Saturday, December 25, 2010
Maintain and use your credit card. It serves as an excellent tool to boost a good credit score if utilised properly. However, the trick is to use it well and avoid making late payments. Things like not stretching it too close to your credit limit, regular use of the card but timely payments upfront is proof of how you manage credit lent in the short term. This will lay the foundation or provide a sample of how capable you are in managing loans long term, hence this can prove to be an asset to your credit score and help in improving your credit score.
Yes, its official now! You will be able to access your credit scores in December 2010. The score will range between 300-900, indicating the levels of default and will be available to consumers for a sum not exceeding Rs.100 as prescribed by the RBI. CIBIL, which already has a huge database of credit reports, which are currently consulted by banks before sanctioning a loan is putting up the infrastructure to be ready to service consumers who wish to access their credit reports. Isn’t that great news? Now, many of you maybe wondering how your credit report will look like, how to go about setting any mistakes in the report right, how to maximise the benefits of being able to access your credit score and other such issues. Well, look no further.
Listed below are the top seven things you ought to do with your credit report:
1) GET A COPY OF YOUR CREDIT SCORE EVERY YEAR FOR AN ANNUAL REVIEW
You should study the credit report carefully for any hidden flaws or misinterpretations. If you find anything that you feel requires a second check, do it and if still you are convinced it is indeed a flaw, then you need to address the concern immediately and escalate the issue.
You should study the credit report carefully for any hidden flaws or misinterpretations. If you find anything that you feel requires a second check, do it and if still you are convinced it is indeed a flaw, then you need to address the concern immediately and escalate the issue.
2) TAKE UP ISSUES THROUGH THE FASTER ROUTE
You need to take up issues in your credit report with the bank in question first, if for instance its a debt situation, which has already been paid and is still being recorded as a debt. The bank will then update the credit agency regarding the status and all is well. This approach is less time consuming and far better than directly contacting the credit agency. If in case the bank does not oblige you can take up the matter with the credit agency and the banking ombudsman after waiting for a period of a month, which is the standard waiting period you must provide to the bank to take necessary action.
3) PAY YOUR BILLS ON TIME
Whether they are loans, credit card payments, insurance premiums every payment counts. If you have hassles remembering payments consider setting up an automated system with your bank to get it cleared within the due date. It is sure shot way to improve your credit score.
4) KEEP THAT CREDIT CARD AND USE IT JUDICIOUSLY
Maintain and use your credit card. It serves as an excellent tool to boost a good credit score if utilised properly. However, the trick is to use it well and avoid making late payments. Things like not stretching it too close to your credit limit, regular use of the card but timely payments upfront is proof of how you manage credit lent in the short term. This will lay the foundation or provide a sample of how capable you are in managing loans long term, hence this can prove to be an asset to your credit score and help in improving your credit score.
5) CREDIT TO DEBIT RATIO IS THE KEY FACTOR
As with all logic based reports, your credit report is based on the flow of credit and debt. Here the ratio between these two factors is directly related to your credit score average. For instance, if u have several outstanding debts, even if you pay them on time it would still affect your credit score as your total net worth goes down. Hence try and pay off as much debt as possible and keep them to a minimum before taking a fresh debt or loan.
6) DO NOT CLOSE YOUR CREDIT CARDS
In line with the same credit to debit ratio aspect, closing down your credit card may not help the score. Even if you do not use the credit card, it would still make sense not to to close it. If you have concerns and must absolutely close it, you may choose to do so but be aware that this also has a say in your credit score.
7) QUICKLY ACT UPON ISSUES IN THE CREDIT REPORT
Dispute a bad credit botch always, don’t sit back and let it remain. Try solving the issue by contacting the bank and the credit bureau. If your concerns are taking time to be addressed, credit report systems that are still evolving in India might soon discover at least temporary solutions to the issue like bookmarking the issue as something under the scanner. This will protect you from being evaluated on the basis of a faulty issue in the credit report. This may help you have enough time to resolve the issue with supporting evidence regarding any false debt situations.
