BENJAMIN GRAHAM

BENJAMIN GRAHAM gave a formula that i reproduce below for the analysis of everyone and their views.
BENJAMIN GRAHAM'S FORMULA : Intrinsic Value = Earnings x (8.5 + 2 x Expected Growth)Summary : I - WHAT IS GRAHAM's FORMULA ?A - A FEW IMPLICATIONS OF GRAHAM'S FORMULA1 - Price Earning Ratio (P/E) as a function of future growth (G)2 - Implicit Growth derived from price and earnings.B - HOW TO ESTIMATE LONG TERM GROWTH ?C - COMPARING GRAHAM's FORMULA WITH DISCOUNTED CASH FLOW METHODE - GRAHAM'S FORMULA LIMITATIONSD - BACK TESTING GRAHAM'S FORMULA II - HOW IS GRAHAM's FORMULA APPLIED ON INVESTINVALUE.COM ?I - WHAT IS GRAHAM'S FORMULA ?Benjamin Graham describes a formula he used to value stocks in the 11th chapter of the “Intelligent Investor”.(whole text here) :"Most of the writing of security analysts on formal appraisals relates to the valuation of growth stocks. Our study of the various methods has led us to suggest a foreshortened and quite simple formula for the valuation of growth stocks, which is intended to produce figures fairly close to those resulting from the more refined mathematical calculations. Our formula is : Intrinsic Value = Current Earnings x (8.5 + 2 x Expected Annual Growth Rate)The growth figure should be that expected over the next seven to ten years."Example n°1 : A stock is trading at 120$. Its current earnings are 8$ per share. The annual growth rate over the next 7 to 10 years should be around 7%. The Intrinsic Value is = 8 *( 8.5 + 2 * 7) = 180 $. The Margin of Safety is : (180 - 120) / 180 = 33%.Example n°2 : the same stock is still trading at 120$, but its earnings are revised to 9$ per share and the annual long term growth rate should now be around 8%. The Intrinsic Value becomes = 9 *( 8.5 + 2 * 8) = 220.5. The Margin of Safety is : (220.5 - 120) / 220.5 = 56%.Example n°3 : the same stock is trading at 120$, its earnings are 5.5$ per share, the annual growth rate around 6.5%. The Intrinsic Value is = 5.5 *( 8.5 + 2 * 6.5) = 118. The Margin of Safety is : (118 - 120) / 118 = -1%.A - A FEW IMPLICATIONS OF GRAHAM'S FORMULA1 - Price Earning Ratio (P/E) as a function of future growth (G)If we assume that Intrinsic Value = Price, then Graham's Formula is equivalent to : Price / Earnings = 8.5 + 2 x G.In other words, the P/E for a no-growth company (G = 0) should be around 8.5.2 - Implicit Growth derived from price and earnings.From the fomula above, a P/E can be linked to G this way : G = (P/E - 8.5) / 2.P/E 5 8.5 10 15 20 25 30
Long term annual GROWTH (in %) -1.75 0 0.75 3.25 5.75 8.25 10.75
or graphically : Example : If a stock is trading at 100$ and has earnings of 5$, then we have : G = ( P/E - 8.5 ) / 2 = (100/5 - 8.5) / 2 = (20-8.5)/2 = 11.5 / 2 = 5.75%.B - HOW TO ESTIMATE LONG TERM GROWTH ?Estimating long term growth over the next seven to ten years as required by Benjamin Graham is a key point. Unfortunately, what is certain about future growth is that it is unpredictable. Yet, a few techniques are available :- dividing earnings current earnings by earnings ten years ago and assuming that past growth will reflect future.- dividing average earnings on last three years by average 3 years earnings ten years ago- estimating future growth by fundamentals from the balance sheet- linear regression or log-linear regressions : this is the one chosen on Investinvalue.com.- you can also try this one : hereA good study of the different ways of estimating growth (... and much more...) is available on Pr. Aswath Damodaran website : hereC - COMPARING GRAHAM's FORMULA WITH DISCOUNTED CASH FLOW METHOD ?A good website to compare valuation methods is MoneyChimp : hereGRAHAM'S FORMULA / DCF SIMULATOR : With this simulator (click HERE) you can compare the fair value given by a two-stage discounted cash flows model with the fair value of Graham's Formula.D - GRAHAM'S FORMULA LIMITATIONSConcerning Future Growth Rate :Investinvalue.com utilizes a linear regression of past 10 years earnings to determine growth rates : the last ten years may or may not reflect the future growth rate. Competitive landscapes change, capital structures change, and hence earnings growth rates will be affected.Concerning the level of Current E.P.S. :- earnings may be bloated or understated depending on accounting choices.- cyclical businesses in the late stages of an economy will have a very high earnings base that is used as the basis of the valuation.- Balance sheet leverage is also not considered in the valuation.- Businesses that are currently loss-making are worth zero in this analysis.What follows is taken from an excellent blog : http://valuediscipline.blogspot.com/" This raises another important reminder. Valuation is an incredibly imprecise art. In some ways, the development of the spreadsheet was one of the most dangerous inventions of the twentieth century. Extrapolating data into the hereafter without consideration of its reasonableness, without consideration of competitive advantage periods, and without considering something other than linear growth has often provided ridiculous results.Though elegant spreadsheet models may create an illusion of precision, their complexities do not necessarily suggest greater accuracy than the Graham model. I do prefer free cash flow based valuation models but like every model, the valuation is entirely dependent on the input assumptions. Man have I gotten a lot of those wrong over time, but the spreadsheet sure looked impressive.I think the website is definitely worth a look and a spin. You may or may not agree with the valuation it accords your stock, but at least it should make you think about the reasonableness of your assumptions. If it achieves that, it's a great site."E - BACK TESTING GRAHAM'S FORMULAGRAHAM's formula has been applied to S&P500 index since 1940. The datas come from Professor Robert J. Shiller (Yale University).


