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Monday 31 March, 2008

The 3 Duck's Trading System


Firstly I would like to say, I did not reinvent the wheel with this system, I have just added one or two ideas to a 60 period simple moving average (sma) to make it my own and named it "The 3 Duck's Trading System" for obvious reasons as you will find out later on. The system is fairly straight forward and easy to use. Like a lot of trading systems it will be more productive when prices are moving in one direction and not stuck in a tight trading range. Of course this system has losing trade and losing runs, but with proper money management and good discipline I'm sure this system will keep you out of bad trades and give you a great chance to make profits in the Fx market. One of the nice things about this system is it will quickly tell you if prices are in an up or down swing phase and stop you from guessing! It will also allow you to decide to be a bull or a bear and trade in the direction of that trend. There are 3 charts involved in this system: a 4hr chart, a 1hr chart and a 5min chart. There is 1 indicator, a 60 period simple moving average (60 sma) plotted on each chart. There you go, its that simple.

How it works:

Step 1 - First Duck
The first thing we need to do is look at our largest time-frame (4hr chart) and see if current prices are above or below the 60 sma. From this chart we can see that current price is below the 60 sma. This tells us that we maybe looking to sell.




Step 2 - Second Duck
The second thing we need to do is drop down to our 1hr chart. We need to see the current price below the 60 sma on this chart also, this gives us confirmation.
Important: If the current price was to be above the 60 sma on this chart we could not move on to step 3.



Step 3 - Third Duck
From step 1 and 2, current prices need to be below their 60 sma's on each chart. We are now on the 5 min chart and we are looking to sell when price crosses below the 60 sma. For extra confirmation we should let prices break the last low on the 5 min chart. This would mean that prices will be below their 60 sma on all 3 time-frames, therefore all 3 Ducks are lined up in the same direction.


Stop-Losses: This is where you can make this system your own. If you are a short term trader you may want to put your stop-loss above the highs on the 5 min or the 1 hr chart. If you are more of a positional trader you may wish to put your stop-loss above a high on the 4 hr chart. You could also use a fixed stop-loss, maybe 25-30 pips or more from entry. It all depends what type of a trader you are, so you decide! If you are a longer term trader or investor, this system can help you get a good entry point into the market. Another "trick" that may help you preserve capital, If you do sell and prices get back above the 5 min 60 sma by 10 pips (not a good sign) you may want to cut your losses short before your stop-loss. But if you are a longer term trader this may not be a big deal for you.


Targets: Same again, depends what type of a trader you are but target can be support or resistance levels.


Summary: The above example was carried out when the gbp/usd was trading lower so obviously we where selling - the system works just as well for buying opportunities, just look for prices to be above the 60 sma on all 3 time-frames, starting with step 1 again. I like this system a lot as it does not try to out-guess the markets movements and pick tops and bottoms. The system will quickly tell you to be a buyer or a seller. Its a good honest system that tries to follow prices. This system works better on currency pairs such as the Eur/Usd and Gbp/Usd, but there is nothing stopping you from plotting this system on any pair, but as we know some pairs act differently to others. The best time I found for trading this system is the European and US sessions. I lke to use this system as a guide in addition to my own market knowledge. Take care to watch what is going on around you - economic new releases, holidays etc.

Good Luck with the 3 Duck's Trading System.

EQUITY PULSE

Import duty on food items likely to be scrapped

It has been a nervous day throughout ahead of cabinet meeting in the evening and there are likely import cuts and export bans going to be happening to the market today. We have seen a slide across the board be it edible oils or pulses, or steel or sugar for that matter. Everything has gone down in the markets today between 1-5% during the day.

Import duty on many food items could be scrapped today and for edible oils this would be second duty cut in last 10 days. We have already seen duty cuts in crude, refined palm, sunflower, and mustard - all of them. Domestic oil prices have gained by 40% in past one year and government has been trying to control inflation through all these things. Export ban on edible oil has already been done, we have already seen duty cuts happening from 75 to 50% to 20% on the lower side and as per market expectations this could happen to nil in the evening cabinet meeting today in the markets.

There has also been decline in other commodities like wheat, pulses, sugar etc, there has been talk about scrapping export subsidy on sugar and that also has led to decline in the prices there. The day started firm for most of these commodities but we have seen profit taking happen here especially in case of edible oil the knee jerk reaction is expected to be quite strong and one might see correction happening between 3-6% as soon as the markets open tomorrow after that cabinet meeting.

Sunday 30 March, 2008

Beginner Trading Course

A Guide to Derivatives

Inflation scares the Govt, may take steps on Monday

Concerned at "disturbing" inflation, that spiralled to over 13-month high of 6.68 percent, the government has decided to hold a meeting of high-level Cabinet Committee on Monday to take stock of rising prices, Finance Secretary D Subbarao said on Saturday.

A high-level Cabinet Committee will meet on Monday to take stock of high inflation that has surged to over 13-month high of 6.68 percent, a top finance ministry official said on Saturday.

