Thursday, September 11, 2014

The Global factor responsible for the surge in Equity rally

The increase in the interest rates will have its effect in the equity markets here across the seven seas as the European central bank had cut the interest rates which caused the downslide of the Euro worldwide and also there was a boom in the stock markets the world over .

The Rs is getting stronger due to the foreign factors , one of them being Japanese banks sold American dollars which helped our currency ,but if America decides to increase the interest rates than the sailing ahead will be a bit tough .This Thursday European central banks cut upon the interest rates by mere 0.10% which had a major effect causing downslide of Euro and the share markets rose world over .The Rs is better since the last year .In the next two years the GDP will come back to 8% and investing in equities will yield enormously .So it is high time to book some profits which will help you to balance your portfolios .As the equity markets have risen from cheap valuations of 12 times forward earnings to the current levels of 17 times forward earnings and this is a well above historical averages , this rise is aided by the local and more by the global flows .

Global flows yes because India being the final destination as Russia is affected by Ukraine crisis, China has a credit bubble and petty governance issues, economy is at recession at Brazil, Thailand, Indonesia, Turkey and Gulf due to neo-political situations. Thus in India the macroeconomic indicators are improving, inflation is moderating and improvement in growth, stability in currency, softening in crude oil and thereby the positive upbeat sentiments.

The investment cycle is will be revived through the combo efforts of government –sponsored infrastructure activities, public sector undertaking expansions will overall attract FDIs thereby overall adding to the gloss at the dalal street .At these times of multi- year bull run do not expect the market to have a soft corner for the investors so as to give them a chance to enter in the markets at the dream come true significant lower levels. Although the markets will fluctuate a bit so it is advisable to enter in the dips with the focus on the non-leveraged companies generating free cash flows available at reasonable valuation .Do overweigh on Technology, Banking, Financial and Infra sector. And also focus on the Disinvestment offerings which are to be to be launched soon. Happy cruising times ahead for Dalal street!!!!

Monday, September 8, 2014

The juggle of the Debt scheme

The big question is that:  Is it the right time to buy debt schemes? Which is the better choice? At the same time getting the tax benefits all in one go ? Now the distributors as well as the mutual fund houses are promoting the schemes .Are debt schemes a better alternative to the fixed deposits in the banks , although we have to analyze the risks which they carry. One thing is for sure that the debt schemes are market linked instruments just like any other mutual fund scheme and the returns from these solely depends on when you buy or sell. There are certain things like research and expertise which the advertising and promoting companies lack and very sadly the fund companies also do not promote and this is where our company vps advisory helps you out. Even the Finmin has emphasized to change the taxability of the debt schemes, so now the question is that are the debt schemes still worth considering .

First of all the bank FDs are different from the debt schemes just like the ice and the ice-creams. The bank FDs offer a safe and secure income and also offers the protection of the principle amount ,but they are taxable where as the debt schemes are market linked and carry the interest rate risk and this is the reason that at sometimes the returns can be really low and at times even towards the negative .Until now the debt schemes offered huge tax benefits but after this year’s budget the income generated through debt schemes for holding period of less than three years would get the same treatment as that of the banks FDs.

So one should look for two things one invest in the top performing schemes and two understand the interest rates cycles..Achieving the both is a bit difficult for the average saver, however analyzing the interest rates is really tough even for the experienced investor .The bond prices and the bond yields move inversely ,if one is higher than the other is lower ,therefore when you invest when the yields are higher and exist when the yields fall ,than you make better returns and of course better returns than the returns than by the equities .And on the contrary if you buy at the bottom of the interest cycle and sell when the yields go up than you end up in a loss..The price of the long term bonds are more sensitive to the interest rate movements as compared to the short term bonds and this only shows that the income schemes which have longer duration are riskier than the short term debt schemes.

 To understand bond , bonds are nothing but a form of debt .Bonds are loans but you serve as a bank .You loan your money to a company ,a city or the government who in turn promise to pay you back in full with regular interest payments .

A city may sell bonds to raise money to construct a bridge ,while a government issues a bond to finance its spiraling debts .How long you hold the bond or how long you lend your money to the bond issuer also comes into the play ,for example a five year against one year bond pays higher yields because your money is engaged for a longer period of time .The interest rates probably have the single largest impact on the bond prices because as the interest rates rises the prices of the bonds fall ,that’s because when hen the rates climb the new  bonds are issued at a higher rate thereby making the existing bonds with lower rates less valuable ,and if you hold into your bonds until maturity it doesn’t matter how much the prices fluctuate because your interest rate are fixed when you had bought them and when the term is up you will receive the face value ie the money which you initially invested , but you need to sell your bond in the secondary market before it matures ,you could get less than your original investment back.

Initially the inverse relationship among the interest rates and the bond prices may appear to be illogically ridiculous ,but upon second look it makes sense for example a bond is trading at 95 and has a par value of 100 paid at maturity in one year ,the bond rate of return at the time is 5.25%(100-95/95) is 5.25%  appox,.For a person to pay Rs 95 for the bond he will be happy to receive a 5.25% return .But the satisfaction with this return depends upon what else is happening in the stock market .If the current interest rates were to rise given the newly issued bonds a yield of 10% ,thus bond yielding 5.25%would not only be less lucrative but would also be out of demand ,and to attract demand the price of pre existing coupon bonds would have to decrease enough so as to match the same return yield by prevailing interest rates So do choose wisely .

