The energy situation in India saw some significant announcements recently. The country is expecting to raise its natural gas price by 44 percent to curb the losses suffered by Oil & Natural Gas Corp., India’s biggest energy producer, according to The Wall Street Journal. The price will be raised from about 88 rupees per million British thermal unit to about 127 rupees per mmBtu to make up for the revenue losses caused by selling the gas at below its actual cost. That means consumers of natural gas, from individuals to businesses, should expect to pay more for their gas soon if the proposition passes. The petroleum industry hopes that the price hike will stabilize ONGC and Oil India, the nation’s second-largest state-run energy explorer.

Both companies sell fuel at prices controlled by the government in an effort to control inflation rates. In fact, 77 percent of the gas sold in India is sold under government-mandated prices. However, this precautionary practice damaged the company’s finances, as the fuel was sold at a much lower price than it cost to obtain and process it. As a result, ONGC may have already lost up to 30 billion rupees this year alone, according to the finance site Bloomberg.com. The company produced about 60 percent of India’s gas output in the last year, and sells about 56 million cubic meters of gas a day. India’s demand for natural gas increased by 35.5 percent since last year, making it easy to fathom that selling the precious energy source at below cost was costing ONGC and Oil India a significant amount of money.

Interestingly, ONGC sharesrecently increased 3.3 percent, the most since August when shares leapt up 5 percent. Most stock analysts recommend holding rather than selling at this point.

Smaller company Oil India Ltd. is also experiencing a boom in the energy business. It recently announced that it is considering investing about 245 billion rupees with its partners to develop a natural gas field in Iran, Bloomberg.com reported. Oil India is currently negotiating a contract for the costly investment, aware that it must get a service contract with a fixed rate of return for the investment to be profitable. It will be working as part of a three-partner joint venture, alongside ONGC Videsh Ltd, which handles ONGC’s overseas investments, and Indian Oil Corp. The field, located off of the Farsi offshore block in the eastern portion of the Persian Gulf, was named the “Farzad-B gas field” and can yield up to 21.68 trillion cubic feet of gas, out of which 12.8 trillion cubic feet can be processed.

Energy concerns continue to dominate the political and financial spheres. A weak monsoon season has rural and weather-dependent industries, like hydropower, concerned, which is reflected in its sagging shares. ONGC and Oil India, although largely unaffected by seasonal changes, have also felt the sting of an uncertain market, although things are looking up now. Both companies saw a rise in shares within the last month.

Other similar posts ...

1. Good investment opportunity towards natural resource funds
2. Oil India Limited IPO
3. Moving towards natural reserve funds

Now the first thing you should understand is DSP Blackrock World Energy Fund is not just a fund but its a fund of fund. What it means is DSP Blackrock World Energy Fund would not directly invest into any companies or stocks but it would invest in other related funds. Scheme has mentioned that it would invest in BlackRock Global Funds – World Energy Fund & BlackRock Global Funds – New Energy Fund but scheme document also states that they can invest in any other Global funds apart from BlackRock Global Funds – World Energy Fund & BlackRock Global Funds – New Energy Fund depending on the view of the investment manager.

Now both the funds are Global Funds and also other schemes where this fund would invest would be Global Funds and so there can be uncertainty and preferably losses for currency movements as well.

Pros and Cons of fund.

1. Gives your portfolio an international exposure
2. Is a Global fund of fund concentrating on Energy.
3. It is unique in its own kind because we do not have any fund of fund in energy sector.
4. It has forex loss factor associated.

Now its the call of investor if he wishes to invest.

As a personal view of mine I would not be investing DSP Blackrock World Energy Fund NFO because

1. I have never been FAN of NFO.
2. For international exposure I would prefer Fidelity International Oppurtunity Fund.
3. For investing in Energy fund I would go with Sundaram BNP Paribas Energy Opportunities Fund.

But depending on the performance of the fund in the future can consider this to be added into my portfolio.

Other similar posts ...

1. Understanding the energy battle
2. Reliance Infrastructure Fund
3. Moving towards natural reserve funds

I didn’t know what was going to happen the last two years. Why should I know what’s going to happen the next two years?

