Do you feel let down by the listing price of Reliance Power IPO?

Reliance Power IPO was big news from day one. It evinced huge interest from desperate investors wanting to cash in on the possible gains on listing.

There were several news stories in the media about the grey market premium the stock was attracting even before the issue opened for subscription. However, the listing price of the stock has left much to be desired. While it initially quoted above the offer price, it subsequently slid below it.

Do you think the IPO was over-hyped or is the weakness in the listing price only on account of poor overall sentiment in the market? Do you think the stock would recover and return big gains once market sentiment improves? What is your analysis of the situation?

MFs crash but still promise long term gain

he bearish trend in the stock market for the last three weeks has hit the investors hard. Even those who have invested through mutual funds have lost substantial wealth. However, experts and mutual fund managers say that this has created a good opportunity to invest in the market.

CEO of a mutual fund run by a foreign bank said in the next one to three years, Indian stock market will give a return of more that 25% compounded annually. He advised that investor should postpone the idea of liquidating their investments in the stock markets to invest some other assets class. He said the returns from the investment in the equity market would be more than other areas.

As shown in chart, in the long term, equity is still the best instrument to invest. However, he cautioned that one should not enter the market with the short term view in the current market scenario.

The 30-share sensitive index has fallen by over 25% in the last one month from 20,827 on January 11 to 16,631 on Monday. This, a senior fund manager said, has brought down the share prices of many good performing companies to very attractive level. He said that prices of medium and small companies have become even more attractive.

He said the present fall in the market is mainly because of the apprehension of a slowdown in the US economy. But, many foreign fund managers feel that in a scenario of a US slowdown, Indian companies will emerge as an attractive option to invest. A senior foreign fund manager said very few Indian companies are dependent on the export revenue besides the IT companies, which will benefit from slowdown as the outsourcing by US companies will further increase to cut cost.
The performance of India centric companies is likely to improve as economy continue to grow at around 8.5%. Investment in equity of these companies will remain robust.

A senior mutual fund official said there is no redemption pressure on mutual funds. Investors are still investing in MFs. According to one source, Reliance MF has raised over Rs 5,000 crore in the primary market. Other funds like HDFC Infrastructure has mobilized around Rs 2000 crore. AIG Fund has raised another Rs 450 crore. These funds are likely to start investing in the current week. Besides, funds are mobilizing substantial fund through systematic investment plan (SIP).

FIIs have also started coming back in the market. In February so far, there net investment has increased by Rs 330 crore as against a net sale of Rs 3,200 crore in January.

Indian markets to be safe haven for investors in '08: Merrill Lynch.

India's stock market, one of the world's most expensive, is likely to be a safe haven for investors in 2008 because of the economy's low exposure to slowing global growth, Merrill Lynch strategists said on Friday.

Rolling out their top picks in Asia this year, they said global investors should also be overweight Chinese shares, though less so than in 2007, as well as Hong Kong issues, while going underweight South Korean and Taiwan markets.

They predicted India will fare better than more trade-dependent economies as US growth slows, noting exports of goods and services account for about a fifth of its gross domestic product, compared with 40 per cent for China.

"Its valuations look steep, and it's a crowded trade ... but it's the nature of lifeboats to get crowded. And there is some merit to the idea of India being seen as one now," Mark Matthews, Merrill Lynch's chief Asia equity strategist, told a media briefing in Hong Kong. "It's our sense that it can remain in a protracted expensive valuation zone because there's not enough reason to sell it."
India's benchmark BSE index, which hit a record high on Thursday, trades at more than 20 times 12-month forward earnings, compared with about 18 times for Hong Kong-listed shares of Chinese companies.

The US investment bank said China is still its second favourite Asian market after Hong Kong, but it had reduced its overweight rating partly because of concern about China's high inflation rate. It warned the market could face a tough first half.

