Saturday, 31 December 2011

Market Heatmap- 30 December, 2011

Sectorally, Oil & Gas and Realty were the biggest losers losing over one percentage point while PSU registered gains close to one percent. Market breadth was neutral with one stock seen advancing for every single decline.Find out more at : http://www.facebook.com/bmawealth?sk=app_206541889369118

Closing Summary- Market Synopsis- 30 December, 2011

The markets ended the last trading session of the calendar year 2011 in the red as profit booking in index heavyweight Reliance Industries spooked sentiments. The benchmarks have fallen around 25 percent in 2011. On the global front, Asian stocks registered the first annual loss in three years, having shed nearly a fifth of their value. Europe's debt crisis and financial turmoil took a toll on investors' risk appetite, driving them to safer assets such as the US dollar and gold. Nifty ended at 4624, down 22 points while Sensex closed at 15454, down 89 points from previous close.
(Pic. Source- bseindia.com)

BMA Gyaan- Viewing The Market As Organized Chaos


There are two competing theories in the financial world: the Random Walk Theory and the Efficient Market Hypothesis. In the random market you can spread the financial section of the "Washington Post" on the floor and toss pennies on it, picking the stocks that a penny lands on, and expect the same results as a professional stock picker. In the case of an organized market, you can choose stocks based on a system of valuations and, coupled with a world of full disclosure, come out ahead of the penny tossers.
The theories clash and the debate rages, but with a little help from 20th-century physicist Erwin Schrödinger and a cat in a box, we'll learn that both theories are correct and incorrect, depending entirely upon your vantage point. Read on to learn how the market is just like a cat in a box, and how the entire history of the market can be viewed as a massive forest, with investors nothing more than short-sighted insects crawling across its surface. It's going to be a wild adventure.

Two Worlds One CatNot many people would draw similarities between quantum physics and the financial markets, but this type of unconventional thinking can shed light on the random market versus efficient market paradox that Wall Street lives under.
In the 1930s, Schrödinger was puzzling over why the laws of physics that govern our everyday lives are so difficult to apply at the subatomic level. Essentially, at subatomic levels, particles needed to be in more than one mutually exclusive state at the same time. A difficult idea to wrap your head around. The thought experiment he came up with to explain this is now famous. It involves a cat in a box. Along with the cat, inside the box you place a vial of hydrocyanic acid with a hammer suspended above it. There is a switch attached to the hammer that will cause the hammer to drop and break the vial. Next, you attach a Geiger counter to the switch, making it so that the switch will trip if the counter registers any radioactive activity in the box. Finally you place a very small piece of radioactive material inside the box that has a 50-50 chance, each hour, of releasing a particle. Now you can probably guess how this elaborate system all comes together:
1. A particle is released.
2. The Geiger counter senses it.
3. The switch is flipped.
4. The hammer falls.
5. The vial breaks.
6. The kitty dies.
Ah, but wait. It is equally probable that a particle wasn't released and our fuzzy friend still lives. Now, if we open the box after an hour we'll know for sure. However, if we don't open the box and do not observe, then the kitty is neither alive nor dead. It exists in both states simultaneously. The observation itself affects the outcome. This is sometimes called the "observer's paradox."
Now, let's jump back over to the world of investing and our own paradox. Remember, there are two states for the market, random and efficient; the penny tossers versus the market scholars. Those who believe things are random have plenty of observable evidence to prove that it is random, so too do those who believe it is efficient. However, as with tearing the box open to see the cat, observing the market has an effect upon the results. 

Where the Wild Things RoamWhen we scrutinize the market as a whole, there does seem to be a lot of unpredictability. If you were to tilt the stock market's history on its side and then convert every listed company into a plant, you would see a vast forest with thousands of plants shooting up and dying in seconds and clutches of saplings and trees here and there. Some of these trees would start from separate roots only to grow together and split again. Some of the grasses may spontaneously become a sapling or be absorbed by one. The random market proponents are like ladybugs. From their vantage point, the world is chaotic and random. Which plants (companies) thrive and succeed versus those that die off and fail is unpredictable and overwhelming. 
It is the inability to see everything that makes stock markets look random. Rush hour traffic looks like chaos when you are in it, but from far above it looks as well designed as the circulatory system. This is where a structured market comes in. You have to make generalizations and somewhat marginal decisions to clear-cut the forest and get down to a few promising plants. In a truly random market, this would be impossible.
People like Warren Buffett, however, continue to prove that both structure and chaos exist simultaneously. Buffett is an expert at generalizing and, if you read his letters to his shareholders, you will realize that he rarely speaks about specifics.

