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T
he manner in which the market price. So what is the logic behind inves-
has been moving up has raised tor optimism even at these prices?
some questions in the minds For one, the liquidity in the system is
of retail as well as institutional inves- very high. In fact, it is so high that the
tors. The smart run-up in the first half success of three mega IPOs and the sub-
of FY 2010 has been historic. I have dued performance of two – which means
never seen any half-year so bullish on a that the retail investors have had little
continuous and sustained basis. We chance of exit - have not deterred the
shall not go into the figure, but the retail investors who are imparting good
broad facts are enough. The Sensex liquidity in the secondary market even
and Nifty have more than doubled now. And the foreign and local institu-
from their March 9 lows, and also from tions are also flush with funds to invest in
the March end levels. And that is not the market. So we once again come back
all. Almost every portfolio must be to the question as to what is the prime
having at least a few stocks which have driving force behind the present boom
quadrupled or more. - fundamentals or liquidity or both?
So obviously this is time for intro- In my view it is only liquidity which is
spection and for pausing to review the driving the market today. Fundamentals
situation in the market. The most com- do matter in the market and in the long
mon and popular ratio that is used in run only fundamentals prevail as we
such a situation is the Price Earnings (P/ have seen time and again. And yet the
E) ratio. This has gone up significantly real boom always comes about when
to more than 19 for the Nifty and Sensex there is high liquidity in the market. We
if we take the FY10 estimates. All time have seen this earlier in 1992 (Harshad
high P/E s for these indices have been Mehta), 2000 (Ketan Parekh) and 2007
Yamal Vyas around 23, and so one line of argument ( FIIs). This time around too the FIIs
says that there is still about 20 per cent are investing heavily in the Indian mar-
upside left before the market becomes ket and the retail investors are just join-
overheated. In terms of Nifty and Sensex, ing the party. There seems to be good
UPSIDE FACTORED this would mean levels of 6,000+ and amount of steam left in the market if
The improvement in stock 21,000. This sounds logical, but there is
another school of thought too.
one goes by liquidity only. And one can
do that because in the short term it is
prices on such a large The improvement in stock prices on liquidity which really matters.
scale means that the such a large scale without any significant So we are face to face with the ques-
correction also means that the upside in tion: Are P/E ratios relevant for the
upside in earnings for earnings for the next few quarters has market? Well, in my view, P/E is just
the next few quarters has already been factored in the current one among the many market indica-
prices. This always happens in a bullish tors which provide broad guidelines
already been factored. market, as optimism and exuberance as to where the market is headed, but
have a tendency to go out of control unless the P/E ratios reach unusually
LIQUIDITY MATTERS beyond a point. In that case, the funda- high or low levels of say 8-9 or 23-24,
Going by the liquidity, mentals of the economy and corporate they do not provide any guidance about
sector do appear stretched at the current share price movements in the medium
There seems to be good prices. The current prices indicate that term. To put it in other words, extreme
amount of steam left in the market expects the Nifty companies P/E levels indicate that the market
to show a more than 20 per cent rise in will change direction. Period. I do not
the market. As in the short earnings in the current year. And even think P/E has any other importance for
term it is liquidity which that seems to be included in the current retail investors. DS
A New Investment
Avenue
REITs are a convenient investment vehicle for
retail investors with limited resources to take
advantage of appreciation in the real estate
market without having to invest directly in real
estate, says Paresh Lad
I
n the last 4-5 years many Tier-I structure built on the land. For an residential projects, hotels etc. The
cities in India have witnessed a individual investor, it’s very difficult income generated out of investments
huge boom in the prices of real to invest in real estate assets as the made in these real estate assets is dis-
estate and now even Tier-II cities are in prices are too high and a long gestation tributed in the form of dividends to the
the race. There is an investment vehicle period is involved. Even if you take an REITs investors.
which uses real estate as a tool to gen- example of “ready to move in” proper- In case of REITs whose shares are
erate decent returns for the investors ties, as the prices are too high, very few listed on a stock exchange, the inves-
called as Real Estate Investment Trusts people can actually afford to think of it tors enjoys the benefit of easy and
or REITs. Real Estate Investment Trust as an “investment option”. Here comes quick liquidity as they can sell the
is a collective investment vehicle which into play the REIT. shares of the REIT as and when they
helps the investors to invest their A real estate investment manage- want and thus their capital is not
money in real estate asset class. REIT ment company (REIMC) pools the blocked unnecessarily for a long period
carries out its functions through a real money from investors and in turn of time.
