M&M to buy Italian Car design firm that designed cars for Ferrari and Rolls Royce

M&M, Indian automaker is in talks to buy Italian car design firm Pininfarina S.p.A. Customers for the design company include notable names like

• Ferrari
• Alfa Romeo
• Peugeot
• Fiat
• Lancia
• Maserati
• Hyundai
• GM

The company's net income in the year 2012 is 32.9 Million Euros. The latest designs of the company include

• 2008 Maserati GranTurismo
• 2008 Ferrari California
• 2009 Ferrari 458 Italia
• 2011 Ferrari FF
• 2012 Ferrari F12 Berlinetta
• 2014 Ferrari California T

M&M's stock ended up today by 1.3% in NSE and closed at 1208. Pininfarina S.p.A.'s stock was up by 10% Wednesday. In the year 2011, M&M acquired Ssangyong Motor Co. 

Asian Markets Now

Kospi up 1.8%

 Shanghai up 1.3%

 Nikkei up 1.2%

Sensex up 1%

ASX up 0.8% at close

Taiex up 0.4%

HK up 0.3%

Should you invest in Stocks or Real Estate?

We are sure, when it comes to investments; people always prefer real estate to stocks. One reason, people think real-estate returns are far better when compared to stocks. Another reason, you own an asset which you can visit, show off to your family and friends. If it is a house or flat, it is a matter of pride. 

            But whether real-estate investments are fool-proof and safe? Or at least they are less riskier than stocks? Does it mean, risk averse investors prefer real-estate investments and risk lovers go for stocks? We are sure; you would have seen a friend or a relative visiting the court for a property dispute. The disputes would be less or almost nil when you buy a flat from a reputed builder. Again, how much you end up paying as interest for the loan is a big question. Here is what Albert Einstein says about compound interest, "Compound interest is the eighth wonder of the world. He, who understands it, earns it ... he who doesn't ... pays it." 

          So people who are paying interest are the ones that are paying it. And who earns it? People who invest in equity related schemes or in any real estate property with their own money earns it. But can we buy a real estate property by paying upfront the total money? No, most of us cannot. But can we buy stocks with few thousands? Yes, we can. 

Disadvantages of investing in stocks

·        Huge Volatility

·        Intangible

Disadvantages of investing in real estate

·        High transaction costs and commissions

·        Huge margin required

·        Returns are lesser than stock investments

·        Cannot diversify with limited funds

·        Chances of litigation are more

·      Maintenance costs like fencing if it is a plot, Renovation, painting, landscaping if it is a flat

·        Have to pay property tax

·        You end up paying twice the amount of the property if you take a loan

Let us see the advantages of owning a stock

·        Liquid

·        Better return than Real Estate

·        Low Transaction Costs

·        More variety (diversification)

·        Less investment required to own

·     Long term (anything more than a year) capital gains tax is zero (Meaning, just hold any stock more than a year, your capital gains tax is zero

·        Chances of litigation are less

Let us see the advantages of investing in real estate

·        Tangible

·        Interest payment can be deducted from taxable income

·        Less volatile

Seems like it is more advantageous to invest in stocks than in real-estate, isn’t it?  Here is what Samuel Langhorne Clemens aka Mark Twain has to say about real-estate investment, “Buy land, they’re not making it anymore.”

So is this the logic for people to invest in properties than into stocks? Well, let us dig deeper to find whether investing in real estate or stock yields a better return. 

Check out this graph (Historical returns of S&P 500 index versus Housing Price Index)

Image Source

This chart doesn’t include the dividends you could make by investing in stocks. If that is included, then the returns from stocks could be even more. And if you take a loan for your real-estate investment, you could probably end up paying more as way of interest.

