Smart Investing..

Rupee Appreciation seems to be round the corner. Why / How /when

2012-01-04T00:01:00.000+05:30

Factors which can lead the Rupee appreciation

· Base rate effect to kick in and the inflation numbers will go down and will be very much within the magic figure of 6

· Reversal in interest rate cycle

· Increase in corporate confidence & profitability

· FII money flows into the country

· Hike in NRI deposit rates will also help in money flowing into the country due to arbitrage opportunity

· Allowing Qualified Foreign Investors (QFI) to invest directly will allow money to move into the country.

· US economy showing sign of improvement to help local market sentiments. This will again be positive to move in money to India.

All these factors can lead the Rupee to appreciate and move away from 53 to below 50.

Factors which can hinder the Rupee appreciation

· Sovereign debt situation worsening in Europe.

The best option today for NRI investors is to take advantage of the depreciated rupee and move into the country. For every dollar today they get more rupees and once in the country then can look at options of investing into equity at the present market level if your Profile allows else look at investing into debt funds especially on the Income fund side and easily you can look at a yield of 8-9%.

QFI can now directly invest in the Indian stock markets. Views, Process, Advantage & Disadvantage

2012-01-03T17:33:00.003+05:30

A QFI (Qualified Foreign Investor) is a KYC-compliant foreign investor who is a resident in a country complaint with FATF ( financial action task force) standards, a signatory to the International Organisation of Securities Commission's multilateral memorandum of understanding. QFIs should not be resident in India or registered with Sebi as a foreign institutional investor or sub-account.

This is a very good news for the markets as well as to the QFI. First advantage is a QFI doesn't have to worry about all the paper work & compliance in opening an account with an FII and then investing in the Indian market. Going forward a QFI will only need to open a DP account and a bank account and can use the advisor/broker to help in executing transactions. (More details on the process is still awaited). Secondly the limits on how much maximum amount a FII and a group of QFI can invest into a company has been increased to 10%. This is good as QFI's are mostly long term palyers unlike the FII and this will feed our market growth. Thirdly, a QFI will be allowed to invest into IPO's. There are discussions going on which states that they might even get voting rights, but details are awaited.

The present FII outflow this year stands at Rs 2,700 crore which has also impacted the rupee and its believed that once the QFI's start investing the outflows as a percentage of total inflow will go down helping the market.

This is one of the positive development in an other wise dull market, which reiterate the fact that investing in India for the long term today at the cheap valuations will add value to an investors long term portfolio. Keep Investing

An important read for serious Investors :Why You Need an Investment Policy Statement #in

2011-04-14T20:46:00.002+05:30

It’s very important for any investor to make an investment policy statement (IPS) before he starts serious investing. This statement is basically a gist of the all the important things one need to know and take care while investing. It not only covers ones analysis of need, goals etc, but is an important document which tells you what to and what not to expect when you are investing or are already invested.

IPS also encourages you to see all of your family’s investments as a single portfolio and also can rid you of the worry about how to invest that bonus check or ESOP money that just came in. It also aligns what you and you advisor expect from your investment portfolio.

Though you can make the IPS on your own, still I would say use any advisor like us for a detailed planning, aligning, understanding & tracking. It’s like when you are not keeping well, you can choose whether to go for self-medication or to pay small fees and use the services of a doctor.

Anyway the below article on IPS is a very good read don’t miss it.

Why You Need an Investment Policy Statement | MintLife Blog |

Periodic re-balancing of investments as per asset allocation adds value. #in

2011-04-11T10:19:00.000+05:30

Genuine asset re-balance from the swelled portion (profit made) of the asset to debt periodically based on individuals risk profile adds value to the overall portfolio. Lot of people avoid doing re balance stating the requirement to pay short term capital gains or they would state a smaller return. Re-balancing should be the priority in the Investment Portfolio and if done periodically adds value to your portfolio.

I found this article pretty interesting. This will add value to our thinking and investments. Read on...

Rebalance investments to avoid bad times

The successful art funds seem to be in the photography field #in

2011-04-05T19:06:00.001+05:30

Though it doesn't seems to have given the equity returns but yeah it does fit in the alternate investments profile. The Quillan Collection was sold at Sotheby’s for $8.9m. Interesting Read. click to read on.

Photography Funds Show Returns:

Investing in art, wine and other tangible assets #in

2011-04-01T20:43:00.000+05:30

In terms of alternative assets art, wine and gold are most preferred. Investors need to understand these investment vehicles and select products very carefully.

Read on...

Investing in art, wine and other tangible assets

Time to get active in commodity companies

2011-03-16T14:35:00.003+05:30

Investec had come up with a view to buy commodity shares in future as the profits of companies dealing in commodities, due to high prices will only be realized in future. I second this, I think we need to be in commodities fund especially of those companies investing in big mining companies worldwide. There is always a time lag / interaction between the commodity price movement and the stock price movement of similar commodity companies. This is the time, when ideally we need to buy in the stock. Lets see, will check and post in few days which fund can add value. Checkout the below link for more details.

FUNDVIEW-Time to get active in commodities -Investec | Reuters

Interesting Read: Credit Suisse view: India IIP numbers are 'bizarrely' weak

2011-03-10T15:07:00.000+05:30

Interesting view by credit suisse. Expecting Jan IIP @ 3% and 2012 GDP below 8%.

