Information – Money Market
Nifty seen on course for fresh high
Nifty seen on course for fresh high
24 Sep, 2007, 0257 hrs IST,
We saw a ‘bullish engulfing candle’ for the Nifty on Tuesday, which was a strong candlestick pattern for an upward move for the market. This was mainly due to the surge in major indices on Wednesday and robust gains on Friday. The Nifty ended the week at 4,837, its highest-ever closing, and a gain of 7% over the previous week.
It has been gaining for the past five consecutive weeks. Market breadth was negative on Friday, but it was positive for most part of the week. BSE Realty, BSE Oil & Gas and BSE Bankex indices were among the prominent gainers during the week.
Market ahead
Last week’s upmove was backed by strong volumes, and we expect the market to build on these gains in the coming days. This week, the Nifty is expected to consolidate in the 4,850-4,900 band. We also expect a major up-move for the market beyond 4,950 and touch 5,000 levels in the short term.
Sectoral Indices
BSE Oil & Gas (9,340): The BSE Oil & Gas index had broken past the crucial resistance level of 8,200 about three weeks ago, and has been on the uptrend ever since. On a weekly closing basis, the index has been on an uptrend for six weeks in a row. It was also helped by the buoyant trend in the international oil market. We expect this index to touch 9,750 levels in the short term. Petronet LNG and Gail are our favourite stocks.
BSE Bankex (8,740)
The BSE Bankex has closed at 8,740 level last week, and is now quoting at an all-time high. We expect this index to touch 9,000 levels in the short term. Kotak Bank and Oriental Bank of Commerce are our favourite stocks in this sector.
SBI: After being restricted in the Rs 1,400 to Rs 1,750 range for the past three months, we saw SBI breaking out of that range on Friday. The stock ended the week at Rs 1,808. We recommend a ‘buy’ on SBI in the Rs 1,800 to Rs 1,820 band, with a target of Rs 1,935. Investors should fix their stop loss in this stock at Rs 1,760.
BSE Realty (9,183)
The BSE Realty Sector closed at 9,183 levels last week, and is now quoting at an all-time high. This sector rose above its key resistance level of 8,500 supported by strong volumes. We expect this index to touch 9,500 levels in the short term. Indiabulls Real Estate and Purvankara are the best bets in this sector.
Akruti Nirman: The stock has broken above its key resistance level of Rs 705, supported by strong volumes. We recommend a ‘buy’ in the Rs 745-750 range with a price target of Rs 835 and keeping a stop loss at Rs 720.
DS Kulkarni Developers: The stock has broken above its key resistance level of Rs 260, supported by strong volumes. We recommend ‘buy’ in the Rs 272-275 range, with a price target of Rs 302 and keeping a stop loss at Rs 258.
(This is the weekly technical outlook of Reliance Money technical desk)
Investing in a bull market
Investing in a bull market
30 Sep, 2007, 0901 hrs IST,Kavita Sriram , TNN
The stock markets are brimming with optimism. Money is pouring into the market like never before. The index has embraced unimaginably new highs. For now, it appears that the bull-run is at the horizon. For a true bull market, at least 20-25 per cent of the stocks must be on an increase and that too for a sustained period say two years. An upswing market is considered a good time for the investor.
What sort of a strategy must investors adopt to make it rich in a bull run? It is not unusual to find some stocks faring poorly in a bull market and some doing exceptionally well in a bear market. A bull run implies a booming economy, low unemployment rate, high production of goods, and low inflation.
The market ups and downs follow cyclic patterns.
For now, it is the time of rising index and increasing volatility. In a bull run, investors follow the formula ‘buy low and sell high’. It is now time for investors to sell their stocks and book profits. Investors need to make well-educated and investigated investments in the markets.
Mere speculation can prove costly. Suppose in a bear market one stock fares poorly. An investor who has done enough research will know the reason for its fall. There may be something fundamentally wrong with the stock and the company policies.
Or the slide in the stock’s price will be a reflection of general pessimism pervading a bear market. If an investor knows that it is the latter, he will stay calm and may be even add more stocks of the company to his portfolio. On the other hand, if he believes that something is fundamentally wrong with the stock, he may decide to sell it and stop further loss.
The scenario holds much the same in a bull market. Some stocks may become highly overpriced. An overpriced stock in a heated market is sure to burst when the bull run ends. Some investors prefer to sell all their shares and make profits. Another strategy is to sell some of the shares and buy back the stock when the price falls back to reasonably low levels.
The value of equities tends to rise fast in a bull run. Predictably, the equity investments in your portfolio will become disproportionately higher. Depending upon your age, objectives and financial obligations, you would have arrived at an asset allocation plan.
