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Friday, February 29, 2008

FARMING FOR VOTES :BUDGET 2008-09

With an eye on elections, Finance Minister P Chidambaram presents a budget full of highly ‘populist’ measures, including a whopping Rs 60,000-crore debt waiver for farmers



    In a budget that many said could bring in early polls, Finance Minister P Chidambaram gave a whopping Rs 60,000 crore largesse to over four crore farmers by writing off their loans, provided sops to income tax payers, imposed no fresh burden on corporates but brought down excise duties on production to stimulate economy.
    Spreading goodies in the fifth and last full-fledged budget of the UPA government, he brought down excise duties that will bring down prices of drugs, small and hybrid cars, two and three-wheelers, water purification devices, breakfast cereals, paper and paperboard. However, non-filtered cigarettes will become expensive.
    In a bid to boost demand and stimulus to manufacturing sector, the Finance Minister also reduced the general central value-added tax (CENVAT) across the board from 16 to 14 per cent.
BCTT OUT, BUT NEW ‘CTT’ IN
The controversial banking cash transaction tax (BCTT) has been withdrawn while commodities transaction tax – on the lines of securities transaction tax – is being introduced.
    Chidambaram’s direct tax proposals are revenue neutral while those on the indirect taxes side are estimated to result in a loss of Rs 5,900 crore.
    Without altering the rate of tax, Chidambaram sought to please the middle-class by raising income tax exemption limits. Consequently, Chidambaram made changes in tax slabs (see chart).
MIXED BAG FOR INDIA INC
The budget makes no change in the corporate tax rates and the rate of surcharge, but hiked the shortterm capital gains tax that did not go well with the stock markets.
    In a sop to corporates, the FM exempted crèche facilities, sports sponsorship and guest houses from the purview of fringe benefit tax (FBT).
DEFICIT AT 1 PER CENT OF GDP
Maintaining that it is widely acknowledged that the fiscal position has improved tremendously, Chidambaram said the revenue deficit for the current year will be 1.4 per cent as against an estimate of 1.5 per cent, and the fiscal deficit at 3.1 per cent as against 3.3 per cent.
    The minister said further progress will be made in 2008-09. The revenue receipts for the coming year are projected at Rs 6,02,935 crores, and the revenue expenditure at Rs 6,58,119 crores.
    Consequently, the revenue deficit is estimated at Rs 55,184 crores which amounts to 1 per cent of the GDP. The fiscal deficit is estimated at Rs 1,33,287 crores, which is 2.5 per cent of GDP.
ALLOCATION FOR FARM LOAN WAIVER TO COME LATER
In the post-budget briefing, Chidambaram was grilled about how he proposed to compensate banks for the Rs 60,000-crore farm loan waiver scheme.
    “We have to pay for the liquidity in the banking system over the period in which they would have recovered – three years,” he said.
    The budget itself does not make any allocation for the loan waiver scheme. Asked about this, the minister said, “Credit me with some intelligence. We have done our homework. We will tell you when we do it.” AGENCIES KNOW YOUR BUDGET FOR 2008-09

• No change in corporate income tax rates and surcharge

• Full loan waiver for 4 crore small, marginal farmers

• Rs 2,80,000 crore target set for farm credit in 2008-09

• Short-term crop loan to continue at 7 per cent interest

• Irrigation & Water Resources Finance Corp to be set up

• Rain-fed area development programme to be started

• Revenue deficit estimated at Rs 55,184 crore

• Fiscal deficit pegged at 2.5 per cent of GDP

• PAN mandatory for all financial market transactions

• No change in peak rate of customs duty

• Customs duty on project imports slashed to 5 per cent

• Duty of steel and aluminium scrap abolished

• Excise duty on pharma products halved to 8 per cent

• Small cars, 2/3-wheelers, buses, chassis to cost less

• Central Sales Tax to be reduced to 2 per cent from April 08

• CENVAT on all goods reduced to 14 per cent from 16 per cent

• Excise duty on bulk cement now on par with packaged one

• Four more services brought under tax net

• Small services providers earning Rs 10 lakh exempt from tax

• Defence allocation increased by 10 per cent to Rs 1,05,600 cr QUICK LOOK

 

STICK TO YOUR OLD MOBILE

 

GO BIG ON SMALL CARS

 

FILTER-LESS CIGGIES ON FIRE

 

DRUGS GET A HEALING TOUCH

 

CEMENT RATES TO HARDEN

 

 

 

 

 

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Wednesday, February 27, 2008

Tea rejuvenating stock market

Tea rejuvenating stock market

Sri Lanka's stock market is recovering thanks to an unlikely tonic - tea. High international tea prices are boosting interest in Sri Lanka's tea and rubber plantation sector shares, which have helped reverse the stock market's 7 percent drop in January.

With investors betting on strong quarterly results for the sector, Colombo's leading All-Share index has clawed back its losses this year and analysts say tea plantation share gains could help drive the broader market back into positive territory. For the year to date, the plantation sector sub-index is up more than 21 percent.

"Because of high expectations of strong earnings in plantation shares, small investors are highly attracted," said Vajira Premawardhana, head of research at Lanka Orix Securities.

