking at this "non-portfolio" in the aggregate and over several years, however, should help you improve your decision criteria.
Posted by Saj Karsan (noreply@blogger.com) on January 24, 2012 11:38 AM· permalink
Scripscan:Bajaj Steel Industries Ltd
cmp:90
Code:507944
Story:During the year under review,the turnover of the Company has been marginally decreased from Rs 228.22 Crores in 2009-10 to Rs 223.68 Crores in 2010 -2011 representing a fall of 2.00.%, this was due to uncertainty about cotton crop in the country. The profitability of the Company has also been affected as the profit of the Company has decreased from Rs 10.24 crores in 2009 -10 to Rs. 0.46 Crore in 2010-11.The Company's performance was affected as the Company has introduced new products in the market.The outcome of these products has started receiving some response during the Financial Year 2010 -11 and its full fledge effect is expected in next few years.Primarily, the Company is consisting two Divisions viz Steel Division and Superpack (Plastic) Division. Steel Division of the Company is having distinguished manufacturing facilities in India for Cotton Ginning & Pressing Plants located at Imambada Road and C-108, Hingana Industrial Area,Hingna,Nagpur.Recently the Company had acquired land in G-108 Butibori Industrial Estate, Nagpur (MH)where the construction of building work had been completed substantially and is expected to start the production at the earliest.Its a pretty tiny company with 2crs equity.Hopefully with the expected good numbers in coming years,the counter would be able to settle at higher price in the bourses.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 23, 2012 03:10 PM· permalink
Scripscan:Action Financial Services (I) Ltd
cmp:38
Code:511706
Story:Action Financial Services (India) Limited engages in the capital market related activities in India. The company offers currency, derivatives, and retail and institutional equity broking services to clients for investment in primary markets through mutual funds and IPOs through its Website.It also provides depository participant services.Company marketcap is 40crs and indulges in a business where their is cut throat competition and nearly nil profit margin.This company with 25 employees hardly generates any profits or revenues to talk about.40crs marketcap under the present environment is just too mind boggling for a company with nothing.Sell at the earliest and move on to a better sector.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 23, 2012 03:01 PM· permalink
SmartPros (SPRO) provides training solutions for various markets. As per Google Finance, "[i]ts customers include professional firms and companies of all sizes who purchase the courses for use by their employees, and individuals who purchase courses, programs or subscriptions on a retail basis." This is a small company that trades for just $10 million, but has $6 million of cash and no debt, and has generated $1-2 million of annual free cash over the last few years (excluding acquisitions).
Since the recession began, earnings have been under pressure, as companies have cut back the kind of capital programs that would lend themselves to using one of SmartPros' training solutions. But a good chunk of SmartPros' revenue is recurring in the form of subscriptions, and this has kept the cash rolling in. The subscription business model gives the company a cash cushion as well, as the company's services are purchased in advance, leading to the aforementioned high cash balance and a deferred revenue account of $5+ million.
While the company is engaged in some modest buybacks, the bulk of the cash is unlikely to be returned to shareholders. Management's intention is to continue using its cash flow to grow through acquisition. This strategy has appeared to work in the past, as the company has grown revenue significantly while generating a decent ROE in the process, at least until the recession hit. But this remains a risk for shareholders; an investor might think he is buying a safe asset in the form of a significant cash position, but that position could be gone tomorrow!
The company's top executives do own about 15% of the company, but they also take home rather generous salaries for a company of this size. The top three executives took home nearly 10% of the company's current market cap (or about 5% of the company's annual sales) in salary in 2010 alone.
Don't be fooled by the recent red ink, however; this is a seasonal business, and the company's fourth quarter (which has not yet been reported) is its strongest. Therefore, in a month or so the company's balance sheet may look even stronger!
Some value investors may find SmartPros too cheap to pass up. The steady decline of its stock price over the last few years certainly makes it an intriguing prospect!
Disclosure: No position
Posted by Saj Karsan (noreply@blogger.com) on January 23, 2012 11:20 AM· permalink
Posted by Ajay Shah (noreply@blogger.com) on January 23, 2012 04:05 AM· permalink
Through a series of experiments, Dan Ariely documents the many ways in which humans behave irrationally. By understanding these human tendencies, we can both learn to behave more rationally when it is to our benefit, and better understand why those around us are behaving in the way they are.
We like ideas more when we are the ones who came up with them. This is not an easy tendency to test, but Ariely came up with an experiment that got participants to actually think they came up with an idea that he planted. When participants thought they had come up with an idea themselves, they gave the idea higher ratings.
This tendency may serve a useful purpose. It may give us a high level of commitment to our ideas, giving us the power to follow through and carry our ideas to the max. But the dark side is that we close our minds to better ideas, simply because we did not come up with them ourselves. Companies can fall into this trap as well, as many accept internally generated ideas as more useful than those from other, more successful companies.
Posted by Saj Karsan (noreply@blogger.com) on January 22, 2012 11:14 AM· permalink
Through a series of experiments, Dan Ariely documents the many ways in which humans behave irrationally. By understanding these human tendencies, we can both learn to behave more rationally when it is to our benefit, and better understand why those around us are behaving in the way they are.
We overvalue things we make ourselves. In other words, the same object will have a different perceived value based on who made it. Ariely demonstrated this using a series of experiments.
An additional finding is that the more effort we put into something, the more we overvalue it. But this applies only if we actually complete the job. Apparently, we carry no sentimental feelings towards objects we put a lot of effort into but couldn't finish.
Some companies have figured this out. By getting customers to put some effort into a job (e.g. eggs must be added to some cake mixes), customers end up valuing the end product more. But there is a fine line to walk here for companies, because too much effort results in customers giving up and not valuing the end product (as per the last paragraph).
Ariely argues that based on these conclusions, we should revisit how we view relaxation. Today, we often pay to have our gardens tended to, or our "surround sound" systems installed. But we may actually gain much more enjoyment out of them in the long-term if we put the effort in ourselves!
Posted by Saj Karsan (noreply@blogger.com) on January 21, 2012 11:57 AM· permalink
People looking for positional call professional service may rush a mail at my mail id
arunsharemarket@gmail.com to know more about it.
btw:After thorough meticulous research only the paid calls are been provided to the members.The open site(http://www.arunthestocksguru.com/) is meant to provide outlook and not recommendations.Paid site is meant for recommendations with target/duration/complete story and updates.Scrips where am most bullish would be posted on the paid site.
Regards,
ARUN
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 20, 2012 04:17 PM· permalink
Scripscan:Kalpena Industries Ltd
cmp:60
Code:526409
Story:The fiscal year 2010-11 was a much competitive year for Plastic Industry when there were frequent fluctuations in the prices of raw materials with overall rise in the price trends. The products of Kalpena Industries Limited find application mainly in cable industries, packaging industries and footwear Industries. These industries had done fairly well in 2010-2011 and, consequently, it positively impacted the top line of the company. However, the current year seem to be challenging for the company, mainly due to high inflation and series of interest rates hike. Moreover, the question of price stability in polymer market across India is uncertain.Company continues to move forward on its vision of the leading manufacturer of Polymer compounds in India.Last year, Bavaria Poly Private Limited engaged in the business of manufacturing and dealing in plastic Agglomerates and Granules (i.e. recycling of plastic scraps into agglomerates and granules for which the company is having a specific license issued by Development Commissioner, Falta Special Economic Zone), was merged into the company.In a drive towards the strategic expansions,the company has setup a manufacturing unit at Dullagarh, Satragachhi, West Bengal.It offers a range of products to domestic and industrial users. In the years to come, it will come up with more and more range of new products to satisfy the needs of the Customers.Kalpena Industries Limited is confident of accomplishing volume growth and, consequently, the increasing in market share in very near future.It being the only local player for Medium Voltage cables, enjoys possibility of achievinghigher volumes and margins. Also,the company has more expansion Projects in pipe line for catering to the untapped regions to enlarge geographic footprint in various parts of the country.Kalpena has one of the strongest operating matrix in the Plastics Industry in India.With its cost competitiveness, quality products, a robust marketing distribution system and extensive network, it has reinforced its formidable brand position amongst wide ranging and far flung customer base.Its a decent company with a good business but input cost problem and high interest rate remains a big issue.It closed fy11 with sales of 847crs and PAT of 19crs giving it an EPS of 11.7rs.Thus at present prices it trades around 5 PE its trailing earnings.The company always rewarded shareholders with a dividend of 2.2rs.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 20, 2012 04:09 PM· permalink
Scripscan:National Fertilizer Ltd
cmp:76
Code:523630
Story:In fy11 the company achieved turnover of 5791 crore (previous year 5091 crore).The profit before tax was ` 203.92 crore (previous year ` 259.95 crore) and profit after tax was ` 138.50 crore (previous year 171.51 crore).The decrease in profit over previous year is mainly due to higher receipt of subsidy arrears during the previous year and decrease in interest income. This has been off set by higher production, lower energy consumption,st and higher sale of Industrial Products. The total borrowings of the company as at 31 March, 2011, stood at ` 613.06 st crore (` 403.16 crore as at 31 March, 2010). The borrowings include long term loan of ` 150 crore to finance the under implementation capital scheme of change over of feed stock from Fuel-oil to Natural Gas at Nangal, Bathinda and Panipat and buyers credit of ` 41.22 crore for Urea capacity enhancement projects at Vijaipur.The company also paid a dividend of 85 paisa.This kinda psu companies would only roar once the disinvest program kicks in.Till that happen the company would remain a market performer.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 20, 2012 02:14 PM· permalink
Scripscan:Neogem India Ltd
cmp:24
Code:526195
Story:Neogem India Limited engages in the manufacture and sale of plain gold, studded gold, and diamond studded jewelry in India and internationally. Its products portfolio includes rings, pendants, earrings, bridal jewelry, colored stones, and ensembles. The company exports its products to the United States, the United Arab Emirates, Hong Kong, and Europe.Lethargic management,boring business model coupled with inconsistent numbers makes me wary about the company.Sell at rallies and move on to better bets.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 20, 2012 02:00 PM· permalink
In the last couple of months, two investment management firms have been discussed on this site as potential value ideas, Janus and Artio. This is not a coincidence, as money management firms appear to be out of favour. Consider the assets under management (AUM) to market cap ratio of these managers over the last few years:
If this is a temporary phenomenon, investors may want to load up on these companies, taking advantage of the cheap prices while they can. But some might say that this is not temporary. An era of poor returns and competition from lower-cost products like ETFs could pose a permanent threat to the fees these firms traditionally generated from their AUM. If they can't get the revenues from AUM that they used to, maybe they aren't worth as much of AUM as they used to be either.
These arguments are laid out by Alice Shroeder in this Bloomberg piece. Judge for yourself: is this a temporary or permanent decline for this industry?
Posted by Saj Karsan (noreply@blogger.com) on January 20, 2012 11:21 AM· permalink
Wipro announced little better than expected results and and stocks soared because of that , the Company has posted a net profit of Rs. 10639 million for the quarter ended December 31, 2011 as compared to Rs. 12239 million for the quarter ended December 31, 2010. Total Income has increased from Rs. 67876 million for the quarter ended December 31, 2010 to Rs. 85156 million for the quarter ended December 31, 2011. revenue in the third quarter was up 28% from a year ago to Rs 9,997 crore.Net profit for October-December rose 10% year-on-year to Rs 1,456 crore.
Wipro 20122 December Quarter Results.
Wipro Announces Quarter Ended December 2011 Results is a post from: First Blog for Indian Financial Market
Posted by Lalitha on January 20, 2012 05:08 AM· permalink
Scripscan:Malu Paper Mills Ltd
cmp:12
Code:516030
Story:Malu Paper Mills Limited manufactures and sells paper and newsprint in India. It manufactures machine glazed kraft paper that is used by corrugators for making corrugated boxes. The company also offers newsprints for newspaper publishers, as well as for publishing telephone directories and lotteries. In addition, it has interests in coal and lignite trading; manufacturing and trading MS electrodes; manganese processing and exporting; and manufacturing and trading MS ingots and castings. The company was formerly known as Malu Solvex Limited and changed its name to Malu Paper Mills Limited in April 1998.The company achieved 173crs of sales with a loss of 3crs in fy11.Equity stands at 17cr thereby providing a negative EPS of 1.6rs.At 12rs its quoting at 5 times its expected fy14 earnings which is still expensive when we compare the valuations with bigger and better players.Paper sector is a pretty boring sector to be in.One shouldn't expect sectorial deals like that of AP paper to happen daily.That was once in a blue moon stuff.Thus exit malu papers at higher levels and move on to something better.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 19, 2012 04:15 PM· permalink
Scripscan:Chromatic India Ltd
cmp:73
Code:530191
Story:Chromatic India Limited engages in the manufacture and trading of S.O. dyes and chemicals in India and internationally. Its products include cyanuric chloride, double anchor type, and vinyl sulphone based products.Chromatic India Ltd. announced unaudited earnings results for the second quarter and six months ended September 30, 2011. For the quarter, total income was INR 419.6 million, profit from operations before other income, interest and exceptional expenditure was INR 2 million, profit from ordinary activities before tax was INR 160.1 million and net profit for the period was INR 160.16 million or earnings per basic and diluted share of INR 2.25 against total income of INR 151.93 million, profit from operations before other income, interest and exceptional expenditure of INR 3.64 million, profit from ordinary activities before tax of INR 7.97 million and net profit for the period of INR 7.97 million or earnings per diluted share of INR 0.71 for the same period a year ago. For the six months, total income was INR 742.4 million, profit from operations before other income, interest and exceptional expenditure was INR 7.9 million, profit from ordinary activities before tax was INR 163.91 million and net profit for the period was INR 163.91 million or earnings per basic and diluted share of INR 2.31 against total income of INR 193.6 million, loss from operations before other income, interest and exceptional expenditure of INR 5.35 million, profit from ordinary activities before tax of INR 4.93 million and net profit for the period of INR 4.93 million or earnings per diluted share of INR 0.44 for the same period a year ago.At over 500crs market am not gonna suggest to buy this crap.Rather dispose it off at rallies.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 19, 2012 03:34 PM· permalink
Scripscan:Deepak Fertilizers & Petrochemicals Corp Ltd
cmp:130
Code:500645
Story:Deepak Fertilizers and Petrochemicals, ammonium Nitrate demand is witnessing sluggish growth due to lull in mining activities. However company is gaining market share by replacing imports. Recent media reports suggest Deepak is likely to be stopped supply of 0.18mmscmd gas from Reliance KG-D6 basin. However, management believes it is highly unlikely. Company may witness margin pressure due to recent currency depreciation since most of its raw materials are IPP linked. Our estimates already factors such margin pressure.Recent media reports suggest that EGOM will soon decide on a proposal from the petroleum ministry on a cut in the supply of 0.178 mmscmd of KG D-6 gas to Deepak Fertilizers. Deepak's total requirement of gas is 0.68 mmscmd with 0.15mmscmd of gas being sourced from Reliance's KGD-6 basin. However, management indicated that this is highly unlikely given that fertilizer sector has been accorded priority status. However, disrupted gas supply may induce company to increase imports and lead to increase in the costs of complex fertilizers and would put pressure on margins if company is unable to pass them on to the farmers. However, since fertilizer contributes less than 20% to bottomline, impact is likely to be limited.Company enjoys well diversified product portfolio which help the company to reduce single product risk. We have seen company has been able to protect its margins in chemical segment at 25% during challenging period of FY08 on account of diversified product portfolio. However recent currency depreciation and sluggish growth in ammonium nitrate poses near term risk to company's earnings. With no concrete plans for growth in FY13-14 we may see earnings stabilize at current level however free cash flow generation of ~ Rs 6 bn over next two years should help company to reduce its debt and strengthen balance sheet.With growing uncertainty, we have reduced our target P/E multiple from 8x to 6x FY13 estimates (based on previous five years average) and subsequently reduce our price target to Rs 185 (from Rs 250). At CMP stock offers attractive dividend yield of 5%+ and trades at 20% discount to book value.
Source:Emkay
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 19, 2012 01:44 PM· permalink
Scripscan:Tata Power Company Ltd
cmp:103
Code:500400
Story:Tata Power's stock price has corrected by 30%+ over past 6 months, given concerns surrounding losses at Mundra UMPP, delayed commissioning at Maithon, lower possible production ramp-up at KPC/Arutmin mines, etc. TPWR is relatively better placed amongst the other IPPs given large part of power business on regulated business, integrated investment providing cushion for UMPP, etc.We believe that most negatives are getting factored in the valuations, and upside possibilities could be 1) savings in fuel cost at Mundra UMPP due to blending of low GCV coal (~20% of fuel cost), 2) tax efficient structure for Mining HOLDCO/UMPP, 3) possible upwards revision for UMPP tariff and 4) reversal of impairment provision given softening coal prices. TPWR provided for MTM losses of INR7.4b in 2QFY12, but it is comfortably positioned as while translational gains from higher earnings at KPC / Arutmin mines can be retained; the increased costs are a pass through by way of higher tariffs in Mundra UMPP.We have cut our FY12/13 earnings by 8% / 3% to factor in lower production from KPC/Artumin mines (73m ton in FY14, vs 83 m tons), lower contribution from Maithon project (Unit 2 CoD in Sep 2012), lower merchant contribution (100MW Trombay transferred on regulated basis), and tax on dividend received from mining HOLDCO to meet cash flow commitments at UMPP (while dividend gets eliminated in consolidation, tax remains). We now expect TPWR to report consolidated EPS of INR8/sh for FY12E (up 8% YoY) and INR9/sh for FY13E (up 13.4% YoY). SOTP based TP stands at INR91/sh.
Source:MOSL
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 19, 2012 01:38 PM· permalink
Scripscan:Oil India Ltd
cmp:1150
Code:533106
Story:Oil India (OIL) is in advance talks for potential overseas acquisition of producing property in the African region. The company is likely to give a non-binding agreement for the same in the next 2-3 months. The reserve is around 200m barrels and the potential acquisition cost is around Rs 50-60bn, translating into EV/boe of US$4.8-5.8/boe. The same compares favourably to the opportunity cost (F&D cost of US$5.45/bbl in FY11).Management believes the preferred option for the divestment of government stake is likely to be block-trade, wherein the government offloads its stake to the institutional investor. OIL expects government to provide minimum net realisation of around US$60/bbls for the current fiscal. The company has asked the government to take average of the last five years for calculating the proportionate share of upstream companies against the current practice of last three year's average.OIL has been delivering impressive performance on the core operating parameters such as production growth, coupled with efficient operations, resulting in low finding, development and lifting cost. Key catalysts affecting the stock price continues to be subsidy sharing and outlook with regards to deployment of significant cash balance. The stock is currently trading at attractive 7.3x FY2013E EPS.Buy with a 12 months target price of Rs 1,525/share (a multiple of 10x FY2013E EPS)
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 19, 2012 01:32 PM· permalink
Scripscan:Chambal Fertilisers & Chemicals Ltd
cmp:79
Code:500085
Story:Chambal Fertilisers and Chemicals' (Chambal's) Q3FY12 standalone net sales grew by 32.2% YoY to Rs17,966m (PLe: Rs14,838m), primarily on account of 16.4% YoY growth in urea volumes and 57.8% YoY growth in trading sales. However, urea production volume stood at ~5.5Lac MT. Sales of shipping and textiles businesses were as per our expectation. Better-than-expected sales were mainly on account of higher trading sales (Rs7.9bn v/s PLe: Rs6.0bn).Chambal's EBITDA de-grew by 3.9% YoY to Rs2,039m (PLe: Rs2,235m). EBIT/MT in urea business de-grew by 12.2% YoY to Rs1,688/MT (down by 24.9% QoQ, PLe: Rs1940/MT). Company had received subsidy related to earlier years which amounted to Rs220m during Q2FY12. Excluding earlier year's subsidy, EBIT/MT de-grew by 9.2% QoQ. Company has strong trading margins on the back of better treasury and inventory management. Company's trading EBIT margin stood at 6.1% (PLe: 5.5%). Chambal is carrying ~50K MT of DAP inventory at the end of the quarter. Textile EBIT margin was under pressure because Chambal has considered marginal amount of inventory write-down due to fallen Cotton/Yarn prices during the quarter. Company believes that most of the inventory write-down has already been completed. Company's long-term contract in shipping business (four out of six ships) had expired during Q1FY12. At present, all of Chambal's ships are at a spot price (i.e. US$15000/Day), which is much lower than contract price (i.e. US$22000/Day).Hence, EBIT margin of the company's shipping business has fallen sharply to negative 4.2% (PLe: - 4.7%). Company has provided lower tax rate of 21.7% (PLe: 33%) during Q3FY12. Chambal's Q2FY12 adjusted PAT de-grew by 4.1% YoY to Rs862m (PLe: Rs884m).We have trimmed our FY12E/FY13E estimates by 8.3%/16.9% on considering lower urea and phosphoric acid prices and lower profit in shipping business. We expect Chambal's consolidated PAT to grow at three year's CAGR (FY11-14E) of 12.7% (v/s 7% in FY05-11). At present, stock is trading at one-year forward P/E of 10.6x. Stock has been trading in the range of 6x-13x for the past ten years. We maintain our 'Accumulate' rating on the stock, with revised TP of Rs 89 (i.e. 12xFY13E EPS). We believe that any positive outcome like NBS scheme, new investment policy and hike in urea prices at the farmer level would be the key upside trigger for the stock in the near term and it will lead to an upward revision in our estimates as well.