II - HOW IS GRAHAM's FORMULA APPLIED ON INVESTINVALUE.COM ?
1 - Estimating Earnings Long term Growth : the "G" parameterOur estimation of earnings long term growth rate is based on a linear regression of the past ten years earnings per share. For example, consider Citigroup's Historical earnings on this chart.
The linear regression on the past ten years earnings (orange bars) looks like this (red line) :
The prospective linear regression for the next year is the red line.Long term growth is estimated by dividing next years earnings (estimated by regression) by current year earnings ; here, long term growth rate estimation is 4.79 / 4.48 - 1 = 6.91%
2 - Applying GRAHAM's FORMULAIn the example above :Current Earnings Per Share = EPS = 4.48Long Term Growth Rate = G = 6.91Intrinsic Value = V = EPS * (8.5 + 2 * G ) = 4.48 * (8.5 + 2 * 6.91) = 100 dollars.

Why Silver ???

Silver, the poor cousin of gold has been on a roll. Since the beginning of this year, the metal has given a whopping 61% returns. Gold in the same period has given a return of around 15%.

Also, silver prices have been on all time high levels, and currently quote at `44,130 per kg. Despite these all-time high levels, buying silver seems to be catching on in India.

Take the case of 58-year old Usha Joshi, who always wanted to buy silver. However, the idea of holding silver physically seemed problematic to her. While she could buy gold through exchange traded funds (ETFs), she could not do the same in case of silver, as no silver ETFs are available in India.

However, now she has a solution to her problem. She buys both e-gold and e-silver through the National Spot Exchange, where it is possible to buy silver in lots of 100 grams and gold in lots of 1 gram.

At the opportune time, Ms Joshi, plans to gift these precious metals to her grandchildren. “It’s easier than going to a jewellery shop. All I do is instruct my broker to buy it,” says Joshi.

Several people like Joshi are buying silver nowadays. “In the last couple of months, we have received a lot of enquires from retail investors who want to buy silver and are opening accounts,” says Sushil Sinha, business head, Karvy Commtrade. “We are adding 3,000-4,000 client accounts every month,” says Anjani Sinha, MD and CEO, National Spot Exchange.

So, What’s The Silver Story?: Silver, unlike gold, has a lot of industrial uses. “Silver is the best conductor of electricity, the best heat transfer agent, the best reflector of light, a marvellous lubricant and a versatile catalyst and alloy,” says Theodore Butler, silver analyst, Butler Research, and one of the most respected silver analysts in the world. Other than these properties silver, after gold, is also the most ductile and malleable.

“Silver has industrial value and finds use in dentistry, photography and motherboards. The demand for these industrial products is on the rise,” explains Vijay Bhambwani, chairman, Bhambwani Securities. Besides that, the global recession has taught people to go beyond paper assets and invest in precious metals. Hence the recent interest in gold and silver.

Bhambwani recommends investors to buy silver for the long term, and has a target of `60,000 per kilo with a three-year timeframe. What is also not too well known is that there is less silver on earth than gold. As Butler says, “There is less silver bullion in the world than gold bullion inventory.

The shocking thing is how few people are aware that silver is rarer than gold.” He estimates that global silver inventories have fallen to around 1 billion ounces (one troy ounce equals 31.1 grams). In comparison there are 5 billion ounces of gold available around the world. Of course, Butler is very optimistic on the price of silver. “I’ll be amazed if we haven’t climbed past $100 per ounce in that period, in the next three to five years.” Currently, silver quotes at around $28.4 per ounce.

The Technical Reason: “Silver moved in a band of $10 to $21 per ounce, for a long period from 2007 to 2010. It broke that band after a long time, which makes me bullish on the metal,” says Bajrang Banthia, MD & CEO, Ashika Commodities.

He feels that within two to three years, globally silver could reach $50 per ounce against the current price of $28.4 per ounce, while in India, it could reach `55,000 per kilo from current levels of around `44,000 per kilo. The rationale for a lower rise in silver in terms of Indian rupees is due to the fact that Banthia expects the rupee to strengthen and go up to `42 per dollar, limiting the gains in rupee terms.

Gold Versus Silver: The investment argument of silver is pretty simple. The various industrial uses of silver are growing and there isn’t enough silver going around to satisfy that demand.

Adrian Douglas, the proprietor of Market Force Analysis, and also a director of GATA (the Gold Anti-Trust Action Committee), said in a recent interview that the world will run out of silver in 2020, and thus silver will become the first element from the periodic table to become extinct.

Given this analysts, expect silver prices to appreciate faster than gold. “As global uncertainty fades and industrial activity picks, I expect higher demand for silver, so it could move faster than gold,” says Anand James, chief analyst, Geojit Commtrade.

“In the short term, silver prices could see a correction,” adds Banthia.

However, for retail investors it is very difficult to time the market and it is best that they accumulate it over a long term. “Retail investors should systematically buy gold and silver every month. This could constitute up to 10% of your total investment portfolio,” says Partha Iyengar, founder and CEO, Accretus Solutions.

How To Buy Silver: Of course, the traditional way to buy silver is buying it from your jeweller. Traditionally, individuals are used to buying coins or silver bars. Some even buy ornaments, while some families also buy silver utensils. However, there are a couple of problems in buying coins and bars.

The first is that of purity and the second is of storing it. Silver is bulkier than gold and needs more storage space. So, storing bars can be a problem. As Devendra Nevgi, managing partner and founder, Delta Global Partners explains, “Physical silver is typically more bulky and investors sometimes face this storage problem for larger quantities.

This increases the cost of storage and may be the cost of insurance too. Though smaller investors can easily manage the storage as a typical 1 kg silver bar would be 99 x 49 x 22 mm in size,” says Nevgi.

Vijay Chabbria, a certified financial analyst who runs Prudent Investment Advisors, says, “It is not practical to buy 20 kg as an investment — firstly to store it is cumbersome and secondly, purity may be an issue in some cases. Also, normally I need to sell it back to the same merchants so that they recognise the purity. More than that, there is that wealth tax that has to be paid on physical silver.”

