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MUMBAI: Much has been written and spoken about the great Indian growth story that has
been playing out for the past seven years. But which stage of the story is the stock market
discounting right now? Having more than doubled over the past 15 months and
outperformed many other emerging markets, is India still as attractive an investment
destination as it was till last year? Does it deserve the premium valuation it is commanding
right now? How will India fare, if the problems in some parts of Europe, and in the US,
worsen? These are some questions nagging market participants, as equity benchmarks
struggle to decisively break out from the range they have been restricted to.

To debate these points and get clues on the market͛s direction, ET NOW, your paper͛s
business channel, put together a panel of some of the best investment gurus at its Markets
Summit 2010, held on Friday. The panellists were Rakesh Jhunjhunwala, partner, Rare
Enterprises; Shankar Sharma, vice-chairman & joint MD, First Global; Christopher Wood, MD
& equity strategist, CLSA; Samir Arora, fund manager, Helios Capital, and Manish Chokhani,
CEO & director, Enam Securities.

The discussion ranged from macro-economics to the metaphysical, as the big guns tried to
figure out which way the market is headed over the next few months.

Mr Sharma and Mr Arora were circumspect about the near-term prospects of the market,
while Mr Jhunjhunwala and Mr Chokhani sounded upbeat. Mr Wood has been bullish on
India for some years now, and still retains that view, though from a longer-term perspective.

Some of the views of the panellists were rooted in solid numbers while some others were
based on anecdotal evidence.

Mr Jhunjhunwala said investors are anticipating a correction to be triggered by more bad

news from the developed economies. But he felt that it was unlikely to happen for the
simple reason that almost everybody was betting on it.

͞Things have never played out in the market the way everybody on the Street expects it to,͟
said Mr Jhunjhunwala. ͞The Western world is facing its biggest challenge till date, because
the challenges are structural and not cyclical. There will be sub-par growth for a while, but
there will be no failure of the system; the countries will recover,͟ Mr Jhunjhunwala said,
adding he did not foresee any major problems for the next 6-9 months from that part of the
world.

Mr Arora said the challenge was that of all the positive stories that are being talked about,
how many of them can be delivered.

͞As an investor, I have benefited. But as an Indian, I have felt let down,͟ Mr Arora said,
adding in a lighter vein that he always maintained that one day, India would become the
largest emerging market. ͞Because by then, all the other markets would have developed.͟
And while there could be plenty of opportunities in the coming months, a lot would also
depend on stock selection. This is unlike the case last March or during the bull run of 2007-
08, when there was a high probability of making good returns on any random stock.

͞The market has become two-tiered,͟ said Mr Sharma. ͞You are watching two different
markets depending on which part you are looking at. So when I look at Punjab National
Bank, that͛s a very different market from looking at, let us say, Reliance Industries, which has
not moved at all,͟ he said.

Is the huge pipeline of impending public issues a cause for concern. Definitely not, if Mr
Chokhani is to be believed.

͞The issuance pipeline one is talking of in India is $80 billion at best. In China, the
Agricultural Bank raises $20 billion and here we are worried about $80 billion of total
issuance in India,͟ said Mr Chokhani.
±   

   
The cost-cutting measures undertaken by a host of insurers over the past year have borne
fruit. Several private insurance companies have reported profits for the first quarter of the
current fiscal. However, there is uncertainty over the sustainability of these profits as new
guidelines on unit-linked insurance plans (ULIP) will impact medium-term growth outlook as
well as new business margin (NBM) of private-sector insurance companies.

The new regulations will push companies to undertake further cost cuts, given the sensitivity
of changes in cost on NBM. ͞Companies would need to work on their persistency ratio,
distribution mechanism as well as product strategy to minimise adverse effects on new
business margins,͟ said Sanket Kawatkar, practice leader, Life insurance consulting India,
Milliman.

