Reliance Capital Ltd shares gained 25% over the past week, beating the broader market’s 6% gain. The company announced it will expand its tie-up with Nippon Life Insurance Co. to include businesses such as asset management, but there are a couple of other things that acted as triggers for the stock.
One is the finance ministry circular that insurance firms that have finished 10 years of existence can sell a stake. Reliance Life will turn 10 next January. The Rs. 3,000 crore Nippon deal is a “strong stock catalyst as it will not only validate valuation for the insurance business, but also address liquidity concerns”, JP Morgan India Pvt. Ltd pointed out in a recent note.
Secondly, the Reserve Bank of India’s recent guidelines for banking licences are seen as a positive for Reliance Capital because it meets norms such as the broking business accounting for less than 10% of income or assets, etc.
Monday, September 5, 2011
How small investors can tide over volatile market times
The sharp drop in the stock markets has left equity investors gasping for breath and fear is back because The benchmark indices lost 9.3% in the 21 trading sessions in August. In the first week itself, the volatility index, which is a measure of the fear prevailing among investors, shot up from 18.78 to 34.88.
Should small investors give in to the fear and move out of the stock markets now? Certainly not. Volatility is inherent to the equity markets and investors must learn to live with it. There are bound to be periods of volatility in the journey of the stock markets. This is clear from the erratic movement of the India VIX index (see chart). Sometimes the volatility gets heightened, but it eventually subsides.
If a 9.3% monthly decline is worrying you, remember that the Nifty had risen by 12.3% in September 2010 and fell by 12% in January this year.
Investors should also note that investment opportunities in the stock markets arise only because of this volatility. Smart investors are able to pick up stocks at bargain levels only when volatility brings down share prices. Likewise, it also offers very good exit opportunities to bargain hunters when it sends the prices spiking up. "The way to make money in stock market is to buy into pessimism and sell into optimism."
There are long-term rewards for equity investors who can get over their 'volatility phobia'. In the past 25 years, the Sensex has witnessed several phases of extreme volatility (see chart). During this period, the stock market had to navigate several corrections (as defined by a fall of more than 10% from the recent peak) and bear markets (as defined by a fall of more than 20% from the recent peak) and the volatility associated with it.
There were three major bear markets, when the benchmark index fell more than 50%. However, any investor who held on to his investment during these turbulent 25 years would have generated a cool annualised return of 14.7%. The message: investors must withstand volatility to create long-term wealth.
Can small investors ride this uncertainty without taking undue risks? Yes, they can but they must learn to ignore the short-term noise. We looked at returns from the Sensex in the past 25 years for different holding periods. The longer the holding period, the lower is volatility, as defined by the difference between the high and low returns (see graphic).
Should small investors give in to the fear and move out of the stock markets now? Certainly not. Volatility is inherent to the equity markets and investors must learn to live with it. There are bound to be periods of volatility in the journey of the stock markets. This is clear from the erratic movement of the India VIX index (see chart). Sometimes the volatility gets heightened, but it eventually subsides.
If a 9.3% monthly decline is worrying you, remember that the Nifty had risen by 12.3% in September 2010 and fell by 12% in January this year.
Investors should also note that investment opportunities in the stock markets arise only because of this volatility. Smart investors are able to pick up stocks at bargain levels only when volatility brings down share prices. Likewise, it also offers very good exit opportunities to bargain hunters when it sends the prices spiking up. "The way to make money in stock market is to buy into pessimism and sell into optimism."
There are long-term rewards for equity investors who can get over their 'volatility phobia'. In the past 25 years, the Sensex has witnessed several phases of extreme volatility (see chart). During this period, the stock market had to navigate several corrections (as defined by a fall of more than 10% from the recent peak) and bear markets (as defined by a fall of more than 20% from the recent peak) and the volatility associated with it.
There were three major bear markets, when the benchmark index fell more than 50%. However, any investor who held on to his investment during these turbulent 25 years would have generated a cool annualised return of 14.7%. The message: investors must withstand volatility to create long-term wealth.
