The proposed merger between Bharti Airtel and South Africa's MTN would be India's biggest-ever M&A deal. The potential value of the Bharti Airtel-MTN deal would amount to $23 billion.
As per the exploring agreement, MTN and its shareholders would acquire around 36 per cent economic interest in Bharti Airtel, while, the Sunil Mittal-promoted Bharti Airtel would acquire 49 per cent stake in South African telecom giant MTN.
Let us now take a look at the 11 largest M&A transactions involving an Indian company until now
1. Tata Steel-Corus: $12.2 billion
On January 30, 2007, Tata Steel purchased a 100% stake in the Corus Group at 608 pence per share in an all cash deal, cumulatively valued at $12.2 billion.
The deal is the largest Indian takeover of a foreign company till date and made Tata Steel the world's fifth-largest steel group.
2. Vodafone-Hutchison Essar: $11.1 billion
On February 11, 2007, Vodafone agreed to buy out the controlling interest of 67% held by Li Ka Shing Holdings in Hutch-Essar for $11.1 billion.
This is the second-largest M&A deal ever involving an Indian company.
Vodafone Essar is owned by Vodafone 52%, Essar Group 33% and other Indian nationals 15%.
3. Hindalco-Novelis: $6 billion
Aluminium and copper major Hindalco Industries, the Kumar Mangalam Birla-led Aditya Birla Group flagship, acquired Canadian company Novelis Inc in a $6-billion, all-cash deal in February 2007.
Till date, it is India's third-largest M&A deal.
The acquisition would make Hindalco the global leader in aluminium rolled products and one of the largest aluminium producers in Asia. With post-acquisition combined revenues in excess of $10 billion, Hindalco would enter the Fortune-500 listing of world's largest companies by sales revenues.
4. Ranbaxy-Daiichi Sankyo: $4.5 billion
Marking the largest-ever deal in the Indian pharma industry, Japanese drug firm Daiichi Sankyo in June 2008 acquired the majority stake of more than 50 per cent in domestic major Ranbaxy for over Rs 15,000 crore ($4.5 billion).
The deal created the 15th biggest drugmaker globally, and is India's 4th largest M&A deal to date.
5. ONGC-Imperial Energy: $2.8 billion
The Oil and Natural Gas Corp took control of Imperial Energy Plc for $2.8 billion, in January 2009, after an overwhelming 96.8 per cent of London-listed firm's total shareholders accepted its takeover offer.
Speaking about India's fifth largest M&A deal, ONGC chairman R S Sharma said the company owed the acquisition to government support, which has seen OVL in the past seven years increase its number of projects to 39 in 17 countries, from just a single project in Vietnam.
6. NTT DoCoMo-Tata Tele: $2.7 billion
Japanese telecom giant NTT DoCoMo picked up a 26 per cent equity stake in Tata Teleservices for about Rs 13,070 crore ($2.7 billion) in November 2008.
This is the 6th-largest M&A deal involving an Indian company.
With a subscriber base of 25 million in 20 circles DoCoMo paid Rs 20,107 per subscriber to acquire the stake. DoCoMo picked up the equity through a combination of fresh issuance of equity and acquisition of shares from the existing promoters.
7. HDFC Bank-Centurion Bank of Punjab: $2.4 billion
HDFC Bank approved the acquisition of Centurion Bank of Punjab for Rs 9,510 crore ($2.4 billion) in one of the largest mergers in the financial sector in India in February, 2008.
CBoP shareholders got one share of HDFC Bank for every 29 shares held by them. Post-acquisition, HDFC Bank became the second-largest private sector bank in India.
The acquisition was also India's 7th largest ever.
8. Tata Motors-Jaguar Land Rover: $2.3 billion
Creating history, one of India's top corporate entities, Tata Motors, in March 2008 acquired luxury auto brands -- Jaguar and Land Rover -- from Ford Motor for $2.3 billion, stamping their authority as a takeover tycoon.
Beating compatriot Mahindra and Mahindra for the prestigious brands, just a year after acquiring steel giant Corus for $12.1 billion, the Tatas signed the deal with Ford, which on its part chipped in with $600 million towards JLR's pension plan.
Tata Motors' buyout of JLR is India's 8th-largest in history.
9. Sterlite-Asarco: $1.8 billion
Anil Agarwal-led Sterlite Industries Ltd's $1.8 billion Asarco LLC buyout deal is the ninth biggest-ever merger and acquisitions deal involving an Indian firm, and the largest so far in 2009.
This is despite the deal size falling by almost $1 billion, from a projected estimate of $2.6 billion in May 2008, due to devaluation of mining assets and a sharp fall in copper prices.
Sterlite, the Indian arm of the London-based Vedanta Resources Plc, acquired Asarco in March 2008.
10. Suzlon-RePower: $1.7 billion
Wind power major Suzlon Energy in May 2007 acquired the German wind turbine manufacturer REpower for $1.7 billion. The deal now ranks as the country's 10th largest corporate takeover.
REpower is one of Germany's leading manufacturers of wind turbines, with a 10-per cent share of the overall market.
Suzlon is now the largest wind turbine maker in Asia and the fifth largest in the world.
11. RIL-RPL merger: $1.68 billion
Reliance Industries in March 2009 approved a scheme of amalgamation of its subsidiary Reliance Petroleum with the parent company. The all-share merger deal between the two Mukesh Ambani group firms was valued at about Rs 8,500 crore ($1.68 billion).
This makes it India's 11th largest M&A transaction till date.
Post-merger, RPL shareholders received one fully paid equity share of Rs 10 each of the company for every 16 fully paid equity shares of Rs 10 each of RPL held by them.