Saturday, December 25, 2010 Comments
No income tax return will be accepted without the PAN and incorrect PAN can result in a fine being levied. Communication address should be correctly stated as all notices or other communication from the IT department will be sent to the provided address. Also make sure that the MICR code is correct if you want an electronic refund and also ensure that bank account details are correctly stated for hassle free refunds.
Filing tax returns is an annual mandate that tax payers have to comply with, the last date for which is in sight i.e. July 31st, 2010. In a haste to meet the deadline, make sure you do not miss key elements that can cause trouble later.
Critical information should be cross verified
No income tax return will be accepted without the PAN and incorrect PAN can result in a fine being levied. Communication address should be correctly stated as all notices or other communication from the IT department will be sent to the provided address. Also make sure that the MICR code is correct if you want an electronic refund and also ensure that bank account details are correctly stated for hassle free refunds.
Safe keep all relevant documents for future use
The IT department has done away with enclosing documents while filing returns i.e. proof of tax, statement showing computation of taxable income etc. Not having to produce it at the time of filing returns doesn’t meet that you can put away the documents carelessly. In case of scrutiny, the tax authorities may need supporting documents for verifying the claims made in the return.
Disclose exempt income and investments made
Income such as dividends from mutual funds and long-term capital gains on listed securities, are exempt from tax. Even though the tax laws do not require you to pay tax on the same, the law requires you to report these in your tax return.
Investments above a prescribed limit have also to be disclosed as per IT laws. They include:
Mutual fund investment in excess of Rs. 2 lakh
Cash deposits in excess of Rs. 10 lakh
Credit card payment in excess of Rs. 2 lakh
Bond investment in excess of Rs. 5 lakh
Property bought or sold in excess of Rs. 30 lakh
Report income from a previous employer
Employers deduct TDS from the employee’s salary. While computing the TDS, employers generally provide the basic exemption deduction to the employee. If at the time of changing the job, the employee has not informed the new employer, it could lead to a situation where the TDS cut by the new employee would be low, as he may be taking in to consideration the full deduction amount while calculating tax. Thus you may have tax liability at the time of filing returns. Not disclosing income from the previous employer may result in an income tax notice as it will be spotted when the TDS data is being reconciled.
Revision of Income
If the IT return has been filed before the due date i.e. 31st July, tax payers are entitled to submit a revised return in case of any error or omission therein. However, revision is not permitted if the return is filed beyond the due date.
Precautions taken at the time of filing returns will prevent hassles later. To make sure you file your returns before the 31st, start the process now- Procrastination is the thief of time!
Passive income can help you build up wealth over a period of time. It is also a good idea to create sources of passive income that will generate regular income for you once you retire or are unable to work for a time period. For example, if you have purchased an apartment for investment purposes and you let it out, the rental income you earn regularly can be utilized towards your monthly expenses when you retire.
Everybody is in the race to earn as much as they can. While your job or occupation generates income and is the primary source of livelihood, you can earn extra money by means of passive income. For example, the dividend income you receive from the shares you own is passive income.
This is because you are not actively working everyday to earn this income. However, you have invested in it one time and the investment earns you an income as times passes. Any income that is not related to your daily activity is passive income. Strictly speaking, passive income includes only the income for which one does not have to work regularly.
Passive income can help you build up wealth over a period of time. It is also a good idea to create sources of passive income that will generate regular income for you once you retire or are unable to work for a time period. For example, if you have purchased an apartment for investment purposes and you let it out, the rental income you earn regularly can be utilized towards your monthly expenses when you retire.
It is important that one finds ways to make your money work for you. Create assets and investments that will work to grow your money and supplement your salary. Passive income is extremely important when you cannot work for some reason. For example, in the event of an illness or accident, when you are not able to earn your regular salary, passive income plays a crucial role in maintaining your lifestyle.
Passive income is especially important for women. Most women take a break from their employment / occupation at certain points in their life like after marriage or having a child etc. It would boost their confidence if they earn some income even if they are not able to work for some time.
Types of Passive Income:
Interest Income – This is a very basic form of passive income and can be generated by all individuals. Interest earned on savings account balance, fixed deposits, recurring deposits or bonds is a risk free source of passive income.
Rent – If you are able to invest in a flat / apartment and do not need to use it for personal purposes, you can give it on rent. Not only can you earn regular income through rent but the deposit money paid by the tenants can fetch interest income. You can also earn passive income by renting out your vehicle.
