Social Networks for Investing - Make money?

I've recently been part of a discussion around the social networking space and investing. In fact we have a very early Facebook application on hot or not stocks application that has drawn a lot of interest. We are finishing our version 2 fantasy stock picking application which will be ready by the first week in May.

The discussion has been around how social networks and investing can work together. As one reader has commented, "This is an interesting question - on a theoretical level, supporting open and transparent markets through a social netoworking flow of information would appear a laudable goal. However, aside the regulatory issues already raisedin other answers (and which are truly non-starters), there are a number of reasons why a single unified "ecosystem" of information is not likely to emerge anytime soon."

I am not an attorney but the regulators should not be getting involved in any peer to peer communication or investment decisions. My right to information from my network is my right and should not be regulated. Moreover, if I am simply measuring how my network responds to information in the public marketplace then how is that different than traders on the floor?

I think a social network play in the investment world will happen. It's a matter of defining an eco-system that works for all investment participants. It's also an eco-system that can level the playing field for te average investor that does not have the resources of the major investment houses. Also, one's network may have more actionable information at the ground level of a company (may be my network has a lot of employees at Oracle and I know they are selling due to issues with the company) then an analyst does at the big investment houses.

What are your thoughts?

Gurgaon: Preferred destination for institutional investors

By Dr Suvrokamal Dutta

High demand for rental space by multinational firms will continue to drive the commercial property price in Gurgaon. Theoretically speaking, the IT-hub Gurgaon is about fifteen kilometer from New Delhi’s airport, which makes the city more convenient for the frequent business travelers and global investors.

According to experts, with a healthy and hi-tech business environment, Gurgaon gives fully furnished offices and quality space for corporates. No doubt, the coming up of world-class business centers is also playing a prominent part in attracting the MNCs in a big way.

The best part about Gurgaon is that multinational companies setting there office do not have to bother about number of services such as security, investment in interiors, Internet connectivity, utilities, internal housekeeping, besides electrical and AC provisions.

In general, Gurgaon is one of the India’s major outsourcing hubs, housing multinationals such as Agilent, Alcatel, American Express, British Airways, Genpact, HCL technologies, Nokia, Pepsi and lot more.

If one take into account the recent Colliers International’s “Property Market Report”, the first quarter of this year witnessed a supply of 1 million sq ft Grade A space with 50 percent of its contributed by Noida and the rest by Gurgaon and Jasola. In the first quarter of this year, Gurgaon witnessed an increase in price of 20-30 percent on quarter on quarter basis caused mostly by the demand for legal commercial spaces that emerged from sealing drive.

Few recent developments clearly prove the point that Gurgaon still holds the position of the face of real estate revolution in the India. In order to offer comfort to commuters between New Delhi and Gurgaon, union minister of road transport and highways and chief minister of Haryana recently opened to traffic the flyovers at IFFCO Crossing and South City junction on NH-8 in Gurgaon, recently. These two flyovers will ensure a smooth ride to commuters.

It is worth mentioning in this regard that the whopping Rs 8,500 crore infrastructure investment in upgrading the Delhi international airport, India’s first integrated domestic and international airport, has also brought movements in real estate prices in the vicinity including Gurgaon, which witnessed a 10-15 percent increase in real estate prices.

All in all, one can safely say that Gurgaon is the most preferred destination for actual occupiers of the office, business centres, retail and institutional investors.

India Stock Market Traps

Disclosure

In my disclosure document, I have mentioned that:

“Investing or trading in stock markets is a high risk activity. Those who cannot afford to risk their money should refrain from dealing in stocks.”

This may be called a standard clause in any disclosure, but there is a reason behind it.

Technical analysis, like any other science, has some limitations. One good example will be the weather forecast. “The chances of precipitation is 40%” may be the forecast, if it doesn’t rain, the meteorological department can’t be blamed.

Similarly the technical analyst can’t be held if things turn the other way around.

We shall discuss about classic stock market “traps”. To understand this easily, a little bit of introduction to Elliot wave theory is essential.

