Thursday, January 28, 2010

EASY ECONOMY to a COMPETITIVE ECONOMY (series 1)


This year again we will see this same picture on 26th of Feburary 2010.Lots of hope and fate in that briefcase.Along with this US budget is also about get on the table within a next week followed with many countries budget. But we are already witnessing massive tremors of its upcoming budget earth quake.The tremors are so hard that the world equity markets have been rattled and saw a coming of like a house collapsed under earth quake. This year all the budgets of the world economies will be very focused and intricate as to whether start the strategies of exit of fiscal polices or to further stimulate the economic activities.In this series I will be sharing some of the insights of the expectation of each economies budget and its affects on the economy followed with the probale propsals that might come.

If we look country wise India is now on the recovery path of its economic roller coaster ride. It would be wrong to say recovery path in fact it have recovered and stared a fresh roller coaster economic ride.
IIP number and other sales of prime sectors have come up to the levels of 2007-2008.It have totally white washed the stains of recession from its wall of economy. The only concern is the inflation and the price of food items which have bought signs of wrinkles on the face RBI. We already know India have declared a host of stimulus packages. Now after a year old package specific points are normal to be forgotten. So let us recapitulate and then we will go with further insights. In the first stimulus which was declared on December 2008 and the second stimulus was on January 2009.Clubbing all the stimulus I have tried to bring forth the important one which we will focus in this 2010-2011 budget.
• Plan, non-plan expenditure of Rs.300,000 crore (Rs.3,000 billion/$60 billion) in four months

• Parliament nod to be sought for Rs.20,000 crore more toward plan expenditure

• Across-the-board cut of four percent in the ad valorem central value-added tax

• Interest subvention of two percent on export credit for labour intensive sectors

• Additional allocations for export incentive schemes

• Full refund of service tax paid by exporters to foreign agents

• Incentives for loans on housing for up to Rs.500,000, and up to Rs.2 million

• Limits under the credit guarantee scheme for small enterprises doubled

• Lock-in period for loans to small firms under credit guarantee scheme reduced

• India Infrastructure Finance Co allowed to raise Rs.100 billion through tax-free bonds

• Norms for government departments to replace vehicles relaxed

• Import duty on naphtha for use by the power sector is being reduced to zero

• Export duty on iron ore fines eliminated

• Export duty on lumps for steel industry reduced to five percent.

If we look clearly we hardly find any space for India government to further reduce the rates of indirect taxes. Since indirect taxes leads to lower cost of production and higher margins of profit resulting stock market going up followed with economy. But as the Indian government has reduced the indirect taxes followed with other measures. All these have made Indian government a fiscal deficit of 6.8% of GDP as per the last budget session. Its being expected that now this figure will jump further keeping some more sops declared from other sources from time to time and as more consumption grew to uplift the economy simultaneous growth in deficit also went up.
Now a question might come up how much it might grow and the reply is simple wait and see don’t go with imaginative figures.
We cannot expect more reduction in indirect taxes corner. The best it can be no change in tax rate or moderate change. But the factor of moderate change affect on companies and the stock market is the twist to be watched. India goes for some bold steps it might cost the Indian inflow of funds coming from overseas. Since they are looking for low cost and high growth opportunistic countries to invest. Even if the India takes bold steps then that might not be this suitable time. Since Indian economy has grown without the support of export, rolling back of reduced rates of indirect taxes might be a massive fiasco for India economy. Exports amount to 22% of India’s GDP. Gems and jewelry constitute the single largest export item, accounting for 16% of exports
Exports will take time for India economy to pick up. US and Europe were the prime exporting countries and now e know the status very well. The below chart shows the export of India in 2009.


Thankfully we have also changed out focus of export to other countries and some time it will take to pick up from end. Till then any action of Indian government which will damage the rising domestic demand of India.
So a moderate tax hike needs to be carefully watched to see the affects in the long term demand and cost competitiveness.
If we look into the current account of India we find India is struggling despite of a economic growth of 7%. A current account is a financial account with a bank or a financial institution. It enables account holders to make or receive an unlimited number of payments as frequently as they wish. Thus, current accounts are considered as an essential tool for businessmen. In 2006 we find the current account was hovering around 5% and which turned in 2009 July to -12.63.The below chart shows the current accout position of India.



Increased allocation of funds for infrastructure and others are all welcomed and will be present in the budget of 2010-11, but what about the cost of borrowing and the taxes. All these will exert pressure on the eocnomy. RBI will go for a rate hike and that will exert pressure on borrowings. So we will be getting a transformed into a COMPETITIVE ECONOMY from EASY ECONOMY. And this is applicable more fierce fully for other economies across the world.
We should not be betting on imaginative numbers of fiscal deficit numbers. We should not be making too much expectation from the market. What we need to do is to understand the invisible facts of any proposal brought forward to us. We need to look into the long term growth and not the short term tremors of the speculators of the market and economy. We should understand that a growth cannot be achieved at the cost of loss to some other prune areas of the economy. All we need is patience and in-depth analysis followed with a mind set of transforming the business activities from as EASY ECONOMY to a COMPETITIVE ECONOMY.

Sunday, January 24, 2010

SUDDEN SELLING TRIGGER


It time for a profit booking. Sound pretty harsh and surprised that I have started the topic with a bang of sell trigger. Yes you are correct to read what I wrote. Last week the equities markets in US and Asian economies went for a vacation of free fall. We saw Indian browsers and other Asian markets went for a profit booking followed with US markets.
But what made the sudden fall of the markets across the globe followed with a skeptical outlook among the investors. The upward and strengthening equity market and many economies coming out with aggressive GDP numbers, all were going great but what made this earthquake and why all are expecting more tremors of the quake will hit the market in coming days.
Its not due to interest rate hike of world economies or due to any other reasons but it happened with a flash of bad news and skeptical outlook of investors. In other words it’s the skeptical outlook of the citizens of the recession affected economies. They are unhappy due to the polices that have been adopted by the recession affected government.
If we look at China which is the 2nd largest economy is the world we find that economic growth have been abnormal. Yes abnormal in this sense that it has created asset bubble. In my previous articles I have given host of indications about the movement of the Chinese economy towards asset bubble and over capacity bubble of production. If we look in depth we find that it’s really high time for china to step in to take actions. If don’t take the steps the economy might go in the hands of depression.
• In the fourth quarter Chinese economy expanded at 10.7% compared to a year ago.

• In 2009 the economy grew at 8.7% above its target rate of 8%. China also revised its third quarter expansion to 9.1% from the previous estimate of 8.9% and first quarter at 6.2% from 6.1%.

• Fixed investment in urban areas soared 30.5% in 2009 according to the Chinese statistics agency.

