Wednesday, September 30, 2009

CHINA GROWTH PLANS FOR 2010.




China is celebrating its 60th Anniversary of the Founding of the People's Republic of China. But there is something more to celebrate.
China's manufacturing expanded in September for a sixth month and employment rose at its fastest rate in two years, indicating a recovery in the world's third-largest economy is on track.

Employment in China grew at its fastest rate in 25 months, which suggest that China's recovery, fuelled by heavy government spending on public works construction, is spreading to the consumer sector. The ultimate fruits are now coming out of spending the stimulus declared by China. China's industrial output rose 8.1% in the first eight months from the same period last year driven by Beijing's 4 trillion yuan ($586 billion) stimulus. In August alone, China's industrial output expanded 12.3 percent year on year. The growth rate was the largest since September last year when the global economic slowdown hit China. The Stimulus measure have also fuelled the thought that the companies might be running too fast and overcapacity is slowing building up. This will give birth to more threats in coming days. The govt is also very concerned over this and might see some measures to put brakes on such high fast growth. Significant growth is being found in Chemical, Automobile, Cement etc.
Various new projects are being started off resulting to higher employment. But on the other hand export of China have taken a huge set back. China's exports in August dropped 23.4% year on year, indicating the country faced a tough exports situation. The major reasons behind such a fall is primarily due to the low consumption of US economy. As we all know US remains the highest port of exported goods from China.

In the coming days we will find huge investments and manufacturing operation particularly focusing on Real Estate. The government is preparing to set up a special department. The new department will be responsible for developing programs, building housing and guaranteeing that policies are carried out. So more investments and more employment creation will happen at China. The steel sector and cement will largely benefited.China is also taking huge initiatives for small-and medium-sized enterprises (SMEs). the government will optimize its procurement mechanism, raising the purchase proportion of commodities, engineering and services from the SMEs. It will expand channels for the SMEs to raise capital through encouraging banks to lend more to the SMEs, stepping up making policies to guide private capital to tap into the country's financial system. The government will increase tax breaks to the small firms with an annual taxable income below 30,000 yuan (4392.4 U.S. dollars) from Jan. 1 to Dec. 31 of 2010.

So its well clear the China economy is on a roller coaster ride and will remain out of any trouble of Western Countries economy. China has made timely adjustment to the direction of its macroeconomic policy, swiftly adopted a proactive fiscal policy and a moderately easy monetary policy. China's economy is in good shape on the whole. They have planned for growth ahead for 2010.So Lot of positive flows will keep the Asian economy out of any major Bad Weather. China have kept the Asian Tower of Economy firmly with its various policies .This have also directly or indirectly kept other Asian countries Alive despite of several Western Hurricanes.
So India and other Asian countries are also going to benefit from the plans of China.

THE US CORPORATE BOND DEFAULT BUBBLE

THE NEXT BUBBLE TO BURST OUT
When every one is focusing on US economy coming out of recession and stabilizing another bubble is in the wings. The bubble this time is corporate defaults in Debt.
Global corporate defaults till now in 2009 is 215 issuers--nearly 4x the 59 defaults at this time in 2008, according to an article published today by Standard & Poor's. Defaulter was based in the U.S. bringing the default tallies by region to 155 issuers in the U.S., 13 in Europe, 34 in the emerging markets, and 13 in the other developed region (Australia, Canada, Japan, and New Zealand). Missed interest payments account for 74 defaults so far this year.
At the same time Bankruptcy filings have also surged to 54 issuers so far this year have filed for bankruptcy protection, which surpasses the full-year 2008 total of 49 bankruptcy-related defaults.
Most of the defaults are happening on speculative grading and expectations.
This one like in 2008. But this time the default is on Debt/bond defaults by corporate. This is the new bubble going to burst out any time soon.

The defaults mechanisms

Bonds are issued by corporations or a governmental body to provide cash flow. Then if the business fails, then the bond is worthless. When it comes to bonds and recessions. with less than investment grade bonds, recession increases the default risk increasing the possibility that the company won't pay the bonds as agreed. If the risk of default increases, investors will demand a higher return. Higher return means lower price of bonds. Recession or any sort of turmoil tends to mean that some corporations will see their credit ratings downgraded. When the rating agencies downgrade a company's bonds the yield gets reduced of that company bond. So while your particular bond might be expected to rise because of the interest rate effect, you can get sucker punched by a downgrade.

