January 22, 2009
Although the ongoing global recession has shattered the hopes of investors worldwide, there has been quite a few positive developments in the markets since the beginning of January, 2009. The good openings at the Indian stock markets have been the outcome of bailout package announced by the government as also the interest rate cuts and petrol price cuts in the past one and a half month.
The positive sentiments created in the market have been well reflected in the form of higher openings of the Indian stocks, led by advances in banks and realty stocks. However, not every sector is equally blessed. The FMCG (Fast Moving Consumer Goods) and consumer durables opened quite lower. This brings us face-to-face with the fact that the current market conditions are not having an equal impact on all the sectors. While some sectors that of realty, IT, banking, Telecom, and few more are enjoying a positive phase in the ongoing market conditions, others are not having a good time as far as their stocks are concerned. In such a scenario, it becomes very important for the investors to keep a tab on the market developments. This will give them an opportunity to switch from under-performing stocks to those that have been showing good signs for the future. A knowledge of the out-performing sectors is crucial at this point of time to make your investments profitable.
The Bombay Stock Exchange climbed 126 points and closed at 8905.37 on Wednesday. The National Stock Exchange benchmark Nifty also closed at 2749, registering a rise of 28 points. One of the sectors that has been performing quite well on this front is the Telecom sector. This is evident from the 2.5% rise in the shares of Bharti Airtel. Not only this, there has been a whopping 15% rise in the net profit of the Telecom sector for the October-December quarter over the immediately preceding quarter. So, if you are looking for an out-performing sector, Telecom is right there to take a place in your portfolio.
The US stocks have also jumped on Wednesday with the Dow Jones Industrial Average up by 3.51% and the Nasdaq Composite Index by 4.60%. The IT sector is in the limelight for the moment following positive earnings reported by IBM. Like India, all other Asian stock markets are keeping their eyes on the Wall Street. With the new US government all geared up to announce optimistic policies to curb the financial crisis, the whole world is waiting for the global recession to end.
January 19, 2009
India is today witnessing one of the biggest accounting frauds in its corporate arena following the confession of Ramalinga Raju, the chairman of Satyam Computer Services to the accounting scandal that had taken place under his full knowledge. This incident has given a big blow to the entire Indian IT sector.
While the police custody of Ramalinga Raju and his associates is a big news for all of us, another news awaiting our attention is the strong possibility of Satyam assets being put for sale by the banks. This threat applies to all Satyam subsidiaries that have borrowed money from the public sector banks. Till date, banks are in possession of securities worth Rs 2,700 crore against the secured loans taken by the Satyam subsidiaries. With Satyam scam becoming an issue for political debate, the Government has announced that it will in no way interfere with the legal process of selling off the pledged assets of a defaulter by the banks. Such an assurance on the part of the government can go a long way in emphasizing the fact that no one is above the law. If the law says that the lenders are entitled to the proceeds of liquidated assets of a bankrupt company when the loans are collateral, that is, given against securities, government should not stop the lender from doing so.
The government has done just the right thing by sending out the message that the law will be the same for everyone, no matter how high-profile the company in question is. With such an announcement, the subsidiaries of Satyam need to be extra cautious because if they fail to service loans on a timely basis, there is no one who can stop the lending banks from exercising their right of invoking guarantees and taking over pledged properties.
The announcement of the government however, is limited only to the event of default. The government has made it clear that it will not stop the financial institutions from funding infrastructure projects to be undertaken by the companies associated with Satyam. This is again a sensible step on the part of the government because our law treats a company and its associates as separate entities. However, this cannot allow them to avoid close surveillance upon them following one of the biggest accounting scandals by their parent company. This is the reason why the Ministry of Corporate affairs has already ordered a probe into the books of eight Satyam companies and their promoters, including Maytas Infrastructure and Maytas Properties.
