At a time when company managements are giving lower guidance of future growth rates in topline and bottomline, it makes it worthwhile to study companies projecting high growth rates. Such stocks have some inherent characteristics, which popularize them as growth stocks. But exactly what are these traits? Lets see the more important ones;
1.The basic assumption regarding growth stock investing is that these stocks, even in an economic downturn, come up with very high growth rates in earnings and EPS.
2.Such companies grow faster than their peer group. For example L&T is growing faster than companies mostly in the infrastructure group. In favorable business environments most companies show high growth rates. The key is which companies sustain these high growth rates even in adverse economic environments. Also whether these growth rates are sustainable.
3.These companies also show very high ROEs.
4.These companies have high PE multiples. This is because the investor is ready to pay a high price for each unit of the companies' earnings. Educomp Solutions is a good example.
Usually these multiples are greater than the multiples of the overall market.
5.These stocks have high retention rates and low dividend payout ratios.
6.These stocks are very risky and are volatile and have high betas. Areva T&D is a good example.7.The history of earnings growth is also very good
Thursday, October 2, 2008
Wednesday, October 1, 2008
RETURN ON INVESTMENT (ROI)
An investor is someone who commits money, time, or their own effort to get a return on that investment. One way to measure the value of that return is called return on investment, or ROI. Return on investment is a calculation of the amount, or percentage, that you have earned (or lost) on an investment you have made. Returns may be positive or negative. A positive return on investment would mean you earned money, and a negative return would mean you lost money. Return on investment is a percentage of the original amount you invested.
Related to return on investment is risk. Risk is the chance that you will lose money. Different types of investments will give you different returns, and different amount of risk. In general, if you invest in an opportunity with a lot of risk, then you should expect to get a higher return on investment. Low risk investments should give you a lower return on investment. For example, if you place your money in an insured bank account, your money might be pretty safe, but the return may be 1%. If you invest in stocks, you might earn 8%. However, stocks are more risky, and you actually might lose money instead.
The formula is:
ROI =
R - I
x 100
R =
Money received after
making the investment.
I
I =
Original money invested.
Example: John invests $100 in a mutual fund for one year. At the end of the year he has $108. What was his return on investment?
Answer: 108-100 = 8. 8/100 = .08 .08 * 100 = 8%
Related to return on investment is risk. Risk is the chance that you will lose money. Different types of investments will give you different returns, and different amount of risk. In general, if you invest in an opportunity with a lot of risk, then you should expect to get a higher return on investment. Low risk investments should give you a lower return on investment. For example, if you place your money in an insured bank account, your money might be pretty safe, but the return may be 1%. If you invest in stocks, you might earn 8%. However, stocks are more risky, and you actually might lose money instead.
The formula is:
ROI =
R - I
x 100
R =
Money received after
making the investment.
I
I =
Original money invested.
Example: John invests $100 in a mutual fund for one year. At the end of the year he has $108. What was his return on investment?
Answer: 108-100 = 8. 8/100 = .08 .08 * 100 = 8%
TEACHING AND LEARNING BASIC INVESTING
RISK AND RETURN LESSON PLAN
Before investing your money, you will have to understand the important concept of risk and return. Risk and return means that the returns you will get when investing your money will vary. You may even lose money. However, no matter what you do with your money, you are always taking some amount of risk. If you keep your money at home, you risk that it could be lost or stolen. If you place your money in a bank account, you risk that the returns that you get will not be high enough.
Risk and return also means that if you take greater risks, you should expect to get greater returns. If you want the possibility of getting greater returns, you need to invest your money in more risky investments, for example bonds or stocks. Different bonds and stocks even have different degrees of risk.
So how much risk should you take with your money? That depends on many different factors including your age, risk tolerance, and investment objectives. No matter where you invest your money, you first should understand the investment's risks and potential rewards.
Additional thoughts on risk and return:
The risky investment in this exercise may be stocks, or may be another type of investment. If you consider the risky investment to be stocks, many people believe that stocks outperform safe investments over the long-term, and therefore showing negative returns (as this worksheet lesson does) may give a false impression that stocks are not good investments.
Our thought is that while it has been true that stocks and bonds have historically outperformed safe investments over the long-term, in the short term you could lose significantly with them. Also, you could lose significantly if you own particular stocks, rather than a diversified basket of stocks.
Also, even though stocks have outperformed in the past, there is no guarantee that they will in the future -- that is what makes them risky investments -- even over the long-term. Many people thought stocks would always give positive returns at the top of the market in March, 2000. No investment return is ever guaranteed -- there is always a risk. We can look at historical returns to get a sense of what we may get in the future, however, the past is never a guarantee of the future.
Before investing your money, you will have to understand the important concept of risk and return. Risk and return means that the returns you will get when investing your money will vary. You may even lose money. However, no matter what you do with your money, you are always taking some amount of risk. If you keep your money at home, you risk that it could be lost or stolen. If you place your money in a bank account, you risk that the returns that you get will not be high enough.
Risk and return also means that if you take greater risks, you should expect to get greater returns. If you want the possibility of getting greater returns, you need to invest your money in more risky investments, for example bonds or stocks. Different bonds and stocks even have different degrees of risk.
So how much risk should you take with your money? That depends on many different factors including your age, risk tolerance, and investment objectives. No matter where you invest your money, you first should understand the investment's risks and potential rewards.
Additional thoughts on risk and return:
The risky investment in this exercise may be stocks, or may be another type of investment. If you consider the risky investment to be stocks, many people believe that stocks outperform safe investments over the long-term, and therefore showing negative returns (as this worksheet lesson does) may give a false impression that stocks are not good investments.
Our thought is that while it has been true that stocks and bonds have historically outperformed safe investments over the long-term, in the short term you could lose significantly with them. Also, you could lose significantly if you own particular stocks, rather than a diversified basket of stocks.
Also, even though stocks have outperformed in the past, there is no guarantee that they will in the future -- that is what makes them risky investments -- even over the long-term. Many people thought stocks would always give positive returns at the top of the market in March, 2000. No investment return is ever guaranteed -- there is always a risk. We can look at historical returns to get a sense of what we may get in the future, however, the past is never a guarantee of the future.
Account Statement
Your work doesn't stop at investing in mutual funds. Keeping track of them is as important as deciding where to invest. The account statement helps you do just that
Once you invest in a mutual fund (MF) scheme, your MF sends you a statement within seven working days that gives details of the investments. Your MF account statement is just like a bank passbook, and gives information on all recent transactions done within a particular folio.The Securities and Exchange Board of India mandates that in addition to sending account statements to unitholders as and when there is some action in the account (redemption, additional investment or dividend declaration, for instance), MFs also have to send an account statement, at least once a year, for every folio a unitholder has.WHAT TO CHECK1. Current cost and valueCurrent cost is the amount you invested in a scheme while current value is the latest market value of your investments as on the date the statement is generated. Also, the price of one unit will be the net asset value (NAV) plus entry load or minus exit load. 2. Folio and account numbersMake a note of folio and account numbers. Most MFs offer one folio number and several account numbers in the same folio for all investments under the same unitholder combination. This makes for easier tracking all your investments with same MF. 3. Bank detailsCheck your account number and bank name. If you want to change your bank mandate, fill out the slip at the bottom of your account statement and submit to your fund or agent. 4. PAN detailsIt is mandatory for you to give the correct Permanent Account Number (PAN), irrespective of the amount invested. Check your PAN mentioned in the account statement and ensure there are no discrepancies. 5. Advisor nameIf you have invested through an agent, your agent’s name and code will appear on the statement. However, if you have invested directly, these parts should be left blank on your account statement
Once you invest in a mutual fund (MF) scheme, your MF sends you a statement within seven working days that gives details of the investments. Your MF account statement is just like a bank passbook, and gives information on all recent transactions done within a particular folio.The Securities and Exchange Board of India mandates that in addition to sending account statements to unitholders as and when there is some action in the account (redemption, additional investment or dividend declaration, for instance), MFs also have to send an account statement, at least once a year, for every folio a unitholder has.WHAT TO CHECK1. Current cost and valueCurrent cost is the amount you invested in a scheme while current value is the latest market value of your investments as on the date the statement is generated. Also, the price of one unit will be the net asset value (NAV) plus entry load or minus exit load. 2. Folio and account numbersMake a note of folio and account numbers. Most MFs offer one folio number and several account numbers in the same folio for all investments under the same unitholder combination. This makes for easier tracking all your investments with same MF. 3. Bank detailsCheck your account number and bank name. If you want to change your bank mandate, fill out the slip at the bottom of your account statement and submit to your fund or agent. 4. PAN detailsIt is mandatory for you to give the correct Permanent Account Number (PAN), irrespective of the amount invested. Check your PAN mentioned in the account statement and ensure there are no discrepancies. 5. Advisor nameIf you have invested through an agent, your agent’s name and code will appear on the statement. However, if you have invested directly, these parts should be left blank on your account statement
Tuesday, September 9, 2008
Big US, European firms cut IT spend 40%: Study
The economic slowdown in North America and Europe has made 40 per cent of the large businesses cut their overall IT budgets, but companies were expanding their services spending by taking more activist sourcing approach to governance, according to survey by technology research firm Forrester.
Forrester surveyed nearly 950 senior managers across North America and Europe on their IT services spending and overall services strategies and priorities. While 43 per cent have already cut their overall IT budgets in 2008 in reaction to a slowing global economy, 24 per cent have put their discretionary spending on hold. About 28 per cent said the economy has had no impact on their IT budgets.
The Indian IT vendors, who earn over 60 per cent of their revenues from the US, have been facing challenging times as a result of uncertainty in the largest IT services market. The National Association of Software and Services Companies (Nasscom) has forecast that the country’s IT and BPO exports would grow at a slower pace at 25 per cent in the current fiscal, as compared to 29per cent growth witnessed last year.
“This is not an across-the-board spending slowdown. The impact of the economy on IT budgets varies widely by industry and geography,” said Mr John McCarthy, Vice-President and principal analyst with Forrester Research. The survey showed that IT departments in financial services were hit hardest with 49 per cent respondents in the sector having cut their budgets.
Further, IT departments of North American firms have been affected more by the economy than their European counterparts. About 49 per cent of the North American firms have cut their IT budgets compared to 31 per cent in Europe.
“The slowdown has firms renegotiating rates, being more selective in choosing vendors, and examining spending plans more thoroughly, but they are still expecting to pay more for services. The demand for enterprise IT services has not dropped significantly,” McCarthy said.
Forrester said the demand for services hold steady with 45 per cent of those surveyed planning to increase their use of applications outsourcing and 43 per cent of them moving work offshore. The survey showed that only 9 per cent of respondents used offshore resources, while 14 per cent planned to ramp-up use, 19 per cent piloting and 22 per cent not using but actively tracking developments. While those not sending work overseas, a majority cited the questionable quality of the work done offshore.
Forrester surveyed nearly 950 senior managers across North America and Europe on their IT services spending and overall services strategies and priorities. While 43 per cent have already cut their overall IT budgets in 2008 in reaction to a slowing global economy, 24 per cent have put their discretionary spending on hold. About 28 per cent said the economy has had no impact on their IT budgets.
The Indian IT vendors, who earn over 60 per cent of their revenues from the US, have been facing challenging times as a result of uncertainty in the largest IT services market. The National Association of Software and Services Companies (Nasscom) has forecast that the country’s IT and BPO exports would grow at a slower pace at 25 per cent in the current fiscal, as compared to 29per cent growth witnessed last year.
“This is not an across-the-board spending slowdown. The impact of the economy on IT budgets varies widely by industry and geography,” said Mr John McCarthy, Vice-President and principal analyst with Forrester Research. The survey showed that IT departments in financial services were hit hardest with 49 per cent respondents in the sector having cut their budgets.
Further, IT departments of North American firms have been affected more by the economy than their European counterparts. About 49 per cent of the North American firms have cut their IT budgets compared to 31 per cent in Europe.
“The slowdown has firms renegotiating rates, being more selective in choosing vendors, and examining spending plans more thoroughly, but they are still expecting to pay more for services. The demand for enterprise IT services has not dropped significantly,” McCarthy said.
Forrester said the demand for services hold steady with 45 per cent of those surveyed planning to increase their use of applications outsourcing and 43 per cent of them moving work offshore. The survey showed that only 9 per cent of respondents used offshore resources, while 14 per cent planned to ramp-up use, 19 per cent piloting and 22 per cent not using but actively tracking developments. While those not sending work overseas, a majority cited the questionable quality of the work done offshore.
Monday, September 8, 2008
The Importance of a Trading Plan
Why do you need a Trading Plan?
1 - During trading hours, emotions will turn smart people into idiots. Therefore, you have to avoid having to make decisions during those hours. For every action you take during trading hours, the reason should not be greed or fear. The reason should be because it is in the plan. With a good plan, your task becomes one of patience and discipline.
2 - Consistent results require consistent actions - consistent actions can only be achieved through a detailed plan.
What should be in your trading plan?
1 - Your strategy to enter and exit trades
You have to describe the conditions that have to be met before you enter a trade. You also have to describe the conditions under which you will close a position. These conditions may include technical analysis, fundamental analysis, or a combination of both. They may also include market conditions, public sentiment, etc...
2 - Your Money management rules to keep losses small - the goal of money management is to ensure your survival by avoiding risks that could take you out of business. Your money management rules should include the following:
- Maximum amount at risk for each trade.- Maximum amount at risk for all your opened positions.- Maximum daily and weekly amount lost before you stop trading
3 - Your daily routine - after the market closes, before it opens, etc...
4 - Activities you carry out during the weekend.
5 - I also like to include reminders that I read every day
I will follow a trading plan to guide my trading - therefore my job will be one of patience and discipline.
- I will always keep my trading plan simple.- I will take actions according to my trading plan, not because of greed, fear, or hope.- I will not deceive myself when I deviate from my trading plan. Instead I will admit the error and correct it.
I will have a winning attitude.
- Take responsibility for all your actions – don’t blame the market or world events.- Trade to trade well and for the love of trading, not to trade often and not for the money.- Don’t be influenced by the opinions of others.- Never think that taking money from the market is easy.- Don’t try to guess the future – trading is a game of probabilities.- Use your head and stay calm – don’t get excited or depressed.- Handle trading as a serious intellectual pursuit.- Don’t count how much money you have made or lost while you are in a trade - focus on trading well.
A trading plan will not guarantee you success in the stock market but not having one will pretty much guarantee failure.
1 - During trading hours, emotions will turn smart people into idiots. Therefore, you have to avoid having to make decisions during those hours. For every action you take during trading hours, the reason should not be greed or fear. The reason should be because it is in the plan. With a good plan, your task becomes one of patience and discipline.
2 - Consistent results require consistent actions - consistent actions can only be achieved through a detailed plan.
What should be in your trading plan?
1 - Your strategy to enter and exit trades
You have to describe the conditions that have to be met before you enter a trade. You also have to describe the conditions under which you will close a position. These conditions may include technical analysis, fundamental analysis, or a combination of both. They may also include market conditions, public sentiment, etc...
2 - Your Money management rules to keep losses small - the goal of money management is to ensure your survival by avoiding risks that could take you out of business. Your money management rules should include the following:
- Maximum amount at risk for each trade.- Maximum amount at risk for all your opened positions.- Maximum daily and weekly amount lost before you stop trading
3 - Your daily routine - after the market closes, before it opens, etc...
4 - Activities you carry out during the weekend.
5 - I also like to include reminders that I read every day
I will follow a trading plan to guide my trading - therefore my job will be one of patience and discipline.
- I will always keep my trading plan simple.- I will take actions according to my trading plan, not because of greed, fear, or hope.- I will not deceive myself when I deviate from my trading plan. Instead I will admit the error and correct it.
I will have a winning attitude.
- Take responsibility for all your actions – don’t blame the market or world events.- Trade to trade well and for the love of trading, not to trade often and not for the money.- Don’t be influenced by the opinions of others.- Never think that taking money from the market is easy.- Don’t try to guess the future – trading is a game of probabilities.- Use your head and stay calm – don’t get excited or depressed.- Handle trading as a serious intellectual pursuit.- Don’t count how much money you have made or lost while you are in a trade - focus on trading well.
A trading plan will not guarantee you success in the stock market but not having one will pretty much guarantee failure.
Thursday, September 4, 2008
Better times ahead?
Better times ahead?
Ram Prasad Sahu & Jitendra Kumar Gupta / Mumbai September 1, 2008, 20:40 IST
Weakening of freight rates is a short-term phenomenon that will impact the shipping sector. But, healthy demand and supply bottlenecks will ensure stable growth for companies in this sector.
A slowdown in consumption due to a weakening global economy has resulted in a drop in demand for shipping services. This, coupled with fears of a supply overhang, has led to a steep decline in freight rates for tankers which transport crude and oil products as well as cargo carriers that deliver iron ore and coal.
The Baltic Dry Index and Baltic Dirty Tanker Index which measure cost of shipping dry commodities and crude have dipped 40 per cent apiece over their respective highs in May and July this year.
The impact of this is visible on the stock prices of shipping companies which have tanked between 19-42 per cent since May versus a 15 per cent decline in the Sensex.
Though things have looked better since July except for Bharati Shipyard and Shipping Corporation which have given negative returns, most companies have however returned far less than Sensex’s 12.5 per cent.
While the drop in American consumption of petroleum products has caused a blip in the demand for oil and thus hiring rates for tankers, the slowdown in construction activity in China and factory closures before the start of Olympics reduced the demand for commodities and bulk vessels.
Though the situation does not look too appetising, what are the implications of the current trends on the fortunes of shipping companies and ship builders?
We look at the various segments including tankers, dry bulk, containers and specialised ships to ascertain the short- to -medium term movement of freight rates, supply of ships and growth prospects for Indian shipping companies and ship builders
Ram Prasad Sahu & Jitendra Kumar Gupta / Mumbai September 1, 2008, 20:40 IST
Weakening of freight rates is a short-term phenomenon that will impact the shipping sector. But, healthy demand and supply bottlenecks will ensure stable growth for companies in this sector.
A slowdown in consumption due to a weakening global economy has resulted in a drop in demand for shipping services. This, coupled with fears of a supply overhang, has led to a steep decline in freight rates for tankers which transport crude and oil products as well as cargo carriers that deliver iron ore and coal.
The Baltic Dry Index and Baltic Dirty Tanker Index which measure cost of shipping dry commodities and crude have dipped 40 per cent apiece over their respective highs in May and July this year.
The impact of this is visible on the stock prices of shipping companies which have tanked between 19-42 per cent since May versus a 15 per cent decline in the Sensex.
Though things have looked better since July except for Bharati Shipyard and Shipping Corporation which have given negative returns, most companies have however returned far less than Sensex’s 12.5 per cent.
While the drop in American consumption of petroleum products has caused a blip in the demand for oil and thus hiring rates for tankers, the slowdown in construction activity in China and factory closures before the start of Olympics reduced the demand for commodities and bulk vessels.
