Investment lessons from Sachin Tendulkar

Sachin Tendulkar out for a Duck! Does that make him a bad player? 

Majority of us would say no. But when it comes to equity investments, one bad year, innings or loss and majority of us are out of the investment mood. Worse, we feel like never investing in equities again.

But there is another way to view this, just as the long term average of Sachin is excellent, so is the long term average of equities as an asset class globally. 

For instance, if you had put in money aside (Not referring to betting here) for every Sachin’s match in the last 15 years of his career and similarly at the same time if you had put money in equities instead of trying to time the market, then the results would have been excellent and you would have been laughing your way to the bank.
The markets are volatile but it’s the rational investor who will reap the rewards of this volatile period. The dance of stock prices and NAVs might be seductive but it does you no good besides giving you a higher level of anxiety. I am confident this is not why you invest and the few good reasons to invest is to achieve your goals, protect the purchasing power of your money, grow your wealth and leave a legacy for the next generation. 

Here are five key ways how you could cope with market volatility. By following these, we can keep an eye on the bigger picture and ensure that you don’t lose sight of long-term goals. 

1. Don’t panic

It’s very tempting to “throw in the towel” and sell investments. In reality, that is most likely to be the exact moment to buy more. When everybody is selling, you should be buying. Intellectually, we know that, but emotionally, it’s difficult. But it's important to override our emotions and do what is in our best interest. 

If you feel constantly worried about the ups and downs of the market, I would suggest taking a walk on the beach and spending some time introspecting, reflecting on issues that are important to you. If that does not help, then one can always go and seek help of a qualified financial advisor. If that too does not help, park your money in FDs, Bonds, Postal Schemes or under a mattress and hope that it will reap enough to protect your lifestyle, post inflation and taxes.

2. Invest regularly

The stock market is the only place where people buy less when it “is on sale.” The markets will, of course, come back. And the best way to take advantage of this is to invest regularly, in a systematic manner in various investments, so that one can automatically buy when the market dips.  

3. Control expectations

We cannot control how the markets behave but we can control how we behave and our expectations of it. World over, equities as an asset class has given around 6-7% returns ahead of inflation, which is around 12 % assuming an inflation of 6 %. Though it cannot be said what returns to expect in the next 6 months to a year, equities have the potential to deliver reasonable rates of 12% over the next 10, 20 and 30 years. No doubt that there will be down turns in some periods but long-term averages can comfortably be around 12 %.

4. Understand the realities of Capital markets

Stock market is not a place where you can make a quick buck like the people who bet on matches and horse races. Just like 99 % of the gamblers lose, so will you if you do not adopt a disciplined approach to investing, have reasonable expectations from your investments, and do not understand the risks you are taking. Futures & Options might sound tantalizing but losses can be 100% here.

As a rule, any money that you may need in 1-2 years should not be invested in equity and at the same time, any money that you do not need for the next 15-20 years should be invested only in equity. Do not let your emotional interests override your economic interests. The key lies in identifying Sachin Tendulkar when it comes to investments and having a control on your emotions.

5. This too will pass

Always keep an eye on the bigger picture. We are living in a time when India is displaying great economic prosperity. Favourable demographics, outsourcing, consumption, innovation, and political stability to a certain extent will continue to enhance the standard of living throughout India. This will keep the economy growing, profits increasing, and that will eventually get reflected in higher stock prices.

Charles Ellis noted, “Stay invested through the rough times. That's the only sane way to be there so you will enjoy the great and good times.”

The lesson to be learnt is, “Don’t let short term performances of equities determine its long term average."

- Amar Pandit 

The author is a practising Certified Financial Planner and runs “My Financial Advisor“ www.myfinad.com. He can be reached at amar.pandit@moneycontrol.com

Property prices may fall by 30% next year

Property prices may drop at least 30 per cent by mid-2009 as developers are expected to lower prices to nudge buyers out of their "wait and watch" stance, according to experts.

The price cut, if implemented by builders may push sales higher, especially of the affordable category, property consultants said.

"If you take same time next year, there will be better volumes at lower prices than what they are today. Buyers will be tired of waiting and all the developers realise that price cuts are necessary across the board,'' said Pranay Vakil, chairman of property consultancy Knight

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.

Mkts end strong led by commodity stocks; realty up 12.5%

It was a strong session for the benchmark indices and that continued for the second consecutive day. Huge buying in metal, oil, telecom and capital goods stocks boosted the markets. Realty, auto, power, banking and technology stocks were also on buyer's radar. 

Volumes were also pretty high as compared to last few sessions. The Nifty closed above 2900 mark while the Sensex crossed 9600 level. Some follow-up buying was also seen in commodity stocks due to government's fiscal stimulus package, which was announced on Sunday. Strong Asian markets was another reason for today's rally. US markets futures also jumped up on hopes of tentative auto rescue package.

Reliance Industries, DLF, Bharti Airtel, SAIL, Reliance Communication, ONGC, Wipro, ICICI Bank, HDFC, BHEL, Tata Steel and L&T were leaders in today's trade. However, Power Grid Corporation and Ranbaxy Labs declined.

The Sensex has hit an intraday high of 9,678.70, before closing the day at 9,654.90, up 492.28 points or 5.37% over previous close. The 50-share NSE Nifty shut shop at 2928.25, up 5.18% or 144.25 points over previous close. It has touched a high of 2940.15. All sectoral indices also ended in green.

Broader indices also followed the same trend. BSE Midcap Index gained 63.21 points or 2.19% at 2,948.24 and Small Cap Index was up by 52.25 points or 1.56% at 3,395.45. 

Volumes were very high in today's trade, markets clocked turnover of Rs 59,269.1 crore. This includes Rs 11,501.3 crore from NSE Cash segment, Rs 43,597.57 crore from NSE F&O and the balance Rs 4,170.23 crore from BSE Cash segment.

Realty Index was the biggest outperformer, surged 12.56% or 223.72 points to 2,005.09. DLF climbed up 18.93% and Unitech shot up 6.54%.

Huge buying was seen in metal stocks. SAIL jumped 15.77%. Tata Steel, Jindal Steel, JSW Steel and Sterlite Industries rose 9-11%. Metal Index was up 400.70 points or 8.38% to 5,181.92.

BSE Oil & Gas Index shot up 6.97% or 384.87 points to 5,906.46. Reliance Industries gained 9.57% and ONGC went up 2.65%. Oil marketing companies like BPCL, HPCL and IOC rose 1.34-2.9%. Crude was hovering at around USD 43 to a barrel.

Capital Goods stocks like L&T and BHEL moved up 3.75-5.32%. Index rose 4.51% or 294.75 points to 6,824.14.

Telecom stocks like Tata Communication and Reliance Communication gained 10-13.77%. Bharti Airtel and Idea Cellular jumped 4-5%.

Auto stocks also witnessed buying interest. M&M shot up 15.47%. Tata Motors and Maruti Suzuki gained 3.4-7.3%. Hero Honda was also up. Index closed with a gain of 94.94 points or 4.16% at 2,375.42.

Cement makers cut prices by Rs 4-6/50 kg bag from December 9, due to cut in excise duty to 8% from 12%. Grasim, ACC, Ambuja Cements, India Cements, Shree Cements and UltraTech Cements surged 7.5-14.3%. 

Shipping stocks were buzzing globally due to the Baltic Dry Index, which rose for second day running from a 22-year low. Baltic Dy Index represents daily average of prices to shipping raw materials. Daiwa Institute of Research also reiterated its outperform rating on the shipping line. GE Shipping and Mercator Lines jumped 14-18.6%. Shipping Corporation rose 6%.

