Reserve Bank, North Block unease over ‘comfortable’ level of inflation

Reserve Bank of India, Governor Duvvuri Subbarao, Pranab Mukherjee, Repo and reverse repo rate ,

Where is palpable unease between the Reserve Bank of India and the finance ministry on what should be seen as a ‘comfortable’ level of inflation when the economy is growing at a healthy clip of 8-9 per cent, even the customary meeting between the bank’s Governor Duvvuri Subbarao and finance minister Pranab Mukherjee ahead of the monetary policy review evinces interest.
After meeting Mukherjee at North Block here, the RBI governor refused to speak his mind on the impact of high inflation on growth.
“As a standard practice, I had come to review the macro economic situation with the finance minister and senior officers ahead of the policy review,” he told reporters after the meeting. “We will answer these questions (inflation and growth) on May 3.”
The Reserve Bank of India is scheduled to announce the annual credit policy on May 3 and is widely expected to hike short term lending (repo) and borrowing (reverse repo) rates by around 25 basis points with both food inflation and core inflation stubbornly remaining above the comfort zone of both the government and the monetary authority.

Mahindra Satyam to hire 18,000 in FY12

IT firm Mahindra Satyam today said it plans to hire about 18,000 people during this fiscal.
"We have plans of hiring about 18,000 people this year (FY'12). Over 5,000 are from campuses and the rest are from lateral hiring or recruitment of experienced hands," Mahindra Satyam Head Recruitment and Media Sridhar Maturi said.
At the end of the third quarter (October-December period), Mahindra Satyam's headcount stood at 28,832, an increase of 764 personnel from 28,068 employees on September 30, 2010.
Maturi further added, "The campus hiring will be predominantly in India and the lateral hiring is from across the world."
The company has its development and delivery centres in the US, Canada, Brazil, the UK, Hungary, Egypt, UAE, India, China, Malaysia, Singapore and Australia by which the company serves numerous clients, including several Fortune 500 companies.
Mahindra Satyam, formerly Satyam Computer Services, in September last year had announced its first audited financial results for 2009-10 after its founder B Ramalinga Raju admitted to multi-crore accounting fraud in January 2009.
In November 2010, it announced its first quarterly result for the April-June quarter, the first time after disclosure of its July-September 2008 quarter earnings.
The company's former chairman and founder Ramalinga Raju had in January 2009 confessed to the about Rs 14,000 crore scam wherein the company's profits were overstated and its assets falsified.
Tech Mahindra bought Satyam in April 2009, which since then is operating as an independent company.
Shares of Mahindra Satyam today closed at Rs 74.20 on the BSE, up 1.44 per cent from the previous close.

Selling pressure takes toll

Indian stock markets had a rather weak outing today. The morning session saw the indices trade barely above the dotted line but post noon selling pressure intensified and pushed the indices into the red. Since then there was no respite and the indices closed well into the red in the final trading hour. While the BSE Sensex closed lower by around 97 points (down 0.5%), the NSE Nifty closed lower by around 35 points (down 0.6%). Both the BSE Midcap and BSE Smallcap closed flat. Gains were seen in FMCG stocks, while metals and banking stocks were at the receiving end.
As regards global markets, Asian indices closed mixed today while European indices have opened in the green. The rupee was trading at Rs 44.46 to the dollar at the time of writing.
Petronet LNG has announced results for the fourth quarter and year ended March 2011. Revenues soared 67.1% YoY during the quarter as the company clocked higher sales in terms of volumes. Volumes were 125.8 trillion British thermal units (tBTU) during the quarter versus 91.8 tBTU in the same period last year (4QFY10). Besides the rise in volumes, the top line was also driven by average pricing benefit of 21.9% YoY. For FY11, the topline registered an increase of 23.9% YoY. Operating margins improved marginally by 0.3% YoY due to better cost management during the quarter. The overall operating profits for the quarter were up 73.7% YoY boosted by the increase in top line. For FY11, the growth came at 43.7% YoY and the margins were up by 1.3% YoY. Net profit growth accelerated to 112% YoY during the quarter. The profits were up due to growth in the topline and decrease in interest and depreciation costs, partially offset by decrease in other income. For FY11, the bottomline grew by 53% YoY. The stock closed lower today.
Pharma stocks closed mixed today. While Glenmark, Lupin and Cipla closed form, Ranbaxy and Dr.Reddy's closed in the red. As per a leading business daily, pharma major Lupin has entered into a licence agreement with Abbott Laboratories and Laboratoires Fournier SA for eight patents on cholesterol-lowering drug 'Fenofibrate'. The agreement essentially erases the patent uncertainty on Lupin's products and hence is a positive for the company. It must be noted that in 2009, Lupin had bought 'Antara', which is a brand of 'Fenofibrate' from Oscient Pharmaceuticals under the procedures of the US Bankruptcy Court. Lupin shelled out about Rs 1.9 bn for the product and related assets and inventory. At the time of acquisition, 'Antara' had recorded net sales of US$ 70 m and its patent expires in August 2020. The deal would clear Lupin's way to make and market the product in the US. It must be noted that acquiring 'Antara' was part of Lupin's overall strategy in the US of bolstering its branded portfolio since it having such a portfolio has the potential to generate higher revenues and profits in a highly competitive market.