The Buffett ParadoxThe Oracle of Omaha proves that there is a structure to the markets, but he also states that he doesn't believe the markets are always efficient. If they were completely efficient, he wouldn't be able to beat the market because everyone would act in same way, buying the exact right stocks at the exact right time. If the market were completely random, he would be a statistical anomaly of immense size. In truth, Buffett and many of the other market mavens profit from moments of chaos and inefficiency in an otherwise efficient market. The inefficiency is all the other people involved in the market. Investor reaction, either overreaction or a lack of reaction, to the data is anything but predictable.
This uncertainty is what makes trading in growth stocks so exciting. You are not looking at the companies represented by the stocks, companies that are in all likelihood trading at many multiples of their earnings; intsead, you are trying to understand the reactions of other investors toward that stock. There are some people who are very good at this, more who are occasionally good at it, and the rest who break even if they are lucky, but often do worse. Even the introduction of structure to the practice of trading, in the form of new metrics and computer software, has not been able to tame the uncertainty. This uncertainty exists in all parts of the markets, but it has the most pull in growth stocks where ranks of traders and analysts cultivate it for their own ends. 
Choosing Your Own WorldYou, as an investor, control what the market is in a very real sense. If you approach it believing it to be random, you will see a lot of numbers arbitrarily flipping about on a graph or newspaper sheet. These numbers will coalesce in patterns that start you down the path to day trading. When you make a mistake, you will attribute it to the unpredictable nature of investing. You may also become skilled at tossing pennies. 
On the other hand, if you approach investing like you would approach learning how to become a surgeon, you will see that there are forces at work that generally act the same in all situations: bubbles burst, companies with advantages flourish, people need goods. You will also see that, like surgery, there are instructions and techniques to help you get better results. True, there are people who invest successfully owing to some inner talent, but talent will only take you so far. Most people need some form of a blueprint and a grasp of the fundamentals first or they end up with a dead bodies and malpractice lawsuits. 

The Bottom Line
In order to be an effective investor, you have to do what quantum physicists do, consider the market as both random and efficient. There will never be a perfectly efficient market as long as there are investors buying into it. This doesn't, however, mean that the market is so random that no effort on your part can help you profit. You should never remove uncertainty, or by extension, risk, from your thinking, but you should act as if forces that are generally efficient rule the market. After that, leave the debate up to the economists who are paid to keep it going, because sometimes being a ladybug in a giant forest is enough to worry about on its own.

News Hour- Goldman Sachs, Morgan Stanley in lead race to manage Facebook IPO

NEW YORK: Financial services giants Goldman Sachs and Morgan Stanley are said to be the front-runners for the role of lead investment banker in Facebook's much-awaited blockbuster initial public offering next year, a media report said.Touted as one of the biggest IPOs in over a decade, Facebook's stock sale of about $ 10 billion is expected to take place in early 2012.
With the California company planning to file offer documents in early 2012, a decision on bankers "could be soon", a report in the Wall Street Journal said. 
Goldman and Morgan Stanley are "considered front-runners" for the lead investment-banking role, which could net the bankers anywhere up to $ 220 million in IPO fees as well as "bragging rights" for managing the trophy IPO.The fee for IPOs like Facebook's stock sale -- which could be as big as $ 10 billion, valuing the company at 100 billion dollars -- averages 2.2 per cent.
"That would mean a possible total payoff of as much as $ 220 million, though the company could negotiate lower fees because the Facebook deal is such a trophy," the Wall Street Journal report said. 
The report quoted people in-the-know as saying that some bankers have been "waiting by the phone" over the holidays for the call that they will be participating in the company's IPO in some way. 
Facebook executives have been meeting with Wall Street firms since late November as they geared up for the IPO, according to people familiar with the situation.
"Goldman and Morgan face stiff competition from rival investment banks vying for the prize of becoming the lead manager. Still, both are seen as having a leg up on competitors, even though each has possible knocks against them," the report added.While Goldman orchestrated a $ 1.5 billion private offering of Facebook shares in January, Morgan Stanley has been the leading bank for internet IPOs this year in the US and worldwide. 
The report said Goldman Chairman and Chief Executive Lloyd Blankfein "went to woo" at least one Facebook board member earlier this fall.

(Source- http://economictimes.indiatimes.com)

News Hour- Petrol prices may go up by Rs 2.25 from January 1

NEW DELHI: State-run oil firms plan to raise petrol prices by about Rs 2.25 a litre from Sunday unless the government asks them to defer the move in view of assembly elections, company executives said.
Oil companies revise petrol prices every two weeks but in the middle of this month, the government told state firms to refrain from any increase as the move could cause uproar during the winter session of Parliament. As a result, the price rise would be relatively steeper as oil firms need to make up for the losses, they said. 
Companies' executives say that compared to the landed price of imported petrol, domestic rates need to be raised by Rs 1.90 per litre, excluding local taxes. "If the entire loss is passed on to the consumer, with 20% state duties, the fuel will be costlier by 2.28 a litre in the Capital," one executive said. State levies vary from state to state.
Executives said a decision in this matter was expected on Saturday after securing an informal nod of the government. "There is some uncertainty as assembly elections have been declared in five states and companies may not get a green signal," an executive said. Elections will be held in Uttar Pradesh, Punjab, Uttarakhand, Goa and Manipur between January 28 and March 3. Officials in the petroleum ministry claimed that they would not intervene. "Oil companies are free to charge market rates for petrol and they should not hesitate in exercising their pricing freedom," a ministry official said, requesting anonymity. 

The government allowed state oil firms to align petrol price with international rates on June last year, but companies always informally consulted it before taking any pricing decisions.
Until November, domestic petrol rates were cut or raised whenever it seemed politically acceptable. Subsequently, oil companies have systematically revised prices every two weeks, except for the fortnight ended December 15. "Had oil firms not deferred the price revision, petrol would have become costlier by 1.02 per litre," executives said.
Indian Oil CorpBharat Petroleum and Hindustan Petroleum raised domestic retail prices of petrol by Rs 1.80 a litre on Nov 4 in Delhi. They cut the price by Rs 2.22 per litre and Rs 0.78 a litre in the following two fortnights.

