Titan Industries Ltd

Titan Industries Ltd


Titan Industries, a leading player in the branded jewellery segment, is likely to be the biggest beneficiary of changing lifestyles and consumer preferences. Though the company may face sales pressure in the short term because of volatile gold prices, the demand growth because of festival and marriage seasons may aid growth. Long-term investors stand to gain.

Business
Titan Industries is a joint venture between Tata India and Tamil Nadu Industrial Development Corporation. The company is the leader in watch, jewellery and eyewear retailing. It owns brands such as Titan, Tanishq and Fastrack. The jewellery business contributes around 75% to the company's revenues, while the watch business contributes 20% and the remaining comes from the eyewear and precision engineering.
Financials


Titan's net sales grew at a CAGR of 34.6% in the past five years. Its jewellery business increased at a CAGR of 45% and watch business grew at 14.6%. In FY11, the company posted revenue of 6,584.9 crore and net profit of 433.1 crore. The best part about the company's financials is its return on capital employed, with its earnings and margins improving year-on-year. The company is also a consistent dividend payer.

Titan's return on capital employed was 64% for FY11 against 45.5% in the year-ago period. The company's earnings growth during the period was 72.4% (53.3% in FY10) and operating margin was up 9.6% (8.5% in FY10).

The company has achieved this without dependence on external capital as strong brand ownership has allowed it to grow through the franchisee route unlike other retail players. It has consistently maintained strong cash flows. This has allowed the company to fund its working capital requirement and capital expenditure through internal accruals.

Titan is almost a debt-free company with cash of over 1,100 crore on its balance sheet.


Valuations

At the current market price of 208, Titan Industries is trading at a price to earning multiple of 37.5. The company cannot be compared with other industry players as they do not follow the same business model. Also, Titan Industries commands a premium over other jewellery players because of its unparalleled brand equity.

The best way to analyse the company is by considering its own historical valuations.

At the current valuation of 37, the company is trading close to its three-year average multiple of 35% and much below its three-year high valuation of 54%.

Investment Rationale


As per the World Gold Council, India is the world leader in gold consumption. With 90% of the retail market in India being unorganised, there is a significant growth opportunity for companies operating in the branded segment. The increasing awareness among consumers, mainly women, for branded jewellery in Tier I and Tier II segments is driving the market growth. Titan’s contemporary designs, higher transparency and better after-sales service will allow it to enjoy premium margins, which will in turn boost its growth further.

Also the company’s recent entry into optical eyewear, precision engineering and high-end luxury watches of other brands through its retail chain Helios provide a huge growth potential.

Concerns

The recent volatility in gold prices may put pressure on sales in the near term, but the momentum will pick up in the second half of the fiscal due to festival and marriage seasons.

Titan’s net sales grew at a CAGR of 34.6% in the past five years. Its jewellery business increased at a CAGR of 45% and watch business grew at 14.6%

Source - Economic Times

Infosys Ltd

As anticipated, Infosys reported a healthy sequential growth of 4.5% in dollar-denominated revenue for the September 2011 quarter. What took the market by surprise was the company’s sharp improvement in its annual revenue and profit guidance in rupee terms.


The country’s second-biggest IT exporter expects to grow earnings per share in rupee terms by as much as 21.6% for FY12, much higher than its earlier anticipation of a 9% growth. While the revision led to the stock rising as much as 6% on Wednesday, investors need to note that the revised guidance is mainly a function of the rupee-dollar movement rather than any major improvement in demand scenario.

This is visible from a less aggressive revision in its dollar-denominated guidance. In dollar terms, Infosys has improved its forecast of EPS growth to 16.8% for FY12 from earlier 11.5%. It has also reduced dollar-denominated revenue expectations. In addition, even though the management has denied any signs of budget cuts, it has yet not dropped the word caution from the commentary.

The management has stated currency movements as a major driver behind the strong rupee-term guidance. The rupee weakened by over 10% against the dollar during the quarter. Some economists feel that the rally in the dollar may not continue given the US central bank’s attempts to stimulate growth in the local economy. Any subsequent fall of the dollar will also impact Infosys’s projections adversely.
On a positive note, the company seems to have finally returned on the growth trajectory after reporting numbers in the past few quarters that were lacklustre by its own standards. During the quarter, it added 45 clients, the highest in any of the six quarters to September 2011. Also, the business growth was seen across all its verticals. Even for the banking and finance vertical, which is under pressure due to debt troubles in Western countries, the sequential growth was 4.8%. Infosys’s guidance suggests that it expects a growth of over 5% in each of the remaining two quarters of the current fiscal, which is higher than what it has achieved in the first two quarters. This could mean that the top IT players may continue to report demand buoyancy in the near term.

Source - Economic Times

Shares held by Rakesh Jhunjhunwala

What stocks do they hold?



Company   %Holding  No of Shares (in Lakhs)  Rs Crore



Bilcare 7.37    17.35    54

Titan Industries 7.15   635.09   1,423

Zen Technologies 5.06   4.50   4

Adinath Exim Resources Ltd 4.45   1.83   0

Titan Industries 2.49   221.16   495

Alphageo (India) 2.43   1.25   1

Lupin 2.02   90.25   426

Subex 1.80   12.50   5

Provogue (India) 1.66   19.00   6

Bilcare 1.14   2.68   8



* N.T Not Traded since last 15 days.

* The results displayed above are searched for the exact name match. It may not be including shares held by the particular entity in different name format.

Top 10 stocks picks by Mutual Funds

1. Jaiprakash Associates Ltd

Jaiprakash Associates is a diversified player operating in cement, real estate, construction, roadways and hospitality. Its listed subsidiary JP Power Ventures is into power generation.

Jaiprakash Associates' operating profit margin declined 420 basis points y-o-y to 21.4% in the March quarter despite net sales that rose 19%. Inthe cement division, the company's realisations grew an estimated 2% y-o-y on a per tonne basis in Q4 of FY11, but that was not sufficient to offset higher operational costs. The company's cement capacity is expected to grow to 33.6 million tonnes by March 2012 from 19.1 million tonnes at the end of March 2010.

2. ONGC Ltd

ONGC's March quarter results were weaker than expected thanks to a sudden jump in its subsidy burden. This impacted the company's valuations in the first half of June. But the government's move to reduce petroleum industry's under-recoveries by increasing prices and reducing taxes boosted the company. ONGC's net realisation for the rest of FY12 is expected to move up substantially as the industry’s under-recoveries come down. At the same time, there are strong indications that Cairn India would agree to make royalty on Rajasthan fields cost recoverable to obtain the government's approval for its acquisition by Vedanta. This too will boost ONGC’s earnings.

3. Rain Commodities Ltd

Rain Commodities, which is the global leader in calcined petroleum coke (CPC), posted strong results for the March and June quarters as profitability in the CPC business jumped. The company also has 3.5-million tonne of cement manufacturing capacity. The profitability of the business is stagnating due to an oversupply condition in the country. The company plans to demerge and list its CPC business separately. This can create substantial value for the shareholders. The company is currently trading at price-to-earnings multiple (P/E) of just 2.6 times based on consolidated earnings for the last four quarters.

 

4. ITC Ltd

June saw a rally in all FMCG and cigarette stocks listed on the bourses. ITC, being the market leader, has naturally had the highest buying interest from mutual funds. The company has gained from favourable taxation this fiscal and higher taxation on competing products like pan masala and chewing tobacco. Benign prices of tobacco have also helped the tobacco industry.

ITC has logged a strong performance for the June quarter, driven by a strong volume growth in cigarettes despite price increases. The outlook for the company continues to be positive.

5. NHPC AND SJVN

Mutual funds looking to take exposure to power utilities due to high demand for power in the economy have preferred NHPC and SJVN over other utility companies. There are two main reasons for this.

Firstly, these two companies are hydropower companies with no fuel cost involved. The only input that these companies need is water which is almost free. When thermal utilities are grappling with high fuel cost and fuel availability issues, these hydro companies provide a safer investment option. Secondly, these companies are trading at a price-to-book multiple of nearly one, which is inexpensive. Their latest quarterly numbers show a spurt in profits after stagnation for three quarters, which hints at a better show in the coming quarters. (Posted date - 14 Aug 2011) 6. Bharti Airtel Ltd

The counter of Bharti Airtel reported higher activity by fund houses in June. The number of shares holds by fund managers in Bharti increased sharply by 44.5% from the previous month.

The renewed institutional interest in the country's largest telecom operator looks opportune given the subsequent upward revision in prepaid mobile tariffs by leading operators including Bharti, Vodafone (not listed in India), and Idea Cellular in select telecom circles.

Though Bharti looks well-placed among its peers given its overseas expansion, its current P/E of 21.5 fully reflects its future growth potential. A further increase in its valuations looks limited.

