Friday, December 21, 2007

Can world’s cheapest car – Tata’s 1lakh car- co-exist with prestigious brands like Jaguar and Land Rover?

A particular motor vehicle company is seen to concentrate mainly on one range of products, be it Toyota, Nissan or BMW, they are known for a particular category of cars. As the world now knows TATA MOTORS is out to create the world’s cheapest car! It will cost INR 1 lakh. That is equal to around US$2700 only!

But, Tata Sons Chairman Ratan Tata has said it is possible for the world's cheapest car to co-exist with prestigious brands like Jaguar and Land Rover despite an image disparity. He says if the brands like Nissan and BMW have the mini versions of cars why can’t TATA MOTORS, and he is pretty confident about this. Toyota has “Lexus” and Nissan has “Infini” and BMW has its “mini”. So, the market competitors are now trying to prove their skills in other range of their products and why not?? It’s getting them more business; they are giving low price cars to the people, which is good for a common man to fulfill his dream of having a car; and the makers are world renowned market leaders so the quality can be assured.

The world is waiting to catch a glimpse of the much touted Tata’s 1 lakh car, which would be unveiled at the Auto Expo in New Delhi on January 10. The car market is said to experience the decade’s greatest metamorphosis after the actual on-road launch of this highly spoken Tata’s 1 lakh car.

Saturday, October 20, 2007

What are p-notes? - restiction on which caused SENSEX to fall 1744points on 17th Aug,2007 and Market closed for an hour!

The 30-share index, SENSEX; which reached a life-time high this week, crashed 1744 points, after the SEBI put up its suggestion late on Tuesday evening. The market was closed for an hour. The p-Notes are said be behind the hugh surge in foreign inflows, which caused the latest market rally. "The steps taken by SEBI are in the right direction," the Finance Minister P.Chidambaram said. The Securities and Exchange Board of India (SEBI) on Tuesday proposed to tighten the rules for purchase of shares and bonds in Indian companies through the participatory note (p-Note) route. The move is aimed at arresting the surge in foreign inflows through p-notes.

So, what are these p-notes? Why such a havoc about them? What makes them so special? P-Notes are financial instruments used by investors or hedge funds that are not registered with the Securities and Exchange Board of India to invest in Indian securities. Indian-based brokerages buy India-based securities and then issue participatory notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors. Participatory notes are like contract notes. These are issued by FIIs to entities that want to invest in the Indian stock market but do not want to register themselves with the SEBI. SEBI was not very happy about participatory notes because they have no way to know who owns the underlying securities, it feared that hedge funds acting through participatory notes will cause economic volatility in India's exchanges.

I feel that this step taken by the SEBI is good step towards improving clarity of FII investments. Many are saying this should have been done a lot before, say 6-7 years back. But at that time p-notes were not that much a highly weighted investment instrument by the FII. As a report says "the notional value of PNs has zoomed from 20% of FII/sub-account assets in March 2004 to 51.6% in August 2007, in other words from Rs 31,875 crore to Rs 3,53,484 crore!". While FIIs were net investors to the tune of $8.5 billion during the last calendar year, expectations are that they would invest close to $12 billion this year. This would take the market's exposure to P-Notes to over $5 billion, if the same ratio were maintained for the next three months.

What exactly were the restrictions put by SEBI on p-Notes - check out in next post.

Sunday, October 14, 2007

India's Retail Sector is Booooming...?

Retail in India has gained a surprising importance in past year as we see many corporate gaints investing in billions into this sector. India has topped the AT Kearney’s annual Global Retail Development Index (GRDI) for the third consecutive year, maintaining its position as the most attractive market for retail investment. The Indian retail market -- one of India's fastest growing industries -- is expected to grow from US$ 350 billion to US$ 427 billion by 2010. According to Euromonitor International, the Indian Retail market will grow in value terms by a total of 39.6 per cent between 2006 and 2011, averaging growth of almost 7 per cent a year.

The food Retail and Mobile Retail is growing at a high pace. Reliance Retail, a subsidiary of Mumbai-based petroleum gaint Reliance Industries, has opened around 100 fruit and vegetable stores under "Reliance Fresh" brand in less than a year, already invested around Rs:2500 crore (US$ 0.637 billion!) and plans to invest about Rs:90,000 crore ($22.99 billion!) in setting up retails stores in various formats- hyper markets-supermarkets, speciality stores, discount stores...etc. Also Bharti Wal-Mart is setting up itself to enter into this sector soon. So look out for more billion dollar investments in these sector in comming year 2008.

