Atlast, Fannie Mae, Freddie Mac Taken Over By U.S. Government

September 7, 2008

Atlast, confirming that present market conditions have made it impossible for the nation’s top mortgage lenders to sustain its loans, the US Treasury Department some time back which held back take over announced Sunday the government is seizing Fannie Mae and Freddie Mac.

The quasi-government agencies’ executives have been ousted and the Federal Housing Finance Agency will look after loans.  The move is intended to prevent major financial turmoil, Treasury Secretary Henry Paulson said in a press conference.

“I have long said that the housing correction poses the biggest risk to our economy. It is a drag on our economic growth, and at the heart of the turmoil and stress for our financial markets and financial institutions,” Paulson said. “Our economy and our markets will not recover until the bulk of this housing correction is behind us. Fannie Mae and Freddie Mac are critical to turning the corner on housing.”

Over the summer, Congress granted the Treasury Department authority to bulk up the congressionally-mandated agencies either through the purchase of stock or equity lending or by taking control of operations until the companies’ finances were steady. Treasury will buy the companies’ preferred stock and purchase its debt off the open market.

Putting the government-sponsored enterprises into conservatorship is a means to prevent the lenders from going bankrupt, Paulson said, pledging that when the takeover ends, the companies will begin to pay back the government as a means to compensate taxpayers who will be footing the billions it will cost for the bailout.

Freddie and Fannie are responsible for about $5 trillion in home loans in the U.S. Paulson said the agencies will be allowed to slightly increase their portfolios next year but in 2010 will start reducing the number of its loans.  Paulson said despite the cost to taxpayers, the takeover was unavoidable.

“Let me make clear what today’s actions mean for Americans and their families,” Paulson said. “Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe. This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement.  “A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation,” he continued.  Paulson said it will be up to the next Congress and administration to decide what role these agencies should play and how much risk they should be permitted to assume, given their status as congressionally-chartered companies.  Paulson said he spoke with several members of Congress and others before Treasury decided to take this role. He received the backing of Federal Reserve Chairman Ben Bernanke.

Federal Reserve Board Chairman Ben S. Bernanke — “I strongly endorse” the conservatorship and other actions taken Sunday,” Bernanke said in a statement. “These necessary steps will help to strengthen the U.S. housing market and promote stability in our financial markets.”


Stock Markets Trips On Poor IIP Nos; Metal, Banks, IT Stocks Down

August 12, 2008

Notwithstanding in-line IIP data, equities ended lower as stock traders resorted to booking profits at higher levels. Banks and metals were the worst hit while FMCG stocks ended slightly higher.

Bombay Stock Exchange’s Sensex closed at 15,218.75, down 285.17 points or 1.84 per cent. The index touched a high of 15579.78 and low of 15124.91.

National Stock Exchange’s Nifty ended at 4555.50, down 1.40 per cent or 65 points. It touched an intra-day high of 4649.85 and low of 4525.75.

Second rungs were less affected in the turmoil. BSE Midcap Index closed 0.80 per cent lower at 5,934.55 and BSE Smallcap Index declined 0.79 per cent to end at 7214.16.

Biggest losers in the Sensex pack were Tata Steel (-5.75%), Maruti Suzuki (-5%), Jaiprakash Associates (-4.71%), Sterlite Industries (-4.62%), ICICI Bank (-4.29%) and HDFC (-4.13%).

ITC (1.45%), Mahindra & Mahindra (0.82%), Reliance Industries (0.69%), Hindustan Unilever (0.6%) and Grasim Industries (0.31%) were the index gainers.

Market breadth remained negative through the day. On BSE, there were 1558 declines outnumbered 1094 advances, while on NSE, there were 401 gainers and 858 losers.

India’s industrial growth fell to 5.4 per cent in June from 8.9 per cent a year ago. Manufacturing sector, which accounts for over two-third of the Index of Industrial Production, fell drastically to 5.9 per cent from 9.7 per cent a year ago. However, the growth was in-line with market expectation of 5 per cent.