Can small investors ride this uncertainty without taking undue risks? Yes, they can but they must learn to ignore the short-term noise. We looked at returns from the Sensex in the past 25 years for different holding periods. The longer the holding period, the lower is volatility, as defined by the difference between the high and low returns (see graphic).
Sunday, September 4, 2011
Roti, kapda, makaan aur mobile
India is ranked third when it comes to minutes of mobile usage across the globe. The telecom sector alone directly contributes as much as $35 billion annually to the economy. It is estimated to have offered employment to as many as 150,000 employees during the recession.
Telecommunications is a means to the end and has transformed the way of life for every Indian. Considering that for every 10 per cent increase in mobile penetration rate, there would be a 0.6 per cent increase in GDP, telecommunications can be designated as a vital contributor to the economic growth of this country.
The prosperity that the telecom sector has weaved into the Indian society is one of the pivotal reasons for the growth of the middle income group. This group has obtained significance and their purchasing power has grown because they are able to reach out to the world at the touch of a button. By 2015 this group will account for 60 per cent of the households in India as compared to 25 per cent in 2001.
The mobile device has also played an empowering role in controlling the spread of diseases by offering healthcare and allied services at the touch of a button. It has helped combat epidemics such as HIV/AIDS and malaria by supplying information on treatment and control, generating awareness, improving access to and connectivity with health centres, and establishing the mobile testing of diseases.
In India, 54 per cent of the people have mobile phones compared to the 15 per cent banked population. Banks are looking at the mobile as a medium to penetrate the interior and remote areas of the country. The world of m-commerce is likely to transform the way people bank and pay for goods and services. Operators and handset manufacturers are working together to build applications which will allow people to carry their wallets in their mobile phones. The phone will act as a debit card, a credit card, a means for fund transfers and balance enquiry, all at the touch of a finger. This reality of one-touch banking has become a possibility only because of the mobile phone.
Today almost every person, whether rich or poor, owns or intends to own a mobile phone. The mobile phone has lost its snob value and has emerged as a necessity in every household of India. It is one of those things which erase the gap between the different sections of society. In a way, the mobile phone brings all the Indians on to a single platform, where the key demand of every user is to remain connected.
The mobile has transformed the way people do business. The home delivery model has flourished because of the aggressive mobile uptake. Today we can order almost anything over the phone and have the same delivered to our doorstep.
The world of 3G, which has recently been unveiled in this country, has made video calling a reality. Today every Indian family can buy a video calling phone for less than Rs 5,000 and talk to their near and dear ones on a real time basis. Real time calling can help a country like India, where people across remote locations may not be able to access education and health services with ease. The world of video calling can act as a blessing in disguise for the people in these remote locations.
This device has in a way brought the entire world into the palm of every Indian. The need of the common man was earlier limited to roti, kapda aur makaan. But, today the mantra is roti, kapda, makaan aur mobile.
Telecommunications is a means to the end and has transformed the way of life for every Indian. Considering that for every 10 per cent increase in mobile penetration rate, there would be a 0.6 per cent increase in GDP, telecommunications can be designated as a vital contributor to the economic growth of this country.
The prosperity that the telecom sector has weaved into the Indian society is one of the pivotal reasons for the growth of the middle income group. This group has obtained significance and their purchasing power has grown because they are able to reach out to the world at the touch of a button. By 2015 this group will account for 60 per cent of the households in India as compared to 25 per cent in 2001.
The mobile device has also played an empowering role in controlling the spread of diseases by offering healthcare and allied services at the touch of a button. It has helped combat epidemics such as HIV/AIDS and malaria by supplying information on treatment and control, generating awareness, improving access to and connectivity with health centres, and establishing the mobile testing of diseases.