Power stocks charged up as well. Suzlon Energy, Reliance Infrastructure, Tata Power, CESC, GMR Infra and Reliance Power rose 3-9%. Power Index was up by 4.02% or 68.12 points to 1,762.53.

BSE Bankex gained 171.44 points or 3.58% at 4,959.29. ICICI Bank surged 8.15%. HDFC Bank and SBI rose 1.8-3%.

IT Index went up 69 points or 2.89% to 2,454.98. Wipro, Satyam, Tech Mahindra and TCS went up 3.65-10%. Infosys was up 1.44. 

Pharma stocks like Aurobindo Pharma, Matrix Lab, Sun Pharma, Wockhardt, Biocon, Dr Reddys Labs and Cipla were gainers. Healthcare Index moved up 29.37 points or 1.04% to 2,850.81.

FMCG Index rose 15.33 points or 0.79% to 1,950.49. United Spirits, United Breweries, HUL, Britannia and ITC have also moved up.

In the small cap space, Escorts, Dhanalakshmi Bank, Kirloskar Pneum, JSW Holdings, ILandFS and AP Paper Mills rose 10-16%.

Market breadth was positive throughout the session; about 1682 shares advanced while 1108 shares declined. Nearly 410 shares remained unchanged.

On the global front, Asian markets ended sharply higher. Hang Seng rose 5.59%. Shanghai, Nikkei, Straits Times, Kospi, Taiwan and Jakarta gained 2-4.2%.

US markets futures were trading in positive terrain ahead of rescue package for automakers. Dow Jones Futures shot up 1.23% or 107 points to 8,827 and Nasdaq Futures up 15 points or 1.23% to 1,232, at 3:42 hours IST. Congress may vote today on USD 15 billion auto rescue package after White House & Democrats reach an agreement.

However, European markets were weak. FTSE fell 0.8% or 35 points to 4,346. CAC lost 20 points or 0.61% to 3,277 and DAX down 0.06% or 2.95 points to 4,776, at 3:42 hours IST.

Market Snapshot 

Markets end near the highest point of the day led by smart rally in large cap stocks

Nifty manages to close above important 2900 levels

Sensex ends up 492 points at 9654; Nifty ends up 144 points at 2928

CNX Midcap Index up 2.3%, BSE Small-cap Index up 1.6%

Realty stocks continue to gain on back of rate cuts that came over the weekends.

BSE Realty Index up 12.6%, Dlf up 18.7%, Hdil up 14%, IB Real Estate up 11%, Unitech up 5.9%

Metal Stocks builds up on the rally from Monday. BSE Metal Index up nearly 20% in a week’s time

BSE Metal Index up 8.4%: Sail up 15.7%, Tata Steel up 11.2%, Sterlite Ind up 9%, Hindalco up 5.9%

Shipping stocks gains as Baltic Dry Index rise for 2nd day running from its 22-year low: Mercator Lines up 18.7%, GE Shipping up 14.6%, SCI up 6.2%

BSE Oil & Gas Index up 7%, Reliance Ind up 9.7%, Gail up 6.8%, Cairn up 5.1%, Essar Oil up 6.6%

BSE Cap Goods Index up 4.5%, L&T up 5.5%. Punj Lloyd up 4.2%, Bhel up 3.8%

Cement Gainers : Grasim up 14.3%, Ambuja Cem up 10.3%, Acc up 10.2%, India Cement up 10.7%

Index Gainers : M&M up 14.3%, Rcom up 10.3%, Suzlon up 9.5%, Rel Infra up 8.8%

Mid Cap Gainers : Escorts up 17.5%, Dish Tv up 16.2%, Lanco Infra up 15.9%, Century Textile up 14.6%, 

Mid Cap Gainers: IDFC up 10.6%, Ivrcl Infra up 9.5%, HCC up 8.7%, GVK Power up 7.3% 

NSE Advance Decline at 5:2

Total markets turnover around Rs 59269.1 crore vs Rs 51695.34 crore on Monday

Markets @ 2:56 pm : Mkts strong; oil, metal, telecom, pvt bank, shipping surge

Metal, oil, telecom and private banking stocks are leading today's rally. Volumes are pretty high. The Sensex has crossed 9600 level and the Nifty is trading above 2900 as well. Buying is also seen in realty, capital goods, power, technology, cement and shipping stocks.

The Sensex shot up 455 points to 9617 and the Nifty rose 139 points to 2,923, at 2:56 pm. BSE Midcap and Small Cap indices moved up 1-1.8%.

Among the frontliners, SAIL, Tata Communication, DLF, Grasim and Ambuja Cements gained 10-15%. Tata Steel, M&M, Reliance Inds, Reliance Communication, ACC, Wipro, Suzlon Energy, Zee Entertainment and Sterlite Inds went up 8-9.5%.

Reliance Infrastructure, NALCO, ICICI Bank, Tata Power, HDFC, Cairn India, GAIL, Sun Pharma, Satyam, TCS and L&T rose 5-7.6%. However, Power Grid and Ranbaxy are under pressure.

BSE Realty Index shot up over 9%. Metal Index rose 7.5% and Oil & Gas up 6.7%. TECK, Capital Goods, Power, Bankex and IT indices gained 3-4%.

Markets @ 1:40 pm : Nifty hits 2900 mark; RIL, ONGC, Bharti, L&T, HDFC lead

Continuous buying in oil, technology, metal, capital goods, telecom and power is supporting the benchmark indices. Midcap and small cap stocks are also on buyers' radar. The Nifty tested 2900 mark and the Sensex is hovering around 9500 level. Markets are getting help from positive global cues as well. Reliance Industries, ONGC, DLF, Bharti Airtel, SAIL, Reliance Communication, HDFC, NTPC, L&T and BHEl are leaders.

The Sensex surged 400 points to 9,563 and the Nifty gained 124 points at 2,907, at 1:40 hours IST. BSE Midcap and Small Cap indices are up 1-1.5%.

BSE Realty Index is outperforming other indices, up 9%. DLF shot up 12.5%. Unitech rose 5.63%.

BSE Metal Index rose 6.4%. SAIL, NALCO, Sterlite Inds, Tata Steel and JSW Steel are up 7-12%.

Oil stocks like Reliance Industries rose 6.3% and ONGC gained 3.8%. Oil marketing companies like BPCL, IOC and HPCL rose 0.4-2.25%. Oil & Gas Index gained 5%.

Telecom stocks like Tata Communication, Reliance Communication, Bharti Airtel and Idea Cellular surged 3-9%.

Capital Goods Index shot up 3.3%. L&T gained 4.5% and BHEL is up 2%.

Power stocks also charged up. Suzlon Energy, Tata Power, Reliance Infrastructure, GMR Infra, CESC, Reliance Power and NTPC jumped 2-10%.

Buying is seeing in technology stocks as well. IT Index jumped 2.8%. Wipro, TCS, Satyam and Infosys gained 1.8-6%.

Among the banking stocks, ICICI Bank and HDFC Bank rose 3.4-7.8%. SBI is up 1%. BSE Bankex moved up 2.5%.

Market breadth is positive; about 1628 shares have advanced while 1170 shares have declined. Nearly 402 shares are unchanged.

On the global front, European markets are also up. FTSE rose 7% to 4,388. CAC gained 11 points at 3,309 and DAX up 36 points to 4,815.

US markets futures are trading in positive terrain. The Nasdaq Futures rose 1.77% to 1,238 and Dow Jones Futures went up 1.7% to 8,870.


