How are the markets looking?
Chat Transcript
rnp_123: The SCI fall started in October 2007 and the Nifty?s in Jan 2008. The SCI is now at around 1700 ? 1800. It has probably bottomed and is very flat, not reacting much to the positive and neg news. Will Nifty go to 1700 and prove Mr.Shankar Sharma right.
Ramesh Damani: good chance that the market will test its panic bottom in the next 4 monthsnehamathur: All hot industries will get crowded and no one will make money at the end due to competition. Real estate can become like that? So Godrej Industries will not make money in the end.
Ramesh Damani: that is always possible..but business does not function if you do not make profit..so in the end capitalism corrects itself
nehamathur: If there is one definite way to make money in markets, then what is it?Ramesh Damani: be patient and have conviction..invest
wiselysushmbh: Dear SIR, you had said earlier that a natural bottom has to be formed and it can be recognized. Do you still stick to this point. If yes, then do you see the bottom far away from SENSEX 8000 OR CLOSEBY TO IT. You do recognize as your EXPERIENCE IS GREAT. WE are all great fans of yours. Do guide us well. Thanks.
Ramesh Damani: some of the heavy weights look like they may have a further way to go ..so we could test the bottom
nehamathur: Peter Lynch: Never buy a company which you cannot explain with a crayon. Can you explain what the logic of Godrej industries is? Can you explain with estimated figures how it supports the logic?
Ramesh Damani: a great collection of business's at a great valuation..which will be explored over timesudhakajaria: DEAR sir, you did say that markets will improve when the economy gets deleveraged. What we would like to know is?.have companies like Hindalco, Unitech, DLF, BEEN DELEVERAGED AFTER THIS CAPITULATION. Could you tell us if a bottom is formed in them or are they still on the correction process. Do share. Thanks.
Ramesh Damani: no they still have debt on their b/s
sps195195: sir whats your view on market after today closing all stock down more and more from this level because all tecnical chart show big crash what your view.also view on nucleus and vip both your value stocks.what wrong in this
Ramesh Damani: in case you have not noticed all stocks have collapsed..the adv decline line since sept has been horrible.
sudhakajaria: Dear Sir, you say that the upper limit is capped. Is not the lower limit capped NOW?? Or do still see more panic in markets at this stage? Has the market not formed a TRADING BAND?? If yes, then do share with us, what your insight has seen in these days. Thanks
Ramesh Damani: in a bear market lower limits are not capped
sviju: Hello Ramesh - Tanla Solutions, a mobile VAS sunrise sector company with growth of about 70% yoy is going at 4 PE and mcap of 300 crores while it has around 100 crores in cash and equivalents... Is there something else that we should be knowing?
Ramesh Damani: quality of mgmt
nehamathur: TCI to become billion dollar company, it has to be a 10-12 bagger from here. Do you still hold to your opinion?
Ramesh Damani: yes but the road to riches is painful..we need gdp growth of 6% plus for that to happen
sonali9876: do u feel low will b tested first or we cud go near 12000 levels first???
Ramesh Damani: probably the lows
indraneelb: Sir, do you feel that being essentially a one product company is hampering the growth of Nucleus ?
Ramesh Damani: not really...they just need some new orders at this size it is not a problem
sekurikrishna: sir-WHATS UR TAKE ON L
Ramesh Damani: not yet attractive according to me
sonali9876: CIRCUIT CITY decalred bankruptcy in USA ystrday,,,wat were main reasons 4 collapse?
Ramesh Damani: leverage and slowing down of consumer spending
vickky_27: sir is your conviction in godrej ind as much as that in mcdowell or even more
Ramesh Damani: it is but clearly with the slow down we will have to wait..it is tough going
berryr: Having seen one of the worst carnages in recent times, which was predicted by Chandrakant Sampatji in his articles on Capitalideasonline. Hope you could consider interviewing hin on cnbc so that we get insight into his views on how to tackle this crisis and invest in these times.
Ramesh Damani: thanks for the suggestion
vickky_27: sir what to do with nucleus. i invested it in at rs.200/- ex bonus. is there chance that i can recover my investment in next 2-3 years or the company will go in hibernation
Ramesh Damani: no one can predict it..but the co will bounce back if it gets new orders..which should happen from japan..can;t predict the time frame
pune_swengineer: Sir, we are seeing a huge destruction in wealth. we know that gold is a store of weatlh. should it not go down according to this logic since there is less of wealth to store?
Ramesh Damani: your logic is convoluted
srks: Sir does Godrej Industries have some stake in Geometric?
Ramesh Damani: no
wavestudent: Sir, in case of a panic scenario if L
Ramesh Damani: sorry can not predict the enviroment at that times
viju: Hello Ramesh - Does that answer mean quality of mgmt is somewhat suspect in case of Tanla? Or is it a general reference to the parameters that I should consider?
Ramesh Damani: must study and understand mgmt
radha.srf: Dear Sir, we liked the words?..?EDUCATED GUESSES?. Very well said. You have said that the upside is capped between 11500-12500. We would be highly grateful if you could share your educated guesses on current levels?.how do you see the market now? Which large cap sector is under pressure even at current levels. Kindly do share with us. Metal like tisco, Financial like Reliance Capital, Banks like SBI and Axis. Which do you see under pressure, now? Thanks.
Ramesh Damani: telecom and financials look to be under pressure...
asmiti: will u buy a company whose market cap is equal to three years cash flow. If yes do you think we should buy Sesa Goa
Ramesh Damani: cash flow will change do not assume historical cash flows will continue
kums: minimum time 2 years before we could see good old level 21,000 or we should forget that level?!
Ramesh Damani: it will take longer then 2 years
pchilamkuri: I think without paying the price, America will not soft land. In that case, everybody has to suffer. Directly or indirectly we are linked to US Markets. In that case, we have to see lower lows. Do you agree
Ramesh Damani: it clearly could happen
holster13: Your follower from Boston: We all know there is doom but what is this new logic of the mkts not favoring Gold? Conventional and historic thought process Gold should be touching highs during this period. Your views please.
Ramesh Damani: it will ..when we see inflation coming back or with another collapse in the dollar both of which seem inevitable
sonali9876: MIDCAPS,,,B GRP STOCKS,,,not recovering with index in similar degree!!!,bt falling yet harder?
Ramesh Damani: that is typcialsachu_659: hi Ramesh, is it a gud time to invest in shipping industry since the freight rates are low but crude is laso at its low
Ramesh Damani: some how i doubt it is a godo time to be in shippingindraneelb: Sir, as I review, most of your recommendations in the last bull market went up substantially from the reco prices - Nucleus,UB, Gail, Gati, Balmer, VIP, TCI, Int. Travel, Godrej, Sundaram, HOCL, TV today,Aegis, SBI , Hitachi, and numerous others .. yet we failed to make justice to your astute recommendations by not booking profit in the absence of timely sell calls.
Ramesh Damani: i have issued general sell calls last year...on more than a few occasions..asking investors to riase cash
sree420: sir i have gone thru redherring proepects of godrej properties the only plus point is they r having own land banks but comapring the financials of godrej with other like parsvnath and purvankara godrej properties should will be valued around 2000 mcap so why u r so bullish on godrej ind any rationale plz reply
Ramesh Damani: they have 120 million sq feet under dev over the next 7 years in addition to vikhroli...land bank is at zero cost..cash flows could be enormous as long as economy does not go into depression
pune_swengineer: put simply.. there is much less money in the world to buy gold now. so gold prices should also head down.this was the meaning of my logic.
Ramesh Damani: it is a question of asset allocation..if you do not believe in paper you will move to hard assets (gold)
kanupriyaa: Dear Sir, only answer THIS ONE QUESTION OF MOINE. DO YOU SEE THE MARKET TESTING THE BOTTOM FIRST....OR DO YOU SEE RALLIES IN BETWEEN and a long time to see bottom again. Do share your educated guesses with us, as we are really really trust your insight. Thanks.
Ramesh Damani: no clear answer...but in a bear market rallies are fast, swift and do not last
drshakthi72: Sir, there is an argument that the sensex has historically not gone below 65% from its top. you think it can be broken?
Ramesh Damani: all records are broken
mumabi_123: Abt. TATA ELXSI ? The company has shown good results this year and gives yield of abt 7% at the cmp. It has done some really good work with the latest YRF fully animated film ? ?Raghu Romeo?. However, the B/s shows increasing nos. of debtors and is low on cash. Does it merit an investment at CMP. Ur views pls.Thnx.
Ramesh Damani: they pay a huge div each year hence the low cash
indraneelb: Sir, it was good in a way that Nucleus did not make much headway in US and European markets..otherwise they would have been badly hit by the meltdown in the financial sector in those areas. But going forward do you feel that Nucleus should and will make foray in the US and European markets, as opportunity can be large in those places given the inevitable impending large scale need for quality lending software products ?
Ramesh Damani: mgmt has been slow..i think they will concentrate on Japan, Middle East and africa
kanupriyaa: Dear Sir, as you had said that the technical rally will fizzle out before 11500-12500 and that is exactly what happened. You were not bullish and in this bear market there are only rallies. Now what Sir/?? Any indication your insight could share with us at current levels. Kindly do. Every week we wait eagerly for your views. Thanks
Ramesh Damani: market may not hit bottom immediately but it will test it eventually
nbaderia: I have been following your chats offline most of the time. I can see there is no talk about ITC Agro Tech once your Favorite? I have been holding it for 2 years and couldn`t sell it on peak. Any views on it.
Ramesh Damani: nothing new..
avi_bhat: Should the Indian govt also announce spending program like CHina? This will not only help the economy but also our badly needed infrasturcture
Ramesh Damani: we run budget deficits so it is not so easy as china to spend 500 billion dollarsholster13: Your follower from Boston: I guess you favor FMCG as the next sector which will be a leader after this slow growth period - do you have any particular company in mind as of now - fit for accumalation
Ramesh Damani: not really just the usual culprits..though in US I would avoid anything to do with US Consumer..btw would look at gaming stocks in AMerica..they seem very cheap..MGM in
particular
singaraju: Alternative inv avenues.. FDs, bonds, money mkt funds- all will struggle to keep with inflation. Realty. Commodities and equities are down and down. Gold may be just can keep up, since the purchasing power of it remains remarkably constant over 4 centuries. If one wants inflation beating (and may be little more..), what are the asset classes would you prefer?
Ramesh Damani: cash, gold and oil may be able to hold value..if inflation rises get out of cash
pune_swengineer: Godrej Indi: sir in there RHP they have not mentioned all their land banks.. specifically those owned by godrej industries.
Ramesh Damani: tthey have no land bank and hence not leveraged..they will develop properties for others in JV with land costed at zero or develop group co properties,
vickky_27: sir if we buy godrej at 75 it goes to 125 should we book profit in this environment or invest and sit tight ignoring all the fluctuations . i mean should we invest or trade
Ramesh Damani: that depends on your outlook..
indraneelb: When to sell ? At a share price of Rs.1200, we still felt Nucleus had barely scratched the surface in marketing of its products in the world market. Similarly we thought TCI and VIP , both around Rs. 170 , had miles to go because the opportunity was enormous for them . Ditto International Travel House, TV today, Gail etc. None of them appeared to be steeply priced at reasonable PE levels and great growth prospects,which you too felt.Yet all of them collapsed.So what`s the right selling strategy?
Ramesh Damani: when you feel the bull market is getting over i guess you sell and book profits..
shamgangurde: vip- isn`t the excellent quality of its products its problem in expandind business? I am travelling far more than earlier but using the same VIP bags for last 15 years.
Ramesh Damani: travel market is growingkanupriyaa: Dear Sir, last week you said that you given up on PNB GILTS. Does that mean you have sold off. We have a big part of our holding in it. Can we wait for long term or book losses. Honestly, youare our only guide whom we trust. So, when we make profits through you, we are ready to bear losses as well. KAINDLY GUIDE US WELL. tHANKS.
Ramesh Damani: mgmt cannot make up its mind..they should merge it or sell it..they just do not act..i still have around half my holdings
ree420: sir enam people r not circumspect on mkts they r saying once in a life time opportunity u r comments plz
Ramesh Damani: markets work on difference of opinions
10in3: Hello Ramesh, in case of long depression what is the way out for making money from market, trading or short term investing?
Ramesh Damani: staying in cash..and investing in stocks that have inelastic demand (pharma) and some pricing power
replytarun: Will we make new bottom in span of 2-3 months and will that be somewhat or significant lower than present one. What do you see sir? will it remain rangebound 8000 to
Ramesh Damani: we are going to probably test the bottom may be by jan/feb
holster13: Your follower from Boston: Merdith Whitney - the lady who predicted the crunch - says the bottom is still not found! Also she says the credit card companies are next - would it apply to Indian mkt as well?
Ramesh Damani: yes
pune_swengineer: in depression dow lost 90%... do u see something similar happening???Ramesh Damani: no not at this time
vjain1234: Dear Ramesh, I want to buy property in delhi, but its still too expensive, no builders giving discount, is it due to presence of cash economy?