Monday, August 25, 2014

The volatility check

It was observed of late that there were episodes of rash sell-offs of shares of mid caps and small cap companies which compelled RBI to tighten the noose norms related to the loan against the shares and this will only redirect the promoters of these companies to find new sources of funding. Its a usual practice that if the investor wants to buy a stock than he has to put a part of money and the remaining balance will be borrowed by him from the lender .

 Normally the investor or the promoter avail the loan against the shares by just pledging the shares funded, the power of attorney given to lender allowing him to sell the shares to recover the amount, as per the present rules the stock broker is allowed to fund only 50% of the transaction value and so also against the type of shares besides disclosing their position to the stock exchanges but there is no constraint on the margin funding by NBFCs, and naturally the lenders sell off the shares if the stock price falls at the undesired levels and so the client is not able to meet the margin call. So the new circular states that Non Banking Financial Sector (NBFC) cannot lend more than 50% of the value of the shares pledged as collateral while giving loan of Rs 5 lakhs and above.

NBFCs with an asset size of Rs 100 crore can accept only group 1 securities as collateral and will also have to disclose details of the shares pledged with them .And this move is very significant by the central bank which will be instrumental in checking risks of unwanted volatility in the equity markets as the market is too hyper bullish. The National stock exchange (NSE) has 694 stocks and the Bombay Stock Exchange has 817 scripts under the group 1. So many midcaps and small caps will be deprived of funding by NBFC , because for whatever reasons the manner or purpose the money is lent against the shares the default by the borrowers leads to the offloading of the shares in the market by the NBFC and thereby creating avoidable volatility in the market. Although it will be a bit difficult for the traders as their leverage positions get reduced significantly.

Tuesday, August 12, 2014

The investment opportunities ahead-- Petroleum and Natural Gas

The Petroleum and Natural Gas sector will have focus on implementation of infrastructure network for transportation of gas and for this the focus is on to lay the extensive pipeline of 15,000 Kms and gas grid network through the PPP model all across the country .The most to be benefited are GAIL and Engineers India Limited (EIL) besides these other private players are also to be benefited directly .as this sector will be widely open for the private companies once the PPP model comes into the picture even the deregulation plans of diesel will provide a big booster needed for this sector although the deregulation is of the Kerosene and LPG is also in the offing and is expected soon which will have dual benefit on the financial health as well as the oil PSUs also. Even the oil exploration companies have been directed to revive old as well as closed wells , some companies like ONGC as well as Oil India has been stagnant during the past few years .All these factors will revive the stressed oil and gas sector which is on the go !!!!!!!!!!!

Monday, August 11, 2014

The investment opportunities ahead -- Infrastructure & Reality

Focus on infrastructure could be the telling factor in getting the Indian economy back on track because any investment in infrastructure multiplies ten folds. Manufacturing and the infrastructure sector are both of paramount importance .Even the banks now can offer the ailing infrastructure projects without any regulatory notions such as CRR and SLR on priority as per the lending norms .Newer projects of roads and sixteen new ports ,SEZ,100 smart cities ,efforts in these areas will also not only generate employment opportunities but also consolidate the Indian economy in the long term.

Even the reality sector was getting drumming due to the burden of debt as well as sluggish sales of volume and these two factors created a quicksand for most of the players causing cash crunch now the built up area and capital conditions for FDI would be reduced from 50,000 to 20,000 sq meters and from USD 10 million to USD 5 million for the development of the smart cities which would attract more FDI into the reality sector providing the much needed liquidity .

Sunday, August 10, 2014

The investment opportunities ahead--Power Sector

This is one sector to be watched keenly only because our country is going through the power crises and this is one of the sector which requires complete overhaul. Just because of the coal shortage  even the stalwarts like NTPC and other power generators are feeling the brunt .The focus is clearly on this sector for example the focus is on Ultra Mega Solar Power Projects (UMSPP) in the states of Andrapradesh ,Laddakh,Tamil Nadu ,Gujrat and Rajasthan.The focus is also on solar power driven agriculture pump sets as well as water pumping stations which will directly affect and boost these companies like CRI, BHEL, Suzlon, Moser Baer, Indo solar , Jain Irrigatoin, Indowind and other such companies related to solar power panel manufacturing.

 Another upcomming project is Ultra Modern Super Critical Coal Based Thermal Power Technology which will affect these companies like NTPC and BHEL. Tata Power, Torrent Power, NHPC, Power Grid and Reliance Power .So I will call it a Power doom to a Power Dhoom story all the way .

Thursday, July 31, 2014

Investors smelling bull going berserk

Over the past one year the trends are shifting remarkably as the analysts are valuing companies in the traditional cyclical sectors like auto as well as auto ancillaries ,logistics and cement as they are tweaking their business models in line with the domestic consumption theme. There is high earning, grand balance sheets, remarkable expansions of their capacities and great expansions of product line is very convincing for us to value highly these companies such as Maruti Suzuki , Motherson, sumi, Gati and Ultratec cement as consumption companies and this implies that price to earnings is multiple of these companies would eventually increase and thereby would offer more value for investors. 

These companies are catching the attention of potential investors to play next domestic consumption theme of India. Moreover the S&P 500 is expected to climb higher up from its current levels .And there is just a little hitch is the valuation which is holding the investors’ enthusiasm .

At the moment the markets are fairly valued and  not excessively expensive .If S&P 500 earns $125 by 2014 .Its as simple as that if the economy grows at the rate of mere 3% during the remaining months of the financial year and the inflation rate is at 2% than the growth rate is expected to be at just around a fair 5% and if the productivity increases consistently and share buy backs so the S&P 500 would show improvement up to 7% .As there is good cash on corporate’s balance sheets the share buy backs will continue triggering the gun and setting the bull go on rampage .