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Monday, December 10, 2012
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Saturday, January 19, 2008
hey read dis
The stock exchanges have quickly acted on the approval of the Securities and Exchange Board of India (Sebi) to introduce mini derivatives contracts on equity indices. The National Stock Exchange (NSE) launched the mini-Nifty, while the Bombay Stock Exchange (BSE) launched the 'Chota Sensex,' within three working days of Sebi's circular allowing such contracts.
While contracts worth Rs116 crore were traded on the latter, the mini-Nifty managed trades worth Rs66 crore. These numbers aren't exciting for two reasons. First, they're a fraction of the volumes on the largest index futures contract—the near-month Nifty futures, which clocked trades worth more than Rs10,000 crore. Secondly, volumes on the first day are often artificial in nature, propped up by friendly brokers to give an impression that the newly introduced contract is liquid.
When NSE had introduced futures and options trading on the Nifty Junior and the CNX 100, each managed trades worth about Rs100 crore in the the near-month futures contract. On Tuesday, trades on Nifty Junior futures amounted to just Rs8.6 crore and just two futures contracts for Rs6 lakh were traded on the CNX 100.
Similarly, when the exchange had launched interest rate futures, trades on the first day were encouraging, but these contracts haven't traded for a long time now.
The future of the mini derivatives contracts will not be as bad. On NSE, they are based on the Nifty, already very popular in both the futures and options segments.
This will lead to arbitrage opportunities which will ensure the survival of the product. Besides, investors would be able to hedge their portfolios more accurately with the mini contracts. For instance, hedging a Rs5 lakh portfolio completely with the normal Nifty series isn't possible, given that the minimum contract size is around Rs3 lakh—buying two contracts would mean an over-hedged position. The mini contracts trade in lots worth about Rs1 lakh, making it possible to accurately hedge such portfolios. Trading in Sensex futures, too, has picked up lately—the turnover was more than Rs1,000 crore on Tuesday. As a result, the 'Chota Sensex' series would also benefit from arbitrage opportunities.
It's interesting that the average trade size on the mini-series was Rs7.4 lakh on BSE, clearly showing that the interest on the first day of trade wasn't from small retail investors, who were the ones supposed to benefit from the new product.
This isn't really surprising —even the size of the normal series weren't prohibitively high. While the contract size on the Nifty is about Rs3 lakh, the initial margin payable is only 8-9%, which works out to about Rs25,000.
The trickle-down effect
It's common knowledge that corporate India has been having a rollicking time in the last few years, although growth is slowing from its earlier robust pace.
But have the good times trickled down to the smallest members of corporate India?
That's the question we've tried to answer by studying the results of 443 manufacturing companies with net turnover ranging from Rs1 crore to Rs25 crore culled from Capitaline Databases.
(The minimum of Rs1 crore is purely for purposes of statistical convenience, to eliminate the extremely small companies that show huge variations in growth).
The chart alongside shows that these companies have been big beneficiaries of the boom of the last few years, with improvement in the debt:equity ratio, in the interest cover, and in the debtors turnover ratio.
Return on capital employed (RoCE) and operating profit margins too have improved greatly in the last two years. A comparison with the BSE 500 manufacturing companies reveals the wide difference between the very small companies and the larger ones. For instance, interest cover for the companies in the Rs1-25 crore sample was 2.25 times, compared with 8.78 for companies in the BSE 500.
Though their financial position has improved, the smaller companies remain more vulnerable to interest rate increases. Again, the RoCE for smaller companies was 7.36 in fiscal 2007, compared with 19.84 for the BSE 500 firms. A lower return on capital and a higher cost of funds has hit their profitability harder in the current fiscal. And since small companies account for the bulk of employment in the sector, that should have an impact on consumer demand.
Rupee appreciation
The rupee eased a touch on Friday as traders braced for overseas investors to start cutting their holdings in local assets as fears of a recession in the United States heightened global risk aversion.
At 10 pm (0430 GMT), the partially convertible rupee was at 39.310/315 per dollar, softer than Thursday’s 39.30/31, which was its lowest close since 8 January according to Reuters data. It struck a decade-high of 39.16 in November.
“Sentiment is a little shaky at the momement, but the flows are still there, ensuring that the rupee does not fall much,” said a dealer with a foreign bank.
India’s benchmark share index fell more than 1% in early deals on Friday, extending losses to a fifth straight session on falls in global markets.
Asian stocks tumbled on Friday after the latest salvo of sour signals from the US economy pummelled Wall Street, sending the benchmark S&P 500 3% lower.
US Federal Reserve Chairman Ben Bernanke told a congressional committee on Thursday that more interest rate cuts might be necessary because the economic outlook had weakened.
