POWER GOLD MINE OF INDIA

Power is an essential requirement for all facets of our life and has been recognized as a basic human need. It is the critical infrastructure on which the socio-economic development of the country depends. The growth of the economy and its global competitiveness hinges on the availability of reliable and quality power at competitive rates. The demand of power in India is enormous and is growing steadily. 

For any economy to growth consumption of power is vital. The opening up of the energy sector to private investors as part of the Indian economic reform gave an   energy boost  desperate needs Indian power industry is now a highly opportunistic place of investments. Private equity (PE) players to invest around  $1.64 billion worth of infrastructure funds, mainly in power sector.

PE investment in the power generation sector dropped by around 80% between April and September 2009, to $157 million (around Rs 770 crore) from $902 million (Rs 4,419 crore) a year earlier.But still it remains the high alert zone for getting good return over investments. According to Venture Intelligence, a research service focused on PE and mergers and acquisitions, investments in the power sector took jump  were $122 million in 2006 to  $495 million in 2007.

So now a many question swill come in our mind asking

1.  What are the growth prospects of power sector?
2. Upcoming new power projects and its prospects.
3. Invisible negative impact and fate of doing investment in power IPO.
4. Long term outlook 2-4years.

Growth of Power Sector infrastructure in India since its Independence has been noteworthy making India the third largest producer of electricity in Asia. n its quest for increasing availability of electricity, India has adopted a blend of thermal, hydel and nuclear sources. Out of these, coal based thermal power plants and in some regions, hydro power plants have been the mainstay of electricity generation. Oil, natural gas and nuclear power accounts for a smaller proportion. Of late, emphasis is also being laid on non-conventional energy sources i.e. solar, wind and tidal. Growth of the industry today is not standing on the traditional method of power generation. Newer forms have expanded the diversification and growth of the Industry. The economics of the power sector is almost entirely driven by the domestic market and the attractive demand-supply dynamic. If we look at the demand supply of the power industry of India we find that

India needs incremental power capacity of one lakh Mw over the next five years. Peak power deficit in India goes to as high as 18.6%. The onus is on private players to add 40,000 Mw by 2015.

UPCOMING NEW POWER PROJECTS IN INDIA.

We also find a strong list of upcoming Power projects in India. Some of them as follows:

• Neyveli Lignite Corporation Ltd is setting up the Barsingsar power project with Rs 1,368.25 crore, which is under execution. It consists of two power units each of 125 mw capacity. The project is expected to be complete by 2009.
• Another project by  Neyveli Lignite which is setting up a 500-mw thermal power project at Bikaner, which is in planning stage.
• Rajasthan Rajya Vidyut Utpadan Nigam Ltd is setting up the Giral lignite power project with Rs 1,350 crore investment. The state government's project is partially complete and is coming up at Giral, Barmer. It consists of two lignite-based power units each of 125 mw capacity.
• The Nigam's Chhabra thermal power project with an investment of Rs 1,750 crore is also under execution. The project has two power units each of 250 mw capacity. It is expected to be completed by 2008.
• RRVUNL's Suratgarh power project stage-IV with an investment of Rs 750 crore is under execution. The 250-mw coal/lignite-based thermal power project is expected to be completed by 2008.
• Also under execution is the Kota power project stage-VII with Rs 800 crore investment. The project is of 195 mw capacity and is expected to be completed by 2008.
• Marudhar Power Ltd's lignite-based power project with an investment of Rs 750 crore is under execution at Bikaner. The project consists of two power units each of 135 mw.
• Raj West Power Ltd, a company belonging to Om Prakash Jindal Group, is setting up a lignite-based power project at Barmer. It is under execution and is expected to be completed by 2008. The project cost is estimated at Rs 4,804 crore.

So many projects will attract huge foreign inflow as well as domestic which will drive the sector growth to new heights. More over the return from these investments will be time consuming as break even level will be achieved after certain time frame from start off. But the hidden treasure of growth lies once the projects crosses the break even and start generating future cash flow. This list stand for the demand that is being generated at present situation. In coming days many more will add on which will make this power sector lucrative as gold mine.

INVISIBLE NEGATIVE IMPACT

In coming days we will find many more huge investments being drawn by this sector.

But at the same time too many players in to a particular segment leads to optimized growth as well as far more increased decline. Their is a saying in English too many cook spoil the broth. It’s same here. Too many projects and will increase price bargaining. Companies will be compelled to go for reduced margin sales, resulting less profitability. The companies will fight against each other to make the most competitive bidding. Despite of all these the power sector will remain lucrative for private equity and venture capitalist in the long run.

Since demand for this sector is never ending process and will continue to grow in the coming days. In recession times the demand might drop for a certain time but it will again shoot up like any thing. In the past couple of the capital market witnessed some major power share IPO hitting and went off speechless. Investors frowned over the return they got from the IPO on the listing day. Investors were in this expectation that the share ipo will make their investment to double. But again here we made too much expectation from the initial phase. The place where we failed to identify the capability of these share ipo’s to give return is our short term out look. We never looked in to the process of the industry, when it will generate return over investment. This sector is highly capital intensive and major generator of negative cash flow in the initial phase.Once the projects gets started and power generation and supply begins from these projects the sector will be nothing next to a gold mine.

Investors who are doing investment in this sector via capital market will have to wait for their investments to grow since all the projects are on establishment process. The companies who are engaged in building these projects will not get positive cash flow from the first year. It will take some time to break even and then generate future positive cash flow. The sector might face hard times in the initial phase as too many investors expect too much expectation. According to the industry process it will take time to establish power plants till then it will  generate meager return to investors which  will lead to investor  pull back from investments. This pull back is only driven by too much expectation in the initial phase and not on long term outlook.

Those investors or private equities and venture capitalist who desires to do investment should look into the invisible future growth of the sector that will take birth from the huge upcoming never ending demand of power in India. This sector is as good as a gold mine. Pricing issues and others factors of so many power players will be their but as more demand will increase this factor will get more reduced.

LONG TERM OUTLOOK

The reason for this bullish growth emanates from two reasons. One is the continued capacity expansion plan and investment outlay from the government. Two, growing demand in the domestic market. India’s power deficit is about 14% during peak hours. Again, this varies from state to state. The more industrialized a state is, the more its demand for power. Maharashtra for example, faces a deficit of more than 30 percent. Chronic power shortages and widening power supply-demand gap is creating tremendous opportunity for privat investment encouraged by government policies.