Ramesh Damani: property shoul start slipping in the next few days
singaraju: Ramesh Damani: travel market is growing.. yes sir, but VIP is not.. they are not showing any signs of growth, after all these restructuring. Do you still hopeful that they will deliver, and the co will work out? Pls clarify sir.
Ramesh Damani: they earned rs 10..price is 45....
sudz_123: Dear Sir, as you said that financials and telecom are under pressure. As they have coprrected today, do you still see more room for downside in stocks like bharti, rel. com, sbi , rel.cap, and axis bank. Do share. Thanks
Ramesh Damani: no specific names but i am bearish on those sectors since valuations are still high
Thesaint: I read in eFe that technology sector has become more pervasive and slowdown this time would not be so bad and prolonged.Is Infosys a reasonable buy at current levels?
Ramesh Damani: software is India's oil..in aggregate ind will do well though co margins may decline
vkn67: with huge debt, and messed up economy US is any way in deep trouble. Any amount of Federal action will only lead to delaying the inevitable - do you see this as a failure of Capitalism (as we had seen the history of Communism`s failure with the USSR !!)
Ramesh Damani: you could make a case..the US is hurtling towards bankruptcy
singaraju: VIP..cheap?.. yes. But what about growth, on which we made our bet?
Ramesh Damani: they cannto grow faster then gdp....remember the entire economy has ground to a halt
dbengali: Hello Sir, You have been trading since long and expert, howz METASTOCK charting software which gives intra-day BUY and SELL signals for any stocks. I have seen my friends who are not stock market experts making money easily following buy and sell indicators. They do nothing but follow that software. They are not aware of any charts. I am sure you must have got chance to see that software. Your views and expert advice would help me. Is is so easy trading using this software?
Ramesh Damani: i have...do not follow any mechanical trading systems..they cannot work or every one would use it....judgement of the self is imp
Ramesh Damani: thanks all for joining..market remains bearish so be careful..thanks
Wednesday, November 12, 2008
Friday, October 3, 2008
House of representatives Approves Bailout For US Financial Markets
The House approved a revised $700 billion financial rescue package, ending a weeklong battle over a controversial measure after lawmakers came under pressure to head off a growing financial crisis.
The plan, which was already approved by the Senate, would allow the government to spend billions of dollars to buy bad mortgage-related securities and other devalued assets from troubled financial institutions.
US stocks, which had rallied earlier on hopes of approval, began paring their gains after the measure was passed.
What's in the Revised Measure
Why There's a Tax Break for Arrows
If it works, advocates say, that would allow frozen credit to begin flowing again and prevent a serious recession.
After the House rejected the initial measure on Monday, the Senate revised the bill, adding billions of dollars ot tax breaks to sweeten the package, and approved it Wednesday night.
In efforts to appease GOP opponents, the revised measure includes raising the limit on federal insurance for bank deposits from $100,000 to $250,000.
The bill also extends several tax breaks popular with businesses, provisions that are favorites for most Republicans.
It would keep the alternative minimum tax from hitting 20 million middle-income Americans, which appeals to lawmakers in both parties.
The plan, which was already approved by the Senate, would allow the government to spend billions of dollars to buy bad mortgage-related securities and other devalued assets from troubled financial institutions.
US stocks, which had rallied earlier on hopes of approval, began paring their gains after the measure was passed.
What's in the Revised Measure
Why There's a Tax Break for Arrows
If it works, advocates say, that would allow frozen credit to begin flowing again and prevent a serious recession.
After the House rejected the initial measure on Monday, the Senate revised the bill, adding billions of dollars ot tax breaks to sweeten the package, and approved it Wednesday night.
In efforts to appease GOP opponents, the revised measure includes raising the limit on federal insurance for bank deposits from $100,000 to $250,000.
The bill also extends several tax breaks popular with businesses, provisions that are favorites for most Republicans.
It would keep the alternative minimum tax from hitting 20 million middle-income Americans, which appeals to lawmakers in both parties.
Ratan Tata drives Nano car out of West Bengal
KOLKATA: In a stinging blow to investment prospects in West Bengal, Tatas today pulled the Rs 1-lakh Nano car project out of the state with Ratan Tata squarely blaming Trinamool Congress chief Mamata Banerjee-led farmers' agitation for the "painful decision"."I am extremely pained. It has been an extremely painful decision. It has been a great disappointment for the people working on the ground, more than me," Tata announced the much-anticipated decision after meeting the state Chief Minister Buddhadeb Bhattacharjee.Addressing a crowded press conference, Tata announced the pull-out of the two-year long troubled project and said the company was looking at alternate sites in some states for rolling out Nano car by the promised deadline of December this year.Gujarat, Karnataka, Maharashtra and Uttarakhand have invited Tatas to set up the project in their states.Tata felt the Buddhadeb government was not to be blamed for the unfortunate decision and promised to continue investing in the state in new projects.Tata added that West Bengal is a terrific state in terms of people. "In that context, whether we bought the land or whatever we did, we did it in good faith. We wanted to make a difference. I had a desire that this part of the country, which has been ignored, should be part of development, and I wanted to be part of it. The state still has the potential. I would have to say he (Buddadeb Bhattacharya) was exceedingly distressed... he persuaded us that we should not move but we told them that the safety of our employees could not be passed on to the government. You can't run a plant when people are being intimidated. This is only during construction... what happens when the plant starts functioning? The CM thought we made the wrong decision but we parted as friends."Pinning the blame on Banerjee, Tata said "agitation by the opposition party has been the sole reason for this decision... How can we go into production when people are saying we will continue agitation.""We have not been a party to any land dispute. It is between West Bengal government and Trinamool Congress," he added.
Ratan Tata said the project got caught in the political crossfire... "I am not pulling out, it is because of Mamata Banerjee. We waited for two years... it was prime time. We can't wait anymore. Opportunity for young people is large. Today, this project has gone but there are hundereds of such projects that would come. Bengal needs to have development. It needs to have infrastructure, it needs investments but what will be the future of WB unless there is development, and that one needs to ponder...."Asked about the fate of vendors of the project, he said, "I think vendors will also move with us. They are an integral part of the project. We will try to protect the interest of the vendors."He added that its a decision that shatters many dreams... "I share the disappointment with people who have worked on this project... but also have a feeling that it is good that we are moving. We all have lessons to learn..."
The Rs 1,500-crore project was announced in May 2006 for which the work started in January 2007. It ran into rough weather with the Trinamool Congress strongly opposing the land acquisition by the state for the project."To the best of my knowledge, the land was acquired legally... it was done transparently and the compensation was based fairly," he said.Efforts by the West Bengal Chief Minister and Governor Gopalkrishna Gandhi to salvage the project turned futile with Banerjee unwilling to relent on her demand of returning 300 acres of acquired land to farmers.Tata said the move has been prompted after taking into account issues such as well-being of its employees at the project and safety of contractors as well as that of its vendors.On the future association of Tatas with the state, he said the group already has considerable presence here and it has not lost enthusiasm in future investment."I hope West Bengal prosper in the future. In the future we will be here again. We don't believe that we have lost our enthusiasm in investing in West Bengal and assure that we will invest in the state for new projects," he said.Tata said the pull-out decision would have no bearing on group's future investments in the state.The Tatas' pull-out from Singur for its prestigious Nano car project could not have come at a "worse time", as India was preparing to face the fall-out of the global financial crisis on the emerging economies, Commerce Secretary G K Pillai said today."It is an unfortunate development. It could not have come at a worse time," Pillai said, adding the country was faced with a challenge of coping with the financial turmoil in the world markets.The Commerce Secretary said as a direct consequence, investment in West Bengal would drop by 30%.However, he said, the Tatas' pull-out of the state should be seen as an isolated case.Pillai expressed the hope that the Standing Committee of Parliament would soon finalise its recommendations on the new Land Acquisition Bill and the Rehabilitation and Resettlement Bill.
Ratan Tata said the project got caught in the political crossfire... "I am not pulling out, it is because of Mamata Banerjee. We waited for two years... it was prime time. We can't wait anymore. Opportunity for young people is large. Today, this project has gone but there are hundereds of such projects that would come. Bengal needs to have development. It needs to have infrastructure, it needs investments but what will be the future of WB unless there is development, and that one needs to ponder...."Asked about the fate of vendors of the project, he said, "I think vendors will also move with us. They are an integral part of the project. We will try to protect the interest of the vendors."He added that its a decision that shatters many dreams... "I share the disappointment with people who have worked on this project... but also have a feeling that it is good that we are moving. We all have lessons to learn..."
The Rs 1,500-crore project was announced in May 2006 for which the work started in January 2007. It ran into rough weather with the Trinamool Congress strongly opposing the land acquisition by the state for the project."To the best of my knowledge, the land was acquired legally... it was done transparently and the compensation was based fairly," he said.Efforts by the West Bengal Chief Minister and Governor Gopalkrishna Gandhi to salvage the project turned futile with Banerjee unwilling to relent on her demand of returning 300 acres of acquired land to farmers.Tata said the move has been prompted after taking into account issues such as well-being of its employees at the project and safety of contractors as well as that of its vendors.On the future association of Tatas with the state, he said the group already has considerable presence here and it has not lost enthusiasm in future investment."I hope West Bengal prosper in the future. In the future we will be here again. We don't believe that we have lost our enthusiasm in investing in West Bengal and assure that we will invest in the state for new projects," he said.Tata said the pull-out decision would have no bearing on group's future investments in the state.The Tatas' pull-out from Singur for its prestigious Nano car project could not have come at a "worse time", as India was preparing to face the fall-out of the global financial crisis on the emerging economies, Commerce Secretary G K Pillai said today."It is an unfortunate development. It could not have come at a worse time," Pillai said, adding the country was faced with a challenge of coping with the financial turmoil in the world markets.The Commerce Secretary said as a direct consequence, investment in West Bengal would drop by 30%.However, he said, the Tatas' pull-out of the state should be seen as an isolated case.Pillai expressed the hope that the Standing Committee of Parliament would soon finalise its recommendations on the new Land Acquisition Bill and the Rehabilitation and Resettlement Bill.
Monday, September 29, 2008
Lehman, Merrill and AIG – India stocks owned by them get punished
Mumbai: Three days after three large US financial institutions roiled global markets with simultaneous woes, investors continue to punish Indian stocks held by these firms.
The Indian equity portfolio of investment bank Lehman Brothers Holdings Inc. saw the worst fall, shrinking by 11.5% in value compared with the 5.27% decrease in the Sensex, India’s most tracked benchmark index, in the same period. In comparison, Merrill Lynch and Co.’s holdings have fallen by 7.2% and those of insurer American International Group Inc. (AIG) almost mirrored the fall of the Sensex.
Merrill holds 132 stocks in its portfolio compared with 18 by Lehman and just eight by AIG. At close on Wednesday, Merrill had the largest exposure—of Rs9,781 crore, followed by Lehman with Rs377.5 crore and AIG with Rs193.3 crore. The list of these stocks was obtained from Capitaline, and include only those companies where these investors hold more than 1%, and are freely tradeable.
On Monday, Lehman Brothers filed for Chapter 11 bankruptcy proceedings in the US after it failed to find a white knight to save it from the $60 billion (Rs277,800 crore) of exposure to souring mortgage-related securities.
Merrill Lynch sold itself to Bank of America Corp. for $50 billion to escape a similar fate while the US government injected about $85 billion in AIG in return for an almost 80% stake in the beleaguered insurance giant.
“The market will view their (Merrill, Lehman, AIG) holdings with a certain amount of suspicion,” said Ajay Pandey, assistant vice-president of institutional business at Systematix Shares and Stock India Ltd, a Mumbai-based brokerage. “Though there will not be any immediate sell-off, in a low-volume market, prices could drastically come down if one of these large investors decides to sell.”
According to Pandey, this is especially true for mid- and small-cap companies to which these three global giants have exposure, where liquidity tends to be low and promoters do not have enough financial muscle to buy the shares from these investors.
Also see
Crash Course (Graphic)
An example of such a kind of stock would be Poddar Developers Ltd, where Merrill Lynch had a near-6% holding. The stock has seen its value fall by nearly 62% since Friday, the most among the holdings of these companies.
Deepak Jasani, head of retail research at HDFC Securities Ltd, said investors should consider three factors when deciding to buy into companies where these financial institutions have an exposure: the size of their holdings, whether the company is widely traded and whether the holder is being liquidated or being acquired.
“If the institution is getting liquidated, the worry about a sell-off is real and near,” Jasani said.
For instance, Intellivisions Software Ltd, where Merrill holds a 10% stake, fell 14.41% in the period under review. Similarly, Lehman’s 4.82% holding in Orbit Corp. Ltd had shrunk by 21% in value.
Further, there are certain companies in which the existing investor needs to be locked in for a period. “In such instances, there may not be immediate sell-offs, but long-term investors could stay away from such stocks fearing a sell-off at some point in the future,” said Jasani. For example, Lehman Brothers holds a 28.4% stake in KSK Energy Ventures Ltd. Though the stake is sizeable, Lehman is locked in till July 2009, which will prevent any immediate sell-off.
