Ten Commandments of Successful Equity Investing

1. Discipline : The first thing an investor must learn while investing in the markets is discipline. The investor needs to be disciplined as to when to buy the stock and when to sell. If there is euphoria all around and tips are flying around, investor needs to be disciplined enough to not invest at this time. That is generally the best time to book profits in existing portfolio. At the same time, if investor finds market very undervalued, but there is pessimism all over, he needs to go ahead and buy. These may turn out to be his best buys. Investor needs to be greedy when everyone is fearful and fearful when everyone is greedy. Do not go with the HERD MENTALITY. Exercise CAUTION during euphoric periods. The best mantra for making money in the stock market is “BUY when CHEAP and SELL when EXPENSIVE”.

2. LEARN before you EARN : One of the most important thing an investor needs to do is READ, READ, and READ. Before you invest your hard- earned money, read everything about the stock. Learn to read quarterly results, annual reports, read about peer companies, read about that particular industry in general. Make sure that the stock being bought is undervalued or reasonably valued. Do not chase a stock on the way up.

3. Conviction : If you have purchased a stock after thorough study, have conviction in the stock. Keep buying the stock at every fall and average your stock. When tide turns, this can give you super profits. Conviction in the stock is important.

4. Everything has a Price : Every stock has a right price. Many investors typically make the mistake of holding onto a stock for decades. But if you do make a close analysis you will generally find that the stocks had done very well when the companies were mid-caps and were growing at breathtaking speed. After becoming large-caps growth slows and there will be periods of massive overvaluation. These are the times when investor needs to book profits and rotate to less expensive stocks or wait for reasonable valuations to re-enter the stock. There are a number of stocks which have done anything for the investor’s portfolio for almost a decade.

5. Portfolio Allocation : Everyone should do a portfolio allocation according to their risk appetite/age and other factors. What is typically observed is that there will be periods when portfolio weightage completely changes without investor actively changing anything. If stock market is in an extremely bullish phase than equity pie becomes large. One should bring it back to its original allocation. That would mean booking profits when valuations are very high. Conversely, in a bearish phase the equity pie shrinks and investor needs to shift from debt to bring his equity pie to the original one. This would mean buying into equity at very low valuations. This approach really works and one needs to be disciplined in following this.

6. Diversify : Do not put all you eggs in one basket. Diversify your portfolio over different stocks/industries. Ideally no stock in your portfolio should be more than 10-15% of your holdings.

7. Give Equity Some Time : Do not invest in the stock market with a short-term perspective. Invest only surplus funds, which you will not need for a long time. Often investors are forced to sell their stocks when it is the worst time to sell, because they are leveraged. Give your stocks time. Markets will have swings and can stay bearish for long periods of time and do not accord stocks the valuations they deserve. If you have conviction, these are great times to buy. Typically, I ask people to invest with a 5-year+ horizon. This does not mean that you will be stuck with the stocks for 5 years. If during this period, stock runs ahead of fundamentals, book profits.

8. SIP : SIPping is the best way to invest in stocks. As is the nature of the markets, it gives corrections and many opportunities to buy stocks at lower prices then your previous purchases. If there is no drastic change in the prospects of the industry and the stock, have the conviction to add more quantity. SIPping brings down your average price and can help in giving stupendous returns.

9. Continuous Monitoring : Continuously monitor the health of the stock and the industry it operates in. Monitor quarterly results, announcements, etc. If something fundamentally changes with the stock or the industry take a fresh call.

10. Reward Winners : Do not try to offset your losses in losers with punishing your winners. Typically investors hold onto duds in hope of getting their price and sell their winners. This should be avoided. Don’t be afraid to admit mistake on the losers.

"HAPPY INVESTING"

E - MINI, new type of investment technique...

E-Minis are heavily leveraged investments that allow you to control massive amounts of the stock market for pennies on the dollar. And, best of all E-Minis offer investors huge profit potential…

Trading E-Mini contracts is exceptionally attractive because they are liquid, diversified and affordable. Plus, they trade around-the-clock.

Conventional buy-and-hold stock investing is not working in this type of market. Trading E-Minis is a great alternative to buy-and-hold investing, because you can take full advantage of the market’s volatility. Moreover, you can easily make money in a market that is going up or down.

An E-Mini is an electronically traded futures contract on the Chicago Mercantile Exchange (CME) that represents a smaller version of the standard futures contracts. E-Mini contracts are available on indices such as the S&P 500, Nasdaq 100, S&P Midcap 400 and Russell 2000. For example, the E-Mini S&P 500 futures contract is one-fifth the size of the standard S&P 500 futures contract.

E-Mini contracts have a low margin requirement which makes trading easy and affordable. You can get started for as little as $500 per contract.

E-Minis have an advantage over regular equity options trading because you can control the same amount of the stock market with less money. Stock and index options currently have high premiums due to market volatility. Consequently, your leverage and profit potential is higher with E-Minis than with options.

You would have to pay thousands of dollars in commissions to buy all of the stocks in the S&P 500, wouldn’t it make perfect sense to participate in all the stocks comprising the S&P 500 for a commission of under $10! E-Minis allow investors with small amounts of risk capital to participate in the Dow and S&P 500 at a fraction of the cost of purchasing the actual stocks outright. And, you can get started with a few thousand dollars or less.

You can make a bundle if you’re long E-Minis-and the market goes up. And, you can just as easily make money when the market goes down, if you’re short E-Minis. This adds an entirely new dimension of opportunity for investors.

With the sharp up and down moves in the stock market, there are often plenty of trading opportunities to play both on the long and short side of the market several times a day.

E-Minis are one of the most liquid investment vehicles in the world due to extremely heavy trading volume. You can trade E-Minis on your laptop anywhere in the world and once you place your order, you can usually receive your fill price back in seconds! You get virtually instant execution and reporting of your fill price which is essential for day traders.

E-Minis are incredibly exciting to trade and the profit potential is enormous, but keep in mind that they are considered speculative. E-Minis are heavily leveraged so that big profit potential has a flip side-big loss potential if the market moves against you. Please, learn all the details about trading E-Minis before investing your money!