Defaults till now and the progress.
The prolonged U.S. recession, the speculative-grade default rate in the U.S. has reached double digits. The number of corporate defaults in 2009 continued the expansion seen at the end of 2008, with 18 more U.S. defaults in August, bringing the year-to-date total to 147. The number of U.S. companies that have defaulted on their debt this year rose to 12.2% in August, matching a peak last touched in 1991. If the U.S. unemployment rate were to increase substantially above 10% in the coming year, then default rates would likely be significantly higher.

The outlook remains dim for the weakest companies. We can't forget that more than 60% of all U.S. non financial corporate debt is speculative-grade, and 26.4% of companies in this category are rated B- or lower. Loan market volumes have typically constituted roughly 75% to 80% of speculative-grade borrowings in recent years. About 50% of defaults  have occurred in sectors like media, entertainment, automotive, chemicals and packaging industries.

More defaults will come from debt exchanges -- meaning a company agreed with its bondholders to exchange old debt for new debt and equity. the U.S. economy to bottom by the end of this year, corporate default pressures will remain as many companies continue to struggle to meet interest payments on heavy debt loads.

Expected Bursting time of the Bubble
The precipitous increase in defaults reflects a pronounced decline in economic fundamentals and earnings prospects of US companies. We will find the bubble burst out most probably in the 3rd quarter of 2009 and 1st quarter of 2010.

Tuesday, September 29, 2009

ULTIMATE VICTIM OF INSURANCE MISS SELLING

In every company sales mangers are required to appoint insurance advisors. What are these advisors are? In general the advisors are the ones who will sell the insurance products to the clients. That means they are one type of representatives of the company. But is this the end of the story of their identity. Nope they are much beyond than the ordinary word of Advisors.
We often find when the company gives target of appointing insurance advisors they come under the pressure as if it’s the last day of the world and they have to complete every thing before the day goes off. So they appoint any one as advisors. Makes them sit for IRDA exam and some how manages to make them advisors to sell their insurance product. But how are these insurance advisors. Does they have the quality more than the ability to sell products. Think for a while. Many cases you will end up NO. The agents are able to say but does not possess quality. Absence of quality makes them live short in the long term. In other words they are short term Selling Growth.
Now what quality have got do with selling of Insurance by advisors? The fools of the Insurance industry don’t understand that quality is the game that makes the difference and sustainability in the long learn. Now why I am calling them fools? One who does not understand the meaning of quality and its benefits are termed fools.
We hear cases of miss selling of insurance products. Who miss sells these products. Did any one of you heard raising this question who miss sells. The company never does so. The brilliant Advisors appointed randomly are the ones who sell the and ends with Miss Selling in the long term. Since the have the ability to Miss Sell but not the quality to sell properly .
This is the place where quality gives long term sustainability and benefits.
Quality is not like a fruit available in the market that can be brought. One advisor should have the inputs of Quality to sell properly. The rest needs to be developed by the company itself from time to time progress
Lets figure out the those inputs which will help us to identify an advisor who will not do miss selling.
1.Honesty -
2. Knowledge
3. Passion
4. Business Ethics
5. Customer focused
6. Financial Planning Skills
7. Multi product awareness
8. Follow up skills
9. Self update
And finally, he should be a good listener with required people management skills.
The list can also be never ending. But the most important thing one should possess to become advisor is honesty and quality. Without them the Insurance Industry is just a Weak Child. Just imagine when the Insurance bill will get passed many foreign companies waiting outside India will come to do business and sell their policies. What will happen to do those who are selling insurance without the two prime qualities Honesty and Quality.
The companies are more focused two wards earning policy premiums and who can fetch the most out of them. Who can win the race of huge premium collection? Companies are busy in promoting the name of their Advisors who have fetched the highest premiums. And when a one down trend comes we find all advisors vanished as if like dinosaurs got vanished from the earth. Then we start getting information on Miss Selling. The company mangers and CEO get flourished with mails of miss selling and finally the company who was least involved in the process of miss selling end up with loosing Reputation. The company might have the best of products but still it looses due to wrong appointment of advisors.
A Loss due to low grade quality Advisors. More interesting twist to the story is this that when the Advisors disappear the sales manager who was the boss of the Advisor falls in to another trap. When the Advisor runs away the sales gets dropped and finally the sales manager also have to exit.
If that sales manager have looked into the factor of quality and honesty before recruiting the agents then he should have seen the exit door and the company should not have lost its reputation.Why don't the companies focus on quality of Advisors.That will reduce and control miss selling of Your companies products.Dont need to spend thousands of Cr.on control and checking miss selling.Just improve the quality of the Advisors.That will automaticaly bring honesty in the Advisors.
In any competition around the world these two basic are the most important inputs required. Now ask your self where you find quality and honesty in your insurance advisor.THATS THE PRIVATE KEY OF SUSTAINBILITY.