• Industrial production increased in December at 18.5% and retail sales surged at 17.5% according to a separate report issued by the agency.

• Consumer price index in December increased 1.9% and producer price index rose by 1.7%, meeting the forecasts laid out most economists.

• Reports from Chinese economy decaled today revealed that inflation-curbing measures had already started, with major banks told to stop lending to customers for the remainder of January.

• This also means cheap money flow is now being restricted from all corners of china. Its policies of keeping the economy out of its cold breeze of recession it made stimulus packages followed with incentives to all sectors.

• The government is now expected to dramatically scale back its $US586 billion stimulus measures followed with its incentives to other sectors. It also proposed consolidation is various sectors starting from automobile to steel.
All these aggressive economic data and growth number china have also given birth to a uncontrolled bubble of over capacity production and an imbalance of more supply as compared to production.
I request my readers to read these previous articles where one will get a clear idea of how China plans to control the dragon of its abnormal expansion. CHINA LAYS THE GROUND WORK TO CONTROL THE DRAGON. http://ianalysis.blogspot.com/2009/12/china-lays-ground-work-to-control.html.

The below chart is the China Industrial Production.

In the above chart we find that in April 2008 we get the Chinese industrial production around 17.8%.When recession began we find a dramatic fall in the production. In January 2009 the Chinese government declared the stimulus package followed with incentives for doing investments. And finally the colors of the stimulus became prominent from April 2009 to till date.
Clubbing all these has forced the Chinese economy to put a tab on the lending and disbursement of loans.
• Chinese banks doled out a record 9.6 trillion yuan ($1,406 billion) in new loans last year.

• Moreover it added more fuel to the fire by some loans where we find the total net disbursement of loans added 1.2-trillion yuan ($175-billion U.S.) worth of credit just in the first two weeks of January.

• The Chinese commercial banks to keep more funds in reserve for the first time since June 2008.

• This also meant they had lesser funds to lend. Bank of China plans to sell up to 40 billion yuan ($5.8 billion) in bonds to replenish its capital and meet government standards.

• Regulators have warned some banks that they have fallen below minimum capital requirements after such a huge growth in disbursement of loans in 2009.

Now the quality of credit also becomes a big question and whose answerer we will get in the coming days. Easy lending also increases the NPA. China put the leash on the lending of banks to stop the rising bubble of credit default which might come up in the next coming quarters due to easy and higher disbursement of loans. It might be that Chinese economy is already aware of the rising NPA and not to take risk beyond their capacity they are putting curbs.
All these might ask the central bank of china to press the button of rate hike. If that happens then one will get prolong range of correction in the Asian economies as cost of borrowing s will go up more resulting to sell of assets spread across the globe. So end of the cheap money era from Chinese investing firms in India and other economies. FII’s from Chinese economies will press the trigger of sale even if no rate hike is made immediately. Since the investors and the lending curb will force them to sell as they will need funds for the rest of the days left in china. In 2010 we will get the loan disbursement coming from the demand of Chinese industry consolidation and merger and acquisition in various sectors from automobile, steel etc.

In my next article I am going to present the 2nd part of the SUDDEN SELLING TRIGGER..

Friday, January 15, 2010

2010 M&A DECIDING FACTOR FOR WORLD ECONOMIES


We read a host of data and information on merger and acquisition in 2009.We found global data regarding merger and acquisition and many cases every economy data too. But I am not going to repeat the same old data for any type of analysis. I will try to bring forth the upcoming trend and foresight of the merger and acquisition in 2010 which will derive the growth as well as consolidation of industries across the nations.
2010 will be a Harbinger of merger and acquisition activities globally. The journey will begin in 2010 from Independent firms will help shape the mergers and acquisitions scene in the asset management industry in 2010. Oil and gas companies will increase acquisitions in the first half of 2010, particularly in Asia.

Management consultants across the global are just waiting for the bell to go when they will jump with strategies of making economies of scale via merger and acquisition. If we look in as a blind man to find the growth of merger and acquisition then we should look into those economies who are struggling to come out of the dark woods of recession. The energy, finance, technology and healthcare industries are expected to be
the hottest areas in a deal making market that in 2010 around $2.1 trillion dollar will be the volume of deal making in 2010 expected.
This figure of merger and acquisition can be achieved on numerous number of factors among which the prime one which suits the post recession times is
• CEO confidence is high,
• Capital markets are accommodative,
• Balance sheets are stronger
• High levels of cash into the system.
The below chart depicits the global M&A market capitalisation.

The Companies which are taking aggressive actions on costs; are going to look out for the low hanging fruit is and to drive further efficiency they will look to combine with similar players to drive scale and enhance market and increase consumer base. Diversification is now not on product wise but on geographical expansion .Companies are more focused to expand consumer base and to take advantage of cheap economic valuations.
Cash on balance sheets of the companies are sitting idle. If the companies don’t go for any use of those funds then it have to be returned to the shareholders.
But among them I don’t find any good news for merger and acquisition in 2010.Now to justify that there are many points. We all find the positive reasons of merger and acquisition like:
• Cost efficiency through economies of scale
• Greater Value Generation
• When a  firm wants to enter a new market
• Wants to introduce new products through research and development
• Reduces cost of capital,
• Tax advantage etc.

But all these advantages add taste to that cup of tea where the economy is not after post recession. Merger and acquisition in any economy after post recession have a different meaning as a whole. 2010 M&A will be completely different from the historical deals.
When we look in to the post recession M&A we don’t get much advantages of economies of scale and other factors. Its curse for an economy to gets its small enterprises and business eaten up particularly by global peers . Domestic acquisition creates a consolidation which is good for an economy in one perspective that later on consolidated industries will make that economy more beneficial. But when overseas merger and acquisition happens its turns out to be a curse for an economy.
• We get higher unemployment in M&A.
• Particularly in times of recession the figure of unemployment jumps like anything.
• M&A in times of recession gives more reward than normal times of M&A. M&A in the recession spark waves of consolidation in many industries.
• Weakened companies will need buyers to survive, while strong firms will take advantage of low stock market valuations to buy troubled rivals at discounts.
• We also know that when M&A happens in recession times unemployment is must item to go up.
• No Buying company will like to carry on with excess working staff.

So higher number of M&A in 2010 is not a good news.What we need to see the long term strength of economies who are having acqusition at domestic level and overseas buyout.This will decide the long term industrial strength of the economies.