The best way to learn all the ins-and-outs of trading E-Minis is with the Velocity Strategy developed by my colleague Rick Pender graft. He produced gains of 219% in the worst market since the great depression using E-Minis! How many people do you know that made those kinds of gains in this market? His Velocity Strategy includes four instructional DVD videos, two complete manuals. Plus, you get 12 months worth of his very best E-Mini picks that have explosive profit potential. I suggest you check out the Velocity Strategy now.

In fact, one of our Velocity Strategy subscribers in New Jersey set up a few parameters in his computer and walked away to go to a meeting at work. When he came back he found he made a $5,000 gain trading E-Minis! It was like he had an automatic money machine.

Bottom line: Start trading E-Minis if you’re looking for an exciting, highly versatile, efficient, and economical means of capitalizing on the daily swings in stocks.

Disinvestment: Present comfort at cost of future gains?...ET

PreScript: Here is an very interesting article i came across in Economictimes Investors's Guide dated 20 July 2009
Last week was quite phenomenal for the equity markets. The benchmark indices recouped almost their entire post-budget losses and are now within
striking range of making a new intermediate high. The sentiment seems quite bullish in the street and bulls have been helped by “positive” news flows. One of the bullish stories doing the rounds is the likely divestment of government stake in public sectors companies.

The disinvestment debate has got additional lift from the fact that the Government of India is running a huge fiscal deficit right now. Many commentators believe that the government can profitably use the proceeds from the disinvestments to plug the hole in India’s public finances and thus mitigate the adverse consequences of a soaring fiscal deficit such as higher key interest rates. Besides that the Dalal Street is liking the idea that disinvestment programme will re-ignite the dormant IPO market, broaden the investor base and provide new investment avenues to various classes of investors.

While the gains for the Street and the investors are apparent, the equation is not so straight for the government and the taxpayers. First, fiscal deficit is a gap between government’s annual revenue and annual expenditure while disinvestments proceeds are a one-time capital receipts. So latter will not solve the former, at most it will provide a temporary relief. Even if we set aside the arguments about the desirability of using capital receipts to solve a problem of inadequate revenues, government need to consider the opportunity cost of foregoing future dividend payments from PSUs if it still decides to go ahead with disinvestments.

The government owned companies are one of the most generous dividend payers on Dalal Street. On average a listed PSU pays around a third of its net profit as dividends to shareholders. In end-March 2008 this amounted to little over Rs 26,000 crore from 56 large listed PSUs. Some of the largest contributors to the kitty include Oil & Natural Gas Corp, National Thermal Power Corp, State Bank of India, BHEL, Gail, Indian Oil and Power Grid, among others. The amount was equivalent to around 30% of their combined net profit during the year. The payout ratio has been higher in the past at around 33-35 % and has declined in recent years due to poor show by oil & gas majors.

Given this the government needs to balance the benefit of disinvestment receipts today versus the cost of foregone dividends in future. The exercise will require us to estimate the future dividend receipts from PSUs and discount the amount by government’s long-term borrowing cost to get the net present value of future dividends receipts. If it turns out to be less than the estimated receipts from disinvestments (which are linked to the current market cap of listed PSUs), then latter will be a profitable proposition for the government as well as the tax payer. If not, then the exchequer and the tax payers are better off maximising dividend receipts from PSUs over the long run. In last 15 years ending FY08, the dividend payments by our sample of PSUs has been growing at a compounded annual growth rate of 28.6% per annum. It may be difficult to maintain such as high growth over a longer term. So let’s assume that over the next 30 years, the PSUs dividend grows at a slower pace of 15% per annum. The figure looks reasonable if we expect the Indian economy to grow at 7-8 % per annum during the same period.

If we discount the estimated future dividend flows by 8%, (the prevailing yield on 30-year government bond), the net present value of our sample of PSUs works to be around Rs 21 lakh crore. This is 50% higher than the current market cap of our sample of PSUs. The net present value will rise further if we assume lower discount rate (rate of interest) or increase the number of years to say 40 or 50 years.

While analysing the disinvestments programme , we should also keep in mind the fact that the voter’s expectation from the government is soaring. The government’s ability to meet the expectation is however hamstrung by a narrow tax base. For instance in FY09, the total tax revenue (central + state government) was equivalent to around 18% of the India’s GDP. The corresponding figure in most European countries is over 40%. Even in Russia, Brazil and Korea the tax ratio is around 30%.

In comparison, total public spending in FY09 was around 29% of country’s GDP. The gap between tax revenues and expenses was met through non-tax revenues and market borrowings. And given the voters aspirations for a welfare state in India, which was clearly reflected in the budget proposals, public spending will shoot up further in future. And as taxes remain unpopular and raising the tax base is fraught with its own set of difficulties, non-tax revenues including dividend receipts from PSUs will continue to play an important role in filling this gap.

So, disinvestment is not financially rewarding in the long run as it is generally accepted to be. The tax-payers are better off asking the government to maximise the dividends receipts which in other words means providing greater financial and operational flexibility to PSUs so that they could operate like a commercial entity.

A hastily drawn disinvestment programme may only provide temporary relief for a structural problem. What worse, it may sacrifice long-term public interest for short-term and narrow gains.

--

Source: http://economictimes.indiatimes.com
Thanks and Regards,
Riddhiman Jain
+91-9950675616
riddhiman.jain@gmail.com/yahoo.co.in
reddithedew@gmail.com/yahoo.co.in
f2006742@bits-pilani.ac.in

Ponzi Schemes v/s DLF.... Truth

All Ponzi schemes come to an end.The fourth-quarter results of DLF, the country's largest real estate company, prove just that.

The company's net profit fell 93% to Rs 159 crore from Rs 2,177 crore in the same period last year. This was primarily on account of sales falling 69% to Rs 1,351 crore from Rs 4,372 crore in the same period last year.

And why did sales fall? Primarily because the company's main "business model" has come undone.

