Generating Retirement Benefits - Defined Contribution.

Defined Contribution Process.

In this process the individual takes the risk of the investment. There is a defined amount that is invested by the individual. There is no amount guaranteed as the final return in this method and the final benefits are unknown. The rate of earning of the investment will determine the final benefit.

Types of Defined Contribution Process:

1. Provident Fund (PF):
It is one of the major source of retirement funding for people in India. Here a stipulated sum is deducted from the salary of the employee every month as his contribution to the fund. The employer also contributes a certain sum as his share to the fund.

The fund collected is invested in various instruments (majorly in debt). The earnings of the employee is in the form of interest that gets credited into the provident fund account. The total sum including the interest is paid to the employee at the time of his retirement or resignation from service.
Types of PF:

a. Statutory PF.
b. Recognized PF.
c. Unrecognized PF.
d. Public PF.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2. Public Provident Fund (PPF):

Provident Fund is available as in investment option only for those who are employed. For the self employed and other professionals there is an option of Public Provident Fund. The scheme can be opened with several Public Sector Banks and Post Offices.

 Min Amount of investment is Rs. 500 per year.
 Maximum amount of investment is Rs. 70000 per year.
 This is a 15 year scheme.
 It can be extended in blocks of 5 years after the expiry of 15 years.
 There is no limit to the number of extensions.
 Annual compounded earnings rate is 8%.
 Interest is credited each year, but the amount is paid on maturity.
 Tax benefit under 80C is available.

Generating Retirement Benefits - Defined Benefits.

Defined Benefits.
Here the benefits that are given to an individual are clearly defined. The person who is receiving the benefit knows the extent of the benefit that is received.

Characteristics:
• Fixed payout available to the employee on completion of certain conditions.
• Guaranteed payout irrespective of the market conditions.
• Final responsibility of ensuring payment rests with the employer, any shortfall will be made by the employer.

Types of Defined benefits
a. Gratuity:
• Gratuity is the payment that is made by the employer in appreciation of the work done by the employee. This is generally done during the time of retirement.
• Any gratuity received while still in service is taxable to the employee.
• Gratuity received by the government employee is fully exempt from Tax.
• Rs. 350000 is exempt from Tax for other employees.

Gratuity Amt = No. of years of service * Avg monthly Salary of last 10 months before retiring.
(Salary only includes basic pay and dearness allowance).

b. Leave salary:
• An employee is entitled to leave according to the rules of the employment.
• If the employee does not take leave during a specified period then:

 The leave could lapse.
 It can be carried forward in future years.
 It can be encashed.

• Encashment of leave during employment is taxable.
• Encashment of leave during the retirement is non taxable for central / state employee.
• Encashment of leave during retirement or leaving a job has specific tax treatment for the non government employee.

c. Retrenchment Compensation:
• Retrenchment is the termination of the service by the employer for any reason other than disciplinary action.
• Upto Rs. 5 lakh is not taxable.

d. Voluntary Retirement Scheme:
• In this, compensation is received by the employee at the time of voluntary retirement or terminating the job.
• It is applicable to all types of employee who have completed 10 years of service or 40 years of age.
• The vacancy caused by the voluntary retirement is not to be filled up.
• Amount receivable will not exceed 3 month salary of each year completed or salary at the time of retirement * by the balance months of service left before the date of retirement.
• Maximum amount available for Tax exemption = Rs. 5 lakh.

e. Employee Pension Scheme:
• A pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. The pension can be given to the member or spouse and children.

 If member is alive, pension to member.
 If member is not alive, Pension to to spouse and two children below 25 years of age.
 This scheme is applicable to all members who joined EPF after 15.11.1995.

Funding of the Pension Scheme
• An amount equal to 8.33% of Wages is pooled into the EPS from the Employer's contribution. ie., If a PF member gets Rs. 1000/- as monthly wages and he and his employer contributes 10% each, Rs. 100 + Rs.17 (=117) goes to Provident Fund and Rs. 83 goes to Pension Fund.
• Govt. also contributes to this Welfare Scheme at the rate of 1.16% of wages.