7. United Phosphorous Ltd

The agrochemicals major passed through a tough phase in FY11, and underperformed the markets. The company's growth numbers were unable to support its high valuations. However, its three acquisitions in the last six months have boosted investor sentiment, while quarterly numbers have remained healthy.

The company is currently trading at a price-to-earnings multiple (P/E) of 12.5, which is inexpensive considering United Phosphorous is the largest domestic agrochemicals firm. The company's management also revised up its revenue growth guidance for FY12 to 25-30% from 12-14% earlier. However, maintaining margins will be the key challenge for the company to ensure strong profit growth.

8. Sterlite Industries Ltd

Sterlite Industries is the country's most diversified company from the non-ferrous sector. It is currently the strongest play in the metals and mining sector. The company has posted strong first-quarter earnings despite high raw material and fuel costs which dented margins of other companies. Improvement in treatment and refining margins, which are expected to sustain, helped the company increase revenue from its copper business. The division contributes half of its total revenue. Over the next few quarters, revenues from its silver, zinc and lead businesses are expected to drive earnings. The stock is currently trading near its 52-week low and with a low P/E of 9 times is a compelling buy.

9. Orient Paper Ltd

Orient Paper, a diversified player across various businesses, had recently decided to demerge its key cement business into a separate company -Orissa Cement. This will give it a focused entity, and help get better valuations. The demerger would be effective April 2012, and the existing businesses of paper & board, coupled with electrical consumer durables would remain with Orient Paper. In the June quarter, Orient Paper's operating profit margin rose 360 basis points y-o-y to 21.3%, while net profit improved 73.7% y-o-y to 59.4 crore. The company benefited from a strong improvement in its realisations on a per tonne basis in its key cement division. This improvement was helped partly by production discipline of large players in the southern region. In contrast, during FY11, the company grappled with a fall in operating margins on a y-o-y basis, coupled with a decline in its net profit.

FDI inflows: India's top 10 sectors

With strong governmental support, foreign direct investment has helped the Indian economy grow tremendously.

India has continually sought to attract FDI from the world's major investors.

In 1998 and 1999, the Indian government announced a number of reforms designed to encourage and promote a favourable business environment for investors.

FDIs in India are permitted through financial collaborations, private equity or preferential allotments, by way of capital markets through euro issues, and in joint ventures.

FDIs, however, are not permitted in the arms, nuclear, railway, coal or mining industries.

A Department of Industrial Policy and Promotion fact sheet mentioned 10 sectors attracting highest FDI equity inflows.

1. Services sector (Financial and non-financial)

FDI equity inflows: Rs 123,706 crore ($27,668 million)

The service industry forms the backbone of social and economic development of any region.

It has emerged as the largest and fastest-growing sectors in the world economy, making higher contributions to the global output and employment.

The contribution of the services sector to the Indian economy has been 55.2 per cent in gross domestic product and has been growing by 10 per cent annually.

An international comparison of the services sector shows that India compares well even with the developed countries in the top 12 countries with highest overall GDP.

The two broad services categories, namely trade, hotels, transport, and communication; and financing, insurance, real estate, and business services have performed well with growth of 11 per cent and 10.6 per cent, respectively in 2010-11.

Only community, social and personal services have registered a low growth of 5.7 per cent due to base effect of fiscal stimulus in the previous two years, thus contributing to the slight deceleration in growth of the sector.

2. Computer (software & hardware)

FDI equity inflows: Rs 48,135 crore ($10,821 million)

Foreign direct investment Inflows to Computer Software and Hardware Industry in the first half of the fiscal year 2007-08 has been $0.3 billion.

Software Technology Parks, regulatory reforms by the Indian government, the growing Indian market and availability of skilled workforce have been important factors in boosting FDI inflows to computer software and hardware in India.

The computer software industry has witnessed a growth of 28 to 30 per cent CAGR in the past five years.

The computer hardware industry has occupied about $1.4 billion in the entire electronics hardware industry as has been accounted in the Financial Year 2005.

This includes personal computer, servers, and laptops.

Hundred per cent foreign direct investment is permitted under automatic route in the computer hardware industry.

3. Telecommunications (radio paging, cellular mobile, basic telephone services)

FDI equity inflows: Rs 48,313 crore ($10,611 million)

The Indian Telecommunications network with 621 million connections (as on March 2010) is the third largest in the world.

The sector is growing at a speed of 45 per cent during the recent years.

This rapid growth is possible due to various proactive and positive decisions of the government and contribution of both by the public and the private sectors.

The rapid strides in the telecom sector have been facilitated by liberal policies of the government that provides easy market access for telecom equipment and a fair regulatory framework for offering telecom services to the Indian consumers at affordable prices.

Presently, all the telecom services have been opened for private participation.

4. Housing and real estate

FDI equity inflows: Rs 43,288 crore ($9,655 million)

The finance ministry recently called for tougher foreign direct investment norms in the housing and township sector.

It has also proposed stringent monitoring to ensure FDI rules are strictly followed in this 'sensitive' sector.

The ministry has said a more effective monitoring mechanism could be set up jointly with the ministries of commerce and urban development to ensure FDI does not "render policy objectives in a sensitive sector of the economy with limited practical significance".

At present, 100 per cent FDI is allowed in this sector, but with some riders.

However, there have been concerns over the lack of clarity of rules, the need to tighten these and the difficulty in monitoring these.

For instance, foreign companies willing to invest in this sector need to have a minimum capitalisation of $10 million for wholly-owned subsidiaries, and $ 5 million for joint ventures.

The funds have to be brought in six months of commencement of business. Also, the minimum area to be developed under each project is 10 hectres.

5. Construction (including roads & highways)

FDI equity inflows: Rs 42,160 crore ($9,491 million)

The evolution of Indian construction industry was almost similar to the construction industry evolution in other countries: founded by government and slowly taken over by enterprises.

After independence the need for industrial and infrastructural developments in India laid the foundation stone of construction, architectural and engineering services.

The period from 1950 to mid 60's witnessed the government playing an active role in the development of these services and most of construction activities during this period were carried out by state owned enterprises and supported by government departments.

In the first five-year plan, construction of civil works was allotted nearly 50 per cent of the total capital outlay.

It contributes more than 5 per cent to the nation's GDP and 78 per cent to the gross capital formation.

Total capital expenditure of state and central government will be touching Rs 8,02,087 crore (Rs 8,020,87 billion) in 2011-12.

6. Automobile industry

FDI equity inflows: Rs 28,037 crore ($6,199 million)

FDI Inflows to Automobile Industry have been at an increasing rate as India has witnessed a major economic liberalisation over the years in terms of various industries.

The automobile sector in India is growing by 18 per cent per year and is one of the high performing sectors.

This has contributed largely in making India a prime destination for many international players in the automobile industry who wish to set up their businesses in India.

7. Power

FDI equity inflows: Rs 27,848 crore ($6,156 million)

The huge size of the market in the power sector in India and high returns on investment are important factors in boosting FDI inflows to power.

Hundred per cnet FDI is permitted to this sector under automatic route in almost all the power sectors in India except the atomic energy.

There are huge opportunities of FDI in power sector in India.

The power sector in India has grown significantly and is an important part of infrastructure.

Investment potential in the power sector of India is huge due to the market size and returns on investment capital.

Past few years have witnessed an outstanding growth in the power sector especially the sectors based on renewable sources of energy.

The government of India aims at reaching 2, 00,000 MW of capacity by 2012.

8. Metallurgical Industries

FDI equity inflows: Rs 18,724 crore ($4,286 million)

The country's metallurgical sector garnered Rs 5,023.34 crore (Rs 50.23 billion) in foreign direct investment in the financial year 2010-11, a 150 per cent increase compared to the previous fiscal.

The sector, which also includes steel, had attracted over Rs 1,999 crore (Rs 19.99 billion) in FDI in FY'10.

According to statistics from the Department of Industrial Policy and Promotion, he added the metallurgical sector attracted Rs 4,152.56 crore (Rs 41.52 billion) in FDI in 2008-09.

9. Petroleum & Natural Gas

FDI equity inflows: Rs 13,763 crore ($3,159 million)

Hundred per cent FDI is permitted under automatic route in petroleum and natural gas. Petroleum and natural gas Industry accounts for 35 per cent share in the entire energy requirements in India.

Important initiatives have been taken by the Indian government to drive FDI inflows to this sector.

Petroleum and Natural Gas Industry accounts for 35 per cent share in the entire energy requirements in India.

Downstream industries like petrochemicals, fertilisers and energy play a vital role in the oil industry in India.

10. Chemicals (other than fertilisers)

FDI equity inflows: Rs 13,234 crore ($2,927 million)

FDI Inflows to chemicals industry has increased over the last few years, thanks to several incentives by the government of India.

The increased FDI Inflows to chemicals industry has helped in the growth and development of the sector.

Hundred per cent FDI is allowed in chemicals under the automatic route in India.