Private players recorded have a 21% increase in income from sales of new policies during the
quarter. More than the new business it is the growth in the renewal business and asset
under management that has led to improved results for most insurance companies.
However, a report of IIFL by Mr Sampath Kumar states, ͞We believe new business premium
income is unlikely show growth in FY2011, given the high dependence on ULIPs. We forecast
negative-to-zero growth in new business premium income for FY2011. We believe risks are
on the downside to our current expectations. We expect growth outlook to remain modest
in FY2012 as well.͟

Most of the private insurers have reported profit this quarter; two insurers registered their
maiden profit since inception, while two big insurers endured loss. Max New York Life
reported profit of Rs 19 crore, for the first time since inception, against a loss of Rs 79 crore
in the corresponding quarter last year. The income from new business grew around 4%.
Renewal premium grew the most at 25%. Also, the company reduced its management
expense ratio from 44% to 38% on a year-on-year basis.

Birla Sun Life Insurance has recorded its maiden profit of Rs 9 crore in Q1 FY 2010-11 against
a loss of Rs 111 crore in Q1 FY 2009-10. ͞The company has been taking up several initiatives
to drive profitability of the business including improvement in persistency/renewal
premiums, optimisation of cost and also broad-basing the product mix to include more
traditional products͟ said Mayan Bathwal, CFO, Birla Sunlife Insurance. As a result, the share
of renewal premium has gone up to 58% of the total premium, registering a growth of 27%.
The cost optimisation effort has yielded a reduction in opex rates by 200 basis points.

SBI Life Insurance reported a profit of Rs 114 crore against Rs 39 crore in the same quarter
last year. Renewal premium was a savior for them, as its new business income fell by 9%.
Renewal premium helped the insurer register an impressive profit growth of 195% over the
year ago period.

Bajaj Allianz Life Insurance registered a net profit of Rs 169 crore compared with Rs 68 crore
in the same quarter last year. Its new business income grew marginally by 4% to Rs 603
crore as the company focused on profitability. However, the renewal premium fell by 13%.

ICICI Prudential and HDFC Standard Life, the two largest private sector players in terms of
new business, reported a loss after tax this quarter, due to the strain faced by a new
business. However, ICICI Prudential has said that the loss of Rs 116 crore is before
accounting for a surplus of Rs 235 crore in the non-participating policyholders͛ funds, which
will be transferred at the end of the financial year. HDFC Standard Life has, however, not
provided any comments on its Q1 loss.
 The rush to safe assets
It is now more than two years since the global financial meltdown, but the global economy
still suffers from severe economic imbalances on account of large current account deficits
run by some countries and the huge foreign exchange reserves that are held by the surplus
countries. In 2006, the US current account deficit accounted for as much as 2% of world
GDP. These imbalances have come about because of several factors. In the 1970s, it was
inflation in the West on the back of the oil cartel raising crude oil prices to stratospheric
levels that transferred unimaginable wealth to avery few in west Asia.

In more recent times, it has been the insatiable appetite for cheap consumer goods in the
West that has helped some Asian countries accumulate huge foreign exchange reserves. The
large foreign exchange reserves held by the trade-surplus countries have, in turn, created a
massive demand for safe assets for investment of these surpluses, and this is seen as one of
the root causes of the global financial meltdown in 2008.

Over the last decade, while the robust export-led growth in several countries in the
emerging market space led to generation of significant current account surpluses , these
markets have not attained the maturity to create sufficiently-liquid stores of value in which
the surpluses can be invested. These surpluses, therefore, find their way to safe assets that
are largely issued by the developed countries.

Among such financial assets are sovereign and quasi sovereign bonds issued by nations that
are seen to respect property rights and have well-tested bankruptcy procedures, resilient,
liquid and deep financial markets with minimal risks of government expropriation.

Some developed countries are privileged to be in a position to issue large volumes of these
safe assets that has resulted in falling yields on their bond issuances. The incessant rise in
gold prices can also be largely ascribed to the growing demand for safe assets.

In his recent paper on this subject, Ricardo Caballero of MIT has argued that it is this
insatiable hunger for safe debt instruments and the scarcity of such instruments that created
the setting for the large global banks to exploit the opportunity. These banks effectively
addressed the safe asset shortage phenomenon at a profit by creating synthetic safe assets
from the securitisation of lower quality ones by slicing and dicing them to various tiers, ably
assisted by willing credit rating agencies but at the cost of exposing the economy to the
systemic panic that unfolded in 2008.

