Best FMCG Companies - Stocks to Invest in 2009

FMCG Stocks are now catching eye of investors for investing as best option in stock market. Analysts and market experts are now putting a ‘buy stock’ recommendation on select FMCG stocks.

AHMEDABAD: FMCG stocks seem to be the dark horse on the bourses. These stocks are now catching the eye of investors. Analysts and market experts are now putting a‘buy’ recommendations on select FMCG stocks, a move which is not just being considered as a safe ploy but also as a defensive strategy to counter a volatile and uncertain market.

The trend is visible on the bourses where leading FMCG counters have outperformed the overall market during the last few sessions. Take the case of MNC giant Hindustan Unilever (HUL). The company’s stock has made its 52-week high at Rs 267 on December 19, at a time when BSE’s benchmark index, Sensex, was trading under the 10,000-mark (down by over 50 % from its life-time high of 21,000 made in January, 2008).

Similarly, the scrip of another FMCG giant, Godrej Consumer, is currently hovering near its 52-week high of Rs 145. On Wednesday, the stock price closed at Rs 138. Other companies like P&G , Dabur(I) and Colgate Palmolive have also recorded better performance on the bourses. Market analysts who earlier stayed away from FMCG stocks are now taking a fresh look at these rising scrips. Though some reservations about the FMCG sector still persists, the analysts have accepted the “safe” nature of these stocks.

Read: Dabur India - Good Stock From FMCG Sector

“Fall in commodity prices (from crude, vegetable fat and food articles) is the main reason behind the outperforming FMCG sector. Earlier trends indicate that fall in commodity prices will lead to an improvement in profitability of the FMCG companies in the next fiscal. Such a phenomenon will not remain limited to just soaps and detergent companies; even paints, confectionery, food processing and others will get benefit of the fall in commodity prices,” said Ajay Parmar, head, equity, Emkay Global Financial Services.

“Those who want to play defensive can invest in such stocks,” he added.Anand Shah, a research analyst at Angel Broking, is also optimistic about the FMCG sector. Though the markets (at current level) have already discounted the positive impact of the fall in the raw material costs, Shah believes that those who wish to play safe should invest when the prices of the FMCG scrips fall.“FMCG companies will be able gain cost advantage on raw materials, freight, transport and packaging.

The balance sheet of the FMCG companies will definitely gain strength in the coming quarters,” Shah said while cautioning the investors to adopt a stock-specific approach instead of a sector-specific one.However, not all are convinced. “Now-a-days , smaller players are eating into the business of big MNC players in the FMCG sector.

Biggies are therefore losing their market share,” says VVLN Sastry, country head at Firstcall India Equity Advisors. “There is some momentary activity in FMCG stocks, which is a part of the defensive strategy adopted by the traders to restrict the downslide. But this trend will not prevail for a long time,” he added.

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Interesting Sensex analysis

Please have a look at the table below with details of the sensex performance right from the year 1991. Last evening's closing has been taken for 2008 data temporarily. We have already knocked down 41% from 2007's close.

If we compute the CAGR for the sensex from 1991 to 2007 spanning 17 years we get a return of 14.91% explained as {(20286.99/1908.85)^(1/17)-1}. We have seen extraordinary/ astronomical returns in certain years namely 1999, 2003 and 2005-07 in in the band of 40-70%. This year having slipped into a bear market we need to adjust for the excesses on the downside and fall in line with the CAGR of 14.91% p.a.

To maintain this CAGR going ahead into 2009 we need to make a bottom of 8069 or fall 60% from the highs.Though the above is purely a quantitative analysis based on historical data, Elliot wave theory has already shown us an indicative target close to 9000 for the 4th corrective wave on the sensex and 8096 doesnt seem to be far off. We are at 11800 already and another 25% fall in the bellwether stocks like RIL and LnT will easily take us there.

There seems to be excesses still left in capital goods stocks which have not yet witnessed the capitulation seen in metals and real estate counters. Once the poison gets out of the system we can form a nice base for the reemergence of the bull market or the fifth supercycle wave as the elliot wave theorists call it.But for that to start we need a time wise correction. The value wise correction seems to be happening but time wise we need to travel a bit more.

We are nine months into this correction and we have broken important support levels along the downside taking cues from global markets and concentrated FII selling across the cap curve.Therefore reaching out to these bottoms of 8000-9000 may not happen so soon. We might have violent retracements, sharp rallies that give u a 20-25% pullback in a short span of time.

But these pull backs will be short lived lasting for a week or two before we head back to lower lows once again. The confidence in the system, despite belief in long term story of India, has been severely dented at the moment. The patience of the retail investor is slowly fizzling out like a dim candlelight with each passing day, as he wipes his forehead with his already wet handkerchief seeing the sensex drop in hundreds and thousands, watching stock prices collapse under the force of gravity.

Every recovery aimed by the indices is being met with selling as highly leveraged investors try to make an exit from their bleeding positions. Three to four pull back attempts from the lows of 3800 were attempted by the nifty, but each time we have seen the index making a lower top which indicates structural weakness and provides evidence of the deeper lows staring at the bottom, which is what has happened today with the index breaking down to a new low of 3581 and the sensex decisively collapsing to levels below Rakesh Jhunjhunwala's psychological "12000". He would, going by his own words, still be drinking like a fish, eating like a pig and smoking out his costly cigars without major worries as he has invested in the market right from levels of 3000 on the sensex. So even at the worst bottom of 8-9K he would still be making 3 times his cost.

Therefore friends, we are headed towards making decisive lows that might happen over a period of time but until then trades will keep happening in a range bound manner. Dont get fooled by smart V shaped recoveries and bet all your money. Typical bear markets end in a saucer bottom formation which means timely consolidation around the support levels before a strong rally emerges.

Regular investors should be wise enough to catch the bottom of this range to buy and exit at the top of this range for short term gains. It requires regular tracking of the markets and considerable effort/knowledge. For those who believe in the India story, this is the time to invest and cherrypick with a 3-5 year view, as in the short term you might still see your portfolio heading down 10-15% even from these attractive levels.

A new bull market will start only when there is extreme pessismism around, low volumes,analysts on TV predicting total gloom and doom issuing ridiculous targets for the sensex on the downside etc etc From now on, watch out for ur your neighbours, relatives and people u meet in your day to day life, the ones who were gung ho about new highs for the sensex at 21K.Even my autorickshaw guy was giving me a target of 5000 for reliance 10 months ago. People felt that the bull market was permanent and eternal, an easy gambling paradise to double one's networth in days n weeks, without realising that investing is a tough business.

Now is the time to start engaging them in a conversation about the markets. If they disappear from your sight, then thats the time to start investing heavily. Guess we are heading closer to those exciting moments, the so called "once in a lifetime" investing opportunity which intelligent investors capitalise upon to make a lifetime bargain.

The only risk to my estimate of 8-9K on the sensex is the "patience risk" as I would term it whereby long term investors and the domestic institutions in India say "Hey look, we are not selling the India story so easily for an economy growing at 7-8%. We are holding on come what may". This resilience will throw all market theories out of the window and a few months down the line we may be left ruing the fact that we kept our purse strings zipped and tight at these levels. Markets are indeed supreme!!

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Where Are Indian Stock Markets Heading?

Where would Indian stock markets are heading from here? BSE SENSEX has been trading rangebound for past three months now. 14500 to 15500 and around has been the range of trading.

If you look at the peaks in the chart, they indicate the lacking streangth in breaching the range mentioned above on the upper side of it.2 days back I heard Shankar Sharma, famous bear in Indian stock market, speaking on TV about correction in stock markets. He is confident that Indian stock markets are bound to see 10-15% correction in near term.He mentioned that SENSEX could go to 13000 levels before reaching 17000. Shankar Sharma's statement is based on performance of world stock markets.

World stock markets are riding with demand from chinese markets. The problem is, demand in Chinese markets is depleting eroding the growth.The current rally in Indian stock markets is more a technical rally and not the fundamental one. So what does this mean for long term invetors? Should you stay away from stock markets?It has always been said "every time the markets go down, that is a buying opportunity".So if markets correct by 10-15% as Shankar Sharma says, be ready to buy stocks at lower prices for long term investment.

