Interesting Read

There is always a feeling in India that Indian lawmakers seem to be overpaid in view of the absolutely slow pace of work they are so accustomed to. It appears as if it takes forever for files to move from one place to another. However, as today's chart of the day highlights, Indian lawmakers are also way overpaid as opposed to other countries when one considers the ratio of their salaries to the GDP per person in India. As highlighted, salaries for Indian lawmakers are nearly 8 times higher than India's GDP per person. This contrasts with the 2-4 times GDP per person that lawmakers in rich countries get paid. Of course, there is a lot of income inequality in India and hence the higher ratio for India some would argue. However, try linking these salaries to the performance of law makers and may be it will be hard to justify even the current level of salaries. 

Interesting Read

Taxes are levied for income re-distribution. And this re-distribution job is done by the government. It taxes the rich for benefit of the poor. But when the benefit flows to the government itself, responsible taxpaying citizens are bound to feel cheated. In short, citizen tax enriches the government and not the poor. This is the face of Indian politics. Take the case of Karnataka. Recently, Rs 50 m have been used to buy luxury cars for the ministers of Karnataka. Not that these ministers don't deserve any benefits for serving the nation. But was this expense really needed? It may be noted that Congress came into power in Karnataka recently. The cars that the BJP ministers used previously are in good shape and condition. Hence, the new expense on cars is questionable. More questionable is the state department's policy which provides for allotting new cars every time the government changes! Any minister can also change his car if he wants to in every 3 years. And mind y ou all this money comes from the tax payers' pocket. At a time when most people in India are living below poverty line ruining tax payer's money on such luxury items is questionable. These ministers work for the society in general. Hence, they need to be frugal. 

Deduction on ESOP

In a landmark decision by ITAT that discount on ESOP(employee stock options) will be treated as employee cost and should be allowed as deduction from the business income during the vesting period of the ESOP. Earlier the discount was treat as the capital expense by the tax authorities. But now it will be treated as business expense.
Ex : market price of share is Rs 100. Company issues the stock to its employee at Rs 60. So Rs 40 is discount. Vesting period is 2 years. So now Rs 20(40/2) will allowed as expense for 2 years. 

FDI Mismatch

This is the irony of our government that on one side they are leaving no stone unturned to bring FDI into India and on other side the BIG Multinational Giants are leaving India due to the procedural delays by the government. POSCO and Arcellor Mittal(Odisha Project) are backing out of their plans of investment in India due to the procedural delays and not getting the neccessary approvals. Even the Investment Guru "Warren Buffet" is also moving out of India. His firm Berkshire Hathway that has forayed into India
as the online broker for non life insurance is set to close its business in India. All this has added to the misery of India that is fighting hard to get FDI. "It is like filling the sack that is open from both ends.
You keep filling it from one side and it keep coming out from the other.

Fundamental Buy-Opto Circuts

Sector : Medical Services
CMP : Rs 29.40
Life time High : Rs 262
One year High : Rs 163
Dividend : Rs 3-4 annually ( Return of approx 11% on your investment annually-more than the interest on FD)
Book Value : Rs 70
Net Profit Margin : 34.58%
Return On Net Worth : 19.35%
Return on Long Term Funds : 22.48%
P/E : 2.94(industry p/e is 4.86). It is undervalued.


  

Should you buy a firms's asset or earnings ?

He has never possessed a computer and gets all his prices from the morning newspaper. Further, most of the financial data he wants is delivered to him by mail. Well, this statement does look straight from the 60s and 70s, isn't it? However, this is exactly how a gentleman named Walter Schloss used to invest till over a year back until he passed away. And how did he do with his investing? Well, he knocked the daylights out of market indices over a career spanning nearly 50 years. Little wonder, Warren Buffett used to refer to him as the super investor. 

These were not his only quirks though. In fact, we believe that his biggest quirk had to do with the way he used to pick his stocks. As per him, one of the most important factors to make money in the stock market is buying assets at a discount rather than earnings! 

Well, in a world loaded with PE investors and sophisticated DCF calculations, here is a super successful investor who is actually recommending valuing companies based on assets rather than earnings. Thus, it's important that some light be shed on this anomaly. As per Schloss, earnings can change dramatically in a short time but assets change slowly. Also, one has to know much more about a company if one buys earnings, he further added. 