"Corporate earnings of some main blue chips are not up to the expected level. So now most investors want to recover their losses (in other shares) from plantation shares." Sri Lanka's Tea Board said last month that despite a 2 percent drop in 2007 production, the country earned a record $1 billion from tea exports, helped by high global prices.

Tea is a major foreign exchange earner along with remittances and garments. The Tea Board said average tea prices at auction in Colombo rose more than 40 percent last year to $2.74 per kilogram. Rubber prices also rose 15-35 percent, depending on the type of rubber exported, though exports are much smaller than tea.

Sri Lanka was the world's No.3 tea producer after China and India in 2006, but the leading exporter, according to Tea Board data.

Three plantation companies which have announced quarterly earnings this month have reported strong profits, fuelling interest in other plantation shares. The sector has accounted for nearly half of all bourse turnover for a week.

Kotagala Plantation posted a 57 percent jump in nine-month net profit, Talawakelle Tea Estates said its 2007 net profit grew 24 percent, and Kelani Valley Plantation increased its 2007 net profit by 62 percent. Fifteen more plantation sector shares are set to release their earnings by the end of the month.

"High profits are mainly because of high global tea and rubber prices," said Dharshi Ganeshan, a research analyst at Bartleets Mallory Stockbrokers. Plantation shares are minnows in terms of market capitalisation but, unaffected by a new phase in a 25-year civil war, they have shone compared to blue chip stocks such as top mobile operator Dialog Telekom.

 

 

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Monday, February 25, 2008

World's biggest democracy India's budget

World's biggest democracy India's budget is going to be announced on 29th Feb.'08 from the bags of Shri P.Chidambaram, finance Minister. Common people of India, Media, Industrialists of India & abroad, FII's,Inst.Investors, Mutual Funds, HNIs, all are looking towards eyes of Shri P.Chidambaram. Whole World's Big Financial Heads are keenly waiting for 29-02-2008,cause U.S. and Euoripean Economies are struggling against fear of economy and industrial slowdown, Where as Emerging Markets like India, China,Brazil, Russia are doing good since last 4-5 Years.


Lawyer from Chennai, Shri P.Chidambaram had given the budget for the financial year 1997-98 & since last 3-4 years. All were super-duper budgets for all common people, Industrialists, Economy,Development & also for the Stock-Market. This year also, people from all over India & abroad hoping for repetition of history. Even I also believe that Central budget would be as good as P.Chidambaram's & Dr. Manmohansingh's image .Simultaneously he has to take care of Inflation,Sub-prime effect to Indian Economy, Rising Crude Oil Prices, Slowing Economic as well as Industrial growth,Further push to Agriculture growth so as to achieve agri sectors targets,Volatality of Foreign Markets & its effect on indian economy,market, Tax-payer's Expactations,Liquidity Flow Control,Interest Rates and Keep GDP Growth above 8.5 or 9 in coming years...etc.

This time finance minister will get the full support of Prime minister who himself was a finance minister & was the promoter of the Economic Reforms.Lalooprasad's Rail Budget is going to favourable.It seems that, this Central Budget is also people,Investor,Industry & Market Friendly. But he has to take care of Left parties, Tax plannings,Inflation,Economic Reforms,PSU Disinvestments,Employment,Fresh investments,support to Indian industries for development & growth in India & abroad. Many Sectors are Waiting for good announcement. Many sectors are struggling against severe competition, so that sectors really needs to boost up and some good relief in taxation. Last few figures of Economic data, Industrial Data was poor but Tax Collection data is coming out with mind blowing figures... roughly 42% up…Record Break tax collection which fullfills Finance Minister's last year budgetary expactations.

29-02-08's budget will be well balanced,likely to focus more on Employment,Rural Development,Agriculture growth,Infrastructure Growth. Coming Budget can be called as " Comman-Man Budget "....

In coming budget following Industries likely to gain on good announcement from the FM. Keep a close eye on stocks belonging to these sectors.Undoubtly this year budget is likely to focus more on common people,Farmers cause of Elelctions are nearby in India & Shri P.Chidambaram has to take care of Smt. Sonia Gandhi's view for forthcoming political events.

Here are the few hot scripts sector wise. If these sectors related news is positive then these companies will be in limelight & may be create firework in coming days.

Sector : Co.'s Will Be benefited if Good Announcement :

Oil and Gas :

HPCL,BPCL,IOC,ONGC, Cairn,Gail, Essar Oil

Infrastructure :

IVRCL, Nagarjuna Construction, DLF, Jai Corp,

Telecom :

MTNL, R Com, Bharti Tele, IDEA,Spice Tele, GTL Infra

Aviation :

Jet Air, Air Deccan, Spice Jet

Media & Entertainment :

Cinemax, Zee, NDTV,Dish Tv, Zee news.