(Source- http://economictimes.indiatimes.com/)

BMA Gyaan Video- What is Working Capital?


BMA Words of Wisdom by Richard Branson


Morning Summary- Market Synopsis- 30 December, 2011

Good Morning Everyone,
The markets rebounded on the last session of year 2011, after a fall in previous three sessions, registering gains of around one percentage point. It was aided by positive global cues post bullish US housing and employment data. Major Asian markets like Shanghai, Nikkei and Hang Seng were also trading with moderate gains tracking the Wall Street. All the sectoral indices were in the green with Banking, Healthcare and IT leading the upmove. The market breadth too was positive; about two shares advanced for every share declining on the NSE.

(Pic. Source- bseindia.com)

Friday, 30 December 2011

News Hour- Parallel economy in Mumbai's Dharavi slums: Economic output estimated to be more than $1 billion

Dharavi
MUMBAI: At the edge of India's greatest slum, Shaikh Mobin's decrepit shanty is cleaved like a wedding cake, four layers high and sliced down the middle. The missing half has been demolished. What remains appears ready for demolition, too, with temporary walls and a rickety corrugated roof.
Yet inside, carpenters are assembling furniture on the ground floor. One floor up, men are busily cutting and stitching blue jeans. Upstairs from them, workers are crouched over sewing machines, making blouses. And at the top, still more workers are fashioning men's suits and wedding apparel. One crumbling shanty. Four businesses. 
In the labyrinthine slum known as Dharavi are 60,000 structures, many of them shanties, and as many as 1 million people living and working on a triangle of land barely two-thirds the size of Central Park in Manhattan. Dharavi is one of the world's most infamous slums. It is also a churning hive of workshops with an annual economic output estimated to be $600 million to more than $1 billion. 
"This is a parallel economy," said Mobin, whose family is involved in several businesses in Dharavi. "In most developed countries, there is only one economy. But in India, there are two." 
India is a rising economic power, even as huge portions of its economy operate in the shadows. Its "formal" economy consists of businesses that pay taxes, adhere to labor regulations. India's "informal" economy is everything else: the hundreds of millions of shopkeepers, farmers, construction workers, taxi drivers, street vendors, rag pickers, tailors, repairmen, middlemen, black marketeers and more. 

This divide exists in other developing countries: Experts estimate that the informal sector is responsible for the overwhelming majority of India's annual economic growth and as much as 90 per cent of all employment. The informal economy exists largely outside government oversight and, in the case of slums like Dharavi, without government help or encouragement. 

For years, the government has tried with mixed success to increase industrial output by developing special economic zones to lure major manufacturers. Dharavi, by contrast, could be called a self-created special economic zone for the poor. It underscores the determination of those migrants to come anyway.
"Economic opportunity in India still lies, to a large extent, in urban areas," said Eswar Prasad, a leading economist. "The problem is that government hasn't provided easy channels to be employed in the formal sector. So the informal sector is where the activity lies." 
Dharavi is Dickens and Horatio Alger and Upton Sinclair. It is ingrained in the Indian imagination, depicted in books or Bollywood movies, as well as in the Oscar-winning hit "Slumdog Millionaire." Dharavi has been examined in a Harvard Business School case study and dissected by urban planners from Europe to Japan. Yet merely trying to define Dharavi is contested.
"Maybe to anyone who has not seen Dharavi, Dharavi is a slum, a huge slum," said Gautam Chatterjee, the principal secretary overseeing the Housing Ministry in Maharashtra state. "But I have also looked at Dharavi as a city within a city, an informal city."
It is an informal city as layered as Mobin's sheared building - and as fragile. Plans to raze and redevelop Dharavi into a "normal" neighborhood have stirred a debate about what would be gained but also about what might be lost by trying to control and regulate Dharavi. Every layer of Dharavi, when exposed, reveals something far more complicated, and organic, than the concept of a slum as merely a warehouse for the poor.
Said Hariram Tanwar, 64, a local businessman, "Dharavi is a mini-India."

(Source- http://economictimes.indiatimes.com/)

Market Heatmap- 29 December, 2011

On the sectoral front, eleven out of thirteen indices closed in red. Metal and Healthcare were the only sectors to close in green, whereas, Oil&Gas and Capital Goods led the list of losers. Further, the market breadth closed negative as only three stocks were seen advancing for every five declines.Find out more at :http://www.facebook.com/bmawealth?sk=app_206541889369118

Closing Summary- Market Synopsis- 29 December, 2011

A late bout of selling spooked the Indian markets on the last day of the December derivative settlement. The Sensex and the Nifty moved in a range before losing control in the late afternoon trade. The late selling was perhaps triggered by traders rebalancing their F&O positions before the expiry. Also, traders might have wanted to lighten positions amid continued uncertainty about the domestic economy and impact from the worsening eurozone debt crisis. With today’s fall, the main indices have finished lower for three consecutive sessions. The undertone tomorrow will be partly dictated by the overseas markets while trading volumes are expected to moderate being the last day of the year. Meanwhile, all eyes are on today’s bond auction in Italy. Among the other important data to watch out for include German inflation (CPI), US weekly jobless claims and US pending home sales. Coming back to the Indian market, the midcap and the small-cap counters closed negative.
(Pic. Source- bseindia.com)