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Stock Market Tips - Buy Ispat Industries For Short Term Gains

Nirmal Bang equity research & broking house has recommended to investors to buy stocks of 'ISPAT Industries' from short-term investment perspective.
Stock Trading Idea is:
CMP: Rs. 22
Strict stop loss: Rs 21.45
Short term target: Rs. 26
Medium term target: Rs. 30 (Above 30)

Tips:

• The report further stated that, if the counter is successful to breach 27, then it will hit a medium term target of Rs 30.
• Sept 01, 2009, the shares of the company opened at Rs 23.60 on BSE. The share price has seen a 52-week high of Rs 28.60 and a low of Rs 9 on BSE.
• For the three month period ended June 2009, Ispat Industries, an integrated steel maker posted loss owing to decline in sales and increase in input costs.
• During the period, the company recorded loss of Rs 2,149.20 million as against a profit of Rs 287.30 million during the same quarter previous year.
• Net sales fell 49.79% to Rs 13,997 million, whereas total income during the period declined 51.25% to Rs 14,018.50 million.
• It posted a loss of Rs 1.91 per share in the quarter as against with earnings of Rs 0.08 per share in the corresponding period of the last year.
• During the quarter, the company's operating margin fell by 1,228.23 basis points to 7.42% compared with the previous year period.
• Interest cost during the three month period dropped 37.88% to Rs 2,675.80 million whereas depreciation cost surged 1.81% to Rs 1,635.70 million.

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Top 10 fastest growing small companies in India

Growth is the only way listed companies generate wealth and value for their shareholders and other stakeholders, including employees. The younger and smaller the company, easier it is to grow. And the earlier you are able to pick future leaders, the better it is for you. In fact, during the last bear run, which ended in early 2003, many small companies gave double-digit annual returns on a consistent basis, even as frontline companies remained grounded.ETIG has come out with its 2008 edition of fastest-growing small companies. Last year's list was dominated by companies from the then hot sectors such as real estate, capital goods and construction, with a sprinkling of IT companies. However, the toppers this time are now from less cyclical and asset-light sectors, especially infotech.

Take a look at the top 10 fastest-growing small companies:

ICSA India Ltd: This is the new face of the Indian IT industry — companies offering niche product and services with a clear differentiating factor. ICSA offers supervisory control and data acquisition (SCADA)-based IT solutions to power companies.ICSA India had a market cap of Rs 1,305.2 crore (the average for September '08), besides having an average return on capital employed (RoCE) of 67.8% and interest coverage ratio (ICR) of 132.7, for the preceding three years.Also, its compound average growth rate (CAGR) in sales and net profit for the preceding three years stood at 214.8% and 210%, respectively.

Allied Digital: It provides remote infrastructure management and systems integration in the domestic market. It is a leading IT Infrastructure management and technical support services outsourcing company.It enables global, large and medium enterprises and service providers to reduce their total cost of ownership using a combination of onsite and remote services.With an average market cap of Rs 1,239.2 crore in September '08, the company's three-year average RoCE stood at 62.8% and ICR at 103.5. Moreover, its sales recorded a three-year CAGR of 79.2%, while the CAGR of profit after tax stood at 211.6%.

Prime Property Development Corporation: As the name suggests, it is a real estate developer in India, based in Mumbai.Its properties include information technology parks; commercial units comprising show rooms, shops, and offices; mall projects with anchor shop, shopping complex, multiplex, food court, entertainment area, and a hotel; and commercial-cum-residential projects.The company had a market cap of Rs 120.2 crore (the average for September '08). Its three-year average RoCE stood at 48.1% and ICR at 394.7. Its sales recorded a three-year compound average growth rate of 86.4%, while the CAGR of profit after tax stood at 185.3%.

Resurgere Mines and Minerals India Ltd: It is engaged in the business of extraction and processing of iron ore products, ie lump ore and size ore, and is predominantly a manufacturer of calibrated lump ore (CLO) and iron ore fines.It is also engaged into merchant export of iron ore fines to China. The company is a member of CAPEXIL, FIEO and FIMI and is a recognized star trading house. At present,the company has run-of-mines contracts for two mines situated at Nuagaon and Maharajpur in Orissa.Resurgere Mines' market cap (average for September '08) stood at Rs 733.5 cr, while the three-year average RoCE was recorded at 100.2% and ICR at 32.8. Its sales recorded a three-year compound average growth rate of 81%, while the CAGR of profit after tax stood at 561.4%.

Sharon Bio-Medicine: The success lies in its ability to expedite pace of product development by streamlining the processes and inculcating a culture of operational excellence. It offers contract research and manufacturing services for global pharmaceutical companies.Since its inception, the company has carved its niche by offering a distinct value proposition to its customers.Sharon had a market cap of Rs 101.7 crore (the average for September '08). Its three-year average RoCE stood at 30.8 % and ICR at 747.8. Its sales recorded a three-year compound average growth rate of 93.3%, while the CAGR of profit after tax stood at 254.2%.

Tanla Solutions: It develops value-added solutions for mobile phones. It offers end-to-end mobile commerce, mobile entertainment, mobile internet and mobile advertising solutions.Tanla is a global provider of mobile commerce, mobile entertainment, mobile marketing and advertising solutions to the telecommunications, media and digital content industries. It has the distinction of being one of the first Indian companies to focus on integrated solutions and products for the wireless world.With an average market cap of Rs 1,906.9 crore in September '08, the company's three-year average RoCE stood at 51.1% and ICR at 15.8. Moreover, its sales recorded a three-year CAGR of 173.8%, while the CAGR of profit after tax stood at 189.8%.
Northgate Technologies Limited: The corner stone capabilities of Northgate Technologies' business are infrastructure (high capacity, highly scalable server farm), services (internet advertising tracking tool, instant messaging, short messaging, net telephony, global content delivery, video streaming, social networking, file sharing and downloading, gaming and many more), and monetization (mass monetization through fast growing global internet advertising industry).Its core strengths of world-class server farm infrastructure, a rapidly-expanding global content distribution platform, popular internet properties, partnership with large web communities and own advertising network differentiates it from other peers who operate in only sector, the company claims.Northgate Tech's market cap (average for September '08) stood at Rs 904.9 crore, while the three-year average RoCE was recorded at 31% and ICR at 1141.4.Its sales recorded a three-year compound average growth rate of 102.1%, while the CAGR of profit after tax stood at 110.9%.
Venus Remedies India: It is a research and development driven, pharmaceutical manufacturing company. The company is constantly working to broaden the pipeline of products and to make a impact in the international markets.It has two manufacturing locations in India and one in Germany. Venus is a manufacturer of oncological and cefelosporine injectable products following EU-GMP norms for all is activities.The company had a market cap of Rs 316.9 crore (the average for September '08), besides having an average return on capital employed of 43.2% and interest coverage ratio of 59.5, for the preceding three years.Also, its compound average growth rate in sales and net profit for the preceding three years stood at 84.4% and 117.5%, respectively.

Geodesic Limited: It operates in a niche area of developing various innovative products in the information, communication and entertainment space. Its product-list is versatile and all-encompassing when it comes to offering choice of communication and collaboration solutions to its users, whether it is the inherently simple hand-held Simputer to web-based mobile & wireless applications to the intricately complex Engage Spyder applications.Geodesic's mix of innovative products and high performance solutions has driven the company to profit right from its first year, according to the company.With an average market cap of Rs 1,511.5 crore in September '08, the company's three-year average RoCE stood at 31.1% and ICR at 1027.3.Moreover, its sales recorded a three-year CAGR of 98.9%, while the CAGR of profit after tax stood at 98.2%.

Info Edge (India) Ltd: The company is a leading provider of online recruitment, matrimonial & real estate classifieds and related services in India.Its business is managed primarily through four divisions, which comprise online recruitment classified division, online matrimonial classified division, online real estate classified division and offline executive search division.Info Edge's market cap (average for September '08) stood at Rs 2,056.7 crore, while the three-year average RoCE was recorded at 60.4% and ICR at 11.4. Its sales recorded a three-year compound average growth rate of 70.6%, while the CAGR of profit after tax stood at 451.8%.

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Rakesh Jhunjhunwala's latest portfolio

Rakesh Jhunjhunwala have been buying stocks and making big money. His portfolio holdings are as on Sept'08 based on BSE / NSE data. Remember that his holding period is 5-10 years on an average and he has invested his money to buy stocks of Small and Mid caps only, so anyone who is buying stocks (good small cap & Mid caps) and holds it for 5-10 years, has better probability to create such huge amount of wealth. Trading stocks / stock trades are best to be avoided for retail investor. Online stock trading and buying stocks online have made it very easy for retail investors to trade stocks at fingertips very frequently. Learn how to buy stocks Rakesh Jhunjhunwala way. Buy stocks wisely!!! Investing in stock should be a long term affair & do not indulge in frequent stock trades.