Banking :

SBI, ICICI, HDFC, Union Bank, BOI, Dena, Vijaya, Indusind Bank, Fedral Bank

Agriculture :

KS Oil, Ruchi Soya, Zuari Agro, Excel Crop, Usher Agro, Nutraplus Products

Pharma :

Surya Pharma, Sandu Pharma, Glenmark,Ranbaxy, Nutraplus Products, Wanbury

Biotech :

Jupitor Bio, Sharon Bio, Biocon, Mediaman

IT :

TCS, Zensar, Prithvi, Infosys, Tutis Tech, Aftek Info, D-link, Tech Mahindra, Fin.Techno

FMCG :

Colgate, ITC, Hind.Lever, Nestle

Oil Exploration :

Hind.oil, Selan Exploration

Fertilizers :

RCF, GSFC, GNFC,Nagr.Fert, Godavari, Chambal

Tyres :

TVS Shrichakra, CEAT, MRF, Apollo

Gems & Jewellery :

Rajesh Export, Vaibhav Gems

Finance :

Continental Credit, TFL, Ind.Lease

Mining & Minerals :

Hind.Copper, RNRL, Kachch Mineral, Sesa Goa, Hind.Zinc,GMDC,VBC Ferro Alloys.

Metals :

Tisco, Jindal Stainless, Kaamdhenu,Ferro Alloy, Hindalco

Retails & Textile :

Arvind, Life Style Fashion, Timex, Santogen Export, Super Spinning, Suryajyoti

Shipping :

Mundra Port, SCI, GE Shipping, SEAM

Const. Material :

Hyderabad Industries

Chemicals,Paints :

Asahi Songwan, Vikram Thermo

Hotels & Tourism :

Hotel Leela, Indian Hotel, EIH Associated, ITH

Insurance & Housing Finance :

LIC Housing, HDFC, ICICI, GIC, Ind. Lease

Sugar :

Renuka, Riga Sugar, Bajaj Hind.,Uttam Sugar

Cement :

OCL, ACC, India Cement, Birla Corp

Engineering :

Rolta, Hind-Door, Batliboi

Food( Agri Base) :

Britannia, Nestle,GTC,ITC, Nutraplus,ADF Food

Logistics :

Aegis Log., Gati, GDL

Irrigation :

Rungta Irrigation, Jain Irrigation

Elect.Goods :

Salzer Electr.

E-Governance & IT Education :

Prithvi Info,NIIT, Aptech, NIIT Tech

Auto :

Maruti,Telco, Punjab Trac, M&M, VST Tillers

Pumps :

KSB Pump,Roto Pump

Paper :

BILT, AP Paper, Sirpur Paper

Medical Services :

Indraprasth Mediacal, Apollo Hospital, Span Diag.

Leather:

BATA, Mayur Leather, Liberty Shoes

Pesticides :

Excel Crop, Zuari Agro, Bayer Crop

Plastics :

Nilkamal,

Printing & Stationery:

Navneet Publications

Food Processing:

Usher Agro, Agro Dutch Ind., Ravalgaon Sugar, Quality Dairy, Satnam Overseas, Dawat.

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Indian Software Companies move up the Value Chain

Kavitha Rajasekhar
For long the cheap development base to feed overseas software requirements, Indian IT start-ups are fast coming of age as they take the elevator to the top of the value chain.
The juiciest morsel in the software food chain is the products market-the optical networking products market alone will be worth $40 billion by 2003 according to industry estimates-and Indian companies, particularly start-ups, are sharpening their knives to carve out a big piece for themselves. ``The market is seeing three significant changes-service companies are moving up to offer high-end sophisticated solutions and services, companies are getting into products, and start-ups are going heavy on Web-enabled products,'' said National Association of Software and Service Companies (NASSCOM) chief Dewang Mehta.
Start-up iLantus Technologies for instance, although an integrated infrastructure and security management services company, has a product-focused development centre as part of its strategy to combine services and product development. While India was bound to face challenges from other countries-China, Philippines, Ireland and East Europe that are putting strong strategies in place-its track record would help it hold on to its position in the international markets, according to Jawahar Bekay, Co-CEO of Planetasia.com & director of NetBrahma & Microland. Microland's Net Brahma has specific plans in the areas of IP networking, protocols and voice/date convergence aiming for OEM products for the next generation Net infrastructure. 15-20 per cent of the revenues are expected to come from products starting in the second year of operations.
Had India tried to play the products game three years ago the efforts would have failed but now the IT services operations have built up a strong base for companies on products, he said. A Nasscom-McKinsey report recently put the total software earnings for India at $50 billion by 2008 of which $8 billion will come from products alone (see chart). Though the balance is currently tilted towards the services segment, the growth in product activities would see significant revenues coming in contributing up to a quarter of total revenues by 2005, up from 10 per cent now, he added.
According to BPL Innovision chairman and CEO Rajeev Chandrasekhar, India could have the ``real chance'' of making significant inroads in the global products market especially in the Internet/convergence/telecom products segment. And, with improved connectivity and broadband in place, the country would see tremendous technology upgradation on the home ground.
While earlier most Indian companies stayed away from products for want of resources to make a global marketing success (more so because the development business afforded sizeable margins on relatively lower investments), now, younger upstarts are latching on to global partners with technology and strategic marketing alliances to showcase their products the world over.
For example, start-up Tejas Networks India Pvt Ltd promoted by industry heavyweight Sycamore Networks' Gururaj `Desh' Deshpande will leverage Sycamore's market reach in certain regions to gain global access for its products in the optical networking space.
Targeting a growth rate much faster than that of a service company, Tejas was looking at getting maximum return on investments with product focused operations, according to its managing director Sanjay Nayak.
Although India was slow in hopping on to the productisation bandwagon, domesticsoftware companies having got their act together are moving in for the bigger kill: e-enabled products.
Bangalore-based Subex Systems Ltd managing director believes that there is now a need to move up the value chain for Indian companies especially in the Web, e-commerce and telecom segments.
Subex therefore was going heavy on its product Ranger-a telecom fraud management system-and expected revenues from product development to grow exponentially in two or three years with a revenue mix of 30-40 per cent from products and the remaining from off-shore/customized solutions, Menon said.
Getting into niche product spaces is also another strategy that start-ups are taking to quickly. The 18-month-old Impulsesoft Pvt Ltd has the distinction of being one of the few Indian companies wholly focussed on building wireless/Bluetooth OEM products and solutions PCs, Notebooks, PDAs and cellphones for OEMs.
Similarly, Integra Microsystems Pvt Ltd with its WAP server product Jataayu, has placed itself among the few companies in the world to develop a WAP server. Now spun off as a separate subsidiary-Jataayu Software India Pvt Ltd-the company has ambitious plans in the WAP segment.
Talisma Corporation, the parent company of Aditi Technologies, says its eCRM product, Talisma, has already established itself in the global eCRM market that's worth $2.3 billion.
According to the companies' country manager Rekha Menon: ``The product-to-services revenue mix at Talisma Corporation is about 40:60 in favour of services but the ratio is likely to reverse in the next few years.''
Another ambitious products player Celstream Technologies Private Limited is looking at at least 50 per cent of its total revenues from software products.
Celstream managing director Brijesh Wahi said the company would focus on enabling innovative interaction in the New Economy with its products in the New Media and Next generation communication markets.
Copyright © 2000 Indian Express Newspapers (Bombay) Ltd.