It is worth considering the possible policy options that are available to address the acute
shortage of safe assets. The surplus countries can moderate their demand for safe assets by
partly investing in riskier assets. The memories of the Asian financial crisis of the mid-1990 s
are possibly too fresh for these newly-surplus countries to consider taking higher levels of
risks with their reserves.
Despite the current global slowdown, over the last 12 months itself, Asian countries have
generated a current account surplus of around three quarters of $1 trillion. Their holding of
foreign exchange reserves is in excess of $6 trillion, around two-thirds of the global foreign
exchange reserves.

The key takeaway from the global financial meltdown of 2008 and the ongoing sovereign
credit crisis is that a suitable framework should soon be put in place for addressing the
potential systemic problems that has widespread acceptance across countries. Such a
framework would need an agreement on the holding of a diversified portfolio of assets
across the risk spectrum by the surplus countries instead of a concentrated portfolio of safe
assets.
R
est i research before you choose your
broker
Most investment products ² stocks, non convertible debentures, mutual funds,
gold (through exchange-traded funds) ² can be bought through an investment
trading account. Hence, opening a broking account is a must for anyone looking
to invest today. Here are some points you should kee p in mind while selecting a
broker.

Reliability & product offering

Today there is a plethora of brokers available at the nook and corner of every
street. ³Advice, servicing capability and stability should be of prime importance
while choosing a broker,´ says Vineet Arora, head ± products and distribution,
ICICI Securities. You need to understand how reliable has the broker been in
good and bad times? Is the past track record of the broker clean? When you sell
a share, do you get your payment on the payo ut day as specified by the
exchange? Most brokers provide you with an SMS facility whereby, at the end
of the day, you get an SMS confirming your trades as well as the debit or credit
position in your account. In addition, you need to check if your broker can offer
you the entire basket of products, so that you need not have to go shopping
elsewhere. Whether he offers you mutual funds, online IPOs are some of the
things you should consider before opening your account.

Online & offline platforms

Does your broker provides you with both the platforms for trading? In case you
are unable to access the internet or the website of the broker is down on a
particular day, is there a reliable call centre, where you could call in and execute
your trade.

This is essential, more so for active traders, as positions if left open in a falling
market could lead to a terrible loss. If you believe in the offline mode, is the
broker¶s office close to your house? Does he have enough operators to service
you and execute your calls on the phone? Will he be able to deliver contract
notes or collect/ deliver cheques from your residence, in case you are unable to
do so? How many payment gateways does the broker have? If you have a bank
account with a nationalised bank wh ich is not empanelled with the broker,
would you want to open another bank account to trade with that broker?
³Having multiple payment gateways is extremely critical as clients do not want
to change their bank accounts,´ says R Kalyanaraman, senior vice -president,
Sharekhan, which has a tie -up with 13 banks for a payment gateway.
Costs & fees

There are many brokers who charge as much as Rs 750 for opening your
account. While there are several others who offer an account opening facility
free-of-charge in order to attract customers. However, they may ask you to buy
shares worth a small amount of Rs 10,000 within fifteen days of account
opening. Along with that, they also offer you a demat account free -of-charge for
the first year. Another factor to be considered is the brokerage cost. Most
brokers charge you a transaction brokerage, while certain others offer you
prepaid cards. So, if you commit an upfront brokerage, then the percentage
brokerage that you pay on a per transaction basis reduces.

Some of them provide you stock recommendations through SMS, for which
they may charge you a small fee of say Rs 100 per month. Keep costs in mind in
the long run.

Portfolio tracker

There is a lot of technology which goes in creating a good portfolio tracker. It

would help if a portfolio tracker combines all asset classes. Also, for tax
calculation, it is essential to get your long-term and short-term gains right. ³Our
portfolio tracker helps you create 10 different sub -portfolios,´ says Kedar
Deshpande, head of retail broking, Edelweiss Securities. For example, you may
want to buy 10 shares of Reliance for the short term, 10 with a 1 -year
perspective and 10 shares for your retirement that could be created. So, you can
create sub-portfolios rather than a single portfolio, which will give you a correct
picture of your investments.