Though the situation does not look too appetising, what are the implications of the current trends on the fortunes of shipping companies and ship builders?
We look at the various segments including tankers, dry bulk, containers and specialised ships to ascertain the short- to -medium term movement of freight rates, supply of ships and growth prospects for Indian shipping companies and ship builders
Wednesday, September 3, 2008
A cheque that can't be dishonoured
UCO Bank launched its new product 'Pre-Funded Cheque' a facility which would be backed-up by pre-arranged funds kept in a separate savings or current account of the customer without having any scope of dishonour of cheques."The pre-funded cheque is a blend of qualities of our various products. This will cater to diversified requirements of our customers," Uco Bank's General Manager, K V Kulkarni, told reporters here today.The new product would help the bank mobilise CASA deposits, he said.With the cheque backed up by pre-arranged funds kept separately in savings or current account of the customer, it would prevent any chance of dishonour of the cheques on account of insufficiency of funds.The customer can earn interest on funds kept in his savings bank account and also save commission normally incurred on issuance of demand draft, traveller's cheque, manager's cheque or gift cheque.The facility at present would be available at selected 261 CBS branches of the bank.The cheques are payable at par at all CBS branches of the bank.The cheques are issued in three pre-determined denominations, upto Rs 1,000, Rs 5,000 and Rs 10,000.The service charges shall be levied upfront at Rs 100 per cheque book of 10 leaves of Rs 10,000 denomination and Rs 50 per cheque book of 10 leaves for denominations of Rs 5,000 and 1,000.The customers can also opt for stop payment of such cheques.
More pain for realty sector: Enam
Enam Securities said that there is more pain in store for the country's real estate sector in the next 6-12 months, but the long-term outlook is still positive."Short-term conditions are unfavourable because of dampened affordability, high interest rates and oversupply. These are likely to play spoilsport in the near term," Enam Securities' Senior vice-president (Real Estate) Pankaj Jaju said here.This kind of situation is likely to continue in the near term before looking up after 6-12 months, he said.Subdued demand and the resultant price correction in the short-term would affect project Internal Rate of Returns and as a result, the focus of the builders would shift from owning land to execution.In addition to that, inability of companies to access funds may result in liquidation of assets at lower prices, impacting their profitability considerably, he said."So far, belief in strong end-user demand and high investor appetite for under construction properties fuelled liquidity. This is now disappearing on account of inability to churn capital, possible oversupply situation and waning demand," he said.Jaju said that when all signs pointing to a correction in real estate prices, builders are holding on the inventories to rack rates.The long-term outlook is still positive because of favourable demographics, increased urbanisation and higher disposable incomes. However, reduction in mortgage rates and higher loan to value (LTV) ratio are critical to improve affordability and re-instate sentiment, he said.
Monday, September 1, 2008
'It's Better To Pay A Higher EMI And Buy A House'
Interview: Pranav Ansal Vice-Chairman & MD, Ansal API
Even if loans are expensive, Pranav Ansal, vice-chairman and managing director, Ansal API, says people would be better off paying higher EMIs than continuing to stay on rent. At the same time, he feels that competition will make developers offer something extra to homebuyers and that mid-income housing is where the real market is as most buyers are looking for homes in this space. Excerpts from an interview with Urmila RaoHow would you term the current real estate market scenario? Is it price correction or a crash?It is not a crash. There has been no dip in the sales of projects by major developers. The products of reputed builders are selling and their volumes are still the same. However, a lot of new builders with credibility issues are not able to sell because customers are skeptical about putting in money fearing failure in delivery. The slowdown has happened only to this extent.Industry body Assocham’s report says that the banks’ home loan disbursal rates have declined. Rating agency Fitch recently talked about a 16 per cent drop in home registrations in Mumbai.There have been no dips at all in some markets. We operate in 16 cities in northern India and I have not seen a decline in any of these cities. I also don’t see any decrease in sales in Mumbai. HDFC has seen 60 per cent growth in home loans. Well, they were expecting 100 per cent growth, and it is just 60 per cent. But still, there is growth.How do you justify the discount offers, freebies and schemes that even reputed developers are offering? Are these not a strategy to boost falling sales?If the market is very competitive, then people have to give various sops. It’s a part of marketing in areas where there is oversupply. We did that in some of our projects. But in projects where there isn’t too much competition, we don’t offer anything. Sops are purely a result of the demand and supply equation. In cities like Lucknow and Jaipur, where we are the largest developer by far, we don’t give any sops. Our scheme of EMI holiday (paying EMIs after the possession) is the future for all property transactions. Ten years down the road, 90 per cent of the homebuyers will be on EMI holiday schemes. Why didn’t the EMI waiver scheme start earlier when the residential market was on an upswing?Yes, the scheme started just one-and-a-half to two years back. The builders went to the bankers and it took time for the banks to understand and get involved in this scheme, do the paperwork and get clearances. Now, the EMI waiver scheme has started even for commercial projects. Freebies are a function of competition but the EMI holiday scheme is what the market is going to be in the future.Will we see an end of the schemes when the market firms up again?The EMI waiver scheme will stay. The sops will stop.What is your advice to the end-user buyer at a time when home loan interest rates, inflation and premium housing costs are up?People buying homes fall in two categories—those who want to move out of joint families and those who are living on rent. Rentals are increasing at a pace much higher than inflation. So, it still makes sense for a customer to pay a higher EMI and buy a home. This move has two advantages. First, from the point of view of income tax benefit and second, ownership of property. Unlike rentals, payment of EMI for 15-20 years gives a person ownership of the property, creating an asset for him.Of course, price increase is a concern because earnings have not risen that much. But, more than earnings, this is linked with the rental outgo. A person could get to own a property after 15-20 years if takes a call and pays the higher home loan interest rates now. But, if he doesn’t, then he will have to pay a much higher price after 15 years. That is why property transactions happen despite higher inflation.So, a person staying on rent should consider buying a home?Paying rentals does not end up in ownership even after 10 years. Also, you will maintain a rented house only up to a certain standard. You don’t want to invest a lot in maintaining a house that you don’t own.Many developers are getting into mid-income housing. Is this a new trend?Mid-income housing is where the market is. Almost 90-95 per cent of the country is mid-segment buyers. Premium housing accounts for only 1-2 per cent of the market in India. Many developers are building premium housing simply because it adds to their profile. Developers who realise the demand for mid-income housing and cater to it will always be there. Niche market is very exciting and tempting, but is a very small market compared to the mid-segment market. This segment is here to stay. How do you define mid-income housing?Every city has its own definition depending on its income brackets. So, for Delhi NCR, mid-segment is Rs 50-75 lakh. Most of our projects in Gurgaon, Noida, Greater Noida and Ghaziabad are in this range. In Kundli, it’s about Rs 40 lakh.What can we expect in the coming year?Major developers will not have delivery issues, but a lot of new developers will not be able to cope up and some of the projects will never see the light of the day. So, automatically, supply will come down and the value of deliverable properties will go up further. This is the fourth slowdown that we are seeing in 40 years of our operation. This time it is even greater because there are more people in the business and a lot of them will have serious issues. In one to one-and-a-half years, we are likely to charge another 5-10 per cent premium on our products owing to our credibility
Even if loans are expensive, Pranav Ansal, vice-chairman and managing director, Ansal API, says people would be better off paying higher EMIs than continuing to stay on rent. At the same time, he feels that competition will make developers offer something extra to homebuyers and that mid-income housing is where the real market is as most buyers are looking for homes in this space. Excerpts from an interview with Urmila RaoHow would you term the current real estate market scenario? Is it price correction or a crash?It is not a crash. There has been no dip in the sales of projects by major developers. The products of reputed builders are selling and their volumes are still the same. However, a lot of new builders with credibility issues are not able to sell because customers are skeptical about putting in money fearing failure in delivery. The slowdown has happened only to this extent.Industry body Assocham’s report says that the banks’ home loan disbursal rates have declined. Rating agency Fitch recently talked about a 16 per cent drop in home registrations in Mumbai.There have been no dips at all in some markets. We operate in 16 cities in northern India and I have not seen a decline in any of these cities. I also don’t see any decrease in sales in Mumbai. HDFC has seen 60 per cent growth in home loans. Well, they were expecting 100 per cent growth, and it is just 60 per cent. But still, there is growth.How do you justify the discount offers, freebies and schemes that even reputed developers are offering? Are these not a strategy to boost falling sales?If the market is very competitive, then people have to give various sops. It’s a part of marketing in areas where there is oversupply. We did that in some of our projects. But in projects where there isn’t too much competition, we don’t offer anything. Sops are purely a result of the demand and supply equation. In cities like Lucknow and Jaipur, where we are the largest developer by far, we don’t give any sops. Our scheme of EMI holiday (paying EMIs after the possession) is the future for all property transactions. Ten years down the road, 90 per cent of the homebuyers will be on EMI holiday schemes. Why didn’t the EMI waiver scheme start earlier when the residential market was on an upswing?Yes, the scheme started just one-and-a-half to two years back. The builders went to the bankers and it took time for the banks to understand and get involved in this scheme, do the paperwork and get clearances. Now, the EMI waiver scheme has started even for commercial projects. Freebies are a function of competition but the EMI holiday scheme is what the market is going to be in the future.Will we see an end of the schemes when the market firms up again?The EMI waiver scheme will stay. The sops will stop.What is your advice to the end-user buyer at a time when home loan interest rates, inflation and premium housing costs are up?People buying homes fall in two categories—those who want to move out of joint families and those who are living on rent. Rentals are increasing at a pace much higher than inflation. So, it still makes sense for a customer to pay a higher EMI and buy a home. This move has two advantages. First, from the point of view of income tax benefit and second, ownership of property. Unlike rentals, payment of EMI for 15-20 years gives a person ownership of the property, creating an asset for him.Of course, price increase is a concern because earnings have not risen that much. But, more than earnings, this is linked with the rental outgo. A person could get to own a property after 15-20 years if takes a call and pays the higher home loan interest rates now. But, if he doesn’t, then he will have to pay a much higher price after 15 years. That is why property transactions happen despite higher inflation.So, a person staying on rent should consider buying a home?Paying rentals does not end up in ownership even after 10 years. Also, you will maintain a rented house only up to a certain standard. You don’t want to invest a lot in maintaining a house that you don’t own.Many developers are getting into mid-income housing. Is this a new trend?Mid-income housing is where the market is. Almost 90-95 per cent of the country is mid-segment buyers. Premium housing accounts for only 1-2 per cent of the market in India. Many developers are building premium housing simply because it adds to their profile. Developers who realise the demand for mid-income housing and cater to it will always be there. Niche market is very exciting and tempting, but is a very small market compared to the mid-segment market. This segment is here to stay. How do you define mid-income housing?Every city has its own definition depending on its income brackets. So, for Delhi NCR, mid-segment is Rs 50-75 lakh. Most of our projects in Gurgaon, Noida, Greater Noida and Ghaziabad are in this range. In Kundli, it’s about Rs 40 lakh.What can we expect in the coming year?Major developers will not have delivery issues, but a lot of new developers will not be able to cope up and some of the projects will never see the light of the day. So, automatically, supply will come down and the value of deliverable properties will go up further. This is the fourth slowdown that we are seeing in 40 years of our operation. This time it is even greater because there are more people in the business and a lot of them will have serious issues. In one to one-and-a-half years, we are likely to charge another 5-10 per cent premium on our products owing to our credibility
Friday, August 29, 2008
Careers In Managing Money
Professions in finance have always been popular. But specialist handling of financial assets is now picking up speed in India. It's the new wave to ride
Scott Turow, a writer of legal fiction, makes one of his characters compare an actuary to a bookie, because both professions deal with the odds behind any event. In India, the odds will be in the favour of your resume if you have a background in actuarial sciences. With corporate profiles branching into specialised jobs, a knowhow in this and some other disciplines, can lead to a sharper career graph
Tacticians. After chartered accountants and company secretaries, the new kid on the block is the certified financial planner (CFP). A CFP deals with different financial aspects of a firm, including insurance planning, risk management, retirement planning, wealth creation and budgeting, all of which are the key to a company’s financial health. “Even a course or certificate in financial planning can give a person the knowledge base and competence to take on higher responsibilities within a firm,” says Brijesh K. Dalmia, a Kolkata-based planner.
Authorised education providers, under the Financial Planning Standards Board (FPSB) of India, offer CFP courses. The one to three-year distance learning programmes cover all the relevant areas such as insurance, retirement planning, taxation, estate planning, cash flow management, debt management and financial plan construction.
“Ideally, an MBA/CA/Certified Financial Analyst (CFA) with an insurance specialisation, alone or in combination, gives you a broad understanding of the investment instruments and options, as well as their applications,” says Dalmia
Asset managers. This is another field that can add to your profile apart from being a career option by itself. Asset management companies, by definition, deal with a wider range of investments than is feasible for individual investors, thus, increasing the possibility of returns and minimising costs. Demand for these services is rising in India as individual investors are seeking better returns. Most institutions offering post-graduate diplomas in management also have asset and investment management modules. These include ICFAI University, Hyderabad, and Institute of Company Secretaries of India (ICSI), Kolkata
Risk assessers. Which brings us to actuaries, who provide professional services in investment and financial sectors ranging from life insurance to health and general insurance, and employee retirement and benefit planning. Actuaries deal with the financial impact of risk and uncertainty. “Indian companies, leaving aside those derived from abroad where actuaries are part of a long tradition, have opened up to the concept of having actuaries who assess factors which are considered fundamentally uncertain,” says Sanchit Maini, actuary, Max New York Life Insurance. “The calculation of risks involved in insurance decisions are crucial to any firm. So having a base or grounding in the actuarial sciences is a good decision for any employee,” he adds.
Being an amalgam of applied mathematics and statistics, a course in actuarial sciences requires at least 85 per cent in Mathematics or Statistics at the 10+2 level, or a graduation or post-graduation in Mathematics, Statistics or Econometrics. Moreover, an engineer, CA, CS, an MBA in finance or an MCA is automatically eligible to join this course.In India, the Institute of Actuaries of India, Mumbai, offers a course in actuarial sciences.Bankers. Of all the disciplines in the banking sector, investment bankers have emerged in a significant way. Just as the CFP’s words of wisdom are sought by companies, investment bankers literally hold the purse strings by providing independent advice on investment. Investment banking involves advising companies (and government bodies) on transactions such as mergers and acquisitions, raising money by issuing and selling securities in the capital markets.In India, several institutions provide certificate courses in investment banking as part of their overall banking curriculum. These include the Indian Institute of Banking and Finance (IIBF), Mumbai, National Institute of Bank Management (NIBM), Pune, Aligarh Muslim University (AMU), Madras University, SNDT Women’s University, Mumbai. “Investment banking as an independent course is picking up in India. In professions like these, demand usually fuels more courses exclusively with this specialisation. Most universities or institutes club it with other banking courses,” says Arindam Mukherjee, a consultant with a major bank with a background in investment banking. “But opting for a specific course in investment banking does pay long-term dividends,” he adds. One of the most obvious, as Mukherjee discovered, was that a background in investment banking helps a professional with virtually any specialisation in dealing with the banking sector or investment branches of corporate groups. A grounding in the field also helps in dealing with capital markets and grooms an employee for possible openings in areas that involve working with equity and debt capital markets. “In effect, if you have an investment banking course or training tucked into your resume, your versatility and operational effectiveness increases in the eyes of your employers or, in case you are a consultant, with your clients,” Mukherjee remarks.With the economy coalescing and evolving, having a background in these disciplines are proving to be one of the surest ways of getting a hand on those positions one seeks
Scott Turow, a writer of legal fiction, makes one of his characters compare an actuary to a bookie, because both professions deal with the odds behind any event. In India, the odds will be in the favour of your resume if you have a background in actuarial sciences. With corporate profiles branching into specialised jobs, a knowhow in this and some other disciplines, can lead to a sharper career graph
Tacticians. After chartered accountants and company secretaries, the new kid on the block is the certified financial planner (CFP). A CFP deals with different financial aspects of a firm, including insurance planning, risk management, retirement planning, wealth creation and budgeting, all of which are the key to a company’s financial health. “Even a course or certificate in financial planning can give a person the knowledge base and competence to take on higher responsibilities within a firm,” says Brijesh K. Dalmia, a Kolkata-based planner.
Authorised education providers, under the Financial Planning Standards Board (FPSB) of India, offer CFP courses. The one to three-year distance learning programmes cover all the relevant areas such as insurance, retirement planning, taxation, estate planning, cash flow management, debt management and financial plan construction.
“Ideally, an MBA/CA/Certified Financial Analyst (CFA) with an insurance specialisation, alone or in combination, gives you a broad understanding of the investment instruments and options, as well as their applications,” says Dalmia
Asset managers. This is another field that can add to your profile apart from being a career option by itself. Asset management companies, by definition, deal with a wider range of investments than is feasible for individual investors, thus, increasing the possibility of returns and minimising costs. Demand for these services is rising in India as individual investors are seeking better returns. Most institutions offering post-graduate diplomas in management also have asset and investment management modules. These include ICFAI University, Hyderabad, and Institute of Company Secretaries of India (ICSI), Kolkata
Risk assessers. Which brings us to actuaries, who provide professional services in investment and financial sectors ranging from life insurance to health and general insurance, and employee retirement and benefit planning. Actuaries deal with the financial impact of risk and uncertainty. “Indian companies, leaving aside those derived from abroad where actuaries are part of a long tradition, have opened up to the concept of having actuaries who assess factors which are considered fundamentally uncertain,” says Sanchit Maini, actuary, Max New York Life Insurance. “The calculation of risks involved in insurance decisions are crucial to any firm. So having a base or grounding in the actuarial sciences is a good decision for any employee,” he adds.
Being an amalgam of applied mathematics and statistics, a course in actuarial sciences requires at least 85 per cent in Mathematics or Statistics at the 10+2 level, or a graduation or post-graduation in Mathematics, Statistics or Econometrics. Moreover, an engineer, CA, CS, an MBA in finance or an MCA is automatically eligible to join this course.In India, the Institute of Actuaries of India, Mumbai, offers a course in actuarial sciences.Bankers. Of all the disciplines in the banking sector, investment bankers have emerged in a significant way. Just as the CFP’s words of wisdom are sought by companies, investment bankers literally hold the purse strings by providing independent advice on investment. Investment banking involves advising companies (and government bodies) on transactions such as mergers and acquisitions, raising money by issuing and selling securities in the capital markets.In India, several institutions provide certificate courses in investment banking as part of their overall banking curriculum. These include the Indian Institute of Banking and Finance (IIBF), Mumbai, National Institute of Bank Management (NIBM), Pune, Aligarh Muslim University (AMU), Madras University, SNDT Women’s University, Mumbai. “Investment banking as an independent course is picking up in India. In professions like these, demand usually fuels more courses exclusively with this specialisation. Most universities or institutes club it with other banking courses,” says Arindam Mukherjee, a consultant with a major bank with a background in investment banking. “But opting for a specific course in investment banking does pay long-term dividends,” he adds. One of the most obvious, as Mukherjee discovered, was that a background in investment banking helps a professional with virtually any specialisation in dealing with the banking sector or investment branches of corporate groups. A grounding in the field also helps in dealing with capital markets and grooms an employee for possible openings in areas that involve working with equity and debt capital markets. “In effect, if you have an investment banking course or training tucked into your resume, your versatility and operational effectiveness increases in the eyes of your employers or, in case you are a consultant, with your clients,” Mukherjee remarks.With the economy coalescing and evolving, having a background in these disciplines are proving to be one of the surest ways of getting a hand on those positions one seeks
Is Your Home Loan Crushing You?