If he makes such statements, you can easily infer that no one knows whats going to happen in next couple of years but then its always equity investments for a long term horizon which gives substantial return over any other Asset classes.

This week ( Starting Today 27th July 2009 ) we have Future and Options Expiry and so all predictions can go wrong but then also I think I would share upcoming events. In the expiry week we have some triggers for the market.

• Earnings season ( Which is very much on )
• RBI Policy on Tuesday
• Global Cues

Depending on how the news come out we can see if the market moves up or down.

Earnings season is more likely to be positive and we have results of Reliance Industries, Tata Steel, DLF coming up which all are expected to be a positive triggers for the market.

On Tuesday we would see credit policy announcement and that could be one of the triggers for the market.

Last but not the least Global Cues which should be positive for us to move higher.

Other similar posts ...

1. Global markets and Indian Impact
2. Markets unlikely to crash
3. Indian Depository Receipts ( IDR’s )

I was doing some research about the historical data of Nifty and Sensex and I have seen something interesting. In the history of last 4 decades we have seen almost you can say 14 Bear Markets. In each bear Market there was a sharp V Shaped recovery and that V Shaped recovery is similar to the current Bear Market V Shaped recovery.

Bull Market

Again the above data I used to see if there is something different from the previous rally and I found one thing which is Volumes. All previous bear market rally had always been a low volume and there is definitely a reason behind it. The people feel tired looking at the market which never goes up and then tend to move out of the market and does not look at the portfolios. This means low participation for a very elongated period of time and this low participation drive the recovery and as the interest of people come again the next leg of downside comes in.

Conclusion

Current Rally is a bear market rally based on pattern but a bull market when you look at volumes. So now it’s your call to decide what it could be. No marks for guessing because you may now know that I am an all time bullish on Indian Equity market.

Other similar posts ...

1. How does one differentiate between a bull market correction and bear market Phase?
2. The market takes a roller coaster ride
3. Expectations from the 2009 stock market

Some of the key points from his discussions in Bold:

• He expected that his company to make further losses this year.
  So 2009 would not be a good year looking forward at least for the US.
• Overall, I commend the actions that were taken ( by the Government )
  Government is taking right steps but then it would need more time for the actions to make fruitful results
• The economy had experienced “a financial hurricane” and no one could expect perfection.
  If you predicted and something went wrong then even the best did the same mistake and so its perfectly normal.
• In an interview for the BBC, he said that despite short-term pain, in the long run he was optimistic.
  Still equity would be the best Asset class and give it a thought.

Mr Buffett’s legendary stock-picking skills has not helped when he lost nearly $3bn after buying a large stake in oil company ConocoPhillips just before the oil price crashed. This has been particularly bad year in more than 40 years for Mr. Buffet

Other similar posts ...

1. Protectionism !! problem or solution to global turmoil
2. Indian Depository Receipts ( IDR’s )
3. Markets unlikely to crash

1. Only strong overseas companies would be allowed.
2. Companies would have to have a pre-issue paid-up capital and free reserves of at least $100 million.
3. An average turnover of $500 million during the three previous financial years.
4. Company should have been making profits for at least last five years.
5. A dividend of not less than 10 per cent each year for last five years.
6. Have a pre-issue debt equity ratio of not more than 2:1.

With such a strong entry barriers many companies have preferred to remain out of India but current steps by Standard Chartered Bank could be well satisfying them and Indian Government also willing to make the rules a bit less stringent and we can hope for the best and this can change the way Indian stock market would shape in near future.

Other similar posts ...

1. Is this the right time to invest in Indian Equity
2. Top 5 Indian IPO’s
3. Global markets and Indian Impact

1. Something has changed dramatically in the last one month or so when it comes to India.
2. Global leaders and Foreign investors think India is the only good destination than any other Emerging market
3. Indian Politics and some Indian Party funds is holding the markets.

I think the main reason is No 3 and my thinking is backed by the following.

Today April 21 2009 at 12:00 PM Indian Standard Time we have the status of Global Market on moneycontrol.com as follows.

But Sensex ( 10906.59 -72.91 ) and Nifty ( 3359.05 -18.05 ) is resilient to go down. I have been observing the same for more than 2 trading session now and so my assessment is to get out of positions where you have been making some decent gains or you think your losses are not much. Keep cash level high if you would like to make some money out of this scenario.