Reading all this how's you feeling? Mind blowing reports with huge numbers about India's Retail sector, feeling great? Read next.....

Very few people think of the other part. The government decision on January 24 allows up to 51 percent foreign direct investment (FDI) in “single brand” retail stores. Nike, Nokia or Levi can establish stores, but multi-brand retailers such as Wal-Mart and Carrefour are excluded, for now. Commerce and Industry Minister Kamal Nath told the leaders of the world’s richest corporations that India was seeking to increase its FDI to $US10 billion by 2006-2007, up from the $6.5 billion invested in 2005.Retail activities such as door-to-door selling, street carts and market stalls, act as a last resort for the unemployed, given the lack of jobs in manufacturing and agriculture. Many in the retail trade are living below the poverty line. A report published in December 2004 by the Centre for Policy Alternatives (CPAS) entitled “FDI in India’s Retail Sector: More Bad than Good” stated that retailing is “probably the primary form of disguised unemployment/underemployment in the country”.The report continued: “Given the already over-crowded agricultural sector, and the stagnating manufacturing sector, and the hard nature and relatively low wages of jobs in both, many million Indians are virtually forced into the services sector. Here, given the lack of opportunities, it is almost a natural decision for an individual to set up a small shop or store, depending on his or her means or capital. And thus a retailer is born, seemingly out of circumstance rather than choice.” The report is spelndid, you can view it here :-

Although the Indian government hails foreign investment as an economic boon, the growth has largely benefitted the wealthy to the detriment of large sections of workers, small business and farmers. The opening up of the Indian economy and deregulation has resulted in substantial public sector job cuts, the destruction of industries, land seizures and cuts to food and fuel subsidies. There are approximately 40 million people and 11 million outlets in India’s retail sector. Many of these are marginal businesses—small shops and stalls, street vendors and hawkers—which will be destroyed by competition from large retail outlets and chains. Many people, who have no alternate source of income or work, will be left completely destitute.

(I have written this article with lot of research. I want to know your comments over this.Thank you.)

Sunday, August 19, 2007

Are small caps better then large caps or mid caps in bearish markets ?

When you look at the statistics of recent downfalls in sensex, you will notice that small cap index BSE Small Cap is the one which has been least badly hit, than compared to BSE SENSEX, BSE MIDCAP or BSE 100. I have always considered small cap investment as risky investment but these satistics made me think the other way. I would have been pleased to post the exact numbers here but im not getting past values right now. I will be back with them very soon. Till then just to keep you thinking, here is a comparison, in the past 3 months, BSE Small Cap have grown by +6.7% , BSE MIDCAP have grown by +2.8% and BSE SENSEX fell by -1.1% !

Friday, July 6, 2007

Reliance Mutual Fund presents Fixed Maturity Plans.

Hello friends,
I got a post from Reliance MF some days ago which had my account statements of Reliance MF I hold and also mentioning about their new plan called "Fixed Maturity Plan" (FMP). As you all know that Fixed Deposits are one of the safest way of investment. But its drawback is that the rate of return is very very low. Most FD's offer only up to 8.25%, for about 1-3 years of lock-in period. Also the returns are taxable ( 33.99% ) depending on the level of your income. Another safe investment is PPF (Public Provident Fund). But PPF has lock-in period of 15 years ( Note:you can withdraw part of your contribution only after completion of 6 years) - so its just toooooo long. ( I personally treat PPF not for our generation - but for next generation.) Also there is another option of RBI Savings Bond, but there NRI's cannot invest and premature encashment is not allowed. Reliance wants to provide a blend in this type of reliable investment adding flavours of attractive returns, choice of Maturity periods, and tax efficient returns. They have come up with FMP.