FDI HUB IN CHINA


China has been the first nation to come out of the dark clouds of recession. In my past articles I have tried to depict a picture of the Chinese economy as well as draw correlation with our Indian economic growth. We have seen Chinese economic growth from all sectors some correlated with Indian economic growth.
Chinese FDI investment has taken a major hit among all these growth stories. FDI fell in 2009 for the first time in four years in china. In 2009 china was able to bring forth $90 billion FDI to its economic shores.
When we dig into further numbers of FDI we found that:
• Rose for the fifth straight month in December, increasing 103% from a year earlier to $12.1 billion
• In November 2009, foreign investment rose 32% from a year earlier to $7.02 billion
• October's $7.12 billion was the FDI flow.

We also found the sectors which attracted the flow of FDI to get the real picture of Chinese economic growth fro long term. At the same time the number of approvals of projects and ventures gave us the idea of the aggressive financial and economic policy of china towards economic growth.
• The government approved the establishment of 23,435 overseas-funded ventures in 2009, down 14.8%  from a year earlier.
• In December alone, China approved 2,835 such companies, representing a year-on-year increase of 10.7%
• The flow of FDI money was in manufacturing, despite a decrease of 6.26% year on year. This sector got an inflow of 46.77 billion U.S. dollars FDI in 2009
• This also accounted for 51.95% of the total FDI. This also the prime reason for the rising overcapacity bubble of Chinese manufacturing apart from the stimulus funding.
• On the other hand service sector attracted 37.87 billion U.S. dollars, down 0.67% from that in 2008, and this accounted for 42.06% of the total.
• FDI in the real estate sector is 16.8 billion U.S. dollars in 2009, a decrease of 9.65% annually. Despite of this the real estate sector in china was over bubbled with prices of property already touching the sky levels.
The total investment in overseas markets, 40.4% or 17.5 billion U.S. dollars was used in mergers and acquisition, technology introduction, marketing, and energy and resources. Return on investments in Chinese economy is around 9% to 105 making it the 2nd economy in the global footprint to generate such return.

China has always made a higher estimation of its FDI inflow. Hence all its policies were designed in such a way that it pulls all the industries from US and Europe to start their operations in China. The chart below shows the historical FDI estimation of china in parallel to actual FDI investments. (Period from 1989 to 2004)

What makes china so lucrative to FDI?
• One of the reason for such huge investments in Chinese economy is that the cost of production is very cheap as yen is much lower valued as compared to major currencies.
• China has also a higher margin of savings in hand which have resulted to increasing demand despite of recession.
• The biggest disadvantage of highest population has turned into the biggest advantage for the Chinese economy attracting investments in China. Setting up base in China will act as a hub for supplying the greater China economies that include the Shanghai economy, Taiwan economy and Indian economy.
• Doing manufacturing in china not only makes the price competitiveness but also helps to reach the product to other Asian countries associated with China.
• This also results to economies of scale for companies doing business in china. If they do the business in US or Europe they will not be able to find the huge population of India and China.
Strange fact is that China have been able to attract FDI investments despite of US and Europe recession war. These FDI investments have also increased the reserves of China. China's foreign exchange reserves, the world's largest, grew 23% in 2009.
In the below chart we find the flow of FDI funds in various sectors.We find that manufacturing accounts for 59% of the total FDI.

In the below chart we get the flow of FDI other than manufacturing and real estate sector.


In the year 2010 china will face the hurdle of slow economic growth followed with slow export growth. Domestic demand will be in the upswing remaining more or less the same like 2009.The real reason behind slow export and economic growth of china is that when US and Europe will start economic growth they will do this at the cost of china economy.
No economy can grow until one closes the sale of the products of the shop next to him. China has replaced the goods of US from the shop floors of Us itself. Moreover the companies who are producing goods in china and doing export to US and Europe are the companies of the importing countries.
Once those economies starts they journey of their growth china will be on the verge of high risk of over capacity production and WTO cases against China will also rise .Monetary polices of china will remain under stringent pressure as it will be demanded to bring its yen value parallel to other currencies valuation.
So doing investments in china is 2010 will be bit risky and needs a wait and watch policy of the world economy in correlation to Chinese economy.

Tuesday, January 12, 2010

29th Januray RBI Policy Meet.


29th January is an important date. Now it’s not a red letter day or neither is any day the Indian history to be remembered. For financial market 29th of January remains a big day as the RBI will hold its much-awaited monetary policy. The whole Indian economy is keeping a close eye on the movement of the giant steps of RBI. It have been a much hyped that RBI might go for a rate hike any time soon. Prime drivers of this are the food inflation and the CPI.
A quick look at the inflation numbers.

1) The above index chart depicts that CPI and food prices have started rising from 2003-2005.Where as non food items were lower at that point of time. Then we find a controlled price and CPI remaining below the level of 5.Suddenly from 2006 end to till date inflation and food prices started climbing back breaking all past levels.
If we get into further detail analysis and trend evaluation of the RBI actions and market movement for a period of 1 year then we get some interseting facts which will be described via the chart itself. (I will not put a note of analysis as I think the chart is beyond of any description.
2) In the below chart I have tried to bring forward the actions taken by RBI in 2008 to 2nd quarter of 2009,in parallel to repo - rates, stock market index movements along with CPI.

Now what we can expect from the RBI on 29th of January regarding interest rates.( Speculation)
Before this we need to understand the ways other than which RBI can withdraw liquidity from the market other than interest rate hike. Very recently RBI declared that will issue bonds of Rs.18000cr into the market.
Primarily there is one scheme other than interest rate hike by which RBI can squeeze liquidity from the market is short-term bonds under the market stabilization scheme (MSS) to absorb liquidity instead of increasing the cash reserve requirements. Now what is the difference of issuing bond instead of interest rate?
Indian banks have provided fewer loans to consumers and are having a growth in their deposits. Commercial banks are sitting with huge reserves of cash in their holdings. If interest rate hike is being made it will not be able to squeeze liquidity out of the system with a fortnight. It will depend upon the loans disbursement .Since only then the repo rates and reverse repo-rates will come in to play to squeeze liquidity from the banks and put the pressure on consumers.
Moreover as Indian export is still way lagging behind and if rate hike is made at this point of time it will increase the cost of borrowing and will pose a threat to Indian economic growth rate of 8%.
Indian companies are still finding difficulty to raise funds from banks and are opting for other sources to raise funds. Now at this point of time if any rate hike is made then it will further detoriate the fund raising plans of the corporate.

Finally they might not be able to take such a hard decision at this point of time when export and Indian economic growth have started to raise equal to 2007 period. Bond is the safest option to suck out the liquidity of the commercial banks. And these bonds will be released in the reaming days of 2009-2010 fy. At the same time SBI is coming up with a bond of another Rs 3,000 and Rs 5,000 crore by way of issuing 10-year retail bonds, before 31st march 2009-10 fy.
Bonds will not make an overnight pressure on the market or corporate India. It will reflect its affects very quietly on equities but with a strong bang on Bond market. I am not ruling out that RBI will not go for a rate hike to control the dragon inflation but it’s a speculation keeping in mind the Rs.18000cr bond to be issued that RBI may not go for any hike in 2009-2010 fy.

