Ramanisblog

Tag: investment

  • Risk in investing Politically Connected Companies.SUNTV.

    The scam involving Dayanidhi Maran and investment by Maxi in The SUN Network under dubious circumstances, has brought into the fore the volatility of stocks where investors, ipso facto,placed their money trusting more on the political connections than the soundness of the project.

    This is not to underestimate the competency of the SUN network;in fact it is still the best-managed  professional Communications company in India

    However, apart from the highly competitive nature of the Industry, the creative assets switching loyalties(remember major creative talent went over to Kalaignar TV when it was started),as policy decisions affect the industry very seriously,the present equation between the DMK and Congress at the Center is highly fluid and susceptible to snapping, the SUN scrips are in for a down ward spiral, unless of course it is propped by you know how by private investors.

    This again could trigger media glare and further loss of confidence by the investors.

    The Government might also indirectly pressurize the  indirectly controlled Govt/Public sector/Banks to offload shares.

    This might affect the stock value further.

    Sad for a professional, successful Company.

    Story:

    Shares in Sun TV and the budget carrier SpiceJet crashed by over 27% and 16% respectively on Thursday, following an expose in Tehelka magazine about the role of Dayanidhi Maran when he was the telecom minister between 23 May 2004 and 15 May 2007….

    This underlines the perils of investing in companies that seem to grow easily and fast-but with generous political patronage. The shares crashed on allegations that Mr Maran’s family-owned business, Sun TV, received substantial investment from the Maxis Group (which owns Aircel) which picked up 20% equity in Sun Direct. The government approved this investment on 2 March and 19 March 2007. Maxis Group invested a total of Rs599.01 crore in Sun Direct between December 2007 and December 2009. …

    With the DMK-linked companies in a soup and DMK out of power in Tamil Nadu, a cloud hangs over the immediate prospects of these companies. The stock prices are unlikely to recover soon. Among the mutual fundinvestors in Sun TV and SpiceJet that would have suffered losses are IDFC Premier Equity, Fidelity Equity, Morgan Stanley Growth, Sundaram Select Midcap, DSP BlackRock T.I.G.E.R and SBI Tax Advantage Series I ..

    The promoters of Sun TV hold 77%, while foreign institutional investors (FIIs) hold 9.49%, domestic institutional investors (DII) hold 3.06% of the equity, and the remaining 10.45% is with retail investors. In SpiceJet, the promoters hold 38.61%, FIIs hold 11.84% and DIIs hold 15.10% equity respectively. The remaining 35.45% is the retail shareholding.

    Clearly, institutional investors have a significant holding in both companies and they will have a difficult task recovering their investments. The main problem is that both SunTV and SpiceJet have strong political patronage which will be undermined by new polticial equations. Analysts believe that with the DMK’s arch rival J Jayalalithaa of AIADMK, coming to power as chief minister in Tamil Nadu, and the scam-ridden UPA at the Centre, both Maran-family owned companies will find it difficult to grow.

    http://www.moneylife.in/article/perils-of-investing-in-companies-growing-through-political-links/16980.html

  • Gurus’ Six Best Tech Stocks For 2010

    Where in the broad technology universe do you focus your investing to find this growth? According to some of our Forbes investment newsletter gurus, opportunities abound in areas like data security, wireless handsets and services, corporate data centers and niche semiconductors.

    Baidu.com, Green Mountain Coffee … Click here for more recommended “monster stocks” in the Oberweis Report, including the biggest real estate agency in China.

    Paul McWilliams, editor of Next Inning Technology Research, likes EZchip Semiconductor Ltd. (EZCH), a fabless semiconductor company that specializes in network processors. Its initial market target has been what’s termed as CESR (Carrier Ethernet Switching and Routing). EZCH has since expanded its focus to include products that are broadly grouped into what’s called the “access” market.
    http://www.forbes.com/2010/01/12/sybase-arcsight-bmc-personal-finance-tech-stocks.html?partner=alerts

  • Dubai World-Fiasco,Banks in a bind.