Ralph Nelson Elliot believed that price movement of stocks could be predicted by observing and identifying a repetitive pattern of waves. He thought that “action” is followed by reaction. There are five waves in the direction of the main trend followed by three corrective waves (a "5-3" move).

The underlying 5-3 pattern remains constant, though the time span of each may vary. The basic pattern is made up of eight waves (five up and three down) which are labeled 1, 2, 3, 4, 5, a, b, and c on the chart. Waves 1, 3, and 5 are called impulse waves. Waves 2 and 4 are called corrective waves. Waves a, b, and c correct the main trend made by waves 1 through 5.

Technically, a “buy” signal will be generated when the high of wave 1 is breached by wave 3. Similarly, when high of wave 3 is breached by wave 5 we get a buy signal. During a downtrend when the low of a particular wave is broken, we get a “sell” signal. This is the normal chart pattern and reliable trading strategy.

What can go wrong with this strategy? First let us see the bull trap.

Bull trap:

Sometimes a stock may break its important resistance zone and create a buy signal as discussed earlier. However, it may fall back again back to its support levels instead of going up further. Those who entered into the trade after the breakout will be stranded as the stock keeps falling.

As the stock breaks resistance, many traders may add to their existing long positions or create new long positions. Those who were short on the market will be forced to cover up their positions. The bears, however, may sell huge amount of stock at this level to force the price back to its supports. The supply for the stock may overcome its demand, so the fall becomes very quick. Those traders without an exit strategy will find themselves at big losses in the long positions. In such a situation, a “stop loss” strategy or an acceptable loss will minimize the risk to the bulls.

Let us see the daily chart of Bharat Earth Movers Limited (BEML) last year.

The stock fell from a high of 1080 on 14.07.06 to a low of 790.05 on 26.07.06. Then an uptrend started. It reached a high of 1055. Again a corrective decline started to a form a low at 868. In other words, a higher low has been formed on this occasion.

http://groups.google.com/group/theindiastreet/web/BullTrap.JPG

The stock broke the resistance at 1080 on 27.10.06. However, it didn’t last long. After six trading sessions, stock fell to 1077, or below its previous resistance. It continued to fall and even broke its support trend-line. The up-move followed after that was short lived; once again the bears were in action. The stock came down to a low of 885 or almost the previous support. Those who entered after the breakout were left with losses in their trading accounts. This is a classic “bull trap”.

Bear Trap:

This is simply the reverse of the bull trap. When the stock breaks an important support level, traders get a sell signal. Traders may initiate fresh short positions or may add to their existing short positions. However, the bulls push the stock vigorously by aggressive buying. The stock breaks the previous resistance and goes up higher. As a result the bears find themselves to be the losers.

Bear trap can often lead to a big upward move due to the number of buyers attempting to buy the stock. Some buyers will see a big surge in volume and get attracted to the potential for quick profits, which helps deplete any supply quicker. Some others see that the short sellers are in trouble, they will enter the market and buy as much stock as they can to produce losses for the short sellers. Once the shorts have a position moving against them, they become overrun by fear and start to buy back their shares quickly to limit their losses.

Let us examine the daily chart of Indian Petrochemical Corporation Limited (IPCL) below:

http://groups.google.com/group/theindiastreet/web/BearTrap.JPG

This stock fell from a high of 322 on 17.10.06 to a low of 226 on 07.03.07. Watch the resistance line and horizontal supports. In the process, it broke its first horizontal support and closed below it on 05.03.07. The bears tried to push prices down; stock even broke its next support and closed below it on 07.03.07. But aggressive buying from bulls took the stock to higher levels. Watch the huge buying volume at the bear trap. From a level of 231 the stock has bounced back and closed at 356.40 on 31.05.07. In this case the short sellers are the losers.

Conclusion:

Bull and bear traps can be found on a fairly regular basis on daily charts. These false patterns are important to short term investors because because the profits that follow can be large and quick.

