Mumbai, 31 July 2010: On a rainy Saturday afternoon, Moneylife Foundation welcomed over 40 enthusiastic persons to its first workshop, especially customised to the needs of senior citizens. This session took note of how senior citizens are coping in the post-liberalisation economy where their costs have soared so much that their savings have been eaten up by inflation. It touched on issues such as wills, insurance and reverse mortgage products that help those who are 'asset rich' but have a meagre income stream.
Sucheta Dalal (Managing Editor, Moneylife magazine) spoke on 'Safety, Security and Financial Independence for Seniors'.
Debashis Basu (Editor & Publisher, Moneylife magazine) looked at safe investment opportunities, spoke on how to avoid financial mistakes and focussed on the reverse mortgage product in some detail. As always, he advised people to consider index funds as a safer way to participate in the markets and benefit from growth.
Mr Basu also explained the reverse mortgage product in great detail. There was a comparison between the product that was introduced in 2007 and the current one in 2009. The current product has two options. The first option will give more monthly income, but there is no return of purchase price. The second option will give less monthly income, but will return purchase price. The first option is apt for singles who do not want to leave any assets to anyone after death. The second option is apt for couples who want return of purchase price to legal heirs. The 2007 product gave out the least monthly income and hence was unpopular. The 2009 product is a much better one, because it has three-way collaboration between the life insurance sector, the banking sector and the housing finance market. The main drawback is that the monthly income is still taxable. There were a lot of questions from the audience on this topic, as it is a new as well as an interesting concept.
Seniors who attended the session also had the benefit of inputs from two key resource persons - Mr Nagesh Kini (Activist and Chartered Accountant who has audited insurance companies) and Mr Jayesh Desai (Partner of law firm Singhi & Company) - who participated in a very lively discussion on insurance products and the rules governing wills and transmission of assets.
India has nearly 100 million senior citizens but a very limited vision when it comes to senior citizens' issues; policies for senior citizens are announced but not implemented. And, even as they struggle to cope with soaring costs, senior citizens are often financially exploited - most often by family and people they trust - and they struggle to enhance income. A US study shows that 1 out of 5 senior citizens is the target of financial scams.
Ms Dalal warned seniors against investing in unregulated schemes or falling for chain and pyramid marketing schemes. She also spoke about the variety of Internet frauds that ensnare people, especially those who are unaware about how the Internet is prone to abuse. Ms Dalal also explained the difference between retirement communities versus old age homes, since the former are fast becoming an attractive option, with great facilities for seniors who are financially comfortable.
She also pointed out that senior citizens must use their experience and skills to consider a second job either as a source of revenue or as contribution to society. It was pointed out that many organisations were happy to offer flexible timings to seniors to benefit from their expertise.
Another issue that came up for discussion was the steep 500% hike in insurance premium by Reliance General. One audience member had purchased a Reliance policy for his parents three years back. It was becoming difficult to change the insurance company because the insured parents were now over 65 years old, hence it was difficult to get a new policy. There was also a discussion on insurers taking away cashless facilities from certain hospitals.
Disha Counselling will be offering free financial advice (not investment advice) at the Moneylife Knowledge Centre every Wednesday and Friday from 2pm to 5:30pm after 11 August 2010. We urge senior citizens and others to take advantage of the same.
The Moneylife Foundation is also coming out with a White Paper on issues concerning senior citizens. During the latest event, all those who attended were requested to read the draft and give their feedback.
Saturday afternoon was surely well worth for everyone who came to the seminar hosted by Moneylife Foundation.
Its post-issue equity dilution PE works out to 10.80 (at the upper band) and 9.82 (at the lower band) based on the EPS of FY10, while industry average PE is 16.70
Mumbai-based Prakash Steelage Ltd (PSL), a manufacturer of seamless & welded stainless steel pipes, tubes and U-tubes, hits the primary market on 5 August 2010 to raise Rs62.50 crore-Rs68.75 crore. PSL has fixed the IPO price band at Rs100-Rs110 per share. The company is offering 62.50 lakh shares at a face value of Rs10 each.
Qualified Institutional Buyers (QIBs) and Non-institutional Investors (NIIs) have been allotted 30.75 lakh and 9.22 lakh shares respectively. Retail investors will be entitled to 21.52 lakh shares.
PSL's production is done at its two units situated at Silvassa and Umbergaon with total installed production capacity of 12,200 metric tonnes per annum (mtpa).
The issue opens on 5th August for QIBs and closes on 9th August. Bidding for retail investors and NIIs closes on 10th August.
For the year ended 31 March 2010, PSL's EPS (earnings per share) was Rs15.84. The industry average PE stands at 16.70. At the end of the last fiscal, its debt-to-equity ratio stood at 2.77:1.
With the post-issue equity dilution, the PE works out to 10.80 at the upper band and 9.82 at the lower band, based on the EPS of FY10.
PSL reported a net profit of Rs17.82 crore on net sales of Rs437.10 crore for the year ended March 2010. Its total income stood at Rs438.38 crore for the same period.