"The Cabinet Committee on prices will meet on Monday," Finance Secretary D Subbarao told reporters on the sidelines of a seminar on proposed amendments to `securities contracts (regulations) rules`.

Earlier addressing the seminar, Subbarao said yesterday`s inflation numbers, which were quite disturbing, were partly due to high global commodity prices.

Commodity prices are rising globally despite fears of recession in the US, he said at the seminar organised by the Institute of Company Secretaries of India.

"Generally, we expect commodity prices will go down when there is recession in the developed countries. If you look at past recession in the US, there is depression in commodity prices. But, this time there is elevation in commodity prices together with recession in the US," he said.

Together with surging inflation, the rupee had also risen yesterday to the highest level in a month to go below crucial 40-level to stand at 39.89/90 against the dollar, up 20.50 paise over the previous closing.

Subbarao said exports have come under double pressure because of appreciation in the rupee and low demand due to recession in the US.

Metal and food prices spurted inflation to the highest number in over a year, much above the RBI`s tolerance level of 5 percent.

Finance Minister P Chidambaram had said yesterday that the government would take every measure to keep prices under check, even at the cost of slowing down the economic growth.

"The government is determined to take all steps -- fiscal, monetary and supply side -- to moderate inflation and if that means we have to live with slightly lesser growth, so be it," he had said in Mumbai.

Describing inflation as a regressive tax, he had said, "we have to balance between inflation and growth."

Attributing high rate of inflation to global crude, food and commodity prices, the Finance Minister had said interest rates are the most effective instrument to contain price rise.

Analysts also said they did not rule out further tightening of monetary stance by the reserve bank at its annual monetary policy review, slated for April 29, even if it costs some growth.

Commerce Minister Kamal Nath had said in Delhi, "any rise in inflation is a matter of concern ...Government is looking at a proposal to ban non-basmati rice exports. We are also going to recommend scrapping of import duty on steel."

Saturday 29 March, 2008

Inflation redefines value of money

Is an inflation rate of 6.8 percent bad news for India when countries like Zimbabwe have hyper-inflation of 100,000 percent?

In 1981 we had an inflation rate of 10.4 percent when GDP growth was over six percent. In 1991, inflation was as high as 13.1 when GDP growth was just one percent. Why are the common man and the policy makers worried about inflation?

This brings us to the definition of inflation? A common man understands that there is inflation when he buys his usual list of commodities from the market. If there is an appreciable increase in prices, there is indeed inflation and the media is already full of such bad news.

A simple definition of inflation is an increase in prices and or decline in purchasing power. However over the years, the definition of inflation has undergone a change.

According to the Webster's New Universal Unabridged Dictionary published in 1983 the second definition of 'inflation' after 'the act of inflating or the condition of being inflated' is:

"An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand."

So this broader definition focuses on money supply. If there is more money supply, it causes an increase. So inflation is a cause rather than effect.

The American Heritage Dictionary of the English Language, 2000 (4th Edition) defines it more broadly: a persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services.

In this definition, inflation would appear to be the consequence or result (rising prices) rather than the cause.

So between 1983 and 2000 the definition appears to have shifted from the cause to the result. Also note that the cause could be either an increase in money supply or a decrease in available goods and services.

What if there is no inflation? We have observed that when there is overproduction of crops, farmers are forced to sell below production costs. A few years ago when there was overproduction, tomatoes were sold for Rs 1 per kilo which is bad for producers. But in a rising inflation scenario all people suffer, some more than the others.

In India, inflation is a political issue but a lower inflation rate does not guarantee success in elections which the Congress government learnt in 1996 when the rate climbed down to 6.5 percent as against 13 percent in 1991.

However, political parties need to go by public sentiments, which are often against a rising inflation.

Look at the official reactions. Finance Minister P Chidambaram in Singapore blamed US for creating commodity inflation by diverting food crops for bio-fuel and also creating global financial uncertainties by sub-prime lending.

At the same time he announced in the Budget that the country is going to have a record output of food grains this year. So where are the bottlenecks really?

It could be the rising oil prices both edible oil and crude oil or some other global trends over which the FM or RBI has no control. So the question why have a tight monetary policy?

In terms of action also the government cannot be blamed -- it has made exports difficult by raising the minimum export prices of essential commodities and imports by reducing duty on edible oils.

T Nanda Kumar, Secretary, Food, Consumer Affairs and Public Distribution said in an interview that supply side bottlenecks for essential commodities are being addressed.

From the technical point of view, inflation now is different from inflation experienced before because of high foreign exchange reserves that put pressure on rupee to appreciate.

These are tough times for the industry and policy makers then. For the industry, productivity gains have to be long enough to compensate the rising rupee and inflation levels that make them uncompetitive, according to an analyst.

History shows that high inflation rates could correct itself over a period of time through a combination of market forces and government regulation. Or perhaps it is god's way of letting people know the value of money.

