TATA Steel Limited has announced the following audited results for the year ended March 31st 2008
TATA Steel has posted a net profit of INR 46870.30 million for the year ended March 31st 2008 up by 11% YoY as compared to INR 42221.50 million for the year ended March 31st 2007. Total income has increased from INR 179847.60 million for the year ended March 31st 2007 to INR 200282.80 million for the year ended March 31st 2008, registering a growth of 11.3% YoY.
The consolidated results are as follows
TATA Steel has posted a profit after minority interest & share of profits of associates of INR 123499.80 million for the year ended March 31st 2008 up by 195.6% YoY as compared to INR 41772.70 million for the year ended March 31st 2007. Total income has increased from INR 256504.50 million for the year ended March 31st 2007 to INR 1321100.90 million for the year ended March 31st 2008, registering a growth of 415% YoY.
Addressing the media, Mr B Muthuraman MD of TATA Steel said that the TATA Steel group vision was to set a global benchmark in value creation and to increase the return on capital invested to 30% by 2012. He added that "Our aspiration in due course is to become a 50 million tonne plus steel company. Our bearings and tubular divisions are working on products for the TATA Nano."
Thursday, July 31, 2008
TATA Steel Limited has announced the following audited results for the year ended March 31st 2008
Wednesday, July 30, 2008
While the repo rate hike is expected to make overnight funds costlier for banks, the CRR hike is expected to marginally reduce the lendable funds of banks.
Banks are aggressively using the repo facility of the RBI since the beginning of July. They borrowed almost Rs.38,900 crore per day from the RBI through its liquidity adjustment facility. Therefore the hike in the repo rate by the RBI will surely put some pressure on the cost of funds of banks.
The 25 basis points hike in the cash reserve ratio will suck out about Rs.8,000-8,500 crore of liquidity from the banking system. This will reduce the lendable resources of banks and, coupled with the repo rate hike, will bring the net interest margins of banks a bit under pressure.
Surplus liquidity in the banking system stood at a robust Rs.1,37,215 lakh crore as on 18 July 2008. About Rs.1,30,000 of this surplus liquidity comprises long term securities issued under the market stabilisation scheme. None of these securities are maturing before April 2009.
In this context, it may be noted that demand for credit remains high with credit growth well outpacing deposit growth. SCB credit is growing at around 25-26 per cent while SCB deposits are growing by around 21-22 per cent. According the disaggregated data from the monetary authority's quarterly review, growth in credit to industry accelerated further from 26.4 per cent a year ago to 26.9 per cent as on 23 May 2008. Growth in credit to small scale industries accelerated sharply from 29.5 per cent to 52.1 per cent during this period. However, the continuous rise in interest rates over the past one year did take its toll on personal loans. Growth in personal loans slowed from 23.9 per cent a year ago to 15.9 per cent as on 23 May 2008.
Friday, July 25, 2008
A new Carnegie Mellon University study determined that poverty played a central role in their spending so heavily on a product that guarantees negligible returns.
Participants who were made to feel subjectively poor bought nearly twice as many lottery tickets as a comparison group that was made to feel subjectively more affluent.
"Some poor people see playing the lottery as their best opportunity for improving their financial situations, albeit wrongly so," said the study's co-author Emily Haisley, doctoral student at Carnegie Mellon's Tepper School of Business.
"The hope of getting out of poverty encourages people to continue to buy tickets, even though their chances of stumbling upon a life-changing windfall are nearly impossibly slim and buying lottery tickets in fact exacerbates the very poverty that purchasers are hoping to escape."
The researchers influenced participants' perceptions of their relative wealth - or lack thereof - by having them complete a survey on their opinions of the city of Pittsburgh that included an item on annual income.
The group made to feel poor was asked to provide its income on a scale that began at "less than $100,000" and went upward from there in $100,000 increments, ensuring that most respondents would be in the lowest income category.
The group made to feel subjectively wealthier was asked to report income on a scale that began with "less than $10,000" and increased in $10,000 increments, leading most respondents to be in a middle or upper tier.
Participants, who were recruited at Pittsburgh's Greyhound Bus terminal, were paid $5 for completing the survey and given the opportunity to buy as many as five scratch-off lottery tickets.
The experimental group purchased an average of 1.27 lottery tickets, compared with 0.67 tickets bought by the members of the control group.
A second experiment found that indirectly reminding participants that - while different income groups face unequal outcomes in education, jobs and housing - everyone has equal chances of winning the lottery induced an increase in the number of lottery tickets purchased.
The group given this reminder purchased 1.31 tickets, compared with 0.54 for the group not given such a reminder.
The study was published in the July issue of the Journal of Behavioural Decision Making.
Friday, July 18, 2008
Before deciding on what type of stock you are going to purchase, you must determine what type of investor you are. There are two types of investors: technicians and fundamentalists. Technicians are investors that tend to buy and sell stocks very quickly. These investors are not interested in book values, dividends or earning although they study the price patterns of that certain stock. Fundamentalists are investors that look for long-term growth in a company. They consider such factors as earning, dividends and book values and are as interested in the price patterns because they are in for long term growth so they know that the market will fluctuate.
When you are buying stocks there are three different types that you may choose from: penny stocks, growth stocks and blue chip stocks.
Penny stocks are stocks from a company that has almost no chance of developing into a big company and the stocks are of very little monetary value. These stocks for example would be a chain of local pizza stores that would never make it into the big market of restaurants, such as Pizza Hut, but would do well in it’s local market.
Growth stocks are companies that have a high potential to achieve great success, but they can also be very risky investments because they not are well established. An example of this type of company would one that invents a product that may make a big impact on the market (similar to when air bags were invented those stocks probably rose drastically). These stocks would be the intermediate level in the purchasing of stocks.