"The jury is still out on Chinese inflation, and because exports are not a small part of Chinese GDP, that market is likely to remain in a directional no man's land until there's firmer evidence on both inflation and exports," Matthews said.

Other suggested stock market overweights included Malaysia, Pakistan, Singapore and the Philippines. Merrill said these were preferable to South Korea and Taiwan, where economic growth prospects are "unexciting at best". On the currency front, the investment bank said the US dollar was likely to come under further pressure in the first half, which would benefit Asia currencies.

It said the yen was likely to rise against the dollar, and that investors should be long the Singapore dollar against the US currency. "The world will increasingly come to realise that the larger Western economies are in a structural decline relative to Asia, and the transfer of wealth from the West to the East is not ending. In fact it's just getting started," Matthews said.
Source:-ET

Stocks for long-term investments in 2008

IG brings you the new themes for this year and the preferred stocks where you can park your long-term investments...

Premium Class

Income inequality, a perennial subject of discussion in India, has acquired a greater significance during the current bull run. Not everyone has gained uniformly from India’s growth story. Those at the top of the food chain — i.e. promoters and directors — have demonstrated a faster growth in their income and wealth than employees and small shareholders.

For many of us, this may be a cause for concern, but for an opportunist investor, this trend provides another opportunity to make money.

Investors are advised to put their money in companies that sell goods and services to the swelling upper-middle class. The potential investment targets can either be manufacturers of high-end consumer goods, lifestyle products or providers of leisure and entertainment.

Increased expenditure in the premium category indicates bullishness. There are many ways to quantify economic inequality in an economy. We have used income and wealth generated by India Inc as a proxy to gauge the income and wealth inequality in India.

As Corporate India tackles several challenges and generates huge profits, the stakeholders — i.e. the promoters, top management, shareholders and employees — are witnessing an unprecedented rise in incomes and therefore, their standard of living.

Financial Sector

The era of ‘lazy banking’ is long dead and gone. The banking and financial sector has acquired a new spanking avataar in a span of just a few years. In fact, today, India has emerged as a hub of banking and financial services at the global level. One big reason is India’s current economic growth story.

A strong surge in the potential growth to 8.5-9% has improved income levels of Indians and hence, the overall surplus cash balances and savings. Banks and other financial services are end beneficiaries of this boom. This is clearly reflected in the composition of gross household finance savings. The share of bank deposits, savings in the form of mutual funds and equity shares has gone up significantly from 38.4% in FY04 to 62.0% in FY07.

Apart from the retail segment, corporates are big users of banking and financial services. Increasing corporate savings are either parked with banks or mutual funds. Investment demand is a major driver for the current surge in economy and will be the same in forthcoming years.

Thus, to finance the huge capital demand, India Inc will rely on banks, non-banking financial companies (NBFCs) or the equity market. So, ample availability of resources, coupled with easing interest rates, will enable banks and other financial services to do well, irrespective of market conditions. Nevertheless, with an eye on maximising future opportunities, banking and financial companies have raised capital or are planning to raise it in the coming years, which will offer a leverage to raise their assets.

Media

Humourists describe advertising as the science of arresting human intelligence long enough to get money from it. Whether or not this definition is true, the year 2008 is likely to be a bonanza year for media stocks, given the huge potential in advertising spends.

Experts feel that ad spends are likely to trace the broader growth in the economy and consumerism. While ad spends will provide a trigger for good performance by broadcasting companies, increasing penetration of content distribution methods, including DTH and CAS, are likely to add sparks to the party.

Apart from broadcasting, content providers also have a busy schedule lined up, given the ever growing number of TV channels and shows. This spells a bonanza for companies which are engaged in the production of TV shows and animation.

Moreover, the increasing number of multiplexes and aggressive promotion of movies mean that companies engaged in the business of production, distribution and exhibition of movies will also have
a good time.

All said and done, the party holds promise for only a handful of players as most of them are already looking richly valued. This means investors have to look for growth stocks. Companies which enjoy a pan-India presence and offer services in various media segments are likely to be the biggest beneficiaries of these trends.

