Archive for August, 2010

PRICE INDEX “The Score Card”

The price index is an indicator of the average price movement over time of a fixed basket of goods and services. The objective is to monitor & measure the retail, wholesale or producer prices etc.

.

Base Year for calculation: Presently WPI series compiled are — Assam (base 1993-94), Bihar (1991-92), Haryana (1980-81), Karnataka (1981-82), Punjab (1979-82), U.P.(1970- 71) and West Bengal (1980-81). The National Statistical Commission has recommended that base year should be revised every five year and not later than ten years. Step-wise introduction to compilation of WPI: Like most of the price indices, WPI is based on “Laspeyres formula” for reason of practical convenience. These steps are discussed in detail in the following sections:

.

1) Concept of Wholesale Prices: It is the rate at which relatively large transaction of purchase, usually for further sale, is effected. The price pertaining to bulk transaction of agricultural commodities may be farm harvest prices, or prices at the village mandi /market of the Agricultural Marketing Produce Committee/ procurement prices, support prices.

.

2) Choice of Base Year: The criteria for the selection of base year are (i) a normal year i.e. a year in which there are no abnormalities in the level of production, trade and in the price level and price variations, (ii) a year for which reliable production, price and other required data are available and (iii) a year as recent possible and comparable with other data series at national and state level.

.

3) Selection of Items, Varieties/ Grades, Markets: The importance of an item in the free market will depend on its traded value during the base year. In agriculture commodities the selection of new items in the basket is done on the basis of increased importance in wholesale markets. In the existing WPI series, items, their specifications and markets have been finalized in consultation of with the Directorate of E&S (M/O Agriculture), National Horticulture Board, Spices Board,Tea board, Coffee Board and Rubber Board, Silk Board, Directorate Of Tobacco, Cotton Corporation of India etc.

.

4) Derivation of Weighting Diagram: Weights of Agriculture commodities: These weights are based on the Marketed value (MV) arrived at by multiplying Marketed Surplus Ratio (MSR) to the estimates of Value of Production (VOP) of agricultural commodities.

.

5) Collection of Prices: The collection of base prices is done concurrently while the work on finalization of index basket is on. Therefore, price collection is normally done for larger number of items pending finalization. Once the basket is ready, current prices are collected only as per the final basket from the designated sources. Weekly prices need to be collected for pre-determined day of the week. For the current series prices are quoted on the basis of the prevailing prices of every Friday.

.

6) Treatment of prices collected from open market & administered prices: The issue of using administered prices for index compilation is resolved by taking into account appropriate ratio between the levy and non-levy portions. Where these ratios are not available, the issues can be resolved through taking the appropriate number of price quotations of the administered prices and the open market prices after periodic review.

.

7) Classification structure: The classification is based on NIC renders the WPI data amenable to comparison with the Index of Industrial Production (IIP) and National Income data.

.

8) Methodology of Index Calculation: In the first stage, once the price data are scrutinized, price relative for each price quote is calculated. Price relative is calculated as the ratio of the current price to the base price multiplied by 100 i.e. (P1/Po) X100. In the next stage, commodity/item level index is arrived at as the simple arithmetic average of the price relatives of all the varieties (each quote) included under that commodity. Next, the indices for the sub groups/groups/ major groups are compiled and the aggregationmethod is based on Laspeyres formula.

.

9) Provisional Vs Final: The weekly indices are compiled after a short gap of two weeks only as compared to other indices, which are compiled on monthly basis. The WPI are, therefore released provisionally and final revised indices, incorporating all possible quotations, are released after a gap of two months.

.

10) Data collection mechanism : At present data collection for WPI is solely based on voluntary basis. Price data pertaining to Primary articles and Fuel & petroleum products are mainly collected through administrative Ministries/ Department’s, PSU’s and state government departments. For ‘Manufactured products’, apart from some government sources, data collection is done through Chambers of Commerce, Trade Associations, Business Houses and leading Manufacturing Units.

