Indian Stock Market Info

Reward time for Reliance shareholders

2009-10-08T13:54:00.000-07:00

Reliance Industries chairman Mukesh Ambani has said issue of bonus shares after a 12-year hiatus was just fulfilment of the company's commitment to reward shareholders after completion of important projects.

The RIL board on Wednesday approved giving one free share for every share held, upon completion of a mega refinery at Jamnagar in Gujarat and KG basin oil and gas field development.

"It was a Reliance commitment, whenever we finish a value creation cycle, we make sure that everybody is awarded," he told CNBC TV-18 business channel.

The company built a 580,000 barrels per day refinery at a cost of $6 billion to make Jamnagar the world's largest refining hub. It invested an equal amount in beginning production of natural gas from KG-D6 fields in record time. Together with a $4 billion pipeline for transporting gas to consumption centres, the group had invested over Rs 100,000 crore (Rs 1 trillion) in 3-4 years.
"This value creation cycle was the biggest in our history where we had nearly Rs 100,000 crores of assets coming in line," said Ambani who heads the nation's most valuable company.

The gas from KG-D6 has cut fertiliser subsidy and increase power generation, thereby helping the economy in times of downturn, he said.

"I think it was the shareholders turn (to be rewarded now). It was a commitment (we have fulfilled now)," he said.

Ambani said Reliance was "pretty focused" on growth trajectory. "We are very much on track." He, however, refused to discuss new projects saying: "You have to wait for the next AGM to get specifics of that but the direction is not changing at all."

Asked about the growth vehicles for Reliance in next five years, he said: "We will spell out the specifics on November 17."

Deflation - Are we going to face problems

2009-03-16T06:13:00.000-07:00

Nowadays we keep on reading that global economies such as US and Europe will face severe problems of deflation due to recession. Fed fund rate in the US is between 0.00-0.25% or 25 bp (100 basis point = 1%). Inflation in these countries is close to 0. With the falling interest rates in India will we too face similar situation?

Deflation is a “sustained” fall in the general price level of goods and service below zero percent inflation. It results in an increase in the real value of money — a negative inflation rate. It is just opposite of inflation, which is the general increase in the price level of goods and services. When the inflation rate slows down (decreases, but remains positive), this is known as disinflation. Disinflation is a substantial drop in the rate of increase of the price level. Deflation should not be confused with temporarily falling prices; instead, it is a sustained fall in general prices.

Inflation destroys real value in money whereas Deflation creates real value in money.
Real Price ~ Nominal Price –Inflation
With the passage of time, the “real price” of any good or service is characterized by above equation. Hence, if it is positive inflation or normal inflation, real price decreases over a period of time. However, if inflation is negative i.e. deflation, real price increases with time. Alternatively, the term deflation was used by the classical economists to refer to a decrease in the money supply and credit.

Causes of deflation
1. Deflation is caused by the fall in aggregate level of demand i.e. there is a fall in how much the whole economy is willing to buy, and the going price for goods. Because the price of goods is falling, consumers have an incentive to delay purchases and consumption until prices fall further, which in turn reduces overall economic activity - contributing to the deflationary spiral. (As we can currently see that buyers believe real estate prices will fall further, thus delaying their purchase decisions. This in turn has reduced the demand for the real estate properties which in turn has reduced the construction activities. Thus, general economic activities such as cement production etc are down.)

As demand and economic activity falls, investments fall as well because corporate do not want to invest in increasing capacity as there is no demand. This leads to further reduction in aggregate demand. This is the deflationary spiral i.e. a situation where decreases in price lead to lower production, which in turn leads to lower wages and demand, which leads to further decreases in price. An answer to falling aggregate demand is stimulus, either from the central bank, by expanding the money supply, or by the fiscal authority to increase demand such as reducing interest rates or giving money to corporate or people at significantly lower rates.

2. In monetarist theory, deflation is related to a sustained reduction in the velocity of money (It is the average frequency with which a unit of money is spent in a specific period of time. Velocity affects the amount of economic activity associated with a given money supply) or number of transactions. This is attributed to a dramatic contraction of the money supply, perhaps in response to a falling exchange rate, or to adhere to a gold standard or other external monetary base requirement. In the present scenario it appears to be one of the prime reasons for growing fears of deflation.

3. Deflation also occurs when improvements in production efficiency lower the overall price of goods. Improvements in production efficiency generally happen because economic producers of goods and services are motivated by a promise of increased profit margins, resulting from the production improvements that they make. Competition in the marketplace often prompts those producers to apply at least some portion of these cost savings into reducing the asking price for their goods. When this happens, consumers pay less for those goods; and consequently deflation has occurred, since purchasing power has increased.

4. Deflation may be caused by a combination of the supply and demand for goods and the supply and demand for money, specifically the supply of money going down and the supply of goods going up. Historic episodes of deflation have often been associated with the supply of goods going up (due to increased productivity) without an increase in the supply of money, or (as with the Great Depression and possibly Japan in the early 1990s) the demand for goods going down combined with a decrease in the money supply.

Indian scenario – Last few years we saw massive boom in all the sectors. There were huge demands for real estate properties, IT services, Cements, Food products etc. Our economy was growing in excess of 9% and mood was upbeat. Everybody thought this growth will continue forever. Hence, corporate invested heavily in building capacity, developers invested billions of dollars in launching new projects etc. Suddenly the boom busted due to financial crisis. People lost jobs, interest rates went up through the roof and demand plunged. There was a huge mismatch between supply (more) and demand(less). This led to price correction - real estate saw over 40% drop in prices, commodities went down by over 70% and so on. Moreover, due to global financial crisis, there is acute shortage of liquidity in the market and hence less flow of money in the economy. People are holding back to their investments as well as consumption; thus, reducing velocity of money. Does it sound like symptoms of deflation?

Effects of deflation
1. Deflation leads to decrease in prices of good and services, increasing value of money. While an increase in the purchasing power of one’s money sounds beneficial, it can actually cause hardship when the majority of one’s net worth is held in illiquid assets such as homes, land, and other forms of private property.

2. Deflation raises real wages, which are both difficult and costly for management to lower. Moreover, falling prices and demand discourages corporations from investing. This frequently leads to layoffs and makes employers reluctant to hire new workers, increasing unemployment.

3. Deflation often follows a period of nearly zero interest rates. When the central bank has lowered nominal interest rates all the way to zero, it can no longer further stimulate demand by lowering interest rates. This is the famous liquidity trap. When deflation takes hold, it requires “special arrangements” to “lend” money at a zero nominal rate of interest (which could still be a very high real rate of interest, due to the negative inflation rate) in order to (artificially) increase the money supply.

Why deflation is bad?
While shoppers see falling prices as a good sign, economists see it as a threat to the economy or nation. Deflation hurts the economy much more than inflation. In fact a small positive inflation is good for the economy because it suggests growing demand as well as healthy economy. However, in deflationary conditions consumers postpone expenditure, because they think prices will decrease further. This decreases demand in the economy which badly affects firms, who then scale back production and investment plans, leading to job losses, further affecting purchasing power and demand, which leads to a downward spiral in the economy.

We will now take a look at the most infamous deflation in the history of modern world.

Deflation in Japan
Deflation in Japan started in the early 1990s. The Bank of Japan and the government tried to eliminate it by reducing interest rates, but this was unsuccessful for over a decade. In July 2006, the zero-rate policy was ended. There were several reasons for deflation in Japan which are explained below:

1. Bust of Asset price bubble: There was a rather large price bubble in both equities and real estate in Japan in the 1980s (peaking in late 1989). When assets decrease in value, the money supply shrinks, which is deflationary.

2. Insolvent companies: During the boom time (1980s) Japanese banks lent aggressively to companies and individuals that invested in real estate. However, when real estate values dropped, people were not able to pay back these loans to banks. The banks tried to collect the collateral (land or properties), but this wouldn’t pay off the loan because their prices had fallen significantly. Banks delayed their decision to foreclose these loans hoping asset prices would improve. These delays were also allowed by national banking regulators. This continuing process is known as maintaining an “unrealized loss”, and until the assets are completely revalued and/or sold off (and the loss realized), it will continue to be a deflationary force in the economy. Improving bankruptcy law, land transfer law, and tax law were suggested by leading economists as methods to speed this process and thus end the deflation.

3. Insolvent banks: Japanese banks had a larger percentage of their loans as “non-performing” i.e. they were not receiving any interest payments on them, but have not yet written them off. With high non-performing loans or assets, they were unable to lend more money; thus, their earnings declined significantly and risk of insolvency increased many a fold.

4. Imported deflation: Japan imports Chinese and other countries’ inexpensive consumable goods, raw materials (due to lower wages and fast growth in those countries). Thus, prices of imported products were decreasing with the rise of economy of scale in China. Domestic producers had to lower their prices in order to remain competitive. This decreasing in prices of domestic products over a period of time led to deflation.

5. Fear of insolvent banks: Japanese people were afraid that banks might collapse so they preferred to buy gold or (United States or Japanese) Treasury bonds instead of saving their money in local bank accounts. Thus less money was available for lending and therefore economic growth. This meant that the savings rate depresses consumption, but did not appear in the economy in an efficient form to spur new investment.

Deflation alarms in the US?
With the fed fund rate at a historic low (0.00-0.25%), there is a growing fear of deflation in the US. Many economists believe that USA could face short term period of deflation. With the bust of housing bubble, acute shortage of credit and falling consumption, USA has more or less similar conditions that were prevalent in Japan in early 1990s. However, I believe there are some basic yet crucial differences.

Firstly, Japanese companies were far more dependent on commercial banks for financing than are today’s U.S. multinationals, which have stockpiles of internal capital as well as broader access to capital markets. Moreover, US Treasuries are still considered as the safest investments in the world. This keeps the flow of money into the US economy.

Secondly, Bank of Japan’s exceptionally poor monetary policymaking was a big reason for the country’s protracted problem. The central bank’s failure to lower interest rates in the early 1990s ultimately drove the economy into a deflationary death spiral. They were just too slow and conservative to react to the situation. However, US Fed has been quite aggressive and proactive in taking sound monetary decisions and ensuring that they do not repeat those mistakes. In 1992, for example, amid negligible inflation and a comatose economy, the Bank of Japan’s key interest rate was still nearly 4%. In contrast, after the tech bubble burst in the USA, the Fed quickly slashed its benchmark rate to 1 %. Also, the current fed rate is between 0.00-0.25%.

Thirdly, though both USA and Japan faced housing trouble and mortgage crisis, Japan’s central bank was too slow to act. The country’s banks hid their bad loans beneath opaque corporate structures rather than absorb the losses. But rather than write off the loans, Japanese banks extended additional credit to borrowers, allowing them to at least make minimal interest payments. Those made banks look healthier than they were, at the cost of impairing the flow of credit to new businesses. However, American banks have been forthcoming in absorbing the losses on their books and writing off loans. This has given fed a clear picture of true losses and subprime crisis in the economy.

Having said that I believe the US economy may bleed for some time and enter a period of deflation. However, that period would be short lived and not as prolonged as that of Japanese economy in 1990s. As per an estimate, avoiding a long period of deflation and recession might cost the US a staggering $3 Trillion.

Will India face deflation?
Let’s examine Indian economy vis-à-vis Japanese economy of 1990s. In the last five years BSE exchange went up from 5,000 to 21,000, an increase of 400% while real estate prices in Indian witnessed an increase of over 300%. This is phenomenal increase in prices and asset prices looked highly inflated. After the global financial crisis, Indian stock exchange plunged by over 60% and real estate values dropped by almost 30-40% in less than six months. Some welcomed this fall while majority believed Indian global dream is finally over. The mayhem still continues with stock prices and real estate prices further going down.

Compare this with that of Japan - In the five years before its 1989 peak, the Nikkei (Japanese stock exchange) stock average rose 275%. Property prices became so inflated that the tiny spit of land surrounding the Imperial Palace in central Tokyo was briefly worth more than the entire state of California. At the time, Japan’s seemingly unstoppable rise inflamed fears among Americans that the United States had slipped into permanent economic inferiority. When the bubble finally busted in late 1989, stock and property prices nose-dived in tandem. In less than three years, the Nikkei stock average fell 63% from its peak of 38,916. It didn’t hit bottom until April 2003 and a total decline of 80%. Do these two stories sound similar? Yeah they do!

Inflation figures for the last week was 3.92% which is far less than the peak rate of 12% less than six months back. Are we going into a period of negative inflation or deflation? We are currently in a state of disinflation which is a decreasing value of inflation as the inflation rate is still positive. However, this may lead to a situation where downward price movement continues and we enter a period of deflation. I believe this is highly unlikely because we are a growing economy with very young population. Moreover, we are not an export oriented economy and hence do not depend too much on external demand. Our economy is mostly driven by domestic demand and consumption, which is somewhat insulated from other countries and global events. We still have lot of room to maneuver our policies to regenerate demand and spending. Yet, with the growing globalization we too run a risk of deflation if our monetary and fiscal policies are not handled well.

How deflation can be avoided?
To counter deflation we have to revitalize our growth story, reignite demand and create confidence among people. Compare to the inflation rate, 3.92%, lending rates in India are still close to 10%, which is quite high. Unless lending rates do not come down people won’t buy properties, automobiles or other consumer goods. Moreover, corporate won’t be able to borrow money to launch new innovative projects, spend on infrastructure or build capacity. Thus, to create demand and investments, government as well as RBI has to bring down this lending rate by implementing ways to reduce cost of borrowing funds.

Hence, only monetary policy won’t be sufficient to tackle this menace; fiscal policy too has to play a significant role here. Government has to be more aggressive in implementing reforms and speeding up infrastructure spending. Let us hope better sense will prevail among our political class.

Yahoo CEO Carol Bartz to get $19 mn this year

2009-01-18T10:27:00.000-08:00

The newly-appointed Yahoo! chief executive Carol Bartz will receive a compensation of $19 million this year.

The 60-year-old technology veteran has replaced the Internet major's founder and chief executive Jerry Yang. Bartz would get a base salary of $1 million and a grant of $10 million in cash and stock to compensate the benefits forfeited from the previous employer. Further, she would be paid an annual grant worth about $8 million.

Bartz was appointed as the chief executive by Yahoo! board on January 13.

In a regulatory filing to the Securities and Exchange Commission on Thursday, Yahoo! said that Bartz would receive stock options for 5 million shares and the price would be decided on January 30.

To compensate Bartz for the forfeiture of the value of equity grants and post-employment medical coverage from her previous employer Autodesk, she would be provided an 'equity grant with a grant-date value of $10 million, payable 25 per cent in cash and 75 per cent in restricted stock,' the filing noted.

Yahoo! would also provide post employment medical coverage under its plans to Bartz, her spouse and eligible dependants as necessary, with Bartz paying the full premiums, it added.

She would be receive an 'annual grant for 2009 with a value of approximately $8 million which is expected to be granted in February 2009.'

Also, Bartz's salary would be subject to annual review for increases and would be eligible to receive an annual bonus, it said.

'The actual amount of the annual bonus will be determined by the compensation committee of the board based upon both the company's and Bartz's performance for the relevant year,' the filing added.

On January 13, 2009, Yahoo! entered into an employment agreement with Bartz to serve as chief executive for an initial term of four years and may be extended by mutual agreement thereafter.

Bartz served most recently as executive chairman of the board of directors of Autodesk and she was chairman, president and chief executive officer of the company for 14 years.

She currently serves on the board of directors of Cisco Systems, Intel Corporation and NetApp, Inc.

On Thursday, shares of Yahoo! shed 6.45 per cent to close at $11.61 on the Nasdaq.

NYSE halts trading in Satyam Computer

2009-01-07T11:03:00.000-08:00

New York/New Delhi, Jan 7 (PTI) New York Stock Exchange today halted trading in Satyam Computer at its bourses in the US as well as Amsterdam in Europe, after founder and Chairman Ramalinga Raju disclosed financial bungling at the Indian IT major. "Yes, the stock is halted in New York and Amsterdam," a spokesperson for NYSE Euronext told PTI in an emailed reply on queries whether trading were being halted in Satyam shares.

In pre-market trade in the US, Satyam stock plunged by over 90 per cent to 0.85 dollars after Raju disclosed what has emerged as the biggest ever corporate fraud in India. Shares of Satyam on Indian bourses plunged by close to 98 per cent today, wiping off about Rs 10,000 crore (more than two billion dollars) from its market valuation.

Incidentally, two of Satyam's Indian rivals Infosys and Wipro that are also listed in the US, were trading with significant gains at the American bourses. NYSE-listed Wipro was trading with a gain of about 1.7 per cent, while Nasdaq-listed Infosys was up about 1.8 per cent.

However, most of the other US-listed Indian companies, such as ICICI Bank, HDFC Bank, Sterlite, Patni Computer, Rediff, Genpact, WNS, EXL Service, MTNL, Tata Motors and Dr Reddy's, were trading in the red at the US bourses. ICICI Bank was down over 13 per cent, while HDFC Bank plunged by over 10 per cent.

Besides, Sterlite was down over 9 per cent, Genpact and Dr Reddy's were down over 7 per cent, MTNL by over 6 per cent, Tata Motors by close to 5 per cent and WNS by over two per cent. PTI.

Rs 8,000 cr fraud hits Satyam; Raju may get 7-yr jail

2009-01-07T11:01:00.000-08:00

In the country's biggest corporate fraud involving about Rs 8,000 crore, iconic IT company Satyam was hurtling towards disaster following the shocking disclosure of accounts fudging by its founder Ramalinga Raju, who then quit as chairman - leaving an uncertain future for the company and its 53,000 employees.

By the end of the day, the fourth largest IT company lost a staggering Rs 10,000 crore in market capitalisation as investors reacted sharply and dumped shares, pushing down the scrip by 78 per cent to Rs 39.95 at BSE. The NYSE-listed firm could also face regulator action in the US.

The government, regulator SEBI and the industry reacted with shock and anguish over the turn of events that could tarnish India's corporate and raise vital issue like ethics, corporate governance and accounting and business practices.

Acting in tandem, Corporate Affairs Ministry and SEBI announced that the episode would be probed and action taken against the perpetrators of the fraud that entails inflating profits and creating fictitious assets.

"I am now prepared to subject myself to the laws of the land and face consequences thereof," Raju said in a letter to SEBI and the Board of Directors, while giving details of how the profits were inflated over the years and his failed attempts to "fill the fictitious assets with real ones."

The Maytas firms, although promoted by his family, proved to be his nemesis, with Raju saying: "The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones... But that was not to be. What followed in the last seven days is common knowledge."

While the government said the entire issue would be referred to the Serious Fraud Investigation Office, SEBI described it as an event of "horrifying magnitude." "It was like riding a tiger not knowing how to get off without being eaten," said Raju.

Removal from Sensex, Nifty

Satyam Computers may be removed from the Sensex and Nifty following the revelation of manipulation in the company's accounts, analysts said. Rajiv Mehta, senior analyst with India Infoline, a large brokerage house said his firm has immediately stopped covering Satyam and many other brokerage houses are also expected to do the same. There will not be any investor interest in the company anyway. The company may be removed from sensex and nifty, he said.

With the fall in its stock prices, Satyam has lost its weightage in the sensex considerably over the recent past and currently has weightage of only 1.56 as of Tuesday. While in nifty, the weightage is only 0.63 per cent.

B Ramalinga Raju can get a 7-year jail term

Satyam Computer Chairman B Ramalinga Raju can face seven years' imprisonment in addition to monetary penalties for forging accounts, breach of trust and misappropriating funds.

"He (Raju) can be charged under various sections of the Indian Penal Code for falsification of accounts, cheating and breach of trust. These offences attract a maximum penalty of seven years," said a senior partner of law firm Titus and Company, Diljeet Titus.

Expressing a similar opinion, senior Supreme Court advocate C A Sundaram said, "If the admissions (made by Raju in his resignation letter) are true, it is a very serious matter. It would be violation of (the) SEBI (code), Company Law and the IPC".

Another senior advocate and corporate law practitioner U K Chaudhary said the Satyam chief could be imprisoned for seven years under various provisions of company law. "Under section 628 of the Companies Act, which deals with misrepresentation of accounts, he could be punished for a maximum of 2 years along with penalty. However, the punishment term could be extended to seven years for producing false affidavits and other documents," he said.

In addition to Raju, Titus said "action should also be taken against Chief Financial Officers, Finance Managers, and Legal and Tax Advisors for their complicity in this episode".

Suggesting that the CBI should get into the case, he said if appropriate action is not taken, the Satyam fiasco would "make a mockery of the Indian enforcement mechanism".

NSE to remove Satyam shares from Nifty from January 12

2009-01-07T10:58:00.000-08:00

MUMBAI: National Stock Exchange said on Wednesday it will remove Satyam Computer Services Ltd from its S&P CNX Nifty 50-share index from Jan 12.

The head of the outsourcing firm resigned on Wednesday, disclosing profits had been falsely inflated for years, sending its shares crashing nearly 80 percent.

The exchange did not give any reason for the change. Anil Ambani-group firm Reliance Capital Ltd will replace Satyam in the main index, the exchange said in a statement. Satyam will also be excluded from the CNX 100 index, CNX 500 index and the CNX IT index.

Satyam is a component of the Bombay Stock Exchange's main 30-share index <.BSESN>, the country's benchmark index. The BSE has not made any statement on Satyam as yet.

Satyam: Full text of Ramalinga Raju letter to the Board

2009-01-07T10:53:00.000-08:00

Satyam Computers Services Ltd.

From B. Ramalinga Raju
Chairman, Satyam Computer Servcies Ltd

Dear Board Members,

It is with deep regret, and tremendous burden that I am carrying on my conscience, that I would like to bring the following facts to your notice:

1. The balance sheet carries as of September 30, 2008

a) Inflated (non-existent) cash and bank balance of Rs 5,040 crore (as against Rs 5361 crore refglected in the books)

b) An accured interest of Rs 376 crore which is non-existent

c) An understated liability of Rs 1,230 crore on account of funds arranged by me

d) An over stated debtor position of Rs 490 crore (as against Rs 2651 reflected in the books)

2. For the September quarter (Q2) we reported a revenue of Rs 2,700 crore and an operating margin of Rs 649 crore (24 per cent of revenues) as against the actual revenues of Rs 2,112 crore and an actual operating margin of Rs 61 crore (3 per cent of revenue). This has resulted in artificial cash and bank balances going up by Rs 588 crore in Q2 alone.

The gap in the balance sheet has arisen purely on account of inflated profits over a period of last several years (limited only to Satyam standalone, books of subsidiaries reflecting true performance). What started as a marginal gap between actual operating profit and the one reflected in the books of accounts continued to grow over the years. It has attained unmanageable proportions as the size of the company operations grew significantly (annualized revenue run rate of Rs 11,276 crore in the September quarter, 2008 and official reserves of Rs 8.392 crore). The differential in the real profits and the one reflected in the books was further accentuated by the fact that the company had to carry additional resources and assets to justify higher level of operations – thereby significantly increasing the costs.

Every attempt made to eliminate the gap failed. As the promoters held a small percentage of equity, the concern was the poor performance would result in a takeover, thereby exposing the gap. It was like riding a tiger, not knowing how to get off without being eaten.

The aborted Maytas acquisition deal was the last attempt to fill the fictitious assets with real ones. Maytas’ investors were convinced that this is a good divestment opportunity and a strategic fit. Once Satyam’s problem was solved, it was hoped that Maytas payments can be delayed. But that was not to be. What followed in the last several days is common knowledge.

I would like the board to know:

1. That neither myself, not the Managing Director(including our spouses) sold any shares in the last eight years-excepting for a small proportion declared and sold for philanthropic purposes.

2. That in the last two years a net amount of Rs 1,230 crore was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from know sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers.

3. That neither me, nor the Managing Director took even one rupee/dollar from the company and have not benefitted in financial terms on account of the inflated results.

4. None of the board members, past or present, had any knowledge of the situation in which the company is placed. Even business leaders and senior executives in the company, such as Ram Mynampati, Subu D T R Anand, Kesab Panda, Virender Agarwal, A S Murthy, Hari T, S V Krishnan, Vijay Prasad, Manish Mehta, Murali V, Sriram Papani, Kiran Kavale, Joe Lagioia. Ravindra Penu Metsa, Jayaraman and Prabhakar Gupta are unaware of the real situation as against the books of accounts. None of my or managing directors immediate or extended family members has any ideas about these issues.

Having put the facts before you, I leave it to the wisdom of the board to take the matters forward. However, I am also taking the liberty to recommend the following steps:

1) A task force has been formed in the last few days to address the situation arising out of the failed Maytas acquisition attempt. This consists of some of the most accomplished leaders of Satyam: Subu D, T R Anand, Keshab Panda and Virender Aggarwal, representing business functions, and A.S.Murthy, Hari T and Murali V representing support functions. I suggest that Ram Mynampati be made the Chairman of this task force to immediately address some of the operational matters on hand. Ram can also act as an interim CEO reporting to the board.

2) Merrill Lynch can be entrusted with the task of quickly exploring some merger opportunities.

3) You may have a ‘restatement of accounts’ prepared by auditors in light of the facts that I have placed before you.

I have promoted and have been associated with Satyam for well over twenty years now. I have seen it grow from few people to 53,000 people, with 185 Fortune 500 companies as customers and operations in 66 countries. Satyam has an excellent leadership and competency base at all levels. I sincerely apologize to all Satyamites and stakeholders who have made Satyam a special organization, for the current situation. I am confident they will stand by the company in this hour of crisis.
in light of the above, I fervently appeal to the board to hold together to take some important steps. Mt T R Prasad is well placed to mobalize support from the government at this crucial time. With the hope that members of the Task Force and the financila advisor, Merrill Lynch (now Bank of America) will stand by the company at this crucial hour, I am marking copies of this statement to them as well.

Under the circumustances, I am tendering my resignation as the chairman of Satyam and shall continue in this position only till such time the current board is expanded. My contribution is just to ensure enhancement of the board over the next several days or as early as possible.

I am now prepared to subject myself to the laws of the land and fact the consequences thereof.

(B. Ramalinga Raju)

Copied marked to:
1) SEBI Chairman
2) Stock Exchanges

Anil Ambani: The biggest loser of 2008

2009-01-02T00:28:00.000-08:00

Touted on the cover of Forbes 2008 billionaires issue for having added $24 billion to his fortune in one year, Ambani has dropped $30 billion since then. But don't worry too much. His Reliance Entertainment is investing $500 million in a new studio venture with Steven Spielberg's DreamWorks. Plus, he remains quite wealthy, worth $12 billion. That's something many others can't claim.

The biggest billionaire gainer last March is now the year's biggest loser. Ambani lost $30 billion in the past nine months, more than anyone in the world. Stock of his telecom company dropped after his estranged brother helped scuttle a deal with African telecom MTN. It's quite an achievement in a year in which three of his fellow countrymen--estranged brother Mukesh, steel tycoon Lakshmi Mittal and Indian KP Singh, all of whom ranked earlier among the world's 10 richest--lost more than $20 billion apiece.

Anil Ambani
March net worth: $42 billion
Current net worth: $12 billion

Over 21 lakh jobs lost in US since Dec 2007

2008-12-22T10:20:00.000-08:00

More than 21 lakh individuals have become jobless in the US ever since the world's largest economy entered into recession last December, with more number of employers resorting to mass layoff actions.

The number of such layoffs -- where 50 or more people are handed pink slips by a single employer -- touched 20,712 in the last eleven months.