FDI policy in chemicals industry in India comprises:

1. Up to 100 per cent FDIis allowed through the automatic route for all the items in the chemical industry except for the chemicals that are of hazardous nature for which the approval of the government is required.

2. The government plans to establish chemical parks in special economic zones in order to provide world class infrastructure, increase clustering, and also ensure concessions in tax.

World's biggest gold reserves

Gold has remained one of the most sought after assets in the world. Even in times of economic uncertainty, gold continues to be a safe bet for investors.


A gold reserve is held by a central bank or nation as a valuable resource and as a guarantee to redeem promises to pay depositors, note holders or to secure a currency.

The world's consumption of new gold is about 50 per cent in jewellery, 40 per cent in investments and 10 per cent in industry.

1. United States

Gold reserves: 8133.5 tonnes

The United States owns the world's largest gold reserves.

Gold constitutes 74.7 per cent of the nation's foreign exchange reserves.

2. Germany

Gold reserves: 3,401.0 tonnes

In Germany, gold forms 71.7 per cent of the foreign exchange reserves.


3. IMF

Gold reserves 2,814.0 tonnes

The International Monetary Fund ranks third in terms of gold reserves.
4. Italy

Gold reserves: 2,451.8 tonnes

Gold reserves form 71.4 per cent of the total foreign exchange reserves in Italy.


5. France

Gold reserves; 2,435.4 tonnes

France ranks fifth with gold constituting 66.1 per cent of its total forex reserves.

6. China

Gold reserves: 1,054.1 tonnes

China, set to overtake India as the world's largest gold consumer is ranked 6th in the world.

Gold forms 1.6 per cent of the country's forex reserves.


7. Switzerland

Gold reserves: 1,040.1 tonnes

Gold constitutes 17.6 per cent of the total forex in Switzerland.


8. Russia

Gold reserves: 830.5 tonnes

Gold forms 7.8 per cent of the total forex in Russia.



9. Japan

Gold reserves: 765.2 tonnes

Gold forms 3.3 per cent of the total foreign exchange reserves in Japan.



10. The Netherlands

Gold reserves: 612.5 tonnes

Gold constitutes 59.4 per cent of the total foreign exchange reserves in The Netherlands.



11. India

Gold reserves: 557.7 tonnes

India, the world's largest consumer of gold ranks 11th in terms of gold reserves. Gold constitutes 8.7 per cent of the total forex reserves.

The top 10 nations investing in India

Foreign direct investments have become the major economic driver of globalisation in recent times.


The most profound effect has been seen in developing countries, where yearly foreign direct investment flows have increased from an average of less than $10 billion in the 1970s to a yearly average of less than $20 billion the 1980s.

From 1998 to 1999 itself, FDI grew from $179 billion to $208 billion and now comprise a large portion of global FDI.

FDI or foreign investment refers to the net inflows of investment to buy a lasting management interest (10 per cent or more of voting stock) in an enterprise operating in an economy other than that of the investor.

A Department of Industrial Policy and Promotion fact sheet mentioned India's top 10 FDI generating countries.


Rank 1: Mauritius

Investment: Rs 247,092 crore ($55,203 million)

Topping the list of India's foreign direct investment ranking is this small island.

India has a Double Taxation Avoidance Treaty with Mauritius, under which the corporates registered there can choose to pay taxes in the island nation.

Experts said companies prefer to route their investment through the famous Mauritius route because of as low as three per cent effective rate of corporate tax on the foreign companies incorporated there.

The tax levied is no more than 3 per cent.

Rank 2: Singapore

Investment: Rs 58,090 crore ($13,070 million)

Singapore invests its funds in telecommunications, services (usually offshoring), power, oil refinery, food processing, and electrical equipment.

Singaporeans also have interest on transportation.

Rank 3: United States of America

Investment: Rs 42,898 crore ($9,529 million)

Most of the US companies or investments are placed in the areas of telecommunications, services (usually offshoring), power, oil refinery, food processing, and electrical equipment.

Rank 4: The United Kingdom

Investment: Rs 29,451 crore ($6,643 million)

Besides long standing British companies in India such as ICI, Glaxo, GEC, Rolls Royce, British Aerospace, SmithKline Beecham, British Petroleum, British Airways , British American Tobacco, and Cadbury, the new major players include British Gas, National Power, National Grid, British Telecom, Shell International Petroleum Co., United Distillers, Trafalgar House, and other British Construction companies.All British oil majors are present in the Indian oil sector.

Opening of the roads and ports sector in India has opened immense opportunities for construction and maritime equipment manufacturers.

Rank 5: The Netherlands

Investment: Rs 25,799 crore ($5,739 million)

The Dutch investments in India are in the agro industries, logistics, water management, information technology, health, financial services and renewable energy.

The focus of the Netherlands' investment would be in sectors that are in demand in Indiaand in which the Dutch have world-class technology.

Rank 6: Japan

Investment: Rs 25,001 crore ($5,511 million)

Major Japanese FDI projects in India include Maruti Suzuki, Toyota, MCC PTA, Nissan Motors, Honda Siel Cars, Asahi India Glass, Sony India, Canon India etc.

In October 2010, Prime Minister Manmohan Singh and his Japanese counterpart, NaotoKan, signed a number of agreements to strengthen the much-awaited Japan-India economic and security ties.

They sowed the seeds of extending their ongoing cooperation in the development of infrastructure in India to the southern parts.

Rank 7: Cyprus

Investment: Rs 22,702 crore ($4,982 million)

The Cypriot economy is prosperous and has diversified in recent years.

According to the latest International Monetary Fund estimates, its per capita gross domestic product at $28,381 is just above the average of the European Union.

Cyprus has been sought as a base for several offshore businesses for its highly developed infrastructure.
Rank 8: Germany

Investment: Rs 13,607 crore ($3,051 million)

German companies like BMW, Volkswagen, Bosch, Deutsche Bank, Siemens and Boehringer - have pledged millions of euros in the country in recent times.

A report released recently by Public Interest Research Group has, however, critically examined investments by the German corporations into India, during the post-liberalisation period, 1991-96.

The report entitled 'The Reality of Foreign Investments: German Investments in India(1991-96) looks into trends and patterns of investments from Germany to India.

According to the report, there are three major reasons for German corporations to invest in India -- availability of cheap labour coupled with toothless labor legislation's; India's huge domestic markets of goods and services; and India's lax environmental and public health regulations with their ineffective implementation by the state machinery.

Rank 9: France

Investment: Rs 11,244 crore ($2,484 million)

Investments by French companies in India are expected to touch Euro 10 billion (around Rs 60,000 crore) by 2012, and would be focused on automobile, energy and environment sectors among others, said a recent Business Standard report.

Jean Leviol, minister counsellor for economic, trade and financial affairs at the French Embassy in India, told BS that there were about 750 permanent French establishments in India, employing nearly 2,00,000 Indians, a fifth of them as engineers in French IT companies.

The number was around 50,000 in 2005.

These investments were mainly driven by IT majors and pharmaceutical companies.

Rank 10: United Arab Emirates

Investment: Rs 8,683 crore ($1,910 million)

The United Arab Emirates has emerged as the country's largest trading partner in term of total trade exchange recently, said a recent media report.

"The UAE is India's largest trading partner in terms of India's total trade exchange in the first half of the current year," the Emirates News Agency said, citing a report by the analysis and trade information department at the ministry of foreign trade.

Non-oil trade exchange between the UAE and India grew by 57 per cent to reach USD 20.4 billion in the first half of 2010, according to the report by the analysis and trade information department at the ministry of foreign trade (moft) quoted by the agency.Welcome to Indian Share MarketYour Desire to EarnHome page Get Free Advice Useful Sites Free Subscription

AEGON Religare Life Insurance

Advertorial


iMaximize is a unit-linked insurance plan (Ulip) from AEGON Religare Life Insurance. It is available online on the insurer's website. It has no premium allocation charge. It has a low fund management charge of 1.35 per cent, an all-equity fund option and two death benefits to choose from.


Death Benefits

There are two options for death benefit t in this plan. First, it is a Type I version that gives higher of the sum assured, or fund value, or 105 per cent of the paid premiums as death benefit t to the nominee. Second, it comes with the premium continuation benefit (PCB) and the income benefit (IB).


If the policyholder dies before the maturity of the policy, the nominee gets the higher of the sum assured, or 105 per cent of paid premiums, but the policy continues. The insurer keeps putting in premiums into the fund till maturity through PCB. Also, an amount equal to annual premium is paid to the nominee every year through the IB feature. Mortality charges, that is, cost of the actual insurance would be applicable accordingly.
 
Fund Fundas


You may choose from two options, trigger portfolio strategy and self-managed portfolio strategy, to manage your funds. Under trigger portfolio strategy, the premiums paid are initially put in the all-equity Accelerator Fund. Whenever the fund value under Accelerator Fund is equal to, or more than 110 per cent of all the premiums paid, the excess amount is switched to the all-debt Secure Fund.