Since it got re-listed on the exchanges in July 2007, DLF had been essentially boosting sales and profits by making a substantial portion of its sales to DLF Assets (DAL).
This would have been a good business strategy if DAL paid for the sales, which it did not.

For the quarter ended September 2008, the company reported total sales of Rs 3,744 crore, of which nearly 39%, or Rs 1,470 crore, were to DAL. At the same time, the receivables from DAL increased by Rs 1,446 crore, almost equal to the sales.

For the quarter ended June 30, 2008, as much as Rs 1,560 crore, or 40% of its sales were again to DAL. Interestingly, the quarter-on-quarter increase in receivables from DAL was Rs 1,450 crore, a number very close to the sales to DAL during the quarter.

Evidently, even though sales were being made to DAL, hardly any sales were actually being paid for by DAL.

In other words, the company was using aggressive accounting to boost its sales as well as profit numbers. As long as these "paper" sales to DAL kept going, the net sales and profit numbers of DLF kept growing quarter on quarter. But profit is not always cash, as any accountant will tell you.

The "business model" was akin to a Ponzi scheme, where an illusion of a successful investment scheme is created by using money being brought in by new investors to pay off the older investors.

In this instance, as long as sales to DAL kept going up, DLF kept showing increasing profits and sales. But at the same time, receivables kept going up as well.

For a Ponzi scheme to keep going, the money new investors get into the scheme should be more than the money being paid to the older investors. Similarly, for DLF revenues and profits to keep growing, the company needed to book more and more sales to DAL, which couldn't have gone on forever.

Sales to DAL fell to Rs 655 crore for the quarter ended December 31, 2008, down from Rs 2,057 crore for the quarter ended December 31, 2007. This dramatic fall led to the total income of DLF falling 59% to Rs 1,503 crore. Profit fell even more dramatically by 68% to Rs 682 crore.

And for the quarter ended March 31, 2009, sales to DAL have fallen even more dramatically to Rs 322 crore, as against Rs 1,845 crore in quarter ended March 31, 2008. This has pulled down sales and profits of DLF big time.

Clearly, accounting gimmickry to boost sales cannot continue forever.

In the March quarter, DAL paid around Rs 800 crore of the nearly Rs 5,400 crore it owed DLF as on December 31, 2008. But even after this, DAL owes around Rs 4,900 crore (Rs 5,400 crore outstanding in the last quarter - Rs 800 crore paid by DAL + Rs 323 crore of sales made to DAL during the quarter) to DLF, which is not a good sign.
DLF has suspended further sales to DAL.

The stock has rallied 66.5% since March 9, 2009, despite there being no fundamental improvement in the company's situation. Further complicating the scenario is the fact that for the first six months of this financial year, DLF has outstanding land bank payments of Rs 5,000 crore and debt refinancing needs of Rs 4,500 crore, say analysts.
In order to reduce debt, the company is trying to sell its non-core assets like its wind power business. The non-core businesses --- DLF Pramerica Life Insurance, Hotels and Power, etc --- posted a loss of Rs 163 crore for the quarter.

The downtrend in real estate prices only makes the situation even more difficult. The company, which like most real estate companies, had been holding on to prices, recently sold its Capital Greens project located at Shivaji Marg, Delhi, at Rs 4,500-5,500 per sq ft, 30-40% lower than prices of existing projects. Even though the booking amount paid by the customers will help the company improve its cash position, it may not be good enough to solve the funding problems of DLF.

Analysts say the company may also see cancellations of bookings made previously, given the state of the economy. Other than this, in the March quarter, the company gave price reset and other benefits to customers, which led to Rs 688 crore of lower revenue and a profit-before-tax impact of Rs 302 crore.

The company's situation sure does not look good.

So better move on.............

Zero Inflation!!!......A truth finally...

Long have been Inflation troubling India, now it’s the turn of Deflation..
Inflation for the week ended 28 February was recorded to be 2.43%.
Few points that I stumbled upon in these few days..
Firstly, the wholesale price index (WPI) for that week stood at 227.7, lower than the 227.8 recorded for the week ended April 5 last year. That means unless the index rises in the next five weeks, the rate of inflation will turn negative. Also, with the rabi harvest round the corner, a fall in the general price level would not be surprising.
Secondly, The reason nobody's cheering is that your shopping cart items are not getting any cheaper. The indices for food articles and foodgrains are 8% and 11% higher than a year ago, respectively. In other words, while the average rise in prices of all commodities that constitute the WPI has been less than 2.5%, these essential consumption items have seen a sharp rise in prices over the last year. As the relative less well-to-do sections spend most of their income on food, the inflation they actually feel will be closer to 8% than to 2.5%. For the bottom rung of the population, which spends almost 90% of its income on food, the situation is particularly bad. Even the lower middle class families spend almost 60% of their income on food items, the prices of which continue to rise.
Thirdly, The government, however, has more reason to worry. Even as inflation in food articles remains high, prices of industrial products have been declining. The index for organic and inorganic chemicals has fallen by 20.8% over the last year and that for non-ferrous metals by 9.7%. This clearly means that the demand for most of the industrial items is declining due to the bleak economic outlook and hence the businessmen and investments in this section will shy away or rather businessmen have already started searching for safer havens. IIP(Index for Industrial Production) is going to get a further knock and this time in the gut.
Fourthly, falling inflation will raise the demand for the treasury bonds and hence many might report capital gains and Banks, but ofcourse becomes a good pick for the coming week or so. Capital gains on bonds will lead to decline in the T bill interest rate and hence the Indian economy can expect a further rate cut from RBI. And subsequently rate cuts from all the leading banks. This leads to realty also being a very good pick.

By
Riddhiman Jain.
source :

World's Youngest CEO - Suhas Gopinath - Globals Inc.

Even though it is off the hook from the EFA articles....I found it to be interesting.....