According to a McKinsey study ‘Powering India: The Road to 2017’, if India is to grow at 8% for the next ten years, its power requirement may rise from 120 GW to 315 to 335 GW by 2017, requiring an investment of $600 billion on adding the required capacity So we find a never ending demand and huge untapped potentiality for venture capitalist and private equities.

So while on one hand India is developing new and enhancing existing traditional power sources, at the same time it is also laying emphasis on non-conventional sources such as solar and wind power. Moreover, post Budget 2009-10, the Power Minister has announced an addition of 16,000 MW by independent power producers by the end of the Eleventh Five Year Plan and that the target of 78,750 MW would be met by 2012. In addition to this, the Government has announced plans to set up a first-of-its-kind energy efficiency company under the purview of the Union government.

The below chart shows the demand and supply shortage of power supply.This never ending mismatch makes this sector more lucrative for expansion and growth.

Having equity participation from four PSUs -- NTPC, Power Grid Corporation, Power Finance Corporation and Rural Electrification Corporation -- the company will be called Energy Efficiency Services Ltd (EESL). This company will engage in energy efficiency and consultancy.

The profitability of the power generating companies is expected to improve in the coming quarters as the GoI is well on track to provide long-term fuel linkages to the po wer plants. Coal India Ltd. (CIL), which mines about 85% of the coal produced in the country, is expected to sign a fuel supply agreement (FSA) with certain PSUs,with an assurance to supply coal for 90% PLF. In the current scenario of fuel shortages, the power generating companies should benefit extensively from this development. With reliable fuel linkages, the Peak Load Factor of the power plants should improve and correspondingly result in better margins for the power generating companies.

The excessive demand scenario for power in the country also implies significant growth potential for the power sector. India has historically been a power-starved country, with the peak power deficit standing at 16% in FY07-08. The GoI has charted out its mission of ‘Power for All by 2012’, which calls for a YoY capacity addition of 18,000–20,000 MW during the ongoing five-year plan. The mission also targets an increase in the per capita consumption of electricity from 631 Kw/hr in 2006 to more than 1,000 Kw/hr by 2012.

So the never ending demand increases the value of the power sector. Once the companies start off their power supply distribution the companies will generate huge reserves which will give them more space to expand and generate future growth. My advice to the investors is not to look for short term outlook of the sector. Look into the long term prospects and stay invested for long term. Its India’s another untapped gold mine. Private equities and venture capitalist will find huge return over their investment in the coming days.

Read More

INDIA CEMENT EXCELLENT LONG TERM

When the country was mourned with low rainfall in this monsoon at that time some one else was on a smile mood. The cement industry was the only benefited sector due to low rainfall. Delayed rains in several parts of the country, helped to ensure strong demand conditions in the September ‘09 quarter from segments such as government-funded infrastructure projects and the housing sector in smaller towns and rural areas. As demand was their, constructors were busy in building and cement consumption was happening at robust speed.

This article will bring out few of the following facts of India Cement along with others key issues:

1. Sector outlook for long term

2. India Cement prospects-its order book, plans for expansion and financial overview.

3. Technical Outlook –current prospect of investments and future.

4. Investment strategies

This time the delayed monsoon became a boon for the cement industry as a whole projects of constructions were on better capacity as compared to previous financial years.In this years monsoon the government took a keen focus on injecting more funds to improve the country's rickety infrastructure, along with the activities in the realty sector, which was passing through a major slump, is picking up.

India’s governments have poured funds into the infrastructure projects demanded by domestic and foreign capital. Cement consumption across the country grew 14.6% during the July-August period driven by a strong growth in the northern and eastern regions according to monthly data provided by the Cement Manufacturers Association. Demand during the quarter, from July and August particularly , picked up owing to higher consumption from semi-urban and rural infrastructure and construction backed by infrastructure spending.

In the coming days cement sector will witness huge demand due to India's infrastructure sector has the potential to attract investments worth $1.5 trillion (Rs 75 lakh crore) over the coming decade. So even if we take a conservative outlook over a decade we find that still Indian cement companies will grow like any thing. The return on theirs expansion plans will yield them healthy return without doubt. The 11th Five-Year Plan envisages an outlay of over $500 billion of investment for infrastructure.

The investment in infrastructure has risen from 4.9 per cent of the gross domestic product (GDP) in 2002-03 to 6 per cent last year.Even if we look at the investment route that derives the demand of infra projects in India we get private equity (PE) players are rushing in to raise funds of. Rs 8,500 crore for the infrastructure sector. At present, close to Rs 8,541 crore is in the process of being raised. Out of this, Rs 6,800 crore is being raised by India-dedicated infrastructure funds.At the same time we find that Cement industry is being questioned regarding the prospevt of huge capacity utilization and its pricing effect. We all know that Indian economy can only grow at the rate of 6%-9% backed on infrastructure growth. So just envisage the growth of infrastructure that will be required to achieve the 6%-9% growth of the Indian economy. Now all these infra projects will need huge quantum of steel and cement the prime inputs of infrastructure sector. So the future prospect of cement industry is very strong and will face the situation of shortage of material if production capacity is not expanded. Hence its is well justified to increase the production capacity and match the future demand.

INDIA CEMENT PROSPECTS.

India’s cement industry is expected to mark a record expansion in capacity this year, reaching about two hundred and seventy six million tonnes. India Cements is now one of the cheapest stocks under various valuation metrics — be it price-to-book value, price-to-earnings multiple. For instance, India Cements trades at just 1.2 times its book value.The other key areas which makes the prospects of the company more visible are:

1. The company has been attempting to diversify its presence beyond the southern markets.

2. It made its first foot mark of diversification by buying up one million tonnes cement grinding unit capacity in Maharashtra. India Cements’ installed capacity at the end of FY 09 was 12.95 million tonnes compared with 8.81 million tonnes a year earlier.

3. Capacity addition has been made in order to increase its market share and meet more upcoming demand.

4. In last two years, the company had invested around Rs 1,960 crore in capacity expansion. This expansion has been funded largely through internal accruals.

