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.

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 :- http://72.14.253.104/search?q=cache:eZn1OLJE7PcJ:indiafdiwatch.org/fileadmin/India_site/10-FDI-Retail-more-bad.pdf+retail+sector+in+india&hl=en&ct=clnk&cd=13&gl=in

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.)

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% !

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 www.reliancemutual.com

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.

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.

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.

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.