Under self-managed portfolio strategy, one can invest in any of the three investment funds, such as Secure, Stable and Accelerator Funds, in any proportion. The plan adds units into the fund starting in the 12th policy year and continues till maturity. The value is equal to 0.45 per cent of the average fund value of the last 12 months before the allotment of special units. On maturity, the fund value is paid to the policyholder. Costing

The plan gives Rs. 10,58,137 and Rs. 14,91,070, if a 35-year-old male invests Rs. 50, 000 annually for 15-years with a sum assured of Rs. 10 lakh at an annual rate of 6 per cent and 10 per cent, respectively, if the entire fund is invested in an all-equity fund. The net yield is 4.19 per cent and 8.19 per cent at 6 per cent and 10 per cent, respectively (under option one of death benefit).

Comparison

For similar plans, such as Bima Advantage from Future Generali Life and Aviva Freedom Life Advantage from Aviva, the net yield comes to 7.15 per cent and 7.81 per cent, respectively, at an assumed annual growth rate of 10 per cent.

What To Do

The plan is among the cheapest in the Ulip space as there is no front-end cost, and has a low fund management charge. As it's available online, you can directly contact the insurer without any agent's help. The second option under the death benefit is good for those looking to save for children's needs. Others may stick to option one. Avoid the trigger option and choose the Accelerator Fund till three years away from maturity.

Franklin India Bluechip Mutual fund

Franklin India Bluechip Mutual fund’s consistent performance track record has ensured that it possess of the largest assets in its category. Barring two years (1996, 2007), the fund has delivered ahead of its category every single year and over the past three years has been a top performer.


The fund showed great resilience during the market meltdown of 2008 and in 2009 was ahead of the category average and even beat the Sensex (the only other large-cap fund to do that was ICICI Prudential Focused Bluechip Equity).

By ensuring that cash exposure never went above 10 per cent in 2008, the equity allocated averaged 94 per cent (category average: 84%). Yet the fund was able to curtail its fall to 3 per cent below the category and 4 per cent below the Sensex. During that time, the fund picked up some Financial Services stocks at great bargains; a move that reaped benefits the next year. And when the market began its upward journey in March 2009, the fund was fully invested (96%) while the average category equity holding was 81 per cent.


Some contrarian moves failed to deliver the desired results. Being underweight on Oil and Gas and Power in 2007, compared to its peers, is one such case. BSE Oil & Gas and BSE Power were the top performing indices leading to an underperformance of this fund.

One can clearly see the buy and hold strategy of the fund. Although stocks held for short period (that is five or less months) do feature, they are rare. Some of the favourite long-term picks are Infosys Technologies, Larsen & Toubro, BPCL, Grasim Industries and Reliance Industries.

Historically the fund has gone up to 40 per cent in a single sector during the Technology boom but never after that. Allocation to top 10 stocks has averaged around 47 per cent over the past one year and with 42 stocks in its portfolio, the fund looks fairly diversified when compared to its peers.

An excellent pick for investors who want to beat Sensex; the 15- year annualized return (July 31, 2011) is 27 per cent (Sensex: 12%).

Healthcare

Healthcare Companies


Apollo Hospitals Enterprises and Fortis Healthcare are the two leading healthcare companies on the bourses. Both are large, similarly valued, doing well and expanding their respective footprints steadily. However, Fortis Healthcare appears to be the riskier of the two.



AHEL is primarily an Indiabased healthcare, with a total capacity of 8,717 beds across 54 hospitals as on March 31, 2011. It has plans to add 2,418 beds by FY14. The company’s in-patient admissions and average revenue per occupied bed has been steadily rising over the last four fiscals. Despite this, the company has efficiently managed to reduce the patient’s average length of stay in its hospitals. Its occupancy rates have also remained high above 70% over the past four fiscal years. AHEL also has a network of 1,200 pharmacies across 20 states in India. It has closed loss-making and low-growth stores to achieve positive Ebitda since the past three quarters. It also runs a health BPO and health insurance service. The company has recently raised Rs 330 crore through a QIP to fund its future expansion.
 
 
In contrast, Fortis Healthcare has managed to be the largest healthcare company in India through aggressive inorganic expansion. Because of this, it has relatively more leverage with a consolidated debt-equity ratio of 1.45 as on March 31, 2011. While revenues have grown strongly, the company has posted weak margins since the past two quarters. The company expects the margins to recover once its new hospitals start contributing to the bottomline. The company’s latest announcement of buying out its promoters’ stake in Fortis International - the global healthcare company with presence in the Asia-Pacific, has to be taken with a pinch of salt.




The combined entity will have a formidable network of 74 hospitals in nine countries besides India having over 12,000 beds with revenues of over $1 billion. While the valuations of the deal are yet to be arrived at, the company has not disclosed the profitability of Fortis International.



The impact of the acquisitions on the financials of Fortis Healthcare will only be seen once the combined entity announces its financial results. Investors should also note that the promoters have in an earlier media interview revealed their plans to eventually exit the healthcare business once it has acquired scale.

Source - Economic Times

Telecom

Telecom Sector


It will hardly be a surprise for those who invested in the telecom growth story two years ago and stayed invested thereafter to feel a sense of nervousness. For, after losing market value for the past two years in the wake of stiff competition and pressure on profitability, telecom companies are once again attracted investors.

A slew of products and services, including smart phones, tablet computers, mapping and location finding solutions, and e-book readers, are expected to increase the need for connectivity considering their growing popularity. These factors also indicate that the extensive dependence of Indian telecom operators on voice and basic text messaging as a source of revenue when compared with their overseas counterparts is likely to reduce in favour of data-driven services.



And since such services are value driven, they tend to offer better margins compared to pure voice-based services. This brings us closer to a more optimistic scenario in future compared to the sluggish performance of operators in the past. Over the pst two years, frontline telecom players, including Bharti Airtel, Reliance Communications and Idea Cellular, reported falling profits due to intense competition among existing players and new incumbents. Average revenue per user (ARPU) per month fell by 10-15% during the period; each minute on the network also became cheaper by similar magnitude. This impacted the growth in operating profit. Sector Specific - Telecom


The following are some leading Telecom Companies




Bharti Airtel

The country's largest telecom player by revenue and subscribers appears to be the best bet in the sector. A formidable market share in metros, wider reach in remote areas and a footprint overseas are the major strengths of the company. Bharti enjoys a unique command over the market. No wonder then that the company was the first among its peers to raise tariffs for its pre-paid customers, bringing an end to the two-year long sluggish trend in mobile call rates and prompting others to follow suit. Bharti was also the first to adopt a total outsourcing solution and identify new markets for its services overseas. These measures have helped the company grow business without compromising on profitability. Today, the company enjoys one of the best operating margins in the business. With its high penetration and over 90% of active user base, Bharti is expected to take advantage of its recent tariff hikes and the launch of 3G services. Also, its African operations have gained momentum. In the next four-six quarters, investors may be in a position to see the benefits of Bharti's past investments.



Idea Cellular

A Pan-India expansion over the past two years through both the organic and inorganic route has helped Idea Cellular grow its revenue share at the fastest pace among the top five domestic telecom players. The company has a share of over 12% in total sector revenue at the end of the June 2011 quarter, a 170 basis point jump in two years, according to data released by the Telecom Regulatory Authority of India (TRAI). A sharp focus on improving reach and efforts to build a strong brand are keys to Idea's success. The company also boasts of over 92% active users relative to total reported subscriber base. While the company has maintained a higher momentum in its topline, profits have been hit due to losses from operations in the nine new circles. What has worsened the scenario is soaring interest costs for servicing the loan taken for 3G licences and launching the service. The company has started launching 3G services across various circles. A higher active user base should help the company penetrate existing customer accounts further. This is expected to stave off the burden of higher interest outgo



MTNL

The state-run telecom operator seems to have lost out to the private sector players in the past few years. MTNL has been unable to report profits in the past six quarters. Its subscriber base rose at a tepid rate of over 6% in the last one year in comparison with a strong double digit growth between 22% and 36% reported by its larger private sector players. A proposed merger between BSNL and MTNL may offer benefits of synergies but it is not certain when such integration will take place. The stock does not hold much promise in the medium term in the backdrop of a firm hold of bigger private sector players. Welcome to Indian Share MarketYour Desire to EarnResearched Stocks Free Technical Charts Readers Our Target Demat A/C Opening Contact us Home page Get Free Advice Useful Sites Free Subscription For instance, Bharti's domestic revenue increased at a CAGR of 8% during the three years ended June 2011. In contrast, its earnings before interest, depreciation, amortisation and taxes (EBDITA) rose by just 1%. This also took a toll on the stock market performance of telecom players. Between FY08 and FY11, Bharti and Idea lost 13% and 18% of their market capitalization, respectively, while for RCOM, the fall was steeper at 79%. Against this backdrop, the recent announcements by most operators to increase their tariff rates across circles have stoked hopes of a revival in the sector. For investors, it spells an end to the era of cut-throat competition though the exact benefit of higher tariffs will take time to reflect in the financials of companies.



