Seven deadly sins of investment
D. Murali
A crow will conquer owl in broad daylight, so too a king who wants to crush his foes needs fitting time to fight. More than two millennia old counsel, this is, from one of the 1,330 Kurals of Tiruvalluvar. Can any work be hard in very fact, if men use fitting means in timely act, asks the poet-saint in a different couplet included in a chapter titled `Knowing the fitting time'?
There are many such nuggets of wisdom in the ancient Tamil work for aspiring investors who want to profit from the market. It is not unusual to find contemporary instructions echoing ageless guidance. Take for instance, Colin Alexander's Streetsmart Guide to Timing the Stock Market (www.tatamcgrawhill.com). "Technical analysis tells you when to buy or sell a stock on the basis of what its price action says about it," he writes.
Fundamental analysis can tell you which stocks to buy on the basis of companies' financial statements and assumptions about their business prospects. Remember, however, that fundamental analysis "does not necessarily lead you to stocks where the action is." Therefore, supplement technical analysis with fundamental analysis, because when both analyses support the same conclusions, the results are likely to be spectacular, as Alexander assures.
Timing is not about finding `absolute tops and bottoms,' because that cannot be done with acceptable consistency, clarifies the author. He'd instead suggest that you study the market action to "avoid getting caught in a serious bear market for stocks generally or get caught in an individual stock that is going down the drain."
Take personal responsibility for your investments, says Alexander. "Owning stocks is like owning a business... Few businesses do as well as they should when an absentee owner farms out management."
In a chapter on `The Winning Attitude' the author urges you to be prepared to do things to be successful. Preparation includes the challenge of guarding yourself against seven deadly sins of investment:
Impatience ("one partial cure for impatience is to look at the rate at which a long-term moving average or a long-term trendline is going up").
Fear (which can be overcome "by the repetition of acts of courage").
Greed (watch out, "greedy use of margin can double losses instead of doubling profits").
Hope (don't "fall back on hope when the technical case turns against a stock").
Pride (this can attack "investors who believe that their intelligence and personality are superior to the market or to a systematic approach to buying and selling stocks").
Carelessness (for, "it is easy to get sloppy about doing your homework").
Gambling (please note, stock market is not a substitute for Las Vegas!)
Timely read.
Overpower dissatisfaction
What if you were given a ticket that could magically start your life anew? Would you redeem it?
With these enticing questions begins Life's Golden Ticket, an inspirational tale by Brendon Burchard (www.landmarkonthenet.com).
The prologue cites Richard Bach's simple test to find whether your mission on Earth is finished: "If you're alive, it isn't." Burchard finds himself alive after a ghastly car accident, and realises how the crash was "a perfect metaphor" for his life at that point: "A journey down a dark road, a sharp turn, utter loss of control."
How familiar these phrases may be to those who play the markets!
Well, turn the pages to follow the protagonist to a park where a wizard addresses the crowd from atop a stool: "You've been raised with the question `What should I do with my life?' That question, of course, is secondary. The primary question is, `Who should I be in my life?'"
You are in the park because of a quiet dissatisfaction with yourself, the wizard tells the people assembled. "You feel there is something more inside you... Deep down, you know you are more than what society has said you are or told you to be."
There are more lessons to learn from the park, such as this one, from `the centre ring' preceding `the last ride': Many of us live our lives desperately seeking to draw attention to ourselves, writes Burchard.
"We live our lives to be noticed, accepted, and adored. We live our lives as if we were in the centre ring, as if the world should sit around applauding our every move."
Thankfully, however, "there are a small number of people in this world who live their lives to make others smile, to remind others of the magic and hope in the world, to help them discover the possibilities that live within them... "
Refreshing ride.
http://BookPeek.blogspot.com
http://www.blonnet.com/iw/2007/06/24/stories/2007062401221200.htm
Sunday, June 24, 2007
Saturday, June 16, 2007
‘I want to be rich too, should I buy this IPO?’
The first part is implied, but the second part of the sentence above is what a young colleague asked me on the last day of DLF’s IPO. I’m not surprised — this is almost a process that happens towards the peak of every bull run. Hype runs in like adrenalin and there is almost an itch to join the investing bandwagon. Different matter that many of these highly competent, highly intelligent people have generally been risk averse. Whether this time it signifies the peak or a pause remains to be seen.
“That’s very good,” I said. “Do you have a demat account?”
“Demat? I have my PAN number¿”
Sensing she had never heard of the word, I tried to explain in as simple words as possible about how shares, including IPOs, can be bought only in dematerialised form and that she would have to open one.
“Like how?” I put her in touch with our in-house expert on stocks and off she went to become Client Account No. 7,903,390 on NSDL’s (National Securities Depository Ltd) 7,903,389 strong database of direct equity investors. The depositary holds Rs 31,42,645 crore worth of stocks in its custody, and my colleague will add her thousands to India’s stock story.
I believe she should not buy into the DLF IPO — or any other IPO or any other stock. Not until, that is, she’s learnt a thing or two about reading balance sheets, understanding businesses, tracking companies and the market. She did mention the last: “I’m planning to enroll on a stock simulation website to get a feel of things.”
“Sure, do that,” I said, “but also read One Up on Wall Street by Peter Lynch”, a prescription I’ve given to all my relatives, friends, colleagues, neighbours, e-groups — and even my doctor. (And a bible that many fund managers constantly refer to.) And if the dose is inadequate and the investor-patient needs a stronger antibiotic to negotiate the perceivably dangerous world of equity investing, I prescribe that too — Warren Buffett’s letters to shareholders, downloadable free from berkshirehath-away.com. Between the two, you’ve got your equity strategy education in place.
Next come the details — opening a demat account, applying the fundamentals to real life, finding out the difference between cyclicals and turnarounds, fast-growers and stalwarts, RoCE and RoE, PE multiples and how to apply them, when to use them and when to discard them. On this, there is no one source and the education is largely experiential and constant. Experts say you need to lose money to learn. I disagree. What you need to do in this age of information overload is be able to sift information from noise.
The most important edge you as a lay investor have while investing in stocks is your non-investment decisions. Did you go to Big Bazaar and buy the monthly groceries? Did you notice the crowds, making it so difficult to negotiate your way? Did you observe the long lines at the cash counter? Have you been seeing it for the past year or so? Yes? Congratulations, you’ve just finished 75 per cent of the research.
Now, all you need to do is to study Pantaloon Retail’s (Rs 447) financials and answer this question: is it still investment worthy?
Yes? Go buy.
No? Move on to your mobile phone - Bharti Airtel (Rs 813) or Reliance Communications (Rs 493)? Or banking - ICICI Bank (Rs 909) or State Bank of India (Rs 1,324)? And so on. Find a good company, then see if it’s worth the price.
I then asked my colleague another question: “What will you do if the DLF stock crashes to Rs 250 on listing?” She said, “Since I’m investing for the long term, I won’t worry about it too much, it’s from money I’ve set aside. But if it falls really low, I may sell it.”
Right answer, but: “Why sell a good company? If you thought DLF was investment worthy at Rs 550, it should be even more interesting at Rs 250. Why not buy more?”
“I guess, I should, yes.”
“No - not now, that is. You must buy stocks, but first you must understand them, be ready to spend time with them - at least as much time as you spent on buying your new phone. Until then, stay with equity funds.”
Meanwhile, I’m wondering whether her wanting to buy into IPOs today means crash of the market next week.
editor@expressindia.com
http://www.indianexpress.com/story/33730.html
“That’s very good,” I said. “Do you have a demat account?”
“Demat? I have my PAN number¿”
Sensing she had never heard of the word, I tried to explain in as simple words as possible about how shares, including IPOs, can be bought only in dematerialised form and that she would have to open one.
“Like how?” I put her in touch with our in-house expert on stocks and off she went to become Client Account No. 7,903,390 on NSDL’s (National Securities Depository Ltd) 7,903,389 strong database of direct equity investors. The depositary holds Rs 31,42,645 crore worth of stocks in its custody, and my colleague will add her thousands to India’s stock story.
I believe she should not buy into the DLF IPO — or any other IPO or any other stock. Not until, that is, she’s learnt a thing or two about reading balance sheets, understanding businesses, tracking companies and the market. She did mention the last: “I’m planning to enroll on a stock simulation website to get a feel of things.”
“Sure, do that,” I said, “but also read One Up on Wall Street by Peter Lynch”, a prescription I’ve given to all my relatives, friends, colleagues, neighbours, e-groups — and even my doctor. (And a bible that many fund managers constantly refer to.) And if the dose is inadequate and the investor-patient needs a stronger antibiotic to negotiate the perceivably dangerous world of equity investing, I prescribe that too — Warren Buffett’s letters to shareholders, downloadable free from berkshirehath-away.com. Between the two, you’ve got your equity strategy education in place.
Next come the details — opening a demat account, applying the fundamentals to real life, finding out the difference between cyclicals and turnarounds, fast-growers and stalwarts, RoCE and RoE, PE multiples and how to apply them, when to use them and when to discard them. On this, there is no one source and the education is largely experiential and constant. Experts say you need to lose money to learn. I disagree. What you need to do in this age of information overload is be able to sift information from noise.