SUNDARAMURTHY VADIVELU

The India Street

Takeover targets and plans of Indian companies

June 10, 2007

Important Disclosure

The information presented in this article highlights some of the news items published in the media about companies planning for possible takeovers. The author is not related to any of the companies, news sources or stock exchanges concerned.

In order to study the relationship between media speculation and market price of a particular company, price charts have been included. This does not, however, mean that the prices have fluctuated only because of the speculation.

The reader shall bear in mind that speculations and rumours always float around in any stock market. It is upto him to verify the genuineness and accuracy of such reports. The author shall not be liable for any consequences whatsoever, present or future, arising from reports that are speculative in nature.

The source for the price data displayed in graphics:

National Stock Exchange of India Limited, Mumbai, India

http://www.nseindia.com/

Charts have been created with FCharts Pro, © Spacejock Software, Australia

http://www.spacejock.com/

Introduction:

In simple terms, “takeover” means a company purchasing or acquiring shares of another company, thereby enabling the acquirer company to get management control over the acquired company. For this purpose, the acquirer shall inform the board of the company to be acquired. If the offer suits the best interests of the board, its directors and shareholders then it may be approved by the company.

In the past, there have been several take overs in India. For example, Tata Steel took over Corus, Anglo-Dutch steel maker in October 2006. Previously the Tatas had taken over Videsh Sanchar Nigam Limited, a telecom major providing long distance and internet services in India. Other examples are Reliance taking over BSES (Bombay Suburban Electric Supply, now Reliance Energy Limited) and IPCL (Indian Petrochemical Corporation Limited).

Let us discuss some recent speculations in the media about possible takeovers.

Computer Maintenance Corporation (CMC):

Earlier it was owned by the Government of India. Tata Sons acquired 51% stake in CMC in October 2001 and the Central Government disinvested its 32.31% stake in 2004. CMC specializes in hardware and software maintenance. After the acquisition it was an independent entity within Tata Group and was maintained by TCS (Tata Consultancy Services.)

During January 2007 some abnormal price movment could be observed in the stock as shown below:

The stock had gone up from 696 on 12.01.07 to 1225 on 17.01.07 on a closing basis (76% jump in just three trading sessions.) It is quite possible to explain this technically. But where from this large “driving force” came?

There were media reports that CMC may merge with TCS. However according to NSE web site, this is not true. In an announcement dated 17.01.07 the exchange said:

“News Verification : The media had reports that CMC Ltd may merge with TCS. The Exchange, in order to verify the accuracy or otherwise of the information reported in the media and to inform the market place so that the interest of the investors is safeguarded, had written to the officials of the company. CMC Ltd has vide its letter inter-alia stated, "We wish to inform you that CMC Ltd does not have any plans or its Board of Directors has not discussed anything related to merger with TCS or any other Company till date."

In another announcement dated 28.03.07 it was mentioned by NSE that:

“CMC Ltd has informed the Exchange regarding the news published in The Times of India dated March 28, 2007 under the heading "Tatas set for TCS, CMC merger" that : "At the Outset, we wish to inform that CMC Limited does not have any plans or its Board of Directors has not discussed anything related to merger with TCS or any other Company till date".

Considering these two statements of the company, we may, for the time being at least, conclude that it was the media speculation that led to such a price rise in CMC. If you have read my previous article, “Sectorwise performance – myth or miracle?” in which we saw how the market moves based on expectations, one may get the impression that there was some news to be heard. However, so far there hasn’t been any.

Hindalco Industries Limited:

Owned by Aditya Birla group, it is one of the 50 index stocks in the S&P CNX Nifty. Aditya Birla group holds 27% stake in Hindalco. Foreign Institutional Investors hold 20% while financial institutions hold 12%. 10% stake is with GDRs (Global Depository Receipts) and the remaining is held by retail investors.