FMP offers various maturity period options - monthly / quarterly / half yearly / yearly and more than one year. You can invest depending upon your requirement of cash flows on maturity. FMP offer minimal risk as compared to normal open-ended debt funds. These open-ended debt funds are associated with 3 kinds of risks : interest rate, credit and liquidity risk. Last but not the least feature of FMP is that it provides tax-benefit. For FD's tax rate is 33.99%, but for FMP's its 22.66% and also indexation benefits are available. If we assume 10% rate of interest/year and compare FD and FMP then calculations tell that assuming 5% indexation rate, and considering tax deductions, we actually get 6.61% for FD and 9.86% for FMP. More information can be found on

I personally think its a good choice of investment rather than normal FD's of nationalised banks. Only one concern is that, even FMP have very very low risk, they still are venerable to market ups and downs and FMP don't offer guaranteed returns, but it is likely to yield better than FD's. You can also get benefit of double-indexation, where you can get indexation benefit of 2nd year by remaining invested just for some time more than 1 year. So you get benefit if total 2 years, instead of 1 year. Your comments are awaited.

Monday, July 2, 2007

Chips Down for IT

Between February 19 and April 2, the BSE IT index lost 16 per cent! And most equity oriented mutual fund investors were hit by this, with some fund managers maintaining as much as 42 per cent of their fund's assets in this sector. In fact the average exposure of the equity diversified fund category to the technology sector was much as 16.20 per cent! (as of February 28).
But what has caused this sudden blip? Ever since the rupee started appreciating, the BSE IT index started slipping and by May 30, the index had lost as much as 10 per cent (between January 2 and May 30). And when the chips went down, mutual funds were not far behind in offloading their stake in the sector, with 148 equity diversified funds collectively offloading close to Rs 930 crore from the sector. And they did just as well for this move, for while the BSE IT index was in a bear grip, most equity diversified mutual funds were hitting their 52-week highs by June 1, 2007. Domestic mutual funds have surely learnt from their mistakes of 2001.The fear of the rupee appreciation becomes alarming because the Indian technology sector is mostly export led. When the rupee starts appreciating against the dollar, all Indian exports become less competitive in the global market. Earnings then take a hit. While most technology companies have various rupee hedging mechanisms in place, such a drastic appreciation of the currency in a short span of time has taken everyone by surprise. Take for instance the fact that by April 13 this year; Infosys Technologies had put its rupee outlook for the financial year 2008 at Rs 43.10 against a dollar and by April 25 the rupee stood at 40.97 to a dollar.So what is the take away from these developments? Should we start redeeming our funds that are heavy on the tech sector? Well, it is still premature to take such a drastic step. The fact remains that as on June 21 the one-year average return of technology specific equity funds is still unbeatable at 63.83 per cent. With the economy growing impressively, an appreciation or strengthening of the rupee is inevitable. This is bound to hit the earnings of the technology sector and those of other export oriented sectors. So one can expect a rationalisation of earnings from this sector and there is no need to panic yet. Nevertheless, it makes better sense to keep your portfolio balanced across sectors. Overdependence on any sector be it technology or infrastructure will always be a risky proposition. So if you are invested heavily in a technology-specific mutual fund, you could look at reducing your stake here. If you are invested in an equity diversified fund, let your fund manager take the call on re-jigging the portfolio.

Wednesday, June 27, 2007

Can I give stock as a gift ?

Stocks, bonds or any other securities can be transferred as gifts. Giving the gift of stock also has benefits for the giver. If the stock has appreciated in value, the holder can avoid paying the capital gains tax by giving it as a gift. There are two methods in transferring the ownership of a stock, which depend on how it is currently being held. Now-a-days stocks are hold in electronic form (and not in physical form) which stored in a brokerage account. To gift his stock, the owner should gather the brokerage account information of the person/party they are gifting. The next step is to contact the gifter's broker, pass on the new account information, and order the electronic transfer to the other person/party.

Saturday, June 23, 2007

Inflation eases to 13-month low, at 4.28%

The wholesale price index-based inflation declined sharply to a 13-month low at 4.28 per cent for the week ended June 9, down from 4.80 per cent in the previous week.
Inflation was at 5.29 per cent in the corresponding period of the previous year. Higher comparative prices last year during the same week (the base effect) and a decline in prices of primary food articles contributed to lower wholesale inflation.
Finance Minister P Chidambaram attributed the fall in inflation to monetary tightening by the Reserve Bank of India, but said, “It is too early to draw any conclusion. We need to watch inflation in the next 4-5 weeks”.
Analysts agree with Chidambaram’s views. “Various measures taken by the RBI and the government have started yielding results. However, market remains concerned about prices of primary articles,” said Arun Kaul, general manager (treasury), Punjab National Bank.