FII’s Net Buy in Indian Markets in FY09.

On December 23, both the Market’s (SENSEX & NIFTY) closed higher by more than 3%. SENSEX closed 539.11 points higher at 17231.11 and NIFTY closed 158.75 points higher at 5144.60. This was because of the Net Buy by FII’s is Rs. 225 cr. We have seen an increasing participation by the FII’s in December month till now. The Net Buy of FII’s in December is Rs. 6630.20 Cr.

Below figure shows the day wise Gross Purchase, Gross Sales and Net Purchase / Sales by FII in December 2009.

 
We have seen high buying by FII’s (Foreign Institutional Investor) in our Markets in 2009. Both SENSEX and NIFTY have grown by more than 75% in this year. This is because the FII’s have invested lots of money in Indian Markets in 2009. In the year 2009 the Net FII buy is Rs. 75000 cr.


At the same time the risk is very high since holdings by Foreign Investors is high. Thus our Market’s dependency on Foreign Markets increase as if the Foreign Markets Increase we can see increase participation of FII’s in Indian Markets and if they fall, the FII will remove their holdings from Indian markets to recover their losses.

Below figure shows the month wise Gross Purchase, Gross Sales and Net Purchase / Sales by FII in 2009.

 
Table Source: moneycontrol.com.

Top Pics of MF's in November.

Below is the list of TOP pics by Mutual Funds in November 2009. Reliance Industries has been the top pic by the Mutual Fund houses in Nov. As given below 7270.06 cr shares were bought by them.

ICICI Bank, Tata Consultancy Services, Bharti Airtel, ITC, Axis Bank Sterlite Industries and GAIL India moved higher on the favourite stocks list while State Bank of India, Bharat Heavy Electricals, Tata Power Company, NTPC, Jindal Steel & Power and Bank Of Baroda slipped. ONGC, Infosys Technologies, Larsen and Toubro, Crompton Greaves, HDFC and HDFC Bank held same position.

Table Source (Moneycontrol.com).

Birla Sun Life Tax Relief '96.

Birla Sun Life Tax Relief '96 is one of the schemes that we are promoting very aggressively for Tax Planning Season. It is a Mutual Fund Tax Saving scheme that was launched by Birla Sune Life in 1996. The schme has a lock in of 3 years. It is ranked as World's Best Performing Equity Fund by "Lipper" for its 13 years performance.

Highlights of the Scheme:

• Tax Saving.
• Wealth Creation.
• Strong Dividend History - 2200% Dividend Declared Since Inception.

Under Section 80C, you can invest upto Rs. 1 lakh in this Equity Linked Saving Scheme (ELSS) and thus save tax of Rs. 30,900.

Comparison with other Tax Saving Instruments:

Since Inception (29 March 1996), BSL Tax Relief '96 has given CAGR return of 32.57% as against the benchmark (BSE 200) 13.63%.  Thus if one had invested Rs. 1 lakh in this scheme on 29 March 1996, then its value as on 31 Oct 2009 would be Rs. 5.68 Lakh in Benchmark (BSE 200 - 13.63% CAGR) and would be Rs. 46.22 lakh in BSL Tax Relief 96 (32.57 CAGR).

Dividend History:

 

We strongly recommend our clients to invest in this scheme and tax advantage in saving tax liability and creating your wealth. Do let us know if you have any requirement in Tax Planning. We will be happy to serve you.

Thanks,
Nimesh.

Disclaimer: Mutual Fund Investment are subject to Market Risk, please read the SID before investing. Past Perfomance may or may not be sustainable in Future.

Interesting Learning Exercise - MANDI 2009 @ Europe Asia Business School.

Selling on streets was never easy for me. Being born and brought up in an environment which was always comfortable and supported by Parents, Family and Friends. When asked by my college to do an assignment which included selling toys on Street, I was initially not convinced. It took time for me to adopt to the fact that I will have to go on streets selling toys for kids to customers with whom no appointment is fixed.

I have done PGDBA in Marketing (distance learning) and also studied the concepts of Marketing @ Europe Asia Business School. But when it came to actual sales and that also on the streets, I was not convinced and thought that I will not be able to do good in this aassignment.