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Understanding the Different Types of Stock

The most complicated side of the stock market understands the stock market and its various types. There are several different types of stock to choose from:

Income stock is that stocks that companies that are stable issue income stocks. This implies that the company will not regularly invest a surplus of their earnings back into the company every year. As the profits not reinvested by the company they give out to the shareholders as dividend. If anyone interested to get dividend income and capital-gratitude then you must look forward to income stock.

Growth stocks: Growth stocks are issued by those companies that are looking for expansion. There is usually negligible dividend income from growth stock. The majority of mentors of stock market think about growth stocks a good choice for those looking to make a nice return over a long period. Annual returns usually run around 11% over ten years. The idea is that growth stocks will grow given time.

A value stock is a stock that has gone down in price. It is usually considered to be a good buy. Value stocks are based more on the company's assets than the earning potential. The growth of the company is not the issue at hand with a value stock. Investors buy value stocks for shares of a solid company at a good price and that in time the price will reflect the stability of the company. Then the price of the stock will go up.

Speculative stocks are like the new stocks on the block. They are the riskiest stock available. You can either make a lot of money or lose it all quite easily. You have to gauge your own risk level. These are usually brand new companies or unknown companies. This category would include all those dot-coms.

Preferred stock happens when a company issues different classes of stock. The company could have a common stock and then have a preferred stock. The preferred stock has a higher claim to company earnings, such as dividend payments. The amount of the dividend payment is fixed, unlike the common stock, and will be paid before common stocks are. If you own a preferred stock in a company that is not doing well, you will still get your fixed payment. You will also share in the assets in the case of a bankruptcy before those holding common stock will.

These are the most commonly thrown around stock types. You have probably heard of them around the water cooler at work or on the news. There are several other types of stocks that are also available, including convertible preferred stocks and blue-chip stocks. It is essential that you understand the different types of stocks when looking to invest. They all have different benefits and drawbacks. What type of stock you invest in depends on what you want to see from your investment. Are you looking for a quick way to make a lot of money or are you wanting to invest money and simply let it grow over time Ask yourself these questions when looking at what type of stock works for your financial goals.

Friday 28 March, 2008

STOCK PICKS

Multibagger - Celebrity Fashions Ltd

Ashish Chugh, Investment Advisor

Celebrity Fashions : BSE ID : NSE ID : Reco Price Rs. 32.70 CMP: Rs.35.95 (Gain 9.94%)

The recent initiatives undertaken by the management for sale of its unit and relocation of another unit will help the company reduce its debt and tide over the problems due to appreciating rupee. The company plans to focus on domestic market where its brand INDIAN TERRAIN is well established.

Celebrity Fashions Ltd. came out with its IPO in December 2005 offering shares at Rs.180.

The company has 9 factories covering about 8 lac sq ft of shop floor space employing over 10,000 people. The total installed capacity of these facilities is about 10 mn pieces of Bottoms and 4 mn pieces of Woven Tops in a year. With a capacity of 10 mn pieces per annum, the company is the leading manufacturer of bottoms in South Asia. All these units employ cutting edge technology across all major manufacturing processes like cutting, sewing, finishing and washing. With a full fledged design studio, the company is amongst the very few, who offer complete design to delivery packages for its customers. Celebrity Fashions makes garments for brands like GAP, Levis, Dockers, Banana Republic, Ann Taylor, Timberland, Eddie Bauer and Kohls in the US and Diesel, Marlboro Classics and Armani Jeans in Europe.

The company also operates in the domestic branded menswear market under the brand name 'Indian Terrain'. The brand has, in a short span of seven years, established itself and has earned an image of quality and style. The brand is available in 350 multi-brand outlets (MBOs) including Departmental Stores like Shoppers Stop, Lifestyle, Piramyds, Pantaloon, Central, Globus and other prominent Retail chains and also at Indian Terrain Exclusive Stores spread across the country.

Comparison With Peer Group:

Provogue Kewal Kiran Bombay Zodiac Gokaldas Celebrity
Clothing Rayon Clothing Exports Fashions
Sales FY 07 (Rs. Cr) 239 133 489 203 1034 333
Sales -9mts Dec 07 (Rs Cr) 245 124 664 165 793 255
OPM (FY07) 14% 24.60% 20.20% 13.70% 12.10% 5.60%
EPS -TTM (Rs.) 12.81 17.4 17.28 21.96 16.62 Loss
P/E Ratio 81 17.3 16.3 18.67 10.4 0
Book Value (Rs.) 133.24 102 77 120 118 84
Market Price (Rs.) 1041 301 282 410 173 32.7
Market Cap (Rs. cr) 1988 371 1777 344 594 58.3
Sales to Market Cap 0.12 0.36 0.28 0.59 1.74 5.71

Conclusion:

The appreciation of Rupee against the dollar and the high debt on the balance sheet took their toll on the financials of the company. The company which was deriving roughly 80% of its turnover from exports saw the export division making losses.

