Posts Tagged ‘Equity & Derivative Trading’

Factors that Move the Interest Rates – Part 1:)

Interest rates

In earlier blog we have discussed about how Bonds are different than equities and why are they considered less risky instruments. 🙂

Now coming on to this blog, we would talk about the 3 major factors (other than monetary policy) which moves the interest rates  and ultimately causes a price change in the Bonds.

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To determine where the interest rates are headed, it is important to have an understanding of the factors that move the interest rates.

This will in turn help gauge which direction bond prices are going to take, and one can make appropriate adjustments to a bond portfolio in order to maximize gains or minimize losses.

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1. Inflation:

Interest rates are directly related to inflation i.e. if inflation rises, so do interest rates.

This is because lenders demand higher interest rates to compensate for the decrease in purchasing power of the money they will be repaid in the future.

This causes bond prices to fall, since bond prices are inversely related to interest rates.

Inflation itself is affected by the economy’s currency and liquidity position.

In India, inflation is measured by WPI (Wholesale Price Index), for which is released every week.

For the week ended July 25, 2009, WPI was at (-) 1.58%. This may lead one to assume that inflation has gone down, but the reason for this low figure is a high base effect from 2008, when WPI showed doubledigit growth.

Current CPI (Consumer Price Inflation) figures are in the range of 8.6-11.5% for May-June 2009.

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2. Currency: A weaker rupee causes rising inflation, which in turn results in a rise in interest rates.

This is because one’s purchasing power reduces – if one was paying $60 or Rs.2400 (Rs.40=$1) to buy 1 barrel of crude oil, a weaker rupee (Rs.45=$1) means the same 1 barrel will now cost Rs.2700 i.e. Rs.300 more.

Similarly, a stronger rupee increases one’s purchasing power and brings down inflation, causing interest rates to fall.

The latter scenario is seen as a positive for the bond market, since it leads to rising bond prices.

Since 2008, the rupee has weakened significantly to Rs.47- 48 in July-August ’09.

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3. Liquidity: Interest rates are directly related to liquidity.

A crunch in liquidity means money is not readily available, since people are not willing to part with their cash.

A lower interest rate is then offered, which increases the price of already existing bonds in the market. The vice-versa also holds true.

One way of measuring the liquidity present in the system is to check the money supply measure – M3.

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There is another factor which is responsible for the movement in interest rates that is Monetray Policy which we would discuss in next blog

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To determine where the interest rates are headed, it is important to have an understanding of the factors that move the interest rates. This will in turn help gauge which direction bond prices are going to take, and one can make appropriate adjustments to a bond portfolio in order to maximize gains or minimize losses.

D-Street may inch towards consolidation: Analysts

Dalal Street

A wave of consolidation is likely to greet Dalal Street this week as concerns over rainfall shortage would pull down investor sentiments and keep the market under pressure, analysts said.

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“The market would remain range-bound and would look for a positive trigger amid the dampening effect on the possibility of a drought-like situation in the country,” Ashika Stock Brokers Research Head Paras Bothra said.

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Analysts also said there might be some positive bias in the movement of the market but absence of any major trigger might shift focus on the rain God.

“Delayed monsoon has made the market totally indecisive of the next move.

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The impact of drought would be felt in some time from now and that is holding back investor confidence to enter market,” SMC Capitals Equity head Jagannadham Thunguntla said.

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Besides, with the US economy showing signs of revival and Germany and France emerging out of the recession quicker than expected, analysts feel it could bring in a positive bias in the market.

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“As it is now a known fact that the major economies are pulling themselves out of the recession, I do not foresee any major collapse in the market in near term as it is all positive news around,” Bothra added.

The BSE Sensex gained 251 points, or 1.66 percent in the past week and closed at 15,411.63 points.

Market to track rains, IIP data and global cues

Share market India

The market is likely to track the Monsoon, the Index of Industrial Production (IIP) and global cues for direction this week.

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Market might fall to 14,000-14,500 levels if both the monsoon and global cues turn out to be negative this week.
Expectations are capital goods stocks to perform better in the short run.

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Investors are likely to pay heed to global cues and news related to the monsoon and IIP numbers.

If both domestic and global cues are negative, then we may see the Sensex taking support at 14,100.

A bad monsoon may pull down growth by a quarter. So, rain-related news has high significance.

Stocks in the capital goods counter and Reliance Industries may perform better in the short term. 🙂

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Last week’s selling spree by foreign institutional investors (FIIs) was due to fears of a weak monsoon and profit booking.

“The weak monsoon is a big worry right now. It can spook investor’s sentiment.  Apart from this, investors are likely to track global cues while the numbers on IIP will also be keenly watched. 🙂
The selling spree by the FIIs in the past few sessions could be attributed to profit taking on account of good values as the market has risen more than 100 per cent since March 9, from 8,000 to 16,000 levels,” said Jagannadham Thunuguntla, head of equities at SMC Capitals.