Monday, January 11, 2010

DRIVER OF INDIAN ECONOMY


Infrastructure is the back bone of every economy. Infrastructure contributes a great deal to sustained economic development.country with good infrastructure can be classified as a developed country whereas the other countries have little finance to spend on such luxuries and hence, keep struggling in the developing class of nations.Indian infrastructure growth started with much delayed but when it started its journey it made a remarkable growth. If we make a analysis of the 5 years trend of infrastructure growth in Indian economy we find a remarkable growth prospect led by huge untapped demand.

Growth of the infrastructure is driven primarily by effective demand for projects and proper usage of funds. Many South-East Asian countries, and even developed countries such as the UK, have shown impressive progress by following the public-private-partnership (PPP) model. The 1998-99 Budget announced by the BJP government has given a major boost to infrastructure development, particularly in energy and power, transport and communications, by stepping up public expenditure in these sectors. This also increased government spending on infrastructure which was expected to boost India's sluggish economy. The journey of the infrastructure was slow due to the lack of a clear policy frame work for private sector participation has hampered the badly-needed infrastructure.
If we measure the growth of infrastructure in India with a quick look we find :
• Infrastructure sector grows 3.7% in Aug 2003
• Infrastructure sector growth doubles to 9% in May 2004
• Infrastructure sector grows 10.2% in June 2005
• infrastructure sector grow 8.7% in July 2007.
In the below chart we find the investments made in various infrastructure segments.


All we get in the above sector a consistency in the growth of the Indian infrastructure growth. Now we all know that when infrastructure grows all other sectors like banks, cement, metal etc grows with them. We have seen justification of this that period. After recession we have found that from November 2008 dark days to shining days of November 2009 the country's infrastructure sector expanded 5.3%.
In 2009 the growth of 5.3% in infrastructure sector was also driven by the large loans worth Rs 20,000-30,000 crore by banks. This money is excluding the funds raised via QIP and ECB and FCCB etc.
Loans from World Bank and Asian Development Bank were also the prime contributor of finance to the sector.
• India, which already has $19.57 billion in World Bank loans that are supporting 68 developments, infrastructure and other projects. World bank have even committed to provide a total loan of $7billion to Indian infrastructure growth.
• The sum is three times the average $2.3 billion the Bank has loaned India annually over the past four years.
The below chart shows the loans made by World Bank to India in dollar terms.

For the current Fiscal Year the chart shows total commitment amount to date. Total lending includes IBRD, IDA, GEF/GEF Medium size/Carbon Offset projects.
We find from the above chart that World Bank vault opened from 2006 with a small pie of loan.In 2007 we find a growth of loans by 164.49% within 1year time frame.Thats why we got such a new scale of growth return on our investments in equties and other assest classes during that time period.When recession hit the Indian shore we find a dramatic fall but yet higher loans compared to 2006 period.In 2009 we also get a similar picture and in 2010 its forecasted to break past all the historical loan growth.

The below chart shows the number of projects that have attracted loans from World Bank.

For the current Fiscal Year the chart shows the number of approved projects to date. Data update frequency : monthly .I hope I dont need to add any words here of analysis as the chart is beyond of any words.
What is expected in 2010 from policy ends?
• Relaxation in the norms relating to infrastructure lending and 70% of loan loss coverage ratio are likely to top the agenda when bankers meet Reserve Bank of India on January 14,This will be held before the quarterly policy review.
• They may also ask for some easing in the guidelines announced for banks
• Public-private partnership (PPP) programme to be developed.
• Significant political, fiscal and institutional hurdles must be overcome to move from traditional procurement to a public-private sector collaboration.
• A competitive and transparent bidding process, as we have seen in the past particularly in 2009 that their were number of projects where their were only one bidder at that point of time due to lack of proper pricing and bidding process.
• Developing skilled professionals within the government
• Developing and training to bring expertise to manage the PPP procurement and implementation of the project,
• A System designed to balance risk allocation, and
• Effective mechanisms for payment structure.

Where domestic growth is hidden from 2010 to another decade?
• The National Highways Development Project (NHDP) to upgrade major roads in India to be a higher demand generator.
• NHDP projects would be supplemented by some state level projects like the ring roads in Andhra Pradesh and village connectivity roads in Rajasthan.
• The Bharat Nirman Programme, in addition, would entail a total investment of Rs 1,74,000 crore .
Metro Rail projects in Mumbai, Bangalore, Hyderabad and also the second phase development of Metro Rail in Delhi.
Building of international airports at Bangalore, Chennai and Hyderabad, and modernisation of airports at Mumbai and Delhi would entail total investment of around Rs 40,000 crore.
• Building of international airports at Bangalore, Chennai and Hyderabad, and modernisation of airports at Mumbai and Delhi would entail total investment of around Rs 40,000 crore.
The new decade of Indian economy will witness massive changements in the infrastructure segment.Followed with growth of other core sectors.The only deciding factor that will bring the growth is the policy chnagements mentionde earlier followed with flow of funds expected to come in 2010.if any any of these two goes wrong then the Indian infrastructure growth will be slower and more time consuming.

Sunday, January 10, 2010

NEW DECADE OF MAHINDRA AND MAHINDRA


When Satyam collapsed and the buzz in the word was that this will be another winding up of the company as the situation demand. Moreover no one was their to remove the stains of corporate default and the broken corporate governance. The world economy was merged in to the problems of recession and India was struggling to make a come out from the cold breeze of cash crunch. At that point of time the Stayam fiasco got emerged out. It rattled the stock market and made investors to loose out Rs.10500cr in few days. During those turbulent times when no body came to rescue the employees of Stayam and the shareholders of the company. Every body was busy in making a calculation of the respective profitability that could be earned. Mahindra and Mahindra was the company along with Larsen and Turbo came for rescue of the company. After that every one knows what happened.
Mahindra and Mahindra was a company which took birth from very tough situations and even during those struggling times very few were their to support the long term dreams of the company in the initial days. But now Mahindra and Mahindra don’t need any recognition of its dreams
Mahindra took off the Satyam and now after one year it has turned the fortunes of the company which is know by the world. Mahindra and Mahindra still have strong new decade of new business ventures to grow. It’s making a very bold and aggressive move with a cautious note on every step towards its new decade of dreams.

Mahindra’s future dreams consist of some rewarding fortunes for the shareholders and the Indian industrial economy.
• Mahindra and Mahindra, one of the largest automakers in the country and its plans to launch the electric vehicle by the end of 2010.This will be second company to come out after Tata to roll out such car.