On a seasonally adjusted basis, the Bureau of Labour Statistics in a statement said, "From the start of the recession in December 2007 through November 2008, the total number of mass layoff events was 20,712, and the number of initial (jobless) claims was 21,08,743." The number of job losses due to mass layoff actions stood at 1,41,750 in December last year.

Meanwhile, the National Bureau for Economic Research, which dates the nation's economic cycles, has said that America officially entered into recession in December 2007.

In the wake of the worsening financial turmoil, companies worldwide are cutting jobs to cut down costs. So far in December, companies across the world have announced more than 1.20 lakh job cuts.

More than one-third of the layoffs happened in America, where unemployment touched a record high of 6.7 per cent.

Reflecting the worsening labor market scenario, the data showed that the number of mass layoff actions rose to 2,328 last month whereas the same stood at 2,140 in October.

In terms of job losses, the November figures reached 2,24,079, slightly lower than 2,32,468 in the same period a month ago.

"The number of mass layoff events in November increased by 188 from the prior month, while the number of associated initial claims decreased by 8,389," data available with the Bureau of Labor Statistics showed.

Auto parts: 200,000 may lose job; 4,000 units face closure

2008-12-20T05:06:00.000-08:00

India's auto component makers are facing one of the biggest crises ever. With the domestic market in the doldrums and the exports to the American market badly hit, many companies are on the verge of shutting down.

The entire supply chain of auto companies is bearing the brunt of the economic meltdown. From Tier-1 companies to small-scale units, all are facing a huge fall in demand, delayed payments and a stiff liquidity crunch.

"About 4,000 ancillary units are on the verge of closure and about 200,000 people will be affected by this crisis. Most companies have cut down the number of shifts, working days and are cutting down production. The US crisis has aggravated the problem," says Anil Bhardwaj, secretary general, Federation of Indian Micro, Small and Medium Enterprises (FISME).

The commercial vehicle segment is the worst hit by the crisis. Such crises are cyclical, and tend to recur every 5-6 years, but a calamity of this magnitude has put all companies in trouble. "Auto component makers are hit very badly. The original equipment manufacturers (OEMs) have not been able to sell stocks. Cash flow is getting hugely affected. Payments are getting delayed, affecting a lot of projects. The overall sentiment is negative," says Jayant Davar, vice president, Automotive Component Manufacturers Association (ACMA).

Domestic woes

It all started with the crisis in the auto industry. Car sales, which were booming, have now plunged. In the wake of the marked economic slowdown, there is a severe credit crunch. This has, in turn, slowed down demand for vehicles.

"Payments to vendors are getting delayed, loans for capacity expansion are not being sanctioned, and banks are refusing loans to auto companies that are supplying to companies like General Motors, Ford, etc. The removal of insurance cover for exporters too has severely hit the industry," Davar explains.

The Chennai-based Sundram Fasteners, which supplies radiators caps and fasteners to General Motors, says it is more worried about India than the United States. "Most of the auto companies have done very badly in 2008. The business in the second half of the year has been 50 per cent less than in the first half," says V G Jaganathan, president (finance), Sundram Fasteners.

The US impact

The auto crisis in the US has only worsened the situation. Auto component makers' exports to the Ford, GM and Chrysler were growing at 50-70 per cent. Out of this 35-40 per cent of the exports were to GM in North America. GM accounts for about $500 million of India's auto component exports.

Exports from Indian companies accounted for over $3 billion last year. "We were expecting a 20 per cent year-on-year growth. But this year, this has drastically fallen to about 6 per cent. November and December were the worst months for auto component makers," says Davar.

The auto sector is amongst the worst-hit industry sectors. Adding to their woes is the cancellation of credit insurance which protects manufacturers against payment defaults from buyers.

The Export Credit Guarantee Corporation has frozen issue of fresh credit risk insurance (CRI) cover to Indian component vendors of US auto giants. "Auto component makers are coping with the double whammy of the domestic market and the export market," says Bhardwaj.

Meanwhile, GM India is playing down the impact of the parent company going under. "GM North America is in crisis while GM Europe has flat growth. GM Latin America and Middle East, and GM Asia Pacific are doing well. GM has already sourced components woth $500 million from India and it will meet the target of $1 billion by 2010, as other markets still need components," says P Balendran, vice president (corporate affairs), GM India.

For companies like Sundram Fasteners, the crisis will have short-term impact. "GM accounts for about 2-3 per cent of the total business. We will continue to outsource products. In case, GM files for bankruptcy, payments will be delayed. Bankruptcy does not mean closure, it is restructuring," says V G Jaganathan.

Big trouble

Sandhar Technologies, a diversified auto parts maker that has plants in the Europe, has seen a fall in business by about 50 per cent.

"The topline growth for Sandhar Tech has grown to Rs 800 crore (Rs 8 billion) compared to Rs 640 crore (Rs 6.4 billion) last year. But the bottomline growth has been severely hit. Steps taken by the government -- like Cenvat cut -- are just nominal. There is no liquidity in the market. With high auto loan rates and a scary job market, the last thing on anyone's mind would be to buy a car," Davar, who is also the CEO and founder of Sandhar Technologies, laments.

Auto component companies employ about 400,000 people. The small and medium enterprises in India employ about 3.3 crore (33 million) people. Many of these SMEs are in the auto sector. A good majority of them have already lost their jobs and the sector is likely to see more job cuts.
"Though the jobs cuts are not apparent, a large number of people have already been asked to leave. "Many ancillary units which supply to these companies are also likely to be wiped out if the crisis continues," Davar says.

Commercial and passenger vehicle sales have fallen drastically. Unless sales go up, the market will continue to be sluggish, says carmakers. Most of the companies were half way through expanding their operations and building new capacities. It is now a huge burden on these companies as they have to bear the huge interest costs and the defaults in payments.

Help us!

Many banks have refused to offer credit to companies who are supplying to GM. They fear that in the event of a bankruptcy, their payments will also get stuck. Many companies established auto plants in India to enjoy the benefits of the excise cut exemption. They have already invested huge amounts into these plants.

ACMA has asked the government to intervene and help the industry. There should be more liquidity in the system. Many banks have pulled back credit to auto companies. The interest rates have to come down to push sales. Auto companies badly need the ECGC cover. The government should look into these issues.

Auto crisis & GM India

The crisis will not have any impact on GM's India operations. The company's plans are going on as per schedule. "We will go ahead with our plans with internal approval so the crisis in the US will not affect us in India. GM is the only auto company which has seen consistent growth despite a fall in sales in November," says Balendran.

Optimistic even during the crisis, he says that GM India performed better in 2008 than it did in 2007. "In 2006, we sold about 35,000 units; in 2007, we sold about 60,032 units, while in 2008, we have already sold 72,000 units. It has been a steady growth," he says.

GM has inaugurated the engine plant at Talegaon, with a capacity of 160,000 units. This plant is expected to be commissioned in the year 2010. GM India is likely to hire 500 employees at the plant. GM has also started the engine power train facility with a capacity of 140,000 units.

"We have already hired 1,000 people and we will be hiring 500 more. We have no plan to cut production or cut costs. The reason for GM's success in India is the product line up. Starting from Rs 2.99 lakh (Rs 299,000), we have cars for every segment. We will be launching the new Captiva in January, a sedan called Cruze mid next year, and a mini car in 2009. The upgrades programme will also continue as planned," Balendran adds.

Bleak future

How long will the crisis last? There are no definite answers to this.

"We are hoping the situation will improve slightly in the Jan-Mar quarter. But if the recession worsens, it will only be tougher for companies to get going," says Davar.

GM India believes the situation will take many months to improve. "The slowdown has gathered pace in the last 3 months. The market is very sluggish. Liquidity is certainly a problem and it will take months to recover," P Balendran says.

"About 25 per cent of all companies in the small and medium enterprises, have already become 'non-performing assests (NPAs).' As the crisis worsens, 50 per cent of SMEs in the auto sector will end up as NPAs," says Anil Bhardwaj.

The FISME has said that these trying times should be converted into an opportunity to create a lean and powerful economy with sustainable growth.

In its memorandum to the Prime Minister Manmohan Singh, the association has sought several relief measures, including a moratorium on repayment and the allowing of corporate debt restructuring for all unit.

The association has also demanded that wrking capital limits of enterprises must be enhanced liberally and specific steps be taken to ensure timely payment to Micro, Small and Medium Enterprises (MSMEs) against supplies made to corporates.

A big push is needed for exposing SMEs to exports. Currently, 0.5 per cent of SMEs are engaged in exports and yet contribute to about 50 per cent of the exports.

There is a critical need to look beyond Export Promotion Councils and leverage resources of private organisations and associations focusing SMEs, the FISME has said.

Congress agrees to bail-out of Ford, GM and Chrysler

2008-12-20T04:56:00.000-08:00

Lawmakers on Capitol Hill this weekend agreed to a short-term bail-out of America’s three biggest carmakers to prevent an imminent collapse of the ailing industry.

The White House and Democrats in Congress are this weekend working on details of the package to provide about $15bn (£10bn) in loans to General Motors, Ford and Chrysler. The legislation is being crafted for the beleaguered industry, which has called for a government bailout as the global recession has led to plunging sales of cars.

House Speaker Nancy Pelosi said the House of Representatives would consider legislation next week to provide “short-term and limited assistance” to the industry, which will undergo “major restructuring.”

She said: “Congress will insist that any legislation include rigorous and ongoing oversight to guarantee that taxpayers are protected and that resources are directed to ensure the long-term viability and competitiveness.”

The short-term lifeline comes as the heads of the Detroit car manufacturers have this week faced two days of intense questioning by assorted politicians on Capitol Hill as they call on Congress for $34bn of loans to help them survive a severe economic downturn.

Although a rescue package is likely to be considerably smaller than this figure, politicians have recognised that the collapse of any one of the Big Three would have profound implications for an already damaged American economy.

The agreement to put together a bailout package came just hours after the government reported that employers slashed 533,000 jobs in November – representing the worst single month’s job loss in 34 years. The three carmakers together employ nearly 250,000 workers, and more than 730,000 others produce materials and parts for cars.

The focus of the short-term bridging loan is likely to be GM and Chrysler, which are most in need of immediate assistance. GM had said it needed $4bn before the end of this month, while Chrysler, which is understood to have hired Jones Day for restructuring and bankruptcy work, had wanted $7bn immediately. The Senate is scheduled to be in session next week.

A key breakthrough on the long-stalled bailout proposals is understood to have come when Ms Pelosi bowed to President George Bush’s demand that the aid come from a fund set aside for the production of environmentally friendlier cars. She, along with environmentalists, had instead wanted the administration to take money from the $700bn fund the government set aside for the financial industry.

Ms Pelosi said the billions of dollars that had been set aside to modernise plants to develop the green cars would be repaid “within a matter of weeks.”

Although the details of the legislation are still being thrashed out, it is understood that this could include the creation of a trustee or group of industry overseers to make sure the bailout funds were used by car manufacturers for their intended purpose. The funds are designed to last until March.

US Government bails out General Motors and Chrysler with $17bn loan

2008-12-20T04:46:00.000-08:00

The US government has saved General Motors and Chrysler from imminent bankruptcy with a $17.4bn (£11.6bn) lifeline loan package in an unprecedented move that will pile pressure on the British government to follow suit.

President George W. Bush agreed to hand over the funds to the two companies after months of fraught negotiations over the future of the two companies and a week after politicians in the US Congress rejected a $14bn bail-out package.

The news will safeguard an estimated 3m jobs reliant on the car industry in the US, as well as 5,500 staff at General Motors' Vauxhall factories in Ellesmere Port and Luton.

GM and Chrysler, both based in the once-booming city of Detroit, Michiagn, had warned they would have run out of cash by the end of the year without assistance, putting hundreds of thousands of jobs directly at risk, and risking 3m job losses in the wider economy.

"In the midst of a financial crisis...allowing the U.S. auto industry to collapse is not a responsible course of action," said the US President, who is tapping the $700bn bank bail-out pot for the necessary funds.

He had been considering a form of bankruptcy for the pair, but decided against it as it was thought customers would be unwilling to buy cars from a bankrupt manufacturer.

President-elect Barack Obama said the funding should be used to reshape the American car industry, which has been in terminal decline for decades due to rising labour costs, uncompetitive product offerings and falling sales.

"The auto companies must not squander this chance to reform bad management practices and begin the long-term restructuring that is absolutely required to save this critical industry and the millions of American jobs that depend on it," he said.

Although the American deal helps to the future of Vauxhall, GM Europe said it was still seeking assistance from the UK Treasury "within days", with a spokesmen saying it continued "aggressive work" to "align the business with the significant downturn in the market".

The European arm of the company would likely have remained outside the collapse of GM in if it had gone into bankruptcy, but the European arm is still seeking a range of new measures, along with the rest of the British car industry, including tax deferrals and investment in new, more fuel-efficient technologies.

Unite joint general secretary Derek Simpson said that intervention must come within the next week. "What is being asked for from the Government is not a handout, not a gift, it is access to strategic funding for a sector that is key to our economy's global stature and one that will play a lead role in its emergence from this recession."

Property prices may fall by 30% next year

2008-12-15T09:04:00.000-08:00

Experts say that developers are likely to focus on sub Rs 20 lakh (Rs 2 million) flats due to huge demand for such flats and the government's stimulus package for Rs 20 lakh home loans.

"Earlier, developers thought that there is latent demand for premium homes, but in the current slowdown, that perception has changed. There is always demand for Rs 500,000-Rs 15 lakh (1.5 million) homes and developers will look towards that," Maheshwari said.

Property prices in the key cities have more than doubled in the past few years helped by a boom in the stock market and a spurt in salaries of home buyers. The subsequent measures of the Reserve Bank of India to cool the overheated economy and a subprime crisis coupled with a credit crunch, has tempered growth prospects in the country hurting sales of property developers.

The benchmarket Sensitive index has dropped more than 60 per cent from the beginning of the year, eroding much of the investors' wealth and RBI has increased repo rates by 150 basis points till September this year to curb inflation.

''Many developers will come down on their asking rates after being saddled with unsold stock beyond their ability to hold on," added Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj.

To boost sales property developers have been forced to cut prices of real estate but buyers are still adopting a ''wait and watch'' stance as many feel that even the lower rates continue to be unaffordable.

Property prices in Gurgaon, Noida in the National Capital Region have fallen by 25-30 per cent while Mumbai's distant suburbs have seen 15-20 per cent drop in prices. Now property consultants foresee further price correction of 25-30 per cent in 2009.

"By the middle of 2009, developers will loose holding power and cut prices sharply. Cuts will follow big time after elections," said Ambar Maheshwari, director of DTZ, an investment advisory.

Experts say that developers are likely to focus on sub Rs 20 lakh (Rs 2 million) flats due to huge demand for such flats and the government's stimulus package for Rs 20 lakh home loans.

"Earlier, developers thought that there is latent demand for premium homes, but in the current slowdown, that perception has changed. There is always demand for Rs 500,000-Rs 15 lakh (1.5 million) homes and developers will look towards that," Maheshwari said.

Govt announces package to boost economy

2008-12-15T08:44:00.000-08:00

The government on Sunday effected an across-the-board four per cent cut in CENVAT that will bring down prices of cars, cement, textiles and other goods as part of an economic stimulus package that also earmarks an additional Rs 20,000 crore (Rs 200 billion) for infrastructure, industry and export sectors.

In a virtual mini-budget that entails a revenue loss of Rs 8,700 crore (Rs 78 billion) in the next four months, the package seeks to revive the crucial housing, export, automobile, textiles and small and medium enterprises sector to counter the economic slow down caused by the global financial crisis and the recession in the West.

The Central Value Added Tax (CENVAT) on non-petroleum products would down to ten, eight and four per cent for different categories.

The package also contained full exemption from basic customs duty on industrial intermediate naphtha to give relief to power sector and withdrawal of export duty on iron ore fines while cutting down the levy on export of iron lumps from 15 per cent to 5 per cent.

The much-awaited package, set rolling by Prime Minister Manmohan Singh who is also the finance minister, targets power, exports, housing, auto, small and medium industries and infrastructure sectors through additional funding and guarantees that total an amount of over Rs 30,000 crore (Rs 300 billion). The 10-point package contains substantial incentives for the sectors hit by the slowdown, besides allowing India Infrastructure Finance Company Ltd to raise Rs 10,000 crore (Rs 100 billion) through tax free bonds by March as part of efforts to support Rs 100,000 crore (Rs 1,000 billion) programme in the high-way sector.

Unveiling the package, Planning Commission Deputy Chairman Montek Singh Ahluwalia said "the market forces would compel manufacturers in a competitive environment to bring down prices and pass on tax benefits to customers."

Cheering the package, India Inc said it would augur well and car companies led by market leader Maruti announced that they would cut prices. "It is a significant effort to stimulate expenditure in rural infrastructure areas," the industry said.

"The government has been concerned about the impact of the global financial crisis on the Indian economy and a number of steps have been taken to deal with this problem," an official statement said.

The steps taken by the Reserve Bank of India to pump in sufficient liquidity in the financial system are being "supplemented by fiscal measures designed to stimulate the economy. In recognition of the need for a fiscal stimulus the government had consciously allowed the fiscal deficit to expand beyond the originally targeted level."

"It's just a very good stimulus package, if you want one word for it," Planning Commission Deputy Chairman Montek Singh Ahluwalia told reporters while briefing on the package.

"Don't look for one number. Assigning one number is not the right way to look at it," said Ahluwalia, who said it was a significant effort to give a stimulus on expenditure side, especially on rural infrastructure and housing sectors which have the high employment potential.

As part of steps to create demand in the economy that is expected to grow by over 7 per cent, "the total spending programme in the balance four months of the current fiscal year, taking plan and non-plan expenditure together is expected to be Rs 300,000 crore (Rs 3,000 billion)."

The stimulus package announced on Sunday comes on the heels of RBI'S monetary measures to ease the cost of funding for the banks, signalling that lenders should lower their interest rates.
"The government has been concerned about the impact of the global financial crisis on the Indian economy and a number of steps have been taken to deal with this problem," an official statement said.

Having assured stability of the financial system, the government said it has focussed its attention on countering the impact of the global recession on India's economic growth.

"The economy will continue to need stimulus in 2009-2010 also and this can be achieved by ensuring a substantial increase in plan expenditure as part of the budget for next year," it added.

The measures also included the government departments being allowed to seek replacement of government vehicles within the allowed budget, in relaxation of extant economy instructions.

"The government is keeping a close watch on the evolving economic situation and will not hesitate to take any additional steps that may be needed to counter recessionary trends and maintain the pace of economic activity," it added.

Banks cut home loan rates

2008-12-15T08:32:00.000-08:00

Public sector banks on Monday announced that home loans up to Rs 5 lakh (Rs 500,000) would be given at a maximum interest rate of 8.5 per cent, while those between Rs 5 lakh and Rs 20 lakh (Rs 500,000 and Rs 2 million) would be offered at 9.25 per cent.
Besides, the banks would not charge any processing fees and pre-payment charges for loans up to Rs 20 lakh, and would also provide free insurance cover, the Indian Banks Association said.
The package looks at reviving the demand in the housing industry.

Interest rates not to exceed 8.5% for loans up to Rs 5 lakh
Interest rates for loans between Rs 5 lakh and 20 lakh to be 9.25%.
No processing fee or pre-payment charges, free insurance cover for loans up to Rs 20 lakh.
PSU banks announce one percentage point cut in loans for micro, small and medium enterprises (MSMEs).

However, it is not yet clear if the existing home loan borrowers will benefit from the special home loan schemes unveiled by state-owned banks on Monday.

Outlining the new housing loan package in accordance with the stimulus package announced by the government on December 7, State Bank of India chairman O P Bhatt said the interest rate under the two schemes could come down, but would not go up beyond the threshold limit of 8.5 and 9.25 per cent for a five-year period.

The offering under the packages would be made till June 30, next year, Bhatt said, adding that after the lock-in period of five years the borrowers could look in for free or floating rates that could change in accordance with market conditions.

To make the package attractive, the public sector banks would give the loans at a margin of 10 per cent up to Rs 5 lakh and 15 per cent for loans between Rs 5 lakh and Rs 20 lakh, and in either case, banks would offer free insurance cover, Bhatt said.

Leading private lenders, including ICICI Bank and HDFC, appeared favourably inclined to cut their rates, with sources saying the two lenders would study the PSU banks' package before taking a call.

Sources said any decision would be taken after ascertaining whether PSU banks are getting any government subsidy for implementing the package.

The banks have also decided to cut the lending rates for the micro and medium enterprises by 100 basis points.

Gold surges on firming overseas trend

2008-12-15T08:29:00.000-08:00

Gold prices surged by Rs 100 to Rs 13,000 per 10 gram on the bullion market here on stockists buying sparked by a firming trend in the international market.

Silver also rose by Rs 50 at Rs 17,000 per kg.

Buying activity picked up following reports that the precious metal in overseas market rose as weakening dollar against the euro raised demand for the gold as an alternate investment.

The dollar fell to seven-week low level against the euro. The rising price of crude oil was another supporting factor for the yellow metal.

Gold generally moves in opposite direction to the US currency, traders said, adding that surging crude oil raised concerns of inflation and boost demand for precious metal as a safe hedge.

Along with the general firm trend, silver ready rose by Rs 50 at Rs 17,000 per kg and weekly-based delivery by Rs 40 at Rs 17,120 per kg. Silver coins spurted by Rs 200 at Rs 26,600 for buying and Rs 26,700 for selling of 100 pieces.

Standard gold and ornaments gained Rs 100 each at Rs 13,000 and Rs 12,850 per 10 gram respectively. Sovereign was unchanged at Rs 10,500 per piece of eight gram.

Cheaper home loans may not cheer realty sector

2008-12-15T08:22:00.000-08:00

The real estate sector is unlikely to see any movement even after measures like bringing Rs 20 lakh and below loans under the priority sector. However, it will trigger demand in the tier II and tier III cities.

Since the beginning of the year, realty prices have fallen by 10% to 15% across the country. Analysts expect a further price correction of 20% to 25% followed by a time correction. But real estate cost in metro cities like Delhi and Mumbai continue to be high. In September 2008, the rates prevailing in south Mumbai was higher than what it was in November. The September rates for the residential segment in Churchgate, Cuffe Parade and Colaba in (Rs/sqft) was 15,000-32,000; 15,000-35,000; 14,000-40,000 respectively. The November rates for the same areas have however fallen. In (Rs/sqft) the current rate in Churchgate is 15,000-30,000; Cuffe Parade and Colaba are12,000-30,000.

In Delhi a lot of areas have experienced a dip. During September, 2008 the rates in (Rs/sqft) in areas like Golf Links, Greater Kailash and South Extension were 6,000-10,000; 6,500-12,000; 7,000-12,000. Prices have dropped since then in all these areas. In (Rs/sqft) the current rate in Golf Links is 5,200-9,000; in Greater Kailash it is 4,500-9,000; in South Extension it is 4,500-10,000.

Though much activity is not expected in Mumbai and Delhi, suburbs like Thane, Virar, Vashai and Panvel will see movement in the housing sector. Similarly, while places in the heart of Delhi will not beaffected, places like Rohtak and Sonepat will feel an impact.

Even after the current decline in prices housing accommodation in metros are still on the higher end and beyond the purview of Rs 20 lakh loan. So even if home loans become cheaper in this category metro accommodation is unlikely to come within its gamut and hence spur demand here.

“In the tier II and tier III cities there may be an impact with Rs 20 lakh loans becoming cheaper, but it will hardly affect demand in the metros where prices continue to be steep,” said Hitesh Agarwal, head of research, Angel Broking. The reason for demand to pick up in these cities is that here most of the buyers are end-users and hence genuine buyers, whereas in major metros investors majorly drive the demand. For the demand to start picking up in metros a price cut for the properties is essential.

Currently the interest rate of the priority sector hovers around 9% to 10%. PSU banks are likely bring it down by 2% to 3%. Banks are even looking at waiving off processing fees and reducing money margins.

Developers also think a further reduction in home loans to 6% to 7% for the priority sector is going to trigger demand.

With banks being more apprehensive about lending to this sector and chances of PE deals happening in the near future being equally grim, industry experts feel that developers will have to be realistic about the situation and bring prices down to drive demand.

“The bubble has gone bust in this sector. There is a slowdown in the global economy. Realtors cannot expect to maintain profit margins of the boom era. They will have to cut prices and set realistic targets for the future,” Agarwal pointed out.

US in recession

2008-12-01T11:29:00.000-08:00

A panel of the National Bureau of Economic Research says the U.S. economy fell into a recession last year.

The NBER says its group of academic economists who determine business cycles met and decided that the U.S. recession began in December 2007.

Many economists believe the current downturn will last until the middle of 2009 and will be the most severe slump since the 1981-82 recession.

Finding Your Magic Investing Formula

2008-11-24T06:07:00.000-08:00

People often ask me, "How do you find great investments? " My standard reply is, "You have to train your brain to see them. Great investments are all around you.

"I know that's not a very satisfying answer. Most people want something more specific and concrete. But my reply is as accurate as possible. If we could've seen all the great investments just in the past decade, we'd all be multi-billionaires.

Missing Out on Millions

There have never been more opportunities to become rich than in the last 10 years. And there'll be even more opportunities in the next 10. Let me explain. Like many investors, I didn't see the power of eBay almost a decade ago. If I had, I'd be a billionaire today. Nor did I see the power of YouTube, or Google, or MySpace. Being an old guy, my brain isn't trained to see investing opportunities in cyberspace. So I missed them.

Thirty years ago, when my business career was just starting at Xerox, I was introduced to a new type of computer. I wasn't tuned into computers at the time, so little did I know that I was looking at the early version of what was to become the Macintosh. So I also missed that billion-dollar opportunity, too. How many billion-dollar opportunities have I missed? Maybe millions.

If I've missed so many million- and billion-dollar opportunities, why am I writing articles and speaking worldwide about financial independence? That's a valid question, and the answer has to do with helping you find great investments.

Perseverance Pays Off

I took my first real estate investment course in 1974 in Honolulu. The cost was $385, and I believe it was two or three days long. Toward the end of the class, the instructor said something I've never forgotten: "Now you know the difference between good real estate investments and bad real estate investments. Now you all know what to look for.

"He paused and then added, "The problem is, most people will tell you such investments don't exist. Your friends will tell you so, and so will real estate agents." Truer words were never spoken. For the next few months, I went from real estate office to real estate office, looking for investments. As promised, the real estate agents told me what I was looking for didn't exist. My friends and co-workers at Xerox told me the same thing, and said I was either dreaming or smoking funny cigarettes.

Finally, in a small, obscure real estate office in downtown Waikiki, I met a scruffy little broker who said, "I have what you want." The next weekend I was on a plane to Maui, where he'd found an entire condominium development that was in foreclosure.

I purchased my first piece of investment real estate for $18,000, putting the $2,000 down payment on my credit card. The one-bedroom/ one-bath condo paid me a positive cash flow, even after all the expenses and mortgage payments. My investment career had begun. More important, I was training my brain to see what most people don't see. That $385 real estate course has made me millions of dollars over the years.

Keep an Open mind

Earlier this year, around tax time, I wrote an article, "Think Rich to Lower Your Taxes." It was about an investment strategy known as the "velocity of money," and how I use it to invest, make a lot of money, and then legally use the tax laws to minimize my own taxes. I suspected it would spark some controversy, and it did.

For a couple of weeks, I kept track of responses. Some of the less-complimentary comments reminded me of what those real estate agents and my friends at Xerox said to me back in 1974.