Now coming to the question in the Title : Is this the right time to invest in Indian Equity ? and no marks for guessing it now.

Other similar posts ...

1. Is it Time to Quit Equity? Think!!
2. Global markets and Indian Impact
3. Looking towards Indian Economy

“Now The Investor Will Realise that the Return OF Money Is More Important Than the Return ON Money”..

I think this is true for majority of us in the equity market unless the present market situation goes positive.

Other similar posts ...

1. Understanding the new trend of investing money in debt fund
2. Don’t follow the crowd while engaging in stocks
3. Understanding the true sense of the present market situation

In the developing country it is one life’s most important achievement to own a home. Because it provides the security, stability and is a great blessing in itself. Now days it is unpredictable and costly environment, saving the required money can take a life time in itself. Rising property prices, taxes, inflation, currency devaluation, it is very hard task. On the other hand owing own home by paying an easy instalments that takes the step towards complete the ownership, is so much better than paying the rent which ultimately addition in the expenses rather than the ownership of the property. By accepting the borrowing options that being a Muslim one should accept the totally Riba-Free (interest free) financing option for inner satisfaction and peace of mind, because Allah prohibited the interest for believers.

Islamic mortgage lending based on a diminishing Musharakah base, which means where bank provides the certain amount of finance to the customer and the borrower agree to a monthly payment to the bank of which a component is for the use of the home (rent), and another for customer’s equity share, as the result the monthly payment reduced regularly and customer’s share in the mortgage property grows. When the borrower made the full investment that had been agreed, then he becomes the sole owner of the property and bank removed its charge from the property. But here the point is this why the people of country are entering the interest based structure instead of interest free banking system.

In a home mortgage market there are no limits to the options. This has made it possible for almost anyone to buy, construct or renovate the home. Most people however rush headlong into the mortgage process without checking out the options. This could be because we are too busy to study the market, or would like to use the same company as people they know. At the time of entering the mortgage contract there should be study before choosing the mortgage options. There are numerous items like attractive rates, lock in periods, insurance benefits and other add-ons to sweeten the deal. It is always beneficial for the borrower to compare the various options available in the market. That’s why one will know that he/she is getting the best deal. Here the question becomes, what source of mortgage should be used and how one can glean these information.

The Shariah prohibits interest or usury, gambling and gharar (undue risk taking), involvement in trading in such goods and services that are unlawful in themselves. As such, Islamic banking products are fundamentally and conceptually different from conventional banking products, although in order to facilitate customer ease and clarity of understanding, such products often emulate the packaging and presentation of conventional banking products. This does not mean that these products are the same as those offered by conventional banks. Islamic Banks serve the same purpose to customers and the functions of Islamic banks are and will remain essentially that of financial intermediaries.

Variation in banking procedure & risk

Islamic banking is a system of finance totally based on the sharing of risk and profit, rather than on the payment of interest or the payment of predetermined rates. While in the capitalist economy the interest is the price of money when conventional banker rents / lends it. The rate of interest is determined by central bank as a result of the fiscal and monetary policy measures. Few Westerners take it seriously as a way for a modern economy to do business. In some ways, this is a mistake. In one view, the mistakes that have led Western banks and economies into their present financial troubles are precisely the errors that Islamic banking tries to avoid. Many Muslim countries have developed a variety of partnership agreements to allow lending without interest. Under such schemes, banks receive a contractual share of the profits generated by borrowing firms. Along with boosting the welfare of general public, this approach has many advantages, such as encouraging equity and discouraging debt.

Islam provides the banking system based on profit and risk sharing rather than the fixed payment of interest after a fixed interval. The Islamic financial institutions borrow and lend money on the basis of profit sharing. But in mortgages lending the Islamic banks also should have the edge over the conventional banking on account of the principle of non-interest.

In contravention financial system the rate of interest determine by the central bank. Here in Islamic banking context, it should be assumption that the welfare of general public should be kept in mind in making of loan repayment structure. In an Islamic perspective the bank should give the right to all people instead of their previous financial record. Like in case of late payment of monthly rentals of the payment of unit price the Islamic bank should charge some penalty from the borrower, and it should not be consider as the income and the cumulative amount should be spent the welfare work of the public. On the other hand the conventional banks charged the late payment charges (LPC) and treat this amount as income of the bank.