Arbitrage - Encashing the Difference

In finance, we many times come across terms like arbitrage, arbitrage trading, arbitrage mutual funds etc.  What is arbitrage? Arbitrage is a practice to capture the price differential between two or more markets to earn a risk-free profit. Trick is to simultaneously enter into deals in two markets where the price differential exists.

Arbitrage

For example, one can buy shares of Company ABC in cash market at Rs 100 a piece and at the same time sell a future contract of an equal number of shares at Rs 105. There is a price differential of Rs 5 per share. By the end of the expiry of the contract, prices in cash and futures market converge, offering a risk-free profit.
True believers of efficient market hypothesis will insist that arbitrage opportunities do not exist. But due to inefficiencies in the market there exist arbitrage opportunities. The arbitrage spread limits the rate of return. Narrow the spread lesser is the return. In the efficient markets, this spread tend sto be very narrow.
There are many who identify arbitrage opportunities across asset classes and markets. These are called arbitrageurs. Continuous tracking of markets and availability of good amount of cash are must to carry out the role of an arbitrageur to make a decent size of money. With efficient markets resulting into narrow spreads, it makes life difficult for an individual with limited resources. Arbitrage Mutual fund come to the rescue of those who want to take advantage of the arbitrage opportunities existing in the market but lack the expertise and resources.  The schemes here aim to make risk-free profits, by capturing the price differentials across markets arising out of the inefficiencies of the markets. The expected rate of return can be slightly above that of one offered by bank fixed deposits of a similar tenure.
One of the arbitrage strategy used by many arbitrageurs is dividend arbitrage. Dividend arbitrage is an options trading strategy that involves purchasing put op¬tions and an equivalent amount of underlying stock before the ex-dividend date and then exercising the put after collecting the dividend. Hence, it gives an opportunity to earn a small amount of gain in small period of time.
Put option is basically a contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security at a specified price within a specified time. For example you buy March 20 ITC 10 Put, you have right to sell 100 shares of ITC at Rs 10 until march 20. If share of ITC fall to Rs 6 then you can purchase 100 shares at Rs 6 from the market and exercise your put option to sell these shares at Rs 10 making a profit of (10-6)*100=400. This is maximum profit which can be made ignoring the premium.
Let’s understand dividend arbitrage with the help of an example.  Suppose that stock ABC is trading at Rs200 and is paying a Rs4 dividend in one week’s time. A put option with expiry three weeks from now and a strike price of Rs220 is selling for Rs22. A trader wishing to structure a dividend arbitrage can purchase one contract for Rs2,200 and 200 shares for Rs20,000, for a total cost of Rs22,200. In one week’s time, the trader will collect the Rs400 in dividends and the put option to sell the stock for Rs22,000. The total earned from the dividend and stock sale is Rs22,400, for a profit of Rs200.
Generally, this strategy is best when used on a security with low volatility (causing lower options premiums) and a high dividend. Hence, it creates an opportunity to create profits while as¬suming very low to no risk. Most of the FMCG companies like HUL, ITC and PSU companies like ONGC, NTPC fall under this category.

how to get mortgage loan

There are some steps to follow,these steps are:-
  The initial step is to order your credit report from the country's three major credit reporting agencies which are Equifax, TransUnion and Experian. Your credit report is very important in your home mortgage because this determines your ability to pay off the home mortgage you are applying for. Your credit report reflects how up to date you are on paying your credits, your outstanding balance and the amount of money you still owe. A good standing on your credit report assures the lenders that their risk in investing with you will assure them that they will get their money back and assures you that your home mortgage loan gets approval.

