Mar
19
Slow Week Coming Up
Posted In: Stock Market
Earnings Preview 3/05/10
Earnings Season is winding down, but that does not mean it is over. Next week will bring 228 earnings reports, but just 5 members of the S&P 500. Some of the higher-profile firms to report will be Kroger’s (KR), H&R Block (HRB) and National Semicondutor (NSM).
It will also be a relatively light week on the economic data front. As a result, attention is likely to drift towards political developments like progress on health care reform and the prospects for a financial regulatory overhaul, as well as international developments, particularly concerning the Greek situation.
Monday
• Nothing of major significance
Tuesday
• Nothing of major significance
Wednesday
• Wholesale Inventory data is released and is expected to show a 0.2% increase in January after a 0.8% decline in December. The pace of inventory shrinkage has slowed dramatically in recent months, and now it is expected to turn positive. The slowing in the rate of decline in inventories actually contributed the bulk of the growth of GDP in the fourth quarter. With inventories now expected to actually rise, it looks like there is still some room for inventory lead growth, but that should fade later this year
• The flood of red ink from the Treasury is expected to swell to $202.0 billion in February. That is a huge rise from the $42.6 billion level in January. However, the budget deficit numbers are extremely seasonal, to the point where the month-to-month comparisons are not very worthwhile. The more worthwhile benchmark is the year-ago level of $193.9 billion, when revenues were just $87.3 billion and expenditures were $281.2 billion. Watch the year-over-year numbers on both spending and tax revenues, not just the net deficit
Thursday
• Weekly initial claims for unemployment insurance come out. They fell 29,000 in the last week, to 469,000. After a huge downtrend from mid-April through the end of 2009, initial claims started to rise again, up in 7 of the 8 weeks before last week. Last week was some good progress, but not good enough. We probably need for weekly claims (and the four-week moving average of them) to get down to near 400,000 to signal that the economy is on-balance adding jobs. We are a lot closer now than we were last spring when they were running north of 600,000 on a consistent basis, but still have a ways to go.
• Continuing claims have also been in a steep downtrend of late. However, that is in part due to people simply exhausting their regular state benefits which run out after 26 weeks. If one factors in the extended claims paid by the Federal government as part of the Stimulus, claims soared last week. Looking at just the regular continuing claims numbers is a serious mistake. They only include a little over half of the unemployed now given the unprecedentedly high duration of unemployment figures. Last week, regular continuing claims were 4.500 million, down 134,000 from the previous week. Extended claims (paid from Federal ARRA funds) were 5.866 million — a increase of 197,500. Those numbers might be distorted downwards the shenanigans of Senator Bunning who held up an extension of benefits, although given that the extended claims numbers a week behind the regular continuing claims numbers, look for more of that effect in the following week. Make sure to look at both sets of numbers!
• The Trade Deficit is expected to increase to $40.6 billion for January, up from $40.2 billion in December. While this is well below the rate we were consistently running a few years ago, it has been trending up again after plunging during the credit crisis which caused almost all world trade to come to a dead stop. An increase in the trade deficit is a serious negative, since it directly lowers GDP. It, not the budget deficit, is what causes us to be in hock to the Chinese and OPEC. The budget deficit only indirectly does, and has to go through the trade deficit for that to happen. That’s not an opinion, that is an accounting identity, as true as saying assets have to equal the sum of liabilities and equity on a balance sheet
Friday
• The Retail Sales report is expected to show an increase of just 0.1% overall in February, a sharp slowdown from the 0.5% increase in January. Given the strength of the same-store sales reported by the major retailers, look for the number to surprise to the upside, even given the lousy weather
• Excluding Auto sales, retail sales are expected to be up 0.2%, a slowdown from the 0.6% rise in January
• The University of Michigan consumer sentiment survey is expected to show a slight rise to 73.7 for March, up from 73.6 in February
Potential Positive Surprises
Historically, the best indicators of firms likely to report positive surprises are a recent history of positive surprises and rising estimates going into the report. The Zacks Rank is also a good indicator of potential surprises. While normally firms that report better-than-expected earnings rise in reaction, that has not been the case so far this quarter. Some of the companies that have these characteristics include:
Jo-Ann Stores (JAS) is expected to report EPS of $1.33, up from $0.74 per share a year ago (it’s good to stick to your knitting). Last time out, JAS posted a positive surprise of 1.2% and over the last month the mean estimate for its fourth quarter earnings is up 32.7%. JAS has a Zacks #1 Rank.