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Income Tax Planning and Savings- Equities way

If you are looking at equity as an asset class and want tax reliefs as well, you can opt for ELSS, provided your goals are 5-7 years away. Equity is considered by many experts to be the asset class that can yield returns higher than many other instruments in the section 80C basket. ELSS provides you a chance to buy stocks thru mutual funds and at the time save income tax with higher returns on your long term investment.

Investing In Equities - Better Returns while Saving Income Tax

one of the best asset classes to provide that benefit is equity. Though its risky and volatile in the short-run , all kinds of long-term gains from equity, including capital returns and dividend income, are tax-free . In fact, as the investing period gets longer, dividend becomes a significant part of gains from the equity investment and it provides investors with a consistent flow of tax-free income.

ELSS - Income Tax Saving Instrument - Give It A Thought

If you haven't made the necessary investments already, it is time to go through your salary statement to find out the amount you need to set aside for claiming deductions up to Rs 1 lakh under the section 80C of the Income Tax Act.Since the valuations are quite low at the moment, it makes sense to invest in ELSS.

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High Dividend Stocks

Dividend is a tax-free income in the hand of shareholders. Dividends are far more profitable today than it would have been in the last four years. ET Intelligence dug deep to find out companies, which are consistent in paying dividends and in some cases have also increased the payout ratio. This is because the stock prices have crashed in last one year, as result the dividend yield (dividend per share divided by price per share) has gone up.

Therefore, the dividend per rupee of investment is much more today than it was earlier. However, investors should not aim at accumulating stocks with high dividend yield because such high yields may not be sustainable in case profit falls due to economic slowdown. ET Intelligence dug deep to find out companies, which are consistent in paying dividends and in some cases have also increased the payout ratio.

A high payout ratio means a higher percentage of profits are distributed among shareholders as dividends. The payout ratio has come down for most of the companies in the table. For instance, Great Eastern Shipping paid 38.6% of its profits as dividend in FY 2003, which came down to 17.3% in FY 2008. The drop in payout ratio has to be seen in the light of high growth in profits. When profits rise at astronomical rates, the dividend growth tends to be a bit lesser because the company prefers to retain some amount with it for further investment.

Investors interested in earning dividends should steer clear of companies with high fluctuations in profits. For instance, Tata Motors had incurred losses in FY 2001 and FY 2002. Though the company is incurring losses, it can still pay dividend from its past cash flows. But sustaining dividend payment will become extremely difficult in near future. Similarly, other auto manufacturers, like Ashok Leyland, were also excluded from the sample because they operate in highly cyclical industry.

As we all know that investing in stocks is a risky affair, so, an investor should always try to balance his investments between stocks and fixed interest instruments, which are less risky. We did a simulation (taking the stocks mentioned in the table) to calculate the return purely from the dividend the stocks have been paying. We assume that an investor had put in Rs 1,000 in each of the 10 stocks on April 01, 2003, taking his total investment to Rs 10,000.

The amount invested in all stocks was same to make a portfolio with equal proportions invested in different stocks. At the end of first financial year on April 01, 2004, the investor would have received dividends from the companies amounting to Rs 1,264. To minimise risk, we assume that the investor had invested the dividend in a fixed deposit for one year at the interest rate of 5.25% and then kept on rolling the fixed deposit every year for another one year. This is called ‘hybrid strategy’, wherein the income from risky investments (in this case equity) is routed to relatively less risky investments (in this case fixed deposit).

Similarly, every year on the first day of April, the investor would have got dividends, which he would have routed to fixed deposit of one year. Following this strategy, the investor would have made Rs 8,970 from dividend and interest on those dividends in five years. It is noteworthy that adopting this hybrid strategy the investor would have almost recovered 90% of his entire investment in five years time. This translates to annual return of 13.7% per annum from dividends only.

The most interesting part of the result is that the investor would have made a much higher return on his investments than offered by any fixed rate instrument. On the top of it, that return would have had been entirely free from taxes. The interest on fixed deposit is taxed. As the interest earned formed a lesser part of the return; the tax incidence would also had been much lesser. Moreover, we have not considered the capital gains. The value of the total portfolio stands at Rs 46,302 today— close to five times of the principal amount of Rs 10,000—though the market has crashed by more than 50% since its peak.

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Top Stocks to buy now : 2009

As uncertainties prevail and a revival expected only post second quarter of 2009, looking at current stock market situation it will pay to buy stocks of large cap companies with a proven track record, high earnings visibility, low leverage, good book value and low debt. Buying stocks with strong promoter holdings looking at recent Satyam fiasco could be one one of the considerations for stock buying. Stock trades at cheap brokerage fees and buying stocks online or online stock trading have made trading stocks very frequent practice for normal investor, they should understnad that stocks mentioned here are for long term investing and will be fruitful if they hold for longer time durations.

In the aftermath of economic slowdown and fall in markets, and also uncertainty over the next few quarters, it is advisable to play safe and practice stock buying of large companies with a consistent track-record. Stock trades are best to be avoided for retail investor. Online stock trading have made it very easy for retail investors to trade stocks very frequently. It is complete no-no in current stock market situation. Sandeep Shenoy, strategist, Pinc Research says, “Companies with integrated operations, strong balance sheets, low leverage or ability to complete financial closure for capex, and low working capital requirements are preferred.”

Beyond that, interest rate sensitive sectors are finding favour. Says Srivastava, “We are favourably inclined towards rate-sensitive sectors like banking, auto or even in real-estate on a selective basis. But, as the market is expected to be range bound, a trading strategy could prove helpful.”

Defensive plays like FMCG and utilities, too, figure among the preferred lot even as there is already some amount of premium built in their valuations, due to the stability they provide. Additionally, users of commodities are expected to outperform. Says Manish Sonthalia, senior VP Research & Strategy, Motilal Oswal Securities, “Now, the consumption side, like auto (two wheelers) will get more importance. Among other preferred sectors are FMCG and telecom.” Commodity user industries like construction, which may get a fillip on account of increased infrastructure spending, also figure in the list, although there are some issues pertaining to funding of projects.

Gold likely to touch Rs 18,000 per 10 gm by Diwali: Assocham

Gold is likely to touch Rs 18,000 per 10 gram during the forthcoming festival season as the demand for the yellow metal peaks around Diwali time, according to a projection by industry body Assocham.

Gold prices is expected to increase by Rs 2,000 per 10 gram by Diwali, which is followed by a marriage season in the country, it said. Currently gold prices are hovering around Rs 16,000 per 10 gram. "The bullion is likely to gradually see spurt in it's prices and stay around Rs 18,000 per 10 gram by Diwali," Assocham President Sajjan Jindal said. This is due to the fact that more and more investors are flocking to take refuge to gold as an asset class as it happens to be the best bet against rising inflation, Assocham said.

The high valuations of stocks and its attendant risk have by and large motivating investors to part shift to gold as an investment class, it said. The chamber has suggested that those who want to invest in gold, should not purchase jewellery but instead buy the metal from Singapore or Dubai in form of bars. It also said buying pure gold from banks is costly because one has to pay about 25 per cent more than the market price.

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The Only Way to Profit From a Stock Market Bubble

Former U.S. Federal Reserve Chairman Alan Greenspan said it was impossible to tell a bubble while you were in it. Well Alan, I’ve got news for you: We’re in one now. The Standard & Poor’s 500 Index is up 58% from its March lows, gold has finally broken through the $1,000-an-ounce level – and may go higher – and bond yields have fallen substantially in spite of the huge U.S. budget deficit. It’s really not difficult to tell when you’re in a bubble. What’s tough is trying to figure out how to invest while it’s developing.

When current Fed Chairman Ben S. Bernanke doubled the monetary base in a few weeks last fall, it was pretty obvious that the extra money would appear somewhere, either as zooming asset prices or as surging inflation. After all, the rapid increases in the U.S. money supply after 1995 produced a stock-market bubble and then a housing bubble. And don’t forget about interest rates. When oil prices doubled in less than 12 months between 2007 and 2008, it was because Bernanke aggressively cut interest rates after the recession first hit in late 2007. So you’d have to believe that money supply was irrelevant not to expect markets to start behaving oddly at some point.

Silver and Gold …

That’s why – since late in 2007– I have been recommending investments in gold and other hard assets. While the recession had sharply reduced demand for oil, causing its price to drop from its record high of $147 a barrel in July 2008 to around $30 in February, the gold price had dropped only from its March 2008 peak of $1,000 to around $700, before rebounding. Gold prices remain far below the inflation-adjusted equivalent of their 1980 peak, which would be around $2,300 per ounce today.

