Extended Market hours : Bleesing OR Curse for Indian Stock Market

India is one of the favorite places for foreign investor to place their money. It is not only the money that trades in stock market but it is an indispensable amount which we can’t even think of neglecting. India has got a growing economy and is a safe heaven. The economy has successfully overcome the affects of the economic downturn.
Trading in Indian stock market starts at sharp 09:55am goes on till 03:30pm, that means that it goes on for approx 5 hrs and 35 minutes. But the watch dog of Indian securities market has come with some new provisions of extended market hours. The new provision of SEBI says that now the trading will start at sharp 09:00am and will continue till 05:00pm. Although SEBI has said that the new time table will be implemented only after consulting with respective Stock Exchanges and Stock Brokers, but for this provision SEBI is having two conditions -

1- Efficient Risk Management System
2- Infrastructure Commensurate

Risk management system is an integral part for carrying out efficient clearing and settlement system.It contains some of the risk containment measures like capital adequacy requirements of members, monitoring of member performance and track record, stringent margin requirements, position limits based on capital, online monitoring of member positions and automatic disablement from trading when limits are breached etc. In India NSE was the first one to adapt this system). With the increase in trading hours trading activities will increase and it means the banks and financial Institution have to increase their market hours and for that the infrastructure that we have now has to be improve.

Reasons for increasing market hours -
some of the reasons as stated by SEBI to extend market hours are-

1. The events occurring in global geography have their effect on stock markets and specially the events happening in out side India have their effect on Indian Stock Market, thus the main reason is to align Indian stock Market with other Asian and global stock markets.
2. With the increased trading hours investors can assimilate information and take the investing decision accordingly.
3. The volatility, market efficiency stabilizes with the increase in trading hours.

Now the other very important thing comes in mind that what are the advantages of increased market hours. So some of the advantages can be counted as -
There will increase in the intraday day trading.

• As of now the trading begins as 09:55am and continues till 03:30pm without any break but with the increase in trading hours trader and investor can take a break in between and can reform their strategies.
• As market moves according to various news and sentiments so with the increased market hours the participants will get more time to react.
• We can experience some increase in NSE nifty as with the increased trading session Indian market will have better correlation with SGX Nifty.
• It may be possible that as a result of increased market hours we may be able to attract more foreign investors.
• Retail investors will get sufficient time to think about their buy-sell decision and strategies.

now the other side of coin means disadvantage of increased market hours...

• Most of the global markets which are trading for 8-9 hrs are having provision for lunch break of 1 hr in between in which they can reform their strategies but no such things are proposed by SEBI.
• The analysts will be require to enhance their efficiency.
• There will be increased pressure on the traders including FII’s, banks, institutions etc.

Whatever may be the reasons but there is mixed response from market participants. There may be one worry of price stability and may be some other factors also. If everything goes as planned then there will be increase in volumes, more intraday trading, and more inflow of capital from foreign investors, this will help to redirect more flow of money into the financial system.

Comments are most welcome...

Is the CDS market a fair game???

The credit default swap market survived the credit crunch of 2007 well but still they are considered as an important tool to managing credit risk. A financial institution can reduce its credit exposure to particular companies by buying protection. It can also use CDSs to diversify its credit risk. But now the question arises that how much fair this CDS game is???

In a very simple way this is a contract that provides insurance against the risk of default by particular company. There is one important difference between CDSs and other OTC derivatives that other OTC derivatives are depends on interest rate, exchange rates, equity indices, commodity prices and so on while on other hand CDS spread depends on the probability that the particular company will default on during a particular period of time. In case of other OTC derivatives there is no reason that one market participant will have more information that any other market participant while in case of CDS some market participants have more information to estimate this probability than others. Any financial institution which is involve in market advisory, consultancy, providing loans and funds, handling new issues of company is likely to have more information about credit worthiness of that particular company than other financial institutions those have nothing to do with that particular company. This whole phenomenon is known as asymmetric information problem.