Brief Introduction on Mandi:
MANDI is a annual event conducted by Dr. T. Prasad. The purpose of event is to ingrain entrepreneurial spirit in the minds of young Management professionals. The event consists of selling the products by the students across the city of Pune. Students are divided into groups and earmarked to a certain area in the city. They are given a target to achieve within stipulated time. The product has to be sold at the pre-decided price to the customers. (We were selling the products for an NGO Navnirmiti http://www.navnirmiti.org/ you can get the product details (JODO, Number Balance, Tarangam) from this website).

Our day began (12th Dec 2009) with MANDI inaguration at college. We were on the field by 11 am. The first thing we did was that we decided a plan of covering the potential areas in Pune. My team consisted of myself, Amit Mandora, Alok Routray, Gargi Kumari, Shahab Syed and Tanushree Bhanawat. We were given an inventory of Rs 12,000 from college for selling on same day.

We first reached to the school St. Bishop at Kalyani Nagar in Pune. Luckily it was Saturday and it was closing time of school. We first approached a parent who was taking his child home from school. The good news for us was that the First client we approached was converted to Sale. The parents liked the products so much that they started surrounding us and asked the details about the products. We were able to sell inventory worth more than rs.1500 during the first hour of sales.

Suddenly I started realizing that the fear I had of selling on streets converted into confidence and I was able to do justice to my assignment. I started approaching parents and converted most of the calls into sales. I had few rejection from parents, but my Conversion ratio was high. This was now getting exciting and I was enjoying the job. We covered other areas like Fame Adlabs, Big Bazaar, M.G Road, etc.

By 4 pm, we were able to sell inventory worth more than Rs. 7000. We now had a few hours to go and still had an inventory worth Rs. 5000 more with us. Though we were tired, we pushed ourselves and had a belief that we will sell all the inventory and help the Children of Navnirmiti. In sales, if u think you can, you will do it. Its more important to think that you can do it. By 8:30 pm, we were able to complete all our inventory.

This was a great achievement for our team. We enjoyed our day on field and team work. It was the Team wok that helped us to achieve our targets. We were the first abnd only team to complete this assignment of selling all the inventory. For this achievement we  received a reward of Rs. 1000 from our college.

There were lots of learning that I had from this activity ranging from confidence buliding, team work, target achivement, direct sales to Capital Management. I am sure this activity and experience will help me in my venture and it has given me confidence in doing direct sales.

I will request everyone of you to contribute towards the society by helping the NGO's and also please entertain the students who are selling on the street. I was one of them on 12th Dec 2009 and if I didnt receive the support from people who were on streets, I would have never been able to remove this fear from me. Hence, please encourage these students and contribute to the society.

Thanks,
Nimesh.

Systematic Investment Plan

A couple of days ago, I received a question from a friend who was puzzled by how the systematic investment plan (SIP) returns over a period could be less than the non-SIP (lump-sum) returns. He went to an online investing website and saw that for a particular fund, non-SIP returns over the last one year were about 100 per cent, but the SIP returns were much lower. The investor seemed to think that there was some sort of a problem in this. Actually, the problem lies entirely in the public perception of how an SIP works and what is its exact purpose.

The systematic style of investing is actively promoted by practically everyone who gives advice about fund investing. Whether these are fund companies, advisors, or the media, an SIP is supposed to be the holy grail of mutual fund investing. Unfortunately, there seem to be a growing number of investors who have cottoned-on to the notion that SIP investing is some sort of magic. There are two widespread misconceptions about SIPs: some investors believe that an investment through the SIP route cannot have poorer returns than a lump-sum investment made at the same time that the SIP was started. The other, more extreme point-of-view is that you can’t make a loss in an SIP, no matter what. Both are equally wrong, or perhaps the second one is more wrong than the first one.

