Equity v/s Bonds!

The earnings yield vis-a-vis 10-year bond yield may be an important indicator for equity markets. This ratio can be used as a tool to identify how cheap or expensive the stock market is relative to the debt market, other capital instrument available for investing.
Earnings Yield = Earnings per share divided by the stock price

For example,
If earnings per share for the past four quarters = Rs 3 and the stock price = Rs 30, the earnings yield is 10 per cent.
The earnings yield is the reciprocal of the price-to-earnings ratio, which would be 30/3, or 10. A high earnings yield indicates that the market is assuming a lower growth in profits in the future for the company while a low earnings yield indicates that the company is expected (by the market) to have high profit growth for an extended period of time. An expectation of low profitability in the future has a better probability of being exceeded compared to the stock where the expectations are high.

The methodology used to calculate the earnings yield of a stock can be extended to calculate the earnings yield of an index.

Similarly, for the other capital instrument available for investors - bonds - yields are readily available and indicate the returns that they will provide to investors who continue to hold the bond till maturity.

The simplest version of yield is calculated using the following formula: yield = coupon amount/price.

When you buy a bond at par, yield is equal to the interest rate. When the price changes, so does the yield.

A comparison of the yield between the two capital instruments, equity and debt, can be used to assess the risk-reward for investing.

History suggests that earnings yield-to-bond yield may be a very important tool to indicate how much the equity markets are expensive or cheap relative to bond markets. This tool has been a very important indicator to identify bottom of the equity market. Whenever earnings yield have crossed bond yields, it implies that even assuming nil earnings growth in perpetuity equity will deliver better returns than debt. Similarly, when equity yields are lower than bond yields, it indicates that equities are expensive than bonds.

Whenever we have seen sharp drops in interest rates, like during 2003-2005 when interest rates declined sharply and equities became quite cheap compared to bonds. It was followed by a sharp rally in equity markets. Similar, was the experience in February-March 2009 when earnings yield exceeded the bond yield and was followed by a sharp rally in stock markets.

Currently equity yields are almost at par with bond yields indicating both these capital assets are balanced in value terms.

Source: http://www.financialexpress.com/news
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Travel Sector always a boom?

Over six million foreign tourists are expected to descend onto various holiday destinations in India this year, enthusing hotel chains and travel companies to gear up to cash in on the bandwagon.

As the last three months of a year form the peak season for travel and leisure holidays, the country will also witness room rates rising by 10 per cent and airlines doubling fares on popular routes.

This increase will come on the back of striking recessionary trends in several western countries and peaking inflation in India.

Although corporate travel was widely expected to get impacted, the depreciating rupee will aid this section of travellers, say experts and players.

Rajeev Menon of Marriott International says this will be 'fairly solid' with no major challenges.
"This is going to be a strong fourth quarter with occupancy levels maintained at the higher end," he notes.

"Typically, we start negotiating room tariff hikes around this period.

The rise in tariffs will come on the back of better occupancy than last year which are expected to be in the region of 80 per cent and going as high as 95-100 per cent levels in case of a few most sought after properties.

Tour operators say there has been no impact of economic downturn on travel.

"The cost of packages have increased 5-10 per cent over the summer, but that has not impacted travel," notes a tour operator.
"Within the country Kerala and Andaman Island are the favourite destinations."

As a weaker rupee discourages outbound travellers, factors such as terrorism and political turmoil will have an impact on the domestic industry feel experts.

Travel, Hospitality & Tourism, India, claims the current exchange rate is favourable for inbound traffic.

"Fortunately, we don't currently have foreign advisories against travelling to India. On an average there are many cities that haven't reached the 2008 rates.

"Places like Chennai and Pune has excess capacity while Mumbai and Goa has hardly added inventories."

During this year, from January to August, India clocked a 3.81 million foreign tourist arrivals, marking a growth of 10 per cent over 3.46 million registered in the same period the previous year, according to the tourism department.

But not all are too optimistic.

"Advance booking trend, though, suggests that tourist hotels are doing fairly good for the season. Occupancy levels should be about 80 per cent if not more."

Airlines such as Jet Airways are charging Rs 12,300 as a one-way fare from Mumbai to Goa in economy class, more than twice the regular fare.

Seats on some of its scheduled flights on that route are completely sold out for December.

Source: http://www.rediff.com/business/slide-show
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