Likewise, silver prices are even further below their 1980 peak, which would be around $130 per pounce, or nearly 10 times the current level. Since both gold and silver markets are relatively thin compared to the money available – annual gold production is only $100 billion at current prices – the potential for a run-up is considerable.

The difference between a bubble and a sound bull market is that a bubble happens more quickly. Normal valuation metrics get ignored. You couldn’t rationally justify – on any sort of long-term basis – the dot-com stock prices of 1999, the California house prices of 2005, or the $147-per-barrel record oil prices of 2008. Similarly, today’s cost of extracting gold is nowhere near $1,000 an ounce. Mining costs have increased. But extraction costs are still only about $400 an ounce for top-tier miners.

Likewise, with inflation at 2% and U.S. budget deficits at more than $1 trillion per annum, there’s no justification for a 10-year U.S. Treasury bond yield below 3.5%. Let’s look at stocks. And let’s say that the market of early 1995 – when the Dow Jones Industrial Average was at 4,000 – is a reasonable base for estimating a fair value for the U.S. stock market. If that were the case, then inflating the Dow in line with nominal gross domestic product to keep it at fair value would bring us to a current day estimate of 7,800.

[The Dow closed yesterday (Thursday) at 9,783.92. To reach this “fair-value” level, the Dow would have to drop 1,984 points, or 20% – enough of a decline to qualify as an official “bear market.”]

However 1995 wasn’t a bear market, and economic and earnings prospects that year were really good. Besides, the Internet was just starting its rise to prominence. Today, we’re in a deep recession, with huge budget deficits and high unemployment, yet the Dow is closing in on 10,000. In other words, U.S. stocks are overvalued. Even after the bearish trauma of last year, we remain in a stock-market bubble.

Four “Bubble” Investing Strategies – Including the One That Works

Bubble investing is different from bull-market investing. There aren’t many “good” values, so you have to be very careful.

One bubble-market strategy is to just put everything in cash and hide under the bed. How boring! Plus, as your neighbors brag about their profits at cocktail parties, you’ll feel like an idiot until the bubble bursts. Remember, even after your neighbors’ profits have turned to losses and you look smart, you can never get those cocktail parties back!

That doesn’t mean you should abandon prudence, however. You should certainly keep much higher cash reserves than normal. Indeed, consider investing a chunk of that cash in one of the non-dollar-denominated WorldCurrency Access Deposit Accounts offered by EverBank. At the same time, it’s a pity to completely miss out on the returns one can earn in a bubble environment. But you have to careful and smart.

A second bubble-investing strategy is to find something that isn’t overvalued, and buy only that. That strategy worked great for me back in 1999. I was working in Croatia, which was going through a deep economic crisis. NATO was bombing neighboring countries in the Kosovo War. That played merry hell with tourism, Croatia’s main foreign currency earner. Croatian shares – there were about six at the time – were each selling at less than five times earnings. So I invested in Croatia and made out nicely when the war ended and things returned to normal.

The problem with that approach is globalization. It was just possible in 1999 to find undervalued investments, if only by putting your money close to a war zone. It isn’t really possible now, at least not to any great extent. Three months ago, there were lots of shares even in the United States, which had been bombed out by the downturn and hadn’t recovered. There aren’t many left now; if a share is bombed out today there’s probably good reason for it.

A third potential strategy is to try to time the bursting of the bubble. For example, you could buy the ProShares UltraShort Trust (NYSE: TBT), inversely related to twice the Lehman Brothers Holdings Inc. (OTC: LEHMQ) 20-year bond index. Then you’d wait for the bond market to crash, and TBT to soar.

But there are two problems:

• First, the ProShares UltraShort Trust has a fair-sized tracking error, because they have to rebalance the fund daily. Thus if you hold it too long, you won’t do as well as you should.
• Second, the bubble can take a long time to burst; meanwhile it goes on inflating and you get killed. In the long run, it was a good idea to short Cisco Systems Inc. (Nasdaq: CSCO) in 1999. In the short run, it wasn’t so clever.

The Winning Play

The normal investment approach, to buy only the most conservative companies in an overvalued but bubbly sector, also doesn’t work. Everybody else is looking for them, too. And that means they end up being overvalued. Besides, they will advance only modestly with the inflating bubble, so you won’t make enough to compensate for the risk of buying too high. The best alternative, therefore, is to buy bubbly investments – but the junk, not the cream. Buy gold and silver mines that even at $900 an ounce have only been running at close to break-even, because they have expensive deposits.

Don’t buy political risk (i.e. mines in dodgy countries), because if the gold price goes up, the local dictator will seize your company’s winnings. But operating risk is okay. And high operating costs are fine. If your mine has operating costs of $800 an ounce, you’ll make out like a bandits if gold goes from $1,000 an ounce to $1,200. That way, you need only put a modest amount in the investment, and it will zoom up to several times what you paid, making as much profit as if you’d put your entire fortune in something conservative.

Make sure to put only a portion of your money in such a play. Keep the rest in cash.

When to sell? Well, start selling at the first signs that the Fed is beginning to take inflation seriously, meaning the central bank will be pushing up interest rates. You’ll know when this is because you’ll likely start hearing a lot about Fed “exit strategies.”

Don’t be greedy – better to sell too early than too late. Better to leave the theater at the first wisp of smoke, than to wait until the entire crowd is panicking and heading for the exits.

I hate bubbles. And I hate Bernanke and the other central bankers for causing them by their misguided monetary policies. But you can make money out of them. Just don’t get carried away.

[Editor's Note: When it comes to global investing, longtime market guru Martin Hutchinson is one of the very best. And for good reason - he knows the markets firsthand. After years of advising government finance ministers, crafting deals with global investment banks, and analyzing the world's financial markets, Hutchinson is now bringing his creative insights to the readers of his trading service, The Permanent Wealth Investor.

The Permanent Wealth Investor assembles high-yielding dividend stocks, profit plays on gold and specially designated "Alpha-Bulldog" stocks into high-income/high-return portfolios for savvy investors. Hutchinson's strategy is tailor-made for periods of market uncertainty. But the real beauty of this approach is that it can work in any kind of market - even those dominated by the bulls or the bears.

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Stock Market when EPS Growth Turns Positive

Unless the economy-market is on the verge of a major unforeseen calamity S&P 500 earnings per share growth will turn positive in the fourth quarter. Generally analysts are positive on the market because they expect very strong earnings growth in 2010. This will be the twelfth time since 1950 that earnings growth has turned positive.

Even if you make extremely conservative projections, EPS growth in 2009 will be very strong. In the first two quarters already reported EPS was in the $14-$15 range. If you assume that EPS will be in this same range in the second half of the year it generates an estimated EPS growth for 2009 on the order of 50%.

On average, in the previous eleven times, the market was virtually flat. But this flat average was a product of six significant declines or bear market and five rising or bull markets. The average contains almost 25% drops in 1961 and 1987 and a 20% rise in 1968.

I guess this is the time to talk about the 6' economist who drowned fording a stream where the average depth was 3'.

Since 1950 the market has been above its year ago level some 72.5% of the time. But in the first year after earnings growth turned positive, the market is only up 45% of the time. So one of the most dangerous times in the market is in the first year after earnings growth turns positive. It is another consequence of the point that the correlation between the change in earnings and the change in the market is essentially zero.

The difference between rising and falling markets was not earnings growth. On average, in the six years the market fell earnings rose 19% and in the five years the market rose earnings rose 16%.

Rather, the difference was between valuation and the impact of rising interest rates.When the market fell, bond yields rose while when the market rose, yields fell. In general the relationship between the market PE and bond yields is roughly one-to-one. That is, a 100 basis point rise in yields generates roughly a 100 basis point fall in the market PE.

But when the market is overvalued, as it is now, rising interest rates can have a much more severe impact as the market quickly eliminates its' overvaluation as it did in 1961 and 1987.


The current rally is being driven by the liquidity the Fed has flooded the system with over the past year. But in 2010, if the economy is rebounding, and particularly if growth is stronger than expected, the Fed will be under intense pressure to drain this liquidity. Some Fed spokesmen are already warnings that rates could rise rapidly over the next year.

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Technology Leading Stock Market Rally: A Pause Ahead?

The 52 week high list looks like a who’s who of dynamic companies, with the list being dominated by some of the best and brightest in Technology. The Nasdaq (^IXIC: 2138.04 +5.18 +0.24%) has outperformed its peers on a year to date basis and as several analysts predicted, it is the tech sector that is leading the rally.