Infrastructure

Infrastructure is the pillar of economic, as well as social development. If various reports and studies are to be believed, India is set to emerge as one of the world’s largest economies. This is not achievable unless infrastructure improves. In the current scenario, lack of proper infrastructure is a bottleneck in the growth of the Indian economy. Sectors like power, rail and ports have to improve substantially if they want to meet the rising demand from India Inc.

Infrastructure investment requires huge initial capital outlay, which was considered to be a big hurdle in the past. With rising government revenues, a bullish stock market, huge foreign capital inflows and burgeoning corporate balance sheets, mega investment projects in infrastructure are no more a dream.

We feel infrastructure growth in India has reached an inflexion point and historical growth may no longer act as guidance for the future. So, will we ultimately see the kind of airports, ports, trains and roads that we have so far seen only in Bollywood movies? Looking at the revolution in the telecom sector, this cannot be ruled out.

This growth will have a cascading effect across a number of sectors, ranging from construction, cement and metals, to capital equipments and project finance, among others. But how big is this opportunity for India Inc and its investors? ETIG does a reality check by benchmarking India’s infrastructure growth against other countries to highlight the gaps and identify the investment opportunities.
Source:-ET

Volatile markets: Investors need to build long-term portfolio.

Finally, the equity market has come under selling pressure and when it happened, it wasn't a pleasant scene.

In the first two trading sessions, the markets went into a selling mode as if there was no future for equity and though there was a mild recovery in Wednesday's trading, the under current was far from comforting.

While the short-term trend continues to be volatile, the time has come for investors to go back to the basics of investing.

For a good part of 2007, this was completely forgotten, as the index had turned a sprinter by adding 800-1,000 points in a matter of a few days.

In 2007, big rallies were to the tune of 600-700 points in a day's trading and the Sensex rallied from 17k to 19K in a matter of few trading sessions.

What aided the rally, of course, was the relentless fund flows from global investors who now have fewer exciting markets besides India.

It was the same investment community which hammered the stocks though there was also enough support from the local traders who had built positions beyond their capabilities. As a result, the super profits of 2007 disappeared in a matter of two trading sessions.

Though local mutual funds and institutional investors did their shopping, it couldn't stem the negative pressures on the market.

With foreign institutional investors (FIIs) still preferring to book profits and keeping away from Dalal Street, one wonders whether the equity story has lost its steam.
Source:- economictimes.

Brokerages dishing out PMS schemes for frenzied investors.

Elephant is an animal that rings in money irrespective of whether it is alive or dead. When alive, the mammal is forced to work its tusk out; and when dead there are always buyers for tusk, nail, hair and skin. For brokers on the D-Street, market is like an elephant. It rings in money when up and alive; and all the more profitable when it is down.

Post the market drubbing over past four weeks and the eventful loss of investor capital thereafter, brokerages are dishing out portfolio management services (PMS) schemes for frenzied investors who are running for cover.

Past three weeks have seen a slew of portfolio management services (PMS) schemes being launched in Indian market. A majority of these are ‘pool PMSs’ (with entry level at Rs 5 lakh) which enable smaller investors to participate in these otherwise exotic ‘affluent-centric’ schemes. “Very positively, there has been several PMS launches over the past few days. This is a good option for investors who do not have the knowledge back-up or time to invest in market judiciously. We are also seeing roll-out of a combination of products as well,” said IDBI AMC’s PMS head, R. Swaminathan.

All the more interesting is the fact that the number of wealthy Indian individuals are on the rise, with an annual growth-rate of 30%. The number of households with bankable assets over $1 million is expected to rise from 1,20,000 in 2007 to 3,00,000 in 2012. In the same period, total bankable assets in India are expected to reach more than $1 trillion.