The RIL-RPL merger swap ratio was at 16:1. The merger became effective from April 1, 2008.
Sunday, 31 May 2009
Friday, 29 May 2009
What I learnt from Rakesh Jhunjhunwala
INDIA'S answer to Warren Buffet. The stock market’s ‘big bull’. The pin up boy of the markets: Rakesh Jhunjhunwala.
He made a fortune by investing in the stock market. From an initial amount of Rs 5,000, as it is rumoured, he has made Rs 5,000 crore in just over two decades!
Jhunjhunwala once said humorously, "Markets are like women; always commanding, mysterious, unpredictable and volatile." And yet he lorded them. There is a lot I learnt from his investing quotes, and there's something in it for you too.
-- Invest in a business and not a company.
Jhunjhunwala identified and invested in Pantaloons much before the market discovered it. Today, he is gaining from that investment. That's because he invested in the potential of the underlying business (of organized retail in this case) and it's first mover advantage.
-- Maximise profits and minimise losses.
Cut losses and move on with life. At the same time, hold on to winning stocks till their business has achieved its full potential.
-- Always have an independent opinion. Observe and read relevant information with an open mind.
Jhunjhunwala believes in doing his own research before investing. A good example: he was lapping up the ignored Indian Public Sector (PSU) stocks when the herd was after the IT stocks during the late nineties. He made a fortune investing in PSU stocks, while many lost their shirts during the dot com led market crash in 2000.
He made a fortune by investing in the stock market. From an initial amount of Rs 5,000, as it is rumoured, he has made Rs 5,000 crore in just over two decades!
Jhunjhunwala once said humorously, "Markets are like women; always commanding, mysterious, unpredictable and volatile." And yet he lorded them. There is a lot I learnt from his investing quotes, and there's something in it for you too.
-- Invest in a business and not a company.
Jhunjhunwala identified and invested in Pantaloons much before the market discovered it. Today, he is gaining from that investment. That's because he invested in the potential of the underlying business (of organized retail in this case) and it's first mover advantage.
-- Maximise profits and minimise losses.
Cut losses and move on with life. At the same time, hold on to winning stocks till their business has achieved its full potential.
-- Always have an independent opinion. Observe and read relevant information with an open mind.
Jhunjhunwala believes in doing his own research before investing. A good example: he was lapping up the ignored Indian Public Sector (PSU) stocks when the herd was after the IT stocks during the late nineties. He made a fortune investing in PSU stocks, while many lost their shirts during the dot com led market crash in 2000.
Monday, 25 May 2009
10 lessons IPL taught us about investing
The shortest version of cricket, T20, can teach us a lot about investment discipline. Here are 10 tips on how to pace your innings for maximum returns
1. Start early
T20 does not reward late starters—teams need to start scoring early in the innings. If you don’t have enough runs on the board, your batsmen will always be playing catch-up.
Similarly, you need to start investing and saving early. The sooner you begin, the more time you get to compound your capital. Also, all batting sides take advantage of the fielding restrictions early in the innings. In the same way, when you are young, there are many things you can afford to do as compared to when you grow older. One of these could be to start building your financial resources when you have few other financial obligations.
2. Risk and reward trade-off
T20 is all about taking risks and ensuring that the team gets rewarded for them—whether it is aggressive opening batsmen, field placements or trying out new bowlers.
Similarly, financial planning is all about risks and rewards. It is important to understand that taking risks equals high returns, just like a batsman faces the risk of being caught at the boundary if he is trying to hit a six. You should not be surprised if you get out trying to reach for extraordinarily high returns on investments because these would be of the most risky kind. Also, just like not every ball can be hit for a boundary, not every investment will turn out to be a goldmine. Sometimes, singles are equally important.
3. Be ready for the unexpected
The Duckworth-Lewis method, which is used to determine targets for rain or weather-affected matches, can at times adversely affect the chances of one team. It is, therefore, important to always have enough runs on the scoresheet.
Similarly, you must also always be ready to deal with unexpected situations. The margin of safety in your investments should be able to protect you against the proverbial rainy days.
4. Strategic break
Teams take a strategic break to review their progress after 10 overs and chalk out a strategy for the rest of the innings. Such strategy breaks are important for your financial road map as well. If you don’t regularly review progress and look at ways to address the problems and challenges, you may end up falling short of your financial targets.
5. Balance
Just like a team needs the right balance of big hitters, anchors and effective bowlers, your investment portfolio, too, needs the right balance of investments. Too much of growth or aggressive funds, without adequate support or backup, might make your portfolio shaky. You must recognize that your investments should be diversified across sectors and different assets, and not be concentrated in any one area.
6. One bad over
One bad over can change the direction of a game and can often make it difficult to recover if a team does not have enough runs on the board (if you are batting), or enough wickets already (if you are bowling). In life too, a “bad over”, in the shape of job loss or serious injury or illness, could throw plans out of gear. If you do not have an adequate safety net, it would become very difficult to recover from such mishaps.
7. Consistency gets rewarded
In T20, the top-scoring batsman and the largest wicket-taker are awarded the Purple and Orange caps respectively. You can win these caps only if you perform well consistently. When it comes to personal finance, you too must be conscious of staking a claim for these awards. What matters most is that you have consistent performance over a long period of time. There is no point in investing in a fund that is really hot the first year, but comes a cropper thereafter.
8. Coaching helps
Whether it is a specialist bowling or fielding coach, T20 has shown us that some guidance and direction, especially an objective view from the outside, can help improve a team’s performance. Your investments too can benefit from such guidance and expert view. This is important to avoid making silly mistakes that could cost you dearly later in life.