On 12.02.07 NSE web site displayed the following announcement:

Hindalco Industries Ltd. has informed the Exchange on February 11, 2007 that:

"Hindalco Industries Limited and Novelis Inc, the world's leading producer of aluminium rolled products today entered into a definitive agreement for Novelis to be acquired by Hindalco in an all cash transaction at approximately US$ 6 Billion, including approximately US$ 2.40 Billion of debt. Under the terms of the agreement, Novelis shareholders will receive US$ 44.93 in cash for each outstanding common share. The agreement is subject to customary closing conditions, including shareholder and regulatory approvals, and is expected to close by the third quarter of 2007".

What was the market reaction? See the chart below.

On the day the announcement came, the stock had lost 14.13% on closing basis. We can see that the “good news” announced by the company was “badly” received by the market.

On 04.06.07 there were reports that Canadian company Alcan may team up with Sterlite for a hostile takeover bid for Hindalco. The stock was up almost 15 rupees (previous close to high) eventually to settle 4% up at the end of the day on closing basis.

Interestingly, Hindalco itself was rumoured to be in talks with global mining giant BHP Billiton for a joint bid to acquire Alcan earlier. US aluminium giant Alcoa had offered USD 73.25 per share for Alcan on May 7. On May 23, Alcan rejected the USD 27.6 billion takeover bid from Alcoa, which could have created the world's largest aluminium company.

The market reacted very badly to Hindalco’s acquiring Novelis Inc. whereas for Alcan’s possible bid to Hindalco it reacted positively. But experts feel that they do not foresee the deal going through, as it was an Aditya Birla group company and taking over a company of this size and stature would be very difficult.

However nothing can be considered final unless officially confirmed or denied by the company authorities.

Patni Computer Systems Limited:

This Mumbai based software major was among the media speculation last month. On 19^th May 2007 some media reports suggested that Patni Computer Systems are planning to sell 25% stake to IBM. There was another report suggesting that former Wipro vice chairman Vivek Paul was willing to take a stake in the company. The stock probably had already run up expecting some news as displayed in the chart below:

It can be noted that the stock had gone up from 375.40 on 02.04.07 to 514.75 on 17.05.07. When the media was speculating about the stake sale, the volumes were not much; nor the prices were spurting reasonably well. This indicates that the market was probably aware of something happening.

On 22.05.07 NSE web site made an announcement:

“News Verification : The media had reports on May 19, 2007 that Patni Computer Systems Limited IBM may acquire around 25% stake in the company. The Exchange, in order to verify the accuracy or otherwise of the information reported in the media and to inform the market place so that the interest of the investors is safeguarded, had written to the officials of the company. Patni Computer Systems Limited has inter-alia replied. "We wish to clarify that the Company has not received any intimation from any large shareholder to offload any stake to any of the companies referred in the said news article."

The Patni family holds 43.97% stake in the company according to shareholding pattern made available to public on NSE web site. The media speculated that “there were some differences between Chairman Narendra Patni and his brothers Ashok Patni and Gajendra Patni and as a result some senior management people have left”.

Finally the Chairman sent an email to the employees saying that the company had no plans to sell stake to anyone. It also said that the company policy was not to comment on media speculations.

Conclusion:

Media always speculate. It is very hard to find the truth in these rumours. It is the company which is aware of all facts and they do publish them in the media as well as communicate to the stock exchanges as and when it is needed. The investors need to be careful while acting based on media reports.

Takeovers, mergers etc. will have to be approved by the board and will eventually be known to the public officially.

SUNDARAMURTHY VADIVELU

THE India Street

Top 10 Companies, People and Services You Need to Know in Order to Invest Wisely and Safely in India

The India Street has received many requests for information regarding key people or companies that will help foreigners and locals invest in India. I have compiled my own list to better help your investment goals. By way of disclosure, none of these companies or people has compensated The India Street in any way. 1. India Title Insurance: Despite what you may read, there are companies offering title insurance in India. To be clear, the companies offering the title insurance for real estate in India are simply hiring local attorneys to do the research and due diligence investors are doing now. However, the rates are reasonable and the title insurers are experts at determining clear title and finding red flags which the investor may miss. Contacts: LandAmerica International Services Phone: +1-212-220-7002 matkins@landam.com140 East 45th Street, 22nd Floor New York, NY 10017 www.landam.com/international First American Title Insurance Company National Commercial Services