Credit Suisse view: India IIP numbers are 'bizarrely' weak - CNBC-TV18 -

Edition 1 - Power shift: The move from West to East - 21st Century Investment Themes - Fidelity

2011-03-08T23:43:00.000+05:30

Edition 1 - Power shift: The move from West to East - 21st Century Investment Themes - Fidelity

At a glance:

We are moving from a world with one dominant power to a world with several
The dollar's status as international reserve currency is vulnerable
Increased interdependence will mean greater international co-operation
Emerging market consumption will be a key driver of future global growth
BRICs are united in vision, divided in practice
Investors could position their portfolios to benefit from the power shift to the East

Impact of Direct Tax Code ( DTC ) on Resident Indian & NRI Individuals

2010-09-07T11:02:00.001+05:30

Last week the cabinet approved the Direct Tax Code bill and forwarded it to the parliament for approval. This is a good sign of the changes happening in the modern India. The Income tax act which we follow today is more than 50 years old. The objective is to widen the tax base and make the tax law much simpler & more effective.

These are some of the salient feature's of the DTC for Resident & NRI Investors.

Tax slabs to be changed

Slab 1: Upto INR 200000 the tax rate is NIL. ( Present Slab 1 is upto INR1.65 lacs @ NIL)
Slab 2: INR 200,001 to INR 500,000 the tax rate is 10% ( Present slab 2 is INR 1.65 to 5 @ 10%).
Slab 3: INR 500,001 to INR 1,000,000 the tax rate is 20% (Present Slab 3 is INR 5 to 8 @ 20%).
Slab 4: INR 1,000,001 and above the tax rate is 30% ( Present Slab 4 is INR 8 & above @ 30%).

In the case of a resident individual of the age of 65 years or above, the basic exemption limit to be INR 250,000

Corporate tax will come down from 33% to 30% but the Minimum Alternate Tax (MAT) will be increased to 20% from 18%.
STT (Securities Transaction Tax) remains the same
Wealth Tax to be levied @ 1% after the basic deduction of INR 1 Cr.
For NRI's the income from Dividend, Interest, Income from MF, Royalty or fees for technical purpose & income from insurance all to be taxed @ 20%
For NRI's the income from lottery, race, gambling or betting to be @ 30%
Capital Gains:

Short term & long term redefined. Any investment has to cross the financial year of purchase for the number of days counting to start. That means if one buys a mutual fund on June 1 2010, his investments will be short term till March 31st 2012 (Count 365 days from April 1st 2011)
Normal rates as it is now will apply.
Indexation benefits are available for long term capital assets only.

Dividend Distribution Tax :

Corporate DDT of 15% will remain.
DDT on Equity Oriented MF will change from present NIL to @ 5%.
DDT on money market & liquid fund for individuals will change from present 25% to NA.
Surcharge & Education cess to be removed.
Dividend distributed by equity mutual funds where DDT is paid will be tax free at the hands of the investor.
Dividend distributed by non equity mutual funds will be taxed at the hands of the investor from present NIL to 10% if dividend above INR 5000 in the year.

TDS on NRI Capital Gains:

TDS on LTCG on equity funds remains the same @0%
TDS on other capital gain will be @ 30% which seems to be high.
No surcharge & education cess.

Sec 80 C: ELSS (Equity Linked Savings Scheme) will not be a part of the Sec 80 C benefit.

This is not an exhaustive list but I have tried to cover the most important ones which can effect our investing decision. To understand the full report you can view the discussion paper on the DTC at the Finance Ministry website Link.

Hope this will help in your thinking. Regards

Options to self manage your money

2010-08-25T10:41:00.001+05:30

SEBI (Securities Exchange Board of India) banned the entry load on Mutual funds few months back which has now created a whole new dimension for investment management.

I call it "U Manage U Reap" dimension. Today as an investor if you know the very basic of financial planning and if you can make a decent plan for yourself then the whole investment process can be managed online and that to for no fee (or very very less fee). There are websites through which you can go and invest your money like the websites of Asset management companies and there are also sites through which you can keep track of your investments like moneycontrol, yahoo finance, karvymfs etc and to top it up you also have websites through which you can request your statement of investments like karvymfs.com which gives you consolidated fund statements from Karvymfs + Cams+ FTAMIL all for free.
Ok its true that it might not give you statements from all the mutual funds available in India but if I am not wrong more than 95% of funds will be covered. You just need to know which all Mutual funds companies Karvymfs, Cams and Ftamil covers and then invest.

Its an excellent option for NRI's ( Non Resdient Indian) and also for domestic investors.

So if I am an investor my "U manage U Reap" dimension will look like this:

For Financial planning : Self made plan / or take help from some sites like mine
For Buying/Selling Funds : Moneycontrol.com / directly via AMC websites
For Tracking purpose : Karvymfs.com

Hope this post add value to your thinking.

This is not and exhaustive list for "U Manager U Reap" dimension. Request you to comment on this post and let me know of other companies and websites which can be added here.

Thanks

Tax Rules Mutual Funds 2010

2010-04-19T09:13:00.002+05:30

Its after long that I restarted work on the blog. I have pasted the tax rules for the financial year 2010. I have received it from principal mutual fund.

Check the status of the recently issued IPOs

2009-08-18T08:43:00.009+05:30

You can check out the status of the recently issued IPOs like Adani Power and NHPC by clicking at the following link

http://www.karvy.com/ipoStatus

NHPC IPO Closing on August 12, Views, Analysis, Opinions

2009-08-08T23:42:00.015+05:30

National Hydroelectric Power Corporation (NHPC) IPO will be open for subscription today and is one of the most awaited IPOs in recent days. NHPC operates mainly in North and North-Eastern states and This miniratna is expected to get orders from countries like Bhutan and Nepal. This is a first PSU IPO after 17 months (REC is the last IPO – February, 2008). Indian government will get Rs. 2,000 crore by divesting its 5% stake in NHPC while company will get around 4,000 crore from this IPO.

NHPC had earlier filled a draft red herring prospectus in April 2007, but it was turned down by market regulator Sebi, as the company did not have the required strength of independent directors on its board then. Later, the company again filed the IPO papers on August 6, 2008, but scrapped the plan due to poor market conditions.

