The global meltdown saw Indian shares recording its fourth biggest fall in absolute terms on Friday. In case you need comfort, in percentage terms, the fall ranks much lower at 64. Concerns that a worsening US housing market may curb growth in the US market triggered a sell-off among most global markets. Sectoral indices were all in the red. The biggest losers were realty, oil & gas and capital goods.
After falling to a low 15,159.68 points, The Sensex closed 542 points lower at 15,234.57 while the Nifty ended 175 points down at 4445.20.
Select stocks managed to shine. ITC, Ranbaxy Laboratories and Ambuja Cements were the Sensex gainers. Losers on the Sensex included Tata Steel (down 7.37 per cent), BHEL (4.74 per cent), Reliance Communications (4.70 per cent), Hindalco (4.62 per cent) and HDFC Bank (4.43 per cent).
Declines on the BSE stood at 1,951 while advances were at 570. On the NSE declines were at 993 while advances stood at 143.
Following is a list of the Top 5 falls for the Sensex
- May 18, 2006: Sensex fell by 826 points (6.76 per cent) to close at 11,391.
- April 28, 1992: Sensex fell 570 points (12.77 per cent) to close at 3,870. This was due to the Harshad Mehta scam.
- May 17, 2004: Sensex fell 565 points, its third biggest fall ever, to close at 4,505. Ruling NDA government lost power. Trading was suspended as the Sensex hit the lower circuit twice before regaining some ground at close.
- July 27, 2007: Sensex fell 542 points to close at 15,234.57. Global meltdown following fears of US housing market slump.
- May 15, 2006: The market fell by 463 points to 11,822 points.
Auto…A billion dollar acquisitions club in sight
There is no official word regarding Tata Motor's planned bid for Ford's marquee British brands - Jaguar and Land Rover. The question may well get answered when Tata Motors meets the media on Tuesday to announce their results. In fact, the other short-listed Indian candidate for the deal is Mahindra & Mahindra (M&M). Earlier, reports had stated that two Indian companies (Tata Motors and M&M) would be competing with several private equity firms like TPG Capital, Cerberus Capital Management, Ripplewood Holdings and One Equity Partners for purchasing Jaguar and Land Rover from Ford.
And to add to the auto buzz in India, reports say French carmaker Renault is in talks with two-wheeler major Bajaj Auto for a possible project to build economy vehicles costing around $3,000. The alliance will set up new platform at a new site. The cars and goods carriers made would be sold in India as well as abroad.
"Merger & acquisition (M&A) deals in the sector worth more than $515mn from 17 deals so far this year is almost equal to the value and volume of deals done by the sector in the whole of last year." said Bundeep Singh Rangar, Chairman, IndusView Advisors, the India-focused cross-border advisory firm. "Between Tata Motors and Mahindra & Mahindra, whoever walks away with the deal, the moment will be historic as it will mark the automotive sector's entry into the elite billion dollar acquisitions club." said Rangar
The other reason why this deal will be significant is that it will further reinforce the prominence of the Indo-U.K. merger & acquisitions deal activity which has already seen the country's two of the largest deals - the acquisition of Hutchison Essar Ltd India's second largest GSM mobile service provider by the U.K.'s Vodafone Group Plc and the acquisition of the U.K.'s largest steel maker Corus Group Plc by India's Tata Steel Ltd.
Aspirations have seen over 5,000 luxury cars added to the Indian roads in 2006, up from 3,000 in 2005 and just 1,000 in 2004, according to estimates. It's just a matter of time, expect the global luxury car brands Volkswagen, Lamborghini, Rolls Royce Phantom, Bentley, Porsche, Aston Martin and Ferrari roll out their India plans in full steam.
And all fall down!
Are you lost or incomplete?
Do you feel like a puzzle, you can't find your missing piece?
Wall Street came crumbling down after long. US stocks fell on signs of further weakness in the housing sector. The domino effect came into play into the Asian as well as European Marekts with most of the Asian markets closing deep in the red. Habit of staging a record close almost everyday, finally took a toll on the bulls as they appear to be lost at the peaks on Dalal Street.
Bulls across the globe fell in a heap as Bears struck back in style dragging the key indices lower for the first time in last six weeks. China's stock market was a survivor in the global carnage and gained around 7% for the week. After May's record high , the government hiked the stock trading tax to cool speculation, causing shares to plunge. But better-than-expected corporate profits announced in recent days have reignited the bull run.