The Indian equity portfolio of investment bank Lehman Brothers Holdings Inc. saw the worst fall, shrinking by 11.5% in value compared with the 5.27% decrease in the Sensex, India’s most tracked benchmark index, in the same period. In comparison, Merrill Lynch and Co.’s holdings have fallen by 7.2% and those of insurer American International Group Inc. (AIG) almost mirrored the fall of the Sensex.
Merrill holds 132 stocks in its portfolio compared with 18 by Lehman and just eight by AIG. At close on Wednesday, Merrill had the largest exposure—of Rs9,781 crore, followed by Lehman with Rs377.5 crore and AIG with Rs193.3 crore. The list of these stocks was obtained from Capitaline, and include only those companies where these investors hold more than 1%, and are freely tradeable.
On Monday, Lehman Brothers filed for Chapter 11 bankruptcy proceedings in the US after it failed to find a white knight to save it from the $60 billion (Rs277,800 crore) of exposure to souring mortgage-related securities.
Merrill Lynch sold itself to Bank of America Corp. for $50 billion to escape a similar fate while the US government injected about $85 billion in AIG in return for an almost 80% stake in the beleaguered insurance giant.
“The market will view their (Merrill, Lehman, AIG) holdings with a certain amount of suspicion,” said Ajay Pandey, assistant vice-president of institutional business at Systematix Shares and Stock India Ltd, a Mumbai-based brokerage. “Though there will not be any immediate sell-off, in a low-volume market, prices could drastically come down if one of these large investors decides to sell.”
According to Pandey, this is especially true for mid- and small-cap companies to which these three global giants have exposure, where liquidity tends to be low and promoters do not have enough financial muscle to buy the shares from these investors.
Also see
Crash Course (Graphic)
An example of such a kind of stock would be Poddar Developers Ltd, where Merrill Lynch had a near-6% holding. The stock has seen its value fall by nearly 62% since Friday, the most among the holdings of these companies.
Deepak Jasani, head of retail research at HDFC Securities Ltd, said investors should consider three factors when deciding to buy into companies where these financial institutions have an exposure: the size of their holdings, whether the company is widely traded and whether the holder is being liquidated or being acquired.
“If the institution is getting liquidated, the worry about a sell-off is real and near,” Jasani said.
For instance, Intellivisions Software Ltd, where Merrill holds a 10% stake, fell 14.41% in the period under review. Similarly, Lehman’s 4.82% holding in Orbit Corp. Ltd had shrunk by 21% in value.
Further, there are certain companies in which the existing investor needs to be locked in for a period. “In such instances, there may not be immediate sell-offs, but long-term investors could stay away from such stocks fearing a sell-off at some point in the future,” said Jasani. For example, Lehman Brothers holds a 28.4% stake in KSK Energy Ventures Ltd. Though the stake is sizeable, Lehman is locked in till July 2009, which will prevent any immediate sell-off.
Morgan Stanley sells Indian stocks worth over Rs1,300 crore in two days
Mumbai: Morgan Stanley, the No 2 US investment bank, continued to offload shares of Indian companies for a third day amidst an FII hammering of Indian bourses.
The beleaguered financial giant has offloaded shares worth over Rs1,300 crore on the Bombay Stock Exchange and the National Stock Exchange over the past two days, according to bulk deal listing on the BSE and the NSE.
Morgan Stanley Mauritius old shares worth Rs550 crore worth of shares, comprising stocks of Adhunik Metalliks, Asian Electricals, DS Kulkarni, Electrosteel Castings, Ganesh Housing, GTL Ltd, JNC Project, KS Oils Ltd, Lakshmi Overseas, Megasoft Ltd, MIC Electronics, Rolta Ind, Ruchi Soya. Kumars Nat, Srei Infra, Sterling Tech, Sujanatower, Usha Martin, Voltas Ltd etc, over the past two days, according to the bulk deal listing on BSE
Morgan Stanley sold shares worth over Rs800 crore comprising stocks of Aptech, Jai Corp, JM Financial, Jaiprakash Associates, NIIT, Prakash Industries, Reliance Capital and Suzlon Energy.
The beleaguered financial giant has offloaded shares worth over Rs1,300 crore on the Bombay Stock Exchange and the National Stock Exchange over the past two days, according to bulk deal listing on the BSE and the NSE.
Morgan Stanley Mauritius old shares worth Rs550 crore worth of shares, comprising stocks of Adhunik Metalliks, Asian Electricals, DS Kulkarni, Electrosteel Castings, Ganesh Housing, GTL Ltd, JNC Project, KS Oils Ltd, Lakshmi Overseas, Megasoft Ltd, MIC Electronics, Rolta Ind, Ruchi Soya. Kumars Nat, Srei Infra, Sterling Tech, Sujanatower, Usha Martin, Voltas Ltd etc, over the past two days, according to the bulk deal listing on BSE
Morgan Stanley sold shares worth over Rs800 crore comprising stocks of Aptech, Jai Corp, JM Financial, Jaiprakash Associates, NIIT, Prakash Industries, Reliance Capital and Suzlon Energy.
MERRILL LYNCH - AFFECTED INDIAN STOCKS
These are the stocks in Indian stock market where Merrill Lynch have invested in.
ICICI Bank Bharti Airtel Jaiprakash Assoc Suzlon Energy Shree Renuka Sug Indiabulls Fin. Wire & Wireless Bank of India Matrix Labs. Union Bank (I) Prakash Inds. Glenmark Pharma Balrampur Chini Zee News S Kumars Nation United Spirits Bajaj Hindusthan Puravankara Proj H D F C BSEL Infrastruc. Hind.Construct. Voltas Orchid Chemicals Noida Tollbridge Deccan Chronicle Cranes Software Tanla Solutions Oriental Bank Triveni Engg Ind Rolta India Wire & Wireless Patni Computer Divi’s Lab Zee News Orient Paper A B B Panacea Biotec Arvind Ltd Classic Diamonds Jai Corp Action Construct Taneja Aerospace Welspun Guj.Stah Ansal Properties GE Shipping Co Develop.Cr.Bank Northgate Techno Ajmera Realty Sonata Software Bhagyanagar Indi Uttam Galva IVRCL Infrastruc NIIT Tech. GTL IFSL Jyoti Structures Vakrangee Soft. Prajay Engg. Redington India Tulip Telecom TV 18 India Rain Commodities Infotech Enterpr Shasun Chemicals Broadcast Init CEAT Brigade Enter GRUH Finance Kewal Kiran Clot Pratibha Inds Aptech Visa Steel Mahindra Lifespa GRUH Finance Marg Bombay Ryn Fash Parekh Aluminex ING Vysya Bank Nucleus Software Educomp Solution Arshiya Internat Dishman Pharm. Ganesh Housing ICSA (India) Strides Arcolab HOV Services Mahindra Lifespa Nitco Nava Bharat Vent Rohit Ferro Asian Electronic Lancor Holdings Great Offshore Modison Metals HTMT Global Bharati Shipyard Intellvisions Sf K E C Internatio Karur Vysya Bank Jupiter Bio. MSK Projects McNally Bharat Jindal Saw Alps Inds. NIIT Tech. Nitco CEAT Consolidated Con Royal Orchid Hot Mount Everest Horizon Infrastr Asahi Songwon UTV Software M U S C O Suprajit Engg. CHI Investments Allsec Tech Deep Industries J Kumar Infra Vimta Labs Bayer CropScien. Unity Infra Gremach Infra UTV Software J Kumar Infra. Wheel Pokarna Indiabulls RetaiAdor Welding Arihant Foundatn Indoco Remedies Hanung Toys andQuintegra Soln. Hinduja Ventures Zodiac Cloth. Co Champagne Indage Bajaj Electrical Take SolutionsInd- Swift Labs. Ipca Labs. C & C Constructi Navin Fluorine Goldstone Tech. TTK Prestige CMC Bilpower Stone India Ankur Drugs Sunil Hitech Salora Intl. Indo TechTransform & Rect K C P Gayatri Projects Jyothy Labor. Webel Sl Energy Gayatri Projects Voltamp Trans Pitti Lamination
ICICI Bank Bharti Airtel Jaiprakash Assoc Suzlon Energy Shree Renuka Sug Indiabulls Fin. Wire & Wireless Bank of India Matrix Labs. Union Bank (I) Prakash Inds. Glenmark Pharma Balrampur Chini Zee News S Kumars Nation United Spirits Bajaj Hindusthan Puravankara Proj H D F C BSEL Infrastruc. Hind.Construct. Voltas Orchid Chemicals Noida Tollbridge Deccan Chronicle Cranes Software Tanla Solutions Oriental Bank Triveni Engg Ind Rolta India Wire & Wireless Patni Computer Divi’s Lab Zee News Orient Paper A B B Panacea Biotec Arvind Ltd Classic Diamonds Jai Corp Action Construct Taneja Aerospace Welspun Guj.Stah Ansal Properties GE Shipping Co Develop.Cr.Bank Northgate Techno Ajmera Realty Sonata Software Bhagyanagar Indi Uttam Galva IVRCL Infrastruc NIIT Tech. GTL IFSL Jyoti Structures Vakrangee Soft. Prajay Engg. Redington India Tulip Telecom TV 18 India Rain Commodities Infotech Enterpr Shasun Chemicals Broadcast Init CEAT Brigade Enter GRUH Finance Kewal Kiran Clot Pratibha Inds Aptech Visa Steel Mahindra Lifespa GRUH Finance Marg Bombay Ryn Fash Parekh Aluminex ING Vysya Bank Nucleus Software Educomp Solution Arshiya Internat Dishman Pharm. Ganesh Housing ICSA (India) Strides Arcolab HOV Services Mahindra Lifespa Nitco Nava Bharat Vent Rohit Ferro Asian Electronic Lancor Holdings Great Offshore Modison Metals HTMT Global Bharati Shipyard Intellvisions Sf K E C Internatio Karur Vysya Bank Jupiter Bio. MSK Projects McNally Bharat Jindal Saw Alps Inds. NIIT Tech. Nitco CEAT Consolidated Con Royal Orchid Hot Mount Everest Horizon Infrastr Asahi Songwon UTV Software M U S C O Suprajit Engg. CHI Investments Allsec Tech Deep Industries J Kumar Infra Vimta Labs Bayer CropScien. Unity Infra Gremach Infra UTV Software J Kumar Infra. Wheel Pokarna Indiabulls RetaiAdor Welding Arihant Foundatn Indoco Remedies Hanung Toys andQuintegra Soln. Hinduja Ventures Zodiac Cloth. Co Champagne Indage Bajaj Electrical Take SolutionsInd- Swift Labs. Ipca Labs. C & C Constructi Navin Fluorine Goldstone Tech. TTK Prestige CMC Bilpower Stone India Ankur Drugs Sunil Hitech Salora Intl. Indo TechTransform & Rect K C P Gayatri Projects Jyothy Labor. Webel Sl Energy Gayatri Projects Voltamp Trans Pitti Lamination
Monday, August 11, 2008
Jindal saw, stock tip
Emkay assigns buy to Jindal Saw; target Rs 941
MUMBAI: Emkay Global Financial services has maintained ‘buy’ on Jindal SAW for a revised target price of Rs 941. The company’s Apr-Jun 2008 results were inline with the brokerage expectations. Jindal Saw has reported 34.76 per cent growth in net sales from Indian operations on year on year basis. In Apr-Jun 2008, the company reported net turnover of Rs 1,017.5 Out of the total net revenue in Apr-Jun 2008, 59 per cent was from exports and 41 per cent was from sale in India. EBITDA margin of the company during the quarter expanded by 337 basis points on y-o-y basis and thus stood at a firm level of 15.9 per cent. The improvement in the margin is attributed to the selling off of low margin US operation. But in the coming quarter, the margin is expected to be at a lower level of around 14.5 per cent primarily on account of lower margin contributed by fixed price contracts on DI pipes. The substantial rise in prices of coal is expected to impact the margins on DI pipes. Net profit remained strong at Rs 70.2 crore with profit after tax margin of 6.9 per cent. The profit after tax margin declined against Jan-Mar 2008 on account of higher financial expenses of Rs 55 crore. It included Rs 12 crore of translation losses on FCCB and Rs 17-18 crore of losses on options and forward contracts. Jindal SAW has a strong order book of USD 1.12 billion which includes over 55 per cent of exports orders. These orders are to be executed by April/May 2009. Out of the total USD 1.12 billion, USD 760 million are of large diameter pipes, USD 170 million are of DI Pipes and USD 160 million are of Seamless pipes. The capital expenditure plans are running as per schedule. Installation of PQF mill and other equipments in Seamless plant will be completed by September/October 2008. The commercial production in power plant began in phases. The additional 200,000 MTPA of LSAW and 350,000 MTPA of HSAW facilities are expected to start trail run in 2008. The company is incurring a total of USD 200 million on these plans for which the funds are already tied up. The management has not given any update on new businesses. As per previous guidance, the company expects Rs 100 crore of revenue from waterways business and from Jindal Water Infrastructure, the management expects to execute orders upto Rs 325 crore in this year. Emkay believes that the new ventures would strengthen the topline and bottomline and earning per share of Jindal Saw. The new businesses would diversify its business model by de-risking it from raw material price volatility and currency volatility. Currently Emkay has not included any contribution from the new ventures in their estimates. Emkay has already factored in, the impact of rise in important raw material prices like coal, iron ore, etc in their estimates for CY08E and CY09E. On the basis of CY08E and CY09E revised earnings per share of Rs 48.5 and Rs 79.1, the scrip is trading at an attractive PE multiple of 11.6x and 7.1x respectively. The target price includes Rs 145 per share as value of quoted investment (at 50% discount to its market value) and Rs 796. At their target price, the scrip discounts CY09E EPS of Rs 79 by 11.9x.