Suhas is now 21 years old. When he was just 14, this guy from Bangalore, India founded a company called Globals, Inc in San Jose, California. The reason for trying his luck in the United States rather than his native country was because there are laws in India that prevented him — then as a minor — to start a company legally. Starting with only 4 employees, he now employs around 400 students between India and the U.S.A.
For more refer
http://www.spiegel.de/international/0,1518,482231,00.html

Why are we here?????

Source: Article by Wayne Mulligan

Prescript: This article is generally a "wrapper" article that will explain the current primitive scenario well...

Financial Crises - A simplified version

So let's go through it step-by-step, from the beginning until this weekend when the Government announced a $700 billion bailout of the financial services industry.

I. It all started in the housing and mortgage market:

Basically, lenders were loaning money to whoever wanted to buy a home. Credit score, income and assets became irrelevant terms as brokers and local lenders rushed to issue new mortgages.


It seemed like a relatively "low risk" strategy at the time to many banks. Reason being, they figured that even if people stopped paying their mortgages, the housing market was doing so well that folks could just sell the house for a profit and pay back the remainder of the mortgage.


And that's really where the trouble started.


II. Then the Investment Banks Got Involved:

Mortgage Backed Securities (MBS) are nothing new on Wall Street. They're sort of like bonds, meaning there's a "principle amount" (the amount being loaned) and interest coupons (or payments) that would be paid monthly on the loan. However, MBS's aren't single loans.


Instead, these loans were really thousands of individual mortgages all pooled together to create a single, tradable security.

This is another reason why many lenders were happy to keep giving out mortgages to folks (even if they didn't qualify). Local lenders knew that they'd be able to package up all those mortgages and just sell them right to the big investment banks and not have to worry.


The banks then turned around and would trade these Mortgage Backed Securities like they would a stock or a bond - trying to pocket profits in between each trade.

III. Bubbles

The basic assumption in this whole mess was that housing prices would continue to rise each year.

In fact, that assumption turned out to be pretty accurate. According to the S&P Case-Schiller Index, home prices nearly doubled across the country from 2001 - 2006.


That's because it was so easy to get a mortgage, everybody wanted to buy a home. Thus spurring demand and in turn driving up prices further. It sort of became a self fulfilling prophecy, which in turn became a full-fledged housing bubble.

And just like any good bubble, it eventually had to pop!

IV. The "After-Pop"
So after the housing market finally started to tumble, the financial services industry went into a year-long death spiral. Here's the basic sequence of events:

People couldn't afford their mortgages anymore.

They couldn't sell their homes for more than they paid due to falling prices

So they defaulted on their loans - this happened to millions of people!

The big investment banks which now owned all the mortgages suddenly realized that these "assets" were virtually becoming worthless in a very short period of time.

So the banks had to take massive write-downs on these loans. The way this works is the banks were considering these baskets of mortgages as assets on their balance sheets. Once the assets went from being worth $100 to $1, the banks basically lost 99% of their value.

When that happened it made it very difficult for the banks to get loans themselves (imagine applying for a loan when all you have is a pack of bubble gum and the clothes on your back - it's not likely to happen).

When the banks couldn't get their own loans they were either going to be forced into bankruptcy (Lehman Brothers) or had to be swallowed up by healthier firms (Bear Stearns, Merrill Lynch, etc.)



V. How the Government Got Involved

Ever since Bear Stearns went under the government has played a fairly prominent role in this whole mess.

But it wasn't until we almost saw the implosion of Fannie Mae and Freddie Mac that the government really made its presence felt.

Fannie Mae and Freddie Mac are sort of like "buyers of last resort" in the mortgage market. They were established to maintain liquidity in these markets in the event of the large banks being unable to trade their Mortgage Backed Securities.

So in the end, Freddie and Fannie were sitting on trillions of dollars in bad home loans.

And while these companies were private organizations they were however government sponsored organizations. So if the government had let either one of these companies fail then it might've made it very difficult for the United States to keep selling debt to big foreign buyers, like China. Remember, it's US's ability to sell their debt to other countries that has been funding its operations (e.g. wars, etc.) for the last several years.


VI. How AIG and Insurance Fit In

AIG came into the picture when it began selling "insurance" to the big banks.

This technically wasn't insurance, but that was mainly due to clever wording on the part of AIG management. Because for all intents and purposes, they were basically insuring the mortgages held by the banks - this type of insurance was called a "Credit Default Swap", or a CDS.


Basically, the banks would pay AIG a monthly fee and in turn AIG would promise to make the bank whole on any mortgages that defaulted (sure sounds like insurance to me).


At the time I'm sure this sounded like a good idea because everybody assumed housing prices would continue to rise.


Well we all know how that turned out and that's why in the end AIG was left holding the bag for billions of dollars in bad loans.

VII. The Bailout


So that brings us to where we are today: On the eve of the largest government bailout of the private sector in the history of this country.

The implications for these actions are vast and complex.
On the one hand, the government has to do this; the alternatives are too disastrous to even comprehend. On the other hand, what type of message does this send to the banks going forward? That it's ok to engage in risky, reckless behavior and they'll always get bailed out in the end?


With inputs from Mahesh Jakhotia

Riddhiman Jain

Its pouring dollars!!!Can we have it???

Pre Script: Thank you all for the comments and the criticism too!!!But i would appreciate if you post your comments queries or criticism here rather than on GTALK.

Pre Script2: For the Critics...The previous two posts were compiled, the data was accumulated from sources and was filtered and presented. The data is bound to be taken form somewhere. So these posts, you cannot call them copied but ya compiled..

Frantic Injection of huge amount of dollars in the Financial System...
Its pouring Dollars friend!!!!(and weirdly, water here in Pilani)
Are we going to get some of it??????or only financial institutions will take it home and clear their Bad Debts????(Quite Obvious meaning...)

$247 billion... FED????? Let me put it in figures
247,00 crores or 247000 million or 247000000000 Dollars........ or 1136200000000 rupees at Dollar to ruppee being 46.. This has already surpassed the total budget of the Government of India for the last fiscal.
So much of dollars?????? Into the market!! FED is ready to weaken dollar against the currencies!!!!
But den this just FED..