Source:PL
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 19, 2012 01:23 PM· permalink
Artio (ART) is an investment manager, earning revenues from assets under management (AUM). Lately, investors have been in no mood to invest, causing outflows at Artio that have reduced AUM from $53 billion at the end of 2010 to just $30 billion today. But while this represents a 40+% decline in AUM, the stock price has declined by over 70% over the same period, which could offer an opportunity to investors.
The market is a big believer in trends. So as Artio's AUM has fallen over the last several months (Artio reports its AUM monthly, in releases such as this one), the market appears to assume the trend will continue. If you're trend agnostic, however, and believe assets could rise or flatten just as easily as they could fall, you may think the stock has been oversold. Here's how AUM has bounced around over the last several years:
As a result of the stock's massive decline, Artio now trades for $250 million, despite having generated operating cash flow of at least $50 million in each of the last few years (and these have been some bad years for the industry, resulting in massive cash outflows). In this kind of business, there are few capital expenditures that need to be made, so theoretically most of that money should flow to shareholders. The balance sheet is clean, with a net cash position of $45 million, plus $65 million of investments Artio has made in some of its own funds (seed capital etc).
Earnings in this type of business fluctuate enormously, as fickle investors jump into and out of portfolios based on their perception of the direction of the economy. But for the investor who can withstand volatile earnings, there may be rewards in the long-term through investing when sentiment is very negative.
Disclosure: No position
Posted by Saj Karsan (noreply@blogger.com) on January 19, 2012 11:12 AM· permalink
by Jeff Hammer.
I was shocked
by Lant
Pritchett's note on the appalling performance of India's best
two states on the international PISA assessment. Actually, I was
not really shocked; I didn't expect anything else as I've been
listening to Lant for years now. By the same token, I agree with
Jishnu Das that
we really don't know much about what works in education (other than
that good teaching makes a difference) and that our bean-counting of
inputs into education may be completely wrong headed. From
conversations with him (also over years) I surmise that the only
thing we really know about what leads to more learning is that it is
correlated with how many years children stay in school. What that
suggests, though, is that attention be directed towards the choice
of parents and students to stay in school.
In my opinion people choose to do things if it is worth it to them.
This is a common assumption for economists. While challengeable in
some circumstances, does it make any sense to think that people send
their children to school if they don't think it's worth it? If it is
compulsory: sure. With compulsion, attention of policy makers and
carefully watchful observers such as Pratham should be to make sure
school is worth the year of children's attendance since people would
not be able to decide for themselves. Until we see compulsory
schooling enforced, though, years of education remain a family's
choice and we have to understand how and why people make that
choice.
Unless we think parents are utterly clueless about the value of
education and totally incapable of telling if teachers are doing
anything or their children are learning anything, the effectiveness of
teaching and the amount of knowledge imparted must be a major factor
in their decision as to whether school is worth it. Don't get me
wrong, I've met dozens of educators and education officials in India
who believe parents are, indeed, clueless and such decisions should be
out of their hands. But they are the very people who gave us the PISA
ratings and are indeed throwbacks to the License Raj where only
bureaucrats were assumed to know anything. Further, with the explosion
of private schools, even in rural areas, it is laughable to think that
there are so many parents who value education so little. They are
willing to forego free public education in order to pay for something
more worthwhile.
Which brings us to accountability.
What could parents be looking at, that makes them think school is
worth it? It must be based on performance: parents don't really see
the inputs, they mostly just see their children learn. Or not learn as
is the case. So how can they translate their concern for learning into
actual learning? They have to be free to pick the educational
context that they see is working for them or their
neighbors. That's where accountability comes in.
A provider of any good or service is likely to be most accountable
when their livelihood depends upon attracting customers. If what they
provide is worth it, people will take the service, and the provider
can make a living. If not, parents won't pay and teachers won't get
paid. As of now, there is no mechanism to allow families to make that
choice. There is no such compulsion for teachers to provide a service
worth paying for. No doubt there are many teachers (probably most) who
are doing the best they can regardless of how they are paid. But with
over 24% absenteeism, large numbers of teachers observed to be doing
anything but teaching, and many sub-contracting their position to
under-qualified replacements at a fraction of government salaries,
there is substantial room for improvement.
Further, if we are going to get more students (and, hence,
teachers) into classrooms, the dedicated teachers may be the ones who
are already on the job. People induced to enter the profession may not
be as dedicated and, hence, need some other way to hold them
accountable than internally felt professional ethics.
I am an educator (of sorts) but have no opinion about what the
bottleneck in children's learning really is. Jishnu says the most
successful headmasters all say different things (after good teachers -
but then, don't we judge the goodness of teachers by whether their
students actually learn? It's an output based judgment, too.) I know
little of pedagogical theory. But I know just as little about the
inner workings of most complex things I use -- computers and the
Internet, water systems, bicycles. I can tell when they work and when
they don't, though. Similarly, I know that my sons learned to read and
write, become responsible citizens and to develop and exercise
critical intellectual capacities (sometimes way too critical for my
taste) even though I have no idea how they learned them. I did know
that their teachers were in school almost every day and doing things
that sounded like teaching to me. I did not have to be an expert on
pedagogy to hold the schools completely accountable for my children's
education.
I was also fortunate enough to be able to take (or threaten to
take) them out of government schools if I thought otherwise. Funding
for government schools (in the U.S.) follows enrollment, if not so
directly and obviously as for private schools. So my threats about
shifting my children out of government school directly mattered to
their teachers.
There is no reason why Indian parents can't do the same. They, on
average, may not have my education but after talking to hundreds of
families in rural areas, tribal villages, urban slums and SC hamlets,
I hear no less concern for their children's future than I have for
mine and no less ability to tell if a teacher appears to be doing his
job. They may be more capable than me since they are more likely to
see the teachers themselves -- I needed to ask my children.
In many rich countries, the issue of vouchers to pay for schools is
emotionally charged. Historically, free compulsory public education
was a result of fights between church and State (even in Japan where
`church' doesn't quite fit -- but religion and State does). Children
were already attending school in high percentages and there was a
fight for their hearts and minds. In rich countries currently,
suggestions to provide vouchers instead of State-run schools re-kindle
this old antagonism against religious instruction.
India never had this fight nor this evolution of public
provision. Our view of schooling here in India was imposed based on
the final result of universal free education seen in rich countries
without the history from which that final result evolved.
India needn't go through the phase of fighting over who gets to
teach students who are already highly motivated to learn and have seen
learning take place. If India wants to see all children educated, she
can certainly pay for the cost of education (in fact, the job can be
done for much less per student is presently spent) so that families
don't have to. But the government doesn't have to provide it directly
(though government schools should be free to compete for this money if
it can). The fight is the State against society (families), not
against the church.
What the State can do is make as much information known to parents
as possible. What should children know after how many years of school?
How do you know if your child is keeping up? How do you know what
you're paying for is worth it? As of now, this information is
certainly not given to parents. Maybe State run schools don't want
parents to know (and, unfortunately, most Indian parents will not know
about PISA). And as of now, there is nothing parents (particularly
poor parents) can do about it anyway.
Posted by Ajay Shah (noreply@blogger.com) on January 18, 2012 05:12 PM· permalink
Scripscan:Rana Sugars Ltd
cmp:4
Code:507490
Story:Rana Sugars Limited engages in the manufacture and sale of sugar in India. The company offers white crystal sugar, double refined white sulphur less sugar, plantation white sugar, raw sugar, and molasses. It also manufactures various grades of alcohol, such as rectified spirit, denatured spirit, and potable grade extra neutral alcohol; and involves in the generation of power.Rana sugars performance has been pathetic to say the least over the last few quarters.Rana Sugars reported net loss of Rs 24.07 crore in the quarter ended September 2011 as against net loss of Rs 41.09 crore during the previous quarter ended September 2010. Sales declined 22.36% to Rs 64.22 crore in the quarter ended September 2011 as against Rs 82.72 crore during the previous quarter ended September 2010.If one has to stay with sugar then best thing would be to be with the leaders.Smaller players would find it pretty tough to find their feat.Investors having rana sugars should exit at rallies.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 18, 2012 01:49 PM· permalink
Scripscan:RDB Rasayans Ltd
cmp:8
Code:533608
Story:RDB Rasayans (RRL) is part of the Kolkata-head quartered RDB Group promoted by the 56 year-old Sunder Lal Dugar. Engaged in infrastructure development, tobacco/cigarettes, printing/packaging, containers/bags, automobiles marketing, retailing, production/installation of power transmission lines and logistics, RDB group boasted consolidated revenue of over Rs 1100 crore in fiscal 2010.In fact RDB is not new to investing public. The group has five listed entities of which two namely NTC Industries and RDB Realty & Infrastructure are listed on the country's premier stock exchange, BSE.Even though RRL was incorporated in 1995, the company commenced manufacture of small poly bags only in 2003. Manufacture of Flexible Intermediate Bulk Containers (FIBC) or Jumbo Bags with installed capacity of 1,800 TPA was started in 2004. The capacity was reportedly increased to 6,050 TPA in 2009 and further to 7,000 TPA in 2010.As regards RRL's track record, sales have grown inconsistently over the years and profitability has been under pressure from increased input-costs. The company does not enjoy any technological advantage but, on the contrary, faces stiff competition from other players. Though it has strategic location advantage in terms of proximity to clients and nearby ports enabling it to timely delivery with minimal logistics costs, it has experienced labor unrests in the past. Occurrence of such events in the future could hamper company's operations.Poly sacks segment is one of the poorest discounted industries on the trading floor.RRL's current EPS is only Rs 1.38 which is the highest in last three year. The book value of the share amounts to Rs.13.53.At present prices its a hold.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 18, 2012 01:37 PM· permalink
Scripscan:Rolcon Engineering Company Ltd
cmp:110
Code:505807
Story:Rolcon Engineering Company Limited engages in the manufacture and sale of chains and sprockets in India. It offers precision roller chains, chain wheels for roller chains, bush roller chains, feeder table chains, cane diffuser chains, cane carrier chains, rake elevator/carrier chains, bush elevator and driving chains, baggasse carrier chains, flow conveyor redler chains, stud chains, gall chains, and top roller chains. The company also provides carrier chains, water screen chains, extended pitch roller chains, leaf chains, deep bucket conveyor chains for clinker transport, reclaimer scraper chains, pan conveyor chains, rivetless chains, and heavy duty chains for shovels/excavators.Fy11 has been a landmark year for the Company with all time high production and sales.For the first time in the history of the Company,it has achieved sales target to Rs.3384.78 Lakhs as against Rs. 2940.76 Lakhs of the previous year but profit before tax has been reduced to 159.24 Lacs as against Rs.213.86 Lacs for the previous due to increase in the cost of Raw Materials and Reduction in selling price coz of reverse auction manipulation resorted by some of the companies. During the year company also made additions in plant & machinery & extension of factory shed for atomization in production cycle time.Its a very tiny company with equity of mere 76 lakhs giving it a mcap of 8crs.Its a debt free company having massive reserves of more than 14 times its equity cap making it an ideal future bonus candidate.Any bumper numbers by the company would get the stock rerated.It also paid a dividend of 3rs for the last fiscal.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 18, 2012 01:25 PM· permalink
Scripscan:Rossell India Ltd
cmp:40
Code:533168
Story:Company having Five tea estates in Assam in an area of 4000 hectares.For the last financial year Rossell posted a turnover of Rs.80 Cr and a net profit of Rs.18 Cr EPS is Rs.5/- ( FV Rs,2 Shares). In addition to the conventional Tea business company having two more divisions- Aerospace/defense and Hospitality. Potential of these sectors differentiate this company from other tea companies.Under the Bangalore headquartered Aerospace and defense division - Rossell Techsys- company is offering services like custom embedded systems product design and development, product support services including Installation, testing, commissioning and maintenance, test solutions including test jigs, rigs, and simulators etc , and wire harness engineering and looming.Company representing many foreign companies like MacSema in India for their various products and services in Aerospace and defense.This division having an approximate employee strength of 70.Recently company started a hospitality division to increase its presence in this sector.It is a point to note that company is already having some experience in this field through their strategic investments in a company which is running the franchise of 'YUM'( owners of brands like KFC, Pizza Hut, and Taco Bell) in Nigeria.Few months ago, Rossell decided to start fast food chains in various cities in India too .It is not clear at this point that whether this is through a master franchise agreement of any well known brands or not.Anyway their previous experience in this field will be an added advantage.Apart from this ,company is also having some interest in Lemon Tree Hotels which is running 12 hotel properties across India.Company's share price is currently trading at Rs.40 /- with a P/E of 6 on the expected full year EPS of Rs.7/-.Considering the chances of an improvement in Tea prices, it is at the lower level .If the upcoming fast food chain venture turn as a success and defense and aerospace division posts decent growth after the expected opening of private sector in defense , this unknown stock may get rated sharply.
Source:Valuepick
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 18, 2012 01:11 PM· permalink
UFP Technologies (UFPT) has been coming up on value screens lately. The designer and manufacturer of packaging solutions (e.g. the plastic or foam that surrounds your consumer electronic device when you buy it) has generated free cash flow approaching $10 million in each of the last two years, but trades for just $90 million despite a net cash position of $24 million!
There's a lot to like about this company. Returns on assets and equity have been strong since 2006, perhaps thanks to a strong management team. Management incentives also appear aligned with those of shareholders, as the company's CEO owns more than $10 million worth of stock (compared to pre-tax annual compensation of $1.5 million). As a result, you are probably less likely to see the company's cash load spent on acquisitions with poor returns for the purpose of increasing the company's size.
History bears this out, as the company appears to be a very shrewd acquirer. In 2009, the company bought three companies at what appears to be very favourable prices. The company spent $3.7 million and acquired net assets (including a good amount of cash, receivables and inventory) of $4.5 million.
But this is not a stock without some risk. For one thing, current profitability is abnormally high. Consider the company's margins over the last few full fiscal years:
Will current margins persist into the future? They might. If you believe the company has successfully transitioned away from commodity-like packaging towards higher-margin engineered packaging solutions, you might say these margins are sustainable. But you should make sure you know this to be true; otherwise, you could be buying into a company that is likely to see margins compress if/when business conditions in this industry return to normal.
It's not that clear that management believes the current high profits are sustainable. Midway through 2011, insiders (including the CEO) started selling shares, and they haven't bought any shares recently even though the price has fallen more than 20% since those sales.
Another thing potential shareholders should be wary of are the company's stock compensation practices. The company's free cash flow is overstated by about $1 million per year because that's how much stock compensation expense is added back to operating cash flow. While stock compensation is not a cash loss, it is a loss that is certainly felt by shareholders. The company's share count has been rising about 5% per year, and looks set to continue to rise as there are a great number of options remaining outstanding at much lower exercise prices than the current stock price. So although the company touts in its latest press release that its quarterly sales and income are up, these measures are actually both down on a per share basis!
If current earnings hold up, UFPT looks like a steal at the current price. Management appears intelligent with their acquisitions, and so even though the company doesn't buy back shares, there may not be a lot of risk to the company's cash. However, if current earnings are an aberration, shareholders could be left holding a disappointing stock with margins that decline to more normal levels.
Disclosure: No position
Posted by Saj Karsan (noreply@blogger.com) on January 18, 2012 11:37 AM· permalink
Scripscan:B.L.Kashyap & Sons Ltd
cmp:12
Code:532719
Story:Oblivious to broader market gyrations, the stock of construction company BL Kashyap & Sons has held fast to its downward path over the past three years.Initially facing the heat of a market meltdown in 2008, the stock further suffered on account of its exposure to troubled real estate contracts. From a near-doubling in FY08, revenues declined six and 30 per cent in the following two years. Profits plunged similarly, by 32 and 47 per cent.Efforts to diversify out of real estate saw the company take on infrastructure projects, using joint ventures to improve qualification. Fortunes revived in FY-11, with revenues and profits up 51 and 22 per cent respectively. A bonus and stock split nudged interest in the stock.However, the company suffered delays in monetisation of its real estate venture Soul Space, and high raw material and labour costs which resulted in profit declines for the March and June quarters. The last straw was an alleged evasion of provident fund payments; the stock plummeted 20 per cent in a single day in wake of the news. The estimated penalty to be paid was pegged at Rs 593 crore, well above its market capitalisation. BL Kashyap did file an appeal, resulting in a stay on the order. Still, the stock is rather lifeless,languishing 65 per cent down from the prices at the time of the allegations.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 17, 2012 03:34 PM· permalink
Scripscan:Sharyans Resources Ltd
cmp:50
Code:511413
Story:Sharyans Resources Limited, together with its subsidiaries, engages in acquiring and investing in financial assets and real estate primarily in India. It provides equity broking services for spot and derivative segments of the equity markets; and institutional and private client stock broking, market making, corporate finance, fund management, and ratings services, as well as online financial information. The company also offers wholesale and retail services in the field of equities, debt, commodities, mutual funds, banking deposits and advances, corporate fixed deposits, postal savings, public provident fund, and unit linked plans. In addition, it engages in the trade of commodities, including precious and non-ferrous metals, cereals and pulses, ginned and unginned cotton, oilseeds, oils and oilcakes, raw jute and jute goods, sugar and gur, potatoes and onions, rubber and spices, and coffee and tea. Further, the company provides various travel and related services for individuals, groups, incentives, and conferences; and project management consulting services for various infrastructure and building projects. Additionally, it engages in the development and management of various real estates properties, as well as offers properties for lease/rent to corporate clients; and offers a private real estate mutual fund.A super inconsistent company which couldnt even perform during the best bull run days of 2003-2007.It has a book value of 108rs.Investment in book as on 31st march 2011 shows 50 odd crs.P/BV of less than half gives some comfort though.In any case till market makes a u-turn the company would struggle to find its feat.Pathetic sales to mcap ratio gives an aversion towards the stock.Exit at rallies and move on to something better.
Posted by Arun.K.Mukherjee(9804589299) (noreply@blogger.com) on January 17, 2012 03:24 PM· permalink
Shares of hhgregg (HGG) fell off a cliff last week after the company reported preliminary numbers from its all-important holiday quarter that were below expectations. But is the company really only worth two thirds of what it was worth last month? It appears likely that hhgregg's price fluctuates to a far greater extent than its actual value, which could provide an opportunity for value investors.
This is actually not the first time hhgregg has been discussed on this site. hhgregg traded in this price range about 6 months ago, and was thus highlighted here. The stock then saw huge gains as positive sentiment returned, as discussed here. It now trades at a P/E of less than 10 despite strong returns on capital and significant revenue growth.
The biggest risk to this industry is of course competition from online retailers. Bricks and mortar retailers like Best Buy and hhgregg are having to compete with web retailers like Amazon who appear to care a whole lot about market share, and not a whole lot about margins. This dynamic has hurt the profits of everyone this year, as the battle for market share is on. But there are a few reasons to believe the threat is a little bit overblown in the long term.
First, there is a large customer segment that prefers to shop in stores. This is seen by the strong returns on capital companies like Best Buy and hhgregg still generate, even though web retailing is not new. Even with hhgregg's recently reduced earnings guidance, the company will earn an ROE of about 14% this year.
Even when customers shop online, however, the retail presence still plays an important role. Best Buy reports that 40% of those who order online choose to pick up the item in store rather than wait for delivery.
This highlights an important aspect of the competitive relationship between Amazon and bricks and mortar retailers. When Amazon innovates, the bricks and mortar retailers can choose to copy. But Amazon cannot copy the innovations of the bricks and mortar companies that involve physical stores. As such, with competent management, bricks and mortar retailers should not only be able to survive, but also thrive.
On that subject, hhgregg has a proven management team that has successfully guided the company while it has gone up against some tough competition for the last several years. The directors and executive officers of hhgregg own more than $200 million of the company as well, which serves to align their interests with those of shareholders.
Finally, hhgregg has grown and generated its strong returns despite sales tax advantages web retailers have enjoyed in most US jurisdictions. This advantage has finally caught the eye of lawmakers, who are now starting to clamp down on Amazon. This will serve to level the playing field between the bricks and mortars and the web retailers.
Just because a stock is cheap doesn't mean it won't go down more. But for long-term shareholders who don't mind the sometimes violent price swings in this stock, hhgregg could turn out to be a rewarding investment...again.
Disclosure: No position
Posted by Saj Karsan (noreply@blogger.com) on January 17, 2012 11:43 AM· permalink
JSW Steel has been one stock that has been hammered beyond recognition in last 1.5 years. BUT the stock is now ready to free itself from underperformance tag. JSW Steel has broken out of key resistance level Click on the image to see larger view Source: Chartalert.com There is a saying that downtrend ends when [...]
Posted by Deepak Singh on January 17, 2012 02:23 AM· permalink
Through a series of experiments, Dan Ariely documents the many ways in which humans behave irrationally. By understanding these human tendencies, we can both learn to behave more rationally when it is to our benefit, and better understand why those around us are behaving in the way they are.
Economists believe labour supply and demand is governed almost completely by wages. But humans are not as rational as they are assumed to be, argues Ariely. Job satisfaction and motivation play big roles in how much labour wage-earners are willing to supply.