While the existing 2G services are showing signs of stabilising, the newly-launched 3G services are expected to spread rapidly given the fast rising usage of smart phones and other gadgets. This may help valuations of telecom operators rise once again after a two-year lull. A stand-out indicator that valuations may surge again is the recent decision of Piramal Healthcare to invest in the country's second-largest operator by revenue, Vodafone India. Piramal spent $640 million (approximately Rs 2,840 crores) for buying a 5.5% stake in Vodafone. This values the Indian operations of the British telecom giant at $11.6 billion (over Rs 51,800 crore).
 
 
Reliance Comm


Recent reports that the Central Bureau of Investigation (CBI) has stated that there was no evidence of the alleged involvement of three executives of Reliance Communications (RCOM) boosted its stock which otherwise had been battered. However, it is too early to conclude since the public prosecutor has hinted at evidence relating to charges of corruption against the executives. The imbroglio is expected to impact its stock performance. Apart from legal tangles, RCOM also faces challenges on the operational front. Unlike its peers, including Bharti Airtel and Idea Cellular that reported a double-digit growth in revenue, RCOM's revenue dropped by nearly 5% between FY09 and FY11. Its net profit fell in each of the last eight quarters given competition and higher interest outgo due to a higher debt burden. A gross debt of Rs 33,158 crore as of June 2011 calls for steps to restructure debt. The company has tied up with Chinese banks for funding to reduce its debt, but investors will have to wait for a few more quarters to see a significant reduction in loans. Given these factors, investment in RCOM could be highly risky at the moment, despite its lower valuations.Tata Teleservices (Mah)

The Tata Group company has so far been unable to report a net profit despite a gradual improvement in its share of total sector revenue over the past two years. The company is also struggling at the operating level with expenses shooting past its revenue. In the June 2011 quarter, it posted a loss at the operating level. In the past few months, the company's growth in the share of total wireless subscribers has remained sluggish due to competition from some of the new operators. According to TRAI data, its subscriber share has fallen by over 80 basis points to 10.3% in June 2011 from the year ago. Considering this, a turnaround in its operations is not expected any time soon.

Tulip Telecom

Mumbai-based Tulip Telecom is an enterprise data connectivity service provider. The company has grown considerably over the past several years gaining a market share of over 30% in the VPN segment. On the financial front, Tulip has posted a compounded annual growth rate of 35% in its topline and over 40% in its bottomline over the past five years. It has posted double-digit revenue growth consistently over the past several years and expects to clock a revenue growth of 20-24% year on year in FY12 on the back of growing wireless connectivity and increasing business momentum from its fibre rollout

The government vertical, which currently forms a small part of the company's overall revenues, is also expected to be a key growth driver. Moreover, the upcoming data centre in Bangalore is expected to add Rs 1,000 crore of annual revenue in the next three years. For FY11, Tulip has reported an operating profit margin of 28.2%, substantially higher than the level prevailing during FY06-09.



On the back of higher realisation on the fiber network, the company is expected to post similar growth momentum, going ahead. Among these positives, however, increasing debt on the books with debt-to-equity ratio of 1.53 remains a key concern for the stock. However, a probable stake sale in data centre and an anticipated divestment of Qualcomm investment could ease the debt on the books.


Kavveri Telecom

The Bangalore-based company is a telecom products manufacturer. Its product kitty includes radio frequency products (RF) and antennas. The company has grown substantially over the past five years with topline and bottomline improving at a CAGR of more than 50%. The company's subsidiary, Kavveri Telecom Infrastructure, offers in-building coverage solutions to cellular operators on lease rentals. Given the high debt burden on the books of the telecom operators and their willingness to reduce operational expense, Kavveri expects to gain from its contract manufacturing business. In line with its inorganic growth strategy, the company plans to make acquisitions in Europe. It is keen to expand business in Europe, Africa and Latin America. Currently, exports form just over 20% of its total revenues. Given the backdrop of increasing demand for contract-based business and growing technological need across verticals, the company is expected to fare well in the coming quarters.

NBFC

NBFC - Avoid Companies with Weak Fundamentals


The market downturn has seen NBFC stocks plunging to their lowest valuations in five years. The battering of NBFC stocks comes at a time when a committee headed by former RBI deputy governor Usha Thorat has proposed regulatory changes in terms of increased capital adequacy and tougher provisioning norms. When implemented, they could pose challenges for NBFCs, especially asset financing and infrastructure NBFCs. Some of them, like REC, PFC and IDFC, seem to have factored in regulatory changes and are now quoting at a price-book value, or P/B, which is nearly half their average P/B of the past five years.

The P/B ratio is a measure of a company’s m-cap compared to its book value of equity. It provides the value the market has assigned to a stock based on the accounting value of the firm's equity. The scenario is different for housing finance companies, or HFCs. Although the National Housing Bank raised provisioning requirements putting their profitability under pressure. For example, LIC Housing is trading at a P/B of 2.46 which is higher than 1.9, its 5-year average P/B. Profitability of HFCs will be under pressure as provisioning expenses will go up. However, valuations don’t seem to factor this. Stocks of transport finance companies, which attracted investors earlier, appear to be most exposed to the proposed changes. These stocks have fallen sharply during the current rally so much so that most of them are trading at two-third of their 5-year average P/BV.

Gold loan NBFCs are gaining prominence due to rising gold prices. Mannapuram Finance has generated a return of over 650% in the past three years. Moreover, after the Usha Thorat Committee’s recommendations, there is far less regulatory uncertainty for gold loan companies making them an attractive buy. While REC, IDFC, Mannapuram & PFC should be accumulated on dips, investors should sell stocks such as Shriram Transport Finance and LIC Housing. Investors also should not buy even in the event of a correction, unless their fundamentals improve.

Source - Economic Times

What is a base rate?

July 1, 2010, was a significant date for banks and borrowers. That was the day when the new regime for benchmarking home loans – the base rate system – came into being. Now, interest rates on all loans extended post July 1 are linked to the new system.

The new system was introduced by the Reserve Bank of India (RBI) in response to complaints from home loan borrowers of the partisan approach adopted by banks while raising home loan rates. Banks were accused of making attempts to entice new borrowers with lower rates even as the benefits of a benign interest regime were sparingly passed on to existing borrowers. And in a hardening rate scenario, banks rarely hesitated to increase rates for old borrowers . The base rate system was put in place with the objective of enhancing transparency in loan pricing and ensuring fair treatment to all borrowers. Now, banks are required to review their base rates at least once every quarter and ensure that any changes made are passed on to all classes of borrowers.

After the RBI raised its key policy rates in its quarterly monetary policy review on January 25, 2011 several banks have taken the cue and hiked their respective base rate as well as benchmark prime lending rate (BPLR). Borrowers whose loans are currently linked to PLR can take a call on moving to base rate and the bank cannot charge any fee for effecting the transfer. While it is yet to be seen if the new benchmark will indeed benefit old borrowers, many are of the opinion that switching over would certainly result in noticeable gains. For the purpose, you need to get in touch with your bank and inform them that you intend to adopt the new system. There is no standard format prescribed for making the switch. Your bank, though, may ask you to submit the relevant application form or a letter stating your intent. Once you accept the new terms, the bank will have to facilitate the transition.

If you are one of those whose home loan continues to be linked to PLR, you would do well to analyse your current situation before switching to the base rate. For instance, if you are very close to clearing the entire loan, say a year from repaying the entire amount, you need to compare the present home loan rates – the one benchmarked to the base rate as well as the one linked to the PLR. If the latter is lower, you can look at continuing with it. However, if the last instalment due is several years away, you should definitely consider making the switch, even if the PLRlinked rate is lower than the one tied to the base rate. This is simply because the latter is a more transparent mechanism and is likely to reflect changes in the interest rate environment effectively. Lastly, if you have taken a home loan under the ‘teaser’ or ‘special’ home loan schemes that were in vogue till recently , you needn’t take any action at all. Once the fixed-rate period expires, your new rate will be automatically linked to the bank’s base rate then.

Monthly Income - Post Office/Mutual Fund

The post office's monthly income scheme (PO MIS) and the monthly income plans (MIPs) sponsored by mutual funds both offer monthly returns. But which one is better? The government-sponsored PO MIS gives an assured return of 8% payable monthly plus a maturity bonus of 5%, while MIPs offer better liquidity and also returns by deploying 5% to 25% of total assets in equity and the rest in debt products.


What are Monthly Income Plan (MIP) and Monthly Income Scheme (MIS)


Monthly income plans (MIPs) are hybrid mutual fund that invests about 80% to 100% in debt and the rest in equity. The returns are not guaranteed.