The highest level of stock purchasing is buying blue chip stocks. These stocks are of companies that are very well established and have almost no chance of its’ stocks dropping drastically. Some of these stocks would be of companies such as McDonald’s Corp., General Motors Corp., Coca-Cola Co., etc. Although blue chip stocks are the best stocks to invest in, they can also be very expensive limiting you to only buy a few of that companies shares.
Often when the price of a stock plateaus, the company decides to “split” its stock. When this occurs, you receive more stock for the money you have already invested. But when your company’s stock splits “two-for-one,” you get twice the amount of stock but the value of that stock depreciates by 50%. Reverse splitting means that the stock doubles in value although you only get to keep half the stocks you had before. Any way the stock may split, you will not lose your money.
In any company’s stock there are two different types of stocks you can buy: Common Stock and Preferred Stock.
Common stock in a company shows you that you own a fraction (called a share) of a company. Since common stock has a high potential for gain, common stock holders are the last persons to receive their dividends after those who own preferred stock.
Preferred stock is sold to the public after all the common stock is sold. Companies who are going out of business have to pay out their preferred stock owners first because they have paid a higher premium for that same stock. Preferred stock owners only receive a fixed dividend payment, making it the only drawback for people to purchase this type of stock.
After you have decided what type of stock to purchase, you must find a broker. This person will only take orders to buy and sell stock tickets. Every brokerage firm has two types of brokers. Stockbrokers help by giving advice on investing and by doing research on stocks. Discount brokers are the “middle man” of buying and selling stocks and do not research or give advice. After you find a broker all that you have to do is give him, or her, a call when wanting to buy or sell your stock.
Wednesday, July 16, 2008
Prices dropped more than $10 a barrel from their highest point of the day. At midday, light, sweet crude fell $6.27 to $138.91 in an extremely volatile session.
The turnaround may not signal a lasting shift in sentiment prices have swung violently in recent days as they flirted with record highs. But it does underscore investor uncertainty about the sustainability of sky-high prices and their effect on the broader economy.
``They're slamming this pretty good. But remember, these $10 moves are becoming a little more commonplace,'' said Phil Flynn, analyst at Alaron Trading Corp. in Chicago.
Earlier, the contract rose as high as $146.73 and fell as low as $135.92.
The ingredients for further gains were in place early on. The dollar fell to a new low against the euro, prompting investors to pour money into oil as a hedge against inflation and made crude cheaper for overseas buyers. Meanwhile, threats to supply from Iran, Nigeria and Brazil provided a solid floor on oil prices.
But neither were strong enough slow oil's rapid decline before noon.
``Traders are always looking for signals. When they see the market fail to respond to bullish news, they sometimes sell their positions,'' said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates. ``Traders get spooked.''
Mounting worries about the health of the US economy helped spur the sell-off.
Federal Reserve Chairman Ben Bernanke told Congress that ``numerous difficulties'' are racking the economy of the world's largest oil consumer, and warned that rising prices for energy and food are heightening the risk of inflation accelerating.
Tuesday, July 15, 2008
I remember at the height of the dotcom boom, analysts talking up their favorite fast risers. Remember Webvan? It talked a good game ... spent more than a billion bucks ... expanded from San Francisco to eight other cities ... and saw its shares peak at $30. It was a nice ride while it lasted. But it didn’t last long. Some 18 months after its IPO, it shut down. But for a while, those analysts who touted Webvan looked like geniuses (and many got paid like one too).
If you don’t remember Webvan, perhaps you remember pets.com. Its IPO took in over $82 million. Cheerleading analysts didn’t have a lot of time to bask in the company’s reflected success. Nine months later it was out of business.
There are dozens if not hundreds of other examples of companies that were once the darlings of Wall Street but disappeared in the bear market of 2000 through 2002. Once again we’re in bear territory and once again crashes and plunges and bankruptcies and companies holding on for dear life will be part of our investing world.
It gets much harder now...
First off, that feeling you have that you’re swimming up-stream all the time? That’s because you really are.
It’s like the song I used to hear as a kid – Ten Little Indians (yes, I’m dating myself). First there were ten, then there were nine, then there were eight ... until one little Indian is left.
Last year, eight out of ten major sectors went up, according to the Dow Jones Indexes. The reverse is happening this year. Eight out of the ten are now in negative territory for the year. Materials and energy are the only holdouts – and of those two, the materials sector is down 2.5 percent for the month of June.
Only one little Indian left – energy.
Energy covers everything from the oil majors to small alt-energy start-ups. This is a tricky sector. If you don’t pick and choose carefully, you could easily lose your shirt. For example, I’m not touching the oil majors right now. Even as they grow their profits, their oil production and reserves are shrinking. Their offshore production and pipelines are under attack by militants in Nigeria. Their joint ventures are under government attack by Russia and other countries looking for a bigger piece of the pie. It’s become an unfriendly world for Big Oil. And they don’t seem to know what to do about it.
Energy has a few places where investors can do very well. But it certainly isn’t a haven. Then what is?
* Retail? It’s the third-worst performing sector in the S&P 500 during the past three months. Low-cost retail should do relatively well. But it’s no haven. If it were, you wouldn’t have to try to figure out why Wal-Mart is doing well and some mega-stores like Costco aren’t.
* Precious Commodities? A surprising laggard that has lost investors some money over the past three months. I talk about gold below so let’s turn our attention to non-precious commodities for a moment.
A combination of bad weather, accidents, and project delays are pushing prices to record highs. Will this last? Could they go even get higher? Not if the economic slowdowns in the U.S. and Europe leak into Asia.
* Oil services? I’ve recommended overseas integrated oil companies, publically listed state-controlled oil enterprises, rig contractors, oil tankers, and oil pipelines. Half these companies were up last week.But since the beginning of the year, it’s no contest. The rig companies are my best oil-related companies by far.
Last week’s latest leg down officially introduced the markets to bear territory. With no obvious havens apart from energy remaining, how should investors invest? Should they even bother with the equity markets?