5. Very recently the company acquired Indo Zinc, a loss-making zinc producer. It was taken over due to Indo Zinc was implementing a project for setting up a cement plant in Rajasthan with a capacity of 1.5 million tonnes, but this project will now be implemented by India Cements.

6. Estimated cost of setting up this plant will be around Rs. Rs 600 crore and also it raised Rs 592.5 crore via a QIP for its expansion plans .

7. So less cost debt to effect its profitability that will be generated from its expansion .

8. The company is well placed in terms of expansion and capacity utilization. Its capacity utilization is 70.3%.

So the company is well planning regarding diversification and expansion and more importantly expanding with reasonable step calculation. Its not making miscalculated robust expansion and misuse of funds and reserves of the company. Its funds raising plans are in parallel with upcoming demand. The company is making diversification and not remaining south centered.

FINANCIAL OVERVIEW.

Quarterly Report Analysis March 2009 v/s June 2009

1. Operating profit we find a jump of 24.98%.This reflects the company operation is efficient enough and no misuse of resources.

2. Interest cost goes up by 9.97% which is consistent with previous quarter reports. The company is not exposed to high risk and leverage.

Half yearly report analysis (September 2008 v/s March 2009) and Year to Year comparison (March 2008 v/s March 2009).

1. Other income goes astronomically high by 3100%.In the previous quarters we find inconsistency in other income.

2. Operating profit drops by 29.56%.

3. EPS drops by 43.73%.

4. The reserves of the company grew by 16.5%.This indicates healthy growth and later we will also find consistency of reserves growth.

5. For the YoY we find reserves grew by 15.9%.Again we get consistency.

6. Secured loans grew at normal % as compared to previous financial years at 6.7%.

7. Unsecured loans also grew at 13.24%,consistent with previous YoY.

8. Capital work in progress also grew by 57.24%.This reflect the company have enough working capital supply and consistency in previous YoY. Working capital management is excellent.

9. YoY expenses dropped by 43.04%.Less expenses results to more savings and increased profitability.

10. But the companies Fixed deposits dropped by 80.8%.This indicates that company looses more in terms of fixed interest incomes.

11. The most important things which makes the company more competitive is its reduced contingent liabilities. We find 47.19% reduced contingent liability.

The below chart shows the Earnings,Dividend and Price relation.

TECHNICAL OUTLOOK

1. The RSI indicates oversold levels. Its stand below 30 and looks for buying.

2. But when we look beyond RSI to Stochastic RSI we find more specific outcomes. We find that Stochastic RSI indicated too much oversold according to the present calculations. It’s below 20 marks and deep below which indicates rock bottom valuation.

3. William %R indicates also rock bottom oversold valuation.

4. The MACD graph depicts that both MACD line and Signal line are standing at zero levels. The signal line is crossed from below the MACD line and gets ready for a rising above MACD line.

5. When we look into accumulation and distribution of the stock we find that stock has sold off too much. It might be due to skeptical outlook of the market and cement industry prospects. The too much stretched valuation of the market as a whole has led to a decline in the valuation along with sell off of the stock to rock bottom levels.

I would like to make clear that all the above findings are based upon the calculation standing at the present market situation. It might change with the next market movement timings. This outlook is only provided to identify the present position of the stock and to provide a guideline to only those who have invested and remained invested till now. I am not suggesting at present to invest in this stock at these market conditions. At the same time, I am not asking to stop from investment and rely completely on these technical calculations. The calculation being discussed to give you an over view of the present position of the stock.

The below chart 1 shows the RSI,Stochastic RSI,William %R followed with MACD.

The Chart 2 shows the Accumulation and Distribution

INVESTMENT STRATEGIES

The strong financial position of company followed with efficient use of assets and resources gives the company a competitive prospect. The companies well calculated decision regarding expansion within its limitation makes the company more strong with reduced risk. The financial position of the company makes it more strong and competitive. Reduced contingent liabilities make it sounder to drive new expansion plans without borrowed capital. We only find strong consistency in building reserves and control over expense growth. One more important point to be noticed here is that the company is expanding within its limitation. In other words very calculated steps are being laid before expansion. The company did not go for a wild idea of expansion. The company desires do diversify and market it goods to other states also. For this the company purchased two different plants in Maharashtra and Rajasthan. The interest cost is very less and reasonable although we find inconsistency in the previous quarters and yoy . The company is very cost conscious. Since in order to reduce the power cost the company went for building up a separate power unit for the company. The two power plants would give the company the advantage of cost as the variable cost is estimated at about Rs 2.50 a unit against Rs 3.75-4for grid power, which is not always available. On an average, every tonne of cement needs about 80-85 units of electricity

This will give the company more cost advantage with expansion. It gets the advantage of pricing its goods to competitive levels.

The below chart shows the stock price movement.

So investing in this stock will fetch good return over a log term prospect. The expense, cost, diversification, separate power plants all increases the prospect of healthy return over investments. The company technically remains oversold. But the over all market condition doesn’t suggest to go for buying at these levels. It should be chosen and kept separately for long term investment. For long term it’s a good stock to add in your portfolio. India cement have all the components that’s a stock performance requires over a long term.

Read More

SUZLON TROUBLES.

I have got numerous queries from investors regarding the prospects of Suzlon in the short term and long term. This article brings out the trends, analysis and foresight of Suzlon .Investors should use this article for information basis and not for trading strategies.

EXPANSION FORESIGHT

Suzlon Energy Ltd., India’s biggest maker of wind-turbine generators, said it completed a global blade retrofit program after spending about $100 million. Suzlon Energy Limited (SEL), the world's third leading and India's largest wind turbine manufacturer, announced the completion of its worldwide program to strengthen and reinforce all Suzlon blades of the V2 type on its S88 - 2.1 MW turbine fleet. Instances of blade cracks were discovered in late 2007 during the operation of some of Suzlon's S88 wind turbines in the United States. Suzlon acted immediately and rectified the work. The company initially provided Rs 19 crore towards damages. But the complaints kept on increasing. As of June 22, 2009, 179 damaged blades were reported. For the quarter ended March 2009, the company provided Rs 104 crore for the blade retrofit and replacement availability compensation, taking the total provisions towards this to Rs 553 crore till date.This will give suzlon some space to prove its capability of service as well as its lost good will be recovered.The below image depicits the Suzlon business area.