The real story behind the NHPC IPO is one about expansion and growth. NHPC is currently engaged in the construction of 11 hydroelectric projects, which will increase its capacity by 4,622 MW. Further, 8 projects with an anticipated capacity of 5,751 MW are awaiting sanctions from the CCEA. Survey and Investigation works are being carried out to prepare project proposal reports for nine additional projects for 7,255 MW.

Details of the IPO are as under:

Books Open : Friday, 7th August 2009
Books Close : Wednesday, 12th August 2009
Price Band : Rs.30- Rs.36.
Lot Size : 175 x multiples of 175 Equity Shares
Issue Size : Primary offering of 1,67,73,74,015 Equity shares (Rs.5032.12 Crs.)
Employee Reservation : 4,19,34,350 shares
Net Issue Size : 1,63,54,39,665 shares
QIB Book : 98,12,63,799 shares
Non Institutional Portion : Up to 16,35,43,966 shares
Retail Book : Up to 49,06,31,900 shares
Book Running lead managers Enam, Kotak Mah Capital, SBI Caps.

NHPC IPO on its first day of opening, received an overwhelming response, and the issue was subscribed over 3.54 times on first day, till 5 PM as per data from NSE.

ICRA, rating agency, has given an IPO Grade 3 to the issue, which will close on August 12, 2009.

Analysis:

The company profile look good. It has developed and constructed 13 hydroelectric power stations and its total installed capacity is 5,175 MW.

The demand for Power is going to increase leaps and bounds. With the scarcity of Alternative Energy sources being identified and implemented in countries like India, the Power companies are expected to be benefiting if they can generate good business. Also since that it is a government backed company, it can have project delays but yes approvals on most of the fronts might be faster.

The nearest comparison to NHPC is NTPC. Both are the largest players from respected stable in power generation. NHPC is planning the price band of 36 and NTPC is presently trading at around 217.

The EV per megawatt for NHPC is 10.9 as compared to NTPCs 6.4 considering the installed capacity that both these players have.

In terms of dividend yield NHPC is at 0.8 and NTPC is at 1.7 which is significantly higher. The installed capacity of NHPC will be 5000 mega watt and at the upper price band of 36 the market capitalization of the company will be around $ 10 billion compared to NTPC capacity which is 6 times more than NHPC but market cap of just 3 times more than NHPC. This actually shows that NHPC is slightly cheap in terms of valuations. But yes, here we need to take into consideration that Hydro power has long gestation period than thermal.

NHPC has a comfortable capital structure and the ability of the company to attract long-term debt mitigates capital risk.

Overall a good IPO to put the money for long term.

Keep Investing.

Adani Power Ltd IPO opens today, Views and Analysis

2009-07-28T15:27:00.006+05:30

The IPO of Adani Power, promoted by the owners of Mundra Port & SEZ, opens today on June 28 and plans to mop up to Rs 3,016 crore from the primary market. This is the second biggest in country's history after Reliance Power.

Basic Details of the IPO:

Books Open 28th July 2009, Tuesday
Books Close 31st July 2009, Friday
Price Band Rs.90 - Rs.100.
Lot Size 65 x multiples of 65 Equity Shares
Issue Size Primary offering of 301,652,031Equity shares (~13.8% of post issue capital)
Employee Reservation 8,000,000 Equity Shares
Net Issue Size 293,652,031 Equity Shares (~13.5% of post issue capital)
QIB Book 60% of the Net issue size - at least 176,191,219 shares
Retail Book 30% of Net issue size - not less than 88,095,609 shares
HNI Book 10% of Net issue size - not less than 29,365,203 shares
Book Running lead managers DSP ML, JM Financial, Enam, IDFC SSKI, Kotak, Morgan Stanley, I-Sec, SBI Caps

The rough date of listing is around August 20^th 2009. As I write this blog article the news is out that the offer is already oversubscribed 3.5 times.

The valuation for this IPO doesn’t looks cheap compared to its peers like reliance power. In terms of enterprise value per megawatt of power, Adani power seems to be cheaper than reliance power. However on the project financing front, the company has over-leveraged itself with a Debt-to-Equity ratio of 80%.

The company has decided to use only Chinese equipment at all its plants, which have been dogged by a host of technical issues when used for operating Indian plants in the past. The company also lacks any significant operating history to execute projects of such mammoth scale.

Overall the issue seems to be just neutral but yeah it can be used as a listing strategy, to exit on listing.

Entry Load on Mutual Fund abolished from august 1st 2009, Get free investment advice

2009-07-27T22:56:00.007+05:30

The entry load on mutual fund has been abolished by SEBI from August 1 2009. Its a double edged sword for lot of investors as the good part is that no entry load will be charged and the whole amount will be invested but the negative part to the whole story is hardly there will be any company who will give advice to retail customers.

We can argue here by saying that advice is not required as anybody can decide on which funds to buy or sell. Though its not true because I remember a wealth managament company who during the last bull run, when market valuations were getting stretched had asked their clients to come out in a staggered way from equity MFs. Those clients who agreed to go with the companies advice had very less loss compared to those who stayed put thinking market will cross 25 K on Sensex. Similarly there are clients who take lot of new age allocations like gold and infra and make a mixture of various MFs and think that they have done something great. They realise the failure when markets tank. The question to be asked when one makes his/her portfolio of MF is, have you made a core portfolio? and if yes then what are you going to surround this portfolio with?Do you think 5 MF Scheme is enough for a 50 lacs portfolio or do you require 20 MF Scheme? How to mix and match the schemes to make optimum return? etc etc.