Bernanke’s bleak assesment was widely seen as a signal that the U.S. central bank would slash rates by a half-point after a meeting on 29-30 January.
Local dealers were mixed about the impact on the rupee of a Fed rate cut, with a section of the market anticipating it would boost capital flows into high-yielding Indian assets.
In 2007, foreign fund buying of a record $17.4 billion of stocks was a key driver for the rupee’s rise of more than 12%. Foreigners sold $565 million worth of shares on Wednesday, making them slight net sellers for the month. The rupee eased a touch on Friday as traders braced for overseas investors to start cutting their holdings in local assets as fears of a recession in the United States heightened global risk aversion.
At 10 pm (0430 GMT), the partially convertible rupee was at 39.310/315 per dollar, softer than Thursday’s 39.30/31, which was its lowest close since 8 January according to Reuters data. It struck a decade-high of 39.16 in November.
“Sentiment is a little shaky at the momement, but the flows are still there, ensuring that the rupee does not fall much,” said a dealer with a foreign bank.
India’s benchmark share index fell more than 1% in early deals on Friday, extending losses to a fifth straight session on falls in global markets.
Asian stocks tumbled on Friday after the latest salvo of sour signals from the US economy pummelled Wall Street, sending the benchmark S&P 500 3% lower.
US Federal Reserve Chairman Ben Bernanke told a congressional committee on Thursday that more interest rate cuts might be necessary because the economic outlook had weakened.
Bernanke’s bleak assesment was widely seen as a signal that the U.S. central bank would slash rates by a half-point after a meeting on 29-30 January.
Local dealers were mixed about the impact on the rupee of a Fed rate cut, with a section of the market anticipating it would boost capital flows into high-yielding Indian assets.
In 2007, foreign fund buying of a record $17.4 billion of stocks was a key driver for the rupee’s rise of more than 12%. Foreigners sold $565 million worth of shares on Wednesday, making them slight net sellers for the month.
At 10 pm (0430 GMT), the partially convertible rupee was at 39.310/315 per dollar, softer than Thursday’s 39.30/31, which was its lowest close since 8 January according to Reuters data. It struck a decade-high of 39.16 in November.
“Sentiment is a little shaky at the momement, but the flows are still there, ensuring that the rupee does not fall much,” said a dealer with a foreign bank.
India’s benchmark share index fell more than 1% in early deals on Friday, extending losses to a fifth straight session on falls in global markets.
Asian stocks tumbled on Friday after the latest salvo of sour signals from the US economy pummelled Wall Street, sending the benchmark S&P 500 3% lower.
US Federal Reserve Chairman Ben Bernanke told a congressional committee on Thursday that more interest rate cuts might be necessary because the economic outlook had weakened.
Bernanke’s bleak assesment was widely seen as a signal that the U.S. central bank would slash rates by a half-point after a meeting on 29-30 January.
Local dealers were mixed about the impact on the rupee of a Fed rate cut, with a section of the market anticipating it would boost capital flows into high-yielding Indian assets.
In 2007, foreign fund buying of a record $17.4 billion of stocks was a key driver for the rupee’s rise of more than 12%. Foreigners sold $565 million worth of shares on Wednesday, making them slight net sellers for the month. The rupee eased a touch on Friday as traders braced for overseas investors to start cutting their holdings in local assets as fears of a recession in the United States heightened global risk aversion.
At 10 pm (0430 GMT), the partially convertible rupee was at 39.310/315 per dollar, softer than Thursday’s 39.30/31, which was its lowest close since 8 January according to Reuters data. It struck a decade-high of 39.16 in November.
“Sentiment is a little shaky at the momement, but the flows are still there, ensuring that the rupee does not fall much,” said a dealer with a foreign bank.
India’s benchmark share index fell more than 1% in early deals on Friday, extending losses to a fifth straight session on falls in global markets.
Asian stocks tumbled on Friday after the latest salvo of sour signals from the US economy pummelled Wall Street, sending the benchmark S&P 500 3% lower.
US Federal Reserve Chairman Ben Bernanke told a congressional committee on Thursday that more interest rate cuts might be necessary because the economic outlook had weakened.
Bernanke’s bleak assesment was widely seen as a signal that the U.S. central bank would slash rates by a half-point after a meeting on 29-30 January.
Local dealers were mixed about the impact on the rupee of a Fed rate cut, with a section of the market anticipating it would boost capital flows into high-yielding Indian assets.
In 2007, foreign fund buying of a record $17.4 billion of stocks was a key driver for the rupee’s rise of more than 12%. Foreigners sold $565 million worth of shares on Wednesday, making them slight net sellers for the month.
