Mumbai land freed !

Maharashtra government has repealed the Urban Land Ceiling Act. Industry analysts see this as the precursor to a revolution in residential real estate around Mumbai. Around 15,000 acres is expected to become available for residential development in and around Mumbai. In addition, repealing of the act reduces cost of construction by Rs 200 per sq. ft.

Experts feel that while this may not affect South and Central Mumbai, prices of flats in suburbs where such land is released may come down thereby benefiting the middle class buyers and possibly reigniting the real estate boom.

India Sensex vs NIFTY

BSE's Sensex and NSE's NIFTY both are designed to track the Indian stock market. While the two indices are closely co-related (better than 0.9), there are some differences in the way the indices are calculated.

NIFTY takes the full market capitalization of a company and divides it by the total market capitalization for all the stocks it tracks (50) to give the index weighting for the stock. Sensex on the other hand uses free-float as the measure. Free-float is defined as that amount of stock of the company (and associated market cap) that is not held with the promoters. The free-float method is often seen as a better reflection for trading purposes as it reflects only the amount of shares available for trading of a particular company.

Other key differences are as follows:

• Sensex is overweight on financial services and auto stocks compared to NIFTY
• NIFTY is overweight on oil, gas and refining; telecom, metals and power compared to Sensex
• NIFTY has greater depth in derivatives.

It is important to understand these differences when you are trying to make sense of index movements, especially in the volatile Indian stock market.

India property price expectations

High-end properties in Gurgaon, India may see a softening of prices. According to leading multinational real estate companies, significant number of high-end properties are expected to be finished by 2009 which could dampen prices. Further, approx 60% on buyers of such properties tend to be investors who look to exit at completion of the project.

Meanwhile, office space rentals in Mumbai and Delhi continue to escalate due to shortage of high quality space in sought-after business districts. Office space in Mumbai Nariman Point is touching Rs 500 per sq ft, at Bandra Kurla it is around Rs 450 per sq ft and Rs 400 per sq ft at Lower Parel.

If you are a commercial property investor in Mumbai or Delhi, you are in for a great time. However, if you had put money into residential space in Gurgaon, it could be time to put on your thinking hats !

India gold price lull

Gold prices have softened in India. This has been driven by global cues of weaker crude prices, some stabilization is USD and falling global stock markets - all of which has led to some amount of profit booking in global markets. In India, end of the Diwali season has also seen a drop in demand for physical gold, though some traders believe that customers would be back after Labh Pacham which falls this Wednesday.

Traders and jewellers also expect that customers may trade in their old gold jewelry for new ones to limit impact of the recent high prices.

India property (land) title guarantee

Mint, the new Indian finance newspaper, reports that land title guarantee schemes are being considered in three states: Rajasthan, Andhra Pradesh and Karnataka. This is being done to clean up 'title' issues which often hold up new developments as also lead to numerous court battles. In some cases today, a developer has to secure close to 40 year history of land ownership before he can be sure of the cleanliness of the title. As most of such developed land tends to have been occupied by farmers, there is generally an issue of lack of records and dispute in ownership and possession.

State guarantee of land titles can go a long way in cleaning up this mess. The guarantee is sought to be given by the state directly or indirectly through a land title insurance product offered by a general insurer. Backing this up is the proposed automation of land records (for example in Karnataka) that will make land transactions that much cleaner and efficient.

What does all this mean to you, the retail investor ? It could mean:

• quicker development of projects
• clean and guaranteed titles should you be buying into layouts converted from agricultural use
• higher prices in the short to medium term as developers vie aggressively for the initial tranches of 'guaranteed' land
• higher prices in the short to medium term as foreign and domestic private equity funds get more aggressive in buying the clean land
• overtime, a demat type land record system where you and I can go to the land title office and get as much information on the land as required before doing a deal - similar to the developed world
• greater transparency in pricing of real estate deals with automation.

