Gold Enters Bull Market

For the first time since the highs in 2011, Spot Gold has entered a bull market. Now up over 21% from the early December lows, Gold is trading at 13-month highs and outperforming all other asset classes amid the descent into negativity by global central banks...


 

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The Beginning of the Global Slowdown

The good old world are always nostalgic for the people and also for the financial markets and world economy these days. World enjoying a period of high growth led by China and followed by other emerging economies are over. World economy is shifting to a new form of normalcy with some countries are even thinking about negative rates as the only option for growth. Last year saw the biggest collapse in the value of goods traded around the world since 2009- when the impact of the global financial crisis was at it's worst. Major ports such as Hamburg and Singapore have also reported slowing growth and even declining volumes. Barring a spectacular turnaround in the global economy, the subpar performance is likely to be repeated in 2016, making it the fifth straight year of lacklustre growth in global trade.

But this time it's different!

The world economic growth engine was majorly driven by China being with it's export and investment led economy which increased the demand of commodities and resources worldwide. The decision by Chinese government to shift it's economy from export and investment led economy to consumer led economy which has led to the slowdown of the China as world is talking about. The commodities demand of China have been decreased substantially created havoc in the Commodities market in particular Oil market which was the largest gainer of the China boom.


Effects on India of the Global Slowdown

Since India was late in the party of manufacturing boom, it has costed it dearly. China swept the market as India was stuck in politics and dismal reforms during that crucial period. The Make In India initiative is too late for India to help it substantially to rally the Indian economy.

In the new world of automation and the 3-D Printing technology are becoming increasingly feasible, I doubt that India would be exploit fully the low wages advantage. Moreover due to lack of clear rules and policies it would become distant dream. India's export growth is slowing followed by low consumption rate, it can be easily said that the time is very difficult for India as there are more challenges than opportunities way ahead.

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Binary Options for Beginners

Binary options have become a dominant trading tool for beginners in recent years. This has become more so with the multiplication of trading platforms available. This type of investment offers traders with high returns and minimum risk. To gain the most returns you will have to learn the way of the market. The following is useful for new traders that want to become successful at trading binary options:

• Start Small: A useful bit of advice for new traders is to invest in small trades at the beginning of your trading journey. This is compounded with learning the primary terms of binary options trading; therefore you will be able to become an expert after only a few months of trading this unique product.
• Markets: Following the markets and trading binary options at the same time is a strategy that many people use. An addition to this is to trade with demo accounts simultaneously. This would allow you to practice trading while making real money in a live account.
• Expiry Time: The expiry time factor means you are in control of which expiry time you choose. Binary Options beginners should take a look in trading in the short or medium term, as they have less experience than advanced traders. This factor goes hand in hand with the amount of potential return you may receive when your option expires.
• Trading Platform: A smart way to be a success in the short term is to pick the right trading platform from the beginning. Traders should choose the best features that suit their trading style. These may include support quality, percent return and platform security. So if you are a beginner, make sure to evaluate these factors.

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Nandan Denim Ltd.- The next big opportunity

I woke up and was searching for companies to get my hands on and then I found the company named Nandan Denim Ltd.(hereinafter NDL)(BOM: 532641).

About the Company:

NDL is the denim group of diversified conglomerate, the Chirpal Group. NDL is currently the 2nd largest denim manufacturers of India and 5th largest in the world. NDL exports it's denim to more than 27 countries across the globe. The global denim fabric market is approx. $17 billion, growing at a modest rate of 3-5% a year. Europe represents the largest market for the denim since it is a mature market and thus represents major share of global market. Asia-Pacific is forecast to emerge as fastest growing market with CAGR of 9.4% over the analysis period. Moreover India's denim market was valued at Rs.13,500 crore in 2013 as per consulting firm Technopak accounting for 5% of the apparel market.

Company being second largest producer of the denim enjoy considerable market share in the denim fabric market.


Financials:
 The annual profit and loss statement of last 10 years are shown below:

   Courtesy: Screener.in


As we can see that company's profit margin is increasing YOY indicating strong product mix. Compounded sales growth over 10 year period is 27.45% and compounded profit growth is 17.41% over 10 year period. Though dividend payout ratio is fluctuating which shows the capital expenditure on capacity expansion.Company is expected to grow at the same pace. The equity share capital is around Rs.45.5 crores and reserves is Rs.213.33 crores and consolidated borrowings stand at Rs.470.86 crores. Thus, the financials of the company are strong and the share is trading at Rs.147.80 at the P/E Ratio of 11.53 which is less than the industry standards. As the company is expected to grow the share at CMP is a value buy.
 

 

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Common Clues Of Financial Statement Manipulation

Law enforcement has crime scene investigators to tell them the significance of a bloody fingerprint or a half-smoked cigarette, but investors are often left to their own devices when it comes to trying to figure out whether an accounting crime has taken place and where the fingerprint might be. Now more than ever, investors have to become forensic accountants themselves if they want to avoid being burned by unscrupulous accounting in a company's financials. In this article we will look at some common signs, both obvious and subtle, that a company is struggling and trying to hide it.