THE CURRENT POSITION OF MUTUAL FUND ADVISORS.


Mr.Sharma’s daughter is suffering with the disease of thalassemia and needs blood transfusion and other medicines. Mr.sharma is a Financial advisor mainly mutual fund advisor. For the past 9 years he is in this profession. Last week he was crying sitting on the footpath outside a hospital. When I asked him why he replied that he have only Rs.10000/ in his bank account and his daughter treatment needs around Rs.30000/-.If he is unable to get the required funds his daughter will have leave the earth.
When asked in detail he replied that his income have stopped due to the blessing of SEBI where SEBI banned entry load on mutual fund. His income have come to nothing. Earlier he used to earn around Rs.20000/per month, now it stands at Rs.3000/ a meager amount
This above story is not only of one Mr.Sharma but of many across India where the mutual fund advisors are their
From 1st august the SEBI banned the entry load concept for the Mutual Fund Industry. It was a really a good step as the entry load used to be adjusted against the invested funds of the investor through the units provided to the investor. Moreover in the financial market the miss selling started happening. Also the concept of selling mutual funds got changed from selling mutual funds on the basis of fund objective to the Commission objective. Which means who ever gives high commission that product will be sold by the Mutual Fund Agents. NOW PLEASE MAKE A NOTE I AM NOT CLAIMING OR INSULTING ALL THE MUTUAL FUND ADVISORS.
But I would like to know what is the condition of all those advisors of Mutual fund who 6 months before they use to earn around Rs.20000-Rs.30000/ per month.
Now there is a significant drop in their income coming down to Rs.5000-Rs 8000 per month.That income is also from the trail commission. They have shifted to sell post office Mis insurance products primarily ulip, bank fds are the few of the options left to the mutual fund advisors to sell.
Moreover the scrapping of entry load on mutual fund was done on the basis of this point to STOP MISS SELLING.I leave this debate to all my readers.
In a country like India its hard to sell advise and get fee in return to that since hardly few percentage of people understand the relative portfolio management concepts and jaggrons. The investors are more inclined to know only what I will get from this investment. If the call of getting return is of longer period most of them will turn down as every one needs quick money.
Now a question will come that the mutual fund advisors should train and teach the jaggrons and the process of portfolio building and etc. I will not get into an endless debate but will accentuate that all are running busy and every one needs quick money and that’s too quick.
The mutual fund advisors are left with nothing to sell less equity and sell other products. Insurance is now being sold like anything now. But here also I would like to depict that this Industry if faces similar threats as mutual fund industry have faced then what left for the advisors to sell. Even if they take up some different profession what the investors will do. Who will guide them. Since in the initial period their will be less investors inclined to pay the advisor so the majority of them have already taken a hit. That will make them to shift to some other filed. So finally the investors stays alone from doing investment. But not really alone.He is not at all left alone from doing investment decision alone.
If Entry load was scrapped on the basis of misspelling, then I would like to accentuate that individual Mutual Fund AMC are now distributing their products. Now the next phase of miss selling remains in their hand. Since every AMC will use lucrative ways to lure the clients. Since no rule is passed on this matter to the AMC. Every one will use this bait to make the investor invest. So where misspelling get stopped.
Now tell me where these Mr.Sharma type people will go and is the miss selling stopped.

Monday, September 28, 2009

NEW MISS SELLING THREAT AND SIP REINVESTMENT

A significant numbers of investors are now opting to stop their existing sip. The reason behind such a move is that they are now taking advantage of the new SEBI guidance effective from 1st august ( no entry load).