Thursday, February 21, 2008

Creating the perfect balance for the long-term investor

If you want to maintain a simple portfolio and yet have the benefits of diversification, a systematic investment in balanced funds is a great option

    
AS AN investor, if you are saving regularly for the long-term and want a low-involvement, hassle-free instrument, then balanced funds are the right choice.
    Balanced (mutual) funds have been around for over a decade — and manage assets of over Rs 16,000 crore between them. They, by mandate, invest at least 65% of their portfolio in equities, and up to 35% in debt and related instruments. In practice, the equity component of most balanced funds varies between 65% and 80%, depending on the fund manager’s outlook of the markets. Long-term and discerning investors would no doubt have heard of the UTI Balanced Fund and Prashant Jain’s HDFC Prudence Fund. Of course, today, there are over 15 balanced funds offered by different fund houses. They have systematic investment plans (SIP), growth/dividend options, and all the other investor-friendly features provided by ‘pure’ equity and debt funds.
    But how effective are balanced funds from a tax, load and performance point of view, compared to, say, investing partly in equities and partly in debt? For those who do not wish to enter into nitty-gritties, here’s the simple answer: if you want to maintain a simple portfolio, and yet have the benefits of diversification, a systematic investment in balanced funds is a great option. If you are the more discerning and involved kind, you might want to synthetically ‘manufacture’ a balanced fund type of portfolio instead; by investing in two or more funds, each of ‘pure’ equity and debt nature. If you want some mathematics around, how we came to this, then read on!
    For a fair comparison, we consider a Rs 100 investment for three years in a balanced fund on the one hand; and compare it with a combination of two investments for the same duration — of Rs 65 in an equity fund and Rs 35 in a debt fund. Of course, if your desired asset allocation is far different from this (say you are risk averse and want to stay away from equity markets), you should not consider balanced funds. We assume an annualised equity market return of 15% and a debt market return of 7%. Thus, the balanced fund return, ceteris paribus, is expected to be 12.2%, before load and tax.
Nature of portfolio
    Balanced funds would invariably invest the equity component of the portfolio in a well-diversified basket of securities, in different sectors. This is ideal for an investor who wants to participate in the long-term growth of the economy, without any active sector or stock preference. Indeed, balanced funds are best suited for such investors. For someone wanting to take sector calls or ride a mid-cap rally, a ‘pure’ (sector or mid-cap) equity fund exposure is called for.
    A balanced fund would invest in debt securities of intermediate duration (1-4 years). Thus, they are sensitive to interest rate movements, but not overly so. Hence, as with equity, they are again suitable for investors without a clear researched view on rate cycles.
Transaction costs
    In any mutual fund investment, there are two kinds of transaction costs — viz entry/exit loads (for purchase or redemption of fund units) and the expense ratio (annual cost of fund management).
    Let us examine each of these in the illustration given above. Most balanced funds, unfortunately, charge the same entry load as equity funds (2.25%). Thus, in our numerical example, of the Rs 100 invested in the balanced fund, only Rs 97.8 would go towards allotment of units. In our synthetic example, the entire Rs 35 would go into debt units (there being no entry load), and Rs 63.57 towards equity units. Thus, in the synthetic case, we have escaped paying entry load on the debt part of the investment. This difference gets magnified with time, due to compounding.
    The other major cost — the expense ratio — is (at least currently) similar in the balanced and synthetic fund scenario. In fact, the difference between funds of similar category exceeds the difference between the equity and balanced categories. So, we ignore this term in the comparison.
Tax implications
    There are two tax structures in mutual funds, depending on whether a fund is classified as debt or equity. The following table summarises the currently prevailing tax structure:
    Thus, equity funds enjoy beneficial tax treatment. Here, balanced funds enjoy the beneficial treatment of being taxed like equity funds and, in this, they clearly score over the synthetic portfolio we had manufactured, where the debt portion would be taxed at a higher rate.
    Balanced funds have higher transaction costs, but are beneficial from a tax perspective. Let us now examine the net impact of all these factors on returns earned by a typical investor.
    The accompanying table shows the net impact in both the balanced fund investment and the synthetic portfolio; for the period of three years, given the equity and debt returns as assumed above. As can be seen there, the synthetic portfolio outperforms, but by a very small margin. For all practical purposes, a good balanced fund can easily perform as well as a syntheticallymade portfolio with similar debt to equity ratio. And we do have such excellent balanced funds in today’s mutual fund market!
    As an investor, if you are saving regularly for the long term and want a low involvement hassle free instrument, balanced funds are for you. If you otherwise have a lot of debt investment (Bank FD, PPF, NSC, liquid funds, etc) then you might be better off going for 100% equity oriented funds instead. In either case, you can be comfortable in the knowledge that the benefits of one option over another are not overwhelming; and in most cases not even significant.
    PARK Financial
    Advisors, Mumbai

