Posts Tagged ‘investments’

INDIAN ECONOMY – GAINING STRENGTH Final Part :0

Thank you friends for viewing the first part. Now i am posting the final part here enjoy:)

4.Fresh Investments – Infrastructure being one of the key thrust areas on government agenda would continue to see large investments coming in going ahead. Even the corporate are expected to continue with the capacity additions in the light of huge anticipated demand.

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After the sharpest decline in more than 70 years, world trade is set to rebound in 2010 by growing at 9.5%, according to WTO. Exports from developed economies are expected to increase by 7.5% in volume terms over the course of the year while shipments from the rest of the world (including developing economies and the Commonwealth of independent States) should rise by around 11% as the world emerges from recession. This strong expansion will help recover some, but by no means all, of the ground lost in 2009 when the global economic crisis sparked a 12.2% contraction in the volume of global trade – the largest such decline since world war II . Should trade continue to expand at its current pace, the economists predict, it would not take much of the time to surpass the peak level of 2008 in terms of the volume growth.

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Coming back to India front, the continued demand revival in major markets such as the US and European Union, led exports to remain in the positive territory for the fourth consecutive month with shipments in February growing by 34.8% to $16.09 billion from $11.94 billion during February 2009. India’s Imports too saw a growth of 66.4% to $25.05 billion from $15.06 billion in the corresponding period. Cumulative value of imports for the period April, 2009- February, 2010 showed a degrowth of 13.5% to $248.04 billion from $287.09 billion in the corresponding period as a result of both lower international crude oil prices and slowdown in domestic economic activity.

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India’s two-way trade (merchandize exports plus imports), as proportion of GDP is close to 35%. Now, with the expected improvement in the global trade it would further give a fillip to the economic growth.

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The services sector contributes around 65% to GDP. The lead indicators of service sector activity show that, services such as tourist arrivals, cargo handled by seaports and airports, and passengers handled by international terminals which are dependent on external demand are showing recovery with the improvement in global climate. However, services dependent on domestic demand have exhibited a robust and steady growth during 2009-2010, so far.

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In sum, the expected normal monsoon, buoyancy in industrial production & services suggests continuation of growth momentum. With the fiscal deficit being addressed by the government with large focus on infrastructure spending, improvement in corporate sentiments with respect to capital spending & RBI taking steps to withdraw monetary accommodations in a calibrated way is expected to take economic growth back to 9% levels.

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Stay tuned for more update like this :)

Global M&A Deals to Fall 56% in 2009: OECD

Global mergers and acquisitions (M&A) are projected to decline 56% in 2009 compared to last year due to sharp declines in such activities in rich and emerging markets including India.

However, the Organization for Economic Cooperation and Development (OECD) stated that the expected decline in M&A activities this year would be the largest year-on-year decline since 1995.

Meanwhile, the estimate is based on an OECD analysis of data for international M&A activities up to November 26, 2009 where the projected decline is primarily due to a 60% fall in value of cross-border M&A by firms based in the OECD area, to just $454 billion in 2009 from over $1 trillion last year.

Moreover, there has been a decline in M&A activities into and from major emerging economies while International M&A activity by firms based in Brazil, China, India, Indonesia, Russia, and South Africa fell by 62% to $46 billion in 2009 from $121 billion in 2008.

Additionally, it is said that such activities into these countries is anticipated to slide by almost 40% to little over $80 billion in 2009 from just under $140 billion last year while M&A investments have been severely hit by the financial turmoil, which has resulted in tight credit flow.

On the other hand, the latest international investment estimates suggest that total foreign direct investment into the 30 OECD countries will fall to $600 billion in 2009 from a 2008 total of $1.02 trillion.

India’s Investment in the US Bonds Stands Lowest Among BRIC Nations

India's Investment in US Bonds Stands Least Among BRIC Nations


India
stands least exposed among the other BRIC nations with respect to their respective foreign exchange reserves.

This is in addition to the recent development where it got evident that India has reduced its investments in US Treasury bonds between May and September.

🙂


India’s investment in the US bonds stands at $35.90 billion as per the latest data released by the US Department of Treasury on November 17, as on September 30.

However, India’s investment in the US bonds is the lowest among all BRIC nations.

China’s investment in the bonds remained the highest at $798.9 billion.

Brazil’s exposure was $144.90 billion, followed by Russia at $121.80 billion.

🙂


In terms of percentage of exposures to the US bonds to each of these economy’s total foreign exchange reserves also, India was the lowest.

India’s exposure to US bonds was 12.81 per cent of its forex reserves of $280.34 billion in September compared with

64.63 per cent of Brazil, 35.15 per cent of China, and 29.46 per cent of Russia.

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India’s forex reserves and US bond investments ratio improved during the period between May and September this year as its forex reserves went up.

In May, the ratio was 14.79 per cent on the forex reserves of $262.31 billion.