.

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,
http://www.smctradeonline.comhttp://www.smcwealth.com

.

Share/Bookmark

Weekly Update 30th August – 3rd September 2010

The global equity markets fell in the week gone by after a record plunge in U.S. home sales and slowing export growth in Japan raised concerns that developed economies are losing momentum. However losses in the equity markets were recouped during the end of the week when Federal Reserve Chairman Ben S. Bernanke said the U.S. central bank “will do all that it can” to safeguard the recovery and growth and stronger-than-forecast U.S. economic growth eased concern the world’s biggest economy will return to recession. According to the EPFR Global, risk aversion led global investors to put some $5.2 billion into bonds and withdrew a net $7.1 billion from equity funds worldwide.

.

.

European Central Bank President Jean-Claude Trichet called for immediate fiscal austerity measures. He said that the lesson from past history is that dealing with the legacy of accumulated imbalances is not simply a duty to be fulfilled after the economic recovery, but rather an important precondition for sustaining a durable recovery.

.

However he was skeptical of the argument that cutting back deficits now would risk derailing the recovery. Bank of Japan is expected to hold an emergency meeting next week to consider more monetary easing and Japan’s Prime Minister is expected to give economic stimulus package as strong appreciation in Yen to 15 year high against the dollar is threatening the export-led recovery.

.

On the domestic front, RBI in its Annual Report said that the growth outlook for the current fiscal year is robust but inflation has emerged as a major concern. It said that it would remain committed to contain generalized inflationary pressures through its calibrated monetary policy based on careful assessment of risks to both inflation and growth.

.

Going next week, investors will keep an eye over the GDP growth number for the first quarter of 2010-2011 to be released on 31st August. The expansion in the economy is expected to match up the growth of 8.6 percent seen in the last quarter of the fiscal 2009-2010. Stock specific activity, specifically in Auto and Cement stocks may not be ruled out as companies would be reporting monthly production numbers.

.

In comparison to world indices, Indian markets are still in the better position as it fell marginally lower as comparised to global counterparts. On the weekly closing basis, dollar index is struggling around 83.50 levels which may trigger technical recovery across the board especially in the US and European markets. Accordingly, one should opt for staying long for the next week till our levels withhold. Nifty has support between 5350- 5300 and Sensex between 17800-17600 levels.

.

Risk aversion in the financial markets may continue to keep the safe haven appeal of bullions intact. US GDP came slightly lower than previous figure but was better than expected. Fed comments to safe guard the US economy may extend some support to the base metals counter however the continued weakness in the housing and job sector may keep the upside capped. Fed commented that the central bank will act if “unexpected developments” cause the recovery to falter. Euro zone GDP and US housing data next week will guide the movement in crude oil and base metals pack in near term. Crude oil may trade choppy as marginal short covering can be witnessed in near term.

.

In Agri pack bears may keep the selling pressure intact especially in spices complex. Oilseeds complex may witness an increased activity as the fundamental storyline in the global markets as well as in the domestic, have improved. India’s new business opportunity of soy meal export to Thailand & China’s strong export demand for U.S soybean crop coupled with strength in crude oil futures may provide psychological support to attract buying. Outflow of Potato stocks from UP cold storages and farmers eying the exports to Pakistan may provide some support to the prices.

.

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,
http://www.smctradeonline.comhttp://www.smcwealth.com

.

Share/Bookmark

Ispat Industries leads the gainers of group ‘A’ on BSE

Ispat Industries is currently trading at Rs 18.65, up by 0.75 points or 4.19 % from its previous closing of Rs. 17.90 on the BSE.

.

The scrip opened at Rs 18.15 and has touched a high and low of Rs 19.50 and Rs 17.90 respectively. So far 10108340 shares were traded on the counter.

.

The BSE group ‘A’ stock of face value Rs 10 has touched a 52 week high of Rs 24.95 on 01-Oct-2009 and a 52 week low of Rs. 16.45 on 08-Jun-2010.