How to cope with rising interest rates on your floating rate home loan
How badly is the EMI (equated monthly instalment) of your home loan messing up your budget? Over the last four years, the interest rate on home loans has risen from the bottom of about 7.75 per cent in 2004 to about 12.75 per cent now for existing customers. During the initial period of the rise, your lender bank or housing finance company (HFC) increased the loan tenure, till it went up to the end of your expected working life. Then it started bumping up the EMIs. Your total interest burden would have more than doubled from what it was in 2004 unless you have already prepaid substantial chunks of your principal.This larger loan burden comes at a time when rising prices are putting pressure on your budget anyway. To cap inflation, the government and the Reserve Bank of India (RBI) have been tightening the screws on liquidity. The RBI has increased the cash reserve ratio (the amount banks set aside with the RBI) and the repo rate (the rate at which banks borrow from the RBI), sucking out cash. So, banks are having to pay higher interest on deposits to bring in cash. To make money on these higher-cost funds, they have had to hike lending rates. This has pushed up the overall interest rates. The biggest impact of this increase is on home loans. Those who took fixed rate loans have been guarded against this since the rate is likely to be reviewed after five years or so. However, those who took floating rate loans have borne the brunt of the rate hike, seeing their repayment tenures and EMIs shooting up.While there have been reports of suicides over inability to repay home loans in the US after the sub-prime crisis, we haven’t heard anything such in India yet. But the task of making ends meet without losing the roof over one’s head is stressing people out. So, how do you ease the pressure, even partially?THE SHOCKSTo find a way out, you have to understand how interest rates are set. Banks calculate their own cost of funds from various sources. Above that, they fix the prime lending rate (PLR), a rate at which they lend money to their best or least risky customers. Normally, all banks also fix a benchmark PLR (BPLR). All loans are linked to the BPLR. When interest rises, the PLR and the BPLR increase. This, in turn, pushes up the rates for the floating home loan buyers, since the rate of interest they pay is linked to the BPLR. Then comes the increase in loan tenure and, subsequently, EMIs.Longer tenure, higher EMIs. Take the case of a 30-year-old who had taken a Rs 30-lakh home loan in 2004. At an interest rate of 7.75 per cent per annum then, he was supposed to pay an EMI of Rs 24,628 for 240 months to repay his loan. Typically, most banks provide a loan tenure of up to 240 months. The total interest outgo over this period would have been Rs 29 lakh. So, the total cost of his home would have been Rs 59 lakh. By 2006, when interest moved to 9.5 per cent on the same loan, on the same EMI, the tenure was pushed to 26.61 years. A 1.75 per cent increase in the interest rate pushing up the tenure by 8.61 years!Higher interest outgo. Today the same loan runs on an interest rate of 12.75 per cent. Over the last four years, the bulk of what he has been repaying as EMI is interest. So, he still has an outstanding principal of Rs 27 lakh to repay and his EMI is up to Rs 29,774. This is what the situation is: a loan, originally for 240 months with an EMI of Rs 24,628, gets rolled into one for 319 months with an EMI of Rs 29,774. The horror story does not end there. On the outstanding principal of Rs 27 lakh now, the total interest burden for 26.61 years is a whopping Rs 68 lakh, and the total cost of the Rs 30-lakh home has become Rs 98 lakh, including Rs 3 lakh that has already been paid.Higher total cost. Every time the interest rate goes up by 0.25 percentage points, the repayment period gets longer. For instance, on a loan at 9 per cent, if the original repayment tenure was 240 months, a 0.25 percentage point increase after, say, a year lengthens the remaining payback period by 11 months to 239 months. A 1 percentage point increase prolongs the tenure by 60 months, taking the total tenure to about 288 months (see With Every Hike). With the loan amount constant, more the number of EMIs you pay, the higher the interest cost, and, therefore, the total cost of your home. Typically, for a buyer, it is difficult to look at his home in a clinical sort of way. The emotions and other intangibles play a strong role. He’ll usually try to cut back on everything else to retain the house, even if its cost has gone way above what he was looking at when he bought it. Even though he doesn’t, strictly speaking, own the home yet, in his mind he does. Thus, selling is not really an option. So, what can he do to reduce the financial pressure?THE SALVAGE OPTIONSNow, to become debt free, he will have to repay the loan. To expedite the process, he has to bring the total cost of the house closer to what he was expecting to pay when he bought it, that is, he has to reduce the interest outgo in some way. This would mean reducing the tenure, or EMI, or both. There are three possible ways—switching, refinancing or part-prepayment—to achieve this end. Let’s see how they work. A. Switchover. To attract people to home loans, lending institutions try to keep the interest rate for new loans as low a possible. At present, it is around 11.50 per cent per annum on a reducing balance on a floating rate loan taken for 20 years. This loan will be linked to a BPLR and the interest rate on it will move with that BPLR. BPLR varies across lenders largely dependant on the cost of funds. If you had taken a floating rate loan, yours, too, would be linked to a BPLR, although it would be different from the one for a new loan and you are likely to be paying interest at around 12.75 per cent per annum now. You can take advantage of the difference in interest rates for existing and new customers by asking your banker to switch over your loan to the rate applicable for fresh customers. This, however, comes at a cost. Typically, the borrower would have to pay some percentage of the balance outstanding, say 1.75 per cent, and 12.24 per cent service tax on it, to avail the new rate of interest, which, again, could rise over time. In this case, the tenure remains constant, while the interest burden is slightly reduced. In the example that we had taken earlier, the cost incurred to switch over would be about Rs 53,000, including service tax. The outstanding loan and the term of 319 months don’t change, but the interest reduces to 11.50 per cent. The EMI falls to Rs 27,171 and there is an overall savings in interest of about Rs 8 lakh (see The Options For Reducing Your Interest Burden: Switching). B. Refinancing. Not all banks charge the same rate of interest on home loans. So, if you can find a bank offering a lower rate of interest, you can refinance the loan—borrow from the new lender and pay off your old one. Banks expect to make a certain amount of money by funding you for some years. That amount is their expected future earning from you. Now if you foreclose the loan, that stream gets truncated. To ensure against that, banks impose a foreclosure penalty, through which they recoup part of this foregone income. The full repayment penalty is normally 1.75 per cent of the outstanding amount plus the service tax. The processing fee, depending on the bank, is 1.0-1.5 per cent.Refinancing is usually costlier than switching, but the overall savings are more (see The Options For Reducing Your Interest Bur-den: Refinancing). Here, the cost of closing the loan from the existing lender and opting for a new one from another lender will cost Rs 87,000. Paying this reduces the loan tenure to 240 months and the interest burden to about Rs 42 lakh assuming that your balance working life is more than 240 months. The new lender will want to finish the loan within your balance working life.C. Part prepayments. The third option is to make lump sum or regular part prepayments of the principal. Here you are going to the root of your problem. If your principal outstanding goes down, so will the interest you have to pay on it, whatever be the rate. Part prepayments also decrease the tenure and, therefore, the total interest outgo. But first, make sure there is no part prepayment penalty associated with your loan. Be careful, DO NOT increase the EMI—the prepayment amount should be in addition to your EMI. If you part pay the principal every time you have money in your hands, it will reduce the number of EMIs even at your higher rate of interest (see The Options For Reducing Your Interest Burden: Regular Prepayment). Almost all banks and HFCs allow part prepayment. The pay-off can either be done on a monthly basis, or as a lump sum anytime during the year. Banks have their own criteria of allowing part prepayments. For example, the minimum that one can part prepay should be equal to at least one month’s instalment.D. Part prepayment along with switching or refinancing. You can also combine either the switching or repayment options with the prepayment option. For instance, if you find that you have some free cash in hand and your bank or another one is giving new loans at lower rates, then you could part prepay the principal to bring down the principal outstanding and the interest outgo. After that, if you switch or refinance your loan, with a lower outstanding principal, you can bring down your EMI further. If you do combine, then make sure you make the prepayment first, since the switching and refinance options will calculate the cost of doing so on the reduced outstanding principal. If you have enough cash to fully pay off your loan, you will have to pay a penalty of around 2 per cent on the outstanding loan. To avoid the penalty, you may pay off the entire loan, except one year’s outstanding that you have to continue paying as EMIs.Aftershocks. If you wish to exercise the switching option, there is a one-time cash outflow. Getting your loan refinanced from a bank is also a good option. The best thing about this option is that the tenure and the interest burden reduces considerably, albeit at a cost higher than that of switching. The best option seems part prepayment, wherein there is no cost involved, except the opportunity cost that your prepayments could have earned if invested in high-yielding options like stocks where returns aren’t certain. RAISING PREPAYMENT FUNDSRemember, the amount that you are going to prepay your loan with is not coming back to you. Developments such as windfall profits from the stockmarket, maturing of old investments, build-up of capital over the years due to increase in salary, or a bonus might prompt you to go for prepayment, in part or whole. Diversion from other tax saving instruments can be explored. Close all dormant savings account and use those funds to prepay. Use unutilised funds lying in our brokerage accounts to prepay. Ring up your friends to ask them about the funds that they owe to you and seek zero-interest loans from parents or close relatives. CONCLUSIONBefore you choose your option, you should examine the alternatives and the costs associated. A period of indebtedness of 10, 15 or 20 years, clubbed with the uncertainties of job and life, create an uneasy situation. From a purely psychological perspective, it may be better to pay off one’s debts. This strategy would appeal all the more to you if you want to live in a debt-free world and own a home. You will get to own the home earlier if you channelise your surplus funds towards prepayment. Interest rates are cyclical in nature and considering that home loans are long-term commitments, there will be some periods du-ring the tenure when rates move up and some periods when they will move down. Prepaying allows you to own the home sooner. With luck, by the time the rates fall the next time around, you may be in a position to consider buying your second home
How badly is the EMI (equated monthly instalment) of your home loan messing up your budget? Over the last four years, the interest rate on home loans has risen from the bottom of about 7.75 per cent in 2004 to about 12.75 per cent now for existing customers. During the initial period of the rise, your lender bank or housing finance company (HFC) increased the loan tenure, till it went up to the end of your expected working life. Then it started bumping up the EMIs. Your total interest burden would have more than doubled from what it was in 2004 unless you have already prepaid substantial chunks of your principal.This larger loan burden comes at a time when rising prices are putting pressure on your budget anyway. To cap inflation, the government and the Reserve Bank of India (RBI) have been tightening the screws on liquidity. The RBI has increased the cash reserve ratio (the amount banks set aside with the RBI) and the repo rate (the rate at which banks borrow from the RBI), sucking out cash. So, banks are having to pay higher interest on deposits to bring in cash. To make money on these higher-cost funds, they have had to hike lending rates. This has pushed up the overall interest rates. The biggest impact of this increase is on home loans. Those who took fixed rate loans have been guarded against this since the rate is likely to be reviewed after five years or so. However, those who took floating rate loans have borne the brunt of the rate hike, seeing their repayment tenures and EMIs shooting up.While there have been reports of suicides over inability to repay home loans in the US after the sub-prime crisis, we haven’t heard anything such in India yet. But the task of making ends meet without losing the roof over one’s head is stressing people out. So, how do you ease the pressure, even partially?THE SHOCKSTo find a way out, you have to understand how interest rates are set. Banks calculate their own cost of funds from various sources. Above that, they fix the prime lending rate (PLR), a rate at which they lend money to their best or least risky customers. Normally, all banks also fix a benchmark PLR (BPLR). All loans are linked to the BPLR. When interest rises, the PLR and the BPLR increase. This, in turn, pushes up the rates for the floating home loan buyers, since the rate of interest they pay is linked to the BPLR. Then comes the increase in loan tenure and, subsequently, EMIs.Longer tenure, higher EMIs. Take the case of a 30-year-old who had taken a Rs 30-lakh home loan in 2004. At an interest rate of 7.75 per cent per annum then, he was supposed to pay an EMI of Rs 24,628 for 240 months to repay his loan. Typically, most banks provide a loan tenure of up to 240 months. The total interest outgo over this period would have been Rs 29 lakh. So, the total cost of his home would have been Rs 59 lakh. By 2006, when interest moved to 9.5 per cent on the same loan, on the same EMI, the tenure was pushed to 26.61 years. A 1.75 per cent increase in the interest rate pushing up the tenure by 8.61 years!Higher interest outgo. Today the same loan runs on an interest rate of 12.75 per cent. Over the last four years, the bulk of what he has been repaying as EMI is interest. So, he still has an outstanding principal of Rs 27 lakh to repay and his EMI is up to Rs 29,774. This is what the situation is: a loan, originally for 240 months with an EMI of Rs 24,628, gets rolled into one for 319 months with an EMI of Rs 29,774. The horror story does not end there. On the outstanding principal of Rs 27 lakh now, the total interest burden for 26.61 years is a whopping Rs 68 lakh, and the total cost of the Rs 30-lakh home has become Rs 98 lakh, including Rs 3 lakh that has already been paid.Higher total cost. Every time the interest rate goes up by 0.25 percentage points, the repayment period gets longer. For instance, on a loan at 9 per cent, if the original repayment tenure was 240 months, a 0.25 percentage point increase after, say, a year lengthens the remaining payback period by 11 months to 239 months. A 1 percentage point increase prolongs the tenure by 60 months, taking the total tenure to about 288 months (see With Every Hike). With the loan amount constant, more the number of EMIs you pay, the higher the interest cost, and, therefore, the total cost of your home. Typically, for a buyer, it is difficult to look at his home in a clinical sort of way. The emotions and other intangibles play a strong role. He’ll usually try to cut back on everything else to retain the house, even if its cost has gone way above what he was looking at when he bought it. Even though he doesn’t, strictly speaking, own the home yet, in his mind he does. Thus, selling is not really an option. So, what can he do to reduce the financial pressure?THE SALVAGE OPTIONSNow, to become debt free, he will have to repay the loan. To expedite the process, he has to bring the total cost of the house closer to what he was expecting to pay when he bought it, that is, he has to reduce the interest outgo in some way. This would mean reducing the tenure, or EMI, or both. There are three possible ways—switching, refinancing or part-prepayment—to achieve this end. Let’s see how they work. A. Switchover. To attract people to home loans, lending institutions try to keep the interest rate for new loans as low a possible. At present, it is around 11.50 per cent per annum on a reducing balance on a floating rate loan taken for 20 years. This loan will be linked to a BPLR and the interest rate on it will move with that BPLR. BPLR varies across lenders largely dependant on the cost of funds. If you had taken a floating rate loan, yours, too, would be linked to a BPLR, although it would be different from the one for a new loan and you are likely to be paying interest at around 12.75 per cent per annum now. You can take advantage of the difference in interest rates for existing and new customers by asking your banker to switch over your loan to the rate applicable for fresh customers. This, however, comes at a cost. Typically, the borrower would have to pay some percentage of the balance outstanding, say 1.75 per cent, and 12.24 per cent service tax on it, to avail the new rate of interest, which, again, could rise over time. In this case, the tenure remains constant, while the interest burden is slightly reduced. In the example that we had taken earlier, the cost incurred to switch over would be about Rs 53,000, including service tax. The outstanding loan and the term of 319 months don’t change, but the interest reduces to 11.50 per cent. The EMI falls to Rs 27,171 and there is an overall savings in interest of about Rs 8 lakh (see The Options For Reducing Your Interest Burden: Switching). B. Refinancing. Not all banks charge the same rate of interest on home loans. So, if you can find a bank offering a lower rate of interest, you can refinance the loan—borrow from the new lender and pay off your old one. Banks expect to make a certain amount of money by funding you for some years. That amount is their expected future earning from you. Now if you foreclose the loan, that stream gets truncated. To ensure against that, banks impose a foreclosure penalty, through which they recoup part of this foregone income. The full repayment penalty is normally 1.75 per cent of the outstanding amount plus the service tax. The processing fee, depending on the bank, is 1.0-1.5 per cent.Refinancing is usually costlier than switching, but the overall savings are more (see The Options For Reducing Your Interest Bur-den: Refinancing). Here, the cost of closing the loan from the existing lender and opting for a new one from another lender will cost Rs 87,000. Paying this reduces the loan tenure to 240 months and the interest burden to about Rs 42 lakh assuming that your balance working life is more than 240 months. The new lender will want to finish the loan within your balance working life.C. Part prepayments. The third option is to make lump sum or regular part prepayments of the principal. Here you are going to the root of your problem. If your principal outstanding goes down, so will the interest you have to pay on it, whatever be the rate. Part prepayments also decrease the tenure and, therefore, the total interest outgo. But first, make sure there is no part prepayment penalty associated with your loan. Be careful, DO NOT increase the EMI—the prepayment amount should be in addition to your EMI. If you part pay the principal every time you have money in your hands, it will reduce the number of EMIs even at your higher rate of interest (see The Options For Reducing Your Interest Burden: Regular Prepayment). Almost all banks and HFCs allow part prepayment. The pay-off can either be done on a monthly basis, or as a lump sum anytime during the year. Banks have their own criteria of allowing part prepayments. For example, the minimum that one can part prepay should be equal to at least one month’s instalment.D. Part prepayment along with switching or refinancing. You can also combine either the switching or repayment options with the prepayment option. For instance, if you find that you have some free cash in hand and your bank or another one is giving new loans at lower rates, then you could part prepay the principal to bring down the principal outstanding and the interest outgo. After that, if you switch or refinance your loan, with a lower outstanding principal, you can bring down your EMI further. If you do combine, then make sure you make the prepayment first, since the switching and refinance options will calculate the cost of doing so on the reduced outstanding principal. If you have enough cash to fully pay off your loan, you will have to pay a penalty of around 2 per cent on the outstanding loan. To avoid the penalty, you may pay off the entire loan, except one year’s outstanding that you have to continue paying as EMIs.Aftershocks. If you wish to exercise the switching option, there is a one-time cash outflow. Getting your loan refinanced from a bank is also a good option. The best thing about this option is that the tenure and the interest burden reduces considerably, albeit at a cost higher than that of switching. The best option seems part prepayment, wherein there is no cost involved, except the opportunity cost that your prepayments could have earned if invested in high-yielding options like stocks where returns aren’t certain. RAISING PREPAYMENT FUNDSRemember, the amount that you are going to prepay your loan with is not coming back to you. Developments such as windfall profits from the stockmarket, maturing of old investments, build-up of capital over the years due to increase in salary, or a bonus might prompt you to go for prepayment, in part or whole. Diversion from other tax saving instruments can be explored. Close all dormant savings account and use those funds to prepay. Use unutilised funds lying in our brokerage accounts to prepay. Ring up your friends to ask them about the funds that they owe to you and seek zero-interest loans from parents or close relatives. CONCLUSIONBefore you choose your option, you should examine the alternatives and the costs associated. A period of indebtedness of 10, 15 or 20 years, clubbed with the uncertainties of job and life, create an uneasy situation. From a purely psychological perspective, it may be better to pay off one’s debts. This strategy would appeal all the more to you if you want to live in a debt-free world and own a home. You will get to own the home earlier if you channelise your surplus funds towards prepayment. Interest rates are cyclical in nature and considering that home loans are long-term commitments, there will be some periods du-ring the tenure when rates move up and some periods when they will move down. Prepaying allows you to own the home sooner. With luck, by the time the rates fall the next time around, you may be in a position to consider buying your second home
Indian stocks best performing among Asia in Aug: Citigroup
Indian stocks have emerged as the best performing lot among Asian equities, as it recorded only a marginal loss during the month, while a majority of others in the region posted higher negative return, a Citigroup report says. According to th e report all Asian stocks have suffered losses this month, however, Indian stocks have performed the best among them.