Ariely cites experiments with animals that have shown that a number of species prefer to work for their food than receive it with no effort. Ariely designed a few experiments to show that humans have a need for their work to have greater meaning. Work that is acknowledged (as opposed to ignored, or in some cases shredded) results in labourers actually having enjoyed their work more. Such labourers were willing to do more for less, suggesting that productivity is enhanced significantly by non-monetary factors.
The rational worker does his job without worrying about whether his work has "meaning". But the real-life worker gets a great deal of motivation from even a simple acknowledgement. Employers take note!
Posted by Saj Karsan (noreply@blogger.com) on January 16, 2012 11:32 AM· permalink
I read a beautiful article, Why
software is eating the world by Marc Andreessen. It made me
reflect on how the world of computers and networks has evolved over
the last 20 years. It is comfortable for us to think that the world
has only evolved in incremental ways. But as I look around me, it
seems that the hard-driving pace of change on many fronts has added
up to fundamental change, to places far away from the comfort zone
of people of my vintage.
All the way till the 1980s, business computing was dominated by
databases. The basic story was one of capturing data, storing it, and
summoning it forth with queries.
At first, databases were the exclusive preserve of mainframes and
minicomputer. The PC revolution made it possible for small databases
to be held on the desktop. It's interesting to note that at first,
we got PCs without networks. We evolved from databases stored on
remote mainframes or minicomputers to databases stored on PCs. All
the way into the late 1980s, it was quite a cool thing to have a
standalone PC holding a database where certain queries could be
executed.
The first wave of change, of the early 1990s, was networks in the
form of TCP/IP (the universal communication protocol) and the
Internet (the universal network). Now, suddenly, the data centre
became more interesting. Instead of storing and manipulating data at
the desktop, we could do so many better things by storing and
manipulating data at a big central computer. The desktop diminished
from being the location of data and computation to being the
location of the user interaction.
Then came a series of surprises which have added up to a
qualitative shift.
1. The network got ubiquitous
First, the Internet went everywhere for the road warrior armed with
the laptop computer. Crashing prices of laptop computers and then
netbooks meant that essentially everyone had one. So workers started
spending much more time outside the office (with 100%
connectivity).
Software had to adapt itself to reach out on an Internet
scale. This killed off applications which worked on the scale of the
LAN. The software that the busy road warrier used was the software
that worked effortlessly on his laptop.
Today, 1 Mb/s wireless networks are common and 50 to 100 Mb/s
offerings are on the anvil. This is relentlessly shifting the
balance of convenience to mobility.
In a place like India, the low-end staff might not have netbooks
and/or Internet on the go. So for certain very low-end applications,
it might make sense to hug the desktop at the workplace. For any
modestly well paid person, laptops / netbooks coupled with 3g or CDMA
networks are the norm, and hence being tethered to the office network
is quite limiting.
2. The user interfaces got better
In the 1980s, software came with fat manuals. Users actually sat
down in training classes. A remarkable feature of the new world is
how the manuals and training are gone. Software is incredibly
capable but there are no manuals. Google maps or Amazon or Apple
Mail are very powerful programs, but the fundamental assumption is
that a reasonable person can just start tinkering with them and
learn more as he goes.
The modern office worker gets no formal training in software all
his life. The modern knowledge worker learns major tools (e.g. a
programming language) and often puts in enormous effort for these.
But for the rest, the ordinary flow of day to day life,
where new software systems come up all the time, is done without
formal training.
Once the modern office worker faces high quality UI design from
google and such like, where there is zero training and zero marketing,
it became much harder to accept training. Standards have changed; in
the olden days, people would actually try to learn. Today, knowledge
workers are willing to get training in programming languages (e.g. R
or Stata) but not in applications. The MBAs are generally
training-proof.
3. All of us got busy
There was a time when one purposedly went about the work day
systematically doing certain things with certain software
tools. Knowledge workers have become deluged with information and
with stimuli. We have gone from being an information scarce economy
to being an attention scarce economy.
Software and information systems are now competing for the
attention of the user. The scarce resource is now the mind share of
the user. This is linked to the problem of user interfaces. If
something has a complicated user interface, and there are a hundred
other tasks that need to be done, the user ignores the complicated
thing. Software systems that don't fly immediately just die.
4. Peers determine where attention is directed
In a world where the knowledge worker is bombarded with hundreds of
things every day, what does he do? He tends to direct his scarce
time into the things that come well recommended. The
recommendations of respected peers are supremely important in
determining what a person does.
High powered sales compaigns have lost power. The person just asks
his friends what they do. The impulses through the day coming into
each person - over email, IM, twitter, social networks, etc. - are
the de facto controllers of the persons' time.
Peers are thus the gatekeepers to the user. The stuff that is
striking and remarkable gets noticed and pointed to friends. What
gets pointed tends to get a high google pagerank.
The importance of high pressure sales dropped. Some of the most
successful firms got by with negligible sales departments. Their
stuff was intuitive and good, and got immediately picked up.
5. Network effects leading to user generated content
The old model was one of corporations producing information and
users consuming information. In that power structure, the user was
only a source of revenue.
In the new world, the critical story is about kicking off network
effects. The systems that win are those that get better because of
one more user interaction.
At the simplest, user interactions kick off impulses to peers which
brings in more customers (viral marketing). But very soon, user
interactions generate relevant data. Google watches what users click
and uses that to improve search. Amazon tells you that the people
who liked this book also liked that book. Amazon has user-generated
content in terms of reviews.
Good systems create a warm and supportive environment in which
users contribute bug fixes, feature suggestions. These systems ride
the power of user eyeballs and brains to get better. The power
structure has changed. IBM DB2 used to be designed in a temple and
then went out to the helpess masses. Google's world is critically
linked to the users at so many levels (a receptive environment for
bug reports, feature requests, user generated content, and usage
data being turned back into strengthening the system).
The bottom line: Successful designers found ways to harness every
single user and user interaction to build the quality, the content
and the footprint of the system. Stalinist structures, which
disempowered the user and treated him only as a source of revenue,
stand isolated and stagnant.
6. Loss of power of enterprise IT
In the old world, enterprise IT mattered more. Grave decisions were
made by enterprise IT managers and then thousands of users fell in
line. In the new world, users forge ahead with their laptops and
tablets and mobile phones, exercising enormous autonomous choice
about how they spend their time. Consumer considerations, and the
loyalty of each individual user, are far more important than they
used to be. The enterprise IT department is much less of a
gatekeeper. In the olden days, hardware and software was sold to
enterprise IT, which made decisions for everyone inside the
organisation. In the new world, usage is won one user at a time, and
it is contestable every day.
7. CPUs became too cheap to meter
In the old world, computation was something scarce. The money that
went into building data centres was carefully weighed. System
designers carefully did things that were parsimonious in the use of
CPU.
With the rise of parallel computation, bringing 1000 CPUs into a
problem became cheap. Successful designers were those that found
ways to deploy incredibly large amounts of computer power to do
things that delight users. Google and amazon are spending millions
of clock cycles in the back end, thinking about how to handle the
next move, as the mouse cursor moves! When faced with a choice
between doing something nice that users will like, versus doing
something that saves compute power, the former always won.
8. Unexpected revenue sources
Who would have imagined that an ad agency would become the most
powerful author of operating systems for mobile phones in the world?
When hardware got dramatically cheap, and the Internet generated
access to eyeballs on an unimaginable scale, new revenue models came
about which were surprisingly different from the way we used to
think earlier.
Posted by Ajay Shah (noreply@blogger.com) on January 15, 2012 07:23 PM· permalink
A nice pair on UIDAI from the Economist: The
magic number and Reform by numbers.
Trampling on the individual in India: Akshaya
Mishra on Firstpost.
Devangshu
Datta in the Business Standard.
Ila
Patnaik, in the Indian Express looks at Italy and
worries about India.
Kanika
Datta in the Business Standard on the Bombay Club.
Authoritarian India at its worst.
Ila
Patnaik in the Indian Express worries about the economic
consequences of NREGA.
Ila
Patnaik in the Indian Express on RBI's thinking about new
entry by private banks.
A great article on India's energy-fiscal mess
by Urjit
Patel, a rare person who understands both.
Tamal
Bandyopadhyay in Mint, and Ila
Patnaik in the Indian Express, on RBI's use of capital
controls to combat rupee depreciation.
In the Indian
Express, Ila
Patnaik reminds us to avoid adventurism in the use of reserves
for buying natural resources.
Shahan
Mufti has a great article in Business Week on the
supply chain problems that the US faces in Afghanistan.
I have often worried
that we
are not as bright as we used to
be. Mark
Pagel has an argument about why that might be.
Fundamental
progress on payments by Russ Jones. I'm not a lawyer, but it's a
fair guess that Square will be banned in India.
I just
re-read James
Buchanan's 1986 Nobel prize speech.
Once the public goods
of a
strong statistical system are in place, the real challenge
becomes the brainpower that is deployed into thinking about the
data. In India, we don't
have half
decent maps data in the public domain. But once high quality
maps data becomes freely available, things
change. Seth
Stevenson on Slate tells a story of a beautiful design
for a humble problem: a map.
Posted by Ajay Shah (noreply@blogger.com) on January 15, 2012 07:02 PM· permalink
Through a series of experiments, Dan Ariely documents the many ways in which humans behave irrationally. By understanding these human tendencies, we can both learn to behave more rationally when it is to our benefit, and better understand why those around us are behaving in the way they are.
One way our intuition doesn't quite match up with data has to do with how bonuses affect performance. In a number of experiments, Ariely demonstrates that large bonuses (e.g. 5 months of salary) actually hurt performance for cognitive tasks. (This is not the same for mechanical tasks, where high bonuses increase performance.)
Ariely surmises that this may be due to the the fact that the receivers of the bonuses become nervous, start fixating on the bonus and find it harder to concentrate. An analogous situation can be found in public speaking, where an overwhelming desire to do well (because of social pressure) actually causes people to perform tasks worse in front of a group than on their own. The financial pressures caused by large bonuses may have the same effect.
The implications of this are closely related to how executives are paid. If they were being paid to lay bricks (a mechanical task), high bonuses would encourage higher performance. However, seeing as how executives are expected to use cognitive skills, high bonuses may actually be hurting the results of the companies which pay them.
Posted by Saj Karsan (noreply@blogger.com) on January 15, 2012 11:15 AM· permalink
Dan Ariely is a behavioural economist who refutes the idea that we are fundamentally rational. Through empirical data, experiments and anecdotes, he illustrates that our irrationality can actually be predicted. He then presents ways in which we can make more rational decisions, both as investors and as people.
Apparently, we like to demonstrate our uniqueness. For example, if someone orders a drink ahead of us at a restaurant/bar, we are less likely to order that same drink. When we change our drink choice based on what the person before us ordered, we are also less likely to enjoy our drink, because it was not our first choice. Ariely determined this through experiment.
In this the final chapter of the book, Ariely concludes that it is clear that we do not behave rationally in a slew of different ways. Furthermore, as he demonstrated in the book, our irrational behaviours are not random. Instead, they are systematic and predictable.
As such, we can take steps to rectify our otherwise impending missteps. Ariely argues that economics should be based on how people actually behave, not how they should behave.
Posted by Saj Karsan (noreply@blogger.com) on January 14, 2012 11:26 AM· permalink
It is a time for deep thinking about what has gone wrong in
India. Here are a few excellent takes:
As we watch many train wrecks in India unfold in slow motion,
Timothy
W. Ryback in the New York Times reminds us about that
ineffable substance of the human soul ... that shapes individual
decisions and ultimately determines the course of actions, both
large and small, that constitute the chain of events we know as
history.
Posted by Ajay Shah (noreply@blogger.com) on January 13, 2012 04:53 PM· permalink
A few weeks ago, potential sources of stock ideas were discussed on this site. The post made reference to contrarian indicators that signal that a stock is hated; this hatred can result in a low price, which value investors love. One such contrarian indicator is a stock's short interest.
Twice a month, the exchanges release how many shares of an issue are held short (with a two-week lag). This can be a helpful resource in not only identifying which stocks Mr. Market hates, but also which same stocks Mr. Market plans to buy later. This is because when a share is shorted, it must be bought back later; as such, a high number of short shares suggests a higher than normal demand for shares in the future.
Highshortinterest.com offers a list of the most highly shorted stocks (relative to their floats) on the major US exchanges. It currently contains about 100 of the most hated stocks in the US, and plenty of stocks with value potential litter that list. For value investors looking for potential ideas worthy of further study, this is a decent place to start.
For example, a few spots down the list, both GameStop and Sears can be found, both of which are favoured by some value investors. Obviously, one shouldn't assume that just because these and other stocks are on the "high short" list, that they don't deserve to be hated.
But when sentiment on a stock is extremely negative, value investors should pay attention. As such, one of the best places to look for stock ideas is the short interest list. Not only are these stocks unpopular and therefore cheap, these short shares will have to be bought back in the future.
Posted by Saj Karsan (noreply@blogger.com) on January 13, 2012 11:03 AM· permalink
This post is aimed at investors in Canadian stocks, so for the 80% of you that ignore this market, you can skip now.
You don't see who the significant shareholders are (and how their holdings have changed) when you look up the filings of Canadian issuers on Sedar. That's not because insiders are not required to report their holdings or changes to their holdings. It's because there is a separate reporting system just for this purpose.
On SEDI, you can find information relating to insider transactions by issuer or by insider, making it a rather powerful tool. Insiders include (by definition, through National Instrument 55-104) shareholders who own more than 10% of a security.
So if you want to know if a senior manager has been buying up shares, or who the significant shareholders are of a company you own, it's easy to find out.
Posted by Saj Karsan (noreply@blogger.com) on January 12, 2012 11:01 AM· permalink
Analyst research is generally focused on the short-term. Price targets are set only about one year out, and discussion focuses mostly on issues that will affect the company over the next quarter or two. (As an aside, follow @ShitAnalystsSay on Twitter for some analyst parody. Please hold off on the hate mail - I'm not the guy behind that account!)
But Ultimate Value Finder does not provide that kind of research. This monthly newsletter is value-focused, and offers three high-conviction value ideas per issue. The write-ups are in-depth (about 2000 words per idea), and cover items such as management history, competitive position and other longer-term issues in which value investors (as opposed to short-term traders) would be interested.
Though this newsletter isn't free, it may be worth the subscription fee. One of the three stocks discussed in the January edition is up around 25% already! For more information about this product, or to see the various subscription offerings, go here. Good luck!
Disclosure: I do not contribute to the content of Ultimate Value Finder in any way, however, I have received a review copy of the January edition and may receive further benefits from the author.
Posted by Saj Karsan (noreply@blogger.com) on January 11, 2012 11:26 AM· permalink
There is a great deal of evidence (one example here) that company insiders (e.g. senior managers) who trade in the stock of their firms do beat the market. Theoretically, this shouldn't happen, as insiders may only trade as long as they are not in possession of material, non-public information. But this is a difficult line to define, as recent events at Canam Group illustrate.
In late December of 2010, company Chairman and CEO Marcel Dutil sold 1.5 million shares (through a company he controls) of Canam at $7/share. Just four months later, the company announced an after-tax charge of $25 million related to additional costs to complete a major contract. The stock began a major descent from that point, as earnings numbers turned negative for consecutive quarters (thanks to this same project).
What Dutil did may be perfectly legal. Four months before the announced write-down, the problems may not have been "material" (at that time; obviously, they subsequently did become so) or "non-public", a complicated definition the courts are charged with interpreting.
But it's hard to believe that just four months before a precise after-tax write-down figure was released to the public, that he did not have any knowledge that things weren't going so well. Such knowledge doesn't mean he did anything illegal (that's for someone better versed in this regulation to decide), but it does demonstrate how insiders do have advantages.
As Canam's stock fell below $3, Dutil became active once again, buying up 900+ thousand shares (through the same company) at just $2.87/share in November. Today, the stock sits above $4/share!
Blindly riding the coat tails of insiders has been found to be profitable, and the reasons appear to be clear. Insiders have better knowledge of the companies they run than does the public, and they may be trading on that knowledge.
Disclosure: Author has a long position in shares of TSE:CAM
Posted by Saj Karsan (noreply@blogger.com) on January 10, 2012 11:18 AM· permalink
I generally stay away from banks, but for value investors who do dabble in the highly-leveraged financial companies, Bank Of Internet (BOFI) may be worth keeping an eye on.
BOFI has only one branch, as it transacts with most of its customers over the internet. This allows it to save a bundle in costs versus its bricks-and-mortar competitors, giving it the opportunity to grow its business by offering superior rates to customers.
BOFI is also very conservative compared to other banks, reducing the risk to value investors. It navigated the disastrous 2008-2009 period unscathed, and current management has no plans to make the bank more aggressive. The current weighted-average loan-to-value ratio is just 57%!
One problem with this stock is that it has recently had a good run already. As such, it now trades above book value and pretty close to the exercise price of convertible preferred shares it just sold. But the good news is that this is a volatile stock, so if a market panic or bank stock panic ensues, one may be able to get in at a very favourable price.
Investing at the current price can still make sense - but to do that one would have to believe in the growth story. But while Bank of Internet has grown profitably over the last few years, it has not yet faced stiff competition. Should well-capitalized, competent competitors enter the field, Bank of Internet could be reduced to the commodity-type business its bricks-and-mortar cousins already face, bringing down growth and returns.
Bank of Internet is a conservatively run, profitably-growing institution. But will it's future be as bright as its past? That part is difficult to predict. As such, unless you really know what you're doing, you don't want to assume future returns will be anything better than average. But an opportunity to pick this up for a discount to book value may occur at some point, so interested investors should be prepared.
Disclosure: No position
Posted by Saj Karsan (noreply@blogger.com) on January 09, 2012 11:26 AM· permalink
And so it came to pass that, after my aggressive little note on GFC-1's causes found in securitization (I, II, III, IV), I am asked to describe the current, all new with extra whitening Global Financial Crisis - the Remix, or GFC-2 to those who love acronyms and the pleasing rhyme of sequels. Or, the 2nd Great Depression, depending on how it pans out. Others have done it better than I, but here is my summary. Part 1. In 2000, European countries joined together in the EMU or European Monetary Union. A side-benefit of this was the Bundesbank's legendary and robust control of inflation and stiff conservative attitude to matters monetary. Which meant other countries more or less got to borrow at Bundesbank's rates, plus a few BPs (that's basis points, or hundredths of percentage points for you and I). Imagine that?! Italy, who had been perpetually broke under the old Lira, could now borrow at not 6 or 7% but something like 3%. Of course, she packed her credit card and went to town, as 3% on the CC meant she could buy twice as much stuff, for the same regular monthly payments. So did Ireland, Portugal, Greece and Spain. Everyone in the EMU, really. The problem was, they still had to pay it back. Half the interest with the same serviceable monthly credit card bill means you can borrow twice as much. Leverage! It also means that if the rates move against you, you're in it twice as deep. And the rates, they did surely move. For this we can blame GFC-1 which put the heebie-jeebies into the market and caused them to re-evaluate the situation. And, lo and behold, the European Monetary Union was revealed as no more than a party trick because Greece was still Greece, banks were still banks, debt was still debt, and the implicit backing from the Bundesbank was ... not actually there! Or the ECB, which by charter isn't allowed to lend to governments nor back up their foolish use of the credit card. Bang! Rates moves up to the old 6 or 7%, and Greece was bankrupt. Now we get to Part 2. It would have been fine if it had stopped there, because Greece could just default. But the debt was held by (owed to) ... the banks. Greece bankrupt ==> banks bankrupt. Not just or not even the Greek ones but all of them: as financing governments is world-wide business, and the balance sheets of the banks post-GFC-1 and in a non-rising market are anything but 'balanced.' Consider this as Part 0. Now stir in a few more languages, a little contagion, and we're talking *everyone*. To a good degree of approximation, if Greece defaults, USA's banking system goes nose deep in it too. So we move from the countries, now the least of our problems because they can simply default ... to the banks. Or, more holistically, the entire banking system. Is bankrupt. In its current today form, there is the knowledge that the banks cannot deal with the least hiccup. Every bank knows this, knows that if another bank defaults on a big loan, they're in trouble. So every bank pulls its punches, liquidity dries up, and credit stops flowing ... to businesses, and the economy hits a brick wall. Internationally. In other words, the problem isn't that countries are bankrupt, it is that they are not allowed to go bankrupt (clues 1, 2). We saw something similar in the Asian Financial Crisis, where countries were forced to accept IMF loans ... which paid out the banks. Once the banks had got their loans paid off, they walked, and the countries failed (because of course they couldn't pay back the loans). Problem solved. This time however there is no IMF, no external saviour for the banking system, because we are it, and we are already bankrupt. Well, there. This is as short as I can get the essentials. We need scholars like Kevin Dowd or John Maynard Keynes, those whos writing is so clear and precise as to be intellectual wonders in their own lifetimes. And, they will emerge in time to better lay down the story - the next 20 years are going to be a new halcyon age of economics. So much to study, so much new raw data. Pity they'll all be starving....
Posted by iang on January 08, 2012 12:12 PM· permalink
Dan Ariely is a behavioural economist who refutes the idea that we are fundamentally rational. Through empirical data, experiments and anecdotes, he illustrates that our irrationality can actually be predicted. He then presents ways in which we can make more rational decisions, both as investors and as people.