Kirkland’s (KIRK) is expected to report EPS of $0.81, up from $0.59 a year ago. In the 3Q, KIRK posted a positive surprise of 187.5% and over the last month, the consensus estimate for its 4Q earnings is up 7.3%. KIRK is a Zacks #1 Rank stock.
Quicksilver (ZQK) is expected to lose $0.13 per share this year, worse than its $0.07 loss a year ago. Those low expectations could be setting it up for a positive surprise. In the third quarter, they posted a 133.3% positive surprise. Over the last month the mean estimate for the 4Q is up 1.9%. ZQK holds a Zacks #1 Rank.
Potential Negative Surprises
Gastar Exploration (GST) is expected to post a loss of $0.03 a share, versus break even a year ago. Last time they reported 133.3% below expectations. For this Zacks #5 Rank stock, analysts have cut their estimates for this quarter slightly over the last month by 50.0% (OK, it’s just a move from a loss of $0.02 to a loss of $0.03).
Jackson Hewitt (JTX) is expected to earn $0.51 a share this quarter, down from the $0.74 they earned a year ago. They had a positive surprise of 12.0% last time out, but analysts have cut the estimate for this quarter by 8.6% over the last month. The stock holds a Zacks #4 Rank.
H&R Block (HRB) is expected to report a EPS of $0.15, down from $0.20 last year. Last quarter they reported 5.0% above of expectations. Over the past month, analysts have cut the estimate for this Zacks #5 Rank stock by 2.2%.
Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service. For more information, visit http://www.zacks.com.
Article Source: Slow Week Coming Up
Mar
19
Anytime you invest you’re taking a risk. There are ways to significantly reduce your risk, however. Stock market software is one such tool available now to everyday traders. Modeled after the technology used by professional traders, this technology does all of the analytical work on your behalf so that you don’t need to have a great deal of experience in the stock market to make good low risk profits by trading accordingly as the program advises you.
How stock market software works is that it puts past trend data against real time market data. It makes use of mathematical algorithms which look at the factors which led to successful trends of the past, then apply it to current real time market data to identify similarities to further investigate because the market moves in cycles and patterns, so these programs essentially exploit that fact. Once the program has identified a profitable trading opp, it notifies you so that you can make the corresponding moves.
Using stock market software has a number of notable benefits and advantages. For example, obviously because all of the work is done for you, no outside factors negatively come in to affect your trades, such as human emotions or guesswork or anything of that matter. Also, because all of the work is done for you, anyone can use this software in their spare time to trade effectively in the market and see a tidy profit, so its ideal for casual traders as well as anyone who is new or unfamiliar with the stock market and the process of analyzing market data and factors themselves.
For more information on stock market software as well as in depth reviews on the leading options available today and the opportunity to test it first hand, click on this link for stock market software and finally begin your path to realizing your own financial independence once and for all.
Article Source: How Stock Market Software Enables You to Trade Like Professional Traders
Mar
19
Bulova mens watches are very easily 1 from the most recognized brands during the world
Posted In: Stock Market
They were very first manufactured by Joseph Bulova in 1875 in his jewerly shop. You will find numerous reasons that make Bulova mens watches emerge from the croud. One particular in the reasons perhaps will be the reality that Bulova decided to manufacture only analog watches.
Most versions of Bulova watches are gender specific, with prominent exceptions like Chamonix or the Gemini and Oxford types.
Superior pattern and style and superior technology are attributes of Bulova watches.
Finding the Correct Bulova mens watch might be a bit daunting if your not certain which a single will suite your style. You are able to pick out from a broad wide variety of types and types at different cost tags.
You can pick out your Bulova watch in four broad categories.
Sports
The Caravelle Chronograph Bulova mens watch is created as a sport watch that will retain you ahead from the game! It is crafted with stainless steel and features a ribbed silvertone dial, 24 hour sundial, 60 seconds display, 60 minutes display and it is even water resistant. Is often a stylish watch that you can use everyday. You can uncover it for all over 100 USD.