Markets @ 12:44 pm : Sensex tests 9500; metal, oil, telecom, CG support


The benchmark indices are seeing huge buying interest. Realty, metal, oil, telecom, capital goods, technology, power, and banking stocks are on buyers' radar. Midcap and smallcap stocks are following the same trend. The market breadth is positive; about 1,586 shares have advanced while 1,221 shares have declined. Nearly 393 shares are trading unchanged.

The Sensex surged 331 points to 9,493 and the Nifty gained 108 points at 2,892, at 12:44 hours IST. The Sensex hit a high of 9,502.94. BSE Midcap Index rose over 1% and Small Cap Index went up nearly 0.9%.

Redemption–based selling pressure has abated. Incremental flows at FII desk are marginally positive. However, sentiment remains cautions and there is no major buying. Domestic institutions are still sitting on the sidelines. 

Reliance Industries, ONGC, Bharti Airtel, DLF, NTPC, SAIL, Reliance Communication, Wipro, TCS, HDFC, Sterlite Industries, BHEL, ICICI Bank and L&T are leading this rally. However, Power Grid, Siemens and Tata Motors are weak.

Dr Reddy's received one more tender approval from AOK (Germany's Largest Insurer). Total tenders won from AOK up to 8 from 7 earlier. The stock went up half a percent.

Cement makers cut prices by Rs 4-6/50 kg bag from December 9, due to cut in excise duty to 8% from 12%. Grasim, ACC and Ambuja Cements surged 3.5-9.5%.

BSE Realty Index jumped 8%. Metal and Oil & Gas indices gained 6.5% and 5%, respectively. TECK, Capital Goods, IT, Power and Bankex rose 2-3%.

Among the midcap stocks, Mercator Lines, GE Shipping, Matrix Lab, ING Vysya Bank and Usha Martin went up 6-10%.

In the small cap space, Escorts, ILandFS, Eimco Elecon, Nalwa Sons and Banco Products rose 9-15%.

On the global front, Asian markets are up between 2-4%.

Markets @ 11:52 am : Mkts surge higher; RIL, ONGC strong

Buying continues in metal, technology, oil, realty, telecom, power and capital goods stocks and those are helping the markets to remain in uptrend. Positive Asian markets are also supportive to the Indian benchmark indices. The Nifty is trading above 2,850.

The BSE Sensex climbed up 205 points to 9,368 and the Nifty rose 77 points to 2,860, at 11:52 hours IST. BSE Midcap and Small Cap indices went up over half a percent.

Among the frontliners, Sterlite Inds, DLF, Grasim, Reliance Communication and Jaiprakash Associates rose 5.5-8%. Tata Steel, Wipro, Hindalco, Satyam, Reliance Inds, ONGC, ACC and ICICI Bank gained 2-4%. However, Power Grid, Maruti, Tata Motors, Siemens and M&M are weak.

Shipping stocks are buzzing globally due to the Baltic Dry Index, which rose for second day running from a 22-year low. Baltic Dy Index represents daily average of prices to shipping raw materials. Daiwa Institute of Research also reiterated its outperform rating on the shipping line.

However, Industry experts say that one should not read much into movement of Baltic Dry Index as nothing has changed on the ground. The experts expect some relief only during the next year.

GE Shipping, Essar Shipping, Hariyana Ship, Mercator Lines and Shipping Corporation jumped 2-10%.

Market breadth is in favour of advances; about 1,557 shares have advanced while 1,239 shares have declined. Nearly 404 shares are unchanged.

On the global front, Asian markets are strong. Hang Seng, Nikkei, Straits Times, Kospi and Taiwan gained 2-4%. Shanghai rose 0.4%.

Markets @ 10:48 am : Nifty holds above 2800; oil, tech, metal, telecom gain

The benchmark indices are trading higher on account of buying in realty, metal, oil, telecom, private banking, technology, power, and capital goods stocks. A bit of buying is also seen in midcap and smallcap stocks. However, SBI, Maruti and Tata Motors are under pressure. The Nifty is trading above the 2800 mark.

Reliance Industries, ONGC, DLF, SAIL, Bharti Airtel, NTPC, Reliance Communication, Sterlite Industries, TCS, Wipro, ICICI Bank, BHEL, Infosys and Tata Steel are leaders in this rally.

The Sensex went up 175 points to 9,338 and the Nifty surged 62 points to 2,845, at 10:48 hours IST. BSE Midcap and Small Cap indices gained more than 0.5%.

R Venkat Subramanium of Kotak Securities feels the markets may see a trading rally in the near-term as he sees investors buying now due to fundamentals falling in place. He said falling inflation numbers, easing liquidity, and bubble burst in the commodity cycle are factors that would stabilise the market. However, he continues to expect negative domestic and global news flows. 

Escorts denied talk of land sale at Faridabad and said not looking at raising money for Escorts Construction. The stock jumped 14% and its volumes surged nearly 1000%.

Market breadth is positive; about 1561 shares have advanced while 1241 shares have declined. Nearly 397 shares are unchanged.

BSE Realty and Metal indices jumped over 4%. Oil & Gas Index rose 3%. TECK, IT, Power and Capital Goods indices gained 1.4-2%. 

Markets @ 9:56 am : Mkts continue Mon rally; RIL, Bharti, Infy, ONGC lead

The markets are trading up in early trade and are continuing Monday's rally further. Positive Asian markets and an uptrend in SGX Nifty are suggesting a good day for markets. Buying is seen in private banking, metal, oil, power, technology, and telecom stocks. The Nifty is getting resistance at 2850 mark.

At 9:56 am, the Sensex rose 178 points to 9,341 and the Nifty gained 54 points at 2,838. CNX Midcap Index went up 33.45 points to 3,361. Market breadth is positive; about 339 shares have advanced while 121 shares declined.

ICICI Bank, DLF, Reliance Petroleum, Sterlite Industries, HDFC Bank, Infosys, Jaiprakash Associates, Tata Communication, Reliance Industries and Reliance Communication are major gainers.

Asian markets are trading higher barring Shanghai. Hang Seng, Nikkei, Kospi and Taiwan gained 2.5-3%. Jakarta and Straits Times rose 0.8-1.2%. However, Shanghai fell 1.16%. SGX Nifty surged more than 2%.

Nymex January crude gained 3.5% on estimates of sizeable output cut from OPEC. Market participants are estimating a cut of 2-2.5 mbpd from OPEC. IEA has lowered demand for 2009 by 0.8% to 86.5 mbpd. It is currently trading at USD 43/bbl. 

US markets declined on Tuesday as more layoffs and lowered outlooks tripped the momentum out of the recent rally. The Dow plunged 242.85 points, or 2.72%, to 8,691.33. The S&P 500 index declined 21.03 points, or 2.31%, to 888.67. The Nasdaq composite index fell 24.40 points, or 1.55%, to 1,547.34.
 
Market cues: 

US markets slip, Asian markets open in the green

FIIs net buy USD 12.7 milion in equity on December 7

NSE F&O Open Int up by Rs 3,903 crore at Rs 47,971 crore

F&O cues: 

Futures Open Int up by Rs 2,315 crore, Options Open Int up by Rs 1,588 crore

Stock Futures add 2.7 crore shares in Open Int 

Nifty Futures add 39 lakh shares in Open Int, at 7-point premium 

Nifty Open Int PCR at 1.13 versus 1.08 

Nifty Puts add 34 lakh, Calls add 17 lakh shares in Open Int 

Nifty 2700 Put adds 10 lakh shares in Open Int 

Nifty 2800 Put adds 6 lakh shares in Open Int 

Nifty 2800 Call adds 6.2 lakh shares in Open Int  

Nifty 2900 Call adds 4 lakh shares in Open Int

Market makes further gains as FIIs turn net buyers

 The stock market rose sharply on Wednesday on the back of heavy buying by foreign institutional investors. 