Interest free banking in practice (Detail of Lending)

Islam permits inter free banking and believe on the profit sharing both for the depositors and as well as borrowers. Especially in case of mortgages the bank create joint ownership of the property with the buyer and convert the bank’s finance amount into units by dividing the contribution of finance amount over the total months. And give the opportunity to the borrower to purchase these units within a specified period of time and against this service it charges the rent on the units which are held by the financial institution. In the other words (Islamic term) ‘Murabaha’ is the sale on profit, means cost plus profit. If a person has no funds to purchase a home or property it comes in financial institution and requests it then after checking his credit worthiness and credibility the bank and the borrower jointly purchase the property and financial institution gives the right to further purchase the units of the property into different part within specified period of time. On the other hand it is observed in the conventional banking the bank grant the loan to the borrower and he solely purchase the property and he paid the principal amount and the interest thereon.

How it could have saved us from Global Turmoil

Lets first analyze how the profit sharing system works. lets say in conventional banking the customers takes the loan at 12% per annum or for simplicity 1% per month. Now he took 100 Rs as loan , purchased some Raw material and started some production. Production took exactly one month and the final product is ready. Whats the price of the final product. Its 101 Rs. He would need to sell that at anything more than 101 to make the profit.

Lets take the same situation for Islamic banking. If the basis of lending is profit sharing, then the cost of the product still remain 100 and when sold at 102 the share is based on the pre-agreed terms.

The main reason for Global Turmoil if we remember was sub-prime mortgage lending and mortgage finance where the cost of property sky rocketed and one of the reason could be the cost of holding the property for some month increased the price of property.

Conclusion

For the successful Islamic banking operations, it will be on Government to implement Islamic banking. If not they should atleast provide bank status to Islamic finance institutes as they are termed right now do they can issue cheque and other such facility like banks.

Other similar posts ...

1. Protectionism !! problem or solution to global turmoil
2. Real estate, technology and banking sector analysis
3. RBI creates a burden on home loan borrowers

As per Wiki

Protectionism is the economic policy of restraining trade between nations, through methods such as tariffs on imported goods, restrictive quotas, and a variety of other restrictive government regulations designed to discourage imports, and prevent foreign take-over of local markets and companies. This policy is closely aligned with anti-globalization, and contrasts with free trade, where government barriers to trade are kept to a minimum.

Now US was ( I am saying was and not is ) considered as free trade country but suddenly all the policies goes into the pocket when the situation turns bad and now they have a higher Tax for the companies doing outsourcing.

So now one of the question that comes up is. Is Free trade a problem or a solution ?

Coming back to protectionism many other countries like India have always been supporter of protectionism and are adopting new policy of protectionism. Most recent is the duty on the import of Steel.

Now the question is Protectionism !! problem or solution to the current problem.

Say if we take the example of the US first.

They have the policy of higher tax if a company outsources the work.

Whats the positive part of it.

Generate more jobs in US.

Whats the negative part of it.

It would mean the companies cost would never come down and that would mean more output cost and so higher price of the finished product. Higher the price of finished good there are more chances that the demand for the good would go down creating inventories to pile up.

Similarly if we look at current Indian scenario the same things apply. As we do not get the Steel cheaper through import the positive part of it is it allows the Indian Steel manufacturer to prosper but the negative impact is where steel is used as raw material like cars manufacturing would have higher cost of production and thus eventually destructing the demand in many such sectors.

So according to me Protectionism is clearly a problem and not a solution to global turmoil

Other similar posts ...

1. Global markets and Indian Impact
2. Inflation dangerously lurking around 8%

In India for the accounting purpose foreign activities of an Indian enterprise are divided in to two categories.

1. Foreign currency transaction
   Transactions in foreign currency like import and export of goods or services borrowing or lending of money, acquisitions and sale of securities outside India and subscription by foreign firms to shares issued by Indian companies.
2. Foreign operation
   Foreign operations conducted through branches, subsidiaries, associates, etc.

