India lags far behind China in FDI inflows

For all the comparisons between India and China that do the rounds, this one goes hands down to China without as much as a fight. Today's chart of the day shows just how far India is when it comes to attracting foreign long-term capital investments from the rest of the world when compared to its aggressive neighbour. Foreign direct investments (FDI) are those investments that foreigners make in a country to build a business in that country. In entails investments in physical assets such a plant, machinery and buildings for that purpose.

What's most striking about this comparison is that the quantum of FDI flowing into India in the year 2008 (US$ 35 bn) was breached by China way back in 1995! While the Indian government has in the last few years been taking steps to attract foreign long term capital, it has clearly not been enough when seen from this perspective.

China's factory output surges to a 19-month high

If the data on factory output is anything to go by, looks like China has put the ill effects of the global financial crisis behind it. As reported in a leading business daily,Chinese factory output surged to a 19 month high in October. Having said that, there was a dip in the pace of investment and loan growth and exports have yet to take off in a significant manner as the US and Europe are still reeling from recession.

Despite this, the Chinese economy is expected to log in a decent 8% growth in GDP in 2009. While domestic demand seems to be improving, it is the excess liquidity that is also playing a role in bolstering growth. Famed economist Andy Xie was certain that the Chinese bubble was set to pop.

More importantly, there are concerns that global investors are confusing the Chinese 'stimulated' growth with sustainable growth. It is well known that a large part of the growth in China's economy over the past decade came from exporting and lending to the US. Now with the latter in a deep recession, the former is suffering from overcapacity. Hence, even if China does manage to grow its economy by 8% this year, it remains to be seen whether the same will be sustainable in the next two years.

RBI rules out curbs on capital inflows

While the RBI continues to remain worried about the excess liquidity stoking inflation, the government seems to be in no mood to pay attention. The government has ruled out any curbs on capital inflows even though the inflows in the initial months of the current fiscal have far exceeded the expected levels. India saw foreign investments inflows to the tune of US$ 27.5 bn in the first six months of this fiscal. At the current pace, inflows could cross the US$ 61.6 bn for FY08, when the country undertook tough measures including imposing restrictions on participatory notes (PN) and external commercial borrowings. While the government may still be concerned about capital inflows as is evident in the fact that it has no immediate plans to raise the cap on FII investments in corporate bonds from the current US$ 15 bn, the lure of forex inflow seems to be getting hard to contain.

India has the lower old age dependents

India scores over its developed peers on many points and one such advantage that the country has is the lowest number of old age dependents. As today's chart of the day shows, the percentage of old aged population (65 years and above) as a percentage of working population (15-64 years) in India is lowest as compared to Japan, UK and US and even its BRICS peers. For the developed world, rising aged population means that there is that much more pressure on governments to provide healthcare, pensions and other such benefits. A lower ratio in India means that the scope for contributing to the country's growth is higher. What is more, in the healthcare field, the rising aged in the developed world means more focus on low cost medicines to keep healthcare costs under control and this provides immense opportunity to India pharma players.

Indian Equity MF investors turn market savvy

The Indian stock markets have rallied at a scorching pace this year. What is more, investors seem to be getting jittery at this meteoric rise. Otherwise what would explain the fact that in October 2009, investors booked profits worth Rs 66 bn in equity mutual funds, the highest ever for any month? At the same time, Rs 44 bn was poured into these funds resulting in a net outflow of Rs 21 bn, which also happens to be a monthly record. No doubt that the markets this year have gone too high too fast and investors, who don’t want to repeat the mistakes last year when markets touched 21,000 levels, are looking to take some profits off the table.

Mutual fund houses also agree that lack of push from the financial advisors and mutual fund agents, who now have to claim their commissions directly from investors, has had an impact on business. However, overall the general perception is that investors are taking informed decisions, and this indeed is an encouraging sign.

Gold continues to create new records

Today’s chart of the day perhaps presents the greatest paradox of our times. What do you think is a good gauge of a country’s economic strength? Its currency or its stock markets? If you answered both then perhaps the chart laid out below will leave you scratching your head. Since the lows of March 2009, while the US stock market benchmark, the Dow Jones, has risen by a significant 56%, the purchasing power of the US dollar vis-à-vis gold has come down by 15%. What more, it has also moved down by a similar margin against a basket of currencies. Thus, either the stock market rally is false or the dollar’s decline. Fortunately, we do have some objective criterions viz. the earnings trend of US companies and the US balance sheet to make some reliable assessment. And the criterions do point towards the fact that the US dollar is indeed under pressure. Thus, a conclusion that directly follows from this one is that the US stock market rally of the past six months may not be true after all. Hope the US stock market investors are listening.