The most important edge you as a lay investor have while investing in stocks is your non-investment decisions. Did you go to Big Bazaar and buy the monthly groceries? Did you notice the crowds, making it so difficult to negotiate your way? Did you observe the long lines at the cash counter? Have you been seeing it for the past year or so? Yes? Congratulations, you’ve just finished 75 per cent of the research.
Now, all you need to do is to study Pantaloon Retail’s (Rs 447) financials and answer this question: is it still investment worthy?
Yes? Go buy.
No? Move on to your mobile phone - Bharti Airtel (Rs 813) or Reliance Communications (Rs 493)? Or banking - ICICI Bank (Rs 909) or State Bank of India (Rs 1,324)? And so on. Find a good company, then see if it’s worth the price.
I then asked my colleague another question: “What will you do if the DLF stock crashes to Rs 250 on listing?” She said, “Since I’m investing for the long term, I won’t worry about it too much, it’s from money I’ve set aside. But if it falls really low, I may sell it.”
Right answer, but: “Why sell a good company? If you thought DLF was investment worthy at Rs 550, it should be even more interesting at Rs 250. Why not buy more?”
“I guess, I should, yes.”
“No - not now, that is. You must buy stocks, but first you must understand them, be ready to spend time with them - at least as much time as you spent on buying your new phone. Until then, stay with equity funds.”
Meanwhile, I’m wondering whether her wanting to buy into IPOs today means crash of the market next week.
editor@expressindia.com
http://www.indianexpress.com/story/33730.html
Stocks update on Hindu
Reliance
Though RIL did not head lower as expected, the recovery was not convincing either. The evening star in the weekly chart has been followed by a harami, which implies indecision. The stock faced resistance from Rs 1,715. The short-term outlook will turn neutral only if the stock closes above Rs 1,735. Inability to do so will make the stock move lower to Rs 1,621 or Rs 1,566 shortly.
The medium-term outlook remains unaltered. We expect a dip to Rs 1,580. Investors can hold the stock with a stop at Rs 1,570. Fall below this level will signal the end of the move from Rs 1,262.
SBI
SBI has retraced 32 per cent of the up-move since April 2007. The next retracement target for the stock is at Rs 1,250, which is the medium-term trend deciding level.
Investors can hold the stock till it stays above Rs 1,250.
Momentum indicators too denote that though there can be weakness in the short-term, the larger trend is not under threat as yet.
Upper target for the week are at Rs 1,346 and then Rs 1,388.
Inability to move above Rs 1,346 will be a cue for traders to initiate fresh short positions with a target of Rs 1,180.
ACC
ACC is pausing just below the 50 day moving average positioned at Rs 825. The hurdle beyond this level will be at Rs 852.
Inability to move beyond Rs 852 will imply an imminent fall to Rs 760 again.
Fourteen-day RSI at 47 and 10-day ROC in the negative zone imply that the stock needs to move a little higher before the short-term outlook turns positive.
But the medium-term outlook will turn negative only on a close below Rs 768. Investors can hold the stock with a stop at Rs 760. Fall below Rs 760 will take the stock to Rs 680.
ONGC
ONGC bounced higher in line with our expectation to an intra week high of Rs 891. But a strong impediment exists at Rs 900. A reversal from this level can drag the stock down to Rs 842 and then Rs 801. The 200 DMA at Rs 850 should lend support in the near term.
Sustained sell signal in the weekly chart implies the continuation of the downtrend that began in April.
A close beyond Rs 935 is required to make the medium term positive for this stock. Investors can hold with a stop at Rs 840. Target beyond Rs 840 is Rs 760.
Infosys
Infosys could be charting the C wave of the flat correction that commenced from the April low of Rs 1,912.
This C wave has the target of Rs 2,041 and then Rs 2,140. The 200 DMA present at Rs 2,070 will be an interim impediment.
In other words, a cluster of resistances exist between Rs 2,040 and Rs 2,140.
The medium-term outlook is negative though a fall below Rs 1,900 is required to reinforce this assumption. A close above Rs 2,140 will negate this outlook. Traders can short on rallies with a stop at Rs 2,075. Stop for investors would be Rs 1,900.
Tata Steel
Tata Steel staged a minor pullback last week that took it to an intra-week peak of Rs 622. The laboured nature of the pullback and the sell signals in the weekly oscillators herald short-term weakness in the stock.
The short-term resistance for the stock exists at Rs 630. Inability to rally above this level will make the stock move to Rs 567 and then Rs 533 next week.
The band between Rs 560 and Rs 570 can lend medium term support. Investors should not initiate fresh buys if the stock falls below this level. That would pave the way for a fall to Rs 500.
Lokeshwarri S. K
Though RIL did not head lower as expected, the recovery was not convincing either. The evening star in the weekly chart has been followed by a harami, which implies indecision. The stock faced resistance from Rs 1,715. The short-term outlook will turn neutral only if the stock closes above Rs 1,735. Inability to do so will make the stock move lower to Rs 1,621 or Rs 1,566 shortly.
The medium-term outlook remains unaltered. We expect a dip to Rs 1,580. Investors can hold the stock with a stop at Rs 1,570. Fall below this level will signal the end of the move from Rs 1,262.
SBI
SBI has retraced 32 per cent of the up-move since April 2007. The next retracement target for the stock is at Rs 1,250, which is the medium-term trend deciding level.
Investors can hold the stock till it stays above Rs 1,250.
Momentum indicators too denote that though there can be weakness in the short-term, the larger trend is not under threat as yet.
Upper target for the week are at Rs 1,346 and then Rs 1,388.
Inability to move above Rs 1,346 will be a cue for traders to initiate fresh short positions with a target of Rs 1,180.
ACC
ACC is pausing just below the 50 day moving average positioned at Rs 825. The hurdle beyond this level will be at Rs 852.
Inability to move beyond Rs 852 will imply an imminent fall to Rs 760 again.
Fourteen-day RSI at 47 and 10-day ROC in the negative zone imply that the stock needs to move a little higher before the short-term outlook turns positive.
But the medium-term outlook will turn negative only on a close below Rs 768. Investors can hold the stock with a stop at Rs 760. Fall below Rs 760 will take the stock to Rs 680.
ONGC
ONGC bounced higher in line with our expectation to an intra week high of Rs 891. But a strong impediment exists at Rs 900. A reversal from this level can drag the stock down to Rs 842 and then Rs 801. The 200 DMA at Rs 850 should lend support in the near term.
Sustained sell signal in the weekly chart implies the continuation of the downtrend that began in April.
A close beyond Rs 935 is required to make the medium term positive for this stock. Investors can hold with a stop at Rs 840. Target beyond Rs 840 is Rs 760.
Infosys
Infosys could be charting the C wave of the flat correction that commenced from the April low of Rs 1,912.
This C wave has the target of Rs 2,041 and then Rs 2,140. The 200 DMA present at Rs 2,070 will be an interim impediment.
In other words, a cluster of resistances exist between Rs 2,040 and Rs 2,140.
The medium-term outlook is negative though a fall below Rs 1,900 is required to reinforce this assumption. A close above Rs 2,140 will negate this outlook. Traders can short on rallies with a stop at Rs 2,075. Stop for investors would be Rs 1,900.
Tata Steel
Tata Steel staged a minor pullback last week that took it to an intra-week peak of Rs 622. The laboured nature of the pullback and the sell signals in the weekly oscillators herald short-term weakness in the stock.
The short-term resistance for the stock exists at Rs 630. Inability to rally above this level will make the stock move to Rs 567 and then Rs 533 next week.
The band between Rs 560 and Rs 570 can lend medium term support. Investors should not initiate fresh buys if the stock falls below this level. That would pave the way for a fall to Rs 500.
Lokeshwarri S. K
Fiat Palio Stile: Stylish looks, sluggish drive
S. Muralidhar
Fiat has attempted to make the Palio Stile more acceptable as a small car, one that is affordable and fuel-efficient. But it seems to have lost its way a bit in this pursuit.
Just as there is no person who is perfect in every respect, there is really no perfect car either. What we could call a perfect car is one that offers features that exceed the buyer's expectations, in a mix that also includes ones that are just plain acceptable and those that may even be minor negatives.
Customer expectations in each car segment differ and unfortunately in the small cars it is so skewed in favour of fuel-efficiency that they are willing to compromise on many other parameters. So cars that are designed and engineered better, have more modern features or offer a better ride quality find fewer takers than ones that are more fuel-efficient.
Of course, the situation is now fast changing. When Fiat launched the Palio in India, the excessive focus on fuel efficiency was one of the factors that worked against it. Fiat India also had to tackle issues relating to its marketing and servicing network at the time when the Palio was coming around to facing up to the competition.
