Share Buyback by Companies

Buybacks are suppose to enhance the shareholder value by decreasing the equity base. Such reduction boosts the return on equity and the price-to-earning ratio.

Share buyback refers to buying back its own shares by a company. In India comapnies can buyback their shares using the accumulated reserves they have.

Buybacks can be either (1) Tender offer or (2) Open market offer.
In tender offers the company commits itself to buyback fixed number of shares , it can be at a fixed price or auction based.
Auction based can again be either a book-building process or a reverse book-building process. In a book building process the process starts from the highest bidder. In the reverse book building it starts from the lowest bidder. In both the cases the cut-off point is where the quota of the shares to be bought has exausted.

Under Open market buybacks the company announces a "maximum price" limit for re-purchasing of its shares. It has no commitment. Hence at what price, date, and quantity of shares will be bought is at company's discretion.

Can the other states do the Gujarat way?

In one of Arun Shourie's interview he tells us the secret behind the massive industrial growth in Gujarat.
Under Narendra Modi's rule - as a succesful experiment - they do all the work at the site, they prepare the site, do all the ground work, obtain all the clearances on the project and then auction the project.

I wonder why the Government can't make it a national approach for rapid industrial growth; instead of leaving everthing to the individual setting up the industry. A lot of projects get delay because of the individual 's character seeking the clearance for setting up the industry.

Banking sector looking strong!

Banking looks extremely solid on the charts. While the market has corrected in the last two weeks, if you look at the banking stocks or banking index, they have been sideways - which tells you that there is accumulation taking place in the banking space.
There is a strong possibility for the stocks in this sector to move up substantially in the coming months.

Railway Budget on 3rd July 2009

With the Rail budget due on the 3rd July - 10 days to go - the rail stocks have already started buzzing!
Rail stocks like "Kalindee Rail" is already up 10% in a single trading session. Titagarh Wagons is up 5% in a single trading session.

Could this mean that with lot of reforms expected the Infra stocks will buzz before the budget on 6th July?

To what levels can the NIFTY drop before the budget?

Markets are currently in a short trading range of 4200 to 4450. A strong support for the NIFTY is the 4,000 and 4,100 levels.
The 4000 level on the NIFTY is a psychological number and the breakaway gap which was seen post-elections.

In the event 4200 breaks, a strong support should be seen at 4000 level.

Should you look at "Cash Flow" statement before investing in a company?

We all look at the Profit & Loss statement and the Balance sheet of a company; but have we wondered how "Cash Flow" statement can be important?

What is a Cash Flow Statement?
It is one of the quarterly financial reports any public ltd company is required to disclose to the public. The document provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investments, as well as all cash outflows that pay for business activities and investments during a given quarter.

Why is Cash Flow needed? (Importance of Cash Flow statement)
Because public companies tend to use accrual accounting, the income statements they release each quarter may not necessarily reflect changes in their cash positions. For example, if a company lands a major contract, this contract would be recognized as revenue (and therefore income), but the company may not yet actually receive the cash from the contract until a later date. While the company may be earning a profit in the eyes of accountants, the company may, during the quarter, actually end up with less cash than when it started the quarter. Even profitable companies can fail to adequately manage their cash flow, which is why the cash flow statement is important: it helps investors see if a company is having trouble with cash.

Is deflation a concern for India?

June reported a deflation or an inflation at -1.6%. Its the first time it turned negative since 1978. Is it a concern for the Indian economy?

India does not suffer from any demand constraint so there should be no concern about deflation.

Firstly, there are number of variables for setting up policies with respect to inflation - WPI (wholesale price inxed), CPI (consumer price index), GDP deflator, inflation expectations, seasonally adjusted inflation trends.

Even as WPI is negative there are still many primary articles, food articles where inflation is still significant. Oil prices would be firming up as well.

Does falling inflation means falling prices?

Since last year, inflation has been making headlines sometimes for breaching a high of 12%, hitting new lows or becoming zero. The common misconception during this period was that when inflation falls, prices would fall. That however, is not true. Falling inflation rates doesn't mean falling of prices, it only implies that the rate at which the prices of goods are growing is low.


So when do prices really fall? The answer is when the inflation turns negative or a deflationatory situation. Inflation for the first time turned negative touching -1.6%. What this means is that prices in this week have fallen by 1.6% as compared to the same time last year.

Inflation is the rate of change in prices. So if the inflation is 10%, it mean prices are growing at 10%. If the inflation drops to 2%, it means prices are increasing at 2% instead of 10%.

When the inflation turns negative, you can see actual fall in prices. So, now that inflation has become negative, you will see the actual fall in prices.

Will Sensex touch 19500 or 21000 after Budget on july 3rd?

History indicates sensex posts negative returns for the one month after Budget. could it be different this time after July 6?

Foreign institutional investors (FIIs), insurance companies and brokerage companies expect the Finance to deliver a reform-oriented budget that will incorporate tax cuts, fiscal consolidation, a divestment programme and infrastructure spending. In that bullish scenario , the market may repeat the 1992 performance when sensex vaulted 34% in one month post-budget ...

“This budget in many ways will be a landmark budget. We are likely to see a judicious mix of developmental initiatives as well as economic reforms that should provide the right impetus to the economy. Stability of government and a developmental agenda will fuel further government spending and this will fire up another engine of GDP growth".

FIIs also seem bullish. “We have to make an assumption ahead of the Budget as we did with the election result. Therefore, we expect the finance minister to deliver a solid reformoriented budget. The election results almost immediately improved the outlook for capital flows".

Govt considers divesting 10% in BHEL

Will BHEL surge up with the disinvestment program?

Vilasrao Deshmukh, Minister for Heavy Industries, today presented the 100-day agenda for his ministry. Besides other things, he hinted at disinvestment in various public sector undertakings. He also expressed that the ministry was considering disinvesting up to 10% in BHEL.

The minister’s talk on disinvestment was a stand out feature. He expressed that the ministry was considering disinvesting upto 10% in BHEL. He also said that BHEL was in the process of signing a memorandum of understanding (MoU) with the Madhya Pradesh government for a 1,600 mw power unit.

Sebi scraps entry load for MFs

Will it attract more retail investors to the market?




Mutual fund investors have a reason to cheer. There will be no entry load on any mutual fund schemes from now on. Distributors will now have to disclose commission for schemes. In a landmark move, mutual fund investors will now decide on the commission payable to distributors.