Dr. Manmohan Singh sees recovery round the corner

The Indian government last week announced its intentions to go aggressive on listing of unlisted profitable public sector undertakings (PSUs). And the markets cheered, as seen from the near 5% jump in the BSE-PSU index. This suggests that markets have liked this move though we find no reason for the same. After all, the government will just be divesting a small part of its overall stake and will still be maintaining a strong control on all these companies even after the stake sale. Secondly, almost the entire money raised through the PSU IPOs will go into the government's coffers and nothing will flow into the companies going for listing.

Another thing, and this is the most important, is that you need to be very careful of the pricing of these PSU IPOs. Seeing the high valuations that were asked recently for the IPOs of NHPC and Oil India, the government might be looking to again rake in the moolah by going for aggressive pricing for these new IPOs.

If this happens to be the case, then you can comfortably give the forthcoming PSUs IPO a pass. Having said that, the underlying fact is that it is important to evaluate every IPO on its merit rather than follow any thumb rule.

Indians lapping up New York properties like never before

Forget Mumbai and its high property prices, Indians are looking for better (and cheaper!) options in New York. After the meltdown in the US property market, house prices there seem to be within the range of Indians as can be evinced from the fact that Indians now account for close to 20% of all realty sales in Manhattan and 30% of all enquiries made.

In fact, India and China are replacing the buyers from Eastern Europe. To put things into perspective, as reported in a leading business daily, average price per sq ft for a Manhattan East side condo is US$ 1,249, while that for a South Central Mumbai apartment is US$ 1,319. This is proof enough that property prices in India are still high at the current levels and there is enough room for them to fall further. But the builders in India just don't want to get the hint!

Can gold hit US$ 1,500?

With the yellow metal gold perched nicely at the US$ 1,100 per ounce levels, bets are being placed on what could be the next probable target. 1,200? 1,300? Some say even US$ 1,500 by the end of 2010 does not look like a very tall order. Indeed, gold has come a long way. But before one gives into the euphoria, it is worth remembering that similar forecasts were also being made for crude oil when it touched highs of US$ 140 per barrel a couple of years back and investors who would have bought into this story, hoping that they could exit at US$ 200 per barrel, would have surely learnt some harsh lessons about asset bubbles the hardest way possible.

Hence, before taking the plunge, a reality check is indeed in order. All things considered, gold is essentially a bet on the collapse of the current monetary arrangement based on paper currencies. And although the US dollar looks like an extremely overvalued currency right now and prone to collapse, what if the US economy does not collapse and actually recovers and the Fed starts raising interest rates.

This should result in inflationary pressures subsiding and could also lead to correction in prices of gold in the near to medium term. Over the long term though, the decline of the US dollar is a far more certain phenomenon and hence, making gold a small part of your portfolio would indeed be the right thing to do.

But as the example of oil demonstrates, do not try to predict the near term scenario and do not go overboard with your bets. Always stay well diversified and invest taking into account long term trends.

India’s spending on education leaves a lot to be desired.

At least when it comes to a comparison with its developed and developing peers, India has some way to go in this regard, as is depicted in today’s chart of the day. India’s spending on education as a percentage of government expenditure stands at 10.7% as against 14.5% and 12.9% for Brazil and Russia respectively.

Being surrounded by politically unstable nations means that India has to keep aside a huge chunk of revenues for defence. Populism and fear of losing vote banks has made Indian governments reluctant to do away with subsidies. Then there are salaries of government employees and interest expenses to take care of. That does not leave much for spending on social sectors such as education, healthcare and infrastructure all of which is critical for any nation’s long term growth.

Data Source: United Nations Human Development Index

Disinvestment in India is finally seeing some light of day

Disinvestment in India is finally seeing some light of day. As reported on Bloomberg, India’s cabinet yesterday approved a plan requiring all state-run companies to make sure that 10% of shares are publicly traded. The proceeds from these stake sales would be used for spending on the government’s social programmes which require topmost priority, namely reducing unemployment and building infrastructure such as roads, ports and utilities. Not just, such a move would also enable the government to reduce its dependence on borrowings.

In fact, this seems the best time for the UPA government to actually make significant headway in this regard (disinvestment) since it no longer has to contend with the Left obstructing its path. So, keeping in mind all these factors, was the rally in PSU stocks (up 4.7% during the week) justified or has there been too much hype?

While we believe that the government’s intentions are in the right direction, execution as usual has been a serious issue. Various plans of government stake sales in the past had hit a stone wall. Therefore one will have to wait and watch to see whether this plan is actually put into action.