Employees tend to steal supplies from work, but they will not steal equivalent amounts of money from petty cash. Customers will wear clothes with the label and return them, but they will not steal cash from the cash register. Users of communal fridges will steal food/drinks but will not steal cash placed in the fridge. (Ariely actually did run such an experiment.)
Ariely reasons that this is because we rationalize our thefts. When we steal, we trick our minds into believing there is justification, and this is a lot harder to do with cash. As a result, we find it much easier to steal non-cash objects.
Unfortunately, as we move to a cashless society, this is something that we need to understand. Credit card rates, stock options and frequent flier points are all non-cash but valuable areas by which businesses can steal from the public, and the optics don't appear to be as bad as if they stole cash. But the effect is the same!
Posted by Saj Karsan (noreply@blogger.com) on January 08, 2012 11:40 AM· permalink
Dan Ariely is a behavioural economist who refutes the idea that we are fundamentally rational. Through empirical data, experiments and anecdotes, he illustrates that our irrationality can actually be predicted. He then presents ways in which we can make more rational decisions, both as investors and as people.
We are quite dishonest. Not only do robberies result in losses of hundreds of millions of dollars per year, but employees steal hundreds of billions from their employers, the insured over-claim by billions, retail customers wrongfully return billions worth of merchandise, and taxpayers stiff the IRS by hundreds of billions as well.
Stealing is considered wrong in pretty much every culture, and yet dishonesty is prevalent everywhere. Many believe a part of our brain (the superego, as Freud would have called it) enjoys it when we comply with internalized societal values, such as being honest. But sometimes our mind is able to bend reality to justify theft. Ariely suggests, therefore, taking steps to avoid putting people in such situations where they are prone to becoming dishonest. For example, doctors should not receive funds for prescribing certain procedures, and accountants should not be able to consult for their clients on the side.
An honour code also seems to discourage dishonesty. In experiments Ariely conducted, groups who were not policed cheated more on tests than (control) groups that were; however, those who were asked to sign an honour code or who were asked to recall the Ten Commandments did not cheat!
Posted by Saj Karsan (noreply@blogger.com) on January 07, 2012 11:31 AM· permalink
Last year has been quite about foreigners running out the door, while domestic institutions have been buying.
And if you want to see the scale, let's invert the FII figure and track them together:
FIIs sold over 26,000 cr. worth of cash securities, which is about $5 billion.
Posted by Deepak Shenoy on January 05, 2012 06:49 AM· permalink
Reliance Industries (RIL) has sold its stake in media entity Eenadu to TV18, in a convoluted complicated deal quite characteristic of RIL and TV18. Let me help you decode.
First, the more recognized sources:
What is the deal?
1. RIL owns stake in Eenadu TV. 100% in regional news and entertainment channels, and 49% in telugu channels of ETV. This was purchased for 2600 cr.
2. RIL is selling part of this to TV18 - the full 100% of the regional news channels, but only half of their stake in the entertainment and Telugu channels. (TV18 will still get the right to buy the rest of Reliance stake, but we don't know at what price)
3. TV18 will pay Rs. 2100 cr. for this, according to their Press Release. Reliance, in it's press release, says the stake in the channels is "being profitably divested". We'll revisit this.
4. But TV18 doesn't have the money.
5. So they're going to fund the purchase through a mega rights issue of Rs. 2700 cr. "Rights" means existing shareholders get to buy in the proportion of their holding, not outsiders.
6. More than 50% of TV18 is owned by Network18 (the parent), which also doesn't have the money even to buy into the rights issue.
7. Therefore, even Network18 will announce a total fund raise of Rs. 2700 cr. Due to the cross holding, the total amount actually raised will be Rs. 4,000 cr.. Out of this, the promoters - read: Raghav Behl and the like - will put in Rs. 1700 cr.
8. But even the promoters won't put most of the money themselves - instead, they will get money from Reliance! They will borrow money from "Independent Trust" which is an RIL entity, and the borrowing will be "optionally convertible" to shares. We don't know more details, but this is quasi ownership, through optionally convertible debentures.
9. Infotel, that RIL investment in 4G and BWA, gets all the Eenadu and TV18 web and media content as a "preferred" partner to sell through its pipes. We don't know when, though.
Result
TV18 gets access to the Eenadu TV portfolio. Raghav Bahl retains control of TV18 and Network18, until Reliance decides to convert its ownership to equity.
Reliance gets official entry into media (till now the holdings weren't so well known), and gets to record a profit. Infotel gets content to sell through its pipe, when that happens.
TV18 and Network18 went up 20% each yesterday, and are up 7-10% today already. Reliance has gone up 2.5%.
Reliance pays itself and makes a profit?
Reliance is paying TV18 promoters who will buy into a TV18 rights issue which gives TV18 the money to buy from Reliance. That is what this deal is, and the beauty is in the books:
Reliance has sold part of its media investment, at what they say is a profit. That means they get to record a profit in the Jan qtr or whenever the deal is finalized. (And they funded that purchase, so they "bought" profits!) The funding part is a balance sheet item and changes nothing on the profit and loss statement.
Now Reliance bought for 2600 cr. and TV18 is buying for 2100 cr. - where is the profit? Reliance retains a part of their media holding in Eenadu, which I am sure will be valued at >500 cr. (some banker will certify it - who's to disagree?). That gives Reliance the profit - we don't know how much, though - that might only be visible next qtr.
RIL and Media companies?
A source - anonymous - writes about how, through a web of companies, Reliance has been building its own entry into the media space. The deal goes through Nimesh Kampani (who fronted the ownership, buying into Eenadu in 2008, and who is close enough to have mediated talks between the Ambani brothers) and then a slew of cross-held private companies.
Who's going to buy into the rights issue?
Apart from the promoters, that is. They haven't got the prospectus to SEBI yet, and I'm looking forward to the juicy details. We don't know the price (Network18 is less than Rs. 60 a share, and TV18 less than Rs. 40 - both are significantly higher than their pre-announcement prices).
We don't know who will buy - the share is likely to go up to "excite" people, and will be managed quite well by speculators.
Strangely, a good part of promoter stake is owned by "Senior Professional Welfare Trust"; This is the entity which borrows money, using Network18's holdings as collateral! Oh, such circular logic - these two companies deserve each other.
And wait, let's look at the market capitalization of these companies:
Network18 has 14.26 cr. shares. Even at today's price of Rs. 53, that's a market cap of 756 cr.
TV18 Broadcast has 36.21 cr. shares. At today's price of Rs. 38, that's a market cap of 1376 cr.
Both these companies are raising 2700 cr. each through rights issues. That is quite remarkable, and it'll be interesting to see who buys in. It'll take an awesome bull market to pull this off - and to get the FIIs and mutual funds to buy in as well. It'll depend on the pricing of the issue, and then the market price.
Is there a trade?
I'm not touching Network18 right now. (I can't stand the market manipulation in the stock - not blaming entities, but this share behaves as if it's rigged). But the trade in it will be to let the euphoria die and then short it.
As for Reliance, this won't impact them much.
Disclosure: no positions.
Now open to more questions and revelations. Thanks for reading.
Posted by Deepak Shenoy on January 04, 2012 05:40 AM· permalink
Technicals are flashing Stop Sign to Tata Motors stock. But will the stock stop? Tata Motors Chart Source: Chartalert.com As you can see in the chart above: Tata Motors is at 200 dma. The last two times it rallied to 200 dma: it failed. So, will this time be same or different? What does this [...]
Posted by Deepak Singh on January 04, 2012 01:57 AM· permalink
Highest Paid Deposit As on January 2012 -Senior Citizen and Normal Rate
| Institution |
Duration |
Rate |
Senior Citizen |
Deposit Amount Restrictions |
| Lakshmi Vilas Bank (LVB) |
1 year-2 years |
10.5 |
10.75 |
|
| Tamilnad Mercantile Bank (TMB) |
1 year-2 years |
10.25 |
10.5 |
Must be atmost Rs. 1 crore |
| Catholic Syrian Bank (CSB) |
375 days-990 days |
10.1 |
10.6 |
Must be atmost Rs. 50 lakhs |
| City Union Bank (CUB) |
1 year-3 years |
10 |
10.25 |
Must be atmost Rs. 1 crore |
| Development Credit Bank (DCB) |
540 days |
10 |
10.5 |
Must be atmost Rs. 1 crore |
| Karur Vysya Bank (KVB) |
1 year-2 years |
10 |
10.5 |
|
| Ratnakar Bank |
1 year-2 years |
10 |
10.5 |
Must be atmost Rs. 1 crore |
| Dhanalakshmi Bank (Dhanalaxmi Bank) |
500 days |
9.75 |
10.25 |
Must be atmost Rs. 15 lakhs |
| Federal Bank |
1 year |
9.75 |
10.25 |
Must be atmost Rs. 1 crore |
| Karnataka Bank |
1 year-2 years |
9.75 |
10.25 |
Must be atmost Rs. 5 crores |
| Oriental Bank Of Commerce (OBC) |
1 year-2 years |
9.75 |
10.25 |
Must be atmost Rs. 1 crore |
| Punjab and Sind Bank (PSB) |
500 days |
9.75 |
10.25 |
Must be atmost Rs. 1 crore |
| South Indian Bank (SIB) |
1 year-2 years |
9.75 |
10.25 |
Must be atmost Rs. 1 crore |
| State Bank Of Patiala (SBP) |
555 days |
9.75 |
10.25 |
Must be atmost Rs. 1 crore |
| Corporation Bank (CorpBank) |
1 year |
9.65 |
10.1 |
Must be atmost Rs. 15 lakhs |
| Dena Bank |
1 year |
9.6 |
10.1 |
Must be atmost Rs. 1 crore |
| YES Bank |
465 days-480 days |
9.6 |
10.1 |
Must be atmost Rs. 15 lakhs |
| Allahabad Bank |
1 year-2 years |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| IDBI Bank |
500 days |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| Indian Overseas Bank (IOB) |
1 year-2 years |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| IndusInd Bank |
400 days |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| ING Vysya Bank |
367 days-500 days |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| Kotak Mahindra Bank |
701 days-2 years |
9.5 |
10 |
Must be atmost Rs. 15 lakhs |
| Nainital Bank |
1 year-2 years |
9.5 |
10 |
Must be atmost Rs. 15 lakhs |
| State Bank Of Bikaner and Jaipur (SBBJ) |
1 year-3 years |
9.5 |
10 |
Must be atmost Rs. 50 lakhs |
| State Bank Of Hyderabad (SBH) |
500 days |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| State Bank Of Mysore (SBM) |
1 year-2 years |
9.5 |
10 |
Must be atmost Rs. 1 crore |
| State Bank Of Travancore (SBT) |
500 days |
9.5 |
10 |
Must be atmost Rs. 15 lakhs |
| UCO Bank |
1 year-2 years |
9.5 |
10 |
Must be atmost Rs. 5 crores |
Highest Paid Deposit As on January 2012 -Senior Citizen and Normal Rate is a post from: First Blog for Indian Financial Market
Posted by Lalitha on January 03, 2012 03:48 PM· permalink
Markit has released the Purchasing Managers Index (PMI) for Dec 2011, which is up to a high value of 54.2 (remember, lower than 50 is contraction, above 50 is expansion).
This comes after three tough months of touching close to 50; interestingly, they say:
All in all, these numbers suggest it's premature for the RBI to replace inflation with growth
as the main concern.
Inflation still remains stubbornly high - and I'm sure the dollar situation with the rupee will show up in inflation numbers for Dec or Jan.
Note that this is only manufacturing. The true picture will come only after the services PMI is released, which will be on the 4th.
Posted by Deepak Shenoy on January 02, 2012 08:18 PM· permalink
And to continue with the 2011InCharts theme, we have the market snapshot since the highs of 2008:
(Click for larger pic)
We're at a 16.75 P/E and near recent lows - and below both long-term moving averages. Sectors in 2011:
Rea; estate was destroyed by over half; infrastructure by 39%. Banks and Midcaps were down over 30%, and the only sector that looked good was FMCG, up 8.4%. A bad year for everyone except those selling soap and toothpaste!
Posted by Deepak Shenoy on January 02, 2012 06:45 AM· permalink
Remember in 2007 how they would tell you that the markets would return great money over five years? Well, you could have gotten better returns in a 3.5% savings account, it turns out.
(All returns are annualized)
The 1 year return is -25%.
The 3 year return is 16.5% after the huge dip in 2008; if we don't recover by May, when the index went back up to the 12000 levels on the Sensex, we will see even the three year return go to single-digits.
The 10 year return is a good 16.7%, which is due to the crash in 2001 (lower base). But that dip continued till July 2003, so unless the markets dip substantially from here, I expect the 10 year rolling return to stay above 10% (per year).
But what's interesting is that in the last five years, the Indian GDP has nearly doubled to 80 lakh crore. The Indian markets, though, have gone nowhere.
Posted by Deepak Shenoy on January 02, 2012 06:32 AM· permalink
The great monthly chart shows Nifty and Sensex Monthly Returns since, well, since a long long time. December, despite historically being a great month, went down -4.3%.
That means we have had 9 losing months in the year - the only three positive months were March (+9%), June (+1.6%) and October (+7.8%). It has been a hugely volatile year.
2011 was the second worst year since the NSE was started, with -25% on the index. It was second only to 2008 which was twice as worse, with a -52% return.
2011 had the dollar falling nearly 17% so the net return, in dollar terms, is -42%.
The Sensex too has had the second worst year ever:
Annual Nifty Returns
The last 10 years have mostly been positive; before 2008's debacle, the worst year was 2001 with -16.2%.
(This is part of my "2011InCharts" package which I'm preparing over the next few weeks)
Posted by Deepak Shenoy on January 02, 2012 06:18 AM· permalink
Nifty has mildly pulled back in last 3 trading days and there is only one sector responsible for bulk of the damage. Sector: Bank Nifty As you can see in the chart above: Bank Nifty has given up all the gains and is back to levels where it was 5-trading days back unlike Nifty which [...]
Posted by Deepak Singh on December 28, 2011 01:44 PM· permalink
With a turnover of just 5138 cr., December 26, 2011 has taken volumes to a (near) five year low.
(You have to ignore Diwali Mahurat trading days, the big upper circuit day in May 2009 and a few saturdays of test trading by the NSE)
The chart says it all. Markets are dying.
Posted by Deepak Shenoy on December 27, 2011 08:24 AM· permalink
Is market trying to move past 2011 problems and look for newer things in 2012? Remember, the job of market is to move from one set of issues to another. The Basic Argument The market does not wait for solution to move on. All it needs is some light at the end of tunnel and [...]
Posted by Deepak Singh on December 27, 2011 02:09 AM· permalink
Patrick Chovanec has a fascinating article in Foreign
Affairs, titled China's
Real Estate Bubble May Have Just Popped. This is interesting
and important from two points of view.
First, bad news for China is bad news for the world economy. We are
already in a bleak environment, with difficulties in Europe, Japan,
the US, and India. It will not be pretty if China runs into trouble as
well. I am reminded of the feeling of carefully watching real
estate in the United States in 2006, with a sense that the future
of the world economy was going to turn on how it turned out.
Second, it made me think about real estate in India. As with China,
one often sees buyers of real estate in India have the notion that
this is a safe financial asset. This
is a
questionable proposition. Real estate is perhaps not an asset
class with a positive expected return in the first place; and it is
certainly not a convenient asset class with features like liquidity,
transparency, diversification and easy formation of low-volatility
diversified portfolios. I find it hard to explain the prominence of
real estate in the portfolios of even educated people in India.
In the article, Chovanec says:
For more than a decade, they have bet on longer-term demand trends by
buying up multiple units -- often dozens at a time -- which they then
leave empty with the belief that prices will rise. Estimates of such
idle holdings range anywhere from 10 million to 65 million homes; no
one really knows the exact number, but the visual impression created
by vast `ghost' districts, filled with row upon row of uninhabited
villas and apartment complexes, leaves one with a sense of investments
with, literally, nothing inside.
This has not happened in India. So in this sense, the situation in
India is not as dire. But his second key message seems uncomfortably
close:
As 2011 progressed, developers scrambled for new lines of financing to
keep their overstocked inventories. They first relied on bank loans
(until they were cut off), then high-yield bonds in Hong Kong (until
the market soured), then private investment vehicles (sponsored by
banks as an end run around lending constraints), and finally, in some
cases, loan sharks. By the end of last summer, many Chinese developers
had run out of options and were forced to begin liquidating
inventory. Hence, the price slashing: 30, 40, and even 50 percent
discounts.
Part of this looks familiar. There is a lot of leverage in Indian
real estate development and speculation. Real estate speculators and
developers are finding themselves in a bit of a scramble hunting for
credit. One hears about very high interest rates being paid by
developers. Other sources of financing are
also weak. This reminds me of the
dark days before the global crisis, when borrowing by real estate
companies was the canary in the coal mine.
If business cycle conditions and financial conditions worsen, the
problems of borrowing by real estate developers and speculators will
get worse. How might this turn out? Perhaps the borrowers will merely
get uncomfortable. Or, a few firms could really get into trouble,
and start liquidating inventory. That would have substantial
repercussions.
Suppose there is a situation where there are many people who have
speculative positions in real estate, but significant selling of
inventory has not yet begun. The longs would then be nervously looking
at each other, wondering who would be the first one to sell, to take a
better price and exit his position. The ones who sell late would get
an inferior price. In such a situation, conditions could change
sharply in a short time.
On a longer horizon, I would, of course, be delighted if real
estate prices are lower. This would help shift the supply function of
labour, reduce the cost of setting up new businesses, etc. But that's
more about the long-term policy changes, which would remove barriers
for converting land into built-up housing, while rising vertically
into the sky with FSI in Indian cities ranging from 5 to 25.
Posted by Ajay Shah (noreply@blogger.com) on December 24, 2011 12:36 PM· permalink
Heart Break for Bears and Minor relief for Bulls Heart Break = False Breakdown There is nothing more disturbing to trend traders than a pattern failure Source: Chartalert.com As you can see in the chart above: Nifty formed a Head and Shoulder pattern over a long period of time and then it broke down this [...]
Posted by Deepak Singh on December 23, 2011 06:14 AM· permalink
A quick post about how the markets have done over the last few days, in both reaching a two year low (lowest since August 2009) and then doing a 4% recovery over two days.
(Click to enlarge)
The slope of the 50 and 200 DMA are now down and it looks like the index is headed downwards. Strong technical support exists at 4,500 but nowadays strong is a relative word; news flow can be much stronger.
Posted by Deepak Shenoy on December 23, 2011 03:26 AM· permalink
Gold prices have come off quite sharply in last few days and few analysts are now busy writing obituaries of Gold Bulls. Is it all over for Gold? The Technical Structure of Gold Bulls live above 200 dma whereas Bears live below it The most alarming thing that has happened in last few days: The [...]
Posted by Deepak Singh on December 21, 2011 03:50 AM· permalink
US markets staged an impressive U turn overnight. The most bullish thing a market can do is to GO UP What happened overnight in US market? The market has been so depressed off-late that a small dose of positive news emanating from Europe and US sparked off a mega rally. As you can see on [...]
Posted by Deepak Singh on December 21, 2011 01:11 AM· permalink
Posted by Ajay Shah (noreply@blogger.com) on December 16, 2011 09:39 PM· permalink
For the week ended 3 December 2011, Primary Articles Inflation contracted to 5.48%. This is largely food and a good crop has made prices come down.
I believe we will see inflation go temporarily negative at this rate, though the rise of the dollar will percolate into the system and raise prices very soon.
Posted by Deepak Shenoy on December 15, 2011 10:40 AM· permalink
The RBI rates for the dollar are nearing the 54 mark, with a record 53.577 touch today. It supposedly traded at 53.80 also in the spot market, and is at 53.81 in the USDINR futures market.
This is gonna hurt real bad.