MUMBAI: Emkay Global Financial services has maintained ‘buy’ on Jindal SAW for a revised target price of Rs 941. The company’s Apr-Jun 2008 results were inline with the brokerage expectations. Jindal Saw has reported 34.76 per cent growth in net sales from Indian operations on year on year basis. In Apr-Jun 2008, the company reported net turnover of Rs 1,017.5 Out of the total net revenue in Apr-Jun 2008, 59 per cent was from exports and 41 per cent was from sale in India. EBITDA margin of the company during the quarter expanded by 337 basis points on y-o-y basis and thus stood at a firm level of 15.9 per cent. The improvement in the margin is attributed to the selling off of low margin US operation. But in the coming quarter, the margin is expected to be at a lower level of around 14.5 per cent primarily on account of lower margin contributed by fixed price contracts on DI pipes. The substantial rise in prices of coal is expected to impact the margins on DI pipes. Net profit remained strong at Rs 70.2 crore with profit after tax margin of 6.9 per cent. The profit after tax margin declined against Jan-Mar 2008 on account of higher financial expenses of Rs 55 crore. It included Rs 12 crore of translation losses on FCCB and Rs 17-18 crore of losses on options and forward contracts. Jindal SAW has a strong order book of USD 1.12 billion which includes over 55 per cent of exports orders. These orders are to be executed by April/May 2009. Out of the total USD 1.12 billion, USD 760 million are of large diameter pipes, USD 170 million are of DI Pipes and USD 160 million are of Seamless pipes. The capital expenditure plans are running as per schedule. Installation of PQF mill and other equipments in Seamless plant will be completed by September/October 2008. The commercial production in power plant began in phases. The additional 200,000 MTPA of LSAW and 350,000 MTPA of HSAW facilities are expected to start trail run in 2008. The company is incurring a total of USD 200 million on these plans for which the funds are already tied up. The management has not given any update on new businesses. As per previous guidance, the company expects Rs 100 crore of revenue from waterways business and from Jindal Water Infrastructure, the management expects to execute orders upto Rs 325 crore in this year. Emkay believes that the new ventures would strengthen the topline and bottomline and earning per share of Jindal Saw. The new businesses would diversify its business model by de-risking it from raw material price volatility and currency volatility. Currently Emkay has not included any contribution from the new ventures in their estimates. Emkay has already factored in, the impact of rise in important raw material prices like coal, iron ore, etc in their estimates for CY08E and CY09E. On the basis of CY08E and CY09E revised earnings per share of Rs 48.5 and Rs 79.1, the scrip is trading at an attractive PE multiple of 11.6x and 7.1x respectively. The target price includes Rs 145 per share as value of quoted investment (at 50% discount to its market value) and Rs 796. At their target price, the scrip discounts CY09E EPS of Rs 79 by 11.9x.
Bank of India
Macquarie maintains ‘outperform’ on Bank of India
CMP: Rs 290.70 ( 8th Aug 08 )
Target Price: Rs 336
Macquarie believes that Bank of India’s strong results show its relative resilience among government-owned banks to the tough macro environment. The bank remains its top pick among state-owned banks and the broking house maintains ‘outperform’ rating with a revised target price of Rs 336 from the previous Rs 299. It says that the key earnings surprise was strong growth in fees to 58% Y-o-Y driving the 49% Y-o-Y growth in non-interest income. It infers that the bank has been aggressively pushing for fees business, focusing on products such as letters of credit and guarantees.
CMP: Rs 290.70 ( 8th Aug 08 )
Target Price: Rs 336
Macquarie believes that Bank of India’s strong results show its relative resilience among government-owned banks to the tough macro environment. The bank remains its top pick among state-owned banks and the broking house maintains ‘outperform’ rating with a revised target price of Rs 336 from the previous Rs 299. It says that the key earnings surprise was strong growth in fees to 58% Y-o-Y driving the 49% Y-o-Y growth in non-interest income. It infers that the bank has been aggressively pushing for fees business, focusing on products such as letters of credit and guarantees.
Aegis logistics - stock BUY
KR Choksey Shares & Securities assigns ‘buy’ on Aegis Logistics
CMP: Rs 171.60 ( 8th Aug 08 )
Target Price: Rs 207
KR Choksey Shares & Securities has assigned a ‘buy’ on Aegis Logistics with a one-year price target of Rs 207, citing growing domestic consumption of the company’s services. Aegis Logistics mainly concentrates on port handling of liquid petroleum or chemicals and gas storage and distribution. “Given the growing domestic consumption of petroleum and gas in the recent years, Aegis Logistics (ALL) is well placed to grab the increasing opportunities in this sector. As a result of favourable cost, economics of auto gas over petrol and the increasing new entrants of LPG variants of cars in the market, the company is all set to scale up auto gas stations from the current 22 to 100 in the next two years,” the report said.
Mahindra and Mahindra , stock tips
Edelweiss Capital's ‘buy’ rating on Mahindra & Mahindra
CMP: Rs 574.20 ( 8th Aug 08 )
Target Price: Rs na
Edelweiss Capital has initiated coverage on Mahindra & Mahindra (M&M) with a ‘buy’ rating. The brokerage expects the operating divisions of M&M to perform well over the medium term, in terms of growth and profitability. “We expect significant expansion in M&M’s addressable market through its entry into the passenger car. The company has significant value embedded in its investments, covering information technology Tech Mahindra), real estate & infrastructure (Mahindra Gesco), hospitality (Mahindra Holidays), financial services (Mahindra & Mahindra Financial Services), and auto-component (Mahindra Ugine Steel and Mahindra Forgings) sectors,” the report said.
YES Bank - stock tip
IDBI Capital maintains ‘buy’ rating on YES Bank
CMP: Rs 138.35 ( 8th Aug 08 )
Target Price: na
IDBI Capital has maintained a ‘buy’ rating on YES Bank, on expectations of higher growth happen. The brokerage expects the Bank to log strong income growth in the long term. Despite mark-to-market (MTM) depreciation, net provisions have been lower owing to reversals equivalent to MTM depreciation done on investment provisions, the IDBI report noted. The bank has increased its lending and deposit rates recently. The PLR has been raised by 150 bps to 17% while the card rates for deposits have undergone changes in various maturities from 50-75 bps. “We expect the PLR change to immediately have a beneficial impact on the bank’s earnings while the full impact of deposit rate hike should be expected in FY10,” the report said. IDBI has revised net profits for FY09 and FY10 to Rs 2,927 million and Rs 4,394 million, respectively.
CMP: Rs 138.35 ( 8th Aug 08 )
Target Price: na
IDBI Capital has maintained a ‘buy’ rating on YES Bank, on expectations of higher growth happen. The brokerage expects the Bank to log strong income growth in the long term. Despite mark-to-market (MTM) depreciation, net provisions have been lower owing to reversals equivalent to MTM depreciation done on investment provisions, the IDBI report noted. The bank has increased its lending and deposit rates recently. The PLR has been raised by 150 bps to 17% while the card rates for deposits have undergone changes in various maturities from 50-75 bps. “We expect the PLR change to immediately have a beneficial impact on the bank’s earnings while the full impact of deposit rate hike should be expected in FY10,” the report said. IDBI has revised net profits for FY09 and FY10 to Rs 2,927 million and Rs 4,394 million, respectively.
Friday, August 8, 2008
Dish TV - Short term call ( 8th Aug 08 )
Short term call ( 8th Aug 08 )
We recommend a buy in Dish TV India from a short-term perspective. It is clearly visible from the charts of Dish TV India that it had been on a medium-term downtrend between April and July (from a high of Rs 66 to Rs 26). After recording a 52 week low at Rs 26 in early July, the stock reversed and began to trend upward.
This reversal was triggered by a positive divergence in the daily relative strength index. On August 4, the stock jumped 9 per cent breaking through the medium-term down trendline.
Subsequently, on August 7, the stock surged 11 per cent strengthening the up move. We observe heavy volume over the past four trading sessions. The daily RSI has entered into the bullish zone from the neutral region.
The moving average convergence and divergence is on the brink of entering the positive territory.
The stock is trading well above its 21- and 50-day moving averages. We are positive on the stock in the short-term.
We anticipate the stock to move up until it hits our price target of Rs 42 in the approaching trading sessions. Traders with short-term perspective can buy the stock, while maintaining a stop-loss at Rs 35.50.
BL Research Bureau
We recommend a buy in Dish TV India from a short-term perspective. It is clearly visible from the charts of Dish TV India that it had been on a medium-term downtrend between April and July (from a high of Rs 66 to Rs 26). After recording a 52 week low at Rs 26 in early July, the stock reversed and began to trend upward.
This reversal was triggered by a positive divergence in the daily relative strength index. On August 4, the stock jumped 9 per cent breaking through the medium-term down trendline.
Subsequently, on August 7, the stock surged 11 per cent strengthening the up move. We observe heavy volume over the past four trading sessions. The daily RSI has entered into the bullish zone from the neutral region.
The moving average convergence and divergence is on the brink of entering the positive territory.
The stock is trading well above its 21- and 50-day moving averages. We are positive on the stock in the short-term.
We anticipate the stock to move up until it hits our price target of Rs 42 in the approaching trading sessions. Traders with short-term perspective can buy the stock, while maintaining a stop-loss at Rs 35.50.
BL Research Bureau
HPCL, Analyst reco
HPCL - 6th Aug 08
CMP:RS 234.20
TARGET PRICE:NA
ICICI Securities has maintained a ‘buy’ rating on HPCL even after the company reported a recurring loss of Rs 880 crore in the first quarter of the current financial year due to lower than expected subsidy support from the government and upstream companies. The brokerage expects subsidy support to increase over the year as the government has not yet accounted for the Rs 40,000 crore unallocated burden.
“Though we continue to believe that the stock may remain subdued in the short term till the government decides the final subsidy burden-sharing formula, the company is trading at a significant discount to the replacement value of its asset,” says the report. The brokerage also highlights the fact that risks of further increase in interest costs along with expectations of a fall in refining margins could potentially impact earnings.
Positive surprise, however, on higher subsidy sharing by upstream companies and oil bonds could be a boost to stock prices it adds. Positive news on the E&P front and implementation of subsidy reforms recommended by the Rangarajan Committee could trigger re-rating in the stock, says the report.
CMP:RS 234.20
TARGET PRICE:NA
ICICI Securities has maintained a ‘buy’ rating on HPCL even after the company reported a recurring loss of Rs 880 crore in the first quarter of the current financial year due to lower than expected subsidy support from the government and upstream companies. The brokerage expects subsidy support to increase over the year as the government has not yet accounted for the Rs 40,000 crore unallocated burden.
“Though we continue to believe that the stock may remain subdued in the short term till the government decides the final subsidy burden-sharing formula, the company is trading at a significant discount to the replacement value of its asset,” says the report. The brokerage also highlights the fact that risks of further increase in interest costs along with expectations of a fall in refining margins could potentially impact earnings.
Positive surprise, however, on higher subsidy sharing by upstream companies and oil bonds could be a boost to stock prices it adds. Positive news on the E&P front and implementation of subsidy reforms recommended by the Rangarajan Committee could trigger re-rating in the stock, says the report.
HDFC Bank, Broker tips
HDFC BANK - 6th Aug 08
CMP: RS 1,184.35
TARGET PRICE: RS 1,400
Indiabulls has maintained a ‘buy’ rating on HDFC Bank as it feels that the bank would revert to its more profitable numbers once Centurion Bank of Punjab (CBoP) is integrated in its existing network. “Sound fundamentals make HDFC Bank a strong performer,” says the report, adding that “despite taking a nominal hit on its net interest margin (NIM) post the merger with CBoP, net interest income (NII) grew by 74.9% YoY and fee income by 37.3% YoY.”
This pulled up net profit by 44.6% and on a proforma basis, by 31.1%. While the bank recorded a 111.60% YoY increase in its non-performing assets, the brokerage feels it is more on account of the merger than due to a deterioration in asset quality, since HDFC Bank’s net NPA ratio stood at 0.5% of net advances this quarter.
CMP: RS 1,184.35
TARGET PRICE: RS 1,400
Indiabulls has maintained a ‘buy’ rating on HDFC Bank as it feels that the bank would revert to its more profitable numbers once Centurion Bank of Punjab (CBoP) is integrated in its existing network. “Sound fundamentals make HDFC Bank a strong performer,” says the report, adding that “despite taking a nominal hit on its net interest margin (NIM) post the merger with CBoP, net interest income (NII) grew by 74.9% YoY and fee income by 37.3% YoY.”