Capital Basic

Hello guys,

In my new category “Capital Market - Basics” i shall be discussing about stock market and why this game is played.

These are the basic things one must know before you start trading / investing.

Lets first understand as why a company gets listed in a stock exchange.

First and fore most reason - They need working capital(MONEY) to do business, complete a new project, open a new division within the company etc etc….

So they first file for an Initial Public Offering (IPO) and when they get the permission from Securities and Exchange Board of India to get listed, they get a unique ID to trade and a price is determined for that particular stock.

And a certain number of share are made available for investors to buy.

Say ABC company is authorized to have 1000 share at Rs 10 each, so at max ABC can raise capital of 1000*10 = Rs 10000.

This will be its Market Capitalization

With out getting much in to the details of SEBI’s requirement and Book building process for price determination, let get to the main motive as how to invest and but obvious how to make profit out of that investment.

Beginning with an example, suppose Reliance Industries got listed in NSE today and its market value is Rs 400.

Now we being an investor we are aware that the company is quite old, good respect in the market, big projects in hand and many other factors which makes the stock juicy and then we think if we invest in this stock the price might go up to Rs 500 and we can make Rs 100 profit in each share.

So if you buy 1000 Shares of Reliance at Rs 400 today, after some days, weeks, years it may got to Rs 500 and you will make a profit of Rs 100*1000 = Rs 1,00,000.

So with Rs 4 Lacs one could have made Rs 1 Lac as his profit. No wonder if the price goes to Rs 300, your loss will be of Rs 1 Lac.

Now, what happens when you actually buy shares?

Few years back when IT was not introduced in Stocks, companies used to mail you a document, which describes that you are the owner of 1000 stocks and also mentions your buying price, date and time.

In other word you paid 4 Lacs to buy that piece of document, and when the market value of this company goes up, the value of your share (that document) also goes up, hence when you sell it in the market, people may happily pay you Rs 500 (as discussed in the example).

And today these documents are not sent to you but are maintained by a depository in dematerialized form and gets credited to your Demat A/c.

Who is a Stock Broker?

A stock broker is the person between you and the stock exchange, he is the person who will buy and sell share on your permission in the exchange.

Now a days these broker provide you with an electronic interface where you can log in to their software or even website and place a order to buy / sell shares.

And for doing this he charges you a commission, which is called as brokerage.

Sorry for making it a very big one. I will stop here and post more in other blogs, do comment and ask question on this.

Bye

Learn How To Invest In The Stock Market: Penny Stocks

More and more people are interested in investing in the stock market to improve their financial gains. However, there are literally thousands of stocks to choose from and many people have a tough time picking quality companies. This is most specifically for newbies to the stock market. Quite a few people, especially newbies to the stock market, have started investing in more small-capital, or penny, stocks. There are quite a few of penny stocks that are available for people to trade, although the risk is much greater than with a myriad of other big-board stocks on the market. If you have also made the decision to invest in penny stocks, you will want to know which ones are the best to invest your money.

It is important to know before you start buying or selling penny stocks that the top penny stock picks can change quickly from one day to the next. Of course, this means that the unpredictability of penny stock investing is much higher than usual, but there are some strategies to find the best penny stock that are worth the time and effort to invest in the stock market. First and foremost, you will want to do your due diligence on any company that you are thinking about trading. This is a good rule to follow when you invest in stock market. Look for penny stock companies that have good, and preferrably audited, financial statements (which can sometimes be difficult to locate). Strong cash flow, a decent net income and assets that have been stable for at least three years are all excellent qualities that should begin to calm your 'is this a scam?' fears. Research the company through several different sources. Their own web site is always a great place to start. You should also find information, including a variety of financial statements, at the Securities and Exchange Commission site. Never invest in any stock that you have not yet researched and analyzed for yourself.

If you want to get a good idea of where to begin to invest in the stock market, you can always consult online forums, blogs and newsletters as well. It is important for you to remember that all of the data that you find on these forums, blogs, and newsletters may not be correct. Therefore before you invest in the stock market, you must always do your own research to follow up on the information you find on blogs, newsletters, and forums. There are times when you will find accurate information and good leads on these web sites, but you must remember to never make an investment blindly. As with investing in any sort of company in the stock market, you will want to look for chart patterns within the penny stocks. Many movements of penny companies are predictable and you need to be able to recognize these movements and capitalize on them. Success will not happen immediately, of course. Looking for company statements and patterns in the stock market will take weeks or months, but your patience will pay off.