Posted by Deepak Shenoy on December 14, 2011 05:11 PM· permalink
Above is a 60 minute plot. There is a contraction taking shape on the Bollinger Bands. Today there was a lot of chop and couple that with the contraction and you know there is a big move ahead. I think 4742 will break down tomorrow and the index is likely to retest 4650.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on December 14, 2011 10:48 AM· permalink
Back in the old days, I invented the five parties model so as to protect static assets that had to be protected. I don't have a good URL for it, because to a large extent I was still in my pre-naivete phase, in which I thought this stuff is basic engineering, don't bother me with doco. So in brief: A repository stores the metal, on behalf of the issuer of a financial instrument. A signatory, independently to the issuer signs incoming and outgoing metal, so as to stop the secret sales of metal. A Manager receives customer metal and disburses out of a kitty, and interacts via the signatory into the repository for large amounts. Finally, all of the preceeding 4 parties publish reports in real time to the fifth party, the public, who relies on the reports to guard against fudged account and re-use of assets, a.k.a. theft and fraud. It's as easy as 1,2,3,4,5. Or so I thought: ...just ask Gerald Celente what happened to his so-called gold held at MF Global, or as it is better known now: "General Unsecured Claim", which may or may not receive a pennies on the dollar equitable treatment post liquidation. What, however, was less known is that physical gold in the hands of the very same insolvent financial syndicate of daisy-chained underfunded organizations, where the premature (or overdue) end of one now means the end of all, is also just as unsafe, if not more. Which is why we read with great distress a just broken story by Bloomberg according to which HSBC, that other great gold "depository" after JP Morgan (and the custodian of none other than GLD) is suing MG Global "to establish whether he or another person is the rightful owner of gold worth about $850,000 and silver bars underlying contracts between the brokerage and a client." In short, the legal titleholder of the silver (MF Global) seems to have re-used the metal of customers, in a process known as hypothecation. Apparently legal, but definately dodgy. As, when MF Global went down due to increasing margin calls on dodgy financial calls, the creditors were left to sort out the opposing positions. Which causes a crisis in faith in the system itself: Silver positions are being liquidated by COMEX traders after the MF Global fiasco uncovered the fragility of paper assets. ... The issue has been worsened as the CME Group has been unable to refund investor money even after a month after the MF Global filed for bankruptcy. Many traders have pulled out their money from the markets while many are advising others to close their paper trading accounts and instead focus on the physical metal itself. Now, my view on this was clear: don't do that! The metal held on trust should have been simply held with one-to-one ties between the physics and the paper. Although it is common practice with other assets to loan out customer assets ( http://www.zerohedge.com/news/shadow-rehypothecation-infinte-leverage-and-why-breaking-tyrrany-ignorance-only-solution ) that shouldn't be done with gold or arguably with silver. Precious metal's special feature is its vote against the financial system, which it only preserves when done simply. Not in complexity. Another point of favourite polemic from those days was whether the gold was ever really there in the first place. Many observers didn't really trust the repositories, a point which was underscored when LBMA announced a few years back that for the first time in around a century, it would start assaying bars at random. How do we know the bars that have been in there for decades are really bars at all? Auditing technique such as point-in-time spot checks are good ones for flushing out long-lived frauds: tell me right now, on the spot, which is my gold! And then I'll count it. Maybe assay it too. My idea here in the sense of open governance was to have well known representatives of the body public come in and also audit the stuff. Unlike auditors who were hopelessly conflicted, the five parties thesis said that users could be responsible for auditing the system, *iff* they were given the tools. Then, I too would be delighted that this idea has come of age: ... we were delighted to see that after years of ridicule and provocations, the SPDR GLD ETF finally cracked and decided to do a wholesale PR campaign to comfort the investing public it actually does own its gold, by inviting none other than Bob Pisani in its secret warehouse which allegedly contains 40 million ounces of gold, When an unbiased user goes in there and touches the gold, she has no particular incentive to do anything than report what is seen. All parties are incentivised to make it real. Or so we thought: While the 4 minute PR campaign is enjoyable and we invite readers to watch it, what is amusing is that it is sure to set off another set of conspiracy theories. Here's the reason: amusingly the very gold bar that Pisani demonstrates so eagerly for the camera, Rand Refineries ZJ6752, is somehow, at last check, missing from the full barlist as posted daily by the GLD. Whose is it? Where did it go? When was this clip shot? Inquiring minds want to know... Oops! Not their bar... At the direct level, the visit by none-other-than Bob Pisani proved *NOTHING* about the reserves of gold. It did show that the issuer SPDR GLD ETF felt that it could do a pretty marketing presentation, and that would substitute for real governance. It did however prove everything about the five parties model and the wider question of open governance: The User closes the circle, if the circle exists and can be closed. Read the above post for the conspiracy theories and supporting analysis that the bar so displayed was not "in the vault" at all. I'll just leave you with this insight into open governance: Our advice: please tell your client HSBC to open up its vault to general observation and assay: at that point, we are confident all conspiracies will end. Until then, be prepared to be retained by HSBC on a frequent basis as more and more ask themselves: what is really in that vault? The users have called SPDR GLD ETF's bluff. Is there gold in the vaults? To me, this stinks, and raises a sell question over SPDR GLD. Just as you insist on real gold in your real issuance of Internet gold, don't go short on the governance. Insist on full open governance with five parties in control. Demand those reports, insist on independent visits. Now, more than ever. Chances are good that everyone will see their governance model tested within the next 12 months....
Posted by iang on December 14, 2011 05:15 AM· permalink
Follow me on Twitter I am active on twitter. You can follow live updates about market, Nifty support, resistance, trading ideas, thoughts and random updates on economy. My Twitter URL: http://twitter.com/smarket The Best way to read state of the market updates on twitter:
Posted by Deepak Singh on December 13, 2011 11:30 PM· permalink
The index has reached the previous support zone and the breadth has again tanked to the lows. Looks like we are in for one more bounce. This thing is not going down without a fight, eh?
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on December 13, 2011 06:13 PM· permalink
China's
Pakistan Conundrum by Evan A. Feigenbaum, in Foreign Affairs.
The most important task of government is the public goods of law
and order: laws, courts and judiciary. The first step towards
strengthening these lies in sound measurement. Writing
in Pragati, Sushant
K. Singh has an excellent article on the problems of measurement
of crime in India.
An
independent judiciary by Ruma Pal.
Devesh
Kapur, in the Business Standard, on the HR crisis in
the Indian State.
Shyam
Saran in the Business Standard on a more sensible
approach that we should bring to intra-South-Asia logistics.
The lack of freedom of speech in
India: Karan
Singh Tyagi in the Hindu.
Amit
Rai writes in the Times of India about the mistakes of
the legal actions following the AMRI fire.
Mobis
Philipose in Mint on how charges by exchanges have made
a difference to the currency futures market.
Every advocate of a big spending Indian government should ponder
this
article about Greece by Landon Thomas in the New York
Times.
Dreze and
Sen on what India does right and wrong. We may not agree with
most of this, but they are smart people and it's worth reading.
Hard times at
UTI: Anirudh
Laskar and Vyas Mohan in Mint,
and Niladri
Bhattacharya and N. Sundaresha Subramanian in Business Standard.
Air
India
and Maharashtra
PSUs remind us, in interesting ways, about why government
should not be in business.
Martin
Feldstein explains what went wrong with the Euro.
Look at profiles
of Mario
Monti, who will try to fix Italy,
and Loukas
Papadimos, who will try to fix Greece. I guess that every now
and then, the professional politicians foul up big time, and then
bring in the economists to clean up. It reminds me of a perspective
by C. B Bhave on urban governance in India: when things are going
well, the politicians want an accomodating civil servant; when the
city goes to hell, they want a tough competent one. Also
see Greece
and Italy Seek a Solution From Technocrats by Rachel
Donadio in the New York Times.
Charles
Moore looks back at the story of Maggie Thatcher, who ended
Britain's long decline in the 20th century.
Read Larry
Summers in the Financial Times on the problem of
inequality and three things that need to be done about it.
Two important platforms for modern web development were Flash and
HTML5. It
now looks
like Flash
is dying. Looks
like Steve
Jobs was right on one more thing.
Posted by Ajay Shah (noreply@blogger.com) on December 11, 2011 08:13 PM· permalink
I spent over a decade building the snappiest financial system around. In that time I pursued one goal of efficiency: reduction of complexity. This wasn't only goodness in an angelic sense, it was a pragmatic goal to reduce my own costs in building systems. The result was pretty spectacular: we were settling trades in seconds and doing so with every leg firmly fastened to the ground. That is, the whole thing was running with direct concrete ties to assets. But, the big players weren't interested. Indeed they were more than uninterested, they were highly interested in making sure this would never ever happen. Time after time, the message was delivered: Never. Other companies received the same message, so after a few years, I started to take it seriously. At the time I hypothesised that the reason for this was insider fraud, or at least profits capture. The complexities were endemic and there were very few people who could see the whole picture. So, I theorised that those who could understand the complexities were cashing in on their advantage; from the inside. And some very few who cashed in were also driving the information agenda, as their success made them both wealthy and influential: more complexity! Of course such a hypothesis is unlikely to find proof. By its very nature, how do you prove such a tendency towards chaos? Here comes an alternate perspective from ZeroHedge, citing two papers (1, 2): And the punchline: "Liquidity requires symmetric information, which is easiest to achieve when everyone is ignorant. This determines the design of many securities, including the design of debt and securitization." Reread the last statement as it explains perhaps better than anything, the true functioning of modern capital markets and why they are terminally broken: in order to preserve the system, the banking cartel need to make everything of virtually infinite complexity so that no one has a clear understanding of what is going on! Consider the perfect market hypothesis: the market already has all the information priced in, so you yourself cannot beat the market. Or, more politely, you get to earn the market rate of return, so you may as well invest in a unit fund that covers the entire market. Although this hypothesis is proven, and proved time and time again (look at the averaged hedge fund returns against stock market returns over time), it is also clear that, at the limit, the hypothesis is impossible: if the market already knows, no new information will come to the market. In which case it gums up. (Leaving aside temporal arguments for now.) So, the market also defends itself by creating reasons to bring in new information. ZeroHedge highlights Gorton & Metrick's punchline: "Liquidity requires symmetric information, which is easiest to achieve when everyone is ignorant. This determines the design of many securities, including the design of debt and securitization." The market promotes impenetrable securities, which promotes Ignorance, which generates symmetric information, and hence liquidity. QED. Well, we're all on the same page. Banks support e.g., OTC or over-the-counter market, and will kill to preserve it, because it creates symmetric information. a.k.a ignorance, leading to profits. Meanwhile, I invented the Ricardian Contract which created an excessively visible and tangible chain of contract. These two concepts are at war, opposite poles of complexity versus transparency. Which is where sites like Zero Hedge step in - to expose "shadowy" places where things are best left unseen. Yeah. That's what I thought, too. As we watch the complexity-driven system implode it would be easy to assume that now is the time for transparency to rise from the ashes of Europe, thus to be renamed Phoenix. But, such a thought would be facile and naive in the extreme. A forlorn hope. The implosion of the world financial system doesn't make people any wiser, just poorer. Since when has the world responded to a crisis by getting smart? What Zero Hedge is really discovering is that rewards are there if you participate in being aware of the complexity. It is a proof of the hypothesis: wisdom emerges in understanding where the masses, the herd, have it wrong. It is not in itself an absolute, nor a way to save them. For anything good to arise, something else is needed....
Posted by iang on December 11, 2011 09:33 AM· permalink
Here's a look at the world market performance over the year. Dow Jones is up 5% YTD! Nifty is the worst at over -20%
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on December 11, 2011 01:51 AM· permalink
Above is a look at this week's performance. IT is the only sector which has not suffered any damage. Below is the breadth:
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on December 09, 2011 01:18 PM· permalink
The negative divergence on the hourly has resulted in a sell off and the index now precariously hangs just above the previous gap area. I think it will tank tomorrow.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on December 08, 2011 04:14 PM· permalink
The above table shows how to calculate the cumulative relative strength. That's quite simple - the basic idea is to divide the % changes of a stock, here Lever, by the % changes in the index. Column H gives the RS values. Then we plot the RS line. If the line is rising then the stock is outperforming the index, if the line is falling then the stock is underperforming the index. Below is the RS line for Lever.
You can download this file.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on December 06, 2011 06:05 PM· permalink
New insurance premium is waning, says Sunaina Vasudev at BS. Overall, nwe premiums have fallen 21% with Reliance, Bajaj and ICICI seeing their new premiums cut but more than a third.
In quantity, LIC is the biggest player out there with about 36,000 cr. in new premiums, down from 45,000 earlier. But of the rest:
Posted by Deepak Shenoy on December 05, 2011 10:09 AM· permalink
The advance decline ratio is now around 1.3 and rising. The overbought level is around 1.7-2.0 Below is the CNX 500 breadth:
The % of stocks above their 10 day average has shot up to 77%
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on December 03, 2011 05:10 AM· permalink
Thomas Laubach will do a talk
titled Inflation:
Expectations, Targets and the Institutional Framework for Monetary
Policy at the NIPFP auditorium at 3:30 PM on December 9
(Friday). He is Professor at Goethe University in Germany. All are
welcome.
Posted by Ajay Shah (noreply@blogger.com) on December 02, 2011 05:22 PM· permalink
Now we have 30 stocks above their 50 and 20 below. Good one.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on December 02, 2011 02:31 PM· permalink
Here's the weekly sectoral performance. Metals top at 10.52%
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on December 02, 2011 02:01 PM· permalink
q: How big is the market for the rupee?
The rupee is now a big market. Summing across both spot and derivatives, perhaps $30 billion a day of onshore trading and $40 billion of offshore trading takes place. Both these markets are tightly linked by arbitrage. In other words, for all practical purposes, it's like NSE and BSE which are a single market unified by arbitrage. If you place a small order to buy 100 shares on either NSE or BSE, you get essentially the same price, and arbitrageurs are constantly at work equalising the price across both markets. It is a similar state of affairs between the onshore and the offshore rupee. Both markets are tightly integrated by arbitrage.
The offshore market for the rupee, and a large part of the onshore market, is OTC trading. Hence, the efficiencies of algorithmic trading and algorithmic arbitrage cannot be brought to bear on onshore/offshore arbitrage. So the arbitrage is done by manual labour. Still, it gets done. Both markets are tightly linked and show the same price. We should think of them as one market. It's one big market, it is one of the big currencies of the world, it's roughly $70 billion a day.
q: How might RBI do manipulation of this market?
If RBI wants to hit the market with orders big enough to make a difference, they have to be ready to do fairly big orders and to be able to do it on a sustained basis. As a rough thumb-rule, I might say that in order to make a material difference to a market with daily volume of $70 billion, they have to be in the market with atleast $2 to $3 billion a day.
q: What would go wrong if they tried this?
Three things would go wrong.
First, foreign exchange reserves are $275 billion. If RBI sells off $2.75 billion a day, the reserves would be quickly gone.
Second, when RBI sells dollars and buys rupees, this sucks liquidity out of the market. The side effect of selling dollars would be a sharp rise in domestic interest rates. In other words, monetary policy would get hijacked by currency policy. This would not be wise. Monetary policy should be focused on delivering low and stable inflation: it should have no ulterior motives. We have to make a choice: Do we want to use up the power of monetary policy to achieve domestic goals, or do we want to use up the power of monetary policy to achieve currency policy goals?
Third, suppose you and I saw a market price of Rs.45 per dollar, which is created by RBI and not a market reality. We would know that in time, the truth will out, that the price will go back to Rs.52 a dollar. The rational trading strategy for each of us would be: To sell any and every domestic asset, and shift money out of the country. This would trigger off an asset price collapse in India. We would take the money out, and wait for the distortion of the currency market to end. At that point (perhaps Rs.52 a dollar, perhaps worse) we would bring the money back to India and buy back our assets. We might make two returns here: first, on the move of the INR/USD from 45 to 52 (or worse) and the second, on the gain from the drop in asset prices.
q: Isn't it hard to take money out of India in this fashion?
It's
easier than we think. Remember September 2008? The mythology in our heads was: we in India are crouching safely behind a wall of capital controls. In truth, the wall wasn't there.
q: But until recently, RBI used to give us a pegged INR/USD exchange rate! What changed?
In late 2003, RBI ran out of bonds for sterilisation. Associated with that, there was a first structural break in the rupee exchange rate regime, with a doubling of volatility. A short while later, in March 2007, there was another structural break, with another doubling of volatility. From April 2009 onwards, RBI's trading in the market has gone to roughly zero. RBI stopped managing the exchange rate a while ago.
The exchange rate is the most important price of the economy. The decontrol of this exchange rate is the biggest achievement of the UPA in economic reforms. The credit for this goes to Y. V. Reddy and Rakesh Mohan (who took the first two steps of doubling exchange rate flexibility twice) and to Dr. Subbarao (who got out of trading on the currency market, which did remarkably little to INR/USD volatility).
q: Why did nobody tell me that something changed in the exchange rate regime?
RBI should be talking more transparently about what is going on. But they are not transparent about what they do. Even though hundreds of millions of people are affected by their trading on the currency market (or the lack thereof), the manual which governs their currency trading at any point in time (i.e., the documentation of the prevailing exchange rate regime) is not transparently disclosed to the people of India. We have to
decipher what is going on by statistically analysing exchange rate data.
The dates of structural break of the exchange rate regime are extremely important dates in thinking about what was going on in macroeconomics and international finance. Any time one is using data about exchange rates, interest rates, etc., it is important to work within one segment of the prevailing exchange rate regime at a time. It is wrong to pool data across many years. All users of data need to be careful in this regard.
q: So what might happen to the rupee next? Is there a `law of gravity' which will pull it back to erstwhile values of Rs.45 or Rs.50?
When you don't manipulate a financial market, the price time-series comes out to something close to a
random walk. In the ideal random walk, all changes are permanent. The random walk never forgets; there is no law of gravity which takes it back to recent values. Your best estimator of what it will be tomorrow is: what you see today.
In order to get a sense of what will come next, go through the following steps. First, go to INR/USD
options trading at NSE, and pluck out the implied volatility for the four at-the-money options. I just did that, and the values are: 10.43, 10.32, 10.33 and 10.08. Calculate the average of these four numbers. With the above four values, the average is: 10.3. (This is a quick and dirty method;
here is one which is much better).
This tells a very important thing: The options market believes that in the future, the volatility of the INR/USD rate will be 10.3 per cent per year.
In order to re-express this as uncertainty per month, we divide by sqrt(12). This gives the volatility for a month as : 3% per month.
Roughly speaking, the 95% confidence interval for what might happen over a month, then, runs from -6% to +6% (this is twice the standard deviation, which we just worked out was 3% per month).
The INR/USD is now Rs.51.62. By the above calculation, we can be 95% certain that one month from today, it will lie somewhere between 48.5 and 54.7.
These trivial calculations have been done by equity market participants for the longest time. It is a standard and trivial idea: To read the implied volatility off the Nifty options market, and to do such calculations to get a sense of what might come next with Nifty. But on the currency market, this is relatively novel. Only recently have we got a nice currency options market, and only recently have we got to a genuine market. Now these skills can be brought to bear on the currency market. It's a brave new world, one in which the operations of financial derivatives markets (Nifty options, INR/USD options)
produces forward-looking and timely information about the economy (implied volatility).
q: What changed in imports and exports which gave us the big recent move of the rupee?
The current account (goods, services, and then some) adds up to a mere buying and selling of $4 billion a day. The bulk of currency trading is about the capital account. The currency is a financial object; the exchange rate is
defined by financial considerations and not by current account considerations.
q: What happens to the Indian economy when the rupee depreciates?
This has been the source of a great deal of confusion and it's important to think straight about this. There are three important effects in play:
- Some people had borrowed in dollars, and left it unhedged since they were speculating that the INR would appreciate. They have got burned. That's okay - in a market economy, many people place bets about future fluctuations of financial prices, and half the time the speculator loses money. (If the rupee had not depreciated sharply, these speculators would have been truly joyous).
- When the rupee depreciates, imports become costlier and India's exports become more competitive. So exports (X) gradually start going up and imports (M) gradually start going down. The net gain in X-M is increased demand in the local economy. In this fashion, INR depreciation is good for aggregate demand (and conversely INR appreciation pulls back demand). However, we have to bear in mind that these effects are small and take place with long lags.
- Many things in India are tradeable. It is important to focus on the things that are tradeable and not just on the things that are imported. As an example, there are many transactions between a domestic producer of steel and a domestic buyer of steel. The buyer and seller are both in India. But the price at which they transact is the world price of steel (which is quoted in dollars) multiplied by the INR/USD exchange rate. This situation is called `import parity pricing'. Through this, the domestic prices of tradeables goes up when the rupee depreciates.
q: What is the impact of costlier tradeables for RBI?
RBI's job is to fight inflation. RBI must work to deliver year-on-year
CPI inflation (a.k.a. `headline inflation') of four to five per cent. When tradeables become costlier, domestic CPI inflation goes up. So the rupee depreciation has made RBI's job harder. RBI will have to respond by hiking interest rates. (Note that one impact of higher interest rates will be that more capital will come into India, which will tend to yield a rupee appreciation;
import parity pricing has created a new channel through which RBI rate hikes combat inflation).
q: What is the impact of costlier tradeables for business cycle conditions in India?
As the example above about steel suggests, the price realisation of all tradeables companies goes up when the rupee depreciates. Costs change by less by revenues (since many costs are not tradeables), and profitability goes up.
Firm profitability has dropped sharply in 2011. My prediction is that firms producing tradeables will show better profitability in Oct-Nov-Dec 2011 when compared with the previous quarter, thanks to the rupee depreciation.
This is great news for business cycle conditions. Profitability goes up, which yields more cash for investment by financially constrained firms. And, when profitability is higher, more investment projects look viable.
q: In the bottom line, what is the link between the rupee and India's business cycle stabilisation?
If RBI tried to peg the exchange rate, the lever of monetary policy would get used up to deliver the target exchange rate. By not trading on the currency market, the lever of monetary policy is now available. A pretty good use for this lever is to deliver low and stable CPI inflation. If this is done, then an RBI focused on inflation would help stabilise the economy by cutting rates when CPI inflation drops below 4% and hiking rates when CPI inflation goes above 5%.
But floating the exchange rate also yields stabilisation purely in and of itself. In bad times, capital leaves India, the rupee depreciates. This gives higher profitability in tradeables firms and bolsters investment. Conversely, when times are good, more capital comes into India, the INR appreciates, which crimps profitability of tradeables firms. The floating exchange rate exerts a stabilising influence upon the economy: purely by doing nothing on the currency market, RBI has unleashed this new force of stabilisation which will help India.
q: What should RBI do next?