• The advantage Mahindra will get is that in the coming days the crude value will be above $100 dollar once the world economies will bounce back with strong growth. At that point of time this model of car by Mahindra will be competitive on the streets.

• Mahindra is also developing hydrogen and CNG powered vehicles, which could be launched over the next 12-18 months depending on the infrastructure.

• In the automobile segment Mahindra will emerge out to be the market leader in the new decade. Since when other will be busy in giving finishing touch to their products Mahindra will kiss the streets of Indian roads.

• It is also going to start soon export of a new automobile and will try to become the first in Indian auto space to do that export. Mahindra is looking to export a new electric "mini truck" to Europe and the US, becoming the latest Indian carmaker

• Now this product will find good response since US and Europe are going through a high rate of fiscal deficit despite of low crude prices. Now when the crude prices will be around $100 then import bill of crude of US and Europe will reach such levels that it will become impossible to pay such huge bills. This will increase the crude import bill of the two nations making it more vulnerable to rising fiscal deficit.

This was all the story of the Mahindra’s new decade of automobile business growth. Now the company is making a foray into some more diversified business segment where its competitors will be just left away from the track.

It’s making an entry into aerospace products. Surprised but yes this will give the company new dimensions and huge untapped potential to grow in the new decade. It has also laid the first stone of its business.
• Mahindra & Mahindra, in partnership with Kotak Private Equity, has taken majority stakes in Australia based aerospace companies Aerostaff Autralia and Gippsland Aeronautics. The total deal size is at about Rs 175 crore.

• In 2008, it acquired a 100% stake in Metalcastello S.p.A, a leading Italian independent gear manufacturer with the backing of ICICI Ventures Funds.

• It is setting up a plant in Bangalore to complement the acquisition and provide dual shoring cost benefits to customers.

• This also gives the company the entry ticket into aviation segment.

• It also desires to acquire Sona Koyo which is a Tier-III supplier of aerospace components.

The Future Call
Call on Mahindra and Mahindra is going for buy at any level without looking back t any valuation measures. The company will post super rich growth figure and will make its shareholders more rich than any company might be able to do with CONSISTENCY. This company will turn the model of automobile industry of India in coming days. Its business diversification will yield great return over a longer time to the shareholders.
My readers might ask that why I did not went for financial analysis to present the company with more fine quality of data analysis. To them my reply is that I will be coming very soon with a host of analysis of company financials after 3rd quarter results come out. This was only analysis of the future decade of growth that the company is striving to get. This article is presented to bring forth the diversification and the new decade of Indian automobile industry growth.

Saturday, January 9, 2010

2009 INDIAN TELECOM INDUSTRY



What more great performance can be expected from s sector when the world economy as well as Indian economy was making a turn around from the dark worlds of recession. Telecom is the sector I am talking about .This sector has done a fantastic performance in 2009 which makes Indian economy more proud.
India's telecom sector has reached a major milestone recently with the country's mobile user base surpassing 500 million. More over it’s boosted by a staggering 17.7 million new activations in Nov 2009.When we dig further in to the performance growth of the telecom sector in India we get some strong impressive figures which depict India have a huge untapped potentiality in 2010 and beyond.
According to the Telecom Regulatory Authority of India ("TRAI), India's mobile customer base crossed 506 million at the end of November.
• Currently, 43 out of every 100 Indians own a cell phone. Including roughly 37 million fixed lines, India now has a total of 543 million telephone lines, a penetration rate of around 46%.
• There is considerable headroom for growth given the under penetrated rural regions.

BUSINESS GROWTH
When we dig more to find out the industry leaders in this growth journey of Indian telecom in 2009 we find:
• Privately held telecom operator Bharti Airtel remains the market leader with roughly 116 million mobile customers recorded at the end of Nov 2009 (latest data till now)
• Reliance Communications (at 91 million) and
• Vodafone Essar (at 88.6 million)
• Tata Teleservices, a joint venture between NTT DoCoMo (DCM) and India's Tata Group, continue its journey with the maximum number of new customers with 3.3 million in November.
• Idea Cellular also had a strong period with 2.5 million new additions.
• State-owned mobile operator Bharat Sanchar Nigam Ltd ("BSNL), added up in 1.4 million new subscribers for the month.


THE COLLTERAL DAMAGE
All we find contribution from all ends but with a very stringent and turbulent competition. In 2009 we also got a new package for calling say ‘Pay Per Second’. Now this has been a price boon for consumers and a desperate high level curse for companies profitability. The first of this was brought by DOCOMO. Now it’s very hard to say that how much they earned from this cheap price but one thing which became very clear that it created a dead end for Indian telecom industry growth in the coming days. Where in order to maintain profitability one has to increase a 3 times more sales figure on consumer addition from normal times. Now this is quite difficult even though there is scope of growth of increasing consumers. India's mobile sector is characterized by aggressive price competition.

3rd QUARTER EXPECTATIONS
So we should not be surprised to see a drop in profit margins of telecom companies in the 3rd quarter. Consumer addition figures will not improve the profitability in this quarter of 2009-10.Since prices have been reduced by 1/3 of what it was a year back. Indian telecom industry growth is now dependent two factors.
• By overseas expansion since that will add more subscribers.
• 3G auction will give new dimension to dominate the domestic market and scale to new heights of Indian telecom business.
Despite of all these the Telecom Regulatory Authority of India had recently asked telcos to make presentations on their respective tariffs, to determine the business feasibility of such rates,This is required for to protect the interest of the shareholders.
The FDI into telecom sector was up 5.9% during the period. Apart from adding up new subscriber base Indian telecom has been partly in doldrums particularly with 3g auction matters. Relaince communication was also merged with problems followed with a fail deal of Bharti and MTN. But still at the end of the year 2009 Bharti bagged the deal of Dhaka-based Warid Telecom International.

HOPE OF RAY
But we don’t find any light coming from the darkness created by Pay Per Second where the companies profitability is at high stake. Its advised to stay away from the sector from any kind of investments in the short as well as long term. Once the issues of 3g get processed and completed then only it’s viewed to be a good decision fro investments. The Indian telecom industry will remain under stringent competition and price pressure which will affects the shareholders but once 3g auction takes places Indian telecom industry will again rise to be one of the fastest growing industry than any one else in the long run. Till then operators will l face challenges to protect their market shares.

GOLD INSURANCE COVERAGE


If some one plans to go for some robbery then my advice will be not to runaway with cash. But to run with a handful of gold. Yes run with a bagful of gold rather than running with currency. Since gold might show $3000 ounce in the next 2-3 years. Shocked and many of my readers might have acclaimed me by now I am quite lunatic in making such a predictions.
Apart from huge list of fundamental and technical reasons some more stories is behind the future predicted prices of gold. Gold have already replaced the green back. Even as there are no other form of keeping investments other than currency, gold have replaced that place. But apart from these basic reasons behind the gold rally in 2009 we find further strength in the future price of gold.