We find that after scrapping the 2.25% entry load on sip a investor saves more and invest more resulting higher return. Say an investor is doing a sip investment in 4 schemes with each Rs.10000/ per month. This amounts to Rs.40000/per month .When he makes investment in new system of no entry load he saves Rs 10,800 PER ANNUM as entry load . This results to higher return as the full amount of Rs.40000/per month gets invested each month Rs39100 per month under the earlier scheme.
Some section of investors are adopting this method as rest remains unaware. But in the coming days all investors irrespective of sip investment amount will opt for this new advantage.


At the same time again a miss selling have erupted form the Mutual Fund distribution system. After SEBI scrapped the entry load and made the advisors of Mutual Fund to charge ADVISORY FEE, some advisors are charging fees in different forms without any guidelines and hard ground reasons. The various names under which the advisors are charging are Visit charges, ‘consultation charges’, ‘advisory charges’ and ‘redemption charges’ and many more fascinating names. Visiting charges and advisory charges are the same since no one goes to a doctor without a disease. But a tight leash needs to be affixed at the back of this fee based model. Investors would be classified according to their investment the advisory fee to be paid. In other words a slab is the need at the moment. Otherwise we will get another set of new Miss selling through advisory business. SEBI needs to look in to these matters too when they have taken oath to abolish Miss Selling.

THE DOLLAR THE STEP SON


The US dollar and the gold are having the relation of a Dog and a cat fighting against each other to prove the strength of Both
Gold have surged to anything in the past few months skyrocketing like anything breaking all previous records. At the same time Dollar have be been bitten like a step son. The US dollar have faced such tremors due to the high borrowings. A total of $112 billion borrowings is needed with immediate effect to fund Washington’s precedent-shattering $1.6 trillion budget deficit. So far this year, US has borrowed a mind-boggling $1.41 TRILLION to fund Washington’s debt addiction — nearly THREE TIMES MORE than the Treasury had borrowed at this time last year.
And still, this is only the beginning: The Congressional Budget Office (CBO) has warned that Obama’s budget will add nearly $10 trillion in new government debt over the next ten years. If it goes as per the calculation the by 2019 the US will have national debt that will soar to well over $21 trillion. So its well clear the dollar valuations will be a downward journey.
At the same time the US FED is also planning to with the bond dealers about selling them $1 trillion of so-called reverse repos that would remove $1 trillion of cash from the financial system. This means that the Fed is seeing signs of inflation as a result of an economy that it believes are emerging from a recession. The Fed is preparing the groundwork for cutting back on the money supply .So it seems like a mixed journey for Gold and Dollar .But the rising Fiscal Deficit of US is a matter of high alert concern. Still among all of these the gold will still shine like anything. Inflation will not be controlled by the practice that’s being decided to applied by the US FED since US have limited resources to tame inflation. Gold will be still used to hedge and fight against Inflation across the world.

SWITCH YOUR ULIP EQUITY FUNDS NOW

ULIP’s are basically long term investment. But still despite of being Long Term in nature they are Return Maximizing tool. The return is maximized through the well known option provided itself in the ULIP product SWITCHES. Each Ulip comes with a Switch Option giving opportunity to the Insurance holder the manage his funds and maximize the Returns over the Long term.
The portfolio of you ULIP particularly the equity portion have revived much from the earlier correction which led to many ULIP Equity portion getting devalued by almost 75%. India's main stock index has more than doubled since early March but more than 95%.So its high time to use the Switch Option of your ULIP to book profits and switch over to Debt option.
If one is having a 60% investment in Equity option and the rest in Debt option, then one should switch over 40% of his Equity to Debt Fund.

This will benefit him in the following ways.
1. He books profit on the 40% Equity Fund,



2. The 40% Switching over to Debt Fund from Equity Fund includes the capital invested as well as the Accumulated Return or Profit



3. If the market goes for a tailspin /downward from these higher over stretched valuations of stocks then his Equity Profit is protected by switching over to Debt Fund.