Monday, January 14, 2008
HEDGE FUND? BOON OR BANE
Whenever the word “Hedge Fund” comes to our mind it gives a sense of shock and awe among most players in the Indian market. What is it that gives these funds such an aura?
Hedge funds come into the limelight whenever the markets go into an overdrive, either upward or downward. Hedge funds are pooled investment vehicles whose investment in publicly traded securities is huge as compared to average investors. India is one of the favorite destination for hedge funds. They have generated a much higher return from emerging market portfolio compared to their returns on the average global portfolio.
Hedge funds boost speculative trading into the market as the small institutional investors have to book profits because they are paranoid of a sudden sell off by hedge funds. Moreover to match the returns generated by hedge funds small inventors will adopt the high risk-high reward strategy. The worry is that they may not yet have adequate expertise and experience compared to hedge funds.
The common perspective about hedge funds is that they bring too much volatility into the market. Many developing economies have faced financial turbulence because of hedge funds. Hedge funds are held responsible for the South East Asian crisis. Hedge funds can cause swings in values and prices of currencies, stocks and interest rate.
Hedge Funds have been a major concern for regulators across the globe as they increase market volatility and occasionally, they have caused entire economies to crack under the weight of their selling. In Indian capital market one of the major reasons for volatility are hedge funds. Hedge funds are a double-edged sword as they are momentum players who escalate the possibility of a financial crisis.
However, one of the pluses of hedge funds is that they provide a lot of liquidity to the market, and thus enhance the price discovery mechanism at the bourses. While their operations do result in unlocking the potential value of stocks, it is normally only in the short term.
At present, hedge funds cannot invest directly in the Indian markets. However, they could invest through Participatory notes issued by SEBI-registered FIIs .According to RBI with greater risk aversion going forward, with credit quality deteriorating and with the widening of credit spreads, the potential fragility of hedge funds could pose significant risks to financial market stability and to the prospects for financing and growth in the emerging market economies. Therefore in a move to curb down the volatility caused by hedge funds in the capital market SEBI has asked hedge funds investing through sub account to register themselves as FII as it will increase transparency in their operation.
Is there any advantage in allowing hedge funds to participate in the Indian stock market? In an open market system like ours one can't wish away hedge funds and the bottom-line is that there is no escaping from them.
... Hrishikesh Sahay
Hedge funds come into the limelight whenever the markets go into an overdrive, either upward or downward. Hedge funds are pooled investment vehicles whose investment in publicly traded securities is huge as compared to average investors. India is one of the favorite destination for hedge funds. They have generated a much higher return from emerging market portfolio compared to their returns on the average global portfolio.
Hedge funds boost speculative trading into the market as the small institutional investors have to book profits because they are paranoid of a sudden sell off by hedge funds. Moreover to match the returns generated by hedge funds small inventors will adopt the high risk-high reward strategy. The worry is that they may not yet have adequate expertise and experience compared to hedge funds.
The common perspective about hedge funds is that they bring too much volatility into the market. Many developing economies have faced financial turbulence because of hedge funds. Hedge funds are held responsible for the South East Asian crisis. Hedge funds can cause swings in values and prices of currencies, stocks and interest rate.
Hedge Funds have been a major concern for regulators across the globe as they increase market volatility and occasionally, they have caused entire economies to crack under the weight of their selling. In Indian capital market one of the major reasons for volatility are hedge funds. Hedge funds are a double-edged sword as they are momentum players who escalate the possibility of a financial crisis.
However, one of the pluses of hedge funds is that they provide a lot of liquidity to the market, and thus enhance the price discovery mechanism at the bourses. While their operations do result in unlocking the potential value of stocks, it is normally only in the short term.
At present, hedge funds cannot invest directly in the Indian markets. However, they could invest through Participatory notes issued by SEBI-registered FIIs .According to RBI with greater risk aversion going forward, with credit quality deteriorating and with the widening of credit spreads, the potential fragility of hedge funds could pose significant risks to financial market stability and to the prospects for financing and growth in the emerging market economies. Therefore in a move to curb down the volatility caused by hedge funds in the capital market SEBI has asked hedge funds investing through sub account to register themselves as FII as it will increase transparency in their operation.
Is there any advantage in allowing hedge funds to participate in the Indian stock market? In an open market system like ours one can't wish away hedge funds and the bottom-line is that there is no escaping from them.
... Hrishikesh Sahay
Sunday, December 23, 2007
Reference Link on Market Indicators
This Economy. That Market.
That Market. This Indicator.
Keep yourself updated with data feeds on global markets.
Data Courtesy: THE ECONOMIST.
Click here to navigate to the link.
By: Peeyush [peeyushmiglani@gmail.com]
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