.

Last one week high and low of the scrip stood at Rs 19.60 and Rs 17.60 respectively. The current market cap of the company is Rs 2328.75 crore.

.

The promoters holding in the company stood at 41.14 % while Institutions and Non-Institutions held 14.44 % and 44.41 % respectively.

.

The other top gainers of BSE group ‘A’ were Bosch up by 2.83%, ONGC up by 2.74 %, Gail India up by 2.56%, Cummins India up by 2.51%.

.

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,
http://www.smctradeonline.comhttp://www.smcwealth.com

.

Share/Bookmark

TRADING BLUEPRINT FOR OPTION TRADER

To trade Options one should have a trading plan. A trading plan, first of all includes technical analysis of trend of the underlying whose option is to be traded. It is very important to decide the trend of the underlying – upside, downside or sideways. Once we have decided on this trend it becomes easier to choose an option strategy and move forward with the trading plan. For trading any option strategy like trading any underlying stock we need to have a stop loss so that if the market moves against us we can minimize our losses by exiting our position at that point. Along with deciding the trend of the underlying and the stop loss we need to choose a scrip or stock which has high trading volumes, because trade are possible in only those options where there are high trading liquidity in their underlying.

.

Even though option prices are determined by market demand and supply, their prices are influenced by the following factors: the underlying price, the strike price, the time to expiration, the underlying asset’s volatility, and the risk free interest rate. Each of the five parameters has a different impact on the pricing of a Call and a Put. We have already discussed above the importance of knowing the trend of the underlying stock’s price, which can further explain the importance of choosing the options with the right strike prices for the chosen strategy.

.

While buying or selling any option we must calculate time remaining to the option’s expiration, as the time remaining in an option’s life moves constantly towards zero. Even if the underlying price is constant, the option price will still change since time to exercise it reduces. The time value of both call as well as put option decreases to zero as the time to expiration approaches zero. Therefore we should try to trade in options which have sufficient time remaining to expiration. As far volatility is concerned, it can be defined as the movement of returns. The more volatile the underlying stock higher is the price of the option on the underlying stock. Whether it is a call or a put, this relationship remains the same.

.

With all the above factors we also need to calculate the break even points of our strategies, and risk-reward ratios, the brokerage or the commission to be paid to the broker and margins to be paid to the exchange. As we know that in the spot market, the buyer of a stock has to pay the entire transaction amount (for purchasing the stock) to the seller and the settlement take place on T+2 basis; which means two days after the transaction date, but in a derivative contract, if some one enters into a trade today the settlement happens on a future date. Because of this, there is some possibility of default by any of the parties. Option contracts are traded through exchanges and the counter party risk is taken care of by the clearing corporation. In order to prevent parties from defaulting, the corporation levies a margin on buyers and sellers. This margin is a percentage (approximately 20%) of the contract value.

.

Finally we need to know how the option trades are finally settled in the exchange. There are basically three types of settlement in stock option contracts at NSE: daily premium settlement, exercise settlement and interim exercise settlement. In index options, there is no interim exercise settlement as index options cannot be exercised before expiry. In Daily Premium Settlement buyer of an option is obligated to pay the premium towards the options purchased by him and the seller of an option is entitled to receive the premium for the options sold by him. The premium payable and the premium receivable are netted to compute the net premium payable or receivable for each client for each options contract at the time of settlement. As for Final Settlement on the day of expiry, all in the money options are exercised by default. An investor who has a long position in an in-the-money option on the expiry date will receive the exercise settlement value which is the difference between the settlement price and the strike price. Similarly, an investor who has a short position in an in-the money option will have to pay the exercise settlement value.

.

So keeping all the above factors in mind we should come up with a set strategy – a trading plan, where we should manage our position according to predefined rules (like stop loss, breakeven points, Hedging techniques time of expiry etc.) defined in the trading plan. Greed tends to take a grip of most investors in the market, especially in F&O space. Hence, it is advisable that traders do not get too greedy and book profits when their target return is achieved.