 

 

 

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Carbon credit and how you can make money from it

Carbon dioxide, the most important greenhouse gas produced by combustion of fuels, has become a cause of global panic as its concentration in the Earth's atmosphere has been rising alarmingly.

This devil, however, is now turning into a product that helps people, countries, consultants, traders, corporations and even farmers earn billions of rupees. This was an unimaginable trading opportunity not more than a decade ago.

Carbon credits are a part of international emission trading norms. They incentivise companies or countries that emit less carbon. The total annual emissions are capped and the market allocates a monetary value to any shortfall through trading. Businesses can exchange, buy or sell carbon credits in international markets at the prevailing market price.

India and China are likely to emerge as the biggest sellers and Europe is going to be the biggest buyers of carbon credits.

Last year global carbon credit trading was estimated at $5 billion, with India's contribution at around $1 billion. India is one of the countries that have 'credits' for emitting less carbon. India and China have surplus credit to offer to countries that have a deficit.

India has generated some 30 million carbon credits and has roughly another 140 million to push into the world market. Waste disposal units, plantation companies, chemical plants and municipal corporations can sell the carbon credits and make money.

Carbon, like any other commodity, has begun to be traded on India's Multi Commodity Exchange since last the fortnight. MCX has become first exchange in Asia to trade carbon credits.

So how do you trade in carbon credits? Who can trade in them, and at what price? Joseph Massey, Deputy Managing Director, MCX, spoke to Managing Editor Sheela Bhatt to explain the futures trading in carbon, and related issues.

What is carbon credit?

As nations have progressed we have been emitting carbon, or gases which result in warming of the globe. Some decades ago a debate started on how to reduce the emission of harmful gases that contributes to the greenhouse effect that causes global warming. So, countries came together and signed an agreement named the Kyoto Protocol.

The Kyoto Protocol has created a mechanism under which countries that have been emitting more carbon and other gases (greenhouse gases include ozone, carbon dioxide, methane, nitrous oxide and even water vapour) have voluntarily decided that they will bring down the level of carbon they are emitting to the levels of early 1990s.

Developed countries, mostly European, had said that they will bring down the level in the period from 2008 to 2012. In 2008, these developed countries have decided on different norms to bring down the level of emission fixed for their companies and factories.

A company has two ways to reduce emissions. One, it can reduce the GHG (greenhouse gases) by adopting new technology or improving upon the existing technology to attain the new norms for emission of gases. Or it can tie up with developing nations and help them set up new technology that is eco-friendly, thereby helping developing country or its companies 'earn' credits.

India, China and some other Asian countries have the advantage because they are developing countries. Any company, factories or farm owner in India can get linked to United Nations Framework Convention on Climate Change and know the 'standard' level of carbon emission allowed for its outfit or activity. The extent to which I am emitting less carbon (as per standard fixed by UNFCCC) I get credited in a developing country. This is called carbon credit.

These credits are bought over by the companies of developed countries -- mostly Europeans -- because the United States has not signed the Kyoto Protocol.

How does it work in real life?