    In Sanskrit, there is a saying “Mounam Sarvaartha Sadhagam”,general meaning being Silence is conducive for achievement in Life;special meaning is Silence is conducive to worldly wealth.
    In Dubai , the ruling class maintained a discreet silence when people invested in Dubai World, thinking it has Royal Patronage(they are right for in Sheikdoms nothing will move with out the Sheikh’s participation) and came out the govt. has nothing to do with Dubai World when the bubble burst.
    RBS had earlier been bailed out secretly by the UK govt.How these banks are going to come out of this mess is an open question.
    Ultimately, the small investors are going to be hit as usual.
    Story:
    The UK banks are understood to have much of their lending focused on the still-performing parts of Dubai World, however, including DP World and Jebel Ali Free Zone. According to people close to the situation, that reduces the exposure to the $26bn of Dubai World debt that is being restructured to about $700m for RBS, and $350m for StanChart, for example – far smaller tallies than many had feared. The banks all declined to comment.
    ………..
    Other top 15 creditors include international banks such as BNP Paribas, Société Générale and Calyon.

    The $26bn of debt that is being restructured comprises $5.5bn of syndicated debt and close to $6bn of sukuk bond debt, with all of the latter issued by Nakheel. The balance is made up of bilateral lending deals between Dubai World companies and individual lenders, on which no data is published.

    The bookrunners for the $5.5bn syndicated issue, arranged in June 2008, were HSBC, ING, Lloyds, Mashreq Bank, RBS, Sumitomo Mitsui, Calyon and Tokyo Mistubishi, according to Bloomberg data. Typically, bookrunners retain 10-20 per cent of loans, syndicating the rest to third party lenders.

    Anger has been mounting in recent days, particularly among bond investors, who complain that they were duped by assurances given this year from Dubai’s rulers as to the emirate’s creditworthiness.

    After an announcement by Sheikh Mohammed bin Rashid al-Maktoum on September 8 that he was “not worried” about Dubai’s debt position, international investors piled into Nakheel bonds.

    Analysts said at the time that the announcement was a significant fillip to confidence in Dubai and its state-backed enterprises. “This is the first time that we are hearing from the ruler on Dubai’s debt issue. This has boosted market confidence dramatically,” said Nish Popat, the head of fixed income at ING in Dubai in a note to clients on September 9.

    Although local authorities insist they were referring to the state’s sovereign obligations, investors say the emirate had long cultivated the notion of a quasi-sovereign “Dubai Inc” family that was central to the state’s development and would be supported in the event of difficulties.

    “Nakheel is one of the most leveraged companies I’ve seen in my entire career,” said one hedge fund manager. “People bought it because they’d assumed there was some kind of state guarantee, which there wasn’t.”
    http://www.ft.com/cms/s/0/57c9c17a-df6f-11de-98ca-00144feab49a.html

  • 5 myths about home sweet homeownership.

    Reasons for owning the house are the same throughout the world, the main reason being that you are committed to save and in India owning a house has a sentimental value.
    But these values seem to be changing.My son , who is 29, had two reasons for not being interested in owning a house.One is that in the present market conditions, you can not predict how much is your take home pay is going to be is uncertain and instead of paying up mortgage amount monthly,when we pay rent we can have the satisfaction of that money being useful to a family, as one can not take home with him when he departs the world.Especially the second part appealed to me.
    Story:
    Even as we wade through the wreckage of the housing collapse, Americans remain a staunchly house-proud people. And our government is apparently determined to encourage us: This month, President Obama signed into law an extension and expansion of the popular homebuyer tax credit, which had been scheduled to expire at the end of November. But before you rush out to claim your extra cash, take a moment to make sure you’re not in the housing market for the wrong reasons. We’ve found that several of our most cherished beliefs about the value of a home don’t hold true:

    1. Housing is a great long-term investment.

    Historically, the value of owner-occupied homes has risen at a fairly low rate, one that pales in comparison with the performance of stocks and bonds. Between 1975 and 2008, the price for houses of comparable quality and size appreciated an average of about 1 percent per year after inflation. You would have earned well over 2 percent per year after inflation had you invested in Treasury bills over the same period. And you would have earned even more on riskier investments: After inflation, Moody’s corporate bond index rose an average of 6 percent per year between 1975 and 2008, while the S&P 500 stock index rose an average of 8 percent per year. Most of the return from owning your home comes not in financial gains but in the benefits you enjoy by living there.