This pulled up net profit by 44.6% and on a proforma basis, by 31.1%. While the bank recorded a 111.60% YoY increase in its non-performing assets, the brokerage feels it is more on account of the merger than due to a deterioration in asset quality, since HDFC Bank’s net NPA ratio stood at 0.5% of net advances this quarter.
Stocks - Analyst recommendations
Stock: Tata Motors ( 7th Aug 08 )
Anand Rathi Securities has initiated a medium term technical ‘buy’ call on Tata Motors. The brokerage suggests buying this stock between Rs 430-440 with a stoploss of Rs 399 for a target of Rs 520. The current market price is Rs 440.
The stock has sustained above its strong resistance levels at Rs 435-440. The 14-day Relative Strength Index indicates the stock is in an oversold zone and the candle stick chart has formed a bullish engulfing pattern.
“We strongly believe that the stock has entered into medium term bullishness with substantial upside,” Anand Rathi says in its report
Anand Rathi Securities has initiated a medium term technical ‘buy’ call on Tata Motors. The brokerage suggests buying this stock between Rs 430-440 with a stoploss of Rs 399 for a target of Rs 520. The current market price is Rs 440.
The stock has sustained above its strong resistance levels at Rs 435-440. The 14-day Relative Strength Index indicates the stock is in an oversold zone and the candle stick chart has formed a bullish engulfing pattern.
“We strongly believe that the stock has entered into medium term bullishness with substantial upside,” Anand Rathi says in its report
Wednesday, July 23, 2008
Rakesh Jhunjhunwala - portfolio of Indian stocks
Rakesh Jhunjhunwala is a well known Investor billionaire from India. His stock holdings are keenly watched in India. Below is his portfolio as on 31st March 07. It has not changed much even now. The list will give exclusive stock hints to millions of Indian investors who wish to build a long term portfolio.
This is an update of RJ's stock portfolio as on 31st March 2007:
No. Company name % stake
1 Agro Tech Foods 4.3
2 Bharat Earth Mov 1.5
3 Bhushan Steel 2.4
4 Bilcare 11.6
5 CRISIL 7.6
6 Geojit Fin. Ser. 8.6
7 Geometric Soft. 3.5
8 Lupin 3.5
9 Mid-Day Multi 4.5
10 Prime Focus 6.9
11 Provogue (India) 2.5
12 Punj Lloyd 1.9
13 Ramco Systems 1.0
14 Titan Inds. 6.7
15 Vadilal Inds. 2.9
16 Viceroy Hotels 13.1
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This is an update of RJ's stock portfolio as on 31st March 2007:
No. Company name % stake
1 Agro Tech Foods 4.3
2 Bharat Earth Mov 1.5
3 Bhushan Steel 2.4
4 Bilcare 11.6
5 CRISIL 7.6
6 Geojit Fin. Ser. 8.6
7 Geometric Soft. 3.5
8 Lupin 3.5
9 Mid-Day Multi 4.5
10 Prime Focus 6.9
11 Provogue (India) 2.5
12 Punj Lloyd 1.9
13 Ramco Systems 1.0
14 Titan Inds. 6.7
15 Vadilal Inds. 2.9
16 Viceroy Hotels 13.1
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Tuesday, July 22, 2008
Stock Tips - Indraprastha Gas
Stock Tips of Indian stocks
( By continuing to read this column, the reader confirms that he/she has read the disclaimer at the bottom )Stock/ Company: Indraprastha Gas Recommendation: Buy
Date: 22nd July 08
Face value per share: Re 10
Current Market Price : Rs 109 as on 21st July 08
Target Market Price : Rs 160 in 12 – 18 months
Business description: Indraprastha gas ( IGL ) is promoted by GAIL, BPCL and the Government of Delhi. IGL is in the business of Compresses Natural gas ( CNG ) retailing for automobiles and Piped Natural Gas ( PNG ) retailing for the citizens of the National Capital region ( NCR ). The company is performing well and is growing at a CAGR of 15 - 20% for the last several years. The consolidated business turn over in 2007 – 08 ( March end ) is Rs 706 Cr. This stock tip is a good tip for medium to long term
Positives/ Strengths/ Opportunities for this share:-
- The company operates in a huge untapped market segment of retailing CNG and PNG with huge growth prospects .
- IGL has currently 163 CNG stations and 150 KMs of pipelines in the NCR. And it continues to invest in infrastructure to increase these numbers.
- The commonwealth games is scheduled in NCR by 2010 and the government is planning to introduce 2000 buses and 20000 taxis to run on eco firendly fuel.
Negatives/ weakness/ threats for this share:
- Entry of several other new players due to the attractiveness of the business.
Summary:
Company year ends on: Turn over 08=Rs706 Cr,09E = 805 Cr,10E =Rs 926 Cr
Turn over – expected Compounded Annual Growth Rate CAGR ( 08 – 10 ) = 15 %
Net profit 08 = Rs 174 Cr – expected Compounded Annual Growth Rate CAGR ( 08 - 10 ) = 20%Earning Per Share expected on FV of Rs 10/- ( 08,09,10 ) = Rs 12.5, Rs 13.5, Rs 16
Discounts 2009 estimated eps by a measly 8 times and 2010 eps by 7.4 times
Return on Equity ( 09 E ) = 28%, Return on Capital Employed (09E ) = 39%
This stock tip is a Buy for a minimum of 50 % gain over a 12 to 18 month period
-------------------------------------------------------------------------------------------------Disclaimer: Investment in shares are subject to market risks. This is a free advice given to the readers and the readers shall consult their financial advisors before making an investment. The author may or may not have this stock in his portfolio. The readers indemnify the author against any or all damages including loss of their invested money
Wednesday, July 16, 2008
Stock tips - MIC Electronics
Stock Tips of Indian stocks
( By continuing to read this column, the reader confirms that he/she has read the disclaimer at the bottom )
Stock/ Company: MIC Electronics Recommendation: Buy
Date: 16th July 08
Face value per share: Re 2
Current Market Price : Rs 106 as on 15th July 08
Target Market Price : Rs 200 in 12 – 18 months
Business description:
. MIC mainly has 2 business divisions, the communication software division and LED display division. The company is focusing on the LED signage ( outdoor and indoor advertising ) business and it is giving a major thrust to it. The consolidated business turn over in 2006 – 07 ( June end ) is Rs 477 Cr. This stock tip is a good tip for medium to long term
Positives/ Strengths/ Opportunities for this share:
- The LED signage industry is a fast growing industry globally. In addition, MIC is also in an advanced stage to release LED based conventional lighting systems for commercial use.
- The current order book for lighting division alone is Rs 250 crores. MIC is the only Indian company in this business and is a monopoly in India.
- The global LED based lighting market is expected to record a 20% CAGR between now and 2011 to reach USD 11 Bn..
Negatives/ weakness/ threats for this share:
- Entry of several other new players due to the attractiveness of the business.
Summary:
Company year ends on: June 08, Turn over 08E=Rs330Cr,09E =Rs 484Cr,10E=725 Cr
Turn over – expected Compounded Annual Growth Rate CAGR ( 08 – 10 ) = 48 %
Net profit 08E = Rs 61.30Cr – expected Compounded Annual Growth Rate CAGR ( 08 - 10 ) = 56%
Earning Per Share expected on FV of Re 2/- ( 08,09,10 ) = Rs 5, Rs 8, Rs 12
Discounts 2009 estimated eps by a measly 13 times and 10 eps by 9 times
Return on Equity ( 09 E ) = 25%, Return on Capital Employed (09E ) = 28%
This stock tip is a Buy for a minimum of 50 % gain over a 12 to 18 month period
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Disclaimer: Investment in shares are subject to market risks. This is a free advice given to the readers and the readers shall consult their financial advisors before making an investment. The author may or may not have this stock in his portfolio. The readers indemnify the author against any or all damages including loss of their invested money
( By continuing to read this column, the reader confirms that he/she has read the disclaimer at the bottom )
Stock/ Company: MIC Electronics Recommendation: Buy
Date: 16th July 08
Face value per share: Re 2
Current Market Price : Rs 106 as on 15th July 08
Target Market Price : Rs 200 in 12 – 18 months
Business description:
. MIC mainly has 2 business divisions, the communication software division and LED display division. The company is focusing on the LED signage ( outdoor and indoor advertising ) business and it is giving a major thrust to it. The consolidated business turn over in 2006 – 07 ( June end ) is Rs 477 Cr. This stock tip is a good tip for medium to long term
Positives/ Strengths/ Opportunities for this share:
- The LED signage industry is a fast growing industry globally. In addition, MIC is also in an advanced stage to release LED based conventional lighting systems for commercial use.
- The current order book for lighting division alone is Rs 250 crores. MIC is the only Indian company in this business and is a monopoly in India.
- The global LED based lighting market is expected to record a 20% CAGR between now and 2011 to reach USD 11 Bn..
Negatives/ weakness/ threats for this share:
- Entry of several other new players due to the attractiveness of the business.
Summary:
Company year ends on: June 08, Turn over 08E=Rs330Cr,09E =Rs 484Cr,10E=725 Cr
Turn over – expected Compounded Annual Growth Rate CAGR ( 08 – 10 ) = 48 %
Net profit 08E = Rs 61.30Cr – expected Compounded Annual Growth Rate CAGR ( 08 - 10 ) = 56%
Earning Per Share expected on FV of Re 2/- ( 08,09,10 ) = Rs 5, Rs 8, Rs 12
Discounts 2009 estimated eps by a measly 13 times and 10 eps by 9 times
Return on Equity ( 09 E ) = 25%, Return on Capital Employed (09E ) = 28%
This stock tip is a Buy for a minimum of 50 % gain over a 12 to 18 month period
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Disclaimer: Investment in shares are subject to market risks. This is a free advice given to the readers and the readers shall consult their financial advisors before making an investment. The author may or may not have this stock in his portfolio. The readers indemnify the author against any or all damages including loss of their invested money
Hedge funds - India stocks buy
Indian stock investments of “George Soros” - Billionaire global investor
Stocks on the Indian stock market has been beaten down over the past few months. Billionaire global investor George Soros has turned contrarian on India. The hedge fund Quantum, co-owned by George Soros, went on a buying-spree at a time, when most funds were dumping stocks in a bear market. It is widely reported that Quantum fund has bought stocks in following Indian stocks in the last few months
- Jain irrigation systems ( 3.8% of equity )
- Jai corp (1.0 % of equity )
- Karuturi networks ( 4% of equity )
- Kalindee Rail Nirman
- India bulls financial services
- India bulls real estate
Quantum’s selective stock picking comes at a time, when institutional investors have been pulling out a huge amount of money from Indian markets. This is due to concerns over a combination of factors such as weak global markets, soaring global oil prices and spiralling inflation in India. “Hedge funds normally are active, when there is some momentum in the market. Quantum may be trying to do some value-buying, but one has to see how long the fund stays invested, given the prevailing uncertain market conditions,” said a stock broker.
Stocks on the Indian stock market has been beaten down over the past few months. Billionaire global investor George Soros has turned contrarian on India. The hedge fund Quantum, co-owned by George Soros, went on a buying-spree at a time, when most funds were dumping stocks in a bear market. It is widely reported that Quantum fund has bought stocks in following Indian stocks in the last few months
- Jain irrigation systems ( 3.8% of equity )
- Jai corp (1.0 % of equity )
- Karuturi networks ( 4% of equity )
- Kalindee Rail Nirman
- India bulls financial services
- India bulls real estate
Quantum’s selective stock picking comes at a time, when institutional investors have been pulling out a huge amount of money from Indian markets. This is due to concerns over a combination of factors such as weak global markets, soaring global oil prices and spiralling inflation in India. “Hedge funds normally are active, when there is some momentum in the market. Quantum may be trying to do some value-buying, but one has to see how long the fund stays invested, given the prevailing uncertain market conditions,” said a stock broker.
Monday, July 14, 2008
Stock Tips - Indian markets
Stock Tips of Indian stocks
( By continuing reading this column, the reader confirms that he/she has read the disclaimer at the bottom )
( By continuing reading this column, the reader confirms that he/she has read the disclaimer at the bottom )
Stock/ Company: XL Telecom Ltd Recommendation: Buy
Date: 15th July 08
Face value per share: Rs 10
Current Market Price : Rs 201 as on 11th July 08
Target Market Price : Rs 300 in 12 – 18 months
Business description of this stock:
XL Telecom is broadly into 3 business areas. Namely the a) Photovoltaic cell and module manufacturing b) Ethanol manufacturing, and c) CDMA mobile contract manufacturing. The business turn over in 2006 – 07 is Rs 515 Cr . This stock is recommended for good gains in medium to long term.
Positives/ Strengths/ Opportunities of this stock:
- Photovoltaic is a worldwide sunrise industry with demand going up from USD 17 Billion ( 2007 ) to USD 40 Billion ( 2010 ). With crude crossing USD 150/ bl demand for renewables in likely to shoot
- Ethanol also is a substitute for crude and if crude rules high, demand for ethanol will grow.