4. This also gives an opportunity to the investor to do investment in Equity Option once there is a correction.



5. He works a Fund Manager of his own by making use of the Switches.



6. The ULIP product turns out to an Investment Maximizing Tool by using the Switches.
 The switches makes the process of making investment grow like a Mango Tree in the Long Term. Many of us have heard of Switches, but failed to know the hidden benefits if switches.
Now many of my friends might argue that the market might go much more higher levels touching the magic figure of 21000.Now this is an never ending debate that in which way the market will go. But here I would like to accentuate and draw the attention of my readers.
The Sensex have scaled close to 17000 .The Nifty scaled to 5000 levels, giving less space for investors to go for a fresh Buying at these levels. The individual stocks are trading at a higher valuation resulting sceptical movement among the investors . All the Large cap and mid cap are trading at much higher levels giving less space for buying at this stage
Keeping the performance growth of IIP we find that 2nd quarter results will drag the Nifty to cross above 5200 level, which also the much awaited figure. In the Near term we find that the 2 Quarter results will start its effect on the market giving direction to the investors. The 2 quarter results will hit the market at the end of 1st week of October beginning with Infosys. The results date is 9th October. The market have a probability of going up and touch that magic figure of 21000.But at the same time we need to look over few things.
But I would like to make cautious Note that we are expecting too much positive cues from the 2nd quarter results. Their we might get some surprises which might change the outlook of the Nifty. In the past we find many situations where we expected too much from the quarter results and any disappointment from them made the investors nervous, finally Nifty went to a tailspin. So be careful with that. This does not mean we are making a negative bias towards Nifty, but History Repeats. Hence the percentage of down ward Bias is more as pressurized from the numerous reasons including over stretched valuation of Large and Mid caps.
In general, investors should take a cautious approach in the markets as there might be some correction due to nervousness before the second quarter results season
So use switches now and Book your Appreciated Value of your Equity Funds and transfer it to Debt Option. As stock valuation and market is almost Double from its November 2008 lows its is now wise decision to book profits AND SWITCH OVER TO DEBT FUND FROM EQUITY FUND OPTION.
Switches enable the investors to rebalance their portfolio to maintain their asset allocation in the long term.
However, there is a cap on the maximum numbers of fund switches allowed during a year free of cost. Beyond that, the policy holder has to pay a flat charge per switch.
This is one of the closely guarded secrets of Ulips and is to be used over and over again. However, remember that it can also backfire if you are not careful because frequent switching amounts to timing the markets.
But don’t use too much switching as this might result to trading and hence might end up with loosing of Benefits of Switches.

Nifty in the upcoming week (29th September to 1st October 2009) and Near term Outlook

What is expected form the Nifty in the upcoming week (29th September to 1st October 2009)
Present Outlook and effect and Near term Outlook.
We find that we have total 3 trading days in this week. The market to remain sceptical as profit booking and will keep a strong watch over the US economic data. The investors are taking calculative steps so we don’t find much upward movement in Nifty. The individual stocks are trading at a higher valuation resulting sceptical movement among the investors . All the Large cap and mid cap are trading at much higher levels giving less space for buying at this stage. The market have reached to 5000 nifty backed up by strong economic domestic reports and US and other markets coming out of recession.
They are not in the buy call mood neither major selling off. Small profit bookings cannot be ignored. That will drag the Nifty below 4900-4850 range .Below that level of Nifty we don’t find in the immediate session.
The G20 summit along with the US fed meeting made clear that No stoppage to stimulus measures and will continue until the next meeting. The leading indicators shows that Recession is bottoming out in US economy. But the rate is very slow. But anything which comes out of dark is a positive. Thats the momentum being keeping the world market Up.
Close Look (Near Term)
In the Near term we find that the 2 Quarter results will start its effect on the market giving direction to the investors. The 2 quarter results will hit the market at the end of 1st week of October beginning with Infosys. The results date is 9th October.

The investors will get a clear picture of stock picking once the 2 quarter results starts coming out. We find banking, metals and capital goods segment to post good results. We might get mixed bag of results from cement sector as monsoon delays the consumption of cement. But low monsoon will have positive effect on cement sectors that why its expected to be a mixed bag report.

