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					                                                                                                              August 10, 2009




   Sell-dom!!!
   Co-contributed by : Raunak Onkar | raunak@ppfas.com & Abhir Pandit | abhir@ppfas.com


                                                                    has done sensationally well in his career working for a large
                                                                    corporation & earning big money. Now the analogy kicks in
                                                                    which can be seen in comparison to really well performing
                                                                    stocks. Under such circumstances, would we cancel our
                                                                    contract with this really well performing classmate of ours
Why do some investors romanticise about the idea of                 by thinking that he has gotten ahead of the market & its time
market timing? Why does it seem so bleeding obvious to              to cut a similar deal with some other classmate who would
some, that they are gifted with a foresight of when the             show us similar prospects over the next ten years?
next bottom or the top of the market will be reached? Is it
the belief that successful investing is born out of expert          In the same way, if we know the stocks that we hold, equally
market timing?                                                      well, many arguments for selling superb performing stocks
                                                                    sound to be inconclusive. Even the analogy is incomplete,
In the lieu of the current market rally, investors often            since classmates have a life expectancy but companies
wonder, is this the time to sell? Is this the new peak?             don't. They go on till perpetuity. So to summarize the
Reflecting on Fisher & on his seminal chapter of “When to           argument, a quote from the man himself:
Sell” he expresses three & only three reasons to sell;

1) Errors in the investment case
2) Reasons to purchase are no longer applicable
3) Availability of better bargain

Although these are ingeniously obvious, optimism in the               Reverse Mortgage
market might make one lose his focus. We remember
ideas better when we associate them to a particular                   Ashish Shah | ashish@ppfas.com

analogy.
                                                                    Mr & Mrs Mehta, aged 70 and 69, respectively, stay alone in
Fisher, mentions an analogy about “we” being college                their South Mumbai apartment. They have a son who is
graduates, on graduation day, find out that each                    settled abroad. Mehta retired 10 years ago. He invested his
classmate is in dire need of cash & each one offered us             retirement proceeds and life savings in a mix of deposits
the same deal. The deal is, “if we would give them a sum            and small-saving schemes. But rising medical bills have
of money equivalent to ten times whatever they might
                                                                    run down his capital and his income is falling every year. Mr
earn during their first twelve months after they had gone
                                                                    Mehta does not want to borrow from his son. He wants to
to work, then that classmate, for the remainder of his life
turns over to us, one fourth of each year's earnings.”              use his flat to earn income, but does not want to keep a
Possibly we love the idea but have cash sufficient to fund          paying guest for security reasons. If he rents it out, he will
only 3 of our classmates.                                           have no place to go. Reverse mortgages can be a life saver
                                                                    for the Mehtas.
We immediately start analyzing our classmates, not on
the basis of how talented they are, but on the basis of how
                                                                    If you haven't been able to accumulate adequate money by
much money they can make. If we were part of a large
                                                                    retirement but own property that has substantial value,
class we would eliminate many classmates on the basis
of not being able to judge their financial proficiency in the       taking a reverse mortgage on that property could be a last
coming years.                                                       resort to fund your retirement. This option is yet to catch on
Eventually we pick those classmates who we believe to               in a big way in India but, over time, it may be one more
have the greatest future earning power. A deal will be              option available in the retirement years. A lot of people use
made & we allow ten years to pass by. One of those three            it in developed countries to generate cash flow.

                                                                                                                             1
                                                                                                            Reverse Mortgage

Reverse mortgage as its name indicates operates in a manner opposite to that of the typical mortgage such as a home loan.
In a typical mortgage, you borrow money in lump-sum right at the beginning and then pay it back over a period of time. In your
payback -- the EMI -- a portion goes towards paying the interest and the remaining goes towards paying back principal. All
along, you pledge the asset -- namely the home you have bought with the loan -- to the bank. This asset is the security
against which the bank is lending to you. In reverse mortgage, you pledge a property you already own (with no existing loan
outstanding against it). The bank in turn gives you a series of cash-flows for a fixed tenure. These can be thought of as
reverse EMIs. The owner gets to stay in the property along with his/her spouse for their lifetime. Thus, the owner can ensure
a regular cash flow in times of need and enjoy the benefit of staying in the property. When availing reverse mortgage loan the
borrowers should remain independent as reverse mortgage allows them to remain in the house and also retains their
ownership. The money they get from reverse mortgage can be utilised for anything they choose say like for meeting day to
day expenses or for paying for home improvements or for health care expenses or for repaying any existing debts. After the
time of loan is over, the bank may either, acquire the property and give the remainder to the customer's heirs or they can pay
back and keep the property. The reversed mortgaged property can be willed and the legal representative should be willing to
take the responsibility of paying the entire loan amount with interest on death of the borrower. But if the legal heir or
representative does not wish to do so the lender may sell the properties mortgaged and recover the loan amount and give the
surplus if any to the legal heir.