The returns of the monthly income scheme from post office are guaranteed by the government of India.

About MIS

MIS assures a return of 8%, plus a maturity bonus of 5% after tenure of six years. The post office website claims that if the monthly interest payments are invested simultaneously in the post office-sponsored recurring deposit scheme (it earns an interest of 7.5% compounded quarterly), the effective yield comes to 10.5%. However, a closure scrutiny suggests this is a marketing gimmick; the effective return on maturity proceeds, inclusive of the bonus amount, turns out to be 8.77%. Also, the interest income is taxable at the hands of investors. So, the yield reduces further. Let us suppose you invested 1,20,000 in MIS where the monthly interest components of 800 are invested in the recurring deposit (RD) scheme, which returns 7.5%, compounded quarterly. So, the RD's maturity amount comes to about 72,806. This, along with the bonus amount of 6,000 (5% of 1,20,000), plus the principal component (a total sum of 1,98,806), gives an effective yield of 8.77%.

About MIP

The MIP also resorts to a marketing gimmick. A monthly income plan would suggest that the schemes offer some returns every month. However, the monthly dividends from such schemes are not guaranteed. Dividends are subject to the availability of distributable surplus and it is solely at the discretion of the fund house. So, if the market goes through volatile times or nosedives for a long period, no dividend may be declared. As MIPs invest 15-20 % in equities, they are subject to market risks. Nonetheless, a good fund manager manages the MIP in an effective manner and takes calculated risks to give steady returns.Inflation

Inflation has always affected the investment continuously eating into our returns. Hence, all investors look for a product that generates alpha over the inflation rate. In the current burgeoning inflation rate scenario, returns do matter. If it comes at a little additional risk, so be it. Senior citizens or persons looking for a fixed monthly return can consider investing in steady performing MIPs with a good track record of doling out monthly tax-free dividends. Ideally, investors looking at monthly payout MIPs for a longer period should invest at ex-dividend NAV on any particular month so that they get more units. As a result, the monthly payouts, ie, monthly dividend yields they get would be high. If monthly dividends are not required, an investor can choose the growth option.

Taxation

The monthly dividends from MIPs are subject to a dividend distribution tax of 13.84% for individuals; however, if you sell the units within a year, the gain, if any, would be subject to your personal income tax slab. If you sell units after a year, a 10% long-term capital gain tax or 20% with indexation would be levied. The interest income on PO's MIS would be subject to your personal income tax slab; so, the 8% fixed return no longer applies here.

7 financial planning tips for couples

Money is one of the biggest discord among newlyweds, especially in big cities. Problem of spending and investing as 'I' among married couples instead of 'We' is one of biggest problem behind poor investment decisions. It basically arises from lack of communication. Most people don't communicate their investment decisions to family members due to oversight or procrastination.




In addition, individualism too is creeping into personal finance these days and couples are steadfastly refusing to share their financial information with each other. It's unbelievable but true. If I earn, I have all right to decide where I spend (forget about investments) is the reasoning.

Sharing salary details, annual bonus, credit card limits with partner is an absolute no-no. For them, it's giving other person space in money matters. In a nutshell, ignorance is bliss when it comes to each other's finances.

Notion of individualism and financial independence could defeat the very purpose of sound financial planning. If one doesn't know what other is doing with the money it can be disastrous. Hiding some huge debt is also sometimes one of reasons not to share financial information with partner. But they often forget that one needs to find solution to the problem and not to aggravate it.

In addition, it is significant to come to terms with financial reality after marriage. Single income can convert to double, but so can debts; buying assets may become easier, but insurance liability could increase; your spending or savings habits could be disastrous mismatch, but your long term goals may be same.

In some cases, money can be reason for all the marital discords.

1. Be open about your financial health and spending habits

Make sure you talk, discuss, debate, and communicate as regards planning your combined finances. Be it your income or expenses, savings or debts, liabilities or assets, habits or cravings -- talk about everything in detail. Talking not only helps meet your goals but also irons out misunderstandings and differences. Also it is significant in the context that it keeps both partners in the loop and in the absence of one spouse; the other is not left in the lurch.

Make sure you list out your debts such as car loan or credit card bills and assets like jewellery, real estate or stock investments. Do talk about your attitude towards money, your values, what you plan to do with it after marriage.

These inputs will act as building blocks for the new financial equation and make it easier to formulate goals and stick to a plan to achieve this. Make sure at the end of this activity, you have some idea about goals and approximate budget.

2. Do frame a budget, baseline the goals

In the absence of a budget, it will be impossible to keep tab on your spending which will have a domino effect on your savings and investments. A budget not only inculcates financial discipline and regulates your cash flow, but also makes it that much easy to meet your financial goals. Base lining the goals can be next logical step.


Frame your long and short term goals in accordance with your priorities and earning capacities. Do establish an approximate timeframe for each goal -- it can be buying furniture, car or a house. Also you can talk about financial implications post birth of child, savings required for his/her education and marriage, vacations and of course retirement. It's never too early to start planning and saving for such goals as compounding effect of investments works in your favour.


To ensure fulfillment of objectives, it is critical to make a budget. Start with bigger expenses like home loan EMIs, house rent or insurance premiums and go on to smaller ones such as grocery, utility or credit card bills. A budget that includes tracking your spending is the only way to know where your money is going. It will make sure that that if you need to save more to achieve your goals, you cut down on your spending

3. Work out implementation strategy

This is the most significant aspect of financial management for newlyweds. Should one merge the finances? Who will make sure plan is on track? This depends on how couples want to plan it out.

Though one can retain their individual accounts to manage individual expenses, a joint account for household expenses, including grocery or utility bills. There is a flexibility to operate in case of each other's absence. Bottom line is that the couple should be comfortable managing their finances.

Even if one partner is financially savvy, it doesn't mean other one should remain in dark. Both the members should be aware of their investment avenues, savings and expenses, modes of transaction, passwords, due dates for premiums, bills etc. This ensures that in case of eventuality, you are not clue less about your expenses.

4. Evaluate your insurance needs

Before marriage and without dependents, an individual can do with relatively small insurance cover than after marriage, especially if you are sole earning member of the family. So a term life insurance is critical. Your cover should be enough to pay out your outstanding loans so that your spouse isn't burdened by it. Ideally you should have 10 times your annual income as life cover.

Upgrading your health insurance is also significant. Even if you are insured by your employer, it is advisable to buy a separate policy. On an average a combined cover of Rs 5 lakh for a couple will be an ideal one but again it depends on other numerous factors.

5. Know about taxation benefits

As a married couple, one is eligible for high home loan and both can claim tax deduction on repayment. A joint home loan offers a benefit of Rs 1 lakh each under Section 80c of Income Tax Act (for repaying the principal) and additional Rs 1.5 lakh each on the interest repayment under Section 26.


6. Take care of documentation changes

If you go for a name change after marriage, ensure you indulge in necessary paperwork. One of most crucial alterations involving name change is PAN card change, besides passport, KYC, bank account etc. Adding wife's name in all existing insurance policies and investments won't be a bad idea.

7. Put emergency fund in place


Life comes with no guarantees. So even if both are earning well, it doesn't mean you cannot be waylaid by an accident or an illness. Be prepared for such eventualities and start saving for emergency fund, which should at least stash at least 3 to 6 months worth of expenses.


In a nutshell, working towards a common goal can make things so much easier for you and your partner. 1+1 = 3 remember. Make a consolidated record of investments of you and your wife so far. For instance, every time your SIP is executed make that entry in the file. Details of insurance policies -- amount of life cover, tenure, premium and policy numbers, fixed deposits, PPF deposits, bonds, bank and demat account numbers should be clearly mentioned. Discuss your investments, loans, expenses, budgeting. Idea is to consolidate financial portfolio of both so as to complement each other's investments.

Consolidation basically leads to doing away with the duplication and sub-optimal use of investible surplus. Husband and wife can gain substantially when they combine their financial forces. They are able to manage debt better, buy a bigger life cover for themselves and most importantly have more investible surplus. Harmony in finances will definitely help spend better, yet invest more and avoid duplication.

Planning as 'we' is also significant as to be aware of investments made if one of them meets an untimely death. Though nothing can be more traumatic than loss of dear ones but there could be financial repercussions too if that person has solely handled all investments. Sometimes we tend to be disorganised with our investments as we think that nothing can happen to us.

So it's high time we understand the significance of 'we' so as to lead healthy financial life.



Source: Rediff

Textile Sector

Textile firms may not be immediately able to take advantage of the fall in cotton prices as most of them are under pressure to dispose off existing inventory bought at higher rates, said industry experts. In the past three months, cotton prices (Shankar-6 variety) have fallen by about 32%.