The IIP for the month of august grew 7.1%. The growth was led by coal, cement and electricity sectors. Crude oil output remains poor while oil refinery and steel production improves
During April-August 2009-10, the six core sector industries registered a growth of 4.8% as against 3.3% during the corresponding period of the previous year.
Performance of six core sector industries for August. 2009 (weight in IIP: 26.68%)
So sectors we need to look forward in gamut are Banking, Metals, Power, Cement , Capital Goods and Auto particularly the Commercial Auto. We are not betting too much on Construction segment.
Keeping the performance growth of IIP we find that 2nd quarter results will drag the Nifty to cross above 5200 level, which also the much awaited figure. But I would like to make cautious Note that we are expecting too much positive cues from the 2nd quarter results. Their we might get some surprises which might change the outlook of the Nifty. In the past we find many situations where we expected too much from the quarter results and any disappointment from them made the investors nervous, finally Nifty went to a tailspin. So be careful with that. This does not mean we are making a negative bias towards Nifty, but History Repeats.
Before these we need a consolidation in Nifty by 5% to 7% so the stock picking becomes easy and the valuation also gets lowered giving space for the investors to go for Buy Call.
In general, investors should take a cautious approach in the markets as there might be some correction due to nervousness before the second quarter results season. Investors holding good profits should book part profits and hold some cash to make use of a good opportunity in the markets.

THE LOW COST BORROWINGS OF INDIAN INDUSTRIES


The Indian Corporate are again on the spree of raising loans from overseas.
State-run lender Rural Electrification Corp (REC) is negotiating with USinsurer Aflac Inc for a $200 million yen-denominated loan as part of the company’s $500 million overseas borrowing plan.
Axis Bank is looking to raise $300 million through a bond offer that would be the first overseas issue in a year from an Indian commercial bank.
Few of the recent activities prove that they are really on a faster track of recovery picking up the manufacturing and consumption in equal proportions. Export is still lagging but still the journey have been strong.
The most interesting thing is the sudden appetite of raising loans from overseas rather than from Indian Banking. Indian companies are returning to the overseas debt markets as record low interest rates. Offshore loans are slowly returning after Indian companies raised just $2.8 billion this year through June. By comparison, they raised $15.4 billion in 2008 and $28.9 billion in 2007.

That reflects that Indian banks are charging more in comparison to the overseas rates. The easy liquidity is not available to Indian corporate from their own banking segment .Even after this if the RBI hikes its rates in coming months then the Growth opportunities of Indian Companies will be a slow and will force them to take more risk by raising overseas loan. So once again Indian companies might face the risk incase another Lehman Brother type case happens. The equity and the debt portion of the companies will be having high leverage and higher risk associated with the overseas Loans. So if next time we find a Lehman brother type collapse then these companies will have to face tough situation. But still we can all say that Indian companies are coming back and all we can expect that they will not get drowned away with another Global Financial collapse. Indian corporate are increasing their risk.





INSURANCE NEEDS FOCUSED APPROACH

Today we find many insurance companies flocking in the street with various types of policies. The number of policies have become so much that a Super Market Mall should be Built to sell the policies in order to sell under one Floor. So that when one investor plans for insurance he can literally go for shopping.
Today in the Insurance industry comprises of many insurance companies a total of 22 and will be in the increasing spree.
Following is the list of all life insurance company granted permission by IRDA.
1 Bajaj Allianz Life Insurance Company Limited