Apart from rigs, the other sector I like is dry bulk shipping. It’s actually a hedge against the banking crisis and credit crunch. By making it more difficult to borrow, banks are forcing numerous shipping companies to abandon their plans to build ships. The shortage in dry bulk ships just got extended by the banks.
The bottomline is sobering: Investing in a bear market is hard work. If you’re not up to it, put your money in cash. Protecting your money is better than losing it.
The partially convertible rupee settled 0.71% down to Rs 43.23/24 a dollar, weaker than Monday`s close of Rs 42.92/93. It hit a 15-month low of Rs 43.50 early this month.
Monday, July 14, 2008
Three quarters of Americans now believe more money should be spent on developing and improving mass transit systems, and cities are responding.
Expansion and renovation projects are in the works for many cities in the US. Europe, meanwhile, is taking transit to the next level: Paris, which has been updating its light rail network , is installing energ y-ef ficient trains on several Mृtro lines, while London plans to increase its system's overall capacity by 50% by 2022.
As fuel prices increase, bike shops across the US are reporting record sales, and Britain is even promoting a n at i o n a l “Bike Week” to encourage commuters to ride, not drive, to the office.
Not only is twowheeling a cheaper way to travel, it’s also healthier. According to a research, for every dollar increase in the average real price of gas, overweight and obesity levels in the US would decline by 16 % after seven years.
A study published in The Engineering Economist found that Americans today use nearly a billion additional gallons of gasoline each year, compared with 1960, solely because they weigh more.
More of the world’s fuel is coming from renewable energy sources instead of Middle East oil drums. Global production of biofuels—generally ethanol derived from corn, but also plant oils that produce biodieselroughly tripled from 2000 to 2007.
Critics of biofuels point to studies indicating that the increasing diversion of cereal crops for biofuel production is driving up food prices around the world.
Supporters counter that the answer isn't to give up on alternatives to gasoline, but to develop "next-generation" biofuels (think: switchgrass and algae) that don't interfere with the food supply.
Americans are driving at historic lows, according to a May US department of transportation report, and less driving means fewer accidents.
And they may be driving slower and more cautiously , too. Ian Parry, a Senior Fellow at Resources for the Future, an energy think tank, says that while the effect would be modest, some people “will realise they can drive less aggressively” and conserve gas mileage.
Worry about rising gas prices has encouraged workers to move closer to their jobs to cut costs and find alternate ways of traveling to work.
And for many of those that still drive, lesspacked roads are actually producing shorter commutes. While the change is by no means uniform, in some of the most congested areas of southern California, the average commute time has reportedly fallen by 5 or 6 minutes.
That could make for a sunnier Los Angeles : a 2006 paper in Science found that people with shorter commute times tend to be happier.
Confirming the predictions of experts such as Harvard economist Gregory Mankiw, the department of transport estimates that since November 2006, cumulative vehicle miles traveled have dropped by 17.3 billion miles.
In Europe , however, the effect has so far been the opposite, as striking truck drivers in Britain, Spain, and France have slowed or shut down entire highways to protest diesel prices.
Sunday, July 13, 2008
"We believe WPI inflation will remain in double-digit territory until May 2009. We expect WPI inflation of 17 per cent by September 2008," the report said.
For the week-ended June 28, wholesale prices-based inflation touched a new 13-year high of 11.89 per cent much higher than the Reserve Bank's tolerance limit of 5.5 per cent for the current fiscal.
According to the report, the government is likely to hike fuel prices between 10 and 20 per cent again as early as September to limit fiscal risks.
Rise in the price of the Indian crude oil basket to USD 145-150 per barrel from the current USD 132 per barrel could be the trigger for another round of increase in fuel prices, it said.
The government last revised retail petroleum prices with effect from June 5, when petrol prices was increased by Rs 5 a litre, diesel by Rs 3 per litre and cooking gas by Rs 50 per cylinder.
This resulted in inflation touching a double digit figure of 11.05 per cent for the week ended June 7.
Last week, even Finance Minister P Chidambaram's adviser Shubhashis Gangopadhyay predicted that double digit inflation will continue throughout the year 2008 and could impact the economic growth negatively.
Barclays Capital said, "we believe the momentum in core inflation will pick up steam in the next two quarters".
Over the next two quarters, manufacturing sector inflation would add to 200-300 basis points to the headline WPI rate, food and oilseed inflation would add 100-200 basis points, and energy inflation a further 100-150 basis points, it said.
The second-round effects of recent commodity price shocks are already passing through, and this process is expected to accelerate, it added.
RBI is also expected to further tighten monetary policy by hiking short term lending rate (repo rate) and mandatory cash requirements for banks to tame inflation.
The two monetary policy tools the RBI would utilise to rein in inflation would be the CRR and repo rate, it said.
"We forecast repo rate hikes of 200-250 basis points by end-2008, versus our earlier outlook for 150-200 basis points, from the current 8.5 per cent," it said.
In addition, the CRR which is currently at 8.75 per cent would be increased by 125-175 basis points by the year-end, it added.
The investment banker also revised average WPI forecast for the current year to 14 per cent from the earlier estimate of 13 per cent.
Inflation is often termed as devil by the common man. The grocery bills find their way up while the value of your hard-earned money plummets. Money is not safe in fixed deposits or post offices schemes - inflation will be eroding your money locked there.
It is difficult for investments yielding single digit returns to keep pace with inflation. Be it soaring oil prices or global factors, inflation is here to stay and investors must learn to cope with it.
Traditionally, real estate and equity have known to beat inflation. Property prices in many cities have saturated at high levels. Coupled with it, banks are increasing their lending rates. Hence, investments in property may be difficult for some.
Stock markets have taken a beating over the past few months. It may climb up a few points only to slide down the next session. Under the current scenario, only those investors who research and can predict the market movements should enter. Over the long term, the stock markets have proven to effectively beat inflation. It is prudent for the risk-averse , however, to keep away from the turbulent markets.