In parallel with strengthening the S88-V2 blades, Suzlon also introduced the next-generation S88-V3, which is consistently delivering and exceeding performance standards at windfarms around the world. One of Suzlon's S88 turbines produces enough energy to power approximately 500 average American homes. This new venture of projects will help suzlon to develop the products that will meet the requirement of new US wind and Energy and Water Development and Related Agencies Appropriations Act..As of March 2009, order backlog declined 57 per cent y-o-y to Rs 7,900 crore which translated to a 58 per cent decline to 1,464 MW (1389 MW exports and 75MW domestic). It has also completed and commissioned a 19.5 MW wind farm project for Gujarat Mineral Development Corporation in Rajkot district of Gujarat.In the month of April the North America arm of Suzlon Energy Limited, has signed a repeat order with Duke Energy, of Charlotte, North Carolina, to provide 20 units of the S88-2.1 megawatt wind turbine.It have even signed deals with that will comprise of 63 units of Suzlon's S88-2.1 MW with austarlia.In other words the company have made multifold expansion in addressable market and new order wins - US, Brazil, China, Australia, Spain & EU.

FINANCIAL VEIW.

Three promoters of wind power major Suzlon Energy have sold approximately 70 million equity shares, representing 4.5% of the paid-up capital of the company. The funds generated through the stake sale will be ploughed back into the company either in form of debt or equity. The promoter holding after the sell-off will be reduced to 53.08 % of the paid-up capital. During the past three quarters, the promoters of the Pune-based company have sold part of their shareholding in the company three times to reduce the overall debt that currently stands at Rs 11,800 crore. The company has been extensively engaged in selling its ventures and raising funds for its expansion. It reveals that the company have less fund in its hand to go for any expansion based upon its internal accruals. The company is also flooded with huge debt.

Quarter profit on June 2009 drops by 84.56% as compared to quarter March 2009.We don’t find any consistency in quarter profit although their was no loss but too much wide variations. Other income of quarter June 2009 drops by 82.92% as compared to quarter March 2009.For the June 2009 we find operating income went into minus.Operating income deals with the profit that is generated via operation of Suzlon.

Interest cost increases by 130% in half yearly March 2009 as compared to half year September 2008.This eats away the profit pie of the company giving less profit and more loss in the hands of the share holders.

Secured loans grow by 495% in March 2009 yearly report as compared to March 2008. Unsecured loans go up by 37.76% for the same period. Companies fixed deposits drops and current liabilities jumps by 69.61% for March 2009 yearly report.

Other income for the 12 months period from March 2008 to March 2009 drops by 4481%.Yes I am correct and you read also correct. The drop we find  is enough to freeze bones. Other income for the period of March 2007 to March 2008 we find a drop of 63.20%.So we get a consitency in fall. And finally asministrative  expenses goes up by 425%,selling expenses goes up by 37.87% for the March 2008-2009.More starnge is that manufacturing is happening very less.We find that manufacturing expenses goes down by 24.67% for the period 2009-09 compared to 2007-08.Expense increase makes outflow of cash more as compared to inflow.Its also reveals that management inefficient use of resources and assets.

TECHNICAL OUTLOOK

According to William %R we find that Suzlon is in climbing over brought levels . We find distribution of shares and no accumulation. In the month of September and August we find accumulation but from the month of October we get distribution trigger falling into minus zone. This indicates that investors are skeptical regarding its 2nd quarter results and moves away from buying. Stochastic RSI reflects that its above over brought level and correction is in the wings. We will not get much movement in the scripts. Even climbing the level of Rs.100 depends on some major turn around within the company and 2nd quarter results, other wise the look out is very poor.The chart below indicates the William %R,Accumulation and Distribution,Macd and Stochastic RSI.

LONG TERM/SHORT TERM.

The company is over burden with huge expenses and debts. The interest cost eats up majority of its profits, leaving less for share holders investment appreciation. Its expansion plans are quite highly in dark as when ever the company will plan for expansion it needs to borrow funds. It cannot fund any expansion without raising funds. So when ever the company plans for expansion its profits will decline. The company can only improve its profitability by reducing debt. No other support is required apart from other source to increase profit. Obviously it also needs to put a tab on its rising  expenses which have climbed to avearge 350%.The company have projects in hand and is also tapping new projects but the operational profit of the company remains under pressure. Its overseas acquisition have created the burden of debt and now its also engages himself in selling those ventures as well as reducing the promoters share holding. This might lead the company in the long term to face hard times in management holding. It have faced quality issues for which the company spends four times more than its initial estimate of $25 million made in March 2008.So this will also add on the increased burden on the profitability of the company.The belwo chart depicits the price of Suzlon for the past 1 year.

In one place the company is growing in positive line is that its still gets small and big projects in over seas countries. But what ever order it has will take time to complete and generate profit from those projects. So it’s a very long term call. Moreover big projects have taken a hit due to recession and delay of projects. The US solar and wind projects may not come in the hands of suzlon as US climbing unemployment raises a question that whether to go for Indian market or US own domestic market for turbines. Since the latter will create more jobs for US. Moreover the falling dollar will effect its overseas payments. As a whole rising debts and expenses followed with less internal funds for expansion will results less return to the share holders. Investors will not get much gain by doing investment in this script and should exit from this script. Long term investment can only be done only based on two factors.

1.The scripts is available around 30%-40% below from present price and 2.Once its loan book get reduced since that will result to less interest cost and higher profit. So its long term recommendation depends on these factors. We need to keep an eye on its debts. Once they start reducing, investment can be done where investors will gain on their investments.

Read More

OVER CAPACITY LEADS TO TRADE WAR

US govt have imposed import tariff on Chinese made tires. In the first year, the tariff will be 35%, falling to 30% in the second year and 25% in the third year. The tariff would be on top of the current 4% tariff. The tariffs will take effect in 15 days.

Before we pass out any comments we need to dig out the true reasons behind such a move when in the next two weeks before a high-profile summit of the leaders of the Group of 20 nations.

China enjoys the position of huge export of its goods in US market. In the case of tires we find that china have done an export of tires which rose from 14.6 million in 2004 to 46 million last year, accounting for about one-sixth of the U.S. market. Moreover to add fuel to the fire the volume of Export of tires made by China to US have made Four U.S. tire plants to close their production and more than 5,000 workers have lost their jobs

The rate of US unemployment has jumped to 9.7%, the highest since 1983, and employers cut another 216,000 jobs. This figure is only increasing and the real reason behind this high unemployment is only due to the exports of various countries in the US market. USA is the top export market for almost 60 trading nations worldwide.