Key Indices in India fell the most in four months on concerns that U.S. housing slump will slow growth i the world's biggest economy and prompt investors to shun riskier assets. Tata Steel, Grasim,Gujarat Ambuja Cement and Hindalco were among the major losers for the week dragging the BSE 30-share Sensex down by 330 points or 2.1% to close at 15235. NSE Nifty fell 121 points or 2.6% to close at 4445.
Unwinding of positions on account of F&O expiry, turmoil in global equity markets, profit booking and jitters ahead of the RBI meet on credit policy spoiled the game for the bulls. Though, the rates are expected the stay unchanged, RBI has often in the past has thrown up plenty of surprises.
Selling was seen in Cement, Banking, Metal, Mid-Cap, Auto and Capital Good stocks. While FMCG stocks bucked the negative trend led by gains in ITC and HLL. While some stability returned in the technology stocks after the Indian Rupee fell from its nine year high of 40.19.
Cement companies were under pressure amid news reports that trade practices regulator MRTPC has ordered an investigation into an alleged price cartelisation by top 14 cement manufacturers. Cement socks also were badly beaten up frontline stock ACC lost over 10% to Rs990, Gujarat Ambuja declinwed over 7% to Rs125, Grasim lost over 5% to Rs2849 and Mangalam Cement slipped 5% to Rs163.
Some action was seen in Technology stocks, as Rupee ended its six weeks of gain after the stocks on the bourses tumbled sharply over the week. Indian Rupee fell 0.5% to 40.53 against the Dollar. Infosys was in the limelight after the company won a seven-year, US$250mn contract from Philips. Finally the scrip added 1% over the week. However, other IT stocks didn't fared well, Wipro lost over 2.2% to Rs493, TCS was down by 2% to Rs153.
Drop in prices on metal prices on LME dragged the metal stocks lower on Dalal Street. Tata Steel, SAIL and JSW Steel were among the major losers within the metal pack. Index Heavyweight Tata Steel plunged by over 9.5% to Rs647, the scrip was the second biggest loser among the 30-scrip's of Sensex, SAIL was also down by over 5.5% to Rs147 and Jindal Steel lost 0.2% to Rs3892.
ITC stood firm amid volatile week on expectations that strong Q1 growth in cigarettes sales will continue to drive the profits. ITC posted Q1 profit at Rs7.83bn (up 20%) and sales at Rs33.25bn (up 16.6%), above our expectations. ITC rose 5.4% during the week and was the top gainer among the 30-scrips of Sensex and Hindustan Unilever rose over 1.3% to Rs196. HUL was in the limelight after the company announced last week that the company is considering a buyback later this month. On Sunday, HUL will announce its half yearly financial results.
Profit booking was seen in Capital Good stocks. After a terrific run up in last couple of weeks, we saw some cooling off, as investors judged the current rally as excessive. L&T was among the top loser, the scrip lost over 2% to Rs2424, Siemens dropped over 4.3% to Rs1285 and Punj Lloyd fell by 2.5% to Rs265.
Having good cards is not enough. You should know to play them well.
The crash has finally come and as expected it was more to do with the global meltdown. Could Friday be termed as signs for things to come? Bulls and bears will have a lot of pondering to do over the weekend. But again a lot depends on global factors which are to an extent beyond our control. Investors will closely watch the developments of the RBI's meet on Tuesday. Though indices took a severe beating on Friday, concerns on valuations will continue.
Expectations of a quick 1000 point gain to 16K may have died down for the time being. In fact, today's fall suggest that market could fall below the 15K level briefly before staging a bounceback. The FII activity will be of utmost importance. Any pipe-burst in the FII flow could temporarily put the brakes on the march upwards. In times like these, earnings momentum and any positive development may be ignored by the markets. During the run-up, most negative news were also ignored.
The indices could well stage a smart bounce back on Monday. Only another global meltdown can keep the bears in control. Among the major firms announcing their earnings next week include, BEML, BHEL, Easun Reyrolle, HPCL, i-Flex, GE Ship, IB Real Esate, Hindalco, Tata Motors, Jet Airways, Nagarjuna Const, Tata Steel, Unitech, FT, and SUN TV. Market players will closely watch RIL earnings on Saturday and HUL's numbers expected on Sunday evening. India Infoline estimates RIL PAT to be up by 12.8% to Rs29.1bn and Net sales to be up 12.3% to Rs275bn.