9. Distractions can be entertaining, but ultimately the score matters
T20 is highly entertaining not only on the pitch, but also because of all the music and dancing. But ultimately, a team wins or loses on the back of its performance. Similarly, while you are securing your finances, distractions such as the hottest investments or the flavours of the month will come and go, but what matters most is that your “investment scorecard” should show a healthy average. You must focus on what matters and ignore the distractions.
10. Winning attitude
The IPL has shown that even young players with less talent or resources can do well if they bring the right attitude to the pitch. Similarly, investing is not just about being rich or already having lots of money. You can start with meagre resources and little experience, but over time, make a fortune with a positive attitude and willingness to learn from mistakes. You should not get disheartened if one investment loses money. Just like a young cricketer who believes in himself, you should believe in what you have invested and stick it out. If you have put in the right kind of preparation, you will also come out the winner in the long run.
Content is brought to you by iTrust Financial Advisors
1. Start early
T20 does not reward late starters—teams need to start scoring early in the innings. If you don’t have enough runs on the board, your batsmen will always be playing catch-up.
Similarly, you need to start investing and saving early. The sooner you begin, the more time you get to compound your capital. Also, all batting sides take advantage of the fielding restrictions early in the innings. In the same way, when you are young, there are many things you can afford to do as compared to when you grow older. One of these could be to start building your financial resources when you have few other financial obligations.
2. Risk and reward trade-off
T20 is all about taking risks and ensuring that the team gets rewarded for them—whether it is aggressive opening batsmen, field placements or trying out new bowlers.
Similarly, financial planning is all about risks and rewards. It is important to understand that taking risks equals high returns, just like a batsman faces the risk of being caught at the boundary if he is trying to hit a six. You should not be surprised if you get out trying to reach for extraordinarily high returns on investments because these would be of the most risky kind. Also, just like not every ball can be hit for a boundary, not every investment will turn out to be a goldmine. Sometimes, singles are equally important.
3. Be ready for the unexpected
The Duckworth-Lewis method, which is used to determine targets for rain or weather-affected matches, can at times adversely affect the chances of one team. It is, therefore, important to always have enough runs on the scoresheet.
Similarly, you must also always be ready to deal with unexpected situations. The margin of safety in your investments should be able to protect you against the proverbial rainy days.
4. Strategic break
Teams take a strategic break to review their progress after 10 overs and chalk out a strategy for the rest of the innings. Such strategy breaks are important for your financial road map as well. If you don’t regularly review progress and look at ways to address the problems and challenges, you may end up falling short of your financial targets.
5. Balance
Just like a team needs the right balance of big hitters, anchors and effective bowlers, your investment portfolio, too, needs the right balance of investments. Too much of growth or aggressive funds, without adequate support or backup, might make your portfolio shaky. You must recognize that your investments should be diversified across sectors and different assets, and not be concentrated in any one area.
6. One bad over
One bad over can change the direction of a game and can often make it difficult to recover if a team does not have enough runs on the board (if you are batting), or enough wickets already (if you are bowling). In life too, a “bad over”, in the shape of job loss or serious injury or illness, could throw plans out of gear. If you do not have an adequate safety net, it would become very difficult to recover from such mishaps.
7. Consistency gets rewarded
In T20, the top-scoring batsman and the largest wicket-taker are awarded the Purple and Orange caps respectively. You can win these caps only if you perform well consistently. When it comes to personal finance, you too must be conscious of staking a claim for these awards. What matters most is that you have consistent performance over a long period of time. There is no point in investing in a fund that is really hot the first year, but comes a cropper thereafter.
8. Coaching helps
Whether it is a specialist bowling or fielding coach, T20 has shown us that some guidance and direction, especially an objective view from the outside, can help improve a team’s performance. Your investments too can benefit from such guidance and expert view. This is important to avoid making silly mistakes that could cost you dearly later in life.
9. Distractions can be entertaining, but ultimately the score matters
T20 is highly entertaining not only on the pitch, but also because of all the music and dancing. But ultimately, a team wins or loses on the back of its performance. Similarly, while you are securing your finances, distractions such as the hottest investments or the flavours of the month will come and go, but what matters most is that your “investment scorecard” should show a healthy average. You must focus on what matters and ignore the distractions.
10. Winning attitude
The IPL has shown that even young players with less talent or resources can do well if they bring the right attitude to the pitch. Similarly, investing is not just about being rich or already having lots of money. You can start with meagre resources and little experience, but over time, make a fortune with a positive attitude and willingness to learn from mistakes. You should not get disheartened if one investment loses money. Just like a young cricketer who believes in himself, you should believe in what you have invested and stick it out. If you have put in the right kind of preparation, you will also come out the winner in the long run.
Content is brought to you by iTrust Financial Advisors
Friday, 15 May 2009
A Savings Revolution
The New Pension System (NPS) will not only bring retirement planning to the unorganised sector but will also completely transform the investment scenario in the country.
This is good news for the workers in the unorganised sector. The fruits of long-term financial planning, which have been available only in the organised sector, will now be available to the unorganised sector, the self-employed as well as all others who don't come under the ambit of any pension system. In a reform long overdue, the Pension Fund Regulatory & Development Authority (PFRDA) has finally put the NPS in motion.
An individual will be able to open an NPS account with a designated 'point of presence' (POP) and start saving for a pension. Moreover, this system is not for private individuals only, the pensions of all central government employees who have joined service after January 2004 will also be a part of the NPS.
The design of the NPS is simple. The POPs will be the front end, the National Security Depository Limited (NSDL) will be the record keeper and six entities selected by the PFRDA will be given the task of managing the funds.