2. Birla Sun Life Insurance Co. Ltd

3. HDFC Standard Life Insurance Co. Ltd

4. ICICI Prudential Life Insurance Co. Ltd.

5. ING Vysya Life Insurance Company Ltd.

6. Life Insurance Corporation of India

7. Max New York Life Insurance Co. Ltd

8. Met Life India Insurance Company Ltd.

9. Kotak Mahindra Old Mutual Life Insurance Limited

10. SBI Life Insurance Co. Ltd

11. Tata AIG Life Insurance Company Limited

12. Reliance Life Insurance Company Limited.

13. Aviva Life Insurance Co. India Pvt. Ltd.

14. Sahara India Life Insurance Co, Ltd.

15. Shriram Life Insurance Co, Ltd.

16. Bharti AXA Life Insurance Company Ltd.

17. Future Generali Life Insurance Company Ltd.

18. IDBI Fortis Life Insurance Company Ltd.

19. Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd

20. AEGON Religare Life Insurance Company Limited.

21. DLF Pramerica Life Insurance Co. Ltd.

22. Star Union Dai-ichi Life Insurance Comp. Ltd.

Industry watchers feel the consolidation could be triggered by global M&A, involving partners of Indian players, or by resistance by Indian promoters to put in more capital, either because of a fall in valuations, or because of their own capital constraints.
In the life industry, even eight years after opening up, only one company has made profit. Most non-life companies continue to make an underwriting loss, which means that their claims payout is in excess of premium collection.
Today there are too many players on the local market and during the next few years there will be several mergers and acquisitions. We should try to understand that when we talk about India’s insured % we find many figures coming up with majority focusing on uninsured population. But in real terms the insurance companies focus on urban sector more as compared to the rural and sub-rural .In an example I would like to accentuate that at the back of one urban customer 5 companies are running to get their policies sold. This reflects 2 things.1)Too many players on the same ground and requires consolidation and 2)Not making a planned and focused approach.

Today there are so many policies in the market that every new or old company is busy in bringing new products biased on the basis of COMPETETION. They products are majority similar and less demanding as per the investors choice or requirement. In other words there is a huge drop in the quality of the products that have flooded and will be flooding the market.
The industry is heading in the same direction as banking, where a few large companies are surrounded by smaller niche players. In the banking space couple of years we found many small banks getting merged with big banks.
In the next couple of years life insurance we will see the entrance of new players .So this will result to higher number of players. So a consolidation is on the cards if not in the short term but in the long term. We have to go for consolidation other wise the investor will find too much difficult to choose his own life insurer.

If we see that every sector which has got a consolidation has emerged stronger not only in terms of size but also of market share. Moreover it will be able to develop greater quality of products due to M&A,with focused approach as per demand of the investor. The COMPETETION factor of developing product will come to an end to a certain extent and quality in all respect will the prime symbol of each.

HOW US CONSUMERS CONSUMPTIONS GOING ?


It seems that the US consumers as well as the economy is really coming out of the dark woods. Looking at the US economy data till we find some major improvements followed with some interesting turning points.
The positive contributions came from supplier deliveries, the interest-rate spread, stock prices, building permits and consumer expectations. This revels that consumer good supply have picked up which relates to demand picking up among the US consumers .The building permits also depicts the demand of housing projects and requirements. Their also some negative outcomes from the economy which needs a critical watch out in the coming days.

The negative contribution comes from the real money supply, jobless claims and capital-goods orders. Capital goods depicts the picture of manufacturing process followed with demand in engineering and infra projects. The higher rate of Unemployment is also one of the major factors of the economic growth. Economist have already made deceleration that unemployment might touch to 10%.Higher unemployment results to higher amount of unemployed benefits, increasing the fiscal deficit to climb above 10% of GDP. The factory workweek and consumer-goods orders were unchanged in August
Construction of new single-family homes and apartments accelerated in August to the strongest pace in nine months, a further sign of steady improvement in home building since the beginning of the year. This a very good indication as all other sectors linked with this Housing sector will lead towards a small step of the US economy coming out of recession and some growth is expected by 2010 beginning .Total housing starts rose 1.5% to a seasonally adjusted annual rate of 598,000, the highest figure since November 2008.
The data made economists even more confident that third-quarter growth would be positive. Building permits increased 2.7% to 579,000, also the highest level since November. Another major thing which draws the attention is that the US consumers continued to pay down debts or have their debts written off at a record pace. In the second quarter, household debt fell at a 1.7% annual rate to $13.7 trillion, matching the record decline in the fourth quarter. This relates that the US financial position is also stabilizing .Another good news linked with this is that the US consumers are in saving prone and shifted form the much older philosophy of living life on Debt. Over here many of my readers will debate that if US consumers are in saving mode then where we will get US consumption picking up.
I would like to know that does one needs Consumption at the cost of higher debt resulting to the repetition of the Great Fall of 2008.If they are in saving mode that will not result to a Debt Bubble.


Household debt has fallen four quarters in a row and is down 5% from the peak.