When we dig in to the facts and figure we found some interesting facts and figures which depict a different invisible analysis behind the gold price of 2010.

China is mad at chasing and accumulating gold and it seems that will control the price of gold similar to control exercised over steel and other metals.
• According to the China Gold Association (CGA), the estimated demand for gold in the country was 450 tons in 2009, up 13.8% from 395.6 tons in 2008.

• On of the main reasons behind china to build reserves of gold are they are feeling shaky about the dollar free fall.

• China holds a reserve of 2 trillion treasuries which represents 60% of US treasury in dollar form. Any hiccups from that will save the china from the insurance cover of gold investments.

• Chinese household income is increasing resulting to Chinese consumers are buying more jewelry and investing in gold. This is also the reason behind the rising demand of gold in the international market.

• China is already the largest gold producer in the world with an output of around 282.504 tons in the first 11 months of 2009. The figure represents a 14.6% increase over the same period in 2008.

• According to China Gold Association, the estimated demand for gold in the country was 450 tons in 2009, up 13.8% from 395.6 tons in 2008.

• China is also expanding the mining segment too.

• Chinese miners are also eyeing overseas resources to expand their footprint. The latest move is Zijin's $498 million takeover offer for Australian mining company

• A deal that will help secure copper and gold mining assets in the Philippines.

• Foreign governments have long stockpiled U.S. dollars to shore up their own currencies. And as the buck has sunk with our weakened economy, nations like China have been selling dollars to boost their gold holdings.

• Selling more dollars will increase the flow of dollar resulting further flow of dollar in terms of other currencies.

The below picture shows the price of gold in 1 year.


We find that gold price on January 2009 was around $850 and it touched a high is November 2009 to $1200.Before that we find that gold was trading within a range of $900 to $1000 levels. During that time the world economy was struggling to stand up.

If we look into the 5 years gold chart.


We find that gold have been on a path of steady recovery once the world economies started their bull market rally with growth of economies in every country around 5% mark.

We have heard many times gold is being used to hedge against inflation. I think we need to explain this process so as to get the real picture of the gold price in future.
Gold is famous for being used as a hedge against inflation. We strike the chord when we dig and found that  the most consistent factor determining the price of gold has been inflation. When  inflation goes up, the price of gold goes up along with it. Since the end of World War II, the five years in which U.S. inflation was at its highest were 1946, 1974, 1975, 1979, and 1980. During those five years, the average real return on stocks, as measured by the Dow, was -12.33%; the average real return on gold was 130.4%.
Today, a number of factors are conspiring to support  the perfect inflationary storm: extremely stimulative monetary policy, a major tax cut, a long term decline in the dollar, a spike in oil prices, a mammoth trade deficit, and America’s status as the world’s biggest debtor nation.

Gold is bought and sold in U.S. dollars, so any decline/upward in the value of the dollar causes the price of gold to rise/fall. The U.S. dollar is the world's reserve currency - the primary medium for international transactions, the principal store of value for savings, the currency in which the worth of commodities and equities are calculated, and the currency primarily held as reserves by the world's central banks. However, now that it has been stripped of its gold backing, the dollar is nothing more than a fancy piece of paper. Gold is also called by "crisis commodity" since it tends to provide healthy return when other investments during periods of world tensions are incapable to generate returns. We have already witnessed this after the US and UK bank collapse.

Along with these their some more host of analysis yo justify the upward rally and $3000 ounce gold price.

• There is no doubt that the government’s efforts to stimulate the economy have pumped massive amounts of money into the financial system. This has also spurred the commodities prices in the sideways. From RBI to US FED all are concerned over this rising inflation which cannot be avoided.
• Rising fiscal deficit of US which is already floating at the rate of 12% of US GDP will keep the dollar under pressure. Even in the year of 2010 this pressure will continue as US government is less interested to go for a hike in cost of interest. This will also lead to flow of cheap money. Moreover the US government has less scope to impose measures and techniques by which they can increase the revenue at their end. So falling dollar will force the world economies to change their form of saving their investments in dollar form.

• So when their will be no profit of keeping investments in dollar form gold is the perfect replacement for dollar. More over rising interest cost in the future across the world economies and rising imbalances will make the fluctuation of currencies more volatile.

• This increases the risk of investments holding in the form of currency. In other words the biggest risk which is waiting for the market now is the massive fiscal and monetary stimulus packages adopted by world economies and the uncertainty about how governments will exit them. This will exert pressure currency particularly dollar.

• Rising inflation will be hedged by gold where as gold will have more increased valuation. Return over gold investments will be more as compared to keeping the investments in dollar.

But we will get correction in gold during those times when dollar will rise followed with every steps of interest rate hike and exit policies of stimulus by world economies. Those times will the buying opportunities of gold. We should not get surprised if gold rose to $3000 ounce riding on the dragon of china building reserves and world rising inflation.Gold is accumulated to protect against falling dollar as China and many countries hold dollar reserves.Rising inflation and uncleared exit startegies of stimulus will make currency to devaluate more.Gold is the insurance to cover and protect from all these riks.In 2010 we will find gold demand touching new heights followed with price hike.

Thursday, January 7, 2010

HOW REAL IS THE REAL ESTATE FOR 2010


One evening I was sitting in my lawn relaxing suddenly the cell phone of mine rang I found my best friend called me up and howling and crying over the phone. He was saying so many things in one time that difficult for a lip reader also to understand what he was saying.
After some time I learnt that he got in a position where he is in a position to bankrupt. On further query I came to know the whole story of his loud voice of animal growling. He was into real estate business and he took two projects where construction was going and had taken a loan from around Rs.5cr and all his money is invested in construction and he is not getting any buyers for his residential flats. He also needed some more funds for the pending works and banks are reluctant to lend further at the same time his flats were not getting sold. He was in a terrible situation at that point of time. I finish the story here without going into further details.
This story belonged to all those real estate developers who were standing on the verge of death on 2008. Tough lending norms, an unfavourable primary market and subprime woes squeezed the money flow to the domestic property market. All the sources of funds got stopped during the recession breeze.
Real estate sector was the hardest hit sector in 2008 recession. The sector went into a tails spin when all sources of funds got blocked up. From those levels now in 2009 we have been able to change the outlook and strategy of the real estate sector.