The distinguishing feature of the NPS, when compared to any other type of investment, is that it's shockingly low cost.
To know more about this new system and the various plans - comprising of equity, government securities and corporate bonds - that it offers, pick up the March 2009 issue of Mutual Fund Insight.
The magazine's cover story talks in length about the NPS and its revolutionary design as well as its few downsides. Furthermore, in a exclusive interview, Dhirendra Swarup, head of PFRDA talks about the challenges and opportunities that lie ahead for the NPS.
“The NPS is voluntary in nature and there are no commissions in our system where a selling agent will push our product,” he says.
This is good news for the workers in the unorganised sector. The fruits of long-term financial planning, which have been available only in the organised sector, will now be available to the unorganised sector, the self-employed as well as all others who don't come under the ambit of any pension system. In a reform long overdue, the Pension Fund Regulatory & Development Authority (PFRDA) has finally put the NPS in motion.
An individual will be able to open an NPS account with a designated 'point of presence' (POP) and start saving for a pension. Moreover, this system is not for private individuals only, the pensions of all central government employees who have joined service after January 2004 will also be a part of the NPS.
The design of the NPS is simple. The POPs will be the front end, the National Security Depository Limited (NSDL) will be the record keeper and six entities selected by the PFRDA will be given the task of managing the funds.
The distinguishing feature of the NPS, when compared to any other type of investment, is that it's shockingly low cost.
To know more about this new system and the various plans - comprising of equity, government securities and corporate bonds - that it offers, pick up the March 2009 issue of Mutual Fund Insight.
The magazine's cover story talks in length about the NPS and its revolutionary design as well as its few downsides. Furthermore, in a exclusive interview, Dhirendra Swarup, head of PFRDA talks about the challenges and opportunities that lie ahead for the NPS.
“The NPS is voluntary in nature and there are no commissions in our system where a selling agent will push our product,” he says.
Thursday, 14 May 2009
Fast & Reliable Companies
Following the principles of value investing is difficult in a bull market because one can't find such stocks in a surging market. The opposite happens in a bear market, where even the high growth stocks trade at a discount. In such scenarios, it is very hard to pick stocks by sticking to the valuation rules. One never knows how long a wait it would be before a company fulfils its promises. Moreover, the company could go the other way also, ceasing to be of any value in an economic downturn.
To take care of these factors, we looked for companies which were able to increase their earnings in a fast but sustained way, but don't command a substantial premium today. Meaning, companies that trade at low price earning multiple (PE). After filtering the stocks on a set of criteria we arrived at the following companies.
Tata Steel
The funding of its Corus acquisition has considerably hurt Tata Steel's credit worthiness in the market. Furthermore, the slowdown in demand from various parts of the world would mean that the company would have to work overtime to justify its international ventures. Though, historically, the company has done better than its competitors in the sector. Tata Steel enjoys an almost 10 percentage point's difference in net profit margin with PSU major Sail.
Infosys
This is the first IT Company in our list. There is no denying that it has been a favorite of investors for many years. But it now seems to be in for its toughest test. The company has a low operational cost and the best net profit margin among all of the top three Indian IT companies.
Wipro
This former FMCG player has indeed come a long way to establish itself as a prominent player in the IT space. Even though its profits have grown in the latest quarter, the overall concerns about the future outlook of the IT industry has cast a gloom over it. Hence, Wipro is trading at a PE of just 11.49.
Jindal Steel & Power
The bleak sentiments surrounding the iron and steel industry have hurt its bottom line. However, Jindal is going into an overdrive to boost its power generation capacities. This diverse activity will help the company protect its margins from the cyclical metal business. Currently, its stock is trading at a PE of 8.45 of the FY07-08 earnings, which is slightly lower than the industry average of 8.9.
Indian Overseas Bank
This PSU bank is a very small player, but still has a highly commendable record. Though its profits are nowhere near those of SBI, it has still managed to maintain a net profit margin at par with its bigger cousin. Trading at Rs 67, discounting its book value by 32 per cent, the stock can be considered as a bargain.
Chennai Petroleum
The rising oil prices from the previous year have hit this refining company very hard. Though its business fundamentals are still in place, the fluctuating oil prices have seriously squeezed down its margins. Both its operating and net profit margins are in negative. As a result of this, its stock got severely hammered and is currently trading at a discount of almost 50 per cent to its book value.
Bharat Electronics
This company operates in a very niche segment - delivering electronic equipments to the military and other such institutions. Its major shareholder is the government, controlling around 75 per cent of its shares. Considering the heightened state of security, there is a good chance that Bharat Electronics' order book would see a healthy rise in the coming times.Currently, its stock is trading at a PE of 8.63 with a premium of 86 per cent to its book value.
Container Corporation Of India
There was a time when this Indian railway subsidiary used to enjoy monopoly in handling cargos through the railroads. Its vast network of warehouses and containers still gives it a distinct advantage over any newcomer. Though its biggest shareholder is the government; FIIs own 26 per cent of the company. This stock is currently trading at the Rs 700 level with a yield of about 1.83 per cent.
Valuable Companies
- Out of the BSE 500 listed companies, we filtered out those which have shown ROE more than 20 per cent in the consecutive five years
- To be further selective we filtered those companies whose average growth in PAT has been more than 20 per cent over the last five years
- Also, P/E should be less than 15 and the company should have managed to maintain annual profits of over Rs 500 crore
This review appeared in the February 2009 Issue of Wealth Insight.
To take care of these factors, we looked for companies which were able to increase their earnings in a fast but sustained way, but don't command a substantial premium today. Meaning, companies that trade at low price earning multiple (PE). After filtering the stocks on a set of criteria we arrived at the following companies.