Pool PMS, the most common and popular segment, is a structured product for a specific group of clients (investors) with similar investment preferences. Unlike general PMSs, pool PMS is not directed to an exclusive client. Customers do not even need a demat account to invest in Pool PMSs; they only have to sign a general PMS agreement, entrusting the brokerage to manage their investments.

Anil Ambani’s Reliance Money has launched PMS with minimum investment of Rs 5 lakh, as specified by Sebi. The scheme that targeted executives and professionals in metros and smaller towns would be available with an infinite upper investment limit. “The firm will not charge any fees if the returns are less than 8%. However if the return is between 8-20%, it would charge a nominal 10% as fees,” said Reliance Money CEO Sudip Bandyopadhyay.

“Fund managers have the liberty to include as many investors as they want to pool-in a sizeable investment. As far as investors are concerned, they are literally hand-held through their investments till the maturity date,” Mr Bandyopadhyay added.

Apollo Sindhoori Capital Investments is planning to start a PMS scheme that would target pension earners. The brokerage plans to generate secured returns through arbitrage operations between cash and futures markets. The brokerage expect to generate a minimum 12% annualised return to its investors.
Source:-economic times

overview-II

Market maimed amid sharp volatility
The Sensex witnessed a wild intra-day swing of 486 points and dropped 107 points at close on broad-based selling pressure.
The market recorded its third straight loss as players resorted to heavy selling on lack of liquidity support from FIIs, which have been offloading equities sharply in
the past few sessions. Positive international indices also failed to lift the sentiment, as the Sensex drifted into negative territory in late morning trades after gaining 162 points in early trades to touch the day's high of 17,689. The sentiment turned extremely bearish in noon trades as sustained selling in heavyweights, CD, metal, realty and bankex stocks dragged the index below to an intra-day low of 17,203. The Sensex, which gyrated 486 points during intra-day trades, finally ended the session with losses of 62 points at 17,465, while the Nifty dropped 13 points to close at 5,120.

Movers & Shakers

* Marg Construction lost despite the launch of its mega infrastructure project--MARG Swarnabhoomi.
* Elecon Engineering gained on reports that the company has been awarded a prestigious order of Rs47.00 crore by M/s Sical Iron Ore Terminals, Chennai.
* Larsen & Toubro slipped even after the company won Rs1,107 crore order from SAIL's IISCO Steel Plant at Burnpur.
* Bharat Forge rose on report that the Company signed a MOU with NTPC to set up a joint venture company.
* ABB rose marginally on winning Rs330 crore worth of substation orders from Power Grid Corporation of India.


The market breadth was exceedingly negative. Of the 2,801 stocks traded on the BSE, 2,250 stocks declined, 511 stocks advanced and 40 stocks ended unchanged. All the sectoral indices ended in the red. The BSE CD index dropped 3.20% at 4,737 followed by the BSE Metal index (down 2.67% at 15,115), the BSE Realty index (down 2.46% at 9,784), the BSE Bankex index (down 2.17% at 10,159) and the BSE CG index (down 1.62% at 15,859).

Out of 30 Sensex stocks, only 14 stocks managed to end in positive territory. Among the major laggards, HDFC slumped 4.47% at Rs2,796, ICICI Bank tumbled 3.49% at Rs1,066.70, DLF plunged 3.33% at Rs816.70, HDFC Bank declined 3.06% at Rs1,445.95, L&T dipped 2.84% at Rs3,527, Tisco crumbled 2.72% at Rs750.40, Bajaj Auto lost 2.70% at Rs2,217, M&M shed 2.08% at Rs644.95, Hindalco fell 1.71% at Rs160.50 and NTPC was down 1.50% at Rs203.30. Hind Utilities, however, bucked the downtrend and advanced 6.09% at Rs211.75, Infosys ended with steady gains at Rs1,551.35, Satyam moved up at Rs410, Wipro soared at Rs422.45, ITC, Ranbaxy, Bharti Airtel, TCS, SBI, ONGC, ACC and Maruti traded with decent gains.