You see, our brains are either our greatest assets or our greatest liabilities. As I said, when it comes to investment opportunities in technology, my brain is a liability; I just don't get it. When it comes to investment opportunities in real estate, gold, oil, and silver I'm above average, but not great. And that's because I've trained my brain to see opportunities in those areas.

So, instead of criticizing the readers who were close-minded (or even mean-spirited) about my advice, I encourage them to keep an open mind and find their own way of seeing investments most people miss. That's how you get rich. People who refuse to open their minds to new strategies seldom become rich — which I guess is why there are more critics in the world than rich people.

Finding Your Magic Formula

One of the most important things my rich dad taught me was to never say, "I can't do it" or "I can't afford it." Those thoughts are self-limiting, and it's hard to find great investments when you're basing your behavior on limitations. In today's world, there are more investing opportunities than ever before. Why would anyone want limited financial results in an unlimited world?

One of the reasons I write about financial independence is so I can put forth ideas that challenge the way people think about investing. If you want the same old financial-planning dogma of "work hard, save money, live below your means, get out of debt, and invest in a well-diversified portfolio of mutual funds," then my philosophies are obviously not for you.

My job is to stimulate your thinking, inform you about why rich people get richer, and encourage you to find the magic financial formula that works for you. I found mine, and I want you to find yours.

- Robert Kiyosaki.

Global crisis to hit India more in 2009: World Economic Forum (WEF)

2008-11-14T09:13:00.000-08:00

The global downturn will pressurise the Indian economy more next year and the government has to speed up reforms and boost investment to sustain high growth rates, a report said on Friday.

The report jointly prepared by World Economic Forum and Confederation of Indian Industry also said India could see a sharp outflow of capital, and a fall in share and asset prices due to the global financial crisis.

The report was released ahead of the annual India Economic Summit starting Nov. 16 in New Delhi, where top government officials are expected to interact with heads of global firms.

"India's dependence on capital flows to finance its current account deficit is a macroeconomic risk and the global crisis could generate a sharp increase in capital outflows and a reduction in the availability of finance," it said.

"Clearly, the global economic picture will be harsher next year and there will be greater pressures on Indian economy."

The global credit crisis has rattled Indian markets as foreign investors sold shares worth more than $12.5 billion so far this year while the rupee fell by more than 20 per cent.

"It (global crisis) could also weaken the balance sheets of the financial institutions, cause a further fall in share and asset prices, and challenge the macroeconomic situation due to shrinking global growth," WEF said.

Indian policymakers expect a moderation in economic growth to less than 8 per cent in the year to March 2009, compared with 9 per cent recorded in 2007/08 fiscal year.

Earlier this month, Prime Minister Manmohan Singh cautioned that the global financial crisis could be more severe and prolonged, and the government would take all necessary steps -- monetary and fiscal -- to protect growth.

"A tighter environment may also help speed reforms and encourage greater efficiency," WEF said, adding a great deal of political will and dialogue with different stakeholders would be required to take reforms forward.

"...India's growth is still strong relative to other economies and its growth story will continue to be one that will unfold over decades rather than years," it added.

About 20 thousand workers may face axe in Tirupur

2008-11-14T09:10:00.000-08:00

With an anticipated 30% decline in export turnover during the current fiscal, there is an apprehension that about 15,000 to 20,000 workers in the knitwear industry in Tirupur will lose their jobs.

Attributing the economic recession sweeping the Western Countries to the dip in turnover, sources in the Tirupur Exporters’ Association, said exports have nosedived during the first half of this fiscal to Rs.5050 crore from Rs.5350 crore registered during the corresponding period last year.

Exporters see a bleak future in the remaining period of the fiscal, since there had been a 25 to 30 per cent decline in orders from different markets, particularly the USA and Europe, the sources said.

This would result in reduction of working days and hours, leading to rendering of jobless to 15000 to 20,000 of about three lakh workers employed in different segments of about 600 manufacturing units in the knitwear cluster, they said.

Some units have already started to function five-day a week and reduced the working hours from 10 to eight hours, from October last, the sources said.

Sensex down by 303 pts; loses 1,000 pts in 2 days

2008-11-14T09:04:00.000-08:00

The BSE’s benchmark Sensex extended its losses amid a see-saw trade on Wednesday, succumbing to heavy selling across all counters.

The 30-share barometer gyrated in a wide range before concluding the day at 9,536.33 – a fall of 303.36 points or 3.08 per cent.

Market breadth remained negative with 1,701 losers against 818 gainers. Trading volume remained low at Rs 3,690.41 crore. In the last two days alone, the Sensex has shed nearly 1,000 points.

The NSE’s broader 50-issue Nifty also dropped further by 90.20 points, or 3.07 per cent, to 2,848.45. Marketmen said a slew of factors contributed to the extremely choppy trade: Weak global bourses, fall in the collections of excise and customs duties in October, export growths falling in September and expectations of more capital outflows – weighed on investors’ sentiments.

Additionally, most of the Asian indices ended in the red while European, after surrendering initial gains, were quoting lower this morning following feeble cues overnight from Wall Street.

Credit problems originating from the US are fast spreading to other global markets as many of the developed and some developing economies are heading toward recession.

India’s richest end up poorer by 60%

2008-11-14T09:00:00.000-08:00

Latest Forbes list of 40 richest Indians finds that their total wealth has shrunk from last year’s $351 bn to just $139 bn due to weak stock markets and rupee

Sliding stock markets have taken their toll on the much-vaunted personal wealth of India’s richest citizens.

In fact, according to global business magazine Forbes’ annual rich-list for the country, the combined net worth of India’s 40 richest has declined by 60 per cent due to weak equity markets and a volatile rupee that lost much ground this year against the dollar.

In addition to shrinking net-worths of the top captains of India Inc (their combined wealth is now $139 billion, down from $351 billion just a year ago), these factors also caused a major shake-up in the rankings itself.

For one, Reliance Industries’ Mukesh Ambani has overtaken NRI steel tycoon Lakshmi Mittal as the richest Indian in the world, with a net worth of $20.8 billion to Mittal’s $20.5 billion.

They are followed by Mukesh’s younger brother Anil Ambani, whose wealth stands at $12.5 billion.

Telecom czar Sunil Mittal and realtor KP Singh are ranked fourth and fifth with $7.9 billion and $7.8 billion, respectively.

Source: Mumbai mirror

India loses $63 billion in six months

2008-11-14T08:52:00.000-08:00

India’s richest are not the only ones who have lost billions in net worth in the midst of the global meltdown. The country’s central bank has seen its foreign exchange reserves shrink more than $63 billion — enough to fund 600 Moon missions — in less than six months as exports slumped, trade deficit widened on a surge in the oil import bill and foreign investors pulled out of the stock market.

Lately, the reserves are falling at an alarming pace, squeezing much of the room for manoeuvre that India had in the face of the ongoing financial turmoil. The fall was a staggering $31 billion in October, or almost half of the decline since May 23, when reserves touched a record $316 billion.

The fast depletion has serious implications, as it could bring more pressure on the rupee, which has already depreciated about 20 per cent this year and made everything from imported machinery to foreign travel and education more expensive. A weaker rupee could also reverse the recent slide in inflation.

“If this trend continues for more than three months, there could be a problem,” said a top monetary policy official, who didn’t want to be named because the issue is market sensitive.

The government, however, is hopeful that the situation would change once its policy responses begin to play out and stability returns to global financial markets. “We are trying to minimise the drawdown on reserves,” said Suresh Tendulkar, who heads the prime minister’s economic advisory council. He said the Centre is trying to induce NRI deposits and tap sovereign wealth funds, especially from the Gulf. Efforts are underway to revive exports growth, he said.

Mahurat trading

2008-10-30T00:46:00.000-07:00

Mahurat trading is the auspicious stock market trading for an hour on Diwali (Deepawali), the biggest festival for Hindus.

Sensex Biggest fall in Indian stock market history

2008-10-24T07:51:00.000-07:00

The rise and fall of the Sensex has been dizzying. The markets are back to the point it scaled three years ago. . . The BSE Sensex on Friday crashed by 1,071 points to close at 8,701 points. This has been an incredible year for the markets, after scaling the 21,000 peak in January 2008, the markets are at 8,000 now.

The Sensex plunged by 1070.63 points (10.96 per cent) to close at 8,701.07. The National Stock Exchange's Nifty ended at 2,557.25, down 13.11 per cent or 386 points. The BSE Midcap closed 8.38 per cent lower and BSE Smallcap Index ended 7.66 per cent down.

On Friday, the Reserve Bank of India gave the markets its biggest blow as it left key interest rates unchanged and lowered the GDP target to 7.5-8% for 2008-09.

Markets across the globe crashed on Friday. Japan's Nikkei shed 9.6% (812 points) to 7,649. Hang Seng plunged 6% (822 points) to 12,939. The Seoul Composite index tumbled 10.5% (111 points) to 939.

The worst hit stocks were DLF, Ranbaxy Laboratories Hindalco Industries, Tata Motors, Reliance Industries and Mahindra & Mahindra.

On Thursday, stock markets plunged following sustained capital outflows, shaky global markets, poor company results, and the International Monetary Fund's warning that economic growth in advanced nations will be close to zero. The BSE Sensex fell by 398.20 points, or 3.92%, to fall to 9,771.70.

Gold crashes ahead of festivals

2008-10-24T07:47:00.000-07:00

Spot gold prices hit a one-year low and slipped below Rs 12,000 per 10 gram in Mumbai while spot gold in London hit a 13-month low of $703.45 an ounce on a wave of long liquidations in the international markets exacerbated by below expected gold sales ahead of Diwali in India, the world’s largest consumer of the metal.

Local gold spot prices fell by 2-3% on Thursday in line with the trends in world markets. Experts said a rising dollar vis-à-vis euro & pound and flight of cash-strapped investors looking to liquidate their position in all commodities pulled down gold.

The euro fell to the lowest in almost two years against the dollar, while the pound traded near its lowest in more than five years. Spot gold traded at Rs 11,640 per 10 gm in Mumbai on Thursday, down by nearly Rs 300 and Rs 11,541 per 10 gm in Ahmedabad, down by Rs 600 per 10 gram over the previous day. On the MCX platform, gold December futures also fell to the day’s low of Rs 11,601 per 10 gram, down by nearly Rs 900 over the previous day.

As the prices of the noble metal fell, gold exchange traded funds (ETFs), once among the top performing funds, too slipped to the bottom. Valueresearchonline.com data shows gold ETFs have given a negative monthly return of 5.93%. Annual returns are still positive, at 22.70%.

The softening of gold prices could not have come at a better time for festival buyers in India. After months of waiting, buyers thronged jewellery shops to make their yearly purchases. Traders said prices inching below the psychological mark of Rs 12,000 per 10 grams should spark good demand ahead of two busiest buying days for precious metals next week.

India imports about 700 tonnes of gold a year, with more than 50% bought in the festival season of October-December.

“Gold price in the international market may now see the $650-level”, said Bhargav Vaidya, a leading bullion expert.

Samir Shah of Riddhi Siddhi Bullion Ltd also said, “Price may slip below $700 an ounce. Gold spot prices in the physical market are expected to fall in the run-up to the Dhanteras and Diwali festivals next week.”

In some cities, such as Udaipur and Indore, sales were in line with the trend of the previous years but in some other places like Ahmedabad and Mumbai, sales were just half of what they were last year, sources said. Silver also eased on lack of industrial demand.

Rupee falls to record low of 50.15 per dollar

2008-10-24T02:30:00.000-07:00

The Indian rupee opened trade on Friday at a record low of 50.15 per dollar, weighed down by heavy losses in Asian stocks which raised worries of more outflows from the local share market.

At 9 a.m. (0330 GMT), the partially convertible rupee was at 50.00/15 per dollar, compared with 49.81/82 at close on Thursday.

Asian stocks fell on Friday, led by a 4% drop in Japan's Nikkei, as the global economic slowdown slashed earnings prospects for an array of companies, forcing investors to look to safer government bonds

Another black friday - Sensex below 9000, down 900 pts

2008-10-24T02:18:00.000-07:00

The markets refused to relent despite the finance minister's appeal to investors to take informed decisions and not sell in panic.

Finance Minister P Chidambaram said the RBI's policy decision to keep rates steady was on expected lines. He said the RBI would infuse liquidity and if required, would adopt conventional and unconventional tools.

Chidambaram said, RBI will continue to manage financial price stability along with sustainable growth. He asked investors to remain calm and not resort to panic selling in the market. At 1:25 pm, Bombay Stock Exchange's Sensex slumped 776.19 points to 8995. The index plummeted to a low of 8,940.48 in trade so far.

National Stock Exchange's Nifty tumbled 8.48 per cent or 249.7 points to 2693.45. The low, so far, was 2661.45.

Among frontline stocks, Hindalco Industries (-19.15%), Mahindra & Mahindra (-12.07%), Tata Motors (-12.05%), Tata Steel (-11.78%) and Reliance Infrastructure (-10.52%) were under severe pressure.

There were no gainers in the 30-share index. Market breadth was extremely negative with 2095 declines outnumbering 335 advances

Sensex below 10,000

2008-10-17T04:43:00.000-07:00

The benchmark Sensex dipped below the 10,000 mark on selling by funds at mid-session after opening on a strong note.

The 30-share index, which opened higher by 205 points, fell by 314.69 points to 10,266.80 at 1330 hrs.

The wide-based National Stock Exchange index Nifty, which gained 66.65 points at the initial stage, plunged by 98.15 points at 3,171.15 points.

Barring technology majors Satyam Computers and Tata Consultancy Services, all other 28 index participants were in the red.

Oil falls below $78 on recession fears

2008-10-16T09:37:00.000-07:00

Oil prices fell below $78 a barrel Wednesday in Asia on concern a massive bank bailout by the U.S. and Europe won't keep the global economy from slipping into a severe slowdown that would erode crude demand.

Light, sweet crude for November delivery was down 98 cents to $77.65 a barrel in electronic trading on the New York Mercantile Exchange by midafternoon in Singapore. The contract fell overnight $2.56 to settle at $78.63. Oil prices have fallen by 47 percent since peaking near $150 a barrel in mid-July.

"People are worried that the world economy is heading for recession," said Gerard Rigby, an energy analyst at Fuel First Consulting in Sydney. "The bailout may save the banks, but companies are still laying off workers and demand is going to suffer."

The U.S. plans to spend as much as $250 billion this year of a $700 billion bailout buying stock in private banks, President George W. Bush said Tuesday. Governments across the globe have pledged more than $3 trillion to prop up ailing banks in a bid to stabilize a credit crisis that began last year in the U.S. sub-prime mortgage market. Former U.S. Federal Reserve Chairman Paul Volcker said Tuesday the U.S. and Europe face a "considerable recession."

"The banks might be ok, but the rest of the economy needs help as well," Rigby said.

Investors are watching for signs of slowing U.S. demand in the weekly oil inventories report to be released Thursday from the U.S. Energy Department's Energy Information Administration. The petroleum supply report was expected to show that oil stocks rose 3.1 million barrels last week, according to the average of analysts' estimates in a survey by energy information provider Platts.

The Platts survey also showed that analysts projected gasoline inventories rose 3.1 million barrels and distillates went down 850,000 barrels last week. Crude stocks have grown as oil installations in the Gulf of Mexico that were shut down by Hurricane Ike last month begin operations again.

"There is some demand destruction in that forecast, but there's also hang over from the hurricane as refineries come back on line," Rigby said.

In other Nymex trading, heating oil futures rose 2.26 cents to $2.2823 a gallon, while gasoline prices fell 0.34 cent to $1.8814 a gallon. Natural gas for November delivery rose 0.05 cent to $6.732 per 1,000 cubic feet.

In London, November Brent crude was down 84 cents to $73.69 a barrel on the ICE Futures exchange.

Source: Associated Press

Sensex hits 2008 low

2008-10-15T22:02:00.000-07:00

The Sensex opened with a negative gap of 524 points at 10,285, and soon tankex to a fresh calendar year low of 10,151. The index is now down 543 points at 10,266.

The NSE Nifty is trading at 3,174, down 164 points.

Reliance Infrastructure, Sterlite and Jaiprakash Associates have slumped around 9% each to Rs 504, Rs 266 and Rs 66, respectively.

Grasim has tumbled over 8% to Rs 1,370. TCS and Reliance Communications have plunged 7.5% each to Rs 501 and Rs 218, respectively.

Reliance and Bharti Airtel have shed 7% each at Rs 1,413 and Rs 669, respectively.

The Sensex opened with a negative gap of 588 points 10,221.

The index is now down 618 points at 10,191.

Recession worry pulls Wall Street lower at open

2008-10-15T08:39:00.000-07:00

New York: U.S. stocks slid at the open on Wednesday as investors worried that efforts to ease the credit crisis would not avert a recession, overshadowing solid profits from Coca-Cola Co, a bellwether for consumer spending.

The Dow Jones industrial average gave up 161.76 points, or 1.74 percent, at 9,149.23. The Standard & Poor's 500 Index fell 21.32 points, or 2.14 percent, to 976.69. The Nasdaq Composite Index lost 24.83 points, or 1.40 percent, to 1,754.18.

Options: The basics of ‘call’ and ‘put’

2008-10-13T09:28:00.001-07:00

What is an option?

An option contract gives the buyer the right, but not the obligation to buy/sell an underlying asset at a pre-determined price on or before a specified time. The option buyer acquires a right, while the option seller takes on an obligation. It is the buyer’s prerogative to exercise the acquired right. If and when the right is exercised, the seller has to honour it. The underlying asset for option contracts may be stocks, indices, commodity futures, currency or interest rates

What are the types of options?

Broadly speaking, options can be classified as ‘call’ options and ‘put’ options. When you buy a ‘call’ option, on a stock, you acquire a right to buy the stock. And when you buy a ‘put’ option, you acquire a right to sell the stock. You can also sell a ‘call’ option, in which, you will acquire an obligation to deliver the stock. And when you sell a ‘put’ option, you acquire an obligation to buy the stock.

What do you understand by the term option premium?

Option premium is the consideration paid upfront by the option holder (buyer of the option) to the option writer (seller of the option). The option holder gets the right to buy / sell the underlying.

What is the strike price or the exercise price of the option?

The right or obligation to buy or sell the underlying asset is always at a pre-decided price known as the ‘strike price’ or ‘exercise price’, which is linked to the prevailing price of the underlying asset in the cash market. Usually, option contracts are available on the underlying asset on various strike prices (generally, five or more)-divided equally on either side of its spot price.

How does an American option differ from a European option?

In ‘European’ options, a buyer can exercise his option only on the expiration date, that is, the last day of the contract tenure. Whereas in ‘American’ options, a buyer can exercise his option any day on or before the expiration date.In the Indian equity market context, index options are European style, while stock options are usually American in nature.

How do options differ from futures?

In futures, both the buyer and the seller are obligated to buy and sell, respectively, the underlying asset-the quid pro quo relationship. In case of options, however, the buyer has the right, but is not obliged to exercise it. Effectively, while buyers and sellers face a linear payoff profile in futures, it’s not so in the case of options. An option buyer's upside potential is unlimited,while his losses are limited to the premium paid. For the option seller, on the other hand,his maximum profits are limited to the premium received, while his loss potential is unlimited.

Call Option and Put Option

2008-10-13T09:23:00.001-07:00

Call Option is an agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument at a specified price within a specific time period.

It may help you to remember that a call option gives you the right to "call in" (buy) an asset. You profit on a call when the underlying asset increases in price.

Put Option is an option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. This is the opposite of a call option, which gives the holder the right to buy shares.

A put becomes more valuable as the price of the underlying stock depreciates relative to the strike price. For example, if you have one Mar 08 Taser 10 put, you have the right to sell 100 shares of Taser at $10 until March 2008 (usually the third Friday of the month). If shares of Taser fall to $5 and you exercise the option, you can purchase 100 shares of Taser for $5 in the market and sell the shares to the option's writer for $10 each, which means you make $500 (100 x ($10-$5)) on the put option. Note that the maximum amount of potential proft in this example ignores the premium paid to obtain the put option.

Simply put a call is the right to BUY the stock at a certain price. A put is the right to SELL at a certain price. If you own an option, you can either buy (if you hold a call) or sell (if you hold a put) the stock itself, as agreed, or you can sell your option, that is, the right to buy (call) or sell (put) while it can still be exercised in the future.

The option gives you the right to buy (call) or sell (put) but not the obligation to do so.

If you decide to buy (call) based on your call option, actually doing it is called"exercising" the option. Similarly for put options, if you decide to sell, actually doing it is called "exercising" your option.

If you decide to sell someone else an option to buy (a call) stock that you already own, this is called a "covered call". It is one of the safest ways to participate in the options market.

Selling options is another way to participate in the options market. You can either buy them and sell them, or you can create one. This is called writing an option. You will receive a fee If you sell an option for the option itself. If it is a call, you will also receive the agreed price, if the call that you sell is exercised. If you write a call in stock that you do not own, and the buyer from you of the call exercises it, you then have to buy stock to meet your obligation, and this will virtually always cost you money, since the buyer of the call will not exercise it unless it is "in the money", which means that the call price is lower than the market price.

Options are more volatile than the underlying stock. They can move quickly and significantly. You can make, or lose a lot of money in a hurry.

Trading in options, and/or writing them can be exciting, but it is risky. Substantial study of the topic is recommended before engaging in it.

What is wrong with investing in Gold?

2008-10-13T09:15:00.001-07:00

In one scene in the James Bond film "Goldfinger", the gold-intoxicated villain - the film's namesake - watches delightedly as a laser inches closer to a gold-topped table to which Bond is tied at the ankles and wrists. Before bidding farewell, Goldfinger leaves Bond with this thought: "This is gold Mr. Bond. All my life I have been in love with its color, its brilliance, its divine eminence." Movies like this epitomize the human fascination with this precious metal and the greed that it sometimes inspires. Contrary to what Goldfinger thought, gold may not be the most valuable investment in the world - it may be nothing more than a form of insurance.

Here we look at the major issues facing gold, such as its demand/supply imbalance and its potential to share the same fate as silver, and we examine what gold really means as an investment.

Gold's Unique Demand/Supply Imbalance The biggest factor influencing gold's price is the staggering amount of it held by central banks around the world. This is a legacy from the days of the gold standard, which existed in one form or another between 1821 and 1971. During this period, U.S. and European central banks hoarded massive amounts of gold.

According to the World Gold Council, in 2003 this stockpile consisting of 33,000 metric tons accounted for nearly 25% of all the gold ever mined. In that same year, a total of only 3,200 metric tons of gold was supplied to the marketplace through mining and scrap - this means the central banks' stockpile of 33,000 tons could overwhelm the market if it were sold. In other words, there is enough gold in the vaults of central banks to satisfy world demand for 10 years without another ounce being mined! What other commodity has this kind of demand/supply imbalance?

Furthermore, without a gold standard, this precious metal has limited strategic use for these central banks. Because gold does not earn any investment interest, some central banks - like that of Canada during 1980-2003 - have already eliminated their gold stock. The potential for gold supply to dwarf its demand poses a hindrance to the metal's potential return well into the future.

Does Silver Foreshadow Gold's Future? Silver and gold have shared a common history over the past five millennia. Prior to the 20th century, silver was also a monetary standard, but it has long since faded from this monetary scene and from the vaults of central banks around the world. According to the Economist article "Goldbears" (May 30, 2002), silver's elimination from the central banks' reserves may help explain why its return has not exceeded inflation rates over the past 200 years. If the current stockpile of gold were to be sold off, the downward pressure on its price could result in it having the same fate as silver.

Perhaps history demonstrates that it is just too difficult for the world to work under a monetary standard based on a commodity because the demand for these metals depends on more than monetary needs. When these metals were used as monetary standards, the divergence of the market price and mint price for these metals seemed to be in continual flux. (The mint price refers to the price a mint would pay someone to bring gold or silver in to be melted down into coinage.) And continual arbitrage opportunities between market and mint prices created havoc on economies. The rise and fall of the silver standard - which just happened to be the first victim - perhaps demonstrates how gold's price as a commodity cannot absorb the demand/supply distortions created by its past position as a monetary standard.

The Real Meaning of Gold So how should an investor really view gold? For the most part, it is a commodity, just like soybeans or oil. So, when making any buy or sell decision, an investor should put future supply and demand issues at the forefront.

At the same time, gold can be seen as a form of insurance against a catastrophic event hitting the global financial markets. However, if that were ever to happen, it's possible that gold would be of use only to those investors who held it physically. The attacks on the World Trade Center in 2001 demonstrated this point all too well. Hundreds of millions of dollars worth of gold may have been stored in vaults underneath these towers, but these vaults became inaccessible after the towers collapsed.

Gold also may be helpful during periods of hyperinflation as it can hold its purchasing power much better than paper money during these periods. However, this is true for most commodities. Hyperinflation has never occurred in the U.S., but some countries are all too familiar with it. Argentina, for example, saw one of its worst periods of hyperinflation from 1989-90, when inflation reached a staggering 186% in one month alone. In such situations, gold has the capacity to protect the investor from the ill effects of hyperinflation.

Conclusion Gold means many things to many people. Its history alone has lured some investors. One of gold's most important historical roles has been as a monetary standard, functioning much like today's U.S. dollar. However, with the gold standard no longer in place and industrial demand representing only 10% of its overall demand, gold's luster - as an investment - is not quite as bright.

Until the fate of the gold stockpile accumulated by governments is determined, the price of it will have difficulty surpassing the US$850 per ounce reached in 1980. According to the "Goldbears" article, if gold undergoes the same monetary fate as silver, gold will trade around $68 per ounce.

Therefore, holding gold as an investment is really a form of insurance against a period of hyperinflation or a catastrophic event hitting our global financial system. Insurance comes at a price, though. Is that price worth it?

Investing in Gold

2008-10-13T09:08:00.001-07:00

From gold exchange-traded funds (ETFs) to gold stocks to buying physical gold, investors now have several different options when it comes to investing in the royal metal. But what exactly is the purpose of gold? And why should investors even bother investing in the gold market? Indeed, these two questions have divided gold investors for the last several decades. One school of thought argues that gold is simply a barbaric relic that no longer holds the monitory qualities of the past. In a modern economic environment, where paper currency is the money of choice, gold's only benefit is the fact that it is a material that is used in jewelry.

On the other end of the spectrum is a school of thought that asserts gold is an asset with various intrinsic qualities that make it unique and necessary for investors to hold in their portfolios. In this article, we will focus on the purpose of gold in the modern era, why it still belongs in investors' portfolios and the different ways that a person can invest in the gold market.

A Brief History on Gold
In order to fully understand the purpose of gold, one must look back at the start of the gold market. While gold's history began in 3000 B.C, when the ancient Egyptians started forming jewelry, it wasn't until 560 B.C. that gold started to act as a currency. At that time, merchants wanted to create a standardized and easily transferable form of money that would simplify trade. Because gold jewelry was already widely accepted and recognized throughout various corners of the earth, the creation of a gold coin stamped with a seal seemed to be the answer.
Following the advent of gold as money, gold's importance continued to grow. History has examples of gold's influence in various empires, like the Greek and Roman empires. Great Britain developed its own metals based currency in 1066. The British pound (symbolizing a pound of sterling silver), shillings and pence were all based on the amount of gold (or silver) that it represented. Eventually, gold symbolized wealth throughout Europe, Asia, Africa and the Americas.

Following the advent of gold as money, gold's importance continued to grow. History has examples of gold's influence in various empires, like the Greek and Roman empires. Great Britain developed its own metals based currency in 1066. The British pound (symbolizing a pound of sterling silver), shillings and pence were all based on the amount of gold (or silver) that it represented. Eventually, gold symbolized wealth throughout Europe, Asia, Africa and the Americas.