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Mr Jagannadham Thunuguntla of SMC Capital said: “With less exposure to US treasury bonds, India stands least vulnerable to US dollar depreciation in comparison to its BRIC peers”.

The current trend showed that though China and Russia too reduced their vulnerability ratio during May-September, Brazil increased it, Mr Thunuguntla said.


Brazil has forex reserves worth $224 billion, while Russia has $413.45 billion.

China has $2,272 billion foreign exchange reserves.

🙂

PORTFOLIO REBALANCING TO STAY ON TRACK

Portfolio re balancing is the process of bringing the different asset classes back into appropriate proportion following a significant change in one or more.
PORTFOLIO REBALANCING TO STAY ON TRACK
Over the time, as different asset classes produce different returns, the portfolio’s asset allocation changes. To recapture the portfolio’s original risk and return characteristics, the portfolio must be rebalanced to its original asset allocation.

The primary purpose of rebalancing is to maintain a consistent risk profile. Periodic rebalancing will help to avoid counterproductive temptations in the market.

For example, in this seemingly falling market, rather than an investor

Tempted to follow the crowd, who are busy dumping popular stocks; the imbalance created by erosion of the equity component can be used to book profits on debt portion and buy into equities to bring back the allocation to the original ratio.

The balancing act

To get the entire asset classes back to their original allocation percentages would entail the following:

·Selling part of the equities and investing the proceeds into debt and cash and vis-a-versa.

·Putting in fresh one-time investments into debt and cash to raise the allocation in the portfolio.

·Start a systematic investment plan skewed towards debt and cash.

Rebalancing controls risk

The investments in a portfolio will perform according to the market. As time goes on, a portfolio’s current asset allocation can move away from an investor’s original target asset allocation.

If left un-adjusted, the portfolio could either become too risky, or too conservative.

The goal of rebalancing is to move the current asset allocation back in line to the originally planned asset allocation.

How often should one rebalance?

Though the frequency is entirely dependent on the investor, the portfolio size as well as market conditions will impact the overall returns’ expectation of the portfolio.

The main idea is that the periodic interval between successive rebalancing acts should be constant.

Some of the other factors affecting the rebalancing are:

Cost of transactions

If one decides to rebalance the portfolio once in six months, he needs to factor in short term capital gains, brokerages and entry exit loads. Hence, it is advisable to rebalance annually the long term portfolios and rebalance semi annually for the short term portfolios.

Volatility

High return volatility increases the fluctuation of the asset class weights around the target allocation and increases the risk of significant deviation from the target.

Greater volatility implies a greater need to rebalance. In the presence of time-varying volatility, rebalancing occurs more often when volatility rises.

Investors can also employ another trigger for asset rebalancing. They can decide to rebalance their portfolio, not according to time, but rather only when any asset class changes in allocation due to market movements, over a certain percentage.

Conclusion

Portfolio rebalancing is an important part of sticking to your game plan. You should look at your portfolio at least quarterly in terms of rebalancing and more frequently if you have had a significant gain or loss in any asset class.

At last asset rebalancing is a very important exercise for any disciplined investor who wishes to approach their investing in a systematic manner, while realizing their financial goals that they have set out to achieve.

Portfolio rebalancing is the process of bringing the different asset classes back into appropriate proportion following a significant change in one or more. Over the time, as different asset classes produce different returns, the portfolio’s asset allocation changes.

To recapture the portfolio’s original risk and return characteristics, the portfolio must be rebalanced to its original asset allocation.

The primary purpose of rebalancing is to maintain a consistent risk profile. Periodic rebalancing will help to avoid counterproductive temptations in the market. For example, in this seemingly falling market, rather than an investor tempted to follow the crowd, who are busy dumping popular stocks, the imbalance created by erosion of the equity component can be used to book profits on debt portion and buy into equities to bring back the allocation to the original ratio.

Bear and Bull Part 2

Hello Friends,

Just an extension of our previous blog ” Bear and Bull Part 1″.

Both bull and bear markets are inevitable

Both bull and bear markets are inevitable

In this Blog we would touch upon if bull and bear markets are inevitable and what are the basics investors should keep in mind while trading in bear and bull market 🙂

Both bull and bear markets are inevitable!

Smart investors try to anticipate both events to profit from their eventuality.

Bear markets are generally shorter in duration than bull markets.

To avoid being hurt by bear markets you must recognize the signs early and move part of your assets into cash equivalent investments.

It is recommendable that one should invest for the long term. Don’t let the bears get you down!

The same thing is true of bears – don’t panic and sell low.

Let the bear market run its course, which history tells us is likely to be short.

On the other hand, a bull market can leave many investors feeling pretty good about their ability to prosper.

Their confidence bolstered by the good times.

Some even find themselves swept up in “Bull Market Myopia” and forget the basic tenets of smart investing, like asset allocation and portfolio diversification.

Holding good stocks through bull and bear markets is a prudent strategy.

🙂

However, many investors feel that they do not want to be in the market during a bear market. It is difficult to predict when to move in and out of the market.