The companies can avoid the problem of foreign exchanges differences if they can find

1. Settlement in only one currency
2. Recording accounting entries of foreign currency transaction when they are converted in to local currency.
3. Fixed exchange rate of exchange to be used.

However, this solution is not feasible because these options are not available when company purchase or sales in foreign exchange transactions.

Compounding problems

When a foreign currency transaction takes place it has to be accounted by using a rate of exchange rate and if the transaction is not settled by that day then we have exchange rate difference situation. Suppose this monetary item is settled partly on some other date but in same financial period then we can book trading gain or loss for that financial period. Further if the transaction is carried forward to the next financial year then we will express these monetary items as outstanding items on date balance sheet date with foreign exchange rate for the given date for example foreign exchange rate declared by RBI on 31st march. These processes will continue till the transaction is settled down.

Now companies have 2 options to leave the data on balance sheet.

Either opt for

Transaction Date foreign exchange rate

OR

Translate their foreign currency items into rupees on balance sheet date by using closing rate and the resultant exchange difference is recognized in the profit and loss account.

Infosys Example

Infosys one of the giant software company in India who has diversified across the world. Infosys has its business in Asia, Australia, North America and Europe. Foreign exchange plays major role in Infosys revenue. Infosys entered in to forward contracts and hedged contracts to reduce the exchange risk.

Infosys annual report for 2008 and figured out how this company shows foreign exchange accounting in the report.

1. Any income of losses by the forward contract had shown under the head “Other income” in Profit and Loss account. It also showed average rate as well as period rate for different currency.

2. Foreign Currency account balance had shown under the head “Cash and Bank Balance”.

Other similar posts ...

1. MCX decides to leverage its experience in forex trading
2. Bharti pulls out of MTN share deal

So would this mean the US economy now would crumble and we would see the Giants of the financial markets to be sold to the private companies in China is still the question as of now but the fact is US would not be holding those company anymore.

Other similar posts ...

1. Experts say valuations in India “concerning”

Global markets went for a toss after Lehman Brothers filed for bankruptcy and Bank of America decided to buy Merrill Lynch for $44 billion. Lehman Brother’s announced that it is filing for bankruptcy came after all potential buyers walked away. They were spooked by the US treasury’s refusal to provide any take over aid, as it had done six months ago when Bear Stearns faltered and earlier this month, when it seized mortgage giants Fannie Mae and Freddie Mac. In other words, Lehman Brothers, burdened by $60 billion (Rs 2.8 lakh crore) in soured real estate holdings, filed a chapter 11 bankruptcy petition in US Bankruptcy Court after attempts to rescue the 158 – year old firm failed. The demise of the independent Wall Street institutions came as shock waves from the 14 month old credit crisis, six months after the collapse of Bear Stearns.

Ten banks – Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS – each agreed to provide $70 billion, in order to help enhance liquidity and mitigate the unprecedented volatility affecting global equity and debt markets. The Federal Reserve also chipped in, for investment banks.

In the world financial markets, the dollar lost traction against the yen, setting the Japanese unit on track for its best daily performance in nearly two years. Reflecting a growing sense of panic, futures markets jumped to price in a near 80% chance of a quarter point cut in US Fed interest rates.

Indian companies too fell the present US crisis tremors, set by Lehman and Merrill

The sale of Merrill Lynch to Bank of America and filing for bankruptcy by Lehman Brothers are likely to affect a number of Indian companies dealing directly with these beleaguered US giants. Though India is not directly affected by the US sub-prime loan crisis, the financial turmoil there will have some bearing here. Both Lehman Brothers and Merrill Lynch have taken large stakes in a number of Indian companies.

The news of sale of Merrill Lynch to Bank of America and filing of bankruptcy by Lehman Brothers affected the sentiments of the investors world over. In fact, the crisis in Lehman Brothers, which was reeling under the mortgage losses, had been there for quite sometime, affecting the Indian stock market. In the last four trading sessions, sensex has shed 945 points. The National Stock Exchange index nifty also lost 155.55 points or 3.68% at 4,072.90, after dipping below 4,000 level at 3,955.40

The news about Merrill Lynch particularly, came as a shock as no one was expecting the problem to be so grave that it would be forced to sell itself. This made the investors believe that financial crisis is much bigger than what was being apprehended so far and it is far from over. At the same time, foreign Institutional Investors (FIIS) continued their selling spree. Because of turmoil in the US financial market, dollar weakened against other main currencies like pound sterling, euro and Japanese yen. Even RBI’s intervention in the market to stem the fall was not effective because of the huge demand for the dollar.