The United States government continued on with this gold tradition by establishing a bimetallic standard in 1792. The bimetallic standard simply stated that every monetary unit in the United States had to be backed by either gold or silver. For example, one U.S. dollar was the equivalent of 24.75 grains of gold. In other words, the coins that were used as money simply represented the gold (or silver) that was presently deposited at the bank.

But this gold standard did not last forever. During the 1900s, there were several key events that eventually led to the transition of gold out of the monetary system. In 1913, the Federal Reserve was created and started issuing promissory notes (the present day version of our paper money) that guaranteed the notes could be redeemed in gold on demand. The Gold Reserve Act of 1934 gave the U.S. government title to all the gold coins in circulation and put an end to the minting of any new gold coins. In short, this act began establishing the idea that gold or gold coins were no longer necessary in serving as money. The United States abandoned the gold standard in 1971 when the U.S. currency ceased to be backed by gold.

The Importance of Gold In the Modern Economy
Given the fact that gold no longer backs the U.S. dollar (or other worldwide currencies for that matter) why is it still important today? The simple answer is that while gold is no longer in the forefront of everyday transactions, it is still important in the global economy. To validate this point, one need only to look as far as the reserve balance sheets of central banks and other financial organizations, such as the International Monetary Fund. Presently, these organizations are responsible for holding approximately one-fifth of the world's supply of above-ground gold. In addition, several central banks have focused their efforts on adding to their present gold reserves.

Gold Preserves Wealth
The reasons for gold's importance in the modern economy centers on the fact that it has successfully preserved wealth throughout thousands of generations. The same, however, cannot be said about paper-denominated currencies. To put things into perspective, consider the following example.

Example - Gold, Cash and Inflation
In the early 1970s, one ounce of gold equaled $35. Let's say that at that time, you had a choice of either holding an ounce of gold or simply keeping the $35. Both would buy you the same things at that, like a brand new business suit, for example. If you had an ounce of gold today and converted it for today's prices, it would still be enough to buy a brand new suit. The same, however, could not be said for the $35. In short, you would have lost a substantial amount of your wealth if you decided to hold the $35 and you would have preserved it if you decided to hold on to the one ounce of gold because the value of gold has increased, while the value of a dollar has been eroded by inflation.

Gold as a Hedge Against a Declining U.S. Dollar and Rising Inflation
The idea that gold preserves wealth is even more important in an economic environment where investors are faced with a declining U.S. dollar and rising inflation (due to rising commodity prices). Historically, gold has served as a hedge against both of these scenarios. With rising inflation, gold typically appreciates. When investors realize that their money is losing value, they will start positioning their investments in a hard asset that has traditionally maintained its value. The 1970s present a prime example of rising gold prices in the midst of rising inflation.

The reason gold benefits from a declining U.S. dollar is because gold is priced in U.S. dollars globally. There are two reasons for this relationship. First, investors who are looking at buying gold (like central banks) must sell their U.S. dollars to make this transaction. This ultimately drives the U.S. dollar lower as global investors seek to diversify out of the dollar. The second reason has to do with the fact that a weakening dollar makes gold cheaper for investors who hold other currencies. This results in greater demand from investors who hold currencies that have appreciated relative to the U.S. dollar.

Gold as a Safe Haven
Whether it is the tensions in the Middle East, Africa or elsewhere, it is becoming increasingly obvious that political and economic uncertainty is another reality of our modern economic environment. For this reason, investors typically look at gold as a safe haven during times of political and economic uncertainty. Why is this? Well, history is full of collapsing empires, political coups, and the collapse of currencies. During such times, investors who held onto gold were able to successfully protect their wealth and, in some cases, even use gold to escape from all of the turmoil. Consequently, whenever there are news events that hint at some type of uncertainty, investors will often buy gold as a safe haven.

Gold as a Diversifying Investment
The sum of all the above reasons to own gold is that gold is a diversifying investment. Regardless of whether you are worried about inflation, a declining U.S. dollar, or even protecting your wealth, it is clear that gold has historically served as an investment that can add a diversifying component to your portfolio. At the end of the day, if your focus is simply diversification, gold is not correlated to stocks, bonds and real estate.

Different Ways of Owning Gold
One of the main differences between investing in gold several hundred years ago and investing in gold today is that there are many more options to participating in the intrinsic qualities that gold offers. Today, investors can invest in gold by buying:

Gold Futures
Gold Coins
Gold Companies
Gold ETFs
Gold Mutual Funds
Gold Bullion
Gold jewelry

Conclusion
There are advantages to every investment. If you are more concerned with holding the physical gold, buying shares in a gold mining company might not be the answer. Instead, you might want to consider investing in gold coins, gold bullion, or jewelry. If your primary interest is in using leverage to profit from rising gold prices, the futures market might be your answer.

What is Day Trading and what are its benefit

2008-10-07T09:36:00.000-07:00

Day trading means that the trader trying to make money buying and selling stocks in a day taking benefit of the daily price movement. Day traders end the day flat.

Some day traders focus on very short or short-term trading, in which a trade might last seconds to a few minutes. They buy and sell many times in a day, trading very high volumes daily and therefore receiving big discounts from the brokerage.

Some day traders focus only on momentum or trends. They are more patient and wait for a ride on the strong move which may occur on that day. They make far fewer trades than the aforementioned traders.

It is usually stated that 80-90pct of day traders lose money. Also price movements in a day are few, so why people trade only in a day? What are advantages of being a day trader?

Benefits of Day Trading

Fewer Stresses
To avoid the risk of price gaps day traders close all their positions at the end of a trading day. Due to this, day trading is less stressful than holding stocks overnight. After market closed you are not worried what will happen until tomorrow and what news will hand out. You never ‘lost sleep'; in the morning have a nice feeling because you don't care what the market's doing at the open.

Contemptible Commission
One thing that makes day trading potentially profitable is commission structure. Day traders pay ‘per share' instead of ‘per trade' structure. If you pay about $10 per trade now when you turn into a day trader, you might pay more than $0.01 per share.

Increased Leverage
Day traders could have 4 times their equity as intraday buying power. This great margin can raise your profits if used shrewdly. This increased leverage makes day trading very dangerous, especially if one has poor discipline, risk or money management.

Profit in any market direction
Day trading often will utilize short-selling to take advantage of downwards stock prices. The ability to lock in profits even as markets drop throughout the trading day is very useful during bear market conditions. Some Techniques of Day Trading

Range trading
A range trader watches a stock that has been increasing off a support price and declining off a resistance price. That is, every time the stock hits a lofty, it falls back to the low, and vice versa. Such a stock is said to be "trading in a range", which is the opposite of trending. The range trader therefore buys the stock at or near the low price, and sells the high.

Trend following
Trend following, a strategy used in all trading time frames, assumes that financial instruments which have been growing bit by bit will continue to increased, and vice versa. The trend follower buys an instrument which has been increasing or short-sells a falling one, in the hope that the trend will continue.

Scalping
Scalping initially referred to spread trading. Scalping is a trading style where small price gaps created by the bid-ask spread is exploited. It usually involves establishing and liquidating a position rapidly, usually within minutes or even seconds. Scalping extremely liquid instruments for off the floor day traders involves taking quick profits while minimizing risk (loss exposure). The basic idea of scalping is to exploit the incompetence of the market when volatility increases and the trading range enlarge.

Rupee falls to 48.03, lowest since Dec 2002

2008-10-07T09:16:00.000-07:00

The rupee fell to its lowest since December 2002 on Tuesday, weighed down by a stronger dollar overseas and losses in the local stock market which raised concerns on more foreign fund outflows.

At 12:16 p.m., the partially convertible rupee was at 48.03/04 per dollar, its lowest since Dec. 20, 2002 and 0.5 per cent weaker than 47.80/81 at close on Monday.

India's main share index was down 1.5 per cent as investors were unable to shake off jitters about global economic woes, after initially rising as much as 3.2 per cent on liquidity boosting measures by regulators.

Sensex dips below 12k, rupee at a five-year low

2008-10-07T09:12:00.000-07:00

The Sensex plunged to its lowest in more than two years, and the rupee declined to its lowest level in five years to 47.81 against the dollar, as the credit crisis deepened in Europe, reinforcing concerns about the pace of growth of the global economy. The Indian markets declined after Germany bailed out Hypo Real Estate Holding AG for $68 billion and the UK too said it would rescue its lenders.

The Sensex of the Bombay Stock Exchange (BSE) tumbled 724.62 points, or 5.8%, to 11,801.70, the lowest since September 12, 2006. The BSE 200 Index too declined 6.1% to 1,423.32.

The S&P CNX Nifty of the National Stock Exchange fell 5.7% to 3,602.35. Nifty futures for October delivery fell 5.2% to 3,640. According to provisional figures furnished by BSE, FIIs continued offloading stocks in the domestic markets. They were net sellers at Rs 1,169.33 crore, while domestic institutional investors were net buyers at Rs 661 crore.

Amitabh Chakraborty, president-equity, Religare Securities Ltd, said, “A lot of heavy selling kicked in the second half of the trading session as the news of Fortis getting bailed out by the UK govt came in and all European indices opened down by 6%.

Markets witnessed a lot of panic-selling in frontline stocks as well as in select mid-caps by the FIIs and selective HNIs whose positions were highly leveraged.”

And it was not just in India, stocks tumbled worldwide. In fact, emerging market stocks headed for their biggest one-day decline since 1997 as the global banking crisis escalated in Europe. The trigger in the European market was the news that BNP Paribas SA agreed to take control of Fortis after a government rescue failed, and German state and financial institutions put together a $68-billion rescue package for Hypo Real Estate Holding AG.

Oil falling below $90 a barrel for the first time in eight months also did not cheer the markets. The MSCI Emerging Markets Index slumped 6.9%, putting it on course for the biggest slide since the Asian markets meltdown of October 1997.

Russia’s stock market decline, along with China and Brazil, has pushed the benchmark MSCI emerging market gauge down 44% this year, the steepest drop in at least two decades. China’s benchmark CSI 300 Index slid 5.1%, its biggest one-day decline since August, after resuming trading on Monday after a week-long holiday.

Hitesh Agarwal, head-research, Angel Broking, said, “Indian stock markets are feeling the heat of the global liquidity crunch. The present decline is a fallout of the redemptions by foreign institutional investors (FIIs).”

The move by the Securities and Exchange Board of India (Sebi) to relax the norms pertaining to FII investments has come as a welcome relief for the Indian stock markets, Agarwal added.

The slump in share prices prompted overseas funds to reduce holdings, and pushed the rupee to the lowest level since February 2003. The Indian currency fell 1.5% to 47.81 against the dollar, the lowest close since February 14, 2003. The rupee, the second-biggest loser this year among the 10 most-actively traded Asian currencies excluding the yen, is headed for its first annual loss since 2001. The rupee also fell on speculation companies bought dollars to pay for cheaper crude oil. Crude oil fell below $90 a barrel in New York for the first time since February.

Sensex components took a massive beating with Reliance Industries Ltd dropping 6.8% to Rs 1,641.60. Tata Consultancy Services Ltd, the largest software developer in India, declined 5.9% to Rs 619, its lowest since July 2005. Sterlite Industries (India) Ltd, the nation’s biggest copper and zinc producer, dropped 15% to Rs 335.50, the lowest in more than two years.

All the stocks in the Sensex ended the day in red. Of the 2,677 stocks traded on BSE, only 281 stocks managed to advance, 2,369 stocks declined and 27 remained unchanged. All the sectors in the BSE sectoral indices ended the day in the negative terrain.

The move to remove restrictions on overseas derivative instruments and a 50-basis points cut in the cash reserve ratio of banks are expected to elicit a positive response on Tuesday. But the pressure for the indices to touch new lows is expected to remain for a while.

Sensex below 12000, lowest in 2 years

2008-10-06T07:46:00.000-07:00

The stock market cracked under pressure from the boiling global financial crisis, with the barometer index tanking 725 points to trade at its lowest level in two years as foreign funds left in search of safer investment havens.

The 30-share stocks barometer Sensex, which lost 529.35 points in the previous session, plunged by another 724.62, or 5.78 per cent to close at 11,801.70.

Funds indulged in selling in consumer durables, metals, capital goods and realty stocks. The Sensex touched the day's low of 11,732.97 and a high of 12,284.49 points.

The slide came even as the subprime lending-induced crisis threatened Europe, prompting Germany to guarantee all private bank accounts worth 568 billion euros to prevent panic withdrawals. Questions about the effectiveness of America's USD 700 billion bailout package for its banks also negatively influenced the sentiment.

Analysts, however, said that the market may bounce back tomorrow as the Reserve Bank and SEBI on Monday announced measures to ease liquidity and trading norms in derivative segment respectively.

The wide-based National Stock Exchange index Nifty dropped by 215.95 points, or 5.66 per cent at 3,602.35 after dipping to a low of 3,581.60 during the session.

In Asia today, China was down by 5.23 per cent, Hong Kong by 4.97 per cent, Japan by 4.25 per cent, Singapore 5.61 per cent, Korea 4.29 per cent and Taiwan 4.12 per cent. European markets also resumed sharply lower.

The market seemed to be bear trap as the main driver, Foreign Institutional Investors (FIIs) pulled out a whopping Rs 1,662.26 crore on October 3 as per provisional data.

Financial crisis in the U.S

2008-10-04T12:28:00.000-07:00

It's well past midnight and I am suddenly woken up by the ringing of my mobile phone. Today is one of those rare days when I have forgotten to put my phone on 'silent' mode.

'Why is the wall street going bust?' the rather feminine voice on the other end asks.
It takes me a few seconds to realise who is on the line.

"Mam. It is 2.30 am. Can we discuss this at a more appropriate time?" I thought you know question."Well. I understand things much better after midnight, is what I meant. So I will be highly obliged if you could explain."

"Okay. This is a rather complicated question. Where do we start? You remember in the year 2000, the dotcom bubble went bust. In the aftermath of that the US Federal Reserve started to cut interest rates.'"Let me interrupt. What is the US Federal Reserve," She asks.

"The US Federal Reserve is similar to the Reserve Bank of India. It is the central bank of the country and one of its tasks is to set interest rates. Therefore, after the dotcom bubble went bust, the Federal Reserve started to cut interest rates to ensure that the economy did not go into recession. By cutting interest rates it wanted to ensure that people continue to borrow and consume and hence the economy continues to grow."

"Interesting. But don't you think you are deviating from the point. I want to know about Wall Street not the US Fed."

"Patience, my dear. The long-term interest rate was reduced to 1% by the middle of 2003. That is where it stayed for around the next twelve months. With the interest rates at such low levels, people started to borrow to buy homes. The idea behind this was very simple. The rate of increase in the value of the house would be more than the interest rate to be paid on the loans that had been taken. As more and more people started to believe in this, the home prices in the US started to rise at a very fast pace.""Where is this heading yaar. First you talk about the Fed, now you are talking about homes. I want to know about the Wall Street," she screams on the phone.

"Don't interrupt. Let me continue. Low interest rates, combined with the belief in the idea that house prices will continue to go up, fuelled another bubble Banks and other financial institutions that gave out home loans decided that it was a good opportunity to expand the market. So they decided to give home loans even to those individuals who were not creditworthy enough and would not get a loan in the normal scheme of things, " I explain.

"Hmmm. This is getting interesting, though we are still nowhere near Wall Street."

"In a way the home loan lenders themselves believed in the bubble and hence gave out home loans to individuals who were not creditworthy. Such borrowers are referred to as the sub prime borrowers. In order to attract these borrowers, banks offered home loans with teaser rates. The interest rates would be lower in the first couple of years. This would mean a lower equated monthly installment (EMI) to pay off the loan. In the later years, a higher interest rate would kick in and that would mean a higher EMI. The borrower was completely sold out to the idea of housing prices continuing to go up and he planned to sell the house to make a profit before the higher EMI kicked in."

"But by following this strategy, weren't banks taking in a huge amount of risk?"

"Yes and no. One the face of it, yes it was a risky strategy. But banks and other financial institutions giving out home loans were smart enough to get out of these loans very quickly by securitising them,' I reply/

"Wait a minute. What is this securitising thing you are talking about," she asks.

What they essentially did in case of securitisation was bundle similar kinds of home loans together and make financial securities out of it. These financial securities were then sold to savvy financial investors, most of whom were based out of Wall Street in New York. By selling the financial securities, the bank or the financial institution giving out the home loan did not continue to carry any risk. At the same time, it freed up the money and the bank could lend again. A major part of the EMI paid by the borrower was passed on to the financial institution that bought these securities. " "But why did Wall Street financial institutions buy these securities," she questions.

"They bought it because these securities offered higher returns than other modes of investment available. But they were just investors. They failed to realise the true risk of these securities. The bank or the financial institution giving the loan was best placed to assess how risky a particular loan was. But since it was in a position to securitise the loan, it was only interested in giving out more and more loans, and not assessing the risk involved. Other than this, documents of a lot of sub-prime borrowers were fudged to give them loans that were well beyond their capacity to repay. Initially, with low interest rates, these borrowers continued to repay, but once the teaser rates were over and higher interest rates set in, they simply could not repay and started to default. Once the borrowers realised that they wouldn't be able to continue to repay, they started to sell the property. But, with a lot of selling hitting the market at the same time, there were not enough buyers and this ensured that housing prices started to fall, " came my long wielding explanation.

"Ah. Now I seem to get it. With higher interest rates setting in, sub-prime borrowers started to default. Once this happened, all the Wall Street financial institutions that had invested in these securities stopped getting their money back. And once more and more borrowers started to default these hallowed institutions went bust. Wow, in hindsight, everything seems so explainable, " she exults over the phone.

"Yes Mam. Now that you have understood, why don't you think about it and I'II go back to sleep.'

Three reasons why you shouldn't panic and sell your stocks

2008-10-01T10:45:00.000-07:00

The government bailout that was supposed to save the financial sector from certain doom failed to pass vote on Congress. Does that mean we now face certain doom? I think not.

I don't want to sound Pollyanna-ish and I don't really have a crystal ball (as my headline promises), but here are some reasons why investors should not panic and sell their stocks now:

First, as frightening as the market looks -- the Dow fell 778 points for its worst one-day drop ever -- there is going to be a rebound.
If you sell at the bottom, you will miss out on an eventual recovery. If you really want to get out, wait for a bounce and then sell some of your stock holdings. Don't sell into a freefall. Think about it: the S&P fell an astounding 8.79% on Monday -- the worst percentage drop in more than 60 years, except for 1987's Black Monday crash. The Nasdaq fell 9.14%. Given the devastation, I think a bounce could come as soon as Tuesday since there will no doubt be some news that has to be better than Monday's.

Incidentally, this "don't sell in a panic" advice is the same you'll get from any financial advisor worth his or her salt. If you're invested in the market for the long term, you should ride out such waves and -- if you're really brave -- even use episodes of panic selling to buy more stocks.

Second, a private sector solution to this problem is possible.
We've seen Warren Buffett invest $5 billion of his capital into Goldman Sachs and stronger financial institutions step in to buy the weak. There is plenty of additional capital out there that could come in and boost the banks. Heck, Barron's just ran a cover story about how profitable the government's purchase of toxic waste would ultimately prove. If the magazine is right, some of those hedge funds will surely come in and slurp up some of this slop.

What if a private sector solution doesn't materialize? Then you should be glad that the bailout plan on the table Monday didn't pass. It could be a sign that the U.S. might well have been just throwing good money after bad by buying all those billions of bad debt.

Third, If credit markets stay frozen and banks keep going bust, I think Congress will pass some kind of Federal aid package that will stabilize the financial system.
It may take a few painful weeks of market turmoil and economic hand-wringing, but hopefully it will be better than the package that failed to pass the House today.

There are plenty of other options for how such a bailout could be structured -- such as the government getting preferred stock in exchange for injecting capital, or the Feds finding a way to provide a more direct boost to the long-suffering housing market. A lot of folks are going to be fighting it out to come up with a plan that will both work and pass and I think they will succeed.

A modest proposal: Ban credit cards

2008-10-01T10:42:00.000-07:00

Well why not?

What if they outlawed credit cards? Would the world end? Would it be financial Armageddon? Would we shuffle from food line to water queue in our now-tattered $250 blue jeans?

It's never gonna happen, we know. So play along with me here. I'm not talking about business credit. That's an altogether different animal (currently in hibernation). I'm talking consumer debt. This idea that we can have the McMansion AND the boat AND the trips AND the kitchen remodel because we could, up until just a bit ago, borrow all that money to do so.

And look where we are today.

What if we *had* to live within our means again? What if we couldn't buy whatever we wanted because we didn't have credit cards? Would it suck? Heck yeah. But only because we've gotten so used to having credit, and being able to buy those cute shoes or fund our student film or buy that iPhone because it's so cool and you just gotta have it.

In other words, what would happen if we couldn't have all that...stuff...unless we actually had the cash for it? We'd have to get used to saving again. Saving actual dollars (while they're still worth anything at all, I mean). What if you had to do the now unimaginable and save a 20% cash downpayment before buying a new house? Wouldn't that kind of thinking actually help our economy down the road? A nation of savers is a good thing, isn't it?

We wouldn't be so in debt. We wouldn't have so much superfluous stuff. We might work less and live more. Thrift might come back into style.

Being truly forced to live within our means would really foul up our carefully-crafted consumer society, true. But as I'm told, many generations of people have managed to do so. My dad tells me that in the '60s you went to the bank on a Friday with your paycheck, and took out enough cash to get through until the next week. If you ran out...well...tough luck.

So set me straight please. Why couldn't we just ban credit cards forever? It's just a thought, given today's financial meltdown...caused by the credit crisis.

How to receive income from shares?

2008-09-29T08:53:00.000-07:00

The income received from shares is called a dividend.

We invest in shares to make money – either through a share’s capital growth, i.e. the amount by which the share price increases in value over time, or through the dividends it pays to its shareholders. Dividends are payments made by companies to shareholders from their profits. Not all companies pay dividends. Dividends are usually paid twice a year and are in effect the yield from your investment. Some growth companies plough most of their profits back into generating more business rather than paying out dividends to investors.

How would I get my dividend/interest or other cash entitlements?
The concerned company obtains the details of beneficiary holders and their holdings from the depository. The payment to the investors will be made by the company through the ECS, or Electronic Clearing Service, facility or by issuing warrants on which your bank account details are printed. The bank account details will be those, which you would have mentioned in your account opening, form or changed thereafter.

How would I get my bonus shares or other non-cash entitlements?
The concerned company obtains the details of beneficiary holders and their holdings from NSDL. Your entitlement will be credited by the company directly in your depository account.

ICICI shares drop 14% as banks mauled

2008-09-29T08:29:00.000-07:00

Shares in ICICI Bank, India's second-biggest bank, fell nearly 14 percent to a two-year low on Monday, hurt by foreign fund selling and worries about the impact of the global credit problems.

By 0925 GMT, the shares were down 11.2 percent at 498.20 rupees, taking their losses to more than a quarter this month and 60 percent this year.

"Wherever there was FII ownership, the correction is happening," said Jayesh Shroff, a fund manager at SBI Mutual Funds, referring to foreign institutional investors (FII).

"There are lots of rumours floating too, but I don't think the problems for Indian banks are so big that they can collapse," he said. Foreign ownership in ICICI was close to 70 percent, according to stock exchange filings, with shareholders including Singapore state investor Temasek and the Government of Singapore Investment Corp (GIC).

In a Sept. 2 report, Morgan Stanley listed ICICI at the top of Asian banks most exposed to a downturn in markets. Two weeks later, ICICI said it had exposure of about $81 million to Lehman Brothers senior bonds and would need to increase provisions by about $28 million to cover half that.

Broker Edelweiss Capital has said it expected ICICI to post $200 million in losses on bonds, including Lehman-issued debt. Both the bank's joint managing director and the chief executive responded to market worries about ICICI's exposure to the credit turmoil by going on television earlier this month to say the bank was extremely healthy and had ample capital.

A spokesman for ICICI said the bank planned to launch advertising campaigns in some regional media to tell customers the bank was not facing any difficulties.

"Basically, we need to clear all confusion. The campaign should roll out in the coming weeks," Charudatta Deshpande said.

The Mumbai Stock Exchange's bank sector sub-index was down 6.2 percent on Monday, and has fallen 46 percent so far this year. The benchmark BSE Sensex index was off 3.7 percent

TCS, Satyam Computer hit 52-week lows intraday

2008-09-29T08:26:00.000-07:00

Shares of Tata Consultancy Services fell 8.4 per cent to Rs 619.65 on Monday, slightly off the 52-week low of Rs 612.1 touched intra-day.

Analysts at foreign brokerage houses point out that TCS generated nearly 43.6 per cent of its FY 08 revenues of Rs 22, 861.4 crore from the banking, financial and insurance sector (BFSI).

In addition, TCS exposure to the financial sector in terms of generating revenues is the highest amongst the top 5 Indian IT companies, with Satyam Computer at the lowest.

And given the current uncertainties in the global financial system due to the collapse of several iconic American institutions, market sources point out that punters are exiting from stocks like TCS in droves.

Even companies like Satyam, which derived 21.4 per cent of their June 2009 revenues of Rs 2620 crore from the BFSI segment, saw its stock reach an intra-day 52-week low of Rs 289. The stock closed at Rs 292.55, down 9.1 per cent.

Rupee hits 47-level against US dollar

2008-09-29T08:22:00.000-07:00

Rupee today breached the 47-level against the greenback for the first time in more than two years on sustained demand for US dollar amidst shortage of supply even as the stocks markets in Europe and Asia tumbled.

In hectic trade at the Inter-bank Foreign Exchange (forex) market, the local currency resumed lower at 46.88/90 a dollar from its last weekend's close of 46.54/55 a dollar and tumbled to the 47-level against dollar.

The rupee had last seen the 47-level on July 19, 2006. Forex dealers said a plunge in local stocks and sustained dollar demand amid consistent capital outflows weighed on the rupee sentiment.

They said investors anticipated further scarcity of dollar amid American financial upheaval spreading to Europe.

Meanwhile, the Indian benchmark Sensex today plunged by more than 5.34 per cent in the late afternoon trading.

Gold prices up by Rs 1,000 in early trade

2008-09-18T07:34:00.001-07:00

Gold prices surged by Rs 1,000 to Rs 12,915 per 10 gram in opening trade today in the bullion market here owing to firm global cues and melting stock markets.

Traders said gold sparkled as an alternate investment option in global as well as in domestic markets amidst a plunge in stock markets following deepening of credit crisis in the US.

Standard gold and ornaments prices shot up by Rs 1,000 each to Rs 12,915 and Rs 12,765 per 10 gram respectively. In global markets, gold prices posted the biggest one-day gain of 8.4 per cent at USD 870 an ounce, since 1980 as fears of more credit market turmoil unnerved investors and triggered safe-haven buying in precious metal.

Meanwhile, gold futures at country's leading Multi Commodity Exchange surged 4.22 per cent to Rs 13,133 per 10 gram for far-month February contract in early trade.

Buy a dollar for 46.42 rupees

2008-09-18T07:34:00.000-07:00

Rupee trimmed losses to close at the day's high on Thursday helped by dollar selling by the central bank and a recovery in the local share market, which slumped more than 5 percent in early trade.

Rupee ended at 46.42/43 per dollar, still 0.2 percent weaker than 46.33/35 at close on Wednesday. On Tuesday, it fell to 46.99, its lowest since July 2006, according to Reuters data.