Tata Steel
The funding of its Corus acquisition has considerably hurt Tata Steel's credit worthiness in the market. Furthermore, the slowdown in demand from various parts of the world would mean that the company would have to work overtime to justify its international ventures. Though, historically, the company has done better than its competitors in the sector. Tata Steel enjoys an almost 10 percentage point's difference in net profit margin with PSU major Sail.
Infosys
This is the first IT Company in our list. There is no denying that it has been a favorite of investors for many years. But it now seems to be in for its toughest test. The company has a low operational cost and the best net profit margin among all of the top three Indian IT companies.
Wipro
This former FMCG player has indeed come a long way to establish itself as a prominent player in the IT space. Even though its profits have grown in the latest quarter, the overall concerns about the future outlook of the IT industry has cast a gloom over it. Hence, Wipro is trading at a PE of just 11.49.
Jindal Steel & Power
The bleak sentiments surrounding the iron and steel industry have hurt its bottom line. However, Jindal is going into an overdrive to boost its power generation capacities. This diverse activity will help the company protect its margins from the cyclical metal business. Currently, its stock is trading at a PE of 8.45 of the FY07-08 earnings, which is slightly lower than the industry average of 8.9.
Indian Overseas Bank
This PSU bank is a very small player, but still has a highly commendable record. Though its profits are nowhere near those of SBI, it has still managed to maintain a net profit margin at par with its bigger cousin. Trading at Rs 67, discounting its book value by 32 per cent, the stock can be considered as a bargain.
Chennai Petroleum
The rising oil prices from the previous year have hit this refining company very hard. Though its business fundamentals are still in place, the fluctuating oil prices have seriously squeezed down its margins. Both its operating and net profit margins are in negative. As a result of this, its stock got severely hammered and is currently trading at a discount of almost 50 per cent to its book value.
Bharat Electronics
This company operates in a very niche segment - delivering electronic equipments to the military and other such institutions. Its major shareholder is the government, controlling around 75 per cent of its shares. Considering the heightened state of security, there is a good chance that Bharat Electronics' order book would see a healthy rise in the coming times.Currently, its stock is trading at a PE of 8.63 with a premium of 86 per cent to its book value.
Container Corporation Of India
There was a time when this Indian railway subsidiary used to enjoy monopoly in handling cargos through the railroads. Its vast network of warehouses and containers still gives it a distinct advantage over any newcomer. Though its biggest shareholder is the government; FIIs own 26 per cent of the company. This stock is currently trading at the Rs 700 level with a yield of about 1.83 per cent.
Valuable Companies
- Out of the BSE 500 listed companies, we filtered out those which have shown ROE more than 20 per cent in the consecutive five years
- To be further selective we filtered those companies whose average growth in PAT has been more than 20 per cent over the last five years
- Also, P/E should be less than 15 and the company should have managed to maintain annual profits of over Rs 500 crore
This review appeared in the February 2009 Issue of Wealth Insight.
All About Mutual Fund Investing
Mutual Funds are increasingly being touted as the retail investors' investment vehicle. But the key challenge is to choose the right fund. But it's simple. It only requires a bit of discipline and little time - hardly a cost for a secure financial future. Following are some rules to help invest better and attain your financial goals.
Know Yourself: The first step towards achieving your goals is that you must know yourself. Try to get an idea of how much risk you can handle. Do a tolerance test for yourself. If your Rs 10,000 investment turning into Rs 6,000 up sets you--even though it could subsequently bounce back--an aggressive equity fund is not for you.
Reality Check: What are your goals? If you need to turn Rs 10,000 into Rs 50,000 in two years, a medium term bond fund may not be the right answer. Work on setting realistic expectations for both your goals and your funds.
Know What You Are Buying: Once you discovered yourself, spend some time for a close understanding of the funds. The stated objective of a fund as given in a prospectus is often incomplete and does not reveal much. Based on the readily available portfolio and fund manager's commentary, you can broadly understand the style and strategy followed by a fund. This will help you meaningfully diversify your portfolio. This will also help you assess potential risks. In general, large-cap value funds are less risky than small-cap growth funds.
Examine Sector Weightings: You must know that funds with large stakes in just one or two sectors will likely be more volatile than the more evenly diversified funds. Looking at a fund's sectoral history will help you gain a good perspective. Does the manager move in and out of sectors frequently and dramatically? If so, the fund might get hurt, if the manager is ever caught on the wrong foot.
Check Out the Fund's Concentration: A portfolio with just 20 or 30 stocks or one that puts most of its assets in just a few stocks will likely be more volatile than a fund that's spread among hundreds of stocks. But there could be rewards of concentration. A concentrated portfolio will also get more bang for its buck if its stocks work out. You may want to add a concentrated fund, one that owns fewer stocks or puts most of its assets in the top 10 or 20 stocks, to your portfolio.
But largely, your core funds should probably be well a diversified and more predictable. Though a small allocation to a sector-oriented fund, a more-flexible fund, or a more-concentrated fund could boost your returns.
Assess Performance Appropriately: Past performance is no indicator of future results. Investors should commit this statutory quote from mutual fund prospectus, advertisements and any other literature to memory. It should be recalled more readily than your bank account number. It should be repeated anytime you consider sending money to any fund with a 100 per cent three-month gain.
Why? Chances are that a few months of boom will be followed by bust, as it has happened in 2000. All the ICE concentrated funds, which were topping the charts fell flat on their face. There was just no escape when their NAVs started declining like nine pins. What should an investor do? Do not concentrate your mutual fund portfolio or invest in a concentrated fund. And, above all, don't focus on short-term returns. When choosing a fund, look for above-average performance, quarter after quarter, year after year.