Who are the persons eligible for reverse mortgage?
Any individual, above 60 years of age or any married couple with either husband or wife above 60 years of age, who are
?
  citizens of India, will be eligible senior citizens.
The borrower should be the owner of the property with a clear title of the self-occupied, self acquired residential property
?
  located in India.
The residual life of the property should be at least 20 years. He should use the residential property as a permanent
?
  primary residence.
Reverse
? mortgage is not available for commercial property.
The arrangement will be available to those above a specific age, say 60 years.
?


Issues
The amount paid out each month is for a specified time. The risk of the individual outliving the agreement is very much there,
but it does not mean that the individual will have to vacate the house. Only the monthly payments will stop. One has to plan
for such a scenario in the decision-making process.


Payout
There are three crucial terms that determine the payout — the property value, the term of the payout and the rate. Variation in
each of these items can affect the payout. The property will be evaluated by professionals, and revalued after a certain
period of time and payments changed accordingly.


The loan amount is based on the market value of the property, age of the borrowers and the prevailing interest rate. The
quantum of loan may between 40 per cent of the assessed market value of the property for borrowers in the age group of 60-
65 years and 60% of the assessed market value of the property if the age of the borrower is above 75 years.


Where does a senior citizen go for such a loan?
Reverse mortgage loans are to be extended by primary lending institutions. These are scheduled banks, besides housing
finance companies registered with the National Housing Bank and other institutions, which may be notified by the
Government.


Loan to value ratio
Most loans against property work at 60% loan to value ratio -- i.e. by pledging a Rs 1 crore (Rs 10 million) property, you can
get a Rs 60 lakh (Rs 6 million) loan. Some banks are however designing reverse mortgage products with a higher loan to
value ratio -- as much as 90% in some cases.


                                                                                                                          2
Weekly Report                                                                                                                                                                        PPFAS Ltd.