The company is initiating the following steps to tide over the difficult times by way of restructuring.

a) The company has finalized sale of its manufacturing unit located at Irrungattukottai, Jwala for a total consideration of Rs.42.50 crores.

b) The company is relocating its unit located at Valachery –Tambaram Road, Chennai and has plans to sell the land and building.

c) The Company has decided to focus significantly towards the domestic branded market as against the current focus of exports markets due to the challenging business environment on account of Rupee appreciation against USD and International competition

The management plans to use the sale proceeds from the sale of its unit at Irrungattukottai for reducing its term loans and working capital loans. The company intends greater penetration in the domestic market through leveraging the Indian Terrain brand. Indian Terrain today is a leading Men’s Wear brand in the premium segment. The company may leverage the Indian Terrain brand to launch Women Wear and Kids Wear. With a successful brand positioning, and passion for quality, the management intends a significant increase in the sales from the brand – this includes increasing the retail outlets and opening of more Indian Terrain stores. The company is also tying up with retail chains for manufacturing under private labels - the company is creating ‘Spirit’, and economy range exclusively for Reliance Retail.

The company suffers from low valuation on account of – a) Low Operating Margins vis-à-vis the Peer group b) losses being suffered by the export division and c) High Interest cost. The company however has a very high Sales to Market Cap ratio compared to the peer group. The stock is available at a substantial discount to its book value.

The company has a successful brand – Indian Terrain, whose brand value alone could be substantial. The recent initiatives taken by the management point towards the intent and willingness of the management to undertake steps in response to the changing business scenario. Successful turnaround would lead to improved valuations for the company, however the process may take a few quarters and has a high degree of uncertainty attached, the stock is therefore advised for investors with an appetite for HIGH RISK.

Ashish Chugh is an equity analyst and investment consultant based at New Delhi, INDIA. At the time of writing this article, he, his firm and dependent family members have a position in the stocks mentioned above. The author, his firm or any of his dependent family members may make purchases or sale of the securities mentioned in the report while the report is in circulation. The author invites readers to send him email and welcomes comments, feedback & queries at nexgenfin@yahoo.com.

This report has been prepared solely for information purposes and the information contained herein may not be deemed to be an investment advice. Such information is impersonal and not tailored to the investment needs of any specific person. The information contained herein is not a complete analysis of every material fact representing any company, industry or security. The views expressed may change. While the information contained herein has been obtained from sources believed to be reliable, no responsibility (or liability) is accepted for the accuracy of its contents. Investors are advised to satisfy themselves before making any investments and should consult with and rely upon their own advisors whether and how to use such information in making any investment decision. Neither the author nor his firm accepts any liability arising out of use of the above information/ article.

Thursday 27 March, 2008

U.S. Stocks Fall on Banking Outlook, Durable Goods Orders Slump

U.S. stocks fell for the first time in four days on a worsening outlook for bank profits, an unexpected drop in durable goods orders and concern that financing for buyouts will collapse.

Citigroup Inc. tumbled the most in the Dow Jones Industrial Average and led financials to their biggest retreat in almost two weeks after Oppenheimer & Co.'s Meredith Whitney said the largest U.S. bank's quarterly loss will be four times bigger than previously forecast. Deere & Co. and United Technologies Corp. declined on the government's report showing the worst-ever slump in machinery demand. Clear Channel Communications Inc. posted its steepest decrease since 1989 on concern banks will pull loans for the broadcaster's $19.5 billion takeover.

The Standard & Poor's 500 Index lost 11.86, or 0.9 percent, to 1,341.13. The Dow slid 109.74, or 0.9 percent, to 12,422.86. The Nasdaq Composite Index declined 16.69, or 0.7 percent, to 2,324.36. More than two stocks fell for every one that rose on the New York Stock Exchange.

``The challenges and headwinds financials face now are many and have direct implications for the average consumer,'' said Michael Barron, chief executive officer and portfolio manager at Knott Capital Management in Exton, Pennsylvania, which oversees $1 billion. The drop in durable goods orders is ``yet another indication that the economy is in a recession.''

$208 Billion Fallout

Seven of the 10 S&P 500 industry groups fell following the unexpected 1.7 percent decline in orders for goods meant to last several years in February. The S&P 500 is down 14 percent from its Oct. 9 record and has slumped 8.7 percent this year after banks around the world racked up more than $208 billion in credit losses and writedowns from mortgage debt since the beginning of 2007.

About 1.43 billion shares changed hands on the NYSE, the slowest trading session since Feb. 22. European shares fell, while Asia's regional benchmark index climbed for a fourth day.

Citigroup lost $1.37, or 5.9 percent, to $22.05. Whitney cut her full-year estimate to a loss of 15 cents a share from profit of 75 cents to reflect potential first-quarter writedowns on leveraged loans and collateralized debt obligations of $13.1 billion. In the first quarter, the bank may lose $1.15 a share, compared with an earlier loss estimate of 28 cents, she said.