The Sensex surged 5.37 per cent, closing almost 500 points up, at 9654. The broader Nifty was up 5.18 per cent.

FIIs have been net buyers of equity in December so far. Their net purchase of shares for Rs 950 crore on Wednesday gave rise to some debate on whether this indicated a reversal in their investment outlook on India.

The most common explanation from market-men was that many of the bigger FIIs (who have been sellers in the market) have scaled down their operations for December as they are on vacation. Since they did not participate much the selling activity is pretty low, they said.

“One shouldn’t look at a couple of days’ data to generalise that the FII-trend has reversed,” said Mr Anil Advani, Head of Research at SBICAP Securities. “The FIIs will look for an opportunity to sell at higher levels in the future.”

It is unlikely that FIIs will stop selling as they need funds at this time what with the current global slowdown and their own houses on fire, said a fund manager.

Towards year-end, the redemption pressure on FIIs is coming down; hence the recovery in the markets today, said Mr Dharmesh Mehta, Head of Broking, Enam Securities Ltd.

The strengthening of the rupee against the dollar is also a sentiment booster for FIIs, said a broker.

According to market men, the fiscal and monetary packages announced last week has kept up the positive sentiment and pushed up stocks, mainly in the auto and realty sectors, on which considerable emphasis was laid in the stimulus package.

The positively trading US index futures fuelled the uptrend in the market, according to Mr Alex Matthew, Head of Research, Geojit Financial Services.

While the global cues were mixed, the talks of an expected bailout plan for US auto-makers boosted Indian stocks, said some market-men.

It's the survival of the fittest: Tips to be fit

Last time, we talked about King Solomon’s ring and the message inscribed on it, “This too shall pass”. The message was fairly simple to keep balance in boom or doom. However, it’s important to survive through a bad period. While this too shall pass, it’s a game of survival. We have to survive through a bad or a lean period, else we may not be there when the situation changes for the better. The survival can be achieved through proper planning. Prudence plays a major role. A balanced mind can help.

Why are we talking about survival? In the current scenario, many portfolios have shrunk in size simply due to loss of value. But that is less of a problem. If the portfolio is built with appropriate homework, “this too shall pass” and one would see the portfolio value rising again once the markets turn around for the better. The bigger problem in the present situation is that some of us may lose our jobs. Now that would be a serious issue. The investment portfolio may have been planned with an assumption that one’s income is stable. Such an assumption allows an investor to keep minimum amount invested in short-term liquid investment options. The objective of such investment options is to provide complete safety of capital even if it means earning at low rates.

Often people keep liquid investments of up to three months of earnings. However, an assumption that the earnings are going to be stable allows an investor to keep almost nothing in liquid investments. Such a strategy frees up the investment capital to be invested to meet long-term goals in risky (volatile in short term) assets that can provide growth of capital. The chances are that in such a case, the investor loses capital as the riskier assets, that is, equity and real estate, have lost value. If the investor is unable to find another job, or considers starting a business, liquidity for the initial period could become an issue and that is where survival becomes difficult.

Investment planning suggests that one must have enough surplus to survive through lean periods. As per a thumb rule, keep at least three to six months worth of expenses or earnings in the bank. However, as mentioned earlier, such thumb rules are based on the assumption that the income from one’s job is safe and that the income is sustainable and the person is employable.

Looking at the investment portfolio only, if the money is invested in real estate or equity that loses value, one is still in a position to fetch some value as there is a price being quoted in the market. Even by booking a loss, one can get some money through liquidation of such assets. This cushion could be helpful in times of crisis. In certain cases, the investment options chosen are not the asset themselves but the derivatives of the assets. Let us say, investment in equity is done through equity derivative contracts. Equity as an asset class is suitable for longer terms. However, the derivative contracts are available only for short periods.

The nature of derivative contracts makes them low-cost to buy but extremely risky if not used properly. When you buy protection against fluctuations through derivative contracts, it better be affordable. That is why when you want to buy protection for assets worth Rs 100, the premium (or margin) you pay may be around Rs 15 to Rs 20. However, if derivatives are used for the purpose of investment (often it is speculation in the garb of investments), then one is risking the entire premium or margin paid. In such a case, if the investor encounters volatility, it is possible that the investment may not survive long enough to see the turn around.

Leverage or borrowed money is another such example, which shortens the longevity of one’s investment portfolio in turbulent times. We talked about the perils of leverage in the article: “Why are markets taking a nasty ‘U’ turn?”

Lastly, remember the wise words of John Maynard Keynes, “Markets can remain irrational for longer than one can remain solvent.”

- Amit Trivedi

The author is proprietor of Karmayog Knowledge Academy. He can be reached at karmayog.knowledge@gmail.com

Unit linked pension plans – a useful retirement tool

Today, the responsibility of planning for our golden years is largely on our shoulders – no longer are there guaranteed inflation linked pensions like in the erstwhile government era. With today’s rates of inflation and an increased life expectancy, it is critical to plan effectively for your long term needs and live the desired lifestyle post retirement. Moreover, there is an increased tendency to be financially independent, and not depend on children for money. Thus, a simple but effective retirement solution is the need of the hour. The suggestion outlined below certainly does not solve all retirement worries, but helps in building a sizeable retirement corpus during your earning years.

 

The whole idea behind retirement planning is to set aside a portion of your regular income in a disciplined manner which gets accumulated, through your working years, to provide for your retirement needs. Retirement products, like Public Provident Fund (PPF), provide for accumulation of your savings and return a corpus at the retirement age. Pension products, on the other hand, have undergone a transformation post liberalisation of the insurance industry. Insurance companies offer two kinds of pension plans, namely, Traditional Plans and Unit Linked Plans. Traditional pension plans, typically, are not a good idea because they primarily invest in fixed income securities. The returns are very low, and charges, very high. No doubt they are relatively safe; however they put money in low yield securities that hardly ever beat inflation. Eventually, private insurers started offering Unit Linked Pension Plan (ULPP), thus, opening an attractive avenue for investors to put their long-term money in.

The first point to note is that there is no insurance in an ULPP, though the product is offered by insurers. Even if an insurer offers insurance cover bundled with pension, such a product is best avoided. Insurance is best taken separately from pension planning, through what are called term insurance plans. ULPP is very much an investment product, competing on costs, benefits and returns with mutual funds, deposits, share portfolios, and so on. 

 

In the accumulation phase, the amounts invested go towards purchase of fund units, at prevailing market rates. At retirement, the policyholder is provided with a certain portion of the accumulated corpus (subject to a maximum of one third of the corpus) as a lump sum payment. The remaining corpus is used to purchase an annuity scheme to provide regular monthly income post retirement.

 

In theory, ULPPs have several advantages over mutual funds and stock portfolios:
They bring about discipline and regularity of investing. 
Investors are less likely to view and churn their portfolio frequently, unlike what happens with funds. 
They enjoy tax benefits – while contributions fall under Section 80C, the proceeds are tax free under Section 10(10)D.

But there are some notable disadvantages:
Lack of transparency in fund management and portfolio. 
Less flexibility for investors to move out in case the fund management is poor.