“August is proving to be another very difficult month for equities - 80 per cent of Asian stocks have posted negative returns, with the median stock losing 8.1 per cent. India is performing best with a median return of negative 0.3 per cent.'' China st ocks performed the worst with a median loss of 15.4 per cent.
In India, large cap stocks have given a median return of negative 0.9 per cent in the month till August 25, while the small-cap equities have given a marginal negative return of 0.1 per cent in the period, it said. Companies with a market capitalisation in excess of Rs 1,000 cr are generally known as large cap companies, while those with lower market valuation are termed as small-caps.
In comparison, large cap Chinese stocks suffered the most with negative returns to the tune of 11.6 per cent, while small-cap equities posted losses as high as 16.7 per cent in the month so far
“August is proving to be another very difficult month for equities - 80 per cent of Asian stocks have posted negative returns, with the median stock losing 8.1 per cent. India is performing best with a median return of negative 0.3 per cent.'' China st ocks performed the worst with a median loss of 15.4 per cent.
In India, large cap stocks have given a median return of negative 0.9 per cent in the month till August 25, while the small-cap equities have given a marginal negative return of 0.1 per cent in the period, it said. Companies with a market capitalisation in excess of Rs 1,000 cr are generally known as large cap companies, while those with lower market valuation are termed as small-caps.
In comparison, large cap Chinese stocks suffered the most with negative returns to the tune of 11.6 per cent, while small-cap equities posted losses as high as 16.7 per cent in the month so far
Thursday, August 28, 2008
Inflation declines to 12.40%
Inflation declined marginally to 12.40 per cent for the week ended August 16 following a dip in prices of vegetables, meat and cement, which the Finance Ministry described as “early signs of moderation” in prices.
The 0.23 per cent dip from 12.63 per cent in the previous week is the first time that inflation has fallen in a month. It was 3.99 per cent during the corresponding week a year ago.
“There are some early signs of moderation of inflation,” the Finance Ministry said in a statement, adding that in the primary articles group 21 out of total 98 articles have shown decline in prices and there was no increase in prices of another 48 articl es.
The last time inflation fell was when it dipped from 11.91 per cent to 11.89 per cent in the week ended July 12. In addition to vegetables, meat, egg and fish, the index of fuel and power items too declined by 1 per cent.
Prices of certain essential commodities like pulses, fruits, spices and iron and steel, however, continued to move up during the week. The increase was due to higher prices of sugar, pulses (moong, massor, urad and gram and dry chillies), the Finance Min istry statement said.
The annual rate of inflation for the week ended June 21, a fortnight after the government increased the prices of petrol, diesel and cooking gas, was revised from 11.89 per cent to 11.91 per cent.
The 0.23 per cent dip from 12.63 per cent in the previous week is the first time that inflation has fallen in a month. It was 3.99 per cent during the corresponding week a year ago.
“There are some early signs of moderation of inflation,” the Finance Ministry said in a statement, adding that in the primary articles group 21 out of total 98 articles have shown decline in prices and there was no increase in prices of another 48 articl es.
The last time inflation fell was when it dipped from 11.91 per cent to 11.89 per cent in the week ended July 12. In addition to vegetables, meat, egg and fish, the index of fuel and power items too declined by 1 per cent.
Prices of certain essential commodities like pulses, fruits, spices and iron and steel, however, continued to move up during the week. The increase was due to higher prices of sugar, pulses (moong, massor, urad and gram and dry chillies), the Finance Min istry statement said.
The annual rate of inflation for the week ended June 21, a fortnight after the government increased the prices of petrol, diesel and cooking gas, was revised from 11.89 per cent to 11.91 per cent.
Inflation declines to 12.40%
Inflation declined marginally to 12.40 per cent for the week ended August 16 following a dip in prices of vegetables, meat and cement, which the Finance Ministry described as “early signs of moderation” in prices.
The 0.23 per cent dip from 12.63 per cent in the previous week is the first time that inflation has fallen in a month. It was 3.99 per cent during the corresponding week a year ago.
“There are some early signs of moderation of inflation,” the Finance Ministry said in a statement, adding that in the primary articles group 21 out of total 98 articles have shown decline in prices and there was no increase in prices of another 48 articl es.
The last time inflation fell was when it dipped from 11.91 per cent to 11.89 per cent in the week ended July 12. In addition to vegetables, meat, egg and fish, the index of fuel and power items too declined by 1 per cent.
Prices of certain essential commodities like pulses, fruits, spices and iron and steel, however, continued to move up during the week. The increase was due to higher prices of sugar, pulses (moong, massor, urad and gram and dry chillies), the Finance Min istry statement said.
The annual rate of inflation for the week ended June 21, a fortnight after the government increased the prices of petrol, diesel and cooking gas, was revised from 11.89 per cent to 11.91 per cent.
The 0.23 per cent dip from 12.63 per cent in the previous week is the first time that inflation has fallen in a month. It was 3.99 per cent during the corresponding week a year ago.
“There are some early signs of moderation of inflation,” the Finance Ministry said in a statement, adding that in the primary articles group 21 out of total 98 articles have shown decline in prices and there was no increase in prices of another 48 articl es.
The last time inflation fell was when it dipped from 11.91 per cent to 11.89 per cent in the week ended July 12. In addition to vegetables, meat, egg and fish, the index of fuel and power items too declined by 1 per cent.
Prices of certain essential commodities like pulses, fruits, spices and iron and steel, however, continued to move up during the week. The increase was due to higher prices of sugar, pulses (moong, massor, urad and gram and dry chillies), the Finance Min istry statement said.
The annual rate of inflation for the week ended June 21, a fortnight after the government increased the prices of petrol, diesel and cooking gas, was revised from 11.89 per cent to 11.91 per cent.
Wednesday, August 27, 2008
US economy: Between zero growth and recession?
It is the most often heard question these days. When will the crisis afflicting First World financial institutions end?
There seems no early or easy way out, this despite the coordinated and independent gigantic rescue efforts of the U S Federal Reserve, the European Central Bank and Bank of Japan.
They have gone the full distance and more in support, waiving collateral standards and financing illiquid assets in banks’ balance sheets.
The amounts involved are not small, running into hundreds of billions of dollars, euros and pound sterling. And when it came to it, the Fed was there to bail out Bear Stearns, one of the world’s large investment banks and absorb its possible portfolio losses even after the J P Morgan takeover. Myth and reality
As stated in these columns on several occasions, it is a myth to think that central banks are ivory tower institutions concerned only with finessing monetary policy and interest rates.
Theory and textbooks divide governments’ and central banks’ responsibilities into neat compartments. Reality is that the latter must get their hands dirty.
No stronger evidence than the active involvement of the inflation-targeting ECB and Bank of England in the present crisis is necessary.
The ECB in particular – an arch monetarist institution if ever there was one - was forced to eat crow.
Financial markets are still far from normalisation. Credit spreads in the inter-bank market are well above historical levels – in the region of 100 bps vs 25bps and less in the good old days. The story repeats in housing mortgage rates. They have been hardly impacted by the rapid succession of Fed rate cuts.
Meanwhile, house prices continue their downward journey, with the only buyers in sight being the bottom fishers. There are reports of sovereign wealth funds investing in distressed mortgages and foreclosed properties. Revival?
But can the market revive with just speculators in the fray? The canon fodder for sub-prime, Alt A, ARM and other various fancy-sounding mortgages were mostly genuine home buyers. Now they are gone, with no hope of qualifying for loans in the new regimented credit regime. Earlier, mortgage originators could securitise their portfolios and transfer risk, but that prospect too is remote with the collapse of the CDO market.
The US may yet escape the doomsday scenario painted by Mr Nouriel Roubini, the economist who first predicted the sub-prime crash and thinks major institutional, market and asset price upheavals are in store. But that does not mean an early recovery. There is more of bad than good news ahead and it is quite on the cards that the economy will simply flirt between zero growth and recession.
About the only comfort might be the softer price implications for energy and commodities from a weak economy.
There seems no early or easy way out, this despite the coordinated and independent gigantic rescue efforts of the U S Federal Reserve, the European Central Bank and Bank of Japan.
They have gone the full distance and more in support, waiving collateral standards and financing illiquid assets in banks’ balance sheets.
The amounts involved are not small, running into hundreds of billions of dollars, euros and pound sterling. And when it came to it, the Fed was there to bail out Bear Stearns, one of the world’s large investment banks and absorb its possible portfolio losses even after the J P Morgan takeover. Myth and reality
As stated in these columns on several occasions, it is a myth to think that central banks are ivory tower institutions concerned only with finessing monetary policy and interest rates.
Theory and textbooks divide governments’ and central banks’ responsibilities into neat compartments. Reality is that the latter must get their hands dirty.
No stronger evidence than the active involvement of the inflation-targeting ECB and Bank of England in the present crisis is necessary.
The ECB in particular – an arch monetarist institution if ever there was one - was forced to eat crow.
Financial markets are still far from normalisation. Credit spreads in the inter-bank market are well above historical levels – in the region of 100 bps vs 25bps and less in the good old days. The story repeats in housing mortgage rates. They have been hardly impacted by the rapid succession of Fed rate cuts.
Meanwhile, house prices continue their downward journey, with the only buyers in sight being the bottom fishers. There are reports of sovereign wealth funds investing in distressed mortgages and foreclosed properties. Revival?
But can the market revive with just speculators in the fray? The canon fodder for sub-prime, Alt A, ARM and other various fancy-sounding mortgages were mostly genuine home buyers. Now they are gone, with no hope of qualifying for loans in the new regimented credit regime. Earlier, mortgage originators could securitise their portfolios and transfer risk, but that prospect too is remote with the collapse of the CDO market.
The US may yet escape the doomsday scenario painted by Mr Nouriel Roubini, the economist who first predicted the sub-prime crash and thinks major institutional, market and asset price upheavals are in store. But that does not mean an early recovery. There is more of bad than good news ahead and it is quite on the cards that the economy will simply flirt between zero growth and recession.
About the only comfort might be the softer price implications for energy and commodities from a weak economy.
Tuesday, August 26, 2008
All-India rainfall slips back into deficit
The belt of scattered rains progressing from the Equatorial Indian Ocean has already hit Sri Lanka with the persistent drizzle playing spoilsport with the scheduled one-day international cricket match between the hosts and the touring Indians.
This rain belt is seen by various weather models to push north progressively to foray into extreme south peninsular India. The extent of coverage in the southern States would be decisive in terms of impact on the all-India rainfall, which has slipped back into deficit according to latest update.
India Meteorological Department (IMD) said in a special update on Monday that the cumulative seasonal rainfall as on June 24 had posted a deficit of one per cent. This made for an abrupt reversal from a comfortable surplus of two per cent till only four days back. DRY RUN CONTINUES
This is being attributed to another bout of dry run over northwest and west-central India close on the heels of a weeklong rain spell shutting out. There is hardly any sign of any significant wave coming back to these regions, given that the withdrawal of monsoon is set to begin from Rajasthan around September 1.
But indications are the rest of the country would continue to experience scattered heavy to moderate rainfall. The latest update from the Climate Prediction Centre of the US National Weather Services mentions about ‘increased chances of rains stretching from Equatorial Indian Ocean to the Philippines during the ongoing week’ (August 26 to September 1).
Thus the rain belt moving into peninsular India over the next few days would move east into the Bay of Bengal (to the detriment of north peninsula) and progressively into South China Sea and Northwest Pacific. Extended forecast for the week ending September 8 showed a northward progression of this rain belt.
This northward progression would be confined mostly over the Bay, and in later stages, to the northern fringes of the southeast coast (coastal areas of Orissa and West Bengal) during the forecast period.
This will effectively rule out any rain for the northern peninsular India whose waxing and waning weather and the fate of the larger monsoon have come to be inextricably linked. SURPLUS IN NORTHWEST
The IMD update said the rainfall distribution till date has been skewed over the four broad homogenous regions with only Northwest India managing a tidy surplus of 19 per cent. Central India (-7 per cent), South Peninsula (-6 per cent) and the Northeast (-5 per cent) bled the rainfall charts in that order.
The number of Met subdivisions recording excess and normal rainfall (again mostly confined to north and northwest) are 30. The rest six are in deficit, with Vidarbha (-20 per cent) the latest to join the list.
The rest featured on the list are (deficits in percentage in brackets): Marathawada (-44); Kerala (-31); Nagaland-Manipur-Mizoram-Tripura (-28); North Interior Karnataka (-27); and Assam and Meghalaya (-21). Of this, Kerala is expected to benefit from the approaching ran belt from the south and southwest.
The IMD update went on to add that model predictions suggested subdued rainfall over northwest and central India during the next week. But East and Northeast India may experience widespread rains with heavy to very heavy falls during the same period
This rain belt is seen by various weather models to push north progressively to foray into extreme south peninsular India. The extent of coverage in the southern States would be decisive in terms of impact on the all-India rainfall, which has slipped back into deficit according to latest update.
India Meteorological Department (IMD) said in a special update on Monday that the cumulative seasonal rainfall as on June 24 had posted a deficit of one per cent. This made for an abrupt reversal from a comfortable surplus of two per cent till only four days back. DRY RUN CONTINUES
This is being attributed to another bout of dry run over northwest and west-central India close on the heels of a weeklong rain spell shutting out. There is hardly any sign of any significant wave coming back to these regions, given that the withdrawal of monsoon is set to begin from Rajasthan around September 1.
But indications are the rest of the country would continue to experience scattered heavy to moderate rainfall. The latest update from the Climate Prediction Centre of the US National Weather Services mentions about ‘increased chances of rains stretching from Equatorial Indian Ocean to the Philippines during the ongoing week’ (August 26 to September 1).
Thus the rain belt moving into peninsular India over the next few days would move east into the Bay of Bengal (to the detriment of north peninsula) and progressively into South China Sea and Northwest Pacific. Extended forecast for the week ending September 8 showed a northward progression of this rain belt.
This northward progression would be confined mostly over the Bay, and in later stages, to the northern fringes of the southeast coast (coastal areas of Orissa and West Bengal) during the forecast period.
This will effectively rule out any rain for the northern peninsular India whose waxing and waning weather and the fate of the larger monsoon have come to be inextricably linked. SURPLUS IN NORTHWEST
The IMD update said the rainfall distribution till date has been skewed over the four broad homogenous regions with only Northwest India managing a tidy surplus of 19 per cent. Central India (-7 per cent), South Peninsula (-6 per cent) and the Northeast (-5 per cent) bled the rainfall charts in that order.
The number of Met subdivisions recording excess and normal rainfall (again mostly confined to north and northwest) are 30. The rest six are in deficit, with Vidarbha (-20 per cent) the latest to join the list.
The rest featured on the list are (deficits in percentage in brackets): Marathawada (-44); Kerala (-31); Nagaland-Manipur-Mizoram-Tripura (-28); North Interior Karnataka (-27); and Assam and Meghalaya (-21). Of this, Kerala is expected to benefit from the approaching ran belt from the south and southwest.
The IMD update went on to add that model predictions suggested subdued rainfall over northwest and central India during the next week. But East and Northeast India may experience widespread rains with heavy to very heavy falls during the same period
A Champion In The Basket
This large-cap fund can give stability to your portfolio as it limits the downside risk in volatile markets
Despite being one of the late entrants in the large-cap fund space, DSP ML Top 100 Equity Fund (DT100) has been one of the best performing schemes in this category. Here’s why it should be one of your first choices if you are shopping for large-cap funds. What’s it about?Launched on 21 February 2003, DT100 is a large-cap-oriented fund that aims to invest in the top 100 companies (by market capitalisation). It follows a mix of top-down and bottom-up style of investing. DT100 is well-diversified and holds around 40-50 scrips on an average. Its offer document says that it can hold up to 10 per cent of its corpus in cash. During volatile markets when liquidity drops in small- and medium-sized companies, a large-cap fund ensures stability to your portfolio as it falls less than small- and mid-cap funds. PerformanceDT100 has outperformed its benchmark index, the BSE 100, as well as the category average across all time periods. As on 25 July, DT100 returned 38.78 per cent in the past five years as against 34.76 per cent by its category and 31.97 by BSE 100. We also checked out the scheme’s rolling returns (an average of one-year returns over a total period of the past three years) to check out its consistency. Here, too, it scored over its category average and benchmark index. DT100 also scores low on its risks and this helps it give a superior risk-adjusted return (the best among 18 funds in the large-cap funds space). It bodes well for your portfolio if your fund delivers high returns and also keeps its risk levels in check. PortfolioWhen compared to small- and mid-cap funds, where the universe of target stocks is as wide as it can get and where one mutual fund’s research can be vastly different from the other’s, it’s tough for a large-cap fund to stay significantly ahead of the competition as all large-cap funds target the top 100 companies. To counter this, DT100’s fund manager actively manages the scheme and books profits from time to time. The fund manager has reduced exposures in banking and finance sector on the back of rising interest rates and also in capital goods and cement sectors as he feels the valuations have been high. Instead, the fund has increased its exposures to defensive sectors like pharmaceuticals and telecom, which are not sensitive to the interest rate cycles. Volatile oil prices have also led the fund manager to hedge exposure in this sector by buying into companies that would benefit from either rising oil prices (Cairn; 2.07 per cent and ONGC; 1.91 per cent) or falling oil prices (IOC; 2.01 per cent). Typically, when oil prices rise, oil manufactures like Cairn and ONGC gain since they realise a higher value, but when oil prices fall, oil retailers like IOC gain since they sell petrol through their petrol pumps. A notable feature of this scheme is that it also takes exposures in the derivatives segment to hedge its risk and reduce the impact of volatility on its portfolio. Since the end of January till date, its top exposures—as per its month-end portfolios—have been in Nifty Futures. This along with a high exposure to cash (11 per cent average exposure since February) and liquid debt securities has helped the fund tide over the volatility better as its fall during the past six-month period has been among the least in the category. We suggest you take the systematic investment plan route to invest in DT 100.