.

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,
http://www.smctradeonline.comhttp://www.smcwealth.com

.

Share/Bookmark

Gold ETFs………..Safe Haven Against Market Risk

Not too long ago, when buying physical gold was the only option for investing in gold. However, the launch of Gold ETFs has opened another option for investors. When the stock markets take a sharp fall investors to look beyond equities and consider other investment avenues. In that case gold provide safe heaven. By enabling investors to invest in gold without holding it in physical form, it offer a rather unique investment opportunity to investors.

.

.

Gold ETFs are commodity exchange traded funds which track prices of gold. Hence, they can be bought and sold like stocks on a real-time basis. These funds are passively managed and they mirror domestic gold prices.

.

How Gold ETFs Work

.

Gold ETFs are essentially different to gold. The manner in which they track the gold prices makes gold ETF products unique. Some gold ETFs buy and physically hold gold while others invest in futures contracts. Physically-backed gold ETFs will obviously track the spot price of gold more accurately, since the value of the underlying holdings depends solely on the market price of bullion.

.

ETFs that using futures contracts will track the spot price of bullion very closely, but may deviate occasionally due to phenomenon’s such as backwardation and contango in commodity futures markets.

.

For investors with significant gold holdings, diversification across custodians and geographies may be desired as well. Some investors may sleep better at night knowing their gold is securely stored in multiple locations in different parts of the world. For this reason, London-based ETF Securities offers an ETF that stores its gold in Switzerland, a country long known for being friendly to investors due to different reasons.

.

The holding of world largest gold ETF SPDR Gold Trust, rose to 1295.516 metric tons by August 18.

.

Correlation with dollar

.

Gold generally traded inversely with dollar. Gold tends to rise when the dollar is weak However gold traded positive co-relation with dollar recently. It can be seen as uncertainty in global recovery which has supported both gold and dollar index.

.

Criteria for selecting a Gold ETF

.

Ideally, investors must select a Gold ETF that holds a significant portion of its portfolio in gold and a fund which has a lower expense ratio. Higher expenses translate into lower returns for investors.

.

Advantages of Gold ETFs

.

? Gold ETFs can be bought at the prevailing market rate without paying any premium

.

•Quick and convenient dealing through demat account.

.

•No storage and security issue for investors

.

• Transparent pricing

.

• Can be traded on stock exchange like buying / selling a stock.

.

• Ideal for retail investor as minimum lot size to trade is one unit on secondary market. The resale value will be always safe

.

•NAV of a unit will track price of approximately ½ or 1 gram of gold

.


• As per SEBI regulations, the purity of underlying gold in Gold ETFs is 0.995 fineness and above.

.

•long-term capital gains tax is applicable after twelve months from the date of purchase

.

•Gold ETFs are not subject to Wealth Tax.

.

Gold ETFs turnover in domestic market The table shows the Gold ETFs available in India and there turnover. Among 7 Gold ETFs GOLD BEES accounted for 60.30 % of the total trading volumes during the month July. Since July 2009 monthly turnover is increasing rapidly due to growing uncertainty in global recovery.



.

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,
http://www.smctradeonline.comhttp://www.smcwealth.com

.

Share/Bookmark

Weekly Update 23rd – 27th August 2010

The buying continued in the Indian markets and helped broader indices to surge to two and a half year highs. While negative sentiments in the global markets led to profit booking with major markets closing in the negative on weekly basis. The Federal Reserve Bank of Philadelphia’s general economic index dropped to the lowest reading since July 2009 to minus 7.7 this month, signaling contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

.

The unemployment claims unexpectedly shot up by 12,000 to 500,000 last week more than the economist estimates. U.S. recovery is fading and European governments would struggle to reduce their deficits are the worrisome factors that are lingering on in the investors mind. The producer price index in U.S. increased 0.2 percent following a 0.5 percent drop in June.