In India, 54 per cent of the people have mobile phones compared to the 15 per cent banked population. Banks are looking at the mobile as a medium to penetrate the interior and remote areas of the country. The world of m-commerce is likely to transform the way people bank and pay for goods and services. Operators and handset manufacturers are working together to build applications which will allow people to carry their wallets in their mobile phones. The phone will act as a debit card, a credit card, a means for fund transfers and balance enquiry, all at the touch of a finger. This reality of one-touch banking has become a possibility only because of the mobile phone.
Today almost every person, whether rich or poor, owns or intends to own a mobile phone. The mobile phone has lost its snob value and has emerged as a necessity in every household of India. It is one of those things which erase the gap between the different sections of society. In a way, the mobile phone brings all the Indians on to a single platform, where the key demand of every user is to remain connected.
The mobile has transformed the way people do business. The home delivery model has flourished because of the aggressive mobile uptake. Today we can order almost anything over the phone and have the same delivered to our doorstep.
The world of 3G, which has recently been unveiled in this country, has made video calling a reality. Today every Indian family can buy a video calling phone for less than Rs 5,000 and talk to their near and dear ones on a real time basis. Real time calling can help a country like India, where people across remote locations may not be able to access education and health services with ease. The world of video calling can act as a blessing in disguise for the people in these remote locations.
This device has in a way brought the entire world into the palm of every Indian. The need of the common man was earlier limited to roti, kapda aur makaan. But, today the mantra is roti, kapda, makaan aur mobile.
Tamil Nadu no longer favoured auto hub
Since the economic liberalisation in 1991, Tamil Nadu’s capital Chennai has become one of the major destinations for investments by the world’s leading automobile majors. Today, seven of the 20 top global auto makers are located in and around Chennai, sometimes referred to as the ‘Detroit of India’.
But dark clouds threaten to bring that smooth ride to an end. Not only are new automakers choosing Gujarat over TN, but erstwhile mainstays of the auto scene in Chennai have also decided to move. Just yesterday, French car maker Peugeot announced that Gujarat, not TN, is a front runner for a 4,000 crore plant that the Peugeot plans on setting up soon. More worryingly, Ford which established its first factory in India at Maraimalai Nagar, near Chennai in 1996 , announced a few weeks ago that its second facility—a Rs 4,000 crore investment with an initial installed capacity of 2.4 lakh units annually—will be set up in Gujarat, not Tamil Nadu.
Ford said it selected Gujarat because of the state's pro-business environment. "Gujarat is a classic example of what works. It is run in a professional way. No Bureaucrats hurdles at all, no electricity, water and connectivity problems and incentives are also high. Somehow Tamil Nadu is missing these and has become more bureaucratic
But dark clouds threaten to bring that smooth ride to an end. Not only are new automakers choosing Gujarat over TN, but erstwhile mainstays of the auto scene in Chennai have also decided to move. Just yesterday, French car maker Peugeot announced that Gujarat, not TN, is a front runner for a 4,000 crore plant that the Peugeot plans on setting up soon. More worryingly, Ford which established its first factory in India at Maraimalai Nagar, near Chennai in 1996 , announced a few weeks ago that its second facility—a Rs 4,000 crore investment with an initial installed capacity of 2.4 lakh units annually—will be set up in Gujarat, not Tamil Nadu.
Ford said it selected Gujarat because of the state's pro-business environment. "Gujarat is a classic example of what works. It is run in a professional way. No Bureaucrats hurdles at all, no electricity, water and connectivity problems and incentives are also high. Somehow Tamil Nadu is missing these and has become more bureaucratic
World economy in danger zone
The world economy is stepping into a "new danger zone," World Bank President Robert Zoellick said on Saturday(3rd sept 2011), as growth slows and investor confidence weakens.
Speaking in Beijing, Zoellick urged Europe and the United States to tackle their debt problems, and noted that near record-high food prices and volatile commodity markets are threatening the most world's vulnerable people.
The financial crisis in Europe has become a sovereign debt crisis, with serious implications for the Monetary Union, banks, and competitiveness of some countries," he said.
Turning to China, where he is leading a World Bank study on how the nation can improve its economic growth model, Zoellick was upbeat.