The journey till 2009 and further.
In 2010 we will get a host of new structures of projects coming from real estate sector. One of the major growths that we will get from real estate sector is the affordable housing projects. Apart form them we also found some more factors behind a reasonable growth from the sector. The flood of buyers came in and developers sold properties at lower rates with marginal profits, which was a win win situation for both the developers as well as buyers, especially in the housing sector.

Among all these the Indian real estate sector was able to draw funds from overseas when the western economies were struggling with mortgage properties.

• Indian real estate sector has attracted cumulative foreign direct investment (FDI) equity inflows of $7.3 billion.

• Funds raised by realty-focused private equity firms declined significantly by 70% so far this year as investors exercised caution for making fresh investment commitments. A total of 93 funds reached a final close in 2009, receiving commitments of $40.5 billion.
• Private placement of shares, asset sale, initial public offerings (IPOs), external commercial borrowings (ECBs) and foreign direct investments were the tools used for fund raising

• 16 real estate initial public offerings (IPOs) set to hit the market in 2010.

• Emaar MGF Land Ltd, Sahara Prime City Ltd, Lodha Developers Ltd, DB Realty India Ltd and 12 other realty firms have filed with the market regulator to raise funds through IPOs this year.

• These companies are set to raise over Rs 12,000 crore collectively.

• The revival is expected to accelerate from activities both in the residential as well as commercial spaces.

• Development of other asset classes like warehousing, logistics, tourism, hospitality, etc., will also boost real estate activity.

• Developments in the IT sector will also be a prime contributor to the real estate sector. As most of the demand of commercial property comes from this sector only.

Even The Confederation of Real Estate Developers’ Associations of India (CREDAI) have expressed some of the demands they want to get fulfilled this time as it was not entertained in the previous Union Budget 2009.Soem of them are

• Fiscal incentives for encouraging ‘Affordable Mass Housing’ in the country

• Exemption of direct and indirect taxes to boost ‘Slum Redevelopment’ initiative.

• Increasing deduction on interest paid on Self Occupied Residential House Property.

• Incentives to senior citizens on purchase of housing.
In the 3rd quarter results we found that the sector will post good returns. The much recovery is being witnessed from many resources.
1. The BSE Realty index has increased 135% in the past six months and has outperformed the Sensex by 47%.
2. The government gave a 1% interest subvention on home loans up to Rs 10 lakh for homes costing up to Rs 20 lakh.
3. The first 12 installments of all loans sanctioned and disbursed during the 12 months from the date of publication of the scheme will be eligible for interest subvention.
4. Improved demand in the residential segment, mainly in the metros of Delhi as well as Mumbai.
5. The situation in the commercial office space segment in 3Q CY09 seems to be more of a mixed bag with demand improving quarter-on-quarter (Q-o-Q)
6. In the last quarter of 2009-10fy we found that the developers found a growth of 40-50% in sales of residential ready-possession and under-construction properties across metros
7. There has also been a rise of about 5-10% in resale registration of residential apartments amidst the recovery in stock markets and the positive consumer sentiments.
8. So in this quarter we will also get such type of growth from this sector.

It is being well clear that we can go for investments in this sector with a long call as well as short term call. But as the sector is very sensitive to banking sector, any negative news can affect the short term outlook of the sector. But in long term its well clear that the real estate will finds its growth in 2010 from Affordable Mass Housing’ in the country.Only this factor will provide the golden fruits of real estate returns in 2010.

Wednesday, January 6, 2010

2009 GETS THE AWARD OF QIP


The ice freezing waves of recession had frozen the prospects of Indian industrial growth after September 2008.Indian industries have to cut short production, rescheduling the production, stopped investments in new projects and finally followed the gate of retrenchments. No vacancy was the song being played on the streets of Indian corporate houses.
Sensex was dragged down in such a manner that every one took for granted that the sensex and nifty will be zero within a very short span of time. On 31st December 2009 just year after we are standing at a growth rate of the economy around 7%+ followed with a sensex recovery about 80% from the Black days.
Indian corporate took a turn around from cash strapped position to cash rich levels.2009 was the year of proof in the history of the Indian economy that recession did not freeze us like an iceberg in Antarctica.

Indian corporate was the biggest sufferers when the big banks of west plunged and all the funds which were supposed to get invested in Indian companies disappeared just like water evaporation.

The dramatic turn around of the cash less position to cash rich position happened due to funds raised from various sources:

• Rs 34,100 crore were raised by the 51 QIPs made during the year

• Nearly Rs 50,000 crore was raised by Indian companies via domestic sources.

• Yes the figure is strong enough and that’s too based upon domestic support.

• Out of this 60% of that amount was raised via single instrument, the qualified institutional placement (QIP).

• When we go for a comparison In the same period of 2008, India Inc raised Rs 2,104 by means of QIPs out of the total Rs 48,807 crore garnered from domestic so-urces, as per study by New Delhi-based SMC Capitals.

• QIPs became the god to the Indian corporate to the rescue them form cash-starved.


When we dig into other sources of fund raising we get:

• Foreign currency convertible bonds have seen a jump of over 50%.

• External commercial borrowings saw a dip of 45% as compared to the same period last year.

• The figure become more impressive when we look in the funds rose from ADR and GDR.

• The funds mopped up from ADRs/GDRs have jumped up by more than 29 times from $0.1 billion in January to November 2008 to $ 3.15 billion in January to November 2009.

• Rs 1.44 lakh crore raised by companies through domestic bond offerings in 2009 exceeded the 2008 number by nearly 48 per cent.

• IIFCL, the largest bond issuer, raised Rs 7,300 crore.
Now all these stories are now over and what is stored for 2010 is the next thought line coming into the minds of all of us:

• Around 44 Indian companies are aiming to raise about Rs 29,000 crore

• They have filed prospectus and are awaiting clearance from Sebi

• Apart from IPO FPO will be another sources where funds will be raised by the Indian corporate

• Disinvestments are the biggest bomb shell to burst out in the 2010-11 fy.

Above all these figures the total funds raised by Indian corporate from January to November 2009 is Rs 2,58,000 crore. The figure is lower by a meager number of 3000cr when compared to 2008 where India raised Rs.261000cr.

Now we would also like to know the sectors which have pulled all these funds which have been raised.

• Majority of the QIP funds found streets of financial services companies.

• The inflow was about 55% of the QIP funds.

• Inflow in to the street of consumer sector was 17%

• And last but not the least the Indian industrial sector pulled over 15% of the funds.
Financial sector growth happened due to all these funds which were raised via QIP. Now its quite hard and next to impossible to draw line regarding the volume of money that have been invested in to the equity market by these financial arms. Its quite difficult to say that 80% recovery of the Indian stock market did not happen completely on the basis of FII funds alone.
In between all these we also need to accentuate our attention towards the Indian banking loan segment. Many question rises among which the prime one is what contribution they did after the interest rates were kept lower and the loan extended by them towards Indian corporate.