But unfortunately the good start for the Palio could not be sustained and sales started to nosedive just months after the car was launched. Clearly, its relatively poor fuel-efficiency vis-à-vis its peers in the small-car segment was a big reason for its lacklustre performance.
Fiat attempted to redeem the situation by reworking the engine management system of its 1.2-litre FIRE engine. Fiat fine-tuned the mapping of the engine to ensure more optimised fuel injection and also reworked the air-conditioner to reduce the load on the engine.
The Palio, after these changes were made, was christened Palio NV (short for New Version). Of course, we all know the rest of the story — the Palio NV and the new marketing tie-up with Tata Motors have still not been enough to make customers throng the showrooms.
For small-car manufacturers, the pursuit of perfection basically involves improving fuel efficiency. The Government's special lower excise duty benefit for small cars lead manufacturers to look at ways to meet the norms for small cars, as defined in last year's Budget.
The Fiat Palio satisfied the overall length norm for a small car, but its 1,242cc engine was just outside the 1,200cc limit for petrol-driven small cars. Fiat, along with Hyundai and Tata Motors, were among the first to try and rework their products to meet the small-car norms so as to gain a price advantage through lower excise duty.
Fiat had been talking about the new Palio (introduced in other markets almost four years ago) making it to India. The promise of better fuel-efficiency from a smaller, 1.1-litre engine only made it twice as convincing for Fiat to consider.
And so, finally, the new Palio Stile has made it to the showrooms, with redesigned exteriors and a whole new engine buzzing inside its bonnet. We had presented the photos and provided a sneak preview months before the car made it here.
A face-lift
On the outside, the car still retains the smart, well-proportioned familiar looks of the original Palio, and is still clearly the best looking in the segment. The headlamps have been replaced with new dual-barrelled, clear lens headlamps that house halogen bulbs. The headlamp unit now cuts deeper into the front bumper. Honeycomb bonnet grille with the blue Fiat logo in between lends more character to the Palio Stile. The front bumper has been restyled with larger airdam and fog lamps. Minor modifications to the bonnet panel and side turn indicators have been made. The previous model's outside rear-view mirrors have been replaced with a bigger unit that improves visibility. The door handles are now grab-type.
There are quite a few changes in the rear too, with the most important being the new trapezoid tail-lamps that closely resemble the earlier version's tear-drop-shaped cluster. The arrangement of the tail-lamp combination has also been changed to better suit the vertical orientation of the new shape. Minor modifications have also been incorporated to the rear bumper and the hatch door.
The new Palio, which is by now not so new in markets such as Brazil, also comes with a new interior package. But, here, Fiat has chosen to carry forward the overall design and layout of the older model, except for some changes to the colour theme. Obviously, the one factor that must have worked against a complete overhaul of the interior would have been the cost.
The Palio's interior was never gloomy, claustrophobic, or uncomfortable. Except for the relatively poor quality of the plastic on the dashboard, Palio owners liked the layout and feel of the features. Added to this was the superb ride quality, ample shoulder and leg room, and excellent steering feel making it the best passenger cabin among all the small cars currently in the market. Thankfully, all of these positive attributes of the earlier Palio have been carried forward to the new Stile.
The new colour theme, with beige and brown combination, and the brushed aluminium dashboard inserts (in the top-end model) make the Stile's interiors look a bit out of sorts. Other interior features have all been carried forward from the original. Cabin lamp now gets courtesy time delay.
Fiat has lost an opportunity to spruce up the interiors a bit more to try and offer Palio buyers that bit extra compared to the competition that has left this very capable car way behind in the premium hatch segment. Nonetheless, the new exterior features do give it a freshened, unique look.
New engine
Fiat has fallen for the mass-market trap in its choice of the engine for the new Stile. The absolutely lovable, but unaffordable, 1.6-litre engine with a delectable 100PS of peak power, that was offered in the original Palio was an aspirational hatch for small-car buyers. This engine has been now carried forward and continues to be offered in the Stile.
However, the 1.2-litre FIRE engine that was the more affordable option and the one whose performance was more suited to fit a premium small car has been yanked out of the Palio and, instead, a new 1.1-litre engine has been shoehorned into the Stile's bonnet. The earlier 1.2-litre engine, that put out a peak power of 72bhp felt barely right for the Palio's build and weight. With no serious attempt having been made to lighten the Palio's solid build, the new 1,108cc engine's 57bhp of peak power is decidedly underpowered to handle the load.
The new engine's low performance parameters show easily on the road and the Stile's power delivery and on-road acceleration are nothing to write home about. The engine's maximum torque of 92 Nm is also generated only at a high 2,750rpm. This means that the amount of low-end torque available is pretty poor.
Floor the accelerator and you could have heard the engine first before being able to discern any decent level of acceleration even in the earlier 1.2-litre engine. The new 1.1-litre is even worse. Spacing between gears and a bit of a confused attempt at optimising engine mapping for achieving better fuel efficiency has meant that the performance of the new Palio is heavily compromised.
Fiat has attempted to make the Palio more acceptable as a small car, one that is affordable and fuel-efficient. But somewhere in its pursuit to rework the magic of the Palio, Fiat seems to have lost the way and has come up with what looks like a half-hearted attempt.
However, the Palio Stile still offers a decent package for customers who are less concerned about engine refinement and performance. But to be able to confidently take on the existing pack of small cars, Fiat has to do better than this.
Fiat has attempted to make the Palio Stile more acceptable as a small car, one that is affordable and fuel-efficient. But it seems to have lost its way a bit in this pursuit.
Just as there is no person who is perfect in every respect, there is really no perfect car either. What we could call a perfect car is one that offers features that exceed the buyer's expectations, in a mix that also includes ones that are just plain acceptable and those that may even be minor negatives.
Customer expectations in each car segment differ and unfortunately in the small cars it is so skewed in favour of fuel-efficiency that they are willing to compromise on many other parameters. So cars that are designed and engineered better, have more modern features or offer a better ride quality find fewer takers than ones that are more fuel-efficient.
Of course, the situation is now fast changing. When Fiat launched the Palio in India, the excessive focus on fuel efficiency was one of the factors that worked against it. Fiat India also had to tackle issues relating to its marketing and servicing network at the time when the Palio was coming around to facing up to the competition.
But unfortunately the good start for the Palio could not be sustained and sales started to nosedive just months after the car was launched. Clearly, its relatively poor fuel-efficiency vis-à-vis its peers in the small-car segment was a big reason for its lacklustre performance.
Fiat attempted to redeem the situation by reworking the engine management system of its 1.2-litre FIRE engine. Fiat fine-tuned the mapping of the engine to ensure more optimised fuel injection and also reworked the air-conditioner to reduce the load on the engine.
The Palio, after these changes were made, was christened Palio NV (short for New Version). Of course, we all know the rest of the story — the Palio NV and the new marketing tie-up with Tata Motors have still not been enough to make customers throng the showrooms.
For small-car manufacturers, the pursuit of perfection basically involves improving fuel efficiency. The Government's special lower excise duty benefit for small cars lead manufacturers to look at ways to meet the norms for small cars, as defined in last year's Budget.
The Fiat Palio satisfied the overall length norm for a small car, but its 1,242cc engine was just outside the 1,200cc limit for petrol-driven small cars. Fiat, along with Hyundai and Tata Motors, were among the first to try and rework their products to meet the small-car norms so as to gain a price advantage through lower excise duty.
Fiat had been talking about the new Palio (introduced in other markets almost four years ago) making it to India. The promise of better fuel-efficiency from a smaller, 1.1-litre engine only made it twice as convincing for Fiat to consider.
And so, finally, the new Palio Stile has made it to the showrooms, with redesigned exteriors and a whole new engine buzzing inside its bonnet. We had presented the photos and provided a sneak preview months before the car made it here.
A face-lift
On the outside, the car still retains the smart, well-proportioned familiar looks of the original Palio, and is still clearly the best looking in the segment. The headlamps have been replaced with new dual-barrelled, clear lens headlamps that house halogen bulbs. The headlamp unit now cuts deeper into the front bumper. Honeycomb bonnet grille with the blue Fiat logo in between lends more character to the Palio Stile. The front bumper has been restyled with larger airdam and fog lamps. Minor modifications to the bonnet panel and side turn indicators have been made. The previous model's outside rear-view mirrors have been replaced with a bigger unit that improves visibility. The door handles are now grab-type.
There are quite a few changes in the rear too, with the most important being the new trapezoid tail-lamps that closely resemble the earlier version's tear-drop-shaped cluster. The arrangement of the tail-lamp combination has also been changed to better suit the vertical orientation of the new shape. Minor modifications have also been incorporated to the rear bumper and the hatch door.
The new Palio, which is by now not so new in markets such as Brazil, also comes with a new interior package. But, here, Fiat has chosen to carry forward the overall design and layout of the older model, except for some changes to the colour theme. Obviously, the one factor that must have worked against a complete overhaul of the interior would have been the cost.