Rupee weakens past 45 a dollar as stock market losses weigh

2008-09-11T08:42:00.000-07:00

The rupee weakened past 45 per dollar for the first time since November 2006 on Wednesday as stock market losses raised expectations of more foreign fund outflows while strong dollar demand from foreign banks weighed.

The rupee closed at 45.12 per dollar, 0.62% weaker than Tuesday’s close of 44.84.

The breaching of the crucial 45-level by the rupee against the US dollar for the first time in 21-month may augur well for exports in the country, but is likely to fuel inflation further, which is hovering over 12 per cent at present, experts feel.

"The huge demand for dollar and mismatch in supply have led to the continuous pressure on rupee, while foreign inflows have also slowed down this year. The depreciation could be a cause of concern for the inflation levels in the country as well although it may help the exporters," Punjab National Bank General Manager Arun Kaul said.

The Indian rupee today breached the crucial 45-level against the US currency for the first time after November 2006 following sustained appreciation in dollar against major currencies in overseas markets.

Marketmen believe the uncertainty in the forex market is likely to continue for the coming days and the decline of rupee would obviously impact the imports of the country, with the main one being crude oil.

"After breaching the 45 a dollar mark, the rupee is likely to face strong resistance in the 45.5 to 46 a dollar range. And it is unlikely that it might drop further to 46 levels. It is likely to consolidate at current levels for the next 10-15 days," brokerage firm SMC Global Vice President Rajesh Jain said.

The Indian rupee, which has seen appreciated to as much as 39 against the dollar last year, but the INR has again started depreciating since June this year.

Trading Discipline

2008-08-30T10:55:00.000-07:00

Have a trading plan or system is essential to the exercise of good discipline, as it normally imposes certain parameters and sets out certain criteria which dictate how trading decisions should me made and what needs to be done in certain situations. Habitually following your plan is what is meant by the exercise of good trading discipline, which, in turn, will help you realize the best expected results possible from your plan. If you find that your trading plan or system is not meeting your expectations, despite habitually following it for a reasonable period of time, good discipline requires that you be prepared to review it and make any adjustments or fine tuning necessary for future use

Lack of Discipline
Day traders who suffer from lack of discipline often allow their emotions to rule their trading decisions, which often leads to bad decisions and unacceptable trading losses. Never allow your emotions to rule your trading. In order to trade successfully, you must develop a trading plan.

Many inexperienced traders demonstrate lack of discipline by being afraid or reluctant to take losses and to get out of a stock when it goes down, in the often vain hope that the share price will rise again. Often, however, the share price tumbles even lower, and the trader's initial small loss in the trade becomes a large one. Likewise, some day traders often get greedy if the share price rises and are reluctant to take profits off the table when their trading plan or system suggests they should. They think the share price will rise even more, and they can make even more profits. However, the share price may subsequently drop, causing their gains to dwindle or become losses. Fear or greed are two emotions that should play no role in the life of a disciplined day trader.

What It All Means
In short, discipline requires that you: Trade on the basis of trading plan or system and not on the basis of your hunches or emotions. Take a profit when you're supposed to in accordance with your pre-determined plan. Take a loss when you're supposed to in accordance with your pre-determined plan. Don't trade when there's no need to.

Cabinet approves sixth pay panel, bonanza for babus

2008-08-16T07:06:00.000-07:00

GOVERNMENT ON Thursday (August 14) approved the Sixth Pay Panel hike for the civil servants, armed forces employees and paramilitary personnel. It announced a 20 per cent hike, much to the joy of the expecting bureaucrats and a big hike that has been proposed for the armed forces as well.

These recommendation will benefit 55 lakh employees of the government of India.

There is 25 to 30 per cent hike in the salary of Central government employees. The employees will be paid arrears in cash and recommendations will be effective from January 2006, a meeting of the Union cabinet decided on Thursday.

The pay hike will be paid in two installments with 40 per cent paid this year and rest to be paid next year.

On Wednesday (August 12), the Prime Minister chaired a meeting, in which top government functionaries met and discussed the recommendations of the Pay Commission report and those made by the empowered committee of secretaries.

The Pay Commission had recommended an increase of 1.74 per cent in salary to the armed forces, based on inflation data but it is likely that it will come to 1.83 times after revision.

Sixth Pay Commission approved by Government

2008-08-14T03:42:00.000-07:00

The United Progressive Alliance government on Thursday approved the Sixth Pay Commission recommendations, heaping civil and defence staff with a salary hike bonanza on the eve of the country's 61st Independence Day.

According to Information and Broadcast Minister Priya Ranjan Dasmunshi, the revised pay scales will take effect from January 1, 2006. He added that arrears will be paid in two installments, 40 per cent this fiscal and 60 per cent in the next financial year.

Approving the recommendations with slight modification, Dasmunsi said that the new system includes four pay bands and the mid-level officers have been placed in the highest pay band. The minimum entry level pay has been raised to Rs 7,000 from Rs 6,660 per month recommended by the Commission. The minister also added that special allowances will be provided to Army commandoes and their Naval and Air Force equivalents.

The Sixth Pay Commission, headed by Justice B N Srikrishna, had in March submitted its report to the government, recommending an average 28 per cent hike for central government staff and defence personnel.

Prime Minister Manmohan Singh on Wednesday held a meeting with External Affairs Minister Pranab Mukherjee, Defence Minister A K Antony and Finance Minister P Chidambaram to discuss the pay commission report and the recommendations of the empowered committee of Secretaries that went into it.

The pay round comes roughly once a decade and the previous one in 1997 raised salaries for federal employees by nearly 40 per cent, prompting many state governments to follow suit and blowing the combined state and federal deficit to nearly 10 per cent of GDP.

Drowned in Credit Card bill

2008-08-09T01:09:00.000-07:00

Uncontrolled credit card debt is a common worry for many people. It's so easy to say "charge it", but once the monthly statements start arriving, the excitement of the initial purchase is usually gone. Now you are faced with the dilemma of how you're going to pay for it.

Some people exercise discipline and pay their credit card statement in full each month. Others pay whatever they can afford, in addition to the minimum payment. The majority of people pay only the minimum amount due each month on their debt.

Are you guilty of only making the minimum payment on your credit cards? If you are, the lending institutions will love you. This is because they make money on the interest that they charge. The longer it takes for you to pay off your debt, the more money they make in interest.

The first place to start controlling your credit card debt is to make sure that you are getting the lowest interest rate on your charge account. If it is inevitable that you will carry a balance on your charge card, you don't want finance charges eating your lunch. Check out the various low interest rate credit cards to compare rates before selecting a credit card.

If you are just starting to establish your credit, prevention is the best way to protect yourself from too much debt. If you are tempted to whip out your card to make some impulsive purchase, ask yourself, "If I had to write a check for this item, would I still want to buy it?" If the answer is no, then don't use your credit card to buy it.

If you have an emergency come up (like your refrigerator dying or your transmission going out), you may have to incur a little credit card debt. Use the credit card with the best interest rate, and vow to pay it off as soon as possible.

Once that monthly statement comes in, pay as much over the minimum payment as you can. You can probably find ways to save money (like taking your lunch to work) to add to your minimum payment, and thus pay off your credit card much faster. If you're drowning in credit card debt, it can help to start learning how to manage your debt wisely.

Ways to pay down credit card debt:

Use Money In Low Interest Savings Accounts - If you have money sitting in a savings account or CD that is earning you very little interest, use some of this to pay down your credit card debt. Be sure to have a little set back to cover emergencies instead of using your credit card.

Paying Off The Highest Balance First - Work on paying off the highest interest rate credit card debt first. Determine a set amount (above and beyond the minimum payment) that you can afford to make. Apply this set amount towards the balance until it is paid off. Once that credit card is taken care of, add the set amount that you were paying to the credit card with the next highest interest payment. By continuing to add the payment amounts to the next bill, the total amount that you pay out on credit card debt each month doesn't vary. You also pay down subsequent credit card debt much faster.

Paying Off Lowest Balances First - Another approach to paying down your credit card debt is to pay off the lowest balances first using the same principle as above. Some people prefer this method because they can see progress much faster. The only drawback is that you will end up paying more interest over the long run.

Credit Card Debt Consolidation - You can also consider credit consolidation to help pay down your debt. Consolidation generally reduces the total amount paid out each month, and may also reduce how long you will be in debt. Remember that if you choose a consolidation loan, you should close out all but one credit card account. Use your remaining credit card for emergencies only. If you have to use it, pay the balance in full when your statement arrives. The idea is to get out of debt, not to free up your credit so that you can get yourself in more financial trouble.

Credit Card Transfers - Another method some people utilize to pay down credit card debt is by using credit card transfers. This can be accomplished by taking advantage of low introductory offers on balance transfers to consolidate all your balances. Before the introductory rate expires, you then qualify for another low introductory rate balance transfer. Close out the old account, pay on your new one, and shop for the next offer in which to transfer your balance. If you use this method, realize that your credit file will show this numerous activity. Also read the agreement terms of each credit account very carefully to insure that you don't incur any early closure fees.

Debt Mediation - You can also get a handle on credit card debt by enlisting the help of a debt mediation company. Debt mediation can help people in becoming debt-free in approximately 24-36 months, with the final settlement on consumer accounts being paid off with as little as forty cents on the dollar. Consumers considering mediation need to realize that initially their credit rating will suffer, but will build up eventually as the debts are paid off and reported as "paid in full" by the various customers at the end of the program.

The best way to control credit card debt is to not get yourself in trouble in the first place. Use your cards for convenience in traveling, making reservations, or for emergencies. If you would hesitate to pay cash for a purchase, then you should hesitate to use your credit card. When in doubt, don't say "charge it".

Some question in the current market scenario

2008-07-28T10:55:00.000-07:00

Do you believe that India’s long term growth story remains intact?
Yes, but with one caveat. The long-term growth story was never as rosy as it was made out to be nor was it sustainable.

In other words, those who thought that the Indian economy could grow at double digit rates forever were living in a fantasy world. Growth is almost never linear. It is two steps forward, one step back. Note that after this you are still one step ahead.

What is your assessment of the current Indian equity markets in the context of various domestic and global concerns? How long could the pain last?
The longer the party, the more severe the hang over is likely to be. The gain lasted a long time. The pain will last awhile as well. In some ways, the pain will have to last long enough for the excesses of the last few years to be washed away.

Will picking defensive/value stocks work in the Indian context in current circumstances?
Depends on what you are trying to accomplish. If you want to preserve principal and derive cash flows, there are no safe stocks. Even the safest sectors will see volatility in stock prices.
If you have a longer time horizon and are willing to bear ‘paper losses’ in the short term, a strategy to adopt would be to buy mature companies with solid cash flows, good management, significant competitive advantages and reasonable market prices.

What are the lessons to learn from the current meltdown in equity markets, including India?
Humility …No one is bigger than the market or smarter than the rest of the world. Risk is upside and downside… What goes up can come down. Models are only as good as the inputs that go into them.

How relevant is the valuation of the broader market when valuing a particular stock?
A fair amount… After all, the way the entire market is valued tells us something about the risk aversion of investors, risk premiums and the level of interest rates. Those are all key inputs into the valuation of an individual company.

What are the simple and most effective ways of assessing portfolio risk?
Look at how much your portfolio varies across time and how it moves with the market. If your portfolio seems to be moving too much or is out of synch with the market, you are not diversified sufficiently.

How would you value a company which is aggressively investing in capacity expansion and has a long gestation period? Should investors pay a premium for the future?
Depends on whether the investment in capacity is a sensible investment or not. There is nothing inherently good about investing for the future, if the investments you are making will be delivering sub-standard returns.

In the case of loss making companies with potential to break even in the due course of time, what tools should be used to arrive at valuations?
Why would you need different tools for valuing money-losing companies? In fact, your tools for valuing all companies should be fundamentally the same. You cannot create new sets of rules/models/principles for different classes of stock.

Commodity stocks tend to attract high valuations during the peak of commodity cycle and correct significantly when the cycle turns down. How does one capture the risk of cyclicality of the business?
Commodity stocks are more driven by commodity prices than by business cycles. In the current cycle, the two have moved together. If you look historically, that has not been true.

In the 1990s, for instance, real economies grew but oil prices stagnated. If you have a cyclical company, it will be affected by economic cycles. The only thing you can do to capture the risk of cyclicality is to demand a higher return on these investments.

What are the valuations tools that one should use to determine the selling point for a particular equity investment?
The same tools that you used to decide what and when to buy – cash flows, comparables – should be the tools that you decide to use when to sell.

Why is Nuclear-deal good for the country.

2008-07-21T10:11:00.000-07:00

India would require 500-600 thousand MW of power by 2030 up from 132,110 at present. Thus nuclear power is the only way forward for India.

Energy needs of India are increasing exponentially and only nuclear power is the way forward. Increased price of oil and gas internationally, issues of climate change associated with coal as well as the breakdown of consensus on big dams, India needs Nuclear Energy.

India generates 132,110 lakh MW of power annually. Of this, 64.7 per cent is generated from thermal power, 26.2 per cent is generated through hydro electric power, 5.9 per cent is from renewable power sources and only 3.1 per cent through nuclear power.Nuclear power would contribute 10 per cent of the country's energy needs by the year 2022 and 26 per cent of the needs by the year 2052.

Share of nuclear power in world wide energy production was one per cent in 1960 and between 1960 to 1986, it rose to 16 per cent of world's energy production. The share has remained constant since then.There are 439 nuclear power reactors operating around the world and the US accounts for 104 of these reactors followed by France at 59, Japan at 55, Russian Federation 31 and Republic of Korea 20.

Out of the 35 new nuclear power plants under construction in the world, Asia accounts for 24 of these. While China is building six new nuclear power plants to get 5,222 MW power for its grid, India too is building six such plants which would add 2910 MW of to its grid.

Nuclear Deal

2008-07-21T09:49:00.000-07:00

What does Indo-US nuclear deal mean?

The US House of Representatives voted on Wednesday to approve a landmark deal that will allow the United States to sell civilian nuclear technology to India.

Here is an overview of the deal and its implications:

WHAT IS THE PACT?

The legislation amends Section 123 of the Atomic Energy Act of 1954. It lets the US make a one-time exception for India to keep its nuclear weapons without signing the Nuclear Non-Proliferation Treaty (NPT).

The amendment overturns a 30-year-old US ban on supplying India with nuclear fuel and technology, implemented after India's first nuclear test in 1974.

Under the amendment, India must separate its civilian and military nuclear facilities, and submit civilian facilities to inspections by the International Atomic Energy Agency (IAEA).

WHY IS IT CONTROVERSIAL?

Critics say it undermines the NPT, which holds that only countries which renounce nuclear weapons qualify for civilian nuclear assistance.

The accord sends the wrong message: it could undercut a US-led campaign to curtail Iran's nuclear program, and open the way for a potential arms race in South Asia.

India says 14 of its 22 nuclear facilities are civilian. Critics say the pact could make bomb making at the other eight easier, as civilian nuclear fuel needs will be met by the US

WHAT DO THE DEAL'S SUPPORTERS SAY?

US President George Bush calls the deal necessary to reflect the countries' improved relations. It strengthens international security by tightening US ties to ally India, the world's biggest democracy. It also ensures some of its nuclear industry will undergo international inspection.

New Delhi, which relies on imported oil for some 70 per cent of its energy needs, says nuclear power will help feed its rapidly expanding economy.

France, which signed a similar deal with India in February 2006, says the move will help fight climate change and aid non-proliferation efforts.

HOW IS PAKISTAN INVOLVED?

Pakistan sought a similar civilian technology deal with the US but was refused last in March. It is the only other confirmed nuclear power not to have signed the NPT - saying it will join after India does.

Pakistan's own expanding nuclear program could fan the rivalry between India and Pakistan.

INTERNATIONAL RIVALRIES?
China is said to have supported Pakistan's nuclear weapons program since the 1980s. Some analysts see the Indo-US deal as part of attempts by larger powers, the US and China, to shore up influence in South Asia by building up rival arsenals.

The IAEA said in 2004 that Libya and Iran's nuclear programs were based on Chinese technology provided by Pakistan.

Trust Vote

2008-07-21T09:35:00.000-07:00

Trust Vote on July 22. What is Trust Vote?

A trust vote is a motion through which the government of the day seeks to know whether it still enjoys the confidence of parliament.

A trust vote is sought either during the first session of a newly-elected Lok Sabha if it is not clear whether a party or a grouping of parties command a majority in the house, or at any time during the five-year tenure of the house if it becomes apparent that the government of the day has lost its majority.

There have been eight trust votes in the past 29 years, with the government of the day winning six. In two instances, the prime minister of the time quit before facing the house.

In the present case, Prime Minister Manmohan Singh will be moving a trust motion Monday, which will be voted on Tuesday after a debate, following the withdrawal of support by the Left parties on the India-US nuclear deal.

While the deal, or any other issues will not be specifically mentioned in the motion, it definitely will figure during the two-day debate.

Thus, inflation and the spiralling prices of consumer goods will most certainly figure during the debate.

Soon after the Left withdrew its support, Manmohan Singh called on President Pratibha Patil and offered to seek a trust vote in parliament.

Had he not done so, it would have been for the president to decide on whether to allow the prime minister to continue in office.

There are no express provisions on this in the constitution and the president is expected to act in a manner consistent with tradition and which furthers democracy.

Since the prime minister holds office during the pleasure of the president, a prime minister can be removed if the president is satisfied that a trust vote is called for but is not being sought. The government would be expected to resign if it loses a trust vote. If it refuses, the president has the power to remove the prime minister. In the Indian parliamentary history so far, no prime minister has been forcibly removed.

In practice, no government would refuse to resign after losing a trust vote. If a government loses a trust vote and resigns, the president will ask it to continue as a caretaker government, with theoretically the same powers it had before the vote.

As per convention, such a government would not take any major policy decisions since parliament would stand dissolved ahead of general elections.

Impact of U.S recession in India

2008-07-19T01:12:00.000-07:00

Fears of a US recession led to panic in the Indian stock market. January 21 and 22 saw a meltdown with a mind-boggling US$450 billion in market capitalization being vaporized. An unprecedented interest cut by the Fed led to a bounce-back on January 23 and at the time of this writing, the benchmark index (BSE) has gained 2.5%, almost in line with Hang-Seng, Nikkei, and Kospi.

History might hold a clue here. The last time the bubble burst (2001–2002), the DJIA went down by 23%, while the Indian Index fell by 15%.

The effects of this recession on India may be quite distinct from those of the past. Here are some areas worth following:

1. A credit crisis in the United States might lead to a restructuring of asset allocation at pension funds. It has been suggested that CalPERS is likely to shift an additional US$24 billion to its international portfolio. A large portion of this is likely to flow into India and China. If other funds follow suit, a cascading effect can be expected. Along with the already significant dollar funds available, the additional funds could be deployed to create infrastructure—roads, airports, and seaports—and be ready for a rapid takeoff when normalcy is restored.

2. In terms of specific sectors, the IT Enabled Services sector may be hit since a majority of Indian IT firms derive 75% or more of their revenues from the United States—a classic case of having put all eggs in one basket. If Fortune 500 companies slash their IT budgets, Indian firms could be adversely affected. Instead of looking at the scenario as a threat, the sector would do well to focus on product innovation (as opposed to merely providing services). If this is done, India can emerge as a major player in the IT products category as well.

3. The manufacturing sector has to ramp up scale economies, and improve productivity and operational efficiency, thus lowering prices, if it wishes to offset the loss of revenue from a possible US recession. The demand for appliances, consumer electronics, apparel, and a host of products is huge and can be exploited to advantage by adopting appropriate pricing strategies. Although unlikely, a prolonged recession might see the emergence of new regional groupings—India, China, and Korea?

4. The tourism sector could be affected. Now is the time to aggressively promote health tourism. Given the availability of talented professionals, and with a distinct cost advantage, India can be the destination of choice for health tourism.

5. A recession in the United States may see the loss of some jobs in India. The concept of Social Security, that has been absent until now, may gain momentum.

6. The Indian Rupee has appreciated in relation to the US dollar. Exporters are pushing for government intervention and rate cuts. What is conveniently forgotten in this debate is that a stronger Rupee would reduce the import bill, and narrow the overall trade deficit. The Indian central bank (Reserve Bank of India) can intervene anytime and cut interest rates, increasing liquidity in the economy, and catalyzing domestic demand. A strong domestic demand would also help in competing globally when the recession is over.

In summary, at the macro-level, a recession in the US may bring down GDP growth, but not by much. At the micro-level, specific sectors could be affected. Innovation now may prove to be the engine for growth when the next boom occurs.

U.S. recession effect in India..........

Do i need to pay tax even though it gets deducted from my Salary?

2008-07-17T02:46:00.000-07:00

This is a common question everyone asks. Taxes gets deducted from my salary, do i still need to file income tax return. The answer is Yes.

Filing of tax is compulsory for every person whose gross total income, that is, the income under the five heads before allowing for any deduction such as insurance premium, exceeds the basic exemption limit. For financial year 2007-08 (assessment year 2008-09), this exemption limit was Rs 145,000 for women below the age of 65, Rs 195,000 for persons above 65, and Rs 110,000 for any other individual.

Every person falling in the tax bracket should file a return, even if his tax liabilities have been taken care of by the employer through tax deducted at source.

Persons whose salaries have been subjected to TDS are also required to file return because they may have earned from sources other than salary.

RCom, MTN talks of merging extended till July 21

2008-07-14T09:23:00.001-07:00

The Anil Ambani-controlled Reliance Communication (RCom) and South African telecom major MTN have extended the period of exclusive talks for a possible merger till July 21, RCom said in a statement Wednesday.

"RCOM and MTN have agreed to continue their negotiations in relation to such potential business combination, and have extended the period of exclusivity until July 21, 2008," the statement said.

MTN and RCom, India's second biggest mobile operator, have been locked in exclusive merger negotiations for 45 days that ended Tuesday. If successful, the talks would net the merged entity with more than 116 million mobile subscribers across India, West Asia and Africa. The two companies had announced May 26 they had entered into exclusive negotiations for 45 days for a potential business combination.

ADAG planning to acquire Cement manufacturing plants

2008-07-14T09:23:00.000-07:00

The Reliance Anil Dhirubhai Ambani Group (ADAG) is looking for acquisitions to start its cement business much before it completes its 4,000 MW mega power project at Sasan in Madhya Pradesh, which would provide the fly ash used to make cement.

The company has started talks with various small and medium companies through a merchant banker to shortlist acquisition targets.

The group has also appointed Anil Singhvi, former managing director of Ambuja Cements, vice-chairman of Reliance Natural Resources, the company which will set up the cement business. ADAG's bankers have also held talks with the Mehta group, which has two facilities, Gujarat Sidhee Cement and Saurashtra Cement in Gujarat, with a total capacity of 2.3 million tonnes.

An email sent to Jay Mehta, the group's executive vice-chairman, on Friday did not elicit a response. Mehta could not be reached on his office number either. The coal-fired Sasan project is scheduled to go on stream in 2012-13. But a source familiar with the negotiations said, "the group is looking at the cement business beyond just utilising the fly ash coming out of Sasan.

"Initial discussions with Birla Corporation, the flagship of the M P Birla group, came to nothing. Birla Corporation has a cement manufacturing capacity of 5.7 million tonnes, of which the facility located at Satna, close to Sasan, manufactures 1.5 million tonnes.

ADAG "declined to comment" on queries sent by the newspaper.

What is Section 80C, tax planning and investments

2008-07-09T23:06:00.001-07:00

We will look at Section 80C, one of the most important provisions for investors in the tax laws.

What is Section 80C?

The government, in order to encourage savings, gives tax breaks to certain financial products as discussed in Section 80C of the Income Tax Act. These investments are often referred to as 80C investments.

Up to a limit of Rs 1 lakh, the money that you invest in these products is deductible which means that you don't have to pay income tax on it. Thus if you are in the 30 per cent tax bracket and you invest the maximum allowed you save Rs 30,000 in taxes.

There are a wide range of investments you can make to claim the Section 80C benefit. To keep things simple we will focus on two categories: Small savings schemes and ELSS (equity linked savings schemes). Other 80C products include your provident fund, the repayment of principal on your home loan and your life insurance premium.

Small savings schemes

These include the public provident fund (PPF) and National Savings Certificate (NSC). They offer a return of around 8 to 8.5 per cent which is quite low compared to typical returns in equity products. Furthermore, there is a relatively long lock-in period, 15 years for the PPF and 6 years for the NSC. Their main advantage is that they offer a guaranteed return unlike equity-based products.

Equity linked savings schemes

These are basically mutual funds which are specially created to provide tax benefits. As with regular mutual funds there is no guaranteed return and you can lose money in a period of falling stock prices as has happened in the first half of 2008. However, ELSS usually provides a higher return than small savings schemes and also a lower lock-in period of three years.

Examples of ELSS include Franklin India Taxshield and HDFC [Get Quote] Taxsaver. As with regular mutual funds, these schemes pursue a range of investment strategies: For instance, some may focus on large cap stocks while others may focus on small and mid cap stocks. It makes sense to invest in more than one scheme to diversify some of your risk.

Making a choice

How do you decide to allocate your Rs 1 lakh 80C limit? This will depend on your other financial decisions; for example whether you have taken a home loan or purchased life insurance. As to the decision between small savings schemes and ELSS two of the most important factors are your attitude to risk and inflation.

As recent months have shown so clearly, stock markets are a lot riskier than small savings schemes. However, the flip side is that riskier investments like stocks offer a higher rate of return particularly over the long run. From the perspective of a young investor who may not need most of her/his investment money till retirement it probably makes sense to tilt towards riskier assets.

The other important consideration when evaluating returns is to adjust for inflation.

In other words, if your investment generates a return of 8 per cent and inflation is 7 per cent, then your inflation-adjusted return is only one per cent. When inflation moves into double digits you are actually making a negative inflation-adjusted return, as is happening currently. This is a fundamental problem with any investment product that offers a fixed return at a time of high and rising inflation.

By contrast stocks are a better hedge against inflation especially in the long run. Though inflation increases the costs of firms it also allows them to charge a higher price to their customers thereby protecting profits to some extent. This in turn means that stock prices and equity-based products can offer better protection from inflation over a number of years though not necessarily in the short run.

What about the element of timing when it comes to equity schemes? For instance, stocks have clearly taken a pounding in the last six months. However this doesn't necessarily mean it's a bad time to invest in stocks; valuations in some companies look quite attractive now and over a three-year horizon you could see decent returns.

From the point of view of the average investor it's probably best to take timing out of the picture by following a systematic investment plan which means you invest a fixed amount every month.

Small savings schemes and ELSS each have their advantages and disadvantages. Based on your investment strategy and particularly your attitude towards risk you have to choose how much to invest in them as part of your Section 80C investments.

Filing Income Tax returns

2008-07-07T21:42:00.000-07:00

Filing of tax is compulsory for everyone whose gross total income - the income under the five heads (salary, business, capital gains, house property or other sources) before allowing for any deductions such as insurance premium - exceeds the basic exemption limit.

And you know you can't run away from it any more. We are talking about 31 July, the day we are reminded of our bondage, the price we have to pay for many of the good things in our life. This happens to be the last day for filing income tax returns for all salaried Indians, be they resident or non-resident.

For financial year 2007-08 (assessment year 2008-09), this limit was Rs 145,000 for women below 65 years of age, Rs 195,000 for senior citizens (above age 65 years) and Rs 110,000 for any other individual. It is compulsory for every person exceeding these limits to file the return before the prescribed date, even if their employer has taken care of their tax liabilities by reducing their salaries by the necessary amounts before paying the rest to them. Paid this way, it is known as tax deducted at source or TDS.