Whether asymmetric information will curtail the expansion of credit default swap market is to be seen. Some financial institutions emphasizes that the decision of buying protection against the risk of default by the company is generally taken by risk management team of that particular team and it has nothing to do with any special distribution that may exist elsewhere in the financial institution about the company. Some market participants says that the growth of CDS market will continue and that it will be as big as the interest rate swap market by 2010.

High Fiscal Deficit : A big DEBT trap for economy

The markets were expecting something big in FM's budget speech but all those expectations turned into disappointments as there was nothing according to expectations. Both bond and equity market went into distracted state as FM announced that the fiscal deficit would be 6.8% of GDP. And then as a result the benchmark index closed as 6% down on that day while on other hand 10-yr govt. paper yield was shot up by approx 1.3% which means that bond price and bond yield moves in opposite direction.

Lets try to understand that why there was such type of response in both the markets due to this economical number.

In a very simple way the fiscal deficit can be understand as the amount by which the govt. expenditure exceeds its receipts including borrowings. So now its clear that if this fiscal deficit moves up then govt. will have to borrow more funds in order to its expenditure. In the current financial year our fiscal deficit figure is about to 4 lakh cr. which is approx four times more than the budget estimates in last yr.

If govt. will borrow approx 4 lakh cr from market then its clearly means that there will be less fund available with banks for public sector. Our privet investment will suffer ans so will our growth. If the system is left with fewer rupees to lend, there will be a demand-supply mismatch and interest rates will move up.

This is the reason that interest rate sensitive stocks lost their value in the market on the budget day. When interest rates move up, bond prices fall as investors chase bonds offering higher rates. As its widely known that banks hold a substantial part of their portfolio in bonds. Thus, falling bond prices affect their profitability. BSE Bankex sold the most on the day the Budget was announced.

The story doesn't stops here only. Higher fiscal deficit over a period of time brings instability into the financial system. As a result, there is a fair chance of India getting downgraded by international credit rating agencies. This will make India more risky for foreign investors and lenders. Consequently, lenders would charge a higher rate of interest on borrowings from Indian companies.

The other most important impact of higher fiscal deficit is this that it will affect the exchange rate. So as a result our import will move on and increase in import will increase demand of foreign currency. This increased demand of foreign currency will affect the value of Indian Rupee and as a result our currency (INR) will depreciate.

Daily Systematic Investment Plan

The systematic Investment Plan is ideal for those investors who have a regular flow of money i.e. employees. A simple instruction to the fund house and the bank and that simple mechanism can avoid the risk of volatility of market. When we invest say Rs. 1000 per month, we get fewer units when price is high and gets more units when share price is low. The reinvention of the Systematic Investment Plan has become a boon for investors with a low risk appetite. Rupee cost averaging and compounding are added advantages.

Simply a daily SIP is a plan which collects a small sum from any individual investors on a daily basis and invests this amount in the stock market. It operates like any mutual fund where the disbursement and handling of the money is the fund manager’s prerogative.

Rupee cost averaging occurs when the market goes down, and more units of the scheme can be purchased because of a lower net asset value. However, most companies have SIP schemes that allow you to invest on different dates of the month. Daily SIPs are expected to minimize risk and generate greater risk-adjusted returns while increasing participation.

Daily SIP: Advantages

Affordability, volatility and convenience are the most obvious advantages of investing in a Daily SIP. It captures the daily levels of market volatility. In case of monthly SIP investor can lose if the markets are up on the chosen day of month, while in case of daily SIP, it eliminates this flaw of market and investor get the benefit of volatility of stock market.

If any investor is looking for lump-sum investment, then going with daily SIP would allow him to take advantage of the market volatility, by splitting the lump-sum amount in to daily installments over a relatively short time frame. The daily SIP is ideal for small time savers, since the threshold investment level is low.