From this blog post I would like to bring to the notice of all the readers that, for any query on MFs, Equity,ULIP, PMS, Structured Product etc, just post a comment with your question or just drop in a mail to my email id sureshkaimal@gmail.com. This same blog also can be viewed by visiting www.sureshkaimal.in

The 9 safest investments for you

2009-05-12T23:07:00.001+05:30

It might seem ridiculous to talk about safe investments and sound returns at a time when the equity markets are down 34 per cent + since last year and a tumbling real estate market is giving most of us sleepless nights.

One thing that the glum developments of the last 18 months have taught us is that when things go wrong, it's time to go back to the basics. When everything around us is crashing, the only comfort is in the simple and staid; like listening to an old song, or eating your mother's cooking.

For our money lives, this new reality of volatile markets indicates the need to go back to old options and invest in products that our parents relied on, the ones we turned our noses up at as too cumbersome, or even too boring.

These options, debt products with fixed returns mostly sold through post offices, are the safest possible as the government guarantees them.

India’s Sensex May Rise to 15,000, Macquarie Says,

2009-05-08T12:12:00.002+05:30

Indian stocks may extend their “impressive run,” helping the Bombay Stock Exchange Sensitive Index climb to 15,000 by June 2010, Macquarie Group Ltd. said.

The economy may “bottom out” in the second half of 2009, aided by the government’s fiscal and monetary policies, Macquarie analysts led by Seshadri Sen wrote in a report today.

Read more of the articles here:

http://www.bloomberg.com/apps/news?pid=20601091&sid=ahsyvlFT6ifA&refer=india

Source: Bloomberg.com

Real Estate trend 2009 & DLF Westend Heights, Bangalore in Trouble

2009-05-07T18:41:00.017+05:30

In continuation to my post Real Estate Prices in India face slowdown

I happened to read the below public notice in todays (May 07, 2009) Times of India Bangalore Edition, page 20.

This is also available in their online newspaper edition called e paper( I am not able to put the link here) but go to http://epaper.timesofindia.com/Default/Client.asp?Daily=TOIBG&showST=true&login=default&Enter=true&Skin=TOINEW&GZ=T and check out for page 20.

I dont know how true it is that DLF tried selling the residential property in bangalore without approval as claimed in the notice, but one thing is for sure if it is right then its one of the worst things to happen to DLF and to the real estate markets.

Real Estate Trends 2009:

Pretty sad to see the state of affairs in Real Estate companies. In fact if you read my earlier post on real estate you will find that the actual correction should have been close to 30% in various markets. I still feel there is lot of room for real estate prices to go down. The reasons remain the same. Till now lot of companies somehow managed to keep the price drops to just around 18% but things still are not looking good, funds have still not started flowing to the builders even after the rate cuts. This can lead to more price drops in most of the markets where prices had bubbled. I feel that if builders reduce more prices then cautiously buyers might come in and prices will start stabilizing. I have seen some builders in Bangalore doing so lets see how it progresses.

I was going through the jones lang la salle research report on global market perspective available at their website www.joneslanglasalle.com. It says, in Mumabi the rentals have gone down by 25% Delhi by 18%. Its not only the residential prices its also comercial which is getting hit now. I quote them 'The decline in Asia Pacific property fundamentals is likely to continue during 2009, with office rentals expected to fall between 20 percent and 40 percent'. So its not only property price its also rental which is in trouble.

Just an opinion.

Details of New Pension Plan 2009 (NPS) of Govt of India, PFRDA

2009-05-04T20:24:00.012+05:30

The New Pension Scheme (NPS) has been launched on ‘Labour Day’ on Friday for all the citizens.

This followed the confirmation by the National Interim Pension R

egulator of the scheduled launch of the Mega Pension Plan from Friday. This scheme will be for for employees of private sector, self employed and extended it to everyone in the country. The Pension Fund Regulatory Development Authority (PFRDA) has decided to bring in some changes in the new pension scheme with effect from May 1, 2009.

The new pension scheme(NPS) will allow the fund investment of nearly 50% in the high risk stock markets. Six major fund managers were shortlisted for the new pension scheme in the month of February. They include Reliance Capital,ICICI Prudential Life Insurance,State Bank of India,Kotak Mahindra Bank,UTI,IDFC. An expert panel was formed under the guidance of HDFC chairman Deepak Parekh to look into the matters of new pension scheme.

The PFRDA has made a strict limit of investment of only 50% in the stock markets of the pension funds. Even the default choice where the persons do not take any call on the percentage of their funds to go into the stock markets will have a cap of maximum 50%. The board has said that the cap would be reviewed a year later and appropriate decision would be taken in this regard.

Some Important points of New Pension Scheme (NPS)

There will be two different accounts

Tier 1- Pension A/c: This a/c will be non withdraw able & one can contribute their savings. Its available from May 1^st 2009.
Tier 2- Savings A/c: This will be a voluntary savings facility & one will be able to withdraw from this account anytime. Its launch date will be notified by PFRDA shortly.

NPS accounts to be opened by authorized branches of several providers called points of presence.
Registration forms and the process to receive the welcome KIT with Permanent Retirement account Number (PRAN).
PRAN will remain same throughout the life of the individual.
The percentage of money to be invested into equity will depend on the individual and will not exceed 50% of the total corpus.
One can choose the fund manager to handle the NPS.
In case one doesn’t choose it will go on Auto Choice Option.
In case one doesn’t choose the allocation then Auto allocation of 50% into equity applies.
Usual tax benefit given to pension plan applies to NPS too.
Age grop allowed is 18-55 years.
First contribution has to be made when one applies the first time to NPS.

Min amount per contribution is Rs 500.
Min amount per year Rs 6000.
Min number of contributions per year is 4.

NAV will be declared on a regular basis.
The PRAN Account will be closed if the citizenship of the individual changes.

When can one get the money out?

At any point in time before 60 years.

Here you would be required to invest at least 80% of the pension wealth to purchase a life annuity from IRDA – regulated life insurance company. Rest 20% of the pension wealth may be withdrawn as lump sum.