As ``the U.S. consumer comes under increasing pressure, we anticipate further downside to both estimates and stock prices,'' Whitney wrote in a report dated yesterday.

Bank of America Corp. fell $1.13, or 2.8 percent, to $39.84. Goldman Sachs Group Inc.analysts reduced their earnings-per- share estimate for this year to $3.35 from $4.05, citing an estimated $3 billion first-quarter writedown.

Deutsche Bank AG, Germany's biggest bank, fell almost 3 percent in Frankfurt after its annual report said possible asset writedowns and slowing economic growth will make it harder to reach its full-year profit goal.

'Alarm Flag'

Deere, the world's largest maker of tractors and combines, fell $1.42 to $80.82. United Technologies, the maker of Otis elevators and Chubb security systems, dropped 55 cents to $69.61.

The decline in orders for durable goods ``raises the alarm flag,'' Peter Sorrentino, senior portfolio manager at Huntington Asset Management, which oversees $15 billion in Cincinnati, said in an interview on Bloomberg Radio. ``One of our views to carry the economy through this year was a weak consumer but strong on the industrial side.''

Clear Channel

Clear Channel plunged $5.64, or 17 percent, to $26.92 for the second-biggest drop in the S&P 500. The Wall Street Journal said banks financing the deal for Thomas H. Lee Partners LP and Bain Capital LLC haven't been able to agree with the buyers on terms. The report cited unidentified people familiar with the matter. Lehman Brothers Holdings Inc. cut its price estimate on the stock by 36 percent to $25.

Centex Corp. and D.R. Horton Inc. led homebuilders to a 5.9 percent drop, the biggest in almost three weeks, after a government report showed sales of new homes fell 1.8 percent to a 13-year low in February. The annual rate of new home sales slowed to 590,000, down 57 percent from its July 2005 peak of 1.39 million. Centex slid $2.06 to $23.73. D.R. Horton lost $1.05 to $15.20.

Jabil Circuit Inc., the maker of phones for Nokia Oyj and electronics for Hewlett-Packard Co., declined $2.09, or 18 percent, to $9.29, for the biggest drop in the S&P 500. Third- quarter and full-year profit and sales forecasts trailed analysts' estimates. JPMorgan Chase & Co. downgraded the stock to ``underweight'' from ``overweight.''

Hewlett-Packard Co., the world's largest personal computer maker, fell 92 cents to $47.34.

Oracle Sales Miss

Oracle Corp., the world's third-largest software maker, slumped in trading after the close of U.S. exchanges after third- quarter sales fell short of analyst expectations. Sales including maintenance fees from acquired companies totaled $5.37 billion, compared with an average forecast of $5.41 billion. The shares, which fell 14 cents to $20.94 in the regular session, tumbled 9.5 percent to $18.95 in after-hours trading.

Benchmark equity indexes briefly pared losses as traders speculated lawmakers will force changes to JPMorgan's bid for Bear Stearns Cos. and Rambus Inc., the designer of chips for the PlayStation video-game console, won a lawsuit.

Rambus rallied $7.25, or 39 percent, to $25.86 for its steepest advance in almost five years after it won the final phase of its patent suit against Hynix Semiconductor Inc., the first step toward collecting royalties from other manufacturers.

Bear Stearns climbed 27 cents, or 2.5 percent, to $11.21. The Senate Finance and Banking committees said they are reviewing the government-backed sale of Bear to JPMorgan.

Commodities Rally

Freeport-McMoRan Copper & Gold Inc. added $5.03, or 5.4 percent, to $97.44. Goldman Sachs analysts said the world's second-largest copper producer is a candidate to be acquired by Brazil's Cia. Vale do Rio Doce. Vale's bid to buy Xstrata Plc to create the largest mining company collapsed yesterday.

Exxon Mobil Corp. and Schlumberger Ltd. led energy shares to a fourth-straight gain as crude oil rose on a government report showing inventories increased less than forecast last week. Exxon Mobil, the biggest U.S. oil company, climbed the most in the Dow average, adding $1.06 to $86.26. Schlumberger, the world's largest oilfield-services provider, rallied $3.88 to $86.52.

Crude oil for May delivery climbed 4.6 percent to $105.90 a barrel in New York. The futures price of oil touched a record $111.80 a barrel on March 17 and has quadrupled in the past six years.

Apache, BJ Services

Apache Corp. jumped $6.81, or 6 percent, to $119.75 for the biggest gain in the S&P 500 after Sanford C. Bernstein & Co. analyst Benjamin Dell raised his forecasts for crude oil and natural gas and increased share-price targets for several producers including Apache. Dell increased his target for Apache to $133.

BJ Services Co., the third-largest provider of pressure- pumping services for oil and gas wells, gained for a third straight day, adding $1.35 to a five-month high of $27.78. Devon Energy Corp., the biggest independent oil and natural gas producer in the U.S., rallied $4.66 to a record $107.59.