Now Dow Jones Launching Global Dow, India Index

August 4, 2008

Dow Jones will launch two new indexes, the Global Dow and a blue-chip index for India, News Corp. chairman and CEO Rupert Murdoch announced Monday in India’s financial capital, Mumbai.

The Global Dow will track the performance of a diverse basket of stocks, including companies from emerging markets, like India, and emerging industries, like alternative energy.

Wall Street Journal editors will select the components of the Global Dow, as they now do with the Dow Jones Industrial Average, which tracks thirty of the largest public companies in the United States.

“While we must reflect the global stock market as it is, we must also recognize the rapid rise of companies in countries such as India,” Robert Thomson, managing editor of The Wall Street Journal said in a statement. “We have already seen great Indian companies acquiring famous brands such as Jaguar and Land Rover, but these developments are just the beginning of a long-term trend that will fundamentally change the international corporate landscape.”

The new India blue-chip index, called Dow Jones India Titans, will track the performance of the thirty largest and most liquid stocks listed on the Bombay Stock Exchange and the National Stock Exchange of India. The top five companies in the index by market capitalization are Reliance Industries Ltd., Infosys Technologies Ltd., HDFC Ltd., Bharti Airtel Ltd., and Larsen & Toubro Ltd.

Financials, basic materials and oil and gas are the most prominent sectors in the index.

“We will see huge capital flows both from and to India in coming years and that is an opportunity for us as a financial information company, as well as for international investors who want to take advantage of this profound trend,” Murdoch said in a statement.

Dow Jones & Co. is a News Corp. company

Mkts Surges During Late Trade; Banks, Pharma, Auto Stocks Gain

July 21, 2008

It was cautious till afternoon session and traded with some volatility ahead of vote of confidence tomorrow, which will decide UPAs continuation as a government.  Markets have surged in late trade on the back of buying in banking, pharma, realty, FMCG, auto, power and major oil stocks. However, capital goods and select tech stocks were under selling pressure.

Volumes were very low as investors kept positions low ahead of the political event. Total turnover traded by markets stood at Rs 58,966.97 crore. This includes Rs 10,630.65 crore from NSE Cash segment, Rs 43,942.21 crore from NSE F&O and the balance Rs 4,394.11 crore from BSE Cash segment.

The Sensex has touched an intraday high of 13,878.88 and low of 13,581.19 before closing the day at 13,850.04, up by 214.64 points or 1.57%. Nifty ended with a gain of 67.25 points or 1.64% at 4159.50 after hitting a high/low of 4168.15 and 4072.75, respectively.

Reliance Industries, ICICI Bank, HDFC Bank, SBI, NTPC, ONGC and Reliance Communication were top gainers of broader indices.

Short covering continued in Nifty. Nifty futures inched into premium of 10.5 points. Action was seen in news and result based stocks like IDFC, Indian Bank, SAIL and LIC Housing. IDFC witnessed aggressive short positions and has seen 40% increase in build up. PSU banking stocks have seen aggressive long build-ups.

Rate sensitive sectors like banking, auto and realty continued their sharp run up on first day of week as it rallied on last two days of earlier week.

Bankex outperformed other indices, gained 239.82 points or 3.88% to settle at 6,428.71. Buying was seen in Bank of Baroda, Union Bank, Bank of India, IOB, HDFC Bank, PNB, ICICI Bank and SBI, which went up 3.5%-7%.

Healthcare index surged 120.88 points or 3.03% at 4,111.73 on the back of buying in Sun Pharma, Cipla, Ranbaxy Labs, Glenmark, Dishman Pharma, Orchid Chemical, Biocon and Dr Reddys Labs.

Government owned company, SAIL reported good numbers for first quarter of FY09. Its standalone net profit increased by 20.33% at Rs 1835.19 crore as against Rs 1525.12 crore and net sales up by 37.19% at Rs 11,029.4 crore from Rs 8,039.5 crore YoY.