ITR Forms

There are two income tax return forms, ITR-1 and ITR-2, for salaried individuals. Your sources of income (they will fall under one or more of the five sources mentioned earlier) will decide your form. You will have to submit the filled form to the tax authorities and get an acknowledgement from them.

Use ITR-1 to file your tax return if your income is from salary, pension or interest. In case of any capital gains, income or loss from house property and income from any other source, you will have to use ITR-2. You can go to www.incometaxindia.gov.in/download_all.asp to download these forms.

You will find ITR-1 relatively simple to fill up. A prerequisite for the exercise is Form 16, the certificate that comes from the employer showing the TDS from the income chargeable under the head salary. ITR-1 is almost a replica of Form 16. All you have to do is pick the numbers from Form 16 and put them in the ITR form.

Apart from salary income, there is an important component of income that many taxpayers ignore while filing their returns. It is the interest income earned from the funds lying in savings accounts in banks. Disclosing that, however small it may be, is mandatory.

You just have to add the total interest credited to your bank account in the last financial year. Scrutinise your income tax return to ensure that no taxable income is undisclosed. After you file your return, the tax authorities will hand you an acknowledgment. That's it, you are through with the filing of returns.

You will need to fill up ITR-2 if you, as a salaried individual, have made any capital gains. This form is filled in the same way as ITR-1. In addition, you will have to fill in income, if any, from house property and other sources.

How to file

The actual filing of return can be done either by using the traditional paper form or electronically, over the Internet. The second, known as e-filing, is fast catching up. The digital method is compulsory for companies, but optional for salaried individuals still. However, it may well become compulsory for individuals with a certain level of income in times to come. So, it may not be a bad idea to familiarise yourself with this process.

Before you start filing the return, check if you would be getting a refund from the IT Department or have to pay tax. In case of the latter, even before starting the filing process, you should first get hold of Form 280, fill it up and deposit it any bank along with the tax payable in cash or cheque. You can also pay tax through Internet banking. In both cases, you will get a receipt number which has to be quoted in the ITR form.

Offline filing

There are two options - you may either submit the ITR form at the nearest income tax office after filling it up yourself, or you may get a chartered accountant or a tax return preparer to do it for you. Try to visit the ITO well before the last date for filing return as crowds increase as 31 July draws near.

You may also take help from the public relations officer of the ITO to fill the form. No documents or investment proofs need to be attached with the form, but remember to bring photocopies or originals with you to the ITO. These will come in handy if you are asked to authenticate the maths.

The fee of a CA would depend on your income slab and the number of income sources. Typically, it would range from Rs 300 to Rs 2,000, depending on the complexities involved. One good thing about filing through a CA is that it would bring down the margin of error to nil. Also, depending on the acumen of the CA, which often gets reflected in the quality of his practice, he would suggest some tax saving ways to you for the future.

Online Filing

E-filing is done through sites authorised by the IT Department to file taxes on your behalf. To e-file, you will have to input the details of Form 16 in the software of the website, which would automatically generate an electronic return in XML format.

This format helps in sharing of structured data across different information systems. A PDF file of the relevant ITR form is also created along with the XML format. You can download this ITR form, submit it at the ITO and get an acknowledgement.

Save the XML file to your desktop and then upload it on incometaxindiaefiling.gov.in - the IT Department site. Some sites also have provision for online payment of tax. Use of a digital signature will render the e-filing process complete without involving paperwork and visits to the ITO.

In case DS is used, the acknowledgement will be emailed to you. If you upload the file on the tax department's site without the DS, the acknowledgement, called ITR-V, emailed to you will have to be submitted at an ITO within 15 days of downloading it. A DS can be acquired from any of the agencies authorised by the government for the job, including the private and government websites meant for filing tax returns.

E-filing is not just convenient and saves time, it can also be done from anywhere. What is especially important is that the online method reduces or even eliminates the interface between the tax assessee and tax officials.

Online sites

Among the major sites offering e-filing facilities are Taxspanner, Taxsmile and Taxshax. You can either take printouts of the relevant ITRs from these three sites and physically submit them or upload your XML file on the IT Department's site.

Taxspanner uploads the taxpayer's file directly and emails ITR-V to him. With Taxsmile, you can submit the forms at any of its offices spread over the country. They will then forward it to the ITO.

All the three sites are secure and easy to navigate. The major difference among them is on two counts - the number of income sources covered and the process. Get clarity on the cost and features offered. The minimum cost package would normally be only for salary income. The advanced version might be required if you have income from other sources.

The tax sites also differ in the way they ask for information and allow you to input figures. Taxshax gets most of the figures filled up in a single page. Taxspanner has a step-by-step guide and takes one piece of information on one page. Taxsmile gives both these options.

Use of DS raises the cost of e-filing. The amount of this increase varies across tax sites. A DS can be obtained from Taxsmile for Rs 500. Apart from this, you will have to pay for the basic package. Your DS comes with a validity period, after which it has to be renewed.

A DS from Taxspanner, for example, is valid for two years. This site offers a deal in which you can file returns for three years at a cost of Rs 250 a year. To get your DS from a tax site, download the relevant form from it, attach the required documents, such as your identity and address proofs, and courier them to the address concerned. The entire process of acquiring a DS may take around 15 days.

A tax return can also be filed from the government site - incometaxindiaefiling.gov.in/portal/index.jsp - meant for it. Your PAN will work as the username for registering at this site.

Stick to the deadline

Whether you are going offline or online, make sure you are on the right side of 31 July. If tax is due and return is not filed till 31 March of the following year, a penalty of Rs 5,000 is levied. Penalty may also have to be paid in the form of interest. Check out the answers on the next few pages to some frequently asked questions to get on top of tax returns. And then go ahead and file with a smile.

Effect of US Recession on the world Economies

2008-07-07T06:53:00.000-07:00

Will the recession in America effect the other economies in a big way?

Yes this recession would effect other economies such as the EU as this is a recession for all world driven by US. Economic experts say that China, Japan, Canada, Mexico and German will suffer bad after the US. Rest of the world will suffer for lesser extent.

All countries own some international currency for their regular imports. China has 1530 billion dollars, Japan 935 billion dollars and so on. Out of this money about 66% is US dolars. As oil is selling only in US dollars all countries need US dollars to buy oil. If dollar falls. All countries loose their money from 66%.

All the other countries are connected to the US, as US is consuming highest commodities in the world in some way or other. German has the biggest share in euro. Some say euro is the transformation of Deutsche Mark, and as German suffers, euro suffers. So Europian Union will suffer.

Mutual Fund tips for New Entrants

2008-07-02T09:59:00.000-07:00

The first and foremost thing is, first-time or naive investors should invest money for long-term, learn from their lessons and invest regularly.

Please find below answers to question that you may be wanting to know and may find it more useful.

Q: There has been a very dramatic erosion in net asset values. If you were to sum up the last six months, how would you look at the mutual fund industry and what does it look like from here in terms of sector funds and equity diversified funds because looking at these returns and they are in excess of the kind of fall that we have seen on the market?

A: There are a lot of outliers in the whole thing. The averages do not reveal the whole truth. If we dissect the numbers intensely and then we look at things, we get a completely different picture. The popular fund, the larger fund have not lost as much but the biggest loser over the past six months has lost 54%, which is nearly 1.5 times more than the Sensex. So in that sense we come across a large number of fund, which did not have any risk containment thing factored into their portfolio. They have been on a free fall and my worry is that we are getting into a phase where a number of these funds will be exposed to the risk that a good part of their portfolio will be illiquid.

Q: That means trading or churning the portfolio would not be as easy.

A: It will be impossible for them to churn the portfolio of the remaining-that is the other side of the bear market that markets decline and initially the redemption pressure drives you to sell what you can sell easily and then the leftover is completely unsellable. So the bad gets worse in a bear market and that is what some of these funds which are at the bottom of the heap will be faced with.

Q: The fact remains that people who had invested right at the top of the market-which is at 21,000 point-have seen a lot of erosion in their net asset values, what do you think about it?

A: There is nothing new about it and investors invest very confidently when the market is at its peak that can be said for all bull markets whether 1984 or 2000 and now. So there is a lesson to be learnt from here. First and foremost you should invest your long-term money for a naive first time investor and learn from your lesson and invest regularly; this is a lesson to be learnt. If you have stopped investing maybe it is about time that you get started with regular investing. Make sure that you have chosen a good fund, do not buy the popular fund again because most investors chase past performance. Everybody is in the business of chasing momentum that could be risky.

Q: What is your view on Reliance Diversified Power Fund?

A: I am quite optimistic about this fund over the next 3-5 years because there are a lot of things which will happen. It is a specific sectoral fund and is a good vehicle for targeted diversification. But it should not be the only investment which one should have. One should make sure that it is not more than 10-20% of one’s total portfolio. It is a concentrated bet. But one can still be optimistic. The fund manager has done extremely well with his asset allocation.

Sometimes all the sectoral funds of Reliance Mutual have the mandate that they could be fully into fixed income if they want to and they have been able to successfully do that.

Q: What are the fund recommendations?

A: Choose a well-rated diversified equity fund and invest regularly in something which is proven for over five years like HDFC Top 200, Franklin Prime Plus or HSBC Equity or Magnum Contra. Choosing one or two of these funds and investing regularly can take you through. If you are investing for five years, it is always a good time to step in.

Q: What are your views on gold funds?

A: All Gold ETFs offer similar returns and costs. It is a hard to understand sector and investors chase returns. It can be risky if the cycle turns. Funds have complex investment strategies. Look at it as more of a fund allocation as gold cannot be a mainstream investment.

Q: Tell us about mutual fund SIPs.

A: If the investor is a saver who is looking to invest, some of the guidelines can help them. Invest regularly and it is a bad idea to invest lumpsum anytime. Choose a good diversified equity fund if one has 15 years in mind.

But in any portfolio, have a 5-10% fixed income allocation because there is a roll for fixed income in any portfolio. Rebalance it annually so that there is no tax implication of that. Don’t buy too many funds. Buy one or two good funds. Review it annually. One can invest in Franklin Prima Plus, HDFC Top 200, HSBC Equity Fund and Magnum Contra.

Q: What are the debt funds to invest for optimum post tax returns?

A: One should consider the FMP which is on offer currently but the differential between that, if it is a small amount of money and the difference between a bank deposit and choosing an FMP or making a choice of a short cash plus fund is not worthwhile. But if the investment is of more than one year, then you do have some interesting options.

Q: What should investors be buying if they are investing for more than a year?

A: Fixed income funds have been through uncertain times. There are a couple of fixed income categories that are in red. Arbitrage funds score very well on the tax efficiency because the returns from these funds is treated like an equity. It is tax free and quite efficient and you are completely insulated from the equity risk.

US recession effects in GCC economies

2008-06-30T09:10:00.000-07:00

The negatives arising from the US recession should not be ignored, at least in the first half of the year, in GCC (Gulf Cooperation Council) economies, but growth momentum should still be maintained

Will slowdown in the US spill over to the GCC?

Despite the apparent resilience of GCC economies to the fall in crude oil prices and the softening in US economic growth back in late 2006, concerns have been recently voiced over the impact of a stagnant or contracting US economy on the performance of GCC economies in 2008, via the conventional crude oil price channel. We believe these concerns are overplayed.

To start with, we cannot downgrade the downside risks to the US economy in 2008, at least during the first half of the year. Recently released macroeconomic data have been mostly negative and suggestive of rather strong spillover effects to output and employment growth.

Notwithstanding the ravaging effects of the subprime crisis on US financial institutions, the unwinding of the housing market bubble continued to spill over to the real economy in the form of dwindling existing and new home sales, declining investments in residential housing, softening growth in non-farm payroll and ultimately disappointing retail sales figures.

Moreover, the aggressiveness of the policy response in itself has further raised market concerns as to the real magnitude of the crisis. For the first time since the deep recession of 1982, the Federal Reserve slashed the Fed Funds rate 75 basis points in a rare off-meeting move on January 22 .

Furthermore, President Bush urged the Congress to approve a fiscal rescue package equivalent to nearly 1 per cent of GDP. As recession fears shrouded investor sentiment, benchmark crude oil prices softened to around $90 per barrel after hitting an all-time high of $100 on January 2 in intra-day trading.

This immediately brought back to memory the sharp fall of crude oil prices in late 2006, when benchmark crude oil prices plummeted to around $50 per barrel after hitting the then new record-high of $77 in August 2006.

Before delving into the reasons why we think that crude oil prices (and hence the health of GCC economies) will remain unscathed in 2008, we can start by spelling out the key differences between the patterns of volatility in crude oil prices and the US economy in 2006 and at present.
First, the fall in crude oil prices in late 2006 materialized against the backdrop of an increase in Opec production and higher OECD commercial inventories, whereas the fall in crude oil prices in early 2008 is coming against the backdrop of lower OECD crude oil inventory levels, and tight market supply/demand balances.

In the fourth quarter of 2007, average daily Opec production stood at 31.7 millions barrels per day, and it is forecast to increase to 32.6 million bpd in 2008, mainly driven by the increase in Saudi Arabia crude oil production.

Nonetheless, the increase in Opec production is forecast to be fully absorbed by rising demand from non-OECD consumers, mainly China and India, which will leave supply/demand imbalances tight throughout the year.

Moreover, the US Energy Information Administration (EIA) has also noted in its latest Short-term Energy Outlook that OECD crude oil inventory levels were nearly 19 million barrels below their 5-year average by end-2007, compared to 100 million barrels above their 5-year average by end-2006. This is also likely to help support the price of oil throughout the course of 2008.

Second, although the downside risks to the US economic outlook have increased considerably since mid-2007, the policy response has so far been starkly different to that in 2006.
Back in 2006, conflicting economic data constrained the Fed's ability to focus on controlling inflation or stimulating growth, a situation that translated into policy neutrality (i.e. stable Fed Funds rate) from mid-2006 until September 2007.

In late 2007 and early 2008 both the Fed and President Bush's administration have become strictly growth-biased. Simply put, there is consensus on the symptoms, diagnosis and cure.
But what if the Fed monetary stimulus policy and the fiscal rescue package failed in lifting the US economy back to its trend-growth path? Will crude oil prices plunge and ripple through to weaker economic performance in the GCC?

We believe the answer is no, owing to the following reasons: - First, history tells us that US recessions, formally defined as two consecutive quarters of negative real GDP growth rates, have become milder in magnitude and shorter in duration.

From the recession of 1982 until 2007, the National Bureau of Economic Research records only two recessions in the US during 1990/91 and 2001.

These recessions have been relatively mild, and only lasted for less than a year each. This suggests that a possible recession in 2008, given the magnitude of the policy response stated above, should be relatively mild and last until the end of the year at the most.

Second, although the US remains the largest economy in the world, its role as a key driver of global economic growth has been relatively declining.

In its latest revision of Purchasing Power Parity (PPP)-based GDP figures, the IMF estimated the share of the US economy in the global economy in 2007 at 19.3 per cent but the combined shares of China and India at 15.5 per cent, ranking them second and fourth largest economies in the world respectively.

Most importantly, China and India contributed almost half of the global economic growth rate for 2007, whereas the US contributed nearly 7 per cent. The latest IMF update on global economic growth published on January 29 also forecasts only a moderate softening of growth in China, the second largest consumer of crude oil, from a red-hot 11.4 per cent in 2007 to 10 per cent in 2008.

Third, data show that average daily global crude oil consumption has not declined in any calendar year since the recession of 1982 in the US. From 1982 until present, average global daily consumption of crude oil has steadily increased, even during the short-lived recessions of the 1990/91 and 2001.

Outlook

In fact, the EIA's latest Short-term Energy Outlook continues to forecast crude oil consumption to grow 1.6 million bpd in 2008, up from 1 million bd in 2007.

The continued growth in crude oil demand amid US recessions has been driven by the relatively low income-elasticity of demand in the US, as well as the rise in consumption by other OECD and emerging market economies, particularly China and India.

Well, so far so good. But what if the 2008 recession proved to be more like the 1982 recession rather than 1990/91 or 2001? Again, we believe there are additional two lines of defence that could sustain crude oil prices on an upward track through a one-to two-year period of global economic slowdown.

The first line of defence is the existence of limited spare capacity amongst Opec producers (except in Saudi Arabia), coupled with the increase in the marginal cost of crude oil production and delay in capacity additions in non-Opec countries.

The EIA notes that spare capacity in Opec stood at around 2 million bpd in 2007, which is mostly held by Saudi Arabia.

However, given Opec's apparent commitment to maintain current quotas, we rule out a significant increase in Opec production in 2008. On the other hand, the marginal cost of production has been steadily rising in non-Opec countries, owing to the increase in construction and labour costs as well as the gradual ageing of cheaply-drilled wells.

In Canada, the second-largest holder of crude oil reserves in the world after the GCC, the marginal cost of oil production has reportedly increased to around $70 per barrel in 2007.
Finally, the EIA also notes that non-Opec capacity-addition plans have been historically very sensitive to shortages in labour and equipment as well as uncertainty regarding the rate of decline in current production. The second line of defence is the persistence of geopolitical risk in key oil-producing regions.

Notwithstanding the persistence of classical geo-political risks in the Middle East and West Africa, the wave of nationalizations that has recently swept major oil-producing countries (Russia, Venezuela and Ecuador, for example) has been also translated into a gradual deterioration in the investment environment.

If not counterbalanced by domestic capital and technology, the weaker inflow of foreign direct investment into the crude oil sector in these countries may have negative repercussions on production volumes and capacity-addition plans over the medium term.

What if these lines of defences also fall? Will the plunge in crude oil prices put a damper on economic growth in the region in 2008? We believe the answer is again no, unless in the very unlikely scenario that crude oil prices break down through the $40-$50 per barrel levels for a protracted period of time.

The presence of sizable foreign reserve cushions and enhanced access to global capital markets across most GCC states provide the region's governments with ample expenditure-smoothing capabilities during times of financial strain.

By the end of 2007, we estimate the GCC holdings of foreign reserve assets, whether held in the banking system or via sovereign wealth funds, will hover around $2 trillion, nearly 4-5 per cent of global GDP. Even under conditions of temporary stress, the high credit standing of the GCC (A-AA, with stable outlooks) allows easy access to global financial markets.

The reader may be reminded that the emirates of Abu Dhabi, Dubai and Ras Al Khaimah have lately sought sovereign credit ratings from S&P to enhance their access to global financial markets.

Bottom line: inasmuch as crude oil prices decouple from the US business cycle and GCC governments build expenditure-smoothing capabilities, the growth momentum of GCC economies will weather negative global demand shocks in 2008.

In our opinion, the key question that will be facing GCC policymakers in 2008 is not how to sustain growth but rather how to manage inflationary growth.

US Economy on brink of recession says Greenspan

2008-06-30T09:00:00.000-07:00

Former Federal Reserve Chairman Alan Greenspan warned on Tuesday the U.S. economy was on the brink of a recession, with the chances of that happening at more than 50 percent.

The U.S. economy has been hit by a credit crisis which began in the sub-prime mortgage market, prompting a series of interest rate cuts to help boost the economy. But price pressures are growing, making more rate cuts unlikely.

Asked if the U.S. economy was in recession, Greenspan said: "We are on the brink."

A quick recovery was unlikely, he said via video link to a conference in Johannesburg. "A rebound at this stage is not something I think is in the immediate outlook," he said.

"There are still very considerable structural problems remaining in the financial system. They will remain for a while. It's going to be very difficult. There are a lot of unexpected adverse events out in front of us," Greenspan said.

Greenspan said he did not believe arguments that the housing problems in the U.S. were due to interest rates being too low during his tenure. "As far as I'm concerned, the data do not support it (that argument). The housing bubble is clearly an international phenomenon."

On South Africa, Greenspan said the country's Reserve Bank had been right to raise interest rates in the face of accelerating inflation.

"The problem that you have here is that ... significant pressures are coming from oil and food, but they are none the less real," he said. "The price increases are real and unless the central bank leans against them ... you will get a highly unstable inflation environment."

South Africa's central bank has raised its repo rate by 500 basis points to 12.0 percent since June 2006 to try tame inflationary pressures. But its targeted inflation gauge continues to accelerate, reaching 10.4 percent year-on-year in April.

Nifty 50

2008-06-27T05:15:00.000-07:00

Nifty 50 (Nifty fifty) or simply Nifty is a composite of the top 50 stocks listed on the National Stock Exchange (NSE), representing 24 different sectors of the economy. It is a simplified tool that helps investors and ordinary people alike, to understand what is happening in the stock market and by extension, the economy. If the Nifty Index performs well, it is a signal that companies in India are performing well and consequently that the country is doing well.

An upbeat economy is usually reflected in a strong performance of the Nifty Index. A rising index is also indicative that the investors are gung-ho about the future. The Nifty Index is based upon solid economic research. It is internationally respected and recognized as a pioneering effort in providing simpler understanding of stock market complexities.

Nifty is the flagship index of NSE, the 3rd largest stock exchange in the world in terms of number of transactions (Stock Futures).

Who owns it
Nifty was developed by the economists Ajay Shah and Susan Thomas, then at IGIDR. Later on, it came to be owned and managed by India Index Services and Products Ltd. (IISL), which is a joint venture between NSE and CRISIL. IISL is India's first specialized company focused upon the index as a core product. IISL have a consulting and licensing agreement with Standard & Poor's ( who are world leaders in index services.

CNX stands for CRISIL NSE Indices. CNX ensures common branding of indices, to reflect the identities of both the promoters, i.e. NSE and CRISIL. Thus, 'C' stands for CRISIL, 'N' stands for NSE and X stands for Exchange or Index. The S&P prefix belongs to the US-based Standard & Poor's Financial Information Services.

It is calculated as a weighted average, so changes in the share price of larger companies have more effect. The base is defined as 1000 at the price level of November 3, 1995

What are the Criteria for inclusion of Stock in Nifty50
Average market capitalization of Rs.5,000 million or more during the last six months.

Liquidity: Cost of transaction (impact cost) of less than 0.75% for more than 90% of trades, over six months.

At least 12% floating stock (not held by promoters of the company or their associates).

What is inflation rate?

2008-06-24T15:01:00.000-07:00

India’s inflation rate is 11 plus due to fuel price hike. But it could be impacting you by a higher degree.

Giving you a hypothetical example on inflation rate and its effect on you, to explain about inflation for you to understand it better.

Flipping through TV channels for some time, she finally settled on a new business news channel. He was talking about the rate of inflation and mentioned that it was 8.1% last week and crossing the 8% level for the first time in so many years. But within one week after reaching 8 % India's inflation rate shoots to 13-year peak of 11.05 pct.

What is inflation?

“Inflation? What’s that?” she wondered.
The first thought was to Google the word and find the answer. Then she decided against it. She was already down three bottles of beer and wasn’t really in a mood to log on.

The next best thing was to call up her ‘four-o-clock’ friend and ask him. He would surely know.
“So what is inflation?” she called him and asked.

“Madam, it’s three hours after midnight. Can we do this tomorrow morning?” he asked sleepily. "No. Not tomorrow morning. I want to know right now,” she replied stubbornly.

Define Inflation.
“Ok. Don’t shout. Inflation is the rate at which price rises over a period of time. Now, can I go to sleep?”

“That’s all? I want to know more,” she said, the alcohol seemingly taking effect. “This rate is measured over a period of one year usually. So let’s say you spent Rs 500 a month on your toiletries a year ago and now pay Rs 600 for it, then the rate of inflation is 20% for that basket of goods.”

“Hmmm. But that anchor kept saying WPI has crossed 8%, over and over. What is that?”

“WPI is the acronym for wholesale price index. You see, the government needs some measure of inflation for the overall economy.

WPI is one such measure, calculated every week, by the Central Statistical Organisation. It is essentially a representation of the increase in the wholesale price of goods that constitute this index.

There are 435 items that are a part of this index. So when we say that WPI is at 11.05% what it means is that the price of this basket of 435 items has gone up by 11.05%, since the same time last year,” was the long response.

“So is this the rate of inflation that would affect me?” she asked.
“Not really. And there are several reasons for that. The first reason is that the prices used to construct WPI are wholesale prices.

The prices at the retail level increase more than the prices at the wholesale level. Therefore, to that extent, this is not a clear representation of your rate of inflation.

The WPI also contains items like electricity for railway traction, purified terephthalic acid (PTA), injection moulded plastic items, railway sleepers, cold rolled sheets, jelly filled telephone cables and others.

Now these items, as you would appreciate, have nothing to do with our everyday lives. There is another major reason why this does not represent your rate of inflation. If I may ask, what constitutes your biggest monthly expense?”

“Well, other than the beer I drink, it’s the monthly rent I pay for this flat,” she said.

“Exactly. But the rent is not a part of WPI. So in order to get a correct idea of how inflation is affecting you, you need to construct your own inflation number. Give me a minute, I will email you a table, which you need to fill up. You will get your rate of inflation.

It basically contains entries on various things you spend your money on. The amount you spent in May 2007 and the amount you spent in May 2008.

The table will tell you the increase in your expenses since the same time last year. So fill it up and send it back to me fast.”

She booted her laptop, keyed in a few numbers and mailed it back. “I see your salary has remained constant since last year-one of the perils of working for the IT industry.

Your monthly expenditure in May last year was Rs 30,000. Now it has gone up to around Rs 35,000, which means an increase of 17%. And that my dear is the rate of inflation for you and which is nearly double of the WPI,” he said.

Before she could protest, he continued, “If you wanted to maintain your savings of Rs 30,000 per month, your salary should have gone up by around 10% to around Rs 55,000.

Looks like it’s time to go looking for another job or cut down on your expenses. Start with less beer every month. And now let me sleep.” And he hung up.

Dont exit SIPs when the market is falling

2008-06-22T13:16:00.000-07:00

When the market is falling, it happens that most investors think of stopping their Standard investment Plans (SIPs) or exit. But it does not make sense to do so as you are getting more units of the same fund for the same money.

When the market falls which results in the price of NAV falling. But when the NAV falls, you are going to get more units of the fund. That means when the market turns around later, you will get much more returns.

Suppose the NAV of a fund is Rs 20. When you invest Rs 5,000 in that fund, the total number of units purchased would be 250 (Without considering 2.25 per cent entry load and an annual 2 per cent fund management charge in equity funds).

However, there is no entry load on investors if they approach the asset management company directly.
Now, if the NAV falls to Rs 18, the number of units that can be purchased is 277.7. A further fall to Rs 15 and the number of units in the kitty is 333.3. Let us take Shah's case. If he were to continue his SIPs, the numbers could look something like this.

Suppose, he accumulated 1,500 units in the first six months at the NAV of Rs 20, another 1110.8 for four months at Rs 18 and another 1333.2 units for another four months at Rs 15, the total number of units he got is 3,944.

If the markets were to turn around in, say, six months and the NAV was to rise to Rs 25, his portfolio would be worth Rs 98,600 (on an investment of Rs 70,000).

And the additional 444 units accumulated during the falling market have added Rs 11,100 to the corpus.

Moral of the story: It's a good idea to continue your SIPs in a falling market. Its like buying shares at a lower price.

What do experts say at this present market level

2008-06-18T07:52:00.000-07:00

While some may have bought stocks at the highest level, others could contemplate buying more of the same stock. New investors may be sitting on the fence on when to enter the market. What do experts have to say at this current level.

Where are the markets headed now?
I think the markets will be range bound. Downside is limited from here: The Nifty may not go below 4450 to 4500. At the same time we don't see the Nifty crossing 4700 to 4800 levels in a hurry. We expect the market to consolidate in the next two weeks.