633 Third Avenue, New York, NY 10017 www.firstam.com/ncs NYSE:FAF Tel: 212.850.0618 Fax: 212.331.1476 Email: tgarelli@firstam.com 2. Attorneys While attorneys are a necessary evil in India and throughout the world, there are some legal professionals that add value beyond legal advice. We recommend you find an attorney in India that is knowledgeable about Real Estate, has many local connections, and will refer you to leading industry practitioners. In effect, a business partner. Kusuma Advocates +91 (0) 80 222 66383 No. 101 "Eden Park" Opposite Prestige UB City 20 Vittal Mallya Road Bangalore 560001 India Ronald G. Weitz PartnerTel: 1.214.969.2988 Fax: 1.214.969.5100 E-mail: ronaldgweitz@jonesday.com 2727 North Harwood Street Dallas, Texas 75201-1515 Andrews Kurth LLP 1701 Pennsylvania Av, NW, #300 Washington, DC 20006 +1(202) 662-2756 3. Real Estate Brokers and Advisory Firms As with attorneys, brokers are usually necessary to complete a transaction whether they represent the seller or buyer side. The best deals are found prior to a broker taking the listing, but there are the rare brokers that will provide "tips" to investors in order to secure a pre-listing deal. You will not simply call a broker and expect decent leads, you will have to put the energy in to establish rapport. Remember, these brokers are inundated with requests and try only to work with seasoned professionals or those with promise. Ram T. Chandnani CB Richard Ellis South Asia Pvt.Ltd Head South India Operations 3rd Floor, The Hulkul 81/37 Lavelle Road Bangalore 560001, India T 91 80 4112 1240 ram.chandnani@cbre.com www.cbreindia Anuj Bindal Manager - Global Corporate Services DTZ # 2A Paharpur Software Technology Park 21 Nehru Place New Delhi 110 019, INDIA T +91 11 2620 7108 Mr Karun Varma Associate Director karun.varma@ap.jll.com Mobile : +91 98866 05001 4. India Business Associations The best India businesses associations allow members to network with one another in a professional environment. They are also committed to affect real and positive change in the relationship between India and the rest of the world. One of the best organizations is the USIBC which is partly responsible for the US/India civilian nuclear exchange program, Indian mangoes exported to the US, and Harley Davidson's new foray in India. Ron Somers President United States India Business Council (USIBC) 1615 H Street NW Washington, District of Columbia 20062-200 rsomers@uschamber.com http://www.usibc.com 5. Cheap Phone calls while in India Never use a US based cell phone in India. All of the US based mobile phone service providers seem to have international price immunity because they can charge 2 rupees ($.05) a minute in the US while charging 120 rupees ($3.00) a minute in India. I have seen bills reach $1700 by way of using the mobile in India which would have cost $20 in the US. Buying a local SIM chip doesn't seem to help either. SIM Chips vary in affordability and one has little control over the amount the carrier charges. A good but still not convenient option is to buy a local calling card. The rates are low, but finding a decent landline in India outside the hotels is difficult. The Best option that I have found is Skype. I use a Skype cordless phone with my laptop so that I can walk around the room/office (up to 100 feet). A little USB attachment is plugged into the USB port and viola, it works fantastic. The cost of the Skype service is low ($.02) to the US (free to other Skype users), it's convenient and allows one to make calls in any WIFI zone. 6. Good Tax Strategists Since India is a relatively young country in terms of Foreign Direct Investment (FDI) and foreign investors, special care is needed in this area to protect your gains. Foreign investors can end up paying three times as much in taxes if a carefully planned tax strategy is not implemented. Most FDI compliant funds use Mauritius as their exit route given the long history and special tax breaks between the two countries. However, new routes through Singapore are proving to be easier and safer. ERNST & YOUNG Global Tax Advisory Services Direct Tax www.ey.com/india +91-44-2431-1440 Yogesh Singla Tata Consultancy Services Mailto: yogesh.singla@tcs.com cell: +91 9821360677 Website: http://www.tcs.com 7. Auditors and Risk Management Today's leading internal audit organizations are no longer limited to hazard avoidance and compliance. They need to demonstrate their knowledge of risk management and business process improvement in India, which is a characteristic of a consultant rather than a classical internal auditor. Furthermore, the better internal auditors provide value added support to managements across all areas of investment and real estate operations. While the fees are high, the value in risk mitigation is extremely high. Satyavati Berera Tel:+91 (11) 41350503 Leader- Internal Audit Services 11 A Vishnu Dighambar Marg New Delhi -110 002 Telephone [91] (11) 2323-2916/2321-0891-99/ 41150000Fax: [91] (11) 2321-0594/96 8. Investor Friendly Banks A bank that understands how India works, is willing to make large loans and has the contacts to help their borrowers achieve financial success in India is crucial. We have highlighted two below that we have found to be investor friendly and eager to help finance real estate deals. As with the real estate advisors above, it's important to forge a good relationship with the local executives. Business Today and Euromoney's 2006 "best bank", HDFC has been growing at about 30% a year and has a 29 year track record of working with developers. Forbes has also listed them as one of Asia's Best 50 companies. Abhay Aima, Head - Equities and Private Banking HDFC Bank House Senapati Bapat Marg Lower Parel