BMA Gyaan- Senior Citizens and stock market – Why to invest, how to invest


This article looks at the importance of stock markets when it comes to investment by senior citizens. It explains why seniors should invest in stocks, how they can do this, and how much should they invest.Take a scenario where you are 55 years old, and are approaching retirement. What does common investment wisdom tell you? You should shift all your investments to safe – preferably government – investment avenues.Or, say you just retired, and have received a large lump-sum amount through provident fund (PF), gratuity, etc. Where do you invest this? Again, common investment wisdom tells you to invest everything in safe investment avenues.Most asset allocation strategies also ask you to shift assets from riskier asset classes (like equities) to safe investments (like debt or FDs) as your age increases. 

Returns from “safe” investment avenues can be inadequate

Let’s face it: All safe investment avenues give extremely low return on investment – the return can hardly beat inflation. This means that every successive year, you can buy lesser and lesser things using the interest you earn through such investments.Even schemes tailored for elders – like Senior Citizens Savings Scheme (SCSS) – provides for just 9% return. Subtract income tax, and this too reduces to a very unattractive level.Remember: The higher the return, the longer your retirement corpus can sustain you. Consequently, the higher the return, the lesser is the retirement corpus required for you.

Why senior citizens should invest in equities?

And how do you increase your returns by 1%? By investing some of your money in equities!
Stocks have returned about 17% (compounded) in the last 15 years. And this has been the trend – stocks return anywhere from 15% to 18% when an investment is made for a long term.Thus, stocks provide a return way better than various safe investment avenues like bank fixed deposits (FDs), SCSS,National Savings Certificate (NSC), Kisan Vikas Patra (KVP),Post Office Monthly Income Scheme (MIS), etc.So investing just a small proportion of your corpus in stocks can give a boost to your overall returns! 

How much should a senior citizen invest in equities?

Does it mean that you invest half your money in safe avenues, and the other half in shares? No!
Remember, stability of returns is very important when you do not have any other source of income, and this is what should dictate the choice of investment avenues for most of your corpus.Only a small proportion of your money should be invested in equities, so that it gives some boost to your overall returns while not causing any instability in your portfolio.How much exactly you should invest depends on your particular situation. However, as a ballpark, equity investment should form 10% to 20% of your investment corpus if you are a senior citizen. 

Where should the money be invested?

Ok, now that we know how much should be invested, the next question is – where should this investment be made?Should you invest it directly in stocks? If yes, which type of stocks? If not, through what kind of mutual funds?You should avoid direct investment in shares – you should do it only if you think you have the time, inclination, patience and talent to choose the right stocks.If at all you invest in stocks directly, you should avoid mid-cap and small-cap shares. These tend to give very high returns during bullish times, but their price also falls very quickly during bearish phases. Thus, they should be avoided due to their volatility.
As far as possible, try to invest in equities using mutual funds.You should invest in diversified equity funds having most of their investment in large cap stocks (or, in market terms, diversified equity funds with a “large cap bias”).Please refrain from investing in equity funds that focus on mid cap or small cap stocks, or sector specific funds – these tend to be quite volatile, and should be avoided by senior citizens. 

How should you invest in stocks?

This brings us to the final question: How should you invest in these funds? Should it be in one go, or should the investment be spread out?Investing a large lump sum in equities in one go is never a good idea. Volatility is an inherent trait of equities, and we should exploit it to lower our cost. Thus, you should spread out your investment over a period of time – at least a year.
But the problem is: you have a large sum to invest immediately! Should you keep it in a bank account and invest from it every month?
No, there is an easy (and more efficient!) way out. You can invest the amount in debt mutual funds (which are very good for short term investments, and give good, safe returns). And you should transfer a fixed amount from this debt MF to your chosen equity MF every month using a Systematic Transfer Plan (STP).This way, you would not have to worry about investing every month, but at the same time, you would be investing systematically. Not to mention that you would be earning a healthy return in the mean time!

Still not convinced about equity investment?

We saw why investment in equities is a must for senior citizens. However, you might not be convinced, or might still be worried about the risk. If this is the case, there is a good (and safe!) middle path as well.You can invest a portion of your retirement corpus in bank fixed deposits (FD), and choose a monthly interest option. Using this interest that you get every month, you can start aSystematic Investment Plan (SIP) in an equity MF.This way, you would be investing in equities and gaining from the higher returns. But at the same time, you would be keeping your corpus (principal) safe. The returns would not be as good as investing the amount directly in equity MFs – but it is definitely better than not investing in equities at all! 

A note about “share trading” and genuine performance evaluation

Long term investment doesn’t mean you invest and forget – you do need to evaluate the performance of your investments from time to time, and switch from one MF scheme to another if needed.But this need not be done one a daily or weekly basis – evaluating performance of your investments versus other schemes every 6 months is adequate.If you buy and sell more frequently, it is just short term trading, and is not desirable. Please remember that small investors like you and me should only invest in stocks for the long term.Many people get involved in short term trading in shares – even intra-day transactions. It can be out of genuine desire to earn good returns through “tips”, to compare returns with their friends’ returns, or simply to pass time.However, short term trading can generate profits only if you enter into very large (and frequent) transactions, and have access to up-to-the-minute market data and news – something that only professional traders can have.