ULPPs, in the past, have been bad for investors, due to their extremely high cost structure, and due to mis-selling by ill informed agents getting high commissions. First year commissions as high as 50-60 per cent have often eaten away any potential gains for the investor from equity upside. However, this is changing now in the wake of investors’ growing awareness and the industry’s maturity. 


Given below is a comparison of a few ULPPs. It is important to note that there are quite a few ULPPs in the market, which have absurdly high fees, or poor performance. Thus, an investor would be well advised to make a thorough analysis of competing products from different providers before making a choice. After all, this is a commitment you will be entering into for a decade or longer, and the decision would have significant impact on your retirement corpus. Many agents have a tendency to push products that give them highest commissions (not necessarily in customer interest), so 'buyer beware' is the best policy to adopt.

 Some points to note from the above table:
There are significant differences in charges between different policies. An unbiased financial advisor (one unaffiliated to a particular product) is best placed to analyse the one best for you, after taking into account the size of the required corpus, the duration and other features desired. 
In almost all policies, costs are largely recovered upfront. Thus, once you enter a policy, it make sense to stick with it for at least a decade. Churning of policies is extremely expensive and counterproductive – it defeats the entire purpose of a ULPP. 
The whole idea is to invest regularly and forget – not falling into the trap of micro-managing investment. Switching after three years is the worst thing you can do – since all costs are front loaded. 
The investment risk is to be borne by the investor, so the anticipated retirement corpus is totally dependent on the fund managers’ ability to manage the portfolio. It is, therefore, important to consider the track record of the fund manager before investing.

Having defined your risk appetite, retirement needs and milestones, you can start saving for a healthy retirement through Unit Linked Pension Plans as it brings in the required investment discipline and accumulates the anticipated sum, compounded at a reasonably high return. Remember, the sooner you start the easier it gets.

- Ramganesh Iyer

The author works with PARK Financial Advisors Pvt. Ltd., Mumbai.

 

 

 

 

 

 

 

 

 

 

 

Make money when the markets fall

The stock market is an ideal avenue to make money in the long run, provided the money is invested in appropriate equities. At the same time, the markets can be destroyers of wealth in the short run, as many people would have experienced by now. There are few stories on how people have created wealth and held onto it through stock market investments. However, there are an equal number (or more) of stories about how people have lost their shirts and even had to go to the extent of committing suicide. This is not how equity investing is meant to be.

 

Most people only think of equity when the going is good and tend to ditch equity as fast as Ranbir Kapoor’s character dumps his girlfriends in the movie “Bachna Ae Haseeno”. This problem is witnessed more across the so called sophisticated Institutional and Ultra High Networth investors. However, just as solid relationships are the foundation of a good life, so are good quality stocks the foundation of an investment portfolio. And sticking around and building the portfolio when the markets fall delivers stellar returns over the long term. Equity returns are a function of the price that you pay for investments. Your investment returns are determined by the price that you have paid on a particular date. 

 

Just like it’s easy to time the real estate market, it’s extremely difficult to time the equity markets, with the daily swings. In just 7 trading sessions the markets have the potential to go up or down by 40 per cent. So, buying at the lowest point might not be possible, however buying lower certainly is. 

 

Instead of looking at this as a wonderful opportunity to buy, the same investors who were confident of making 15-20 per cent in just 2-3 weeks from equities have suddenly developed cold feet now. The logic is - I will jump in when the market bounces back. The market, however, is in no mood to tell anyone when the reversal will actually happen. Investors who sell out in bear markets tend to make their losses permanent. However, in reality all you have done is 'Sell Low and then Buy High' later, which is the exact opposite of what should be actually done.

 

Hanging on to fundamentally sound equity investments and infact buying more when the markets stink may sound stupid when lots of sophisticated investors are packing off and investment gurus are sounding off bearish tones. But these are precisely the times to make the best returns and in bearish times, even history has been on the side of bullish investors. Markets could take a few years to recover and there might not be anything to write home about in your equity portfolio as of now but the cheap prices that you will pay for good equity investments will compound tremendously in the next 10,15 and 20 years. 

 

Most people buy gold and real estate and do not check the prices every day. A similar strategy of not looking at the prices or 'Buy it, Shut It and Forget It' can also go a long way for stocks. However, you should certainly review your asset allocation and every investment regularly to see whether the fundamentals of the investment still hold. But there is no point in checking the prices every day and then worrying about what it will do in the next 2 weeks. 

 

Investors who resisted the urge to sell back in 1992, 2000, 2004 and 2006 have made stellar returns on their investments after the markets have bounced back. However, people might not like to wait for 2 years, but when you actually sell in this market, you never recover. 

 

Just as an example, in 2006 when the index was at 9300 levels, Bharti was quoting at Rs 325. Today, even though Sensex is at 9700 levels, Bharti is still trading at Rs 600 plus. This shows that though index levels are the same, you would have still made money if you had held on to that stock. Returns are not a function of index levels but a function of valuations and the price that one pays for an investment. The strategy to adopt in such markets is to regularly invest and make one time contributions when markets overreact and correct sharply on the downside.

 

The cardinal rule to learn from this example and from several seasoned investors who have made money in equity markets is that “Emotions should not drive or should not be your investment strategy”.

 

- Amar Pandit

The author is a practising Certified Financial Planner. He can be reached at amar.pandit@moneycontrol.com

Strike gold in times of financial crisis

Sometimes finding a great investment starts with going through several balance sheets and discovering something. Such type of research is usually very time consuming and intensive, and to be honest, not meant for everybody.

Someone who is a doctor or an engineer might not have so much time to browse through the financial statements of companies. But the rewards that you get when such companies are found are truly incredible. It is almost like someone mining for gold for several months and then one fine day striking gold. I spend much more time on research each time the markets correct as this is the best time to strike gold. I have discovered a handful of great companies which can do wonders to my portfolio in the coming few years. The feeling of finding such assets is blissful. 

Let us say there is a candy shop and it has Rs 4 lying in it’s cash box. Now let us say this entire candy shop has zero debt and the entire business is being sold for Rs 4. Would you buy it? Still thinking what you would do?

Well, if I was in your place, I wouldn’t think for a second and would immediately buy it for Rs 4 before anybody else gets it. Because all I need to do is put Rs 4 to buy the business and take my Rs 4 from the cash box back, and the entire business is mine for free.

I’m sure most of you might be thinking which fool would sell their business for just Rs 4 even though they have Rs 4 cash with them. Well in the real world nobody would do it, but stock markets are irrational and no wonder we can actually find people doing such things. In fact, we have a candy shop that has reserves more than Rs 11,000 crore being sold for just around Rs 4,000 crore. And this isn’t even considering other fixed assets or net current assets.

With the recent correction and global sentiment of doom and depression, people seem to forget that things change very fast. The very people who were buying the same companies seven-eight times the price until six months ago, aren’t even looking at them today. This is great news for all those who want to buy and create wealth. I think the times of crisis are the best opportunities to create wealth. No matter how bad things get, every single business isn’t going to shut down and we aren’t going to become a barren desert. 

Now this company which I have started buying into not only has assets and cash much more than its market cap, and not only does it have a book value which is almost three times its current share price. But It also has zero debt – which means it doesn’t have any interest burden. In times like now cash is king, queen, prince, everything!

Whenever I discover such companies and look at their balance sheets, it brings a big smile on my face and gets me extremely excited. I know most normal people don’t get excited looking at balance sheets and seeing the cash and book value. But then as I always say people who create wealth do things that others don’t. Being friendly with financial statements and understanding business is very important to succeed as an investor – and even as a business person or a business head. Even if you are the CEO of a media house, you can’t survive for too long if you don’t understand the financials of your business. 