Bank of Japan(BoJ) injects 3 trillion yen into markets..Now i cannot handle the amout of zeroes trillion has...

Russian President Dmitry Medvedev, pledges $20 billion( Dont know the conversion in roubles!!!) injection into the stock market and also cut oil taxes.

China to scrap down duty on stock purchases and buy shares in three of the biggest banks in China to boost investors confidence..

India???????Nothing!!!!!!!!!Just supporting!! No 'explicit' injection of Liquidity! No rates cuts!! No 'explicit' heavy purchases in Stock markets?????Why?????

So far we Indians have shown strong resilience to such great pressures. Our markets follow the Global trend but by the end of day recover and negate off most of the losses. With these kind of dramatic pull backs, you might be proud to be an Indian..
The only dominant fallout in India is ICICI hit, by Lehmann bankruptcy,of $350 million,large but relatively meager..
Apart from ICICI, No explicit hit.
This shows how fundamentally strong we are and the extent to which we have decoupled(Yes!!Again the literal meaning will suffice.) from the Global turmoil.
Injection of humongous amount of dollars!! What does this predict???
It simply states how pathetic the present state is.. It states how disastrous future can be. It shows how vulnerable are the Policy makers.. It shows how the world is coupled to THE US(our Uncle SAM!!).

After Bear Sterns, we got Merill Lynch. After Merill lynch we got Fannie Mac and Freddie Mae bailout??. Then the bankruptcy of Lehman.(FED negotiating a proper price for Barclays to buy most of Lehman though!!). AIG $85.8 billion bailout..
What next?????
Morgan stanley??? Goldmann Sachs....???

Haven't it been for the timely intervention of FED, we would have had the same Great Depression of the 1930's when classical economics was followed. 200 banks were closed down,people were on roads and all this just because of a simple assumption- "There exists some restoring forces or an Invisible Hand that will rehabilitate the situation and equilibrium will be restored".

Where is India heading???? The Sensex just kissed our previous estimate of 12.5k. (Very soon than expected though!!). There's ambiguity, fear in the minds of people. Certainty has certainly taken a hit. Half the analysts, optimistic, predict sensex might be resilient and 12k would not be breached but the pessimistic half think that 12k support would be broken and not only broken but shattered.

What does this mean for us??? We students???? Placements worse!! No recourse there!! Acads??? always worse!! So no recourse there!!!
What i believe if we go by the analysis of the pessimists or the optimists fate would never again give us this opportunity.
Let it breach the psychological 12k and make the market conducive and affordable.Then we plunge in our saved pocket money( Or watever) into these so called Efficient Demand Supply driven markets.
But den, the other side of the coin says OIL has started gaining its lost ground, Inflation will not allow the market to have its run. FII( Foreign Institutional investors) sucking out money. Already a billion dollar has been sucked out in the first half of the September.
What to believe??? what theory to go by???
But den its worth to take the risk!!
Its an opportunity that takes a lifetime to come... I dont think so again can we see such great economical, political or psychlogical state of affairs.
How i wish i could exploit it!!!!How i wish i could.......

By
Riddhiman Jain

Save my Rupee...Uncle SAM!!!!

Save my rupeee.... Save my Money.
Leave me Dollar, forgive me for appreciating against you...

The rupee posted its biggest fall in a decade on Tuesday 16th September 2008, hit by risk aversion and banks arbitraging a weaker offshore rate, although suspected central bank intervention stopped the slide just short of 47 per dollar.

Confused?????Let me Explain...

The recent attacks on the financial markets have turned out to be a money making opportunity for players with overseas presence. Multinational banks operating in India, large corporates and diamond houses have cashed in on the difference that has surfaced in the dollar-rupee exchange rate between the Mumbai currency market and the unregulated, unofficial, offshore markets Singapore, Dubai and London.

The difference (that reflects the arbitrage opportunity) was as high as 40 paise to one rupee last week. Its the outcome of hedging and foreign portfolio managers taking big bets that the rupee will slip further against the US currency. Such bets, which primarily boil down to these players shorting( Selling the rupee in the anticipation of a fall without actually owning it) the Indian currency, have made the rupee weaker in the overseas market than in India. In other words dollar has become stronger in offshore market than what is quoted here.

Corporates and Institutions that have the flexibility and the wherewithal have profited by buying the dollar in India and selling it on the offshore market- better known as Non deliverable Forward market(NDF).
As the name suggests, all deals in the NDF markets are forward deals settled in dollars.(Just for the readers-A forward contract is an agreement between two parties to buy or sell an asset at a specified point of time in the future. The price of the underlying instrument, in whatever form, is paid before control of the instrument changes. This is one of the many forms of buy/sell orders where the time of trade is not the time where the securities themselves are exchanged.).
Its not a spot market( immediate dealing market) since rupee, a non-convertible currency, cannot be 'delivered' on the offshore market. So the deals are settled in cash. On maturity of the forward contract, the differnce between the Forward rate( Future rate) and the RBI(local) refernce rate on the date of maturity is either paid or received in dollar by the party. The RBI refernce rate is based on the 12pm rates of the few active banks in Mumbai.

The following example might make it clearer...

The one month forward dollar was 45.83 in India against 45.96 on the NDF market. Many corporates will take advantage of this differnce- buying forward in India and selling forward abroad to lock in a gain of 13 paise.

Therefore this has lead to shooting up of Volumes and and therefore banks are ( Yes!!! banks have to be paid a margin for NDF positions) charging less margin for NDF trades. Its a billion dollar market which believes that rupee will fall faster than the official exchange rate.

Under the prevailing onslaught of arbitragers its only RBI who is selling the dollar and we can say it, without any doubt, that it is the intervention of RBI that accounts for the difference in the rupee rates.

Adding to it,there is lot of oil, equity and NDF-related dollar demand, and even importers are covering near-term imports.( Importers tend to loose by Dollar gain..Its easy Think!!!)