In order to stick to the asset allocation, make a judicious down-sizing of the equity component. This will provide ample cushion in case the bubble bursts and markets fall. In a bull run, investigate the real value or worth of the stocks. Do not invest in overpriced stocks. It is advisable to sell overvalued stocks. Exit immediately if you feel the prices have gone up adequately.
Invest regularly. The power of compounding and systematic investment plans goes a long way in wealth accumulation. Finally, bear in mind that there are no permanent bull and bear markets. Disciplined investing and avoiding speculation will help investors.
Understanding central bank autonomy
Understanding central bank autonomy
10 Sep, 2007, 0442 hrs IST,Mythili Bhusnurmath, TNN
NEW DELHI: Research has already established that there are significant benefits for macroeconomic performance from central bank autonomy (CBA). CBA helps countries achieve lower average inflation, cushions the impact of political cycles on economic cycles, enhances financial system stability, and boosts fiscal discipline without any real additional costs or sacrifices in terms of output volatility or reduced economic growth.
Now an IMF paper that looks at trends over time in CBA of 163 central banks representing 181 countries (India is not included in the sample) delves deeper into the issue, more specifically into two aspects of such autonomy: political and economic autonomy.
Political autonomy is defined as the ability of central banks to select the final objectives of monetary policy, based on eight criteria: (1) governor is appointed without government involvement; (2) governor is appointed for more than five years; (3) board of directors is appointed without government involvement; (4) board is appointed for more than five years; (5) there is no mandatory participation of government representative(s) in the board; (6) no government approval is required for formulation of monetary policy; (7) central bank is legally obliged to pursue monetary stability as one of its primary objectives; and (8) there are legal provisions that strengthen the central bank’s position in the event of a conflict with the government.
Economic autonomy assesses the central bank’s operational autonomy on the basis of seven criteria: (1) there is no automatic procedure for the government to obtain direct credit from the central bank; (2) when available, direct credit facilities are extended to the government at market interest rates; (3) this credit is temporary; (4) and for a limited amount; (5) the central bank does not participate in the primary market for public debt; (6) the central bank is responsible for setting the policy rate; and (7) the central bank has no responsibility for overseeing the banking sector or shares responsibility.
Assessing the performance of the sample group of central banks against these two yardsticks, the paper concludes: Average CBA scores have increased significantly over the last couple of decades: overall CBA (political and economic autonomy) has about doubled, but the economic element of autonomy is significantly ahead of the political component.
Advanced economies started off from relatively high levels of autonomy in the late 1980s but continued to strengthen their CBA in the subsequent years. Since their economic autonomy was already quite high, most progress has been towards boosting the political autonomy. However, the political component of autonomy still lags behind the scores for economic autonomy.
Among emerging markets, overall CBA has more than doubled over time and has surpassed CBA, typical in the advanced countries in the late 1980s. Measures of economic and political autonomy show similar levels of improvement, with economic autonomy remaining higher than political autonomy.
In developing countries, political autonomy of central banks has improved only marginally and remains low. The good thing, however, is that economic CBA has increased significantly over the past couple of decades.
According to the authors, political autonomy is much harder to win than economic autonomy. In developing countries, governments often continue to be involved in the selection of central bank boards and tenures tend to be short; the government is generally represented on the board and central banks have a limited legal protection in the event of a conflict with the government.
The four main principles of any legal framework for CBA include:
Setting price stability as the primary objective of monetary policy
Governments may have several competing economic objectives, particularly in the short term. Accordingly, they may tend to ignore the medium-term inflationary effects of an expansionary monetary policy. This time-inconsistency causes a credibility problem. Entrusting price stability to an autonomous agency ( i.e., the central bank) helps strengthen credibility.
Curtailing direct lending to governments
Most central banks have provisions in place that limit their ability to provide unrestricted credit to the government. Today, almost all central bank laws stipulate that lending to the government, if allowed at all, cannot be automatic, and must be temporary, subject to quantitative limits and at market-related interest rates.
Ensuring full autonomy for setting the policy rate
Most central banks have been granted full autonomy for setting their policy rate. At the most basic level, this condition is necessary for the central bank to pursue its goals. A corollary to that consensus view is the desire to ensure that the central bank has full autonomy for the design of its monetary policy instruments, i.e., the tools to achieve the operational target of monetary policy.
Ensuring no government involvement in policy formulation
No government approval should be required for the formulation of monetary policy. A corollary to that principle is the existence of procedures to resolve conflicts between the central bank and the government.
With the exception of the second — curtailing direct lending to government — we do not make the grade on any of the remaining counts. No wonder that differences between the government and the RBI will increasingly see the central bank on its back foot, with unhappy long-term consequences for the economy?