Royalty income – If you have a creative streak to you and can earn royalty for any of your work, it is a good source of passive income
Dividend Income – Investment in shares can earn you dividend income. However, these investments come with a risk of loss, therefore, investing in good reputed companies with sound financial numbers is important.
Capital gains – shares, properties also grow in value with passage of time. These assets have an ability to generate huge capital gains over time.
Residual Income - is another form of passive income. For example, an LIC agent earns commission for the entire policy tenure of the customer even if he does not actively work on it once the purchaser buys the policy.
All and sundry – any money that you earn besides your job is passive income. Hence if you win a lottery or a competition, the income you earn is passive income. If you have a hobby of painting and you sell any of your paintings, it will generate passive income. If you are a financial controller and can take lectures or seminars in your free time it will generate income. Although, this does not strictly fall under passive income, it has great earning potential and should be considered.
Passive income is an important source of income. Therefore, one should create avenues of generating passive income even if it is very small in value. For example, you can begin with a fixed deposit of Rs.10, 000 and add to it as and when you can. The extra income can be utilized to build more wealth or simply spent on pampering yourself!
Monday, July 26, 2010
Diversification is a strategy to reduce a portfolio's exposure to risk by investing across different asset classes. Investments like stocks, bonds and real estate respond differently to different economic situations. So, if an asset class is not performing well, your entire portfolio is not affected.
The aim of a well-diversified portfolio is to mitigate risk, yield stable returns and provide ample liquidity. It is unwise to put all your eggs in one basket. Diversification involves investing your money across various asset classes.
Here are a few pointers for a well-diversified portfolio:
The aim of a well-diversified portfolio is to mitigate risk, yield stable returns and provide ample liquidity. It is unwise to put all your eggs in one basket. Diversification involves investing your money across various asset classes.
Here are a few pointers for a well-diversified portfolio:
Balance investments:
Have you invested heavily on a particular stock? If so, you are taking a tremendous risk. Reduce the size of any large investment that could pull down the performance of your entire portfolio.
Tread with caution when it comes to adding risky investments to your portfolio.
Balance risk and goal:
Your goal, risk appetite and investment objectives determine the extent of diversification. Diversify across different asset classes. Is your portfolio over-weighed by bonds?
Consider increasing exposure to other asset classes like stocks, precious metals and real estate. A well-diversified portfolio will not be drastically influenced in value and returns under fluctuating economic conditions.
Diversify within asset class:
Take for instance stocks. You can invest across different sectors like FMCG, pharma, bio-technology, energy, BFSI and utilities.
So, if banking sector is undergoing a lull, it wouldn't adversely reflect on your portfolio performance. Similarly, invest across different market caps.
Allocate percentage:
A general guideline is to allocate the same percentage of your corpus as your age to conservative investments like bonds and the remainder to riskier assets like stocks. If you are 30 now, invest 30 percent in bonds and the rest in stocks.
This guideline merely indicates that you must invest in high risk, high returns instruments when young and migrate to low risk, stable returns as you grow older. Professionally-managed mutual funds are a good choice for investors who do not have time for market research.
Dangers of over diversification: Over diversification could start adversely impacting your portfolio's returns. If you are invested in stocks of 10 different companies that are from across different sectors that have low correlation, your portfolio is well-diversified.
On the contrary, if your portfolio contains stocks of 25 different companies, your portfolio could be plagued by excessive diversification. While you wouldn't be impacted by a fall, you wouldn't gain much either in good time. Further, it is difficult to manage and keep track of numerous stocks and investments in an over-diversified portfolio.
Tread with caution when it comes to adding risky investments to your portfolio.
Balance risk and goal:
Your goal, risk appetite and investment objectives determine the extent of diversification. Diversify across different asset classes. Is your portfolio over-weighed by bonds?
Consider increasing exposure to other asset classes like stocks, precious metals and real estate. A well-diversified portfolio will not be drastically influenced in value and returns under fluctuating economic conditions.
Diversify within asset class:
Take for instance stocks. You can invest across different sectors like FMCG, pharma, bio-technology, energy, BFSI and utilities.