• IN 2009, most banks reduced the loan rate for almost all their loan products.

• But the banks were skeptical towards providing loans in the first half of 2009.

• Teams selling unsecured individual loans like personal loans and credit cards were disbanded in large scale in many private and foreign banks.

• The same was true for NBFCs selling personal loans.

• The credit flow (y-o-y) to agriculture grew 19.9% as compared to 23.4% during the year ended October 2008

• The industry drew 14.8% as against 37.4%

• The services sector 6.3% as against 35.5%.

• The Central Banks objective was to reduce the overall risk in their loan portfolio.

• And this is the place where Indian banking segment left the hand of the Indian corporate.

In one part Indian banking segment played the correct role by not taking exposures like western banks in order to protect the hard earned savings of 120 billion populations.
But too much skeptical move made the initial days of the Indian corporate difficult.
Among all these the most interesting part is that Indian investors are very less attracted towards the IPO which have been issued in 2009.Wehave seen number of cases where the IPO failed to meet the expectation of the investors. One of the prime reason behind such a move is too much expectation and wrong pricing of the IPO followed with miss calculation in valuations. But all these factors do not rule out that the fate of IPO in 2010 will be same.

• All we need is the valuation to be reasonable and the expectation levels should not be over stretched so high that it never meets any ones goal.

• One more thing we need to keep in mind that what ever IPO comes in 2010 we need to pick them on long term valuation basis and not on the short term profit making polices or strategies.

• Look in to the long term value generating projects of the company. Then only one can reap the benefits over a longer time frame.

• Short term triggers might fill up your pocket but at the same time might help you to loose money too.

WHERE TO GO IN 3rd QUARTERLY RESULTS


The 3rd quarter results are all set to get out from the second week of January. Lot of predications and calculations as well as bets are being held on different sectors prospects. In this article I will like to dig out the invisible facts, trends and insight which we will provide us some light inside the deep fog of 3rd quarter results.
AUTOMOBILE SECTOR.
These sectors have been on a roller coaster ride from the period when Indian economy bounced back from the cold breeze of recession from the west. If we look at some of the figures we find that

• Notwithstanding the recent economic slump, the Indian automobile industry registered robust sales growth in 2009.

• In the sales corner of this sector we find domestic sales grew at about 16%, while exports stood at 15% growth in 2009.

• According to the Society of Indian Automobile Manufacturers automobile production in India grew at 14% and sales picked up during the second half of 2009 over the first half of the year.

• Production increased from about 60,000 units in 2008 to approximately about 80,000 units in 2009.

• India's auto sales surged 71.9% in November from a year earlier to 207,500 vehicle.

• The festive season have added fuel to the growth of sales figure.

Hence in this 3rd quarter we will get healthy growth figures in the profitability of the auto companies.

• Whatever price increase of steel and other commodities related to auto sector will show its affect in the coming quarters and not in this 3rd quarter of 2009-10 fy.

• But as the market valuation is high it’s advised not to go for long call in investments in this sector.

• Once the results are out one needs to analyze the trend of future profitability depending on the birth of future demand despite of any hike in interest rates and other government policies.

According to me it would be wise to invest in those companies where sales is having a higher proportion coming from commercial vehicle. Those who want to take advantage and make quick money from the instant hiccups that come from this sector might go for investments but at the sole risk of themselves.

BANKING SECTOR.
The Indian banking sector is planning to go for mergers and consolidation so as to strengthen the Indian banking in front of the global standards. The main reasons behind this are that smaller banks are having their NPA increasing day by day.

• On an average 26% rise in net NPAs have been registered by 21 public sector and commercial banks during the second quarter of the current financial year as against the same period last year as per Industry body Assocham.

• As per its analysis, the aggregate NPA of 21 banks - 19 public sector banks and two large private banks - increased by 26% to Rs 25,137 crore in the second quarter of 2009-10 from Rs 19,920 crore against the year ago period.

The sector is now surrounded with a buzz called rising inflation which will force the RBI to squeeze liquidity out of the economy.

• Its true that any central bank of any economy will carry on the policies declared during recession times. It will have to go back to normal phase of operation in order to keep the economy away from bailout.

• The banks will post a good numbers and will also be able to show growth in the 3rd quarter results.

• Good growth of loans during the festive season will provide the first fruits of good profit growth in 3rd quarter. Although in December we find 11% growth in loan off take which is the lowest ever .

• We will get loan growth in the banking space from automobile, farm ,real estate and infrastructure projects started after monsoon.

• Late monsoon have propelled the growth in farm sector.

• So a growth farm loans will increase the growth of loans and profit of the banking space. Demand of farm also increases the demand of fertilizers and other FMCG sector.

But if one plans to go for investments in this sector it will prune to stay away.

• As the RBI might go for a rate hike .In that cases this sector historically have reacted in a negative manner.

• Moreover from the financial year of 2010-11 the banking sector will come under the purview of Basel II norms.

• Where some factor regarding internal control and banking regulations regarding loans and other structures will come under some stringent regulations.

Once the results are out and keeping a close eye on the RBI monetary policies one should go for a long call. Those who want to take advantage and make quick money from the instant hiccups that come from this sector might go for investments but at the sole risk of themselves.
CAPITAL GOODS.
These sectors have been one of the prime contributor to the Indian economic growth.

In the IIP numbers which reflects the manufacturing and industrial growth of Indian economy where we get that:
• Industrial output increased by 10.3% in October.


• 9.63% recorded a growth in September as compared from October 2008, when the index of industrial production (IIP) grew a mere 0.1%.

• Lowe commodity prices will be the prime contributors behind healthy profit numbers from this sector.

• The increased demand of industrial goods and infrastructure projects will increase he top line as well as the bottom line growth of the sector.
The increased demand of industrial goods and infrastructure projects will increase he top line as well as the bottom line growth of the sector.

When we look in to the historical figure of the growth in core industries of India we find that :

• In April and May 2009, when core sector grew at 3.7% and 3.2% respectively, IIP rose 1.1% and 2.1%.

• In June and July when core sector grew at 6.3% and 3.3%, IIP improved by 8.3% and 7.2% respectively.

• In August, when core sector showed a growth of 6.5%, the industrial growth touched 11%.

Capital good sector is one of the sectors where it’s advised to stay invested and buy at every fall. One go for long as well as short call for investments. This sector is now ready to show again a growth in profitability. Some hiccups in the future might come form higher commodity prices and increase in interest rates costs. But the higher and never ending demand from this sector will make over all the hiccups and will swim out from any pressures of future.

In my next article will discuss the remaining sectors.

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