Over 2.90 crore Ispat Industries shares changed hands on the BSE followed by RPL (1.69 crore shares), Chambal Fertilisers (57.04 crore shares), Arvind Mills (43.65 lakh shares) and Ashok Leyland (42.26 lakh shares).
Source:-stockresearch.

Overview.

Markets this week were very weak because of global cues. We had recommended this earlier last week that markets will go down before it starts its bullish run again. Mondays is gona be crucial day for many eager investors who invested their so called lifetime super savings in Reliance Power IPO, from villagers to urban people. Next week there can be quite a few up and down trends. downtrend looks more. According to me sensex may see another 1000 odd points down fall movement in the next whole week. It all depends on the global markets. I advice lower puntar stocks, small & mid caps. If you trade trade only in A group shares. Scrips to look in this coming week are NTPC, R Com, RPL, SBI, BOB, TISCO, L&T. Buy Ispat Ind if it goes bellow 39.45 dont miss this golden chance.
My serious advice to the day trader is not to be greedy and book profits at regular intervals.
Every one wants to be warren buffet but no one wants to take risk is what I can say.
PS.:-R Power listing on 11 can make all the power scrips bullish.
Vinod Jethmalani.
vinodjethmalani@gmail.com

ELGI EQUIP

• Elgi Equipments to open wholly owned subsidiary At Sharjah and Brazil
• The board of Elgi Equipments has approved to open a wholly owned subsidiary at Sharjah - free trade zone and Brazil.
• This was approved at the board meeting held on 02 February 2008.

Keep an eye on this scrip this may soon get bullish.

The ten Biggest Sensex Fall.

*The 10 biggest falls in Sensex history*

The Sensex and Nifty saw its biggest ever loss on Monday. Relentless selling
saw the index crash to a low of 16,951 - down 2,063 points (10.8%) from the
previous close, the largest ever loss in a single day.

The index shed *1408.35 *points (7.1%) to close at *17,605.40, *the
biggest-ever loss in absolute terms and also the first-ever four digit loss
for the index.

The Nifty lost 496.50 points (8.70%) to close at 5,208.80 points.

The Sensex saw its second biggest intra-day loss on October 17, 2007, when
it plunged by 1,743 points. The Sensex hit a low of 17,307.90 points within
minutes of opening, following which trading was suspended in the market for
an hour.

The markets had crashed on the wake of Securities and Exchange Board of
India's (Sebi) proposal to tighten the rules for purchase of shares and
bonds in Indian companies through the participatory note (PN) route.

*Here are the 10 biggest falls in the Indian stock market history:*

*Jan 21, 2008*: The Sensex saw its highest ever loss of *1,408* points at
the end of the session on Monday. The Sensex recovered to close at 17,
605.40 after it tumbled to the day's low of 16,963.96, on high volatility as
investors panicked following weak global cues amid fears of the US
recession.

*May 18, 2006*: The Sensex registered a fall of *826* points (6.76 per cent)
to close at 11,391, following heavy selling by FIIs, retail investors and a
weakness in global markets. The Nifty crashed by 496.50 points (8.70%)
points to close at 5,208.80 points.
*
December 17, 2007*: A heavy bout of selling in the late noon deals saw the
index plunge to a low of 19,177 - down 856 points from the day's open. The
Sensex finally ended with a huge loss of *769* points (3.8%) at 19,261. The
NSE Nifty ended at 5,777, down 271 points.

*October 18, 2007*: Profit-taking in noon trades saw the index pare gains
and slip into negative zone. The intensity of selling increased towards the
closing bell, and the index tumbled all the way to a low of 17,771 - down
1,428 points from the day's high. The Sensex finally ended with a hefty loss
of *717 *points (3.8%) at 17,998. The Nifty lost 208 points to close at
5,351.