Bulova Mens Informal Watches
The Blue Dial Bulova mens watch is bold but yet informal. Silver hour and hand markers over a blue dial made of stainless steel. It is also water resistant also it includes a calendar.
Professional
The Diamond Dual Time two tone Bulova mens watch offers a man using a pro yet distinguished appear. Silver hands, white diamond hour markers, black enmel dial and crafted with black ion plated stainless steel. There is also a 24 hour retrograde second time zone sundial. You will find that this watch is priced at around 300 dollars.
Dress
One particular with the most common dress watches could be the Marine Star Series watch. It is finely crafted with stainless steel and also the bezel is usually a gold tone complete with 30 white diamonds. The cost for this watch is moderately priced at 400 dollars.
For more information about Bulova Mens Watches please visit my website: http://www.bulovamenswatches.info
Article Source: Bulova mens watches are very easily 1 from the most recognized brands during the world
Mar
19
Marketing of securities such as shares and debentures of any company or even your own company can be a challenge. It might be difficult to get the entire required amount subscribed by the public. It entails you to be careful when selecting the strategy to use to market the debentures and shares. Investors have different considerations when it comes to investing their savings.As a marketer you should be able to read their preferences and requirements and cater them exactly the way they want them.
Here are the methods you should apply when selling securities:
Through the Prospectus-This is the commonly used technique. So, what is a prospectus before a go into details? A prospectus is a notice, circular, advertisement or any other document inviting offers from the public for the subscription of shares and debentures. The prospectus will contain details about; the amount to be issued, the rights pertaining to the various shares, the properties purchased by the company, details of directors and managing directors, the minimum amount of subscription to be received before the company starts business and other essential details.
In this method, you will invite the public to subscribe to the shares and debentures. The interested public will be allotted specific number of share and debentures.
Public Placement-It’s an arrangement which you make with the issuing house, brokers or underwriters who will agree to purchase debentures and place them with their clients. In private placement, money will be advanced by bulk buyers of securities. This method is mainly used to market debentures. It’s cost effective because the amount of commissions and legal expense are low.
Sale through Stock Exchange-You can involve the brokers who operate in the stock exchange to market shares. If the shares are listed in the stock exchange market, then the public confidence is gained. Stock exchange widens the market.
Sale to the Employees-You can sell the debentures and shares to the interested employees of that company. The employees will be advantaged since the interests and dividends earned from the shares and debentures will supplement their primary income. Debentures and shares under this method are usually sold at a concessional rate so that the employees are motivated to buy them.
Sale to the Existing Shareholders-You can use this method and its where by the sale of shares and debentures are sold to the existing shareholders at a concessional rate. This method is also known as privileged subscription as it gives first priority to the existing shareholders to purchase additional shares and debentures.
Sale of Securities to Customers-In this method, you will sell the shares and securities to your customers. It’s a less costly method to use and it does not entail much speculations.
Sale through Managing Brokers-If you use this method, you will be provided useful services. Under this method, you will be advised in matters regarding to the terms and time of issuing securities so as to avoid contradictions with other important issues. You will also be advised on the stock exchange listings. The managing brokers will prepare the prospectus for you.
Marketing Through Underwriters-This method overcomes the limitations of direct sale through intermediaries. In this method, there is an agreement whereby underwriters undertakes to guarantee the whole or such part of the issued shares as would not be taken up by the public, in return for an agreed commission.The underwriters will then sell those shares and debentures to the interested public .
There are different types of underwriting and they are:
Standing behind the issue underwriting.
Outright purchase underwriting.
Firm underwriting.
Syndicated Underwriting.
J. Nyamache has been in the business of selling both expired and fresh domain names. He has helpful information regarding list of domain names.
Article Source: Sure Fire Methods of Marketing Securities
Mar
18
The penny stocks are the ones that are traded below $5 per share. Most of the financial advisors and long term investment makers avoid them due to the high risk involved in their trading. Sometimes they bring a huge return on investment to the investor and sometimes they do not. So they have to be bought with sufficient care. They are not traded in volumes. They are not found in the stock exchanges and are sold over the counter through quotation services. They belong generally to newer companies. When they do not bring enough returns, then it implies that the company is in bad financial shape. But if the right penny stock can be got hold of then they can prove lucrative too.