    2. The homebuyer tax credit makes buying a house more affordable.

    Not necessarily. Just because you got an $8,000 tax credit toward the purchase of a home doesn’t mean that you actually saved $8,000. In areas where there is strong demand for housing and the supply of new housing is limited — including the Washington metro region — tax credits may result in the bidding up of home prices. In other words, the program has probably led to higher prices in these areas than we would be seeing without it. This means that some of the benefit of the tax credit is being passed on from homebuyers to home sellers.

    3. Homeownership is good for society because owners make better citizens.

    This is the rationale behind the government’s many efforts to subsidize and expand homeownership, and there is an appealing logic to the argument. Since homeowners have a financial stake in their communities, one might expect them to be more responsible and involved citizens. But there’s no overwhelming evidence that higher homeownership rates make for better societies. Austria, Germany and Denmark all have ownership rates in the low 40 percent range, meaning that just over two-fifths of all housing units are occupied by their owners. This is well below the 68 percent ownership rate in the United States, but those countries don’t appear to be suffering a shortage of civic-mindedness. At the other end of the spectrum, Spain’s ownership rate tops 80 percent, but no one seriously claims that this makes Spaniards better citizens than Americans.

    4. It’s safe to buy a house with a very low down payment.

    Because the Federal Housing Administration insures mortgages backed by down payments as low as 3.5 percent, you might think that buying a house with a low down payment is relatively safe. But in the case of a 3.5 percent down payment, a borrower winds up carrying $96.50 of mortgage debt for every $3.50 of home equity. And the less equity you have in your home, the greater the chance that a fall in prices will leave you owing more than the house is worth, a condition often described as being “upside down” or “underwater.” In this example, housing prices only need to fall by 4 percent to leave a buyer underwater.

    To put this in perspective, Lehman Brothers, Bear Stearns and other investment banks were using similar ratios of debt-to-equity to finance their investments before the financial crisis. Of course, buying your house with little money down is less risky than engaging in the complex trades that Lehman and Bear Stearns were making. Still, negative equity sometimes leads to mortgage defaults, and when buyers default, they lose not just their down payments but also closing costs and the value of any improvements they’ve made to their homes.

    Even if buyers don’t default, they may not be able to afford to move, because they have to pay off their old home loans to get new ones. My research suggests that households with negative home equity are half as likely to move as similar households with positive home equity. As a result, our borrowing binge during the recent boom will probably leave many people locked into their current homes. One of the great virtues of American society has long been our willingness to relocate and follow opportunity. But now, many families are going to be stuck in declining parts of the country, unable to take advantage of better labor market conditions elsewhere.

    5. Owning a home is cheaper than renting one because you save on rent.

    Most real estate agents will tell you this, but the argument doesn’t survive scrutiny. It’s true that if you own, you don’t have to write a check to a landlord. However, you have to cover all the costs of maintaining the house. It is the same house with the same operating costs, whether you pay them directly or whether you pay rent to cover them. By covering these costs as the owner-occupier, what you spend (including your mortgage payment) comes very close to what you would have spent if you rented your house.

    Many of us own because it is a way to commit to saving by building equity over time, but we should not expect to make large profits. Housing is an expensive durable good, and durable goods are costly to maintain. The main reason to own is because you really like your home, not because you think it makes you money. It doesn’t.

    http://www.washingtonpost.com/wp-dyn/content/article/2009/11/13/AR2009111302214.html?wpisrc=newsletter