The Palio's interior was never gloomy, claustrophobic, or uncomfortable. Except for the relatively poor quality of the plastic on the dashboard, Palio owners liked the layout and feel of the features. Added to this was the superb ride quality, ample shoulder and leg room, and excellent steering feel making it the best passenger cabin among all the small cars currently in the market. Thankfully, all of these positive attributes of the earlier Palio have been carried forward to the new Stile.
The new colour theme, with beige and brown combination, and the brushed aluminium dashboard inserts (in the top-end model) make the Stile's interiors look a bit out of sorts. Other interior features have all been carried forward from the original. Cabin lamp now gets courtesy time delay.
Fiat has lost an opportunity to spruce up the interiors a bit more to try and offer Palio buyers that bit extra compared to the competition that has left this very capable car way behind in the premium hatch segment. Nonetheless, the new exterior features do give it a freshened, unique look.
New engine
Fiat has fallen for the mass-market trap in its choice of the engine for the new Stile. The absolutely lovable, but unaffordable, 1.6-litre engine with a delectable 100PS of peak power, that was offered in the original Palio was an aspirational hatch for small-car buyers. This engine has been now carried forward and continues to be offered in the Stile.
However, the 1.2-litre FIRE engine that was the more affordable option and the one whose performance was more suited to fit a premium small car has been yanked out of the Palio and, instead, a new 1.1-litre engine has been shoehorned into the Stile's bonnet. The earlier 1.2-litre engine, that put out a peak power of 72bhp felt barely right for the Palio's build and weight. With no serious attempt having been made to lighten the Palio's solid build, the new 1,108cc engine's 57bhp of peak power is decidedly underpowered to handle the load.
The new engine's low performance parameters show easily on the road and the Stile's power delivery and on-road acceleration are nothing to write home about. The engine's maximum torque of 92 Nm is also generated only at a high 2,750rpm. This means that the amount of low-end torque available is pretty poor.
Floor the accelerator and you could have heard the engine first before being able to discern any decent level of acceleration even in the earlier 1.2-litre engine. The new 1.1-litre is even worse. Spacing between gears and a bit of a confused attempt at optimising engine mapping for achieving better fuel efficiency has meant that the performance of the new Palio is heavily compromised.
Fiat has attempted to make the Palio more acceptable as a small car, one that is affordable and fuel-efficient. But somewhere in its pursuit to rework the magic of the Palio, Fiat seems to have lost the way and has come up with what looks like a half-hearted attempt.
However, the Palio Stile still offers a decent package for customers who are less concerned about engine refinement and performance. But to be able to confidently take on the existing pack of small cars, Fiat has to do better than this.
Investment versus financial planning
Rajesh Saluja
Financial and investment planning are terms that are interchangeably used in personal finance parlance. But nothing could be farther from the truth. To understand the difference between the two concepts, we first have to understand them well.
Investment Planning (IP) has the "rate of interest" factor at its core, thus making the approach a little myopic. The IP process involves several steps, ranging from setting investment goals and understanding the risk appetite to designing an investment portfolio after evaluating the markets and the investment landscape. IP refers to a commitment of funds to one or more assets that will be held over a specific period. Anything not consumed today and saved for future use can be considered an investment.
Financial planning (FP), on the other hand, is the process of meeting your life's goals, through prudent management of finances. It provides direction and meaning to financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances. By viewing each financial decision as part of a whole, you can consider its short- and long-term effects on your life goals.
FP contrasts sharply with the individual-need-driven approach of IP as it takes into account the needs of the individual as well as the family.FP would ordain that even before you begin considering how and where to invest your money, it is important to identify and prioritise your wealth accumulation goals. It would mean answering questions such as:
What does IP mean to you?
What dreams are you saving for (retirement, a home, education)?
How have you approached such issues as risk tolerance and diversification?
It should create a clear picture of your current financial situation. Spread your investments across `asset classes' to reduce risk. It should help arrive at the optimal asset allocation strategy with regular monitoring to maintain the allocation in line with your then current needs and should be tax efficient
Financial planner vs broker
A normal broker makes recommendations for investments. However, FP is not simply the ad hoc purchase of a range of investments; rather, the investments are the end process of a financial plan's implementation. Implicit in the process of personal financial planning is the preparation of a written plan that details a client's financial needs and resources, establishes set objectives, and in appropriate circumstances, details specific recommendations. Your financial planner will help you to not only identify but also prioritise your needs and then make a judicious allocation of your resources.
Successful investing for you does not mean sourcing the highest possible return, but means placing your money with investments that satisfy your needs. When investing, much attention is directed towards the choice of investments, but in financial planning, the emphasis is on exploring and meeting the investor's needs. Investors and their advisors spend much time understanding the merits of the investment avenues available. Little time is spent understanding the needs of each person and ensuring that the most appropriate investments are selected. That is essentially the difference between a broker and a financial planner. The success of a financial planner is measured by how well he manages to meet the client's needs. Your dreams will change. Your tolerance for market risk may change. That is why it is important that your financial plan is adjusted as necessary. Your financial advisor can help you revisit your investment strategy to make sure it stays in line with your long-term goals.
(The author is CEO & Managing Partner, ASK Wealth Advisors. The views are personal and of his organisation.)
Please send suggestions and queries to younginvestor@thehindu.co.in, or The Research Bureau, The Hindu Business Line, 859-860, Anna Salai, Chennai-600002.
Financial and investment planning are terms that are interchangeably used in personal finance parlance. But nothing could be farther from the truth. To understand the difference between the two concepts, we first have to understand them well.
Investment Planning (IP) has the "rate of interest" factor at its core, thus making the approach a little myopic. The IP process involves several steps, ranging from setting investment goals and understanding the risk appetite to designing an investment portfolio after evaluating the markets and the investment landscape. IP refers to a commitment of funds to one or more assets that will be held over a specific period. Anything not consumed today and saved for future use can be considered an investment.
Financial planning (FP), on the other hand, is the process of meeting your life's goals, through prudent management of finances. It provides direction and meaning to financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances. By viewing each financial decision as part of a whole, you can consider its short- and long-term effects on your life goals.
FP contrasts sharply with the individual-need-driven approach of IP as it takes into account the needs of the individual as well as the family.FP would ordain that even before you begin considering how and where to invest your money, it is important to identify and prioritise your wealth accumulation goals. It would mean answering questions such as:
What does IP mean to you?
What dreams are you saving for (retirement, a home, education)?
How have you approached such issues as risk tolerance and diversification?
It should create a clear picture of your current financial situation. Spread your investments across `asset classes' to reduce risk. It should help arrive at the optimal asset allocation strategy with regular monitoring to maintain the allocation in line with your then current needs and should be tax efficient
Financial planner vs broker
A normal broker makes recommendations for investments. However, FP is not simply the ad hoc purchase of a range of investments; rather, the investments are the end process of a financial plan's implementation. Implicit in the process of personal financial planning is the preparation of a written plan that details a client's financial needs and resources, establishes set objectives, and in appropriate circumstances, details specific recommendations. Your financial planner will help you to not only identify but also prioritise your needs and then make a judicious allocation of your resources.
Successful investing for you does not mean sourcing the highest possible return, but means placing your money with investments that satisfy your needs. When investing, much attention is directed towards the choice of investments, but in financial planning, the emphasis is on exploring and meeting the investor's needs. Investors and their advisors spend much time understanding the merits of the investment avenues available. Little time is spent understanding the needs of each person and ensuring that the most appropriate investments are selected. That is essentially the difference between a broker and a financial planner. The success of a financial planner is measured by how well he manages to meet the client's needs. Your dreams will change. Your tolerance for market risk may change. That is why it is important that your financial plan is adjusted as necessary. Your financial advisor can help you revisit your investment strategy to make sure it stays in line with your long-term goals.
(The author is CEO & Managing Partner, ASK Wealth Advisors. The views are personal and of his organisation.)
Please send suggestions and queries to younginvestor@thehindu.co.in, or The Research Bureau, The Hindu Business Line, 859-860, Anna Salai, Chennai-600002.
ICICI Bank — Bankable for the long term
T. B. Kapali
There is scope for good medium/long-term returns, given the prospects for the core banking business, strong brand value and possible contributions from the insurance subsidiary.
An investment in ICICI Bank's follow-on public offer may only suit those with a three-four-year investment horizon. Such investors may bid at the cut-off price. Those looking for gains over the short term would be better off not participating in the offer, as there is a possibility of the stock offering better entry points in the market at the issue closes.
Medium/long-term prospects
But there is scope for good medium/long-term returns. The business is bound to benefit from the bright prospects for the core banking business in a growing economy, the prominent position and the brand value acquired in the banking space, as well as the possible improvements in the profitability of the (insurance) subsidiaries.
The life-insurance business, by its very nature, takes time to break-even and the red on the balance-sheet appears magnified during high growth phases. ICICI Prudential Life, for instance, recorded a 60 per cent growth in premium income in FY-07 and this has naturally led to high actuarial provisions (which are based on the liabilities the insurer contracts on policies issued).