US govt to bring stringent regulations not only regarding imports but also on outsourcing which is a major bread and butter of many economies across the World .In other words we should not get surprised with the coming steps of the US govt .A country cannot keeps its own people half feeded and feed the rest of the world. Its similar like a mother cannot feed some other child remaining its own child hungry.

Read More

CHARTS OF DOW,HANG AND NIKKEI---SELL OFF

Dow Jones climbed to 10000 followed by many other indices reaching new highs of 2009.Investors are bit confused to decide their course of action.Should they invest or wait for some more time is the prime thought within the minds. 

This article depicits the picture of World Indices,funadamentaly and technically.This article will help the investors to decide what should be their course of action when indices are making new highs.I have excluded Indian market from this article so that I can bring out only the current position of US,China and Japan economy and their technically position.As we all know that Indian market is very much close to any effect of western and other asian economies this article is of great importancy in that context.For our investments we need to know about the western and asian economies/indices movements. This will bring out the true position of those indices and will help you to decide what should be your next step of investment.

DOW JONES

Dow Jones climbed to 10000 backed by profits from JPMorgan Chase & Co. and Intel Corp. surpassed estimates in their 3rd quarter results. But it again climbed backward due to drop in profit of General Electric Co. and Bank of America Corp and poor US consumer confidence data. Bank of America posted a loss of 1billion loss arising due to defaults of consumers to pay their debts. Dollar also remained under pressure as compared to other currencies. Output at U.S. factories rose 0.7% in September, led by impressive increases in auto, mines, and metals output. industrial production rose at a 5.2 percent annual rate in Q3 -- the metric's first quarterly increase since the recession started in December 2007. Excluding autos, industrial production rose 0.5 % in September and 3.8 percent in Q3.

So in one hand we find US economy is trying hard to come out of the dark woods where as on the other side mounting job less, weak income growth, failure to pay debts and free fall of dollar makes the process of recovery very slow more than envisaged about it. In the coming week

TECHNICAL READINGS

Dow Jones is over brought as per William %R of 14days.It has made a top above 20 level. In the past we find in the mid July and August 2009 Dow Jones crossed the level of over brought and after that went down. As per RSI we get Dow Jones in the middle of over brought. So some steam might have been left out which will push the Dow Jones further again to 10000 level but it will be very short lived and bound to climb back. The MACD reflect that the signal line is crossing from above so it indicates a bearish outlook and a fall is eminent. As per stochastic RSI we get Dow Jones got a sell trigger and have climbed back .So as I said earlier some steam is till left which will take the Dow Jones back in to 10000 levels. But it will be short lived. The economic data’s followed with more 3rd quarter results coming out in this week might fill up the gap of remaining over brought.

Chart 1 shows William %R,RSI and MACD.

Chart 2 shows RSI and Stochastic RSI.

HANGSENG

China’s foreign-exchange reserves climbed about $141 billion in the third quarter to a record $2.273 trillion as per the People’s Bank of China. Swelling reserves highlight imbalances in trade and investment. China's export volume hit $115.9 billion in September alone, up 11.8 percent over the month before, but still down 15.2% from the same time last year, according to data released today by the General Administration of Customs of China.

The country is facing the high risk of over capacity. In manufacturing, real estate, and infrastructure the country is simply producing more than the world requirements. China’s bank lending explosion has led to credit to GDP during the first half of 2009 rising to 140%.Chinese financial institutions extended $1.2 trillion worth of local-currency loans in the first eight months of this year, an increase of 164% from the same period in 2008. China’s banking regulator has raised the voice over the quality of loan disbursement. The country's five major banks, the Industrial and Commercial Bank of China, Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of Communications, took 47 percent share of the total bank loans in the country during the first three quarters this year as per China Banking Regulatory Commission (CBRC). As China’s exports takes a hit when it is running at over capacity, it is now dumping goods to India and US. This over capacity and huge credit leverage of banks and institutions makes the China more venerable to a crisis. In other words the bubble will go for a burst any time soon .The china government should take adequate steps to put tight leash over the climbing over capacity in manufacturing ,real estate and infrastructure.

The China government will release data next week on economic growth for the three months ended in September. So a bubble burst out in china will create a effect on Indian browsers.

TECHNICAL READINGS

HANG SENG INDEX is over brought as per William %R of 14days.It has made a top above 20 level. In the past we find in the September 2009 HANG SENG INDEX crossed the level of over brought of 20 level and after that went down. As per RSI we get HANG SENG INDEX is in the middle of over brought. So some steam might have been left out which will push the HANG SENG INDEX further again to 22000+ level but it will be very short lived and bound to climb back. The MACD reflect that the signal line is crossing from below so it indicates a bearish outlook and a fall is eminent. As per stochastic RSI we get HANG SENG INDEX got a sell trigger and have climbed back .So as I said earlier some steam is till left which will take the HANG SENG INDEX back in to 22000+ levels. But it will be short lived. The economic data’s followed with more 3rd quarter results coming out in this week might fill up the gap of remaining over brought.

Chart 1 shows William %R,RSI and MACD.

Chart 2 shows RSI and Stochastic RSI.

NIKKEI

Japanese steelmakers are trying to develop new export markets. According to the Japan Iron & Steel Federation, the volume of steel exports increased to 3.41 million tonnes in August, up by 3.4% YoY, the first time in 11 months. Japan is also facing a similar position like US in Unemployment which is at an historically high level; consumer confidence is low; deflationary pressure is strong and the Yen remains strong; putting a strain on Japanese exports. Against this background, the Bank of Japan has decided to maintain interest rates at 0.1%.The August unemployment rate fell to 5.5% from 5.7% in July, said the Ministry of Internal Affairs and Communication. Japan’s unemployment is at its highest in 53 years reaching 5.7% level or 3.59 million unemployed as of July 2009, a million more than in July 2008.So here also we don’t find much positive cues which might support the upward rally of Nikkei. Its a tough fighting situation for Japan economy to come out with impressive recovery.