Research support

It is the backbone of a lot of brokers. Check the past recommendations of the

brokerage house. Check if it is supported by the institutional desk. Good quality
research helps clients take informed decisions. Bigger and reputed brokers have
strong research teams, which track a number of companies. Based on this, they
do come out with short-term as well as long-term recommendations. Some of
them provide model portfolios, which you could replicate. If you are a high net
worth individual, you could be assisted with a relationship manager who can
monitor your investment needs. There are websites like that of Edelweiss,
which create quantitative portfolio baskets for clients, which can be executed
with a single click.
 ` ip ru es may affect compa ies'
profitabi ity
HYDERABAD: The insurance regulator IRDA on Monday said profitability of insurance
companies will be impacted with its new guidelines for unit-linked plans, which invest part of
funds in equities.

The regulator advised companies to reduce their expenses to maintain the bottomline in the
long run. ͞I do hope there will be an impact (on profitability). Ultimately the idea of
guidelines is to have impact. My concern for the insurance industry is not what is going to
happen in 2010-11. The concern is that the industry must remain healthy, be able to grow
and be sustainable,͟ IRDA chairman J Harinarayan told reporters here.

He was speaking on the sidelines of the inauguration of NSE.IT, a subsidiary of the National
Stock Exchange, for online testing for insurance agents. He said the insurance companies
must take a look at long term achievements and should bear with the initial hiccups.

͞Insurance is always a long term industry. What might happen in six months and one year is
not important. There may be some hiccups. What is going to happen in mid- and long-term
is significant. So what might happen in the given year is not important,͟ he said brushing
aside the industry apprehensions.

Insurance companies are of the opinion that the capping of surrender charges and the even
distribution of charges over the lock-in period of five years will adversely impact the
profitability of companies.

Ulip sales will also be adversely affected as agents may be unwilling to sell products at lower
commissions. He said the companies should adopt cost-cutting measures in order to
maintain the profitability.

͞When you are trying to contain cost, it is not by doing one thing. It can be your electricity
bills administrative cost, travel cost and also agents cost. There will be a host of things to be
implemented. The insurance companies should redesign their products and they must be in
the interest of policy hodlers,͟ Mr Harinarayan said.

Commenting on the cashless insurance schemes being refused in corporate hospitals, the
IRDA chief said as on July 1 there were are about 320 hospitals in the network for cashless
facility in four metros which later decided to withdraw the cashless facility in view of high
charges.

Subsequently the hospitals renegotiated rates with insurance companies. As many as 390
hospital signed up for network facility. The hospitals also constituted an internal committee
for pricing, Mr Harinarayan said.

Replying to question on the PFRDA͛s opinion that pension plans of insurers must logically
come under its purview, he said the matter will be referred to the joint committee to resolve
issues that involve two regulators.

Mr Harinarayanan said draft norms for the health insurance sector will be announced
shortly. The IRDA along with CII and FICCI is working on finalising modalities.
 '




 



NEW YORK: Goldman Sachs Group, the bank that makes the most revenue trading stocks and
bonds, lost money in that business on 10 days in the second quarter, ending a three-month streak
of loss-free days at the start of the year.

Losses on Goldman Sachs's trading desks exceeded $100 million on three days during the period
that ended on June 30, according to a filing on Monday by the New York-based company with the
US Securities and Exchange Commission. The firm also disclosed that trading losses surpassed its
value-at-risk estimate, a measure of potential losses, on two days.

Trading results across Wall Street firms declined after Goldman Sachs and its biggest rivals posted
perfect results, with no losing days, in the first quarter. Goldman Sachs's $5.61 billion in second-
quarter trading revenue exceeded all of its Wall Street competitors. The bank, overseen by
chairman and chief executive officer Lloyd Blankfein, relied on trading for 71% of its revenue in the
first half of the year, down from 80% a year earlier.

Monday's filing also shows that the firm's traders generated more than $100 million on 17 days
during the quarter. Of the 65 days in the quarter, Goldman Sachs traders made money on 55 days,
or 85% of the time. Morgan Stanley said separately on Monday it lost money on 11 days during
the second quarter. The losses never exceeded $75 million daily, and never surpassed the firm's
value-at-risk estimate. Morgan Stanley's traders made more than $175 million on one day, the
firm said.