Assume that British Petroleum is running a plant in the United Kingdom. Say, that it is emitting more gases than the accepted norms of the UNFCCC. It can tie up with its own subsidiary in, say, India or China under the Clean Development Mechanism. It can buy the 'carbon credit' by making Indian or Chinese plant more eco-savvy with the help of technology transfer. It can tie up with any other company like Indian Oil [Get Quote], or anybody else, in the open market.

In December 2008, an audit will be done of their efforts to reduce gases and their actual level of emission. China and India are ensuring that new technologies for energy savings are adopted so that they become entitled for more carbon credits. They are selling their credits to their counterparts in Europe. This is how a market for carbon credit is created.

Every year European companies are required to meet certain norms, beginning 2008. By 2012, they will achieve the required standard of carbon emission. So, in the coming five years there will be a lot of carbon credit deals.

What is Clean Development Mechanism?

Under the CDM you can cut the deal for carbon credit. Under the UNFCCC, charter any company from the developed world can tie up with a company in the developing country that is a signatory to the Kyoto Protocol. These companies in developing countries must adopt newer technologies, emitting lesser gases, and save energy.

Only a portion of the total earnings of carbon credits of the company can be transferred to the company of the developed countries under CDM. There is a fixed quota on buying of credit by companies in Europe.

How does MCX trade carbon credits?

This entire process was not understood well by many. Those who knew about the possibility of earning profits, adopted new technologies, saved credits and sold it to improve their bottomline.

Many companies did not apply to get credit even though they had new technologies. Some companies used management consultancies to make their plan greener to emit less GHG. These management consultancies then scouted for buyers to sell carbon credits. It was a bilateral deal.

However, the price to sell carbon credits at was not available on a public platform. The price range people were getting used to was about Euro 15 or maybe less per tonne of carbon. Today, one tonne of carbon credit fetches around Euro 22. It is traded on the European Climate Exchange. Therefore, you emit one tonne less and you get Euro 22. Emit less and increase/add to your profit.

We at the MCX decided to trade carbon credits because we are in to futures trading. Let people judge if they want to hold on to their accumulated carbon credits or sell them now.

MCX is the futures exchange. People here are getting price signals for the carbon for the delivery in next five years. Our exchange is only for Indians and Indian companies. Every year, in the month of December, the contract expires and at that time people who have bought or sold carbon will have to give or take delivery. They can fulfill the deal prior to December too, but most people will wait until December because that is the time to meet the norms in Europe.

Joseph Massey, Deputy Managing Director, MCX.

Say, if the Indian buyer thinks that the current price is low for him he will wait before selling his credits. The Indian government has not fixed any norms nor has it made it compulsory to reduce carbon emissions to a certain level. So, people who are coming to buy from Indians are actually financial investors. They are thinking that if the Europeans are unable to meet their target of reducing the emission levels by 2009 or 2010 or 2012, then the demand for the carbon will increase and then they may make more money.

So investors are willing to buy now to sell later. There is a huge requirement of carbon credits in Europe before 2012. Only those Indian companies that meet the UNFCCC norms and take up new technologies will be entitled to sell carbon credits.

There are parameters set and detailed audit is done before you get the entitlement to sell the credit. In India, already 300 to 400 companies have carbon credits after meeting UNFCCC norms. Till MCX came along, these companies were not getting best-suited price. Some were getting Euro 15 and some were getting Euro 18 through bilateral agreements. When the contract expires in December, it is expected that prices will be firm up then.

On MCX we already have power, energy and metal companies who are trading. These companies are high-energy consuming companies. They need better technology to emit less carbon.

Is this market also good for the small investors?

These carbon credits are with the large manufacturing companies who are adopting UNFCCC norms. Retail investors can come in the market and buy the contract if they think the market of carbon is going to firm up. Like any other asset they can buy these too. It is kept in the form of an electronic certificate.

We are keeping the registry and the ownership will travel from the original owner to the next buyer. In the short-term, large investors are likely to come and later we expect banks to get into the market too. This business is a function of money, and someone will have to hold on to these big transactions to sell at the appropriate time.

Isn't it bit dubious to allow polluters in Europe to buy carbon credit and get away with it?

It is incorrect to say that because under UNFCCC the polluters cannot buy 100 per cent of the carbon credits they are required to reduce. Say, out of 100 per cent they have to induce 75 per cent locally by various means in their own country. They can buy only 25 per cent of carbon credits from developing countries.

Tell us what's the flip side of your business?

Like in the case of any other asset, its price is determined by a function of demand and supply. Now, norms are known and on that basis European companies will meet the target between December 2008 and 2012. People are wondering how much credit will be available in market at that time. To what extent would norms be met by European companies. . .

As December gets closer, it is possible that some government might tinker with these norms a little if the targets could not be met. If these norms are changed, prices can go through a correction. But, as of now, there is a very transparent mechanism in which the norms for the next five years have been fixed.

Governments have become signatories to the Kyoto Protocol and they have set the norms to reduce the level of carbon emission. Already companies are on way to meeting their target.

Other than this, it's a question of having correct information. How much will be the demand for carbon credit some years from now? How much will the supply be? It is a safe market because it is a matter of having more information on the extent of demand and supply of carbon credit market.