However, the penny stocks have certain regulations about them. If these are not followed a red flag will go up. Firstly, your penny stock in order to be sold by a broker should have a written approval from you. The broker should also provide you with a detailed document that tells you about the risk associated with such trading.
The assessment of the risks includes the price for each share that the company will receive from the trading. A percentage of it will be committed to the broker involved. Once your account is in place, the company will give an estimate of the value of each share on a monthly basis. If everything runs in track then you will have lucrative deal.
The penny stocks bring a huge return for little investment. As a result it is a pet stock with seasoned traders. It also draws those who are quite a novice to the stock market. But remember that all stocks will not bring you good returns. There are lots of scams that exit in this arena. Lots of such stocks are fraudulent which are just placed there to gull the new traders. They are made to buy a wad of such stocks and given to believe that they have done a square deal.
There is a public opinion that it is difficult to select the right stocks. Well, this is not so. Even if you are a greenhorn, you can do it well by taking some careful steps. To begin with, visit a penny stock site. There you will come across dozens of resources that will give you a clue as to which stock to pick.
However, most of these sites are paid sites. Some of them need a registration at the minimum. Incase a contribution is to be made to get the information, it is very minimal. Moreover it is worth the dollars you shell out as it will help you take an informed decision about buying penny stocks. However, besides gathering information from the Internet, you should also consult an expert, who is veteran at the stock market. The information that will be present in the websites may not be true always. Sometime a website could be a fake one, so you should take sufficient care before banking on one of those. However if you follow these simple steps carefully, you are here to get a profitable return.
StockReads Fan is the author of this article on Hot Penny Stocks.
Find more information about Penny Stocks here.
Article Source: All You Need to Know about the Penny Stocks
Mar
18
India has surfaced since the last several years as one of the fastest growing economies in the world. This is the reason why the Indian capital market, i.e. the stock market attracts investors big and small and from within and outside the country. It is the sensex that is termed interdependently with India stock market. Also called BSE sensex, as it represents the Bombay Stock Exchange (BSE), it is considered significant to India’s burgeoning economy given its role in raising funds beyond expectations for the Indian capital market.
As the oldest stock exchange in Asia and ranking amongst the top in the world in terms of listed companies, revenue generated, transaction numbers, and other aspects, the BSE, originally ‘The Native Share & Stock Brokers’ Association’ is the investment destination for lakhs of investors. No wonder its presence since the year 1875 has seen it grow by leaps and bounds, now prominent with a list of 6000+ companies. Its permanent recognition by the Indian Government under Securities Contracts (Regulation) Act 1956 well substantiates its significance. It was during the recession in the year 2008-09 that the sensex index figures that rose to the 21,000 plus mark suddenly started exhibiting a downtrend. Situations turned worse when the figure went down more than half its greatest rise. But at the pace that it descended, it started recovering at a greater pace post recession. In no time the sensex index reached the 17000 plus figure. There is lot of potential in the future too.
The threshold where the Indian corporate sector is standing is all due to the funds contributed by investors via the BSE. And the journey of a smooth access to resources still continues. Investment options are many ranging from equity, derivatives, and debt instruments. The market fluctuates as per in-country and international market moves, and the BSE sensex performs only according to market conditions. So, the shares you buy and sell depend on these very market conditions.
You can catch a glimpse of sensex India in all news channels including news portals, stock exchanges’ corporate sites, and at trading platforms. If you are fluent in Hindi or Gujrati, you can browse through BSE’s corporate site in the said languages. Sensex India figures can also be viewed at BOLT (On-line Trading System), its unique online trading platform, facilitating traders to trade from any corner of the world.
Sourav Sharma is freelance market analyst and is writing reviews articles on Sensex India, Sensex Index, Bse Sensex, and Most Active Shares.
Article Source: Sensex And India Stock Market – Interdependent Terms
Mar
18
The nifty index is an index representing 50 stocks on the stock market representing 21 sectors of the Indian economy. It is used in the measurement of index funds, bank portfolios and index based derivatives. A joint venture between the NSE and the CRISIL, the Nifty is under the ownership and management of the Indian Services and Products Limited. This is the only company that is focused primarily on the Nifty index as its principle product. The Indian Services and Products Limited are licensed to engage in marketing by the world premier in index services, the Standard & Poor’s company.
