Indian government all set to introduce a lock-in for NRI real estate investors

by Vipin Agnihotri Indian government is planning to plug another potential source of foreign funds for the real estate sector. It has come into the notice of The Indian Street that Non-resident Indians planning to invest in real estate projects ahead of initial public offers could face a three-year lock-in along with foreign institutional investors (FIIs). Talking exclusively to The India Street, one government official said that Indian government is planning to introduce a lock-in for pre-IPO FII investors in realty companies in bid to prevent a possible real estate bubble. In addition, the restrictions are also aimed at checking sudden flight of capital. "By putting a lock-in period for NRIs, the government could also effectively discourage the promoters' own funds coming into the company through the NRI route," pointed out Sadrnagi Parkash, CEO of Sadrangi associates. The pivotal factor here is that Indian promoters are generally known to use NRIs as fronts to get their own money abroad invested in their companies. And that is where a lock-in period might act as a deterrent for promoters bringing such funds through the NRI route. According to experts, the Indian government is likely to amend the Foreign Exchange Management Act to make all pre-IPO investments face a three-year lock-in. Though, the other conditions such as minimum capitalization and area of development will be limited to foreign direct investments. It is worthwhile remembering that real estate companies, which are planning to hit the capital market, will have to tweak their plans to meet the proposed norms, expected to be notified shortly. Few of the real estate companies that have sought permission for making pre-IPO placement to FIIs have been told to wait till the government finalizes the foreign investment norms for the real estate sector. "Up to 100% FDI is allowed in realty projects with certain conditions like a three-year lock-in on investments, minimum capitalization of $5 million and development of at least 10 hectares of land. These conditions are applicable on all foreign investors, including NRIs," pointed our Kangana Rawat, real estate expert. Not so long ago, there were differences between the Department of Industrial Policy & Promotion and the finance ministry on the treatment of pre-IPO placements. In theory, DIPP had favoured treating pre-IPO placement to FIIs as portfolio investment. Though, the Reserve Bank and the finance ministry were of the opinion that pre-IPO investments by FIIs cannot be treated as portfolio investment and the FDI norms be adhered to. Point to be noted here is that nearly half of the over $4-billion foreign investments, which came in real estate sector in 2006, was through private placements.

Technorati : Lock In, NRI, Stocks, investors, real estate

Chart Patterns and market’s reaction

By Sundaramurthy Vadivelu

Important Disclosure

The views expressed below are the opinions of the author based on the principles of technical analysis, a science that has been tested and proven for more than hundred years. The views are unbiased and informative in nature. These do not constitute an offer to buy or sell stocks. Every effort has been made by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc.

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.

The author has no vested interest in any of the stocks mentioned. He and/or his close associates may or may not be having positions at the time of writing this article.

The reader needs to understand that this article is purely for informative purposes only and all transactions, if entered into by him will be solely at his risk. The author does not guarantee that the projected targets will be achieved within the stipulated time frame.

Source for the price data displayed in graphics and tables:

National Stock Exchange of India Limited, Mumbai, India (www.nseindia.com).

Charts have been created with FCharts Pro, © Spacejock Software, Australia (www.spacejock.com).

- - - - - - X - - - - - - X - - - - - -

Many people who follow stock markets may have noticed charts. These are graphical representation of price volume data over a period of time. It could be price plotted every hour, day, week or month and are known as hourly, daily, weekly or monthly charts respectively.

These charts are very important since the stock’s demand versus supply can be ascertained from the price action. Volume is also displayed on the charts. A visual examination of the chart will reveal how the stock moved within a particular period (day, week etc.).

It is very much essential that the investors and traders get familiar with charts, particularly those who work full time in the markets. The two common types of charts are OHLC bar Chart (Open, High, Low, Close Charts) or Western Bar Charts Japanese Candlestick charts

An example of OHLC bar chart:

The same chart when represented by candlesticks will look like this:

As we can see, the ‘candlesticks’ are more visually appealing compared to the OHLC bar charts.

As co-movement of price and volume gets plotted over a time, the current market status can be examined easily. In a bull market, increasing volume with increasing prices during an uptrend indicates bullishness. During a corrective decline in a bull market, we can see declining volumes with declining prices. In a bear market, increase in volume with decreasing prices can be spotted. During pullbacks in bear markets, declining volumes with increasing prices can be seen. Though volumes may not increase uniformly all the time, a trend can be observed.

Chart patterns:

These are certain types of formations in charts which indicate bullishness or bearishness. These are formed by support / resistance levels and trendlines. Support level is the price where buyers will enter the stock and take control over the sellers. Resistance level is the price above which the stock must trade in order to move up higher.

Some of the chart patterns are:

Bullish patterns: Double bottom, triple bottom, inverse head and shoulder pattern, cup and handle breakout, triangle breakout etc.

Bearish patterns: Double top, triple top, head and shoulder pattern etc.

The daily chart of SAMTEL is shown below. Let us analyze how many chart patterns have been formed over a period of time. This is an interesting stock since this gives an idea as to how the market reacts quickly to a chart formation.

Cup and handle breakout:

Bewteen March 2001 and April 2002 watch the ‘cup’ shaped price movement followed by the ‘handle’. Watch the resistance could not be broken on the first attempt. That lead to another decline. Eventually, after the resistance at 31.50 was broken, the stock touched a high of 57.50. It can easily be noted that the green line or the ‘top’ of cup was a strong support during the corrective decline from 42.90 to 30.90.

Inverse Head and Shoulder pattern:

This bullish pattern was formed between August 2002 and November 2003. It simply looks like an inverted man.

Please note that the ‘shoulders’ may not be horizontally on the same line and this is nothing unusual. After the resistance around 32.80 was broken, see how quickly the prices were flying vertically upto 74.65. This was again followed by a corrective decline.

Double bottom:

This pattern was formed around the 38.35 which was the next resistance when the stock bounced back during the inverse head and shoulder pattern. Again, after the resistance trendline was broken, we can see the heavy buying upto 124.70. Double bottoms and triple bottoms are usually more reliable bullish patterns, indicating strong support levels.

Head and shoulder pattern:

After hitting a high of 124.70, stock fell to 84.20 and after the reversal, it was unable to pierce the ‘neckline’ as can be seen in the chart. The neckline is an important resistance zone in this pattern. Ever since this happened, stock has been terribly bearish. All supports have been broken, except for the last one at around 12.70. This is almost 1/10th of its high price. Just imagine a person who bought it near the high price and wondering what’s going on with this. Currently it is 16.25.

Conclusion:

As can be seen from the chart, the bullish and bearish patterns, when spotted successfully, foretell how the stock will perform in the near future. In this case, the head and shoulder pattern has clearly indicated the bearishness and stock was hit very badly.

What will happen to this stock in the near future? As mentioned earlier, it just managed to bounce back near its last horizontal support around 12.70 but without much volume. Momentum indicators are negative and if it is able to sustain above the support of 12.70, we can expect a consolidation phase. But consolidation phase may last for longer durations, and as such, there is nothing this stock can offer for anyone for the time being.

When investors make a decision to buy a stock for long term investments, it is better to observe patterns such as these. That will help them to hold stocks for better returns.