 

 

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Tuesday, February 19, 2008

Market turmoil hits financial services sector the most


Recent Slump Sees Segment Lose 14-37% Compared With Sensex Fall Of 12%

Bakul Chugan ET INTELLIGENCE GROUP



FASTER the rise, steeper the fall. And one sector that this maxim holds true for is the financial services sector. Though one of the principal beneficiaries of the market rally, it also turns out to be one of the hardest hit sectors in the recent market crash.
The year 2007 saw financial services companies like Motilal Oswal, Religare Enterprises and Edelweiss Capital make a strong debut on the stock exchanges. In stark contrast, 2008 has not begun on a pleasant note.
At a time when the Sensex tumbled by nearly 12% between January 8 and January 25, the share prices of financial services companies fell between 14% and 37%, higher than their theoretical expected declines calculated in sync with their beta.
So while India Infoline, with beta of 1.7,
should have fallen by about 20% theoretically, the actual decline was much sharper at 25%. Even Reliance Capital, which fell by nearly 21%, exceeded its theoretical fall of 16%, considering its beta of 1.3.
And if this was the scenario at the closing of the bell, the intraday fluctuations saw some of the recently listed stocks going even below their issue price. Ironically, these were the very same
stocks that listed with record listing gains a few months ago.
The concern evinced by analysts on these stocks with respect to high risk on account of market volatility has been proven right. Most of these stocks have now been labelled as high beta stocks, which imply very high volatility in relation to the market as a whole, rendering them a risky venture in sloppy markets.
While market volatility is keeping investors at bay from investing in these stocks, another cause of apprehension about this sector is with respect to performance in the ongoing fourth quarter. Having seen three quarters of stupendous performance, expectations from this sector are undoubtedly high. However, with the current choppy trades, these companies may have to end their financial year on a low-key note, contrary to the fanfare witnessed earlier during the financial year.
bakul.chugan@timesgroup.com

Monday, February 18, 2008

Subscribe to REC issue: Religare, Angel

MUMBAI: Religare Securities and Angel Broking have recommended ‘subscribe’ to the initial public offering of Rural Electrification Corporation. The issue opens Tuesday.

The price band of initial public offer of 15,61,20,000 shares has been fixed at Rs 90-105 per share. The net issue to the public will be up to 15,22,17,000 shares constituting 18.18 per cent of the fully diluted post-issue capital of REC. The company plans to raise over Rs 1,640 crore from the issue which closes February 22.

REC proposes to utilise the net proceeds to augment its capital base to meet the future capital requirements arising out of growth in its assets, primarily its loan and investment portfolio. It is seeking top strengthen its capital base to improve its borrowing capacity in order to support the future growth in its assets.



Religare Securities

REC is a leading government-promoted financial institution dedicated to power sector financing. It has extensive expertise in the power sector spanning close to four decades, with the capacity to finance large projects.

REC is instrumental in implementing government power projects in rural areas and hence occupies a key position in the government's future plans for the sector. It is a nodal agency for the Rajiv Gandhi Gramin Vidyut Yojna, a programme that aims at 100 per cent electrification for rural India.

It enjoys several direct and indirect benefits from the government including tax exemptions and concessions. This results in a significantly lower cost of funds and higher margins as compared to other players.

The company has recorded consistent growth in disbursements towards the power sector, at a robust 13.5 per cent CAGR over FY03-FY07. Future growth prospects buoyant considering the planned investments of an estimated Rs 10,316 billion towards power infrastructure over the 11th plan period.

REC’s foray into power generation financing offers tremendous potential for growth, especially considering the entry of private players into the generation segment. It is permitted to finance all projects in the power domain irrespective of project size and location, said Religare in its report.

Religare believes that REC is reasonably priced; considering the strong business growth and comparatively lower valuation and available at a P/BV of 1.8x at the end of September 2007 at the higher end of the price band. Post-issue, the stock would trade at 1.5x FY08E book value. REC's business model is comparable to PFC which, at the current price of Rs 185, trades at 2.3x on FY08E P/BV.

Angel Broking

REC has estimated a capital of Rs 10.3 lakh crore required to set up the power infrastructure targeted by 2012. Within the available funding sources, the government envisages REC’s share to be at least Rs 59,150 crore. It will deliver a CAGR growth of 25 per cent in advances over FY2008-10E.

REC’s primary source of revenue is interest income from power sector lending. Low-cost ‘54EC Bonds’ comprise 45 per cent of its borrowings. The company is expected to deliver net interest margins of 3.2-3.4 per cent over FY2008-10E. Given its lean organisational structure, inherently low credit risk and tax benefit u/s 36(1)(viii), return on assets should sustain at 2 per cent levels.

REC’s leverage cannot exceed 8-9x to maintain AAA credit rating (critical for cost competitiveness). Accordingly, it is expected to deliver return on equity of around 16 per cent by FY2010E, which should increase to around 18 per cent at optimum leverage (post FY2010E), says Angel in its report.