Exaggerating the Facts.

With all the big baths that companies take, it's tempting to believe that Wall Street is the cleanest place on earth. The big bath refers to the swelling of corporate write-downs in the wake of poor quarters. When a company is going to take a loss anyway, they sometimes take the opportunity to write off everything they possibly can. This is often compared to spring cleaning; the company realizes losses from future periods and/or losses that were kept off the books in previous quarters. This makes poor results look even worse and artificially enhances the next earnings report. In this case, there is no actual crime taking place, but it is a deceptive accounting practice. However, the biggest problem with this practice is that once a company has taken a big bath, income manipulation is a step away. 

A company taking a big bath isn't difficult to evaluate in comparison with other companies in its sector that haven't used deceptive accounting practices. Generally, the company has a very bad year followed by a "remarkable" rebound in which it begins to report profits again. The danger comes when companies make an excessive write down, such as claiming unsold inventory as a loss when it is probable that it will be sold in the future. In this case, when the inventory moves, the company would add the profits to their operational earnings. This type of income manipulation makes it hard to tell whether the company is actually rebounding or is merely enjoying the benefits of the items they "erroneously wrote off". This type of write off is similar to the difference between spring cleaning and burning down your house for the insurance money, so any company that rebounds quickly from a big bath should be viewed with suspicion. 

Smoke and Mirrors.

One of the most prevalent approaches to corporate accounting is to omit the bad and exaggerate the good. There are a number of subjective figures in any financial report that accountants can tweak. For example, a company may choose to exclude costs unrelated to its core operations when figuring its operating cash basis - say an acquisition of another company or purchasing investments - but will still include the revenue from the unrelated ventures when calculating their quarterly earnings. Fortunately, companies have to break down the figures, thus dispersing the smoke and mirrors, but if you don't look beyond a few main figures in a company's financials you won't catch it.

Finding the Accomplice

There can be a number of accomplices to any accounting crime, but two popular suspects are special purpose entities (SPE) and sister companies. SPEs allowed Enron to move massive amounts of debt off its balance sheet and hide the fact that it was teetering at the edge of insolvency. Sister companies have also been used as a way to spin off debt as new business. For example, a pharmaceutical company could create a sister company and hire it to do its research and development (R&D) (pharmaceuticals' biggest expense). Instead of doing the work, the sister company hires the parent company to do their own R&D - thus the parent company's biggest expense is now in the income earned column and no one notices the perpetually debt-ridden sister company. Nobody, that is, except those who read the footnotes.
The footnotes list all financing related affiliates and financial partnerships. If there is no accompanying information disclosing how much the company owes to the affiliates or what contractual obligations there are, you have plenty of good reasons to be suspicious. 

Elder Abuse

Sometimes when a company is struggling, it starts dipping into financial reserves that it hopes no one will notice. Target No.1 is usually the pension plan. Companies will optimistically predict the growth of the pension plan investments and cut back on contributions as a result, thereby cutting expenses. When the pensions start coming due, however, the company will have to top off the plans from current revenue - making it clear that putting off expenses doesn't make them go away. A healthy company pension plan has become critical as baby boomers near retirement. 

Getting Rid of the BodyCompanies may try to hide an unsuccessful quarter by pushing unsold merchandise into the market, or into the distributors' storage rooms. This is usually called channel stuffing. This may save a company from a big quarterly loss, but the goods will return unsold eventually. Channel stuffing can be detected in two figures: the stated inventory levels and the cash meant to cover bad accounts. If inventory level suddenly drops or the money for bad accounts is drastically increased, channel stuffing may be taking place. 

Fleeing Town

Because the Canadian and American markets are so intertwined, companies that trade on both exchanges can choose which country's accounting standards to use. If a company changes from the historical accounting standards for that firm, there had better be a good explanation. The two systems, while generally similar, account for income in different ways that may allow a wounded company to hide its weakness by switching sides. Any change in accounting standards is a huge red flag that should prompt investors to go over the books with a fine-toothed comb. 

Guilty Tongues Slip.

Damning statements are often casually mentioned in a company's financials. For example, a "going concern" note in the financials means that you should get out your magnifying glass and pay close attention to the following lines. With the practice of overstating the positive and understating the negative, a company admitting to a "going concern" may actually be confiding that they are two steps from bankruptcy. Unexpectedly switching auditors or issuing a notice that the CEO is resigning to pursue "other interests" (most likely in the Cayman Islands) are also causes for concern.

Conclusion

Although there are many interesting numbers in a company's financials that allow you to make a quick decision about a company's health, you can't get the full story that way. Due diligence means rolling up your sleeves and scouring the sheets until you are sure that those main figures are real. The best place to start looking for bloody fingerprints is in the footnotes. Reading the footnotes will provide you with the clues you'll need to track down the truth.

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