So, if banking sector is undergoing a lull, it wouldn't adversely reflect on your portfolio performance. Similarly, invest across different market caps.
Allocate percentage:
A general guideline is to allocate the same percentage of your corpus as your age to conservative investments like bonds and the remainder to riskier assets like stocks. If you are 30 now, invest 30 percent in bonds and the rest in stocks.
This guideline merely indicates that you must invest in high risk, high returns instruments when young and migrate to low risk, stable returns as you grow older. Professionally-managed mutual funds are a good choice for investors who do not have time for market research.
Dangers of over diversification: Over diversification could start adversely impacting your portfolio's returns. If you are invested in stocks of 10 different companies that are from across different sectors that have low correlation, your portfolio is well-diversified.
On the contrary, if your portfolio contains stocks of 25 different companies, your portfolio could be plagued by excessive diversification. While you wouldn't be impacted by a fall, you wouldn't gain much either in good time. Further, it is difficult to manage and keep track of numerous stocks and investments in an over-diversified portfolio.
Monday, July 26, 2010 Comments
Measured by profits, Microsoft trounces Apple and Google. In the most recent three months, Microsoft earned $4.52 billion, versus Apple’s $3.25 billion and Google’s $1.8 billion. But, dear investors, where is the love for this beaten-down company?
Frank X. Shaw, Microsoft’s vice president for corporate communications, recently tried a new tack to win respect. In a June 25 blog post titled “Microsoft by the Numbers,” he compared Microsoft’s record in various business categories with that of competitors.
Unfortunately, by trying to argue that Microsoft is doing well in all areas, including those dominated by Apple and Google, Shaw fails to show Microsoft at its best. Lost from view is what arguably is Microsoft’s very best story – its transformation into a powerhouse supplier of the specialized software that meets the complex needs of large corporations, what the trade calls selling to “the enterprise.”
Microsoft’s enterprise software business alone is approaching the size of Oracle. But despite that astounding growth, Microsoft must accept that, fair or not, victories on the enterprise side draw about as much attention as being the No.1 wholesale seller of plumbing supplies. Microsoft won’t receive the adoring attention that its chief rival draws with products like the iPad.
In a conversation this month, Shaw explained what prompted him to write his post. “I noticed some pretty critical conversations going on in the technosphere among the technorati,” he said. “There’s a gap between that conversation – ‘the company is not doing well, period’ – and what the company is actually doing.”
In the blog, he writes, “With Windows 7, Office 2010, Bing, Xbox 360, Kinect, Windows Phone 7, in our cloud platform, and many other products, services and happy customers, 2010 is shaping up as a huge year for us.”
By encompassing just about every product category under the sun – and then calling out Apple and Google, of all targets – Shaw draws attention to Microsoft’s weak spots.
Bing, its search engine, attracted 21.4 million new users in one year, Shaw says. Very well, but he does not mention the following: in 2007, the company’s online services group lost $604 million; in 2008, $1.2 billion; and in 2009, the year of Bing’s introduction, $2.25 billion.
Sunday, July 25, 2010
Concluding the FTA negotiations will send a clear signal of engagement on both sides. It would boost both trade and investment between EU and India, said Daniele Smadja, head of India’s delegation to the EU
New Delhi: India and the European Union (EU) are to hold a fresh series of free-trade talks in August in Brussels in a bid to clinch a deal by the end of the year, an official said.
Chief negotiators for India and its largest trading partner will meet at the European Union headquarters in Brussels in August as part of a push to conclude negotiations on the India-EU free-trade pact by December.
“We hope we will keep that (December) date,” Daniele Smadja, the head of India’s delegation to the EU, said late Friday.
“Concluding the FTA negotiations will send a clear signal of engagement on both sides. It would boost both trade and investment between EU and India. We need to seize the opportunity -- a one-in-a-lifetime for both of us.”
As part of the drive to wrap up talks, the two sides will meet in Brussels in the last week of August, she said. Around the same time, Indian commerce minister Anand Sharma and the EU trade commissioner Karel De Gucht will meet on the sidelines of an international meeting in Vietnam, she added.
India and the 27-member EU have been negotiating the market-opening pact since June 2007 to boost bilateral commerce.
