Indian equity market has been on fire for the last couple of weeks.From the moment Big Ben had made his decision, there has been a unbound optimism on part of Equity investors. It was no wonder that the sensex made it's quickest 1000 points recently and looking at the way it is going, it might as well break that record. Is this optimism based just on faith or is there a sound foundation behind it? Only speculative reasoning can give the answer.
The way Energy and Power sector companies like Reliance Energy and Tata Power have moved is just amazing. If you had invested in one of those companies about 20 days back, you would be sitting with handsome profits by now. The Entire pack of reliance group companies have led the way followed by traditional banking and Financial sectors. To an extent this move has been based on fundamentals, Indian banking and Power sector has tremendous scope for growth and a part of that is being reflected in the way these stocks have moved. The Foreign fund houses have also helped by bringing in quite a lot of money into the market.
What do we do now is a pertinent question every investor would have to ask himself.It is a difficult and futile exercise to predict the market, hence it is always better to stay safe. The question of concern is short term rather than long term. Long term investor can rest in peace, it is the investors who are looking at shorter horizons that need to make decisions. Have you invested in a company or in a stock, answer to that question will help in making your decision. Investors who have invested in a company based on it's strong fundamentals and the management are in a relatively better position than those who have placed bets just based on market movements. It will be an exciting month going forward, no doubt about that.
Thursday, October 04, 2007
Sunday, September 02, 2007
Lessons from the sub-prime mortgage crisis
Estimated to have impacted about two million American homeowners with spotty credits, the sub-prime mortgage crisis continue to chug along. With their homes at stake, these homeowners and their lenders are increasingly finding the going getting tougher. According to NewYork Times, which cites the data of Realtytrac, 1.2 million homeowners have been forced to opt for foreclosures in 2006, a 42% increase from the previous year. The US Government is trying to resolve this crisis through a package comprising tax breaks to homeowners whose loans have been written off by the lenders, a federal mortgage insurance program, and modernization of Federal Housing Administration. The outcome of this, however, remains to be seen. Meanwhile, what should an invididual American investor do if he/she is seriously considering buying a home?
Perhaps the suggestions made here might err on the conservative side. But it will certainly help you to hold on to your hard earned money. And, you will own your home and not your bank. If you can afford only a rented apartment and not a home, stay where you are until you save adequate money to pay the downpayment costs. If you still want to go ahead with your new home, consider this.
1) Check your credit score. If you don't have a good credit score, this perhaps is not the right time to take housing loans. A good credit history can help you raise money at lower interest rates.
2) Don't opt for a 4 bed-room home in a four acre land, if you can afford only a two-bedroom house in a half-acre land, because the financing rates are low. Your purchases should be based on your affordability and not the availability in the market.
3) Identify the right home you want to buy. A bit of scouting/search over the internet, will help you to narrow it down. Look for deals. You may easily find one now given the spate of homes available for sale.
4) Get your loans only from a genuine lender and not a loan shark. Try and speak with different banks and lenders. Find out from them the following, interest rate on your loan, installments you have to dole out monthly, and the foreclosure taxes you have to pay. Compare them. Also, speak to your friends on their experiences. You should be able to identify the right one.
5) Once you have decided the lender, read the fine print in the documents that you will be signing. It is worth an effort.
6) Lock your mortgage at a fixed interest rate and not on a variable (adjustable) rate. This may increase your interest rate by few percentage points, but you will know that your cash outflows are going to be constant, irrespective of changes in the prime rates.
7) Ideally pay a higher down payment. This will help to keep your monthly installments low and well within the manageable limits. You may also be able to bargain a lower interest rate from your lender in such cases.
8) Once you have bought your house and taken the loan, try and pay your monthly installments on time without default. Delay's, if any, can be costly, as many lenders levy penalties.
In all, buying a home is like buying any other thing. Do the required ground work, don't take risky bets, and stick to your committment. Enjoy your new home with a freedom that you really deserve.
Madhan Gopalan
The author, based at Louisville, Kentucky, is a Global Equity Research Manager with Ness IBS, USA. The views expressed in this article are his and not that of his employer's. He can be reached at gmadhan72@yahoo.com
Perhaps the suggestions made here might err on the conservative side. But it will certainly help you to hold on to your hard earned money. And, you will own your home and not your bank. If you can afford only a rented apartment and not a home, stay where you are until you save adequate money to pay the downpayment costs. If you still want to go ahead with your new home, consider this.
1) Check your credit score. If you don't have a good credit score, this perhaps is not the right time to take housing loans. A good credit history can help you raise money at lower interest rates.
