Tube Investment India - 42%
Diversified company catering to auto/eng/infra/power/
consumption
• Market leader in most of its businesses
- TI and Hero 75% of market, 50% market share in ‘specials’
- 50% market share for precision tubes
- 64% market share for car doorframes
• New products – super-critical boiler tubes, e-scooters
• Strong earnings growth - 23% EPS CAGR over FY11-13E.
• Adjusted for investments ROCE for FY12E attractive at 23%,
Bicycles +70% ROCE
• Holdings in Cholamandalam (59%) and Mitsui JV in the
general insurance business (74%)
• Market Cap US$0.63bn, ADV <="" p="" shareholding="">
Promoter 51%
• Valuation: SOTP, 6-7x EV/EBITDA and 50% holding company
discount
Report UBS - Top Buy
About Me
Friday, September 30, 2011
Buy Fortis Healthcare for 12% Upside
Fortis is the second largest hospital operator which operates
39 hospitals with 2,317 operating beds and 911 beds under
management as of September 2010.
• FOHE has demonstrated an ability to exploit market
opportunities; it acquired Escorts (a 90% stake in 2005),
Malar (a 50% stake in 2007) and Wockhardt (acquired in
December 2009)
• Over FY06-10, its revenue and operating profit recorded a
34% and a 57% CAGR, respectively.
• We expect FOHE to maintain double-digit revenue growth
over FY11-15. With higher revenue and an improving
EBITDA margin (we estimate 14% in FY11 to 18% in FY15)
and a rising net income margin (we estimate 5% in FY11 to
10% in FY15), we forecast a net income CAGR of 38% over
FY10-15.
• Shareholding: promoters – 82%
• Valuation: DCF based methodology using UBS’s VCAM tool
(assume WACC of 12.18% and terminal sales growth rate
of 5.8%).Implied FY13E
Report - UBS
39 hospitals with 2,317 operating beds and 911 beds under
management as of September 2010.
• FOHE has demonstrated an ability to exploit market
opportunities; it acquired Escorts (a 90% stake in 2005),
Malar (a 50% stake in 2007) and Wockhardt (acquired in
December 2009)
• Over FY06-10, its revenue and operating profit recorded a
34% and a 57% CAGR, respectively.
• We expect FOHE to maintain double-digit revenue growth
over FY11-15. With higher revenue and an improving
EBITDA margin (we estimate 14% in FY11 to 18% in FY15)
and a rising net income margin (we estimate 5% in FY11 to
10% in FY15), we forecast a net income CAGR of 38% over
FY10-15.
• Shareholding: promoters – 82%
• Valuation: DCF based methodology using UBS’s VCAM tool
(assume WACC of 12.18% and terminal sales growth rate
of 5.8%).Implied FY13E
Report - UBS
Friday, February 18, 2011
SBI BONDS
The country's Largest Bank State Bank Of India (SBI) has come up with retail Bond Issue of 1000 crore, with an option to retain over subscription up to 1000 crore. Allotment of these bonds will be done on first come first serve basis. The issue opens on 21th of Feb and close on 28th of Feb
The bonds are available in two series with diverse maturities: Series 3 will have a maturity of 10 years, with an interest of 9.75% for retail investors and 9.3% for high net worth investors (HNIs) and qualified institutional buyers (QIBs). Series 4 will have a maturity of 15 years, with an interest rate of 9.5% for retail investors and 9.45% for HNIs and QIBs. The face value of each bond is Rs 10,000 and one can apply for a minimum of one bond. The maximum size of application under the retail category is Rs 5 lakh and 50% of the issue size is reserved for retail applicants while the balance 25% is for HNIs and 25% for QIBs, respectively. These bonds are not secured and don’t have any lock-in. The bonds will be available only in the demat mode and it will be listed on the BSE and the NSE. While Series 3 bonds have a tenor of 10 years with a call option by SBI after five years, series 4 bonds have a tenure of 15 years with a call option after 10 years. The bonds are not redeemable at the option of the bondholder or without the prior consent of the central bank.
The bonds are available in two series with diverse maturities: Series 3 will have a maturity of 10 years, with an interest of 9.75% for retail investors and 9.3% for high net worth investors (HNIs) and qualified institutional buyers (QIBs). Series 4 will have a maturity of 15 years, with an interest rate of 9.5% for retail investors and 9.45% for HNIs and QIBs. The face value of each bond is Rs 10,000 and one can apply for a minimum of one bond. The maximum size of application under the retail category is Rs 5 lakh and 50% of the issue size is reserved for retail applicants while the balance 25% is for HNIs and 25% for QIBs, respectively. These bonds are not secured and don’t have any lock-in. The bonds will be available only in the demat mode and it will be listed on the BSE and the NSE. While Series 3 bonds have a tenor of 10 years with a call option by SBI after five years, series 4 bonds have a tenure of 15 years with a call option after 10 years. The bonds are not redeemable at the option of the bondholder or without the prior consent of the central bank.
Sunday, January 16, 2011
MHABHARAT LTD - By Pulkit Gupta
(A) INTRODUCTION
I hope each one of you have seen this Epic on TV .