The basic idea behind an SIP is that while the general direction of an investment (a fund or even a stock) is upwards, it is not possible to reliably predict the actual fluctuations that it may undergo as part of its general trend. Instead of trying to time one’s investments, one should regularly invest a constant amount. As time goes by and the investment’s net asset value (NAV), or market price, fluctuates, it will automatically ensure that when the NAV was low, you ended up purchasing a larger number of shares or units. Eventually, when you want to redeem your investment, all the units are worth the same price. However, because your SIP meant that you bought a larger number of units whenever the price was low, your returns are higher than they would otherwise have been.


That’s the way it works, usually. However, there are circumstances in which a lump-sum investment can (in hindsight) prove to be better. This happens when during a given period, the equity markets never fall below the level they were at the beginning of that period. In such a case, a lump-sum investment made at the beginning of that period will turn out to have the maximum gains because the buying price was the lowest at that point. The last one year is one such a period. Generally, over a longer period of time, the ups and downs of the market will ensure that an SIP has the better returns. Moreover, SIPs mirror the actual fund flows of salaried people. They don’t generally have money available in large chunks to be invested as and when they feel like investing.


Beyond the arithmetic of returns, there is another reason why SIPs make sense. They are a great way to override the normal psychological instinct to stop investing when prices fall. In my experience, this is the real value of SIPs. The normal tendency is to invest more when prices are high and to stop investing when prices fall. This is the opposite of what is the most profitable way of investing. SIPs force you to follow the opposite approach, much to your eventual benefit.

Source: world wide web

DENIP Consultants Ties up with Bajaj Allianz General Insurance Company also.

Dear All,


We take immense pleasure in informing you'll that DENIP Consultants Private Limited now has also tied-up with Bajaj Allianz General Insurance Company to take care of all your General Insurance needs.

Yesterday, I cleared General Insurance Exam with 96%. Thank you all for your good wishes and constant support. 

We are now having tie-up's with two companies i.e. ICICI Lombard and Bajaj Alliaz for serving your General Insurance needs. Dewang has already listed the list of products that we cater to General insurance in the blog posted on 8th December.

Please let us know your requirements for General Insurance. It will be a pleasure serving you.

Thanks,
Nimesh. 

Stock Picks - Please read disclaimer in Earlier Posts

We have been very busy due to our exams and prior commitments, however we sincerely hope that you’ve traded in our stock calls and enjoyed the profits from both Prakash industries and Nifty futures.Anyways we have completed 2 of the 3 calls sent out and 1 stock call never crossed our buy price. We are sending across a few more trading ideas for tomorrow and let’s hope that we all can profit from it.

· Reliance Communication – CMP 185.7

o Target 199

o Stop loss 178

o Time frame – 1 week

o 7% gain

· Reliance Natural Resources - CMP 71.4

o Target 75.5

o Stop loss 69.7

o Time frame – 1 week

o 6% gain

§ Target 2 – 85

§ Stop loss – 63

§ Time frame – 2 months

§ 20% gain

Note:
All prices relate to the NSE, unless otherwise mentioned. Stop-loss levels might be given so that there is a level below/above, which the market will tell us that the call has gone wrong. Stop-loss is an essential risk control mechanism; it should always be there. Investors should set stop loss levels according to their own estimates. Book, at least, part profits when the prices reach their targets; if you continue to hold on to positions then use trailing stops to lock in your profits. Don't chase a stock, if you are unable to buy a stock because it hits circuit levels on successive days, don't buy that. DENIP Consultants Pvt. Ltd., the blog owners, our clients and all related entities may or may not have positions in the securities mentioned above. Trading involves considerable risk. Trade at your own risk to the extent you are comfortable. All the money you invest to buy the shares can be lost. DENIP Consultants Pvt. Ltd. or the blog or the moderators or the blog owners or any related entities shall not be responsible for any losses incurred for acting on these recommendations. Take the advice of your own financial advisor and do your own research before entering the stock

Insurance Coverage

Dear All,

We take immense pleasure in informing you'll that DENIP Consultants Private Limited now has several tie-ups to take care of all your Insurance needs.

As you'll already know that both I & Nimesh are associated with LIC of India and ICICI Prudential Life insurance to take care of your life insurance needs.