Oil & Gas Index gained 0.84% or 77.12 points at 9,309.16 due to buying in Reliance Industries and ONGC, which rose nearly 1.4-2%. However, selling was seen in Essar Oil, BPCL, HPCL, Cairn India, Petronet LNG and IOC.

However, IT Index ended flat at 3,580.41. Selling was seen in Satyam, i-Flex Solution, Mphasis, HCL Tech, Financial Tech while buying in TCS, Wipro, Tech Mahindra and Infosys.

Tech Mahindra surged nearly 2% as the company reported consolidated net profit of Rs 258.54 crore for first quarter of FY09 as against net loss of Rs 221.1 crore and net sales of Rs 1,116.38 crore versus Rs 1,021.8 crore, QoQ basis.

Capital Goods Index fell 83.65 points or 0.75% at 11,062.86 due to selling in Bharat Elec, Alstom Projects, Crompton Greaves, Jyoti Structure, BHEL, L&T and Thermax.

Amongst frontliners, NALCO jumped 8.05%, Power Grid Corp 5.63%, Hero Honda 5.61%, Sun Pharma 5.28%, Cipla 5.20%, HDFC Bank 4.78%, Ranbaxy Labs 4.74%, NTPC 4.70% and ICICI Bank 4.29% while Satyam lost 4.14%, HCL Tech -2.82%, BPCL -2.41%, Cairn India -2.37%, Ambuja Cements -2.17%, BHEL -1.56% and L&T -1.26%.

BSE Midcap Index was up 0.34% at 5,256.99 while Small Cap Index lost 0.28% at 6,437.98.

Reliance Industries, L&T, Reliance Comm, Reliance Infra, ICICI Bank and HDFC were most active counters on the bourses.

Cipla surged 5% after its first quarter numbers, which had announced on Friday. Its sales were above expectation supported by strong exports and net profits jumped by 17% despite Rs 75 crore forex loss. OPMs improved on account of lower base and better product mix.

Housing Development and Infrastructure (HDIL) surged nearly 8% after first quarter numbers. It has posted net profit of Rs 317.9 crore for quarted ended June 2008 as against Rs 202.7 crore in same period of last year and net sales of Rs 570 crore versus Rs 443 crore YoY.

Dr Reddys Labs gained 2% after earnings. Sales numbers were above expectations while OPMs disappointed. Another news was that its board has approved to buy back the ICICI Ventures & Citi’s stake in Perlecan. Sources say the company will buy shares in range of mid Rs 50 per share and will hold 100% stake in Perlican Pharma post buyback.

Realty stocks like HDIL, Indiabulls Real, Anant Raj Ind, Unitech, Orbit Corporation and DLF have moved up smartly. Index was up by 114.04 points or 2.44% at 4,784.28.

Auto Index rose 62.23 points or 1.73% to close at 3,663.16 as buying was seen in Punj Tractors, Bajaj Auto, Hero Honda, Maruti Suzuki, Cummins, Bharat Forge and M&M.

FMCG stocks like HUL, ITC, Dabur India, Godrej Consumer and Nestle were on buyers radar. Index jumped 33.62 points or 1.68% at 2,029.66.

Power stocks also charged up fully, which include Power Grid Corp, Lanco Infratech, NTPC, GVK Power, Tata Power, Neyveli Lignite and Reliance Infra. Index was up 1.15% at 2,409.24.

Metal stocks like NALCO, SAIL, Hind Zinc, Sterlite Ind, Tata Steel and Jindal Steel were witnessing buying interest. Index gained by 97.85 points or 0.84% at 11,766.24.

Market breadth was positive; about 1341 shares have advanced while 1564 shares declined. Nearly 245 shares remained unchanged.

On the global front, Asian markets finished strong. Shanghai, Hang Seng, Jakarta Composite, Straits Times, Kospi and Taiwan Weighted gained 2.5%-4%.

