Investors lose Rs 11 trillion in stock market since Diwali

Investors have lost a whopping amount of nearly Rs 11,00,000 crore in the stock market in less than three months since Diwali last year, with over Rs 3 lakh crore being wiped out in the past three days alone.

The stock market today plunged to its lowest level in nearly five months after three consecutive days of fall -- a period during which the benchmark Sensex plummetted by about 755 points, including a 288-point dip witnessed today.

Total investor wealth, measured in terms of cumulative market value of all listed stocks, today itself fell by over Rs 1,32,000 crore -- taking the loss for past three days to over Rs 3,00,000 crore amid macro-economic concerns emanating from inflationary and governance deficit related factors.

Experts said that downward pressures in the market extended well beyond the past three days and heavy selling pressure has continued for over two months now, primarily due to heavy outflows by overseas and domestic investors keeping away in the absence of any positive triggers.

In the process, the total investor wealth has fallen to near Rs 66,00,900 crore -- a huge dip of close to Rs 11,00,000 crore since last Diwali on November 5, 2010, the day when the Sensex scaled its record closing level of 21,004.96 points.

The Sensex has now fallen to 18,395.97 points -- marking a plunge of over 2,600 points since Diwali.

So far in 2011, the investor wealth has fallen by nearly Rs 9,00,000 crore, while nearly Rs 2,00,000 crore was lost during the last two months of 2010.

Experts said that a huge dip in investor confidence is also corroborated by a considerable plunge in the trading turnover at the bourses.

The average daily cash market turnover at the bourses have fallen to nearly Rs 15,000 crore, marking a decline of over one-third from approximately Rs 23,000 crore in October-November 2010.

The current level of turnover is not even one-third of the record level of business volume witnessed in mid-2009, when the daily average turnover was close to Rs 50,000 crore.

The intensity of current downward rally on the bourses can be gauged from the fact that only four stocks out of the 50 top blue-chips that make the Nifty index have given a positive return in the past one month. Even the gains of these four stocks -- namely HCL Tech, TCS, Sesa Goa and PowerGrid -- are only nominal between 0.6-7.3 per cent.


Source: ET

Govt to disinvest in 10 loss-making PSUs, wind up 3

Karnataka has decided to disinvest in 10 loss making public sector undertakings (PSUs) and close down at least three by this year-end as part of its public enterprise reforms programme.

The government has, for the first time, officially prepared a list of sick public sector units to determine the future course of action for these financially troubled enterprises.

“The exercise is part of government strategy to track and rate their performance on a regular basis. We will now look at devising a plan of action for such chronically ill companies,’’ said V P Baligar, principal secretary, department of commerce and industries.

The department of public enterprises, the nodal body for policy formulation for stateowned firms, has listed 42 state public sector enterprises as sick and loss-making. The list was prepared as part of the revised format for categorizing state public sector units on the basis of their performance and respective fields of operation. The new classification, which broadens the existing grouping of firms into 12 categories, will be made applicable from 2011-12.

“There is no alternative for the state than to go ahead with public enterprise reforms involving restructuring and disinvestments,’’ said a senior official, indicating the hurry the government is in disinvesting loss-making companies.

NETAS TO BLAME

Political interference is the reason for several PSUs incurring losses, say experts. Top jobs in PSUs have become attractive berths for political personalities who head them as chairpersons. They not only make use of the office for political gain but also fail to play a catalyst role in taking the corporations forward.

“Not many chairpersons have bothered to initiate steps to plug the prevailing loss, forget making profits,’’ said a concerned industrialist. Though disinvestments and reforms process were initiated as early as in 2002 during the tenure of S M Krishna (now external affairs minister), there had been widespread protest against the move. Succumbing to pressure, previous governments too delayed the process by announcing plans for “rejuvenation of PSUs’’, including those on the verge of closure. Will the BJP government show that it is different?