- XL is a popular contract vendor for CDMA phones which is growing rapidly.
Negatives/ weakness/ threats of this stock:
- Execution capability of the management
Summary:
Company year ends on: June 08, Turn over 06- 07 = Rs 515 Cr 07-08 E = Rs 583 Cr
Turn over – expected Compounded Annual Growth Rate CAGR ( 07 - 09 ) = 36%
Net profit – expected Compounded Annual Growth Rate CAGR ( 07 - 09 ) = 159%
Earning Per Share expected ( 0708, 0809 ) = Rs 14, Rs 54
Return on Equity ( 09 E ) = 29%, Return on Capital Employed (09E ) = 26%
Buy this stock for a minimum of 50 % gain over a 12 to 18 month period
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Disclaimer: Investment in shares are subject to market risks. This is a free advice given to the readers and the readers shall consult their financial advisors before making an investment. The author may or may not have this stock in his portfolio. The readers indemnify the author against any or all damages including loss of their invested money
Date: 15th July 08
Face value per share: Rs 10
Current Market Price : Rs 201 as on 11th July 08
Target Market Price : Rs 300 in 12 – 18 months
Business description of this stock:
XL Telecom is broadly into 3 business areas. Namely the a) Photovoltaic cell and module manufacturing b) Ethanol manufacturing, and c) CDMA mobile contract manufacturing. The business turn over in 2006 – 07 is Rs 515 Cr . This stock is recommended for good gains in medium to long term.
Positives/ Strengths/ Opportunities of this stock:
- Photovoltaic is a worldwide sunrise industry with demand going up from USD 17 Billion ( 2007 ) to USD 40 Billion ( 2010 ). With crude crossing USD 150/ bl demand for renewables in likely to shoot
- Ethanol also is a substitute for crude and if crude rules high, demand for ethanol will grow.
- XL is a popular contract vendor for CDMA phones which is growing rapidly.
Negatives/ weakness/ threats of this stock:
- Execution capability of the management
Summary:
Company year ends on: June 08, Turn over 06- 07 = Rs 515 Cr 07-08 E = Rs 583 Cr
Turn over – expected Compounded Annual Growth Rate CAGR ( 07 - 09 ) = 36%
Net profit – expected Compounded Annual Growth Rate CAGR ( 07 - 09 ) = 159%
Earning Per Share expected ( 0708, 0809 ) = Rs 14, Rs 54
Return on Equity ( 09 E ) = 29%, Return on Capital Employed (09E ) = 26%
Buy this stock for a minimum of 50 % gain over a 12 to 18 month period
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Disclaimer: Investment in shares are subject to market risks. This is a free advice given to the readers and the readers shall consult their financial advisors before making an investment. The author may or may not have this stock in his portfolio. The readers indemnify the author against any or all damages including loss of their invested money
Saturday, July 12, 2008
Fixed Maturity Plans better than Bank Deposits
This article is specific to india and Indian tax laws.
Mutual Funds are allowed to launch Fixed maturity plans (FMP) which by their name shall be clear to investors. The maturity, whether 1 month or 1 year shall be made very clear to investors in the offer document of the Mutual fund along with the indicative returns expected. (FMP) are closed-end debt funds that aim at generating returns that are indicated at the time of launching the scheme. Mutual funds are not allowed to launch assured return schemes. FMPs, therefore, only indicate the likely returns. FMPs can generate predefined returns because of the way their portfolio is constructed. They invest in debt securities which mature around the tenor of the fund. Since the instruments are held to maturity, there is no risk of the value of the security being affected by interest rate movements and fund managers are able to give returns indicated at the time of investing.
FMPs come with various maturities at which time the money with the returns are credited back into the investor’s bank account. The popular tenors are of one month, three months and a little over a year. As closed-end funds, FMPs cannot accept any fresh investment once the NFO is over. To help investors deploy their available funds and reinvest money from maturing FMPs, mutual fund houses launch a continuous series of FMPs. The NFO is usually open for two to three days and the minimum investment is kept at around Rs 5,000. Since investors cannot withdraw their money till the maturity of the scheme, they need to choose a fund with a tenor that matches their investment horizon.
Why FMP?
FMPs are similar to bank fixed deposits (FD) in features such as fixed maturity period and indicative return. But they do not guarantee returns like FDs do.
So, why should an investor choose an FMP over an FD?
The answer lies in the tax efficiency that FMPs bring to their returns.
a) The example given in the table below shows that while FMP attracts the dividend distribution tax (DDT), FD attracts income tax. Since DDT is lower than the income tax rate, FMP gives a higher post-tax return than FD.
b) FMPs with maturities of greater than one year provide capital gains efficiency by structuring the tenor in such a way that investors benefit from double indexation. For example, an FMP holder holding the FMP launched on 30 March 2007 for a little more than a year (375 days) till it matures on 9 April 2008, an investor gets to use the cost of inflation index applicable for the years 2006-2007 (year of purchase) and 2008-2009 (year of redemption). The tenor of the fund and the date on which it is launched allows double indexation, thus reducing the capital gains tax applicable on the returns.
FMPs suit investors who have a fixed investment horizon and would like to know the likely returns. The tax advantages make them superior to FDs. The only caveat is that investors need to evaluate the credit risk involved in the securities that the FMP is likely to invest in.
FD vs FMP: Effect of Taxation
FD FMP
Investment (Rs) 5,000 5,000
Rate of interest (% p.a.) 9 9
Amount at the end of 1 year (Rs) 5,450 5,450
DDT1 (%) ( Div Distbn Tax ) Nil 14.1625
Tax on interest (%) ( Income Tax rate) 33.66 Nil
Net amount2 5,298.53 5,386.28
Post-tax return (%) 5.97 7.72
1Dividend distribution tax
2Assuming the FMP distributed the entire Rs 450 as dividend
From the above example it is clear that
- Even if an investor holds an FMP less than a year, he/she is better off in the post tax yield. The above example shows that the FMP yield is 7.72% vs the FD yield of 5.97% for an investor in the highest Income tax slab of 33%.
- If the Investor holds the FMP for 375 days as mentioned in b) above, that is between 30th March 2007 till 9th April 2008, then only an indexed capital gains tax apply. The steps to arrive at the tax is as below.
- First find out the indexation factor. Assuming the inflation index for 2006 -07 is 100, for 2007-08 it is 105 and 2008-09 is 110. The indexation factor for this investment is 110/100 which is equal to 1.1.
- Then multiply the actual investment with the Indexation factor. In this case, it is Rs 5,000 multiplied by 1.1 which shall be Rs 5,500/-.
- Now look at the actual return provided for 375 days at the rate of 9% for 365 days. It is approximately Rs 450.
- Calculate the total principal plus interest and subtract it from the indexed investment. This is the gain received. Which is Rs 5450( total receivable) minus Rs 5,500 (indexed cost ). Which is minus Rs 50. As there are no gains, the capital gains tax of 20% on gains need not be applied. So, the post tax yield in this example is 9% vs the post tax yield of 5.97% the FD yields.
Hence, be wise – always invest in FMPs offered by Mutual Funds as against the bank FDs. If you hold it for above 365 days ( across 2 financial years) , the returns are still better.
Disclaimer: These are just my views and the readers are advised to consult their financial advisors before making any investments. The readers indemnify this author against any and all eventualities which may or may not occur in the financial markets. Also, tax illustrations if any are applicable only when this article was posted and they may change subsequently thereby making any tax adjusted return calculation different.
Mutual Funds are allowed to launch Fixed maturity plans (FMP) which by their name shall be clear to investors. The maturity, whether 1 month or 1 year shall be made very clear to investors in the offer document of the Mutual fund along with the indicative returns expected. (FMP) are closed-end debt funds that aim at generating returns that are indicated at the time of launching the scheme. Mutual funds are not allowed to launch assured return schemes. FMPs, therefore, only indicate the likely returns. FMPs can generate predefined returns because of the way their portfolio is constructed. They invest in debt securities which mature around the tenor of the fund. Since the instruments are held to maturity, there is no risk of the value of the security being affected by interest rate movements and fund managers are able to give returns indicated at the time of investing.
FMPs come with various maturities at which time the money with the returns are credited back into the investor’s bank account. The popular tenors are of one month, three months and a little over a year. As closed-end funds, FMPs cannot accept any fresh investment once the NFO is over. To help investors deploy their available funds and reinvest money from maturing FMPs, mutual fund houses launch a continuous series of FMPs. The NFO is usually open for two to three days and the minimum investment is kept at around Rs 5,000. Since investors cannot withdraw their money till the maturity of the scheme, they need to choose a fund with a tenor that matches their investment horizon.
Why FMP?
FMPs are similar to bank fixed deposits (FD) in features such as fixed maturity period and indicative return. But they do not guarantee returns like FDs do.
So, why should an investor choose an FMP over an FD?
The answer lies in the tax efficiency that FMPs bring to their returns.
a) The example given in the table below shows that while FMP attracts the dividend distribution tax (DDT), FD attracts income tax. Since DDT is lower than the income tax rate, FMP gives a higher post-tax return than FD.
b) FMPs with maturities of greater than one year provide capital gains efficiency by structuring the tenor in such a way that investors benefit from double indexation. For example, an FMP holder holding the FMP launched on 30 March 2007 for a little more than a year (375 days) till it matures on 9 April 2008, an investor gets to use the cost of inflation index applicable for the years 2006-2007 (year of purchase) and 2008-2009 (year of redemption). The tenor of the fund and the date on which it is launched allows double indexation, thus reducing the capital gains tax applicable on the returns.
FMPs suit investors who have a fixed investment horizon and would like to know the likely returns. The tax advantages make them superior to FDs. The only caveat is that investors need to evaluate the credit risk involved in the securities that the FMP is likely to invest in.
FD vs FMP: Effect of Taxation
FD FMP
Investment (Rs) 5,000 5,000
Rate of interest (% p.a.) 9 9
Amount at the end of 1 year (Rs) 5,450 5,450
DDT1 (%) ( Div Distbn Tax ) Nil 14.1625
Tax on interest (%) ( Income Tax rate) 33.66 Nil
Net amount2 5,298.53 5,386.28
Post-tax return (%) 5.97 7.72
1Dividend distribution tax
2Assuming the FMP distributed the entire Rs 450 as dividend
From the above example it is clear that
- Even if an investor holds an FMP less than a year, he/she is better off in the post tax yield. The above example shows that the FMP yield is 7.72% vs the FD yield of 5.97% for an investor in the highest Income tax slab of 33%.
- If the Investor holds the FMP for 375 days as mentioned in b) above, that is between 30th March 2007 till 9th April 2008, then only an indexed capital gains tax apply. The steps to arrive at the tax is as below.
- First find out the indexation factor. Assuming the inflation index for 2006 -07 is 100, for 2007-08 it is 105 and 2008-09 is 110. The indexation factor for this investment is 110/100 which is equal to 1.1.
- Then multiply the actual investment with the Indexation factor. In this case, it is Rs 5,000 multiplied by 1.1 which shall be Rs 5,500/-.
- Now look at the actual return provided for 375 days at the rate of 9% for 365 days. It is approximately Rs 450.
- Calculate the total principal plus interest and subtract it from the indexed investment. This is the gain received. Which is Rs 5450( total receivable) minus Rs 5,500 (indexed cost ). Which is minus Rs 50. As there are no gains, the capital gains tax of 20% on gains need not be applied. So, the post tax yield in this example is 9% vs the post tax yield of 5.97% the FD yields.
Hence, be wise – always invest in FMPs offered by Mutual Funds as against the bank FDs. If you hold it for above 365 days ( across 2 financial years) , the returns are still better.
Disclaimer: These are just my views and the readers are advised to consult their financial advisors before making any investments. The readers indemnify this author against any and all eventualities which may or may not occur in the financial markets. Also, tax illustrations if any are applicable only when this article was posted and they may change subsequently thereby making any tax adjusted return calculation different.
Credit card - FAQ 2
... this is a continuation of my previous post FAQ 1 on same topic.
What happens when my credit card payment is late?
If you don’t make the monthly repayment by the date specified on your statement, your provider may charge you a late payment fee. They might even stop your card. Late payment fees, as the term indicates are payable in he event of any delay in repayment of the out standings on your credit card after the stipulated ‘interest-free period’. These charges are very steep and card members are well advised to pay off at least the minimum amount due on out standings every month.
What does rolling over credit/ revolving credit mean?
You have two choices for making card payments. You may clear your full dues as soon as you receive your billing statement. Or you may choose to pay the minimum monthly installment mentioned on the statement (which is usually between 5-10 percent of the total amount outstanding as on the date of the statement) and avail of revolving credit on thebalance. In other words your credit amount rolls over to the next month and so on. In a majority of cases, interest will be calculated on the average daily balance method on the unpaid balance plus amounts incurred for new purchases. Average daily balance depends usually on the amount outstanding and the number of days it is outstanding for.
What is the catch with low interest balance transfer offers?