  Local Equity Market                                                                                       Top Gainers & Losers of the Week
  INDICES                      10-Aug-09 Week Ago % Chng                    Month Ago % Chng                Top Gainers                                            Aug 10, 09           % Chng
  Sensex                        15,332.3         15,924.2          (3.7)       13,504.2            13.5     Federal-Mogul Goetze (India) Ltd.                               88.80         27.77
  Nifty                           4,533.1         4,711.4          (3.8)         4,003.9           13.2     Uttam Sugar Mills Ltd.                                          63.20         27.29
  CNX Nifty Junior                8,350.3         8,646.4          (3.4)         7,208.0           15.8     Welspun India Ltd.                                              49.85         26.52
  S&P CNX500                      3,714.1         3,823.8          (2.9)         3,244.9           14.5     Hindustan Oil Exploration Co. Ltd.                         181.10             25.81
  CNX Midcap 200                  5,895.1         6,051.5          (2.6)         5,152.3           14.4     Sakthi Sugars Ltd.                                              75.55         24.46
  CNX IT                          4,341.2         4,380.2          (0.9)         3,423.6           26.8     Agro Tech Foods Ltd.                                       181.75             22.76
  International Equity Market                                                                               Prism Cement Ltd.                                               53.45         19.98
  INDICES                      10-Aug-09 Week Ago % Chng                    Month Ago % Chng                India Glycols Ltd.                                              96.35         14.70
  DJIA                            9,370.1         9,286.6             0.9        8,146.5           15.0
  Nasdaq                          2,000.3         2,008.6          (0.4)         1,756.0           13.9     Top Losers
  S&P 500                         1,010.5         1,002.6             0.8          879.1           14.9     B L Kashyap & Sons Ltd.                                    312.50            (13.13)
  FTSE 100                        4,731.6         4,682.5             1.0        4,127.2           14.6     Suzlon Energy Ltd.                                              86.95        (12.88)
  Nikkei 225                    10,505.5         10,352.5             1.5        9,287.3           13.1     Adani Enterprises Ltd.                                     728.35            (12.25)
  Hang Seng                     20,823.6         20,807.3             0.1      17,708.4            17.6     Divi's Laboratories Ltd.                                   475.00            (11.39)
  HSCEI                         11,849.0         12,368.2          (4.2)       10,574.4            12.1     Axis Bank Ltd.                                             814.65            (11.18)
  MSCI Indices                                                                                              Crest Animation Studios Ltd.                                    30.00        (10.71)
  MSCI Indices                 10-Aug-09 Week Ago % Chng                    Month Ago % Chng                Ashok Leyland Ltd.                                              32.65        (10.55)
  The World Index                 1,063.2         1,065.6          (0.2)           934.8           13.7     Agro Dutch Industries Ltd.                                      10.70        (10.46)
  Emerging Market                   852.9            864.7         (1.4)           723.1           18.0
  EM Asia                           352.4            360.6         (2.3)           304.5           15.7     Sectoral Performance
  EM India                          386.8            407.7         (5.1)           331.2           16.8     Sectors                                    Week            Month         3 Months
  Commodities                                                                                               Solvent Extraction                           10.9                51.3            69.9
  Commodities                  10-Aug-09 Week Ago % Chng                    Month Ago % Chng                Sugar                                          9.5               26.9            63.8
  GOLD ($/oz)                       955.6            956.8         (0.1)           913.1            4.7     Textiles - Cotton                              6.3               36.3            80.0
  SILVER ($/oz)                       14.7               14.3         2.8            12.7          15.6     Textile Products                               5.0               22.1            53.6
  ALUMINIUM ($/t)                 2,020.0         1,970.0             2.5        1,572.0           28.5     Oil Exploration/Production                     4.9               45.6            82.8
  COPPER ($/t)                    6,150.0         6,000.0             2.5        4,858.0           26.6     Tea And Coffee                                 4.9               20.8            35.5
  CRUDE – BRENT ($/bbl)               73.9               73.6         0.5            60.7          21.8     Petrochemicals                                 4.1               29.2            48.4
  CRUDE – WTI ($/bbl)                 71.1               71.6      (0.7)             60.9          16.8     Textile Machinery                              3.6               23.4            53.5
  Tranportation                                                                                             Compressors / Pumps                            2.9               13.9            51.5
  Tranportation                10-Aug-09 Week Ago % Chng                    Month Ago % Chng                Computers - Hardware                           2.8               15.7            32.7
  World SCALE                         40.0               36.0     11.1               37.5           6.7     Diesel Engines                                 2.8               24.3            52.3
  BALTIC FREIGHT INDEX2,772.0                     3,251.0        (14.7)          2,985.0           (7.1)    Textiles - Synthetic                           2.4               33.3            66.6
  Forex                                                                                                     Auto Ancillaries                               2.2               34.7            56.0
  FOREX                        10-Aug-09 Week Ago % Chng                    Month Ago % Chng                Aluminium                                      1.7               21.5            38.8
 USD                                  47.7               47.6         0.1            49.0          (2.7)    Packaging                                      1.6               14.2            40.2
 GBP                                  79.7               80.6      (1.2)             79.4           0.3     Plastic And Plastic Products                   1.6               23.2            55.4
 EURO                                 67.7               68.6      (1.4)             68.3          (0.9)    Chemicals - Inorganic                          1.6               20.2            34.7
 YEN                                  49.0               50.0      (1.9)             52.9          (7.4)    Refineries                                     1.1                9.3            32.7
  Global Listings                                                                                           Refractories                                   1.0                  -               -
                                                  Week          Month Premium/D Share per                   Castings/Forgings                              0.7               46.5            53.6
  Scrips                       10-Aug-09
                                                  Chng           Chng    iscount ADR/GDR
  Infosys ADR                       43.58         (1.80)        23.45      1.86%    1
                                                                                                                      Inflation (%)                       10 year G-Sec Bond Yield
  Wipro ADR                         15.36          1.59         31.59         46.52%           1
  ICICI Bank ADR                    31.62         (4.76)        27.45           2.12%          2            18-Jul    25-Jul       1-Aug   8-Aug                                7.28%
                                                                                                                                                          6.05% 2019
  Satyam ADR                          5.52         2.22         42.48         28.25%           2
                                                                                                              -1.17        -1.21
  HDFC Bank ADR                     98.45         (2.65)        10.10         12.54%           3                                                                                7.21%
  MTNL ADR                            4.20        (4.33)        17.07           4.07%          2
  Dr. Reddy ADR                     16.79         (1.98)         7.06           1.64%          1
  Reliance GDR                      84.80          0.59         14.38           1.18%          2
  ITC GDR                             4.00           -            -          -16.94%           1                                                          7.03%
                                                                                                                                                                        7.05%
  Ranbaxy GDR                         5.62        (3.10)        15.54           2.64%          1
  L & T GDR                         31.60         (2.77)        15.29           2.74%          1                                           -1.58          18-Jul   25-Jul    1-Aug   8-Aug
                                                                                                                             -1.54

                                                                                            DISCLAIMER
This report does not constitute or form part of, and should not be construed as, any offer of sale or a solicitation to buy any security.The information contained herein is from sources believed
  to be reliable, but no representation or warranty, express or implied, is made to its accuracy. PPFAS and/or its clients may have positions in the securities mentioned in the report and may
                                                                  offer to buy, sell such securities or any related investments.
                    130/132,Great Western Building,1st Floor,S.B.Marg,Near Lion Gate,Fort,Mumbai-400 023. Tel : 91-22-2284 6555 Fax : 91-22-2284 6553,e-mail :
                                                                                researchcall@ppfas.com

				
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