In the past few months, the power sector (on which REC is an indirect play) has seen valuations reaching frothy levels, only to come off recently. Against this backdrop, Angel believes the REC issue comes at a reasonable price based on fundamental value, considering the high visibility of credit demand in the power finance sector, REC’s strong positioning in the same and its reasonably strong financial performance.

At the upper end of the price band of Rs 105, the stock is available at 1.3x FY2009E adjusted book value of Rs 80.7 and 1.2x FY2010E adjusted book value of Rs 90.5. The valuations compare favorably with its closest peer, PFC, which is trading at 1.8x FY2009E adjusted book value of Rs 104 and 1.6x FY2010E adjusted book value of Rs 117 at the CMP of Rs 185.

Angel believes REC can command up to 1.5x 1-year forward adjusted book value, implying reasonable upside even at the upper end of the price band.

Learn to Daytrade!


Only 10% Of Traders Are Successful


I was thinking about an article I read some time ago that 90% of traders who ever trade lose their account and that 10% actually go bankrupt. If the first number doesn't scare you then the second definitely should.



Why is it then that there is such a large number of traders failing? It is not because they are stupid; in fact most traders have an above average IQ and are above average in most categories such as education and income. So why do they fail?



Lack of trading education!

By education I don't just mean learning how RSI works or drawing lines on a chart. I mean thoroughly educating yourself in all aspects of your chosen profession. Educating yourself on the correct psychological approach to the market! Educating yourself in the correct risk management techniques relative to your account size. Educating yourself in the correct entry and exit methods for the trading style that suits you.

This, my friend, is where I hope to be of some help. I don't have all the answers nor do I profess to be some kind of guru but I will do my best to point you in the right direction.



Common Misconceptions Of New Traders

They think they can trade consistently with an 80% accuracy.
They think they can turn Rs. 1000 into Rs. 100,000 in six months.
They think they can predict turning points in their given
markets to within minutes.
They think they can buy a system that is 100% accurate.
They think they will quit their jobs and make a living full
time after a few months of trading.
What's the reason that so many new traders believe that trading is an easy way to make big profits? Propaganda!

We are continually bombarded in magazines, emails and the general media with claims of making astronomical amounts, just by applying the vendor's latest method or system.

Don't get me wrong, there is good stuff out there but the vast majority is not worth the price you pay.







Fundamentals Of Trading

Trading is not an exact science. You can't do X and get Y every time. It is as much an art as it is anything else. There is no magic formula. Trading is all about probability. It is the art of correctly applying a set of carefully thought out rules and allocating the probability of that event to result in success.

Each trade is an independent event. The market does not remember if you lost or made dollars the last time you traded.

The way you approach the market psychologically has as much to do with your success as any trading plan.

Risk management is crucial if you want to have any hope of becoming a successful trader.

Matching a method of trading with your personality is the only way you will ever feel comfortable in the markets.

An adequately funded account is necessary - not only to be able to take the trades you want, but also so you don't feel every trade is a live or die situation.

The journey to the road of successful trading will make you confront your deepest fears. Your armor on this journey will be confidence, knowledge and belief in yourself that you can achieve your dreams.

Never, equate your success or failure in the markets with who you are as a person!



The Flaw In Our Emotions

As humans we have a natural tendency to try and influence our surroundings and events we take part in. This is one reason we, as a species, have succeeded but it is also one of the fundamental flaws we all have when trying to achieve success as a traders.

As traders we have to realize we have no control over the market and if we accept that then we have to accept that we can not influence the direction of the market.

The problem of course is we have a tendency to try and succeed and when inevitable losses come, it is easy to let those losses effect us emotionally. Becoming euphoric when you hit a winning streak is almost as detrimental as becoming depressed when you have a string of losses.

We as traders have to try and achieve the state of impartiality. We have to accept that we will have losses as readily as we will have wins. Reaching the stage where you can comfortably accept loss in the knowledge that your method of trading will produce profits in the longer term is the state we have to aspire to.





Risk Management

Whenever I think of risk management I always think of an article I read on 925 CTA programs between 1974-1995. It essentially confirmed what I have long held to be true. To summarize the report, of all the CTA's who managed funds, the most consistently profitable were the ones with the best risk management systems.


To trade successfully you have to take a long look at yourself. Ask and answer the following questions.

How much equity do I need to start? How much should I risk on any one trade? Am I undercapitalized?

During the course of these lessons I will do my best to help answer these and other questions.



Entry And Exit

As a trader you will probably fall into two main categories, traders who like to trade the breakout and traders who like to join the trend once established. We could also add congestion traders, reversal type traders and mechanical signal traders but for the vast majority of traders you are going to fall into one of the two categories.

If you are a trend trader, you like to define a trend and then find a way in. This may be with the aid of Fibonacci retracement levels, moving averages, Gann or one of the other many indicators available today. Your goal is to enter the trend as early as possible with the least amount of risk.

Breakout traders like to enter the market on the breakout of a previously identified range. This may be support/resistance areas, rectangles, triangles or one of the many other chart patterns. The secret to this type of trading is to determine a valid break.

In future lessons we shall begin to look at the more technical side of trading and how you can apply technical analysis to the markets to increase your probability of success.

 

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