On a black Sunday for Wall Street, 10 of the world's biggest banks also agreed to establish a $70 billion emergency fund while the Federal Reserve said for the first time it will accept stocks in exchange for cash loans.
Such is the case where FED agreed to take the most unsecured form of collateral( Equity) for Cash loans. This depicts the pitiful situation of the Financial system across the globe. This would nothing but worsen the situation for the short term and hurt sentiments.
Hence, Uncle Sam is drowning so are the third world countries.....


Compiled By
Riddhiman Jain
For refernce please refer here

Blood Bath... A bomb blast in the markets!!

Terrorists - Lehmann brothers, Merill lynch, Bear Sterns( arrested long back) had been planting bombs here in the markets for over a week. Some of them were detonated by the Indian Investors, many were silent ones but the one that blasted today 15th September, 2008 at 9.55 was the worse of its kind.. Pulling the index down 728 points and the NIFTY index down below 4000. Not even a single blue chip survived the explosion. Reliance Infrastructure ricocheted by 9% . RIL breaching its psychological 1900 mark. Even IT sector was not spared. Satyam down 8.85%..
Investors dumped shares across the board. Realty counters faced the brunt of the bear onslaught. Technology and power shares also took a sharp knock.


The crack on Dalal Street widened as global financial worries mounted. The US financial system took a turn for the worse after investment bank Lehman Brothers' filed for bankruptcy, troubled insurer American International Group asked the Fed for a lifeline and Bank of America agreed to buy Merrill Lynch.

With Lehman and Merrill out of the picture, three of the top five US investment banks have effectively departed the scene in less than six months. Bear Stearns was acquired in a fire sale by JPMorgan in March.

On a black Sunday for Wall Street, 10 of the world's biggest banks also agreed to establish a $70 billion emergency fund while the Federal Reserve said for the first time it will accept stocks in exchange for cash loans.

Tracking the weak sentiment globally, the Bombay Stock Exchange 30-share barometer tumbled by 724.99 points or 5.18 per cent at 13,275.82.

The previous terrorist OIl is nw trading below $100 a barrel...Still no respite..
Inflation now is all set to take a forward leap again. 13.5% is its next target( Base Effect). Rupee weakening by arbitragers now....

Next target 12.5k!!! Lets see how far will this take us!!
Hey mighty Lord, Spare us from this turmoil.

Deflating the Inflating Economies......

And we are the Back!!!!
After a long break we are back.
Lot had been happening in and around India these days. In this post I try to cover and explain each of the events in a simplified manner.

I have been getting feedback that the articles I write, go over the head. (OHT). I request the readers, to comment on the part that they din understand and I promise I will get back to them with proper explanation.

Pre Script: This one is large but keep reading u will find it very informative.

Oh My God Oil has come down to 102?????????
Fannie and Freddie takeover??
Wholesale Price index slipping these days???
NSG Waiver!!!!Boon for India???
TATAs out of Singur???
Introduction of new derivatives!!!Currency derivates, Interest rate futures and Credit derivatives???
Duvurri Subbarao new governor, RBI!!

So much have we missed.......

Oil plunged as concerns that Hurricane Gustav would cause severe damage to the US oil sector eased after the storm weakened i.e. investors discounted the potential damage from the storm and due to continuous strengthening of dollar against all currencies on account of increased risk aversion by investors. The other reason includes Sustained dollar demand from oil companies in the light of low crude oil prices and inadequate dollar supplies that weighed on the rupee sentiment. Rupee fell down to its two year low of 45.39 a dollar.

India's crude oil import price has dropped to below $100 a barrel, first time since April, but a cut in domestic retail prices is a distant possibility given the fact that state-run oil firms are still losing money on fuel sales. A cut in petrol and diesel prices may not be economically feasible as Indian Oil, Bharat Petroleum and Hindustan Petroleum are projected to lose Rs 1,65,300 crore on fuel sales this fiscal. IOC, BPCL and HPCL together are losing about Rs 400 crore per day on fuel sales
IOC, the company that controls about 54 per cent of the market, is projected to lose Rs 90,630 crore on fuel sales this fiscal. Fuel prices in India are pegged at $68 per barrel, much lower than $99 a barrel so The government has to make good half of this revenue loss by issue of oil bonds. The Finance Ministry has already taken an over Rs 22,000 crore hit in revenues by way of duty cuts announced in June and a price reduction at this stage may upset its applecart. Retailers are at present losing Rs 6.31 per litre on petrol, Rs 13.69 on diesel, Rs 31.39 on kerosene and Rs 312.58 per 14.2-kg LPG cylinder. The government is also all set to introduce dual prices for diesel, the largest consumed petroleum fuel in the country. Bulk buyers like industrial consumers, power plants, defence establishments and SEZs may have to pay a market price which would be around Rs 22/ litre costlier than the subsidised diesel.

The Wholesale price Index continues its declining streak for the third continuous week down to 12.1% from a high of 12.6. All credit to the respite provided by softening of global crude prices. Now we can finally say that the government’s supply side measures have begun to work and so is the case with RBI’s tight monetary policies. A further interest rate hike by RBI can be seen in its October review of monetary policies as this cool off might be temporary, inflation might peak to high of 13% in the third quarter of this fiscal due to increase in prices of food items. This year yield has not been to the mark owing to the lousy monsoon. However decreasing crude oil prices coupled with good monsoon would stabilise the inflation in near future. The major concern for the ministry and RBI being Inflation and as seen in the recent past they are ready to trade well between growth and Economy.

Duvvuri Subbarao, the new RBI Governor sounded positive on growth, though.
He said “ Origins of Inflation lie largely in prices of food, metals and crude. Food is an annual, if not bi-annual, phenomenon and responses have already kicked in. Even in metals such as steel although the supply response is lumpy, I think both around the world and in our country, supply response has kicked in. The movement in crude prices have been in response to the supply-demand factors and US situation and the position of the dollar. So these responses have also come in.”