On attaining the age of 60 years & up to 70 years:

You may choose to purchase an annuity from any IRDA regulated life insurance company for a minimum amount of 40 % or greater. The remaining pension wealth can either be withdrawn as lump sum on attaining the age of 60 or in a phased manner, between age 60 and 70.

Death due to any cause:

In such an unfortunate event, option will be available to the nominee to receive 100% of the NPS wealth as lump sum.

What are the charges one has to pay for the NPS?

Following are the point of presence outlets: (POP)

Allahabad Bank, Axis Bank, Central Bank Of India, Citibank, CAMS, ICICI Bank, IDBI Bank, IL&FS, KOtak Mahindra, LIC, Oriental Bank of Commerce, Reliance Capital, State bank of Bikaner & Jaipur, SBH, SBI, State Bank of Indore, SBM, SBP, SBT, The South Indian Bank, UBI, UTI Asset Management Company Ltd.

RBI cuts rates again on April 21st 2009, looking to fuel growth: Policy Highlights & Impacts.

2009-04-22T13:28:00.004+05:30

The Reserve Bank of India (RBI) cut its key lending rate for the sixth time in 7 months on Tuesday and pushed commercial banks to follow suit to bolster growth which has taken a bigger-than expected hit from the global downturn.

Some Important Highlights

Repo rate cut by 25 bps to 4.75%.
Reverse repo rate cut by 25 bps to 3.25%.
Bank rate and CRR (Cash Reserve Ratio) remains at 6% and 5% respectively.
Banks asked to review BPLR system & make credit pricing more transparent
Payment of interest on savings bank account on a daily product basis, wef April 1, 2010.
Settlement of OTC trade on corporate bonds
Buy-back of FCCBs (Foreign Currency Convertible Bonds) out of internal accruals, subject to certain discounts, upto USD 100 mln permitted to corporates.
Loan against NRI deposit increased from INR 20 lac to INR 1-crore .
Interest rate futures to be launched shortly for 10-year paper.
STRIPS (separate trading for registered interest and principal of securities) to be launched this year
Credit rating agencies to be kept under surveillance.

Some important Impacts.

Deposit rates of banks will go down.
Lending rates on all the loans including new and existing loans will go down.
NRI,s can borrow more, from earlier INR 20 lacs to now INR 1 crore against FCNR or NRE deposit.
Money kept in Savings bank a/c will give more interest. So from present around 2.5% to 2.75% it might go upto 3.25%-3.5%
Banks & bond houses can cover some of the risks arising out of a rise in interest rates with the help of interest rate futures.
Liquidity in the markets will increase due to STRIPS. STRIPS is like splitting the interest element on a bond you are holding and selling it down. This will help in the stock market upturn.

General View:

The Reserve Bank of India expects economic growth, which slowed to a six-year low of 5.3% in the December quarter, to pick up to as much as 6 percent over the next year.

The yield on India’s benchmark 10-year bonds fell three basis points to 6.15% today & I think it might fall to 6 % before this month end. The impact will be on the benchmark notes which are already rallying and it might go up more, as falling borrowing costs and rising cash at banks boost demand for debt.

To extra boost the economy the RBI might buy back the MSS bonds issued last year to drain out excess liquidity from the market. The only concern which we need to understand is that the monetary easing done in India by our central bank has been in line with our monetary policy and nothing extra ordinary seems to have been done like central banks in other continents. We can call it the conservative stand of our central bank.

Investment Option:

A staggered investment option to equity with a 1-2 year of staggering preferably via mutual funds will be a decent option to enter Equity markets and investing into Income fund still shows some upside above fixed deposit of banks.

Keep investing…

Investment Strategy May 2009: Are we out of recession? Is financial planning necessary or investing blindly to Real Estate,MF,PMS,Equity make sense

2009-04-17T12:42:00.009+05:30

Election time has come and investors are today clueless whether to enter or stay away from investing into any asset class. In fact this time unlike analyst expectations, I feel either the Congress or the BJP will lead formation of the government with their own respective coalitions but it’s ideal to wait till declaration of results to take any action on direct equity front. Other asset classes / investment vehicles can though be looked at.

Since last two weeks Indian market has seen a rally of sort. The Indian benchmark index SENSEX, climbed 38 percent since falling to its lowest level this year on March 9.

The present rally might not be very much sustainable and there can be a downturn in the short term. I feel the markets have moved up from around 8500 level to 11k levels very fast without much change in the fundamentals. This probably happened because of positive sentiments globally that much pain is over and the return of the risk appetite to emerging markets. This can also be attributed to the fact that there might be some new carry trades emerging from developed economies due to low interest on borrowings abroad. The market also is expecting positive corporate results via AS-11 breather. Under AS 11, foreign exchange gains or losses on borrowings for fixed assets have to be charged to the profit and loss account. This would impact the net profit that companies announce every quarter.

Once the elections are over markets will take cues from the policies of the new government and global markets. We will have to wait for understanding the new policies but globally things might not be so great for SENSEX to stay close at 11500 levels in the short term. But it seems to be highly likely that markets might not see the earlier bottoms.

Though nobody can predict the market accurately but probability model based on some facts and figures can show the probable way to make money with controlled risk. If we try & understand where the market can go say in the next 18-24 months, then there are few things we need to look at:

1) The valuation: The present market valuation looks very attractive. When else can you buy stocks at such cheap prices?

2) Fundamentals: With enough money in the markets and with near zero (WPI) inflation, with room for more cuts, with restart of funding to corporate from banks, GDP growth around 6% (expected) and probably decent monsoon, things seems to be good for the future.

