Market Trends: Bulls, Bears & 'Swines'!

Stock markets have traditionally seen a fight for supremacy amongst Bulls and Bears. Those market participants who are optimistic and believe that the markets will move up are called 'Bulls', and those who hold a pessimistic view and believe that the markets will move down are called 'Bears'. After lying low for several months bulls have seized the initiative from the bears in the past few weeks on the back of improved liquidity and positive FII inflows. The net FII investments into Indian stock market are a positive Rs.5560 crores for the month of April 2009. The current bull run on the markets has been fuelled by FIIs and domestic Mutual funds to a large extent. The markets have run up too quickly for the comfort of many market participants, who are now looking for an opportunity to pull down the markets.

'Swine flu' may prove to be the trigger for the end of the current bull run. 'Swines' are animal species including pigs, hogs, and boars, having a stout body with thick skin, a short neck, and a movable snout. Another definition of a swine is 'a person regarded as brutish or contemptible'. The World Health Organisation (WHO) has raised its level of alert about 'swine flu' to level 5, just below the pandemic level 6.
The economic impact of the killer epidemic can be devastating:

• It could be a drag on India's economic recovery
• Demand for products and services may dip
• Global GDP could be adversely affected
• Developing countries may be the worst hit
• Sectors like Aviation and Hospitality to be adversely impacted

Swines have the capacity to win the game against Bulls and Bears on the markets. The markets are at crossroads and waiting for an excuse to retreat, 'swine flu' may just be that excuse. The bigger threat to Indian markets comes from the swines in the garb of Indian politicians who may derail the democratic process by their sinister designs after the electoral process is completed on the 16th of May 2009. Any uncertainty created by the 'Swines' does not auger well for the immediate future of our markets. It is better to remain in cash, and wait for the things to settle.

Retirement Planning: Planning for the 'Golden Years'

Human life cycle can be broadly classified into three sub periods:

• Dependent age (0-25): With the craze and the passion for excellence in education, majority of young people now-a-days start earning at the age of around 25 years. The first 25 years of a person's age are classified as dependent age because one is dependent on the support of the parents for most of his/her survival needs.


• Interdependent age (25-60): The interdependent age begins when one starts earning independently either through job, profession or entrepreneurship. An individual becomes financially independent, but is dependent on others as far as independent use of time is concerned. For example, if one wants a long break from work he/she is normally constrained by the exigencies of job/ profession. The upper age limit of interdependent age needs to be flexible as some people do retire early in life.


• Independent Age (60-80+): The average survival age of an Indian is estimated to be around 80 years by 2012, due to the improvement in health services. The post retirement age is known as the independent age or the 'Golden age' because one is in full command over everything. We can spend our time and money according to our own will. We can indulge in many pastimes which we continue to postpone due to paucity of time during our active work life. But to take full advantage of the golden period we must plan for our retirement as early as possible.

Most investors are in a dilemma about the timing of Retirement Planning? Retirement planning should start early in one's life to make use of the 'Power of compounding'. Our investments should fetch handsome returns to take care of post retirement period, when regular avenues of income from salary/ business are not available. As investors we must remember the 'Rule of 72', which is the layman's calculator to find out the rate of return needed for doubling your investment: 72/R = No. of years to double the investment. If you put your money in a fixed deposit @9% pa, your investment doubles in 8 years, but if you invest your money in equities @18% pa (the average return given by sensex since inception), your money could double in about 4 years. Who said equities are not for retirement planning! Just apply the power of compounding and make your 'Goden Age' worth the enjoyment.

Beware of 'Miss-selling'

With a slew of new financial products being introduced in the market, the menace of miss-selling is rampant. Investors have a right to ask for the relevant information before taking a decision to buy a financial product. Lack of transparency on the part of sellers results in miss-selling to the client. Miss-selling tent amounts to cheating the client by hiding relevant information about the product sold. Miss-selling is often a result of the conflict of interest between the client and the seller. For example, the seller would be interested in pushing through a product where he derives the maximum commission, the relevance of the product for the client becomes secondary.

A case in point is Unit Linked Insurance Plan (ULIP). IRDA has directed life insurance companies to inform the policy holder about the annual charges deducted for 10 years from the commencement of the policy. In the initial years, costs like administration charge and investment management charge could add up to anywhere between 30-70% of the ULIP premium. Earlier, insurance companies only provided generic sales illustrations to their customers. The new illustrations will be specific to policy holders and will have to be signed by customers before the policy comes into force. Many companies have suffered huge losses on account of FOREX derivative products sold to them by some finance companies without outlining the consequences of these investments.

Investor education can play a vital role in avoiding the menace of Miss-selling. Sellers of financial products will have to keep in mind the interest of the client above his own interest, and ensure that the products sold to the clients are in harmony with the clients long term goals. Financial planning as a profession can plug this gap. Remember, a client who is a victim of miss-selling poses a more serious threat to the seller/ adviser's long term earning potential, rather than the short term gains pocketed through miss-selling. The client advisor relationship is built on faith. Investors are advised to be vigilant against miss-selling of financial products. Remedies are available to the investors to settle their grievances on miss-selling through lodging a complaint with the regulators like RBI, SEBI, IRDA.