A part of me wants to jump in and buy as much as I can with whatever money I have, as such opportunities don’t come everyday. But of course experience (losses in the past due to over exposure) have taught me to never do that and to always buy gradually and never ever allocate all your funds to a single stock, because more often than not, after you buy it, there are chances of it going down.

However, I feel that every investor should invest time, effort and dedication to finding such companies and see how assets truly get mis-priced. A regular investor can buy these assets at much cheaper prices than even what big Mutual Funds and FIIs have bought it at. Anybody who calls himself an investor and hasn’t noticed or studied such companies yet, will probably read about such companies three to four years down the line and how they were a great investment picked up by a few during the stock market crash of 2008.

Study history -- it has always been this way. At the moment a quality stock might be ignored and down in the dumps, but one of these days it is going to have every Tarun, Dinesh and Harjeet running after it. That day will be the time for me to start thinking about selling it and making a nice hefty profit.

Investing isn’t about listening to what is being said on TV by analysts, but about listening to your own heart and using your own logic. If it was as simple as listening to the idiot box, everyone would be a successful investor. Today Buffett, Rakesh and me, we are all buying quality assets – knowing that things can go down even more from here, but then that would just give us even better opportunities. 

 

People who fail are the ones who stop trying and give up on their dreams and beliefs. Keep digging for gold and don’t give up. I’m sure if you are persistent and dedicated you will strike gold! 

 

Happy wealth creation!

 

Yogesh Chabria is an investor and author. You can find out how he uses economic slowdowns and depressions to invest and create wealth in his bestselling book Invest The Happionaire™ Way. You can find out more by visiting www.happionaire.com. You can write to him at yogesh.chabria@moneycontrol.com

© Copyright 2008 The Happionaire™ -Yogesh Chabria 
All Rights Reserved 
The Happionaire? Way/HAPPIONAIRE™ is a trademark owned by Yogesh Chabria

Tough times don't last but tough investors do!

Someone has said, “Success is going from failure to failure without losing courage.” Similarly, you can translate these words in the world of investment markets, “Success is going from one market cycle to another without losing your capital.”

How do you ensure that you survive financial turmoil? What can be done? In such markets, it’s important to review your financial situation. Ensure you are in a comfortable financial situation for the next few months. How many months should you consider for such a scenario? That is entirely a function of your view on the stability of your job or profession. 

Assume that your financial situation is comfortable and you have surplus to invest. This means, you have a regular income and are generating surplus month after month after meeting your regular household expenses. For such investors, the current stock markets offer good investment opportunities. A bear market (when stock prices are low) is good when you have money to invest.

But if your finances are stretched, what should you do? Such a situation may arise when your future income may become uncertain – especially the bonuses or incentives that you are likely to earn. Or the same may have already been reduced. Well, it is time to look at the other side of the equation – the expenses. There are two types of expenses, discretionary and non-discretionary. Some expenses can be avoided some cannot be. There are expenses like electricity bill, telephone bill, house rent or home loan EMI, kids’ education expenses, and some others, which cannot be avoided. On the other hand, there are some expenses that can be reduced.

At such times, remember what Benjamin Franklin said, “Beware of little expenses. A small leak will sink a great ship.” If you are going to a restaurant for dinner once a week, you can reduce it to twice a month. For a family of four, a dinner outing may cost Rs 1,000 to Rs 2,000 at a decent place. If you go for such dining twice instead of four times, the savings could be as much as Rs 2,000 per month to Rs 4,000 per month. If you go to a multiplex for a movie, the tickets cost in 3-digits per head. If you go with small kids, add Rs 100 for each of the popcorn baskets that the kids ask for. Stay at home and enjoy a nice movie on the home theatre and save roughly Rs 1,000. Many such expenses can be avoided and it is possible for a middle class family to add to the savings by a reasonable amount. 

Such savings can be then added to investments or can be kept in liquid accessible form depending on your needs and ability to put the money at risk. 

Someone has very nicely said, “Your lifestyle could be your biggest asset or your biggest liability.” How apt! Incidentally, lifestyle expenses are a function of the prosperity or the level of earnings at the prevailing time. However, changes in lifestyle expenses happen slowly if you do not take deliberate and planned action. Expenses increase like the story of the frog in the frying pan. If you put a frog in a hot frying pan, it will immediately jump out. But, if you put a frog in a frying pan at room temperature and slowly increase the temperature, the frog does not feel the change and may even die if the temperature goes up very high. Lifestyle expenses creep up at a slow pace and one does not feel the increase.

On the lighter side, it is only when the reported inflation figures are high that most of us start complaining. Reported inflation figures make a good conversation starter at get-togethers. 

Once again, it is important to remember the savings equation. Saving is nothing but income minus expenses. It is possible to exercise control over both the income and the expenses to some extent. The decision is in our hands.

I would once again quote Benjamin Franklin, “In short, the way to wealth, if you desire it, is as plain as the way to market. It depends chiefly on two words, industry and frugality; that is, waste neither time nor money, but make the best use of both.”

- Amit Trivedi

 

The author is proprietor of Karmayog Knowledge Academy. He can be reached at karmayog.knowledge@gmail.com

Gold demand mocks economic slowdown, hits record high

Despite the global economic gloom, demand for gold in India registered the highest growth of 66 per cent at Rs 30,600 crore in the third quarter of 2008 as investors sought a safe haven and jewellery buyers returned to take advantage of softer gold prices.

Demand in West Asia, Indonesia and China was up more than 40 per cent while it was down 9 per cent and 5 per cent in US and UK (declines of more than 25 per cent in tonnage terms).

In tonnage terms, demand in India increased to 250 tonnes in the third quarter 2008 from 190 tonnes during the same period in 2007, an increase of 31 per cent. Jewellery demand was up 78 per cent to Rs 21,900 crore against Rs 12,300 crore, while in tonnage terms it rose 29 per cent to 178 tonnes, according to Gold Demand Trends, launched by World Gold Council (WGC).
BOOST FACTORS 


After a sluggish start to the quarter, gold jewellery demand surged driven by rural economic boom, urban consumers wanting to safeguard their investments. Much of India experienced a good monsoon rainfall, which resulted in a ‘feel good’ factor boosting rural spending on gold during the festive season. 

Purchases of gold bars and coins by retail investors amounted to 71 tonne against 53.3 tonne registered in the same period last year, a rise of 36 per cent. At Rs 8,700 crore the growth in value is 72 per cent against Rs 5,073 crore recorded last year.

In certain areas, supply of small bars for retail customers reportedly dried up in the face of such unprecedented demand. 

Mr Ajay Mitra, Managing Director, World Gold Council, said: “Looking forward, we believe the uncertainties in the financial markets will continue, therefore driving investors towards gold and its safe haven and insurance policy characteristics.”
RETAIL INITIATIVES 


Retailers have taken initiatives to increase consumption by offering consumers gold accumulation plans (such as EMIs) and developing new modern designs to cater to the evolving consumer tastes, introduce gold to other retain formats like shop-in shop, kiosks and so on. 

Globally, identifiable investment demand, which incorporates demand for gold through exchange traded funds (ETFs) and bars and coins, was the biggest contributor to overall demand during the quarter, up to $10.7 billion (382 tonnes), double year earlier levels.