Thursday, April 26, 2007

India iron ore sales to China drying up...

Place: Mumbai

India's once vibrant iron ore exports to China have slowed to a trickle because of a crippling export duty imposed by New Delhi, and orders may dry up entirely if world prices retreat from recent highs.The policy move may leave Indian ore producers, who have been expanding production in the hope of more overseas sales, struggling with surplus material, as Chinese buyers shift their focus to relatively cheaper cargoes from Australia and Brazil.

"There is buying, but it is quite subdued. They are really quite wary," said Rahul N Baldota, vice-president of the Federation of Indian Mineral Industries.

Orders from China, which buys nearly two-thirds of India's iron ore exports, are vanishing after the government slapped an export duty of 300 rupees, or $7.21, per tonne in this year's federal budget.The Indian government, after intensive lobbying by the country's booming steel industry, is trying to discourage exports of the commodity to protect against over exploitation of the resource.Nearly 80 percent of India's exports of iron ore are fines, which need to be made into pellets or sintered before being used in steel mills blast furnaces.Since few Indian mills have the processing facility for using iron ore fines, piles of the commodity, the powdery raw material that comes out along with high-grade iron ore lumps, have started accumulating near the mines, said Sidharth Rungta, president of Rungta Mines Ltd.

Small shipments were still being sold to China as the country was straining to buy cargoes from Australia because of port congestions, which has pushed up world prices by $8 to $65 a tonne for medium-grade ore.This has so far kept Indian prices competitive, despite the new export tax, but prices are expected to fall back soon, traders and analysts said. India is currently offering iron ore fines at around $60 per tonne, free-on-board.

"The congestion in Australia is only a temporary phenomenon. The signs are that it will be over soon and international prices will fall again. It could take the wind out of whatever is remaining of India's exports," said Baldota.Traders said the landed cost of iron ore imports from Australia was at $85-90 a tonne and prices could ease by $10 once the port congestion ease.


China's iron ore imports in the first three months rose 23.4 percent to 100.19 million tonnes, customs figures showed.In March, China imported a record 9.84 million tonnes of iron ore from India, despite the introduction of the export tax, as most of the cargoes were contracted before the tax was announced. But Chinese imports of Indian iron ore are likely to halve in April, compared with March figures.

A Shanghai trader said he was seeing some Indian ore traded in the Chinese market, but volumes had dropped substantially.An official at the China Chamber of Commerce of Metals, Minerals and Chemicals Importers and Exporters said Chinese mills were not signing fresh contracts to buy Indian ore.While international iron ore prices were high now, Rungta said he was not bullish in the longer term as Brazil and Australia were expanding mining capacities.

"These are bound to put pressure on Indian exports," Rungta said.

Senior ore industry officials, who did not want to be identified, said that they were hopeful that the government would soften the blow from the iron ore export duty as a high-level panel was reviewing the move.

SAIL's joint venture for steel plant

State-owned Steel Authority of India Ltd.(SAIL) said on Thursday it is exploring setting up a 4 million tonne integrated steel plant in a joint venture with Rashtriya Ispat Nigam Ltd. and National Mineral Development Corp.

It said a memorandum of understanding for the proposed plant in the eastern state of Chhattisgarh would be signed after receiving necessary approvals.Ahead of the news, shares in SAIL eased 0.04 percent to 134.05 rupees in a slightly firmer Mumbai market.

Sunday, April 15, 2007

Sandip Sabharwal: Bull market may continue...

In the past two months, global markets have fallen substantially on inflation fears and central banks’ responses to the same. The inflation argument in India has been carried forward too far. In reality, inflation has little impact on the direction of stock markets. An analysis of the past 20 years’ history of the Indian market reveals there have been bear markets in periods of very low inflation and bull markets in periods of very high inflation. For example, the Japanese market had been in a bear phase for years, during times of zero interest rates and negative inflation. To understand the impact of inflation on markets, we have to understand why there are inflationary pressures. Inflation picks up where there is growth and declines when growth slows.