estate investment management com- invests such money in real estate prop-
pany (REIMC) which can be either erties. This is just like the many mutual Graphical presentation:
a privately held company or a public funds in the market which invests
one whose shares are traded on a stock the money of common investors in
exchange. equities. Various investment options
available with a REIT are commercial
History of REITs establishments, shopping malls, large
The REITs find their origin in the
US way back in the 1960s when the
US Congress created the REIT. Today,
the US has the largest REIT market
which however is facing a tough time
since last couple of years more so
because of the sub-prime crisis which
left the mortgage markets all over the
world in the doldrums. Thereafter,
REITs spread their wings in Singapore Salient features:
as well as in Japan. They also gained Real estate per se is a costly asset
popularity in Canada, where they were class and hence it’s difficult for a com-
introduced in 1993. mon investor to invest in it and gen-
erate returns. This is made possible
How a REIT functions: by REIT. REIT provides diversifica-
The real estate is an asset class which tion benefit within real estate as well
includes, land, building and any other so that investors are not exposed to
ended funds. In addition to this he is simple: Invest for at least five years on the Asian markets and was recent-
heading 13 overseas offices of FT. ly quoted saying that the bull rally
Success Has Its Own Failure has already started in many Asian
More You Travel More You Invest A long-term investment principle countries. As far as Indian, Russia
When we started this column has its own perils. As Dr Mobius and Chinese markets are concerned,
our perception was that the great- always insists on long-term investment, though he is not very keen in investing
est investment gurus of all time may during the decade of the Nineties his in these traditional emerging markets,
have their own principles of investing emerging market investing accumu- yet he is confident that the booming
based on fundamental analysis of the lated a lot of fan following among commodity prices wouldn’t be ham-
information available in the public the investors and AUM in his funds pered in their growth. In 2008, he was
domain published in black and white. swelled manifold. Having a good sum of the opinion that countries cannot
However, after having discussed the in his kitty, he has always invested subsidize prices and so price rise is
strategies of three gurus we can say
that our perception was not fully cor-
rect. All these gurus have had their
own beliefs and disbeliefs which may All Asian countries borrowed
be in contrast to each other but are
successful. The same is the case with heavily in US dollars and when
Dr Mobius, whose guru mantra for
investment was travel. Sounds odd but their local currencies fell, they
it is true.
Dr Mobius spends around 300 days could not pay back the loans.
annually shuttling from one location
to another just to get first-hand infor-
Central banks and governments
mation about the investment climate have certainly learned their
of the country and the political situa-
tion. After this he makes an assessment lessons
of the factors and decides his future
course of action. After spending 30
years in Asia and 40 years in the indus- DR MARK MOBIUS, In Investors Chronicle
try, this practice has certainly paid rich
dividends. That’s one reason why Asia
Money Magazine in 2006 incarnated in blue-chip companies of Asia, an inevitable which proved true in that
him as one of the 100 most powerful example being HSBC Holding. Due year. As far as growth is concerned he
and influential people. Besides, the to this inclination his funds usually predicted that due to the slowdown
Carson Group chose him as one of the ignored the hidden values in small and growth will be moderate but wouldn’t
top ten money managers of the 20th mid-cap stocks. This practice of Dr go into reverse direction, which was
century. He has numerous other acco- Mobius greatly affected the chances again proved correct.
lades under his belt which makes him of Templeton’s offshore China’s funds, As far as his understanding of Asian
one of the most powerful investment which lost 25 per cent in 1994, the markets goes he is quite confident
managers of all times. year in which the Asian flu hit Asia. about the appetite of these markets.
In the same way many critics have Due to this he is not at all concerned
All About Trust questioned his aggressive bottom-up about the risk of capital flight. He is of
If you don’t trust the Indian stock approach in the debacle of FT funds the view that though fund redemption
market and its growth story, learn during the South Asian crisis and it is a risk and FIIs’ selling is putting pres-
from Dr Mobius who thinks that was touted that Dr Mobius had lost sure on these markets, the local mar-
emerging markets are the best place his touch. What was interesting is that kets are deep enough to take the strain.
to invest. In respect to Asian markets he opened offshore Thai fund just He has clearly pointed out in many of
he once quoted that it is a “once in a 12 days before the devaluation of the his interviews that cheap money has its
generation bargains”. Even after the currency which triggered a financial own perils but Asian countries learnt
south Asian crisis he moved back to crisis in the region. At the end of the their lessons 10 years ago so that they
Thailand, Malaysia and Hong Kong fiscal 1997-98, this fund was at 53 per now know how to tackle this kind
- a move that paid off magnificently cent. On the other hand, his India and of capital influx. “All these countries
in the last decade. At that time he was Japanese offshore funds lost 27 per borrowed heavily in US dollars and
of the opinion that in emerging mar- cent and the Korean fund fell 67 per when their local currencies fell, they
kets opportunities are there and these cent during the six months. could not pay back the loans,” he says.
