Saturday, March 22, 2008
So, markets at a low, stocks hitting 52 week lows every week. What are you doing ?
Are you STILL buying ?
Have you run out of money ?
You booked profits, sitting with cash and waiting for more bottoms ?
You bought when market fell ? And now, your portfolio is in RED!
What are you planning to do now ? Let us know your thoughts :-)
Leave a comment!
The Paris-based Organisation of Economic Cooperation and Development (OECD) has projected zero growth for the US Economy in the second quarter of 2008, indicating that America is inching towards a recession.
"It may be premature to declare a recession, but with the pace of activity so far below potential, economic slack is widening rapidly," the OECD said pointing out that economic growth rate was likely to slip from 0.1 per cent in Q1 to zero in the second quarter.
Giving growth projections for the G7 nations (US, Japan, Euro Area, Germany, France, Italy, UK and Canada), the OECD report said Japan and Europe were also likely to witness slowdown in growth.
Japan, it added, is expected to grow at 0.3 per cent in the first quarter and 0.2 per cent in the second quarter, it added.
In addition to the sub-prime mortgage crisis, the OECD attributed the slowdown in the US Economy to factors like soaring energy and food prices.
"The effects (of the crisis) on demand are likely to be significant but are hard to gauge", the report added. The report said that the residential investment slump shaved off around one percentage point of the US gross domestic product (GDP) growth over the past two years and the trend would continue in the current year.
"Pressures have tended to spread to new Markets and institutions, reaching beyond the origin of the US sub-prime mortgages and derived products and leading to a generalized wariness and re-pricing of risks" the report said.
Investors who subscribed to the initial public offer, in the first quarter of 2006, of shares by Sadbhav Engineering are a fortunate lot. Against an investment of Rs 185, the stock closed at Rs 1,080 on Wednesday, an appreciation of more than five-fold in the space of just two years.
So, is investing in initial public offerings (IPO) a safe bet? The answer is no, if we go by the performance of the IPOs of the last two years. Actually there is one in two chance that you wouldn’t have made any money at all. According to data available on NSE Web site, around 181 companies had come out with IPOs to raise money since the commencement of the bull-run that began in early 2006. Of these, about 50 per cent – 92 stocks to be precise – are quoting below the issue price. Seventy companies approached the market for funds in 2006. The number increased to 89 in 2007 and it is 13 in the year to date.
IPOs have been punished across sectors and irrespective of the subscription levels. For instance, shares of companies as diverse as Reliance Power, Future Capital, MindTree Consulting and Sobha Developers which had evoked strong response from investors at the time of initial placement are currently ruling below their issue prices. Even ICICI Bank which came out with a follow-on public issue at Rs 940 is currently quoting well below that price.
A Mumbai-based broker said: “When a stock first starts trading, its price moves up to higher level on pent-up demand. Investor demand is often unusually heavy due to the hype surrounding an IPO, particularly for high-profile companies.”
But even among those that did not evoke a frenzy in the run-up to the IPO on the scale of Reliance Power, there have been significant losers. Uttam Sugar Mills (81 per cent), Broadcast Initiatives (80 per cent) and Raj Rayon (79 per cent) are some of the companies that registered major losses.
For investors, the sentiment had turned so adverse in recent times towards any fresh commitment that many companies were forced to withdraw their IPO plans. Among the few that postponed their plans for mobilisation of capital from the public included such high-profile issues as Emaar MGF and Wockhardt Hospitals.
But there have been a few notable exceptions among the IPO stocks besides Sadbhav Engineering that have emerged unscathed despite the Sensex losing 6,000 points in just two months. Though they have declined from their peaks, are still quoting higher than the offer price even while the market has been under a strong bear hug. MIC Electronics is one such. As against the issue price of Rs 150, the share closed at Rs 703.7 on Wednesday, a return of 369 per cent over cost.
According to analysts, investing in IPOs is also as risky as investing in secondary markets. Investors must go beyond the allure and hype of IPOs and educate themselves about the company’s fundamentals, they said.
Big Wall Street investment companies are taking advantage of the Federal Reserve's unprecedented offer to secure emergency loans, the central bank reported Thursday.
The lending is part of a major effort by the Fed to help a financial system in danger of freezing.
Those large firms averaged USD 13.4 billion in daily borrowing over the past week from the new lending facility. The report does not identify the borrowers.
The Fed, in a bold move Sunday, agreed for the first time to let big investment houses get emergency loans directly from the central bank. This mechanism, similar to one available for commercial banks for years, got under way Monday and will continue for at least six months. It was the broadest use of the Fed's lending authority since the 1930s.
Goldman Sachs, Lehman Brothers and Morgan Stanley said Wednesday they had begun to test the new lending mechanism.
On Wednesday alone, lending reached USD 28.8 billion, according to the Fed report.
The Fed created a way for financially strapped investment firms to have regular access to a source of short-term cash. This lending facility is seen as similar to the Fed's "discount window" for banks. Commercial banks and investment companies pay 2.5 percent in interest for overnight loans from the Fed.
Investment houses can put up a range of collateral, including investment-grade mortgage backed securities.
The Fed, in another rare move last Friday, agreed to let JP Morgan Chase secure emergency financing from the central bank to rescue the venerable Wall Street firm Bear Stearns from collapse. Two days later, the Fed back a deal for JP Morgan to take over Bear Stearns.
Thursday's report offered insight on how much credit was extended to Bear Stearns via JP Morgan through the transaction the Fed approved last Friday. Average daily borrowing came to USD 5.5 billion for the week ending Wednesday.
Separately, the Fed said it will make USD 75 billion of Treasury securities available to big investment firms next week. Investment houses can bid on a slice of the securities at a Fed auction next Thursday; a second is set for April 3.
The Fed will allow investment firms to borrow up to USD 200 billion in safe Treasury securities by using some of their more risky investments as collateral.
By allowing this, the Fed is hoping to take pressure off financial companies and make them more inclined to lend to people and businesses.
The housing collapse and credit crunch have led to record-high home foreclosures and forced financial companies to rack up multibillion losses in complex mortgage investments that turned sour.
In the past day and weeks, the Fed has taken extraordinary moves aimed at making sure that problems in credit and financial markets do not sink the economy.