Today, when growth is picking up in Japan, the market is doing well and is expected to do well, as long as the economy expands, companies increase profits and consumers are confident. The era of very low inflation seems to be over globally. The faster central banks globally come to terms with this fact, the better it is for the global economy. This is because, contrary to the 1980s and 1990s — when growth in the world economy was not as widespread as it is today, and overall growth was driven by growth in the US, Europe or South-East Asian Tigers — today, there is growth all around. China and India have emerged as strong engines of growth. Other BRIC economies, as well as Middle East economies, are growing at 7%-plus. Growth in Europe has also picked up and Japan is growing after more than 15 years. Even Africa is growing at rapidly, driven by a commodity bull cycle. Such widespread growth will lead to inflation.

The second factor is that currently, there is very high inflation in metals, oil and agri-commodities. Agri-commodity inflation is mainly due to two reasons — firstly, growing prosperity worldwide is leading to increased consumption of food grains; secondly, diversion of products like palm oil, corn etc to bio-fuels production is creating a demand-supply gap in these products. It is unlikely that agri-commodity inflation will come down anytime soon. This is because, increasing production of agri-commodities is a long-term process; it involves increasing acreages and improving productivity, which cannot be done in a year or two. Monetary policy can do little to reduce agri-commodity inflation.

Under these circumstances, the response of central banks becomes critical. Under the current scenario, excessive monetary tightening may not reduce inflation significantly, but it can impact growth negatively, as costs for corporates rise and consumer demand is affected. The US Fed seems to be realising that excessive tightening can take the economy to recession, without bringing down inflation significantly. Over a period of time, as supply of various commodities increases, inflation will reduce to a certain extent. Moreover, the impact of monetary policy on demand is normally felt 18 months after the action.

In the current situation, when interest rates have already risen substantially over the past four years, a policy of status quo is desirable. Given the current interest rate scenario, economic growth in India is likely to slow down to around 8.2% for FY08. However, long-term growth prospects remain bright and the next 10-15 years should see average growth of 8-10%. Overall view on the equity market remains positive for both the medium and long term. The market is trading at valuations of 14.7x ’08E earnings on the large-cap side, while mid caps are trading at a substantial discount at 11.5-12x ’08E earnings. From these levels, the downside to the market looks limited. Over the next few days, the market can potentially move down by 6-7%. But from there, it should be able to give a return of 18-20% p.a. over the next three years.

The bull market may continue over the next few years. But the Indian market is now integrated with global markets. Global market movements, like that of May ’06 and February ’07, will affect the market in the short run, but in the long run, individual markets will perform on their own merits.

Originally By Sandip Sabharwal - CIO,JM Financial Mutual Fund.

India - Pakistan Trade Surges...

ISLAMABAD: Trade between India and Pakistan is surging despite problems in movement of goods and people. Pakistan registered a six-fold hike in its exports to India in the last five years. It is expected to go up further with new trade concessions announced by India last week. Bilateral trade swelled from $235.74 million in 2001-02 to more than $1 billion last fiscal year. The balance of trade remains in India's favour.

In recent times, India and Pakistan have opened banks in each other's territory, resumed shipping services and improved cross-border road and rail transport. According to a trade analyst, the share of Pakistan's exports to India in overall exports increased from a mere 0.5 percent in 2001-02 to 1.8 percent in 2005-06."This is a six-time increase in Pakistan's exports to India in the last five years," an official of the Karachi Chamber of Commerce and Industry said. Pakistan's exports to India have increased from less than $50 million in 2001-02 to about $300 million in 2005-06.

Simultaneously, Indian exports to Pakistan too surged from $186.52 million to $802 million, up from 1.8 percent to 2.8 percent Pakistan's global imports. In these five years the balance of bilateral trade remained in favour of India. In 2005-06, it rose up to more than $500 million.
Pakistan supplied chickpeas, pulses, grains and sugar when these were in short supply in India. India supplied onions, potatoes, pulses and other food items to Pakistan. India's exports of engineering goods now exceed $10 billion. Pakistan meets its 25-30 percent requirements of engineering products from imports. India can be a good source of engineering products with freight advantage and relatively quick delivery and after-sales service.

Airports also take Wings...