Diversified equity funds, balanced funds and other mutual funds are a good way to invest indirectly in stocks. Professionals make judicious stock picks and your portfolio earns steady returns over the long term.
Gold prices have been on the way upwards for sometime now.
If the inflationary pressures continue the price of yellow metals could create records. Returns on investment in gold mutual funds have been more lucrative than equity. Over the last year, returns are to the tune of 47 percent, and that makes it a wide open option in an inflation-ridden scenario .
Systematic investment plan (SIP) is an investment strategy for accumulation of wealth in a disciplined manner over a long term. Here, a specific amount is invested for a continuous period at regular intervals. It allows the investor to buy units on a given date every month. The investor decides the amount and also the mutual fund scheme.
For this fixed amount, more number of units are purchased in a declining market and less number of units are obtained in a rising market. The investor benefits from rupee cost averaging that works in his favour.
Saturday, July 12, 2008
"The Intelligent Investor" (1949) by Benjamin Graham
Benjamin Graham is undisputedly the father of value investing. His ideas about security analysis laid the foundation for a generation of investors, including his most famous student, Warren Buffett. Published in 1949, "The Intelligent Investor" is much more readable than Graham's 1934 work entitled "Security Analysis", which is probably the most quoted, but least read, investing book. "The Intelligent Investor" won't tell you how to pick stocks, but it does teach sound, time-tested principles that every investor can use. Plus, it's worth a read based solely on Warren Buffett's testimonial: "By far the best book on investing ever written."
"Common Stocks And Uncommon Profits" (1958) by Philip Fisher
Another pioneer in the world of financial analysis, Philip Fisher has had a major influence on modern investment theory. The basic idea of analyzing a stock based on growth potential is largely attributed to Fisher. "Common Stocks And Uncommon Profits" teaches investors to analyze the quality of a business and its ability to produce profits. First published in the 1950s, Fisher's lessons are just as applicable half a century later.
"Stocks For The Long Run" (1994) by Jeremy Siegel
A professor at the Wharton School of Business, Jeremy Siegel makes the case for - you guessed it - investing in stocks over the long run. He draws on extensive research over the past two centuries to argue not only that equities surpass all other financial assets when it comes to returns, but also that stock returns are safer and more predictable in the face of the effects of inflation.
"Learn To Earn" (1995), "One Up On Wall Street" (1989) or "Beating The Street" (1994) by Peter Lynch
Peter Lynch came into prominence in the 1980s as the manager of the spectacularly performing Fidelity Magellan Fund. "Learn To Earn" is aimed at a younger audience and explains many business basics, "One Up On Wall Street" makes the case for the benefits of self-directed investing, and "Beating The Street" focuses on how Peter Lynch went about choosing winning stocks (or how he missed them) while running the famed Magellan Fund. All three of Lynch's books follow his common sense approach, which insists that individual investors, if they take the time to do their homework, can perform just as well or even better than the experts.
This book popularized the ideas that the stock market is efficient and that its prices follow a random walk. Essentially, this means that you can't beat the market. That's right - according to Malkiel, no amount of research, whether fundamental or technical, will help you in the least. Like any good academic, Malkiel backs up his argument with piles of research and statistics. It would be an understatement to say that these ideas are controversial, and many consider them just short of blasphemy. But whether you agree with Malkiel's ideas or not, it is not a bad idea to take a look at how he arrives at his theories.
"The Essays Of Warren Buffett: Lessons For Corporate
Although Buffett seldom comments on his current holdings, he loves to discuss the principles behind his investments. This book is actually a collection of letters that Buffett wrote to shareholders over the past few decades. It's the definitive work summarizing the techniques of the world's greatest investor. Another great Buffett book is "The Warren Buffett Way" by Robert Hagstrom.
"How To Make Money In Stocks" (2003, 3rd ed.) by William J. O'Neil
Bill O'Neil is the founder of Investor's Business Daily, a national business of financial daily newspapers, and the creator of the CANSLIM system. If you are interested in stock picking, this is a great place to start. Many other books are big on generalities with little substance, but "How To Make Money In Stocks" doesn't make the same mistake. Reading this book will provide you with a tangible system that you can implement right away in your research.
"Rich Dad Poor Dad" (1997) by Robert T. Kiyosaki
This book is all about the lessons the rich teach their kids about money, which, according to the author, poor and middle-class parents neglect. Robert Kiyosaki's message is simple, but it holds an important financial lesson that may motivate you to start investing: the poor make money by working for it, while the rich make money by having their assets work for them. We can't think of a better financial book to buy for your kids.
"Common Sense On Mutual Funds" (1999) by John Bogle
John Bogle, founder of the Vanguard Group, is a driving force behind the case for index funds and against actively-managed mutual funds. In this book, he begins with a primer on investment strategy before blasting the mutual fund industry for the exorbitant fees it charges investors. If you own mutual funds, you should read this book.
"Irrational Exuberance" (2000) by Robert J. Shiller
Named after Alan Greenspan's infamous 1996 comment on the absurdity of stock market valuations, Shiller's book, released in Mar 2000, gives a chilling warning of the dotcom bubble's impending burst. The Yale economist dispels the myth that the market is rational and instead explains it in terms of emotion, herd behavior and speculation. In an ironic twist, "Irrational Exuberance" was released almost exactly at the peak of the market.
The more you know, the more you'll be able to incorporate the advice of some of these experts into your own investment strategy. This reading list will get you started, but it is only a fraction of all the great resources available.
Here we look at how to achieve this awareness when analyzing depreciation, which can represent a big portion of the expenses found on a company's income statement, and which can impact the value of the investment opportunity in the short term. While there are rules governing how depreciation is expensed, there is still plenty of room for management to make creative accounting decisions that can mislead investors. It pays to examine depreciation closely.
What Is Depreciation?