In relation to this, financial experts recommend that it is wise for you to check the credit reports once you have them for errors before submitting these to lenders. The reason for this is that, these errors can cost you thousands of dollars more in interest or it could deny you the home mortgage you are applying for.

The second step in taking a home mortgage is to know the current home mortgage rates. Mortgage rates fluctuate and looking at certain economic key indicators such as bonds and Treasury notes can help you decide if it feasible to go for a home mortgage now and can help you get interest savings.

The third step in taking a home mortgage is to decide which mortgage program is best for you. There are so many kinds of programs and loans that are available. These include government loans and non-governmental loans called conventional loans. It is best to be educated and knowledgeable about all these home mortgage options in order to get the best for your situation. Some things that you need to consider when you're in this stage are:
- the amount of money you have for down payment for your home mortgage
- the amount of monthly payment on your home mortgage you can afford without worry and with security
- the number of years you plan to stay on the house or with the home mortgage
- the importance of paying off the home mortgage early
- the ability and an objective to give extra principal payments and,
- your projection of your income's stability or its possibility to increase in order for you not to have difficulties in paying off your home mortgage in the future.
These should all be considered because remember, a home mortgage is a long period investment and requires huge amounts of money.

The fourth step is to check and compare interest rates among the various lenders. This is the most difficult part but this is where you can usually save off in interests when you are already in the middle of a home mortgage program. Be wary also of terms that different lending companies use that may be pointing to the same thing. Other companies might waive off some fees and then add another one, which might cost you more. Take time to know all the figures behind the names they use for the fees that they give.

The fifth step is to look at the whole home mortgage package. Aside from interests, you need to consider other factors in the package such as the type of mortgage, the type of down payment, the presence of prepayment penalties, lock-in period, mortgage insurance, payment schedule, and other features.

And lastly, when you have decided on the lender for your home mortgage, determine the required documents for your loan. These typically include a completely filled up Uniform Residential Loan Application and your credit report fee. Fees are usually collected when submitting a home mortgage applications. Some of which are application fee and appraisal fee. Other requirements and fees needed to be paid for your home mortgage application may vary from one lending institution to another.

Demystifying Price to Earnings (P/E) Ratio

Price to earnings ratio is one of the oldest and most frequently used metrics to evaluate stocks. The following article describes how it should be used in security analysis and how it should not be used. P/E  ratio is very simple to calculate but can be quite tricky to evaluate. It can be extremely informative at times while in some situations it can be meaningless.