Balance your liabilities
Balance your liabilities
26 Aug, 2007, 0441 hrs IST,Aman Dhall & Dheeraj Tiwari, TNN
If you thought getting a good deal for a home loan is the end of journey, then you may be missing out on a lot of action. Of course, getting a loan on a competitive interest rate is the first step, but if you’ve made regular payments and created a good credit record, you can use that to your advantage.
For those not in the know, this concept is known as balance transfer (BT), wherein the unpaid portion of your home loan is transferred to a new HFC at a lesser interest rate. We at SundayET find out what to look out for before you decide to go ahead with a BT.
Today, banks (read housing finance companies) are looking out for customers from whom they can benefit in the long run, and if you are looking out for a better deal, it’s not a bad idea to approach a housing finance company (HFC) to refinance your loan on a more economical interest rate. That’s not all. Banks such as ICICI, IDBI and SBI also offer additional benefits such as payment of your pre-payment charges or processing fee.
But there’s a catch here. On the face of it, the picture may look rosy. But if you don’t read between the lines, you can end up in a debt-trap. Take the case of Abhishek Shekhar, a 35-year-old doctor. He took a home loan of Rs 20 lakh at an interest rate of 10% two-years ago from Bank X. The tenure of the loan is 20 years. Now, recently he checked out with Bank Y, and after some negotiations, the latter offered him an interest rate of 8.5%. Now, let’s check out the financial gains of this deal:
On paper, such a calculation looks attractive. But what you need to check out is whether the bank has added the pre-payment amount to your overall loan principal. In fact, some banks hide this clause, thus increasing your loan amount by a considerable sum, plus the effect of compounding interest. Warns Kartik Jhaveri, a certified financial planner and a chartered wealth manager:
“You need to check out what all benefits you may get. The important points you should keep in mind before opting for a BT are — how will the bank handle your pre-payment charges, what other features you’ll get such as mortgage insurance and whether the bank calculates your interest on a monthly or annual basis.”
Jhaveri has a pulse on the problem. In fact, owing to competitive rates across the industry, there are not too many balance transfers happening as of now. Customers are also reluctant to opt for it due to the cumbersome documentation involved and the gains are not too big at the moment. “That’s a major reason why there aren’t any special rebates with reference to processing fees or rate of interest being offered to balance transfer cases. Although we have a facility where we can include the pre-payment charges to the principal outstanding balance, to be paid to the existing bank/ NBFC,” explains Sujan Sinha, senior VP, AXIS Bank.
On their part, the banks are trying to place their offers in a more positive light. “We generally have two kinds of options — ‘Simple Balance Transfer’ and ‘Balance Transfer with Top-up’. In the second option, along with balance transfer, a customer can avail of top-up loan amount based on the vintage of the loan,” says Rahul Mallick, general manager, ICICI Bank. The key levers for making a customer switch from one HFC to another is processing fee and preferential interest rate on balance transfers. “Typically, the new interest rate will be 200 bps lower than the existing loan rate. However, a lot depends on the customer profile and tenure of loan,” he adds.
So before you opt for a balance transfer, it is necessary to check with your housing finance company about the current rates. If you’ve made timely payments, it’s quite possible that the HFC can offer you a better deal. Also, compare that if you go ahead with a BT, will the cost be higher than repayment and switching to another housing finance company. “Balance transfer is not a good move if you’ve only five or less year of repayment left. But otherwise, it is a very easy process,” says Sanjeet Shukla, GM, SBI Personal Banking.
Small steps such as finding out the paperwork required, and if the new bank, will be using the original EMI cheques or fresh ones, can save you from further hassles. Balance transfer need not mean saving money, you can also utilise the same for investing in different options. After all securing a home loan is not the end of journey.
Catch Them Young
Piggy banks are for new-borns. And in this jet age, all kids know that money certainly doesn’t grow on trees. On your part, you may have invested in the right options and charted out your short or long-term investment plan, but the benefits that you may reap from making your kids financially aware cannot be quantified in monetary terms.
In fact, in this era of pay cheques, it becomes even more important to make your kids understand the concept of fiscal accountability. After all, it’s you who has to take the ultimate responsibility? That said, making your kids aware about dollar and dimes (in our case rupees and paise) is no miracle.
SundayET spoke to captains of different industries to find out how they have planned to secure the financial future of their kids. Besides encouraging habits such as sharing, understanding the value of money and even charity for the overall development of the child, they highlight a step-by-step journey on how to introduce your child into the financial world….
Budgeting
Although he hates to call Jetlite a budget airline, the habit of budgeting is what Jetlite CEO Gary Kingshott emphasised to his kids. “Budgeting is the first step of sound investment planning. You should know the resources that are available and accordingly you should allocate and spend them,” he says. According to Kingshott, from the very beginning, he inculcated this practice in his kids.