Currently, the Shankar-6 variety is trading at about Rs 114 per kg, according to Textile Corporation of India. The inventory pile up will force companies to extend end-of-sale period and give further discounts, experts said. Companies may increase discount to 50-60% from 30-40% in a bid to clear off their inventory. Thus, the June 2012 quarter would be a subdued one for textile companies with slow growth in sales and net profit.

Textile companies would be able to take optimum advantage of the fall in cotton prices only from the beginning of the December quarter, experts said.

Currently, there are about 25-30 lakh bales of cotton in the country. Forward prices of cotton are lower than spot rates on NYMEX, an indication of further fall in prices. Also, crop size of cotton this season is bigger than the previous season. There is a difference of 20% in spot and forward prices of cotton on NYMEX.
 
These factors indicate that there is still scope for further decline in cotton prices in the coming months. While a few companies, which have three to four months of order book, are accumulating cotton prices at the current market prices, most companies, especially fabric and garment manufacturers are grappling with overstock situation.


This is the right time for investors buy into textile stocks, experts said. Once demand picks up from the beginning of the December quarter, orders would be placed from buyers (fabric and garment manufacturers) to suppliers (spinning and trading firms). This would generate overall interest across the stocks of textile companies.

Source - Economic Times

FMCG Sector

Indian fast moving consumer goods (FMCG) companies are expected to report a slight reversal in trend during the June 2011 quarter, with moderation in sales growth and stable margins, thanks to price hikes.

Sales of 13 major companies in the sector, at Rs 24,163 crore, are expected to see a strong 17% year-on-year (y-o-y) growth in the June 2011 quarter (Q1FY12), though the growth rate would be lower compared to earlier quarters as price hikes (a wide range of 5-35%) affect the volume growth of companies such as Marico (coconut oil) and Godrej Consumer Products (soaps).

Sales Growth

The top five players (by expected sales in Q1FY12), including ITC, Hindustan Unilever (HUL), Asian Paints, Nestle India and Titan Industries that constitute nearly 70% of total revenues, are expected to report a sales growth of 15.4%.

ITC is expected to report a recovery in cigarettes’ volume growth (5-8%) in the absence of a price hike as excise duties were left unchanged in the Union Budget 2011-2012, strong traction in non-cigarettes FMCG business and a rebound in hotels business. HUL’s soaps and detergents will benefit from price hikes, while strong traction will continue in its personal care and foods business.

Asian Paints’ expected growth rate of 13% is disappointing compared to earlier quarters, given that the company had executed steep price hikes in past few quarters. However, Nestle and Titan are likely to continue their strong growth momentum, with 21% and 26% jump in revenues respectively, as they benefit from low penetration and strong demographics.

On the other hand, Godrej Consumer Products and Dabur are expected to record the highest growth of 46.5% and 28.4% respectively in this sector aided by the contribution of acquired companies. Tata Global Beverages, however, is expected to lag with a single-digit growth of 6.5%, followed by Colgate and GlaxoSmithKline Consumer Healthcare at 10-15%.

Margins

Most FMCG companies had been facing margin pressure since the past few quarters on the back of rising raw material prices and intense competition that limited price hikes that came in lower than escalation in costs.

However, the situation is expected to change in Q1FY12 as companies benefit from earlier price hikes and stable raw material prices. Also, companies resorted to a reduction in advertising expenditure (as percentage to sales) in order to compensate surge in raw material costs.

Consequently, the operating profit margin (OPM) is expected to remain intact at 19.5% (aggregate). However, excluding ITC, the OPM is likely to dip marginally by 17 basis points (bps), largely due to a 100bps fall in HUL’s OPM, followed by 91bps in case of Asian Paints. Net profit margin is expected to improve marginally by about 50 bps to 13.5%.

 
Double Bonanza


Going ahead, the FMCG companies will continue to ride on the consumption wave in India. Sales growth will remain robust, backed by strong volumes in rural areas, new launches, increased penetration of products (such as noodles and personal care) and inorganic opportunities.

Margins are expected to improve further due to recent price hikes, near normal monsoon resulting in benign agri-based input prices and softening crude oil based/linked commodity costs.

The prices of palm oil, sugar, wheat, LAB (linear alkyl benzene) and HDPE (High-Density Polyethylene) have already started softening. But many companies have shown reluctance in passing on the benefits of a reduction in input prices as they suffered in an inflationary environment.

Steep Valuation

The sector is trading at a peak valuation of around 29 times post the significant run-up in stock prices, outperformance over Sensex since March 2011 on expectations of good monsoons and softening trend in input costs. The BSE FMCG index touched an all-time high level of 4107 on July 8

ETFs

What are ETFs


ETFs are passively managed schemes that invest their entire corpus in a basket of securities, such as equity shares. They are not meant to outperform their benchmark indices; they are supposed to track it passively. Since fund managers are not involved in managing these funds—they work on an automated mechanism—these funds are meant for those who like to avoid the fund manager’s risk. However, unlike index funds (also passively managed) that work like any other MF scheme and buys and sell securities from the stock exchange, ETFs have a different mechanism.


The fund house appoints market makers in the stock market who buy the basket of securities (such as all the scrips of the market index on which, say, an equity-oriented ETF is based upon) and hand it over to the fund house, in exchange of a certain number of units. This process is called unit creation, whereby ETF units are “created” in exchange of a basket of securities. The market maker then breaks up these units and sells them separately on the stock exchange. Investors can then buy and sell these units from the stock exchange.


For instance, according to the offer document of Benchmark Nifty BeES, India’s first ETF, you need to “create” a minimum lot of 10,000 Benchmark Nifty BeES units, at any point in time. At Thursday’s value, the total cost of this basket comes to about Rs. 55 lakh (10,000 units multiplied by Rs. 550 or one-tenth of Nifty’s value as on 24 March). This basket will contain all the 50 Nifty shares in exactly the same proportion as they lie in the Nifty, plus a small amount of cash, as mentioned in the scheme’s offer document. When the market-maker wants to redeem these units with the fund house, it does not get cash in return. It gets the basket of securities back.


Why are ETFs superior to index funds…

Since a passive fund, such as an index fund or ETF, tracks the market passively, you would expect it to give the same returns as that of its benchmark index. In reality, they don’t. The difference, called the tracking error, is caused because of the cash component that an index funds holds, and also when the fund manager buys and sells the stocks (to align with the underlying index) and pays brokerage on them. The fund’s expense ratio (they can charge a maximum of 1.5% a year) also adds to the tracking error.

But here’s why an ETF’s structure is superior to that of the index fund. Though your index fund manager is typically mandated to hold at least 90-95% of the portfolio in equities (and the rest in cash), there have been instances when your fund manager has held more cash. Inevitably, your fund manager has the power and control to change your scheme’s asset allocation. This is also mainly why Krishnamurthy Vijayan, chief executive officer, IDBI Asset Management Co. Ltd that manages only index funds, said that he recruited ex-dealers and not ex-fund managers to take care of index funds at his MF.

However, an ETF fund manager does not have these powers. Since the ETF units can be created or dissolved only against a basket of shares, the cash component remains the same throughout. Also, the onus to create units—as against the basket of securities—is on the market-maker, so the ETF does not really buy or sell securities in the market. Hence they don’t pay brokerage to stock brokers.

…and closed-end funds

ETFs also do not suffer from the pangs of closed-end funds where the listed market price is generally lower than the scheme’s net asset value (NAV). An ETF’s market price and NAV almost moves in tandem. If one goes up, it provides an arbitrage opportunity to the market maker to move money (either on the Nifty BeES units or the basket) and this arbitrage forces the prices to converge. For instance, on 24 March, the Nifty closed at 5522.4. Nifty BeES’ NAV was Rs. 557.83 and its closing market price was Rs. 559.69. Such a difference, if happens during market trading hours) provide an opportunity to market makers to make some money.

In this particular case, the market maker will sell Nifty BeES in the market since it is quoting at a higher price in the market (Rs. 559.69) and replenish his stock by buying the ETF units from Benchmark AMC at the actual NAV (Rs. 557.83) . The market maker’s selling in the market will create a downward pressure on the market price of the ETF units and he will continue to indulge in this arbitrage till the time the market price of the ETF units doesn’t converge to the actual NAV. Some difference will remain, however, on account of transaction costs.


Are ETFs liquid enough?

Since only large investors, such as market markers whom the fund house appoints, can “create” and “redeem” units with the fund house, your only chance to buy and sell ETFs is on the stock exchange. Hence, liquidity is important. Some ETFs, like those typically from Benchmark AMC, enjoy good liquidity. For instance, the average trading volume of Benchmark Nifty BeES was 113,000 units a day so far in 2011, 89,463 units in 2010, 145,000 units in 2009 and 72,018 units in 2008.