Despite being one of the late entrants in the large-cap fund space, DSP ML Top 100 Equity Fund (DT100) has been one of the best performing schemes in this category. Here’s why it should be one of your first choices if you are shopping for large-cap funds. What’s it about?Launched on 21 February 2003, DT100 is a large-cap-oriented fund that aims to invest in the top 100 companies (by market capitalisation). It follows a mix of top-down and bottom-up style of investing. DT100 is well-diversified and holds around 40-50 scrips on an average. Its offer document says that it can hold up to 10 per cent of its corpus in cash. During volatile markets when liquidity drops in small- and medium-sized companies, a large-cap fund ensures stability to your portfolio as it falls less than small- and mid-cap funds. PerformanceDT100 has outperformed its benchmark index, the BSE 100, as well as the category average across all time periods. As on 25 July, DT100 returned 38.78 per cent in the past five years as against 34.76 per cent by its category and 31.97 by BSE 100. We also checked out the scheme’s rolling returns (an average of one-year returns over a total period of the past three years) to check out its consistency. Here, too, it scored over its category average and benchmark index. DT100 also scores low on its risks and this helps it give a superior risk-adjusted return (the best among 18 funds in the large-cap funds space). It bodes well for your portfolio if your fund delivers high returns and also keeps its risk levels in check. PortfolioWhen compared to small- and mid-cap funds, where the universe of target stocks is as wide as it can get and where one mutual fund’s research can be vastly different from the other’s, it’s tough for a large-cap fund to stay significantly ahead of the competition as all large-cap funds target the top 100 companies. To counter this, DT100’s fund manager actively manages the scheme and books profits from time to time. The fund manager has reduced exposures in banking and finance sector on the back of rising interest rates and also in capital goods and cement sectors as he feels the valuations have been high. Instead, the fund has increased its exposures to defensive sectors like pharmaceuticals and telecom, which are not sensitive to the interest rate cycles. Volatile oil prices have also led the fund manager to hedge exposure in this sector by buying into companies that would benefit from either rising oil prices (Cairn; 2.07 per cent and ONGC; 1.91 per cent) or falling oil prices (IOC; 2.01 per cent). Typically, when oil prices rise, oil manufactures like Cairn and ONGC gain since they realise a higher value, but when oil prices fall, oil retailers like IOC gain since they sell petrol through their petrol pumps. A notable feature of this scheme is that it also takes exposures in the derivatives segment to hedge its risk and reduce the impact of volatility on its portfolio. Since the end of January till date, its top exposures—as per its month-end portfolios—have been in Nifty Futures. This along with a high exposure to cash (11 per cent average exposure since February) and liquid debt securities has helped the fund tide over the volatility better as its fall during the past six-month period has been among the least in the category. We suggest you take the systematic investment plan route to invest in DT 100.
Monday, August 25, 2008
Global shipping: Drifting into recession?
Is world shipping heading for recession? It is too early to predict anything firmly at this moment but the indications appear ominous. And traditionally, as everyone knows, shipping has been the leading indicator.
On August 15, Bloomberg reported that Baltic Dry Index (BDI), the benchmark for shipping freight, fell for 23 consecutive sessions through August 12, the worst decline since the third quarter of 2005.
Early this month, Goldman Sachs advised investors to sell bulk carrier stocks ahead of any major correction as it forecast that the BDI would fall 40 per cent in 2009 and a further 47 per cent year-on in 2010, citing an oversupply of capacity in coming years.
The fear may not be totally unfounded. Recently, the share prices of leading South Korean shipbuilders tumbled amid a spate of newbuilding cancellations and reports of some yards attempting to renegotiate price and delivery dates for new buildings.
Also, the echo of Russian bombers pounding Georgia and the steady decline in the crude price fuelled speculation of a further fall, driven by fears of slowing global demand and firming up of the US dollar.
The nervous sentiment was further aggravated when it was revealed that China, now the world’s second largest consumer of oil, imported record low crude in July.
China continues to have disproportionate influence also on the dry bulk market (it imported 230.2 million tonnes of iron ore in first half which annualised to 460.4 mt or 20 per cent higher than record setting year of 2007) but its manufacturing sector contracted in July from June, the first drop in almost three years.
The container rates are off the edge of a cliff against the backdrop of plunging consumer confidence so much so that even gold is down more than 20 per cent since it reached the record high in March. In tanker markets, unprofitable rentals are spurring owners to slow down speed.Bad, not so bad…
What all this could mean for shipping is stark. But there is no consensus among the experts over what happens next as one can find plenty of rosy forecasts.
There are shipbuilders who point out that order cancellations take place even in a good market. The present focus is on cancellations because the world’s financial market is passing through a bear period and the current developments, therefore, are not indicative of a wider problem but only of a specific issue for certain yards.
In fact, reports suggest that some of the Korean shipbuilders, after a panic over their nosediving share prices, succeeded in reselling their slots at a better price.
According to some experts, the gloomy prognosis of Goldman Sachs is overdone, more so because even a couple of weeks after the prediction the market really did not plunge as predicted. The market is softening but there is still money to be made, it is pointed out.
There are as many Capesize vessels on order as already exist in the fleet. The shipyards will deliver 786 bulk carriers of various capacities next year, representing 15 per cent of the existing fleet.
True, Neptune Orient Line reported a 19 per cent decline in second quarter results but the east-west containerised trade continues to grow, though the rate of growth has shrunk to 5 per cent as compared to exceptional figures in recent years.
But, then, as some experts point out, not too long ago, an increase of 5 per cent was considered a cause for satisfaction, not disappointment. Also, even after decline, it is further pointed out, the bulk shipping freight remains more than three times higher than the 20-year average of 2015 on BDI.Tanker market scene
According to some analysts, the tanker market too is set to break its lacklustre reputation and regain its pristine glory. Faster than expected oil demand growth has helped wholesale firming of tanker rates, with many tonnage types, both dirty and clean, now near highs for the year.
The rates were low in the past largely on the assumption that the order-book was too large despite the looming crunch to be caused by the 2010 IMO deadline for phasing out of old single-hull vessels.
But it now appears that the fleet growth may outstrip demand growth only marginally, securing for owners a much stronger negotiating position. According to some experts, the tanker market has better prospects.
But then it will be rash to claim that everything is hunky-dory. Quoting North of England P&I Club’s management report, the Lloyd’s List recently reported, “it seems that the phones in the freight, demurrage and defence department have been ringing non-stop with serious concerns over newbuild contracts, the rising price of steel and yards’ abilities to meet their obligations….
“All this of course has been said before but here it is in black and white that we have a real problem on our hands that is not expected to go away. Indeed the P&I clubs seem to think the position may well be worse in the coming years — leading to some potentially very expensive disputes and owners being declined cover”.
Clearly, these are unpredictable times.
On August 15, Bloomberg reported that Baltic Dry Index (BDI), the benchmark for shipping freight, fell for 23 consecutive sessions through August 12, the worst decline since the third quarter of 2005.
Early this month, Goldman Sachs advised investors to sell bulk carrier stocks ahead of any major correction as it forecast that the BDI would fall 40 per cent in 2009 and a further 47 per cent year-on in 2010, citing an oversupply of capacity in coming years.
The fear may not be totally unfounded. Recently, the share prices of leading South Korean shipbuilders tumbled amid a spate of newbuilding cancellations and reports of some yards attempting to renegotiate price and delivery dates for new buildings.
Also, the echo of Russian bombers pounding Georgia and the steady decline in the crude price fuelled speculation of a further fall, driven by fears of slowing global demand and firming up of the US dollar.
The nervous sentiment was further aggravated when it was revealed that China, now the world’s second largest consumer of oil, imported record low crude in July.
China continues to have disproportionate influence also on the dry bulk market (it imported 230.2 million tonnes of iron ore in first half which annualised to 460.4 mt or 20 per cent higher than record setting year of 2007) but its manufacturing sector contracted in July from June, the first drop in almost three years.
The container rates are off the edge of a cliff against the backdrop of plunging consumer confidence so much so that even gold is down more than 20 per cent since it reached the record high in March. In tanker markets, unprofitable rentals are spurring owners to slow down speed.Bad, not so bad…
What all this could mean for shipping is stark. But there is no consensus among the experts over what happens next as one can find plenty of rosy forecasts.
There are shipbuilders who point out that order cancellations take place even in a good market. The present focus is on cancellations because the world’s financial market is passing through a bear period and the current developments, therefore, are not indicative of a wider problem but only of a specific issue for certain yards.
In fact, reports suggest that some of the Korean shipbuilders, after a panic over their nosediving share prices, succeeded in reselling their slots at a better price.
According to some experts, the gloomy prognosis of Goldman Sachs is overdone, more so because even a couple of weeks after the prediction the market really did not plunge as predicted. The market is softening but there is still money to be made, it is pointed out.
There are as many Capesize vessels on order as already exist in the fleet. The shipyards will deliver 786 bulk carriers of various capacities next year, representing 15 per cent of the existing fleet.
True, Neptune Orient Line reported a 19 per cent decline in second quarter results but the east-west containerised trade continues to grow, though the rate of growth has shrunk to 5 per cent as compared to exceptional figures in recent years.
But, then, as some experts point out, not too long ago, an increase of 5 per cent was considered a cause for satisfaction, not disappointment. Also, even after decline, it is further pointed out, the bulk shipping freight remains more than three times higher than the 20-year average of 2015 on BDI.Tanker market scene
According to some analysts, the tanker market too is set to break its lacklustre reputation and regain its pristine glory. Faster than expected oil demand growth has helped wholesale firming of tanker rates, with many tonnage types, both dirty and clean, now near highs for the year.
The rates were low in the past largely on the assumption that the order-book was too large despite the looming crunch to be caused by the 2010 IMO deadline for phasing out of old single-hull vessels.
But it now appears that the fleet growth may outstrip demand growth only marginally, securing for owners a much stronger negotiating position. According to some experts, the tanker market has better prospects.
But then it will be rash to claim that everything is hunky-dory. Quoting North of England P&I Club’s management report, the Lloyd’s List recently reported, “it seems that the phones in the freight, demurrage and defence department have been ringing non-stop with serious concerns over newbuild contracts, the rising price of steel and yards’ abilities to meet their obligations….
“All this of course has been said before but here it is in black and white that we have a real problem on our hands that is not expected to go away. Indeed the P&I clubs seem to think the position may well be worse in the coming years — leading to some potentially very expensive disputes and owners being declined cover”.
Clearly, these are unpredictable times.
Outlook: Markets may remain bullish
The markets are expected to surge this week on the back of relatively improved sentiments in the American bourses and falling crude prices even though the chances of higher inflation playing a spoilsport cannot be ruled out, say analysts.The markets would be closely watching developments related to the Indo-US nuclear deal at the Nuclear Suppliers Group (NSG), they said and pointed out no key policy decisions is expected this week on domestic front."Tracking global cues, the stock market is likely to be bullish. As no major policy decision is expected this week and with Nasdaq and Dow Jones Industrial Index hovering in the positive zone, the sentiments in the domestic market would remain positive."The market will remain volatile and witness a strong opening on Monday. Then it will take cues from the crude price movement," brokerage firm SMC Global's Vice President Rajesh Jain said.Noting that crude prices would determine the movement of the market, he said that Sensex is likely to hover around 14,500 to 15,500 points during the week.According to experts, a further rise in crude oil prices may act as a dampener for the capital markets.On the crude front, the simmering tension between United States and Russia could push up the prices, which has been on the decline in recent weeks.Even though crude closed at 114.59 dollar per barrel on Friday, the prices had touched a high of nearly 121 dollar per barrel during that day.
'Indian art market set for major boom'
Indian art market is growing at the rapid pace of 30-35 per cent annually touching the 1500 crore mark and is expected to witness a boom in the future, say international experts in the field.Speaking during the first Indian Art Summit, experts predicted that the boom of the Indian art market was because of the interest shown by new buyers seeking art investment for long term gains."Indian investors have moved up the art market in a very short time compared to their European counterparts. Indian art is very investable and every year new buyers are coming forward and are surpassing the older ones," said Philip Hoffman, Chief Executive, Fine Art Fund UK during his presentation at the Art Summit on the 'Commerce of Art'.He said around 1500 crore Indian art market remained volatile despite a fast growth and added that investors should seek advice from experts before putting their money on any work."The rise in the prices of the art will soon make art one of the most priced luxurious commodities and would be accessible to the super rich people only," Hoffman predicted.He pointed out that along with India the art markets in Middle East, China and Russian also have a promising future.Similarly talking in the panel discussion 'The Commerce of Art', Dr Hugo Weihe, Christie's International Director for Asian art said, "It is remarkable to be a young artist in todays' India. With the mixing of cultures it interesting to see the crossover effects on the artists and their work." With the new interest being shown by the young buyers who look at the art not from a collectors point of view but from the eye of an investor looking for long term gain. Commenting on the quality of Indian art, Hoffman said, "Regular spenders on art work are looking at Indian and Chinese contemporary art instead of spending their money on artists from other countries because they are getting quality work at a much cheaper price." The long history of art patronage in India has continued to sustain the Indian art which has not been the case with Western art collectors, said Henry Howard Sneyd, Deputy Chairman of Sotheby."Compared to the America, Chinese and Indian diaspora have continued to sustain and collect art work while the West remained blind to the rich art heritage of these countries," he said.Sneyd, however, felt that the contemporary artists like Husain, Souza and new but promising artists like Subodh Gupta have completely changed the Indian art scenario. The new artists are very global in their art expressions."A Subodh Gupta's art work is not necessarily Indian. It can be from any part of the world. Indian contemporary art is no longer 'foreign' to art collectors from Western countries," he added.