Low interest balance transfer cards can save you money on interest payments; you just need to consider all the features of the card. Some cards charge a balance transfer fee. Also, be aware that the low interest rate charged for balance transfers may not apply to purchases. So, if you start spending with your card, you could end up paying a higher interest rate.
Should I consolidate my credit card debt?
If you’ve got several credit card debts, it makes much more sense to transfer your balance onto one low interest card. Interest rates tend to be lower on balance transfers, so you’ll be saving money and making repayments easier to manage. Make sure you cut up your old cards once you transfer your balance.
What sort of tricks should I look out for when looking for a credit card offer?
0% balance transfer rates can seem very attractive but make sure you know what you’re getting into. The rate will only apply to balance transfers, not purchases and be only for a limited time like 3 months. So you could end up paying the provider’s typical rate or higher, if you make any new purchases. You can also end up paying charges if you use your card to make cash withdrawals. You’ll be charged a standard fee, however much you withdraw. Plus, you’ll start paying interest from the moment you draw your cash out.
What should I check before applying for a credit card?
- What is the interest rate for purchases?
- What is the interest rate for cash withdrawals?
- What’s the period of free credit (the maximum is 56 days)?
- Will you be charged if you miss a monthly repayment?
- Is there an annual charge?
- Are balance transfers possible?
- Are there any rewards included with the card?
- Is travel insurance included with the card and if so what cover is provided?
How many credit cards should I have?
It’s advisable to limit your credit cards to just two – one for balance transfers, and one for purchases. This is because the rate often differs according to what you’re using the card for. It’s generally not a good idea to have more than two cards – you may damage your credit rating if you have lots of credit cards. Also, it’s much easier to build up debt and much harder to keep track of repayments if you have lots of different credit cards.
What is the minimum balance you must pay on a credit card each month?
Every month you must make a minimum repayment towards your debt. Typically, this is around 5% of your balance (which will include interest).
If I pay off the full balance every month will I ever be charged interest or other fees? As long as you pay back the amount you owe before the interest rate kicks in (this varies from card to card), you won’t be charged interest. However, if your provider charges an annual fee, you’ll need to include this in your repayment.
If I don’t pay off my balance in full, how much will it cost me in interest?
If you don’t pay off your balance every month, the remaining amount will be added to your next statement. Interest charges will be backdated to when you made the purchase, so you’ll actually be paying two lots of interest on your remaining balance; for the month you made the purchase and the month you carry your balance over.
How do cash advances from a credit card work?
You can use your credit card to withdraw money from a cash machine – this is called a ‘cash advance’. Before withdrawing money, check the amount your provider charges for this service – there’s usually a fixed charge and you’ll start paying interest on this from the day you withdrew the cash.
What is a supplementary/add-on card?
An add-on card is usually for your dependents - spouse, parents or children. Any additional cards under this head come at a fee, which varies between Rs 100 to Rs 1,000. All expenses on the card are billed to you.
What does the purchase protection feature of credit cards mean?
The purchase protection feature automatically insures all items bought on the credit card from damage or loss due to fire or theft up to a certain sum of money.
What are the advantages of owning a platinum credit card?
Platinum cards often offer extra features, such as a low interest rates and rewards. However, to qualify you need to have good credit and a good salary.
What is the difference between a credit card, charge card and debit card?
A credit card allows you to pay for service or product over a period of time. Up to the first 55 days of credit come interest free. You can chose to pay your entire debt at one go or you can pay a minimum amount every month. A charge card works on similar lines as the credit card with one difference. With a charge card you have to pay the entire dues within the credit period. You cannot carry over any balances like a credit card. The most important differences between the two types of card are that charge cards charge a much higher interest rates and can usually only be used in just one merchant or brand. A debit card enables you to access your bank deposits for payment. When you make any purchases using a debit card, then your bank account is automatically and instantly decreased to the extent of the purchase amount
What happens when my credit card payment is late?
If you don’t make the monthly repayment by the date specified on your statement, your provider may charge you a late payment fee. They might even stop your card. Late payment fees, as the term indicates are payable in he event of any delay in repayment of the out standings on your credit card after the stipulated ‘interest-free period’. These charges are very steep and card members are well advised to pay off at least the minimum amount due on out standings every month.
What does rolling over credit/ revolving credit mean?
You have two choices for making card payments. You may clear your full dues as soon as you receive your billing statement. Or you may choose to pay the minimum monthly installment mentioned on the statement (which is usually between 5-10 percent of the total amount outstanding as on the date of the statement) and avail of revolving credit on thebalance. In other words your credit amount rolls over to the next month and so on. In a majority of cases, interest will be calculated on the average daily balance method on the unpaid balance plus amounts incurred for new purchases. Average daily balance depends usually on the amount outstanding and the number of days it is outstanding for.
What is the catch with low interest balance transfer offers?
Low interest balance transfer cards can save you money on interest payments; you just need to consider all the features of the card. Some cards charge a balance transfer fee. Also, be aware that the low interest rate charged for balance transfers may not apply to purchases. So, if you start spending with your card, you could end up paying a higher interest rate.
Should I consolidate my credit card debt?
If you’ve got several credit card debts, it makes much more sense to transfer your balance onto one low interest card. Interest rates tend to be lower on balance transfers, so you’ll be saving money and making repayments easier to manage. Make sure you cut up your old cards once you transfer your balance.
What sort of tricks should I look out for when looking for a credit card offer?
0% balance transfer rates can seem very attractive but make sure you know what you’re getting into. The rate will only apply to balance transfers, not purchases and be only for a limited time like 3 months. So you could end up paying the provider’s typical rate or higher, if you make any new purchases. You can also end up paying charges if you use your card to make cash withdrawals. You’ll be charged a standard fee, however much you withdraw. Plus, you’ll start paying interest from the moment you draw your cash out.
What should I check before applying for a credit card?
- What is the interest rate for purchases?
- What is the interest rate for cash withdrawals?
- What’s the period of free credit (the maximum is 56 days)?
- Will you be charged if you miss a monthly repayment?
- Is there an annual charge?
- Are balance transfers possible?
- Are there any rewards included with the card?
- Is travel insurance included with the card and if so what cover is provided?
How many credit cards should I have?
It’s advisable to limit your credit cards to just two – one for balance transfers, and one for purchases. This is because the rate often differs according to what you’re using the card for. It’s generally not a good idea to have more than two cards – you may damage your credit rating if you have lots of credit cards. Also, it’s much easier to build up debt and much harder to keep track of repayments if you have lots of different credit cards.
What is the minimum balance you must pay on a credit card each month?
Every month you must make a minimum repayment towards your debt. Typically, this is around 5% of your balance (which will include interest).
If I pay off the full balance every month will I ever be charged interest or other fees? As long as you pay back the amount you owe before the interest rate kicks in (this varies from card to card), you won’t be charged interest. However, if your provider charges an annual fee, you’ll need to include this in your repayment.
If I don’t pay off my balance in full, how much will it cost me in interest?
If you don’t pay off your balance every month, the remaining amount will be added to your next statement. Interest charges will be backdated to when you made the purchase, so you’ll actually be paying two lots of interest on your remaining balance; for the month you made the purchase and the month you carry your balance over.
How do cash advances from a credit card work?
You can use your credit card to withdraw money from a cash machine – this is called a ‘cash advance’. Before withdrawing money, check the amount your provider charges for this service – there’s usually a fixed charge and you’ll start paying interest on this from the day you withdrew the cash.
What is a supplementary/add-on card?
An add-on card is usually for your dependents - spouse, parents or children. Any additional cards under this head come at a fee, which varies between Rs 100 to Rs 1,000. All expenses on the card are billed to you.
What does the purchase protection feature of credit cards mean?
The purchase protection feature automatically insures all items bought on the credit card from damage or loss due to fire or theft up to a certain sum of money.
What are the advantages of owning a platinum credit card?
Platinum cards often offer extra features, such as a low interest rates and rewards. However, to qualify you need to have good credit and a good salary.
What is the difference between a credit card, charge card and debit card?
A credit card allows you to pay for service or product over a period of time. Up to the first 55 days of credit come interest free. You can chose to pay your entire debt at one go or you can pay a minimum amount every month. A charge card works on similar lines as the credit card with one difference. With a charge card you have to pay the entire dues within the credit period. You cannot carry over any balances like a credit card. The most important differences between the two types of card are that charge cards charge a much higher interest rates and can usually only be used in just one merchant or brand. A debit card enables you to access your bank deposits for payment. When you make any purchases using a debit card, then your bank account is automatically and instantly decreased to the extent of the purchase amount
Credit card - FAQ 1
This article answer some frequently asked questions here from “credit card – what ?” to “What to check before applying for a credit card?”. If you have got other questions you want answered why not ask our expert.
What is a credit card?
A credit card is a card used to pay for products and services at over 20 million locations around the world. All you need to do is produce the card and sign a charge slip to pay for your purchases. The institution, which issued the card to you, makes the payment to the outlet on your behalf and would be reimbursed at a later date by you.
Why should I own a credit card?
Credit cards are relatively safer than carrying cash. You can spend almost anywhere, any time. Credit cards enable you to other benefits like rewards and insurance cover. You also get interest free money for up to 50 days.
What are the eligibility requirements to get your own credit card?
To apply for a credit card, you need to generally: - To be at least 21 years of age and not more than 65 years. - A regular and steady source of income. - Credit card companies (or issuing banks, as they are known) have a requirement of a minimum income level, which serves as the starting point while applying for a card. This requirement varies from bank to bank and could vary between Rs 75,000 per annum to Rs 150,000 per annum depending upon your risk profile and the type of card you choose. Typically, banks issuing credit cards need to be sure whether or not you will be able to repay the expenses incurred through your credit card.
What types of credit cards are there?
There are three cards, which are available, Visa, Master Card and Amex. Various participating banks like ICICI bank or HDFC then issue these cards to end-users. Visa and Master Card are the most popular cards in India and have an almost equal market share. Amex is much smaller in India and is issued through few banks at this stage.
What is the minimum salary required for taking a credit card?
You will need a salary of at least Rs. 75,000 per annum for an ordinary card and Rs. 1,50,000 per annum for a gold card.
What are MasterCard and Visa ?
MasterCard and Visa are global organisations dedicated to promote the growth of the card business across the world. They have built a vast network of merchant establishments so that customers world-wide may use their respective credit cards to make various purchases.
What is a Global Card?
A Global Card enables you to use your credit card when you are overseas. You can spend in dollars or any other foreign currency and settle the dues in your local currency.
What should I do if my credit card is lost or stolen?
In the event of losing your credit card, you must inform the bank immediately. The bank then deactivates your card to prevent any fraud. You are protected from settling any expenses on your card the moment you inform the bank.
What is my liability when I lose my credit card?
Before you report the loss of your card, you will have to pay for all the purchases fraudulently made on your card. The lost card liability fee is payable on the expenses incurred during the period between the loss of your card and your having reported it to the bank. After reporting the loss, your liability is mostly restricted to Rs. 1,000. You may also have to pay for the reporting of the loss in the lost card list. You will be expected to pay for the issue of a replacement card.
Can I use credit cards to make payments on the internet?
Yes, payments over the internet using a credit card is permitted. When you do purchase a product over the internet, you need to be careful about recording details of the order, and reporting any inconsistencies in billing to the card-issuing institution immediately.
Will the merchant charge a service charge for using a credit card?
No. However, with specific transactions like railway bookings they might demand a service charge of 2-3%. Before using a credit card check whether any service charge is applicable. Also, in some countries/states there could be an extra service tax applicable for transactions paid through a credit card.
Do I have to pay interest whenever I borrow?
No. Credit card issuing banks offer you an interest-free period of up to 55 days, after which the payment has to be made on purchases made against your credit card. You have the choice of carry forwarding your out standings by the payment of a ‘minimum due amount’ (generally 5% of the outstanding). If you pay off the entire amount within the interest-free period, then no charges are due. However if you choose to avail of the credit facility, then a credit charge is levied which generally varies between 2.5% to 3%. It should be noted that though the notional interest free period is for 40-55 days, billing is done monthly, so the actual interest free period could vary depending on whether the purchase was made at the start or the end of the billing period.
What is a credit card?
A credit card is a card used to pay for products and services at over 20 million locations around the world. All you need to do is produce the card and sign a charge slip to pay for your purchases. The institution, which issued the card to you, makes the payment to the outlet on your behalf and would be reimbursed at a later date by you.
Why should I own a credit card?
Credit cards are relatively safer than carrying cash. You can spend almost anywhere, any time. Credit cards enable you to other benefits like rewards and insurance cover. You also get interest free money for up to 50 days.
What are the eligibility requirements to get your own credit card?
To apply for a credit card, you need to generally: - To be at least 21 years of age and not more than 65 years. - A regular and steady source of income. - Credit card companies (or issuing banks, as they are known) have a requirement of a minimum income level, which serves as the starting point while applying for a card. This requirement varies from bank to bank and could vary between Rs 75,000 per annum to Rs 150,000 per annum depending upon your risk profile and the type of card you choose. Typically, banks issuing credit cards need to be sure whether or not you will be able to repay the expenses incurred through your credit card.