Mumbai, 400 013 IndiaIND +1-212-8822888 (Phone) http://www.hdfcbank.com Most people do not realize how long Citibank (CitiGroup) has been in India (103 years). I can not explain the longevity of an American company in British India then Socialist India, but if they have been able to last over a century through India's trial and tribulations, they must have either been masochists or extremely adaptable. I tend to believe the latter and recommend you work with Citibank. Rohini Malkani +91-22- 6631-9876 rohini.malkani@citigroup.com Bakhtawar, Nariman Point, Mumbai 400-021 9. Quality Developers/Construction Companies I can relate many stories about foreign investors being burned in India. What is not typically known is the amount of unethical behavior by developers and construction companies as it relates to Multi National Corporation (MNC) tenants. For example, large deposits are taken by developers when a tenant signs on for a commercial lease. That deposit guarantees the contract between developer and tenant. What we have found and you need to avoid, are developers that do not follow contracts and worse hold the tenant in limbo (by stopping work or tenant improvements) until the tenant agrees to the developer's new (and thus more lucrative for the developer) terms. We have also seen developers finish the work but not obtain a building occupancy permit. With out an occupancy permit, the tenant cannot legally move in. As one MNC tenant related to The India Street, "the developer held us hostage until we paid them an extra fee for 'services' related to construction." Turn to organizations like CREDAI (Confederation of Real Estate Developer's Associations of India) that promote ethical codes. They will also provide their member track records which will allow you greater visibility into your due diligence. Pradip kumar Chopra Executive Board-CREDAI Tel +91 033)24757896/6406 chopra_pradip@yahoo.com www.credai.com Also, look for foreign developers like Ascendas (Singapore) and The WIRE Group (Singapore and The United States) who are used to operating in transparent environments. They also are more likely to produce a quality product as they have built some true International Class A buildings both outside and inside India. Mezzanine Debt Providers Because of the current high interest rate environment in India, Mezzanine debt has never been more important to further leverage your funds to achieve higher returns. While relatively new in India, the use of mezzanine debt can some­times attract domestic financing to your projects. Asia Mezzanine Capital Advisers Limited (sponsored by the Prudential Capital Insurance Company) Alexandra House12 th Floor16-20 Chater Road Hong Kong, SAR, China Telephone: 852-3104-2570 Fax: 852-3104-2915 E-mail: joseph.ferrigno@asiamezzanine.com Timothy Donahue, Managing Director, Co-head of Leveraged Finance Asia, JP Morgan Securities Limited Timothy.Donahue@jpmorgan.com Please contact me or comment below with your suggestions.