Thunuguntla said all sectors are showing signs of recovery and, hence, there are less chances of any major shock from the IIP numbers.   “However, poor rainfall and the subsequent fall in rural demand may put pressure on some sectors,” he said.

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Exit Bharti Airtel: SMC Global

an Interview with Rajesh Jain

Excerpts from an Interview with Rajesh Jain, Research Head of SMC Global.

Rajesh Jain of SMC Global giving a technical perspective about the market moves, portfolio and related factors.

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Q. I hold a few Bharti Airtel shares @ Rs 428. What should I do?

Jain: The stock is good. It had a fantastic run since 2004, but after the bull run, it underperformed. If you are a long-term investor, you should diversify and invest in infrastructure. 🙂

Q. I hold 100 Tata Motors shares @ Rs 305. Should I hold?

Jain: I think you should book profits, because it will take some time for the company to pick up volumes and come out of its interest burden.
For that, there should be a revival in the overall market.
Till that time, I don’t think the company will be able to compete with players like Maruti and Mahindra & Mahindra.

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Q. I hold a few Adani Enterprises shares @ Rs 820. My investment horizon is 5 years. Should I hold?

Jain: You need to have a lot of patience. I would say keep some stop-losses and diversify your investment. 🙂

Q. I have 500 Indiabulls Real Estate shares @ Rs 245. What should I do?

Jain: For this stock, Rs 250-260 is a good resistance zone. On the lower side, Rs 220-230 is a good support zone.
It is consolidating between these levels.
The day it closes above Rs 260, you can set a target of Rs 290.
On the lower side, if it breaches Rs 220, it will be bad.
So, keep a stop-loss of Rs 220 and wait for a target of Rs 290.

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Q. I hold 2000 Ispat shares. What should I do?

Jain: I am not so buoyant about Ispat. Though we have seen a bull cycle for four years and a correction for two years afterwards, this is one stock which has not moved up too much.
Big companies like SAIL have not shown too much of a strength either.
If the giants have not shown good performance, I don’t think companies like Ispat can show better results.
Performance-wise also, it has accumulated losses.
It needs a lot of time to come out of the accumulated losses.

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Q. What should I prefer? RIL or Tata Steel?

Jain: I will go for Tata Steel, because the commodity bull cycle is going on, and, as commodity guru Jim Rogers says, the next cycle is commodities.
In the short term, RIL may be able to do well and Tata Steel may not do that well.
Overall, I am bullish on commodities. I think Tata Steel would be a better bet. 🙂

Q. I hold 500 Indian Hotels shares @ Rs 79. My investment horizon is 1-2 months. What should I do?

Jain: This stock is a defensive play.
When the market is in an aggressive mode, defensive stocks generally lag around.
I would say you will have to wait till the Rs 79 levels. It has a huge resistance at the Rs 80 levels. You need to have a lot of patience with this stock. 🙂

Q. I have short listed Nestle, Hero Honda, L&T. Where should I put my money?

Jain: These are excellent companies.
I would suggest you to go for all the three as they will beat inflation and you will get good returns in the long term. 🙂

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Q. Can you guide me through some auto ancillary stocks?

Jain: The segment has started showing revival. I think one can go for Sona Koya.

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Source : http://www.utvi.com/stock-market/stock-market-news/28377/exit-bharti-airtel–smc-global.html

Consumer-Goods, Pharma Funds Outperform Market in July

Consumer-Goods, Pharma Funds Outperform Market in July

Indian equity  funds focused on the consumer-goods and pharmaceutical sectors – considered defensive as they are less volatile – have outperformed the overall market in the past month as investors cheered the domestic demand and consumption story.

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As share prices started to slip from the high levels seen in mid-June, some fund managers turned defensive, fearing a sharp downside, which also led to more money flowing into these stocks, industry experts said.

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Funds investing in the shares of fast-moving consumer goods companies generated an average return of 17.6% in July, pushing technology-based funds – which gained 17.2% on good quarterly results at top software exporters – to the second place, show data from research firm Value Research.

Pharma-focused funds returned 9.8% during the month.

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In comparison, equity-diversified funds rose on an average 8.4%, while the Bombay Stock Exchange’s benchmark Sensitive Index gained 8.1%.

According to the seasonally adjusted Markit India purchasing managers’ index, the country posted robust manufacturing activity for the fourth straight month in July, suggesting government efforts to spur the economy have helped demand at home.

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Taurus Mutual Fund had turned defensive in June after a sharp market rally since early-March lows. The fund house recorded a 15.3% increase in assets under management over the previous month to INR6.47 billion in July, outpacing a 2.8% rise in the overall industry’s assets.