European markets have bounced back in mid session and trading in green, at the time of writing market report. FTSE was up 0.33%, CAC 0.96% and DAX 0.55%.

Market Snapshot

* Markets end near days high amid volatile session ahead of Trust Vote tomorrow
* Lok Sabha meets for confidence vote today
* Sensex ends up 215 pts at 13850; Nifty ends up 67 pts at 4159.5
* CNX Midcap 100 up 0.5%; BSE Small Cap Index down 0.3%;
* IDFC ends down 15%; On concerns that co needs to raise USD 375 m Tier-1 capital; means a dilution of nearly 9.5-13.7%
* Banks, Realty stcoks continue to gain; Pharma stocks also rally
* BSE Bank Index up 3.9%; SBI up 4.1%; PNB up 4.2%; HDFC Bank 4.8%; ICICI Bank up 4.1%
* BSE Healthcare Index up 3.2%; Ranbaxy up 5%; Cipla up 5.6%; Sun Pharma up 5.3%; Lupin up 2.1%
* BSE Realty Index up 2.9%; Indiabulls Real up 5%;Unitech up 2.2%; DLF up 0.7%
* BSE Auto Index up 1.4%; Hero Honda up 5.6%; Maruti up 4.5%; M&M up 1.5%; Bajaj Auto up 7.5%
* Index Gainers: Nalco up 8.1%; Power Grid up 5.6%; NTPC up 4.4%; Idea up 3.9%; HUL up 3.7%;Tata Power up 2.9%;
* Index Losers : Satyam down 4.2%; HCL Tech 2.8%; BPCL down 2.4%; Cairn India down 2.4%; Ambuja down 2.2%
* Results Impact : SAIL, Dr Reddy’s, HDIL, Petronet LNG, Welspun Guj,Canara Bank, LIC Housing Fin,Punjab Tractor,Bartronics
* NSE Advance Decline at 4:5
* Total F&O turnover at Rs 43,942 cr Vs Rs 52,795 cr
* Total Market Turnover at Rs 58,967 cr Vs Rs 70,984 cr on Friday
* Top Gainers
Anu’s Labs
Indian Bank
First Winner
Max India
* Top losers
GTC Industries
MIC Electronics
Jai Corp

F&O Snapshot

* Short Covering Continues in Nifty; Nifty futures inched into premium in intraday trade
* Action in News/ Result based stocks like: IDFC, Indian Bank, SAIL, LIC Housing
* IDFC sees aggressive short positions; sees 40% increase in build up
* PSU banking stocks sees aggressive long build-ups
* Activity picks up in options markets ahead of the big event on Tuesday
* Out of the money options sees OI build up; suggesting Strangle Build up
* Options Activity:
Nifty 4000 put adds 8.4 lakh shares
Nifty 4100 call sheds 6.4 lakh shares
Nifty 3600 put adds 1.8 lakh shares
Nifty 4500 call adds 1.5 lakh shares
* Fresh Longs:
Banks: Indian Bank, Bank of Baroda, Bank of India, PNB, Union Bank
Pvt Banks: HDFC Bank , ICICI Bank
Misc: LIC Housing, Praj, Maruti
* Fresh Shorts:
Aggressive Shorts : IDFC
IT:  Satyam, Mphasis, Hcl Tech

Right Now, No Takeovers For Freddie Mac And Fannie Mae From US Government

July 11, 2008

The Bush administration on Friday refused suggestions that the US Federal government might have to nationalize Freddie Mac and Fannie Mae, the giant mortgage companies that have unsettled the financial markets, as their shares plummeted to their lowest levels in nineteen years.

Hank Paulson, US treasury secretary, said: “Today our primary focus is supporting Fannie Mae and Freddie Mac in their current form as they carry out their important mission,” signaling that the Bush administration was not contemplating a rescue takeover of the two groups and wanted public shareholders to continue owning them.