Companies shortlisted for privatization

Karnataka Power Corporation
Karnataka Silk Industries Corporation
Karnataka Soaps and Detergents
Mysore Electrical Industries Ltd
Karnataka Vidyuth Karkhane
Mysore Minerals Ltd (MML)
Mysore Sugar Company
Mysore Paper Mills Ltd
Sree Kanteerava Studios Ltd
Karnataka Handloom Development Corporation

Non-working PSUs facing closure

Karnataka Fisheries Development Corporation
Karnataka Compost Development Corporation
Karnataka Leather Industries Development Corporation
Karnataka Cashew Development Corporation
Karnataka Coir Board Development Corporation
Karnataka Tur Dal Development Corporation
D Devaraj Urs Truck Terminals Corporation
Karnataka Sheep, Wool Development Corporation


Source : ET

Early US recovery could prompt FIIs to pull money out of India

The Reserve Bank of India (RBI) warned that a sooner-than-expected recovery in developed economies could impact foreign fund flows into India. The central bank on Tuesday, in a veiled reference to the improving US economy, echoed the worries of fund managers, who recently cautioned about the likelihood of a drop in foreign fund investments into India’s stock markets in the event of US’ turnaround.

“Faster-than-expected global recovery may enhance the attractiveness of investment opportunities in advanced economies, which may impact capital flows to India,” the central bank said.

Foreign funds poured $29 billion into Indian stocks in 2010, the highest-ever yearly inflow, driving up the BSE’s Sensex by 17% and the broader BSE-500 index by 16%. The unrelenting recession in developed economies and near-zero interest rates in the US encouraged investors to borrow and pump money into fast-growing emerging markets, including India. Now, with inflation threatening to affect corporate earnings growth and consumption —the basis of India’s economic growth — brokers expect foreign investors to scout for markets with cheaper valuations.

“We believe CY2011 may not be as robust since we expect majority of the incremental flows would go value-hunting in other emerging markets and gradually recovering developed western markets,” said a note prepared by Rakesh Arora and Arjun Bhattacharya of Macquarie Capital Securities. So far in 2011, FIIs have pulled out close to `6,000 crore, according to the BSE data.

India’s Sensex is valued at a price-to-earnings ratio of 18 times estimated earnings, China’s Shanghai Composite at 12.7 times, Russia’s RTS at 7.45 times and Brazil’s Bovespa at 11 times.

Global investors will closely watch US Federal Reserve chairman Ben Bernanke’s comments on the economy’s prospects and inflation during the rate-setting Federal Open Market Committee meet ending on Wednesday. Bond yields in the US have been rising, while stock prices are firming up, suggesting investors expect a recovery in the US this year.

Some fund managers said worries about an outflow from Indian stocks due to a US recovery are overblown.

“I do not think that US recovery could trigger an outflow from Indian equities. It is possible that new flows into India are moderated but to forecast net FII outflows over the year is being too pessimistic,” said Samir Arora of Singapore-based Helios Capital Management. “Every year, the world is generating new savings and the global money in India is still too less to have this effect,” he said.

Macquarie analysts said, “While a readjustment of flows may lead to a short-term correction in the market, the downside would likely be limited and money would eventually find its way back into the Indian growth story.”

The BSE’s Sensex has fallen about 8%, while BSE’s 500 index has dropped 7% so far in 2011. Sharp foreign fund outflows from Indian stocks will be triggered by political instability rather than economic worries, said V Anantha Nageswaran, chief investment officer of Bank Julius Baer.

“Foreign investors would be more worried about the likelihood of a major political upheaval rather than economic factors specific to India,” he said. “Investors would not like to see a change in political personalities, who have been the face of India’s growth story in recent years.


Source : ET

India needs solution to $1.5 trillion puzzle

India needs a solution to a $1.5 trillion-plus puzzle. That's what it will need to invest in infrastructure over the next decade if it is to have any hope of achieving its aspiration of 10 percent GDP growth. The government and banks, India's traditional sources of infrastructure funding, won't be able to carry that load on their own. Financial liberalisation, something the country has hitherto shied away from, could help fill the gap.