Besides, any future re-alignment in the Foreign Direct Investment policy relating to insurance (even if it appears remote at present) could have a bearing on the banking company's valuations. ICICI Bank may then be in position to encash or monetise, with capital gains, the investments it has made in the subsidiaries. The bank's investments in its subsidiaries — the material ones being the two insurance subsidiaries — amount to around Rs 2,300 crore. The value of the core banking franchise would automatically become more critical in a scenario where the bank's stake in the other financial businesses is brought down.
Value of subsidiaries
The re-organisation of ICICI Bank's subsidiaries has turned out to be almost co-terminus with the bank's fresh capital-raising programme. The reported pricing on the shares to be issued by the proposed new subsidiary (ICICI Financial Services) — a 5.9 per cent stake at Rs 2,650 crore — values the new subsidiary at approximately Rs 45,000 crore which is more than half of the current market capitalisation (around Rs 82,000 crore) of the parent bank itself. This has naturally raised the question if the parent stock now needs to be revalued. Other investors indeed seem to have placed a high valuation on businesses — mainly life insurance — that are still a net drain on the consolidated financials and may continue to be so for some time to come. The life-insurance subsidiary's net loss for 2006-07 at Rs 650 crore is one-fifth of the bank's (standalone) PAT (profit-after-tax) of Rs 3100 crore.
Short-term investors to wait
Short-term investment prospects in the stock though may not be that attractive. A possible moderation in economic activity in the near term could prove a drag on the earning prospects. The reported slow down in the growth of the bank's flagship lending product — housing loans — attests to this. The near-term financials may also be impacted by the pressures on the funding side brought over from the interest rates tightening of the past two-three quarters. Apart from bank-specific risk, overall systemic risk in the form of a possible rise in risk aversion (particularly towards emerging markets) may also affect near-term valuations. Therefore, investors with a holding period horizon of six months to one year can possibly wait to pick up the stock at lower levels.
Factors that bear watching
Quality of core bank financials
The core banking business and the associated financials will possibly come under greater investor scrutiny now that the hiving off of the investments in subsidiaries has been accomplished.
Such a study of the financials of the core bank point to a number of areas which, if acted upon, could lead to better long-term valuations for the stock.
Given its prominent position in the industry, its size and the reputation it has built up in the market, one would have imagined that the overall balance-sheet would present a structure that is intrinsically capable of optimally managing diverse interest rate environments. ICICI Bank, though, has relied on a kind of regulatory forbearance to insulate itself from interest rate shocks which otherwise may have seen its earnings under greater pressure.
Among financial intermediaries, ICICI Bank possibly stands out for the low level of interest rate risk it is carrying on its balance-sheet. Almost 40 per cent of its total assets as of March 2007 — Rs 1,35,000-1,40,000 crore on a balance-sheet of Rs 3,45,000 crore — is not subject to interest rate risk. This has been accomplished mainly through two mechanisms.
The bank has placed almost its entire statutory liquidity ratio (SLR) portfolio (25 per cent of its demand and time liabilities) — comprising investments in government securities — amounting to around Rs 60/65,000 crore in the "held to maturity" (HTM) category. The value of investments held in this category need not be adjusted to reflect current (and changing) market interest rates.
To give a perspective, based on its current balance-sheet and the growth in its liabilities base in the last four years, the bank may need to invest Rs 25,000-28,000 crore in SLR securities in FY-08 (assuming the CAGR of 45/50 per cent in the deposit base recorded in the past four years is maintained). Assuming this entire incremental SLR investment is not categorised as HTM, a rise in interest rates by say 0.50 percentage points, could possibly increase provisioning requirements (and lower profits) by as much as Rs 500 crore. (This assumes a "duration" or weighted average time to maturity of four for the portfolio — a higher "duration" would mean larger losses). Compared to that, the bank's increase in provisioning for investments in 2006-07 was only around Rs 60 crore even as investments in government securities increased by around Rs 17,000-18,000 crore and interest rates also stiffened by close to 0.50 percentage points.
Secondly, the bank's flagship lending product — home loans — which at Rs 64,000 crore in March 2007 constituted 30 per cent of the total advances, is largely in the form of floating rate loans. This transmits the risk of rising interest rates entirely to the borrower.
The point to be noted here is that the bank carries a fairly large interest rates derivatives trading book. While it operates in the interest rates derivatives markets as a proprietary trader, it has not found or used that market as a platform to engage in financial intermediation in the strict sense of the term. As of March 2007, the outstanding notional principal of its interest rate derivatives trading book was around Rs 2,80,000 crore. And this book is positioned to benefit from rising interest rates. A 1 percentage point rise in rates would increase the value of the trading portfolio by around Rs 70 crore.
Using the interest rate derivatives markets to offer better interest rate solutions to borrowers could have a direct impact on the quality of the loan portfolio and in turn on provisioning/earnings.
So far the quality of the housing loan portfolio does not seem to have been adversely affected — gross and net NPAs in the collateralised loan book, which is mainly housing loans, were 1.3 per cent and 0.7 per cent respectively at March 2007. But this is one parameter to be watched as the bank has reiterated the critical role of the housing loan business in its overall strategy.
From a valuation perspective, such immunity in the balance-sheet, obtained either because of regulatory forbearance or market imperfections may not be optimal. For when the interest rate cycle turns, there could be opportunity losses in sticking to book value accounting for a major part of the balance-sheet.
Overall prospects
Overall, the medium/long-term investment prospects for the stock appear good. The chinks in the armour, as can be seen from the company's balance-sheet, are capable of being removed. The company could build on its position and the growth it has recorded in many banking parameters — deposits, advances, market share and the so far muted impact on loan portfolio quality despite rapid business growth. Non-interest income at around 20 per cent of the total and the steady performance on this front indicate a buffer available for the earnings stream. The bank also has been a leader in leveraging technology to provide a range of services — particularly in the retail segment. This provides considerable earnings cushion. Risks to this outlook emanate from the pressure that has been seen on interest margins, the slide in overall returns on equity/assets and a reasonable probability of such pressure continuing in the ensuing period.
Offer details: ICICI Bank's follow-on public offering in the price band of Rs 885 to Rs.950 is set to raise Rs 8750 crore. Retail investors have the option of paying Rs 250 on application, Rs 250 on allotment and the balance on call. The offer is open from June19-22.
There is scope for good medium/long-term returns, given the prospects for the core banking business, strong brand value and possible contributions from the insurance subsidiary.
An investment in ICICI Bank's follow-on public offer may only suit those with a three-four-year investment horizon. Such investors may bid at the cut-off price. Those looking for gains over the short term would be better off not participating in the offer, as there is a possibility of the stock offering better entry points in the market at the issue closes.
Medium/long-term prospects
But there is scope for good medium/long-term returns. The business is bound to benefit from the bright prospects for the core banking business in a growing economy, the prominent position and the brand value acquired in the banking space, as well as the possible improvements in the profitability of the (insurance) subsidiaries.
The life-insurance business, by its very nature, takes time to break-even and the red on the balance-sheet appears magnified during high growth phases. ICICI Prudential Life, for instance, recorded a 60 per cent growth in premium income in FY-07 and this has naturally led to high actuarial provisions (which are based on the liabilities the insurer contracts on policies issued).
Besides, any future re-alignment in the Foreign Direct Investment policy relating to insurance (even if it appears remote at present) could have a bearing on the banking company's valuations. ICICI Bank may then be in position to encash or monetise, with capital gains, the investments it has made in the subsidiaries. The bank's investments in its subsidiaries — the material ones being the two insurance subsidiaries — amount to around Rs 2,300 crore. The value of the core banking franchise would automatically become more critical in a scenario where the bank's stake in the other financial businesses is brought down.
Value of subsidiaries
The re-organisation of ICICI Bank's subsidiaries has turned out to be almost co-terminus with the bank's fresh capital-raising programme. The reported pricing on the shares to be issued by the proposed new subsidiary (ICICI Financial Services) — a 5.9 per cent stake at Rs 2,650 crore — values the new subsidiary at approximately Rs 45,000 crore which is more than half of the current market capitalisation (around Rs 82,000 crore) of the parent bank itself. This has naturally raised the question if the parent stock now needs to be revalued. Other investors indeed seem to have placed a high valuation on businesses — mainly life insurance — that are still a net drain on the consolidated financials and may continue to be so for some time to come. The life-insurance subsidiary's net loss for 2006-07 at Rs 650 crore is one-fifth of the bank's (standalone) PAT (profit-after-tax) of Rs 3100 crore.
Short-term investors to wait
Short-term investment prospects in the stock though may not be that attractive. A possible moderation in economic activity in the near term could prove a drag on the earning prospects. The reported slow down in the growth of the bank's flagship lending product — housing loans — attests to this. The near-term financials may also be impacted by the pressures on the funding side brought over from the interest rates tightening of the past two-three quarters. Apart from bank-specific risk, overall systemic risk in the form of a possible rise in risk aversion (particularly towards emerging markets) may also affect near-term valuations. Therefore, investors with a holding period horizon of six months to one year can possibly wait to pick up the stock at lower levels.