Know Your Portfolio: Look for areas that are over-represented and for those that are lacking. For example, will your portfolio be overly concentrated in the large-cap equities or too much in highly rewarding but wildly volatile infotech stocks? Will you be missing investments in small-cap stocks?
Be A Disciplined Investor: After you've chosen some funds, stick with them. Don't be afraid to go aga
Know Yourself: The first step towards achieving your goals is that you must know yourself. Try to get an idea of how much risk you can handle. Do a tolerance test for yourself. If your Rs 10,000 investment turning into Rs 6,000 up sets you--even though it could subsequently bounce back--an aggressive equity fund is not for you.
Reality Check: What are your goals? If you need to turn Rs 10,000 into Rs 50,000 in two years, a medium term bond fund may not be the right answer. Work on setting realistic expectations for both your goals and your funds.
Know What You Are Buying: Once you discovered yourself, spend some time for a close understanding of the funds. The stated objective of a fund as given in a prospectus is often incomplete and does not reveal much. Based on the readily available portfolio and fund manager's commentary, you can broadly understand the style and strategy followed by a fund. This will help you meaningfully diversify your portfolio. This will also help you assess potential risks. In general, large-cap value funds are less risky than small-cap growth funds.
Examine Sector Weightings: You must know that funds with large stakes in just one or two sectors will likely be more volatile than the more evenly diversified funds. Looking at a fund's sectoral history will help you gain a good perspective. Does the manager move in and out of sectors frequently and dramatically? If so, the fund might get hurt, if the manager is ever caught on the wrong foot.
Check Out the Fund's Concentration: A portfolio with just 20 or 30 stocks or one that puts most of its assets in just a few stocks will likely be more volatile than a fund that's spread among hundreds of stocks. But there could be rewards of concentration. A concentrated portfolio will also get more bang for its buck if its stocks work out. You may want to add a concentrated fund, one that owns fewer stocks or puts most of its assets in the top 10 or 20 stocks, to your portfolio.
But largely, your core funds should probably be well a diversified and more predictable. Though a small allocation to a sector-oriented fund, a more-flexible fund, or a more-concentrated fund could boost your returns.
Assess Performance Appropriately: Past performance is no indicator of future results. Investors should commit this statutory quote from mutual fund prospectus, advertisements and any other literature to memory. It should be recalled more readily than your bank account number. It should be repeated anytime you consider sending money to any fund with a 100 per cent three-month gain.
Why? Chances are that a few months of boom will be followed by bust, as it has happened in 2000. All the ICE concentrated funds, which were topping the charts fell flat on their face. There was just no escape when their NAVs started declining like nine pins. What should an investor do? Do not concentrate your mutual fund portfolio or invest in a concentrated fund. And, above all, don't focus on short-term returns. When choosing a fund, look for above-average performance, quarter after quarter, year after year.
Know Your Portfolio: Look for areas that are over-represented and for those that are lacking. For example, will your portfolio be overly concentrated in the large-cap equities or too much in highly rewarding but wildly volatile infotech stocks? Will you be missing investments in small-cap stocks?
Be A Disciplined Investor: After you've chosen some funds, stick with them. Don't be afraid to go aga
Obama Exploring Radical Geoengineering Solutions to Global Warming
Barack Obama's chief science adviser, John Holdren, explained during an interview that the administration was exploring all options to fight global warming, including trying to cool the planet by artificially blocking sunlight.
The concept of geoengineering as it applies to global climate change brings with it some very interesting scenarios. One of the most intriguing is the idea that scientists may be able to shoot sulfur particles and other similar substances into the upper reaches of the earth's atmosphere in order to block the sun's rays and theoretically cool the planet in the process. The approach is designed to simulate the effect of volcanic eruptions and their ash that blocks out the sun for long periods of time.
As recently as a few years ago, ideas such as this were summarily dismissed as too extreme and unlikely to be practically effective in battling global climate change. But with the Obama administration has come a renewed focus on the problem of global warming and a mildly troubling obsession with the idea that drastic measures will have positive long-term effects.
If we have learned anything as humans, it is that the earth's natural balance and resiliance is still largely beyond our understanding. To expect science and technology - and more importantly, our political leaders - to understand the intricacies of the planet well enough to be able to start manipulating the natural functions of our solar system, is probably too much of a stretch -- even for Barack Obama.
My guess is that the administration wants to make sure that it pushes the global warming agenda as hard as possible, in the hopes that some of the "crazy talk" will make people more willing to compromise on the more practical and reasonable solutions that are on the table. Everyone needs to do everything possible to lessen our impact on the planet, but the planet itself needs to be given some time and some room to heal.
The concept of geoengineering as it applies to global climate change brings with it some very interesting scenarios. One of the most intriguing is the idea that scientists may be able to shoot sulfur particles and other similar substances into the upper reaches of the earth's atmosphere in order to block the sun's rays and theoretically cool the planet in the process. The approach is designed to simulate the effect of volcanic eruptions and their ash that blocks out the sun for long periods of time.
As recently as a few years ago, ideas such as this were summarily dismissed as too extreme and unlikely to be practically effective in battling global climate change. But with the Obama administration has come a renewed focus on the problem of global warming and a mildly troubling obsession with the idea that drastic measures will have positive long-term effects.
If we have learned anything as humans, it is that the earth's natural balance and resiliance is still largely beyond our understanding. To expect science and technology - and more importantly, our political leaders - to understand the intricacies of the planet well enough to be able to start manipulating the natural functions of our solar system, is probably too much of a stretch -- even for Barack Obama.