opportunities are amazing and incred- “Central banks and governments have
ible as also beyond anyone’s reckon- Being Bullish On Asian Markets certainly learned their lessons,” is what
ing. But his principle was straight and Dr Mobius is again very bullish he said to Investors Chronicle. DS
From a power-deficit state to a power surplus one, West Bengal has come a long way
by investing in power projects in a big way
W
est Bengal, as the gateway National Thermal Power Corporation, in supply in the area, the company
to south-east Asia, is on the National Hydel Power Corporation and installed a 20 MW captive power plant
threshold of an industrial Damodar Valley Corporation. Apart for the Eastern Coalfields at Chinakuri.
resurrection. Revamping the existing from all these, captive generation units At present, the generating capacity of
infrastructure while building up new and the solar, wind, hydro and bio- DPSC stands at 9-10 MW, which is
vestiges has become one of the top mass-based power plants have been set supplied to keep the production float-
priorities of the State Government. up and looked after by the West Bengal ing on viability. It has also ensured
Sponsorship of this development is Renewable Energy Development uninterrupted power supply to ECL
jointly borne by public and private Agency. The total installed capacity in during emergency such as landslide,
investments, which has well surpassed the state including captive generators fire etc.
the amount of Rs. 85,000 crore so far. and non-conventional energy sources Decisions have also been taken to
Power plays the major infrastruc- is around 10,125 MW. Incidentally, enhance production and utilization of
tural key in the economic synthesizer. the number of consumers of electric- power tapped from unconventional
It exercises a direct control over many ity in the state (excluding central sec- sources during the Tenth Plan period.
faces of development, i.e., agricul- tor power utilities) up to November The 320 KW Biomass Hybrid Power
ture, industry, employment etc. The 2006 stands at 82,85,025 households. Centre at the Sunderbans, three bio-
demand for power is increasing at the However, the demand for electricity is diesel generators with the total produc-
rate of 9% per annum in the state and shooting up. tion capacity of 55 KW, wind power
the capital investment in the sector The combined power production generator with the capacity of 40 MW
amounts to Rs. 10,500 crore so far, capacity of all the thermal power proj- at Purba Medinipur are some of the
which is a record in capital procure- ects of the state taken together is showcase examples to cite. All these
ment in a state-owned organization. 7256.20 MW while the same of all projects await completion shortly.
It is not only power production that is the hydro-power projects is 229.255 West Bengal Renewable Energy
benefited financially, transmission and MW. Power stations with the genera- Development Agency has exemplified
distribution of power are equally on tion capacity of 2470 MW of electric- glowing resourcefulness in identifying
the gaining side. ity during the Tenth Plan period and areas of rural needs for energy and
West Bengal was a power-deficit 3550 MW during the Eleventh are their renewable solutions. This autono-
state when the Left Front Government on the cards. An amount of Rs. 5000 mous agency, which is now acclaimed
took over the reins. It has now turned crore is being injected into diversified worldwide, was formed under the
into a power-surplus one. Thermal thermal power projects at Bakreswar, Department of Science and Technology
power has been the key area in the Santaldih, Sagardighi and DPL, which in 1993. It is crowned with the credit
state owing to geographical reasons. would yield not less them 1570 MW of of many firsts and foremosts, which, to
Quite a few organizations belonging electricity collectively. name a few, are Energy Park designated
to the State Government, the Union As one of the oldest power generating to create awareness regarding power
Government and private houses units of the state, the Dishergarh Power and its proper uses, Rabi-Rashmi, a
have been at work in unison to lend Supply Corporation, established in the housing project with 25 buildings at
the power structure of the state a year 1911, used to supply power to the Rajarhat energised with solar power
different composition. collieries at the Asansol-Ranigunj belt. exclusively. Each of the buildings have
Generation of electricity in the state In 1932, the company, on obtaining a solar panels (2 KW) on roof top,
is carried out by the thermal and hydel 50-year licence, began to grow into the capable of supplying 100 litres of hot
power plants under the West Bengal life of the belt by illuminating them water, among others.
Power Development Corporation with power supply, projecting upon the In short, West Bengal is all set to
and some other agencies. The central path of industrial development. power ahead on the path of develop-
sector power allocations come from In 1990, in a bid for stabilization ment in years to come.
IN FOCUS
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Failure to file
Sales Tax Return
Failure to carry out tax audit under
Section 44AB attracts penalty
Abhay Vasant Arolkar
B Com (Hons),
LLB, ACS, FCA
My sales turnover is more than Rs. 40 lakh. I
• Failure to conduct tax audit invites penalty @ half per cent of total
turnover or Rs 1 lakh.