Poor infrastructure is one of the main things holding India back. Poor logistics cause waste equivalent to 5 percent of GDP, according to McKinsey. Roads such as the "golden quadrilateral", joining the country's biggest four conurbations, are being laid down, but not rapidly enough. No wonder the roads minister was shifted in a cabinet reshuffle earlier this month.

An estimated one-third of all fresh produce spoils before it reaches the market, and most of the country's railways predate independence in 1947. There are chronic electricity shortages in most states. And then there are the heaving cities, suffering from poor sanitation and virtually bereft of mass public transport.

The government and its planners see the problem. The ongoing five-year plan called for $500 billion of infrastructure investment. The next, which runs until 2017, will argue for $1 trillion. With India's public debt at over 60 percent of GDP, and a current account deficit touching 4 percent, plans to put up half of that from public finances seem less than ideal.

Foreign direct investment can play only a small role. FDI was $24 billion in 2010, according to the International Monetary Fund, only a quarter the amount China attracted, and not all of India's inflows went to infrastructure. Foreign investors are still largely deterred from building projects because of uncertainty over policy logjams and ever-present corruption.

Don't bank on it

Meanwhile, India's banks are also financially constrained. Part of the problem is that the banking industry, much of which is state-controlled, needs more capital to keep up with India's rapid growth. To finance real GDP growth of 10 percent, given inflation of say 5 percent (which is less than India currently experiences), loans probably need to increase by something over 20 percent a year.

Of course, the banks can go to the market and raise the necessary capital indeed, a rash of equity issues is expected this year. But if the state wishes to maintain its stakes in the banks, it will need to dig into its own, bare pockets. Even if it can find the cash this year, it may need to see itself diluted in the longer term, and that will require changes to the law, a tricky proposition given that India's corrupt politicians see state banks as their playthings.

It would also be easier to finance lending growth if the banking industry was opened up to more new entrants. Foreign banks want a bigger slice of the cake, but they have to beg to get every single extra branch. India's non-banks are also lobbying to be allowed to get into the market. Liberalisation may happen, the authorities are examining the issue, but the existing players have a strong vested interest in preventing more competition


Source : ET

Money management: What it involves and how a good financial planner can help

With salaries on the rise, it is easy for a person to be lulled into a false sense of security when it comes to financial matters. Most people often forget that record levels of inflation are currently taking a big bite out of these salaries. Regardless of the state of one’s finances, there is never a bad time to create a personal financial plan - a road map that details various life goals and ways to achieve them.

These goals may vary depending on the stage of life a person is in and his or her priorities. They usually consist of saving for a home, retirement, children’s education, vacations, or a variety of other life contingencies.

The financial planning process allows you to step back and take a `big picture` look at where you stand money-wise and to gauge what types of adjustments need to be made to take you closer to your goals.

If you are tackling the exercise actively for the first time, there are a few important points to consider as you get the process off the ground.
Prioritize: Remember that not all financial goals are created equal. Scenarios that are around the corner (e.g. a child`s education) may call for more focused planning and budgeting than those that are in the distant horizon (e.g. caring for an ageing parent).
Prioritizing your goals by their order of importance is also helpful. For example, you may have a second car on your wish list, but can choose to postpone buying this while you save up for a down payment on a home.
Create a budget: A realistic and detailed budget is an excellent tool to keep your financial plan on track on monthly basis. It gives you visibility into your main expense categories and allows you to calibrate your spending levels as required.
Set a target savings rate: `Pay yourself first` is a useful maxim to live by; one that will keep you from overshooting your spending limits while making sure these are in line with your goals.
Review your insurance coverage: How much insurance coverage, such as medical and life, does one really need? The answer depends on a set of variables that includes age, health, number of dependents, and liabilities. An objective review of these factors will enable you to maintain coverage levels that are right for you.
Keep good records: Many people miss out on important tax breaks because they fail to keep records of deductible expenses. Meticulous record keeping will allow you to maximize your deductions and lower your tax bills.
Review your investment options: Combine your propensity for risk with your future cash flow requirements to select investment vehicles that are right for you. A thorough analysis of your own situation will help you create a balanced financial portfolio.