TECHNICAL READINGS

Nikkei is over brought as per William %R of 14days.It has made a top above 20 level. In the past we find in the September 2009 Nikkei crossed the level of over brought of 20 level and after that went down. As per RSI we get Nikkei have just in the mid of over brought. So some steam might have been left out which will push the Nikkei further again to10200+ level but it will be very short lived and bound to climb back. The MACD reflect that the signal line have crossed from below and goes up. So it indicates that a bullish trigger have already being generated and a fall is within the range. As per stochastic RSI we get Nikkei got a sell trigger as it crosses above to 100 level. So a sell off will take place in Nikkei.

Chart 1 shows William %R,RSI and MACD.

Chart 2 shows RSI and Stochastic RSI.

So overall projection reveals that US Chinaand Japan market are either over valued or some more increment is in the cards.Once the steam is over we will get sell off in these indices which will give opprtunities for fresh buying @ reduced valuation and leverage.The risk at present is too high.So a correction will make not ony reduced risk but will aslo bring some clarity in the market.The over economic outlook is not very impressive and it will take more time for recovery.Fiscal deficit,job loss,conusmer debt,over capacity will slow the pace of growth of these countries.Global investors are skeptical regarding investments.A sell off in the indices will bring them back.In the present scenario it will better to book profits and keep in the sidelines.Once a sell off begins and valuation comes down stock picking will be idle at that time.Those who are planning to pick up stock now should drop their plans and wait for the fundamental and technical correction to begin.

Read More

BHARTI HIGH ALERT FOR LONG TERM INVESTMENT

The recent break up of the deal of Bharti might have created some pressure on the stock prices but in the long run the stock remains highly attractive due to its strong expansion desires and financial stability which adds a strong competitiveness in the company. This articles is for those investors who wants to reap the creams of doing investment in the long run. We will discuss the core financial strengths as well as the desires of expansion along with the threats the company have in the near term.

Expansion Foresight

Bharti Airtel's bold expansion plans are unlikely to be dimmed by the second breakdown over a $24 billion deal with South Africa's MTN but the Indian firm have to shifted its focus to smaller targets.They are planning further for expansion plans in Kuwait's Zain, Sweden's Millicom and Egypt's Orascom. Kuwait's Zain deal might be cracked by Bharti airtel as the former puts 46% stake in the Arab world's third-largest telecom up for sale. One other possibility could be Millicom, which has operations in 16 countries in Asia, Latin America and Africa. It may even make a bid for Luxembourg-based Millicom International Cellular (MICC).Putting a global foot mark of Bharti is now a part of the companies only expansion path as the domestic market gets saturated. The company can only grow in two places primarily through overseas acquisition and early bidding of 3G.

The company now keenly focuses on 3G auction. Indian cellular operators are keen to obtain 3G bandwidth as it will allow them to offer high-speed services that can be used by mobile subscribers ready to pay extra for multimedia services such as email and video on their phones.

The Indian government has announced it will auction four India-wide 3G slots of radio bandwidth in December and has imposed a floor price of 35 billion rupees (716 million dollars). Looking at the financial position of the company, the company has enough cash flow to go for bidding of 3G auction.

A look at the Financial.

In balance sheet we find that company have a strong reserves of Rs25,627.38 (March 2009), Rs18,283.82, Rs 9,515.21 for the past 3 financial years. For the 30th June 2009 we find other income quarterly growth by 824% as compared to 31st March 2009.This reveals that if the company goes for any acquisition or 3G auction the company can derive the advantage backed by its strong internal accruals. Secured loans have got reduced and unsecured loans are having consistency with the previous financial years. The companies fixed deposits took a jump of 594% ending on March 2009, compared to last financial year. The contingent liabilities part got reduced by 42.5% for the year ending March 2009.Its expenses are under consistency tab giving less space of inefficient use of resources and assets of the company.

Many of the readers might ask the question why yearly financials are discussed. Its for this reason that investors should look for long term appreciation of their investments. Short term outlooks are often filled up with sentimental and speculators play.

Technical Charts

According to William% R Bharti is trading at below oversold level. RSI indicates that Bharti is also near to oversold level but if the sensex goes down by 500 point+ we might get Bharti around  Rs 330-Rs320.The stock at present is under distribution phase and will enter into accumulation phase depending upon the 2nd quarter results. The 2nd quarter results will be keenly watched to decide the future movement of price.

The chart below shows the details of the Technical analysis.

The resistance and support levels of Bharti are as follows.

Resistance1

334.85

Resistance2

330.5

Support1

322.2 

Support2

318.25

Long Term/Short Term

The company like others in the industry faces the risk of saturation as global companies’ taps Indian market. Bharti Airtel, India's top mobile operator, added 2.51 million mobile users in September, its slowest pace of additions since May 2008 and compared with 2.81 million users added in August, data from the Cellular Operators' Association of India (COAI) showed. This will affect the sales figures of Bharti in the coming quarter results.

As earlier I have said that the company can only remain competitive by overseas expansion since that will add more subscribers.3G auction will give Bharti new dimension to dominate the domestic market and scale to new heights. Both of these will increase the shareholders profitability. Investors will gain good return by taking a long term call for doing investments. Any acquisition made by Bharti in the overseas market will increase the sales of the company. So in the long term Bharti remains a high alret for doing investment. But looking at the current valuation of the stock and the over world market it would be wise decision to book profit after watching the 2nd quarter results and wait in the sidelines to have some correction in the market as whole. This will give the investors competitive investing in the stock. For long term it’s a good stock to add in your portfolio. The below chart shows the earnings comparison with the price of the share followed with didvidends.The chart clearly shows that earnings were  consitenly rising mode along with the perice upward and down ward movement.It shows that its a consitent in the log run in creating investors value for investment.

As additions of subscribers got reduced in the month of September we might get some fall in earnings. But at the same time a cautions note to be taken that it might also surprise us with good 2nd quarter results. So wait and watch and book part profits in the current scenario and hold the remanining to take advantage of any upside or downside for long term investment.

Read More

CRUDE @$100/BARELL

Crude prices jumped to $78 per barrel and then tilted back. Crude prices have surged more than 60% since March. The Organization of Petroleum Exporting Countries and the U.S. Energy Information Administration recently boosted their demand outlook for next year, as the global economy gradually recovers from the recession. In this article we will figure out the trend and the original invisible facts of where the crude prices will climb in the coming days.The below chart shows the crude price in 1 year time frame.