Consol Energy Inc. and Alpha Natural Resources Inc. advanced after Goldman analyst Michael Molnar said they would gain the most from higher prices for coal used in steelmaking. Consol, the third-biggest U.S. coal producer, and Alpha were raised to ``buy'' from ``neutral'' and ``sell.'' Consol rose $2.33, or 3.4 percent, to $70.59. Alpha added $3.02, or 7.7 percent, to $42.34.

Motorola Inc., the biggest U.S. maker of mobile phones, climbed 26 cents to $10.02 after announcing plans to split into two publicly traded companies. One company will focus on handsets and the other will sell broadband networking devices.

The Russell 2000 Index, a benchmark for companies with a median market value of $532 million, dropped 0.5 percent to 702.11. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, fell 0.8 percent to 13,518.29. Based on its decline, the value of stocks decreased by $131.7 billion.

Wednesday 26 March, 2008

CBSE – NSE joint certification in Financial Markets Management for Std. XI and XII

Financial education for investors is a key area of focus for the NSE, since NSE believes that informed investors are the backbone of a healthy market. Keeping this objective in mind, the NSE has been conducting a number of investor awareness seminars over the years in different parts of the country to educate investors. But there is a widely felt need today to raise the financial literacy standards among a larger section of our country. Our young people need to learn the importance of responsible decision making and develop good habits in financial matters from an early age. The Central Board of Secondary Education (CBSE) has been fulfilling the educational needs of young people for over 75 years now. It has an extensive reach and jurisdiction over schools in India and abroad. CBSE and NSE have joined hands to extend financial education to schools.


To fulfill the need for taking financial literacy to the schools, CBSE and NSE have introduced a joint certification in Financial Markets Management for std. XI and XII. An MOU in this regard was signed by the two institutions in Delhi on the 19th March, 2008. This is perhaps the first such exercise to introduce financial literacy in schools in a structured manner and would provide an early exposure to young adults to the world of finance. The course, titled “Financial Markets Management” has been introduced by CBSE as a vocational stream from the academic year 2007 – 2008. The new course includes two subjects in financial markets, “Introduction to Financial Markets – I” and “Introduction to Financial Markets – II”, besides courses in Languages, Economics, Business Studies, Accounting for Business etc. Students would be required to take the NSE’s on-line certifications, i.e. the NCFM tests in “Financial Markets : A Beginners Module” in Std. XI and “Capital Markets (Dealers) Module and Derivatives Markets (Dealers) Module”, in Std. XII. 58 schools were selected to offer this course in 2007-08 and over 120 more schools are expected to offer the course from academic year 2008-09. Over 1350 students are currently enrolled for this course.


About CBSE

The Central Board of Secondary Education traces back it’s history to over 75 years. The jurisdiction of the Board is extensive and stretches beyond the national geographical boundaries. From 309 schools in 1962 the Board today has over 9000 including 141 schools in 21 foreign countries. There are over 900 Kendriya Vidyalayas, 1761 Government Schools, 5827 Independent Schools, 480 Jawahar Novodaya Vidyalayas and 14 Central Tibetean School.


About the National Stock Exchange of India Ltd.

National Stock Exchange (NSE), established in the mid 1990s as a demutualised electronic exchange by leading Indian financial institutions, offers trading, clearing and settlement services in a range of products covering equity, debt and equity derivatives. It is India's largest exchange and ranks fourth globally by number of trades in the equities market. NSE provides a modern, fully automated screen-based trading system with over 100,000 trading terminals giving it extensive reach across the country. NSE has played an important role in helping reform the Indian securities market and in bringing about transparency, efficiency and market integrity. In 1998, NSE launched an on-line education and certification programme called as NSE’s Certification in Financial Markets or NCFM which is now actively pursued by students, broker dealers, investors etc.

NSE introduced trading in equity derivative products in 2000-01 and in this short span of time has become the largest exchange in single stock futures and ranks fourth in index futures globally. Its flagship index, the NIFTY 50, is used extensively by investors in India and around the world to take exposure to the Indian equities market.

India's Growth May Be Hurt by Global Slowdown, Chidambaram Says

India's ability to sustain record growth may be constrained by a slowdown in the world economy, Finance Minister Palaniappan Chidambaram said.

``We are deeply concerned about global developments,'' Chidambaram said in a speech at the Lee Kuan Yew School of Public Policy in Singapore today. ``When stories of a growth slowdown do the rounds, investors prefer to wait and watch.''

Citigroup Inc. yesterday reduced its growth forecast for India on concern an expected recession in the U.S. will hurt exports and investments. Chidambaram said high growth was an ``imperative'' for the South Asian nation to boost its tax revenue and fund health, education and road programs.