Once you start with a Daily SIP, you invest at the appointed time and that makes you a disciplined investor. With Daily SIPs, you capitalize on the periodic dips in the market and accumulate a greater number of units at lower levels–and over time, reduce your average unit cost.

The Fed Reserve

The Federal Reserve system is the central bank of the United States and one of the world's most important, influential and prestigious financial organization. It was established by congress in 1931 with a primary objective of to provide the nation a safer, more flexible and more stable monetary and financial system. The Fed Reserve system is run by a board of Governors which is directly appointed by president of United States. The Fed includes 12 regional Reserve banks and their branch offices, as well as the Federal open Market Committee (FOMC).
Now let me tell about some major responsibilities of The Fed.-

1- Contributing to the formation of the nation's monetary policy by influencing monetary and credit condition in economy.

2- To make sure that the safety and soundness of the nation's banking and financial system, and protecting the credit rights of consumers through supervision and regulation.


3- To maintain the security and reliability of the financial system and containing systematic risks that may arise in financial markets.

4- To provide payment and financial services to the US government, financial institution and foreign financial institution.

5- Stores monetary gold for foreign central banks, government and official international agencies.

6- To implements monetary policy set by the FOMC.

Price war for Great Offshore

The investor and share holder of great offshore must be enjoying the battle which is going on between Bharti Shipyard and ABG Shipyard to have a stake in the company. This battle was started in May 2009 when Bharti shipyard accquired 14.89% stake in Great Offshore. Earlier this month, Bharti Shipyard again made an another offer to accquire additional 20% stake in Great Offshore at Rs 344 per share, while on other hand Surat based ABG Shipyard who is also planning to hold controlling stake in Great Offshore, offered a counter bid on 23 june to accquire 32.12% stake at Rs. 375 per share. ABG Shipyard is already holding 2.02% stake in Great Offshore purchased last year in open market. Seeing this present competition Bharti Shipyard again scheduled a board meeting to consider raising offer price in Mumbai based Great Offshore and about a better position to accquire a controlling stake in Great offshore. On their part, ABG Shipyard also made it clear that the firm is willing to evaluate raising the bid price for Great Offshore.

According to some confidential sources Bharti Shipyard has bought 4.5% more share in Great Offshore at a price level of Rs. 403 and now holding total stake of 19.1% in Great Offshore. Shares of Great Offshore gained 30.35% to close at Rs413.60 on Tuesday on the Bombay Stock Exchange (BSE) after ABG announced its counter open offer. The Sensex, the benchmark index of the BSE, closed almost flat at 14,324.01. Both ABG and Bharati are eyeing Great Offshore as an entry point into the offshore oilfield services market to become integrated players in the sector.

With the bidding war in progress, Great Offshore shares closed at Rs 413.60, up 7.92 per cent on the Bombay Stock Exchange on Tuesday. ABG Shipyard shares were up 1.79 per cent to close at Rs 213.15. Bharati Shipyard shares, however, fell 5 per cent to close at Rs 162.50.

5 ways to manage personal budget

These are 5 great ways to manage your personal budget and to do your budget as well as financial planning and to produce excellence results. These ways can be understand as stated below

We should make a list for our budget planner for the month and list down expensive events such as holidays,weddings, birthdays and so on. We can plan ahead and make sure enough money to kept aside and cut down unnecessary items.

Then we should take proper action to follow our progress for the month and keep the receipts. It is easy for us to check our daily expenses. We also can use price comparison sites to monitor whether this is for shopping, insurance, mobile or etc.

Always think carefully and remember to avoid temptation in sale that does not mean to spend it. Be sure spend your money wisely. You must have a sense of awareness of the results you are getting so that you move the right direction to achieve it.

Keep in mind that meeting deadlines is very important. For example when paying back credit card bills try to avoid paying off just the minimum amount each month as this will lead to more interest accruing on your account. Instead pay off the maximum amount you feel you're able to budget for each month.