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According to Value Research, ICICI Prudential FMCG Fund was the best performer among the few FMCG-focused funds in July with a 22.7% return. Reliance Pharma Fund, which returned 12.5%, was the best performer in the pharma space.

Tata Select Equity was the best performing fund in the equity-diversified category with a 15.4% return.

“I think fund managers took a call on these stocks as they had not run up as much as others in the last few months,” said Jagannadham Thunuguntla, equity head at New Delhi-based SMC Capitals Ltd.

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For the past six months, FMCG- and pharma-focused funds have on average returned 46.2% and 52.6%, respectively, underperforming the Sensex, which has soared 66.3%, data from Value Research showed.

“With markets having risen sharply again (Sensex rose nearly 19% in the past three weeks) and the general sense that a correction may be lurking around … we may see money continuing to chase defensives,” said a fund manager at a small fund house.

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SMC – Name That Inspires Trust :)

If you find yourself asking the question –

Why should I Save ?

Why should I Invest ?

Where do I Invest ?

Who would Guide me to take informed decision on my Investments ?

…then look no further !

SMC Global, a leading Financial services provider in India, a vertically integrated investment solutions company, with a pan-india presence is there to guide you and provide complete investment solutions to you.

Currently, SMC has a highly efficient workforce of over 4,000 employees & one of the largest retail network in India currently serving the financial needs of more than 5,50,000 satisfied investors.

WEB :

http://www.smcindiaonline.com

http://www.facebook.com/pages/SMC-GLOBAL-INVESTMENT-SOLUTION/104149467952?ref=nf

http://www.facebook.com/group.php?gid=90885076779&ref=ts

http://smcinvestment.wordpress.com

http://smcinvestmentsolutionindia.ning.com


PE funds prefer minority stake in Indian firms, finds report

Private equity (PE) companies in India prefer to pick up minority stakes in companies rather than majority ones, a Tuesday report from New Delhi-based investment bank SMC Capitals Ltd said.

Private Equity

Between calendar 2005 and the first half of calendar 2009, the total value of PE deals was $41.91 billion (Rs2 trillion at Tuesday’s rates) but only $2.52 billion (Rs0.12 trillion), or 6%, of those were controlling stake transactions, the report said.

The largest controlling stake transactions were the $900 million investment, worth an 85% stake, by Kohlberg Kravis Roberts and Co. (KKR) in Flextronics Software Systems in 2006 and the $200 million investment worth an 80% stake by the Blackstone group in Intelenet Global Services Pvt. Ltd in 2007. The report said that the trend could likely be because Indian promoters are emotionally attached to their firms.

“India’s corporate world is driven by family-run business and not CEO-run business. The major decisions are taken by the promoters and not CEOs.” said Jagannadham Thunuguntla, equity head at SMC Capitals, and the author of the report.

Vikram Utamsingh, head of private equity KPMG India Pvt. Ltd, said that in India “If a promoter relinquishes stake in his business it is seen as a stigma that you cannot manage your own business and hence have to relinquish it”. “There are many enterprises in India which are family-run, where the fourth or fifth generation is managing the company. The market is not ready yet to do enough controlling stake transactions,” said Mahesh Chhabria, partner 3i India Pvt. Ltd.

However, both said that there was no dearth of good managerial talent.

Merchant bankers expect only two PSU public issues

Merchant bankers expect only two PSU public issues

Merchant bankers believe that not more than two public sector IPOs are likely to happen this year, notwithstanding the Finance Minister’s statement indicating that disinvestment is still top on the Government’s agenda.

National Hydroelectric Power Corporation (NHPC) and Oil India are the two PSU companies which merchant bankers think will hit the markets with their IPOs.

“NHPC and Oil India are the most likely companies to come out with IPOs this year and you might see minority stake sales in PSU banks as well. The Government will divest slowly and there will not be many big bangs IPOs,” said Mr Saurabh Mukherjea, Head of Indian Equities at Noble Group.

NHPC and Oil India will raise close to Rs 3,000 crore through their issues.

The Finance Minister even issued a list of companies proposed for disinvestment. In 2009-10, the Government proposes to disinvest a small portion of equity in Rail India Technical and Economic Services Ltd, Cochin Shipyard, Telecommunications Consultants India Ltd, Manganese Core India Ltd, Rashtriya Ispat Nigam Ltd and Satluj Jal Vidyut Nigam Ltd.

But investment bankers said they expected disinvestment to happen only in those companies which are more profitable.

The validity periods of the DRHPs filed with SEBI of both NHPC and Oil India expire in September this year, said Mr Jagannadham Thunuguntla, Equity Head at SMC Capitals.