Depreciation is the process by which a company allocates an asset's cost over the duration of its useful life. Each time a company prepares its financial statements, it records a depreciation expense to allocate a portion of the cost of the buildings, machines or equipment it has purchased to the current fiscal year. The purpose of recording depreciation as an expense is to spread the initial price of the asset over its useful life. For intangible assets - such as brands and intellectual property - this process of allocating costs over time is called amortization. For natural resources - such as minerals, timber and oil reserves - it's called depletion.
Critical assumptions about expensing depreciation are left to the company's management. Management makes the call on the following things:
* Method and rate of depreciation
* Useful life of the asset
* Scrap value of the asset
Depending on their own preferences, companies are free to choose from several methods to calculate the depreciation expense. To keep things simple, we'll summarize the two most common methods:
Straight-line method - This takes an estimated scrap value of the asset at the end of its life and subtracts it from its original cost. This result is then divided by management's estimate of the number of useful years of the asset. The company expenses the same amount of depreciation each year. Here is the formula for the straight-line method:
Straight line depreciation = (original costs of asset – scrap value)/est'd asset life
Accelerated Methods - These methods write-off depreciation costs more quickly than the straight-line method. Generally, the purpose behind this is to minimize taxable income. A popular method is the 'double declining balance', which essentially doubles the rate of depreciation of the straight-line method:
Double declining depreciation = 2 x straight line rate
Double Declining Depreciation = 2 x (original costs of asset – scrap value / est'd asset life)
The Impact of Calculation Choices
As an investor, you need to know how the choice of depreciation method affects an income statement and balance sheet in the short term.
Here's an example. Let's say The Tricky Company purchased a new IT system for $2 million. Tricky estimates that the system has a scrap value of $500,000 and reckons it will last 15 years. According to the straight-line depreciation method, Tricky's depreciation expense in the first year after buying the IT system would be calculated as the following:
($2,000,000 - $500,000)/15 = $100,000
According to the accelerated double-declining depreciation, Tricky's depreciation expense in the first year after buying the IT system would be this:
2 x straight line rate = 2 x($2,000,000 - $500,000)/15
2 x straight line rate = $200,000
So, the numbers show that if Tricky uses the straight-line method, depreciation costs on the income statement will be significantly lower in the first years of the asset's life ($100,000 rather than the $200,000 rendered by the accelerated depreciation schedule).
That means there is an impact on earnings. If Tricky is looking to cut costs and boost earnings per share, it will choose the straight-line method, which will boost its bottom line.
A lot of investors believe that book value, or net asset value, offers a fairly precise and unbiased valuation metric. But, again, be careful. Management's choice of depreciation method can also significantly impact book value: determining Tricky's net worth means deducting all external liabilities on the balance sheet from the total assets--after accounting for depreciation. As a result, since the value of net assets doesn't shrink as quickly, straight-line depreciation gives Tricky a bigger book value than the value a faster rate would give.
The Impact of Assumptions
Tricky chose a surprisingly long asset life for its IT system - 15 years. Information technology typically becomes obsolete quite quickly, so most companies depreciate information technology over a shorter period, say, five to eight years.
Then there's the issue of the scrap value that Tricky chose. It's hard to trust that a used, five-year-old system would fetch a quarter of its original value. But perhaps we can see the reason for Tricky's decision: the longer the useful life of an asset and the greater the scrap value, the less its depreciation will be over its life. And a lower depreciation raises reported earnings and boosts book value. Tricky's assumptions, while questionable, will improve the appearance of its fundamentals.
A closer look at depreciation should remind investors that improvements in earnings per share and book value can, in some cases, result from little more than strokes of the pen. Earnings and net asset value that are boosted thanks to the choice of depreciation assumptions have nothing to do with improved business performance, and, in turn, don't signal strong long-term fundamentals.
Amortization usually refers to spreading an intangible asset's cost over that asset's useful life. For example, a patent on a piece of medical equipment usually has a life of 17 years. The cost involved with creating the medical equipment is spread out over the life of the patent, with each portion being recorded as an expense on the company's income statement.
Depreciation, on the other hand, refers to prorating a tangible asset's cost over that asset's life. For example, an office building can be used for a number of years before it becomes run down and is sold. The cost of the building is spread out over the predicted life of the building, with a portion of the cost being expensed each accounting year.
Depletion refers to the allocation of the cost of natural resources over time. For example, an oil well has a finite life before all of the oil is pumped out. Therefore, the oil well's setup costs are spread out over the predicted life of the oil well.
It is important to note that in some places, such as Canada, the terms amortization and depreciation are often to used interchangeably to refer to both tangible and intangible assets.
Thursday, July 3, 2008
History shows time and again that the worst returns come to those who buy at - or even near - market peaks, like those of 1928, 1969, 1999 and 2007, when Price/Earnings (P/E) ratios are typically higher than “normal.”
Conversely, investors who buy when the days are darkest reap the best returns: Think 1932, 1942, 1982, 2003 and - take a deep breath - possibly 2008.
Clearly, at a point when the world looks like it’s going to hell in a hand basket, sitting on the sidelines in cash would appear to be the easiest and safest strategy to adopt. But there’s one major problem with that kind bear-market investing strategy.
That “safety” is an illusion. And the strategy doesn’t work.
Spectators Are a Bear Market’s Biggest Losers
You see, you can’t score if you don’t play. And if your bear-market investing strategy is to sit on the sidelines during volatile stretches, the odds are good that you’ll end up as a mere spectator when stock prices rebound, meaning you’ll miss out on the big updraft that generates the long-term profits we seek.
The so-called “smart money” understands that many investors panic and race for the exits during bear markets. The shrewdest investors already are positioning themselves for the next round of stock-market profits - even though those profits may not appear for some time.
Not only are many of these “Global Titans” increasing earnings despite miserable market conditions, they’re actually building market share and focusing on powerful trends that will take decades to play out and that will generate trillions of dollars in profits along the way.
