Personal Finance 2.01

Credit rating simply gives an estimation of the creditworthiness (ability to repay debt) of the corporation or an individual. Credit Suisse group is a credit rating agency that provides financial services.

Credit Suisse group AG improved the credit rating of Bharti airtel ltd to “outperform” from its initial “neutral” rating. This change in the credit rating implies less risk to investors. Increasing the demand for Bharti airtel stock. This has led to one of the biggest gains to the company in the past 14 months.

Bharti is India’s one of the biggest mobile companies. However the Indian telecom especially mobile tariffs have been facing competition. This war of tariff was further spurred by the entry of japense company DOCOMO. However, with this upgrade of credit rating in the company’s stock is definitely leading to a significant impact in the company’s overall performance.

The stock performance of Bharti airtel is observed to be 15.40%↑ in one week. Bharti rates have been 12.85%↑ in the past one month. And -26.33%↓ in the past one year.  These numbers merely indicate that performance of Bharti airtel has seen a rise as compared to the average past year’s performance.

Credit Suisse group AG has also changed its rating on Reliance communications Ltd from “underperform” to “neutral” and Idea cellular rating for “ underperform” to “outperform”. In comparison Bharti and Idea are the leading companies in terms of gains after the change in credit ratings.

Reliance communications Ltd has been a rival of Bharti Airtel and underwent a loss as its stock performance experienced a decline of 24% in the year which has further fallen to 30% during this period. At the same time, Bharti airtel is still the second worst stock on the sensitive market with a decline rate of around 28%.

(Sensitive market literally means that it is very sensitive to good or bad news )

Bharti Airtel closed 9.7 percent higher. Reliance Communications and Idea Cellular climbed 2.8 percent and 13.3 percent respectively. By volume the top stocks were as follows:

* Idea Cellular on 12.1 million shares

* Bharti Airtel on 9.2 million shares

After the change in the credit rating and the stock price the call rates in India have fallen to less than a penny per minute as more than dozen operators wanted to capture maximum market share. Consumers will however benefit from this until new changes occur.

“At first glance, nothing seems to be right in the Indian telecom sector,” wrote Credit Suisse’s Singh. “Deeper analysis suggests that the tide is turning. Revenue market shares are steady, high auction prices could force most players to avoid competitive actions and regulatory risks could be exaggerated.”

In simple terms, According to Credit Suisse’s Singh, even though Indian telecom industry seems to be in trouble, times are changing. This is mainly because the revenue generated by the telecom industry is almost steady. More no of players in the market are forcing the companies to keep their prices close to market value in order to avoid a high risk of loss of market share due to high competition.

As far as Bharti Airtel and Idea are concerned, further increase in the price of the stock is definitely expected and it would be advisable to hold on to the stock rather than selling it now. For those wanting to invest, now would be a good time to buy Bharti Airtel as the prices are certain to see an upside.

Considering Reliance stock, the price of the stock has not increased and so one can probably feel compelled to sell. However, there is nothing fundamentally wrong with the company. The main problem with this particular company as of now is the ownership; practically everybody who has invested in Indian markets would have Reliance as a stock in their portfolio and this is one of the reasons why nobody is willing to commit higher sum of money. Due to this the new sum of money is not coming into the system. Such phases do come in capital markets and frankly investors should not be getting anywhere with this. One should really look at the growth model that the company has built and this particular model is going to be rewarding model going forward. Leaving no room, to get disturbed with this kind of non-movement of the stock. Infact, one could probably see this as an opportunity and accumulate Reliance stocks at every stage so as to benefit over a longer period of time with a sizable quantity in the portfolio and get most possible gains out of it.

Two weeks ago, government announced the decontrol of petrol prices. This seems to be only the beginning. Agriculture minister Sharad Pawar on Friday 9^th July 2010 gave a hint on the possibility of decontrol of the sugar sector. The sugar industry has been long waiting for this decontrol of sugar prices.

Sugar sector has been facing a price decline since January. The sugar industry is actually the only industry that has been supplying product at a fixed price which has no relation to the actual cost and needs to be funded by the government. Government has also been supplying sugar in the PDS (Public Distribution System) to the targeted people below poverty line. The government is ready to continue doing so. However, the industry needs the price to be placed at market price. The subsidy given should be through the budget.

It is historically seen that the sugar industry has been under the government control. Narendra Murukumbi, MD, Shree Renuka Sugars said that the industry has a tendency to run to the government when faced with any problems. Also, during times of crises the government tends to increase the amount of control on this particular sector. According to Mr.  Nareendra the need for the hour is break free of this control mindset.

The sugar industry has been facing a big shortage since the past two years. This industry however supports a large number of farmers in the country. In a reformed or decontrolled sector the industry will continue to have a minimum price set by the government on cane price. This definitely needs to be protected.

Decontrol of the sugar sector is a good move on the government’s part.  The sugar industry needs to be treated with fairness. The industry today is ready to protect and support the farmers by paying high sugarcane prices if they can also get a good price for sugar in the open market. India being one of the largest consumer of sugar in the world can then afford to import sugar from Brazil on a permanent basis increasing imports.

Now is the right time for the decontrol of sugar as the current economy suggests that the prices of sugar will not go very high and will not hurt the consumer as it would in comparison to the prices if this decontrol was done earlier. The sugar industry expects to have a good production in the coming up next year and will definitely benefit the industry in the long term. But if you consider short term time frame, the industry might face some ups and downs. But in all the decontrol of prices will be very beneficial for the sugar industry in the long term.

The government is also considering a tax on sugar imports. This imposition of tax on imports will hardly have an impact at this point. However, the tax imposition is supposed to be good for the sugar prices (from the industry point of view) . The prices of sugar can be estimated to move upwards a little bit considering the market sentiment and reaction to the announcement.

“Decontrol is a must to promote competition in the sugar sector – just like telecom. It would benefit consumers, farmers and the millers. Let us compete for sugarcane which would ultimately benefit the farmers,” Vivek Saraogi, president of (ISMA) Indian Sugar Mills Association and managing director of Balrampur Chini Mills, said.  Indian Sugar Mills Association has been long awaiting this decontrol in sugar prices.

The ultimate effect of decontrol will be a price rise on sugar, however this will be beneficial for the sugar industry in the long term. It would be recommended to invest in sugar industry stock with a long term view.

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