The Nasdaq’s Year to Date performance gains of 34% dwarfs the gains put up by the S&P (^GSPC: 1064.66 0.00 0.00%) (18%) and the Dow Jones (11%). Even looking at the gains since the lows of March, the Nasdaq and technology is still the driving story for the market. Nasdaq at 68% leads the gains of the S&P at 60% and the Dow Jones at 51%. Either way, the bull market rally since March, on the back of the idea of recovery, and finally improving GDP numbers has been broad and long. The Bulls have been on a 6 month celebratory train, but will it last and is Tech’s run over?

Not quite, the road to recovery, while already swift due to massive government intervention, still has to play its course and incite a recovery in the job market. Unemployment in America is still rising, though not as quickly, towards the psychological 10% mark. If job creation instead of job losses show up in the remaining quarter of the year, market bulls will have more reason to bang their chests, and more importantly, put their wallet where their mouth is.

Secondly, the housing sector still needs to improve. Articles on the Huffington Post and other sources, are already touting that banks are going back to packaging risky loans, and many analysts are waiting for the other shoe to drop when it comes to commercial real estate. While some may scoff at the success rate of the White House loan modification program, the last estimates put the percentage of home owners helped with refinancing at 13-15%, the fact is there are some getting help. Housing starts were lower than expected most recently but this has been a metric that has consistently come in higher than expectations.

Now, about those 52 week high names. Well technology giants Apple (AAPL: 184.02 -1.00 -0.54%) and Google (GOOG: 497.00 +5.54 +1.13%) dominate the list, while other techs such as Ebay (EBAY: 24.15 -0.19 -0.78%) show up, and even others such as IBM (IBM: 121.57 -0.54 -0.44%) and INTC (INTC: 19.54 -0.02 -0.10%) are just off those levels.

The prudent thing for the market to do and investors to do would be to take a breather after such a scorching rally of late, however, as market participants are keen to know, markets stay irrational for longer than expected.

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Gold demand may slip by 30 pc during festival season

India's gold demand during the forthcoming festival season is likely to fall by 30 per cent as compared to last year owing to high prices, a top industry official said here. "Despite high gold prices, there is a demand for gold in the market. However, overall demand will be less by 30 per cent during the forthcoming festive season," Prithviraj Kothari, Director, Riddhi Siddhi Bullions, said on the sidelines of a conference.

In the domestic market, gold demand in the first half of 2009 fell by 55 per cent year-on-year and jewellers expect the weakness to extend to the second half of the year despite major festivals. The country's gold demand normally rises between August and October, when consumers buy bullion for auspicious reasons to celebrate major festivals such as Dusshera, Diwali and Dhanteras.

"People are waiting for price to go down. However, they may buy at this level in the forthcoming festival and marriage season," Kothari said, adding that the demand from the rural markets could be seen if the monsoon is good. Commenting on the price trend, Kothari said, gold may see some correction and price may touch Rs 15,300 to Rs 15,500 per 10 grams in the next fortnight. Kothari is also bullish on silver saying the prices of the metal have not appreciated in line with the gold prices.

"Silver prices may touch Rs 30,000 per kg by Diwali from the present Rs 26,933 per kg," he said. Meanwhile, Riddhi Siddhi Bullions plans major expansion in south Indian market. "We are opening four new branches in Kerala at Thiruvanthapuram, Cochin, Trichur and Calicut on October 10. We are offering over the counter(OTC) trading platform, where jewellers can buy and sell gold on physical delivery basis," Kothari said. The company may raise money through public offering in the next two years to fund its expansion plans, Kothari added.

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IDBI's employees productivity highest among domestic banks

The employee productivity of state-run IDBI Bank is the highest among all domestic banks in the country in 2008-09, according to a RBI report. According to RBI data on profile of banks, business per employee (total business of the bank divided by the number of employees) of IDBI Bank stood at Rs 20.30 crore for 2008-09 against the industry average of Rs 7.50 crore for the year.

In terms of profit per employee also (total profit of the bank divided by the number of employees), IDBI has done well. The bank's profit per employee stood at Rs 8.42 lakh, higher than the banking industry average of Rs 5.6 lakh. However, the bank's wages as a percentage of the total expenses stood at 4.89 per cent against the industry average of 13.52 per cent for 2008-09.

The country's largest lender State Bank of India has not been impressive in terms of employee productivity. The bank's business per employee stood at Rs 5.56 crore for 2008-09, which is way below the industry average. SBI's wages as percentage of total expenses, however, stood at 16.64 per cent against the industry average of 13.52 per cent for 2008-09. The business per employee of Canara Bank stood at Rs 7.80 crore, Bank of Baroda at Rs 9.14 crore, Bank of India at Rs 8.33 crore and Union Bank at Rs 6.94 crore for 2008-09.

The country's private lenders have fared well in the category, with the business per employee of ICICI Bank and Axis Bank being at Rs 11.54 crore and Rs 10.60 crore, respectively, in the last fiscal. Even the foreign banks' employee productivity is higher than the industry average, with Citibank, HSBC, Standard Chartered Bank and Barclays business per employee at Rs 18.80 crore, Rs 9.61 crore, Rs 9.71 crore and Rs 11.10 crore, respectively.

According to RBI data, SBI's profit per employee was at Rs 4.74 lakh for 2008-09, below the banking industry average of Rs 5.6 lakh. Other major state-run lenders have fared well in terms of profit per employee. Bank of Baroda's profit per employee stood at 6.05 lakh while Punjab National Bank's employee productivity at Rs 5.64 lakh for 2008-09. The performance of Central Bank of India, UCO Bank and United Bank, however, was not good in the last fiscal.

In the foreign bank category, each employee of Standard Chartered Bank, Citibank and HSBC contributed Rs 23.82 lakh, Rs 45.12 lakh and Rs 16.06 lakh respectively to the bank's profit in 2008-09. Among private lenders, ICICI Bank's profit per employee stood at Rs 11 lakh, while that of HDFC Bank was below the industry average at Rs 4.18 lakh.

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ICICI Bank's Rs 10k-cr bad loans under lens

The institute of Chartered Accountants of India (ICAI) has raised questions about ICICI Bank’s home loans business and has sought a fresh central bank audit of a two-year-old sale deal of dud loans, after a Mumbai-based chartered accountant spotted irregularities in some loans.

“The regulator should re-audit assets sold to ARCIL,” ICAI president Uttam Prakash Agarwal told SundayET, referring to the sale of bad home loan assets worth over Rs 10,000 crore by the bank to the asset reconstruction company. ICICI Bank is accused of lending money for the purchase of some apartments in a housing project in a Mumbai suburb, and in some cases twice for the same set of apartments.

According to the chartered accountant who spotted irregularities, the bank disbursed home loans for the purchase of 15 apartments in the Ritu Paradise Project developed by S R Developers in Mumbai’s Mira Road. Documents available with ICAI and in SundayET’s possession show that double loans were issued by the Bank on some flats.

These loans were part of the block of bad loans sold to ARCIL, which helps banks to free up capital by buying such loans and seeks to recover them. Although the loan amount for these 15 flats were only in the region of only Rs 2-3 crore, the accounting regulator is of the view that the bank bears responsibility for selling off these bad loans to ARCIL without verifying it. A spokesman for ICICI Bank admitted that such an incident had taken place.

“When this asset was sold to ARCIL, this was not identified as fraud. The builder fraudulently recreated the entire documentation and sought finance. Such frauds are a challenge to the industry,” he said. On the issue of loans being issued twice for the same property, the ICICI spokesman said: “Since there is no central database, it is almost impossible to track whether any loan has already been given against a specific property.”

But ICAI said this episode exposed holes in the bank’s systems. “In four cases, double loans were issued by ICICI Bank itself. This shows the inability of the bank’s IT set up and its due diligence mechanism,” Mr Agarwal said. He added that the appointment of auditors in private sector banks should also be done by RBI as in the case of public sector banks. “No autonomy should be given to the management of the private sector banks. In the past too, there were accounting issues and the recent example is the fall of Global Trust Bank”, he said.

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Stocks slip as investors take break from rally

NEW YORK — A surprise drop in unemployment claims couldn't fuel another day of gains for the stock market. Stocks posted modest losses in quiet trading Thursday after a three-day advance. Traders found little in the weekly employment data, or in reports on housing and manufacturing, to provide new encouragement about an economic recovery.

Stocks surrendered early gains around midday and the Dow Jones industrial average ended with a loss of 8 points. Lackluster earnings reports from FedEx Corp. and Oracle Corp. added to investors' caution. The stock market has risen in eight of the past 10 days and hopes for a recovery have propelled the Standard & Poor's 500 index up 57.5 percent from a 12-year low in early March.