The Five Keys to Bear Market Profits
Now that we’re in the midst of a new bear market, here are the five secrets that will pave the way to bear-market profits:
1. Don’t Try to Catch a Falling Knife: The first bad news is never the last, as so many investors found out when the Internet bubble imploded in 2000, quickly eradicating $14 trillion of wealth. If the fundamentals don’t match up with the stock’s price, don’t buy.
2. Don’t Overpay: One of the biggest miscues bear-market investors make is in concluding that certain stocks are a bargain simply because they’ve traded down to historic lows. It’s better to consider “tangible book value.” The reason: Tangible book value represents what a shareholder can actually expect to receive if a company turns turtle; it’s a good measure of what the firm’s real assets are worth. So, at a time when earnings are decelerating - or have vanished completely - buying companies that are trading below tangible book value can provide an extra measure of downside protection, especially when you’re talking about a company that’s perfectly positioned to capitalize on powerful global trends.
3. Look For Pricing Power: When the going gets tough, the tough… stop buying. At least, they stop buying the stuff they want, and shift, instead, to the stuff they need. This has a major ripple effect in the economy. Many businesses are forced to go on the offensive to keep the customers they have, or to “win” new ones - at a time when consumers are loathe to spend. This suggests that companies that are able to continue, or even ramp up, their advertising spending make the best bets. Especially alluring are companies that can keep their customers - and even raise prices - in the face of a bull market.
4. Watch for the “New Research Coverage Initiated” Signal: Although Wall Street hates to admit it, analyst ratings and recommendations aren’t intended for us individual investors. At least, that’s been the case historically. Investment banks actually use their company “coverage” to generate investment-banking deals and to cozy up to the senior executives of the firms that are being “analyzed.” Since analysts often have access to insiders long before they publish their “reports,” new coverage can signal positive future growth or expansion plans.
5. Drill for Dividends: Many investors focus on so-called “growth stocks” in their rush for riches, when study after study demonstrates that dividend-yielding stocks can offer as much as a 25-1 advantage. One study by Ned Davis Research is particularly telling, noting that dividend-paying stocks provided returns of more than 10% a year from 1972 to 2005. Non-dividend paying stocks, in contrast, posted gains of just 4.1%. Given that this research study started at the worst possible time in the past 40 years - just prior to the “bear market” of 1973-1974, which dragged on for 21 months and caused shares to lose 48.2% of their value - these numbers are especially noteworthy.
Follow this playbook, and you won’t have to remain a spectator during lousy markets. You’ll be out on the playing field - and you’ll beat the bear.
The government is reportedly considering liberalising the 10% mandatory cap on price hike for drugs outside the price control. Drugs outside the price control currently constitutes about 75% of the Rs 33000 crore drug retail market.
Videocon Group is reportedly interested in buying out greetings card maker Archies and has already picked up 4% stake from the open market in the last one month.
Anil Dhirubhai Ambani Group is reportedly picking up 26% stake with management control in a financial service firm in Saudi Arabia, which has been renamed as Riyada Reliance Money.
The government of the southern state of Karnataka is reportedly likely to scrap the proposed Rs 30000 crore petroleum, chemicals and petrochemicals project on the state`s coastline citing possible law and order problems arising from land acquisitions.
At least a dozen firms have reportedly shown interest to pick up stake in the petrochemicals project of Oil and Natural Gas Corporation in the western state of Gujarat. The company is also considering an equity tie-up with Petronet LNG, the reports added.
The Bajaj family reportedly plans to sell its entire 69.49% stake in material handling equipment maker Hercules Hoists for about $100 million. Some European and a US firm are interested in buying the stake.
Dabur India is reportedly increasing prices by 5% across product categories to accommodate the sharp rise in the price of flexible packaging material made of polymers.
The Employees` Provident Fund Organisation (EPFO) is reportedly planning to abolish State Bank of India`s 56-year old monopoly over its banking business due to growing differences between the two institutions.
National Aluminium Company reportedly plans to acquire 51% stake in Tajik Aluminium Company, which is owned by the Tajikistan government. The combined output of the two firms will be 800,000 metric tonnes.
Hinduja Foundries is reportedly close to acquiring two foundry companies in Europe and the acquisitions will be in the range of 300-500 million euros.
Oil and Natural Gas Corporation (ONGC) reportedly expects the cost of replacing its exploration and production infrastructure in the north-eastern state of Assam to double to around Rs 4000 crore due to rising steel prices.
The government reportedly plans to decontrol the sugar industry from the new crushing season beginning 1 October 2008. It is likely to dismantle the 10% levy on mills and the monthly release mechanism regulating the balance 90% free sale quota, the reports added.
Aditya Birla Nuvo will turn ex-dividend for a dividend of Rs 5.75 per share,
Bank of India will turn ex-dividend for a dividend of Rs 4 per share,
Last year when Kingfisher Airlines took a 26% stake in Air Deccan, Mallya had evinced interest in picking up a stake in SpiceJet but things did not move forward. "I am interested in SpiceJet but I am not a predator," he had said then. Kingfisher is now learnt to be eyeing a part of either the 12.9% stake held by SpiceJet's promoter, UK-based NRI Bhupendra Kansagra or the 13.4% stake held by Dubai-based investment firm Istithmar PJSC. Kansagra was under a lock-in period, which barred him from selling any part of his stake in SpiceJet. The lock-in period ended a few months ago.
Kingfisher's executive vice president Hitesh Patel said he would not comment on the issue, but added: "I can see additional consolidation in the industry in next 12 to 18 months. All these airlines won't be hanging around that long. If as predicted, crude hits $178 to a barrel in September, it will kill some players.... The access to funds of Kingfisher is strong and the backing of UB Group is a strong plus."
SpiceJet's executive chairman Siddhanta Sharma maintained that the airline is not talking to anyone for selling stake. The airline, which on Monday declared a loss of Rs 133 crore, is planning to raise $100 million through debt and equity. A stakeholder in airline had earlier indicated that it is in talks with Istithmar and Tatas (who hold a 6% stake in the carrier for garnering more funds.