2) Don't opt for a 4 bed-room home in a four acre land, if you can afford only a two-bedroom house in a half-acre land, because the financing rates are low. Your purchases should be based on your affordability and not the availability in the market.
3) Identify the right home you want to buy. A bit of scouting/search over the internet, will help you to narrow it down. Look for deals. You may easily find one now given the spate of homes available for sale.
4) Get your loans only from a genuine lender and not a loan shark. Try and speak with different banks and lenders. Find out from them the following, interest rate on your loan, installments you have to dole out monthly, and the foreclosure taxes you have to pay. Compare them. Also, speak to your friends on their experiences. You should be able to identify the right one.
5) Once you have decided the lender, read the fine print in the documents that you will be signing. It is worth an effort.
6) Lock your mortgage at a fixed interest rate and not on a variable (adjustable) rate. This may increase your interest rate by few percentage points, but you will know that your cash outflows are going to be constant, irrespective of changes in the prime rates.
7) Ideally pay a higher down payment. This will help to keep your monthly installments low and well within the manageable limits. You may also be able to bargain a lower interest rate from your lender in such cases.
8) Once you have bought your house and taken the loan, try and pay your monthly installments on time without default. Delay's, if any, can be costly, as many lenders levy penalties.
In all, buying a home is like buying any other thing. Do the required ground work, don't take risky bets, and stick to your committment. Enjoy your new home with a freedom that you really deserve.
Madhan Gopalan
The author, based at Louisville, Kentucky, is a Global Equity Research Manager with Ness IBS, USA. The views expressed in this article are his and not that of his employer's. He can be reached at gmadhan72@yahoo.com
Saturday, June 16, 2007
Who wants to be The President (of India)
Every now and then as bollywood goes into a slumber the Indian politicians put together exciting games that interests the country as a whole without any regional barrier. As the political parties in India start the president game, many players will come and go until they find the one who can play the president role to their liking.
The president Of India is given the Honour of being the country's first citizen, In Addition he/she also plays part as the supreme commander of the armed forces of the country. India has had many presidents in the past who had lived up to the role and been a Model citizen. India's first president Rajendra prasad is such a great man and remembered even today for his contributions.
In the recent bygone days many new names have been proposed. However the question is not which party's candidate will win, but it is rather how badly will the people lose. Without discrediting anyone proposed or the proposer, My thoughts are that the current president Dr Abdul kalam played the role of a Model citizen quite perfectly. He was not elected just because he had got the desired votes, rather he was voted because he had the desired credentials for the role and he elected himself to his role by his contributions to the country.
The current day political setup has shown that the presidential role is merely constitutional, and is more as a reflection of the party the elected belongs to. Do we need a president who act as a mere puppet to the ruling party, some one like that would be abusing one of the more important powers vested with the president, which is the power to intervene with policy decisions. A bill cannot be passed until it is signed by the president. Given that in our country laws are made for political gains, the winner of the presidential game would have much to benefit.
Who do you as a Indian citizen and a reader of this post think should be the president? Would you have some one from a political outfit or someone from other walks of life who have contributed significantly to the country's betterment?
Please leave your thoughts as a comment.
The president Of India is given the Honour of being the country's first citizen, In Addition he/she also plays part as the supreme commander of the armed forces of the country. India has had many presidents in the past who had lived up to the role and been a Model citizen. India's first president Rajendra prasad is such a great man and remembered even today for his contributions.
In the recent bygone days many new names have been proposed. However the question is not which party's candidate will win, but it is rather how badly will the people lose. Without discrediting anyone proposed or the proposer, My thoughts are that the current president Dr Abdul kalam played the role of a Model citizen quite perfectly. He was not elected just because he had got the desired votes, rather he was voted because he had the desired credentials for the role and he elected himself to his role by his contributions to the country.
The current day political setup has shown that the presidential role is merely constitutional, and is more as a reflection of the party the elected belongs to. Do we need a president who act as a mere puppet to the ruling party, some one like that would be abusing one of the more important powers vested with the president, which is the power to intervene with policy decisions. A bill cannot be passed until it is signed by the president. Given that in our country laws are made for political gains, the winner of the presidential game would have much to benefit.
Who do you as a Indian citizen and a reader of this post think should be the president? Would you have some one from a political outfit or someone from other walks of life who have contributed significantly to the country's betterment?
Please leave your thoughts as a comment.