News Hour- Allow FDI in domestic airlines: Assocham to Government

NEW DELHI: Industry body Assocham today suggested that the government allow foreign players to pick up a stake in domestic carriers in order to revive the cash-starved Indian aviation industry.
In the last three years, the civil aviation industry has suffered losses of Rs 20,000 crore, the chamber said.
"The industry can again fly on a growth curve in 2012 if the government lowers taxes on jet fuel, upgrades airport infrastructure and allows three major airlines --Jet AirwaysKingfisher Airlines and SpiceJet -- to offload 49 per cent of the promoters' stake to foreign airlines for raising Rs 2,550 crore," it said.
The Industry Ministry has floated a draft Cabinet note proposing to allow foreign carriers to buy a 26 per cent stake in Indian private airlines.
Assocham has suggested "opening foreign direct investments by international airlines to bring in capital and technological expertise, allowing easier access to global routes by Indian carriers for increasing their yields (and) enhancing air traffic management infrastructure".
In the wake of a significant jump in passenger traffic, there is a need for huge investment in construction of new airports, besides expansion and modernisation of existing ones.
"Allowing FDI by foreign airlines and allowing more Indian carriers to fly overseas by utilising the full quota of bilateral agreements could be a key enabler to fuel further growth," it added.
At the same time, the government must rationalise ATF prices in tune with international benchmarks through policy changes, it said adding airlines are expected to add 370 aircraft worth Rs 1.5 lakh crore by 2016-17.

(Source- http://economictimes.indiatimes.com/)

News Hour- Slow growth with high Inflation: How Indian economy fared in 2011

NEW DELHI: Even though India performed better than most emerging economies despite the global economic slowdown and the Eurozone crisis, 2011 for it was largely marked by a phenomenon which no country desires -- slowing growth with high inflation.
Along with this, a spate of interest rate hikes, rising cost of raw material, successive weakening of the rupee and a perception of policy paralysis among stakeholders made 2011 a year that India would like to put behind.
The saving grace, though, was the export sector that more or less maintained the growth momentum, even as prices at the fag end of the year started easing, giving rise to hopes for a better prospect in 2012. 

"Overall the outlook has been quite negative. There was some negativism at the beginning of the year and it started worsening in the past six-seven months," Anis Chakravarty, director with global consultancy Deloitte Haskins and Sells, told IANS.
Some industries were particularly affected by the downturn, notably aviation, mining, automobiles, construction and manufacturing, which led to retarded growth in India's gross domestic product (GDP).
In the first quarter of this fiscal, the growth declined to 7.7 percent, compared to 7.8 percent in the January-March quarter, and 8.3 percent in the previous three-month period. The growth slumped further to 6.9 percent in July-September. 

In the first half of 2011-12, the GDP growth fell to 7.3 percent against the budgetary target of around nine percent for the current fiscal and 8.6 percent registered in the corresponding period of last year.
The slowdown prompted Finance Minister Pranab Mukherjee to lower the growth projection for the current fiscal to 7.5 percent. In the union budget, he had set the target of nine percent (plus or minus 0.25 percent). The economy grew 8.5 percent in 2010-11.
"I don't think we are going to achieve even 7.5 percent during the current fiscal year. Considering the recent slump in industrial production, we feel growth might even fall below seven percent," Chakravarty said, adding factory output is unlikely to improve soon.
In fact, after a slower growth in the April-September period, industrial output slipped into the negative territory, falling by 5.1 percent in October, according to the latest data. The performance of the capital goods sector was most disappointing, contracted 25 percent.

(Source- http://economictimes.indiatimes.com)

BMA Gyaan Video- What is GDP (Gross Domestic Product)?


BMA Words of Wisdom by Benjamin Franklin


Morning Summary- Market Synopsis- 29 December, 2011

The equity benchmarks slipped in the morning trade extending its losses for the third consecutive session. A weakening trend in other Asian bourses and the overnight losses in the US and European markets dampened sentiments. Nifty was quoting 4682, down 23 points over the previous close while Sensex was seen trading at 15655 with a loss of 73 points. The weekly food inflation numbers are to be released today and will be tracked closely after having come off sharply in the past few weeks. All the sectoral indices were seen trading in the red with Oil & Gas and Power leading the losses. Market breadth was weak and three stocks advanced against every five declines.
(Pic. Source- bseindia.com)

Thursday, 29 December 2011

News Hour- Indian rupee pulls back after suspected RBI intervention

MUMBAI: The rupee ended off lows on Wednesday, recovering most losses after suspected RBI intervention, but global risk aversion meant the Indian currency would remain under pressure in the near term, dealers said.
Foreign funds have been pulling out of shaky stocks and oil refiners who import about three-quarters of India's crude consumption have been heavy buyers of dollars in recent sessions to meet month-end obligations.
The rupee closed at 53.07/08 to the dollar, after touching a low of 53.44 in the day. It was pulled back 0.6 per cent from 53.30 levels towards the end of the session after the suspected intervention. It closed at 53.015/025 on Tuesday.
"Lots of selling from state-run banks was seen at around 53.30 ... it has to be the RBI, no one else would sell like this," a senior dealer with a foreign bank said. 
In recent sessions RBI has imposed curbs on banks' trading limits to help rein in speculation on the currency, which hit a record low of 54.30 on Dec.15, were also keeping volumes low in the local forex market, they said.
For details of steps taken by the Reserve Bank of India to curb the rupee's volatility and boost dollar inflows, see: 
"It (RBI intervention) seems to have worked so far, but nobody's jumping to buy the INR, just more cautious shorting it," said Chin Thio, senior FX strategist, BNP Paribas in Singapore. 