``As far as India is concerned, growth is not an end in itself,'' Chidambaram said. ``Growth is the means to achieve the objectives that we desire. Among these are free and compulsory education for children, improvement of nutrition and adequate infrastructure including roads and connectivity.''

India's $906 billion economy, Asia's third-biggest, has expanded an average 8.7 percent since 2003, the fastest pace since independence in 1947. That's helped increase the ratio of tax to gross domestic product to 12.5 percent in the year ending March 31 from 9.2 percent in 2003, Chidambaram said.

``An increase of one-half percent may appear small, but in real terms this will give us additional revenues of nearly $25 billion,'' Chidambaram said. ``It is high growth in the last four years that has given us the capacity to provide large sums of money for health, education, drinking water and roads.''

Reducing Poverty

India needs to spend more on health and education because more than half its 1.1 billion people live on less than $2 a day, according to the World Bank. Further, congestion on roads, ports and inadequate power supply shave 2 percentage points off the nation's GDP each year, the finance ministry estimates.

Citigroup cut India's growth forecast to 7.7 percent in 2008 from an earlier estimate of 8.3 percent, as it reduced estimates for Asia due to the impact of a recession in the U.S.

U.S. growth slowed to 2.5 percent in the fourth quarter from a year earlier and half of the economists in a Bloomberg News survey this month expect a recession this year.

The U.S. Federal Reserve has lowered its benchmark lending rate six times since September to cushion consumers and companies from the worst of a credit crunch that's made some of the world's biggest banks reluctant to lend to each other. Financial companies have posted at least $195 billion in writedowns and credit losses tied to U.S. mortgage markets.

``The subprime mortgage market crisis that seems to have triggered the current turbulence is solely due to poor regulations and lax supervision,'' Chidambaram said. ``If this had happened in developing countries, we would have been lectured on the virtues of bankruptcy.''

Tuesday 25 March, 2008

U.S. Economy: Confidence Slides, House Prices Decline

Consumer confidence fell more than forecast in March as Americans' outlook for the economy dropped to the lowest level since Richard Nixon was president.

The Conference Board's confidence index fell to 64.5, a five-year low, from a revised 76.4 in February, the New York- based research group said today. A report from S&P/Case-Shiller showed home prices in January fell by the most on record.

Declining stock and property values have unnerved Americans, heightening concern spending will falter. A drop in spending, which accounts for more than two-thirds of the economy, would deepen what economists say is almost certainly the second recession of the decade. The Dow Jones Industrial Average remained lower after the report, while Treasury notes held gains.

``Consumers are going to pull back pretty sharply,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``The labor market is starting to deteriorate and income growth is barely keeping pace with inflation. These are all pretty negative omens for what's to come.''

The Conference Board's gauge of expectations for the next six months slumped to 47.9, the lowest since December 1973, when the Watergate scandal rocked the Nixon administration and an embargo by a group of Arab oil exporters was in effect, the report showed.

Spending is already taking a hit. Retail sales fell 0.6 percent in February, according to figures from the Commerce Department, the second decline in three months.

Weakest Since 1991

Consumer spending may grow at an annual rate of 0.5 percent this quarter, the slowest pace since the 1991 recession, according to the median estimate of economists surveyed this month by Bloomberg News.

Economists forecast the Conference Board's measure would fall to 73.5 from a previously reported 75, according to the median of 61 forecasts in a Bloomberg News survey. Estimates ranged from 65 to 76.

Home prices in 20 U.S. metropolitan areas fell in January by the most on record, a sign the housing recession is deepening, a private survey also showed today. The S&P/Case- Shiller home-price index dropped 10.7 percent from January 2007, after a 9 percent decrease in December. The gauge has fallen for 13 consecutive months.

The Conference Board's measure of consumers' outlook on the current situation declined to 89.2 in March from 104 the prior month.

The share of consumers who said jobs are plentiful dropped to 18.8 percent from 21.5 percent last month. Those saying jobs are hard to get increased to 25.1 percent from 23.4 percent.

Lowest Ever

The proportion of people who expect their incomes to rise over the next six months fell to 14.9 percent, the lowest since record keeping began in 1967, from 18 percent. The share expecting more jobs dropped to 7.7 percent from 8.9 percent.

``It's a discouraging environment,'' Pierre Ellis, a senior economist at Decision Economics Inc. in New York, said in a Bloomberg Television interview. ``We are almost certainly in a recession. The question is how deep and how long it will be.''

Federal Reserve policy makers have lowered the benchmark interest rates and pumped money into the banking system to try to make it cheaper and easier for Americans to borrow and spend.

The central bank earlier this month carried out its first emergency weekend action in almost three decades and became the lender of last resort to the biggest dealers in government bonds. Two days later, it reduced the target interest rate by three-quarters of a point and acknowledged risks had increased.

Fed Outlook

``Growth in consumer spending has slowed and labor markets have softened,'' the Fed said after it cut the key rate to 2.25 percent. ``The outlook for economic activity has weakened further.''