Today, I cleared the General Insurance Exam with 86% marks and will be associated with ICICI Lombard starting tomorrow.

I would also like you'll to wish Nimesh Marfatia the very best for his General Insurance Exam which is schedule day after tomorrow so that he too clears the same with flying colors to ensure our tie-up with Bajaj Allianz to provide you with options for General Insurance as well.

So starting next week, we should be able to service all your general insurance needs along with life insurance needs as well. With the help of General Insurance tie-ups we should be able to service your needs with respect to the following:

1. Health Insurance
2. House / Home Insurance
3. Motor (2/3/4 wheeler) Insurance
4. Overseas Travel Insurance
5. Student Medical Insurance
6. Travel Insurance
7. Fire Insurance
8. Marine Insurance
9. Industrial Insurance
10. Corporate Insurance
11. Liability Insurance
12. Credit Insurance
13. Shop Insurance
14. Rural Insurance
15. Burglary Insurance

Do let us know if we can help you with regards to the same.

Economy and GDP Overview.

A strong surprise from the Q2FY10 GDP report, with the 7.9% outturn 1.6% points higher than the market consensus and 1.3% points above expectation for a 6.6% y-o-y gain. With the already known about welcome rebound in the manufacturing sector, the upward surprise was therefore driven by better-than expected news from the large agricultural sector but more significantly an unexpected reacceleration of the community and social services output.


The pace of recovery in the manufacturing sector quickened to 9.2% y-o-y in Q2 vs. 3.4% while the output of mining and quarrying jumped further to 9.5% y-o-y in Q2 from 7.9%, and a raft of lead indicators on the economy such as the US ISM new orders balance and the OECD’s leading indicators all suggest that India’s industrial renaissance should be progressively on track. The growth in the community and social services output, essentially a proxy for government spending, also re-accelerated to a higher-than-expected 12.7% y-o-y in Q1 after throttling back to Q2’s 6.8% from Q1’s 12.5%.

GDP by Activity


GDP by activity rose 7.9% with agri up 0.9%, industry up 8.3% and services up 9.3%. The 8.3% growth in industry growth was led by manufacturing up 9.2%, mining up 9.5%, electricity up 7.4% and construction up 6.5%. As mentioned earlier, commencement of the Cairn India facilities, as well as RIL’s KG gas basin, is not only impacting the mining component, but also electricity. As regards services, the 9.3% growth was due to an upturn in trade, transport and communications up 8.5% as well as community services up 12.7% largely on account of the pay arrears. Financing and insurance was the only component of the service sector which posted a moderation in the current quarter.

Trend in GDP by Activity at factor cost (% y-o-y).
 

GDP by Expenditure


While headline consumption rose 8.4%, led by public consumption up 27% (largely due to the pay arrears), perhaps the most encouraging bit of data was the uptick in private consumption which rose 5.6% in 2QFY10 v/s the dismal 1.6% in 1QFY10. As regards investments, while gross capital formation decelerated to a low of 1.6%, fixed capital formation which is more reflective of investment trends rose 7.3% YoY from a low of 4.2% in 1QFY10.

Trend in GDP by Expenditure at market price:
 

Total Mutual Fund AUM crosses 8 lakh Cr. in Nov 2009.

Average assets under management (AAUM) by Indian mutual funds crossed the Rs 8 lakh-crore mark for the first time and are almost 64% higher than the Rs 5 lakh crore that the industry was managing in March this year. We are able to see this because of the retail investors contribution, and banks, companies and institutional investors, preferred MFs as it was safer then the risks of lending and investing in a volatile economy.


Mutual funds investments have always been a safe bet for investors. The systematic investment plan (SIP) allows the investor to take advantage of averaging. We can see more participation coming from the investors when the markets are high as they react to its swings. But the smart investor will always continue his SIP irrespective of Market movements.

Consider an example, where an investor started his SIP in Oct 2008 when markets were crashing and reached 7500 levels on Sensex. Today within a year’s time it has reached 17000 levels, hence allowing the investor to get returns more than 60% in major schemes. This is the power of compounding by SIP.