Just yesterday, 23-year-old Shivani Singh was basking in the glow of a dividend cheque worth Rs 1,000 from her mutual fund investment. That the additional income was tax-free added to the joy she felt about investing smartly. But the joy turned into a worry overnight after the morning papers showed that the net asset value (NAV) of her mutual fund was now lower than the price at which she bought the scheme. After calling her fund agent, she came to know that since NAVs of all schemes fell after they issued dividends, there was no cause for concern. But that did not convince her as she believed that something was amiss.
Ms Singh is not alone. Many first-time investors like her don't realise that receiving dividends from mutual funds is unlike receiving the same from shares. In the case of mutual funds, part of the investment is actually paid back as the dividend, resulting in a reduction of the pre-dividend value of the investment.
The truth is that people like Ms Singh must understand various mutual fund scheme options, before trusting blindly on agents. Here are some simple questions, which new investors would do well to ask before they chose a dividend or growth scheme.
How is a dividend scheme different from a growth scheme?
Mutual funds generally provide their investors an option to invest their money either in a growth scheme or a dividend scheme. Dividend schemes are further classified as dividend payout and dividend reinvestment schemes. However, investing in dividend schemes does not imply that the mutual fund would distribute its share of profit as dividends. Getting a share of the profit has always been the privilege of shareholders. In case of mutual funds, those investing in the units are mere buyers of a financial product sold by the fund house. Investors gain only if the value of the stocks held by the fund appreciates over a period of time.
Dividend payout & dividend re-investment scheme
Since mutual fund dividend is nothing but the part payment of the investor's money back to him, its NAV deflates to the same extent as and when the fund pays dividend. That is the reason why the NAV of the dividend scheme is always lower compared with the NAV of the growth scheme of the same fund.
Dividend payout scheme
Say you have invested Rs 10,000 in a fund where a unit of face value Rs 10 is currently quoting at a NAV of Rs 40. This would give you 250 units in the fund. Let's say in six months, the NAV becomes Rs 50 and your investment is now worth Rs 12,500. Now, if the fund declares a dividend of 20% on face value, you would end up getting Rs 500 (250 units * Rs 2) as dividend. But post-dividend, the NAV will decline proportionately to Rs 48/- per unit. If you sell all your units now, you will receive Rs 12,000 (250 units * Rs 48). Thus, the total return in your hands would add up to same sum of Rs 12,500/- (Rs 12,000 + Rs 500).
Dividend reinvestment
Under this option, the fund does not repay the dividend to investors. Instead, the dividend is used to purchase additional units of the fund at the NAV arrived at after the declaration of dividend. To continue with the above example, the NAV of the fund declines to Rs 48 post-dividend. However, since you have opted for reinvestment of dividend, the dividend amount of Rs 500/- shall be used by the fund to allocate additional 10.42 units (Rs 500 divided by Rs 48) to you. The total number of units that you would now have would be 260.42 (250 units+10.42 units). Redemption of these units at the revised NAV of Rs 48/- would again end up giving the same returns of Rs 12,500 (260.42 units * Rs 48).
What is a growth option?
In this case, the earnings are ploughed back into the fund rather than distributing it to the investors. You can encash the profits only at the time of redemption. Unlike the dividend reinvestment option, the number of units will also remain constant throughout the period of investment. However, the NAV of the fund would always be higher vis-?-vis the other two options, thereby ensuring that you get the same returns as your peers from the other two options. In this example, as the NAV went up from Rs 40 to Rs 50 per unit, you would get Rs 12,500 (250 units * Rs 50) if redeemed at this price, thereby booking a profit of Rs 2,500. If you stay invested, the NAV would either increase or decrease from the level of Rs 50/-.
So when do I opt for a growth scheme and when for a dividend?
If you are sitting on idle cash and looking for a long-term investment option, then go for a growth scheme. But if you are looking for a steady cash flow and cannot afford to tie up your money for long, dividend payout is the one to opt for.
It has been proven empirically that in the long run, markets don't disappoint despite the fluctuations in the short run. This, however, is for investors who are willing to stay invested for at least five years.
However, if you are looking for a steady cash flow and cannot afford to tie up your money for a long time, the dividend payout is the one to opt for. Just remember though that declaring dividends is always the prerogative of the fund house and investment in mutual funds does not carry a guarantee card for periodic dividends.
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