Nothing seems to be positive even in the global Front except for the news of Freddie Mac and Frannie Mae, US ailing mortgage giants, bailout be the US government. China and Japan the biggest buyers of Freddie Mac and Frannie Mae bonds praised the US government for its rescue. This might no doubt stabilize the current MBS( Mortgage backed securities) market in the US and the global financial market and will help Japan, Europe and United Kingdom remove one source of anxiety that has plagued markets and helped push them towards recession but this move more or less seems to be sign of the perilous state of the global financial system than of a imminent recovery. I find it difficult to see how it is bullish that the heavy hand of government is needed to such an extent. This takeover of Fannie and Freddie is a testament to how broken the financial system is at this time. Financial firms have posted over $500 billion credit losses and write-downs since credit markets seized up a year ago after the defaults on US home loans. This risk of collapse of the lenders and a US housing firm though are just one of the threats looming over the world economy. What we see is the US government not putting in immediate cash but putting its credibility on the line, its a tremendous help but it might not solve any problems.
All in all the global sentiment seems pretty negative.

Mukesh Ambani Group firm Reliance Industries' market capitalisation fell below the Rs 3 trillion mark, as its shares were battered and slipped below Rs 2,000 on the BSE.

Even Tata Motors haven’t been doing well. All seems to be not so well at Singur front. The dhaar na undertaken by Mamta Banerjee and her agitators had forced the TATA’s to stop work on NANO plant. The demand of the agitators is the return of the land to the farmers who had to give up in order to accommodate the car plant. Even after the so called solution drawn between the TATA’s and the Mamta Banerjee, Trinamool Congress chief, by the in power CPI government’s governor, Gopal Krishna Gandhi, the stalemate continues as vendors like Sona Kayo, Rico, Lumax, Endurance, Caparo Engineering, Sharda Motors, Exide have put on hold further investment in singur. If critical suppliers are not near the mother plant, singur, of NANO, it will affect the pricing of the ultra low cost car.

But as we believe not even the turmoil in singur could cast a shadow on India’s potential to attract overseas investment. One example (singur) cannot be example for the whole country. This kind of problem one can face in any country. Of course the event provides us with something to learn. The recent NSG waiver can discount this tumult.

Nuclear supplier nations adopted by consensus a US initiative to lift a 34-year-old embargo on nuclear trade with India. NSG( Nuclear Supplier's Group) rules ban nuclear trading with India because it refuses to sign the Non-Proliferation Treaty, developed atomic bombs in secret and conducted its first nuclear test in 1974.
The United States wants a special waiver from NSG rules for India, so it can share civilian nuclear technology with New Delhi. The United States argues the deal would bring India into the NPT( Non-Proliferation treaty) fold and help combat global warming by allowing it to develop low-polluting nuclear energy.
Critics say the deal undermines international non-proliferation efforts and accuse the nuclear powers of pursuing commercial and political gains.
There had been three main sticking points: termination of trade if India tests, no transfer of enrichment and reprocessing technology and an annual review of the agreement.
But the crunch issue appeared to be nuclear testing, since New Delhi has not signed the Comprehensive Test Ban Treaty.
Overall this NSG waiver has lifted obstacles to India buying products and technologies associated with civilian uses of nuclear technology (and selling these to) most significant nuclear powers save the US. The implications are not just for nuclear energy alone- our existing reactors running short of fuel would be able to run at full capacity and we would be able to set up new nuclear plants. Vital sectors of economy stand to benefit from access to a range of products and technologies that had, till now, been outside India’s reach. Many advances in materials, technologies, communications, computing, signaling, chemical processing, avionics etc. are deemed sensitive technologies not accessible to nuclear have-nots. Access to these technologies will improve efficiencies across the board of India from weather forecasting to oil refining. Sectors that stand to gain are power, Defence, IT, Insurance and Pharma. IT can help in terms of software services, data management and control & automation. Also, the R&D skills from Pharma may play a crucial role in handling the sensitive technologies which India will get access to. They may even be useful in handling of chemical transformations and temperature controls in the nuclear plants. This NSG clearance has opened up business opportunities worth Rs. 1,20,000 crore in the next 15 years adding around 18-20 nuclear reactors at the cost of Rs 5000- 6000 crore each. The Nuclear deal will also enable addition of new capacity and help fulfill the target of adding 63,000 MW by 2030. These developments sholud benefit Infrastructure and power companies such as NTPC, Jindal, L & T, Tata Power and Reliance Power. Other companies that have traditionally not been in this field may also make a foray in this sector given the magnitude of the business potential. This deal would open gates for huge private investments by international companies and players into the Indian Economy.

Further, adding to these set of good news, there might be soon a materialization of the proposal on introduction of new derivatives like currency derivatives, interest rate futures and credit derivatives.

Do comment....

Compiled BY Riddhiman Jain

The BITSian CEO Award Event

Few Breathers in the current Gloom!

Greed, fear, hope, Regret, Misery, Lust, and guilt. And so the seven deadly sins roll out untamed. What stands now??? Will not be there few hours later!!!Forget tomorrow!!

In the midst of all the negative cues and fallacies, here's some very optimistic outlook of the present scenario....

Firstly, Observed glut in Global savings, but investment climate in the developed countries not so conducive to productive investment. So, the global savings will seek an outlet. Developing countries like India display a strong urge to grow, will continue to attract these funds. Future or say long run seems very fruitful and rewarding no matter where the Inflation or GDP takes us this fiscal year but the fundamentals of economy being so strong and robust that the bears will succumb.

Secondly, The main channel through which the global forces can impact India are Exports and Capital inflows. Capital inflows this quarter have been depressing but then so far we haven't been affected by the global slowdown on the export front. Though export of services has been affected to an extent, but so far there has not been any serious impact on the export of IT and ITES (IT Enabled Services).

Thirdly, it is unanimously reckoned that developed countries are under pressure to cut costs and this could lad to increased outsourcing to countries like India and China due to availability of Cheap and efficient labour.

Fourthly, Easing oil prices would ease pressures on the balance payments, Inflationary pressures(though domestic prices would not ease simultaneously as Oil Cos. continue to bleed). Already Trade deficit (Excess of Imports over Exports) expected this year is 10.4% this year up from previous year 7.7%. Easing Oil would decrease this figure as Oil exports bill will decrease. Also the off budget liabilities (oil & fertilizer subsidies) shall tank. Iran, Israel, Russia being the Spoilsports. The Bad men!!!!!!!