My guess is that the administration wants to make sure that it pushes the global warming agenda as hard as possible, in the hopes that some of the "crazy talk" will make people more willing to compromise on the more practical and reasonable solutions that are on the table. Everyone needs to do everything possible to lessen our impact on the planet, but the planet itself needs to be given some time and some room to heal.
Thursday, 7 May 2009
When gold/silver ratio widens, silver does worse
The tangible difference between silver stocks and the silver price, in comparison to that of gold, can be partly explained by the enormous volumes of silver produced as a by-product from zinc, lead and copper mines, which leaves primary producers less important to the rises and falls in world silver supply, says The Silver Book, a report on silver investment potential from V M Group.
Following is an extract from the The Silver Book:
Silver enjoyed a strong run in Q1 2009, hitting a six-month high of $14.39/oz (London fix) in late February from October lows of less than $9/oz. But its price still appears to be hovering in something of a no-man's-land. After all, silver had succeeded in rising above $20/oz in March 2008.
This kind of volatility has had many heads spinning. But the key to explaining it is, as ever, not in the silver market, but rather, by looking at what has been happening in gold. The movement in the price of silver reveals a much sharper degree of volatility than that of gold.
While silver is a long way from its all-time dollar nominal high set in January 1980, gold hit its nominal high in March 2008 and currently remains close to that level. But the two nevertheless enjoy a very close price relationship.
A perfect linear relationship between the two prices does not mean that when gold rises (for example) by 5% that silver also rises by 5%. In fact, the silver price tends to move in line with that of gold, but more extremely i.e. when gold goes up, silver goes up more, and when gold goes down silver goes down more.
One useful way of measuring the relationship between their respective prices is the gold/silver ratio, i.e. the number of ounces of silver that would be needed to buy an ounce of gold. This ratio tends to fall (i.e. silver gets cheaper relative to gold) when gold and silver are falling, and rises (i.e. silver gets more valuable relative to gold) when gold and silver prices are rising.
This is in some ways counter-intuitive, because if you compare the price of a product to the ratio of its price to another item, you would expect there to be a positive correlation. But in this case it is negative; so when gold is doing well, silver must be doing better. Similarly, when gold does badly, such as between July and August 2008, the gold/silver ratio widens, meaning silver is doing even worse.
One obvious explanation for this changing relationship between these two metals is that silver is not only a precious and a monetary metal (we use this term rather than precious metal to distinguish gold from platinum or palladium), but it is also an industrial metal, more like copper or nickel.
If we compare the supply-demand balances of silver and gold, we find that between 2003 and 2008 silver's industrial demand (photographic, electronics, brazing alloys, catalyst, and a myriad of other applications such as solar panels) accounted for an
average 15,486t/year, 57% of total demand. Gold on the other hand saw industrial demand of at most 700t, only about 15% of total demand.
Silver's industrial edge is demonstrated by the better performance of silver stocks over gold stocks between 2005 and 2008, while the relationship reversed after the credit market collapse in mid-September 2008.
The tangible difference between silver stocks and the silver price, in comparison to that of gold, can be partly explained by the enormous volumes of silver produced as a by-product from zinc, lead and copper mines, which leaves primary producers less important to the rises and falls in world silver supply.
Since the onslaught of the recession a small proportion of by-product gold has been removed due to base metal mine closures and cut backs, but this has not exerted any upward pressure on the gold price since supply cuts have been minimal and more than compensated by increased scrap supply.
Silver mine production has fared much worse, with aggregate silver output for our top 20 miners (primary and by-product production) slipping almost 5% to 10,979t in Q4 2008. We expect 2009 production could be down by at least 700t, as miners maintain production cuts and delay mine start-ups.
Check out silver and gold trading five years ago:
11th August 2004: The Chicago Board of Trade announced plans to trade gold and silver futures contracts exclusively on its electronic trading platform. Trading in the contract, available 21 hours a day, will compete with Comex. Trading in gold and silver at the Comex is only available online after the trading floor closes.
21st July 2004: 417 oz of gold, about a tonne of silver, and about a tonne of bronze, was used to make more than 3,000 medals for the Athens Olympics.
5th May 2004: Apex Silver reported a $4.2m net loss for the first quarter, and announced that it was seeking commercial bank financing for the huge San Cristobal project in Bolivia.
8th March 2004: First Majestic Resource Corp announced that silver production had begun from its La Parrilla Silver mine located outside of Durango in Mexico.
12th January 2004: Industrias Penoles, Mexico's largest silver producer, was seeking a $120m bank loan to finance expansion projects, including construction of a $200m copper mine and to upgrade the mill at Fresnillo, the world's largest silver mine.
Courtesy: www.virtualmetals.co.uk
Following is an extract from the The Silver Book:
Silver enjoyed a strong run in Q1 2009, hitting a six-month high of $14.39/oz (London fix) in late February from October lows of less than $9/oz. But its price still appears to be hovering in something of a no-man's-land. After all, silver had succeeded in rising above $20/oz in March 2008.
This kind of volatility has had many heads spinning. But the key to explaining it is, as ever, not in the silver market, but rather, by looking at what has been happening in gold. The movement in the price of silver reveals a much sharper degree of volatility than that of gold.
While silver is a long way from its all-time dollar nominal high set in January 1980, gold hit its nominal high in March 2008 and currently remains close to that level. But the two nevertheless enjoy a very close price relationship.
A perfect linear relationship between the two prices does not mean that when gold rises (for example) by 5% that silver also rises by 5%. In fact, the silver price tends to move in line with that of gold, but more extremely i.e. when gold goes up, silver goes up more, and when gold goes down silver goes down more.