Lastly, we should be very much aware that what latest is happening news........means we should keep update our-self on the latest news as information on money saving or etc. To be successful, we need to have smart money action plan to achieve financial excellence for yourself. For instance if we save for our big occasion like holidays, we do not need to borrow or to borrow as much.

Volatility and Return

As all of us knows that "High risk results in terms of High return", lets discuss that how this fact works in reality. lets have a view of Bombay Stock Exchange (BSE) where in last one month top 100 stock (listed on BSE)with high beta has perform better with an average return of approx 32% against benchmark return of BSE of approx 28%, while in the other hand the 100 top stocks (listed on BSE) with lower beta underperformed Sensex with approx 7%.

As we know that the beta of market is considered 1 and all calculation of Beta for individual scripts is done against Market Beta which is always 1. If beta of any stock is more than 1 then that signifies that the price of that stock are more volatile than market. Lets say that if beta of any stock is 1.2 then it means that stock is 20% more volatile than market OR if the Sensex will go up with 100% then this particular stock will go up with rate of 120%.

Stocks with high beta like India Infoline (Beta=2),Orbit Corporation (Beta=1.93), Unitech (Beta=1.86)IFCI (Beta=1.71), Hindustan Construction (Beta=1.66), Aptech (beta=1.62)have all delivered more than 50% return than sensex return of last 30 trading days. Now if we will have put eye on low Beta stocks listed on BSE like Nestle (beta=0.32), Elder Health (beta=0.36), Asian Paints (beta=0.38), Godrej Consumer (beta=0.40), Hero Honda (beta=0.47), Dr Reddy’s (beta=0.51)have given flat or worst return in same last 30 trading days in compression to BSE.

Generally defensive stocks like auto industry, FMCG are having low beta.Low-beta stocks that act as great capital protectors during a market downturn do not participate when the market starts moving up.So if any investor wish to enter in market then he should stick to HIGH-BETA stocks, backed by good fundamental. As the equity markets are changing and inflow is getting positive, we are getting good economical numbers, the high beta stocks will continue to outperform. High growth rate sector should have high beta stocks.

Investors who are confident of the political outcome and rally, and hence looking to add beta to their portfolio, should pick from the list of companies about to finish funding and high beta stocks.

The great TULIP trade : BULLISH on Bulbs

No one has ever heard about Tulip in Holland before 1593 but in early 1630 histories get re-written, the rich get richer and smith catch up with jones. The only objective was TULIP. Because of horticulture experimenting, Holland got many new breeds of Tulip in first decade of 17th century. Very soon these Tulip became a sign of power and prestige in the country.

When the middle-income groups realized that this was actually an easy-money scheme. How much the rich spent on the flowers and how high the margins were in the trade. Then the idea begin to grow in their minds. All they had to do was plant the bulb, nurture it and soon enough they could reap the benefits of their toil…literally.

The true bulb buyers (the garden centers of the past) began to fill up inventories for the growing season, depleting the supply further and increasing demand.This tulip trade was very much successful in country that why in a very few time-period the entire dutch community became involve in this Tulip Trade. There were even OPTIONS and FUTURES for Tulip bulbs not yet shown. These Tulip bulbs were sold by weight, usually while they were still on the ground. This type of trading is known as WIND-TRADING as the price quoted by speculators were made up of thin air. The complete dutch society was desperate trade in this tulip bulbs and all this desperation came with result that peoples start selling their small business and family jewels were either traded or sold. People sold their homes, their property, everything they had to cash in on the frenzy.

The local governments tried unsuccessfully to outlaw this commerce. The bottom fell out in 1637 because these bulb trader could not get the usual inflated cost for their TULIP BULBS. This phenomenon results in crash of markets. Thousands of Dutch businessman, many among leading economic operators were ruined in less than 2 months time. This market crash in 1937 results in term of bankruptcy of many organization and institutions and in History all this phenomenon is known as great Tulip Trade or TULIPOMANIA.