-Suresh
Friday, August 18, 2006
Dell's woes continue
In our earlier post 'Is it the beggining of an end for Dell?', during May 2006, we had thrown light on the various challenges faced by Dell Inc. The latest quarter (second quarter of FY07) results indicate that the company has no respite from its woes, even as it struggled to gain traction against its competitors - HP, Lenovo and Acer. Despite its aggressive pricing strategies, the company's revenue grew a modest 5% to $14.1 billion year-over-year, while net profits plummeted 51% to $502 million. In contrast, the net profits of its key competitor HP grew 89% to $1.38 billion during the same period. Dell's modest revenue growth is attributed to the lower single digit growth of PCs in the US market, where it sells bulk of its PCs.
To compound its woes, two days ago the company recalled 4.1 million notebook computer batteries (manufactured by Sony) after they found out a flaw in its batteries. The safety recall, said to be the largest in the history of consumer electronics industry, is to cost over $300 million (Sony will be sharing the costs). Adding to the woes, the U.S. Securities and Exchange Commission (S.E.C) , the capital markets watch dog, is currently doing a formal inquiry on the Dell's accounting practices.
To ward off these challenges, the management indicated a series of intiatives. These include increasing investments in customer support and services by $50 million to $150 million for the year, cost-cutting initiatives, and better pricing management (perhaps another round of price cuts is in the offing). In addition, Dell also appears to have realized that it cannot ignore AMD for long, as it started offering its PCs with AMD chips unlike in the past. Nonetheless, the effectiveness of these measures can be seen only over a period of time.
Madhan Gopalan
The author is the Head of Investment Research and Advisory Services of Ness Innovative Business Services (Ness IBS). The views expressed are his own and not that of Ness IBS.
To compound its woes, two days ago the company recalled 4.1 million notebook computer batteries (manufactured by Sony) after they found out a flaw in its batteries. The safety recall, said to be the largest in the history of consumer electronics industry, is to cost over $300 million (Sony will be sharing the costs). Adding to the woes, the U.S. Securities and Exchange Commission (S.E.C) , the capital markets watch dog, is currently doing a formal inquiry on the Dell's accounting practices.
To ward off these challenges, the management indicated a series of intiatives. These include increasing investments in customer support and services by $50 million to $150 million for the year, cost-cutting initiatives, and better pricing management (perhaps another round of price cuts is in the offing). In addition, Dell also appears to have realized that it cannot ignore AMD for long, as it started offering its PCs with AMD chips unlike in the past. Nonetheless, the effectiveness of these measures can be seen only over a period of time.
Madhan Gopalan
The author is the Head of Investment Research and Advisory Services of Ness Innovative Business Services (Ness IBS). The views expressed are his own and not that of Ness IBS.
Monday, June 26, 2006
Will SemIndia deliver?
A few months ago, when SemIndia decided to locate its semiconductor fabrication plant in Hyderabad, India at a cost of $3 billion, the media went ‘ga ga’ about it saying that it signals India’s entry into the manufacturing league, a stronghold of select few countries such as China, Taiwan and Singapore till recently. Yes. One cannot refute the fact this is the first time India has been considered as manufacturing location for chips. However, this is not the first time a chip company is setting up its operations in India. Companies such as Texas Instruments and Cadence Systems set up their development centers in India as early as 1980s to make the most of talent pool available here. Besides, if the argument truly holds water, Intel, the worlds largest integrated chip manufacturer, would have located its fab (28) at an estimated cost $3.5 billion in India, instead of Israel.
The cost arbitrage
So, what is new this time, one may ask. The apparent reason to locate a fab is India must be the cost arbitrage. This holds good particularly in the wake of appreciation of the Chinese currency, Yuan, by 3.3% since it got pegged to the basket of currencies last year. Hence, importing wafers from fabs is China may not be a viable option for fabless manufacturers such as Freescale, Broadcom, Altera and nVidia, on the long run. This is because, the appreciation in the currency will offset the cost advantage. Consequently, the wafer manufacturers will be forced to keep a mark-up on the product prices. This in turn will have a bearing on the operating margins of the fabless manufacturers.
Secondly, a huge fabrication facility also lowers the time-to-market for pure design firms that operate out of India and enable them to stay ahead in the competition. Thirdly, the technical expertise that India has gained over a period, bridging the perceived gap in technology adoption, also appears to have aided the decision. The other possible reason could be the decision to strike a geo-political balance and diversifying the risk by setting up a base in a market-driven economy instead of purely relying on select China-based large manufacturers such as United Microelectronics (UMC) and Taiwan Semiconductor Manufacturing (TSM).