Mumbai is the hot real-estate market in India. Mumbai cannot expand unlike Bangalore as it is an Island. Poor souls, they have to reclaim the sea to expand the city. Whereas a city like Bangalore is expanding in all directions. A standup Comic friend of us once joked,” Bangalore’s new airport is in Hyderabad.” In the year 1980, a sq.ft of land in the Dalal Street area of Mumbai was selling at INR 100 and it sells around INR 27000 today. That works out to an annualized return of 20.51% over 35 years. Similarly a property purchased in Carter Road in Mumbai in 1970s would have given an annualized return of 19% over 45 years.

Had you invested in Sensex when it was trading at 100 in 1979, you would have made an annualized return of 17% (today Sensex is trading at 29000). You must be smart; you noticed that the returns from Sensex was lesser than the real estate investment examples we discussed. Add another 1.5%  as dividend yield for Sensex, it would now match the returns on these prime properties.

Points to ponder

Many stocks that form a part of the index (Sensex) have given an annualized return of more than 30% since they got listed. If you invest wisely, you can expect an annualized return of more than 20% from stocks.

These prime properties are not for the regular Joes like us. We cannot afford to own a piece of land in those areas (Disclaimer – “We” refers to the Middle class and the lower middle class). But can we own a piece of Sensex for few thousand rupees? Welcome to the world of Bulls and Bears where every day is an exciting one! 

Dow Jones Sell call update

Dow Jones is now trading at 16197. Profit of 177 points. Kindly bring the SL to cost price (16374) and book partial profits 

Call - Sell Dow Jones(Spot) at 16374. SL 16455. Target would be communicated later (Positional Call). CMP 16362 (Given on Friday, 28th February 2014)


Click the link to see the call, https://www.facebook.com/compulsivetrader/posts/777802698898034?stream_ref=10

SGX Nifty

SGX Nifty trading at 6250 at 7 AM IST (Down by 27 points)


https://www.facebook.com/compulsivetrader 

Important events to watch out for Tomorrow.

Indian markets ended up on a positive note last week. Nifty posted gains of 1.97 percentage and closed at 6276. The GDP data and the fiscal deficit data announced after the market hours were not supportive. GDP growth for the December quarter came at 4.7 percentage which was below the expectation. Meanwhile, the fiscal deficit exceeded the annual target of 86 Billion USD in just 10 months.

Auto numbers were not that great though the excise duty was cut. HSBC Manufacturing PMI for India would be released tomorrow. Expectation is 51.2 Vs 51.4

After five consecutive days of up move in the Indian markets, I expect the markets to correct a bit. Be careful with the high beta stocks that had run up in the last five days like Axis bank.  



Our Dow Jones call (Short Sell) given on Friday got triggered. https://www.facebook.com/compulsivetrader/posts/777802698898034?stream_ref=10

Expect Dow Jones to correct and trail your SL for wind-fall profits. Russia's provocations in Ukraine might bring the bears back into action. Have a tight SL in all your trades on the long side.


Events to Watch

HSBC Manufacturing PMI for India
Spanish Manufacturing PMI
Italian Manufacturing PMI
Hong Kong Retail Sales (YoY)
French manufacturing PMI
German manufacturing PMI
Singapore PMI
US Manufacturing PMI
US Core PCE Price Index(MoM)
US Personal Spending
US ISM Manufacturing PMI


For LIVE market calls, visit https://www.facebook.com/compulsivetrader

INFY and the present Economic Scenario.