The direction is definitely good, lets wait and see how well the implementation goes !

India Sensex hurting !

Sensex pundits now talk of structural problems, given the dive in the Indian stock market. This was the same bunch talking the Sensex to further highs past 20,000. If you had invested in the index at 20,000, you would be poorer by 7.86% in a very short period of time !

Experts and market analysts are taken aback by today's industrial production growth figures that puts Sept 2007 growth at 6%+ down from 12%+ same time last year. Increasing loan rates, squeezed credibility and higher rupee seem to be weighing heavily on growth indicators - effects of these actions should not be a surprise to anyone!

Sensex is most likely up for a period of volatility. You need to maintain a longer term value-driven view to have the stomach to take this churn. Its like buying a house - you don't check prices every day and don't look to sell quickly. When you buy shares, you are effectively buying ownership into the company - a commitment that is best given some time to bear fruit. If you have selected the company right and bought at appropriate price/value, you could be in for sustainable value creation.

Insurance (car, home) in India to become cheaper

Insurance in India is set to become more price competitive, thereby taking less out of your financial planning budget.

IRDA, the insurance regulator had freed the pricing regime for general insurance products (car, home, fire etc) on 1 Jan 2007. This led to massive discounts by insurance firms. The regulator then stepped in and capped discounts at 51%.

Cap is being removed wef 15 November 2007, which should see massive price competition reducing premiums steeply. Competition is good !

India small loans: drying up ?

ICICI Bank is said to be withdrawing from lending small amounts (up to Rs 30,000) to sub-prime customers in India. This is seen as a response to press reports and judicial action regarding excesses their loan recovery agents have engaged in. ICICI is reported to have closed down 100 outlets focused on such small borrowers.

Citibank has also tightened its processes for lending small amounts. It requires face to face interaction for every potential customer and a rigorous analysis of cash flow. They suggest that customers should ensure that monthly instalments on loans should not exceed 70 to 80% of their surplus income.

There has been a buzz recently about micro finance in India and how it can bring about financial inclusion. However, current 30% loan loss ratio in small loans is seeing fair amount of panic in the sub prime lending market. Coming back to first principles - a bank/finance company should lend money to only those who show strong signs of being able to pay back. Your local money lender knows that. If he is unsure, he knows how to extract the money - a process that is not easily transferable to the formal sector !

ICICI Bank fined for loan recovery lapse

ICICI Bank in India has been fined Rs 50 lakhs for employing 'goons' to recover loans.

Press Trust of India reports that the Delhi Consumer Commission fined one of India's leading banks, ICICI Bank Rs 50 lakhs for employing 'goons' to recover loans. The commission also deplored the intimidation tactics that ICICI's recovery agents were using on retail customers. In a recent case, some agents beat up a consumer mercilessly and snatched his car (against which there was the loan) away. The commission has issued notices to the Collection Manager ICICI and the CEO of the recovery agency.

Meanwhile, ICICI is said to have started a process to help prevent such incidents in the future.

India Sensex volatility - mutual funds vs fii

India mutual fund companies and foreign institutional investors (FII) appear to have been betting in opposite directions for most of the recent Sensex growth.

ETIG data highlights this trend:

• When Sensex jumped from 14,000 to 15,000, FII sold shares (net sales) worth 2372.10 crores while Indian mutual fund companies bought shares worth Rs 2891 crores
• Between 15000 and 16000, FII bought shares worth Rs 7307 crores while Indian mutual funds bought only Rs 667 crores
• When Sensex moved from 16000 to 18000, FII bought shares worth Rs 24,372.3 crores while mutual fund companies sold (net sales) Rs 2182.21 crores
• Between 18000 and 19000, FII bought Rs 7378.2 crores worth shares while mutual funds sold (net sales) Rs 966.2 crores worth of shares
• Finally, when Sensex jumped from 19000 to 20000, FII sold (net sales) Rs 1281.1 crores worth of shares while Indian mutual funds bought shares worth Rs 1515 crores.