Following a search-and-seizure conducted by Income-Tax authorities in February 2009, the company filed a voluntary declaration of undisclosed income to the tune of Rs15 crore for which it paid Rs4.87 crore as tax on 25 February 2009.
On 6 July 2009, the company again received a notice under the provisions of Section 153(A) of the Income-Tax Act, 1961, directing it to file a true and correct return of total income for the assessment year (AY) 2003-04, AY 2004-05, AY 2005-06, AY 2006-07, AY 2007-08 and AY 2008-09 from the I-T Department.
PSL plans to buy plant & machinery worth Rs33.67 crore and other fixed assets worth Rs1.68 crore from the proceeds of the IPO. As on 31 March 2010, the company had an outstanding unsecured loan of Rs42.80 crore.
The IPO proceeds will also be used to fund expansion of its existing manufacturing facility at Umbergaon at a cost of Rs48.55 crore, and meet additional working capital requirements.
Keynote Corporate Services is the lead book running manager to the issue. Rating agency Credit Analysis & Research Ltd (CARE) has assigned an 'IPO Grade 2' to the proposed offering, indicating 'Below Average' fundamentals.
Government policies — both in developed and emerging markets — to smooth economic cycles may in fact be simply increasing volatility
July in the US is one of the hottest months of the year. It certainly was on the US stock markets. The S&P has climbed almost 10% since the end of June. It has mimicked the rally that occurred this spring. Does this portend the beginning of a persistent recovery or is something else happening?
It was due to earnings. In both cases the rallies were caused by earnings, really good earnings. The present level of earnings for many companies and their forecasts of future growth have led to higher valuations for many US companies and a rise in their stock prices. Is this a prediction for better times? Probably not, but it does tell us something very important.
To start, earnings are always suspect. Accounting allows for many variables. Revenues can be brought forward, pushed back, extended, expanded, hidden, distributed or they can simply be made up. The same is true with costs.
Earnings are also retrospective. They represent information that can be several months old. They are based on trends and decisions of the past, not the future. So rather than crystal ball, they represent a rear-view mirror.
Still, the earnings this season have been very good. They have exceeded expectations by more than 10%. In the US markets with over 70% reporting second quarter earnings, profits look to have grown 42% and profit margins nearly 10%. Some companies have done very well indeed.
The American delivery company UPS’ earnings jumped 71% on revenue growth of 13% with improvement across all business units. Its competitor FedEx forecast earnings to grow by 32%. Two Dow Jones components — the US heavy machinery manufacturer Caterpillar and the chemical giant DuPont both did well as did Cummins Engine Company, whose second-quarter profit more than quadrupled.
In contrast, other US companies, specifically companies selling to consumers in the US like Home Depot, Kellogg, Colgate and CVS all had disappointing earnings. The difference is important. The UPS, FedEx, Caterpillar, DuPont and Cummins earnings all had one thing in common. Most of their profits came from international sales and for international sales read Asia. For DuPont the Asia-Pacific region increased revenue by 47%. Cummins realised two-thirds of its revenue outside of the United States. UPS volumes in Asia grew over 40% and international operating profits soared 78%. The companies that did not do as well were focused on the US.
This is hardly news nor unexpected. It is common knowledge that emerging markets have been growing faster than developed markets. Recently markets have fallen because the recovery in the developed countries seemed to be in danger. Developed markets were plagued by worries about sovereign default and double dips, most of which turned out to be overblown. Now they are rising because of expectations of future growth in younger economies. But what if this is about to change?
Emerging markets have a different problem. Rather than slowing, they have been overheating. The main cause for concern in emerging markets right now is inflation. In India, Pakistan, Egypt and Vietnam the inflation rate is already at double digits. The Reserve Bank of India has raised interest rates in an effort to get ahead of the problem, but they already may be behind it. Inflation is accelerating.
In theory China’s inflation is contained. The government has imposed restrictions on the real-estate market to try and return the price rises to something that looks vaguely sane. But it has announced targets for new loans for 2010 at 7.5 trillion renminbi ($1.1 trillion). This is 90% more than the 4 trillion renminbi ($585 billion) in new loans extended in 2008. The mere size of this lending spree must ultimately unleash inflation. It has already created a potential loan default rate of 23% and rising. No doubt China’s tightening, if it is in fact tightening, is just beginning.
It is really a question of the effectiveness of monetary policy. The fear has been that the loose monetary policy in developed markets would spark inflation. It hasn’t, but so far it has not been very effective in stimulating growth. In contrast, the contractions in emerging markets are supposed to cool inflation. If they don’t, will the monetary authorities in emerging markets follow their developed market colleagues and just apply more of the same medicine? If they do, will it choke off the present source for much of the world’s growth?
The real point is that despite the assurances of central bankers, government attempts to control markets can have enormous unintended consequences. Policies to smooth economic cycles may in fact be simply increasing volatility. The fall is coming and it is a season of dramatic change, for both the weather and the markets. The earnings optimism is likely to be as short as summer itself.
(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected]).