RBI should do as they have done, i.e. avoided trading on the currency market.
RBI should keep driving up the short-term interest rate until point-on-point seasonally adjusted CPI inflation shows a decline and goes into the target zone of 4-5 per cent. After this hangs in there for a year, `headline inflation' (y-o-y growth of CPI) will be in the target zone.
q: What do other countries do?
When we look at countries with good governance, the mainstream strategy seen worldwide is an open capital account and a central bank that delivers on an inflation target. By and large, this goes with a floating exchange rate. Trading on the currency market interferes with achieving price stability and has hence been dispensed with, by most good countries. Japan and Switzerland come to mind as exceptions to this broad regularity.
Posted by Ajay Shah (noreply@blogger.com) on December 02, 2011 11:02 AM· permalink
Posted by Ajay Shah (noreply@blogger.com) on November 29, 2011 10:45 AM· permalink
Quiz Time I am really pleased to bring back the quiz version which many of you have been asking for. I hope you will find the new quiz more entertaining and will learn from it The quiz comprises of 10 questions and it tests your knowledge on market, stocks and events that impact these stocks. [...]
Posted by Deepak Singh on November 27, 2011 07:08 AM· permalink
The 10 day breadth has turned up but the others remain down:
Similarly, the 10 day a/d ratio has now turned up:
The market is under severe pressure and the bounce looks shaky as there was late afternoon selling on Friday.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on November 27, 2011 03:52 AM· permalink
Here's a closer look at how the Nifty 50 stocks stand wrt their 50 day averages.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on November 23, 2011 05:35 PM· permalink
Here's look at the sectoral indices and how far they are from their 50 day averages. IT is the only sector which is above its 50 day average. Capital Goods is over 16% below its 50 day average. Looking at this data I think we are in for some sharp pull back.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on November 23, 2011 02:01 PM· permalink
The entire market has been in strong bearish grip but Jubilant Foodworks seem to be defying gravity. Jubilant Foodworks continue to hold 200 dma Source: Chartalert.com As you can see in the chart above: Jubilant Foodworks has somehow sustained above 200 dma despite intra-day sell offs. It seems stock wants to hold the current levels [...]
Posted by Deepak Singh on November 23, 2011 01:38 PM· permalink
A HUGE and informative infographic at xkcd.com about Money:
(Click!)
Posted by Deepak Shenoy on November 22, 2011 08:03 AM· permalink
Good Morning. This is what you need to know before the start of the trading day. Nifty: Will 4740 Hold? Majority of market participants think No. Source: Chartalert.com There has been relentless selling in Nifty in last 8-9 trading sessions. Nifty is now closer to levels from where it has bounced twice and hence there [...]
Posted by Deepak Singh on November 22, 2011 01:43 AM· permalink
Good Morning. This is what you need to know before the start of the trading day. Introduction Nifty is down 7.8% this month whereas Dollar Denominated Nifty is down 12.5% this month. INR depreciation has messed up FIIs portfolios big time. Charts have been badly damaged by the selling and it would be wishful thinking [...]
Posted by Deepak Singh on November 21, 2011 03:17 AM· permalink
The markets are now in the extreme oversold region and ripe for a bounce:
Below is a look at the sectoral comparison:
Capital Goods, Metals and Real Estate are the big losers. IT, Health Care and FMCG have suffered less damage.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on November 18, 2011 01:30 PM· permalink
For the first time after a brief visit in 2008, the dollar-rupee rate has crossed Rs. 51.
All these currency movements are nearly vertical, it seems.
Posted by Deepak Shenoy on November 18, 2011 06:11 AM· permalink
by Percy S. Mistry.
How did it happen?
The worst financial crisis in the western world for nearly 80 years
broke in September 2008.
It required banking/financial systems to be supported and
recapitalised by governments across the EU and in the US.
In June 2009 it became apparent that the peripheral countries of
the Eurozone (Greece, Portugal, Spain and Ireland) were grossly
over-indebted.
Yet in some instances (Spain) their public debt to GDP ratios
happened to be lower than those of the US, France, the UK and
Germany.
The continued viability of their public finances depended entirely
on markets being willing to refinance them with cheap money.
But, when markets scrutinised the sustainability of their fiscal
positions, they baulked from refinancing except at punitive rates.
CDS spreads (against Germany as a benchmark) of peripheral Eurozone
countries (PIGS or Club Med) debt began widening relentlessly.
Global financial markets began to price in an escalating risk of
partial/full voluntary/involuntary default on PIGS bonds since
December 2009.
Contrary to first impressions, except for Ireland, that was a
result not just of the financial crisis and bank recapitalisation
demands on the fiscus.
It became apparent instead that bank recapitalisation demands on
public finance were only the last straws that broke the camel's
back.
Greece, Portugal, Spain and Italy, as a direct consequence of
joining the Eurozone, had been running up unsustainable fiscal
deficits since 2000.
Ireland had not. It suffered because the bailout of its
disproportionately large banking system caused its public debt to rise
astronomically.
PIGS became over-indebted despite the supposed self-imposed
discipline adopted by the Eurozone of prohibiting fiscal deficits >3%
of GDP.
That discipline was violated by almost all Eurozone members,
beginning with France and Germany, but more egregiously by the
PIGS.
To make matters worse, however, the PIGS were also running
increasingly large current account deficits (with Germany, France,
China).
Though countries like France (and to a lesser extent) Germany were
fiscal sinners, they were at least running current account
surpluses.
PIGS had access to excessively cheap public and private money
available on terms totally inappropriate to their economic
circumstances.
Given their inherent risks, which markets mispriced completely,
their borrowing costs should have been 300-500 bp higher than
Germany's.
Instead, they were virtually the same for nearly a decade. That
relieved market-induced pressure on PIGS' governments to behave
responsibly.
Consequently, their public expenditures after 2000 ballooned out of
all proportion to their intrinsic capacity to fund them from tax
revenues.
Such expenditures became almost wholly dependent on access to
increasing amounts of cheap public borrowing from capital markets.
In response to access to excessively cheap money, wages in the PIGS
rose across the board as did growth in public sector employment.
With the financial crisis triggering bank recapitalisation needs,
on top of this unsustainable structure, the edifice began to
crumble.
The first early warning signals became apparent in December 2009
but the dam broke in mid-2010 with the first Greek bailout.
How has the Eurozone crisis been handled?
Extremely ineptly; indeed very foolishly, by sophisticated Eurozone
authorities (political, fiscal and monetary) that should have known
better.
Eurozone leaders learned nothing from the preceding debt crises in
Latin America (1982-87, 1994-95) and Asia (1997-2000).
They went through avoidable phases of serial denial that there was
a structural debt (solvency) crisis that could spread via
contagion.
They treated it as a liquidity crisis that could be dealt with by
temporary patch-ups of additional money combined with fiscal
restraint.
They reiterated their commitment to ensuring there would be no
default - partial or full, voluntary or involuntary - by any Eurozone
member.
They believed that their remedial measures would stop the crisis
from ballooning beyond the first bailout package for Greece.
They were totally wrong. That package did nothing to convince
markets that Eurozone leaders understood the nature/severity of the
problem.
In fact, the inadequacy of that first bailout package -- which did
not provide enough money for sufficiently long - became quickly
apparent.
Eurozone leaders were fixated on debt-affected PIGS being forced to
live within their means through indefinite austerity without end.
Debt recovery/sustainability models did not provide sufficient new
money, or permit debt restructuring, in ways that would restore
stability.
Least of all were bailout packages designed to restore growth in a
conscionable period of time that would be socially/politically
acceptable.
Without financial system (and borrowing cost) stability, and absent
growth, debt problems can never become better. They can only
worsen.
Instead, as a result of poor design, all the bailouts did (except
for Ireland) was to add new debt to bad debt and reduce growth
prospects.
To exemplify: In mid-2009 the debt/GDP ratio for Greece was 115% of
GDP and the debt service ratio about 11% of GDP.
But, by October 2011 the debt/GDP ratio for Greece was 161% of GDP
and the debt service ratio nearly 20% of GDP.
It is projected with the third bailout to rise to 185% of GDP
(although debt service will be lowered to 16%) before it comes down
again.
In the meantime, over the last 32 months, the Greek economy has
shrunk in size by almost 17% in nominal terms. It will be 1/5 th less
in 2012.
Such inane 'remedies' do not solve debt problems. They only
aggravate and exacerbate them.
While behaving in this absurd fashion Eurozone leaders repeatedly
asserted for two years that they would do everything in their power
to:
- Maintain the credibility of the Euro while ensuring that every
member stayed in the Eurozone
- Not allow any default of publicly issued bonds to occur; and
- Do everything possible to avoid contagion spreading beyond PIGS (even
as it became clear that markets were worried about Italy.
Instead they achieved the exact opposite of all three objectives
through their inability to understand the implications of what they
were doing.
Though now contrite and claiming to have learnt a few lessons from
their serial bungling over 30 months Eurozone leaders have no
solution.
The EFSF facility they created is woefully underfunded. It can
barely deal with financing the third Greek bailout.
The idea of leveraging it or using it as a partial guarantee
facility is absurd since it would add to risk and uncertainty not
resolve them.
Yet over-indebted governments (including France and Germany) would
have to issue more public debt in order to fund the EFSF properly.
That would simply mean requiring their fragile, near-bankrupt,
banking systems (or the ECB) or global markets to buy more Eurozone
debt.
Except for Germany (and even that will be in doubt soon) the market
has no appetite for taking on more Eurozone debt given its risks.
Contagion has spread from the periphery and now lodges at the core
of the Eurozone economy in which Italy is the third largest member.
What could have been resolved with about 300 billion euro in
additional financing in mid-2010 is now a problem that may require 2
trillion euro.
Where are we now?
Over 35 EU/Eurozone summits in 30 months have resolved
nothing. They have made matters worse; despite Herculean
exertions!
Right now Greece is in 'effective' default; though markets are
overlooking that because of the implications of CDS contracts being
triggered.
Its borrowing costs for refinancing its debt would exceed 30% if it
had any access to private markets; which it does not.
Any refinancing of, or addition to, Greek debt can now only be
financed by the ECB; which the Germans will not permit the ECB to
do.
Meanwhile the Greek banking system is bankrupt. Indeed the entire
Eurozone banking system's credibility/stability/solvency is in
doubt.
Today an outstanding portfolio of about 11-12 trillion euro in
Eurozone debt - of which about 80% is held by EU firms - is souring
relentlessly.
About 7 trillion euro of that portfolio is sufficiently affected by
contagion to require provisioning (France and Belgium may soon be
added).
About 5 trillion euro of Eurozone high-risk-debt is currently held
by EU banks, insurance companies, pension funds and individuals.
That sovereign debt, which is supposed to constitute the 'safest'
component of any asset portfolio, now constitutes perhaps the riskiest
element.
That reality inverts the whole basis of banking/financial system
soundness and stability across Europe (including the UK).
It compounds the problem of calculating capital adequacy
requirements for these banking systems and puts regulators in a
quandary.
Ireland's bailout programme is working but could be derailed by
what is happening in the rest of Europe.
Portugal's programme is not working as intended. But nobody is
talking about it because it pales in comparison with Italy and
Greece.
Italy's outstanding public debt will soon cross 2 trillion euro
(120% of GDP) and its debt service payments amount to around 300
billion euro per year.
That is made up of about 120 billion euro in interest payments and
180 billion euro in principal repayments. Average duration is 5
years.
Public debt service in Italy now amounts to around 17% of GDP and
will rise to 20% unless Italy's debt is dramatically restructured.
Italy now needs to borrow about 40 billion a month euro (gross) and
about 28 billion euro a month net in private markets to refinance its
debt.
The world is holding its breath with every auction of Italian
public debt (3-8 billion euro per week) any of which could trigger
accidental default.
The cost of refinancing Italy's public debt has risen from around
4% a year ago to around 7% now. That adds 20 billion euro a year to
its debt.
Meantime the Italian economy is flat-lining and its capacity to
service additional debt is diminishing despite its running a primary
balance.
Banks around the world are dumping their holdings of Italian public
debt but there is no buyer other than the ECB because of the risk.
The ECB's capacity to refinance Greek, Italian and Portuguese debt
is limited and constrained by Germany's unwillingness to consider
that.
Contagion from Italy is now beginning to affect Spain and France
which is supposed to be a bulwark for the EFSF's borrowing
capacity.
The resulting gridlock is pushing the entire Eurozone system toward
a catastrophic denouement with a binary outcome. Either:
- Crisis-induced progress toward fiscal union with
national sovereign bonds being replaced by a single Eurozone
bond with a joint/several guarantee, or
- Sudden disorderly collapse of the Eurozone with unimaginable
fallout and consequences that would trigger a global double-dip
recession.
Such a recession would last for a minimum of 2-3 years and would
probably be quickly followed by a similar debt crisis in the US.
The resulting fallout of disorderly Eurozone break-up could trigger
a break-up or restructuring of the larger EU as well.
So where do we go from here?
With the foregoing in mind it seems absurd that the world is
waiting with bated breath to see what the new technocratic governments
in Greece (Papademos) and Italy (Monti) will actually achieve by way
of structural reform and increased debt servicing capability in coming
months.
These technocratic governments inject new credibility but lack
political and social legitimacy. They have been appointed not
elected.
It remains to be seen how long their technocratic legitimacy holds
out without the backing of gradually earned political/social
legitimacy.
The risk is that if the ministrations of these technocratic
governments (which their societies believe have been imposed on them
from the EU above) do not work and bear fruit relatively soon (the
probability is that they won't), public patience with them will
melt.
Will they be able to convince electorates to accept the
inevitability of austerity without growth for the indefinite
future?
The next Greek crisis is perhaps 10-12 weeks away.
The next Italian crisis could be triggered by any one of the
upcoming weekly auctions of Italian government debt.
Despite these rather obvious realities, global markets deem to be
reacting in dream-like hope and optimism that all will be well.
There is of course a solution at hand; and the only one that will
work because all the other options seem to have been exhausted.
That option requires Germany to reconsider its refusal to bear its
large share of the fiscal burden that will come with Eurozone fiscal
union.
It requires political/social willingness on the part of rich
northern Eurozone members to finance fiscal transfers to poorer
southern members through an exponential expansion of structural funds,
currently applied to help develop more rapidly the poorer regions of
the EU.
Reciprocally, it requires other Eurozone countries to relinquish
fiscal, and a great deal of political, sovereignty immediately; in
order to assure global markets of their commitment to structural
reform, restoration of competitiveness, and relentless pursuit of
fiscal/monetary discipline.
It requires all unwanted national sovereign bonds of Eurozone
members to be replaced by a single Eurobond that is jointly and
severally guaranteed and underpinned by the weight and ability of the
ECB behind it to print money if necessary to ensure that such bonds
are honoured.
This solution would resolve both the over-indebtness problem of the
Eurozone and the problem of banking system collapse at a single
stroke.
If it were adopted the need to provide for risky Eurozone debt and
recapitalise (yet again) the EU banking system would disappear.
Yet, this is the one solution that keeps being discarded because of
legitimate German constitutional, judicial and political
constraints.
They inhibit movement in such a direction regardless of the
consequences for the Eurozone, the EU, and mostly Germany itself.
It is like witnessing a repeat of 1939; not of conquest but of
mindless destruction. But, this time with money rather than tanks
being involved.
If that only workable solution continues to be discarded, the other
possibility that will manifest itself is the disorderly break-up of
the Eurozone; simply because its orderly break-up defies contemplation
and imagination.
Talk of Greece being ejected from the Eurozone, or of Germany
departing from it voluntarily, is fanciful simply because neither can
afford to bear the costs of the consequences that will follow,
regardless of what their populations and political leaders may believe
or think (though 'thought' seems to be conspicuously absent from the
process just now). Neither can their neighbours, regardless of what
they may think.
Yet it is not unimaginable that a break-up will be forced on
Eurozone members by global markets if the only workable solution
continues to be ruled out as it seems to be repeatedly by the German
Chancellor. But she has changed her mind so often the hope is she will
yet again.
A disorderly break-up may result in a reversion to national
currencies; which would be better than members trying to retain some
semblance of the Euro through separate residual monetary unions of
more compatible economies.
That would probably require four different Euros (for the
super-efficient Northern economies a Baltic Euro, for the relatively
efficient middling economies a Franco-Euro; for the newly acceding
countries an Eastern-Euro and for the inefficient, uncompetitive
Club-Med economies, a PIGS-Euro). Other than the first, none of the
others would be credible for holding as reserves, or for trading
significantly in global currency markets.
Finally, bear in mind that we have spoken of only the public debt
problem in the Eurozone.
Should the unthinkable (but increasingly likely) disorderly break-up happen, the public debt
problem will be accompanied by an unresolved private debt problem
throughout the Eurozone of equally monumental proportions! That
really will break the system and the banks!
Posted by Ajay Shah (noreply@blogger.com) on November 17, 2011 06:23 PM· permalink
Yesterday, I conducted a 90 minutes session on Trading options in India on WizIQ. I have since recorded the session and have it for you to watch:
Do let me know your thoughts and comments!
Posted by Deepak Shenoy on November 17, 2011 11:10 AM· permalink
Good Morning. This is what everything you should know before start of trading day. Nifty: The Trend is down but Bulls try to hold up the market above 4990-5000 spot. Yesterday, Nifty opened gap-down and spent the whole day trying to recover and establish support at 4990-5000 spot. It was an extremely volatile day with [...]
Posted by Deepak Singh on November 17, 2011 02:24 AM· permalink
Looking at the breadth it is obvious that most of the stocks got sold off around their 50 day averages as the 50 breadth has tanked from 60 to sub 20's. The whole market is kinda oversold now and I guess any bounce toward 5200 will again get sold into.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on November 16, 2011 03:31 AM· permalink
Because it is right now in freeze mode and contemplating about next move. The only problem: the direction is not yet known 2011 has not been great year for Infosys. Despite spectacular recovery in last couple of months from lows of 2200: the stock is still down 18% YTD [Year-to-Date]. But it seems now the [...]
Posted by Deepak Singh on November 16, 2011 02:42 AM· permalink
The charts do indicate that and the sad part is no one is happy with the decoupling. US Market: Poised for Breakout above 200 dma S&P 500 posted another small rally overnight and closed at the higher end of the range just below 200 dma. Despite all the turbulent news: S&P500 has been exhibiting strength [...]
Posted by Deepak Singh on November 15, 2011 11:26 PM· permalink
Here's a look at the breadth. It has now hit the oversold zone and a bounce is around the corner.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on November 15, 2011 06:29 PM· permalink
Bruce Schneier posts on something I've felt as well: Advanced Persistent Threat (APT) It's taken me a few years, but I've come around to this buzzword. It highlights an important characteristic of a particular sort of Internet attacker. A conventional hacker or criminal isn't interested in any particular target. He wants a thousand credit card numbers for fraud, or to break into an account and turn it into a zombie, or whatever. Security against this sort of attacker is relative; as long as you're more secure than almost everyone else, the attackers will go after other people, not you. An APT is different; it's an attacker who -- for whatever reason -- wants to attack you. Against this sort of attacker, the absolute level of your security is what's important. It doesn't matter how secure you are compared to your peers; all that matters is whether you're secure enough to keep him out. APT attackers are more highly motivated. They're likely to be better skilled, better funded, and more patient. They're likely to try several different avenues of attack. And they're much more likely to succeed. So, this becomes a really classic case of that old saw: "What's your threat model?" There are apparently two sterotypical attackers out there (at least in this dichotomy): the random agnostic thief: "A conventional hacker or criminal isn't interested in any particular target. He wants a thousand credit card numbers for fraud, or to break into an account and turn it into a zombie, or whatever." He doesn't share our economic beliefs of society and trade, but he certainly subscribes to the power of our money. the advanced persistent threat: the spy who's after your state-level secrets. He's not economic, in the sense that he isn't constrained by normal commercial levels of investment, instead he's got a very large budget behind, with very large strategic interests directing the target choice. Very different agents, leading to very different models of security. And all other things, such as how we as society deal with these issues. Schneier finishes on this: This is why APT is a useful buzzword. Sure, no matter how uncomfortable we are with the background, it's the buzzword we've got. Why then did we disbelieve the APT for so long? I think there are three factors. We the people aren't bothered by the APT, we're bothered by the random agnostic thief. The credibility of the USA industrial-military machine is at an all time low. Since the low-point of Colin Powell's speech to the UN, the people routinely disbelieve anything said, and now demand evidence. They presented no evidence. We had to wait until DigiNotar and the surrounding other events (the other CAs) to understand that this was the real deal. We still aren't so totally accepting. We still have the problem that our attacker is the random agnostic thief. Why still resist? My feeling is this: I'm annoyed that the state has managed more success in swinging the major Internet vendors around to dealing with the state's APT -- NIST's pogrom on small numbers, etc -- than we ever had as an open community in dealing with our random agnostic thieves. We're still following the NSA's drumbeat....
Posted by iang on November 15, 2011 05:57 PM· permalink
Last year: there was nothing that could go wrong with Bank Nifty and this year: it appears as if nothing that can go right with Bank Nifty. Mathematically and Technically, Nifty cannot make any sustainable progress on the upside if Bank Nifty remains in current depressed state. As of now, None of the Banking stocks [...]