It took me 3 days to finalise this article as it is totally my creation . No part of this article is taken from any Case study of any B-school. I have tried to relate this epic with Strategic Management by taking examples from this epic to explain the principles of Strategic Management.
Ok then without wasting any time " Let the show begins" .
(B) Characters of this case study
(1) Kaurav Ltd.
CEO -- Duryodhana
President - Dhritarashtra (Duryodhana's father)
Chief Mentor -- Mama Shakuni
(2) Pandav Ltd.
CEO -- Arjun
President - Yudhisthira
Chief Mentor -- Krishna
(C) 7 Concepts of Strategic Management you can learn from Mahabharata
(1) Vision Kaurav --
The President of Kaurav Ltd i.e. Dhritarashtra had no vision at all . He c'd not override his weakness for his son . He was used by Shakuni and Duryodhana. He was incapable of taking any decision. He remained silent during the dice game in which Yudhisthira lost eveything and also let his son insult Draupadi.
He failed to forecast the result of this humiliation which eventually became the root cause of this war.
He was a weak leader and failed to follow his responsibilities as a president in a proper manner.
Pandav --
Their President Yudhisthira was a man of great vision and was respected even by his competitors . He was an expert in administration and a man of values and adhered to truth and Dharma.
He used his image in a great manner as on the first day of war he applied a great strategy. He went over to Kaurava's to take blessing from Elders and in return he got the secret of defeating them . ( Remeber the case of Bhishma. ) . This helped them to gain strategic advantage over Kaurava Ltd.
He also anticipated the war at an early stage and started preperations for it.
(2) Strategy
It is the direction and scope of an organisation and helps it to compete with competitors.
Kaurav --
Their Chief Mentor or Strategist Shakuni relied on unfair trade practices. Such things may work in short-term but a complete failure in long-term.
A good strategist is one who knows the weakness of competitors and exploit them. He s'd help the Co. to recover from any situation .
Shakuni was wicked and believed in short-term profits. He was biased and use to think about the welfare of CEO i.e. Duryodhana only and not of Kaurav Ltd. as a whole .
Pandav --
They have got the best strategist in the form of Krishna which the world has ever seen.
He believed in forming strong allies and was responsible for the merger of Pandava Ltd. with Dwarka (Remember Arjuna's marriage with Subhadra when Duryodhana wanted to marry her) , Rakshas (marriage of Bheem with hidimba) ,Panchala (marriage of Arjun with draupadi), Matsya (marriage of Abhimanyu and Uttara) etc..
He asked Yudhisthir to go to Bhishm on 1st day of war to know their weakness.
He was responsible for forming the strategy of the death of Dronacharya , Karna and even Duryodhana.
(3) Motivation
It acts as a catalyst in achieving a company's mission , vision , goal and objectives.
Kaurav --
Their CEO was motivated by greed for the Indraprastha . He was ready to do apply any means whether fair and unfair to achieve his goal . He was a great example of evil and fighting against the truth.
Pandav --
They were fighting for their self-respect and this is the greatest motivation in this world. They believed in fair practices only.
(4) Decision-making
It is the art to take right decision at the right time. One s'd grab the opportunity at the write time to gain advantage over the competitors.
Kaurav --
To take good decision one s'd have great level of concentration and low level of anxiety and their CEO was completely opposite of that. He was a man of low concentration , high level of anxiety and believed in unfair practices.
He believed in finance more than Human Resource. He choose Krishna's army over him which was his biggest mistake.
Pandav --
Arjuna was a person of great concentration and was very focussed. He choose Krishna over his army which came to be a masterstroke.
He use to set example for others.
(5) SWOT ANALYSIS
Kaurav --
They converted their strength into weakness as they use to indulge in war with other kingdom which caused both loss of men and creation of enemies.
Pandav --
They utilized their exile period in which Arjun acquired Divyastra and Yudhistir formed the strategy of war by taking teaching from different Gurus .
Thus they converted their weakness into strength.
(6) COMMITMENT
Kaurav --
There was lack of commitment from Kaurav's .Their main warriors like Bheeshm and Dronacharya didn't wanted war and promised not to kill any of the Pandava's.
Karna was fighting the war just to be loyal to Duryodhana but wasn't fully involved in the war as he promised not to kill any Pandava except Arjun.
Pandav --
Everyone was assigned a role and they did it with their limited capabilities.
Abhimanyu and Ghatotkatch sacrificed their life for their team .
Both of them contributed a lot as Abhimanyu fought with 7 Maharatis single handed and Ghatotkatch took away half of Kaurava's army with him.
(7) Team work
Kaurav --
They didn't work as a team. Many of them use to hate each other. Bhishma didn't wanted Karna to participate in the war. Bhishma and Karna both use to hate Shakuni and his tactics . It means they didn't have faith in their key strategist.
Pandav --
They put team interest above all and each person was involved in every process. They respect each other and use to listen to their CEO.
They had a mission and a common goal and they worked for it.
Sunday, December 12, 2010
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.
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.
Friday, December 10, 2010
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.
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.
Monday, September 20, 2010
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.
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.
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