Intraday trading is a critical tool in the trading and marketing strategies of capital goods and assets. Intraday essentially means happening on the same day, used to indicate the highs and lows of the assets and goods in the stock exchange markets. The price chart is used to indicate the time intervals between trading, selling and buying especially among day traders and other short term traders. Nifty intraday tips are helpful in the buying and selling, profitably, of the 21 company indexes that are under the Nifty category.
A common nifty intra day tips is the daily pivot and momentum plan. This is a strategy that is takes advantage of the volatile nifty index of any particular trading day. The profits can be maximized and losses minimized during trading just by the fact an index is so volatile and unstable. In the trading circles, volatility is measured by the highs and lows, or the pivots of the prices of the various nifty indexes. Traders maximize there profitability by buying the stocks when it shifts its lowest and selling the stock when it is at it highest price of the day. Traders benefit from this type of trading strategy when a nifty stock has just been released into the market and is thus attracting an upsurge in trading.
Scalping is another nifty index trading tip that can be used to maximize profits on any particular stocks. The plan here is to monitor the price upsurge of the nifty index and then buy it off when the trading prices are at their highest. This way the trader will make little sums of profits on the large pool of capital investment that they have already. It is certainly a less risky trading strategy as it does not make use of the pivots and momentums that are used in other Nifty intraday strategies.
A final of the nifty intra day tips used is the fading strategy. This has to be the most risky and perhaps the most challenging of all trading plan. It is most embarked upon by the professional traders of the stock exchange. The strategy here is to note and monitor when the pivots on the trading prices are at the lowest or just before they hit their lowest point and then sell them off. Remember with the pivot and momentum strategy the traders makes use of the volatility, while here the trader is required to be keen about the pullback that occurs after the introduction and trading in a new Nifty index.
Jacy Smith providing calloptionputoptionmarket indexes, tips for nse,bse sensex
Article Source: Nifty Intraday Tips for Beginning Traders
Mar
18
The world is moving at the speed of thought; you must devote more time and efforts to pick the right type of company for your investment needs. Every hour, whether we are awake or asleep, there is somebody who is taking a call on particular company or on industry. Somebody is buying stock, commodities or currencies, which can affect your investments in a particular fashion. This is market dynamism where negative sentiment in the US market can change sentiments in the Indian market. Rise in value of one currency can erase gains of your hard earned portfolio investment.
Here we are going to talk about external environment and stock selection.
Every company operates in an environment. Company’s financial position, products or services, business and marketing strategy, employees and workers, skill of the people working in the company, etc. form the internal environment of the company. Government policy, tax structure, interest rate, competition, political climate, socio-economic scene, etc. are part of the external environment. There are people who divide these two into controllable environment and uncontrollable environment - as a company as an entity or its management may control most things within the organization, have a say in its overall development but external forces are out of the company domain for control. Thus, study of these external forces affecting the performance and profitability of the company need analysis before taking any investment decision.
To explain it further, let us take example of Sugar and Cement in India.
India is one of the largest producer and consumer of sugar in the world. Sugar as a sweetener forms part of our daily food intake. Sugar production depends on the availability of sugarcane. Low production of sugarcane will result into low production of sugar; hence price of the commodity rises. Rising prices of sugar may result into high inflation. Though, sugar has a very low weight in wholesale price index but being item of mass consumption, effect of rise in price may become intense. Government will have to take some immediate steps to curb the price.
Supply of sugar in India is controlled by central government in form of levy and free sale. Price of levy sugar is always lower than that of free sale sugar.
In 2004 and 2005 sugar production declined due to unfavourable weather in India and Thailand and high divergence of sugarcane by Brazil to produce ethanol (ethanol is mixed with petrol and diesel, as crude oil prices were rising we witnessed a global shift towards ethanol or biofuel at global level), price of sugar shot up in international market. Indian sugar producers were able to reap higher profits on back of better price realization. But in July 2006 government banned all exports of sugar from India. India was expecting bumper crop of sugarcane for the season beginning in October 2006, but government did not allow any sugar exports till January 2007. The decision to ban sugar export resulted into higher supplies in the country and price of sugar in India came down from Rs. 20 per kg in July to Rs. 14 per kg now. Since last two quarters Indian sugar companies’ profitability has declined. They are unable to manage high inventory due to high production and low profitability due to lower price realizations. Thus, external forces changed the fate of companies operating in this sector.