*January 18, 2008: *Unabated selling in the last one hour of trade saw the
index tumble to a low of 18,930 - down 786 points from the day's high. The
Sensex finally ended with a hefty loss of *687 *points *(*3.5%) at 19,014.
The index thus shed 8.7% (1,813 points) during the week. The NSE Nifty
plunged 3.5% (208 points) to 5,705.

*November 21, 2007: *Mirroring weakness in other Asian markets, the Sensex
saw relentless selling. The index tumbled to a low of 18,515 - down 766
points from the previous close. The Sensex finally ended with a loss of *678
*points* *at 18,603. The Nifty lost 220 points to close at 5,561.

*August 16, 2007*: The Sensex, after languishing over 500 points lower for
most of the trading sesion, slipped again towards the close to a low of
14,345. The index finally ended with a hefty loss of *643 *points at 14,358.

*April 02, 2007: *The Sensex opened with a huge negative gap of 260 points
at 12,812 following the Reserve Bank of India decision to hike the cash
reserve ratio and repo rate. Unabated selling, mainly in auto and banking
stocks, saw the index drift to lower levels as the day progressed. The index
tumbled to a low of 12,426 before finally settling with a hefty loss of *617
*points (4.7%) at 12,455.

*August 01, 2007: *The Sensex opened with a negative gap of 207 points at
15,344 amid weak trends in the global market and slipped deeper into the
red. Unabated selling across-the-board saw the index tumble to a low of
14,911. The Sensex finally ended with a hefty loss of *615 *points at
14,936. The NSE Nifty ended at 4,346, down 183 points. This is the third
biggest loss in absolute terms for the index.
*April 28, 1992*: The Sensex registered a fall of *570* points (12.77 per
cent) to close at 3,870, following the coming to light of the Harshad Mehta
securities scam.
Source:-Live stock watch(G Group)

Suden up move.

Up and down is the way to live life. Always being happy is bad. But today sensex moved 2.34% up. Opened at a high of 300 points approx and maintained its green color. This was all because of global cues. Sensex has a severe resistance of 17001 points. Down move can be seen tomorrow as the global markets are trading in negative.
It is advisable for one to learn to buy in dips. Today the markets were looking great for the future our prediction is 21490 (sensex) points is in May futures. On the other hand NIFTY has a sewere resistance of 4990 points.
IT sector will take a great time to recover. Tele&Communication can see a upside move tommorow.
Buy Power stocks in dips and keep them for short term.
According to the sources Rel Power will be listed on the 11th of this month.
Refunds of the same will start by tomorrow.
See the global markets and then trade.
Scrips such as Ispat, RNRL,RPL ,R Com looking good for medium term.
Gtl infra can be a super star in few month in a long run can be traded above 300.
(We will now give articles every day.)

Back with a bash!

After the market surged in the dark black sea it is now back again with a bash as the market is 6.21% up approx 1,138 points up today(25th jan).Midcaps & smallcaps are yet in dark sea. They may take a long time to come up say approx of 2-3 months.Any ways after FED slashing down its loan rates The global markets have become a bit stable and so are the Indian and other Asian markets.But there are considerable chances for the markets to come further down. Down trend if seen can be till 14.5K points on sensex and after that up trend till 26K.There are many rumors going on in the markets be extra cautious while trading and dealing.Tips may put u down the line any where on from where you had started. Happy trading is all i can wish for you.
P.S:If you trade trade only in Group "A" or "B1" shares.Be extra cautious.
Vinod Jethmalani
vinodjethmalani@gmail.com

Report of this week 14 -19 Jan.

Report:-
Markets were extremely violent.Markets fell down from 21K to 18.9k odd on Friday 3.33pm.Reliance IPO was over booked 72.2 times.Markets likely to become stable in this coming week if only the world markets are stable.Don't invest much in small caps and mid caps in this week.Invest mainly in long term.Bankex and construction sectors were up last week.While IT fell down like any thing.In the coming week concentrate on telecom sector for long term Premium members we have tips for you click here.I conclude by saying that Multi baggers can make people multi beggars .