He added that the Government will look at selling its stake in only a few companies, which will also garner most funds rather than sell small stakes in several PSUs.

“The Government may not be as aggressive as the market would wish it to be,” he said.

Revival

Investment bankers said that the signs are pointing towards a revival of the IPO market and that even two PSU divestments would pave the way for this. “PSUs hold the key to the revival of the primary market and the outcome of these IPOs is very critical,” said Mr Thunuguntla.

“Once the Adani Power (private sector) and NHPC IPOs go through we will get a clearer picture of things to come,” said Mr Mukherjea.

Mr Rangari said most PSUs were under-valued and that their IPOs usually enjoy good response from the investors. He said that his company has gota few mandates and has one issue a month lined up for the next four months. They are small issues whose total size is between Rs 100 crore and Rs 150 crore each.

Tax relief likely to boost commodity trading

Growth in commodity trading over equity trading has been evident in recent years. Some market observers said removing tax on commodities trading, while retaining tax on securities transactions, may accelerate growth.

Tax

Jagannadham Thunuguntla, equity head of SMC Capital, said the Budget proposal could turn the focus of traders and arbitrageurs to commodities from equities. This may push up share of trading volumes significantly in commodities.

Trading Share

In 2007, the share of equities in the overall financial market transactions was 82 per cent and that of commodities was 18 per cent.

This year the share of equities market has reached 63 per cent, but the share of commodities has shot up to 37 per cent.

Ajit Day, who owns equity brokerage and commodity trading outfits, said the impact of removal of commodity transaction tax will be minimal as the rate of tax was much lower than that in the equities market.

“Commodities’ derivatives market is still in its formative stage and dominated by speculative transactions. The linkages between spot market and derivatives commodity market are thin; there are many regulatory issues to be resolved too. So the growth of the two markets is strictly not comparable,” he added.

Monthly income funds back with a bang, payouts grow

Income

The turnaround in the capital market since early March has come as a boon for monthly income plans (MIPs) of mutual funds. Buoyed by rising indices and consequent improvement of their net asset values (NAV), MIPs have resumed giving healthy dividend.

MIPs are hybrid products that invest a portion of the portfolio in equities that could go up to 25 per cent and the rest in debt and money market instruments. An MIP pays dividend at regular intervals. Based on the choice of the investor, this interval could be monthly, quarterly or half-yearly.
Dividend payment by MIPs had taken a heavy beating towards the end of 2008 and the first couple of months of this year. This happened due to the slump in the capital market, which was impacted heavily by the domestic economic slowdown and the global financial crisis.

In the past three months, MIPs have given as high as 5.9 per cent monthly dividends (that is, 5.9 per cent of the face value of total number of units held by an investor). On a quarterly basis, the dividend has been as high as 13 per cent.
Mutual Fund

Franklin Templeton India MIP Bonus Fund, that gave a dividend of 0.96 per cent in February, distributed 4.5 per cent dividend at the end of April and 5.90 per cent in the beginning of June. Similarly, DSP Black Rock (DSPBR) Savings Ma-nager Moderate paid a dividend of 0.36 per cent in March, which rose to 1.70 per cent in April and 3.15 per cent in May. Reliance Mutual Fund paid 0.53 per cent dividend under its monthly income plan in January and increased it to 1.75 per cent in April and 2.24 per cent in June.

The quarterly payments of dividend under MIPs have also seen significant increase between March and June quarters. In the quarter ended March, Reliance MIP paid a dividend of just 0.70 per cent, which jumped to 13.31 per cent in June. In case of DSPBR Savings Manager Consv-DQ, the March quarter dividend was a meagre 0.79 per cent, which rose to 2.63 per cent in the quarter ending June. ICICI Prudential MIP paid a dividend of 0.88 per cent in the March quarter compared with 2.16 per cent in June.

Experts say though the equity investment of most MIPs is not more than 25 per cent, the kind of jump that the stock market has seen in the past three months is enough to generate good distributable earnings for these funds.
Alok Singh, head (equity and structured products) of Fortis Mutual Fund, said a fund normally distributes dividend when its earnings increase. “The recent market rally has resulted in decent growth of NAVs of these funds,” he added.
In the past three months, the average returns given by monthly income funds has been 7.69 per cent with the highest category return being 17 per cent. Jagannadham Thunuguntla, equity head of SMC Capitals, said mutual funds must pay good dividends to make schemes more attractive for investors as equity market conditions are improving.

In 2008, when the equity market was in the doldrums and mutual funds were facing a severe liquidity crisis, most MIPs failed to pay regular dividends to investors. The percentage of dividend paid has seen a growth since April, though all mutual funds have given regular monthly dividends.

Source: http://www.mydigitalfc.com/news/monthly-income-funds-back-bang-payouts-grow-418