January 12, 2009
If the ongoing recession was not enough to dampen the spirits of the investors, the current Satyam scam has added salt to their wounds. January 7th came as a shock when the disgraced Satyam founder, B Ramalinga Raju, admitted to Rs 7,800-crore fraud. And the impact was immediate. Satyam equities started witnessing selling pressure, as the sentiments of the investors turned bearish. The Bombay Stock Exchange was at 9296.01, down 290.87 points. Market breadth turned negative on the BSE with 1889 losers and 358 advances. The shares of Satyam Computers was down by 45.68%.
Investors, employees, fund houses companies, all were taken by a blow. Amongst investor classes in Satyam Computer, mutual funds may have been one of the biggest losers. On January 9th 2009, Satyam shares ended at 23.85, down roughly 40% or Rs16 from its January 7th closing price. Like several thousand investors, I am also worried because, Satyam shares form a major portion of my portfolio. An IT big shot, everybody wanted Satyam shares in his/her portfolio. Not only investors, but top fund houses like ICICI Prudential, HDFC Mutual Fund, Sundaram BNP Paribas Mutual Fund, and Tata Mutual Fund are also big losers. These companies are the biggest buyers in the Satyam stock in percentage terms.
With the Satyam story brought into lights, the fate of 53,000 Satyam employees still remains in doldrums. The job market is abuzz with Satyam resumes flooding the portals. And the ongoing recession leaves a little scope for accommodating so many people at a stretch. I am witnessing the trauma the employees of Satyam are going through. My friend’s husband was working in Satyam and now he is worried of losing his job. This fraud has made them have sleepless nights. They are now also worried with questions like will other companies block the hiring of Satyam employees. Why should employees be held at fault for the mis-doings of the top management?
Now, everybody has just one question to ask, and that is, what is the way out? Analysts foresee two ways to rescue Satyam. The first option is whether the government should play a proactive role and give the new buyers guarantee against the legal and financial liabilities of the company. And the second option is Satyam could be broken up into various pieces like BPO, industry verticals, and service lines, and then sold to several buyers. However, thorough investigation by government and auditors must be undertaken before any solution is thought of. But the process of inquiry should be made really speedy so that we all get to know the other hands involved in this fraud.
January 5, 2009
The Indian real estate is in its all time low since global financial crisis hit the Indian Economy. Tight liquidity, coupled with high lending rates over the last few months has resulted into a sad picture for the real estate. Owing to a sharp fall in the domestic demand for real estate, many housing projects have failed to take off. According to trade analysts, the transactions in the real sector have come down by as much as 80%, resulting into a fall in the prices. However, as banks have not substantially reduced the interest rates, prospective buyers are not able to take advantage of this situation.
The circumstance, however, may get better with the interference of our Urban Development Minister, S. Jaipal Reddy. In a recent letter to the Prime Minister, he had advocated that while home loans up to 5 lakh rupees should bear an interest rate not higher than 6.5%, the same for the loan amounts between 5 lakh and 3 million rupees should ideally be 7.5% per annum. If implemented, these additional government measures may pull up the country’s crumbling real estate sector. This is because it is the interest rate on housing loans that matters the most to a common man. Although, price also plays a major role, a common man can think of buying a property through loans only at affordable interest rates. This proposal has come to be included in the government’s soon-to-be-released second stimulus package on Friday to combat recession.
To make the deal even more beneficial to a common man, Mr Jaipal Reddy has also proposed for an increase in the ceiling for income tax rebates on interest paid on home loans from the current level of 1.5 lakh to 3.0 lakh. Now, this must bring smile on the face of every common man who has been dreaming to own a house. Falling real estate prices, reduced interest rates on home loans, and now more tax benefits through investment in real estate have always been desired by you. All these may become a reality in a matter of few days.
As said by Kamal Nath, our Trade Minister, the government’s fresh package to boost liquidity is all geared up to include a number of measures to brighten the picture of the Indian exporters and the real sector along with the infrastructure. Mr Reddy has informed that all these measures are crucial so that housing projects can also be treated at par with the infrastructure for all purposes, including the bank financing. As government rolls out the measures to lower the real estate prices for a common man along with affordable interest rates and more tax benefits, you have every reason to make your long time desire to become ‘a proud home owner’ a reality very soon.