However, not all ETFs enjoy good liquidity. Sensex Prudential ICICI Exchange-Traded Fund (SPICE), for example, has consistently suffered from poor liquidity. Only 81, 151 and 207 units were traded on average in 2008, 2009 and 2010, respectively. On 119 of 252 trading days in 2010, not a single SPICE unit was traded. On 46 days, less than 20 units were traded. “Since actively managed funds have outperformed ETFs, we have not been able to give much attention to SPICE. In India, fund managers have managed to outperform benchmark indices, as against the developed markets. Even ICICI Prudential AMC’s actively managed funds have done much better than our own passive funds”, says S. Naren, chief investment officer -equity, ICICI Prudential Asset Management Co. Ltd.

Most ETFs offer an additional window for redemption if their units are not traded consistently on the stock market. For instance, SPICE’s offer document says that if units are not traded on the stock exchange (Bombay Stock Exchange) for five days, investors can redeem their units with the fund house directly. Naren claims that a majority of SPICE’s investors have chosen to not to use this window for redemption. Liquidity for gold ETFs has been much better. Throughout 2010, at least 90 units of gold ETF across fund houses were traded on a single day.


Fighting for shelf space

Though India’s first ETF house got sold out, market experts believe that this is not necessarily a bad sign for passively managed funds in India. As per the ETF landscape report released by BlackRock Inc., an US-based asset management company—and the owners of iShares ETFs (world’s largest ETF provider in terms of number of products and assets under management with a 44.1% market share)—ETFs have grown by 33.2%, compounded annually, globally in the past 10 years and 26.1% in the past five years.

In the US, MFs witnessed a net redemption (more money went out than came in) of $278.3 billion, against a net sales (more money came in than went out) of $85.9 billion during the first 10 months on 2010. With the US ETF industry having crossed the $1 trillion mark on 16 December 2010 (it took the industry 18 years to reach this milestone), the US MF industry (excluding ETFs), took 16 years to reach the $1 trillion mark.

Sadly, ETFs haven’t really taken off in India so far. According to the Association of Mutual Funds of India (Amfi) data, ETFs comprise of only 0.3% of the total industry assets. In comparison, ETFs comprise about 9% of the MF industry in the US. Why haven’t ETFs taken off then? Says Sanjiv Shah, executive director, Benchmark AMC: “Agents have traditionally sold products that fetched higher commission. ETFs are low-cost products and hence don’t pay much commission. Hence the market did not take off as much as we had anticipated.” Adds Ambareesh Baliga, chief operating officer, Way2Wealth, a broking firm: “ETFs are not a paying proposition.”

But that is not the only reason why ETFs did not pick up. Contrary to developed markets such as the US where fund managers have repeatedly found it tough to beat indices, in India actively managed funds have outperformed passive funds, consistently. “There is immense talent in the Indian MF industry. We have more than 6,000 listed companies on our stock markets; it’s not very tough for a capable fund manager to pick about 100-150 stocks of these that can outshine the market”, says Jaydeep Kashikar, director, Brainpoint Investment Centre Ltd, a Mumbai-based financial planning firm.

Ajit Dayal, director, Quantum Asset Management Co. Ltd, says that ETFs in India are “bad products” because Indian stock market indices see frequent churn of indices going in and out. “Such churn forces the fund manager to sell the scrip that moves out of the index and buy the scrips that enters the index”, he adds. Here, the ETF fund manager himself rebalances the portfolio; the scheme bears the cost. In the past three years while Sensex has changed three, two and three scrips, respectively, BSE 100 has changed 12, two, 11 scrips and the Nifty has changed three, five and four scrips, respectively. “The BSE 30 or NSE Nifty are quite suspect as indices. Some of the people who look after indices are fund managers. They change stocks in the index to the extent of 20% every year. Where is the stability of the index?”

Not all agree with Dayal though. Reid Steadman, global head of ETF licensing, Standard and Poor (S&P) Index Services, says that though NSE indices are maintained independently, “they are in line with global best practices”. India Index Services and Products Ltd (IISL)—that maintains and manages indices for NSE—has a licensing agreement with S&P for co-branding certain indices such as S&P CNX Nifty.

Benchmark’s acquisition hasn’t deterred others from launching ETFs and index funds. India Infoline Asset Management Co. Ltd, that got its MF licence recently, aims to launch passive funds initially and manage them for about a year. Motilal Oswal Asset Management Co. Ltd that started its operations last year also aims to stick to ETFs, as will IDBI Asset Management Co. Ltd that will mainly focus on index funds.

Naren of ICICI Prudential AMC says that they have no plans to wind up the scheme for now. Instead, he adds, the fund house may get aggressive and apart from educating stock brokers to recommend ETFs to investors who need them, will also look at launching specialized ETFs such as country-specific ETFs.

“While the MF industry works on a distribution model, ETFs are sold by stock brokers, not distributors who find more potential in their earnings in selling equity stocks to customers and getting them to churn. It will take time to educate brokers on ETF’s benefits”, says Naren.

Source: Livemint

Forward Contract

Forwards and futures contracts are a special type of derivative contract. Forward contracts were initially developed in agricultural markets. For example an orange grower faces considerable price risk because they do not know at what price their crops will sell. This may be a consequence of weather conditions (frost) that will a ect aggregate supply. The farmer can insure or hedge against this price risk by selling the crop forward on the forward orange concentrate market. This obligates the grower to deliver a speci c quantity of orange concentrate at a speci c date for a speci ed price. The delivery and the payment occur only at the forward date and no money changes hands initially. Farmers can, in this way, eliminate the price risk and be sure of the price they will get for their crop. An investor might also engage in such a forward contract. For an example an investor might sell orange concentrate forward for delivery in March at 120. If the price turns out to be 100, the investor buys at 100 and delivers at 120 making a pro t of 20. If the weather was bad and the price in March is 150, the investor must buy at 150 to ful ll her obligation to supply at 120, making a loss of 30 on each unit sold. The farmer is said to be a hedger as selling the orange concentrate forward reduces the farmer's risk. The investor on the other hand is taking a position in anticipation of his beliefs about the weather and is said to be a speculator. This terminology is standard but can be misleading. The farmer who does not hedge their price risk is really taking a speculative position and it is di cult to make a hard and fast distinction between the two types of traders.

Block Deals & Bulk Deals

What is block deal?


According to Securities and Exchange Board of India a block deal is a single transaction of a minimum quantity of five lakh shares or a minimum value of Rs 5 crore and is done between two parties through a separate window of the stock exchange that is open for only 35 minutes in the beginning of the trading hours.

SEBI has also made it mandatory for the stock brokers to disclose on a daily basis the block deals made through Data Upload Software (DUS).
Difference between block deal and bulk deal



Block Deal

A block deal happens through a separate window that is open for only 35 minutes in the beginning of the trading hours at the stock exchange.

Bulk Deal


Bulk deals happen all through the trading day.

Another major difference is that a bulk deal is said to have happened if under a single client code and in a single or multiple transactions more than 0.5 per cent of a company's number of equity shares is traded.

Also, bulk deals are market driven while two parties are required for a block deal to take place. Bulk deals carried out for the day should be revealed by a broker on the same day to the stock exchange using the DUS.Interpretation of such deals


Investors often rely upon the block and bulk deals and their movements for trading cues. However, this might not be completely true. A block or bulk deal in a particular scrip doesn't necessarily mean that the stock price of the specific stock will increase as there are buyers and sellers involved in every deal.

Understanding the profiles of the institutions involved in the deal and their strategies is required. What is block deal?

According to Securities and Exchange Board of India a block deal is a single transaction of a minimum quantity of five lakh shares or a minimum value of Rs 5 crore and is done between two parties through a separate window of the stock exchange that is open for only 35 minutes in the beginning of the trading hours.

SEBI has also made it mandatory for the stock brokers to disclose on a daily basis the block deals made through Data Upload Software (DUS).Who can go for these deals?

Generally, only the institutional players including the foreign institutional investors are the major participants in this type of deals. This also includes mutual funds, the various financial institutions, and companies carrying out insurance business, banks, and venture capitalists. Sometimes, many promoters use this window to arrange the issues that are related to cross holdings.

Statutory requirements that must be followed for block deals

SEBI has rules in place certain rules for carrying out block deals. It is mandatory that block deals should happen only through a separate window and for a period of 35 minutes only in the beginning of the trading hours. Also SEBI rules state that block deal orders should be placed for a price not exceeding +1 per cent to -1 per cent of the previous day's closing or the current market price.

Delivery must be made for every trade executed and cannot be squared off or reversed. All details like the name of the scrip, the client's name, number of shares and traded price should be disclosed to the public through the DUS every day after market hours.
However in case of bulk deals happening on a continuous basis in a counter or share with high volumes and high pending shares it could be a sign of appreciation in price in the future. Yet this could also happen in an operator driven counters.


So the block or bulk deals can be considered only as a first level of investigation and an investor before investing in a share should look for more details like specific information about the company like its fundamentals, its performance and ranking in its industry, and its future plans and prospects.