Cement sector has the same story, after a decade of low demand, lower operating rates and low profitability companies operating in the sector was not able to perform. Since 2002 the fate of the sector changed. With high economic growth, higher spending on infrastructure demand for cement started rising. Companies were able to scale up their production and were able to fetch higher prices of cement. Performance of companies improved on higher demand and lower supplies of the sector. Stock prices also went up.
Face off between government and cement manufacturers’ started in May 2006 when Commerce Minister first indicated that rise in inflation is mainly fuelled by cement prices. Manufacturers held a meeting with Commerce Minister and agreed to sell cement for government projects at 5% lower than the market prices. The issue was settled then. But, with excise duty change announcement in budget the situation has become worse. Cement manufactures had to bend to government demand for price freeze for one year. Finance minister wants all cement companies to announce price cut. Mr. Chidambaram argues that cement producers are involved in profiteering and has just allowed duty-free imports of cement. This pressure tactics by government will hurt profitability of cement companies and has resulted into erosion of shareholders’ wealth.
Understanding of external environment is must for stock selection, especially in those sectors, which operate in commodity domain. Different commodities have different usage. When prices of one commodity rises it affects inflation, high inflation results into high interest rate. Any price rise has political echo and government will be forced to take political decision, which may generally have a negative impact on the economics of companies. It is advisable for investors to stay away from those sectors or companies where government interference is very high. This advise is particularly true for commodity based stocks which are the backbone of any economy, unbridled price increase is never tolerated ultimately these companies are expected to earn only normal profits.
Author is widely recognized as the Online Share Trading specialist and Online Share Trading Portal tips. Investmentz India provides tips on Online Share Trading Sites, online share market and online share trading in India.
Article Source: External Environment and Stock Selection
Mar
18
Roti Kapada aur Makaan… We have all heard about these basic necessities of life since our childhood. House has symbolized security, stability and progress for the erstwhile nomadic human race… in investment markets, this is recognized as an asset class. Real Estate refers to something related to land, permanent fixtures or building attached to it. In simple language one can term real estate as an immovable property. The boom in real estate market touched the retail investor through investment in Real Estate IPOs, which have flooded the stock exchanges.
The demand for real estate comes from enhanced economic activity as a result of constant growth in GDP over past few years and the optimism that this growth will continue for a few more years. Commercial and housing needs itself in our country is huge. This is due to historical reasons, current size of the population, demographic changes, economic growth and change income levels that we are witnessing. It is estimated that every year for next 25 years or so, about 7 million new small to medium size houses will be needed to take care of demand. When all this young population enters workforce, commercial space is further needed employing them and so on. So there is no debate about the potential of this sector.
Before we make a case for investment in real estate it is important to understand the risk return profile of various asset classes. It is important to note some fundamental differences between other markets and real estate markets. Most large markets have ease of transaction and low costs there of which is not the case with real estate market. The table below shows that there is a probability of high return with comparatively lower risk as compared to stock market. However do not forget that if the real estate company shares are listed on stock exchange then one has to combine the profile of shares as well as real estate investment.
Investment Avenue
Return Volatility Liquidity Risk
Stock Market High High High High
Bond Medium Medium High Low
Bank Deposits Medium Low High Low
Precious metals High Medium Medium Low
Real Estates High Low Low Medium
How does one participate?
Traditionally, mode of investment was simple one-dimensional where you put your money to buy a house, land or property on outright basis. Buying a house involves large cash outflows; sometimes it is as high as entire life’s savings. Minimum investment in a house ranges from Rs. 2.5 lacs to 5 lacs to 10 lacs and so on depending on the type of city that you choose for your residence.
Real Estate Funds:
Participating in real estate funds is an alternative. As expertise used by the fund managers diversifies the risk to the investors over many projects and companies. However, such funds have not come in a large way due the issues associated with the underlying real estate industry itself. The industry is opaque in nature due to legal issues related to transfer of property, title deed, high cost of transfer from one party to another, etc. The industry needs to do all that it can do to address these issues if they want to grow the size of this market rapidly.
This leaves little choice to the investor wishing to participate in this opportunity via organized markets except buying shares. So let us examine this alternative.