Thursday, August 21, 2008
Advance Planning Is Less Taxing
We all need to be congratulated for surviving another tax season. As in the previous years, many of us must have rushed in on the last day and somehow managed to submit the income tax return forms
We all need to be congratulated for surviving another tax season. As in the previous years, many of us must have rushed in on the last day and somehow managed to submit the income tax return forms. And like before you would have told yourself “I won’t go through all this again next year". But then the year will roll on, you will get busy, and tax matters will get pushed back as out of sight is out of mind. By 31 July 2009, when you would be filing tax returns for the assessment year 2009-10, advance preparation in this financial year 2008-09 itself can help you avoid the last-minute anxiety. Here are 12 must dos to reduce tax filing stress next yearLook out for refund Income tax authorities are supposed to send you the refund either electronically directly to your bank account, or by cheque to your address within 30 days of filing the return. Ideally, give 45-90 days for this to happen. Get in touch with the authorities in writing if the delay is longer.Estimate the tax billFor the current year, first estimate your tax liability. You may contact your account department to get a fix on the figure. Budget 2008 increased the income slabs, giving a relief of Rs 4,000 to every taxpayer. For an individual not a woman or a senior citizen, whose taxable income was Rs 8 lakh in the previous year, the tax liability was Rs 1,94,670. Now, it is Rs 1,49,350. A net yearly savings of Rs 45,320.Reimbursements As a part of your salary, you may get a reimbursement of medical expenses incurred by you on yourself and your family—Rs 15,000 would be tax-free per annum. You need to give bills or other documents to claim the amount. Preserve them carefully.Leave travel allowance (LTA) is paid every year, but it is tax-free only for two trips in a block of four years. The blocks are 2002-2005, 2006-2009 and so on. You may have to pay tax this year even after submitting the bills.Organise and keep documents handySome investment-related proofs, such as statement of account of ELSS funds, can be stored electronically. Remember that interest income earned on all your savings bank accounts also needs to be disclosed and tax paid on them. Close dormant accounts and reduce tax liability. Collect all your bank statements and TDS certificates, if any. This will help you calculate your earning from bank interest. Deposit advance tax if required. If you are claiming deduction on interest paid on an educational loan, collect a certificate of repayment for this financial year in which the interest is stated separately. Do the same for your home loan.If you are claiming deduction for house rent allowance on actual rent paid, collect and keep the rent receipts. For any donations given to an approved charity, get a receipt and also a certificate that the trust gets deduction under Section 80G. If you are claiming a deduction for any medical disability under Section 80U, get a certificate of disability from the authorised doctor. If you got any gifts during the year, collect the gift deeds in your favour, which should clearly state that you received money without any consideration. Keep all the receipts of contributions made towards health insurance, or to schemes under Section 80C such as LIC payment receipts, copy of the PPF pass book, and children’s tuition fee receipts, among others.Health for all Even before thinking of any tax-saving investments, ensure adequate health cover for your family. Further, to the ded-uction of up to Rs 15,000, from this year you will get additional deduction of Rs 15,000 if your parents are also covered, and Rs 20,000 if they're senior citizens.Pay in advanceIf your employer does not deduct tax at source and your total tax liability this year is above Rs 5,000, you will have to pay tax in advance. Keep a copy of the challan safely for future reference. Use capital lossesIf you have sold any stocks at a loss, you can book a short-term capital loss, which can be set off against any capital gain—long-term or short-term. If you have made any short-term capital gain during the year, you can set off the loss against the gain. If you book a long-term loss, it may not be of much use as it can be adjusted only against long-term gains, which are not taxable for shares. Declare investments Send all the details to your accounts department in the form of an investment declaration. This document normally states all the tax-saving investment and expenses you plan to undertake this year. This will allow your account department to calculate your taxes. Based on this, tax will be deducted at source. Figure out the existing outgo Work towards bringing down your tax outgo. Before blindly investing in tax-saving avenues, figure out how much tax you are already saving. For salaried employees, 12 per cent of the basic salary goes towards Employees’ Provident Fund, which qualifies for tax benefit. Life insurance premiums are also on the same list. Further, principal repayments up to Rs 1 lakh on existing home loans get tax relief under Section 80C and interest payments up to Rs 1.5 lakh qualify for tax deduction under Section 24. Another deduction could be on the tuition fees, up to Rs 1 lakh, that you pay for a maximum of two children. Add these figures to see how much of your tax liability is already covered.Get the old Form 16 If you have moved jobs anytime after 1 April 2008, take a copy of the Form 16 from your previous employer. If you don’t, you will lose the advantage of tax exemption. Taxable income is the aggregate of all income received during the year. If your earlier employer has not deducted any tax from your salary, you may get a salary certificate from him indicating the amount received by you as salary during the financial year. Choose tax-saversChoosing your tax-saver heads under Section 80C should depend on its time horizon and your risk appetite. An increase in EMI or loan tenure is likely for floating rate home loans. Try to prepay the loan, either in parts or in a lump sum. These payments will also help you cut down your tax liability. For an equity-linked saving scheme (ELSS), invest systematically to avoid a last-minute dash.The final momentsMost employers ask for actual proof of investment and expenses by the first week of February. Once these documents are given, wait till May 2009 for the Form 16, based on which you can file your income tax return for the next year by 31 July 2009
We all need to be congratulated for surviving another tax season. As in the previous years, many of us must have rushed in on the last day and somehow managed to submit the income tax return forms. And like before you would have told yourself “I won’t go through all this again next year". But then the year will roll on, you will get busy, and tax matters will get pushed back as out of sight is out of mind. By 31 July 2009, when you would be filing tax returns for the assessment year 2009-10, advance preparation in this financial year 2008-09 itself can help you avoid the last-minute anxiety. Here are 12 must dos to reduce tax filing stress next yearLook out for refund Income tax authorities are supposed to send you the refund either electronically directly to your bank account, or by cheque to your address within 30 days of filing the return. Ideally, give 45-90 days for this to happen. Get in touch with the authorities in writing if the delay is longer.Estimate the tax billFor the current year, first estimate your tax liability. You may contact your account department to get a fix on the figure. Budget 2008 increased the income slabs, giving a relief of Rs 4,000 to every taxpayer. For an individual not a woman or a senior citizen, whose taxable income was Rs 8 lakh in the previous year, the tax liability was Rs 1,94,670. Now, it is Rs 1,49,350. A net yearly savings of Rs 45,320.Reimbursements As a part of your salary, you may get a reimbursement of medical expenses incurred by you on yourself and your family—Rs 15,000 would be tax-free per annum. You need to give bills or other documents to claim the amount. Preserve them carefully.Leave travel allowance (LTA) is paid every year, but it is tax-free only for two trips in a block of four years. The blocks are 2002-2005, 2006-2009 and so on. You may have to pay tax this year even after submitting the bills.Organise and keep documents handySome investment-related proofs, such as statement of account of ELSS funds, can be stored electronically. Remember that interest income earned on all your savings bank accounts also needs to be disclosed and tax paid on them. Close dormant accounts and reduce tax liability. Collect all your bank statements and TDS certificates, if any. This will help you calculate your earning from bank interest. Deposit advance tax if required. If you are claiming deduction on interest paid on an educational loan, collect a certificate of repayment for this financial year in which the interest is stated separately. Do the same for your home loan.If you are claiming deduction for house rent allowance on actual rent paid, collect and keep the rent receipts. For any donations given to an approved charity, get a receipt and also a certificate that the trust gets deduction under Section 80G. If you are claiming a deduction for any medical disability under Section 80U, get a certificate of disability from the authorised doctor. If you got any gifts during the year, collect the gift deeds in your favour, which should clearly state that you received money without any consideration. Keep all the receipts of contributions made towards health insurance, or to schemes under Section 80C such as LIC payment receipts, copy of the PPF pass book, and children’s tuition fee receipts, among others.Health for all Even before thinking of any tax-saving investments, ensure adequate health cover for your family. Further, to the ded-uction of up to Rs 15,000, from this year you will get additional deduction of Rs 15,000 if your parents are also covered, and Rs 20,000 if they're senior citizens.Pay in advanceIf your employer does not deduct tax at source and your total tax liability this year is above Rs 5,000, you will have to pay tax in advance. Keep a copy of the challan safely for future reference. Use capital lossesIf you have sold any stocks at a loss, you can book a short-term capital loss, which can be set off against any capital gain—long-term or short-term. If you have made any short-term capital gain during the year, you can set off the loss against the gain. If you book a long-term loss, it may not be of much use as it can be adjusted only against long-term gains, which are not taxable for shares. Declare investments Send all the details to your accounts department in the form of an investment declaration. This document normally states all the tax-saving investment and expenses you plan to undertake this year. This will allow your account department to calculate your taxes. Based on this, tax will be deducted at source. Figure out the existing outgo Work towards bringing down your tax outgo. Before blindly investing in tax-saving avenues, figure out how much tax you are already saving. For salaried employees, 12 per cent of the basic salary goes towards Employees’ Provident Fund, which qualifies for tax benefit. Life insurance premiums are also on the same list. Further, principal repayments up to Rs 1 lakh on existing home loans get tax relief under Section 80C and interest payments up to Rs 1.5 lakh qualify for tax deduction under Section 24. Another deduction could be on the tuition fees, up to Rs 1 lakh, that you pay for a maximum of two children. Add these figures to see how much of your tax liability is already covered.Get the old Form 16 If you have moved jobs anytime after 1 April 2008, take a copy of the Form 16 from your previous employer. If you don’t, you will lose the advantage of tax exemption. Taxable income is the aggregate of all income received during the year. If your earlier employer has not deducted any tax from your salary, you may get a salary certificate from him indicating the amount received by you as salary during the financial year. Choose tax-saversChoosing your tax-saver heads under Section 80C should depend on its time horizon and your risk appetite. An increase in EMI or loan tenure is likely for floating rate home loans. Try to prepay the loan, either in parts or in a lump sum. These payments will also help you cut down your tax liability. For an equity-linked saving scheme (ELSS), invest systematically to avoid a last-minute dash.The final momentsMost employers ask for actual proof of investment and expenses by the first week of February. Once these documents are given, wait till May 2009 for the Form 16, based on which you can file your income tax return for the next year by 31 July 2009
Tuesday, August 5, 2008
Welspun-Gujarat Stahl: Buy
We recommend a buy in Welspun-Gujarat Stahl Rohren from a short-term perspective. From the charts of Welspun-Gujarat Stahl Rohren we observe that it has been moving down steadily since it recorded the peak at Rs 537 in January. This decline halted in July at Rs 269. This is a significant support level and the stock has reversed firmly from here. The reversal gained impetus by the positive divergence in the weekly relative strength index (RSI).The RSI in the daily chart too is moving in to the bullish region, denoting that this up trend can gain strength. Another oscillator, the daily moving average convergence and divergence has also entered the positive territory. The stock is currently positioned above its 21 and 50-day moving averages denoting a short-term trend reversal. We are bullish on the stock in the short-term horizon. We expect its current up move to prolong until it hits our price target of Rs 387 in the upcoming trading sessions. Traders with short-term perspective can buy the stock while maintaining a stop-loss at Rs 332
Monday, August 4, 2008
Falling markets have not spared Ulips, but their long-term mandate still keeps them worthwhile
Falling markets have not spared Ulips, but their long-term mandate still keeps them worthwhile
For holders of unit-linked insurance plans (Ulips), the current market conditions do not matter much. The markets have fallen considerably from the highs of January this year, and the possibility of a long-term, sustained recovery is largely seen in the context of three factors—oil price, the Indian growth story and the US economy. A common thread going through these factors is that their impact can be measured only over a period of time. Ulips are bundled investment products designed to boost long-term savings more than short-to-medium duration ones. The benefit is reflected in low costs if the savings are over a long period of time.
Should the weakening stockmarket worry investors who take the Ulip route to equities? The product is best for generating wealth over periods not less than 10 years. There is also enough evidence to show that equity outperforms other assets and can give annualised returns of 15-20 per cent over the long term.
Existing holders. If you are holding Ulips with full exposure to equity, stay invested that way till maturity is around five years away. Ulips allow investors to switch their corpus to non-equity options like debt or balanced funds. If the fund value has eroded over the last six months or so, stick to the equity option.
If you have been putting premiums in the debt fund option, now is the time to move into equity. You can do this in two ways—by moving the entire corpus in one go or by transferring smaller amounts at regular intervals.
New buyers. Invest in a Ulip for the right reasons. Weak or strong market conditions should never be the cue for starting savings in any asset class or financial product. The equity fund option is the best option, so go for a fund that takes 100 per cent exposure to stocks. The other way to go about it is to put the premium in a debt or a balanced fund and then switch to equity when you feel that the market is strengthening. The problem with this is that you will have to time the market, which you should ideally avoid.
Switching options. Insurers provide a specified number of free switches among fund options in a year. These can be done both offline and online.
What to do. Shift gains from equity funds of more than 20 per cent in any year to debt or balanced funds. Markets move in cycles and there could be three or four opportunities of extraordinary returns in a 15-20-year holding period.
While restructuring fund options, ensure that optimum balance is maintained between returns and life coverage. If you lower the sum assured to maximise returns, your life cover may fall below your requirements. Finally, uncertain market conditions, as are being seen now, should never be the reason for a full exit from Ulips. Costs in most Ulips are front-loaded and, hence, it is important to make them run their full course
For holders of unit-linked insurance plans (Ulips), the current market conditions do not matter much. The markets have fallen considerably from the highs of January this year, and the possibility of a long-term, sustained recovery is largely seen in the context of three factors—oil price, the Indian growth story and the US economy. A common thread going through these factors is that their impact can be measured only over a period of time. Ulips are bundled investment products designed to boost long-term savings more than short-to-medium duration ones. The benefit is reflected in low costs if the savings are over a long period of time.
Should the weakening stockmarket worry investors who take the Ulip route to equities? The product is best for generating wealth over periods not less than 10 years. There is also enough evidence to show that equity outperforms other assets and can give annualised returns of 15-20 per cent over the long term.
Existing holders. If you are holding Ulips with full exposure to equity, stay invested that way till maturity is around five years away. Ulips allow investors to switch their corpus to non-equity options like debt or balanced funds. If the fund value has eroded over the last six months or so, stick to the equity option.
If you have been putting premiums in the debt fund option, now is the time to move into equity. You can do this in two ways—by moving the entire corpus in one go or by transferring smaller amounts at regular intervals.
New buyers. Invest in a Ulip for the right reasons. Weak or strong market conditions should never be the cue for starting savings in any asset class or financial product. The equity fund option is the best option, so go for a fund that takes 100 per cent exposure to stocks. The other way to go about it is to put the premium in a debt or a balanced fund and then switch to equity when you feel that the market is strengthening. The problem with this is that you will have to time the market, which you should ideally avoid.
Switching options. Insurers provide a specified number of free switches among fund options in a year. These can be done both offline and online.
What to do. Shift gains from equity funds of more than 20 per cent in any year to debt or balanced funds. Markets move in cycles and there could be three or four opportunities of extraordinary returns in a 15-20-year holding period.
While restructuring fund options, ensure that optimum balance is maintained between returns and life coverage. If you lower the sum assured to maximise returns, your life cover may fall below your requirements. Finally, uncertain market conditions, as are being seen now, should never be the reason for a full exit from Ulips. Costs in most Ulips are front-loaded and, hence, it is important to make them run their full course
Step Buy Step
Regular investment is the key to reaching a financial goal, irrespective of the waves in the equity market
Indian equity market has been tottering since the beginning of 2008. Equity mutual funds (MF) have lost around 40 per cent since the beginning of 2008. Seeing the volatility the question on everyone’s minds is: Is this a good time to invest, or is worse yet to come? If you believe that markets will fall further, you could stay in cash. We, however, do not believe in timing the market. Financial goals are important and it’s always advisable to avoid timing the market as there’s no telling how it might behave tomorrow, or the day after.
Short-term vs long-term. When will the markets rise or fall, is anybody’s guess. This, however, should not change your goals. So, how do you invest in the market, ride the volatility and still reach your financial goals? The short answer is systematic investment plans (SIP).
Under SIPs, investments are a pre-specified amount, in a selected scheme and at pre-specified time periods, monthly or quarterly. Say, you invest Rs 1,000 every month in a pre-determined equity scheme, and start when its net asset value (NAV) was Rs 15. In the first month, 66.67 (Rs 1,000 / Rs 15) units are credited to your account. Say, on the first day of the following month the NAV increases to Rs 20. An additional 50 units (Rs 1,000/Rs 20) are credited to your account that day. Further, say, on the first day of the next month, the NAV drops to Rs 12. In that case, 83.33 (Rs 1,000/Rs 12) units will be credited to your account.
In an SIP, more units will be credited when a scheme’s NAV is low and fewer units when it’s NAV is high.
Why SIP?
The mantra for wealth creation is to invest early and regularly irrespective of the size of the amount invested. SIPs are the ideal tool for this. The sooner you begin investing, the more time your money will have to grow because of power of compounding. Regular, disciplined investing. If you are a salaried investor, SIPs enable you to save a fixed portion of your salary every month. You don’t even need to remember your date of investment. Just enrol in a monthly SIP and give a bank mandate to your fund; every month a fixed sum will automatically get transferred from your account to your chosen equity scheme.
Cost averaging. By buying fewer units when the NAV is high and more units when it is low, your buying cost per unit gets averaged out. This is called rupee cost averaging (see Rupee Cost Averaging). This helps you avoid the need to time the market. Usually, when the NAV drops, many investors don’t buy additional units fearing a further drop in the market. They stay out and miss an opportunity to get units cheaper, especially if the NAV starts going up. An SIP allows you to buy an appropriate quantity of units depending on the NAV’s direction.
Rupee cost averaging doesn’t work in rising markets because, in an SIP, units become more expensive as markets keep rising. Small amounts. As an SIP entails regular investing; all you need is as low as Rs 100 a month to enrol, as against Rs 5,000 for a one-time investment. Earlier, SIPs called for a minimum investment of Rs 500, but over the past two years, competition has brought down the entry barriers. Presently, Reliance, ICICI Prudential and Lotus India MFs offer Rs 100 SIPs.
No lock-in period. Except for those in equity-linked saving schemes (ELSS), SIPs do not impose a lock-in period. If you wish to discontinue your SIP at any time, all you need to do is to inform your fund house by sending them a termination letter. If you gave post-dated cheques when you started your SIP, your MF will return the uncashed ones. Else, if you had opted for direct debit, your payments would stop after your MF receives your termination request. Further, you can stay invested in the scheme for as long as you want even after you terminate the SIP.
How to invest in an SIP?
All MFs have predetermined dates of any given month on which an investor can make regular investments in SIPs. For instance, if you receive your salary on the first of every month, you can choose seventh or tenth of every month as your SIP date. But if you get your salary by the month-end, the first of the following month would be the ideal, as you wouldn’t want your money lying idle in the bank account for long.
MFs also provide direct debit facility with all the major banks. You can also give post-dated cheques (at least 12) to the MF.
Who should invest?
If you want steady returns and would like to avoid market volatility, SIPs are for you. But they are not suitable for short- to very short-terms. These are most suited for those who have a regular stream of inflows and would like to deploy a part of their proceeds in the market, irrespective of what level the market is at.
ELSS SIPs. Before investing in an ELSS SIP, do remember that the lock-in period for each instalment is three years. So, an amount invested on 7 July 2008 will be locked in till 6 July 2011 and the one made on 7 August 2008 will be locked till 6 August 2011.
Systematic transfer plan. But what if you have a lumpsum amount to invest? You still stagger your investments like in an SIP and make the volatility work for you through a systematic transfer plan (STP). In an STP you first invest a lumpsum amount in a liquid or liquid-plus fund or any other debt fund like a floating rate fund. This money will later be transferred to an equity fund of your choice within the same fund house, every day, week, month or quarter, depending on what you choose. Your money lying in a liquid fund, pending deployment to your chosen equity fund, would fetch you higher returns than a savings bank account where you would have normally parked your surplus cash
Indian equity market has been tottering since the beginning of 2008. Equity mutual funds (MF) have lost around 40 per cent since the beginning of 2008. Seeing the volatility the question on everyone’s minds is: Is this a good time to invest, or is worse yet to come? If you believe that markets will fall further, you could stay in cash. We, however, do not believe in timing the market. Financial goals are important and it’s always advisable to avoid timing the market as there’s no telling how it might behave tomorrow, or the day after.
Short-term vs long-term. When will the markets rise or fall, is anybody’s guess. This, however, should not change your goals. So, how do you invest in the market, ride the volatility and still reach your financial goals? The short answer is systematic investment plans (SIP).
Under SIPs, investments are a pre-specified amount, in a selected scheme and at pre-specified time periods, monthly or quarterly. Say, you invest Rs 1,000 every month in a pre-determined equity scheme, and start when its net asset value (NAV) was Rs 15. In the first month, 66.67 (Rs 1,000 / Rs 15) units are credited to your account. Say, on the first day of the following month the NAV increases to Rs 20. An additional 50 units (Rs 1,000/Rs 20) are credited to your account that day. Further, say, on the first day of the next month, the NAV drops to Rs 12. In that case, 83.33 (Rs 1,000/Rs 12) units will be credited to your account.
In an SIP, more units will be credited when a scheme’s NAV is low and fewer units when it’s NAV is high.
Why SIP?
The mantra for wealth creation is to invest early and regularly irrespective of the size of the amount invested. SIPs are the ideal tool for this. The sooner you begin investing, the more time your money will have to grow because of power of compounding. Regular, disciplined investing. If you are a salaried investor, SIPs enable you to save a fixed portion of your salary every month. You don’t even need to remember your date of investment. Just enrol in a monthly SIP and give a bank mandate to your fund; every month a fixed sum will automatically get transferred from your account to your chosen equity scheme.
Cost averaging. By buying fewer units when the NAV is high and more units when it is low, your buying cost per unit gets averaged out. This is called rupee cost averaging (see Rupee Cost Averaging). This helps you avoid the need to time the market. Usually, when the NAV drops, many investors don’t buy additional units fearing a further drop in the market. They stay out and miss an opportunity to get units cheaper, especially if the NAV starts going up. An SIP allows you to buy an appropriate quantity of units depending on the NAV’s direction.
Rupee cost averaging doesn’t work in rising markets because, in an SIP, units become more expensive as markets keep rising. Small amounts. As an SIP entails regular investing; all you need is as low as Rs 100 a month to enrol, as against Rs 5,000 for a one-time investment. Earlier, SIPs called for a minimum investment of Rs 500, but over the past two years, competition has brought down the entry barriers. Presently, Reliance, ICICI Prudential and Lotus India MFs offer Rs 100 SIPs.
No lock-in period. Except for those in equity-linked saving schemes (ELSS), SIPs do not impose a lock-in period. If you wish to discontinue your SIP at any time, all you need to do is to inform your fund house by sending them a termination letter. If you gave post-dated cheques when you started your SIP, your MF will return the uncashed ones. Else, if you had opted for direct debit, your payments would stop after your MF receives your termination request. Further, you can stay invested in the scheme for as long as you want even after you terminate the SIP.
How to invest in an SIP?
All MFs have predetermined dates of any given month on which an investor can make regular investments in SIPs. For instance, if you receive your salary on the first of every month, you can choose seventh or tenth of every month as your SIP date. But if you get your salary by the month-end, the first of the following month would be the ideal, as you wouldn’t want your money lying idle in the bank account for long.