INFY
INFOSYS' results were out yesterday and the stock crashed by around 20%, biggest intra-day fall in a decade. INFY has around 7.6 %( Source- www.nseindia.com, March 28th 2013) weightage in Nifty, it pulled the Sensex down by 300 points and Nifty down by 65 points. ITC which has a 9.29% weightage in Nifty was up by 3.5%, else the indices would have fallen further. Falling topline growth, billing pressures, margin erosion are the reasons for this dismal performance. But the fall to the tune of 20% is not expected out of INFY as the stock positively surprised everyone in the previous quarter. This suggests that the kind of growth in the previous quarter is not sustainable. In the year 2011, one of my friend who happens to be a big-time trader (He holds several degrees in finance and worked for few pink papers and business channels) in the Stock Markets told me, if a company shows more ‘other income’ than the previous quarter/year and if they still cannot beat the estimates or show better results, the stock should be dumped. Incidentally the other income of INFY is higher and still they cannot meet the estimated growth. No EPS guidance from a company like INFY is another shocker. Investors, traders, analysts are looking out for the guidance from the other IT majors especially TCS to see whether this dismal growth is sector specific or company specific. The less aggressive top management is another reason to blame for the poor performance. INFY no longer has the first mover advantage as companies like Wipro, TCS, IBM, Accenture, HCL Tech., have started pricing their projects aggressively. It lost out to HCL when it planned to acquire Axon Technologies few years back. Not only Axon, INFY lost few other bids in its plan to acquire other companies. With double digit inflation in India, freezing salary hike last year played havoc and when the attrition started increasing they had to change their policy. The global economic scenario is not favorable either. With the Eurozone reeling under crisis and the less spending of companies both from Eurozone and US had taken a toll in the Indian IT sector.


Gold
In India, the total Gold import per year is around 820 tons. For the year 2012, it was around 860 tons. This doesn't include the smuggled Gold into the nation. In the budget, traders and analysts expected the Government to hike the import duty on Gold but Gold was spared. If the current account deficit is uncontrollable the Government may impose more duty on Gold imports. Gold imports are a major contributor to the current account deficit. One troy ounce (1 Troy Ounce= 31.1034768 grams) of Gold in the International Market is trading around 1550$ and is expected to decline to 1400$. If the Gold imports are lesser this fiscal, this would help the Rupee to appreciate against the US dollar and help narrow the current account deficit too. As the demand from India and the demand from Eurozone has been declining it is highly likely that one Troy of ounce of Gold may hit 1400$ soon.

Rupee
FIIs (Foreign Institutional Investors) have invested around 26 Billion Dollars in the Indian Stock Markets and they were selling in India and were moving the money to Japan and the USA. Meanwhile US stock markets are trading near life time highs and the Government is presently purchasing bonds worth 80 Billion Dollars every month. This releases huge cash into the economy through the banks and they may soon stop this Quantitative easing. The Yen carry trades which is not attractive in the recent past may become attractive again as the BoJ (Bank of Japan) has started easing the monetary policy. This has attracted more money into the Japanese markets. As the Yen declines, it is good for the exporters. In India, meanwhile the Rupee declined in the year 2012 and it was the third worst performing currency in Asia. It had hit a low of 57.32 per dollar in the month of June 2012. Indian Government under the new Finance Minister has recently liberalized the foreign investments in the Indian G-Secs and Corporate bonds (Source- Ministry of Finance). This would encourage the capital inflow in to the country and eventually Rupee would appreciate against the US dollar. Allowing FDI is another important policy measure which will have a huge impact in the economy and on the Rupee in the medium to long term. The Government which was earlier blamed for having a policy paralysis seems to have finally woken up. Few foreign carriers are already in discussions with Indian airliners after the FDI norms in aviation were relaxed.

Some analysts whom I spoke to believe that Indian Rupee may reach 59 to a US dollar by year end. I beg to differ from their views. I feel we would be trading at Rs.50 or even less to a dollar by year end. If INFY posts a decline in net profit and shocking revenue guidance when the Rupee is reeling around 55 levels against US dollar, I am sure INFY and the other IT companies will struggle if the Rupee appreciates against the US dollar. The pressure to retain talent and YoY salary hikes to match the inflationary figures are going to be tough. When a company advises the investors about growing at 1.5% QoQ, I wonder what would run in the minds of the employees. Forget about double digit salary hike YoY, would they even be enojoying the current benifits or will they lose the battle to the demon called "Cost cutting". Though the present situation is grim,analysts expect the company to surprise the markets positively like it did in the previous quarter if the circumstances are favorable again.