Much to the delight of air-travellers, most of the 35 non-metro airports in the country will be modernised by 2010. Expressing optimism, the civil aviation minister Praful Patel says "Work is satisfactorily progressing at these airports and we are sure that most of them would be ready within next three years." According to estimates, close to Rs: 4,662 crore would be spend for developiong the airside and terminals of these airports. Whereas city side development will require about Rs: 1,500 crore. The development of airports in northeastern states will be done according to priority, because sometimes its the only means of travel in those regions.
Three new greenfield airports are being planned for northeast. The first - for ATR 72 operation- will be constructed at Pekyoung in Sikkim at approximate costs of Rs: 340 crore.Other proposals are for airports at Cheithu in Nagaland and in Itanagar.Guwahati airport in assam is also undergoing modification at a cost of Rs:32.4 crore.The 35 airports to be modernised are: Ahmedabad, Amritsar, Guwahati, Jaipur, Udaypur, Thiruvananthapuram, Lucknow, Goa, Madurai, Mangalore, Agatti, Aurangabad, Khajuraho, Rajkot, Vadodara, Bhopal, Indore, Nagpur, Vishakhapatnam, Trichi, Bhubneshwar, Coimbatore, Patna, Port Blair, Varanasi, Agartala, Dehradun, Imphal, Ranchi, Raipur, Agra, Chandighar, Dimapur, Jammu and finally PUNE!Currently the airports in Delhi and Mumbai are in process of modrnisation and first phase will be over till 2010.
The Planning Commision says that the next five-year plan will emphasise the provision of infrastructure at airports"at a much faster pace" to cope with massive growth of aviation sector. Transportation infrastructure plays a vitol role in shaping business locationand urban development. Airports today are more than avation infrastructure.

Saturday, April 14, 2007

Aviation sector growth helps push GE profits.

Place: Fairfield, USA
General Electric Co boosted its first-quarter earnings by 8 per cent over last year, mainly through a double-digit growth in its infrastructure segment, including GE Aviation.
The Fairfield, Connecticut-based company posted first-quarter earnings of $4.5 billion, or 44 cents per share, matching analysts' expectations. In first-quarter 2006, GE had earnings of $4.4 billion, or 42 cents per share. Also, revenues of $40.2 billion beat first-quarter 2006 revenues of $38 billion by 6 per cent, and topped analysts' estimates of $39.8 billion. "Demand for global infrastructure in our energy, aviation and oil and gas businesses helped infrastructure deliver 28 per cent segment growth," chairman and CEO, Jeff Immelt, said in a news release.

GE Aviation showed profits of $755 million, up 17 per cent from $645 million in the year-ago quarter. GE Aviation, based in Evendale, develops and manufactures jet engines for commercial and military aircraft.

Ruia's Essar acquires Canadian Algoma Steel.

Ruias owned Essar Steel on Monday announced that they have agreed to acquire Canadian Algoma Steel for an aggregate value of 1.8 billion Canadian dollars to be paid in cash. Commenting on the deal Shashi Ruia, chairman Essar Global Ltd, an arm for Essar Groups' international operations, said "we believe Algoma is an excellent addition to our existing steel business and also offers growth potential. This acquisition fits in with our global steel vision of having world class low cost assets with a global footprint."

Benjamin Duster, Chairman of Algoma's Board of Directors said, "The Board of Directors unanimously supports the Essar proposal as it reflects a significant premium to the historical share price of Algoma." Algoma Steel is an integrated steel producer based in Sault Ste. Marie, Ontario with steel shipments of 2.4 million tonnes in 2006. It has a revenue of 1.9 billion Canadian dollars which are primarily derived from the manufacture and sale of rolled steel products, including hot and cold rolled steel and plate. The offer price of 56 Canadian dollar per share represents a premium of 48 per cent to Algoma's stock price for the 20-day period ending on February 14, 2007 when Algoma confirmed that it was in discussions regarding a potential transaction, a joint statement by the two companies said. The arrangement must be approved by Algoma's shareholders by the affirmative vote of at least 66 per cent (2/3rd) of the votes cast, in person or by proxy, at a shareholders meeting, and is subject to customary closing conditions including necessary regulatory approvals. The support agreement provides for payments to Essar in the event that the acquisition is not completed under certain circumstances.