Opec raised its 2010 global oil-consumption estimate on expansion in emerging economies. The International Energy Agency (IEA) last week upgraded its demand prediction. Total crude consumption will increase 700,000 barrels a day to 84.93 million barrels a day next year, led by demand from emerging markets, Opec said in a monthly report. That’s 370,000 barrels a day higher than the group’s previous forecast.

This year, the group estimates demand will contract by 1.4 million barrels a day to 84.24 million barrels a day. This reveals the level of optimism the opec and IEA is having on the 2010 economy. We find that oil prices remained in the range of $50 from 1998 to 2004 mid. After that we find the crude prices going up and creating a history of all time high in the year 2008 at $147.

In the coming days we might crude prices soaring again backed by two important influential factors.

1. As dollar has fallen against all currencies import of crude in US will make it advantageous for US to build huge inventory of crude. This will work in favor of them when the world economy will come out of completely out of recession and economic growth comes back to normal procedure. At that point of time crude imported at low priced dollar valuation will give US a much competitive cost benefit. We find below the chart which reflect the growing inventory built up of US economy in the past.

More US will go for storage of crude oil the more prices will go up in the coming days. Since US is already having its fiscal deficit which comprises of many things among which huge import bill of crude is also prime contributor.

So doing investment in building inventory of crude at this point of time when dollar has fallen will give prune cost competitiveness once US economy comes out of the dark woods. Now many will argue with me that this advantage ball game will be played by all countries. I would like to make them clear that US remains one of the most highest ranked country of crude import.The chart below shows the Net US import of crude which results to increased import bill of US.

2. The prospect of rising demand in emerging economies should once again provide support for oil prices – just as rapid growth in China, India and the Middle East contributed to the run up between 2003 and 2008 that resulted in record oil prices of $147 (U.S.) a barrel. China's faster-than-expected recovery should boost demand in both 2009 and 2010. China's oil consumption doubled in the last decade, rising to 8 million barrels a day last year from 4.2 million barrels in 1998, Chinese oil demand was revised upward to 8.17 million bpd for 2009 from a previous estimate of 8.08 million bpd, according to the International Energy Agency. Crude oil imports in January-August period went up 7.4% from earlier. And demand is accelerating. China's oil imports rose 18% in August. China's car sales are booming — up 78% in September from a year earlier.

We may not find good numbers of auto sales in US as they are struggling with auto sector but in the coming days US will be one of the largest consumer of crude as they have been in the past. For the current time India and China will dominate the automobile market which will result to more demand of Crude oil.

So the forecast was revised for global crude consumption this year and next, based largely on China's resurgent economy and giving even more support for oil prices that have jumped on the back of a weakened U.S. dollar.

U.S. gasoline deliveries in September continued to build on the strengthening trend seen over the summer months, perhaps a sign that a glimmer of life has been breathed back into the economy which notices 6.6% increase in gasoline deliveries for this September, compared with a year ago.

The Energy Information Administration expects America's oil demand to fall by 330,000 barrels per day (bpd) in the fourth quarter from a year earlier. This fall is due to the less consumption by consumers as they are facing rising of unemployment, weak income growth and too much debt. The EIA recently revised upward its estimate for U.S. oil consumption in 2010, expecting demand to increase by 320,000 bpd over 2009.So this will result to building up of inventory.

Oil reserves and extraction updates.
India imports large crude oil cargoes from Kuwait, Saudi Arabia and Iraq.

We find that there will be new oil discoveries in the future, but the focus is increasingly upon the extraction of more oil from existing fields. There is certainly scope to do so. Currently only about 30%-35% of all the oil held by the average reservoir is brought to the surface. In addition to maintaining the pressure within the reservoir, techniques are deployed that change its characteristics. This will cost money as with these many initiatives in the oil business their deployment depends upon economics and, ultimately, the price at which oil can be sold.

Even in the Middle East, where oil is still plentiful, these techniques are being adopted. Kuwait wants to boost its output from 3mbpd to 4mbpd and has invited oil companies to suggest ways of applying the new techniques of oil exploration .
Korea is tapping into the world’s third largest oil reserves of Iraq. State-run Korea Gas Corp. is teaming up with Italy’s Eni Group, U.S. Occidental Petroleum Corp. and Iraq’s Southern Oil Co. for the 20-year production management rights of an oil field.The below picture belongs to the oil field where Korea is tapping.

Conclusion for Investment.

It can be concluded that crude prices will climb to $100 dollar in the 2nd quarter of 2010 on the growing factors of high demand and building inventory of crude by not only US but also by major countries building inventory of crude. Those who plans to do investment in crude can start doing their investment in crude futures and keep a hold of their positions and book particularly the long term investors.But before all these we will get some correction in crude prices in the coming days due to sentimental break up.The correction will take place mainly for US and China illusion recovery ball game.Where we find US will take more time than its predicted time to come out of recession.China is running on the wheels of over capacity which is a bubble going to burst out in coming days.So once these nightmares get over and we get further clear picture crude might correct to $70 and then rise back to $100 in the 2nd quarter of 2010.So wait and build your crude portfolio and hold it to reap the longterm price apprecaition that will result from higher demand.

Read More

U.S. FORECLOSURE THREATENS-WORLD MARKET

Before we get into the critical invisible analysis of foreclosure we need to understand clearly what it means by Foreclosure.This articles brings out the trend and analysis of the climbing high Foreclosure rates andits effect on the US economy as foresight.  Foreclosure is to shut out, to bar, to extinguish a mortgagor's right of redeeming a mortgaged estate. It is a termination of all rights of the homeowner covered by a mortgage. Foreclosure is a process in which the estate becomes the absolute property of the lending institution.

The Foreclosure process begins when the homeowner fails to make payments of the money due on the mortgage at the appointed time. Foreclosure is applied to any method of enforcing payment of the debt secured by a mortgage, by taking and selling the estate. Foreclosure proceedings typically start with a formal demand for payment which is usually a letter issued from the lender. This letter of notice is referred to as a Notice of Default (NOD). Depending on your state, the lender will issue this notice when the homeowner has been 3 months delinquent on the mortgage payments.

Keep in mind that the notice is a threat to sell your property, terminate all your rights in that property and evict you from the premises. After the crisis of September 2008 we find the cases of foreclosure across US and Europe increasing like bacteria.