"(Rupee will remain weak for the) same reasons that brought it here - large current account deficit, worsening fiscal deficit and capital outflows," Thio said, who sees rupee at 52 to the dollar at the end of first quarter 2012. 
Indian shares shed 0.9 per cent in thin trade on Wednesday, a day before monthly derivatives contracts expiry, dragged by a sell-off in banks, on worries over worsening asset quality and slowing credit growth. 
"Equity outflows is causing problem in a market where sentiment is already negative," a senior trader with a foreign bank said.
Traders said oil and defence related dollar buying was persistent during the day. 

Traders said the overall turnover in the dollar-rupee market has been lower than the usual $2 billion to $3 billion in recent sessions given banks' reluctance to take bulky positions ahead of the quarter end. 
One-month offshore non-deliverable forward contracts were quoted at 52.97. 
In the currency futures market, the most-traded near-month dollar-rupee contracts on the National Stock Exchange, the MCX-SX and the United Stock Exchange traded around 53.50, with the total volume at $3.4 billion.

(Source- http://economictimes.indiatimes.com)

Market Heatmap- 28 December, 2011

On the sectoral front, out of the 13 indices on BSE, eleven closed in the negative terrain. The Metal Index was the biggest loser losing over two percent whereas the Power index was the major gainer. The broader market also ended with notable cuts with the Midcap and the Smallcap indices losing over one percent each. The Market breadth was weak and one stock advanced against every two declines.Find out more at : http://www.facebook.com/bmawealth?sk=app_206541889369118

Closing Summary- Market Synopsis- 28 December, 2011

Markets opened with slight losses but slipped further amid a weakening trend on other Asian bourses and as traders rolled over their positions ahead of the futures & options expiry tomorrow. Sensex closed 146 points lower from previous close at 15,727. Likewise, Nifty ended down by 45 points at 4,706.
(Pic. Source- bseindia.com)

BMA Gyaan- Income Tax (IT) Benefits of a Home Loan / Housing Loan / Mortgage


Many of us have taken home loans / mortgages to buy our house. And one of the most important motivators for going in for a housing loan is the Income Tax (IT) benefits that it entails. This article explains in detail how a home loan saves you Income Tax.These days, many young people are buying a house or an apartment of their own . Most of them also take a housing loan (Also called a home loan, or a mortgage) to fund this costly acquisition.But a home loan doesn’t just provide you the finance needed for buying your house. It also results in income tax saving year after year, for the entire tenure of the loan! To understand the income tax benefit of a home loan better, let’s first understand the Equated Monthly Installment, or the EMI.

Equated Monthly Installment (EMI)

When your home loan is sanctioned and disbursed, you receive a cheque for the entire loan amount (This cheque is in the name of the seller of the house, or the builder if you are buying the property directly from the builder).This home loan is repaid in equal monthly amounts, which are called Equated Monthly Installments or EMIs. The EMI consists of two portions – the principal amount, and the interest for the home loan.Through the principal portion of the EMI, you repay the loan in small bits every month. Thus, the outstanding loan amount (or the remaining loan amount) reduces every month by this amount.Through the interest portion of the EMI, you pay the bank the interest on the outstanding loan amount.Thus, when the loan starts, the interest component is very large, and the principal component is very small. Every month, the interest component becomes smaller than the previous month, and the principal component becomes larger than the previous month.Over time, the principal component becomes larger than the interest component, and towards the end of the tenure of the home loan, the interest component becomes negligible.
Income Tax treatment of Principal Repayment
And why did we discuss all this in so much detail? It’s because the Income Tax Act treats principal repayment and interest payment differently.Section 80C of the Income Tax Act says that an amount up to Rs. 1 Lakh can be deducted from your income if it is invested in qualified instruments. These instruments include Provident Fund (PF), Public Provident Fund (PPF), life insurance payments, Equity Linked Savings Scheme (ELSS), etc.And guess what? Also included in this list is Principal Repayment for home loans! Yes, thats right – and this means that principal repayment up to Rs. 1 Lakh is totally deductible from your income if you have not made any other investments under section 80C. (The total cap for Sec 80C is Rs. 1 Lakh – so, the combined benefit of all the investments under sec 80c can’t exceed Rs. 1 Lakh).There is only one condition here – principal repayment can be considered as a valid investment under section 80C only if it is made for a self occupied house. That is, you should be living in the house for which you are making the principal repayment.The only exclusion is if the house is not in the city in which you are working – in which case you can claim the principal repayment as an investment under sec 80C even if the house is not self occupied.