AS11: Impact on Indian companies

Accounting Standard 11 was introduced by the Institute of Chartered Accountants of India (ICAI) in 1989 and was revised in 1994 & 2003. While finalising the profit and loss (P&L) account and balance-sheet of the enterprise, AS 11 prescribes the rate at which the foreign currency transactions are required to be translated into rupees. AS-11 requires all foreign currency monetary transactions of companies to be reported on the basis of closing exchange rate at the end of an accounting period. The gain/loss arising out of this restatement (due to exchange rate changes between the date of transaction and the end of that quarter) had to be charged to the profit and loss account, as an income/expense.

The year 2008 was marked by extreme volatility in commodity as well as forex markets. Indian Rupee depreciated against the Dollar by over 24% during 2008. In the second half of 2007, when the Rupee was appreciating against other currencies, many Indian companies undertook huge CAPEX plans and borrowed through cheap foreign currency loans in the overseas markets. Immediately afterwards the trend changed following a sharp reversal in the equity markets. These companies took a massive hit in their profitability due to MTM (Mark to Market) losses on their Foreign Currency portfolio (as required under AS 11). The companies that suffered huge MTM losses in the first 3 quarters of FY 2008-09 include JSW Steel, Tata Steel, Tata Motors, Suzlon Energy among others. The stocks of these companies took a heavy beating on the bourses.

To overcome this extraordinary situation, National advisory committee on Accounting standards (NACAS) has come out with recent amendments in AS 11. As per the amendment, that is retrospectively effective from December 7, 2006 and will be enforced from March 09 quarter onwards, companies will have the option to account for the impact of long term foreign currency loans in their books upto March 2011. This would translate into a significant relief in the balance sheet of these companies for FY 2008-09 and 2009-10. The amendment to AS 11 has been one of the significant contributors to the ongoing rally on the stock markets.

Beware of Uncertainty as India enters Election month

Election season kicks off with the first phase of polling on the 16th April 2009. The first leg of the month long drama will culminate with the declaration of results on the 16th May 2009. The new Govt. has to be sworn in by 22nd May 2009. With the kind of uncertainty about the outcome of the polls, the second leg or the post poll drama may throw up a vitiated atmosphere. As stock markets traditionally do not like uncertainty, volatility on the markets is likely to increase substantially. A reliable measure of volatility 'India VIX' has already gone up significantly, it closed the week at 43.54% after touching 50 in the mid session. This is an indication that the intermediate rally is on its last legs, and investors are advised to book profits/losses. Several stocks have already given 40-50% returns during this month long rally.

The period immediately ahead does not auger well for the stock markets. To quote the famous astrologer Sh. Lachhman Das Madan: "The planetary configurations reveal that no new Constitutional Govt. may be in position by the due date. The atmosphere in the country will be highly vitiated particularly from 15th April 2009 to 22nd June 2009. Serious violence is likely to erupt and militancy may rock the country." Investors may become cautious, and any sharp decline in stock prices during the period will throw up a long term opportunity to accumulate good stocks.

India Inc. shines in Forbes Global 2000 list

47 Indian companies have made it to the Forbes Global 2000 list this year. There has been an overall improvement in the ranking of Indian companies due the Global economic downturn, which has had a relatively mild impact on India Inc. The rankings are compiled on the basis of a composite score of sales, profit, assets and market capitalisation.

The top 5 global rankings have been claimed by:

1. General Electric of USA
2. Royal Dutch Shell: Dutch oil and gas major
3. Toyota Motor of Japan
4. Exxon Mobil of USA
5. British Petroleum of UK

Last year top rank holder HSBC Holdings has dropped to sixth position this year. Arcelor Mittal headed by Lakshmi Mittal is in 41st position.

The top 3 Indian companies and their rankings (last year rankings in brackets) are:

1. Reliance Industries 121 (193)
2. State bank of India 150 (219)
3. ONGC 152 (198)

Other Indian companies amongst the top 500 are: Indian Oil (207), NTPC (317), ICICI Bank (329) and Tata Steel (463) . We can expect a further improvement in the ranking of these Indian companies in the current year as well.

SAMVAT 2066 STARTS ON AN OPTIMISTIC NOTE

The Hindu New Year or 'Vikrami Samvat' starts from the next day after 'amavasya' in the Chaitra month of the hindu calender. The Hindu Calender is based on lunar movements and this fell on 27th March 2009 this year. Navratras also shall start from the same day only. While creating this universe Bramhaji declared this tithi as Pravara (excellent) . Therefore, all important tasks should be started from this tithi only. The Financial year of Govt. of India also coincides with the Vikrami Samvat.As per astrological connotations the name of this year which started from 27th March 2009 is "Shubha." the King of this year is Venus and the Prime Minister is Moon.

The important predictions for Samvat 2066 (based on astrological information available on the web) are:
* There shall be lot of corruption in society and political leaders shall become extremely selfish.
* There shall remain instability in the functioning of political system because of conjunction of debilitated Jupiter with Rahu.
* Moon as the prime minister suggests good rainfall, growth in luxury, improvement in health, general well being and prosperity, contentment to the people etc. As both the king and the prime minster and female planets, we can expect more women gaining power.

The stock markets have started the new year on an optimistic note. But the volatility is going to increase in the markets, so it would be prudent to book partial profits and losses in the sudden bouts of euphoria, because Samvat 2066 points to a lot of political uncertainty and turmoil in the first few months. Caution is advisable. (The views are based on astrological predictions by experts).