While there are a lot of gold ETFs, silver ETFs have not been allowed as yet. So, how does one buy it for investment? The most practical solution is to buy e silver.

E silver has been launched recently by National Spot Exchange. According to brokers, about `30 to `40 crore of silver is traded on a daily basis, thus giving enough liquidity for retail investors.

This is the same way as you buy shares and they are held in dematerialised form. In case you want physical silver, you can do the necessary paperwork with the depository participant and collect it. However, currently there are limited centres which could be a barrier for investors.

For example, if you stay in Hyderabad, it may not be feasible to take possession of physical silver as the delivery centres of National Spot Exchange are located in Mumbai, Delhi and Ahemdabad. So, go ahead and buy e silver to ride the white metal boom, keep it as a hedge against inflation or pass it on to your next generation.

ALL ABOUT SIP

This is the market revolutionary change happened, achieved fame and many of us heard of it without knowing much about it.

Unfortunately, many new investors seem to be under a misconception that it is a type of mutual fund. A Systematic Investment Plan is not a type of mutual fund; it is a method of investing in a mutual fund.

Here's to coming to terms associated with mutual funds. There are two ways in which we can invest in a mutual fund.

Ø A one-time outright payment

If we invest directly in the fund, we just hand over the cheque and we get our fund units depending on the value of the units on that particular day.

Let's say we want to invest Rs. 10,000. All we have to do is approach the fund and buy units worth Rs. 10,000. There will be two factors determining how many units we get.

a) Entry load

This is the fee we pay on the amount we invest. Let's say the entry load is 2%. Two percent on Rs. 10,000 would Rs. 200. Now, we have just Rs. 9,800 to invest.

b) NAV

The Net Asset Value is the price of a unit of a fund. Let's say that the NAV on the day we invest is Rs. 30.

So we will get 326.67 units (Rs 9800 / 30).

Ø Periodic investments or SIP (Our present area of concentration)

This is referred to as a SIP.

That means that, every month, we commit to investing, say, Rs. 1,000 in our fund. At the end of a year, we would have invested Rs. 12,000 in our fund.

Let's say the NAV on the day we invest in the first month is Rs. 20; we will get 50 units.

The next month, the NAV is Rs. 25. We will get 40 units.

The following month, the NAV is Rs. 18. We will get 55.56 units.

So, after three months, we would have 145.56 units. On an average, we would have paid around Rs. 21 per unit. This is because, when the NAV is high, we get fewer units per Rs. 1,000. When the NAV falls, we get more units per Rs. 1,000.

Other important points relating to SIP-

§ Exit load - An exit load is a fee we pay at the time of selling the units, just like the entry load is a fee we pay when we buy the units.

Initially, funds never charged an entry load on SIPs. Now, however, a number of them do. We will also have the check if there is an exit load. Generally, though, there is none. Also, if there is an entry load, an exit load will not be charged. An exit load may be charged if we stop the SIP mid-way. Let's say we have a one-year SIP but discontinue after five months, then an exit load will be levied. These conditions will wary between mutual funds.

§ Periodic Investments - If we do a onetime investment, the minimum amount that we have to invest is Rs. 5,000.

If we invest via an SIP, the amount drops. Each fund has their own minimum amount. Some may keep it at least Rs. 500 per month; others may keep it as Rs. 1,000.

§ Frequency of investment - It would depend on the fund. Some insist the SIP must be done every month. Others give us the option of investing once in three months or once in six months. They also give fixed dates. So we will get the option of various dates and we will have to choose one. Let's say we are presented with these dates: 1, 10, 20 or 30. We can pick any one date. If we pick the 10th of the month, then on that day, the amount we have decided to invest in the fund has to be credited to our mutual fund.



§ Nature of payment - We can opt for the Electronic Clearance Service from our bank; this means the mutual fund will, as per our instructions, debit a certain amount from our account every month. Let’s say we have a SIP of Rs. 1,000 every month and we have chosen to invest in it on the 10th of every month. Under this option, we can instruct our mutual fund to directly debit our bank account of Rs. 1,000 on the due date. If we don't have the required money in our account, then for that month, no units will be allocated to us. But, if this continues periodically, the mutual fund will discontinue the SIP. We need to check with each mutual fund what their parameters are.

Alternately, we can give cheques to our mutual fund. In this case, they may ask for five Post Dated Cheques upfront with our first investment. Since these cheques are dated ahead of time, they cannot be processed till the date indicated.

§ Duration of investment – one have to state whether we want it for a year or two years, etc. If, during the course of this period, we realize we cannot continue with the SIP, all we have to do is inform the fund 15 days prior to the payout. The SIP will be discontinued. We can continue to keep our money with the fund and withdraw it when we want.

§ Type of funds that offer SIP - All types of equity funds (funds that invest in the shares of companies), debt funds (funds that invest in fixed-return investments) and balanced funds (funds that invest in both) offer a SIP.

Liquid funds, cash funds and floating rate debt funds do not offer an SIP. These are funds that invest in very short-term fixed-return investments. Floating rate debt funds invest in fixed return investments where the interest rate moves in tandem with interest rates in the economy (just like a floating rate home loan).

§ Tax implications - Let's say we have invested in the SIP option of a diversified equity fund. If we sell the units after a year of buying, there is no need to pay capital gains tax. If we sell if before a year, we are required to pay capital gains tax of 15%.

Let's say we have invested through a SIP for 12 months: January to December 2009. Now, in February 2010, we want to sell some units. The system of first-in, first-out applies here. So, the amount we invest in January 2009 and the units we bought with that money will be regarded as the units we sell in February 2010.

For tax purposes, the units that we sell first will be considered as the first units bought.

· How can be SIP is different and help full when compared to regular method of investing in mutual fund- When we buy the units of a fund, we may do so when the NAV is really high. For instance, let's say we bought the units of a fund when the bull Run was at its peak, leading to a high NAV.

