Who’s investing?
MFs are! And overseas...jump in if you want to roll it...

(column by Sunanda Roy)

It’s not child’s play any more! After all, it’s your money and you have the option of getting the best out of it. How about buying a global mutual fund for your teenage daughter on her birthday? Sounds eccentric, right? The fact is that we are not far from such a situation. MFs are queuing up to tap the investors’ hunger for global markets with schemes aimed at investing in other countries.

Most promisingly, both DSP Merrill Lynch & Kotak MF have already launched their global funds recently. UTI MF & HSBC Asset Management Company also have plans to launch similar new schemes that would allow investors to invest overseas. But do we take this as an alternate investment option, and at a time when the Sensex is busy playing the ‘hide & seek’ game and making the market more volatile?

Sandesh Kirkire, CEO, Kotak Mahindra MF, commented to us, “In an increasingly integrated financial world, the rise & fall has been a factor of liquidity play; and therefore diversification remains a critical factor. The emerging markets today display greater buoyancy and hold nearly 60% of the global forex reserves. Consequently, the risk perception about these (foreign) investment destinations has come down and investment in these markets is seen as a relatively safer option providing adequate diversification cover.”

Truly, the ongoing volatility does certainly provide a more attractive entry point for global funds! Ironically, while on one hand, India would continue to remain an attractive destination for foreign investments, on the other, Indians themselves are going global behind these funds. Factually, many of the emerging markets are witnessing a burgeoning of domestic demand while their overall industrial wage competitiveness remains strong; ergo, it is quite likely there exists much room for growth and stock appreciation in such economies. Confirms Kirkire of Kotak, “The growth in developed markets has largely saturated and their real growth rates remains in the 0.5% to 3% range. In comparison, most emerging market economies are growing above 5.5%, and will continue to do so for a long time. This growth is nearly 50% higher than that of developed markets.”

Amit Saxena, CEO, Planman Financial, additionally commented, “Such overseas investments would get a boost as recently there has been upward revision by RBI in the limits set earlier on overseas MF investments; and this even though the earlier limits were not fully utilised by the MF industry.” When B&E questioned Vijai Mantri, CEO, Deutsche Asset Management, India, he agreed and gave a similar perspective that there seems to be a gain in the momentum of global funds after RBI eased norms for MFs’ investment in global markets. Most industry experts gave similar affirmative answers to B&E.

Clearly, though all this does not mean that we are not believers in the India story, given the current scenario in the Indian stock markets, it makes more sense to provide investors the growth potential of emerging markets with an intention to allow them to diversify their portfolio risk. This would definitely pave way for more innovative themes in the global investment space. And better for the retail investor, international credit rating agencies are now ever-ready to rate the viability of such investments. If you’re still in two minds, just gift us your money, we’ll do the needful.

(End of Sunanda Roy column)

The Sensex rise and fall means
nothing at all

(column by A. Sandeep Editor, Business & Economy)

...for the bottom disadvantaged 80% of India
Thank god for the Sensex (and the Nifty and similar indices), that news channels and media houses have front page news to write about. And why not! Didn’t the Sensex reach giddying historical heights of 15,800 odd points and also had the second highest fall in history to languish below 14,000 points, all in the last few weeks? In reality, apart from being ‘front page news’, for whatever the news, media might be imagining, these indices mean nothing at all to the majority India.

That’s no surprise, considering the fact that only a miniscule 4% of stock market investments are of retail investors, with 96% being in the hands of institutions! Consider this too – according to a most recent report by Asian Development Bank (ADB), over the last five years, while the share of retained corporate operating profits to GDP has shot up to an estimated 9.1% in F2 ’07 from 3.7% in F2 ’02, the share of wages to GDP has pathetically declined to an estimated 28.7% from 31%. The report further identifies that while pay packages for educated youth are skyrocketing, wages for unskilled labourers have stagnated. Even India’s Gini coefficient (a measure for income distribution inequalities), languishes at 36.2 – instead of being near zero – proving huge inequalities.

Of course, according to the World Bank, the percentage of Indians living below poverty line (earning less than $1 a day) has reduced from 45% in 1994 to 34.3% in 2004, the absolute number of poor Indians (about 400 million) is larger than the US population. If $1 a day was too easy a poverty line, UNDP confirms that India has 78% of its citizens living below $2 a day. How’s that for living in destitute misery? India now proudly also accounts for 1.9 million (18%) of the 10.5 million global deaths among children under five years of age – the highest for any single nation.

In this race of India from ‘underdeveloped’ to ‘developing’ and now to a ‘transforming’ (if the US State Department is to be believed!) economy, the gap between ‘haves & have-nots’ has been clearly increasing; and the Sensex falling or rising means, sadly, nothing at all!

(End of A. Sandeep column)

Shylock’s heroes
ULIP schemes mislead unbelievably

(column by Gyanendra Kashyap)

This one is rock shocker! Rs.1,500 added per month (at 0% interest) over a period of two years equals Rs.36,000, says the calculation. But if one were to ask certain top-of-the-line insurance companies running the ‘so called’ innovative Unit-Linked Insurance Plans (ULIPs), it hilariously amounts to Rs.34,758!!! Well, B&E undertook test samples for exactly two years and came up with these shocking findings! Imagine the irony of how hordes of MF investors must have been bamboozled, this at a time when the Sensex grew from 9,000 to over 15,000 during the same two test years. The answer that the unfortunate investor gets from the insurance company is that this is the gift ed result of some complicated taxes and charges spread over the years!