.

Excluding food and energy costs it climbed 0.3 percent signaling that world’s largest economy may not face deflation moving with slower growth. China, the Emerging Market frontier that saw an unparallel growth in the past is facing threats of faltering demand for exports as U.S. and European consumers are cutting spending, rising wages and the risk of bad loans from record lending by banks in the past. Japan Economy saw an expansion of an annualized 0.4 percent in the quarter ending June pushing it into third place behind the U.S. and China.

.

In India, with good monsoon season the prospects of harvest have improved and now it is widely believed that inflation would come down by the end of this quarter. The primary articles index rose 14.85% in the year to 7 August 2010, lower than previous week’s annual rise of 15.66%. The food price index rose 10.35%, lower than previous week’s annual rise of 11.4%, as prices of vegetables, potatoes and onions fell.

.

Going forward the domestic market is expected to remain firm with the support of foreign investment.

.

However, investors will continuously monitor the global developments after some of the recent disappointing data coming from U.S.markets. Trend of Indian Stock Markets is up though other world markets are coming under pressure especially the European and US markets. Dollar index is showing some strength which is giving jitters to commodities. But till the trend of our stock markets is up, one should be playing on the long side with a cautious approach. Nifty has support between 5400-5350 and Sensex between 18000-17800 levels.

.

Gold has benefited from last few weeks as investors are escalating the insurance like metals in their portfolio. However, gold silver ratio is rising once again as silver is moving in a range due to falling base metals. With the looming weakness in various economies, gold may invite bulls further. After touching many week highs, base metals washed off their previous gain on unexpected drop in Philadelphia Fed survey and bad employment data. Now the pulse of base metals is likely to be guided by the outcome of housing and durable goods data of US this week. Weakness in equity market, swelling inventories, slow recovery may weigh on the crude prices further, which already hit six week low last week. Dollar gain against euro is dampening the commodities demand, compelling CRB index to trade range bound with bearish bias.

.

Nevertheless, lower level buying cannot be denied in between.

.

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,
http://www.smctradeonline.comhttp://www.smcwealth.com

.

Share/Bookmark

Jet Airways Touches 52 Week High

Jet Airways is currently trading at Rs 810.00, up by 30.60 points or 3.93% from its previous closing of Rs 779.40 on the BSE.
.

The scrip opened at Rs 778.00 and has touched a fresh 52 week high of Rs 831.30 and low of Rs 765.00 respectively. So far 1214825 shares were traded on the counter.

.

The BSE group ‘A’ stock of face value Rs 10 has touched a 52 week high of Rs. 831.30 on 20-Aug-2010 and a 52 week low of Rs 221.80 on 08-Sep-2009.

.

Last one week high and low of the scrip stood at Rs 831.30 and Rs 659.80 respectively. The current market cap of the company is Rs 7077.23 crore.

.

The promoters holding in the company stood at 80.00% while Institutions and Non-Institutions held 15.60% and 4.40% respectively.

.

Jet Airways, India’s premier international airline, has sought Reserve Bank of India’s (RBI) nod to raise foreign currency loans worth Rs 3,450 crore for the purpose of repayment of higher-cost domestic debt.

.

The country’s largest private-sector carrier is planning to discharge the loans taken from local banks through the amount raised, though under current regulations, foreign currency loans, also known as external commercial borrowings (ECBs), cannot be used to refinance domestic loans. In this backdrop, recently, only those telecom firms which had bid for 3G licences have been allowed repayment of rupee loans with the ECB proceeds.

.

Further, the company wants RBI’s support to ensure uninterrupted services and continued employment to over 13,000 employees..

.

OUR Websites:  http://www.smcindiaonline.com,http://www.smccapitals.com,
http://www.smctradeonline.comhttp://www.smcwealth.com

.

Share/Bookmark