If the market dips after that, the value of our investments falls and we may have to wait for a long while to make a return on our investment. But, if we invest via a SIP, we do not commit the error of buying units when the market is at its peak. Since we are buying small amounts continuously, our investment will average out over a period of time. We will end up buying some units at a high cost and some units a lower price. Over time, our chances of making a profit are much higher when compared to an one-time investment.

Asian equities edge upwards

Buying continues in regional benchmarks except China

Asian markets edged higher though shares in China continued to ease on liquidity worries. Commodity prices were stronger today as the dollar eased to a five week low against the Euro and risk appetite mostly stayed firm ahead of the weekend on steady cues from over night US markets. Economic data in the US, especially weekly jobless claims, continue to impress with unexpectedly small increase. US First-time Jobless Claims Slide To Lowest Since July, making the stocks encounter a poor manufacturing data in the form of the Philadelphia-area manufacturing index. The Dow gained 22.10 points or 0.2 percent to end at 10,594.83.



The Japanese stocks closed in green as exporters continued to gain from a frail undertone in the Japanese Yen and broad gains in the regional markets. Positive closing on Wall Street in the previous session also pushed up the index linked counters. The intervention of the Japanese monetary authorities to cap the freakish gains in the local currency against the US dollar have continued to keep the Yen lower, extending its drop from a 15 year high. The benchmark Nikkei 225 Index cloaked a gain of 116.59 points, or 1.23%, to 9,626, while the broader Topix index of all First Section issues added 7.38 points, or 0.87%, to 852.

The Australian market also gained, adding to recent gains as commodity prices stayed firm following the drop in US dollar and strong risk appetite. There was no activity on the economic front and traders mostly followed the commodity prices to push up the stocks ahead of the weekends. The benchmark S&P/ASX200 Index gained 33.60 points, or 0.73%, to end at 4,640 points, while the All-Ordinaries Index closed at 4,685, adding 35.10 points, or 0.75%.

Chinese markets plummeted though, adding to the latest losses as hefty selling in financials and heavyweight stocks hurt the sentiments. Traders continued to fret over the credit conditions in the economy and the recent revival in the inflationary expectations is also keeping the gains mostly limited in the stocks off late even as the rest of the world rallies. The Shanghai Composite Index fell for its third straight day to 2,598.7 points, after slumping nearly 2% in last session.

In Mumbai, the key benchmark indices regained strength in late trade to settle near day's high, with index heavyweights leading the rally. Firm global stocks and data showing heavy buying by foreign funds recently, underpinned sentiments. Hopes that the central bank may be nearing a pause in its current tightening cycle, also aided the rally on the domestic bourses. The BSE 30-share Sensex was provisionally up 200.52 points or 1.03% to 19,618.01. The barometer index today, 17 September 2010, struck a 32-month high.

In other markets, Hang Seng index in Hong Kong gained 1.30%, TSEC index in Taiwan added 0.72 % while Straits Times index in Singapore edged higher by 0.30%. Dollar eased to five week low against the Euro before cutting losses while DOW futures also come off after gaining 100 points in the session. Crude oil futures are back above $75, currently quoting at $75.04, up 47 cents on the day. Gold also rallied to fresh highs above $1280 per ounce.

Are insurance companies in India listening to the customers?

Life insurance companies in India are realigning their business models as the new regulations on ULIPs have shaken them out of their comfort zones.

The IRDA has done several things in response to mis-selling of ULIPs – increased the policy lock-in period of ULIPs, asked insurers to guarantee a certain return in some categories of ULIPs, and put a cap on the portion of premium that insurers can deduct as upfront charges.

ULIPs account for 50% of the business of life insurers. The cap on up-front charges means that ULIPs have become cheaper, hence more attractive for customers. Since insurance companies were using 40-50% of the first year’s premium as charges primarily for paying the agents, the new regime will mean lower commissions for insurance agents.

Insurance companies are worried about this. They are highly dependent on individual agents for selling policies, though many private companies have also been pushing bancassurance. So the focus of their marketing strategy, to a very large extent has been the agents rather than the end customers themselves.

The competitive intelligence efforts of insurance companies have centred around the channel strategies of their competitors – commissions on various products, discounts on group insurance schemes, promotional activities, etc.

A pitfall of concentrating on what the competition is doing, is that companies come up with me-too products. It is easy to spot this trend in India. Customers are forced to pick from a bunch of similar products, and pretty much rely on the advice of the agent to do so. Many of my otherwise informed friends have bought insurance this way.

As far as the end customers are concerned, the industry has focused on “educating” them. The rationale being that insurance penetration in India is low because consumers don’t understand insurance.

Perhaps the current shake-up is a good opportunity for companies to take a hard look at whether their products really meet the needs of Indian customers. And this is less straight forward that it seems. The imagination of most customers is limited by the products they have seen so far. Perhaps it is time to get to the need behind the need (which is indeed likely to be different for different customer segments), and offer appropriate innovative products to the customers.

If insurance companies can come up with offering that meet their customers’ need, they will not be dependent on the agents to push their sales.

India picks symbol to rival the €£¥$

For those of us still fumbling to find the € symbol on our keyboards, today was a bad news day. Computer and mobile keyboards in India (and possibly around the globe) will soon be adding another new button - the rupee key.

Today a jury selected by the Indian government unveiled a new rupee symbol (pictured) to rival the internationally recognised the US dollar ($), the euro (€), the UK pound (£) and the Japanese Yen (¥).

The decision to create a new currency symbol reflects India’s aspiration to become a global player on international financial markets, in particular at a time when the Indian rupee has been strengthening against all major currencies.

The new symbol - or logo as some people have called it - also aims to distinguish India from its neighbours. Pakistan, Nepal and Sri Lanka all currently use the “Rs” abbreviation to refer to the their local rupee.

Earlier this year Pranab Mukherjee, India’s finance minister, said that the government “intends to formalise a symbol for the Indian rupee, which reflects and captures the Indian ethos and culture”.

So, in classic Indian style, the ministry organised an open competition to design the new symbol. The prize set for the winner was Rs250,000 ($5,352) in cash.