The cuts ``are definitely serious medicine for the economy which is very sick,'' Michael Jackson, chief executive officer of AutoNation Inc., the largest publicly traded U.S. car dealer, said in a March 19 interview with Bloomberg Television. ``The consumer is under extreme stress.''

The number of Americans collecting jobless benefits swelled this month to the highest in more than three years as automakers, construction companies and financial firms fired workers. The economy lost 63,000 jobs in February, the most in five years, according to figures from the Labor Department.

More homes are also being foreclosed as the drop in values leaves owners owing more than a property is worth.

For those still in their homes, falling prices lead to a loss of wealth that makes Americans less inclined or able to borrow to finance spending.

What's more, regular gasoline rose to a record $3.28 a gallon on average last week and crude oil reached a record above $111 a barrel.

More and more economists are forecasting a recession. Martin Feldstein, the Harvard economics professor who heads the research group that determines when downturns begin, said this month that a contraction had already begun.

Monday 24 March, 2008

CHART PATTERNS

Prosperity and Success Guided Meditation

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Other income goes for a toss, so does profit

"What we learn from history, is that people don’t learn from history"
- Warren Buffett


India Inc. has been thriving on other income over the previous few quarters. The dependency has moved up so much that core profits have declined extensively. Other income to sales was pegged at some 8% and 40% to profit after tax. This is sizeable enough to ring the warnings bells. In percentage terms, growth in core profits for manufacturing businesses has moved down consistently since the previous five quarters. But, till the time other income was perking up, the profit after tax (PAT) growth looked all fine. Markets chose to ignore and euphemism continued. The APAT (adjusted for other income) growth however continued to provide with a clearer picture.

That was then. Now that the exposures to forex products are propping out from the books of India Inc. a gaping hole seems inevitable. How big and how soon are the key questions that suddenly have become the hot topic of debate everywhere – across early morning meetings at fund and brokerage houses or over a friendly beer with fund managers. So, the hole is for real and if things are to be believed a deep one too. Uncertainties loom large about how deep the problem is and how should India Inc. approach the issue to minimize the hit. Definitely, the market has far moved from risks to uncertainty. Having said that, here’s an estimate of how big India Inc.’s forex exposures could be. It snapped at our faces and we glared. Tough to believe at first, yet these could be just the tip of the ice berg.

To avoid mere speculation, it was a good idea to just look at the quarter ahead rather than over the few quarters. The other reason is perhaps more clarity may come to light only in the near future. The only question however is whether India Inc. will book losses in the March quarter or the next. Things would look like this, if India Inc. were to report it during the March quarter.

Sales

Profit

Other Income

APAT

Rs cr

Rs cr

Rs cr

Rs cr

Mar-07

439,467

28,321

11,624

16,697

Mar-08

527,360

23,207

3,280

19,927

Growth YoY

20%

-18%

-72%

19%

Dec-08

Rs cr

Other Income

14,059

Source: CNBC TV18 Analysis

Explaining the numbers may not be difficult at all. The above numbers are for 2000 odd companies ex oil and financials. Since the advance tax numbers have been robust, we keep the sales and the core profit growth rate at 20%. A safe assumption to make keeping in mind the trend over the previous few quarters. PAT will however decline due to a fall in other income. According to our calculations if India Inc. books losses during the current quarter a 72% fall in other income is evident. Here’s how?

Other income for the December 2007 quarter was at Rs 14,000 crore. Of these around two-thirds could be assigned as income arising through exotic mark to market and mark to models plays, trading/investment income, currency hedges and leveraged plays. In some cases, leverages could well be more than the export income – thanx to the complex bets that India Inc. has managed to get entrapped into. With these positions now getting ‘out-of-the-money’, other income could well be shaved off to that extent (provided India Inc. reports them in this quarter). That’s one element.

To top that actual booked loss could bring down the other income further. Since a few corporates have actually booked around 10% losses, we assume the general trend to be the same. With that we arrive at a PAT which could show a decline of around 18% y-o-y. The actual decline could be less or could be more. No one is certain about it. And since market respect PAT growth, suddenly the market could well look expensive again. The APAT growth however, inches up.

As William Jennings Bryan put it, “Destiny is not a matter of chance. It is a matter of choice: It is not a thing to be waited for, it is a thing to be achieved.” Knowing India Inc. much less could be brought forward at one go. If the problem persists into the new fiscal, things may well go out of hand, but at least, as of now the battle is won – the war however continues.

The same trend continued during the tech bust in 2000. India Inc. refrained from writing down huge losses. There were no tangible assets. There was no brick and mortar logic. It was all air. And the bubble had no option but to burst. History repeats itself. But, people have short memories. No wonder then, market guru Warren Buffet comments, "What we learn from history, is that people don’t learn from history". So very true.

Disclosure: The author is not permitted to trade and/or invest into the equity market directly or indirectly, apart from investing (long only) in mutual fund products.