But progress has been stymied by differences over intellectual property rights and efforts by Brussels to link trade with climate and India’s social sector performance in such areas as child labour.
India has opposed incorporation of what it calls “extraneous” non-trade issues into the EU talks.
Other issues include the seizure of Indian generic drugs meant for Third World countries as they pass through European ports. India claims developed countries are using the cover of a fight against counterfeit medicines to protect pharmaceutical giants and suppress legitimate generic drugs.
So far nine rounds of free-trade negotiations have been completed.
India’s trade volume of $80.6 billion with the EU accounts for 21% its exports and 16% of imports.
The EU and India set an ambitious target of more than doubling their bilateral trade to $200 billion in the next four years if a free-trade deal is concluded.
Sunday, July 25, 2010 Comments
The council has already moved up the forecast for wholesale price inflation at the end of March 2011 from RBI’s 5.5% to 6.5%
The Prime Minister’s economic advisory council’s candid comments on the need for monetary tightening are clearly aimed at the Reserve Bank of India (RBI), which will hold its quarterly review of monetary policy on Tuesday. The council hasn’t toed the party line of a “calibrated exit” from monetary stimulus enthusiastically espoused by both the central bank and the government. Instead, it has said the recovery is strong and, therefore, “in the backdrop of inflation rates that are more than twice the comfort zone, it is important that monetary policy completes the process of exit…” It couldn’t have been more explicit.
The council has already moved up the forecast for wholesale price inflation at the end of March 2011 from RBI’s 5.5% to 6.5%. With expected inflation at 6.5% and the current repo rate at 5.5%, the policy rate is a negative 1%. So it’s hard to see how a policy of “calibrated exit” will work, especially since non-food manufacturing inflation was at 7.3% year-on-year in June. Deutsche Bank AG has a chart, reproduced here, that shows the gap between real growth and real interest rates is very high.
The stock market is, therefore, sanguine that high growth will offset any timorous attempts to tighten monetary policy, with none of the so-called rate-sensitive sectors showing any big changes in the run-up to the monetary policy announcement. While the Bombay Stock Exchange’s Sensex moved up 0.98% last week and 2.26% in the past one month, look at the gains in the rate-sensitive indices: the BSE Bankex up 0.83% last week and 4.52% in the past one month; the realty index up 0.72% and 9.47%, respectively, and the auto index up 0.92% and 1.56%, respectively. The yield on the benchmark 10-year government security is at 7.68%—here, too, the rise has been only 4 basis points in the past week. One basis point is one-hundredth of a percentage point. The markets love “calibrated” tightening.
Friday, July 16, 2010
The letdown announced on Thursday stemmed from Google’s expanding payroll and a run-up in the US dollar that has been driven by fears that the euro will crumble if governments in Greece, Spain, Portugal and Italy default on their perilously high debts
San Francisco: Google Inc.’s second-quarter earnings missed analysts’ target as higher expenses and the fallout from the European debt crisis dragged down the Internet search leader.
The letdown announced on Thursday stemmed from Google’s expanding payroll and a run-up in the US dollar that has been driven by fears that the euro will crumble if governments in Greece, Spain, Portugal and Italy default on their perilously high debts.
The worries hurt Google because about one-third of the company’s revenue comes from Europe, and customer payments made with the euro translated into fewer dollars than a year ago. Even so, the currency squeeze wasn’t as severe as some analysts anticipated.
Meanwhile, Google is spending more to maintain its commanding lead in Internet search while it also tries to diversify by developing products in other promising niches such as online video and mobile devices. To help achieve its goals, the company added nearly 1,200 employees in the second quarter to end June with more than 21,800 workers.
Despite the rising expenses, Google’s net income rose at a fast clip as second-quarter revenue came in slightly above analysts’ forecasts. But the earnings growth wasn’t quite as robust as analysts had hoped, a factor that seemed to amplify investor concerns already weighing on Google’s stock price.
Google shares fell $20.49, or more than 4%, in extended trading Thursday after the release of results. Earlier, the company finished the regular session at $494.02, up $2.68.