What this tells us is that Schloss had an absolutely first rate understanding about his circle of competence. And although its size would have been small, he knew exactly where its boundaries lay. You see, Schloss never tried to understand a company's operations intimately. Infact, he stayed totally away from managements too. Consequently, he did not invest in stocks under the assumptions that its earnings would rise. 

Buying assets however does not require one to know which way earnings would go. The idea here is to buy at a significant discount to market value of assets and then to hope that over time, the gap between price and value is filled up. Earnings just don't come into the picture here. If they go up, well and good, but the entry price is not based on the same. 

What investors can learn from people like Schloss and for that matter even Buffett is the art of knowing one's circle of competence extremely well. There are companies out there that lend themselves to both kinds of valuation i.e. asset based and earnings based. However what matters is how well do we know them so that we can arrive at a proper intrinsic value calculation of the stock. Understanding this one crucial factor can make a world of difference to one's investing track record we believe. 

Source:
Equity Master

Increase in FDI Limits

Government has taken a step ahead to catch the rising Current Account Deficit(CAD). It has increased the FDI limit in sectors of telecom and defence. No we have to see whether this effort of the government will prove successful or not.

Benefit for the Economy :
It will reduce the rising CAD and bolster the economy(though its not the permanent solution), but govt have to ensure that same thing does not happen like in the case of FDI in multibrand Retail where even though after allowing FDI in multibrand retail not enough investor came to India because of the stringent restrictions put in by the govt.They have to keep the norms as easy and friendly as possible.

Also FDI in Defence can pose some danger to national security if some loopholes are left in the FDI policy. So stringent control should be imposed on the foreign companies like it is imposed on domestic countries

Benefit for the Companies :
The telecom companies are going to cherish this decision of the cabinet to increase the cap of FDI to 100%. It will allow the companies to reduce their ever increasing debt by selling some stake to the foreign companies.Also those companies who have parked their investments in telcos are likely to get double digit returns on their investments when they sell their stake to the parent co like in case of Piramal group who took 11% stake in vodafone for Rs 5900 crore and now can sell this stake to vodafone and get the double digit returns.

Financial Repression

What is the meaning of Financial Repression ?

A term that describes measures by which governments channel funds to themselves as a form of debt reduction. This concept was introduced in 1973 by Stanford economists Edward S. Shaw and Ronald I. McKinnon. Financial repression can include such measures as directed lending to the government, caps on interest rates, regulation of capital movement between countries and a tighter association between government and banks. The term was initially used in response to the emerging market financial systems during the 1960s, '70s and '80s.

PFC-Technical buy

Current price is Rs 145

As per the MACD and Stochastic indicators its going to move upward. Its also near its 30 day moving average and will cross it in next session. 

This tip is purely based on technical analysis. 

The Rising Current Account Deficiet

Every day we are listening in news that the the CAD is rising due to the outflow of the foreign currency due to selling of bonds and equities of the FII's. This leaves the effect on our share market and the economy. Even the FDI which was done earlier is diluted now as the foreign investors are taking their money back to their country as they are not finding india attractive place to invest anymore. 

FDI is like taking a loan for a long term, we have to repay at some time in future(taking back of money by the companies). Its not a bold method to currect our CAD, if it was a good method then from the last 65 years why is the govt not able to eliminate it. 

FDI is like borrowing the blood of someone to provide energy to our body, but still howfar ?? At the end, only our blood comes to the use of providing strength to our body. 

Similarly, to come out of this vicious circle of CAD our govt should focus on increasing exports and reducing the imports instead of focusing on bringing the FDI to india. 

Exports will work like our own blood in the body. In the long term, only this can take india out of this viscious circle of CAD. 

We are the worlds largest agricultual economy even then we are short of foodgrains , why ? The foodgrains are getting rotten at the warehouses, they are wasted, all this due to the faulty policies of the govt. If we put in correct policies we can export theses agricultural produce after fullfilling the needs of our people. 

We have the power to become self sufficient and export oriented country. 