What types of credit cards are there?
There are three cards, which are available, Visa, Master Card and Amex. Various participating banks like ICICI bank or HDFC then issue these cards to end-users. Visa and Master Card are the most popular cards in India and have an almost equal market share. Amex is much smaller in India and is issued through few banks at this stage.
What is the minimum salary required for taking a credit card?
You will need a salary of at least Rs. 75,000 per annum for an ordinary card and Rs. 1,50,000 per annum for a gold card.
What are MasterCard and Visa ?
MasterCard and Visa are global organisations dedicated to promote the growth of the card business across the world. They have built a vast network of merchant establishments so that customers world-wide may use their respective credit cards to make various purchases.
What is a Global Card?
A Global Card enables you to use your credit card when you are overseas. You can spend in dollars or any other foreign currency and settle the dues in your local currency.
What should I do if my credit card is lost or stolen?
In the event of losing your credit card, you must inform the bank immediately. The bank then deactivates your card to prevent any fraud. You are protected from settling any expenses on your card the moment you inform the bank.
What is my liability when I lose my credit card?
Before you report the loss of your card, you will have to pay for all the purchases fraudulently made on your card. The lost card liability fee is payable on the expenses incurred during the period between the loss of your card and your having reported it to the bank. After reporting the loss, your liability is mostly restricted to Rs. 1,000. You may also have to pay for the reporting of the loss in the lost card list. You will be expected to pay for the issue of a replacement card.
Can I use credit cards to make payments on the internet?
Yes, payments over the internet using a credit card is permitted. When you do purchase a product over the internet, you need to be careful about recording details of the order, and reporting any inconsistencies in billing to the card-issuing institution immediately.
Will the merchant charge a service charge for using a credit card?
No. However, with specific transactions like railway bookings they might demand a service charge of 2-3%. Before using a credit card check whether any service charge is applicable. Also, in some countries/states there could be an extra service tax applicable for transactions paid through a credit card.
Do I have to pay interest whenever I borrow?
No. Credit card issuing banks offer you an interest-free period of up to 55 days, after which the payment has to be made on purchases made against your credit card. You have the choice of carry forwarding your out standings by the payment of a ‘minimum due amount’ (generally 5% of the outstanding). If you pay off the entire amount within the interest-free period, then no charges are due. However if you choose to avail of the credit facility, then a credit charge is levied which generally varies between 2.5% to 3%. It should be noted that though the notional interest free period is for 40-55 days, billing is done monthly, so the actual interest free period could vary depending on whether the purchase was made at the start or the end of the billing period.
Friday, July 11, 2008
Credit cards - Do's and Dont's
Used smartly, a credit card can be the answer to comfortable cash flows. If one pays back the amount you borrow before the monthly typical interest charge kicks in, you can neatly dodge interest charges. The amount of time it takes for the interest to be charged varies from card to card. Typically it ranges from 28 days to 56 days from the time one makes the spend.
Never pay a joining fee and the annual fee: There was a time when credit card companies were charging a joining fee and also were charging an annual service fee. Never ever accept to pay these and if you resist, the card companies will invariably waive them.
Pay off your credit card debt punctually: Always make payments on time, and pay all the outstanding and not just the minimum monthly amount. Paying the minimum balance only will mean years of paying off your credit card debt, and paying a total that far exceeds your original spend.
Keep track of all your repayments to be made:If you’ve accumulated debt across several cards, you may be finding it hard to keep track of all the repayments you need to make. Plus, if you’re only making minimum monthly repayments, you’re fighting a losing battle. The interest you accumulate could eventually treble the amount you originally borrowed, making it even harder to clear your debt.
Is a balance transfer from one card to other card right for you?: That’s where balance transfers can help. By transferring your debt onto a low interest credit card, you’ll cut the amount of interest you pay back. Plus, keeping track of your payments will be much easier.
Look out for a card that offers a low interest rate for the longest possible period:Get the best interest rate on credit cards Always opt for the card which levies the lowest interest for unpoad dues.
Never pay a joining fee and the annual fee: There was a time when credit card companies were charging a joining fee and also were charging an annual service fee. Never ever accept to pay these and if you resist, the card companies will invariably waive them.
Pay off your credit card debt punctually: Always make payments on time, and pay all the outstanding and not just the minimum monthly amount. Paying the minimum balance only will mean years of paying off your credit card debt, and paying a total that far exceeds your original spend.
Keep track of all your repayments to be made:If you’ve accumulated debt across several cards, you may be finding it hard to keep track of all the repayments you need to make. Plus, if you’re only making minimum monthly repayments, you’re fighting a losing battle. The interest you accumulate could eventually treble the amount you originally borrowed, making it even harder to clear your debt.
Is a balance transfer from one card to other card right for you?: That’s where balance transfers can help. By transferring your debt onto a low interest credit card, you’ll cut the amount of interest you pay back. Plus, keeping track of your payments will be much easier.
Look out for a card that offers a low interest rate for the longest possible period:Get the best interest rate on credit cards Always opt for the card which levies the lowest interest for unpoad dues.
Real estate - common terms
APPROVED PLANS: Plans of the building which are approved by the City corporation or municipal corporation .This is a drawing of the layout of the project and the layout of the flats duly approved for construction
SUPER BUILT UP AREA (SBUA): SBUA is the area over and above the Built Up Area and would include the space provided for common amenities within the flat complex like lobby, pathways, stair case, lift area etc. The SBUA thus would generally be around 20 - 25 percent more than the carpet area of the flat which is the actual usable area.
BUILT UP AREA (BUA): BUA is over and above the carpet area and would include the space covered by the thickness of the inner and outer walls of the flat. The BUA thus would generally be around 15 percent more than the carpet area of the flat which is the actual usable area.
CARPET AREA: The area of the flat where a carpet can be laid and thus is the net useable area. Until two decades back flats were sold on this basis. Carpet area is the area from the inner sides of wall to wall. This concept is rarely used today and as a result, flats today are generally sold on the basis of built up area and super built up area.
MONTHLY REDUCING BALANCE OF THE PRINCIPAL: It is same as annual reducing balance except that the balance is calculated on a monthly basis and the EMI is broken up every month to arrive at the opening balance of principal for the next month.
MORTGAGE: It is an agreement by which the borrower gives the lending institution the right to take possession of the property given as security if the loan is not repaid
POSSESSION LETTER: This is a letter handed over by the developer to the customer stating that the property is complete and ready for occupation. This letter also indicates the final dues payable by the customer before the key is handed over to the customer.
PREPAYMENT: Prepayment means repaying the loan before the tenure is over. Most HFCs charge a prepayment fee that is normally in the range of 1-2 percent of the prepaid amount.
SUPER BUILT UP AREA (SBUA): SBUA is the area over and above the Built Up Area and would include the space provided for common amenities within the flat complex like lobby, pathways, stair case, lift area etc. The SBUA thus would generally be around 20 - 25 percent more than the carpet area of the flat which is the actual usable area.
BUILT UP AREA (BUA): BUA is over and above the carpet area and would include the space covered by the thickness of the inner and outer walls of the flat. The BUA thus would generally be around 15 percent more than the carpet area of the flat which is the actual usable area.
CARPET AREA: The area of the flat where a carpet can be laid and thus is the net useable area. Until two decades back flats were sold on this basis. Carpet area is the area from the inner sides of wall to wall. This concept is rarely used today and as a result, flats today are generally sold on the basis of built up area and super built up area.
MONTHLY REDUCING BALANCE OF THE PRINCIPAL: It is same as annual reducing balance except that the balance is calculated on a monthly basis and the EMI is broken up every month to arrive at the opening balance of principal for the next month.
MORTGAGE: It is an agreement by which the borrower gives the lending institution the right to take possession of the property given as security if the loan is not repaid
POSSESSION LETTER: This is a letter handed over by the developer to the customer stating that the property is complete and ready for occupation. This letter also indicates the final dues payable by the customer before the key is handed over to the customer.
PREPAYMENT: Prepayment means repaying the loan before the tenure is over. Most HFCs charge a prepayment fee that is normally in the range of 1-2 percent of the prepaid amount.
Mutual Fund basics - Part 3
Mutual Funds can also be categorized by their Investment objectives which are as below.
By investment objective:
Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.
Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.
Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).
Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.
Other schemes
Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.
Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.
Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.
Types of returns
There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:
Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.
If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.
If fund holdings increase in price but are not sold by the fund manager, the fund’s shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.
Pros & cons of investing in mutual funds:
For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund.
Advantages of Investing Mutual Funds:
1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments.
2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others.
3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors.
4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want.
5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.
Disadvantages of Investing Mutual Funds:
1. Professional Management- Some funds doesn’t perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor him self, for picking up stocks.
2. Costs – The biggest source of AMC income, is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.
3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don’t make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.
4. Taxes - when making decisions about your money, fund managers don’t consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability
This ends the "Mutual Fund Basics series"
By investment objective:
Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.
Income Schemes: Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.
Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).
Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.
Other schemes
Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.
Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.
Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.
Types of returns
There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:
Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.
If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.
If fund holdings increase in price but are not sold by the fund manager, the fund’s shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.
Pros & cons of investing in mutual funds:
For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund.
Advantages of Investing Mutual Funds:
1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments.
2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others.
3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors.
4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want.
5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.
Disadvantages of Investing Mutual Funds:
1. Professional Management- Some funds doesn’t perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor him self, for picking up stocks.
2. Costs – The biggest source of AMC income, is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.
3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don’t make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.
4. Taxes - when making decisions about your money, fund managers don’t consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability
This ends the "Mutual Fund Basics series"
Mutual Fund Basics - Part 2
Overview of existing schemes existed in mutual fund category: BY NATURE
1. Equity fund:
These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund manager’s outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows: Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS) Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.
2. Debt funds:
The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.
Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities.
MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.
Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.
Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.
3. Balanced funds:
As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.
1. Equity fund:
These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund manager’s outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows: Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS) Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix.
2. Debt funds:
The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.
Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities.
MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.
Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.
Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds.
3. Balanced funds:
As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns. Further the mutual funds can be broadly classified on the basis of investment parameter viz, Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly.
Basics of Mutual Fund - Part 1
What is a Mutual Fund?
A mutual fund is just the connecting and a financial intermediary that allows a group of investors with similar risk profile to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is identified for investing the gathered money into specific securities (stocks or bonds). When one invest in a mutual fund, he/she is buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification across asset calsses, industries and stocks, by minimizing risk & maximizing returns. Also with a minimal investment, Mutual funds allow a unit holder to take a position in a high priced stock which he/she would not be able to buy individually.
The article mentioned below, is for the investors who have not yet started investing in mutual funds, but willing to explore the opportunity and also for those who want to clear their basics for what is mutual fund and how best it can serve as an investment tool.
Getting Started
It’s very important to know the area in which mutual funds works, the basic understanding of stocks and bonds.
Stocks
Stocks represent shares of ownership in a public company. Examples of public companies include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned investment traded on the market.
Bonds
Bonds are basically the money which you lend to the government or a company, and in return you can receive interest on your invested amount, which is back over predetermined amounts of time. Bonds are considered to be the most common lending investment traded on the market. There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.
Regulatory Authorities
To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations.
SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry.
AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.
A mutual fund is just the connecting and a financial intermediary that allows a group of investors with similar risk profile to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is identified for investing the gathered money into specific securities (stocks or bonds). When one invest in a mutual fund, he/she is buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification across asset calsses, industries and stocks, by minimizing risk & maximizing returns. Also with a minimal investment, Mutual funds allow a unit holder to take a position in a high priced stock which he/she would not be able to buy individually.
The article mentioned below, is for the investors who have not yet started investing in mutual funds, but willing to explore the opportunity and also for those who want to clear their basics for what is mutual fund and how best it can serve as an investment tool.
Getting Started
It’s very important to know the area in which mutual funds works, the basic understanding of stocks and bonds.
Stocks
Stocks represent shares of ownership in a public company. Examples of public companies include Reliance, ONGC and Infosys. Stocks are considered to be the most common owned investment traded on the market.
Bonds
Bonds are basically the money which you lend to the government or a company, and in return you can receive interest on your invested amount, which is back over predetermined amounts of time. Bonds are considered to be the most common lending investment traded on the market. There are many other types of investments other than stocks and bonds (including annuities, real estate, and precious metals), but the majority of mutual funds invest in stocks and/or bonds.
Regulatory Authorities
To protect the interest of the investors, SEBI formulates policies and regulates the mutual funds. It notified regulations in 1993 (fully revised in 1996) and issues guidelines from time to time. MF either promoted by public or by private sector entities including one promoted by foreign entities is governed by these Regulations.
SEBI approved Asset Management Company (AMC) manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody.
According to SEBI Regulations, two thirds of the directors of Trustee Company or board of trustees must be independent. The Association of Mutual Funds in India (AMFI) reassures the investors in units of mutual funds that the mutual funds function within the strict regulatory framework. Its objective is to increase public awareness of the mutual fund industry.
AMFI also is engaged in upgrading professional standards and in promoting best industry practices in diverse areas such as valuation, disclosure, transparency etc.
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