With crude showing no sign of cooling off, most of the airlines are bleeding and are desperately on the look-out for funds. Incidentally, Kingfisher is among the few players which has access to funds as most of the others are finding it difficult to get investors to put money in this business, which has now become loss-making.
In his flight for SpiceJet, Mallya could again lock horns with Anil Ambani, who was also eyeing a stake in Air Deccan last year. This time too, the Anil Dhirubhai Ambani Group is reported to be keen on making an entry in aviation and is looking to buy a stake in Spicejet.
According to industry sources, the current turbulence in the aviation sector is severely affecting the bottomlines of every player - combines like Air India-Indian Airlines; Jet-JetLite and Kingfisher-Deccan as well as Wadia Group-backed GoAir, SpiceJet and IndiGo. "The scope for consolidation is highest in GoAir which is in talks to sell stake and SpiceJet," said an industry insider.
The Kingfisher-Deccan combine at present has an all-Airbus fleet while SpiceJet is all-Boeing. So if the deal goes through, Mallya can join the league of big players like Jet and AI that run a big Airbus and Boeing fleet.
Wednesday, July 2, 2008
Nippon Yusen K.K. declined in Tokyo after the price of shipping bulk commodities declined.
BHP Billiton declined after Credit Suisse Group reduced its earnings estimate for rival aluminum producers Alcoa and Century Aluminum.
Japanese benchmark index Nikkei lost 131.22 points, or 0.97%, to trade at 13,331.
Hong Kong`s Hang Seng Index lost 221.05 points, or 1%, to trade at 21,880.96.
China`s Shanghai Composite rose 5.38 points, or 0.20%, to trade at 2,656.99.
Taiwan`s Taiex index rose 23.53 points, or 0.32%, to trade at 7,431.51.
South Korea`s Kospi index fell 26.13 points, or 1.57%, to trade at 1,640.33.
Singapore`s Straits Times rose 13.55 points, or 0.47%, to trade at 2,920.34. (8.05 a.m., IST)
Tuesday, July 1, 2008
Both these indices underperformed the Sensex in today`s market fall. The BSE Sensex declined 499.92 points or 3.71% to 12,961.68.
Among the mid-cap counters, UCO Bank (down 13.44% to Rs 27.70), Shree Preacoted Steels (down 16.35% to Rs 91.55), Chambal Fertilisers & Chemicals (down 14.26% to Rs 57.70), Rajesh Exports (down 14.13% to Rs 50.15), Phoenix Mills (down 12.40% to Rs 136), and IFCI (down 13.44% to Rs 32.20), slumped
Among small-cap counters, Alok Industries (down 13.27% to Rs 34.30), Amara Raja Batteries (down 13.31% to Rs 121.10), Diamond Cables (down 16.11% to Rs 288), Valecha Engineering (down 12.28% to Rs 122.15), Maharashtra Scooters (down 15.66% to Rs 235.55), and Lok Housing (down 19.07% to Rs 51.35), slumped.
The BSE Mid-Cap index underperformed the market over the past one month till 30 June 2008, declining 20.32% compared to the Sensex`s decline of 17.99%. It also underperformed the market in the past one quarter, declining 15.77% compared to Sensex`s decline of 13.85%.
The BSE Small-Cap index outperformed the market over the past one-month till 30 June 2008, declining 17.60% compared to the Sensex`s decline of 17.99%. It had underperformed the market in the past one quarter, declining 14.75% compared to Sensex`s decline of 13.85%.
Reliance Communications and Reliance Infrastructure fell more than 10% each in late trade. Banking, realty, auto and metal stocks fell. The market breadth was weak. Except NTPC all other Sensex stocks ended in the red. All the sectoral indices on BSE were in red.
Crude oil, India`s biggest import, was trading above $141 a barrel today, 1 June 2008. It had hit a record $143.67 in the previous trading session.
European markets which opened after Indian market, were weak. The key benchmark indices in France, Germany and UK were down by between 1.84% to 2.4%.
The 30-share BSE Sensex lost 499.92 points or 3.71% at 12,961.68. It lost 557.51 points at day`s low of 12,904.09, its lowest level in more than 14 months. At the day`s high of 13,613.01 hit in mid-morning trade, the Sensex rose 151.41 points.
The broader based S&P CNX Nifty was down 158.8 points or 3.56% at 3,896.75. Nifty hit a low of 3,878.20, its lowest level in more than 14 months.
From a record high of 21,206.77 hit on 10 January 2008, Sensex has lost 8,245.09 points or 38.87%. It has shed 7,325.31 points or 36.1% in calendar year 2008 thus far.
The market`s concerns are that the rise in input costs and tough macro economic environment comprising high inflation, record high global crude oil prices and rising interest rates, will result in slowdown in earnings growth of the corporate sector. Nevertheless, advance tax payment by the Indian corporate sector this year so far has been strong. Government`s direct tax collection from the corporate sector rose 39.81% to Rs 30655 crore until 21 June 2008 compared to the corresponding period last year.
Nifty July 2008 futures were at 3815, at a discount of 81.75 points as compared to spot closing of 3896.75.
Sustained selling of Indian stocks by foreign institutional investors (FIIs) has also dented market sentiment. As per provisional data, foreign funds sold shares worth a net Rs 208.66 crore on Monday, 30 June 2008. FII outflow in June 2008 totaled Rs 10095.80 crore (till 30 June 2008). FII outflow in calendar year 2008 totaled Rs 25465.30 crore.
The market breadth was weak on BSE with 406 shares advancing as compared to 2,272 that declined. 46 remained unchanged.