Goldman Sachs agreed last month to pay $550 million to settle a fraud lawsuit filed by the SEC
over Goldman Sachs's 2007 sale of a mortgage-linked investment. In the settlement, a record for
the SEC and a Wall Street firm, Goldman Sachs said it made a "mistake" by failing to disclose that a
hedge fund that helped construct the investment was also planning to bet against it.
@ 
   
 


MUMBAI: Shares in India's Tata Motors raced to their highest in at least two decades on
Wednesday, as brokerages cheered its forecast-beating earnings, steered by strong demand
for its Jaguar and Land Rover brands. ( Watch )

Edelweiss raised the stock to "buy" from "reduce," while Citi Investment Research raised its
target price on the stock to 1,197 rupees from 947 rupees per share.

Bank of America-Merrill Lynch also raised its price objective on the stock to 1,100 rupees
from 924 earlier, while reiterating a "buy" rating.

The company's Jaguar and Land Rover unit, which Tata bought from Ford Motor Co in 2008,
is expected to fuel growth in coming quarters as demand for luxury brands increase,
particularly in emerging economies.

The stock rose as much as 6.9 percent to 1,023.55 rupees, its highest in at least 20 years,
data from Thomson Reuters showed.

At 2:37 p.m, it was trading 5.8 percent higher at 1,012.85 rupees while the main stock index
was down 0.3 percent, dragged lower by weak Asian markets.

Around 3.3 million shares were traded on the BSE, more than 4.5 times its average volume
in the last 30 days.

"The stock is well-placed in terms of valuations. We are seeing earnings upgrades for the
stock," said Sandip Sabharwal, CEO of portfolio management services at brokerage
Prabhudas Lilladher.

The stock is up nearly 28 percent so far in this year, after gaining nearly five times in 2009. It
has outperformed the 30-share BSE index which is up 4 percent so far this year, after rallying
81 percent in 2009.

Tata Motors is the country's leading maker of trucks and buses with about two-thirds of the
market.

The company, part of the Tata group spearheaded by Ratan Tata, also makes utility vehicles
and launched the ultra-cheap Nano cars.

The 72-year old Ratan Tata, who often drives himself to work in a Tata Indigo sedan, is due
to retire by the end of 2012 and a search for his successor has begun
°

 






It͛s human nature to demonise things, which one can͛t understand. There are examples
galore of ideas that were scorned at first, but embraced later. Equities suffer from the same
malaise. Those who have not understood equities and investing in equities condemn them
as gambling and write-off any contribution that they could play in the country͛s
development.

Financial inclusion is a much-talked about concept these days, but I think people have not
understood it well. First, we should understand financial inclusion in the right perspective.
There are many people who say that half of India is unbanked and they don͛t have a bank
account. Will it be financial inclusion if we are to open a bank account and put some small
deposit in it? Most likely, the account will be defunct soon, and this helps no one.

I believe that meaningful financial inclusion can be done by participating in equities. Let͛s
understand how and why it is important. The Indian economy, as most of us agree, is likely
to grow by 8.5-9% in real terms, which is 13-14% in nominal terms.

As has been the pattern over the past three decades, agriculture will grow at a slower pace
of 2.5-3% p.a. (as land is the limiting factor) and the industrial and services sectors grow at a
faster pace of 10-11% p.a. in real terms of over 15% in nominal terms. This reflects in the
corporate earnings that have average growth of 18% per annum. At that rate, equity
investments double in about four years time, whereas bank deposits earnings at around 6-
7% per annum will take almost 12 years to double. In these 12 years, investments in equities
would have grown 8-fold.

Also, returns on equities by way of dividend and capital gains are either tax-free or attract
lower tax rate compared with interest income. Sadly, a dominant part of this prosperity and
wealth creation, fuelled by a booming Indian economy, is being enjoyed only by large foreign
investors or a handful of high net worth individuals (HNIs).

If a small saver can multiply thousand rupees eight times vis-a-vis two times, we can imagine
the kind of difference it can make to his post-retirement life, standard of living and also to
that of his future generations. It is a pity that today, only 4% of the savings of Indian
households get invested in equities.

No doubt, there exists the risk of reckless investments. But this is where a professional
investment manager would help. He is someone who understands that it͛s incorrect to paint
͚equities͛ in general as ͚very risky͛. There are different grades of risk within equities.

While investments in small- and mid-cap companies have a higher risk-return payoff,
investments in blue-chips and large-cap liquid scrips are considerably ͚safe͛ while providing
decent returns. A professional investment manager can understand people͛s risk appetite
and help channel investments to the right kind of companies for an acceptable rate of
returns.