The crisis in the US market made the investors turn towards gold, whose prices climbed more than 2% in London. Gold prices spurted by Rs 195 per ten grams to end at Rs 11610 on the bullion market in India.

Other similar posts ...

1. Indian economy worst-hit by crude price rise
2. Markets unlikely to crash
3. Markets likely to remain in a range

In the year 1992, the stock market rises rapidly due to the Indian economy which was opened for reforms and liberalization. At its peak, the Bombay Stock Exchange’s Sensex crossed the 4500 mark in intra-day trading. Then, the Harshad Mehta scam is unearthed and the market tumbles to a low of about 2000 points, which is a fall of more than 50%. Few years later, it again crossed the 4500 level. Also, in the year 2000-01, a sense of euphoria grips people that technology will change their lives and Internet will revolutionize the computer world soon. Sensex crosses 6000 – mark in intra-day trading. But the tech bubble bursts soon and the index crashes to 2,700 points, more than 50% fall. In the next four years, Sensex again crosses the 6000 mark.

Most of the inexperienced investors enter a stock market when it’s rising and they quit fast when it begins to fall. They don’t even think of investing again due to previous losses. In the next market rally, a new set of investors arrive with hope and determination in their eyes. Thus, the same pattern of behavior continues.

It is a known fact that markets consistently follow a cycle of rise, fall and recovery. Thus there is tremendous certainty in markets. After every rise, there is a fall. On the other hand, after every fall, markets do recover and rise again. At each rise, we pray that the “magic” continues forever. But when they fall, we are reminded of doomsday. For a stock market to rise, it could be the end on the controls on economy, liberalization, internet, India growing story etc. For a fall, there could be a scam, bubble burst, oil prices or political uncertainty. But there are all just short-term reasons or excuse.

It is a fact that only few investors create immense wealth from a stock market and also manage to keep it for decades. These investors take the right decisions and for doing this, one needs experience. But experience comes from bad decisions too. Investors, who create immense wealth from equity markets and keep it for decades and at times for generations, do not panic when a market falls. They learn from their mistakes and capitalize their investments during the next rise or rally.

Equity market is a place to generate high returns but slowly. Unless you can tolerate your stock holding declining by 50% and simultaneously keep panic away, you should not enter a stock market.

Other similar posts ...

1. How does one differentiate between a bull market correction and bear market Phase?
2. Trusting the stock market, the other way
3. Experts say valuations in India “concerning”

Looking at the above mentioned situation, you can now start taking advantage of the price swings. In order to take this approach, it would be much easier to take the mutual fund route which offers SIP (Systematic investment planning) or STP (Systematic transfer planning). Similarly, gold – traded funds can be another option, but it requires a demat and trading account for investments, unlike gold mutual funds where only a PAN card is a necessity.

After looking at the present gold scenario, fresh investors will have to look at gold in a different way. In my opinion, investors should use the systematic approach. But one needs to look at gold along with other products too. In this era of electronic fund transfers and auto debit facilities, gold’s liquidity factor is no longer an USP. Gold should not be an option purely for its allocation should be decided by their liquidity needs and timing. Hence, those who are sitting on a large corpus of wealth can look at an allocation of 5 to 10 percent for gold as this will bring stability.

It is a myth to say that gold is a safe investment product. Gold investment is good but it is not 100% full proof. Gold should be considered as any other investment commodity. Those who are having lots of wealth can look at an allocation of 5 to 10 per cent for gold as this would provide stability. On the other hand, an investor with an investment horizon of a couple of decades can afford to skip the option of gold. The reason behind it is that it does not offer high returns over a long period of time. However, the medium – term outlook for gold is likely to positive.

I would like to end this article by stating that you should invest in gold, only of you want returns better than debt instruments.

Other similar posts ...

1. Understanding the present unclear market