In September we find that foreclosure filings were reported on 344,000 properties, up 29% from a year earlier and down 4% from August 2009. U.S. properties subject to foreclosure filings totaled nearly 938,000 in the third quarter, up 23% from the year-earlier quarter and up 5% from the second quarter. One in every 136 U.S. housing units had a foreclosure filing during the quarter, according to Realty Trac, which began tracking foreclosures in the first quarter of 2005. The two reports released yesterday suggest the US economy may have closed out the third quarter with surprisingly strong growth but still faces huge hurdles since consumer spending is unlikely to recover quickly from the worst recession in decades.The below chart shows the Foreclosure rates.

California, Florida, Arizona, Nevada, Illinois and Michigan accounted for 62% of the nation’s total foreclosure activity in the third quarter, with 579,541 properties receiving foreclosure filings in the six states combined.

Rising unemployment is the major cause of mortgage delinquencies and foreclosures. US unemployment is hovering around 10% currently at 9.8%, which results to 15 million people unemployed. Consumers are still facing several challenges, including large job losses, weak income growth and too much debt. All these are increasing the pressure on foreclosure.

Effects of Foreclosure on US Economy.

1. In the housing market, foreclosures affect sellers by increasing the stock of available houses that are competing for buyers. Foreclosed houses can negatively affect the perceived value of other homes.

2. The rise in foreclosures also lowers new home construction, meaning reduced spending and jobs in the construction industry.

3. Overall consumer spending declines as well, which lowers the nation's Gross Domestic Product (GDP)

4. Foreclosures affect government finances. This is especially true of local governments, which rely heavily on property tax revenue.

5. Increased foreclosures can affect existing homeowners, especially if banks become less willing to refinance existing mortgages.

6. All these adds up to increased fiscal deficit and currency devaluation.

The bottom line of this situation is that eventually all Americans will feel the pinch in one-way or another.

The chart below shows the rising US  Unemployment:

There are about $2.5 trillion worth of these loans in the mortgage pool. The U.S. government ran a deficit of $1.4 trillion in fiscal 2009, the Treasury and the White House said on Friday. So as number foreclosure increases we will get more fiscal deficit, free fall of dollar against other currencies and very slow recovery of US economy. US economy will take more time to come out of the recession.

Consumers are unable to pay the debts as they have no source of income.

The booming housing market halted abruptly for many parts of the U.S. in late summer of 2005, and as of summer 2006, several markets faced the issues of ballooning inventories, falling prices, and sharply reduced sales volumes. In March 2007, the United States' sub prime mortgage industry collapsed due to higher-than-expected home foreclosure rates, with more than 25 subprime lenders declaring bankruptcy, announcing significant losses, or putting themselves up for sale. But the huge effect came in the year of September 2008.Since US was busy making the world economy in camouflage.

One more thing I would like to draw the attention of my readers is that US have reported that industrial production rose 0.7% in September after an upwardly revised gain of 1.2% in August. For the third quarter as a whole, output advanced at an annual rate of 5.2%, the first quarterly gain since the first quarter of 2008 and the largest gain since the first quarter of 2005.Now if industrial output increases then how The jobless rate rose to a fresh 26-year high of 9.8% from August's figure of 9.7%.In simple terms when Industrial production picks up employment will also get generated, as a result the unemployment will reduce and more job opportunities will be created. Now I will leave rest of the analysis to my readers.

So again US is trying its old game of camouflage the World Economy by saying that recession has come to an end and we are in recovery path. It will be a hard and a long recovery that will last for many years. It’s a bubble being created and any time soon its will burst out.This illusion created by US will have a tremendous adverse effect on the Indian market along with other emerging markets coming out of the dark woods.Once the bubble goes burst off the Indian market and other Asian market will take a hit from this and will result to huge loss and putting brakes on the recovery and growth path.

Read More

Diwali Festival is a Festival of Lights, it is a unique confluence of happiness, bliss & prosperity.


May the festival of lights be the harbinger of joy and prosperity. As the holy occasion of Diwali is here and the atmosphere is filled with the spirit of mirth and love, here's hoping this festival of beauty brings your way, bright sparkles of contentment, that stay with you through the days ahead. 

Best wishes on Diwali FROM THE HOUSE OF SENGUPTA’S.

Read More

WHY I AM FALLING ? - DOLLAR

The greenback has been declining relative to other major currencies for months. The dollar is down 14% against other major currencies since March.

Dollar is making a free fall due to the huge growing US trade deficit, and the large Federal budget deficit. The trade gap of US along with the war in Iraq which is working as a fuel is increasing US fiscal deficit. In August, the gap between what the U.S. exports versus what it imports narrowed to $30.7 billion, from $31.9 billion, as exports rose and imports fell as per the Commerce Department.

The US budget deficit hit a record $1.4 trillion (£877bn) in the year to 30 September. The deficit was equal to 9.9% of gross domestic product (GDP) - more than treble the 2008 level. Climbing unemployment, declining tax revenues due to the recession. along with the TARP funding process are the factors that have added fuel to the Fiscal deficit, resulting the dollar to fall. Much of the trade gap relates to US commerce with East Asian countries such as China, Japan, and Korea, who sell much more to America than they buy.

One of the prominent ways of making dollar strong is to adjust the exchange rate in such a way so that the US goods cheaper and Asian goods more expensive. But this process often takes a long time, and in the meantime, it is fraught with dangers. The higher price of imported goods could lead to a hike in domestic inflation. Moreover it could take several years for the US consumers to switch back to buying more US goods. But before this situation begins the international economies will face more problems in coming days.

Countries that have derived an increasing proportion of their sales and profits from the US market could also be hit by falling demand for their exports. The free fall of US dollar might force other countries to shift from dollars, holding treasury and other assets in dollar form. China has based its entire economic policy for years around keeping its own currency low against the dollar to encourage exports, a strategy that would be undermined by a disorderly decline in the dollar.

As the value of the dollar falls, their reserves of the currency also reduce in value, as do the yields on the US Treasury bonds held by many of their central banks. With the budget deficit exceeding 10% of gross domestic product this year and less clear path to lowering fiscal deficits puts the Greenback under more pressure. So Dollar will face hard times in coming days.

Read More