And the winner was…Udaya Kumar, a post-graduate student at Mumbai’s Industrial Design Centre, which is part of one of India’s elite institutes of technology (IITs).

For those who think it looks a bit like an ‘R’ with a line across it, don’t be fooled. According to the Indian Express the new symbol represents exactly what the finance minister was looking for.

“An amalgam of the Devanagari ‘Ra’ and the Roman capital ‘R’ without the stem…. [it] is based on the Tricolour and “arithmetic equivalence”. While the white space between the two horizontal lines gives the impression of the national flag with the Ashok Chakra, the two bold parallel lines stand for ‘equals to’, representing balance in the economy, both within and with other economies of the world.”

The verdict was given by a five-member jury and approved by the government cabinet’s today. However, the more important question is whether Indian citizens will like it. Beyondbrics hit the streets of Mumbai, India’s financial capital, with a copy of the new rupee symbol to gauge reaction to the currency’s novel design.

The (unscientific) beyondbrics vox pop verdict was generally a thumbs up for the new design - 6 out of the 10 people interviewed said they liked the currency symbol. The most common comment was that it merged India’s traditional and modern ethos.

Salman Borbhuyan, a perfume shop owner, said: “I like it because it has a traditional feel and a modern look. It’s a great mix.”

Another fan of the new “logo” Nitin Hadale, a young gym trainer, said: “It has an aggressive look and it’s very eye-catching.”

Two people agreed that the new symbol had a lot in common with the euro. However, the same two were split on whether the euro-likeness was a good thing.

A cigarette vendor, who didn’t want to be named, said: “I don’t like the fact that it looks like a euro…the symbol should be more Indian.”

However, Mukesh, a tailor, said that “the similarity with the euro is positive…it will make the rupee more internationally recognisable.”

What the majority of the country thinks about this new symbol is still a mystery - very few have seen the symbol or were aware that the government was planning to create a new one. An appropriate marketing campaign will be necessary to get everybody on board to support it.

From a geopolitical point of view, there are some serious doubts on whether the new symbol will help to elevate India’s status in international financial markets. Although the move certainly makes sense, and will bring some visibility to the Indian currency, it will take much more substantial and radical reform for India to enter the circle of global economic superpowers.

India good for cherry picking: Macquarie - Mark Matthews

What is your prognosis on Greece and Portugal? What is the impact it is having on the euro?

Mark: We had a lot of coordinated intervention over the weekend from the BoJ and Federal Reserve which was unexpected. I don’t think people expected those two big central banks to get involved. But I think trust in the system is still very very weak and the way markets in Asia have reacted this morning is much less of a rebound than anticipated. I would have thought markets would have been up 3-4%, but they are up only 1.5%.

So what is that telling you about equities as an asset class?

Mark: I think there is probably some short covering that needs to be done. So markets can go higher in the medium future. But longer term we already did so well last year, Asia doubled, the S&P went from around 700 to 1200 and I think even if the European crisis has not happened. Markets would still be going up very quickly today. You know China is the economic engine of the world and the Shanghai market is down about 15% in a year to-date. I don’t think markets are going to go up very much in between now and the end of the year.

Call on the euro at this point?

Mark: I think we have to read the details of the plan that is coming out to get more clarity. I don’t think the euro deserves to stage a really big rebound. Even if they do manage to contain the crisis and it doesn’t spread into other countries in Europe, the fact is that now the cats are out of the bag that they have this huge deficit. And they have to reign in these deficits by cutting spending and that’s going to mean less consumption, both government and personal consumption in those countries. And that won’t help the euro.

What does all this mean for liquidity coming into markets like India?

Mark: The interesting thing is that people are naturally attracted to the Indian market because it is one of the few large stock markets in the world where you can buy growth which is not correlated to the rest of the world because exports as a percentage of GDP are much lower in India than they are in most of the countries in Asia. But the irony is that its precisely because India’s economy growth is uncorrelated that the stock market attracts a lot of foreign portfolio money and therefore that money can easily be withdrawn when risk aversion increases as it has in the past two weeks. So the irony is that though India is a very protected economy from the rest of the world and it has very good domestic attributes, the stock market can suffer more than others in Asia because foreigners invested in it for its independent growth.

EU Impact: Sensex gains 560pts

Positive global cues (the nearly $1 trillion European Union bailout plan) saw the Sensex open with a positive gap at 16,799, which turned out to be the low for the day. Buying in heavyweights and metal stocks saw the index zoom to a high of 17,356 - an intra-day gain of over 585 points. The Sensex finally snapped a five-day losing streak and closed near the day's high with a gain of 561 points (3.35%) at 17,330. The Nifty was up 175 points at 5,194.

All the sectoral indices closed with gains. The BSE Realty index gained over 6%. Breadth was bullish - out of over 2,965 scrips traded, over 2,255 logged gains.
eliance Infra, which had dropped 7% on Friday after the SC ruling on the KG basin gas favouring Reliance, gained 8% to Rs 1,063. Metal stocks were in focus: Tata Steel and Hindalco advanced nearly 8% each to Rs 602 and Rs 175, respectively. Sterlite added 6% at Rs 756.
Heavyweight Reliance moved up 4% to Rs 1,080. M&M, Wipro, Grasim and ACC also closed with gains.

Cipla dropped 6% to Rs 320 after brokerges downgraded the stock to SELL on lower-than-expected Q4 numbers. Hero Honda was down marginally at Rs 1,886.

Debutant Talwalkar was the most active counter on the BSE with a turnover of Rs 289 crore followed by RNRL (Rs 166 crore) and Reliance (Rs 151 crore).

Global cues hold key

The markets opened with a gap down and treaded lower mirroring the fall in the Asian markets. Anticipation of a gap down opening in the European markets only made matters worse. The markets hit intra-day lows immediately after the European markets opened weak.