Also, it allows the investor to invest amount which starts with 500 Rs. every month. Hence for investors who cannot participate directly in the market due to insufficient liquidity, they can participate in markets through these SIP’s.
Reliance Asset Management Company, continues to dominate the Mutual Fund market with AAUM of over Rs 1.22 lakh crore, while HDFC Asset Management is at second position with AUM of more than 1 lakh crore. HDFC AMC has become the second fund house to cross the Rs 1 Cr. mark.

The Markets surged this year by the UPA election results, which increased the value of all Mutual Investors in a day by good extent. Since April this year, while equity MFs, including the socalled equity linked savings scheme (ELSS) which offer tax breaks, have seen net inflows of just Rs 3,572 crore until October this year, while debt schemes have seen an influx of over Rs 2.5 lakh crore during the same period. More funds will be coming into this market by the source of Tax Savers as investors will park their money in MF’s for saving their taxes.

Banks are the major contributors to this year’s growth in AAUM as they are aggressively investing in MFs. Banksinvestments with MFs have grown from about Rs 45,000 crore at the end of March 2009 to over Rs 1.6 lakh crore as on the first week of November 2009. Their investments in same months last year were Rs 18,692 crore in March 2008 and Rs 18,722 crore as on first week of November 2008.

Our recommendation for Mutual Funds:

1. HDFC Top 200 Fund.
2. Reliance Regular Savings Fund.
3. Birla Sunlife Front Line Equity Fund.
4. ICICI Infrastructure Fund.
5. Kotak 30 Fund.

Thanks,
Nimesh.

Trading Ideas - 3rd December 2009 - Preview

A lot of stocks tried higher price levels today but could not sustain and finally ended up in the red or considerably lower than their day highs. We advise you to avoid trading tomorrow and if you’re a compulsive trader then you can try your luck with the Pharma Sector. Let the markets show you the way tomorrow rather than making a bet tomorrow.

Pharma stocks you can try your luck with are:

1. Glenmark Pharma – CMP 251

a. Target 258 -260

b. Stop loss 247

2. Ranbaxy – CMP 483.6

a. Target 490

b. Stop loss 470

Do subscribe to our FREE Market Outlook Services to take advantage of these calls.

EOD Updated - Trading Ideas - 2/12/2009 - Sent to Market Outlook Subscribers

As per the charts, Markets have a total of 4 major tops from 5130 to 5298. There are several minor tops though which clearly indicates the resistance Nifty is going to face going forward. However we are witnessing a lot of short covering and several long buildups in the market which might take the Nifty to 5140 – 5180 levels in this week. However we have seen the Nifty fall from these level too many times to ignore it and hence we advise you to continue to hedge your stock longs via a largely out of the money PUT.

Stock picks for tomorrow are:

1. Aban offshore – CMP 1325.4
Target 1350
Stop loss 1302
Day high of 1342.75 in the cash segment &1338.9 in the futures space. This stock seems to be facing significant resistance at the 1340 mark.

2. Bajaj Auto – CMP 1637.5
Target 1652
Target completed with a day high of 1703 in the cash segment & 1704 in the futures space.

3. Balrampur Chini – CMP 134.95
Target 137
Stop loss 132
Day high of 136.45 in the cash segment & 136.35 in the futures space.

4. Reliance – CMP 1097.8
Target 1111
Stop loss 1080
Target achieved with a day high of 1118.65 in the cash segment & 1118.5 in the futures space
There are a lot of Market gurus predicting 1180 on Reliance right now but those levels will come only if 1120 is crossed first and then 1150 is crossed. Both these levels i.e. 1120 & 1150 are going to act as superb resistances for this stock. So beware before entering the stock for short term basis.

PS: Tomorrow might not be the best day to go short.

Trading Ideas - 1/12/2009 - Sent to Market Outlook Subscribers

Dear All,

Following is the email sent to the subscribers of our Weekly Outlook Services. Do subsctibe to our services by simply sending an email to dewang@denip.in or nimesh@denip.in

Markets are forming a lot of tops around the 5050 – 5080 mark, which suggests two obvious things. Either the market is trying to break out of 5100 or that it’s time for another sell off to hit the market.