On one side there is a demand for housing but this activity has not got the recognition of industry by the Indian Banking Industry as well as financial institutions. The companies in this sector have largely relied on private finance and paid exorbitant interest rates. Large amount of unaccounted money also finds a resting place in this industry since organized sector finds it too risky to lend and thus demands high interest rates.
Several companies have therefore tapped the capital markets to raise funds for development. The real estate market has not however changed its practices to attract low cost capital. Equity is an expensive source of capital. Further the inherent risks in the real estate market are also being passed on to the retail investors by virtue of investing in real estate companies.
When we buy shares of the real estate companies, valuation of these can be a difficult and often treacherous task. Many a companies are traded on potential profitability of these companies discounted for interest-discounted Cash Flow basis leading to extremely high price earnings multiples. Often the risks associated with ownership title, project execution, space salability and factors alike are totally disregarded. This leads to what one calls a bubble and can burst with severe implications. Therefore the underlying risk in real estate market needs to be understood.
The risk factors of real estate companies are as follows:
Land reserves being in third party name is first major risk. There is no legal assurance whether the development valuations will really materialize. The gestation period of the projects are also very long hence keeping a track of which land availability and problems thereon is difficult. Since the land is not in the real estate company name same cannot be offered as collateral for lending from the organized sector. These companies have a debt equity ratio that is very high and interest costs are therefore very high. The sensitivity to interest rate fluctuations is high.
The next risk is again linked to long gestation period. Profits can get lumpy or bunched up when projects near completion. Quarterly results will not be able to give indication about the company performance. Monitoring the company on quarterly basis and reviewing your decision where to stay invested or not is also something, which is difficult. A long-term view on these stocks would be necessary. Investing in short term would not give the real reward on investments. This could also become a major reason for volatility.
Acquisition of land and development rights over immovable properties and title of land are governed by certain statutory and government regulations, which also governs various requirement of transaction document, payment of stamp study, registration of property documents. Any change in current regulation by government will have tremendous effect on the companies and their fortunes. Framework for Special economic zone (SEZs), is still in the pipeline, if any change could effect the companies who have got in principle approval for SEZ developments and Slum Rehabilitation Scheme (For Mumbai based company), which is a different model for development of infrastructure in and around Mumbai also faces problems if any amendment is brought by Slum Rehabilitation Authority. Thus the entire development can be in jeopardy if political compulsions make the government change its policies.
Outsourcing has been a boon to India in IT Industry. However the success of outsourcing in real estate development industry is yet to be tested. The real estate company signs a development agreement, gets contractors to do the construction activity and all the equipments used for the same are also outsourced. Hence the Real Estate Company is more in the business of facilitating development rather then itself doing the development. Low wages paid to construction workers, poor living conditions has led to migration of labour from project to project. Assuring quality from untrained labour force is a challenge by itself. Information on the level of competence of the contractors is not easily available. The aspirations of real estate companies are such that development done by them in 50-60 years of company’s existence is sought to be done many times over in 1-2 years. This is a big challenge to the management skills of owners of these companies.
Author is widely recognized as the IPO investment India specialist and Demat account tips. Investmentz India provides tips on ipo investment, online share market and online share trading in India.
Article Source: Reality Companies and Retail Investors
Mar
18
Subprime Mess
Posted In: Stock Market
We are now part of a global economy. In the short run issues, which affect the world markets also, affect us, though there may not be a direct co-relation to the extent of impact. One such issue that is currently affecting all of us is sub-prime crisis in United States. This is a new word in our financial dictionary. The meaning is simple, that which is not prime is sub-prime. Prime word is used in relation to rate of interest. Lending at a prime rate is done for those borrowers who meet certain safety criteria. There is a guarantee that borrower will payback principal as well as the interest. The lending is against an asset, which is also saleable easily and can be liquidated into money if there is a default.
To make it simpler for understanding in Indian context, it is like borrowing from the bank which is at a lower rate say 12% pa and borrowing from a Marwadi money lender who is ready to lend to you at any time, without any paper work and that too on assets against which bank will never finance, but the rate of interest which is 24 %. This high interest is for the risk of default. Now if the banks or finance companies start lending like the marwadi on high interest rates, against assets, which are not easily saleable then, you can imagine the crisis when the borrowers fail to pay and the depositors who have given money to the bankers as depositors want their money back.