HIDDEN REASONS FOR HIGHER GOLD PRICE


Gold prices in the past couple of weeks have soared to huge levels and touching new heights. In my last article I told that gold prices will go for correction and later on will again touch new highs. The time for correction have come or not is yet to be figure out but a small reason is be noticed that is the International Monetary Fund has approved a sale of 403 metric tonnes of gold reserves, in a move likely to raise $13bn (£8bn) of cash .These fund will be used to provide low-interest loans to poor countries and shore up its internal finances .
The IMF have decided to sell about one-eighth of its gold, the equivalent of nearly 13 million ounces, worth roughly $13 billion at current market prices.
Now please don’t think that the fund will be provided to BRIC nations. But the gold might come in the hands of Asian economies.

China, India and Russia, eager to reduce their position in dollar-denominated securities, have expressed interest in buying IMF gold. Attempting to sell the IMF gold is another short sighted illusory panacea which will create more problems for western financial institutions in the long term. As it may ultimately lead to a further increase in the wealth and power of Asian and other emerging economies and diminution in that of western economies and particularly the U.S.
The last time the IMF sold a significant quantity of gold was in 2000, when the 186-nation Washington-based institution was prompted to raised funds by economic crises in Brazil and Mexico. The sell will not be like the previous method of selling gold in TRANCHES. Since only 403metric tonne gold will be sold the quota of the Washington Agreement, is only limit of 500metric tonne. Hence it will be a faster process of selling the gold.
This sale will increase the supply of gold and will result to drop of demand as speculators will play the game. If India purchases gold then that will help to meet the demand that have arise and will continue due to festive season and marriage season. Moreover as the value of gold have gone up so much investors are bound to book some profit and await in the sidelines to take advantage of the downward price of gold. Similar to the outlook of IMF regarding selling gold at this high price.
Similarly when the IMF has sold gold previously, gold has fallen initially and then rallied in price in the medium and long term. In the past when their have been sales at different times, when major bull markets were either just beginning or, as in 1976-1980, at the start of the major parabolic move to then all time highs.
The IMF is expected to be running a deficit of $400 million in 2010.So its well clear that when prices will rise of gold due to inflation that will grow in all countries across the world economies, gold will be used as a hedging instrument. This will drive the price of gold to new high levels resulting IMF to sell more gold to reduce its deficit.
So as I wrote in my previous Article Gold prices to have short term correction but will make new highs in 2010
Those who are holding gold in their portfolio its better to encash and book profit and wait in the side lines to do investment.

Thursday, September 17, 2009

ADVANCE TAX AND EXPECTED MARKET AND YOUR PLAN OF ACTION


Advance tax data is out. It reflects this time that advance tax collection is more than 20%. Mumbai accounts for almost 40% of the country's total tax collection Higher advance tax payment means that profits may be higher in Q2 September 2009 over Q2 September 2008 and vice versa. The growth have come from all sectors giving more support from banking, oil and gas and auto sectors. We also find from the details till now declared that this time advance tax is more as compared to September 2008.


This will have a tremendous positive effect on the stock market that will push the sensex to 18000 levels and nifty above 5200 levels. Giving a big gift before Diwali. But the before we draw some more positive cues the biggest factor to watch out in the coming days is that the stock valuation of the major large cap companies along with midcap companies are too much valued and this is making the investors skeptical regarding doing investment and purchasing these shares at these prices. We need to check the valuation of the shares. We should not get biased with the upward euphoria that will be created can make the picture ugly in coming days.

If a small correction will reduce the values and will give ample space to the investors to do investment with some comfort. Now many of my friends will say that equity market investment is game of risk. I agree to them but jumping on from the top floor of a building doesn’t seems to be a wise ball game.

I will ask my investors to be cautious and choose only large cap stocks. Since even if they market goes down due to any reason then afterward the bounce back will begin only in the large cap at first.

They market will now remain very sensitive to any news coming from other economies. Any negative news will make the panic button pressed and investors will run away. I will ask to Avoid this type of mistakes if it happens this time.
One more thing I will like to accentuate that this advance tax figure will have a huge positive effect on the market but please keep in mind don’t get carried away with filthy stocks. Invest in large cap along with use the Advance Tax Data to choose the potential scripts/stocks and invest in them. The companies who have paid huge tax will not necessarily mean huge profit. But large cap stocks will good potential should the EYE of THE BIRD.
Lets see what kind of diwali gift we get before diwali.We might soon get 5200+ nifty levels.

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