I will advise you’ll one thing, go long on stocks and hedge it via a Nifty PUT. Buy Nifty 4600 PUTs so that you’re largely out of money and have to shell out a minimum premium and long stocks so as to earn equivalent gains from them.

We completed 50% of the stock ideas sent out for this week. Keeping that in mind here are a few calls for intraday trade tomorrow.

Bharti Airtel – CMP 299.7
• Target 309
• Stop loss 290
• Day high of 306.9 – target missed but in profit•

IDFC – CMP 166
• Target 172
• Day high of 168.75 – target missed but in profit

Infosys – CMP 2383
• Target 2420
• Stop loss 2348
• Day high of 2427 – target completed

Kotak Bank – CMP 783.8
• Target 796
• Day high of 818 – target completed

Powergrid – CMP 100
• Target 103.5
• Stop loss 97
• Day high of 103.4 in the cash segment & 103.7 in the futures space – target almost completed

TCS – CMP 697.2
• Target 699
• Stop loss 671
• Day high of 703.4 – target completed

As always in case you’re buying into these calls hedge them with PUTs.



Notes:


All prices relate to the NSE, unless otherwise mentioned. Stop-loss levels might be given so that there is a level below/above, which the market will tell us that the call has gone wrong. Stop-loss is an essential risk control mechanism; it should always be there. Investors should set stop loss levels according to their own estimates. Book, at least, part profits when the prices reach their targets; if you continue to hold on to positions then use trailing stops to lock in your profits. Don't chase a stock, if you are unable to buy a stock because it hits circuit levels on successive days, don't buy that. DENIP Consultants Pvt. Ltd., the blog owners, our clients and all related entities may or may not have positions in the securities mentioned above. Trading involves considerable risk. Trade at your own risk to the extent you are comfortable. All the money you invest to buy the shares can be lost. DENIP Consultants Pvt. Ltd. or the blog or the moderators or the blog owners or any related entities shall not be responsible for any losses incurred for acting on these recommendations. Take the advice of your own financial advisor and do your own research before entering the stock.

Dubai Debt Crisis and Links with Indian Market.

Highlighting Points:

• Dubai, the second biggest of seven sheikhdoms that make up the United Arab Emirates, and home to the world’s tallest tower and the biggest man-made islands, suffered the world’s steepest property slump in the global credit crisis as home prices fell 50 percent from their 2008 peak.

• Dubai World, with $59 billion of liabilities, is seeking to delay debt payments, sending contracts to protect the emirate against default surging by the most since they began trading in January.

• Dubai accumulated $80 billion of debt by expanding in banking, real estate and transportation before credit markets seized up last year.

• Investor concern is growing because the emirate hasn’t disclosed how it will pay more than $9 billion of debt coming due in the next four months.

• Abu Dhabi government-controlled banks, National Bank of Abu Dhabi PJSC and Islamic lender Al Hilal Bank bought all $5 billion of bonds from Dubai’s government.

• Dubai will draw down $1 billion from the bonds sold to the Abu Dhabi banks to provide funding through a sale of securities to National Bank of Abu Dhabi PJSC and Islamic debt.

• Dubai owes $4.3 billion next month and another $4.9 billion in the first quarter of 2010 through government and corporate debt.

• Dubai World had $59.3 billion in liabilities at the end of last year.

India’s links to Dubai and UAE:


• 11% of Gulf capital flows between 2002-06 headed to Asia

• Indian are 40% of UAE’s population; forming 10-12% of India’s inward remittances. 31% of the 5.3m Indians in the Gulf are in UAE.

• UAE forms 8% of India’s non-oil exports and 3.0-3.5% of India’s nonoil imports.

• DP World operates five container terminals in India, accounting for 40% of India’s container traffic.

• Real Estate: Emaar-MGF and DLF-Limitless are the key alliances for investments into India. Sobha Developers had plans to build two residential towers and two hotels in the UAE.

• Construction: L&T has two joint ventures in the UAE, others with business interests include Gammon India.