Posted by Deepak Singh on November 14, 2011 01:19 AM· permalink
Update : These changes are applicable from 1-12-2011 (source)
There is good news for all the investors who are primarily debt instruments investors. Govt on Friday increased the PPF interest rates to 8.6% , which was 8% from very long time and the investment limit for PPF is increased to 1 lac from old 70,000 . This will be applicable from the dates which will be notified by govt very soon. There are some other changes which were done in other investment products , which are
Source : Hindustan Times
- The Maturity tenure for National Saving Certificate (NSC) has been reduced to 5 yrs (earlier it was 6 yrs) and interest rates increased to 8.4% from 8%
- A new National Savings Certificate (NSC) would be launched with a 10-year maturity with an annual interest rate of 8.7 per cent.
- Post office savings account interest is increased from 3.5% to 4 per cent.
- Interest on loans obtained from PPF will be increased to 2% p.a. from existing 1% p.a
- Kisan Vikas Patra has been discontinued from now onwards . The committee had said that the KVP was a bearer-like certificate with a regulated premature closure facility and was open to abuse by tax dodgers. They can be bought or sold without going to the post offices.
- Maturity period for Post Office Montly Savings Scheme (POMIS) has been reduced to 5 yrs and interest rate has been increased from 8% to 8.2%. Also the 5% bonus on maturity has been scrapped.
- Commission for agents on PPF and Senior Citizens Savings Schemes are scrapped. For any other instruments, agents commission will now be 0.5% against 1% earliar . According to the Gopinath Committee, the agents were paid around Rs 2,400 crore commission in 2010-11.
- The interest rates of varios tenures fixed deposits in Post Office is increased , for example for 1 yrs Fixed deposit , the new interest rates is 7.7% against 6.25% earliar . There are changes in other tenure fixed deposits also (See image above) . This has happened because interest rates on small saving instruments have been aligned with G-sec rates of similar maturity, with a spread of 25 basis points.
These measures are in sync with the recommendations of former RBI deputy governor Shayamala Gopinath committee that submitted its report to finance minister Pranab Mukherjee on June 7 this year.
Jayant Pai has an interesting comment on ppfas blog which goes like this
By now you must be aware that the interest rates on Government Small Savings Schemes (SSS) have been increased. Newspapers are going around town proclaiming that this is a bonanza for small investors. Well, it is true that soon (Most probably from December 1, 2011) you will be earning more by investing in these instruments but in a way this move is similar to the recent deregulation of bank savings account rates by the Reserve Bank of India .
You may be earning more today but this could change in the future. In other words, interest rates on all SSS will be dynamic and linked to the yield for comparable Government Securities although the rate changes will occur only once in a year and the relevant announcement will be made on April 1 each year. The Government will however ensure that a spread ranging from 25 to 50 basis points over the relevant benchmark security will be maintained.
Note that the news of PPF interest hike was published on Jagoinvestor news blog within few minutes of govt decision
Posted by Manish Chauhan on November 13, 2011 01:50 PM· permalink
Here is a sectoral comparison on three time frames. The leaders in each time frame are highlighted in green color.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on November 12, 2011 04:17 AM· permalink
We are in an unstable market environment and buy on dips does not look like a great idea. But if we ignore the macros and look purely on these two stock charts: they look like good buys M&M Weekly Chart Source: Chartalert.com As you can see in the weekly chart above, M&M consolidated below 800-815 [...]
Posted by Deepak Singh on November 11, 2011 03:35 AM· permalink
A pioneering
conference of the academic community in the field of
international relations in India.
Pramit
Bhattacharya in Mint on the impact of transaction
charges on the currency futures/options markets.
In continuation
of my
blog post on Pakistan, India, MFN, read
Bibek
Debroy on the subject.
Watch
me talk
about risk aggregation in the Indian economy, presenting joint
work with Sucharita Mukherjee. This is from a
fascinating conference
organised by IFMR. From this same conference, also see
the most
excellent opening talk by Nachiket Mor.
The
ally from hell by Jeffrey Goldberg and Marc Ambinder in
the Atlantic magazine. Things aren't going well in
Pakistan. What can India do to
help? Mani
Shankar Aiyar says, and I fully agree: One, return to the
Musharraf/Manmohan Singh proposal to create a borderless Kashmir
- where the LOC is rendered irrelevant - as a precursor to a
borderless subcontinent. Two, agree to maintain uninterrupted
and uninterruptable dialogue, that will remain unbroken and
regular, irrespective of terrorist attacks or any other
calamity. Three, introduce a visa regime similar to Nepal and
remove all restrictions of pilgrimages. The fourth remedy is to
ensure a full and free media exchange, including and not limited
to movies, TV channels and newspapers. Five, an open investment
regime without any barriers to trade. Six and seven involve
standing together on the international stage to push for the
expansion of the UN Security Council and launch a joint
initiative for global nuclear disarmament.
David
E. Sanger in the New York Times about how things aren't
going well in Iran.
Adam
Satariano and Peter Burrows have a fascinating story about
how, in addition to innovation and design, Apple has a great third
weapon: Operations.
In continuation to my post
about Dennis
Ritchie and Steve Jobs,
read M. Douglas
McIlroy on Dennis Ritchie, written on 19 May 2011.
Paolo
Pesenti takes us back to 20 years ago, when Europe went
through another economic crisis. It is useful knowledge about
economic history, and it gives us some insights into the Eurozone
crisis of today.
Posted by Ajay Shah (noreply@blogger.com) on November 09, 2011 02:07 AM· permalink
Sensex is just 2.2% below its 200. I think it's just a matter of time before the index pops over it.
Posted by "ss" Sunil Saranjame (noreply@blogger.com) on November 08, 2011 01:01 PM· permalink
Businesses exist to sell goods and services and not hold prices. But in India, property developers exist to hold prices with a belief sooner or later sale will happen. Well, God help them. This is as per Hindustan Times Report The number of unsold flats in Mumbai has touched a record 32,000 this month. And [...]
Posted by Deepak Singh on November 08, 2011 06:15 AM· permalink
The company came out with impressive set of numbers and also stock reacted well. Is the stock now a BUY? Havells India Source: Chartalert.com As you can see in the daily chart above, Havells India has seen quite up and down in last few months. First, the stock was holding its head above 200 dma [...]
Posted by Deepak Singh on November 01, 2011 01:27 PM· permalink
If you miss the market, you are missing some amazing drama. The problem is right now most of the drama happen overnight/ holidays and Indian market just react to it by jumping with joy [gap-ups]. Market Observations The S&P 500 is up a whopping 14% so far this month. Hmm What a turnaround? When boat [...]
Posted by Deepak Singh on October 31, 2011 01:22 AM· permalink
I was at a meeting in London recently, organised by the IGC, on the subject of the
research agenda in macroeconomics for developing countries. This made
me think about how to make progress.
The US as the shared dataset for mainstream macroeconomics
All existing knowledge on macroeconomics is rooted in data about
the US economy. The US is seen as a canonical developed
country. Economists all over the world have treated it as a common
object of study, when building macroeconomics. It is a shared
dataset. Researchers and Ph.D. students routinely pull out a paper
from the literature, and replicate the results, as a first stage of
offering innovations: all this is rendered convenient by using the US
as a shared dataset. New work is generally obliged to demonstrate
value-add in the context of the US dataset.
The US works as a shared dataset because it has high quality
data. Good quality data starts right after 1945, because there was no
destruction within the country, hence the early post-war years are not
distorted by unusual reconstruction. There was a steady shift away
from dirigisme from 1945 onwards, but for the rest there has
been no regime change: events like the breakdown of communism or the
rise of the European Union or the Euro have not taken place.
In the US, a high quality statistical system has produced good
aggregative data. Organisations like NBER have processed this data
nicely to create datasets about the business cycle. High quality
datasets are available about households, firms and financial
markets. Household- and firm-level data has been nicely utilised to
obtain numerical values for parameters in macroeconomic models: why
estimate something using macro data when you know it using
gigantic and well trusted micro datasets? Finally, the major question
for macro today is the fusion with finance, and the US has nice data
for the financial system.
As a consequence, facts about the US are the shared dataset used in
all mainstream macro research across the world.
The insights developed in this literature, which has examined the
US economy, have been transported with fair success, into other
developed countries. Thus, this emphasis on the US as a common dataset
has delivered good results. As an example, the revolution in monetary
policy which was thought through by Friedman, Lucas, etc. was created
using US data. It has usefully reshaped central banks worldwide. US
data was essential for inventing inflation targeting, but inflation
targeting has worked well outside the US.
The major obstacle on building a macroeconomics for developing
countries
The major obstacle that interferes with doing macroeconomics in
developing countries is data.
India is a good example of what goes wrong. The standard GDP data
is in bad shape. The annual GDP data is deplorable, and the quarterly
GDP data that is so essential for doing macroeconomics is worse. The
IIP is untrustworthy. Put these together, and we don't have an output
series, really.
The BOP data is measured fairly well. Some plausible
inflation data is now starting to come together. The statistical
system run by the government does not produce seasonally adjusted
data [succor]. Given the
absence of the Bond-Currency-Derivatives Nexus, the bulk of data
about interest rates that is required is missing; policy makers are
flying
blind. The standard household survey (NSSO) is in bad shape: it
does not produce panel data, surveys are only conducted once in a few
years, and there are incentive issues about the front-line staff who
interact with households.
The large firms are observed using the CMIE database; the small
firms are not observed using the ASI dataset. The CMIE household
survey is starting to generate knowledge about households, but this
only got started a few years ago. While the CMIE datasets (on firms
and households) can be aggregated up to create many interesting macro
series, so far this process has only begun in a small way.
Faced with these problems, it is not surprising that little is
known, at present, about macroeconomics in India. We know numerous
important questions, and we know that we don't know the answers. The
roadmap to progress is often, though not always, blockaded by data
constraints.
Many such problems bedevil the statistical system in other
developing countries also.
Economists have complained about bad data in developing countries
for decades, and that hasn't changed things. And there is a uniquely
perverse problem. Incremental progress with a gradually improving
statistical system does not get the job done for us: By the
time a country gets to good institutions and thus a good statistical
system (e.g. Taiwan, South Korea, Israel, Chile), the country is not a
developing country anymore and is thus not a useful dataset for
studying the macroeconomics of developing countries. Chile has world
class databases on households and firms, but you can't extract
microeconomic facts using these datasets and use them in
calibration if your object of inquiry is the canonical developing
country.
A proposal
How can we make progress? I feel the first idea that we need to
agree on is that we do not need many developing countries to build a
great literature. We need a shared dataset, a lingua franca, a
replication platform, using which we will build a literature. We need
a country that will play the role, for the macroeconomics of
developing countries, that has been played by the United States in
conventional macroeconomics.
The second idea is that we should be a little more ambitious. We
should not merely sit around hand-wringing, complaining about a
problem that isn't going to solve itself. When scientists in other
disciplines identify questions that call for evidence, they write
funding proposals (sometimes running to billions of dollars) and
organise themselves to create those datasets. Could we do
similarly?
Specifically, imagine that we pick one canonical developing
country. It's got to be a typical developing country in most
respects. And, it should not be a conflict zone, it should have the
basics of law and order and physical safety so that operations can be
mounted in it. Christopher Adam of Oxford suggests that Tanzania is a
good choice.
Imagine that, the system of interest (a developing country) keeps
running, but it gets instrumented up to world class. In essence, we
try to place first world instrumentation into a third world
country. (To the extent that this data improves decision making in the
country, we would suffer from `Heisenberg' effects).
This will call for financial resources and, more importantly,
organisational capability. The physicists know how to organise
themselves to build the Large Hadron Collider. Most of the time,
economists do not organise themselves as laboratories or teams doing
complex projects. This will be a bridge that we will have to
cross.
As with the Large Hadron Collider, this is not a short-term
project. It is a project that needs to run for 25 years, in order to
generate a strong dataset.
At first, the project will generate useful facts for calibration,
drawing on household survey and firm databases. Gradually, as the span
of the time-series builds up, the full picture will start becoming
clear.
If this works, it can ignite a literature where researchers from
all across the world do replicable work off a common dataset. Perhaps
Tanzania could then play a role, for the macroeconomics of developing
countries, that is comparable with the role played by the United
States in mainstream macroeconomics.
Posted by Ajay Shah (noreply@blogger.com) on October 24, 2011 05:45 AM· permalink
A few days ago, I wrote
a blog post about India's inflation crisis. For five years now, in every single month, the y-o-y CPI inflation has exceeded 5%. Under these conditions, economic agents have little confidence that RBI cares about inflation. They are now reporting double digit inflationary expectations. Under these conditions, inflation will be persistent. By itself, inflation is not going to go back to the target range of 4 to 5 per cent. This blog post made certain qualitative claims about fighting inflation under two scenarios: when the central bank has credibility and when it does not.
I recently came across a fascinating paper which is about a similar situation: it is about the problems faced in Ghana recently, in fighting back an inflation. It gives numerical values which are interesting for us. Their inflation was a bit worse than ours - they were at 20%. But for the rest, this analysis illuminates what we face in India today. The paper is :
A model for full-fledged inflation targeting and application to Ghana, by Ali Alichi, Kevin Clinton, Jihad Dagher, Ondra Kamenik, Douglas Laxton and Marshall Mills, IMF Working Paper, 2010.
Here is the main story. First, look at the projected trajectory for what happens to the short term interest rate and inflation under conditions of weak credibility of the central bank:
The nominal rate is required to go all the way out to 26%. Inflation responds slowly. It is projected to get to the target (with some overshooting at first) by 2016. The cumulative damage to GDP growth, in this process of exorcising inflation, works out to roughly 20 per cent of GDP. (This is the sum total of the output cost over all the years taken in wrestling this inflation down).
Compare this against the picture obtained when the central bank has high credibility:
This is much nicer story. The nominal interest rate starts out high (18%) but inflation responds rapidly and the interest rate can also come down rapidly. By 2013, inflation is at the target. The cumulative damage to GDP growth, in this process of exorcising inflation, works out to only 4% of GDP.
This difference is striking. Lacking credibility, the central bank has to force a total output loss of 20% of GDP, and they get to target inflation by 2016. With credibility, the job gets done three years sooner, and at a cost of only 4% of GDP of output loss.
This is an essential insight into our inflation crisis today. In the end, raising rates will get the job done. No matter how bad is the monetary policy transmission, no matter how deeply ingrained inflationary expectations have become, raising rates will ultimately deliver price control. The choice that we face is between being bloody-minded about it, or simultaneously undertaking RBI reforms which involve zero output loss, and improve RBI's credibility.
Posted by Ajay Shah (noreply@blogger.com) on October 22, 2011 06:56 PM· permalink
Suppose a government tries to boost demand in the economy by boosting the deficit.
A fascinating feature of the situation is: Households are not wood, households are not stones, but men. And being men, they will look forward, they will optimise. Households know that all government expenditure requries taxation: all that is achieved by running a deficit today is postponing taxes to tomorrow.
India's fiscal stance is now likely to
lead to increased taxation in the future. We have a nice wide deficit today, but it's increasingly likely that fresh taxation will come up in the future.
A core feature of human beings is that we do not like to deal with fluctuations in our consumption. So faced with the prospect of taxation tomorrow, we are prone to cut back on consumption today.
Through this, when a government raises the deficit today, some of this effect is counteracted by households that pull back on expenditure. Raising the fiscal deficit is less expansionary than some would think.
Economists have a fancy name for this: it's called Ricardian Equivalence. This was originally thought up by David Ricardo, but made famous by Robert Barro. It is one of the many ways in which forward looking households are of essence in thinking about macroeconomics. "You are not wood, you are not stones, but men; and being men, you will optimise".
Posted by Ajay Shah (noreply@blogger.com) on October 21, 2011 06:49 PM· permalink
As an example of good disclosure that we can use to analyse our risks on new attacks come from Symantec: Key points: Executables using the Stuxnet source code have been discovered. They appear to have been developed since the last Stuxnet file was recovered. The executables are designed to capture information such as keystrokes and system information. Current analysis shows no code related to industrial control systems, exploits, or self-replication. The executables have been found in a limited number of organizations, including those involved in the manufacturing of industrial control systems. The exfiltrated data may be used to enable a future Stuxnet-like attack. Now, Symantec are somewhat 'interested' in this disclosure, in the commercial sense, because they gain reputation and thence sell more defences to more customers. They could just shout FUD out to the world. But in this sense, the market has moved to a sense of competition on solid disclosures, as compared by competitor McAfee also putting its own analysis out there. And, it turns out that Symantec is doubly interested as the new trojan was signed by one of their (Verisign?) certificates: *Update [October 18, 2011] - *Symantec has known that some of the malware files associated with the W32.Duqu threat were signed with private keys associated with a code signing certificate issued to a Symantec customer. Symantec revoked the customer certificate in question on October 14, 2011. Our investigation into the key's usage leads us to the conclusion that the private key used for signing Duqu was stolen, and not fraudulently generated for the purpose of this malware. At no time were Symantec's roots and intermediate CAs at risk, nor were there any issues with any CA, intermediate, or other VeriSign or Thawte brands of certificates. Our investigation shows zero evidence of any risk to our systems; we used the correct processes to authenticate and issue the certificate in question to a legitimate customer in Taiwan. Still, I can't fault the disclosure: they investigated and now claim it was a good cert, stolen from the client. They revoked it the same day of being shown the code/sig. This information is provided in a way we can RELY on it. From this we can make risk management judgements. See more here....
Posted by iang on October 21, 2011 02:29 AM· permalink
Several credit card issuers and banks offer accident covers along with the cards. Again, the company buys a group cover for the purpose and no premium is to be paid by the user for the cover. Their structure and claim process are mostly similar to a regular personal accident policy from a nonlife insurer. In the event of the holder's death, a lump sum is paid out to the nominee. Such covers could come with permanent disability riders, too, to provide succour to the insured if s/he meets with a debilitating mishap.
They may not cover loss of wages in case the policyholder is temporarily incapacitated and is not able to resume work. Also, there is a possibility of you becoming dependent on the bank or the issuer merely because of the cover. You would do well to consider buying a basic cover, independent of such products.
To sum up, ensure that you focus on the merits of the main product. If it fits into your financial plan and serves your purpose, go for it. Any additional benefit would be a bonus. 
Posted by Prajna Capital (noreply@blogger.com) on October 17, 2011 05:22 AM· permalink
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| When prices are written with a piece of chalk, menu costs are low |
Posted by Ajay Shah (noreply@blogger.com) on October 16, 2011 06:15 AM· permalink
A lot is being written about inflation in India today. I thought it's worth writing about the fascinating insights into inflation that come from focusing on the distinction between tradeables and non-tradeables.
What is a tradeable
A tradeable is a product which can be transported across the world at relatively low cost. As an example, steel is tradeable while cement or paint are mostly non-tradeable barring special short-hop opportunities like Gujarat-Karachi or Amritsar-Lahore or Calcutta-Chittagong or Trivandrum-Colombo.
Steel is a nice tradeable that one can think clearly about. There are no barriers to the movement of steel worldwide. Hence, there is only a world price of steel. The quoting convention used worldwide is to express the price of steel in USD. The price of steel in India is thus the world price of steel multiplied by the INR/USD exchange rate, plus a markup for freight (The cif/fob ratio).
If there is a customs duty of (say) 10%, then the price of steel in India is 1.1 times the world price of steel expressed in rupees. For the rest, nothing changes when a customs duty is introduced. Gram for gram, every fluctuation in the INR/USD or the world price of steel shows up in the domestic price of steel.
Non-tradeables are things like cement (which are hard to transport) or haircuts (which are impossible to transport).
Measurement
Before we can analyse and control inflation, we must measure it well. Inflation is defined as the rise in the price of the average household consumption basket. The
CPI is the best measure of inflation in India.
Everything in the CPI basket can be classified into the two categories: tradeable vs. non-tradeable. As a thumb rule, WPI non-food non-fuel is a rough measure of tradeables inflation. Fluctuations in food and services prices, which make the CPI diverge away from WPI non-food non-fuel, are a measure of non-tradeables.
Year-on-year inflation reflects an averaging over 12 months. If you want to get a faster sense of what is going on, you need to look at
point-on-point seasonally adjusted changes. These yield early warnings of inflation, which are 5.5 months ahead on average. Such data is
updated every Monday by us. The shift from y-o-y inflation, to p-o-p SA inflation, is a free lunch in measurement and monitoring.
The WPI is a useful database of many price time-series in India. But the overall WPI is useless in thinking about inflation in India: there is no household in India which consumes the WPI basket.
The use of WPI inflation, and the exclusive use of y-o-y inflation, are litmus tests of professional competence in the Indian landscape.
The function of the central bank
The job of RBI is to deliver low and stable inflation: to deliver y-o-y CPI inflation of between 4 to 5 per cent.
They have failed in this task. From February 2006 onwards, in every single month, y-o-y CPI inflation has exceeded 5 per cent. This is an important time for introspection at RBI and outside it. What have we done wrong, in the structuring of RBI, which has got us into this mess?
It is useful to think of this as a principal-agent problem. The people of India are the principal. RBI is the agent. The principal hires the agent and gives him resources. In return, the agent has to be held accountable. Delivering low and stable inflation is the accountability mechanism. It is a quantitative monitorable measure of the performance of the central bank. That we have sustained failure on this function, from February 2006 onwards, suggests that we should be modifying the nature of the contract between the principal (the people of India) and the agent (RBI).