3) Global Economic Scenario: With the home data showing improvements in the US coupled with companies who have received the TARP fund showing signs of repaying & corporate feeling less liquidity crunch along with emerging economies like China coming up with a above average economic results we can say that global economy will be close to the bottom if not above the bottom.

4) The Market Cycle: If we look at the market cycles in India compared to any of the previous cycles, this downfall we have gown down the most to around -56% which could be the bottom. (Refer the graph below). Every downfall has a great rebound and I feel this time it will be greater than earlier rebounds but yeah it will take some time (18-24 months at least)

Past Performance may or may not be sustained in future. The above calculation depicts performance of BSE Sensex over a period of time and shall not be construed to be indicative of scheme performance in any manner. Data Source: www.bseindia.com; MFI Explorer, PRU ICICI Mutual fund,

Investment Strategy:

As I always say, every market (Equity, Debt, Real Estate, Gold, Global etc) at any level, has numerous opportunity which can be tapped if planned wisely.

A plan (preferably made by experts) based on your need/ goals, time horizon, risk appetite, cash flow, analyzing existing investments etc is the best way to be in investments than buying into any fund just because some relationship manager/ wealth manager/ investment counselor probably from a big branded company telling that x, y, z product/funds will do well in the future.

When you make the plan understanding the short, mid and long term options make sense. Just my view that on a short to midterm liquid plus schemes (check out the name changes) make sense and for say a 1 year tenure Income funds still look better.

Next 18 months is very crucial for the markets and we can expect to see lot of volatility in the market. Equity investments with a proper staggering of at least 18 month will be a wonderful idea. Pure term plans (without much fancy like Birla dream plan) will de risk the loss due to unforeseen events. A small personal medical insurance say of around Rs 2-3 lacs) apart from the company one will make sense in case of any unforeseen medical event during changing companies or in probation period when joining a new company or when going out of job for few months.

Keep investing….

Global recession will not stop India’s long term growth though caution remains in the short term: Investment strategy, views & concerns.

2008-12-05T22:40:00.005+05:30

First of all I would like to thank you all who liked my earlier post on real estate trends (Real estate prices in India face slowdown ) It’s true that most of the things captured in that blog post five months back has either happened or is happening.

Also check my July 2007 blog post Market meltdown on US concerns and the cautions mentioned to all the investors about the upcoming market mayhem.

Hope you would like the below blog post too.

After a small break I thought of adding a blog post as I felt this is the time when we should understand what’s happening with the markets & what should be our investment strategy at this time.

The actual market mayhem started with the collapse of one of the US banks in Aug-Sep 2008. This collapse brought in fear in lending between institutions and bank. The low lending (at a higher rate) or say no lending at all brought in the credit crisis. The credit crisis coupled with Sub-Prime losses triggered closures of various institutions and corporate losses the world over.

Today we have reached a stage where we have lost the trust in the US belief of the free market economy. The belief that once the market moves away from the mean comes back to its original form if left alone has to be rethought. There is now a consensus that financial markets should not be left alone instead regulated to some extent. It’s the right thing to do as over regulation might kill growth and under regulation will bring in unregulated financial engineered products which might have a bad impact on the market. (The present crisis is the latest example)

I truly agree with George Soros who in one of the interviews said, every bubble has two parts one is real trends and the other is a misconception about the trend. Real trend is credit expansion with use of leverage and the misconception has been market fundamentalism. Misconception is that the market correct back to the mean always. This misconception occasionally brings in financial crisis.

The one thing we should always remember when we are in equity markets is that the market goes to extremes and creates bubbles. It means when the market is trading at very higher valuations or at very lower valuations is when bubbles are created.

But does that mean that the bottom in the market too is a bubble?? Probably yes, probably it should be called over contraction as once the trust factor comes back to the market it will start zooming from here.

Today Indian index SENSEX is trading close to 9 times of the next year forward earnings which few months back was at around 21 times. Aren’t the valuations today too cheap, too contracted??

The only thing that is stopping investors today from investing at this kind of cheap valuations is the global factors. The day we see bit stabilization in the global markets is when our markets will start their ascent journey, and it will take some time probably say a year more from here.

Advantage India:

The Nov 08 Bloomberg data of BRIC economies index performance for the calendar year 08 shows the following

MICEX of Russia down 67.64%, Shanghai Composite of China down 62.25%, Sensex of India down 53.74% & Bovespa of Brazil down 46.03%.

India is one of those few economies of the world which didn’t had substantial losses (till now) in the subprime crisis, but still our markets came down like a pack of cards.

Indian market is mainly affected by sentiments also called the misconceptions which drive the sentiments. I spoke to some of the analyst and their blunt reaction as usual was we are affected due to the recession affecting the world economy as when there is recession the world over there will be less consumption of various products and services which indirectly will affect India’s trade and markets crash.

I personally don’t think the above analysis make that much sense because trade as % of India’s GDP is around 33% which also include oil (close to 7%). So if I remove oil from our trade then we will be left with around 26% of GDP as trade. Now let’s say that around 40% (on the higher side) of this 26% of trade is affected due to recession still our GDP should be above 5.5% which definitely is not a bad GDP as no other economy other than say China will even be closer to it.

Today lot of Indian companies are shifting their focus from US & European markets to markets like China and also local Indian markets so that their profitability is not majorly affected. But yeah with global slowdown we in India might see some job/salary/incentive cuts which might lead to less consumption, though this might not be on the higher side unlike economies in the west.

Second point is the inflow and outflow of money. Our markets had moved up all the way to 21K level on Sensex with lot of money which flowed into our economy either by FII, PE or as FDI. In 2008 the total foreign flow into the country stood close to $ 110 B which will be around 8.5% of GDP. Due to the global meltdown India has witnessed lot of outflows which too was one of the main factors for the market turbulence. The money which went out was mainly due to the unwinding of the leveraged positions and to meet the capital requirements in each of the fII’s home business. Today we don’t have that much of unwinding left and governments world over are funding companies in trouble. There are also the long term players in our market like the pension funds who are still invested in India. Going forward we should also remember that when global market sentiments stabilize a bit, India will be one of the few economies which will attract a big chunk of the global investor’s money. India at that time, compared to the best economies in the world will have one of the highest GDP growths.