• Banking: Bank of Baroda has 10 branches in the Gulf (largest), but mostly small banking exposure, mainly for remittances. Bank lending to UAE funded projects in India unknown.

• IT Services: No material exposure. A few deals for Wipro and one for Infosys.


Important projects between India and Dubai in last 5 years:

1. In 2006, Indian Minister for Commerce and Industry Kamal Nath had met top DP World officials and assured the smooth transfer of P&O’s India assets to DP World.

2. In 2005, L&T and Dubai Aluminium (Dubal) formed a joint venture to set up a 3 million tonne alumina refinery in Orissa. Dubal holds 74% stake in the JV with L&T holding the remaining 26%.

3. Istithmar, the private-equity arm of the Government of Dubai invested US$12.5m in SpiceJet in early 2005. In January 2007, Istithmar invested US$30m at Rs52 per share.

4. DP World operates 5 container terminals in India, 40% share in container traffic: DP World, the Dubai government’s premier maritime company, is one of the largest marine terminal operators in the world with 45 terminals and 13 new developments across 29 countries. It operates five container terminals in India: the Nhava Sheva International Container Terminal (NSICT) in Maharashtra and those at Chennai, Kochi, Vishakhapatnam and Mundra and is developing two additional terminals at Kulpi and Vallarpadam.

India links with the UAE:


1. People:
Indians form 40% of the population of UAE. The impact of the Dubai debt would affect the people of India who are working in Dubai. The unemployment level in India would rise if the Indian people working in Dubai are given the pink slips. Indians in the Gulf, of which 31% were in the UAE, mostly as construction labor for Dubai’s real estate boom.

2. Real Estate:
The Indian real estate sector will be one of the major sectors that will be hit by the Dubai debt crises. Most of the Indian construction companies have projects in Dubai. Some companies that are having big projects in Dubai are: DLF, MGF, Gamet Construction, etc as shown below. Some companies like Nagarjuna Construction, Shobha Developers, Gammon India, etc have small presence in Dubai.

3. Banking:
The Indian Banking sector has a very small presence in the Dubai. We can see that there are hardly few branches of the Banks that are present in Dubai. Hence we can consider the Indian Banking Industry to be safe from the Dubai Debt crisis. Some banks that have presence in Dubai are Bank of Baroda, ICICI Bank, SBI, etc as shown below.

4. Non-Oil trade:

India’s non-oil exports to the Gulf were about 12% of its total exports in FY07, and exports to the UAE formed about three-fourth of this. Therefore, India’s non-oil exports to the UAE were about 8% of its total exports. Similarly, UAE dominates India’s non-oil imports from the Gulf- forming about half of the total imports from GCC and about 3.0-3.5% of India’s global non-oil imports.

5. IT Services:
The Indian IT Sector does have a sound presence in Dubai. The companies like TCS, WIPRO, Infosys, etc have got projects. But these companies have diversified portfolio in other countries and hence this sector might not be impacted much by the Dubai Debt Crisis.

Overview:


Reacting to the development, financial markets across the world got into panic mode, not surprisingly and markets in Asian and Europe markets fell on Thursday.

On Friday, US markets remained shut due to Thanksgiving as also some Asian markets but those that were open, including India’s, reacted negatively to the news. In India, the National Stock Exchange’s 50-share Nifty fell 100 points at opening trade following up on another 100-point fall on Thursday to retreat below the 5,000 mark.

But when the Finance Minister Mr. Pranab Mukherjee declared that dependency of Indian companies in not that big on Dubai and Indian Companies might not be affected by the Dubai Crisis the NIFTY ended on Monday 90 points up above 5000 levels at 5032.

From the above data we can identify that India has links with Dubai, but if we check the dependency of the Indian companies on the Dubai Market, then it is not that strong. Real Estate and People are the few concerns where India has sound presence in Dubai. Apart from these sectors Indian Companies and sectors do not have much dependency in the Dubai and hence should not be affected by the crisis.



Thanks,
Nimesh

Source: Bloomberg, Money Control, Economictimes, Reference Articles from various websites.