In such uncertainty what should investors do: Buy/hold/ sell?
I think investors should hold and buy at lower levels. They should normally buy on days when there are major dips. Suppose if the Nifty goes to 4600 levels and then drops a 100 points then that should be a day to buy.

What would you be buying on such days?
We are buying across all sectors except realty. The reason we are avoiding realty is clearly because property prices are headed south. It doesn't make sense buying realty stocks at this point in time. Perhaps we will get the same realty stocks at lower levels by November-December.

Real estate prices are expected to correct by 15 to 18 per cent in the next six months. Apart from realty we are buying across as they are available cheaply at current levels. Be it banking, capital goods, and mid-cap stocks in the IT sector investors can buy.
From the Sensex investors can pick Larsen & Toubro and BHEL.

What would be your advice to young investors?
This bunch of investors should preferably invest via the mutual fund route or should buy only frontline blue chip stocks.

Any Sensex levels for December 2008?
The Sensex should be around the 19000 to 20000 level. Earlier we were looking at the 21000 to 22,000 mark but now looking at the way things are we have scaled it down. Given a six month to one year investment horizon we are reasonably bullish on the Indian stock market.

Who sets Global Crude oil price

2008-06-17T20:09:00.001-07:00

Everyone thinks that oil price is set by the Organization of Petroleum Exporting Countries or OPEC, a permanent intergovernmental oil organisation, created in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.

But the fact is that it is not OPEC that sets the global oil price. One of the most common misconceptions about OPEC is that the organisation is responsible for setting crude oil prices.
Although OPEC did in fact set crude oil prices from the early 1970s to the mid-1980s, this is no longer the case. It is true that OPEC's member countries do voluntary restrain their crude oil production in order to stabilise the oil market and avoid harmful and unnecessary price fluctuations, but this is not the same thing as setting prices.

In today's complex global markets, the price of crude oil is set by movements on the three major international petroleum exchanges, all of which have their own Web sites featuring information about oil prices.

They are the New York Mercantile Exchange (NYMEX, http://www.nymex.com), the International Petroleum Exchange in London (IPE, http://www.ipe.uk.com) and the Singapore International Monetary Exchange (SIMEX, http://www.simex.com.sg).

OPEC does not control the oil market. OPEC member countries produce about 45 per cent of the world's crude oil and 18 per cent of its natural gas.

However, OPEC's oil exports represent about 55 per cent of the crude oil traded internationally. Therefore, OPEC can have a strong influence on the oil market, especially if it decides to reduce or increase its level of production.

Crude Oil Prices Set to increase more

2008-06-17T20:09:00.000-07:00

Goldman Sachs recently forecasted that oil would be at $141 a barrel by the end of the year, and rising to $200 a barrel in the not too distant future. I have seen other forecasts calling for oil to slip significantly under $100 a barrel before starting yet another bull market.

I have written for years that we are not going to run out of oil or energy, just cheap oil. I was just in South Africa, where much of their gas and diesel comes from coal gasification. At one time this was an expensive way to make gas, and South Africans had to pay more for their gas than the rest of the world. Now, it is getting close to "par" to the cost of gas in the US, and is cheaper than gas in Europe.

In this week's Outside the Box, my friend David Galland at Casey Research presents some very troubling thoughts on why oil may rise higher than we think in the next few years. Many of the countries from which the US gets its oil are seeing production fall, not rise. Some of it is political ineptitude, but much of it is from oil production peaking.

Yes, we can move to coal gasification, and the US has centuries of coal for such purposes, but building such plants takes time and capital and political will, the latter of which is in short supply. In the meantime, and until we get a full-blown crisis, oil is going to continue on its path to $200 and higher. But such a rise will not only make gasoline prices higher, it will make a host of new technologies competitive for the first time. The shift in how we make energy is inevitable.

As a quick aside, if we would start a project to build a massive nuclear infrastructure, such as in France, which produces 80% of its energy from nuclear, while at the same time pushing ahead in a Manhattan-type project the development of electric cars (or some hybrid), we could reduce our dependence on foreign oil and lower travel costs by the middle to the end of the next decade. And the environment would be cleaner and safer.

We are headed to such a future. It would be nice if we did it sooner rather than wait for a real crisis. But in the meantime, the price of oil is going to rise and opportunities for investors will rise along with it. My friends at Casey Research publish an excellent newsletter highlighting the opportunities not just in exploration companies but in all manner of energy-related firms. As David writes:

"The good news is that there are no shortage of high-quality energy-related investments available ... in coal, heavy oil, LNG, photovoltaics, natural gas consolidators, "run of river" hydroelectric, uranium and small to mid-cap oil companies with the potential for significant near-term gains in reserves or production."

This article is written by John Mauldin

How mutual fund ads try to fool you?

2008-06-17T08:31:00.000-07:00

You would have noticed all those mutual fund ads that quote their amazingly high one-year rates of return. Your first thought is "wow, that mutual fund did great!" Well, yes it did great last year, but then you look at the three-year performance, which is lower, and the five year, which is yet even lower. What's the underlying story here? Let's look at a real example. These figures came from a local paper:

1 year - 53%
3 year - 20%
5 year - 11%

Last year, the fund had excellent performance at 53%. But in the past three years the average annual return was 20%. What did it do in years 1 and 2 to bring the average return down to 20%? Some simple math shows us that the fund made an average return of 3.5% over those first two years: 20% = (53% + 3.5% + 3.5%)/3. Because that is only an average, it is very possible that the fund lost money in one of those years.

It gets worse when we look at the five-year performance. We know that in the last year the fund returned 53% and in years 2 and 3 we are guessing it returned around 3.5%. So what happened in years 4 and 5 to bring the average return down to 11%? Again, by doing some simple calculations we find that the fund must have lost money, an average of -2.5% each year of those two years: 11% = (53% + 3.5% + 3.5% - 2.5% - 2.5%)/5. Now the fund's performance doesn't look so good!

It should be mentioned that, for the sake of simplicity, this example, besides making some big assumptions, doesn't include calculating compound interest. Still, the point wasn't to be technically accurate but to demonstrate how misleading mutual fund ads can be. A fund that loses money for a few years can bump the average up significantly with one or two strong years.

Causes and Cost of inflation

2008-06-12T13:34:00.002-07:00

During World War II, you could buy a loaf of bread for $0.15, a new car for less than $1,000 and an average house for around $5,000. In the twenty-first century, bread, cars, houses and just about everything else cost more. A lot more. Clearly, we've experienced a significant amount of inflation over the last 60 years.

When inflation surged to double-digit levels in the mid- to late-1970s, Americans declared it public enemy No.1. Since then, public anxiety has abated along with inflation, but people remain fearful of inflation, even at the minimal levels we've seen over the past few years. Although it's common knowledge that prices go up over time, the general population doesn't understand the forces behind inflation.

What causes inflation? How does it affect your standard of living? Lets shed some light on what causes inflation and the cost of inflation.

Causes of Inflation
Economists wake up in the morning hoping for a chance to debate the causes of inflation. There is no one cause that's universally agreed upon, but at least two theories are generally accepted:

Demand-Pull Inflation - This theory can be summarized as "too much money chasing too few goods". In other words, if demand is growing faster than supply, prices will increase. This usually occurs in growing economies.

Cost-Push Inflation - When companies' costs go up, they need to increase prices to maintain their profit margins. Increased costs can include things such as wages, taxes, or increased costs of imports.

Costs of Inflation
Almost everyone thinks inflation is evil, but it isn't necessarily so. Inflation affects different people in different ways. It also depends on whether inflation is anticipated or unanticipated. If the inflation rate corresponds to what the majority of people are expecting (anticipated inflation), then we can compensate and the cost isn't high. For example, banks can vary their interest rates and workers can negotiate contracts that include automatic wage hikes as the price level goes up.

Problems arise when there is unanticipated inflation:

Creditors lose and debtors gain if the lender does not anticipate inflation correctly. For those who borrow, this is similar to getting an interest-free loan.
Uncertainty about what will happen next makes corporations and consumers less likely to spend. This hurts economic output in the long run.
People living off a fixed-income, such as retirees, see a decline in their purchasing power and, consequently, their standard of living.
The entire economy must absorb repricing costs ("menu costs") as price lists, labels, menus and more have to be updated.
If the inflation rate is greater than that of other countries, domestic products become less competitive.

People like to complain about prices going up, but they often ignore the fact that wages should be rising as well. The question shouldn't be whether inflation is rising, but whether it's rising at a quicker pace than your wages.

Finally, inflation is a sign that an economy is growing. In some situations, little inflation (or even deflation) can be just as bad as high inflation. The lack of inflation may be an indication that the economy is weakening. As you can see, it's not so easy to label inflation as either good or bad - it depends on the overall economy as well as your personal situation.

Inflation

2008-06-12T13:34:00.001-07:00

Define inflation
Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every dollar you own buys a smaller percentage of a good or service.

The value of a dollar does not stay constant when there is inflation. The value of a dollar is observed in terms of purchasing power, which is the real, tangible goods that money can buy. When inflation goes up, there is a decline in the purchasing power of money. For example, if the inflation rate is 2% annually, then theoretically a $1 pack of gum will cost $1.02 in a year. After inflation, your dollar can't buy the same goods it could beforehand.

Some variations on inflation
Deflation is when the general level of prices is falling. This is the opposite of inflation.

Hyperinflation is unusually rapid inflation. In extreme cases, this can lead to the breakdown of a nation's monetary system. One of the most notable examples of hyperinflation occurred in Germany in 1923, when prices rose 2,500% in one month!

Stagflation is the combination of high unemployment and economic stagnation with inflation. This happened in industrialized countries during the 1970s, when a bad economy was combined with OPEC raising oil prices.

In recent years, most developed countries have attempted to sustain an inflation rate of 2-3%.

Gold Investment

2008-06-12T13:34:00.000-07:00

Gold has long been valued as an investment because it doesn't tend to move along with stocks or the dollar, analysts disagree over whether it makes sense to invest in now.

Gold, whose price hit an 11-month high Monday as the dollar weakened, is often seen as a refuge in times of economic uncertainty. Lately, with gold prices hovering below $700 an ounce, experts seem torn on its prospects. In any case, moderation is in order.

"I'm very bullish from the demand viewpoint," said Frank Holmes, chief investment officer at U.S. Global Investors Inc. He contends rising income in developing countries with a cultural affinity for gold _ particularly India where it is widely used in jewelry _ is a good sign for gold demand. Holmes noted that prices for gold have lagged those of metals such as copper, zinc, platinum and nickel. Those metals, he said, are in greater demand as countries develop infrastructure. Later, as such development increases economic prosperity, demand for gold begins to rise, he said.

"In India you basically buy gold with only a 10 percent markup so you wear your money," he said. He added countries with rising wealth, such as Russia, look to gold as a way to hold their national reserves, as occurs in the United States.

Even if demand increases, adding to supplies has become more difficult. Production has fallen from years past because it now takes longer to win approval for new mines and to shepherd them into production in part because of environmental concerns.

Even if production were to increase, however, prices might still increase. Gold, which came close to topping $700 an ounce in late February before pulling back, has seen prices follow the ebb and flow of political tensions in the Middle East.

Holmes also noted the gold often moves in a similar direction as oil; recently oil prices have climbed amid increasing demand, in part from developing countries like China and India.

Ultimately, while he contends gold can be a wise investment, he recommends investors not make it more than 10 percent of their overall holdings.

Not diving too heavily into gold but rather moving in as part of a larger focus on commodities could be a sound move, contends Michael Kimmel, an analyst at RegentAtlantic Capital LLC.
"Even though it's had a great return in the short term, it's not as good over a longer period," he said. "Inflation has outpaced gold, which hurts the investor's purchasing power in the long run." He cited the performance of gold over the past 30 years.

Kimmel describes gold as a very "frisky" asset class, noting its volatility could prove unnerving to some investors.

"We like to say it has all the volatility of stocks with the return of bonds," he said. But he added it often holds up well during tough times for stocks: "If the stock market is doing poorly and the dollar is weak, it's a great hedge."

So for investors concerned about a pullback in the stock market, the strength of the dollar or increased political turmoil, a moderate investment in gold can be wise _ if they're willing to stomach possible volatility.

Some more tips from Warren Buffet

2008-06-09T12:49:00.000-07:00

Learn some more investment tips from the investment guru Warren Buffet and invest like Warren Buffet.

Beware of companies displaying weak accounting.
Unintelligible footnotes usually indicate untrustworthy management.
Be suspicious of companies that trumpet earnings projections and growth expectations.
Suspect those CEOs who regularly claim they do know the future –and we become downright incredulous if they consistently reach their declared targets.
Managers that always promise to “make the numbers” will at some point be tempted to make up the numbers.
Derivatives are financial weapons of mass destruction.
A director whose moderate income is heavily dependent on directors’ fees is highly unlikely to offend a CEO or fellow directors, who in a major way will determine his reputation in corporate circles.
If regulators believe that “significant” money taints independence (and it certainly can), they have overlooked a massive class of possible offenders. (referring to outside directors)

Those attributes are two legs of our “entrance” strategy, the third being a sensible purchase price. We have no exit to strategy – we buy to keep.
That is one reason why Berkshire is usually the first- and sometimes the only – choice for sellers and their managers.

Investment guru Warren Buffet's tips and practical advice

2008-06-09T12:34:00.000-07:00

Every one wants to become like Warren Buffet. What is it that made Warren Buffet as Warren Buffet. Lets soak up some of Buffett's wisdom for investors. He writes insightful essays in annual reports and letters to shareholders. You can look them up at berkshirehathaway.com.
Buffett also answers questions from shareholders at the company's annual meetings. Here are some samples from the most recent meeting.

Patient investing. We have $16 billion in cash not because of any predictions [about a market decline], but because we can't find anything that makes us want to part with that cash. We're not positioning ourselves. We just try to do smart things every day, and if there's nothing smart, then we sit on cash.
Commitment. If we start buying a stock, we want to go in heavy. ... We've made some big mistakes starting to buy something that was cheap and within our circle of competence, but trickled off because [the] price went up a bit. Good ideas are too scarce to be parsimonious with.
The big ones. I used to handicap horses. ... If someone asked me to handicap the 500 companies in the S&P 500, I wouldn't do a very good job. You only have to be right a few times in your lifetime, as long as you don't make any big mistakes. Ted Williams, in his book The Science of Hitting, talked about how he carved up the strike zone into different zones and only swung at pitches that were in his sweet spot. Investing is the same way.
Coca-Cola. When I talked about Coca-Cola being an "inevitable," I talked about the probabilities that Coke will dominate the global market for soft drinks. I don't think anything will change that. It has a huge distribution system and position in people's minds worldwide. They'll make a little more profit per drink sold over time as well. I don't know how anyone could dethrone them.
More on patience. If the market closed for years, we wouldn't care. Would still keep making Sees candy, Dilly bars, etc. If you focus on the price, you're assuming that the market knows more than you do. That may be the truth, but in that case you shouldn't own it. The stock market is there to serve you, not to instruct you.
Meeting with management. Almost everything we learn is from public documents. ... We do not find it particularly helpful to talk to managements. ... The numbers tell us a lot more than the managements. We don't give a hoot about anyone's projections. We don't want even want to hear about it.
Stock options. Options are a royalty on the passage of time. They put management's interests contrary to the interests of shareholders. We believe in tying incentives to things under management's control. To give a lottery ticket to someone who runs 1 percent of Berkshire is really crazy. We saw more crazy stuff in the 1990s than in the previous 100 years.
Banking. If you can just stay away from following the fads and making bad loans, [it] has been a remarkably good business. Since WW II, return on equity for banks that have stayed out of trouble has been good. Some large well-run banks earn 20 percent ROE. I've been surprised that margins in banking haven't been competed away. ... Some banks get into trouble making bad loans, but you don't have to.
Sticking with what you know. I know people will be drinking Coke, using Gillette blades and eating Snickers bars in 10-20 years and have [a] rough idea of how much profit they'll be making. ... Somebody will make money on cocoa beans, but not me. I don't worry about what I don't know — I worry about being sure about what I do know.

Successful investors secret to profit in any market

2008-06-09T12:13:00.000-07:00

On account of global and domestic slow down in the economy Indian stock markets once again ended on negative note . Many new investors decided not to invest in stocks after burning their fingers in Reliance Power IPO. Why some investors gaining while others losing in the markets.

Some secrets of successful investors

1. Herd mentality: They sell their holding when others are buying. These investors sold their stocks when herds were buying at 20,000 levels in January. Successful investors will never follow herds and go against tide.

2. Work hard: One should systematically work hard on research if you want to make money in stock markets. It is surprising to find that even intelligent people with good analysing capabilities will invest in stock markets just basing on broker’s tips. Successful investors will never put their money without enough research.

3. Fundamentals: If you are an investor, it is better to focus on fundamentals. Technicals are for traders. If you invest in a good company with sound fundamentals with reasonable valuations, you will never lose money in long term. Never buy penny stocks.

4. Volatile growth stocks: These stocks with very high beta give exceptional returns in bull markets but may give sleepless nights in the current situation. Diversify your portfolio. Successful investors will never put all their money in one stock or one sector.

5. Initial obstacles: All great investors lost money in their initial days including Warren Buffett. You should ready to face losses in the initial investment days. Go slow initially and learn from losses. Many new investors who lost their money in the Reliance Power IPO will never return to market for another 3-4 years or when Sensex makes new highs and once again burn their fingers. Stay cool in the crisis.

6. Greed and fear: These two characters are biggest enemies for every investor. Unless you overcome them, you will never become a successful investor.

7. Go long: Day traders will never beat long term investors in the earnings. Stay away from day trading. Never put you money in speculative stocks and Z, S and T group stocks.

8. No sentiments: Don’t become sentimental with your stocks. Successful investors sell their stocks when they reach target. There should be specific reason to hold your stock even after it attains your target price.

Investment

2008-06-08T11:05:00.000-07:00

Some Do's and Dont's of investment
Planning of investing? Are you a beginner in investing. Some basic investing tips for dummies and also for experienced investors in a crashing market like this.

Invest a fixed sum regularly. It is called SIP, (Systematic Investment Plan). It may be weekly/monthly or yearly or any fixed number of days.
Pick fundamentally strong counters.
Book profits when the stock rises above your expectations. That is you purchased a stock at Rs. 100 with a target of Rs. 150 over next one year. You see the stock rise by 15-20% within a month. Sell at least a part of your holdings. This will reduce your holding cost. Even if you sell 25% of the shares at Rs. 120, your cost for 75% holdings gets reduced to Rs. 93.33.
Never panic in corrections/crashes (doesn't hold good if you have companies with poor or zero fundamentals)
Keep updating yourself on companies’ fundamentals. At least look whether sales and net profits are on the rising line. Do not hesitate to get out of a company when the results are poor.
Always keep at least 15% cash. Invest this in fundamentally strong companies which become available at cheap rates during crashes.
If you are an earning member, keep investing a fixed portion of your earnings in same stocks (again SIP)
If you are a retired person, do not invest more than 50% of your long term money.
If you do not understand what a company is doing in actual day to day business, never invest in it.
Never ignore fundamentals.
People look at losses from latest purchases. They miss out that we purchased this stock partly from profits of earlier purchases. Even after the recent fall, my folio is up almost 50% in last 1 year. But most of my current holdings are in red that too by 10-15%. Learn to keep a correct track of what your original investment was and what is its value as on date. Use good portfolio software on net. (Just have a look at our 25k model portfolio)

Hope this helps you.

Systematic Investment Plans (SIP)

2008-06-08T10:52:00.000-07:00

What is an SIP and What kind of SIP methods one can use

SIP = Systematic Investment Plans. Its the most workable strategy in a Volatile Market but in a good stock.

Its a financial Planning in stock market.
The word " systematic " is important and means regularly.
Planning means thinking on a time frame.
Price is apparently not important at the time of investing.
Understanding markets movements not important.
One have to invest in companies whose management is top class.
Last but not the least and the most important.

You have to have patience, patience and more patience. I will try to explain by an example. I hope many of you understands it. Now let me state an example on Wipro that IF someone has runned SIP in it since 1990-2005 on a yearly basis of a small value of just 50K per year.

Year Quantity Rate Rs.( Adjusted Price )
1990 35700 1.40
1991 26300 1.90
1992 14700 3.40
1993 14000 3.65
1994 5800 8.60
1995 4600 10.85
1996 5800 8.60
1997 3100 15.80
1998 820 61.29
1999 115 434.00
2000 125 401.00
2001 187 267.00
2002 184 272.00
2003 172 290.00
2004 134 374.00

Total Quantity of Shares = 1,11,845
Total Investments = 50,000 x 16 = 8,00,000
Current Valuation = 6,30,00,000

Now questions might arise like how do we know that this Company will perform good in next 16 years or so ?? Can you tell me a particular stock in which I can run SIP for a longer time period ? Do you know any future's INFY or Wipro ?

No..I dont know..IF I knew then I would'nt have been here..But yes,I am willing to try and I know IF I will,then I will achieve it one day.

Is starting a 16 years Value buy SIP is right now?
I would say No. Cos we are into bull markets and we wont be able to make higher returns if we wait for 16 years. I would say that run a SIP for next 5 years on a Monthly basis or Fortnight.

Decide a value as per as your convenient and SIP into few particular stock. Make sure that you cover all the 7 points which I discussed above.

Investing in Gold - How to invest in Gold?

2008-06-06T13:56:00.000-07:00

Gold continues to be a popular form of investment right for a very long time. People prefer to invest in gold because the returns are usually high and above all gold is a very famous ornament. Even if they don't get good returns they wont face losses because their cosmetic purposes will be served.

Some tend to posses gold even as a matter of prestige. It is regarded to be a good source of investment as it controls inflations and even helps you to raise finances in the future.

Gold Markets
Gold is traded in many markets around the globe. London and New York are supposed to be large markets for gold and they function through the day. It is worth mentioning that Kong Kong and Zurich market are also open to trading for 24 hours. The gold market functions like a stock exchange in l aspects of buying selling and determination of prices though the fact remains that different factors influence the price.

World Gold Council
World gold council is a forum of gold producers around the globe. The basic objective of this body is to disseminate information regarding investing in gold and also to create an awareness among the masses. They also lay down lot of guidelines for small scale producer's traders, consumers and other stakeholders. The association is headquartered in Geneva.

Is investing in Gold a Good Idea?
If you are thinking of returns or results in the short term then gold is probably not the right option. Investing in gold is no doubt a profitable option as it can be quickly converted to cash. It is a convenient as you can carry it easily wherever you go unless the quantity is very high. Since the performance of gold market s directly proportional to stock market it becomes easy to make calculations.

Gold-A Precious Metal as Investment
Gold enjoys innumerable advantages over other metallic forms. Platinum investment is very risky and moreover it is not easily convertible to cash. If you take the case of silver, it does not enjoy huge prospects in terms of financial gain. Moreover silver occupies lots of space when compared with gold and so you it can cost you more for transporting. This should sound out to be worthless propositions given the monetary benefits are not promising.

Factors to be considered before Investing in Gold
You need to be very careful about investing in gold because unlike stock or other markets you don't have the option of investing a small amount. You must do lot of research and have a strong knowledge about the market information. You must decide how you are going to allocate it in the portfolio. Some investors choose to invest only in gold and not in any other sources. However this practice won't be suitable for all. Therefore you must first check up if you are falling under this category. Some other issues that are to be considered are as follows:

Factors that Influence Gold Price
Like any other resource the supply and demand constitutes to be an important factor in determining the price of gold. Since gold is a precious asset people even hoard it and its demand and price could increase drastically during inflation and even when there are wars. The price of gold shows an upward trend in most cases irrespective of the consequences due to the sentiment which people owe to the metal. They are prepared to pay any price for it.

Gold Investment Strategies
Some of the investors prefer to buy gold when the price increases because of the popular belief that it will increase further more and they can make profits by selling them thereafter. Other investors choose to buy gold when prices decline so that they can sell them at a higher profit when the prices increase. Another group of investors will make their decisions by testing if the current trend in pricing changes or not.

Spice Jet Ltd denies acquisition offer

2008-06-06T13:24:00.000-07:00

SpiceJet Ltd has not been formally approached by any party for acquisition talks, the low-cost carrier said in a statement to the stock exchange on Friday.

The Mint newspaper reported on Friday the Anil Dhirubhai Ambani Group was in talks to acquire the airline, leading the shares up 14.49 percent to 35.95 rupees in a weak Mumbai market.

Inflation climbs to 8.24%

2008-06-06T00:08:00.000-07:00

Inflation surged to 8.24 per cent for the week ended May 24 from 8.1 per cent in the previous week, despite fall in prices of some essential commodities like fruits, vegetables and spices.
Wholesale prices-based inflation stood at 5.15 per cent a year ago. The rate of price rise is expected to advance further after two weeks, when the June 5 increase in prices of petrol, diesel and cooking gas would be taken into account.

During the week ending May 24, non-food articles, raw rubber, raw cotton and groundnut seeds became expensive by 1-2 per cent.

Earlier this week the government had raised the prices of fuel - petrol by Rs 5 per litre, diesel by Rs 3 per litre and LPG by Rs 50.

While admitting that 'inflation is a problem', Finance Minister P Chidambaram exuded confidence that India would be able to maintain it's growth trajectory, and also bring about price stability with 'people's support'.

Railways examining further cuts in freight rates

2008-06-05T12:54:00.003-07:00

The Railway Minister, Mr Lalu Prasad Yadav, said that the Railways was examining the possibility of further reduction in freight rates to leverage its competitiveness over road transportation in the wake of the latest hike in diesel prices.

These further reductions, if any, are likely to be aimed at attracting incremental traffic in those routes where rail capacity is currently unutilised.

Discounts
In a statement, Mr Prasad reiterated the steps taken earlier this year wherein General Managers of all Zonal Railways were allowed to grant up to 50 per cent discount, as against the earlier 30 per cent, for loading of essential commodities like cement, foodgrains, fertilisers, etc in the empty flow direction.

Further reduction in freight rates is also being examined keeping in view the competitive position of the Railways in the transport market to attract more traffic and increase earnings, the Minister added.

The move is in line with Railways’ strategy during last few years wherein it increased freight tariffs through various surcharges for long distance movement of bulk commodities (like ores and minerals) which do not have road transportation as a financially viable option.

Meanwhile, Railways offers discounts only for incremental traffic in those routes where train and track capacity is available and for those industries that prefer road transport. Railways offers discounts on those routes (empty flow direction) where it is unable to garner any traffic earnings.
He said Railways will not pass its additional financial burden on its users – both passengers and freight customers. Railways consumes 2.27 billion litres diesel per annum and an increase in the price of diesel by Rs 3 per litre would cost Rs 681 crore annually and Rs 560 crore for the remaining 10 months of the current financial year.

Oil marketing stocks tumbles despite hike in price

2008-06-05T12:54:00.001-07:00

Oil marketing stocks slips on Wednesday as investors liquidated their long positions in these stocks even after the announcement of the oil price hike. The BSE Oil & Gas index shed 353 points or 3.39 per cent from the previous day’s close, while the Sensex was down 2.81 per cent.

Mid-session
Until mid-session though, the BSE Oil & Gas index was among the best performing indices as it was up by almost two per cent. As soon as the Government announced the fuel price hike the share prices of oil marketing firms surged more than 5 per cent.

Public sector oil marketing firms such as BPCL, HPCL and IOC witnessed the highest rise. At their intra-day highs, (immediately after the Government announcement), BPCL was trading at Rs 371, IOC at Rs 452 and HPCL at Rs 256.