Income Tax treatment of Interest Payment

The interest you pay as the part of your EMI is considered an expense under the head “Income from House Property”, and is deductible up to a maximum of Rs. 1.5 Lakhs under Section 24 of the Income Tax Act.The interest amount would appear as a negative amount under the head “Income from House Property”, and would thus be deductible from your total income under Sec 24.Even if you have any other income from the house (like rent), that income would get reduced by the amount of interest paid.The best part is that there is no restriction of “self occupied property” for claiming the tax break on interest paid under sec 24. In fact, if you have rented out the house, ALL interest paid (even if it is more than Rs. 1.5 Lakhs) is deductible from the rent received.And remember, just like the principal repayment, there is no restriction on the number of houses for this benefit – the only restriction is the limit of Rs. 1.5 Lakhs. Thus, if you are paying the EMI for 3 houses, you can claim interest paid for all the 3 houses under Sec 24 as long as it doesn’t exceed Rs. 1.5 Lakhs. 

Pre-EMI Interest

The bank may disburse a partial amount to you / builder depending on the stage of construction of the house. In this case, you do not pay an EMI, but instead, pay a pre-EMI interest.You can not claim any income tax benefit on this pre-EMI interest in the year you pay it to the bank.Pre-EMI interest can be claimed in 5 equal instalments after the construction of the house ends. That is, it can be claimed in 5 equal instalments starting from the FY in which the construction of the house ends and you get its possession.This pre-EMI interest should be claimed along with the interest component of the EMI under section 24. The overall limit remains Rs. 1.5 Lakhs even in this case.

Are you paying EMIs before getting possession of the house?

Many banks actually disburse the full loan amount even if the construction of the house is not complete. In this case, you start paying the EMIs straightaway. What happens in this case?
Here, you do not get any income tax benefit on the principal amount for the EMIs that you paid before getting possession of your house (as principal component can be claimed only after you get possession of the house).As discussed earlier, you can start claiming the income tax benefit of the principal amount u/s 80C starting from the financial year in which you get the possession of the house.The interest component of the EMIs that you paid before getting possession of your house should be treated similar to pre-EMI interest (as explained above).
Thus, you should add up all the interest that you paid through EMIs before you got the possession of the house, and start claiming 20% of it each year (for 5 years) starting from the financial year in which you got the possession of the house.

News Hour- Jittery investors selling flats below market rate

NEW DELHI: Investors who spoiled the real estate market for the buyer by blindly buying new homes are now spoiling the builder's prospects by selling apartments at values lower than what the builder is selling them for. If you are a buyer, look out for the investor, who is desperate to get out of a sluggish market. Manisha had been looking for an apartment in Noida for almost a year and was worried about the pace at which developers were raising property prices. She had also read about the stress real estate developers have been under for the last few quarters.
So, when a broker told her about an apartment on resale in Noida, which came at a 30% discount from what the developer, 3C, was offering for a similar flat in the same project, she jumped at it. The investor who was selling had bought the flat in 3C's Lotus Panache in 2010 at a significantly lower price of around Rs 3,000 per sq ft. Manisha got it for Rs 4,300 per sq ft, while the basic selling price offered by the developer is Rs 5,500 per sq ft. 

In a market full of uncertainties, both investors and buyers are jittery. "The apartment complex is already half way through and the risk is lower for us," says Manisha, who will now get the flat in two years compared to at least 3-4 years if she had bought it from the primary market.
"Buyers today are concerned about delivery timelines and of course high prices," says Sumit Joshi, director of Noida-based Real Credit Consultancy. The steep hike in home loan rates in the last one-year hasn't helped either.
The concerns of buyers are not unfounded. The debt level of real estate companies has risen considerably in the last few years and input costs have gone up. Delivery timelines for a number of projects have been pushed back because developers are finding it difficult to fund projects.
According to property research firm PropEquity, nearly half of the 930,000 under-construction residential units in the country, scheduled for delivery between 2011 and 2013, are likely to be delayed by up to 18 months. In recent months, secondary market property sales have been higher than primary sales by developers. 

"This is especially true for projects where a considerable portion of construction work is already complete," says Prashant Kaura, director, GenReal Property Advisers. There has been a rise in secondary sales because many investors are looking at cashing out of projects. The reasons for wanting to exit might differ- while some are facing a cash crunch themselves, others are unsure about the developer they are invested with.

(Source- http://economictimes.indiatimes.com)

Intraday Summary- Market Synopsis- 28 December, 2011

The markets collapsed further with Sensex and Nifty down one percent each. Index heavyweights like RIL, ICICI Bank and SBI are leading the downfall. The Sensex is currently down by around 140 points at 15735 while Nifty has slumped 47 points to 4704. In the broader market, the mid-cap and small-cap indices maintain the weak trend. Both the indices are down  one percent each. On the sectoral front, Bankex and Metal indices have plunged by almost two percent each. Apart from power, all the major sectoral indices are trading in the red zone. Market breadth has weakened and two stocks are seen advancing against five declines.
(Pic. Source- bseindia.com)

News Hour- 2011: Gold, silver touch all-time highs amid economic turmoil and rising inflation