Although Google remains the Internet’s most profitable company, investors have been fretting about signs of decelerating growth amid stiffer competition from Apple Inc., Facebook and Microsoft Corp. On top of those challenges, a showdown over online censorship in China that has muddied Google’s future prospects in the world’s most populous country.
Thursday’s report offered some encouraging news, though.
In a positive sign for the overall economy, marketers were willing to pay more for the online ads that generate virtually all of Google’s income, and people are clicking on the commercial messages more frequently. Those trends provide another indication that more companies and shoppers are feeling a little better as they recover from the worst economic downturn in more than 70 years.
“We are really pleased with the way we are performing in this economy,” Patrick Pichette, Google’s chief financial officer, said during a Thursday conference call with analysts. “That’s why we feel confident about the future.”
Google, which is based in Mountain View, earned $1.84 billion, or $5.71 per share, in the April-June period, up 24% from $1.48 billion, or $4.66 per share, a year ago.
If not for expenses covering employee stock compensation, Google said it would have made $6.45 per share. That figure was below the average estimate of $6.52 per share among analysts polled by Thomson Reuters.
Revenue climbed 24% to $6.82 billion, from $5.52 billion a year earlier. After subtracting commissions paid to its ad partners, Google’s revenue stood at $5.09 billion about $10 million above analyst projections.
In other key figure watched closely by investors, the number of revenue-generating clicks on Google’s ads in the second quarter increased 15% from the same time last year. The gain is in the same range as the increases in the past year.
The average price per ad click in the second quarter edged up 4% from last year, but it’s slower than the growth seen during the previous two quarters.
After clamping down on its costs most of last year, Google has been spending more freely because management believes the U.S. economy is steadily rebounding, with electronic commerce and the rest of the technology sector leading the charge.
Google has brought in nearly 2,000 employees during the first half of this year, through both recruitment and a flurry of mostly small acquisitions. The company’s spending on data centers and other projects known as capital expenditures totaled $476 million, more than tripling from the same time last year.
Pichette said the company plans to continue investing in more employees and technology as it tries to position itself to take advantage of an improving economy.
To help pay for its ambitions, Google said Thursday that it will take on significant debt for the first time in its six years as a public company, even though it has $30 billion in cash. The company’s board of directors approved a plan to borrow up to $3 billion.
Friday, July 16, 2010 Comments
Sunday, July 11, 2010
It's too early to say the economic crisis in Germany has passed because considerable risks to the recovery remain, the head of the Federal Labour Office, Frank-Juergen Weise, was quoted as saying on Saturday.
Weise told German newspaper Rheinpfalz am Sonntag that while developments on the labour market were better than expected, he was worried "the economic crisis is being declared over," he said in excerpts from an article due to appear on Sunday.
"There are still major uncertainties," Weise said.
Adjusted for seasonal swings, unemployment fell for a 12th straight month in June to its lowest level since December 2008. However, concerns about the outlook for 2011 cast some doubt over whether the jobless total could fall much further.
The German economy suffered easily its biggest postwar recession in 2009, shrinking by some 5%. Since then, an export-led recovery has enabled the country to make up a substantial portion of the ground lost in the slump.
Many analysts believe Europe's largest economy probably grew by at least one percent in the second quarter, accelerating from 0.2% in the January-March period. However, leading indicators suggest the recovery may slow in the months ahead.
Sunday, July 11, 2010 Comments
Thursday, July 8, 2010
In efforts to play the role of a matchmaker, investment bankers are tracking some old pvt banks in the south. HDFC Bank Ltd, Kotak Mahindra Bank Ltd and IndusInd Bank Ltd. have set their eyes on acquisitions.
The Indian banking industry may see a few mergers and acquisitions (M&A) deals this year, ahead of the banking regulator releasing the licensing norms for new banks that are expected to open for business in the next two years.
At least three new generation private sector banks— HDFC Bank Ltd, Kotak Mahindra Bank Ltd and IndusInd Bank Ltd—have set their eyes on acquisitions.
It is not known whether they have given a mandate to investment bankers for such acquisitions, but some dealmakers are independently reaching out to potential acquirers with suggestions on possible targets.
At least one foreign bank is recommending stocks of some south India-based old private banks to its high networth clients for investment because it feels that the market value of these banks will substantially go up once they are actively wooed by the new generation banks for possible acquisitions.