Fifthly, Recently IIP data (April June 08-09) of 5.4% down from 10.3% during the corresponding quarter last year, have shown a reasonably good growth in consumption goods indicating investment growth would be sustained (No wonder why FMCG sector shows strong resilience in spite of the strong market crash) but there is a decline in savings rate both public and private Corporate savings thus widening the CAR (Current Account Deficit).
Electricity Generation, an IIP component grew by just 2% in the first quarter (against 8% last year) which is totally unacceptable and unreasonable for a fast growing economy like INDIA. So quite reasonably, we can expect substantial improvement in the sector for the next three quarters. This would help to achieve robust industrial growth expectation of 7.5% for the whole fiscal year. PowerGrid, NTPC, Reliance Power (for obvious reasons) become hot picks.

Sixthly, Fiscal revenues to be buoyant because of revenue from disinvestments (reduction in capital investment) & Telecom( 3G) licensing. This would moderate the fiscal deficit (amount by which a government spending exceeds its income over a particular period of time) and help it to cool off to the expected 2.5% of GDP by the end of this fiscal.


These points might seem too optimistic, affirmative but INDIA continues to be a hot selling cake that every one yearns to have. India enjoys certain growth enablers such as its culture of tolerance, educational base, skilled individuals, economic factors like a well-developed entrepreneurial class, vast natural resources, strong resilience, strong democratic foundations, secular fabric and finally its young population.

All these would definitely catapult the economy in the coming quarters.

QWERTY Economics

Superior technological products need not always dominate the market! Wondering? Let Economics explain… Even today people use badly designed keyboards and suffer from pain in their hands. In 1936 August Dvorak designed a new keyboard. People using QWERTY (these are first five keys on the top row) keyboards did not prefer DVORAK keyboards because there would be compatibility problems. People who first used the QWERTY keyboard influenced subsequent users to us them and so on. So, the market was filled with QWERTY users. QWERTY, hence, remains the accepted design. This suggests that superior technology need not be the reason for product dominance. Consumer decision process plays a vital role. Economics calls this decision process "path dependence". That is, our decisions are based on others who earlier, took their decisions. And so it goes on.

NeuroEconomics

Weird, huh? Not very, in the world of stock market. Neuroeconomics is the science of the way our brain reacts when we take a decision. This incorporates using brain-scanning technologies to observe the way neurons react when you make decisions. Neuroeconomists, for instance, study how emoticeuticals (drugs that stabilize emotions) help equity traders take decisions during market crashes. By studying similar market conditions when traders did not take emoticeuticals, neuroeconomists may be able to measure change in behavior and accordingly design drugs to improve their decision taking ability.

Uncle Sam in deep waters

Recently,I read an article by Martin Feldstein, Professor of Economics,Harvard posted at his blog named a tale of two monetary policies.It commented on the monetary policies by the European Central Bank and the Federal Reserve to rein in inflation.It was interesting to learn that both were facing similar problems but pursuing different policies.Fed had cut down the interest rates and ECB had increased the same.I have my own bit of reasoning to believe why the Fed decided to take a different route altogether. I understand that the Fed does not want to raise interest rates because that would just plain hit the economy in the gut with the left fist. The politicians would scream. The people would go mad.But when the Fed wimps out, the dollar declines in value. And the cost for foreign imports, such as oil, rises. That hits the economy in the gut with the right fist. One way or the other — a left or a right to the gut — our Uncle Sam is getting beat up.The only medicine that one could prescribe is the stabilization of dollar.Its simple if the dollar stabilizes, oil should level off. And we could see the market begin to recover.But mind you this itself is a hard nut to crack! But let me discuss this in terms of energy and oil and in terms of Rising U.S. Energy Costs…
In June, as you know, the price of oil just rocketed up (as the dollar fell). I follow oil like a hawk, and even I was astonished at the pricing trajectory. I really thought that profit taking and the general negative impact on the world economy would have to slow down oil’s rise. But no, oil kept moving up.Of course now it took a back seat.But then I kept wondering at that time… Who the heck is buying this oil? Are you broke yet?But somebody is buying the expensive oil, and we are in the midst of the greatest transfer of wealth in history. Entire nations are being impoverished. Interestingly,other nations are being enriched beyond their wildest dreams.
Rising energy prices, and the related transfers of wealth, are among the great strategic movements of our time. Since the dawn of the oil age, U.S. has had some semblance of control over energy prices. Heck, at one point, prices were so low that the state of Texas empowered the Railroad Commission of Texas to stabilize prices.
It’s a long story, but the West has, more or less, always had a handle on energy prices, even in the face of OPEC, over the last 40 years or so. At the end of the day, the West could have faced down the major oil exporters and kept some sort of lid on the upside of energy pricing. Not any more.
The people who sell oil are, of course, more than happy to take US money. They are ecstatic, truth be told. In a matter of a few years, Western energy demand is moving the wealth of many generations into new hands. Some nations are getting rich, while others are getting poor — fast.
A few years ago, Russia was a post-Soviet basket case. Now the Russians are buying up much of Western Europe.
A few years ago, the United Arab Emirates was a dusty backwater. Now the UAE is becoming a world destination, and its sovereign wealth fund is buying the Chrysler Building in New York.
Meanwhile, expensive oil is breaking the backs of the middle classes in the U.S. and many other countries. Wait until next winter, when millions of households in the U.S. and Europe cannot afford to heat their homes. Ugh!
And world economic growth is stalling as oil prices rise. So it really seems as if the rising prices have to moderate and it actually did .Finally, a breather. Whew! .Whatever my point is straight n simple and it is a opinion shared by many, the cracks in US economy are getting deeper and there is very little it can do to regain its glory of the 90’s .Its showtime for the third world . We all know every dog has its day.And I would like to believe that Uncle Sam knows it well too.