Describing Freddie Mac and Fannie Mae as “very important institutions”, President George W. Bush said that Secretary Paulson and Ben Bernanke, head of the Federal Reserve, would be “working this issue very hard”.

Fears that Fannie Mae and Freddie Mac could become the latest victims of the credit crisis have gripped investors this week. The two institutions are pillars of the US financial system, between them holding or guaranteeing nearly half of the $12,000bn in outstanding US mortgages and accounting for nearly three-quarters of new mortgages.

On Friday their shares fell 29 per cent and 23 per cent respectively in morning trading, after suffering losses of 14 per cent and 22 per cent on Thursday. Meanwhile, the Dow Jones Industrial Average fell below 11,000 for the first time in two years and crude oil prices spiked to a record above $147 per barrel on the New York Mercantile Exchange before falling back to about $144 per barrel.

As house prices have fallen and foreclosures have soared across the US, the two institutions have suffered deep losses, which they have tackled by raising more capital. Many observers believe that a collapse of Fannie Mae and Freddie Mac could bring the US mortgage market to a complete standstill, with severe repercussions for the financial sector and the economy as a whole.

Many investors in Fannie Mae and Freddie Mac have come to assume that the government would eventually come to their rescue because of their importance to the system. However, concern has risen recently that contingency plans for a government bail-out might involve wiping out public shareholders to minimize the cost to taxpayers, while confidence that senior debt would be protected has held up.

Bill Poole, former president of the Federal Reserve Bank of St Louis, who has not had any official contact with the Fed or Treasury since he left the Fed in March, said in an interview: ”I believe the Treasury and the Fed will do whatever is necessary to ensure troubles at Fannie and Freddie do not spark a worldwide systemic crisis.”

Joshua Rosner, managing director at Graham Fisher said: ”It is important to remember that these are private companies and the government cannot and will not step in before a financial institution is critically undercapitalized or insolvent.” The Office of Federal Housing Enterprise Oversight, which regulates Fannie Mae and Freddie Mac, has said this week that the two groups were “adequately capitalized”.  Mr Rosner added: ”Due to the fact that there is no real proscribed regulatory or legislated plan contingency planning is happening but it is premature to expect the government to take any actions prior to a determination of an inability of the GSEs to meet obligations.”

In his statement, Mr Paulson also said the administration “appreciated” efforts in Congress to enact legislation that would create a more powerful regulator for Fannie Mae and Freddie Mac. The housing bill he was referring to has been stuck in the Senate for several weeks amid opposition from a few Republican legislators, but could be approved as early as today, before moving to the House of Representatives. The bill also includes other measures to bolster the US housing sector, such as allowing the federal government to guarantee up to $300bn in mortgages refinanced at more affordable rates.

Talks Between Bharti Airtel and MTN Gone Sour

May 25, 2008

India’s largest private telecom company Bharti Airtel on Saturday pulled itself out of negotiation for acquiring an estimated 45-50 billion dollar MTN, saying the South African telecom entity deviated from agreed terms. 

“An in-principle agreement was reached on 16th May and a term sheet was initialled between two lead bankers… MTN has now presented a completely different structure, from what was agreed,” Bharti said in a statement. 

The new structure envisaged Bharti Airtel becoming a subsidiary of MTN and exchange of majority shares of Indian company held by Sunil Mittal, promoter of Bharti, family and its foreign partner Singtel, in exchange for a controlling stake in MTN. 

“Bharti believes that this convoluted way of getting an indirect control of the combined entity would have compromised the minority shareholders of Bharti Airtel and also would not capture the synergies of a combined entity,” the company said. 

Both (Bharti and MTN) had initiated talks about three weeks ago and talks were cordial through out this period and conducted in good faith. 

Bharti also claimed that over a dozen internationally reputed bankers from the US and Europe of having pledged funds of over 60 billion dollars for the acquisition. 

The reference point at which MTN shares were to be transacted was agreed and frozen at the point of starting the discussion and Bharti would like to confirm that there was no further discussion on the share price of MTN, at any point.