Market Rumours.

Markets may move to higher levels from here , the last week correction is only to take long positions , hold on to midcaps

GSPL is a star performer in the gas pipeline segment and this scrip will be a multi-bagger in coming years. It has over 18 cities gas distribution network in its fold.

Something is cooking in the lokesh machines counter . It’s a risk free bet at current levels

One group of analysts recommends to take positions in IT sector , as they expect to outperfrom the markets

Reliance power mega issue may over subscribe above 400 times and may list at 1000 , try your luck

Ferror Alloys is attracting discerning buyers. Real trigger in the stock is its platinum mines and its subsidiary, Facor Power, which would generate substantial cash flows as they achieve optimal scale in the next 2-3 years

Swan Mills is the gem in real estate stocks as the fundamentals of its real estate story have not been fully absorbed. Short term investors can add the scrip with a target of Rs.170

K Sera Sera, a scrip from Bollywood is coming out of the woods and may post an EPS of Rs.10 for FY08 and Rs.15 for FY09. The scrip is heading for the century mark.

Renewed buying interest in Ispat may take the scrip to new highs. This is what the operators are aiming for!

Wockhard is expected to jump soon on the demerger news

BHEL staying in the dormant zone for the last two weeks has consolidated very well for a smooth take off to Rs.3250.

GSPL is a star performer in the gas pipeline segment and this scrip will be a multi-bagger in coming years. It has over 18 cities gas distribution network in its fold.

After a hitting a high of Rs.40 recently, Liberty Phosphate has corrected sharply to Rs.25 levels. It is one of the cheapest fertilizer scrips and has the potential to test Rs.50 level in the medium-term.

Centurion Bank is rumoured to be in the next month's new F&O entrant list. Watch for speculative gains

Kamanwala Housing is coming out with its results on 15th Jan and the scrip has corrected sharply as the company may not match its December 2006 topline. But it has decent projects in hand and is a buy at every fall

Hindustan Motors is likely to gain over the medium term on speculative news flow

Investors Map to Banking Stock.

Banks possess an enviable spot in any economy. They are the funnel in the capital formation process and the engine that keeps vehicle speeding. Without banks businesses would find it impossible to keep growing and consumers keep saving and spending. Since service that banks provide are so very vital for economic activity across all its elements that banking sector is bound to grow with growth in economy. It hardly matters whether demand for money comes from cement companies or semiconductor companies or a consumer, what is certain is banks would keep humming.

The banking business model is simple and understandable. Banks receive money from depositors and the financial markets and lend it to borrowers or invest in financial securities. Difference or spread in this two leg is profits. If banks borrow at about 8% from depositors and are able to lend it to some business for their working capital needs or to someone looking to buy a new car at say 11% than the spread 3% (11%-8%) is what is popularly called Net Interest Income. Beside lending and borrowing, banks also advice corporate on their forex exposure or a higher net worth individuals on their investment. Money made by banks by providing other services is referred to as non-interest income or other income. In developed economies, banks derive nearly 50% of revenues from this stream. This stream of revenues contributes a relatively lower 15% in the Indian context. Net Revenues of a bank is total of net interest income and non-interest income.

In order to earn these net revenues banks employ thousand of people in hundreds of branches. Employee cost (One need to watch out Union activity) and other Operating expenses (may move with brand expansion and inflation) are key expenses in banks profit loss account.

At times borrowers fail to pay up. This means assets are not earnings and are called Non-Performing Assets (NPAs). Banks provide for this potential loss as Provisions for NPAs. In its investment activity depending on ups and downs of interest rates, market value of the investment portfolio keeps making unusual profits and losses. Provision in mark to market loss on investment portfolio is provided as expense.
In case of a bank, capital (read money) is a raw material as well as the final product. a bank is mandated to maintain a certain percentage of deposits with the Reserve Bank of India (RBI) as CRR (cash reserve ratio), on which it earns lower interest. Whenever there is a reduction in CRR announced in the monetary policy, the amount available with a bank, to advance as loans, increases. The second part of regulatory requirement is to invest in G-Secs that is a part of its statutory liquidity ratio (SLR). The bank’s revenues are basically derived from the interest it earns from the loans it gives out as well as from the fixed income investments it makes. If credit demand is lower, the bank increases the quantum of investments in G-Sec.