One useful way of measuring the relationship between their respective prices is the gold/silver ratio, i.e. the number of ounces of silver that would be needed to buy an ounce of gold. This ratio tends to fall (i.e. silver gets cheaper relative to gold) when gold and silver are falling, and rises (i.e. silver gets more valuable relative to gold) when gold and silver prices are rising.
This is in some ways counter-intuitive, because if you compare the price of a product to the ratio of its price to another item, you would expect there to be a positive correlation. But in this case it is negative; so when gold is doing well, silver must be doing better. Similarly, when gold does badly, such as between July and August 2008, the gold/silver ratio widens, meaning silver is doing even worse.
One obvious explanation for this changing relationship between these two metals is that silver is not only a precious and a monetary metal (we use this term rather than precious metal to distinguish gold from platinum or palladium), but it is also an industrial metal, more like copper or nickel.
If we compare the supply-demand balances of silver and gold, we find that between 2003 and 2008 silver's industrial demand (photographic, electronics, brazing alloys, catalyst, and a myriad of other applications such as solar panels) accounted for an
average 15,486t/year, 57% of total demand. Gold on the other hand saw industrial demand of at most 700t, only about 15% of total demand.
Silver's industrial edge is demonstrated by the better performance of silver stocks over gold stocks between 2005 and 2008, while the relationship reversed after the credit market collapse in mid-September 2008.
The tangible difference between silver stocks and the silver price, in comparison to that of gold, can be partly explained by the enormous volumes of silver produced as a by-product from zinc, lead and copper mines, which leaves primary producers less important to the rises and falls in world silver supply.
Since the onslaught of the recession a small proportion of by-product gold has been removed due to base metal mine closures and cut backs, but this has not exerted any upward pressure on the gold price since supply cuts have been minimal and more than compensated by increased scrap supply.
Silver mine production has fared much worse, with aggregate silver output for our top 20 miners (primary and by-product production) slipping almost 5% to 10,979t in Q4 2008. We expect 2009 production could be down by at least 700t, as miners maintain production cuts and delay mine start-ups.
Check out silver and gold trading five years ago:
11th August 2004: The Chicago Board of Trade announced plans to trade gold and silver futures contracts exclusively on its electronic trading platform. Trading in the contract, available 21 hours a day, will compete with Comex. Trading in gold and silver at the Comex is only available online after the trading floor closes.
21st July 2004: 417 oz of gold, about a tonne of silver, and about a tonne of bronze, was used to make more than 3,000 medals for the Athens Olympics.
5th May 2004: Apex Silver reported a $4.2m net loss for the first quarter, and announced that it was seeking commercial bank financing for the huge San Cristobal project in Bolivia.
8th March 2004: First Majestic Resource Corp announced that silver production had begun from its La Parrilla Silver mine located outside of Durango in Mexico.
12th January 2004: Industrias Penoles, Mexico's largest silver producer, was seeking a $120m bank loan to finance expansion projects, including construction of a $200m copper mine and to upgrade the mill at Fresnillo, the world's largest silver mine.
Courtesy: www.virtualmetals.co.uk
Friday, 1 May 2009
Pension for all from May 1
All citizens of the country will be able to avail of pension facility from Friday, with the interim pension regulator PFRDA confirming the scheduled launch of the mega pension plan in a statement on Thursday.
"The necessary infrastructure for the rollout of New Pension System (NPS) is now ready and it will be available to all citizens of India from May 1, 2009," Pension Fund
Regulatory and Development Authority (PFRDA) said. Tier-I of NPS constituting non-withdrawable pension account will become operational from tomorrow and Tier-II (withdrawable account) of the NPS account will become operational in about six months.
Pension fund managers will manage three separate schemes, each investing in a different asset class. These asset classes are equity, government securities and credit risk-bearing fixed income instruments.
"On the basis of recommendations of the NPS Trust and on advice from the government, it has been decided that investment by an NPS participant in equity would be subject to a cap of 50 per cent," it said.
The authority has appointed 22 points of presence (PoPs) and six pension fund managers. Branches of the registered PoPs, to be called PoP service providers, will be the contact and collection point for all citizens other than government employees wanting to obtain a Permanent Retirement Account Number (PRAN).
The investment will only be in index funds that replicate either BSE sensitive index or NSE Nifty 50 index. The subscriber will have the option to actively decide as to how the investment will be in the three asset classes.
In the event of the subscriber being unable or unwilling to decide, his contribution will be invested according to the 'auto choice' option, which is based on a predefined portfolio varying with the age of the subscriber.
The NPS architecture has been operational for central government employees for over a year now - since April 1, 2008, and the NPS corpus amounting to over Rs 2,100 crore (Rs 21 billion) stands invested in it.
"The three pension funds have generated returns varying from 12 per cent to 16 per cent on the NPS corpus during the year 2008-09, weighted average return being over 14.5 per cent," PFRDA said citing unaudited results.
The states are at different stages of adopting NPS. In August 2008, the government advised PFRDA to extend NPS, currently subscribed to by government employees, to all citizens on a voluntary basis.
Central government employees, who joined service on or after January 1, 2004, are covered under NPS. Unlike the old pension scheme, in NPS both employees and the employer (in this case, government) contributed an equal amount to the pension fund. Twenty-one states have also joined the scheme.
However, NPS for all citizens will not have any mandatory obligation for employers to give matching contributions to the pension fund.
The six fund managers for the new scheme are SBI, UTI Asset Management, ICICI Prudential Life Insurance, Reliance MF, IDFC Mutual Fund and Kotak Mahindra.
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