Saturday, November 20, 2010

Carbon Trading

After the Kyoto Summit, all the developed countries agreed to limit their emission level and if not they have to pay a price for their emission. Here the carbon trading comes to ply. The main idea behind carbon trading is to curtail the emission levels of each country and give monetary benefits to the countries with low emissions. As the developing countries can start with clean technologies they will get more monetary benefits from the developed countries.

          For example if a company in India cuts X tones of carbon, it can sell this much amount of points to a company which is emitting carbons in the developed country. The World Bank itself is the monitoring authority.

                Hence carbon trading allows carbon emitting industries in the developed countries to set of their emissions by investing in a large scale mass reforestation projects in the developing countries to nullify their emission. 100000 hectares of forest can eliminate one million tons of carbon in a year from the environment.

                The calculation is very simple. Half of the trees dry weight is carbon. The amount of carbon stored by the trees is calculated from their volume (the volume is calculated the height and the area of cultivation of forest).From the volume the dry wood is calculated and from this carbon proportion is estimated. These projects not only directly fetch money but also indirectly give social, economic and environmental benefits to the developing country.
                India is the second largest country after china. India has generated 30 million carbon credits and expecting 140 million credits in the long run. Around thousand carbon credit projects have already started and around two hundred new projects every year added every year.
                Presently, carbon credit from thermal projects gives 7 to 8$ in the international market. Now NCDEX  is to commenced carbon trading in Indian market. Carbon trading is one of the fast growing volatile market.

Saturday, October 23, 2010

Are ULIPs Good Investments?

The unit linked Insurance plans are simply called ULIP. ULIP are financial instruments which will give a term insurance coverage and, investment in stocks  In ULIP, the premium paid by investor goes to two separate investments. One goes for your insurance and the other goes for the investment in stock market. The insurance part consumes less amount and the investment plan consumes more amount. But, in the first year, a major portion of the premium goes to insurance companies as administrative costs which includes the commission paid to the Agents.
So, in the first year, a major chunk of the premium goes to the company and a small amount of the premium is invested in stocks and a small portion is taken for the term insurance. From second year onwards, the administrative costs will be reduced substantially and the balance will be used for investment in stocks and also for the insurance.
If the premium is paid for a long period, at the end of the maturity, one will get a good return. Will this investment option get benefit to the investors? Stock market investments are destined to give good results in the long term, say, more than 10 years.
But people attracted to these plans only during bull market. Their investments get eroded in the next bear market. Now they get confused whether to hold or get rid of it or to invest more. As I said earlier, stock market are bullish in the long term, always, and it will give good results in the longer run. So if an Investor continues his investments even in bear market surely investment in ULIPs will be beneficial.

Monday, October 11, 2010

Is the Indian Stock Market topping out?

     The Indian Stock Market bench mark Index Sensex has scaled 21150 on January 2008 and it followed by a big crash and by October 2008, it tested a low of 7700, a level achieved in just 10 months. Stock Market crash was followed by economic slow down. The Indian Economy which was growing around 8% at that time, saw a downturn in its GDP growth.

     Now the same Bench mark Index Sensex is trading well near its all time high of 21150. When Sensex was trading in 2008, its PE ratio is 21. It was at that time a high Price to Earnings ratio. Historically when ever Sensex trades above the PE ratio of 20, it tops out.

    Now, with Sensex trading above 20000, already the PE ratio has crossed the 21 mark and it is trading well above that. Fundamentally, a top has to form around this level. Technically speaking, a double top formation is a possibility. Technical and Fundamental indicators point to a top at this level. Sentimentally, euphoria is seen in stock market circles. The continuous flow of FII funds in the market is boosting the sentiment. The bullish sentiment has reached the levels that was seen in January 2008.

    I feel it is the right time to withdraw the funds from stock market. With everything getting saturated, a bullish sentiment alone cannot take the market further. So a correction is going to be there in the near future.

    Protect your capital and don’t get sucked into the crowd. Beware, in stock markets, crowd is always wrong.

Monday, September 20, 2010

Will a ban on outsourcing Save US from recession?

The Obama Administration in USA has slapped service tax on companies which are outsourcing to other countries ( mostly to India ), in order to bring jobs back to USA and to improve the business conditions in USA. The Indian Software and BPOs are likely to suffer in the future, if the US companies stop outsourcing from India.
Will this act stop US from going into recession? If this is the question, then the answer would be good ‘NO’. The Global Economies suffered a setback in 2008 because of the crash in the stock Markets world over. The stock Market Crash has jolted the US and European Economies in particular.
Ever since the crash, the Asian and South American Economies improved and their Stock Markets rallied to their 2008 levels. But the US and European Economies seen little improvement and their Stock Markets rallied but not to the level which it was seen in 2008 January.
Since Stock Markets in these countries never rallied much, the liquidity, business confidence, job conditions have not improved. This percolates into their Economies which in turn is looking weak right now. Banning Outsourcing by the US companies in no way going to improve their economy.
Actually, it is likely to impact badly their economies in the Future. The performance of the US Companies depends upon the cost cutting measures they are taking. Stopping outsourcing will surely increase the working cost and it will be reflected in their bottom line.  A weak performance of these companies will further dampen the US Economy.

Saturday, September 4, 2010

Gold is likely to top in 3 months

Gold, it seems it is likely to be topped out in coming months between 1250 and 1300. Technically speaking, since 2006 Gold is in a expanding pattern. The first top formed on 2006, followed by the next on 2008 and the present top is likely to be formed on 2010.
In a expanding triangle, the first upside leg is followed by a first downside correction and it will be followed by the second upside leg by the second downside leg. The second upside and downside will be bigger than the first upside and downside legs. The third would be bigger than the second one.
The present technical setup of Gold shows, it is in the third upside leg and it is likely to be followed by a third downside leg and it would be the big downside in last 4 years since 2006. If that happens then Gold is likely to fall towards 900 USD in another 1 year.
Any market has see a bull and bear market. We have already seen bull market. So surely there will be bear market in Gold also. No one can take the rally in Gold as granted. Investments in Gold and related products should be avoided at this juncture.