Addressing shareholders at HDFC Bank’s annual general meeting last week, managing director and chief executive officer Aditya Puri said he would look for a merger with a bank in the southern part of the country.
Kotak Mahindra Bank has already created a war chest for acquisitions by selling 4.5% stake in the bank for $296 million (around Rs1,400 crore today) to Sumitomo Mitsui Financial Group Inc. Its vice-chairman and managing director Uday Kotak has previously said that he is “sniffing around” for acquisitions.
Kotak recently conducted due diligence on CitiFinancial Consumer Finance India Ltd (CitiFinancial) that gives home and personal loans to retail borrowers in the low income segment, but the deal did not go through. It is now looking closely at a south India-based old bank, an executive at another bank said, asking not to be identified.
There have been talks in investment banking circles that IndusInd Bank, too, is actively looking at some proposals.
Its managing director and chief executive officer Romesh Sobti told Mint his bank is “open to acquisitions as we now feel we have the financial muscle and required managerial skill to look at opportunities”, but declined to divulge details.
An official of the Hinduja group, of which IndusInd Bank is a part, speaking on condition of anonymity said the bank has not appointed any investment banker as yet, but had received a proposal from one investment bank. “We are open for inorganic growth options if we get the right opportunity at the right price,” he added.
IndusInd Bank had acquired Ashok Leyland Finance Ltd, also part of the same group, in April 2003.
Investment bankers are closely tracking some old private banks, such as City Union Bank Ltd, Karnataka Bank Ltd, Federal Bank Ltd, Karur Vysya Bank Ltd, South Indian Bank Ltd and the unlisted Catholic Syrian Bank Ltd. These may or may not be available for acquisitions, but investment bankers are talking to most of them in their efforts to play the role of a matchmaker. Federal Bank is the most valuable among them with a market capitalization of close to Rs6,000 crore.
Once the new banks open for business, competition will intensify and many of these banks may find it difficult to grow; new generation private banks are aggressively looking at opportunities to expand their branch network and widening their presence pan India.
ICICI Bank Ltd, India’s largest private sector lender, is in the process of acquiring Bank of Rajasthan Ltd for its 463 branches. ICICI Bank had earlier acquired Bank of Madura Ltd and Sangli Bank Ltd, again for their branches, and their presence in southern and western India, respectively.
HDFC Bank has acquired two banks in the past—Times Bank Ltd and Centurion Bank of Punjab Ltd.
“Most of the south-based private sector banks fit the bill in terms of providing scale and penetration,” said the MD and CEO of a private sector bank, speaking on condition of anonymity as his bank is also looking for possible acquisitions.
His bank is not one of the three banks named in the beginning of this story.
However, analysts and consultants said the task will not be easy as many of these banks have a dispersed ownership and active trade unions.
“The issue with some of the listed south-based banks is that they have a dispersed shareholding. In the presence of a dominant shareholder, negotiations becomes easier, but in cases where the holding is scattered, (getting) everybody on the (same) page becomes very difficult,” said Bobby Parikh, managing partner of tax consultancy BMR and Associates.
Unionized employees, typically, oppose any merger for fear of losing their jobs, but in most cases despite their opposition, the mergers go through. The employees of the erstwhile Lord Krishna Bank Ltd had opposed its merger with Centurion Bank of Punjab and delayed it by a year, but could not stall it. After this merger, Centurion Bank of Punjab was acquired by HDFC Bank.
G. Chokkalingam, director and head (research and strategy) at Barclays Wealth India, said there are seven-eight listed old generation private sector banks, which have grown rapidly in the last six-seven years and “they do not have any identifiable promoter”.
“The entity who gets the banking licence will take at least one-two years to set up shop. In anticipation, we can see some of the players acquiring strategic stake in some of these old private sector banks,” he added.
Some of the companies that aspire to float banks already hold stakes in some old private banks. For instance, Larsen and Toubro Capital Holding Ltd holds 4.81% stake in City Union Bank and 4.68% in Federal Bank. Tata Capital Ltd holds 3.29% stake in Development Credit Bank Ltd and Reliance Capital Trustee Co. Ltd holds 1.14% stake in Dhanalakhmi Bank Ltd.