Aggressive short-covering, along with emergence of some fresh buying in sharply battered stocks, led to a vertical upmove till the penultimate hour of trade. Thereafter, profit-booking at higher levels and apprehension of carrying forward long positions to the next trading day capped the momentum. The small decline in food inflation number against the previous week also provided some support.

Volatility ruled the roost as uncertainty over the Greece debt issues and its contagion effect on other countries added to the uncertainty.

Meanwhile, IT stocks witnessed profit-booking after yesterday's display of strong resilience while metals, capital goods, realty and power stocks continued to face selling pressure.

Though global concerns have not eased, negatives, to an extent, seem to be discounted. Global markets (especially Europe), too, can be termed as oversold to some extent if not bottomed out given the fact that they are now trading near their 200-day moving average (strong support levels). The downside thus appears to be limited unless some major adverse event unfolds.

Domestic benchmarks, too, made sharp rebounds from the day's lows and remained above the support levels by a comfortable margin. One would thus do well to keep a close watch at the long-term support levels (200-day moving average for Nifty @ 4950) and start accumulating some quality stocks that seem to have been severely battered.

UPDATE - 28/04/2010 - Wednesday

•Oppn mounts pressure for sacking Raja over 2G scam
•2 home ministry bureaucrats arrested on bribery charge
•Rupee ends weak on Greece, Portugal ratings cut
•73K requests pending for examining patent applications
•Mediclaim cover to get lower on increasing premium
•AT&T sells 7% in Tech Mahindra
•Piramal Healthcare may sell domestic formulation biz
•Suzlon in JV with Bulgarian wind farm company
•RIL makes fourth oil discovery in Cambay Basin
•Reserve Bank of India transfers 90 senior officials
•Power sector losses to exceed Rs 45,000 cr
•Bank of Baroda Q4 net up 20% to Rs 906 cr
•Marico Q4 net up 15% to Rs 51 cr
•Balrampur Chini Q2 net down at Rs 27.5 cr
•India IT spend to rise 14% in 2010: Gartner
•Saregama offers 50,000 songs for phone download
•AstraZeneca to pay $520 mn fine to US authorities
•Goldman CEO faces withering attack over ethics
•More financial fraud feared in 2010, 2011: Deloitte
•Astrology can't be banned: Govt more stories

UPDATE - 27/04/2010

Commodity News WireEnergy Oil Dips Below $85; Greece Worries, Supplies Weigh
U.S. oil fell below $85 a barrel on Monday as Greece's festering debt crisis pushed the U.S. dollar up and as the oil market girded for further growth to inventories in the United States, the world's top energy consumer.
Bullions Gold Inches Up, Near 1-Week Highs; FOMC Eyed
Gold edged up on Tuesday, nearing a one-week high marked the previous day as a halt in the euro's decline provided support, while focus is on the Federal Reserve's two-day policy meeting starting later in the day.
Currency Euro Hit By Greek Uncertainty; Dollar Up Vs Yen
Confusion about the timing and amount of emergency aid for Greece prompted investors to sell the euro on Monday as markets worried about whether the euro zone country will manage to avert a debt default.
Base Metals Copper, Aluminum Drop as Dollar Rebounds on Greek Aid Concern
Copper declined for the first day in three amid concerns that an aid package for Greece won?t stop its deficit crisis from spreading, improving prospects for a stronger dollar. Aluminum, lead and zinc also dropped.
Agri Commodity Rising Export Demand Propels Guar Gum Prices
Rising demand for exports has resulted in guarseed and guar gum prices surging in the last couple of weeks.
Monsoon Challenges
One more financial year has begun, and one more south-west monsoon will be upon us in a matter of weeks.

RBI likely to raise policy rates tomorrow

The Reserve Bank (RBI) will try to put the lid on inflation, which is nearly in the double-digit region, possibly by hiking key rates in its annual monetary policy tomorrow, feel bankers.

The apex bank, however, may not be too aggressive in tightening the monetary policy and is likely to resort to only a moderate 0.25 percentage point hike in short-term borrowing rates and mandatory bank deposits with RBI.
moderate tightening should suffice because inflation is expected to ease after the rabi (winter) crop, including wheat, sugar, potatoes and pulses, reaches the market, around mid-May.

Wholesale prices-based inflation touched 9.90 per cent in March, mainly fuelled by high food inflation. The bankers said too much caution on the monetary front may also hamper economic recovery.

Economic activity has seen revival and factory production rose by a stellar 15.1 per cent in February, the fifth straight month of double-digit expansion, riding largely on the back of fiscal and monetary stimulus measures announced by the government and RBI in the wake of the global financial crisis.
Repo and reverse repo are the key short-term lending and borrowing rates, respectively, while Cash Reserve Ratio is the money that every bank has to mandatorily keep with the central bank. Also, industry sources said that banks are not likely to raise lending rates, at least immediately, even if RBI hikes rates by a quarter percentage point as liquidity is sufficient in the near term.

"The RBI is likely to hike the rates by anywhere between 0.25-0.50 percentage point as the inflation situation warrants monetary action.
The apex bank began unwinding its monetary stimulus by upping the CRR by 0.75 percentage points in January and policy rates (repo and reverse repo) by 0.25 percentage points in March to cool inflation.

The hike is certain given the current inflation conditions and signs of the economic recovery. "I expect that CRR will be hiked by 0.25 per cent as the focus of the central bank now is to bring down inflation.

China's Q1 GDP grows more than expected

Some more monetary tightening move could be in the offing in China and the pressure to let the yuan float a little more freely may also increase after first-quarter gross domestic product (GDP) grew at a faster than anticipated pace. GDP in the January to March period expanded by 11.9% from 10.7% in the fourth quarter of 2009, the National Bureau of Statistics (NBS) said. Economists had forecast growth of 11.5%. It was the fastest growth rate in the first quarter since 2007, when the Chinese economy grew by 13%. Non-deliverable yuan forwards climbed 0.2% to 6.6140 as of 10:08 a.m. in Hong Kong, suggesting that the currency may appreciate 3.2% in the next 12 months. The Shanghai Composite Index swung from losses to a gain following the release of the GDP data. Industrial production rose 18.1% in March and retail sales climbed 18%, the data showed. Urban fixed-asset investment increased 26.4% in the first quarter from a year earlier. Consumer prices in China rose at a less-than-estimated pace of 2.4% in March from a year earlier, government data showed. CPI rose by 2.7% in February. Economists had forecast a gain of 2.6%. The producer price index (PPI) was up 5.9% after climbing 5.4% in February.