It is a ratio of a company's share price to its per-share earnings (EPS). In order to calculate the P/E, simply take the current stock price of a company and divide by its earnings per share.
P/E ratio = Market Price of Share/Earning Per Share (EPS)
P/E is calculated using earning from last four quarters. It is generally called trailing P/E. Sometimes, analyst try to estimate P/E over next one year using estimated EPS over the next four quarters. This is known as leading or projected P/E. Companies that are not profitable have generally negative P/E.
Theoretically, a stock's P/E tells us how much investors are willing to pay per rupee of earnings. For this reason it's also called the "multiple" of a stock. In other words, a P/E ratio of 20 suggests that investors in the stock are willing to pay Rs 20 for every Re 1 of earnings that the company generates. It is not just a number which tells you about the company as it do not take into account the company’s growth prospects.
P/E ratio is based upon the past earnings of the company and how it will perform in the future. Future growth is already accounted for in the stock price. As a result, a better way of interpreting the P/E ratio is as a reflection of the market's optimism concerning a company's growth prospects. If a company has a P/E higher than the market or industry average, this means that the market is expecting big things over the next few months or years. A company with a high P/E ratio will eventually have to live up to the high rating by substantially increasing its earnings, or the stock price will need to drop.
For example, when Infosys was growing at tremendous pace its P/E ratio was over 100. But it cannot grow at this pace forever, its revenue and profits cannot maintain the same growth as before. As a result its PE dropped to 40 in 2006 and to 26 in 2011.
In fact, PE ratio is a better indicator whether a stock is cheap or expensive. A Rs 10 stock with a P/E of 75 is much more "expensive" than a Rs 100 stock with a P/E of 20. But you cannot compare two companies from different industries. P/E ratio will only make sense, if companies within the same sector are compared.
Therefore, two main factors which should be considered while determining whether, P/E is low or high are:
• Company growth rates: How fast has the company been growing in the past, and are these rates expected to increase, or at least continue, in the future?
• Industry: It is only useful to compare companies if they are in the same industry. For example, FMCG typically have low multiples because they are low growth, stable industries. In contrast, the technology industry is characterized by phenomenal growth rates and constant change. Comparing a tech company to a FMCG is useless. You should only compare high-growth companies to others in the same industry, or to the industry average.
What are the problems with P/E ratio?
• Accounting: Earnings also include non cash items. So EPS for different companies from the same industry can give different picture depending upon the non cash items included on their books.
• In times of high inflation, inventory and depreciation costs tend to be understated because the replacement costs of goods and equipment rise with the general level of prices. Thus, P/E ratios tend to be lower during times of high inflation because the market sees earnings as artificially distorted upwards. As with all ratios, it's more valuable to look at the P/E over time in order to determine the trend. Inflation makes this difficult, as past information is less useful today.
A low P/E ratio does not necessarily mean that a company is undervalued. Rather, it could mean that the market believes the company is headed for trouble in the near future. In conclusion, while buying share of any company, don’t just look at the P/E ratio but it can be one of the useful parameters worth considering.

Money Supply: Controlling The Wealth

Since medieval times, trade and business has gradually evolved and prospered. Earlier there was trade of art, tools, cattle and the most important medium was a barter system, where goods were exchanged in terms of kind. Gradually, over a few centuries gold coins, copper coins etc became the face of transactions, providing a relative value of goods and services which would use these coins for economic activities. But since the nineteenth century, almost in every country money and currency notes and coins were used as a medium of economic activity. Thus it became the responsibility of governments of every nation to control the wealth of the nation for prosperity and sustainable economic growth.

The amount of coins and notes, i.e. money in circulation alongwith the reserve ratio the banks set, determines the money supply in a country. In most countries across the world, the central bank doesn’t try to have a control over the total value of the money in circulation. The central bank will sell as many notes and coins to the other commercial banks and later, it just debits the accounts of the banks by the specific amount. This is what is followed in the British monetary system, which enables the central bank to control money not only in their branches, but in other accounts also. In India, RBI credit policies asserts a control over thebanking system in India.

The Central bank, and not the commercial banks, has the responsibility to decide the reserve ratio that is to be followed. In UK, Bank of England specified the amount of notes that a bank must possess alongwith amount on deposit, plus the money generated by the bank as revenue from loans etc. Thus, if the inflation was high due to excess money in circulation, banks would be forced to reduce their lending. Now, the system has been changed slightly. After pressure from commercial banks, the central bank removed minimum reserve ratio but now works individually as per a banks requirement. However, this has reduced the Central bank's control on supply and circulation of money.

Having 'Open market operations' is another way by which money supply can be controlled. Selling or buying of interest bonds to financial organisations generate revenue through cheques drawn on accounts in their commercial banks. The Central Bank debits accounts that commercial banks operate with it by the required amounts. However, if the Central bank wants to exercise its control  and wants to increase money in circulation, it can purchase bonds which they themselves or a local council had issued earlier.

Altering the interest rate at which it lends funds to banks is another way in which the Central bank can exercise control over the money supply. This is the most effective and prominent method which is followed in controlling money supply. The banking system i.e. commercial banks are deprived and kept short of money. Whenever they require money, the central bank can exercise control by defining and laying guidelines for lending interest rates. If the government is collecting less than spending, then a shortage can be created by Central bank by simply selling bonds. The Bank then lends the other banks funds they need to keep their accounts with it in credit at an interest rate that sets rates at which bank lend to each other, and their customers. This clearly defines how much customers can borrow, thereby having a control on national money supply.

Money is required for every transaction and economic activity or trade that occurs in a country. A slight fluctuation, can cause billions of dollars of loss or gain. Thus, to maintain stability in the economy, the most important activity is exercising control over a country's money in circulation.