“The latest acquisition in old private sector banking space (Bank of Rajasthan) has taken place at 5.5 times adjusted bookvalue. Whereas few high quality, fast growing banks in this space are available around two times their adjusted book value... We find this segment still quite attractive,” said Chokkalingam.
Analysts find these banks an attractive proposition for potential buyers as their customer focus is largely on small and medium enterprises, which will drive asset growth in the future.
Thursday, July 8, 2010 Comments
Sunday, July 4, 2010
So this is the way the quarter ends: not with a whimper but with a bang.
First investors had their hair set on fire by the "flash crash" of May 6. Then came the jolt of June, as stocks lost another 5.2% and finished the month with five down days in a row.
As usual, the markets made a monkey out of anyone who had been certain about what had to happen next.
Europe is in worse shape than the U.S., said the consensus this spring—and, right on cue, European stocks outperformed the U.S. market sharply in June. Treasury securities, legions of experts declared earlier this year, were doomed to lose money—and promptly boomed, with long-term U.S. government bonds gaining 8% last month and 23% year-to-date. And even as the housing market faltered again, real-estate stocks did slightly better than U.S. equities overall.
Meanwhile, volatility burst back onto the scene. The widely followed "fear gauge"—the CBOE Volatility Index, or VIX—nearly tripled from April to May, after a long decline from the jagged days of late 2008 and early 2009. After falling back in early June, the VIX spiked again in the final days of the month.
Investors have taken note. On June 30, according to IndexUniverse.com, iPath S&P 500 VIX Mid-Term Futures, which tracks futures contracts on the volatility index, was the fastest-growing exchange-traded product in the country. It grew by 25% on that day alone, taking in $128 million from investors hoping to profit from the spike in turbulence. The iPath instrument has returned 9% over the last month and was up 46% in the second quarter, according to Morningstar, the investment-research firm.
Meanwhile, although figures aren't in yet for June, trading activity by clients at Charles Schwab was up 17% in May from April—which, in turn, was up 12% over March. At TD Ameritrade, the average number of daily transactions has grown at about 14% over the same period. "There are more people trading," says Jay Pestrichelli, a managing director at TD Ameritrade, "and there are more people trading options to try to take advantage of volatility."
Before you join the crowd trading on turbulence, there are a few things you should know.
First, while volatility provides a close mirror image of current returns, it is a poor forecaster of future returns. Robert Engle, a finance professor at New York University who shared the 2003 Nobel Prize in economics for his research on volatility, warns that "there really isn't any predictability in that direction." He explains, "Even though volatility tends to be high in bad markets, that doesn't mean the market is going to keep going down—it just means the market has been going down."
Prof. Engle adds that periods of high—or low—turbulence don't persist indefinitely. "When you're in a stormy period, there is a tendency for the storm to end," he says. "But it's not a very strong effect, and it can take a long and uncertain time." It is possible to forecast volatility "in general," says Prof. Engle, "but there's a lot of uncertainty around those forecasts."
In short, "volatility has a volatility of its own," says finance professor Robert Schwartz of Baruch College at the City University of New York. That is precisely why the prices of the various products based on the VIX vary drastically over time.
Just as you are likely to add earthquake coverage to your insurance policy after—but not before—the ground has been shaken, the VIX typically goes up as stocks go down, and vice versa.
Investors have a chronic habit of chasing any asset that rises and fleeing it when it falls, even though they should become less willing to buy into whatever grows more expensive and more eager to pick up whatever gets cheaper. (Just think of how much happier you were to hold stocks three years ago than you are today.) The surging interest in trading on turbulence seems to be working much the same way. As volatility has become more costly to "own," more people want to buy it. When it was cheaper, it went begging.
There is little doubt that adding some volatility insurance to your portfolio is a good idea. But the time to do so is when most other investors have no interest in it—not when it is in the midst of a sudden burst of popularity. If you want to capitalize on volatility, wait until markets are calm, not stormy, and the prices of the various VIX products come down. Right now, Prof. Engle says, "it's insurance, but it's gold-plated insurance."
Sunday, July 4, 2010 Comments
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