SEC sues Goldman alleging CDO fraud -,Bloomberg

Goldman Sachs Group was sued by US regulators for fraud tied to packaging and selling collateralised debt obligations (CDOs) that contributed to the worst financial crisis since the Great Depression.

Goldman Sachs misstated and omitted key facts about a financial product tied to subprime mortgages as the US housing market was beginning to falter, Securities and Exchange Commission (SEC) said in a statement today. The SEC also sued Fabrice Tourre, a Goldman Sachs vice president.

SEC alleged that Goldman Sachs, led by chief executive officer Lloyd Blankfein, structured and marketed CDOs that hinged on the performance of subprime mortgage-backed securities. The New York-based firm failed to disclose to investors that hedge fund Paulson & Co. was betting against the security and influenced the selection of securities for the portfolio, the SEC said. Paulson wasn't accused of wrongdoing.

"The product was new and complex but the deception and conflicts are old and simple," SEC enforcement director Robert Khuzami said in a statement. "Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio while telling other investors that the securities were selected by an independent, objective third party."

Infosys cautious on recovery; flags currency risk

Infosys cautious on recovery; flags currency risk



Infosys Technologies, India's No.2 software services exporter, forecast stronger-than-expected annual revenue growth of 16-18 per cent, noting that a pick-up in global technology spending was improving demand for outsourcing.
However, a firming rupee on the back of rising foreign investment in India's fast growing economy may keep earnings growth muted for outsourcers, and Infosys expects its profit margins to take a hit this year. This pressure is not likely to go away as the rupee is still appreciating.

Small, mid-cap indices beat Sensex by huge margin

Small, mid-cap indices beat Sensex by huge margin

The shares of small- and mid-cap companies outperformed the bluechips in financial year 2009-10. This was due to the revival of investor sentiment and expectations of higher returns.
For the year ended March 31, the 30-share benchmark Sensex gained 80.5 per cent, or 7,819.27 points. This was, however, dwarfed by the gains posted by indices representing the broader markets.
The BSE Midcap index, which comprises 248 stocks, gained 130.2 per cent, or 3,850 points, in 2009-10. The BSE Smallcap index, a basket of 482 stocks, surged 162 per cent, or 5,251 points.
Market participants, especially those dealing with a large number of retail clients, said small investors hoping to make swift returns actively looked at these counters. Shares of mid- and small-cap companies were beaten more when the market was down, leading to investors betting on them during the rally.
RECORD RETURNS

RECORD RETURNS
Index	‘07-’08	‘08-’09	‘09-’10
Sensex	19.68	-37.94	80.54
Nifty	23.89	-36.19	73.76
BSE 100	24.98	-39.97	88.17
BSE 200	24.13	-40.98	92.87
BSE 500	24.25	-42.77	96.38
BSE Midcap	19.38	-54.01	130.23
BSE Smallcap	21.19	-58.6	161.73
Source: BSE, NSE *Returns in per cent

Incidentally, this is the first time that the BSE Midcap index and the BSE Smallcap index have outpaced the 30-share Sensex by such a huge margin. It is also the first time that these indices have gained more than 100 per cent each in one financial year. In 2007-08, they had risen around 20 per cent. The benchmark Sensex had gained a little less than 20 per cent. For the Sensex, financial year 2010 was the best since 2003-04, when it had gained 83.4 per cent.
“Fresh buying was clearly visible in fundamentally strong stocks,” said Ajay Pandey, assistant vice-president (institutional sales), Intime Spectrum Securities. “It is not only mid-cap and small-cap indices that have outpaced the benchmarks. The Nifty junior was also higher than the Nifty,” he adds
Foreign institutional investors (FIIs) played a prime role in the gains posted by the indices in the year ended March 31. According to the Securities and Exchange Board of India, FIIs invested more than $20 billion (Rs 90,000 crore) in financial year 2009-10. Market participants, however, said the bulk of this money went into the index constituents

China in Midst of ‘Greatest Bubble in History

China is in the midst of "the greatest bubble in history," said James Rickards, former general counsel of hedge fund Long-Term Capital Management (LTCM) LP.

The Chinese central bank's balance sheet resembles that of a hedge fund buying dollars and short-selling the yuan, said Rickards, now the senior managing director for market intelligence at McLean, Virginia-based consulting firm Omnis Inc.

"As I see it, it is the greatest bubble in history with the most massive misallocation of wealth," Rickards said at the Asset Allocation Summit Asia 2010 organised by Terrapinn Pte in Hong Kong yesterday. China "is a bubble waiting to burst."

Rickards joins hedge fund manager Jim Chanos, Gloom, Boom & Doom publisher Marc Faber and Harvard University professor Kenneth Rogoff in warning of a potential crash in China's economy. The government has raised banks' reserve requirements twice this year after economic growth accelerated and property prices rallied.

China has pegged the yuan to the dollar since July 2008 to help exporters weather the global recession. The central bank buys dollars and sells its own currency to prevent the yuan strengthening, driving foreign exchange reserves to a world record $2.4 trillion as of December.

The Shanghai Composite Index of stocks jumped 80% last year and property prices rose at the fastest pace in almost two years in February helped by a record 9.59 trillion yuan ($1.4 trillion) of new loans in 2009.

Massive Stimulus

The World Bank indicated today that China should raise interest rates to help contain the risk of a property bubble and allow a stronger yuan to help damp inflation expectations. The nation's "massive monetary stimulus" risks triggering large asset price increases, a housing bubble, and bad debts from the financing of local government projects, Washington-based World Bank said in a quarterly report on China released in Beijing.