MFs also provide direct debit facility with all the major banks. You can also give post-dated cheques (at least 12) to the MF.
Who should invest?
If you want steady returns and would like to avoid market volatility, SIPs are for you. But they are not suitable for short- to very short-terms. These are most suited for those who have a regular stream of inflows and would like to deploy a part of their proceeds in the market, irrespective of what level the market is at.
ELSS SIPs. Before investing in an ELSS SIP, do remember that the lock-in period for each instalment is three years. So, an amount invested on 7 July 2008 will be locked in till 6 July 2011 and the one made on 7 August 2008 will be locked till 6 August 2011.
Systematic transfer plan. But what if you have a lumpsum amount to invest? You still stagger your investments like in an SIP and make the volatility work for you through a systematic transfer plan (STP). In an STP you first invest a lumpsum amount in a liquid or liquid-plus fund or any other debt fund like a floating rate fund. This money will later be transferred to an equity fund of your choice within the same fund house, every day, week, month or quarter, depending on what you choose. Your money lying in a liquid fund, pending deployment to your chosen equity fund, would fetch you higher returns than a savings bank account where you would have normally parked your surplus cash
Friday, August 1, 2008
Which is the best SIP
That's a question we routinely hear nowadays. Ever since the equity markets have been engulfed by volatility, the most frequently heard piece of advice is - invest via the systematic investment plan route for the long-term. While regular visitors and clients of Personalfn have since long bought into the merits of SIP investing, we are rather surprised to note that it took a prolonged volatile phase for most investment experts/advisors to appreciate the importance of SIP investing.
Coming back to the original question - which is the best SIP? Thanks to all the hype around SIPs, several investors have been led to believe that the SIP is an investment avenue. Furthermore, the panacea to the present testing phase is to select the best SIP and get invested therein.
The SIP is simply an investment mode i.e. a means to invest in mutual funds and not an investment avenue. When an investor chooses to invest via an SIP, he makes investments (usually) in smaller denominations at regular time intervals as opposed to making a single lump sum investment. The underlying intention is to benefit from the volatility in equity markets by lowering the average purchase cost. In this article, we discuss the pros and cons of SIP investing.
How an SIP helps...As mentioned earlier, the most important role of an SIP is to lower the average purchase cost of an investment over the long-term. This is possible when equity markets experience a turbulent phase. Since the investment amount for each SIP installment is fixed, the investor gains by receiving a higher number of mutual fund units.
An example will clarify this better. Suppose the monthly SIP is for Rs 1,000 and the fund's net asset value (NAV) is Rs 50; this will lead to 20 units being credited to the investor. However, in the next month on account of the volatile markets, the fund's NAV falls to Rs 40. This will lower the average purchase cost; as a result, the investor will have 25 units credited to his account. This is how an SIP can help investors benefit from volatility in equity markets.
Lack of disciplined investing is one of the major reasons for investors not achieving their financial goals. For example, often monies that are kept aside for investments end up getting used for other purposes. As a result, the investor is even further divorced from his goals. An SIP ensures that the investor stays the course by investing in a disciplined manner.
An often heard excuse for not investing is lack of monies. SIP takes care of this problem by lowering the minimum investment amount. For example, the minimum investment amount for a lump sum investment in a diversified equity fund could typically be Rs 5,000; conversely for an SIP, it can be as low as Rs 500. As a result, investing via the SIP route is lighter on the wallet..
Timing the market is a popular pastime with several investors. Investors have an inexplicable urge for timing markets and aim at getting invested when markets have bottomed out. It's a different matter that timing markets to perfection and doing so consistently is beyond most investors. SIPs make market timing irrelevant.
Having discussed the benefits of SIP investing, now let's consider the situations when an SIP won't deliver�
In rising marketsAn SIP may not be able to lower the average purchase cost if equity markets rise in a secular manner. In such a scenario, the average purchase cost could actually rise. So in a market rally, SIPs could prove to be more expensive vis-a-vis a lump sum investment.
A directionless SIPA directionless SIP is one that does not form part of an investment plan; in other words, it's an aimless SIP. The SIP is not an 'end'; instead, it is the 'means' to achieve an end. Hence an SIP in isolation does not make 'financial' sense. Instead, the SIP should form part of an investment plan aimed at achieving a predetermined objective (like providing for a child's education or buying a house).
An SIP in a poorly managed fundInvesting via an SIP doesn't improve the prospects of a poorly managed fund. Such a fund stays the same, irrespective of the investment mode. Its shortcomings will not be eliminated by an SIP. Hence the key lies in first selecting a well-managed fund that is right for the investor and then investing in it via an SIP.
As can be seen, the SIP mode of investing has a fair number of advantages to offer; conversely, there can be instances when it may not deliver as expected. Investors on their part should make well-informed investment decisions after acquainting themselves of both the pros and cons.
Coming back to the original question - which is the best SIP? Thanks to all the hype around SIPs, several investors have been led to believe that the SIP is an investment avenue. Furthermore, the panacea to the present testing phase is to select the best SIP and get invested therein.
The SIP is simply an investment mode i.e. a means to invest in mutual funds and not an investment avenue. When an investor chooses to invest via an SIP, he makes investments (usually) in smaller denominations at regular time intervals as opposed to making a single lump sum investment. The underlying intention is to benefit from the volatility in equity markets by lowering the average purchase cost. In this article, we discuss the pros and cons of SIP investing.
How an SIP helps...As mentioned earlier, the most important role of an SIP is to lower the average purchase cost of an investment over the long-term. This is possible when equity markets experience a turbulent phase. Since the investment amount for each SIP installment is fixed, the investor gains by receiving a higher number of mutual fund units.
An example will clarify this better. Suppose the monthly SIP is for Rs 1,000 and the fund's net asset value (NAV) is Rs 50; this will lead to 20 units being credited to the investor. However, in the next month on account of the volatile markets, the fund's NAV falls to Rs 40. This will lower the average purchase cost; as a result, the investor will have 25 units credited to his account. This is how an SIP can help investors benefit from volatility in equity markets.
Lack of disciplined investing is one of the major reasons for investors not achieving their financial goals. For example, often monies that are kept aside for investments end up getting used for other purposes. As a result, the investor is even further divorced from his goals. An SIP ensures that the investor stays the course by investing in a disciplined manner.
An often heard excuse for not investing is lack of monies. SIP takes care of this problem by lowering the minimum investment amount. For example, the minimum investment amount for a lump sum investment in a diversified equity fund could typically be Rs 5,000; conversely for an SIP, it can be as low as Rs 500. As a result, investing via the SIP route is lighter on the wallet..
Timing the market is a popular pastime with several investors. Investors have an inexplicable urge for timing markets and aim at getting invested when markets have bottomed out. It's a different matter that timing markets to perfection and doing so consistently is beyond most investors. SIPs make market timing irrelevant.
Having discussed the benefits of SIP investing, now let's consider the situations when an SIP won't deliver�
In rising marketsAn SIP may not be able to lower the average purchase cost if equity markets rise in a secular manner. In such a scenario, the average purchase cost could actually rise. So in a market rally, SIPs could prove to be more expensive vis-a-vis a lump sum investment.
A directionless SIPA directionless SIP is one that does not form part of an investment plan; in other words, it's an aimless SIP. The SIP is not an 'end'; instead, it is the 'means' to achieve an end. Hence an SIP in isolation does not make 'financial' sense. Instead, the SIP should form part of an investment plan aimed at achieving a predetermined objective (like providing for a child's education or buying a house).
An SIP in a poorly managed fundInvesting via an SIP doesn't improve the prospects of a poorly managed fund. Such a fund stays the same, irrespective of the investment mode. Its shortcomings will not be eliminated by an SIP. Hence the key lies in first selecting a well-managed fund that is right for the investor and then investing in it via an SIP.
As can be seen, the SIP mode of investing has a fair number of advantages to offer; conversely, there can be instances when it may not deliver as expected. Investors on their part should make well-informed investment decisions after acquainting themselves of both the pros and cons.
10 Calculation To Know
The value of investments is only as much as their returns. So, it is critical to know how much your money is worth to plan your financial goals
Managing money can involve calculations to understand the worth of an investment. To arrive at a result, calculations can be done in a different way or by using a different formula. Even the same formula can be used differently to arrive at a certain result. Here are a few commonly used money management formulas. Use an excel sheet to do these.
1. Compound Interest I want to take a loan of Rs 1 lakh to buy a used car. How much will the car cost me at an annual interest rate of 8 per cent for four years?
The compound interest formula can be used here to calculate the final cost, which would include the loan amount and the interest paid. The amount that is actually paid for Rs 1 lakh is Rs 1,36,048.90. The total amount of interest charged for borrowing Rs 1 lakh is Rs 36,048.90.
Formula: Future value = P(1 + R)^N
Type in: =100000(1+8%)^4 and hit enter. P: amount borrowed; R: rate of interest; N: time in years.
Also used for: Calculating the maturity value on lumpsum investment (bank fixed deposits and National Savings Certificate, for example) over a fixed period at a certain rate of interest.
2. Compound Annualised Growth Rate I had invested Rs 1 lakh in a mutual fund five years back at an NAV of Rs 20. Now the NAV is Rs 70. How should I calculate my returns on an annual basis?
Compound annualised growth rate (CAGR) will be used here to calculate the growth over a period of time. The gain of Rs 50 over five years on the initial NAV of Rs 20 is a simple return of 250 per cent (50/20 * 100). However, it should not be construed as 50 per cent average return over five years.
Formula: CAGR = {[(M/I)^(1/N)] – 1} * 100
Type in: =(((70/20)^(1/5))-1)*100 and hit enter. M: maturity value; I: initial value; N: time in years. CAGR here is 28.47%.
Also used for: Calculating the annualised returns on a lumpsum investment in shares.
3. Internal Rate of Return I paid Rs 18,572 every year on a moneyback insurance policy bought 20 years back. Every fifth year, I received Rs 40,000 back and Rs 4.5 lakh on maturity. What was my rate of return?
The internal rate of return (IRR) has to be calculated here. It is the interest rate accrued on an investment that has outflows and inflows at the same regular periods.
In the excel page type Rs 18,572 as a negative figure (-18572), as it is an outflow, in the first cell. Paste the same figure till the twentieth cell. Then, as every fifth year has an inflow of Rs 40,000, type in Rs 21,428 (40,000-18,572) in every fifth cell. In the twentieth cell, type in –18572. In the twenty first cell, type in Rs 4,50,000, which is the maturity value of the policy.
Then click on the cell below it and type: = IRR(A1:A21) and hit enter.
5.28% will show in the cell. This is your internal rate of return.
Also used for: Calculating returns on insurance endowment policies.
A
-18572
-18572
-18572
-18572
21428
-18572
-18572
-18572
-18572
21428
-18572
-18572
-18572
-18572
21428
-18572
-18572
-18572
-18572
-18572
450000
5.28%
4. XIRR I bought 500 shares on 1 January 2007 at Rs 220, 100 shares on 10 January at Rs 185 and 50 shares at Rs 165 on 18 May 2008. On 21 June 2008, I sold off all the 650 shares at Rs 655. What is the return on my investment?
XIRR is used to determine the IRR when the outflows and inflows are at different periods. Calculation is similar to IRR’s. Transaction date is mentioned on the left of the transaction.
In an excel sheet type out the data from the top most cell as shown here. Outflows figures are in negative and inflows in positive. In the cell below with the figure 4,25,750, type out
=XIRR (B1:B4,A1:A4)*100
Hit enter. The cell will show 122.95%, the total return on investment.
Also used for: Calculating MF returns, especially SIP, or that for unit-linked insurance plans.
A
B
1-Jan-07
-110000
10-Jan-07
-18500
18-May-08
-8250
21-Jun-08
425750
122.95%
5. Post-Tax Return My father wants a bank FD at 10 per cent return for five years. He pays income tax. What will be the returns?
The post-tax return has to be calculated here. The idea is to know the final returns on a fully taxable income. Interest income from the bank is taxed as per your tax slab.
Formula: ROI – (ROI * TR)=Post-tax return
Type in: =10 – (10 * 30.9%) and hit enter. You will get 6.91%
ROI: rate of interest; TR: tax rate (depends on tax slab)
Also used for: Calculating post-tax returns of national savings certificates, post-office time deposits, and Senior Citizens’ Savings Scheme.
6. Pre-Tax Yield
My brother says that the investment in public provident fund (PPF), which gives 8 per cent, is the best. Isn’t 8 per cent a low rate of return?
An investment’s pre-tax yield tells us if its return is high or low. The return on PPF (8 per cent) is tax-free. Also, this has to compared with returns of a taxable income to estimate its worth. For someone paying a tax of 30.9 per cent, the pre-tax yield in PPF is 11.57 per cent. At present, there is no fixed, safe and assured-return option that has 11.57 per cent return and a post-tax return comparable to PPF’s 8 per cent.
Formula: Pre-tax yield = ROI / (100-TR)*100
Type in: =8/(100-30.9)*100 and hit enter. You will get 11.57%. ROI: rate of interest, TR: tax rate, (depends on tax slab)
Also used for: Calculating the yield on an Employees’ Provident Fund or any other tax-free instrument.
7. Inflation My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will I need 20 years hence with the same expenses?
The required amount can be calculated using the standard future value formula. Inflation means that over a period of time, you need more money to fund the same expense.
Formula: Required amt.=Present amt. *(1+inflation) ^no. of years
Type in: =50000*(1+5% or .05)^20 and hit enter. You will get Rs 1,32,664 as the answer, which is the required amount.
Also used for: Calculating maturity value on an investment.
8. Purchasing Power My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will be the purchasing value of that amount after 20 years?
Inflation increases the amount you need to spend to fetch the same article and in a way reduces the purchasing power of the rupee. Here, Rs 50,000 after 20 years at an inflation of 5 per cent will be able to buy goods worth Rs 18,844 only.
Formula: Reduced amt.= Present amt. / (1 + inflation) ^no. of yrs
Type in: =50000/(1+5%)^20 and hit enter. You will get Rs 18,844, which is the reduced amount.
9. Real Rate of Return My father wants to make a one-year bank FD at 9 per cent. On maturity, he says, the capital will be preserved and he would get assured return on it.
It is true that fixed deposit is safe and gives assured returns. However, after adjusting for inflation, the real rate of return can be negative.
Formula: Real rate of return=[(1+ROR)/(1+i)-1]*100
Type in: =((1+9%)/(1+11%)-1)*100 and hit enter. -1.8% is the real rate of return. ROR: Rate of return per annum; i: rate of inflation (11 per cent here).
10. Doubling, Tripling of Money I can get 12 per cent return on my equity investments. In how many years can I double or even triple my money?
Formula: No. of years to double = 72/expected return
Type in: =72/12 and hit enter. You will get 6 years. For tripling, type in: =114/12 and hit enter. You will get 9.5 years. For quadrupling, type in: =144/12 and hit enter to get 12 years.
Managing money can involve calculations to understand the worth of an investment. To arrive at a result, calculations can be done in a different way or by using a different formula. Even the same formula can be used differently to arrive at a certain result. Here are a few commonly used money management formulas. Use an excel sheet to do these.
1. Compound Interest I want to take a loan of Rs 1 lakh to buy a used car. How much will the car cost me at an annual interest rate of 8 per cent for four years?
The compound interest formula can be used here to calculate the final cost, which would include the loan amount and the interest paid. The amount that is actually paid for Rs 1 lakh is Rs 1,36,048.90. The total amount of interest charged for borrowing Rs 1 lakh is Rs 36,048.90.
Formula: Future value = P(1 + R)^N
Type in: =100000(1+8%)^4 and hit enter. P: amount borrowed; R: rate of interest; N: time in years.
Also used for: Calculating the maturity value on lumpsum investment (bank fixed deposits and National Savings Certificate, for example) over a fixed period at a certain rate of interest.
2. Compound Annualised Growth Rate I had invested Rs 1 lakh in a mutual fund five years back at an NAV of Rs 20. Now the NAV is Rs 70. How should I calculate my returns on an annual basis?
Compound annualised growth rate (CAGR) will be used here to calculate the growth over a period of time. The gain of Rs 50 over five years on the initial NAV of Rs 20 is a simple return of 250 per cent (50/20 * 100). However, it should not be construed as 50 per cent average return over five years.
Formula: CAGR = {[(M/I)^(1/N)] – 1} * 100
Type in: =(((70/20)^(1/5))-1)*100 and hit enter. M: maturity value; I: initial value; N: time in years. CAGR here is 28.47%.
Also used for: Calculating the annualised returns on a lumpsum investment in shares.
3. Internal Rate of Return I paid Rs 18,572 every year on a moneyback insurance policy bought 20 years back. Every fifth year, I received Rs 40,000 back and Rs 4.5 lakh on maturity. What was my rate of return?
The internal rate of return (IRR) has to be calculated here. It is the interest rate accrued on an investment that has outflows and inflows at the same regular periods.
In the excel page type Rs 18,572 as a negative figure (-18572), as it is an outflow, in the first cell. Paste the same figure till the twentieth cell. Then, as every fifth year has an inflow of Rs 40,000, type in Rs 21,428 (40,000-18,572) in every fifth cell. In the twentieth cell, type in –18572. In the twenty first cell, type in Rs 4,50,000, which is the maturity value of the policy.
Then click on the cell below it and type: = IRR(A1:A21) and hit enter.
5.28% will show in the cell. This is your internal rate of return.
Also used for: Calculating returns on insurance endowment policies.
A
-18572
-18572
-18572
-18572
21428
-18572
-18572
-18572
-18572
21428
-18572
-18572
-18572
-18572
21428
-18572
-18572
-18572
-18572
-18572
450000
5.28%
4. XIRR I bought 500 shares on 1 January 2007 at Rs 220, 100 shares on 10 January at Rs 185 and 50 shares at Rs 165 on 18 May 2008. On 21 June 2008, I sold off all the 650 shares at Rs 655. What is the return on my investment?
XIRR is used to determine the IRR when the outflows and inflows are at different periods. Calculation is similar to IRR’s. Transaction date is mentioned on the left of the transaction.
In an excel sheet type out the data from the top most cell as shown here. Outflows figures are in negative and inflows in positive. In the cell below with the figure 4,25,750, type out
=XIRR (B1:B4,A1:A4)*100
Hit enter. The cell will show 122.95%, the total return on investment.
Also used for: Calculating MF returns, especially SIP, or that for unit-linked insurance plans.
A
B
1-Jan-07
-110000
10-Jan-07
-18500
18-May-08
-8250
21-Jun-08
425750
122.95%
5. Post-Tax Return My father wants a bank FD at 10 per cent return for five years. He pays income tax. What will be the returns?
The post-tax return has to be calculated here. The idea is to know the final returns on a fully taxable income. Interest income from the bank is taxed as per your tax slab.