Looks like guys at MTN wanted to have the cake and it too.  That may have made Indian Telco major Bharti Airtel move out of talks.  

Common Goof Ups Committed In Stock Market While Investing

May 17, 2008

Its general mistake we all make lots of mistakes while investing the stock markets.  But you hardly see any one today who has not committed costly financial mistakes including the legendary investor Warren Buffet.  However it is the ability to recognize and learn from your mistakes that will determine whether you are able to achieve your investment objectives. It is thus more important to commit as few mistakes as possible.  Failure is often the best teacher provided you allow yourself to be taught.

The last three months have exposed investors to several such mistakes. Here we highlight eight of the common ones.  Relying on tips and hearsay is the first and most common mistake committed by most investors.

Expecting Big Gains fast

Very few people have the mindset and patience required to invest in equity.  A common expectation is to make big gains quickly. There is no focus on the risk the investment exposes your portfolio to.   A classic example of recent times was the Power sector. Any stock that had the name ‘Power’ in it was considered sacrosanct. People did not even care about risk involved in taking exposure to such stocks. Instant gratification is injurious to your wealth.  Leverage in equity markets can have disastrous consequences not just on your financial health but on your physical health.  It’s not easy to always make money in equities and there could be periods of negative returns. Though over time, returns can even out, in the short run there could be sizeable downside. So don’t be surprised by it. Understand, expect corrections and be realistic.

Have reasonable expectations from equity

As an asset class equity should technically deliver returns in line with corporate earnings. However we do not invest in a utopian stock market but a market that drives on hope, greed and fear. Hence you are bound to see eras of excesses and exuberance and those of pessimism.  It’s all easy to know ‘Buy low and sell high’, but majority of people would end up doing exactly the opposite. Most investment banks, brokerages, hedge funds, FIIs, domestic investors, gurus and analysts are super confident in a bullish market when highs are torn apart every other day. Things suddenly change for them when the market corrects and no one

is ready to put even their thumb in the market. Learn to embrace market sell offs. People who could not earlier invest had an excellent opportunity to invest at 14000 to 15000 levels but I do not know too many people who had the gut to really invest.

When the market corrects, diversify your portfolio immediately

Corrections that happen after very sharp rallies tend to extend themselves over a few months. One of the strategies that can be adopted is to invest in a staggered fashion. You should start investing if the market has corrected by more than 15-20% and go higher when it crosses 30-35%. There is no way to know what the bottom could be and I don’t know how people come up with their holy predictions on how lower can the index go. When the going gets tough, tough gets going  as one and all is bad news and it’s very important to grow beyond these daily projections.  Investing is certainly not a poker game and you would be harming your economic interests by following what a bunch of unknown people are doing.  Don’t keep looking at your portfolio because things are not going to change even if you see it many times. A quarterly or semi annual review should be good enough for most people.  Looking daily is harmful to your overall stockthought process and can urge you to take emotional decisions whether on the way up or way down.  This is the time to take stock of what you actually have. The first step is to understand the various investments in your portfolio and how they fit within the overall scheme of things.

Most people would like to see their investments grow right from day one

For a long term investor, it should not matter if prices do not rise right away. Infact if investment values indeed go down, you should be happy to see your buying happening at lower levels. Eventually when the market recovers, you are bound to get much higher returns because of these inefficiencies in a turbulent market. The only time your stock prices should be up is when you need to sell. For example, I have an interests in Parekh Aluminium, around 10000 equity shares set for long term investment for self good. Though bought at higher level at 255 last january, currently it is languishing at 140 level.  Rest text to follow here……

Currently one sees lower volumes in the market due to fear and several other factors

The increase in STT (securities transaction tax) and short term capital gains tax also has had some impact on volumes. There is no clear cut clarity on the direction of the market. However just because this is the case, there is no need to change your investment strategy.  Continue to buy in a staggered fashion and just stay put if you already have.