Factors that bear watching
Quality of core bank financials
The core banking business and the associated financials will possibly come under greater investor scrutiny now that the hiving off of the investments in subsidiaries has been accomplished.
Such a study of the financials of the core bank point to a number of areas which, if acted upon, could lead to better long-term valuations for the stock.
Given its prominent position in the industry, its size and the reputation it has built up in the market, one would have imagined that the overall balance-sheet would present a structure that is intrinsically capable of optimally managing diverse interest rate environments. ICICI Bank, though, has relied on a kind of regulatory forbearance to insulate itself from interest rate shocks which otherwise may have seen its earnings under greater pressure.
Among financial intermediaries, ICICI Bank possibly stands out for the low level of interest rate risk it is carrying on its balance-sheet. Almost 40 per cent of its total assets as of March 2007 — Rs 1,35,000-1,40,000 crore on a balance-sheet of Rs 3,45,000 crore — is not subject to interest rate risk. This has been accomplished mainly through two mechanisms.
The bank has placed almost its entire statutory liquidity ratio (SLR) portfolio (25 per cent of its demand and time liabilities) — comprising investments in government securities — amounting to around Rs 60/65,000 crore in the "held to maturity" (HTM) category. The value of investments held in this category need not be adjusted to reflect current (and changing) market interest rates.
To give a perspective, based on its current balance-sheet and the growth in its liabilities base in the last four years, the bank may need to invest Rs 25,000-28,000 crore in SLR securities in FY-08 (assuming the CAGR of 45/50 per cent in the deposit base recorded in the past four years is maintained). Assuming this entire incremental SLR investment is not categorised as HTM, a rise in interest rates by say 0.50 percentage points, could possibly increase provisioning requirements (and lower profits) by as much as Rs 500 crore. (This assumes a "duration" or weighted average time to maturity of four for the portfolio — a higher "duration" would mean larger losses). Compared to that, the bank's increase in provisioning for investments in 2006-07 was only around Rs 60 crore even as investments in government securities increased by around Rs 17,000-18,000 crore and interest rates also stiffened by close to 0.50 percentage points.
Secondly, the bank's flagship lending product — home loans — which at Rs 64,000 crore in March 2007 constituted 30 per cent of the total advances, is largely in the form of floating rate loans. This transmits the risk of rising interest rates entirely to the borrower.
The point to be noted here is that the bank carries a fairly large interest rates derivatives trading book. While it operates in the interest rates derivatives markets as a proprietary trader, it has not found or used that market as a platform to engage in financial intermediation in the strict sense of the term. As of March 2007, the outstanding notional principal of its interest rate derivatives trading book was around Rs 2,80,000 crore. And this book is positioned to benefit from rising interest rates. A 1 percentage point rise in rates would increase the value of the trading portfolio by around Rs 70 crore.
Using the interest rate derivatives markets to offer better interest rate solutions to borrowers could have a direct impact on the quality of the loan portfolio and in turn on provisioning/earnings.
So far the quality of the housing loan portfolio does not seem to have been adversely affected — gross and net NPAs in the collateralised loan book, which is mainly housing loans, were 1.3 per cent and 0.7 per cent respectively at March 2007. But this is one parameter to be watched as the bank has reiterated the critical role of the housing loan business in its overall strategy.
From a valuation perspective, such immunity in the balance-sheet, obtained either because of regulatory forbearance or market imperfections may not be optimal. For when the interest rate cycle turns, there could be opportunity losses in sticking to book value accounting for a major part of the balance-sheet.
Overall prospects
Overall, the medium/long-term investment prospects for the stock appear good. The chinks in the armour, as can be seen from the company's balance-sheet, are capable of being removed. The company could build on its position and the growth it has recorded in many banking parameters — deposits, advances, market share and the so far muted impact on loan portfolio quality despite rapid business growth. Non-interest income at around 20 per cent of the total and the steady performance on this front indicate a buffer available for the earnings stream. The bank also has been a leader in leveraging technology to provide a range of services — particularly in the retail segment. This provides considerable earnings cushion. Risks to this outlook emanate from the pressure that has been seen on interest margins, the slide in overall returns on equity/assets and a reasonable probability of such pressure continuing in the ensuing period.
Offer details: ICICI Bank's follow-on public offering in the price band of Rs 885 to Rs.950 is set to raise Rs 8750 crore. Retail investors have the option of paying Rs 250 on application, Rs 250 on allotment and the balance on call. The offer is open from June19-22.
Question & Auto
S. Muralidhar
I want to buy a new car and have narrowed my choice to the Hyundai Santro Xing and the Chevrolet Spark. Which one should I choose if I intend keeping the car for the next five years?
Iftekhar Hussain
I plan to buy my first car. I had short-listed the Chevrolet Spark and the Maruti Suzuki WagonR. I am looking at both fuel efficiency and style.
My usage will mostly be during the weekend and once a month out of town on a long trip.
I want value for money in the long run, rather than save money at the time of purchase.
Sunil Dhawan
The Chevrolet Spark is a serious contender in the small-car segment. But it is not the best endowed in terms of interior space. The Spark, possibly along with the Suzuki Zen Estilo, best leverages its exterior dimensions to gain the most cabin space. And yet, the Chevy's rear seat is relatively cramped and it will be quite a squeeze for three passengers.
Overall, in terms of shoulder space the Fiat Palio, the Tata Indica and the Hyundai Santro Xing are leaders in the small-car segment.
These cars will probably also be joined by the Maruti Suzuki WagonR, when the legroom parameter is considered.
Clearly the Chevy Spark will still be a couple of notches lower in the interior space department. The Spark is taller than the more low-slung small cars such as the Alto and the Palio, but doesn't offer the kind of headroom that the tallboys such as the Santro, the WagonR and the Zen Estilo offer.
However, excluding the Maruti 800 and the Alto, the Spark will rate marginally better than the Santro Xing and WagonR in the fuel-efficiency parameter. The Spark's frugal 995cc engine offers a decent power of 63PS, even as it manages to generate a high peak torque of 90.3Nm. The Chevy small-car is also the lightest of the lot, which should help improve fuel-efficiency.
It is too early to comment about whether the Spark will retain value. But this is a small car that will be around for quite some time to come. A redesign or a model change for the Spark is still more than a couple of years away. GM is also going to great lengths to explain that the Spark will be easy and inexpensive to maintain in the long run and to add credence to this claim is also offering a three-year or one-lakh km warranty on the car.
The Spark could well be the car for you if you are not concerned about its relatively less spacious interior, marginally lower engine refinement and the notchy, long-throw manual gearbox.
Recently, I bought a Maruti Esteem petrol car. It is a year-1995 model with an air-conditioner. For a 12-year-old car, the engine seems to be smooth and the performance, satisfactory. The car has clocked 71,000 km. What is the life of an Esteem engine and, considering its age, how safe is it to take it for long trips, which may involve travelling 500-1,000 km at a stretch.
Jagadish Karekoppa
Globally, the average lifespan for a car is considered to be about 14 years. But, in India, we are less reluctant to part with our vehicles and are constantly trying to squeeze more out of them.
In most modern petrol cars, age starts showing on engine performance and reliability much after it has on the other parts. Of course, here the assumption is that the car has been reasonably well-maintained and all necessary precautions have been taken during the years of ownership.
The Esteem's 1.3-litre engine is a tried and tested mill that has performed efficiently for most owners. Since multi-point fuel injection was introduced only in 2000-2001, the Esteem that you own probably still features a carburettor. Excluding the possibility of any external factors affecting the life and performance of the Esteem's engine, it should very easily be able to do its job for over a lakh km before it needs any form of intervention.
As mentioned, the age of the car will probably show on its other parts and these would need to be checked and replacements made before you plan to take this 12-year old on a long drive. The components that you will need to check to reconfirm the car's roadworthiness will include:
The battery, which needs to be replaced at least every five years on average.
All the filters — air, oil and fuel.
Tyres will need to be checked for tread wear. On average the tyres need to be changed every 35,000-45,000 km based on the usage pattern and quality of roads that the car has been driven on.
All the fluids in the car, such as engine oil, radiator coolant, brake and power steering fluid (if available) and windscreen wiper fluid.
Check the carburettor and the spark plugs and ensure that they are clean and have been adjusted for optimum performance.
Check refrigerant gas in the compressor and check if the radiator fins are clean and free of debris.
Check other components that are prone to wear and tear such as the fan belt, clutch plate and brake pads.
Check whether the scheduled maintenance tasks such as oil change, wheel alignment, etc., have been performed.
Finally, check the car's chassis, under-body and body panels for cracks, leakages, weak spots or other damage that may be a threat to its performance on the road.
Queries may be sent to: q&a@thehindu.co.in or by post to Q&A, Business Line, 859/860, Kasturi Buildings, Anna Salai, Chennai - 600 002.
I want to buy a new car and have narrowed my choice to the Hyundai Santro Xing and the Chevrolet Spark. Which one should I choose if I intend keeping the car for the next five years?