The pace of the gains has brought warnings from analysts that stocks have risen too quickly. "This market has become kind of saturated with good news," said Jeff Kleintop, chief market strategist at LPL Financial. The Labor Department said workers filing for jobless claims for the first time dipped to 545,000 last week from an upwardly revised 557,000 the previous week.

Economists polled by Thomson Reuters were expecting claims to rise. It was the lowest level of new claims since early July, indicating job cuts could be easing. However, those continuing to file for claims came in just above analysts' forecasts at 6.2 million. Many economists consider unemployment to be the biggest obstacle to a rebound in the economy.

The Commerce Department said housing starts rose in August to their highest level in nine months amid a jump in apartment building. The increase was just below the pace economists had forecast. Similarly, the Philadelphia Federal Reserve's index of regional manufacturing conditions rose for a second straight month to its highest level since June 2007. However, a drop in new orders from August worried some investors.

Weaker sales at FedEx and Oracle stirred concerns about how corporate revenue will hold up for the July-September quarter. In the prior quarter, companies relied on cost-cutting, not revenue growth, to boost earnings. David Chalupnik, head of equities at First American Funds, still expects stocks will push higher but said a break is necessary. "Eventually the market does need to take a breather," he said.

The Dow Jones industrial average fell 7.79, or 0.1 percent, to 9,783.92. On Wednesday, the Dow jumped 108 points to a high for the year. The S&P 500 index fell 3.27, or 0.3 percent, to 1,065.49, and the Nasdaq composite index fell 6.40, or 0.3 percent, to 2,126.75. Kleintop is encouraged that some of the market's recent gains have been moderate and that investors remain skeptical.

The counterintuitive logic of Wall Street would argue that all the predictions of a slide could keep the rally going. "It's been kind of a steady grind over time bringing investors kind of kicking and screaming back into this market," he said. Bond prices jumped, pushing yields lower. The yield on the benchmark 10-year Treasury note fell to 3.39 percent from 3.48 percent late Wednesday.

The dollar was mixed against other currencies, while gold prices fell. Among stocks, FedEx fell $1.74, or 2.2 percent, to $76.46 and Oracle slid 61 cents, or 2.8 percent, to $21.52. American Airlines' parent AMR Corp. jumped $1.45, or 19.7 percent, to $8.80 after the company said it secured $2.9 billion in cash and financing. Crude oil fell 3 cents to settle at $72.47 per barrel on the New York Mercantile Exchange.

About three stocks fell for every two that rose on the New York Stock Exchange, where consolidated volume came to 6.7 billion shares compared with 6.9 billion Wednesday. The Russell 2000 index of smaller companies fell 1.91, or 0.3 percent, to 615.47. Overseas, Britain's FTSE 100 rose 0.8 percent, Germany's DAX index gained 0.5 percent, and France's CAC-40 rose 0.6 percent. Japan's Nikkei stock average jumped 1.7 percent.

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SEC proposes new rules for credit rating agencies

WASHINGTON — Federal regulators on Thursday proposed new rules designed to stem conflicts of interest and provide more transparency for Wall Street's credit rating industry, which was widely faulted for its role in the subprime mortgage debacle and the financial crisis. The five members of the Securities and Exchange Commission voted at a public meeting to propose rules that could reshape an industry dominated by three firms: Standard & Poor's, Moody's Investors Service and Fitch Ratings.

Their practices would be opened wider to public view and subject to some restraints. Regulators say they also hope to spur more competition in the rating industry, with new entrants challenging the dominant firms. The proposed rules, which were opened to public comment, could eventually be adopted by the agency, possibly with revisions. The SEC commissioners also proposed a ban on "flash orders" — a practice that gives some traders a split-second advantage in buying or selling stocks.

It has become a hot-button issue in recent weeks amid questions about transparency and fairness on Wall Street. Nasdaq OMX Group Inc., which operates the Nasdaq Stock Market, and the BATS exchange have voluntarily stopped using flash orders, which made up an estimated 3 percent of stock trading. The New York Stock Exchange has never used them.

The credit rating agencies have been widely criticized for failing to identify risks in securities backed by subprime mortgages. They had to downgrade thousands of the securities last year as home-loan delinquencies soared and the value of those investments plummeted. The downgrades contributed to hundreds of billions in losses and writedowns at big banks and investment firms.

One SEC proposal discussed Thursday is intended to bar companies from "shopping" for favorable ratings of their securities. "These proposals are needed because investors often consider ratings when evaluating whether to purchase or sell a particular security," SEC Chairman Mary Schapiro said before the vote. "That reliance did not serve them well over the last several years, and it is incumbent upon us to do all that we can to improve the reliability and integrity of the ratings process."

The SEC commissioners took their action during a week when memories of the collapse of Lehman Brothers a year ago were fresh in Washington. "There is general consensus that the rating agencies contributed significantly to the damage and the widespread loss of confidence," said Commissioner Luis Aguilar. In July, Sen. Charles Schumer, D-N.Y., called on the SEC to ban flash orders, threatening legislation if it failed to act.

"This proposal will once and for all get rid of flash trading, which if left untouched, could seriously undermine the fairness and transparency of our markets," Schumer said in a statement Thursday. In California, Attorney General Jerry Brown launched an investigation into the three big agencies to determine what role they might have played in the collapse of the financial markets.

Brown said he had subpoenaed the three firms to determine whether they violated state law in "recklessly giving stellar ratings to shaky assets." Word of the probe came after the California Public Employees' Retirement System sued the agencies, blaming them for more than $1 billion in investment losses.

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U.S. regulators propose ban on "flash" trading

WASHINGTON (Reuters) - U.S. securities regulators proposed on Thursday a ban on flash orders that stock exchanges send to a select group of traders, fractions of a second before revealing them publicly. The Securities and Exchange Commission is seeking to end the practice criticized for giving an unfair advantage to some market participants who have lightning-fast computer trading software.

Nasdaq OMX's Nasdaq Stock Market and privately-held BATS Exchange recently canceled their flash services that disclosed buy and sell orders to specific trading firms before sending them to the wider market. NYSE Euronext's New York Stock Exchange did not adopt the flashes under scrutiny but major alternative venue Direct Edge still offers flashes. The SEC will put its proposal out for public comment for 60 days, and will later schedule a meeting to decide whether to adopt the proposal.

The agency said it will seek feedback on the cost and benefits of the proposed ban, and whether the use of flash orders in options markets should be evaluated differently from those in equity markets. The agency also tightened rules on credit rating agencies by imposing more disclosure requirements and encouraging unsolicited ratings. Those moves, and others proposed by the SEC, took aim at an industry widely criticized as having fueled the financial crisis through over-generous ratings assigned to toxic mortgage-backed securities.

BROADER REVIEW

The proposed ban on flash orders is part of a broader effort by the SEC to crack down on obscure corners of the U.S. stock market. SEC Chairman Mary Schapiro said the agency will keep reviewing trading practices that may give an unfair advantage to some market players. "Other market practices may have similar opaque features," she said.

Supporters of high-frequency trading practices such as flash trading say they add needed liquidity to the markets, and allowed the markets to function smoothly during the financial crisis. But critics, including some lawmakers, say the markets need to be better policed so all investors are operating on an even playing field.

In July, Senator Charles Schumer, a New York Democrat, told the SEC to curb flash trading and threatened the agency with legislation if it failed to do so. Schumer said in a statement on Thursday that flash trading could seriously undermine fairness and transparency in markets. "This ban, as proposed, is pretty much water-tight and should not be weakened by the commission as the rule-making process goes forward," he said.

Joe Mecane, NYSE Euronext's executive vice president of U.S. markets, has said flashes were "a relatively small debate that evolved into a very large debate." At most, flashes represented less than 3 percent of U.S. equity trading volume. All five SEC commissioners voted to propose the flash trading ban, but some were cautious about overreaching in reviewing other market practices. Troy Paredes, a Republican commissioner, said investors ultimately benefit from regulatory restraint.

"Exchanges and other trading venues need flexibility to innovate new products, services and trading opportunities," he said. Democratic commissioner Elisse Walter also cautioned against too broad a crackdown and said each trading practice should be examined separately and carefully. "They have different potential benefits and different concerns," Walter said.

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Sensex at highest close in over 15 months

India’s main stock index rose 1.5% to its highest close in more than 15 months on Tuesday in anticipation of stronger quarterly earnings and hopes for a pickup in consumer spending. Financial issues led by State Bank of India, the country’s largest lender, firmed as advance taxes paid by them for the September quarter were sharply higher than a year ago, indicating robust profit rise.