While it is possible to personally tackle some or all of these activities, it requires discipline and a substantial time commitment to make it work. A good financial planner can help you, not just in setting goals, but also in achieving them.

Experienced planners possess a comprehensive understanding of a wide range of investment opportunities. They can study your financial situation, risk tolerance, goals, future cash flow requirements, insurance needs, and investment options before coming up with recommendations and a comprehensive plan tailored to your needs. Their expertise is likely to cover several aspects of financial management, of which the main ones are:
Risk analysis and planning: To evaluate a client`s risk exposure and select appropriate risk management tools that include general, life, medical and disability insurance.
Retirement planning: To help the client with retirement planning, review their retirement employee benefits (e.g. EPF, PPF) and make recommendations to keep their contributions in line with their retirement needs.
Investment planning: To assess the client`s investment needs and risk tolerance and provide suitable solutions aimed at wealth creation.
Tax and estate planning: To guide the client through the nuances of personal taxation and estate planning, including the creation of wills, gifting schemes and joint property ownership.
Advanced financial planning: To incorporate all the aspects of a client`s financial situation in order to create a comprehensive and achievable plan.

`Caveat Emptor` or `Buyer Beware` is a guideline that applies to the hiring of financial planners, as it does in working with other professionals. While there are individuals in the field who operate based on inflated qualifications, there are also many others who truly have the credentials - recognized industry certification, relevant education and work experience, and a clean reputation - to manage your money and make it work harder for you.
The article is contributed by Ashish Prasad, director & chief executive officer (CEO), Indian Institute of Job-oriented Training [IIJT].

Foreigners Pulling Back on India

In a sign that some foreign investors are losing their enthusiasm for India, they have pulled out more than $1 billion from Indian stocks in the past 12 trading sessions. 

The Bombay Stock Exchange's 30-share Sensex was essentially flat on Friday but is down 7.8% for the year through Friday, at 19,007.53. Foreign institutional investors have been net sellers over the last two-and-a-half weeks, with a net withdrawal of $1.17 billion

In contrast, last year foreign investors had poured $29 billion into Indian stocks according to data from the Securities and Exchange Board of India. These flows had helped push the Sensex to a 17% gain.

This year investors are increasingly concerned about India's growth, and are at the same time encouraged by an improving economic outlook for the developed world.

Some global money managers are expecting Indian stocks to fare worse this year than some other Asian and emerging countries. A recent survey of global emerging market fund managers released by Bank of America Merrill Lynch this week found that a third were underweight on Indian stocks, meaning they are holding less than their benchmark. This is up from just 10% of the managers being underweight India in November, according to a similar survey.

Foreign investors "are looking to buy more either U.S. stocks, or stocks of countries which benefit from U.S. recovery," says Rakesh Arora, head of equity research at Macquarie Capital Securities (India) Pvt. Ltd.

For instance, South Korean and Taiwanese companies that export products to the U.S. would benefit from U.S. growth, so they may be more attractive options. The Korea Composite Stock Price Index or Kospi is up 2.7% through Thursday while the Taiwan Weighted Index is up 0.5%.

India has been plagued by a range of issues that have created uncertainty about its economic growth. "Inflation is the biggest one," says Prabhat Awasthi, head of equity research at securities firm Nomura Financial Advisory & Securities (India) Pvt. Ltd .

India's food inflation has been rising for several months. Inflation of primary articles rose 17% from the previous year for the week ending Jan 8. Meanwhile, rising oil prices globally are adding to India's inflation woes because it is a large importer of oil.