China is "well positioned" to become a "high-income" nation in the next 15 to 20 years, from its status as an "upper-middle income" country now, he said.
Speaking in Beijing, Zoellick urged Europe and the United States to tackle their debt problems, and noted that near record-high food prices and volatile commodity markets are threatening the most world's vulnerable people.
The financial crisis in Europe has become a sovereign debt crisis, with serious implications for the Monetary Union, banks, and competitiveness of some countries," he said.
Turning to China, where he is leading a World Bank study on how the nation can improve its economic growth model, Zoellick was upbeat.
China is "well positioned" to become a "high-income" nation in the next 15 to 20 years, from its status as an "upper-middle income" country now, he said.
Corporates, including the Tatas, Ambanis, Mahindras, Birlas and Bajaj Group, rush to ensure eligibility for banking space entry
With the RBI proposing the entry of new players in the banking space, over a dozen entities, including those from the Tatas, Ambanis, Mahindras, Birlas and Bajaj Group, have begun firming up their candidature for the coveted few bank licences that could be on offer next year.
The groups interested in seeking a banking licence also include Religare, L&T, Srei Infrastructure and Shriram Capital, along with some public sector entities like PFC, REC and LIC Housing Finance.
At the same time, investment banking major Morgan Stanley said the RBI guidelines were positive for non-banking financial companies (NBFCs) and housing finance companies and entities like Shriram Transport, LICHF and Reliance Capital could potentially look to convert themselves into banks.
Those who have been vocal about their banking ambitions include Anil Dhirubhai Ambani Group firm Reliance Capital, Religare, Bajaj Finserv, L&T Finance, Srei Infra and M&M Financial Services, while entities like Tata Capital and the Aditya Birla Group are also said to be keen on getting a licence.
The groups interested in seeking a banking licence also include Religare, L&T, Srei Infrastructure and Shriram Capital, along with some public sector entities like PFC, REC and LIC Housing Finance.
At the same time, investment banking major Morgan Stanley said the RBI guidelines were positive for non-banking financial companies (NBFCs) and housing finance companies and entities like Shriram Transport, LICHF and Reliance Capital could potentially look to convert themselves into banks.
Those who have been vocal about their banking ambitions include Anil Dhirubhai Ambani Group firm Reliance Capital, Religare, Bajaj Finserv, L&T Finance, Srei Infra and M&M Financial Services, while entities like Tata Capital and the Aditya Birla Group are also said to be keen on getting a licence.
STOCK MARKET TO DROP THIS WEEK
The stock market is expected to drop before some consolidation this week as it looks towards global peers for cues and fresh triggers ahead of the Reserve Bank's monetary policy review on September 16.
Analysts also said that valuations were attractive for investors, although they remain concerned about high inflation and weak global markets.
The uncertainty in the US might hit the overall sentiment. The world's largest economy, for the first time in a year, failed to add new jobs with its unemployment rate unchanged at 9.1 per cent in August.
The dismal jobs data pulled down the country's benchmark stocks index, the Dow Jones Industrial Average, by over 250 points to 11,240.26 last Friday.food inflation crossed the double-digit level again to 10.05 per cent for the week ended August 20, while the overall or headline inflation was ruling at 9.22 per cent for the month of July.The rising interest rates have made borrowings costly for corporates, impacting their margins.In my view nifty again test below 4850 in coming week.
Analysts also said that valuations were attractive for investors, although they remain concerned about high inflation and weak global markets.
The uncertainty in the US might hit the overall sentiment. The world's largest economy, for the first time in a year, failed to add new jobs with its unemployment rate unchanged at 9.1 per cent in August.
The dismal jobs data pulled down the country's benchmark stocks index, the Dow Jones Industrial Average, by over 250 points to 11,240.26 last Friday.food inflation crossed the double-digit level again to 10.05 per cent for the week ended August 20, while the overall or headline inflation was ruling at 9.22 per cent for the month of July.The rising interest rates have made borrowings costly for corporates, impacting their margins.In my view nifty again test below 4850 in coming week.
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