Banks were also helped by hopes the central bank will relax accounting rules for their government bond holdings, a move that will lower provisioning for notional mark-to-market losses, traders said. “Some good advance tax numbers contributed to the rally today. Whatever we have seen so far is good, and expect other figures to be robust as well,” said Neeraj Dewan, director of Quantum Securities. The 30-share BSE index rose 1.48%, or 240.26 points, to 16,454.45, its highest close since late May 2008.

All but three of its constituents gained. The 50-share NSE index closed 1.74% higher at 4,892.10. The benchmark, which had last week more than doubled from its March low, is up over 70% since the beginning of the year. “The market is fairly priced but as we expect earnings upgrade, it would not look expensive,” said Mahesh Patil, co-head of equity at Birla Sun Life Mutual Fund. State Bank climbed to its highest in 18 months as a source said the lender paid Rs1,832 crore ($377 million) as advance tax for the September quarter, higher than a year ago.

The stock ended up 2.7% at Rs2,009.25, after hitting Rs2,019.90. Rival ICICI Bank rose 2% to Rs842.30. Telecoms firm Bharti Airtel closed down 0.8% at Rs416.05 after South Africa’s communications regulator said it might not grant approval this year for a proposed tie-up between Bharti and mobile phone group MTN. A finance ministry official said on Tuesday New Delhi was paying arrears of about Rs20,000 crore ($4.1 billion) in September to government workers, ahead of big festivals in October.

Traders said the payout would boost demand for consumer goods, appliances, cars and motorcycles. Diversified ITC rose 1.9% to Rs229 while motorcycle maker Hero Honda climbed 3.5% to Rs1,615.15. Top software services exporter Tata Consultancy gained 1.9% to Rs570.90 on higher quarterly tax payment. Energy giant Reliance Industries Ltd climbed 1.55% to Rs2,180.15 and leading engineering and construction firm Larsen & Toubro added 1.355 to Rs1,629.40. In the broader market, gainers led losers in the ratio of 1.8:1 on relatively good volume of 497 million shares.

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Sensex rallies to new 15-month high

Discarding mixed global cues, the benchmark Sensex Tuesday set a fresh 15-month high of 16,454 points by adding over 240 points on hectic buying by funds on reports of advance tax payments by some big corporate houses. After snapping its previous six-day winning streak on Monday, the BSE Sensex opened strong and improved further to settle the day at 16,454.45, higher by 240.26 points or 1.48 percent than its last close.

The last time the key index witnessed this level was on June 2 last year. Marketmen said funds were aggressive buyers across realty, metal, banking, auto and consumer goods counters as they sensed promising second quarter earnings by India Inc. They said second installment of advance tax payments by some big corporate was higher indicating revival in the economy."The advance tax payment by corporate is robust which boosted the market sentiment," said Sanjay Bhambri of Hi-Tech Securities.

The small-cap and mid-cap shares gained more than one percent each, reflecting good buying from retail investors. All-round buying saw all sectoral indices closing with gains but realty, metal, banking and auto led the rally.Realty major DLF was the biggest gainer among the Sensex stocks at 5.20 percent, while auto major Hero Honda at 3.47 percent was the next best. However, Asian indices ended narrowly mixed after opening firm.

European markets also displayed a mixed trend in their afternoon trade. The 50-issue Nifty of the National Stock Exchange also recouped by 83.50 points or 1.74 percent to 4,892.10 from its last close.Among sensex-based share, DLF shot up by 5.20 percent, Hero Honda by 3.47 percent, Sterlite Ind by 3.34 percent, Hindalco by 3.30 percent, Jaipra Ass by 2.92 percent, REL Com by 2.80 percent, SBI by 2.71 percent, REL Infra by 2.65 percent, Tata Steel by 2.54 percent, HDFC by 2.12 percent, ICICI Bank by 2.03 percent and RIL by 1.55 percent.

Total market breadth remained positive as 1,801 counters finished with gains against 994 that ended with losses on the BSE.The trading volume was relative up at Rs 5,494.39 crore from Rs 5,125.14 crore on Monday. Jindal Steel was the most active share with the highest turnover of Rs 187.85 crore.

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India shares up on hopes of low rates, tax reports

HONG KONG (MarketWatch) -- Indian shares posted strong early gains Wednesday on improved sentiment after the Reserve Bank of India governor reportedly said the central bank won't hike rates until economic recovery is firmly on track. The gains were were also supported by reports of a robust advance corporate tax receipts for the fiscal second quarter, raising expectations of strong earnings growth for the July-September quarter.

The 30-stock Sensex rose 1.1% to 16,633.25 in early trading, while the broader S&P/CNX Nifty added 1.1% to 4,943.45. Shares of market heavyweight Reliance Industries rose 0.8%, with ICICI Bank /quotes/comstock/13*!ibn/quotes/nls/ibn (IBN 35.56, +0.80, +2.30%) rising 1.7%, and Infosys Technologies /quotes/comstock/15*!infy/quotes/nls/infy (INFY 47.14, +0.69, +1.49%) climbing 0.8%.

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Sensex, Nifty remain in positive territory at 11:05 hrs

After a mild retreat that resulted in the market shedding some early gains, equities rallied higher on resumption of buying only to drift down again due to a round of profit taking in select blue chip stocks. The Sensex, which had rallied to 16,642.44 in early trade this morning, is up with a gain of 100.44 points or 0.61% at 16,554.89 at present. The Nifty is up 33.25 points or 0.68% at 4925.35. Metal stocks are in demand.

Mirroring sharp gains posted by key stocks in that space, the BSE Metal index has surged 2.5% now. Realty, bank and automobile stocks are also seen attracting strong buying enquiries. PSU stocks, which has turned a bit subdued in the previous session, are gaining in strength this morning on renewed support. Power, capital goods, FMCG and IT sectors witness stock specific action.

Several midcap and smallcap stocks have posted sharp gains this morning. The market breadth is quite strong at present. Out of 2370 stocks seen in action on BSE, 1481 stocks are trading in positive territory. 809 stocks have declined and 80 stocks trade flat. Tata Steel has rallied to Rs 515.80, gaining around 5%. Sterlite Industries is up 2.65% at Rs 763. Jindal Steel (3%), SAIL (3%), Ispat Industries (2.8%), JSW Steel (2.6%), Nalco (2.1%) and Jai Corp (1.2%) are the other prominent gainers in the metal space.

Realty stocks DLF, Unitech, Phoenix Mills, Mahindra Lifespace, Anant Raj Industries, Orbit Corporation, Sobha Developers and Omaxe are trading with notable gains. Mahindra & Mahindra, Reliance Communications, Jaiprakash Associates, State Bank of India, Bharti Airtel, ICICI Bank, Hero Honda, ACC, ITC, Tata Power, Maruti Suzuki, Larsen & Toubro, ONGC, NTPC, Tata Motors, HDFC Bank and Infosys Technologies are up with sharp to moderate gains.

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Asian Economic News

(RTTNews) - Wednesday, reports about robust advance tax payments by top firms and a signal from the central bank that interest rates will not be hiked in the near-term helped the Indian market extend its previous session's rally. Firm Asian cues on the back of larger-than-expected rise in U.S. retail sales in August also boosted sentiment. The BSE Sensex opened stronger at 16,499 and rose further to a high of 16,642 thus far during the day before paring some of its initial gains.

The Sensex is now trading at 16,585, up 131 points or 0.80% and the S&P CNX Nifty is trading at 4,932, up 0.82%.On the BSE, the mid-cap index is moving up 0.83% and the small-cap index is advancing 0.93%. The market breadth is extremely positive, with 1413 gainers versus 728 losers. Sector-wise, metal, realty, banking and auto stocks are leading the rally. Among the top gainers, Tata Steel is up nearly 4%, Sterlite Industries and Jaiprakash Associates are up over 2% each, Reliance Communication is gaining 1.85% and DLF is adding 1.60%.

Mahindra & Mahindra, SBI, ICICI Bank, ACC, Hero Honda Motors, Bharti Airtel, Larsen & Toubro, Tata Power, Hindustan Unilever and ITC are the other prominent gainers. Twenty-eight out of 30 Sensex stocks are currently trading in positive territory. Wipro is down 0.35% and Hindalco is trading flat. National Aluminum is rising 1.54% on reports it plans to set up a nuclear power plant. Tata Power is up around 1% after rating agency Standard & Poor's revised its outlook on the company's corporate credit ratings to positive from stable.