“I did two things. I set up a limit of $100 a month. And I gave them an option that either they can take the whole yearly amount or ask for it per week. In this amount, they had to manage their expenses such as buying presents for their friends, partying or others. This not only gave them a real-life experience about money, buying and selling but also taught them to make their own decisions whether to spend or save or on different things,” he muses.
Kingshott believes that this also generates interest in children and makes them responsible. “But you’ve to play smart. Set the terms of the allowance and make it clear to your children at the outset, otherwise they’ll always find an excuse to ask for some more amount,” he cautions. Today, he feels that the habit of budgeting has helped his children not only to manage their finances but also in their personal lives.
Open an account
Vikas Vasal, director, KPMG India, advises firms on issues which can turn around their fortunes. As a director of one of the world’s leading advisory firm, it’s not easy to miss on the numbers. “Numbers are important for your kids too,” he says. He has two children — seven year-old Chahat and five-year-old Muskan.
“Recently, I opened a bank account for my eldest one. I made her go through the terms and conditions just to make sure that she understands the purpose of opening a bank account. She did make some childish inquiries but that was the purpose of her going through the content. I also made her fill the form and wherever she was at sea, I bailed her out by explaining the financial literature in simple and easy manner,” he says.
Vasal feels that since the child’s account is linked to the parents, you can make sure that your kid deposits a part of his/ her monthly allowance in the bank. “ Later on, you can gradually introduce your child to the entire range of banking services, such as ATM cards, net banking, debit cards and even statements,” he adds. For young adults, Vasal suggests that the parents can set a spending limit for the card and keep a track of the money that the child spends every month.
Mutual fund SIP
An expert on financial matters, Reliance Money CEO Sudip Bandyopadhyay feels that when it comes to teaching your kid the nuances of growing money, there’s no difference between an adult and a child. “To inculcate investment habits in my children, I have introduced them to mutual funds through systematic investment plan (SIP). With micro SIPs available in the market, you can get your child started with an investment of as low as Rs 50 per month,” he says.
According to him, the charm of managing money is exciting for youngsters and seeing the money grow only adds to the confidence of the child. “Your children would be on their feet, literally. Once you get them going, they would start inquiring about any financial product they are exposed to, with you,” asserts Bandyopadhyay.
He believes that making your child invest in SIPs involves a two-pronged approach. “Not only they’ll use their allowances for making investments but it will also help in future if they wish to pursue higher studies,” he adds. Bandyopadhyay feels that you should involve your child as much possible as in the decision-making process.
“For instance, whenever we are planning for holidays, I take suggestions from my children on how can we efficiently budget our travel plan. At the end of the day, your children should realise that they are growing up and are part of the think-tank of their family,” he reasons.
E-banking
Insurance is subject matter of solicitation. And the same stands true if you really want your kids to be financially aware, believes Nitin Chopra, CEO, Bharti-AXA Life Insurance. “You’ve to generate a curiosity among your children so that they ask for details.
Most parents forget that any young adult would love to take on responsibilities, provided you give him space. In my case, from the very start, I made sure that my daughter, Vidita, was aware of my financial transactions. And in this Internet age, I made sure that she learnt almost everything about banking on the Net. Today, she advises me when it comes to handling accounts,” he laughs.
Chopra feels that today parents don’t have enough time for their kids. But taking out some time and imparting the right lessons can help in shaping their future in a much better way. “I went along with my daughter to the US at the time of her college admissions but she needed little help from me.
She was confident and filed all the papers, including opening an account, all by herself,” he remembers. According to Chopra, ‘e-banking’ is the future and if kids have a basic understanding, it will help them in the long run. “Today, you can do anything and everything on the net and if you are comfortable with it nothing is better,” he adds.
Money games
He may be dictating terms to his subordinates on how to bargain in the wholesale market while sourcing fruits and vegetables for Food Bazaar outlets, but when it comes to educating his kids, Pantaloon Retail Food Business CEO Arvind Chaudhary believes that playing money games is the best way to teach the secrets of a good deal.
Now be it the game of monopoly or learning the bulls and bears of the stock market over the Internet, “I encourage them to play lot of money games. They really help sharpen their mind and bargaining skills,” says Chaudhary. The Chaudhary family, in fact, assesses every family member on the last weekend of a month on how efficiently he/ she bargained for goods. “Negotiating ability should be inculcated in a child right from the beginning. It gives them a broad picture about the importance of money,” he feels.
Chaudhary also tries to involves his children in daily financial matters. “If I am making some payments through cheque, I ask them to cross-check whether I have filled up all the relevant details. Similarly, I ask them to keep a track of the due date of an insurance premium,” he reveals. Chaudhary believes playing stock games over the Internet has made his children more aware of how actually the stock market operates and this will help them in future.
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