Third factor could be the Indian inflation as it is likely to come down to close to 6% by next year mid this will make sure that interest rates too will come down quickly which will provide the much needed liquidity to our markets and it might also act as the fuel for market upturn.

Disadvantage India: Some points

The global slowdown might lead to a series of job cuts across sectors, though the numbers might not be substantial. India need to look into ways to reduce job cuts.

Unlike China India is running a deficit close to 6.6% of its GDP so ideally the decisions to feed the economy with extraordinary stimulus package might not happen.

India’s political outlook doesn’t look too great. How beneficial a coalition govt. can be and how fast decisions can be taken by such a govt is anybody’s guess.

India is too much depended on foreign money especially by companies who borrow abroad.

Apart from this the long term India story still remains.

My views for investment remains the same as June that this is the time when we need to review our portfolios and weed out those scrip’s and funds which might not participate in the upcoming market upturn like infrastructure, real estate etc. This is also the time to rethink income funds as an investment vehicle apart from equity investments which should be invested via a proper staggered route or as STPs on mutual funds.

Before ending, I would also like to add that the above stated points are just my point of view and any review/rebalancing /investing should be done with proper care.

You can send me your views on my email id sureshkaimal@gmail.com .

Real estate prices in India face slowdown

2008-06-25T12:23:00.015+05:30

Real estate price in India is stabilizing and is facing steady slowdown especially in the metros. I have taken Bangalore as an example in this blog but other places too are affected by similar concerns.

In Bangalore the real estate price is going crazy, though none of the real estate agencies would like to agree to this fact.

Property prices moves due to the basic principle of Demand & Supply

When demand is high & supply low prices will go up

When demand is low & supply is high prices will come down

For example let’s assume that somebody has bought a property for Rs X and he is trying to sell the property (say after a year), there can be three options, assumption being that the owner is in need of money and cannot wait for more than 3 months to sell the property.

When the property prices are zooming everywhere> Here the owner will try to add as much premium to the property as possible, wait for three months and sell off in the last month at the highest bid ( RsX + RsY)
When the property prizes have stabilized > Here the owner will not be able to sell the property at a premium due to market stabilization & since he might not want to sell at a loss, he will try to get at least the same amount he bought the property for (Rs X = RsY
When the property prices are going down> Here the owner will try to sell the property at the least profit or at the least loss. (RsX-RsY)

There was a news in one of the leading news papers last week that there are close to one hundred thousand completed flats without occupancy and another hundred thousand will be available for occupation by the end of July. But are there enough buyers in the market compared to the supply? The demand it seems is only for fifty thousand units.

Bangalore seems to be in the midst of low demand & high supply. This can be attributed to the facts that due to the sudden growth of Bangalore, in the last few years, lot of builders have jumped in to catch the opportunity of building residential apartments thinking there will be lot of employment and increase in salaries & hence demand for housing. Last few years were great for Bangalore as IT was doing well and other industries like banking & retail were expanding.

Today due to the economic cycle downturn the jobs are being cut and recruitments are put on freeze, salaries are stabilized and bonuses reduced, not only in IT but in other industries too. The impact of this is felt in the local property market.

Stock market downfall too has added more trouble to the real estate market as it is reducing the purchasing power. Indias sensitive index has shed 30 percent this year. Real estate stocks had a major hand in leading the sensex to the worst six-month performance in at least three decades, with the Bombay Stock Exchange Realty Index slumping 59 percent this year.

Non resident Indians (NRI) were a major segment who used to invest into property either as investment or as a place to stay when they return to India. Today for investment purpose NRI's are not looking at India as in foreign markets, the property prices have gone down drastically due to the sub prime & credit crisis and those markets look relatively cheaper with a lower price to earnings ratio compared to India.

The potential to make higher return lies there now. This ideally means that money flow into India for buying property might come down too. Loan rates of various banks too affect the demand for the property. In India loan rates are controlled indirectly by the government. Today we are sitting on a WPI inflation of close to 11.3 %. If the government here has to control this inflation they have to suck liquidity from the markets with their favorite weapons like CRR, repo rate, reverse repo etc. The loan rates move depending on the movement of these rates. Today due to the high inflation figure, loan rates might go up and lot of people will opt out from buying a property due to high EMI's. This will again lead to a decrease in demand for housing.

Some of the real estate research agencies are of the view that there seems to be a possibility of further downside within six months and it makes sense to wait & watch as of now.

Whatever the condition of the economy, one thing we should not forget is in the long term property (land) is a great investment as it is the only asset class which cannot be produced. Though there might be a 18-20% correction across in the short term ( say 6-8 months) due to the factors mentioned above ,a wait, watch and a definite buy make sense for the long term.

Some factors which inspired me to think why property prices might correct:

Smaller developers offering huge price discounts.
Cost of secondary sale property coming down by more than 10 %.
Sudden increase in the attractive schemes by builders to lure investors
Builders giving huge discount on upfront payment
Rising inflation and interest rate.
News of demand supply mismatch especially in Bangalore.