NTPC is up a modest 0.43% on reports it is evaluating an offer to buy a coal mine in South Africa. Elder Pharmaceuticals is gaining over 2% on reports it will sell a minority stake to U.S-based private equity firm TA Associates.Fortis Healthcare is down 0.36% on reports it will raise Rs.1,000 crore via a rights issue by October. LIC Housing Finance is surging up 5.63% on reports it will raise up to $136 million through a share sale to institutional investors.

State-run oil-marketing firms are trading firm after the government issued them Rs.103.06 billion of bonds as partial compensation for selling fuel at subsidized rates. BPCL is rising 0.64%, HPCL is up 0.98% and IOC is adding 1.27%.Dr Reddy's Laboratories is up 1.43% even as reports said that U.S-based drug discovery firm Albany Molecular Research Inc. has filed a patent infringement lawsuit against the company. Mahindra & Mahindra is adding 1.64% after it tied up with Punjab National Bank and UCO Bank for vehicle financing.

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What bankers do not discuss about Home loan

Taking a home loan has become easier. Enticing advertisements and easy installment plans may be tempting you to avail a loan every now and then.

Well of course, you deserve to possess a house of your own. And the Indian banking and finance industry too supports your aspirations. The cumbersome process of taking a home loan in India has been simplified a lot and you no longer have to run from pillar to post to get it approved for yourself.

Nevertheless, the eligibility criteria are also rationalized and anyone can plan to avail a home loan by fulfilling the bottom lines.

But then the key question arises as to whether you should take a home loan or not. It certainly is a long term assessment. After all you should not fall in a debt trap in any case.

Hereon we discuss on the softer side of the matter that is usually ignored amidst the fancies of buying home loan, but turn critical in nature.

How much?
As a thumb rule, your Equated Monthly Installment (EMI) on home loan should not exceed by 40 per cent of your net monthly income. Net income is meant by the disposable income left after all statutory deductions like insurance premium, income tax, PF contributions, and other obligations towards mutual fund SIP (Systematic Investment Plans) etc.

Thus if your monthly income is Rs 20,000 and net income comes to Rs 15,000, your monthly home loan installment should not exceed Rs 6,000 (40% of Rs 15,000). The rest is assumed towards your routine expenditure.

Our suggestion

Though 40% is a standard, we advise you to keep it below 25% of your present net income. Reason- you should have reserves to meet some unforeseen situations. It may be healthcare or financial affairs or any unexpected expenses under the sun.

Future Planning
A large number of people project hike in their incomes for future and make decisions based upon estimations. It’s good to be positive.

But you may enter into troubled waters in case things move in opposite direction.

Also, the home loan is a long term liability, usually between 10-20 years. In this period, your income may keep on rising but so do your liabilities and expenses. What should you do then?

Our suggestion

Suppose you expect your present monthly income of Rs 20,000 to Rs 30,000 a year after, you plan your EMI as per present income only.

Later when your projections turn into reality, you can either re-work your EMI with your bank or invest the additions into other prolific investment options.

This way you can balance your liabilities and at the same time remain stress-free on spiraling burden of EMI, which could form in case of failing estimations.
Final words
We hope that the above discussions will prove beneficial to you and help you work out a well planned home loan transaction, safe and happy.

We’ll continue bringing such information and insights on home loans for you, on regular basis. So be in touch.

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Are fixed rate home loans really fixed

Once you decide to avail a home loan, the next thing that storms your brain is choosing between fixed and floating rate of interest. And here is where you are caught in a catch 22 situation.

Usually, when news media splashes reports on banks increasing home loan interest rates in India and their impact on Equated Monthly Installment (EMI), you deem it better to opt for fixed home loan rate. In fact, your banker may also advise you to go for the same.

Now ideally as it should be, we assume that once you select fixed rate plan for yourself the rate of interest will remain unchanged over the entire tenure of the repayment period irrespective of any subsequent increase in the same. But actually this is not the case.

Here we demystify the nature of fixed interest rate housing loan transaction for you so that you could make an informed decision over the matter.

• All the banks include the reset clause on fixed interest rate in their home purchase loan agreement papers. So if you had taken the loan @ 10.5 per cent for 15 years it does not mean that the same rate will be applicable all across the period.
• India’s largest public sector bank State Bank of India (SBI) has introduced a clause as per which it has right to revise the fixed rate home loan after two years. Similarly, Canara Bank and Corporation Bank also have similar provisions to revise the rates after 5-years of disbursing the loan.
• Private sector banks and Non Banking Financial Corporations (NBFCs) are also following the same policies and the rates too are revised from time to time.

Force Majeure Clause
So, while you read your home loan agreement papers, you can spot statement like this:

“Provided further that from time to time, the bank may in its sole discretion alter the rate of interest suitably and prospectively on account of change in the internal policies or if unforeseen or extraordinary changes in the money market conditions take place during the period of the agreement.”

This is called Force Majeure Clause that enables the lender to undertake appropriate modifications in the interest rates on home loans they sanction to their borrowers.
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Will rally in Shanghai stock market resume

CHINA’S new yuan-denominated loans in July amounted to 356 billion yuan. The monthly increase was the lowest this year. Urban fixed asset investment grew 32.9%, lower than expected. Industrial production rose 10.8%, also lower than expected. Exports in July were down 23% year-on-year, compared with a 21.4% decline in June.

The consumer price index and producer price index dipped 1.8% and 8.2% respectively. However, retail sales rose 15.2%, better than expectations. Overall, the focus of investors was on the weaker numbers than on the stronger numbers. This slew of economic data served as the perfect excuse for the Shanghai stock market to start correcting.

In about three weeks, the Shanghai Composite Index (SCI) dived 20.6%. Since the lows reached in October/November 2008, the SCI has surged 108.9% in nine months. Investors have been saying that the rise was overdone in too short a period. No one really disagrees with this and most investors were already expecting at least a correction. So, is the current fall just an overdue correction or the start of a new bear market?

Deciphering the trend of the Shanghai stock market is not easy. It is, after all, still an emerging stock market that has grown very rapidly in an emerging economy that is transforming very rapidly. Of course, one has to bear in mind that all stock markets behave in a volatile and unpredictable manner. In addition, when an economy is in the early stages of a transformation, the stock market typically behaves in a very volatile manner.

Shanghai is no exception. The Shanghai market has a short history, being around only in the last 20 years or so. During that period, it has enjoyed four major bull markets and four severe bear markets. The first bull market from 1991 to 1992 was very short but very strong. This was followed by a short but steep bear market from 1993 to 1994. From the lows of 1994, the SCI staged a seven-year bull market that saw the index rising around seven times to a new record in mid-June 2001.

This was followed by the second bear market that lasted for around four years where the Shanghai market fell around 50% even as China’s economy was expanding robustly. The third bull market, from mid-2005 until October 2007, was exceptional in that the nearly six-fold gain occurred within less than three years. Then came the 2007-2008 bear market which plunged 72.8% in just about a year.

This was followed by the current bull market which has seen the index double in a short time. It is obvious that the four-year bear market from 2001 to 2005 had no fundamental justification as the Shanghai market was ignoring China’s attractive short- and long-term fundamentals. One can say the same thing about the 2007-2008 bear market. Given China’s long-term attractions, the plunge from 2007 to 2008 was irrational, making the China-related stocks really cheap.

However, the 2005-2007 bull market was overdone as the rise, although it was to partially make up for the time lost from 2001 to 2005, became too speculative. Can one say the same thing about the 2008-2009 rally? The current rally has been strong. From a shorter-term perspective, it was getting rather giddy but from a longer-term perspective, the Shanghai stock market will certainly see new highs, levels that would even surpass the 6,124-point mark reached in October 2007.

From a shorter-term perspective, the Shanghai market was due for a correction. From a longer-term perspective, China’s economic development has many more decades to go. The Shanghai market will follow suit. Once the current correction is over, the rally in Shanghai will resume. However, one needs to note that the Shanghai market does not have to move in tandem with the economic cycle on a quarterly or annual basis.

A good example would be from 2001 to 2005. Whether the current correction will be over soon or it will be a prolonged pause is hard to say but one thing is clear: a repeat of the 2007-2008 or 2001 to 2005 bear market is highly unlikely and a repeat of the 2005-2007 bull market is also unlikely. Given the steep and irrational plunge in 2008, it is not surprising that the subsequent rally was so strong but the future trend from now onwards would be more subdued, more gradual, relative to the movements in 2007, 2008 and 2009.

For Another perspective from the China Daily, a partner of Asia News Network, click here. Latest NYSE, NASDAQ and other business news, from AP-Wire. For latest Bursa Malaysia indices, charts and other information click here

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