Private oil firms, both in production and refining, also surged till a little past mid session, in anticipation of the price rise. Cairn India, Essar Oil, Reliance Industries and Reliance Petroleum saw a lot of buying in the early part of the day. “The market had been anticipating an increase in fuel prices which is why we have been seeing a run up in these stocks in the past few days until today afternoon”, said the head of research at a stock broking firm.

However, an hour or so after the Government announcement, oil and gas stocks were seen headed southward. At close of trading, IOC was down 3.61 per cent at Rs 418.2. BPCL shed 7.84 per cent to close at Rs 324.05. HPCL fell three per cent, Aban Offshore tumbled by Rs168.75 to end the day at Rs 3,503.05, Reliance Industries fell Rs 99.6 to close at Rs 2307.2 and Essar Oil closed down 7.24 per cent at Rs 231.20.

“There was a lot of build up in these stocks in the last 10 days in anticipation of the fuel price hike. After the announcement these investors were booking their profits at higher levels. The overall market sentiment was negative, so that investors who wanted to book profits sold off their positions in these stocks”, said Mr Rohit Nagraj, an Oil & Gas analyst at Angel Broking.

Outlook
Market men say that after the announcement brokers had been advising their clients to reduce their long positions in the oil marketing stocks. “Even though the prices have been hiked, these companies will still be running at a loss. With the price rise only the extent of the losses will be reduced,” said Mr Alex Mathew, Head Research Centre, Geojit Financial Services.

People were expecting something for the private oil marketing companies as well, but nothing was announced today which is why the share prices of these stocks also dipped, said analysts.

ONGC was the sole gainer among the stocks in this sector, as well as the in Sensex. The stock was trading positive the entire day and closed at Rs 887.05, gaining 5.31 per cent from its previous close. It touched an intra-day high of Rs 912. “The package announced by the Government is between neutral and positive for ONGC. The subsidy burden of the company will reduce now”, said Mr Sanjay Someshwar, a sub-broker with Ventura Securities.

The fuel price hike, though positive for oil marketing companies, is not a long lasting solution unless crude oil prices come down substantially say analysts. “These companies still continue to depend on oil bonds and upstream companies for their profitability. Also, if crude oil prices come down, a rollback of prices is also not ruled out”, said Mr Dikshit Mittal Research analyst, Religare Securities.

Communist and Marxist against Oil price hike

2008-06-05T12:54:00.000-07:00

Opposing any move to hike petrol prices, the Communist Party of India (Marxist) on Wednesday asked the government to impose a ‘windfall profit tax’ on private and joint venture oil firms as well as private refineries and not burden the common people.

“In no case can the UPA government pamper the private oil companies to make windfall profits and, at the same time, increase the price of petrol and diesel and burden the people further when they are suffering from steep price rise of essential commodities,” CPI(M) Polit Bureau said in a statement. The CPI also opposed any move of the government to increase prices of petroleum products.

It recommended the imposition of ‘windfall profit tax’ on private and joint venture oil-producing firms as well as private standalone refineries “earning huge profits through import parity policy of pricing.” With crude prices exceeding $100 per barrel, “it is necessary that windfall gains be recovered from all private and joint venture oil-producing companies like M/S Cairns, Reliance, Essar etc. extracting oil and gas in India,” the statement said.

It added that when these contractors participated in the New Exploration Licensing Policy, “none of them could have envisaged crude prices beyond $30 a barrel.”

“It would be a failure on the government’s part to allow upstream contractors additional gain of $70-80 per barrel without any extra work,” the party said, adding that many other countries had renegotiated their contracts with a threat of imposing windfall taxes on such profits.

“It is time that the government takes charge and recovers unintended gains from upstream contractors,” it said. The CPI(M) said private refineries were allowed “to keep margins for refining cost exceeding $15 USD per barrel, while public sector firms struggled to meet their financial needs.”

CPI National Secretary and MP D. Raja said any hike in prices of petrol and diesel would break the backbone of common people who are already reeling under the burden of runaway inflation and high prices of essential commodities.

He reiterated the demand of the Left parties for rationalisation and restructuring of excise and customs duty on petrol and diesel which were as high as 32 and 54 per cent respectively.

Mr. Raja said instead of hiking prices of petroleum products, the Finance Minister should tax the corporate sector.

Means for Investing in Real Estate

2008-06-01T13:45:00.000-07:00

After knowing about the basics of Real estate investment in the previous post, its time to learn the means for investing in real estate. It is not easy to obtain funds from banks or other financial institutions for investing in real estate. Some of the financial bodies do not even recognize real estate as an industry because the whole concept has been recently developed. Some of the fraudulent practices adopted by real estate agents and traders are also attributed to this cause.Some of the means of investing are as follows:

Down Payment
Down payment refers to the method of settling the whole transaction in by paying at a stroke. If you have adequate resources you may choose to go for down payment. However you must keep in mind that the purchase should not exhaust your funds completely. You will later have a difficult time in maintaining it and may even be forced to sell it at a price quoted by the buyer even if it means low profits.

Hire Purchase
If financial resources are your constraint you may choose to buy the properties by using hire purchase method. However this method has got other limitations.The terms of some hire purchase agreements may be too stringent and some will even ask you to return the property if you are not able to pay the stipulated amount in time or rather impose heavy penalty in the form of heavy interests.

Invest only after Analyzing Market Conditions (real estate boon)
The real estate market is highly fluctuating like the stock market. You must have a strong knowledge of the market information before making any investments. It is better to invest in places that are less explored but where the chances of new ventures are very bright.If you decide to invest in an overcrowded place you will have to face severe competition and no amount of marketing strategies can help you to make profits like in an unexplored place.

Buy Land for a Cheap Price and Negotiate
The art of making profit is a real estate lies with this. Your investment on landed properties should be less whereas your investments on other assets like land and furniture should be high. This way when the price of the land increases you will automatically be able to make profits. When you invest more on other assets their cosmetic value will bring more consumers.

Real estate investment is becoming very popular all over the globe. There are lots of professionals in this area of investment and exclusive studies are conducted to understand the latest trends. The only caution to the aspiring investor is that he should not be carried away like what happens in a stock market. Similarly real estate is not an easy place to make money and hence investors should calculate well before investing in real estate. They can start with by collecting information on creative real estate investing, real estate residential investment, real estate investing training and commercial real estate investing. Real estate investing e-books also help them by providing certain information on real estate.

Real Estate Investment

2008-06-01T13:19:00.001-07:00

What is real estate investment
Real estate is basically defined as immovable property such as land and everything permanently attached to it like buildings. Real property as opposed to personal or movable property is characterized by the right to transfer the title to the land whereas title to personal property can be retained. The investment in real estate essentially depends on the risks associated with it, that is to say, even if the venture succeeds when the future stream of income will accrue to the investor and the alternative investment opportunities. Real estate investment can be attractive if viewed as a business opportunity; it can generate rental income, using it as collateral to secure a loan for a business venture, to offset otherwise taxable income through cash savings on tax-deductible interest rate losses, or simply from the profits garnered from its resale. Notable, in this context is the gains reaped by real estate speculators who trade in real estate futures (by buying and selling purchase options).

Common examples of real estate investment are individuals owning multiple pieces of real estates one of which is his primary residence and others are occupied by tenants from where the rental income accrues. Real estate investment is also associated with appreciation in the value of property thereby having the potential for capital gains. Tax implications differ for real estate investment and residential real estates. Real estate investment is long term in nature and investment professionals routinely maintain that ones investment portfolio should have at least 5%-20% invested in real estate.

A Real Estate Investment Trust (REIT) is a corporation or body investing in real estate that has the property to reduce or eliminate corporate income taxes. In return, REIT’s are required to distribute 90% of their income among the investors. These incomes are often taxable. REIT’s provide a similar function as does Mutual Funds provide for stocks in the share market. The key statistics to study about the REIT’s are the NAV (Net Asset Value) and AFFO (Adjusted Funds From Operation).

Real estate investment has attracted lot of people. The prospects are increasing day after day. At the same time it needs to be understood there are lot of risks in the real estate market. Real estate market has the same hype of a stock market. Therefore you should be very careful in making your investments. Some of the tips mentioned below will be helpful to you in this regard.

How to Invest on Real Estate
You should not follow the principles of investing in a stock market for a real estate market. In a stock market you generally take wild risks and invest blindly on the basis of some speculations. When you are planning to enter the real estate market you must have adequate cash at all times because the investment is very huge and moreover the returns are generally reaped in the long term. Similarly you will have to posses adequate reserves to maintain the properties for a considerable period of time. This is a prerequisite when it comes to real estate investment. You must carefully consider these factors before investing in real estate.

Have an idea on your Budget (Self Determination)
You must have a clear idea of how much you are going to spend and the rate of expected returns. You can approach your financial consultant for more guidance.The budget should not only reflect on the actual and anticipated revenues and outlays but also substantiate how you will meet unexpected situations because the long term financial implications are not always predictable. Even if they are predicted they won't stand true by all means.

Investment on a Prime Property
A prime property is called so by nature of its location and marketability for e.g. in the heart of the city and is easily accessible to all and has all basic facilities nearby like transport and restaurants and above all priced at a very high rate. If you are planning to invest in a prime property you must possess adequate resources to purchase and maintain it.

Commercial Area
The prices of prime properties in commercial areas are always on the rise. This upsurge is mainly due to the increasing economic activities and business transactions all over the globe. You need to be extremely cautious because many sellers try to woo real estate agents and buyers by making unrealistic promises and inflating the prices. Therefore unless you are confident that a prime property in a commercial locality can fetch you the income it is not advisable to invest.

Investment on a Non-Prime Property
Non prime properties are those which are not located in principal centers and are promising in terms of business opportunities. You need to give equal importance to non prime properties because a non prime property may become a prime property later by virtue of many factors like sudden demand, or some other resources available in the place.

Residential Area
Properties in residential areas also show an upward trend with regards to increase in price. However it is not profitable to invest in these because you may be able to gain profits only in the long run. Short term profits will only be marginal. Moreover the returns may not be definite as the prices of residential properties may not even increase over a period of time.

DRIP or Dividend ReInvestment Plan

2008-06-01T13:19:00.000-07:00

A dividend reinvestment plan (DRIP) allows shareholders to reinvest their dividends in additional stock rather than receiving them in cash. These plans are offered directly by companies or through agents acting on behalf of the corporation. In the former case, a company issues new shares in lieu of a cash dividend.

You also have the option of purchasing additional shares from the company. The advantage is that you pay no brokerage fees, although some companies charge fees for this service. The other type of plan is offered by agents, such as banks, that collect the dividends and offer additional shares to shareholders who sign up for the plan. The bank pools the cash from dividends and purchases the stock in the secondary market. Investors are assessed fees that cover the brokerage commissions and the fee charged by the bank.

Advantage of DRIPs
The advantage of DRIPs to shareholders is that they act as a forced savings plan; dividends are reinvested automatically to accumulate more shares. This method is particularly good for investors who are not disciplined savers.

Disadvantage of DRIPs
A disadvantage of dividend re-investment plans is that shareholders need to keep, for tax purposes, accurate records of the additional shares purchased. When additional shares are sold, the purchase price is used to determine whether there is a capital gain or loss.

These dividends are considered taxable income whether they are received in cash or reinvested automatically in additional shares. Another disadvantage of DRIPs is that the fees charged to participate in the program can be high.

How is Investing different from Saving

2008-06-01T13:07:00.000-07:00

In simple economies, there is little distinction between savings vs investments. Saving and investing are two unique concepts, and it's important to understand the difference between them. One saves by reducing present consumption, while he invests in the hope of increasing future consumption. Therefore, a fisherman who spares a fish for the next catch reduces his present consumption in the hope of increasing it in the future.

Most of the people probably have savings accounts with ATMs to access their hard-earned cash and be able to store away any extra cash in a place a little safer than a mattress. A few of you may even have some stocks or bonds. Let me explain why while a savings account in the bank may seem like a safer place than the mattress to store your money, in the long-term it is a losing proposition!

If you open a savings account at the bank, they will pay you interest on your savings. So you think that your savings are guaranteed to grow and that makes you feel extremely good! But wait until you see what inflation will do to your investment in the long-term. The bank may pay you 5 percent interest a year on your money, if inflation is at 4 percent though, your investment is only growing at a mere 1 percent annually.

In order to achieve the best possible results, it's crucial that you match your saving or investing goals with the proper financial tools. Saving and investing are often used interchangeably, but they are quite different and is essential to know the key differences.

Saving
Is storing money safely, such as in a bank or money market account, for short-term needs such as upcoming expenses or emergencies. Typically, you earn a low, fixed rate of return and can withdraw your money very easily.The risk for savings are often lower than for other forms of investment. Savings are also usually more liquid. That is, you may quickly and easily convert your investment to cash.

Investing
Taking a risk with a portion of your savings such as by buying stocks or bonds, in hopes of realizing higher long-term returns. Unlike bank savings, stocks and bonds over the long term have returned enough to outpace inflation (roughly 10%), but they also decline in value from time to time so the risk factor for investing is generally higher then savings.

Investments may produce current income while you own the investment through the payment of interest, dividends or rent payments. When you sell an investment for more than its purchase price, the profit is known as a capital gain, also called growth or capital appreciation.

The decision about which investment to choose is influenced by factors such as yield, risk, and liquidity.

What is Investing

2008-06-01T12:52:00.000-07:00

Value of investing
No matter what the current stage of your life is, the direction you are heading or what the future holds for you, investing will be a key factor in developing both your financial security and your financial freedom. Whether you are purchasing a house, a car or even beginning a business, investing is inevitably something that everyone should undertake throughout their lives for the benefit of themselves and future generations.

Factors
There are many factors involved in investing and why it is done. Many of these factors are related to individuals and their own specific personal situation, objectives, the current period their of lives and their investing personality. These factors can be discussed with a financial planner who can look at your own personal situation and advise on the four main areas:

Wealth creation - Superannuation, Negatively geared shares, Property
Asset protection - Insurances - Life, Health, Property, Professional, Income protection and Key personnel
Retirement planning - Retirement income provision, Tax
Estate planning - Disposal of assets - during life, on death, willed assets, non-estate assets

While it is not essential to understand all these areas, it is important to realize that they are fundamental in ensuring that your financial future remains economically stable and has the potential to grow to where you want it to. The most important realization by visiting this web site is that investing is, or will, be fundamental to your life and by even reading this section you have taken the most important step - the first.

Trading Rules

2008-06-01T12:39:00.000-07:00

Some useful tips for you before you invest in the market. These are general trading tips which everyone should know

1. Don't blame the market. You must take responsibility for your financial security and all of your actions.

2. Study and learn all you can. Choose one market to trade, BSE or NSE, and become an expert in your area.

3. Be prepared for problems. Have a back-up phone ready with your brokers information in case of problems.

4. Have a notepad, pencil and calculator at hand to record trades.

5. Know the days and times when economic data is released.

6. Never let a winning trade turn into a loss.

7. Start with a little capital. Only place small stakes or paper trade if you are relatively new to trading.

8. Have a trading strategy and stick to it. It is no good saying one thing and doing another.

9. Always keep records of all your trades. Analyse these weekly or monthly to see if you can improve you performance.

10. Don't be greedy. You can soon build up considerable wealth with just 1% daily profits.

11. Never trade if you are tired. Any medications that could affect your responses or you have a headache or you are worried about something.

12. Wherever possible always try and obtain value when placing a bet.

13. Never trade on tips or what experts say. Invariably throughout the day there will be several experts with opposing views. Trade what you see happening.

14. Vary your stakes. If market movement is a little slow use lower stakes.

15. Look for reversals in the market and trade with this new trend.

16. Do not over trade.

17. Try to make a small profit every day and be happy with that.

18. Don't let the market get away from you. As soon as you can get out.

19. If you are losing just get out.

20. If in doubt GET OUT!

Filing your Income Tax Return Online

2008-05-25T12:56:00.000-07:00

A good new for all those who are paying the agent for filing their income tax returns. Now you can file your income tax returns online.

Steps to file income tax online

Visit the incometaxindia website (www.incometaxindiaefiling.gov.in/portal/index.jsp) and register as a new user.
Fill your personal details and your permanent account number (PAN) inside the box provided on the form and click on the 'Register' button.
Once you click on the 'Register' button you will be taken to a form that will automatically have your address and other details (as submitted by you for getting a PAN). You will just have to put your own password, telephone number, e-mail and click on the 'Submit' button.
And you will be taken to a page that has links for e-filing your tax returns for the assessment year 2006-07 and 2007-08. Assessment year is a period of 12 months starting from April 1 and ending on March 31 the following year. Previous year is the financial year immediately before the assessment year.
Income earned in the previous year is taxable in the assessment year.

Let's take an example to make it simple.
Let's take April 1, 2006 to March 31, 2007 as the assessment year. The previous year corresponding to this assessment year will be April 1, 2005 to March 31, 2006.

So the income earned in the previous year April 1, 2005 to March 31, 2006 is taxable in the assessment year starting from April 1, 2006 to March 31, 2007.

Similarly, income earned in the previous year April 1, 2006 to March 31, 2007 is taxable in the assessment year starting from April 1, 2007 to March 31, 2008.

Now let's say you click on e-filing for A.Y. 2007-08. You will be taken to a page from where you can download an excel utility that helps you file online income tax returns.
Choose which category you belong to (salaried employees with only salary income will have to download ITR-1).
Fill in the required data asked for in the excel sheet.
Save the excel file on your local machine.
Click on 'Submit return' link in the middle on the left hand side to upload the saved excel file to the income tax of India's server.

After uploading excel file successfully a form will pop up in your computer's window. This is in acknowledgement that you have filed your returns online successfully. Take a print out of this form and fill in the verification part which duly needs to be posted to your nearest local income tax office.

Take due care that if you upload the file today then the income tax department should receive the verification form duly filled and signed in the next 15 days by post. If not you will have to go through the entire procedure again.

If you are already raising your eyebrows then here's a solution to it: digital signature. This is something that will make your e-filing income tax returns really paperless.

Digital signature is like your electronic identity that confirms that the person who has submitted all the details is really 'YOU'. Companies like Safe Scrypt (http://www.safescrypt.com/solutions_and_services/digital_certificate_services.html) will do it for you, again online and for a fee. As per the IT Act 2000 they are legally as valid as physically signed documents in any Indian court of law.

Filing your income tax returns is now really possible at the click of a mouse.

Mutual Fund information

2008-05-21T14:34:00.000-07:00

Mutual fund Basics and Definition

A mutual fund is a financial intermediary that allows a large number of investors to pool their money together with a predetermined investment objective. The pooled money will be invested into specific securities(usually stocks or bonds) by the fund manager. When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund. Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (you don't have to figure out which stocks or bonds to buy). 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. They offer regular investors a chance to diversify their portfolios, which is something they may not be able to do on their own.

There are different kinds of mutual funds to cater to varied investment objectives: Growth Funds, Income Funds, Balanced Funds, and Liquid Assets Funds, also known as Money Market Funds. Having explained mutual funds lets see the different types of mutual fund.

Types of Mutual fund

Mutual fund can be classified into the following two categories:

a. MF according to Maturity Period

Depending on the maturity period, there are two basic types of mutual funds. Open-ended mutual funds and Closed-ended mutual funds

Open ended mutual fund
"Open-ended" or "Open" mutual funds are the most common type of mutual funds in which Investors may purchase units from the fund sponsor or redeem units at the valuation promised in the fund documents, usually on a daily basis. An open-ended Mutual fund is one that is available for subscription and repurchase on a continuous basis. These Funds do not have a fixed maturity period. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices which are declared on a daily basis. The key feature of open-end schemes is liquidity.

Closed ended mutual fund
"Closed-ended" or "Closed" mutual funds are traded as financial securities, once they are issued, and holders must sell their units on the stock market to receive their funds back. A close-ended Mutual fund has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i.e. either repurchase facility or through listing on stock exchanges. These mutual funds schemes disclose NAV generally on weekly basis.

a. MF according to Investment Objective

Based on investment objective the fund can be classified as follows:

Equity Funds
Equity funds or Growth funds invest a major part of their corpus in equities. The composition of the fund may vary from scheme to scheme and the fund manager’s outlook on various scrips. 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. Equity funds rank high on the risk-return matrix.

Debt Funds
Debt fund is also known as income fund. The aim of income funds is to provide regular and steady income to investors. Such schemes generally invest in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments. Such funds are less risky compared to equity schemes. These funds are not affected because of fluctuations in equity markets. However, opportunities of capital appreciation are also limited in such funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall, NAVs of such funds are likely to increase in the short run and vice versa. However, long term investors may not bother about these fluctuations.

These Funds invest a major portion of their corpus 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 GoI 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 around 80% of their total corpus in debt instruments while the rest of the portion is invested 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 investors with an investment horizon of 3-6 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 are meant to provide 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.

Balanced Funds
These funds, as the name suggests, 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.

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.

Money Market or Liquid Fund
These funds are also income funds and their aim is to provide easy liquidity, preservation of capital and moderate income. These schemes invest exclusively in safer short-term instruments such as treasury bills, certificates of deposit, commercial paper and inter-bank call money, government securities, etc. Returns on these schemes fluctuate much less compared to other funds. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods.

Gilt Fund
These funds invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt oriented schemes.

Index Funds
Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index, S&P NSE 50 index (Nifty), etc These schemes invest in the securities in the same weightage comprising of an index. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index, though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. There are also exchange traded index funds launched by the mutual funds which are traded on the stock exchanges.

Top Fifteen Mutual Funds

Following is the list of top fifteen mutual funds for the last one year. The ranks are based on the Mutual funds performance in the last year. The mutual funds ratings displays the top mutual fund companies during the last year.

Rank: 1
MF Name: Reliance Diversified Power Sector Fund - Growth
NAV (Rs.): 66.96
Last 12 Months %: 65.95
Since Inception: 59.88

Rank: 2
MF Name: DWS Investment Opportunity Fund - Growth
NAV (Rs.): 37.06
Last 12 Months%: 50.52
Since Inception: 35.27

Rank: 3
MF Name: Reliance Regular Savings Fund - Equity - Growth
NAV (Rs.): 23.54
Last 12 Months%: 44.28
Since Inception: 33.14

Rank: 4
MF Name: DBS Chola Opportunities Fund - Cumulative
NAV (Rs.): 42.38
Last 12 Months%: 43
Since Inception: 14.71

Rank: 5
MF Name: Standard Chartered Premier Equity Fund - Growth
NAV (Rs.): 21.77
Last 12 Months%: 42.66
Since Inception: 33.82

Rank: 6
MF Name: ICICI Prudential Infrastructure Fund - FII Growth
NAV (Rs.): 15.2
Last 12 Months%:
Since Inception: 21.49

Rank: 7
MF Name: UTI Gold Exchange Traded Fund
NAV (Rs.): 1279.55
Last 12 Months%: 40.88
Since Inception: 21.08

Rank: 8
MF Name: Gold BeES
NAV (Rs.): 1276.57
Last 12 Months%: 40.72
Since Inception: 26.15

Rank: 9
MF Name: ICICI Prudential Infrastructure Fund - Growth
NAV (Rs.): 28.64
Last 12 Months%: 40.41
Since Inception: 45.52

Rank: 10
MF Name: Canara Robeco Infrastructure Fund - Growth
NAV (Rs.): 20.57
Last 12 Months%: 38.93
Since Inception: 33.47

Rank: 11MF
Name: Sundaram BNP Paribas SMILE Fund - Growth
NAV (Rs.): 25.77
Last 12 Months%: 37.18
Since Inception: 33.33

Rank: 12
MF Name: BOB Growth Fund - Growth
NAV (Rs.): 43.61
Last 12 Months%: 36.13
Since Inception: 36.8

Rank: 13
MF Name: Taurus Discovery Stock
NAV (Rs.): 23.34
Last 12 Months%: 36.1
Since Inception: 9.94

Rank: 14
MF Name: DWS Alpha Equity Fund - Growth
NAV (Rs.): 72.68
Last 12 Months%: 36.01
Since Inception: 44.93

Rank: 15
MF Name: Tata Infrastructure Fund - Growth
NAV (Rs.): 33.86
Last 12 Months%: 35.26
Since Inception: 42.2

Investment Declaration

2008-05-21T00:11:00.000-07:00

It's usual that your company will send a piece of document with a lot of columns that need to be filled up during the first two months of the financial year. Typically, this means that you have to declare the investments, which you will be making, during the current financial year.

And this document is rather important because you will need to back this document with actual proof at the end of the year. Else, the take-home salary will have to bear the brunt of your negligence. There are different approaches followed by individuals for this. These include:
A conservative approach: A conservative's approach is to invest Rs 30,000 in Provident Fund, Rs 35,000 in Equity-Linked Saving Schemes and another Rs 15,000 National Saving Certificates. That means a total investment of Rs 80,000 which misses the target of Rs 1 lakh (Rs 100,000) that they need to invest for maximum tax benefits.

And this approach is followed because they are worried about the impact, if they are unable to carry out their investments properly. In order to save themselves any trouble, they mention a lower figure.

Also, they are also worried that about the consequences if the break-up of the investment changes. However, they need not worry about this because the total amount indicated in the declaration has to be same. And as long as this is maintained, it is perfectly fine.

It's important to remember that a conservative approach can lead to higher tax incidence. That is, if you were to invest a higher amount than proposed, it could lead to lower tax benefits.
Before going for such an option, it's important that you mention this to your company's finance department so that they are aware of your latest position and tax you accordingly.

The carefree approach: This approach is more common because here the individual just puts some arbitrary figures against various heads in their investment declaration.
For instance, a person might put Rs 10,000 as premium on medical insurance and Rs 1 lakh as total investment for Section 80C benefits.

There is a serious risk in this approach because just putting down some numbers without thinking through the process could lead to serious loss, in terms of reduction in tax benefits.
Similarly some wrong amount might be mentioned that will disallow the expenditure. A very good example of this is allocating Rs 1 lakh for PPF when the maximum permissible is just Rs 70,000. So another Rs 30,000 that could have been invested in other instruments will now get wasted.

The exact approach: This is a systematic approach wherein all the options are considered and then, allocated to different instruments. For instance, allocating Rs 50,000 to PPF, another Rs 40,000 to ELSS and Rs 10,000 to NSC is a perfect example of proper allocation.
Of course, the latter approach runs the risk of changes being introduced during the year, but it is still an acceptable one because the final number should tally.

Claim for Sensex. BSE not the owner of SENSEX.

2008-05-18T08:37:00.000-07:00

Challenging the Bombay Stock Exchange (BSE), which has applied to register Sensex as its trademark, Deepak Mohoni, a stock market analyst here, has filed a plea with the Trademark registry claiming that the word had been coined by him to denote the BSE sensitive index in his newspaper columns before BSE started using it.

Apart from filing his application with Trademark registry, Mohoni has also moved a legal suit in Pune district court under Section 134 of Trade Market Act to stake his claim in respect of coining of the word.

According to Mohoni, he used the word Sensex first in 1989 in a newspaper column to Nickname a long, clumsy phrase- BSE SENSITIVE INDEX.

He claims that BSE started using it much later from 1995 in its publications. "I decided to file my application before Trademark registry when I came to know that BSE was moving to register SENSEX as it trademark," Mohoni said.

He has now been served a notice by BSE through its lawyers contending that the word was exclusively associated with Bombay Stock Exchange services and could not be registered as trademark by any other party.

Ranjan Nehru, the lawyer for Mohoni, has submitted in his plea that his client enjoyed an exclusive right over the word SENSEX, the term which was convenient, attractive and innovative.