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.

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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.

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