While the frenzy lasted the prices of the bulbs actually hit a $14,000 (current market price). But that is not to say that the Dutch love story with the flower is over…far from it. Though the margins have come back to ground level, the saga continues. The flower originally brought to the country by Carolus Clusius, director of the Royal Medicinal Garden in Vienna, who successfully raised the first European tulips during the 16th century, tulips are still a booming industry in Holland.

COMMENTS ARE MOST WELCOME.

Indian Stock Markets: making of HISTORY

The Indian Stock markets broke all records and rallied of an unexpected 2,111 points in just a single minute of trading, forcing authorities to shut down the counter for complete day.Eager buyers were left gaping and thinking and the day was over even before they could formulate their thoughts of a buy order in a uncontrolled market that witnessed an appreciation of Rs 6.5 lakh crore in market capitalization as the BSE-Sensex moved upward to 14,284.21 points.

Trading was first halted at 09:55 am for two hours and subsequently for the day within 30 seconds of commencement each time because of buying frenzy, a sentiment that was in sharp contrast to a panic selling-driven halt in trading around the same time in 2004 days before UPA came to office.

The story was same at the NATIONAL STOCK EXCHANGE also, where within a minute of trading in two sessions saw prices breaching all records of a single day jump, although transactions were limited. NSE's Nifty closed the day higher by 651.5 points at 4,325.15 points. Share of less than 1000 companies could be traded on both exchanges with turnover of just Rs 300 Cr.which is only 2 percent of their daily average transactions.

Circuit breaker is a mechanism, wherein trading is automatically halted for one hour if the benchmark indices rise or fall by 10 per cent of the closing level of the last quarter. A movement of 15 per cent halts the trading for 2 hrs and movement of 20% on either side halts trading for whole day.

Market leader RELIANCE (26.43% change) was singularly largest gainers with appreciation of Rs. 70000 Cr. for their shareholders followed by UNITECH (26.59% change) BHARTI AIRTEL (25.42% change) and DLF with net change of 25.03%,while few unfortunate scripts like K Sera Sera, Cinemax India and Adhikari Brothers TV that lost value.

While concluding the topic it can be considered this unusual movement of market response was a response to the UPA getting a new term in office and the stability that comes along with it in terms of pursuing reforms without having to bother about LEFT parties like in the past coz now it is clear that LEFT is not left any more.

All this is an artificial rally fueled by speculative buying. But whatever happened in the market is not good. The economic atmosphere in the world as well as India has not changed. Today India is one of the most costliest markets among emerging markets and prices have to cool off before money starts to flow in.

Comments are Welcome.

Fair Value Accounting and current Financial Crises

Fair value accounting is used to to an estimation of the market value of an asset or liabilities for which a market price can not established or determined, usually because there is no established market for the asset. Fair value accounting, mandated by Financial Accounting Standard Board in its statement 157, is effective for financial statements issued for fiscal year beginning after November 15, 2007. Fair value accounting has been credited with many things from promoting transparency in the financial accounting, contributing to the 2007-08 financial crises.

Many banks, industry organizations and other financial institution have blamed this accounting practice for the downward economic spiral, as it forces businesses to assign a low value to asset as they would trade today, even if the company does not intend to sell them. Critics have also charged that it is impossible to determine fair market value in an illiquid market, such as the one that began to materialize after the risky trading of mortgage backed securities reversed course.

So this was, in part, the result of the massive de-leveraging of balance-sheets by market participants and reduced appetite for the risk as the marginal calls increased, putting enormous pressure on asset prices a downward spiral of lower prices, forced sales and higher volatility etc.The trust and confidence that counter parties require in one another in order to lend, trade or involvement in similar risk based transactions dissolved to varying degrees for each firm very quickly.

So finally it can be concluded that rather than a crises precipitated by fair value accounting the crises was a "run on the bank" at certain institutions manifesting itself as in counter parties eliminating various credit risk exposures that they had to each firm. Fair value accounting was not the culprit of the financial meltdown that has brought down the biggest financial institution in the world.

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