See longer, deeper global recession but India to cope: FM

Finance Minister P Chidambaram speaking on the effect of the current global crisis on India said that there have been recessions in the past but added that the current recession threatens to last longer and deeper than before. He said that India does not have a problem but is bearing the brunt of the spillover of this global recession.

 

Chidambaram said that 60-65% of India’s workforce depends on agriculture and he expects a bumper crop this year and feels it will continue to grow at a robust space.

 

Chidambaram is confident that India will see a good growth rate at the end of this year and said that his lowest estimate of GDP is 7%.

 

“In the last sixty days both the government and the Reserve Bank of India (RBI) have moved swiftly to take steps that will ensure adequate liquidity is provided to industry. “ However, Chidambaram said that providing liquidity is not the panacea for the current crisis. “Providing liquidity is only the first step, the second is ensuring appropriate price and the third step is ensuring that at that price credit is actually delivered to industry.”

Here is a verbatim transcript of P Chidambaram’s speech on CNBC-TV18. Also watch the accompanying video.

Tthe world economy has changed more rapidly in the last sixty days than it has over a long time. But this is not the first time in which industrialized countries are going into a recession. There have been recessions in the past in Japan, inEurope and in the United States (US).

 

This recession of course threatens to be a longer and deeper recession affecting more industrialized countries. We in India are experiencing the spillover effects of what is happening in the advanced countries.

 

We are not the cause of the problem but we are being invited to be part of the solution to the problem.

 

The crisis will end some day. We must take note of the structure of economy and the manner in which most Indians live and work.

 

Sectoral outlook:

 

About 60-65% of India’s population and workforce depend on agriculture and agriculture continues to grow at a robust pace. The rabi crop is the main agricultural crop in India. In terms of sown area of wheat; we have already sown 2.69 million hectares as against last year’s 2.19 million hectares on the corresponding date. Maize stands at 2,32,000 hectares as against 1,77,000 hectare last year, jowar at 4.19 million hectare as against 3.59 million hectares last year, pulses at 6.6 million hectares as against 5.5 million hectares last year, oilseeds at 6.05 million hectares as against 4.34 million hectares last year.

 

The total sown area has increased very significantly this year. The monsoon had been good, farmers are busy with their work, they do not look at the Sensex or the Nifty everyday and we will have a substantial bumper crop.

 

The services sector in India is driven by million of small and medium enterprises. They are facing some liquidity problems but we are determined to ensure that they have provided adequate liquidity so that they can carry on their work and their business until we tide over these crises.

 

The section that is affected is the industrial sector; especially large manufacturing industry and the financial sector.

 

Newspapers are full of the problems faced by the financial sector and industry because it is people from these sectors who are readers of the newspapers and who advertise in the newspapers.

 

The media naturally focuses on the industry and the financial sector. These sectors indeed face problems.

 

We are extremely vigilant; we have been proactive. Infact, in the last sixty days both the government and the Reserve Bank of India (RBI) have moved swiftly to take steps that will ensure adequate liquidity is provided to industry.

 

But as I have said previously, liquidity alone is not enough. Providing liquidity is only the first step, the second is ensuring appropriate price and the third step is ensuring that at that price credit is actually delivered to industry.

 

I think these are not insuperable problems, these are not insurmountable problems. While the world output will decline and to that extent affect our exports, affect some capital inflows, affect external credits, we must be able to quickly substitute or compensate for that by stimulating domestic demand and providing liquidity in the domestic market.

 

The CMIE (Centre for Monitoring Indian Economy) captures data on investments. They say that inflation, rising cost of capital and fears of a global economic slowdown have not reduced the enthusiasm among Indian corporates to set up fresh capacities or expand the existing ones.

 

This is well captured in the data collected by CMIE.

 

We captured 557 new projects in the September 2008 quarter adding Rs 5,22,812 crore. This is the third largest quarterly investment captured in India’s history. While, 557 new projects have been captured in the quarter ending September 2008; 48 projects have been completed in this quarter and CMIE also notes that 45 projects have been shelved.

 

On GDP:

 

So I think what we need now is to deal with each problem as it arises. Anticipate the problem, deal with it by using sound economic principles and a certain amount of courage and confidence. While there is a slowdown, what does a slowdown in India mean? The lowest estimate of any think-tank in India is 7% growth. Why is 7% growth a matter for wearing sackcloth and ashes? The world output will go by about 2% that is still three times the world’s growth.

 

There will be a slowdown but the steps that we have taken and that we will take can to a large extent compensate for the factors that are causing the slowdown and I am confident that we will end this year with a very satisfactory growth rate.

 

I cannot put a number on the final growth rate. IMF’s (International Monetary Fund) estimate made last week places at 7.8% many analysts have said between 7% and 7.5%. The RBI has said 7.5% to 8%. If anyone can tell me that the worst is over for the world then I can confidently predict what the growth rate will be. But let us assume that for another month or two there will be further bad news; even then we will grow at a satisfactory growth rate. Next year we will bounce back to a much better growth rate.

 

What is required now is confidence, courage and taking the steps that are necessary to compensate for the ill effects of a world slowdown.      

 

On Indian exports:

 

It is likely that our exports will dip and we may not reach the USD 200 billion but that was what I said last year as well but eventually we reached the target last year. We will be close to the target this year but we can compensate for that by stimulating domestic consumption.

  

On capital flows: 

We have already witnesses some outflows as a result of Foreign Institutional Investors (FIIs) facing redemption pressures back home. But we are compensating for that. The World Bank has promised to substantially increase developmental assistance to India. We are looking to multilateral regional banks for more funds to flow into India and we have relaxed the conditions under which the Indian industry can raise capital aboard both debt and equity. A number of companies have in the last 10 days raised ECB abroad at very attractive rates. So we can compensate for that by allowing our companies to raise capital abroad.

 

On depreciating rupee: 

The rupee has depreciated because the dollar has shown an extraordinarily strong performance and so it’s ironical that money is flowing back to the country where the crisis originated but that is the complaint I have heard from every Finance Minister in the world. There is pressure on the rupee. But once the flows reverse as we believe it will, FCNR rates (Foreign Currency Non-Resident (Bank) {FCNR(B)} account have been revised, ECBs have been liberalized. Once the flows begin to come into India, it is quite possible that the rupee will climb up.

 

At the moment there is a huge demand for dollar coming mainly from oil companies and others who have to meet some payment obligations. It is quite possible that in about a month or two the direction of flows can reverse. FDI’s are still quite strong and the rupee will settle at an appropriate level.

 

Sensex and Nifty:

 

I think what is important is not to be focused on the Sensex or the Nifty everyday. If you look at that you suddenly feel you have become poorer, you have not become poorer or richer. This is simply an index which points to the estimate of investors of the potential of that company or that sector in the future. That one number should not determine all our actions. It should not determine what we have for breakfast and it should not determine whether we go to the gym or not or it should not determine whether we will take a walk in the park.

 

That is a number but there are many other numbers which I think will make for the totality of India’s economy. Agriculture is robust and we will ensure the services sector dominated largely by SME’s is provided with adequate liquidity so that they can carry on with their business. We will take steps to stimulate the domestic economy to compensate for the downsides caused by a downturn in the world economy.

 

At the end of the year, you will find that India has returned a very satisfactory decent growth rate given the world conditions and next year I am confident we will bounce back.

G-20 summit: No happy ending

The eagerly anticipated G-20 meeting that was to have solved much, if not all, of the world’s problems has happened, with leaders of the 20 nations and international financial institutions all good intent about working together to restore growth.