Political uncertainty continues to haunt Indian bourses. The media continues to speculate whether the ruling Congress led United Progressive Alliance government will be able to push through a much-debated Indo-US nuclear deal and still retain its power, in the face of heavy opposition from its key communist allies. The Left parties on Sunday, 29 June 2008, renewed their threat to withdraw support from the ruling coalition if Prime Minister Manmohan Singh forged ahead with the nuclear deal. Singh on Monday, 30 June 2008, promised to bring the nuclear pact with the US before parliament before going ahead with the deal that is fiercely opposed by his communist allies, a report said.
The Prime Minister played down the communists` threats to withdraw support to his government saying all that he wanted was that the government should be allowed to complete the negotiation process with the International Atomic Energy Agency-IAEA and Nuclear Suppliers` Group-NSG. Singh expressed confidence that the government would be able to address concerns of all including the Left parties on the civil nuclear cooperation agreement with the US.
For the stock market, the political uncertainty pertains to whether there will be stability at the centre if mid-term polls are held i.e. whether the new government will complete five years and whether the new government restarts economic reforms process which has virtually come to a halt in the last two years or so.
A good news in the current gloom on the macroeconomic front is that the Indian Meteorological Department (IND), in its long-range forecast update for the 2008 southwest monsoon, has maintained that rainfall for the country as a whole is likely to be ‘near normal`. The department classifies rainfall as near normal when it`s between 96% and 104% of the 50-year average. Good rains will bolster farm production which in turn may help rein in inflation.
Back to today`s trade, the BSE Mid-Cap index declined 4.54% to 5,141.86 and BSE Small-Cap index fell 4.73% to 6,385.11. Both these indices underperformed Sensex.
BSE Realty index (down 7.21% at 4,215.93), BSE Bankex (down 5.62% at 5,583.59), BSE Metal index (down 5.4% to 12,494.19), BSE Auto (down 4.91% at 3,409.47), BSE Consumer Durables index (down 4.28% to 3,328.76), BSE Power (down 4.24% to 2,156.94) underperformed Sensex.
BSE IT index (down 1.74% to 3,949.95), BSE Health Care index (down 2.17% at 4,073.99), BSE FMCG index (down 2.83% to 2,021.44), The BSE Oil & Gas index (down 3.06% to 8,733.32), BSE TecK index (down 3.07% to 2,950.53), The BSE Capital Goods index (down 3.34% at 9,744.31), BSE PSU index (down 3.61% to 5,461.97), outperformed the Sensex.
India`s largest private sector company in terms of market capitalisation and oil refiner Reliance Industries (RIL) fell 2.34% to Rs 2,044.20.
Auto stocks tumbled. India`s largest carmaker by sales Maruti Suzuki India fell 8.05% to Rs 568. Its vehicle sales rose 2% to 61,247 units in June 2008 over June 2007. Mahindra & Mahindra (down 9.27% to Rs 440.10), Bajaj Auto (down 0.82% to Rs 446.75) edged lower.
India`s largest commercial vehicle maker by sales Tata Motors fell 4.23% to Rs 408.45. Tata Motors today said it had raised prices of commercial vehicles by an average of 3% with immediate effect on account of higher input prices.
Metal stocks declined. Hindalco Industries (down 5.67% to Rs 134.05), Tata Steel (down 4.19% to Rs 697.85), Sterlite Industries (down 4.13% to Rs 673), Steel Authority of India (down 1.08% to Rs 137.90), National Aluminium Company (down 0.21% to Rs 348.80) edged lower.
Realy stocks extended recent steep fall. Indiabulls Real Estate (down 7.65% to Rs 250.45), Unitech (down 6.48% to Rs 159.60) and DLF (down 7.02% to Rs 368.40) edged lower.
Banking stocks fell after some of the major lenders hiked their lending rates. India`s largest private sector bank by net profit ICICI Bank declined 6.46% to Rs 589.50. India`s largest dedicated housing finance firm by operating income HDFC fell 6.47% to Rs 1,835.45.
HDFC said on Monday, 30 June 2008, its prime lending rate would go up by 50 basis points from Tuesday, 1 July 2008. On the same day, ICICI Bank said rates on consumer loans would rise by 75 basis points on Tuesday, 1 July 2008. Both HDFC and ICICI Bank also raised deposit rates between 50-100 basis points.
India`s largest commercial bank State Bank of India fell 7.81% to Rs 1,024.65. It will decide in a week`s time whether to raise interest rates on home loans, its chief, OP Bhatt, said today, 1 July 2008. The bank raised its benchmark prime lending rate by 50 basis points to 12.75% last week, after the central bank aggressively tightened policy in the face of surging inflation.
India`s second largest private sector bank by net profit HDFC Bank fell 4.22% to Rs 960.
NTPC rose 1.02% to Rs 153.20 and was the lone gainer from Sensex pack.
Reliance Communications (down 10.49% to Rs 396), Reliance Infrastructure (down 10.54% to Rs 702.05), Jaiprakash Associates (down 6.01% to Rs 135.20), Grasim Industries (down 5.02% to Rs 1,753.70), edged lower from Sensex pack.
Reliance Natural Resources clocked the highest volume of 1.62 crore shares on BSE. Reliance Petroleum (1.41 crore shares), Ispat Industries (1.07 crore shares), IFCI (1.05 crore shares), Chambal Fertilisers and Chemicals (90.43 lakh shares) were the other volume toppers on BSE in that order.
Reliance Industries clocked the highest turnover of Rs 421.51 crore on BSE. Reliance Capital (Rs 337.97 crore), Reliance Petroleum (Rs 239.36 crore), Reliance Infrastructure (Rs 137.77 crore) and Reliance Communications (Rs 115.52 crore) were the other turnover toppers in that order.
Most of the Asian markets which opened before Indian markets were in the red. Key benchmark indices in China, Japan, Singapore, Taiwan and South Korea were down between 0.13% to 3.09%.
US markets, stocks ended mixed on Monday 30 June 2008 .The Dow Jones was up 3.50 points to 11,350.01. The Nasdaq Composite index lost 22.65 points to close at 2,292.98.