Question arises as to why two groups of well researched/informed institutional investors have bet on opposite sides in a stock market that has grown to dizzying heights in a matter of months.

It appears, that mutual funds companies in India expected a correction in Sensex when the US sub-prime crisis hit in August - therefore they preferred to lower exposure. While some market commentators expected FII money running away from the US sub-prime mess to come to emerging markets, the relative deluge in to India surprised many a mutual fund pundit ! Domestic mutual funds, who were cashed up, now appear to want to get into the market so as to meet performance hurdles. Interestingly, FII money in the latest run up, seems to be going the other way.

All said and done, while an investor may be able to make some money purely playing momentum, longer term players would be better off considering fundamentals of the company closely while trying to leverage momentum plays. However, if leading institutional investors see fundamentals of blue chips in India so differently, what chance does a retail investor have ?

India gold purchase: could end use be insurance ?

Gold prices continue to rise. On Friday, gold surged past US$ 800 per ounce in New York. Factors supporting rise in gold prices include:

• Rising oil prices
• Financial worries in the US
• Inflation concerns
• Weakness in US dollar
• Geopolitical concerns
• Potential shortage of physical supplies to back paper traded gold
• Continuing physical demand from countries like India.

Despite this rise, prices have not reached the peak reached in 1980 (US$ 850 per ounce on 21 January 1980). However, some market analysts now feel that gold could test these levels. Newmont Mining Corp predicted, two years ago, that gold prices could touch US$ 1000 per ounce !

On the other hand, some technical analysts suggest that gold is in an overbought position and could weaken should US dollar strengthen. Supports are at US$ 802, 797 and 785. Resistances are at US$ 823, 850 868.

If your risk appetite is low and are buying gold this Diwali season (whether resident Indians or NRI), you may be better off buying it for end-use where you can handle volatility as opposed to buying it purely for speculation. If prices continue to go up, the end-use nature would lock in notional profits, but if prices were to fall, the longer term holding nature of end-use may act as insurance against value loss.

People who have the stomach may opt to continue trading based on macro economic situation and technicals – however, as always, this will require keeping a close eye on gold markets to ensure that proper loss protection devices are put in place.

Mutual funds missing in Indian investor's account !

India related investments and savings sometimes throw up unusual challenges. A mutual fund investor in India learnt an important lesson the hard way.

Mid Day Mumbai describes the case of a lady in Mumbai who invested money in State Bank of India (SBI)'s mutual funds through her broker in July 2007. In October, she called up the help line number to check her balance and was shocked to learn that the invested amount was not reflecting in her name. Further investigation revealed that the broker had set up the account in his own name and had issued her a fake statement confirming deposit of the money. She confronted her broker and the money was duly refunded. A case of fraud has been filed against the broker.

This case highlights the ease with which your money can go walk about unless carefully monitored. An Indian investor is better off watching his/her investments closely to ensure all the hard earned money is put to work at the earliest.

SBI lowers deposit rates: the opportunity is gone !

State Bank of India (SBI) has finally succumbed to competitive and margin pressures and lowered its interest rates on fixed deposits. It has lowered its peak interest rate on the 550 day deposit by 25 bp to 8.75% from 9 November. More importantly, it has withdrawn its super - saver term deposit scheme carrying a 9% interest rate for deposit maturity of 4 to 5 years and 8.5% for over 5 years.

Revised rates wef 7 November 2007 are:

15-45 days: 5.00%
46-270 days: 5.50%
271 days to less than 1 year: 6.75%
1 year to 549 days: 8.00%
550 days: 8.75%
551 days to less than 2 years: 8.00%
2 years to less than 3 years: 8.25%
3 years and up to 10 years: 8.50%.

This move shuts the door on the opportunity of leveraging lowering property (home loan) interest rates from HDFC while gaining from relatively high deposit interest rates from SBI. Good things don't last that long !