Iftekhar Hussain
I plan to buy my first car. I had short-listed the Chevrolet Spark and the Maruti Suzuki WagonR. I am looking at both fuel efficiency and style.
My usage will mostly be during the weekend and once a month out of town on a long trip.
I want value for money in the long run, rather than save money at the time of purchase.
Sunil Dhawan
The Chevrolet Spark is a serious contender in the small-car segment. But it is not the best endowed in terms of interior space. The Spark, possibly along with the Suzuki Zen Estilo, best leverages its exterior dimensions to gain the most cabin space. And yet, the Chevy's rear seat is relatively cramped and it will be quite a squeeze for three passengers.
Overall, in terms of shoulder space the Fiat Palio, the Tata Indica and the Hyundai Santro Xing are leaders in the small-car segment.
These cars will probably also be joined by the Maruti Suzuki WagonR, when the legroom parameter is considered.
Clearly the Chevy Spark will still be a couple of notches lower in the interior space department. The Spark is taller than the more low-slung small cars such as the Alto and the Palio, but doesn't offer the kind of headroom that the tallboys such as the Santro, the WagonR and the Zen Estilo offer.
However, excluding the Maruti 800 and the Alto, the Spark will rate marginally better than the Santro Xing and WagonR in the fuel-efficiency parameter. The Spark's frugal 995cc engine offers a decent power of 63PS, even as it manages to generate a high peak torque of 90.3Nm. The Chevy small-car is also the lightest of the lot, which should help improve fuel-efficiency.
It is too early to comment about whether the Spark will retain value. But this is a small car that will be around for quite some time to come. A redesign or a model change for the Spark is still more than a couple of years away. GM is also going to great lengths to explain that the Spark will be easy and inexpensive to maintain in the long run and to add credence to this claim is also offering a three-year or one-lakh km warranty on the car.
The Spark could well be the car for you if you are not concerned about its relatively less spacious interior, marginally lower engine refinement and the notchy, long-throw manual gearbox.
Recently, I bought a Maruti Esteem petrol car. It is a year-1995 model with an air-conditioner. For a 12-year-old car, the engine seems to be smooth and the performance, satisfactory. The car has clocked 71,000 km. What is the life of an Esteem engine and, considering its age, how safe is it to take it for long trips, which may involve travelling 500-1,000 km at a stretch.
Jagadish Karekoppa
Globally, the average lifespan for a car is considered to be about 14 years. But, in India, we are less reluctant to part with our vehicles and are constantly trying to squeeze more out of them.
In most modern petrol cars, age starts showing on engine performance and reliability much after it has on the other parts. Of course, here the assumption is that the car has been reasonably well-maintained and all necessary precautions have been taken during the years of ownership.
The Esteem's 1.3-litre engine is a tried and tested mill that has performed efficiently for most owners. Since multi-point fuel injection was introduced only in 2000-2001, the Esteem that you own probably still features a carburettor. Excluding the possibility of any external factors affecting the life and performance of the Esteem's engine, it should very easily be able to do its job for over a lakh km before it needs any form of intervention.
As mentioned, the age of the car will probably show on its other parts and these would need to be checked and replacements made before you plan to take this 12-year old on a long drive. The components that you will need to check to reconfirm the car's roadworthiness will include:
The battery, which needs to be replaced at least every five years on average.
All the filters — air, oil and fuel.
Tyres will need to be checked for tread wear. On average the tyres need to be changed every 35,000-45,000 km based on the usage pattern and quality of roads that the car has been driven on.
All the fluids in the car, such as engine oil, radiator coolant, brake and power steering fluid (if available) and windscreen wiper fluid.
Check the carburettor and the spark plugs and ensure that they are clean and have been adjusted for optimum performance.
Check refrigerant gas in the compressor and check if the radiator fins are clean and free of debris.
Check other components that are prone to wear and tear such as the fan belt, clutch plate and brake pads.
Check whether the scheduled maintenance tasks such as oil change, wheel alignment, etc., have been performed.
Finally, check the car's chassis, under-body and body panels for cracks, leakages, weak spots or other damage that may be a threat to its performance on the road.
Queries may be sent to: q&a@thehindu.co.in or by post to Q&A, Business Line, 859/860, Kasturi Buildings, Anna Salai, Chennai - 600 002.
Wednesday, June 13, 2007
An insurance plan your child can do without
Amar Pandit Thursday, 14 June , 2007, 08:34
Insurance in India is synonymous with the Life Insurance Corporation of India and vice versa. For a long time, LIC was the only life insurance institution and the only products available were investment-oriented. Till the entry of private players, it did not even have a term product - one major reason why term plans aren’t very popular in the country, yet.
The popular plans include endowment, money back, whole life, pension, special and children’s plans. These are available in various flavours, but most of them are a combination of endowment and money back. Komal Jeevan, a children’s plan, is one such popular scheme. The sales pitch for Komal Jeevan includes:
It is a guaranteed product with a bonus of Rs 75 per 1,000 sum assured per year. It can be utilised for your child’s education and marriage and you wouldn’t have to worry about your child should something happen to you. The returns are amazing and the highest in the industry. No one guarantees you a bonus of Rs 75.
One of my readers had bought this plan for his son a few years back, falling for these claims. What he did not realise was that this plan essentially covered the life of his son and not his. In order to ensure that subsequent premiums didn’t need to be paid on his son’s policy in the event of his death, he would have to pay an additional premium.
What’s really on offer?
As per the LIC website, “This is a children’s money back plan that provides financial protection against death during the term of plan with periodic payments on survival at specified durations. This plan can be purchased by any of the parent or grandparent for a child aged 0-10 years.”
Mark the wording “financial protection against death.” One would assume that the policy covers his life. But, no; as the reader discovered, it is the child’s life that the policy covers and one has to buy the premium waiver benefit (PWB) along with it.
Risk cover: The risk commences either 2 years from the date of commencement of the policy or from the policy anniversary immediately following the completion of 7 years of age of the child, whichever is later. This means, if you buy this policy for a child whose date of birth is March 12, 2003 (4-yrs-old), then his risk cover will start after 2 years or after he completes 7 years, whichever is later. In this case, the risk cover will start in 2010 for a sum assured.
Death benefit: In case of the life assured’s death before the commencement of risk (say before 2010), the policy shall stand cancelled and premiums paid (excluding the premium for PWB) under the policy will be refunded (i.e., the parent will receive only the premiums paid). However, if death occurs after the commencement of risk but before the policy matures, the full sum assured plus guaranteed additions, together with loyalty additions, if any, is payable.
Loyalty additions: Along with the guaranteed bonus, this plan also gets a share of the profits in the form of loyalty additions, which are terminal bonuses payable along with death or maturity benefits. Loyalty addition may be payable depending on the experience of the corporation.
Survival benefit: A percentage of the sum assured is paid on survival to the end of specified durations. Let’s consider an eg. For a sum assured of Rs 10 lakh for a 4-year-old, the premium is Rs 93,521 p.a. without the PWB and Rs 96,087 with PWB. The risk cover in the first year is Rs 96,087 (i.e., the premium paid). The returns work out to around 4.96%.
Is it worthwhile?
As one can see, premiums for this policy are exorbitant. Life covered is that of the child and not yours. Returns are low despite a guaranteed bonus
You and your child would do well to opt for a sizeable cover for yourself and investing the difference.
What should you do if you have this policy?
This policy may be surrendered after it has been in force for 3 years or more. The guaranteed surrender value before the date of commencement of risk is 90% of the premiums paid excluding the premiums paid during the first year and any extra premium paid. Thus, in our eg, if you surrender the plan at age 6 after 3 premiums have been paid, you will receive Rs 1.72 lakh (90% of Rs 96,087 + 96,087 - the first year’s premium).
After the date of commencement of risk, at age seven in this case, the guaranteed surrender value is 90% of the premiums paid before the date of commencement of risk excluding the premiums paid during the first year and any extra premium paid plus 30% of the premiums paid after the date of commencement of risk.
So, you will receive Rs 1.72 lakh + 30% of Rs 96,087= Rs 2.01 lakh if you close the policy after 4 premiums have been paid. If you have bought this policy in the last couple of years, you can certainly look at surrendering it and instead buying yourself (parent) a sizeable cover.
http://sify.com/finance/fullstory.php?id=14471587%20&vsv=SHGTslot5
Sunday, June 10, 2007
Know all about ULIPs
Priya Kapoor
A look at the types of Unit Linked Insurance Plans, how they work, and what the subscriber ought to look out for.
Till recently, individuals seeking to provide protection to their family had no other option except a life insurance term plan. The plan promised a stipulated amount to the family of policyholder in the event of his death.
However, the insurance sector has evolved over the last few years and a number of innovative products have hit the market. One product category that is increasingly catching the fancy of individuals is the Unit linked Insurance Plan (ULIP). These plans, a combination of insurance and investment, provide the policyholder with life cover and additionally offer the opportunity to earn a return on the premium paid.