The key ‘good intentions’ of the summiteers include:

Reform of international financial institutions such as the World Bank and the International Monetary Fund

An agreement by the end of 2008, leading to a successful global free-trade deal

Improvements to financial market transparency and ensuring complete and accurate disclosure by firms of their financial conditions

Making sure banks and financial institutions’ incentives “prevent excessive risk-taking”

Asking finance ministers to draw-up a list of financial institutions whose collapse would endanger the global economic system

Strengthening countries’ financial regulatory regimes, and

Taking a “fresh look” at rules that govern market manipulation and fraud.

But more than ‘good intentions’ these sound like political escapism to push problems away as far as possible even while appearing to be solving them.

The way global financial architecture has evolved over the last couple of decades, the pre-eminence of national and international institutions has been usurped by global financial corporations, many of which are even bigger than some nations. The World Bank and the IMF, which see themselves at the vanguard of capitalism, are actually perceived as the hand-maidens of the West and, by extension, of the TNCs.

The IMF’s conditionalities and prescriptions that harp on total privatisation, including of utilities, have done little to the popularity of the organisation in much of the developing and less developed world. So it is all very well to speak blithely of new Bretton Woods institutions but, when there is no acceptance of a world mediated by Western ideas, the move is doomed ab initio.

Set in their ways

The West’s stock in the world is perhaps at the lowest ebb as the financial crisis begins to bite and the pain is beginning to be felt in economies as far removed as South Korea and Ukraine. Till yesterday the champions of “light touch” regulations, today they want financial market transparency and accurate disclosures by firms of their financial conditions.

A look at the British experience suggests how much wishful thinking this is. None of the banks that took help from the British government to recapitalise has passed on interest rate cuts, despite firm suggestions from the Office of the Exchequer.

Nor do they plan to cut out bonuses to their management. In fact, one bank, to avoid such interference, preferred to go a West Asian country for the funds. Banks and financial institutions have got used to playing with other people’s money. They will not willingly kick this habit and will fight till the last man against any serious government intervention.

The global financial/banking set-up has grown too vast for governments to rein it in. The insidious capital is so networked and entrenched that disengaging is well nigh impossible and indeed not desirable even, as that could lead to more tragedies.

All that can be done is for countries to strengthen their financial regulatory regimes. But this, if the Western memory is not too short, is what countries like India and China were reviled for doing a while ago. There was unseemly pressure, no doubt initiated by market-hungry TNCs from the West, on Beijing and New Delhi to open their markets or free their currencies.

Even more disingenuous is the intent to conclude a free trade deal by end-2008, when the Doha Round has been festering. The stalled trade talks, according to some leaders, should be pushed forward so that a basic agreement is reached before the US President, Mr George Bush, demits office in January. But this very fact will tie Mr Bush’s hands. Nor may the new incumbent, Mr Barack Obama, want the US committed to something he will have to live with.

In fact, this is one of the key factors of the G-20 meeting not generating any thing concrete. It is transition time for the world’s biggest power — the US. There is a lame duck government in office. It cannot commit the new government to deals that the new regime may not want nor has any say in.

This is why, perhaps, the British Prime Minister, Mr Gordon Brown, sees an opportunity to assert the UK’s presence in the world political firmament by appearing to give the lead in matters economic.

Most countries have no choice other than adopting the Keynesian revival model, but that has not stopped Mr Brown from claiming intellectual property rights for it. It is extreme irony that Mr Brown should be fount of wisdom when his economy is hurtling towards recession thanks to his ‘light touch’ regulation that gave banks the carte blanche to do what they wanted and they dragged people into the quagmire of easy, but dangerous, debt.

New power structure

It is obvious from the latest G-20 meet that the old lions may have lost their teeth but they are not going to vacate their place in the pride. For them the world remains frozen in 1944, at the time of the Bretton Woods conference.

If it can help it, the West will not countenance a new power structure beyond the G-7, never mind that this grouping no longer represents the world’s biggest. They do not, or at least pretend not to, see the impatience of the BRIC (Brazil, Russia, India and China) group in not getting a legitimate say in global affairs.

Only now does the World Bank chief, Mr Robert Zoellick, who in October said the G-20 was too unwieldy, think that a new grouping of nations must emerge. “We need to modernise the multilateral system to bring in the important developing country voices such as Brazil...” he said. But will this set him and his IMF counterpart thinking on re-working the quotas that determine the voting? Unlikely.

The more pragmatic leader in recent times, France’s Nicholas Sarkozy is suggesting bringing emerging economies on board as members of the club of industrialised nations, that is, expand the G-7. Possibly, he is eyeing the trillions of dollars in reserves that China and the Gulf states have that could help the developed countries as much as the smaller nations (via IMF) in the present turmoil.

But this storyline is about to change because, with oil prices dropping, West Asia may not, after all, be awash in dollars. The surpluses of China (and other Asian nations) depend on the splurging by the West.

With the West slowing down, Asia’s dollar riches may start to dwindle. Further, they may also need all the riches to stimulate their own economies in the face of the global slowdown.

Possibly, the only good thing about the summit was that it was of G-20, not the usual G-7. Maybe this is how it should be if there is to be a happy ending to the story. Of course, there will be many more twists and turns to it. Half has not been told.

Govt looking at measures to sustain export growth

The Government may come up with a slew of measures to sustain the current export growth on the back of apprehensions that the global economic slowdown may see India miss the export target of $200 billion set for the current fiscal.

The issue of measures needed to sustain export growth and a possible package for exporters is said to have been taken up at a meeting of a high-level committee appointed by the Prime Minister here on Monday evening.

However, there was no word on the decisions taken at the meeting, which was attended by senior Ministers and Government officials including the Finance Minister, Mr P. Chidambaram, and the Deputy Chairman of the Planning Commission, Mr Montek Singh Ahluwalia.

However, earlier in the day, the Commerce Minister, Mr Kamal Nath, told newspersons that the Government was now working on a package to help the exporter community and that it was looking at various measures that can help sustain exports.

“Exports have gone down. I will be reviewing the situation to see whether the export target can be met or not. Up till now we are on track. But the next five months will determine whether the target is met,” the Minister told newspersons on the sidelines of the India Economic Summit. The Minister said there was bound to be a slowdown in exports in sync with the downturn in the West.

Without getting into specifics of the package that could be offered to exporters, the Minister hinted that the Government could look at seeing how a level playing field can be provided to them – a move which could include measures such as doing away with duties and possibly local and state taxes.

When the stock market crashes.........! Whats Next?

What next?

First, cut out all the noise and clutter around you and get back to basics. This is because 90 per cent of the people around you are as clueless as you are. So, when you let the facts speak for themselves, you have a better chance of eliminating ambiguities. Let's find out what these are.

Fact 1: The equity market is NOT a lottery ticket. Every share has a fundamental value and is based on the company’s performance.

Fact 2: It is possible for share prices to be widely different from their intrinsic value. 

Fact 3: In the long run, share prices always move towards their true value depending on the profitability and growth potential of the company.

Fact 4: Irrespective of whether the United States goes into recession or the sub-prime problem generates more losses, India’s economic growth rate will still be comparatively high. 

Fact 5: Unless we have some serious calamity, a political crisis or poor monetary or fiscal policy, we may continue to see over 7 to 7.5 per cent growth rates over the next 5 to10 years.

Fact 6: If the economy continues to grow at such a healthy rate, it has to reflect in the corporate performance as well. This will lead to appreciation of the share price sooner or later. 

Keeping these facts in mind, the long-term outlook for India still remains quite positive.