Rising inflation will likely curb consumer expenditure and ultimately lower sales for Indian companies. On the other hand, as India's central bank raises interest rates to curb inflation, it will become more costly for companies to borrow money for their business. Together, these factors could crimp profits for Indian companies this year.

Nomura expects Indian stocks to provide a "below-average return" of around 12%, according to a report published in December.

Meanwhile, India's political picture has also recently become fuzzy. The federal government has come under pressure in recent months due allegations of corruption related to the telecommunications sector. That and other controversies have distracted the government from pushing reforms. Investors have been disappointed that the government has not invested in infrastructure development as much as they had hoped.

"For the next one month, these uncertainties are going to rule," says Shrikant Chouhan, senior vice president of equity research at Kotak Securities Ltd. Investors will be looking to the federal government's budget to be announced in February to give some clues about the government's plans.

Until then, many analysts expect Indian stocks to remain volatile. However, further losses could make Indians stocks cheap enough to attract some foreign investors back.



Source : WSJ

Pay 2% commission for mobile banking transactions

Customers wanting to operate their accounts through cellphones must shell out a 2% commission to the bank, a government panel set up to frame rules for mobile banking has said. Any cellphone customer can create a ‘mobile linked no frill’ account to deposit, withdraw and transfer money, and execute the transactions through a mobile-based m-PIN system or through micro ATMs run by telecom service providers, said the inter-ministerial group’s report, which was circulated to all stakeholders, including the Reserve Bank, last week.

Franchises or own outlets of telecom companies could serve as retail points for the customer. The group’s financial inclusion recommendations, which aim to link the accounts to the unique identification number, or UID, can become policy only after they have been approved by the RBI. “To promote adoption, government payments under various schemes will be directly credited to these mobile linked no-frills accounts once the citizen registers with the government agency providing such benefits,” the report adds.

The report said banks, in turn, must pay the telco a minimum of Rs 2.25 per transaction or 1.4% of the total amount which should be gradually reduced to 1% over five years. And if the telco were to set up mini ATMs then banks must pay a minimum of Rs 3 per transaction or 2.25% of the amount. The tech vendor setting up the IT network linking the bank, the telecom company and the UID can be paid a maximum of Rs 1 per transaction by the bank.

The panel was confident that banks would still make a profit by operating the model even after providing for various operational costs and call centre operations.

Last week, Bharti Airtel , the country’s largest mobile phone company by both customers and revenues, formed a 49:51 joint venture with State Bank of India , and Vodafone Essar, majority owned by UK’s Vodafone, formed a JV with ICICI Bank , to provide mobile-banking and other financial services. Other mobile service providers are also slated to announce similar tie-ups over the next couple of months.

All cellphone users will be able to access mobile banking by opening a no-frills account with SBI at a nominal cost, its chairman OP Bhatt had said.

SBI-Airtel is targeting two million such accounts a year which would be easily scaled up to five million accounts owing to the bank’s wide reach and Airtel’s 1.5 million touch points, Bhatt added. Similarly, ICICI said it plans to take use the strength of Vodafone, which also has over 1.5 million retail points, for acquiring customers and servicing them. India has over 700 million mobile connections with a penetration of more than 60%. In comparison, a significant majority of the country’s population does not have access to banking services. Only 50,000 of the 600,000 villages in the country have access to finance, according to latest RBI estimates.

Last year, RBI had allowed banks to appoint “banking correspondents” which can include “for profit” companies, including mobile service providers, non-governmental organisations, cooperative societies and post offices, to handle a range of financial services. In the case of Bharti & Vodafone, these will act as the banking correspondents for SBI and ICICI, respectively.

The report also stated that tie-ups between telcos and banks for financial services on the mobile platform, must provide a minimum of five services: balance enquiry, cash deposits, withdrawals, money transfers (person to person and also transfers for purchase of goods and services) and credit accounts where customers can transfer money from their bank account to this ‘no-frills mobile linked amount’.




Source : ET