But guess who just heard – Insurance Regulatory and Development Authority (IRDA)! “Actuarial- funded products mislead customers into feeling that they have more benefits,” asserted C.S. Rao, Chairman, IRDA, while ensuring the axe fell on Bajaj Allianz’s Capital Unit Gain & Aviva Life’s 14 acturial products. Yes, these schemes have been given an ultimatum by IRDA! Clearly, such complex structured ULIPs are difficult for policyholders to comprehend, have low transparencies, and worse, (as per the IRDA), do not inform the consumers clearly about the associated risks. So before you jump into the MF bandwagon , read the print dudes...

(End of Gyanendra Kashyap column)

Fed monetary policy: Back to the drawing board!
After the cut in the discount rate, markets are longing for rate cut in September

(column by Marc Faber Editor & Publisher of ‘The Gloom, Boom & Doom’ Report)

First, I do not regard the current market conditions to be unusual but I do consider the market conditions that preceded the current correction (the period between March 2003 & July 2007) to have been unusual since they were characterised by extremely low volatility and a relentless increase in all asset prices. Compare the recent low volatility bull market to the conditions in the 70s!

We had, in the 1970s, every year, huge market swings. Therefore, what is unusual about the present is how just a minor correction of 10% could create so many problems among hedge funds and other financial institutions and how it led to calls by some ‘experts’ for the Fed to cut rates. This, especially in light of the fact, that it is precisely the Fed’s expansionary monetary policies, which have led to the current problems in the credit markets. However, it is indicative of the rot and the leverage, which are nowadays endemic to the global financial markets.

In my view, the current correction is of course, a minor one, when compared to the 1987 or 1998 corrections.

But, as was the case in 1987 & 1998, the stock market became, after an initial decline, as of August 16, 2007, from a near term perspective, incredibly oversold. On that day, the Dow first sold off more than 300 points, but ended the session basically unchanged. On the same day, we had on the NYSE only 10 stocks hitting 52 weeks new highs, but a staggering 1,045 stocks reaching new lows.

On August 17, the S&P 500 soared 34 points and the Dow Jones 233 points, as the Fed cut the discount rate. However, 52 weeks new highs expanded to only 55 and were outpaced by 149 new lows, which is unusual during such a powerful upward move. Personally, I am not surprised that the Fed cut the discount rate and injected liquidity into the system by moving the Fed fund rate below the target rate of 5.25%. I have repeatedly maintained that should Goldman Sachs’ stock decline by 20% off its high, the Fed would cut rates under pressure from the now ‘impoverished’ Wall Street jackals. I am also not surprised by the strong rally from the August 16 intra-day low because investors are still conditioned to buy the dips and not to sell into strength. I regard the fear to miss the next advance to be negative for the market from a contrarian point of view.

My best guess is that we have seen an intermediate low, but that the S&P 500, which, as at last week’s close, was still down 100 points from its July 2007 high, will have great difficulties to make a new yearly high. A very strong overhead resistance now exists between 1,500 & 1,540. Therefore, I would use additional strength as a selling opportunity. It is also my view that, in time, the recent August low and the March 2007 low at 1,363 will be taken out on the downside.

(End of Marc Faber column)

Recepción A Santiago!

Nestled amidst the astounding Andes, miles of mountains suddenly giving way to sea-n-sand… and the rocky snow-scape to the verdure – that’s geography’s Gemini – the two faced Santiago! One of the fastest growing economies of South America, the largest city in Chile and its capital, Santiago (founded by conquistador Pedro de Valdivia in 1541) remained overshadowed by the Spanish dominance and stunted under the Peru viceroyalty… and though the scars of the Pinochet dictatorship still remain etched deep in its history, Santiago has finally come alive!

As you walk past the ancient ruins while treading upon the shadows of skyscrapers, you suddenly become witness to the old and the new world standing together. Indigenous markets with hawkers selling everything from pins to ‘Pisco Sours’, litter the streets, while street performances, music and art festivals carry on all days throughout summers! Such cultural and architectural diversity… and you were wondering where Santiago gets all its spirit from!?!

Lest Aunt Marge or little Joanne complain about returning home with nothing but tales for them, do not forget to visit the lively Los Dominicos market to hunt for those not-so-costly souvenirs. The place is suited particularly for the hind-sighted, for they’d surely have run bankrupt by the end of the budget trip. Do not be deceived by the looks of it mind you… the place isn’t as inexpensive as it seems! Nevertheless, a little knowledge of Spanish and a warm smile can startlingly help the prices go down!

Get going to Santiago all through the spring (September-November) to catch the perfect weather, though there’s really no time when the place doesn’t hand out a sight to behold! Mark an end to your trip with that heavenly (quite literally) dinner at the Camino Real where the city spread down below is like a star filled sky…. And at the end of it, even without you realizing it, you’ll magically be a part of this enchantment called Santiago!