Driven by volumes
Semiconductors (particularly digital chips) generally have a short product life cycle, rapid technological obsolescence and a steady markdown in selling prices. This calls for large capital expenditures by wafer manufacturers on a regular basis to roll out products in line with market requirements. Hence, economies of scale become the single most critical success factor to cover up all the fixed costs a wafer manufacturer incurs. The question at this point of time is do we have a large domestic market to achieve the economies of scale. The answer is a big no. Nonetheless, according to a leading market research firm, the market for electronic equipments is expected to grow by 35% annually for the next five years driven by a surge in sales of set-top boxes, DVDs, cell phones and other electronic appliances. This in turn is expected to drive the demand for chips.
However, it is pertinent to note that the market for PCs, which account for over 50% of the chip demand globally, is growing at a single digit rate. Adding to the risks, the chip industry has been historically cyclical in nature. For instance, during the downturn in 2001 the top and the bottom line of most of the semiconductors witnessed a nose-dive. Consequently, wafer manufacturers such as UMC and Chartered Semiconductor Manufacturing (CHRT) also reported operating losses during the period. These Industry manage to witness a recovery only in 2004, and post revenues of over $200 billion in 2005, the first time since 2000.
What is in store for SemIndia?
According to SIA, the trade association that represents the U.S. semiconductor industry, the global sales of chips are expected to grow at about 10% annually. This augurs well for all the chips and wafer manufacturers. However, the success of SemIndia will depend on its ability to ward of all these challenges and risks. Further, its strategy should be flexible enough to focus not only on the domestic market, but also on the international markets, if the anticipated growth in the domestic market does not emerge. In such case, SemIndia should also be ready on its toes to take on the biggies such as TSM, UMC and CHRT.
Madhan Gopalan
The author is the Head of Investment Research and Advisory Services of Ness Innovative Business Services (Ness IBS). The views expressed are his own and not that of Ness IBS.
The cost arbitrage
So, what is new this time, one may ask. The apparent reason to locate a fab is India must be the cost arbitrage. This holds good particularly in the wake of appreciation of the Chinese currency, Yuan, by 3.3% since it got pegged to the basket of currencies last year. Hence, importing wafers from fabs is China may not be a viable option for fabless manufacturers such as Freescale, Broadcom, Altera and nVidia, on the long run. This is because, the appreciation in the currency will offset the cost advantage. Consequently, the wafer manufacturers will be forced to keep a mark-up on the product prices. This in turn will have a bearing on the operating margins of the fabless manufacturers.
Secondly, a huge fabrication facility also lowers the time-to-market for pure design firms that operate out of India and enable them to stay ahead in the competition. Thirdly, the technical expertise that India has gained over a period, bridging the perceived gap in technology adoption, also appears to have aided the decision. The other possible reason could be the decision to strike a geo-political balance and diversifying the risk by setting up a base in a market-driven economy instead of purely relying on select China-based large manufacturers such as United Microelectronics (UMC) and Taiwan Semiconductor Manufacturing (TSM).
Driven by volumes
Semiconductors (particularly digital chips) generally have a short product life cycle, rapid technological obsolescence and a steady markdown in selling prices. This calls for large capital expenditures by wafer manufacturers on a regular basis to roll out products in line with market requirements. Hence, economies of scale become the single most critical success factor to cover up all the fixed costs a wafer manufacturer incurs. The question at this point of time is do we have a large domestic market to achieve the economies of scale. The answer is a big no. Nonetheless, according to a leading market research firm, the market for electronic equipments is expected to grow by 35% annually for the next five years driven by a surge in sales of set-top boxes, DVDs, cell phones and other electronic appliances. This in turn is expected to drive the demand for chips.
However, it is pertinent to note that the market for PCs, which account for over 50% of the chip demand globally, is growing at a single digit rate. Adding to the risks, the chip industry has been historically cyclical in nature. For instance, during the downturn in 2001 the top and the bottom line of most of the semiconductors witnessed a nose-dive. Consequently, wafer manufacturers such as UMC and Chartered Semiconductor Manufacturing (CHRT) also reported operating losses during the period. These Industry manage to witness a recovery only in 2004, and post revenues of over $200 billion in 2005, the first time since 2000.
What is in store for SemIndia?
According to SIA, the trade association that represents the U.S. semiconductor industry, the global sales of chips are expected to grow at about 10% annually. This augurs well for all the chips and wafer manufacturers. However, the success of SemIndia will depend on its ability to ward of all these challenges and risks. Further, its strategy should be flexible enough to focus not only on the domestic market, but also on the international markets, if the anticipated growth in the domestic market does not emerge. In such case, SemIndia should also be ready on its toes to take on the biggies such as TSM, UMC and CHRT.
Madhan Gopalan
The author is the Head of Investment Research and Advisory Services of Ness Innovative Business Services (Ness IBS). The views expressed are his own and not that of Ness IBS.
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