How RBI can influence the price of tradeables
RBI has absolutely no say on the world price of steel. In that sense, the prices of tradeables are beyond the control of RBI.
When RBI raises the interest rate, more capital comes into India, which tends to give an INR appreciation, thus making tradeables cheaper. Thus,
an RBI rate hike does impact upon the domestic price of tradeables.
It is also worth pointing out that the central banks of most major countries are high quality inflation targeters. They deliver on their mandate of delivering low and stable inflation. As a consequence, inflation in the global tradeables basket tends to be low and stable. Tradeables prices are a helpful source of price stability, most of the time.
(That a large part of the CPI basket is tradeable, and seemingly beyond the control of the central bank, is no excuse. There are dozens of high quality central banks visible in the world, with very large shares of the CPI basket in tradeables, who are delivering on inflation targets. We in India should not accept excuses).
How RBI can influence the price of non-tradeables
Non-tradeables reflect aggregate demand and aggregate supply in India. RBI can influence these by raising or lowering the short-term interest rate. When interest rates are made slightly higher, household consumption and investment demand are slightly lowered.
A critical feature of non-tradeables inflation is expectations. If people expect 10% inflation, they tend to wire high price rises into their negotiation of wage and other contracts. This generates inflationary momentum. Particularly in a place like India, where the institutional structure of monetary policy is primitive, economic agents have little confidence in the ability of policy makers to rein in inflation. As a consequence, inflation is highly persistent. Once high inflation sets in, economic agents expect high inflation to continue. There is a great deal of momentum in inflation.
For years now, some economists have argued that inflation will subside by itself. It will not. Inflation does not mean-revert to the target zone of 4 to 5 per cent by itself. We are now in a trap of high inflationary expectations. This structure of expectations will need to be broken. This can happen in two ways. RBI needs to turn a new coat, and convince people that it now cares about inflation without any other conflicts of interest. And, rate hikes have to take place.
There are two paths to inflation control: changing the structure of expectations and reducing aggregate demand. The former is almost a free lunch. It only requires institutional change. The latter is hard work; it inflicts pain.
What about supply factors?
Some argue that supply bottlenecks in India - such as hideous rules about
mandis - are the cause of inflation.
The trouble with this explanation is that the supply bottlenecks have
always existed. They have existed in high inflation times and in low inflation times. It is, thus, not possible to claim that supply bottlenecks have caused the inflation crisis which began in February 2006.
Can rate hikes deliver inflation control?
When C. Rangarajan was RBI governor, there was an inflation crisis, and rate hikes did deliver on inflation control. The phase of price stability ushered in then lasted all the way till February 2006. This shows us that even in India, it can be done.
We have to remember that in his time, the monetary policy transmission was much weaker than what we see today. With a bigger wall of capital controls, domestic rate hikes did not deliver inflation control by impacting on the INR (through higher capital inflows). With a smaller and weaker Bond-Currency-Derivatives Nexus, the monetary policy transmission from the short rate into aggregate demand was inferior, then. Yet, he got it done.
Conversely, with a very primitive financial system and monetary policy transmission, the central bank of Zimbabwe delivered a nice hyperinflation. We can quibble about the potency of the monetary policy transmission, but we should not doubt the ultimate domination of monetary policy in shaping inflation. In the long run, little else matters in shaping inflation.
Part of the story of the 1990s lies in clarity of purpose at RBI and policy credibility. Rangarajan's period had good quality speeches, which did not dilute the message on inflation control as the dharma of the central bank. In contrast, in recent times,
RBI has repeatedly written low quality speeches. To an expert reader, they have conveyed the lack of knowledge on monetary economics at RBI. To the non-expert reader, they have waffled on the subject of taking responsibility, and have encouraged the average economic agent to think that high inflation is here to stay.
Posted by Ajay Shah (noreply@blogger.com) on October 15, 2011 02:32 PM· permalink
The Infosys stock is down 3.5% to 2,500 as we speak, and it’s a result day tomorrow. Result days are big for the INFY stock; the chart of the day shows the movement of the INFY stock the day before, and on the result day itself.
The last five quarters have seen huge negative moves on result announcements. Probably this has spooked investors already? But honestly the day before has little predictive value: of the last 17 quarters only 8 quarters have seen the earlier day move in same direction as the results day – and even there, magnitudes haven’t been enough for prediction.
Posted by Deepak Shenoy on October 11, 2011 09:48 AM· permalink
ESTATE planning involves planning for the succession of one's assets to reduce taxes, to avoid probate, avoid post-death disputes and issues. The process also includes giving clear instructions in case of disability or ill health, where one can no longer make decisions. You work hard to build your assets, such as investments, home, personal property, and to provide a level of financial security for loved ones. Then, doesn't it make sense to work just as hard to protect them in the event something should happen to you?
That's the primary goal of estate planning to protect, preserve and manage your estate/assets during your life and after death.
Significance :Estate planning is the process by which an individual or family arranges the transfer of assets in anticipation of death or incapacitation. An estate plan aims to preserve the maximum amount of wealth possible for the intended beneficiaries and flexibility for the individual prior to death.
The primary goal of estate planning is ensuring that the estate of the individual passes to the estate owner's intended beneficiaries, often including efficient tax and succession planning and avoiding or minimising court proceeding in probates (that is a "will" certified under the court with the grant of administration to the estate of person who has made the will). First introduced in 1953, going to courts on disputes arising out of wills either on the question of authenticity, mental soundness of the person making the will or alleged forgery, the trust route created during the lifetime of the individual is emerging as a more viable solution to estate planning.
The grounds on which a will may be challenged are numerous, the time taken in India to get a probate of the will, in case the will is contested, could be several years and it could be a very expensive affair, exactly what any family doesn't need. In addition, the necessity to obtain a probate of the will makes it public.
As a public document, a will is subject to scrutiny by anyone who wishes to know its contents.
Benefits of trust structures: By adopting the trust structure for planning your estate, you can achieve: Estate protection because a trust is a bankruptcy remote structure.
Self beneficiary: The person who creates the trust can himself be one during his lifetime. As a beneficiary, he can enjoy the benefit of his own estate during his life time.
Efficient succession planning by providing for children and grandchildren and great grandchildren.
Management of all types of assets through expert advisers.
Accumulation of the estate during the lifetime and after death through the hands of trustees.
Avoidance of family disputes leading to disintegration of family businesses.
Retaining confidentiality, as obtaining a probate is not necessary.
Efficient management of the estate as a trust can be operational during the lifetime and after the death of the client.
Providing for future administration of assets to protect against future incapacity and for incapable beneficiaries.
Making provision for religious or charitable purposes.
Lower contestability as compared to a will.
Conclusion: Although planning one's estate may feel uncomfortable, the cost of procrastination can be high. Though some people are put off by the belief that estate planning will be complicated, time-consuming and costly, set ting up an estate plan doesn't have to be a complex process.
You execute a trust deed where you appoint a trustee, name your beneficiaries and specify how and when the properties of the trust would be distributed to the beneficiaries.
In a trust, you transfer ownership of some or all of your assets (which can include investments, real estate and bank accounts, among others) and even personal property (jewellery, antiques or furniture) from your name to that of the trust.
Transfer of ownership of assets to the trust can be done at anytime after the creation of the trust either by the settler or any other person.
After you transfer the assets, you maintain the same access and control as you did before you put them in the trust in case of a revocable trust.
In case you create an irrevocable trust, then you can retain some control over the assets in the trust by either having the trustee consult you or by appointing an administrator/protector who will be consulted by the trustee.
Posted by Prajna Capital (noreply@blogger.com) on October 11, 2011 08:49 AM· permalink
What is the best way to get pension income in India? Is it the pension plan from pvt companies, LIC policies or some unit linked plan from companies claiming to provide you with Rs. ‘X’ for ‘Y’ numbers of years once you retires?
A lot of investors think that pension products are the only way to go; and if they do not invest in these products today, then they will miss out on something. In this article let’s talk about pension products. Before I move ahead I would like to coin two terms used in Financial planning which are very easy to understand.
Accumulation Phase : Accumulation Phase is that period of your life, where you invest regularly each month and “accumulate” the Wealth. You start getting pension later in life. So when you invest your money in ULIP’s, Mutual funds, Direct Stocks or anything else you are into accumulation phase.
Distribution Phase : This phase refers to period when you start withdrawing money from your already accumulated wealth for consumption purpose. So at the time of your retirement or even before that, when you start taking out certain amount per month for next ‘N’ years, that’s called distribution phase.
Image taken from a 30dayplan financial plan
Two major categories of Pension Plans
Let me start by taking about pension plans and their types. There are mainly two type of pension plans at broad level.
Deffered Annuity Plans : Most of the pension plans which are sold in India by LIC and all the private companies are deferred pension plans. These plans have accumulation phase inbuilt in itself and hence you first pay premiums for ‘X’ number of years. Once you retire, then you start getting pension. You can see these types of plans all over the market. Some examples are LIC Jeevan Tarang, LIC Jeevan Nidhi , Bajaj Allianz Swarna Raksha ROC , New Pension Scheme (NPS)
Immediate Annuity Plans : These products are called immediate annuity plans because they start paying you the annuity right from day one once you make a lumpsum payment. So if a person wants a monthly pension and has huge lumpsum money, he can buy an immediate annuity plan and start getting pension. It’s a simple product which is not so much popular in India like deferred annuity plans. Some of the examples of immediate annuity plans are LIC Jeevan Akshay , ICICI Pru Immediate Annuity , HDFC Immediate Annuity .
4 reasons why you should not buy deffered annuity plans
Let me tell you 4 strong reasons why you should avoid buying pension plans in India .
1. There are better options for growth of your wealth
The accumulation of your wealth happens in a pension plan for many years, but it’s not the best way your money can grow, ultimately if you had to invest your money in equity (underlying asset class), you have simple and no-cost options like mutual funds, index funds. Also you can choose to put money in real estate. A regular SIP in an equity diversified mutual funds should give much better returns then accumulation in a pension plan (read unit linked products).
2. No predictable returns for annuity
The core function of a pension plan is to give you pension. But do you know how much returns you will get out of your pension plans when time comes for retirement? A lot of pension products do not give a clear idea on how much will you get at the end. What is the return earned is around mere 4%? What will you do? The same is true for NPS.
One major (I mean MAJOR) DRAWBACK is you have no clue what will happen once you finish the accumulation stage and go on to the withdrawal stage. Let us say you have accumulated Rs. 500 lakhs in a NPS account. They allow you to withdraw say 50% of the amount and the balance has to be invested BACK in an annuity. Let us say you ARE FORCED to invest Rs. 250 lakhs in an annuity which pays Rs. 11,000 per month as a pension…looks good? Well depends on what you are capable of doing with your own money!
says PV Subramanyam in this article
At this point of time, the better alternatives would be old fashioned products like Post office monthly schemes , Fixed deposits with monthly payouts or even senior citizen savings scheme. these all give near inflation returns atleast .
3. Rigidness and no flexibiity
Almost all the pension products are rigid in taxation and what you can do with your money at the end. Under current laws you can withdraw only 1/3rd of your accumulated money tax-free, where as there is long term capital gains at the moment is 100% tax-free. Also it’s compulsory to buy annuity for the remaining money. What if I want all my money for some reason at the end? What if I don’t have a requirement for income later?
These problems won’t be there if you accumulate your money in plain vanilla mutual funds or PPF or other simple investment products.
4. High charges
Who does not know how ULIP’s and other similar products have charged so high costs for initial years without giving clarity to customers. These annuity plans also have high allocation charges many times and customers do not know about it and can’t do much later when he acknowledges it! So why do you want to pay high fees for these products?
Conclusion
It’s suggested that you invest in some instrument which does not have any rigidness on what can be done with your investments at some later stage, like Mutual funds, Direct Equity, PPF, Index Funds, Real estate or even old fashioned products like FD, NSC, KVP… You can create your own accumulation stage and when the time comes for “distribution phase” (pension), you can always buy some immediate annuity plans or create your monthly income through ways of renting out property, getting FD interest or plain dividends from stocks or any combination of these.
Posted by Manish Chauhan on October 11, 2011 05:25 AM· permalink
Mutual funds are an effective engine to route your investments in the equity markets. They offer several advantages over direct stock picking viz., diversification, professional management, light on wallet, economies of scale, liquidity, etc. But even after knowing the importance of investing in mutual funds, very often, we see that mutual fund investors are surrounded by myths based on widely held, yet incorrect beliefs and also based on flawed information. Both these kinds of myths can consequently lead investors to make incorrect investment decisions. We'd like to take this opportunity to debunk some common mutual fund investing myths:
Myths based on Incorrect Beliefs
When asked why the avid investor of stocks/shares does not take to mutual funds with the same passion and enthusiasm, the likely response is that mutual funds investments are dull and boring. They lack the thrill that one gets by investing in stocks. Bringing us to Myth # 1:
· Mutual funds lack excitement
"Who wants to invest in a staid investment like a mutual fund that probably grows half as fast as some 'exciting' stocks like Infosys, ONGC or BHEL during a bull run?" The poser is relevant. Underperformance almost always gets the thumbs down, no matter what the reason. After all, every investor wants his money to work for him and if a stock does that better, why invest in a mutual fund?
Yes, stocks can be exciting. And mutual funds may lack the excitement of a stock, but it's the kind of excitement that investors can do without for their long-term wealth as well as health. Mutual funds may not give an impetus to the investor's portfolio in a bull run like some 'exciting' stocks. But, you can be sure that they won't burn a huge crater in the investor's portfolio either. Something that could be inevitable, should individual stocks be crashing by say 40%.
· Mutual funds are too diversified
"Mutual funds own too many stocks to be of any serious benefit. A focused portfolio of 8-10 stocks will generate a more attractive return than a mutual fund portfolio comprising 30-40 stocks."
We are not sure if there is any theory to prove or disprove that concentrated portfolios (8-10 stocks) do better than diversified portfolios (30-40 stocks) in the Indian context. Of course, Mr. Warren Buffet has successfully managed a small portfolio over a long period of time. But, not too many investors can claim to have his investment discipline, insight and experience. In the absence of these important traits, it would be incorrect to expect a concentrated portfolio to outperform a diversified portfolio, at least over the long-term (3-5 years).
Remember, fund managers are experienced money managers and their mandate is to outperform the benchmark index of the fund. And if these experienced managers have chosen the diversification route that tells us a little about how to go about making money in the stock markets.
· Mutual funds are too expensive
"Mutual funds aren't cheap. On an average, the recurring expenses for a diversified equity fund ranges from 2.25% to 2.50% of net assets."
The 2.50% (maximum) recurring expenses charged by the mutual fund go towards meeting the brokerage costs, custodial costs and fund management cost. These are expenses that stock investors incur as well (barring the fund manager's salary). Consider this, when you have a competent fund manager who combines his time, effort and expertise to research stocks and sectors to pick his best 30-40 stocks and also buys and sells them for you, you have someone who is doing a lot of work for you and is charging only a maximum of 2.50% of your investments. Of course we agree that this must be followed by sheer out performance of the benchmark index and even peers. You don't want to pay for underperformance.
The good news is that quite a few diversified equity funds have managed to put in what can be termed as 'a very good performance' over 3-5 years vis-à-vis the benchmark index and peers. Which are these funds, you ask?
| Scheme | 6-mth (%) | 1-Yr (%) | 3-Yr (%) | 5-Yr (%) | Since Incept. |
| IDFC Small & Midcap Equity (G) | -6.96 | 10.66 | 23.08 | - | 21.93 |
| ICICI Pru Discovery (G) | -4.53 | 11.37 | 20.04 | 13.19 | 26.93 |
| HDFC Equity (G) | -5.00 | 17.54 | 18.19 | 16.53 | 22.74 |
| Quantum LT Equity (G) | -4.12 | 16.37 | 16.51 | 16.70 | 17.29 |
| Mirae Asset India Oppor-Reg (G) | -4.50 | 11.91 | 16.41 | - | 17.86 |
| HDFC Top 200 (G) | -5.22 | 15.70 | 15.81 | 16.65 | 23.27 |
| Reliance Equity Oppor-Ret (G) | -7.62 | 12.26 | 15.74 | 13.45 | 23.40 |
| IDFC Premier Equity-A (G) | -8.06 | 12.81 | 15.67 | 20.49 | 23.75 |
| DSPBR Small & Mid Cap-Reg (G) | -9.06 | 12.88 | 15.53 | - | 13.99 |
| UTI Master Value (D) | -6.32 | 14.86 | 14.42 | 11.81 | 23.22 |
| BSE SENSEX | -5.34 | 8.48 | 5.02 | 10.05 | NA |
| S&P CNX Nifty | -5.71 | 8.81 | 4.93 | 10.24 | NA |
· Performance as on April 18, 2011
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Also, know how to buy mutual funds online:
Invest in DSP BlackRock Mutual Funds Online
Invest in Reliance Mutual Funds Online
Invest in HDFC Mutual Funds Online
Invest in Sundaram Mutual Funds Online
Invest in Birla Sunlife Mutual Funds Online
Invest in IDFC Mutual Funds Online
Invest in UTI Mutual Funds Online
Invest in SBI Mutual Funds Online
Invest in L&T Mutual Funds Online
Invest in Edelweiss Mutual Funds Online
Posted by Prajna Capital (noreply@blogger.com) on October 11, 2011 03:27 AM· permalink
TTK Prestige threw in a fantastic set of results today, with 55% EPS growth, and 51% revenue growth, year on year.
The stock closed up 7% at 2818.
The chart has shown signs of peaking. I have no positions anymore, as I exited on a sharp reversal around 2650. But the stock might be worth picking up if it breaks through the key levels I’ve talked about. It’s already through the 50DMA on good volume, a positive sign.
Interestingly, the forward P/E of this company is still around 30, while it grows EPS more than 50%. It’s a highly priced stock but apparently, not high enough. But given the recent volatility – it’s corrected 20% – I would not take a large position; the stop loss has to be the 200 DMA.
Posted by Deepak Shenoy on October 10, 2011 05:39 PM· permalink
A value investment plan (VIP) is a new investment option launched by a few mutual funds. This concept may gain popularity in the times to come. A VIP is supposed to be a better form of the SIP (systematic investment plan).
A VIP too follows the averaging concept. This investments strategy also works on monthly contributions. The differentiating point is the approach to the amount of each monthly contribution as compared to a SIP. In case of a VIP, you have to set a target growth rate or amount for each month, and then adjust the next month's contribution according to the relative gain or shortfall made on the original portfolio. In this case, you have to invest more when the market prices fall. On the contrary, you have to invest less when the stock prices rise.
Your investment pattern follows the market. You buy more when the prices are low and invest less when the markets are rising - the ideal thing an investor should do. The investment pattern mirrors the market trend. For example, assume you want to add Rs 5,000 per month to your mutual fund portfolio, and on the first of the month you invest Rs 5,000. Next month say the value of your investment is Rs 5,200. So, you will invest Rs 4,800 only next month rather than Rs 5,000. The balance is contributed by selling securities of an equivalent value (Rs 200 in this case). In the third month, let's say the value of your investment falls to Rs 8,000. You will have to contribute Rs 7,000, so as to make the target amount of Rs 15,000 (Rs 5,000 for three months). This roll-over goes on during the specified period.
With this plans, you invest a higher amount when the markets are going down. Similarly, you invest a lesser amount when the markets are going up. This is precisely what investors should do. An investor cannot predict the direction of the markets. The VIP mode of investing helps synchronise the investment amount with the market movements. In contrast, a SIP mode of investing is based on the principle of rupee cost averaging. The cost of acquisition in VIP is usually lower vis-a-vis a SIP.
Another difference from a SIP is that each month the amount to be invested will vary. In case of a SIP, a fixed amount is invested each month. In case of a VIP, the difference between the target value and the portfolio's actual market value is to be invested. So, you cannot really plan out the cash flows with precision, because the amount to be invested is based on the market values, which itself is volatile. In case there are prolonged bear market phases, the amount required to be invested will be much higher. The point to be kept in mind is that if a bear phase continues, let's say for 3-4 years, it can be value eroding for an investor. He will continue investing in a falling market. In case of bull phases, the incremental investments to be made will be smaller. So, in case one expects a cash crunch, it is advisable to fix a lower target rather than go aggressive and fix a higher target.
Usually, in the long term, a VIP is expected to give better returns than a SIP. This is mainly because investments are automatically triggered as the markets fall. The basic premise is that money is invested in periodic intervals in a portfolio in such a manner that the portfolio tries to approach a target rate of return.
Posted by Prajna Capital (noreply@blogger.com) on October 10, 2011 05:23 PM· permalink
Without adequate cover, you may have to dip into savings or borrow, in case of emergencies
It is almost a cliché to say medical costs have rocketed over the years. We all tend to spend a lot of time and grey cells on how to save money for the future to fulfil our various goals like children's education, retirement, home purchase and others. We generally don't give as much thought to medical exigencies as required. Considering, if one does not have a proper medical cover, expenses on medical emergencies can drain out his savings and even put a person in debt. This means your entire future can get compromised by not having a proper medical cover. Medical emergencies don't announce themselves in advance before striking. Therefore, the only thing to do is to be prepared.