Sakthi Finance-Fundamental Buy

Sakthi Finance

CMP(as on 10/7/13) : 11.75
Market Capital : Rs 59 crore
Promoter holding : 64.23%
Industry : Finance leasing & hire purchase
Highest Price : 35.90 on Jan 4, 2008
P/E : 4.11 as compared to industry P/E of 16.76( This means its still undervalued)
Dividend : It pays Rs 1 per share on your investment of Rs 11.75,ie, 8.50 % return on your amount. This is at par with the interest rate of FD and that too its tax free income. This is not the end. The appreciation which it will give in 5 years is excluded.
Total return in 5 years : 10%(approx) dividend each year( 50% in 5 years)+appreciation( target is rs 30 but it can vary in these 5 years. EX: it can go rs 20 in one year and again come to rs 10 again). Total Return is 250% on your invest.
Book Value : 26.80
Return on Capital Employed : 12.33%
Operating Profit Margin : 73.93%
Net Profit Margin: 10%

Note: Recently it declared dividend of RS 1 per share when price was Rs 10(approx), this means a return of 10% is already enjoyed by the holder of these stocks.

UTI ULIP

UTI ULIP is a good investment option which give its buyer the insurance cover in addition to the returns on the amount invested. Further the amount invested here is also available as deduction u/s 80C of the Income Tax Act. The plan has two terms: 10 years or 15 years. So if you choose to invest 10 lakh ( called Target Amount) for 10 years then you have to pay a premium of 1 lakh each year for 10 years and this premium is allowed as deduction u/s 80C (subject to the upper limit of 1 lakh). Now this target amount will also be your Life Insurance Cover. The UTI will pay the premium for this life cover to LIC under the group insurance plan. After deducting the premium paid to LIC from the annual amount contributed by you, you will be allotted the ULIP units at the current NAV. Ex: If you deposit 1 lakh each year and the UTI paid the insurance premium of say Rs 500 to LIC and the NAV of one unit of ULIP is say Rs 20 then you will be allotted (100000-500)/20=4975 units.

You can opt from two types of insurance cover:
• Declining Term Insurance
• Fixed Life Insurance

Declining Term Insurance : In our example, since your target amount is Rs. 10 lakhs, that’s your insurance cover and you pay Rs. 1 lakh every year for 10 years.
Your insurance amount is what you haven’t paid to them yet. So, if you paid one year worth of instalment which equal Rs. 1 lakh then your insurance cover is Rs. 9 lakhs. Now in the second year you paid another 1 lakh ( Total 2 lakhs), now your insurance cover will be 8 lakhs and so on.
Nothing is payable on death within 6 months of buying the policy.
You only get half of what’s due if death occurs between 6 and 12 months of taking the policy.

Fixed Term Insurance : This insurance plan works like the normal term insurance plan where the target amount becomes your insurance cover and is paid upon death. The conditions of 6 months and 1 year is applied here also.


Investment Criteria: The UTI will invest this corpus in debt oriented scheme. It can also invest in equity market but upto 40% of the amount of corpus.

Returns: The fund page shows that it has returned 10.87% since inception, 3.88% in 2011-12, 8.81% in 2010-11 and 35.87% in 2009-10, which are fairly good numbers. The plan doesn’t pay out any dividend as they re-invest the amount back in the fund.

Maturity bonus: There is a maturity bonus where you get 5% of the target amount on the maturity of a 10 year plan, and 7.5% of the target amount on the maturity of a 15 year plan.


Expert View : As per our view this is a good investment plan that will also cater to your insurance needs in addition to the returns it will generate over the period and you don’t have to buy an insurance plan separately .

Food Inflation

Hi Friends
Have you ever wondered why the food inflation is going up day by day and year on year. Is it because of the  RBI not going for the rate cut or the because of the government's faulty policies or because of the rainfall unequal distribution. For this food inflation partly the governments's policies are responsible and partly the MIDDLEMEN. These middle men are at the edge of getting the food items directly from the farmers because of the Licence they hold. In India farmers can sold their produce only to the Licensed Middlemen. These middle men hoard the farm produce and create an artificial shortage which leads to shooting up of the prices. This all can be stopped if the Government bring some change in its policies and allow the farmers to sell their produce directly to the consumer. This will eliminate the need and hardships of the middlemen and the prices of the farm produce will be back to their normal prices.

Regards
Pankaj Nayyar
Chartered Accountant

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