Just a point of view

Global and Local Uncertainty – Lets keep the faith

2008-03-21T10:09:00.006+05:30

In this blog post I would like to share the views of one of the investment banks on the present market scenario. After almost three years of bull run in Indian markets we have entered a pocket of introspection. Key stock indices now trade along with most global markets, at levels that last prevailed in September ’07, before the US Fed commenced its rate easing cycle. Overall market capitalization is down by 27%, in calendar ’08 and stands at levels last seen in September ’07.
Key factors affecting Indian markets can be classified as

Global environment – uncertainty continues to unfold
The unfolding economic malaise in the US has been well articulated in various fora with the principal concerns surrounding the likelihood and the depth of an economic recession, the stagflationary environment seeming to emerge there and the ability of policy makers to engineer a smooth and swift recovery in such an environment. The sharp fall in the USD over the last few days against most major currencies – the EUR trades at its life-time high, while the JPY is at a 12-year high - seems to betray the market’s nervousness on the US economy’s health over the near term.

Commodities rally as hedge against the USD
The weakness in the USD has likely led to large-scale unwinding of JPY carry-trades, even as financial investors seem to be reallocating portfolios in favour of commodities, partially as a hedge against the greenback’s weakness. Thus, crude oil prices have risen sharply to all-time highs in the recent past despite projections of easing demand in the US, the largest consumer. The shift away from USD is seen by the fact that although commodities have rallied in USD terms, their price movements have been vastly subdued in EUR terms, ever since the US Fed cut rates in an emergency move in late January.

US recession
Increasingly, the debate has shifted from speculation over the possibility of a recession (in the US) to, predicting the extent of such an imminent eventuality. A spate of adverse incoming economic data pertaining to employment, consumer confidence and production have led various analysts to project two successive quarters of degrowth, which may likely be followed by a recovery in the second half of the calendar year, aided primarily by the spate of rate cuts expected from the US Fed and the tax rebate package already extended by the US Government. The IMF projects global growth as a result to slow from an estimated 4.9% in ’07 to 4.1% in ’08.

So how sensitive is India to the current global turmoil?
The confidence in emerging market economies’ ability to forge ahead in the backdrop of a US recession emerges from the insular nature of many such countries and the domestic strengths they enjoy. India figures prominently with its strong domestically driven growth pattern.

Despite integrating substantially with the world in recent years, India’s trade/GDP ratio remains at c32-33%, with exports to the US constituting a miniscule 2% of our GDP.
Various research agencies and the IMF have estimated that, every 1% change in US GDP, would impact India’s GDP by c0.2%.
A near doubling in investment/ infrastructure spends over the next few years to c8-9% of GDP would provide strong growth drivers for the economy that would percolate across a whole host of industries.
Aided by among the strongest income growth globally, lower taxes (both indirect and direct taxes were cut in the recent Budget) and potentially conducive monetary environment later in the year, domestic consumption demand is expected to pick up substantially over the next few years.
On the back of the above domestically led growth, corporate India is widely expected to grow its profits by c18-20% over the next two-years. This growth comes off strong balance sheets with debt levels lower than those seen at the beginning of the decade.

However, while the medium/ long-term picture remains unchanged, over the short-term, the principle sources of permeation seem to be through the financial markets, where rising credit spreads and unexpected currency movements may create short-term turbulence for corporate India. Higher risk aversion in the near-term could also dampen companies’ ability to raise finance to fund their growth plans in the short-term.
Most of the above may well be transitory in nature, given the longer-term robust outlook for India. Besides, domestic savings that stand at c34% of GDP and rising, would likely be able to support the investment requirements of the economy.

What is the near-term economic situation?
The Indian economy is undergoing an engineered moderation over the last four quarters and could now be well placed to regain its higher growth trajectory aided by fiscal and potential monetary impetus. Key factors here and the debate surrounding them include:

The Union budget has cut excise duty and sales tax, even while raising the income tax slab and granting an unprecedented farm loan waiver with the objective of easing domestic inflation and providing impetus to consumption demand.
» These measures would not only raise income levels across the economy, but also make goods more affordable – both positive for driving consumption.
Rapidly falling US interest rates, a recent divergent trend of a weakening INR and conducive deposit and credit growth could help the RBI consider a benign monetary environment in the coming quarters. System rates have slid since January with bank lending and borrowing rates easing by c25-75 bp supported by domestic liquidity.

» The flipside to this is however from stubbornly high domestic inflation, that faces the further risk of rising crude and commodity prices.
» A fundamentally weak USD and broadbased currency appreciation across similar nations, could however raise calls for renewed appreciation in the INR, that would reign in inflation.

Despite mixed signals, markets seem to be betting on rate cuts by the RBI in the latter half of ’08, mostly in an effort to buoy growth.
Given the confluence of domestic (inflation, growth moderation) and international factors (oil prices, US recession, capital flows), policy making may well see some tightrope walking, while providing critically needed direction to markets over the near term.

Outlook
The ensuing global uncertainty may well cause markets to remain fairly volatile and gyrate to evolving international developments, while investors would closely watch its impact on Indian companies in the forthcoming quarterly financial results season. Initial indications hint at some disappointments around forex losses, bond exposures and easing order flows from the US.
Consensus estimates put earnings growth for the Sensex companies in FY09 at c20%, implying a P/E multiple of c14x at current index levels. While a consideration of the growth scenario over the next two-years at current valuations, demand investor attention, near term sentiment on global markets have raised risk aversion sharply. Even as the debate rages on the outlook for the US and thus, its key trade partners, the growth outlook for India remains largely intact. It is this backdrop that long-term investors would necessarily need to focus upon, while viewing domestic equity markets amid volatile periods.
Thus, while near-term volatility is virtually a given factor, the opportunity to invest at compelling valuation levels over a 2-3 year investment horizon may help in contributing to overall portfolio performance. With the ensuing uncertain environment, we believe large-cap stocks/funds may provide sound opportunities over the near term, while a carefully tailored portfolio of mid-cap stocks/funds would benefit over a 3-year horizon. Investors should use a tranched approach to investing so as to derive the most of the volatility in markets.

So as I always say Lets Invest...