How ULIPs work
ULIPs work on the lines of mutual funds. The premium paid by the client (less any charge) is used to buy units in various funds (aggressive, balanced or conservative) floated by the insurance companies. Units are bought according to the plan chosen by the policyholder. On every additional premium, more units are allotted to his fund. The policyholder can also switch among the funds as and when he desires. While some companies allow any number of free switches to the policyholder, some restrict the number to just three or four. If the number is exceeded, a certain charge is levied.
Individuals can also make additional investments (besides premium) from time to time to increase the savings component in their plan. This facility is termed "top-up". The money parked in a ULIP plan is returned either on the insured's death or in the event of maturity of the policy. In case of the insured person's untimely death, the amount that the beneficiary is paid is the higher of the sum assured (insurance cover) or the value of the units (investments). However, some schemes pay the sum assured plus the prevailing value of the investments.
Key types
There are various unit linked insurance plans available in the market. However, the key ones are pension, children, group and capital guarantee plans. The pension plans come with two variations — with and without life cover — and are meant for people who want to generate returns for their sunset years.
The children plans, on the other hand, are aimed at taking care of their educational and other needs. The Children's Dreamz Plan offered by Birla Sun Life Insurance and Young Star offered by HDFC are good examples of unit linked children plans.
Apart from unit-linked plans for individuals, group unit linked plans are also available in the market. The Group linked plans are basically designed for employers who want to offer certain benefits for their employees such as gratuity, superannuation and leave encashment.
The other important category of ULIPs is capital guarantee plans. The plan promises the policyholder that at least the premia paid will be returned at maturity. But the guaranteed amount is payable only when the policy's maturity value is below the total premium paid by the individual till maturity. However, the guarantee is not provided on the actual premium paid but only on that portion of the premium that is net of expenses (mortality, sales and marketing, administration).
Market-linked returns
Though there are various benefits attached to buying a unit linked insurance product, the return on the ULIPs is directly linked to the performance of the stocks or bonds it invests in. An individual must remain prepared for bullish as well as bearish market conditions. Gaurav Mashruwala, a certified financial planner, says, "Usually people consider a scenario of the market going up while buying Unit Linked Insurance Plans. However, it is important to look at the other side of the coin too. If the market goes down, the fund value will also decline. Individuals easily give in to the illustrative returns presented by the sales person, projecting a 6 or a 10 per cent growth in the years ahead. What if the market crashes? This aspect has also to be kept in mind while parking money in Unit plans".
(The author is a Faridabad-based freelance writer.)
http://www.blonnet.com/iw/2007/06/10/stories/2007061000961300.htm
What to check out
Every individual needs to ask his/her advisor the following questions before investing in a ULIP.
What are the total expenses charged?
If an individual is keen on making money through ULIPs, it is important to know the various expenses the policy entails. The charges, meant to recover various costs, eat into the returns of the policyholder. Therefore, before buying a ULIP, an individual must ask his advisor to provide him with two concrete numbers. One, the value of the fund at the end of the term, without the impact of charges, and, two, the value of the fund after deducting charges. The fund with a wider gap between the two is the more expensive one.
How much of the premium would be actually invested?
In ULIPs, the whole of the premium you pay is not invested. The insurance company offering the product usually deducts certain charges from the premium money and invests only the balance. It is necessary to know from the advisor what proportion of the actual premium would be used for making investments, as the returns would be made available on the net premium (premium less charges) and not what the investor shelled out.
What would be my life cover?
Insurance policies are meant basically to provide you with a life cover. Though ULIPs combine insurance and investments in one product, an individual must be aware of the extent of protection that a policy offers and the number of years of life cover provided.
How is the premium allocated?
Allocation is another very important factor that cannot be overlooked. The individual should ask the agent to provide details of how assets will be allocated between different classes — equity, debt and cash.It is not enough to opt for an aggressive growth fund, you should know the exact percentage of equity and debt in it. The allocation would determine the returns you can expect from your chosen fund.
What is the ULIPs' track record?
The most significant question, however, is about the product performance. An individual must opt for a fund that has shown consistently good performance over the past few years. An agent must be asked to disclose the fund's fact sheet for at least a three-four-year period.
Priya Kapoor
http://www.blonnet.com/iw/2007/06/10/stories/2007061001011300.htm
Priya Kapoor
A look at the types of Unit Linked Insurance Plans, how they work, and what the subscriber ought to look out for.
Till recently, individuals seeking to provide protection to their family had no other option except a life insurance term plan. The plan promised a stipulated amount to the family of policyholder in the event of his death.
However, the insurance sector has evolved over the last few years and a number of innovative products have hit the market. One product category that is increasingly catching the fancy of individuals is the Unit linked Insurance Plan (ULIP). These plans, a combination of insurance and investment, provide the policyholder with life cover and additionally offer the opportunity to earn a return on the premium paid.
How ULIPs work
ULIPs work on the lines of mutual funds. The premium paid by the client (less any charge) is used to buy units in various funds (aggressive, balanced or conservative) floated by the insurance companies. Units are bought according to the plan chosen by the policyholder. On every additional premium, more units are allotted to his fund. The policyholder can also switch among the funds as and when he desires. While some companies allow any number of free switches to the policyholder, some restrict the number to just three or four. If the number is exceeded, a certain charge is levied.
Individuals can also make additional investments (besides premium) from time to time to increase the savings component in their plan. This facility is termed "top-up". The money parked in a ULIP plan is returned either on the insured's death or in the event of maturity of the policy. In case of the insured person's untimely death, the amount that the beneficiary is paid is the higher of the sum assured (insurance cover) or the value of the units (investments). However, some schemes pay the sum assured plus the prevailing value of the investments.
Key types
There are various unit linked insurance plans available in the market. However, the key ones are pension, children, group and capital guarantee plans. The pension plans come with two variations — with and without life cover — and are meant for people who want to generate returns for their sunset years.
The children plans, on the other hand, are aimed at taking care of their educational and other needs. The Children's Dreamz Plan offered by Birla Sun Life Insurance and Young Star offered by HDFC are good examples of unit linked children plans.
Apart from unit-linked plans for individuals, group unit linked plans are also available in the market. The Group linked plans are basically designed for employers who want to offer certain benefits for their employees such as gratuity, superannuation and leave encashment.
The other important category of ULIPs is capital guarantee plans. The plan promises the policyholder that at least the premia paid will be returned at maturity. But the guaranteed amount is payable only when the policy's maturity value is below the total premium paid by the individual till maturity. However, the guarantee is not provided on the actual premium paid but only on that portion of the premium that is net of expenses (mortality, sales and marketing, administration).
Market-linked returns
Though there are various benefits attached to buying a unit linked insurance product, the return on the ULIPs is directly linked to the performance of the stocks or bonds it invests in. An individual must remain prepared for bullish as well as bearish market conditions. Gaurav Mashruwala, a certified financial planner, says, "Usually people consider a scenario of the market going up while buying Unit Linked Insurance Plans. However, it is important to look at the other side of the coin too. If the market goes down, the fund value will also decline. Individuals easily give in to the illustrative returns presented by the sales person, projecting a 6 or a 10 per cent growth in the years ahead. What if the market crashes? This aspect has also to be kept in mind while parking money in Unit plans".
(The author is a Faridabad-based freelance writer.)
http://www.blonnet.com/iw/2007/06/10/stories/2007061000961300.htm
What to check out
Every individual needs to ask his/her advisor the following questions before investing in a ULIP.
What are the total expenses charged?
If an individual is keen on making money through ULIPs, it is important to know the various expenses the policy entails. The charges, meant to recover various costs, eat into the returns of the policyholder. Therefore, before buying a ULIP, an individual must ask his advisor to provide him with two concrete numbers. One, the value of the fund at the end of the term, without the impact of charges, and, two, the value of the fund after deducting charges. The fund with a wider gap between the two is the more expensive one.
How much of the premium would be actually invested?
In ULIPs, the whole of the premium you pay is not invested. The insurance company offering the product usually deducts certain charges from the premium money and invests only the balance. It is necessary to know from the advisor what proportion of the actual premium would be used for making investments, as the returns would be made available on the net premium (premium less charges) and not what the investor shelled out.
What would be my life cover?
Insurance policies are meant basically to provide you with a life cover. Though ULIPs combine insurance and investments in one product, an individual must be aware of the extent of protection that a policy offers and the number of years of life cover provided.
How is the premium allocated?
Allocation is another very important factor that cannot be overlooked. The individual should ask the agent to provide details of how assets will be allocated between different classes — equity, debt and cash.It is not enough to opt for an aggressive growth fund, you should know the exact percentage of equity and debt in it. The allocation would determine the returns you can expect from your chosen fund.
What is the ULIPs' track record?
The most significant question, however, is about the product performance. An individual must opt for a fund that has shown consistently good performance over the past few years. An agent must be asked to disclose the fund's fact sheet for at least a three-four-year period.
Priya Kapoor
http://www.blonnet.com/iw/2007/06/10/stories/2007061001011300.htm
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