MUMBAI: Continuing their record-breaking spree,gold and silver galloped to all-time highs in 2011 on strong demand for precious metals considered as a 'safe-haven investment' in times of economic turmoil and rising inflation.
Gold (99.5 per cent purity) crossed the Rs 29,000 per 10 grams-level to a historic high of Rs 29,155 per 10 grams on December 8, 2011, on good local demand in view of the marriage season coupled with investment buying due to weak equity markets.
Pure gold (99.9 per cent purity) also logged a fresh peak of Rs 29,280 per 10 grams during the year.
Silver (.999 fineness) prices hit an all-time high of Rs 75,020 per kilogram on April 25, 2011, on heavy speculative and investment-driven buying in line with global markets, where the metal rose to a fresh 31-year high.
The metal witnessed a global rally amid speculation of a supply shortage. Furthermore, successful launching of E-silver by the National Spot Exchange Ltd ( NSEL) sharply boosted the speculative nature of the metal.
The domestic market witnessed relentless buying in precious metals due to global volatility in view of escalating geo-political tensions across the Middle East, the subsequent impact on crude prices, sustained weakness in world equities, higher inflation and concerns over global economic growth.
In May, global markets witnessed a free-fall in prices of the precious metals as speculators dumped their long positions after metal exchanges hiked the margin requirement several times.
The overseas market saw the precious metals hold on to their risk aversion tag, hitting record highs due to continued worries over the global economic meltdown.

Nervous investors preferred to park their funds in gold as a safe investment instead of risky assets like equities after the euro zone debt crisis spread to more European countries, causing shivers in global financial markets.
Gold prices hit record highs as the dollar fell against a basket of major currencies after the US Federal Reserve's decision to maintain its low interest regime in order to support economic recovery. In the Comex market, gold prices zoomed to a record high of USD 1,923.70 an ounce on September 6.
Gold surpassed the psychological Rs 29,000-mark in November on the back of heavy investment-driven buying as well as buoyant wedding season demand.
The precious metal saw high volatility in November in international markets in the backdrop of intermittent dollar strength amid the surprising decision of Greece to go for a referendum on a euro zone bailout package.
Silver ready (.999 fineness) was trading at Rs 52,285 per kg on December 27, nearly 11 per cent higher vis-a-vis last year's close of Rs 47,030.00 per kg.
Standard gold (99.5 per cent purity) also flared up by about 34 per cent to Rs 27,500 per 10 grams on December 27, 2011, from Rs 20,585 per 10 grams on December 31, 2010.
Pure gold (99.9 fineness) was quoted at Rs 27,630 per 10 grams on December 27, 2011, as against Rs 20,680.00 per 10 grams at the end of last year.


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Wednesday, 28 December 2011

Morning Summary- Market Synopsis- 28 December, 2011

Good Morning Everyone,
The markets fell by nearly half a percentage point in opening trade today, extending yesterday's losses. Investors were cautious ahead of the monthly expiry in the derivatives segment tomorrow.  A weakening trend on other Asian bourses returning to action after extended Christmas holidays accelerated the selling activity. All the sectoral indices were seen trading in the red. Stocks of Metal, Banking, Capital Goods and Realty sectors were under pressure with over one percent losses. Market breadth was weak and one stock was seen advancing against every two declines.
(Pic. Source- bseindia.com)

News Hour- Ajay Piramal has got tons of cash but nowhere to invest


Ajay Piramal, Chairman of Piramal Group

Ajay Piramal is sitting on a mountain of cash. Yet the billionaire Indian tycoon, working in one of the world's fastest growing economies, is struggling to figure out what to do with the money.The problem isn't opportunity, he says. It's India."Every large investment, there was no transparency," he said.His dilemma is a worrying sign for India. With the country mired in corruption, bureaucratic red tape and unclear and changing government policies, many of the men who made their billions here are saying maybe it's time to quit India. It's got to be easier to do business elsewhere.In May last year, Piramal's healthcare business sold its generic drug operations to U.S. pharmaceutical giantAbbott Laboratories for $3.8 billion. Piramal, a tall big man in a country that still measures prosperity by girth, was eager to set that cash pile to work. He wanted to expand one of his chemical plants, but was told it would take five years."The same plant could be set up in China in two years," he said. "I love India, but my customer is not going to wait."
India, still a beacon of relatively fast growth despite a troubled world economy, should be a magnet for capital. Instead, since the beginning of 2010, the amount that Indians have invested in businesses overseas has exceeded the amount foreigners are investing in India, according to central bank figures.In part this reflects the confidence and aptitude of India's maturing companies and the current malaise in the global economy and financial markets. But it also reflects deep problems at home. India's big coporations may be cash rich but the failure to invest that money domestically is bad news for a developing country that needs capital to build the roads, power plants and food warehouses that could help lift hundreds of millions out of dire poverty.The frustration of India's business elite with corruption, political paralysis, log-jammed approvals, regulatory flip-flops, lack of access to natural resources and land acquisition battles - to pick a few of the top complaints - has reached a pitch perhaps not heard since India began liberalizing its economy in the early 1990s."If you are an honest businessman in India, it's very difficult to start up anything," said Jamshyd Godrej, chairman of manufacturing giant Godrej & Boyce. "Companies are going to operate where they see the best opportunities and efficiency for their capital."
Increasingly, that's outside India.
In 2008, foreigners poured roughly twice as much direct investment into India - $33 billion - as Indians plowed into businesses overseas. By 2010, that had reversed: Indians invested $40 billion abroad - twice as much as foreigners invested in India - a trend that's continued this year.There is another, unspoken element to all the complaints. To the extent that business in India ran on corruption, some of the old, dirty ways of doing things are being disrupted, freezing India's already glacial bureaucracy, business leaders say.