"People making comments about bubbles possibly don't have all the facts," HSBC Holdings chief executive officer Michael Geoghegan said in Shanghai today. Regulators are in control of the banking industry, and have the ability to curb lending as needed, he said.

Rickards said leveraged speculation in the stock market, wasteful allocation of resources by state-owned enterprises, off-balance sheet debt through regional governments and the country's human rights record are concerns.

"Take Russia and China together, neither of them is really deserving any investment" except for short-term speculation, Rickards said. India and Brazil are two of the "real economies" among the developing countries, he said.

Hard Landing

China is poised to overtake Japan as the world's second-largest economy this year, according to International Monetary Fund, and Nomura Holdings forecasts it will contribute more than a third of global growth. The nation has surpassed the US as the world's largest auto market and Germany as the No. 1 exporter.

Harvard's Rogoff said February 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while Chanos, founder of New York-based Kynikos Associates, predicted a slump after excessive property investments.

Investors Bob Doll and Antoine van Agtmael say China's stock market isn't a bubble.

Equities will gain by the end of the year as the government takes measures to prevent the economy from overheating, Doll, BlackRock's chief investment officer for global equities, said on March 5. China is unlikely to face "chaos" or experience a hard landing, Van Agtmael, who helps manage $13 billion as chairman and chief investment officer of Emerging Markets Management, said in a Bloomberg Television interview yesterday.

Rickards worked for LTCM between 1994 and 1999, and helped to negotiate its rescue by 14 Wall Street firms after the fund lost $4 billion in a few weeks in 1998. The Federal Reserve brokered the bailout on concern that LTCM's collapse would cause a meltdown in financial markets.

Suger Stocks Turn Bitter

Sugar stocks have been one of the worst performers this week. Some stocks such as Bajaj Hindusthan and Balrampur Chini have dropped by over 10 per cent in the last three trading sessions. Since the beginning of the year, sugar stocks have underperformed the Sensex and the Nifty, dropping 20 per cent.

The fall in these stocks shouldn't come as a surprise. It was expected, particularly in the background of sugar prices rising to over Rs 40 a kg without any fundamental reasons. When sugar prices began to gain, stocks of companies in the sector too began to rise. But as the prices dropped, the stocks have followed suit. In the domestic market, prices have been on the downswing since the third week of January and since February 1, the market has seen about 30 per cent fall in the prices. The global market too witnessed a similar fall during the period.

On Thursday, white sugar in London was quoted at $547 a tonne against a peak of $767 seen at the beginning of the year. Raw sugar prices, too, have tumbled below 20 cents a pound. For traders, it would be a safe bet to keep off from these counters for now.

Here's why

The primary reason for sugar prices to surge was that the production this season (October 2009-September 2010) was expected to be 15-16 million tonnes (mt) against 15 mt last season. The Indian Sugar Mills Association on Tuesday said the production may be higher at 16.8 mt compared with the initial estimates.

Farms in western Uttar Pradesh still abound with sugarcane. That will mean production in the State, the country's highest producer, will be more by at least 1 mt. Also, farmers are reporting yields that are at least 23 tonnes higher per hectare. Besides, this season at least 7 mt of sugar was expected to be imported, while opening stocks are estimated at 3.7 mt. On the demand side, the domestic consumption is seen unchanged at 22 mt.

This means supply will easily outstrip the demand. However, it is unlikely to be that way as imports could now be lower. Already, the global trade is under pressure with many buyers trying to rework the deals in the face of declining prices.

Adding to the pressure on the market is Brazil's production doubling in February in the Centre-South, the largest growing region in the world.

No taste for sugar

A report by Kingsman said buyers are keeping away from buying sugar in the falling market. Besides this, large global funds have all begun to sell their holdings in sugar, making the scenario totally bearish.

On the revenue outgo side, mills are still having to pay a higher price for the cane. For instance, in Uttar Pradesh they are still paying Rs 261 a quintal for cane. In other States, the mills pay farmers anything over Rs 200 a quintal for the cane.

In Maharashtra, a tug-of-war has broken out between the mills and traders in view of the falling prices. The mills are not ready to sell sugar below Rs 3,200 a quintal. Besides the realisation from sugar, mills also get revenue from molasses and bagasse. But these incomes are seen as a cushion against the fall in sugar prices.

There are also reports that some smart operators who had stocked up on sugar when it was ruling at around Rs 15 a kg are now offering the commodity at less than Rs 30 a kg.

All this means sugar companies are likely to be under tremendous pressure. The current quarter could see a drop in the mills' profits.

What is perceived is that sugar companies could now be just profit-making units rather than ones making super-profits.

In these circumstances, it is most likely that sugar stocks will be totally in a bear grip Any recovery in the prices will be short-lived with global funds taking the opportunity to bail out. That will hold true for the stocks too.

Tata Motors see margine pressure

The Companies margin come under pressure as price of raw material such as steel, aluminum and copper increased.
Tata motors plan to offset this rise in the commodity by increase the prices and cost cutting.
Truck prices are expected to rise in April as the truck makers have to comply with new emission norms.

India a fast growing foreign investor

India has emerged as the second fastest growing investor in the United States after the UAE between 2004 and 2008.

The recent years have seen the drift toward a newer group of investors from countries such as the UAE, India, Spain and Chile, Under Secretary of State for Economic, Energy and Agricultural Affairs Robert D Hormats said in his address to the US Council for International Business.

While historically European nations have been the leading investors in the US, the fastest growing between 2004 and 2008 have been the UAE, which has shown a 230% average annual increase over four years, followed by India with 64% increase, Spain with 60%, Chile 50%, Switzerland with 38%), South Korea with 31%, China with 30% and Indonesia with 27%.


Among top investors, European countries hold 62% of the stock of FDI (foreign direct investment) in the US, with Germany, Switzerland, the United Kingdom, France, and Spain as the main investing countries.

The next largest group of investors is Japan, Canada, and Australia.