Sources of Competitive Advantage:

- Banks are borrowing from many depositors and lends to various borrowers. Result is they end up having diversified portfolio of assets and liabilities. This result in lowering of risk as compared what it would be if depositors had lend directly to borrowers. This unique advantage of pooling forms one of the base of lasting economic moat for the banking industry.
- Other key moat comes from better management of risk. A top-notch credit culture along with the subsequent borrower/lender relationships that banks establish can create a competitive advantage for firms in the industry.
- Other source of moat is management of liquidity. In world without banks depositor needing cash before borrower is ready to return can create chaos. But in world fill with banks, deposits can pre-withdraw and lenders can pre-pay their respective assets and liabilities.
- Several other factors have also led to deeper and wider economic moats. Some key deterrents to competition include: Huge balance sheet, large economies of scale, a regional oligopoly type industry structure and customer switching costs.

Investors should seek to buy banks:

- With strong capital base
- Earning Consistently high ROEs and ROAs
- With ability to grow revenues at steady rate
- Valued attractively based on P/BV
- Strong Management team

Ideal Business.

Following criteria of Ideal business discussed by Richard Russel in his article "AH PERFECTION" is worth noting:

(1) The ideal business sells the world, rather than a single neighborhood or even a single city or state. In other words, it has an unlimited global market (and today this is more important than ever, since world markets have now opened up to an extent unparalleled in my lifetime). By the way, how many times have you seen a retail store that has been doing well for years -- then another bigger and better retail store moves nearby, and it's kaput for the first store.
(2) The ideal business offers a product which enjoys an "inelastic" demand. Inelastic refers to a product that people need or desire -- almost regardless of price.
(3) The ideal business sells a product which cannot be easily substituted or copied. This means that the product is an original or at least it's something that can be copyrighted or patented.
(4) The ideal business has minimal labor requirements (the fewer personnel, the better). Today's example of this is the much-talked about "virtual corporation." The virtual corporation may consist of an office with three executives, where literally all manufacturing and services are farmed out to other companies.
(5) The ideal business enjoys low overhead. It does not need an expensive location; it does not need large amounts of electricity, advertising, legal advice, high-priced employees, large inventory, etc.
(6) The ideal business does not require big cash outlays or major investments in equipment. In other words, it does not tie up your capital (incidentally, one of the major reasons for new-business failure is under-capitalization).
(7) The ideal business enjoys cash billings. In other words, it does not tie up your capital with lengthy or complex credit terms.
(8) The ideal business is relatively free of all kinds of government and industry regulations and strictures (and if you're now in your own business, you most definitely know what I mean with this one).
(9) The ideal business is portable or easily moveable. This means that you can take your business (and yourself) anywhere you want -- Nevada, Florida, Texas, Washington, S. Dakota (none have state income taxes) or hey, maybe even Monte Carlo or Switzerland or the south of France.
(10) Here's a crucial one that's often overlooked; the ideal business satisfies your intellectual (and often emotional) needs. There's nothing like being fascinated with what you're doing. When that happens, you're not working, you're having fun.
(11) The ideal business leaves you with free time. In other words, it doesn't require your labor and attention 12, 16 or 18 hours a day (my lawyer wife, who leaves the house at 6:30 AM and comes home at 6:30 PM and often later, has been well aware of this one).
(12) Super-important: the ideal business is one in which your income is not limited by your personal output (lawyers and doctors have this problem). No, in the ideal business you can sell 10,000 customers as easily as you sell one (publishing is an example).