Post 9th September 2001 i.e. the World Trade Center attack; there was fear of recession in US economy. The rates of interest, which were in the range of 7%, were brought down to 4.75 %for sometime and further to 1% in a short span of time. This was done to lower the cost of production so that various goods and services become cheaper and people buy more. Though the goods become cheaper, the money that was not spent i.e. saved started earning lesser and lesser return. However, if the money was used as margin money for loans to buy assets such as property there were large numbers of tax sops available against installment and interest payment. Hence, the entire mind set of the citizens moved from saving to taking loans for purchase of assets be it property or shares or commodities. This led to over leveraging i.e. citizens borrowing more than their capacity to service the debt.
The activity got a further boost when all the participants in the financial system wholeheartedly started selling this concept. There were enough financial brokers who marketed these loans. These loans were securitized i.e. The loan portfolio was further converted into a loan (debt security) and sold off to another investor who was willing to lend. This parcel contained good and bad loans therefore the percentage of prime and sub-prime could be varied and different packages of loans could be sold. Rating companies also gave investment grades to such loans so that it facilitates securitisation and marketability. More money flowed in since the rates of interest were much higher compared to other investment options. After securitization these loans could then be sold in small parcels in the market so that large number of participants could be attracted in the market. These parcels were called CDO’s (Collateralized Debt Obligation). Hence loan business, which was restricted to a handful of bankers, or finance companies became everybody’s business.
The lenders expected that the property prices were likely to increase due to the huge demand as a result of free flowing loans to a large number of borrowers. In the event of default, property could always be sold off and money realized. As the defaults started there was seizure of assets and the politicians got the wind of it. It was a good opportunity for the politicians. Politicians started protesting since citizens who could not pay were being made homeless. The television publicity that was given to this event put the entire country’s financial system on alert.
Genuine demand for homes was put on hold since citizens expected property prices to come down due to huge supply of houses in the market as a result of payment defaults. The lenders for home finance also became wary since they were afraid of defaults hence free flowing money was largely curtailed. Short term money was generated due to sale of CDO, which was invested in long term loans. This mismatch created a crisis, since the short term lenders demanded their money back and the inability to recover the loans on overnight basis led to many fund managers, such as BNP Paribas and Bear Stearns & Co to stop withdrawal of money.
This financial crisis spread to stock market also. There was lot of free flowing money in the stock markets as a result of large scale leveraging. There was also fear of economic slow down since people who buy houses also buy lot of white good such as televisions, refrigerators ovens etc. This would lead to fall in demand for many companies, which thrive, on household sector. There was a steep fall in share prices in US markets followed by fall in share prices in Asian markets. India could not be left behind; we also had a more than1000 point fall.
The fall of share prices in India was due to two reasons. The first being dominance of Foreign Institutional Investors (FII) who were expected to pull out money from India since they had to pay back obligations of their US investors. The second reason was Private Equity money , which is made available to Indian companies. This money flow would slow down if the private equity funds did not manage to collect the money that was promised by investors in US and other foreign countries.
Indian markets have corrected since this was a crisis that did not affect directly. The US finance markets and their bankers have made money available to pay those investors who panicked with the unfolding of events. Is the problem over? We do not know since close of US $ 100 of sub-prime debt is part of $ 375 billion debt in US. Each time there is news of default the markets react and following US markets the Asian markets react followed by India.
Only advice we can give to investors to keep vigil on international events as this kind of problems will surface off and on in the near future. Let us remember, our economic fundamentals have not changed, they continue to be bullish. Advance tax collections are on the rise and GDP growth of 8% +. If you are not in the market use theses falls as an opportunity to buy. Traders will lose money since these falls can be sharp, unexplainable and sudden. Sometimes our markets may react to other markets, whereas sometime they may not. Long term investors should treat this volatility as an opportunity.
Exciting times are ahead for investors but nightmares for traders.
Author is widely recognized as the nri online trading account specialist and portfolio management services tips. Investmentz India provides tips on portfolio management services india, online share market and online share trading in India.
Article Source: Subprime Mess
Featured Auctions
My Stores
Featured Sections
 | Stock Market Grow your money at steady rising rates, with these must know stock tips |
 | Investing Tips Simple effective tips to grow rich and live good |