When a bear market ends, a strong upward move can occur in a short time.

If you are not in the market you will miss the move. The probability that your timing will be wrong is very high.

Unlike slow-starting bull markets, bear markets may start with a mini-crash – a major drop within a few days when investors least expect it.

Many investors are afraid to get out of a bull market for fear of missing “big profits” at the top of the market.

This is a recipe for disaster!

It is also known as greed!

As a bull market continues to increase, investors should start to decrease their stock holdings and move them into cash or money markets accounts.

Now, besides bulls and bears there are two other animals in our zoo to keep watch for!

Ostriches:

Are investors who stick to their old strategies, oblivious to changes in the world around them.

And then there are the Hogs.

Bulls can make money. Bears can make money.

But Hogs are investors who are too greedy and usually get slaughtered!

🙂

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Interest Rate Futures Section – Final Part :)

Interest Rate Futures Section Final Part

Interest Rate Futures Section Final Part

Hello Friends, we are here with the Final Part of our Interest Rate Futures educational section.
We would touch upon the benefits of the Interest Rate Futures and the future scenario related to it.

Here we go :

Key benefits of Interest Rate Futures:

Directional trading

As there is an inverse relationship between interest rate movement and underlying bond prices, so if one has strong view that the interest rates will rise in near future then he can take short position in IRF contracts and can be benefited from the falling futures bond prices.

Hedging portfolio

The holders of the GOI securities are exposed to risk of rising interest rates which in turn results in the reduction in the value of the portfolio.

So in order to protect against a fall in the value of the portfolio they can take short position in IRF.

Calendar spread trading

This spread is also known as an inter-delivery spread.

It is the simultaneous purchase of one delivery month of a given futures contract and the sale of another delivery month of the same underlying on the same exchange.

For example:

Buying a September 09 and simultaneously selling a December 09 contract.
A market participant can profit as the price difference between the two contracts widens.

The either case can also be possible.

Reduce the duration of portfolio:

Bonds with longer maturities are more sensitive to interest rate changes, and bond portfolio with longer duration will be more exposed to the vulnerability of the movement in interest rate.

So portfolio manager who is concerned about the rise in the short term interest rate risk would like to reduce the duration of the portfolio.

By entering into the IRF contract to NSE, the portfolio manager can reduce duration of the portfolio.

Arbitraging between cash and futures market:

Arbitrage is the price difference between the bond prices in underlying bond market and IRF contract without any view about the interest rate movement.

One can earn the risk-less profit from realizing arbitrage opportunity and entering into the IRF contract traded on NSE by initiating cash and carry trade.

Responses After launch:

After the launch of currency futures in August 2008, Interest-rate futures are the first major product to be introduced in India.

The interest rate futures began on August 31,2009 clocking trading volumes of Rs 276 crore in their first day of trade.

Market participants responded passionately to the product launch on the first day.

In around five hours of trading time available after inauguration, 1,475 trades were recorded resulting in 14,559 contracts being traded at a total value of Rs 267.31 crore.

In the beginning only two quarters has been introduced out of four, among which December 2009 was the most active with 13,789 contracts which has been traded actively.

There are nearly 638 members registered for this new product, out of which 21 are banks and there contribution to the total gross volume was 32.48 percent.

Future scenario:

BSE had received regulatory approval for interest rates futures and would launch in 8-10 weeks.

The Multi Commodity Exchange’s foreign exchange derivatives bourse has sought permission to launch trade in interest rate futures.

🙂

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INTEREST RATE FUTURES – Part 2

Hello Friends, just an extension of our previous blog on interest rates futures where we touched upon the topic of interest rates future and what is it exactly.

Now we would understand that why is there need for interst rate futures and many more related aspects in this regard.

Here we go :

Why Interest rate futures?

Why Interest rate futures?

Why Interest rate futures?

The risk associated with the interest rate is uncertain and it never has been constant in the past, infact it would not remain constant in future also.

The volatility of interest rates has increased manifold in the last couple of years and recorded 17.40% in 2008 as compared to 8.51% in 2007.

This high fluctuation in volatility increases risk and requires tools to manage those risks.

Interest rate futures are the product for managing such interest rate risk.

🙂

Backbone of Interest Rate Future:

NSE, India’s largest stock exchange, began interest rate futures and offers the same reliable features as it provide to its other products with the following advantages:

Standardization and flexibility

•Price transparency and liquidity

•Leverage effect due to a wider collateral management

•Advance trading software and technological edge

•Centralized clearing supported by guaranteed settlement

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Who can be a part of it?

The major market participants of interest rate futures are

•Banks and Primary Dealers

• Mutual Funds and Insurance Companies

• Corporate Houses and Financial Institutions,

•FIIs and NRIs

• Member Brokers and Retail Investors.

In Final part of this topic (which we would cover in our next blog), we would throw light on the benefits of the Interest Rate Futures and the future scenario related to Interest rate futures.

🙂

Stay Tuned 😉

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