Some question in the current market scenario

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.

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

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

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

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?

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

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.