Formula: ROI – (ROI * TR)=Post-tax return
Type in: =10 – (10 * 30.9%) and hit enter. You will get 6.91%
ROI: rate of interest; TR: tax rate (depends on tax slab)
Also used for: Calculating post-tax returns of national savings certificates, post-office time deposits, and Senior Citizens’ Savings Scheme.
6. Pre-Tax Yield
My brother says that the investment in public provident fund (PPF), which gives 8 per cent, is the best. Isn’t 8 per cent a low rate of return?
An investment’s pre-tax yield tells us if its return is high or low. The return on PPF (8 per cent) is tax-free. Also, this has to compared with returns of a taxable income to estimate its worth. For someone paying a tax of 30.9 per cent, the pre-tax yield in PPF is 11.57 per cent. At present, there is no fixed, safe and assured-return option that has 11.57 per cent return and a post-tax return comparable to PPF’s 8 per cent.
Formula: Pre-tax yield = ROI / (100-TR)*100
Type in: =8/(100-30.9)*100 and hit enter. You will get 11.57%. ROI: rate of interest, TR: tax rate, (depends on tax slab)
Also used for: Calculating the yield on an Employees’ Provident Fund or any other tax-free instrument.
7. Inflation My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will I need 20 years hence with the same expenses?
The required amount can be calculated using the standard future value formula. Inflation means that over a period of time, you need more money to fund the same expense.
Formula: Required amt.=Present amt. *(1+inflation) ^no. of years
Type in: =50000*(1+5% or .05)^20 and hit enter. You will get Rs 1,32,664 as the answer, which is the required amount.
Also used for: Calculating maturity value on an investment.
8. Purchasing Power My family’s monthly expense is Rs 50,000. At an inflation rate of 5 per cent, how much will be the purchasing value of that amount after 20 years?
Inflation increases the amount you need to spend to fetch the same article and in a way reduces the purchasing power of the rupee. Here, Rs 50,000 after 20 years at an inflation of 5 per cent will be able to buy goods worth Rs 18,844 only.
Formula: Reduced amt.= Present amt. / (1 + inflation) ^no. of yrs
Type in: =50000/(1+5%)^20 and hit enter. You will get Rs 18,844, which is the reduced amount.
9. Real Rate of Return My father wants to make a one-year bank FD at 9 per cent. On maturity, he says, the capital will be preserved and he would get assured return on it.
It is true that fixed deposit is safe and gives assured returns. However, after adjusting for inflation, the real rate of return can be negative.
Formula: Real rate of return=[(1+ROR)/(1+i)-1]*100
Type in: =((1+9%)/(1+11%)-1)*100 and hit enter. -1.8% is the real rate of return. ROR: Rate of return per annum; i: rate of inflation (11 per cent here).
10. Doubling, Tripling of Money I can get 12 per cent return on my equity investments. In how many years can I double or even triple my money?
Formula: No. of years to double = 72/expected return
Type in: =72/12 and hit enter. You will get 6 years. For tripling, type in: =114/12 and hit enter. You will get 9.5 years. For quadrupling, type in: =144/12 and hit enter to get 12 years.
Thursday, July 31, 2008
10 Emerging Careers
Taking a sneak peek at the hiring scene in the years to come and which sectors are set to emerge in a big way with all those dream jobs
While the world cries slowdown and news of companies downsizing makes headlines, crystal ball gazing on emerging careers might not be the order of the day. But such is the Indian growth story that apart from expansion in the sunrise sectors, entirely new opportunities that never existed will also open up for jobseekers. “According to the International Business Report, 2008, by consultancy firm Grant Thornton International, India alone will make up 30 per cent of the worldwide net increase in employment with 142 million new jobs by 2020,” says Sampath Shetty, vice president, permanent staffing, TeamLease Services, a staffing solutions company.
OLM spoke to a host of experts to find out what specific functional area in each of the emerging sectors would be most in demand and why.
1. Retail
Growth stimulus: “The vast middle class, strong income growth, favourable demographic patterns and organised retailing growth estimated at 40 per cent compounded annual growth rate (CAGR) over the next few years are some of the factors that will drive the retail boom," says Rajeev Gaur, COO, TimesJobs.com, an online jobs database.
Requirements: “The need would be around 15,000-20,000 people in each of these retail chains. So, in all, the requirements would touch 80,000-85,000 every year in the next three to four years, of which frontline sales staff will be 80-85 per cent,” says Vishal Chhiber, head, HR of Kelly Services India, an HR solutions firm.
The remaining jobs, says Nihar Ranjan Ghosh, senior VP HR, Spencer’s Retail, “will be in retail-specific areas like visual merchandising, plannogramming (the science of maximizing space efficiency in the store) and supply chain management. Retail management graduates and general MBAs will be wanted.
2. Real Estate/ Infrastructure
Growth stimulus: Growth in infrastructure and real estate developments with gradual opening up of FDI in certain sub-sectors will be the main reasons for the boom. “The percentage of middle class people in metros and Tier-2 cities who are buying their own property has increased from about 35 per cent in 2003 to 60 per cent today,” says Prodito Sen, VP marketing and corporate affairs, Alpha G: Corp Development, a real estate developer.
Requirements: “This will recreate a need for civil engineers, a tribe we forgot during the IT boom,” says Shabbir Merchant, chief value creator, Valulead Consulting, a leadership development firm. “The requirement is for 1.5 lakh engineers if the land bank we have is to be translated into construction,” says Chhiber. Infrastructure projects would need more such engineers.
“Other functions like residential and commercial real estate brokers, real estate appraisers, property mangers and real estate consultants would also be in demand,” says Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj, a property advisor and transaction firm.
3. Healthcare/Pharma
Growth stimulus: Hospital chains are expanding all over India, even in smaller towns.
Requirement: “An acute shortage of doctors is expected over the next few years, especially anaesthetists, radiologists, gynaecologists and surgeons, particularly neurosurgeons. The need would be for 45,000-50,000 doctors for the 50-odd healthcare companies expected to start operations in India,” says Chhiber.
“People with a Masters in Hospital Administration (MHA) will be in demand as they are key elements to a hospital’s efficiency,” says Vishal Bali, CEO, Wockhardt Hospitals Group. A study by consulting firm Technopak says, “Many big hospital projects have either been delayed or stopped because of this manpower shortage.”
“With the rule of thumb being four MHA people per hospital, around 2,000 hospital chains will need 8,000 such people over the next five years,” adds Bali.
In pharma, demand will be created in research and development (R&D). The requirement would be for 15,000-20,000 scientists every year. “Another area which would see a demand is pharma regulation and documentation officers,” says V. Suresh, senior vice-president and national head (sales), Naukri.com, an online jobs portal.
4. Financial services
Growth stimulus: There will be a lot of new entrants and existing players diversifying with new product lines.
Requirements: “A lot of portfolio managers—not necessarily fund managers, but those who manage portfolios beyond a certain amount—will be required. They will be working with banks and financial institutions. The requirement will be for 25,000-30,000 every year,” says Chhiber.
Suresh adds, “The salaries in private banking would be 200- 300 per cent more than in retail or corporate banking.”
Judhajit Das, HR chief of ICICI Prudential Life Insurance, foresees maximum jobs growth in retail financial services, with 80 per cent of them being in sales and distribution. The biggest employers will be the insurance and banking sector,” he says.
Gaur has some numbers: “Over 50,000 new jobs are expected to be created in the banking, financial services, and insurance sector in the current year. Banks are expected to hire 15,000-20,000 people in the next one year.”
5. Hospitality/facilities management
Growth stimulus: With hotel rooms being added across the country at a rapid rate to keep up with growing tourist inflow, hi-tech townships being developed and malls and multiplexes coming up at every corner, people will be needed to service and maintain them.
Requirements: “Over 2.5 lakh rooms will be needed in the next five years to meet the demand from both the domestic and international guests. Over the next two or three years, we will need over 1 lakh more rooms. An average of 1.5 service personnel per room will mean an overall shortage of at least 1.5 lakh people across a whole range of hotel-related jobs in India, especially food production, food and beverage services, housekeeping and front office operations,” says Satish Jayaram, principal, Institute of Hotel Management, Aurangabad.
According to Chhiber, the manpower growth prediction for facilities management is 20 - 25 per cent. Ashwin Puri, CEO, Property Zone, a firm that develops and manages shopping centres says, “Technical maintenance people need to understand aspects such as provision of adequate power supply, safety issues, water supply, sanitation, signages, and so on. For soft services, hospitality management experience is preferred.” A mall will need five to six such managers.
6. Consulting services
Growth stimulus: With existing businesses growing more complex and numerous startups on the cards, there will be demand for consultants specializing in human resources (HR) and startups.
“Apart from recruitment specialists, another area of demand in the HR space will be ‘employer brand specialists’ as organisations move away from a me-too approach and actively seeking differentiation,” says Merchant.
Requirements: Considering that with every 50-75 people recruited, one HR job gets created, TimesJobs.com estimates that 28,000 more HR jobs will be created in 2008.
Gautam Ghosh, senior manager, HR consultancy Tvarita Consulting foresees an explosion in demand for startup consultants and business strategists as more and more consumer-oriented portals mushroom across the country.
7. Entertainment
Growth stimulus: There would be about two new TV channels every month and 20-25 new FM channels every year.
Requirements: “About 4,000-5,000 people will be directly employed by TV channels every year,” says Chibber.
“In radio, the demand would be for production people, anchors, technical and distribution sales professionals: jobs for 2,500 people in the next two years,” he adds.
8. IT
Growth stimulus: “Despite stagnation in the industry, a lot of project-based or contractual hiring and increasing domestic IT requirements would lead to organic growth,” says Chhiber.
Requirements: Veerendra Mathur, CEO, Focus Infotech, a strategic IT HR and managed solutions firm says, “Professionals who have a holistic knowledge and can do multitasking like coding, testing, designing and communicating with clients will be in demand.”
“India will need 4.9 lakh professionals in the IT exports market, 11.1 lakh in the domestic IT industry and 20.5 lakh in the ITES-BPO sector by 2012,” says Chhiber.
9. Customer services
Growth stimulus: Companies will put more and more stress on customer service to stay ahead of the competition.
Requirements: According to Chhiber, frontline technicians who have skills required to service and manage customers will be in demand. “About 1.5 lakh trained people every year would be needed,” he adds.
10. Telecom
Growth stimulus: The telecom industry is growing faster in small towns and will also see a lot of organic growth. Jobs will also emerge in telecom when people employed here opt to shift to other emerging sectors.
Requirements: “The employment growth rate in telecom industry is expected to increase by seven per cent to ten per cent every year,” says Gaur. “Jobs in demand would be telecom, mechanical, software and telecom test engineers, project managers, network security specialists and operation managers.” According to data from FICCI, telecom will see 0.5 million new jobs by 2010 and 1.5 million by 2015.
Ghosh stresses the increasing demand for people who have a blend of two functional skills, like a financial services person with business and marketing skills. “In a dynamic job space in a growing economy,” he sums up, “people with the right skill sets will always be sought after.”
While the world cries slowdown and news of companies downsizing makes headlines, crystal ball gazing on emerging careers might not be the order of the day. But such is the Indian growth story that apart from expansion in the sunrise sectors, entirely new opportunities that never existed will also open up for jobseekers. “According to the International Business Report, 2008, by consultancy firm Grant Thornton International, India alone will make up 30 per cent of the worldwide net increase in employment with 142 million new jobs by 2020,” says Sampath Shetty, vice president, permanent staffing, TeamLease Services, a staffing solutions company.
OLM spoke to a host of experts to find out what specific functional area in each of the emerging sectors would be most in demand and why.
1. Retail
Growth stimulus: “The vast middle class, strong income growth, favourable demographic patterns and organised retailing growth estimated at 40 per cent compounded annual growth rate (CAGR) over the next few years are some of the factors that will drive the retail boom," says Rajeev Gaur, COO, TimesJobs.com, an online jobs database.
Requirements: “The need would be around 15,000-20,000 people in each of these retail chains. So, in all, the requirements would touch 80,000-85,000 every year in the next three to four years, of which frontline sales staff will be 80-85 per cent,” says Vishal Chhiber, head, HR of Kelly Services India, an HR solutions firm.
The remaining jobs, says Nihar Ranjan Ghosh, senior VP HR, Spencer’s Retail, “will be in retail-specific areas like visual merchandising, plannogramming (the science of maximizing space efficiency in the store) and supply chain management. Retail management graduates and general MBAs will be wanted.
2. Real Estate/ Infrastructure
Growth stimulus: Growth in infrastructure and real estate developments with gradual opening up of FDI in certain sub-sectors will be the main reasons for the boom. “The percentage of middle class people in metros and Tier-2 cities who are buying their own property has increased from about 35 per cent in 2003 to 60 per cent today,” says Prodito Sen, VP marketing and corporate affairs, Alpha G: Corp Development, a real estate developer.
Requirements: “This will recreate a need for civil engineers, a tribe we forgot during the IT boom,” says Shabbir Merchant, chief value creator, Valulead Consulting, a leadership development firm. “The requirement is for 1.5 lakh engineers if the land bank we have is to be translated into construction,” says Chhiber. Infrastructure projects would need more such engineers.
“Other functions like residential and commercial real estate brokers, real estate appraisers, property mangers and real estate consultants would also be in demand,” says Anuj Puri, chairman and country head, Jones Lang LaSalle Meghraj, a property advisor and transaction firm.
3. Healthcare/Pharma
Growth stimulus: Hospital chains are expanding all over India, even in smaller towns.
Requirement: “An acute shortage of doctors is expected over the next few years, especially anaesthetists, radiologists, gynaecologists and surgeons, particularly neurosurgeons. The need would be for 45,000-50,000 doctors for the 50-odd healthcare companies expected to start operations in India,” says Chhiber.
“People with a Masters in Hospital Administration (MHA) will be in demand as they are key elements to a hospital’s efficiency,” says Vishal Bali, CEO, Wockhardt Hospitals Group. A study by consulting firm Technopak says, “Many big hospital projects have either been delayed or stopped because of this manpower shortage.”
“With the rule of thumb being four MHA people per hospital, around 2,000 hospital chains will need 8,000 such people over the next five years,” adds Bali.
In pharma, demand will be created in research and development (R&D). The requirement would be for 15,000-20,000 scientists every year. “Another area which would see a demand is pharma regulation and documentation officers,” says V. Suresh, senior vice-president and national head (sales), Naukri.com, an online jobs portal.
4. Financial services
Growth stimulus: There will be a lot of new entrants and existing players diversifying with new product lines.
Requirements: “A lot of portfolio managers—not necessarily fund managers, but those who manage portfolios beyond a certain amount—will be required. They will be working with banks and financial institutions. The requirement will be for 25,000-30,000 every year,” says Chhiber.
Suresh adds, “The salaries in private banking would be 200- 300 per cent more than in retail or corporate banking.”
Judhajit Das, HR chief of ICICI Prudential Life Insurance, foresees maximum jobs growth in retail financial services, with 80 per cent of them being in sales and distribution. The biggest employers will be the insurance and banking sector,” he says.
Gaur has some numbers: “Over 50,000 new jobs are expected to be created in the banking, financial services, and insurance sector in the current year. Banks are expected to hire 15,000-20,000 people in the next one year.”
5. Hospitality/facilities management
Growth stimulus: With hotel rooms being added across the country at a rapid rate to keep up with growing tourist inflow, hi-tech townships being developed and malls and multiplexes coming up at every corner, people will be needed to service and maintain them.
Requirements: “Over 2.5 lakh rooms will be needed in the next five years to meet the demand from both the domestic and international guests. Over the next two or three years, we will need over 1 lakh more rooms. An average of 1.5 service personnel per room will mean an overall shortage of at least 1.5 lakh people across a whole range of hotel-related jobs in India, especially food production, food and beverage services, housekeeping and front office operations,” says Satish Jayaram, principal, Institute of Hotel Management, Aurangabad.
According to Chhiber, the manpower growth prediction for facilities management is 20 - 25 per cent. Ashwin Puri, CEO, Property Zone, a firm that develops and manages shopping centres says, “Technical maintenance people need to understand aspects such as provision of adequate power supply, safety issues, water supply, sanitation, signages, and so on. For soft services, hospitality management experience is preferred.” A mall will need five to six such managers.
6. Consulting services
Growth stimulus: With existing businesses growing more complex and numerous startups on the cards, there will be demand for consultants specializing in human resources (HR) and startups.
“Apart from recruitment specialists, another area of demand in the HR space will be ‘employer brand specialists’ as organisations move away from a me-too approach and actively seeking differentiation,” says Merchant.
Requirements: Considering that with every 50-75 people recruited, one HR job gets created, TimesJobs.com estimates that 28,000 more HR jobs will be created in 2008.
Gautam Ghosh, senior manager, HR consultancy Tvarita Consulting foresees an explosion in demand for startup consultants and business strategists as more and more consumer-oriented portals mushroom across the country.
7. Entertainment
Growth stimulus: There would be about two new TV channels every month and 20-25 new FM channels every year.
Requirements: “About 4,000-5,000 people will be directly employed by TV channels every year,” says Chibber.
“In radio, the demand would be for production people, anchors, technical and distribution sales professionals: jobs for 2,500 people in the next two years,” he adds.
8. IT
Growth stimulus: “Despite stagnation in the industry, a lot of project-based or contractual hiring and increasing domestic IT requirements would lead to organic growth,” says Chhiber.
Requirements: Veerendra Mathur, CEO, Focus Infotech, a strategic IT HR and managed solutions firm says, “Professionals who have a holistic knowledge and can do multitasking like coding, testing, designing and communicating with clients will be in demand.”
“India will need 4.9 lakh professionals in the IT exports market, 11.1 lakh in the domestic IT industry and 20.5 lakh in the ITES-BPO sector by 2012,” says Chhiber.
9. Customer services
Growth stimulus: Companies will put more and more stress on customer service to stay ahead of the competition.
Requirements: According to Chhiber, frontline technicians who have skills required to service and manage customers will be in demand. “About 1.5 lakh trained people every year would be needed,” he adds.
10. Telecom
Growth stimulus: The telecom industry is growing faster in small towns and will also see a lot of organic growth. Jobs will also emerge in telecom when people employed here opt to shift to other emerging sectors.
Requirements: “The employment growth rate in telecom industry is expected to increase by seven per cent to ten per cent every year,” says Gaur. “Jobs in demand would be telecom, mechanical, software and telecom test engineers, project managers, network security specialists and operation managers.” According to data from FICCI, telecom will see 0.5 million new jobs by 2010 and 1.5 million by 2015.
Ghosh stresses the increasing demand for people who have a blend of two functional skills, like a financial services person with business and marketing skills. “In a dynamic job space in a growing economy,” he sums up, “people with the right skill sets will always be sought after.”
Subscribe to:
Posts (Atom)
